SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1998.
Commission file number 1-9583
MBIA INC.
(Exact name of registrant as specified in its charter)
Connecticut 06-1185706
(State of Incorporation) (I.R.S. Employer Identification No.)
113 King Street, Armonk, New York 10504
(Address of principal executive offices) (Zip Code)
(914) 273-4545
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock, par value $1 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No __.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 25, 1999 was $ 5,885,163,919.00
As of March 25, 1999, 99,748,541 shares of Common Stock, par value $1 per
share, were outstanding.
Documents incorporated by reference. Portions of Registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1998 are incorporated by
reference into Parts I and II. Portions of the Definitive Proxy Statement of the
Registrant, dated March 29, 1999 are incorporated by reference into Parts I and
III.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (SS 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
<PAGE>
PART I
Item 1. Business
MBIA Inc. (the "Company") is engaged in providing financial guarantee
insurance and investment management and financial and consulting services to
public finance clients and financial institutions on a global basis. Financial
guarantees for municipal bonds, asset-backed and mortgage-backed securities,
investor-owned utility bonds, and debt of high-quality financial institutions,
both in the new issue and secondary markets, are provided through the Company's
wholly-owned subsidiary, MBIA Insurance Corporation ("MBIA Corp."). MBIA Corp.
is the successor to the business of the Municipal Bond Insurance Association
(the "Association") which began writing financial guarantees for municipal bonds
in 1974.
In 1989, the Company purchased Bond Investors Guaranty Insurance Company
("BIG Ins."), another municipal bond insurance company. MBIA Corp. reinsured the
net exposure on the municipal bond insurance policies previously issued by BIG
Ins. (See "Business-Reinsurance" below) and changed the name of BIG Ins. to MBIA
Insurance Corp. of Illinois ("MBIA Illinois").
In 1990, the Company formed a French company, MBIA Assurance S.A.
("MBIA Assurance"), to write financial guarantee insurance in the countries of
the international community. MBIA Assurance, which is a wholly-owned subsidiary
of MBIA Corp., writes policies insuring sovereign risk, public infrastructure
financings, asset-backed transactions and certain obligations of corporations
and financial institutions. In September 1995, MBIA Corp. entered into a joint
venture agreement with Ambac Assurance Corporation for the purpose of jointly
marketing financial guarantee insurance outside the United States.
In February, 1998, the Company acquired CapMAC Holdings Inc. ("Holdings"),
in a stock-for-stock merger. Holdings, through its wholly-owned subsidiary
Capital Markets Assurance Corporation ("CapMAC"), insures structured
asset-backed, corporate, municipal and other financial obligations in the U.S.
and international capital markets. CapMAC also provides financial guarantee
reinsurance for structured asset-backed, corporate, municipal and other
financial obligations written by other major insurance companies. Generally,
throughout the text references to MBIA Corp. include the activities of its
subsidiaries, MBIA Illinois, MBIA Assurance and CapMAC.
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.'s substantial capital base permits it to support a large
portfolio of insured obligations and to write new business. MBIA Corp. primarily
insures obligations which are sold in the new issue and secondary markets, or
which are held in unit investment trusts ("UIT") 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 savings 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. 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 legislative or regulatory changes might not adversely affect
the results of operations and financial conditions of the Company.
The Association was the first issuer of financial guarantees to receive
both the AAA claims-paying rating from Standard and Poor's Corporation ("S&P"),
which it received in 1974, and the Aaa claims-paying rating from Moody's
Investors Service, Inc. ("Moody's"), which it received in 1984. Both rating
agencies have continuously issued Triple-A claims-paying ratings for MBIA Corp.
and Triple-A ratings to obligations guaranteed by MBIA Corp. Both rating
agencies have also continued the Triple-A rating on MBIA Illinois and CapMAC
guaranteed bond issues. In addition, in 1995 MBIA Corp. received a Triple-A
claims-paying rating from Fitch IBCA, Inc. ("Fitch").
The Company also provides investment management products and financial and
consulting services through a group of subsidiary companies. These services
include cash management, municipal investment agreements, discretionary asset
management, purchase and administrative services, tax discovery and compliance,
tax audit, analysis and information services and bond administration services.
MBIA Municipal Investors Service Corporation ("MBIA-MISC") provides cash
management services and investment placement services to local governments and
school districts, and provides those clients with fund administration services
In 1996, MBIA-MISC acquired American Money Management Associates, Inc. ("AMMA")
which offers investment and treasury management consulting services to municipal
and quasi-municipal clients.
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In 1997, MBIA MuniServices Company ("MuniServices"), formed to provide bond
administration, revenue enhancement and other services to state and local
governments, acquired (i) the Municipal Tax Bureau entities ("MTB"), which
provide tax revenue compliance and collection services to the public sector and
(ii) MBIA MuniFinancial to provide debt administration services to
municipalities. Early in 1998, MuniServices acquired Municipal Resource
Consultants which specializes in providing revenue enhancement and information
services to municipalities. In 1996, MuniServices acquired an equity interest in
Capital Asset Holdings, which purchases and services delinquent taxes for
municipalities. In 1998, the Company increased its ownership in Capital Asset
Holdings to 86% in order to control the future of that entity.
MBIA Investment Management Corp. ("IMC") offers guaranteed investment
agreements primarily for bond proceeds to states and municipalities. MBIA
Capital Management Corp. ("CMC") performs investment management services for the
Company, MBIA-MISC, IMC and selected external clients. In July of 1998, the
Company merged with 1838 Investment Advisors, Inc. a provider of asset
management services.
Additionally in 1997, the Company formed MBIA & Associates Consulting, Inc.
to provide strategic financial planning and management consulting to state and
local governments, colleges and universities, and international entities.
Through the acquisition of CapMAC, the Company is also providing advisory
services to specialty finance companies, making equity investments in those
companies, and creating synthetic investment products.
MBIA Corp. Insured Portfolio
At December 31, 1998, the net par amount outstanding on MBIA Corp.'s
insured obligations (including insured obligations of MBIA Illinois, MBIA
Assurance and CapMAC but excluding the guarantee of $3.5 billion of obligations
of IMC (see "Operations-Miscellaneous")) was $359.5 billion, comprised of $316.9
billion in new issues and $42.6 billion in secondary market issues. Net
insurance in force was $595.9 billion.
MBIA Corp. guarantees to the holder of the underlying obligation the timely
payment of the principal of and interest on such obligation in accordance with
its original payment schedule. Accordingly, in the case of a default on an
insured obligation, payments under the insurance policy cannot be accelerated by
the holder. MBIA Corp. will be required to pay principal and interest only as
originally scheduled payments come due.
MBIA Corp. seeks to maintain a diversified insured portfolio designed to
spread risk based on a variety of criteria including revenue source, issue size,
type of bond and geographic area. As of December 31, 1998, MBIA Corp. had 34,566
policies outstanding. These policies are diversified among 9,276 "credits,"
which MBIA Corp. defines as any group of issues supported by the same revenue
source.
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The table below sets forth information with respect to the original par
amount written per issue in MBIA Corp.'s portfolio as of December 31, 1998:
MBIA Corp. Original Par Amount Per Issue
as of December 31, 1998 (1)
<TABLE>
<CAPTION>
% of Total
Number of Number of Net Par % of Net
Original Par Amount Issues Issues Amount Par Amount
Written Per Issue Outstanding Outstanding Outstanding Outstanding
(In billions)
<S> <C> <C> <C> <C>
Less than $10 million 27,526 79.6% $ 46.7 13.0%
$10-25 million 3,063 8.9 40.0 11.1
$25-50 million 1,744 5.1 47.3 13.2
$50-100 million 1,157 3.3 58.7 16.3
Greater than $100 million 1,076 3.1 166.8 46.4
------ ------ ------ ------
Total 34,566 100.0% $359.5 100.0%
====== ====== ====== ======
</TABLE>
- ----------
(1) Excludes IMC's $3.5 billion relating to municipal investment agreements
guaranteed by MBIA Corp.
MBIA Corp. underwrites financial guarantee insurance on the assumption that
the insurance will remain in force until maturity of the insured obligations.
MBIA Corp. estimates that the average life (as opposed to the stated maturity)
of its insurance policies in force at December 31, 1998 was 11.0 years. The
average life was determined by applying a weighted average calculation, using
the remaining years to maturity of each insured obligation, and weighting them
on the basis of the remaining debt service insured. No assumptions were made for
any future refundings of insured issues. Average annual debt service on the
portfolio at December 31, 1998 was $38.5 billion.
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The table below shows the diversification of MBIA Corp.'s insured
portfolio by bond type:
MBIA Corp. Insured Portfolio by Bond Type
as of December 31, 1998 (1)
(In billions)
Bond Type
Number Net Par % of Net
Of Issues Amount Par Amount
Domestic Outstanding Outstanding Outstanding
Municipal
General obligation 12,694 $ 83.6 23.2%
Utilities 4,895 45.0 12.5
Health care 2,241 38.5 10.7
Transportation 1,543 23.7 6.6
Special Revenue 1,787 23.4 6.5
Higher Education 1,498 14.8 4.1
Housing 2,161 10.7 3.0
ID & PCR 1,037 7.8 2.2
Other 75 3.3 0.9
------ ------ ------
Total Municipal 27,931 250.8 69.7
------ ------ ------
Structured Finance* 850 80.8 22.5
Other 5,462 10.8 3.0
------ ------ ------
Total Domestic 34,243 342.4 95.2
------ ------ ------
International
Infrastructure 114 3.4 1.0
Structured Finance* 102 11.7 3.2
Other 107 2.0 0.6
------ ------ ------
Total International 323 17.1 4.8
------ ------ ------
Total 34,566 $359.5 100.0%
====== ====== ======
* Asset/mortgage-backed
- ----------
(1) Excludes IMC's $3.5 billion relating to municipal investment agreements
guaranteed by MBIA Corp.
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As of December 31, 1998, of the $359.5 billion outstanding net par amount
of obligations insured, $250.8 billion, or 70%, consisted of municipal bonds,
$91.6 billion, or approximately 25%, consisted primarily of
asset/mortgage-backed transactions and investor-owned utility obligations and
$17.1 billion or approximately 5% consisted of transactions done in the
international market.
The table below shows the diversification by type of insurance written by
MBIA Corp. in each of the last five years:
MBIA Corp. Net Par Amount by Bond Type (1)
Bond Type 1994 1995 1996 1997 1998
(In millions)
Domestic
Municipal
General obligation $11,165 $10,226 $13,036 $13,798 $15,424
Health care 3,695 2,913 4,310 7,414 8,174
Utilities 4,880 5,098 6,749 6,877 6,458
Special Revenue 1,896 1,952 3,787 3,110 6,374
Higher Education 1,346 1,312 2,132 2,517 4,217
Transportation 1,767 2,624 3,153 6,059 4,175
Housing 886 1,962 1,802 1,791 2,093
Other 600 1,240 401 1,301 1,077
Industrial Development &
Pollution Control Revenue 1,486 1,155 693 781 237
------- ------- ------- ------- -------
Total Municipal 27,721 28,482 36,063 43,648 48,229
------- ------- ------- ------- -------
Structured Finance* 10,135 14,053 24,451 32,563 35,781
Other 1,782 1,562 4,740 4,438 3,525
------- ------- ------- ------- -------
Total Domestic $39,638 $44,097 $65,254 $80,649 $87,535
------- ------- ------- ------- -------
International
Structured Finance* 1,470 7,003 4,039 2,586 6,267
Infrastructure 262 626 839 1,080 778
Other 1,055 884 1,341 1,209 701
------- ------- ------- ------- -------
Total International 2,787 8,513 6,219 4,875 7,746
------- ------- ------- ------- -------
Total $42,425 $52,610 $71,473 $85,524 $95,281
======= ======= ======= ======= =======
* Asset/mortgage-backed
- ----------
(1) Par amount insured by year, net of reinsurance.
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MBIA Corp. is licensed to write business in all 50 states, the District of
Columbia, Guam, the Northern Mariana Islands, the U.S. Virgin Islands, Puerto
Rico, the Kingdom of Spain and the Republic of France. MBIA Assurance is
licensed to write business in France. The following table sets forth by
geographic location the areas in which MBIA Corp. has at least 2% of its total
net par amount outstanding:
MBIA Corp. Insured Portfolio By State
as of December 31, 1998 (1)
Number of Net Par % of Net
Issues Amount Par Amount
Outstanding Outstanding Outstanding
State (In billions)
California 3,681 $ 40.3 11.2%
New York 5,310 38.3 10.7
Florida 1,589 19.8 5.5
Pennsylvania 2,278 14.0 3.9
New Jersey 1,884 13.5 3.8
Texas 2,131 13.5 3.8
Illinois 1,275 12.8 3.5
Massachusetts 1,107 10.1 2.8
Ohio 1,076 8.1 2.2
Michigan 1,066 8.0 2.2
------ ------ -----
Sub-Total 21,397 178.4 49.6
All Other States 12,004 96.0 26.7
Nationally Diversified 842 68.0 18.9
------ ------ -----
Total United States 34,243 342.4 95.2
International 323 17.1 4.8
------ ------ -----
Total 34,566 $359.5 100.0%
====== ====== =====
- ---------
(1) Excludes IMC's $3.5 billion relating to municipal investment agreements
guaranteed by MBIA Corp.
MBIA Corp. has underwriting guidelines that limit the net insurance in
force for any one insured credit. MBIA Corp. has not exceeded any applicable
regulatory single-risk limit with respect to any bond issue insured by it. As of
December 31, 1998, MBIA Corp.'s net par amount outstanding for its ten largest
insured municipal credits totaled $15.1 billion, representing 4.2% of MBIA
Corp.'s total net par amount outstanding, and for its ten largest structured
finance credits, the net par outstanding was $16.2 billion, or 4.5% of the
total.
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MBIA Corp. Insurance Programs
MBIA Corp. offers financial guarantee insurance in both the new issue and
secondary markets. At present, no new financial guarantee insurance is being
offered by MBIA Illinois or CapMAC, but it is possible that either of those
entities may insure transactions in the future. MBIA Corp. and MBIA Assurance
offer financial guarantee insurance in Europe and other areas outside the United
States.
Transactions in the new issue market are sold either through negotiated
offerings or competitive bidding. In the first case, either the issuer or the
underwriter purchases the insurance policy directly from MBIA Corp. On
competitive bid issues, the insurance is offered as an option to the
underwriters bidding on the transaction. The successful bidder would then have
the option to purchase the insurance.
In the secondary market, MBIA Corp. provides insurance on whole and partial
maturities in response to requests from bond traders and institutions who trade
in the secondary market. MBIA Corp. also offers insurance to the unit investment
trust market through ongoing arrangements with investment banks and financial
service companies. Each issue in the trust is insured, in some cases until
maturity, in others only while it is held in the trust. Lastly, insurance is
offered in the mutual fund sector through ongoing arrangements with the fund
sponsors. All fund issues are insured on a "while-in-trust" basis, but in some
cases, MBIA Corp. is committed to offer insurance to maturity to the sponsor for
an additional premium.
The following table indicates the percentage of net par outstanding with
respect to each type of insured program:
MBIA Corp. Types of Insured Programs
as of December 31, 1998 (1)
Net Par Amount
Type of Program Outstanding % Of Net Par
(In billions) Amount Outstanding
New Issue $316.9 88.1%
Secondary market issues
Unit investment trusts 9.1 2.5
Mutual funds 0.2 0.1
Other secondary market issues 33.3 9.3
------ -----
Total $359.5 100.0%
====== =====
- ----------
(1) Excludes IMC's $3.5 billion relating to municipal investment agreements
guaranteed by MBIA Corp.
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Operations
The insurance operations of MBIA Corp. are conducted through the Public
Finance Division, the Structured Finance Division, the joint venture with Ambac
(for all international transactions) and the Risk Management Group. The Public
Finance Division has underwriting authority with respect to certain categories
of business up to pre-determined par amounts based on a risk-ranking system. In
order to ensure that the guidelines are followed, Risk Management monitors and
periodically reviews underwriting decisions made by the Public Finance Division.
With respect to larger, complex, or unique transactions, underwriting is
performed by a committee consisting of senior representatives of Public Finance,
Risk Management, Insured Portfolio Management, and the Company's Finance
Department. For all transactions done by the Structured Finance Division or for
international deals, MBIA Corp.'s review and approval procedure has two stages.
The first stage consists of screening, credit review and structuring by the
appropriate business unit, in consultation with Risk Management officers. The
second stage, consisting of the final review and approval of credit and
structure, is performed by a committee consisting of two Risk Management
officers and the head of the applicable business unit. Certain transactions,
based on size, complexity, or other factors, must also be approved by a
division-level committee consisting of senior representatives of Structured
Finance or the joint venture, Risk Management and Insured Portfolio Management.
Premium rates for Public Finance transactions are established by the Market
Research Department and Structured Finance premiums are set by analysts in the
division, in conjunction with the Risk Management Group's quantitative analysis
team. Pricing for international transactions is done by analysts working in the
joint venture, in conjunction with the Market Research Department.
Risk Management
The Risk Management Group is responsible for adherence to MBIA Corp.'s
underwriting guidelines and procedures which are designed to maintain an insured
portfolio with low risk characteristics. MBIA Corp. maintains underwriting
guidelines based on those aspects of credit quality that it deems important for
each category of obligation considered for insurance. For Public Finance and
international infrastructure transactions, these include economic and social
trends, debt management, financial management, adequacy of anticipated cash
flow, satisfactory legal structure and other security provisions, viable tax and
economic bases, adequacy of loss coverage and project feasibility, including a
satisfactory consulting engineer's report, if applicable. For Structured Finance
and international structured finance transactions, MBIA Corp's underwriting
guidelines, analysis and due diligence focus primarily on seller/servicer credit
and operational quality, the quality and historical and projected performance of
the asset pool, and the strength of the structure, including cash flow analysis,
the size and source of first loss protection, and asset performance triggers and
financial covenants. Such guidelines are subject to periodic review by an
interdivisional committee which is responsible for establishing and maintaining
underwriting standards and criteria for all insurance products.
The financial institution and corporate analysis groups within Risk
Management underwrite and monitor (in conjunction with Insured Portfolio
Management) MBIA Corp.'s direct and indirect exposure to financial institutions
and other corporate entities with respect to seller/servicer exposure,
investment contracts, letters of credit and liquidity facilities supporting
MBIA-insured issues, and recommends limits on such exposures. The department
provides in-depth financial analyses of financial institutions for which there
is existing or proposed exposure and gives advice on related contract terms,
transfers of these instruments to new institutions and renewal dates and
procedures.
Insured Portfolio Management:
The Insured Portfolio Management Group is responsible for monitoring
outstanding issues insured by MBIA Corp. This group's first function is to
detect any deterioration in credit quality or changes in the economic or
political environment which could interrupt the timely payment of debt service
on an insured issue. Once a problem is detected, the group then works with the
issuer, trustee, bond counsel, underwriters and other interested parties to deal
with the concern before it develops into a default. The Insured Portfolio
Management Group works closely with Risk Management and New Business Departments
to provide feedback on insured issue performance and credit risk parameters.
Although MBIA Corp. has to date had only eighteen insured issues requiring
claim payments for which it has not been fully reimbursed, there are eight
additional insured issues for which case loss reserves have been established
(see "Losses and Reserves" below). Other potential losses have been avoided
through the early detection of problems and subsequent negotiations with the
issuer and other parties involved. In a limited number of instances, the
solution involved the restructuring of insured issues or underlying security
arrangements. More often, MBIA Corp. utilizes a variety of other techniques to
resolve problems, such as enforcement of covenants, assistance in resolving
management problems and working with the issuer to develop potential political
solutions. Issuers are under no obligation to restructure insured issues or
underlying security arrangements in order to prevent losses. Moreover, MBIA
Corp. is obligated to pay amounts equal to defaulted interest and principal
payments on insured bonds on their
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respective due dates even if the issuer or other parties involved refuse to
restructure or renegotiate the terms of the insured bonds or related security
arrangements. The Company's experience is that early detection and continued
involvement by the Insured Portfolio Management Group are crucial in avoiding or
minimizing claims on insurance policies.
Once an obligation is insured, the issuer and the trustee are typically
required to furnish financial information, including audited financial
statements, annually to the Insured Portfolio Management Group for review.
Potential problems uncovered through this review, such as low operating fund
balances, covenant violations, trustee or servicer problems, tax certiorari
proceedings or excessive litigation, could result in an immediate surveillance
review and an evaluation of possible remedial actions. The Insured Portfolio
Management Group also monitors state finances and budget developments and
evaluates their impact on local issuers.
The Company's computerized credit surveillance system records situations
where follow-up is needed, such as letter of credit renewal, construction status
and the receipt of additional data after the closing of a transaction. At
underwriting, issues are given an internal credit rating. All credits are
monitored according to a frequency of review schedule that is based on risk type
and credit quality. Issues that experience financial difficulties, deteriorating
economic conditions, excessive litigation or covenant violations are placed on
the appropriate review list and are subject to surveillance reviews at intervals
commensurate to the problem which has been detected.
There are four departments in the Insured Portfolio Management Group. The
Public Finance Portfolio Management Department handles the traditional types of
domestic municipal issues such as general obligation, utility, special revenue
and health care bonds. The Structured Finance Portfolio Management Department is
responsible for domestic housing, asset backed and other structured
transactions. The International Portfolio Management Department is responsible
for all international transactions. The Financial Institutions and Corporate
Department monitors direct exposure to financial institutions and corporate
obligors across the entire insured portfolio and provides analytical support to
the other three departments.
The Public Finance Portfolio Management Department reviews and reports on
the major credit quality factors of risks insured by the Company, evaluates the
impact of new developments on insured weaker credits and carries out remedial
activity. In addition, it performs analysis of financial statements and key
operating data on a large scale basis and maintains various databases for
research purposes. It responds to consent and waiver requests and monitors pool
programs. This department is responsible for preparing special reports which
include analyses of regional economic trends, proposed tax limitations, the
impact of employment trends on local economies or legal developments affecting
bond security.
The Structured Finance Portfolio Management Department monitors insured
structured finance programs, focusing on the adequacy of reserve balances and
investment of earnings, the status of mortgage or loan delinquencies and
underlying insurance coverage and the performance of the trustee for insured
issues. Monitoring of issues typically involves review of records and
statements, review of transaction documents with regard to compliance, analysis
of cash flow adequacy and communication with trustees. Review of servicer
performance is also conducted through site visits with management, review of
servicer financial statements, review of servicer reports where available and
contacts with program administrators and trustees. The department also carries
out remedial activity on weaker credits.
The International Portfolio Management Departments monitors insured
international programs. This departments monitors all credit types, including
sovereign, sub-sovereign issuers, single risk and structured finance
transactions. The department applies similar policies and procedures as the
Public Finance and Structured Finance Portfolio Management Departments. The
department is responsible for remedial activities on weaker credits.
Investment Management Services
Over the last eight years, the Company's investment management businesses
have expanded their services to the public sector and added new revenue sources.
MBIA-MISC provides cash management services and fixed-rate investment
placement services directly to local governments and school districts. In
addition, MBIA-MISC performs investment fund administration services for
clients, which provide an additional source of revenue. AMMA provides investment
and treasury management consulting services for municipal and quasi-public
sector clients. Both MBIA-MISC and AMMA are Securities and Exchange Commission
registered investment advisers. MBIA-MISC/AMMA operates in 20 states and the
Commonwealth of Puerto Rico.
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IMC provides customized guaranteed investment agreements and flexible
repurchase agreements for bond proceeds and other public funds. At year-end
1998, principal and accrued interest outstanding on investment agreements was
$3.5 billion compared with $3.2 billion at year-end 1997.
In 1998, the Company merged with 1838 Investment Advisors, Inc. an asset
management firm with over $7.0 billion in equity, fixed income and balanced
portfolios. CMC provides investment management services for IMC's investment
agreements, MBIA-MISC's municipal cash management programs and MBIA Corp.'s
insurance related fixed-income investment portfolios, as well as third-party
accounts. CMC assumed full management for MBIA Corp.'s insurance related
fixed-income investment portfolios in 1996. CMC is also a registered investment
advisor.
Financial and Consulting Services
MuniServices provides various financial, consulting and administrative
services to municipal clients through a network of subsidiaries. MTB offers tax
revenue enhancement, compliance and collection services to public clients.
Municipal Resources Consultants, acquired in early 1998, provides revenue
enhancement and related information services to public sector clients. MBIA
MuniFinancial provides municipalities in California and other neighboring states
with debt administration, disclosure, arbitrage rebate and related services.
Capital Asset acquires delinquent tax liens and services them for the benefit of
municipalities. The Company is continuing to examine its investment in Capital
Asset and it is likely that the Company will sell its interest in that company.
The Company cannot as yet assess the economic impact of that sale although it is
anticipated that it will result in a modest write-off. MBIA & Associates
Consulting, Inc. has begun to provide strategic planning and management
consulting to public sector clients.
Competition
The financial guarantee insurance business is highly competitive. In 1998
MBIA Corp. was the largest insurer of new issue long-term municipal bonds,
accounting for 36% of the par amount of such insured bonds. The other principal
insurers in 1998 were Ambac Assurance Corporation, Financial Guaranty Insurance
Company and Financial Security Assurance Inc., all of which, like MBIA Corp.,
have Aaa and AAA claims-paying ratings from Moody's and S&P, respectively.
According to Asset Sales Report, in 1998 MBIA Corp. was the leading insurer of
new issue asset/mortgage-backed securities. The two principal competitors in
this area in 1998 were Financial Security Assurance and Ambac Assurance
Corporation.
Financial guarantee insurance also competes with other forms of credit
enhancement, including over-collateralization, letters of credit and guarantees
(for example, mortgage guarantees where pools of mortgages secure debt service
payments) provided by banks and other financial institutions, some of which are
governmental agencies or have been assigned the highest credit ratings awarded
by one or more of the major rating agencies. Letters of credit are most often
issued for periods of less than 10 years, although there is no legal restriction
on the issuance of letters of credit having longer terms. Thus, financial
institutions and banks issuing letters of credit compete directly with MBIA
Corp. to guarantee short-term notes and bonds with a maturity of less than 10
years. To the extent that banks providing credit enhancement may begin to issue
letters of credit with commitments longer than 10 years, the competitive
position of financial guarantee insurers, such as MBIA Corp., could be adversely
affected. Letters of credit also are frequently used to assure the liquidity of
a short-term put option for a long-term bond issue. This assurance of liquidity
effectively confers on such issues, for the short term, the credit standing of
the financial institution providing the facility, thereby competing with MBIA
Corp. and other financial guarantee insurers in providing interest cost savings
on such issues. Financial guarantee insurance and other forms of credit
enhancement also compete in nearly all instances with the issuer's alternative
of foregoing credit enhancement and paying a higher interest rate. If the
interest savings from insurance or another form of credit enhancement are not
greater than the cost of such credit enhancement, the issuer will generally
choose to issue bonds without enhancement. MBIA Corp. also competes in the
international market with composite (multi-line) insurers.
There are minimum capital requirements imposed on a financial guarantee
insurer by Moody's and S&P to obtain Triple-A claims-paying ratings. Also, under
a New York law, multi-line insurers are prohibited from writing financial
guarantee insurance in New York State. See "Business-Regulation." However, there
can be no assurance that major multi-line insurers or other financial
institutions will not participate in financial guarantee insurance in the
future, either directly or through monoline subsidiaries.
10
<PAGE>
Reinsurance
State insurance laws and regulations, as well as Moody's and S&P, impose
minimum capital requirements on financial guarantee companies, limiting the
aggregate amount of insurance which may be written and the maximum size of any
single risk exposure which may be assumed. MBIA Corp. increases its capacity to
write new business by using treaty and facultative reinsurance to reduce its
gross liabilities on an aggregate and single risk basis.
From its reorganization in December 1986 through December 1987, MBIA Corp.
reinsured a portion of each policy through quota and surplus share reinsurance
treaties. Each treaty provides reinsurance protection with respect to policies
written by MBIA Corp. during the term of the treaty, for the full term of the
policy. Under its quota share treaty MBIA Corp. ceded a fixed percentage of each
policy insured. Since 1988, MBIA Corp. has entered into only surplus share
treaties under which a variable percentage of risk over a minimum size is ceded,
subject to a maximum percentage specified in the treaty. Reinsurance ceded under
the treaties is for the full term of the underlying policy.
MBIA Corp. also enters into facultative reinsurance arrangements from time
to time primarily in connection with issues which, because of their size,
require additional capacity beyond MBIA Corp.'s retention and treaty limits.
Under these facultative arrangements, portions of MBIA Corp.'s liabilities are
ceded on an issue-by-issue basis. MBIA Corp. utilizes facultative arrangements
as a means of managing its exposure to single issuers to comply with regulatory
and rating agency requirements, as well as internal underwriting and portfolio
management criteria.
As a primary insurer, MBIA Corp. is required to honor its obligations to
its policyholders whether or not its reinsurers perform their obligations to
MBIA Corp. The financial position of all reinsurers is monitored by MBIA Corp.
on a regular basis.
As of December 31, 1998, MBIA Corp. retained approximately 85% of the gross
debt service outstanding of all transactions insured by it, MBIA Assurance and
MBIA Illinois, and ceded approximately 15% to treaty and facultative reinsurers.
The principal reinsurers of MBIA Corp., CapMAC and MBIA Illinois are Capital Re
Management Corporation, Enhance Reinsurance Company, AXA Re Finance, Munich
Reinsurance Corp., and KRE Reinsurance, Ltd. The first four of these reinsurers,
whose claims-paying ability is rated Triple-A by S&P, reinsured approximately
67% of the total ceded insurance in force at December 31, 1998. The other
principal reinsurer is rated AA by S&P. All of the other reinsurers reinsured
approximately 33% of the total ceded insurance in force at December 31, 1998 and
are diversified geographically and by lines of insurance written. MBIA Corp.'s
net retention on the policies it writes varies from time to time depending on
its own business needs and the capacity available in the reinsurance market. The
amounts of reinsurance ceded at December 31, 1998 and 1997 by bond type and by
geographic location are set forth in Note 16 to the Consolidated Financial
Statements of MBIA Inc. and Subsidiaries.
MBIA Corp. and MBIA Assurance have entered into a reinsurance agreement
providing for MBIA Corp.'s reimbursement of the risks of MBIA Assurance and a
net worth maintenance agreement in which MBIA Corp. agrees to maintain the net
worth of MBIA Assurance, to remain its sole shareholder and not to pledge its
shares. Under the reinsurance agreement MBIA Corp. agrees to reimburse MBIA
Assurance on an excess of loss basis for losses incurred in each calendar year
for net retained insurance liability, subject to certain contract limitations.
Under the net worth maintenance agreement, MBIA Corp. agrees to maintain a
minimum capital and surplus position in accordance with French and New York
legal requirements.
In connection with the BIG Ins. acquisition, MBIA Corp. and MBIA Illinois
entered into a reinsurance agreement under which MBIA Corp. agreed to reinsure
100% of all business written by MBIA Illinois, net of cessions by MBIA Illinois
to third party reinsurers, in exchange for MBIA Illinois' transfer of the assets
underlying the related unearned premium and contingency reserves. Pursuant to
such reinsurance agreement with MBIA Illinois, MBIA Corp. reinsured all of the
net exposure of $30.9 billion, or approximately 68% of the gross debt service
outstanding, of the municipal bond insurance portfolio of MBIA Illinois, the
remaining 32% having been previously ceded to treaty and facultative reinsurers
of MBIA Illinois. MBIA Corp. retroceded 3% and 1% of this portfolio to its
treaty and facultative reinsurers in 1990 and 1991, respectively; additionally,
in 1990, 10% of this portfolio was ceded back to MBIA Illinois to comply with
regulatory requirements. Effective January 1, 1999, MBIA Corp. and MBIA Illinois
entered into a replacement reinsurance agreement whereby MBIA Corp. agreed to
accept as reinsurance from MBIA Illinois 100 % of the net liabilities and other
obligations of MBIA Illinois, for losses paid on or after that date, thereby
eliminating the 10% retrocession arrangement previously in place.
11
<PAGE>
In connection with the CapMAC acquisition, MBIA Corp. and CapMAC entered
into a reinsurance agreement, effective April 1, 1998, under which MBIA Corp.
agreed to reinsure 100% of the net liability and other obligations of CapMAC in
exchange for CapMAC's payment of a premium equal to the ceded reserves and
contingency reserves. Pursuant to such reinsurance agreement with CapMAC, MBIA
Corp. reinsured all of the net exposure of $31.6 billion, or approximately 78%
of the gross debt service outstanding, the remaining 22% having been previously
ceded to treaty and facultative reinsurers of CapMAC.
Investments and Investment Policy
The Finance Committee of the Board of Directors of the Company approves the
general investment objectives and policies of the Company, and also reviews more
specific investment guidelines. On January 1, 1996 CMC assumed full management
of all of MBIA Corp.'s consolidated investment portfolios. Certain investments
of the Company and MBIA Assurance related to non-U.S. insurance operations are
managed by independent managers.
To continue to provide strong capital resources and claims-paying
capabilities for its insurance operations, the investment objectives and
policies for insurance operations set quality and preservation of capital as the
primary objective subject to an appropriate degree of liquidity. Maximization of
after-tax investment income and investment returns are an important but
secondary objective.
Investment objectives, policies and guidelines related to the Company's
municipal investment agreement business are also subject to review and approval
by the Finance Committee of the Board of Directors. The primary investment
objectives are to preserve capital, to achieve an investment duration that
closely approximates the expected duration of related liabilities, and to
maintain appropriate liquidity. The investment agreement assets are managed by
CMC subject to an investment management agreement between IMC and CMC.
12
<PAGE>
For 1998, approximately 68% of the Company's net income was derived from
after-tax earnings on its investment portfolio (excluding the amounts earned on
investment agreement assets which are recorded as a component of investment
management services revenues). The following table sets forth investment income
and related data for the years ended December 31, 1996, 1997 and 1998:
Investment Income of the Company (1)
1996 1997 1998
(In thousands)
Investment income before expenses (2) $268,280 $305,569 $337,565
Investment expenses 3,133 3,571 5,763
-------- -------- --------
Net investment income before income taxes 265,147 301,998 331,802
Net realized gains 9,936 16,903 29,962
-------- -------- --------
Total investment income before income taxes $275,083 $318,901 $361,764
======== ======== ========
Total investment income after income taxes $232,975 $263,071 $296,232
======== ======== ========
- ----------
(l) Excludes investment income and realized gains and losses from investment
management services and municipal and financial services segments
(2) Includes taxable and tax-exempt interest income.
13
<PAGE>
The tables below set forth the composition of the Company's investment
portfolios. The weighted average yields in the tables reflect the nominal yield
on market value as of December 31, 1998, 1997 and 1996.
Investment Portfolio by Security Type
as of December 31, 1998
<TABLE>
<CAPTION>
Investment
Insurance Management Services
Weighted Weighted
Fair Value Average Fair Value Average
Investment Category (in thousands) Yield (1) (in thousands) Yield (1)
<S> <C> <C> <C> <C>
Fixed income investments:
Long-term bonds:
Taxable bonds:
U.S. Treasury & Agency obligations $ 487,132 6.15% $1,404,668 5.54%
GNMAs 154,088 6.58 100,033 6.42
Other mortgage & asset backed securities 206,171 6.25 849,922 5.33
Corporate obligations 1,026,847 5.85 842,330 6.05
Foreign obligations(2) 136,416 5.45 292,979 6.46
---------- ---- ---------- ----
Total 2,010,654 5.99 3,489,932 5.71
Tax-exempt bonds:
State & municipal 3,873,399 7.15 -- --
---------- ---- ---------- ----
Total long-term investments 5,884,053 6.76 3,489,932 5.71
Short-term investments(3) 423,194 4.94 188,297 5.03
---------- ---- ---------- ----
Total fixed income investments 6,307,247 6.63% 3,678,229 5.68%
Other investments(4) 94,975 -- -- --
---------- ----------
Total investments $6,402,222 -- $3,678,229 --
========== ==========
</TABLE>
- ----------
(1) Prospective market yields as of December 31, 1998. Yield on tax-exempt
bonds is presented on a taxable bond equivalent basis using a 35% federal
income tax rate
(2) Consists of U.S. denominated foreign government and corporate securities.
(3) Taxable and tax-exempt investments, including bonds with a remaining
maturity of less than one year.
(4) Consists of equity investments and other fixed income investments; yield
information not meaningful.
14
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio by Security Type
as of December 31, 1997
Investment
Insurance Management Services
Weighted Weighted
Fair Value Average Fair Value Average
Investment Category (in thousands) Yield (1) (in thousands) Yield (1)
<S> <C> <C> <C> <C>
Fixed income investments:
Long-term bonds:
Taxable bonds:
U.S. Treasury & Agency obligations $ 472,100 6.87% $1,106,396 6.08%
GNMAs 148,065 7.15 105,865 6.91
Other mortgage & asset backed securities 189,904 6.60 726,126 6.03
Corporate obligations 836,334 6.38 691,252 6.49
Foreign obligations(2) 165,506 6.27 300,232 6.73
---------- ---- ---------- ----
Total 1,811,909 6.58 2,929,871 6.26
Tax-exempt bonds:
State & municipal 3,399,402 7.36 -- --
---------- ---- ---------- ----
Total long-term investments 5,211,311 7.09 2,929,871 6.26
Short-term investments(3) 303,898 5.19 411,523 5.73
---------- ---- ---------- ----
Total fixed income investments 5,515,209 6.99% 3,341,394 6.19%
Other investments(4) 51,693 -- -- --
---------- ----------
Total investments $5,566,902 -- $3,341,394 --
========== ==========
</TABLE>
- ----------
(1) Prospective market yields as of December 31, 1997. Yield on tax-exempt bonds
is presented on a taxable bond equivalent basis using a 35% federal income
tax rate.
(2) Consists of U.S. denominated foreign government and corporate securities.
(3) Taxable and tax-exempt investments, including bonds with a remaining
maturity of less than one year.
(4) Consists of equity investments and other fixed income investments; yield
information not meaningful.
15
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio by Security Type
as of December 31, 1996
Investment
Insurance Management Services
Weighted Weighted
Fair Value Average Fair Value Average
Investment Category (in thousands) Yield (1) (in thousands) Yield (1)
<S> <C> <C> <C> <C>
Fixed income investments:
Long-term bonds:
Taxable bonds:
U.S. Treasury & Agency obligations $ 415,007 7.29% $1,121,511 6.32%
GNMAs 107,217 7.56 71,315 7.35
Other mortgage & asset backed securities 136,913 7.13 767,271 5.92
Corporate obligations 469,823 6.78 706,574 6.82
Foreign obligations(2) 152,392 6.87 182,885 7.37
---------- ---- ---------- ----
Total 1,281,352 7.06 2,849,556 6.43
Tax-exempt bonds:
State & municipal 3,173,770 8.07 -- --
---------- ---- ---------- ----
Total long-term investments 4,455,122 7.78 2,849,556 6.43
Short-term investments(3) 209,840 5.85 443,742 5.65
---------- ---- ---------- ----
Total fixed income investments 4,664,962 7.70% 3,293,298 6.33%
Other investments(4) 49,737 -- -- --
---------- ----------
Total investments $4,714,699 -- $3,293,298 --
========== ==========
</TABLE>
- ----------
(1) Prospective market yields as of December 31, 1996. Yield on tax-exempt
bonds is presented on a taxable bond equivalent basis using a 35% federal
income tax rate.
(2) Consists of U.S. denominated foreign government and corporate securities.
(3) Taxable and tax-exempt investments, including bonds with a remaining
maturity of less than one year.
(4) Consists of equity investments and other fixed income investments; yield
information not meaningful.
16
<PAGE>
The average maturity of the insurance fixed income portfolio excluding
short-term investments as of December 31, 1998 was 11.1 years. After allowing
for estimated principal pre-payments on mortgage pass-through securities, the
duration of the portfolio was 6.8 years.
The table below sets forth the distribution by maturity of the Company's
consolidated fixed income investments:
Fixed Income Investments by Maturity
as of December 31, 1998
<TABLE>
<CAPTION>
Insurance Investment
Management Services
% of Total % of Total
Fair Value Fixed Income Fair Value Fixed Income
Maturity In thousands) Investments (In thousands) Investments
<S> <C> <C> <C> <C>
Within 1 year $ 423,194 6.7% $ 188,297 5.1%
Beyond 1 year but within 5 years 1,044,997 16.6 960,503 26.1
Beyond 5 years but within 10 years 1,749,798 27.7 834,206 22.7
Beyond 10 years but within 15 years 999,642 15.8 254,631 6.9
Beyond 15 years but within 20 years 1,020,534 16.2 603,252 16.4
Beyond 20 years 1,069,082 17.0 837,340 22.8
---------- ----- ---------- -----
Total fixed income investments $6,307,247 100.0% $3,678,229 100.0%
========== ==========
</TABLE>
The quality distribution of the Company's fixed income investments based on
ratings of Moody's was as shown in the table below:
Fixed Income Investments by Quality Rating (1)
as of December 31, 1998
<TABLE>
<CAPTION>
Investment
Insurance Management Services
% of Total % of Total
Fair Value Fixed Income Fair Value Fixed Income
Quality Rating (In thousands) Investments (In thousands) Investments
<S> <C> <C> <C> <C>
Aaa $3,671,994 60.7% $2,675,396 72.7%
Aa 1,262,103 20.9 314,972 8.6
A 1,053,863 17.4 687,861 18.7
Baa 56,948 1.0 -- --
---------- ------ ---------- -----
$6,044,908 100.0% $3,678,229 100.0%
========== ==========
</TABLE>
- ----------
(1) Excludes short-term investments with an original maturity of less than one
year, but includes bonds having a remaining maturity of less than one year.
17
<PAGE>
Regulation
MBIA Corp. is licensed to do insurance business in, and is subject to
insurance regulation and supervision by, the State of New York (its state of
incorporation), the 49 other states, the District of Columbia, Guam, the
Northern Mariana Islands, the U.S. Virgin Islands, Puerto Rico, the Kingdom of
Spain and the Republic of France. MBIA Assurance is licensed to do insurance
business in France and is subject to regulation under the corporation and
insurance laws of the Republic of France. The extent of state insurance
regulation and supervision varies by jurisdiction but New York and most other
jurisdictions have laws and regulations prescribing minimum standards of
solvency, including minimum capital requirements, and business conduct which
must be maintained by insurance companies. These laws prescribe permitted
classes and concentrations of investments. In addition, some state laws and
regulations require the approval or filing of policy forms and rates. MBIA Corp.
is required to file detailed annual financial statements with the New York
Insurance Department and similar supervisory agencies in each of the other
jurisdictions in which it is licensed. The operations and accounts of MBIA Corp.
are subject to examination by these regulatory agencies at regular intervals.
MBIA Corp. is licensed to provide financial guarantee insurance under
Article 69 of the New York Insurance Law. Article 69 defines financial guarantee
insurance to include any guarantee under which loss is payable upon proof of
occurrence of financial loss to an insured as a result of certain events. These
events include the failure of any obligor on or any issuer of any debt
instrument or other monetary obligation to pay principal, interest, premium,
dividend or purchase price of or on such instrument or obligation, when due.
Under Article 69, MBIA Corp. is licensed to transact financial guarantee
insurance, surety insurance and credit insurance and such other kinds of
business to the extent necessarily or properly incidental to the kinds of
insurance which MBIA Corp. is authorized to transact. In addition, MBIA Corp. is
empowered to assume or reinsure the kinds of insurance described above.
As a financial guarantee insurer, MBIA Corp. is required by the laws of New
York, California, Connecticut, Florida, Illinois, Iowa, New Jersey and Wisconsin
to maintain contingency reserves on its municipal bond and other financial
guarantee liabilities. Under New Jersey, Illinois and Wisconsin regulations,
contributions by such an insurer to its contingency reserves are required to
equal 50% of earned premiums on its municipal bond business. Under New York law,
such an insurer is required to contribute to contingency reserves 50% of
premiums as they are earned on policies written prior to July 1, 1989 (net of
reinsurance) and, with respect to policies written on and after July 1, 1989,
must make contributions over a period of 15 or 20 years (based on issue type),
or until the contingency reserve for such insured issues equals the greater of
50% of premiums written for the relevant category of insurance or a percentage
of the principal guaranteed, varying from 0.55% to 2.5%, depending upon the type
of obligation guaranteed (net of reinsurance, refunding, refinancings and
certain insured securities). California, Connecticut, Iowa and Florida law
impose a generally similar requirement. In each of these states, MBIA Corp. may
apply for release of portions of the contingency reserves in certain
circumstances.
The laws and regulations of these states also limit both the aggregate and
individual municipal bond risks that MBIA Corp. may insure on a net basis.
California, Connecticut, Florida, Illinois and New York, among other things,
limit insured average annual debt service on insured municipal bonds with
respect to a single entity and backed by a single revenue source (net of
qualifying collateral and reinsurance) to 10% of policyholders' surplus and
contingency reserves. In New Jersey, Virginia and Wisconsin, the average annual
debt service on any single issue of municipal bonds (net of reinsurance) is
limited to 10% of policyholders' surplus. Other states that do not explicitly
regulate financial guarantee or municipal bond insurance do impose single risk
limits which are similar in effect to the foregoing. California, Connecticut,
Florida, Illinois and New York also limit the net insured unpaid principal
issued by a single entity and backed by a single revenue source to 75% of
policyholders' surplus and contingency reserves.
Under New York, California, Connecticut, Florida, Illinois, New Jersey and
Wisconsin law, aggregate insured unpaid principal and interest under policies
insuring municipal bonds (in the case of New York, California, Connecticut,
Florida and Illinois, net of reinsurance) are limited to certain multiples of
policyholders' surplus and contingency reserves. New York, California,
Connecticut, Florida, Illinois and other states impose a 300:1 limit for insured
municipal bonds, although more restrictive limits on bonds of other types do
exist. For example, New York, California, Connecticut and Florida impose a 100:1
limit for certain types of non-municipal bonds.
The Company, MBIA Corp., MBIA Illinois and CapMAC are subject to regulation
under the insurance holding company statutes of New York, Illinois and other
jurisdictions in which MBIA Corp., MBIA Illinois and CapMAC are licensed to
write insurance. The requirements of holding company statutes vary from
jurisdiction to jurisdiction but generally require insurance holding companies,
such as the Company, and their insurance subsidiaries, to register and file
certain reports describing, among other information, their capital structure,
ownership and financial condition. The holding company statutes also generally
require prior approval of changes in control, of certain dividends and other
intercorporate transfers of assets, and of transactions between insurance
18
<PAGE>
companies, their parents and affiliates. The holding company statutes impose
standards on certain transactions with related companies, which include, among
other requirements, that all transactions be fair and reasonable and that those
exceeding specified limits receive prior regulatory approval.
Prior approval by the New York Insurance Department is required for any
entity seeking to acquire "control" of the Company, MBIA Corp or CapMAC. Prior
approval by the Illinois Department of Insurance is required for any entity
seeking to acquire "control" of the Company, MBIA Corp., MBIA Illinois or
CapMAC. In many states, including New York and Illinois, "control" is presumed
to exist if 10% or more of the voting securities of the insurer are owned or
controlled by an entity, although the supervisory agency may find that "control"
in fact does or does not exist when an entity owns or controls either a lesser
or greater amount of securities.
The laws of New York regulate the payment of dividends by MBIA Corp. and
provide that a New York domestic stock property/casualty insurance company (such
as MBIA Corp.) may not declare or distribute dividends except out of statutory
earned surplus. New York law provides that the sum of (i) the amount of
dividends declared or distributed during the preceding 12-month period and (ii)
the dividend to be declared may not exceed the lesser of (a) 10% of
policyholders' surplus, as shown by the most recent statutory financial
statement on file with the New York Insurance Department, and (b) 100% of
adjusted net investment income for such 12-month period (the net investment
income for such 12-month period plus the excess, if any, of net investment
income over dividends declared or distributed during the two-year period
preceding such 12-month period), unless the New York Superintendent of Insurance
approves a greater dividend distribution based upon a finding that the insurer
will retain sufficient surplus to support its obligations and writings. See Note
13 to the Consolidated Financial Statements of MBIA Inc. and Subsidiaries.
The foregoing dividend limitations are determined in accordance with
Statutory Accounting Practices ("SAP"), which generally produce statutory
earnings in amounts less than earnings computed in accordance with Generally
Accepted Accounting Principles ("GAAP"). Similarly, policyholders' surplus,
computed on a SAP basis, will normally be less than net worth computed on a GAAP
basis. See Note 5 to the Consolidated Financial Statements of MBIA Inc. and
Subsidiaries.
MBIA Corp., MBIA Illinois and CapMAC are exempt from assessments by the
insurance guarantee funds in the majority of the states in which they do
business. Guarantee fund laws in most states require insurers transacting
business in the state to participate in guarantee associations which pay claims
of policyholders and third-party claimants against impaired or insolvent
insurance companies doing business in the state. In most states, insurers
licensed to write only municipal bond insurance, financial guarantee insurance
and other forms of surety insurance are exempt from assessment by these funds
and their policyholders are prohibited from making claims on these funds.
Losses and Reserves
The Company's policy is to provide for loss reserves to cover losses that
may be reasonably estimated on its insured obligations over the lives of such
obligations. The loss reserve, at any financial statement date, is the Company's
estimate of the identified and unidentified losses on the obligations it has
insured, including expected costs of settlement.
Both MBIA Illinois and CapMAC are currently inactive and their insurance
business is in run-off. MBIA Corp. has reinsured their respective net
liabilities on financial guarantee insurance business and maintains required
reserves in connection therewith.
To the extent that specific insured issues are identified as currently or
likely to be in default, the present value of the expected payments, including
costs of settlement, net of expected recoveries, is allocated within the total
loss reserve as a case basis reserve. At December 31, 1998, $188.6 million of
the $270.1 million reserve for loss and loss adjustment expense represents case
basis reserves, of which $162.8 million and $20.3 million are attributable to
two health care facilities in Pennsylvania. The remaining case basis reserves
represent various housing financings and structured finance transactions, the
largest of which is $3.6 million.
The reserves for losses and loss adjustment expenses are based on
estimates, and there can be no assurance that the ultimate liability will not
exceed such estimates. To the extent that actual case losses for any period are
less than the unallocated portion of total loss reserve, there will be no impact
on the Company's earnings for that period other than an addition to the reserve
which results from applying the loss rate factor to new debt service insurance.
To the extent that case losses, for any period, exceed the unallocated portion
of the total loss reserve, the excess will be charged against the Company's
earnings for that period. The Company periodically reviews the appropriateness
of the loss reserves and loss rate factor and is currently conducting such
an analysis.
19
<PAGE>
SAP Ratios
The financial statements in this Form 10-K are prepared on the basis of
GAAP. For reporting to state regulatory authorities, SAP is used. See Note 5 to
the Consolidated Financial Statements of MBIA Inc. and Subsidiaries.
The SAP combined ratio is a traditional measure of underwriting
profitability for insurance companies. The SAP loss ratio (which is losses
incurred divided by premiums earned), SAP expense ratio (which is underwriting
expenses divided by net premiums written) and SAP combined ratio (which is the
sum of the loss and expense ratios) for MBIA Corp. and for the financial
guarantee industry, which includes the monoline primary insurers (including MBIA
Corp.) and monoline reinsurers, are shown in the table below:
Years Ended December 31,
1995 1996 1997 1998
MBIA Corp.
Loss ratio 0.4% 1.7% 1.2% 8.0%
Expense ratio 27.2 22.8 21.2 16.8
Combined ratio 27.6 24.5 22.4 24.8
Financial guarantee industry (1)
Loss ratio 5.3% 4.9% 8.3% *
Expense ratio 32.7 31.6 28.1 *
Combined ratio 38.0 36.5 36.4 *
- ----------
(1) Industry statistics were taken from the 1997 Annual Report of the
Association of Financial Guaranty Insurors.
* Not Available.
The SAP loss ratio differs from the GAAP loss ratio because the GAAP ratio
recognizes a provision for unidentified losses. The SAP expense ratio varies
from the GAAP expense ratio because the GAAP ratio recognizes the deferral of
policy acquisition costs and includes the amortization of purchase accounting
adjustments, principally goodwill. In addition, the SAP expense ratio is
calculated using premiums written while the GAAP expense ratio uses premiums
earned.
Net insurance in force, qualified statutory capital (which is comprised of
policyholders' surplus and the contingency reserve), and policyholders' leverage
ratios for MBIA Corp. and for the financial guarantee industry are shown in the
table below:
<TABLE>
<CAPTION>
As of December 31,
1995 1996 1997 1998
(Dollars in millions)
<S> <C> <C> <C> <C>
MBIA Corp.
Net insurance in force $359,175 $ 434,417 $ 513,736 $595,895
Qualified statutory capital 2,257 2,620 3,140 3,741
Policyholders' leverage ratio 159:1 166:1 164:1 159:1
Financial guarantee industry(1)
Net insurance in force $895,559 $1,076,821 $1,262,697 *
Qualified statutory capital 6,495 7,350 8,851 *
Policyholders' leverage ratio 138:1 147:1 143:1 *
</TABLE>
- ----------
(1) Industry statistics were taken from the 1997 Annual Report of the
Association of Financial Guaranty Insurors.
* Not Available.
20
<PAGE>
The policyholders' leverage ratio is the ratio of net insurance in force to
qualified statutory capital. This test is sometimes focused on as a measure of a
company's claims-paying capacity. The Company believes that the leverage ratio
has significant limitations since it compares the total debt service
(undiscounted) coming due over the next 30 years or so to a company's current
capital base. It thereby fails to recognize future capital that will be
generated during the period of risk being measured, arising from unearned
premium reserve and future installment premium commitments. Further, the
leverage ratio does not consider the underlying quality of the issuers whose
debt service is insured and thereby does not differentiate among the risk
characteristics of a financial guarantor's insured portfolio, nor does it give
any benefit for third-party commitments such as standby lines of credit.
MBIA Corp. Insurance Policies
The insurance policies issued by MBIA Corp. provide an unconditional and
irrevocable guarantee of the payment to a designated paying agent for the
bondholders of an amount equal to the principal of and interest on insured bonds
not paid when due. In the event of a default in payment of principal or interest
by an issuer, MBIA Corp. promises to make funds available in the amount of the
default on the next business day following notification. MBIA Corp. has a Fiscal
Agency Agreement with State Street Bank and Trust Company, N.A. to provide for
this payment upon receipt of proof of ownership of the bonds, as well as upon
receipt of instruments appointing MBIA Corp. as agent for the bondholders and
evidencing the assignment of bondholder rights with respect to the debt service
payments made by MBIA Corp. Even if bondholders are permitted by the indenture
securing the bonds to have the full amount of principal of the bonds, together
with accrued interest, declared due and payable immediately in the event of a
default, MBIA Corp. is required to pay only the principal and interest scheduled
to be paid, but not in fact paid, on each original principal and interest
payment date.
MBIA Assurance writes policies that are substantially similar in coverage
and manner of payment to the MBIA Corp. policies. The MBIA Illinois insurance
policies provide for payments on default in substantially the same manner as the
MBIA Corp. policies. Financial guaranty insurance written by CapMAC 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, even though the underlying obligation may be accelerated.
Rating Agencies
Moody's, S&P and Fitch perform periodic reviews of MBIA Corp. and other
companies providing financial guarantee insurance. Their reviews focus on the
insurer's underwriting policies and procedures and on the issues insured.
Additionally, each rating agency has certain criteria as to exposure limits and
capital requirements for financial guarantors.
The rating agencies have reaffirmed their Triple-A claims-paying ratings
assigned to MBIA Corp., CapMAC, MBIA Illinois and to MBIA Assurance. The ratings
for MBIA Illinois and CapMAC are based in significant part on reinsurance
agreements between MBIA Corp. and MBIA Illinois and MBIA Corp. and CapMAC,
respectively. The rating of MBIA Assurance is based in significant part on the
reinsurance agreement between MBIA Corp. and MBIA Assurance and the net worth
maintenance agreement between the two parties. See "Business-Reinsurance."
Although MBIA Corp. intends to comply with the requirements of the rating
agencies, no assurance can be given that these requirements will not change or
that, even if MBIA Corp. complies with these requirements, one or more rating
agencies will not reduce or withdraw their rating. MBIA Corp.'s ability to
attract new business and to compete with other financial guarantors, and its
results of operations and financial condition would be materially adversely
affected by any reduction in its ratings.
Credit Agreement
MBIA Corp. entered into a Credit Agreement, dated as of December 29, 1989,
which has been amended from time to time (the "Credit Agreement") with Credit
Suisse, New York Branch ("Credit Suisse") to provide MBIA Corp. with an
unconditional, irrevocable line of credit. The Credit Agreement was amended and
restated by the Second Amended and Restated Credit Agreement, dated as of
October 1, 1997 among MBIA Corp., Credit Suisse, as Administrative Agent and a
consortium of highly rated banks. The Credit Agreement was further amended as of
October 1, 1998 to extend the expiration date and to replace the Administrative
Agent, Credit Suisse, with Cooperatieve Centrale Raiffeissen-Boerenleenbank B.A.
"Robobank Nederland." The line of credit is available to
21
<PAGE>
be drawn upon by MBIA Corp., in an amount up to $825 million, after MBIA Corp.
has incurred, during the period commencing October 1, 1997 and ending October
31, 2005, cumulative losses (net of any recoveries) in excess of $825 million or
4.00% of average annual debt service. The obligation to repay loans made under
the Credit Agreement is a limited recourse obligation of MBIA Corp. payable
solely from, and secured by a pledge of, recoveries realized on defaulted
insured obligations, from certain pledged installment premiums and other
collateral. Borrowings under the Credit Agreement are repayable on the
expiration date of the Credit Agreement. The current expiration date of the
Credit Agreement is October 31, 2005, subject to annual extensions under certain
circumstances. The Credit Agreement contains covenants that, among other things,
restrict MBIA Corp.'s ability to encumber assets or merge or consolidate with
another entity.
Employees
As of March 25, 1999, the Company had 939 employees. No employee is covered
by a collective bargaining agreement. The Company considers its employee
relations to be satisfactory.
Forward-Looking Statements
The Company through its management may from time to time make
forward-looking statements. Important factors, including general market
conditions and the competitive environment, could cause actual results to differ
materially from those contained in any forward-looking statements. The Company
undertakes no obligation to update any forward-looking statements to reflect
changes in events or expectations or otherwise.
Executive Officers
The executive officers of the Company and their present ages and positions
with the Company are set forth below.
Name Age Position and Term of Office
----- ---- ---------------------------
David H. Elliott 57 Chairman (officer since 1986)
Joseph W. Brown, Jr. 50 Chief Executive Officer (officer
since January 1999)
Richard L. Weill 56 Vice Chairman (officer since 1989)
Neil G. Budnick 44 Chief Financial Officer and Treasurer
(officer since 1992)
John B. Caouette 54 President, Structured Finance Division
(officer since February, 1998)
Gary C. Dunton 43 President, Public Finance Division and
President, Investment Management and
Financial Services Division
(officer since January, 1998)
Louis G. Lenzi 50 General Counsel and Secretary
(officer since 1986)
Kevin D. Silva 45 Senior Vice President (officer
since 1995)
Ruth M. Whaley 43 Chief Risk Officer (officer since
January 1999)
David H. Elliott is Chairman of the Company and of MBIA Corp. It is
expected that he will step down as Chairman in May. From 1991 to 1998, he was
also the Company's Chief Executive Officer and, from 1986 to 1991, he served as
the President and Chief Operating Officer of the Company and MBIA Corp. He is a
director of MBIA Corp. and was the President of the Association from 1976 to
1980 and from 1982 through 1986.
Joseph W. Brown, Jr. is Chief Executive Officer of the Company (effective
January 7, 1999) and a director of MBIA Corp. It is expected that Mr. Brown will
be appointed Chairman in May. Prior to joining the Company in January 1999, Mr.
Brown was Chairman of the Board of Talegen Holdings, Inc.
Richard L. Weill is Vice Chairman of the Company, President of MBIA Corp.
and a director of MBIA Corp. From 1989 through 1991, Mr. Weill was General
Counsel and Corporate Secretary of the Company. Mr. Weill was previously a
partner with the law firm of Kutak Rock, with which he had been associated from
1969 to 1989.
Kevin D. Silva is Senior Vice President of the Company and MBIA Corp. and a
director of MBIA Corp. He has been in charge of the Management Services Division
of MBIA Corp. since joining the Company in late 1995.
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<PAGE>
Neil G. Budnick is Chief Financial Officer and Treasurer of the Company and
MBIA Corp. and a director of MBIA Corp. Mr. Budnick has been primarily involved
in the insurance operations area of MBIA Corp. since joining the Company in
1983.
John B. Caouette is President, Structured Finance Division of the Company
and MBIA Corp. and a director of MBIA Corp. Mr. Caouette was, until February of
1998, the Chairman and Chief Executive Officer of CapMAC Holdings Inc.
Gary C. Dunton is President, Public Finance Division and President,
Investment Management and Financial Services Division of the Company and MBIA
Corp. and a director of MBIA Corp. Mr. Dunton was, prior to joining the Company
as an officer, a director of the Company and President of the Family and
Business Insurance Group, USF&G Insurance.
Louis G. Lenzi is General Counsel and Secretary of the Company and MBIA
Corp. He is also a director of MBIA Corp. Mr. Lenzi has held various legal
positions within the Company and MBIA Corp. since 1984.
Ruth M. Whaley is the Chief Risk Officer of the Company and MBIA Corp. and
a director of MBIA Corp.. She was, until February of 1998, the Chief
Underwriting Officer of CapMAC Holdings Inc.
Item 2. Properties
MBIA Corp. owns the 157,500 square foot office building on approximately
15.5 acres of property in Armonk, New York, in which the Company and MBIA Corp.
have their headquarters. The Company is currently in the process of constructing
a 105,000 square foot addition to the Armonk property at an estimated cost of
$35.0 million. The Company also has rental space in New York, New York, San
Francisco, California, Paris, France, Madrid, Spain and Sydney, Australia. The
Company believes that these facilities are adequate and suitable for its current
needs.
Item 3. Legal Proceedings
There are no material lawsuits pending or, to the knowledge of the Company,
threatened to which the Company or any of its subsidiaries is a party.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
23
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information concerning the market for the Company's Common Stock and
certain information concerning dividends appears under the heading "Shareholder
Information" on the inside back cover of the Company's 1998 Annual Report to
Shareholders and is incorporated herein by reference. As of March 25, 1999,
there were 504 shareholders of record of the Company's Common Stock. The
information concerning dividends on the Company's Common Stock is under
"Business - Regulation" in this report.
Item 6. Selected Financial Data
The information under the heading "Selected Financial and Statistical Data"
as set forth on pages 34-35 of the Company's 1998 Annual Report to Shareholders
is incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" as set forth on pages 36-43 of
the Company's 1998 Annual Report to Shareholders is incorporated by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company, the Report of
Independent Accountants thereon by PricewaterhouseCoopers LLP and the unaudited
"Quarterly Financial Information" are set forth on pages 44-64 of the Company's
1998 Annual Report to Shareholders and are incorporated by reference.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding directors is set forth under "Election of Directors"
in the Company's Proxy Statement, dated March 29, 1999, which is incorporated by
reference.
Information regarding executive officers is set forth under Item 1,
"Business - Executive Officers," in this report.
Item 11. Executive Compensation
Information regarding compensation of the Company's executive officers is
set forth under "Compensation of Executive Officers" in the Company's Proxy
Statement, dated March 29, 1999, which is incorporated by reference.
24
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners and
management is set forth under "Election of Directors" and "Security Ownership of
Certain Beneficial Owners" in the Company's Proxy Statement, dated March 29,
1999, which is incorporated by reference.
Item 13. Certain Relationships and Related Transactions
Information regarding relationships and related transactions is set forth
under "Certain Relationships and Related Transactions" in the Company's Proxy
Statement dated March 29, 1999, which is incorporated by reference.
PART IV
Item 14.
(a) Financial Statements and Financial Statement Schedules and
Exhibits.
1. Financial Statements
MBIA Inc. has incorporated by reference from the 1998 Annual Report to
Shareholders the following consolidated financial statements of the Company:
Annual Report
to Shareholders
Page(s)
MBIA INC. AND SUBSIDIARIES
Report of independent accountants. 44
Consolidated balance sheets as of December 31, 1998 and 45
1997.
Consolidated statements of income for the years ended 46
December 31, 1998, 1997 and 1996.
Consolidated statements of changes in shareholders' 47
Equity for the years ended December 31, 1998, 1997 and
1996.
Consolidated statements of cash flows for the years 48
Ended December 31, 1998, 1997 and 1996.
Notes to consolidated financial statements. 49-64
2. Financial Statement Schedules
The following financial statement schedules are filed as part of this
report.
Schedule Title
-------- -----
I Summary of investments, other than investments in related
parties, as of December 31, 1998.
II Condensed financial information of Registrant
for December 31, 1998, 1997 and 1996.
IV Reinsurance for the years
ended December 31, 1998, 1997 and 1996.
The report of the Registrant's independent accountants with respect to the
above listed financial statement schedules is included with the schedules.
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
25
<PAGE>
3. Exhibits
(An exhibit index immediately preceding the Exhibits indicates the page
number where each exhibit filed as part of this report can be found.)
3. Articles of Incorporation and By-Laws.
3.1. Restated Certificate of Incorporation, dated August 17, 1990,
incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1990 (Comm. File 1-9583) (the "1990
10-K").
3.2. By-Laws as Amended as of March 19, 1998.
10. Material Contracts
10.06. Amended and Restated Tax Allocation Agreement, dated as of January
1, 1990, between the Company and MBIA Corp., incorporated by reference to
Exhibit 10.66 to the 1989 10-K.
10.07. Reinsurance Agreement, dated as of December 31, 1990, between MBIA
Corp. and Bond Investors Guaranty Insurance Company, incorporated by reference
to Exhibit 10.54 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990 (Comm. File No. 1-9583) (the "1990 10-K").
10.08. Revolving Credit Agreement, dated as of February 15, 1991, between
the Company and Credit Suisse, New York Branch, incorporated by reference to
Exhibit 10.76 to the 1991 10-K, as amended by the First Amendment to Revolving
Credit Agreement, dated as of September 30, 1992, incorporated by reference to
Exhibit 10.61 to the 1992 10-K, as further amended by the Second Amendment to
Revolving Credit Agreement, dated as of September 30, 1994, incorporated by
reference to Exhibit 10.48 to the 1994 10-K, as further amended by the Third
Amendment to Revolving Credit Agreement, dated as of May 23, 1996, incorporated
by reference to Exhibit 10.43 to the Company's Annual Report on Form 10-K for
fiscal year ended December 31, 1996 (Comm. File No. 1-9583) (the "1996 10-K").
10.09. Rights Agreement, dated as of December 12, 1991, between the Company
and Mellon Bank, N.A., incorporated by reference to the Company's Current Report
on Form 8-K, filed on December 31, 1991, incorporated by reference to Exhibit
10.62 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 (Comm. File No. 1-9583) (the "1993 10-K"), as amended by
Amendment to Rights Agreement, dated as of October 24, 1994, incorporated by
reference to Exhibit 10.49 to the 1994 10-K.
10.10. Trust Agreement, dated as of December 31, 1991, between MBIA Corp.
and Fidelity Management Trust Company, incorporated by reference to Exhibit
10.64 to the 1992 10-K, as amended by the Amendment to Trust Agreement, dated as
of April 1, 1993, incorporated by reference to Exhibit 10.64 to the 1993 10-K,
as amended by First Amendment to Trust Agreement, dated as of January 21, 1992,
as further amended by Second Amendment to Trust Agreement, dated as of March 5,
1992, as further amended by Third Amendment to Trust Agreement, dated as of
April 1, 1993, as further amended by the Fourth Amendment to Trust Agreement,
dated as of July 1, 1995, incorporated by reference to Exhibit 10.47 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995
(Comm. File No. 1-9583) (the "1995 10-K"), as amended by Fifth Amendment to
Trust Agreement, dated as of November 1, 1995, as further amended by Sixth
Amendment to Trust Agreement, dated as of January 1, 1996, incorporated by
reference to Exhibit 10.46 to the 1996 10-K, further amended by Seventh
Amendment to Trust Agreement, dated as of October 15, 1997, incorporated by
reference to Exhibit 10.36 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (Comm. File No. 1-9583) (the "1997 10-K") as
further amended by the Eighth Amendment to Trust Agreement, dated as of January
1, 1998 and by the Ninth Amendment to Trust Agreement, dated as of March 1,
1999.
10.12. Indenture, dated as of August 1, 1990, between MBIA Inc. and The
First National Bank of Chicago, Trustee, incorporated by reference to Exhibit
10.72 to the 1992 10-K.
10.13. First Restated Credit Agreement, dated as of October 1, 1993, among
MBIA Corp., Credit Suisse, New York Branch, as Agent, Credit Suisse, New York
Branch, Caisse Des Depots Et Consignations, Deutsche Bank AG, Bayerische
Landesbank Girozentrale and Landesbank Hessen-Thuringen Girozentrale, as amended
by an Assignment and Assumption Agreement, dated as of December 31, 1993, among
MBIA Corp., Credit Suisse, New York Branch, as Agent and Assignor and Deutsche
Bank AG,
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<PAGE>
New York Branch, as further amended by a Modification Agreement, dated as of
January 1, 1994, among Deutsche Bank, AG, New York Branch, MBIA Corp. and Credit
Suisse, New York Branch, as Agent, as amended by a Joinder Agreement, dated
December 31, 1993, among Credit Suisse, New York Branch, as Agent,
Sudwestdeutsche Landesbank Girozentrale and MBIA Corp., incorporated by
reference to Exhibit 10.78 to the 1993 10-K, as amended by the First Amendment
to First Restated Credit Agreement, dated as of September 23, 1994, incorporated
by reference to Exhibit 10.63 to the 1994 10-K, as further amended by the Second
Amendment to the First Restated Credit Agreement, dated as of January 1, 1996,
and as further amended by the Third Amendment to the First Restated Credit
Agreement, dated as of October 1, 1996, incorporated by reference to Exhibit
10.57 to the 1996 10-K, as further amended and restated by the Second Amended
and Restated Credit Agreement, dated as of October 1, 1997, incorporated by
reference to Exhibit 10.46 to the 1997 10-K, as further amended by the First
Amendment to Second Amended and Restated Credit Agreement, dated as of October
1, 1998.
10.14. Net Worth Maintenance Agreement, dated as of November 1, 1991,
between MBIA Corp. and MBIA Assurance S.A., as amended by Amendment to Net Worth
Agreement, dated as of November 1, 1991, incorporated by reference to Exhibit
10.79 to 1993 10-K.
10.15. Reinsurance Agreement, dated as of January 1, 1993, between MBIA
Assurance S.A. and MBIA Corp., incorporated by reference to Exhibit 10.80 to the
1993 10-K.
10.16. Credit Agreement, dated as of August 31, 1994, among Municipal Bond
Investors Assurance Corporation, the Company, Wachovia Bank of Georgia, N.A.,
Banco Santander, The Sumitomo Bank, Ltd., New York Branch, The Chase Manhattan
Bank, N.A., Commerzbank Aktiengesellschaft, The Industrial Bank of Japan,
Limited New York Branch and NBD Bank, N.A., and as further amended by the First
Amendment to Credit Agreement, dated as of October 14, 1994, incorporated by
reference to Exhibit 10.66 to the 1994 10-K, as amended by the Second Amendment
to Credit Agreement, dated as of October 31, 1995, incorporated by reference to
Exhibit 10.61 to 1995 10-K.
10.17. Investment Services Agreement, effective as of April 28, 1995,
between MBIA Insurance Corporation and MBIA Securities Corp., as amended by
Amendment No. 1, dated as of December 29, 1995, incorporated by reference to
Exhibit 10.65 to the 1995 10-K, as further amended by Amendment No. 2 to
Investment Services Agreement, dated January 14, 1997, incorporated by reference
to Exhibit 10.53 to the 1997 10-K.
10.18. Investment Services Agreement, effective January 2, 1996, between
MBIA Insurance Corp. of Illinois and MBIA Securities Corp., incorporated by
reference to Exhibit 10.66 to the 1995 10-K.
10.21. Agreement and Plan of Merger among the Company, CMA Acquisition
Corporation and CapMAC Holdings Inc. ("CapMAC"), dated as of November 13, 1997,
incorporated by reference to the Company's Form S-4 (Reg. No. 333-41633) filed
on December 5, 1997.
10.22. Amendment No. 1 to Agreement and Plan of Merger among the Company,
CMA Acquisition Corporation and CapMAC Holdings Inc. ("CapMAC"), dated January
16, 1998, incorporated by reference to the Company's Post Effective Amendment
No. 1 to Form S-4 (Reg. No. 333-41633) filed on January 21, 1998.
10.30. Reinsurance Agreement, dated as of April 1, 1998, between CapMAC and
MBIA Corp.
10.31. Reinsurance Agreement, dated as of January 1, 1999, between MBIA
Illinois and MBIA Corp.
10.32. Agreement and Plan of Merger by and among the Company, MBIA
Acquisition, Inc. and 1838 Investment Advisors, Inc., dated as of June 19, 1998.
27
<PAGE>
10.33. Credit Agreement (364 day agreement) among the Company, MBIA Corp.,
various designated borrowers, various lending institutions, Deutsche Bank AG,
New York Branch, as Administrative Agent, The First National Bank of Chicago, as
Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of
August 28, 1998.
10.34. Credit Agreement (5 year agreement) among the Company, MBIA Corp.,
various designated borrowers, various lending institutions, Deutsche Bank AG,
New York Branch, as Administrative Agent, The First National Bank of Chicago, as
Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of
August 28, 1998
10.48. Ambac Assurance Corporation, AMBAC Insurance UK Limited, MBIA
Insurance Corporation, and MBIA Assurance S.A. Agreement Regarding A Global
Joint Venture, effective as of January 15, 1999.
10.49. Special Excess Of Loss Reinsurance Agreement, between MBIA Insurance
Corporation and/or MBIA Assurance S.A. and/or any other insurance or reinsurance
company subsidiaries of MBIA Inc. listed in Exhibit No. 1 and Muenchener
Rueckversicherungs-Gesellshaft, effective September 1, 1998.
10.50. Second Special Per Occurrence Excess Of Loss Reinsurance Agreement,
between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other
insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No.
1 and AXA Re Finance S.A., effective September 1, 1998.
10.51. Third Special Per Occurrence Excess Of Loss Reinsurance Agreement,
between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other
insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No.
1 and Zurich Reinsurance (North America), Inc., effective September 15, 1998.
Executive Compensation Plans and Arrangements
The following Exhibits identify all existing executive compensation plans
and arrangements:
10.01. MBIA Inc. 1987 Stock Option Plan, incorporated by reference to
Exhibit 10.13 to the 1987 S-1, as amended by the First Amendment to the MBIA
Inc. 1987 Stock Option Plan, effective June 1, 1995, as further amended by the
Second Amendment to the MBIA Inc. 1987 Stock Option Plan, effective as of
January 7, 1999.
10.02. MBIA Inc. Deferred Compensation and Excess Benefit Plan,
incorporated by reference to Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1988 (Comm. File No. 1-9583)
(the "1988 10-K"), as amended as of July 22, 1992, incorporated by reference to
Exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 (Comm. File No. 1-9583) (the "1992 10-K").
10.03. MBIA Inc. Employees Pension Plan, amended and restated effective
January 1, 1987, incorporated by reference to Exhibit 10.28 of the Company's
Amendment No. 1 to the 1987 S-1, as further amended and restated as of December
12, 1991, incorporated by reference to Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991 (Comm. File No.
1-9583) (the "1991 10-K"), as further amended and restated effective January 1,
1994, incorporated by reference to Exhibit 10.16 of the Company's Annual Report
on Form 10-K for fiscal year ended December 31, 1994 (Comm. File No. 1-9583)
(the "1994 10-K").
10.04. MBIA Inc. Employees Profit Sharing Plan, as amended and restated
effective January 1, 1987, incorporated by reference to Exhibit 10.29 to
Amendment No. 1 to the 1987 S-1, as further amended by Amendment dated December
8, 1988, incorporated by reference to Exhibit 10.21 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989 (Comm. File No.
1-9583) (the "1989 10-K"), as further amended and restated as of December 12,
1991, incorporated by reference to Exhibit 10.19 to the 1991 10-K, as further
amended and restated as of May 7, 1992, incorporated by reference to Exhibit
10.17 to the 1992 10K, as further amended and restated effective January 1,
1994, incorporated by reference to Exhibit 10.17 to the 1994 10-K.
10.05. MBIA Corp. Split Dollar Life Insurance Plan, dated as of February 9,
1988, issued by Aetna Life Insurance and Annuity Company, incorporated by
reference to Exhibit 10.23 to the 1989 10-K.
28
<PAGE>
10.11. MBIA Inc. Employees Change of Control Benefits Plan, effective as of
January 1, 1992, incorporated by reference to Exhibit 10.65 to the 1992 10-K.
10.19. MBIA Inc. 1996 Incentive Plan, effective as of January 1, 1996,
incorporated by reference to Exhibit 10.70 to the 1995 10-K.
10.20. MBIA Inc. 1996 Directors Stock Unit Plan, effective as of December
4, 1996, incorporated by reference to Exhibit 10.70 to the 1996 10-K.
10.23. Employment Agreement, dated as of June 25, 1992, between CapMAC
Acquisition Corp. and John B. Caouette, incorporated by reference to Exhibit
10.7 of CapMAC's Registration Statement on Form S-1 (Reg. No. 33-982554), filed
in 1992, as amended (the "CapMAC Form S-1").
10.24. CapMAC Employee Stock Ownership Plan, incorporated by reference to
Exhibit 10.18 to the CapMAC Form S-1.
10.25. CapMAC Employee Stock Ownership Plan Trust Agreement, incorporated
by reference to Exhibit 10.19 to the CapMAC Form S-1, as amended by Amendment
No. 2 to the CapMAC Employee Stock Ownership Plan, executed December 22, 1998.
10.26. ESOP Loan Agreement by and between CapMAC and the ESOP Trust dated
as of June 25, 1992, incorporated by reference to Exhibit 10.20 to the CapMAC
Form S-1.
10.27. Deferred Compensation and Restricted Stock Agreement, dated as of
December 7, 1995, between John B. Caouette and CapMAC, incorporated by reference
to Exhibit 10.28 of the CapMAC Annual Report on Form 10-K for the year ended
December 31, 1995 (the "CapMAC 1995 10-K").
10.28. Deferred Compensation and Restricted Stock Agreement, dated as of
December 7, 1995, between Joyce S. Richardson and CapMAC, incorporated by
reference to Exhibit 10.35 of the CapMAC 1995 10-K.
10.29. Deferred Compensation and Restricted Stock Agreement, dated as of
December 7, 1995, between Ram D. Wertheim and CapMAC, incorporated by reference
to Exhibit 10.35 of the CapMAC 1995 10-K.
10.35. Retirement and Consulting Agreement, between the Company and David
H. Elliott, dated as of January 7, 1999 and Summary Retirement and Consulting
Agreement, between the Company and David H. Elliott, dated as of January 7,
1999.
10.36. Terms of Employment letter between MBIA and Joseph W. Brown, Jr.,
dated January 7, 1999.
10.37. Stock Option Agreement between MBIA Inc. and Joseph W. Brown, Jr.,
dated January 7, 1999.
10.38. Key Employee Employment Protection Agreement between MBIA Inc. and
Joseph W. Brown, Jr., dated January 20, 1999.
10.39. Key Employee Employment Protection Agreement between MBIA Inc. and
Neil G. Budnick, dated January 25, 1999.
10.40. Key Employee Employment Protection Agreement between MBIA Inc. and
W. Thacher Brown, dated January 25, 1999.
10.41. Key Employee Employment Protection Agreement between MBIA Inc. and
John B. Caouette, dated January 25, 1999.
10.42. Key Employee Employment Protection Agreement between MBIA Inc. and
Gary C. Dunton, dated January 25, 1999
29
<PAGE>
10.43. Key Employee Employment Protection Agreement between MBIA Inc. and
Louis G. Lenzi, dated January 25, 1999.
10.44. Key Employee Employment Protection Agreement between MBIA Inc. and
Kevin D. Silva , dated January 25, 1999.
10.45. Key Employee Employment Protection Agreement between MBIA Inc. and
Richard L. Weill, dated January 25, 1999.
10.46. Key Employee Employment Protection Agreement between MBIA Inc. and
Ruth M. Whaley, dated January 25, 1999.
10.47. Key Employee Employment Protection Agreement between MBIA Inc. and
Michael J. Maguire, dated March 19, 1999.
13. Annual Report to Shareholders of MBIA Inc. for fiscal year ended
December 31, 1998. Such report is furnished for the information of the
Commission only and, except for those portions thereof which are expressly
incorporated by reference in this Annual Report on Form 10-K, is not to be
deemed filed as part of this report.
21. List of Subsidiaries
23. Consent of PricewaterhouseCoopers LLP
24. Power of Attorney
27. Financial Data Schedule
99. Additional Exhibits - MBIA Corp. GAAP Financial Statements
(b) Reports on Form 8-K: The Company filed no report on Form 8-K in the
fourth quarter of 1998.
30
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MBIA Inc.
(Registrant)
Dated: March 29, 1999 By /s/ David H. Elliott
--------------------------------
Name: David H. Elliott
Title: Chairman
Pursuant to the requirements of Instruction D to Form 10-K under the
Securities Exchange Act of 1934, this Report has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ David H. Elliott Chairman and Director March 29, 1999
-----------------------------
David H. Elliott
/s/ Elizabeth B. Sullivan Vice President and March 29, 1999
----------------------------- Controller
Elizabeth B. Sullivan
/s/ Joseph W. Brown, Jr. * Director March 29, 1999
-----------------------------
Joseph W. Brown, Jr.
/s/ David C. Clapp * Director March 29, 1999
-----------------------------
David C. Clapp
/s/ Gary C. Dunton Director March 29, 1999
-----------------------------
Gary C. Dunton
31
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/s/ Claire L. Gaudiani * Director March 29, 1999
-----------------------------
Claire L. Gaudiani
/s/ William H. Gray, III * Director March 29, 1999
-----------------------------
William H. Gray, III
/s/ Freda S. Johnson * Director March 29, 1999
-----------------------------
Freda S. Johnson
/s/ Daniel P. Kearney * Director March 29, 1999
-----------------------------
Daniel P. Kearney
/s/ James A. Lebenthal * Director March 29, 1999
-----------------------------
James A. Lebenthal
/s/ Pierre-Henri Richard * Director March 29, 1999
-----------------------------
Pierre-Henri Richard
/s/ John A. Rolls * Director March 29, 1999
-----------------------------
John A. Rolls
/s/ Richard L. Weill Director March 29, 1999
-----------------------------
Richard L. Weill
*By /s/ Louis G. Lenzi
-----------------------------
Louis G. Lenzi
Attorney-in Fact
32
<PAGE>
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors of MBIA Inc.:
Our audits of the consolidated financial statements referred to in our report
dated February 2, 1999 appearing on page 44 of the 1998 Annual Report to
Shareholders of MBIA Inc. (which report and consolidated financial statements
are incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the financial statement schedules listed in item 14(a)(2) of this
Form 10-K. In our opinion, these financial statement schedules present fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 2, 1999
<PAGE>
SCHEDULE I
MBIA INC. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS, OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D
AMOUNT AT WHICH
FAIR SHOWN IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED-MATURITIES
Bonds:
United States Treasury
and Government
agency obligations $ 443,130 $ 490,415 $ 490,415
State and municipal
obligations 3,633,841 3,873,399 3,873,399
Corporate and other
obligations 3,162,344 3,303,693 3,303,693
Mortgage-backed 1,679,525 1,706,478 1,706,478
----------- ----------- ----------
Total fixed-maturities 8,918,840 9,373,985 9,373,985
SHORT-TERM INVESTMENTS 611,491 XXXXXXX 611,491
OTHER INVESTMENTS 99,393 XXXXXXX 94,975
----------- ----------- ----------
Total investments $9,629,724 XXXXXXX $10,080,451
=========== =========== ===========
</TABLE>
<PAGE>
SCHEDULE II
MBIA INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
ASSETS
<S> <C> <C>
Investments:
Municipal investment agreement portfolio
held as available-for-sale at fair value
(amortized cost $2,683,882 and $1,986,139) $2,737,874 $2,020,489
Short-term investments, at amortized cost
(which approximates fair value) --- 2,300
----------------- -----------------
Total investments 2,737,874 2,022,789
Cash and cash equivalents 5,177 3,891
Securities borrowed or purchased under
agreements to resell 648,281 512,283
Investment in and amounts due from
wholly-owned subsidiaries 4,542,945 3,906,852
Accrued investment income 24,900 22,389
Receivables for investments sold 15,439 11,272
Other assets 9,774 10,368
----------------- -----------------
Total assets $7,984,390 $6,489,844
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Municipal investment agreements $2,055,225 $1,356,926
Municipal repurchase agreements 632,409 567,897
Long-term debt 673,996 473,878
Short-term debt --- 20,000
Securities loaned or sold under
agreements to repurchase 683,352 645,583
Deferred income taxes 18,818 11,973
Payable for investments purchased 65,757 14,925
Dividends payable 19,897 17,449
Other liabilities 42,719 19,701
----------------- -----------------
Total liabilities 4,192,173 3,128,332
----------------- -----------------
Shareholders' Equity:
Preferred stock, par value $1 per
share; authorized shares - 10,000,000;
issued and outstanding shares - none --- ---
Common stock, par value $1 per share;
authorized shares - 200,000,000;
issued shares - 99,569,625 and 98,754,487 99,570 98,754
Additional paid-in capital 1,169,192 1,133,950
Retained earnings 2,246,221 1,901,608
Accumulated other comprehensive income,
net of deferred income taxes
of $157,410 and $132,026 288,915 236,095
Unallocated ESOP shares (4,044) (4,083)
Unearned compensation - restricted stock (6,807) (4,812)
Treasury stock - 21,717 shares in 1998 (830) ---
----------------- -----------------
Total shareholders' equity 3,792,217 3,361,512
----------------- -----------------
Total liabilities and shareholders' equity $7,984,390 $6,489,844
================= =================
</TABLE>
The condensed financial statements should be read in
conjunction with the consolidated financial statements and
notes thereto and the accompanying notes.
<PAGE>
SCHEDULE II
MBIA INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------------------------------
1998 1997 1996
------------------ -------------- -------------
<S> <C> <C> <C>
Revenues:
Net investment income $ (178) $ (909) $ 283
Investment management
services income 4,553 4,469 2,806
Investment management
services realized gains (losses) 4,253 202 (2,549)
------------------ -------------- -------------
Total revenues 8,628 3,762 540
------------------ -------------- -------------
Expenses:
Interest expense 38,875 34,762 32,705
Operating expenses 67,252 4,304 2,384
------------------ -------------- -------------
Total expenses 106,127 39,066 35,089
------------------ -------------- -------------
Loss before income taxes
and equity in earnings
of subsidiaries (97,499) (35,304) (34,549)
Benefit for income taxes (13,888) (12,444) (10,911)
------------------ -------------- -------------
Loss before equity in earnings
of subsidiaries (83,611) (22,860) (23,638)
Equity in earnings of subsidiaries 516,339 428,470 371,374
------------------ -------------- -------------
Net income $432,728 $405,610 $347,736
================== ============== =============
</TABLE>
The condensed financial statements should be read in
conjunction with the consolidated financial statements and
notes thereto and the accompanying notes.
<PAGE>
SCHEDULE II
MBIA INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 432,728 $ 405,610 $ 347,736
Adjustments to reconcile net income
to net cash provided by
operating activities:
Equity in undistributed
earnings of subsidiaries (516,339) (387,970) (342,374)
Net realized (gains) losses on
sales of investments (4,253) (202) 2,549
Benefit for deferred income taxes (30) --- ---
Other, net 27,823 297 593
--------------- --------------- ---------------
Total adjustments to net income (492,799) (387,875) (339,232)
--------------- --------------- ---------------
Net cash provided by
operating activities (60,071) 17,735 8,504
--------------- --------------- ---------------
Cash flows from investing activities:
Purchase of fixed-maturity
securities --- --- ---
Sale of fixed-maturity securities --- --- ---
Sale (purchase) of short-term investments 2,300 3,898 (6,198)
Sale of other investments --- --- ---
Purchases for municipal investment
agreement portfolio, net of payable
for investments purchased (2,351,385) (1,264,882) (1,189,132)
Sales from municipal investment
agreement portfolio, net of receivable
for investments sold 1,707,407 845,365 464,593
Contributions to subsidiaries (17,616) (93,666) (11,301)
Advances to subsidiaries, net (62,085) (96,597) (21,764)
--------------- --------------- ---------------
Net cash used by investing activities (721,379) (605,882) (763,802)
--------------- --------------- ---------------
Cash flows from financing activities:
Net proceeds from issuance of
common stock --- 127,775 54,880
Net proceeds from issuance
of long-term debt 197,113 98,880 ---
Net proceeds from issuance of
short-term debt (20,000) (9,100) 11,100
Dividends paid (85,667) (76,743) (69,795)
Proceeds from issuance of municipal
investment and repurchase agreements 2,065,200 1,499,080 1,504,140
Payments for drawdowns of
municipal investment agreements (1,306,389) (1,195,939) (786,938)
Securities loaned or sold under
agreements to repurchase, net (98,229) 133,300 ---
Exercise of stock options 30,708 14,372 28,218
--------------- --------------- ---------------
Net cash provided by financing activities 782,736 591,625 741,605
--------------- --------------- ---------------
Net (decrease) increase in cash and
cash equivalents 1,286 3,478 (13,693)
Cash and cash equivalents
-beginning of year 3,891 413 14,106
--------------- --------------- ---------------
Cash and cash equivalents
-end of year $ 5,177 $ 3,891 $ 413
=============== =============== ===============
Supplemental cash flow disclosures:
Income taxes paid $ 618 $ 1,568 $ 305
Interest paid:
Long-term debt 39,499 32,953 32,850
Short-term debt 1,057 2,017 1,309
</TABLE>
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes.
<PAGE>
SCHEDULE II
MBIA INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. CONDENSED FINANCIAL STATEMENTS
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the Company's
consolidated financial statements and the notes thereto.
2. SIGNIFICANT ACCOUNTING POLICIES
The Parent company carries its investments in subsidiaries under the equity
method.
3. DIVIDENDS FROM SUBSIDIARY
No dividends were paid by MBIA Corp. to MBIA Inc. in 1998 and 1997.
In 1996, MBIA Corp. declared and paid dividends of $29,000,000 to MBIA Inc.
Also, in 1997 MBIA Investment Management Corp. declared and paid dividends
of $40,500,000 to MBIA Inc.
4. OBLIGATIONS UNDER MUNICIPAL INVESTMENT AND REPURCHASE AGREEMENTS
The municipal investment and repurchase agreement business, as described in
footnotes 2 and 15 to the consolidated financial statements of MBIA Inc.
and Subsidiaries (which are incorporated by reference in the 10-K), is
conducted by both the Registrant and its wholly owned subsidiary, MBIA
Investment Management Corp.
<PAGE>
SCHEDULE IV
MBIA INC. AND SUBSIDIARIES
REINSURANCE
for the Years Ended December 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
Percentage
Insurance Gross Ceded to Other Assumed from of Amount
Premiums Written Amount Value Other Companies Net Amount Assumed to Net
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 $664,269 $156,064 $12,781 $520,986 2.5%
---- -------- -------- ------- -------- ----
1997 $635,660 $116,526 $18,188 $537,322 3.4%
---- -------- -------- ------- -------- ----
1996 $507,535 $69,956 $27,747 $465,326 6.0%
---- -------- -------- ------- -------- ----
</TABLE>
<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
- --------------------------------------------------------------------------------
Exhibits
to
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
Commission File No. 1-9583
- -------------------------------------------------------------------------------
MBIA Inc.
<PAGE>
Exhibit Index
3.2. By-Laws as Amended as of March 19, 1998.
10.01. MBIA Inc. 1987 Stock Option Plan, incorporated by reference to
Exhibit 10.13 to the 1987 S-1, as amended by the First Amendment to the MBIA
Inc. 1987 Stock Option Plan, effective June 1, 1995, as further amended by the
Second Amendment to the MBIA Inc. 1987 Stock Option Plan, effective as of
January 7, 1999.
10.10. Trust Agreement, dated as of December 31, 1991, between MBIA Corp.
and Fidelity Management Trust Company, incorporated by reference to Exhibit
10.64 to the 1992 10-K, as amended by the Amendment to Trust Agreement, dated as
of April 1, 1993, incorporated by reference to Exhibit 10.64 to the 1993 10-K,
as amended by First Amendment to Trust Agreement, dated as of January 21, 1992,
as further amended by Second Amendment to Trust Agreement, dated as of March 5,
1992, as further amended by Third Amendment to Trust Agreement, dated as of
April 1, 1993, as further amended by the Fourth Amendment to Trust Agreement,
dated as of July 1, 1995, incorporated by reference to Exhibit 10.47 to the 1995
10-K, as amended by Fifth Amendment to Trust Agreement, dated as of November 1,
1995, as further amended by Sixth Amendment to Trust Agreement, dated as of
January 1, 1996, incorporated by reference to Exhibit 10.46 to the 1996 10-K,
further amended by Seventh Amendment to Trust Agreement, dated as of October 15,
1997, incorporated by reference to Exhibit 10.36 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 (Comm. File No. 1-9583)
(the "1997 10-K"), as further amended by the Eighth Amendment to Trust
Agreement, dated as of January 1, 1998 and by the Ninth Amendment to Trust
Agreement, dated as of March 1, 1999.
10.13. First Restated Credit Agreement, dated as of October 1, 1993, among
MBIA Corp., Credit Suisse, New York Branch, as Agent, Credit Suisse, New York
Branch, Caisse Des Depots Et Consignations, Deutsche Bank AG, Bayerische
Landesbank Girozentrale and Landesbank Hessen-Thuringen Girozentrale, as amended
by an Assignment and Assumption Agreement, dated as of December 31, 1993, among
MBIA Corp., Credit Suisse, New York Branch, as Agent and Assignor and Deutsche
Bank AG, New York Branch, as further amended by a Modification Agreement, dated
as of January 1, 1994, among Deutsche Bank, AG, New York Branch, MBIA Corp. and
Credit Suisse, New York Branch, as Agent, as amended by a Joinder Agreement,
dated December 31, 1993, among Credit Suisse, New York Branch, as Agent,
Sudwestdeutsche Landesbank Girozentrale and MBIA Corp., incorporated by
reference to Exhibit 10.78 to the 1993 10-K, as amended by the First Amendment
to First Restated Credit Agreement, dated as of September 23, 1994, incorporated
by reference to Exhibit 10.63 to the 1994 10-K, as further amended by the Second
Amendment to the First Restated Credit Agreement, dated as of January 1, 1996,
and as further amended by the Third Amendment to the First Restated Credit
Agreement, dated as of October 1, 1996, incorporated by reference to Exhibit
10.57 to the 1996 10-K, as further amended and restated by the Second Amended
and Restated Credit Agreement, dated as of October 1, 1997, incorporated by
reference to Exhibit 10.46 to the 1997 10-K, as further amended by the First
Amendment to Second Amended and Restated Credit Agreement, dated as of October
1, 1998.
10.30. Reinsurance Agreement, dated as of April 1, 1998, between CapMAC and
MBIA Corp.
10.31. Reinsurance Agreement, dated as of January 1, 1999, between MBIA
Illinois and MBIA Corp.
10.32. Agreement and Plan of Merger by and among the Company, MBIA
Acquisition, Inc. and 1838 Investment Advisors, Inc., dated as of June 19, 1998.
10.33. Credit Agreement (364 day agreement) among the Company, MBIA Corp.,
various designated borrowers, various lending institutions, Deutsche Bank AG,
New York Branch, as Administrative Agent, The First National Bank of Chicago, as
Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of
August 28, 1998.
10.34. Credit Agreement (5 year agreement) among the Company, MBIA Corp.,
various designated borrowers, various lending institutions, Deutsche Bank AG,
New York Branch, as Administrative Agent, The First National Bank of Chicago, as
Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of
August 28, 1998
<PAGE>
10.35. Retirement and Consulting Agreement, between the Company and David
H. Elliott, dated as of January 7, 1999 and Summary Retirement and Consulting
Agreement, between the Company and David H. Elliott, dated as of January 7,
1999.
10.36. Terms of Employment letter between MBIA and Joseph W. Brown, Jr.,
dated January 7, 1999.
10.37. Stock Option Agreement between MBIA Inc. and Joseph W. Brown, Jr.,
dated January 7, 1999.
10.38. Key Employee Employment Protection Agreement between MBIA Inc. and
Joseph W. Brown, Jr., dated January 20, 1999.
10.39. Key Employee Employment Protection Agreement between MBIA Inc. and
Neil G. Budnick, dated January 25, 1999.
10.40. Key Employee Employment Protection Agreement between MBIA Inc. and
W. Thacher Brown, dated January 25, 1999.
10.41. Key Employee Employment Protection Agreement between MBIA Inc. and
John B. Caouette, dated January 25, 1999.
10.42. Key Employee Employment Protection Agreement between MBIA Inc. and
Gary C. Dunton, dated January 25, 1999.
10.43. Key Employee Employment Protection Agreement between MBIA Inc. and
Louis G. Lenzi, dated January 25, 1999.
10.44. Key Employee Employment Protection Agreement between MBIA Inc. and
Kevin D. Silva , dated January 25, 1999.
10.45. Key Employee Employment Protection Agreement between MBIA Inc. and
Richard L. Weill, dated January 25, 1999.
10.46. Key Employee Employment Protection Agreement between MBIA Inc. and
Ruth M. Whaley, dated January 25, 1999.
10.47. Key Employee Employment Protection Agreement between MBIA Inc. and
Michael J. Maguire, dated March 19, 1999.
10.48. Ambac Assurance Corporation, AMBAC Insurance UK Limited, MBIA
Insurance Corporation, and MBIA Assurance S.A. Agreement Regarding A Global
Joint Venture, effective as of January 15, 1999.
10.49. Special Excess Of Loss Reinsurance Agreement, between MBIA Insurance
Corporation and/or MBIA Assurance S.A. and/or any other insurance or reinsurance
company subsidiaries of MBIA Inc. listed in Exhibit No. 1 and Muenchener
Rueckversicherungs-Gesellshaft, effective September 1, 1998.
10.50. Second Special Per Occurrence Excess Of Loss Reinsurance Agreement,
between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other
insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No.
1 and AXA Re Finance S.A., effective September 1, 1998.
10.51. Third Special Per Occurrence Excess Of Loss Reinsurance Agreement,
between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other
insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No.
1 and Zurich Reinsurance (North America), Inc., effective September 15, 1998.
<PAGE>
13. Annual Report to Shareholders of MBIA Inc. for fiscal year ended
December 31, 1998. Such report is furnished for the information of the
Commission only and, except for those portions thereof which are expressly
incorporated by reference in this Annual Report on Form 10-K, is not to be
deemed filed as part of this report.
21. List of Subsidiaries
23. Consent of PricewaterhouseCoopers LLP
24. Power of Attorney
27. Financial Data Schedule
99. Additional Exhibits - MBIA Corp. GAAP Financial Statements
MBIA INC.
BY-LAWS
As Amended as of
March 19, 1998
<PAGE>
MBIA Inc.
BY-LAWS
TABLE OF CONTENTS
Section Page
- ------- ----
ARTICLE I
SHAREHOLDERS
1.01 Annual Meetings .......................................... 1
1.02 Special Meetings ......................................... 1
1.03 Notice of Meetings; Waiver ............................... 1
1.04 Quorum ................................................... 2
1.05 Voting ................................................... 2
1.06 Adjournment .............................................. 2
1.07 Proxies .................................................. 3
1.08 Organization; Procedure .................................. 3
1.09 Order of Business ........................................ 3
ARTICLE II
BOARD OF DIRECTORS
2.01 General Powers ........................................... 5
2.02 Number ................................................... 5
2.03 Qualifications of Directors .............................. 5
2.04 Election and Term of Directors ........................... 5
2.05 Regular Meetings ......................................... 6
2.06 Special Meetings; Notice.................................. 6
2.07 Quorum; Voting ........................................... 6
2.08 Adjournment .............................................. 7
2.09 Action Without a Meeting ................................. 7
2.10 Regulations; Manner of Acting ............................ 7
2.11 Resignations ............................................. 7
2.12 Removal of Directors ..................................... 7
2.13 Vacancies and Newly Created
Directorships .......................................... 7
2.14 Compensation ............................................. 8
2.15 Action by Telephonic Communications ...................... 8
<PAGE>
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
3.01 How Constituted .......................................... 8
3.02 Powers ................................................... 8
3.03 Proceedings .............................................. 9
3.04 Quorum and Manner of Acting .............................. 9
3.05 Resignations ............................................. 10
3.06 Removal .................................................. 10
3.07 Vacancies ................................................ 10
ARTICLE IV
OFFICERS
4.01 Number ................................................... 10
4.02 Election ................................................. 10
4.03 Removal and Resignation; Vacancies ....................... 10
4.04 Authority and Duties of Officers ......................... 11
4.05 The Chairman ............................................. 11
4.06 The Secretary ............................................ 11
4.07 Additional Officers ...................................... 12
4.08 Security ................................................. 12
ARTICLE V
CAPITAL STOCK
5.01 Certificates of Stock .................................... 12
5.02 Lost, Stolen or Destroyed Certificates ................... 13
5.03 Transfers of Stock; Registered
Shareholders ........................................... 13
5.04 Record Date .............................................. 13
5.05 Transfer Agent and Registrar ............................. 14
<PAGE>
ARTICLE VI
OFFICES
6.01 Registered Office ........................................ 14
6.02 Other Offices ............................................ 14
ARTICLE VII
GENERAL PROVISIONS
7.01 Dividends ................................................ 15
7.02 Reserves ................................................. 15
7.03 Execution of Instruments ................................. 15
7.04 Deposits ................................................. 15
7.05 Checks, Drafts, etc ...................................... 15
7.06 Sale, Transfer, etc. of Securities ....................... 15
7.07 Voting as Shareholder .................................... 16
7.08 Fiscal Year .............................................. 16
7.09 Seal ..................................................... 16
7.10 Books and Records; Inspection ............................ 16
ARTICLE VIII
AMENDMENT OF BY-LAWS
8.01 Amendment ................................................ 16
<PAGE>
BY-LAWS
ARTICLE I
SHAREHOLDERS
Section 1.01. Annual Meetings. The Annual Meeting of the shareholders of
the Corporation for the election of Directors and for the transaction of such
other business as properly may come before such meeting shall be held on the
first Thursday in May at 10:00 A.M. at such place, either within or without the
State of Connecticut, or at such other date and hour as in may be fixed from
time to time by resolution of the Board of Directors and set forth in the notice
or waiver of notice of the meeting. Any previously scheduled Annual Meeting may
be postponed by resolution of the Board of Directors upon notice given on or
prior to the date previously scheduled for such Annual Meeting of the
shareholders. [Section 33-695(a)(b).](1)
Section 1.02. Special Meetings. Special Meetings of the shareholders may be
called at any time by the Chairman, the Vice Chairman, the Secretary, or any two
Directors. A Special Meeting shall be called by the Chairman or the Vice
Chairman, immediately upon receipt of a written request therefor delivered to
the Secretary of the Corporation by shareholders holding not less than 10% of
the voting power of all shares entitled to vote at the meeting, which request
shall state the purpose or purposes of such meeting. If the Chairman or the Vice
Chairman shall fail to call such meeting within 15 days after receipt of such
request, any shareholder executing such request may call such meeting. Such
Special Meetings of the shareholders shall be held at such places, within or
without the State of Connecticut, as shall be specified in the respective
notices or waivers of notice thereof. At any Special Meeting of shareholders,
only such business may be transacted as is related to the purposes set forth in
the notice thereof. [Section 33696.]
Section 1.03. Notice of Meetings: Waiver. A notice in writing of each
meeting of shareholders shall be given by or at the direction of the Chairman or
the Vice Chairman or Secretary or the officer or person calling the meeting to
each shareholder of record entitled to vote at such meeting, by leaving such
notice with the shareholder or at the shareholder's residence or usual place of
business, or by mailing a copy thereof addressed to such shareholder at the
last-known post-office address as last shown on the
- --------------------------------------------------------------------------------
(1) Citations are to the Connecticut Business Corporation Act, and are
inserted for reference only, and do not constitute a part of the By-Laws.
1
<PAGE>
stock records of the Corporation, postage prepaid, not less than ten days nor
more than 60 days before the date of the meeting. Each notice of a meeting of
shareholders shall state the place, date and hour of the meeting. The general
purpose or purposes for which a Special Meeting is called shall be stated in the
notice thereof, and no other business shall be transacted at the meeting.
No notice of any meeting of shareholders need be given to any shareholder
who submits a signed waiver of notice, in person or by proxy, whether before or
after the meeting. Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the shareholders need be specified in a
written waiver of notice. The Secretary of the Corporation shall cause any such
waiver to be filed with the records of the meeting. The attendance of any
shareholder, in person or by proxy, at a meeting of shareholders without
protesting, prior to or at the commencement of the meeting, the lack of proper
notice shall be deemed to be a waiver by such shareholder of notice of such
meeting.
Except as set forth in Section 1.06 of these By-Laws, notice of any
adjourned meeting of the shareholders of the Corporation need not be given.
[Sections 33-699, 33-700.]
Section 1.04. Quorum. Except as otherwise required by law or by the
Certificate of Incorporation, the presence in person or by proxy of the holders
of a majority of the shares of stock entitled to vote at any meeting of
shareholders shall constitute a quorum for the transaction of business at such
meeting. The shareholders present at a duly held meeting at which a quorum is
present may continue to do business for the remainder of the meeting and any
adjournment of it unless a new record date is or must be set for the adjourned
meeting, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum. [Section 33-709.]
Section 1.05. Voting. Every holder of record of shares entitled to vote at
a meeting of shareholders shall be entitled to one vote for each share standing
in his or her name on the books of the Corporation on the record date fixed
pursuant to Section 5.04 of these By-Laws. Shares standing in the name of
another domestic or foreign corporation of any type or kind may be voted by such
officer, agent or proxy as the By-Laws of such corporation may provide, or in
the absence of such provision, as the Board of Directors of such Corporation may
determine. If a meeting of shareholders is duly held and if a quorum exists,
action on a matter, other than the election of Directors, is approved by the
shareholders if the votes cast by the shareholders favoring the action exceed
the votes cast opposing the action, unless the Certificate of Incorporation,
these By-laws or the law requires a greater number of affirmative votes.
[Sections 33-705, 33-709.]
Section 1.06. Adjournment. If a quorum is not present at any meeting of the
shareholders, the shareholders present in person or by proxy shall have the
power to adjourn any such meeting until a quorum is present, without notice
other than
2
<PAGE>
announcement at any such meeting of the place, date and hour to which such
meeting is adjourned. However, if after the adjournment the Board of Directors
fixes a new record date for the adjourned meeting pursuant to Section 5.04 of
these By-Laws, a notice of the adjourned meeting, conforming to the requirements
of Section 1.03 hereof, shall be given to each shareholder of record entitled to
vote at such meeting. The holders of a majority of the voting power of the
shares entitled to vote represented at a meeting may adjourn such meeting from
time to time. At any adjourned meeting at which a quorum is present, any
business may be transacted that might have been transacted on the original date
of the meeting. [Section 33-699(e).]
Section 1.07. Proxies. Every person entitled to vote or execute consents,
waivers or releases in respect of shares may do so either in person or by one or
more agents authorized by a written proxy executed by such person. No such proxy
shall be voted or acted upon after the expiration of 11 months from the date of
such proxy, unless it expressly specifies a longer length of time for which it
is to continue in force or limits its use to a particular meeting not yet held.
Every proxy shall be revocable at the will of the shareholder executing it,
unless it states that it is irrevocable and the appointment of proxy is coupled
with an interest. An appointment of a proxy is effective when received by the
Secretary of the Corporation or other officer or agent authorized to tabulate
votes. [Section 33-706.]
Section 1.08. Organization; Procedure. At every meeting of shareholders the
presiding officer shall be the Chairman or, in the event of his absence or
disability, the Vice Chairman, or in the absence of such officers, a presiding
officer chosen by a majority of the shareholders present in person or by proxy.
The order of business and all other matters of procedure at every meeting of
shareholders may be determined by such presiding officer. The Secretary, or, in
his absence, an appointee of the presiding officer, shall act as Secretary of
the meeting.
Section 1.09. Order of Business.
(a) At any Annual Meeting or Special Meeting of the shareholders, only
such business shall be conducted as shall have been brought before the
Annual Meeting or the Special Meeting (i) by or at the direction of
the Board of Directors or (ii) by any shareholder who complies with
the procedures set forth in this Section 1.09.
(b) For business properly to be brought before an Annual Meeting or
Special Meeting by a shareholder, the shareholder must have given
timely notice thereof in proper written form to the Secretary of the
Corporation. To be timely, a shareholder's notice must be delivered to
or mailed and received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the
Annual Meeting or Special Meeting; provided,
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however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the Annual Meeting or Special Meeting
is given or made to shareholders, notice by the shareholder to be
timely must be received not later than the close of business on the
tenth day following the day on which such notice of the date of the
Annual Meeting or Special Meeting was mailed or such public disclosure
was made. To be in proper written form, a shareholder's notice to the
Secretary shall set forth in writing as to each matter the shareholder
proposes to bring before the Annual Meeting or Special Meeting: (i) a
brief description of the business desired to be brought before the
Annual Meeting or Special Meeting and the reasons for conducting such
business at the Annual Meeting or Special Meeting; (ii) the name and
address, as they appear on the Corporation's books, of the shareholder
proposing such business; (iii) the class and number of shares of the
Corporation which are beneficially owned by the shareholder; and (iv)
any material interest of the shareholder in such business.
Notwithstanding anything in the By-Laws to the contrary, no business
shall be conducted at an Annual Meeting or Special Meeting except in
accordance with the procedures set forth in this Section 1.09. The
chairman of an Annual Meeting or Special Meeting shall, if the facts
warrant, determine and declare to the Meeting, that business was not
properly brought before such Meeting in accordance with the provisions
of this Section 1.09 and, if he or she should so determine, he or she
shall so declare to such meeting and any such business not properly
brought before such meeting shall not be transacted.
(c) For a shareholder to nominate persons for election to the Board of
Directors of the Corporation, the shareholder may nominate persons for
election as Directors only if such intention to make such nomination
is given by timely notice thereof in proper written form to the
Secretary of the Corporation. To be timely, a shareholder's notice of
nomination must be delivered to or mailed and received at the
principal offices of the Corporation not less than 60 days nor more
than 90 days prior to the Annual Meeting or Special Meeting at which
Directors will be elected; provided however, that in the event that
less than 70 days' notice or prior public disclosure of the date of
such meeting is given or made to shareholders, notice by the
shareholder to be timely must be received not later than the close of
business on the tenth day following the day on which such notice of
the date of such meeting was mailed or such public disclosure was
made. To be in proper written form, a shareholder's notice to the
Secretary shall set forth
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in writing (a) as to each person whom the shareholder proposes to
nominate for election or re-election as a Director, (i) the name, age,
business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and
number of shares of stock of the Corporation which are beneficially
owned by such person and (iv) any other information relating to such
person that is required to be disclosed in solicitations of proxies
for election of Directors, or is otherwise required under the rules
and regulations of the Securities and Exchange Commission (including
without limitation such, person's written consent to being named in
the proxy statement as a nominee and to serving as a Director if
elected) and (b) as to the shareholder giving the notice, (i) the name
and address, as they appear on the Corporation's books, of such
shareholder and, (ii) the class and number of shares of stock of the
Corporation which are beneficially owned by such shareholder. The
chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance
with the procedures of this Section 1.09 and, if the chairman of the
meeting should so determine, he or she shall so declare to the meeting
and the defective nomination shall be disregarded.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. General Powers. All the powers of the Corporation shall be
exercised by or under the authority of the Board of Directors, and except as may
otherwise be provided by law, by the Certificate of Incorporation or by these
By-Laws, the business and affairs of the Corporation shall be managed by or
under the direction of its Board of Directors. [Section 33-735(b).]
Section 2.02. Number. The number of Directors constituting the entire Board
of Directors shall be not less than three and not more than 15, and the number
of directorships at any time within such maximum and minimum shall be the number
fixed by resolution of the shareholders or by resolution adopted by a 66-2/3%
vote of the Board of Directors or, in the absence thereof, shall be the number
of Directors elected at the preceding Annual Meeting of shareholders [Section
33-737.]
Section 2.03. Qualifications of Directors. Directors need not be residents
of the State of Connecticut or shareholders of the Corporation. [Section
33-736.]
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Section 2.04. Election and Term of Directors. Except as otherwise provided
in Section 2.14 of these By-Laws, the Directors shall be elected at each Annual
Meeting of the shareholders to hold office until the next Annual Meeting of
shareholders. Each Director shall hold office for the term for which he or she
is elected and until such director's successor has been duly elected and
qualified, or until a earlier death, resignation, removal or a court order
stating that by reason of incompetency or any other lawful cause, he or she is
no longer a Director in office. If the Annual Meeting for the election of
Directors is not held on the date designated therefor, the Directors shall cause
the meeting to be held as soon thereafter as convenient. At each meeting of the
shareholders for the election of Directors, at which a quorum is present, the
Directors shall be elected by a plurality of the votes cast by the holders of
shares entitled to vote in such election. [Sections 33-712, 33-737, 33-739]
Section 2.05. Regular Meetings. The Board of Directors shall meet for the
purpose of electing officers and appointing committees, if any, and for the
transaction of such other business as may properly come before such meeting,
immediately following adjournment of the Annual Meeting of the shareholders at
the place of such Annual Meeting of the shareholders. Notice of such meeting of
the Board of Directors need not be given. Additional regular meetings of the
Directors may be held at such places, dates and times as shall be determined
from time to time by resolution of the Directors. Notice of regular meetings
need not be given, except that if the Board of Directors shall fix or change the
time or place of any such regular meeting, notice of such action shall be mailed
promptly, or sent by telegram or facsimile, to each Director who shall not have
been present at the meeting at which such action was taken, addressed to such
Director at his or her usual place of business, or shall be delivered
personally. Notice of such action need not be given to any Director who attends
the first regular meeting after such action is taken without protesting the lack
of notice, prior to or at the commencement of such meeting, or to any Director
who submits a signed waiver of notice, whether before or after such meeting.
[Sections 33-748, 33-750.]
Section 2.06. Special Meetings, Notice. Special Meetings of the Board of
Directors shall be held whenever called by the Chairman, the Vice Chairman, the
Secretary or any two Directors, at such place (within or without the State of
Connecticut), as may be specified in the respective notices or waivers of notice
of such meetings. At least two days' written or oral notice of Special Meetings
of the Board of Directors shall be given to each Director. A written waiver of
notice signed by a Director entitled to such notice, whether before or after the
time stated therein, shall be equivalent to the giving of such notice. The
Secretary of the Corporation shall cause any such waiver to be filed with the
records of the meeting. The attendance of a Director at a meeting without
protesting, prior to or at the commencement of the meeting, the lack of proper
notice shall be deemed to be a waiver by such Director of notice of such
meeting. No notice need be given of any adjourned meeting, unless the time and
place of the adjourned meeting are not announced at the time of adjournment, in
which case notice conforming to the requirements of this section shall be given
to each Director. [Sections33-750,33-751.]
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Section 2.07. Quorum; Voting. Except as provided in the Certificate of
Incorporation of this Corporation, a majority of the number of directorships at
the time shall constitute a quorum for the transaction of business. Except as
otherwise provided herein, required by law or the Certificate of Incorporation
of this Corporation, the vote of a majority of the Directors present at any
meeting at which a quorum is present shall be the act of the Board of Directors.
[Section 33-752.]
Section 2.08. Adjournment. A majority of the Directors present, whether or
not quorum is present, may adjourn any meeting of the Board of Directors to
another time or place. Notice of the adjourned meeting shall be given to the
extent required by Section 2.05 of these By-Laws.
Section 2.09. Action Without a Meeting. If all the Directors severally or
collectively consent in writing to any action taken or to be taken by the
Corporation, and the number of such Directors constitutes a quorum for such
action, such action shall be as valid corporate action as though it had been
authorized at a meeting of the Board of Directors. The Secretary shall file such
consents with the minutes of the meetings of the Board of Directors. [Section
33-749.]
Section 2.10. Regulations; Manner of Acting. To the extent consistent with
applicable law, the Certificate of Incorporation and these By-Laws, the Board of
Directors may adopt such rules and regulations for the conduct of meetings of
the Board of Directors and for the management of the affairs and business of the
Corporation as the Board of Directors may deem appropriate. The Directors shall
act only as a Board, and the individual Directors shall have no power as such.
At every meeting of the Board of Directors, the presiding officer shall be the
Chairman or, in the event of his or her absence or disability, a presiding
officer chosen by a majority of the Directors present.
Section 2.1 1. Resignations. Any Director may resign at any time by
delivering a written notice of resignation, signed by such Director, to the
Board of Directors. Such resignation shall be effective immediately upon receipt
by the Corporation if no time is specified, or at such later time as the
resigning Director may specify. [Section 33-741.]
Section 2.12. Removal of Directors. Any Director or Directors my be removed
either with or without cause at any time by the affirmative vote of the holders
of a majority of all the shares of stock outstanding and entitled to vote, at a
Special Meeting of the shareholders called for such purpose, which purpose must
be set forth in the notice of the meeting. [Section 33-742.]
Section 2.13. Vacancies and Newly Created Directorships. Subject to the
provisions of Section 2.02 hereof, any newly created directorships resulting
from any increase in the number of Directors and any vacancies occurring on the
Board of
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Directors for any other reason shall be filled for the unexpired term by a vote
of 66-2/3 % of the Board of Directors (measuring the percentage of the
directorships on the Board of Directors, 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). [Section 33-744.]
Section 2.14. Compensation. The amount, if any, which each Director shall
be entitled to receive as compensation for his or her services as such shall be
approved from time to time by the Board of Directors. [Section 33-745.]
Section 2.15. Action by Telephonic Communications. Members of the Board of
Directors, or any Committee designated by the Board, may participate in a
meeting of the Board of Directors or such Committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time. Participation
in a meeting pursuant to this provision shall constitute presence in person at
such meeting. [Section 33-748(b).]
ARTICLE III
EXECUTIVE COMMITTEE. AUDIT COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted. The Board of Directors, by resolution or
resolutions adopted by a vote of 66-2/3% of the Board of Directors, may
designate two or more Directors to constitute an Executive Committee, an Audit
Committee or other Committees. The Board may so designate one or more Directors
as alternate member(s) of any Committee who may replace any absent or
disqualified member(s) at any meeting of the Committee. Any such Committee may
be abolished or redesignated from time to time by resolution or resolutions
similarly adopted by the Board of Directors. Each such Committee shall serve at
the pleasure of the Board of Directors. Each member of any such Committee shall
hold office until a successor shall have been designated or until such member
shall cease to be a Director, or until his or her earlier death, resignation or
removal. [Section 33-753.]
Section 3.02. Powers. During the intervals between the meetings of the
Board of Directors, unless otherwise provided from time to time by resolutions
adopted by a vote of 66-2/3% of the Board of Directors, the Executive Committee,
if such a Committee shall have been established, shall have and may exercise all
the powers of the Board of Directors in the management of the business and
affairs of the Corporation, subject to the limitations set forth below. No
Committee, including the Executive Committee, shall have any power or authority
in reference to the following matters:
(a) the declaration of any distribution or dividend in respect of
shares of stock of the Corporation;
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(b) approving or proposing to shareholders any action as to which
shareholder approval is required by law;
(c) the filling of vacancies on the Board of Directors or on any
Committee thereof;
(d) the amendment of the Certificate of Incorporation pursuant to
Section 33-796 of the Connecticut Business Corporation Act;
(e) the amendment or repeal of the By-Laws, or the adoption of new
By-Laws;
(f) the approval of a plan of merger not requiring shareholder
approval;
(g) the authorization or approval of the reacquisition of shares,
except according to a formula or method prescribed by the Board of
Directors; or
(h) the authorizing or approving of the issuance or sale or contract
for sale of shares, or the determination of the designation and relative
rights, preferences and limitations of a class or series of shares, except
that the Board of Directors may authorize a Committee or a senior executive
officer of the Corporation to do so within limits specifically prescribed
by the Board of Directors.
Subject to the foregoing limitations, each other such Committee shall have and
may exercise such powers of the Board as may be provided by resolution or
resolutions similarly adopted. [Section 33-753(e)(f).]
Section 3.03. Proceedings. Any such Committee may fix its own rules of
procedure and may meet at such place (within or without the State of
Connecticut), at such date and time and upon such notice, if any, as it shall
determine from time to time. Such Committee shall keep a record of its
proceedings and shall report any such proceedings to the Board of Directors at
the first meeting of the Board of Directors following any such proceedings.
Section 3.04. Quorum and Manner of Acting. Except as may be otherwise
provided in the resolution designating any such Committee, at all meetings of
any such Committee the presence of members constituting a majority of the total
authorized membership of such Committee, but in no event less than two, shall
constitute a quorum for the transaction of business; and the act of the majority
of the members present at any meeting at which a quorum is present, but in no
event less than two, shall be the act of such Committee. Any action required or
permitted to be taken at any
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meeting of any such Committee may be taken without a meeting, if all members of
such Committee shall consent to such action in writing and such writing or
writings are filed with the proceedings of the Committee. The members of any
such Committee shall act only as a Committee, and the individual members of such
Committee shall have no power as such. [Sections 33-749, 33-752, 33-753(d).]
Section 3.03. Resignations. Any member of any Committee may resign at any
time by delivering a written notice of resignation, signed by such member, to
the Board of Directors. Unless otherwise specified therein, such resignation
shall take effect upon delivery.
Section 3.06. Removal. Any member of any such Committee may be removed at
any time, with or without cause, by resolution adopted by a vote of 66-2/3% of
the Board of Directors.
Section 3.07. Vacancies. If any vacancy shall occur in any such Committee,
by reason of disqualification, death, resignation, removal or otherwise, the
remaining members shall continue to act, if they are at least two in number, and
any such vacancy may be filled by resolution adopted by a vote of 66-2/3% of the
Board of Directors.
ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the Corporation shall be elected by
the Board of Directors and shall include a Chairman, a Vice Chairman, a
Secretary and such other officers as the Board may appoint from time to time.
Any two or more offices may be held by the same person. No officer, except the
Chairman, need be a Director of the Corporation. [Section 33-763.]
Section 4.02. Election. Unless otherwise determined by the Board of
Directors, the officers of the Corporation shall be elected by the Board of
Directors at the first meeting of the Board of Directors following each annual
meeting of the shareholders, and shall be elected to hold office until the first
meeting of the Board following the next succeeding annual meeting of the
shareholders. Each officer shall hold office until a successor has been elected
and qualified, or until such officer's earlier death, resignation or removal.
Section 4.03. Removal and Resignation; Vacancies. Any officer may be
removed with or without cause at any time by the Board of Directors, but without
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prejudice to such officer's contract rights, if any. Any officer may resign at
any time by delivering a written notice of resignation, signed by such officer,
to the Board of Directors. Unless otherwise specified therein, such resignation
shall take effect upon delivery. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise, shall be filled by the
Board of Directors. [Section 33-766.]
Section 4.04. Authority and Duties of Officers. The officers of the
Corporation shall have such authority and shall exercise such powers and perform
such duties as may be specified in these By-Laws, except that in any event each
officer shall exercise such powers and perform such duties as may be required by
law.
Section 4.05. The Chairman. The Chairman shall have the following powers
and duties:
(a) He or she shall perform such duties, in addition to those
specified below, as may be assigned by the Board of Directors.
(b) He or she shall preside at all shareholders' meetings.
(c) He or she shall preside at all meetings of the Board of Directors.
Section 4.06. The Secretary. The Secretary shall have the following powers
and duties:
(a) He or she shall keep or cause to be kept a record of all the
proceedings of the meetings of the shareholders and of the Board of
Directors in books provided for that purpose.
(b) He or she shall cause all notices to be duly given in accordance
with the provisions of these By-Laws and as required by law.
(c) Whenever any Committee shall be appointed pursuant to a resolution
of the Board of Directors, he or she shall furnish a copy of such
resolution to the members of such Committee.
(d) He or she shall be the custodian of the records and of the seal of
the Corporation and cause such seal (or a facsimile thereof) to be affixed
to all certificates representing shares of the Corporation prior to the
issuance thereof and to all instruments the execution of which on behalf of
the Corporation under its seal shall have been duly authorized in
accordance with these By-Laws, and when so affixed he or she may attest the
same.
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(e) He or she shall properly maintain and file all books, reports,
statements, certificates and all other documents and records required by
law, the Certificate of Incorporation or these By-Laws.
(f) He or she shall have charge of the stock books and ledgers of the
Corporation and shall cause the stock and transfer books to be kept in such
manner as to show at any time the number of shares of stock of the
Corporation of each class issued and outstanding, the names (alphabetically
arranged) and the addresses of the holders of record of such shares, the
number of shares held by each holder and the date as of which each became
such holder of record.
(g) He or she shall sign certificates representing shares of the stock
of the Corporation the issuance of which shall have been authorized by the
Board of Directors.
(h) He or she shall perform, in general, all duties incident to the
office of Secretary and such other duties as may be given to him or her by
these By-Laws or as may be assigned to him or her from time to time by the
Board of Directors, the Chairman or the Vice Chairman.
Section 4.07. Additional Officers. The Board of Directors may elect such
other officers and agents as it may deem appropriate, and such other officers
and agents shall hold their offices for such terms and shall exercise such
powers and perform such duties as may be determined from time to time by the
Board of Directors.
Section 4.08. Security. The Board of Directors may require any officer or
agent of the Corporation to provide security for the faithful performance of his
or her duties, in such amount and of such character as may be determined from
time to time by the Board of Directors.
ARTICLE V
CAPITAL STOCK
Section 5.01. Certificates of Stock. Every holder of stock in the
Corporation shall be entitled to a certificate or certificates certifying the
number of shares owned by him or her in such Corporation. Share certificates may
be under seal, or facsimile seal, of the Corporation and shall be signed by (1)
the Chairman and by the Secretary or (2) by any two officers of the Corporation
so authorized to sign by a resolution of the Board of Directors, except that
such signatures may be facsimile if such certificate is signed by a transfer
agent, transfer clerk acting on behalf of such corporation
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or registrar. Each certificate representing shares shall set forth upon the face
thereof as at the time of the issue: (1) The name of the Corporation; (2) a
statement that the Corporation is organized under the laws of Connecticut; (3)
the name of the person to whom issued, or that the same is issued to bearer; (4)
the number, class and designation of series, if any, of shares which such
certificate represents; and (5) the par value of each share represented by such
certificate or a statement that the shares are without par value. The Board of
Directors of the Corporation may provide by resolution that some or all of any
or all classes and series of its shares shall be uncertificated shares, provided
that such resolution shall not apply to shares represented by a certificate
until such certificate is surrendered to the Corporation. Within a reasonable
time after the issuance of uncertificated shares, the Corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates. [Section 33-676.]
Section 5.02. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct that a new certificate be issued in place of any
certificate previously issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate, setting forth such allegation. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of any such new certificate.
Section 5.03. Transfers of Stock; Registered Shareholders
(a) Shares of stock of the Corporation shall be transferable only upon
the books of the Corporation kept for such purpose upon surrender to the
Corporation or its transfer agent or agents of a certificate (unless such
shares shall be uncertificated shares) representing shares, duly endorsed
or accompanied by appropriate evidence of succession, assignment or
authority to transfer. Within a reasonable time after the transfer of
uncertificated shares, the Corporation shall send to the registered owner
thereof a written notice containing the information required to be set
forth or stated on certificates.
(b) The Board of Directors, subject to these By-Laws, may make such
rules, regulations and conditions as it may deem expedient concerning the
subscription for, issue, transfer and registration of, shares of stock.
Except as otherwise provided by law, the Corporation, prior to due
presentment for registration of transfer, may treat the registered owner of
shares as the person exclusively entitled to vote, to receive
notifications, and otherwise to exercise all the rights and powers of an
owner. [Section 33-678.]
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Section 5.04. Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, to demand a special meeting or entitled to receive payment
of any distribution, or for any other proper purpose, the Board of Directors may
provide that the stock transfer books shall be closed for a stated period but
such period shall not exceed, in any case, 70 days. If the stock transfer books
are closed for the purpose of determining shareholders entitled to notice of or
to vote at a meeting of shareholders, such books shall be closed for at least 10
full days immediately preceding the date of such meeting. In lieu of closing the
stock transfer books, the Board of Directors by resolution may fix a date as the
record date for any such determination of shareholders, such date in any case to
be not earlier than the date such action is taken by the Board of Directors and
not more than 70 days, and, in case of a meeting of shareholders, not less than
10 full days, immediately preceding the date on which the particular event,
requiring such determination of shareholders, is to occur. When a determination
of shareholders of record entitled to notice of or to vote at any meeting of
shareholders has been made as provided in this Section 5.04, such determination
shall apply to any adjournment thereof, unless the Board of Directors fixes a
new record date for the adjourned meeting, which it shall do if the meeting is
adjourned to a date more than 120 days after the date fixed for the original
meeting. [Section 33-701.]
Section 5.05. Transfer Agent and Registrar. The Board of Directors may
appoint one or more transfer agents and one or more registrars, and may require
all certificates representing shares to bear the signature of any such transfer
agents or registrars. The same person may act as transfer agent and registrar
for the Corporation.
ARTICLE VI
OFFICES
Section 6.01. Registered Office. The registered office of the Corporation
in the State of Connecticut shall be located in the City of Hartford. [Section
33-660.]
Section 6.02. Other Offices. The Corporation may maintain offices or places
of business at such other locations within or without the State of Connecticut
as the Board of Directors may from time to time determine or as the business of
the Corporation may require.
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ARTICLE VII
GENERAL PROVISIONS
Section 7.01. Dividends. Subject to any Applicable provisions of law and
the Certificate of Incorporation, dividends or other distributions upon the
outstanding shares of the Corporation may be declared by the Board of Directors
at any regular or Special Meeting of the Board of Directors and any such
dividend or distribution may be paid in case, property or the Corporation's own
shares. [Section 33-674, 33-687.]
Section 7.02. Reserves. There may be set apart from time to time out of any
funds of the Corporation available for dividends such reserve or reserves as the
Board of Directors may deem appropriate and the Board of Directors may similarly
modify or abolish any such reserve.
Section 7.03. Execution of Instruments. Subject to the approval of the
Board of Directors, the Chairman, the Vice Chairman, the Secretary or any other
officer may enter into any contract or execute and deliver any instrument in the
name and on behalf of the Corporation. The Board of Directors may authorize any
other officer or agent to enter into any contract or execute and deliver any
instrument in the name and on behalf of the Corporation. Any such authorization
may be general or limited to specific contracts or instruments.
Section 7.04. Deposits. Any funds of the Corporation may be deposited from
time to time in such banks, trust companies or other depositories as may be
determined by the Board of Directors or by such officers or agents as may be
authorized by the Board of Directors to make such determination.
Section 7.05. Checks, Drafts, etc. All notes, drafts, bills of exchange,
acceptances, checks, endorsements and other evidences of indebtedness of the
corporation, and its orders for the payment of money shall be signed by such
officer or officers or such agent or agents of the Corporation, and in such
manner, as the Board of Directors, the Chairman or the Vice Chairman from time
to time may determine.
Section 7.06. Sale, Transfer, etc. of Securities. To the extent authorized
by the Board of Directors, the Chairman or the Vice Chairman together with the
Secretary may sell, transfer, endorse, and assign any shares of stock, bonds or
other securities owned by or held in the name of the Corporation, and may make,
execute and deliver in the name of the Corporation, under its corporate seal,
any instruments that may be appropriate to effect any such sale, transfer,
endorsement or assignment.
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Section 7.07. Voting as Shareholder. Unless otherwise determined by
resolution of the Board of Directors, the Chairman or the Vice Chairman shall
have full power and authority on behalf of the Corporation to attend any meeting
of shareholders of any corporation in which the Corporation may hold stock, and
to act, vote (or execute proxies to vote) and exercise in person or by proxy all
other rights, powers and privileges incident to the ownership of such stock;
such officers acting on behalf of the Corporation shall have full power and
authority to execute any instrument expressing consent to or dissent from any
action of any such corporation without a meeting; and the Board of Directors may
by resolution from time to time confer such power and authority upon any other
person or persons. All acts, votes and exercises of other rights, powers and
privileges incident to the ownership of stock in subsidiaries of the Corporation
shall be carried out only pursuant to resolutions of the Board of Directors
adopted in accordance with these By-Laws.
Section 7.08. Fiscal Year. Unless otherwise determined by the Board of
Directors, the fiscal year of the Corporation shall, in each calendar year,
commence on the first day of January of each year and shall terminate on the
last day of December.
Section 7.09. Seal. The seal of the Corporation shall be circular in form
and shall contain the name of the Corporation, the year of its incorporation and
the words "INCORPORATED CONNECTICUT." The seal may be used by causing it or a
facsimile thereof to be impressed, affixed or reproduced, or may be used in any
other lawful manner.
Section 7.10. Books and Records Inspection. Except to the extent otherwise
required by law, the books and records of the Corporation shall be kept at such
place or places within or without the State of Connecticut as may be determined
from time to time by the Board of Directors.
ARTICLE VIII
AMENDMENT OF BY-LAWS
Section 8.01. Amendment. All By-Laws of the Corporation, whether adopted by
the Board of Directors or the shareholders, shall be subject to amendment,
alteration or repeal:
(a) 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, the notice of which shall have specified or
16
<PAGE>
summarized the proposed amendment, alternation, repeal or new By-Laws, or
(b) by the affirmative vote of Directors holding a majority of the
Directorships at any Regular or Special Meeting of Directors the notice or
waiver of notice of which, unless none is required hereunder, shall have
specified or summarized the proposed amendment, alteration, repeal or new
By-Laws,
provided, however, that Section 1.02 (regarding special meetings of
shareholders), Section 2.02 (regarding the number of Directors), Section 2.07
(regarding quorum and voting requirements for Directors), Section 2.12
(regarding removal of Directors), Section 2.13 (regarding vacancies and newly
created Directorships), Sections 3.01, 3.02, 3.06 and 3.07 (regarding Committees
and their members), and this Section 8.01 (regarding amendments) 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, the notice of which shall have specified or
summarized the proposed amendment, alteration or repeal, or (ii) by a vote of
66-2/3% of the Board of Directors at any Regular or Special Meeting of Directors
the notice of which shall have specified the proposed amendment, alteration or
repeal. The shareholders may at any time provide in the By-Laws that any other
specified provision or provisions of the By-Laws may be amended, altered or
repealed only in the manner specified in the foregoing clause (a) or in the
foregoing proviso, in which event such provision or provisions shall be subject
to amendment, alteration or repeal only in such manner. [Section 33-806.]
17
FIRST AMENDMENT
TO THE MBIA INC.
1987 STOCK OPTION PLAN
WHEREAS, MBIA Inc. (the "Company") maintains the MBIA Inc. 1987 Stock
Option Plan (the "Plan");
WHEREAS, pursuant to Section 17 of the Plan, the Company has reserved the
right to amend the Plan; and
WHEREAS, the Company desires to amend the Plan;
NOW, THEREFORE, the Plan is amended effective as of June 1, 1995 as
follows:
1. Section 3(a) of the Plan is amended to read as follows:
Subject to adjustment as provided in Section 14 below, the
aggregate number of shares of Common Stock to be delivered upon
exercise of all Options granted under the Plan shall not exceed
4,753,011 shares.
2. Section 6(d) of the Plan is amended to delete the second sentence
thereof, and to add a new second sentence thereof, to read as follows:
There shall be no limitation on the number of shares of Common Stock
which an Optionee may be granted to purchase, except that no Optionee
may be granted an Option to purchase shares of Common Stock in excess
of 500,000 shares within any 12 month period (subject to adjustment as
provided in Section 14 below) or (ii) the number of shares remaining
available for Option grants under the Plan.
IN WITNESS WHEREOF, the Company has caused this amendment to be executed by
its duly authorized officers this 15th day of August, 1997.
ATTEST MBIA INC.
By: /s/ Louis G. Lenzi By: /s/ Kevin D. Silva
--------------------------- ----------------------------
Secretary
<PAGE>
SECOND AMENDMENT
TO THE MBIA INC.
1987 STOCK OPTION PLAN
WHEREAS, MBIA Inc. (the "Company") maintains the MBIA Inc. 1987 Stock
Option Plan (the "Plan");
WHEREAS, pursuant to Section 17 of the Plan, the Company has reserved the
right to amend the Plan; and
WHEREAS, the Company desires to amend the Plan;
NOW, THEREFORE, the Plan is amended effective as of January 7, 1999 as
follows:
1. Section 6(c) is amended to delete the words "approved by the Board of
Directors" from the last sentence thereof.
2. Section 8 is amended to delete the word "The" at the beginning thereof,
and to insert in lieu thereof the following:
Except as otherwise expressly provided in the Plan to the contrary, the
3. Section 10 of the Plan (including the heading thereof) is amended to
delete such Section in its entirety and to add a new section 10 in lieu thereof,
to read as follows:
10. Transferability of Options and SARs.
Unless the Committee (or any person or person to whom the Committee shall
delegate the authority to administer the transferability of Stock Options
and/or SARs) shall permit (on such terms and conditions as it shall
establish) an Option (other than an Incentive Stock Option) or SAR to be
transferred to (i) a member of the Participant's immediate family as
determined by the Committee or its delegate; (ii) to a trust, partnership,
limited liability company or similar vehicle for the benefit of the
Participant and such immediate family members; or (iii) to a charity which
is exempt from taxation under Section 501(c)(3) of the Code or a private
foundation exempt from taxation under Section 509 of the Code
(collectively, the "Permitted Transferees"), no Option or SAR shall be
assignable or transferable except by will or the laws of descent and
distribution, and except to the extent required by law, no right
<PAGE>
or interest of any Participant shall be subject to any lien, obligation or
liability of the Participant. All rights with respect to Options or SARs
granted to a Participant under the Plan shall be exercisable during his
lifetime only by such Participant or, if applicable, the Permitted
Transferees. The rights of a Permitted Transferee shall be limited to the
rights conveyed to such Transferee, who shall be subject to and bound by
the terms of the agreement or agreements between the Participant and the
Company.
4. Section 14 of the Plan is amended to delete such Section in its entirety
and a new section 14 is added in lieu thereof to read as follows:
(a) Recapitalization, etc. In the event of a stock dividend, stock
split or recapitalization or a corporate reorganization in which the
Company is a surviving corporation, including without limitation a merger,
consolidation, split-up or spin-off or a liquidation or distribution of
securities or assets (other than cash dividends), the number or kinds of
shares subject to the Plan, the maximum number of shares which may be
awarded to any Optionee as provided in Section 6(d), or any Option or SAR
previously granted and the Option Price may be adjusted by the Committee as
it determines to be appropriate in its sole discretion. Any fractional
shares resulting from such adjustment may be eliminated.
(b) Special Transactions. Except as provided in this Section 14(b) or
Section 14(c) below, in the event of a Change of Control (as defined
below), each Option and SAR (whether on not then exercisable) shall be
canceled in exchange for a payment in cash of an amount equal to the
excess, if any, of the Change of Control Price over the exercise price for
such Option or SAR, regardless of the exercise schedule otherwise
applicable to such Option or SAR. Notwithstanding the immediately preceding
sentence, if there shall occur a Change of Control and the common equity of
the Company is still registered under Section 12 (g) of the 1934 Act, no
Option or SAR can be canceled and settled in cash without the consent of
the holder thereof.
(c) Alternative Awards. Notwithstanding Section 14(b) and except as
otherwise provided in any agreement, no cancellation, acceleration of
exercisability, vesting, cash settlement or other payment shall occur with
respect to any Option or SAR or any class of Options or SARs if the
Committee reasonably determines in good faith prior to the occurrence of a
Change of Control that such Option or SAR shall be honored or assumed, or
new rights substituted therefor (such honored, assumed or substituted
awards hereinafter called an "Alternative Award"), by a Participant's
employer (or the parent or a Subsidiary of such employers) immediately
following the Change of Control, provided that any such Alternative Award
must:
2
<PAGE>
(1) be based on stock which is traded on an established securities
market, or which will be so traded within 60 days of the Change
of Control;
(2) provide such Participant (or each Participant in a class of
Participants) with rights and entitlements substantially
equivalent to or better than the rights, terms and conditions
applicable under such Option or SAR including, but not limited
to, an identical or better exercise or vesting schedule and
identical or better timing and methods of payment;
(1) have substantially equivalent economic value to such Option or
SAR (determined at the time of the Change of Control); and
(3) have terms and conditions which provide that in the event that
the Participant's employment is involuntarily terminated or
constructively terminated, any conditions on a Participant's
rights under, or exercis-ability applicable to, each such
Alternative Award shall be waived or shall lapse, as the case may
be and the Participant shall have until the earlier of the
expiration of the term of such Option or SAR or the ninetieth day
following the date of such termination (or such longer period
following such termination as shall be established in a written
agreement between the Company and the Participant) to exercise
such Option or SAR.
For this purpose, a constructive termination shall mean a termination by a
Participant following a material reduction in the Participant's base salary or a
Participant's incentive compensation opportunity or a material reduction in the
Participant's responsibilities, in either case without the Participant's written
consent; provided that if the Participant is otherwise a party to an agreement
with the Company regarding the continuation of his or her employment following a
Change of Control, the provisions of that agreement shall govern the
determination of whether a constructive termination shall have occurred.
(d) Definitions. For the purposes of this Section 14, the following terms
shall have the meanings set forth below:
A "Change of Control" shall be deemed to have occurred if
(i) any person, as such term is currently used is Section 13(d) or
l4(d) of the 1934 Act, other than the Company, its majority owned
subsidiaries, or any employee benefit plan of the Company or any of its
majority-owned subsidiaries, becomes a "beneficial owner" (as such term is
currently used in Rule 13 d-3, as
3
<PAGE>
promulgated under 1934 Act) of 25% or more of the Voting Power of the
Company,
(ii) on any date, a majority of the Board consists of individuals
other than Incumbent Directors, which term means the members of the Board
who were serving on the Board at beginning of any 24-month period ending
with such date (or another date specified by the Committee), provided that
any individual who becomes a director subsequent to that date whose
election or nomination for election was supported by two-thirds of the
directors who then comprised the Incumbent Directors shall be considered to
be an Incumbent Director for purposes of this subsection 14(d)(ii);
(iii) the stockholders of the Company approve a merger, consolidation,
share exchange, division, sale or other disposition of substantially all of
the assets of the Company (a "Corporate Event"), as a result of which the
shareholders of the Company immediately prior to such Corporate Event (the
Company Shareholders) shall not hold, directly or indirectly, immediately
following such Corporate Event a majority of the Voting Power of (x) in the
case of a merger or consolidation, the surviving or resulting corporation,
(y) in the case of a share exchange, the acquiring corporation or (z) in
the case of a division or a sale or other disposition of substantially all
of the Company's assets, each surviving, resulting or acquiring
corporation; provided that, such a division or sale shall not be a Change
of Control for purposes of this Plan to the extent that, following such
Corporate Event; the participant continues to be employed by a surviving,
resulting or acquiring entity with respect to which the Company
Shareholders hold, directly or indirectly, a majority of the Voting Power
immediately following such Corporate Event.
"Change of Control Price" means the highest price per share of Stock
offered in conjunction with any transaction resulting in a Change of Control (as
determined in good faith by the Committee if any part of the offered price is
payable other than in cash) or, in the case of a Change of Control occurring
solely by reason of a change in the composition of the Board, the highest Fair
Market Value of the Stock on any of the 30 trading days immediately preceding
the date on which a Change of Control occurs.
A specified percentage of "Voting Power" of a company shall mean such
number of the Voting Securities as shall enable the holders thereof to cast such
percentage of all the votes which could be cast in an annual election of
directors and "Voting Securities" shall mean all securities of a company
entitling the holders thereof to vote in an annual election of directors.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this amendment to be executed by
its duly authorized officers and to be effective as of the 7th day of January
1999.
MBIA INC.
By: /s/ Kevin D. Silva
-----------------------------
Its:
ATTEST
By: /s/ Louis G. Lenzi
--------------------------
Its: Secretary
5
EIGHTH AMENDMENT TO TRUST AGREEMENT BETWEEN
FIDELITY MANAGEMENT TRUST COMPANY AND
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION
THIS EIGHTH AMENDMENT, dated as of the first day of January, 1998, by and
between Fidelity Management Trust Company (the "Trustee") and Municipal Bond
Investors Assurance Corporation (the "Sponsor");
WITNESSETH:
WHEREAS, the Trustee and the Sponsor heretofore entered into a Trust
Agreement dated December 31, 1991, with regard to the MBIA Inc. Employees
Pension Plan and 401 (k) Salary Deferral Plan (individually and collectively,
the "Plan"); and
WHEREAS, the Trustee and the Sponsor now desire to amend said Trust
Agreement as provided for in Section 13 thereof;
NOW THEREFORE, in consideration of the above premises the Trustee and the
Sponsor hereby amend the Trust Agreement by:
(1) Amending Schedule "B" by restating the "Annual Participant Fee"
and Sponsor Stock Trustee Fee sections as follows:
o Annual Participant Fee $15.00 per participant*, subject to
a $5,000 per year minimum, billed and
payable quarterly.
o To the extent that assets are invested in Sponsor Stock,
0.10% of such assets in the Trust payable pro rata quarterly
on the basis of such assets as of the calendar quarter's
last valuation date, but no less than $10,000 nor more than
$50,000 per year.
(2) Amending the "Trustee Fees" section of Schedule "B" to eliminate
the Mutual Fund Trustee Fee.
(3) Amending Schedule "B" to eliminate the Plan Sponsor Workstation
fee.
(4) Amending Schedule "B" by adding a new "Note" section as follows.
Note: These fees have been negotiated and accepted based on the
following Plan characteristics: total current plan assets of
$79.1 million, current participation of 429 participants, current
MIP assets of $6.7 million, current stock assets of $20.2 million
and total Fidelity managed Mutual Fund assets of $52.2 million.
Fees will be subject to revision if these Plan characteristics
change significantly by either falling below or exceeding current
or projected levels. Fees also have been based on the use of up
to 11 investment options, and such fees will be subject to
revision if additional investment options are added.
<PAGE>
IN WITNESS WHEREOF, the Trustee and the Sponsor have caused this Eighth
Amendment to be executed by their duly authorized officers effective as of the
day and year first above written.
MBIA INC. FIDELITY MANAGEMENT TRUST COMPANY
By /s/ [ILLEGIBLE] 12/15/97 By /s/ [ILLEGIBLE] 1/23/98
------------------------- ------------------------------
Date Vice President Date
<PAGE>
Fidelity Institutional
Retirement Services Company
- --------------------------------------------------------------------------------
A division of Fidelity Investments Institutional Services Company, Inc.
300 Puritan Way, MM3H
Marlborough, MA 01752-3078
January 29, 1998
Mr. Alan Perlman
MBIA Inc.
113 King Street
Armonk, NY 10504
Dear Mr. Pearlman:
Enclosed please find one fully-executed original of the Eighth Amendment to the
Trust Agreement for your files.
Please call Michelle Maziarz with any questions regarding this document. She can
be reached at (508) 357-5028.
Sincerely,
/s/ Dianne Candido
Dianne A. Candido
Contracts Administration Assistant
/dc
Enclosure
cc: Erin Delaney, I41A
Mary Drake, MM3C
Ann Emerson, TS213
Kara Rose Hearns, MM3I
Wendy Ennis, KN3C
<PAGE>
MBIA
MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
914 765 3880
Fax: 914 755 3299
e-mail: [email protected]
Kevin D. Silva
Senior Vice President
Director, Management Services
Schedule "E"
Ms. Jacqueline W. McCarthy
Fidelity Investment Institutional Operations Company
82 Devonshire Street
Boston, Massachusetts 02109
MBIA Inc. Employees Plan, MBIA Inc. Employees
Profit Sharing and 401 (k) Salary Deferral Plan
Dear Ms. McCarthy:
This letter is sent to you in accordance with Section 7(c) of the Trust
Agreement, dated as of January 1, 1992, between MBIA and Fidelity Management
Trust Company. I hereby designate Neil G. Budnick, Alan Pearlman and myself, as
the individuals who may provide directions upon which Fidelity Management Trust
Company shall be fully protected in relying. Only one such individual need
provide any direction. The signature of each designated individual is set forth
below and certified to be such.
You may rely upon each designation and certification set forth in this
letter until I deliver to you written notice of the termination of authority of
a designated individual.
Very truly yours
Date: 3/10/99 /s/ Kevin D. Silva
-----------------------------
Kevin D. Silva
Senior Vice President
Director, Management Services
Designated Individuals:
/s/ Neil G. Budnick
- -------------------------------------
Neil G. Budnick
President and Chief Financial Officer
/s/ Kevin D. Silva
- -------------------------------------
Kevin D. Silva
Senior Vice President
Director, Management Services
/s/ Alan Pearlman
- -------------------------------------
Alan Pearlman
Vice President, Manager
Compensation and Benefits
<PAGE>
NINTH AMENDMENT TO TRUST AGREEMENT BETWEEN
FIDELITY MANAGEMENT TRUST COMTANY AND
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION
THIS NINTH AMENDMENT, dated as of the first day of March, 1999, by and
between Fidelity Management Trust Company (the "Trustee") and Municipal Bond
Investors Assurance Corporation (the "Sponsor");
WITNESSETH:
WHEREAS, the Trustee and the Sponsor heretofore entered into a Trust
Agreement dated December 31, 1991, with regard to the MBIA Inc. Employees
Pension Plan and 401 (k) Salary Deferral Plan (individually and collectively,
the "Plan"); and
WHEREAS, the Trustee and the Sponsor now desire to amend said Trust
Agreement as provided for in Section 13 thereof,
NOW THEREFORE, in consideration of the above premises the Trustee and the
Sponsor hereby amend the Trust Agreement by:
(1) Amending Section 4(b), Available Investment Options, by redefining
"Mutual Funds" as follows:
(i) securities issued by investment companies advised by Fidelity
Management & Research Company ("Fidelity Mutual Funds") and certain
securities issued by registered investment companies not advised by
Fidelity Management & Research Company ("Non-Fidelity Mutual Funds")
(collectively referred to as "Mutual Funds").
(2) Amending Section 4(d), Mutual Funds, by inserting the following
sentence before the first sentence:
All transactions involving Non-Fidelity Mutual Funds shall be done in
accordance with the Operational Guidelines for Non-Fidelity Mutual
Funds attached hereto as Schedule "H".
(3) Amending the "investment options" section of Schedules "A" and "C" by
adding the following:
-1838 Fixed Income Fund
-1838 International Equity Fund
-1838 Small Cap Equity Fund
(4) Amending Schedule "B" by adding "Non-Fidelity Mutual Funds" as
follows:
Non-Fidelity Mutual Funds: No additional fee for the 1838 Funds.
<PAGE>
(5) Adding Schedule "H", Operational Guidelines for Non-Fidelity Mutual
Funds, as attached.
IN WITNESS WHEREOF, the Trustee and the Sponsor have caused this Eighth
Amendment to be executed by their duly authorized officers effective as of the
day and year first above written.
MBIA INC. FIDELITY MANAGEMENT TRUST
COMPANY
By /s/ [ILLEGIBLE] 3/11/99 By
------------------------- -------------------------
Date Vice President Date
<PAGE>
Schedule "H"
OPERATIONAL GUIDELINES FOR NON-FIDELITY MUTUAL FUNDS
Pricing
By 7:00 p.m. Eastern Time ("ET") each Business Day, the Non-Fidelity Mutual Fund
Vendor (Fund Vendor) will input the following information ("Price Information")
into the Fidelity Participant Recordkeeping System ("FPRS") via the remote
access price screen that Fidelity Investments Institutional Operations Company,
Inc. ("FIIOC"), an affiliate of the Trustee, has provided to the Fund Vendor:
(1) the net asset value for each Fund at the Close of Trading, (2) the change in
each Fund's net asset value from the Close of Trading on the prior Business Day,
and (3) in the case of an income fund or funds, the daily accrual for interest
rate factor ("mil rate"). FIIOC must receive Price Information each Business Day
(a "Business Day" is any day the New York Stock Exchange is open). If on any
Business Day the Fund Vendor does not provide such Price Information to FIIOC,
FIIOC shall pend all associated transaction activity in the Fidelity Participant
Recordkeeping System ("FPRS") until the relevant Price Information is made
available by Fund Vendor.
Trade Activity and Wire Transfers
By 7:00 a.m. ET each Business Day following Trade Date ("Trade Date plus One"),
FIIOC will provide, via facsimile, to the Fund Vendor a consolidated report of
net purchase or net redemption activity that occurred in each of the Funds up to
4:00 p.m. ET on the prior Business Day. The report will reflect the dollar
amount of assets and shares to be invested or withdrawn for each Fund. FIIOC
will transmit this report to the Fund Vendor each Business Day, regardless of
processing activity. In the event that data contained in the 7:00 a.m. ET
facsimile transmission represents estimated trade activity, FIIOC shall provide
a final facsimile to the Fund Vendor by no later than 9:00 a.m. ET. Any
resulting adjustments shall be processed by the Fund Vendor at the net asset
value for the prior Business Day.
The Fund Vendor shall send via regular mail to FIIOC transaction confirms for
all daily activity in each of the Funds. The Fund Vendor shall also send via
regular mail to FIIOC, by no later than the fifth Business Day following
calendar month close, a monthly statement for each Fund. FIIOC agrees to notify
the Fund Vendor of any balance discrepancies within twenty (20) Business Days of
receipt of the monthly statement.
<PAGE>
For purposes of wire transfers, FIIOC shall transmit a daily wire for
aggregate purchase activity and the Fund Vendor shall transmit a daily wire
for aggregate redemption activity, in each case including all activity
across all Funds occurring on the same day.
Participant Communications
The Fund Vendor shall provide internally-prepared fund descriptive
information approved by the Funds' legal counsel for use by FIIOC in its
written participant communication materials. FHOC shall utilize historical
performance data obtained from third-party vendors (currently Morningstar,
Inc., FACTSET Research Systems and Lipper Analytical Services) in telephone
conversations with plan participants and in quarterly participant
statements. The Sponsor hereby consents to FIIOC's use of such materials and
acknowledges that FHOC is not responsible for the accuracy of such
third-party information. FIIOC shall seek the approval of the Fund Vendor
prior to retaining any other third-party vendor to render such data or
materials under this Agreement.
Compensation
FIIOC shall be entitled to fees as set forth in a separate agreement with the
Fund Vendor.
EXECUTION COPY
================================================================================
FIRST AMENDMENT
to
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
among
MBIA INSURANCE CORPORATION
(MBIA)
THE BANKS SIGNATORY HERETO
RABOBANK NEDERLAND
New York Branch
as Administrative Agent
and
DEUTSCHE BANK AG
New York Branch
as Documentation Agent
----------
Dated as of October 1, 1998
----------
================================================================================
<PAGE>
FIRST AMENDMENT
THIS FIRST AMENDMENT, dated as of October 1, 1998 (this "Amendment"),
between MBIA INSURANCE CORPORATION, a New York stock insurance corporation
("MBIA"), the financial institutions which have executed this Amendment below as
Banks (as defined below), COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.
"RABOBANK NEDERLAND", New York Branch ("Rabobank"), as Administrative Agent for
the Banks (in such capacity, the "Administrative Agent") and individually as a
Bank, and DEUTSCHE BANK AG, New York Branch, as Documentation Agent for the
Banks (in such capacity, together with the Administrative Agent, the "Agents");
WHEREAS, the parties hereto are parties to the Second Amended and Restated
Credit Agreement, dated as of October 1, 1997 (the "Credit Agreement");
WHEREAS, Credit Suisse First Boston, New York Branch, desires to resign as
Administrative Agent for the Banks; the Majority Banks, with the consent of
MBIA, desire to appoint Rabobank as successor Administrative Agent pursuant to
the terms of the Credit Agreement, and Rabobank is willing to accept such
appointment; and
WHEREAS, the parties hereto desire, upon the terms and subject to the
conditions hereinafter set forth, to extend the Expiration Date (as defined
below) and to otherwise modify the Credit Agreement in certain respects;
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound hereby,
agree as follows:
ARTICLE 1
MODIFICATIONS TO LOAN DOCUMENTS
Section 1.1. Defined Terms. Except as otherwise specified herein, terms
used in this Amendment and defined in Exhibit A of the Credit Agreement shall
have the meanings provided in such Exhibit A.
Section 1.2. Amendments.
(a) Section 3.3 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
"Section 3.3 Extension of Commitments. The Expiration Date may be
extended from time to time with the consent of the Administrative Agent and
all Banks (other than Nonextending Banks whose Commitments have been
terminated), each in their sole discretion, as provided in this Section
3.3. Not later than August 1, 1999, and not later than each August 1
thereafter in respect of succeeding one-year extension periods provided
<PAGE>
for below, or such later date to which the Administrative Agent and the
Majority Banks may consent in writing, MBIA may notify the Administrative
Agent if MBIA desires to have the Expiration Date extended for a period of
one year from the date on which it is then scheduled to occur. The
Administrative Agent shall promptly give the Banks notice of its receipt of
any such request and shall request each Bank to consent to such extension,
unless the Administrative Agent has determined to withhold its consent to
such extension. Such notice and request from the Administrative Agent to
the Banks may be given by the Administrative Agent subject to a reservation
by the Administrative Agent of its right to withhold consent to such
extension at a later date. Each Bank which elects to give its consent to
such extension shall deliver such consent to the Administrative Agent and
MBIA prior to the later to occur of (a) 90 days following the date of
MBIA'S request and (b) the August 1 of the year which is six years prior to
then scheduled Expiration Date (or in each case such later date to which
the Administrative Agent and MBIA have consented). Any Bank which has not
given its consent within such period shall be deemed to be a "Nonextending
Bank", and MBIA shall have the right at any time thereafter to elect to
terminate the Commitment of such Nonextending Bank by not less than five
Business Days' prior notice to such Nonextending Bank and the
Administrative Agent unless, prior to the effectiveness of such
termination, (i) any Loan has been made or (ii) any Default or Event of
Default has occurred and is continuing. Any such termination shall be
effective on the date specified in such notice."
(b) The following definitions contained in Exhibit A to the Credit
Agreement are hereby amended and restated to read in its entireties as
follows:
"'Base Rate' shall mean the higher of (i) the rate of interest
announced by Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
"Rabobank Nederland", New York Branch, in New York City from time to
time as its base rate, each change in such fluctuating interest rate
to take effect simultaneously with the corresponding change in such
base rate, but in no event in excess of the maximum interest rate
permitted by applicable law and (ii) 1/2 of 1% per annum above the
Bank's Federal Funds Rate (as defined below) for overnight funds. For
such purpose, the 'Federal Funds Rate' shall mean, for any day, the
fluctuating interest rate per annum at which said branch, as a branch
of a foreign bank, in its sole discretion, can acquire federal funds
in the New York City interbank term (or overnight, as the case may be)
federal funds market or other funding sources available to said
branch, through brokers of recognized standing, for a period and in an
amount comparable to the period and amount requested by MBIA."
"'Commitment Period' shall mean initially the period commencing
on October 1, 1998 and ending on October 31, 2005 (or, if such day is
not a Business Day, on the next preceding Business Day) and, from and
after the date of any extension of the Expiration Date pursuant to
Section 3.3 to a date later than October 31, 2005), shall mean the
period commencing on the first day of November which immediately
follows the 31st day of October which is seven years prior to the
Expiration Date, and ending on the Expiration Date (or, if such day is
not a Business Day, on the next preceding Business Day)."
-3-
<PAGE>
"'Expiration Date' shall mean the date on which the right to
obtain Loans terminates, initially October 31, 2005, as such date may
be extended pursuant to Section 3.3."
Section 1.3 Commitments.
(a) The respective Commitments of the Banks are hereby amended so that,
from and after October 7, 1998 until the termination or further modification
thereof as provided in the Credit Agreement, such Commitments shall be as set
forth on Schedule 1 to this Amendment.
(b) The parties acknowledge that, after giving effect to certain notices of
changes of address delivered on or prior to the date hereof, the respective
addresses of the Banks for purposes of Section 10.7 of the Credit Agreement are
as set forth on Schedule 1 to this Amendment.
Section 1.4. Succession of Administrative Agent
(a) Credit Suisse First Boston, New York Branch, hereby confirms that it
has resigned as Administrative Agent, effective as of October 7, 1998. The Banks
hereby waive notice of such resignation and hereby appoint Rabobank as successor
Administrative Agent effective as of October 7, 1998, and MBIA hereby waives
notice of such resignation and consents to such appointment, in each case
pursuant to Section 8.7 of the Credit Agreement. The parties acknowledge that
Rabobank, in its capacity as successor Administrative Agent, automatically and
without further action of the parties becomes the successor Collateral Agent
under the Security Agreement. The parties further acknowledge and hereby confirm
that, as provided in Section 8.7 of the Credit Agreement, the provisions of
Sections 8.2 through 8.5 of the Credit Agreement shall continue to inure to the
benefit Credit Suisse First Boston, New York Branch, and its successors and
assigns, in respect of any action taken or omitted to be taken by it in its
capacity as Agent while it was an Agent under the Credit Agreement or any Loan
Document, notwithstanding its resignation as an Agent thereunder.
(b) From and after October 7, 1998,
(i) the address of the Administrative Agent and the Collateral
Agent for purposes of the Credit Agreement and Security Agreement
shall be:
245 Park Avenue
New York, New York 10167-0062
Attention: Angela Reilly
Telecopy: (212) 309-5139
or as the Administrative Agent may direct by written notice to all
other parties to the Credit Agreement;
(ii) the Payment Office of the Administrative Agent shall be 245
Park Avenue, New York, New York 10167-0062, or such other office as
the Administrative Agent may from time to time designate by notice to
MBIA; and
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<PAGE>
(iii) each Note and Fronting Bank Note shall be payable at the
office of the Administrative Agent at 245 Park Avenue, New York, New
York 10167-0062, or such other office as the Administrative Agent may
from time to time designate by notice to MBIA and the holder of such
Note.
(c) From and after October 7, 1998, each reference in the Credit Agreement
(including in the exhibits thereto), the Notes, the Security Agreement, each
Fronting Bank Supplement and the other Loan Documents to the name or address of
the Administrative Agent shall be deemed to be (and, to the extent required, is
hereby amended to be) a reference to the name or address, as the case may be, of
Rabobank as set forth herein.
(d) Each Bank hereby agrees to attach a copy of this Amendment to each Note
and Fronting Bank Note held by it prior to any assignment or other transfer
thereof or of any interest therein by such Bank, unless such Note or Fronting
Bank Note has been issued or reissued by MBIA on or after the date of this
Amendment and specifies the place of payment described in Section 1.4(b)(iii)
above.
(e) MBIA and Credit Suisse First Boston, New York Branch, hereby agree that
the Agent Fee Letter, dated October 7, 1997, between them is hereby terminated
effective as of appointment of Rabobank as successor Administrative Agent
hereunder.
(f) MBIA hereby agrees to deliver to the Rabobank, as Administrative Agent,
promptly after the effectiveness of its appointment as Administrative Agent
hereunder, a true and complete copy of Exhibit E to the Credit Agreement (list
of insured obligations excluded from the Covered Portfolio), as most recently
updated pursuant to the definition of "Covered Portfolio" contained in Exhibit A
to the Credit Agreement.
ARTICLE 2
CONDITIONS PRECEDENT
Section 2. 1. Conditions Precedent to Amendment Effective Date. The
provisions of Article I hereof shall become effective as of October 7, 1998 when
this Amendment shall have been executed and delivered by MBIA, Rabobank, Credit
Suisse First Boston, New York Branch, Deutsche Bank AG, New York Branch, as
Documentation Agent, and each Bank and, except in the case of the provisions of
Section 1.4, when the following conditions have been fulfilled to the reasonable
satisfaction of the Agents. If such conditions shall not have been satisfied on
or prior to October 13, 1998, this provisions of Article 1 (other than Section
1.4 thereof) shall not be given effect unless otherwise consented to by the
Agents and the Majority Banks, but otherwise this Amendment shall remain in full
force and effect.
(a) There shall exist no Default or Event of Default, and all
representations and warranties made by MBIA herein or in any of the Loan
Documents shall be true and correct with the same effect as though such
representations and warranties had been made at and as of such time.
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<PAGE>
(b) The Administrative Agent shall have received each of the following, in
form and substance satisfactory to the Administrative Agent:
(i) a certificate of any two of the President, any Vice President or
the Treasurer of MBIA to the effect that the conditions set forth in
Section 2.1(a) hereof have been satisfied and that no governmental filings,
consents and approvals are necessary to be secured by MBIA in order to
permit the borrowing under the Credit Agreement, as modified hereby, the
grant of the Lien under the Security Agreement and the execution, delivery
and performance in accordance with their respective terms of this Amendment
and the other Loan Documents and the consummation of the transactions
contemplated hereby and thereby, each of which shall be in full force and
effect;
(ii) copies of the duly adopted resolutions of the Board of Directors
of MBIA, or an authorized committee thereof, authorizing the execution,
delivery and performance in accordance with their respective terms of this
Amendment and the other documents to be executed and delivered by MBIA
described herein (collectively, the "Amendment Documents"), accompanied by
a certificate of the Secretary or an Assistant Secretary of MBIA stating as
to (A) the effect that such resolutions are in full force and effect, (B)
the incumbency and signatures of the officers signing the Amendment
Documents on behalf of MBIA, and (C) the effect that, from and after
October 7, 1997, there has been no amendment, modification or revocation of
the articles of incorporation or by-laws of MBIA;
(iii) opinions of the General Counsel of MBIA and Kutak Rock, MBIA's
counsel, each dated October 7, 1998, which are substantially to the effect
set forth in the forms attached hereto as, respectively, Exhibits A and B;
and
(iv) such other documents, instruments, approvals (and, if reasonably
requested by the Administrative Agent or the Majority Banks, duplicates or
executed copies thereof certified by an appropriate governmental official
or an authorized officer of MBIA) or opinions as the Administrative Agent
or the Majority Banks may reasonably request.
(c) The Administrative Agent shall have received reasonably satisfactory
evidence that long-term obligations insured by MBIA are publicly assigned a
rating of Aaa, by Moody's and AAA by S&P by reason of such insurance.
(d) The Bank Fee Letter shall have been modified in a manner satisfactory
to MBIA and the Agents and consented to by all of the Banks.
(e) MBIA shall have entered into a replacement Agent Fee Letter with
Rabobank, as Administrative Agent, in form and substance satisfactory to
Rabobank.
(f) Each Bank which is becoming a party to the Credit Agreement or which is
increasing its Commitment shall have received a Note or an additional Note dated
as of October 7, 1998, in a principal amount equal to the amount of its
Commitment or of the increase in its Commitment, as applicable.
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<PAGE>
(g) The currently effective Fronting Bank Supplements and related Fronting
Bank Notes, and fee letters shall have been modified in a manner satisfactory to
MBIA, the Administrative Agent and each Fronting Bank affected by such
modifications.
(h) Credit Suisse First Boston, New York Branch, as resigning Collateral
Agent, shall have executed and delivered to Rabobank, as Collateral Agent,
assignments of each effective financing statement with respect to the Security
Agreement.
(i) Termination letters shall be executed by each of the Banks terminating
its Commitment.
(j) All corporate and legal proceedings and all instruments in connection
with the transactions contemplated by this Amendment and the Loan Documents
shall be satisfactory in form and substance to the Administrative Agent and its
counsel.
Section 2.2. Certificate as to Effective Date. A certificate of the Agents
delivered to MBIA stating that the provisions of Article 1 shall have become
effective shall be conclusive evidence thereof and shall be binding on MBIA,
each Agent and each Bank. In delivering such certificate, and without limiting
the general application of Section 8.8 or other provisions of Article 8 of the
Credit Agreement to the actions of the Agents hereunder, the Agents shall be
entitled to rely conclusively on the certificate of officers of MBIA delivered
pursuant to Section 2.1(b)(i) as to the satisfaction of the conditions set forth
in Section 2.1 (a).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
In order to induce the Agents and the Banks to enter into this Amendment
and proceed with the transaction contemplated hereby, MBIA makes the following
representations and warranties to the Agents and the Banks, which shall survive
the execution and delivery of this Amendment and the making of any Loans:
Section 3.1. Due Authorization. Etc. The execution, delivery and
performance by MBIA of the Amendment Documents and the Loan Documents as amended
thereby are within its corporate powers, have been duly authorized by all
necessary corporate action and do not and will not (i) violate any provision of
any law, rule, regulation (including, without limitation, the New York Insurance
Law, the Investment Company Act of 1940, as amended, or Regulations T, U or X of
the Board of Governors of the Federal Reserve System), order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to MBIA or of the corporate charter or by-laws of MBIA, (ii)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which MBIA is a
party or by which it or its properties may be bound or affected, or (iii) result
in, or require, the creation or imposition of any Lien upon or with respect to
any of the properties now owned or hereafter acquired by MBIA (other than as
contemplated by the Loan Documents), other than, in the case of clauses (ii) and
(iii), breaches, defaults or Liens which could not materially and adversely
affect the business, assets,
-7-
<PAGE>
operations or financial condition of MBIA or the ability of MBIA to perform its
obligations under any Loan Document.
Section 3.2. Approvals. No consent, approval or other action by, or any
notice to or filing with any court or administrative or governmental body is or
will be necessary for the valid execution, delivery or performance by MBIA of
the Amendment Documents or the Loan Documents as amended thereby.
Section 3.3. Enforceability. Each Amendment Document and each Loan Document
as amended thereby constitutes a legal, valid and binding obligation of MBIA,
enforceable against MBIA in accordance with their respective terms, except as
such enforceability may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
the availability of equitable remedies, whether such matter is heard in a court
of law or a court of equity.
Section 3.4. Financial Statements, etc. (i) MBIA has heretofore furnished
to the Agents (i) the audited consolidated and unaudited consolidating balance
sheets of MBIA Inc. and its subsidiaries at December 31, 1997, the related
audited consolidated statements of income, changes in stockholders' equity and
financial position or cash flows, as the case may be, and unaudited
consolidating statements of income for the year ended December 31, 1997, and
(ii) the unaudited consolidated and consolidating balance sheets of MBIA Inc.
and its subsidiaries as of March 31 and June 30, 1998, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the three months ended March 31, 1998, the six months ended June 30,
1998. Such financial statements were prepared in accordance with generally
accepted accounting principles consistently applied and present fairly the
consolidated financial position and consolidated results of operations and cash
flows of MBIA Inc. and its subsidiaries and the financial position and results
of operations and cash flows of MBIA at the dates and for the periods indicated
therein. There has been no material adverse change in the consolidated financial
position or consolidated results of operations or cash flows of MBIA Inc. and
its subsidiaries taken as a whole or of MBIA since June 30, 1998.
(ii) MBIA has heretofore furnished to the Agents its annual statements and
its financial statements as filed with the Department for the year ended
December 31, 1997 and its quarterly statements and financial statements as filed
with the Department for the periods ended March 31, 1998 and June 30, 1998. Such
annual and quarterly statements and financial statements were prepared in
accordance with the statutory accounting principles set forth in the New York
Insurance Law, all of the assets described therein were the absolute property of
MBIA at the dates set forth therein, free and clear of any liens or claims
thereon, except as therein stated, and each such Annual Statement is a full and
true statement of all the assets and liabilities and of the condition and
affairs of MBIA as of such dates and of its income and deductions therefrom for
the year or quarter ended on such dates.
(iii) MBIA has heretofore furnished to the Agents a copy of the annual
report on Form 10-K of MBIA Inc. for the fiscal year ended December 31, 1997,
its quarterly reports on Form 10-Q of MBIA Inc. for each of the quarters ended
March 31, 1998 and June 30, 1998 and each current report on Form 8-K filed by
MBIA Inc. on or after January 1, 1998, each as filed with the Securities and
Exchange Commission. Such annual, quarterly and current reports were prepared in
-8-
<PAGE>
accordance with the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder.
Section 3.5. Covered Portfolio. Substantially all of the Insured
Obligations in the Covered Portfolio are insured by MBIA under Insurance
Contracts in the form or forms heretofore supplied to the Agents in accordance
with MBIA's underwriting criteria as heretofore disclosed to the Agents, and in
MBIA's reasonable judgment such Insured Obligations represent an overall risk of
loss (based on all factors including without limitation investment quality and
geographical and market diversification) which is not materially greater than
the risk of loss represented by all of MBIA's Insured Obligations as of the date
hereof MBIA has heretofore supplied to Rabobank copies of each such form which
was earlier supplied to Credit Suisse First Boston, New York Branch, as
Administrative Agent, or to the Documentation Agent and has heretofore disclosed
to Rabobank the underwriting criteria which was earlier disclosed to Credit
Suisse First Boston, New York Branch, as Administrative Agent, or to the
Documentation Agent.
Section 3.6. Confirmation of Representations and Warranties. MBIA hereby
confirms that its representations and warranties set forth in the Credit
Agreement (including without limitation those set forth in Article 5 of the
Restated Credit Agreement) are true and correct as of the date hereof.
Section 3.7. Disclosure. There is no fact known to MBIA which materially
adversely affects the business, assets, operations or financial condition of
MBIA or the ability of MBIA to perform its obligations under any Amendment
Document or any Loan Document as amended thereby which has not been set forth in
this Amendment, in the financial statements or reports required to be delivered
pursuant to Section 3.4 hereof.
ARTICLE 4
MISCELLANEOUS
Section 4.1. Credit Agreement. Except as expressly modified as contemplated
hereby, the Credit Agreement and the other Loan Documents are hereby confirmed
to be in full force and effect in accordance with their respective terms. This
Amendment is intended by the parties to constitute an amendment and modification
to, and otherwise to constitute a continuation of, the Credit Agreement and the
Loan Documents, and is not intended by any party and shall not be construed to
constitute a novation thereof or of any Debt of MBIA hereunder.
Section 4.2. Survival. All covenants, agreements, representations and
warranties made herein or in any Loan Document or in any certificate, document
or instrument delivered pursuant hereto or thereto shall survive the effective
date hereof, the making of any Loan and the occurrence of the Expiration Date
and shall continue in full force and effect so long as principal of or interest
on any Loan, Note or Fronting Bank Note remains outstanding or unpaid, any other
amount payable by MBIA under the Credit Agreement as amended hereby, any Note,
Fronting Bank Note or any other Loan Document remains unpaid or any other
obligation of MBIA to perform any other act hereunder or under the Credit
Agreement as amended hereby, any Note, Fronting Bank
-9-
<PAGE>
Note or any other Loan Document remains unsatisfied or the Banks have any
obligation to make a Loan or any other advance of moneys to MBIA under the
Credit Agreement as amended hereby.
Section 4.3. Severabilily. Any provision of this Amendment which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or nonauthorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
Section 4.4. Successors and Assigns. This Amendment is a continuing
obligation and binds, and the benefits hereof shall inure to, the parties hereto
and their respective successors and assigns; provided that MBIA may not transfer
or assign any or all, of its rights or obligations hereunder except as permitted
by Section 10.8 of the Credit Agreement.
Section 4.5. Amendments. No provision of this Amendment shall be waived,
amended or supplemented except as provided in Section 10.12 of the Credit
Agreement.
Section 4.6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK
Section 4.7. Headings. Section headings in this Amendment are included
herein for convenience or reference only and shall not constitute a part of this
Amendment for any other purpose.
Section 4.8. Counterparts. This Amendment may be executed in several
counterparts, each of which shall be regarded as the original and all of which
shall constitute one and the same Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
MBIA, INSURANCE CORPORATION
By /s/ Julliette S. Tehrani
----------------------------------------
Name: Julliette S. Tehrani
Title: Executive Vice President
CFO & Treasurer
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<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN
BOERENLEENBANK B.A. "RABOBANK
NEDERLAND", New York Branch, as successor
Administrative Agent and as a Bank
By /s/ [ILLEGIBLE]
----------------------------------------
Name:
[INITIALED] Title:
By /s/ Dana W. Hemenway
----------------------------------------
Name: Dana W. Hemenway
Title: Vice President
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<PAGE>
DEUTSCHE BANK, AG, New York Branch,
as Documentation Agent and as a Bank
By /s/ John S. McGill
----------------------------------------
Name: John S. McGill
Title: Vice President
By /s/ Gayma Z. Shivriarain
----------------------------------------
Name: Gayma Z. Shivriarain
Title: Vice President
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<PAGE>
CREDIT SUISSE FIRST BOSTON,
New York Branch, as resigning
Administrative Agent and as a Bank
By /s/ Jay Chall
----------------------------------------
Name: Jay Chall
Title: Director
By /s/ Andrea E. Shkane
----------------------------------------
Name: Andrea E. Shkane
Title: Vice President
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<PAGE>
CAISSE DES DEPOTS ET CONSIGNATIONS,
as a credit facility provider
By /s/ D.L. Askren
----------------------------------------
Name: D.L. Askren
Title: Authorized Signer
By /s/ [ILLEGIBLE]
----------------------------------------
Name: [ILLEGIBLE]
Title: Authorized Signer
-14-
<PAGE>
BAYERISCHE LANDESBANK
GIROZENTRALE, New York Branch,
as a Bank
By /s/ Scott Allison
----------------------------------------
Name: Scott Allison
Title: First Vice President
By /s/ Alexander Kohnert
----------------------------------------
Name: Alexander Kohnert
Title: Vice President
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<PAGE>
LANDESBANK HESSEN-THURINGEN
GIROZENTRALE, New York Branch, as a Bank
By /s/ Lisa S. Pent
----------------------------------------
Name: Lisa S. Pent
Title: Senior Vice President
Manager
By /s/ John A. Sarno
----------------------------------------
Name: John A. Sarno
Title: President & Portfolio Manager
-16-
<PAGE>
LLOYDS BANK PLC
By /s/ Amy Vespasiano
----------------------------------------
Name: AMY VESPASIANO
Title: VICE PRESIDENT
STRUCTURED FINANCE
V024
By /s/ Louise Miller
----------------------------------------
Name: Louise Miller
Title: Assistant Vice President
Structured Finance
M256
-17-
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, New York Branch, as a Bank
By /s/ Lillian Tung Lum
----------------------------------------
Name: Lillian Tung Lum
Title: Vice President
By /s/ Anne T. McKenna
----------------------------------------
Name: Anne T. McKenna
Title: Associate
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<PAGE>
FLEET NATIONAL BANK, as a Bank
By /s/ E.B. Shelley
----------------------------------------
Name: E.B. Shelley
Title: Vice President
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<PAGE>
THE CHASE MANHATTAN BANK,
as a Bank
By /s/ Helen L. Newcomb
----------------------------------------
Name: Helen L. Newcomb
Title: Vice President
-20-
<PAGE>
DEUTSCHE GIROZENTRALE
DEUTSCHE KOMMUNALBANK, as a Bank
By /s/ Dr. N. Hasslinger
----------------------------------------
Name: Dr. N. Hasslinger
Title: Senior Vice President
By /s/ St. Wagner
----------------------------------------
Name: St. Wagner
Title: Vice President
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<PAGE>
BANCO SANTANDER, S.A., New York Branch,
as a Bank
By /s/ Edward M. O'Loghien
----------------------------------------
Name: Edward M. O'Loghien
Title: Vice President
Asset Backed Finance Group
By /s/ John Hennessy
----------------------------------------
Name: JOHN HENNESSY
Title: MANAGER
ASSET BACKED FINANCE GROUP
-22-
<PAGE>
KBC BANK, N.V., as a Bank
By /s/ Robert Snauffer
----------------------------------------
Name: ROBERT SNAUFFER
Title: FIRST VICE PRESIDENT
By /s/ Marcel Claes
----------------------------------------
Name: MARCEL CLAES
Title: DEPUTY GENERAL MANAGER
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<PAGE>
NORDDEUTSCHE LANDESBANK
GIROZENTRALE, New York Branch, as a Bank
By /s/ Stephanie Finnen
----------------------------------------
Name: Stephanie Finnen
Title: VP
By /s/ Stephen K. Hunter
----------------------------------------
Name: Stephen K. Hunter
Title: SVP
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<PAGE>
CREDIT LOCAL DE FRANCE, New York
Agency, as a Bank
By /s/ David Weinstein
----------------------------------------
Name: DAVID WEINSTEIN
Title: VICE PRESIDENT
By /s/ James R. Miller
----------------------------------------
Name: JAMES R. MILLER
Title: GENERAL MANAGER
CLF NY AGENCY
-25-
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
as a Bank
By /s/ Louis DiFranco
----------------------------------------
Name: LOUIS DIFRANCO
Title: VICE PRESIDENT
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<PAGE>
EXHIBIT A
TO FIRST AMENDMENT
Form of Opinion of General Counsel of MBIA
[date]
Each of the Banks which are parties to the Credit Agreement
referred to herein
c/o Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
("Rabobank Nederland"), New York Branch
as Administrative Agent
245 Park Avenue
New York, New York 10167-0062
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
("Rabobank Nederland"), New York Branch,
as Administrative Agent
245 Park Avenue
New York, New York 10167-0062
Deutsche Bank AG, New York Branch,
as Documentation Agent
31 West 52nd Street
New York, NY 10019
Re: First Amendment, dated as of October 1, 1998, to Second Amended and
Restated Credit Agreement dated as of October 1, 1997, with MBIA
Insurance Corporation
Ladies and Gentlemen:
I am General Counsel of MBIA Insurance Corporation, a New York stock insurance
corporation ("MBIA"). This opinion is being given in connection with First
Amendment, dated as of October 1, 1998 (the "Amendment"), to the Second Amended
and Restated Credit Agreement dated as of October 1, 1997 (as amended by the
Amendment, the "Credit Agreement") among MBIA, Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. (Rabobank Nederland), New York Branch, as a Bank
and as Administrative Agent, Deutsche Bank AG, New York Branch, as a Bank and as
Documentation Agent, and the other Banks signatory thereto. All capitalized
terms used herein and not otherwise defined shall have the respective meanings
assigned thereto in the Credit Agreement.
As General Counsel to MBIA, I am familiar with its Restated Charter and its
By-Laws, as amended to date, and I have responsibility for supervision of MBIA's
insurance regulatory compliance. I have examined such certificates of public
officials, such certificates of officers of MBIA and copies
A-1
<PAGE>
certified to my satisfaction of such corporate documents and records of MBIA and
of such other papers as I have deemed relevant and necessary for the opinions
set forth below. In all such examinations, I have assumed the genuineness of all
signatures, the authority to sign and the authenticity of all documents
submitted to me as originals. I have also assumed the conformity with the
originals of all documents submitted to me as copies. I have relied upon
certificates of public officials and of officers of MBIA with respect to the
accuracy of factual matters contained therein which were not independently
established.
Based upon the foregoing, it is my opinion that:
(a) MBIA is a stock insurance corporation duly incorporated and
validly existing in good standing under the laws of the State of New York
and has the corporate power and all requisite licenses and franchises
required to carry on its insurance and other business, as now being
conducted in the State of New York and in each other jurisdiction where the
nature of the business transacted by it makes such qualification necessary,
except any jurisdiction other than the State of New York where failure to
so qualify would not have a material adverse effect on the business,
assets, operations or financial condition of MBIA or the ability of MBIA to
perform its obligations under the Amendment, the Credit Agreement, the
additional Notes dated October 7, 1998 being issued to certain parties, the
amended and restated Bank Fee Letter dated as of October 7, 1998 and the
replacement Agent Fee Letter dated as of October 7, 1998 (the "Transaction
Documents").
(b) The execution, delivery and performance of the Transaction
Documents are within the corporate powers of MBIA, have been duly
authorized by all necessary corporate action and do not (i) violate any
provision of the Restated Charter of By-Laws of MBIA, (ii) violate any
provision of law, rule, regulation (including without limitation, the New
York Insurance Law, the Investment Company Act of 1940, as amended, or
Regulations T, U or X of the Board of Governors of the Federal Reserve
System), order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to MBIA the violation of which
would affect the validity or enforceability of any of the Transaction
Documents or the ability of MBIA to perform its obligations under the
Transaction Documents, (iii) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which MBIA is a party or by which it or its
properties may be bound or affected or (iv) result in, or require, the
creation or imposition of any Lien upon or with respect to any of the
properties now owned or hereafter acquired by MBIA (other than as
contemplated by the Loan Documents), other than, in the case of clauses
(iii) and (iv), breaches, defaults or Liens which could not materially and
adversely affect the business, assets, operations or financial condition of
MBIA or the ability of MBIA to perform its obligations under the
Transaction Documents.
(c) To the best of my knowledge, no consent, approval or other action
by, or any notice to or filing with, any court or administrative or
governmental body is required in connection with the execution, delivery or
performance by MBIA of the Transaction Documents.
(d) To the best of my knowledge, there is no action, suit, proceeding
or investigation before or by any court, arbitrator or administrative or
governmental body pending or threatened against MBIA, wherein an adverse
decision, ruling or finding would materially and adversely affect (i) the
business, assets, operations or financial condition of MBIA, (ii) the
transactions contemplated by the Credit Agreement or (iii) the validity or
enforceability of the Transaction Documents.
A-2
<PAGE>
(e) To the best of my knowledge, MBIA is not in violation of any
provision of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect having applicability to
MBIA or of the Restated Charter or By-Laws of MBIA, or in default under any
material indenture, agreement, lease or instrument to which it is a party
or by which it or any of its properties may be subject or bound, where such
violation or default may result in a material adverse effect on the
business, assets, operations or financial condition of MBIA or on its
ability to perform its obligations under the Transaction Documents.
(f) To the best of my knowledge, MBIA is in compliance with the New
York Insurance Law and the regulations of the Department thereunder and
with all other applicable federal state and other laws, rules and
regulations relating to its insurance and other business, except with
respect to failures, if any, to comply which singly or in the aggregate do
not have a material adverse effect on the business, assets, operations or
financial condition of MBIA or the ability of MBIA to perform its
obligations under any of the Transaction Documents.
(g) All of the issued and outstanding capital stock of MBIA is owned
beneficially and of record by MBIA Inc., subject to no Liens. There are no
options or similar rights of any Person to acquire any such capital stock
or any other capital stock of MBIA.
This opinion is being furnished to you and your participants in connection with
the execution of the Credit Agreement, and it is not to be used, circulated,
quoted or otherwise referred to for any purpose without my express written
consent.
Very truly yours,
[General Counsel]
A-3
<PAGE>
EXHIBIT B
TO FIRST AMENDMENT
Form of Opinion of Kutak, Rack
[date]
Each of the Banks which are
parties to the Credit Agreement
referred to herein
c/o Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A.
("Rabobank Nederland"), New York Branch
as Administrative Agent
245 Park Avenue
New York, New York 10167-0062
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
("Rabobank Nederland"), New York Branch,
as Administrative Agent
245 Park Avenue
New York, New York 10167-0062
Deutsche Bank AG, New York Branch,
as Documentation Agent
31 West 52nd Street
New York, NY 100 1 9
Re: First Amendment, dated as of October 1, 1998, to Second Amended and
Restated Credit Agreement dated as of October 1, 1997, with MBIA
Insurance Corporation
Ladies and Gentlemen:
This opinion is furnished to you in connection with the First Amendment,
dated as of October 1, 1998 (the "Amendment"), to the Second Amended and
Restated Credit Agreement dated as of October 1, 1997 (as amended by the
Amendment, the "Credit Agreement") among MBIA, Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. (Rabobank Nederland), New York Branch, as a Bank
and as Administrative Agent, Deutsche Bank AG, New York Branch, as a Bank and as
Documentation Agent, and the other Banks signatory thereto. All capitalized
terms used herein and not otherwise defined have the meanings assigned thereto
in the Credit Agreement. As used herein, "Transaction Documents" means the
Amendment, the Credit Agreement, the additional Notes dated October 7, 1998
being issued to certain parties, the amended and restated Bank Fee Letter dated
as of October 7, 1998 and the replacement Agent Fee Letter dated as of October
7, 1998.
B-1
<PAGE>
We have acted as special counsel to MBIA in connection with the execution
and delivery of the Transaction Documents. In this connection, we have examined
the Transaction Documents and such certificates of public officials, such
certificates of officers of MBIA, and copies certified to our satisfaction of
such corporate documents and records of MBIA, and such other documents as we
have deemed necessary or appropriate for the opinions set forth below. We have
relied upon such certificates of public officials and of officers of MBIA with
respect to the accuracy of factual matters contained therein which were not
independently established.
We have also assumed (i) the due execution and delivery, pursuant to due
authorization, of each document referred to in the immediately preceding
paragraph by all parties other than MBIA to such document, (ii) the authenticity
of all such documents submitted to us as originals, (iii) the genuineness of all
signatures and (iv) the conformity to the originals of all such documents
submitted to us as copies.
Based upon the foregoing and upon such investigation as we have deemed
necessary, we are of the opinion that:
1. MBIA is a stock insurance corporation, duly incorporated and validly
existing under the laws of the State of New York, and is licensed and authorized
to carry on its business under the laws of the State of New York.
2. Each Transaction Document has been duly executed and is a valid and
binding obligation of MBIA enforceable in accordance with its terms, except that
such enforceability may be limited by laws relating to bankruptcy, insolvency,
reorganization, moratorium, receivership and other similar laws affecting
creditors' rights generally and by general principles of equity and the
enforceability as to rights to indemnity thereunder as may be subject to
limitations of public policy.
3. The execution, delivery and performance of the Transaction Documents do
not (a) violate any provision of the Restated Charter or Bylaws of MBIA or (b)
violate any provision of law (including without limitation the New York
Insurance Law or the Investment Company Act of 1940, as amended) or, to the best
of our knowledge, any rule or regulation (including without limitation
Regulation T, U or X of the Board of Governors of the Federal Reserve System)
presently in effect having applicability to MBIA the violation of which would
(i) affect the validity or enforceability of any Transaction Document or the
ability of MBIA to perform its obligations thereunder, (ii) adversely affect the
Banks or their rights under any Transaction Document or (iii) materially
adversely affect the business, assets, operations or financial condition of
MBIA.
4. To the best of our knowledge, no consent, approval or other action by or
any notice to or filing with any court or administrative or governmental body is
required in connection with the execution, delivery or performance by MBIA of
the Transaction Documents. No consent, approval or other action by or any notice
to or filing with the Department is required in connection with the execution,
delivery or performance by MBIA of the Transaction Documents.
5. Except with respect to MBIA's obligations to pay the principal of and
interest on the Loans, the obligations of MBIA under the Transaction Documents
will rank, under the New York Insurance Law, at least pari passu in priority of
payment with all other unsecured obligations of MBIA, including without
limitation MBIA's obligation to pay claims under Insurance Contracts
B-2
<PAGE>
under the New York Insurance Law, subject, however, to statutory priorities
granted to certain claims under Sections 7426 and 7435 of the New York Insurance
Law.
6. The effectiveness of the Transaction Documents does not adversely affect
the opinions set forth in paragraphs 6 and 7 of our opinion dated November 30,
1993, delivered in connection with the first restatement of the Credit
Agreement, dated as of such date, with respect to the Security Interest (as
defined in such opinion) and the collateral assignment of Collateral referred to
therein. No filings under the UCC are required to perfect or to continue the
perfection of the Security Interest (subject to the matters described in the
paragraph following paragraph 7 of such opinion) in favor of the Collateral
Agent for the benefit of the Banks in all of MBIA's right, title and interest in
and to the Collateral, to the extent that the Security Interest can be perfected
by the filing of financing statements under the UCC. We note that the filing of
an assignment of filed financing statements by the predecessor Collateral Agent
to the successor Collateral Agent pursuant to Section 9-405 of the UCC may be
required for the successor Collateral Agent to exercise certain rights of a
secured party of record with respect to such financing statements.
In rendering the opinions expressed herein, we express no opinion as to the
laws of any jurisdiction other than the State of New York and the federal laws
of the United States of America.
This opinion is being famished to you and your participants solely in
connection with the execution of the Amendment, and it is not to be used,
circulated, quoted or otherwise referred to for any purpose without our express
written consent.
Very truly yours,
B-3
<PAGE>
SCHEDULE 1
TO FIRST AMENDMENT
BANKS ADDRESSES AND COMMITMENTS
Rabo Deutsche order of comm./alpha
Name and Notice Address of Bank Commitment
- ------------------------------- ----------
Cooperative Centrale Raiffeisen- $100,000,000
Boerenleenbank B.A. "Rabobank Nederland",
New York Branch
245 Park Avenue
New York, NY 10167
Attn: Angela R. Reilly
Deutsche Bank AG, New York Branch $165,000,000
31 West 52nd Street
New York, NY 10019
Attn: Clinton W. Johnson, Director
Caisse des Depots et Consignations $100,000,000
CDC North America, Inc.
9 West 57th Street - 36th Floor
New York, NY 10019
Attn: David L. Askren, Senior Vice President
Credit Suisse First Boston, $100,000,000
Eleven Madison Avenue
New York, NY 10010-3629
Attn: James Lee
Bayerische Landesbank Girozentrale, $50,000,000
New York Branch
560 Lexington Avenue
New York, NY 10022
Attn: Scott Allison
<PAGE>
Landesbank Hessen-Thuringen Girozentrale, $50,000,000
New York Branch
420 Fifth Avenue
New York, NY 10018
Attn: Lisa Pent
Lloyds Bank Plc, $50,000,000
New York Branch
575 Fifth Avenue, 18th Floor
New York, NY 10017
Attn: Louise Miller
Westdeutsche Landesbank Girozentrale, $50,000,000
New York Branch
1211 Avenue of the Americas
New York, NY 10036
Attn: Lillian Tung Lum
Fleet National Bank $30,000,000
777 Main Street, CT-MO 0250
Hartford, CT 06115
Attn: Elizabeth Shelley
The Chase Manhattan Bank $25,000,000
270 Park Avenue - 20th Floor
New York, NY 10017
Attn: Helen Newcomb
Deutsche Girozentrale Deutsche $25,000,000
Kommunalbank
Taunusanlage 10
Postfach 11 0542
D-60040 Frankfurt Am Main 11
GERMANY
Attn: Stephen Wagner
Banco Santander, S.A., $20,000,000
New York Branch
45 East 53rd Street
New York, NY 10022
Attn: Greta Greathouse
-2-
<PAGE>
KBC Bank, N.V. $20,000,000
125 West 55th Street
New York, NY 1001 9
Attn: Kate McCarthy
Eric Raskin
Norddeutsche Landesbank Girozentrale, $20,000,000
New York Branch
1270 Avenue of the Americas
New York, NY 10020
Attn: Jens Beerman
Credit Local de France, $10,000,000
New York Agency
450 Park Avenue, 3rd Floor
New York, NY 10022
Attn: Ben Hollaster
The First National Bank of Chicago $10,000,000
153 West 51st Street
New York, NY 10019
Attn: Louis Defranco
TOTAL: $825,000,000
-3-
AMENDMENT NO. 2
TO THE
CapMAC Employee Stock Ownership Plan
WHEREAS, CapMAC Holdings ("the Company"), a Delaware corporation has
maintained the CapMAC Employee Stock Ownership (the Plan) for the Employees of
CapMAC Services, Inc.; and
WHEREAS, is a stock for stock exchange the Company has merged its assets and
operations with those of MBIA ("the Employer"), effective February 17, 1998; and
WHEREAS, the Employer wishes to amend the Plan formula used to allocate
shares that are released from the suspense account each year; and
WHEREAS, the Employer wishes to allocate a limited number of shares under
the CapMAC ESOP for the short period January 1, 1998 through February 17, 1998
for those Participants who were formerly employed by CapMAC and who were in
active service on February 17, 1998 based on amounts paid on the ESOP loan
through such date; and
WHEREAS, Section 15.03 of the Plan allows the Employer to amend the Plan at
any time; and
NOW, THEREFORE, the Plan amended as follows:
1. Effective February 17, 1998, Section 6.01(a) of the Plan shall be
redesignated Section 6.01(a)(i) and a new paragraph (a)(ii) shall be added
to 6.01(a) to read as follows:
6.01 Allocation of Contributions
(a)(ii) Notwithstanding anything herein to the contrary, the Account maintained
for each Participant will be credited of February 17, 1998 with Participant's
allocable share of (i) Shares purchased by the Trust Fund using cash contributed
by or on behalf of the Participating Company employing such Participant (or
contributed directly to the Trust Fund) and (ii) Shares released from the
Suspense Subfund pursuant to Section 63 (a)(ii) and allocable to the
contribution made by or on behalf of such Participating Company pursuant to
Section 6.4. The Allocation of contributions of each Participating Company
during the period January I through February 17, 1998 shall be made only to the
Accounts of those Participants who were Employees of a Participating Company as
of February 17, 1998. Shares shall be allocated for this period in accordance
with Section 6.1 (b) except that Compensation as defined in Section 6.1 (b),
shall be limited to Compensation earned from January 1, 1998 through February
17, 1998. For the period from February 18, 1998 through December 31, 1998 and
subsequent Plan years shares shall be allocated in accordance with 6.1(a)(i)
except that Compensation as defined in 6.l(b) shall be limited to Compensation
earning from February 18, 1998 through December 31, 1998 and 6.l(b).
<PAGE>
2. Effective January 1, 1998, section 6.3(a) shall be redesignated as section
6.3(a)(i) and an additional paragraphs (a)(ii) and (a)(iii) shall be added
thereto to read as follows:
(a)(ii) Notwithstanding anything herein to the contrary, for the period
beginning January 1 through February 17, 1998 the number of shares released from
the Suspense Subfund shall equal the number of unreleased Shares attributable to
such Exempt Loan immediately before such release multiplies by the Special
Release Fraction.
For purposes of this Section 6.3 (a)(ii) the term "Special Release Fraction"
shall mean a fraction, the numerator of which is the amount of principal and
interest paid on the Exempt Loan for the period January 1, 1998 to February 17,
1998 and the denominator of which is the sum of the numerator plus the principal
and interest to be paid on such Exempt Loan for the remainder of the 1998 year
and all future years during the term of such Exempt Loan (determined without
reference to any possible extensions or renewals thereof). For purposes of
computing the denominator of the Release Fraction under this Section 6.3(a)(ii),
if the interest rate on the Exempt Loan is variable, the interest rate to be
paid subsequently to February 17, 1998 shall be calculated by assuming that the
interest rate in effect as of February 17, 1998 will be the interest rate in
effect for the remainder of the term of the Exempt Loan. Notwithstanding the
foregoing, in the event such Exempt Loan shall be repaid with the proceeds of a
subsequent Exempt Loan (the "Substitute Loan"), such repayment shall not operate
to release all such Shares in the Suspense Subfund, but, rather such release
shall be effected pursuant to the foregoing provisions of this Section on the
basis of payments of principal and interest on such Substitute Loan.
(iii) For the period February 18, 1998 through December 31, 1998 and Plan years
thereafter, the provisions of Section 6.3(a)(i) shall apply.
IN WITNESS THEREOF this amendment No.2 has been executed this 22nd day of
December, 1998.
MBIA
By: /s/ Kevin D. Silva
----------------------------------
Name: Kevin D. Silva
Title: S.V.P. Management Services
REINSURANCE AGREEMENT
This Agreement is dated as of the 1st day of April, 1998, between Capital
Markets Assurance Corporation (hereinafter referred to as the "Ceding Company")
and MBIA Insurance Corporation (hereinafter referred to as the "Reinsurer").
W I T N E S S E T H:
WHEREAS, the Ceding Company and the Reinsurer are both stock insurance
corporations and domiciled in New York; and
WHEREAS, the Ceding Company has written financial guaranty insurance; and
WHEREAS, the Ceding Company and the Reinsurer are members of the same
holding company system; and
WHEREAS, the Ceding Company presently intends to cease writing such
insurance, except to honor outstanding commitments; and
WHEREAS, the Ceding Company desires to code and the Reinsurer desires to
reinsure the Ceding Company's net liability on all insurance of the Ceding
Company now in force and hereafter written by the Ceding Company to honor
outstanding commitments on the terms hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and understandings
contained herein and upon the terms and conditions set forth below, the parties
hereto agree as follows:
ARTICLE 1
Cover:
1.1 The Ceding Company hereby cedes as reinsurance to the Reinsurer, and
the Reinsurer hereby accepts as reinsurance from the Ceding Company, one hundred
percent (100%) of the net liability and other obligations of the Ceding Company
under all Covered Business, as defined in Article 2, including extra contractual
obligations relating thereto to the extent that such obligations are reinsurable
under the Insurance Law of the State of New York.
<PAGE>
ARTICLE 2
Covered Business:
2.1 Covered Business shall mean all of the Ceding Company's net retention
on its financial guaranty insurance business, whether written on a direct basis
or assumed from other insurers, and shall include the Ceding Company's interest
in any contingent commissions due or which become due to the Ceding Company from
other reinsurers ("third party reinsurers"). In determining said net retention,
amounts paid or payable to the Ceding Company by its third party reinsurers
shall be excluded, except where such payable amounts are more than ten (IO) days
overdue. Any recovery of such overdue amounts from a third party reinsurer which
occurs subsequent to payment by the Reinsurer hereunder shall be credited
pursuant to Article 9.
ARTICLE 3
Definitions:
3.1 As used in this Agreement:
(a) "Effective Letter of Credit" shall mean, as of any date, an Eligible
Letter of Credit delivered to the Ceding Company and having an expiration date
at least one month after such date.
(b) "Eligible Letter of Credit" shall mean a clean irrevocable letter of
credit in favor of the Ceding Company issued by a bank chosen by the Reinsurer,
complying with the requirements of applicable law to allow the Ceding Company to
claim reserve credit for liabilities ceded hereunder and complying with
requirements of the Insurance Department of the State of New York.
(c) "Effective Security" shall mean, as of any date, the full amount of
Effective Letters of Credit.
(d) "Ceded Reserves" shall mean, as of any date, the aggregate. of the
unearned premium reserve and the loss reserve, if any, required to be carried by
the Ceding Company for the liabilities ceded hereunder in accordance with
statutory accounting practices, before giving effect to any reserve credit for
the cession made hereby (but after giving effect to the cessions and assumptions
referred to in Article 2 regardless of whether the Ceding Company is permitted
to claim reserve credit for the cessions referred to in Article 2).
(e) "Contingency Reserve" shall mean contingency reserve as defined in
Section 6903 (a) of the New York Insurance Law.
2
<PAGE>
ARTICLE 4
Period:
4.1 This Reinsurance Agreement shall be effective as of 11:59 P.M., Eastern
Standard Time, April 1, 1998 (the "Effective Time"). This Reinsurance Agreement
will be terminated or amended in accordance with Section 6906(a) of the New York
Insurance Law.
ARTICLE 5
Reinsurance Premium and Accounts:
5.1 The Ceding Company shall pay to the Reinsurer as of the Effective Time
a reinsurance premium equal to the Ceded Reserves and the Contingency Reserve as
of the Effective Time. An estimated payment of such initial reinsurance premium
shall be made not later than the Effective Time. As soon as practicable but no
later than 60 days thereafter, the Ceding Company will provide the Reinsurer
with a portfolio representing the Ceded Reserves and the Contingency Reserve as
of the Effective Time and if the Ceded Reserves and the Contingency Reserve
differ from the estimated payment made pursuant to the preceding sentence, an
appropriate adjusting payment between the parties shall be made. Such portfolio
shall also set forth the Contingency Reserve required to be established as of
the Effective Time.
5.2 Within 20 days following the end of each month, the Ceding Company will
render or cause to be rendered a net account to the Reinsurer for the month
showing the Ceding Company's interest in the following:
(a) Net written premium accounted for during the month (being the gross
written premium less returns and cancellations and net of reinsurance ceded by
the Ceding Company to third-party reinsurers).
(b) Any contingent commission paid to the Ceding Company by third-party
reinsurers during the month.
(c) Any loss or loss expense paid during the month on losses occurring
during the term of this Agreement.
(d) Subrogations, salvage or other recoveries made during the month on
losses occurring during the term of the Agreement.
5.3 Within 15 days after receipt of the account, the Reinsurer shall send
confirmation of the account or relevant objections to the Ceding Company.
3
<PAGE>
(a) The Ceding Company shall remit any net balance payable to the Reinsurer
at the same time as the account is rendered.
(b) The Reinsurer shall remit any net balance payable to the Ceding Company
at the same time as the account is confirmed, but at the latest within 15 days
following receipt of the account.
(c) Even if the Reinsurer has objections in regard to the account, the
uncontested balance shall be immediately remitted. Following the immediate
clarification of the questions which have arisen, the difference in amount shall
be settled at once by the party in debt.
5.4 Within 30 days following the end of each calendar quarter, the Ceding
Company shall furnish a report as to reserves, together with any other
information which the Reinsurer may require for its accounting records and which
may be reasonably available to the Ceding Company.
5.5 Within 45 days following the end of each calendar year, the Ceding
Company shall furnish to the Reinsurer for the calendar year a summary account
split up per underwriting year for 100% of the business ceded hereunder,
together with any other information which the Reinsurer may require for its
accounting records and which may be reasonably available to the Ceding Company.
5.6 No ceding commission shall be payable in respect of this Reinsurance
Agreement. 5.7 All settlements of account under this Agreement between the
Ceding Company and the Reinsurer shall be made in cash or its equivalent.
ARTICLE 6
Security:
6.1 When a governing body of any jurisdiction in which the Ceding Company
legally operates or to which it submits requires as a condition to credit for
the reinsurance provided by this Agreement that the Reinsurer post a Letter of
Credit for the benefit of the Ceding Company, establish a Trust Account for the
benefit of the Ceding Company or deposit funds under the control of the Ceding
Company, the Reinsurer shall post and maintain such a Letter of Credit,
establish such a Trust Account, or deposit such funds in the form and amount
necessary to permit the Ceding Company to avoid on any statutory financial
statement filed by the Ceding Company the penalty to surplus which would result
from the loss of credit for the reinsurance.
6.2 Notwithstanding any other provisions of this Agreement, it is agreed
that any Letter of Credit provided under section 6.1 of this Article 6 shall be
drawn upon
4
<PAGE>
and utilized by the Ceding Company or its successors in interest only for one or
more of the following purposes:
(a) to reimburse the Ceding Company for losses and loss expenses paid by
the Ceding Company under this Agreement;
(b) to fund an account with the Ceding Company in an amount at least equal
to the deduction allowed for the reinsurance provided by this agreement, from
the Ceding Company's liabilities for Policies ceded under the agreement, such
amount to include, if applicable, but not be limited to, amounts for contingency
reserves, loss reserves for paid, reported and incurred but not reported
("IBNR") losses, loss expense reserves and unearned premium reserves; or
(c) to pay any other amounts the Ceding Company claims are due under the
Agreement.
All of the foregoing should be applied without diminution because of
insolvency on the part of the Ceding Company or Reinsurer.
6.3 If the Reinsurer elects to provide a Letter of Credit under section 6.1
of this Article, the Reinsurer shall cause the Letter of Credit to be issued, in
place and effective no later than the "as of date" of the first quarterly filing
prepared by the Ceding Company for the appropriate regulatory authority after
the effective date of this Agreement.
ARTICLE 7
Service of Covered Business:
7.1 The Ceding Company shall service the Covered Business with respect to
collection and payment of premium, notice, service of process and investigation,
settlement, defense and payment of claims on all Covered Business and with
respect to all reinsurance ceded by the Ceding Company to third-party
reinsurers. The Ceding Company will remit all premiums collected to the
Reinsurer and third-party reinsurers in accordance with their respective
interests.
ARTICLE 8
Claims:
8.1 The Ceding Company shall settle or defend claims. The Reinsurer shall,
within one hour of receiving written or telephonic notice of any claim, (any
telephonic notice to be subsequently confirmed in writing) pay the Reinsurer's
share of all losses and loss expenses, excluding unallocated loss expenses.
5
<PAGE>
ARTICLE 9
Salvage:
9.1 The Ceding Company will credit the Reinsurer with its proportionate
share of any recoveries, salvages or reimbursements on account of claims and
settlements involving reinsurance hereunder.
9.2 In the event there are any recoveries, salvages or reimbursements
recovered subsequent to a loss settlement, it is agreed that, if the expenses
incurred in obtaining salvage or other recoveries are less than the amount
recovered, such expenses shall be borne by each party in the proportion that
each party benefits from the recoveries, otherwise, the amount recovered shall
first be applied to the reimbursement of the expense of recovery and the
remaining expense shall be borne by the Ceding Company and the Reinsurer in
proportion to the liability of each party for the loss before such recovery had
been obtained. Expenses hereunder shall exclude all office expenses and salaries
of officers and employees of the Ceding Company.
ARTICLE 10
Access to Records:
10.1 The Reinsurer shall, at all reasonable times during the term of this
Agreement and thereafter, have the right to inspect the books, records and
documents of the Ceding Company with respect to the Covered Business.
ARTICLE 11
Reserves:
11.1 The Reinsurer agrees to maintain proper unearned premium, loss and
loss expense reserves upon the liabilities ceded hereunder in accordance with
accounting practices prescribed or permitted by each of the Insurance
Departments of the States of New York and California. The Reinsurer shall also
establish as of the Effective Time a statutory contingency reserve in an amount
equal to the statutory contingency reserve required to be carried by the Ceding
Company immediately prior to the Effective Time.
ARTICLE 12
Original Conditions:
12.1 All insurances and reinsurances falling under this Agreement shall be
subject to the same terms, rates, conditions and waivers, and to the same
modifications, alterations and cancellations, as the respective policies
constituting the Covered Business.
6
<PAGE>
ARTICLE 13
Follow the Fortunes:
13.1 This Agreement shall be construed as an honorable undertaking between
the parties hereto and shall not be defeated by technical legal construction, it
being the intention of this Agreement that the fortunes of the Reinsurer shall
follow the fortunes of the Ceding Company. Nothing herein shall in any manner
create any obligations or establish any rights against the Reinsurer in favor of
any third parties or any persons not parties to this Agreement.
ARTICLE 14
Errors and Omissions:
14.1 Any inadvertent error, omission or delay in connection with this
Agreement shall not affect the liability which otherwise would have attached to
either party, provided such error, omission or delay is rectified as soon as
possible after discovery.
ARTICLE 15
Offset:
15.1 Each party hereto shall have, and may exercise at any time and from
time to time, the right to offset any balance or balances, whether on account of
premiums or on account of losses or otherwise, due from such party to the other
(or, if more than one, any other) party hereto under this Agreement, and may
offset the same against any balance or balances due or to become due to the
former from the latter under the same. The party asserting the right of offset
shall have and may exercise such right whether the balance or balances due or to
become due to such party from the other are on account of premiums or on account
of losses or otherwise and regardless of the capacity, whether as assuming
reinsurer or as ceding company, in which each party acted under the agreement
or, if more than one, the different agreements involved. In the event of the
insolvency of a party hereto, offsets shall be allowed only in accordance with
the provisions of Section 7427 of the Insurance Law of the State of New York.
ARTICLE 16
Insolvency:
16.1 In the event of the insolvency of the Ceding Company or its successor
in interest this reinsurance shall be payable directly to the Ceding Company, or
directly to its liquidator, receiver, conservator or statutory successor, on the
basis of the liability of the Ceding Company without diminution because of the
insolvency of the
7
<PAGE>
Ceding Company or because the liquidator, receiver, conservator or statutory
successor of the Ceding Company has failed to pay all or a portion of any claim.
It is agreed, however, that the liquidator, receiver, conservator or statutory
successor of the Ceding Company shall give written notice to the Reinsurer of
the pendency of the claim against the Ceding Company indicating the policy or
bond reinsured which claim would involve a possible liability on the part of the
Reinsurer within a reasonable time after such claim is filed in the conservation
or liquidation proceeding or in the receivership, and that during the pendency
of such claim, the Reinsurer may investigate such claim and interpose at its own
expense, in the proceeding where such claim is to be adjudicated any defense or
defenses that it may deem available to the Ceding Company or its liquidator,
receiver, conservator or statutory successor. The expense thus incurred by the
Reinsurer shall be chargeable, subject to the approval of the court, against the
Ceding Company as part of the expense of conservation or liquidation to the
extent of a pro rata share of the benefit which may accrue to the Ceding Company
solely as a result of the defense undertaken by the Reinsurer.
16.2 The Reinsurance shall be payable by the Reinsurer to the Ceding
Company or to its liquidator, receiver, conservator or statutory successor,
except as provided by section 4118 (a) of the New York Insurance Law or except
(a) where the policy specifically provided another payee of such reinsurance in
the event of the insolvency of the Ceding Company and (b) where the Reinsurer
with the consent of the direct insured or insureds has assumed such policy
obligations of the Ceding Company as direct obligations of the Reinsurer to the
payees under such policies and in substitution for the obligations of the Ceding
Company to such payees.
ARTICLE 17
Miscellaneous:
17.1 This Agreement shall be governed by the laws of the State of New York.
17.2 The parties hereto agree to execute and deliver such farther
instruments and do such farther acts as may be necessary and proper to carry out
the purposes of this Reinsurance Agreement.
17.3 If any provision of this Reinsurance Agreement or the applicability
thereto to any person or circumstance is held invalid, the remainder of this
Reinsurance Agreement, including the remainder of the section in which such
provision appears, or the applicability of such provision to other persons or
circumstances, shall not be affected thereby.
17.4 This Reinsurance Agreement contains the entire understanding of the
parties with respect to the subject matter hereto. There are no restrictions,
promises, warranties, covenants or undertakings with respect to such subject
matter, other than
8
<PAGE>
those expressly set forth herein. This Reinsurance Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter. This Reinsurance Agreement is binding on and shall inure to the
benefit of the parties hereto, their successors and assigns.
At Armonk, Capital Markets Assurance Corporation
New York
By: /s/ [ILLEGIBLE]
------------------------
President
At Armonk, MBIA Insurance Corporation
New York
By: /s/ Richard Weill
------------------------
President
9
REINSURANCE AGREEMENT
This Agreement dated as of the lst day of January, 1999, between MBIA
Insurance Corp. of Illinois, (formerly known as Bond Investors Guaranty
Insurance Company), an Illinois corporation (hereinafter referred to as the
"Ceding Company"), and MBIA Insurance Corporation, (formerly known as Municipal
Bond Investors Assurance Corporation), a New York stock insurance company
(hereinafter referred to as the "Reinsurer").
WITNESSETH:
WHEREAS, the Ceding Company is an Illinois corporation; and
WHEREAS, the Ceding Company has written municipal bond and municipal note
guaranty insurance; and
WHEREAS, the Ceding Company has ceased writing such insurance, except to
honor outstanding commitments, and has entered into a Reinsurance Agreement
dated December 31, 1990 with the Reinsurer (the "Prior Agreement"); and
WHEREAS, the parties hereto now desire to terminate the Prior Agreement on
a cutoff basis as of the Effective Date hereof, and to replace the Prior
Agreement with this Agreement in connection with any losses paid on and after
the Effective Date hereof; and
WHEREAS, the Ceding Company desires to cede and the Reinsurer desires to
reinsure the Ceding Company's liability on all insurance of the Ceding Company
now in force and hereafter written by the Ceding Company to honor outstanding
commitments on the terms hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and understandings
contained herein and upon the terms and conditions set forth below, the parties
hereto agree as follows:
ARTICLE I
Cover:
1.1 The Ceding Company hereby cedes as reinsurance to the Reinsurer, and
the Reinsurer hereby accepts as reinsurance from the Ceding Company, one hundred
percent (100%) of the net liability and other obligations of the Ceding Company
under all Covered Business, as defined in Article 2, including extra contractual
obligations relating thereto. In no event shall coverage be provided to the
extent that such coverage is not permitted under New York law.
<PAGE>
ARTICLE 2
Covered Business:
2.1 Covered Business shall mean all of the Ceding Company's net retention
on business written by the Ceding Company. Such net retention: (a) is net of
cessions by the Ceding Company to other reinsurers (the "third party
reinsurers"); (b) includes all liabilities assumed by the Ceding Company; (c)
includes the Ceding Company's interest in any contingent commissions due or
which become due to the Ceding Company from third-party reinsurers.
ARTICLE 3
Definitions:
3.1 As used in this Agreement:
(a) "Effective Letter of Credit" shall mean, as of any date, an Eligible
Letter of Credit delivered to the Ceding Company and having an expiration date
at least one month after such date.
(b) "Eligible Letter of Credit" shall mean a clean irrevocable letter of
credit in favor of the Ceding Company issued by a bank chosen by the Reinsurer,
complying with the requirements of applicable law to allow the Ceding Company to
claim reserve credit for liabilities ceded hereunder and complying with
requirements of the Insurance Department of the State of New York and the
Illinois Department of Insurance.
(c) "Effective Security" shall mean, as of any date, the full amount of
Effective Letters of Credit.
(d) "Ceded Reserves" shall mean, as of any date, the aggregate of the
unearned premium reserve and the loss reserve, if any, required to be carried by
the Ceding Company for the liabilities ceded hereunder in accordance with
statutory accounting practices, before giving effect to any reserve credit for
the cession made hereby (but after giving effect to the cessions and assumptions
referred to in Article 2 regardless of whether the Ceding Company is permitted
to claim reserve credit for the cessions referred to in Article 2).
(e) "Contingency Reserve" shall mean contingency reserve as defined in
Section 6903(a) of the New York Insurance Law.
2
<PAGE>
ARTICLE 4
Period:
4.1. This Reinsurance Agreement shall be effective as of 12:01 A.M.,
Eastern Standard Time, January 1, 1999 (the "Effective Time"). This Reinsurance
Agreement will be terminated or amended in accordance with Section 6906(a) of
the New York Insurance Law. Cancellation will be at year end after first giving
90 days notice.
ARTICLE 5
Reinsurance Premium and Accounts:
5.1. The Ceding Company shall pay to the Reinsurer as of the Effective Time
a reinsurance premium equal to the Ceded Reserves and the Contingency Reserve as
of the Effective Time. An estimated payment of such initial reinsurance premium
shall be made not later than the Effective Time. As soon as practicable but no
later than 60 days thereafter, the Ceding Company will provide the Reinsurer
with a portfolio representing the Ceded Reserves and the Contingency Reserve as
of the Effective Time and if the Ceded Reserves and the Contingency Reserve
differ from the estimated payment made pursuant to the preceding sentence, an
appropriate adjusting payment between the parties shall be made. Such portfolio
shall also set forth the contingency reserve required to be established as of
the Effective Time.
5.2 Within 20 days following the end of each month, the Ceding Company will
render or cause to be rendered a net account to the Reinsurer for the month
showing the Ceding Company's interest in the following:
(a) Net written premium accounted for during the month (being the gross
written premium less returns and cancellations and net of reinsurance ceded by
the Ceding Company to third-party reinsurers).
(b) Any contingent commission paid to the Ceding Company by third-party
reinsurers during the month.
(c) Any loss or loss expense paid during the month on losses occurring
during the term of this Agreement.
(d) Subrogations, salvage or other recoveries made during the month on
losses occurring during the term of the Agreement.
3
<PAGE>
5.3 Within 15 days after receipt of the account, the Reinsurer shall send
confirmation of the account or relevant objections to the Ceding Company.
(a) The Ceding Company shall remit any net balance payable to the
Reinsurer at the same time as the account is rendered.
(b) The Reinsurer shall remit any net balance payable to the Ceding
Company at the same time as the account is confirmed, but at the latest
within 15 days following receipt of the account.
(c) Even if the Reinsurer has objections in regard to the account, the
uncontested balance shall be immediately remitted. Following the immediate
clarification of the questions which have arisen, the difference in amount
shall be settled at once by the party in debt.
5.4 Within 30 days following the end of each calendar quarter, the Ceding
Company shall furnish a report as to reserves, together with any other
information which the Reinsurer may require for its accounting records and which
may be reasonably available to the Ceding Company.
5.5 Within 45 days following the end of each calendar year, the Ceding
Company shall furnish to the Reinsurer for the calendar year a summary account
split up per underwriting year for 100% of the business ceded hereunder,
together with any other information which the Reinsurer may require for its
accounting records and which may be reasonably available to the Ceding Company.
5.6 No ceding commission shall be payable in respect of this Reinsurance
Agreement.
5.7 All settlements of account under this Agreement between the Ceding
Company and the Reinsurer shall be made in cash or its equivalent.
ARTICLE 6
Security:
6.1 When a governing body of any jurisdiction in which the Ceding Company
legally operates or to which it submits requires as a condition to credit for
the reinsurance provided by this Agreement that the Reinsurer post a Letter of
Credit for the benefit of the Ceding Company, establish a Trust Account for the
benefit of the Ceding Company or deposit funds under the control of the Ceding
Company, the Reinsurer shall post and maintain such a Letter of Credit,
establish such a Trust Account, or deposit such funds in the form and amount
necessary to permit the Ceding Company to avoid on any statutory financial
statement filed by the Ceding Company the penalty to surplus which would result
from the loss of credit for the reinsurance.
4
<PAGE>
6.2 Notwithstanding any other provisions of this Agreement, it is agreed
that any Letter of Credit provided under section 6.1 of this Article 6 shall be
drawn upon and utilized by the Ceding Company or its successors in interest only
for one or more of the following purposes:
(a) to reimburse the Ceding Company for losses and loss expenses paid
by the Ceding Company under this Agreement;
(b) to fund an account with the Ceding Company in an amount at least
equal to the deduction allowed for the reinsurance provided by this
Agreement, from the Ceding Company's liabilities for Policies ceded under
the Agreement, such amount to include, if applicable, but not be limited
to, amounts for contingency reserves, loss reserves for paid, reported and
incurred but not reported ("IBNR") losses, loss expense reserves and
unearned premium reserves; or
(c) to pay any other amounts the Ceding Company claims are due under
the Agreement.
All of the foregoing should be applied without diminution because of
insolvency on the part of the Ceding Company or Reinsurer.
6.3 If the Reinsurer elects to provide a Letter of Credit under section 6.1
of this Article, the Reinsurer shall cause the Letter of Credit to be issued, in
place and effective no later than the "as of date" of the first quarterly filing
prepared by the Ceding Company for the appropriate regulatory authority after
the effective date of this Agreement.
ARTICLE 7
Service of Covered Business:
7.1 The Ceding Company shall service the Covered Business with respect to
collection and payment of premium, notice, service of process and investigation,
settlement, defense and payment of claims on all Covered Business and with
respect to all reinsurance ceded by the Ceding Company to third-party
reinsurers. The Ceding Company will remit all premiums collected to the
Reinsurer and third-party reinsurers in accordance with their respective
interests.
ARTICLE 8
Claims:
8.1 The Ceding Company shall settle or defend claims. The Reinsurer shall,
within one hour of receiving written or telephonic notice of any claim, (any
telephonic notice to be subsequently confirmed in writing) pay the Reinsurer's
share of all losses and loss expense, excluding unallocated loss expense.
5
<PAGE>
ARTICLE 9
Salvage:
9.1 The Ceding Company will credit the Reinsurer with its proportionate
share of any recoveries, salvages or reimbursements on account of claims and
settlements involving reinsurance hereunder.
9.2 In the event there are any recoveries, salvages or reimbursements
recovered subsequent to a loss settlement, it is agreed that, if the expenses
incurred in obtaining salvage or other recoveries are less than the amount
recovered, such expenses shall be borne by each party in the proportion that
each party benefits from the recoveries, otherwise, the amount recovered shall
first be applied to the reimbursement of the expense of recovery and the
remaining expense shall be borne by the Ceding Company and the Reinsurer in
proportion to the liability of each party for the loss before such recovery had
been obtained. Expenses hereunder shall exclude all office expenses and salaries
of officers and employees of the Ceding Company.
ARTICLE 10
Access to Records:
10.1 The Reinsurer shall, at all reasonable times during the term of this
Agreement and thereafter, have the right to inspect the books, records and
documents of the Ceding Company with respect to the Covered Business.
ARTICLE 11
Reserves:
11.1 The Reinsurer agrees to maintain proper unearned premium, loss and
loss expense reserves upon the liabilities ceded hereunder in accordance with
accounting practices prescribed or permitted by each of the Insurance
Departments of the States of New York and California. The Reinsurer shall also
establish as of the Effective Time a statutory contingency reserve in an amount
equal to the statutory contingency reserve required to be carried by the Ceding
Company immediately prior to the Effective Time.
ARTICLE 12
Original Conditions:
12.1 All insurances and reinsurances falling under this Agreement shall be
subject to the same terms, rates, conditions and waivers, and to the same
modifications, alterations and cancellations, as the respective policies
constituting the Covered Business.
6
<PAGE>
ARTICLE 13
Follow the Fortunes:
13.1 This Agreement shall be construed as an honorable undertaking between
the parties hereto and shall not be defeated by technical legal construction, it
being the intention of this Agreement that the fortunes of the Reinsurer shall
follow the fortunes of the Ceding Company. Nothing herein shall in any manner
create any obligations or establish any rights against the Reinsurer in favor of
any third parties or any persons not parties to this Agreement.
ARTICLE 14
Errors and Omissions:
14.1 Any inadvertent error, omission or delay in connection with this
Agreement shall not affect the liability which otherwise would have attached to
either party, provided such error, omission or delay is rectified as soon as
possible after discovery.
ARTICLE 15
Offset:
15.1 Each party hereto shall have, and may exercise at any time and from
time to time, the right to offset any balance or balances, whether on account of
premiums or on account of losses or otherwise, due from such party to the other
(or, if more than one, any other) party hereto under this Agreement, and may
offset the same against any balance or balances due or to become due to the
former from the latter under the same. The party asserting the right of offset
shall have and may exercise such right whether the balance or balances due or to
become due to such party from the other are on account of premiums or on account
of losses or otherwise and regardless of the capacity, whether as assuming
reinsurer or as ceding company, in which each party acted under the agreement
or, if more than one, the different agreements involved. In the event of the
insolvency of a party hereto, offsets shall be allowed only in accordance with
the provisions of Section 7427 of the Insurance Law of the State of New York.
7
<PAGE>
ARTICLE 16
Insolvency:
16.1 In the event of the insolvency of the Ceding Company or its successor
in interest this reinsurance shall be payable directly to the Ceding Company, or
directly to its liquidator, receiver, conservator or statutory successor, on the
basis of the liability of the Ceding Company without diminution because of the
insolvency of the Ceding Company or because the liquidator, receiver,
conservator or statutory successor of the Ceding Company has failed to pay all
or a portion of any claim. It is agreed, however, that the liquidator, receiver,
conservator or statutory successor of the Ceding Company shall give written
notice to the Reinsurer of the pendency of the claim against the Ceding Company
indicating the policy or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable time after such claim
is filed in the conservation or liquidation proceeding or in the receivership,
and that during the pendency of such claim, the Reinsurer may investigate such
claim and interpose at its own expense, in the proceeding where such claim is to
be adjudicated any defense or defenses that it may deem available to the Ceding
Company or its liquidator, receiver, conservator or statutory successor. The
expense thus incurred by the Reinsurer shall be chargeable, subject to the
approval of the court, against the Ceding Company as part of the expense of
conservation or liquidation to the extent of a pro rata share of the benefit
which may accrue to the Ceding Company solely as a result of the defense
undertaken by the Reinsurer.
16.2 The Reinsurance shall be payable by the Reinsurer to the Ceding
Company or to its liquidator, receiver, conservator or statutory successor,
except as provided by section 4118 (a) of the New York Insurance Law or except
(a) where the policy specifically provided another payee of such reinsurance in
the event of the insolvency of the Ceding Company and (b) where the Reinsurer
with the consent of the direct insured or insureds has assumed such policy
obligations of the Ceding Company as direct obligations of the Reinsurer to the
payees under such policies and in substitution for the obligations of the Ceding
Company to such payees.
ARTICLE 17
Effective Date: Termination of Prior Agreement
17.1 This Agreement shall take effect as of January 1, 1999 (the "Effective
Date") and shall apply to all losses paid by the Ceding Company on or after that
date and during the term hereof.
17.2 The parties agree that the Prior Agreement shall be terminated as of
said Effective Date, and the Reinsurer shall not be liable under the Prior
Agreement for losses on or after the Effective Date, which shall be covered by
this Agreement.
8
<PAGE>
17.3 The Ceding Company shall transfer to the Reinsurer all Ceded Reserves
and Contingency Reserves held by it as of the Effective Date of this Agreement
in connection with Covered Business subject to the Prior Agreement.
ARTICLE 18
Miscellaneous:
18.1 This Agreement shall be governed by the laws of the State of New York.
18.2 The parties hereto agree to execute and deliver such further
instruments and do such further acts as may be necessary and proper to carry out
the purposes of this Reinsurance Agreement.
18.3 If any provision of this Reinsurance Agreement or the applicability
thereto to any person or circumstance is held invalid, the remainder of this
Reinsurance Agreement, including the remainder of the section in which such
provision appears, or the applicability of such provision to other persons or
circumstances, shall not be affected thereby.
18.4 This Reinsurance Agreement contains the entire understanding of the
parties with respect to the subject matter hereto. There are no restrictions,
promises, warranties, covenants or undertakings with respect to such subject
matter, other than those expressly set forth herein. This Reinsurance Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter. This Reinsurance Agreement is binding on and
shall inure to the benefit of the parties hereto, their successors and assigns.
At Armonk, MBIA INSURANCE CORP. OF ILLINOIS
New York
By: /s/ David H. Elliott
------------------------------
President
David H. Elliott
At Armonk, MBIA INSURANCE CORPORATION
New York
By: /s/ Richard L. Weill
------------------------------
President
Richard L. Weill
9
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MBIA INC.,
MBIA ACQUISITION, INC.
and
1838 INVESTMENT ADVISORS, INC.
Dated as of June 19, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS ............................................................ 1
ARTICLE II
THE MERGER
Section 2.01. The Merger .............................................. 6
Section 2.02. Effective Time of Merger ................................ 6
Section 2.03. Certificate of Incorporation of Surviving Corporation ... 6
Section 2.04. Bylaws of Surviving Corporation ......................... 7
Section 2.05. Directors and Officers of Surviving Corporation ......... 7
Section 2.06. The Closing ............................................. 7
Section 2.07. Conversion of Acquisition Common Stock .................. 7
Section 2.08. Conversion of 1838 Common Stock ......................... 7
Section 2.09. Exchange of 1838 Certificates ........................... 7
Section 2.10. Stock Transfer Books .................................... 8
Section 2.11. Reorganization .......................................... 8
Section 2.12. Nonsolicitation ......................................... 8
ARTICLE III
OTHER AGREEMENTS
Section 3.01. Disclosure Schedule ..................................... 9
Section 3.02. Legal Conditions to Merger .............................. 9
Section 3.03. Public Announcements .................................... 9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF 1838
Section 4.01. Ownership of Stock ...................................... 10
Section 4.02. Ownership of 1838, L.P .................................. 10
Section 4.03. Existence, Good Standing and Authority .................. 10
Section 4.04. Capital Stock ........................................... 10
Section 4.05. Subsidiaries and Investments ............................ 11
Section 4.06. No Violation or Conflict ................................ 11
Section 4.07. Litigation .............................................. 11
Section 4.08. Financial Statements .................................... 11
Section 4.09. Title to Properties and Assets .......................... 11
<PAGE>
Section 4.10. Existing Contracts ...................................... 12
Section 4.11. Contractual Defaults .................................... 12
Section 4.12. Reserved ................................................ 12
Section 4.13. Insurance Policies ...................................... 12
Section 4.14. Employee Benefit Plans .................................. 12
Section 4.15. Status .................................................. 14
Section 4.16. Taxes ................................................... 14
Section 4.17. Employee Matters ........................................ 16
Section 4.18. Credit Agreements ....................................... 16
Section 4.19. Record Books ............................................ 16
Section 4.20. MPCM Loan/Stockholder Distribution Obligations .......... 16
Section 4.21. Accounts Receivable/Working Capital ..................... 16
Section 4.22. Customer Contracts ...................................... 16
Section 4.23. Affiliate and Insider Transactions ...................... 17
Section 4.24. Compliance With Laws .................................... 17
Section 4.25. Absence of Certain Developments ......................... 18
Section 4.26. Material Adverse Change ................................. 19
Section 4.27. Bank Accounts and Powers of Attorney .................... 19
Section 4.28. Broker's or Finder's Fees ............................... 19
Section 4.29. Business Activities of 1838 ............................. 19
Section 4.30. Regulatory Documents .................................... 19
Section 4.31. Ineligible Persons ...................................... 20
Section 4.32. Funds ................................................... 20
Section 4.33. Investment Company Contracts ............................ 20
Section 4.34. Technology and Intellectual Property .................... 21
Section 4.35. Year 2000 ............................................... 21
Section 4.36. Redemption Agreement .................................... 21
Section 4.37. Former Stockholders ..................................... 21
Section 4.38. Disclosure .............................................. 22
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS OF
MBIA AND ACQUISITION
Section 5.01. Organization ............................................ 22
Section 5.02. Authorization; Enforceability ........................... 22
Section 5.03. No Violation or Conflict ................................ 22
Section 5.04. Litigation .............................................. 22
Section 5.05. Brokers ................................................. 23
Section 5.06. SEC Reports and Financial Statements .................... 23
Section 5.07. Material Adverse Change ................................. 23
Section 5.08. MBIA Stock .............................................. 23
Section 5.09. Capitalization .......................................... 23
Section 5.10. Certain Tax-Related Matters ............................. 23
ii
<PAGE>
ARTICLE VI
COVENANTS OF 1838
Section 6.01. Conduct of Business of 1838 ............................. 24
Section 6.02. Approval by Investment Company Contract Clients ......... 25
Section 6.03. Approval by Investment Advisory Contract Clients ........ 26
Section 6.04. Insurance ............................................... 26
Section 6.05. Maintenance of Records .................................. 26
Section 6.06. Full Access ............................................. 26
Section 6.07. Exclusivity ............................................. 26
Section 6.08. Accounting Matters ...................................... 27
ARTICLE VII
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF MBIA AND ACQUISITION
Section 7.01. No Material Adverse Change .............................. 27
Section 7.02. Compliance with Agreement ............................... 27
Section 7.03. Hart Scott Rodino, Act .................................. 27
Section 7.04. Pooling Opinion ......................................... 27
Section 7.05. 1838 Stockholder Approval ............................... 27
Section 7.06. 1838 Opinion Letter ..................................... 27
Section 7.07. Approval by 1838, L.P.'s Clients ........................ 27
Section 7.08. No Litigation ........................................... 28
Section 7.09. Representations and Warranties Accurate ................. 28
Section 7.10. Officer's Certificate ................................... 28
Section 7.11. Employment of Key Employees ............................. 28
Section 7.12. No Adverse Claims ....................................... 28
Section 7.13. Additional Documentation ................................ 28
Section 7.14. Approval by Board ....................................... 28
Section 7.15. Joint Advisory Agreement ................................ 28
Section 7.16. Purchase of Minority Interest ........................... 28
Section 7.17. MBIA Common Stock Price ................................. 28
Section 7.18. Final Disclosure Schedule ............................... 29
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF 1838
AND THE 1838 STOCKHOLDERS
Section 8.01. Compliance With Agreement ............................... 29
Section 8.02. Proceedings and Instruments Satisfactory ................ 29
Section 8.03. No Litigation ........................................... 29
Section 8.04. Representations and Warranties of MBIA and Acquisition .. 29
Section 8.05. MBIA Opinion Letter ..................................... 29
iii
<PAGE>
Section 8.06. Approvals ............................................... 29
Section 8.07. No Material Adverse Change .............................. 29
Section 8.08. MBIA Common Stock Price ................................. 30
Section 8.09. Hart-Scott-Rodino ....................................... 30
Section 8.1O. Stockholder Approval .................................... 30
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification by 1838 Stockholders .................... 30
Section 9.02. Limitation of Indemnification ........................... 30
Section 9.03. Procedure for Indemnification-Third Parties ............. 31
Section 9.04. Procedures for Claims by Indemnified Parties ............ 32
Section 9.05. Indemnification by MBIA ................................. 32
Section 9.06. Exclusive Remedies ...................................... 33
ARTICLE X
MISCELLANEOUS
Section 10.01. Survival of Representations, Warranties and Covenants ... 33
Section 10.02. Entire Agreement; Amendment ............................. 34
Section 10.03. Expenses ................................................ 34
Section 10.04. Governing Law ........................................... 34
Section 10.05. Assignment .............................................. 34
Section 10.06. Notices ................................................. 34
Section 10.07. Counterparts; Headings .................................. 35
Section 10.08. Interpretation .......................................... 35
Section 10.09. Severability ............................................ 35
Section 10.10. Further Assurances ...................................... 35
Section 10.11. Waivers ................................................. 35
Section 10.12. Successors In Interest .................................. 36
Section 10.13. ACKNOWLEDGEMENT BY 1838 STOCKHOLDERS .................... 36
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made as of this day of June 19th, 1998
by and among MBIA INC. ("MBIA"), 1838 INVESTMENT ADVISORS, INC. ("1838") and
MBIA ACQUISITION, INC. ("Acquisition").
RECITALS
WHEREAS, 1838 is a Delaware corporation whose sole business activity is the
management and holding of its partnership interest in 1838 Investment Advisors,
L.P. ("1838, L.P."); and
WHEREAS, 1838, L.P. is a Delaware limited partnership engaged in the
business of providing investment advice and related services (the "Business
Activities"); and
WHEREAS, the stockholders of 1838 (the "1838 Stockholders") own 558,200
shares of common stock of 1838 (the "1838 Common Stock"); and
WHEREAS, it is the intention of the parties hereto that, upon effectuation
of the Merger contemplated by this Agreement, that MBIA shall own all of the
outstanding shares of the 1838 Common Stock; and
WHEREAS, the respective Boards of Directors of MBIA, 1838 and Acquisition
have (a) determined that the merger of Acquisition with and into 1838 (the
"Merger") pursuant to, and subject to all of the terms and conditions of, this
Agreement is advisable, fair and in the best interests of MBIA, 1838 and
Acquisition and their respective stockholders and (b) approved the Merger, this
Agreement and the transactions contemplated by this Agreement; and
WHEREAS, the respective Board of Directors of 1838 and Acquisition have
resolved that this Agreement and the Merger be submitted to their respective
stockholders for approval; and
WHEREAS, all of the 1838 Stockholders have approved by execution and
delivery of the Selling Stockholder Letter and MBIA as the sole stockholder of
Acquisition (the "Acquisition Stockholder") has approved, by written consent,
the terms of the Merger as set forth herein; and
NOW, THEREFORE, in consideration of the Recitals and of the mutual
covenants, conditions and agreements set forth herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed that:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
specified:
<PAGE>
"Acquisition" shall mean MBIA Acquisition, Inc., a Delaware corporation and
a wholly-owned subsidiary of MBIA.
"Acquisition Stockholder" shall mean MBIA.
"Advisers Act" shall mean the Investment Advisers Act of 1940, as amended,
and the rules and regulations issued by the SEC thereunder.
"Agreement" shall mean this Agreement and Plan of Merger, together with the
Exhibits attached hereto and together with the Disclosure Schedule
"Articles of Merger" shall mean Articles of Merger in a form approved for
filing with the Delaware Department of State which shall have the executed Plan
of Merger attached thereto.
"Brown" shall mean W. Thacher Brown as the President/Chief Executive
Officer of 1838 and as the representative of the 1838 Stockholders.
"Business Activities" shall have the meaning set forth in the Recitals
hereto.
"Closing Date" shall mean July 31, 1998 or such other date as may be
mutually agreed upon by the parties.
"Code" shall mean the Internal Revenue Code of 1986, as the same may be in
effect from time to time.
"Customer Contracts" shall have the meaning set forth in Section 4.22
hereof,
"Disclosure Schedule" shall mean the Disclosure Schedule, a form of which
is attached to this Agreement which shall be delivered to MBIA in accordance
with the terms of Section 3.01 of this Agreement.
"Effective Time of Merger" shall have the meaning set forth in Section 2.02
hereof.
"1838" shall mean 1838 Investment Advisors, Inc., a Delaware corporation.
"1838 Common Stock" or "Stock" shall mean all of the issued and outstanding
shares of common stock of 1838.
"1838 Counsel Opinion" shall mean an opinion of counsel to 1838 in form and
substance reasonably acceptable to N4BIA.
"1838, L.P." shall mean 1838 Investment Advisors, L.P., a Delaware limited
partnership.
"1838, L.P. EBITDA" shall mean the 1838, L.P. earnings before interest,
taxes, depreciation and amortization.
"1838, L.P. Material Adverse Effect" shall mean any event, condition or
fact which is, or reasonably may be expected to be, materially adverse to the
financial condition, properties,
2
<PAGE>
business or results of operations of 1838, L.P. when considered in their
entirety; provided, however, that the foregoing shall not include general
economic or market conditions.
"1838, L.P. Partnership Interests" shall mean all of 1838's right, title
and interest in 1838, L.P.
"1838 Stockholders" shall mean all of the holders of 1838 Common Stock on
the Closing Date, as set forth on Exhibit A.
"Employee Benefit Plans" shall mean any pension plan, profit-sharing plan,
bonus plan, incentive compensation plan, stock ownership plan, stock purchase
plan, stock option plan, stock appreciation plan, employee benefit plan,
employee benefit policy, retirement plan, fringe benefit program, insurance
plan, severance plan, disability plan, health care plan, sick leave plan, death
benefit plan or any other plan or program to provide retirement income, fringe
benefits or other benefits to former or current employees of 1838, L.P.
"Environmental Laws" shall mean any federal, state or local statute, law,
rule, regulation, ordinance, code, permit or policy relating to Hazardous
Materials, environmental matters or the protection of public health and safety.
"ERISA' shall mean the Employee Retirement Income Security Act of 1974, as
the same may be in effect from time to time, and all rules and regulations
issued pursuant thereto.
"Excess Working Capital" shall mean the amount by which the current assets
of 1838, L.P. exceed its current liabilities as those amounts are determined in
accordance with GAAP; provided, however, current liabilities shall not be deemed
to include any portion of the MPCM Loan or the Stockholder Distribution
Obligations, regardless of its classification under GAAP.
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
amended.
"Fiscal Year" shall mean 1838's fiscal year, which is the calendar year.
"Fund" shall mean a registered investment company or series thereof to
which 1838, L.P. provides advisory or subadvisory services.
"GAAP" shall mean generally accepted accounting principles consistently
applied.
"Hazardous Materials" means any substance that (a) requires investigation,
removal or remediation under any Environmental Law, (b) is defined or identified
as a "hazardous waste" or "hazardous substance" under any Environmental Law or
(c) is toxic, explosive, corrosive, flammable, carcinogenic or otherwise
hazardous.
"Investment Advisory Contract" shall mean any investment advisory agreement
entered into by 1838, L.P. for the purpose of providing investment advisory
services to a client which is not a registered investment company or series
thereof.
"Investment Company Act" shall mean the Investment Company Act of 1940, as
amended and the rules and regulations of the SEC thereunder.
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"Investment Company Contract" shall mean an investment advisory agreement
entered into by 1838, L.P. for the purpose of providing investment advisory or
subadvisory services to a registered investment company or series thereof
"Joint Advisory Agreement" shall mean the Joint Advisory and Marketing
Agreement by and among 1838, 1838, L.P. and MPCM and dated September 30, 1994.
"Key Employees" shall mean W. Thacher Brown, John Springrose and George W.
Gephart.
"Knowledge of 1838" shall mean the actual knowledge of Brown, John J.
McElroy HI or George W. Gephart, Jr.
"Knowledge of MBIA" shall mean the actual knowledge of Gary Dunton, Peggy
Garfunkel, James O'Keefe, Clifford Corso, Robert Ohanesian, Jeffrey Kostiw,
Richard Walz and Pauline Cullen.
"Law" shall mean any common law and federal, state, local or other law,
rule, regulation or governmental requirement of any kind, and the rules,
regulations and orders promulgated thereunder by any regulatory agencies or
other Persons.
"Lien" shall mean, with respect to any asset: (a) any mortgage, pledge,
lien, charge, claim, restriction, reservation, condition, easement, covenant,
lease, encroachment, title defect, imposition, security interest or other
encumbrance of any kind; and (b) the interest of a vendor or lessor under any
conditional sale agreement, financing lease or other title retention agreement
relating to such asset.
"Limited Partnership Agreement" shall mean the Agreement of Limited
Partnership of 1838, L.P. as amended and restated as of September 30, 1994 and
as further amended through May 15,1998.
"MBIA" shall mean MBIA Inc.
"MBIA Common Stock" shall mean shares of the common stock, $1.00 par value,
of MBIA Inc. to be exchanged for 1838 Common Stock pursuant to Section 2.08
hereof.
"MBIA Counsel Opinion" shall mean an opinion of counsel to MBIA. in form
and substance reasonably acceptable to 1 83 8.
"MBIA Material Adverse Effect" shall mean any event, condition or fact
which is, or reasonably may be expected to be, materially adverse to the
financial condition, properties, business or results of operations of MBIA when
considered in their entirety; provided, however, that the foregoing shall not
include general economic or market conditions.
"Merger" shall mean the merger of Acquisition with and into 1838 pursuant
to this Agreement.
"MPCM" shall mean MeesPierson Capital Management, Inc.
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"MPCM Loan" shall mean an obligation of 1838, L.P. in the original
principal amount of $12,000,000, the proceeds of which were used to acquire the
1838, L.P. partnership interests of MPCM.
"Multiemployer Plan" has the meaning given in ERISA Section 3(37)(A).
"Organizational Documents" means (a) Certificate of Incorporation, bylaws
and stockholders agreements of a corporation; (b) the limited partnership
agreement and the certificate of limited partnership of a limited partnership;
(c) any charter or similar document adopted or filed in connection with the
creation, formation or organization of any entity; and (d) any amendment to any
of the foregoing.
"PBGC' shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto. "Pension Plan" has the meaning in ERISA Section 3(2)(A).
"Permits" shall mean all material licenses, pen-nits, approvals,
franchises, qualifications, certificates of convenience and necessity,
permissions, agreements, rate and other orders and governmental authorizations
required for the conduct of the business of 1838.
"Person" shall mean a natural person, corporation, trust, partnership,
governmental entity, agency or branch or department thereof, or any other legal
entity.
"Plan of Merger" shall mean the Plan of Merger between 1838 and Acquisition
in substantially the form of Exhibit D attached to this Agreement.
"Redemption Agreement" shall mean the 1838 Investment Advisors, L.P.
Redemption and Amendment Agreement dated as of May 15, 1998 among 1838,1838,
L.P. and MPCM.
"Regulatory Documents" shall mean all reports, registration statements and
other documents, together with amendments, required by any governmental agency
or authority.
"SEC' shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Laws" shall mean all applicable federal and state securities
laws and the rules and regulations issued thereunder.
"Selling Stockholder Letter" shall mean the letter to be delivered by the
1838 Stockholders in the form of Exhibit G hereto.
"Stockholder Distribution Obligation" shall mean, collectively, any
declared obligation of 1838, L.P. to distribute partnership earnings to 1838 and
any declared obligation of 1838 to dividend corporate income to the 1838
Stockholders.
"Stockholders' Agreement" shall mean the Stockholders' Agreement dated
September 30, 1994 by and among 1838 and the stockholders named therein,
including all amendments thereto.
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"Tax" shall mean any federal and Commonwealth of Pennsylvania (including
its local governments) income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code ss. 59A), customs duties, capital stock, franchise,
profits, withholding, social security (other similar), unemployment disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated or other tax of any kind
whatsoever, including any interest, penalty or addition thereto, whether
disputed or not.
"Tax Return" shall mean any return, declaration, report, claim for refund
or information return or statement relating to Taxes, including any schedule or
attachment thereto and including any amendment thereof.
"Welfare Plan" shall have the meaning set forth in ERISA Section 3(l).
ARTICLE II
THE MERGER
Section 2.01. The Merger. This Agreement provides for the merger of
Acquisition with and into 1838, whereby each outstanding share of 1838 Common
Stock will be converted into shares of MBIA Common Stock as described in this
Agreement. As of the Effective Time of Merger, Acquisition will be merged with
and into 1838, which shall be the surviving corporation in the Merger (the
"Surviving Corporation") and shall continue to be governed by the Laws of the
State of Delaware as a wholly-owned subsidiary of MBIA, and the separate
existence of Acquisition shall thereupon cease. The Merger shall be pursuant to
the provisions of, and shall be with the effects provided in, the Delaware
General Corporation Law and any other applicable law.
Section 2.02. Effective Time of Merger. The consummation of the Merger
shall be effected on the Closing Date or as soon thereafter as all of the
conditions to the Merger have been satisfied or waived. The Merger shall become
effective as of the close of business on the date of the filing of the Articles
of Merger with the Delaware Department of State. The date and time on which the
Merger shall become effective is referred to in this Agreement as the "Effective
Time of Merger."
Section 2.03. Certificate of Incorporation of Surviving Corporation. The
Certificate of Incorporation of Acquisition as in effect immediately prior to
the Effective Time of Merger shall be the Certificate of Incorporation of the
Surviving Corporation until amended in accordance with Law.
Section 2.04. Bylaws of Surviving Corporation. The Bylaws of 183 8 as in
effect immediately prior to the Effective Time of Merger as amended at the
Effective Time of Merger (the "Amended Bylaws") shall be the Bylaws of the
Surviving Corporation until amended in accordance with Law.
Section 2.05. Directors and Officers of Surviving Corporation. The duly
qualified and acting directors and officers of Acquisition immediately prior to
the Effective Time of Merger
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shall be the directors and officers of the Surviving Corporation, to hold office
as provided in the Bylaws of the Surviving Corporation until replaced in
accordance with the Amended Bylaws.
Section 2.06. The Closing. Immediately prior to the filings referred to by
Section 2.02 hereof, a closing of the transactions contemplated by this
Agreement shall take place at the offices of Drinker, Biddle & Reath, Suite 300,
1000 Westlakes Drive, Berwyn, Pennsylvania at 10:00 a.m. local time on the
Closing Date for the purpose of confirming the satisfaction of or, if
permissible, waiver of the conditions set forth in Sections 7 and 8.
Section 2.07. Conversion of Acquisition Common Stock. At the Effective Time
of Merger, and without any action on the part of the holders thereof, each share
of common stock of Acquisition issued and outstanding at the Effective Time of
Merger shall be converted into one share of 1838 Common Stock.
Section 2.08. Conversion of 1838 Common Stock.
(a) Conversion. At the Effective Time of Merger, and without any
action on the part of the holders thereof, each share of 1838 Common Stock
issued and outstanding at the Effective Time of Merger shall be converted
into 2.134 shares of MBIA Common Stock (the "Exchange Ratio") on the terms
and conditions set forth in this Agreement.
(b) Fractional Interests. No fractional interests in MBIA Common Stock
shall be issued in connection with the Merger. If the Exchange Ratio
results in a fractional share of MBIA Common Stock due to an 1838
Stockholder, then such stockholder shall receive, in lieu of such
fractional interests, cash (without interest) in an amount equal to the
product of such fractional part of a share of MBIA Common Stock multiplied
by the market price of MBIA Common Stock at the end of the second trading
day prior to the Closing Date as reported by the New York Stock Exchange,
rounded down to the nearest cent.
(c) Notwithstanding the foregoing, if between the date of this
Agreement and the Effective Time the outstanding shares of 1838 Common
Stock or MBIA Common Stock shall have been changed into a different number
of shares or a different class, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares, the Exchange Ratio shall be correspondingly adjusted to
reflect such stock dividend, subdivision, reclassification, split,
combination or exchange of shares.
Section 2.09. Exchange of 1838 Certificates
(a) Exchange Agent. As of the Effective Time of Merger, MBIA shall act
as exchange agent, or shall designate a bank or trust company to act as
exchange agent (in either case, the "Exchange Agent") for the benefit of
the 1838 Stockholders. MBIA shall make available to the Exchange Agent,
immediately prior to the Effective Time, certificates representing the
shares of MBIA Common Stock issuable in exchange for the 1838 Common Stock.
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(b) Exchange of Shares. On the Effective Time of Merger, the 1838
Stockholders shall surrender to the Exchange Agent the certificates which,
immediately prior to the Effective Time of Merger, represented outstanding
shares of 1838 Common Stock (the "1838 Certificates"), Upon surrender of an
1838 Certificate for cancellation to the Exchange Agent, together with such
other documents as the Exchange Agent may reasonably require, the holder of
such 1838 Certificate shall receive in exchange therefor a certificate
representing that number of whole shares of MBIA Common Stock and any
payment for fractional interests to which such holder is entitled in
respect of such 1838 Certificate pursuant to the provisions of Section 2.08
above and the 1838 Certificate so surrendered shall forthwith be canceled.
(c) No Further Rights in 1838 Common Stock. All shares of MBIA Common
Stock issued upon conversion of the 1838 Common Stock in accordance with
the terms of this Agreement shall be deemed to have been issued in full
satisfaction of all rights pertaining to the 1838 Common Stock.
Section 2. 1 0. Stock Transfer Books. From and after the Effective Time of
Merger, the holders of 1838 Certificates outstanding immediately prior to the
Effective Time of Merger shall cease to have any rights with respect to such
shares of 1838 Common Stock except as otherwise provided in this Agreement or by
Law.
Section 2.1 1. Reorganization. The parties intend that this Agreement be a
plan of reorganization within the meaning of Section 368(a) of the Code and that
the Merger be a tax-free reorganization under Section 368(a) of the Code. The
1838 Stockholders shall obtain such opinions and approvals from their tax
advisors as they deem appropriate regarding the compliance of the terms of the
Merger with Section 368(a) of the Code.
Section 2.12. Nonsolicitation. As an inducement to MBIA to enter into this
Agreement, the 1838 Stockholders set forth on Exhibit A-1 hereto (the
"Nonsoliciting Stockholders") agree to abide by the provisions of the
nonsolicitation agreement set forth in subsection (a) for a period of two (2)
years after the Closing Date.
(a) Covenants. Each Nonsoliciting Stockholder agrees that he/she will
not (i) contact any person who was a client or who was employed by a client
of 1838 or 1838, L.P. regarding his/her ability to perform investment,
management and financial services for them except on behalf of 1838 or
1838, L.P. or (ii) enter into contracts with a client of 1838 or 1838, L.P.
to provide services similar to those performed by the Nonsoliciting
Stockholder on behalf of 1838 and/or 1838, L.P., regardless of whether the
Nonsoliciting Stockholder solicited the business of such client.
(b) Penalties. In the event that a Nonsoliciting Stockholder violates
the terms of the covenant set out in subsection (a), any one or more of the
following penalties shall be enforced against him or her:
(i) Disgorgement. If a Nonsoliciting Stockholder violates the
covenant, then 1838 and/or 1838, L.P. is entitled to an accounting and
payment of all profits which the stockholder has realized as a result
of such violation(s); and
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(ii) Any remedies available at law and equity including, without
limitation, injunctive relief
ARTICLE III
OTHER AGREEMENTS
Section 3.01. Disclosure Schedule. Not less than one (1) business day prior
to its execution of this Agreement, 1838 shall deliver to MBIA a preliminary
Disclosure Schedule in the form attached hereto. Not less than three (3)
Business Days prior to the Closing Date, 1838 will deliver to M13IA a final
Disclosure Schedule and shall deliver, on the Closing Date, a certificate dated
as of the Closing Date and signed by Brown as President and Chief Executive
Officer of 1838 stating that, except as set forth in the Certificate, the final
Disclosure Schedule is true and accurate as of the Closing Date.
Section 3.02. Legal Conditions to Merger. Each party to this Agreement will
(a) take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on it with respect to the Merger; (b) promptly
cooperate with and furnish information to the other parties in connection with
any such requirements imposed upon any of them in connection with the Merger;
and (c) take all reasonable actions necessary to obtain (and will cooperate with
the other parties in obtaining) any consent, authorization, order or approval
of, or any exemption by, any governmental entity or other public or private
Person, required to be obtained or made by the parties to this Agreement in
connection with the Merger or the taking of any action contemplated thereby or
by this Agreement.
Section 3.03. Public Announcements. Subject to each party's disclosure
obligations imposed by Law, 1838, the 1838 Stockholders, Acquisition and MBIA
will cooperate with each other in the development and distribution of all news
releases and other public information disclosures with respect to this Agreement
or any of the transactions contemplated hereby and, except as may be required by
law, shall not issue any public announcement or statement with respect thereto
prior to consultation with the other parties.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF 1838
1838 and the 1838 Stockholders make the following representations and
warranties to MBIA, all of which shall be true as of the date of this Agreement
and the Closing Date:
Section 4.01. Ownership of Stock The 1838 Stockholders are the lawful
owners of the Stock which constitutes 100% of the outstanding common stock of
1838, free and clear of all liens, encumbrances, restrictions and claims of
every kind (except for the Stockholders Agreement). The schedule of the 1838
Stockholders and the percentage of Stock owned by each of them set forth on
Exhibit A hereto is complete and accurate in all respects. All of the issued and
outstanding shares have been duly authorized and are validly issued, fully paid
and nonassessable. There are no outstanding or authorized option, warrants,
purchase rights, subscription rights, conversion rights, exchange rights or
other contracts or commitments that
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could require 1838 to issue, sell or otherwise cause to become outstanding any
of the Stock. There are no outstanding or authorized stock appreciation, phantom
stock, profit participation or similar rights with respect to 1838. There are no
liens, encumbrances or other restrictions, contractual or otherwise, which could
serve to restrict the transfer or acquisition of the Stock.
Section 4.02. Ownership of 1838, L.P. 1838 owns 99.33 percent of the 1838,
L.P. partnership interests and all of the partnership interests of 1838, L.P.
are held by 1838 and W. Thacher Brown. The 1838 Stockholders have no right,
title, interest or claim in or against the 1838, L.P. partnership interests or
any of the assets of 1838, L.P. Except as set forth on the Disclosure Schedule,
the 1838, L.P. Partnership Interests are free and clear of all liens,
encumbrances, restrictions and claims of any kind and 1838 has not entered into
any agreements, written or oral, regarding the sale or encumbrance of the 1838,
L.P. Partnership Interests. Except as set forth in the Stockholders' Agreement
and the Disclosure Schedule, neither the 1838 Stockholders nor 1838 is a party
to any agreement the terms of which prohibit the 1838 Stockholders from
conveying the Stock and the 1838, L.P. Partnership Interests to MBIA, or which
would cause an acceleration of any obligations of 1838 or 1838, L.P.
Section 4.03. Existence, Good Standing and Authority. 1838 is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. 1838 has the power to own its property and to carry on its
business as now being conducted. 1838 is duly qualified to do business in
Pennsylvania, which is the only jurisdiction in which the character or location
of the properties owned or leased by 1838 makes such qualification necessary.
The execution, delivery and performance of this Agreement by 1838 and all of the
documents and instruments required by this Agreement to be executed by 1838 are
within the corporate power of 1838 and have been duly authorized by the Board of
Directors. 1838, L.P. is a Delaware limited partnership, governed by the
provisions of the Delaware Revised Uniform Limited Partnership Act and has the
power to own its property and carry on its business as now being conducted. To
the extent required by applicable law, 1838, L.P. is qualified to do business in
Pennsylvania. The Limited Partnership Agreement remains in full force and effect
and has not been amended or modified. 1838 and W. Thacher Brown are the only
partner's in 1838, L.P.
Section 4.04. Capital Stock 1838 has an authorized capitalization
consisting of 1,000,000 shares of common stock of which 558,200 shares are
issued and outstanding. Such outstanding shares have been duly authorized and
validly issued and are fully paid and nonassessable. There are no outstanding
options, warrants, rights, calls, commitments, conversion rights, rights of
exchange, plans or other agreements of any character providing for the purchase,
issuance or sale of any shares of the capital stock of 1838, other than as
contemplated by this Agreement and as set forth in the Stockholders Agreement.
Section 4.05. Subsidiaries and Investments. Except with respect to the
1838, L.P. Partnership Interests, 1838 does not own directly or indirectly, any
capital stock or other equity or proprietary interest in other corporations,
partnerships, associations, trust, joint ventures or other entities. 1838, L.P.
does not own, directly or indirectly, any capital stock or other equity or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity except as set forth on the Disclosure Schedule.
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Section 4.06. No Violation or Conflict. Except as disclosed on the
Disclosure Schedule, the execution, delivery and performance of this Agreement
by 1838 Stockholders does not and will not conflict with or violate any Law, the
Organizational Documents or any contract, agreement or lease of 1838 or 1838,
L.P.
Section 4.07. Litigation. Except as disclosed on the Disclosure Schedule,
to the knowledge of 1838 there is no pending or threatened litigation or
proceeding against or affecting 1838 or 1838, L.P. before any court, arbitrator
or governmental department, board, agency or instrumentality; and there
currently is no judgment, decree, order, writ, or injunction of any court,
arbitrator or governmental department, board, agency or instrumentality pending
against the 1838 or 1838, L.P.
Section 4.08. Financial Statements. The financial statements for 1838 and
1838, L.P. listed on the Disclosure Schedule, each of which has previously been
provided to MBIA (collectively referred to as the "Financial Statements"), have
been prepared in accordance with generally accepted accounting principles
("GAAP"), in a manner consistently applied and present fairly the financial
condition of 1838 and 1838, L.P. as of the date indicated, except as described
in the Disclosure Schedule. Except as disclosed on the Disclosure Schedule,
neither 1838 nor 1838, L.P. had any liabilities or obligations of any nature,
whether absolute, accrued, contingent or otherwise, and whether due or to become
due, which would, individually or in the aggregate, have an 1838, L.P. Material
Adverse Effect, and which are not reflected or reserved against in the Financial
Statements as of the date of each of the Financial Statements. Neither 1838 nor
1838, L.P. have any liabilities or obligations of any nature, whether absolute,
accrued, contingent or otherwise, whether due or to become due, as of the
Closing Date, except as disclosed on the Disclosure Schedule.
Section 4.09. Title to Properties and Assets. Neither 1838 nor 1838, L.P.
have ever owned or controlled any real property other than leased office space.
1838 and 1838, L.P. have good and marketable title to all of their personal
property reflected on the Financial Statements and which is material to the
business of 1838 and 1838, L.P., free and clear of all Liens or rights of third
parties and all such property is in good and useable condition and complies in
all material respects with all applicable laws, ordinances, codes, rules and
regulations. All property and assets held by 1838 and 1838, L.P. under leases
are held under-valid and enforceable leases, neither 1838 nor 1838, L.P. are in
default under any such lease, each lease will continue in full force and effect
immediately after the consummation of the transactions contemplated by this
Agreement, and there is no material dispute between 1838 and/or 1838, L.P. and
other parties to such leases or the owners of the leased property. Each item of
furniture, fixtures and equipment with a book value in excess of $1,000 or lease
payments in excess of $1,000 per month which are owned or leased by 1838 or
1838, L.P. on the Closing Date are set forth on the Disclosure Schedule.
Section 4.10. Existing Contracts. Except as disclosed on the Disclosure
Schedule, neither 1838 nor 1838, L.P. is a party to or bound by any written or
oral (i) contract with any labor union, (ii) employment, agency, consulting or
similar contract, (iii) lease, whether as lessor or lessee, with respect to any
real or personal property that cannot be canceled by it without material cost or
penalty upon six months' or less notice and involving a rent of more than $1,000
a month, (iv) material contract or commitment extending beyond six months from
the date of this
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Agreement (other than investment advisory agreements with clients), (v) contract
or commitment involving more than $1,000 a month for other than the purchase of
merchandise and supplies in the ordinary course of business (other than
investment advisory agreements with clients), (vi) guaranty, suretyship,
indemnification or contribution agreement, other than obligations, if any, of
1838 to indemnify its officers and directors in accordance with its
Organizational Documents (vii) any agreement by 1838 or 1838, L.P. not to
compete in any business or geographical area or (viii) other material contract
not made in the ordinary course of business.
Section 4.11. Contractual Defaults. Except as disclosed on the Disclosure
Schedule, neither 183.8 nor 1838, L.P. is in default, and no event has occurred
which, with the passage of time or the giving of notice, or both, will
constitute a default on the part of 1838 or 1838, L.P., under any agreement,
indenture, loan agreement or other instrument to which it is a party or by which
it or any of its assets is bound or to which any of its assets is subject,
except where such default would not have an 1838, L.P. Material Adverse Effect.
All parties with whom 1838 and/or 1838, L.P. have material leases, agreements or
contracts or who owe material obligations to 1838 and 1838, L.P. are in
compliance therewith in all material respects.
Section 4.12. Reserved.
Section 4.13. Insurance Policies. The Disclosure Schedule sets forth a list
of all of the insurance policies and bonds carried by or on behalf of 1838 and
1838, L.P. as of the Closing Date, all of which are currently in fall force and
effect. To the knowledge of 1838, no application filed for such insurance
policies and bonds contains any material misstatement of fact or fails to state
any material fact which may adversely affect the insurance coverage provided. To
the knowledge of 1838 after due inquiry of appropriate 1838, L.P. personnel,
1838 and 1838, L.P. have properly and adequately notified all such insurance
carriers of any and all claims known to 1838 and 1838, L.P. with respect to the
employees, operations and properties of 1838 and 1838, L.P. for which 1838 and
1838, L.P. are insured (and all such pending claims are set forth on the
Disclosure Schedule) and has complied with all other material requirements and
conditions of such policies and bonds.
Section 4.14. Employee Benefit Plans. Except as set forth in the Disclosure
Schedule:
(i) The Disclosure Schedule lists each Employee Benefit Plan that 1838
and/or 1838, L,P. maintains or to which 1838 and/or 1838, L.P. contributes.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the Code and other
applicable laws.
(B) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGCls and Summary Plan
Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part 6
of Subtitle B of Title I of ERISA and of Code ss.
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4980B have been met with respect to each such Employee Benefit Plan
which is a Welfare Plan.
(C) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid
to each such Employee Benefit Plan which is a Pension Plan. All
premiums or other payments for all periods ending on or before the
Closing Date have been paid with respect to each such Employee Benefit
Plan which is a Welfare Plan.
(D) Each such Employee Benefit Plan which is a Pension Plan meets
the requirements of a "qualified plan" under Code ss. 401(a) and has
received, within the last two years, a favorable determination letter
from the Internal Revenue Service.
(E) The market value of assets under each such Employee Benefit
Plan which is a Pension Plan equals or exceeds the present value of
all vested and nonvested liabilities thereunder determined in
accordance with PBGC methods, factors and assumptions applicable to a
Pension Plan terminating on the date for determination.
(F) 1838 Stockholders has delivered to M131A correct and complete
copies of the plan documents and summary plan descriptions, the most
recent determination letter received from the Internal Revenue
Service, the most recent Form 5500 Annual Report and all related trust
agreements, insurance contracts, and other funding agreements which
implement each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that 1838 and/or 1838,
L.P. maintains or ever has maintained or to which any of them contributes,
ever has contributed or ever has been required to contribute:
(A) No such Employee Benefit Plan which is a Pension Plan has
been completely or partially terminated or been the subject of a
"reportable event" as defined in ERISA Section 4043 as to which
notices would be required to be filed with the PBGC. No proceeding by
the PBGC to terminate any such Pension Plan has been instituted or, to
the best knowledge of the 1838 Stockholders, threatened.
(B) There have been no "prohibited transactions" under Code ss.
4975(c) nor ERISA ss. 406 with respect to any such Employee Benefit
Plan. No person or entity administering such Employee Benefit Plan has
any liability for breach of fiduciary duty or any other failure to act
or comply in connection with the administration or investment of the
assets of any such Employee Benefit Plan. No action, suit, proceeding,
hearing or investigation with respect to the administration or the
investment of the assets of any such Employee Benefit Plan (other
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than routine claims for benefits) is pending or, to the best knowledge
of the 1838 Stockholders, threatened. The 1838 Stockholders have no
knowledge of any basis for any such action, suit, proceeding, hearing
or investigation.
(C) Neither 1838 nor 1838, L.P. has incurred, and 1838
Stockholders have no reason to expect that 1838 or 1838, L.P. will
incur any liability to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any withdrawal liability)
or under the Code with respect to any such Employee Benefit Plan which
is a Pension Plan.
(iii) Neither 1838 nor 1838, L.P. contributed to or ever has been
required to contribute to any Multiemployer Plan or has any liability
(including withdrawal liability) under any Multiemployer Plan.
(iv) Neither 1838 nor 1838, L.P. maintains nor ever have maintained
and neither 1838 nor 1838, L.P. have ever contributed to, or ever has been
required to contribute to, any Welfare Plan providing medical, health or
life or other welfare-type benefits for current or future retired or
terminated employees, their spouses or their dependents,
Section 4.15. Status. Except as disclosed on the Disclosure Schedule, to
the knowledge of 1838, no act or default on the part of 1838 or 1838, L.P. has
occurred which could result in the assessment of civil money penalties against
1838 or 1838, L.P., or which violates any federal or state law or regulation,
and neither 1838 nor 1838, L.P. is currently subject to any regulatory order or
agreement, or other regulatory action. 1838 and 1838, L.P. have filed all
applications, reports, returns and filing information data with federal and
state authorities and regulatory agencies as are required by federal or state
law or regulations.
Section 4.16. Taxes.
(i) 1838 and 1838, L.P. have timely filed all federal Tax Returns that
they were required to file and have filed all Tax Returns required by the
Commonwealth of Pennsylvania and its local governments. All such Tax
Returns were correct and complete in all respects. All Taxes owed by 1838
and 1838, L.P. (whether or not shown on any Tax Return) have been timely
paid, Neither 1838 nor 1838, L.P. is currently the beneficiary of any
extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where 1838 and 1838, L.P. do
not file Tax Returns that the income of either 1838 or 1838, L.P. is
subject to taxation by that jurisdiction. There are no security interests
on any of the assets of 1838 or 1838, L.P. that arose in connection with
any failure (or alleged failure) to pay any Tax.
(ii) 1838 and 1838, L.P. have withheld and paid all Taxes required to
have been withheld and paid in correction with amounts paid or
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owing to any employee, independent contractor, creditor, stockholder or
other third party.
(iii) Neither 1838 nor 1838, L.P. expect any authority to assess any
additional Taxes for any period for which Tax Returns have been filed.
There is no dispute or claim concerning any Tax liability of 1838 or 1838,
L.P. either (A) claimed or raised by any authority in writing or (B) as to
which 1838 Stockholders have knowledge based upon personal contact with any
agent of such authority. The Disclosure Schedule lists all federal, state,
local and foreign income Tax Returns filed with respect to 1838 and 1838,
L.P. for taxable periods ended on or after December 31, 1996, and indicates
if any of those Tax Returns that have been audited or currently are the
subject of audit. Neither 1838 nor 1838, L.P. have waived any statute of
limitations in respect of Taxes or agreed to any extension of time with
respect to a tax assessment or deficiency.
(iv) 1838 has not filed a consent under Code ss. 341(f) concerning
collapsible corporation. 1838 has not made any payment, is not obligated to
make any payments and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Code ss. 280G. 1838 has not been a United States real
property holding corporation within the meaning of Code ss. 897(c)(2)
during the applicable period specified in Code ss. 897(c)(1)(A)(ii). 1838
is not a party to any Tax allocation or sharing agreement. 1838 (A) has not
been a member of an affiliated group filing a consolidated federal income
Tax Return and (B) has no liability for the Taxes of any other person or
entity under Reg. ss. 1.1502-6 (or any similar provision of state, local or
foreign law) as a transferee or successor, by contract or otherwise.
(v) The Disclosure Schedule sets forth, as of the most recent
practicable date, the basis of 1838 and 1838, L.P. in their assets and the
amount of any net operating loss, net capital loss, unused tax credits or
excess charitable contribution.
(vi) Since its inception, 1838, L.P. has been properly treated as a
partnership for tax purposes and no tax authority has ever asserted that it
should not so be treated. Since its inception, the only partners of 1838,
L.P. have been 1838, W. Thacher Brown, MPCM and Lambert Brussels Advisory
Corporation. Since its inception, 1838 has been properly treated as an
S-Corp. pursuant to a timely filed election and consent of stockholders, no
taxing authority has ever asserted that it should not be so treated. Since
its inception, 1838's only stockholders have been the 1838 Stockholders and
the former stockholders set forth on Exhibit A.
Section 4.17. Employee Matters. 1838 has no employees and has never had an
employee. Except as disclosed on the Disclosure Schedule, to the knowledge of
1838 after due inquiry of appropriate 1838, L.P. personnel, there is no present
or former employee of 1838, L.P. who has any claim against 1838 or 1838, L.P.
(whether under Law or under any employee
15
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agreement, whether oral, written or implied) for any reason including, without
limitation, on account of or for (i) overtime pay, other than overtime pay for
the current payroll period; (h) wages or salaries, other than wages or salaries
for the current payroll period; (iii) vacations, sick leave, time off or pay in
lieu of vacation, sick leave or time off, other than vacation, sick leave or
time off (or pay in lieu thereof) earned in the 12-month period immediately
preceding the date of this Agreement, (iv) harassment or discrimination or (v)
the Merger.
Section 4.18. Credit Agreements. Except as disclosed on the Disclosure
Statement and except for the MPCM Loan, n6ither 1838 nor 1838, L.P. is a party
to or bound by any written or oral long-term debt agreement, credit agreement,
sale-lease back agreement, revolving credit agreement, financing agreement or
mortgage on real property, in which 1838 or 1838, L.P. is named the lender or
the debtor (or mortgagor).
Section 4.19. Record Books. Except as set forth in the Disclosure Schedule,
the minute book and stock record book of 1838 are complete and correct in all
material respects and record all material transactions required to be recorded
under any and all applicable state and federal laws or regulations.
Section 4.20. MPCM Loan/Stockholder Distribution Obligations. On the
Closing Date, the sum of (i) the unpaid principal balance and accrued interest
on the MPCM Loan and (ii) the Stockholder Distribution Obligations, shall not
exceed fifteen million, seven hundred fifty-eight thousand four hundred
forty-two dollars (SI 5,758,442)
Section 4.21. Accounts Receivable/Working Capital. All accounts receivable
- -as reflected on 1838, L.P.'s books (the "Accounts Receivable") and records have
been generated in the ordinary course of 1838, L.P.'s business. Not more than
$250,000 of the Accounts Receivable are more than 90 days past due. No offset,
claim of offset or claim of material liability on the part of 1838, L.P. has
been asserted by any obligor with respect to the Accounts Receivable. As of the
Closing Date, the Excess Working Capital for 1838, L.P. will not be less than
three million dollars ($3,000,000).
Section 4.22. Customer Contracts. As of the Closing Date, 1838, L.P. had in
place the agreements with institutional clients set forth on the Disclosure
Schedule (the "Customer Contracts"). 1838, L.P. has not received notice of
intent to terminate (or materially reduce the scope of) any of the Customer
Contracts, nor has 1838, L.P. sent notice to terminate (or materially reduce the
scope of) any of the Customer Contracts, except as set forth on the Disclosure
Schedule.
Section 4.23. Affiliate and Insider Transactions. Except as disclosed in
the Disclosure Schedule, neither the 1838 Stockholders nor any member of the
immediate family of the 1838 Stockholders or any entity in which the 1838
Stockholders owns any beneficial interest (other than a publicly-held
corporation) has any loan agreement, note or borrowing arrangement or, to the
knowledge of 1838, any other agreement with 1938 or 1838, L.P. or any interest
in any property, real, personal or mixed, tangible or intangible, used in or
pertaining to the business of 1838 or 1838, L.P. For purposes of the preceding
sentence, the members of the immediate family of the 1838 Stockholders will
consist of the spouse, parents, children, siblings, and mothers-and
fathers-in-law of such persons.
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Section 4.24. Compliance With Laws.
(a) Except as disclosed on the Disclosure Schedule, to the knowledge of
1838, 1838 and 1838, L.P. have complied in all material respects with all
applicable laws and regulations of foreign, federal, state and local governments
and all agencies thereof which affect the business or any owned or leased
properties of 1838 or 1838, L.P. and to which 1838 or 1838, L.P. may be subject
(including without limitation Environmental Laws and the Occupational Safety and
Health Act of 1970, or any other state or federal acts, including rules and
regulations thereunder, regulating, or otherwise affecting employee health and
safety or the environment); and there are no currently pending claims or notices
by any such governments or agencies against 1838 or 1838, L.P. alleging a
violation of any such law or regulation where such violation would have an 1838,
L.P. Material Adverse Effect.
(b) Except as disclosed in the Disclosure Schedule, to the knowledge of
1838, 1838 and 1838, L.P. each hold, and has at all times held, all Permits
necessary for the lawful ownership and use of 1838, L.P.'s properties and assets
and the conduct of their businesses under and pursuant to every, and has
complied in all material respects with each, and is not default in any material
respect under any applicable law relating to 1838, L.P. or any of its assets,
properties or operations where such default would have an 1838, L.P. Material
Adverse Effect. Neither 1838 nor 1838, L.P. knows of any outstanding violations
by it of any of the above nor has received notice asserting any such violation
by it. All Permits are valid and in good standing and are not subject to any
suspension, modification or revocation or proceedings related thereto.
(c) Except as disclosed in the Disclosure Schedule and except for normal
examinations conducted by any governmental authority in the regular course of
the business of 1838 or 1838, L.P., to the knowledge of 1838, no governmental
authority has initiated any administrative proceeding or investigation into the
business or operations of 1838, L.P. There is no unresolved violation or
exception by any governmental authority with respect to any report or statement
by any governmental authority relating to any examination of 1838 or 1838, L.P.
(d) 1838 and 1838, L.P. have at all times maintained records which
accurately reflect transactions in reasonable detail and accounting controls,
policies and procedures sufficient to ensure that such transactions are recorded
in a manner which permits the preparation of financial statements in accordance
with GAAP and applicable regulatory accounting requirements.
(e) All proxy statements to be prepared for use by the Funds in connection
with the transactions contemplated by this Agreement (other than any information
provided or to be provided by MBIA in writing relating to MBIA and its
affiliates expressly for use in the proxy statements) will be accurate and
complete and will not contain, at the times such proxy materials are furnished
to the stockholders, or at the time of the meetings thereof, any untrue
statements of a material fact, or omit to state any material fact required to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
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Section 4.25. Absence of Certain Developments. Except as set forth on the
Disclosure Schedule or the Financial Statements, neither 1838 nor 1838, L.P.
have since December 31, 1997:
a. issued or sold any of its Stock, securities convertible into or
exchangeable for Stock, warrants, options or other rights to acquire Stock,
or any of its bonds or other securities other than the issuance of 27,200
additional shares of Stock as of January 1, 1998;
b. redeemed or purchased, directly or indirectly, any shares of its
Stock or declared or paid any dividends or distributions with respect to
any shares of Stock;
c. borrowed any amount or incurred or become subject to any material
liability, except accounts payable incurred in the ordinary course of
business and the MPCM Loan;
d. discharged or satisfied any material lien or encumbrance on its
properties or assets or paid any material liability, other than in the
ordinary course of business;
e. mortgaged, pledged or subjected to any lien or other encumbrance,
any of its assets except in the ordinary course of business, liens and
encumbrances for current property taxes not yet due and payable, liens and
encumbrances which do not materially affect the value of, or interfere with
the current use or ability to convey, the property subject hereto or
affected thereby;
f. sold, assigned or transferred (including without limitation
transfers to any employees, stockholders or affiliates of 1838, L.P.) any
assets, except in the ordinary course of business;
g. canceled any material debts or claims or waived any rights of
material value, except in the ordinary course of business;
h. except as previously disclosed to MBIA in writing, made or granted
any bonus or any wage, salary or compensation increase to any director,
officer or employee except as disclosed on the Disclosure Schedule;
i. made or granted any increase in any Employee Benefit Plan or
arrangement or amended or terminated any existing Employee Benefit Plan or
arrangement or adopted any new Employee Benefit Plan or arrangement, except
as required by law;
j. made capital expenditures or commitments therefor in excess of
$200,000 in the aggregate;
k. suffered any theft, damage, destruction or loss of or to any
property or properties owned or used by 1838, L.P., whether or not covered
by insurance, which would individually or in the aggregate have an 1838,
L.P. Material Adverse Effect; or
18
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l. taken any other action or entered into any other material
transaction or contract other than in the ordinary course of business.
Section 4.26. Material Adverse Change. There has been no 183 8, L.P.
Material Adverse Effect since December 31, 1997.
Section 4.27. Bank Accounts and Powers of Attorney. Except as set forth in
the Disclosure Schedule, 1838 (a) has no bank account or safe deposit box and
(b) has given no power of attorney to any person.
Section 4.28. Broker's or Finder's Fees. No agent, broker, person or firm
acting on behalf of the 1838 Stockholders, 1838 or 1838, L.P. is, or will be,
entitled to any commission or broker's or finder's fees from any of the parties
hereto, or from any person controlling, controlled by or under common control
with any of the parties hereto, in connection with any of the transactions
contemplated herein.
Section 4.29. Business Activities of 1838. Since its inception, 1838 has
not engaged in any business activities other than its participation in 1838,
L.P.
Section 4.30. Regulatory Documents. Except as set forth in the Disclosure
Schedule:
(a) Since January 1, 1996, 1838 and 1838, L.P. have timely filed all
reports, registration statements and other documents, together with any
amendments required to be made with respect thereto, that were required to
be filed with any governmental authority, including the SEC, and has paid
all fees and assessments due and payable in connection therewith.
(b) As of their respective dates, the Regulatory Documents of 1838
complied in all material respects with the requirements of applicable laws
and none of 1838's or 1838, L.P.'s Regulatory Documents, as of their
respective dates, contained any untrue statement of a material fact or
omitted 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. 1838 has previously delivered
or made available to MBIA a complete copy of each 1838's and 1838, L.P.'s
Regulatory Documents filed with the SEC after January 1, 1996 and prior to
the date hereof (including a Form ADV as in effect on the date hereof) and
will deliver to MBIA promptly after the filing thereof a complete copy of
each Regulatory Document filed with the SEC after the date hereof and prior
to the Closing Date.
Section 4.31. Ineligible Persons. Neither 1838 nor any "affiliated person"
(as defined in the Investment Company Act) thereof, is ineligible pursuant to
Section 9(a) or 9(b) of the Investment Company Act to serve as an investment
advisor (or in any other capacity contemplated by the Investment Company Act) to
a registered investment company. Neither 1838 nor any "associated person" (as
defined in the Advisers Act) thereof, is ineligible pursuant to Section 203 of
the Advisers Act to serve as an investment adviser or as an associated person to
a registered investment adviser. Neither 1838 nor any "associated person" (as
defined in the Exchange Act) thereof, is ineligible pursuant to Section 15(b) of
the Exchange Act to serve as a broker-dealer or as an associated person to a
registered broker-dealer.
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Section 4.32. Funds.
(a) The Disclosure Schedule sets forth a true, complete and correct
list, as of the date hereof, of each Fund for which 1838, L.P. acts as
investment advisor or subadvisor. Each Fund that is an entity is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has the requisite corporate, trust or
partnership power and authority to own its properties and to carry on its
business as it is now conducted, and is qualified to do business in each
jurisdiction where it is required to do so under applicable law, except
where the failure to have such power, authority or qualification is not
reasonably expected to have an 1838, L.P. Material Adverse Effect. Each
Fund is, and at all times has been registered with the SEC as an Investment
Company in accordance with the requirements of the Investment Company Act.
In addition, shares of each Fund have been registered under the Securities
Act of 1933, as amended, as required by that act and the rules and
regulations issued by the SEC thereunder. Except with respect to the first
sentence of this Section 4.32(a), the foregoing representations shall not
be deemed applicable to any Funds for which 1838, L.P. acts as an
investment subadvisor.
(b) Except as set forth in the Disclosure Schedule, (i) the shares of
each Fund have been duly and validly issued and are fully paid and
nonassessable and the shares of each Fund are qualified for public offering
and sale in each jurisdiction where offers are made to the extent required
under applicable law; and (ii) to the extent within the control of 1838,
L.P., each Fund has been operated since its organization and is currently
operating in compliance in all material respects with applicable law.
Section 4.33. Investment Company Contracts. Each Investment Company
Contract subject to Section 15 of the Investment Company Act has been duly
approved at all times in compliance in all material respects with Section 15 of
the Investment Company Act and all other applicable laws. 1838, L.P. has
performed its duties and obligations under each Investment Company Contract in
accordance with the Investment Company Act and all other applicable laws, except
for such failures of performance which, individually or in the aggregate, are
not reasonably expected to have an 1838, L.P. Material Adverse Effect.
Section 4.34. Technology and Intellectual Property
(a) The Disclosure Schedule lists any (i) domestic and foreign
registered trademarks and service marks, registered copyrights and patents,
(ii) applications for registration of any of the foregoing and (iii)
unregistered trademarks, service marks, trade names, logos and assumed
names owned by 1838, L.P. and necessary to conduct the business of 1838,
L.P.. The items, together with all other material trademarks, service
marks, trade names, logos, assumed names, patents, copyrights, trade
secrets, computer software, formulae, designs and inventions currently used
in or necessary to conduct the business of 1838, L.P. constitute the
"Intellectual Property."
(b) 1838, L.P. owns all right, title and interest in and to the
Intellectual Property listed on the Disclosure Schedule.
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(c) The Intellectual Property listed in the Disclosure Schedule, does
not infringe any patent, copyright or trade secret of any third party and
such Intellectual Property has not been forfeited to the public domain.
(d) No claims have been asserted by any person or entity against 1838,
L.P. that the use of the Intellectual Property listed on the Disclosure
Schedule infringes upon the Intellectual Property rights of such person or
entity and 1838 is not aware of any valid basis for such claim.
Section 4.35. Year 2000. 1838 has caused 1838, L.P. to complete a thorough
assessment of all of its operating and technology systems, including all
software products and services utilized by 1838, L.P., for any risk that the
Year 2000 will cause business disruption or operational failure. 1838 has set
forth on the Disclosure Schedule any Year 2000 risks identified in that
assessment and any remediation plans in place or contemplated to be put in
place. To the knowledge of 1838 after due inquiry of appropriate 1838, L.P.
personnel, all software owned by or licensed to 1838, L.P. is designed to be
used prior to, during and after the calendar year 2000 A.D.
Section 4.36. Redemption Agreement. The Redemption Agreement has been duly
executed by all parties thereto and was effective to convey all right, title and
interest of NTCM in the 1838 Partnership Interests to 1838. All amounts due to
MPCM under the Redemption Agreement have been fully paid and all other material
obligations of 1838 and 1838, L.P. thereunder have been performed. There are no
amounts due to MPCM by 1838, L.P. and MPCM has been paid, or has released its
rights with respect to, all past and future income of 1838, L.P.
Section 4.37. Former Stockholders. Except as set forth in the Disclosure
Schedule, there are no pending or, to the knowledge of 1838, threatened claims
against 1838 or 1838, L.P. by former 1838 Stockholders.
Section 4.38. Disclosure. The representations and warranties set forth in
this Article IV do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Article IV not misleading.
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS OF
MBIA AND ACQUISITION
MBIA and Acquisition hereby represent, warrant and covenant to the 1838
Stockholders that:
Section 5.01. Organization.
(a) Organization. Each of MBIA and Acquisition is a corporation duly
and validly organized and existing in good standing under the Laws of the
state of its incorporation.
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(b) Corporate Power and Authority. Each of MBIA and Acquisition has
full corporate power and authority and all Permits necessary to carry on
its business as it is now conducted and to own, lease and operate its
assets and properties.
Section 5.02. Authorization; Enforceability. The execution, delivery and
performance of this Agreement by MBIA and Acquisition and all of the documents
and instruments required by this Agreement to be executed and delivered by MBIA
and Acquisition (a) are within the corporate power of MBIA and Acquisition, (b)
have been duly authorized by all necessary corporate action by MBIA and
Acquisition and (c) do not require any approval of the stockholders of MBIA.
This Agreement is, and the other documents and instruments required by this
Agreement to be executed and delivered by MBIA and Acquisition will be, when
executed and delivered by MBIA and Acquisition, the valid and binding
obligations of MBIA and Acquisition, enforceable against MBIA and Acquisition in
accordance with their respective terms, except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar Laws generally affecting the rights of creditors and subject to general
equity principles. The MBIA Common Stock to be issued pursuant to this Agreement
will be, when issued, duly authorized, validly issued and fully paid.
Section 5.03. No Violation or Conflict. The execution, delivery and
performance of this Agreement by MBIA and Acquisition do not and will not
conflict with or violate any Law, the Organizational Documents of MBIA,. the
Organizational Documents of Acquisition or any material contract or agreement to
which MBIA or Acquisition is a party or by which either of them is bound.
Section 5.04. Litigation. To the knowledge of MBIA, there are no actions,
suits or proceedings against MBIA or Acquisition, or both, by any Person which
question the validity, legality or propriety of the transactions contemplated by
this Agreement.
Section 5.05. Brokers. No agent, broker, person or firm acting on behalf of
MBIA or Acquisition will be entitled to any brokers,' finders' or any similar
fee in connection with the transactions contemplated by this Agreement except
Berkshire Capital Corporation and Morgan Keegan & Co., Inc., the fees of whom
shall be paid by MBIA.
Section 5.06. SEC Reports and Financial Statements. MBIA has properly and
timely filed with the SEC and has -made available to 1838, 1838, L.P. and the
1838 Stockholders 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, 1997 (hereinafter referred to collectively, with all
amendments, exhibits and schedules thereto, as the "MBIA SEC Documents"). As of
their respective dates or, if amended, as of the date of the last such
amendment, the MBIA 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 MBIA 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
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been prepared in accordance with GAAP (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 MBIA and its
consolidated subsidiaries as at the dated 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 MBIA SEC Documents have
been so filed.
Section 5.07. Material Adverse Change. There has been no MBIA Material
Adverse Effect since December 31, 1997.
Section 5.08. MBIA Stock The MBIA Common Stock to be issued pursuant to
this Agreement will be, when issued, duly authorized, validly issued and fully
paid.
Section 5.09. Capitalization 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 April 30, 1998 (i) 97,618,497 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 3,909,798 shares of MBIA Common Stock were outstanding pursuant to MBIA's
stock option plans and (iv) no shares of preferred stock were issued and
outstanding. There have been no material changes to the capitalization of MBIA
from April 30, 1998 through the date of this Agreement.
Section 5.10. Certain Tax-Related Matters.
(a) MBIA has no plan or intention to have or permit 1838 to issue
additional shares of its stock after the Merger.
(b) MBIA has no plan or intention to reacquire any of the shares of
MBIA Common Stock issued in the Merger.
(c) MBIA has no plan or intention to liquidate 1838; to merge 1838
with or into another corporation (aside from Acquisition); to sell or
otherwise dispose of the stock of 1838 except for transfers of stock to
corporations controlled by MBIA within the meaning of Code ss. 368(c); or
to cause 1838 to sell or otherwise dispose of any of its assets, except for
disposition made in the ordinary course of business or transfers of assets
to a corporation controlled by 1838 within the meaning of Code ss. 368(c).
(d) Following the Merger, MBIA shall cause 1838 to continue at least
one significant historic business line of 1838, or use a significant
portion of its historic business assets in a business, in each case within
the meaning of Reg. ss. 1.368-1(d) of the Code.
ARTICLE VI
COVENANTS OF 1838
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Section 6.01. Conduct of Business of 1838. During the period from the date
of this Agreement and continuing through the Closing Date, except as expressly
contemplated or permitted by this Agreement or with the prior written consent of
MBIA, 1838 shall (a) carry on its and 1838, L.P.'s business in the ordinary
course consistent with prudent business practice; (b) use its best efforts to
preserve its present business organization and relationships; (c) use its best
efforts to keep available the present services of 1838, L.P.'s employees and (d)
use its best efforts to preserve its rights, franchises, goodwill and relations
with 1838, L.P.'s customers and others with whom it conducts business.
Without limiting the generality of the foregoing, except as expressly
permitted by this Agreement or consented to in writing by MBIA, 1838 shall not:
(i) create, renew, amend, terminate or cancel, or take any other
action that may result in the creation, renewal, amendment,
termination or cancellation of, any lease relating to furniture,
fixtures and equipment or contracts to which it or 1838, L.P. is a
party except in the ordinary course of business;
(ii) take any action impairing its or 1838, L.P.'s rights in any
contract or purchased asset other than in the ordinary course of
business;
(iii) purchase or lease or cause 1838, L.P. to purchase or lease
any assets from, or sell or lease any assets to, any affiliate or
seller,
(iv) adopt, amend, renew or terminate any employee program,
agreement, arrangement or policy between 1838, L.P. and one or more of
its employees;
(v) commit any act or omission which constitutes a breach or
default under any contract or license to which it or 1838, L.P. is a
party or by which it or any of its properties is bound the effect of
which could reasonably be expected to cause an 1838, L.P. Material
Adverse Effect;
(vi) commit any act or omission which would materially violate
any applicable law, statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to 1838 or
1838, L.P. or any of their properties, contracts or assets;
(vii) on its own or 1838, L.P.'s behalf, waive any right or
modify or amend any commitment, or incur an material debt or
obligation, in each case other than in the ordinary course of
business;
(viii) guarantee or cause 1838, L.P. to guarantee any material
debt or obligation of any Person;
(ix) voluntarily divest 1838, L.P. of the management of any
mutual fund or other assets currently under management;
(x) cause 1838, L.P. to enter into any new line of business;
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(xi) cause 1838, L.P. to increase salary or compensation of any
1838, L.P, employees;
(xii) acquire or agree to acquire in any manner, including by way
of merger, consolidation, purchase of an equity interest or assets,
any business or any corporation, partnership, association or other
business organization or division thereof or cause 1838, L.P. to do
the same; or
(xiii) make or declare any distributions of 1838, L.P. or 1838
assets except that 1838, L.P. may distribute accumulated earnings to
1838, 1838 may dividend such amounts to the 1838 Stockholders and
1838, L.P. and 1838 may declare Stockholder Distribution Obligations
provided, however, such distributions and/or declarations shall not
cause the Excess Working Capital to be less than three million dollars
($3,000,000) on the Closing Date or cause a breach of Section 4.20
hereof
Section 6.02. Approval by Investment Company Contract Clients.
(a) 1838, L.P. will use its best efforts to obtain, as promptly as
practicable, the approval of the Board of Directors and stockholders of
each Fund, pursuant to the provisions of Section 15 of the Investment
Company Act applicable thereto, of new Investment Company Contract
reflecting MBIA's ownership of 1838 which provide for substantially
identical services, at comparable costs, to the Funds to those in effect
immediately prior to the Closing Date.
(b) 1838, L.P. shall use its best efforts to assure, prior to the
Closing Date, the satisfaction of the conditions set forth in Section 15(f)
of the Investment Company Act with respect to each Fund.
Section 6.03. Approval by Investment Advisory Contract Clients. The parties
understand that the Merger will constitute an assignment, within the meaning of
the Advisers Act of the Investment Advisory Contracts. 1838 agrees to cause
1838, L.P. to inform its advisory clients of the transactions contemplated by
this Agreement and to use its best efforts to obtain the consent of its clients
to the assignment of their advisory contracts. Pursuant to such efforts, 1838
will notify advisory clients of the Merger and the resulting assignment of their
contracts and request that such clients furnish their written consent to the
assignments. It is agreed that where clients fail to furnish written consent
prior to the Effective Time of Merger, such non-responding clients will continue
to receive advisory services in accordance with the terms of their respective
contracts and that such non-responding clients will be deemed by the parties to
have consented to the assignment where such client continues to accept such
advisory services for at least 15 days after the Effective Time of Merger.
Clients will be advised by 1838 of the foregoing treatment of their accounts in
the event that they do not provide a response to the consent request. Where a
client advisory contract prohibits an assignment or provides for termination of
the contract upon assignments, 1838 agrees to use its best efforts to convince
clients to enter into new advisory contract with 1838, L.P. prior to the
Effective Time of Merger.
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Section 6.04. Insurance. 1838 will ensure that 1838, L.P. maintains in
effect until the Closing Date all casualty and public liability policies
maintained by 1838, L.P. on the date hereof, the purchased assets and the
assumed liabilities, or will procure comparable replacement policies and
maintain such replacement policies in effect until the Closing Date.
Section 6.05. Maintenance of Records. Through the Closing Date, 1838, L.P.
will maintain the records in the same manner and with the same care that the
records have been maintained prior to the execution of this Agreement.
Section 6.06. Full Access. 1838 will permit, and cause 1838, L.P. to permit
representatives of MBIA to have fall access to all premises, properties,
personnel, books, records (including tax and licensing records), contracts and
documents of or pertaining to the 1838, L.P.
Section 6.07. Exclusivity. Unless this Agreement shall be terminated by
mutual consent of the parties hereto, neither 1838 nor the 1838 Stockholders
will solicit, initiate or encourage the submission of any proposal or offer from
any Person relating to the acquisition of the 1838 Common Stock or any
substantial portion of the assets of 1838, L.P. (including any acquisition
structured as a merger, consolidation or share exchange) or participate in any
discussions or negotiations regarding any of the foregoing.
Section 6.08. Accounting Matters. 1838 will use its best efforts to obtain
a letter from Coopers & Lybrand LLP to the effect that 1838 is eligible to be
acquired in a transaction to be accounted for using "pooling of interests"
accounting treatment and will use its best efforts to avoid taking any action
(other than actions contemplated by this Agreement) that would prevent MBIA from
accounting for the business combination to be effected by the Merger as a
pooling of interests.
ARTICLE VII
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF MBIA AND ACQUISITION
All of the agreements and obligations of MBIA under this Agreement are
subject to the fulfillment, on or prior to the Closing Date, of the following
conditions precedent, any or all of which may be waived in whole or in part in
writing by MBIA:
Section 7.01. No Material Adverse Change. No 1838, L.P. Material Adverse
Effect shall have occurred.
Section 7.02. Compliance with Agreement. 1838, 1838, L.P. and the 1838
Stockholders shall have performed and complied with all of the agreements,
covenants and conditions required by this Agreement to be performed or complied
with by them on or prior to the Closing Date, All documentation relating to the
Merger shall be in form and substance acceptable to MBIA and, if applicable,
MBIA's rating agencies.
Section 7.03. Hart Scott Rodino Act. All necessary requirements of the Hart
Scott Rodino Act shall have been complied with and any "waiting periods"
applicable to the Merger and to the transactions described in this Agreement
which are imposed by the Hart Scott Rodino
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<PAGE>
Act shall have expired prior to the Closing Date or shall have been terminated
by the appropriate agency.
Section 7.04. Pooling Opinion. MBIA shall have received a letter from
Coopers & Lybrand LLP to the effect that no conditions exist that would preclude
accounting for the Merger as a "pooling of interests" if consummated in
accordance with this Agreement and such letter shall not have been withdrawn.
Section 7.05. 1838 Stockholder Approval. All of the 1838 Stockholders shall
have delivered a Selling Stockholder Letter and executed this Agreement.
Section 7.06. 1838 Opinion Letter. MBIA shall have received the 1838
Counsel Opinion dated the Closing Date.
Section 7.07. Approval by 1838, L.P. Is Clients. At least three (3) days
prior to the Closing Date, 1838 must deliver documentation satisfactory to MBIA
certifying that clients representing no more than fifteen percent (15%) of 1838,
L.P.'s revenues as of March 31, 1998, shall have delivered notices of
termination of their advisory contracts as a result of notices of the
acquisition contemplated by this Agreement.
Section 7.08. No Litigation. No court or governmental authority of
competent jurisdiction shall have issued a permanent order restraining,
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement, and no person, firm, corporation or governmental
agency which is not a party to this Agreement shall have instituted an action or
proceeding seeking to restrain, enjoin or prohibit the consummation of the
transactions contemplated by this Agreement.
Section 7.09. Representations and Warranties Accurate. Subject to the final
Disclosure Schedule and the certificate required by Section 3.01 above, the
representations and warranties contained in this Agreement and the information
in the Schedules and Exhibits hereto shall be true and accurate in all material
respects, both on the date hereof and as of the Closing Date.
Section 7.10. Officer's Certificate. 1838 shall have delivered to MBIA an
officer's certificate on behalf of 1838 executed by Brown as President of 1838
certifying to the matters set forth in Section 7.09 above.
Section 7.11. Employment of Key Employees. An employment agreement in form
and substance acceptable to MBIA between 1838 (or MBIA Asset Management
Corporation) and each of the Key Employees must be in full force and effect.
Section 7.12. No Adverse Claims. There must not have been made or
threatened by any entity or person any claim that such person or entity is the
holder, beneficial holder or pledgee of any of the 1838 Stock or the 1838, L.P.
Partnership Interests.
Section 7.13. Additional Documentation. 1838 shall have delivered such
additional documentation as may be reasonably requested by MBIA within a
reasonable timeframe to further effectuate and/or evidence the transactions
contemplated herein and compliance by 1838 and the 1838 Stockholders of their
representations, warranties and obligations hereunder.
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Section 7.14. Approval by Board. Any material amendments or modifications
of the terms of the Merger as contemplated by this Agreement must have been
approved by the MBIA board of directors.
Section 7.15. Joint Advisory Agreement. Except as set forth on the
Disclosure Schedule, the Joint Advisory Agreement shall have been terminated
with no remaining obligations of 1838 or 1838, L.P. to any party thereto.
Section 7.16. Purchase of Minority Interest. 1838, MBIA or MBIA's designee
shall have purchased, simultaneous with the Merger, all of the partnership
interests of 1838, L.P. owned by Brown.
Section 7.17. MBIA Common Stock Price. As of the end of the business day
immediately preceding the Closing Date, the market price of MBIA Common Stock as
reported by the New York Stock Exchange shall not be greater than $83.00 per
share or less than $65.00 per share.
Section 7.18. Final Disclosure Schedule. The final disclosure schedule and
the officer's certificate delivered by 1838 pursuant to Section 3.01 hereof
shall not contain any material additional liabilities or potential liabilities
of 1838 or 1838, L.P.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF 1838
AND THE 1838 STOCKHOLDERS
Each and every obligation of 1838 and the 1838 Stockholders to be performed
on the Closing Date shall be subject to the satisfaction prior to or on the
Closing Date of the following express conditions precedent:
Section 8.01. Compliance With Agreement. MBIA and Acquisition shall have
performed and complied in all material respects with all of their obligations
under this Agreement which are to be performed or complied with by them prior to
or on the Closing Date.
Section 8.02. Proceedings and Instruments Satisfactory. All proceedings,
corporate or other, to be taken in connection with the transactions contemplated
by this Agreement, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to the 1838 Stockholders, and MBIA and
Acquisition shall have made available to the 1838 Stockholders for examination
the originals or true and correct copies of all documents which the 1838
Stockholders may reasonably request in connection with the transactions
contemplated by this Agreement.
Section 8.03. No Litigation. No suit, action or other proceeding shall be
pending before any court seeking an injunction or other restraint against the
consummation of the transactions contemplated by this Agreement or seeking
material damages or other material payments as a result of the consummation of
the Merger.
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Section 8.04. Representations and Warranties of MBIA and Acquisition. The
representations and warranties made by MBIA and Acquisition in this Agreement
shall be true and correct in all material respects, both on the date hereof and
as of the Closing Date.
Section 8.05. MBIA Opinion Letter. MBIA shall have delivered to the 1838
Stockholders the MBIA Counsel Opinion dated the Closing Date.
Section 8.06. Approvals. UBIA shall have obtained all approvals for the
Merger as are required by its Organizational Documents and by applicable law.
Section 8.07. No Material Adverse Change. No MBIA Material Adverse Effect
shall have occurred.
Section 8.08. MBIA Common Stock Price. As of the business day immediately
preceding the Closing Date, the market price of MBIA Common Stock as reported by
the New York Stock Exchange shall not be greater than $83.00 per share nor less
than $65.00 per share.
Section 8.09. Hart-Scott-Rodino. All necessary requirements of the
Hart-Scott-Rodino Act shall have been complied with any "waiting periods"
applicable to the Merger and the transactions described in this Agreement which
are imposed by the Hart-Scott-Rodino Act shall have expired prior to the Closing
Date or shall have been terminated by the appropriate agency.
Section 8.10. Stockholder Approval. 1838 Stockholders not holding less than
the percentage of 1838 Common Stock required under the Delaware General
Corporation Law for approval of a merger shall have duly approved the terms of
the Merger.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification by 1838 Stockholders. Each of the 1838
Stockholders (the "Indemnifying Parties") severally agrees to indemnify, defend
and hold harmless MBIA, Acquisition, 1838 and 1838, L.P. (the "Indemnified
Parties") for any loss, liability, claim, obligation, damage (including
incidental and consequential damages), expense (including interest, penalties,
reasonable attorneys' fees and the costs and disbursements thereof) or
diminution in value (collectively, the "Damages"), arising from or in connection
with:
(a) any breach of any representation or warranty concerning 1838,
1838, L.P. and/or such 1838 Stockholder in this Agreement (including all
Schedules and Exhibits hereto) or in any certificate or document delivered
by 183 8 pursuant to this Agreement;
(b) any breach or nonfulfillment of any covenant or obligation of 1838
and/or such 1838 Stockholder under this Agreement;
(c) any misrepresentation in or omission from any certificate or other
instrument furnished or to be furnished to MBIA concerning 1838, 1838, L.P.
or such 1838 Stockholder hereunder;
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(d) any claims by MPCM against the Indemnified Parties arising from or
relating to the Joint Advisory Agreement, the Limited Partnership Agreement
or arising from or related to the redemption by MPCM of its 1838, L.P.
Partnership Interests in 1838, L.P. pursuant to the Redemption Agreement.
Section 9.02. Limitation of Indemnification. The Indemnifying Parties as a
whole shall have no liability to the Indemnified Parties with respect to the
matters described in subsections 9.01(a) through (d) above or any other
provisions of this Agreement until the total of all Damages under those
subsections exceeds three hundred thousand dollars ($300,000) and then only for
the amount by which those Damages exceed three hundred thousand dollars
($300,000). The liability of each Indemnifying Party for Damages for which all
Indemnifying Parties are liable shall be a pro rata share of the Damages
determined by such Indemnifying Party's ownership of 1838 Common Stock on the
Closing Date as set forth on Exhibit A hereto. The maximum liability under any
circumstances for each Indemnifying Party shall be limited to an amount
determined as the number of shares of MBIA Common Stock received by such
Indemnifying Party in the Merger times thirty-seven dollars ($37.00).
Section 9.03. Procedure for Indemnification-Third Parties.
(a) In the case of any claim, other than a claim asserted by a third
party, as to which indemnity may be sought by an Indemnified Party, notice
shall be given by the Indemnified Party to the Indemnifying Parties.
(b) Promptly after receipt by an Indemnified Party of any notice of
the commencement of any claim, proceeding or action (a "Proceeding") by a
third party to recover damages which would, if such action is successful,
result in Indemnification Obligations under this Article IX, such
Indemnified Party shall provide notice to the Indemnifying Parties of such
Proceeding. The Indemnified Party shall permit the Indemnifying Party (at
the expense of such Indemnifying Party) to assume the defense of any claim
or any litigation resulting therefrom, provided that (i) the Indemnifying
Party shall make such election within ten (10) days after receipt of the
notice of claim from the Indemnified Party, (ii) the counsel for the
Indemnifying Party who shall conduct the defense of such claim or
litigation shall be reasonably satisfactory to the Indemnified Party, (iii)
the Indemnified Party may participate in such defense at such Indemnified
Party's expense, and (iv) the omission by any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
indemnification obligation under this Agreement except to the extent that
such omission has a material adverse effect on the Indemnifying Party's
ability to defend against such claim.
(c) Except with the prior written consent of the Indemnified parties,
the Indemnifying Parties, in the defense of any such claim or litigation,
shall not consent to entry of any judgment or enter into any settlement
that provides for injunctive or other nonmonetary relief affecting the
Indemnified Party or that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to such Indemnified Party of a
release from all liability with respect to such claim or litigation. In the
event that the Indemnifying Party does not accept the defense of any matter
as above provided, (A) the Indemnified Party shall have the MI right to
defend against any such claim or
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demand and shall be entitled to settle or agree to pay in full such claim
or demand after fifteen (15) days prior written notice to the Indemnifying
Parties; and (B) all legal and other expenses reasonably incurred by the
Indemnified Party shall be home by the Indemnifying Party. Notwithstanding
any other provision of this Section 9.03, in the event that the Indemnified
Party shall in good faith determine that the Indemnified Party may have
available to it one or more defenses or counterclaims that are inconsistent
with one or more of those that may be available to the Indemnifying Party
in respect of such claim or any litigation relating thereto, the
Indemnified Party shall have the right at all times to take over and assume
control over the defense, settlement, negotiations or litigation relating
to any such claim at the sole cost of the Indemnified Party, provided that
if the Indemnified Party does so take over and assume control, the
Indemnified Party shall not settle such claim or litigation without the
written consent of the Indemnifying Party, such consent not to be
unreasonably withheld. In any event, the Indemnified Parties and the
Indemnifying Parties shall cooperate in the defense of any claim or
litigation subject to this Section 9.03 and the records of each shall be
available to the other with respect to such defense.
(d) The Indemnifying Parties hereby appoint Brown as their agent for
all notices, consultations and agreements required or permitted under this
Article IX until such time as the Indemnified Parties shall be informed
otherwise in writing, and agree to be bound by his actions and agreements
as agent hereunder.
(e) The Indemnified Parties hereby appoint MBIA as their agent for all
notices, consultations and agreements required or permitted under this
Article IX until such time as the Indemnifying Parties shall be informed
otherwise in writing, and agree to be bound by MBIA's actions and
agreements as agent hereunder.
(f) The Indemnified Parties shall not be entitled to bring any new
claim for Damages arising. from a breach of a representation or warranty,
whether under this Article IX or otherwise, after the survival period with
respect to the representation and warranty giving rise to the claim for
Damages shall have expired as set forth in Section 10.01 hereof.
Section 9.04. Procedures for Claims by Indemnified Parties. Any of the
Indemnified Parties may assert a claim for payment or reimbursement of Damages
by sending notice thereof to the Indemnifying Parties in accordance with
Sections 9.03 and 10.06 hereof The Indemnifying Parties shall have 30 days after
the date any such notice is sent (the "Notice Period") to notify the Indemnified
Parties of any defenses asserted by the Indemnifying Parties to such claim for
Damages. If the notice to the Indemnifying Parties so states, failure by the
Indemnifying Parties to respond within the Notice Period shall be deemed an
admission of liability by the Indemnifying Parties with respect to the claim for
Damages and they shall thereafter be barred from raising any defense or denial
of liability relating thereto.
Section 9.05. Indemnification by MBIA.
(a) M13IA agrees to indemnify each 1838 Stockholder for all Damages
incurred by such 1838 Stockholder arising from or in connection with:
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(i) any breach of any representation or warranty made by MBIA in
this Agreement or any certificate or document delivered by MBIA
pursuant to this Agreement; and
(ii) any breach or nonfulfillment of any covenant or obligation
of MBIA under this Agreement.
(b) The 1838 Stockholders may assert a claim for payment or
reimbursement for Damages by sending notice thereof to MBIA and MBIA shall
have thirty (30) days after the date of such notice to notify the 1838
Stockholders of any defenses asserted by MBIA to the 1838 Stockholders'
claim for Damages. If the notice to MBIA so states, failure by MBIA to
respond within such thirty (30) day period shall be deemed an admission of
liability of MBIA with respect to the Damages and it shall thereafter be
barred from raising any defense or denial of liability relating thereto.
(c) The 1838 Stockholders shall not be entitled to bring any new claim
for Damages arising from a breach of a representation or warranty, whether
under this Article IX or otherwise, after the survival period with respect
to the representation and warranty giving rise to the claim for Damages
shall have expired as set forth in Section 10.01 hereof.
(d) The maximum liability of MBIA to each 1838 Stockholder under this
Section 9.05 shall be limited to an amount determined as the number of
shares of M131A Common Stock received by such 1838 Stockholder in the
Merger' multiplied by thirty seven dollars ($37.00).
Section 9.06. Exclusive Remedies. The indemnification rights set forth in
this Article IX shall be the sole and exclusive remedy for the matters set forth
in Sections 9.01 and 9.05 hereof, provided, however, that nothing in this
Article IX shall limit the remedies available to the Indemnified Parties or the
1838 Stockholders with respect to (i) claims of alleged fraud or deceit with
respect to the Merger, (ii) actions seeking specific performance of this
Agreement or any provision hereof, (iii) remedies available to the Indemnified
Parties or the 1838 Stockholders to enforce their right to indemnification and
(iv) remedies available to the 1838 Stockholders under any applicable Securities
Laws.
ARTICLE X
MISCELLANEOUS
Section 10.01. Survival of Representations, Warranties and Covenants. The
representations and warranties of 1838, the 1838 Stockholders, MBIA and
Acquisition contained in or made pursuant to this Agreement will survive the
Closing Date for a period of the lesser of (i) twelve (12) months or (ii) the
date of issuance of the first audited financial statements of MBIA following the
Merger regardless of any investigation made by or on behalf of the parties
hereto or the results of any such investigation, and the participation of either
party in such investigation will not constitute a waiver of any representation
or warranty of any other party. MBIA and 1838 shall each deliver to the other
party, on the Closing Date, a certificate stating
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that, as of the Closing Date, such party has no knowledge of any breach of the
other party's representations and warranties herein or, if such party has
knowledge of a breach, specifying any such breaches to which the party has
knowledge. The respective covenants and agreements of the 1838 Stockholders and
MBIA set forth in this Agreement (including, without limitation, Section 2.12
and all provisions of Article IX) shall survive the consummation of the
transactions contemplated by this Agreement.
Section 10.02. Entire Agreement; Amendment. This Agreement and the
documents referred to in this Agreement and required to be delivered pursuant to
this Agreement constitute the entire agreement among the parties pertaining to
the subject matter of this Agreement, and supersede all prior and
contemporaneous agreements, understandings, negotiations and discussions of the
parties, whether oral or written, and there are no warranties, representations
or other agreements between the parties in connection with the subject matter of
this Agreement, except as specifically set forth in this Agreement. No
amendment, supplement, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision of this Agreement, whether or not
similar, nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided. At any time prior to the Effective Time of Merger, the
Boards of Directors of the constituent corporations to the Merger may amend this
Agreement, provided that any amendment made subsequent to the adoption of this
Agreement by the 1838 Stockholders shall not (1) alter or change the amount or
kind of shares, securities, cash, property and/or rights to be received in
exchange for or on conversion of all or any of the shares of 1838 Common Stock,
(2) alter or change any term of the certificate of incorporation of the
Surviving Corporation to be effected by the Merger, or (3) alter or change any
of the terms and conditions of this Agreement if such alteration or change would
adversely affect the holders of any class of such constituent corporation.
Section 10.03. Expenses. MBIA, Acquisition, 1838 and the 1838 Stockholders
shall each pay their respective expenses incurred in connection with the
negotiation and preparation of this Agreement and the consummation of the
transactions contemplated hereby, including, without limitation, their
respective legal fees, expenses, commissions and filing fees regardless of
whether such transactions are consummated. MBIA shall pay all fees associated
with the Hart-Scott-Rodino filing and up to ten thousand dollars ($10,000) of
1838's accounting fees incurred in connection with the Merger.
Section 10.04. Governing Law. This Agreement shall be construed and
interpreted according to the Laws of the State of Delaware except that the
provisions of Section 2.12 hereof shall be governed by the laws of the
Commonwealth of Pennsylvania.
Section 10.05. Assignment. Neither MBIA nor 1838 may assign any of their
rights, liabilities or obligations under this Agreement without the prior
written consent of the other parties hereto, except that MBIA may assign its
rights to any entity or person affiliated with it.
Section 10.06. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when personally
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delivered or deposited in the United States Mail, mailed first class, certified
and return receipt requested, addressed as follows:
If to MBIA or Acquisition: MBIA Inc.
113 King Street
Armonk, NY 10504
Attention: Peggy D. Garfunkel
with a copy to: MBIA Inc.
113 King Street
Armonk, NY 10504
Attention: General Counsel
If to 1838, 1838 Stockholders 1838 Investment Advisors, Inc.
or the Indemnifying Parties: Radnor Corporate Center, Suite 320
Radnor, PA 19087
Attention: W. Thacher Brown
with a copy to: Drinker, Biddle & Reath
Suite 300
1000 Westlakes Drive
Berwyn, PA 19312
Attention: Thomas E. Wood, Esq.
Section 10.07. Counterparts, Headings. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, but such
counterparts shall together constitute but one and the same Agreement. The table
of contents and article and section headings in this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
Section 10.08. Interpretation. Unless the context requires otherwise, all
words used in this Agreement in the singular number shall extend to and include
the plural, all words in the plural number shall extend to and include the
singular, and all words in any gender shall extend to and include all genders.
The language used in this Agreement shall be deemed to be language chosen by the
parties to this Agreement to express their mutual intent. In the event an
ambiguity or question of intent or interpretation arises concerning the language
of this Agreement, this Agreement shall be construed as if drafted jointly by
the parties to this Agreement and no presumption or burden of proof will arise
favoring or disfavoring any party to this Agreement by virtue of the authorship
of any of the provisions of this Agreement.
Section 10.09. Severability. If any provision, clause or part of this
Agreement, or the application thereof under certain circumstances, is held
invalid, the remainder of this Agreement, or the application of such provision,
clause or part under other circumstances, shall not be affected thereby unless
such invalidity materially impairs the ability of the parties to consummate the
transactions contemplated by this Agreement.
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Section 10.10. Further Assurances. If, at any time after the Closing Date,
any farther action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, properties, rights, privileges, powers and franchises
of either Acquisition or 1838, the officers of the Surviving Corporation are
fully authorized to take any such action in the name of Acquisition or 1838.
Section 10.11. Waivers. No failure or delay on the part of any party in
exercising any right, power or remedy hereunder will operate as a waiver
thereof, nor will any single or partial exercise of any right, power or remedy
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy hereunder.
Section 10.12. Successors In Interest. This Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective legal
representatives, heirs, successors and permitted assigns.
Section 10.13. ACKNOWLEDGEMENT BY 1838 STOCKHOLDERS. BY THEIR EXECUTION OF
THE SELLING STOCKHOLDER LETTER, EACH OF THE 1838 STOCKHOLDERS (1) APPROVES THE
TERMS OF THE MERGER AS SET OUT HEREIN, (11) ACKNOWLEDGES AND AGREES TO THE
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE 1838 STOCKHOLDERS SET OUT
HEREIN AND (III) AGREES TO BE BOUND BY THE NONSOLICITATION PROVISIONS IN SECTION
2.10 (IF APPLICABLE) AND THE INDEMNIFICATION PROVISIONS OF ARTICLE IX HEREOF.
THE 1838 STOCKHOLDERS FURTHER ACKNOWLEDGE THAT THIS AGREEMENT IS A LEGALLY
BINDING DOCUMENT AND THAT THEY HAVE CONSULTED WITH LEGAL COUNSEL REGARDING THIS
AGREEMENT TO THE EXTENT THEY DEEM APPROPRIATE.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of
Reorganization to be duly executed as of the day and year first above written.
MBIA INC.
Attest:
By: /s/[ILLEGIBLE]
By: /s/ Louis G. Lenzi ----------------------------
---------------------------
Secretary
MBIA ACQUISITION, INC.
Attest:
By: /s/ Margaret D. Garfunkel
By: /s/ Louis G. Lenzi ----------------------------
--------------------------- Title: Vice President
Secretary --------------------------
1838 INVESTMENT ADVISORS, INC.
Attest:
By:
By: /s/ [ILLEGIBLE] -----------------------------
----------------------------- Title: /s/ [ILLEGIBLE]
--------------------------
Certificate of the Secretary
of
MBIA Acquisition, Inc.
I, the undersigned, as Secretary of MBIA Acquisition Inc. ("Acquisition"),
hereby certify that the Agreement and Plan of Merger dated as of June 18, 1998
(the "Agreement") between MBIA Inc., 1838 Investment Advisors, Inc. and
Acquisition has been adopted by Acquisition, pursuant to Section 251(f) of the
Delaware General Corporation Law. I certify further that no shares of
Acquisition were outstanding prior to the adoption of the resolution, dated as
of June 19, 1998, approving the Agreement by the Board of Directors of
Acquisition.
DATED as of this, 19th day of June, 1998.
/s/ Louis G. Lenzi
--------------------------------
Louis G. Lenzi, Secretary
<PAGE>
The 1838 Stockholders hereby acknowledge their nonsolicitation (if
applicable) and indemnification obligations under Section 2.12 and Article 9,
respectively of this Agreement, and agree to be bound by the terms thereof.
/s/ W. Thacher Brown
--------------------------
W. Thacher Brown
/s/ John Springrose
--------------------------
John Springrose
/s/ George W. Gephart, JR
--------------------------
George W. Gephart, JR
/s/ Cynthia R. Axelrod
--------------------------
Axelrod, Cynthia R.
/s/ Anna M. Bencrowsky
--------------------------
Bencrowsky, Anna M.
/s/ Michael F. Biemer
--------------------------
Biemer, Michael F.
/s/ J. Barron Clancy
--------------------------
Clancy, J. Barron
/s/ Thomas A. Considine
--------------------------
Considine, Thomas A.
/s/ Frederic N. Dittman
--------------------------
Dittmann, Frederic N.
/s/ John H. Donaldson
--------------------------
Donaldson, John H.
/s/ Joseph T. Doyle, Jr.
--------------------------
<PAGE>
Doyle, Jr. Joseph T.
/s/ Kenneth A. Egan
--------------------------
Egan, Kenneth A.
/s/ Robert W. Herz
--------------------------
Herz, Robert W.
/s/ Stephen D. Kepes
--------------------------
Kepes, Stephen D.
/s/ Amy B. Lieb
--------------------------
Lieb, Amy B.
/s/ John J. McElroy
--------------------------
McElroy, John J.
/s/ Rhonda McNavish
--------------------------
McNavish, Rhonda
/s/ James E. Moore, III
--------------------------
Moore, III, James E.
/s/ Patricia J. Myers
--------------------------
Myers, Patricia J.
/s/ Edward Powell
--------------------------
Powell, Edward
/s/ Nancy W. Tetley
--------------------------
Tetley, Nancy W.
/s/ Hnas Van Den Berg
--------------------------
Van Den Berg, Hans
2
<PAGE>
/s/ Denise E. White
--------------------------
White, Denise E.
/s/ Marcia Zercoe
--------------------------
Zercoe, Marcia
3
<PAGE>
EXHIBITS AND SCHEDULES
Disclosure Schedule
Exhibit A 1838 Shareholder List (Current and Former)
Exhibit A-1 Nonsoliciting Shareholder List
Exhibit 13 Plan of Merger
Exhibit C Furniture, Fixtures and Equipment
Exhibit D Customer Contracts
Exhibit E Selling Stockholder Letter
<PAGE>
PRELIMINARY DISCLOSURE SCHEDULE
6/19/98
This Disclosure Statement is made and given pursuant to the Agreement and Plan
of Merger dated June 19, 1998 by and among MBIA Inc.. MBIA Acquisition, Inc. and
1838 Investment Advisors. Inc. (the "Agreement"). The section numbers in this
Disclosure Schedule correspond to the section numbers in the Agreement; however,
any information disclosed herein under any section number shall be deemed to be
disclosed and incorporated into any other schedule number under the Agreement
where such disclosure would be appropriate. Any term defined in the Agreement
shall have the same meaning when used in this Disclosure Schedule as when used
in the Agreement unless the context otherwise requires.
4.02 1838 Inc, had to accelerate our payments to Jim Balog in order to do deal
with MBIA.
4.05 1938 LP owns shares in the 1838 International Fund.
4.06 Stockholders' Agreement
4.07 Edward Shute, a former employee of 1838 who was terminated in 1993 has
periodically threatened legal action for wrongful termination and
inadequate reimbursement for his stock.
4.08 1997 Financial Statements were provided to MBIA. As indicated in Sec.
4.1.0 the MPCM loan and stockholder (partner) distribution obligations
total $15,758,442.
4.09 See Schedule 4.09 1838 leased additional space contagious to its current
office space on June 1, 1998. As part of the lease, 1839 has a building
allowance of $5 per square foot. There is no provision on the balance
sheet for build out expenses or furniture.
4.10 See Schedule 4.10. 1838 LP is restricted from solicitation activities in
the Netherlands. 1838 LP has a verbal agreement with Ken Egan, a retired
employee, to pay finders fees on certain accounts so long as they remain
with 1838 LP.
4.11 1838 LP may be in default with respect to the One Meridian Bank lease.
Total liability was less than $75,000 in 1991 dollars.
4.13 See Schedule 4.13
4.14 See Schedule 4.14
4.16 (iii) List of Tax Returns -
1838 LP:
Federal - 1065 US Partnership Return of Income
State - PA-65 Commonwealth of PA Partnership Information Return
Local - Radnor Business Privilege Tax (Gross Receipts)
1838 Inc,
Federal 1120S - US Income Tax S-Corp
State - RCT-101 PA Corp Tax Report (Capital Stock Tax)
State - Delaware Annual Franchise Tax Report
(v) The 12/31/97 basis of 1838 LP's assets are: Invested = IV $563,123,
Investment in International Fund $121,142. The 12/31/97 basis of 1838
Inc. is investment in 1838 LP of $4,731,354.
<PAGE>
4-17 Edward Shute has asserted various claims against 1838 Inc. (see 4.07) One
current and one former employee have complained of verbal harrassment
from their supervisor. The matter was resolved and the current employee
cliams the situation has not recurred.
4.19 The minutes book may not be complete, particularly prior to the 1991
office fire
4.22 See schedule 4,22. American College of Cardiology will be reducing assets
by approximately 35%.
4.23 Several family members of 1838 employees are investment advisory clients
of 1839 LP.
4.25 1838 has hired three summer employees. In addition, 1938 is searching to
fill two vacant clerical positions and one equity analyst position.
4.27 See Schedule 4.27
4.32 1838 acts as advisor to the following funds: 1838 Investment Advisors
Fund 1838 Bond Debenture Trading Fund 1838 acts as sub-advisor to the
following funds: Market Street Fund SEI Small Cap Value Fund
4.32 (b) Rodney Square, administrator to the 1838 Funds failed to timely
comply with blue sky regulations in various states.
4.35 With regard to year 2000 compliance, 1838 Investment Advisors in-house
systems are recently developed and have taken year 2000 into
consideration. Conversion to Access 8 from Access 2 brings these
applications into compliance. Over the past two years our equipment and
infrastructure (including telecommunications and voice mail) have been
either upgraded or newly purchased addressing year 2000 issues in the
process. The Novell server 3.1.2 will be certified Y2K compliant by
Novell, with patches. However, we are moving to an NT environment prior
to Y2K, which Microsoft states is "compliant or compliant with minor
issues." The latest release of GIM2 (5.3.0.14), the firm's portfolio
accounting system, brings the application to full compliance. We are in
the process of installing and testing the application. We anticipate this
will be completed by July 15. We are in contact and working with our data
providers and institutional interfaces (DTC), to ensure compliance with
these systems. 1838 LP has not assessed operating and technology systems
used by vendors to or clients of 1838, i.e. brokers, custodians. DTC,
etc. We are contracting with JVC Consulting for a Y2K audit to be
completed by the end of July. The purpose of the audit will be to certify
our findings or identify any exposure we may have missed.
4.37 Edward Shute is the only shareholder who has threatened claims against
1838. Shareholder sales since 1993 are detailed on exhibit 4.37. Other
former stockholders include Edward Shute, Robert Vitale and Joan
Echevarria.
7.15 1938 LP remains party to a continuing investment management agreement
with Fortis, Inc., successor to MPCM.
<PAGE>
Depreciation for 1838 on MeesPierson Assets for 1998
<TABLE>
<CAPTION>
Date of
Original Cost Life Service January February March April May
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MeesPierson Computer Equipment
Printer 1,299.00 5 11/93 21.65 21.65 21.65 21.65 21.65
Model & 486 DX2 2,087.85 5 7/94 34.80 34.80 34.80 34.80 34.80
Total 3,385.85 56.45 56.45 56.45 56.45 56.45
MeesPierson Software
General Ledger Software 18,698.30 5 7/93 311.64 311.64 311.64 311.64 311.64
Software 608.54 3 5/94
Custom Report Software 600.00 3 3/94
Software Upgrade 742.70 3 9/94
Network Upgrade 1,908.00 5 1/95 31.80 31.80 31.80 31.80 31.80
Total 22,557.54 343.44 343.44 343.44 343.44 343.44
MeesPierson Office Furn & Equip
Chair 1,203.10 7 1/91 14.32
Bookcase 543.00 7 2/91 6.46 6.46
Side Chair 782.00 7 2/91 9.31 9.31
Chairs 450.25 7 5/91 5.36 5.36 5.36 5.36 5.36
English & 473.36 7 2/92 5.64 5.64 5.64 5.64 5.64
Desk 66 x 1,447.71 7 4/92 17.23 17.23 17.23 17.23 17.23
Modular T 348.76 7 4/92 4.15 4.15 4.15 4.15 4.15
Wing Chair 1,519.41 7 4/92 18.09 18.09 18.09 18.09 18.09
Arm Chair 1,348.22 7 4/92 16.05 16.05 16.05 16.05 16.05
Bookcase 524.30 7 4/92 6.24 6.24 6.24 6.24 6.24
Copier 10,265.50 5 5/92
Fax Machine 2,200.00 5 5/92
Fax Machine 535.00 5 7/92
Credenza & other att - 2 7,195.75 7 9/93 85.66 85.66 85.66 85.66 85.66
Credenza & other att - 2 4,626.50 7 11/93 55.08 55.08 55.08 55.08 55.08
Custom 3 1,678.57 1 1/95
Total 35,141.43 243.59 229.27 213.50 213.50 213.50
<CAPTION>
June July August September October November December
<S> <C> <C> <C> <C> <C> <C> <C>
Printer 21.65 21.65 21.65 21.65 21.65
Model & 486 DX2 34.80 34.80 34.80 34.80 34.80 34.80 34.80
Total 56.45 56.45 56.45 56.45 56.45 34.80 34.80
MeesPierson Software
General Ledger Software 311.64
Software
Custom Report Software
Software Upgrade
Network Upgrade 31.80 31.80 31.80 31.80 31.80 31.80 31.80
Total 343.44 31.80 31.80 31.80 31.80 31.80 31.80
MeesPierson Office Furn & Equip
Chair
Bookcase
Side Chair
Chairs
English & 5.64 5.64 5.64 5.64 5.64 5.64 5.64
Desk 66 x 17.23 17.23 17.23 17.23 17.23 17.23 17.23
Modular T 4.15 4.15 4.15 4.15 4.15 4.15 4.15
Wing Chair 18.09 18.09 18.09 18.09 18.09 18.09 18.09
Arm Chair 16.05 16.05 16.05 16.05 16.05 16.05 16.05
Bookcase 6.24 6.24 6.24 6.24 6.24 6.24 6.24
Copier
Fax Machine
Fax Machine
Credenza & other att - 2 85.66 85.66 85.66 85.66 85.66 85.66 85.66
Credenza & other att - 2 55.08 55.08 55.08 55.08 55.08 55.08 55.08
Custom 3
Total 208.14 208.14 208.14 208.14 208.14 208.14 208.14
</TABLE>
SMH/Deprec98/MPCM/6/11/98
<PAGE>
New Computer Software-1998
105-5101 Deprec. Exp of
100-1517 Accum Deprec. On New Computer Software
<TABLE>
<CAPTION>
Date of
Original Cost Life Service January February March April May
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New Computer Software
Integrated Decision Systems 139,542.00 5 08/94 2,325.70 2,325.70 2,325.70 2,325.70 2,325.70
Reflects 25% Discount
$20,130 is for Informix
JVC-Software to connt Unix S 738.03 5 06/94 12.30 12.30 12.30 12.30 12.30
IDS Star 5.02 (Software) 1,960.00 3 07/94
IDS NET (DOS) 4.10DDB (S 1,995.00 3 07/94
JVC-Palindrome UG 2.06 757.00 3 12/94
Novell GRP Win Upgrade 2,890.99 3 03/95 60.31 60.31
Mobius Group M-Search Up 4,750.00 3 6/95 131.94 131.94 131.94 131.94 131.94
Zonics System Management 1,531.70 3 6/95 42.55 42.55 42.55 42.55 42.55
Zonics System Management 7,072.85 3 7/95 196.47 196.47 196.47 196.47 196.47
Zonics System Management 8,379.30 3 7/95 232.76 232.76 232.76 232.76 232.76
Zonics System Management 6,667.40 3 7/95 185.21 185.21 185.21 185.21 185.21
Zonics System Management 8,379.30 3 7/95 232.76 232.76 232.76 232.76 232.76
Great Plains Version 8 Upgr 1,515.27 3 6/95 46.60 46.60 46.60 46.60 46.60
IDS Globalized Data Conver 1,875.00 3 8/95 52.08 52.08 52.08 52.08 52.08
IDS Rating Analysis and Mar 2,812.50 3 8/95 78.13 78.13 78.13 78.13 78.13
Zonics System Management 5,360.95 3 9/95 148.92 148.92 148.92 148.92 148.92
IDS Asset Alloc. Block Spec 837.50 3 9/95 26.04 26.04 26.04 26.04 26.04
Decision Systems Compsoft 22,500.00 3 7/95 625.00 625.00 625.00 625.00 625.00
IDS Custom Trans. Ledger 2,250.00 3 10/95 62.50 62.50 62.50 62.50 62.50
IDS Portfolio Changes Repor 3,187.50 3 10/95 88.54 88.54 88.54 88.54 88.54
IDS DTC, Autotasking, Swe 662.50 3 10/95 23.96 23.96 23.96 23.96 23.96
IDS Globalize Data Conversi 625.00 3 10/95 17.36 17.36 17.36 17.36 17.36
Informix Runtime Intel Windo 3,556.94 3 11/95 98.80 98.80 98.80 98.80 98.80
JVC Tech Microsoft Win for 495.99 3 6/96 13.76 13.76 13.76 13.76 13.76
IDS Users 33-64 Upgrade 24,059.30 3 6/96 668.31 668.31 668.31 668.31 668.31
Integrated Decision Systems 19,000.00 3 6/97 528.00 528.00 528.00 528.00 528.00
Financial Models-Auto Reco 25,000.00 3 8/97 694.00 694.00 694.00 694.00 694.00
JVC Tech Novell Netware V 2,281.12 3 12/97 63.36 63.36 63.36 63.36 63.36
Capital Mgmt-CMS BondEdg 2,509.00 3 12/97 69.70 69.70 69.70 69.70 69.70
Informix 27,044.76 3 1/98 751.36 751.36 751.36 751.24
SQL 4.20.UC1 License Sun Microsystems SN #AAC#J269824
Online 5.10.UC1 Development/User Lic SN #AAC#R269825
Star TCP/IP 5.10.UC1 Dev/User Lic SN #AAC#N269826
Monthly Total 330,536.30 4,419.36 5,170.72 5,090.29 5,090.29 5,090.29
<CAPTION>
June July August September October November December
<S> <C> <C> <C> <C> <C> <C> <C>
Integrated Decision Systems 2,325.70 2,325.70 2,325.70 2,325.70 2,325.70 2,325.70 2,325.70
Reflects 25% Discount
$20,130 is for Informix
JVC-Software to connt Unix S 12.30 12.30 12.30 12.30 12.30 12.30 12.30
IDS Star 5.02 (Software)
IDS NET (DOS) 4.10DDB (S
JVC-Palindrome UG 2.06
Novell GRP Win Upgrade
Mobius Group M-Search Up
Zonics System Management
Zonics System Management 196.47
Zonics System Management 232.76
Zonics System Management 185.21
Zonics System Management 232.76
Great Plains Version 8 Upgr
IDS Globalized Data Conver 52.08 52.08
IDS Rating Analysis and Mar 78.13 78.13
Zonics System Management 148.92 148.92 148.92
IDS Asset Alloc. Block Spec 26.04 26.04 26.04
Decision Systems Compsoft 625.00
IDS Custom Trans. Ledger 62.50 62.50 62.50 62.50
IDS Portfolio Changes Repor 88.54 88.54 88.54 88.54
IDS DTC, Autotasking, Swe 23.96 23.96 23.96 23.96
IDS Globalize Data Conversi 17.36 17.36 17.36 17.36
Informix Runtime Intel Windo 98.80 98.80 98.80 98.80 98.80
JVC Tech Microsoft Win for 13.76 13.76 13.76 13.76 13.76 13.76 13.76
IDS Users 33-64 Upgrade 668.31 668.31 668.31 668.31 668.31 668.31 668.31
Integrated Decision Systems 528.00 528.00 528.00 528.00 528.00 528.00 528.00
Financial Models-Auto Reco 694.00 694.00 694.00 694.00 694.00 694.00 694.00
JVC Tech Novell Netware V 63.36 63.36 63.36 63.36 63.36 63.36 63.36
Capital Mgmt-CMS BondEdg 69.70 69.70 69.70 69.70 69.70 69.70 69.70
Informix 751.24 751.24 751.24 751.24 751.24 751.24 751.24
SQL 4.20.UC1 License Sun Microsystems SN #AAC#J269824
Online 5.10.UC1 Development/User Lic SN #AAC#R269825
Star TCP/PIP 5.10.UC1 Dev/User Lic SN #AAC#269826
Monthly Total 4,869.20 3,397.00 3,266.79 3,091.83 2,699.47 2,800.67 2,800.67
</TABLE>
SMH/Deprec98/Software/6/11/98
<PAGE>
Furniture/Fixtures Small Cap - 1998
400-1515 Accum. Dep. F/F Small Cap
400-5100 Deprec. Exp F/F Small Cap
<TABLE>
<CAPTION>
Date of
Original Cost Life Service January February March April May
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Furniture/Fixture
JRC Furniture 874.15 5 11/94 14.57 14.57 14.57 14.57 14.57
Computer Equip
Vircom HP Lase 1,797.99 3 2/98 49.74 49.95 49.95
SMH/Deprec98/Small cap/6/11/98
<CAPTION>
June July August September October November December
<S> <C> <C> <C> <C> <C> <C> <C>
Furniture/Fixture
JRC Furniture 14.57 14.57 14.57 14.57 14.57 14.57 14.57
Computer Equip
Vircom HP Lase 49.95 49.95 49.95 49.95 49.95 49.95 49.95
</TABLE>
SMH/Deprec98/Small cap/6/11/98
<PAGE>
Furniture/Fixtures Marketing - 1998
1515-300 Accum. Dep. F/F Marketing
5100-300 Deprec. Exp F/F Marketing
<TABLE>
<CAPTION>
Date of
Original Cost Life Service January February March April May
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Furniture/Fixture
J. Rothbard Conf Table & Base 749.98 5 7/96 50.00 12.50
J. Rothbard Pedestal File JHS 640.88 5 10/96 42.72 10.68
Total 1,390.74 62.72 23.18
Computer Equipment Depreciation-Marketing 1998
300-1515 Accum. Dep. Computers
300-5101 Depreciation Exp. Computers
Gateway 2000 3,427.49 5 11/96 57.12 57.12 57.12 57.12 57.12
Gateway Solo 9100 S5 Portable 5,132.00 3 10/97 144.50 142.50 142.50 142.50 142.50
Gateway -1 GP6 300 System 3,638.00 3 10/97 103.00 101.00 101.00 101.00 101.00
Gateway - GP6 300 System 3,257.00 3 1/98 90.55 90.47 90.47 90.47
Total 15,454.49 304.62 391.17 391.09 391.09 391.09
<CAPTION>
June July August September October November December
<S> <C> <C> <C> <C> <C> <C> <C>
Furniture/Fixture
J. Rothbard Conf Table & Base 12.50 12.50 12.50 12.50 12.50 12.50 12.50
J. Rothbard Pedestal File JHS 10.68 10.68 10.68 10.68 10.68 10.68 10.68
Total 23.18 23.18 23.18 23.18 23.18 23.18 23.18
Computer Equipment Depreciation-Marketing 1998
300-1515 Accum. Dep. Computers
300-5101 Depreciation Exp. Computers
Gateway 2000 57.12 57.12 57.12 57.12 57.12 57.12 57.12
Gateway Solo 9100 S5 Portable 142.50 142.50 142.50 142.50 142.50 142.50 142.50
Gateway -1 GP6 300 System 101.00 101.00 101.00 101.00 101.00 101.00 101.00
Gateway - GP6 300 System 90.47 90.47 90.47 90.47 90.47 90.47 90.47
Total 391.09 391.09 391.09 391.09 391.09 391.09 391.09
</TABLE>
SMH/Deprec98/Mktg/6/11/98
<PAGE>
Leasehold Improvements Depreciation 1998
100-1525 Accumulated Amort. Leasehold
100-5102 Amort. Exp. Leasehold
<TABLE>
<CAPTION>
Date of
Original Cost Life Service January February March April May
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leasehold Improvements
Wiring - JVC 17,606.64 120.00 12/91 146.72 146.72 146.72 146.72 146.72
Build Out for MeesPierson 3,660.00 84.00 12/94 43.57 43.57 43.57 43.57 43.57
G. Erickson & Sons Construction-Deposit 12,437.00 66.00 6/96 193.23 193.23 193.23 193.23 193.23
G. Erickson & Sons Construction-Final Payment 18,342.61 66.00 6/96 300.51 300.51 300.51 300.51 300.51
Monthly Total 52,046.25 684.03 684.03 684.03 684.03 684.03
<CAPTION>
June July August September October November December
<S> <C> <C> <C> <C> <C> <C> <C>
Leasehold Improvements
Wiring - JVC 146.72 146.72 146.72 146.72 146.72 146.72 146.72
Build Out for MeesPierson 43.57 43.57 43.57 43.57 43.57 43.57 43.57
G. Erickson & Sons Construction-Deposit 193.23 193.23 193.23 193.23 193.23 193.23 193.23
G. Erickson & Sons Construction-Final Payment 300.51 300.51 300.51 300.51 300.51 300.51 300.51
Monthly Total 684.03 684.03 684.03 684.03 684.03 684.03 684.03
</TABLE>
SMH/Deprec98/Leasehold/6/11/98
<PAGE>
IS Computer Equipment Depreciation - 1998
100-5101 Depreciation Exp. Computers
100-1516 Accum. Deprec. Computers IS
<TABLE>
<CAPTION>
Date of
Original Cost Life Service January February March April May
<S> <C> <C> <C> <C> <C> <C> <C> <C>
IS Computer Equipment
Micro Computer Industries 42,634.00 5 06/94 710.57 710.57 710.57 710.57 710.57
Micro Computer Industries (TAX) 2,558.04 5 07/94 42.63 42.63 42.63 42.63 42.63
JVC- Exabyte ext 4200C 2-4GB 1,253.00 3 12/94
JVC- 3COM Etherlink-Card Server 1,854.27 3 12/94
Cartel System CPU Fan, Motherboard 10,176.00 5 1/95 169.60 169.60 169.60 169.60 169.60
Cartel System Motherboard Qty 5 10,176.00 5 2/95 169.60 169.60 169.60 169.60 169.60
JVC Kalpana EPS Ether SW Sport 2,336.24 5 7/95 38.93 38.93 38.93 38.93 38.93
Cartel Sys. 486 DX2-66 Comp. 10,176.00 5 3/95 169.60 169.60 169.60 169.60 169.60
Intersolv Conversion DB Tool Kit 5,678.26 5 6/95 94.64 94.64 94.64 94.64 94.64
Cartel System 4,070.40 5 10/95 67.64 67.64 67.64 67.64 67.64
Dell Direct CUS-HD Qty 1 821.50 5 10/95 13.69 13.69 13.69 13.69 13.69
Surestore 2000E 2GB Tape Dr.SN#P 1,114.70 3 2/97 30.96 30.96 30.96 30.96 30.96
MovinColl Portable AC Unit 2,326.70 3 11/97 63.95 63.95 63.95 63.95 63.95
Peripheral Ultra 2 Model 300 Series 22,967.38 5 1/98 382.18 382.18 382.18 382.18
Peripheral Tape Drive, Monitor 4,784.84 5 1/98 79.59 79.75 79.75 79.75
Cleo 3780 Plus Interface w/Sync Cabl 2,114.70 3 2/98 58.75 58.75 58.75
Ethernet Switch 3,402.50 3 3/98 95.00 94.50
Sun 9gb Disk Drive 2,141.13 3 4/98 59.33
Cisco 2516 Router 2,149.50 3 4/98 59.65
4 Baystack 350T StandAlone/Rackm 6,955.45 3 4/98 248.76
Monthly Total 141,690.61 1,572.01 2,033.78 2,093.01 2,188.31 2,555.85
<CAPTION>
June July August September October November December
<S> <C> <C> <C> <C> <C> <C> <C>
IS Computer Equipment
Micro Computer Industries 710.57 710.57 710.57 710.57 710.57 710.57 710.57
Micro Computer Industries (TAX) 42.63 42.63 42.63 42.63 42.63 42.63 42.63
JVC- Exabyte ext 4200C 2-4GB
JVC- 3COM Etherlink-Card Server
Cartel System CPU Fan, Motherboard 169.60 169.60 169.60 169.60 169.60 169.60 169.60
Cartel System Motherboard Qty 5 169.60 169.60 169.60 169.60 169.60 169.60 169.60
JVC Kalpana EPS Ether SW Sport 38.93 38.93 38.93 38.93 38.93 38.93 38.93
Cartel Sys. 486 DX2-66 Comp. 169.60 169.60 169.60 169.60 169.60 169.60 169.60
Intersolv Conversion DB Tool Kit 94.64 94.64 94.64 94.64 94.64 94.64 94.64
Cartel System 67.64 67.64 67.64 67.64 67.64 67.64 67.64
Dell Direct CUS-HD Qty 1 13.69 13.69 13.69 13.69 13.69 13.69 13.69
Surestore 2000E 2GB Tape Dr.SN#P 30.96 30.96 30.96 30.96 30.96 30.96 30.96
MovinColl Portable AC Unit 63.95 63.95 63.95 63.95 63.95 63.95 63.95
Peripheral Ultra 2 Model 300 Series 382.18 382.18 382.18 382.18 382.18 382.18 382.18
Peripheral Tape Drive, Monitor 79.75 79.75 79.75 79.75 79.75 79.75 79.75
Cleo 3780 Plus Interface w/Sync Cabl 58.75 58.75 58.75 58.75 58.75 58.75 58.75
Ethernet Switch 94.50 94.50 94.50 94.50 94.50 94.50 94.50
Sun 9gb Disk Drive 59.48 59.48 59.48 59.48 59.48 59.48 59.48
Cisco 2516 Router 59.71 59.71 59.71 59.71 59.71 59.71 59.71
4 Baystack 350T StandAlone/Rackm 248.85 248.85 248.85 248.85 248.85 248.85 248.85
Monthly Total 2,555.85 2,555.85 2,555.85 2,555.85 2,555.85 2,555.85 2,555.85
</TABLE>
SMH/Deprec98/IS/6/11/98
<PAGE>
Computer Equipment Depreciation - 1998
5101-100 Depreciation Exp. Computers
1515-100 Accumulated Dep. Computers
<TABLE>
<CAPTION>
Date of
Original Cost Life Service January February March April May
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Computer Equipment
Time Stamp Machine - ATR Systems 450.50 5 09/91
Cabinet, Lotus - JVC 7,164.51 5 12/91
Intel Netport - JVC 1,023.96 5 01/92
Intel Netport - JVC 624.27 5 02/92
Companion Switches, boxes for 1,752.00 5 03/92
comp. Monitor - JVC 5
Ethernet Interface, Hardware for 583.50 5 4/92
printer - JVC
MicroAge of Exton 560.31 5 06/92
Harvard Graphics Upgrade
JVC Physical Installation 1,120.00 5 03/93 16.67 16.67 16.67
JVC New Server & Equipment 5,892.06 5 09/93 98.21 98.21 98.21 98.21 98.21
Haverford Sys - NEC 27" VGA Scan Montr 3,164.10 5 01/94 52.74 52.74 52.74 52.74 52.74
Tektronic Phaser Color Printer - JVC 10,600.00 5 05/94 176.67 176.67 176.67 176.67 176.67
JVC-Concenter Board 1,814.67 5 06/94 30.24 30.24 30.24 30.24 30.24
UCI-486DX's w/monitor @2/1900 4,028.00 5 06/94 67.13 67.13 67.13 67.13 67.13
UCI-486DX w/monitor @1/1934.50 1,934.50 5 06/94 32.24 32.24 32.24 32.24 32.24
UCI-486DX w/420 meg. @2/1450 +tax 3,074.00 3 10/94
JVC- HP Laserjet 4MP @ 2139 +tax 2,311.75 3 10/94
CompUSA-Laptop comptr (3yr parts) 3,497.95 3 10/94
UCI-486DX w/monitor @1/1700 +tax 1,602.00 3 10/94
Cartel System -Pentium Qty 3 8,199.10 5 6/95 136.65 136.65 136.65 136.65 136.65
MicroCenter Laser Jet Printer 3,782.08 5 7/95 63.03 63.03 63.03 63.03 63.03
JVC Cybex PC Companion-VGA 1,583.51 5 6/95 26.39 26.39 26.39 26.39 26.39
Mice, Connectors, Modems, Serial Boards 744.68 5 7/95 12.41 12.41 12.41 12.41 12.41
JVC Networth 24 Port and 4 Patch Cable 1,791.40 5 7/95 29.86 29.86 29.86 29.86 29.86
Arch Assoc. HP Laserjet 4SI 3,683.50 5 8/95 61.39 61.39 61.39 61.39 61.39
JVC HP Vectra VLS 2,660.60 5 11/95 44.34 44.34 44.34 44.34 44.34
JVC HP Vectra VL 2,416.80 5 12/95 40.28 40.28 40.28 40.28 40.28
JVC HP Vectra VL3, Pentium 60 5,676.63 5 12/95 94.61 94.61 94.61 94.61 94.61
JVC HP Vectra VL3, Pentium 90 3,340.96 5 12/95 55.68 55.68 55.68 55.68 55.68
Dell Direct Sales L.P. Hard Drive 781.96 5 1/96 4.70 4.70 4.70 4.70 4.70
JVC HP Vectra VL4 P120 16 Megs 3,332.34 5 396 55.54 55.54 55.54 55.54 55.54
JVC HP P/133, 16 Megs Qty 2 6,797.14 5 3/96 113.29 113.29 113.29 113.29 113.29
JVC HP Laserjet Printer 2,648.64 5 4/96 47.48 47.48 47.48 47.48 47.48
MicroCenter US Fax Modem 639.84 5 4/96 10.66 10.66 10.66 10.66 10.66
MicroCenter 5,063.52 5 4/96 84.39 84.39 84.39 84.39 84.39
JVC Tech Minitowers and Adapters 18,519.90 5 5/96 325.33 325.33 325.33 325.33 325.33
Printer for Trading Amer. Exp. 1,852.88 5 5/96 216.16 216.16 216.16 216.16 216.16
Gateway 2000 17,137.20 5 11/96 285.62 285.62 285.62 285.62 285.62
Winbook Corp. 5,260.94 5 12/96 67.68 67.68 67.68 67.68 67.68
MicroCenter Laser Jet printer 886.00 5 12/96 14.77 14.77 14.77 14.77 14.77
Gateway GDBPPRO200PIA-3 Computers 10,101.00 5 1/97 168.35 168.35 168.35 168.35 168.35
Gateway GDBPPRO200PIA-5 Computers 15,885.00 5 2/97 264.75 264.75 264.75 264.75 264.75
Gateway GDPPPRO200PIA-2 Computers 7,522.00 5 2/97 125.37 125.37 125.37 125.37 125.37
Micro Ctr-Memory additions 1,398.56 5 3/97 23.31 23.31 23.31 23.31 23.31
JVC-LAN Tape Backup Drive-SS# P01360 1,405.67 5 3/97 23.43 23.43 23.43 23.43 23.43
SSI-Phaser 350 Color Printer, 24mb, 600x3 5,367.00 5 3/97 69.78 69.78 69.78 69.78 69.78
<CAPTION>
June July August September October November December
<S> <C> <C> <C> <C> <C> <C> <C>
Computer Equipment
Time Stamp Machine - ATR Systems
Cabinet, Lotus - JVC
Intel Netport - JVC
Intel Netport - JVC
Companion Switches, boxes for
comp. Monitor - JVC
Ethernet Interface, Hardware for
printer - JVC
MicroAge of Exton
Harvard Graphics Upgrade
JVC Physical Installation
JVC New Server & Equipment 98.21 98.21 98.21 98.21
Haverford Sys - NEC 27" VGA Scan Montr 52.74 52.74 52.74 52.74 52.74 52.74 52.74
Tektronic Phaser Color Printer - JVC 176.67 176.67 176.67 176.67 176.67 176.67 176.67
JVC-Concenter Board 30.24 30.24 30.24 30.24 30.24 30.24 30.24
UCI-486DX's w/monitor @2/1900 67.13 67.13 67.13 67.13 67.13 67.13 67.13
UCI-486DX w/monitor @1/1934.50 32.24 32.24 32.24 32.24 32.24 32.24 32.24
UCI-486DX w/420 meg. @2/1450 +tax
JVC- HP Laserjet 4MP @ 2139 +tax
CompUSA-Laptop comptr (3yr parts)
UCI-486DX w/monitor @1/1700 +tax
Cartel System -Pentium Qty 3 136.65 136.65 136.65 136.65 136.65 136.65 136.65
MicroCenter Laser Jet Printer 63.03 63.03 63.03 63.03 63.03 63.03 63.03
JVC Cybex PC Companion-VGA 26.39 26.39 26.39 26.39 26.39 26.39 26.39
Mice, Connectors, Modems, Serial Boards 12.41 12.41 12.41 12.41 12.41 12.41 12.41
JVC Networth 24 Port and 4 Patch Cable 29.86 29.86 29.86 29.86 29.86 29.86 29.86
Arch Assoc. HP Laserjet 4SI 61.39 61.39 61.39 61.39 61.39 61.39 61.39
JVC HP Vectra VLS 44.34 44.34 44.34 44.34 44.34 44.34 44.34
JVC HP Vectra VL 40.28 40.28 40.28 40.28 40.28 40.28 40.28
JVC HP Vectra VL3, Pentium 60 94.61 94.61 94.61 94.61 94.61 94.61 94.61
JVC HP Vectra VL3, Pentium 90 55.68 55.68 55.68 55.68 55.68 55.68 55.68
Dell Direct Sales L.P. Hard Drive 4.70 4.70 4.70 4.70 4.70 4.70 4.70
JVC HP Vectra VL4 P120 16 Megs 55.54 55.54 55.54 55.54 55.54 55.54 55.54
JVC HP P/133, 16 Megs Qty 2 113.29 113.29 113.29 113.29 113.29 113.29 113.29
JVC HP Laserjet Printer 47.48 47.48 47.48 47.48 47.48 47.48 47.48
MicroCenter US Fax Modem 10.66 10.66 10.66 10.66 10.66 10.66 10.66
MicroCenter 84.39 84.39 84.39 84.39 84.39 84.39 84.39
JVC Tech Minitowers and Adapters 325.33 325.33 325.33 325.33 325.33 325.33 325.33
Printer for Trading Amer. Exp. 216.16 216.16 216.16 216.16 216.16 216.16 216.16
Gateway 2000 285.62 285.62 285.62 285.62 285.62 285.62 285.62
Winbook Corp. 67.68 67.68 67.68 67.68 67.68 67.68 67.68
MicroCenter Laser Jet printer 14.77 14.77 14.77 14.77 14.77 14.77 14.77
Gateway GDBPPRO200PIA-3 Computers 168.35 168.35 168.35 168.35 168.35 168.35 168.35
Gateway GDBPPRO200PIA-5 Computers 264.75 264.75 264.75 264.75 264.75 264.75 264.75
Gateway GDPPPRO200PIA-2 Computers 125.37 125.37 125.37 125.37 125.37 125.37 125.37
Micro Ctr-Memory additions 23.31 23.31 23.31 23.31 23.31 23.31 23.31
JVC-LAN Tape Backup Drive-SS# P01360 23.43 23.43 23.43 23.43 23.43 23.43 23.43
SSI-Phaser 350 Color Printer, 24mb, 600x3 69.78 69.78 69.78 69.78 69.78 69.78 69.78
</TABLE>
SMH/Deprec98/Comp Equip/6/11/98
<PAGE>
Computer Equipment Depreciation - 1998
5101-100 Depreciation Exp. Computers
1515-100 Accumulated Dep. Computers
<TABLE>
<CAPTION>
Date of
Original Cost Life Service January February March April May
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Computer Equipment
Networking Plus-Bay Networks 4,221.00 5 3/97 70.35 70.35 70.35 70.35 70.35
Gateway 3 Computers-T. Brown SN 00068 10,077.00 5 4/97 167.95 167.95 167.95 167.95 167.95
Networking Plus-Computer Room Cable In 1,000.00 5 4/97 16.67 16.67 16.67 16.67 16.67
Peak Comp Svcs - P166 Barebones Sys/18 1,124.66 5 5/97 16.74 16.74 16.74 16.74 16.74
American Communications 8,000.00 5 7/97 153.00 133.00 133.00 133.00 133.00
ACS-Telephone System 24,035.00 5 7/97 435.00 400.00 400.00 400.00 400.00
RCI, Inc.-Telephone System 14,052.00 5 7/97 234.20 234.20 234.20 234.20 234.20
American Communications-Telephone Syst 41,696.38 5 7/97 691.38 695.00 695.00 695.00 695.00
ITS Mailing System 2,722.60 5 6/97 45.38 45.38 45.38 45.38 45.38
ITS Mailing Systems 2,704.60 5 6/97 45.08 45.08 45.08 45.08 45.08
Peak Comp Svcs - P168 Barebones, 32Mg 1,418.28 5 6/97 23.64 23.64 23.64 23.64 23.64
ACS-Telephone System 16,000.00 5 7/97 70.00 270.00 270.00 270.00 270.00
Networking Plus-Phone System Fax Svc 4,183.05 5 7/97 70.75 69.70 69.70 69.70 69.70
Peak Comp Svcs - P166 Barebones Sys/18 905.24 3 7/97 24.99 25.15 25.15 25.15 25.15
Networking Plus-HP Vectra P166, 128MB 3,166.96 5 8/97 52.78 52.78 52.78 52.78 52.78
Thacher: Winbook S/E #3346707631 4,416.99 5 9/97 73.60 73.60 73.60 73.60 73.60
JVC-Compaq Proliant 2500 6/200 512 IS/N 10,095.18 5 12/97 168.43 168.43 168.43 168.43 168.43
Amex-Computer Projector 3,174.70 3 10/97 94.70 89.00 89.00 89.00 89.00
Staples-HP Laser Jet5se Printer 1,113.00 3 10/97 28.00 31.00 31.00 31.00 31.00
ACS-Telephone System 4,000.00 5 7/97 66.47 66.67 66.67 66.67
Gateway 2 GP6-300 Systems 6,794.00 3 1/98 188.80 188.72 188.72 188.72
Gateway GP6-300 Systems 3,307.00 3 1/98 91.90 91.86 91.86 91.86
Vircom HP Laserjet 4000N S/N #USEF069 1,720.38 3 2/98 47.37 47.80 47.80
GP6-333 System 3,688.00 3 3/98 102.25 102.45
2 GP6-333 Systems 5,926.00 3 3/98 165.00 164.60
3 GP6-333 Systems 9,411.00 3 4/98 261.65
2 Solo 5100 Best Buy Laptops 7,648.00 3 4/98 212.60
GP6-333 System 3,399.00 3 4/98 94.30
Monthly Total 390,598.05 5,465.79 5,956.69 6,004.44 6,253.45 6,621.80
<CAPTION>
June July August September October November December
<S> <C> <C> <C> <C> <C> <C> <C>
Computer Equipment
Networking Plus-Bay Networks 70.35 70.35 70.35 70.35 70.35 70.35 70.35
Gateway 3 Computers-T. Brown SN 00068 167.95 167.95 167.95 167.95 167.95 167.95 167.95
Networking Plus-Computer Room Cable In 16.67 16.67 16.67 16.67 16.67 16.67 16.67
Peak Comp Svcs - P166 Barebones Sys/18 16.74 16.74 16.74 16.74 16.74 16.74 16.74
American Communications 133.00 133.00 133.00 133.00 133.00 133.00 133.00
ACS-Telephone System 400.00 400.00 400.00 400.00 400.00 400.00 400.00
RCI, Inc.-Telephone System 234.20 234.20 234.20 234.20 234.20 234.20 234.20
American Communications-Telephone Syst 695.00 695.00 695.00 695.00 695.00 695.00 695.00
ITS Mailing System 45.38 45.38 45.38 45.38 45.38 45.38 45.38
ITS Mailing Systems 45.08 45.08 45.08 45.08 45.08 45.08 45.08
Peak Comp Svcs - P168 Barebones, 32Mg 23.64 23.64 23.64 23.64 23.64 23.64 23.64
ACS-Telephone System 270.00 270.00 270.00 270.00 270.00 270.00 270.00
Networking Plus-Phone System Fax Svc 69.70 69.70 69.70 69.70 69.70 69.70 69.70
Peak Comp Svcs - P166 Barebones Sys/18 25.15 25.15 25.15 25.15 25.15 25.15 25.15
Networking Plus-HP Vectra P166, 128MB 52.78 52.78 52.78 52.78 52.78 52.78 52.78
Thacher: Winbook S/E #3346707631 73.60 73.60 73.60 73.60 73.60 73.60 73.60
JVC-Compaq Proliant 2500 6/200 512 IS/N 168.43 168.43 168.43 168.43 168.43 168.43 168.43
Amex-Computer Projector 89.00 89.00 89.00 89.00 89.00 89.00 89.00
Staples-HP Laser Jet5se Printer 31.00 31.00 31.00 31.00 31.00 31.00 31.00
ACS-Telephone System 66.67 66.67 66.67 66.67 66.67 66.67 66.67
Gateway 2 GP6-300 Systems 188.72 188.72 188.72 188.72 188.72 188.72 188.72
Gateway GP6-300 Systems 91.86 91.86 91.86 91.86 91.86 91.86 91.86
Vircom HP Laserjet 4000N S/N #USEF069 47.80 47.80 47.80 47.80 47.80 47.80 47.80
GP6-333 System 102.45 102.45 102.45 102.45 102.45 102.45 102.45
2 GP6-333 Systems 164.60 164.60 164.60 164.60 164.60 164.60 164.60
3 GP6-333 Systems 261.41 261.41 261.41 261.41 261.41 261.41 261.41
2 Solo 5100 Best Buy Laptops 212.44 212.44 212.44 212.44 212.44 212.44 212.44
GP6-333 System 94.42 94.42 94.42 94.42 94.42 94.42 94.42
Monthly Total 6,621.52 6,621.52 6,621.52 6,621.52 6,723.31 6,723.31 6,723.31
</TABLE>
SMH/Deprec98/Comp Equip/6/11/98
<PAGE>
Furniture/Fixture Depreciation 1998
1505-100 Accumulated Depreciation Furniture/Fixtures
5100-100 Depreciation Expense Furniture/Fixtures
<TABLE>
<CAPTION>
Date of
Original Cost Life Service January February March April May
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Furn/Fixtures
Refrigerator, White -SILO 634.78 5 03/91
Monroe bond tradrs (4) 5,072.10 5 04/91
Binding machine-GBC 1,373.61 5 04/91
Duplifax Fax Machine 4,448.70 5 04/91
Oriental rugs - DENA Int'l 18,000.00 10 09/97 150.00 150.00 150.00 150.00 150.00
Wood Superior 32,268.20 10 10/91 268.90 268.90 268.90 268.90 268.90
Hurlbutt 6,674.40 10 10/91 55.62 55.62 55.62 55.62 55.62
J. Rothard 107,774.56 10 10/91 1,564.79 1,564.79 1,564.79 1,564.79 1,564.79
Hurlbutt 3,305.08 10 11/91 27.54 27.54 27.54 27.54 27.54
Adelphia-Door sign 1,662.86 10 11/91 13.86 13.86 13.86 13.86 13.86
WSI Wood Finish 259.70 10 12/91 2.16 2.16 2.16 2.16 2.16
Kerschner - Chairs 3,222.84 10 12/91 26.65 26.65 26.65 26.65 26.65
WSI Keyboard/Credenza 243.80 10 12/91 2.03 2.03 2.03 2.03 2.03
Hall runner-DENA Int'l 2,968.00 10 12/91 24.73 24.73 24.73 24.73 24.73
J. Rothbard Additional 256.61 10 01/92 2.97 2.97 2.97 2.97 2.97
expense to orig invoice #156
Hurlbutt 48.00 10 01/92 0.40 0.40 0.40 0.40 0.40
2 braided pillows, WTB
American Express 1,420.34 10 01/92 11.64 11.64 11.64 11.64 11.64
TV/VCR
Mahogoney Conference room chairs 12,164.00 7 02/92 145.05 145.05 145.05 145.05 145.05
Rolltop Desks (file retrieval) 34,200.00 7 02/92 407.14 407.14 407.14 407.14 407.14
Rosewood Conference Room Table 2,542.00 7 02/92 30.26 30.26 30.26 30.26 30.26
Wood Superior 2,986.10 10 02/92 24.68 24.68 24.68 24.68 24.68
Recept credenza (1/1860)
FI printing unit (1/825)
Wood Superior 4,881.66 10 02/92 40.68 40.68 40.68 40.68 40.68
Shelves-Lunch, Mrkt, Comp
9 mahog keybds, 9 cherry keybds
Hurlbutt 2,144.59 10 02/92 17.87 17.87 17.87 17.87 17.87
23 board rm chairs reupholstered
extra material
J. Rothbard 2,116.60 10 02/92 17.66 17.66 17.66 17.66 17.66
trdg box file (2/297.50)
trdg box file (2/314)
trdg keybd drawer (2/149)
extra lat file (1/287)
J. Rothbard 3,558.82 10 03/92 29.66 29.66 29.66 29.66 29.66
client chairs (6/445)
Comp. Stools (2/298)
Wood Superior 1,047.00 10 03/92 8.73 8.73 8.73 8.73 8.73
Repair 7 rolltops
Wood Superior 3,494.02 10 03/92 28.14 29.14 29.14 29.14 29.14
Additional Projects
Refininshing by Vincent 1,050.00 10 03/92 9.75 9.75 9.75 9.75 9.75
9 rolltops refinished
Malson Jacques 541.00 5 04/92
recept desk supplies
Refininshing by Vincent 1,000.00 10 04/92 8.33 8.33 8.33 8.33 8.33
2 desks repaired, finished
<CAPTION>
June July August September October November December
<S> <C> <C> <C> <C> <C> <C> <C>
Furn/Fixtures
Refrigerator, White -SILO
Monroe bond tradrs (4)
Binding machine-GBC
Duplifax Fax Machine
Oriental rugs - DENA Int'l 150.00 150.00 150.00 150.00 150.00 150.00 150.00
Wood Superior 268.90 268.90 268.90 268.90 268.90 268.90 268.90
Hurlbutt 55.62 55.62 55.62 55.62 55.62 55.62 55.62
J. Rothard 1,564.79 1,564.79 1,564.79 1,564.79 1,564.79 1,564.79 1,564.79
Hurlbutt 27.54 27.54 27.54 27.54 27.54 27.54 27.54
Adelphia-Door sign 13.86 13.86 13.86 13.86 13.86 13.86 13.86
WSI Wood Finish 2.16 2.16 2.16 2.16 2.16 2.16 2.16
Kerschner - Chairs 26.65 26.65 26.65 26.65 26.65 26.65 26.65
WSI Keyboard/Credenza 2.03 2.03 2.03 2.03 2.03 2.03 2.03
Hall runner-DENA Int'l 24.73 24.73 24.73 24.73 24.73 24.73 24.73
J. Rothbard Additional 2.97 2.97 2.97 2.97 2.97 2.97 2.97
expense to orig invoice #156
Hurlbutt 0.40 0.40 0.40 0.40 0.40 0.40 0.40
2 braided pillows, WTB
American Express 11.64 11.64 11.64 11.64 11.64 11.64 11.64
TV/VCR
Mahogoney Conference room chairs 145.05 145.05 145.05 145.05 145.05 145.05 145.05
Rolltop Desks (File retrieval) 407.14 407.14 407.14 407.14 407.14 407.14 407.14
Rosewood Conference Room Table 30.26 30.26 30.26 30.26 30.26 30.26 30.26
Wood Superior 24.68 24.68 24.68 24.68 24.68 24.68 24.68
Recept credenza (1/1860)
FI printing unit (1/825)
Wood Superior 40.68 40.68 40.68 40.68 40.68 40.68 40.68
Shelves-Lunch, Mrkt, Comp
9 mahog keybds, 9 cherry keybds
Hurlbutt 17.87 17.87 17.87 17.87 17.87 17.87 17.87
23 board rm chairs reupholstered
extra material
J. Rothbard 17.66 17.66 17.66 17.66 17.66 17.66 17.66
trdg box file (2/297.50)
trdg box file (2/314)
trdg keybd drawer (2/149)
extra lat file (1/287)
J. Rothbard 29.66 29.66 29.66 29.66 29.66 29.66 29.66
client chairs (6/445)
Comp. Stools (2/298)
Wood Superior 8.73 8.73 8.73 8.73 8.73 8.73 8.73
Repair 7 rolltops
Wood Superior 29.14 29.14 29.14 29.14 29.14 29.14 29.14
Additional Projects
Refininshing by Vincent 9.75 9.75 9.75 9.75 9.75 9.75 9.75
9 rolltops refinished
Malson Jacques
recept desk supplies
Refininshing by Vincent 8.33 8.33 8.33 8.33 8.33 8.33 8.33
2 desks repaired, finished
</TABLE>
SMH/Deprec98/Furn-Fix/6/11/98
<PAGE>
Furniture/Fixture Depreciation 1998
1505-100 Accumulated Depreciation Furniture/Fixtures
5100-100 Depreciation Expense Furniture/Fixtures
<TABLE>
<CAPTION>
Date of
Original Cost Life Service January February March April May
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Furn/Fixtures
Refininshing by Vincent 600.00 10 04/92 5.00
repair, pick up & delivery
J. Rothbard MIS workstations 3,257.11 10 04/92 27.14 27.14 27.14 27.14 27.14
acoust panel (4x337.58),
connector (2x76.13) shelving
unit (1x746.2) deliery &
installation (450)
Sofa/side table, J. McElroy 730.34 10 05/92 6.09 6.09 6.09 6.09 6.09
Xtec-Ricoh FT6750 copier 17,770.90 5 05/92
Wood Superior 1,612.00 5 07/92
Credenza 72lg 20dp 30hi
J. Rothbard
Console PJM 1,147.04 5 08/92
Roundtable PJM 459.03 5 08/92
Walnut desk MAT 1,492.65 5 08/92
Bookcase MAT 1,606.30 5 08/92
J. Rothbard
Desk Extension Mrkting 1,217.16 5 02/93 20.29
J. Rothbard
High-boy Bookcase-Mktg 2,270.54 10 03/93 18.92 18.92 18.92 18.92 18.92
Wood Superior
Counter top w/cherry trim-Mktg 903.30 5 04/93 15.06 15.06 15.06
J. Rothbard
Open Bookcase, Mahogany-P. Acctg 1,608.30 10 04/93 15.07 15.07 15.07 15.07 15.07
J. Rothbard
Furniture-Marketing 6,342.15 5 12/94 105.70 105.70 105.70 105.70 105.70
Furniture-MIS 18,694.10 5 12/94 311.57 311.57 311.57 311.57 311.57
Furniture-Equity 315.60 5 12/94 5.26 5.26 5.26 5.26 5.26
Joseph Rothbard Shelving Xerox Room 2,048.41 5 5/96 34.14 34.14 34.14 34.14 34.14
Joseph Rothbard 11,490.73 5 6/96 191.51 191.51 191.51 191.51 191.51
C. Erickson Marketing countertop 1,125.00 5 9/96 18.75 18.75 18.75 18.75 18.75
J. Rothbard-Bookcases 5,682.98 5 10/96 94.72 94.72 94.72 94.72 94.72
Wrightline-Racks in Computer Room 6,213.29 5 3/97 103.55 103.55 103.55 103.55 103.55
Carl's Upholster 1,826.60 5 6/97 30.48 30.48 30.48 30.48 30.48
Tan Shelving and Back Braces 1,887.17 5 5/95 31.46 31.46 31.46 31.46 31.46
J. Rothbard 5 chairs 2,447.30 5 6/96 40.79 40.79 40.79 40.79 40.79
J. Rothbard Bookcases/Lateral Files 6,465.48 5 11/97 107.75 107.75 107.75 107.75 107.75
Conference Rm Table & 8 Chairs 1,700.00 3 3/98 47.30 47.22
Total 442,799.75 4,103.09 4,082.81 4,082.81 4,115.05 4,114.97
<CAPTION>
June July August September October November December
<S> <C> <C> <C> <C> <C> <C> <C>
Furn/Fixtures
Refininshing by Vincent
repair, pick up & delivery
J. Rothbard MIS workstations 27.14 27.14 27.14 27.14 27.14 27.14 27.14
acoust panel (4x337.58),
connector (2x76.13) shelving
unit (1x746.2) deliery &
installation (450)
Sofa/side table, J. McElroy 6.09 6.09 6.09 6.09 6.09 6.09 6.09
Xtec-Ricoh FT6750 copier
Wood Superior
Credenza 72lg 20dp 30hi
J. Rothbard
Console PJM
Roundtable PJM
Walnut desk MAT
Bookcase MAT
J. Rothbard
Desk Extension Mrkting
J. Rothbard
High-boy Bookcase-Mktg 18.92 18.92 18.92 18.92 18.92 18.92 18.92
Wood Superior
Counter top w/cherry trim-Mktg
J. Rothbard
Open Bookcase, Mahogany-P. Acctg 15.07 15.07 15.07 15.07 15.07 15.07 15.07
J. Rothbard
Furniture-Marketing 105.70 105.70 105.70 105.70 105.70 105.70 105.70
Furniture-MIS 311.57 311.57 311.57 311.57 311.57 311.57 311.57
Furniture-Equity 5.26 5.26 5.26 5.26 5.26 5.26 5.26
Joseph Rothbard Shelving Xerox Room 34.14 34.14 34.14 34.14 34.14 34.14 34.14
Joseph Rothbard 191.51 191.51 191.51 191.51 191.51 191.51 191.51
C. Erickson Marketing countertop 18.75 18.75 18.75 18.75 18.75 18.75 18.75
J. Rothbard-Bookcases 94.72 94.72 94.72 94.72 94.72 94.72 94.72
Wrightline-Racks in Computer Room 103.55 103.55 103.55 103.55 103.55 103.55 103.55
Carl's Upholster 30.48 30.48 30.48 30.48 30.48 30.48 30.48
Tan Shelving and Back Braces 31.46 31.46 31.46 31.46 31.46 31.46 31.46
J. Rothbard 5 chairs 40.79 40.79 40.79 40.79 40.79 40.79 40.79
J. Rothbard Bookcases/Lateral Files 107.75 107.75 107.75 107.75 107.75 107.75 107.75
Conference Rm Table & 8 Chairs 47.22 47.22 47.22 47.22 47.22 47.22 47.22
Total 4,114.97 4,114.97 4,114.97 4,114.97 4,114.97 4,114.97 4,114.97
</TABLE>
SMH/Deprec98/Furn-Fix/6/11/98
<PAGE>
Computer Equipment Depreciation - Wrap 1998
200-1515 Accum. Dep. Computers Wrap
200-5101 Depreciation Exp. Computers Wrap
<TABLE>
<CAPTION>
Date of
Original Cost Life Service January February March April May
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Computer Equipment-Wrap
JVC-HP Laserjet IV 5,009.80 5 1/97 83.50 83.50 83.50 83.50 83.50
Computer City Desk Jet 660C 349.11 5 9/95 5.81 5.81 5.81 5.81 5.81
J & R Sound Computer (B. Cla 4,818.36 5 10/95 80.31 80.31 80.31 80.31 80.31
Dell Direct Sales 13,450.34 5 1/95 224.17 224.17 224.17 224.17 224.17
Winbook computer Corp. 4,860.94 5 12/96 81.02 81.02 81.02 81.02 81.02
Winbook FX P150-SN#JT158 5,409.99 5 1/97 90.17 90.17 90.17 90.17 90.17
Peak Comp Svcs-P166 Bare 863.00 5 5/97 14.38 14.38 14.38 14.38 14.38
Peak Comp Svcs-P166 Bare 733.52 5 6/97 12.23 12.23 12.23 12.23 12.23
Winbook computer Corp. 4,911.99 3 7/97 136.50 136.50 136.50 136.50 136.50
Gateway-3 GP6 300 Systems 10,914.00 3 10/97 1,212.67 303.05 303.17 303.17
Staples/NSSS999-12936 69007 5,953.74 3 11/97 164.70 164.70 164.70 164.70 164.70
Gateway-GP6 300 System 3,397.00 3 1/98 94.40 94.36 94.36 94.36
Gateway-GP6 300 System 3,307.00 3 1/98 91.90 91.86 91.86 91.86
Gateway-GP6 300 Dual Prem/ 5,341.00 3 4/98 148.40
Monthly Total 69,319.79 892.79 2,291.76 1,382.06 1,382.18 1,530.58
Furniture/Fixtures Wrap-1997
200-5100 Deprec. Exp. F/F Wrap
200-1505 Accum Dep F/F Wrap
Lamination Machine-Advance 3,633.68 3 04/94
Wood Superior-Wrap Tradin 8,128.00 3 12/94
J. Rothbard
12 Files 7,746.48 3 12/94
3 Chairs 1,030.32 3 12/94
J. Rothbard Lateral File 1,996.83 3 11/97 32.13 56.85 56.84 56.84 56.84
Monthly Total 22,535.31 32.13 56.85 56.84 56.84 56.84
Computer Software-Wrap
200-5101
200-1517
The McGrell Group 11,720.00 3 11/96 325.56 325.56 325.56 325.56 325.56
The McGrell Group-Hrs Progr 12,060.15 3 3/97 307.23 307.23 307.23 307.23 307.23
The McGrell Group-US Robot 1,957.29 3 4/97 54.37 54.37 54.37 54.37 54.37
Month Total 25,737.44 687.16 687.16 687.16 687.16 687.16
<CAPTION>
June July August September October November December
<S> <C> <C> <C> <C> <C> <C> <C>
Computer Equipment-Wrap
JVC-HP Laserjet IV 83.50 83.50 83.50 83.50 83.50 83.50 83.50
Computer City Desk Jet 660C 5.81 5.81 5.81 5.81 5.81 5.81 5.81
J & R Sound Computer (B. Cla 80.31 80.31 80.31 80.31 80.31 80.31 80.31
Dell Direct Sales 224.17 224.17 224.17 224.17 224.17 224.17 224.17
Winbook Computer Corp. 81.02 81.02 81.02 81.02 81.02 81.02 81.02
Winbook FX P150-SN#JT158 90.17 90.17 90.17 90.17 90.17 90.17 90.17
Peak Comp Svcs-P166 Bare 14.38 14.38 14.38 14.38 14.38 14.38 14.38
Peak Comp Svcs-P166 Bare 12.23 12.23 12.23 12.23 12.23 12.23 12.23
Winbook Computer Corp. 136.50 136.50 136.50 136.50 136.50 136.50 136.50
Gateway-3 GP6 300 Systems 303.17 303.17 303.17 303.17 303.17 303.17 303.17
Staples/NSSS999-12936 69007 164.70 164.70 164.70 164.70 164.70 164.70 164.70
Gateway-GP6 300 System 94.36 94.36 94.36 94.36 94.36 94.36 94.36
Gateway-GP6 300 System 91.86 91.86 91.86 91.86 91.86 91.86 91.86
Gateway-GP6 300 Dual Prem/ 148.36 148.36 148.36 148.36 148.36 148.36 148.36
Monthly Total 1,530.54 1,530.54 1,530.54 1,530.54 1,530.54 1,530.54 1,530.54
Furniture/Fixtures Wrap-1997
200-5100 Deprec. Exp. F/F Wrap
200-1505 Accum Dep F/F Wrap
Lamination Machine-Advance
Wood Superior-Wrap Tradin
J. Rothbard
12 Files
3 Chairs
J. Rothbard Lateral File 56.84 56.84 56.84 56.84 56.84 56.84 56.84
Monthly Total 56.84 56.84 56.84 56.84 56.84 56.84 56.84
Computer Software-Wrap
200-5101
200-1517
The McGrell Group 325.56 325.56 325.56 325.56 325.56 325.56 325.56
The McGrell Group-Hrs Progr 307.23 307.23 307.23 307.23 307.23 307.23 307.23
The McGrell Group-US Robot 54.37 54.37 54.37 54.37 54.37 54.37 54.37
Month Total 687.16 687.16 687.16 687.16 687.16 687.16 687.16
</TABLE>
SMH/Deprec98/WRAP/6/11/98
<PAGE>
Schedule of Contracts - Annual Obligation more than $12,000
Compustat
Autex
Baseline
Bloomberg
Computer Direction Advisors
Dow Jones
First Call
ILX
Plexus
IBES
Northfield
Research Direct
Telerate
Capital Mgmt Science
ADP -Proxy edge
Global Investment Manager
BBN Corp
Boothby
Informix
Independence Blue Cross
US Healthcare
Educators Mutual Life
Trans-General Life Ins
Security APL
Ricoh
Radnor Center Assoc
<PAGE>
1838 INVESTMENT ADVISORS L.P.
-----------------------------
The following policies are handled through our Broker:
Thomas Inglesby
Kistler Tiffany Companies
500 E. Swedesford Road Suite 300
Wayne, PA 19087-1697
(610 971-2800
Independence Blue Cross/Blue Shield Policy No. A29133D
Personal Choice Plan
1901 Market Street
Philadelphia, Pa 19103-1480
(215)241-3030
(610)238-6551
Aetna/U.S. Healthcare Policy No. 009231-0001
1425 Union Meeting Road
Blue Bell, PA 19422
(215)283-6820
Educator Mutual Life Insurance Policy No. 5292
202 N. Prince Street
P.O. Box 83149
Lancaster, Pa 17608-3149
(717)397-2751
(This policy is for $10,000 of life insurance on each employee as well as dental
insurance).
TransGeneral Life Insurance Company Policy No. 906196
1 Commercial Plaza 15th Floor
280 Trumball Street
Hartford, CT 06103
(203)550-6000
This policy is for balance of life insurance as well as Long Term disability.
<PAGE>
1838 INVESTMENT ADVISORS L.P.
-----------------------------
The following policies are handled through our Broker:
Michael Bove
Boothby & Associates
One Logan Square - 30th Floor
Philadelphia, PA 19103
(215)864-7410
Investment Advisor ERISA Insurance Company: Hartford
Policy: CBBLC5252
Asset Protection Bond Company: Chubb
Policy: 81247712-H
ERISA Bond Insurance Company: Chubb
Policy: 81470586-A
Errors & Omission Company: Chubb
Policy: 7022-72-61 (B)
Property/General Liability Company: Chubb
Policies: Various
Workers' Compensation Company: Chubb
Policy: (97)761-70-99
<PAGE>
- --------------------------------------------------------------------------------
PROGRAM OVERVIEW
- --------------------------------------------------------------------------------
================================================================================
Policy Effective Date Company Limit Premium
================================================================================
Invest. Advisor ERISA 3/7/97-07/20/98 Hartford $26,950,000 $16,122
- --------------------------------------------------------------------------------
Asset Protection Bond 7/20/97-7/20/98 Chubb $ 600,000 $ 3,050
- --------------------------------------------------------------------------------
Property 7/20/97-7/20/98 Chubb Various $ 5,346
- --------------------------------------------------------------------------------
General Liability 7/20/97-7/20/98 Chubb $ 1,000,000 Include. Above
- --------------------------------------------------------------------------------
Non-Owned Auto 7/20/97-7/20/98 Chubb $ 1,000,000 $ 280
- --------------------------------------------------------------------------------
Wokers' Compensation 7/20/97-7/20/98 Chubb Statutory $ 7,917
- --------------------------------------------------------------------------------
Umbrella Liability 7/20/97-7/20/98 Chubb $ 5,000,000 $ 3,145
- --------------------------------------------------------------------------------
ERISA Bond 7/20/97-7/20/98 Chubb $ 600,000 $ 540
- --------------------------------------------------------------------------------
Professional Liability 9/1/97-7/20/98 Chubb $ 1,000,000 $17,146
- --------------------------------------------------------------------------------
Surety Bonds
Oregon 10/22/97-98 Chubb $ 10,000 $ 100
South Carolina 06/17/97-09 Chubb $ 10,000 98
South Carolina 10/20/97-98 Chubb $ 50,000 $ 388
New Hampshire 08/27/97-98 Chubb $ 25,000 $ 238
Hawaii 06/16/97-98 Chubb $ 50,000 $ 500
Alaska 10/12/97-98 Chubb $ 5,000 $ 50
North Dakota 10/12/97-98 Chubb $ 25,000 $ 250
Massachusetts 01/30/97-98 Chubb $ 10,000 $ 143
Idaho 10/12/97-98 Chubb $ 25,000 $ 238
Totals $ 210,000 $ 2,105
- --------------------------------------------------------------------------------
Risk Management Fee 7/20/97-98 Boothby $ 7,500
- --------------------------------------------------------------------------------
Total cost $63,151
================================================================================
BOOTHBY & ASSOCIATES
- --------------------------------------------------------------------------------
<PAGE>
EMPLOYEE BENEFITS
Medical Insurance
Dental Insurance
Life Insurance
Short Term Disability
Long Term Disabiltiy
401 (k) Plan } 1838 Investment Advisors L.P. Employees Savings Plan
Profit Sharing Plan }
Vacation Package
Personal Days
Paid Holidays
Sick Days
Maternity Leave
Family and Medical Leave Act
Tuition Reimbursement
<PAGE>
1838 Investment Advisors, L.P.
A/R Analysis
<TABLE>
<CAPTION>
6/27/98 8/18/98 MGR Custodian
------- ------- -----------
<S> <C> <C> <C> <C>
Total A/R O/S over 60 days 182,250.00 51,827.06
Fred's Accounts LOA's Expired
Cristol, Elise 914.93 914.83 6/15 faxed to K. Mandelbaum
Cristol, Elise TUD 1,892.48 1,892.48 6/15 faxed to K. Mandelbaum
Dorothy Lansing 2,992.38 ML
Murthra, Rita 559.29 ML
Goodridge, Moriale 5,578.05 ML
Griffith, Mary 5,285.28 ML
Hayward, Malcolm 4,772.01 ML
Lane, Mary 6,010.60 DUMMY (ML)
Mathey, MacDonald 419.82 ML
O'Neill, Paul 7,238.23 7,283.23 waiting for lo ML
Thayer, anne 3,407.57 ML
Wood, Julia 3,757.67 ML
All waiting for new LOA's
Jane Glick 3,234.54
Katherine Glick 857.76 857.76 waiting for loa
Sarah Glick 916.19 916.19 waiting for loa
Peter Schwartz 1,454.59
--------- -----------
Total Fred 49,291.59 11,819.59
--------- -----------
Other 2nd Notices Given
NY Eye & Ear 3rd Note 4,837.01 4,837l.01 John S
Good Samaritan 9,636.04 7,380.73 5/12 rerouted to client: was billed to SB
- 6/18 per ICAH - ck in mail 6/15
5/12 rerouted to client; was billed to SB
George Mackie ("Check is in the mail.") 7,047.27 7,047.27 6/11 Reduced rate; mailed 5th letter.
Baldwin School (waiting for LOA) 7,335.37 PJM ML
PPD 6,896.55
Wm. & Sheila Joiner 973.05 6/16 Rerouted to broker
Advest 776.58 776.58 6/6 Faxed to Dan Ragnoni (new contract)
Baker, Peter 576.44 SSC
Chestnut Hill Academy 8,093.68 8,093.68 6/12 Faxed to SB; per Bill O'Toole SB will pay
Dain Rauscher 224.63 224.63 6/8 Left message; no reply
Kathryn Donaldson 939.73 939.73 BTB 6/15 Lynn Hofler @ Paragon Advisors
said cannot be paid th
Graduate Cardrothoracic (rerouted to broker) 5,207.17 2,541.98
Lewis, Maxine 19,358.50 JJM
Miami Children's a/c's 27,524.74 MZM,RLM
Legg Mason 734.46
James Mackie (ck returned; no signature) 5,077.99 JJM
Geoffrey Mendelsohn 988.76 988.76 BTB 6/15 2nd letter mailed
ROBOR 1,500.00 1,500.00 HV
Aileen Roberts 2,368.02 2,368.02 GWG,BLK 6/12 2nd letter mailed to Corestates
Ellis Schullst 4,455.97 PMI
SB Wrap reversed closed a/c's $1,351.36 2,476.70
Vandergast 164.80 6/12 Rerouted to Mellon Bank
Jeanie Chol FBO Kettering 439.03 6/16 Rerouted to C H Dean & Assoc
Bridgeport Radiology 521.51 6/12 per Bill O'Toole SB will send ck
Vector Security (closed; per Jay reverse invoice) 1,281.02 1,281.02 Assets held temporarily for one mo.
NY Eye & Ear Infirmary Pension 2 6,349.75 MGB
Univ. Surgical Grp. 938.70 938.70
Misc 8,124.63
----------- -----------
Action taken on this total 98,997.48 41,016.50
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
1838 Investment Advisors L.P.
====================================================================================================================================
ACCOUNTS RECEIVABLE AGED INVOICE REPORT
Only Invoices 60 Days Past Due - AGED AS OF: 06/18/98
- ------------------------------------------------------------------------------------------------------------------------------------
INVOICE DISCOUNT DISCOUNT DAYS
RATE INVOICE NO DUE DATE DUE DATE AMOUNT BALANCE CURRENT 30 DAYS 60 DAYS 90 DAYS 120 DAYS DELQ
- ---- ---------- -------- -------- -------- -------- ------- ------- ------- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ADV Advest, Inc. CONTACT PHONE CREDIT LMT: .00
0/31/98 0000083 - IN 01/31/98 .00 776.58 776.58 138
------- -------- ---- ----- --------- ---------- ------------ ---
CUSTOMER ADV TOTALS: .00 776.58 .00 .00 .00 .00 776.58
ISC Brinker Small Cap CONTACT PHONE CREDIT LMT: .00
3/27/98 94A - IN 03/27/98 .00 0.30 .30 83
------- -------- ---- ----- --------- ---------- ------------ ---
CUSTOMER BSC TOTALS: .00 0.30 .00 .00 .30 .00 .00
34564 CHESTNUT HILL ACADEMY CONTACT PHONE CREDIT LMT: .00
1/31/98 0002819 - IN 01/31/98 .00 8,093.68 8,093.68 138
------- -------- ---- ----- --------- ---------- ------------ ---
CUSTOMER 0034564 TOTALS: .00 8,093.68 .00 .00 .00 .00 8,093.68
90970 CRISTOL, ELISE H. T/V/D 11/20 CONTACT PHONE CREDIT LMT: .00
2/28/98 0002885 - IN 02/28/98 .00 914.93 914.93 110
------- -------- ---- ----- --------- ---------- ------------ ---
CUSTOMER 0090970 TOTALS: .00 914.93 .00 .00 .00 914.93 .00
297966 CRISTOL, ELISE H. CONTACT PHONE CREDIT LMT: .00
2/28/98 002916 - IN 02/28/98 .00 1,892.48 1,892.48 110
------- -------- ---- ----- --------- ---------- ------------ ---
CUSTOMER 0097966 TOTALS: .00 1,892.48 .00 .00 .00 1,892.48 .00
DAIN Dain, Rauscher CONTACT PHONE CREDIT LMT: .00
1/31/98 0000089 - IN 01/31/98 .00 224.63 224.63 138
------- -------- ---- ----- --------- ---------- ------------ ---
CUSTOMER DAIN TOTALS: .00 224.63 .00 .00 .00 .00 224.63
91225 GLICK, KATHERINE A TRUST CONTACT PHONE CREDIT LMT: .00
1/31/98 00002747 - IN 01/31/98 .00 857.76 857.76 138
------- -------- ---- ----- --------- ---------- ------------ ---
CUSTOMER 0091225 TOTALS: .00 857.76 .00 .00 .00 .00 857.76
91223 GLICK, SARAH TRUST CONTACT PHONE CREDIT LMT: .00
015 0002740 - IN 01/31/98 .00 916.19 916.19 138
------- -------- ---- ----- --------- ---------- ------------ ---
CUSTOMER 0091223 TOTALS: .00 916.19 .00 .00 .00 .00 916.19
13883 Good Samaritan Charitable Trst CONTACT PHONE CREDIT LMT: .00
11/31/98 0002311 - IN 01/31/98 .00 7,380.73 7,380.73 138
------- -------- ---- ----- --------- ---------- ------------ ---
CUSTOMER 0013883 TOTALS: .00 7,380.73 .00 .00 .00 .00 7,380.73
13307 GRADUATE C #2 CONTACT PHONE CREDIT LMT: .00
12/25/98 0001736 - IN 02/25/98 .00 1,661.09 1,661.09 113
------- -------- ---- ----- --------- ---------- ------------ ---
CUSTOMER 0013307 TOTALS: .00 1,661.09 .00 .00 .00 1,661.09 .00
13305 Graduate Cardrothoracic Assoc. CONTACT PHONE CREDIT LMT: .00
12/25/98 0001735 - IN 02/25/98 .00 880.89 880.89 113
------- -------- ---- ----- --------- ---------- ------------ ---
CUSTOMER 0013305 TOTALS: .00 880.89 .00 .00 .00 880.89 .00
13306 HARGETT, WM G. & SUSAN P. CONTACT PHONE CREDIT LMT: .00
12/25/98 0002860 - IN 02/28/98 .00 1,011.31 1,011.31 110
------- -------- ---- ----- --------- ---------- ------------ ---
CUSTOMER 0021476 TOTALS: .00 1,011.31 .00 .00 .00 1,011.31 .00
94476 HAYWARD, MALCOLM L. CONTACT PHONE CREDIT LMT: .00
2/9/98 2279A - PP 02/09/98 .00 1,496.30 1,496.30
------- -------- ---- ----- --------- ---------- ------------ ---
CUSTOMER 0094476 TOTALS: .00 1,496.30 .00 .00 .00 .00 1,496.30
77030 HERMANN, DEBORAH K. IRA CONTACT PHONE CREDIT LMT: .00
3/17/98 0002911 - PP 03/17/98 .00 16.15- 16.15-
------- -------- ---- ----- --------- ---------- ------------ ---
CUSTOMER 0097030 TOTALS: .00 16.15- .00 .00 .00 16.15- .00
10188 JOYNER, W. & SHEILA CONTACT PHONE CREDIT LMT: .00
2/28/98 0002847 - IN 02/28/98 .00 973.05 973.05 110
------- -------- ---- ----- --------- ---------- ------------ ---
CUSTOMER 0010188 TOTALS: .00 973.05 .00 .00 .00 973.05 .00
</TABLE>
- --------------------------------------------------------------------------------
System Date: 06/17/98 / 12:25pm Page: 1
Duplication Date: 06/18/98 User: SMH / Susan Huffington
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
1838 Investment Advisors L.P.
====================================================================================================================================
ACCOUNTS RECEIVABLE AGED INVOICE REPORT
Only Invoices 60 Days Past Due - AGED AS OF: 06/18/98
- ------------------------------------------------------------------------------------------------------------------------------------
INVOICE DISCOUNT DISCOUNT DAYS
RATE INVOICE NO DUE DATE DUE DATE AMOUNT BALANCE CURRENT 30 DAYS 60 DAYS 90 DAYS 120 DAYS DELQ
- ---- ---------- -------- -------- -------- -------- ------- ------- ------- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
81504 Kathryn J. Donaldson CONTACT: Lynn Holler PHONE CREDIT LMT: .00
3/31/98 0003012 - IN 03/31/98 .00 939.73 939.73 79
-------- --------- ---- ----- --- -------- ---------- --------- ----
CUSTOMER 0081504 TOTALS: .00 939.73 .00 .00 939.73 .00 .00
18600 LANE, MARY AND CARL TTEE CARL CONTACT PHONE CREDIT LMT: .00
3/26/98 94A - IN 03/26/98 .00 1,501.03- 1,501.03-
-------- --------- ---- ----- --- -------- ---------- --------- ----
CUSTOMER 0018600 TOTALS: .00 1,501.03- .00 .00 1,501.03- .00 .00
10177 LOECHTE, BONITA L. CONTACT PHONE CREDIT LMT: .00
12/28/98 0002819 - IN 02/28/98 .00 792.84 792.84 110
-------- --------- ---- ----- --- -------- ---------- --------- ----
CUSTOMER 0010177 TOTALS: .00 792.84 .00 .00 .00 792.84 .00
50045 MACKIE, GEORGE CONTACT PHONE CREDIT LMT: .00
7/31/97 0002885 - IN 07/31/97 .00 1,633.35 1,633.35 322
10/31/97 0001911 - IN 10/31/97 .00 1,648.59 1,648.50 230
1/31/98 002606 - IN 01/31/98 .00 1,660.70 1,660.70 138
-------- --------- ---- ----- --- -------- ---------- --------- ----
CUSTOMER 0050045 TOTALS: .00 4,942.64 .00 .00 .00 .00 4,942.64
50050 MACKIE, GEORGE JR. TTEE GEN S CONTACT PHONE CREDIT LMT: .00
7/31/97 0002916 - IN 07/31/97 .00 680.10 680.10 322
10/31/97 0001915 - IN 10/31/97 .00 674.78 674.78 230
1/31/98 0002610 - IN 01/31/98 .00 749.75 749.75 138
-------- --------- ---- ----- --- -------- ---------- --------- ----
CUSTOMER 0050050 TOTALS: .00 2,104.63 .00 .00 .00 .00 2,104.63
19269 MENDELSOHN, GEOFFREY IRA ROLL CONTACT PHONE CREDIT LMT: .00
1/31/98 24478 - IN 01/31/98 .00 988.76 988.76 138
-------- --------- ---- ----- --- -------- ---------- --------- ----
CUSTOMER 19269 TOTALS: .00 988.76 .00 .00 .00 .00 988.76
27615 NY Eye & Ear Infirmary-Perm Ed CONTACT PHONE CREDIT LMT: .00
1/31/97 00000130 - IN 01/31/97 .00 3,732.71 3,732.71 503
1/31/97 0000441 01/31/97 .00 1,104.30 1,104.30 503
-------- --------- ---- ----- --- -------- ---------- --------- ----
CUSTOMER 0027615 TOTALS: .00 4,837.01 .00 .00 .00 .00 4,837.01
93770 O'NEILL, W. PAUL CONTACT PHONE CREDIT LMT: .00
03/31/98 0002990 - IN 03/31/98 .00 7,238.23 7,283.23 79
-------- --------- ---- ----- --- -------- ---------- --------- ----
CUSTOMER 93770 TOTALS: .00 7,238.23 .00 .00 7,283.23 .00 .00
70496 ROBERTS, AILEEN CONTACT PHONE CREDIT LMT: .00
1/31/98 0002392 - IN 01/31/98 .00 779.10 779.10 138
2/28/98 0002849 - IN 02/28/98 .00 1,588.92 1,588.92 .00 110
-------- --------- ---- ----- --- -------- ---------- --------- ----
CUSTOMER 0070496 TOTALS: .00 2,368.02 .00 .00 .00 1,588.92 779.10
BOR ROBOR CONTACT PHONE CREDIT LMT: .00
1/31/98 IQ98 - IN 03/31/98 .00 1,500.00 1,500.00 79
-------- --------- ---- ----- --- -------- ---------- --------- ----
CUSTOMER ROBOR TOTALS: .00 1,500.00 .00 .00 1,500.00 .00 .00
W Smith Barney Wrap CONTACT PHONE CREDIT LMT: .00
1/31/98 000086 - IN 01/31/98 .00 603.83 603.83 138
1/31/98 0002847 - IN 01/31/98 .00 521.51 521.51 138
-------- --------- ---- ----- --- -------- ---------- --------- ----
CUSTOMER SBW TOTALS: .00 1,125.34 .00 .00 .00 .00 1,125.34
87953 UNIVERSITY SURGICAL GRP OF CIN CONTACT PHONE CREDIT LMT: .00
3/26/98 0002884 - IN 03/26/98 .00 938.70 938.70 84
-------- --------- ---- ----- --- -------- ---------- --------- ----
CUSTOMER 0087953 TOTALS: .00 938.70 .00 .00 938.70 .00 .00
10576 VECTOR SECURITY CONTACT PHONE CREDIT LMT: .00
1/31/98 0002393 - IN 01/31/98 .00 1,281.02 1,281.02 138
-------- --------- ---- ----- --- -------- ---------- --------- ----
CUSTOMER 0010576 TOTALS: .00 1,281.02 .00 .00 00 .00 1,281.02
-------- --------- ---- ----- --- -------- ---------- --------- ----
REPORT TOTALS: .00 51,627.06 .00 .00 9,115.93 9,699.36 32,811.77
NUMBER OF CUSTOMERS: 28
======== ========= ==== ===== === ======== ========== ========= ====
</TABLE>
- --------------------------------------------------------------------------------
System Date: 06/17/98 / 12:25pm Page: 1
Duplication Date: 06/18/98 User: SMH / Susan Huffington
<PAGE>
1838 Institutional Accounts by Market Value 08-Jun-98 Page 1
<TABLE>
<CAPTION>
3/31/98 Market Value Client ID Client Name Manager
<S> <C> <C> <C>
289,249,071.95 60005 PENNSYLVANIA MEDICA JOHN DONALDSON
272,483,609.20 00002 PECO ENERGY COMPANY JAY MCELROY
161,584,565.47 00010 SEI FINANCIAL CORP ED POWELL
143,445,351.53 93313 PHILADELPHIA CONTRIB JAY MCELROY
138,014,996.42 35606 TEAMSTERS LOCAL 282 P PJM-Block Accounts
85,457,265.51 22900 DREXEL UNIVERSITY POO MELYSA GONZALEZ
85,285,902.08 06911 NATIONAL BOARD OF ME GWG-Block Accounts
83,450,932.25 97665 1838 BOND-DEBENTURE T JOHN DONALDSON
78,796,560.69 06765 GIRARD RESIDUARY FUN MELYSA GONZALEZ
74,952,595.04 10172 DP AMERICA GROWTH FU ED POWELL
64,479,645.69 94856 ROTHSCHILD GUERNSEY JTD-Block Accounts
63,952,501.66 38414 TEAMSTERS LOCAL 830 P PJM-Block Accounts
60,217,734.31 94746 STAFFORD SAVINGS BAN PJM-Individuals
59,947,606.01 HM60005 PENNSYLVANIA MEDICA JOHN DONALDSON
59,852,522.80 02101 INDEPENDENCE FOUNDA MELYSA GONZALEZ
59,831,813.59 93144 AMERICAN PHILOSOPHIC MELYSA GONZALEZ
59,583,502.97 10180 CHRISTIAN BROTHERS IN ED POWELL
55,159,645.50 93315 PHILADELPHIA CONTRIB GWG-Block Accounts
54,490,571.55 06497 1838 FIXED INCOME FUND MARCIA ZERCOE
50,276,248.26 66001 MIAMI CHILDREN'S HOSPI MARCIA ZERCOE
49,592,202.78 61000 PHYSICIANS LIABILITY IN JOHN DONALDSON
49,535,546.59 23456 EASTON HOSPITAL PENSI JTD-Block Accounts
48,026,863.56 51456 LOCAL 584 PENSION TRUS MELYSA GONZALEZ
47,782,888.94 32400 AMERICAN COLLEGE OF GWG-Block Accounts
46,073,919.28 07481 EMPLOYEES RETIREMENT MARCIA ZERCOE
45,501,448.44 60008 AMERICAN BOARD OF IN GWG-Block Accounts
41,520,013.56 94809 SAN FRANCISCO CULINA MELYSA GONZALEZ
40,795,926.20 94127 BALA PRESBYTERIAN HO THACHER BROWN
38,763,672.06 28941 ECFMG LONG-TERM FUN PJM-Block Accounts
38,725,092.01 18014 CORE VALUE EQUITY FU MELYSA GONZALEZ
38,630,261.48 36607 1838 SMALL CAP EQUITY ED POWELL
38,352,543.50 86157 EDGCOMB METALS CO PJM-Block Accounts
35,721,858.28 23150 GOULD ELECTRONICS, IN JTD-Block Accounts
35,067,090.76 41113 JOINT PLUMBING INDUST MFB-Block Accounts
31,761,493.19 16150 PHYSICIANS PLUS MEDIC ED POWELL-SMITH B
30,991,812.50 10196 GIST-BROCADES MELYSA GONZALEZ
30,762,416.67 60005EQ PENNSYLVANIA MEDICA MELYSA GONZALEZ
30,496,450.39 00011 SEI SMALL CAP FUND ED POWELL
30,186,529.47 00003 PECO ENERGY COMPANY JAY MCELROY
30,122,264.57 92344 WEST LAUREL HILL CEME GWG-Block Accounts
</TABLE>
<PAGE>
1838 Institutional Accounts by Market Value 08-Jun-98 Page 2
<TABLE>
<CAPTION>
3/31/98 Market Value Client ID Client Name Manager
<S> <C> <C> <C>
29,654,505.82 09750 THE BHUTAN TRUST FUN MELYSA GONZALEZ
27,851,742.83 18034 FRIENDS HOSPITAL PENSI GWG-Block Accounts
27,537,881.47 68406 CITY OF AURORA, ILLINO MARCIA ZERCOE
27,343,277.68 10175 CINCINNATI BELL - 1838 I ED POWELL
25,482,662.08 10020 PROVIDENT MUTUAL DIV ED POWELL
25,106,275.62 60006 INDEPENDENCE SEAPORT GWG-Block Accounts
24,610,162.55 09630 INTERNATIONAL UNION PJM-Block Accounts
24,470,640.34 06995 INDEPENDENCE BLUE CR MELYSA GONZALEZ
23,230,034.38 33333 KENDAL-CROSSLANDS C MELYSA GONZALEZ
23,166.785.93 36016 VICTAULIC COMPANY OF JTD-Block Accounts
22,141,008.37 95031 NEWTON CONTRIBUTORY MFB-Block Accounts
22,010,163.88 25707 COPIC INSURANCE COMP JOHN DONALDSON
20,697,067.59 11192 EMPLOYEES RETIREMENT MELYSA GONZALEZ
20,528,098.75 50000 TEAMSTERS LOCAL #500- MFB-Block Accounts
20,408,604.58 84330 SERVICE EMPLOYEES LO ED POWELL
20,397,775.71 40100 KIMBALL RETIREMENT P ED POWELL-KIMBALL
20,275,592.98 01020 HMS SCHOOL GWG-Block Accounts
19,693,766.59 02103 INDEPENDENCE FOUNDA GWG Short Term of Fixe
19,539,693.38 94984 TOWN OF BRAINTREE RE MFB-Block Accounts
18,967,167.67 29051 ASPLUNDH TREE EXPERT MARCIA ZERCOE
18,840,157.61 94798 ANNE T. STARR TRUSTREE GWG Individual / Directe
18,561,470.00 07990 ANALYTIC SERVICE INC GWG-Block Accounts
17,736,899.72 63901 HEALTH SCIENCES FOUN MELYSA GONZALEZ
17,029,648.85 51292 STICHTING PENSIOENFON HANS van den BERG
16,574,621.06 00008 AMPEX RETIREMENT MA JOE DOYLE
16,090,015.19 17700 NECA-IBEW LOCAL 177 P MELYSA GONZALEZ
16,083,093.39 20201 NATIONAL MANUFACTUR MELYSA GONZALEZ
15,806,529.81 38560 PENNSYLVANIA MEDICA JTD-Block Accounts
15,615,806.51 20050 GIRARD SMALL CAPITAL ED POWELL
15,501,062.76 27678 THE NEW YORK EYE AND MELYSA GONZALEZ
15,024,053.30 94723 SILO INC PENSION FUND RHONDA MCNAVISH
14,817,287.53 15002 ALPAHARMA INC. MFB-Block Accounts
14,701,566.73 60009 AMERICAN BOARD OF IN MARCIA ZERCOE
14,100,742.37 93879 WILLIAM S. LOEB T/U/W A FRED DITTMANN
13,880,198.75 95055 LITTLE LEAGUE BASEBAL GWG-Block Accounts
13,142,988.53 08660 AMERICAN PUBLIC POWE JTD-Block Accounts
12,387,122.95 94371 TEXTILE PROCESSORS, SE PJM-Block Accounts
12,043,622.01 05401 DELAWARE COMMUNITY BERNIE BLAIS
11,987,676.81 98009 CITY OF BETHLEHEM MELYSA GONZALEZ
11,603,824.68 93316 GERMANTOWN INSURAN JOHN DONALDSON
</TABLE>
<PAGE>
1838 Institutional Accounts by Market Value 08-Jun-98 Page 3
<TABLE>
<CAPTION>
3/31/98 Market Value Client ID Client Name Manager
<S> <C> <C> <C>
11,367,647.16 36622 MENNINGER FUND - 1838 I ED POWELL-SMITH B
11,245,371.40 95005 LOUIS N CASSETT FOUND GWG-Block Accounts
11,196,449.31 89311 TORRANCE MEMORIAL M ED POWELL-SMITH B
10,952,149.50 29379 HORIZON HEALTH SYSTE MELYSA GONZALEZ
10,501,416.80 47946 FAIRMOUNT PARK ASSOC JTD-Block Accounts
10,374,731.98 70941 DATRON INC RETIREMEN JTD-Block Accounts
10,348,929.52 96240 METHODIST HOSPITAL DI MARCIA ZERCOE
10,308,158.21 94366 BRUNSCHWIG & FILS INC JTD-Block Accounts
10,167,337.83 32300 AMERICAN COLLEGE OF GWG-Block Accounts
10,124,424.15 47756 PROVIDENT MUTUAL CO MELYSA GONZALEZ
9,767,448.14 25802 RORER PROVIDENT TRUS JAY MCELROY
9,661,076.76 19000 EDNA G. KYNETT MEMOR MFB-Block Accounts
8,895,625.78 53062 BENILDE RELIGIOUS & CH ED POWELL
8,538,776.03 29053 ASPLUNDH TREE EXPERT JAY MCELROY
8,510,859.93 06912 NBME RESEARCH FUND GWG-Block Accounts
8,414,807.09 82227 CHESTNUT HILL HOSPITA MARCIA ZERCOE
8,106,121.15 22564 PINE MANOR COLLEGE GWG-Block Accounts
8,069,247.69 24326 AMERICAN BOARD OF SU GWG-Block Accounts
7,806,658.50 94367 BRUNSCHWIG & FILS INC JTD-Block Accounts
7,800,767.49 05825 UNITED WAY OF DADE C MELYSA GONZALEZ
7,743,347.94 95102 SHELTER LANE CORPORA BERNIE BLAIS
7,711,620.45 26701 COPIC TRUST JOHN DONALDSON
7,704,904.22 14093 CATHOLIC FOUNDATION PRUDENTIAL WRAP-P
7,603,697.26 13883 GOOD SAMARITAN CHARI ED POWELL-SMITH B
7,297,369.23 95054 LITTLE LEAGUE FOUNDA GWG-Block Accounts
7,244,502.82 47243 THE COMMON FUND GEN MELYSA GONZALEZ
6,972,340.22 01893 BINSWANGER CORP PROF GWG-Block Accounts
6,859,121.35 93352 ESTATE OF GENEVRA LIE JAY MCELROY
6,768,575.96 32200 AMERICAN COLLEGE OF RHONDA MCNAVISH
6,615,844.03 02690 SUPERIOR GROUP, INC. M PJM-Special Equity
6,555,140.73 30586 NEW YORK EYE & EAR IN MELYSA GONZALEZ
6,447,461.35 15252 STOCKTON RUSH BARTOL PJM-Block Accounts
6,402,805.68 93314 PHILADEPHIA CONTRIB GWG-Block Accounts
6,395,377.30 10021 EDWARD C LEVY, CO. MA ED POWELL
6,196,221.25 49142 BENEFICIAL MUTUAL SA MFB-Block Accounts
6,124,542.46 13388 GROUP HEALTH PLAN INC MELYSA GONZALEZ
6,052,595.96 12400 NAVISTAR RETIREE SUPP ED POWELL-SMITH B
5,979,212.28 34576 MEDICAL MALPRACTICE I ED POWELL
5,908,287.08 56053 KENDAL AT HANOVER IN MELYSA GONZALEZ
5,871,179.68 92381 WINGATE LLOYD AND H. FRED DITTMANN
</TABLE>
<PAGE>
1838 Institutional Accounts by Market Value 08-Jun-98 Page 4
<TABLE>
<CAPTION>
3/31/98 Market Value Client ID Client Name Manager
<S> <C> <C> <C>
5,844,706.18 93366 BALDWIN SCHOOL INVES PJM-Block Accounts
5,844,688.42 94803 EDWARD STARR, JR. TRUS GWG Individual / Directe
5,583,215.18 35010 RALPH AND SUZANNE RO GWG-Block Accounts
5,574,817.05 81052 THE EPISCOPAL ACADEM GWG-Block Accounts
5,535,101.64 94799 EDWARD STARR, JR TRUS GWG Individual / Directe
5,146,527.13 30967 KENDAL AT OBERLIN-OP MFB-Block Accounts
5,141,816.76 37308 COTTEY COLLEGE SMITH BARNEY SC W
5,058,653.76 92378 T/U/W OF H.G. LLOYD FOR FRED DITTMANN
4,980,443.55 08865 HARVEL PENSION PLAN JTD-Block Accounts
4,849,668.56 05820 PHILADELPHIA CITY INST MFB-Block Accounts
4,730,330.61 35070 COMMONWEALTH TRANS RHONDA MCNAVISH
4,524,182.42 92377 T/U/D 12/7/64 OF DOROTH FRED DITTMANN
4,407,150.42 34619 TANRIDGE LIMITED HANS van den BERG
4,404,800.61 11513 HUDSON COUNTY DISTRI MELYSA GONZALEZ
4,397,626.16 34564 CHESTNUT HILL ACADEM MELYSA GONZALEZ
4,383,798.11 06910 NATIONAL BOARD OF ME GWG Short Term or Fixe
4,344,310.21 50067 THE UNION LEAGUE OF P JOE DOYLE
4,178,008.60 38499 PENNSYLVANIA MEDICA JTD-Block Accounts
4,093,625.32 10291 MEESPIERSON UMBRELLA MELYSA GONZALEZ
4,064,056.68 04048 SOCIETY CATHOLIC MEDI PJM-Block Accounts
4,027,954.45 13001 COMMUNICATIONS WOR MFB-Block Accounts
3,952,670.24 95048 ELLEN D. L. BROWNING T BERNIE BLAIS
3,866,709.39 94293 RESIDUARY TRUST UNDE JAY MCELROY
3,827,673.75 08900 AMERICAN COLLEGE OF JTD-Block Accounts
3,656,933.92 27615 NEW YORK EYE & EAR IN MELYSA GONZALEZ
3,592,382.66 14580 UPLAND COUNTRY DAY S MFB-Block Accounts
3,429,767.81 92232 STEPHENSON FOUNDATIO FRED DITTMANN
3,415,124.04 38500 PENNSYLVANIA MEDICA JTD-Block Accounts
3,150,819.92 02383 PLANNED PARENTHOOD DEAN WITTER BALAN
3,136,660.81 94869 STANTON N. SMULLENS, FRED DITTMANN
3,117,514.62 93511 T/U/D 12/2/68 FOR EMMALI FRED DITTMANN
2,990,557.53 50053 TRUSTEE UA DTD 08/22/75 JAY MCELROY
2,982,810.77 11363 POTTSTOWN MEDICAL SP BERNIE BLAIS
2,896,449.85 47757 UPPER DARBY POLICE SM GWG Individual / Directe
2,857,879.41 49106 ACOUSTICAL SOCIETY OF BERNIE BLAIS
2,778,865.70 13000 COMMUNICATIONS WOR MFB-Block Accounts
2,770,871.79 10022 ROBERT A. LEVY REVOCA SMALL CAP QUASI W
2,767,082.49 08949 AMERICAN COLLEGE OF JTD-Block Accounts
2,749,592.83 43729 VINCENT GIORDANO COR BERNIE BLAIS
2,705,842.68 78012 KENDAL@HANOVER-NE MICHAEL BIEMER
</TABLE>
<PAGE>
1838 Institutional Accounts by Market Value 08-Jun-98 Page 5
<TABLE>
<CAPTION>
3/31/98 Market Value Client ID Client Name Manager
<S> <C> <C> <C>
2,698,878.19 92237 T/U/D FRANCES H. DITM FRED DITTMANN
2,689,956.76 11380 POTTSTOWN MEDICAL SP BERNIE BLAIS
2,669,932.06 94687 T/U/D DATED 2/15/66 FOR JAY MCELROY
2,665,009.00 04035 KONO FOUNDATION FRED DITTMANN
2,618,491.36 92597 CHESTNUT HILL HOSPITA MFB-Block Accounts
2,596,894.13 93519 T/U/D 10/1/68 JULIAN F. GO FRED DITTMAN
2,576,613.86 03638 FRANK L NEWBURGER JR FRED DITTMAN
2,455,951.27 06485 MILK INDUSTRY OFFICE P JAY MCELROY
2,405,440.43 16667 EATMOR MARKETS EMPL BERNIE BLAIS
2,361,102.40 20958 NEW YORK EYE AND EAR LOUIS J ROSATO
2,310,034.78 95041 PEARL S. BUCK FOUNDAT MFB-Block Accounts
2,281,436.69 01894 BINSWANGER CORP MON GWG-Block Accounts
2,257,547.12 14412 DADE COMMUNITY FOUN LOUIS J ROSATO
2,246,000.64 56897 UNITED WAY OF DADE C JTD-Block Accounts
2,215,331.28 64802 1838 401K EQUITY MELYSA GONZALES
2,158,206.14 94533 RESIDUARY TRUST U/W F JAY MCELROY
2,143,087,16 38778 AMERICAN BOARD OF AL JTD-Block Accounts
2,142,918.25 06551 RADNOR TOWNSHIP POLI LOUIS J ROSATO
2,088,419.73 08662 AMERICAN PUBLIC POWE JOE DOYLE
2,081,761.79 02101MU INDEPENDENCE FOUNDA GWG Individual / Directe
1,981,186.68 66003 MIAMI CHILDREN'S HOSPI RHONDA MCNAVISH
1,939,710.39 17173 MALCOLM B. JACOBSON GWG Individual / Directe
1,776,336.31 28942 THE COMMISSION FOR FO PATRICIA J. MYERS
1,772,145.47 42992 KENDAL AT HANOVER-W RHONDA MCNAVISH
1,738,453.85 47521 BALL FOUNDATION SMALL CAP QUASI W
1,690,167.09 63728 GEORGE H. STEPHENSON FRED DITTMANN
1,689,653.31 01895 BINSWANGER FOUNDATI GWG-Block Accounts
1,687,879.76 06382 PLANNED PARENTHOOD DEAN WITTER BALAN
1,686,738.09 72261 GEORGE A. HORMEL II TT SMALL CAP QUASI W
1,560,905.11 80551 DREWRY R. FOX LIVING T BERNIE BLAIS
1,551,704.47 67600 TEAMSTERS LOCAL 676 A MICHAEL BIEMER
1,521,249.74 50051 JAMES W MACKIE TTEE D JAY MCELROY
1,505,779.46 97468 T/U/W ROSE H. WOLF F/B/ FRED DITTMANN
1,486,977.61 45052 CAROLINE C. KRESSLY TR FRED DITTMANN
1,483,605.58 04140 WILLIAM B. KESSLER ME LOUIS J ROSATO
1,442,369.47 10227 MARTIN'S RUN LIFE CARE PJM-Block Accounts
1,432,647.51 50048 KATHLEEN G LAKE IRREV JAY MCELROY
1,424,862.45 18600 MARY AND CARL H. LANE FRED DITTMANN
1,413,096.74 94917 ELIZABETH G. HERMELEE FRED DITTMANN
1,390,453.95 97450 T/U/W MORRIS WOLF F/B/ FRED DITTMANN
</TABLE>
<PAGE>
1838 Institutional Accounts by Market Value 08-Jun-98 Page 5
<TABLE>
<CAPTION>
3/31/98 Market Value Client ID Client Name Manager
<S> <C> <C> <C>
1,386,747.60 29052 ASPLUNDH FOUNDATION MARCIA ZERCOE
1,369,147.89 66589 PALISANDER FINANCE & BERNIE BLAIS
1,363,176.88 97788 H. GATES LLOYD III & JOH FRED DITTMANN
1,348,357.46 58700 TRUST U/W OF EDGAR L. F BERNIE BLAIS
1,335,635.39 89265 ESTHER & THOMAS CARP BERNIE BLAIS
1,335,625.41 93292 TRUST UNDER WILL FOR FRED DITTMANN
1,327,154.47 18559 JA SCOTT INVESTMENTS, TAX SMART - GROUP
1,317,595.28 50050 GEORGE C MACKIE JR TT JAY MCELROY
1,301,832.16 93406 JAMES N BRODERICK AN JAY MCELROY
1,269,356.51 10150 WILLIAM VAN ALAN CLA FRED DITTMANN
1,263,894.46 50052 TRUSTEE US DTD 08/22/75 JAY MCELROY
1,256,970.88 50069 THE UNION LEAGUE OF P JOE DOYLE
1,247,025.94 30959 KENDAL AT OBERLIN-OP RHONDA MCNAVISH
1,236,892.69 93244 T/U/W JOHN HAMPTON BA FRED DITTMANN
1,235,508.98 08129 1838 I/A SALARIED SAVIN PJM-Special Equity
1,201,297.55 94918 JANE GELLER & MONROE FRED DITTMANN
1,113,647.89 07333 AMERICAN SOCIETY OF N GWG Short Term of Fixe
1,094,810.57 08726 1838 INVESTMENT ADVIS HANS van den BERG
1,094,164.01 59639 KENDAL AT HANOVER LI RHONDA MCNAVISH
1,069,384.23 40210 BETTIE SIEGEL FAMILY T LOUIS J ROSATO
1,050,244.80 06552 RANDNOR TOWNSHIP CIVI LOUIS J ROSATO
1,023,108.06 59407 KENDAL AT HANOVER-C LOUIS J ROSATO
980,401.41 25771 RORER PROVIDENT TRUS JAY MCELROY
943,240.59 44067 CHURCH OF THE EPIPHAN BERNIE BLAIS
929.663.03 51524 FRANKFORD LEATHER CO BERNIE BLAIS
902,229.76 90220 MARIO V. MASSIMINI LIVI BERNIE BLAIS
902,093.95 90212 ELIZABETH C. MASSIMINI BERNIE BLAIS
899,490.21 02218 ST. ANDREW'S SOCIETY M JAY MCELROY
893,121.46 92412 STEPHEN DITTMANN, FRE FRED DITTMANN
878,255.78 02254 ST. ANDREW'S SOCIETY G JAY MCELROY
840,753.76 94672 JAMES DONNELLY MARIT TAX SMART-GROUP
840,229.73 02192 ST. ANDREW'S SOCIETY F JAY MCELROY
811,763.59 75003 RUTH R. SCOTT AND EAR FRED DITTMANN
780,488.26 35327 VICKI GREEN & DAVID SN BERNIE BLAIS
751,624.95 11250 LITTLETON FIRE OLD HIR SMALL CAP QUASI W
727,149.56 94603 TRUST U/D OF FRANCIS LI JAY MCELROY
710,296.72 03633 WILLIAM D. BERGER INSU FRED DITTMANN
691,432.97 40074 COPELAND SURVEYING P/ BERNIE BLAIS
668,482.39 97966 TRUST UNDER DEED 11/20 FRED DITTMANN
646,202.67 94878 CAROLINE KRESSLY CUS FRED DITTMANN
</TABLE>
<PAGE>
1838 Institutional Accounts by Market Value 08-Jun-98 Page 7
<TABLE>
<CAPTION>
3/31/98 Market Value Client ID Client Name Manager
<S> <C> <C> <C>
637,633.26 02263 ST. ANDREW'S SOCIETY S JAY MCELROY
628,187.50 29112 N.A.B.E.T. LOCAL #11 MARCIA ZERCOE
616,400.65 32057 NEW YORK EYE AND EAR LOUIS J ROSATO
594,404.76 92391 THE TRUST UNDER DEED FRED DITTMANN
591,900.24 91223 JOHN H. GLICK, TTEE SAR FRED DITTMANN
585,934.39 10496 AILEEN K. AND BRIAN L. GWG-Block Accounts
582,703.76 94873 MATTHEW C. KRESSLY C FRED DITTMANN
581,713.24 98332 MARTIAL TRUST FOR ELI FRED DITTMANN
579,280.21 81504 KATHRYN J. DONALDSON BERNIE BLAIS
561,902.72 94874 AMANDA E. KRESSLY CU FRED DITTMANN
558,058.43 91225 JOHN H. GLICK, TTEE KAT FRED DITTMANN
555,588.03 02209 ST. ANDREW'S SOCIETY M JAY MCELROY
548,331.30 20460 EASTMAN SAVINGS AND SMITH BARNEY LC W
500,398.50 84451 U/A DTD 12/27/76 FOR HEL FRED DITTMANN
497,535.08 84125 ST. MARY'S CHURCH - ST FRED DITTMANN
497,108.19 04169 WILLIAM B. KESSLER ME LOUIS J ROSATO
472,242.98 14710 NELLE W CARLSMITH TR FRED DITTMANN
456,626.70 45054 CAROLINE C. KRESSLY SU FRED DITTMANN
455,438.86 38418 TEAMSTERS LOCAL 830 M MARCIA ZERCOE
431,105.02 84443 MARGARET AIMEE KEUL FRED DITTMANN
429,566.32 84824 PATHOLOGY CONSULTAN BERNIE BLAIS
411,292.40 50049 KGR FOUNDATION, INC JAY MCELROY
407,268.05 14711 DONN W. CARLSMITH TR FRED DITTMANN
396.888.64 84124 ST. MARY'S CHURCH - RE FRED DITTMANN
395,915.98 94607 EDITH M. CARLSMITH TR FRED DITTMANN
378,301.73 98331 FAMILY TRUST FOR ELISE FRED DITTMANN
365,014.16 94911 CAROLINE KRESSLY TRU FRED DITTMANN
327,374.17 30900 KENDAL AT OBERLIN-BO RHONDA MCNAVISH
314,009.19 66002 MIAMI CHILDREN'S HOSPI RHONDA MCNAVISH
299,121.14 83919 U/A DTD 12/19/79 FOR AND FRED DITTMANN
290,129.96 44042 CHURCH OF THE EPIPHAN BERNIE BLAIS
289,460.76 85750 U/A DTD 12/30/89 FOR MO FRED DITTMANN
266,758.76 83952 E.C. STYBERG DEFINED B LOUIS J ROSATO
266,209.43 96247 METHODIST HOSPITAL DI RHONDA MCNAVISH
249,441.83 96243 METHODIST HOSPITAL DI MARCIA ZERCOE
248,670.98 17461 KAELEMAKULE TRUST FRED DITTMANN
242,298.51 84832 PATHOLOGY CONSULTAN BERNIE BLAIS
241,052.25 72004 EARL S. SCOTT TRUST DA FRED DITTMANN
221,137.72 95038 JOAN S. STEELE REVOCA FRED DITTMANN
215,940.76 97135 MARGARET Y K ODA, TRU FRED DITTMANN
</TABLE>
<PAGE>
1838 Institutional Accounts by Market Value 08-Jun-98 Page 8
<TABLE>
<CAPTION>
3/31/98 Market Value Client ID Client Name Manager
<S> <C> <C> <C>
215,802.36 97130 HAROLD T. KURISU, TRUS FRED DITTMANN
215,801.41 97134 GEORGE I. KURISU TRUST FRED DITTMANN
215,791.41 97133 HARUKO K. YOSHINA, TR FRED DITTMANN
215,782.58 97131 ALBERT G. KURISU, TRUS FRED DITTMANN
215,767.80 97132 HATSUKO K. TANAKA TR FRED DITTMANN
202,761.64 01415 CBWC&I PROFIT SHARING FRED DITTMANN
199,684.00 72003 THE ESTATE OF DR. EARL FRED DITTMANN
199,586.48 92990 T/U/D DATED 2/6/59 FOR W JAY MCELROY
197,833.60 50066 THE UNION LEAGUE OF P JOE DOYLE
173,882.65 95037 RICHARD STEELE REVOC FRED DITTMANN
114,314.35 96242 METHODIST HOSPITAL FO RHONDA MCNAVISH
69,836.83 06349 1838 INVESTMENT ADVIS MARCIA ZERCOE
8,572.24 96244 METHODIST HOSPITAL DI RHONDA MCNAVISH
3,231.52 30926 KENDAL AT OBERLIN-CO RHONDA MCNAVISH
02227 ST. ANDREW'S SOCIETY JAY MCELROY
07368 RIVERSIDE MEDICAL CEN ED POWELL
12002 PROVIDENT MUTUAL LIF ED POWELL
14039 T/U/W JOHN J. SERRELL N PATRICIA J. MYERS
14040 NON QTTP FAMILY T/U/W J PATRICAI J. MYERS
21061 ELLIOT COOPERMAN PRO JOHN LISLE
21062 MIRIAM COOPERMAN PR JOHN LISLE
21074 ALAN LEAVITT TRUST #2 SMALL CAP QUASI W
21075 DAVID LEAVITT TRUST #2 SMALL CAP QUASI W
26529 MARKET STREET FUND N ED POWELL
31176 LANA ROSEN FIELD TRUS SMALL CAP QUASI W
35334 RIVERSIDE FOUNDATION CINDY AXELROD
35533 RIVERSIDE FOUNDATION CINDY AXELROD
35536 OAKSIDE CORPORATION CINDY AXELROD
60005ST PA MEDICAL SOCIETY LIA JOHN DONALDSON
71198 CAPITAL GROUWTH PORTF LOUIS J ROSATO
94747 STAFFORD SAVINS BAN JOHN DONALDSON
99183 ALLIANCE LAUNDRY SYS ED POWELL
99246 JAY D. ZINGG LIVING TRU SMALL CAP QUASI W
- -----------------
$4,173,252,508.58
=================
</TABLE>
<PAGE>
BANK ACCOUNTS
1838 Investment Advisors, L.P.
First Union Bank Checking Account No. 0105-2312
Contact - Mary Albanese
(215) 973-8174
First Union Bank Custody Account No. 06349-00-J
Contact - Steve Fluta
(215) 973-1449
1838 Investment Advisors, Inc.
Merrill Lynch CMA Account No. 64M-07N92
Contact - Donna Schuck
(215) 587-4726
<PAGE>
1838 INVESTMENT ADVISORS
<TABLE>
<CAPTION>
12/31/93 1/1/94 12/31/94 1/1/95 12/31/95 1/1/96
SHARES REDIST SHARES REDIST SHARES REDIST
<S> <C> <C> <C> <C> <C> <C>
BROWN, W. Thacher 210300 -1000 209300 -1000 208300
MCELROY, John J. 103000 -4000 99000 -8000 91000 -800
BALOG, James 66000 -12000 54000 -54000 0 Retired on 12/31/94
GEPHART, George W. 24000 1000 25000 15000 40000
SPRINGROSE, John 23500 1500 25000 15000 40000 3000
MYERS, Patrica J. 20500 2000 22500 11000 33500
DOYLE, Joseph T., Jr. 15000 2000 17000 8000 25000
BEIMER, Michael F. 16000 16000 16000 2000
DITTMANN, Frederic N. 7000 2000 9000 2000 11000
DONALDSON, John H. 10500 10500 2500 13000
TYRE, Steve 13000 2000 15000 5000 20000 -20000
BARRY, Kevin 17000 1500 18500 18500
ZERCOE, Marcia 0 0 7000
VAN DEN BERG, Hans 0 0 3000
POWELL, Edward 0 2000 2000 2000
HERZ, Robert 1000 1000 1000 2000 1000
AXELROD, Cynthia R. 0 0 1000
LIEB, Amy B. 2000 2000 2000 1000
EGAN, Kenneth A. 2000 2000 1000 3000
TETLEY, Nancy 2700 27000 2700
KEPES, Stephen D. 0 0 500
CLANCY, J. Barron 0 0
GUTHRIE, Holly 500 500 300
BENCROWSKY, Anna Marie 1500 1500 1500
CONSIDINE, Tom 0 0
MOORE, James E., III 0 0
WHITE, Denise E. 0 0
MCNAVISH, Rhonda 0 0
530000 0 530000 0 53000 0
Shares Purchased 17000 62000 28000
Price per share 33.17 28.17 31.93
<CAPTION>
6/30/96 12/31/96 1/1/97 3/31/97 12/31/97 1/1/98 3/31/98
SALE SHARES REDIST SALE SHARES RESDIST SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
BROWN, W. Thacher 280300 208,300 0 208,300
MCELROY, John J. 90200 -10000 80,200 0 80,200
BALOG, James 0
GEPHART, George W. 40000 10000 50,000 5,000 55,000
SPRINGROSE, John 43000 4000 47,000 5,000 52,000
MYERS, Patrica J. 33500 4000 37,500 3,000 40,500
DOYLE, Joseph T., Jr. 25000 25,000 3,000 28,000
BEIMER, Michael F. 18000 -2000 16,000 0 16,000
DITTMANN, Frederic N. 11000 2000 13,000 1,000 14,000
DONALDSON, John H. 13000 13,000 500 13,500
TYRE, Steve 0 Resigned on 1/1/96
BARRY, Kevin 18500 -18500 Resigned on 3/31/97
ZERCOE, Marcia 7000 2000 9,000 -2,000 7,000
VAN DEN BERG, Hans 3000 3000 6,000 3,000 9,000
POWELL, Edward 4000 1000 5,000 1,000 6,000
HERZ, Robert 3000 1000 4,000 1,000 5,000
AXELROD, Cynthia R. 1000 1500 2,500 1,000 3,500
LIEB, Amy B. 3000 3,000 0 3,000
EGAN, Kenneth A. 3000 3,000 0 3,000
TETLEY, Nancy 2700 2,700 0 2,700
KEPES, Stephen D. 500 1000 1,500 1,500 3,000
CLANCY, J. Barron 0 1000 1,000 2,000 3,000
GUTHRIE, Holly 800 0 Resigned on 6/30/96
BENCROWSKY, Anna Marie 1500 300 1,800 200 2,000
CONSIDINE, Tom 0 1000 1,000 500 1,500
MOORE, James E., III 0 500 500 500 1,000
WHITE, Denise E. 0 0 500 500
MCNAVISH, Rhonda 0 0 500 500
800 529200 20300 -18500 531,000 27,200 558,200
Shares Purchased 32300 29,200
Price per share 36.25 43.41
</TABLE>
01/07/98
<PAGE>
EXHIBIT A
1838 INVESTMENT ADVISORS, INC.
Current Shareholder List
Dated as of June 12, 1998
================================================================================
Name Number of Shares Percentage
================================================================================
Axelrod, Cynthia R. 3,500 .63%
Bencrowsky, Anna M. 2,000 .36%
Biemer, Michael F. 16,000 2.87%
Brown, W. Thacher 208,300 37.32%
Clancy, J. Barron 3,000 .54%
Considine, Thomas A. 1,500 .27%
Dittmann, Frederic N. 14,000 2.51%
Donaldson, John H. 13,500 2.42%
Doyle, Jr. Joseph T. 28,000 5.02%
Egan, Kenneth A. 3,000 .54%
Gephart, Jr. George W. 55,000 9.85%
Herz, Robert W. 5,000 .90%
Kepes, Stephen D. 3,000 .54%
Lieb, Amy B. 3,000 .54%
McElroy, John J. 80,200 14.37%
McNavish, Rhonda 500 .09%
Moore, III, James E. 1,000 .18%
Myers, Patricia J. 40,500 7.26%
Powell, Edwin P. 6,000 1.07%
Springrose, John H. 52,000 9.32%
Tetley, Nancy W. 2,700 .48%
Van Den Berg, Hans 9,000 1.61%
White, Denise E. 500 .09%
Zercoe, Marcia 7,000 1.25%
- --------------------------------------------------------------------------------
Former Shareholders
================================================================================
Name Number of Shares
================================================================================
Guthrie, Holly 800
Vitale, Robert J. 45,000
Shute, Edward L. 16,000
Echevarria, Joan 2,500
Barry, Kevin 18,500
Tyre, Steve 20,000
Balog, James 70,000
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT A-1
1838 INVESTMENT ADVISORS, INC.
Nonsoliciting Shareholder List
W. Thacher Brown
John J. McElroy
George W. Gephart
John Springrose
Patricia J. Myers
Joseph T. Doyle, Jr.
Michael F. Biemer
Frederick N. Dittmann
John H. Donaldson
Hans Van Den Berg
Edward Powell
<PAGE>
EXHIBIT B
PLAN OF MERGER
[TO BE FILED WITH THE DELWARE SECRETARY OF STATE, AFTER CLOSING]
CERTIFICATE OF MERGER
In accordance with Section 251 of the Delaware General Corporation Law,
this Certificate of Merger, dated as of [_____________], 1998 is executed by
1838 Investment Advisors, Inc., a Delaware corporation and MBIA Acquisition,
Inc. a Delaware corporation.
1. MBIA Acquisition, Inc., (the "Merging Corporation") and 1838 Investment
Advisors, Inc. have, in accordance with Section 251 of the Delaware General
Corporation Law, approved, adopted, certified, executed and acknowledged an
agreement and plan of merger dated as of June 19, 1998 (the "Agreement"),
pursuant to which 1838 Investment Advisors, Inc., (hereinafter the "Surviving
Corporation") is the surviving corporation.
2. The certificate of incorporation of 1838 Investment Advisors, Inc. shall
be the certificate of incorporation of the Surviving Corporation.
3. The Agreement is on file at the Surviving Corporation's principal place
of business which is located at Radnor Corporate Center, Suite 320, Radnor, PA
19807.
4. The Surviving Corporation will furnish, free of charge, to any
stockholder of the Surviving Corporation or of the Merging Corporation a copy of
the executed agreement and plan of merger.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
1838 INVESTMENT ADVISORS, INC.
By ________________________________
Its ______________________________
MBIA ACQUISITION, INC.
By ________________________________
Its ______________________________
<PAGE>
EXHIBIT C
FURNITURE, FIXTURES AND EQUIPMENT
Please see Disclosure Schedule.
<PAGE>
EXHIBIT D
CUSTOMER CONTRACTS
Please see Disclosure Schedule.
<PAGE>
EXHIBIT E
SELLING STOCKHOLDER LETTER
_____________, 19___
____________________
Name of Stockholder
MBIA Inc.
113 King Street
Armonk, NY 10504
Ladies and Gentlemen:
I am a stockholder of 1838 Investment Advisors, Inc. ("1838"). Pursuant to
the terms of the Agreement and Plan of Merger dated as of June ____, 1998 (the
"Merger Agreement") among 1838, MBIA Inc ("MBIA") and MBIA Acquisition, Inc.
("Acquisition"), Acquisition will be merged with and into 1838 in a transaction
(the "Merger") in which I will receive shares of $1.00 par value common stock of
MBIA (the "Shares") pursuant to the terms of the Merger Agreement.
In connection with the Merger, I represent and warrant to, and agree with,
MBIA that:
1. I have carefully read this Selling Stockholder Letter and discussed
its requirements and other applicable limitations upon the sale, transfer
or other disposition of the Shares, to the extent I felt necessary, with my
counsel or counsel for 1838.
2. I have carefully read the Merger Agreement relating to the Merger
and discussed its requirements and its impact upon my ability to sell,
transfer or otherwise dispose of the shares, to the extent I felt
necessary, with my counsel or counsel for 1838.
3. I have been informed by MBIA that the distribution by me of the
Shares has not been registered under the Act and that the Shares must be
held by me indefinitely unless (i) such distribution of the Shares has been
registered under the Securities Act of 1933 (the "Act"), (ii) a sale of the
Shares is made in conformity with the volume and other limitations of Rule
145 promulgated by the Securities and Exchange Commission (the
"Commission") under the Act (and otherwise in accordance with Rule 144
under the Act if I am an affiliate of MBIA and if so required at the time)
or (iii) some other exemption from registration is available with respect
to any such proposed sale, transfer or other disposition of the Shares. I
agree that I will not make any sale, transfer or other disposition of the
Shares in violation of the Act or the rules and regulations of the
Commission thereunder.
4. I understand that MBIA is under no obligation to register the sale,
transfer or other disposition of the Shares by me or on my behalf or to
take any other action necessary in order to make compliance with an
exemption from registration available, except for MBIA's
1
<PAGE>
customary procedures in connection with sales of its stock in conformity
with Rule 145. By accepting this Selling Stockholder Letter, MBIA agrees to
exert its best efforts to timely file with the Commission all of the
reports it is required to file under the Securities and Exchange Act of
1934, as amended (the "Exchange Act").
5. I also understand that, unless a transfer of Shares is a sale made
in conformity with the provisions of Rule 145, or is made pursuant to a
registration statement under the Act, stop transfer instructions will be
given to MBIA's transfer agent(s) with respect to the Shares and that there
will be placed on the certificate for the Shares, or any substitutions
therefore, a legend stating in substance:
"The Shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of
1933, as amended (the "Act"), applies and may be sold or otherwise
transferred only in compliance with the limitations of such Rule 145,
or pursuant to an effective registration statement or exemption from
registration under the Act"
6. I have not, within the 30 days prior to the date hereof, sold,
transferred or otherwise disposed of, or reduced my relative risk to, any
shares of 1838 or MBIA capital stock beneficially owned by me and,
notwithstanding the other provisions hereof, I will not sell, transfer, or
otherwise dispose of, or reduce my risk relative to, any Shares received by
me in the Merger or any other shares of MBIA capital stock which I may
beneficially own until after such time as financial results covering at
least 30 days of post-Merger combined operations of MBIA and 1838 have been
published by MBIA, in the form of a quarterly earnings report, an effective
registration statement filed with the Commission, a report to be Commission
on Form 10-K, 10-Q or 8-K or other public filing or announcement which
includes the combined financial results of operations. I understand that,
until such time, MBIA may refuse to register such transfer and that stop
transfer instructions will be given to MBIA's transfer agent(s) with
respect to the Shares or such other shares of MBIA capital stock.
9. I hereby waive any and all transfer restrictions set out in Article
7 of the Stockholders' Agreement (as defined in the Merger Agreement)
including, without limitation, rights of first refusal and consent to the
participation in the Merger of the other 1838 stockholders.
It is understood and agreed that this Selling Stockholder Letter shall
terminate and be of no further force and effect and the legend set forth in
paragraph 5 above shall be removed by delivery of substitute certificates
without such legend if the period of time specified in paragraph 7 above has
passed and MBIA shall have received a letter form the staff of the Commission,
or an opinion of counsel acceptable to MBIA, to the effect that the stock
transfer instructions and the legend are not required for purposes of the
Securities Act.
Very truly yours,
2
<PAGE>
Accepted as of the ____ day of
_______________, 19 ______
MBIA Inc.
By _______________________
3
EXECUTION COPY
================================================================================
CREDIT AGREEMENT
among
MBIA INC.,
MBIA INSURANCE CORPORATION,
VARIOUS DESIGNATED BORROWERS,
VARIOUS LENDING INSTITUTIONS,
DEUTSCHE BANK AG, NEW YORK BRANCH,
AS ADMINISTRATIVE AGENT,
THE FIRST NATIONAL BANK OF CHICAGO,
AS SYNDICATION AGENT
and
FLEET NATIONAL BANK,
AS DOCUMENTATION AGENT
Dated as of August 28, 1998
$200,000,000
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. Amount and Terms of Credit............................... 1
1.01 Commitment............................................... 1
1.02 Minimum Borrowing Amounts, etc........................... 1
1.03 Notice of Borrowing of Revolving Loans................... 2
1.04 Competitive Bid Borrowings............................... 2
1.05 Disbursement of Funds.................................... 4
1.06 Notes ............................................... 5
1.07 Conversions.............................................. 5
1.08 Pro Rata Borrowings, etc................................. 5
1.09 Interest ............................................... 6
1.10 Interest Periods......................................... 7
1.11 Increased Costs, Illegality, etc......................... 8
1.12 Compensation............................................. 10
1.13 Change of Lending Office................................. 10
1.14 Replacement of Lenders................................... 10
1.15 Recommitment; Replacement of Non-Continuing Lender ...... 11
1.16 Additional Commitments .................................. 12
1.17 Designated Borrowers .................................... 12
1.18 Retroactivity ........................................... 13
SECTION 2. Fees; Commitments ....................................... 13
2.01 Fees - .................................................. 13
2.02 Voluntary Reduction of Commitments ...................... 14
2.03 Mandatory Reduction of Commitments ...................... 14
SECTION 3. Payments ................................................ 14
3.01 Voluntary Prepayments ................................... 14
3.02 Mandatory Prepayments ................................... 14
3.03 Method and Place of Payment ............................. 15
3.04 Net Payments ............................................ 15
SECTION 4. Conditions Precedent .................................... 18
4.01 Conditions Precedent to Effective Date .................. 18
4.02 Conditions Precedent to Loans ........................... 19
SECTION 5. Representations, Warranties and Agreements .............. 20
5.01 Corporate Existence and Power 20
5.02 Corporate and Governmental Authorization;
No Contravention ....................................... 20
(i)
<PAGE>
5.03 Binding Effect .......................................... 20
5.04 Financial Information ................................... 20
5.05 Litigation .............................................. 21
5.06 Compliance with ERISA ................................... 21
5.07 Taxes ................................................... 21
5.08 Subsidiaries ............................................ 21
5.09 Not an Investment Company ............................... 21
5.10 Public Utility Holding Company Act ...................... 22
5.11 Ownership of Property; Liens ............................ 22
5.12 No Default .............................................. 22
5.13 Full Disclosure ......................................... 22
5.14 Compliance with Laws .................................... 22
5.15 Capital Stock .......................................... 22
5.16 Margin Stock ........................................... 22
5.17 Insolvency ............................................. 22
SECTION 6. Affirmative Covenants ................................... 23
6.01 Information Covenants .................................. 23
6.02 Books, Records and Inspections .......................... 24
6.03 Maintenance of Existence ................................ 25
6.04 Compliance with Laws; Payment of Taxes .................. 25
6.05 Insurance ............................................... 25
6.06 Maintenance of Property ................................. 25
SECTION 7. Negative Covenants ...................................... 25
7.01 Liens ................................................... 25
7.02 Dissolution ............................................. 26
7.03 Consolidations, Mergers and Sales of Assets ............. 26
7.04 Use of Proceeds ........................................ 26
7.05 Change in Fiscal Year .................................. 26
7.06 Transactions with Affiliates ........................... 26
7.07 Leverage Ratio ......................................... 26
7.08 Minimum Net Worth ...................................... 26
SECTION 8. Defaults ................................................ 27
8.01 Events of Default ....................................... 27
8.02 Notice of Default ....................................... 29
SECTION 9. Definitions ............................................. 29
SECTION 10. Agents, etc ............................................ 38
10.01 Appointment ............................................ 38
10.02 Nature of Duties ....................................... 38
10.03 Lack of Reliance on the Agents ......................... 39
(ii)
<PAGE>
10.04 Certain Rights of the Agents ........................... 39
10.05 Reliance ............................................... 39
10.06 Indemnification ........................................ 39
10.07 The Agents in Their Individual Capacities .............. 40
10.08 Holders ................................................ 40
10.09 Resignation by an Agent ................................ 40
10.10 Documentation Agent .................................... 41
SECTION 11. Miscellaneous .......................................... 41
11.01 Payment of Expenses, etc ............................... 41
11.02 Lender Enforceability Opinions ......................... 41
11.03 Notices ................................................ 42
11.04 Benefit of Agreement ................................... 42
11.05 No Waiver; Remedies Cumulative ......................... 43
11.06 Payments Pro Rata ...................................... 43
11.07 Calculations; Computations ............................. 44
11.08 Governing Law; Submission to Jurisdiction-,
Venue; Waiver of Jury Trial ........................... 44
11.09 Counterparts ........................................... 45
11.10 Headings Descriptive ................................... 45
11.11 Amendment or Waiver ................................... 45
11.12 Survival ............................................... 46
11.13 Domicile of Loans ...................................... 46
11.14 Confidentiality ........................................ 46
11.15 Lender Register ........................................ 46
ANNEX I -- Commitments
ANNEX II -- Lender Addresses
ANNEX III -- Subsidiaries
EXHIBIT A-1 -- Form of Notice of Borrowing
EXHIBIT A-2 -- Form of Notice of Competitive Bid Borrowing
EXHIBIT B-1 -- Form of Revolving Note
EXHIBIT B-2 -- Form of Competitive Bid Note
EXHIBIT C -- Form of Section 3.04 Certificate
EXHIBIT D -- Form of Opinion of General Counsel to Borrowers
EXHIBIT E -- Form of Officers' Certificate
EXHIBIT F -- Form of Financial Guaranty Insurance Policy
EXHIBIT G -- Form of Assignment Agreement
EXHIBIT H -- Form of Commitment Assumption Agreement
EXHIBIT I -- Form of DB Assumption Agreement
EXHIBIT J -- Form of Lender's Opinions
EXHIBIT K -- Form of Opinion of Designated Borrower's Counsel
EXHIBIT L -- Form of Opinion of Counsel to Corp.
(iii)
<PAGE>
CREDIT AGREEMENT, dated as of August 28, 1998, among MBIA INC. ("Parent"),
a Connecticut corporation, MBIA INSURANCE CORPORATION ("Corp."), a New York
stock insurance corporation, one or more Designated Borrowers (as hereinafter
defined) from time to time party hereto, the lenders from time to time party
hereto (each, a "Lender" and, collectively, the "Lenders"), DEUTSCHE BANK AG,
NEW YORK BRANCH, as Administrative Agent, THE FIRST NATIONAL BANK OF CHICAGO, as
Syndication Agent and FLEET NATIONAL BANK, as Documentation Agent. Unless
otherwise defined herein, all capitalized terms used herein and defined in
Section 9 are used herein as so defined.
WITNESSETH:
WHEREAS, subject to and upon the terms and conditions herein set forth, the
Lenders are willing to make available to the Borrowers the credit facilities
provided for herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Amount and Terms of Credit.
1.01 Commitment. (a) Subject to and upon the terms and conditions herein
set forth, each Lender severally agrees, at any time and from time to time on
and after the Effective Date and prior to the Final Maturity Date, to make a
loan or loans (each, a "Revolving Loan" and, collectively, the "Revolving
Loans") to one or more of the Borrowers (on a several basis), which Revolving
Loans (i) may be repaid and reborrowed in accordance with the provisions hereof,
(ii) except as hereinafter provided, may, at the option of any Borrower, be
incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar
Loans, provided that all Revolving Loans made as part of the same Borrowing
shall, unless otherwise specified herein, consist of Revolving Loans of the same
Type; and (iii) shall not exceed that aggregate Principal Amount which, when
added to the aggregate Principal Amount of all other Revolving Loans then
outstanding and the aggregate Principal Amount of all Competitive Bid Loans then
outstanding, equals the Total Commitment at such time.
(b) Subject to and upon the terms and conditions herein set forth, each
Lender severally agrees that one or more Borrowers may (on a several basis)
incur a loan or loans (each, a "Competitive Bid Loan" and, collectively, the
"Competitive Bid Loans") from one or more Bidder Lenders pursuant to a
Competitive Bid Borrowing at any time and from time to time on and after the
Effective Date and prior to the date which is the third Business Day preceding
the date which is seven days prior to the Final Maturity Date, provided that
after giving effect to any Competitive Bid Borrowing and the use of the proceeds
thereof, the aggregate outstanding Principal Amount of Competitive Bid Loans,
when combined with the then aggregate outstanding Principal Amount of all
Revolving Loans, shall not exceed the Total Commitment at such time.
1.02 Minimum Borrowing Amounts, etc. The aggregate Principal Amount of each
Borrowing shall not be less than the Minimum Borrowing Amount. More than one
Borrowing may be incurred on any day, provided that at no time shall there be
outstanding more than four Borrowings of Eurodollar Loans.
<PAGE>
1.03 Notice of Borrowing of Revolving Loans. (a) Whenever a Borrower
desires to incur Revolving Loans, it shall give the Administrative Agent at its
Notice Office, (x) prior to I 1:00 A.M. (New York time) at least three Business
Days' prior written notice (or telephonic notice promptly confirmed in writing)
of each Borrowing of Eurodollar Loans and (y) written notice (or telephonic
notice promptly confirmed in writing) prior to 1 1:00 A.M. (New York time) on
the date of each Borrowing of Base Rate Loans. Each such notice (each, a "Notice
of Borrowing") shall be in the form of Exhibit A-1 and shall be irrevocable and
shall specify (i) the identity of the applicable Borrower, (ii) the aggregate
principal amount of the Revolving Loans to be made pursuant to such Borrowing,
(iii) the date of Borrowing (which shall be a Business Day), (iv) whether the
respective Borrowing shall consist of Base Rate Loans or Eurodollar Loans, (V)
if Eurodollar Loans, the Interest Period to be initially applicable thereto and
(vi) if DB Loans, the DB Loan Maturity Date to be applicable thereto. The
Administrative Agent shall promptly give each Lender written notice (or
telephonic notice promptly confirmed in writing) of each proposed Borrowing, of
the portion thereof to be funded by such Lender and of the other matters covered
by the Notice of Borrowing.
(b) Without in any way limiting the obligation of any Borrower to confirm
in writing any telephonic notice permitted to be given hereunder, the
Administrative Agent may prior to receipt of written confirmation act without
liability upon the basis of such telephonic notice, believed by it in good faith
to be from an Authorized Officer of such Borrower. In each such case, each
Borrower hereby waives the right to dispute the Administrative Agent's record of
the terms of such telephonic notice absent manifest error.
1.04 Competitive Bid Borrowings. (a) Whenever any Borrower desires to incur
a Competitive Bid Borrowing, it shall deliver to the Administrative Agent, prior
to 11:00 A.M. (New York time) (x) at least four Business Days prior to the date
of such proposed Competitive Bid Borrowing, in the case of a Spread Borrowing,
and (y) at least one Business Day prior to the date of such proposed Competitive
Bid Borrowing, in the case of an Absolute Rate Borrowing, a written notice
substantially in the form of Exhibit A-2 hereto (a "Notice of Competitive Bid
Borrowing"), which notice shall specify in each case (i) the identity of the
applicable Borrower, (ii) the date (which shall be a Business Day) and the
aggregate amount of the proposed Competitive Bid Borrowing, (iii) the maturity
date for repayment of each and every Competitive Bid Loan to be made as part of
such Competitive Bid Borrowing (which maturity date may be (A) up to six months
after the date of such Competitive Bid Borrowing in the case of a Spread
Borrowing and (B) no fewer than seven days and no more than 180 days after the
date of such Competitive Bid Borrowing in the case of an Absolute Rate
Borrowing, provided that in no event shall the maturity date of any Competitive
Bid Borrowing be later than the third Business Day preceding the Final Maturity
Date), (iv) the interest payment date or dates relating thereto, (v) whether the
proposed Competitive Bid Borrowing is to be an Absolute Rate Borrowing or a
Spread Borrowing, and (vi) any other terms to be applicable to such Competitive
Bid Borrowing. The Administrative Agent shall promptly notify each Bidder Lender
by telephone or facsimile of each such request for a Competitive Bid Borrowing
received by it from a Borrower and of the contents of the related Notice of
Competitive Bid Borrowing.
(b) Each Bidder Lender shall, if, in its sole discretion, it elects to do
so, irrevocably offer to make one or more Competitive Bid Loans to the
applicable Borrower as part of
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such proposed Competitive Bid Borrowing at a rate or rates of interest specified
by such Bidder Lender in its sole discretion and determined by such Bidder
Lender independently of each other Bidder Lender, by notifying the
Administrative Agent (which shall give prompt notice thereof to such Borrower by
facsimile), before 9:30 A.M. (New York time) on the date (the "Reply Date")
which is (x) in the case of an Absolute Rate Borrowing, the date of such
proposed Competitive Bid Borrowing and (y) in the case of a Spread Borrowing,
three Business Days before the date of such proposed Competitive Bid Borrowing,
of the minimum amount and maximum amount of each Competitive Bid Loan which such
Bidder Lender would be willing to make as part of such proposed Competitive Bid
Borrowing (which amounts may, subject to the proviso contained in Section
1.01(b), exceed such Bidder Lender's Commitment), the rate or rates of interest
therefor and such Bidder Lender's lending office with respect to such
Competitive Bid Loan; provided that if the Administrative Agent in its capacity
as a Bidder Lender shall, in its sole discretion, elect to make any such offer,
it shall notify the respective Borrower of such offer before 9:15 A.M. (New York
time) on the Reply Date. If any Bidder Lender shall elect not to make such an
offer, such Bidder Lender shall so notify the Administrative Agent, before 9:30
A.M. (New York time) on the Reply Date, and such Bidder Lender shall not be
obligated to, and shall not, make any Competitive Bid Loan as part of such
Competitive Bid Borrowing; provided that the failure by any Bidder Lender to
give such notice shall not cause such Bidder Lender to be obligated to make any
Competitive Bid Loan as part of such proposed Competitive Bid Borrowing.
(c) The applicable Borrower shall, in turn, before 10:30 A.M. (New York
time) on the Reply Date, either:
(i) cancel such Competitive Bid Borrowing by giving the Administrative
Agent notice to such effect (it being understood and agreed that if such
Borrower gives no such notice of cancellation and no notice of acceptance
pursuant to clause (ii) below, then such Borrower shall be deemed to have
canceled such Competitive Bid Borrowing), or
(ii) accept one or more of the offers made by any Bidder Lender or
Bidder Lenders pursuant to clause (b) above by giving notice (in writing or
by telephone confirmed in writing) to the Administrative Agent of the
amount of each Competitive Bid Loan (which amount shall be equal to or
greater than the minimum amount, and equal to or less than the maximum
amount, notified to the applicable Borrower by the Administrative Agent on
behalf of such Bidder Lender for such Competitive Bid Borrowing pursuant to
clause (b) above) to be made by each Bidder Lender as part of such
Competitive Bid Borrowing, and reject any remaining offers made by Bidder
Lenders pursuant to clause (b) above by giving the Administrative Agent
notice to that effect; provided that the acceptance of offers may only be
made on the basis of ascending Absolute Rates (in the case of an Absolute
Rate Borrowing) or Spreads (in the case of a Spread Borrowing), in each
case commencing with the lowest rate so offered; provided further, however,
that if offers are made by two or more Bidder Lenders at the same rate and
acceptance of all such equal offers would result in a greater principal
amount of Competitive Bid Loans being accepted than the aggregate principal
amount requested by the applicable Borrower, if such Borrower elects to
accept any such offers such Borrower shall accept such offers P o rata from
such Bidder Lenders (on the basis of the maximum amounts of such offers)
unless any such Bidder Lender's pro rata share would be less than the
minimum amount specified
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by such Bidder Lender in its offer, in which case such Borrower shall have
the right to accept one or more such equal offers in their entirety and
reject the other equal offer or offers or to allocate acceptance among all
such equal offers (but giving effect to the minimum and maximum amounts
specified for each such offer pursuant to clause (b) above), as such
Borrower may elect in its sole discretion.
(d) If the applicable Borrower notifies the Administrative Agent that such
Competitive Bid Borrowing is deemed canceled, pursuant to clause (c)(i) above,
the Administrative Agent shall give prompt notice thereof to the Bidder Lenders
and such Competitive Bid Borrowing shall not be made.
(e) If the applicable Borrower accepts one or more of the offers made by
any Bidder Lender or Bidder Lenders pursuant to clause (c) (ii) above, the
Administrative Agent shall in turn promptly notify (x) each Bidder Lender that
has made an offer as described in clause (b) above, of the date and aggregate
amount of such Competitive Bid Borrowing and whether or not any offer or offers
made by such Bidder Lender pursuant-to clause (b) above have been accepted by
the Borrower and (y) each Bidder Lender that is to make a Competitive Bid Loan
as part of such Competitive Bid Borrowing, of the amount of each Competitive Bid
Loan to be made by such Bidder Lender as part of such Competitive Bid Borrowing.
1.05 Disbursement of Funds. (a) No later than 12:00 Noon (New York time)
(or 3:00 P.M. (New York time) in the case of (x) a Borrowing of Base Rate Loans
for which a Notice of Borrowing was given on the date of such Borrowing and (y)
a Competitive Bid Borrowing) on the date specified in each Notice of Borrowing
or Notice of Competitive Bid Borrowing, each Lender will make available its pro
rata share, if any, of such Borrowing requested to be made on such date. All
such amounts shall be made available to the Administrative Agent in Dollars, and
immediately available funds at the Payment Office and the Administrative Agent
promptly will make available to the applicable Borrower by depositing to the
account designated by such Borrower, which account shall be at an institution in
the same city as the respective Payment Office, the aggregate of the amounts so
made available in the type of funds received. Unless the Administrative Agent
shall have been notified by any Lender participating in a Borrowing prior to the
date of such Borrowing that such Lender does not intend to make available to the
Administrative Agent its portion of the Borrowing or Borrowings to be made on
such date, the Administrative Agent may assume that such Lender has made such
amount available to the Administrative Agent on such date of Borrowing, and the
Administrative Agent, in reliance upon such assumption, may (in its sole
discretion and without any obligation to do so) make available to the applicable
Borrower a corresponding amount. If such corresponding amount is not in fact
made available to the Administrative Agent by such Lender and the Administrative
Agent has made available same to the applicable Borrower, the Administrative
Agent shall be entitled to recover such corresponding amount from such Lender.
If such Lender does not pay such corresponding amount forthwith upon the
Administrative Agent's demand therefor, the Administrative Agent shall promptly
notify the applicable Borrower, and such Borrower shall pay such corresponding
amount to the Administrative Agent within three Business Days of receipt of such
notice unless previously paid by such Lender. The Administrative Agent shall
also be entitled to recover on demand from such Lender or such Borrower, as the
case may be, interest on such corresponding amount in respect of each day from
the date such
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corresponding amount was made available by the Administrative Agent to such
Borrower to the date such corresponding amount is recovered by the
Administrative Agent, at a rate per annum equal to (x) if paid by such Lender,
the overnight Federal Funds Effective Rate or (y) if paid by such Borrower, the
then applicable rate of interest, calculated in accordance with Section 1.09,
for the respective Loans.
(b) Nothing herein shall be deemed to relieve any Lender from its
obligation to fulfill its commitments hereunder or to prejudice any rights which
any Borrower may have against any Lender as a result of any default by such
Lender hereunder.
1.06 Notes. (a) Each Borrower's obligation to pay the principal of, and
interest on, the Loans made to it by each Lender shall be evidenced (i) if
Revolving Loans, by a promissory note substantially in the form of Exhibit B-1
with blanks appropriately completed (each, a "Revolving Note" and, collectively,
the "Revolving Notes") and (ii) if Competitive Bid Loans, by a promissory note
substantially in the form of Exhibit B-2 with blanks appropriately completed
(each a "Competitive Bid Note" and, collectively, the "Competitive Bid Notes").
(b) Each Lender will note on its internal records the amount of each Loan
made by it and each payment in respect thereof and will, prior to any transfer
of any of its Notes, endorse on the reverse side thereof the outstanding
Principal Amount of Loans evidenced thereby. Failure to make any such notation
shall not affect a Borrower's obligations in respect of such Loans.
1.07 Conversions. Each Borrower shall have the option to convert on any
Business Day all or a portion at least equal to the applicable Minimum Borrowing
Amount of its Revolving Loans constituting Base Rate Loans or Eurodollar Loans
into a Borrowing or Borrowings of Revolving Loans constituting Eurodollar Loans
or Base Rate Loans, respectively, provided that (i) no partial conversion shall
reduce the outstanding principal amount of the Eurodollar Loans made pursuant to
a Borrowing to less than the Minimum Borrowing Amount applicable thereto, (ii)
Base Rate Loans may not be converted into Eurodollar Loans when a Default or
Event of Default is then in existence if the Administrative Agent or the
Required Lenders shall have determined in its or their sole discretion not to
permit such conversion and (iii) Borrowings of Eurodollar Loans resulting from
this Section 1.07 shall be limited in number as provided in Section 1.02. Each
such conversion shall be effected by the respective Borrower giving the
Administrative Agent at the Notice Office, prior to 12:00 Noon (New York time),
at least three Business Days' (or one Business Day in the case of a conversion
into Base Rate Loans) prior written notice (or telephonic notice promptly
confirmed in writing) (each, a "Notice of Conversion") specifying the Revolving
Loans to be so converted, the Type of Loans (as to interest option) to be
converted into and, if to be converted into a Borrowing of Eurodollar Loans, the
Interest Period to be initially applicable thereto. The Administrative Agent
shall give each Lender prompt notice of any such proposed conversion affecting
any of its Loans.
1.08 Pro Rata Borrowings, etc. All Revolving Loans incurred pursuant to a
Borrowing shall be made by the Lenders pro rata on the basis of their respective
Commitments. it is understood that no Lender shall be responsible for any
default by any other Lender in its obligation to make Revolving Loans hereunder,
and that each Lender shall be obligated to make
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the Revolving Loans provided to be made by it hereunder, regardless of the
failure of any other Lender to fulfill its commitments hereunder and regardless
of whether such Lender has made any Competitive Bid Loans hereunder.
1.09 Interest. (a) The unpaid principal amount of each Base Rate Loan shall
bear interest from the date of the Borrowing thereof until maturity (whether by
acceleration or otherwise) or conversion at a rate per annum which shall at all
times be the Base Rate in effect from time to time.
(b) The unpaid principal amount of each Eurodollar Loan shall bear interest
from the date of the Borrowing thereof until maturity (whether by acceleration
or otherwise) or conversion at a rate per annum which shall at all times during
each Interest Period applicable thereto be LIBOR for such Interest Period plus a
margin of 0.18%.
(c) The unpaid principal amount of each Competitive Bid Loan shall bear
interest from the date of the Borrowing thereof until maturity (whether by
acceleration or otherwise) at a rate or rates per annum specified by a Bidder
Lender or Bidder Lenders, as the case may be, pursuant to Section 1.04(b) and
accepted by the respective Borrower pursuant to Section 1.04(c).
(d) All overdue principal and, to the extent permitted by law, overdue
interest in respect of any Loans shall bear interest at the Base Rate in effect
from time to time plus 2%, provided that principal in respect of Eurodollar
Loans and Competitive Bid Loans shall bear interest from the date same becomes
due (whether by acceleration or other-wise) until the end of the Interest Period
applicable thereto at a rate per annum equal to 2% plus the rate of interest
applicable on the due date therefor.
(e) Interest shall accrue from and including the date of any Borrowing to
but excluding the date of any repayment thereof, and in the case of DB Loans,
compounded as described below, and shall be payable (i) in respect of each Base
Rate Loan (other than a DB Loan), quarterly in arrears on the last Business Day
of each March, June, September and December, (ii) in respect of each Eurodollar
Loan (other than a DB Loan), on the last day of each Interest Period applicable
thereto and, in the case of an Interest Period in excess of three months, on
each date occurring at three month intervals after the first day of such
Interest Period, (iii) in respect of each DB Loan, on the applicable DB Loan
Maturity Date, (iv) in respect of each Competitive Bid Loan, at such times as
specified in the Notice of Competitive Bid Borrowing relating thereto, and (v)
in respect of each Loan, on any prepayment or conversion (other than the
prepayment or conversion of any Base Rate Loan) (on the amount prepaid or
converted), at maturity (whether by acceleration or otherwise) and, after such
maturity, on demand. Notwithstanding anything to the contrary contained in this
Agreement, although interest in respect of each DB Loan shall be payable only on
the DB Loan Maturity Date for such DB Loan as provided in clause (iii) of the
immediately preceding sentence, interest on each DB Loan shall compound on each
date on which interest thereon would have been payable pursuant to clause (i) or
(ii) of such sentence if such Loan were not a DB Loan and such compounded
interest shall thereafter bear interest hereunder at the same rate per annum as
the principal of the DB Loan to which such compounded interest relates.
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(f) All computations of interest hereunder shall be made in accordance with
Section 11.07(b).
(g) The Administrative Agent, upon determining the interest rate for any
Borrowing for any Interest Period, shall promptly notify the applicable Borrower
and the Lenders thereof.
1.10 Interest Periods. (a) At the time a Borrower gives a Notice of
Borrowing or a Notice of Conversion in respect of the making of, or conversion
into, a Borrowing of Eurodollar Loans (in the case of the initial Interest
Period applicable thereto) or prior to 12:00 Noon (New York Time) on the third
Business Day prior to the expiration of an Interest Period applicable to a
Borrowing of Eurodollar Loans, it shall have the right to elect by giving the
Administrative Agent written notice (or telephonic notice promptly confirmed in
writing) of the Interest Period applicable to such Borrowing, which Interest
Period shall, at the option of such Borrower, be a one, two, three or six month
period or such other period available to all Lenders. Notwithstanding anything
to the contrary contained above:
(i) the initial Interest Period for any Borrowing shall commence on
the date of such Borrowing (including, where relevant, the date of any
conversion from a Borrowing of Base Rate Loans) and each Interest Period
occurring thereafter in respect of such Borrowing shall commence on the day
on which the next preceding Interest Period expires;
(ii) if any Interest Period begins on (x) the last Business Day of a
month, it shall end on the last Business Day of the month in which it is to
end and (y) a day for which there is no numerically corresponding day in
the calendar month at the end of such Interest Period, such Interest Period
shall end on the last Business Day of such calendar month;
(iii) if any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided that if any Interest Period would
otherwise expire on a day which is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(iv) no Interest Period may be elected that would extend beyond the
Final Maturity Date;
(v) no Interest Period in respect of a DB Loan may be elected that
would extend beyond the DB Loan Maturity Date for such DB Loan;
(vi) no Interest Period may be elected at any time when a Default or
an Event of Default is then in existence if the Administrative Agent or the
Required Lenders shall have determined in its or their sole discretion not
to permit such election; and
(vii) all Eurodollar Loans comprising a Borrowing shall at all times
have the same Interest Period.
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(b) If upon the expiration of any Interest Period, the applicable Borrower
has failed to (or may not) elect a new Interest Period to be applicable to the
Revolving Loans subject to the expiring Interest Period as provided above, such
Borrower shall be deemed to have elected, in the case of Eurodollar Loans, to
convert such Borrowing into a Borrowing of Base Rate Loans effective as of the
expiration date of such current Interest Period.
1.11 Increased Costs, Illegality, etc. (a) In the event that (x) in the
case of clause (i) below, the Administrative Agent or (y) in the case of clause
(ii) or (iii) below, any Lender shall have determined (which determination
shall, absent manifest error, be final and conclusive and binding upon all
parties hereto):
(i) on any date for determining LIBOR for any Interest Period that, by
reason of any changes arising after the date of this Agreement affecting
the relevant interbank market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in the
definition of LIBOR; or
(ii) at any time, that such Lender shall actually incur increased
costs or reductions in the amounts received or receivable hereunder with
respect to any Eurodollar Loans or Competitive Bid Loans (other than any
increased cost or reduction in the amount received or receivable resulting
from the imposition of or a change in the rate of taxes or similar charges)
because of (x) any change since the Effective Date (or, in the case of any
Competitive Bid Loan, since the making of such Competitive Bid Loan) in any
applicable law, governmental rule, regulation, guideline or order (or in
the interpretation or administration thereof and including the introduction
of any new law or governmental rule, regulation, guideline or order) (such
as, for example, but not limited to, a change in official reserve
requirements, but, in all events, excluding amounts payable pursuant to
Section 1.11(c)) and/or (y) other circumstances occurring since the
Effective Date affecting the relevant interbank market; or
(iii) at any time, that the making or continuance of any Eurodollar
Loans or Competitive Bid Loans has become unlawful by compliance by such
Lender in good faith with any law, governmental rule, regulation or
guideline, or has become impracticable as a result of a contingency
occurring after the Effective Date which materially and adversely affects
the relevant interbank market;
then, and in any such event, such Lender (or the Administrative Agent in the
case of clause (i) above) shall (x) on such date and (y) within ten Business
Days of the date on which such event no longer exists give notice (by telephone
confirmed in writing) to the respective Borrower and, except in the case of
clause (i) above, to the Administrative Agent of such determination (which
notice the Administrative Agent shall promptly transmit to each of the other
Lenders). Thereafter and for so long as the applicable circumstance continues to
exist (w) in the case of clause (i) above, Eurodollar Loans (and Competitive Bid
Loans constituting a Spread Borrowing) shall no longer be available until such
time as the Administrative Agent notifies the respective Borrower and the
Lenders that the circumstances giving rise to such notice by the Administrative
Agent no longer exist in accordance with clause (y) of the preceding sentence,
and any Notice of Borrowing, Notice of Competitive Bid Borrowing or Notice of
Conversion given by a Borrower
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with respect to such Loans which have not yet been incurred shall be deemed
rescinded by the relevant Borrower, (x) in the case of clause (ii) above, the
applicable Borrower shall pay to such Lender, upon written demand therefor, such
additional amounts (in the form of an increased rate of, or a different method
of calculating, interest or otherwise as such Lender in its sole discretion
shall determine) as shall be required to compensate such Lender for such
increased costs or reductions in amounts receivable hereunder (a written notice
as to the additional amounts owed to such Lender, showing the basis for the
calculation thereof in reasonable detail, submitted to the applicable Borrower
by such Lender shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) and (y) in the case of clause (iii) above, the
applicable Borrower shall take one of the actions specified in Section 1.11(b)
as promptly as possible and, in any event, within the time period required by
law.
(b) At any time when any Eurodollar Loan or Competitive Bid Loan is
affected by the circumstances described in Section 1.11(a)(ii) or (iii), the
applicable Borrower may (and in the case of a Eurodollar Loan or Competitive Bid
Loan affected pursuant to Section 1.11(a)(iii), the applicable Borrower shall)
either (i) if the affected Eurodollar Loan or Competitive Bid Loan is then being
made pursuant to a Borrowing, cancel said Borrowing by giving the Administrative
Agent telephonic notice (confirmed promptly in writing) thereof on the same date
that the respective Borrower was notified by a Lender pursuant to Section
1.11(a)(ii) or (iii), or (ii) if the affected Eurodollar Loan or Competitive Bid
Loan is then outstanding, upon at least three Business Days' notice to the
Administrative Agent, (A) in the case of a Eurodollar Loan, require the affected
Lender to convert each such Eurodollar Loan into a Base Rate Loan, and (B) in
the case of a Competitive Bid Loan, repay all such Competitive Bid Loans in
full, provided that if more than one Lender is affected at any time, then all
affected Lenders must be treated the same pursuant to this Section 1.11(b).
(c) If any Lender shall have determined that after the Effective Date, the
adoption or effectiveness of any applicable law, rule or regulation regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by such Lender or any corporation controlling such Lender with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's or such corporation's
capital or assets as a consequence of its commitments or obligations hereunder
to a level below that which such Lender or such other corporation could have
achieved but for such adoption, effectiveness, change or compliance (taking into
consideration such Lender's or such other corporation's policies with respect to
capital adequacy), then from time to time, within 15 days after written demand
by such Lender (with a copy to the Administrative Agent), the Borrowers jointly
and severally agree to pay to such Lender such additional amount or amounts as
will compensate such Lender or such other corporation for such reduction. In
determining such additional amounts, each Lender will act reasonably and in good
faith and will use averaging and attribution methods that are reasonable. Each
Lender, upon so determining that any additional amounts will be payable pursuant
to this Section 1.11(c), will give prompt written notice thereof to the
Borrowers, which notice shall set forth in reasonable detail the basis of the
calculation of such additional amounts, although the
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failure to give any such notice shall not release or diminish any Borrower's
obligations to pay additional amounts pursuant to this Section 1.11(c) upon the
subsequent receipt of such notice.
1.12 Compensation. Each Borrower shall compensate each Lender, upon its
written request (which request shall set forth the basis for requesting such
compensation), for all reasonable losses, expenses and liabilities (including,
without limitation, any loss, expense or liability incurred by reason of the
liquidation or reemployment of deposits or other funds required by such Lender
to fund any Eurodollar Loans or Competitive Bid Loans made, or to be made, by it
to such Borrower but excluding in any event the loss of anticipated profits)
which such Lender may actually sustain: (i) if for any reason (other than a
default by such Lender or the Administrative Agent) a Borrowing of Eurodollar
Loans or Competitive Bid Loans does not occur on a date specified therefor in a
Notice of Borrowing, a Notice of Competitive Bid Borrowing or a Notice of
Conversion, given by such Borrower (whether or not withdrawn by such Borrower or
deemed withdrawn pursuant to Section 1.11(a)); (ii) if any prepayment, repayment
or conversion of any such Eurodollar Loans or Competitive Bid Loans occurs on a
date which is not the last day of an Interest Period applicable thereto; (iii)
if any prepayment of any such Eurodollar Loans or Competitive Bid Loans is not
made on any date specified in a notice of prepayment given by such Borrower;
(iv) if such Lender is required pursuant to Section 1.14 to assign any such
Eurodollar Loans or Competitive Bid Loans as of a date which is not the last day
of an Interest Period applicable thereto; or (v) as a consequence of (x) any
other default by such Borrower to repay its Eurodollar Loans or Competitive Bid
Loans when required by the terms of this Agreement or (y) an election made
pursuant to Section 1.11(b).
1.13 Change of Lending Office. Each Lender agrees that, upon the occurrence
of any event giving rise to the operation of Section 1.11(a)(ii) or (iii),
1.11(c) or 3.04 with respect to such Lender, it will, if requested by the
applicable Borrower, use reasonable efforts (subject to overall policy
considerations of such Lender) to designate another lending office for any Loans
or Commitments affected by such event, provided that such designation is made on
such terms that such Lender and its lending office suffer no economic, legal or
regulatory disadvantage, with the object of avoiding or materially mitigating
the consequence of the event giving rise to the operation of any such Section.
Nothing in this Section 1.13 shall affect or postpone any of the obligations of
any Borrower or the right of any Lender provided in Section 1.11or 3.04.
1.14 Replacement of Lenders. (a) Upon the occurrence of any event giving
rise to the operation of Section 1.11(a)(ii) or (iii), Section 1.11(c) or
Section 3.04 with respect to any Lender which results in such Lender charging to
any Borrower increased costs in excess of those being generally charged by the
other Lenders, (b) if a Lender becomes a Defaulting Lender, (c) if a Lender
becomes a Non-Continuing Lender, (d) if a Lender fails to maintain a long-term
debt rating of at least BBB- as determined by Standard & Poor's Corporation and
at least Baa3 as determined by Moody's Investors Service, Inc., (e) if a Lender
fails to deliver the opinion or opinions as required pursuant to Section 11.02
and/or (f) in the case of a refusal by a Lender to consent to a proposed change,
waiver, discharge or termination with respect to this Agreement which has been
approved by the Required Lenders, Parent and Corp. shall have the right, if no
Default or Event of Default then exists, to replace such Lender (the "Replaced
Lender"), upon prior written notice to the Administrative Agent and such
Replaced Lender, with one or more Person or Persons, none of whom shall
constitute a Defaulting Lender at the time of such
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replacement (collectively, the "Replacement Lender") reasonably acceptable to
the Administrative Agent, provided that (i) at the time of any replacement
pursuant to this Section 1.14, the Replacement Lender and the Replaced Lender
shall enter into one or more Assignment Agreements pursuant to Section 11.04(b)
(and with all fees payable pursuant to said Section 11.04(b) to be paid by the
Replacement Lender) pursuant to which the Replacement Lender shall acquire all
of the Commitments and outstanding Loans of the Replaced Lender and, in
connection therewith, shall pay to the Replaced Lender in respect thereof an
amount equal to the sum of (A) an amount equal to the principal amount of, and
all accrued but unpaid interest on, all outstanding Loans of the Replaced Lender
and (B) an amount equal to all accrued, but theretofore unpaid, Fees owing to
the Replaced Lender pursuant to Section 2.01, and (ii) all obligations of the
Borrowers under the Credit Documents owing to the Replaced Lender (other than
those specifically described in clause (i) above in respect of which the
assignment purchase price has been, or is concurrently being, paid), including
without limitation all amounts owing to the Replaced Lender under Section 1.12
as a result of the assignment of its Loans under clause (i) above, shall be paid
in full to such Replaced Lender concurrently with such replacement. Upon the
execution of the respective Assignment Agreements, the payment of amounts
referred to in clauses (i) and (ii) above and, if so requested by the
Replacement Lender, delivery to the Replacement Lender of the appropriate Note
or Notes executed by the relevant Borrowers, the Replacement Lender shall become
a Lender hereunder and the Replaced Lender shall cease to constitute a Lender
hereunder, except with respect to indemnification provisions applicable to the
Replaced Lender under this Agreement, which shall survive as to such Replaced
Lender.
1.15 Recommitment; Replacement of Non-Continuing Lender. Parent and Corp.
may, prior to (but not less than 60 days nor more than 120 days prior to) the
Final Maturity Date then in effect (each such Final Maturity Date, a
"Recommitment Deadline"), by written notice to the Administrative Agent (which
notice the Administrative Agent shall promptly transmit to each Lender), request
that the Final Maturity Date then in effect be extended. Such request shall be
accompanied by a certificate of an Authorized Officer of Parent stating that no
Default or Event of Default has occurred and is continuing. Each Lender shall
respond to such request, as promptly as practicable, by written notice to
Parent, Corp. and the Administrative Agent, with the failure of any Lender to
respond prior to the Recommitment Deadline being deemed to be a negative
response. In the event each Lender shall consent to such request of Parent and
Corp., on such Recommitment Deadline, the Final Maturity Date shall be
automatically extended to the date occurring 364 days following the Final
Maturity Date then in effect. If any Lender shall fail to consent to such
recommitment (any such Lender, a "Non-Continuing Lender"), Parent and Corp.
shall be entitled at any time prior to the Recommitment Deadline with respect to
such request to replace such Lender in accordance with the requirements of
Section 1.14, and in the event that the Replacement Lender with respect to each
such Non-Continuing Lender shall consent to such recommitment prior to such
Recommitment Deadline, such recommitment shall be effective as described in the
immediately preceding sentence as if each Lender had originally consented to
such request. No Lender shall be obligated to grant any recommitments pursuant
to this Section 1.15 and any such recommitment shall be in the sole discretion
of each such Lender. The Administrative Agent shall notify Parent, Corp. and
each Lender as to the effectiveness of any such recommitment.
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1.16 Additional Commitments. At any time and from time to time on and after
the Effective Date and prior to the Final Maturity Date, Parent and Corp. may
request one or more Lenders or other lending institutions to increase its
Commitment (in the case of an existing Lender) or assume a Commitment (in the
case of any other lending institution) and, in the sole discretion of each such
Lender or other institution, any such Lender or other institution may agree to
so commit; provided that (i) no Default or Event of Default then exists, (ii)
the increase in the Total Commitment pursuant to any such request shall be in an
aggregate amount of at least $9,000,000 and (iii) the aggregate increase in the
Total Commitment pursuant to this Section 1.16 shall not exceed $75,000,000.
Parent, Corp. and each such Lender or other lending institution (each, an
"Assuming Lender") which agrees to increase its existing, or assume, a
Commitment shall execute and deliver to the Administrative Agent a Commitment
Assumption Agreement substantially in the form of Exhibit H (with the increase
in, or in the case of a new Assuming Lender, assumption of, such Lender's
Commitment to be effective on the Business Day following delivery of such
Commitment Assumption Agreement to the Administrative Agent). The Administrative
Agent shall promptly notify each Lender as to the occurrence of each Commitment
Assumption Date. On each Commitment Assumption Date, (x) Annex I shall be deemed
modified to reflect the revised Commitments of the Lenders, (y) Parent and Corp.
shall pay to each such Assuming Lender such up front fee (if any) as may have
been agreed between Parent, Corp. and such Assuming Lender and (z) the Borrowers
will issue new Notes to the Assuming Lenders in conformity with the requirements
of Section 1.06. Notwithstanding anything to the contrary contained in this
Agreement, in connection with any increase in the Total Commitment pursuant to
this Section 1.16, each Borrower shall, in coordination with the Administrative
Agent and the Lenders, repay outstanding Revolving Loans of certain Lenders and,
if necessary, incur additional Revolving Loans from other Lenders, in each case
so that such Lenders participate in each Borrowing of such Revolving Loans pro
rata on the basis of their Commitments (after giving effect to any increase
thereof). It is hereby agreed that any breakage costs of the type described in
Section 1.12 incurred by the Lenders in connection with the repayment of
Revolving Loans contemplated by this Section 1.16 shall be for the account of
the respective Borrowers.
1.17 Designated Borrowers. Parent or Corp. may from time to time designate
one or more Persons as a Designated Borrower (each, a "Designated Borrower" and,
collectively, the "Designated Borrowers"), subject to the following terms and
conditions:
(a) each such Person shall be a special purpose entity organized under
the laws of the United States of America, a state thereof or the District
of Columbia;
(b) each such Person shall enter into an appropriately completed DB
Assumption Agreement in the form of Exhibit I hereto on or prior to the
date of designation;
(c) each such Person shall furnish to each Lender its most recent
historic or pro forma financial statements (which financial statements may
be summary in nature and unaudited) on or prior to the date of designation;
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(d) at the time of such designation, such Person shall not be subject
to any bankruptcy or insolvency proceeding of the type referred to in
Section 8.01(h) or (i) and shall not be subject to any material litigation;
(d) on or prior to the date of designation, such Person shall execute
and deliver to each Lender a Revolving Note and a Competitive Bid Note to
evidence the DB Loans incurred by such Person;
(e) on or prior to the date of designation, the Administrative Agent
shall have received from such Person a certificate, signed by an Authorized
Officer of such Person in the form of Exhibit E with appropriate insertions
or deletions, together with (x) copies of its certificate of incorporation,
by-laws or other organizational documents and (y) the resolutions relating
to the Credit Documents which shall be satisfactory to the Administrative
Agent; and
(f) on or prior to the date of designation, the Administrative Agent
shall have received an opinion, addressed to each Agent and each of the
Lenders and dated the date of designation, from counsel to such Person
which opinion shall be substantially in the form of Exhibit K hereto.
1.18 Retroactivity. Notwithstanding anything in this Agreement to the
contrary, to the extent any notice required by Section 1.11 or 3.04 is given by
any Lender more than 90 days after such Lender obtained knowledge of the
occurrence of the event giving rise to the additional costs of the type
described in such Section, such Lender shall not be entitled to compensation
under Section 1.11 or 3.04 for any amounts incurred or accruing prior to the
90th day preceding the giving of such notice to the respective Borrower.
SECTION 2. Fees, Commitments.
2.01 Fees. (a) Parent and Corp. jointly and severally agree to pay to the
Administrative Agent a facility fee (the "Facility Fee") for the account of the
Lenders pro rata on the basis of their respective Commitments for the period
from and including the Effective Date to but excluding the date the Total
Commitment has been terminated computed at a rate per annum equal to 0.07% of
the Total Commitment as in effect from time to time. Accrued Facility Fees shall
be due and payable quarterly in arrears on the last Business Day of each March,
June, September and December, on the Final Maturity Date or upon such earlier
date as the Total Commitment shall be terminated and, with respect to any
Facility Fee owing to any Lender whose Commitment is terminated pursuant to
Section 1.14, on the date on which such Lender's Commitment is terminated.
(b) Parent and Corp. jointly and severally agree to pay to the
Administrative Agent, for the account of the Administrative Agent, when and as
due, such fees as have been, or are from time to time, separately agreed upon.
(c) All computations of Fees shall be made in accordance with Section
11.07(b).
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2.02 Voluntary Reduction of Commitments. Upon at least three Business Days'
prior written notice (or telephonic notice confirmed in writing) to the
Administrative Agent at the Notice Office (which notice shall be deemed to be
given on a certain day only if given before 12:00 Noon (New York time) on such
day and shall be promptly transmitted by the Administrative Agent to each of the
Lenders), Parent and/or Corp. shall have the right, without premium or penalty,
to terminate or partially reduce the Total Unutilized Commitment, provided that
(x) any such termination shall apply to proportionately and permanently reduce
the Commitment of each Lender and (y) any partial reduction pursuant to this
Section 2.02 shall be in the amount of at least $10,000,000.
2.03 Mandatory Reduction of Commitments. (a) The Total Commitment shall
terminate in its entirety on September 30, 1998 unless the Effective Date has
occurred on or before such date.
(b) The Total Commitment shall terminate in its entirety on the Final
Maturity Date.
SECTION 3. Payments.
3.01 Voluntary Prepayments. Each Borrower shall have the right to prepay
Revolving Loans made to it in whole or in part, without premium or penalty, from
time to time on the following terms and conditions: (i) such Borrower shall give
the Administrative Agent at the Payment Office written notice (or telephonic
notice promptly confirmed in writing) of its intent to prepay the Revolving
Loans, the amount of such prepayment and the specific Borrowing(s) pursuant to
which such Revolving Loans were made, which notice shall be given by such
Borrower at least three Business Days prior to the date of such prepayment and
which notice shall promptly be transmitted by the Administrative Agent to each
of the Lenders; (ii) each partial prepayment of any Borrowing shall be in an
aggregate principal amount of at least $1,000,000, provided that no partial
prepayment of Revolving Loans made pursuant to a Borrowing shall reduce the
aggregate principal amount of the Revolving Loans outstanding pursuant to such
Borrowing to an amount less than the Minimum Borrowing Amount applicable
thereto; (iii) each prepayment in respect of any Revolving Loans made pursuant
to a Borrowing shall be applied pro rata among such Revolving Loans; and (iv)
prepayments of Eurodollar Loans made pursuant to this Section 3.01 may only be
made on the last day of an Interest Period applicable thereto unless
concurrently with such prepayment any payments required to be made pursuant to
Section 1.12 as a result of such prepayment are made. No Borrower shall have the
right under this Section 3.01 to prepay any principal amount of any Competitive
Bid Loans.
3.02 Mandatory Prepayments. (a) If on any date the sum of the aggregate
outstanding Principal Amount of Revolving Loans and Competitive Bid Loans (all
the foregoing, collectively, the "Aggregate Loan Outstandings") exceeds the
Total Commitment as then in effect, the Borrowers, jointly and severally, shall
repay no later than the next following Business Day the principal amount of
Revolving Loans (but excluding DB Loans to the extent the respective DB Loan
Maturity Date has not occurred) in an aggregate Principal Amount equal to such
excess. If, after giving effect to the prepayment of all outstanding Revolving
Loans as set forth above, the remaining Aggregate Loan Outstandings exceed the
Total Commitment, the
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Borrowers, jointly and severally, shall repay on such date the principal of
Competitive Bid Loans in an aggregate amount equal to such excess.
(b) On the maturity date specified pursuant to Section 1.04(a) with respect
to each Competitive Bid Loan, the applicable Borrower shall repay such
Competitive Bid Loan to the applicable Bidder Lender or Bidder Lenders.
(c) On each DB Loan Maturity Date, the respective Designated Borrower shall
repay the respective DB Loans in full.
(d) Notwithstanding anything to the contrary contained elsewhere in this
Agreement, all outstanding Revolving Loans and Competitive Bid Loans shall be
repaid in full on the Final Maturity Date,
(e) With respect to each prepayment of Revolving Loans required by Section
3.02(a), the applicable Borrower may designate the Types of Revolving Loans
which are to be prepaid and the specific Borrowing(s) pursuant to which made,
provided that (i) if any prepayment of Eurodollar Loans made pursuant to a
single Borrowing shall reduce the outstanding Revolving Loans made pursuant to
such Borrowing to an amount less than the Minimum Borrowing Amount for such
Borrowing, then all Revolving Loans outstanding pursuant to such Borrowing shall
be immediately converted into Base Rate Loans and (ii) each prepayment of any
Revolving Loans made pursuant to a Borrowing shall be applied pro rata among
such Revolving Loans. In the absence of a designation by a Borrower as described
in the preceding sentence, the Administrative Agent shall, subject to the above,
make such designation in its sole discretion with a view, but no obligation, to
minimize breakage costs owing under Section 1.12.
3.03 Method and Place of Payment. Except as otherwise specifically provided
herein, all payments under this Agreement shall be made to the Administrative
Agent for the ratable (based on its pro rata share) account of the Lenders
entitled thereto, not later than 12:00 Noon (New York Time) on the date when due
and shall be made in immediately available funds at the Payment Office in
Dollars, it being understood that written notice by a Borrower to the
Administrative Agent to make a payment from the funds in such Borrower's account
at the Payment Office shall constitute the making of such payment to the extent
of such funds held in such account. Any payments under this Agreement which are
made later than 12:00 Noon (New York Time) shall be deemed to have been made on
the next succeeding Business Day. Whenever any payment to be made hereunder
shall be stated to be due on a day which is not a Business Day, the due date
thereof shall be extended to the next succeeding Business Day and, with respect
to payments of principal, interest shall be payable during such extension at the
applicable rate in effect immediately prior to such extension. The
Administrative Agent will promptly make available to each Lender its pro rata
share (if any) of each payment so received by the Administrative Agent in the
funds so received.
3.04 Net Payments. (a) All payments made by each Borrower hereunder or
under any Note will be made without setoff, counterclaim or other defense.
Except as provided in Section 3.04(b), all such payments will be made free and
clear of, and without deduction or withholding for, any present or future taxes,
levies, imposts, duties, fees, assessments or other charges
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of whatever nature now or hereafter imposed by any jurisdiction (or by any
political subdivision or taxing authority thereof or therein) with respect to
such payments (but excluding, except as provided in the second succeeding
sentence, any tax levy, impost, duty, fee, assessment or other governmental
charge imposed on or measured by the net income or net profits of a Lender
(including, without limitation, any franchise tax imposed on or measured by net
income or net profits and any branch profits taxes) pursuant to the laws of the
jurisdiction in which it is organized or the jurisdiction in which the principal
office or applicable lending office of such Lender is located (or any
subdivision or taxing authority thereof or therein)) and all interest, penalties
or similar liabilities with respect to such non-excluded taxes, levies, imposts,
duties, fees, assessments or other governmental charges (all such non-excluded
taxes, levies, imposts, duties, fees, assessments or other governmental charges
being referred to collectively as "Taxes"). If any Taxes are so levied or
imposed, the relevant Borrower shall pay the full amount of such Taxes to the
relevant taxing authority in accordance with applicable law and shall pay to the
relevant Lender such additional amounts as may be necessary so that every
payment of all amounts due under this Agreement or under any Note, after
withholding or deduction for or on account of any Taxes, will not be less than
the amount provided for herein or in such Note. If any amounts are payable in
respect of Taxes pursuant to the preceding sentence, the relevant Borrower
agrees to reimburse each Lender lending to such Borrower, upon the written
request of such Lender, for taxes imposed on or measured by the net income or
net profits of such Lender (including, without limitation, any franchise tax
imposed on or measured by net income or net profits and any branch profits taxes
imposed by the United States of America or similar taxes imposed by any
political subdivision thereof) pursuant to the laws of the jurisdiction in which
such Lender is organized or in which the principal office or applicable lending
office of such Lender is located (or of any subdivision or taxing authority
therein or thereof) and for any withholding of taxes as such Lender shall
determine are payable by, or withheld from, such Lender in respect of such
amounts so paid to or on behalf of such Lender pursuant to the preceding
sentence and in respect of any amounts paid to or on behalf of such Lender
pursuant to this sentence. Each Borrower will furnish to the Administrative
Agent within 45 days after the date the payment of any Taxes is due pursuant to
applicable law certified copies of tax receipts, if any, issued by such taxing
authority or other evidence reasonably acceptable to the Administrative Agent
evidencing such payment by such Borrower (or, if such Borrower has not received
such certified copies of tax receipts within such time period, then such
Borrower shall furnish such certified copies of tax receipts to the
Administrative Agent within 15 days after such Borrower has received such
certified copies of tax receipts). Each Borrower agrees to indemnify and hold
harmless each Lender, and reimburse such Lender upon its written request, for
the amount of any Taxes so levied or imposed and paid by such Lender. Such
indemnification shall be made within 30 days after the date upon which such
Lender makes written demand therefor, which demand shall identify the nature and
the amount of Taxes for which indemnification is sought and shall include a copy
of any written assessment thereof.
(b) Each Lender that is not a United States person (as such term is defined
in Section 7701(a)(30) of the Code) for Federal income tax purposes agrees to
deliver to the Borrowers and the Administrative Agent on or prior to the
Effective Date, or in the 6ase of a Lender that assumes an interest or is an
assignee or transferee of an interest under this Agreement pursuant to Section
1.14, 1.16 or 11.04 (unless the respective Lender was already a Lender
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hereunder immediately prior to such assumption, assignment or transfer), on the
date of such assumption, assignment or transfer to such Lender, (i) two accurate
and complete original signed copies of Internal Revenue Service Form 4224 or
1001 (or successor forms) certifying to such Lender's entitlement to a complete
exemption from United States withholding tax with respect to payments to be made
by the Borrowers under this Agreement and under any Note or (ii) if the Lender
is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and
cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to
clause (i) above, (x) a certificate substantially in the form of Exhibit C (any
such certificate, a "Section 3.04 Certificate") and (y) two accurate and
complete original signed copies of Internal Revenue Service Form W-8 (or
successor form) certifying to such Lender's entitlement to a complete exemption
from United States withholding tax with respect to payments of interest to be
made by the Borrowers under this Agreement and under any Note. In addition, each
such Lender agrees that, from time to time after the Effective Date, when a
lapse in time or change in circumstances renders the previous certification
obsolete or inaccurate in any material respect, it will deliver to the Borrowers
and the Administrative Agent two new accurate and complete original signed
copies of Internal Revenue Service Form 4224 or 1001, or Form W-8 and a Section
3.04 Certificate, as the case may be, and such other forms as may be required in
order to confirm or establish the entitlement of such Lender to a continued
exemption from or reduction in United States withholding tax with respect to
payments made by the Borrowers under this Agreement and any Note, or, if legally
unable to deliver such forms, it shall immediately notify the Borrowers and the
Administrative Agent of its inability to deliver any such Form or Certificate in
which case such Lender shall not be required to deliver any such Form or
Certificate pursuant to this Section 3.04(b). Notwithstanding anything to the
contrary contained in Section 3.04(a), but subject to Section 11.04(b) and the
immediately succeeding sentence, (x) each Borrower shall be entitled, to the
extent it is required to do so by law, to deduct or withhold income or similar
taxes imposed by the United States (or any political subdivision or taxing
authority hereof or therein) from interest, fees or other amounts payable
hereunder by such Borrower for the account of any Lender which is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code) for
Federal income tax purposes to the extent that such Lender has not provided to
the Borrowers Internal Revenue Service Forms that establish a complete exemption
from such deduction or withholding and (y) the Borrowers shall not be obligated
pursuant to Section 3.04(a) hereof to gross-up payments to be made to any such
Lender in respect of income or similar taxes imposed by the United States if (I)
such Lender has not provided to the Borrowers the Internal Revenue Service Forms
required to be provided to the Borrowers pursuant to this Section 3.04(b) or
(II) in the case of a payment, other than interest, to a Lender described in
clause (ii) of the first sentence of this Section 3.04(b) above, to the extent
that such Forms do not establish a complete exemption from withholding of such
taxes. Notwithstanding anything to the contrary contained in the preceding
sentence or elsewhere in this Section 3.04 and except as set forth in Section
11.04(b), the Borrowers agree to pay additional amounts and to indemnify each
Lender in the manner set forth in Section 3.04(a) (without regard to the
identity of the jurisdiction requiring the deduction or withholding) in respect
of any Taxes deducted or withheld by it as described in the immediately
preceding sentence as a result of any changes after the Effective Date in any
applicable law, treaty, governmental rule, regulation, guideline or order, or in
the interpretation thereof, relating to the deducting or withholding of such
Taxes.
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(c) If a Borrower pays any additional amount under this Section 3.04 to a
Lender and such Lender determines in its sole discretion that it has actually
received or realized in connection therewith any refund or any reduction of, or
credit against, its Tax liabilities in or with respect to the taxable year in
which the additional amount is paid, such Lender shall pay to the Borrower an
amount that such Lender shall, in its sole discretion, determine is equal to the
net benefit, after tax, which was obtained by the Lender in such year as a
consequence of such refund, reduction or credit. Such amount shall be paid as
soon as practicable after receipt or realization by such Lender of such refund,
reduction or credit. Nothing in this Section 3.04(c) shall require any Lender to
disclose or detail the basis of its calculation of the amount of any refund or
reduction of, or credit against, its tax liabilities or any other information to
any Borrower or any other Person.
(d) Each Lender shall use reasonable efforts (consistent with legal and
regulatory restrictions and subject to overall policy considerations of such
Lender) to file any certificate or document or to furnish any information as
reasonably requested by a Borrower pursuant to any applicable treaty, law or
regulation, if the making of such filing or the furnishing of such information
would avoid the need for or reduce the amount of any amounts payable by a
Borrower under Section 3.04(a) and would not, in the reasonable judgment of such
Lender, be disadvantageous to such Lender.
SECTION 4. Conditions Precedent.
4.01 Conditions Precedent to Effective Date. This Agreement shall become
effective on the date (the "Effective Date") on which each of the following
conditions shall be satisfied:
(a) Execution of Agreement; Notes. (i) Each of Parent, Corp., each
Agent and each of the Lenders shall have signed a copy hereof (whether the
same or different copies) and shall have delivered the same to the
Administrative Agent at its Notice Office or, in the case of the Lenders
and the Agents, shall have given to the Administrative Agent telephonic
(confirmed in writing), written or facsimile transmission notice (actually
received) at such office that the same has been signed and mailed to it;
and (ii) there shall have been delivered to the Administrative Agent for
the account of each Lender the appropriate Notes executed by Parent and
Corp., as applicable, in each case in the amount, maturity and as otherwise
provided herein.
(b) Opinion of Counsel. The Administrative Agent shall have received
an opinion, addressed to each Agent and each of the Lenders and dated the
Effective Date, from Louis G. Lenzi, General Counsel of Parent and Corp.,
which opinion shall be substantially in the form of Exhibit D hereto.
(c) Corporate Proceedings. (i) The Administrative Agent shall have
received from each of Parent and Corp. a certificate, dated the Effective
Date, signed by an Authorized Officer thereof in the form of Exhibit E with
appropriate insertions and deletions, together with (x) copies of its
certificate of incorporation, by-laws or other organizational documents and
(y) the resolutions relating to the Credit Documents which shall be
satisfactory to the Administrative Agent.
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(ii) All corporate and legal proceedings and all instruments and
agreements in connection with the transactions contemplated by this
Agreement and the other Credit Documents shall be satisfactory in form and
substance to the Administrative Agent, and the Administrative Agent shall
have received all information and copies of all certificates, documents and
papers, including good standing certificates and any other records of
corporate proceedings and governmental approvals, if any, which the
Administrative Agent may have requested in connection therewith, such
documents and papers, where appropriate, to be certified by proper
corporate or governmental authorities.
(d) Existing Credit Agreements. All Indebtedness and other obligations
under the Existing Credit Agreements shall have been paid in full and all
commitments thereunder shall have been terminated.
(e) Fees. The Borrowers shall have paid to the Administrative Agent
and the Lenders all fees and expenses (including, without limitation, legal
fees and expenses) agreed upon by such parties to be paid on or prior to
such date.
The occurrence of the Effective Date shall constitute a representation and
warranty by each Borrower to the Agents and each of the Lenders that all the
conditions specified in Section 4.01 exist as of that time. All the Notes,
certificates, legal opinions and other documents and papers referred to in this
Section 4.01, unless otherwise specified, shall be delivered to the
Administrative Agent at the Administrative Agent's Notice Office for the account
of each of the Lenders and, except for the Notes, in sufficient counterparts for
each of the Lenders and shall be satisfactory in form and substance to the
Lenders. The Administrative Agent shall give Parent, Corp. and each Lender
written notice that the Effective Date has occurred.
4.02 Conditions Precedent to Loans. The obligation of each Lender to make
any Loans is subject, at the time of each such Loan, to the satisfaction of the
following conditions:
(a) Effective Date. The Effective Date shall have occurred.
(b) Notice of Borrowing. The Administrative Agent shall have received
a Notice of Borrowing meeting the requirements of Section 1.03(a) with
respect to each incurrence of Revolving Loans and a Notice of Competitive
Bid Borrowing meeting the requirements of Section 1.04(a) with respect to
each incurrence of Competitive Bid Loans.
(c) No Default; Representations and Warranties. At the time of the
incurrence of each Loan and also after giving effect thereto, (i) there
shall exist no Default or Event of Default and (ii) all representations and
warranties made by any Borrower contained herein or in the other Credit
Documents shall be true and correct in all material respects with the same
effect as though such representations and warranties had been made on and
as of the date of such Loan.
(d) Financial Guaranty Insurance Policy. In the case of each DB Loan,
Corp. shall have issued a financial guaranty insurance policy in the form
of Exhibit F attached hereto (as appropriately completed, a "Financial
Guaranty Insurance Policy"), in support of the principal of
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and interest on such DB Loan, and such Financial Guaranty Insurance Policy
shall be in full force and effect.
(e) Opinion of Counsel. In the case of each DB Loan, the
Administrative Agent shall have received an opinion, addressed to each
Agent and each of the Lenders and dated the date of the incurrence of such
DB Loan, from counsel to Corp., which opinion shall be substantially in the
form of Exhibit L hereto.
The acceptance of the benefits of each Loan shall constitute a
representation and warranty by the respective Borrower to the Agents and each of
the Lenders that all of the applicable conditions specified in Section 4.02
exist as of that time.
SECTION 5. Representations, Warranties and Agreements. In order to induce
the Lenders to. enter into this Agreement and to make the Loans provided for
herein, each of Parent and Corp. makes the following representations and
warranties to, and agreements with, the Lenders, all of which shall survive the
execution and delivery of this Agreement and the making of the Loans:
5.01 Corporate Existence and Power. Parent and Corp. are corporations duly
organized, validly existing and in good standing under the laws of the
jurisdiction of their incorporation, are duly qualified to transact business in
every jurisdiction where, by the nature of their businesses, such qualification
is necessary, and have all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on their businesses as
now conducted.
5.02 Corporate and Governmental Authorization: No Contravention. The
execution, delivery and performance by the Borrowers of this Agreement and the
other Credit Documents (i) are within each of the Borrower's corporate powers,
(ii) have been duly authorized by all necessary corporate action, (iii) require
no action by or in respect of, or filing with, any governmental body, agency or
official, (iv) do not contravene, or constitute a default under, any provision
of applicable law or regulation or of the certificate of incorporation or
by-laws of each of the Borrowers or of any agreement, judgment, injunction,
order, decree or other instrument binding upon the Borrowers or any of their
Subsidiaries, and (v) do not result in the creation or imposition of any Lien on
any asset of the Borrowers or any of their Subsidiaries.
5.03 Binding Effect. This Agreement constitutes a valid and binding
agreement of each of the Borrowers enforceable in accordance with its terms, and
the other Credit Documents, when executed and delivered in accordance with this
Agreement, will constitute valid and binding obligations of each of the
Borrowers enforceable in accordance with their respective terms, provided that
the enforceability hereof and thereof is subject in each case to general
principles of equity and to bankruptcy, insolvency and similar laws affecting
the enforcement of creditors' rights generally.
5.04 Financial Information. (a) The consolidated balance sheet of Parent
and its Consolidated Subsidiaries as of December 31, 1997 and the related
consolidated statements of income, shareholders' equity and cash flows for the
Fiscal Year then ended, reported on by
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Coopers & Lybrand, copies of which have been delivered to each of the Lenders,
and the unaudited consolidated financial statements of Parent and Corp. for the
interim period ended June 30, 1998, copies of which have been delivered to each
of the Lenders, fairly present, in conformity with GAAP or Statutory Accounting
Principles, as applicable consistently applied, the consolidated financial
position of Parent and its Consolidated Subsidiaries as of such dates and their
consolidated results of operations and cash flows for such periods stated.
(b) Since December 31, 1997, there has been no event, act, condition or
occurrence having a Material Adverse Effect.
5.05 Litigation. There is no action, suit or proceeding pending, or to the
knowledge of the Borrowers threatened, against or affecting the Borrowers or any
of their Subsidiaries before any court or arbitrator or any governmental body,
agency or official which could have a Material Adverse Effect or which in any
manner draws into question the validity or enforceability of, or could impair
the ability of the Borrowers to perform their obligations under, this Agreement
or any of the other Credit Documents.
5.06 Compliance with ERISA. (a) Parent, Corp. and each member of the
Controlled Group have fulfilled their obligations under the minimum funding
standards of ERISA and the Code with respect to each Plan and are in compliance
in all material respects with the presently applicable provisions of ERISA and
the Code, and have not incurred any liability to the PBGC or a Plan under Title
IV of ERISA.
(b) Neither Parent nor Corp. nor any member of the Controlled Group is or
ever has been obligated to contribute to any Multiemployer Plan.
5.07 Taxes. There have been filed on behalf of Parent and its Subsidiaries
all Federal, state and local income, excise, property and other tax returns
which are required to be filed by them and all taxes due pursuant to such
returns or pursuant to any assessment received by or on behalf of Parent or any
Subsidiary have been paid. The charges, accruals and reserves on the books of
each of Parent and its Subsidiaries in respect of taxes or other governmental
charges are, in the opinion of each of Parent and Corp., adequate. United States
income tax returns of Parent and its Subsidiaries have been examined and closed
through the Fiscal Year ended December 31, 1991.
5.08 Subsidiaries. Each of Parent's Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to transact business in every
jurisdiction where, by the nature of its business, such qualification is
necessary, and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted. Parent has no Subsidiaries except those Subsidiaries listed on Annex
III, which accurately sets forth each such Subsidiary's complete name and
jurisdiction of incorporation.
5.09 Not an Investment Company. No Borrower is an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
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5.10 Public Utility Holding Company Act. No Borrower nor any of their
Subsidiaries is a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
5.11 Ownership of Property: Liens. Parent and its Consolidated Subsidiaries
have title of their proper-ties sufficient for the conduct of their respective
businesses and none of such property is subject to any Lien except as permitted
in Section 7.01.
5.12 No Default. No Default or Event of Default has occurred and is
continuing.
5.13 Full Disclosure. All information heretofore furnished by the Borrowers
to the Administrative Agent or any Lender for purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all such
information hereafter furnished by the Borrowers to the Administrative Agent or
any Lender will be, true, accurate and complete in every material respect or
based on reasonable estimates on the date as of which such information is stated
or certified. The Borrowers have disclosed to the Lenders in writing any and all
facts which could have or cause a Material Adverse Effect.
5.14 Compliance with Laws. Parent and each of its Subsidiaries is in
compliance with all applicable laws, except -where any failure to comply with
any such laws would not, alone or in the aggregate, have a Material Adverse
Effect.
5.15 Capital Stock. All Capital Stock, debentures, bonds, notes and all
other securities of each of Parent and its Subsidiaries presently issued and
outstanding are validly and properly issued in accordance with all applicable
laws, including, but not limited to, the "Blue Sky" laws of all applicable
states and the federal securities laws. The issued shares of Capital Stock of
each of Parent's and Corp.'s Wholly-Owned Subsidiaries are owned by Parent or
Corp. free and clear of any Lien or adverse claim. At least a majority of the
issued shares of Capital Stock of each of Parent's and Corp.'s other
Subsidiaries (other than Wholly-Owned Subsidiaries) is owned by Parent or Corp.
free and clear of any Lien or adverse claim.
5.16 Margin Stock. No Borrower nor any of their Subsidiaries are engaged
principally, or as one of their important activities, in the business of
purchasing or carrying any Margin Stock, and no part of the proceeds of any Loan
will be used to purchase or carry any Margin Stock, or be used for any purpose
which violates, or which is inconsistent with, the provisions of Regulation U or
X.
5.17 Insolvency. After giving effect to the execution and delivery of the
Credit Documents and the making of the Loans under this Agreement, no Borrower
will be "insolvent," within the meaning of such term as defined in ss. 101 of
Title 11 of the United States Code or Section 2 of the Uniform Fraudulent
Transfer Act, or any other applicable state law pertaining to fraudulent
transfers, as each may be amended from time to time, or be unable to pay its
debts generally as such debts become due or have an unreasonably small capital
to engage in any business or transaction, whether current or contemplated.
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SECTION 6. Affirmative Covenants. The Borrowers hereby covenant and agree
that on the Effective Date and thereafter until the Commitments have terminated,
no Notes are outstanding and the Loans, together with interest, Fees and all
other obligations (other than any indemnities described in Section 11.12 which
are not then owing) incurred hereunder, are paid in full:
6.01 Information Covenants. Parent and Corp. will furnish to each Lender:
(a) as soon as available and in any event within 60 days after the end
of each of the first three quarterly fiscal periods in each Fiscal Year of
Parent and Corp., consolidated balance sheets of each of Parent and its
Subsidiaries and Corp. and its Subsidiaries as at the end of such period
and the related consolidated statements of income, changes in stockholders'
equity and cash flows of each of Parent and its Subsidiaries and Corp. and
its Subsidiaries for such period and (in the case of the second and third
quarterly periods) for the period from the beginning of the current Fiscal
Year to the end of such quarterly period, setting forth in each case in
comparative form the consolidated figures for the corresponding periods of
the previous Fiscal Year, all in reasonable detail and certified by an
Authorized Officer of each of Parent and Corp. as presenting fairly, in
accordance with GAAP (except as specifically set forth therein; provided
any exceptions or qualifications thereto must be acceptable to the Required
Lenders) on a basis consistent with such prior fiscal periods, the
information contained therein, subject to changes resulting from normal
year-end audit adjustments;
(b) as soon as available and in any event within 120 days after the
end of each Fiscal Year of Parent and Corp., consolidated balance sheets of
each of Parent and its Subsidiaries and Corp. and its Subsidiaries as at
the end of such year and the related consolidated statements of income,
operations, changes in stockholders' equity and cash flows of each of
Parent and its Subsidiaries and Corp. and its Subsidiaries for such Fiscal
Year, setting forth in each case in comparative form the consolidated
figures for the previous fiscal year, all in reasonable detail and
accompanied by a report thereon of Price Waterhouse Coopers LLP or other
independent public accountants of recognized national standing selected by
Parent, which report shall state that such consolidated financial
statements present fairly the consolidated financial position of each of
Parent and its Subsidiaries and Corp. and its Subsidiaries as at the dates
indicated and the consolidated results of their operations and cash flows
for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years (except as otherwise specified in such report;
provided any exceptions or qualifications thereto must be acceptable to the
Required Lenders) and that the audit by such accountants in connection with
such consolidated financial statements has been made in accordance with
generally accepted auditing standards;
(c) within five Business Days after any Borrower becomes aware of the
occurrence of any Default, a certificate of an Authorized Officer of each
of the Borrowers setting forth the details thereof and the action which the
Borrowers are taking or propose to take with respect thereto;
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(d) promptly upon the mailing thereof to the security holders of the
Borrowers generally, copies of all financial statements, reports and proxy
statements so mailed;
(e) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements
on Form S-8 or its equivalent) and annual, quarterly or monthly reports
which the Borrowers shall have filed with the Securities and Exchange
Commission or any national securities exchange;
(f) if and when Parent, Corp. or any member of the Controlled Group
(i) gives or is required to give notice to the PBGC of any "reportable
event" (as defined in Section 4043 of ERISA) with respect to any Plan which
might constitute grounds for a termination of such Plan under Title IV of
ERISA, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, a copy of the notice
of such reportable event given or required to be given to the PBGC; (ii)
receives notice of complete or partial withdrawal liability under Title IV
of ERISA, a copy of such notice; or (iii) receives notice from the PBGC
under Title IV of ERISA of an intent to terminate or appoint a trustee to
administer any Plan, a copy of such notice;
(g) promptly after any Borrower knows of the commencement thereof,
notice, of any litigation, dispute or proceeding involving a claim against
any of the Borrowers and/or any Subsidiary for $10,000,000 or more in
excess of amounts covered in full by applicable insurance;
(h) from time to time such additional information regarding the
financial position or business of the Borrowers and their Subsidiaries as
the Administrative Agent, at the request of any Lender, may reasonably
request;
(i) at the request of any Lender, promptly after the filing thereof, a
copy of the annual statements for each calendar year and quarterly
statements for each calendar quarter as filed with the New York Insurance
Department or other then comparable agency of other jurisdictions and the
financial statements of Corp. for each calendar year or quarter prepared in
accordance with Statutory Accounting Principles accompanied by a report
thereon of the independent public accountants of Parent referred to in
paragraph (b) above; and
(j) at the request of any Lender, at any time when a DB Loan is
outstanding, quarterly and annual summary financial statements of the
applicable Designated Borrower as promptly as possible after the end of
each fiscal quarter and fiscal year of such Designated Borrower.
6.02 Books, Records and Inspections. The Borrowers will (i) keep, and will
cause each Subsidiary to keep, proper books of record and account in which full,
true and correct entries in conformity with GAAP or Statutory Accounting
Principles, as applicable, shall be made of all dealings and transactions in
relation to its business and activities; and (ii) permit, and will cause each
Subsidiary to permit, representatives of any Lender at such Lender's expense
prior to the occurrence of an Event of Default and at the Borrowers' expense
after the occurrence of an
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Event of Default to visit and inspect any of their respective properties, to
examine their respective books and records and to discuss their respective
affairs, finances and accounts with their respective officers, employees and
independent public accountants. The Borrowers agree to cooperate and assist in
such visits and inspections, in each case at such reasonable times and as often
as may reasonably be desired.
6.03 Maintenance of Existence. Each of the Borrowers shall maintain its
existence and carry on its business in substantially the same manner and in
substantially the same fields as such business is now carried on and maintained.
6.04 Compliance with Laws, Payment of Taxes. The Borrowers will, and will
cause each of their Subsidiaries and each member of the Controlled Group to,
comply with applicable laws (including but not limited to ERISA), regulations
and similar requirements of governmental authorities (including but not limited
to the PBGC), except where (i) the necessity of such compliance is being
contested in good faith through appropriate proceedings diligently pursued; and
(ii) any failure to comply with any such laws would not, alone or in the
aggregate, have a Material Adverse Effect. The Borrowers will, and will cause
each of their Subsidiaries to, pay promptly when due all taxes, assessments,
governmental charges, claims for labor, supplies, rent and other obligations
which, if unpaid, might become a lien against the property of the Borrowers or
any Subsidiary, except liabilities being contested in good faith by appropriate
proceedings diligently pursued.
6.05 Insurance. The Borrowers will maintain, and will cause each of their
Subsidiaries to maintain (either in the name of the Borrowers or in such
Subsidiary's own name), with financially sound and reputable insurance
companies, insurance on all their property in at least such amounts and against
at least such risks as are usually insured against in the same general area by
companies of established repute engaged in the same or similar businesses.
6.06 Maintenance of Property. The Borrowers shall, and shall cause each
Subsidiary to, maintain all of their properties and assets in good condition,
repair and working order, ordinary wear and tear excepted.
SECTION 7. Negative Covenants. The Borrowers hereby covenant and agree that
on the Effective Date and thereafter until the Commitments have terminated, no
Notes are outstanding and the Loans, together with interest, Fees and all other
obligations (other than any indemnities described in Section I 1. 12 which are
not then owing) incurred hereunder, are paid in full:
7.01 Liens. Neither Parent nor any of its Consolidated Subsidiaries will
create, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired by it, except:
(i) Liens securing any loan to be made under the Credit Agreement
among Corp., the banks signatory thereto and Credit Suisse First Boston,
New York Branch, originally dated as of December 29, 1989, as amended and
restated on October 1, 1997 and as may be amended thereafter from time to
time;
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(ii) Liens created on certain insurance premiums by a Trust Agreement
effective December 31, 1989 between Municipal Bond Investors Assurance
Corporation, MBIA Insurance Corp. of Illinois and the trustee thereunder,
as amended on February 28, 1995 and as may be amended from time to time
thereafter;
(iii) as to Corp., Liens (in addition to Liens permitted under Section
7.01(i), (iv) and (v)) in an aggregate principal amount of up to
$10,000,000;
(iv) Liens not securing Debt which are incurred in the ordinary course
of business; and
(v) Liens securing repurchase agreements constituting a borrowing of
funds by Parent or any Subsidiary of Parent in the ordinary course of
business for liquidity purposes and in no event for a period exceeding 90
days in each case.
7.02 Dissolution. No Borrower shall suffer or permit dissolution or
liquidation either in whole or in part or redeem or retire any shares of their
own stock, except through corporate reorganization to the extent permitted by
Section 7.03.
7.03 Consolidations, Mergers and Sales of Assets. The Borrowers will not
consolidate or merge with or into, or sell, lease or other-wise transfer all or
any substantial part of their assets to, any other Person, provided that (a) any
Borrower (other than any Designated Borrower) may merge with another Person if
(i) such Person was organized under the laws of the United States of America or
one of its states, (ii) one of the Borrowers is the corporation surviving such
merger and (iii) immediately after giving effect to such merger, no Default
shall have occurred and be continuing, and (b) Subsidiaries of the Borrowers may
merge with one another.
7.04 Use of Proceeds. No portion of the proceeds of the Loans will be used
by the Borrowers or any Subsidiary (i) directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of purchasing or carrying any Margin
Stock, or (ii) for any purpose in violation of any applicable law or regulation.
7.05 Change in Fiscal Year. Neither Parent nor Corp. shall change its
Fiscal Year without the consent of the Required Lenders.
7.06 Transactions with Affiliates. Neither Parent nor any of its
Subsidiaries shall enter into, or be a party to, any transaction with any
Affiliate of Parent or such Subsidiary (which Affiliate is not one of the
Borrowers or a Subsidiary), except as permitted by law and in the ordinary
course of business and pursuant to reasonable terms.
7.07 Leverage Ratio. Parent and Corp. will not permit the ratio of
Consolidated Total Debt to Consolidated Total Capitalization at any time to
exceed 0.25: 1.00.
7.08 Minimum Net Worth. Parent and Corp. will not permit Consolidated Net
Worth to be less than $2,000,000,000 at any time.
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SECTION 8. Defaults.
8.01 Events of Default. Upon the occurrence of any of the following
specified events (each, an "Event of Default"):
(a) any Borrower shall fail to pay when due any principal of any Loan,
or shall fail to pay any interest on any Loan within three Business Days
after such interest shall become due, or shall fail to pay any fee or other
amount payable hereunder within five Business Days after such fee or other
amount becomes due; or
(b) any Borrower shall fail to observe or perform any covenant
contained in Sections 6.01(c), 6.02(ii), 6.03, 6.06, 7.02, 7.03, 7.04, 7.07
or 7.08; or
(c) any Borrower shall fail to observe or perform any covenant
contained in Section 7.01 for five days after the earlier of (i) the first
day on which any Borrower has knowledge of such failure or (ii) written
notice thereof has been given to any Borrower by the Administrative Agent
at the request of any Lender; or
(d) any Borrower shall fail to observe or perform any covenant or
agreement contained herein (other than those covered by clause (a), (b) or
(c) above) for 30 days after the earlier of (i) the first day on which any
Borrower has knowledge of such failure or (ii) written notice thereof has
been given to any Borrower by the Administrative Agent at the request of
any Lender; or
(e) any representation, warranty, certification or statement made or
deemed made by any Borrower in Section 5 of this Agreement or in any
certificate, financial statement or other document delivered pursuant to
this Agreement shall prove to have been incorrect or misleading in any
material respect when made (or deemed made); or
(f) Parent or any Subsidiary shall fail to make any payment in respect
of Debt outstanding in an aggregate principal amount equal to or in excess
of $10,000,000 (other than the Notes) when due at final stated maturity
(after giving effect to any applicable grace period); or
(g) any event or condition shall occur which results in the
acceleration of the maturity of Debt outstanding in an aggregate amount
equal to or in excess of $10,000,000 of Parent or any Subsidiary or the
mandatory prepayment or purchase of such Debt by Parent (or its designee)
or such Subsidiary (or its designee) prior to the scheduled maturity
thereof; or
(h) Parent or any Subsidiary shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect
to themselves or their debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of them
or any substantial part of their property, or shall consent to any such
relief or to the appointment of or taking possession by any such official
in an involuntary case or other proceeding commenced against them, or shall
make a general
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assignment for the benefit of creditors, or shall fail generally, or shall
admit in writing their inability, to pay their debts as they become due, or
shall take any corporate action to authorize any of the foregoing, or shall
become or be declared by a court of competent jurisdiction to be insolvent;
or
(i) an involuntary case or other proceeding shall be commenced against
Parent or any Subsidiary seeking liquidation, reorganization or other
relief with respect to them or their debts under any bankruptcy, insolvency
or other similar law now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidator, custodian or other similar official of
them or any substantial part of their property, and such involuntary case
or other proceeding shall remain undismissed and unstayed for a period of
60 days; or an order for relief shall be entered against Parent or any
Subsidiary under the federal bankruptcy laws as now or hereafter in effect;
or
(j) Parent, Corp. or any member of the Controlled Group shall fail to
pay when due any material amount which they shall have become liable to pay
to the PBGC or to a Plan under Title IV of ERISA; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate or to cause a
trustee to be appointed to administer any such Plan or Plans or a
proceeding shall be instituted by a fiduciary of any such Plan or Plans to
enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not
have been dismissed within 30 days thereafter; or a condition shall exist
by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any such Plan or Plans must be terminated; or
(k) one or more judgments or orders for the payment of money in an
aggregate amount in excess of $10,000,000 shall be rendered against Parent
or any Subsidiary and such judgment or order shall continue unsatisfied and
unstayed for a period of 30 days; or
(1) a federal tax lien shall be filed against Parent or any Subsidiary
under Section 6323 of the Code or a lien of the PBGC shall be filed against
any Parent or any Subsidiary under Section 4068 of ERISA and in either case
such lien shall remain undischarged for a period of 25 days after the date
of filing; or
(m) (i) any Person or two or more Persons acting in concert shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Exchange Act) of 40% or more
of the outstanding shares of the voting stock of Parent; or (ii) as of any
date a majority of the Board of Directors of Parent consists of individuals
who were not either (A) directors of Parent as of the corresponding date of
the previous year, (B) selected or nominated to become directors by the
Board of Directors of Parent of which a majority consisted of individuals
described in clause (A), or (C) selected or nominated to become directors
by the Board of Directors of Parent of which a majority consisted of
individuals described in clause (A) and individuals described in clause
(B); or
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(n) Parent shall at any time or times and for any reason cease to own
(either directly or indirectly through a wholly-owned intermediate
Subsidiary) all of the Capital Stock or other ownership interests (except
for director's qualifying shares) of Corp. or
(o) Corp. shall fail to maintain an insurer claims paying rating of AA
or better as determined by Standard and Poor's Corporation and Aa2 or
better as determined by Moody's Investors Service, Inc.; or
(p) Parent shall fail to maintain a long term debt rating of A or
better as determined by Standard and Poor's Corporation and A2 or better as
determined by Moody's Investors Service, Inc.; or
(q) at any time when any DB Loan is outstanding, the respective
Financial Guaranty Insurance Policy or any material provision thereof shall
cease to be in full force or effect or Corp. shall deny or disaffirm its
obligations under such Financial Guaranty Insurance Policy;
then, and in every such event, the Administrative Agent shall (i) if requested
by the Required Lenders, by notice to Parent and Corp. terminate the Commitments
and they shall thereupon terminate, and (ii) if requested by the Required
Lenders, by notice to Parent and Corp. declare the Notes (together with accrued
interest thereon) and all other amounts payable hereunder and under the other
Credit Documents to be, and the Notes (together with all accrued interest
thereon) and all other amounts payable hereunder and under the other Credit
Documents shall thereupon become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrowers; provided that if any Event of Default specified
in clause (h) or (i) above occurs with respect to Parent or Corp., without any
notice to Parent or Corp. or any other act by the Administrative Agent or the
Lenders, the Total Commitment shall thereupon automatically terminate and the
Notes (together with accrued interest thereon) and all other amounts payable
hereunder and under the other Credit Documents shall automatically become
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Borrowers; provided, further'
that, except in the case of an Event of Default under Section 8.01(q), the
principal of and interest on DB Loans shall not become due and payable pursuant
to this Section 8.01 prior to their respective DB Loan Maturity Date.
Notwithstanding the foregoing, the Administrative Agent shall have available to
it all other remedies at law or equity, and shall exercise any one or all of
them at the request of the Required Lenders.
8.02 Notice of Default. The Administrative Agent shall give notice to the
Borrowers of any Default under Sections 8.01(c) or 8.01(d) promptly upon being
requested to do so by any Lender and shall thereupon notify all the Lenders
thereof.
SECTION 9. Definitions. As used herein, the following terms shall have the
meanings herein specified unless the context otherwise requires. Defined terms
in this Agreement shall include in the singular number the plural and in the
plural the singular:
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"Absolute Rate" shall mean an interest rate (rounded to the nearest .0001)
expressed as a decimal.
"Absolute Rate Borrowing" shall mean a Competitive Bid Borrowing with
respect to which a Borrower has requested that the Bidder Lenders offer to make
Competitive Bid Loans at Absolute Rates.
"Administrative Agent" shall mean Deutsche Bank and shall include any
successor to the Administrative Agent appointed pursuant to Section 10.09.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors
and officers of such Person), controlled by, or under direct or indirect common
control with such Person. A Person shall be deemed to control a corporation if
such Person possesses, directly or indirectly, the power (i) to vote 10% or more
of the securities having ordinary voting power for the election of directors of
such corporation or (ii) to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"Agents" shall mean the Administrative Agent, the Syndication Agent and the
Documentation Agent.
"Aggregate Loan Outstandings" shall have the meaning provided in Section
3.02(a).
"Agreement" shall mean this Credit Agreement, as the same may be from time
to time modified, amended and/or supplemented.
"Assignment Agreement" shall mean the Assignment Agreement in the form of
Exhibit G (appropriately completed).
"Assuming Lender" shall have the meaning provided in Section 1.16.
"Authorized Officer" shall mean any senior officer of any Borrower
designated as such in writing to the Administrative Agent by such Borrower.
"Base Rate" shall mean, at any time, the higher of (i) the rate which is
1/2 of 1% in excess of the Federal Funds Effective Rate and (ii) the Prime
Lending Rate.
"Base Rate Loan" shall mean each Revolving Loan that is not a Eurodollar
Loan.
"Bidder Lender" shall mean each Lender that has notified in writing (and
has not withdrawn such notice) the Administrative Agent that it desires to
participate generally in the bidding arrangements relating to Competitive Bid
Borrowings,
"Borrowers" shall mean Parent, Corp. and each Designated Borrower, if any.
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"Borrowing" shall mean (i) the incurrence by a single Borrower of Revolving
Loans that are Base Rate Loans on a pro rata basis from all Lenders; (ii) the
incurrence by a single Borrower of Revolving Loans that are Eurodollar Loans on
a P o rata basis from all Lenders, on a given date (or resulting from
conversions on a given date), having the same Interest Period, provided that
Base Rate Loans incurred pursuant to Section 1. II (b) shall be considered part
of any related Borrowing of Eurodollar Loans; and (iii) a Competitive Bid
Borrowing.
"Business Day" shall mean (i) for all purposes other than as covered by
clause (ii) below, any day excluding Saturday, Sunday and any day which shall be
in the City of New York a legal holiday or a day on which banking institutions
are authorized by law or other governmental actions to close, (ii) with respect
to all notices and determinations in connection with, and payments of principal
and interest on, Eurodollar Loans and Competitive Bid Loans made pursuant to a
Spread Borrowing, any day which is a Business Day described in clause (i) and
which is also a day for trading by and between banks in the London interbank
Eurodollar market.
"Capital Stock" means any nonredeemable capital stock of Parent or any
Consolidated Subsidiary (to the extent issued to a Person other than the
Borrowers), whether common or preferred.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time and the regulations promulgated and the rulings issued thereunder.
Section references to the Code are to the Code, as in effect on the Effective
Date and any subsequent provisions of the Code, amendatory thereof, supplemental
thereto or substituted therefor.
"Commitment" shall mean, with respect to each Lender, at any time, the
amount set forth opposite such Lender's name on Annex I, as the same may be
increased pursuant to Section 1.16 and/or reduced pursuant to Sections 2.02,
2.03 or 8.0 1.
"Commitment Assumption Agreement" shall mean each Commitment Assumption
Agreement in the form of Exhibit H attached hereto executed in accordance with
Section 1.16.
"Commitment Assumption Date" shall mean the Business Day following the date
on which each Commitment Assumption Agreement is delivered to the Administrative
Agent pursuant to Section 1.16.
"Competitive Bid Borrowing" shall mean a Borrowing by a single Borrower of
Competitive Bid Loans pursuant to Section 1.04.
"Competitive Bid Loan" shall have the meaning specified in Section 1.01(b).
"Competitive Bid Note" shall have the meaning provided in Section 1.06(a).
"Consolidated Net Worth" shall mean the Net Worth of Parent and its
Subsidiaries determined on a consolidated basis.
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"Consolidated Subsidiary" shall mean at any date any Subsidiary or other
entity the accounts of which, in accordance with GAAP, would be consolidated
with those of Parent in its consolidated financial statements as of such date.
"Consolidated Total Capitalization" shall mean, as of any date of
determination, the sum of (i) Consolidated Total Debt and (ii) Consolidated Net
Worth.
"Consolidated Total Debt" shall mean, as of any date of determination, all
Debt of Parent and its Subsidiaries on such date determined on a consolidated
basis.
"Controlled Group" shall mean all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with either Parent or Corp., are treated as a
single employer under Section 414 of the Code.
"Credit Documents" shall mean this Agreement, the Notes and each Financial
Guaranty Insurance Policy delivered pursuant to Section 4.02(d),
"DB Assumption Agreement" shall mean an Assumption Agreement in the form of
Exhibit I attached hereto executed in accordance with Section 1.17.
"DB Loan Maturity Date" shall mean (a) with respect to each DB Loan
constituting a Revolving Loan, the maturity date selected by the respective
Designated Borrower in accordance with Section 1.03(a) as being applicable to
such DB Loan, which maturity date shall not be more than 180 days after the date
of incurrence of such DB Loan (and in no event later than the Final Maturity
Date) and (b) with respect to each DB Loan constituting a Competitive Bid Loan,
the maturity of such Competitive Bid Loan selected in accordance with Section
1.04(a).
"DB Loans" shall mean any Loans incurred by a Designated Borrower.
"Debt" of any Person shall mean at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee under capital leases,
(v) all obligations of such Person to reimburse any bank or other Person in
respect of amounts payable under a banker's acceptance, (vi) all Redeemable
Preferred Stock of such Person (in the event such Person is a corporation),
(vii) all obligations (absolute or contingent) of such Person to reimburse any
bank or other Person in respect of amounts paid under a letter of credit or
similar instrument, (viii) all Debt of others secured by a Lien on any asset of
such Person, whether or not such Debt is assumed by such Person, and (ix) all
Debt of others Guaranteed by such Person, provided that in the case of Corp. the
calculation of Debt shall not include Debt of others guaranteed by Corp. in the
ordinary course of its business.
"Default" shall mean any event, act or condition which with notice or lapse
of time, or both, would constitute an Event of Default.
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"Defaulting Lender" shall mean any Lender with respect to which a Lender
Default is in effect.
"Designated Borrower" shall mean each Person designated as a Designated
Borrower in accordance with Section 1. 17.
"Documentation Agent" shall mean Fleet National Bank,
"Dollars" and the sign "$" shall each mean freely transferable lawful money
of the United States.
"Effective Date" shall have the meaning provided in Section 4.01.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to ERISA are to ERISA, as in effect as of the
Effective Date and any subsequent provisions of ERISA, amendatory thereof,
supplemental thereto or substituted therefor.
"Eurodollar Loan" shall mean each Revolving Loan that at the election of
any Borrower is bearing interest by reference to LIBOR.
"Event of Default" shall have the meaning specified in Section 8.01.
"Exchange Act" shall mean the U.S. Securities Exchange Act of 1934, as
amended.
"Existing Credit Agreements" shall mean (i) the Credit Agreement, dated as
of August 31, 1994, among Parent, Municipal Bond Investors Assurance
Corporation, various lending institutions and Wachovia Bank of Georgia, N.A., as
Agent, (ii) the Loan Agreement, dated as of July 13, 1990, between Parent and
Credit Suisse First Boston, New York Branch and (iii) the Credit Agreement,
dated as of June 25, 1992, among Capital Markets Assurance Corporation, various
lending institutions and Bank of Montreal, as Agent.
"Facility Fees" shall have the meaning specified in Section 2.01(a).
"Federal Funds Effective Rate" shall mean, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal Funds
brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to, or referred to in,
Section 3.01.
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"Final Maturity Date" shall mean the date occurring 364 days after the
Effective Date, or such later date to which the Final Maturity Date shall have
been extended pursuant to Section 1.15.
"Financial Guaranty Insurance Policy" shall have the meaning specified in
Section 4.02(d).
"Fiscal Year" means any fiscal year of the Borrowers.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect on the date of this Agreement.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
secure, purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or other obligation (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods, securities
or services, to provide collateral security, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part), provided that the term Guarantee shall
not include: (i) endorsements for collection or deposit in the ordinary course
of business; and (ii) in the case of Corp., Debt of others guaranteed by Corp.
in the ordinary course of its business. The term "Guarantee" used as a verb has
a corresponding meaning.
"Interest Period" shall mean (a) with respect to any Eurodollar Loan, the
interest period applicable thereto, as determined pursuant to Section 1.10 and
(b) with respect to any Competitive Bid Loan, the period beginning on the date
of incurrence thereof and ending on the stated maturity date thereof.
"Interest Rate Basis" shall mean LIBOR and/or such other basis for
determining an interest rate as the Borrowers and the Administrative Agent may
agree upon from time to time.
"Lender" or "Lenders" shall have the meaning provided in the first
paragraph of this Agreement.
"Lender Default" shall mean (i) the refusal (which has not been retracted)
of a Lender to make available its portion of any incurrence of Revolving Loans
or (ii) a Lender having notified the Administrative Agent and/or any Borrower
that it does not intend to comply with its obligations under Section 1.01, in
the case of either clause (i) or (ii) as a result of the appointment of a
receiver or conservator with respect to such Lender at the direction or request
of any regulatory agency or authority.
"Lender Register" shall have the meaning provided in Section 11.15.
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"LIBOR" shall mean for each Interest Period applicable to a Loan (other
than a Base Rate Loan), the rate per annum that appears on page 3750 of the Dow
Jones Telerate Screen (or any successor page) for Dollar deposits with
maturities comparable to such Interest Period as of 11:00 A.M. (London time) on
the date which is two Business Days prior to the commencement of such Interest
Period or, if such a rate does not appear on page 3750 of the Dow Jones Telerate
Screen (or any successor page), the offered quotations to first-class banks in
the London interbank market by Deutsche Bank for Dollar deposits of amounts in
same day funds comparable to the outstanding principal amount of such
Dollar-denominated Loan with maturities comparable to such Interest Period
determined as of 11:00 A.M. (London time) on the date which is two Business Days
prior to the commencement of such Interest Period.
"Lien" shall mean, with respect to any asset, any mortgage, deed to secure
debt, deed of trust, lien, pledge, charge, security interest, security title,
preferential arrangement which has the practical effect of constituting a
security interest or encumbrance, servitude or encumbrance of any kind in
respect of such asset to secure or assure payment of a Debt or a Guarantee,
whether by consensual agreement or by operation of statute or other law, or by
any agreement, contingent or otherwise, to provide any of the foregoing. For the
purposes of this Agreement, Parent or any Subsidiary shall be deemed to own
subject to a Lien any asset which they have acquired or hold subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
"Loan" shall mean each Revolving Loan and each Competitive Bid Loan.
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Adverse Effect" shall mean, with respect to any event, act,
condition or occurrence of whatever nature (including any adverse determination
in any litigation, arbitration, or governmental investigation or proceeding),
whether singly or in conjunction with any other event or events, act or acts,
condition or conditions, occurrence or occurrences, whether or not related, a
material adverse change in, or a material adverse effect upon, any of (a) the
rights and remedies of the Administrative Agent or the Lenders under the Credit
Documents, or the ability of each Borrower to perform its obligations under the
Credit Documents to which it is a party, as applicable, or (b) the legality,
validity or enforceability of any Credit Document.
"Minimum Borrowing Amount" shall mean (i) for any Revolving Loans
$2,500,000, and (ii) for any Competitive Bid Loans, $1,000,000.
"Multiemployer Plan" shall mean a plan within the meaning of Section
4001(a)(3) of ERISA.
"Net Worth" shall mean, as to any Person, the sum of its capital stock,
capital in excess of par or stated value of shares of its capital stock,
retained earnings and any other account which, in accordance with GAAP,
constitutes stockholders equity, excluding any treasury stock.
"Non-Continuing Lender" shall have the meaning specified in Section 1.15.
"Non-Defaulting Lender" shall mean each Lender other than a Defaulting
Lender.
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"Note" shall mean each Revolving Note and each Competitive Bid Note.
"Notice of Borrowing" shall have the meaning provided in Section 1.03(a).
"Notice of Competitive Bid Borrowing" shall have the meaning provided in
Section 1.04(a).
"Notice of Conversion" shall have the meaning provided in Section 1.07.
"Notice Office" shall mean the office of the Administrative Agent at 31
West 52nd Street, New York, NY 10019 or such other office as the Administrative
Agent may designate to the Borrowers from time to time.
"Obligations" shall mean all amounts, direct or indirect, contingent or
absolute, of every type or description, and at any time existing, owing to any
Agent or any Lender pursuant to the terms of this Agreement or any other Credit
Document.
"Payment Office" shall mean the office of the Administrative Agent at 31
West 52nd Street, New York, NY 10019 or such other office or offices as the
Administrative Agent may designate to the Borrowers from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Person" shall mean any individual, partnership, limited liability company,
joint venture, firm, corporation, association, trust or other enterprise or
business entity or any government or political subdivision or any agency,
department or instrumentality thereof
"Plan" shall mean at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by a member of the
Controlled Group for employees of any member of the Controlled Group or (ii)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding 5 plan years made contributions.
"Prime Lending Rate" shall mean the rate which Deutsche Bank announces from
time to time as its prime lending rate, the Prime Lending Rate to change when
and as such prime lending rate changes. The Prime Lending Rate is a reference
rate and does not necessarily represent the lowest or best rate actually charged
to any customer. Deutsche Bank may make commercial loans or other loans at rates
of interest at, above or below the Prime Lending Rate.
"Principal Amount" shall mean the stated principal amount of each Loan.
"Recommitment Deadline" shall have the meaning specified in Section 1.15.
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"Redeemable Preferred Stock" of any Person shall mean any preferred stock
issued by such Person which is at any time prior to the Final Maturity Date
either (i) mandatorily redeemable (by sinking fund or similar payments or
otherwise) or (ii) redeemable at the option of the holder thereof.
"Regulation U" shall mean Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing margin requirements.
"Regulation X" shall mean Regulation X of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing margin requirements.
"Replaced Lender" shall have the meaning provided in Section 1.14.
"Replacement Lender" shall have the meaning provided in Section 1.14.
"Required Lenders" shall mean at any time Non-Defaulting Lenders having at
least a majority of the aggregate Commitments of all Non-Defaulting Lenders-,
provided that if the Total Commitment has been terminated, then the Required
Lenders shall mean Lenders whose outstanding Loans equal or exceed a majority of
the aggregate outstanding Loans at such time.
"Revolving Loan" shall have the meaning specified in Section 1.01(a).
"Revolving Note" shall have the meaning provided in Section 1.06(a).
"Section 3.04 Certificate" shall have the meaning provided in Section
3.04(b)(ii).
"Spread" shall mean a percentage per annum in excess of, or less than, an
Interest Rate Basis.
"Spread Borrowing" shall mean a Competitive Bid Borrowing with respect to
which a Borrower has requested the Bidder Lenders to make Competitive Bid Loans
at a Spread over or under a specified Interest Rate Basis.
"Statutory Accounting Principles" shall mean statutory accounting
principles prescribed by the National Association of Insurance Commissioners
that are to be used in making the calculations for purposes of determining
compliance with the terms of this Agreement.
"Subsidiary" of any Person shall mean and include (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such Person directly or indirectly through
Subsidiaries, has more than a 50% equity interest at the
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time. Unless other-wise expressly provided, all references herein to
"Subsidiary" shall mean a Subsidiary of Parent.
"Syndication Agent" shall mean The First National Bank of Chicago.
"Taxes" shall have the meaning provided in Section 3.04(a).
"Total Commitment" shall mean, at any time, the sum of the Commitments of
each of the Lenders at such time.
"Total Unutilized Commitment" shall mean, at any time, (i) the Total
Commitment at such time less (ii) the sum of the aggregate Principal Amount of
all outstanding Loans at such time.
"Type" shall mean any type of Loan determined with respect to the interest
option applicable thereto.
"UCC" shall mean the Uniform Commercial Code.
"Wholly-Owned Subsidiary" of any Person shall mean any other Person to the
extent all of the capital stock or other ownership interests in such other
Person, other than directors' qualifying shares, is owned directly or indirectly
by such first Person.
"Written" or "in writing" shall mean any form of written communication or a
communication by means of facsimile transmission, telegraph or cable.
SECTION 10. Agents, etc.
10.01 Appointment. The Lenders hereby designate Deutsche Bank as
Administrative Agent, The First National Bank of Chicago as Syndication Agent
and Fleet National Bank as Documentation Agent to act as specified herein and in
the other Credit Documents. Each Lender hereby irrevocably authorizes, and each
holder of any Note by the acceptance of such Note shall be deemed irrevocably to
authorize, each Agent to take such action on its behalf under the provisions of
this Agreement, the other Credit Documents and any other instruments and
agreements referred to herein or therein and to exercise such powers and to
perform such duties hereunder and thereunder as are specifically delegated to or
required of such Agent by the terms hereof and thereof and such other powers as
are reasonably incidental thereto. The Agents may per-form any of their duties
hereunder by or through their respective officers, directors, agents, employees
or affiliates.
10.02 Nature of Duties. No Agent shall have any duties or responsibilities
except those expressly set forth in this Agreement and the other Credit
Documents. No Agent or any of its respective officers, directors, agents,
employees or affiliates shall be liable for any action taken or omitted by them
hereunder or under any other Credit Document or in connection herewith or
therewith, unless caused by their gross negligence or willful misconduct. The
duties of each Agent shall be mechanical and administrative in nature; no Agent
shall have by reason of this Agreement or any other Credit Document a fiduciary
relationship in respect of any Lender or the
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holder of any Note; and nothing in this Agreement or any other Credit Document,
expressed or implied, is intended to or shall be so construed as to impose upon
either Agent any obligations in respect of this Agreement or any other Credit
Document except as expressly set forth herein or therein with respect to such
Agent,
10.03 Lack of Reliance on the Agents. Independently and without reliance
upon any Agent, each Lender and the holder of each Note, to the extent it deems
appropriate, has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of the Borrowers and their
Subsidiaries in connection with the making and the continuance of the Loans and
the taking or not taking of any action in connection herewith and (ii) its own
appraisal of the creditworthiness of the Borrowers and their Subsidiaries and,
except as expressly provided in this Agreement, no Agent shall have any duty or
responsibility, either initially or on a continuing basis, to provide any Lender
or the holder of any Note with any credit or other information with respect
thereto, whether coming into its possession before the making of the Loans or at
any time or times thereafter. No Agent shall be responsible to any Lender or the
holder of any Note for any recitals, statements, information, representations or
warranties herein or in any document, certificate or other writing delivered in
connection herewith or for the execution, effectiveness, genuineness, validity,
enforceability, perfection, collectibility, priority or sufficiency of this
Agreement or any other Credit Document or the financial condition of the
Borrowers and their Subsidiaries or be required to make any inquiry concerning
either the performance or observance of any of the terms, provisions or
conditions of this Agreement or any other Credit Document, or the financial
condition of the Borrowers and their Subsidiaries or the existence or possible
existence of any Default or Event of Default.
10.04 Certain Rights of the Agents. If any Agent shall request instructions
from the Required Lenders with respect to any act or action (including failure
to act) in connection with this Agreement or any other Credit Document, such
Agent shall be entitled to refrain from such act or taking such action unless
and until such Agent shall have received instructions from the Required Lenders;
and no Agent shall incur liability to any Person by reason of so refraining.
Without limiting the foregoing, neither any Lender nor the holder of any Note
shall have any right of action whatsoever against an Agent as a result of such
Agent acting or refraining from acting hereunder or under any other Credit
Document in accordance with the instructions of the Required Lenders.
10.05 Reliance. Each Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, statement,
certificate, telex, teletype, facsimile or telecopier message, cablegram,
radiogram, order or other document or telephone message signed, sent or made by
any Person that such Agent believed to be the proper Person, and, with respect
to all legal matters pertaining to this Agreement and any other Credit Document
and its duties hereunder and thereunder, upon advice of counsel selected by such
Agent.
10.06 Indemnification. To the extent an Agent is not reimbursed and
indemnified by the Borrowers, the Lenders will reimburse and indemnify such
Agent, in proportion to their respective "percentages" as used in determining
the Required Lenders, for and against any and all liabilities, obligations,
losses, damages, penalties, claims, actions, judgments, costs, expenses or
disbursements of whatsoever kind or nature which may be imposed on, asserted
against or
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incurred by such Agent in performing its respective duties hereunder or under
any other Credit Document, in any way relating to or arising out of this
Agreement or any other Credit Document provided that no Lender shall be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
gross negligence or willful misconduct of such Agent.
10.07 The Agents in Their Individual Capacities. With respect to its
obligation to make Loans under this Agreement, each Agent shall have the rights
and powers specified herein for a "Lender" and may exercise the same rights and
powers as though it were not performing the duties specified herein; and the
term "Lenders," "Required Lenders," "holders of Notes" or any similar terms
shall, unless the context clearly otherwise indicates, include the Agents in
their individual capacities. Each Agent may accept deposits from, lend money to,
and generally engage in any kind of banking, trust or other business with any
Borrower or any Affiliate of any Borrower as if they were not performing the
duties specified herein, and may accept fees and other consideration from any
Borrower for services in connection with this Agreement and otherwise without
having to account for the same to the Lenders.
10.08 Holders. The Administrative Agent may deem and treat the payee of any
Note as the owner thereof for all purposes hereof unless and until a written
notice of the assignment, transfer or endorsement thereof, as the case may be,
shall have been filed with the Administrative Agent. Any request, authority or
consent of any Person who, at the time of making such request or giving such
authority or consent, is the holder of any Note shall be conclusive and binding
on any subsequent holder, transferee, assignee or indorsee, as the case may be,
of such Note or of any Note or Notes issued in exchange therefor.
10.09 Resignation by an Agent. (a) The Administrative Agent may resign from
the performance of all its functions and duties hereunder and/or under the other
Credit Documents at any time by giving 15 Business Days' prior written notice to
the Borrowers and the Lenders. Such resignation shall take effect upon the
appointment of a successor Administrative Agent pursuant to clauses (b) and (c)
below or as otherwise provided below. Upon the effectiveness of such
resignation, the resigning Administrative Agent shall return to Parent and/or
Corp. a prorated portion of any administrative fee that has been paid in advance
for the period following the effectiveness of its resignation.
(b) Upon any such notice of resignation, the Required Lenders shall appoint
a successor Administrative Agent hereunder who shall be a Lender, commercial
bank or trust company reasonably acceptable to Parent and Corp.
(c) If a successor Administrative Agent shall not have been so appointed
within such 15 Business Day period, the Administrative Agent, with the consent
of Parent and Corp., shall then appoint a successor Administrative Agent who
shall serve as Administrative Agent hereunder until such time, if any, as the
Required Lenders appoint a successor Administrative Agent as provided above.
(d) Each of the Documentation Agent and the Syndication Agent may resign
from the performance of all of its functions and duties hereunder and/or under
the other Credit
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Documents in such capacity at any time by giving five Business Days' prior
written notice to the Lenders. Such resignation shall take effect at the end of
such five Business Days.
10.10 Documentation Agent, Syndication Agent. Nothing this Agreement shall
impose on the Documentation Agent or the Syndication Agent, in their capacity as
such, any duties or obligations.
SECTION 11. Miscellaneous.
11.01 Payment of Expenses, etc. The Borrowers jointly and severally agree
to: (i) pay all reasonable out-of-pocket costs and expenses (1) of the
Administrative Agent in connection with the negotiation, syndication,
preparation, execution and delivery of the Credit Documents and the documents
and instruments referred to therein and any amendment, waiver or consent
relating thereto (including, without limitation, the reasonable fees and
disbursements of White & Case LLP) and (2) of the Agents and each of the Lenders
in connection with the enforcement of the Credit Documents and the documents and
instruments referred to therein (including, without limitation, the reasonable
fees and disbursements of counsel for each Agent and for each of the Lenders);
(ii) pay and hold each of the Agents and Lenders harmless from and against any
and all present and future stamp, VAT and other similar taxes with respect to
the foregoing matters and/or fees and save each of the Lenders harmless from and
against any and all liabilities with respect to or resulting from any delay or
omission (other than to the extent attributable to such Lender) to pay such
taxes; and (iii) indemnify each Lender (including in its capacity as an Agent),
its officers, directors, employees, representatives and agents from and hold
each of them harmless against any and all losses, liabilities, claims, damages
or expenses incurred by any of them as a result of, or arising out of, or in any
way related to, or by reason of, an investigation, litigation or other
proceeding (whether or not an Agent or any Lender is a party thereto and whether
or not any such investigation, litigation or other proceeding is between or
among an Agent, any Lender, or any third Person or otherwise) related to the
entering into and/or performance of any Credit Document or the use of the
proceeds of any Loans hereunder or the consummation of any transactions
contemplated in any Credit Document, and in each case, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding (but
excluding any such losses, liabilities, claims, damages or expenses to the
extent incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified).
11.02 Lender Enforceability Opinions. Within 45 days following the
Effective Date, each Lender agrees to deliver to Parent and Corp. an opinion or
opinions (as applicable) of counsel to such Lender (which opinion or opinions
may be from internal counsel to such Lender) substantially in the form of
Exhibit J or in such other form as is reasonably acceptable to Parent and Corp.
relating to the enforceability of such Lender's obligations under the Credit
Documents. Upon a Lender first becoming a party hereunder pursuant to Section
1.14, 1.16 or 11.04, such Lender agrees to deliver to Parent and Corp. an
opinion or opinions (as applicable) of counsel to such Lender (which opinion or
opinions may be from internal counsel to such Lender) substantially in the form
of Exhibit J or in such other form as is reasonably acceptable to Parent and
Corp. relating to the enforceability of such Lender's obligations under the
Credit Documents. Notwithstanding the foregoing, the failure by a Lender to
provide the opinion or opinions referred
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to in this Section 11.02 shall not affect any of the obligations of the
Borrowers hereunder or under the other Credit Documents.
11.03 Notices. Except as otherwise expressly provided herein, all notices
and other communications provided for hereunder shall be in writing (including
telecopier or facsimile) and mailed, telecopied, fixed or delivered, if to a
Borrower, at the address specified opposite its signature below or in the other
relevant Credit Documents, as the case may be; if to any Lender or the
Administrative Agent, at its address specified for such Lender or the
Administrative Agent on Annex II hereto; or, at such other address as shall be
designated by any party in a written notice to the other parties hereto. All
such notices and communications shall be mailed, telecopied or sent by overnight
courier, and shall be effective when received.
11.04 Benefit of Agreement. (a) This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto, provided that no Borrower may assign or transfer
any of its rights or obligations hereunder without the prior written consent of
the Lenders. Each Lender may at any time grant participations in any of its
rights hereunder or under any of the Notes to any Person, provided that (x) in
the case of any such participation, the participant shall not have any rights
under this Agreement or any of the other Credit Documents (the participant's
rights against such Lender in respect of such participation to be those set
forth in the agreement executed by such Lender in favor of the participant
relating thereto) and all amounts payable by the Borrowers hereunder shall be
determined as if such Lender had not sold such participation, except that the
participant shall be entitled to the benefits of Sections 1.11 and 3.04 of this
Agreement to the extent that such Lender would be entitled to such benefits if
the participation had not been entered into or sold and (y) no Lender shall
transfer, grant or assign any participation under which the participant shall
have rights to approve any amendment to or waiver of this Agreement or any other
Credit Document except to the extent such amendment or waiver would extend the
final scheduled maturity of any Loan or Note in which such participant is
participating, or reduce the rate or extend the time of payment of interest or
Fees thereon (except in connection with a waiver of the applicability of any
post-default increase in interest rates), or reduce the principal amount
thereof, or increase such participant's participating interest in any Commitment
over the amount thereof then in effect (it being understood that a waiver of any
Default or Event of Default or of a mandatory reduction in the Total Commitment,
or a mandatory prepayment, shall not constitute a change in the terms of any
Commitment).
(b) Notwithstanding the foregoing, (x) any Lender may assign all or a
portion of its Commitment and its rights and obligations hereunder to another
Lender (or an Affiliate of such assigning Lender), and (y) with the consent of
the Administrative Agent and, so long as no Default under Section 8.01(a) or
8.01(h) or Event of Default exists, Parent (which consent shall not be
unreasonably withheld), any Lender may assign all or a portion of its Commitment
and its rights and obligations hereunder to one or more Persons. No assignment
pursuant to the immediately preceding sentence by a Lender (or by Lenders which
are Affiliates of each other) shall to the extent such assignment represents an
assignment to an institution other than one or more Lenders hereunder (or to an
Affiliate of an assigning Lender), be in an aggregate amount less than
$10,000,000 unless the entire Commitment of the assigning Lender (or group of
Lenders which are Affiliates) is so assigned. If any Lender so sells or assigns
all or a part of its rights
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hereunder or under the Notes, any reference in this Agreement or the Notes to
such assigning Lender shall thereafter refer to such Lender and to the
respective assignee to the extent of their respective interests and the
respective assignee shall have to the extent of such assignment (unless
otherwise provided therein), the same rights and benefits as it would if it were
such assigning Lender. Each assignment pursuant to this Section 11.04(b) shall
be effected by the assigning Lender and the assignee Lender executing an
Assignment Agreement (appropriately completed). At the time of any such
assignment, (i) either the assigning or the assignee Lender shall pay to the
Administrative Agent a nonrefundable assignment fee of $3,500, (ii) Annex I
shall be deemed to be amended to reflect the Commitment of the respective
assignee (which shall result in a direct reduction to the Commitment of the
assigning Lender) and of the other Lenders, and (iii) the Borrowers at such.
time will issue new Notes to the respective assignee and to the assigning Lender
in conformity with the requirements of Section 1.06. To the extent any
assignment pursuant to this Section 11.04(b) is to a Person which is not already
a Lender hereunder and which is not a United States Person (as such term is
defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the
respective assignee Lender shall provide to Parent and the Administrative Agent
the appropriate Internal Revenue Service Forms (and, if applicable, a Section
3.04 Certificate) described in Section 3.04(b), To the extent that an assignment
of all or any portion of a Lender's Commitments and related outstanding
obligations pursuant to this Section 11.04(b) would, at the time of such
assignment, result in increased costs under Section 1.11 or 3.04 from those
being charged by the respective assigning bank prior to such assignment, then
the Borrowers shall not be obligated to pay such increased costs (although the
Borrowers shall be obligated to pay any other increased costs of the type
described above resulting from changes specified in said Section 1.11 or 3.04
occurring after the date of the respective assignment). Each Lender and the
Borrowers agree to execute such documents (including without limitation
amendments to this Agreement and the other Credit Documents) as shall be
necessary to effect the foregoing. Nothing in this clause (b) shall prevent or
prohibit any Lender from pledging its Notes or Loans to a Federal Reserve Bank
in support of borrowings made by such Lender from such Federal Reserve Bank.
(c) Notwithstanding any other provisions of this Section 11.04, no transfer
or assignment of the interests or obligations of any Lender hereunder or any
grant of participation therein shall be permitted if such transfer, assignment
or grant would require any Borrower to file a registration statement with the
Securities and Exchange Commission or to qualify the Loans under the "Blue Sky"
laws of any State.
11.05 No Waiver, Remedies Cumulative. No failure or delay on the part of
any Agent or any Lender in exercising any right, power or privilege hereunder or
under any other Credit Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege hereunder or under
any other Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder or thereunder. The
rights and remedies herein expressly provided are cumulative and not exclusive
of any rights or remedies which any Agent or any Lender would otherwise have.
11.06 Payments Pro Rata. (a) The Administrative Agent agrees that promptly
after its receipt of each payment from or on behalf of any Borrower in respect
of any Obligations of such Borrower hereunder, it shall distribute such payment
to the Lenders (other than any
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<PAGE>
Lender that has expressly waived its right to receive its pro rata share
thereof) pro rata based upon their respective shares, if any, of the Obligations
with respect to which such payment was received.
(b) Each of the Lenders agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans or Fees, of a sum which with respect to the related sum or sums
received by other Lenders is in a greater proportion than the total of such
Obligation then owed and due to such Lender bears to the total of such
Obligation then owed and due to all of the Lenders immediately prior to such
receipt, then such Lender receiving such excess payment shall purchase for cash
without recourse or warranty from the other Lenders an interest in the
Obligations of the respective Borrower to such Lenders in such amount as shall
result in a proportional participation by all of the Lenders in such amount,
provided that if all or any portion of such excess amount is thereafter
recovered from such Lender, such purchase shall be rescinded and the purchase
price restored to the extent of such recovery, but without interest.
(c) Notwithstanding anything to the contrary contained herein, the
provisions of the preceding Sections 11.06(a) and (b) shall be subject to the
express provisions of this Agreement which require, or permit, differing
payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders.
11.07 Calculations: Computations. (a) The financial statements to be
furnished to the Lenders pursuant hereto shall be made and prepared in
conformity with GAAP or Statutory Accounting Principles, as the case may be,
consistently applied throughout the periods involved (except as set forth in the
notes thereto or as otherwise disclosed in writing by the Borrowers to the
Lenders and with respect to any interim financial statements, subject to changes
resulting from audit and normal year-end audit adjustments), provided that (x)
except as otherwise specifically provided herein, all computations determining
compliance with Sections 7.07 and 7.08, including definitions used therein,
shall utilize accounting principles and policies in effect at the time of the
preparation of, and in conformity with those used to prepare, the December 31,
1997 financial statements delivered to the Lenders pursuant to Section 5.04(a)
and (y) if at any time the computations determining compliance with Sections
7.07 and 7.08 utilize accounting principles different from those utilized in the
financial statements furnished to the Lenders, such financial statements shall
be accompanied by reconciliation work-sheets.
(b) All computations of interest and Fees hereunder shall be made on the
actual number of days elapsed over a year of 360 days (365-366 days for interest
on Base Rate Loans when the Base Rate is based on the Prime Lending Rate).
11.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury
Trial. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. Any legal
action or proceeding with respect to this
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<PAGE>
Agreement or any other Credit Document may be brought in the courts of the State
of New York or of the United States for the Southern District of New York, and,
by execution and delivery of this Agreement, each Borrower hereby irrevocably
accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Each Borrower further
irrevocably consents to the service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to it, to the extent located
outside New York City, or by hand, to the extent located within New York City,
at its address for notices pursuant to Section 11.03, such service to become
effective 30 days after such mailing. Nothing herein shall affect the right of
any Agent or any Lender to serve process in any manner permitted by law or to
commence legal proceedings or otherwise proceed against any Borrower in any
other jurisdiction.
(b) Each Borrower each hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Credit Document brought in the courts referred to in clause (a) above and hereby
further irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been brought in
an inconvenient forum.
(c) Each of the parties to this Agreement hereby irrevocably waives all
right to a trial by jury in any action, proceeding or counterclaim arising out
of or relating to this Agreement, the other Credit Documents or the transactions
contemplated hereby or thereby.
11.09 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with Parent, Corp. and the
Administrative Agent.
11.10 Headings Descriptive. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
11.11 Amendment or Waiver. Neither this Agreement nor any other Credit
Document nor any terms hereof or thereof may be changed, waived, discharged or
terminated unless such change, waiver, discharge or termination is in writing
signed by the Borrowers and the Required Lenders, provided that no such change,
waiver, discharge or termination shall, without the consent of each Lender
(other than a Defaulting Lender) directly affected thereby, (i) extend the Final
Maturity Date or reduce the rate or extend the time of payment of interest
(other than as a result of waiving the applicability of any post-default
increase in interest rates) or Fees or other amounts payable hereunder, or
reduce the principal amount thereof, or increase the Commitment of any Lender
over the amount thereof then in effect (it being understood that a waiver of any
Default or Event of Default or of a mandatory reduction in the Total Commitment
shall not constitute a change in the terms of any Commitment of any Lender),
(ii) amend, modify or waive any provision of this Section 11.11 or of Section
4.02(d), (iii) reduce the percentage specified in, or (except to give effect to
any additional facilities hereunder) otherwise modify, the definition of
-45-
<PAGE>
Required Lenders, or (iv) consent to the assignment or transfer by any Borrower
of any of its rights and obligations under this Agreement.
11.12 Survival. All indemnities set forth herein including, without
limitation, in Section 1.11, 1.12 or 3.04 shall survive the execution and
delivery of this Agreement and the making and repayment of the Loans.
11.13 Domicile of Loans. Each Lender may transfer and carry its Loans at,
to or for the account of any branch office, Subsidiary or affiliate of such
Lender, provided that the Borrowers shall not be responsible for costs arising
under Section 1.11 or 3.04 resulting from any such transfer (other than a
transfer pursuant to Section 1.13 or 1.14) to the extent not otherwise
applicable to such Lender prior to such transfer.
11.14 Confidentiality. Subject to Section 11.04, the Lenders shall hold all
non-public information obtained pursuant to the requirements of this Agreement
in accordance with its customary procedure for handling confidential information
of this nature and in accordance with safe and sound banking practices and in
any event may make disclosure to its Affiliates, employees, auditors, advisors
or counsel or as reasonably required by any bona fide transferee or participant
in connection with the contemplated transfer of any Loans or participation
therein (so long as such transferee or participant agrees to be bound by the
provisions of this Section 11.14) or as required or requested by any
governmental agency or representative thereof or pursuant to legal process,
provided that, unless specifically prohibited by applicable law or court order,
each Lender shall notify Parent of any request by any governmental agency or
representative thereof (other than any such request in connection with an
examination of the financial condition of such Lender by such governmental
agency) for disclosure of any such non-public information prior to disclosure of
such information, and provided further that in no event shall any Lender be
obligated or required to return any materials furnished by Parent or any of its
Subsidiaries.
11.15 Lender Register. Each Borrower hereby designates the Administrative
Agent to serve as its agent, solely for purposes of this Section 11.15, to
maintain a register (the "Lender Register") on which it will record the
Commitments from time to time of each of the Lenders, the Loans made by each of
the Lenders and each repayment in respect of the principal amount of the Loans
of each Lender. Failure to make any such recordation, or any error in such
recordation, shall not affect the Borrowers' obligations in respect of such
Loans. With respect to any Lender, the transfer of the Commitments of such
Lender and the rights to the principal of, and interest on, any Loan made
pursuant to such Commitments shall not be effective until such transfer is
recorded on the Lender Register maintained by the Administrative Agent with
respect to ownership of such Commitments and Loans and prior to such recordation
all amounts owing to the transferor with respect to such Commitments and Loans
shall remain owing to the transferor. The registration of assignment or transfer
of all or part of any Commitments and Loans shall be recorded by the
Administrative Agent on the Lender Register only upon the acceptance by the
Administrative Agent of a properly executed and delivered Assignment Agreement
pursuant to Section 11.04(b). The Borrowers jointly and severally agree to
indemnify the Administrative Agent from and against any and all losses, claims,
damages and liabilities of whatsoever nature which may be imposed on, asserted
against or incurred by the Administrative Agent in performing
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<PAGE>
its duties under this Section 11.15 other than those resulting from the
Administrative Agent's willful misconduct or gross negligence.
* * *
-47-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Agreement to be duly executed and delivered as of the date first above
written.
MBIA Inc. MBIA INC.,
113 King Street as a Borrower
Armonk, NY 10504
Tel: (914) 765-3020
Fax: (914) 765-3163
Attention: Julliette S. Tehrani
By /s/ Julliette S. Tehrani
---------------------------------
with a copy to: Name: Julliette S. Tehrani
Title: Executive Vice President,
885 Third Avenue Chief Financial Officer and
New York, NY 10022 Treasurer
Tel: (212) 415-6816
Fax: (212) 755-5462
Attention: Robert L. Nevin, Jr.
MBIA Insurance Corporation MBIA INSURANCE CORPORATION,
113 King Street as a Borrower
Armonk, New York 10504
Tel: (914) 765-33020
Fax: (914) 765-3163
Attention: Julliette S. Tehrani
By /s/ Julliette S. Tehrani
---------------------------------
with a copy to: Name: Julliette S. Tehrani
Title: Executive Vice President,
885 Third Avenue Chief Financial Officer and
New York, New York 10022 Treasurer
Tel: (212) 415-6916
Fax: (212) 755-5462
Attention: Robert L. Nevin, Jr.
<PAGE>
DEUTSCHE BANK AG, NEW YORK BRANCH,
Individually and as Administrative Agent
By /s/ John S. McGill
---------------------------------
Name: John S. McGill
Title: Vice President
By /s/ Gayma Z. Shivnarain
---------------------------------
Name: Gayma Z. Shivnarain
Title: Vice President
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Syndication Agent
By: /s/ T. Luisa Pashinian
---------------------------------
Name: T. Luisa Pashinian
Title: Corporate Banking Officer
<PAGE>
FLEET NATIONAL BANK,
Individually and as Documentation Agent
BY: /s/ E. B. Shelley
-------------------------------
Name: E. B. Shelley
Title: Vice President
<PAGE>
BANCA MONTE DEI PASCHI DI SIENA SPA,
as Lender
By: /s/ G. Natalicchi
-------------------------------
Name: G. Natalicchi
Title: S.V.P. & General Manager
By: /s/ Brian R. Landy
-------------------------------
Name: Brian R. Landy
Title: Vice President
<PAGE>
BANK OF MONTREAL,
as Lender
By: /s/ R.J. McClorey
-------------------------------
Name: R.J. McClorey
Title: Director
<PAGE>
CHASE MANHATTAN BANK,
as Lender
By: /s/ Helen L. Newcomb
-------------------------------
Name: HELEN L. NEWCOMB
Title: VICE PRESIDENT
<PAGE>
BANK OF AMERICA,
NATIONAL TRUST & SAVINGS ASSOCIATION,
as Lender
By: /s/ ELIZABETH W.F. BISHOP
-------------------------------
Name: ELIZABETH W.F. BISHOP
Title: Vice President
<PAGE>
BANCA COMMERCIALE ITALIANA,
NEW YORK BRANCH,
as Lender
By: /s/ Karen Purelis
-------------------------------
Name: Karen Purelis, VP
Title:
By: /s/ Charles Dougherty,
-------------------------------
Name: C. Dougherty, VP
Title:
<PAGE>
BANCO SANTANDER S.A., NEW YORK BRANCH,
as Lender
By:/s/ Edward W O'Loghlen
-------------------------------
Name: Edward W O'Loghlen
Title: Vice President
Asset Backed Finance Group
By:/s/ JOHN HENNESSY
-------------------------------
Name: JOHN HENNESSY
Title: VICE PRESIDENT STRUCTURE
<PAGE>
COMMERZBANK AG, NEW YORK BRANCH,
as Lender
By:/s/ Edward J. McDonnell
-------------------------------
Name: Edward J. McDonnell III,C.F.A.
Title: Vice President
By: /s/ Tom Ausfahl
-------------------------------
Name: TOM AUSFAHL
Title: VICE PRESIDENT
<PAGE>
NATIONAL AUSTRALIA BANK LIMITED,
NEW YORK BRANCH
ACN004044937
as Lender
By:/s/ Tom Kilfoyle
-------------------------------
Name: Tom Kilfoyle
Title Vice President
<PAGE>
NORDDEUTSCHE LANDESBANK GIROZENTRALE
NEW YORK BRANCH and/or
CAYMAN ISLANDS BRANCH,
as Lender
By: /s/ Stephanie Finnen
-------------------------------
Name: Stephanie Finnen
Title: VP
By: /s/ Stephen K. Hunter
-------------------------------
Name: Stephen K. Hunter
Title: SVP
<PAGE>
II. $200 MILLION CREDIT AGREEMENT
A. OPERATIVE DOCUMENTS:
1. Credit Agreement
ANNEX I Commitments
ANNEX II Lenders' Addresses
ANNEX III Subsidiaries
EXHIBIT A-1 Form of Notice of Borrowing
EXHIBIT A-2 Form of Notice of Competitive Bid Borrowing
EXHIBIT B-l Form of Revolving Note
EXHIBIT B-2 Form of Competitive Bid Note
EXHIBIT C Form of Section 3.04 Certificate
EXHIBIT D Form of Opinion of General Counsel to Borrowers
EXHIBIT E Form of Officers' Certificate
EXHIBIT F Form of Guarantee Insurance Policy
EXHIBIT G Form of Assignment Agreement
EXHIBIT H Form of Commitment Assumption Agreement
EXHIBIT I Form of DB Assumption Agreement
EXHIBIT J Form of Lender's Opinion
EXHIBIT K Form of Opinion of Designated Borrower's Counsel
EXHIBIT L Form of Opinion of Counsel to Corp.
<PAGE>
ANNEX I
COMMITMENTS
Lender Commitment
------ ----------
Deutsche Bank AG, New York
Branch $30,200,000
The First National Bank of Chicago $28,300,000
Fleet National Bank $28,300,000
Banca Monte Dei Paschi Di Siena
Spa $25,000,000
Bank of Montreal $16,700,000
Chase Manhattan Bank $16,700,000
Bank of America National Trust &
Savings Association $13,300,000
Banca Commerciale Italiana $8,300,000
Banco Santander S.A., New York
Branch $8,300,000
Commerzbank AG, New York
Branch $8,300,000
National Australia Bank Limited,
New York Branch ACN
004044937 $8,300,000
Norddeutsche Landesbank
Girozentrale, New York Branch
and/or Cayman Islands Branch $8,300,000
Total: $200,000,000
(i)
<PAGE>
ANNEX II
LENDER ADDRESSES
Deutsche Bank AG, 31 West 52nd Street, 23rd Floor
New York Branch New York, NY 10019
Attn.: John S. McGill
Tel: (212) 469-8666
Fax: (212) 469-8366
The First National Bank of Chicago 153 West 51st Street
New York, NY 10019
Attn: Luisa Pashinan
Tel: (212) 373-1169
Fax: (212) 373-1439
Fleet National Bank 777 Main Street CTMO 0250
Hartford, CT 06115-2001
Attn: Elizabeth B. Shelley
Tel: (860) 986-3127
Fax: (960) 986-1264
Banca Commerciale Italiana, One William Street New York, NY 10004
New York Branch Attn: Karen Purelis
Tel: (212) 607-3868
Fax: (212) 809-2124
Banca Monte Dei Paschi Di Siena Spa 55 East 59th Street
New York, NY 10022
Attn: Nick Kamaris
Tel: (212) 891-3655
Fax: (212) 891-3661
Banco Santander S.A., New York Branch 45 East 53rd Street
New York, NY 10022
Attn: Ligia Castro
Tel: (212) 350-3640
Fax: (212) 350-3690
(i)
<PAGE>
Bank of America, National Trust 231 South LaSalle Street
& Savings Association Chicago, IL 60697
Attn: Elizabeth Bishop
Tel: (312) 828-6550
Fax: (312) 987-0889
Bank of Montreal 115 South LaSalle Street
Floor 12
Chicago, IL 60603
Attn: Charles W. Reed
Tel: (312) 750-5912
Fax: (312) 845-2199
Chase Manhattan Bank 270 Park Avenue
New York, NY 10017
Attn: Helen Newcomb
Tel: (212) 270-6260
Fax: (212) 270-0670
Commerzbank AG, New York Branch 2 World Financial Center
New York, NY 10281-1050
Attn: Edward McDonnell III
Tel: (212) 266-7607
Fax: (212) 266-7629
National Australia Bank Limited, 200 Park Avenue, Floor 34
New York New York, NY 10166
Branch ACN 00404937 Attn: Thomas F. Kilfoyle
Tel: (212) 916-9510
Fax: (212) 983-1969
Norddeutsche Landesbank 1270 Avenue of the Americas
Girozentrale, New York New York, NY 10020
Branch and/or Cayman Islands Branch Attn: Stephanie Finnen
Tel: (212) 332-8606
Fax: (212) 332-8660
(ii)
<PAGE>
ANNEX III
SUBSIDIARIES
MBIA INSURANCE CORPORATION (NEW YORK)
MUNICIPAL ISSUERS SERVICE CORPORATION (NEW YORK)
MBIA & ASSOCIATES CONSULTING, INC. (DELAWARE)
MBIA MUNISERVICES COMPANY (DELAWARE)
MUNI RESOURCES, LLC (DELAWARE)
MBIA INVESTMENT MANAGEMENT CORP. (DELAWARE)
MBIA MUNICIPAL INVESTORS SERVICE CORPORATION (DELAWARE)
MBIA CAPITAL MANAGEMENT CORP. (DELAWARE)
MBIA CAPITAL CORP. (DELAWARE)
MBIA-AMBAC INTERNATIONAL MARKETING SERVICES, PTY., LIMITED
(AUSTRALIA)
CAPMAC HOLDINGS INC. (DELAWARE)
MBIA ASSET MANAGEMENT CORPORATION (DELAWARE)
1838 INVESTMENT ADVISORS, INC. (DELAWARE)
(i)
<PAGE>
EXHIBIT A-1
NOTICE OF BORROWING
[Date]
Deutsche Bank AG, New York Branch, as Administrative Agent
for the Lenders parties to the
Credit Agreement referred to below
31 West 52nd Street
New York, New York 10019
Attention:
Gentlemen:
The undersigned, [Name of Borrower], refers to the Credit Agreement, dated
as of August 28, 1998 (as amended from time to time, the "Credit Agreement," the
terms defined therein being used herein as therein defined), among the
undersigned, the other Borrowers, certain Lenders parties thereto, Fleet
National Bank, as Documentation Agent, The First National Bank of Chicago, as
Syndication Agent and you, as Administrative Agent for such Lenders, and hereby
gives you notice, irrevocably, pursuant to Section 1.03 of the Credit Agreement,
that the undersigned hereby requests a Borrowing of Revolving Loans under the
Credit Agreement, and in that connection sets forth below the information
relating to such Borrowing (the "Proposed Borrowing") as required by Section
1.03 of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is ___________ , 19__ .
(ii) The aggregate principal amount of the Proposed Borrowing is
[___________________]
(iii) The Proposed Borrowing is to consist of [Base Rate Loans]
[Eurodollar Loans].
[(iv) The initial Interest Period for the Proposed Borrowing is
____ [months] [days]](1)
- ----------
(1) To be included for a Proposed Borrowing of Eurodollar Loans.
<PAGE>
EXHIBIT A-1
Page 2
[(v) The DB Loan Maturity Date is ______________________________](2)
The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the date of the Proposed Borrowing:
(A) the representations and warranties contained in Section 5 of the
Credit Agreement are true and correct in all material respects, before and
after giving effect to the Proposed Borrowing and to the application of the
proceeds thereof, as though made on and as of such date; and
(B) no Default or Event of Default has occurred and is continuing, or
would result from such Proposed Borrowing or from the application of the
proceeds thereof.
Very truly yours,
[NAME OF BORROWER]
By_______________________________
Title:
- ----------
(2) To be included for a Proposed Borrowing of DB Loans.
<PAGE>
EXHIBIT A-2
NOTICE OF COMPETITIVE BID BORROWING
[Date]
Deutsche Bank AG, New York Branch, as Administrative Agent
for the Lenders parties to the
Credit Agreement referred to below
31 West 52nd Street
New York, New York 10019
Attention:
Gentlemen:
The undersigned, [Name of Borrower], refers to the Credit Agreement, dated
as of August 28, 1998 (as amended from time to time, the "Credit Agreement," the
terms defined therein being used herein as therein defined), among the
undersigned, the other Borrowers, certain Lenders parties thereto, Fleet
National Bank, as Documentation Agent, The First National Bank of Chicago, as
Syndication Agent and you, as Administrative Agent for such Lenders, and hereby
gives you notice, pursuant to Section 1.04 of the Credit Agreement, that the
undersigned hereby requests a Borrowing of Competitive Bid Loans under the
Credit Agreement, and in that connection sets forth below the information
relating to such Borrowing (the "Proposed Borrowing") as required by Section
1.04 of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is _______________
, 19___ .
(ii) The aggregate principal amount of the Proposed Borrowing is
$_______________.
(iii) The maturity date for repayment of the Proposed Borrowing
is_______________, 19____.
(iv) The interest payment date[s] of the Proposed Borrowing is [are]
_______________.
(v) The Proposed Borrowing is to consist of a [Absolute Rate
Borrowings] [Spread Borrowings].
<PAGE>
EXHIBIT A-2
Page 2
[(vi) The Interest Rate Basis for the Proposed Borrowing is_____ .](1)
[(vi) [Other applicable terms]](2)
The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the date of the Proposed Borrowing:
(A) the representations and warranties contained in Section 5 of the
Credit Agreement are true and correct in all material respects, before and
after giving effect to the Proposed Borrowing and to the application of the
proceeds thereof, as result from such Proposed Borrowing made on and as of
such date; and
(B) no Default or Event of Default has occurred and is continuing, or
would result from such Proposed Borrowing or from the application of the
proceeds thereof.
- ----------
(1) To be included for a Spread Borrowing.
(2) To be included, as needed.
<PAGE>
EXHIBIT A-2
Page 3
Very truly yours,
[NAME OF BORROWER]
By__________________________________________
Title:
<PAGE>
EXHIBIT B-1
FORM OF REVOLVING NOTE
New York, New York
_____________ , 1998
FOR VALUE RECEIVED, [NAME OF BORROWER], a corporation organized and
existing under the laws of the State of [____________________] (the "Borrower"),
hereby promises to pay to ____________ or its registered assigns (the "Lender"),
in lawful money of the United States of America in immediately available funds,
at the office of DEUTSCHE BANK AG, NEW YORK BRANCH (the "Administrative Agent")
located at 31 West 52nd Street, New York, New York 10019 on the Final Maturity
Date (as defined in the Agreement referred to below) the unpaid principal amount
of all Revolving Loans (as defined in the Agreement) made by the Lender to the
Borrower pursuant to the Agreement.
The Borrower promises also to pay interest on the unpaid principal amount
of each Revolving Loan incurred by the Borrower in like money at said office
from the date such Revolving Loan is made until paid at the rates and at the
times provided in the Agreement.
This Note is one of the Revolving Notes referred to in the Credit
Agreement, dated as of August 28, 1998, among the Borrower, [MBIA Inc.] [MBIA
Insurance Corporation], various Designated Borrowers, the Lender, the other
financial institutions party thereto, Fleet National Bank, as Documentation
Bank, The First National Bank of Chicago, as Syndication Agent and Deutsche Bank
AG, New York Branch, as Administrative Agent (as from time to time in effect,
the "Agreement") and is entitled to the benefits thereof. As provided in the
Agreement, this Note is subject to voluntary and mandatory prepayment, in whole
or in part, and Revolving Loans may be converted in accordance with Section 1.07
of the Agreement.
In case an Event of Default [under Section 8.01(q)](1) (as defined in the
Agreement) shall occur and be continuing, the principal of and accrued interest
on this Note may be declared to be due and payable in the manner and with the
effect provided in the Agreement.
The Borrower hereby waives presentment, demand, protest or notice of any
kind in connection with this Note.
This note shall be construed in accordance with and be governed by the law
of the State of New York.
- ----------
(1) Include in Revolving Notes executed by Designated Borrowers only.
<PAGE>
EXHIBIT B-1
Page 2
[NAME OF BORROWER]
By__________________________
Title:
<PAGE>
EXHIBIT B-2
FORM OF COMPETITIVE BID NOTE
New York, New York
_________________ , 1998
FOR VALUE RECEIVED, [NAME OF BORROWER], a corporation organized and
existing under the laws of the State of [ ] (the "Borrower"), hereby promises to
pay to ______________ or its registered assigns (the "Lender"), in lawful money
of the United States of America in immediately available funds, at the office of
DEUTSCHE BANK AG, NEW YORK BRANCH (the "Administrative Agent") located at 31
West 52nd Street, New York, New York 10019 on the Final Maturity Date (as
defined in the Agreement referred to below), the unpaid principal amount of all
Competitive Bid Loans (as defined in the Agreement) made by the Lender to the
Borrower pursuant to the Agreement.
The Borrower promises also to pay interest on the unpaid principal amount
of each Competitive Bid Loan incurred by the Borrower in like money at said
office from the date such Competitive Bid Loan is made until paid at the rates
and at the times provided in the Agreement.
This Note is one of the Competitive Bid Notes referred to in the Credit
Agreement, dated as of August 28, 1998, among the Borrower, [MBIA Inc.] [MBIA
Insurance Corporation], various Designated Borrowers, the Lender, the other
financial institutions party thereto, Fleet National Bank, as Documentation
Bank, The First National Bank of Chicago, as Syndication Agent and Deutsche Bank
AG, New York Branch, as Administrative Agent (as from time to time in effect,
the "Agreement") and is entitled to the benefits thereof. As provided in the
Agreement, this Note is subject to mandatory prepayment, in whole or in part.
In case an Event of Default [under Section 5.01(q)](1) (as defined in the
Agreement) shall occur and be continuing, the principal of and accrued interest
on this Note may be declared to be due and payable in the manner and with the
effect provided in the Agreement.
The Borrower hereby waives presentment, demand, protest or notice of any
kind in connection with this Note.
This Note shall be construed in accordance with and be governed by the law
of the State of New York.
- ----------
(1) Include in Competitive Bid Notes executed by Designated Borrowers only.
<PAGE>
EXHIBIT B-2
Page 2
[NAME OF BORROWER]
By__________________________________________
Title:
<PAGE>
EXHIBIT C
FORM OF SECTION 3.04 CERTIFICATE
Reference is hereby made to the Credit Agreement, dated as of August 28,
1998, among MBIA Inc., MBIA Insurance Corporation, various Designated Borrowers
from time to time, the financial institutions from time to time party thereto,
Fleet National Bank, as Documentation Agent, The First National Bank of Chicago,
as Syndication Agent and Deutsche Bank AG, New York Branch, as Administrative
Agent (as amended, modified or supplemented from time to time, the "Credit
Agreement"). Pursuant to the provisions of Section 3.04 of the Credit Agreement,
the undersigned hereby certifies that it is not a "bank" as such term is used in
Section 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended.
[NAME OF BANK]
By__________________________________________
Title:
Date: _______________, _____
<PAGE>
EXHIBIT D
[FORM OF OPINION OF GENERAL COUNSEL TO BORROWERS]
[Date]
To the Lenders and the Administrative
Agent Referred to Below
c/o Deutsche Bank AG, New York Branch
as Administrative Agent
31 West 52nd Street
New York, NY 10019
Re: $200,000,000 Credit Agreement dated as of
August 28, 1998, among MBIA Inc., MBIA
Insurance Corporation, various Designated
Borrowers from time to time party thereto,
Fleet National Bank, as Documentation
Agent, The First National Bank of Chicago,
as Syndication Agent, Deutsche Bank AG,
New York Branch, as Administrative
Agent and the other Lenders signatory thereto
______________________________________________
Ladies and Gentlemen:
I am General Counsel of MBIA Inc., a Connecticut corporation ("MBIA") and
MBIA Insurance Corporation, a New York stock insurance corporation ("MBIA
Corp."). This opinion is being given in connection with the Credit Agreement,
dated as of August 28, 1998 (the "Credit Agreement"), among MBIA, MBIA Corp.,
various Designated Borrowers from time to time party thereto, Fleet National
Bank, as Documentation Agent, The First National Bank of Chicago, as Syndication
Agent, Deutsche Bank AG, New York Branch, as Administrative Agent and the other
Lenders signatory thereto. All capitalized terms used herein and not otherwise
defined shall have the respective meanings assigned thereto in the Credit
Agreement.
In this connection, I have examined the Credit Agreement, the Notes and
such certificates of public officials, such certificates of officers of MBIA and
MBIA Corp., and copies certified to my satisfaction of such corporate documents
and records of MBIA and MBIA Corp. and of such other papers as I have deemed
relevant and necessary or appropriate for the opinions set forth below. I have
relied upon certificates of public officials and of officers of MBIA and MBIA
Corp. with respect to the accuracy of factual matters contained therein which
were not independently established.
I have also assumed (i) the due execution and delivery, pursuant to due
authorization, of the Credit Agreement by the Administrative Agent and the
Lenders, (ii) the authenticity of all such documents submitted to me as
originals, (iii) the genuineness of all signatures, and (iv) the conformity of
all such documents submitted to me as copies.
Based upon the foregoing, it is my opinion that:
<PAGE>
EXHIBIT D
Page 2
(1) MBIA is a corporation duly organized and validly existing and in
good standing under the laws of the State of Connecticut, MBIA Corp. is a
stock insurance corporation duly incorporated and validly existing in good
standing under the laws of the State of New York and each has the corporate
power required to carry on their businesses as now being conducted.
(2) The execution, delivery and performance by MBIA and MBIA Corp. of
the Credit Agreement and the Notes (i) are within the corporate powers of
MBIA and MBIA Corp., (ii) have been duly authorized by all necessary
corporate action, (iii) require no action by or in respect of, or filing
with, any governmental body, agency or official, (iv) do not (A)
contravene, or constitute a default under, any provision of applicable law
or regulation or of any agreement, judgment, injunction, order, decree or
other instrument which to my knowledge is binding upon MBIA and MBIA Corp.,
or (B) in the case of MBIA, violate any provision of its Amended and
Restated Certificate of Incorporation or By-laws, and in the case of MBIA
Corp., violate any provision of its Restated Charter or By-laws, and (v) to
the best of my knowledge, do not result in the creation or imposition of
any Lien on any asset of MBIA, MBIA Corp. or any of their Subsidiaries.
(3) The Credit Agreement and the Notes are valid and binding
obligations of MBIA and MBIA Corp., enforceable in accordance with their
respective terms, except that such enforceability may be limited by laws
relating to bankruptcy, insolvency, reorganization, moratorium,
receivership and other similar laws affecting creditors rights generally
and by general principles of equity, and the enforceability as to rights to
indemnity thereunder may be subject to limitations of public policy.
(4) To the best of my knowledge, there is no action, suit or
proceeding before or by any court, arbitrator or any governmental body,
agency or official pending or threatened against MBIA or MBIA Corp. or
their Consolidated Subsidiaries wherein an adverse decision, ruling or
finding would (i) materially and adversely affect the business,
consolidated financial position or consolidated results of operations of
MBIA, MBIA Corp. and their Consolidated Subsidiaries, considered as a
whole, or (ii) affect the validity or enforceability of the Credit
Agreement and the Notes.
(5) Each Subsidiary of MBIA and MBIA Corp. is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all
material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
(6) Neither MBIA nor MBIA Corp. is an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(7) Neither MBIA, MBIA Corp. nor any of their Subsidiaries is a
"holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
<PAGE>
EXHIBIT D
Page 3
(8) To the best of my knowledge, no governmental consents, approvals,
authorizations, registrations, declarations or filings are required for the
execution and delivery of the Credit Agreement and the Notes on behalf of
MBIA or MBIA Corp. or the consummation of the transaction as provided in
the Credit Agreement and the Notes.
This opinion is delivered to you in connection with the transaction
referenced above and may only be relied upon by you or any assignee under the
Credit Agreement, and may not be circulated, quoted or otherwise referred to
except in connection with the transactions referenced above without my prior
written consent.
Very truly yours,
Louis G. Lenzi
General Counsel
<PAGE>
EXHIBIT E
[NAME OF BORROWER)
Officers' Certificate
I, the undersigned, [President/Vice-President] of [NAME OF BORROWER], a
corporation organized and existing under the laws of the State of
[__________________ ] (the "Borrower"), DO HEREBY CERTIFY that:
1. This Certificate is furnished pursuant to Section 4.01(c) of the
Credit Agreement, dated as of August 28, 1998 among the Borrower, [MBIA
Inc.] [MBIA Insurance Corporation], the Lenders party thereto, Fleet
National Bank, as Documentation Agent, The First National Bank of Chicago,
as Syndication Agent and Deutsche Bank AG, New York Branch, as
Administrative Agent (such Credit Agreement, as in effect on the date of
this Certificate, being herein called the "Credit Agreement"). Unless
otherwise defined herein capitalized terms used in this Certificate have
the meanings assigned to those terms in the Credit Agreement.
2. The persons named below have been duty elected, have duly qualified
as and at all times since ____________ __, 19__(1) (to and including and
date hereto have been officers of the Borrower, holding the respective
offices below set opposite their names, and the signatures below set
opposite their names are their genuine signatures.
Name(2) Office Signature
_________________ _________________ _________________
_________________ _________________ _________________
_________________ _________________ _________________
3. Attached hereto as Exhibit A is a copy of the Certificate of
Incorporation of the Borrower as filed in the office of the Secretary of
State of [_______] on __________ __, 19__, together with all amendments
thereto adopted through the date hereof.
- ----------
(1) Insert a date prior to the time of any corporate action relating to the
Credit Agreement.
(2) Include name, office and signature of each officer who will sign any Credit
Document, including the officer who will sign the certification at the end
of this Certificate.
<PAGE>
EXHIBIT E
Page 2
4. Attached hereto as Exhibit B is a true and correct copy of the
By-Laws of the Borrower as in effect on ____________ __, 19__ (3) together
with all amendments thereto adopted through the date hereof.
5. Attached hereto as Exhibit C is a true and correct copy of
resolutions duly adopted by [the unanimous written consent of] the Board of
Directors of the Borrower [at a meeting on __________ __, 19__, at which a
quorum was present and acting throughout], which resolutions have not been
revoked, modified, amended or rescinded and are still in full force and
effect. Except as attached hereto as Exhibit C, no resolutions have been
adopted by the Board of Directors of the Borrower which deal with the
execution, delivery or performance of any of the Credit Documents.
6. On the date hereof, the representations and warranties contained in
Section 5 of the Credit Agreement are true and correct in all material
respects.
7. On the date hereof, no Default or Event of Default has occurred and
is continuing.
8. I know of no proceeding for the dissolution or liquidation of the
Borrower or threatening its existence.
IN WITNESS WHEREOF, I have hereunto set my hand this day of
_________________, 19__.
[NAME OF BORROWER]
By _______________________
Name:
Title:
- ----------
(3) Insert same date as in paragraph 2 of this certificate.
<PAGE>
EXHIBIT E
Page 3
I, the undersigned, [Secretary/Assistant Secretary] of the Borrower, DO
HEREBY CERTIFY that:
1. [Insert name of Person making the above certifications] is the duly
elected and qualified of the Borrower and the signature above is his
genuine signature.
2. The certifications made by [name] in items 2, 3, 4 and 5 above are
true and correct.
3. I know of no proceeding for the dissolution or liquidation of the
Borrower or threatening its existence.
IN WITNESS WHEREOF, I have hereunto set my hand this ____ day of
_______________ 19__.
[NAME OF BORROWER]
By______________________________
Name:
Title:
<PAGE>
EXHIBIT F
FINANCIAL GUARANTY INSURANCE POLICY
MBIA Insurance Corporation
Armonk, New York, 10504
Policy No.________
MBIA Insurance Corporation (the "Insurer"), for consideration received and
subject to the terms of this Policy, hereby unconditionally and irrevocably
guarantees to Deutsche Bank AG, New York Branch, as Administrative Agent (in
such capacity and together with its successors and assigns, the "Administrative
Agent") for the benefit of the financial institutions (the "Lenders") which are
parties from time to time to the Credit Agreement, dated as of August 28, 1998
among MBIA Inc., the Insurer, various designated borrowers from time to time
parties thereto, the Lenders, Fleet National Bank, as Documentation Agent, The
First National Bank of Chicago, as Syndication Agent and the Administrative
Agent (as amended, modified or supplemented from time to time, the "Credit
Agreement") the full and complete payment required to be made by [Designated
Borrower] (the "Obligor") of an amount equal to (i) amounts due for payment from
the Obligor under the Credit Agreement as such payments shall become due but
shall not be so paid; and (ii) the reimbursement of any such payment which is
subsequently recovered from the Administrative Agent or the Lenders pursuant to
a final judgment by a court of competent jurisdiction that such payment
constitutes an avoidable preference within the meaning of any applicable
bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding
sentence shall be referred to herein collectively as the "Insured Amounts."
Upon receipt of telephonic or telegraphic notice, such notice subsequently
confirmed in writing by registered or certified mail, or upon receipt of written
notice by registered or certified mail, by the Insurer from the Administrative
Agent that the payment of an Insured Amount which is then due has not been made,
the Insurer by 2:00 p.m., New York Time, on the second Business Day after
receipt of notice of such nonpayment, will make a deposit of immediately
available funds in the currency or currencies in which such Insured Amount is
payable, in an account with the Administrative Agent sufficient for the payment
of any such Insured Amounts which are then due.
All notices, presentations and other communications made by the
Administrative Agent to the Insurer shall be made to the Insurer pursuant to
Section 1 1.03 of the Credit Agreement.
The Insurer shall be subrogated to the rights of the Administrative Agent
or the Lenders to receive payment from the Obligor under the Credit Agreement to
the extent of any payment by the Insurer hereunder.
The Insurer's obligation to make any payment required pursuant to this
Policy shall be made without the prior assertion of any defenses to payment
(including fraud in inducement or fact).
<PAGE>
EXHIBIT F
Page 2
The Insurer may not, in respect of a payment to be made hereunder, be
released from its obligations in any circumstance other than the full and
complete receipt by the Administrative Agent of the full amount payable
hereunder.
The Insurer hereby waives and agrees not to assert any and all rights to
require the Administrative Agent to make demand on or to proceed against any
person, party or security prior to demanding payment under this Policy.
Any service of process on the Insurer may be made to the Insurer at its
offices located at 113 King Street, Armonk, NY 10504 and such service of process
shall be valid and binding.
This policy is not covered by the Property/Casualty Insurance Security Fund
specified in Article 76 of the New York Insurance Law.
This policy is non-cancelable for any reason.
"Business Day" means any day which is not a Saturday or Sunday or a day on
which commercial banks in the State of New York or the Administrative Agent are
authorized to or required by law to be closed.
This Policy is to be governed by, and construed in accordance with, the
laws of the State of New York.
<PAGE>
EXHIBIT F
Page 3
IN WITNESS WHEREOF, the Insurer has caused this Policy to be executed in
facsimile on its behalf by its duly authorized officers, this ___ day of
_________________, ______.
MBIA INSURANCE CORPORATION
______________________________
President
Attest: ______________________________
Assistant Secretary
<PAGE>
EXHIBIT G
FORM OF ASSIGNMENT AGREEMENT
[DATE]
Reference is made to the Credit Agreement described in Item 2 of Annex I
annexed hereto (as such Credit Agreement may hereafter be amended, supplemented
or otherwise modified from time to time, the "Credit Agreement"). Unless defined
in Annex I attached hereto, terms defined in the Credit Agreement are used
herein as therein defined. _______________ (the "Assignor") and _________ (the
"Assignee") hereby agree as follows:
1. The Assignor hereby sells and assigns to the Assignee without
recourse and without representation or warranty (other than as expressly
provided herein), and the Assignee hereby purchases and assumes from the
Assignor, that interest in and to all of the Assignor's rights and
obligations under the Credit Agreement which represents the percentage
interest specified in Item 4 of Annex I (the "Assigned Share") of the Total
Commitment under the Credit Agreement, including, without limitation, all
rights and obligations with respect to the Assigned Share of all
outstanding Revolving Loans. After giving effect to such sale and
assignment, the Assignee's Commitment and the amount of the outstanding
Revolving Loans owing to the Assignee will be as set forth in Item 4 of
Annex I.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any adverse claim; (ii) makes no
representation or warranty and assumes no responsibility with respect to
any statements, warranties or representations made in or in connection with
the Credit Agreement or the other Credit Documents or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of
the Credit Agreement or the other Credit Documents or any other instrument
or document furnished pursuant thereto; and (iii) makes no representation
or warranty and assumes no responsibility with respect to the financial
condition of Parent or any of its Subsidiaries or any Borrower or the
performance or observance by the Borrowers, of any of their obligations
under the Credit Agreement or the other Credit Documents or any other
instrument or document furnished pursuant thereto.
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to
therein and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment Agreement; (ii) agrees that it will, independently and without
reliance upon the Administrative Agent, the Assignor or any other Lender
and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not taking
action under the Credit Agreement; (iii) appoints and authorizes the
Administrative Agent to take such action as agent on its behalf and to
exercise such
<PAGE>
EXHIBIT G
Page 2
powers under the Credit Agreement and the other Credit Documents as are
delegated to the Administrative Agent by the terms thereof, together with
such powers as are reasonably incidental thereto; and (iv) agrees that it
will perform in accordance with their terms all of the obligations which by
the terms of the Credit Agreement are required to be performed by it as a
Lender.
4. Following the execution of this Assignment Agreement by the
Assignor and the Assignee, an executed original hereof (together with all
attachments) will be delivered to the Administrative Agent and Parent. The
effective date of this Assignment Agreement shall be the date of execution
hereof by the Assignor and the Assignee, the receipt of the consent of
Parent and the Administrative Agent and receipt by the Administrative Agent
of the administrative fee referred to in Section 11.04(b) of the Credit
Agreement, the receipt of Internal Revenue Service Form 1001 or 4224 (as
applicable) pursuant to Section 3.04(b)(i) of the Credit Agreement and the
opinion or opinions (as applicable) referred to in Section 11.02 of the
Credit Agreement, or such later date as specified in Item 5 of Annex I
hereto (the "Settlement Date").
5. Upon the delivery of a fully executed original hereof to the
Administrative Agent, as of the Settlement Date, (i) the Assignee shall be
a party to the Credit Agreement and, to the extent provided in this
Assignment Agreement, have the rights and obligations of a Lender
thereunder and (ii) the Assignor shall, to the extent provided in this
Assignment Agreement, relinquish its rights and be released from its
obligations under the Credit Agreement,
6. It is agreed that the Assignee shall be entitled to (x) all
interest on the Assigned Share of the Revolving Loans at the rates
specified in Item 6 of Annex I, and (y) all Facility Fees on the Assigned
Share of the Commitment at the rate specified in Item 7 of Annex I; which,
in each case, accrue on and after the Settlement Date, such interest and,
if applicable, Facility Fees to be paid by the Administrative Agent
directly to the Assignee. It is further agreed that all payments of
principal made on the Assigned Share of the Revolving Loans which occur on
and after the Settlement Date will be paid directly by the Administrative
Agent to the Assignee. Upon the Settlement Date, the Assignee shall pay to
the Assignor an amount specified by the Assignor in writing which
represents the Assigned Share of the principal amount of the Revolving
Loans made by the Assignor pursuant to the Credit Agreement which are
outstanding on the Settlement Date, net of any closing costs, and which are
being assigned hereunder. The Assignor and the Assignee shall make all
appropriate adjustments in payments under the Credit Agreement for periods
prior to the Settlement Date directly between themselves on the Settlement
Date.
7. THIS ASSIGNMENT AND ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
EXHIBIT G
Page 3
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written, such execution also being made on Annex I
hereto.
Accepted this ___ day [NAME OF ASSIGNOR],
of ___________ ,___ as Assignor
By____________________________
Title:
[NAME OF ASSIGNEE],
as Assignee
By____________________________
Title:
Acknowledged and Agreed:
MBIA INC.
By____________________________
Title:
MBIA INSURANCE CORPORATION
By____________________________
Title:
DEUTSCHE BANK AG, NEW YORK BRANCH,
as Administrative Agent
By____________________________
Title:
<PAGE>
EXHIBIT G
Page 4
By____________________________
Title:
<PAGE>
ANNEX I
ANNEX FOR ASSIGNMENT AGREEMENT
1. Borrowers: MBIA Inc. ("Parent"), MBIA Insurance Corporation ("Corp.") and
various Designated Borrowers from time to time.
2. Name and Date of Credit Agreement:
Credit Agreement, dated as of August 28, 1998 among Parent, Corp., various
Designated Borrowers, the Lenders from time to time party thereto, Fleet
National Bank, as Documentation Agent, The First National Bank of Chicago,
as Syndication Agent and Deutsche Bank AG, New York Branch, as
Administrative Agent.
3. Date of Assignment Agreement:
4. Amounts (as of date of item #3 above):
Outstanding Commitment
Principal of ----------
Revolving Loans
---------------
a. Aggregate Amount for all Lenders $ ----------- $ -----------
b. Assigned Share ----------- % ----------- %
c. Amount of Assigned Share $ ----------- $ -----------
5. Settlement Date:
<PAGE>
ANNEX I
Page 2
6. Rate of Interest to As set forth in Section 1.09 of the
the Assignee: Credit Agreement (unless
otherwise agreed to by the
Assignor and the Assignee)(1)
7. Facility Fee As set forth in Section 2.01(a) of
the Credit Agreement (unless
otherwise agreed to by the
Assignor and the Assignee)(2)
8. Notice:
ASSIGNOR:
---------------
---------------
---------------
---------------
Attention:
Telephone:
Telecopier:
Reference:
ASSIGNEE:
---------------
---------------
---------------
---------------
Attention:
Telephone:
Telecopier:
Reference:
- ----------
(1) The Borrowers and the Administrative Agent shall direct the entire amount
of the interest to the Assignee at the rate set forth in Section 1.09 of
the Credit Agreement, with the Assignor and Assignee effecting any agreed
upon sharing of interest through payments by the Assignee to the Assignor.
(2) The Borrowers and the Administrative Agent shall direct the entire amount
of the Facility Fee to the Assignee at the rate set forth in Section
2.01(a) of the Credit Agreement, with the Assignor and Assignee effecting
any agreed upon sharing of Facility Fees through payments by the Assignee
to the Assignor.
<PAGE>
ANNEX I
Page 3
Payment Instructions:
ASSIGNOR:
---------------
---------------
---------------
---------------
---------------
Attention:
Reference:
ASSIGNEE:
---------------
---------------
---------------
---------------
---------------
Attention:
Reference:
Accepted and Agreed:
[NAME OF ASSIGNEE] [NAME OF ASSIGNOR]
By By
------------------------- -------------------------
------------------------- -------------------------
(Print Name and Title) (Print Name and Title)
<PAGE>
EXHIBIT H
FORM OF COMMITMENT ASSUMPTION AGREEMENT
[Letterhead of Lender]
[DATE]
MBIA Inc.
MBIA Insurance Corporation
885 Third Avenue
New York, New York 10022
Deutsche Bank AG, New York
Branch, as Administrative Agent
31 West 52nd Street
New York, New York 10019
re Additional Commitment
----------------------------
Ladies and Gentlemen:
Reference is hereby made to the Credit Agreement, dated as of August 28,
1998 (as amended, modified or supplemented from time to time, the "Credit
Agreement"), among MBIA Inc. ("Parent"), MBIA Insurance Corporation ("Corp."),
various Designated Borrowers from time to time, various lending institutions
party thereto, Fleet National Bank, as Documentation Agent, The First National
Bank of Chicago, as Syndication Agent, and Deutsche Bank AG, New York Branch, as
Administrative Agent (the "Administrative Agent"). Unless otherwise defined
herein, capitalized terms used herein shall have the respective meanings set
forth in the Credit Agreement.
[We hereby agree to assume a Commitment under the Credit Agreement of
$___________.] [We hereby agree to increase our Commitment under the Credit
Agreement from
<PAGE>
EXHIBIT H
Page 2
$____________ to $ ___________.](1) This [assumption of] [increase in] our
Commitment shall be effective on the date this letter is accepted by you as
provided below.
[We (i) confirm that we have received a copy of the Credit Agreement and
the other Credit Documents, together with copies of the financial statements
referred to therein and such other documents and information as we have deemed
appropriate to make our own credit analysis and decision to enter into this
Commitment Assumption Agreement; (ii) agree that we will, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as we shall deem appropriate at the time,
continue to make our own credit decisions in taking or not taking action under
the Credit Agreement; (iii) appoint and authorize the Administrative Agent to
take such action as agent on our behalf and to exercise such powers under the
Credit Agreement and the other Credit Documents as are delegated to the
Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and (iv) agree that we will perform in accordance
with their terms all of the obligations which by the terms of the Credit
Agreement are required to be performed by us as a Lender. Upon the delivery of a
fully executed original hereof to the Administrative Agent, we shall be a party
to the Credit Agreement and, to the extent provided in this Commitment
Assumption Agreement, have the rights and obligations of a Lender thereunder and
under the other Credit Documents. ](2)
You may accept this letter by signing the enclosed copies in the space
provided below, and returning one copy of same to us and delivering one copy of
same to the Administrative Agent before the close of business on ______________,
______. If you do not so accept this letter, our Commitment shall be deemed
cancelled.
THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK AND MAY BE MODIFIED ONLY IN WRITING.
Very truly yours,
[NAME OF LENDER]
By:__________________
Title:
- ----------
(1) Insert the first sentence in the case of the assumption of a Commitment by
an institution not previously a Lender under the Credit Agreement. Insert
the second sentence in the case of an increase in the Commitment of a
Lender under the Credit Agreement.
(2) Insert bracketed language if the lending institution is not already a
Lender.
<PAGE>
EXHIBIT H
Page 3
Agreed and Accepted
this __ day of ______________, ____:
MBIA INC.
By:__________________
Title:
MBIA INSURANCE CORPORATION
By:__________________
Title:
<PAGE>
EXHIBIT I
FORM OF DB ASSUMPTION AGREEMENT
DB ASSUMPTION AGREEMENT (the "Agreement") dated as of _________________,
____, by _______________, a _____________ [corporation] (the "Company"). Unless
otherwise defined herein, capitalized terms used herein and defined in the
Credit Agreement referred to below are used herein as so defined.
WITNESSETH:
WHEREAS, MBIA Inc. ("Parent"), MBIA Insurance Corporation ("Corp."),
various Designated Borrowers from time to time, various lending institutions
party thereto, Fleet National Bank, as Documentation Agent, The First National
Bank of Chicago, as Syndication Agent and Deutsche Bank AG, New York Branch, as
Administrative Agent, have entered into a Credit Agreement dated as of August
28, 1998 (as amended through the date hereof, the "Credit Agreement");
WHEREAS, pursuant to Section 1.17 of the Credit Agreement, Parent or Corp.
may designate one or more Persons as a Designated Borrower from time to time;
and
WHEREAS, [Parent] [Corp.] desires to designate the Company as a Designated
Borrower for purposes of the Credit Agreement;
WHEREAS, the Company desires to execute and deliver this Agreement in order
to become a party to the Credit Agreement as a Designated Borrower;
NOW, THEREFORE, IT IS AGREED:
1. Assumption. By executing and delivering this Agreement, the Company
hereby becomes a party to the Credit Agreement as a "Designated Borrower"
thereunder, and hereby expressly assumes all obligations and liabilities of
a "Designated Borrower" thereunder.
2. Representations, Warranties and Agreements. In order to induce the
Lenders to make Loans to the Company as provided in the Credit Agreement,
the Company hereby makes the following representations and warranties to,
and agreements with, the Lenders, all of which shall survive the execution
and delivery of this Agreement and the making of Loans to the Company:
(a) The Company is a special purpose entity duly organized,
validly existing and in good standing under the laws of the State of
_________________, is duly qualified to transact business in every
jurisdiction where, by the nature of its businesses, such
qualification is
<PAGE>
EXHIBIT I
Page 2
necessary, and has all powers and all governmental licenses,
authorizations, consents and approvals required to carry on its
businesses as now conducted.
(b) The execution, delivery and performance by the Company of
this Agreement and the other Credit Documents (i) are within the
Company's corporate powers, (ii) have been duly authorized by all
necessary corporate or other action, (iii) require no action by or in
respect of, or filing with, any governmental body, agency or official,
(iv) do not contravene, or constitute a default under, any provision
of applicable law or regulation or of the certificate of incorporation
or by-laws or other organizational documents of the Company or of any
agreement, judgment, injunction, order, decree or other instrument
binding upon the Company or any of its Subsidiaries, and (v) do not
result in the creation or imposition of any Lien on any asset of the
Company or any of its Subsidiaries.
(c) This Agreement and the other Credit Documents constitute
valid and binding agreements of the Company enforceable in accordance
with their terms, provided that the enforceability hereof and thereof
is subject in each case to general principles of equity and to
bankruptcy, insolvency and similar laws affecting the enforcement of
creditors' rights generally.
(d) There is no action, suit or proceeding pending, or to the
knowledge of the Company threatened, against or affecting the Company
or any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official which is material in the context
of the Company's business or which in any manner draws into question
the validity or enforceability of, or could impair the ability of the
Company to perform its obligations under, this Agreement or any of the
other Credit Documents.
(e) The Company is not an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
(f) Neither the Company nor any of its Subsidiaries is a "holding
company", or a subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company", as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended.
(g) All information heretofore furnished by the Company to the
Administrative Agent or any Lender for purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all
such information hereafter furnished by the Company to the
Administrative Agent or any Lender will be, true, accurate and
complete in every material respect or based on reasonable estimates on
the date as of which such information is stated or certified.
(h) Neither the Company nor any of its Subsidiaries are engaged
principally, or as one of its important activities, in the business of
purchasing or carrying any Margin Stock, and no part of the proceeds
of any Loan will be used to purchase or carrying any Margin Stock, or
be used for any purpose which violates, or which is inconsistent with,
the provisions of Regulation U or X.
<PAGE>
EXHIBIT I
Page 3
(i) After giving effect to the execution and delivery of the
Credit Documents and the malting of the Loans under the Credit
Agreement, the Company will not be "insolvent," within the meaning of
such term as used in O.C.G.A. ss. 18-2-22 or as defined in ss. 101 of
Title 11 of the United States Code or Section 2 of the Uniform
Fraudulent Transfer Act, or any other applicable state law pertaining
to fraudulent transfers, as each may be amended from time to time, or
be unable to pay its debts generally as such debts become due or have
an unreasonably small capital to engage in any business or
transaction, whether current or contemplated.
(j) The Company is not subject to any bankruptcy or insolvency
proceeding of the type referred to in Section 8.0 1 (h) or (i) of the
Credit Agreement.
2. Notes. The Company agrees to execute and deliver to the
Administrative Agent for the account of each Lender a Revolving Note and a
Competitive Bid Note.
3. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
4. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
EXHIBIT I
Page 4
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be duly
executed and delivered as of the date first above written.
[DESIGNATED BORROWER]
By__________________
Title:
ACKNOWLEDGED:
[MBIA INC.]
[MBIA INSURANCE CORPORATION]
By_________________________________
Title:
DEUTSCHE BANK AG, NEW YORK BRANCH
as Administrative Agent
By_________________________________
Title:
By_________________________________
Title:
<PAGE>
EXHIBIT J
[DOMESTIC BANK COUNSEL OPINION]
[DATE]
MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
MBIA Inc.
113 King Street
Armonk, NY 10504
Re: $400,000,000 Credit Agreement date as
of August 28, 1998, among MBIA Inc.,
MBIA Insurance Corporation, various
Designated Borrowers from time to time
party thereto, Fleet National Bank, as
Documentation Agent, The First National
Bank of Chicago, as Syndication Agent,
Deutsche Bank AG, New York Branch, as
Administrative Agent and other
Lenders signatory thereto
_____________________________________
Ladies and Gentlemen:
We are counsel for ____________________ (the "Lender") and, as such, are
familiar with its Articles of Association and Bylaws. We are familiar with the
corporate action on the part of the Lender in connection with the execution and
delivery by the Lender of the above referenced Credit Agreement dated as of
August 28, 1998.
In connection with this opinion we have examined the Credit Agreement.
Furthermore, we have examined originals, or copies certified to our
satisfaction, of such agreements, documents, certificates and other statements
of government officials and officers of the Lender and other papers as deemed
relevant and necessary as a basis for such opinions. In such examination, we
have assumed the capacity of natural persons, the genuineness of all signatures
and the authenticity of all documents submitted to us as originals and the
conformity with the originals of all documents submitted to us as copies.
Based upon the examination described above, we are of the following opinions:
<PAGE>
EXHIBIT J
Page 2
(1) The Lender is a [National Banking Association] organized and in
good standing under the laws of the United States of America.
(2) The Lender has full corporate power and authority to enter into
the Credit Agreement and to perform and observe its obligations thereunder.
(3) No consent, approval, or authorization of, filing or registration
with, or notification of or other action with respect to, any governmental
authority of the [STATE] or of the United States is required in connection
with the execution, delivery, or performance of the Credit Agreement by the
Lender.
(4) The Credit Agreement has been duly authorized, executed and
delivered by the Lender and is a valid and binding obligation of the
Lender, enforceable against the Lender in accordance with its terms except
that enforceability may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally, as such laws would apply in the
event of the bankruptcy, insolvency, reorganization or liquidation of, or
other similar occurrence with respect to the Lender or the event of any
moratorium or similar occurrence affecting the Lender.
Yours very truly,
<PAGE>
EXHIBIT J
Page 3
[FOREIGN BANK'S U.S. BRANCH U.S. COUNSEL OPINION]
[DATE]
MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
MBIA Inc.
113 King Street
Armonk, NY 10504
Re: $400,000,000 Credit Agreement date as
of August 28, 1998, among MBIA Inc.,
MBIA Insurance Corporation, various
Designated Borrowers from time to time
party thereto, Fleet National Bank, as
Documentation Agent, The First National
Bank of Chicago, as Syndication Agent,
Deutsche Bank AG, New York Branch, as
Administrative Agent and other
Lenders signatory thereto
_____________________________________
Ladies and Gentlemen:
We have acted as counsel to [LENDER], a banking corporation organized under
the laws of [COUNTRY], acting through its [STATE] Branch [or Agency] in
connection with its execution and delivery of the above-referenced Credit
Agreement (the "Credit Agreement") dated as of August 28, 1998.
In connection with the opinions herein set forth, we have reviewed and
relied upon the opinion of [FOREIGN COUNSEL TO LENDER] dated [________________,
1998] with respect to the matters set forth therein. Furthermore, we have
examined agreements, certificates, documents and statements of government
officials and officers of [LENDER] as we have deemed relevant and necessary in
order to render the opinions set forth below. In our examination, we have
assumed the genuineness of all signatures and the authenticity of all documents
submitted to us as originals and conformity to original documents of all
documents submitted to us as certified or photostatic copies. As to various
questions of fact material in our opinions, we have relied upon certificates of
officers and representatives of [LENDER], except that we have made such
<PAGE>
EXHIBIT J
Page 4
independent investigations as in our judgment are necessary or appropriate to
enable us to render the opinions expressed below.
Based on the foregoing, it is our opinion that:
1. [LENDER] is authorized to operate as a [BRANCH/AGENCY] of a foreign
banking corporation under the laws of [STATE] or [UNITED STATES].
2. [LENDER] has the corporate power and authority to enter into the
Credit Agreement and to undertake the obligations set forth therein.
3. The Credit Agreement has been duly authorized, executed and
delivered by [LENDER] and constitutes the legal, valid and binding
obligation of [LENDER] enforceable against [LENDER] in accordance with its
terms, except only as such enforceability may be limited (a) by bankruptcy,
insolvency, reorganization, liquidation, moratorium or other similar laws
affecting the enforcement of creditors' rights in general as such laws
would apply in the event of any insolvency, reorganization, liquidation,
moratorium or similar occurrence affecting [LENDER] or (b) by equitable
principles affecting [LENDER].
We are not admitted to practice law in [COUNTRY] and the foregoing opinion
is limited to the laws of the State of [STATE] and to applicable federal laws of
the United States of America.
Very truly yours,
<PAGE>
EXHIBIT J
Page 5
[FOREIGN BANK'S FOREIGN COUNSEL OPINION]
[DATE]
MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
MBIA Inc.
113 King Street
Armonk, NY 10504
Re: $400,000,000 Credit Agreement date as
of August 28, 1998, among MBIA Inc.,
MBIA Insurance Corporation, various
Designated Borrowers from time to time
party thereto, Fleet National Bank, as
Documentation Agent, The First National
Bank of Chicago, as Syndication Agent,
Deutsche Bank AG, New York Branch, as
Administrative Agent and other
Lenders signatory thereto
_____________________________________
Ladies and Gentlemen:
We have acted as [COUNTRY] counsel to [LENDER] (the "Lender") in connection
with the execution and delivery through its [STATE] Branch/Agency of the
above-referenced Credit Agreement dated as of August 28, 1998 (the "Credit
Agreement"). Capitalized terms used in this opinion and not defined herein shall
have the meanings assigned in the Credit Agreement.
In connection with the opinions set forth herein, we have examined a copy
of the Credit Agreement. In addition, we have examined and relied on originals,
or copies certified or otherwise identified to our satisfaction, of such
corporate records of the Lender and such other instruments, agreements,
documents and other certificates of government officials, officers and
representatives of the Lender and such other persons, and we have made such
investigation of law and fact as we have deemed appropriate as a basis for the
opinions expressed below. In such examination we have assumed that the
signatures on all documents that we have examined are genuine.
We express no opinion herein as to the laws of any jurisdiction other than
to the laws of [COUNTRY].
<PAGE>
EXHIBIT J
Page 6
Based upon and subject to the foregoing, we are of the opinion that:
(1) The Lender is a banking corporation duly organized and existing
under the laws of the [COUNTRY], and has full power and authority to
execute and deliver the Credit Agreement through its [STATE] Branch/Agency
and to perform all of its obligations thereunder.
(2) The execution of the Credit Agreement by the Lender through its
[STATE] Branch has been duly authorized by all necessary corporate action
of the Lender in accordance with the laws of [COUNTRY] and, assuming due
execution and delivery, will constitute a legal, valid and binding
obligation of the Lender, enforceable under the laws of the [COUNTRY]
against the Lender in accordance with its terms, except as limited by (i)
applicable bankruptcy, insolvency, reorganization, liquidation,
readjustment of debt, moratorium and similar laws affecting creditors
rights against the Lender from time to time in effect, as the same may be
applied in the event of bankruptcy, insolvency, reorganization,
liquidation, readjustment of debt or similar situation of the Lender or a
moratorium applicable to the Lender and (ii) general principles of equity
(regardless of whether enforcement in sought is a proceeding in equity or
at law).
(3) As of the date hereof, each of the following officers of the
Lender's [STATE] Branch/Agency are authorized to execute and deliver the
Credit Agreement for, in the name and on behalf of the Lender:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
(4) The issuance, execution and delivery of the Credit Agreement do
not conflict with, or constitute a breach of or a default under, the
[Articles, Charter or Bylaws] of the Lender or any administrative
regulation or decree of or in [COUNTRY] to which the Lender is subject.
(5) With the exception of the approvals obtained or made as of the
date hereof, no approval, authorization, consent or other order of any
governmental or administrative agency or body is required under the laws of
[COUNTRY] in connection with the issuance, execution and delivery of the
Credit Agreement, or for the performance by the Lender of its obligations
thereunder.
(6) The choice of laws of the State of ___________________ to govern
the Credit Agreement is valid under the laws of [COUNTRY), provided that
the application of such laws of the State of [STATE] does not violate
public order or good morals in [COUNTRY]. We have no reason to believe that
the application of the laws of the State of [STATE] to the Credit Agreement
violates such public order or good morals in [COUNTRY].
(7) A final and conclusive judgment rendered by the courts of the
State of [STATE] or the United States of America having jurisdiction over
the Lender (including the [STATE] Branch/Agency), which is not subject to
appeal and is enforceable in the United States of
<PAGE>
EXHIBIT J
Page 7
America, with respect to the obligations of the Lender under the Credit
Agreement, may be enforced against the Lender without a review of the
merits, provided that the following requirements of the [COUNTRY] Code of
Civil Procedure, which we consider to be material, are satisfied: (i)
service of complaint filed with the courts of the United States of America
having jurisdiction over the Lender (including the [STATE] Branch/Agency)
was properly effected on the Lender other than by means of public notice;
(ii) reciprocity continues to exist with respect to the recognition of
final judgments of the courts of [COUNTRY] by the courts of the State of
[STATE] or the respective federal court; and (iii) such final and
conclusive judgment in the United States of America is not contrary to the
public order or good morals in [COUNTRY]. We see no reason at present why a
judgment based on the obligations of the Lender set forth in the Credit
Agreement would be contrary to the public order or good morals in
[COUNTRY].
(8) Under [COUNTRY] law, a Borrower under the Credit Agreement would
have the right to commence a direct action against the Lender in any court
having jurisdiction in [COUNTRY].
Very truly yours,
<PAGE>
EXHIBIT K
[FORM OF OPINION OF COUNSEL TO DESIGNATED BORROWER]
[Date]
To the Lenders and the Administrative
Agent Referred to Below
c/o Deutsche Bank AG, New York Branch
as Administrative Agent
31 West 52nd Street
New York, NY 10019
Re: $200,000,000 Credit Agreement dated as of
August 28, 1998 among MBIA Inc. ("MBIA"),
MBIA Insurance Corporation ("MBIA Corp."),
various Designated Borrowers from time to
time party thereto, Fleet National Bank,
as Documentation Agent, The First National
Bank of Chicago, as Syndication Agent,
Deutsche Bank AG, New York Branch, as
Administrative Agent and the other
Lenders signatory thereto
__________________________________________
Ladies and Gentlemen:
I am Counsel to [_____________], a ____________ [corporation] (the
"Designated Borrower"). This opinion is being given in connection with the
Credit Agreement, dated as of August 28, 1998 (the "Credit Agreement"), among
MBIA, MBIA Corp., various Designated Borrowers from time to time party thereto,
Fleet National Bank, as Documentation Agent, The First National Bank of Chicago,
as Syndication Agent, Deutsche Bank AG, New York Branch, as Administrative Agent
and the other Lenders signatory thereto. All capitalized terms used herein and
not otherwise defined shall have the respective meanings assigned thereto in the
Credit Agreement.
In this connection, I have examined the Credit Agreement, the Notes and
such certificates of public officials, such certificates of officers of the
Designated Borrower, and copies certified to my satisfaction of such corporate
documents and records of the Designated Borrower and of such other papers as I
have deemed relevant and necessary or appropriate for the opinions set forth
below. I have relied upon certificates of public officials and of officers of
the Designated Borrower with respect to the accuracy of factual matters
contained therein which were not independently established.
I have also assumed (i) the due execution and delivery, pursuant to due
authorization, of the Credit Agreement by the Administrative Agent and the
Lenders, (ii) the authenticity of all such documents submitted to me as
originals, (iii) the genuineness of all signatures, and (iv) the conformity of
all such documents submitted to me as copies.
Based upon the foregoing, it is my opinion that:
<PAGE>
EXHIBIT K
Page 2
(1) The Designated Borrower is a [corporation] duly organized and
validly existing and in good standing under the laws of the State of
[_____________], and has the corporate power required to carry on its
business as now being conducted.
(2) The execution, delivery and performance by the Designated Borrower
of the Credit Agreement and the Notes (i) are within the corporate powers
of the Designated Borrower, (ii) have been duly authorized by all necessary
corporate action, (iii) require no action by or in respect of, or filing
with, any governmental body, agency or official, (iv) do not (A)
contravene, or constitute a default under, any provision of applicable law
or regulation or of any agreement, judgment, injunction, order, decree or
other instrument which to my knowledge is binding upon the Designated
Borrower, or (B) violate any provision of the Designated Borrower's
Certificate of Incorporation or By-laws or other constitutive document, as
amended from time to time, and (v) to the best of my knowledge, do not
result in the creation or imposition of any Lien on any asset of the
Designated Borrower or any of its Subsidiaries.
(3) The Credit Agreement and the Notes are valid and binding
obligations of the Designated Borrower, enforceable in accordance with
their respective terms, except that such enforceability may be limited by
laws relating to bankruptcy, insolvency, reorganization, moratorium,
receivership and other similar laws affecting creditors rights generally
and by general principles of equity, and the enforceability as to rights to
indemnity thereunder may be subject to limitations of public policy.
(4) To the best of my knowledge, there is no action, suit or
proceeding before or by any court, arbitrator or any governmental body,
agency or official pending or threatened against the Designated Borrower or
its Consolidated Subsidiaries wherein an adverse decision, ruling or
finding would (i) materially and adversely affect the business,
consolidated financial position or consolidated results of operations of
the Designated Borrower and its Consolidated Subsidiaries, considered as a
whole, or (ii) affect the validity or enforceability of the Credit
Agreement and the Notes.
(5) The Designated Borrower is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(6) Neither the Designated Borrower nor any of its Subsidiaries is a
"holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
(7) To the best of my knowledge, no governmental consents, approvals,
authorizations, registrations, declarations or filings are required for the
execution and delivery of the Credit Agreement and the Notes on behalf of
the Designated Borrower or the consummation of the transaction as provided
in the Credit Agreement and the Notes.
<PAGE>
EXHIBIT K
Page 3
This opinion is delivered to you in connection with the transaction
referenced above and may only be relied upon by you or any assignee under the
Credit Agreement, and may not be circulated, quoted or otherwise referred to
except in connection with the transactions referenced above without my prior
written consent.
Very truly yours,
<PAGE>
EXHIBIT L
[FORM OF OPINION OF MBIA INSURANCE CORPORATION]
_________, ____
[ADDRESSEE]
Ladies and Gentlemen:
I am Assistant General Counsel of MBIA Insurance Corporation (the "Corporation")
and have acted on behalf of the Corporation in connection with the issuance of
Financial Guaranty Insurance Policy No.__ (the "Policy) relating to the
obligations of _____________ under the ______________.
I am familiar with and have examined a copy of the Policy and such other
relevant documents as I have deemed necessary.
Based on the foregoing, I am of the following opinion:
1. The Corporation is a stock insurance corporation, duly incorporated
and validly existing under the laws of the State of New York and is
licensed and authorized to issue the Policy under the laws of the
State of New York.
2. The Policy has been duly executed and is a valid and binding
obligation of the Corporation enforceable in accordance with its
terms except that the enforcement of the Policy may be limited by
laws relating to the bankruptcy, insolvency, reorganization,
moratorium, receivership and other similar laws affecting
creditors' rights generally and by general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
Very truly yours,
<PAGE>
Generale Bank Additional $17 Million Commitment
New York Branch
September 3, 1998
MBIA Inc.
MBIA Insurance Corporation
885 Third Avenue
New York, NY 10022
Deutsche Bank AG, New York Branch
As Administrative Agent
31 West 52nd St.
New York, NY 10019
Re: Additional Commitment
Ladies and Gentlemen:
Reference is hereby made to the Credit Agreement, dated as of August 28, 1998 as
amended, modified or supplemented from time to time, the "Credit Agreement"),
among MBIA Inc. ("Parent"), MBIA Insurance Corporation ("Corp."), various
Designated Borrowers from time to time, various lending institutions party
thereto, Fleet National Bank, as Documentation Agent, The First National Bank of
Chicago, as Syndication Agent, and Deutsche Bank AG, New York Branch, as
Administrative Agent (the "Administrative Agent"). Unless otherwise defined
herein, capitalized terms used herein, capitalized terms used herein shall have
the respective meanings set forth in the Credit Agreement.
We hereby agree to assume a Commitment under the Credit Agreement of
$17,000,000. This assumption of our Commitment shall be effective on the date
this letter is accepted by you as provided below.
We (i) confirm that we have received a copy of the Credit Agreement and the
other Credit Documents, together with copies of the financial statements
referred to therein and such other documents and information as we have deemed
appropriate to make our own credit analysis and decision to enter into this
Commitment Assumption Agreement; (ii) agree that we will, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as we shall deem appropriate at the time,
continue to make our own credit decisions in taking or not taking action under
the Credit Agreement; (iii) appoint and authorize the Administrative Agent to
take such action as agent on our behalf and to exercise such powers under the
Credit Agreement and the other Credit Documents as are delegated to the
Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and (iv) agree that we will perform in accordance
with their terms all of the
Generale Bank - New York Branch
520 Madison Avenue, New York, N.Y. 10022 - Tel.: (212) 838-3301
Telex - 408955 GBNYC
<PAGE>
Generale Bank
New York Branch
obligations which by the terms of the Credit Agreement are required to be
performed by us as a Lender. Upon the delivery of a fully executed original
hereof to the Administrative Agent, we shall be a party to the Credit Agreement
and, to the extent provided in this Commitment Assumption Agreement, have the
rights and obligations of Lender thereunder and under the other Credit
Documents.
You may accept this letter by signing the enclosed copies in the space provided
below, and returning one copy of same to us and delivering one copy of same to
the Administrative Agent before the close of business on September 11, 1998. If
you do not so accept this letter, our Commitment shall be deemed cancelled.
THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK AND MAY BE MODIFIED ONLY IN WRITING.
Very truly yours,
Generale Bank, New York Branch
By: /s/ E. Matthews /s/ Hans Neukomm
-------------------------------------- ---------------------------
Eddie Matthews Hans Neukomm
Senior Vice President General Manager
Agreed and Accepted this 10th day of September,1998.
MBIA Inc.
By: /s/ [ILLEGIBLE]
--------------------------------------
Title: Managing Director & Controller
MBIA Insurance Corporation
By: /s/ [ILLEGIBLE]
--------------------------------------
Title: Managing Director & Controller
Generale Bank - New York Branch
520 Madison Avenue, New York, N.Y. 10022 o Tel.: (212) 838-3301
Telex o 408955 GBNYC
EXECUTION COPY
================================================================================
CREDIT AGREEMENT
among
MBIA INC.,
MBIA INSURANCE CORPORATION,
VARIOUS DESIGNATED BORROWERS,
VARIOUS LENDING INSTITUTIONS,
DEUTSCHE BANK AG, NEW YORK BRANCH,
AS ADMINISTRATIVE AGENT,
THE FIRST NATIONAL BANK OF CHICAGO,
AS SYNDICATION AGENT
and
FLEET NATIONAL BANK,
AS DOCUMENTATION AGENT
----------
Dated as of August 28, 1998
----------
$400,000,000
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Amount and Terms of Credit.............................................................. 1
1.01 Commitment......................................................................... 1
1.02 Minimum Borrowing Amounts, etc..................................................... 2
1.03 Notice of Borrowing of Revolving Loans............................................. 2
1.04 Competitive Bid Borrowings......................................................... 2
1.05 Disbursement of Funds.............................................................. 4
1.06 Notes.............................................................................. 5
1.07 Conversions........................................................................ 5
1.08 Pro Rata Borrowings, etc........................................................... 6
1.09 Interest .......................................................................... 6
1.10 Interest Periods................................................................... 7
1.11 Increased Costs, Illegality, etc................................................... 8
1.12 Compensation....................................................................... 10
1.13 Change of Lending Office........................................................... 11
1.14 Replacement of Lenders............................................................. 11
1.15 Extension of Final Maturity Date; Replacement of Non-Continuing Lender ............ 12
1.16 Additional Commitments ............................................................ 12
1.17 Designated Borrowers .............................................................. 13
1.18 Retroactivity ..................................................................... 14
SECTION 2. Fees; Commitments ...................................................................... 14
2.01 Fees .............................................................................. 14
2.02 Voluntary Reduction of Commitments ................................................ 14
2.03 Mandatory Reduction of Commitments ................................................ 14
SECTION 3. Payments ............................................................................... 15
3.01 Voluntary Prepayments ............................................................. 15
3.02 Mandatory Prepayments ............................................................. 15
3.03 Method and Place of Payment ....................................................... 16
3.04 Net Payments ...................................................................... 16
SECTION 4. Conditions Precedent ................................................................... 19
4.01 Conditions Precedent to Effective Date ............................................ 19
4.02 Conditions Precedent to Loans ..................................................... 20
SECTION 5. Representations, Warranties and Agreements ............................................. 21
5.01 Corporate Existence and Power ..................................................... 21
5.02 Corporate and Governmental Authorization; No Contravention ........................ 21
</TABLE>
(i)
<PAGE>
<TABLE>
Page
----
<S> <C>
5.03 Binding Effect .................................................................... 21
5.04 Financial Information ............................................................. 21
5.05 Litigation ........................................................................ 22
5.06 Compliance with ERISA ............................................................. 22
5.07 Taxes ............................................................................. 22
5.08 Subsidiaries ...................................................................... 22
5.09 Not an Investment Company ......................................................... 22
5.10 Public Utility Holding Company Act ................................................ 22
5.11 Ownership of Property; Liens ...................................................... 23
5.12 No Default ........................................................................ 23
5.13 Full Disclosure ................................................................... 23
5.14 Compliance with Laws .............................................................. 23
5.15 Capital Stock ..................................................................... 23
5.16 Margin Stock ...................................................................... 23
5.17 Insolvency ........................................................................ 23
SECTION 6. Affirmative Covenants ................................................................... 23
6.01 Information Covenants ............................................................. 24
6.02 Books, Records and Inspections .................................................... 25
6.03 Maintenance of Existence .......................................................... 26
6.04 Compliance with Laws; Payment of Taxes ............................................ 26
6.05 Insurance ......................................................................... 26
6.06 Maintenance of Property ........................................................... 26
SECTION 7. Negative Covenants ...................................................................... 26
7.01 Liens ............................................................................. 26
7.02 Dissolution ....................................................................... 27
7.03 Consolidations, Mergers and Sales of Assets ....................................... 27
7.04 Use of Proceeds ................................................................... 27
7.05 Change in Fiscal Year ............................................................. 27
7.06 Transactions with Affiliates ...................................................... 27
7.07 Leverage Ratio .................................................................... 27
7.08 Minimum Net Worth ................................................................. 27
SECTION 8. Defaults ................................................................................ 28
8.01 Events of Default ................................................................. 28
8.02 Notice of Default ................................................................. 30
SECTION 9. Definitions ............................................................................. 30
SECTION 10. Agents, etc. ........................................................................... 43
10.01 Appointment ....................................................................... 43
10.02 Nature of Duties .................................................................. 43
10.03 Lack of Reliance on the Agents .................................................... 44
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
10.04 Certain Rights of the Agents ...................................................... 44
10.05 Reliance .......................................................................... 44
10.06 Indemnification ................................................................... 44
10.07 The Agents in Their Individual Capacities ......................................... 45
10.08 Holders ........................................................................... 45
10.09 Resignation by an Agent ........................................................... 45
10.10 Documentation Agent ............................................................... 45
SECTION 11. Miscellaneous .......................................................................... 46
11.01 Payment of Expenses, etc .......................................................... 46
11.02 Lender Enforceability Opinions .................................................... 46
11.03 Notices ........................................................................... 46
11.04 Benefit of Agreement .............................................................. 47
11.05 No Waiver; Remedies Cumulative .................................................... 48
11.06 Payments Pro Rata ................................................................. 48
11.07 Calculations; Computations ........................................................ 49
11.08 Governing Law; Submission to Jurisdiction-, Venue; Waiver of Jury Trial ........... 49
11.09 Counterparts ...................................................................... 50
11.10 Headings Descriptive .............................................................. 50
11.11 Amendment or Waiver ............................................................... 50
11.12 Survival .......................................................................... 51
11.13 Domicile of Loans ................................................................. 51
11.14 Confidentiality ................................................................... 51
11.15 Lender Register ................................................................... 51
11.16 Judgment Currency ................................................................. 52
11.17 Euro .............................................................................. 52
ANNEX I -- Commitments
ANNEX II -- Lender Addresses
ANNEX III -- Subsidiaries
EXHIBIT A-1 -- Form of Notice of Borrowing
EXHIBIT A-2 -- Form of Notice of Competitive Bid Borrowing
EXHIBIT B-1 -- Form of Revolving Note
EXHIBIT B-2 -- Form of Competitive Bid Note
EXHIBIT C -- Form of Section 3.04 Certificate
EXHIBIT D -- Form of Opinion of General Counsel to Borrowers
EXHIBIT E -- Form of Officer's Certificate
EXHIBIT F -- Form of Financial Guaranty Insurance Policy
EXHIBIT G -- Form of Assignment Agreement
EXHIBIT H -- Form of Commitment Assumption Agreement
EXHIBIT I -- Form of DB Assumption Agreement
EXHIBIT J -- Form of Lender's Opinions
EXHIBIT K -- Form of Opinion of Designated Borrower's Counsel
EXHIBIT L -- Form of Opinion of Counsel to Corp.
</TABLE>
(iii)
<PAGE>
CREDIT AGREEMENT, dated as of August 28, 1998, among MBIA INC. ("Parent"),
a Connecticut corporation, MBIA INSURANCE CORPORATION ("Corp."), a New York
stock insurance corporation, one or more Designated Borrowers (as hereinafter
defined) from time to time party hereto, the lenders from time to time party
hereto (each, a "Lender" and, collectively, the "Lenders"), DEUTSCHE BANK AG,
NEW YORK BRANCH, as Administrative Agent, THE FIRST NATIONAL BANK OF CHICAGO, as
Syndication Agent and FLEET NATIONAL BANK, as Documentation Agent. Unless
otherwise defined herein, all capitalized terms used herein and defined in
Section 9 are used herein as so defined.
WITNESSETH:
WHEREAS, subject to and upon the terms and conditions herein set forth, the
Lenders are willing to make available to the Borrowers the credit facilities
provided for herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Amount and Terms of Credit.
1.01 Commitment. (a) Subject to and upon the terms and conditions herein
set forth, each Lender severally agrees, at any time and from time to time on
and after the Effective Date and prior to the Final Maturity Date, to make a
loan or loans (each, a "Revolving Loan" and, collectively, the "Revolving
Loans") to one or more of the Borrowers (on a several basis), which Revolving
Loans (i) may be made and maintained in such Approved Currency as is requested
by the applicable Borrower (except in the case of Base Rate Loans, which shall
only be Dollardenominated); (ii) may be repaid and reborrowed in accordance with
the provisions hereof, (iii) except as hereinafter provided, may, at the option
of any Borrower, be incurred and maintained as, and/or converted into, Base Rate
Loans or Eurodollar Loans, provided that all Revolving Loans made as part of the
same Borrowing shall, unless otherwise specified herein, consist of Revolving
Loans of the same Type; (iv) shall not, in the case of Revolving Loans
denominated in Primary Alternate Currencies, exceed $200,000,000 in aggregate
Principal Amount at any time outstanding for all such Revolving Loans; and (v)
shall not exceed that aggregate Principal Amount which, when added to the
aggregate Principal Amount of all other Revolving Loans then outstanding and the
aggregate Principal Amount of all Competitive Bid Loans then outstanding, equals
the Total Commitment at such time.
(b) Subject to and upon the terms and conditions herein set forth, each
Lender severally agrees that one or more Borrowers may (on a several basis)
incur a loan or loans (each, a "Competitive Bid Loan" and, collectively, the
"Competitive Bid Loans") from one or more Bidder Lenders pursuant to a
Competitive Bid Borrowing at any time and from time to time on and after the
Effective Date and prior to the date which is the third Business Day preceding
the date which is seven days prior to the Final Maturity Date, provided that
after giving effect to any Competitive Bid Borrowing and the use of the proceeds
thereof, the aggregate outstanding Principal Amount of Competitive Bid Loans,
when combined with the then aggregate outstanding Principal Amount of all
Revolving Loans, shall not exceed the Total Commitment at such time.
<PAGE>
1.02 Minimum Borrowing Amounts, etc. The aggregate Principal Amount of each
Borrowing shall not be less than the Minimum Borrowing Amount. More than one
Borrowing may be incurred on any day, provided that at no time shall there be
outstanding more than six Borrowings of Eurodollar Loans.
1.03 Notice of Borrowing of Revolving Loans. (a) Whenever a Borrower
desires to incur Revolving Loans, it shall give the Administrative Agent at its
Notice Office, (x) prior to I 1:00 A.M. (New York time) at least three Business
Days' prior written notice (or telephonic notice promptly confirmed in writing)
of each Borrowing of Eurodollar Loans in Dollars, (y) prior to 1:00 P.M. (New
York time) at least four Business Days' prior written notice (or telephonic
notice promptly confirmed in writing) of each Borrowing of Eurodollar Loans
constituting Alternate Currency Loans and (z) written notice (or telephonic
notice promptly confirmed in writing) prior to I 1:00 A.M. (New York time) on
the date of each Borrowing of Base Rate Loans. Each such notice (each, a "Notice
of Borrowing") shall be in the form of Exhibit A-1 and shall be irrevocable and
shall specify (i) the identity of the applicable Borrower, (ii) in the case of
Alternate Currency Loans, the Approved Currency for such Loans, (iii) the
aggregate principal amount of the Revolving Loans to be made pursuant to such
Borrowing (stated in the applicable Approved Currency), (iv) the date of
Borrowing (which shall be a Business Day), (v) whether the respective Borrowing
shall consist of Base Rate Loans or Eurodollar Loans, (vi) if Eurodollar Loans,
the Interest Period to be initially applicable thereto and (vii) if DB Loans,
the DB Loan Maturity Date to be applicable thereto. The Administrative Agent
shall promptly give each Lender written notice (or telephonic notice promptly
confirmed in writing) of each proposed Borrowing, of the portion thereof to be
funded by such Lender and of the other matters covered by the Notice of
Borrowing.
(b) Without in any way limiting the obligation of any Borrower to confirm
in writing any telephonic notice permitted to be given hereunder, the
Administrative Agent may prior to receipt of written confirmation act without
liability upon the basis of such telephonic notice, believed by it in good faith
to be from an Authorized Officer of such Borrower. In each such case, each
Borrower hereby waives the right to dispute the Administrative Agent's record of
the terms of such telephonic notice absent manifest error.
1.04 Competitive Bid Borrowings. (a) Whenever any Borrower desires to incur
a Competitive Bid Borrowing, it shall deliver to the Administrative Agent, prior
to 11:00 AM (New York time) (x) at least four Business Days prior to the date of
such proposed Competitive Bid Borrowing, in the case of a Spread Borrowing, and
(y) at least one Business Day prior to the date of such proposed Competitive Bid
Borrowing, in the case of an Absolute Rate Borrowing which is
Dollar-denominated, and at least three Business Days prior to the date of such
proposed Competitive Bid Borrowing, in the case of an Absolute Rate Borrowing
which is an Alternate 'Currency Loan, a written notice substantially in the form
of Exhibit A-2 hereto (a "Notice of Competitive Bid Borrowing"), which notice
shall specify in each case (i) the identity of the applicable Borrower, (ii) the
date (which shall be a Business Day) and the aggregate amount of the proposed
Competitive Bid Borrowing, (iii) the maturity date for repayment of each and
every Competitive Bid Loan to be made as part of such Competitive Bid Borrowing
(which maturity date may be (A) up to six months after the date of such
Competitive Bid Borrowing in the case of a Spread Borrowing and (B) no fewer
than seven days and no more than 180 days after the date
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<PAGE>
of such Competitive Bid Borrowing in the case of an Absolute Rate Borrowing,
provided that in no event shall the maturity date of any Competitive Bid
Borrowing be later than the third Business Day preceding the Final Maturity
Date), (iv) the interest payment date or dates relating thereto, (v) whether the
proposed Competitive Bid Borrowing is to be an Absolute Rate Borrowing or a
Spread Borrowing, (vi) in the case of an Alternate Currency Loan, the Alternate
Currency for such Competitive Did Borrowing, and (vii) any other terms to be
applicable to such Competitive Bid Borrowing. The Administrative Agent shall
promptly notify each Bidder Lender by telephone or facsimile of each such
request for a Competitive Bid Borrowing received by it from a Borrower and of
the contents of the related Notice of Competitive Bid Borrowing.
(b) Each Bidder Lender shall, if, in its sole discretion, it elects to do
so, irrevocably offer to make one or more Competitive Bid Loans to the
applicable Borrower as part of such proposed Competitive Bid Borrowing at a rate
or rates of interest specified by such Bidder Lender in its sole discretion and
determined by such Bidder Lender independently of each other Bidder Lender, by
notifying the Administrative Agent (which shall give prompt notice thereof to
such Borrower by facsimile), before 9:30 A.M. (New York time) on the date (the
"Reply Date") which is (x) in the case of an Absolute Rate Borrowing which is
Dollar-denominated, the date of such proposed Competitive Bid Borrowing and in
the case of an Absolute Rate Borrowing which is an Alternate Currency Loan, two
Business Days before the date of such Competitive Bid Borrowing and (y) in the
case of a Spread Borrowing, three Business Days before the date of such proposed
Competitive Bid Borrowing, of the minimum amount and maximum amount of each
Competitive Bid Loan which such Bidder Lender would be willing to make as part
of such proposed Competitive Bid Borrowing (which amounts may, subject to the
proviso contained in Section 1.01(b), exceed such Bidder Lender's Commitment),
the rate or rates of interest therefor and such Bidder Lender's lending office
with respect to such Competitive Bid Loan; provided that if the Administrative
Agent in its capacity as a Bidder Lender shall, in its sole discretion, elect to
make any such offer, it shall notify the respective Borrower of such offer
before 9:15 A.M. (New York time) on the Reply Date. If any Bidder Lender shall
elect not to make such an offer, such Bidder Lender shall so notify the
Administrative Agent, before 9:30 A.M. (New York time) on the Reply Date, and
such Bidder Lender shall not be obligated to, and shall not, make any
Competitive Bid Loan as part of such Competitive Bid Borrowing; provided that
the failure by any Bidder Lender to give such notice shall not cause such Bidder
Lender to be obligated to make any Competitive Bid Loan as part of such proposed
Competitive Bid Borrowing.
(c) The applicable Borrower shall, in turn, before 10:30 A.M. (New York
time) on the Reply Date, either:
(i) cancel such Competitive Bid Borrowing by giving the Administrative
Agent notice to such effect (it being understood and agreed that if such
Borrower gives no such notice of cancellation and no notice of acceptance
pursuant to clause (ii) below, then such Borrower shall be deemed to have
canceled such Competitive Bid Borrowing), or
(ii) accept one or more of the offers made by any Bidder Lender or
Bidder Lenders pursuant to clause (b) above by giving notice (in writing or
by telephone confirmed in writing) to the Administrative Agent of the
amount of each Competitive Bid Loan (which amount shall be equal to or
greater than the minimum amount, and equal to
-3-
<PAGE>
or less than the maximum amount, notified to the applicable Borrower by the
Administrative Agent on behalf of such Bidder Lender for such Competitive
Bid Borrowing pursuant to clause (b) above) to be made by each Bidder
Lender as part of such Competitive Bid Borrowing, and reject any remaining
offers made by Bidder Lenders pursuant to clause (b) above by giving the
Administrative Agent notice to that effect; provided that the acceptance of
offers may only be made on the basis of ascending Absolute Rates (in the
case of an Absolute Rate Borrowing) or Spreads (in the case of a Spread
Borrowing), in each case commencing with the lowest rate so offered;
provided further however, that if offers are made by two or more Bidder
Lenders at the same rate and acceptance of all such equal offers would
result in a greater principal amount of Competitive Bid Loans being
accepted than the aggregate principal amount requested by the applicable
Borrower, if such Borrower elects to accept any such offers such Borrower
shall accept such offers pro rata from such Bidder Lenders (on the basis of
the maximum amounts of such offers) unless any such Bidder Lender's pro
rata share would be less than the minimum amount specified by such Bidder
Lender in its offer, in which case such Borrower shall have the fight to
accept one or more such equal offers in their entirety and reject the other
equal offer or offers or to allocate acceptance among all such equal offers
(but giving effect to the minimum and maximum amounts specified for each
such offer pursuant to clause (b) above), as such Borrower may elect in its
sole discretion.
(d) If the applicable Borrower notifies the Administrative Agent that such
Competitive Bid Borrowing is deemed canceled, pursuant to clause (c)(i) above,
the Administrative Agent shall give prompt notice thereof to the Bidder Lenders
and such Competitive Bid Borrowing shall not be made.
(e) If the applicable Borrower accepts one or more of the offers made by
any Bidder Lender or Bidder Lenders pursuant to clause (c) (ii) above, the
Administrative Agent shall in turn promptly notify (x) each Bidder Lender that
has made an offer as described in clause (b) above, of the date and aggregate
amount of such Competitive Bid Borrowing and whether or not any offer or offers
made by such Bidder Lender pursuant to clause (b) above have been accepted by
the Borrower And (y) each Bidder Lender that is to make a Competitive Bid Loan
as part of such Competitive Bid Borrowing, of the amount of each Competitive Bid
Loan to be made by such Bidder Lender as part of such Competitive Bid Borrowing.
1.05 Disbursement of Funds. (a) No later than 12:00 Noon (New York time)
(or 3:00 P.M. (New York time) in the case of (x) a Borrowing of Base Rate Loans
for which a Notice of Borrowing was given on the date of such Borrowing and (y)
a Competitive Bid Borrowing) on the date specified in each Notice of Borrowing
or Notice of Competitive Bid Borrowing, each Lender will make available its pro
rata. share, if any, of such Borrowing requested to be made on such date. All
such amounts shall be made available to the Administrative Agent in the relevant
Approved Currency or Other Alternate Currency, as the case may be, and
immediately available funds at the Payment Office and the Administrative Agent
promptly will make available to the applicable Borrower by depositing to the
account designated by such Borrower, which account shall be at an institution in
the same city as the respective Payment Office, the aggregate of the amounts so
made available in the type of funds received. Unless the Administrative Agent
shall have been notified by any Lender participating in a
-4-
<PAGE>
Borrowing prior to the date of such Borrowing that such Lender does not intend
to make available to the Administrative Agent its portion of the Borrowing or
Borrowings to be made on such date, the Administrative Agent may assume that
such Lender has made such amount available to the Administrative Agent on such
date of Borrowing, and the Administrative Agent, in reliance upon such
assumption, may (in its sole discretion and without any obligation to do so)
make available to the applicable Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Administrative Agent
by such Lender and the Administrative Agent has made available same to the
applicable Borrower, the Administrative Agent shall be entitled to recover such
corresponding amount from such Lender. If such Lender does not pay such
corresponding amount forthwith upon the Administrative Agent's demand therefor,
the Administrative Agent shall promptly notify the applicable Borrower, and such
Borrower shall pay such corresponding amount to the Administrative Agent within
three Business Days of receipt of such notice unless previously paid by such
Lender. The Administrative Agent shall also be entitled to recover on demand
from such Lender or such Borrower, as the case may be, interest on such
corresponding amount in respect of each day from the date such corresponding
amount was made available by the Administrative Agent to such Borrower to the
date such corresponding amount is recovered by the Administrative Agent, at a
rate per annum equal to (x) if paid by such Lender, the overnight Federal Funds
Effective Rate or (y) if paid by such Borrower, the then applicable rate of
interest, calculated in accordance with Section 1.09, for the respective Loans.
(b) Nothing herein shall be deemed to relieve any Lender from its
obligation to fulfill its commitments hereunder or to prejudice any rights which
any Borrower may have against any Lender as a result of any default by such
Lender hereunder.
1.06 Notes. (a) Each Borrower's obligation to pay the principal of, and
interest on, the Loans made to it by each Lender shall be evidenced (i) if
Revolving Loans, by a promissory note substantially in the form of Exhibit B-I
with blanks appropriately completed (each, a "Revolving Note" and, collectively,
the "Revolving Notes") and (ii) if Competitive Bid Loans, by a promissory note
substantially in the form of Exhibit B-2 with blanks appropriately completed
(each a "Competitive Bid Note" and, collectively, the "Competitive Bid Notes").
(b) Each Lender will note on its internal records the amount of each Loan
made by it and each payment in respect thereof and will, prior to any transfer
of any of its Notes, endorse on the reverse side thereof the outstanding
Principal Amount of Loans evidenced thereby. Failure to make any such notation
shall not affect a Borrower's obligations in respect of such Loans.
1.07 Conversions. Each Borrower shall have the option to convert on any
Business Day all or a portion at least equal to the applicable Minimum Borrowing
Amount of its Revolving Loans denominated in a single Approved Currency and
constituting Base Rate Loans or Eurodollar Loans into a Borrowing or Borrowings
of Revolving Loans denominated in such Approved Currency and constituting
Eurodollar Loans or Base Rate Loans, respectively, provided that (i) Eurodollar
Loans denominated in a currency other than Dollars may not be converted into
Base Rate Loans, (ii) no partial conversion shall reduce the outstanding
principal amount of the Eurodollar Loans made pursuant to a Borrowing to less
than the Minimum
-5-
<PAGE>
Borrowing Amount applicable thereto, (iii) Base Rate Loans may not be converted
into Eurodollar Loans when a Default or Event of Default is then in existence if
the Administrative Agent or the Required Lenders shall have determined in its or
their sole discretion not to permit such conversion and (iv) Borrowings of
Eurodollar Loans resulting from this Section 1.07 shall be limited in number as
provided in Section 1.02. Each such conversion shall be effected by the
respective Borrower giving the Administrative Agent at the Notice Office, prior
to 12:00 Noon (New York time), at least three Business Days' (or one Business
Day in the case of a conversion into Base Rate Loans) prior written notice (or
telephonic notice promptly confirmed in writing) (each, a "Notice of
Conversion") specifying the Revolving Loans to be so converted, the Type of
Loans (as to interest option) to be converted into and, if to be converted into
a Borrowing of Eurodollar Loans, the Interest Period to be initially applicable
thereto. The Administrative Agent shall give each Lender prompt notice of any
such proposed conversion affecting any of its Loans.
1.08 Pro Rata Borrowings, etc. All Revolving Loans incurred pursuant to a
Borrowing shall be made by the Lenders pro rata on the basis of their respective
Commitments. It is understood that no Lender shall be responsible for any
default by any other Lender in its obligation to make Revolving Loans hereunder,
and that each Lender shall be obligated to make the Revolving Loans provided to
be made by it hereunder, regardless of the failure of any other Lender to
fulfill its commitments hereunder and regardless of whether such Lender has made
any Competitive Bid Loans hereunder.
1.09 Interest. (a) The unpaid principal amount of each Base Rate Loan shall
bear interest from the date of the Borrowing thereof until maturity (whether by
acceleration or otherwise) or conversion at a rate per annum which shall at all
times be the Base Rate in effect from time to time.
(b) The unpaid principal amount of each Eurodollar Loan shall bear interest
from the date of the Borrowing thereof until maturity (whether by acceleration
or otherwise) or conversion at a rate per annum which shall at all times during
each Interest Period applicable thereto be the relevant LIBOR for such Interest
Period plus a margin of 0.13%.
(c) The unpaid principal amount of each Competitive Bid Loan shall bear
interest from the date of the Borrowing thereof until maturity (whether by
acceleration or otherwise) at a rate or rates per annum specified by a Bidder
Lender or Bidder Lenders, as the case may be, pursuant to Section 1.04(b) and
accepted by the respective Borrower pursuant to Section 1.04(c).
(d) All overdue principal and, to the extent permitted by law, overdue
interest in respect of any Loans shall bear interest at the Base Rate in effect
from time to time plus 2%, provided that principal in respect of Eurodollar
Loans and Competitive Bid Loans shall bear interest from the date same becomes
due (whether by acceleration or otherwise) until the end of the Interest Period
applicable thereto at a rate per annum equal to 2% plus the rate of interest
applicable on the due date therefor.
(e) Interest shall accrue from and including the date of any Borrowing to
but excluding the date of any repayment thereof, and in the case of DB Loans,
compounded as described below, and shall be payable (i) in respect of each Base
Rate Loan (other than a DB
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<PAGE>
Loan), quarterly in arrears on the last Business Day of each March, June,
September and December, (ii) in respect of each Eurodollar Loan (other than a DB
Loan), on the last day of each Interest Period applicable thereto and, in the
case of an Interest Period in excess of three months, on each date occurring at
three month intervals after the first day of such Interest Period, (iii) in
respect of each DB Loan, on the applicable DB Loan Maturity Date, (iv) in
respect of each Competitive Bid Loan, at such times as specified in the Notice
of Competitive Bid Borrowing relating thereto, and (v) in respect of each Loan,
on any prepayment or conversion (other than the prepayment or conversion of any
Base Rate Loan) (on the amount prepaid or converted), at maturity (whether by
acceleration or otherwise) and, after such maturity, on demand. Notwithstanding
anything to the contrary contained in this Agreement, although interest in
respect of each DB Loan shall be payable only on the DB Loan Maturity Date for
such DB Loan as provided in clause (iii) of the immediately preceding sentence,
interest on each DB Loan shall compound on each date on which interest thereon
would have been payable pursuant to clause (i) or (ii) of such sentence if such
Loan were not a DB Loan and such compounded interest shall thereafter bear
interest hereunder at the same rate per annum as the principal of the DB Loan to
which such compounded interest relates.
(f) All computations of interest hereunder shall be made in accordance with
Section 11.07(b).
(g) The Administrative Agent, upon determining the interest rate for any
Borrowing for any Interest Period, shall promptly notify the applicable Borrower
and the Lenders thereof
1.10 Interest Periods. (a) At the time a Borrower gives a Notice of
Borrowing or a Notice of Conversion in respect of the making of, or conversion
into, a Borrowing of Eurodollar Loans (in the case of the initial Interest
Period applicable thereto) or prior to 12:00 Noon (New York Time) on the third
Business Day prior to the expiration of an Interest Period applicable to a
Borrowing of Eurodollar Loans, it shall have the right to elect by giving the
Administrative Agent written notice (or telephonic notice promptly confirmed in
writing) of the Interest Period applicable to such Borrowing, which Interest
Period shall, at the option of such Borrower, be a one, two, three or six month
period or such other period available to all Lenders. Notwithstanding anything
to the contrary contained above:
(i) the initial Interest Period for any Borrowing shall commence on
the date of such Borrowing (including, where relevant, the date of any
conversion from a Borrowing of Base Rate Loans) and each Interest Period
occurring thereafter in respect of such Borrowing shall commence on the day
on which the next preceding Interest Period expires;
(ii) if any Interest Period begins on (x) the last Business Day of a
month, it shall end on the last Business Day of the month in which it is to
end and (y) a day for which there is no numerically corresponding day in
the calendar month at the end of such Interest Period, such Interest Period
shall end on the last Business Day of such calendar month;
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<PAGE>
(iii) if any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided that if any Interest Period would
otherwise expire on a day which is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(iv) no Interest Period may be elected that would extend beyond the
Final Maturity Date;
(v) no Interest Period in respect of a DB Loan may be elected that
would extend beyond the DB Loan Maturity Date for such DB Loan;
(vi) no Interest Period may be elected at any time when a Default or
an Event of Default is then in existence if the Administrative Agent or the
Required Lenders shall have Determined in its or their sole discretion not
to permit such election; and
(vi) all Eurodollar Loans comprising a Borrowing shall at all times
have the same Interest Period.
(b) If upon the expiration of any Interest Period, the applicable Borrower
has failed to (or may not) elect a new Interest Period to be applicable to the
Revolving Loans subject to the expiring Interest Period as provided above, such
Borrower shall be deemed to have elected, in the case of Eurodollar Loans, to
convert such Borrowing into a Borrowing of Base Rate Loans effective as of the
expiration date of such current Interest Period, provided that if such
Eurodollar Loans are denominated in a currency other than Dollars, then such
Eurodollar Loans shall not convert to Base Rate Loans but shall instead be
prepaid by the applicable Borrower on the last day of such Interest Period.
1.11 Increased Costs, Illegality, etc. (a) In the event that (x) in the
case of clause (i) or (iv) below, the Administrative Agent or (y) in the case of
clause (ii) or (iii) below, any Lender shall have determined (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto):
(i) on any date for determining any LIBOR for any Interest Period
that, by reason of any changes arising after the date of this Agreement
affecting the relevant interbank market, adequate and fair means do not
exist for ascertaining the applicable interest rate on the basis provided
for in the definition of the respective LIBOR; or
(ii) at any time, that such Lender shall actually incur increased
costs or reductions in the amounts received or receivable hereunder with
respect to any Eurodollar Loans or Competitive Bid Loans (other than any
increased cost or reduction in the amount received or receivable resulting
from the imposition of or a change in the rate of taxes or similar charges)
because of (x) any change since the Effective Date (or, in the case of any
Competitive Bid Loan, since the making of such Competitive Bid Loan) in any
applicable law, governmental rule, regulation, guideline or order (or in
the interpretation or administration thereof and including the introduction
of any new law or governmental rule,
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regulation, guideline or order) (such as, for example, but not limited to,
a change in official reserve requirements, but, in all events, excluding
amounts payable pursuant to Section 1.11(c) and those included in
determining any Associated Costs Rate) and/or (y) other circumstances
occurring since the Effective Date affecting the relevant interbank market;
or
(iii) at any time, that the making or continuance of any Eurodollar
Loans or Competitive Bid Loans has become unlawful by compliance by such
Lender in good faith with any law, governmental rule, regulation or
guideline, or has become impracticable as a result of a contingency
occurring after the Effective Date which materially and adversely affects
the relevant interbank market; or
(iv) at any time that any Alternate Currency is not available in
sufficient amounts, as determined in good faith by the Administrative
Agent, to fund any Borrowing of Loans denominated in such Alternate
Currency;
then, and in any such event, such Lender (or the Administrative Agent in the
case of clause (i) or (iv) above) shall (x) on such date and (y) within ten
Business Days of the date on which such event no longer exists give notice (by
telephone confirmed in writing) to the respective Borrower and, except in the
case of clause (i) or (iv) above, to the Administrative Agent of such
determination (which notice the Administrative Agent shall promptly transmit to
each of the other Lenders). Thereafter and for so long as the applicable
circumstance continues to exist (w) in the case of clause (i) above, Eurodollar
Loans priced in respect of the affected LIBOR (and Competitive Bid Loans
constituting a Spread Borrowing priced by reference to such LIBOR) shall no
longer be available until such time as the Administrative Agent notifies the
respective Borrower and the Lenders that the circumstances giving rise to such
notice by the Administrative Agent no longer exist in accordance with clause (y)
of the preceding sentence, and any Notice of Borrowing, Notice of Competitive
Bid Borrowing or Notice of Conversion given by a Borrower with respect to such
Loans which have not yet been incurred shall be deemed rescinded by the relevant
Borrower, (x) in the case of clause (ii) above, the applicable Borrower shall
pay to such Lender, upon written demand therefor, such additional amounts (in
the form of an increased rate of, or a different method of calculating, interest
or otherwise as such Lender in its sole discretion shall determine) as shall be
required to compensate such Lender for such increased costs or reductions in
amounts receivable hereunder (a written notice as to the additional amounts owed
to such Lender, showing the basis for the calculation thereof in reasonable
detail, submitted to the applicable Borrower by such Lender shall, absent
manifest error, be final and conclusive and binding upon all parties hereto),
(y) in the case of clause (iii) above, the applicable Borrower shall take one of
the actions specified in Section 1.11(b) as promptly as possible and, in any
event, within the time period required by law and (z) in the case of clause (iv)
above, Loans in the affected Alternate Currency shall no longer be available
until such time as the Administrative Agent notifies the respective Borrower and
the Lenders that the circumstances giving rise to such notice by the
Administrative Agent no longer exist in accordance with clause (y) of the
preceding sentence, and any Notice of Borrowing, Notice of Competitive Bid
Borrowing or Notice of Conversion given by a Borrower with respect to such
Alternate Currency Loans which have not yet been incurred shall be deemed
rescinded by such Borrower.
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(b) At any time when any Eurodollar Loan or Competitive Bid Loan is
affected by the circumstances described in Section 1.11(a)(ii) or (iii), the
applicable Borrower may (and in the case of a Eurodollar Loan or Competitive Bid
Loan affected pursuant to Section 1.11(a)(iii), the applicable Borrower shall)
either (i) if the affected Eurodollar Loan or Competitive Bid Loan is then being
made pursuant to a Borrowing, cancel said Borrowing by giving the Administrative
Agent telephonic notice (confirmed promptly in writing) thereof on the same date
that the respective Borrower was notified by a Lender pursuant to Section
1.11(a)(ii) or (iii), or (ii) if the affected Eurodollar Loan or Competitive Bid
Loan is then outstanding, upon at least three Business Days' notice to the
Administrative Agent, (A) in the case of a Eurodollar Loan denominated in
Dollars, require the affected Lender to convert each such Eurodollar Loan into a
Base Rate Loan, and (B) in the case of a Eurodollar Loan denominated in a
Primary Alternate Currency and in the case of a Competitive Bid Loan, repay all
such Eurodollar Loans or Competitive Bid Loans in full, provided that if more
than one Lender is affected at any time, then all affected Lenders must be
treated the same pursuant to this Section 1.11(b).
(c) If any Lender shall have determined that after the Effective Date, the
adoption or effectiveness of any applicable law, rule or regulation regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by such Lender or any corporation controlling such Lender with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's or such corporation's
capital or assets as a consequence of its commitments or obligations hereunder
to a level below that which such Lender or such other corporation could have
achieved but for such adoption, effectiveness, change or compliance (taking into
consideration such Lender's or such other corporation's policies with respect to
capital adequacy), then from time to time, within 15 days after written demand
by such Lender (with a copy to the Administrative Agent), the Borrowers jointly
and severally agree to pay to such Lender such additional amount or amounts as
will compensate such Lender or such other corporation for such reduction. In
determining such additional amounts, each Lender will act reasonably and in good
faith and will use averaging and attribution methods that are reasonable. Each
Lender, upon so determining that any additional amounts will be payable pursuant
to this Section 1.11(c), will give prompt written notice thereof to the
Borrowers, which notice shall set forth in reasonable detail the basis of the
calculation of such additional amounts, although the failure to give any such
notice shall not release or diminish any Borrower's obligations to pay
additional amounts pursuant to this Section 1.11(c) upon the subsequent receipt
of such notice.
1.12 Compensation. Each Borrower shall compensate each Lender, upon its
written request (which request shall set forth the basis for requesting such
compensation), for all reasonable losses, expenses and liabilities (including,
without limitation, any loss, expense or liability incurred by reason of the
liquidation or reemployment of deposits or other funds required by such Lender
to fund any Eurodollar Loans or Competitive Bid Loans made, or to be made, by it
to such Borrower but excluding in any event the loss of anticipated profits)
which such Lender may actually sustain: (i) if for any reason (other than a
default by such Lender or the Administrative Agent) a Borrowing of Eurodollar
Loans or Competitive Bid Loans does not occur on a date specified therefor in a
Notice of Borrowing, a Notice of Competitive Bid
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Borrowing or a Notice of Conversion, given by such Borrower (whether or not
withdrawn by such Borrower or deemed withdrawn pursuant to Section 1.11(a));
(ii) if any prepayment, repayment or conversion of any such Eurodollar Loans or
Competitive Bid Loans occurs on a date which is not the last day of an Interest
Period applicable thereto; (iii) if any prepayment of any such Eurodollar Loans
or Competitive Bid Loans is not made on any date specified in a notice of
prepayment given by such Borrower; (iv) if such Lender is required pursuant to
Section 1.14 to assign any such Eurodollar Loans or Competitive Bid Loans as of
a date which is not the last day of an Interest Period applicable thereto; or
(v) as a consequence of (x) any other default by such Borrower to repay its
Eurodollar Loans or Competitive Bid Loans when required by the terms of this
Agreement or (y) an election made pursuant to Section 1.11(b).
1.13 Change of Lending Office. Each Lender agrees that, upon the occurrence
of any event giving rise to the operation of Section 1.11(a)(ii) or (iii),
1.11(c) or 3.04 with respect to such Lender, it will, if requested by the
applicable Borrower, use reasonable efforts (subject to overall policy
considerations of such Lender) to designate another lending office for any Loans
or Commitments affected by such event, provided that such designation is made on
such terms that such Lender and its lending office suffer no economic, legal or
regulatory disadvantage, with the object of avoiding or materially mitigating
the consequence of the event giving rise to the operation of any such Section.
Nothing in this Section 1.13 shall affect or postpone any of the obligations of
any Borrower or the right of any Lender provided in Section 1.11 or 3.04.
1.14 Replacement of Lenders. (a) Upon the occurrence of any event giving
rise to the operation of Section 1.11(a)(ii) or (iii), Section 1.11(c) or
Section 3.04 with respect to any Lender which results in such Lender charging to
any Borrower increased costs in excess of those being generally charged by the
other Lenders, (b) if a Lender becomes a Defaulting Lender, (c) if a Lender
becomes a Non-Continuing Lender, (d) if a Lender fails to maintain a long-term
debt rating of at least BBB-as determined by Standard & Poor's Corporation and
at least Baa3 as determined by Moody's Investors Service, Inc., (e) if a Lender
fails to deliver the opinion or opinions as required pursuant to Section 11.02
and/or (f) in the case of a refusal by a Lender to consent to a proposed change,
waiver, discharge or termination with respect to this Agreement which has been
approved by the Required Lenders, Parent and Corp. shall have the right, if no
Default or Event of Default then exists, to replace such Lender (the "Replaced
Lender"), upon prior written notice to the Administrative Agent and such
Replaced Lender, with one or more Person or Persons, none of whom shall
constitute a Defaulting Lender at the time of such replacement (collectively,
the "Replacement Lender") reasonably acceptable to the Administrative Agent,
provided that (i) at the time of any replacement pursuant to this Section 1.14,
the Replacement Lender and the Replaced Lender shall enter into one or more
Assignment Agreements pursuant to Section 11.04(b) (and with all fees payable
pursuant to said Section 11.04(b) to be paid by the Replacement Lender) pursuant
to which the Replacement Lender shall acquire all of the Commitments and
outstanding Loans of the Replaced Lender and, in connection therewith, shall pay
to the Replaced Lender in respect thereof an amount equal to the sum of (A) an
amount equal to the principal amount of, and all accrued but unpaid interest on,
all outstanding Loans of the Replaced Lender and (B) an amount equal to all
accrued, but theretofore unpaid, Fees owing to the Replaced Lender pursuant to
Section 2.01, and (ii) all obligations of the Borrowers under the Credit
Documents owing to the Replaced Lender (other than those specifically described
in clause (i) above in respect of which the assignment purchase price has
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been, or is concurrently being, paid), including without limitation all amounts
owing to the Replaced Lender under Section 1.12 as a result of the assignment of
its Loans under clause (i) above, shall be paid in full to such Replaced Lender
concurrently with such replacement. Upon the execution of the respective
Assignment Agreements, the payment of amounts referred to in clauses (i) and
(ii) above and, if so requested by the Replacement Lender, delivery to the
Replacement Lender of the appropriate Note or Notes executed by the relevant
Borrowers, the Replacement Lender shall become a Lender hereunder and the
Replaced Lender shall cease to constitute a Lender hereunder, except with
respect to indemnification provisions applicable to the Replaced Lender under
this Agreement, which shall survive as to such Replaced Lender.
1.15 Extension of Final Maturity Date, Replacement of Non-Continuing
Lender. Parent and Corp. may, prior to (but not less than 60 days nor more than
120 days prior to) each anniversary of the Effective Date (each such
anniversary, an "Extension Deadline"), by written notice to the Administrative
Agent (which notice the Administrative Agent shall promptly transmit to each
Lender), request that the Final Maturity Date then in effect be extended by a
period of one year. Such request shall be accompanied by a certificate of an
Authorized Officer of Parent stating that no Default or Event of Default has
occurred and is continuing. Each Lender shall respond to such request, as
promptly as practicable, by written notice to Parent, Corp. and the
Administrative Agent, with the failure of any Lender to respond prior to the
Extension Deadline being deemed to be a negative response. In the event each
Lender shall consent to such request of Parent and Corp., on such Extension
Deadline, the Final Maturity Date shall be automatically extended to the date
occurring one year following the Final Maturity Date then in effect. If any
Lender shall fail to consent to such extension (any such Lender, a
"Non-Continuing Lender"), Parent and Corp. shall be entitled at any time prior
to the Extension Deadline with respect to such request to replace such Lender in
accordance with the requirements of Section 1.14, and in the event that the
Replacement Lender with respect to each such Non-Continuing Lender shall consent
to such extension prior to such Extension Deadline, such extension shall be
effective as described in the immediately preceding sentence as if each Lender
had originally consented to such request. No Lender shall be obligated to grant
any extensions pursuant to this Section 1.15 and any such extension shall be in
the sole discretion of each such Lender. The Administrative Agent shall notify
Parent, Corp. and each Lender as to the effectiveness of any such extension.
1.16 Additional Commitments. At any time and from time to time on and after
the Effective Date and prior to the Final Maturity Date, Parent and Corp. may
request one or more Lenders or other lending institutions to increase its
Commitment (in the case of an existing Lender) or assume a Commitment (in the
case of any other lending institution) and, in the sole discretion of each such
Lender or other institution, any such Lender or other institution may agree to
so commit; provided that (i) no Default or Event of Default then exists, (ii)
the increase in the Total Commitment pursuant to any such request shall be in an
aggregate amount of at least $16,000,000 and (iii) the aggregate increase in the
Total Commitment pursuant to this Section 1.16 shall not exceed $175,000,000.
Parent, Corp. and each such Lender or other lending institution (each, an
"Assuming Lender") which agrees to increase its existing, or assume, a
Commitment shall execute and deliver to the Administrative Agent a Commitment
Assumption Agreement substantially in the form of Exhibit H (with the increase
in, or in the case of a new Assuming Lender, assumption of, such Lender's
Commitment to be effective on the Business Day following delivery of such
Commitment Assumption Agreement to the Administrative Agent).
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The Administrative Agent shall promptly notify each Lender as to the occurrence
of each Commitment Assumption Date. On each Commitment Assumption Date, (x)
Annex I shall be deemed modified to reflect the revised Commitments of the
Lenders, (y) Parent and Corp. shall pay to each such Assuming Lender such up
front fee (if any) as may have been agreed between Parent, Corp. and such
Assuming Lender and (z) the Borrowers will issue new Notes to the Assuming
Lenders in conformity with the requirements of Section 1.06. Notwithstanding
anything to the contrary contained in this Agreement, in connection with any
increase in the Total Commitment pursuant to this Section 1.16, each Borrower
shall, in coordination with the Administrative Agent and the Lenders, repay
outstanding Revolving Loans of certain Lenders and, if necessary, incur
additional Revolving Loans from other Lenders, in each case so that such Lenders
participate in each Borrowing of such Revolving Loans Pro rata on the basis of
their Commitments (after giving effect to any increase thereof). It is hereby
agreed that any breakage costs of the type described in Section 1.12 incurred by
the Lenders in connection with the repayment of Revolving Loans contemplated by
this Section 1.16 shall be for the account of the respective Borrowers.
1.17 Designated Borrowers. Parent or Corp. may from time to time designate
one or more Persons as a Designated Borrower (each, a "Designated Borrower" and,
collectively, the "Designated Borrowers"), subject to the following terms and
conditions:
(a) each such Person shall be a special purpose entity organized under
the laws of the United States of America, a state thereof or the District
of Columbia;
(b) each such Person shall enter into an appropriately completed DB
Assumption Agreement in the form of Exhibit I hereto on or prior to the
date of designation;
(c) each such Person shall furnish to each Lender its most recent
historic or pro forma financial statements (which financial statements may
be summary in nature and unaudited) on or prior to the date of designation;
(d) at the time of such designation, such Person shall not be subject
to any bankruptcy or insolvency proceeding of the type referred to in
Section 8.01(h) or (i) and shall not be subject to any material litigation;
(d) on or prior to the date of designation, such Person shall execute
and deliver to each Lender a Revolving Note and a Competitive Bid Note to
evidence the DB Loans incurred by such Person;
(e) on or prior to the date of designation, the Administrative Agent
shall have received from such Person a certificate, signed by an Authorized
Officer of such Person in the form of Exhibit E with appropriate insertions
or deletions, together with (x) copies of its certificate of incorporation,
by-laws or other organizational documents and (y) the resolutions relating
to the Credit Documents which shall be satisfactory to the Administrative
Agent; and
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(f) on or prior to the date of designation, the Administrative Agent
shall have received an opinion, addressed to each Agent and each of the
Lenders and dated the date of designation, from counsel to such Person
which opinion shall be substantially in the form of Exhibit K hereto.
1.18 Retroactivity. Notwithstanding anything in this Agreement to the
contrary, to the extent any notice required by Section 1.11 or 3.04 is given by
any Lender more than 90 days after such Lender obtained knowledge of the
occurrence of the event giving rise to the additional costs of the type
described in such Section, such Lender shall not be entitled to compensation
under Section 1.11 or 3.04 for any amounts incurred or accruing prior to the
90th day preceding the giving of such notice to the respective Borrower.
SECTION 2. Fees; Commitments.
2.01 Fees. (a) Parent and Corp. jointly and severally agree to pay to the
Administrative Agent a facility fee (the "Facility Fee") for the account of the
Lenders pro rata on the basis of their respective Commitments for the period
from and including the Effective Date to but excluding the date the Total
Commitment has been terminated computed at a rate per annum equal to 0.12% of
the Total Commitment as in effect from time to time. Accrued Facility Fees shall
be due and payable quarterly in arrears on the last Business Day of each March,
June, September and December, on the Final Maturity Date or upon such earlier
date as the Total Commitment shall be terminated and, with respect to any
Facility Fee owing to any Lender whose Commitment is terminated pursuant to
Section 1.14, on the date on which such Lender's Commitment is terminated.
(b) Parent and Corp. jointly and severally agree to pay to the
Administrative Agent, for the account of the Administrative Agent, when and as
due, such fees as have been, or are from time to time, separately agreed upon.
(c) All computations of Fees shall be made in accordance with Section
11.07(b).
2.02 Voluntary Reduction of Commitments. Upon at least three Business Days'
prior written notice (or telephonic notice confirmed in writing) to the
Administrative Agent at the Notice Office (which notice shall be deemed to be
given on a certain day only if given before 12:00 Noon (New York time) on such
day and shall be promptly transmitted by the Administrative Agent to each of the
Lenders), Parent and/or Corp. shall have the right, without premium or penalty,
to terminate or partially reduce the Total Unutilized Commitment, provided that
(x) any such termination shall apply to proportionately and permanently reduce
the Commitment of each Lender and (y) any partial reduction pursuant to this
Section 2.02 shall be in the amount of at least $10,000,000.
2.03 Mandatory Reduction of Commitments. (a) The Total Commitment shall
terminate in its entirety on September 30, 1998 unless the Effective Date has
occurred on or before such date.
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(b) The Total Commitment shall terminate in its entirety on the Final
Maturity Date.
SECTION 3. Payments.
3.01 Voluntary Prepayments. Each Borrower shall have the right to prepay
Revolving Loans made to it in whole or in part, without premium or penalty, from
time to time on the following terms and conditions: (i) such Borrower shall give
the Administrative Agent at the Payment Office written notice (or telephonic
notice promptly confirmed in writing) of its intent to prepay the Revolving
Loans, the amount of such prepayment, the currency in which such Revolving Loans
are denominated and the specific Borrowing(s) pursuant to which such Revolving
Loans were made, which notice shall be given by such Borrower at least three
Business Days prior to the date of such prepayment and which notice shall
promptly be transmitted by the Administrative Agent to each of the Lenders; (ii)
each partial prepayment of any Borrowing shall be in an aggregate principal
amount of at least $1,000,000 (or the Dollar Equivalent thereof), provided that
no partial prepayment of Revolving Loans made pursuant to a Borrowing shall
reduce the aggregate principal amount of the Revolving Loans outstanding
pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount
applicable thereto; (iii) each prepayment in respect of any Revolving Loans made
pursuant to a Borrowing shall be applied pro rata among such Revolving Loans;
and (iv) prepayments of Eurodollar Loans made pursuant to this Section 3.01 may
only be made on the last day of an Interest Period applicable thereto unless
concurrently with such prepayment any payments required to be made pursuant to
Section 1. 12 as a result of such prepayment are made. No Borrower shall have
the right under this Section 3.01 to prepay any principal amount of any
Competitive Bid Loans.
3.02 Mandatory Prepayments. (a) If on any date the sum of the aggregate
outstanding Principal Amount of Revolving Loans and Competitive Bid Loans (all
the foregoing, collectively, the "Aggregate Loan Outstandings") exceeds the
Total Commitment as then in effect, the Borrowers, jointly and severally, shall
repay no later than the next following Business Day the principal amount of
Revolving Loans (but excluding DB Loans to the extent the respective DB Loan
Maturity Date has not occurred) in an aggregate Principal Amount equal to such
excess. If, after giving effect to the prepayment of all outstanding Revolving
Loans as set forth above, the remaining Aggregate Loan Outstandings exceed the
Total Commitment, the Borrowers, jointly and severally, shall repay on such date
the principal of Competitive Bid Loans in an aggregate amount equal to such
excess.
(b) If on any date on which Dollar Equivalents are determined, pursuant to
Section 11.07(c), the sum of the aggregate outstanding Principal Amount of
Revolving Loans constituting Alternate Currency Loans exceeds $200,000,000, the
Borrowers, jointly and severally, shall repay no later than the next following
Business Day the principal amount of Revolving Loans (but excluding DB Loans to
the extent the respective DB Loan Maturity Date has not occurred) in an
aggregate Principal Amount equal to such excess.
(c) On the maturity date specified pursuant to Section 1.04(a) with respect
to each Competitive Bid Loan, the applicable Borrower shall repay such
Competitive Bid Loan to the applicable Bidder Lender or Bidder Lenders.
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(d) On each DB Loan Maturity Date, the respective Designated Borrower shall
repay the respective DB Loans in full.
(e) Notwithstanding anything to the contrary contained elsewhere in this
Agreement, all outstanding Revolving Loans and Competitive Bid Loans shall be
repaid in full on the Final Maturity Date.
(f) With respect to each prepayment of Revolving Loans required by Section
3.02(a) or (b), the applicable Borrower may designate the Types of Revolving
Loans which are to be prepaid and the specific Borrowing(s) pursuant to which
made, provided that (i) if any prepayment of Eurodollar Loans made pursuant to a
single Borrowing shall reduce the outstanding Revolving Loans made pursuant to
such Borrowing to an amount less than the Minimum Borrowing Amount for such
Borrowing, then all Revolving Loans outstanding pursuant to such Borrowing shall
be immediately converted into Base Rate Loans and (ii) each prepayment of any
Revolving Loans made pursuant to a Borrowing shall be applied Pro rata among
such Revolving Loans. In the absence of a designation by a Borrower as described
in the preceding sentence, the Administrative Agent shall, subject to the above,
make such designation in its sole discretion with a view, but no obligation, to
minimize breakage costs owing under Section 1.12.
3.03 Method and Place of Payment. Except as otherwise specifically provided
herein, all payments under this Agreement shall be made to the Administrative
Agent for the ratable (based on its pro rata share) account of the Lenders
entitled thereto, not later than 12:00 Noon (New York Time) on the date when due
and shall be made in immediately available funds at the Payment Office in: (x)
Dollars, if such payment is made in respect of any obligation of the Borrowers
under this Agreement except as otherwise provided in the immediately succeeding
clause (y); and (y) the appropriate Alternate Currency, if such payment is made
in respect of principal of or interest on Alternate Currency Loans, it being
understood that written notice by a Borrower to the Administrative Agent to make
a payment from the funds in such Borrower's account at the Payment Office shall
constitute the making of such payment to the extent of such funds held in such
account. Any payments under this Agreement which are made later than 12:00 Noon
(New York Time) shall be deemed to have been made on the next succeeding
Business Day. Whenever any payment to be made hereunder shall be stated to be
due on a day which is not a Business Day, the due date thereof shall be extended
to the next succeeding Business Day and, with respect to payments of principal,
interest shall be payable during such extension at the applicable rate in effect
immediately prior to such extension. The Administrative Agent will promptly make
available to each Lender its pro rata share (if any) of each payment so received
by the Administrative Agent in the funds and currency so received.
3.04 Net Payments. (a) All payments made by each Borrower hereunder or
under any Note will be made without setoff, counterclaim or other defense.
Except as provided in Section 3.04(b), all such payments will be made free and
clear of, and without deduction or withholding for, any present or future taxes,
levies, imposts, duties, fees, assessments or other charges of whatever nature
now or hereafter imposed by any jurisdiction (or by any political subdivision or
taxing authority thereof or therein) with respect to such payments (but
excluding, except as provided in the second succeeding sentence, any tax levy,
impost, duty, fee, assessment or other governmental charge imposed on or
measured by the net income or net profits of a Lender
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(including, without limitation, any franchise tax imposed on or measured by net
income or net profits and any branch profits taxes) pursuant to the laws of the
jurisdiction in which it is organized or the jurisdiction in which the principal
office or applicable lending office of such Lender is located (or any
subdivision or taxing authority thereof or therein)) and all interest, penalties
or similar liabilities with respect to such non-excluded taxes, levies, imposts,
duties, fees, assessments or other governmental charges (all such non-excluded
taxes, levies, imposts, duties, fees, assessments or other governmental charges
being referred to collectively as "Taxes"). If any Taxes are so levied or
imposed, the relevant Borrower shall pay the full amount of such Taxes to the
relevant taxing authority in accordance with applicable law and shall pay to the
relevant Lender such additional amounts as may be necessary so that every
payment of all amounts due under this Agreement or under any Note, after
withholding or deduction for or on account of any Taxes, will not be less than
the amount provided for herein or in such Note. If any amounts are payable in
respect of Taxes pursuant to the preceding sentence, the relevant Borrower
agrees to reimburse each Lender lending to such Borrower, upon the written
request of such Lender, for taxes imposed on or measured by the net income or
net profits of such Lender (including, without limitation, any franchise tax
imposed on or measured by net income or net profits and any branch profits taxes
imposed by the United States of America or similar taxes imposed by any
political subdivision thereof) pursuant to the laws of the jurisdiction in which
such Lender is organized or in which the principal office or applicable lending
office of such Lender is located (or of any subdivision or taxing authority
therein or thereof) and for any withholding of taxes as such Lender shall
determine are payable by, or withheld from, such Lender in respect of such
amounts so paid to or on behalf of such Lender pursuant to the preceding
sentence and in respect of any amounts paid to or on behalf of such Lender
pursuant to this sentence, Each Borrower will furnish to the Administrative
Agent within 45 days after the date the payment of any Taxes is due pursuant to
applicable law certified copies of tax receipts, if any, issued by such taxing
authority or other evidence reasonably acceptable to the Administrative Agent
evidencing such payment by such Borrower (or, if such Borrower has not received
such certified copies of tax receipts within such time period, then such
Borrower shall furnish such certified copies of tax receipts to the
Administrative Agent within 15 days after such Borrower has received such
certified copies of tax receipts). Each Borrower agrees to indemnify and hold
harmless each Lender, and reimburse such Lender upon its written request, for
the amount of any Taxes so levied or imposed and paid by such Lender. Such
indemnification shall be made within 30 days after the date upon which such
Lender makes written demand therefor, which demand shall identify the nature and
the amount of Taxes for which indemnification is sought and shall include a copy
of any written assessment thereof
(b) Each Lender that is not a United States person (as such term is defined
in Section 7701(a)(30) of the Code) for Federal income tax purposes agrees to
deliver to the Borrowers and the Administrative Agent on or prior to the
Effective Date, or in the case of a Lender that assumes an interest or is an
assignee or transferee of an interest under this Agreement pursuant to Section
1.14, 1.16 or 11.04 (unless the respective Lender was already a Lender hereunder
immediately prior to such assumption, assignment or transfer), on the date of
such assumption, assignment or transfer to such Lender, (i) two accurate and
complete original signed copies of Internal Revenue Service Form 4224 or 1001
(or successor forms) certifying to such Lender's entitlement to a complete
exemption from United States withholding tax with respect to
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payments to be made by the Borrowers under this Agreement and under any Note or
(ii) if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of
the Code and cannot deliver either Internal Revenue Service Form 1001 or 4224
pursuant to clause (i) above, (x) a certificate substantially in the form of
Exhibit C (any such certificate, a "Section 3.04 Certificate") and (y) two
accurate and complete original signed copies of Internal Revenue Service Form
W-8 (or successor form) certifying to such Lender's entitlement to a complete
exemption from United States withholding tax With respect to payments of
interest to be made by the Borrowers under this Agreement and under any Note. In
addition, each such Lender agrees that, from time to time after the Effective
Date, when a lapse in time or change in circumstances renders the previous
certification obsolete or inaccurate in any material respect, it will deliver to
the Borrowers and the Administrative Agent two new accurate and complete
original signed copies of Internal Revenue Service Form 4224 or 1001, or Form
W-8 and a Section 3.04 Certificate, as the case may be, and such other forms as
may be required in order to confirm or establish the entitlement of such Lender
to a continued exemption from or reduction in United States withholding tax with
respect to payments made by the Borrowers under this Agreement and any Note, or,
if legally unable to deliver such forms, it shall immediately notify the
Borrowers and the Administrative Agent of its inability to deliver any such Form
or Certificate in which case such Lender shall not be required to deliver any
such Form or Certificate pursuant to this Section 3.04(b). Notwithstanding
anything to the contrary contained in Section 3.04(a), but subject to Section
11.04(b) and the immediately succeeding sentence, (x) each Borrower shall be
entitled, to the extent it is required to do so by law, to deduct or withhold
income or similar taxes imposed by the United States (or any political
subdivision or taxing authority hereof or therein) from interest, fees or other
amounts payable hereunder by such Borrower for the account of any Lender which
is not a United States person (as such term is defined in Section 7701(a)(30) of
the Code) for Federal income tax purposes to the extent that such Lender has not
provided to the Borrowers Internal Revenue Service Forms that establish a
complete exemption from such deduction or withholding and (y) the Borrowers
shall not be obligated pursuant to Section 3.04(a) hereof to gross-up payments
to be made to any such Lender in respect of income or similar taxes imposed by
the United States if (I) such Lender has not provided to the Borrowers the
Internal Revenue Service Forms required to be provided to the Borrowers pursuant
to this Section 3.04(b) or (II) in the case of a payment, other than interest,
to a Lender described in clause (ii) of the first sentence of this Section
3.04(b) above, to the extent that such Forms do not establish a complete
exemption from withholding of such taxes. Notwithstanding anything to the
contrary contained in the preceding sentence or elsewhere in this Section 3.04
and except as set forth in Section 11.04(b), the Borrowers agree to pay
additional amounts and to indemnify each Lender in the manner set forth in
Section 3.04(a) (without regard to the identity of the jurisdiction requiring
the deduction or withholding) in respect of any Taxes deducted or withheld by it
as described in the immediately preceding sentence as a result of any changes
after the Effective Date in any applicable law, treaty, governmental rule,
regulation, guideline or order, or in the interpretation thereof, relating to
the deducting or withholding of such Taxes.
(c) If a Borrower pays any additional amount under this Section 3.04 to a
Lender and such Lender determines in its sole discretion that it has actually
received or realized in connection therewith any refund or any reduction of, or
credit against, its Tax liabilities in or with respect to the taxable year in
which the additional amount is paid, such Lender shall pay to the
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Borrower an amount that such Lender shall, in its sole discretion, determine is
equal to the net benefit, after tax, which was obtained by the Lender in such
year as a consequence of such refund, reduction or credit. Such amount shall be
paid as soon as practicable after receipt or realization by such Lender of such
refund, reduction or credit. Nothing in this Section 3.04(c) shall require any
Lender to disclose or detail the basis of its calculation of the amount of any
refund or reduction of, or credit against, its tax liabilities or any other
information to any Borrower or any other Person.
(d) Each Lender shall use reasonable efforts (consistent with legal and
regulatory restrictions and subject to overall policy considerations of such
Lender) to file any certificate or document or to furnish any information as
reasonably requested by a Borrower pursuant to any applicable treaty, law or
regulation, if the making of such filing or the furnishing of such information
would avoid the need for or reduce the amount of any amounts payable by a
Borrower under Section 3.04(a) and would not, in the reasonable judgment of such
Lender, be disadvantageous to such Lender.
SECTION 4. Conditions Precedent.
4.01 Conditions Precedent to Effective Date. This Agreement shall become
effective on the date (the "Effective Date") on which each of the following
conditions shall be satisfied:
(a) Execution of Agreement, Notes. (i) Each of Parent, Corp., each Agent
and each of the Lenders shall have signed a copy hereof (whether the same or
different copies) and shall have delivered the same to the Administrative Agent
at its Notice Office or, in the case of the Lenders and the Agents, shall have
given to the Administrative Agent telephonic (confirmed in writing), written or
facsimile transmission notice (actually received) at such office that the same
has been signed and mailed to it; and (ii) there shall have been delivered to
the Administrative Agent for the account of each Lender the appropriate Notes
executed by Parent and Corp., as applicable, in each case in the amount,
maturity and as otherwise provided herein.
(b) Opinion of Counsel. The Administrative Agent shall have received an
opinion, addressed to each Agent and each of the Lenders and dated the Effective
Date, from Louis G. Lenzi, General Counsel of Parent and Corp., which opinion
shall be substantially in the form of Exhibit D hereto.
(c) Corporate Proceedings. (i) The Administrative Agent shall have received
from each of Parent and Corp. a certificate, dated the Effective Date, signed by
an Authorized Officer thereof in the form of Exhibit E with appropriate
insertions and deletions, together with (x) copies of its certificate of
incorporation, by-laws or other organizational documents and (y) the resolutions
relating to the Credit Documents which shall be satisfactory to the
Administrative Agent.
(ii) All corporate and legal proceedings and all instruments and agreements
in connection with the transactions contemplated by this Agreement and the other
Credit Documents shall be satisfactory in form and substance to the
Administrative Agent, and the Administrative
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Agent shall have received all information and copies of all certificates,
documents and papers, including good standing certificates and any other records
of corporate proceedings and governmental approvals, if any, which the
Administrative Agent may have requested in connection therewith, such documents
and papers, where appropriate, to be certified by proper corporate or
governmental authorities.
(d) Existing Credit Agreements. All Indebtedness and other obligations
under the Existing Credit Agreements shall have been paid in full and all
commitments thereunder shall have been terminated.
(e) Fees. The Borrowers shall have paid to the Administrative Agent and the
Lenders all fees and expenses (including, without limitation, legal fees and
expenses) agreed upon by such parties to be paid on or prior to such date.
The occurrence of the Effective Date shall constitute a representation and
warranty by each Borrower to the Agents and each of the Lenders that all the
conditions specified in Section 4.01 exist as of that time. All the Notes,
certificates, legal opinions and other documents and papers referred to in this
Section 4,01, unless otherwise specified, shall be delivered to the
Administrative Agent at the Administrative Agent's Notice Office for the account
of each of the Lenders and, except for the Notes, in sufficient counterparts for
each of the Lenders and shall be satisfactory in form and substance to the
Lenders. The Administrative Agent shall give Parent, Corp. and each Lender
written notice that the Effective Date has occurred.
4.02 Conditions Precedent to Loans. The obligation of each Lender to make
any Loans is subject, at the time of each such Loan, to the satisfaction of the
following conditions:
(a) Effective Date. The Effective Date shall have occurred.
(b) Notice of Borrowing. The Administrative Agent shall have received a
Notice of Borrowing meeting the requirements of Section 1.03(a) with respect to
each incurrence of Revolving Loans and a Notice of Competitive Bid Borrowing
meeting the requirements of Section 1.04(a) with respect to each incurrence of
Competitive Bid Loans.
(c) No Default, Representations and Warranties. At the time of the
incurrence of each Loan and also after giving effect thereto, (i) there shall
exist no Default or Event of Default and (ii) all representations and warranties
made by any Borrower contained herein or in the other Credit Documents shall be
true and correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of such Loan.
(d) Financial Guaranty Insurance Policy. In the case of each DB Loan, Corp.
shall have issued a financial guaranty insurance policy in the form of Exhibit F
attached hereto (as appropriately completed, a "Financial Guaranty Insurance
Policy"), in support of the principal of and interest on such DB Loan, and such
Financial Guaranty Insurance Policy shall be in full force and effect. In
addition, in the case of a DB Loan which is an Alternate Currency Loan, Corp.
shall be permitted to Guarantee such DB Loan under the respective Alternate
Currency under applicable law.
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(e) Opinion of Counsel. In the case of each DB Loan, the Administrative
Agent shall have received an opinion, addressed to each Agent and each of the
Lenders and dated the date of the incurrence of such DB Loan, from counsel to
Corp., which opinion shall be substantially in the form of Exhibit L hereto.
The acceptance of the benefits of each Loan shall constitute a
representation and warranty by the respective Borrower to the Agents and each of
the Lenders that all of the applicable conditions specified in Section 4.02
exist as of that time.
SECTION 5. Representations, Warranties and Agreements. In order to induce
the Lenders to enter into this Agreement and to make the Loans provided for
herein, each of Parent and Corp. makes the following representations and
warranties to, and agreements with, the Lenders, all of which shall survive the
execution and delivery of this Agreement and the making of the Loans:
5.01 Corporate Existence and Power. Parent and Corp. are corporations duly
organized, validly existing and in good standing under the laws of the
jurisdiction of their incorporation, are duly qualified to transact business in
every jurisdiction where, by the nature of their businesses, such qualification
is necessary, and have all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on their businesses as
now conducted.
5.02 Corporate and Governmental Authorization, No Contravention. The
execution, delivery and performance by the Borrowers of this Agreement and the
other Credit Documents (i) are within each of the Borrower's corporate powers,
(ii) have been duly authorized by all necessary corporate action, (iii) require
no action by or in respect of, or filing with, any governmental body, agency or
official, (iv) do not contravene, or constitute a default under, any provision
of applicable law or regulation or of the certificate of incorporation or
by-laws of each of the Borrowers or of any agreement, judgment, injunction,
order, decree or other instrument binding upon the Borrowers or any of their
Subsidiaries, and (v) do not result in the creation or imposition of any Lien on
any asset of the Borrowers or any of their Subsidiaries.
5.03 Binding Effect. This Agreement constitutes a valid and binding
agreement of each of the Borrowers enforceable in accordance with its terms, and
the other Credit Documents, when executed and delivered in accordance with this
Agreement, will constitute valid and binding obligations of each of the
Borrowers enforceable in accordance with their respective terms, provided that
the enforceability hereof and thereof is subject in each case to general
principles of equity and to bankruptcy, insolvency and similar laws affecting
the enforcement of creditors' rights generally.
5.04 Financial Information. (a) The consolidated balance sheet of Parent
and its Consolidated Subsidiaries as of December 31, 1997 and the related
consolidated statements of income, shareholders' equity and cash flows for the
Fiscal Year then ended, reported on by Coopers & Lybrand, copies of which have
been delivered to each of the Lenders, and the unaudited consolidated financial
statements of Parent and Corp. for the interim period ended June 30, 1998,
copies of which have been delivered to each of the Lenders, fairly present, in
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conformity with GAAP or Statutory Accounting Principles, as applicable
consistently applied, the consolidated financial position of Parent and its
Consolidated Subsidiaries as of such dates and their consolidated results of
operations and cash flows for such periods stated.
(b) Since December 31, 1997, there has been no event, act, condition or
occurrence having a Material Adverse Effect.
5.05 Litigation. There is no action, suit or proceeding pending, or to the
knowledge of the Borrowers threatened, against or affecting the Borrowers or any
of their Subsidiaries before any court or arbitrator or any governmental body,
agency or official which could have a Material Adverse Effect or which in any
manner draws into question the validity or enforceability of, or could impair
the ability of the Borrowers to perform their obligations under, this Agreement
or any of the other Credit Documents.
5.06 Compliance with ERISA. (a) Parent, Corp. and each member of the
Controlled Group have fulfilled their obligations under the minimum funding
standards of ERISA and the Code with respect to each Plan and are in compliance
in all material respects with the presently applicable provisions of ERISA and
the Code, and have not incurred any liability to the PBGC or a Plan under Title
IV of ERISA.
(b) Neither Parent nor Corp. nor any member of the Controlled Group is or
ever has been obligated to contribute to any Multiemployer Plan.
5.07 Taxes. There have been filed on behalf of Parent and its Subsidiaries
all Federal, state and local income, excise, property and other tax returns
which are required to be filed by them and all taxes due pursuant to such
returns or pursuant to any assessment received by or on behalf of Parent or any
Subsidiary have been paid. The charges, accruals and reserves on the books of
each of Parent and its Subsidiaries in respect of taxes or other governmental
charges are, in the opinion of each of Parent and Corp., adequate. United States
income tax returns of Parent and its Subsidiaries have been examined and closed
through the Fiscal Year ended December 31, 1991.
5.08 Subsidiaries. Each of Parent's Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to transact business in every
jurisdiction where, by the nature of its business, such qualification is
necessary, and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted. Parent has no Subsidiaries except those Subsidiaries listed on Annex
III, which accurately sets forth each such Subsidiary's complete name and
jurisdiction of incorporation.
5.09 Not an Investment Company. No Borrower is an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
5.10 Public Utility Holding Company Act. No Borrower nor any of their
Subsidiaries is a "holding company", or a "subsidiary company" of a "holding
company", or an
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"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935, as amended.
5.11 Ownership of Property, Liens. Parent and its Consolidated Subsidiaries
have title of their properties sufficient for the conduct of their respective
businesses and none of such property is subject to any Lien except as permitted
in Section 7.01.
5.12 No Default. No Default or Event of Default has occurred and is
continuing.
5.13 Full Disclosure. All information heretofore furnished by the Borrowers
to the Administrative Agent or any Lender for purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all such
information hereafter furnished by the Borrowers to the Administrative Agent or
any Lender will be, true, accurate and complete in every material respect or
based on reasonable estimates on the date as of which such information is stated
or certified. The Borrowers have disclosed to the Lenders in writing any and all
facts which could have or cause a Material Adverse Effect.
5.14 Compliance with Laws. Parent and each of its Subsidiaries is in
compliance with all applicable laws, except where any failure to comply with any
such laws would not, alone or in the aggregate, have a Material Adverse Effect.
5.15 Capital Stock. All Capital Stock, debentures, bonds, notes and all
other securities of each of Parent and its Subsidiaries presently issued and
outstanding are validly and properly issued in accordance with all applicable
laws, including, but not limited to, the "Blue Sky" laws of all applicable
states and the federal securities laws. The issued shares of Capital Stock of
each of Parent's and Corp.'s Wholly-Owned Subsidiaries are owned by Parent or
Corp. free and clear of any Lien or adverse claim. At least a majority of the
issued shares of Capital Stock of each of Parent's and Corp.'s other
Subsidiaries (other than Wholly-Owned Subsidiaries) is owned by Parent or Corp.
free and clear of any Lien or adverse claim.
5.16 Margin Stock. No Borrower nor any of their Subsidiaries are engaged
principally, or as one of their important activities, in the business of
purchasing or carrying any Margin Stock, and no part of the proceeds of any Loan
will be used to purchase or carry any Margin Stock, or be used for any purpose
which violates, or which is inconsistent with, the provisions of Regulation U or
X.
5.17 Insolvency. After giving effect to the execution and delivery of the
Credit Documents and the making of the Loans under this Agreement, no Borrower
will be "insolvent," within the meaning of such term as defined in ss. 101 of
Title II of the United States Code or Section 2 of the Uniform Fraudulent
Transfer Act, or any other applicable state law pertaining to fraudulent
transfers, as each may be amended from time to time, or be unable to pay its
debts generally as such debts become due or have an unreasonably small capital
to engage in any business or transaction, whether current or contemplated.
SECTION 6. Affirmative Covenants. The Borrowers hereby covenant and agree
that on the Effective Date and thereafter until the Commitments have terminated,
no Notes are
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outstanding and the Loans, together with interest, Fees and all other
obligations (other than any indemnities described in Section 11.12 which are not
then owing) incurred hereunder, are paid in full:
6.01 Information Covenants. Parent and Corp. will furnish to each Lender:
(a) as soon as available and in any event within 60 days after the end
of each of the first three quarterly fiscal periods in each Fiscal Year of
Parent and Corp., consolidated balance sheets of each of Parent and its
Subsidiaries and Corp. and its Subsidiaries as at the end of such period
and the related consolidated statements of income, changes in stockholders'
equity and cash flows of each of Parent and its Subsidiaries and Corp. and
its Subsidiaries for such period and (in the case of the second and third
quarterly periods) for the period from the beginning of the current Fiscal
Year to the end of such quarterly period, setting forth in each case in
comparative form the consolidated figures for the corresponding periods of
the previous Fiscal Year, all in reasonable detail and certified by an
Authorized Officer of each of Parent and Corp. as presenting fairly, in
accordance with GAAP (except as specifically set forth therein; provided
any exceptions or qualifications thereto must be acceptable to the Required
Lenders) on a basis consistent with such prior fiscal periods, the
information contained therein, subject to changes resulting from normal
year-end audit adjustments;
(b) as soon as available and in any event within 120 days after the
end of each Fiscal Year of Parent and Corp., consolidated balance sheets of
each of Parent and its Subsidiaries and Corp. and its Subsidiaries as at
the end of such year and the related consolidated statements of income,
operations, changes in stockholders' equity and cash flows of each of
Parent and its Subsidiaries and Corp. and its Subsidiaries for such Fiscal
Year, setting forth in each case in comparative form the consolidated
figures for the previous fiscal year, all in reasonable detail and
accompanied by a report thereon of Price Waterhouse Coopers LLP or other
independent public accountants of recognized national standing selected by
Parent, which report shall state that such consolidated financial
statements present fairly the consolidated financial position of each of
Parent and its Subsidiaries and Corp. and its Subsidiaries as at the dates
indicated and the consolidated results of their operations and cash flows
for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years (except as otherwise specified in such report;
provided any exceptions or qualifications thereto must be acceptable to the
Required Lenders) and that the audit by such accountants in connection with
such consolidated financial statements has been made in accordance with
generally accepted auditing standards,
(c) within five Business Days after any Borrower becomes aware of the
occurrence of any Default, a certificate of an Authorized Officer of each
of the Borrowers setting forth the details thereof and the action which the
Borrowers are taking or propose to take with respect thereto;
(d) promptly upon the mailing thereof to the security holders of the
Borrowers generally, copies of all financial statements, reports and proxy
statements so mailed;
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(e) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements
on Form S-8 or its equivalent) and annual, quarterly or monthly reports
which the Borrowers shall have filed with the Securities and Exchange
Commission or any national securities exchange;
(f) if and when Parent, Corp. or any member of the Controlled Group
(i) gives or is required to give notice to the PBGC of any "reportable
event" (as defined in Section 4043 of ERISA) with respect to any Plan which
might constitute grounds for a termination of such Plan under Title IV of
ERISA, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, a copy of the notice
of such reportable event given or required to be given to the PBGC; (ii)
receives notice of complete or partial withdrawal liability under Title IV
of ERISA, a copy of such notice; or (iii) receives notice from the PBGC
under Title IV of ERISA of an intent to terminate or appoint a trustee to
administer any Plan, a copy of such notice;
(g) promptly after any Borrower knows of the commencement thereof,
notice, of any litigation, dispute or proceeding involving a claim against
any of the Borrowers and/or any Subsidiary for $10,000,000 or more in
excess of amounts covered in full by applicable insurance;
(h) from time to time such additional information regarding the
financial position or business of the Borrowers and their Subsidiaries as
the Administrative Agent, at the request of any Lender, may reasonably
request;
(i) at the request of any Lender, promptly after the filing thereof a
copy of the annual statements for each calendar year and quarterly
statements for each calendar quarter as filed with the New York Insurance
Department or other then comparable agency of other jurisdictions and the
financial statements of Corp. for each calendar year or quarter prepared in
accordance with Statutory Accounting Principles accompanied by a report
thereon of the independent public accountants of Parent referred to in
paragraph (b) above; and
(j) at the request of any Lender, at any time when a DB Loan is
outstanding, quarterly and annual summary financial statements of the
applicable Designated Borrower as promptly as possible after the end of
each fiscal quarter and fiscal year of such Designated Borrower.
6.02 Books, Records and Inspections. The Borrowers will (i) keep, and will
cause each Subsidiary to keep, proper books of record and account in which full,
true and correct entries in conformity with GAAP or Statutory Accounting
Principles, as applicable, shall be made of all dealings and transactions in
relation to its business and activities; and (ii) permit, and will cause each
Subsidiary to permit, representatives of any Lender at such Lender's expense
prior to the occurrence of an Event of Default and at the Borrowers' expense
after the occurrence of an Event of Default to visit and inspect any of their
respective properties, to examine their respective books and records and to
discuss their respective affairs, finances and accounts with their respective
officers, employees and independent public accountants. The Borrowers agree to
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cooperate and assist in such visits and inspections, in each case at such
reasonable times and as often as may reasonably be desired.
6.03 Maintenance of Existence. Each of the Borrowers shall maintain its
existence and carry on its business in substantially the same manner and in
substantially the same fields as such business is now carried on and maintained.
6.04 Compliance with Laws, Payment of Taxes. The Borrowers will, and will
cause each of their Subsidiaries and each member of the Controlled Group to,
comply with applicable laws (including but not limited to ERISA), regulations
and similar requirements of governmental authorities (including but not limited
to the PBGC), except where (i) the necessity of such compliance is being
contested in good faith through appropriate proceedings diligently pursued; and
(ii) any failure to comply with any such laws would not, alone or in the
aggregate, have a Material Adverse Effect. The Borrowers will, and will cause
each of their Subsidiaries to, pay promptly when due all taxes, assessments,
governmental charges, claims for labor, supplies, rent and other obligations
which, if unpaid, might become a lien against the property of the Borrowers or
any Subsidiary, except liabilities being contested in good faith by appropriate
proceedings diligently pursued.
6.05 Insurance. The Borrowers will maintain, and will cause each of their
Subsidiaries to maintain (either in the name of the Borrowers or in such
Subsidiary's own name), with financially sound and reputable insurance
companies, insurance on all their property in at least such amounts and against
at least such risks as are usually insured against in the same general area by
companies of established repute engaged in the same or similar businesses.
6.06 Maintenance of Property. The Borrowers shall, and shall cause each
Subsidiary to, maintain all of their properties and assets in good condition,
repair and working order, ordinary wear and tear excepted.
SECTION 7. Negative Covenants. The Borrowers hereby covenant and agree that
on the Effective Date and thereafter until the Commitments have terminated, no
Notes are outstanding and the Loans, together with interest, Fees and all other
obligations (other than any indemnities described in Section I 1. 12 which are
not then owing) incurred hereunder, are paid in full:
7.01 Liens. Neither Parent nor any of its Consolidated Subsidiaries will
create, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired by it, except:
(i) Liens securing any loan to be made under the Credit Agreement
among Corp., the banks signatory thereto and Credit Suisse First Boston,
New York Branch, originally dated as of December 29, 1989, as amended and
restated on October 1, 1997 and as may be amended thereafter from time to
time;
(ii) Liens created on certain insurance premiums by a Trust Agreement
effective December 31, 1989 between Municipal Bond Investors Assurance
Corporation, MBIA
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Insurance Corp. of Illinois and the trustee thereunder, as amended on
February 28, 1995 and as may be amended from time to time thereafter;
(iii) as to Corp., Liens (in addition to Liens permitted under Section
7.01(i), (iv) and (v)) in an aggregate principal amount of up to $
10,000,000;
(iv) Liens not securing Debt which are incurred in the ordinary course
of business; and
(v) Liens securing repurchase agreements constituting a borrowing of
funds by Parent or any Subsidiary of Parent in the ordinary course of
business for liquidity purposes and in no event for a period exceeding 90
days in each case.
7.02 Dissolution. No Borrower shall suffer or permit dissolution or
liquidation either in whole or in part or redeem or retire any shares of their
own stock, except through corporate reorganization to the extent permitted by
Section 7.03.
7.03 Consolidations, Mergers and Sales of Assets. The Borrowers will not
consolidate or merge with or into, or sell, lease or otherwise transfer all or
any substantial part of their assets to, any other Person, provided that (a) any
Borrower (other than any Designated Borrower) may merge with another Person if
(i) such Person was organized under the laws of the United States of America or
one of its states, (ii) one of the Borrowers is the corporation surviving such
merger and (iii) immediately after giving effect to such merger, no Default
shall have occurred and be continuing, and (b) Subsidiaries of the Borrowers may
merge with one another.
7.04 Use of Proceeds. No portion of the proceeds of the Loans will be used
by the Borrowers or any Subsidiary (i) directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of purchasing or carrying any Margin
Stock, or (ii) for any purpose in violation of any applicable law or regulation,
7.05 Change in Fiscal Year. Neither Parent nor Corp. shall change its
Fiscal Year without the consent of the Required Lenders.
7.06 Transactions with Affiliates.- Neither Parent nor any of its
Subsidiaries shall enter into, or be a party to, any transaction with any
Affiliate of Parent or such Subsidiary (which Affiliate is not one of the
Borrowers or a Subsidiary), except as permitted by law and in the ordinary
course of business and pursuant to reasonable terms.
7.07 Leverage Ratio. Parent and Corp. will not permit the ratio of
Consolidated Total Debt to Consolidated Total Capitalization at any time to
exceed 0.25:1.00.
7.08 Minimum Net Worth. Parent and Corp. will not permit Consolidated Net
Worth to be less than $2,000,000,000 \at any time.
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SECTION 8. Defaults.
8.01 Events of Default. Upon the occurrence of any of the following
specified events (each, an "Event of Default"):
(a) any Borrower shall fail to pay when due any principal of any Loan,
or shall fail to pay any interest on any Loan within three Business Days
after such interest shall become due, or shall fail to pay any fee or other
amount payable hereunder within five Business Days after such fee or other
amount becomes due; or
(b) any Borrower shall fail to observe or perform any covenant
contained in Sections 6.01(c), 6.02(ii), 6.03, 6.06, 7.02, 7.03, 7.04, 7.07
or 7.08; or
(c) any Borrower shall fail to observe or perform any covenant
contained in Section 7.01 for five days after the earlier of (i) the first
day on which any Borrower has knowledge of such failure or (ii) written
notice thereof has been given to any Borrower by the Administrative Agent
at the request of any Lender; or
(d) any Borrower shall fail to observe or perform any covenant or
agreement contained herein (other than those covered by clause (a), (b) or
(c) above) for 30 days after the earlier of (i) the first day on which any
Borrower has knowledge of such failure or (H) written notice thereof has
been given to any Borrower by the Administrative Agent at the request of
any Lender; or
(e) any representation, warranty, certification or statement made or
deemed made by any Borrower in Section 5 of this Agreement or in any
certificate, financial statement or other document delivered pursuant to
this Agreement shall prove to have been incorrect or misleading in any
material respect when made (or deemed made); or
(f) Parent or any Subsidiary shall fail to make any payment in respect
of Debt outstanding in an aggregate principal amount equal to or in excess
of $10,000,000 (other than the Notes) when due at final stated maturity
(after giving effect to any applicable grace period); or
(g) any event or condition shall occur which results in the
acceleration of the maturity of Debt outstanding in an aggregate amount
equal to or in excess of $10,000,000 of Parent or any Subsidiary or the
mandatory prepayment or purchase of such Debt by Parent (or its designee)
or such Subsidiary (or its designee) prior to the scheduled maturity
thereof; or
(h) Parent or any Subsidiary shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect
to themselves or their debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of them
or any substantial part of their property, or shall consent to any such
relief or to the appointment of or taking possession by any such official
in an involuntary case or other proceeding commenced against them, or shall
make a general
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assignment for the benefit of creditors, or shall fail generally, or shall
admit in writing their inability, to pay their debts as they become due, or
shall take any corporate action to authorize any of the foregoing, or shall
become or be declared by a court of competent jurisdiction to be insolvent;
or
(i) an involuntary case or other proceeding shall be commenced against
Parent or any Subsidiary seeking liquidation, reorganization or other
relief with respect to them or their debts under any bankruptcy, insolvency
or other similar law now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidator, custodian or other similar official of
them or any substantial part of their property, and such involuntary case
or other proceeding shall remain undismissed and unstayed for a period of
60 days; or an order for relief shall be entered against Parent or any
Subsidiary under the federal bankruptcy laws as now or hereafter in effect;
or
(j) Parent, Corp. or any member of the Controlled Group shall fail to
pay when due any material amount which they shall have become liable to pay
to the PBGC or to a Plan under Title IV of ERISA; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate or to cause a
trustee to be appointed to administer any such Plan or Plans or a
proceeding shall be instituted by a fiduciary of any such Plan or Plans to
enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not
have been dismissed within 30 days thereafter; or a condition shall exist
by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any such Plan or Plans must be terminated; or
(k) one or more judgments or orders for the payment of money in an
aggregate amount in excess of $10,000,000 shall be rendered against Parent
or any Subsidiary and such judgment or order shall continue unsatisfied and
unstayed for a period of 30 days; or
(1) a federal tax lien shall be filed against Parent or any Subsidiary
under Section 6323 of the Code or a lien of the PBGC shall be filed against
any Parent or any Subsidiary under Section 4068 of ERISA and in either case
such lien shall remain undischarged for a period of 25 days after the date
of filing; or
(m) (i) any Person or two or more Persons acting in concert shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Exchange Act) of 40% or more
of the outstanding shares of the voting stock of Parent; or (ii) as of any
date a majority of the Board of Directors of Parent consists of individuals
who were not either (A) directors of Parent as of the corresponding date of
the previous year, (B) selected or nominated to become directors by the
Board of Directors of Parent of which a majority consisted of individuals
described in clause (A), or (C) selected or nominated to become directors
by the Board of Directors of Parent of which a majority consisted of
individuals described in clause (A) and individuals described in clause
(B); or
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(n) Parent shall at any time or times and for any reason cease to own
(either directly or indirectly through a wholly-owned intermediate
Subsidiary) all of the Capital Stock or other ownership interests (except
for director's qualifying shares) of Corp.; or
(o) Corp. shall fail to maintain an insurer claims paying rating of AA
or better as determined by Standard and Poor's Corporation and Aa2 or
better as determined by Moody's Investors Service, Inc.; or
(p) Parent shall fail to maintain a long term debt rating of A or
better as determined by Standard and Poor's Corporation and A2 or better as
determined by Moody's Investors Service, Inc.; or
(q) at any time when any DB Loan is outstanding, the respective
Financial Guaranty Insurance Policy or any material provision thereof shall
cease to be in full force or effect or Corp. shall deny or disaffirm its
obligations under such Financial Guaranty Insurance Policy;
then, and in every such event, the Administrative Agent shall (i) if requested
by the Required Lenders, by notice to Parent and Corp. terminate the Commitments
and they shall thereupon terminate, and (ii) if requested by the Required
Lenders, by notice to Parent and Corp. declare the Notes (together with accrued
interest thereon) and all other amounts payable hereunder and under the other
Credit Documents to be, and the Notes (together with all accrued interest
thereon) and all other amounts payable hereunder and under the other Credit
Documents shall thereupon become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrowers; provided that if any Event of Default specified
in clause (h) or (i) above occurs with respect to Parent or Corp., without any
notice to Parent or Corp. or any other act by the Administrative Agent or the
Lenders, the Total Commitment shall thereupon automatically terminate and the
Notes (together with accrued interest thereon) and all other amounts payable
hereunder and under the other Credit Documents shall automatically become
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Borrowers; provided, further,
that, except in the case of an Event of Default under Section 8.01(q), the
principal of and interest on DB Loans shall not become due and payable pursuant
to this Section 8.01 prior to their respective DB Loan Maturity Date.
Notwithstanding the foregoing, the Administrative Agent shall have available to
it all other remedies at law or equity, and shall exercise any one or all of
them at the request of the Required Lenders.
8.02 Notice of Default. The Administrative Agent shall give notice to the
Borrowers of any Default under Sections 8.01(c) or 8.01(d) promptly upon being
requested to do so by any Lender and shall thereupon notify all the Lenders
thereof
SECTION 9. Definitions. As used herein, the following terms shall have the
meanings herein specified unless the context otherwise requires. Defined terms
in this Agreement shall include in the singular number the plural and in the
plural the singular:
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"Absolute Rate" shall mean an interest rate (rounded to the nearest .0001)
expressed as a decimal.
"Absolute Rate Borrowing" shall mean a Competitive Bid Borrowing with
respect to which a Borrower has requested that the Bidder Lenders offer to make
Competitive Bid Loans at Absolute Rates.
"Administrative Agent" shall mean Deutsche Bank and shall include any
successor to the Administrative Agent appointed pursuant to Section 10.09.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors
and officers of such Person), controlled by, or under direct or indirect common
control with such Person. A Person shall be deemed to control a corporation if
such Person possesses, directly or indirectly, the power (i) to vote 10% or more
of the securities having ordinary voting power for the election of directors of
such corporation or (ii) to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or other-wise.
"Agents" shall mean the Administrative Agent, the Syndication Agent and the
Documentation Agent.
"Aggregate Loan Outstandings" shall have the meaning provided in Section
3.02(a).
"Agreement" shall mean this Credit Agreement, as the same may be from time
to time modified, amended and/or supplemented.
"Alternate Currency" shall mean each Primary Alternate Currency and each
Other Alternate Currency.
"Alternate Currency Loan" shall mean any Loan denominated in an Alternate
Currency.
"Approved Currency" shall mean each of Dollars and each Primary Alternate
Currency.
"Assignment Agreement" shall mean the Assignment Agreement in the form of
Exhibit G (appropriately completed).
"Associated Cost Rate" shall mean, with respect to each Interest Period for
Pounds Sterling-denominated Loans, the costs (expressed as a percentage rounded
up to the nearest four decimal places and as determined on the first day of such
Interest Period and any three month anniversary thereof by the Administrative
Agent) of compliance with then existing requirements of the Bank of England in
respect of Loans denominated in Pounds Sterling.
"Assuming Lender" shall have the meaning provided in Section 1.16.
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"Authorized Officer" shall mean any senior officer of any Borrower
designated as such in writing to the Administrative Agent by such Borrower.
"Base Rate" shall mean, at any time, the higher of (i) the rate which is
1/2 of 1% in excess of the Federal Funds Effective Rate and (ii) the Prime
Lending Rate.
"Base Rate Loan" shall mean each Revolving Loan that is not a Eurodollar
Loan.
"Bidder Lender" shall mean each Lender that has notified in writing (and
has not withdrawn such notice) the Administrative Agent that it desires to
participate generally in the bidding arrangements relating to Competitive Bid
Borrowings.
"Borrowers" shall mean Parent, Corp. and each Designated Borrower, if any.
"Borrowing" shall mean (i) the incurrence by a single Borrower of Revolving
Loans denominated in Dollars that are Base Rate Loans on a pro rata basis from
all Lenders; (ii) the incurrence by a single Borrower of Revolving Loans of a
single Approved Currency that are Eurodollar Loans on a pro rata basis from all
Lenders, on a given date (or resulting from conversions on a given date), having
the same Interest Period, provided that Base Rate Loans incurred pursuant to
Section 1.11(b) shall be considered part of any related Borrowing of Eurodollar
Loans; and (iii) a Competitive Bid Borrowing.
"Business Day" shall mean (i) for all purposes other than as covered by
clause (ii) below, any day excluding Saturday, Sunday and any day which shall be
in the City of New York a legal holiday or a day on which banking institutions
are authorized by law or other governmental actions to close, (ii) with respect
to all notices and determinations in connection with, and payments of principal
and interest on, Eurodollar Loans and Competitive Bid Loans made pursuant to a
Spread Borrowing, any day which is a Business Day described in clause (i) and
which is also a day for trading by and between banks in the London interbank
Eurodollar market and, with respect to any notices or determinations in respect
of Euros, which is customarily a "Business Day" for such notices or
determinations.
"Capital Stock" means any nonredeemable capital stock of Parent or any
Consolidated Subsidiary (to the extent issued to a Person other than the
Borrowers), whether common or preferred.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time and the regulations promulgated and the rulings issued thereunder.
Section references to the Code are to the Code, as in effect on the Effective
Date and any subsequent provisions of the Code, amendatory thereof, supplemental
thereto or substituted therefor.
"Commitment" shall mean, with respect to each Lender, at any time, the
amount set forth opposite such Lender's name on Annex I, as the same may be
increased pursuant to Section 1. 16 and/or reduced pursuant to Sections 2.02,
2.03 or 8.01.
"Commitment AssumptionAgreement" shall mean each Commitment Assumption
Agreement in the form of Exhibit H attached hereto executed in accordance with
Section 1.16.
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"Commitment Assumption Date" shall mean the Business Day following the date
on which each Commitment Assumption Agreement is delivered to the Administrative
Agent pursuant to Section 1.16.
"Competitive Bid Borrowing" shall mean a Borrowing by a single Borrower of
Competitive Bid Loans pursuant to Section 1.04.
"Competitive Bid Loan" shall have the meaning specified in Section 1.01(b).
"Competitive Bid Note" shall have the meaning provided in Section 1.06(a).
"Consolidated Net Worth" shall mean the Net Worth of Parent and its
Subsidiaries determined on a consolidated basis.
"Consolidated Subsidiary" shall mean at any date any Subsidiary or other
entity the accounts of which, in accordance with GAAP, would be consolidated
with those of Parent in its consolidated financial statements as of such date.
"Consolidated Total Capitalization" shall mean, as of any date of
determination, the sum of (i) Consolidated Total Debt and (ii) Consolidated Net
Worth.
"Consolidated Total Debt" shall mean, as of any date of determination, all
Debt of Parent and its Subsidiaries on such date determined on a consolidated
basis.
"Controlled Group" shall mean all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with either Parent or Corp., are treated as a
single employer under Section 414 of the Code.
"Credit Documents" shall mean this Agreement, the Notes and each Financial
Guaranty Insurance Policy delivered pursuant to Section 4.02(d),
"DB Assumption Agreement" shall mean an Assumption Agreement in the form of
Exhibit I attached hereto executed in accordance with Section 1.17.
"DB Loan Maturity Date" shall mean (a) with respect to each DB Loan
constituting a Revolving Loan, the maturity date selected by the respective
Designated Borrower in accordance with Section 1.03(a) as being applicable to
such DB Loan, which maturity date shall not be more than 180 days after the date
of incurrence of such DB Loan (and in no event later than the Final Maturity
Date) and (b) with respect to each DB Loan constituting a Competitive Bid Loan,
the maturity of such Competitive Bid Loan selected in accordance with Section
1.04(a).
"DB Loans" shall mean any Loans incurred by a Designated Borrower.
"Debt" of any Person shall mean at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the
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deferred purchase price of property or services, except trade accounts payable
arising in the ordinary course of business, (iv) all obligations of such Person
as lessee under capital leases, (v) all obligations of such Person to reimburse
any bank or other Person in respect of amounts payable under a banker's
acceptance, (vi) all Redeemable Preferred Stock of such Person (in the event
such Person is a corporation), (vii) all obligations (absolute or contingent) of
such Person to reimburse any bank or other Person in respect of amounts paid
under a letter of credit or similar instrument, (viii) all Debt of others
secured by a Lien on any asset of such Person, whether or not such Debt is
assumed by such Person, and (ix) all Debt of others Guaranteed by such Person,
provided that in the case of Corp. the calculation of Debt shall not include
Debt of others guaranteed by Corp. in the ordinary course of its business.
"Default" shall mean any event, act or condition which with notice or lapse
of time, or both, would constitute an Event of Default.
"Defaulting Lender" shall mean any Lender with respect to which a Lender
Default is in effect.
"Designated Borrower" shall mean each Person designated as a Designated
Borrower in accordance with Section 1.17.
"Deutsche Bank" shall mean Deutsche Bank AG, New York Branch.
"Deutsche Mark Equivalent" shall mean, at any time for the determination
thereof, the amount of Deutsche Marks which could be purchased with the amount
of Dollars involved in such computation at the spot exchange rate therefor as
quoted by Deutsche Bank as of 11:00 A.M. (London time) on the date two Business
Days prior to the date of any determination thereof for purchase on such date.
"Deutsche Mark LIBOR" shall mean, for each Interest Period applicable to
any Loan denominated in Deutsche Marks, the rate per annum that appears on page
3750 (or other appropriate page if such currency does not appear on such page)
of the Dow Jones Telerate Screen (or any successor page) for Deutsche Mark
deposits with maturities comparable to such Interest Period as of 11:00 A.M.
(London time) on the date which is two Business Days prior to the commencement
of such Interest Period or, if such a rate does not appear on page 3750 (or such
other appropriate page) of the Dow Jones Telerate Screen (or any successor
page), the offered quotations to first-class banks in the London interbank
market by Deutsche Bank for Deutsche Mark deposits of amounts in same day funds
comparable to the outstanding principal amount of such Loan with maturities
comparable to such Interest Period determined as of 11:00 A.M. (London time) on
the date which is two Business Days prior to the commencement of such Interest
Period.
Deutsche Marks" shall mean freely transferable lawful money of Germany.
"Documentation Agent" shall mean Fleet National Bank.
"Dollar Equivalent" shall mean, at any time for the determination thereof,
the amount of Dollars which could be purchased with the amount of the relevant
Alternate Currency
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involved in such computation at the spot exchange rate therefor as quoted by the
Administrative Agent as of 11:00 A.M. (London time) on the date two Business
Days prior to the date of any determination thereof for purchase on such date.
"Dollars" and the sign "$" shall each mean freely transferable lawful money
of the United States.
"Effective Date" shall have the meaning provided in Section 4.01.
"EMU Legislation" shall mean the legislative measures of the European
Council for the introduction of, changeover to or operation of a single or
unified European currency.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to ERISA are to ERISA, as in effect as of the
Effective Date and any subsequent provisions of ERISA, amendatory thereof,
supplemental thereto or substituted therefor.
"Euro" shall mean the single currency of participating member states of the
European Union.
"Euro Equivalent" shall mean, at any time for the determination thereof,
the amount of Euros which could be purchased with the amount of Dollars involved
in such computation at the spot exchange rate therefor as quoted by Deutsche
Bank as of 11:00 A.M. (London time) on the date two Business Days prior to the
date of any determination thereof for purchase on such date.
"Euro LIBOR" shall mean, for each Interest Period applicable to any Loan
denominated in Euros, the rate per annum that appears on page 3750 (or other
appropriate page if such currency does not appear on such page) of the Dow Jones
Telerate Screen (or any successor page) for Euro deposits with maturities
comparable to such Interest Period as of 11:00 A.M. (London time) on the date
which is two Business Days prior to the commencement of such Interest Period or,
if such a rate does not appear on the Dow Jones Telerate Screen (or any
successor page), the offered quotations to first-class banks in the London
interbank market by Deutsche Bank for Euro deposits of amounts in same day funds
comparable to the outstanding principal amount of such Loan with maturities
comparable to such Interest Period determined as of 11:00 A.M. (London time) on
the date which is two Business Days prior to the commencement of such Interest
Period.
"Eurodollar Loan" shall mean each Revolving Loan that at the election of
any Borrower is bearing interest by reference to LIBOR.
"Event of Default" shall have the meaning specified in Section 8.01.
"Exchange Act" shall mean the U.S. Securities Exchange Act of 1934, as
amended.
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"Existing Credit Agreements" shall mean (i) the Credit Agreement, dated as
of August 31, 1994, among Parent, Municipal Bond Investors Assurance
Corporation, various lending institutions and Wachovia Bank of Georgia, N.A., as
Agent, (ii) the Loan Agreement, dated as of July 13, 1990, between Parent and
Credit Suisse First Boston, New York Branch and (iii) the Credit Agreement,
dated as of June 25, 1992, among Capital Markets Assurance Corporation, various
lending institutions and Bank of Montreal, as Agent.
"Extension Deadline" shall have the meaning specified in Section 1.15.
"Facility Fees" shall have the meaning specified in Section 2.01(a).
"Federal Funds Effective Rate" shall mean, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal Funds
brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to, or referred to in,
Section 3.01.
"Final Maturity Date" shall mean the fifth anniversary of the Effective
Date, or such later date to which the Final Maturity Date shall have been
extended pursuant to Section 1.15.
"Financial Guaranty Insurance Policy" shall have the meaning specified in
Section 4.02(d).
"Fiscal Year" means any fiscal year of the Borrowers.
"French Franc Equivalent" shall mean, at any time for the determination
thereof, the amount of French Francs which could be purchased with the amount of
Dollars involved in such computation at the spot exchange rate therefor as
quoted by Deutsche Bank as of 11:00 A.M. (London time) on the date two Business
Days prior to the date of any determination thereof for purchase on such date.
"French Franc LIBOR" shall mean, for each Interest Period applicable to any
Loan denominated in French Francs, the rate per annum that appears on page 3750
(or other appropriate page if such currency does not appear on such page) of the
Dow Jones Telerate Screen (or any successor page) for French Franc deposits with
maturities comparable to such Interest Period as of 11:00 A.M. (London time) on
the date which is two Business Days prior to the commencement of such Interest
Period or, if such a rate does not appear on page 3750 (or such other
appropriate page) of the Dow Jones Telerate Screen (or any successor page), the
offered quotations to first-class banks in the London interbank market by
Deutsche Bank for French Franc deposits of amounts in same day funds comparable
to the outstanding principal amount of such Loan with maturities comparable to
such Interest Period as of 11:00 A.M.
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(London time) on the date which is two Business Days prior to the commencement
of such Interest Period.
"French Francs" shall mean freely transferable lawful money of France.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect on the date of this Agreement.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
secure, purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or other obligation (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods, securities
or services, to provide collateral security, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part), provided that the term Guarantee shall
not include: (i) endorsements for collection or deposit in the ordinary course
of business; and (ii) in the case of Corp., Debt of others guaranteed by Corp.
in the ordinary course of its business. The term "Guarantee" used as a verb has
a corresponding meaning.
"Interest Period" shall mean (a) with respect to any Eurodollar Loan, the
interest period applicable thereto, as determined pursuant to Section 1.10 and
(b) with respect to any Competitive Bid Loan, the period beginning on the date
of incurrence thereof and ending on the stated maturity date thereof.
"Interest Rate Basis" shall mean LIBOR and/or such other basis for
determining an interest rate as the Borrowers and the Administrative Agent may
agree upon from time to time.
"Japanese Yen" shall mean freely transferable lawful money of Japan.
"Japanese Yen Equivalent" shall mean, at any time for the determination
thereof, the amount of Japanese Yen which could be purchased with the amount of
Dollars involved in such computation at the spot exchange rate therefor as
quoted by Deutsche Bank as of 11:00 A.M. (London time) on the date two Business
Days prior to the date of any determination thereof for purchase on such date.
"Japanese Yen LIBOR" shall mean, for each Interest Period applicable to any
Loan denominated in Japanese Yen, the rate per annum that appears on page 3750
(or other appropriate page if such currency does not appear on such page) of the
Dow Jones Telerate Screen (or any successor page) for Japanese Yen deposits with
maturities comparable to such Interest Period as of 11:00 A.M. (London time) on
the date which is two Business Days prior to the commencement of such Interest
Period or, if such a rate does not appear on page 3750 (or such other
appropriate page) of the Dow Jones Telerate Screen (or any successor page), the
offered quotations to first-class banks in the London interbank market by
Deutsche Bank for
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Japanese Yen deposits of amounts in same day funds comparable to the outstanding
principal amount of such Loan with maturities comparable to such Interest Period
determined as of 11:00 A.M. (London time) on the date which is two Business Days
prior to the commencement of such Interest Period.
"Judgment Currency" shall have the meaning provided in Section 11.16(a).
"Judgment Currency Conversion Date" shall have the meaning provided in
Section 11.16(a).
"Lender" or "Lenders" shall have the meaning provided in the first
paragraph of this Agreement.
"Lender Default" shall mean (i) the refusal (which has not been retracted)
of a Lender to make available its portion of any incurrence of Revolving Loans
or (ii) a Lender having notified the Administrative Agent and/or any Borrower
that it does not intend to comply with its obligations under Section 1.01, in
the case of either clause (i) or (ii) as a result of the appointment of a
receiver or conservator with respect to such Lender at the direction or request
of any regulatory agency or authority.
"Lender Register" shall have the meaning provided in Section 11.15.
"LIBOR" shall mean (i) with respect to any Borrowing of Loans of an
Approved Currency, the relevant interest rate, i.e., U.S. LIBOR, Deutsche Mark
LIBOR, Euro LIBOR, Sterling LIBOR, French Franc LIBOR, Japanese Yen LIBOR or
Swiss Franc LIBOR, and (ii) with respect to any Borrowing of Competitive Bid
Loans of an Other Alternate Currency, such rate per annum as may be agreed upon
by the respective Borrower and the respective Bidder Lender.
"Lien" shall mean, with respect to any asset, any mortgage, deed to secure
debt, deed of trust, lien, pledge, charge, security interest, security title,
preferential arrangement which has the practical effect of constituting a
security interest or encumbrance, servitude or encumbrance of any kind in
respect of such asset to secure or assure payment of a Debt or a Guarantee,
whether by consensual agreement or by operation of statute or other law, or by
any agreement, contingent or otherwise, to provide any of the foregoing. For the
purposes of this Agreement, Parent or any Subsidiary shall be deemed to own
subject to a Lien any asset which they have acquired or hold subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
"Loan" shall mean each Revolving Loan and each Competitive Bid Loan.
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Adverse Effect" shall mean, with respect to any event, act,
condition or occurrence of whatever nature (including any adverse determination
in any litigation, arbitration, or governmental investigation or proceeding),
whether singly or in conjunction with any other event or events, act or acts,
condition or conditions, occurrence or occurrences, whether or not
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related, a material adverse change in, or a material adverse effect upon, any of
(a) the rights and remedies of the Administrative Agent or the Lenders under the
Credit Documents, or the ability of each Borrower to perform its obligations
under the Credit Documents to which it is a party, as applicable, or (b) the
legality, validity or enforceability of any Credit Document.
"Minimum Borrowing Amount" shall mean (i) for any Revolving Loans that are
Dollar denominated, $2,500,000, (ii) for any Revolving Loans that are Alternate
Currency Loans, an amount in the respective Approved Currency having a Dollar
Equivalent (determined at the time a Notice of Borrowing is received or a
prepayment made) of $2,500,000, (iii) for any Competitive Bid Loans that are
Dollar denominated, $1,000,000 and (iv) for any Competitive Bid Loans that are
Alternate Currency Loans, an amount in the respective Alternate Currency having
a Dollar Equivalent (determined at the time a Notice of Competitive Bid
Borrowing is received or a prepayment made) of $1,000,000.
"Multiemployer Plan" shall mean a plan within the meaning of Section
4001(a)(3) of ERISA.
"Net Worth" shall mean, as to any Person, the sum of its capital stock,
capital in excess of par or stated value of shares of its capital stock,
retained earnings and any other account which, in accordance with GAAP,
constitutes stockholders equity, excluding any treasury stock.
"Non-Continuing Lender" shall have the meaning specified in Section 1.15.
"Non-Defaulting Lender" shall mean each Lender other than a Defaulting
Lender.
"Note" shall mean each Revolving Note and each Competitive Bid Note.
"Notice of Borrowing" shall have the meaning provided in Section 1.03(a).
"Notice of Competitive Bid Borrowing" shall have the meaning provided in
Section 1.04(a).
"Notice of Conversion" shall have the meaning provided in Section 1.07.
"Notice Office" shall mean the office of the Administrative Agent at 31
West 52nd Street, New York, NY 10019 or such other office as the Administrative
Agent may designate to the Borrowers from time to time.
"Obligation Currency" shall have the meaning provided in Section 11.16(a).
"Obligation" shall mean all amounts, direct or indirect, contingent Or
absolute, of every type or description, and at any time existing, owing to any
Agent or any Lender pursuant to the terms of this Agreement or any other Credit
Document.
"Other Alternate Currency" shall mean any freely transferable currency
other than any Approved Currency.
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"Payment Office" shall mean the office of the Administrative Agent at 31
West 52nd Street, New York, NY 10019 or such other office or offices as the
Administrative Agent may designate to the Borrowers from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Person" shall mean any individual, partnership, limited liability company,
joint venture, firm, corporation, association, trust or other enterprise or
business entity or any government or political subdivision or any agency,
department or instrumentality thereof.
"Plan" shall mean at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by a member of the
Controlled Group for employees of any member of the Controlled Group or (ii)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding 5 plan years made contributions.
"Pounds Sterling" shall mean freely transferable lawful money of the United
Kingdom.
"Primary Alternate Currency" shall mean each of Deutsche Marks, French
Francs, Japanese Yen, Pounds Sterling, Swiss Francs and Euros.
"Prime Lending Rate" shall mean the rate which Deutsche Bank announces from
time to time as its prime lending rate, the Prime Lending Rate to change when
and as such prime lending rate changes. The Prime Lending Rate is a reference
rate and does not necessarily represent the lowest or best rate actually charged
to any customer. Deutsche Bank may make commercial loans or other loans at rates
of interest at, above or below the Prime Lending Rate.
"Principal Amount" shall mean (i) the stated principal amount of each Loan
denominated in Dollars, and/or (ii) the Dollar Equivalent of the stated
principal amount of each Alternate Currency Loan, as the context may require.
"Redeemable Preferred Stock" of any Person shall mean any preferred stock
issued by such Person which is at any time prior to the Final Maturity Date
either (i) mandatorily redeemable (by sinking fund or similar payments or
otherwise) or (ii) redeemable at the option of the holder thereof.
"Regulation U" shall mean Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing margin requirements.
"Regulation X" shall mean Regulation X of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing margin requirements.
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"Relevant Currency Equivalent" shall mean the Dollar Equivalent, the
Deutsche Mark Equivalent, the Euro Equivalent, the Pounds Equivalent, the French
Franc Equivalent, the Japanese Yen Equivalent or the Swiss Franc Equivalent or
the comparable equivalent of any Other Alternate Currency, as the case may be.
"Replaced Lender" shall have the meaning provided in Section 1.14.
"Replacement Lender" shall have the meaning provided in Section 1.14.
"Required Lenders" shall mean at any time Non-Defaulting Lenders having at
least a majority of the aggregate Commitments of all Non-Defaulting Lenders;
provided that if the Total Commitment has been terminated, then the Required
Lenders shall mean Lenders whose outstanding Loans equal or exceed a majority of
the aggregate outstanding Loans at such time.
"Revolving Loan" shall have the meaning specified in Section 1.01(a).
"Revolving Note" shall have the meaning provided in Section 1.06(a).
"Section 3.04 Certificate" shall have the meaning provided in Section
3.04(b)(ii).
"Spread" shall mean a percentage per annum in excess of, or less than, an
Interest Rate Basis.
"Spread Borrowing" shall mean a Competitive Bid Borrowing with respect to
which a Borrower has requested the Bidder Lenders to make Competitive Bid Loans
at a Spread over or under a specified Interest Rate Basis.
"Statutory Accounting Principles" shall mean statutory accounting
principles prescribed by the National Association of Insurance Commissioners
that are to be used in making the calculations for purposes of determining
compliance with the terms of this Agreement.
"Sterling Equivalent" shall mean, at any time for the determination
thereof, the amount of Pounds Sterling which could be purchased with the amount
of Dollars involved in such computation at the spot exchange rate therefor as
quoted by Deutsche Bank as of 11:00 A.M. (London time) on the date two Business
Days prior to the date of any determination thereof for purchase on such date.
"Sterling LIBOR" shall mean, with respect to each Interest Period for any
Loan denominated in Pounds Sterling, (I) the rate per annum that appears on page
3750 (or other appropriate page if such currency does not appear on such page)
of the Dow Jones Telerate Screen (or any successive page) with maturities
comparable to such Interest Period as of 11:00 A.M. (London time) on the date
which is the commencement date of such Interest Period or, if such a rate does
not appear on page 3750 (or such other appropriate page) of the Dow Jones
Telerate Screen (or any successor page) the offered quotations to first-class
banks in the London interbank Eurodollar market by Deutsche Bank for Pounds
Sterling deposits of amounts in same day funds comparable to the outstanding
principal amount of such Loans with maturities comparable to such Interest
Period determined as of 11:00 A.M. (London time) on the date which
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is the commencement of such Interest Period plus (II) the Associated Cost Rate
for such Loans for such Interest Period.
"Subsidiary" of any Person shall mean and include (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such Person directly or indirectly through
Subsidiaries, has more than a 50% equity interest at the time. Unless otherwise
expressly provided, all references herein to "Subsidiary" shall mean a
Subsidiary of Parent.
"Swiss Franc Equivalent" shall mean, at any time for the determination
thereof, the amount of Swiss Francs which could be purchased with the amount of
Dollars involved in such computation at the spot exchange rate therefor as
quoted by Deutsche Bank as of 11:00 A.M. (London time) on the date two Business
Days prior to the date of any determination thereof for purchase on such date.
"Swiss Franc LIBOR" shall mean, for each Interest Period applicable to any
Loan denominated in Swiss Francs, the rate per annum that appears on page 3750
(or other appropriate page if such currency does not appear on such page) of the
Dow Jones Telerate Screen (or any successor page) for Swiss Franc deposits with
maturities comparable to such Interest Period as of 11:00 A.M. (London time) on
the date which is two Business Days prior to the commencement of such Interest
Period or, if such a rate does not appear on page 3750 (or such other
appropriate page) of the Dow Jones Telerate Screen (or any successor page), the
offered quotations to first-class banks in the London interbank market by
Deutsche Bank for Swiss Franc deposits of amounts in same day funds comparable
to the outstanding principal amount of such Loan with maturities comparable to
such Interest Period determined as of 11:00 A.M. (London time) on the date which
is two Business Days prior to the commencement of such Interest Period.
"Swiss Francs" shall mean freely transferable lawful money of Switzerland.
"Syndication Agent" shall mean The First National Bank of Chicago.
"Taxes" shall have the meaning provided in Section 3.04(a).
"Total Commitment" shall mean, at any time, the sum of the Commitments of
each of the Lenders at such time.
"Total Unutilized Commitment" shall mean, at any time, (i) the Total
Commitment at such time less (ii) the sum of the aggregate Principal Amount of
all outstanding Loans at such time.
"Type" shall mean any type of Loan determined with respect to currency and
the interest option applicable thereto.
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"UCC" shall mean the Uniform Commercial Code.
"US LIBOR" shall mean for each Interest Period applicable to a Loan
denominated in Dollars (other than a Base Rate Loan), the rate per annum that
appears on page 3750 of the Dow Jones Telerate Screen (or any successor page)
for Dollar deposits with maturities comparable to such Interest Period as of
11:00 A.M. (London time) on the date which is two Business Days prior to the
commencement of such Interest Period or, if such a rate does not appear on page
3750 of the Dow Jones Telerate Screen (or any successor page), the offered
quotations to first-class banks in the London interbank market by Deutsche Bank
for Dollar deposits of amounts in same day funds comparable to the outstanding
principal amount of such Dollar denominated Loan with maturities comparable to
such Interest Period determined as of 11:00 A.M. (London time) on the date which
is two Business Days prior to the commencement of such Interest Period.
"Wholly-Owned Subsidiary" of any Person shall mean any other Person to the
extent all of the capital stock or other ownership interests in such other
Person, other than directors' qualifying shares, is owned directly or indirectly
by such first Person.
"Written" or "in writing" shall mean any form of written communication or a
communication by means of facsimile transmission, telegraph or cable.
SECTION 10. Agents, etc.
10.01 Appointment. The Lenders hereby designate Deutsche Bank as
Administrative Agent, The First National Bank of Chicago as Syndication Agent
and Fleet National Bank as Documentation Agent to act as specified herein and in
the other Credit Documents. Each Lender hereby irrevocably authorizes, and each
holder of any Note by the acceptance of such Note shall be deemed irrevocably to
authorize, each Agent to take such action on its behalf under the provisions of
this Agreement, the other Credit Documents and any other instruments and
agreements referred to herein or therein and to exercise such powers and to
perform such duties hereunder and thereunder as are specifically delegated to or
required of such Agent by the terms hereof and thereof and such other powers as
are reasonably incidental thereto. The Agents may perform any of their duties
hereunder by or through their respective officers, directors, agents, employees
or affiliates.
10.02 Nature of Duties. No Agent shall have any duties or responsibilities
except those expressly set forth in this Agreement and the other Credit
Documents. No Agent or any of its respective officers, directors, agents,
employees or affiliates shall be liable for any action taken or omitted by them
hereunder or under any other Credit Document or in connection herewith or
therewith, unless caused by their gross negligence or willful misconduct. The
duties of each Agent shall be mechanical and administrative in nature; no Agent
shall have by reason of this Agreement or any other Credit Document a fiduciary
relationship in respect of any Lender or the holder of any Note; and nothing in
this Agreement or any other Credit Document, expressed or implied, is intended
to or shall be so construed as to impose upon either Agent any obligations in
respect of this Agreement or any other Credit Document except as expressly set
forth herein or therein with respect to such Agent.
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10.03 Lack of Reliance on the Agents. Independently and without reliance
upon any Agent, each Lender and the holder of each Note, to the extent it deems
appropriate, has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of the Borrowers and their
Subsidiaries in connection with the making and the continuance of the Loans and
the taking or not taking of any action in connection herewith and (ii) its own
appraisal of the creditworthiness of the Borrowers and their Subsidiaries and,
except as expressly provided in this Agreement, no Agent shall have any duty or
responsibility, either initially or on a continuing basis, to provide any Lender
or the holder of any Note with any credit or other information with respect
thereto, whether coming into its possession before the making of the Loans or at
any time or times thereafter. No Agent shall be responsible to any Lender or the
holder of any Note for any recitals, statements, information, representations or
warranties herein or in any document, certificate or other writing delivered in
connection herewith or for the execution, effectiveness, genuineness, validity,
enforceability, perfection, collectibility, priority or sufficiency of this
Agreement or any other Credit Document or the financial condition of the
Borrowers and their Subsidiaries or be required to make any inquiry concerning
either the performance or observance of any of the terms, provisions or
conditions of this Agreement or any other Credit Document, or the financial
condition of the Borrowers and their Subsidiaries or the existence or possible
existence of any Default or Event of Default.
10.04 Certain Rights of the Agents. If any Agent shall request instructions
from the Required Lenders with respect to any act or action (including failure
to act) in connection with this Agreement or any other Credit Document, such
Agent shall be entitled to refrain from such act or taking such action unless
and until such Agent shall have received instructions from the Required Lenders;
and no Agent shall incur liability to any Person by reason of so refraining.
Without limiting the foregoing, neither any Lender nor the holder of any Note
shall have any right of action whatsoever against an Agent as a result of such
Agent acting or refraining from acting hereunder or under any other Credit
Document in accordance with the instructions of the Required Lenders.
10.05 Reliance. Each Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, statement,
certificate, telex, teletype, facsimile or telecopier message, cablegram,
radiogram, order or other document or telephone message signed, sent or made by
any Person that such Agent believed to be the proper Person, and, with respect
to all legal matters pertaining to this Agreement and any other Credit Document
and its duties hereunder and thereunder, upon advice of counsel selected by such
Agent.
10.06 Indemnification. To the extent an Agent is not reimbursed and
indemnified by the Borrowers, the Lenders will reimburse and indemnify such
Agent, in proportion to their respective "percentages" as used in determining
the Required Lenders, for and against any and all liabilities, obligations,
losses, damages, penalties, claims, actions, judgments, costs, expenses or
disbursements of whatsoever kind or nature which may be imposed on, asserted
against or incurred by such Agent in performing its respective duties hereunder
or under any other Credit Document, in any way relating to or arising out of
this Agreement or any other Credit Document provided that no Lender shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the gross negligence or willful misconduct of such Agent.
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10.07 The Agents in Their Individual Capacities. With respect to its
obligation to make Loans under this Agreement, each Agent shall have the rights
and powers specified herein for a "Lender" and may exercise the same rights and
powers as though it were not performing the duties specified herein; and the
term "Lenders," "Required Lenders," "holders of Notes" or any similar terms
shall, unless the context clearly otherwise indicates, include the Agents in
their individual capacities. Each Agent may accept deposits from, lend money to,
and generally engage in any kind of banking, trust or other business with any
Borrower or any Affiliate of any Borrower as if they were not performing the
duties specified herein, and may accept fees and other consideration from any
Borrower for services in connection with this Agreement and otherwise without
having to account for the same to the Lenders.
10.08 Holders. The Administrative Agent may deem and treat the payee of any
Note as the owner thereof for all purposes hereof unless and until a written
notice of the assignment, transfer or endorsement thereof, as the case may be,
shall have been filed with the Administrative Agent. Any request, authority or
consent of any Person who, at the time of making such request or giving such
authority or consent, is the holder of any Note shall be conclusive and binding
on any subsequent holder, transferee, assignee or indorsee, as the case may be,
of such Note or of any Note or Notes issued in exchange therefor.
10.09 Resignation by an Agent. (a) The Administrative Agent may resign from
the performance of all its functions and duties hereunder and/or under the other
Credit Documents at any time by giving 15 Business Days' prior written notice to
the Borrowers and the Lenders. Such resignation shall take effect upon the
appointment of a successor Administrative Agent pursuant to clauses (b) and (c)
below or as otherwise provided below. Upon the effectiveness of such
resignation, the resigning Administrative Agent shall return to Parent and/or
Corp. a prorated portion of any administrative fee that has been paid in advance
for the period following the effectiveness of its resignation.
(b) Upon any such notice of resignation, the Required Lenders shall appoint
a successor Administrative Agent hereunder who shall be a Lender, commercial
bank or trust company reasonably acceptable to Parent and Corp.
(c) If a successor Administrative Agent shall not have been so appointed
within such 15 Business Day period, the Administrative Agent, with the consent
of Parent and Corp., shall then appoint a successor Administrative Agent who
shall serve as Administrative Agent hereunder until such time, if any, as the
Required Lenders appoint a successor Administrative Agent as provided above.
(d) Each of the Documentation Agent and the Syndication Agent may resign
from the performance of all of its functions and duties hereunder and/or under
the other Credit Documents in such capacity at any time by giving five Business
Days' prior written notice to the Lenders. Such resignation shall take effect at
the end of such five Business Days.
10.10 Documentation Agent, Syndication Agent. Nothing this Agreement shall
impose on the Documentation Agent or the Syndication Agent, in their capacity as
such, any duties or obligations.
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SECTION 11. Miscellaneous.
11.01 Payment of Expenses, etc. The Borrowers jointly and severally agree
to: (i) pay all reasonable out-of-pocket costs and expenses (1) of the
Administrative Agent in connection with the negotiation, syndication,
preparation, execution and delivery of the Credit Documents and the documents
and instruments referred to therein and any amendment, waiver or consent
relating thereto (including, without limitation, the reasonable fees and
disbursements of White & Case LLP) and (2) of the Agents and each of the Lenders
in connection with the enforcement of the Credit Documents and the documents and
instruments referred to therein (including, without limitation, the reasonable
fees and disbursements of counsel for each Agent and for each of the Lenders);
(ii) pay and hold each of the Agents and Lenders harmless from and against any
and all present and future stamp, VAT and other similar taxes with respect to
the foregoing matters and/or fees and save each of the Lenders harmless from and
against any and all liabilities with respect to or resulting from any delay or
omission (other than to the extent attributable to such Lender) to pay such
taxes; and (iii) indemnify each Lender (including in its capacity as an Agent),
its officers, directors, employees, representatives and agents from and hold
each of them harmless against any and all losses, liabilities, claims, damages
or expenses incurred by any of them as a result of, or arising out of, or in any
way related to, or by reason of, an investigation, litigation or other
proceeding (whether or not an Agent or any Lender is a party thereto and whether
or not any such investigation, litigation or other proceeding is between or
among an Agent, any Lender, or any third Person or otherwise) related to the
entering into and/or performance of any Credit Document or the use of the
proceeds of any Loans hereunder or the consummation of any transactions
contemplated in any Credit Document, and in each case, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding (but
excluding any such losses, liabilities, claims, damages or expenses to the
extent incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified).
11.02 Lender Enforceability Opinions. Within 45 days following the
Effective Date, each Lender agrees to deliver to Parent and Corp. an opinion or
opinions (as applicable) of counsel to such Lender (which opinion or opinions
may be from internal counsel to such Lender) substantially in the form of
Exhibit J or in such other form as is reasonably acceptable to Parent and Corp.
relating to the enforceability of such Lender's obligations under the Credit
Documents. Upon a Lender first becoming a party hereunder pursuant to Section
1.14, 1.16 or 11.04, such Lender agrees to deliver to Parent and Corp. an
opinion or opinions (as applicable) of counsel to such Lender (which opinion or
opinions may be from internal counsel to such Lender) substantially in the form
of Exhibit J or in such other form as is reasonably acceptable to Parent and
Corp. relating to the enforceability of such Lender's obligations under the
Credit Documents. Notwithstanding the foregoing, the failure by a Lender to
provide the opinion or opinions referred to in this Section 11.02 shall not
affect any of the obligations of the Borrowers hereunder or under the other
Credit Documents.
11.03 Notices. Except as otherwise expressly provided herein, all notices
and other communications provided for hereunder shall be in writing (including
telecopier or facsimile) and mailed, telecopied, faxed or delivered, if to a
Borrower, at the address specified opposite its signature below or in the other
relevant Credit Documents, as the case may be; if to
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any Lender or the Administrative Agent, at its address specified for such Lender
or the Administrative Agent on Annex II hereto; or, at such other address as
shall be designated by any party in a written notice to the other parties
hereto. All such notices and communications shall be mailed, telecopied or sent
by overnight courier, and shall be effective when received.
11.04 Benefit of Agreement. (a) This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto, provided that no Borrower may assign or transfer
any of its rights or obligations hereunder without the prior written consent of
the Lenders. Each Lender may at any time grant participations in any of its
rights hereunder or under any of the Notes to any Person, provided that (X) in
the case of any such participation, the participant shall not have any rights
under this Agreement or any of the other Credit Documents (the participant's
rights against such Lender in respect of such participation to be those set
forth in the agreement executed by such Lender in favor of the participant
relating thereto) and all amounts payable by the Borrowers hereunder shall be
determined as if such Lender had not sold such participation, except that the
participant shall be entitled to the benefits of Sections 1.11 and 3.04 of this
Agreement to the extent that such Lender would be entitled to such benefits if
the participation had not been entered into or sold and (Y) no Lender shall
transfer, grant or assign any participation under which the participant shall
have rights to approve any amendment to or waiver of this Agreement or any other
Credit Document except to the extent such amendment or waiver would extend the
final scheduled maturity of any Loan or Note in which such participant is
participating, or reduce the rate or extend the time of payment of interest or
Fees thereon (except in connection with a waiver of the applicability of any
post-default increase in interest rates), or reduce the principal amount
thereof, or increase such participant's participating interest in any Commitment
over the amount thereof then in effect (it being understood that a waiver of any
Default or Event of Default or of a mandatory reduction in the Total Commitment,
or a mandatory prepayment, shall not constitute a change in the terms of any
Commitment).
(b) Notwithstanding the foregoing, (x) any Lender may assign all or a
portion of its Commitment and its rights and obligations hereunder to another
Lender (or an Affiliate of such assigning Lender), and (y) with the consent of
the Administrative Agent and, so long as no Default under Section 8.01(a) or
8.01(h) or Event of Default exists, Parent (which consent shall not be
unreasonably withheld), any Lender may assign all or a portion of its Commitment
and its rights and obligations hereunder to one or more Persons. No assignment
pursuant to the immediately preceding sentence by a Lender (or by Lenders which
are Affiliates of each other) shall to the extent such assignment represents an
assignment to an institution other than one or more Lenders hereunder (or to an
Affiliate of an assigning Lender), be in an aggregate amount less than $
10,000,000 unless the entire Commitment of the assigning Lender (or group of
Lenders which are Affiliates) is so assigned. If any Lender so sells or assigns
all or a part of its rights hereunder or under the Notes, any reference in this
Agreement or the Notes to such assigning Lender shall thereafter refer to such
Lender and to the respective assignee to the extent of their respective
interests and the respective assignee shall have, to the extent of such
assignment (unless otherwise provided therein), the same rights and benefits as
it would if it were such assigning Lender. Each assignment pursuant to this
Section 11.04(b) shall be effected by the assigning Lender and the assignee
Lender executing an Assignment Agreement (appropriately completed). At the time
of any such assignment, (i) either the assigning or the assignee Lender shall
pay to the
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Administrative Agent a nonrefundable assignment fee of $3,500, (ii) Annex I
shall be deemed to be amended to reflect the Commitment of the respective
assignee (which shall result in a direct reduction to the Commitment of the
assigning Lender) and of the other Lenders, and (iii) the Borrowers at such time
will issue new Notes to the respective assignee and to the assigning Lender in
conformity with the requirements of Section 1.06. To the extent any assignment
pursuant to this Section 11.04(b) is to a Person which is not already a Lender
hereunder and which is not a United States Person (as such term is defined in
Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective
assignee Lender shall provide to Parent and the Administrative Agent the
appropriate Internal Revenue Service Forms (and, if applicable, a Section 3.04
Certificate) described in Section 3.04(b). To the extent that an assignment of
all or any portion of a Lender's Commitments and related outstanding obligations
pursuant to this Section 11.04(b) would, at the time of such assignment, result
in increased costs under Section 1.11 or 3.04 from those being charged by the
respective assigning bank prior to such assignment, then the Borrowers shall not
be obligated to pay such increased costs (although the Borrowers shall be
obligated to pay any other increased costs of the type described above resulting
from changes specified in said Section 1.11 or 3.04 occurring after the date of
the respective assignment). Each Lender and the Borrowers agree to execute such
documents (including without limitation amendments to this Agreement and the
other Credit Documents) as shall be necessary to effect the foregoing. Nothing
in this clause (b) shall prevent or prohibit any Lender from pledging its Notes
or Loans to a Federal Reserve Bank in support of borrowings made by such Lender
from such Federal Reserve Bank.
(c) Notwithstanding any other provisions of this Section 11.04, no transfer
or assignment of the interests or obligations of any Lender hereunder or any
grant of participation therein shall be permitted if such transfer, assignment
or grant would require any Borrower to file a registration statement with the
Securities and Exchange Commission or to qualify the Loans under the "Blue Sky"
laws of any State.
11.05 No Waiver; Remedies Cumulative, No failure or delay on the part of
any Agent or any Lender in exercising any right, power or privilege hereunder or
under any other Credit Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege hereunder or under
any other Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder or thereunder. The
rights and remedies herein expressly provided are cumulative and not exclusive
of any rights or remedies which any Agent or any Lender would otherwise have.
11.06 Payments Pro Rata. (a) The Administrative Agent agrees that promptly
after its receipt of each payment from or on behalf of any Borrower in respect
of any Obligations of such Borrower hereunder, it shall distribute such payment
to the Lenders (other than any Lender that has expressly waived its right to
receive its pro rata share thereof) Pro rata based upon their respective shares,
if any, of the Obligations with respect to which such payment was received.
(b) Each of the Lenders agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit
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Documents, or otherwise) which is applicable to the payment of the principal of,
or interest on, the Loans or Fees, of a sum which with respect to the related
sum or sums received by other Lenders is in a greater proportion than the total
of such Obligation then owed and due to such Lender bears to the total of such
Obligation then owed and due to all of the Lenders immediately prior to such
receipt, then such Lender receiving such excess payment shall purchase for cash
without recourse or warranty from the other Lenders an interest in the
Obligations of the respective Borrower to such Lenders in such amount as shall
result in a proportional participation by all of the Lenders in such amount,
provided that if all or any portion of such excess amount is thereafter
recovered from such Lender, such purchase shall be rescinded and the purchase
price restored to the extent of such recovery, but without interest.
(c) Notwithstanding anything to the contrary contained herein, the
provisions of the preceding Sections 11.06(a) and (b) shall be subject to the
express provisions of this Agreement which require, or permit, differing
payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders.
11.07 Calculations: Computations. (a) The financial statements to be
furnished to the Lenders pursuant hereto shall be made and prepared in
conformity with GAAP or Statutory Accounting Principles, as the case may be,
consistently applied throughout the periods involved (except as set forth in the
notes thereto or as otherwise disclosed in writing by the Borrowers to the
Lenders and with respect to any interim financial statements, subject to changes
resulting from audit and normal year-end audit adjustments), provided that (x)
except as otherwise specifically provided herein, all computations determining
compliance with Sections 7.07 and 7.08, including definitions used therein,
shall utilize accounting principles and policies in effect at the time of the
preparation of, and in conformity with those used to prepare, the December 31,
1997 financial statements delivered to the Lenders pursuant to Section 5.04(a)
and (y) if at any time the computations determining compliance with Sections
7.07 and 7.08 utilize accounting principles different from those utilized in the
financial statements furnished to the Lenders, such financial statements shall
be accompanied by reconciliation work-sheets.
(b) All computations of interest and Fees hereunder shall be made on the
actual number of days elapsed over a year of 360 days (365-366 days for interest
on Base Rate Loans when the Base Rate is based on the Prime Lending Rate).
(c) For purposes of this Agreement, the Dollar Equivalent of each Loan that
is an Alternate Currency Loan shall be calculated on the date when any such Loan
is made, on the second Business Day of each month and at such other times as
designated by the Administrative Agent at any time when a Default or an Event of
Default exists. Such Dollar Equivalent shall remain in effect until the same is
recalculated by the Administrative Agent as provided above and notice of such
recalculation is received by the Borrowers, it being understood that until such
notice is received, the Dollar Equivalent shall be that Dollar Equivalent as
last reported to the Borrowers by the Administrative Agent. The Administrative
Agent shall promptly notify the Borrowers and the Lenders of each such
determination of the Dollar Equivalent.
11.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury
Trial. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE
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<PAGE>
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE
CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW
YORK. Any legal action or proceeding with respect to this Agreement or any other
Credit Document may be brought in the courts of the State of New York or of the
United States for the Southern District of New York, and, by execution and
delivery of this Agreement, each Borrower hereby irrevocably accepts for itself
and in respect of its property, generally and unconditionally, the jurisdiction
of the aforesaid courts. Each Borrower further irrevocably consents to the
service of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to it, to the extent located outside New York City, or by hand,
to the extent located within New York City, at its address for notices pursuant
to Section 11.03, such service to become effective 30 days after such mailing.
Nothing herein shall affect the right of any Agent or any Lender to serve
process in any manner permitted by law or to commence legal proceedings or
otherwise proceed against any Borrower in any other jurisdiction.
(b) Each Borrower each hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Credit Document brought in the courts referred to in clause (a) above and hereby
further irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been brought in
an inconvenient forum.
(c) Each of the parties to this Agreement hereby irrevocably waives all
right to a trial by jury in any action, proceeding or counterclaim arising out
of or relating to this Agreement, the other Credit Documents or the transactions
contemplated hereby or thereby.
11.09 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with Parent, Corp. and the
Administrative Agent.
11.10 Headings Descriptive. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
11.11 Amendment or Waiver. Neither this Agreement nor any other Credit
Document nor any terms hereof or thereof may be changed, waived, discharged or
terminated unless such change, waiver, discharge or termination is in writing
signed by the Borrowers and the Required Lenders, provided that no such change,
waiver, discharge or termination shall, without the consent of each Lender
(other than a Defaulting Lender) directly affected thereby, (i) extend the Final
Maturity Date or reduce the rate or extend the time of payment of interest
(other than as a result of waiving the applicability of any post-default
increase in interest rates) or Fees or other amounts payable hereunder, or
reduce the principal amount thereof, or increase the Commitment of any Lender
over the amount thereof then in effect (it being understood that a waiver of any
Default or Event of Default or of a mandatory reduction in the Total Commitment
shall not
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<PAGE>
constitute a change in the terms of any Commitment of any Lender), (ii) amend,
modify or waive any provision of this Section 11.11 or of Section 4.02(d), (iii)
reduce the percentage specified in, or (except to give effect to any additional
facilities hereunder) otherwise modify, the definition of Required Lenders, or
(iv) consent to the assignment or transfer by any Borrower of any of its rights
and obligations under this Agreement.
11.12 Survival. All indemnities set forth herein including, without
limitation, in Section 1.11, 1.12 or 3.04 shall survive the execution and
delivery of this Agreement and the making and repayment of the Loans.
11.13 Domicile of Loans. Each Lender may transfer and carry its Loans at,
to or for the account of any branch office, Subsidiary or affiliate of such
Lender, provided that the Borrowers shall not be responsible for costs arising
under Section 1.11 or 3.04 resulting from any such transfer (other than a
transfer pursuant to Section 1.13 or 1.14) to the extent not otherwise
applicable to such Lender prior to such transfer.
11.14 Confidentiality. Subject to Section 11.04, the Lenders shall hold all
non-public information obtained pursuant to the requirements of this Agreement
in accordance with its customary procedure for handling confidential information
of this nature and in accordance with safe and sound banking practices and in
any event may make disclosure to its Affiliates, employees, auditors, advisors
or counsel or as reasonably required by any bona fide transferee or participant
in connection with the contemplated transfer of any Loans or participation
therein (so long as such transferee or participant agrees to be bound by the
provisions of this Section 11.14) or as required or requested by any
governmental agency or representative thereof or pursuant to legal process,
provided that, unless specifically prohibited by applicable law or court order,
each Lender shall notify Parent of any request by any governmental agency or
representative thereof (other than any such request in connection with an
examination of the financial condition of such Lender by such governmental
agency) for disclosure of any such non-public information prior to disclosure of
such information, and provided further that in no event shall any Lender be
obligated or required to return any materials furnished by Parent or any of its
Subsidiaries.
11.15 Lender Register. Each Borrower hereby designates the Administrative
Agent to serve as its agent, solely for purposes of this Section 11.15, to
maintain a register (the "Lender Register") on which it will record the
Commitments from time to time of each of the Lenders, the Loans made by each of
the Lenders and each repayment in respect of the principal amount of the Loans
of each Lender. Failure to make any such recordation, or any error in such
recordation, shall not affect the Borrowers' obligations in respect of such
Loans. With respect to any Lender, the transfer of the Commitments of such
Lender and the rights to the principal of, and interest on, any Loan made
pursuant to such Commitments shall not be effective until such transfer is
recorded on the Lender Register maintained by the Administrative Agent with
respect to ownership of such Commitments and Loans and prior to such recordation
all amounts owing to the transferor with respect to such Commitments and Loans
shall remain owing to the transferor. The registration of assignment or transfer
of all or part of any Commitments and Loans shall be recorded by the
Administrative Agent on the Lender Register only upon the acceptance by the
Administrative Agent of a properly executed and delivered Assignment Agreement
pursuant to
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<PAGE>
Section 11.04(b). The Borrowers jointly and severally agree to indemnify the
Administrative Agent from and against any and all losses, claims, damages and
liabilities of whatsoever nature which may be imposed on, asserted against or
incurred by the Administrative Agent in performing its duties under this Section
11.15 other than those resulting from the Administrative Agent's willful
misconduct or gross negligence.
11.16 Judgment Currency. (a) The Borrowers' obligations hereunder and under
the other Credit Documents to make payments in the applicable Approved Currency
or Other Alternate Currency (the "Obligation Currency") shall not be discharged
or satisfied by any tender or recovery pursuant to any judgment expressed in or
converted into any currency other than the Obligation Currency, except to the
extent that such tender or recovery results in the effective receipt by the
Administrative Agent or the respective Lender of the full amount of the
Obligation Currency expressed to be payable to the Administrative Agent or such
Lender under this Agreement or the other Credit Documents. If, for the purpose
of obtaining or enforcing judgment against any Borrowers in any court or in any
jurisdiction, it becomes necessary to convert into or from any currency other
than the Obligation Currency (such other currency being hereinafter referred to
as the "Judgment Currency") an amount due in the Obligation Currency, the
conversion shall be made at the Relevant Currency Equivalent, and, in the case
of other currencies, the rate of exchange (as quoted by the Administrative Agent
or if the Administrative Agent does not quote a rate of exchange on such
currency, by a known dealer in such currency designated by the Administrative
Agent) determined, in each case, as of the Business Day immediately preceding
the day on which the judgment is given (such Business Day being hereinafter
referred to as the "Judgment Currency Conversion Date").
(b) If there is a change in the rate of exchange prevailing between the
Judgment Currency Conversion Date and the date of actual payment of the amount
due, the Borrowers covenant and agree to pay, or cause to be paid, such
additional amounts, if any (but in any event not a lesser amount) as may be
necessary to ensure that the amount paid in the Judgment Currency, when
converted at the rate of exchange prevailing on the date of payment, will
produce the amount of the Obligation Currency which could have been purchased
with the amount of Judgment Currency stipulated in the judgment or judicial
award at the rate of exchange prevailing on the Judgment Currency Conversion
Date.
(c) For purposes of determining the Relevant Currency Equivalent or any
other rate of exchange for this Section, such amounts shall include any premium
and costs payable in connection with the purchase of the Obligation Currency.
11.17 Euro. (a) If at any time that an Alternate Currency Loan is
outstanding, the relevant Alternate Currency is fully replaced as the lawful
currency of the country that issued such Alternate Currency (the "Issuing
Country") by the Euro so that all payments are to be made in the Issuing Country
in Euros and not in the Alternate Currency previously the lawful currency of
such country, then such Alternate Currency Loan shall be automatically converted
into a Loan denominated in Euros in a principal amount equal to the amount of
Euros into which the principal amount of such Alternate Currency Loan would be
converted pursuant to the EMU Legislation and thereafter no further Loans will
be available in such Alternate Currency, with the basis of accrual of interest,
notices requirements and payment offices with respect to such converted
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<PAGE>
Loans to be that consistent with the convention and practices in the London
interbank market for Euro denominated Loans.
(b) The applicable Borrowers shall from time to time, at the request of any
Lender, pay to such Lender the amount of any losses, damages, liabilities,
claims, reduction in yield, additional expense, increased cost, reduction in any
amount payable, reduction in the effective return of its capital, the decrease
or delay in the payment of interest or any other return forgone by such Lender
or its affiliates as a result of the tax or currency exchange resulting from the
introduction, changeover to or operation of the Euro in any applicable nation or
eurocurrency market.
* * *
-53-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Agreement to be duly executed and delivered as of the date first above
written.
MBIA Inc. MBIA INC.,
113 King Street as a Borrower
Armonk, NY 10504
Tel: (914) 765-3020
Fax: (914) 765-3163
Attention: Julliette S. Tehrani
By /s/ JULLIETTE S. TEHRANI
---------------------------------
with a copy to: Name: Julliette S. Tehrani
Title: Executive Vice President,
885 Third Avenue Chief Financial Officer and
New York, NY 10022 Treasurer
Tel: (212) 415-6816
Fax: (212) 755-5462
Attention: Robert L. Nevin, Jr.
MBIA Insurance Corporation MBIA INSURANCE CORPORATION,
113 King Street as a Borrower
Armonk, New York 10504
Tel: (914) 765-33020
Fax: (914) 765-3163
Attention: Julliette S. Tehrani
By /s/ JULLIETTE S. TEHRANI
---------------------------------
with a copy to: Name: Julliette S. Tehrani
Title: Executive Vice President,
885 Third Avenue Chief Financial Officer and
New York, New York 10022 Treasurer
Tel: (212) 415-6916
Fax: (212) 755-5462
Attention: Robert L. Nevin, Jr.
<PAGE>
DEUTSCHE BANK AG, NEW YORK BRANCH,
Individually and as Administrative Agent
By /s/ JOHN S. MCGILL
-------------------------------------
Name: John S. McGill
Title: Vice President
By /s/ GAYMA Z. SHIVNARAIN
-------------------------------------
Name: Gayma Z. Shivnarain
Title: Vice President
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Syndication Agent
By: /s/ T. LUISA PASHINIAN
----------------------------------
Name: T. Luisa Pashinian
Title: Corporate Banking Officer
<PAGE>
FLEET NATIONAL BANK,
Individually and as Documentation Agent
BY: /s/ E.B. SHELLEY
----------------------------------
Name: E.B. Shelley
Title: Vice President
<PAGE>
BANCA MONTE DEI PASCHI DI SIENA SPA,
as Lender
By: /s/ G. NATALICCHI
----------------------------------
Name: G. Natalicchi
Title: S.V.P. & General Manager
By: /s/ BRIAN R. LANDY
----------------------------------
Name: Brian R. Landy
Title: Vice President
<PAGE>
BANK OF MONTREAL,
as Lender
By: /s/ R.J. MCCLOREY
------------------------------
Name: R.J. McClorey
Title: Director
<PAGE>
CHASE MANHATTAN BANK,
as Lender
By: /s/ HELEN L. NEWCOMB
---------------------------------
Name: Helen L. Newcomb
Title: Vice President
<PAGE>
BANK OF AMERICA,
NATIONAL TRUST & SAVINGS ASSOCIATION,
as Lender
By: /s/ ELIZABETH W.F. BISHOP
---------------------------------
Name: ELIZABETH W.F. BISHOP
Title: Vice President
<PAGE>
BANCA COMMERCIALE ITALIANA,
NEW YORK BRANCH,
as Lender
By: /s/ Karen Purelis
------------------------------
Name: Karen Purelis
Title: VP
By: /s/ Charles DOUGHERTY
------------------------------
Name: C. Dougherty
Title: VP
<PAGE>
BANCO SANTANDER S.A., NEW YORK BRANCH,
as Lender
By: /s/ EDWARD W O'LOGHLEN
---------------------------------
Name: Edward W O'Loghlen
Title: Vice President
Asset Backed Finance Group
By: /s/ JOHN HENNESSY
---------------------------------
Name: JOHN HENNESSY
Title: VICE PRESIDENT
STRUCTURED FINANCE
<PAGE>
COMMERZBANK AG, NEW YORK BRANCH,
as Lender
By: /s/ EDWARD J. MCDONNELL III
---------------------------------------
Name: Edward J. McDonnell III,C.F.A.
Title: Vice President
By: /s/ TOM AUSFAHL
---------------------------------------
Name: TOM AUSFAHL
Title: VICE PRESIDENT
<PAGE>
NATIONAL AUSTRALIA BANK LIMITED,
NEW YORK BRANCH
ACN004044937
as Lender
By: /s/ TOM KILFOYLE
---------------------------------
Name: Tom Kilfoyle
Title: Vice President
<PAGE>
NORDDEUTSCHE LANDESBANK GIROZENTRALE
NEW YORK BRANCH and/or
CAYMAN ISLANDS BRANCH,
as Lender
By: /s/ STEPHANIE FINNEN
---------------------------------
Name: Stephanie Finnen
Title: VP
By: /s/ STEPHEN K. HUNTER
---------------------------------
Name: Stephen K. Hunter
Title: SVP
<PAGE>
I. $400 MILLION CREDIT AGREEMENT
A. OPERATIVE DOCUMENTS:
1. Credit Agreement
ANNEX I Commitments
ANNEX II Lenders' Addresses
ANNEX III Subsidiaries
EXHIBIT A-1 Form of Notice of Borrowing
EXHIBIT A-2 Form of Notice of Competitive Bid Borrowing
EXHIBIT B-l Form of Revolving Note
EXHIBIT B-2 Form of Competitive Bid Note
EXHIBIT C Form of Section 3.04 Certificate
EXHIBIT D Form of Opinion of General Counsel to Borrowers
EXHIBIT E Form of Officers' Certificate
EXHIBIT F Form of Guarantee Insurance Policy
EXHIBIT G Form of Assignment Agreement
EXHIBIT H Form of Commitment Assumption Agreement
EXHIBIT I Form of DB Assumption Agreement
EXHIBIT J Form of Lender's Opinion
EXHIBIT K Form of Opinion of Designated Borrower's Counsel
EXHIBIT L Form of Opinion of Counsel to Corp.
<PAGE>
ANNEX I
COMMITMENTS
Lender Commitment
------ ----------
Deutsche Bank AG, New York
Branch $59,800,000
The First National Bank of Chicago $56,700,000
Fleet National Bank $56,700,000
Banca Monte Dei Paschi Di Siena
Spa $50,000,000
Bank of Montreal $33,300,000
Chase Manhattan Bank $33,300,000
Bank of America National Trust &
Savings Association $26,700,000
Banca Commerciale Italiana $16,700,000
Banco Santander S.A., New York
Branch $16,700,000
Commerzbank AG, New York
Branch $16,700,000
National Australia Bank Limited,
New York Branch ACN
004044937 $16,700,000
Norddeutsche Landesbank
Girozentrale, New York Branch
and/or Cayman Islands Branch $16,700,000
Total: $400,000,000
(i)
<PAGE>
ANNEX II
LENDER ADDRESSES
Deutsche Bank AG, 31 West 52nd Street, 23rd Floor
New York Branch New York, NY 10019
Attn.: John S. McGill
Tel: (212) 469-8666
Fax: (212) 469-8366
The First National Bank of Chicago 153 West 51st Street
New York, NY 10019
Attn: Luisa Pashinan
Tel: (212) 373-1169
Fax: (212) 373-1439
Fleet National Bank 777 Main Street CTMO 0250
Hartford, CT 06115-2001
Attn: Elizabeth B. Shelley
Tel: (860) 986-3127
Fax: (960) 986-1264
Banca Commerciale Italiana, New York Branch One William Street
New York, NY 10004
Attn: Karen Purelis
Tel: (212) 607-3868
Fax: (212) 809-2124
Banca Monte Dei Paschi Di Siena Spa 55 East 59th Street
New York, NY 10022
Attn: Brian Landy
Tel: (212) 891-3655
Fax: (212) 891-3661
Banco Santander S.A., New York Branch 45 East 53rd Street
New York, NY 10022
Attn: Ligia Castro
Tel: (212) 350-3640
Fax: (212) 350-3690
(i)
<PAGE>
Bank of America, National Trust & Savings 231 South LaSalle Street
Association Chicago, IL 60697
Attn: Elizabeth Bishop
Tel: (312) 828-6550
Fax: (312) 987-0889
Bank of Montreal 115 South LaSalle Street
Floor 12
Chicago, IL 60603
Attn: Charles W. Reed
Tel: (312) 750-5912
Fax: (312) 845-2199
Chase Manhattan Bank 270 Park Avenue
New York, NY 10017
Attn: Helen Newcomb
Tel: (212) 270-6260
Fax: (212) 270-0670
Commerzbank AG, New York Branch 2 World Financial Center
New York, NY 10281-1050
Attn: Edward McDonnell III
Tel: (212) 266-7607
Fax: (212) 266-7629
National Australia Bank Limited, New York 200 Park Avenue, Floor 34
Branch ACN 004044937 New York, NY 10166
Attn: Thomas F. Kilfoyle
Tel: (212) 916-9510
Fax: (212) 983-1969
Norddeutsche Landesbank 1270 Avenue of the Americas
Girozentrale, New York New York, NY 10020
Branch and/or Cayman Islands Branch Attn: Stephanie Finnen
Tel: (212) 332-8606
Fax: (212) 332-8660
(ii)
<PAGE>
ANNEX III
SUBSIDIARIES
MBIA INSURANCE CORPORATION (NEW YORK)
MUNICIPAL ISSUERS SERVICE CORPORATION (NEW YORK)
MBIA & ASSOCIATES CONSULTING, INC. (DELAWARE)
MBIA MUNISERVICES COMPANY (DELAWARE)
MUNI RESOURCES, LLC (DELAWARE)
MBIA INVESTMENT MANAGEMENT CORP. (DELAWARE)
MBIA MUNICIPAL INVESTORS SERVICE CORPORATION (DELAWARE)
MBIA CAPITAL MANAGEMENT CORP. (DELAWARE)
MBIA CAPITAL CORP. (DELAWARE)
MBIA-AMBAC INTERNATIONAL MARKETING SERVICES, PTY., LIMITED
(AUSTRALIA)
CAPMAC HOLDINGS INC. (DELAWARE)
MBIA ASSET MANAGEMENT CORPORATION (DELAWARE)
1838 INVESTMENT ADVISORS, INC. (DELAWARE)
(i)
<PAGE>
EXHIBIT A-1
NOTICE OF BORROWING
[Date]
Deutsche Bank AG, New York Branch, as Administrative Agent
for the Lenders parties to the
Credit Agreement referred to below
31 West 52nd Street
New York, New York 10019
Attention:
Gentlemen:
The undersigned, [Name of Borrower], refers to the Credit Agreement, dated
as of August 28, 1998 (as amended from time to time, the "Credit Agreement," the
terms defined therein being used herein as therein defined), among the
undersigned, the other Borrowers, certain Lenders parties thereto, Fleet
National Bank, as Documentation Agent, The First National Bank of Chicago, as
Syndication Agent and you, as Administrative Agent for such Lenders, and hereby
gives you notice, irrevocably, pursuant to Section 1.03 of the Credit Agreement,
that the undersigned hereby requests a Borrowing of Revolving Loans under the
Credit Agreement, and in that connection sets forth below the information
relating to such Borrowing (the "Proposed Borrowing") as required by Section
1.03 of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is ______________,
19__.
(ii) The aggregate principal amount of the Proposed Borrowing is
[______________________](1)
(iii) The Proposed Borrowing is to consist of [Base Rate Loans]
[Eurodollar Loans].
[(iv) The initial Interest Period for the Proposed Borrowing is _____
[months] [days]](2)
- ----------
(1) Such amount to be stated in the applicable Approved Currency (provided that
in all cases, Base Rate Loans shall be Dollar-denominated).
<PAGE>
EXHIBIT A-1
Page 2
[(iv) The initial Interest Period for the Proposed Borrowing is __
[months] [days]]2
[(v) The Approved Currency is _______________________](3)
[(vi) The DB Loan Maturity Date is _________________](4)
The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the date of the Proposed Borrowing:
(A) the representations and warranties contained in Section 5 of the
Credit Agreement are true and correct in all material respects, before and
after giving effect to the Proposed Borrowing and to the application of the
proceeds thereof, as though made on and as of such date; and
(B) no Default or Event of Default has occurred and is continuing, or
would result from such Proposed Borrowing or from the application of the
proceeds thereof.
Very truly yours,
[NAME OF BORROWER]
- ----------
(2) To be included for a Proposed Borrowing of Eurodollar Loans.
(3) To be included for a Proposed Borrowing of Alternate Currency Loans in the
case of Eurodollar Loans only.
(4) To be included for a Proposed Borrowing of DB Loans.
<PAGE>
EXHIBIT A-1
Page 3
By __________________________________
Title:
<PAGE>
EXHIBIT A-2
NOTICE OF COMPETITIVE BID BORROWING
[Date]
Deutsche Bank AG, New York Branch, as Administrative Agent
for the Lenders parties to the
Credit Agreement referred to below
31 West 52nd Street
New York, New York 10019
Attention:
Gentlemen:
The undersigned, [Name of Borrower], refers to the Credit Agreement, dated
as of August 28, 1998 (as amended from time to time, the "Credit Agreement," the
terms defined therein being used herein as therein defined), among the
undersigned, the other Borrowers, certain Lenders parties thereto, Fleet
National Bank, as Documentation Agent, The First National Bank of Chicago, as
Syndication Agent and you, as Administrative Agent for such Lenders, and hereby
gives you notice, pursuant to Section 1.04 of the Credit Agreement, that the
undersigned hereby requests a Borrowing of Competitive Bid Loans under the
Credit Agreement, and in that connection sets forth below the information
relating to such Borrowing (the "Proposed Borrowing") as required by Section
1.04 of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is
________________,19__.
(ii) The aggregate principal amount of the Proposed Borrowing is
$_________________.
(iii) The maturity date for repayment of the Proposed Borrowing is
______________, 19__.
(iv) The interest payment date[s] of the Proposed Borrowing is [are]
(v) The Proposed Borrowing is to consist of a [Absolute Rate
Borrowings] [Spread Borrowings].
<PAGE>
EXHIBIT A-2
Page 2
[(vi) The Interest Rate Basis for the Proposed Borrowing is
___________.](1)
[(vi)] The Alternate Currency is _________.](2)
[(vi) [Other applicable terms]](3)
The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the date of the Proposed Borrowing:
(A) the representations and warranties contained in Section 5 of the
Credit Agreement are true and correct in all material respects, before and
after giving effect to the Proposed Borrowing and to the application of the
proceeds thereof, as result from such Proposed Borrowing made on and as of
such date; and
(B) no Default or Event of Default has occurred and is continuing, or
would result from such Proposed Borrowing or from the application of the
proceeds thereof.
- ----------
(1) To be included for a Spread Borrowing.
(2) To be included for Alternate Currency Loan.
(3) To be included, as needed.
<PAGE>
EXHIBIT A-2
Page 3
Very truly yours,
[NAME OF BORROWER]
By __________________________
Title:
<PAGE>
EXHIBIT B-1
FORM OF REVOLVING NOTE
New York, New York
__________ __,1998
FOR VALUE RECEIVED, [NAME OF BORROWER], a corporation organized and
existing under the laws of the State of [______________________] (the
"Borrower"), hereby promises to pay to ________________ or its registered
assigns (the "Lender"), in lawful money of the United States of America or the
respective Approved Currency (as defined in the Agreement referred to below), as
the case may be, in immediately available funds, at the office of DEUTSCHE BANK
AG, NEW YORK BRANCH (the "Administrative Agent") located at 31 West 52nd Street,
New York, New York 10019 on the Final Maturity Date (as defined in the
Agreement) the unpaid principal amount of all Revolving Loans (as defined in the
Agreement) made by the Lender to the Borrower pursuant to the Agreement.
The Borrower promises also to pay interest on the unpaid principal amount
of each Revolving Loan incurred by the Borrower in like money at said office
from the date such Revolving Loan is made until paid at the rates and at the
times provided in the Agreement.
This Note is one of the Revolving Notes referred to in the Credit
Agreement, dated as of August 28, 1998, among the Borrower, [MBIA Inc.] [MBIA
Insurance Corporation], various Designated Borrowers, the Lender, the other
financial. institutions party thereto, Fleet National Bank, as Documentation
Agent, The First National Bank of Chicago, as Syndication Agent and Deutsche
Bank AG, New York Branch, as Administrative Agent (as from time to time in
effect, the "Agreement") and is entitled to the benefits thereof As provided in
the Agreement, this Note is subject to voluntary and mandatory prepayment, in
whole or in part, and Revolving Loans may be converted in accordance with
Section 1.07 of the Agreement.
In case an Event of Default [under Section 8.01(q)](1) (as defined in the
Agreement) shall occur and be continuing, the principal of and accrued interest
on this Note may be declared to be due and payable in the manner and with the
effect provided in the Agreement.
The Borrower hereby waives presentment, demand, protest or notice of any
kind in connection with this Note.
- ----------
(1) Include in Revolving Notes executed by Designated Borrowers only.
<PAGE>
EXHIBIT B-1
Page 2
This Note shall be construed in accordance with and be governed by the law
of the State of New York,
[NAME OF BORROWER]
By ___________________________
Title:
<PAGE>
EXHIBIT B-2
FORM OF COMPETITIVE BID NOTE
New York, New York
______________ __,1998
FOR VALUE RECEIVED, [NAME OF BORROWER], a corporation organized and
existing under the laws of the State of [________________] (the "Borrower"),
hereby promises to pay to _____________________ or its registered assigns (the
"Lender"), in lawful money of the United States of America or the respective
Alternate Currency (as defined in the Agreement referred to below), as the case
may be, in immediately available funds, at the office of DEUTSCHE BANK AG, NEW
YORK BRANCH (the "Administrative Agent") located at 31 West 52nd Street, New
York, New York 10019 on the Final Maturity Date (as defined in the Agreement),
the unpaid principal amount of all Competitive Bid Loans (as defined in the
Agreement) made by the Lender to the Borrower pursuant to the Agreement.
The Borrower promises also to pay interest on the unpaid principal amount
of each Competitive Bid Loan incurred by the Borrower in like money at said
office from the date such Competitive Bid Loan is made until paid at the rates
and at the times provided in the Agreement.
This Note is one of the Competitive Bid Notes referred to in the Credit
Agreement, dated as of August 28, 1998, among the Borrower, [MBIA Inc.] [MBIA
Insurance Corporation], various Designated Borrowers, the Lender, the other
financial institutions party thereto, Fleet National Bank, as Documentation
Agent, The First National Bank of Chicago, as Syndication Agent and Deutsche
Bank AG, New York Branch, as Administrative Agent (as from time to time in
effect, the "Agreement") and is entitled to the benefits thereof. As provided in
the Agreement, this Note is subject to mandatory prepayment, in whole or in
part.
In case an Event of Default [under Section 8.01 (q)](1) (as defined in the
Agreement) shall occur and be continuing, the principal of and accrued interest
on this Note may be declared to be due and payable in the manner and with the
effect provided in the Agreement.
The Borrower hereby waives presentment, demand, protest or notice of any
kind in connection with this Note.
This Note shall be construed in accordance with and be governed by the law
of the State of New York.
- ----------
(1) Include in Competitive Bid Notes executed by Designated Borrowers only.
<PAGE>
EXHIBIT B-2
Page 2
[NAME OF BORROWER]
By _________________________________
Title:
<PAGE>
EXHIBIT C
FORM OF SECTION 3.04 CERTIFICATE
Reference is hereby made to the Credit Agreement, dated as of
August 28, 1998, among MBIA Inc., MBIA Insurance Corporation, various Designated
Borrowers from time to time, the financial institutions from time to time party
thereto, Fleet National Bank, as Documentation Agent, The First National Bank of
Chicago, as Syndication Agent and Deutsche Bank AG, New York Branch, as
Administrative Agent (as amended, modified or supplemented from time to time,
the "Credit Agreement"). Pursuant to the provisions of Section 3.04 of the
Credit Agreement, the undersigned hereby certifies that it is not a "bank" as
such term is used in Section 881(c)(3)(A) of the Internal Revenue Code of 1986,
as amended.
[NAME OF BANK]
By ______________________________
Title:
Date: _______________, ____
<PAGE>
EXHIBIT D
[FORM OF OPINION OF GENERAL COUNSEL TO BORROWERS]
[Date]
To the Lenders and the Administrative
Agent Referred to Below
c/o Deutsche Bank AG, New York Branch
as Administrative Agent
31 West 52nd Street
New York, NY 10019
Re: $400,000,000 Credit Agreement dated
as of August 28, 1998, among MBIA
Inc., MBIA Insurance Corporation,
various Designated Borrowers from
time to time party thereto, Fleet
National Bank, as Documentation
Agent, The First National Bank of
Chicago, as Syndication Agent,
Deutsche Bank AG, New York Branch,
as Administrative Agent and the
other Lenders signatory thereto
Ladies and Gentlemen:
I am General Counsel of MBIA Inc., a Connecticut corporation ("MBIA") and
MBIA Insurance Corporation, a New York stock insurance corporation ("MBIA
Corp."). This opinion is being given in connection with the Credit Agreement,
dated as of August 28, 1998 (the "Credit Agreement"), among MBIA, MBIA Corp.,
various Designated Borrowers from time to time party thereto, Fleet National
Bank, as Documentation Agent, The First National Bank of Chicago, as Syndication
Agent, Deutsche Bank AG, New York Branch, as Administrative Agent and the other
Lenders signatory thereto. All capitalized terms used herein and not otherwise
defined shall have the respective meanings assigned thereto in the Credit
Agreement.
In this connection, I have examined the Credit Agreement, the Notes and
such certificates of public officials, such certificates of officers of MBIA and
MBIA Corp., and copies certified to my satisfaction of such corporate documents
and records of MBIA and MBIA Corp. and of such other papers as I have deemed
relevant and necessary or appropriate for the opinions set forth below. I have
relied upon certificates of public officials and of officers of MBIA and MBIA
Corp. with respect to the accuracy of factual matters contained therein which
were not independently established.
I have also assumed (i) the due execution and delivery, pursuant to due
authorization, of the Credit Agreement by the Administrative Agent and the
Lenders, (ii) the authenticity of all such documents submitted to me as
originals, (iii) the genuineness of all signatures, and (iv) the conformity of
all such documents submitted to me as copies.
Based upon the foregoing, it is my opinion that:
<PAGE>
EXHIBIT D
Page 2
(1) MBIA is a corporation duly organized and validly existing and in good
standing under the laws of the State of Connecticut, MBIA Corp. is a stock
insurance corporation duly incorporated and validly existing in good standing
under the laws of the State of New York and each has the corporate power
required to carry on their businesses as now being conducted.
(2) The execution, delivery and performance by MBIA and MBIA Corp. of the
Credit Agreement and the Notes (i) are within the corporate powers of MBIA and
MBIA Corp., (ii) have been duly authorized by all necessary corporate action,
(iii) require no action by or in respect of, or filing with, any governmental
body, agency or official, (iv) do not (A) contravene, or constitute a default
under, any provision of applicable law or regulation or of any agreement,
judgment, injunction, order, decree or other instrument which to my knowledge is
binding upon MBIA and MBIA Corp., or (B) in the case of MBIA, violate any
provision of its Amended and Restated Certificate of Incorporation or By-laws,
and in the case of MBIA Corp., violate any provision of its Restated Charter or
By-laws, and (v) to the best of my knowledge, do not result in the creation or
imposition of any Lien on any asset of MBIA, MBIA Corp. or any of their
Subsidiaries.
(3) The Credit Agreement and the Notes are valid and binding obligations of
MBIA and MBIA Corp., enforceable in accordance with their respective terms,
except that such enforceability may be limited by laws relating to bankruptcy,
insolvency, reorganization, moratorium, receivership and other similar laws
affecting creditors rights generally and by general principles of equity, and
the enforceability as to rights to indemnity thereunder may be subject to
limitations of public policy.
(4) To the best of my knowledge, there is no action, suit or proceeding
before or by any court, arbitrator or any governmental body, agency or official
pending or threatened against MBIA or MBIA Corp. or their Consolidated
Subsidiaries wherein an adverse decision, ruling or finding would (i) materially
and adversely affect the business, consolidated financial position or
consolidated results of operations of MBIA, MBIA Corp. and their Consolidated
Subsidiaries, considered as a whole, or (ii) affect the validity or
enforceability of the Credit Agreement and the Notes.
(5) Each Subsidiary of MBIA and MBIA Corp. is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
(6) Neither MBIA nor MBIA Corp. is an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(7) Neither MBIA, MBIA Corp. nor any of their Subsidiaries is a "holding
company", or a "subsidiary company" of a "holding company", or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company", as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended.
<PAGE>
EXHIBIT D
Page 3
(8) To the best of my knowledge, no governmental consents, approvals,
authorizations, registrations, declarations or filings are required for the
execution and delivery of the Credit Agreement and the Notes on behalf of MBIA
or MBIA Corp. or the consummation of the transaction as provided in the Credit
Agreement and the Notes.
This opinion is delivered to you in connection with the transaction
referenced above and may only be relied upon by you or any assignee under the
Credit Agreement, and may not be circulated, quoted or otherwise referred to
except in connection with the transactions referenced above without my prior
written consent.
Very truly yours,
Louis G. Lenzi
General Counsel
<PAGE>
EXHIBIT E
[NAME OF BORROWER]
Officers' Certificate
I, the undersigned, [President/Vice-President] of [NAME OF BORROWER], a
corporation organized and existing under the laws of the State of
[______________] (the "Borrower"), DO HEREBY CERTIFY that:
1. This Certificate is furnished pursuant to Section 4.01(c) of the
Credit Agreement, dated as of August 28, 1998 among the Borrower, [MBIA
Inc.] [MBIA Insurance Corporation], the Lenders party thereto, Fleet
National Bank, as Documentation Agent, The First National Bank of Chicago,
as Syndication Agent and Deutsche Bank AG, New York Branch, as
Administrative Agent (such Credit Agreement, as in effect on the date of
this Certificate, being herein called the "Credit Agreement"). Unless
otherwise defined herein capitalized terms used in this Certificate have
the meanings assigned to those terms in the Credit Agreement.
2. The persons named below have been duty elected, have duly qualified
as and at all times since , 19_(1) (to and including and date hereto have
been officers of the Borrower, holding the respective offices below set
opposite their names, and the signatures below set opposite their names are
their genuine signatures.
Name(2) Office Signature
------------------ ------------------ --------------------
------------------ ------------------ --------------------
------------------ ------------------ --------------------
3. Attached hereto as Exhibit A is a copy of the Certificate of
Incorporation of the Borrower as filed in the office of the Secretary of
State of [___________] on ,19__, together with all amendments thereto
adopted through the date hereof.
- ----------
(1) Insert a date prior to the time of any corporate action relating to the
Credit Agreement.
(2) Include name, office and signature of each officer who will sign any Credit
Document, including the officer who will sign the certification at the end
of this Certificate.
<PAGE>
EXHIBIT E
Page 2
4. Attached hereto as Exhibit B is a true and correct copy of the
By-Laws of the Borrower as in effect on ______________ __, 19__(3) together
with all amendments thereto adopted through the date hereof.
5. Attached hereto as Exhibit C is a true and correct copy of
resolutions duly adopted by [the unanimous written consent of] the Board of
Directors of the Borrower [at a meeting on __________________ __, 19_ , at
which a quorum was present and acting throughout], which resolutions have
not been revoked, modified, amended or rescinded and are still in full
force and effect. Except as attached hereto as Exhibit C, no resolutions
have been adopted by the Board of Directors of the Borrower which deal with
the execution, delivery or performance of any of the Credit Documents.
6. On the date hereof, the representations and warranties contained in
Section 5 of the Credit Agreement are true and correct in all material
respects.
7. On the date hereof, no Default or Event of Default has occurred and
is continuing.
8. I know of no proceeding for the dissolution or liquidation of the
Borrower or threatening its existence.
IN WITNESS WHEREOF, I have hereunto set my hand this day of __________,
19__.
[NAME OF BORROWER]
By ___________________________________
Name:
Title:
- ----------
(3) Insert same date as in paragraph 2 of this certificate.
<PAGE>
EXHIBIT E
Page 2
I, the undersigned, [Secretary/Assistant Secretary] of the Borrower, DO
HEREBY CERTIFY that:
1. [Insert name of Person making the above certifications] is the duly
elected and qualified of the Borrower and the signature above is his
genuine signature.
2. The certifications made by [name] in items 2, 3, 4 and 5 above are
true and correct.
3. I know of no proceeding for the dissolution or liquidation of the
Borrower or threatening its existence.
IN WITNESS WHEREOF, I have hereunto set my hand this _____ day of 19__.
[NAME OF BORROWER]
By ______________________________
Name:
Title:
<PAGE>
EXHIBIT F
FINANCIAL GUARANTY INSURANCE POLICY
MBIA Insurance Corporation
Armonk, New York, 10504
Policy No. _______
MBIA Insurance Corporation (the "Insurer"), for consideration received and
subject to the terms of this Policy, hereby unconditionally and irrevocably
guarantees to Deutsche Bank AG, New York Branch, as Administrative Agent (in
such capacity and together with its successors and assigns, the "Administrative
Agent") for the benefit of the financial institutions (the "Lenders") which are
parties from time to time to the Credit Agreement, dated as of August 28_, 1998
among MBIA Inc., the Insurer, various designated borrowers from time to time
parties thereto, the Lenders, Fleet National Bank, as Documentation Agent, The
First National Bank of Chicago, as Syndication Agent and the Administrative
Agent (as amended, modified or supplemented from time to time, the "Credit
Agreement") the full and complete payment required to be made by [Designated
Borrower] (the "Obligor") of an amount equal to (i) amounts due for payment from
the Obligor under the Credit Agreement as such payments shall become due but
shall not be so paid; and (ii) the reimbursement of any such payment which is
subsequently recovered from the Administrative Agent or the Lenders pursuant to
a final judgment by a court of competent jurisdiction that such payment
constitutes an avoidable preference within the meaning of any applicable
bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding
sentence shall be referred to herein collectively as the "Insured Amounts."
Upon receipt of telephonic or telegraphic notice, such notice subsequently
confirmed in writing by registered or certified mail, or upon receipt of written
notice by registered or certified mail, by the Insurer from the Administrative
Agent that the payment of an Insured Amount which is then due has not been made,
the Insurer by 2:00 p.m., New York Time, on the second Business Day after
receipt of notice of such nonpayment, will make a deposit of immediately
available funds in the currency or currencies in which such Insured Amount is
payable, in an account with the Administrative Agent sufficient for the payment
of any such Insured Amounts which are then due.
All notices, presentations and other communications made by the
Administrative Agent to the Insurer shall be made to the Insurer pursuant to
Section 1 1.03 of the Credit Agreement.
The Insurer shall be subrogated to the rights of the Administrative Agent
or the Lenders to receive payment from the Obligor under the Credit Agreement to
the extent of any payment by the Insurer hereunder.
The Insurer's obligation to make any payment required pursuant to this
Policy shall be made without the prior assertion of any defenses to payment
(including fraud in inducement or fact).
<PAGE>
EXHIBIT F
Page 2
The Insurer may not, in respect of a payment to be made hereunder, be
released from its obligations in any circumstance other than the full and
complete receipt by the Administrative Agent of the full amount payable
hereunder.
The Insurer hereby waives and agrees not to assert any and all rights to
require the Administrative Agent to make demand on or to proceed against any
person, party or security prior to demanding payment under this Policy.
Any service of process on the Insurer may be made to the Insurer at its
offices located at 113 King Street, Armonk, NY 10504 and such service of process
shall be valid and binding.
This policy is not covered by the Property/Casualty Insurance Security Fund
specified in Article 76 of the New York Insurance Law.
This policy is non-cancelable for any reason.
"Business Day" means any day which is not a Saturday or Sunday or a day on
which commercial banks in the State of New York or the Administrative Agent are
authorized to or required by law to be closed.
This Policy is to be governed by, and construed in accordance with, the
laws of the State of New York.
<PAGE>
EXHIBIT F
Page 3
IN WITNESS WHEREOF, the Insurer has caused this Policy to be executed in
facsimile on its behalf by its duly authorized officers, this ____ day of
_____________, _________.
MBIA INSURANCE CORPORATION
________________________________
President
Attest: ________________________________
Assistant Secretary
<PAGE>
EXHIBIT G
FORM OF ASSIGNMENT AGREEMENT
[DATE]
Reference is made to the Credit Agreement described in Item 2 of Annex I
annexed hereto (as such Credit Agreement may hereafter be amended, supplemented
or otherwise modified from time to time, the "Credit Agreement"). Unless defined
in Annex I attached hereto, terms defined in the Credit Agreement are used
herein as therein defined. _____________ (the "Assignor") and _____________ (the
"Assignee") hereby agree as follows:
1. The Assignor hereby sells and assigns to the Assignee without recourse
and without representation or warranty (other than as expressly provided
herein), and the Assignee hereby purchases and assumes from the Assignor, that
interest in and to all of the Assignor's rights and obligations under the Credit
Agreement which represents the percentage interest specified in Item 4 of Annex
I (the "Assigned Share") of the Total Commitment under the Credit Agreement,
including, without limitation, all rights and obligations with respect to the
Assigned Share of all outstanding Revolving Loans. After giving effect to such
sale and assignment, the Assignee's Commitment and the amount of the outstanding
Revolving Loans owing to the Assignee will be as set forth in Item 4 of Annex I.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or the other Credit Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit Agreement or the
other Credit Documents or any other instrument or document furnished pursuant
thereto; and (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of Parent or any of its
Subsidiaries or any Borrower or the performance or observance by the Borrowers,
of any of their obligations under the Credit Agreement or the other Credit
Documents or any other instrument or document furnished pursuant thereto.
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to therein
and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into this Assignment Agreement;
(ii) agrees that it will, independently and without reliance upon the
Administrative Agent, the Assignor or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Credit
Agreement; (iii) appoints and authorizes the Administrative Agent to take such
action as agent on its behalf and to exercise such
<PAGE>
EXHIBIT G
Page 2
powers under the Credit Agreement and the other Credit Documents as are
delegated to the Administrative Agent by the terms thereof, together with such
powers as are reasonably incidental thereto; and (iv) agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of the Credit Agreement are required to be performed by it as a Lender.
4. Following the execution of this Assignment Agreement by the Assignor and
the Assignee, an executed original hereof (together with all attachments) will
be delivered to the Administrative Agent and Parent. The effective date of this
Assignment Agreement shall be the date of execution hereof by the Assignor and
the Assignee, the receipt of the consent of Parent and the Administrative Agent
and receipt by the Administrative Agent of the administrative fee referred to in
Section 11.04(b) of the Credit Agreement, the receipt of Internal Revenue
Service Form 1001 or 4224 (as applicable) pursuant to Section 3.04(b)(i) of the
Credit Agreement and the opinion or opinions (as applicable) referred to in
Section 11.02 of the Credit Agreement, or such later date as specified in Item 5
of Annex I hereto (the "Settlement Date").
5. Upon the delivery of a fully executed original hereof to the
Administrative Agent, as of the Settlement Date, (i) the Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Assignment
Agreement, have the rights and obligations of a Lender thereunder and (ii) the
Assignor shall, to the extent provided in this Assignment Agreement, relinquish
its rights and be released from its obligations under the Credit Agreement,
6. It is agreed that the Assignee shall be entitled to (x) all interest on
the Assigned Share of the Revolving Loans at the rates specified in Item 6 of
Annex I, and (y) all Facility Fees on the Assigned Share of the Commitment at
the rate specified in Item 7 of Annex I; which, in each case, accrue on and
after the Settlement Date, such interest and, if applicable, Facility Fees to be
paid by the Administrative Agent directly to the Assignee. It is further agreed
that all payments of principal made on the Assigned Share of the Revolving Loans
which occur on and after the Settlement Date will be paid directly by the
Administrative Agent to the Assignee. Upon the Settlement Date, the Assignee
shall pay to the Assignor an amount specified by the Assignor in writing which
represents the Assigned Share of the principal amount of the Revolving Loans
made by the Assignor pursuant to the Credit Agreement which are outstanding on
the Settlement Date, net of any closing costs, and which are being assigned
hereunder. The Assignor and the Assignee shall make all appropriate adjustments
in payments under the Credit Agreement for periods prior to the Settlement Date
directly between themselves on the Settlement Date.
7. THIS ASSIGNMENT AND ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
EXHIBIT G
Page 3
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written, such execution also being made
on Annex I hereto.
Accepted this ________ day [NAME OF ASSIGNOR],
of___________,___________ as Assignor
By ______________________________
Title:
[NAME OF ASSIGNEE],
as Assignee
By ______________________________
Title:
Acknowledged and Agreed:
MBIA INC.
By______________________________
Title:
MBIA INSURANCE CORPORATION
By______________________________
Title:
DEUTSCHE BANK AG, NEW YORK BRANCH,
as Administrative Agent
By______________________________
Title:
<PAGE>
EXHIBIT G
Page 4
By______________________________
Title:
<PAGE>
EXHIBIT H
FORM OF COMMITMENT ASSUMPTION AGREEMENT
[Letterhead of Lender]
[DATE]
MBIA Inc.
MBIA Insurance Corporation
885 Third Avenue
New York, New York 10022
Deutsche Bank AG, New York
Branch, as Administrative Agent
31 West 52nd Street
New York, New York 10019
re Additional Commitment
Ladies and Gentlemen:
Reference is hereby made to the Credit Agreement, dated as of August 28,
1998 (as amended, modified or supplemented from time to time, the "Credit
Agreement"), among MBIA Inc. ("Parent"), MBIA Insurance Corporation ("Corp."),
various Designated Borrowers from time to time, various lending institutions
party thereto, Fleet National Bank, as Documentation Agent, The First National
Bank of Chicago, as Syndication Agent, and Deutsche Bank AG, New York Branch, as
Administrative Agent (the "Administrative Agent"). Unless otherwise defined
herein, capitalized terms used herein shall have the respective meanings set
forth in the Credit Agreement.
[We hereby agree to assume a Commitment under the Credit Agreement of
$___________ .] [We hereby agree to increase our Commitment under the Credit
Agreement from
<PAGE>
EXHIBIT H
Page 2
$___________ to $___________ .](1) This [assumption of] [increase in] our
Commitment shall be effective on the date this letter is accepted by you as
provided below.
[We (i) confirm that we have received a copy of the Credit Agreement and
the other Credit Documents, together with copies of the financial statements
referred to therein and such other documents and information as we have deemed
appropriate to make our own credit analysis and decision to enter into this
Commitment Assumption Agreement; (ii) agree that we will, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as we shall deem appropriate at the time,
continue to make our own credit decisions in taking or not taking action under
the Credit Agreement; (iii) appoint and authorize the Administrative Agent to
take such action as agent on our behalf and to exercise such powers under the
Credit Agreement and the other Credit Documents as are delegated to the
Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and (iv) agree that we will perform in accordance
with their terms all of the obligations which by the terms of the Credit
Agreement are required to be performed by us as a Lender. Upon the delivery of a
fully executed original hereof to the Administrative Agent, we shall be a party
to the Credit Agreement and, to the extent provided in this Commitment
Assumption Agreement, have the rights and obligations of a Lender thereunder and
under the other Credit Documents.](2)
You may accept this letter by signing the enclosed copies in the space
provided below, and returning one copy of same to us and delivering one copy of
same to the Administrative Agent before the close of business on
___________,___. If you do not so accept this letter, our Commitment shall be
deemed cancelled.
THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK AND MAY BE MODIFIED ONLY IN WRITING.
Very truly yours,
[NAME OF LENDER]
By:______________________
Title:
- ----------
(1) Insert the first sentence in the case of the assumption of a Commitment by
an institution not previously a Lender under the Credit Agreement. Insert
the second sentence in the case of an increase in the Commitment of a
Lender under the Credit Agreement.
(2) Insert bracketed language if the lending institution is not already a
Lender.
<PAGE>
EXHIBIT H
Page 3
Agreed and Accepted
this ____ day of___________,___________:
MBIA INC.
By:______________________________
Title:
MBIA INSURANCE CORPORATION
By:______________________________
Title:
<PAGE>
EXHIBIT I
FORM OF DB ASSUMPTION AGREEMENT
DB ASSUMPTION AGREEMENT (the "Agreement") dated as of ___________
,___________ , by ___________ ,a ___________ [corporation] (the "Company").
Unless otherwise defined herein, capitalized terms used herein and defined in
the Credit Agreement referred to below are used herein as so defined.
WITNESSETH:
WHEREAS, MBIA Inc. ("Parent"), MBIA Insurance Corporation ("Corp."),
various Designated Borrowers from time to time, various lending institutions
party thereto, Fleet National Bank, as Documentation Agent, The First National
Bank of Chicago, as Syndication Agent and Deutsche Bank AG, New York Branch, as
Administrative Agent, have entered into a Credit Agreement dated as of August
28, 1998 (as amended through the date hereof, the "Credit Agreement");
WHEREAS, pursuant to Section 1.17 of the Credit Agreement, Parent or Corp.
may designate one or more Persons as a Designated Borrower from time to time;
and
WHEREAS, [Parent] [Corp.] desires to designate the Company as a Designated
Borrower for purposes of the Credit Agreement;
WHEREAS, the Company desires to execute and deliver this Agreement in order
to become a party to the Credit Agreement as a Designated Borrower;
NOW, THEREFORE, IT IS AGREED:
1. Assumption. By executing and delivering this Agreement, the Company
hereby becomes a party to the Credit Agreement as a "Designated Borrower"
thereunder, and hereby expressly assumes all obligations and liabilities of a
"Designated Borrower" thereunder.
2. Representations, Warranties and Agreements. In order to induce the
Lenders to make Loans to the Company as provided in the Credit Agreement, the
Company hereby makes the following representations and warranties to, and
agreements with, the Lenders, all of which shall survive the execution and
delivery of this Agreement and the making of Loans to the Company:
(a) The Company is a special purpose entity duly organized, validly
existing and in good standing under the laws of the State of _____ , is duly
qualified to transact business in every jurisdiction where, by the nature of its
businesses, such qualification is
<PAGE>
EXHIBIT I
Page 2
necessary, and has all powers and all governmental licenses, authorizations,
consents and approvals required to carry on its businesses as now conducted.
(b) The execution, delivery and performance by the Company of this
Agreement and the other Credit Documents (i) are within the Company's corporate
powers, (ii) have been duly authorized by all necessary corporate or other
action, (iii) require no action by or in respect of, or filing with, any
governmental body, agency or official, (iv) do not contravene, or constitute a
default under, any provision of applicable law or regulation or of the
certificate of incorporation or by-laws or other organizational documents of the
Company or of any agreement, judgment, injunction, order, decree or other
instrument binding upon the Company or any of its Subsidiaries, and (v) do not
result in the creation or imposition of any Lien on any asset of the Company or
any of its Subsidiaries.
(c) This Agreement and the other Credit Documents constitute valid and
binding agreements of the Company enforceable in accordance with their terms,
provided that the enforceability hereof and thereof is subject in each case to
general principles of equity and to bankruptcy, insolvency and similar laws
affecting the enforcement of creditors' rights generally.
(d) There is no action, suit or proceeding pending, or to the knowledge of
the Company threatened, against or affecting the Company or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency or
official which is material in the context of the Company's business or which in
any manner draws into question the validity or enforceability of, or could
impair the ability of the Company to perform its obligations under, this
Agreement or any of the other Credit Documents.
(e) The Company is not an "investment company" within the meaning of the
Investment Company Act of I 940, as amended.
(O Neither the Company nor any of its Subsidiaries is a "holding company",
or a "subsidiary company" of a "holding company", or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company", as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended.
(g) All information heretofore furnished by the Company to the
Administrative Agent or any Lender for purposes of or in connection with this
Agreement or any transaction contemplated hereby is, and all such information
hereafter furnished by the Company to the Administrative Agent or any Lender
will be, true, accurate and complete in every material respect or based on
reasonable estimates on the date as of which such information is stated or
certified.
(h) Neither the Company nor any of its Subsidiaries are engaged
principally, or as one of its important activities, in the business of
purchasing or carrying any Margin Stock, and no part of the proceeds of any Loan
will be used to purchase or carrying any Margin Stock, or be used for any
purpose which violates, or which is inconsistent with, the provisions of
Regulation U or X.
<PAGE>
EXHIBIT I
Page 3
(i) After giving effect to the execution and delivery of the Credit
Documents and the making of the Loans under the Credit Agreement, the Company
will not be "insolvent," within the meaning of such term as used in O.C.G.A. ss.
18-2-22 or as defined in ss. 101 of Title 11 of the United States Code or
Section 2 of the Uniform Fraudulent Transfer Act, or any other applicable state
law pertaining to fraudulent transfers, as each may be amended from time to
time, or be unable to pay its debts generally as such debts become due or have
an unreasonably small capital to engage in any business or transaction, whether
current or contemplated.
j) The Company is not subject to any bankruptcy or insolvency proceeding of
the type referred to in Section 8.01(h) or (i) of the Credit Agreement.
2. Notes. The Company agrees to execute and deliver to the Administrative
Agent for the account of each Lender a Revolving Note and a Competitive Bid
Note.
3. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
4. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
EXHIBIT I
Page 4
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be duly
executed and delivered as of the date first above written.
[DESIGNATED BORROWER]
By______________________
Title:
ACKNOWLEDGED:
[MBIA INC.]
[MBIA INSURANCE CORPORATION]
By______________________
Title:
DEUTSCHE BANK AG, NEW YORK BRANCH
as Administrative Agent
By______________________
Title:
By______________________
Title:
<PAGE>
EXHIBIT J
[DOMESTIC BANK COUNSEL OPINION]
[DATE]
MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
MBIA Inc.
113 King Street
Armonk, NY 10504
Re: $400,000,000 Credit Agreement date as of
August 28, 1998, among MBIA Inc., MBIA
Insurance Corporation, various Designated
Borrowers from time to time party thereto,
Fleet National Bank, as Documentation Agent,
The First National Bank of Chicago, as
Syndication Agent, Deutsche Bank AG, New York
Branch, as Administrative Agent and other
Lenders signatory thereto
Ladies and Gentlemen:
We are counsel for______________________(the "Lender") and, as such, are
familiar with its Articles of Association and Bylaws. We are familiar with the
corporate action on the part of the Lender in connection with the execution and
delivery by the Lender of the above referenced Credit Agreement dated as of
August 28, 1998.
In connection with this opinion we have examined the Credit Agreement.
Furthermore, we have examined originals, or copies certified to our
satisfaction, of such agreements, documents, certificates and other statements
of government officials and officers of the Lender and other papers as deemed
relevant and necessary as a basis for such opinions. In such examination, we
have assumed the capacity of natural persons, the genuineness of all signatures
and the authenticity of all documents submitted to us as originals and the
conformity with the originals of all documents submitted to us as copies.
Based upon the examination described above, we are of the following opinions:
<PAGE>
EXHIBIT J
Page 2
(1) The Lender is a [National Banking Association] organized and in good
standing under the laws of the United States of America.
(2) The Lender has full corporate power and authority to enter into the
Credit Agreement and to perform and observe its obligations thereunder.
(3) No consent, approval, or authorization of, filing or registration with,
or notification of or other action with respect to, any governmental authority
of the [STATE] or of the United States is required in connection with the
execution, delivery, or performance of the Credit Agreement by the Lender.
(4) The Credit Agreement has been duly authorized, executed and delivered
by the Lender and is a valid and binding obligation of the Lender, enforceable
against the Lender in accordance with its terms except that enforceability may
be limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally, as such laws would apply in the event of the bankruptcy, insolvency,
reorganization or liquidation of, or other similar occurrence with respect to
the Lender or the event of any moratorium or similar occurrence affecting the
Lender.
Yours very truly,
<PAGE>
EXHIBIT J
Page 3
[FOREIGN BANK'S U.S. BRANCH U.S. COUNSEL OPINION]
[DATE]
MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
MBIA Inc.
113 King Street
Armonk, NY 10504
Re: $400,000,000 Credit Agreement date as of
August 28, 1998, among MBIA Inc., MBIA
Insurance Corporation, various Designated
Borrowers from time to time party thereto,
Fleet National Bank, as Documentation Agent,
The First National Bank of Chicago, as
Syndication Agent, Deutsche Bank AG, New York
Branch, as Administrative Agent and other
Lenders signatory thereto
Ladies and Gentlemen:
We have acted as counsel to [LENDER], a banking corporation organized under
the laws of [COUNTRY], acting through its [STATE] Branch [or Agency] in
connection with its execution and delivery of the above-referenced Credit
Agreement (the "Credit Agreement") dated as of August 28, 1998.
In connection with the opinions herein set forth, we have reviewed and
relied upon the opinion of [FOREIGN COUNSEL TO LENDER] dated [___________ ,
1998] with respect to the matters set forth therein. Furthermore, we have
examined agreements, certificates, documents and statements of government
officials and officers of [LENDER] as we have deemed relevant and necessary in
order to render the opinions set forth below. In our examination, we have
assumed the genuineness of all signatures and the authenticity of all documents
submitted to us as originals and conformity to original documents of all
documents submitted to us as certified or photostatic copies. As to various
questions of fact material in our opinions, we have relied upon certificates of
officers and representatives of [LENDER], except that we have made such
<PAGE>
EXHIBIT J
Page 4
independent investigations as in our judgment are necessary or appropriate to
enable us to render the opinions expressed below.
Based on the foregoing, it is our opinion that:
1. [LENDER] is authorized to operate as a [BRANCH/AGENCY] of a foreign
banking corporation under the laws of [STATE] or [UNITED STATES].
2. [LENDER] has the corporate power and authority to enter into the Credit
Agreement and to undertake the obligations set forth therein.
3. The Credit Agreement has been duly authorized, executed and delivered by
[LENDER] and constitutes the legal, valid and binding obligation of [LENDER]
enforceable against [LENDER] in accordance with its terms, except only as such
enforceability may be limited (a) by bankruptcy, insolvency, reorganization,
liquidation, moratorium or other similar laws affecting the enforcement of
creditors' rights in general as such laws would apply in the event of any
insolvency, reorganization, liquidation, moratorium or similar occurrence
affecting [LENDER] or (b) by equitable principles affecting [LENDER].
We are not admitted to practice law in [COUNTRY] and the foregoing opinion
is limited to the laws of the State of [STATE] and to applicable federal laws of
the United States of America.
Very truly yours,
<PAGE>
EXHIBIT J
Page 5
[FOREIGN BANK'S FOREIGN COUNSEL OPINION]
[DATE]
MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
MBIA Inc.
113 King Street
Armonk, NY 10504
Re: $400,000,000 Credit Agreement date as of
August 28, 1998, among MBIA Inc., MBIA
Insurance Corporation, various Designated
Borrowers from time to time party thereto,
Fleet National Bank, as Documentation Agent,
The First National Bank of Chicago, as
Syndication Agent, Deutsche Bank AG, New York
Branch, as Administrative Agent and other
Lenders signatory thereto
Ladies and Gentlemen:
We have acted as [COUNTRY] counsel to [LENDER] (the "Lender") in connection
with the execution and delivery through its [STATE] Branch/Agency of the
above-referenced Credit Agreement dated as of August 28, 1998 (the "Credit
Agreement"). Capitalized terms used in this opinion and not defined herein shall
have the meanings assigned in the Credit Agreement.
In connection with the opinions set forth herein, we have examined a copy
of the Credit Agreement. In addition, we have examined and relied on originals,
or copies certified or otherwise identified to our satisfaction, of such
corporate records of the Lender and such other instruments, agreements,
documents and other certificates of government officials, officers and
representatives of the Lender and such other persons, and we have made such
investigation of law and fact as we have deemed appropriate as a basis for the
opinions expressed below. In such examination we have assumed that the
signatures on all documents that we have examined are genuine.
We express no opinion herein as to the laws of any jurisdiction other than
to the laws of [COUNTRY].
<PAGE>
EXHIBIT J
Page 6
Based upon and subject to the foregoing, we are of the opinion that:
(1) The Lender is a banking corporation duly organized and existing under
the laws of the [COUNTRY], and has full power and authority to execute and
deliver the Credit Agreement through its [STATE] Branch/Agency and to perform
all of its obligations thereunder.
(2) The execution of the Credit Agreement by the Lender through its [STATE]
Branch has been duly authorized by all necessary corporate action of the Lender
in accordance with the laws of [COUNTRY] and, assuming due execution and
delivery, will constitute a legal, valid and binding obligation of the Lender,
enforceable under the laws of the [COUNTRY] against the Lender in accordance
with its terms, except as limited by (i) applicable bankruptcy, insolvency,
reorganization, liquidation, readjustment of debt, moratorium and similar laws
affecting creditors rights against the Lender from time to time in effect, as
the same may be applied in the event of bankruptcy, insolvency, reorganization,
liquidation, readjustment of debt or similar situation of the Lender or a
moratorium applicable to the Lender and (ii) general principles of equity
(regardless of whether enforcement in sought is a proceeding in equity or at
law).
(3) As of the date hereof, each of the following officers of the Lender's
[STATE] Branch/Agency are authorized to execute and deliver the Credit Agreement
for, in the name and on behalf of the Lender:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(4) The issuance, execution and delivery of the Credit Agreement do not
conflict with, or constitute a breach of or a default under, the [Articles,
Charter or Bylaws] of the Lender or any administrative regulation or decree of
or in [COUNTRY] to which the Lender is subject.
(5) With the exception of the approvals obtained or made as of the date
hereof, no approval, authorization, consent or other order of any governmental
or administrative agency or body is required under the laws of [COUNTRY] in
connection with the issuance, execution and delivery of the Credit Agreement, or
for the performance by the Lender of its obligations thereunder.
(6) The choice of laws of the State of to govern the Credit Agreement is
valid under the laws of [COUNTRY], provided that the application of such laws of
the State of [STATE] does not violate public order or good morals in [COUNTRY].
We have no reason to believe that the application of the laws of the State of
[STATE] to the Credit Agreement violates such public order or good morals in
[COUNTRY].
(7) A final and conclusive judgment rendered by the courts of the State of
[STATE] or the United States of America having jurisdiction over the Lender
(including the [STATE] Branch/Agency), which is not subject to appeal and is
enforceable in the United States of
<PAGE>
EXHIBIT J
Page 7
America, with respect to the obligations of the Lender under the Credit
Agreement, may be enforced against the Lender without a review of the merits,
provided that the following requirements of the [COUNTRY] Code of Civil
Procedure, which we consider to be material, are satisfied: (i) service of
complaint filed with the courts of the United States of America having
jurisdiction over the Lender (including the [STATE] Branch/Agency) was properly
effected on the Lender other than by means of public notice; (ii) reciprocity
continues to exist with respect to the recognition of final judgments of the
courts of [COUNTRY] by the courts of the State of [STATE] or the respective
federal court; and (iii) such final and conclusive judgment in the United States
of America is not contrary to the public order or good morals in [COUNTRY]. We
see no reason at present why a judgment based on the obligations of the Lender
set forth in the Credit Agreement would be contrary to the public order or good
morals in [COUNTRY].
(8) Under [COUNTRY] law, a Borrower under the Credit Agreement would
have the right to commence a direct action against the Lender in any court
having jurisdiction in [COUNTRY].
Very truly yours,
<PAGE>
EXHIBIT K
[FORM OF OPINION OF COUNSEL TO DESIGNATED BORROWER]
[Date]
To the Lenders and the Administrative
Agent Referred to Below
c/o Deutsche Bank AG, New York Branch
as Administrative Agent
31 West 52nd Street
New York, NY 10019
Re: $400,000,000 Credit Agreement dated as of
August 28, 1998 among MBIA Inc. ("MBIA"),
MBIA Insurance Corporation ("MBIA Corp."),
various Designated Borrowers from time to
time party thereto, Fleet National Bank, as
Documentation Agent, The First National Bank
of Chicago, as Syndication Agent, Deutsche
Bank AG, New York Branch, as Administrative
Agent and the other Lenders signatory thereto
Ladies and Gentlemen:
I am Counsel to [___________ ], a___________ [corporation] (the "Designated
Borrower"). This opinion is being given in connection with the Credit Agreement,
dated as of August 28, 1998 (the "Credit Agreement"), among MBIA, MBIA Corp.,
various Designated Borrowers from time to time party thereto, Fleet National
Bank, as Documentation Agent, The First National Bank of Chicago, as Syndication
Agent, Deutsche Bank AG, New York Branch, as Administrative Agent and the other
Lenders signatory thereto. All capitalized terms used herein and not otherwise
defined shall have the respective meanings assigned thereto in the Credit
Agreement.
In this connection, I have examined the Credit Agreement, the Notes and
such certificates of public officials, such certificates of officers of the
Designated Borrower, and copies certified to my satisfaction of such corporate
documents and records of the Designated Borrower and of such other papers as I
have deemed relevant and necessary or appropriate for the opinions set forth
below. I have relied upon certificates of public officials and of officers of
the Designated Borrower with respect to the accuracy of factual matters
contained therein which were not independently established.
I have also assumed (i) the due execution and delivery, pursuant to due
authorization, of the Credit Agreement by the Administrative Agent and the
Lenders, (ii) the authenticity of all such documents submitted to me as
originals, (iii) the genuineness of all signatures, and (iv) the conformity of
all such documents submitted to me as copies.
Based upon the foregoing, it is my opinion that:
<PAGE>
EXHIBIT K
Page 2
(1) The Designated Borrower is a [corporation] duly organized and validly
existing and in good standing under the laws of the State of [_____], and has
the corporate power required to carry on its business as now being conducted.
(2) The execution, delivery and performance by the Designated Borrower of
the Credit Agreement and the Notes (i) are within the corporate powers of the
Designated Borrower, (ii) have been duly authorized by all necessary corporate
action, (iii) require no action by or in respect of, or filing with, any
governmental body, agency or official, (iv) do not (A) contravene, or constitute
a default under, any provision of applicable law or regulation or of any
agreement, judgment, injunction, order, decree or other instrument which to my
knowledge is binding upon the Designated Borrower, or (B) violate any provision
of the Designated Borrower's Certificate of Incorporation or By-laws or other
constitutive document, as amended from time to time, and (v) to the best of my
knowledge, do not result in the creation or imposition of any Lien on any asset
of the Designated Borrower or any of its Subsidiaries.
(3) The Credit Agreement and the Notes are valid and binding obligations of
the Designated Borrower, enforceable in accordance with their respective terms,
except that such enforceability may be limited by laws relating to bankruptcy,
insolvency, reorganization, moratorium, receivership and other similar laws
affecting creditors rights generally and by general principles of equity, and
the enforceability as to rights to indemnity thereunder may be subject to
limitations of public policy.
(4) To the best of my knowledge, there is no action, suit or proceeding
before or by any court, arbitrator or any governmental body, agency or official
pending or threatened against the Designated Borrower or its Consolidated
Subsidiaries wherein an adverse decision, ruling or finding would (i) materially
and adversely affect the business, consolidated financial position or
consolidated results of operations of the Designated Borrower and its
Consolidated Subsidiaries, considered as a whole, or (ii) affect the validity or
enforceability of the Credit Agreement and the Notes.
(5) The Designated Borrower is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(6) Neither the Designated Borrower nor any of its Subsidiaries is a
"holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935, as amended.
(7) To the best of my knowledge, no governmental consents, approvals,
authorizations, registrations, declarations or filings are required for the
execution and delivery of the Credit Agreement and the Notes on behalf of the
Designated Borrower or the consummation of the transaction as provided in the
Credit Agreement and the Notes.
This opinion is delivered to you in connection with the transaction
referenced above and may only be relied upon by you or any assignee under the
Credit Agreement, and may
<PAGE>
EXHIBIT K
Page 3
not be circulated, quoted or otherwise referred to except in connection with the
transactions referenced above without my prior written consent.
Very truly yours,
<PAGE>
EXHIBIT L
[FORM OF OPINION OF MBIA INSURANCE CORPORATION]
___________,_____
[ADDRESSEE]
Ladies and Gentlemen:
I am Assistant General Counsel of MBIA Insurance Corporation (the "Corporation")
and have acted on behalf of the Corporation in connection with the issuance of
Financial Guaranty Insurance Policy No._ (the "Policy) relating to the
obligations of___________ under the___________ .
I am familiar with and have examined a copy of the Policy and such other
relevant documents as I have deemed necessary.
Based on the foregoing, I am of the following opinion:
1. The Corporation is a stock insurance corporation, duly incorporated
and validly existing under the laws of the State of New York and is
licensed and authorized to issue the Policy under the laws of the
State of New York.
2. The Policy has been duly executed and is a valid and binding
obligation of the Corporation enforceable in accordance with its terms
except that the enforcement of the Policy may be limited by laws
relating to the bankruptcy, insolvency, reorganization, moratorium,
receivership and other similar laws affecting creditors' rights
generally and by general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at
law).
Very truly yours,
<PAGE>
Generale Bank Additional $33 Million Commitment
New York Branch
September 3, 1998
MBIA Inc.
MBIA Insurance Corporation
885 Third Avenue
New York, NY 10022
Deutsche Bank AG, New York Branch
As Administrative Agent
31 West 52nd St.
New York, NY 10019
Re: Additional Commitment
Ladies and Gentlemen:
Reference is hereby made to the Credit Agreement, dated as of August 28, 1998 as
amended, modified or supplemented from time to time, the "Credit Agreement"),
among MBIA Inc. ("Parent"), MBIA Insurance Corporation ("Corp."), various
Designated Borrowers from time to time, various lending institutions party
thereto, Fleet National Bank, as Documentation Agent, The First National Bank of
Chicago, as Syndication Agent, and Deutsche Bank AG, New York Branch, as
Administrative Agent (the "Administrative Agent"). Unless otherwise defined
herein, capitalized terms used herein, capitalized terms used herein shall have
the respective meanings set forth in the Credit Agreement.
We hereby agree to assume a Commitment under the Credit Agreement of
$33,000,000. This assumption of our Commitment shall be effective on the date
this letter is accepted by you as provided below.
We (i) confirm that we have received a copy of the Credit Agreement and the
other Credit Documents, together with copies of the financial statements
referred to therein and such other documents and information as we have deemed
appropriate to make our own credit analysis and decision to enter into this
Commitment Assumption Agreement; (ii) agree that we will, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as we shall deem appropriate at the time,
continue to make our own credit decisions in taking or not taking action under
the Credit Agreement; (iii) appoint and authorize the Administrative Agent to
take such action as agent on our behalf and to exercise such powers under the
Credit Agreement and the other Credit Documents as are delegated to the
Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and (iv) agree that we will perform in accordance
with their terms all of the
<PAGE>
Generale Bank
New York Branch
obligations which by the terms of the Credit Agreement are required to be
performed by us as a Lender. Upon the delivery of a fully executed original
hereof to the Administrative Agent, we shall be a party to the Credit Agreement
and, to the extent provided in this Commitment Assumption Agreement, have the
rights and obligations of Lender thereunder and under the other Credit
Documents.
You may accept this letter by signing the enclosed copies in the space provided
below, and returning one copy of same to us and delivering one copy of same to
the Administrative Agent before the close of business on September 11, 1998. If
you do not so accept this letter, our Commitment shall be deemed cancelled.
THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK AND MAY BE MODIFIED ONLY IN WRITING.
Very truly yours,
Generale Bank, New York Branch
By: /s/ E. Matthews /s/ Hans Neukomm
-------------------------------- ----------------
Eddie Matthews Hans Neukomm
Senior Vice President General Manager
Agreed and Accepted this 10th day of September,1998.
MBIA Inc.
By: /s/ [ILLEGIBLE]
--------------------------------
Title: Managing Director & Controller
MBIA Insurance Corporation
By: /s/ [ILLEGIBLE]
--------------------------------
Title: Managing Director & Controller
RETIREMENT AND CONSULTING AGREEMENT
RETIREMENT AND CONSULTING AGREEMENT, dated as of January 7, 1999, by and
between MBIA INC., a Connecticut corporation (the "Company"), and David H.
Elliott ("Executive").
WHEREAS, Executive is currently serving as the Chairman of the Board of
Directors ("Chairman") and Chief Executive Officer of the Company;
WHEREAS, Executive has expressed his intention to retire from employment
with the Company;
WHEREAS, Executive has provided loyal and valuable service to the Company
and the Company recognizes Executive's significant contribution to the Company
and its shareholders;
WHEREAS, the Company believes that it is in its best interest to retain
access to the services of Executive; and
WHEREAS, Executive is willing to continue to provide services to the
Company on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of their mutual promises, the Company and
Executive agree as follows:
1. Resignation; Continuing Board Membership. Effective as of the date
hereof, Executive hereby resigns as Chief Executive Officer of the Company.
Executive shall remain as Chairman of the Board of Directors and an employee of
the Company ("Chairman") until the annual meeting of shareholders in 1999 (the
"Chairman Service Period"), and, effective at such time, he hereby resigns (i)
as Chairman, (ii) from employment with the Company and each of its subsidiaries
and affiliates and (iii) from each other officer or executive position held with
the Company and each directorship or officer or executive position held with
each of the Company's subsidiaries or affiliates. Subject to his continued
election by shareholders, Executive shall serve in the capacity as Chairman of
the Executive Committee, and as a member of the Board until the end of the
Consulting Period (as defined in Section 2 below) without compensation in
addition to that set forth herein.
<PAGE>
2. Consulting Services. During the period beginning on the first day
following the Chairman Service Period and continuing until the second
anniversary thereof (the "Consulting Period"), Executive shall provide to the
Company consulting services commensurate with his status and experience with
respect to such matters as shall be reasonably requested from time to time
including, without limitation, such assistance as the Board shall request in
writing with respect to the transition of authority to his successor as Chief
Executive Officer. Executive shall not, solely by virtue of the consulting
services provided hereunder, be considered to be an officer or employee of the
Company during the Consulting Period, and shall not have the power or authority
to contract in the name of or bind the Company, except as may be expressly
stated in a written delegation of such authority from the Board.
3. Compensation. Except to the extent expressly otherwise provided herein,
during the Chairman Service Period, Executive shall continue to be compensated
on the same terms and conditions as in effect immediately prior to the date
hereof. During the Consulting Period, the Company shall pay Executive an annual
fee equal to the annual rate of base salary payable to Executive as of January
1, 1999. Such fees shall be paid to Executive at the same time or times and in
the same number of installments as base salary is payable to the Company's
senior officers. In addition to the fees described in the immediately preceding
sentence, Executive shall be entitled to receive a bonus payment in respect of
each of calendar years 1999 and 2000, in an amount to be determined by the
Compensation and Organization Committee of the Board, but which shall in no
event be less with respect to either year than the total bonus earned by
Executive in respect of calendar year 1998 (as determined prior to any stock
discount factor). Any such bonus amount shall be paid to Executive at the same
time and subject to the same conditions upon which annual bonuses are payable to
the senior officers of the Company, except the entire bonus amount shall be paid
to Executive in cash with no portion payable or issuable in stock. The Company
shall also reimburse Executive for such reasonable travel, lodging and other
appropriate expenses incurred by Executive in the course or on account of
rendering any services during either the Chairman Service Period or the
Consulting Period upon submission of itemized reports consistent with good
business practices. Nothing in this Agreement shall be construed to preclude
Executive from receiving, in addition to the amounts payable hereunder, any
other fees or compensation to which he may be entitled as a non-employee member
of the Board.
4. Employee Programs. (a) Benefits Generally. Effective as of the end of
the Chairman Service Period, Executive's employment with the Company shall
voluntarily terminate. Except as otherwise expressly provided below, Executive's
continued participation in, or rights to receive compensation or other benefits
under, any of the Company's employee benefit plans, programs or arrangements
(including those
2
<PAGE>
plans, programs or arrangements available solely for the benefit of senior
executive officers) shall be governed by the terms and conditions of the
applicable plan, program or arrangement. Notwithstanding the immediately
preceding sentence, during the Consulting Period, Executive shall be eligible to
participate in the Company's medical and dental plans on the same terms and
conditions as though Executive had continued to be an employee of the Company
throughout such period. In the event that the Company cannot provide such
medical and dental coverage under the terms and conditions of any such plan, the
Company shall provide substantially the same coverage from another source,
including by providing such benefits on a self-insured basis. Following the end
of the Consulting Period, Executive shall receive the same medical and dental
coverage as is available under the Company's generally applicable retiree
medical and dental benefit programs.
(b) Stock Options. Notwithstanding anything else to the contrary contained
in this Agreement or any agreement issued under the 1987 Stock Option Plan (the
"1987 Plan"), to the extent that Executive holds any options granted pursuant to
the terms of the 1987 Plan that are not exercisable as of the date hereof, each
such option shall become exercisable at the same time and subject to the same
conditions as though Executive had continued in the employ of the Company during
the period over which any such option otherwise would have become exercisable;
provided that, all of Executive's options shall become fully exercisable without
any further action on the part of Executive or the Company on the last day of a
period of ten consecutive days on which a Share has traded at at least $90 at
any point during each such day (an "Acceleration Event"). Any options currently
held by Executive may, to the extent currently exercisable or to the extent they
become exercisable hereafter in accordance with the immediately preceding
sentence, be exercised until the earlier of December 31, 2005 (or, if a Change
of Control (as defined in the 1987 Plan) occurs during the Consulting Period,
until the fifth anniversary of the end of the Consulting Period) or the
expiration of the option; provided that, if an Acceleration Event occurs (and
regardless of whether it has the effect of accelerating the exercisability of
any of Executive's options), none of Executive's options may be exercised after
the second anniversary of the Acceleration Event. To the extent any option is
not exercised within the times set forth above, any such unexercised options
shall be forfeited. Except as otherwise expressly provided in this Section 4(b),
all of the terms and conditions of the 1987 Plan and the grants made thereunder
to Executive (including, without limitation, the expiration date of such
options) shall continue to be applicable. Executive will not be eligible for any
new option grants after December 31, 1998.
(c) Restricted Shares. Except as otherwise provided herein, any restricted
shares awarded to Executive shall become vested at the same time and subject to
the same conditions as though Executive had continued in the employ of the
Company
3
<PAGE>
during the period over which any such restricted shares would otherwise have
become vested. At the end of the Consulting Period, any restricted shares that
have not previously become vested shall be fully and immediately vested without
any further action by any person. Except as otherwise expressly provided in this
Section 4(c), all of the terms and conditions of the such restricted stock
grants made to Executive shall continue to be applicable. Executive will not be
eligible for any new restricted stock grants after December 31, 1998.
(d) Book Value Awards. The long-term incentive award based on adjusted book
value (an "ABV Award") made to Executive in 1997 shall be payable in accordance
with its terms as at the same time and subject to the same conditions as though
Executive had continued in the employ of the Company during the period over
which award would otherwise have been earned. The ABV Award made to Executive in
1998 shall be payable on a pro-rated basis as soon as practicable after the end
of the Consulting Period based on the Company's adjusted book value as
determined by the Company in good faith based on performance through April 30,
200 1. Except as otherwise expressly provided in this Section 4(d), all of the
terms and conditions of the such ABV Awards made to Executive shall continue to
be applicable. Executive will not be eligible for any new ABV Awards after
December 31, 1998.
5. Confidential Information. Without the prior written consent of the
Board, and except to the extent required by an order of a court having competent
jurisdiction or under subpoena from an appropriate government agency, Executive
shall not disclose to any third person any trade secrets, customer lists,
product development, marketing plans, sales plans, management organization,
operating policies and manuals, business plans, financial records, any
information related to any of the foregoing or other financial, commercial,
business or technical information related to the Company or any of its
subsidiaries unless such information has been previously disclosed to the public
by the Company or has become public knowledge other than by Executive's breach
of this Agreement.
6. Indemnity. The Company shall indemnify Executive for any claim arising
out of or in connection with Executive's service as a member of the Board, as an
officer or employee of the Company, as an officer or director of any of the
Company's subsidiaries or as a consultant pursuant to the terms of this
Agreement in the same manner and to the same extent as the Company or such
subsidiary, as the case may be, indemnifies its then current directors, officers
or employees, as the case may be.
7. Death of Executive. If Executive dies prior to the end of the Consulting
Period, the Company shall pay to Executive's legal representatives or benefici-
4
<PAGE>
aries designated by the Executive in writing, as a death benefit (which shall be
in addition to any life insurance or other death benefits otherwise available to
Executive), such amounts or such benefits as would have been paid or provided by
the Company to Executive under this Agreement (including the payouts described
above with respect to ABV Awards) had Executive continued to provide such
services for the term of this Agreement. Notwithstanding the foregoing, with
respect to (i) any stock options outstanding at the date of Executive's death
the provisions of the 1987 Stock Option Plan and any agreement thereunder shall
determine the rights of Executive and his beneficiaries thereunder and (ii) any
shares of restricted stock outstanding at the date of Executive's death, all
such shares shall vest immediately upon Executive's death.
8. Noncompetition. Executive agrees that, during the Chairman Service
Period and the Consulting Period, without the prior written consent of the
Company and/or its affiliates, (a) Executive will not be an owner, director,
employee, officer, consultant, broker, financier, or serve in any capacity
whatsoever in or for an entity that competes with the Company and (b) Executive
shall not either directly or indirectly direct business away from the Company.
9. Nonsolicitation. Executive agrees that, during the Chairman Service
Period and the Consulting Period, Executive will not hire or seek to hire
(whether on his own behalf or on behalf of some other person or entity) any
person who is at that time an employee of the Company and/or its affiliates.
Executive will not, directly or indirectly, induce or encourage any employee of
the Company and/or its affiliates to leave the Company and/or its affiliates'
employ.
10. Miscellaneous. This Agreement may only be amended by a written
instrument signed by the Company and Executive. This Agreement shall constitute
the entire agreement between the Company and Executive with respect to the
subject matter hereof. The obligations of the Company to Executive and the
covenants of Executive in favor of the Company shall survive the termination of
Executive's employment.
All cash payments to be made under this Agreement shall be made net of all
applicable income and employment taxes required to be withheld from such
payments. This Agreement may be executed in counterparts, each of which shall be
deemed an original but all of which together shall constitute one and the same
instrument. Any notices to be given and any payments to be made hereunder shall
be delivered in hand or sent by registered mail, return receipt requested, to
the respective party at the Company's headquarters or the address noted for
Executive on the Company's books and records or to such other address as either
such party shall direct by written notice given in accordance with this Section
10.
5
<PAGE>
11. Governing Law. This Agreement shall be governed by the laws of the
State of New York, without reference to the principles of conflicts of law.
IN WITNESS, WHEREOF, the parties have executed this Agreement effective as
of the day first written above.
MBIA INC.
By:/s/ Kevin D. Silva
-------------------------------
Title: S.V.P. Management Services
Witness:
- ---------------------------------
/s/ David H. Elliott
------------------------------
DAVID H. ELLIOTT
Witness:
- ----------------------------------
6
<PAGE>
SUMMARY RETIREMENT AND CONSULTING AGREEMENT
FOR DAVID H. ELLIOTT
o Mr. Elliott will resign as Chief Executive Officer and step down as
Chairman following the annual meeting of shareholders in 1999.
o Thereafter, in addition to his duties as Chairman of the Executive
Committee of the Board, Mr. Elliott will provide consulting services to the
Board for a period of two years, commencing May 1999, on matters suitable
for his attention.
o For his consulting services, he will receive base salary on a payroll cycle
basis for the 24 month consulting period at the annual rate effective on
May 1, 1999.
o A performance bonus will be paid at year end in year 1999 and 2000 in the
form of 100% cash at an amount subject to the Compensation and Organization
Committee's discretion but no less than the total bonus (cash plus stock)
earned in 1998 prior to any stock discount treatment.
o These consulting fees will be in addition to the compensation to which Mr.
Elliott is otherwise entitled for his service on the Board.
o Restricted shares issued in 1996 will become fully vested and payable on
December 31, 1999, in accordance with the grants three year natural vesting
schedule. Restricted shares issued in 1997 and 1998 will become fully
vested and payable upon the completion of the consulting period, prior to
the grants' four year vesting schedule.
o The adjusted book value per share (ABV) long-term incentive awarded in 1997
will be paid out in the usual course of business in early 2001. The
adjusted book value per share (ABV) long-term incentive awarded in 1998
will be prorated and paid out as cash in May 2001, based on the adjusted
book value on April 30, 2001.
o All stock options granted to Mr. Elliott, including the 1998 grant, will
continue to vest in accordance with the five year vesting schedule provided
under the stock option plan. All outstanding stock options must be
exercised by December 31, 2005, which is 24 months after the date that the
1998 grant becomes fully vested. Options that naturally expire at the end
of the ten year option term will not be extended. All outstanding stock
options will be forfeited after December 31, 2005.
o All outstanding options will immediately vest if during a period of ten
consecutive trading days, a share has traded at least $90.00 at any point
during each such trading day. Upon such an event, all outstanding options
must be exercised within 24 months from the last day of the ten consecutive
trading days. All outstanding stock options will be forfeited after the 24
month period.
o There will be no new restricted stock, stock option or ABV grants to Mr.
Elliott after December 31, 1998.
<PAGE>
o The terms and conditions of the Company's benefit programs, based upon his
voluntary termination status will govern participation in such benefit
plans. Notwithstanding the preceding sentence, during the consulting
period, Mr. Elliott shall be eligible to participate in the Company's
medical and dental plans on the same terms and conditions as though he had
continued to be an employee of the Company throughout the period. A summary
of MBIA benefit programs and participation opportunity during and after
consulting period follows:
<TABLE>
<CAPTION>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Benefit Program Consulting Period (May 1999-May 2001) Post-Consulting
- -------------------------------------------------------------------------------------------------------------
Medical & Dental Participation as an employee under current Participate in plans
cost sharing arrangements as a retiree under MBIA
retiree program
- -------------------------------------------------------------------------------------------------------------
Group Life Participation will cease under group plan, No benefit under
may convert group policy to individual group plan
policy
- -------------------------------------------------------------------------------------------------------------
Split Dollar Life MBIA premium contributions will continue (Same as Consulting Period)
until you reach age 65 (policy becomes
paid-up), at which time company contributions will
cease and company premiums paid (YTD) to policy
are returned to MBIA. You may then surrender
or retain your policy.
- -------------------------------------------------------------------------------------------------------------
Group Long- term Participation will cease as of May 1999 No benefit
Disability
- -------------------------------------------------------------------------------------------------------------
Executive Long-term Participation will cease as of May 1999 No benefit
Disability
- -------------------------------------------------------------------------------------------------------------
Health Care New contributions will cease; 90 days to No benefit
Reimbursement Account submit reimbursements
- -------------------------------------------------------------------------------------------------------------
401(k) and Accounts may be kept under MBIA (Same as Consulting Period)
Pension Plans program but no employee or company
contribution permitted (only interest
income on investments and transfer of
assets among funds)
1998 Pension The pension contribution for 1998 will be No further pension
Contribution credited to you in 1999 when the annual contributions
contribution is made company-wide.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
MBIA INC.
/s/ David H. Elliott
------------------------------
DAVID H. ELLIOTT
Witness:
/s/ [ILLEGIBLE]
- -----------------------------
02/10/99
MBIA
MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
914 765 3333
Fax: 914 765 3177
e-mail: [email protected]
David H. Elliott
Chairman
January 7, 1999
Joseph W. Brown, Jr.
2054 Evergreen Point Road
Bellevue, WA 98004
Dear Jay:
I am excited by the prospect of your joining MBIA and leading the senior
executive team and MBIA in the future. The members of the Board of Directors and
I are unanimous in our belief that you possess the skills, experience and
leadership characteristics required to help MBIA build our business. As such, I
am pleased to extend to you an offer of employment under the terms and
conditions outlined below:
I. Title, Department and Reporting Relationship - As Chief Executive Officer of
MBIA Inc. you will report directly to me, in my capacity as Chairman, as long as
I am Chairman, and thereafter will report solely and directly to the Board. It
is our mutual intention, and the intention of the Board, that you will be
appointed Chairman, in my place, no later than May 31, 1999.
II. Compensation - We have tailored a compensation program to reflect both your
responsibilities as CEO and our expectation of your future leadership of MBIA.
Your compensation package will include a base salary, performance bonus and
long-term incentive award, as well as the special one-time stock option grant
described below.
a) Base Salary - $62,500 monthly, which is an annualized base salary of
$750,000, not scheduled to be reviewed until December 31, 2003. Beginning in
2003, salary reviews for an increase will be conducted annually in accordance
with the policies of MBIA, with increases, if any, effective on January 1 of the
following year. Increases in your base salary will be a function of personal
performance in your position, MBIA's financial and operational performance and
other related factors as considered by the Compensation and Organization
Committee of the Board of Directors.
b) Performance Bonus Awards - Awards under this program are made in
December of each year. Bonus awards are made at MBIA's discretion; will be based
foremost upon MBIA's financial performance and upon performance factors that
will be established once per year; and will be paid to you, at your election, in
the form of restricted stock. You can expect your bonus for 1999 to be generally
in line with current CEO and competitive pay practices, with performance-based
adjustments as approved by the Compensation and Organization Committee of the
Board of Directors.
<PAGE>
MBIA 2
c) Long-Term Incentive Program - Given the responsibility that you will
assume and the contribution that we expect you to make to MBIA, you will be
eligible to participate in the MBIA Inc. Long-Term Incentive program. The
Program has three objectives: (i) to pay a long-term incentive award based on
your performance and on corporate performance and to closely align management's
and shareholders' interests; (ii) to link compensation to both stock performance
and financial results; and (iii) to reflect performance over an extended period
of time to recognize the long-term nature of MBIA's businesses. The Long-Term
Incentive Program divides the long-term incentive award equally into two
elements: market value stock options and a plan that is tied to the compound
growth in MBIA's adjusted book value ("ABV") (1) Growth in adjusted book value
is viewed as the primary long-term driver of MBIA's stock performance and will
reward participants for positive results even if the stock market does not fully
reflect this performance during a particular measurement period.
Awards under the Long-Term Incentive Program are based upon a formula that
is intended to create a future payout value. One half of the award is comprised
of stock options which are awarded annually and have a five-year vesting period
while the other one half is based upon adjusted book value and vests in three
years. The ABV award is also awarded annually. Grants under the Plan are
recommended to the Compensation and Organization Committee of the Board of
Directors annually and awarded in December of each year for performance in the
previous calendar year. You will be eligible to participate in the Plan for the
first time at the conclusion of the 1999 calendar year.
You can expect your long-term incentive award for 1999 to be generally in
line with current CEO and competitive pay practices, with performance-based
adjustments as approved by the Compensation and Organization Committee of the
MBIA Inc. Board of Directors.
d) One-Time Stock Option Grant - Given your senior executive role at MBIA,
you have agreed to purchase 160,000 shares of MBIA common stock no later than
February 8, 1999, either (i) from MBIA at a price equal to the closing market
price on January 6, 1999 or (ii) in the open market. Recognizing your current
ownership of 40,000 shares of common stock, excluding the 8,000 share units held
under MBIA's directors' plans, the purchase of the additional shares will bring
your total stock ownership level to 200,000 shares. In respect of such level of
ownership, you will receive a one-time special grant of 800,000 stock options
(four stock options for each of the 200,000 common shares
- --------------------------
(1) Adjusted Book Value is defined as reported shareholders' equity plus the
unearned premium reserve, the present value of installment premiums and the
future earnings (discounted) from non-insurance business, less related
expenses and taxes.
<PAGE>
MBIA 3
owned), in accordance with the stock option agreement attached hereto as Exhibit
A (the "Stock Option Agreement").
The exercise price with respect to each share subject to this special
option will be the closing market price of a share of common stock on January 6,
1999 ($67.875). This special one-time grant will expire at 11:59 p.m. on January
7, 2009 (or earlier in the event of termination of your employment in certain
circumstances) and will be exercisable, in whole or in part, and from time to
time, on or after the earlier to occur of (i) January 7, 2008 or (ii) the later
to occur of (1) January 7, 2002 and (2) the last day of a period of ten
consecutive Trading Days on which a Share has traded at least $90 at any point
during each such Trading Day, subject to exercise at an earlier date in the
event of certain terminations of employment, as provided in Section 5 of the
Stock Option Agreement. However, the special option shall not become
exercisable, and shall be forfeited, unless you beneficially own (within the
meaning of both Rule 13d-3 and Rule 16a-1 as currently promulgated by the
Securities and Exchange Commission under the Securities and Exchange Act of
1934, as amended) not later than the close of business on February 8, 1999, two
hundred thousand (200,000) shares of MBIA common stock and continuously own at
least such number of shares until the earlier to occur of a Change of Control
(as defined in the Stock Option Agreement) and January 7, 2004. Prior to the
occurrence of a Change of Control and on or after January 7, 2004, the special
option shall cease to be exercisable as to any shares as to which it has not
previously been exercised on the first date, if any, as of which you cease to
beneficially own at least the number of shares determined pursuant to the
following schedule:
- --------------------------------------------------------------------------------
On or after January 7, 2004 and 150,000 shares
prior to July 7, 2005
- --------------------------------------------------------------------------------
On or after July 7, 2005 and 100,000 shares
prior to January 7, 2007
- --------------------------------------------------------------------------------
On or after January 7, 2007 50,000 shares
- --------------------------------------------------------------------------------
Upon the occurrence of a Change of Control or any termination of your employment
with MBIA due to death, disability, retirement or termination by MBIA without
cause (constructively or otherwise, all as defined in the Stock Option
Agreement), there shall be no requirement that you continue to hold either any
shares of MBIA or the securities of any successor in interest to MBIA.
Your special option will also become exercisable in full upon the occurrence of
a Change of Control, except that, if the Change of Control occurs prior to
January 7, 2000 and unless the Compensation & Organization Committee of the
Board of Directors otherwise determines, only 50% of the shares subject to the
special option grant (i.e., 400,000 shares) will become exercisable upon the
occurrence of a Change of Control.
Any outstanding portion of this special option will also become exercisable in
full immediately upon your death or termination of employment due to disability,
or
<PAGE>
MBIA 4
termination by MBIA without cause (constructively or otherwise, all as defined
in the Stock Option Agreement).
This Option will be exercisable upon your retirement with respect to the sum of
(1) that number of Shares with respect to which it could have been exercised on
the date of your Retirement and (2) the Pro-Rata Percentage of any Shares as to
which it is not then exercisable. "Retirement" shall mean your voluntary
termination of employment after having completed at least five years of service
and having attained age 55. The "Pro Rata Percentage" is the percentage
determined by dividing (x) the number of months during the period of your actual
employment by (y) 108.
Your special option grant will be transferable by you, in whole or in part, to
any of your immediate family members (your parents, spouse, or the descendants
of any of the foregoing, including descendants by adoption) or to a trust,
partnership, limited liability company or other entity, the only beneficial
owners of which are you and/or one or more of such family members, The option
may also be transferred to a charity which is exempt from taxation under Section
501(c) of the Internal Revenue Code or a private foundation exempt from taxation
under Section 509 of the Code, so long as the charity or the foundation agrees
to any reasonable conditions MBIA may impose in order assure compliance with its
obligations under the Federal securities laws.
I have attached the Stock Option Agreement, which details the provisions
governing this grant. The terms set forth in such Stock Option Agreement shall
control in the event of any inconsistency between such agreement and this
letter.
III. Mission & Values - Provided for your review is MBIA's statement of mission
and values. Please familiarize yourself with MBIA's mission and values as they
should serve as a guide in accomplishing the goals of your job going forward.
IV. Benefits - You will receive benefits as outlined on the summary attached as
Exhibit B at a level, and on terms and conditions, no less favorable to you than
those applying to any other senior executive of MBIA. I have also attached a
model of potential benefits available to you, which you can customize to fit
your needs as outlined in the plan descriptions. You will be entitled to four
weeks vacation per year; prompt reimbursement of all properly documented
business expenses and of legal and consulting expenses incurred in connection
with entering into these arrangements,
V. Change of Control Protection - The Stock Option Agreement contains a
provision designed to hold you harmless, on an after tax basis, from any excise
tax you incur in connection with your employment under Section 4999 of the Code.
You will also be given a Key Employee Employment Protection Agreement that will
provide you with termination benefits in the event of Change of Control of MBIA,
including, without limitation, the payment of additional amounts to fully
compensate you for the effect of any excise tax that may be imposed upon any of
the benefits you receive under that
<PAGE>
MBIA 5
agreement, the Stock Option Agreement or otherwise in connection with the Change
of Control.
VI. Indemnification - If you are made a party, or are threatened to be made a
party, to any threatened or actual action, suit or proceeding, whether civil,
criminal, administrative, investigative, appellate or otherwise (a "Proceeding")
by reason of the fact that you are or were a director, officer, employee, agent,
manager, consultant or representative of MBIA or are or were serving at the
request of MBIA as a director, officer, member, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, or if any claim, demand,
request, investigation, dispute, controversy, threat, discovery request or
request for testimony or information (a "Claim") is made, or threatened to be
made, that arises out of or relates to your service in any of the foregoing
capacities, then you shall promptly be indemnified and held harmless by MBIA to
the fullest extent legally permitted or authorized by MBIA's certificate of
incorporation, bylaws or Board resolutions or, if greater, by the laws of the
State of Connecticut, against any and all costs, expenses, liabilities and
losses (including, without limitation, attorneys' fees, judgments, interest,
expenses of investigation, penalties, fines, ERISA excise taxes or penalties and
amounts paid or to be paid in settlement) incurred or suffered by you in
connection therewith, and such indemnification shall continue as to you even if
you shall have ceased to be a director, member, employee, agent, manager,
consultant or representative of MBIA or other entity and shall inure to the
benefit of your heirs, executors and administrators. MBIA shall advance to you
all costs and expenses incurred by you in connection with any such Proceeding or
Claim within 15 days after receiving written notice requesting such an advance.
Such notice shall include an undertaking by you to repay the amount advanced if
you are ultimately determined not to be entitled to indemnification against such
costs and expenses.
In the event you request indemnification or advancement of costs and expenses as
provided in the preceding paragraph of this Section VI, a determination as to
your entitlement to indemnification shall be made in good faith pursuant to the
procedures set forth in Section 33-775 of the General Statutes of Connecticut as
in effect on the date hereof. Such determination shall be made promptly in order
to permit timely indemnification pursuant to this Section VI including, without
limitation, the advancement of costs and expenses.
Neither the failure of MBIA (including the Board, independent legal counsel or
stockholders) to have made a determination in connection with any request for
indemnification or advancement that you have satisfied any applicable standard
of conduct, nor a determination by MBIA (including the Board, independent legal
counsel or stockholders) that you have not met any applicable standard of
conduct, shall create a presumption that you have not met an applicable standard
of conduct.
<PAGE>
MBIA 6
During your employment with MBIA and for a period of six years thereafter, to
the extent that MBIA shall keep in place a directors and officers' liability
insurance policy (or policies) providing comprehensive coverage to any other
active or retired senior executive or director, it shall also maintain such
coverage in effect for you.
VII. Conditions - This offer of employment is not contingent upon the completion
of satisfactory professional and personal reference checks. This offer is
contingent upon the negative results of a drug screening. A Human Resources
representative will be in touch with you to schedule this screening.
VIII. Relocation Benefits - You will be provided with a comprehensive relocation
package that includes reimbursement of all reasonable expenses associated with
your move, temporary housing, house hunting trips, home sale/purchase assistance
and other relocation benefits as outlined in the summary attached as Exhibit C.
IX. Starting Date - January 7, 1999.
The terms and conditions of his offer are subject to the approval of the
Compensation and Organization Committee of the Board of Directors who will meet
on January 7, 1999, to review and approve this offer. We agree to obtain all
necessary approvals with respect to the matters described in this letter and in
the Stock Option Agreement and to amend MBIA's 1987 Stock Option Plan to the
extent necessary to permit the grant of options contemplated hereunder and in
the Stock Option Agreement, prior to your Starting Date.
Again, I am delighted at the prospect of your joining MBIA as our CEO and,
ultimately, Chairman, as well. Please confirm your acceptance of this offer by
signing and returning one of the two executed originals of this letter to me.
Sincerely,
Witnessed:
/s/ David H. Elliot /s/ Kevin D. Silva
- -------------------------------- -------------------------------
David H. Elliott Kevin D. Silva
Chairman and CEO Senior Vice President, Director
Management Services Division
Accept: /s/ Joseph W. Brown, Jr. Date: 1/20/99
-------------------------
Joseph W. Brown, Jr.
<PAGE>
EXECUTIVE BENEFITS SUMMARY
Retirement Plans
MBIA Inc. Employees Pension Plan
Employees are eligible on first entry date following the completion of
six months of employment. Entry dates are January 1 and July 1. The plan
provides a company contribution equal to 10 percent of total cash
compensation. Funds are subject to the following vesting schedule: three
years of service, 60 percent; four years of service, 80 percent; five
years of service, 100 percent.
MBIA Inc. Employees Profit Sharing 401(k) Plan
Employees are eligible on first entry date following the completion of
six months of employment. Entry dates are January 1, April 1, July 1 and
October 1. The plan allows employees pre-tax salary and bonus deferrals
of up to 10 percent. The Company matches employee deferrals, dollar for
dollar, up to 5 percent. Employee deferrals are 100 percent vested. The
Company match is subject to the same vesting schedule as the Pension
Plan.
MBIA Inc. Deferred Compensation and Excess Benefit Plan
Excess employee deferrals and Company contributions, as defined by the
IRS, will be credited to this non-qualified plan. The plan is unfunded
and the benefit obligation to employees remains an MBIA liability subject
to the full faith and credit of the company.
Group Insurance
Life Insurance and AD&D
The plan provides a benefit equal to one times salary up to a maximum of
$250,000 at no cost to the employee. The employee may purchase
supplemental coverage for employee, spouse and children. Employees are
eligible after 30 days of employment.
<PAGE>
Split Dollar Life Insurance
The plan provides supplemental life insurance with a death benefit equal
to three times your base salary and a cash value build-up within the
policy on a tax deferred basis. The life insurance benefit is funded
through individual universal life insurance policies. The premium is
split between MBIA and the executive.
Health Care
MBIA offers the choice of two medical plans, depending on the employee's
location. These plans provide comprehensive coverage to protect you and
your family against the financial burden of major illnesses and injuries.
Dental insurance is also offered. The premium cost is shared between the
employee and the Company. Eligible after 30 days of employment.
Reimbursement Accounts
Two Reimbursement Accounts are available: Health Care and Dependent Care.
Both plans provide employees with tax savings through voluntary pre-tax
salary deductions. Participation may begin upon employment.
Short-Term Disability/Workers Compensation
The Company's salary continuation plan provides income ranging from 75
percent or 100 percent of salary, based upon length of service, up to a
maximum of 26 weeks. Employees are eligible for salary continuation after
one year of employment. The New York State benefit prevails if employee
is not eligible for salary continuation.
Base and Supplemental Executive Long-Term Disability
The plan provides income protection after short-term disability period of
up to 70 percent of total cash compensation. The plan includes
supplemental long-term disability benefits for executives to allow highly
compensated employees to maintain level of benefit.
Long-Term Incentive Plan
A long-term incentive based on a percentage of your total compensation is
divided approximately equally into grants of stock options for MBIA Inc.
and an adjusted book value (ABV) performance based award. Long-term
incentives are awarded annually under the discretion of the Compensation
and Organization Committee of the Board of Directors of MBIA Inc.
<PAGE>
Holidays/Vacation/Sick/Personal Days
Holidays
Employees are awarded ten company-paid holidays plus 1 discretionary day.
The holiday schedule for 1999 is attached.
Vacation
You will be entitled to the maximum 20 vacation days per year. Unused
accrued vacation days may be carried over into following calendar year,
but must be used by June 30.
Sick Leave/Personal Time
You will be eligible for ten sick days per year. Three personal days per
year are permitted and are deducted from the annual sick leave credit.
Other Benefits
Work/Family Benefits and Referral Service
Employee Assistance Program
Tuition Reimbursement
Adoption Policy
Matching Gifts to Education
Wellness Program and Fitness Room
Employee Stock Purchase Plan
<PAGE>
Summary of MBIA Relocation Policy
MBIA offers competitive Relocation Benefits to eligible new hires as part of a
comprehensive compensation package. The following Executive relocation benefits
are listed to provide you with an overview of some of the available services.
This list is not intended as a policy document nor does it constitute a contract
of employment. MBIA reserves the right to amend any of the provisions of the
Relocation policy.
I Homefinding Assistance
o Counseling will be provided by the MBIA designated Relocation Company
to aid you and your family with selecting the new community,
neighborhood and home in the most efficient manner best suited to your
family needs.
o Referrals to experienced Real Estate Agents.
o Househunting assistance including:
o Up to 2 trips with spouse for a total of 7 days/6 nights
o Reimbursement of airfare, lodging, rental car
o Per them of $50 per adult for meals and incidentals
o Up to $50 per day for child care
II Home Purchase Assistance
o Reimbursement of reasonable and customary closing costs (i.e. attorney
fees, appraisal, title insurance, survey, and inspections).
o Reimbursement of up to a two- percent mortgage fee discount.
o Interest-free (up to 90 days) loan against the equity in your current
home (up to 90%) for purchase of new home is available based upon
demonstration of need.
III Homesale Assistance
o Marketing assistance including:
o Realtor selection
o Market analysis
o Listing and Marketing recommendations
o Guaranteed Offer in which the Relocation Company will appraise your
home and make an offer to purchase it on behalf of MBIA. This will
enable you and your family to relocate to your new destination, free
of the worry of being responsible for two homes.
IV Moving Assistance
o Transportation of household goods.
o Transportation of up to two automobiles for move distance greater than
500 miles or reimbursement of mileage and tolls for move distance 500
miles or less.
o Packing and unpacking of goods.
o Appliance hookups.
o Insurance coverage up to $250,000.
o Storage of goods up to 60 days.
o Reimbursement of moving family including one-way airfare, mileage,
tolls, train, lodging, and per them of $50 per adult, $35 per child
for meals and incidentals.
o Temporary living expense reimbursement for employee and family up to
60 days including lodging at an approved hotel, rental car, and per
diem of $50 per adult, $35 per child for meals and incidentals.
o Reimbursement of up to two round trips for employee to visit family
(if family does not accompany employee).
V Miscellaneous Expense Allowance
o A lump sum in the amount of one month's base salary up to a maximum of
$15,000 less withholdings and deductions, will be provided to cover
miscellaneous expenses associated with your relocation.
VI Tax Assistance
o MBIA will provide you with tax assistance (gross-up) for
non-deductible relocation expenses as outlined above.
<PAGE>
MBIA 1999 Holiday Schedule
MBIA provides paid time off for scheduled holidays based on the New York Stock
Exchange's schedule of holidays as follows:
New Year's Day .........................January 1 (Friday)
Martin Luther King, Jr. Day ............January 18 (Monday)
Washington's Birthday ..................February 15 (Monday)
Good Friday ............................April 2 (Friday)
Memorial Day ...........................May 31 (Monday)
Independence Day .......................July 5 (Monday)
Labor Day ..............................September 6 (Monday)
Thanksgiving Day .......................November 25 (Thursday)
*Post Thanksgiving Day .................November 26 (Friday)
Christmas Day ..........................December 24 (Friday)
*This day is not based on the New York Stock Exchange's schedule of holidays
In addition to the above paid holidays, each employee may take one additional
day per year as a discretionary holiday. This day must be taken during the
calendar year and will not be reimbursed to the employee if it is not taken.
The holiday schedule for some MBIA subsidiaries may differ from the above due to
business needs. However, in no case will the number of paid holidays plus
discretionary holidays exceed 11.
<PAGE>
MBIA Statement of
Mission and Values
===============================
Mission
===========================
To promote growth and prosperity around the world by providing financial
products and services of enduring quality.
Values
===========================
Values are the principles by which we navigate the company. They guide our
decisions and behavior, and influence the actions we take. As the foundation of
a vibrant and healthy culture, they are critical to our continued success. We
will strive to incorporate them into everything we do.
1. Customer Service
o Deliver quality financial products and services
o Differentiate the MBIA brand and ourselves through service and
added value
o Exceed expectations consistently
2. Performance Excellence
o Provide quality expertise
o Present innovative solutions
o Assume individual responsibility and accountability
o Assess, reward and recognize performance
3. Integrity
o Emphasize honesty and respect for others
o Respect individual backgrounds
o Keep an open mind to other points of view
o Demonstrate maturity, empathy, fairness and principled behavior
4. Cooperation
o Commit to a common purpose
o Promote candid, respectful communication
o Build an environment of trust and loyalty that stimulates
teamwork
o Value and support each other as individuals
5. Responsible Citizenship
o Support our communities and their organizations that serve
humanitarian needs
o Conduct ourselves lawfully and ethically, and with concern for
employees, their families and society
STOCK OPTION AGREEMENT
AGREEMENT made and entered into as of this 7th day of January, 1999 between
MBIA Inc., a Connecticut corporation (the "Company"), and Joseph W. Brown, Jr.
(the "Optionee").
WITNESSETH:
WHEREAS, the Company has established the MBIA Inc. 1987 Stock Option Plan,
as amended (the "Plan") providing for the granting of options to purchase shares
("Stock Options") of Common Stock par value $1 per share, of the Company
("Shares") to key employees of the Company and certain wholly-owned subsidiaries
of the Company; and
WHEREAS, the Company has employed the Optionee pursuant to an offer letter
dated January 7, 1999 ("Offer Letter"), under which the Optionee has agreed to
become Chief Executive Officer of the Company on the terms and conditions set
forth therein;
WHEREAS, the Company is hiring the Optionee as a key employee of the
Company and has determined it to be in the interest of the Company and its
shareholders for the Optionee to be granted a stock option (the "Option") under
the Plan as an inducement for him to agree to serve the Company and as an
incentive for continuing effort during such service; and
WHEREAS, the Compensation and Organization Committee (the "Committee") of
the Board of Directors of the Company has determined to grant to the Optionee
this Option, subject to the terms set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and for other good and valuable consideration, receipt of which is hereby
acknowledged, the Company and the Optionee (together, the "Parties") do hereby
agree as follows:
1. Grant. Pursuant to the terms and provisions of the Plan, and the action
of the Committee, the Company hereby grants to the Optionee the right and option
to purchase, on the terms and conditions hereinafter set forth, Eight Hundred
Thousand (800,000) Shares.
2. Option Price. The purchase price of each of the Shares subject to the
Option (the "Option Price") is $67.875 per share, which is the Market Price (as
defined in Section 20) of a Share on January 6, 1999.
3. Term of Option Subject to the terms and provisions of the Plan and this
Stock Option Agreement (the "Agreement"), this Option may be exercised during
the periods set forth in Sections 4 and 5 below but no later than 11:59 p.m. on
January 7, 2009 (the
<PAGE>
"Option Period"). The Optionee's rights during the Option Period shall be
subject to limitations as hereinafter provided and shall be subject to sooner
termination as provided in Section 5.
4. Exercisability.
(a) General Rule. Subject to the additional conditions set forth in Section
4(b) below, 100% of the Shares subject to the Option may be exercised, in whole
or in part, and from time to time, on or after the earlier to occur of (i)
January 7, 2008 or (ii) the later to occur of (1) January 7, 2002 and (2) the
last day of a period of ten consecutive Trading Days on which a Share has traded
at least $90 at any point during each such Trading Day, subject to exercise at
an earlier date in the event of certain terminations of the Optionee's
employment, as provided in Section 5. Upon the Option's becoming exercisable
under this Agreement, it shall, except as expressly provided herein, be treated
as fully vested and nonforfeitable in all respects.
(b) Share Ownership Requirements. Notwithstanding anything else in this
Agreement to the contrary, none of this Option shall become exercisable with
respect to any Shares and shall be forfeited unless the Optionee shall
"beneficially own" (within the meaning of both Rule 13d-3 and Rule 16a-1 as
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and as currently in effect)
not later than February 8, 1999 Two Hundred Thousand (200,000) Shares and shall
continuously own at least that number of Shares until the earliest to occur of
(i) a Change of Control, (ii) the termination of the Optionee's employment for
any of the reasons described in Section 5(a), (b), (c) or (d) and (iii) January
7, 2004. On and after January 7, 2004 and prior to the occurrence of a Change of
Control or the termination of the Optionee's employment for any of the reasons
described in Section 5(a), (b), (c) or (d), this Option shall cease to be
exercisable as to any Shares as to which the Option has not previously been
exercised (and the Option shall be forfeited with respect to such number of
Shares) on the first date, if any, as of which the Optionee ceases to
"beneficially owe' (as defined in the previous sentence) at least the number of
Shares determined pursuant to the following schedule:
- --------------------------------------------------------------------------------
Date Number of Shares Required to be Owned
- --------------------------------------------------------------------------------
On and after January 7, 2004 and
prior to July 7, 2005 150,000 Shares
- --------------------------------------------------------------------------------
On or after July 7, 2005 and
prior to January 7, 2007 100,000 Shares
- --------------------------------------------------------------------------------
On or after January 7, 2007 50,000 Shares
- --------------------------------------------------------------------------------
2
<PAGE>
Upon and after the occurrence of a Change of Control or the termination of
the Optionee's employment for any of the reasons described in Section 5(a), (b),
(c) or (d), there shall be no requirement under this Agreement or other-wise
that the Optionee continue to hold any Shares or any securities of the Company
or any successor in interest to the Company.
(c) Change of Control. Notwithstanding anything herein to the contrary,
including, without limitation, Sections 4(a), 4(b) and 5, this Option shall upon
any Change of Control (as defined in Section 20) immediately become fully
exercisable; provided that, if the Change of Control occurs prior to January 7,
2000 and unless the Compensation & Organization Committee of the Board of
Directors otherwise determines, only fifty percent (50%) of the Shares subject
to this Option grant (i.e., 400,000 shares) will become exercisable upon the
occurrence of a Change of Control. If in any transaction constituting a Change
of Control, shareholders may exchange or sell their Shares for cash, securities
or other property, this Option shall become exercisable to the extent provided
in the immediately preceding sentence immediately prior to the occurrence of
such Change of Control (but only after all material conditions to the
consummation of such transaction have been satisfied) and the Optionee shall be
afforded the opportunity to exercise this Option, in whole or in part, prior to
such occurrence so that he may receive in respect of his Option Shares the same
consideration received by such other shareholders.
5. Termination of Employment.
(a) Death. In the event that the Optionee dies while employed by the
Company, this Option shall immediately become fully exercisable and the estate
or other legal representative of the Optionee, or his successors and assigns as
permitted under this Agreement, as the case may be, shall be entitled, during
the period ending on the earlier of (i) the third anniversary of the Optionee's
death and (ii) January 7, 2009, to exercise this Option with respect to all of
the Shares then subject to this Option. To the extent any portion of this Option
is not exercised on or before such earlier date, such unexercised portion of
this Option shall expire. Notwithstanding any other provision of this Section 5,
in the event the Optionee dies subsequent to the termination of his employment
with the Company, but at a time at which all or a portion of this Option is
exercisable pursuant to the provisions of this Section 5, the estate or other
legal representative of the Optionee, or his successors and assigns as permitted
under this Agreement, as the case may be, shall be entitled to exercise the
portion of this Option that is exercisable at the date of the Optionee's death
for the period otherwise specified in this Section 5 or, if longer, until the
earlier of the first anniversary of the Optionee's death or January 7, 2009.
(b) Disability. In the that event the Optionee's employment with the
Company is terminated by either Party due to Disability (as defined in Section
20), this Option shall immediately become fully exercisable and the Optionee
shall be entitled, during the period ending on the earlier of (i) the third
anniversary of the date of Ms termination of
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<PAGE>
employment due to Disability and (ii) January 7, 2009, to exercise this Option
with respect to all of the Shares then subject to this Option. To the extent any
portion of this Option is not exercised on or before such earlier date, such
unexercised portion of this Option shall expire.
(c) Retirement. In the event that the Optionee's employment with the
Company is terminated by his Retirement, the Optionee shall be entitled, during
the period ending on the earlier of (i) the third anniversary of the date of his
termination of employment due to Retirement and (ii) January 7, 2009, to
exercise the Option with respect to the sum of (1) that number of Shares with
respect to which the Optionee could have exercised the Option on the date of his
Retirement, determined in accordance with Section 4 above, and (2) his Pro-Rata
Percentage of any Shares as to which this Option is not exercisable at the date
of his Retirement. To the extent any portion of this Option is not exercised on
or before such earlier date, such unexercised portion of this Option shall
expire. For this purpose, "Retirement" shall mean termination of the Optionee's
employment, other than a termination by the Company for Cause or a termination
to which Section 5(a), 5(b) or 5(d) applies after having completed at least five
years of service as an employee of the Company and having attained age 55; and
"Pro Rata Percentage" shall mean the percentage determined by dividing (i) the
number of whole and partial months of the Optionee's employment from January 7,
1999 to the date of his Retirement by (ii) 108.
(d) Termination Without Cause. In the event that the Optionee's employment
is terminated (i) by the Company for any reason other than due to death or
Disability or for Cause (as each such term is defined in Section 20) or (ii) by
the Optionee through a Constructive Termination Without Cause (as defined in
Section 20), this Option shall immediately become fully exercisable and the
Optionee shall be entitled, during the period ending on the earlier of (x) the
fifth anniversary of the date of his termination of employment and (y) January
7, 2009, to exercise this Option with respect to all of the Shares then subject
to this Option. To the extent any portion of this Option is not exercised on or
before such earlier date, such unexercised portion of this Option shall expire.
(e) Voluntary Termination. In the event that the Optionee terminates his
employment with the Company voluntarily and none of Sections 5(a) through 5(d)
apply, then the Optionee shall be entitled during the period ending on the
earlier of (i) the first anniversary of his termination of employment and (H)
January 7, 2009, to exercise the Option with respect to the number of Shares as
to which the Option was exercisable by the Optionee at the date of such
termination of employment. To the extent any portion of this Option is not
exercised on or before such earlier date, such unexercised portion of this
Option shall expire.
(f) Termination following a Change of Control. Notwithstanding the
preceding provisions of this Section 5, if the Optionee's employment terminates
following or as a result of a Change of Control and this Option continues in
effect after such a Change of
4
<PAGE>
Control, the Optionee shall be entitled to exercise the Option until January 7,
2009 with respect to the number of Shares as to which the Option was exercisable
by the Optionee at the date of such termination of employment and, if the Change
of Control occurs prior to January 7, 2000, such additional number of Shares, if
any, as to which the Option becomes exercisable by reason of the provisions of
Section 5(a), 5(b), 5(c) or 5(d).
(g) Other Termination. In the event the Optionee's employment with the
Company is terminated for any reason other than those described in subsection
(a), (b), (c), (d), (e) and (f) above, then the Optionee shall be entitled
during the period ending on the earlier of (i) the three month anniversary of
his termination of employment and (ii) January 7, 2009, to exercise the Option
with respect to the number of Shares as to which the Option was exercisable by
the Optionee at the date of such termination of employment. To the extent any
portion of this Option is not exercised on or before such earlier date, such
unexercised portion of this Option shall expire.
(h) Committee Discretion. Without limiting the generality of the foregoing,
the Committee shall have the authority in its discretion to provide terms and
conditions with respect to the exercisability of the Option before or after
termination of employment that are more favorable to the Optionee than those set
forth in Section 4 or Section 5.
6. No Rights of Shareholder or Continued Employment. The Optionee shall
not, by virtue hereof, be entitled to any rights of a shareholder of the
Company, either at law or in equity. Neither the grant of this Option nor the
exercise of such Option shall be construed as granting to the Optionee any right
of continued employment, and the right of the Company to terminate the
Optionee's employment at any time at will (whether by dismissal, discharge or
otherwise) is specifically reserved.
7. Exercise of Option.
(a) Method of Exercise. In order to exercise this Option, in whole or in
part, the Optionee (or any other person entitled to exercise this Option in
accordance with the terms hereof) shall submit to the Company an instrument in
writing (which shall be substantially in the form of Exhibit A hereto or in
another form which shall contain the data required by such form) specifying the
whole number of Shares in respect of which the Option is being exercised and
accompanied by payment in full (or an arrangement for payment in full in
accordance with Section 7(b)) of the aggregate Option Price for the Shares in
respect of which the Option is being exercised. The number of Shares for which
the Option has thus been exercised shall then promptly be issued by the Company
(the "Option Shares") and a certificate promptly delivered to the Optionee (or
such other person as shall be exercising this Option); provided, however, that
the Company shall not be obligated to issue any Option Shares hereunder if the
issuance of such Option Shares would violate any provisions of any applicable
law or regulation of any governmental authority.
5
<PAGE>
(b) Method of Payment. Payment of the aggregate Option Price for Option
Shares may be made (i) by delivery to the Company of cash or a check to the
order of the Company in an amount equal to the aggregate Option Price of such
Shares; (ii) by delivery to the Company of Shares then owned by the Optionee
having an aggregate Market Price on the date of delivery equal to the aggregate
Option Price of the Shares for which the Option is being exercised; (iii)
through reasonable cashless exercise procedures that are from time to time
established by the Company (which procedures the Company agrees to establish if
requested by the Optionee) and that afford the Optionee the opportunity to sell
immediately some or all of the Shares underlying the exercised portion of the
Option in order to generate sufficient cash to pay the aggregate Option Price of
such Shares or (iv) by any combination of (i), (ii) or (iii).
(c) Delivery of Shares in Payment of Option Price. Payment by delivery of
Shares may be effected by delivering one or more stock certificates or otherwise
by delivering Shares to the Company's reasonable satisfaction (including,
without limitation, through an "attestation" procedure that is reasonably
acceptable to the Company) in each case accompanied by such endorsements, stock
powers, signature guarantees or other documents or assurances as may reasonably
be required by the Company. If a certificate or certificates or other
documentation representing Shares in excess of the amount required are
delivered, a certificate (or other satisfactory evidence of ownership)
representing the excess number of Shares shall be returned by the Company. The
Company need not accept fractional Shares.
(d) Additional Company Obligations. The Company shall, upon and to the
extent of any written request from the Optionee, use its reasonable commercial
best efforts to assure that all Option Shares shall be, and shall remain, (i)
fully registered (at the Company's expense) for issuance under the Securities
Act of 1933, as amended; (ii) fully registered or qualified (at the Company's
request) under such state securities laws as the Optionee may reasonably
request, both for issuance and resale, (iii) listed on a national securities
exchange or eligible for sale on the NASDAQ National Market; and (iv) validly
issued, fully paid and nonassessable. The Company shall at all times reserve and
keep available sufficient Shares to satisfy the requirements of this Agreement
and shall pay all original issue taxes with respect to the issuance of Option
Shares and all other fees and expenses incurred in connection therewith.
8. Excise Tax. In the event that any payment or benefit made or provided to
or for the benefit of the Optionee under this Agreement, or under any plan,
agreement, program or arrangement of the Company or any of its affiliates (a,
"Payment") is determined to be subject to any excise tax ("Excise Tax") imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or
any successor section to such Section), the Company shall pay to the Optionee at
or prior to the time any Excise Tax is payable with respect to such Payment
(through withholding or otherwise), an additional amount which, after the
imposition of all income, employment, excise and other taxes payable by the
Optionee thereon, is equal to the sum of (i) the Excise Tax on
6
<PAGE>
such Payment plus (ii) any penalty and interest assessments associated with such
Excise Tax. The determination of whether any Payment is subject to the Excise
Tax and, if so, the amount to be paid by the Company to the Optionee and the
time of payment pursuant to this Section 8 shall be made by an independent,
nationally recognized United States public accounting firm (the "Auditor")
jointly selected by the Parties and paid by the Company. If the Parties cannot
agree on the firm to serve as the Auditor, then the Parties shall each select
one nationally recognized United States accounting firm and those two firms
shall jointly select the accounting firm to serve as the Auditor, which firm
shall not have acted in any way on behalf of the Company during the two years
preceding its selection. The Parties shall cooperate with each other in
connection with any proceeding or claim relating to the existence or amount of
any liability for any Excise Tax. All expenses relating to any such proceeding
or claim (including any attorneys' fees and other expenses associated therewith)
shall be paid by the Company promptly upon demand by the Optionee, and any such
payment shall be subject to gross up in the event that the Optionee is subject
to any income tax, employment tax or Excise Tax on it. In the event that the
Optionee is entitled to a gross-up from the Company under the provisions of this
Agreement and any other agreement or arrangement with the Company, the payment,
if any, to be made in respect of any Excise Tax under this Section 8 shall not
be in addition to or duplicative of any such other payment.
9. Adjustments for Changes in Structure and Special Transactions. In the
event of any merger, consolidation, reorganization, recapitalization, spin-off,
split-up, combination, share exchange, liquidation, dissolution, stock split,
extraordinary cash dividend, stock dividend, distribution of stock or other
property in respect of the Shares or other securities of the Company, or other
change in corporate structure or capitalization affecting the Shares,
appropriate adjustment(s) will be made in the number and kind of equity
securities subject to this Option, the Market Price specified in Section
4(a)(i)(2), the number of Shares specified in Section 4(b) and/or in the Option
Price or other terms and conditions of this Option and/or appropriate provision
shall be made for supplemental payments of cash or other property, so as to
avoid dilution or enlargement of the rights of the Optionee and of the economic
opportunity and value represented by this Option. The Company will use its
reasonable commercial best efforts to obtain the agreement of any successor in
interest to provide the opportunity for the Optionee to receive options for its
common equity in substitution for this Option, but shall not have any obligation
to take any action that would be detrimental to the interests of the Company's
shareholders.
10. Deferral of Option Gains. The Optionee shall have the right, by
furnishing written notice to the Company at least six months prior to any
exercise of this Option, to elect to defer any gains realized upon such
exercise. Any such deferral, including the manner of exercise of this Option in
connection with such deferral, shall be made in such manner as may reasonably be
required by the Company, including such requirements as may apply in order to
defer such gains for Federal income tax purposes as the independent public
accountants for the Company reasonably advise are necessary in
7
<PAGE>
order that such gains not result in a charge against the earnings of the
Company. At the time the Optionee elects to defer such gains, such gains shall
be deferred into any nonqualified deferral plan of the Company that accepts such
deferrals on terms and conditions that satisfy the requirements of the preceding
sentence. If no such plan is available, the Optionee may make an irrevocable
written election to defer such gains into Share Units (with each Share Unit
representing a Share, including the right to be credited with any dividends or
other distributions that may be declared or made thereon during the period of
the deferral). Amounts deferred under this Section 10 shall be paid out under
the terms of the Optionee's election to defer.
11. Relationship of this Agreement to the Plan and to the Letter Agreement.
In the event of any inconsistency between the provisions of the Plan and the
provisions of this Agreement, the Plan shall be deemed amended insofar as is
necessary to conform the Plan to the provisions of this Agreement, and the
provisions of this Agreement shall control. In the event of any inconsistency
between the provisions of the Offer Letter and the provisions of this Agreement,
the provisions of this Agreement shall control.
12. Nonassignability of Option. This Option is personal and no rights
granted hereunder may be transferred, assigned, pledged, hypothecated in any way
(whether by operation of law or otherwise) nor shall any such rights be subject
to execution, attachment or similar process, except that this Option may be
transferred, in whole or in part, (i) by will or the laws of descent and
distribution; (ii) to any organization that is exempt from Federal income
taxation pursuant to Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended (the "Code") or any private foundation that is exempt for Federal income
taxation under Section 509 of the Code, provided that such organization or
foundation agrees to be bound by the terms of this Agreement and any reasonable
conditions that the Company may impose in order to assure compliance with its
obligations under the Federal securities laws; and (iii) to any Immediate Family
Member or to any trust, the sole beneficiaries of which are the Optionee and/or
his Immediate Family Members, or to any entity (including, without limitation,
any corporation, partnership or limited liability company) in which the
Optionee, his Immediate Family Members or trusts, solely for the benefits of
such persons hold all the beneficial interests, provided that such Immediate
Family Members and/or trusts and/or other entities (and upon distribution their
beneficiaries) are bound by the provisions of this Agreement. For purposes of
this Agreement, the term "Immediate Family Member" shall mean the Optionee's
parents and spouse and any of the lineal descendants of the Optionee, his spouse
or either of his parents (including, without limitation, descendants by
adoption). Any person or entity to whom this Option has been transferred in
whole or in part in part in accordance with this Section 12 shall to the extent
of the transfer, succeed to the rights of the Optionee under Sections 3, 4(a),
4(c), 5, 7, 8, 9, 17 and 18.
13. Restrictions on Transfer of Option Shares. Neither Option Shares
acquired on exercise of the Option, nor any interest in such Option Shares may
be sold, assigned,
8
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pledged, hypothecated, encumbered or in any other manner transferred or disposed
of, in whole or in part, except in compliance with the terms, conditions and
restrictions as set forth in the Certificate of Incorporation or By-Laws of the
Company, applicable federal and state securities laws or any other applicable
laws or regulations, and the terms and conditions hereof.
14. Withholding. The Optionee agrees to make appropriate arrangements with
the Company for satisfaction of any applicable tax withholding requirements
("tax obligations") arising out of this Agreement. Such tax obligations may be
satisfied in any of the manners provided in Section 7(b) for payment of the
purchase price of the Option Shares or, at the election of the Optionee, by
authorizing the Company to withhold up to the greatest number of whole Shares
that would otherwise would be delivered to the Optionee and that have an
aggregate Market Price on the date of exercise equal to the amount of taxes
required to be withheld.
15. Amendment or Waiver. No provision of this Agreement may be amended
unless such amendment is set forth in a writing signed by the Parties. No Waiver
by any person of any breach of any condition or provision contained in this
Agreement shall be deemed a waiver of any similar or dissimilar condition or
provision at the same or any prior or any subsequent time. To be effective, any
waiver must be in writing signed by the waiving person.
16. References and Headings. References herein to rights and obligations of
the Optionee shall apply, where appropriate, to the estate or other legal
representative of the Optionee or his successors and assigns as permitted under
this Agreement, as the case may be, without regard to whether specific reference
to such estate or other legal representative or his successors and assigns is
contained in a particular provision of this Agreement. The headings of Sections
contained in this Agreement are for convenience only and shall not control or
affect the meaning or construction of any provision of this Agreement.
17. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given (i) when
delivered directly to the person concerned or (ii) three business days after
being sent by postage-prepaid certified or registered mail or by nationally
recognized overnight carrier, return receipt requested, duty addressed to the
person concerned at the location indicated below (or to such changed address as
such party may subsequently by similar process give notice of): If to the
Company, at the Company's headquarters and to the attention of the Office of the
Secretary. If to the Optionee, at the Company's headquarters and to the
attention of the Optionee. If to a transferee permitted under Section 12, to the
address (if any) supplied by the Optionee to the Company.
18. Resolution of Disputes. Any dispute or controversy arising out of or
relating to this Agreement, the Optionee's employment with the Company, or the
termination thereof, shall be resolved by binding confidential arbitration, to
be held in New York City
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before three arbitrators in accordance with the Commercial Arbitration Rules of
the American Arbitration Association. Each of the Parties shall be entitled to
appoint one of the three arbitrators and the third arbitrator shall be appointed
by the arbitrators appointed by the Parties. Judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof The
Company shall promptly pay all costs and expenses, including without limitation
reasonable attorneys' fees, incurred by the Optionee (or his permitted
successors and assigns) in resolving any claim raised in such an arbitration,
other than any claim brought by the Optionee (or the Optionee's permitted
successors and assigns) that the arbitrator(s) determine to have been brought
(i) in bad faith or (ii) without any reasonable basis. In the event that there
is a dispute regarding the Optionee's rights under this Agreement, the Optionee
shall have the right at any time and from time to time to deliver to the Company
a written conditional exercise and sales notice with respect to all or any
portion of this Option, the effect of which shall be to establish the Optionee's
damages in the event that any proceeding is resolved in his favor assuming that
he would have exercised the Option to the extent provided in such notice on the
date of such notice and immediately sold the Option Shares related to such
deemed exercise on such date at the Market Price. In the event that any such
proceeding is resolved favorably to the Company and against the Optionee, any
such conditional exercise and sales notice shall be deemed void and without
effect, but the period during which the Option shall remain exercisable as
otherwise specified in Section 5 shall in no event expire earlier than the
earlier of (i) January 7, 2009 and (ii) 30 days after the arbitrator's decision
is rendered in writing in favor of the Company.
19. The Company's Representations. The Company represents and warrants that
(i) sufficient shares are available under the Plan for the grant of the Option
hereunder; (ii) it is fully authorized by action of the Board and of the
Committee (and of any other person or body whose action is required) to enter
into this Agreement and to perform its obligations hereunder; (iii) the grant of
this Option and this Agreement have been approved in accordance with Rule
16b-3(d)(1) promulgated under the 1934 Act; (iv) the execution, delivery and
performance of this Agreement by the Company does not violate any applicable
law, regulation, order, judgment or decree or any agreement, plan or corporate
governance document of the Company; and (v) upon the execution and delivery of
this Agreement by the Company and the Optionee, this Agreement shall be the
valid and binding obligation of the Company, enforceable in accordance with its
terms, except to the extent enforceability may be limited by applicable
bankruptcy, insolvency or similar laws affecting the enforcement of creditors'
rights generally.
20. Definitions. For purposes of this Agreement, the following terms shall
have the following meanings:
(a) "Change of Control" shall mean the occurrence of any of the following
events:
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(i) any "person", as such term is currently used is Section 13(d) or 14(d)
of the 1934 Act, other than the Company, its majority owned subsidiaries, or any
employee benefit plan of the Company or any of its majority-owned subsidiaries,
becomes a "beneficial owner" (as such term is currently used in Rule 13d-3, as
promulgated under the 1934 Act) of 25% or more of the Voting Power of the
Company;
(ii) a majority of the Board consists of individuals other than Incumbent
Directors, which term means the members of the Board who were serving on the
Board on the date hereof, provided that any individual who becomes a director
subsequent to that date whose election or nomination for election was supported
by two-thirds of the directors who then comprised the Incumbent Directors shall
be considered to be an Incumbent Director for purposes of this subsection
20(a)(ii);
(iii) the Board adopts any plan of liquidation providing for the
distribution of all or substantially all of the Company's assets;
(iv) the stockholders of the Company approve a merger, consolidation, share
exchange, division, sale or other disposition of substantially all of the assets
of the Company (a "Corporate Event"), as a result of which the shareholders of
the Company immediately prior to such Corporate Event (the "Company
Shareholders") shall not hold, directly or indirectly, immediately following
such Corporate Event a majority of the Voting Power of (x) in the case of a
merger or consolidation, the surviving or resulting corporation, (y) in the case
of a share exchange, the acquiring corporation or (z) in the case of a division
or a sale or other disposition of substantially all of the Company's assets,
each surviving, resulting or acquiring corporation; provided that, such a
division or sale shall not be a Change of Control for purposes of this Agreement
to the extent that, following such Corporate Event, the Executive continues to
be employed by a surviving, resulting or acquiring entity with respect to which
the Company Shareholders hold, directly or indirectly, a majority of the Voting
Power immediately following such Corporate Event.
(b) "Cause" shall mean: (i) the Optionee is convicted of a felony involving
moral turpitude or (ii) the Optionee engages in conduct that constitutes willful
gross neglect or willful gross misconduct in carrying out his duties for the
Company, resulting, in either case, in material economic harm to the Company,
unless the Optionee believed in good faith that such conduct was in, or not
opposed to, the best interests of the Company. Notwithstanding the immediately
preceding sentence, Cause shall not exist for purposes of this Agreement unless
the following procedural requirements have been complied with. The Optionee
shall be given written notice by the Board of its intention to terminate his
employment for Cause, which notice shall state in detail the particular
circumstances that constitute the grounds on which the proposed termination for
Cause is based. The Optionee shall have the right to have a timely hearing
before the Board, and to present evidence to the Board in defense of such
proposed termination and to be represented and assisted by counsel at such
hearing. A determination that Cause exists may only be made
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upon a vote of two-thirds of the members of the Board (excluding the Optionee)
after such hearing and only on the basis of the grounds set forth in the notice
initially sent to the Optionee regarding such action.
(c) "Constructive Termination Without Cause" shall mean a termination by
the Optionee of his employment with the Company on written notice given to the
Company within 60 days following the occurrence, without Es prior written
consent, of any of the following events:
(i) the failure to elect or reelect the Optionee as Chief Executive Officer
of the Company, as a member of the Board and, beginning on or after May 31,
1999, Chairman of the Board, or the removal of him from any such position other
than in connection with an actual termination of employment by the Company for
Cause in accordance with the provisions hereof;
(ii) any material diminution in his duties or responsibilities, any change
in the reporting structure so that the Optionee reports to someone other than
the Board or (prior to June 1, 1999) its Chairman, or the assignment to him of
duties that materially impair his ability to perform the duties normally
assigned to a chief executive officer (and, beginning as of May 31, 1999, a
chairman of the board) of a publicly traded company of the same size and nature
as the Company;
(iii) any material breach of this Agreement by the Company or any other
breach of this Agreement which is not cured by the Company within 10 business
days of receipt by the Company of written notice thereof setting forth in
reasonable detail the grounds on which such breach is alleged.
(d) "Disability" shall mean the Optionee's inability, due to physical or
mental incapacity, to substantially perform his duties and responsibilities as
Chief Executive Officer of the Company for a period of 180 consecutive days as
determined by an approved medical doctor. For this purpose, an approved medical
doctor shall mean a medical doctor selected by the Parties. If the Parties
cannot agree on a medical doctor, each Party shall select a medical doctor and
the two doctors shall select a third who shall be the approved medical doctor
for this purpose.
(e) "Market Price", when used with respect to the price of Shares on a
particular day, shall mean the closing price for which a Share is purchased that
day (or, if such day is not a Trading Day, on the most recent preceding Trading
Day on which such a purchase occurred) on the principal national securities
exchange or national market system on which Shares are then listed or eligible
for sale (or, if Shares are not listed or eligible for sale on any such exchange
or market system, the price as determined by agreement between the Parties or,
in the absence of such agreement, the price as determined in accordance with
Section 18).
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(f) "Person", when used in the definition of a Change of Control, shall
have the meaning ascribed to such term in Section 3(a)(9) of the 1934 Act, as
supplemented by Section 13(d)(3) of the 1934 Act; provided, however, that Person
shall not include (i) the Company or any subsidiary of the Company or (ii) any
employee benefit plan sponsored by the Company or any subsidiary of the Company.
(g) "Trading Day" shall mean a day on which the principal national
securities exchange or national market system on which Shares are then listed or
eligible for sale is open for buying and selling Shares (or, if Shares are not
listed or eligible for sale on any such exchange or market system, any day that
is not a Saturday, a Sunday, or a legal holiday in New York City).
(h) When used in the definition of a Change of Control, a specified
percentage of "Voting Power" of a company shall mean such number of the Voting
Securities as shall enable the holders thereof to cast such percentage of all
the votes which could be cast in an annual election of directors and "Voting
Securities" shall mean all securities of a company entitling the holders thereof
to vote in an annual election of directors.
21. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Connecticut without regard
to the principles of conflict of laws.
22. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which, when
taken together, shall constitute one document.
23. Survival. The provisions of Sections 8, 10, 17, 18 and 19 shall survive
the exercise or expiration of this Option.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
MBIA INC.
/s/ David H. Elliott
---------------------------
OPTIONEE
/s/ [ILLEGIBLE]
---------------------------
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EXHIBIT A
MBIA INC. 1987 STOCK OPTION PLAN
OPTION EXERCISE FORM
Name: ____________________________________________________
Address: _________________________________________________
__________________________________________________________
Social Security Number: _____________________
Office Telephone Number: ___________________
Pursuant to the terms of the MBIA Inc. 1987 Stock Option Plan and the Stock
Option Agreement entered into as of January 7, 1999, between MBIA, Inc. and
Joseph W. Brown, Jr. (the "Agreement"), I hereby exercise the Option granted
pursuant to the Agreement for the number of shares listed below:
1. Number of shares as to which the option is being exercised: ________
2. Per share exercise price: ________
3. Method of payment: _________________________________________________
4. If a cashless exercise, to be executed by:
( ) Smith Barney Shearson - White Plains, NY
( ) Other
I understand that the amount by which the aggregate fair market value of
the shares that I am purchasing exceeds the aggregate exercise price is subject
to applicable income and employment tax withholding, I agree that the Company
shall calculate the amount required by law to be withheld. The amount required
to be withheld shall be satisfied as follows: ________________________________
Date: _____________________ Signed: ____________________________
DO NOT WRITE BELOW THIS LINE _________________________________________________
Date Received: _________________ Fair Market Value: _____________________
RETURN TO THE SECRETARY OF MBIA INC.
KEY EMPLOYEE EMPLOYMENT PROTECTION AGREEMENT
THIS AGREEMENT between MBIA Inc., a Connecticut corporation (the
"Company"), and Joseph W. Brown (the "Executive"), dated as of this 20th day of
January, 1999.
WITNESSETH:
WHEREAS, the Company has employed the Executive in an officer position and
has determined that the Executive holds an important position with the Company;
WHEREAS, the Company believes that, in the event it is confronted with a
situation that could result in a change in ownership or control of the Company,
continuity of management will be essential to its ability to evaluate and
respond to such a situation in the best interests of shareholders;
WHEREAS, the Company understands that any such situation will present
significant concerns for the Executive with respect to his financial and job
security;
WHEREAS, the Company desires to assure itself of the Executives services
during the period in which it is confronting such a situation, and to provide
the Executive certain financial assurances to enable the Executive to perform
the responsibilities of his position without undue distraction and to exercise
his judgment without bias due to his personal circumstances;
WHEREAS, to achieve these objectives, the Company and the Executive desire
to enter into an agreement providing the Company and the Executive with certain
rights and obligations upon the occurrence of a Change of Control or Potential
Change of Control (as defined in Section 2);
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is hereby agreed by and between the Company and the
Executive as follows:
1. Operation of Agreement. (a) Effective Date. The effective date of
this Agreement shall be the date on which a Change of Control occurs (the
"Effective
<PAGE>
Date"), provided that, except as provided in Section I (b), if the
Executive is not employed by the Company on the Effective Date, this
Agreement shall be void and without effect.
(b) Termination of Employment Following a Potential Change of Control.
Notwithstanding Section l(a), if (i) the Executive's employment is
terminated by the Company Without Cause (as defined in Section 6(c)) after
the occurrence of a Potential Change of Control and prior to the occurrence
of a Change of Control and prior to the time at which the Board of
Directors of the Company (the Board) has adopted a Nullification Resolution
(as defined in Section 2(b) hereof) with respect to such Potential Change
of Control or (ii) a Change of Control (as defined in Section 2(a) hereof).
and (ii) a Change of Control occurs within two years of such termination,
the Executive shall be deemed, solely for purposes of determining his
rights under this Agreement, to have remained employed until the date such
Change of Control occurs and to have been terminated by the Company Without
Cause immediately after this Agreement becomes effective, with any amounts
payable hereunder reduced by the amount of any other severance benefits
provided to him in connection with such termination.
2. Definitions. (a) Change of Control. For the purposes of this
Agreement, a "Change of Control" shall be deemed to have occurred if:
(i) any person, as such term is currently used is Section 13(d)
or 14(d) of the 1934 Act, other than the Company, its majority owned
subsidiaries, or any employee benefit plan of the Company or any of
its majority-owned subsidiaries, becomes a "beneficial owner" (as such
term is currently used in Rule 13d-3, as promulgated under 1934 Act)
of 25% or more of the Voting Power of the Company;
(ii) on any date, a majority of the Board consists of individuals
other than Incumbent Directors, which term means the members of the
Board who were serving on the Board at beginning of any 24-month
period ending with such date (or another date specified by the
Committee), provided that any individual who becomes a director
subsequent to that date whose election or nomination for election was
supported by two-thirds of the directors who then comprised the
Incumbent Directors shall be considered to be an Incumbent Director
for purposes of this subsection 2(a)(ii);
(iii) the stockholders of the Company approve a merger,
consolidation, share exchange, division, sale or other disposition of
substantially all of the assets of the Company (a "Corporate Event"),
as a result of which the shareholders of the Company immediately prior
to such Corporate Event (the Company Shareholders) shall not hold,
directly or indirectly, immediately following such Corporate Event a
2
<PAGE>
majority of the Voting Power of (x) in the case of a merger or
consolidation, the surviving or resulting corporation, (y) in the case
of a share exchange, the acquiring corporation or (z) in the case of a
division or a sale or other disposition of substantially all of the
Company's assets, each surviving, resulting or acquiring corporation;
provided that such a division or sale shall not be a Change of Control
for purposes of this Agreement to the extent that, following such
Corporate Event, the Executive continues to be employed by a
surviving, resulting or acquiring entity with respect to which the
Company Shareholders hold, directly or indirectly, a majority of the
Voting Power immediately following such Corporate Event.
(b) Potential Change of Control. For the purposes of this Agreement, a
Potential Change of Control shall be deemed to have occurred if:
(i) a Person commences a tender offer (with adequate financing)
for securities representing at least 15% of the Voting Power of the
Company's securities;
(ii) the Company enters into an agreement the consummation of
which would constitute a Change of Control;
(iii) proxies for the election of directors of the Company are
solicited by anyone other than the Company; or
(iv) any other event occurs which is deemed to be a Potential
Change of Control by the Board.
Notwithstanding the foregoing, if, after a Potential Change of Control and
before a Change of Control, the Board makes a good faith determination that
such Potential Change of Control will not result in a Change of Control,
the Board may nullify the effect of the Potential Change of Control (a
"Nullification") by resolution (a "Nullification Resolution"), in which
case the Executive shall have no further rights and obligations under this
Agreement by reason of such Potential Change of Control; provided, however,
that if the Executive shall have delivered a Notice of Termination (within
the meaning of Section 6(f) hereof) prior to the date of the Nullification
Resolution, such Resolution shall not effect the Executive's rights
hereunder. If a Nullification Resolution has been adopted and the Executive
has not delivered a Notice of Termination prior thereto, the Effective Date
for purposes of this Agreement shall be the date, if any, during the term
hereof on which another Potential Change of Control or any actual Change of
Control occurs.
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<PAGE>
(c) Voting Power Defined. A specified percentage of "Voting Power" of
a company shall mean such number of the Voting Securities as shall enable
the holders thereof to cast such percentage of all the votes which could be
cast in an annual election of directors and "Voting Securities" shall mean
all securities of a company entitling the, holders thereof to vote in an
annual election of directors.
3. Employment Period. Subject to Section 6 of this Agreement, the
Company agrees to continue the Executive in its employ, and the Executive
agrees to remain in the employ of the Company, for the period (the
"Employment Period") commencing on the Effective Date and ending on the
third anniversary of the Effective Date. Notwithstanding the foregoing, if,
prior to the Effective Date, the Executive is demoted to a lower position
than the position held on the date first set forth above, the Board may
declare that this Agreement shall be without force and effect by written
notice delivered to the Executive (i) within 30 days following such
demotion and (ii) prior to the occurrence of a Potential Change of Control
or a Change of Control.
4. Position and Duties. (a) No Reduction in Position. During the
Employment Period, the Executive's position (including titles), authority
and responsibilities shall be at least commensurate with those held,
exercised and assigned immediately prior to the Effective Date. It is
understood that, for purposes of this Agreement, such position, authority
and responsibilities shall not be regarded as not commensurate merely by
virtue of the fact that a successor shall have acquired all or
substantially all of the business and/or assets of the Company as
contemplated by Section 12(b) of this Agreement. The Executive's services
shall be performed at the location where the Executive was employed
immediately preceding the Effective Date.
(b) Business Time. From and after the Effective Date, the Executive
agrees to devote His full attention during normal business hours to the
business and affairs of the Company and to use his best efforts to perform
faithfully and efficiently the responsibilities assigned to him hereunder,
to the extent necessary to discharge such responsibilities, except for (i)
time spent in managing his personal, financial and legal affairs and
serving on corporate, civic or charitable boards or committees, in each
case only if and to the extent not substantially interfering with the
performance of such responsibilities, and (ii) periods of vacation and sick
leave to which he is entitled. It is expressly understood and agreed that
the Executive's continuing to serve on any boards and committees on which
he is serving or with which he is other-wise associated immediately
preceding the Effective Date shall not be deemed to interfere with the
performance of the Executive's services to the Company.
5. Compensation. (a) Base Salary. During the Employment Period, the
Executive shall receive a base salary at a monthly rate at least equal to
the monthly
4
<PAGE>
salary paid to the Executive by the Company and any of its affiliated
companies immediately prior to the Effective Date. The base salary shall be
reviewed at least once each year after the Effective Date, and may be
increased (but not decreased) at any time and from time to time by action
of the Board or any committee thereof or any individual having authority to
take such action in accordance with the Company's regular practices. The
Executive's base salary, as it may be increased from time to time, shall
hereafter be referred to as "Base Salary". Neither the Base Salary nor any
increase in Base Salary after the Effective Date shall serve to limit or
reduce any other obligation of the Company hereunder.
(b) Annual Bonus. During the Employment Period, in addition to the
Base Salary, for each fiscal year of the Company ending during the
Employment Period, the Executive shall be afforded the opportunity to
receive an annual bonus on terms and conditions no less favorable to the
Executive (taking into account reasonable changes in the Company's goals
and objectives and taking into account actual performance) than the annual
bonus opportunity that had been made available to the Executive for the
fiscal year ended immediately prior to the Effective Date (the "Annual
Bonus Opportunity"). Any amount payable in respect of the Annual Bonus
Opportunity shall be paid as soon as practicable following the year for
which the amount (or prorated portion) is earned or awarded, unless
electively deferred by the Executive pursuant to any deferral programs or
arrangements that the Company may make available to the Executive.
(c) Long-term Incentive Compensation Programs. During the Employment
Period, the Executive shall participate in all long-term incentive
compensation programs for key executives at a level that is commensurate
with the Executive's participation in such plans immediately prior to the
Effective Date, or, if more favorable to the Executive, at the level made
available to the Executive or other similarly situated officers at any time
thereafter.
(d) Benefit Plans. During the Employment Period, the Executive (and,
to the extent applicable, his dependents) shall be entitled to participate
in or be covered under all pension, retirement, deferred compensation,
savings, medical, dental, health, disability, group life and accidental
death insurance plans and programs of the Company and its affiliated
companies at a level that is commensurate with the Executive's
participation in such plans immediately prior to the Effective Date, or, if
more favorable to the Executive, at the level made available to the
Executive or other similarly situated officers at any time thereafter.
(e) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the policies and procedures of
the Company as in effect
5
<PAGE>
immediately prior to the Effective Date. Notwithstanding the foregoing, the
Company may apply the policies and procedures in effect after the Effective
Date to the Executive, if such policies and procedures are not less
favorable to the Executive than those in effect immediately prior to the
Effective Date.
(f) Vacation and Fringe Benefits. During the Employment Period, the
Executive shall be entitled to paid vacation and fringe benefits at a level
that is commensurate with the paid vacation and fringe benefits available
to the Executive immediately prior to the Effective Date, or, if more
favorable to the Executive, at the level made available from time to time
to the Executive or other similarly situated officers at any time
thereafter.
(g) Indemnification. During and after the Employment Period, the
Company shall indemnify the Executive and hold the Executive harmless from
and against any claim, loss or cause of action arising from or out of the
Executive's performance as an officer, director or employee of the Company
or any of its Subsidiaries or in any other capacity, including any
fiduciary capacity, in which the Executive serves at the request of the
Company to the maximum extent permitted by applicable law and the Company's
Certificate of Incorporation and By-Laws (the "Governing Documents"),
provided that in no event shall the protection afforded to the Executive
hereunder be less than that afforded under the Governing Documents as in
effect immediately prior to the Effective Date.
(h) Office and Support Staff. The Executive shall be entitled to an
office with furnishings and other appointments, and to secretarial and
other assistance, at a level that is at least commensurate with the
foregoing provided to other similarly situated officers.
6. Termination. (a) Death, Disability or Retirement. Subject to the
provisions of Section 1 hereof, this Agreement shall terminate
automatically upon the Executive's death, termination due to "Disability"
(as defined below) or voluntary retirement under any of the Company's
retirement plans as in effect from time to time. For purposes of this
Agreement, Disability shall mean the Executive has met the conditions to
qualify for long-term disability benefits under the Company's policies, as
in effect immediately prior to the Effective Date.
(b) Voluntary Termination. Notwithstanding anything in this Agreement
to the contrary, following a Change of Control the Executive may, upon not
less than 60 days' written notice to the Company, voluntarily terminate
employment for any reason (including early retirement under the terms of
any of the Company's retirement plans as in effect from time to time),
provided that any termination by the Executive
6
<PAGE>
pursuant to Section 6(d) on account of Good Reason (as defined therein)
shall not be treated as a voluntary termination under this Section 6(b).
(c) Cause. The Company may terminate the Executive's employment for
Cause. For purposes of this Agreement, "Cause" means (i) the Executive's
conviction or plea of nolo contendere to a felony; (ii) an act or acts of
dishonesty or gross misconduct on the Executive's part which result or are
intended to result in material damage to the Company's business or
reputation; or (iii) repeated material violations by the Executive of his
obligations under Section 4 of this Agreement, which violations are
demonstrably willful and deliberate on the Executive's part and which
result in material damage to the Company's business or reputation.
(d) Good Reason. Following the occurrence of a Change of Control, the
Executive may terminate his employment for Good Reason. For purposes of
this Agreement, "Good Reason" means the occurrence of any of the following,
without the express written consent of the Executive, after the occurrence
of a Change of Control:
(i) the assignment to the Executive of any duties inconsistent in
any material adverse respect with the Executive's position, authority
or responsibilities as contemplated by Section 4 of this Agreement, or
any other material adverse change in such position, including titles,
authority or responsibilities;
(ii) any failure by the Company to comply with any of the
provisions of Section 5 of this Agreement, other than an insubstantial
or inadvertent failure remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location more than 50 miles (or such other distance as shall
be set forth in the Company's relocation policy as in effect at the
Effective Time) from that location at which he performed his services
specified under the provisions of Section 4 immediately prior to the
Change of Control, except for travel reasonably required in the
performance of the Executive's responsibilities; or
(iv) any failure by the Company to obtain the assumption and
agreement to perform this Agreement by a successor as contemplated by
Section 12(b).
In no event shall the mere occurrence of a Change of Control, absent any
further impact on the Executive, be deemed to constitute Good Reason.
7
<PAGE>
(e) Special Window Period. The Executive shall also have the right to
terminate his employment at any time and for any reason during the 30-day
period commencing on the first anniversary of the date on which a Change of
Control occurs (the "Special Window Period").
(f) Notice of Termination. Any termination by the Company for Cause or
by the Executive for Good Reason shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section
13(e). For purposes of this Agreement, a "Notice of Termination" means a
written notice given, in the case of a termination for Cause, within 10
business days of the Company's having actual knowledge of the events giving
rise to such termination, and in the case of a termination for Good Reason,
within 90 days of the Executive's having actual knowledge of the events
giving rise to such termination, and which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment under the provision so
indicated, and (iii) if the termination date is other than the date of
receipt of such notice, specifies the termination date of this Agreement
(which date shall be not more than 15 days after the giving of such
notice). The failure by the Executive to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason shall not waive any right of the Executive hereunder or preclude the
Executive from asserting such fact or circumstance in enforcing his rights
hereunder.
(g) Date of Termination. For the purpose of this Agreement, the term
"Date of Termination" means (i) in the case of a termination for which a
Notice of Termination is required, the date of receipt of such Notice of
Termination or, if later, the date specified therein, as the case may be,
and (ii) in all other cases, the actual date on which the Executive's
employment terminates during the Employment Period.
7. Obligations of the Company upon Termination. (a) Death or
Disability. If the Executive's employment is terminated during the
Employment Period by reason of the Executive's death or Disability, this
Agreement shall terminate without further obligations to the Executive or
the Executive's legal representatives under this Agreement other than those
obligations accrued hereunder at the Date of Termination, and the Company
shall pay to the Executive (or his beneficiary or estate) (i) the
Executive's full Base Salary through the Date of Termination (the "Earned
Salary"), (ii) any vested amounts or benefits owing to the Executive under
the Company's otherwise applicable employee benefit plans and programs,
including any compensation previously deferred by the Executive (together
with any accrued earnings thereon) and not yet paid by the Company and any
accrued vacation pay not yet paid by the Company (the "Accrued
Obligations"), and (iii) any other benefits payable due to the Executive's
death or Disability under the Company's plans, policies or programs (the
"Additional Benefits").
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Any Earned Salary shall be paid in cash in a single lump sum as soon
as practicable, but in no event more than 10 days (or at such earlier date
required by law), following the Date of Termination. Accrued Obligations
and Additional Benefits shall be paid in accordance with the terms of the
applicable plan, program or arrangement.
(b) Cause and Voluntary Termination. If, during the Employment Period,
the Executive's employment shall be terminated for Cause or voluntarily
terminated by the Executive (other than on account of Good Reason following
a Change of Control), the Company shall pay the Executive (i) the Earned
Salary in cash in a single lump sum as soon as practicable, but in no event
more than 10 days, following the Date of Termination, and (ii) the Accrued
Obligations in accordance with the terms of the applicable plan, program or
arrangement.
(c) Termination by the Company other than for Cause and Termination by
the Executive for Good Reason or in the Special Window Period. If (x) the
Company terminates the Executive's employment other than for Cause during
the Employment Period, (y) the Executive terminates his employment at any
time during the Employment Period for Good Reason or (z) the Executive
terminates his employment with or without Good Reason during the Special
Window Period, the Company shall provide the Executive with the following
benefits:
(i) Severance and Other Termination Payments. The Company shall
pay the Executive the following:
(A) the Executive's Earned Salary; and
(B) an amount (the Pro-Rated Annual Incentive) equal to the
average of the annual bonuses payable to the Executive for
the two fiscal years of the Company ended prior to the
Effective Date for which bonuses have been determined (the
"Average Annual Bonus") multiplied by a fraction, the
numerator of which is the number of months in such fiscal
year which have elapsed on or before (and including) the
last day of the month in which the Date of Termination
occurs and the denominator of which is 12; and
(C) an aggregate amount (the Book Value Award Amount) equal to
the sum of the amounts payable to the Executive in respect
of each outstanding incentive award related to the Company's
adjusted book value, determined as of the end of the month
in which the Date of Termination occurs; and
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(D) the Accrued Obligations; and
(E) a cash amount (the "Severance Amount") equal to three times
the sum of
(1) the Executive's annual Base Salary;
(2) an amount equal to the Average Annual Bonus;
The Earned Salary, Pro-Rated Annual Incentive and Severance Amount
shall be paid in cash in a single lump sum as soon as practicable, but
in no event more than 10 days (or at such earlier date required by
law), following the Date of Termination. The Book Value Award Amounts
shall be paid in cash as soon as practicable after the amount of each
such payment can be determined. Accrued Obligations shall be paid in
accordance with the terms of the applicable plan, program or
arrangement.
(ii) Continuation of Benefits. If, during the Employment Period,
the Company terminates the Executive's employment other than for Cause
or the Executive terminates his employment for Good Reason, the
Executive (and, to the extent applicable, his dependents) shall be
entitled, after the Date of Termination until the earlier of (1) the
third anniversary of the Date of Termination (the "End Date") and (2)
the date the Executive becomes eligible for comparable benefits under
a similar plan, policy or program of a subsequent employer, to
continue participation in all of the Company's group health and group
life employee benefits plans (the "Group Benefit Plans"). To the
extent any such benefits cannot be provided under the terms of the
applicable plan, policy or program, the Company shall provide a
comparable benefit under another plan or from the Company's general
assets. The Executive's participation in the Group Benefit Plans will
be on the same terms and conditions (including, without limitation,
any condition that the Executive make contributions toward the cost of
such coverage on the same terms and conditions generally applicable to
similarly situated employees) that would have applied had the
Executive continued to be employed by the Company through the End
Date.
(iii) Restricted Stock. Any and all awards of restricted stock
held by the Executive at the Date of Termination shall immediately
become fully vested.
(iv) Post-Termination Exercise Period. Notwithstanding anything
else contained in Section 14 of the Company's 1987 Stock Option Plan
to the contrary,
10
<PAGE>
in the event that Executive is entitled to receive the severance
benefits described above pursuant to the terms of this Agreement, all
of his outstanding Options and SARs awarded under such 1997 Stock
Option Plan shall automatically be and become fully exercisable on the
Date of Termination without further action on anyone's part and the
Executive shall have the right to exercise any such Option or SAR
until the earlier to occur of the expiration of the term of such
Option or SAR and the fifth anniversary of the Date of Termination.
(v) Retirement Contribution Credits. The Executive shall receive
credits to the Company's nonqualified excess benefits plan with
respect to the amounts that would otherwise have been contributed on
his behalf under the Company's Money Purchase Pension Plan and Profit
Sharing Plan had the Executive continued in the company's employ for
three years following the Date of Termination.
(vi) Outplacement Services. The Executive shall be provided at
the Company's expense with outplacement services customary for
executives at his level (including, without limitation, office space
and telephone support services) provided by a qualified and
experienced third party provider selected by the Company.
(d) Discharge of the Company's Obligations. Except as expressly
provided in the last sentence of this Section 7(d), the amounts payable to
the Executive pursuant to this Section 7 following termination of his
employment shall be in fun and complete satisfaction of the Executive's
rights under this Agreement and any other claims he may have in respect of
his employment by the Company or any of its Subsidiaries. Such amounts
shall constitute liquidated damages with respect to any and all such
rights and claims and, upon the Executive's receipt of such amounts, the
Company shall be released and discharged from any and all liability to the
Executive in connection with this Agreement or otherwise in connection with
the Executive's employment with the Company and its Subsidiaries. Nothing
in this Section 7(d) shall be construed to release the Company from its
commitment to indemnify the Executive and hold the Executive harmless from
and against any claim, loss or cause of action arising from or out of the
Executive's performance as an officer, director or employee of the Company
or any of its Subsidiaries or in any other capacity, including any
fiduciary capacity, in which the Executive served at the request of the
Company to the maximum extent permitted by applicable law and the Governing
Documents.
(e) Certain Further Payments by the Company.
11
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(i) In the event that any amount or benefit paid or distributed
to the Executive pursuant to this Agreement, taken together with any
amounts or benefits otherwise paid or distributed to the Executive by
the Company or any affiliated company (collectively, the "Covered
Payments"), are or become subject to the tax (the "Excise Tax")
imposed under Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any similar tax that may hereafter be
imposed, the Company shall pay to the Executive at the time specified
in Section 7(e)(v) below an additional amount (the "Tax Reimbursement
Payment") such that the net amount retained by the Executive with
respect to such Covered Payments, after deduction of any Excise Tax on
the Covered Payments and any Federal, state and local income or
employment tax and Excise Tax on the Tax Reimbursement Payment
provided for by this Section 7(e), but before deduction for any
Federal, state or local income or employment tax withholding on such
Covered Payments, shall be equal to the amount of the Covered
Payments.
(ii) For purposes of determining whether any of the Covered
Payments will be subject to the Excise Tax and the amount of such
Excise Tax,
(A) such Covered Payments will be treated as "parachute
payments" within the meaning of Section 280G of the Code,
and all "parachute payments" in excess of the "base amount"
(as defined under Section 280G(b)(3) of the Code) shall be
treated as subject to the Excise Tax, unless, and except to
the extent that, in the good faith judgment of the Company's
independent certified public accountants appointed prior to
the Change of Control Date or tax counsel selected by such
Accountants (the "Accountants"), the Company has a
reasonable basis to conclude that such Covered Payments (in
whole or in part) either do not constitute "parachute
payments" or represent reasonable compensation for personal
services actually rendered (within the meaning of Section
280G(b)(4)(B) of the Code) in excess of the "base amount,"
or such "parachute payments" are otherwise not subject to
such Excise Tax, and
(B) the value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Accountants in
accordance with the principles of Section 280G of the Code.
(iii) For purposes of determining the amount of the Tax
Reimbursement Payment, the Executive shall be deemed to pay:
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<PAGE>
(A) Federal income taxes at the highest applicable marginal rate
of Federal income taxation for the calendar year in which
the Tax Reimbursement Payment is to be made, and
(B) any applicable state and local income taxes at the highest
applicable marginal rate of taxation for the calendar year
in which the Tax Reimbursement Payment is to be made, net of
the maximum reduction in Federal income taxes which could be
obtained from the deduction of such state or local taxes if
paid in such year.
(iv) In the event that the Excise Tax is subsequently determined
by the Accountants or pursuant to any proceeding or negotiations with
the Internal Revenue Service to be less than the amount taken into
account hereunder in calculating the Tax Reimbursement Payment made,
the Executive shall repay to the Company, at the time that the amount
of such reduction in the Excise Tax is finally determined, the portion
of such prior Tax Reimbursement Payment that would not have been paid
if such Excise Tax had been applied in initially calculating such Tax
Reimbursement Payment, plus interest on the amount of such repayment
at the rate provided in Section 1274(b)(2)(B) of the Code.
Notwithstanding the foregoing, in the event any portion of the Tax
Reimbursement Payment to be refunded to the Company has been paid to
any Federal, state or local tax authority, repayment thereof shall not
be required until actual refund or credit of such portion has been
made to the Executive, and interest payable to the Company shall not
exceed interest received or credited to the Executive by such tax
authority for the period it held such portion. The Executive and the
Company .shall mutually agree upon the course of action to be pursued
(and the method of allocating the expenses thereof) if the Executive's
good faith claim for refund or credit is denied.
In the event that the Excise Tax is later determined by the
Accountants or pursuant to any proceeding or negotiations with the
Internal Revenue Service to exceed the amount taken into account
hereunder at the time the Tax Reimbursement Payment is made
(including, but not limited to, by reason of any payment the existence
or amount of which cannot be determined at the time of the Tax
Reimbursement Payment), the Company shall make an additional Tax
Reimbursement Payment in respect of such excess (plus any interest or
penalty payable with respect to such excess) at the time that the
amount of such excess is finally determined.
(v) The Tax Reimbursement Payment (or portion thereof) provided
for in Section 7(e)(i) above shall be paid to the Executive not later
than 10 business
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<PAGE>
days following the payment of the Covered Payments; provided, however,
that if the amount of such Tax Reimbursement Payment (or portion
thereof) cannot be finally determined on or before the date on which
payment is due, the Company shall pay to the Executive by such date an
amount estimated in good faith by the Accountants to be the minimum
amount of such Tax Reimbursement Payment and shall pay the remainder
of such Tax Reimbursement Payment (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined, but in no event later than 45 calendar days
after payment of the related Covered Payment. In the event that the
amount of the estimated Tax Reimbursement Payment exceeds the amount
subsequently determined to have been due, such excess shall constitute
a loan by the Company to the Executive, payable on the fifth business
day after written demand by the Company for payment (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code).
8. Non-exclusivity of Rights. Except as expressly provided herein,
nothing in this Agreement shall prevent or limit the Executive's continuing
or future participation in any benefit, bonus, incentive or other plan or
program provided by the Company or any of its affiliated companies and for
which the Executive may qualify, nor shall anything herein limit or
otherwise prejudice such lights as the Executive may have under any other
agreements with the Company or any of its affiliated companies, including
employment agreements or stock option agreements. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any
plan or program of the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with
such plan or program.
9. No Offset. The Company's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations hereunder
shall not be affected by any circumstances, including, without limitation,
any set-off, counterclaim, recoupment, defense or other right which the
Company may have against the Executive or others whether by reason of the
subsequent employment of the Executive or otherwise.
10. Legal Fees and Expenses. If the Executive asserts any claim in any
contest (whether initiated by the Executive or by the Company) as to the
validity, enforceability or interpretation of any provision of this
Agreement, the Company shall pay the Executive's legal expenses (or cause
such expenses to be paid) including, without limitation, his reasonable
attorney's fees, on a quarterly basis, upon presentation of proof of such
expenses in a form acceptable to the Company, provided that the Executive
shall reimburse the Company for such amounts, plus simple interest thereon
at the 90-day United States Treasury Bill rate as in effect from time to
time, compounded annually, if
14
<PAGE>
the arbitrator referred to in Section 13(b) or a court of competent
jurisdiction shall find that the Executive did not have a good faith and
reasonable basis to believe that he would prevail as to at least one
material issue presented to such arbitrator or court.
11. Confidential Information, Company Property; By and in
consideration of the salary and benefits to be provided by the Company
hereunder, including the severance arrangements set forth herein, the
Executive agrees that:
(a) Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the Company or
any of its affiliated companies, and their respective businesses, (i)
obtained by the Executive during his employment by the Company or any
of its affiliated companies and (ii) not otherwise public knowledge
(other than by reason of an unauthorized act by the Executive). After
termination of the Executive's employment with the Company, the
Executive shall not, without the prior written consent of the Company,
unless compelled pursuant to an order of a court or other body having
jurisdiction over such matter, communicate or divulge any such
information, knowledge or data to anyone other than the Company and
those designated by it.
(b) Nonsolicitation of Employees. The Executive agrees that for
two years after the Date of Termination, he will not attempt, directly
or indirectly, to induce any employee of the Company, or any
subsidiary or any affiliate thereof to be employed or perform services
elsewhere or otherwise to cease providing services to the Company, or
any subsidiary or affiliate thereof.
(c) Company Property. Except as expressly provided herein,
promptly following the Executive's termination of employment, the
Executive shall return to the Company all property of the Company and
all copies thereof in the Executive's possession or under his control.
(d) Injunctive Relief and Other Remedies with Respect to
Covenants. The Executive acknowledges and agrees that the covenants
and obligations of the Executive with respect to confidentiality and
Company property relate to special, unique and extraordinary matters
and that a violation of any of the terms of such covenants and
obligations will cause the Company irreparable injury for which
adequate remedies are not available at law, Therefore, the Executive
agrees that the Company shall be entitled to an injunction,
restraining order or such other equitable relief (without the
requirement to post bond) restraining Executive from committing any
violation of the covenants and obligations contained in this Section
11 These remedies are cumulative and are in addition to any other
rights and remedies the Company may have at law or in equity. In no
event shall
15
<PAGE>
an asserted violation of the provisions of this Section 11 constitute
a basis for deferring or withholding any amounts otherwise payable to
the Executive under this Agreement.
12. Successors. (a) This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable
by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors. The Company shall require any successor to
all or substantially all of the business and/or assets of the Company,
whether direct or indirect, by purchase, merger, consolidation, acquisition
of stock, or otherwise, by an agreement in form and substance satisfactory
to the Executive, expressly to assume and agree to perform this Agreement
in the same manner and to the same extent as the Company would be required
to perform if no such succession had taken place.
13. Miscellaneous. (a) Applicable Law. This Agreement shall be
governed by and construed in accordance with the laws of the States of New
York, applied without reference to principles of conflict of laws.
(b) Arbitration. Except to the extent provided in Section 11(c), any
dispute or controversy arising under or in connection with this Agreement
shall be resolved by binding arbitration. The arbitration shall be held in
the city of White Plains, New York and, except to the extent inconsistent
with this Agreement, shall be conducted in accordance with the Expedited
Employment Arbitration Rules of the American Arbitration Association then
in effect at the time of the arbitration (or such other rules as the
parties may agree to in writing), and otherwise in accordance with
principles which would be applied by a court of law or equity. The
arbitrator shall be acceptable to both the Company and the Executive. If
the parties cannot agree on an acceptable arbitrator, the dispute shall be
heard by a panel of three arbitrators, one appointed by each of the parties
and the third appointed by the other two arbitrators.
(c) Amendments. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(d) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters referred to herein.
No other agreement relating to the terms of the Executive's employment by
the Company, oral or otherwise, shall be binding between the parties unless
it is in writing and signed by the party against whom enforcement is
sought. There are no promises, representations,
16
<PAGE>
inducements or statements between the parties other than those that are
expressly contained herein. The Executive acknowledges that he is entering
into t1ris Agreement of his own free will and accord, and with no duress,
that he has read this Agreement and that he understands it and its legal
consequences.
(e) Notices. All notices and other communications hereunder shall be
in writing and shall be given by hand-delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: at the home address of the Executive noted
on the records of the Company
If to the Company: MBIA Inc.
113 King Street
Armonk, New York 10504
Attn.: Secretary
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(f) Tax Withholding. The Company shall withhold from any amounts
payable under this Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(g) Severability; Reformation. In the event that one more of the
provisions of this Agreement shall become invalid, illegal or unenforceable
in any respect, the validity, legality, and enforceability of the remaining
provisions contained herein shall not be affected thereby. In the event
that any of the provisions of any of Section 11 (a) are not enforceable in
accordance with its terms, the Executive and the Company agree that such
Section shall be reformed to make such Section enforceable in a manner
which provides the Company the maximum rights permitted at law.
(h) Waiver. Waiver by any party hereto of any breach or default by the
other party of any of the terms of this Agreement shall not operate as a
waiver of any other breach or default, whether similar to or different from
the breach or default waived. No waiver of any provision of this Agreement
shall be implied from any course of dealing between the parties hereto or
from any failure by either party hereto to assert its or his rights
hereunder on any occasion or series of occasions.
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(i) Survival. The provisions of Section 7(c)(iii) (and so much of
Section 7(d) as provides a benefit identical to that payable under such
Section 7(c)(iii)) shall survive the termination of the Employment Period
hereunder and shall be binding upon and enforceable against the Company in
accordance with its terms. In the event, that any dispute arises with
respect to the Executive's entitlement to such enhanced retirement
benefits, the dispute resolutions provisions contained in Section 13(b) and
the legal fees provision contained in Section 10 shall also survive the end
of the Employment Period and shall be applied as though the dispute arose
within the Employment Period.
(j) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
(k) Captions. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused this Agreement to be executed in its name on its behalf,
and its corporate seal to be hereunto affixed and attested by its
Secretary, all as of the day and year first above written.
MBIA Inc.
/s/ David H. Elliott
--------------------------
By:
Title: Chairman
EXECUTIVE:
/s/ [ILLEGIBLE]
--------------------------
18
KEY EMPLOYEE EMPLOYMENT PROTECTION AGREEMENT
THIS AGREEMENT between MBIA Inc., a Connecticut corporation (the
"Company"), and Neil Budnick (the "Executive"), dated as of this 25th day of
January, 1999.
WITNESSETH:
WHEREAS, the Company has employed the Executive in an officer position and
has determined that the Executive holds an important position with the Company;
WHEREAS, the Company believes that, in the event it is confronted with a
situation that could result in a change in ownership or control of the Company,
continuity of management will be essential to its ability to evaluate and
respond to such a situation in the best interests of shareholders;
WHEREAS, the Company understands that any such situation will present
significant concerns for the Executive with respect to his financial and job
security,
WHEREAS, the Company desires to assure itself of the Executives services
during the period in which it is confronting such a situation, and to provide
the Executive certain financial assurances to enable the Executive to perform
the responsibilities of his position without undue distraction and to exercise
his judgment without bias due to his personal circumstances;
WHEREAS, to achieve these objectives, the Company and the Executive desire
to enter into an agreement providing the Company and the Executive with certain
rights and obligations upon the occurrence of a Change of Control or Potential
Change of Control (as defined in Section 2);
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is hereby agreed by and between the Company and the
Executive as follows:
1. Operation of Agreement. (a) Effective Date. The effective date of this
Agreement shall be the date on which a Change of Control occurs (the "Effective
<PAGE>
Date"), provided that, except as provided in Section 1 (b), if the Executive is
not employed by the Company on the Effective Date, this Agreement shall be void
and without effect.
(b) Termination of Employment Following a Potential Change of Control.
Notwithstanding Section l(a), if (i) the Executive's employment is terminated by
the Company Without Cause (as defined in Section 6(c)) after the occurrence of a
Potential Change of Control and prior to the occurrence of a Change of Control
and prior to the time at which the Board of Directors of the Company (the Board)
has adopted a Nullification Resolution (as defined in Section 2(b) hereof) with
respect to such Potential Change of Control or (ii) a Change of Control (as
defined in Section 2(a) hereof), and (ii) a Change of Control occurs within two
years of such termination, the Executive shall be deemed, solely for purposes of
determining his rights under this Agreement, to have remained employed until the
date such Change of Control occurs and to have been terminated by the Company
Without Cause immediately after this Agreement becomes effective, with any
amounts payable hereunder reduced by the amount of any other severance benefits
provided to him in connection with such termination.
2. Definitions. (a) Change of Control. For the purposes of this Agreement,
a "Change of Control" shall be deemed to have occurred if:
(i) any person, as such term is currently used is Section 13(d) or
14(d) of the 1934 Act, other than the Company, its majority owned
subsidiaries, or any employee benefit plan of the Company or any of its
majority-owned subsidiaries, becomes a "beneficial owner" (as such term is
currently used in Rule 13d-3, as promulgated under 1934 Act) of 25% or more
of the Voting Power of the Company;
(ii) on any date, a majority of the Board consists of individuals
other than Incumbent Directors, which term means the members of the Board
who were serving on the Board at beginning of any 24-month period ending
with such date (or another date specified by the Committee), provided that
any individual who becomes a director subsequent to that date whose
election or nomination for election was supported by two-thirds of the
directors who then comprised the Incumbent Directors shall be considered to
be an Incumbent Director for purposes of this subsection 2(a)(ii);
(iii) the stockholders of the Company approve a merger, consolidation,
share exchange, division, sale or other disposition of substantially all of
the assets of the Company (a "Corporate Event"), as a result of which the
shareholders of the Company immediately prior to such Corporate Event (the
Company Shareholders) shall not hold, directly or indirectly, immediately
following such Corporate Event a
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majority of the Voting Power of (x) in the case of a merger or
consolidation, the surviving or resulting corporation, (y) in the case of a
share exchange, the acquiring corporation or (z) in the case of a division
or a sale or other disposition of substantially all of the Company's
assets, each surviving, resulting or acquiring corporation; provided that
such a division or sale shall not be a Change of Control for purposes of
this Agreement to the extent that, following such Corporate Event, the
Executive continues to be employed by a surviving, resulting or acquiring
entity with respect to which the Company Shareholders hold, directly or
indirectly, a majority of the Voting Power immediately following such
Corporate Event.
(b) Potential Change of Control. For the purposes of this Agreement, a
Potential Change of Control shall be deemed to have occurred if:
(i) a Person commences a tender offer (with adequate financing) for
securities representing at least 15% of the Voting Power of the Company's
securities;
(ii) the Company enters into an agreement the consummation of which
would constitute a Change of Control;
(iii) proxies for the election of directors of the Company are
solicited by anyone other than the Company; or
(iv) any other event occurs which is deemed to be a Potential Change
of Control by the Board.
Notwithstanding the foregoing, if, after a Potential Change of Control and
before a Change of Control, the Board makes a good faith determination that such
Potential Change of Control will not result in a Change of Control, the Board
may nullify the effect of the Potential Change of Control (a "Nullification") by
resolution (a "Nullification Resolution"), in which case the Executive shall
have no further rights and obligations under this Agreement by reason of such
Potential Change of Control; provided, however, that if the Executive shall have
delivered a Notice of Termination (within the meaning of Section 6(f) hereof)
prior to the date of the Nullification Resolution, such Resolution shall not
effect the Executive's rights hereunder. If a Nullification Resolution has been
adopted and the Executive has not delivered a Notice of Termination prior
thereto, the Effective Date for purposes of this Agreement shall be the date, if
any, during the term hereof on which another Potential Change of Control or any
actual Change of Control occurs.
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(c) Voting Power Defined. A specified percentage of "Voting Power" of a
company shall mean such number of the Voting Securities as shall enable the
holders thereof to cast such percentage of all the votes which could be cast in
an annual election of directors and "Voting Securities" shall mean all
securities of a company entitling the, holders thereof to vote in an annual
election of directors.
3. Employment Period. Subject to Section 6 of this Agreement, the Company
agrees to continue the Executive in its employ, and the Executive agrees to
remain in the employ of the Company, for the period (the "Employment Period")
commencing on the Effective Date and ending on the third anniversary of the
Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date,
the Executive is demoted to a lower position than the position held on the date
first set forth above, the Board may declare that this Agreement shall be
without force and effect by written notice delivered to the Executive (i) within
30 days following such demotion and (ii) prior to the occurrence of a Potential
Change of Control or a Change of Control.
4. Position and Duties. (a) No Reduction in Position. During the Employment
Period, the Executive's position (including titles), authority and
responsibilities shall be at least commensurate with those held, exercised and
assigned immediately prior to the Effective Date. It is understood that, for
purposes of this Agreement, such position, authority and responsibilities shall
not be regarded as not commensurate merely by virtue of the fact that a
successor shall have acquired all or substantially all of the business and/or
assets of the Company as contemplated by Section 12(b) of this Agreement. The
Executive's services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date.
(b) Business Time. From and after the Effective Date, the Executive agrees
to devote his full attention during normal business hours to the business and
affairs of the Company and to use his best efforts to perform faithfully and
efficiently the responsibilities assigned to him hereunder, to the extent
necessary to discharge such responsibilities, except for (i) time spent in
managing his personal, financial and legal affairs and serving on corporate,
civic or charitable boards or committees, in each case only if and to the extent
not substantially interfering with the performance of such responsibilities, and
(ii) periods of vacation and sick leave to which he is entitled. It is expressly
understood and agreed that the Executive's continuing to serve on any boards and
committees on which he is serving or with which he is otherwise associated
immediately preceding the Effective Date shall not be deemed to interfere with
the performance of the Executive's services to the Company.
5. Compensation. (a) Base Salary. During the Employment Period, the
Executive shall receive a base salary at a monthly rate at least equal to the
monthly
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<PAGE>
salary paid to the Executive by the Company and any of its affiliated companies
immediately prior to the Effective Date. The base salary shall be reviewed at
least once each year after the Effective Date, and may be increased (but not
decreased) at any time and from time to time by action of the Board or any
committee thereof or any individual having authority to take such action in
accordance with the Company's regular practices. The Executive's base salary, as
it may be increased from time to time, shall hereafter be referred to as "Base
Salary". Neither the Base Salary nor any increase in Base Salary after the
Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder.
(b) Annual Bonus. During the Employment Period, in addition to the Base
Salary, for each fiscal year of the Company ending during the Employment Period,
the Executive shall be afforded the opportunity to receive an annual bonus on
terms and conditions no less favorable to the Executive (taking into account
reasonable changes in the Company's goals and objectives and taking into account
actual performance) than the annual bonus opportunity that had been made
available to the Executive for the fiscal year ended immediately prior to the
Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect
of the Annual Bonus Opportunity shall be paid as soon as practicable following
the year for which the amount (or prorated portion) is earned or awarded, unless
electively deferred by the Executive pursuant to any deferral programs or
arrangements that the Company may make available to the Executive.
(c) Long-term Incentive Compensation Programs. During the Employment
Period, the Executive shall participate in all long-term incentive compensation
programs for key executives at a level that is commensurate with the Executive's
participation in such plans immediately prior to the Effective Date, or, if more
favorable to the Executive, at the level made available to the Executive or
other similarly situated officers at any time thereafter.
(d) Benefit Plans. During the Employment Period, the Executive (and, to the
extent applicable, his dependents) shall be entitled to participate in or be
covered under all pension, retirement, deferred compensation, savings, medical,
dental, health, disability, group life and accidental death insurance plans and
programs of the Company and its affiliated companies at a level that is
commensurate with the Executive's participation in such plans immediately prior
to the Effective Date, or, if more favorable to the Executive, at the level made
available to the Executive or other similarly situated officers at any time
thereafter.
(e) Expenses. During the Employment Period, the Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the policies and procedures of the Company as in
effect
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immediately prior to the Effective Date. Notwithstanding the foregoing, the
Company may apply the policies and procedures in effect after the Effective Date
to the Executive, if such policies and procedures are not less favorable to the
Executive than those in effect immediately prior to the Effective Date.
(f) Vacation and Fringe Benefits. During the Employment Period, the
Executive shall be entitled to paid vacation and fringe benefits at a level that
is commensurate with the paid vacation and fringe benefits available to the
Executive immediately prior to the Effective Date, or, if more favorable to the
Executive, at the level made available from time to time to the Executive or
other similarly situated officers at any time thereafter.
(g) Indemnification. During and after the Employment Period, the Company
shall indemnify the Executive and hold the Executive harmless from and against
any claim, loss or cause of action arising from or out of the Executive's
performance as an officer, director or employee of the Company or any of its
Subsidiaries or in any other capacity, including any fiduciary capacity, in
which the Executive serves at the request of the Company to the maximum extent
permitted by applicable law and the Company's Certificate of Incorporation and
By-Laws (the "Governing Documents"), provided that in no event shall the
protection afforded to the Executive hereunder be less than that afforded under
the Governing Documents as in effect immediately prior to the Effective Date.
(h) Office and Support Staff. The Executive shall be entitled to an office
with furnishings and other appointments, and to secretarial and other
assistance, at a level that is at least commensurate with the foregoing provided
to other similarly situated officers.
6. Termination. (a) Death. Disability or Retirement. Subject to the
provisions of Section 1 hereof, this Agreement shall terminate automatically
upon the Executive's death, termination due to "Disability" (as defined below)
or voluntary retirement under any of the Company's retirement plans as in effect
from time to time. For purposes of this Agreement, Disability shall mean the
Executive has met the conditions to qualify for long-term disability benefits
under the Company's policies, as in effect immediately prior to the Effective
Date.
(b) Voluntary Termination. Notwithstanding anything in this Agreement to
the contrary, following a Change of Control the Executive may, upon not less
than 60 days' written notice to the Company, voluntarily terminate employment
for any reason (including early retirement under the terms of any of the
Company's retirement plans as in effect from time to time), provided that any
termination by the Executive
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pursuant to Section 6(d) on account of Good Reason (as defined therein) shall
not be treated as a voluntary termination under this Section 6(b).
(c) Cause. The Company may terminate the Executive's employment for Cause.
For purposes of this Agreement, "Cause" means (i) the Executive's conviction or
plea of nolo contendere to a felony; (ii) an act or acts of dishonesty or gross
misconduct on the Executive's part which result or are intended to result in
material damage to the Company's business or reputation; or (iii) repeated
material violations by the Executive of his obligations under Section 4 of this
Agreement, which violations are demonstrably willful and deliberate on the
Executive's part and which result in material damage to the Company's business
or reputation.
(d) Good Reason. Following the occurrence of a Change of Control, the
Executive may terminate his employment for Good Reason. For purposes of this
Agreement, "Good Reason" means the occurrence of any of the following, without
the express written consent of the Executive, after the occurrence of a Change
of Control:
(i) the assignment to the Executive of any duties inconsistent in any
material adverse respect with the Executive's position, authority or
responsibilities as contemplated by Section 4 of this Agreement, or any
other material adverse change in such position, including titles, authority
or responsibilities;
(ii) any failure by the Company to comply with any of the provisions
of Section 5 of this Agreement, other than an insubstantial or inadvertent
failure remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location more than 50 miles (or such other distance as shall be set
forth in the Company's relocation policy as in effect at the Effective
Time) from that location at which he performed his services specified under
the provisions of Section 4 immediately prior to the Change of Control,
except for travel reasonably required in the performance of the Executive's
responsibilities; or
(iv) any failure by the Company to obtain the assumption and agreement
to perform this Agreement by a successor as contemplated by Section 12(b).
In no event shall the mere occurrence of a Change of Control, absent any further
impact on the Executive, be deemed to constitute Good Reason.
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(e) Special Window Period. The Executive shall also have the right to
terminate his employment at any time and for any reason during the 30-day period
commencing on the first anniversary of the date on which a Change of Control
occurs (the "Special Window Period").
(f) Notice of Termination. Any termination by the Company for Cause or by
the Executive for Good Reason shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 13(e). For purposes of
this Agreement, a "Notice of Termination" means a written notice given, in the
case of a termination for Cause, within 10 business days of the Company's having
actual knowledge of the events giving rise to such termination, and in the case
of a termination for Good Reason, within 90 days of the Executive's having
actual knowledge of the events giving rise to such termination, and which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated, and (iii) if the termination date is other than the date of receipt
of such notice, specifies the termination date of this Agreement (which date
shall be not more than 15 days after the giving of such notice). The failure by
the Executive to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason shall not waive any right of the
Executive hereunder or preclude the Executive from asserting such fact or
circumstance in enforcing his rights hereunder.
(g) Date of Termination. For the purpose of this Agreement, the term "Date
of Termination" means (i) in the case of a termination for which a Notice of
Termination is required, the date of receipt of such Notice of Termination or,
if later, the date specified therein, as the case may be, and (ii) in all other
cases, the actual date on which the Executive's employment terminates during the
Employment Period.
7. Obligations of the Company upon Termination. (a) Death or Disability. If
the Executive's employment is terminated during the Employment Period by reason
of the Executive's death or Disability, this Agreement shall terminate without
further obligations to the Executive or the Executive's legal representatives
under this Agreement other than those obligations accrued hereunder at the Date
of Termination, and the Company shall pay to the Executive (or his beneficiary
or estate) (i) the Executive's full Base Salary through the Date of Termination
(the "Earned Salary"), (ii) any vested amounts or benefits owing to the
Executive under the Company's otherwise applicable employee benefit plans and
programs, including any compensation previously deferred by the Executive
(together with any accrued earnings thereon) and not yet paid by the Company and
any accrued vacation pay not yet paid by the Company (the "Accrued
Obligations"), and (iii) any other benefits payable due to the Executive's death
or Disability under the Company's plans, policies or programs (the "Additional
Benefits").
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Any Earned Salary shall be paid in cash in a single lump sum as soon as
practicable, but in no event more than 10 days (or at such earlier date required
by law), following the Date of Termination. Accrued Obligations and Additional
Benefits shall be paid in accordance with the terms of the applicable plan,
program or arrangement.
(b) Cause and Voluntary Termination. If, during the Employment Period, the
Executive's employment shall be terminated for Cause or voluntarily terminated
by the Executive (other than on account of Good Reason following a Change of
Control), the Company shall pay the Executive (i) the Earned Salary in cash in a
single lump sum as soon as practicable, but in no event more than 10 days,
following the Date of Termination, and (ii) the Accrued Obligations in
accordance with the terms of the applicable plan, program or arrangement.
(c) Termination by the Company other than for Cause and Termination by the
Executive for Good Reason or in the Special Window Period. If (x) the Company
terminates the Executive's employment other than for Cause during the Employment
Period, (y) the Executive terminates his employment at any time during the
Employment Period for Good Reason or (z) the Executive terminates his employment
with or without Good Reason during the Special Window Period, the Company shall
provide the Executive with the following benefits:
(i) Severance and Other Termination Payments. The Company shall pay
the Executive the following:
(A) the Executive's Earned Salary; and
(B) an amount (the Pro-Rated Annual Incentive) equal to the average
of the annual bonuses payable to the Executive for the two fiscal
years of the Company ended prior to the Effective Date for which
bonuses have been determined (the "Average Annual Bonus")
multiplied by a fraction, the numerator of which is the number of
months in such fiscal year which have elapsed on or before (and
including) the last day of the month in which the Date of
Termination occurs and the denominator of which is 12; and
(C) an aggregate amount (the Book Value Award Amount) equal to the
sum of the amounts payable to the Executive in respect of each
outstanding incentive award related to the Company's adjusted
book value, determined as of the end of the month in which the
Date of Termination occurs; and
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(D) the Accrued Obligations; and
(E) a cash amount (the "Severance Amount") equal to three times the
sum of
(1) the Executive's annual Base Salary;
(2) an amount equal to the Average Annual Bonus;
The Earned Salary, Pro-Rated Annual Incentive and Severance Amount shall be
paid in cash in a single lump sum as soon as practicable, but in no event
more than 10 days (or at such earlier date required by law), following the
Date of Termination. The Book Value Award Amounts shall be paid in cash as
soon as practicable after the amount of each such payment can be
determined. Accrued Obligations shall be paid in accordance with the terms
of the applicable plan, program or arrangement.
(ii) Continuation of Benefits. If, during the Employment Period, the
Company terminates the Executive's employment other than for Cause or the
Executive terminates his employment for Good Reason, the Executive (and, to
the extent applicable, his dependents) shall be entitled, after the Date of
Termination until the earlier of (1) the third anniversary of the Date of
Termination (the "End Date") and (2) the date the Executive becomes
eligible for comparable benefits under a similar plan, policy or program of
a subsequent employer, to continue participation in all of the Company's
group health and group life employee benefits plans (the "Group Benefit
Plans"). To the extent any such benefits cannot be provided under the terms
of the applicable plan, policy or program, the Company shall provide a
comparable benefit under another plan or from the Company's general assets.
The Executive's participation in the Group Benefit Plans will be on the
same terms and conditions (including, without limitation, any condition
that the Executive make contributions toward the cost of such coverage on
the same terms and conditions generally applicable to similarly situated
employees) that would have applied had the Executive continued to be
employed by the Company through the End Date.
(iii) Restricted Stock. Any and all awards of restricted stock held by
the Executive at the Date of Termination shall immediately become fully
vested.
(iv) Post-Termination Exercise Period. Notwithstanding anything else
contained in Section 14 of the Company's 1987 Stock Option Plan to the
contrary,
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in the event that Executive is entitled to receive the severance benefits
described above pursuant to the terms of this Agreement, all of his
outstanding Options and SARs awarded under such 1997 Stock Option Plan
shall automatically be and become fully exercisable on the Date of
Termination without further action on anyone's part and the Executive shall
have the right to exercise any such Option or SAR until the earlier to
occur of the expiration of the term of such Option or SAR and the fifth
anniversary of the Date of Termination.
(v) Retirement Contribution Credits. The Executive shall receive
credits to the Company's nonqualified excess benefits plan with respect to
the amounts that would otherwise have been contributed on his behalf under
the Company's Money Purchase Pension Plan and Profit Sharing Plan had the
Executive continued in the company's employ for three years following the
Date of Termination.
(vi) Outplacement Services. The Executive shall be provided at the
Company's expense with outplacement services customary for executives at
his level (including, without limitation, office space and telephone
support services) provided by a qualified and experienced third party
provider selected by the Company.
(d) Discharge of the Company's Obligations. Except as expressly provided in
the last sentence of this Section 7(d), the amounts payable to the Executive
pursuant to this Section 7 following termination of his employment shall be in
fun and complete satisfaction of the Executive's rights under this Agreement and
any other claims he may have in respect of his employment by the Company or any
of its Subsidiaries. Such amounts shall constitute liquidated damages with
respect to any and all such rights and claims and, upon the Executive's receipt
of such amounts, the Company shall be released and discharged from any and all
liability to the Executive in connection with this Agreement or otherwise in
connection with the Executive's employment with the Company and its
Subsidiaries. Nothing in this Section 7(d) shall be construed to release the
Company from its commitment to indemnify the Executive and hold the Executive
harmless from and against any claim, loss or cause of action arising from or out
of the Executive's performance as an officer, director or employee of the
Company or any of its Subsidiaries or in any other capacity, including any
fiduciary capacity, in which the Executive served at the request of the Company
to the maximum extent permitted by applicable law and the Governing Documents.
(e) Certain Further Payments by the Company.
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(i) In the event that any amount or benefit paid or distributed to the
Executive pursuant to this Agreement, taken together with any amounts or
benefits otherwise paid or distributed to the Executive by the Company or
any affiliated company (collectively, the "Covered Payments"), are or
become subject to the tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any similar
tax that may hereafter be imposed, the Company shall pay to the Executive
at the time specified in Section 7(e)(v) below an additional amount (the
"Tax Reimbursement Payment") such that the net amount retained by the
Executive with respect to such Covered Payments, after deduction of any
Excise Tax on the Covered Payments and any Federal, state and local income
or employment tax and Excise Tax on the Tax Reimbursement Payment provided
for by this Section 7(e), but before deduction for any Federal, state or
local income or employment tax withholding on such Covered Payments, shall
be equal to the amount of the Covered Payments.
(ii) For purposes of determining whether any of the Covered Payments
will be subject to the Excise Tax and the amount of such Excise Tax,
(A) such Covered Payments will be treated as "parachute payments"
within the meaning of Section 280G of the Code, and all
"parachute payments" in excess of the "base amount" (as defined
under Section 280G(b)(3) of the Code) shall be treated as subject
to the Excise Tax, unless, and except to the extent that, in the
good faith judgment of the Company's independent certified public
accountants appointed prior to the Change of Control Date or tax
counsel selected by such Accountants (the "Accountants"), the
Company has a reasonable basis to conclude that such Covered
Payments (in whole or in part) either do not constitute
"parachute payments" or represent reasonable compensation for
personal services actually rendered (within the meaning of
Section 280G(b)(4)(B) of the Code) in excess of the "base
amount," or such "parachute payments" are otherwise not subject
to such Excise Tax, and
(B) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with
the principles of Section 280G of the Code.
(iii) For purposes of determining the amount of the Tax Reimbursement
Payment, the Executive shall be deemed to pay:
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<PAGE>
(A) Federal income taxes at the highest applicable marginal rate of
Federal income taxation for the calendar year in which the Tax
Reimbursement Payment is to be made, and
(B) any applicable state and local income taxes at the highest
applicable marginal rate of taxation for the calendar year in
which the Tax Reimbursement Payment is to be made, net of the
maximum reduction in Federal income taxes which could be obtained
from the deduction of such state or local taxes if paid in such
year.
(iv) In the event that the Excise Tax is subsequently determined by
the Accountants or pursuant to any proceeding or negotiations with the
Internal Revenue Service to be less than the amount taken into account
hereunder in calculating the Tax Reimbursement Payment made, the Executive
shall repay to the Company, at the time that the amount of such reduction
in the Excise Tax is finally determined, the portion of such prior Tax
Reimbursement Payment that would not have been paid if such Excise Tax had
been applied in initially calculating such Tax Reimbursement Payment, plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any
portion of the Tax Reimbursement Payment to be refunded to the Company has
been paid to any Federal, state or local tax authority, repayment thereof
shall not be required until actual refund or credit of such portion has
been made to the Executive, and interest payable to the Company shall not
exceed interest received or credited to the Executive by such tax authority
for the period it held such portion. The Executive and the Company .shall
mutually agree upon the course of action to be pursued (and the method of
allocating the expenses thereof) if the Executive's good faith claim for
refund or credit is denied.
In the event that the Excise Tax is later determined by the
Accountants or pursuant to any proceeding or negotiations with the Internal
Revenue Service to exceed the amount taken into account hereunder at the
time the Tax Reimbursement Payment is made (including, but not limited to,
by reason of any payment the existence or amount of which cannot be
determined at the time of the Tax Reimbursement Payment), the Company shall
make an additional Tax Reimbursement Payment in respect of such excess
(plus any interest or penalty payable with respect to such excess) at the
time that the amount of such excess is finally determined.
(v) The Tax Reimbursement Payment (or portion thereof) provided for in
Section 7(e)(i) above shall be paid to the Executive not later than 10
business
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days following the payment of the Covered Payments; provided, however, that
if the amount of such Tax Reimbursement Payment (or portion thereof) cannot
be finally determined on or before the date on which payment is due, the
Company shall pay to the Executive by such date an amount estimated in good
faith by the Accountants to be the minimum amount of such Tax Reimbursement
Payment and shall pay the remainder of such Tax Reimbursement Payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined, but in no event
later than 45 calendar days after payment of the related Covered Payment.
In the event that the amount of the estimated Tax Reimbursement Payment
exceeds the amount subsequently determined to have been due, such excess
shall constitute a loan by the Company to the Executive, payable on the
fifth business day after written demand by the Company for payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code).
8. Non-exclusivity of Rights. Except as expressly provided herein, nothing
in this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Company or any of its affiliated companies and for which the Executive
may qualify, nor shall anything herein limit or otherwise prejudice such lights
as the Executive may have under any other agreements with the Company or any of
its affiliated companies, including employment agreements or stock option
agreements. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan or program.
9. No Offset. The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Executive or others whether by reason of the subsequent employment
of the Executive or otherwise.
10. Legal Fees and Expenses. If the Executive asserts any claim in any
contest (whether initiated by the Executive or by the Company) as to the
validity, enforceability or interpretation of any provision of this Agreement,
the Company shall pay the Executive's legal expenses (or cause such expenses to
be paid) including, without limitation, his reasonable attorney's fees, on a
quarterly basis, upon presentation of proof of such expenses in a form
acceptable to the Company, provided that the Executive shall reimburse the
Company for such amounts, plus simple interest thereon at the 90-day United
States Treasury Bill rate as in effect from time to time, compounded annually,
if
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the arbitrator referred to in Section 13(b) or a court of competent jurisdiction
shall find that the Executive did not have a good faith and reasonable basis to
believe that he would prevail as to at least one material issue presented to
such arbitrator or court.
11. Confidential Information, Company Property. By and in consideration of
the salary and benefits to be provided by the Company hereunder, including the
severance arrangements set forth herein, the Executive agrees that:
(a) Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, (i) obtained by the Executive during his
employment by the Company or any of its affiliated companies and (ii) not
otherwise public knowledge (other than by reason of an unauthorized act by the
Executive). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company,
unless compelled pursuant to an order of a court or other body having
jurisdiction over such matter, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
(b) Nonsolicitation of Employees, The Executive agrees that for two years
after the Date of Termination, he will not attempt, directly or indirectly, to
induce any employee of the Company, or any subsidiary or any affiliate thereof
to be employed or perform services elsewhere or otherwise to cease providing
services to the Company, or any subsidiary or affiliate thereof
(c) Company Property. Except as expressly provided herein, promptly
following the Executive's termination of employment, the Executive shall return
to the Company all property of the Company and all copies thereof in the
Executive's possession or under his control.
(d) Injunctive Relief and Other Remedies with Respect to Covenants. The
Executive acknowledges and agrees that the covenants and obligations of the
Executive with respect to confidentiality and Company property relate to
special, unique and extraordinary matters and that a violation of any of the
terms of such covenants and obligations will cause the Company irreparable
injury for which adequate remedies are not available at law, Therefore, the
Executive agrees that the Company shall be entitled to an injunction,
restraining order or such other equitable relief (without the requirement to
post bond) restraining Executive from committing any violation of the covenants
and obligations contained in this Section 11 These remedies are cumulative and
are in addition to any other rights and remedies the Company may have at law or
in equity. In no event shall
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an asserted violation of the provisions of this Section 11 constitute a basis
for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement.
12. Successors. (a) This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors. The Company shall require any successor to all or
substantially all of the business and/or assets of the Company, whether direct
or indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as the Company would be required to perform if no such
succession had taken place.
13. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of the States of New York, applied
without reference to principles of conflict of laws.
(b) Arbitration. Except to the extent provided in Section 11(c), any
dispute or controversy arising under or in connection with this Agreement shall
be resolved by binding arbitration. The arbitration shall be held in the city of
White Plains, New York and, except to the extent inconsistent with this
Agreement, shall be conducted in accordance with the Expedited Employment
Arbitration Rules of the American Arbitration Association then in effect at the
time of the arbitration (or such other rules as the parties may agree to in
writing), and otherwise in accordance with principles which would be applied by
a court of law or equity. The arbitrator shall be acceptable to both the Company
and the Executive. If the parties cannot agree on an acceptable arbitrator, the
dispute shall be heard by a panel of three arbitrators, one appointed by each of
the parties and the third appointed by the other two arbitrators.
(c) Amendments. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(d) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters referred to herein. No
other agreement relating to the terms of the Executive's employment by the
Company, oral or otherwise, shall be binding between the parties unless it is in
writing and signed by the party against whom enforcement is sought. There are no
promises, representations,
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inducements or statements between the parties other than those that are
expressly contained herein. The Executive acknowledges that he is entering into
t1ris Agreement of his own free will and accord, and with no duress, that he has
read this Agreement and that he understands it and its legal consequences.
(e) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand-delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: at the home address of the Executive
noted on the records of the Company
If to the Company: MBIA Inc.
113 King Street
Armonk, New York 10504
Attn.: Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(f) Tax Withholding. The Company shall withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(g) Severability: Reformation. In the event that one or more of the
provisions of this Agreement shall become invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby. In the event that any
of the provisions of any of Section 11(a) are not enforceable in accordance with
its terms, the Executive and the Company agree that such Section shall be
reformed to make such Section enforceable in a manner which provides the Company
the maximum rights permitted at law.
(h) Waiver. Waiver by any party hereto of any breach or default by the
other party of any of the terms of this Agreement shall not operate as a waiver
of any other breach or default, whether similar to or different from the breach
or default waived. No waiver of any provision of this Agreement shall be implied
from any course of dealing between the parties hereto or from any failure by
either party hereto to assert its or his rights hereunder on any occasion or
series of occasions.
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(i) Survival. The provisions of Section 7(c)(iii) (and so much of Section
7(d) as provides a benefit identical to that payable under such Section
7(c)(iii)) shall survive the termination of the Employment Period hereunder and
shall be binding upon and enforceable against the Company in accordance with its
terms. In the event, that any dispute arises with respect to the Executive's
entitlement to such enhanced retirement benefits, the dispute resolutions
provisions contained in Section 13(b) and the legal fees provision contained in
Section 10 shall also survive the end of the Employment Period and shall be
applied as though the dispute arose within the Employment Period.
(j) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
(k) Captions. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the Company
has caused this Agreement to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed and attested by its Secretary, all as of
the day and year first above written.
MBIA Inc.
/s/ Louis G. Lenzi
------------------------------
By: Louis G. Lenzi
Title: General Counsel
EXECUTIVE:
/s/ Neil G. Budnick
------------------------------
18
KEY EMPLOYEE EMPLOYMENT PROTECTION AGREEMENT
THIS AGREEMENT between MBIA Inc., a Connecticut corporation (the
"Company"), and Thacher Brown (the "Executive"), dated as of this 25th day of
January, 1999.
WITNESSETH:
WHEREAS, the Company has employed the Executive in an officer position and
has determined that the Executive holds an important position with the Company;
WHEREAS, the Company believes that, in the event it is confronted with a
situation that could result in a change in ownership or control of the Company,
continuity of management will be essential to its ability to evaluate and
respond to such a situation in the best interests of shareholders;
WHEREAS, the Company understands that any such situation will present
significant concerns for the Executive with respect to his financial and job
security,
WHEREAS, the Company desires to assure itself of the Executives services
during the period in which it is confronting such a situation, and to provide
the Executive certain financial assurances to enable the Executive to perform
the responsibilities of his position without undue distraction and to exercise
his judgment without bias due to his personal circumstances;
WHEREAS, to achieve these objectives, the Company and the Executive desire
to enter into an agreement providing the Company and the Executive with certain
rights and obligations upon the occurrence of a Change of Control or Potential
Change of Control (as defined in Section 2);
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is hereby agreed by and between the Company and the
Executive as follows:
1. Operation of Agreement. (a) Effective Date. The effective date of this
Agreement shall be the date on which a Change of Control occurs (the "Effective
<PAGE>
Date"), provided that, except as provided in Section I (b), if the Executive is
not employed by the Company on the Effective Date, this Agreement shall be void
and without effect.
(b) Termination of Employment Following a Potential Change of Control.
Notwithstanding Section l(a), if (i) the Executive's employment is terminated by
the Company Without Cause (as defined in Section 6(c)) after the occurrence of a
Potential Change of Control and prior to the occurrence of a Change of Control
and prior to the time at which the Board of Directors of the Company (the Board)
has adopted a Nullification Resolution (as defined in Section 2(b) hereof) with
respect to such Potential Change of Control or (ii) a Change of Control (as
defined in Section 2(a) hereof). and (ii) a Change of Control occurs within two
years of such termination, the Executive shall be deemed, solely for purposes of
determining his rights under this Agreement, to have remained employed until the
date such Change of Control occurs and to have been terminated by the Company
Without Cause immediately after this Agreement becomes effective, with any
amounts payable hereunder reduced by the amount of any other severance benefits
provided to him in connection with such termination.
2. Definitions. (a) Change of Control. For the purposes of this Agreement,
a "Change of Control" shall be deemed to have occurred if:
(i) any person, as such term is currently used is Section 13(d) or
14(d) of the 1934 Act, other than the Company, its majority owned
subsidiaries, or any employee benefit plan of the Company or any of its
majority-owned subsidiaries, becomes a "beneficial owner" (as such term is
currently used in Rule 13d-3, as promulgated under 1934 Act) of 25% or more
of the Voting Power of the Company;
(ii) on any date, a majority of the Board consists of individuals
other than Incumbent Directors, which term means the members of the Board
who were serving on the Board at beginning of any 24-month period ending
with such date (or another date specified by the Committee), provided that
any individual who becomes a director subsequent to that date whose
election or nomination for election was supported by two-thirds of the
directors who then comprised the Incumbent Directors shall be considered to
be an Incumbent Director for purposes of this subsection 2(a)(ii);
(iii) the stockholders of the Company approve a merger, consolidation,
share exchange, division, sale or other disposition of substantially all of
the assets of the Company (a "Corporate Event"), as a result of which the
shareholders of the Company immediately prior to such Corporate Event (the
Company Shareholders) shall not hold, directly or indirectly, immediately
following such Corporate Event a
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majority of the Voting Power of (x) in the case of a merger or
consolidation, the surviving or resulting corporation, (y) in the case of a
share exchange, the acquiring corporation or (z) in the case of a division
or a sale or other disposition of substantially all of the Company's
assets, each surviving, resulting or acquiring corporation; provided that
such a division or sale shall not be a Change of Control for purposes of
this Agreement to the extent that, following such Corporate Event, the
Executive continues to be employed by a surviving, resulting or acquiring
entity with respect to which the Company Shareholders hold, directly or
indirectly, a majority of the Voting Power immediately following such
Corporate Event.
(b) Potential Change of Control. For the purposes of this Agreement, a
Potential Change of Control shall be deemed to have occurred if:
(i) a Person commences a tender offer (with adequate financing) for
securities representing at least 15% of the Voting Power of the Company's
securities;
(ii) the Company enters into an agreement the consummation of which
would constitute a Change of Control;
(iii) proxies for the election of directors of the Company are
solicited by anyone other than the Company; or
(iv) any other event occurs which is deemed to be a Potential Change
of Control by the Board.
Notwithstanding the foregoing, if, after a Potential Change of Control and
before a Change of Control, the Board makes a good faith determination that such
Potential Change of Control will not result in a Change of Control, the Board
may nullify the effect of the Potential Change of Control (a "Nullification") by
resolution (a "Nullification Resolution"), in which case the Executive shall
have no further rights and obligations under this Agreement by reason of such
Potential Change of Control; provided, however, that if the Executive shall have
delivered a Notice of Termination (within the meaning of Section 6(f) hereof)
prior to the date of the Nullification Resolution, such Resolution shall not
effect the Executive's rights hereunder. If a Nullification Resolution has been
adopted and the Executive has not delivered a Notice of Termination prior
thereto, the Effective Date for purposes of this Agreement shall be the date, if
any, during the term hereof on which another Potential Change of Control or any
actual Change of Control occurs.
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(c) Voting Power Defined. A specified percentage of "Voting Power" of a
company shall mean such number of the Voting Securities as shall enable the
holders thereof to cast such percentage of all the votes which could be cast in
an annual election of directors and "Voting Securities" shall mean all
securities of a company entitling the, holders thereof to vote in an annual
election of directors.
3. Employment Period. Subject to Section 6 of this Agreement, the Company
agrees to continue the Executive in its employ, and the Executive agrees to
remain in the employ of the Company, for the period (the "Employment Period")
commencing on the Effective Date and ending on the third anniversary of the
Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date,
the Executive is demoted to a lower position than the position held on the date
first set forth above, the Board may declare that this Agreement shall be
without force and effect by written notice delivered to the Executive (i) within
30 days following such demotion and (ii) prior to the occurrence of a Potential
Change of Control or a Change of Control.
4. Position and Duties. (a) No Reduction in Position. During the Employment
Period, the Executive's position (including titles), authority and
responsibilities shall be at least commensurate with those held, exercised and
assigned immediately prior to the Effective Date. It is understood that, for
purposes of this Agreement, such position, authority and responsibilities shall
not be regarded as not commensurate merely by virtue of the fact that a
successor shall have acquired all or substantially all of the business and/or
assets of the Company as contemplated by Section 12(b) of this Agreement. The
Executive's services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date.
(b) Business Time. From and after the Effective Date, the Executive agrees
to devote His full attention during normal business hours to the business and
affairs of the Company and to use his best efforts to perform faithfully and
efficiently the responsibilities assigned to him hereunder, to the extent
necessary to discharge such responsibilities, except for (i) time spent in
managing his personal, financial and legal affairs and serving on corporate,
civic or charitable boards or committees, in each case only if and to the extent
not substantially interfering with the performance of such responsibilities, and
(ii) periods of vacation and sick leave to which he is entitled. It is expressly
understood and agreed that the Executive's continuing to serve on any boards and
committees on which he is serving or with which he is other-wise associated
immediately preceding the Effective Date shall not be deemed to interfere with
the performance of the Executive's services to the Company.
5. Compensation. (a) Base Salary. During the Employment Period, the
Executive shall receive a base salary at a monthly rate at least equal to the
monthly
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<PAGE>
salary paid to the Executive by the Company and any of its affiliated companies
immediately prior to the Effective Date. The base salary shall be reviewed at
least once each year after the Effective Date, and may be increased (but not
decreased) at any time and from time to time by action of the Board or any
committee thereof or any individual having authority to take such action in
accordance with the Company's regular practices. The Executive's base salary, as
it may be increased from time to time, shall hereafter be referred to as "Base
Salary". Neither the Base Salary nor any increase in Base Salary after the
Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder.
(b) Annual Bonus. During the Employment Period, in addition to the Base
Salary, for each fiscal year of the Company ending during the Employment Period,
the Executive shall be afforded the opportunity to receive an annual bonus on
terms and conditions no less favorable to the Executive (taking into account
reasonable changes in the Company's goals and objectives and taking into account
actual performance) than the annual bonus opportunity that had been made
available to the Executive for the fiscal year ended immediately prior to the
Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect
of the Annual Bonus Opportunity shall be paid as soon as practicable following
the year for which the amount (or prorated portion) is earned or awarded, unless
electively deferred by the Executive pursuant to any deferral programs or
arrangements that the Company may make available to the Executive.
(c) Long-term Incentive Compensation Programs. During the Employment
Period, the Executive shall participate in all long-term incentive compensation
programs for key executives at a level that is commensurate with the Executive's
participation in such plans immediately prior to the Effective Date, or, if more
favorable to the Executive, at the level made available to the Executive or
other similarly situated officers at any time thereafter.
(d) Benefit Plans. During the Employment Period, the Executive (and, to the
extent applicable, his dependents) shall be entitled to participate in or be
covered under all pension, retirement, deferred compensation, savings, medical,
dental, health, disability, group life and accidental death insurance plans and
programs of the Company and its affiliated companies at a level that is
commensurate with the Executive's participation in such plans immediately prior
to the Effective Date, or, if more favorable to the Executive, at the level made
available to the Executive or other similarly situated officers at any time
thereafter.
(e) Expenses. During the Employment Period, the Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the policies and procedures of the Company as in
effect
5
<PAGE>
immediately prior to the Effective Date. Notwithstanding the foregoing, the
Company may apply the policies and procedures in effect after the Effective Date
to the Executive, if such policies and procedures are not less favorable to the
Executive than those in effect immediately prior to the Effective Date.
(f) Vacation and Fringe Benefits. During the Employment Period, the
Executive shall be entitled to paid vacation and fringe benefits at a level that
is commensurate with the paid vacation and fringe benefits available to the
Executive immediately prior to the Effective Date, or, if more favorable to the
Executive, at the level made available from time to time to the Executive or
other similarly situated officers at any time thereafter.
(g) Indemnification. During and after the Employment Period, the Company
shall indemnify the Executive and hold the Executive harmless from and against
any claim, loss or cause of action arising from or out of the Executive's
performance as an officer, director or employee of the Company or any of its
Subsidiaries or in any other capacity, including any fiduciary capacity, in
which the Executive serves at the request of the Company to the maximum extent
permitted by applicable law and the Company's Certificate of Incorporation and
By-Laws (the "Governing Documents"), provided that in no event shall the
protection afforded to the Executive hereunder be less than that afforded under
the Governing Documents as in effect immediately prior to the Effective Date.
(h) Office and Support Staff. The Executive shall be entitled to an office
with furnishings and other appointments, and to secretarial and other
assistance, at a level that is at least commensurate with the foregoing provided
to other similarly situated officers.
6. Termination. (a) Death. Disability or Retirement. Subject to the
provisions of Section 1 hereof, this Agreement shall terminate automatically
upon the Executive's death, termination due to "Disability" (as defined below)
or voluntary retirement under any of the Company's retirement plans as in effect
from time to time. For purposes of this Agreement, Disability shall mean the
Executive has met the conditions to qualify for long-term disability benefits
under the Company's policies, as in effect immediately prior to the Effective
Date.
(b) Voluntary Termination. Notwithstanding anything in this Agreement to
the contrary, following a Change of Control the Executive may, upon not less
than 60 days' written notice to the Company, voluntarily terminate employment
for any reason (including early retirement under the terms of any of the
Company's retirement plans as in effect from time to time), provided that any
termination by the Executive
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<PAGE>
pursuant to Section 6(d) on account of Good Reason (as defined therein) shall
not be treated as a voluntary termination under this Section 6(b).
(c) Cause. The Company may terminate the Executive's employment for Cause.
For purposes of this Agreement, "Cause" means (i) the Executive's conviction or
plea of nolo contendere to a felony; (ii) an act or acts of dishonesty or gross
misconduct on the Executive's part which result or are intended to result in
material damage to the Company's business or reputation; or (iii) repeated
material violations by the Executive of his obligations under Section 4 of this
Agreement, which violations are demonstrably willful and deliberate on the
Executive's part and which result in material damage to the Company's business
or reputation.
(d) Good Reason. Following the occurrence of a Change of Control, the
Executive may terminate his employment for Good Reason. For purposes of this
Agreement, "Good Reason" means the occurrence of any of the following, without
the express written consent of the Executive, after the occurrence of a Change
of Control:
(i) the assignment to the Executive of any duties inconsistent in any
material adverse respect with the Executive's position, authority or
responsibilities as contemplated by Section 4 of this Agreement, or any
other material adverse change in such position, including titles, authority
or responsibilities;
(ii) any failure by the Company to comply with any of the provisions
of Section 5 of this Agreement, other than an insubstantial or inadvertent
failure remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location more than 50 miles (or such other distance as shall be set
forth in the Company's relocation policy as in effect at the Effective
Time) from that location at which he performed his services specified under
the provisions of Section 4 immediately prior to the Change of Control,
except for travel reasonably required in the performance of the Executive's
responsibilities; or
(iv) any failure by the Company to obtain the assumption and agreement
to perform this Agreement by a successor as contemplated by Section 12(b).
In no event shall the mere occurrence of a Change of Control, absent any further
impact on the Executive, be deemed to constitute Good Reason.
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<PAGE>
(e) Special Window Period. The Executive shall also have the right to
terminate his employment at any time and for any reason during the 30-day period
commencing on the first anniversary of the date on which a Change of Control
occurs (the "Special Window Period").
(f) Notice of Termination. Any termination by the Company for Cause or by
the Executive for Good Reason shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 13(e). For purposes of
this Agreement, a "Notice of Termination" means a written notice given, in the
case of a termination for Cause, within 10 business days of the Company's having
actual knowledge of the events giving rise to such termination, and in the case
of a termination for Good Reason, within 90 days of the Executive's having
actual knowledge of the events giving rise to such termination, and which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated, and (iii) if the termination date is other than the date of receipt
of such notice, specifies the termination date of this Agreement (which date
shall be not more than 15 days after the giving of such notice). The failure by
the Executive to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason shall not waive any right of the
Executive hereunder or preclude the Executive from asserting such fact or
circumstance in enforcing his rights hereunder.
(g) Date of Termination. For the purpose of this Agreement, the term "Date
of Termination" means (i) in the case of a termination for which a Notice of
Termination is required, the date of receipt of such Notice of Termination or,
if later, the date specified therein, as the case may be, and (ii) in all other
cases, the actual date on which the Executive's employment terminates during the
Employment Period.
7. Obligations of the Company upon Termination. (a) Death or Disability. If
the Executive's employment is terminated during the Employment Period by reason
of the Executive's death or Disability, this Agreement shall terminate without
further obligations to the Executive or the Executive's legal representatives
under this Agreement other than those obligations accrued hereunder at the Date
of Termination, and the Company shall pay to the Executive (or his beneficiary
or estate) (i) the Executive's full Base Salary through the Date of Termination
(the "Earned Salary"), (ii) any vested amounts or benefits owing to the
Executive under the Company's otherwise applicable employee benefit plans and
programs, including any compensation previously deferred by the Executive
(together with any accrued earnings thereon) and not yet paid by the Company and
any accrued vacation pay not yet paid by the Company (the "Accrued
Obligations"), and (iii) any other benefits payable due to the Executive's death
or Disability under the Company's plans, policies or programs (the "Additional
Benefits").
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Any Earned Salary shall be paid in cash in a single lump sum as soon as
practicable, but in no event more than 10 days (or at such earlier date required
by law), following the Date of Termination. Accrued Obligations and Additional
Benefits shall be paid in accordance with the terms of the applicable plan,
program or arrangement.
(b) Cause and Voluntary Termination. If, during the Employment Period, the
Executive's employment shall be terminated for Cause or voluntarily terminated
by the Executive (other than on account of Good Reason following a Change of
Control), the Company shall pay the Executive (i) the Earned Salary in cash in a
single lump sum as soon as practicable, but in no event more than 10 days,
following the Date of Termination, and (ii) the Accrued Obligations in
accordance with the terms of the applicable plan, program or arrangement.
(c) Termination by the Company other than for Cause and Termination by the
Executive for Good Reason or in the Special Window Period. If (x) the Company
terminates the Executive's employment other than for Cause during the Employment
Period, (y) the Executive terminates his employment at any time during the
Employment Period for Good Reason or (z) the Executive terminates his employment
with or without Good Reason during the Special Window Period, the Company shall
provide the Executive with the following benefits:
(i) Severance and Other Termination Payments. The Company shall pay
the Executive the following:
(A) the Executive's Earned Salary; and
(B) an amount (the Pro-Rated Annual Incentive) equal to the average
of the annual bonuses payable to the Executive for the two fiscal
years of the Company ended prior to the Effective Date for which
bonuses have been determined (the "Average Annual Bonus")
multiplied by a fraction, the numerator of which is the number of
months in such fiscal year which have elapsed on or before (and
including) the last day of the month in which the Date of
Termination occurs and the denominator of which is 12; and
(C) an aggregate amount (the Book Value Award Amount) equal to the
sum of the amounts payable to the Executive in respect of each
outstanding incentive award related to the Company's adjusted
book value, determined as of the end of the month in which the
Date of Termination occurs; and
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(D) the Accrued Obligations; and
(E) a cash amount (the "Severance Amount") equal to three times the
sum of
(1) the Executive's annual Base Salary;
(2) an amount equal to the Average Annual Bonus;
The Earned Salary, Pro-Rated Annual Incentive and Severance Amount shall be
paid in cash in a single lump sum as soon as practicable, but in no event
more than 10 days (or at such earlier date required by law), following the
Date of Termination. The Book Value Award Amounts shall be paid in cash as
soon as practicable after the amount of each such payment can be
determined. Accrued Obligations shall be paid in accordance with the terms
of the applicable plan, program or arrangement.
(ii) Continuation of Benefits. If, during the Employment Period, the
Company terminates the Executive's employment other than for Cause or the
Executive terminates his employment for Good Reason, the Executive (and, to
the extent applicable, his dependents) shall be entitled, after the Date of
Termination until the earlier of (1) the third anniversary of the Date of
Termination (the "End Date") and (2) the date the Executive becomes
eligible for comparable benefits under a similar plan, policy or program of
a subsequent employer, to continue participation in all of the Company's
group health and group life employee benefits plans (the "Group Benefit
Plans"). To the extent any such benefits cannot be provided under the terms
of the applicable plan, policy or program, the Company shall provide a
comparable benefit under another plan or from the Company's general assets.
The Executive's participation in the Group Benefit Plans will be on the
same terms and conditions (including, without limitation, any condition
that the Executive make contributions toward the cost of such coverage on
the same terms and conditions generally applicable to similarly situated
employees) that would have applied had the Executive continued to be
employed by the Company through the End Date.
(iii) Restricted Stock. Any and all awards of restricted stock held by
the Executive at the Date of Termination shall immediately become fully
vested.
(iv) Post-Termination Exercise Period. Notwithstanding anything else
contained in Section 14 of the Company's 1987 Stock Option Plan to the
contrary,
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in the event that Executive is entitled to receive the severance benefits
described above pursuant to the terms of this Agreement, all of his
outstanding Options and SARs awarded under such 1997 Stock Option Plan
shall automatically be and become fully exercisable on the Date of
Termination without further action on anyone's part and the Executive shall
have the right to exercise any such Option or SAR until the earlier to
occur of the expiration of the term of such Option or SAR and the fifth
anniversary of the Date of Termination.
(v) Retirement Contribution Credits. The Executive shall receive
credits to the Company's nonqualified excess benefits plan with respect to
the amounts that would otherwise have been contributed on his behalf under
the Company's Money Purchase Pension Plan and Profit Sharing Plan had the
Executive continued in the company's employ for three years following the
Date of Termination.
(vi) Outplacement Services. The Executive shall be provided at the
Company's expense with outplacement services customary for executives at
his level (including, without limitation, office space and telephone
support services) provided by a qualified and experienced third party
provider selected by the Company.
(d) Discharge of the Company's Obligations. Except as expressly provided in
the last sentence of this Section 7(d), the amounts payable to the Executive
pursuant to this Section 7 following termination of his employment shall be in
fun and complete satisfaction of the Executive's rights under this Agreement and
any other claims he may have in respect of his employment by the Company or any
of its Subsidiaries. Such amounts shall constitute liquidated damages -with
respect to any and all such rights and claims and, upon the Executive's receipt
of such amounts, the Company shall be released and discharged from any and all
liability to the Executive in connection with this Agreement or otherwise in
connection with the Executive's employment -with the Company and its
Subsidiaries. Nothing in this Section 7(d) shall be construed to release the
Company from its commitment to indemnify the Executive and hold the Executive
harmless from and against any claim, loss or cause of action arising from or out
of the Executive's performance as an officer, director or employee of the
Company or any of its Subsidiaries or in any other capacity, including any
fiduciary capacity, in which the Executive served at the request of the Company
to the maximum extent permitted by applicable law and the Governing Documents.
(e) Certain Further Payments by the Company.
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(i) In the event that any amount or benefit paid or distributed to the
Executive pursuant to this Agreement, taken together with any amounts or
benefits otherwise paid or distributed to the Executive by the Company or
any affiliated company (collectively, the "Covered Payments"), are or
become subject to the tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any similar
tax that may hereafter be imposed, the Company shall pay to the Executive
at the time specified in Section 7(e)(v) below an additional amount (the
"Tax Reimbursement Payment") such that the net amount retained by the
Executive with respect to such Covered Payments, after deduction of any
Excise Tax on the Covered Payments and any Federal, state and local income
or employment tax and Excise Tax on the Tax Reimbursement Payment provided
for by this Section 7(e), but before deduction for any Federal, state or
local income or employment tax withholding on such Covered Payments, shall
be equal to the amount of the Covered Payments.
(ii) For purposes of determining whether any of the Covered Payments
will be subject to the Excise Tax and the amount of such Excise Tax,
(A) such Covered Payments will be treated as "parachute payments"
within the meaning of Section 280G of the Code, and all
"parachute payments" in excess of the "base amount" (as defined
under Section 280G(b)(3) of the Code) shall be treated as subject
to the Excise Tax, unless, and except to the extent that, in the
good faith judgment of the Company's independent certified public
accountants appointed prior to the Change of Control Date or tax
counsel selected by such Accountants (the "Accountants"), the
Company has a reasonable basis to conclude that such Covered
Payments (in whole or in part) either do not constitute
"parachute payments" or represent reasonable compensation for
personal services actually rendered (within the meaning of
Section 280G(b)(4)(B) of the Code) in excess of the "base
amount," or such "parachute payments" are otherwise not subject
to such Excise Tax, and
(B) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with
the principles of Section 280G of the Code.
(iii) For purposes of determining the amount of the Tax Reimbursement
Payment, the Executive shall be deemed to pay:
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(A) Federal income taxes at the highest applicable marginal rate of
Federal income taxation for the calendar year in which the Tax
Reimbursement Payment is to be made, and
(B) any applicable state and local income taxes at the highest
applicable marginal rate of taxation for the calendar year in
which the Tax Reimbursement Payment is to be made, net of the
maximum reduction in Federal income taxes which could be obtained
from the deduction of such state or local taxes if paid in such
year.
(iv) In the event that the Excise Tax is subsequently determined by
the Accountants or pursuant to any proceeding or negotiations with the
Internal Revenue Service to be less than the amount taken into account
hereunder in calculating the Tax Reimbursement Payment made, the Executive
shall repay to the Company, at the time that the amount of such reduction
in the Excise Tax is finally determined, the portion of such prior Tax
Reimbursement Payment that would not have been paid if such Excise Tax had
been applied in initially calculating such Tax Reimbursement Payment, plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any
portion of the Tax Reimbursement Payment to be refunded to the Company has
been paid to any Federal, state or local tax authority, repayment thereof
shall not be required until actual refund or credit of such portion has
been made to the Executive, and interest payable to the Company shall not
exceed interest received or credited to the Executive by such tax authority
for the period it held such portion. The Executive and the Company .shall
mutually agree upon the course of action to be pursued (and the method of
allocating the expenses thereof) if the Executive's good faith claim for
refund or credit is denied.
In the event that the Excise Tax is later determined by the
Accountants or pursuant to any proceeding or negotiations with the Internal
Revenue Service to exceed the amount taken into account hereunder at the
time the Tax Reimbursement Payment is made (including, but not limited to,
by reason of any payment the existence or amount of which cannot be
determined at the time of the Tax Reimbursement Payment), the Company shall
make an additional Tax Reimbursement Payment in respect of such excess
(plus any interest or penalty payable with respect to such excess) at the
time that the amount of such excess is finally determined.
(v) The Tax Reimbursement Payment (or portion thereof) provided for in
Section 7(e)(i) above shall be paid to the Executive not later than 10
business
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days following the payment of the Covered Payments; provided, however, that
if the amount of such Tax Reimbursement Payment (or portion thereof) cannot
be finally determined on or before the date on which payment is due, the
Company shall pay to the Executive by such date an amount estimated in good
faith by the Accountants to be the minimum amount of such Tax Reimbursement
Payment and shall pay the remainder of such Tax Reimbursement Payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined, but in no event
later than 45 calendar days after payment of the related Covered Payment.
In the event that the amount of the estimated Tax Reimbursement Payment
exceeds the amount subsequently determined to have been due, such excess
shall constitute a loan by the Company to the Executive, payable on the
fifth business day after written demand by the Company for payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code).
8. Non-exclusivity of Rights. Except as expressly provided herein, nothing
in this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Company or any of its affiliated companies and for which the Executive
may qualify, nor shall anything herein limit or otherwise prejudice such lights
as the Executive may have under any other agreements with the Company or any of
its affiliated companies, including employment agreements or stock option
agreements. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan or program.
9. No Offset. The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Executive or others whether by reason of the subsequent employment
of the Executive or otherwise.
10. Legal Fees and Expenses. If the Executive asserts any claim in any
contest (whether initiated by the Executive or by the Company) as to the
validity, enforceability or interpretation of any provision of this Agreement,
the Company shall pay the Executive's legal expenses (or cause such expenses to
be paid) including, without limitation, his reasonable attorney's fees, on a
quarterly basis, upon presentation of proof of such expenses in a form
acceptable to the Company, provided that the Executive shall reimburse the
Company for such amounts, plus simple interest thereon at the 90-day United
States Treasury Bill rate as in effect from time to time, compounded annually,
if
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the arbitrator referred to in Section 13(b) or a court of competent jurisdiction
shall find that the Executive did not have a good faith and reasonable basis to
believe that he would prevail as to at least one material issue presented to
such arbitrator or court.
11. Confidential Information, Company Property. By and in consideration of
the salary and benefits to be provided by the Company hereunder, including the
severance arrangements set forth herein, the Executive agrees that:
(a) Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, (i) obtained by the Executive during his
employment by the Company or any of its affiliated companies and (ii) not
otherwise public knowledge (other than by reason of an unauthorized act by the
Executive). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company,
unless compelled pursuant to an order of a court or other body having
jurisdiction over such matter, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
(b) Nonsolicitation of Employees, The Executive agrees that for two years
after the Date of Termination, he will not attempt, directly or indirectly, to
induce any employee of the Company, or any subsidiary or any affiliate thereof
to be employed or perform services elsewhere or otherwise to cease providing
services to the Company, or any subsidiary or affiliate thereof
(c) Company Property. Except as expressly provided herein, promptly
following the Executive's termination of employment, the Executive shall return
to the Company all property of the Company and all copies thereof in the
Executive's possession or under his control.
(d) Injunctive Relief and Other Remedies with Respect to Covenants. The
Executive acknowledges and agrees that the covenants and obligations of the
Executive with respect to confidentiality and Company property relate to
special, unique and extraordinary matters and that a violation of any of the
terms of such covenants and obligations will cause the Company irreparable
injury for which adequate remedies are not available at law, Therefore, the
Executive agrees that the Company shall be entitled to an injunction,
restraining order or such other equitable relief (without the requirement to
post bond) restraining Executive from committing any violation of the covenants
and obligations contained in this Section 11 These remedies are cumulative and
are in addition to any other rights and remedies the Company may have at law or
in equity. In no event shall
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an asserted violation of the provisions of this Section 11 constitute a basis
for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement.
12. Successors. (a) This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors. The Company shall require any successor to all or
substantially all of the business and/or assets of the Company, whether direct
or indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as the Company would be required to perform if no such
succession had taken place.
13. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of the States of New York, applied
without reference to principles of conflict of laws.
(b) Arbitration. Except to the extent provided in Section 11(c), any
dispute or controversy arising under or in connection with this Agreement shall
be resolved by binding arbitration. The arbitration shall be held in the city of
White Plains, New York and, except to the extent inconsistent with this
Agreement, shall be conducted in accordance with the Expedited Employment
Arbitration Rules of the American Arbitration Association then in effect at the
time of the arbitration (or such other rules as the parties may agree to in
writing), and otherwise in accordance with principles which would be applied by
a court of law or equity. The arbitrator shall be acceptable to both the Company
and the Executive. If the parties cannot agree on an acceptable arbitrator, the
dispute shall be heard by a panel of three arbitrators, one appointed by each of
the parties and the third appointed by the other two arbitrators.
(c) Amendments. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(d) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters referred to herein. No
other agreement relating to the terms of the Executive's employment by the
Company, oral or otherwise, shall be binding between the parties unless it is in
writing and signed by the party against whom enforcement is sought. There are no
promises, representations,
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inducements or statements between the parties other than those that are
expressly contained herein. The Executive acknowledges that he is entering into
t1ris Agreement of his own free will and accord, and with no duress, that he has
read this Agreement and that he understands it and its legal consequences.
(e) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand-delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: At the home address of the Executive noted
on the records of the Company
If to the Company: MBIA Inc.
113 King Street
Armonk, New York 10504
Attn.: Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(f) Tax Withholding. The Company shall withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(g) Severability: Reformation. In the event that one or more of the
provisions of this Agreement shall become invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby. In the event that any
of the provisions of any of Section 11(a) are not enforceable in accordance with
its terms, the Executive and the Company agree that such Section shall be
reformed to make such Section enforceable in a manner which provides the Company
the maximum rights permitted at law.
(h) Waiver. Waiver by any party hereto of any breach or default by the
other party of any of the terms of this Agreement shall not operate as a waiver
of any other breach or default, whether similar to or different from the breach
or default waived. No waiver of any provision of this Agreement shall be implied
from any course of dealing between the parties hereto or from any failure by
either party hereto to assert its or his rights hereunder on any occasion or
series of occasions.
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(i) Survival. The provisions of Section 7(c)(iii) (and so much of Section
7(d) as provides a benefit identical to that payable under such Section
7(c)(iii)) shall survive the termination of the Employment Period hereunder and
shall be binding upon and enforceable against the Company in accordance with its
terms. In the event, that any dispute arises with respect to the Executive's
entitlement to such enhanced retirement benefits, the dispute resolutions
provisions contained in Section 13(b) and the legal fees provision contained in
Section 10 shall also survive the end of the Employment Period and shall be
applied as though the dispute arose within the Employment Period.
(j) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
(k) Captions. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the Company
has caused this Agreement to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed and attested by its Secretary, all as of
the day and year first above written.
MBIA Inc.
/s/ Louis G. Lenzi
----------------------------------
By: Louis G. Lenzi
Title: General Counsel
EXECUTIVE:
----------------------------------
/s/ W. Thacher Brown
18
KEY EMPLOYEE EMPLOYMENT PROTECTION AGREEMENT
THIS AGREEMENT between MBIA Inc., a Connecticut corporation (the
"Company"), and John B. Caouette (the "Executive"), dated as of this 25th day of
January, 1999.
WITNESSETH:
WHEREAS, the Company has employed the Executive in an officer position and
has determined that the Executive holds an important position with the Company;
WHEREAS, the Company believes that, in the event it is confronted with a
situation that could result in a change in ownership or control of the Company,
continuity of management will be essential to its ability to evaluate and
respond to such a situation in the best interests of shareholders;
WHEREAS, the Company understands that any such situation will present
significant concerns for the Executive with respect to his financial and job
security;
WHEREAS, the Company desires to assure itself of the Executives services
during the period in which it is confronting such a situation, and to provide
the Executive certain financial assurances to enable the Executive to perform
the responsibilities of his position without undue distraction and to exercise
his judgment without bias due to his personal circumstances;
WHEREAS, to achieve these objectives, the Company and the Executive desire
to enter into an agreement providing the Company and the Executive with certain
rights and obligations upon the occurrence of a Change of Control or Potential
Change of Control (as defined in Section 2);
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is hereby agreed by and between the Company and the
Executive as follows:
1. Operation of Agreement. (a) Effective Date. The effective date of this
Agreement shall be the date on which a Change of Control occurs (the "Effective
<PAGE>
Date"), provided that, except as provided in Section I (b), if the Executive is
not employed by the Company on the Effective Date, this Agreement shall be void
and without effect.
(b) Termination of Employment Following a Potential Change of Control.
Notwithstanding Section l(a), if (i) the Executive's employment is terminated by
the Company Without Cause (as defined in Section 6(c)) after the occurrence of a
Potential Change of Control and prior to the occurrence of a Change of Control
and prior to the time at which the Board of Directors of the Company (the Board)
has adopted a Nullification Resolution (as defined in Section 2(b) hereof) with
respect to such Potential Change of Control or (ii) a Change of Control (as
defined in Section 2(a) hereof). and (ii) a Change of Control occurs within two
years of such termination, the Executive shall be deemed, solely for purposes of
determining his rights under this Agreement, to have remained employed until the
date such Change of Control occurs and to have been terminated by the Company
Without Cause immediately after this Agreement becomes effective, with any
amounts payable hereunder reduced by the amount of any other severance benefits
provided to him in connection with such termination.
2. Definitions. (a) Change of Control. For the purposes of this Agreement,
a "Change of Control" shall be deemed to have occurred if:
(i) any person, as such term is currently used is Section 13(d) or
14(d) of the 1934 Act, other than the Company, its majority owned
subsidiaries, or any employee benefit plan of the Company or any of its
majority-owned subsidiaries, becomes a "beneficial owner" (as such term is
currently used in Rule 13d-3, as promulgated under 1934 Act) of 25% or more
of the Voting Power of the Company;
(ii) on any date, a majority of the Board consists of individuals
other than Incumbent Directors, which term means the members of the Board
who were serving on the Board at beginning of any 24-month period ending
with such date (or another date specified by the Committee), provided that
any individual who becomes a director subsequent to that date whose
election or nomination for election was supported by two-thirds of the
directors who then comprised the Incumbent Directors shall be considered to
be an Incumbent Director for purposes of this subsection 2(a)(ii);
(iii) the stockholders of the Company approve a merger, consolidation,
share exchange, division, sale or other disposition of substantially all of
the assets of the Company (a "Corporate Event"), as a result of which the
shareholders of the Company immediately prior to such Corporate Event (the
Company Shareholders) shall not hold, directly or indirectly, immediately
following such Corporate Event a
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majority of the Voting Power of (x) in the case of a merger or
consolidation, the surviving or resulting corporation, (y) in the case of a
share exchange, the acquiring corporation or (z) in the case of a division
or a sale or other disposition of substantially all of the Company's
assets, each surviving, resulting or acquiring corporation; provided that
such a division or sale shall not be a Change of Control for purposes of
this Agreement to the extent that, following such Corporate Event, the
Executive continues to be employed by a surviving, resulting or acquiring
entity with respect to which the Company Shareholders hold, directly or
indirectly, a majority of the Voting Power immediately following such
Corporate Event.
(b) Potential Change of Control. For the purposes of this Agreement, a
Potential Change of Control shall be deemed to have occurred if:
(i) a Person commences a tender offer (with adequate financing) for
securities representing at least 15% of the Voting Power of the Company's
securities;
(ii) the Company enters into an agreement the consummation of which
would constitute a Change of Control;
(iii) proxies for the election of directors of the Company are
solicited by anyone other than the Company; or
(iv) any other event occurs which is deemed to be a Potential Change
of Control by the Board.
Notwithstanding the foregoing, if, after a Potential Change of Control and
before a Change of Control, the Board makes a good faith determination that such
Potential Change of Control will not result in a Change of Control, the Board
may nullify the effect of the Potential Change of Control (a "Nullification") by
resolution (a "Nullification Resolution"), in which case the Executive shall
have no further rights and obligations under this Agreement by reason of such
Potential Change of Control; provided, however, that if the Executive shall have
delivered a Notice of Termination (within the meaning of Section 6(f) hereof)
prior to the date of the Nullification Resolution, such Resolution shall not
effect the Executive's rights hereunder. If a Nullification Resolution has been
adopted and the Executive has not delivered a Notice of Termination prior
thereto, the Effective Date for purposes of this Agreement shall be the date, if
any, during the term hereof on which another Potential Change of Control or any
actual Change of Control occurs.
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<PAGE>
(c) Voting Power Defined. A specified percentage of "Voting Power" of a
company shall mean such number of the Voting Securities as shall enable the
holders thereof to cast such percentage of all the votes which could be cast in
an annual election of directors and "Voting Securities" shall mean all
securities of a company entitling the, holders thereof to vote in an annual
election of directors.
3. Employment Period. Subject to Section 6 of this Agreement, the Company
agrees to continue the Executive in its employ, and the Executive agrees to
remain in the employ of the Company, for the period (the "Employment Period")
commencing on the Effective Date and ending on the third anniversary of the
Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date,
the Executive is demoted to a lower position than the position held on the date
first set forth above, the Board may declare that this Agreement shall be
without force and effect by written notice delivered to the Executive (i) within
30 days following such demotion and (ii) prior to the occurrence of a Potential
Change of Control or a Change of Control.
4. Position and Duties. (a) No Reduction in Position. During the Employment
Period, the Executive's position (including titles), authority and
responsibilities shall be at least commensurate with those held, exercised and
assigned immediately prior to the Effective Date. It is understood that, for
purposes of this Agreement, such position, authority and responsibilities shall
not be regarded as not commensurate merely by virtue of the fact that a
successor shall have acquired all or substantially all of the business and/or
assets of the Company as contemplated by Section 12(b) of this Agreement. The
Executive's services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date.
(b) Business Time. From and after the Effective Date, the Executive agrees
to devote His full attention during normal business hours to the business and
affairs of the Company and to use his best efforts to perform faithfully and
efficiently the responsibilities assigned to him hereunder, to the extent
necessary to discharge such responsibilities, except for (i) time spent in
managing his personal, financial and legal affairs and serving on corporate,
civic or charitable boards or committees, in each case only if and to the extent
not substantially interfering with the performance of such responsibilities, and
(ii) periods of vacation and sick leave to which he is entitled. It is expressly
understood and agreed that the Executive's continuing to serve on any boards and
committees on which he is serving or with which he is other-wise associated
immediately preceding the Effective Date shall not be deemed to interfere with
the performance of the Executive's services to the Company.
5. Compensation. (a) Base Salary. During the Employment Period, the
Executive shall receive a base salary at a monthly rate at least equal to the
monthly
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<PAGE>
salary paid to the Executive by the Company and any of its affiliated companies
immediately prior to the Effective Date. The base salary shall be reviewed at
least once each year after the Effective Date, and may be increased (but not
decreased) at any time and from time to time by action of the Board or any
committee thereof or any individual having authority to take such action in
accordance with the Company's regular practices. The Executive's base salary, as
it may be increased from time to time, shall hereafter be referred to as "Base
Salary". Neither the Base Salary nor any increase in Base Salary after the
Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder.
(b) Annual Bonus. During the Employment Period, in addition to the Base
Salary, for each fiscal year of the Company ending during the Employment Period,
the Executive shall be afforded the opportunity to receive an annual bonus on
terms and conditions no less favorable to the Executive (taking into account
reasonable changes in the Company's goals and objectives and taking into account
actual performance) than the annual bonus opportunity that had been made
available to the Executive for the fiscal year ended immediately prior to the
Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect
of the Annual Bonus Opportunity shall be paid as soon as practicable following
the year for which the amount (or prorated portion) is earned or awarded, unless
electively deferred by the Executive pursuant to any deferral programs or
arrangements that the Company may make available to the Executive.
(c) Long-term Incentive Compensation Programs. During the Employment
Period, the Executive shall participate in all long-term incentive compensation
programs for key executives at a level that is commensurate with the Executive's
participation in such plans immediately prior to the Effective Date, or, if more
favorable to the Executive, at the level made available to the Executive or
other similarly situated officers at any time thereafter.
(d) Benefit Plans. During the Employment Period, the Executive (and, to the
extent applicable, his dependents) shall be entitled to participate in or be
covered under all pension, retirement, deferred compensation, savings, medical,
dental, health, disability, group life and accidental death insurance plans and
programs of the Company and its affiliated companies at a level that is
commensurate with the Executive's participation in such plans immediately prior
to the Effective Date, or, if more favorable to the Executive, at the level made
available to the Executive or other similarly situated officers at any time
thereafter.
(e) Expenses. During the Employment Period, the Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the policies and procedures of the Company as in
effect
5
<PAGE>
immediately prior to the Effective Date. Notwithstanding the foregoing, the
Company may apply the policies and procedures in effect after the Effective Date
to the Executive, if such policies and procedures are not less favorable to the
Executive than those in effect immediately prior to the Effective Date.
(f) Vacation and Fringe Benefits. During the Employment Period, the
Executive shall be entitled to paid vacation and fringe benefits at a level that
is commensurate with the paid vacation and fringe benefits available to the
Executive immediately prior to the Effective Date, or, if more favorable to the
Executive, at the level made available from time to time to the Executive or
other similarly situated officers at any time thereafter.
(g) Indemnification. During and after the Employment Period, the Company
shall indemnify the Executive and hold the Executive harmless from and against
any claim, loss or cause of action arising from or out of the Executive's
performance as an officer, director or employee of the Company or any of its
Subsidiaries or in any other capacity, including any fiduciary capacity, in
which the Executive serves at the request of the Company to the maximum extent
permitted by applicable law and the Company's Certificate of Incorporation and
By-Laws (the "Governing Documents"), provided that in no event shall the
protection afforded to the Executive hereunder be less than that afforded under
the Governing Documents as in effect immediately prior to the Effective Date.
(h) Office and Support Staff. The Executive shall be entitled to an office
with furnishings and other appointments, and to secretarial and other
assistance, at a level that is at least commensurate with the foregoing provided
to other similarly situated officers.
6. Termination. (a) Death. Disability or Retirement. Subject to the
provisions of Section 1 hereof, this Agreement shall terminate automatically
upon the Executive's death, termination due to "Disability" (as defined below)
or voluntary retirement under any of the Company's retirement plans as in effect
from time to time. For purposes of this Agreement, Disability shall mean the
Executive has met the conditions to qualify for long-term disability benefits
under the Company's policies, as in effect immediately prior to the Effective
Date.
(b) Voluntary Termination. Notwithstanding anything in this Agreement to
the contrary, following a Change of Control the Executive may, upon not less
than 60 days' written notice to the Company, voluntarily terminate employment
for any reason (including early retirement under the terms of any of the
Company's retirement plans as in effect from time to time), provided that any
termination by the Executive
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<PAGE>
pursuant to Section 6(d) on account of Good Reason (as defined therein) shall
not be treated as a voluntary termination under this Section 6(b).
(c) Cause. The Company may terminate the Executive's employment for Cause.
For purposes of this Agreement, "Cause" means (i) the Executive's conviction or
plea of nolo contendere to a felony; (ii) an act or acts of dishonesty or gross
misconduct on the Executive's part which result or are intended to result in
material damage to the Company's business or reputation; or (iii) repeated
material violations by the Executive of his obligations under Section 4 of this
Agreement, which violations are demonstrably willful and deliberate on the
Executive's part and which result in material damage to the Company's business
or reputation.
(d) Good Reason. Following the occurrence of a Change of Control, the
Executive may terminate his employment for Good Reason. For purposes of this
Agreement, "Good Reason" means the occurrence of any of the following, without
the express written consent of the Executive, after the occurrence of a Change
of Control:
(i) the assignment to the Executive of any duties inconsistent in any
material adverse respect with the Executive's position, authority or
responsibilities as contemplated by Section 4 of this Agreement, or any
other material adverse change in such position, including titles, authority
or responsibilities;
(ii) any failure by the Company to comply with any of the provisions
of Section 5 of this Agreement, other than an insubstantial or inadvertent
failure remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location more than 50 miles (or such other distance as shall be set
forth in the Company's relocation policy as in effect at the Effective
Time) from that location at which he performed his services specified under
the provisions of Section 4 immediately prior to the Change of Control,
except for travel reasonably required in the performance of the Executive's
responsibilities; or
(iv) any failure by the Company to obtain the assumption and agreement
to perform this Agreement by a successor as contemplated by Section 12(b).
In no event shall the mere occurrence of a Change of Control, absent any further
impact on the Executive, be deemed to constitute Good Reason.
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<PAGE>
(e) Special Window Period. The Executive shall also have the right to
terminate his employment at any time and for any reason during the 30-day period
commencing on the first anniversary of the date on which a Change of Control
occurs (the "Special Window Period").
(f) Notice of Termination. Any termination by the Company for Cause or by
the Executive for Good Reason shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 13(e). For purposes of
this Agreement, a "Notice of Termination" means a written notice given, in the
case of a termination for Cause, within 10 business days of the Company's having
actual knowledge of the events giving rise to such termination, and in the case
of a termination for Good Reason, within 90 days of the Executive's having
actual knowledge of the events giving rise to such termination, and which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated, and (iii) if the termination date is other than the date of receipt
of such notice, specifies the termination date of this Agreement (which date
shall be not more than 15 days after the giving of such notice). The failure by
the Executive to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason shall not waive any right of the
Executive hereunder or preclude the Executive from asserting such fact or
circumstance in enforcing his rights hereunder.
(g) Date of Termination. For the purpose of this Agreement, the term "Date
of Termination" means (i) in the case of a termination for which a Notice of
Termination is required, the date of receipt of such Notice of Termination or,
if later, the date specified therein, as the case may be, and (ii) in all other
cases, the actual date on which the Executive's employment terminates during the
Employment Period.
7. Obligations of the Company upon Termination. (a) Death or Disability. If
the Executive's employment is terminated during the Employment Period by reason
of the Executive's death or Disability, this Agreement shall terminate without
further obligations to the Executive or the Executive's legal representatives
under this Agreement other than those obligations accrued hereunder at the Date
of Termination, and the Company shall pay to the Executive (or his beneficiary
or estate) (i) the Executive's full Base Salary through the Date of Termination
(the "Earned Salary"), (ii) any vested amounts or benefits owing to the
Executive under the Company's otherwise applicable employee benefit plans and
programs, including any compensation previously deferred by the Executive
(together with any accrued earnings thereon) and not yet paid by the Company and
any accrued vacation pay not yet paid by the Company (the "Accrued
Obligations"), and (iii) any other benefits payable due to the Executive's death
or Disability under the Company's plans, policies or programs (the "Additional
Benefits").
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Any Earned Salary shall be paid in cash in a single lump sum as soon as
practicable, but in no event more than 10 days (or at such earlier date required
by law), following the Date of Termination. Accrued Obligations and Additional
Benefits shall be paid in accordance with the terms of the applicable plan,
program or arrangement.
(b) Cause and Voluntary Termination. If, during the Employment Period, the
Executive's employment shall be terminated for Cause or voluntarily terminated
by the Executive (other than on account of Good Reason following a Change of
Control), the Company shall pay the Executive (i) the Earned Salary in cash in a
single lump sum as soon as practicable, but in no event more than 10 days,
following the Date of Termination, and (ii) the Accrued Obligations in
accordance with the terms of the applicable plan, program or arrangement.
(c) Termination by the Company other than for Cause and Termination by the
Executive for Good Reason or in the Special Window Period. If (x) the Company
terminates the Executive's employment other than for Cause during the Employment
Period, (y) the Executive terminates his employment at any time during the
Employment Period for Good Reason or (z) the Executive terminates his employment
with or without Good Reason during the Special Window Period, the Company shall
provide the Executive with the following benefits:
(i) Severance and Other Termination Payments. The Company shall pay
the Executive the following:
(A) the Executive's Earned Salary; and
(B) an amount (the Pro-Rated Annual Incentive) equal to the average
of the annual bonuses payable to the Executive for the two fiscal
years of the Company ended prior to the Effective Date for which
bonuses have been determined (the "Average Annual Bonus")
multiplied by a fraction, the numerator of which is the number of
months in such fiscal year which have elapsed on or before (and
including) the last day of the month in which the Date of
Termination occurs and the denominator of which is 12; and
(C) an aggregate amount (the Book Value Award Amount) equal to the
sum of the amounts payable to the Executive in respect of each
outstanding incentive award related to the Company's adjusted
book value, determined as of the end of the month in which the
Date of Termination occurs; and
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(D) the Accrued Obligations; and
(E) a cash amount (the "Severance Amount") equal to three times the
sum of
(1) the Executive's annual Base Salary;
(2) an amount equal to the Average Annual Bonus;
The Earned Salary, Pro-Rated Annual Incentive and Severance Amount shall be
paid in cash in a single lump sum as soon as practicable, but in no event
more than 10 days (or at such earlier date required by law), following the
Date of Termination. The Book Value Award Amounts shall be paid in cash as
soon as practicable after the amount of each such payment can be
determined. Accrued Obligations shall be paid in accordance with the terms
of the applicable plan, program or arrangement.
(ii) Continuation of Benefits. If, during the Employment Period, the
Company terminates the Executive's employment other than for Cause or the
Executive terminates his employment for Good Reason, the Executive (and, to
the extent applicable, his dependents) shall be entitled, after the Date of
Termination until the earlier of (1) the third anniversary of the Date of
Termination (the "End Date") and (2) the date the Executive becomes
eligible for comparable benefits under a similar plan, policy or program of
a subsequent employer, to continue participation in all of the Company's
group health and group life employee benefits plans (the "Group Benefit
Plans"). To the extent any such benefits cannot be provided under the terms
of the applicable plan, policy or program, the Company shall provide a
comparable benefit under another plan or from the Company's general assets.
The Executive's participation in the Group Benefit Plans will be on the
same terms and conditions (including, without limitation, any condition
that the Executive make contributions toward the cost of such coverage on
the same terms and conditions generally applicable to similarly situated
employees) that would have applied had the Executive continued to be
employed by the Company through the End Date.
(iii) Restricted Stock. Any and all awards of restricted stock held by
the Executive at the Date of Termination shall immediately become fully
vested.
(iv) Post-Termination Exercise Period. Notwithstanding anything else
contained in Section 14 of the Company's 1987 Stock Option Plan to the
contrary,
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in the event that Executive is entitled to receive the severance benefits
described above pursuant to the terms of this Agreement, all of his
outstanding Options and SARs awarded under such 1997 Stock Option Plan
shall automatically be and become fully exercisable on the Date of
Termination without further action on anyone's part and the Executive shall
have the right to exercise any such Option or SAR until the earlier to
occur of the expiration of the term of such Option or SAR and the fifth
anniversary of the Date of Termination.
(v) Retirement Contribution Credits. The Executive shall receive
credits to the Company's nonqualified excess benefits plan with respect to
the amounts that would otherwise have been contributed on his behalf under
the Company's Money Purchase Pension Plan and Profit Sharing Plan had the
Executive continued in the company's employ for three years following the
Date of Termination.
(vi) Outplacement Services. The Executive shall be provided at the
Company's expense with outplacement services customary for executives at
his level (including, without limitation, office space and telephone
support services) provided by a qualified and experienced third party
provider selected by the Company.
(d) Discharge of the Company's Obligations. Except as expressly provided in
the last sentence of this Section 7(d), the amounts payable to the Executive
pursuant to this Section 7 following termination of his employment shall be in
fun and complete satisfaction of the Executive's rights under this Agreement and
any other claims he may have in respect of his employment by the Company or any
of its Subsidiaries. Such amounts shall constitute liquidated damages -with
respect to any and all such rights and claims and, upon the Executive's receipt
of such amounts, the Company shall be released and discharged from any and all
liability to the Executive in connection with this Agreement or otherwise in
connection with the Executive's employment -with the Company and its
Subsidiaries. Nothing in this Section 7(d) shall be construed to release the
Company from its commitment to indemnify the Executive and hold the Executive
harmless from and against any claim, loss or cause of action arising from or out
of the Executive's performance as an officer, director or employee of the
Company or any of its Subsidiaries or in any other capacity, including any
fiduciary capacity, in which the Executive served at the request of the Company
to the maximum extent permitted by applicable law and the Governing Documents.
(e) Certain Further Payments by the Company.
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(i) In the event that any amount or benefit paid or distributed to the
Executive pursuant to this Agreement, taken together with any amounts or
benefits otherwise paid or distributed to the Executive by the Company or
any affiliated company (collectively, the "Covered Payments"), are or
become subject to the tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any similar
tax that may hereafter be imposed, the Company shall pay to the Executive
at the time specified in Section 7(e)(v) below an additional amount (the
"Tax Reimbursement Payment") such that the net amount retained by the
Executive with respect to such Covered Payments, after deduction of any
Excise Tax on the Covered Payments and any Federal, state and local income
or employment tax and Excise Tax on the Tax Reimbursement Payment provided
for by this Section 7(e), but before deduction for any Federal, state or
local income or employment tax withholding on such Covered Payments, shall
be equal to the amount of the Covered Payments.
(ii) For purposes of determining whether any of the Covered Payments
will be subject to the Excise Tax and the amount of such Excise Tax,
(A) such Covered Payments will be treated as "parachute payments"
within the meaning of Section 280G of the Code, and all
"parachute payments" in excess of the "base amount" (as defined
under Section 280G(b)(3) of the Code) shall be treated as subject
to the Excise Tax, unless, and except to the extent that, in the
good faith judgment of the Company's independent certified public
accountants appointed prior to the Change of Control Date or tax
counsel selected by such Accountants (the "Accountants"), the
Company has a reasonable basis to conclude that such Covered
Payments (in whole or in part) either do not constitute
"parachute payments" or represent reasonable compensation for
personal services actually rendered (within the meaning of
Section 280G(b)(4)(B) of the Code) in excess of the "base
amount," or such "parachute payments" are otherwise not subject
to such Excise Tax, and
(B) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with
the principles of Section 280G of the Code.
(iii) For purposes of determining the amount of the Tax Reimbursement
Payment, the Executive shall be deemed to pay:
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(A) Federal income taxes at the highest applicable marginal rate of
Federal income taxation for the calendar year in which the Tax
Reimbursement Payment is to be made, and
(B) any applicable state and local income taxes at the highest
applicable marginal rate of taxation for the calendar year in
which the Tax Reimbursement Payment is to be made, net of the
maximum reduction in Federal income taxes which could be obtained
from the deduction of such state or local taxes if paid in such
year.
(iv) In the event that the Excise Tax is subsequently determined by
the Accountants or pursuant to any proceeding or negotiations with the
Internal Revenue Service to be less than the amount taken into account
hereunder in calculating the Tax Reimbursement Payment made, the Executive
shall repay to the Company, at the time that the amount of such reduction
in the Excise Tax is finally determined, the portion of such prior Tax
Reimbursement Payment that would not have been paid if such Excise Tax had
been applied in initially calculating such Tax Reimbursement Payment, plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any
portion of the Tax Reimbursement Payment to be refunded to the Company has
been paid to any Federal, state or local tax authority, repayment thereof
shall not be required until actual refund or credit of such portion has
been made to the Executive, and interest payable to the Company shall not
exceed interest received or credited to the Executive by such tax authority
for the period it held such portion. The Executive and the Company .shall
mutually agree upon the course of action to be pursued (and the method of
allocating the expenses thereof) if the Executive's good faith claim for
refund or credit is denied.
In the event that the Excise Tax is later determined by the
Accountants or pursuant to any proceeding or negotiations with the Internal
Revenue Service to exceed the amount taken into account hereunder at the
time the Tax Reimbursement Payment is made (including, but not limited to,
by reason of any payment the existence or amount of which cannot be
determined at the time of the Tax Reimbursement Payment), the Company shall
make an additional Tax Reimbursement Payment in respect of such excess
(plus any interest or penalty payable with respect to such excess) at the
time that the amount of such excess is finally determined.
(v) The Tax Reimbursement Payment (or portion thereof) provided for in
Section 7(e)(i) above shall be paid to the Executive not later than 10
business
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days following the payment of the Covered Payments; provided, however, that
if the amount of such Tax Reimbursement Payment (or portion thereof) cannot
be finally determined on or before the date on which payment is due, the
Company shall pay to the Executive by such date an amount estimated in good
faith by the Accountants to be the minimum amount of such Tax Reimbursement
Payment and shall pay the remainder of such Tax Reimbursement Payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined, but in no event
later than 45 calendar days after payment of the related Covered Payment.
In the event that the amount of the estimated Tax Reimbursement Payment
exceeds the amount subsequently determined to have been due, such excess
shall constitute a loan by the Company to the Executive, payable on the
fifth business day after written demand by the Company for payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code).
8. Non-exclusivity of Rights. Except as expressly provided herein, nothing
in this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Company or any of its affiliated companies and for which the Executive
may qualify, nor shall anything herein limit or otherwise prejudice such lights
as the Executive may have under any other agreements with the Company or any of
its affiliated companies, including employment agreements or stock option
agreements. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan or program.
9. No Offset. The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Executive or others whether by reason of the subsequent employment
of the Executive or otherwise.
10. Legal Fees and Expenses. If the Executive asserts any claim in any
contest (whether initiated by the Executive or by the Company) as to the
validity, enforceability or interpretation of any provision of this Agreement,
the Company shall pay the Executive's legal expenses (or cause such expenses to
be paid) including, without limitation, his reasonable attorney's fees, on a
quarterly basis, upon presentation of proof of such expenses in a form
acceptable to the Company, provided that the Executive shall reimburse the
Company for such amounts, plus simple interest thereon at the 90-day United
States Treasury Bill rate as in effect from time to time, compounded annually,
if
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the arbitrator referred to in Section 13(b) or a court of competent jurisdiction
shall find that the Executive did not have a good faith and reasonable basis to
believe that he would prevail as to at least one material issue presented to
such arbitrator or court.
11. Confidential Information, Company Property. By and in consideration of
the salary and benefits to be provided by the Company hereunder, including the
severance arrangements set forth herein, the Executive agrees that:
(a) Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, (i) obtained by the Executive during his
employment by the Company or any of its affiliated companies and (ii) not
otherwise public knowledge (other than by reason of an unauthorized act by the
Executive). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company,
unless compelled pursuant to an order of a court or other body having
jurisdiction over such matter, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
(b) Nonsolicitation of Employees, The Executive agrees that for two years
after the Date of Termination, he will not attempt, directly or indirectly, to
induce any employee of the Company, or any subsidiary or any affiliate thereof
to be employed or perform services elsewhere or otherwise to cease providing
services to the Company, or any subsidiary or affiliate thereof.
(c) Company Property. Except as expressly provided herein, promptly
following the Executive's termination of employment, the Executive shall return
to the Company all property of the Company and all copies thereof in the
Executive's possession or under his control.
(d) Injunctive Relief and Other Remedies with Respect to Covenants. The
Executive acknowledges and agrees that the covenants and obligations of the
Executive with respect to confidentiality and Company property relate to
special, unique and extraordinary matters and that a violation of any of the
terms of such covenants and obligations will cause the Company irreparable
injury for which adequate remedies are not available at law, Therefore, the
Executive agrees that the Company shall be entitled to an injunction,
restraining order or such other equitable relief (without the requirement to
post bond) restraining Executive from committing any violation of the covenants
and obligations contained in this Section 11 These remedies are cumulative and
are in addition to any other rights and remedies the Company may have at law or
in equity. In no event shall
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an asserted violation of the provisions of this Section 11 constitute a basis
for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement.
12. Successors. (a) This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors. The Company shall require any successor to all or
substantially all of the business and/or assets of the Company, whether direct
or indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as the Company would be required to perform if no such
succession had taken place.
13. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of the States of New York, applied
without reference to principles of conflict of laws.
(b) Arbitration. Except to the extent provided in Section 11(c), any
dispute or controversy arising under or in connection with this Agreement shall
be resolved by binding arbitration. The arbitration shall be held in the city of
White Plains, New York and, except to the extent inconsistent with this
Agreement, shall be conducted in accordance with the Expedited Employment
Arbitration Rules of the American Arbitration Association then in effect at the
time of the arbitration (or such other rules as the parties may agree to in
writing), and otherwise in accordance with principles which would be applied by
a court of law or equity. The arbitrator shall be acceptable to both the Company
and the Executive. If the parties cannot agree on an acceptable arbitrator, the
dispute shall be heard by a panel of three arbitrators, one appointed by each of
the parties and the third appointed by the other two arbitrators.
(c) Amendments. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(d) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters referred to herein. No
other agreement relating to the terms of the Executive's employment by the
Company, oral or otherwise, shall be binding between the parties unless it is in
writing and signed by the party against whom enforcement is sought. There are no
promises, representations,
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<PAGE>
inducements or statements between the parties other than those that are
expressly contained herein. The Executive acknowledges that he is entering into
this Agreement of his own free will and accord, and with no duress, that he has
read this Agreement and that he understands it and its legal consequences.
(e) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand-delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: at the home address of the Executive noted
on the records of the Company
If to the Company: MBIA Inc.
113 King Street
Armonk, New York 10504
Attn.: Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(f) Tax Withholding. The Company shall withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(g) Severability: Reformation. In the event that one or more of the
provisions of this Agreement shall become invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby. In the event that any
of the provisions of any of Section 11(a) are not enforceable in accordance with
its terms, the Executive and the Company agree that such Section shall be
reformed to make such Section enforceable in a manner which provides the Company
the maximum rights permitted at law.
(h) Waiver. Waiver by any party hereto of any breach or default by the
other party of any of the terms of this Agreement shall not operate as a waiver
of any other breach or default, whether similar to or different from the breach
or default waived. No waiver of any provision of this Agreement shall be implied
from any course of dealing between the parties hereto or from any failure by
either party hereto to assert its or his rights hereunder on any occasion or
series of occasions.
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(i) Survival. The provisions of Section 7(c)(iii) (and so much of Section
7(d) as provides a benefit identical to that payable under such Section
7(c)(iii)) shall survive the termination of the Employment Period hereunder and
shall be binding upon and enforceable against the Company in accordance with its
terms. In the event, that any dispute arises with respect to the Executive's
entitlement to such enhanced retirement benefits, the dispute resolutions
provisions contained in Section 13(b) and the legal fees provision contained in
Section 10 shall also survive the end of the Employment Period and shall be
applied as though the dispute arose within the Employment Period.
(j) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
(k) Captions. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the Company
has caused this Agreement to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed and attested by its Secretary, all as of
the day and year first above written.
MBIA Inc.
/s/ Louis G. Lenzi
-----------------------------------
By: Louis G. Lenzi
Title: General [ILLEGIBLE] Secretary
EXECUTIVE:
/s/ John B. Caouette
-----------------------------------
18
KEY EMPLOYEE EMPLOYMENT PROTECTION AGREEMENT
THIS AGREEMENT between MBIA Inc., a Connecticut corporation (the
"Company"), and Gary C. Dunton (the "Executive"), dated as of this 25 th day of
January, 1999.
WITNESSETH:
WHEREAS, the Company has employed the Executive in an officer position and
has determined that the Executive holds an important position with the Company;
WHEREAS, the Company believes that, in the event it is confronted with a
situation that could result in a change in ownership or control of the Company,
continuity of management will be essential to its ability to evaluate and
respond to such a situation in the best interests of shareholders;
WHEREAS, the Company understands that any such situation will present
significant concerns for the Executive with respect to his financial and job
security;
WHEREAS, the Company desires to assure itself of the Executives services
during the period in which it is confronting such a situation, and to provide
the Executive certain financial assurances to enable the Executive to perform
the responsibilities of his position without undue distraction and to exercise
his judgment without bias due to his personal circumstances;
WHEREAS, to achieve these objectives, the Company and the Executive desire
to enter into an agreement providing the Company and the Executive with certain
rights and obligations upon the occurrence of a Change of Control or Potential
Change of Control (as defined in Section 2);
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is hereby agreed by and between the Company and the
Executive as follows:
1. Operation of Agreement. (a) Effective Date. The effective date of this
Agreement shall be the date on which a Change of Control occurs (the "Effective
<PAGE>
Date"), provided that, except as provided in Section I (b), if the Executive is
not employed by the Company on the Effective Date, this Agreement shall be void
and without effect.
(b) Termination of Employment Following a Potential Change of Control.
Notwithstanding Section l(a), if (i) the Executive's employment is terminated by
the Company Without Cause (as defined in Section 6(c)) after the occurrence of a
Potential Change of Control and prior to the occurrence of a Change of Control
and prior to the time at which the Board of Directors of the Company (the Board)
has adopted a Nullification Resolution (as defined in Section 2(b) hereof) with
respect to such Potential Change of Control or (ii) a Change of Control (as
defined in Section 2(a) hereof). and (ii) a Change of Control occurs within two
years of such termination, the Executive shall be deemed, solely for purposes of
determining his rights under this Agreement, to have remained employed until the
date such Change of Control occurs and to have been terminated by the Company
Without Cause immediately after this Agreement becomes effective, with any
amounts payable hereunder reduced by the amount of any other severance benefits
provided to him in connection with such termination.
2. Definitions. (a) Change of Control. For the purposes of this Agreement,
a "Change of Control" shall be deemed to have occurred if:
(i) any person, as such term is currently used is Section 13(d) or
14(d) of the 1934 Act, other than the Company, its majority owned
subsidiaries, or any employee benefit plan of the Company or any of its
majority-owned subsidiaries, becomes a "beneficial owner" (as such term is
currently used in Rule 13d-3, as promulgated under 1934 Act) of 25% or more
of the Voting Power of the Company;
(ii) on any date, a majority of the Board consists of individuals
other than Incumbent Directors, which term means the members of the Board
who were serving on the Board at beginning of any 24-month period ending
with such date (or another date specified by the Committee), provided that
any individual who becomes a director subsequent to that date whose
election or nomination for election was supported by two-thirds of the
directors who then comprised the Incumbent Directors shall be considered to
be an Incumbent Director for purposes of this subsection 2(a)(ii);
(iii) the stockholders of the Company approve a merger, consolidation,
share exchange, division, sale or other disposition of substantially all of
the assets of the Company (a "Corporate Event"), as a result of which the
shareholders of the Company immediately prior to such Corporate Event (the
Company Shareholders) shall not hold, directly or indirectly, immediately
following such Corporate Event a
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majority of the Voting Power of (x) in the case of a merger or
consolidation, the surviving or resulting corporation, (y) in the case of a
share exchange, the acquiring corporation or (z) in the case of a division
or a sale or other disposition of substantially all of the Company's
assets, each surviving, resulting or acquiring corporation; provided that
such a division or sale shall not be a Change of Control for purposes of
this Agreement to the extent that, following such Corporate Event, the
Executive continues to be employed by a surviving, resulting or acquiring
entity with respect to which the Company Shareholders hold, directly or
indirectly, a majority of the Voting Power immediately following such
Corporate Event.
(b) Potential Change of Control. For the purposes of this Agreement, a
Potential Change of Control shall be deemed to have occurred if:
(i) a Person commences a tender offer (with adequate financing) for
securities representing at least 15% of the Voting Power of the Company's
securities;
(ii) the Company enters into an agreement the consummation of which
would constitute a Change of Control;
(iii) proxies for the election of directors of the Company are
solicited by anyone other than the Company; or
(iv) any other event occurs which is deemed to be a Potential Change
of Control by the Board.
Notwithstanding the foregoing, if, after a Potential Change of Control and
before a Change of Control, the Board makes a good faith determination that such
Potential Change of Control will not result in a Change of Control, the Board
may nullify the effect of the Potential Change of Control (a "Nullification") by
resolution (a "Nullification Resolution"), in which case the Executive shall
have no further rights and obligations under this Agreement by reason of such
Potential Change of Control; provided, however, that if the Executive shall have
delivered a Notice of Termination (within the meaning of Section 6(f) hereof)
prior to the date of the Nullification Resolution, such Resolution shall not
effect the Executive's rights hereunder. If a Nullification Resolution has been
adopted and the Executive has not delivered a Notice of Termination prior
thereto, the Effective Date for purposes of this Agreement shall be the date, if
any, during the term hereof on which another Potential Change of Control or any
actual Change of Control occurs.
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(c) Voting Power Defined. A specified percentage of "Voting Power" of a
company shall mean such number of the Voting Securities as shall enable the
holders thereof to cast such percentage of all the votes which could be cast in
an annual election of directors and "Voting Securities" shall mean all
securities of a company entitling the, holders thereof to vote in an annual
election of directors.
3. Employment Period. Subject to Section 6 of this Agreement, the Company
agrees to continue the Executive in its employ, and the Executive agrees to
remain in the employ of the Company, for the period (the "Employment Period")
commencing on the Effective Date and ending on the third anniversary of the
Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date,
the Executive is demoted to a lower position than the position held on the date
first set forth above, the Board may declare that this Agreement shall be
without force and effect by written notice delivered to the Executive (i) within
30 days following such demotion and (ii) prior to the occurrence of a Potential
Change of Control or a Change of Control.
4. Position and Duties. (a) No Reduction in Position. During the Employment
Period, the Executive's position (including titles), authority and
responsibilities shall be at least commensurate with those held, exercised and
assigned immediately prior to the Effective Date. It is understood that, for
purposes of this Agreement, such position, authority and responsibilities shall
not be regarded as not commensurate merely by virtue of the fact that a
successor shall have acquired all or substantially all of the business and/or
assets of the Company as contemplated by Section 12(b) of this Agreement. The
Executive's services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date.
(b) Business Time. From and after the Effective Date, the Executive agrees
to devote His full attention during normal business hours to the business and
affairs of the Company and to use his best efforts to perform faithfully and
efficiently the responsibilities assigned to him hereunder, to the extent
necessary to discharge such responsibilities, except for (i) time spent in
managing his personal, financial and legal affairs and serving on corporate,
civic or charitable boards or committees, in each case only if and to the extent
not substantially interfering with the performance of such responsibilities, and
(ii) periods of vacation and sick leave to which he is entitled. It is expressly
understood and agreed that the Executive's continuing to serve on any boards and
committees on which he is serving or with which he is otherwise associated
immediately preceding the Effective Date shall not be deemed to interfere with
the performance of the Executive's services to the Company.
5. Compensation. (a) Base Salary. During the Employment Period, the
Executive shall receive a base salary at a monthly rate at least equal to the
monthly
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salary paid to the Executive by the Company and any of its affiliated companies
immediately prior to the Effective Date. The base salary shall be reviewed at
least once each year after the Effective Date, and may be increased (but not
decreased) at any time and from time to time by action of the Board or any
committee thereof or any individual having authority to take such action in
accordance with the Company's regular practices. The Executive's base salary, as
it may be increased from time to time, shall hereafter be referred to as "Base
Salary". Neither the Base Salary nor any increase in Base Salary after the
Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder.
(b) Annual Bonus. During the Employment Period, in addition to the Base
Salary, for each fiscal year of the Company ending during the Employment Period,
the Executive shall be afforded the opportunity to receive an annual bonus on
terms and conditions no less favorable to the Executive (taking into account
reasonable changes in the Company's goals and objectives and taking into account
actual performance) than the annual bonus opportunity that had been made
available to the Executive for the fiscal year ended immediately prior to the
Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect
of the Annual Bonus Opportunity shall be paid as soon as practicable following
the year for which the amount (or prorated portion) is earned or awarded, unless
electively deferred by the Executive pursuant to any deferral programs or
arrangements that the Company may make available to the Executive.
(c) Long-term Incentive Compensation Programs. During the Employment
Period, the Executive shall participate in all long-term incentive compensation
programs for key executives at a level that is commensurate with the Executive's
participation in such plans immediately prior to the Effective Date, or, if more
favorable to the Executive, at the level made available to the Executive or
other similarly situated officers at any time thereafter.
(d) Benefit Plans. During the Employment Period, the Executive (and, to the
extent applicable, his dependents) shall be entitled to participate in or be
covered under all pension, retirement, deferred compensation, savings, medical,
dental, health, disability, group life and accidental death insurance plans and
programs of the Company and its affiliated companies at a level that is
commensurate with the Executive's participation in such plans immediately prior
to the Effective Date, or, if more favorable to the Executive, at the level made
available to the Executive or other similarly situated officers at any time
thereafter.
(e) Expenses. During the Employment Period, the Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the policies and procedures of the Company as in
effect
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<PAGE>
immediately prior to the Effective Date. Notwithstanding the foregoing, the
Company may apply the policies and procedures in effect after the Effective Date
to the Executive, if such policies and procedures are not less favorable to the
Executive than those in effect immediately prior to the Effective Date.
(f) Vacation and Fringe Benefits. During the Employment Period, the
Executive shall be entitled to paid vacation and fringe benefits at a level that
is commensurate with the paid vacation and fringe benefits available to the
Executive immediately prior to the Effective Date, or, if more favorable to the
Executive, at the level made available from time to time to the Executive or
other similarly situated officers at any time thereafter.
(g) Indemnification. During and after the Employment Period, the Company
shall indemnify the Executive and hold the Executive harmless from and against
any claim, loss or cause of action arising from or out of the Executive's
performance as an officer, director or employee of the Company or any of its
Subsidiaries or in any other capacity, including any fiduciary capacity, in
which the Executive serves at the request of the Company to the maximum extent
permitted by applicable law and the Company's Certificate of Incorporation and
By-Laws (the "Governing Documents"), provided that in no event shall the
protection afforded to the Executive hereunder be less than that afforded under
the Governing Documents as in effect immediately prior to the Effective Date.
(h) Office and Support Staff. The Executive shall be entitled to an office
with furnishings and other appointments, and to secretarial and other
assistance, at a level that is at least commensurate with the foregoing provided
to other similarly situated officers.
6. Termination. (a) Death, Disability or Retirement. Subject to the
provisions of Section 1 hereof, this Agreement shall terminate automatically
upon the Executive's death, termination due to "Disability" (as defined below)
or voluntary retirement under any of the Company's retirement plans as in effect
from time to time. For purposes of this Agreement, Disability shall mean the
Executive has met the conditions to qualify for long-term disability benefits
under the Company's policies, as in effect immediately prior to the Effective
Date.
(b) Voluntary Termination. Notwithstanding anything in this Agreement to
the contrary, following a Change of Control the Executive may, upon not less
than 60 days' written notice to the Company, voluntarily terminate employment
for any reason (including early retirement under the terms of any of the
Company's retirement plans as in effect from time to time), provided that any
termination by the Executive
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pursuant to Section 6(d) on account of Good Reason (as defined therein) shall
not be treated as a voluntary termination under this Section 6(b).
(c) Cause. The Company may terminate the Executive's employment for Cause.
For purposes of this Agreement, "Cause" means (i) the Executive's conviction or
plea of nolo contendere to a felony; (ii) an act or acts of dishonesty or gross
misconduct on the Executive's part which result or are intended to result in
material damage to the Company's business or reputation; or (iii) repeated
material violations by the Executive of his obligations under Section 4 of this
Agreement, which violations are demonstrably willful and deliberate on the
Executive's part and which result in material damage to the Company's business
or reputation.
(d) Good Reason. Following the occurrence of a Change of Control, the
Executive may terminate his employment for Good Reason. For purposes of this
Agreement, "Good Reason" means the occurrence of any of the following, without
the express written consent of the Executive, after the occurrence of a Change
of Control:
(i) the assignment to the Executive of any duties inconsistent in any
material adverse respect with the Executive's position, authority or
responsibilities as contemplated by Section 4 of this Agreement, or any
other material adverse change in such position, including titles, authority
or responsibilities;
(ii) any failure by the Company to comply with any of the provisions
of Section 5 of this Agreement, other than an insubstantial or inadvertent
failure remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location more than 50 miles (or such other distance as shall be set
forth in the Company's relocation policy as in effect at the Effective
Time) from that location at which he performed his services specified under
the provisions of Section 4 immediately prior to the Change of Control,
except for travel reasonably required in the performance of the Executive's
responsibilities; or
(iv) any failure by the Company to obtain the assumption and agreement
to perform this Agreement by a successor as contemplated by Section 12(b).
In no event shall the mere occurrence of a Change of Control, absent any further
impact on the Executive, be deemed to constitute Good Reason.
7
<PAGE>
(e) Special Window Period. The Executive shall also have the right to
terminate his employment at any time and for any reason during the 30-day period
commencing on the first anniversary of the date on which a Change of Control
occurs (the "Special Window Period").
(f) Notice of Termination. Any termination by the Company for Cause or by
the Executive for Good Reason shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 13(e). For purposes of
this Agreement, a "Notice of Termination" means a written notice given, in the
case of a termination for Cause, within 10 business days of the Company's having
actual knowledge of the events giving rise to such termination, and in the case
of a termination for Good Reason, within 90 days of the Executive's having
actual knowledge of the events giving rise to such termination, and which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated, and (iii) if the termination date is other than the date of receipt
of such notice, specifies the termination date of this Agreement (which date
shall be not more than 15 days after the giving of such notice). The failure by
the Executive to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason shall not waive any right of the
Executive hereunder or preclude the Executive from asserting such fact or
circumstance in enforcing his rights hereunder.
(g) Date of Termination. For the purpose of this Agreement, the term "Date
of Termination" means (i) in the case of a termination for which a Notice of
Termination is required, the date of receipt of such Notice of Termination or,
if later, the date specified therein, as the case may be, and (ii) in all other
cases, the actual date on which the Executive's employment terminates during the
Employment Period.
7. Obligations of the Company upon Termination. (a) Death or Disability. If
the Executive's employment is terminated during the Employment Period by reason
of the Executive's death or Disability, this Agreement shall terminate without
further obligations to the Executive or the Executive's legal representatives
under this Agreement other than those obligations accrued hereunder at the Date
of Termination, and the Company shall pay to the Executive (or his beneficiary
or estate) (i) the Executive's full Base Salary through the Date of Termination
(the "Earned Salary"), (ii) any vested amounts or benefits owing to the
Executive under the Company's otherwise applicable employee benefit plans and
programs, including any compensation previously deferred by the Executive
(together with any accrued earnings thereon) and not yet paid by the Company and
any accrued vacation pay not yet paid by the Company (the "Accrued
Obligations"), and (iii) any other benefits payable due to the Executive's death
or Disability under the Company's plans, policies or programs (the "Additional
Benefits").
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Any Earned Salary shall be paid in cash in a single lump sum as soon as
practicable, but in no event more than 10 days (or at such earlier date required
by law), following the Date of Termination. Accrued Obligations and Additional
Benefits shall be paid in accordance with the terms of the applicable plan,
program or arrangement.
(b) Cause and Voluntary Termination. If, during the Employment Period, the
Executive's employment shall be terminated for Cause or voluntarily terminated
by the Executive (other than on account of Good Reason following a Change of
Control), the Company shall pay the Executive (i) the Earned Salary in cash in a
single lump sum as soon as practicable, but in no event more than 10 days,
following the Date of Termination, and (ii) the Accrued Obligations in
accordance with the terms of the applicable plan, program or arrangement.
(c) Termination by the Company other than for Cause and Termination by the
Executive for Good Reason or in the Special Window Period. If (x) the Company
terminates the Executive's employment other than for Cause during the Employment
Period, (y) the Executive terminates his employment at any time during the
Employment Period for Good Reason or (z) the Executive terminates his employment
with or without Good Reason during the Special Window Period, the Company shall
provide the Executive with the following benefits:
(i) Severance and Other Termination Payments. The Company shall pay
the Executive the following:
(A) the Executive's Earned Salary; and
(B) an amount (the Pro-Rated Annual Incentive) equal to the average
of the annual bonuses payable to the Executive for the two fiscal
years of the Company ended prior to the Effective Date for which
bonuses have been determined (the "Average Annual Bonus")
multiplied by a fraction, the numerator of which is the number of
months in such fiscal year which have elapsed on or before (and
including) the last day of the month in which the Date of
Termination occurs and the denominator of which is 12; and
(C) an aggregate amount (the Book Value Award Amount) equal to the
sum of the amounts payable to the Executive in respect of each
outstanding incentive award related to the Company's adjusted
book value, determined as of the end of the month in which the
Date of Termination occurs; and
9
<PAGE>
(D) the Accrued Obligations; and
(E) a cash amount (the "Severance Amount") equal to three times the
sum of
(1) the Executive's annual Base Salary;
(2) an amount equal to the Average Annual Bonus;
The Earned Salary, Pro-Rated Annual Incentive and Severance Amount shall be
paid in cash in a single lump sum as soon as practicable, but in no event
more than 10 days (or at such earlier date required by law), following the
Date of Termination. The Book Value Award Amounts shall be paid in cash as
soon as practicable after the amount of each such payment can be
determined. Accrued Obligations shall be paid in accordance with the terms
of the applicable plan, program or arrangement.
(ii) Continuation of Benefits. If, during the Employment Period, the
Company terminates the Executive's employment other than for Cause or the
Executive terminates his employment for Good Reason, the Executive (and, to
the extent applicable, his dependents) shall be entitled, after the Date of
Termination until the earlier of (1) the third anniversary of the Date of
Termination (the "End Date") and (2) the date the Executive becomes
eligible for comparable benefits under a similar plan, policy or program of
a subsequent employer, to continue participation in all of the Company's
group health and group life employee benefits plans (the "Group Benefit
Plans"). To the extent any such benefits cannot be provided under the terms
of the applicable plan, policy or program, the Company shall provide a
comparable benefit under another plan or from the Company's general assets.
The Executive's participation in the Group Benefit Plans will be on the
same terms and conditions (including, without limitation, any condition
that the Executive make contributions toward the cost of such coverage on
the same terms and conditions generally applicable to similarly situated
employees) that would have applied had the Executive continued to be
employed by the Company through the End Date.
(iii) Restricted Stock. Any and all awards of restricted stock held by
the Executive at the Date of Termination shall immediately become fully
vested.
(iv) Post-Termination Exercise Period. Notwithstanding anything else
contained in Section 14 of the Company's 1987 Stock Option Plan to the
contrary,
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<PAGE>
in the event that Executive is entitled to receive the severance benefits
described above pursuant to the terms of this Agreement, all of his
outstanding Options and SARs awarded under such 1997 Stock Option Plan
shall automatically be and become fully exercisable on the Date of
Termination without further action on anyone's part and the Executive shall
have the right to exercise any such Option or SAR until the earlier to
occur of the expiration of the term of such Option or SAR and the fifth
anniversary of the Date of Termination.
(v) Retirement Contribution Credits. The Executive shall receive
credits to the Company's nonqualified excess benefits plan with respect to
the amounts that would otherwise have been contributed on his behalf under
the Company's Money Purchase Pension Plan and Profit Sharing Plan had the
Executive continued in the company's employ for three years following the
Date of Termination.
(vi) Outplacement Services. The Executive shall be provided at the
Company's expense with outplacement services customary for executives at
his level (including, without limitation, office space and telephone
support services) provided by a qualified and experienced third party
provider selected by the Company.
(d) Discharge of the Company's Obligations. Except as expressly provided in
the last sentence of this Section 7(d), the amounts payable to the Executive
pursuant to this Section 7 following termination of his employment shall be in
fun and complete satisfaction of the Executive's rights under this Agreement and
any other claims he may have in respect of his employment by the Company or any
of its Subsidiaries. Such amounts shall constitute liquidated damages -with
respect to any and all such rights and claims and, upon the Executive's receipt
of such amounts, the Company shall be released and discharged from any and all
liability to the Executive in connection with this Agreement or otherwise in
connection with the Executive's employment -with the Company and its
Subsidiaries. Nothing in this Section 7(d) shall be construed to release the
Company from its commitment to indemnify the Executive and hold the Executive
harmless from and against any claim, loss or cause of action arising from or out
of the Executive's performance as an officer, director or employee of the
Company or any of its Subsidiaries or in any other capacity, including any
fiduciary capacity, in which the Executive served at the request of the Company
to the maximum extent permitted by applicable law and the Governing Documents.
(e) Certain Further Payments by the Company.
11
<PAGE>
(i) In the event that any amount or benefit paid or distributed to the
Executive pursuant to this Agreement, taken together with any amounts or
benefits otherwise paid or distributed to the Executive by the Company or
any affiliated company (collectively, the "Covered Payments"), are or
become subject to the tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any similar
tax that may hereafter be imposed, the Company shall pay to the Executive
at the time specified in Section 7(e)(v) below an additional amount (the
"Tax Reimbursement Payment") such that the net amount retained by the
Executive with respect to such Covered Payments, after deduction of any
Excise Tax on the Covered Payments and any Federal, state and local income
or employment tax and Excise Tax on the Tax Reimbursement Payment provided
for by this Section 7(e), but before deduction for any Federal, state or
local income or employment tax withholding on such Covered Payments, shall
be equal to the amount of the Covered Payments.
(ii) For purposes of determining whether any of the Covered Payments
will be subject to the Excise Tax and the amount of such Excise Tax,
(A) such Covered Payments will be treated as "parachute payments"
within the meaning of Section 280G of the Code, and all
"parachute payments" in excess of the "base amount" (as defined
under Section 280G(b)(3) of the Code) shall be treated as subject
to the Excise Tax, unless, and except to the extent that, in the
good faith judgment of the Company's independent certified public
accountants appointed prior to the Change of Control Date or tax
counsel selected by such Accountants (the "Accountants"), the
Company has a reasonable basis to conclude that such Covered
Payments (in whole or in part) either do not constitute
"parachute payments" or represent reasonable compensation for
personal services actually rendered (within the meaning of
Section 280G(b)(4)(B) of the Code) in excess of the "base
amount," or such "parachute payments" are otherwise not subject
to such Excise Tax, and
(B) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with
the principles of Section 280G of the Code.
(iii) For purposes of determining the amount of the Tax Reimbursement
Payment, the Executive shall be deemed to pay:
12
<PAGE>
(A) Federal income taxes at the highest applicable marginal rate of
Federal income taxation for the calendar year in which the Tax
Reimbursement Payment is to be made, and
(B) any applicable state and local income taxes at the highest
applicable marginal rate of taxation for the calendar year in
which the Tax Reimbursement Payment is to be made, net of the
maximum reduction in Federal income taxes which could be obtained
from the deduction of such state or local taxes if paid in such
year.
(iv) In the event that the Excise Tax is subsequently determined by
the Accountants or pursuant to any proceeding or negotiations with the
Internal Revenue Service to be less than the amount taken into account
hereunder in calculating the Tax Reimbursement Payment made, the Executive
shall repay to the Company, at the time that the amount of such reduction
in the Excise Tax is finally determined, the portion of such prior Tax
Reimbursement Payment that would not have been paid if such Excise Tax had
been applied in initially calculating such Tax Reimbursement Payment, plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any
portion of the Tax Reimbursement Payment to be refunded to the Company has
been paid to any Federal, state or local tax authority, repayment thereof
shall not be required until actual refund or credit of such portion has
been made to the Executive, and interest payable to the Company shall not
exceed interest received or credited to the Executive by such tax authority
for the period it held such portion. The Executive and the Company .shall
mutually agree upon the course of action to be pursued (and the method of
allocating the expenses thereof) if the Executive's good faith claim for
refund or credit is denied.
In the event that the Excise Tax is later determined by the
Accountants or pursuant to any proceeding or negotiations with the Internal
Revenue Service to exceed the amount taken into account hereunder at the
time the Tax Reimbursement Payment is made (including, but not limited to,
by reason of any payment the existence or amount of which cannot be
determined at the time of the Tax Reimbursement Payment), the Company shall
make an additional Tax Reimbursement Payment in respect of such excess
(plus any interest or penalty payable with respect to such excess) at the
time that the amount of such excess is finally determined.
(v) The Tax Reimbursement Payment (or portion thereof) provided for in
Section 7(e)(i) above shall be paid to the Executive not later than 10
business
13
<PAGE>
days following the payment of the Covered Payments; provided, however, that
if the amount of such Tax Reimbursement Payment (or portion thereof) cannot
be finally determined on or before the date on which payment is due, the
Company shall pay to the Executive by such date an amount estimated in good
faith by the Accountants to be the minimum amount of such Tax Reimbursement
Payment and shall pay the remainder of such Tax Reimbursement Payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined, but in no event
later than 45 calendar days after payment of the related Covered Payment.
In the event that the amount of the estimated Tax Reimbursement Payment
exceeds the amount subsequently determined to have been due, such excess
shall constitute a loan by the Company to the Executive, payable on the
fifth business day after written demand by the Company for payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code).
8. Non-exclusivity of Rights. Except as expressly provided herein, nothing
in this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Company or any of its affiliated companies and for which the Executive
may qualify, nor shall anything herein limit or otherwise prejudice such lights
as the Executive may have under any other agreements with the Company or any of
its affiliated companies, including employment agreements or stock option
agreements. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan or program.
9. No Offset. The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Executive or others whether by reason of the subsequent employment
of the Executive or otherwise.
10. Legal Fees and Expenses. If the Executive asserts any claim in any
contest (whether initiated by the Executive or by the Company) as to the
validity, enforceability or interpretation of any provision of this Agreement,
the Company shall pay the Executive's legal expenses (or cause such expenses to
be paid) including, without limitation, his reasonable attorney's fees, on a
quarterly basis, upon presentation of proof of such expenses in a form
acceptable to the Company, provided that the Executive shall reimburse the
Company for such amounts, plus simple interest thereon at the 90-day United
States Treasury Bill rate as in effect from time to time, compounded annually,
if
14
<PAGE>
the arbitrator referred to in Section 13(b) or a court of competent jurisdiction
shall find that the Executive did not have a good faith and reasonable basis to
believe that he would prevail as to at least one material issue presented to
such arbitrator or court.
11. Confidential Information; Company Property. By and in consideration of
the salary and benefits to be provided by the Company hereunder, including the
severance arrangements set forth herein, the Executive agrees that:
(a) Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, (i) obtained by the Executive during his
employment by the Company or any of its affiliated companies and (ii) not
otherwise public knowledge (other than by reason of an unauthorized act by the
Executive). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company,
unless compelled pursuant to an order of a court or other body having
jurisdiction over such matter, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
(b) Nonsolicitation of Employees. The Executive agrees that for two years
after the Date of Termination, he will not attempt, directly or indirectly, to
induce any employee of the Company, or any subsidiary or any affiliate thereof
to be employed or perform services elsewhere or otherwise to cease providing
services to the Company, or any subsidiary or affiliate thereof.
(c) Company Property. Except as expressly provided herein, promptly
following the Executive's termination of employment, the Executive shall return
to the Company all property of the Company and all copies thereof in the
Executive's possession or under his control.
(d) Injunctive Relief and Other Remedies with Respect to Covenants. The
Executive acknowledges and agrees that the covenants and obligations of the
Executive with respect to confidentiality and Company property relate to
special, unique and extraordinary matters and that a violation of any of the
terms of such covenants and obligations will cause the Company irreparable
injury for which adequate remedies are not available at law, Therefore, the
Executive agrees that the Company shall be entitled to an injunction,
restraining order or such other equitable relief (without the requirement to
post bond) restraining Executive from committing any violation of the covenants
and obligations contained in this Section 11 These remedies are cumulative and
are in addition to any other rights and remedies the Company may have at law or
in equity. In no event shall
15
<PAGE>
an asserted violation of the provisions of this Section 11 constitute a basis
for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement.
12. Successors. (a) This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors. The Company shall require any successor to all or
substantially all of the business and/or assets of the Company, whether direct
or indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as the Company would be required to perform if no such
succession had taken place.
13. Miscellaneous. (a) Applicable Law. This Agreement shall be -governed by
and construed in accordance with the laws of the States of New York, applied
without reference to principles of conflict of laws.
(b) Arbitration. Except to the extent provided in Section 11(c), any
dispute or controversy arising under or in connection with this Agreement shall
be resolved by binding arbitration. The arbitration shall be held in the city of
White Plains, New York and, except to the extent inconsistent with this
Agreement, shall be conducted in accordance with the Expedited Employment
Arbitration Rules of the American Arbitration Association then in effect at the
time of the arbitration (or such other rules as the parties may agree to in
writing), and otherwise in accordance with principles which would be applied by
a court of law or equity. The arbitrator shall be acceptable to both the Company
and the Executive. If the parties cannot agree on an acceptable arbitrator, the
dispute shall be heard by a panel of three arbitrators, one appointed by each of
the parties and the third appointed by the other two arbitrators.
(c) Amendments. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(d) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters referred to herein. No
other agreement relating to the terms of the Executive's employment by the
Company, oral or otherwise, shall be binding between the parties unless it is in
writing and signed by the party against whom enforcement is sought. There are no
promises, representations,
16
<PAGE>
inducements or statements between the parties other than those that are
expressly contained herein. The Executive acknowledges that he is entering into
t1ris Agreement of his own free will and accord, and with no duress, that he has
read this Agreement and that he understands it and its legal consequences.
(e) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand-delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: at the home address of the Executive noted
on the records of the Company
If to the Company: MBIA Inc.
113 King Street
Armonk, New York 10504
Attn.: Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(f) Tax Withholding. The Company shall withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(g) Severability; Reformation. In the event that one or more of the
provisions of this Agreement shall become invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby. In the event that any
of the provisions of any of Section 11(a) are not enforceable in accordance with
its terms, the Executive and the Company agree that such Section shall be
reformed to make such Section enforceable in a manner which provides the Company
the maximum rights permitted at law.
(h) Waiver. Waiver by any party hereto of any breach or default by the
other party of any of the terms of this Agreement shall not operate as a waiver
of any other breach or default, whether similar to or different from the breach
or default waived. No waiver of any provision of this Agreement shall be implied
from any course of dealing between the parties hereto or from any failure by
either party hereto to assert its or his rights hereunder on any occasion or
series of occasions.
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(i) Survival. The provisions of Section 7(c)(iii) (and so much of Section
7(d) as provides a benefit identical to that payable under such Section
7(c)(iii)) shall survive the termination of the Employment Period hereunder and
shall be binding upon and enforceable against the Company in accordance with its
terms. In the event, that any dispute arises with respect to the Executive's
entitlement to such enhanced retirement benefits, the dispute resolutions
provisions contained in Section 13(b) and the legal fees provision contained in
Section 10 shall also survive the end of the Employment Period and shall be
applied as though the dispute arose within the Employment Period.
(j) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
(k) Captions. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the Company
has caused this Agreement to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed and attested by its Secretary, all as of
the day and year first above written.
MBIA Inc.
/s/ [ILLEGIBLE]
--------------------------------
By: Louis G. Lenzi
Title: General Counsel
EXECUTIVE:
/s/ [ILLEGIBLE]
-------------------------------
18
KEY EMPLOYEE EMPLOYMENT PROTECTION AGREEMENT
THIS AGREEMENT between MBIA Inc., a Connecticut corporation (the
"Company"), and Louis G. Lenzi (the "Executive"), dated as of this 25th day of
January, 1999.
WITNESSETH:
WHEREAS, the Company has employed the Executive in an officer position and
has determined that the Executive holds an important position with the Company;
WHEREAS, the Company believes that, in the event it is confronted with a
situation that could result in a change in ownership or control of the Company,
continuity of management will be essential to its ability to evaluate and
respond to such a situation in the best interests of shareholders;
WHEREAS, the Company understands that any such situation will present
significant concerns for the Executive with respect to his financial and job
security,
WHEREAS, the Company desires to assure itself of the Executives services
during the period in which it is confronting such a situation, and to provide
the Executive certain financial assurances to enable the Executive to perform
the responsibilities of his position without undue distraction and to exercise
his judgment without bias due to his personal circumstances;
WHEREAS, to achieve these objectives, the Company and the Executive desire
to enter into an agreement providing the Company and the Executive with certain
rights and obligations upon the occurrence of a Change of Control or Potential
Change of Control (as defined in Section 2);
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is hereby agreed by and between the Company and the
Executive as follows:
1. Operation of Agreement. (a) Effective Date. The effective date of this
Agreement shall be the date on which a Change of Control occurs (the "Effective
<PAGE>
Date"), provided that, except as provided in Section I (b), if the Executive is
not employed by the Company on the Effective Date, this Agreement shall be void
and without effect.
(b) Termination of Employment Following a Potential Change of Control.
Notwithstanding Section l(a), if (i) the Executive's employment is terminated by
the Company Without Cause (as defined in Section 6(c)) after the occurrence of a
Potential Change of Control and prior to the occurrence of a Change of Control
and prior to the time at which the Board of Directors of the Company (the Board)
has adopted a Nullification Resolution (as defined in Section 2(b) hereof) with
respect to such Potential Change of Control or (ii) a Change of Control (as
defined in Section 2(a) hereof). and (ii) a Change of Control occurs within two
years of such termination, the Executive shall be deemed, solely for purposes of
determining his rights under this Agreement, to have remained employed until the
date such Change of Control occurs and to have been terminated by the Company
Without Cause immediately after this Agreement becomes effective, with any
amounts payable hereunder reduced by the amount of any other severance benefits
provided to him in connection with such termination.
2. Definitions. (a) Change of Control. For the purposes of this Agreement,
a "Change of Control" shall be deemed to have occurred if:
(i) any person, as such term is currently used is Section 13(d) or
14(d) of the 1934 Act, other than the Company, its majority owned
subsidiaries, or any employee benefit plan of the Company or any of its
majority-owned subsidiaries, becomes a "beneficial owner" (as such term is
currently used in Rule 13d-3, as promulgated under 1934 Act) of 25% or more
of the Voting Power of the Company;
(ii) on any date, a majority of the Board consists of individuals
other than Incumbent Directors, which term means the members of the Board
who were serving on the Board at beginning of any 24-month period ending
with such date (or another date specified by the Committee), provided that
any individual who becomes a director subsequent to that date whose
election or nomination for election was supported by two-thirds of the
directors who then comprised the Incumbent Directors shall be considered to
be an Incumbent Director for purposes of this subsection 2(a)(ii);
(iii) the stockholders of the Company approve a merger, consolidation,
share exchange, division, sale or other disposition of substantially all of
the assets of the Company (a "Corporate Event"), as a result of which the
shareholders of the Company immediately prior to such Corporate Event (the
Company Shareholders) shall not hold, directly or indirectly, immediately
following such Corporate Event a
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majority of the Voting Power of (x) in the case of a merger or
consolidation, the surviving or resulting corporation, (y) in the case of a
share exchange, the acquiring corporation or (z) in the case of a division
or a sale or other disposition of substantially all of the Company's
assets, each surviving, resulting or acquiring corporation; provided that
such a division or sale shall not be a Change of Control for purposes of
this Agreement to the extent that, following such Corporate Event, the
Executive continues to be employed by a surviving, resulting or acquiring
entity with respect to which the Company Shareholders hold, directly or
indirectly, a majority of the Voting Power immediately following such
Corporate Event.
(b) Potential Change of Control. For the purposes of this Agreement, a
Potential Change of Control shall be deemed to have occurred if:
(i) a Person commences a tender offer (with adequate financing) for
securities representing at least 15% of the Voting Power of the Company's
securities;
(ii) the Company enters into an agreement the consummation of which
would constitute a Change of Control;
(iii) proxies for the election of directors of the Company are
solicited by anyone other than the Company; or
(iv) any other event occurs which is deemed to be a Potential Change
of Control by the Board.
Notwithstanding the foregoing, if, after a Potential Change of Control and
before a Change of Control, the Board makes a good faith determination that such
Potential Change of Control will not result in a Change of Control, the Board
may nullify the effect of the Potential Change of Control (a "Nullification") by
resolution (a "Nullification Resolution"), in which case the Executive shall
have no further rights and obligations under this Agreement by reason of such
Potential Change of Control; provided, however, that if the Executive shall have
delivered a Notice of Termination (within the meaning of Section 6(f) hereof)
prior to the date of the Nullification Resolution, such Resolution shall not
effect the Executive's rights hereunder. If a Nullification Resolution has been
adopted and the Executive has not delivered a Notice of Termination prior
thereto, the Effective Date for purposes of this Agreement shall be the date, if
any, during the term hereof on which another Potential Change of Control or any
actual Change of Control occurs.
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(c) Voting Power Defined. A specified percentage of "Voting Power" of a
company shall mean such number of the Voting Securities as shall enable the
holders thereof to cast such percentage of all the votes which could be cast in
an annual election of directors and "Voting Securities" shall mean all
securities of a company entitling the, holders thereof to vote in an annual
election of directors.
3. Employment Period. Subject to Section 6 of this Agreement, the Company
agrees to continue the Executive in its employ, and the Executive agrees to
remain in the employ of the Company, for the period (the "Employment Period")
commencing on the Effective Date and ending on the third anniversary of the
Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date,
the Executive is demoted to a lower position than the position held on the date
first set forth above, the Board may declare that this Agreement shall be
without force and effect by written notice delivered to the Executive (i) within
3 0 days following such demotion and (ii) prior to the occurrence of a Potential
Change of Control or a Change of Control.
4. Position and Duties. (a) No Reduction in Position. During the Employment
Period, the Executive's position (including titles), authority and
responsibilities shall be at least commensurate with those held, exercised and
assigned immediately prior to the Effective Date. It is understood that, for
purposes of this Agreement, such position, authority and responsibilities shall
not be regarded as not commensurate merely by virtue of the fact that a
successor shall have acquired all or substantially all of the business and/or
assets of the Company as contemplated by Section 12(b) of this Agreement. The
Executive's services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date.
(b) Business Time. From and after the Effective Date, the Executive agrees
to devote His full attention during normal business hours to the business and
affairs of the Company and to use his best efforts to perform faithfully and
efficiently the responsibilities assigned to him hereunder, to the extent
necessary to discharge such responsibilities, except for (i) time spent in
managing his personal, financial and legal affairs and serving on corporate,
civic or charitable boards or committees, in each case only if and to the extent
not substantially interfering with the performance of such responsibilities, and
(ii) periods of vacation and sick leave to which he is entitled. It is expressly
understood and agreed that the Executive's continuing to serve on any boards and
committees on which he is serving or with which he is other-wise associated
immediately preceding the Effective Date shall not be deemed to interfere with
the performance of the Executive's services to the Company.
5. Compensation. (a) Base Salary. During the Employment Period, the
Executive shall receive a base salary at a monthly rate at least equal to the
monthly
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salary paid to the Executive by the Company and any of its affiliated companies
immediately prior to the Effective Date. The base salary shall be reviewed at
least once each year after the Effective Date, and may be increased (but not
decreased) at any time and from time to time by action of the Board or any
committee thereof or any individual having authority to take such action in
accordance with the Company's regular practices. The Executive's base salary, as
it may be increased from time to time, shall hereafter be referred to as "Base
Salary". Neither the Base Salary nor any increase in Base Salary after the
Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder.
(b) Annual Bonus. During the Employment Period, in addition to the Base
Salary, for each fiscal year of the Company ending during the Employment Period,
the Executive shall be afforded the opportunity to receive an annual bonus on
terms and conditions no less favorable to the Executive (taking into account
reasonable changes in the Company's goals and objectives and taking into account
actual performance) than the annual bonus opportunity that had been made
available to the Executive for the fiscal year ended immediately prior to the
Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect
of the Annual Bonus Opportunity shall be paid as soon as practicable following
the year for which the amount (or prorated portion) is earned or awarded, unless
electively deferred by the Executive pursuant to any deferral programs or
arrangements that the Company may make available to the Executive.
(c) Long-term Incentive Compensation Programs. During the Employment
Period, the Executive shall participate in all long-term incentive compensation
programs for key executives at a level that is commensurate with the Executive's
participation in such plans immediately prior to the Effective Date, or, if more
favorable to the Executive, at the level made available to the Executive or
other similarly situated officers at any time thereafter.
(d) Benefit Plans. During the Employment Period, the Executive (and, to the
extent applicable, his dependents) shall be entitled to participate in or be
covered under all pension, retirement, deferred compensation, savings, medical,
dental, health, disability, group life and accidental death insurance plans and
programs of the Company and its affiliated companies at a level that is
commensurate with the Executive's participation in such plans immediately prior
to the Effective Date, or, if more favorable to the Executive, at the level made
available to the Executive or other similarly situated officers at any time
thereafter.
(e) Expenses. During the Employment Period, the Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the policies and procedures of the Company as in
effect
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immediately prior to the Effective Date. Notwithstanding the foregoing, the
Company may apply the policies and procedures in effect after the Effective Date
to the Executive, if such policies and procedures are not less favorable to the
Executive than those in effect immediately prior to the Effective Date.
(f) Vacation and Fringe Benefits. During the Employment Period, the
Executive shall be entitled to paid vacation and fringe benefits at a level that
is commensurate with the paid vacation and fringe benefits available to the
Executive immediately prior to the Effective Date, or, if more favorable to the
Executive, at the level made available from time to time to the Executive or
other similarly situated officers at any time thereafter.
(g) Indemnification. During and after the Employment Period, the Company
shall indemnify the Executive and hold the Executive harmless from and against
any claim, loss or cause of action arising from or out of the Executive's
performance as an officer, director or employee of the Company or any of its
Subsidiaries or in any other capacity, including any fiduciary capacity, in
which the Executive serves at the request of the Company to the maximum extent
permitted by applicable law and the Company's Certificate of Incorporation and
By-Laws (the "Governing Documents"), provided that in no event shall the
protection afforded to the Executive hereunder be less than that afforded under
the Governing Documents as in effect immediately prior to the Effective Date.
(h) Office and Support Staff. The Executive shall be entitled to an office
with furnishings and other appointments, and to secretarial and other
assistance, at a level that is at least commensurate with the foregoing provided
to other similarly situated officers.
6. Termination. (a) Death. Disability or Retirement. Subject to the
provisions of Section 1 hereof, this Agreement shall terminate automatically
upon the Executive's death, termination due to "Disability" (as defined below)
or voluntary retirement under any of the Company's retirement plans as in effect
from time to time. For purposes of this Agreement, Disability shall mean the
Executive has met the conditions to qualify for long-term disability benefits
under the Company's policies, as in effect immediately prior to the Effective
Date.
(b) Voluntary Termination. Notwithstanding anything in this Agreement to
the contrary, following a Change of Control the Executive may, upon not less
than 60 days' written notice to the Company, voluntarily terminate employment
for any reason (including early retirement under the terms of any of the
Company's retirement plans as in effect from time to time), provided that any
termination by the Executive
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pursuant to Section 6(d) on account of Good Reason (as defined therein) shall
not be treated as a voluntary termination under this Section 6(b).
(c) Cause. The Company may terminate the Executive's employment for Cause.
For purposes of this Agreement, "Cause" means (i) the Executive's conviction or
plea of nolo contendere to a felony; (ii) an act or acts of dishonesty or gross
misconduct on the Executive's part which result or are intended to result in
material damage to the Company's business or reputation; or (iii) repeated
material violations by the Executive of his obligations under Section 4 of this
Agreement, which violations are demonstrably willful and deliberate on the
Executive's part and which result in material damage to the Company's business
or reputation.
(d) Good Reason. Following the occurrence of a Change of Control, the
Executive may terminate his employment for Good Reason. For purposes of this
Agreement, "Good Reason" means the occurrence of any of the following, without
the express written consent of the Executive, after the occurrence of a Change
of Control:
(i) the assignment to the Executive of any duties inconsistent in any
material adverse respect with the Executive's position, authority or
responsibilities as contemplated by Section 4 of this Agreement, or any
other material adverse change in such position, including titles, authority
or responsibilities;
(ii) any failure by the Company to comply with any of the provisions
of Section 5 of this Agreement, other than an insubstantial or inadvertent
failure remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location more than 50 miles (or such other distance as shall be set
forth in the Company's relocation policy as in effect at the Effective
Time) from that location at which he performed his services specified under
the provisions of Section 4 immediately prior to the Change of Control,
except for travel reasonably required in the performance of the Executive's
responsibilities; or
(iv) any failure by the Company to obtain the assumption and agreement
to perform this Agreement by a successor as contemplated by Section 12(b).
In no event shall the mere occurrence of a Change of Control, absent any further
impact on the Executive, be deemed to constitute Good Reason.
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(e) Special Window Period. The Executive shall also have the right to
terminate his employment at any time and for any reason during the 30-day period
commencing on the first anniversary of the date on which a Change of Control
occurs (the "Special Window Period").
(f) Notice of Termination. Any termination by the Company for Cause or by
the Executive for Good Reason shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 13(e). For purposes of
this Agreement, a "Notice of Termination" means a written notice given, in the
case of a termination for Cause, within 10 business days of the Company's having
actual knowledge of the events giving rise to such termination, and in the case
of a termination for Good Reason, within 90 days of the Executive's having
actual knowledge of the events giving rise to such termination, and which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated, and (iii) if the termination date is other than the date of receipt
of such notice, specifies the termination date of this Agreement (which date
shall be not more than 15 days after the giving of such notice). The failure by
the Executive to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason shall not waive any right of the
Executive hereunder or preclude the Executive from asserting such fact or
circumstance in enforcing his rights hereunder.
(g) Date of Termination. For the purpose of this Agreement, the term "Date
of Termination" means (i) in the case of a termination for which a Notice of
Termination is required, the date of receipt of such Notice of Termination or,
if later, the date specified therein, as the case may be, and (ii) in all other
cases, the actual date on which the Executive's employment terminates during the
Employment Period.
7. Obligations of the Company upon Termination. (a) Death or Disability. If
the Executive's employment is terminated during the Employment Period by reason
of the Executive's death or Disability, this Agreement shall terminate without
further obligations to the Executive or the Executive's legal representatives
under this Agreement other than those obligations accrued hereunder at the Date
of Termination, and the Company shall pay to the Executive (or his beneficiary
or estate) (i) the Executive's full Base Salary through the Date of Termination
(the "Earned Salary"), (ii) any vested amounts or benefits owing to the
Executive under the Company's otherwise applicable employee benefit plans and
programs, including any compensation previously deferred by the Executive
(together with any accrued earnings thereon) and not yet paid by the Company and
any accrued vacation pay not yet paid by the Company (the "Accrued
Obligations"), and (iii) any other benefits payable due to the Executive's death
or Disability under the Company's plans, policies or programs (the "Additional
Benefits").
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Any Earned Salary shall be paid in cash in a single lump sum as soon as
practicable, but in no event more than 10 days (or at such earlier date required
by law), following the Date of Termination. Accrued Obligations and Additional
Benefits shall be paid in accordance with the terms of the applicable plan,
program or arrangement.
(b) Cause and Voluntary Termination. If, during the Employment Period, the
Executive's employment shall be terminated for Cause or voluntarily terminated
by the Executive (other than on account of Good Reason following a Change of
Control), the Company shall pay the Executive (i) the Earned Salary in cash in a
single lump sum as soon as practicable, but in no event more than 10 days,
following the Date of Termination, and (ii) the Accrued Obligations in
accordance with the terms of the applicable plan, program or arrangement.
(c) Termination by the Company other than for Cause and Termination by the
Executive for Good Reason or in the Special Window Period. If (x) the Company
terminates the Executive's employment other than for Cause during the Employment
Period, (y) the Executive terminates his employment at any time during the
Employment Period for Good Reason or (z) the Executive terminates his employment
with or without Good Reason during the Special Window Period, the Company shall
provide the Executive with the following benefits:
(i) Severance and Other Termination Payments. The Company shall pay
the Executive the following:
(A) the Executive's Earned Salary; and
(B) an amount (the Pro-Rated Annual Incentive) equal to the average
of the annual bonuses payable to the Executive for the two fiscal
years of the Company ended prior to the Effective Date for which
bonuses have been determined (the "Average Annual Bonus")
multiplied by a fraction, the numerator of which is the number of
months in such fiscal year which have elapsed on or before (and
including) the last day of the month in which the Date of
Termination occurs and the denominator of which is 12; and
(C) an aggregate amount (the Book Value Award Amount) equal to the
sum of the amounts payable to the Executive in respect of each
outstanding incentive award related to the Company's adjusted
book value, determined as of the end of the month in which the
Date of Termination occurs; and
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(D) the Accrued Obligations; and
(E) a cash amount (the "Severance Amount") equal to three times the
sum of
(1) the Executive's annual Base Salary;
(2) an amount equal to the Average Annual Bonus;
The Earned Salary, Pro-Rated Annual Incentive and Severance Amount shall be
paid in cash in a single lump sum as soon as practicable, but in no event
more than 10 days (or at such earlier date required by law), following the
Date of Termination. The Book Value Award Amounts shall be paid in cash as
soon as practicable after the amount of each such payment can be
determined. Accrued Obligations shall be paid in accordance with the terms
of the applicable plan, program or arrangement.
(ii) Continuation of Benefits. If, during the Employment Period, the
Company terminates the Executive's employment other than for Cause or the
Executive terminates his employment for Good Reason, the Executive (and, to
the extent applicable, his dependents) shall be entitled, after the Date of
Termination until the earlier of (1) the third anniversary of the Date of
Termination (the "End Date") and (2) the date the Executive becomes
eligible for comparable benefits under a similar plan, policy or program of
a subsequent employer, to continue participation in all of the Company's
group health and group life employee benefits plans (the "Group Benefit
Plans"). To the extent any such benefits cannot be provided under the terms
of the applicable plan, policy or program, the Company shall provide a
comparable benefit under another plan or from the Company's general assets.
The Executive's participation in the Group Benefit Plans will be on the
same terms and conditions (including, without limitation, any condition
that the Executive make contributions toward the cost of such coverage on
the same terms and conditions generally applicable to similarly situated
employees) that would have applied had the Executive continued to be
employed by the Company through the End Date.
(iii) Restricted Stock. Any and all awards of restricted stock held by
the Executive at the Date of Termination shall immediately become fully
vested.
(iv) Post-Termination Exercise Period. Notwithstanding anything else
contained in Section 14 of the Company's 1987 Stock Option Plan to the
contrary,
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in the event that Executive is entitled to receive the severance benefits
described above pursuant to the terms of this Agreement, all of his
outstanding Options and SARs awarded under such 1997 Stock Option Plan
shall automatically be and become fully exercisable on the Date of
Termination without further action on anyone's part and the Executive shall
have the right to exercise any such Option or SAR until the earlier to
occur of the expiration of the term of such Option or SAR and the fifth
anniversary of the Date of Termination.
(v) Retirement Contribution Credits. The Executive shall receive
credits to the Company's nonqualified excess benefits plan with respect to
the amounts that would otherwise have been contributed on his behalf under
the Company's Money Purchase Pension Plan and Profit Sharing Plan had the
Executive continued in the company's employ for three years following the
Date of Termination.
(vi) Outplacement Services. The Executive shall be provided at the
Company's expense with outplacement services customary for executives at
his level (including, without limitation, office space and telephone
support services) provided by a qualified and experienced third party
provider selected by the Company.
(d) Discharge of the Company's Obligations. Except as expressly provided in
the last sentence of this Section 7(d), the amounts payable to the Executive
pursuant to this Section 7 following termination of his employment shall be in
fun and complete satisfaction of the Executive's rights under this Agreement and
any other claims he may have in respect of his employment by the Company or any
of its Subsidiaries. Such amounts shall constitute liquidated damages -with
respect to any and all such rights and claims and, upon the Executive's receipt
of such amounts, the Company shall be released and discharged from any and all
liability to the Executive in connection with this Agreement or otherwise in
connection with the Executive's employment with the Company and its
Subsidiaries. Nothing in this Section 7(d) shall be construed to release the
Company from its commitment to indemnify the Executive and hold the Executive
harmless from and against any claim, loss or cause of action arising from or out
of the Executive's performance as an officer, director or employee of the
Company or any of its Subsidiaries or in any other capacity, including any
fiduciary capacity, in which the Executive served at the request of the Company
to the maximum extent permitted by applicable law and the Governing Documents.
(e) Certain Further Payments by the Company.
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(i) In the event that any amount or benefit paid or distributed to the
Executive pursuant to this Agreement, taken together with any amounts or
benefits otherwise paid or distributed to the Executive by the Company or
any affiliated company (collectively, the "Covered Payments"), are or
become subject to the tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any similar
tax that may hereafter be imposed, the Company shall pay to the Executive
at the time specified in Section 7(e)(v) below an additional amount (the
"Tax Reimbursement Payment") such that the net amount retained by the
Executive with respect to such Covered Payments, after deduction of any
Excise Tax on the Covered Payments and any Federal, state and local income
or employment tax and Excise Tax on the Tax Reimbursement Payment provided
for by this Section 7(e), but before deduction for any Federal, state or
local income or employment tax withholding on such Covered Payments, shall
be equal to the amount of the Covered Payments.
(ii) For purposes of determining whether any of the Covered Payments
will be subject to the Excise Tax and the amount of such Excise Tax,
(A) such Covered Payments will be treated as "parachute payments"
within the meaning of Section 280G of the Code, and all
"parachute payments" in excess of the "base amount" (as defined
under Section 280G(b)(3) of the Code) shall be treated as subject
to the Excise Tax, unless, and except to the extent that, in the
good faith judgment of the Company's independent certified public
accountants appointed prior to the Change of Control Date or tax
counsel selected by such Accountants (the "Accountants"), the
Company has a reasonable basis to conclude that such Covered
Payments (in whole or in part) either do not constitute
"parachute payments" or represent reasonable compensation for
personal services actually rendered (within the meaning of
Section 280G(b)(4)(B) of the Code) in excess of the "base
amount," or such "parachute payments" are otherwise not subject
to such Excise Tax, and
(B) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with
the principles of Section 280G of the Code.
(iii) For purposes of determining the amount of the Tax Reimbursement
Payment, the Executive shall be deemed to pay:
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(A) Federal income taxes at the highest applicable marginal rate of
Federal income taxation for the calendar year in which the Tax
Reimbursement Payment is to be made, and
(B) any applicable state and local income taxes at the highest
applicable marginal rate of taxation for the calendar year in
which the Tax Reimbursement Payment is to be made, net of the
maximum reduction in Federal income taxes which could be obtained
from the deduction of such state or local taxes if paid in such
year.
(iv) In the event that the Excise Tax is subsequently determined by
the Accountants or pursuant to any proceeding or negotiations with the
Internal Revenue Service to be less than the amount taken into account
hereunder in calculating the Tax Reimbursement Payment made, the Executive
shall repay to the Company, at the time that the amount of such reduction
in the Excise Tax is finally determined, the portion of such prior Tax
Reimbursement Payment that would not have been paid if such Excise Tax had
been applied in initially calculating such Tax Reimbursement Payment, plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any
portion of the Tax Reimbursement Payment to be refunded to the Company has
been paid to any Federal, state or local tax authority, repayment thereof
shall not be required until actual refund or credit of such portion has
been made to the Executive, and interest payable to the Company shall not
exceed interest received or credited to the Executive by such tax authority
for the period it held such portion. The Executive and the Company .shall
mutually agree upon the course of action to be pursued (and the method of
allocating the expenses thereof) if the Executive's good faith claim for
refund or credit is denied.
In the event that the Excise Tax is later determined by the
Accountants or pursuant to any proceeding or negotiations with the Internal
Revenue Service to exceed the amount taken into account hereunder at the
time the Tax Reimbursement Payment is made (including, but not limited to,
by reason of any payment the existence or amount of which cannot be
determined at the time of the Tax Reimbursement Payment), the Company shall
make an additional Tax Reimbursement Payment in respect of such excess
(plus any interest or penalty payable with respect to such excess) at the
time that the amount of such excess is finally determined.
(v) The Tax Reimbursement Payment (or portion thereof) provided for in
Section 7(e)(i) above shall be paid to the Executive not later than 10
business
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days following the payment of the Covered Payments; provided, however, that
if the amount of such Tax Reimbursement Payment (or portion thereof) cannot
be finally determined on or before the date on which payment is due, the
Company shall pay to the Executive by such date an amount estimated in good
faith by the Accountants to be the minimum amount of such Tax Reimbursement
Payment and shall pay the remainder of such Tax Reimbursement Payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined, but in no event
later than 45 calendar days after payment of the related Covered Payment.
In the event that the amount of the estimated Tax Reimbursement Payment
exceeds the amount subsequently determined to have been due, such excess
shall constitute a loan by the Company to the Executive, payable on the
fifth business day after written demand by the Company for payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code).
8. Non-exclusivity of Rights. Except as expressly provided herein, nothing
in this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Company or any of its affiliated companies and for which the Executive
may qualify, nor shall anything herein limit or otherwise prejudice such lights
as the Executive may have under any other agreements with the Company or any of
its affiliated companies, including employment agreements or stock option
agreements. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan or program.
9. No Offset. The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Executive or others whether by reason of the subsequent employment
of the Executive or otherwise.
10. Legal Fees and Expenses. If the Executive asserts any claim in any
contest (whether initiated by the Executive or by the Company) as to the
validity, enforceability or interpretation of any provision of this Agreement,
the Company shall pay the Executive's legal expenses (or cause such expenses to
be paid) including, without limitation, his reasonable attorney's fees, on a
quarterly basis, upon presentation of proof of such expenses in a form
acceptable to the Company, provided that the Executive shall reimburse the
Company for such amounts, plus simple interest thereon at the 90-day United
States Treasury Bill rate as in effect from time to time, compounded annually,
if
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the arbitrator referred to in Section 13(b) or a court of competent jurisdiction
shall find that the Executive did not have a good faith and reasonable basis to
believe that he would prevail as to at least one material issue presented to
such arbitrator or court.
11. Confidential Information, Company Property. By and in consideration of
the salary and benefits to be provided by the Company hereunder, including the
severance arrangements set forth herein, the Executive agrees that:
(a) Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, (i) obtained by the Executive during his
employment by the Company or any of its affiliated companies and (ii) not
otherwise public knowledge (other than by reason of an unauthorized act by the
Executive). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company,
unless compelled pursuant to an order of a court or other body having
jurisdiction over such matter, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
(b) Nonsolicitation of Employees, The Executive agrees that for two years
after the Date of Termination, he will not attempt, directly or indirectly, to
induce any employee of the Company, or any subsidiary or any affiliate thereof
to be employed or perform services elsewhere or otherwise to cease providing
services to the Company, or any subsidiary or affiliate thereof
(c) Company Property. Except as expressly provided herein, promptly
following the Executive's termination of employment, the Executive shall return
to the Company all property of the Company and all copies thereof in the
Executive's possession or under his control.
(d) Injunctive Relief and Other Remedies with Respect to Covenants. The
Executive acknowledges and agrees that the covenants and obligations of the
Executive with respect to confidentiality and Company property relate to
special, unique and extraordinary matters and that a violation of any of the
terms of such covenants and obligations will cause the Company irreparable
injury for which adequate remedies are not available at law, Therefore, the
Executive agrees that the Company shall be entitled to an injunction,
restraining order or such other equitable relief (without the requirement to
post bond) restraining Executive from committing any violation of the covenants
and obligations contained in this Section 11 These remedies are cumulative and
are in addition to any other rights and remedies the Company may have at law or
in equity. In no event shall
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an asserted violation of the provisions of this Section 11 constitute a basis
for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement.
12. Successors. (a) This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors. The Company shall require any successor to all or
substantially all of the business and/or assets of the Company, whether direct
or indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as the Company would be required to perform if no such
succession had taken place.
13. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of the States of New York, applied
without reference to principles of conflict of laws.
(b) Arbitration. Except to the extent provided in Section 11(c), any
dispute or controversy arising under or in connection with this Agreement shall
be resolved by binding arbitration. The arbitration shall be held in the city of
White Plains, New York and, except to the extent inconsistent with this
Agreement, shall be conducted in accordance with the Expedited Employment
Arbitration Rules of the American Arbitration Association then in effect at the
time of the arbitration (or such other rules as the parties may agree to in
writing), and otherwise in accordance with principles which would be applied by
a court of law or equity. The arbitrator shall be acceptable to both the Company
and the Executive. If the parties cannot agree on an acceptable arbitrator, the
dispute shall be heard by a panel of three arbitrators, one appointed by each of
the parties and the third appointed by the other two arbitrators.
(c) Amendments. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(d) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters referred to herein. No
other agreement relating to the terms of the Executive's employment by the
Company, oral or otherwise, shall be binding between the parties unless it is in
writing and signed by the party against whom enforcement is sought. There are no
promises, representations,
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inducements or statements between the parties other than those that are
expressly contained herein. The Executive acknowledges that he is entering into
t1ris Agreement of his own free will and accord, and with no duress, that he has
read this Agreement and that he understands it and its legal consequences.
(e) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand-delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: at the home address of the Executive noted
on the records of the Company
If to the Company: MBIA Inc.
113 King Street
Armonk, New York 10504
Attn.: Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(f) Tax Withholding. The Company shall withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(g) Severability: Reformation. In the event that one or more of the
provisions of this Agreement shall become invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby. In the event that any
of the provisions of any of Section 11(a) are not enforceable in accordance with
its terms, the Executive and the Company agree that such Section shall be
reformed to make such Section enforceable in a manner which provides the Company
the maximum rights permitted at law.
(h) Waiver. Waiver by any party hereto of any breach or default by the
other party of any of the terms of this Agreement shall not operate as a waiver
of any other breach or default, whether similar to or different from the breach
or default waived. No waiver of any provision of this Agreement shall be implied
from any course of dealing between the parties hereto or from any failure by
either party hereto to assert its or his rights hereunder on any occasion or
series of occasions.
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(i) Survival. The provisions of Section 7(c)(iii) (and so much of Section
7(d) as provides a benefit identical to that payable under such Section
7(c)(iii)) shall survive the termination of the Employment Period hereunder and
shall be binding upon and enforceable against the Company in accordance with its
terms. In the event, that any dispute arises with respect to the Executive's
entitlement to such enhanced retirement benefits, the dispute resolutions
provisions contained in Section 13(b) and the legal fees provision contained in
Section 10 shall also survive the end of the Employment Period and shall be
applied as though the dispute arose within the Employment Period.
(j) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
(k) Captions. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the Company
has caused this Agreement to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed and attested by its Secretary, all as of
the day and year first above written.
MBIA Inc.
/s/ Louis G. Lenzi
-------------------------------
By: Louis G. Lenzi
Title: General Counsel
EXECUTIVE:
/s/ Louis G. Lenzi
-------------------------------
18
KEY EMPLOYEE EMPLOYMENT PROTECTION AGREEMENT
THIS AGREEMENT between MBIA Inc., a Connecticut corporation (the
"Company"), and Kevin D. Silva (the "Executive"), dated as of this 25th day of
January, 1999.
W I T N E S S E T H :
WHEREAS, the Company has employed the Executive in an officer position and
has determined that the Executive holds an important position with the Company;
WHEREAS, the Company believes that, in the event it is confronted with a
situation that could result in a change in ownership or control of the Company,
continuity of management will be essential to its ability to evaluate and
respond to such a situation in the best interests of shareholders;
WHEREAS, the Company understands that any such situation will present
significant concerns for the Executive with respect to his financial and job
security;
WHEREAS, the Company desires to assure itself of the Executives services
during the period in which it is confronting such a situation, and to provide
the Executive certain financial assurances to enable the Executive to perform
the responsibilities of his position without undue distraction and to exercise
his judgment without bias due to his personal circumstances;
WHEREAS, to achieve these objectives, the Company and the Executive desire
to enter into an agreement providing the Company and the Executive with certain
rights and obligations upon the occurrence of a Change of Control or Potential
Change of Control (as defined in Section 2);
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is hereby agreed by and between the Company and the
Executive as follows:
1. Operation of Agreement. (a) Effective Date. The effective date of
this Agreement shall be the date on which a Change of Control occurs (the
"Effective
<PAGE>
Date"), provided that, except as provided in Section 1(b), if the Executive
is not employed by the Company on the Effective Date, this Agreement shall
be void and without effect.
(b) Termination of Employment Following a Potential Change of Control.
Notwithstanding Section l(a), if (i) the Executive's employment is
terminated by the Company Without Cause (as defined in Section 6(c)) after
the occurrence of a Potential Change of Control and prior to the occurrence
of a Change of Control and prior to the time at which the Board of
Directors of the Company (the Board) has adopted a Nullification Resolution
(as defined in Section 2(b) hereof) with respect to such Potential Change
of Control or (ii) a Change of Control (as defined in Section 2(a) hereof)
and (ii) a Change of Control occurs within two years of such termination,
the Executive shall be deemed, solely for purposes of determining his
rights under this Agreement, to have remained employed until the date such
Change of Control occurs and to have been terminated by the Company Without
Cause immediately after this Agreement becomes effective, with any amounts
payable hereunder reduced by the amount of any other severance benefits
provided to him in connection with such termination.
2. Definitions. (a) Change of Control. For the purposes of this
Agreement, a "Change of Control" shall be deemed to have occurred if:
(i) any person, as such term is currently used is Section 13(d)
or 14(d) of the 1934 Act, other than the Company, its majority owned
subsidiaries, or any employee benefit plan of the Company or any of
its majority-owned subsidiaries, becomes a "beneficial owner" (as such
term is currently used in Rule 13d-3, as promulgated under 1934 Act)
of 25% or more of the Voting Power of the Company;
(ii) on any date, a majority of the Board consists of individuals
other than Incumbent Directors, which term means the members of the
Board who were serving on the Board at beginning of any 24-month
period ending with such date (or another date specified by the
Committee), provided that any individual who becomes a director
subsequent to that date whose election or nomination for election was
supported by two-thirds of the directors who then comprised the
Incumbent Directors shall be considered to be an Incumbent Director
for purposes of this subsection 2(a)(ii);
(iii) the stockholders of the Company approve a merger,
consolidation, share exchange, division, sale or other disposition of
substantially all of the assets of the Company (a "Corporate Event"),
as a result of which the shareholders of the Company immediately prior
to such Corporate Event (the Company Shareholders) shall not hold,
directly or indirectly, immediately following such Corporate Event a
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majority of the Voting Power of (x) in the case of a merger or
consolidation, the surviving or resulting corporation, (y) in the case
of a share exchange, the acquiring corporation or (z) in the case of a
division or a sale or other disposition of substantially all of the
Company's assets, each surviving, resulting or acquiring corporation;
provided that such a division or sale shall not be a Change of Control
for purposes of this Agreement to the extent that, following such
Corporate Event, the Executive continues to be employed by a
surviving, resulting or acquiring entity with respect to which the
Company Shareholders hold, directly or indirectly, a majority of the
Voting Power immediately following such Corporate Event.
(b) Potential Change of Control. For the purposes of this Agreement, a
Potential Change of Control shall be deemed to have occurred if:
(i) a Person commences a tender offer (with adequate financing) for
securities representing at least 15% of the Voting Power of the Company's
securities;
(ii) the Company enters into an agreement the consummation of which
would constitute a Change of Control;
(iii) proxies for the election of directors of the Company are
solicited by anyone other than the Company; or
(iv) any other event occurs which is deemed to be a Potential Change
of Control by the Board.
Notwithstanding the foregoing, if, after a Potential Change of Control and
before a Change of Control, the Board makes a good faith determination that such
Potential Change of Control will not result in a Change of Control, the Board
may nullify the effect of the Potential Change of Control (a "Nullification") by
resolution (a "Nullification Resolution"), in which case the Executive shall
have no further rights and obligations under this Agreement by reason of such
Potential Change of Control; provided, however, that if the Executive shall have
delivered a Notice of Termination (within the meaning of Section 6(f) hereof)
prior to the date of the Nullification Resolution, such Resolution shall not
effect the Executive's rights hereunder. If a Nullification Resolution has been
adopted and the Executive has not delivered a Notice of Termination prior
thereto, the Effective Date for purposes of this Agreement shall be the date, if
any, during the term hereof on which another Potential Change of Control or any
actual Change of Control occurs.
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<PAGE>
(c) Voting Power Defined. A specified percentage of "Voting Power" of a
company shall mean such number of the Voting Securities as shall enable the
holders thereof to cast such percentage of all the votes which could be cast in
an annual election of directors and "Voting Securities" shall mean all
securities of a company entitling the, holders thereof to vote in an annual
election of directors.
3. Employment Period. Subject to Section 6 of this Agreement, the Company
agrees to continue the Executive in its employ, and the Executive agrees to
remain in the employ of the Company, for the period (the "Employment Period")
commencing on the Effective Date and ending on the third anniversary of the
Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date,
the Executive is demoted to a lower position than the position held on the date
first set forth above, the Board may declare that this Agreement shall be
without force and effect by written notice delivered to the Executive (i) within
30 days following such demotion and (ii) prior to the occurrence of a Potential
Change of Control or a Change of Control.
4. Position and Duties. (a) No Reduction in Position. During the Employment
Period, the Executive's position (including titles), authority and
responsibilities shall be at least commensurate with those held, exercised and
assigned immediately prior to the Effective Date. It is understood that, for
purposes of this Agreement, such position, authority and responsibilities shall
not be regarded as not commensurate merely by virtue of the fact that a
successor shall have acquired all or substantially all of the business and/or
assets of the Company as contemplated by Section 12(b) of this Agreement. The
Executive's services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date.
(b) Business Time. From and after the Effective Date, the Executive agrees
to devote his full attention during normal business hours to the business and
affairs of the Company and to use his best efforts to perform faithfully and
efficiently the responsibilities assigned to him hereunder, to the extent
necessary to discharge such responsibilities, except for (i) time spent in
managing his personal, financial and legal affairs and serving on corporate,
civic or charitable boards or committees, in each case only if and to the extent
not substantially interfering with the performance of such responsibilities, and
(ii) periods of vacation and sick leave to which he is entitled. It is expressly
understood and agreed that the Executive's continuing to serve on any boards and
committees on which he is serving or with which he is otherwise associated
immediately preceding the Effective Date shall not be deemed to interfere with
the performance of the Executive's services to the Company.
5. Compensation. (a) Base Salary. During the Employment Period, the
Executive shall receive a base salary at a monthly rate at least equal to the
monthly
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<PAGE>
salary paid to the Executive by the Company and any of its affiliated companies
immediately prior to the Effective Date. The base salary shall be reviewed at
least once each year after the Effective Date, and may be increased (but not
decreased) at any time and from time to time by action of the Board or any
committee thereof or any individual having authority to take such action in
accordance with the Company's regular practices. The Executive's base salary, as
it may be increased from time to time, shall hereafter be referred to as "Base
Salary". Neither the Base Salary nor any increase in Base Salary after the
Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder.
(b) Annual Bonus. During the Employment Period, in addition to the Base
Salary, for each fiscal year of the Company ending during the Employment Period,
the Executive shall be afforded the opportunity to receive an annual bonus on
terms and conditions no less favorable to the Executive (taking into account
reasonable changes in the Company's goals and objectives and taking into account
actual performance) than the annual bonus opportunity that had been made
available to the Executive for the fiscal year ended immediately prior to the
Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect
of the Annual Bonus Opportunity shall be paid as soon as practicable following
the year for which the amount (or prorated portion) is earned or awarded, unless
electively deferred by the Executive pursuant to any deferral programs or
arrangements that the Company may make available to the Executive.
(c) Long-term Incentive Compensation Programs. During the Employment
Period, the Executive shall participate in all long-term incentive compensation
programs for key executives at a level that is commensurate with the Executive's
participation in such plans immediately prior to the Effective Date, or, if more
favorable to the Executive, at the level made available to the Executive or
other similarly situated officers at any time thereafter.
(d) Benefit Plans. During the Employment Period, the Executive (and, to the
extent applicable, his dependents) shall be entitled to participate in or be
covered under all pension, retirement, deferred compensation, savings, medical,
dental, health, disability, group life and accidental death insurance plans and
programs of the Company and its affiliated companies at a level that is
commensurate with the Executive's participation in such plans immediately prior
to the Effective Date, or, if more favorable to the Executive, at the level made
available to the Executive or other similarly situated officers at any time
thereafter.
(e) Expenses. During the Employment Period, the Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the policies and procedures of the Company as in
effect
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<PAGE>
immediately prior to the Effective Date. Notwithstanding the foregoing, the
Company may apply the policies and procedures in effect after the Effective Date
to the Executive, if such policies and procedures are not less favorable to the
Executive than those in effect immediately prior to the Effective Date.
(f) Vacation and Fringe Benefits. During the Employment Period, the
Executive shall be entitled to paid vacation and fringe benefits at a level that
is commensurate with the paid vacation and fringe benefits available to the
Executive immediately prior to the Effective Date, or, if more favorable to the
Executive, at the level made available from time to time to the Executive or
other similarly situated officers at any time thereafter.
(g) Indemnification. During and after the Employment Period, the Company
shall indemnify the Executive and hold the Executive harmless from and against
any claim, loss or cause of action arising from or out of the Executive's
performance as an officer, director or employee of the Company or any of its
Subsidiaries or in any other capacity, including any fiduciary capacity, in
which the Executive serves at the request of the Company to the maximum extent
permitted by applicable law and the Company's Certificate of Incorporation and
By-Laws (the "Governing Documents"), provided that in no event shall the
protection afforded to the Executive hereunder be less than that afforded under
the Governing Documents as in effect immediately prior to the Effective Date.
(h) Office and Support Staff. The Executive shall be entitled to an office
with furnishings and other appointments, and to secretarial and other
assistance, at a level that is at least commensurate with the foregoing provided
to other similarly situated officers.
6. Termination. (a) Death. Disability or Retirement. Subject to the
provisions of Section 1 hereof, this Agreement shall terminate automatically
upon the Executive's death, termination due to "Disability" (as defined below)
or voluntary retirement under any of the Company's retirement plans as in effect
from time to time. For purposes of this Agreement, Disability shall mean the
Executive has met the conditions to qualify for long-term disability benefits
under the Company's policies, as in effect immediately prior to the Effective
Date.
(b) Voluntary Termination. Notwithstanding anything in this Agreement to
the contrary, following a Change of Control the Executive may, upon not less
than 60 days' written notice to the Company, voluntarily terminate employment
for any reason (including early retirement under the terms of any of the
Company's retirement plans as in effect from time to time), provided that any
termination by the Executive
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<PAGE>
pursuant to Section 6(d) on account of Good Reason (as defined therein) shall
not be treated as a voluntary termination under this Section 6(b).
(c) Cause. The Company may terminate the Executive's employment for Cause.
For purposes of this Agreement, "Cause" means (i) the Executive's conviction or
plea of nolo contendere to a felony; (ii) an act or acts of dishonesty or gross
misconduct on the Executive's part which result or are intended to result in
material damage to the Company's business or reputation; or (iii) repeated
material violations by the Executive of his obligations under Section 4 of this
Agreement, which violations are demonstrably willful and deliberate on the
Executive's part and which result in material damage to the Company's business
or reputation.
(d) Good Reason. Following the occurrence of a Change of Control, the
Executive may terminate his employment for Good Reason. For purposes of this
Agreement, "Good Reason" means the occurrence of any of the following, without
the express written consent of the Executive, after the occurrence of a Change
of Control:
(i) the assignment to the Executive of any duties inconsistent in any
material adverse respect with the Executive's position, authority or
responsibilities as contemplated by Section 4 of this Agreement, or any
other material adverse change in such position, including titles, authority
or responsibilities;
(ii) any failure by the Company to comply with any of the provisions
of Section 5 of this Agreement, other than an insubstantial or inadvertent
failure remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location more than 50 miles (or such other distance as shall be set
forth in the Company's relocation policy as in effect at the Effective
Time) from that location at which he performed his services specified under
the provisions of Section 4 immediately prior to the Change of Control,
except for travel reasonably required in the performance of the Executive's
responsibilities; or
(iv) any failure by the Company to obtain the assumption and agreement
to perform this Agreement by a successor as contemplated by Section 12(b).
In no event shall the mere occurrence of a Change of Control, absent any further
impact on the Executive, be deemed to constitute Good Reason.
7
<PAGE>
(e) Special Window Period. The Executive shall also have the right to
terminate his employment at any time and for any reason during the 30-day period
commencing on the first anniversary of the date on which a Change of Control
occurs (the "Special Window Period").
(f) Notice of Termination. Any termination by the Company for Cause or by
the Executive for Good Reason shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 13(e). For purposes of
this Agreement, a "Notice of Termination" means a written notice given, in the
case of a termination for Cause, within 10 business days of the Company's having
actual knowledge of the events giving rise to such termination, and in the case
of a termination for Good Reason, within 90 days of the Executive's having
actual knowledge of the events giving rise to such termination, and which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated, and (iii) if the termination date is other than the date of receipt
of such notice, specifies the termination date of this Agreement (which date
shall be not more than 15 days after the giving of such notice). The failure by
the Executive to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason shall not waive any right of the
Executive hereunder or preclude the Executive from asserting such fact or
circumstance in enforcing his rights hereunder.
(g) Date of Termination. For the purpose of this Agreement, the term "Date
of Termination" means (i) in the case of a termination for which a Notice of
Termination is required, the date of receipt of such Notice of Termination or,
if later, the date specified therein, as the case may be, and (ii) in all other
cases, the actual date on which the Executive's employment terminates during the
Employment Period.
7. Obligations of the Company upon Termination. (a) Death or Disability. If
the Executive's employment is terminated during the Employment Period by reason
of the Executive's death or Disability, this Agreement shall terminate without
further obligations to the Executive or the Executive's legal representatives
under this Agreement other than those obligations accrued hereunder at the Date
of Termination, and the Company shall pay to the Executive (or his beneficiary
or estate) (i) the Executive's full Base Salary through the Date of Termination
(the "Earned Salary"), (ii) any vested amounts or benefits owing to the
Executive under the Company's otherwise applicable employee benefit plans and
programs, including any compensation previously deferred by the Executive
(together with any accrued earnings thereon) and not yet paid by the Company and
any accrued vacation pay not yet paid by the Company (the "Accrued
Obligations"), and (iii) any other benefits payable due to the Executive's death
or Disability under the Company's plans, policies or programs (the "Additional
Benefits").
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Any Earned Salary shall be paid in cash in a single lump sum as soon as
practicable, but in no event more than 10 days (or at such earlier date required
by law), following the Date of Termination. Accrued Obligations and Additional
Benefits shall be paid in accordance with the terms of the applicable plan,
program or arrangement.
(b) Cause and Voluntary Termination. If, during the Employment Period, the
Executive's employment shall be terminated for Cause or voluntarily terminated
by the Executive (other than on account of Good Reason following a Change of
Control), the Company shall pay the Executive (i) the Earned Salary in cash in a
single lump sum as soon as practicable, but in no event more than 10 days,
following the Date of Termination, and (ii) the Accrued Obligations in
accordance with the terms of the applicable plan, program or arrangement.
(c) Termination by the Company other than for Cause and Termination by the
Executive for Good Reason or in the Special Window Period. If (x) the Company
terminates the Executive's employment other than for Cause during the Employment
Period, (y) the Executive terminates his employment at any time during the
Employment Period for Good Reason or (z) the Executive terminates his employment
with or without Good Reason during the Special Window Period, the Company shall
provide the Executive with the following benefits:
(i) Severance and Other Termination Payments. The Company shall pay
the Executive the following:
(A) the Executive's Earned Salary; and
(B) an amount (the Pro-Rated Annual Incentive) equal to the average
of the annual bonuses payable to the Executive for the two fiscal
years of the Company ended prior to the Effective Date for which
bonuses have been determined (the "Average Annual Bonus")
multiplied by a fraction, the numerator of which is the number of
months in such fiscal year which have elapsed on or before (and
including) the last day of the month in which the Date of
Termination occurs and the denominator of which is 12; and
(C) an aggregate amount (the Book Value Award Amount) equal to the
sum of the amounts payable to the Executive in respect of each
outstanding incentive award related to the Company's adjusted
book value, determined as of the end of the month in which the
Date of Termination occurs; and
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(D) the Accrued Obligations; and
(E) a cash amount (the "Severance Amount") equal to three times the
sum of
(1) the Executive's annual Base Salary;
(2) an amount equal to the Average Annual Bonus;
The Earned Salary, Pro-Rated Annual Incentive and Severance Amount shall be paid
in cash in a single lump sum as soon as practicable, but in no event more than
10 days (or at such earlier date required by law), following the Date of
Termination. The Book Value Award Amounts shall be paid in cash as soon as
practicable after the amount of each such payment can be determined. Accrued
Obligations shall be paid in accordance with the terms of the applicable plan,
program or arrangement.
(ii) Continuation of Benefits. If, during the Employment Period, the
Company terminates the Executive's employment other than for Cause or the
Executive terminates his employment for Good Reason, the Executive (and, to
the extent applicable, his dependents) shall be entitled, after the Date of
Termination until the earlier of (1) the third anniversary of the Date of
Termination (the "End Date") and (2) the date the Executive becomes
eligible for comparable benefits under a similar plan, policy or program of
a subsequent employer, to continue participation in all of the Company's
group health and group life employee benefits plans (the "Group Benefit
Plans"). To the extent any such benefits cannot be provided under the terms
of the applicable plan, policy or program, the Company shall provide a
comparable benefit under another plan or from the Company's general assets.
The Executive's participation in the Group Benefit Plans will be on the
same terms and conditions (including, without limitation, any condition
that the Executive make contributions toward the cost of such coverage on
the same terms and conditions generally applicable to similarly situated
employees) that would have applied had the Executive continued to be
employed by the Company through the End Date.
(iii) Restricted Stock. Any and all awards of restricted stock held by
the Executive at the Date of Termination shall immediately become fully
vested.
(iv) Post-Termination Exercise Period. Notwithstanding anything else
contained in Section 14 of the Company's 1987 Stock Option Plan to the
contrary,
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in the event that Executive is entitled to receive the severance benefits
described above pursuant to the terms of this Agreement, all of his
outstanding Options and SARs awarded under such 1997 Stock Option Plan
shall automatically be and become fully exercisable on the Date of
Termination without further action on anyone's part and the Executive shall
have the right to exercise any such Option or SAR until the earlier to
occur of the expiration of the term of such Option or SAR and the fifth
anniversary of the Date of Termination.
(v) Retirement Contribution Credits. The Executive shall receive
credits to the Company's nonqualified excess benefits plan with respect to
the amounts that would otherwise have been contributed on his behalf under
the Company's Money Purchase Pension Plan and Profit Sharing Plan had the
Executive continued in the company's employ for three years following the
Date of Termination.
(vi) Outplacement Services. The Executive shall be provided at the
Company's expense with outplacement services customary for executives at
his level (including, without limitation, office space and telephone
support services) provided by a qualified and experienced third party
provider selected by the Company.
(d) Discharge of the Company's Obligations. Except as expressly provided in
the last sentence of this Section 7(d), the amounts payable to the Executive
pursuant to this Section 7 following termination of his employment shall be in
fun and complete satisfaction of the Executive's rights under this Agreement and
any other claims he may have in respect of his employment by the Company or any
of its Subsidiaries. Such amounts shall constitute liquidated damages with
respect to any and all such rights and claims and, upon the Executive's receipt
of such amounts, the Company shall be released and discharged from any and all
liability to the Executive in connection with this Agreement or otherwise in
connection with the Executive's employment with the Company and its
Subsidiaries. Nothing in this Section 7(d) shall be construed to release the
Company from its commitment to indemnify the Executive and hold the Executive
harmless from and against any claim, loss or cause of action arising from or out
of the Executive's performance as an officer, director or employee of the
Company or any of its Subsidiaries or in any other capacity, including any
fiduciary capacity, in which the Executive served at the request of the Company
to the maximum extent permitted by applicable law and the Governing Documents.
(e) Certain Further Payments by the Company.
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(i) In the event that any amount or benefit paid or distributed to the
Executive pursuant to this Agreement, taken together with any amounts or
benefits otherwise paid or distributed to the Executive by the Company or
any affiliated company (collectively, the "Covered Payments"), are or
become subject to the tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any similar
tax that may hereafter be imposed, the Company shall pay to the Executive
at the time specified in Section 7(e)(v) below an additional amount (the
"Tax Reimbursement Payment") such that the net amount retained by the
Executive with respect to such Covered Payments, after deduction of any
Excise Tax on the Covered Payments and any Federal, state and local income
or employment tax and Excise Tax on the Tax Reimbursement Payment provided
for by this Section 7(e), but before deduction for any Federal, state or
local income or employment tax withholding on such Covered Payments, shall
be equal to the amount of the Covered Payments.
(ii) For purposes of determining whether any of the Covered Payments
will be subject to the Excise Tax and the amount of such Excise Tax,
(A) such Covered Payments will be treated as "parachute payments" within
the meaning of Section 280G of the Code, and all "parachute payments"
in excess of the "base amount" (as defined under Section 280G(b)(3) of
the Code) shall be treated as subject to the Excise Tax, unless, and
except to the extent that, in the good faith judgment of the Company's
independent certified public accountants appointed prior to the Change
of Control Date or tax counsel selected by such Accountants (the
"Accountants"), the Company has a reasonable basis to conclude that
such Covered Payments (in whole or in part) either do not constitute
"parachute payments" or represent reasonable compensation for personal
services actually rendered (within the meaning of Section
280G(b)(4)(B) of the Code) in excess of the "base amount," or such
"parachute payments" are otherwise not subject to such Excise Tax, and
(B) the value of any non-cash benefits or any deferred payment or benefit
shall be determined by the Accountants in accordance with the
principles of Section 280G of the Code.
(iii) For purposes of determining the amount of the Tax Reimbursement
Payment, the Executive shall be deemed to pay:
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(A) Federal income taxes at the highest applicable marginal rate of
Federal income taxation for the calendar year in which the Tax
Reimbursement Payment is to be made, and
(B) any applicable state and local income taxes at the highest applicable
marginal rate of taxation for the calendar year in which the Tax
Reimbursement Payment is to be made, net of the maximum reduction in
Federal income taxes which could be obtained from the deduction of
such state or local taxes if paid in such year.
(iv) In the event that the Excise Tax is subsequently determined by
the Accountants or pursuant to any proceeding or negotiations with the
Internal Revenue Service to be less than the amount taken into account
hereunder in calculating the Tax Reimbursement Payment made, the Executive
shall repay to the Company, at the time that the amount of such reduction
in the Excise Tax is finally determined, the portion of such prior Tax
Reimbursement Payment that would not have been paid if such Excise Tax had
been applied in initially calculating such Tax Reimbursement Payment, plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any
portion of the Tax Reimbursement Payment to be refunded to the Company has
been paid to any Federal, state or local tax authority, repayment thereof
shall not be required until actual refund or credit of such portion has
been made to the Executive, and interest payable to the Company shall not
exceed interest received or credited to the Executive by such tax authority
for the period it held such portion. The Executive and the Company .shall
mutually agree upon the course of action to be pursued (and the method of
allocating the expenses thereof) if the Executive's good faith claim for
refund or credit is denied.
In the event that the Excise Tax is later determined by the
Accountants or pursuant to any proceeding or negotiations with the Internal
Revenue Service to exceed the amount taken into account hereunder at the
time the Tax Reimbursement Payment is made (including, but not limited to,
by reason of any payment the existence or amount of which cannot be
determined at the time of the Tax Reimbursement Payment), the Company shall
make an additional Tax Reimbursement Payment in respect of such excess
(plus any interest or penalty payable with respect to such excess) at the
time that the amount of such excess is finally determined.
(v) The Tax Reimbursement Payment (or portion thereof) provided for in
Section 7(e)(i) above shall be paid to the Executive not later than 10
business
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days following the payment of the Covered Payments; provided, however, that
if the amount of such Tax Reimbursement Payment (or portion thereof) cannot
be finally determined on or before the date on which payment is due, the
Company shall pay to the Executive by such date an amount estimated in good
faith by the Accountants to be the minimum amount of such Tax Reimbursement
Payment and shall pay the remainder of such Tax Reimbursement Payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined, but in no event
later than 45 calendar days after payment of the related Covered Payment.
In the event that the amount of the estimated Tax Reimbursement Payment
exceeds the amount subsequently determined to have been due, such excess
shall constitute a loan by the Company to the Executive, payable on the
fifth business day after written demand by the Company for payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code).
8. Non-exclusivity of Rights. Except as expressly provided herein, nothing
in this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Company or any of its affiliated companies and for which the Executive
may qualify, nor shall anything herein limit or otherwise prejudice such lights
as the Executive may have under any other agreements with the Company or any of
its affiliated companies, including employment agreements or stock option
agreements. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan or program.
9. No Offset. The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Executive or others whether by reason of the subsequent employment
of the Executive or otherwise.
10. Legal Fees and Expenses. If the Executive asserts any claim in any
contest (whether initiated by the Executive or by the Company) as to the
validity, enforceability or interpretation of any provision of this Agreement,
the Company shall pay the Executive's legal expenses (or cause such expenses to
be paid) including, without limitation, his reasonable attorney's fees, on a
quarterly basis, upon presentation of proof of such expenses in a form
acceptable to the Company, provided that the Executive shall reimburse the
Company for such amounts, plus simple interest thereon at the 90-day United
States Treasury Bill rate as in effect from time to time, compounded annually,
if
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the arbitrator referred to in Section 13(b) or a court of competent jurisdiction
shall find that the Executive did not have a good faith and reasonable basis to
believe that he would prevail as to at least one material issue presented to
such arbitrator or court.
11. Confidential Information, Company Property. By and in consideration of
the salary and benefits to be provided by the Company hereunder, including the
severance arrangements set forth herein, the Executive agrees that:
(a) Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, (i) obtained by the
Executive during his employment by the Company or any of its affiliated
companies and (ii) not otherwise public knowledge (other than by reason of
an unauthorized act by the Executive). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior
written consent of the Company, unless compelled pursuant to an order of a
court or other body having jurisdiction over such matter, communicate or
divulge any such information, knowledge or data to anyone other than the
Company and those designated by it.
(b) Nonsolicitation of Employees, The Executive agrees that for two
years after the Date of Termination, he will not attempt, directly or
indirectly, to induce any employee of the Company, or any subsidiary or any
affiliate thereof to be employed or perform services elsewhere or otherwise
to cease providing services to the Company, or any subsidiary or affiliate
thereof
(c) Company Property. Except as expressly provided herein, promptly
following the Executive's termination of employment, the Executive shall
return to the Company all property of the Company and all copies thereof in
the Executive's possession or under his control.
(d) Injunctive Relief and Other Remedies with Respect to Covenants.
The Executive acknowledges and agrees that the covenants and obligations of
the Executive with respect to confidentiality and Company property relate
to special, unique and extraordinary matters and that a violation of any of
the terms of such covenants and obligations will cause the Company
irreparable injury for which adequate remedies are not available at law,
Therefore, the Executive agrees that the Company shall be entitled to an
injunction, restraining order or such other equitable relief (without the
requirement to post bond) restraining Executive from committing any
violation of the covenants and obligations contained in this Section 11
These remedies are cumulative and are in addition to any other rights and
remedies the Company may have at law or in equity. In no event shall
15
<PAGE>
an asserted violation of the provisions of this Section 11 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
12. Successors. (a) This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors. The Company shall require any successor to all or
substantially all of the business and/or assets of the Company, whether direct
or indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as the Company would be required to perform if no such
succession had taken place.
13. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of the States of New York, applied
without reference to principles of conflict of laws.
(b) Arbitration. Except to the extent provided in Section 11(c), any
dispute or controversy arising under or in connection with this Agreement shall
be resolved by binding arbitration. The arbitration shall be held in the city of
White Plains, New York and, except to the extent inconsistent with this
Agreement, shall be conducted in accordance with the Expedited Employment
Arbitration Rules of the American Arbitration Association then in effect at the
time of the arbitration (or such other rules as the parties may agree to in
writing), and otherwise in accordance with principles which would be applied by
a court of law or equity. The arbitrator shall be acceptable to both the Company
and the Executive. If the parties cannot agree on an acceptable arbitrator, the
dispute shall be heard by a panel of three arbitrators, one appointed by each of
the parties and the third appointed by the other two arbitrators.
(c) Amendments. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(d) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters referred to herein. No
other agreement relating to the terms of the Executive's employment by the
Company, oral or otherwise, shall be binding between the parties unless it is in
writing and signed by the party against whom enforcement is sought. There are no
promises, representations,
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<PAGE>
inducements or statements between the parties other than those that are
expressly contained herein. The Executive acknowledges that he is entering into
t1ris Agreement of his own free will and accord, and with no duress, that he has
read this Agreement and that he understands it and its legal consequences.
(e) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand-delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: at the home address of the Executive noted
on the records of the Company
If to the Company: MBIA Inc.
113 King Street
Armonk, New York 10504
Attn.: Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(f) Tax Withholding. The Company shall withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(g) Severability: Reformation. In the event that one or more of the
provisions of this Agreement shall become invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby. In the event that any
of the provisions of any of Section 11(a) are not enforceable in accordance with
its terms, the Executive and the Company agree that such Section shall be
reformed to make such Section enforceable in a manner which provides the Company
the maximum rights permitted at law.
(h) Waiver. Waiver by any party hereto of any breach or default by the
other party of any of the terms of this Agreement shall not operate as a waiver
of any other breach or default, whether similar to or different from the breach
or default waived. No waiver of any provision of this Agreement shall be implied
from any course of dealing between the parties hereto or from any failure by
either party hereto to assert its or his rights hereunder on any occasion or
series of occasions.
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(i) Survival. The provisions of Section 7(c)(iii) (and so much of Section
7(d) as provides a benefit identical to that payable under such Section
7(c)(iii)) shall survive the termination of the Employment Period hereunder and
shall be binding upon and enforceable against the Company in accordance with its
terms. In the event, that any dispute arises with respect to the Executive's
entitlement to such enhanced retirement benefits, the dispute resolutions
provisions contained in Section 13(b) and the legal fees provision contained in
Section 10 shall also survive the end of the Employment Period and shall be
applied as though the dispute arose within the Employment Period.
(j) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
(k) Captions. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the Company
has caused this Agreement to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed and attested by its Secretary, all as of
the day and year first above written.
MBIA Inc.
/s/ Louis G. Lenzi
---------------------------
By: Louis G. Lenzi
Title: General Counsel
EXECUTIVE:
/s/ Kevin D. Silva
---------------------------
18
KEY EMPLOYEE EMPLOYMENT PROTECTION AGREEMENT
THIS AGREEMENT between MBIA Inc., a Connecticut corporation (the
"Company"), and Richard L. Weill (the "Executive"), dated as of this 25th day of
January, 1999.
WITNESSETH:
WHEREAS, the Company has employed the Executive in an officer position and
has determined that the Executive holds an important position with the Company;
WHEREAS, the Company believes that, in the event it is confronted with a
situation that could result in a change in ownership or control of the Company,
continuity of management will be essential to its ability to evaluate and
respond to such a situation in the best interests of shareholders;
WHEREAS, the Company understands that any such situation will present
significant concerns for the Executive with respect to his financial and job
security;
WHEREAS, the Company desires to assure itself of the Executives services
during the period in which it is confronting such a situation, and to provide
the Executive certain financial assurances to enable the Executive to perform
the responsibilities of his position without undue distraction and to exercise
his judgment without bias due to his personal circumstances;
WHEREAS, to achieve these objectives, the Company and the Executive desire
to enter into an agreement providing the Company and the Executive with certain
rights and obligations upon the occurrence of a Change of Control or Potential
Change of Control (as defined in Section 2);
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is hereby agreed by and between the Company and the
Executive as follows:
1. Operation of Agreement. (a) Effective Date. The effective date of this
Agreement shall be the date on which a Change of Control occurs (the "Effective
<PAGE>
Date"), provided that, except as provided in Section I (b), if the Executive is
not employed by the Company on the Effective Date, this Agreement shall be void
and without effect.
(b) Termination of Employment Following a Potential Change of Control.
Notwithstanding Section l(a), if (i) the Executive's employment is terminated by
the Company Without Cause (as defined in Section 6(c)) after the occurrence of a
Potential Change of Control and prior to the occurrence of a Change of Control
and prior to the time at which the Board of Directors of the Company (the Board)
has adopted a Nullification Resolution (as defined in Section 2(b) hereof) with
respect to such Potential Change of Control or (ii) a Change of Control (as
defined in Section 2(a) hereof). and (ii) a Change of Control occurs within two
years of such termination, the Executive shall be deemed, solely for purposes of
determining his rights under this Agreement, to have remained employed until the
date such Change of Control occurs and to have been terminated by the Company
Without Cause immediately after this Agreement becomes effective, with any
amounts payable hereunder reduced by the amount of any other severance benefits
provided to him in connection with such termination.
2. Definitions. (a) Change of Control. For the purposes of this Agreement,
a "Change of Control" shall be deemed to have occurred if:
(i) any person, as such term is currently used is Section 13(d) or
14(d) of the 1934 Act, other than the Company, its majority owned
subsidiaries, or any employee benefit plan of the Company or any of its
majority-owned subsidiaries, becomes a "beneficial owner" (as such term is
currently used in Rule 13d-3, as promulgated under 1934 Act) of 25% or more
of the Voting Power of the Company;
(ii) on any date, a majority of the Board consists of individuals
other than Incumbent Directors, which term means the members of the Board
who were serving on the Board at beginning of any 24-month period ending
with such date (or another date specified by the Committee), provided that
any individual who becomes a director subsequent to that date whose
election or nomination for election was supported by two-thirds of the
directors who then comprised the Incumbent Directors shall be considered to
be an Incumbent Director for purposes of this subsection 2(a)(ii);
(iii) the stockholders of the Company approve a merger, consolidation,
share exchange, division, sale or other disposition of substantially all of
the assets of the Company (a "Corporate Event"), as a result of which the
shareholders of the Company immediately prior to such Corporate Event (the
Company Shareholders) shall not hold, directly or indirectly, immediately
following such Corporate Event a
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majority of the Voting Power of (x) in the case of a merger or
consolidation, the surviving or resulting corporation, (y) in the case of a
share exchange, the acquiring corporation or (z) in the case of a division
or a sale or other disposition of substantially all of the Company's
assets, each surviving, resulting or acquiring corporation; provided that
such a division or sale shall not be a Change of Control for purposes of
this Agreement to the extent that, following such Corporate Event, the
Executive continues to be employed by a surviving, resulting or acquiring
entity with respect to which the Company Shareholders hold, directly or
indirectly, a majority of the Voting Power immediately following such
Corporate Event.
(b) Potential Change of Control. For the purposes of this Agreement, a
Potential Change of Control shall be deemed to have occurred if:
(i) a Person commences a tender offer (with adequate financing) for
securities representing at least 15% of the Voting Power of the Company's
securities;
(ii) the Company enters into an agreement the consummation of which
would constitute a Change of Control;
(iii) proxies for the election of directors of the Company are
solicited by anyone other than the Company; or
(iv) any other event occurs which is deemed to be a Potential Change
of Control by the Board.
Notwithstanding the foregoing, if, after a Potential Change of Control and
before a Change of Control, the Board makes a good faith determination that such
Potential Change of Control will not result in a Change of Control, the Board
may nullify the effect of the Potential Change of Control (a "Nullification") by
resolution (a "Nullification Resolution"), in which case the Executive shall
have no further rights and obligations under this Agreement by reason of such
Potential Change of Control; provided, however, that if the Executive shall have
delivered a Notice of Termination (within the meaning of Section 6(f) hereof)
prior to the date of the Nullification Resolution, such Resolution shall not
effect the Executive's rights hereunder. If a Nullification Resolution has been
adopted and the Executive has not delivered a Notice of Termination prior
thereto, the Effective Date for purposes of this Agreement shall be the date, if
any, during the term hereof on which another Potential Change of Control or any
actual Change of Control occurs.
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(c) Voting Power Defined. A specified percentage of "Voting Power" of a
company shall mean such number of the Voting Securities as shall enable the
holders thereof to cast such percentage of all the votes which could be cast in
an annual election of directors and "Voting Securities" shall mean all
securities of a company entitling the, holders thereof to vote in an annual
election of directors.
3. Employment Period. Subject to Section 6 of this Agreement, the Company
agrees to continue the Executive in its employ, and the Executive agrees to
remain in the employ of the Company, for the period (the "Employment Period")
commencing on the Effective Date and ending on the third anniversary of the
Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date,
the Executive is demoted to a lower position than the position held on the date
first set forth above, the Board may declare that this Agreement shall be
without force and effect by written notice delivered to the Executive (i) within
30 days following such demotion and (ii) prior to the occurrence of a Potential
Change of Control or a Change of Control.
4. Position and Duties. (a) No Reduction in Position. During the Employment
Period, the Executive's position (including titles), authority and
responsibilities shall be at least commensurate with those held, exercised and
assigned immediately prior to the Effective Date. It is understood that, for
purposes of this Agreement, such position, authority and responsibilities shall
not be regarded as not commensurate merely by virtue of the fact that a
successor shall have acquired all or substantially all of the business and/or
assets of the Company as contemplated by Section 12(b) of this Agreement. The
Executive's services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date.
(b) Business Time. From and after the Effective Date, the Executive agrees
to devote His full attention during normal business hours to the business and
affairs of the Company and to use his best efforts to perform faithfully and
efficiently the responsibilities assigned to him hereunder, to the extent
necessary to discharge such responsibilities, except for (i) time spent in
managing his personal, financial and legal affairs and serving on corporate,
civic or charitable boards or committees, in each case only if and to the extent
not substantially interfering with the performance of such responsibilities, and
(ii) periods of vacation and sick leave to which he is entitled. It is expressly
understood and agreed that the Executive's continuing to serve on any boards and
committees on which he is serving or with which he is other-wise associated
immediately preceding the Effective Date shall not be deemed to interfere with
the performance of the Executive's services to the Company.
5. Compensation. (a) Base Salary. During the Employment Period, the
Executive shall receive a base salary at a monthly rate at least equal to the
monthly
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<PAGE>
salary paid to the Executive by the Company and any of its affiliated companies
immediately prior to the Effective Date. The base salary shall be reviewed at
least once each year after the Effective Date, and may be increased (but not
decreased) at any time and from time to time by action of the Board or any
committee thereof or any individual having authority to take such action in
accordance with the Company's regular practices. The Executive's base salary, as
it may be increased from time to time, shall hereafter be referred to as "Base
Salary". Neither the Base Salary nor any increase in Base Salary after the
Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder.
(b) Annual Bonus. During the Employment Period, in addition to the Base
Salary, for each fiscal year of the Company ending during the Employment Period,
the Executive shall be afforded the opportunity to receive an annual bonus on
terms and conditions no less favorable to the Executive (taking into account
reasonable changes in the Company's goals and objectives and taking into account
actual performance) than the annual bonus opportunity that had been made
available to the Executive for the fiscal year ended immediately prior to the
Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect
of the Annual Bonus Opportunity shall be paid as soon as practicable following
the year for which the amount (or prorated portion) is earned or awarded, unless
electively deferred by the Executive pursuant to any deferral programs or
arrangements that the Company may make available to the Executive.
(c) Long-term Incentive Compensation Programs. During the Employment
Period, the Executive shall participate in all long-term incentive compensation
programs for key executives at a level that is commensurate with the Executive's
participation in such plans immediately prior to the Effective Date, or, if more
favorable to the Executive, at the level made available to the Executive or
other similarly situated officers at any time thereafter.
(d) Benefit Plans. During the Employment Period, the Executive (and, to the
extent applicable, his dependents) shall be entitled to participate in or be
covered under all pension, retirement, deferred compensation, savings, medical,
dental, health, disability, group life and accidental death insurance plans and
programs of the Company and its affiliated companies at a level that is
commensurate with the Executive's participation in such plans immediately prior
to the Effective Date, or, if more favorable to the Executive, at the level made
available to the Executive or other similarly situated officers at any time
thereafter.
(e) Expenses. During the Employment Period, the Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the policies and procedures of the Company as in
effect
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<PAGE>
immediately prior to the Effective Date. Notwithstanding the foregoing, the
Company may apply the policies and procedures in effect after the Effective Date
to the Executive, if such policies and procedures are not less favorable to the
Executive than those in effect immediately prior to the Effective Date.
(f) Vacation and Fringe Benefits. During the Employment Period, the
Executive shall be entitled to paid vacation and fringe benefits at a level that
is commensurate with the paid vacation and fringe benefits available to the
Executive immediately prior to the Effective Date, or, if more favorable to the
Executive, at the level made available from time to time to the Executive or
other similarly situated officers at any time thereafter.
(g) Indemnification. During and after the Employment Period, the Company
shall indemnify the Executive and hold the Executive harmless from and against
any claim, loss or cause of action arising from or out of the Executive's
performance as an officer, director or employee of the Company or any of its
Subsidiaries or in any other capacity, including any fiduciary capacity, in
which the Executive serves at the request of the Company to the maximum extent
permitted by applicable law and the Company's Certificate of Incorporation and
By-Laws (the "Governing Documents"), provided that in no event shall the
protection afforded to the Executive hereunder be less than that afforded under
the Governing Documents as in effect immediately prior to the Effective Date.
(h) Office and Support Staff. The Executive shall be entitled to an office
with furnishings and other appointments, and to secretarial and other
assistance, at a level that is at least commensurate with the foregoing provided
to other similarly situated officers.
6. Termination. (a) Death. Disability or Retirement. Subject to the
provisions of Section 1 hereof, this Agreement shall terminate automatically
upon the Executive's death, termination due to "Disability" (as defined below)
or voluntary retirement under any of the Company's retirement plans as in effect
from time to time. For purposes of this Agreement, Disability shall mean the
Executive has met the conditions to qualify for long-term disability benefits
under the Company's policies, as in effect immediately prior to the Effective
Date.
(b) Voluntary Termination. Notwithstanding anything in this Agreement to
the contrary, following a Change of Control the Executive may, upon not less
than 60 days' written notice to the Company, voluntarily terminate employment
for any reason (including early retirement under the terms of any of the
Company's retirement plans as in effect from time to time), provided that any
termination by the Executive
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pursuant to Section 6(d) on account of Good Reason (as defined therein) shall
not be treated as a voluntary termination under this Section 6(b).
(c) Cause. The Company may terminate the Executive's employment for Cause.
For purposes of this Agreement, "Cause" means (i) the Executive's conviction or
plea of nolo contendere to a felony; (ii) an act or acts of dishonesty or gross
misconduct on the Executive's part which result or are intended to result in
material damage to the Company's business or reputation; or (iii) repeated
material violations by the Executive of his obligations under Section 4 of this
Agreement, which violations are demonstrably willful and deliberate on the
Executive's part and which result in material damage to the Company's business
or reputation.
(d) Good Reason. Following the occurrence of a Change of Control, the
Executive may terminate his employment for Good Reason. For purposes of this
Agreement, "Good Reason" means the occurrence of any of the following, without
the express written consent of the Executive, after the occurrence of a Change
of Control:
(i) the assignment to the Executive of any duties inconsistent in any
material adverse respect with the Executive's position, authority or
responsibilities as contemplated by Section 4 of this Agreement, or any
other material adverse change in such position, including titles, authority
or responsibilities;
(ii) any failure by the Company to comply with any of the provisions
of Section 5 of this Agreement, other than an insubstantial or inadvertent
failure remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location more than 50 miles (or such other distance as shall be set
forth in the Company's relocation policy as in effect at the Effective
Time) from that location at which he performed his services specified under
the provisions of Section 4 immediately prior to the Change of Control,
except for travel reasonably required in the performance of the Executive's
responsibilities; or
(iv) any failure by the Company to obtain the assumption and agreement
to perform this Agreement by a successor as contemplated by Section 12(b).
In no event shall the mere occurrence of a Change of Control, absent any further
impact on the Executive, be deemed to constitute Good Reason.
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(e) Special Window Period. The Executive shall also have the right to
terminate his employment at any time and for any reason during the 30-day period
commencing on the first anniversary of the date on which a Change of Control
occurs (the "Special Window Period").
(f) Notice of Termination. Any termination by the Company for Cause or by
the Executive for Good Reason shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 13(e). For purposes of
this Agreement, a "Notice of Termination" means a written notice given, in the
case of a termination for Cause, within 10 business days of the Company's having
actual knowledge of the events giving rise to such termination, and in the case
of a termination for Good Reason, within 90 days of the Executive's having
actual knowledge of the events giving rise to such termination, and which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated, and (iii) if the termination date is other than the date of receipt
of such notice, specifies the termination date of this Agreement (which date
shall be not more than 15 days after the giving of such notice). The failure by
the Executive to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason shall not waive any right of the
Executive hereunder or preclude the Executive from asserting such fact or
circumstance in enforcing his rights hereunder.
(g) Date of Termination. For the purpose of this Agreement, the term "Date
of Termination" means (i) in the case of a termination for which a Notice of
Termination is required, the date of receipt of such Notice of Termination or,
if later, the date specified therein, as the case may be, and (ii) in all other
cases, the actual date on which the Executive's employment terminates during the
Employment Period.
7. Obligations of the Company upon Termination. (a) Death or Disability. If
the Executive's employment is terminated during the Employment Period by reason
of the Executive's death or Disability, this Agreement shall terminate without
further obligations to the Executive or the Executive's legal representatives
under this Agreement other than those obligations accrued hereunder at the Date
of Termination, and the Company shall pay to the Executive (or his beneficiary
or estate) (i) the Executive's full Base Salary through the Date of Termination
(the "Earned Salary"), (ii) any vested amounts or benefits owing to the
Executive under the Company's otherwise applicable employee benefit plans and
programs, including any compensation previously deferred by the Executive
(together with any accrued earnings thereon) and not yet paid by the Company and
any accrued vacation pay not yet paid by the Company (the "Accrued
Obligations"), and (iii) any other benefits payable due to the Executive's death
or Disability under the Company's plans, policies or programs (the "Additional
Benefits").
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Any Earned Salary shall be paid in cash in a single lump sum as soon as
practicable, but in no event more than 10 days (or at such earlier date required
by law), following the Date of Termination. Accrued Obligations and Additional
Benefits shall be paid in accordance with the terms of the applicable plan,
program or arrangement.
(b) Cause and Voluntary Termination. If, during the Employment Period, the
Executive's employment shall be terminated for Cause or voluntarily terminated
by the Executive (other than on account of Good Reason following a Change of
Control), the Company shall pay the Executive (i) the Earned Salary in cash in a
single lump sum as soon as practicable, but in no event more than 10 days,
following the Date of Termination, and (ii) the Accrued Obligations in
accordance with the terms of the applicable plan, program or arrangement.
(c) Termination by the Company other than for Cause and Termination by the
Executive for Good Reason or in the Special Window Period. If (x) the Company
terminates the Executive's employment other than for Cause during the Employment
Period, (y) the Executive terminates his employment at any time during the
Employment Period for Good Reason or (z) the Executive terminates his employment
with or without Good Reason during the Special Window Period, the Company shall
provide the Executive with the following benefits:
(i) Severance and Other Termination Payments. The Company shall pay
the Executive the following:
(A) the Executive's Earned Salary; and
(B) an amount (the Pro-Rated Annual Incentive) equal to the average
of the annual bonuses payable to the Executive for the two fiscal
years of the Company ended prior to the Effective Date for which
bonuses have been determined (the "Average Annual Bonus")
multiplied by a fraction, the numerator of which is the number of
months in such fiscal year which have elapsed on or before (and
including) the last day of the month in which the Date of
Termination occurs and the denominator of which is 12; and
(C) an aggregate amount (the Book Value Award Amount) equal to the
sum of the amounts payable to the Executive in respect of each
outstanding incentive award related to the Company's adjusted
book value, determined as of the end of the month in which the
Date of Termination occurs; and
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(D) the Accrued Obligations; and
(E) a cash amount (the "Severance Amount") equal to three times the
sum of
(1) the Executive's annual Base Salary;
(2) an amount equal to the Average Annual Bonus;
The Earned Salary, Pro-Rated Annual Incentive and Severance Amount shall be
paid in cash in a single lump sum as soon as practicable, but in no event
more than 10 days (or at such earlier date required by law), following the
Date of Termination. The Book Value Award Amounts shall be paid in cash as
soon as practicable after the amount of each such payment can be
determined. Accrued Obligations shall be paid in accordance with the terms
of the applicable plan, program or arrangement.
(ii) Continuation of Benefits. If, during the Employment Period, the
Company terminates the Executive's employment other than for Cause or the
Executive terminates his employment for Good Reason, the Executive (and, to
the extent applicable, his dependents) shall be entitled, after the Date of
Termination until the earlier of (1) the third anniversary of the Date of
Termination (the "End Date") and (2) the date the Executive becomes
eligible for comparable benefits under a similar plan, policy or program of
a subsequent employer, to continue participation in all of the Company's
group health and group life employee benefits plans (the "Group Benefit
Plans"). To the extent any such benefits cannot be provided under the terms
of the applicable plan, policy or program, the Company shall provide a
comparable benefit under another plan or from the Company's general assets.
The Executive's participation in the Group Benefit Plans will be on the
same terms and conditions (including, without limitation, any condition
that the Executive make contributions toward the cost of such coverage on
the same terms and conditions generally applicable to similarly situated
employees) that would have applied had the Executive continued to be
employed by the Company through the End Date.
(iii) Restricted Stock. Any and all awards of restricted stock held by
the Executive at the Date of Termination shall immediately become fully
vested.
(iv) Post-Termination Exercise Period. Notwithstanding anything else
contained in Section 14 of the Company's 1987 Stock Option Plan to the
contrary,
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in the event that Executive is entitled to receive the severance benefits
described above pursuant to the terms of this Agreement, all of his
outstanding Options and SARs awarded under such 1997 Stock Option Plan
shall automatically be and become fully exercisable on the Date of
Termination without further action on anyone's part and the Executive shall
have the right to exercise any such Option or SAR until the earlier to
occur of the expiration of the term of such Option or SAR and the fifth
anniversary of the Date of Termination.
(v) Retirement Contribution Credits. The Executive shall receive
credits to the Company's nonqualified excess benefits plan with respect to
the amounts that would otherwise have been contributed on his behalf under
the Company's Money Purchase Pension Plan and Profit Sharing Plan had the
Executive continued in the company's employ for three years following the
Date of Termination.
(vi) Outplacement Services. The Executive shall be provided at the
Company's expense with outplacement services customary for executives at
his level (including, without limitation, office space and telephone
support services) provided by a qualified and experienced third party
provider selected by the Company.
(d) Discharge of the Company's Obligations. Except as expressly provided in
the last sentence of this Section 7(d), the amounts payable to the Executive
pursuant to this Section 7 following termination of his employment shall be in
fun and complete satisfaction of the Executive's rights under this Agreement and
any other claims he may have in respect of his employment by the Company or any
of its Subsidiaries. Such amounts shall constitute liquidated damages -with
respect to any and all such rights and claims and, upon the Executive's receipt
of such amounts, the Company shall be released and discharged from any and all
liability to the Executive in connection with this Agreement or otherwise in
connection with the Executive's employment -with the Company and its
Subsidiaries. Nothing in this Section 7(d) shall be construed to release the
Company from its commitment to indemnify the Executive and hold the Executive
harmless from and against any claim, loss or cause of action arising from or out
of the Executive's performance as an officer, director or employee of the
Company or any of its Subsidiaries or in any other capacity, including any
fiduciary capacity, in which the Executive served at the request of the Company
to the maximum extent permitted by applicable law and the Governing Documents.
(e) Certain Further Payments by the Company.
11
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(i) In the event that any amount or benefit paid or distributed to the
Executive pursuant to this Agreement, taken together with any amounts or
benefits otherwise paid or distributed to the Executive by the Company or
any affiliated company (collectively, the "Covered Payments"), are or
become subject to the tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any similar
tax that may hereafter be imposed, the Company shall pay to the Executive
at the time specified in Section 7(e)(v) below an additional amount (the
"Tax Reimbursement Payment") such that the net amount retained by the
Executive with respect to such Covered Payments, after deduction of any
Excise Tax on the Covered Payments and any Federal, state and local income
or employment tax and Excise Tax on the Tax Reimbursement Payment provided
for by this Section 7(e), but before deduction for any Federal, state or
local income or employment tax withholding on such Covered Payments, shall
be equal to the amount of the Covered Payments.
(ii) For purposes of determining whether any of the Covered Payments
will be subject to the Excise Tax and the amount of such Excise Tax,
(A) such Covered Payments will be treated as "parachute payments"
within the meaning of Section 280G of the Code, and all
"parachute payments" in excess of the "base amount" (as defined
under Section 280G(b)(3) of the Code) shall be treated as subject
to the Excise Tax, unless, and except to the extent that, in the
good faith judgment of the Company's independent certified public
accountants appointed prior to the Change of Control Date or tax
counsel selected by such Accountants (the "Accountants"), the
Company has a reasonable basis to conclude that such Covered
Payments (in whole or in part) either do not constitute
"parachute payments" or represent reasonable compensation for
personal services actually rendered (within the meaning of
Section 280G(b)(4)(B) of the Code) in excess of the "base
amount," or such "parachute payments" are otherwise not subject
to such Excise Tax, and
(B) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with
the principles of Section 280G of the Code.
(iii) For purposes of determining the amount of the Tax Reimbursement
Payment, the Executive shall be deemed to pay:
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<PAGE>
(A) Federal income taxes at the highest applicable marginal rate of
Federal income taxation for the calendar year in which the Tax
Reimbursement Payment is to be made, and
(B) any applicable state and local income taxes at the highest
applicable marginal rate of taxation for the calendar year in
which the Tax Reimbursement Payment is to be made, net of the
maximum reduction in Federal income taxes which could be obtained
from the deduction of such state or local taxes if paid in such
year.
(iv) In the event that the Excise Tax is subsequently determined by
the Accountants or pursuant to any proceeding or negotiations with the
Internal Revenue Service to be less than the amount taken into account
hereunder in calculating the Tax Reimbursement Payment made, the Executive
shall repay to the Company, at the time that the amount of such reduction
in the Excise Tax is finally determined, the portion of such prior Tax
Reimbursement Payment that would not have been paid if such Excise Tax had
been applied in initially calculating such Tax Reimbursement Payment, plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any
portion of the Tax Reimbursement Payment to be refunded to the Company has
been paid to any Federal, state or local tax authority, repayment thereof
shall not be required until actual refund or credit of such portion has
been made to the Executive, and interest payable to the Company shall not
exceed interest received or credited to the Executive by such tax authority
for the period it held such portion. The Executive and the Company .shall
mutually agree upon the course of action to be pursued (and the method of
allocating the expenses thereof) if the Executive's good faith claim for
refund or credit is denied.
In the event that the Excise Tax is later determined by the
Accountants or pursuant to any proceeding or negotiations with the Internal
Revenue Service to exceed the amount taken into account hereunder at the
time the Tax Reimbursement Payment is made (including, but not limited to,
by reason of any payment the existence or amount of which cannot be
determined at the time of the Tax Reimbursement Payment), the Company shall
make an additional Tax Reimbursement Payment in respect of such excess
(plus any interest or penalty payable with respect to such excess) at the
time that the amount of such excess is finally determined.
(v) The Tax Reimbursement Payment (or portion thereof) provided for in
Section 7(e)(i) above shall be paid to the Executive not later than 10
business
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<PAGE>
days following the payment of the Covered Payments; provided, however, that
if the amount of such Tax Reimbursement Payment (or portion thereof) cannot
be finally determined on or before the date on which payment is due, the
Company shall pay to the Executive by such date an amount estimated in good
faith by the Accountants to be the minimum amount of such Tax Reimbursement
Payment and shall pay the remainder of such Tax Reimbursement Payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined, but in no event
later than 45 calendar days after payment of the related Covered Payment.
In the event that the amount of the estimated Tax Reimbursement Payment
exceeds the amount subsequently determined to have been due, such excess
shall constitute a loan by the Company to the Executive, payable on the
fifth business day after written demand by the Company for payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code).
8. Non-exclusivity of Rights. Except as expressly provided herein, nothing
in this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Company or any of its affiliated companies and for which the Executive
may qualify, nor shall anything herein limit or otherwise prejudice such lights
as the Executive may have under any other agreements with the Company or any of
its affiliated companies, including employment agreements or stock option
agreements. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan or program.
9. No Offset. The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Executive or others whether by reason of the subsequent employment
of the Executive or otherwise.
10. Legal Fees and Expenses. If the Executive asserts any claim in any
contest (whether initiated by the Executive or by the Company) as to the
validity, enforceability or interpretation of any provision of this Agreement,
the Company shall pay the Executive's legal expenses (or cause such expenses to
be paid) including, without limitation, his reasonable attorney's fees, on a
quarterly basis, upon presentation of proof of such expenses in a form
acceptable to the Company, provided that the Executive shall reimburse the
Company for such amounts, plus simple interest thereon at the 90-day United
States Treasury Bill rate as in effect from time to time, compounded annually,
if
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<PAGE>
the arbitrator referred to in Section 13(b) or a court of competent jurisdiction
shall find that the Executive did not have a good faith and reasonable basis to
believe that he would prevail as to at least one material issue presented to
such arbitrator or court.
11. Confidential Information, Company Property. By and in consideration of
the salary and benefits to be provided by the Company hereunder, including the
severance arrangements set forth herein, the Executive agrees that:
(a) Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, (i) obtained by the Executive during his
employment by the Company or any of its affiliated companies and (ii) not
otherwise public knowledge (other than by reason of an unauthorized act by the
Executive). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company,
unless compelled pursuant to an order of a court or other body having
jurisdiction over such matter, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
(b) Nonsolicitation of Employees, The Executive agrees that for two years
after the Date of Termination, he will not attempt, directly or indirectly, to
induce any employee of the Company, or any subsidiary or any affiliate thereof
to be employed or perform services elsewhere or otherwise to cease providing
services to the Company, or any subsidiary or affiliate thereof.
(c) Company Property. Except as expressly provided herein, promptly
following the Executive's termination of employment, the Executive shall return
to the Company all property of the Company and all copies thereof in the
Executive's possession or under his control.
(d) Injunctive Relief and Other Remedies with Respect to Covenants. The
Executive acknowledges and agrees that the covenants and obligations of the
Executive with respect to confidentiality and Company property relate to
special, unique and extraordinary matters and that a violation of any of the
terms of such covenants and obligations will cause the Company irreparable
injury for which adequate remedies are not available at law, Therefore, the
Executive agrees that the Company shall be entitled to an injunction,
restraining order or such other equitable relief (without the requirement to
post bond) restraining Executive from committing any violation of the covenants
and obligations contained in this Section 11 These remedies are cumulative and
are in addition to any other rights and remedies the Company may have at law or
in equity. In no event shall
15
<PAGE>
an asserted violation of the provisions of this Section 11 constitute a basis
for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement.
12. Successors. (a) This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors. The Company shall require any successor to all or
substantially all of the business and/or assets of the Company, whether direct
or indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as the Company would be required to perform if no such
succession had taken place.
13. Miscellaneous. (a) Applicable Law. This Agreement shall be -governed by
and construed in accordance with the laws of the States of New York, applied
without reference to principles of conflict of laws.
(b) Arbitration. Except to the extent provided in Section 11(c), any
dispute or controversy arising under or in connection with this Agreement shall
be resolved by binding arbitration. The arbitration shall be held in the city of
White Plains, New York and, except to the extent inconsistent with this
Agreement, shall be conducted in accordance with the Expedited Employment
Arbitration Rules of the American Arbitration Association then in effect at the
time of the arbitration (or such other rules as the parties may agree to in
writing), and otherwise in accordance with principles which would be applied by
a court of law or equity. The arbitrator shall be acceptable to both the Company
and the Executive. If the parties cannot agree on an acceptable arbitrator, the
dispute shall be heard by a panel of three arbitrators, one appointed by each of
the parties and the third appointed by the other two arbitrators.
(c) Amendments. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(d) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters referred to herein. No
other agreement relating to the terms of the Executive's employment by the
Company, oral or otherwise, shall be binding between the parties unless it is in
writing and signed by the party against whom enforcement is sought. There are no
promises, representations,
16
<PAGE>
inducements or statements between the parties other than those that are
expressly contained herein. The Executive acknowledges that he is entering into
t1ris Agreement of his own free will and accord, and with no duress, that he has
read this Agreement and that he understands it and its legal consequences.
(e) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand-delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: at the home address of the Executive
noted on the records of the Company
If to the Company: MBIA Inc.
113 King Street
Armonk, New York 10504
Attn.: Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(f) Tax Withholding. The Company shall withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(g) Severability; Reformation. In the event that one or more of the
provisions of this Agreement shall become invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby. In the event that any
of the provisions of any of Section 11(a) are not enforceable in accordance with
its terms, the Executive and the Company agree that such Section shall be
reformed to make such Section enforceable in a manner which provides the Company
the maximum rights permitted at law.
(h) Waiver. Waiver by any party hereto of any breach or default by the
other party of any of the terms of this Agreement shall not operate as a waiver
of any other breach or default, whether similar to or different from the breach
or default waived. No waiver of any provision of this Agreement shall be implied
from any course of dealing between the parties hereto or from any failure by
either party hereto to assert its or his rights hereunder on any occasion or
series of occasions.
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(i) Survival. The provisions of Section 7(c)(iii) (and so much of Section
7(d) as provides a benefit identical to that payable under such Section
7(c)(iii)) shall survive the termination of the Employment Period hereunder and
shall be binding upon and enforceable against the Company in accordance with its
terms. In the event, that any dispute arises with respect to the Executive's
entitlement to such enhanced retirement benefits, the dispute resolutions
provisions contained in Section 13(b) and the legal fees provision contained in
Section 10 shall also survive the end of the Employment Period and shall be
applied as though the dispute arose within the Employment Period.
(j) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
(k) Captions. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the Company
has caused this Agreement to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed and attested by its Secretary, all as of
the day and year first above written.
MBIA Inc.
/s/ Louis G. Lenzi
-------------------------------
By: Louis G. Lenzi
Title: General Counsel
EXECUTIVE:
/s/ Richard Weill
-------------------------------
18
KEY EMPLOYEE EMPLOYMENT PROTECTION AGREEMENT
THIS AGREEMENT between MBIA Inc., a Connecticut corporation (the
"Company"), and Ruth M. Whaley (the "Executive"), dated as of this 25th day of
January, 1999.
WITNESSETH:
WHEREAS, the Company has employed the Executive in an officer position and
has determined that the Executive holds an important position with the Company;
WHEREAS, the Company believes that, in the event it is confronted with a
situation that could result in a change in ownership or control of the Company,
continuity of management will be essential to its ability to evaluate and
respond to such a situation in the best interests of shareholders;
WHEREAS, the Company understands that any such situation will present
significant concerns for the Executive with respect to his financial and job
security,
WHEREAS, the Company desires to assure itself of the Executives services
during the period in which it is confronting such a situation, and to provide
the Executive certain financial assurances to enable the Executive to perform
the responsibilities of his position without undue distraction and to exercise
his judgment without bias due to his personal circumstances;
WHEREAS, to achieve these objectives, the Company and the Executive desire
to enter into an agreement providing the Company and the Executive with certain
rights and obligations upon the occurrence of a Change of Control or Potential
Change of Control (as defined in Section 2);
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is hereby agreed by and between the Company and the
Executive as follows:
1. Operation of Agreement. (a) Effective Date. The effective date of this
Agreement shall be the date on which a Change of Control occurs (the "Effective
<PAGE>
Date"), provided that, except as provided in Section 1(b), if the Executive is
not employed by the Company on the Effective Date, this Agreement shall be void
and without effect.
(b) Termination of Employment Following a Potential Change of Control.
Notwithstanding Section l(a), if (i) the Executive's employment is terminated by
the Company Without Cause (as defined in Section 6(c)) after the occurrence of a
Potential Change of Control and prior to the occurrence of a Change of Control
and prior to the time at which the Board of Directors of the Company (the Board)
has adopted a Nullification Resolution (as defined in Section 2(b) hereof) with
respect to such Potential Change of Control or (ii) a Change of Control (as
defined in Section 2(a) hereof) and (ii) a Change of Control occurs within two
years of such termination, the Executive shall be deemed, solely for purposes of
determining his rights under this Agreement, to have remained employed until the
date such Change of Control occurs and to have been terminated by the Company
Without Cause immediately after this Agreement becomes effective, with any
amounts payable hereunder reduced by the amount of any other severance benefits
provided to him in connection with such termination.
2. Definitions. (a) Change of Control. For the purposes of this Agreement,
a "Change of Control" shall be deemed to have occurred if:
(i) any person, as such term is currently used is Section 13(d) or
14(d) of the 1934 Act, other than the Company, its majority owned
subsidiaries, or any employee benefit plan of the Company or any of its
majority-owned subsidiaries, becomes a "beneficial owner" (as such term is
currently used in Rule 13d-3, as promulgated under 1934 Act) of 25% or more
of the Voting Power of the Company;
(ii) on any date, a majority of the Board consists of individuals
other than Incumbent Directors, which term means the members of the Board
who were serving on the Board at beginning of any 24-month period ending
with such date (or another date specified by the Committee), provided that
any individual who becomes a director subsequent to that date whose
election or nomination for election was supported by two-thirds of the
directors who then comprised the Incumbent Directors shall be considered to
be an Incumbent Director for purposes of this subsection 2(a)(ii);
(iii) the stockholders of the Company approve a merger, consolidation,
share exchange, division, sale or other disposition of substantially all of
the assets of the Company (a "Corporate Event"), as a result of which the
shareholders of the Company immediately prior to such Corporate Event (the
Company Shareholders) shall not hold, directly or indirectly, immediately
following such Corporate Event a
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majority of the Voting Power of (x) in the case of a merger or
consolidation, the surviving or resulting corporation, (y) in the case of a
share exchange, the acquiring corporation or (z) in the case of a division
or a sale or other disposition of substantially all of the Company's
assets, each surviving, resulting or acquiring corporation; provided that
such a division or sale shall not be a Change of Control for purposes of
this Agreement to the extent that, following such Corporate Event, the
Executive continues to be employed by a surviving, resulting or acquiring
entity with respect to which the Company Shareholders hold, directly or
indirectly, a majority of the Voting Power immediately following such
Corporate Event.
(b) Potential Change of Control. For the purposes of this Agreement, a
Potential Change of Control shall be deemed to have occurred if:
(i) a Person commences a tender offer (with adequate financing) for
securities representing at least 15% of the Voting Power of the Company's
securities;
(ii) the Company enters into an agreement the consummation of which
would constitute a Change of Control;
(iii) proxies for the election of directors of the Company are
solicited by anyone other than the Company; or
(iv) any other event occurs which is deemed to be a Potential Change
of Control by the Board.
Notwithstanding the foregoing, if, after a Potential Change of Control and
before a Change of Control, the Board makes a good faith determination that such
Potential Change of Control will not result in a Change of Control, the Board
may nullify the effect of the Potential Change of Control (a "Nullification") by
resolution (a "Nullification Resolution"), in which case the Executive shall
have no further rights and obligations under this Agreement by reason of such
Potential Change of Control; provided, however, that if the Executive shall have
delivered a Notice of Termination (within the meaning of Section 6(f) hereof)
prior to the date of the Nullification Resolution, such Resolution shall not
effect the Executive's rights hereunder. If a Nullification Resolution has been
adopted and the Executive has not delivered a Notice of Termination prior
thereto, the Effective Date for purposes of this Agreement shall be the date, if
any, during the term hereof on which another Potential Change of Control or any
actual Change of Control occurs.
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(c) Voting Power Defined. A specified percentage of "Voting Power" of a
company shall mean such number of the Voting Securities as shall enable the
holders thereof to cast such percentage of all the votes which could be cast in
an annual election of directors and "Voting Securities" shall mean all
securities of a company entitling the, holders thereof to vote in an annual
election of directors.
3. Employment Period. Subject to Section 6 of this Agreement, the Company
agrees to continue the Executive in its employ, and the Executive agrees to
remain in the employ of the Company, for the period (the "Employment Period")
commencing on the Effective Date and ending on the third anniversary of the
Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date,
the Executive is demoted to a lower position than the position held on the date
first set forth above, the Board may declare that this Agreement shall be
without force and effect by written notice delivered to the Executive (i) within
30 days following such demotion and (ii) prior to the occurrence of a Potential
Change of Control or a Change of Control.
4. Position and Duties. (a) No Reduction in Position. During the Employment
Period, the Executive's position (including titles), authority and
responsibilities shall be at least commensurate with those held, exercised and
assigned immediately prior to the Effective Date. It is understood that, for
purposes of this Agreement, such position, authority and responsibilities shall
not be regarded as not commensurate merely by virtue of the fact that a
successor shall have acquired all or substantially all of the business and/or
assets of the Company as contemplated by Section 12(b) of this Agreement. The
Executive's services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date.
(b) Business Time. From and after the Effective Date, the Executive agrees
to devote his full attention during normal business hours to the business and
affairs of the Company and to use his best efforts to perform faithfully and
efficiently the responsibilities assigned to him hereunder, to the extent
necessary to discharge such responsibilities, except for (i) time spent in
managing his personal, financial and legal affairs and serving on corporate,
civic or charitable boards or committees, in each case only if and to the extent
not substantially interfering with the performance of such responsibilities, and
(ii) periods of vacation and sick leave to which he is entitled. It is expressly
understood and agreed that the Executive's continuing to serve on any boards and
committees on which he is serving or with which he is otherwise associated
immediately preceding the Effective Date shall not be deemed to interfere with
the performance of the Executive's services to the Company.
5. Compensation. (a) Base Salary. During the Employment Period, the
Executive shall receive a base salary at a monthly rate at least equal to the
monthly
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salary paid to the Executive by the Company and any of its affiliated companies
immediately prior to the Effective Date. The base salary shall be reviewed at
least once each year after the Effective Date, and may be increased (but not
decreased) at any time and from time to time by action of the Board or any
committee thereof or any individual having authority to take such action in
accordance with the Company's regular practices. The Executive's base salary, as
it may be increased from time to time, shall hereafter be referred to as "Base
Salary". Neither the Base Salary nor any increase in Base Salary after the
Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder.
(b) Annual Bonus. During the Employment Period, in addition to the Base
Salary, for each fiscal year of the Company ending during the Employment Period,
the Executive shall be afforded the opportunity to receive an annual bonus on
terms and conditions no less favorable to the Executive (taking into account
reasonable changes in the Company's goals and objectives and taking into account
actual performance) than the annual bonus opportunity that had been made
available to the Executive for the fiscal year ended immediately prior to the
Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect
of the Annual Bonus Opportunity shall be paid as soon as practicable following
the year for which the amount (or prorated portion) is earned or awarded, unless
electively deferred by the Executive pursuant to any deferral programs or
arrangements that the Company may make available to the Executive.
(c) Long-term Incentive Compensation Programs. During the Employment
Period, the Executive shall participate in all long-term incentive compensation
programs for key executives at a level that is commensurate with the Executive's
participation in such plans immediately prior to the Effective Date, or, if more
favorable to the Executive, at the level made available to the Executive or
other similarly situated officers at any time thereafter.
(d) Benefit Plans. During the Employment Period, the Executive (and, to the
extent applicable, his dependents) shall be entitled to participate in or be
covered under all pension, retirement, deferred compensation, savings, medical,
dental, health, disability, group life and accidental death insurance plans and
programs of the Company and its affiliated companies at a level that is
commensurate with the Executive's participation in such plans immediately prior
to the Effective Date, or, if more favorable to the Executive, at the level made
available to the Executive or other similarly situated officers at any time
thereafter.
(e) Expenses. During the Employment Period, the Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the policies and procedures of the Company as in
effect
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immediately prior to the Effective Date. Notwithstanding the foregoing, the
Company may apply the policies and procedures in effect after the Effective Date
to the Executive, if such policies and procedures are not less favorable to the
Executive than those in effect immediately prior to the Effective Date.
(f) Vacation and Fringe Benefits. During the Employment Period, the
Executive shall be entitled to paid vacation and fringe benefits at a level that
is commensurate with the paid vacation and fringe benefits available to the
Executive immediately prior to the Effective Date, or, if more favorable to the
Executive, at the level made available from time to time to the Executive or
other similarly situated officers at any time thereafter.
(g) Indemnification. During and after the Employment Period, the Company
shall indemnify the Executive and hold the Executive harmless from and against
any claim, loss or cause of action arising from or out of the Executive's
performance as an officer, director or employee of the Company or any of its
Subsidiaries or in any other capacity, including any fiduciary capacity, in
which the Executive serves at the request of the Company to the maximum extent
permitted by applicable law and the Company's Certificate of Incorporation and
By-Laws (the "Governing Documents"), provided that in no event shall the
protection afforded to the Executive hereunder be less than that afforded under
the Governing Documents as in effect immediately prior to the Effective Date.
(h) Office and Support Staff. The Executive shall be entitled to an office
with furnishings and other appointments, and to secretarial and other
assistance, at a level that is at least commensurate with the foregoing provided
to other similarly situated officers.
6. Termination. (a) Death, Disability or Retirement. Subject to the
provisions of Section 1 hereof, this Agreement shall terminate automatically
upon the Executive's death, termination due to "Disability" (as defined below)
or voluntary retirement under any of the Company's retirement plans as in effect
from time to time. For purposes of this Agreement, Disability shall mean the
Executive has met the conditions to qualify for long-term disability benefits
under the Company's policies, as in effect immediately prior to the Effective
Date.
(b) Voluntary Termination. Notwithstanding anything in this Agreement to
the contrary, following a Change of Control the Executive may, upon not less
than 60 days' written notice to the Company, voluntarily terminate employment
for any reason (including early retirement under the terms of any of the
Company's retirement plans as in effect from time to time), provided that any
termination by the Executive
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pursuant to Section 6(d) on account of Good Reason (as defined therein) shall
not be treated as a voluntary termination under this Section 6(b).
(c) Cause. The Company may terminate the Executive's employment for Cause.
For purposes of this Agreement, "Cause" means (i) the Executive's conviction or
plea of nolo contendere to a felony; (ii) an act or acts of dishonesty or gross
misconduct on the Executive's part which result or are intended to result in
material damage to the Company's business or reputation; or (iii) repeated
material violations by the Executive of his obligations under Section 4 of this
Agreement, which violations are demonstrably willful and deliberate on the
Executive's part and which result in material damage to the Company's business
or reputation.
(d) Good Reason. Following the occurrence of a Change of Control, the
Executive may terminate his employment for Good Reason. For purposes of this
Agreement, "Good Reason" means the occurrence of any of the following, without
the express written consent of the Executive, after the occurrence of a Change
of Control:
(i) the assignment to the Executive of any duties inconsistent in any
material adverse respect with the Executive's position, authority or
responsibilities as contemplated by Section 4 of this Agreement, or any
other material adverse change in such position, including titles, authority
or responsibilities;
(ii) any failure by the Company to comply with any of the provisions
of Section 5 of this Agreement, other than an insubstantial or inadvertent
failure remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location more than 50 miles (or such other distance as shall be set
forth in the Company's relocation policy as in effect at the Effective
Time) from that location at which he performed his services specified under
the provisions of Section 4 immediately prior to the Change of Control,
except for travel reasonably required in the performance of the Executive's
responsibilities; or
(iv) any failure by the Company to obtain the assumption and agreement
to perform this Agreement by a successor as contemplated by Section 12(b).
In no event shall the mere occurrence of a Change of Control, absent any further
impact on the Executive, be deemed to constitute Good Reason.
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(e) Special Window Period. The Executive shall also have the right to
terminate his employment at any time and for any reason during the 30-day period
commencing on the first anniversary of the date on which a Change of Control
occurs (the "Special Window Period").
(f) Notice of Termination. Any termination by the Company for Cause or by
the Executive for Good Reason shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 13(e). For purposes of
this Agreement, a "Notice of Termination" means a written notice given, in the
case of a termination for Cause, within 10 business days of the Company's having
actual knowledge of the events giving rise to such termination, and in the case
of a termination for Good Reason, within 90 days of the Executive's having
actual knowledge of the events giving rise to such termination, and which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated, and (iii) if the termination date is other than the date of receipt
of such notice, specifies the termination date of this Agreement (which date
shall be not more than 15 days after the giving of such notice). The failure by
the Executive to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason shall not waive any right of the
Executive hereunder or preclude the Executive from asserting such fact or
circumstance in enforcing his rights hereunder.
(g) Date of Termination. For the purpose of this Agreement, the term "Date
of Termination" means (i) in the case of a termination for which a Notice of
Termination is required, the date of receipt of such Notice of Termination or,
if later, the date specified therein, as the case may be, and (ii) in all other
cases, the actual date on which the Executive's employment terminates during the
Employment Period.
7. Obligations of the Company upon Termination. (a) Death or Disability. If
the Executive's employment is terminated during the Employment Period by reason
of the Executive's death or Disability, this Agreement shall terminate without
further obligations to the Executive or the Executive's legal representatives
under this Agreement other than those obligations accrued hereunder at the Date
of Termination, and the Company shall pay to the Executive (or his beneficiary
or estate) (i) the Executive's full Base Salary through the Date of Termination
(the "Earned Salary"), (ii) any vested amounts or benefits owing to the
Executive under the Company's otherwise applicable employee benefit plans and
programs, including any compensation previously deferred by the Executive
(together with any accrued earnings thereon) and not yet paid by the Company and
any accrued vacation pay not yet paid by the Company (the "Accrued
Obligations"), and (iii) any other benefits payable due to the Executive's death
or Disability under the Company's plans, policies or programs (the "Additional
Benefits").
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Any Earned Salary shall be paid in cash in a single lump sum as soon as
practicable, but in no event more than 10 days (or at such earlier date required
by law), following the Date of Termination. Accrued Obligations and Additional
Benefits shall be paid in accordance with the terms of the applicable plan,
program or arrangement.
(b) Cause and Voluntary Termination. If, during the Employment Period, the
Executive's employment shall be terminated for Cause or voluntarily terminated
by the Executive (other than on account of Good Reason following a Change of
Control), the Company shall pay the Executive (i) the Earned Salary in cash in a
single lump sum as soon as practicable, but in no event more than 10 days,
following the Date of Termination, and (ii) the Accrued Obligations in
accordance with the terms of the applicable plan, program or arrangement.
(c) Termination by the Company other than for Cause and Termination by the
Executive for Good Reason or in the Special Window Period. If (x) the Company
terminates the Executive's employment other than for Cause during the Employment
Period, (y) the Executive terminates his employment at any time during the
Employment Period for Good Reason or (z) the Executive terminates his employment
with or without Good Reason during the Special Window Period, the Company shall
provide the Executive with the following benefits:
(i) Severance and Other Termination Payments. The Company shall pay
the Executive the following:
(A) the Executive's Earned Salary; and
(B) an amount (the Pro-Rated Annual Incentive) equal to the average
of the annual bonuses payable to the Executive for the two fiscal
years of the Company ended prior to the Effective Date for which
bonuses have been determined (the "Average Annual Bonus")
multiplied by a fraction, the numerator of which is the number of
months in such fiscal year which have elapsed on or before (and
including) the last day of the month in which the Date of
Termination occurs and the denominator of which is 12; and
(C) an aggregate amount (the Book Value Award Amount) equal to the
sum of the amounts payable to the Executive in respect of each
outstanding incentive award related to the Company's adjusted
book value, determined as of the end of the month in which the
Date of Termination occurs; and
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(D) the Accrued Obligations; and
(E) a cash amount (the "Severance Amount") equal to three times the
sum of
(1) the Executive's annual Base Salary;
(2) an amount equal to the Average Annual Bonus;
The Earned Salary, Pro-Rated Annual Incentive and Severance Amount shall be paid
in cash in a single lump sum as soon as practicable, but in no event more than
10 days (or at such earlier date required by law), following the Date of
Termination. The Book Value Award Amounts shall be paid in cash as soon as
practicable after the amount of each such payment can be determined. Accrued
Obligations shall be paid in accordance with the terms of the applicable plan,
program or arrangement.
(ii) Continuation of Benefits. If, during the Employment Period, the
Company terminates the Executive's employment other than for Cause or the
Executive terminates his employment for Good Reason, the Executive (and, to
the extent applicable, his dependents) shall be entitled, after the Date of
Termination until the earlier of (1) the third anniversary of the Date of
Termination (the "End Date") and (2) the date the Executive becomes
eligible for comparable benefits under a similar plan, policy or program of
a subsequent employer, to continue participation in all of the Company's
group health and group life employee benefits plans (the "Group Benefit
Plans"). To the extent any such benefits cannot be provided under the terms
of the applicable plan, policy or program, the Company shall provide a
comparable benefit under another plan or from the Company's general assets.
The Executive's participation in the Group Benefit Plans will be on the
same terms and conditions (including, without limitation, any condition
that the Executive make contributions toward the cost of such coverage on
the same terms and conditions generally applicable to similarly situated
employees) that would have applied had the Executive continued to be
employed by the Company through the End Date.
(iii) Restricted Stock. Any and all awards of restricted stock held by
the Executive at the Date of Termination shall immediately become fully
vested.
(iv) Post-Termination Exercise Period. Notwithstanding anything else
contained in Section 14 of the Company's 1987 Stock Option Plan to the
contrary,
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in the event that Executive is entitled to receive the severance benefits
described above pursuant to the terms of this Agreement, all of his
outstanding Options and SARs awarded under such 1997 Stock Option Plan
shall automatically be and become fully exercisable on the Date of
Termination without further action on anyone's part and the Executive shall
have the right to exercise any such Option or SAR until the earlier to
occur of the expiration of the term of such Option or SAR and the fifth
anniversary of the Date of Termination.
(v) Retirement Contribution Credits. The Executive shall receive
credits to the Company's nonqualified excess benefits plan with respect to
the amounts that would otherwise have been contributed on his behalf under
the Company's Money Purchase Pension Plan and Profit Sharing Plan had the
Executive continued in the company's employ for three years following the
Date of Termination.
(vi) Outplacement Services. The Executive shall be provided at the
Company's expense with outplacement services customary for executives at
his level (including, without limitation, office space and telephone
support services) provided by a qualified and experienced third party
provider selected by the Company.
(d) Discharge of the Company's Obligations. Except as expressly provided in
the last sentence of this Section 7(d), the amounts payable to the Executive
pursuant to this Section 7 following termination of his employment shall be in
fun and complete satisfaction of the Executive's rights under this Agreement and
any other claims he may have in respect of his employment by the Company or any
of its Subsidiaries. Such amounts shall constitute liquidated damages with
respect to any and all such rights and claims and, upon the Executive's receipt
of such amounts, the Company shall be released and discharged from any and all
liability to the Executive in connection with this Agreement or otherwise in
connection with the Executive's employment with the Company and its
Subsidiaries. Nothing in this Section 7(d) shall be construed to release the
Company from its commitment to indemnify the Executive and hold the Executive
harmless from and against any claim, loss or cause of action arising from or out
of the Executive's performance as an officer, director or employee of the
Company or any of its Subsidiaries or in any other capacity, including any
fiduciary capacity, in which the Executive served at the request of the Company
to the maximum extent permitted by applicable law and the Governing Documents.
(e) Certain Further Payments by the Company.
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(i) In the event that any amount or benefit paid or distributed to the
Executive pursuant to this Agreement, taken together with any amounts or
benefits otherwise paid or distributed to the Executive by the Company or
any affiliated company (collectively, the "Covered Payments"), are or
become subject to the tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any similar
tax that may hereafter be imposed, the Company shall pay to the Executive
at the time specified in Section 7(e)(v) below an additional amount (the
"Tax Reimbursement Payment") such that the net amount retained by the
Executive with respect to such Covered Payments, after deduction of any
Excise Tax on the Covered Payments and any Federal, state and local income
or employment tax and Excise Tax on the Tax Reimbursement Payment provided
for by this Section 7(e), but before deduction for any Federal, state or
local income or employment tax withholding on such Covered Payments, shall
be equal to the amount of the Covered Payments.
(ii) For purposes of determining whether any of the Covered Payments
will be subject to the Excise Tax and the amount of such Excise Tax,
(A) such Covered Payments will be treated as "parachute payments"
within the meaning of Section 280G of the Code, and all
"parachute payments" in excess of the "base amount" (as defined
under Section 280G(b)(3) of the Code) shall be treated as subject
to the Excise Tax, unless, and except to the extent that, in the
good faith judgment of the Company's independent certified public
accountants appointed prior to the Change of Control Date or tax
counsel selected by such Accountants (the "Accountants"), the
Company has a reasonable basis to conclude that such Covered
Payments (in whole or in part) either do not constitute
"parachute payments" or represent reasonable compensation for
personal services actually rendered (within the meaning of
Section 280G(b)(4)(B) of the Code) in excess of the "base
amount," or such "parachute payments" are otherwise not subject
to such Excise Tax, and
(B) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with
the principles of Section 280G of the Code.
(iii) For purposes of determining the amount of the Tax Reimbursement
Payment, the Executive shall be deemed to pay:
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(A) Federal income taxes at the highest applicable marginal rate of
Federal income taxation for the calendar year in which the Tax
Reimbursement Payment is to be made, and
(B) any applicable state and local income taxes at the highest
applicable marginal rate of taxation for the calendar year in
which the Tax Reimbursement Payment is to be made, net of the
maximum reduction in Federal income taxes which could be obtained
from the deduction of such state or local taxes if paid in such
year.
(iv) In the event that the Excise Tax is subsequently determined by
the Accountants or pursuant to any proceeding or negotiations with the
Internal Revenue Service to be less than the amount taken into account
hereunder in calculating the Tax Reimbursement Payment made, the Executive
shall repay to the Company, at the time that the amount of such reduction
in the Excise Tax is finally determined, the portion of such prior Tax
Reimbursement Payment that would not have been paid if such Excise Tax had
been applied in initially calculating such Tax Reimbursement Payment, plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any
portion of the Tax Reimbursement Payment to be refunded to the Company has
been paid to any Federal, state or local tax authority, repayment thereof
shall not be required until actual refund or credit of such portion has
been made to the Executive, and interest payable to the Company shall not
exceed interest received or credited to the Executive by such tax authority
for the period it held such portion. The Executive and the Company shall
mutually agree upon the course of action to be pursued (and the method of
allocating the expenses thereof) if the Executive's good faith claim for
refund or credit is denied.
In the event that the Excise Tax is later determined by the
Accountants or pursuant to any proceeding or negotiations with the Internal
Revenue Service to exceed the amount taken into account hereunder at the
time the Tax Reimbursement Payment is made (including, but not limited to,
by reason of any payment the existence or amount of which cannot be
determined at the time of the Tax Reimbursement Payment), the Company shall
make an additional Tax Reimbursement Payment in respect of such excess
(plus any interest or penalty payable with respect to such excess) at the
time that the amount of such excess is finally determined.
(v) The Tax Reimbursement Payment (or portion thereof) provided for in
Section 7(e)(i) above shall be paid to the Executive not later than 10
business
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days following the payment of the Covered Payments; provided, however, that
if the amount of such Tax Reimbursement Payment (or portion thereof) cannot
be finally determined on or before the date on which payment is due, the
Company shall pay to the Executive by such date an amount estimated in good
faith by the Accountants to be the minimum amount of such Tax Reimbursement
Payment and shall pay the remainder of such Tax Reimbursement Payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined, but in no event
later than 45 calendar days after payment of the related Covered Payment.
In the event that the amount of the estimated Tax Reimbursement Payment
exceeds the amount subsequently determined to have been due, such excess
shall constitute a loan by the Company to the Executive, payable on the
fifth business day after written demand by the Company for payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code).
8. Non-exclusivity of Rights. Except as expressly provided herein, nothing
in this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Company or any of its affiliated companies and for which the Executive
may qualify, nor shall anything herein limit or otherwise prejudice such lights
as the Executive may have under any other agreements with the Company or any of
its affiliated companies, including employment agreements or stock option
agreements. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan or program.
9. No Offset. The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Executive or others whether by reason of the subsequent employment
of the Executive or otherwise.
10. Legal Fees and Expenses. If the Executive asserts any claim in any
contest (whether initiated by the Executive or by the Company) as to the
validity, enforceability or interpretation of any provision of this Agreement,
the Company shall pay the Executive's legal expenses (or cause such expenses to
be paid) including, without limitation, his reasonable attorney's fees, on a
quarterly basis, upon presentation of proof of such expenses in a form
acceptable to the Company, provided that the Executive shall reimburse the
Company for such amounts, plus simple interest thereon at the 90-day United
States Treasury Bill rate as in effect from time to time, compounded annually,
if
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the arbitrator referred to in Section 13(b) or a court of competent jurisdiction
shall find that the Executive did not have a good faith and reasonable basis to
believe that he would prevail as to at least one material issue presented to
such arbitrator or court.
11. Confidential Information, Company Property. By and in consideration of
the salary and benefits to be provided by the Company hereunder, including the
severance arrangements set forth herein, the Executive agrees that:
(a) Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, (i) obtained by the Executive during his
employment by the Company or any of its affiliated companies and (ii) not
otherwise public knowledge (other than by reason of an unauthorized act by the
Executive). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company,
unless compelled pursuant to an order of a court or other body having
jurisdiction over such matter, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
(b) Nonsolicitation of Employees, The Executive agrees that for two years
after the Date of Termination, he will not attempt, directly or indirectly, to
induce any employee of the Company, or any subsidiary or any affiliate thereof
to be employed or perform services elsewhere or otherwise to cease providing
services to the Company, or any subsidiary or affiliate thereof
(c) Company Property. Except as expressly provided herein, promptly
following the Executive's termination of employment, the Executive shall return
to the Company all property of the Company and all copies thereof in the
Executive's possession or under his control.
(d) Injunctive Relief and Other Remedies with Respect to Covenants. The
Executive acknowledges and agrees that the covenants and obligations of the
Executive with respect to confidentiality and Company property relate to
special, unique and extraordinary matters and that a violation of any of the
terms of such covenants and obligations will cause the Company irreparable
injury for which adequate remedies are not available at law, Therefore, the
Executive agrees that the Company shall be entitled to an injunction,
restraining order or such other equitable relief (without the requirement to
post bond) restraining Executive from committing any violation of the covenants
and obligations contained in this Section 11 These remedies are cumulative and
are in addition to any other rights and remedies the Company may have at law or
in equity. In no event shall
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an asserted violation of the provisions of this Section 11 constitute a basis
for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement.
12. Successors. (a) This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors. The Company shall require any successor to all or
substantially all of the business and/or assets of the Company, whether direct
or indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as the Company would be required to perform if no such
succession had taken place.
13. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of the States of New York, applied
without reference to principles of conflict of laws.
(b) Arbitration. Except to the extent provided in Section 11(c), any
dispute or controversy arising under or in connection with this Agreement shall
be resolved by binding arbitration. The arbitration shall be held in the city of
White Plains, New York and, except to the extent inconsistent with this
Agreement, shall be conducted in accordance with the Expedited Employment
Arbitration Rules of the American Arbitration Association then in effect at the
time of the arbitration (or such other rules as the parties may agree to in
writing), and otherwise in accordance with principles which would be applied by
a court of law or equity. The arbitrator shall be acceptable to both the Company
and the Executive. If the parties cannot agree on an acceptable arbitrator, the
dispute shall be heard by a panel of three arbitrators, one appointed by each of
the parties and the third appointed by the other two arbitrators.
(c) Amendments. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(d) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters referred to herein. No
other agreement relating to the terms of the Executive's employment by the
Company, oral or otherwise, shall be binding between the parties unless it is in
writing and signed by the party against whom enforcement is sought. There are no
promises, representations,
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inducements or statements between the parties other than those that are
expressly contained herein. The Executive acknowledges that he is entering into
this Agreement of his own free will and accord, and with no duress, that he has
read this Agreement and that he understands it and its legal consequences.
(e) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand-delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: at the home address of the Executive noted
on the records of the Company
If to the Company: MBIA Inc.
113 King Street
Armonk, New York 10504
Attn.: Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(f) Tax Withholding. The Company shall withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(g) Severability; Reformation. In the event that one or more of the
provisions of this Agreement shall become invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby. In the event that any
of the provisions of any of Section 11(a) are not enforceable in accordance with
its terms, the Executive and the Company agree that such Section shall be
reformed to make such Section enforceable in a manner which provides the Company
the maximum rights permitted at law.
(h) Waiver. Waiver by any party hereto of any breach or default by the
other party of any of the terms of this Agreement shall not operate as a waiver
of any other breach or default, whether similar to or different from the breach
or default waived. No waiver of any provision of this Agreement shall be implied
from any course of dealing between the parties hereto or from any failure by
either party hereto to assert its or his rights hereunder on any occasion or
series of occasions.
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(i) Survival. The provisions of Section 7(c)(iii) (and so much of Section
7(d) as provides a benefit identical to that payable under such Section
7(c)(iii)) shall survive the termination of the Employment Period hereunder and
shall be binding upon and enforceable against the Company in accordance with its
terms. In the event, that any dispute arises with respect to the Executive's
entitlement to such enhanced retirement benefits, the dispute resolutions
provisions contained in Section 13(b) and the legal fees provision contained in
Section 10 shall also survive the end of the Employment Period and shall be
applied as though the dispute arose within the Employment Period.
(j) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
(k) Captions. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the Company
has caused this Agreement to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed and attested by its Secretary, all as of
the day and year first above written.
MBIA Inc.
/s/ Louis G. Lenzi
---------------------------------
By: Louis G. Lenzi
Title: General Counsel
EXECUTIVE:
/s/ Ruth M. Whaley
---------------------------------
18
KEY EMPLOYEE EMPLOYMENT PROTECTION AGREEMENT
THIS AGREEMENT between MBIA Inc., a Connecticut corporation (the
"Company"), and Michael J. Maguire (the "Executive"), dated as of this 19th day
of March, 1999.
WITNESSETH:
WHEREAS, the Company has employed the Executive in an officer position and
has determined that the Executive holds an important position with the Company;
WHEREAS, the Company believes that, in the event it is confronted with a
situation that could result in a change in ownership or control of the Company,
continuity of management will be essential to its ability to evaluate and
respond to such a situation in the best interests of shareholders;
WHEREAS, the Company understands that any such situation will present
significant concerns for the Executive with respect to his financial and job
security;
WHEREAS, the Company desires to assure itself of the Executives services
during the period in which it is confronting such a situation, and to provide
the Executive certain financial assurances to enable the Executive to perform
the responsibilities of his position without undue distraction and to exercise
his judgment without bias due to his personal circumstances;
WHEREAS, to achieve these objectives, the Company and the Executive desire
to enter into an agreement providing the Company and the Executive with certain
rights and obligations upon the occurrence of a Change of Control or Potential
Change of Control (as defined in Section 2);
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is hereby agreed by and between the Company and the
Executive as follows:
1. Operation of Agreement. (a) Effective Date. The effective date of this
Agreement shall be the date on which a Change of Control occurs (the "Effective
<PAGE>
Date"), provided that, except as provided in Section 1 (b), if the Executive is
not employed by the Company on the Effective Date, this Agreement shall be void
and without effect.
(b) Termination of Employment Following a Potential Change of Control.
Notwithstanding Section l(a), if (i) the Executive's employment is terminated by
the Company Without Cause (as defined in Section 6(c)) after the occurrence of a
Potential Change of Control and prior to the occurrence of a Change of Control
and prior to the time at which the Board of Directors of the Company (the Board)
has adopted a Nullification Resolution (as defined in Section 2(b) hereof) with
respect to such Potential Change of Control or (ii) a Change of Control (as
defined in Section 2(a) hereof). and (ii) a Change of Control occurs within two
years of such termination, the Executive shall be deemed, solely for purposes of
determining his rights under this Agreement, to have remained employed until the
date such Change of Control occurs and to have been terminated by the Company
Without Cause immediately after this Agreement becomes effective, with any
amounts payable hereunder reduced by the amount of any other severance benefits
provided to him in connection with such termination.
2. Definitions. (a) Change of Control. For the purposes of this Agreement,
a "Change of Control" shall be deemed to have occurred if:
(i) any person, as such term is currently used is Section 13(d) or
14(d) of the 1934 Act, other than the Company, its majority owned
subsidiaries, or any employee benefit plan of the Company or any of its
majority-owned subsidiaries, becomes a "beneficial owner" (as such term is
currently used in Rule 13d-3, as promulgated under 1934 Act) of 25% or more
of the Voting Power of the Company;
(ii) on any date, a majority of the Board consists of individuals
other than Incumbent Directors, which term means the members of the Board
who were serving on the Board at beginning of any 24-month period ending
with such date (or another date specified by the Committee), provided that
any individual who becomes a director subsequent to that date whose
election or nomination for election was supported by two-thirds of the
directors who then comprised the Incumbent Directors shall be considered to
be an Incumbent Director for purposes of this subsection 2(a)(ii);
(iii) the stockholders of the Company approve a merger, consolidation,
share exchange, division, sale or other disposition of substantially all of
the assets of the Company (a "Corporate Event"), as a result of which the
shareholders of the Company immediately prior to such Corporate Event (the
Company Shareholders) shall not hold, directly or indirectly, immediately
following such Corporate Event a
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majority of the Voting Power of (x) in the case of a merger or
consolidation, the surviving or resulting corporation, (y) in the case of a
share exchange, the acquiring corporation or (z) in the case of a division
or a sale or other disposition of substantially all of the Company's
assets, each surviving, resulting or acquiring corporation; provided that
such a division or sale shall not be a Change of Control for purposes of
this Agreement to the extent that, following such Corporate Event, the
Executive continues to be employed by a surviving, resulting or acquiring
entity with respect to which the Company Shareholders hold, directly or
indirectly, a majority of the Voting Power immediately following such
Corporate Event.
(b) Potential Change of Control. For the purposes of this Agreement, a
Potential Change of Control shall be deemed to have occurred if:
(i) a Person commences a tender offer (with adequate financing) for
securities representing at least 15% of the Voting Power of the Company's
securities;
(ii) the Company enters into an agreement the consummation of which
would constitute a Change of Control;
(iii) proxies for the election of directors of the Company are
solicited by anyone other than the Company; or
(iv) any other event occurs which is deemed to be a Potential Change
of Control by the Board.
Notwithstanding the foregoing, if, after a Potential Change of Control and
before a Change of Control, the Board makes a good faith determination that such
Potential Change of Control will not result in a Change of Control, the Board
may nullify the effect of the Potential Change of Control (a "Nullification") by
resolution (a "Nullification Resolution"), in which case the Executive shall
have no further rights and obligations under this Agreement by reason of such
Potential Change of Control; provided, however, that if the Executive shall have
delivered a Notice of Termination (within the meaning of Section 6(f) hereof)
prior to the date of the Nullification Resolution, such Resolution shall not
effect the Executive's rights hereunder. If a Nullification Resolution has been
adopted and the Executive has not delivered a Notice of Termination prior
thereto, the Effective Date for purposes of this Agreement shall be the date, if
any, during the term hereof on which another Potential Change of Control or any
actual Change of Control occurs.
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(c) Voting Power Defined. A specified percentage of "Voting Power" of a
company shall mean such number of the Voting Securities as shall enable the
holders thereof to cast such percentage of all the votes which could be cast in
an annual election of directors and "Voting Securities" shall mean all
securities of a company entitling the, holders thereof to vote in an annual
election of directors.
3. Employment Period. Subject to Section 6 of this Agreement, the Company
agrees to continue the Executive in its employ, and the Executive agrees to
remain in the employ of the Company, for the period (the "Employment Period")
commencing on the Effective Date and ending on the third anniversary of the
Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date,
the Executive is demoted to a lower position than the position held on the date
first set forth above, the Board may declare that this Agreement shall be
without force and effect by written notice delivered to the Executive (i) within
30 days following such demotion and (ii) prior to the occurrence of a Potential
Change of Control or a Change of Control.
4. Position and Duties. (a) No Reduction in Position. During the Employment
Period, the Executive's position (including titles), authority and
responsibilities shall be at least commensurate with those held, exercised and
assigned immediately prior to the Effective Date. It is understood that, for
purposes of this Agreement, such position, authority and responsibilities shall
not be regarded as not commensurate merely by virtue of the fact that a
successor shall have acquired all or substantially all of the business and/or
assets of the Company as contemplated by Section 12(b) of this Agreement. The
Executive's services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date.
(b) Business Time. From and after the Effective Date, the Executive agrees
to devote His full attention during normal business hours to the business and
affairs of the Company and to use his best efforts to perform faithfully and
efficiently the responsibilities assigned to him hereunder, to the extent
necessary to discharge such responsibilities, except for (i) time spent in
managing his personal, financial and legal affairs and serving on corporate,
civic or charitable boards or committees, in each case only if and to the extent
not substantially interfering with the performance of such responsibilities, and
(ii) periods of vacation and sick leave to which he is entitled. It is expressly
understood and agreed that the Executive's continuing to serve on any boards and
committees on which he is serving or with which he is other-wise associated
immediately preceding the Effective Date shall not be deemed to interfere with
the performance of the Executive's services to the Company.
5. Compensation. (a) Base Salary. During the Employment Period, the
Executive shall receive a base salary at a monthly rate at least equal to the
monthly
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<PAGE>
salary paid to the Executive by the Company and any of its affiliated companies
immediately prior to the Effective Date. The base salary shall be reviewed at
least once each year after the Effective Date, and may be increased (but not
decreased) at any time and from time to time by action of the Board or any
committee thereof or any individual having authority to take such action in
accordance with the Company's regular practices. The Executive's base salary, as
it may be increased from time to time, shall hereafter be referred to as "Base
Salary". Neither the Base Salary nor any increase in Base Salary after the
Effective Date shall serve to limit or reduce any other obligation of the
Company hereunder.
(b) Annual Bonus. During the Employment Period, in addition to the Base
Salary, for each fiscal year of the Company ending during the Employment Period,
the Executive shall be afforded the opportunity to receive an annual bonus on
terms and conditions no less favorable to the Executive (taking into account
reasonable changes in the Company's goals and objectives and taking into account
actual performance) than the annual bonus opportunity that had been made
available to the Executive for the fiscal year ended immediately prior to the
Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect
of the Annual Bonus Opportunity shall be paid as soon as practicable following
the year for which the amount (or prorated portion) is earned or awarded, unless
electively deferred by the Executive pursuant to any deferral programs or
arrangements that the Company may make available to the Executive.
(c) Long-term Incentive Compensation Programs. During the Employment
Period, the Executive shall participate in all long-term incentive compensation
programs for key executives at a level that is commensurate with the Executive's
participation in such plans immediately prior to the Effective Date, or, if more
favorable to the Executive, at the level made available to the Executive or
other similarly situated officers at any time thereafter.
(d) Benefit Plans. During the Employment Period, the Executive (and, to the
extent applicable, his dependents) shall be entitled to participate in or be
covered under all pension, retirement, deferred compensation, savings, medical,
dental, health, disability, group life and accidental death insurance plans and
programs of the Company and its affiliated companies at a level that is
commensurate with the Executive's participation in such plans immediately prior
to the Effective Date, or, if more favorable to the Executive, at the level made
available to the Executive or other similarly situated officers at any time
thereafter.
(e) Expenses. During the Employment Period, the Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the policies and procedures of the Company as in
effect
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<PAGE>
immediately prior to the Effective Date. Notwithstanding the foregoing, the
Company may apply the policies and procedures in effect after the Effective Date
to the Executive, if such policies and procedures are not less favorable to the
Executive than those in effect immediately prior to the Effective Date.
(f) Vacation and Fringe Benefits. During the Employment Period, the
Executive shall be entitled to paid vacation and fringe benefits at a level that
is commensurate with the paid vacation and fringe benefits available to the
Executive immediately prior to the Effective Date, or, if more favorable to the
Executive, at the level made available from time to time to the Executive or
other similarly situated officers at any time thereafter.
(g) Indemnification. During and after the Employment Period, the Company
shall indemnify the Executive and hold the Executive harmless from and against
any claim, loss or cause of action arising from or out of the Executive's
performance as an officer, director or employee of the Company or any of its
Subsidiaries or in any other capacity, including any fiduciary capacity, in
which the Executive serves at the request of the Company to the maximum extent
permitted by applicable law and the Company's Certificate of Incorporation and
By-Laws (the "Governing Documents"), provided that in no event shall the
protection afforded to the Executive hereunder be less than that afforded under
the Governing Documents as in effect immediately prior to the Effective Date.
(h) Office and Support Staff. The Executive shall be entitled to an office
with furnishings and other appointments, and to secretarial and other
assistance, at a level that is at least commensurate with the foregoing provided
to other similarly situated officers.
6. Termination. (a) Death. Disability or Retirement. Subject to the
provisions of Section 1 hereof, this Agreement shall terminate automatically
upon the Executive's death, termination due to "Disability" (as defined below)
or voluntary retirement under any of the Company's retirement plans as in effect
from time to time. For purposes of this Agreement, Disability shall mean the
Executive has met the conditions to qualify for long-term disability benefits
under the Company's policies, as in effect immediately prior to the Effective
Date.
(b) Voluntary Termination. Notwithstanding anything in this Agreement to
the contrary, following a Change of Control the Executive may, upon not less
than 60 days' written notice to the Company, voluntarily terminate employment
for any reason (including early retirement under the terms of any of the
Company's retirement plans as in effect from time to time), provided that any
termination by the Executive
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pursuant to Section 6(d) on account of Good Reason (as defined therein) shall
not be treated as a voluntary termination under this Section 6(b).
(c) Cause. The Company may terminate the Executive's employment for Cause.
For purposes of this Agreement, "Cause" means (i) the Executive's conviction or
plea of nolo contendere to a felony; (ii) an act or acts of dishonesty or gross
misconduct on the Executive's part which result or are intended to result in
material damage to the Company's business or reputation; or (iii) repeated
material violations by the Executive of his obligations under Section 4 of this
Agreement, which violations are demonstrably willful and deliberate on the
Executive's part and which result in material damage to the Company's business
or reputation.
(d) Good Reason. Following the occurrence of a Change of Control, the
Executive may terminate his employment for Good Reason. For purposes of this
Agreement, "Good Reason" means the occurrence of any of the following, without
the express written consent of the Executive, after the occurrence of a Change
of Control:
(i) the assignment to the Executive of any duties inconsistent in any
material adverse respect with the Executive's position, authority or
responsibilities as contemplated by Section 4 of this Agreement, or any
other material adverse change in such position, including titles, authority
or responsibilities;
(ii) any failure by the Company to comply with any of the provisions
of Section 5 of this Agreement, other than an insubstantial or inadvertent
failure remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location more than 50 miles (or such other distance as shall be set
forth in the Company's relocation policy as in effect at the Effective
Time) from that location at which he performed his services specified under
the provisions of Section 4 immediately prior to the Change of Control,
except for travel reasonably required in the performance of the Executive's
responsibilities; or
(iv) any failure by the Company to obtain the assumption and agreement
to perform this Agreement by a successor as contemplated by Section 12(b).
In no event shall the mere occurrence of a Change of Control, absent any further
impact on the Executive, be deemed to constitute Good Reason.
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<PAGE>
(e) Special Window Period. The Executive shall also have the right to
terminate his employment at any time and for any reason during the 30-day period
commencing on the first anniversary of the date on which a Change of Control
occurs (the "Special Window Period").
(f) Notice of Termination. Any termination by the Company for Cause or by
the Executive for Good Reason shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 13(e). For purposes of
this Agreement, a "Notice of Termination" means a written notice given, in the
case of a termination for Cause, within 10 business days of the Company's having
actual knowledge of the events giving rise to such termination, and in the case
of a termination for Good Reason, within 90 days of the Executive's having
actual knowledge of the events giving rise to such termination, and which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated, and (iii) if the termination date is other than the date of receipt
of such notice, specifies the termination date of this Agreement (which date
shall be not more than 15 days after the giving of such notice). The failure by
the Executive to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason shall not waive any right of the
Executive hereunder or preclude the Executive from asserting such fact or
circumstance in enforcing his rights hereunder.
(g) Date of Termination. For the purpose of this Agreement, the term "Date
of Termination" means (i) in the case of a termination for which a Notice of
Termination is required, the date of receipt of such Notice of Termination or,
if later, the date specified therein, as the case may be, and (ii) in all other
cases, the actual date on which the Executive's employment terminates during the
Employment Period.
7. Obligations of the Company upon Termination. (a) Death or Disability. If
the Executive's employment is terminated during the Employment Period by reason
of the Executive's death or Disability, this Agreement shall terminate without
further obligations to the Executive or the Executive's legal representatives
under this Agreement other than those obligations accrued hereunder at the Date
of Termination, and the Company shall pay to the Executive (or his beneficiary
or estate) (i) the Executive's full Base Salary through the Date of Termination
(the "Earned Salary"), (ii) any vested amounts or benefits owing to the
Executive under the Company's otherwise applicable employee benefit plans and
programs, including any compensation previously deferred by the Executive
(together with any accrued earnings thereon) and not yet paid by the Company and
any accrued vacation pay not yet paid by the Company (the "Accrued
Obligations"), and (iii) any other benefits payable due to the Executive's death
or Disability under the Company's plans, policies or programs (the "Additional
Benefits").
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Any Earned Salary shall be paid in cash in a single lump sum as soon as
practicable, but in no event more than 10 days (or at such earlier date required
by law), following the Date of Termination. Accrued Obligations and Additional
Benefits shall be paid in accordance with the terms of the applicable plan,
program or arrangement.
(b) Cause and Voluntary Termination. If, during the Employment Period, the
Executive's employment shall be terminated for Cause or voluntarily terminated
by the Executive (other than on account of Good Reason following a Change of
Control), the Company shall pay the Executive (i) the Earned Salary in cash in a
single lump sum as soon as practicable, but in no event more than 10 days,
following the Date of Termination, and (ii) the Accrued Obligations in
accordance with the terms of the applicable plan, program or arrangement.
(c) Termination by the Company other than for Cause and Termination by the
Executive for Good Reason or in the Special Window Period. If (x) the Company
terminates the Executive's employment other than for Cause during the Employment
Period, (y) the Executive terminates his employment at any time during the
Employment Period for Good Reason or (z) the Executive terminates his employment
with or without Good Reason during the Special Window Period, the Company shall
provide the Executive with the following benefits:
(i) Severance and Other Termination Payments. The Company shall pay
the Executive the following:
(A) the Executive's Earned Salary; and
(B) an amount (the Pro-Rated Annual Incentive) equal to the average
of the annual bonuses payable to the Executive for the two fiscal
years of the Company ended prior to the Effective Date for which
bonuses have been determined (the "Average Annual Bonus")
multiplied by a fraction, the numerator of which is the number of
months in such fiscal year which have elapsed on or before (and
including) the last day of the month in which the Date of
Termination occurs and the denominator of which is 12; and
(C) an aggregate amount (the Book Value Award Amount) equal to the
sum of the amounts payable to the Executive in respect of each
outstanding incentive award related to the Company's adjusted
book value, determined as of the end of the month in which the
Date of Termination occurs; and
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(D) the Accrued Obligations; and
(E) a cash amount (the "Severance Amount") equal to three times the
sum of
(1) the Executive's annual Base Salary;
(2) an amount equal to the Average Annual Bonus;
The Earned Salary, Pro-Rated Annual Incentive and Severance Amount shall be
paid in cash in a single lump sum as soon as practicable, but in no event
more than 10 days (or at such earlier date required by law), following the
Date of Termination. The Book Value Award Amounts shall be paid in cash as
soon as practicable after the amount of each such payment can be
determined. Accrued Obligations shall be paid in accordance with the terms
of the applicable plan, program or arrangement.
(ii) Continuation of Benefits. If, during the Employment Period, the
Company terminates the Executive's employment other than for Cause or the
Executive terminates his employment for Good Reason, the Executive (and, to
the extent applicable, his dependents) shall be entitled, after the Date of
Termination until the earlier of (1) the third anniversary of the Date of
Termination (the "End Date") and (2) the date the Executive becomes
eligible for comparable benefits under a similar plan, policy or program of
a subsequent employer, to continue participation in all of the Company's
group health and group life employee benefits plans (the "Group Benefit
Plans"). To the extent any such benefits cannot be provided under the terms
of the applicable plan, policy or program, the Company shall provide a
comparable benefit under another plan or from the Company's general assets.
The Executive's participation in the Group Benefit Plans will be on the
same terms and conditions (including, without limitation, any condition
that the Executive make contributions toward the cost of such coverage on
the same terms and conditions generally applicable to similarly situated
employees) that would have applied had the Executive continued to be
employed by the Company through the End Date.
(iii) Restricted Stock. Any and all awards of restricted stock held by
the Executive at the Date of Termination shall immediately become fully
vested.
(iv) Post-Termination Exercise Period. Notwithstanding anything else
contained in Section 14 of the Company's 1987 Stock Option Plan to the
contrary,
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in the event that Executive is entitled to receive the severance benefits
described above pursuant to the terms of this Agreement, all of his
outstanding Options and SARs awarded under such 1997 Stock Option Plan
shall automatically be and become fully exercisable on the Date of
Termination without further action on anyone's part and the Executive shall
have the right to exercise any such Option or SAR until the earlier to
occur of the expiration of the term of such Option or SAR and the fifth
anniversary of the Date of Termination.
(v) Retirement Contribution Credits. The Executive shall receive
credits to the Company's nonqualified excess benefits plan with respect to
the amounts that would otherwise have been contributed on his behalf under
the Company's Money Purchase Pension Plan and Profit Sharing Plan had the
Executive continued in the company's employ for three years following the
Date of Termination.
(vi) Outplacement Services. The Executive shall be provided at the
Company's expense with outplacement services customary for executives at
his level (including, without limitation, office space and telephone
support services) provided by a qualified and experienced third party
provider selected by the Company.
(d) Discharge of the Company's Obligations. Except as expressly provided in
the last sentence of this Section 7(d), the amounts payable to the Executive
pursuant to this Section 7 following termination of his employment shall be in
fun and complete satisfaction of the Executive's rights under this Agreement and
any other claims he may have in respect of his employment by the Company or any
of its Subsidiaries. Such amounts shall constitute liquidated damages -with
respect to any and all such rights and claims and, upon the Executive's receipt
of such amounts, the Company shall be released and discharged from any and all
liability to the Executive in connection with this Agreement or otherwise in
connection with the Executive's employment with the Company and its
Subsidiaries. Nothing in this Section 7(d) shall be construed to release the
Company from its commitment to indemnify the Executive and hold the Executive
harmless from and against any claim, loss or cause of action arising from or out
of the Executive's performance as an officer, director or employee of the
Company or any of its Subsidiaries or in any other capacity, including any
fiduciary capacity, in which the Executive served at the request of the Company
to the maximum extent permitted by applicable law and the Governing Documents.
(e) Certain Further Payments by the Company.
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(i) In the event that any amount or benefit paid or distributed to the
Executive pursuant to this Agreement, taken together with any amounts or
benefits otherwise paid or distributed to the Executive by the Company or
any affiliated company (collectively, the "Covered Payments"), are or
become subject to the tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any similar
tax that may hereafter be imposed, the Company shall pay to the Executive
at the time specified in Section 7(e)(v) below an additional amount (the
"Tax Reimbursement Payment") such that the net amount retained by the
Executive with respect to such Covered Payments, after deduction of any
Excise Tax on the Covered Payments and any Federal, state and local income
or employment tax and Excise Tax on the Tax Reimbursement Payment provided
for by this Section 7(e), but before deduction for any Federal, state or
local income or employment tax withholding on such Covered Payments, shall
be equal to the amount of the Covered Payments.
(ii) For purposes of determining whether any of the Covered Payments
will be subject to the Excise Tax and the amount of such Excise Tax,
(A) such Covered Payments will be treated as "parachute payments"
within the meaning of Section 280G of the Code, and all
"parachute payments" in excess of the "base amount" (as defined
under Section 280G(b)(3) of the Code) shall be treated as subject
to the Excise Tax, unless, and except to the extent that, in the
good faith judgment of the Company's independent certified public
accountants appointed prior to the Change of Control Date or tax
counsel selected by such Accountants (the "Accountants"), the
Company has a reasonable basis to conclude that such Covered
Payments (in whole or in part) either do not constitute
"parachute payments" or represent reasonable compensation for
personal services actually rendered (within the meaning of
Section 280G(b)(4)(B) of the Code) in excess of the "base
amount," or such "parachute payments" are otherwise not subject
to such Excise Tax, and
(B) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with
the principles of Section 280G of the Code.
(iii) For purposes of determining the amount of the Tax Reimbursement
Payment, the Executive shall be deemed to pay:
12
<PAGE>
(A) Federal income taxes at the highest applicable marginal rate of
Federal income taxation for the calendar year in which the Tax
Reimbursement Payment is to be made, and
(B) any applicable state and local income taxes at the highest
applicable marginal rate of taxation for the calendar year in
which the Tax Reimbursement Payment is to be made, net of the
maximum reduction in Federal income taxes which could be obtained
from the deduction of such state or local taxes if paid in such
year.
(iv) In the event that the Excise Tax is subsequently determined by
the Accountants or pursuant to any proceeding or negotiations with the
Internal Revenue Service to be less than the amount taken into account
hereunder in calculating the Tax Reimbursement Payment made, the Executive
shall repay to the Company, at the time that the amount of such reduction
in the Excise Tax is finally determined, the portion of such prior Tax
Reimbursement Payment that would not have been paid if such Excise Tax had
been applied in initially calculating such Tax Reimbursement Payment, plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any
portion of the Tax Reimbursement Payment to be refunded to the Company has
been paid to any Federal, state or local tax authority, repayment thereof
shall not be required until actual refund or credit of such portion has
been made to the Executive, and interest payable to the Company shall not
exceed interest received or credited to the Executive by such tax authority
for the period it held such portion. The Executive and the Company .shall
mutually agree upon the course of action to be pursued (and the method of
allocating the expenses thereof) if the Executive's good faith claim for
refund or credit is denied.
In the event that the Excise Tax is later determined by the
Accountants or pursuant to any proceeding or negotiations with the Internal
Revenue Service to exceed the amount taken into account hereunder at the
time the Tax Reimbursement Payment is made (including, but not limited to,
by reason of any payment the existence or amount of which cannot be
determined at the time of the Tax Reimbursement Payment), the Company shall
make an additional Tax Reimbursement Payment in respect of such excess
(plus any interest or penalty payable with respect to such excess) at the
time that the amount of such excess is finally determined.
(v) The Tax Reimbursement Payment (or portion thereof) provided for in
Section 7(e)(i) above shall be paid to the Executive not later than 10
business
13
<PAGE>
days following the payment of the Covered Payments; provided, however, that
if the amount of such Tax Reimbursement Payment (or portion thereof) cannot
be finally determined on or before the date on which payment is due, the
Company shall pay to the Executive by such date an amount estimated in good
faith by the Accountants to be the minimum amount of such Tax Reimbursement
Payment and shall pay the remainder of such Tax Reimbursement Payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined, but in no event
later than 45 calendar days after payment of the related Covered Payment.
In the event that the amount of the estimated Tax Reimbursement Payment
exceeds the amount subsequently determined to have been due, such excess
shall constitute a loan by the Company to the Executive, payable on the
fifth business day after written demand by the Company for payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code).
8. Non-exclusivity of Rights. Except as expressly provided herein, nothing
in this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Company or any of its affiliated companies and for which the Executive
may qualify, nor shall anything herein limit or otherwise prejudice such lights
as the Executive may have under any other agreements with the Company or any of
its affiliated companies, including employment agreements or stock option
agreements. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan or program.
9. No Offset. The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Executive or others whether by reason of the subsequent employment
of the Executive or otherwise.
10. Legal Fees and Expenses. If the Executive asserts any claim in any
contest (whether initiated by the Executive or by the Company) as to the
validity, enforceability or interpretation of any provision of this Agreement,
the Company shall pay the Executive's legal expenses (or cause such expenses to
be paid) including, without limitation, his reasonable attorney's fees, on a
quarterly basis, upon presentation of proof of such expenses in a form
acceptable to the Company, provided that the Executive shall reimburse the
Company for such amounts, plus simple interest thereon at the 90-day United
States Treasury Bill rate as in effect from time to time, compounded annually,
if
14
<PAGE>
the arbitrator referred to in Section 13(b) or a court of competent jurisdiction
shall find that the Executive did not have a good faith and reasonable basis to
believe that he would prevail as to at least one material issue presented to
such arbitrator or court.
11. Confidential Information, Company Property. By and in consideration of
the salary and benefits to be provided by the Company hereunder, including the
severance arrangements set forth herein, the Executive agrees that:
(a) Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, (i) obtained by the Executive during his
employment by the Company or any of its affiliated companies and (ii) not
otherwise public knowledge (other than by reason of an unauthorized act by the
Executive). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company,
unless compelled pursuant to an order of a court or other body having
jurisdiction over such matter, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
(b) Nonsolicitation of Employees, The Executive agrees that for two years
after the Date of Termination, he will not attempt, directly or indirectly, to
induce any employee of the Company, or any subsidiary or any affiliate thereof
to be employed or perform services elsewhere or otherwise to cease providing
services to the Company, or any subsidiary or affiliate thereof
(c) Company Property. Except as expressly provided herein, promptly
following the Executive's termination of employment, the Executive shall return
to the Company all property of the Company and all copies thereof in the
Executive's possession or under his control.
(d) Injunctive Relief and Other Remedies with Respect to Covenants. The
Executive acknowledges and agrees that the covenants and obligations of the
Executive with respect to confidentiality and Company property relate to
special, unique and extraordinary matters and that a violation of any of the
terms of such covenants and obligations will cause the Company irreparable
injury for which adequate remedies are not available at law, Therefore, the
Executive agrees that the Company shall be entitled to an injunction,
restraining order or such other equitable relief (without the requirement to
post bond) restraining Executive from committing any violation of the covenants
and obligations contained in this Section 11 These remedies are cumulative and
are in addition to any other rights and remedies the Company may have at law or
in equity. In no event shall
15
<PAGE>
an asserted violation of the provisions of this Section 11 constitute a basis
for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement.
12. Successors. (a) This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors. The Company shall require any successor to all or
substantially all of the business and/or assets of the Company, whether direct
or indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as the Company would be required to perform if no such
succession had taken place.
13. Miscellaneous. (a) Applicable Law. This Agreement shall be -governed by
and construed in accordance with the laws of the States of New York, applied
without reference to principles of conflict of laws.
(b) Arbitration. Except to the extent provided in Section 11(c), any
dispute or controversy arising under or in connection with this Agreement shall
be resolved by binding arbitration. The arbitration shall be held in the city of
White Plains, New York and, except to the extent inconsistent with this
Agreement, shall be conducted in accordance with the Expedited Employment
Arbitration Rules of the American Arbitration Association then in effect at the
time of the arbitration (or such other rules as the parties may agree to in
writing), and otherwise in accordance with principles which would be applied by
a court of law or equity. The arbitrator shall be acceptable to both the Company
and the Executive. If the parties cannot agree on an acceptable arbitrator, the
dispute shall be heard by a panel of three arbitrators, one appointed by each of
the parties and the third appointed by the other two arbitrators.
(c) Amendments. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(d) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters referred to herein. No
other agreement relating to the terms of the Executive's employment by the
Company, oral or otherwise, shall be binding between the parties unless it is in
writing and signed by the party against whom enforcement is sought. There are no
promises, representations,
16
<PAGE>
inducements or statements between the parties other than those that are
expressly contained herein. The Executive acknowledges that he is entering into
t1ris Agreement of his own free will and accord, and with no duress, that he has
read this Agreement and that he understands it and its legal consequences.
(e) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand-delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: at the home address of the Executive
noted on the records of the Company
If to the Company: MBIA Inc.
113 King Street
Armonk, New York 10504
Attn.: Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(f) Tax Withholding. The Company shall withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(g) Severability; Reformation. In the event that one or more of the
provisions of this Agreement shall become invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby. In the event that any
of the provisions of any of Section 11(a) are not enforceable in accordance with
its terms, the Executive and the Company agree that such Section shall be
reformed to make such Section enforceable in a manner which provides the Company
the maximum rights permitted at law.
(h) Waiver. Waiver by any party hereto of any breach or default by the
other party of any of the terms of this Agreement shall not operate as a waiver
of any other breach or default, whether similar to or different from the breach
or default waived. No waiver of any provision of this Agreement shall be implied
from any course of dealing between the parties hereto or from any failure by
either party hereto to assert its or his rights hereunder on any occasion or
series of occasions.
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<PAGE>
(i) Survival. The provisions of Section 7(c)(iii) (and so much of Section
7(d) as provides a benefit identical to that payable under such Section
7(c)(iii)) shall survive the termination of the Employment Period hereunder and
shall be binding upon and enforceable against the Company in accordance with its
terms. In the event, that any dispute arises with respect to the Executive's
entitlement to such enhanced retirement benefits, the dispute resolutions
provisions contained in Section 13(b) and the legal fees provision contained in
Section 10 shall also survive the end of the Employment Period and shall be
applied as though the dispute arose within the Employment Period.
(j) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
(k) Captions. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the Company
has caused this Agreement to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed and attested by its Secretary, all as of
the day and year first above written.
MBIA Inc.
/s/ Louis G. Lenzi
-------------------------------
By: Louis G. Lenzi
Title: General Counsel
& Secretary
EXECUTIVE:
/s/ Michael J. Maguire
-------------------------------
18
AMBAC ASSURANCE CORPORATION, AMBAC INSURANCE UK LIMITED,
MBIA INSURANCE CORPORATION, AND MBIA ASSURANCE, S.A.
AGREEMENT REGARDING A GLOBAL JOINT VENTURE
This Agreement (the "Agreement") shall respecify the terms of the joint venture
(the "Venture") established by the Agreement Regarding the Formation of a
European Joint Venture dated as of September 11, 1995 and amended as of August
1, 1998 (the "September 11, 1995 Agreement"), shall supersede the September 11,
1995 Agreement, and shall become effective as of January 15, 1999.
The parties to the Venture shall be Ambac Assurance Corporation and AMBAC
Insurance UK Limited (collectively "Ambac") on the one hand and MBIA Insurance
Corporation and MBIA Assurance, S.A. (collectively "MBIA," and together with
Ambac, the "Parties") on the other. The Parties may handle through the Venture,
as further specified in Guidelines that the Parties may promulgate, types of
transactions (1) that generally require an assessment of a non-trivial and
bona-fide foreign risk exposure or in which the credit enhancement is sold to a
foreign purchaser, and (2) on which collaboration by the Parties conforms to all
applicable laws, rules, and regulations ("Global business").
The Parties intend to accomplish through the Venture the following purposes,
among others: (1) increase the quantity and quality of the output and
availability of financial guaranty insurance, other types of credit and guaranty
insurance, or other forms of credit enhancement, (2) reduce the cost, and
increase the availability, of capital financing, and (3) increase the demand for
credit enhancement and capital financing throughout the world. The Parties have
concluded that combining their resources through the Venture will achieve
efficiencies, expand their insurance offerings, and assist in overcoming
significant difficulties that each Party experienced in its separate activities
outside the United States.
The Venture permits the Parties to increase their capacities for covering risks
that would be difficult to cover individually because of their scale, rarity, or
novelty and provides a structure through which the Parties can harmonize their
incentives to integrate their resources and share their goodwill. The Venture
also allows the Parties to compete with banking, governmental funding, and
alternative forms of credit enhancement and structured financing. The Venture
thereby permits the Parties to offer consumers durable access to additional
forms and sources of financing.
The Parties expect that the Venture will enable them to develop expanded
geographic coverage outside the United States and to promote more effectively
established and innovative uses of various forms of credit enhancement in
foreign countries and territories. The improvements and progress that will be
accomplished through the Venture will allow the Parties to diversify and
increase their product offerings and will directly benefit issuers of financial
obligations, investors, others in the international financial community, and
consumers throughout the world.
The Parties anticipate acting mainly (though not exclusively) as primary insurer
and reinsurer, respectively, in jointly serving clients through the Venture. In
addition and without limitation, the Parties may act jointly through the Venture
as and when stated above with respect to, among others, the following activities
and activities related thereto:
<PAGE>
CONFIDENTIAL
(a) conduct research regarding new business opportunities for the provision of
financial guaranty insurance and other forms of credit enhancement;
(b) market all forms of credit enhancement by, among other things, informing
clients of the increased capacity, expanded expertise, extended geographic
coverage, and improved service that the Parties will offer as a result of their
collaboration under this Agreement and by promoting and conducting seminars and
conferences on credit enhancement and the Parties' activities through the
Venture;
(c) analyze credit risks, select business opportunities that will be pursued as
part of the Venture, and, in some cases, seek to obtain reinsurance for those
opportunities;
(d) compile proposals for the offering of financial guaranty insurance, other
types of credit and guaranty insurance, or other forms of credit enhancement in
which the Parties will act mainly as primary insurer and reinsurer, respectively
(though the Parties may also act as co-insurers or co- reinsurers);
(e) present and execute such offerings and obtain reinsurance for such
offerings; and
(f) settle claims or risks insured by the Parties through the Venture.
While the Parties are reviewing or pursuing a business opportunity jointly
through the Venture, neither Party shall pursue that opportunity independently
or unilaterally in competition with the Venture, provided, however, that each
Party retains the discretion to terminate unilaterally its consideration of a
business opportunity through the Venture and to pursue that opportunity
independently.
Each Party's participation in any particular Venture activity shall be
determined independently by that Party. In addition, with respect to any
particular Venture activity, each Party shall act only in such capacity (that
is, as primary insurer, reinsurer, or in any other capacity) as is permitted by
applicable law. If any Party requires any authorization to undertake the
business contemplated by this Agreement, that Party shall obtain such
authorization and refrain from conducting such business in the absence of such
authorization. Each Party shall be responsible for its own compliance with the
applicable laws, rules, and regulations related to its participation in this
Agreement.
Each Party shall retain the discretion to act independently and unilaterally if
it so chooses or if a prospective client wishes to deal with either Party on
such a basis, even if the Parties have begun to review or pursue the opportunity
jointly through the Venture. Accordingly, neither Party shall be required to
bring all risks relating to Global business to the Venture. When either Party
acts independently and unilaterally with respect to any Global business matter,
the acting Party shall do so without coordination or cooperation with the other
Party after the acting Party decides to proceed independently and unilaterally.
Each Party shall advise each client in connection with any Global business
matter whether it is acting jointly or separately with respect to that matter.
The Parties shall not engage in joint conduct through the Venture in connection
with types of transactions that do not constitute Global business ("Non-Venture
business"). The Venture formed by this Agreement shall have no effect on Ambac's
or MBIA's respective Non-Venture business, and each Party shall continue to act
independently and unilaterally with respect to its Non-Venture business. In
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<PAGE>
CONFIDENTIAL
addition, each Party shall not disclose competitively sensitive information
regarding its Non-Venture business or regarding other domestic activities to the
other Party.
The Parties shall use "MBIA-Ambac International" as the logo for the Venture.
Each Party shall permit the other Party to use, on a non-exclusive basis and in
conjunction only with Venture business, the trademarks and tradenames listed in
Appendix A to this Agreement in accordance with the terms of Appendix A.
Each Party represents to the other Party that it is authorized to enter into
this Agreement and to exercise all rights and meet all obligations set forth in
this Agreement. This Agreement shall continue in force for five years from the
effective date of this Agreement; provided, however, that this Agreement may be
terminated 30 days following the transmission (by facsimile and registered mail)
of written notification by one Party to the other Party that the notifying Party
wishes to withdraw from the Agreement.
This Agreement constitutes the entire agreement between the Parties regarding
the Venture and can be amended only in writing. This Agreement may be executed
in counterparts that, when taken together, shall constitute a fully executed
original of this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the dates set
forth below.
Ambac Assurance Corporation MBIA Insurance Corporation
By: /s/ Phillip B. Lassiter By: /s/ Joseph W. Brown. Jr.
----------------------------- ----------------------------
Name: Phillip B. Lassiter Name: Joseph W. Brown. Jr.
Title: Chairman, President, Title: Chief Executive Officer
and Chief Executive Officer
Date: 1/29/99 Date:
--------------------------
AMBAC Insurance UK Limited MBIA Assurance S.A.
By: /s/ John W. Uhlein III By: /s/ Michael J. Maguire
--------------------------- ----------------------------
Name: John W. Uhlein III Name: Michael J. Maguire
Title: Managing Director Title: President
Date: 1/29/99 Date:
---------------------------
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<PAGE>
APPENDIX A
Each Party shall permit the other Party, on a non-exclusive basis and only
during the term of this Agreement, to use its trademarks and tradenames that are
listed on the following pages in conjunction with the other Party's trademarks
and tradenames that are listed on the following pages solely in connection with
business conducted through the Venture under this Agreement.
Each Party shall retain the right, to be exercised reasonably, to prohibit the
use of its trademark or tradename in connection with any specific instance of
Venture business if the use of such trademark or tradename would violate the
standards that such Party has set for the use of its trademark or tradename in
the ordinary course of its business.
Each Party represents to the other Party that it owns free of any adverse claim
the trademarks and tradenames attributed to it on the following pages.
MBIA INSURANCE CORPORATION
MBIA ASSURANCE, S.A.
[LOGO]
AMBAC ASSURANCE CORPORATION
AMBAC INSURANCE UK LIMITED
[LOGO]
<PAGE>
Joint Venture Logo
[LOGO]
SPECIAL EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as "Agreement")
made and entered into by and between
MBIA Insurance Corporation, Armonk, New York; and/or MBIA
Assurance S. A., Paris, France; and/or any other insurance or
reinsurance company subsidiaries of MBIA Inc. listed in Exhibit
No. 1 attached to this Agreement (hereinafter referred to as
the "Company"), and
MUENCHENER RUECKVERSICHERUNGS-GESELLSHAFT
(hereinafter referred to as the "Reinsurer').
In consideration of the mutual covenants hereinafter contained, the parties
hereto agree as follows:
ARTICLE 1
ACQUISITION
In the event that, following the execution of this Agreement, the Company
notifies the Reinsurer of a proposed acquisition by the Company of an insurance
company (a "Target") and provides the Reinsurer with such due diligence
information as the Reinsurer may reasonably request with respect to such Target
(including without limitation information relating to the effect on this
Agreement of the inclusion of the Target as a reinsured hereunder) (the
"Information"), the Reinsurer shall use its best efforts to provide, within 30
days following receipt of the Information, a written notice to the Company which
notice shall state whether or not the Reinsurer will consent to the inclusion of
such Target as a reinsured hereunder upon consummation of the acquisition of
such Target by the Company. If the Reinsurer consents to the inclusion of a
Target as a reinsured hereunder, such Target shall be included in the term
"Company" from and after the date on which the Company's acquisition of the
Target is consummated, and the Company shall prepare and deliver to the
Reinsurer an addendum to this Agreement that revises Exhibit #1 to include the
name of such Target thereon. The 30-day period referred to above shall not
commence until all of the Information reasonably requested by the Reinsurer has
been received by the Reinsurer.
Effective: September 1, 1998 1 of 14
<PAGE>
ARTICLE 2
COMMENCEMENT AND TERMINATION
Covering Incurred Losses from 12:01 a.m. Standard Time, September 1, 1998 (the
"Effective Date") through 12:01 a.m., Standard Time, September 1, 2004 (the
"Termination Date"). "Standard Time" shall mean the time as described in the
Policies. This Agreement shall not terminate until all of the obligations by
both parties to the Agreement have been fulfilled.
ARTICLE 3
BUSINESS AND TERRITORY COVERED
This Agreement shall cover all Policies attaching on or after the Effective Date
that provide insurance against financial loss by reason of nonpayment or
regularly scheduled principal and interest obligations arising under Issues sold
by Issuers domiciled anywhere in the world.
The liability of the Reinsurer shall be subject in all respects to all the
general and specific stipulations, clauses, waivers, extensions, modifications
and endorsements of any of the Policies of the Company's liability, subject to
the exclusions set forth in the Exclusions Article and the other terms and
conditions of this Agreement as set forth herein.
ARTICLE 4
EXCLUSIONS
The exclusions shall be as per the original Policies.
ARTICLE 5
REINSURANCE CLAUSE
Subject to the Aggregate Limit, the Reinsurer shall pay up to $50,000,000
Ultimate Net Loss in excess of $0 Ultimate Net Loss each and every Occurrence
Incurred during the term of this Agreement. The Reinsurer shall pay to the
Company as Ultimate Net Loss recoverable hereunder is Incurred. The Aggregate
Limit of this Agreement is $50,000,000.
ARTICLE 6
DEFINITIONS
A. "Allocated Loss Adjustment Expenses" as used in this Agreement means all
court costs, interest upon judgments, and mitigation, investigation,
adjustment, and legal expenses
Effective: September 1, 1998 2 of 14
<PAGE>
chargeable to: (i) the mitigation, investigation, negotiation, settlement
of or defense against a Loss, (ii) loss prevention, mitigation or
investigation in respect of Policies as to which the Company has posted a
loss reserve, (iii) the investigation and workout of a potential Loss, or
(iv) the protection, perfection and exercise of any subrogation or salvage
or reimbursement rights or security interests with respect to a Policy.
Allocated Loss Adjustment Expenses shall exclude all office expenses and
salaries of officials and employees of the Company.
B. "Incurred Loss" as used in this Agreement means the date and time of the
Loss recorded on the books and records of the Company with respect to the
estimated amount of default of the Issuer's obligation to pay principal or
interest pursuant to the terms of a bond, note, or other instrument insured
by a Policy.
C. "Issue" as used in this Agreement means all obligations of one Issuer sold
simultaneously, secured by a single revenue source (with essentially the
same structure) or, in the case of structured finance or asset-backed
securities, secured by a common pool of assets and, in either case, covered
by a Policy. The Company shall be the sole judge of what constitutes one
Issue.
D. "Issuer" as used in this Agreement means, with respect to an Issue, the
entity issuing the bonds, notes, or other instruments comprising the Issue.
The Company shall be the sole judge of what constitutes one Issuer.
E. "Loss" as used in this Agreement means the actual or, in the Company's best
judgment, anticipated amounts of principal and interest for which the
Company is liable with respect to all claims under all Policies.
F. "Occurrence" as used in this Agreement means an actual or, in the Company's
best judgment, anticipated default by an individual Issuer.
G. "Ultimate Net Loss" as used herein shall mean the Company's initial
estimate of the sum of Loss and Allocated Loss Adjustment Expense Incurred
by the Company less inuring reinsurance, if any, plus any upward
adjustments in such estimates. The Reinsurer agrees that any downward
adjustments in the Company's Loss and Allocated Loss Adjustment Expense
shall be disregarded when calculating Ultimate Net Loss hereunder.
The following shall apply with respect to Ultimate Net Loss herein:
I. Nothing in this Definition shall be construed as meaning the Reinsurer
shall not pay the amount of reinsurance recoverable hereunder until
the actual Ultimate Net Loss has been determined.
II. The Company shall make quarterly adjustments to the estimates of
Ultimate Net Loss beginning in the third quarter of 1998. The final
adjustment to any estimates of Ultimate Net Loss Incurred during the
Term of this Agreement shall be made seven years after the Company
sets its initial Ultimate Net Loss estimate for each
Effective: September 1, 1998 3 of 14
<PAGE>
Occurrence hereunder (or by mutual agreement at some other time). Such
final calculation of Ultimate Net Loss shall be based upon the Company's
estimate of Ultimate Net Loss as entered on the Company's books at that
time.
III. At each adjustment of Ultimate Net Loss, the amount of reinsurance
recoverable hereunder shall be recalculated based on such calculation of
Ultimate Net Loss. All amounts due the Company shall be payable in
accordance with the Accounts, Reports and Payments and the Retention and
Limits Articles hereunder.
ARTICLE 7
PREMIUM
The Company shall pay to the Reinsurer a flat premium equal to $2,000,000,
payable no later than 30 days after binding coverage with the Reinsurer.
ARTICLE 8
ACCOUNTS, REPORTS AND PAYMENTS
A. The Company shall furnish to the Reinsurer quarterly accounts of business
ceded hereunder within 25 days after the close of each calendar year
quarter, showing: the sums of Incurred Loss, Allocated Loss Adjustment
Expense and Ultimate Net Loss hereunder, as well as adjustments to the
amount of reinsurance recoverable hereunder.
B. The amount of reinsurance recoverable hereunder shall be calculated by
taking the Ultimate Net Loss and deducting $0 of Ultimate Net Loss each and
every Occurrence but shall never exceed the Aggregate Limit of $5O,OOO,OOO.
C. To the extent that the amount of reinsurance recoverable hereunder
increases, the Reinsurer shall owe the Company such increase in amount of
reinsurance recoverable hereunder over that recoverable under the prior
account.
D. Such net balance shown shall be payable within 10 days of the Reinsurer's
receipt of the account.
ARTICLE 9
DUE DILIGENCE
Prior to ceding any business to the Reinsurer hereunder, the Company agrees to
provide the Reinsurer with sufficient information for the Reinsurer to complete
an underwriting due diligence of the Company. Such "sufficient information"
shall be comprised of a presentation by the Company reviewing the Company's
underwriting process for each segment of business
Effective: September 1, 1998 4 of 14
<PAGE>
contemplated being ceded to the Reinsurer hereunder and sufficient access to
underwriting files in each of those segments to ensure that such underwriting
processes are in fact being observed within the Company's underwriting of its
business. In the event that such due diligence conducted by the Reinsurer
results in a determination not to proceed with the Agreement, the Reinsurer
reserves the right to terminate this Agreement upon written notice to the
Company. Such determination to terminate this Agreement shall be advised within
two business days of completion of said due diligence.
ARTICLE 10
CLAIMS AND LOSSES
(1) The Company shall have complete and sole control of and direction of all
efforts to: (i) mitigate, investigate, negotiate, settle or defend a Loss,
(ii) prevent, mitigate, or investigate a probable Loss under Policies as to
which the Company has posted a loss reserve, (iii) investigate and work out
a potential Loss, and (iv) to protect, perfect and exercise any
subrogation, salvage or reimbursement rights or security interests with
respect to any Policy, and may take any action as it may deem advisable
with respect thereto. All Loss settlements by the Company, all salvage and
subrogation settlements, and all settlements with an Issuer (or with an
underlying obligor of that Issuer), shall be final, conclusive and
unconditionally binding upon the Reinsurer.
(2) The Reinsurer shall pay to the Company the Reinsurer's Proportionate Share
of any loss within ten business days following receipt of notice from the
Company that the Company has made payment of the Loss. The Reinsurer shall
effect payment by wire transfer of federal funds to the party designated by
the Company in the notice. Details of the Loss will be provided to the
Reinsurer by the Company promptly by mail, or by such other means as
requested by the Reinsurer.
(3) The Reinsurer shall pay to the Company the Reinsurer's Proportionate Share
of any Allocated Loss Adjustment Expenses paid by the Company at the times
and in the manner specified in the Accounts, Reports and Payments Article.
ARTICLE 11
REINSURANCE FOLLOWS ORIGINAL POLICIES
This Agreement shall be construed as an honorable undertaking between the
parties hereto and shall not be defeated by technical legal construction, it
being the intention of this Agreement that the fortunes of the Reinsurer shall
follow the fortunes of the Company. Nothing herein shall in
Effective: September 1, 1998 5 of 14
<PAGE>
any manner create any obligations or establish any rights against the Reinsurer
in favor of any third parties or any persons not parties to this Reinsurance
Agreement.
ARTICLE 12
REINSURANCE TAX
In consideration of the terms under which this Agreement is issued, the Company
undertakes not to claim any deduction of the premium hereon when making Canadian
tax returns or when making tax returns, other than Income or Profits Tax
returns, to any state or territory in the United States of America or to the
District of Columbia.
ARTICLE 13
FEDERAL EXCISE TAX
(This Article applies only to those reinsurers domiciled outside of the United
States of America who are not exempt from the Federal Excise Tax.)
The Reinsurer has agreed to allow for the purpose of paying the Federal Excise
Tax the percentage specified by United States law of the premium payable hereon
to the extent such premium is subject to Federal Excise Tax.
In the event of any return of premium becoming due hereunder, the Reinsurer will
deduct the percentage specified by United States law from the amount of the
return and the Company or its agent should take steps to recover the Tax from
the United States Government.
ARTICLE 14
ACCESS TO RECORDS
The Reinsurer shall have the right to inspect at all reasonable times during the
currency of the Agreement and thereafter, the books, records and documents of
the Company with respect to its participation in the insurance or reinsurance
provided by the Company.
ARTICLE 15
CURRENCY
Where the word "dollars" and/or the sign "$" appear in this Agreement, they
shall mean United States dollars, except in those cases where the original
policy is issued by the Company in Canadian dollars, in which case they shall
mean Canadian dollars.
Effective: September 1, 1998 6 of 14
<PAGE>
For purposes of this Agreement, where the Company receives premiums or pays
losses in currencies other than United States or Canadian currency, such
premiums or losses shall be converted into United States dollars at the actual
rates of exchange at which these premiums or losses are entered in the Company's
books.
ARTICLE 16
SERVICE OF SUIT
(This Article shall apply only if the Reinsurer is domiciled outside of the
United States of America or if the Reinsurer is not authorized in the State of
New York.)
(1) In the event of the failure of the Reinsurer to pay any amount claimed to
be due hereunder, the Reinsurer, at the request of the Company, will submit
to the jurisdiction of a court of competent jurisdiction within the United
States of America. Nothing in this Article constitutes or should be
understood to constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United States of
America, to remove an action to a district court of the United States of
America, or to seek a transfer of a case to another court as permitted by
the laws of the United States of America or of any State in the United
States of America. It is further agreed that service of process on the
Reinsurer in such suit may be made upon Messrs. Mendes & Mount, 750 Seventh
Avenue, New York, New York 10019-6829 (or other agent previously designated
by the Reinsurer which designation has been previously notified to the
Company), and that in any suit instituted against the Reinsurer, the
Reinsurer will abide by the final decision of such court or, in the case of
an appeal, the appellate court.
(2) The above-named firm is authorized and directed to accept service of
process on behalf of the Reinsurer in any such suit and/or upon the request
of the Company to give written undertaking to the Company that such firm
will enter a general appearance upon the Reinsurer's behalf in the event
such a suit shall be instituted.
(3) Further, pursuant to any statute of any state, territory or district of the
United States of America which makes provision therefor, the Reinsurer
hereon hereby designates the superintendent, commissioner or director of
insurance or other officer specified for that purpose in the statute, or
his successor or successors in office, as its true and lawful attorney upon
whom may be served any lawful process in action, suit or proceeding
instituted by or on behalf of the Company or any beneficiary hereunder
arising out of this Agreement, and hereby designates the above named as the
person to whom the said officer is authorized to mail such process or a
true copy thereof.
Effective: September 1, 1998 7 of 14
<PAGE>
ARTICLE 17
ARBITRATION
(1) As a condition precedent to any right of action hereunder, any dispute
arising out of or related to this Agreement shall be submitted to the
decision of a board of arbitration composed of two arbitrators and an
umpire, meeting in Armonk, New York, unless otherwise agreed.
(2) The members of the board of arbitration shall be active or retired
disinterested officials of insurance or reinsurance companies. Each party
shall appoint its arbitrator, and the two arbitrators shall choose an
umpire before instituting the hearing. If the respondent fails to appoint
its arbitrator within four weeks after being requested to do so by the
claimant, the latter shall also appoint the second arbitrator. If the two
arbitrators fail to agree upon the appointment of an umpire within four
weeks after their nominations, the umpire shall be selected by the regional
director of the American Arbitration Association in New York, New York, or
the regional director's delegate.
(3) The claimant shall submit its initial brief within 20 days from appointment
of the umpire. The respondent shall submit its brief within 20 days after
receipt of the claimant's brief and the claimant shall submit a reply brief
within 10 days after receipt of the respondent's brief.
(4) The board shall make its decision with regard to the custom and usage of
the insurance and reinsurance business. The board shall issue its decision
in writing based upon a hearing in which evidence may be introduced without
following strict rules of evidence but in which cross-examination and
rebuttal shall be allowed. The board shall make its decision within 60 days
following the termination of the hearings unless the parties consent to an
extension. The majority decision of the board shall be final and binding
upon all parties to the proceeding. Judgment may be entered upon the award
of the board in any court having jurisdiction thereof.
(5) If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party for purposes of this
Article and communications shall be made by the Company to each of the
reinsurers constituting the one party provided, however, that nothing
herein shall impair the rights of such reinsurers to assert several, rather
than joint, defenses or claims, nor be construed as changing the liability
of the reinsurers under the terms of this Agreement from several to joint.
(6) Each party shall bear the expense of its own arbitrator and shall jointly
and equally bear with the other party the expense of the umpire. The
remaining costs of the arbitration proceedings shall be allocated by the
board.
(7) Unless prohibited by applicable law, an arbitral award hereunder and any
judgment thereon shall bear interest from the date the arbitral award was
rendered at the rate equal from time to time to the rate publicly announced
by Citibank, N. A., as its base rate plus 2%.
Effective: September 1, 1998 8 of 14
<PAGE>
(8) The parties consent to the jurisdiction of the Supreme Court of the State
of New York, County of New York, and of the United States District Court
for the Southern District of New York, for all purposes in connection with
such arbitration, including without limitation any application to compel
arbitration or to confirm an arbitration award. The parties consent that
any process or notice of motion or other application to either of said
Courts, and any paper in connection with arbitration, may be served by
certified mail, return receipt requested, or by personal service or in such
other manner as may be permissible under the rules of the applicable court
or panel provided a reasonable time for appearances is allowed. Service
upon the Company shall be directed to the Company, in care of the Company's
General Counsel. Service upon the Reinsurer shall be directed to the
Reinsurer in care of its President.
ARTICLE 18
INDEMNIFICATION AND ERRORS AND OMISSIONS
Any recitals in this Agreement to the terms and provisions of any original
insurance or reinsurance are merely descriptive. The Reinsurer is reinsuring, to
the amount herein provided, the obligations of the Company under any original
insurance or reinsurance. The Company shall be the sole judge as to:
(a) what shall constitute a claim or loss covered under any original
insurance or reinsurance written by the Company;
(b) the Company's liability thereunder; and
(c) the amount or amounts which it shall be proper for the Company to pay
thereunder.
The Reinsurer shall be bound by the judgment of the Company as to the
obligation(s) and liability(ies) of the Company under any original insurance or
reinsurance.
Any inadvertent error, omission or delay in complying with the terms and
conditions of this Agreement shall not be held to relieve either party hereto
from any liability which would attach to it hereunder if such error, omission or
delay had not been made, provided such error, omission or delay is rectified
immediately upon discovery.
ARTICLE 19
INSOLVENCY
(1) In the event of the insolvency of the Company, the reinsurance provided by
this Agreement shall be payable by the Reinsurer on the basis of the
liability of the Company under the Policies ceded without diminution
because of the insolvency of the Company or because its liquidator,
receiver, conservator or statutory successor (hereinafter referred to as
the
Effective: September 1, 1998 9 of 14
<PAGE>
"Liquidator") has failed to pay all or a portion of any claim. The
Liquidator shall give written notice to the Reinsurer of the pendency of a
claim against the Company under any Policy ceded to Reinsurers and covered
by this Agreement within a reasonable time after such claim is filed in the
conservation or liquidation proceeding or in the receivership. During the
pendency of such claim, the Reinsurer may investigate such claim and
interpose at its own expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses that it may deem available to the
Company or the Liquidator. The expense thus incurred by the Reinsurer shall
be chargeable, subject to the approval of the court, against the Company as
part of the expense of conservation or liquidation to the extent of a
Proportionate Share of the benefit which may accrue to the Company solely
as a result of the defense undertaken by the Reinsurer.
(2) Where two or more Reinsurers are involved in the same claim and a majority
in interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Agreement as though such
expense has been incurred by the Company.
(3) The reinsurance provided by this Agreement shall be payable by the
Reinsurer to the Company or to the Liquidator, except (a) where the Policy
specifically provides another payee of such reinsurance in the event of the
insolvency of the Company, and (b) where the Reinsurer with the consent of
the direct insured(s) has assumed the obligations of the Company under the
Policies as the direct obligations of the Reinsurer to the payees under
such Policies and in substitution for the obligations of the Company to
such payees.
ARTICLE 20
SECURITY
(l) When a governing body of any jurisdiction in which the Company legally
operates or to which it submits, requires as a condition to credit for the
reinsurance provided by this Agreement that the Reinsurer post a Letter of
Credit for the benefit of the Company, establish a Trust Account for the
benefit of the Company or deposit funds under the control of the Company,
the Reinsurer shall post and maintain such a Letter of Credit, establish
such a Trust Account, or deposit such funds in the form and amount
necessary to permit the Company to avoid on any statutory financial
statement filed by the Company the penalty to surplus which would result
from the loss of credit for the reinsurance.
(2) Notwithstanding any other provisions of this Agreement, it is agreed that
any Letter of Credit provided under section (1) of this Article, shall be
drawn upon and utilized by the Company or its successors in interest only
for one or more of the following purposes:
(a) to reimburse the Company for the Reinsurer's Proportionate Share of
Losses and Allocated Loss Adjustment Expenses paid by the Company
under this Agreement;
Effective: September 1, 1998 10 of 14
<PAGE>
(b) to reimburse the Company for the Reinsurer's Proportionate Share of
Refunding Debits;
(c) if this Agreement has been terminated pursuant to the Commencement and
Termination Article, to reimburse the Company for unearned premium due
to the Company;
(d) to fund an account with the Company in an amount at least equal to the
deduction allowed for the reinsurance provided by this Agreement, from
the Company's liabilities for Policies ceded under the Agreement, such
amount to include, if applicable, but not be limited to, amounts for
contingency reserves, loss reserves for paid, reported and incurred
but not reported ("IBNR") losses, allocated loss adjustment expense
reserves and unearned premium reserves; or
(e) to pay any other amounts the Company claims are due under the
Agreement.
All of the foregoing should be applied without diminution because of
insolvency on the part of the Company or Reinsurer.
(3) If the Reinsurer elects to provide a Letter of Credit under section (1) of
this Article, the Reinsurer shall cause the Letter of Credit to be issued,
in place and effective no later than the "as of date" of the first
quarterly filing prepared by the Company for the appropriate regulatory
authority after the effective date of this Agreement.
ARTICLE 21
CONFIDENTIALITY
The Reinsurer and its affiliated companies agree that they will maintain the
confidentiality of the all infor nation (the "Information") presented as a
result of this Agreement including, but not limited to the bonds, the basic
agreements, the reinsurance undertaken with respect to the bonds, all underlying
transactions and underlying obligations, and all certificates, reports,
agreements, notices, and communications of any sort relating to any of the
foregoing in its communications with third parties, except to the extent
required by law, regulation, or order, and except as may be made to the
Reinsurer's legal counsel, auditors, and accountants, to Standard & Poor's
Corporation, Moody's Investor Services, Inc., Duff & Phelps Corporation, or any
other rating agency in connection with their rating of the Reinsurer and except
as may be necessary or appropriate in connection with any retrocession. The
Reinsurer shall require its retrocessionaires to maintain the confidentiality of
the Information. The Reinsurer and its legal counsel, auditors, and accountants
will have no obligation of confidentiality in respect or any information that
may be available to the public or become available to the public through no
fault of such person.
Effective: September 1, 1998 11 of 14
<PAGE>
ARTICLE 22
OFFSET
Each party hereto shall have, and may exercise at any time and from time to
time, the right to offset balance or balances, whether on account of premiums or
on account of Losses or otherwise, due from such party to the other party hereto
under this Agreement or under any other reinsurance heretofore or hereafter
entered into by and between them, and may offset the same against any balance or
balances due or to become due to the former from the latter under the same or
any other reinsurance agreement between them. The party asserting the right of
offset shall have and may exercise such right whether the balance(s) due or to
become due to such party from the other are on account of premiums or on account
of Losses or otherwise and regardless of the capacity, whether as assuming
reinsurer or as ceding company, in which each party acted under the agreement
or, if more than one, the different agreements involved. In the event of the
insolvency of a party hereto, offsets shall be allowed only in accordance with
the provisions of Section 7427 of the Insurance Law of the State of New York.
ARTICLE 23
GOVERNING LAW
This Agreement shall be governed by the laws of the State of New York.
ARTICLE 24
INTERMEDIARY
Guy Carpenter & Company, Inc., Two World Trade Center, New York, New York,
10048, is hereby recognized as the Intermediary by which this Agreement was
negotiated and through which all communications relating hereto including, but
not limited to, notices, statements, premiums, return premiums, commissions,
taxes, Losses, Allocated Loss Adjustment Expenses, salvage and Loss settlements,
shall be transmitted to both parties, except as may be otherwise specified in
respect of a wire transfer payment of a Loss (section (2) of the Claims and
Losses Article). It is understood, as regards remittances due either party
hereunder, that payment by the Company to the Intermediary shall constitute
payment to the Reinsurer, but payment by the Reinsurer to the Intermediary shall
constitute payment to the Company only to the extent such payments are actually
received by the Company.
Effective: September 1, 1998 12 of 14
<PAGE>
ARTICLE 25
PARTICIPATION
The Reinsurer's Percentage Share of the Interests and Liabilities set out in
this Agreement is 100% of up to $50,000,000.
IN WITNESS WHEREOF the parties hereto, by their respective duly authorized
officers, have executed this SPECIAL EXCESS OF LOSS REINSURANCE AGREEMENT, in
triplicate, as of the dates recorded below:
ACCEPTED:
At: Armonk, New York
this 30th day of December, 1998.
MBIA INSURANCE CORPORATION
MBIA Assurance, S. A.
and/or any other insurance or reinsurance company subsidiaries
of MBIA Inc. listed in Exhibit No. 1 attached to this Agreement
/s/ Julliette S. Tehrani
- -------------------------------------------
and at: Munich
this 23rd day of December, 1998
MUENCHENER RUECKVERSICHERUNGS-GESELLSHAFT
/s/ I.V. [ILLEGIBLE]
- -------------------------------------------
Effective: September 1, 1998 13 of 14
<PAGE>
EXHIBIT NO. 1
Insurance and/or Reinsurance Company Subsidiaries
Included within the Definition of Company hereunder
MBIA Assurance S. A.
MBIA Insurance Corporation
MBIA Insurance Corp. of Illinois
Capital Markets Assurance Corporation
Effective: September 1, 1998 14 of 14
SECOND SPECIAL PER OCCURRENCE EXCESS OF LOSS
REINSURANCE AGREEMENT
(hereinafter referred to as "Agreement")
made and entered into by and between
MBIA Insurance Corporation, Armonk, New York; and/or MBIA
Assurance S. A., Paris, France; and/or any other insurance or
reinsurance company subsidiaries of MBIA Inc. listed in Exhibit
No. 1 attached to this Agreement (hereinafter referred to as the
"Company"), and
AXA RE FINANCE S.A.
(hereinafter referred to as the "Reinsurer").
In consideration of the mutual covenants hereinafter contained, the parties
hereto agree as follows:
ARTICLE 1
ACQUISITION
In the event that, following the execution of this Agreement, the Company
notifies the Reinsurer of a proposed acquisition by the Company of an insurance
company (a "Target") and provides the Reinsurer with such due diligence
information as the Reinsurer may reasonably request with respect to such Target
(including without limitation information relating to the effect on this
Agreement of the inclusion of the Target as a reinsured hereunder) (the
"Information"), the Reinsurer shall use its best efforts to provide, within 30
days following receipt of the Information, a written notice to the Company which
notice shall state whether or not the Reinsurer will consent to the inclusion of
such Target as a reinsured hereunder upon consummation of the acquisition of
such Target by the Company. If the Reinsurer consents to the inclusion of a
Target as a reinsured hereunder, such Target shall be included in the term
"Company" from and after the date on which the Company's acquisition of the
Target is consummated, and the Company shall prepare and deliver to the
Reinsurer an addendum to this Agreement that revises Exhibit #1 to include the
name of such Target thereon. The 30-day period referred to above shall not
commence until all of the Information reasonably requested by the Reinsurer has
been received by the Reinsurer.
Effective: September 1, 1998 1 of 16
<PAGE>
ARTICLE 2
COMMENCEMENT AND TERMINATION
Covering Incurred Losses from 12:01 a.m. Standard Time, September 1, 1998 (the
"Effective Date") through 12:01 a.m., Standard Time, September 1, 2004 (the
"Termination Date"). "Standard Time" shall mean the time as described in the
Policies. This Agreement shall not terminate until all of the obligations by
both parties to the Agreement have been fulfilled.
ARTICLE 3
BUSINESS AND TERRITORY COVERED
This Agreement shall cover all Policies attaching on or after the Effective Date
that:
(A) provide insurance against financial loss by reason of nonpayment of
regularly scheduled principal and interest obligations arising under Issues
sold by Issuers domiciled anywhere in the world provided the debt
instruments or any other monetary obligations are denominated or payable in
the currency of (i) an Organization of Economic Cooperation and Development
("OECD") country or (ii) such other country whose sovereign rating is
investment grade; provided, however, with respect to (ii) above, that any
such debt instrument or other monetary obligation that is denominated in a
currency other than the Issuer's domestic currency shall either be (x)
investment grade or (y) the Company shall have entered into a currency swap
with respect to such instrument or obligation that (I) eliminates all
exchange risk thereunder or (II) exchanges the currency risk thereunder for
the risk of an OECD currency that enables the transaction to be of
investment grade quality, and
(B) are classified by the Company as corporate utility debt guarantee
insurance, debt service reserve fund surety bonds, investment grade
asset-backed securities guarantee insurance, investment grade corporate
debt guarantee insurance, investment grade structured finance guarantee
insurance, municipal bond guarantee insurance, or municipal note guarantee
insurance.
The liability of the Reinsurer shall be subject in all respects to all the
general and specific stipulations, clauses, waivers, extensions, modifications
and endorsements of any of the Policies of the Company's liability, subject to
the exclusions set forth in the Exclusions Article and the other terms and
conditions of this Agreement as set forth herein.
Effective: September 1, 1998 2 of 16
<PAGE>
ARTICLE 4
EXCLUSIONS
The following general exclusions shall apply in respect of all business ceded to
the Reinsurer under this Agreement:
A. Assumed reinsurance. However, not to exclude intercompany reinsurance with
other subsidiaries of MBIA Inc. and/or business structured as reinsurance
which would otherwise be written as insurance; this exception does not
require the Company to cede business covered hereunder that has already
been ceded to another applicable reinsurance cover.
B. Business written by the Company not described in the Business and Territory
Article.
C. All liability of the Company arising by agreement, operation of law, or
otherwise from its participation or membership, whether voluntary or
involuntary, in any Insolvency Fund. "Insolvency Fund" includes any
Guaranty Fund, Insolvency Fund, Plan, Pool, Association, Fund, or other
arrangement, howsoever denominated, established or governed, which provides
for any assessment of, or payment, or assumption by the Company of part of
any claim, debt, charge, fee, or other obligation of an insurer, or its
successors, or assigns which has been declared by any competent authority
to be insolvent or which otherwise is deemed unable to meet any claim,
debt, charge, fee, or other obligation in whole or in part.
ARTICLE 5
REINSURANCE CLAUSE
The Reinsurer shall pay up to $50,000,000 Ultimate Net Loss excess of the sum of
$60,000,000 Ultimate Net Loss each and every Occurrence, plus the remaining
limit under the Company's First Special Excess of Loss Program at the time that
a Loss is Incurred (it being understood and agreed that the First Special Excess
of Loss Program shall have an aggregate limit of $50,000,000). The Reinsurer
shall pay the Company as Ultimate Net Loss recoverable hereunder is Incurred.
The aggregate limit of this Agreement shall never exceed $50,000,000 over the
term of this Agreement.
ARTICLE 6
DEFINITIONS
A. "Allocated Loss Adjustment Expenses" as used in this Agreement means all
court costs, interest upon judgments, and mitigation, investigation,
adjustment, and legal expenses chargeable to: (i) the mitigation,
investigation, negotiation, settlement of or defense against a Loss, (ii)
loss prevention, mitigation or investigation in respect of Policies as to
which the Company has posted a loss reserve, (iii) the investigation and
workout of a potential Loss,
Effective: September 1, 1998 3 of 16
<PAGE>
or (iv) the protection, perfection and exercise of any subrogation or
salvage or reimbursement rights or security interests with respect to a
Policy. Allocated Loss Adjustment Expenses shall exclude all office
expenses and salaries of officials and employees of the Company.
B. "Incurred" as used in this Agreement in respect of a Loss means the date
and time of Loss recorded on the books and records of the Company with
respect to the estimated amount of default of the Issuer's obligation to
pay principal or interest pursuant to the terms of a bond, note, or other
instrument insured by a Policy.
C. "Issue" as used in this Agreement means all obligations of one Issuer sold
simultaneously, secured by a single revenue source (with essentially the
same structure) or, in the case of structured finance or asset-backed
securities, secured by a common pool of assets and, in either case, covered
by a Policy. The Company shall be the sole judge of what constitutes one
Issue.
D. "Issuer" as used in this Agreement means, with respect to an Issue, the
entity issuing the bonds, notes, or other instruments comprising the Issue.
The Company shall be the sole judge of what constitutes one Issuer.
E. "Loss" as used in this Agreement means the actual or, in the Company's best
judgment, anticipated amounts of principal and interest for which the
Company is liable with respect to all claims under all Policies.
F. "Occurrence" as used in this Agreement means an actual or, in the Company's
best judgment, anticipated default by an individual Issuer.
G. "Ultimate Net Loss" as used herein shall mean the Company's initial
estimate of the sum of Loss and Loss Adjustment Expense Incurred by the
Company less inuring reinsurance, if any, less any salvage or subrogation
as appearing on the Company's books at the time of all interim and/or final
adjustment to the Ultimate Net Loss hereunder.
For the purposes of determining Ultimate Net Loss and the amount of
reinsurance recoverable hereunder prior to the final maturity of any Issue,
the Company's actual estimate Loss and Loss Adjustment Expense shall be
used.
The following shall apply with respect to Ultimate Net Loss herein:
I. Nothing in this Definition shall be construed as meaning the Reinsurer
shall not pay the amount of reinsurance recoverable hereunder until
the actual Ultimate Net Loss has been determined.
II. The Company shall make quarterly adjustments to the estimates of
Ultimate Net Loss beginning in the third quarter of 1998. The final
adjustment to any of Ultimate Net Loss hereunder shall be made seven
years after the Company sets its initial Ultimate Net Loss estimate
for each Occurrence hereunder (or by mutual agreement at some
Effective: September 1, 1998 4 of 16
<PAGE>
other time). Such final calculation of Ultimate Net Loss shall be
based upon the Company's estimate of Ultimate Net Loss as entered on
the Company's books at that time.
III. At each adjustment of Ultimate Net Loss, the amount of reinsurance
recoverable hereunder shall be recalculated based on such calculation
of Ultimate Net Loss. All amounts due the Company shall be payable in
accordance with the Accounts, Reports and Payments and the Retention
and Limits Articles hereunder.
ARTICLE 7
PREMIUM
The Company shall pay to the Reinsurer a flat premium equal to $1,500,000,
payable no later than 90 days after binding coverage with the Reinsurer. In the
event that the final amount of reinsurance recoverable under this Agreement is
$0 and if the Agreement is terminated on a cut-off basis, the Reinsurer agrees
to pay the Company a bonus equal to 50% of the Premium hereunder (i.e., $750,000
being 50% of $1,500,000). If such a bonus is due the Company, the Reinsurer
shall pay the Company such amount as soon as practicable after termination of
the Agreement, but no later than 90 days after the Agreement's termination.
ARTICLE 8
ACCOUNTS, REPORTS AND PAYMENTS
A. The Company shall furnish to the Reinsurer quarterly accounts of business
ceded hereunder within 25 days after the close of each calendar year
quarter, showing: the sums of Loss, Loss Adjustment Expense, salvage and
subrogation, and Ultimate Net Loss hereunder on paid and Incurred bases, as
well as adjustments to the amount of reinsurance recoverable hereunder.
The amount of reinsurance recoverable hereunder shall be calculated by
taking the Ultimate Net Loss and deducting $60,000,000 of Ultimate Net Loss
each and every Occurrence as well as the remaining limit under the
Company's First Special Excess of Loss Program at the time such Occurrence
is Incurred, but shall never exceed an aggregate limit of $50,000,000.
To the extent that the amount of reinsurance recoverable hereunder
increases, the Reinsurer shall owe the Company such increase in the amount
of reinsurance recoverable hereunder over that recoverable under the prior
account; to the extent that the Company's amount of reinsurance recoverable
hereunder decreases, the Company shall owe the Reinsurer such decrease in
amount of reinsurance recoverable hereunder below that recoverable under
the prior account.
Effective: September 1, 1998 5 of 16
<PAGE>
Such net balance shown shall be payable by the debtor party at the time the
account is rendered, if the Company is the debtor party, and within 10 days
of the Reinsurer's receipt of the account, if the Reinsurer is the debtor
party.
B. On a quarterly basis, the Company shall provide the Reinsurer with a
listing of all Occurrences with Incurred Ultimate Net Loss in excess of
$25,000,000.
C. Annually, the Company shall provide the Reinsurer with the following
additional information: the top 50 Issuers per bond type (including their
Standard & Poor's, Moody's and MBIA ratings, their risk type, the gross and
net par, and gross and net debt service), and any relevant information on
any Issuers that MBIA puts on its so-called "watch-list."
ARTICLE 9
CLAIMS AND LOSSES
(1) The Company shall have complete and sole control of and direction of all
efforts to: (i) mitigate, investigate, negotiate, settle or defend a Loss,
(ii) prevent, mitigate, or investigate a probable Loss under Policies as to
which the Company has posted a loss reserve, (iii) investigate and work out
a potential Loss, and (iv) to protect, perfect and exercise any
subrogation, salvage or reimbursement rights or security interests with
respect to any Policy, and may take any action as it may deem advisable
with respect thereto. All Loss settlements by the Company, all salvage and
subrogation settlements, and all settlements with an Issuer (or with an
underlying obligor of that Issuer), shall be final, conclusive and
unconditionally binding upon the Reinsurer.
(2) The Reinsurer shall pay to the Company the Reinsurer's Proportionate Share
of any loss within one business day following receipt of notice from the
Company that the Company has made payment of the Loss. The Reinsurer shall
effect payment by wire transfer of federal funds to the party designated by
the Company in the notice. Details of the Loss will be provided to the
Reinsurer by the Company promptly by mail, or by such other means as
requested by the Reinsurer.
(3) The Reinsurer shall pay to the Company the Reinsurer's Proportionate Share
of any Allocated Loss Adjustment Expenses paid by the Company at the times
and in the manner specified in the Accounts, Reports and Payments Article.
ARTICLE 10
NET RETAINED LINES
(1) This Agreement applies only to that portion of any insurance or reinsurance
which the Company retains net for its own account and in calculating the
amount of any loss
Effective: September 1, 1998 6 of 16
<PAGE>
hereunder and also in computing the amount or amounts in excess of which
this Agreement attaches, only loss or losses in respect of that portion of
any insurance or reinsurance which the Company retains net for its own
account shall be included.
(2) The amount of the Reinsurer's liability hereunder in respect of any loss or
losses shall not be increased by reason of the inability of the Company to
collect from any other reinsurers, whether specific or general, any amounts
which may become due from them, whether such inability arises from the
insolvency of such other reinsurers or otherwise.
(3) Reinsurances or pooling agreements effected or entered into by the Company
with any of its affiliated companies under common management or common
ownership which reduce the individual retained line of the Company shall be
disregarded for the purposes of this Agreement.
ARTICLE 11
SALVAGE AND SUBROGATION
(1) The Company shall pay the Reinsurer the Reinsurer's Proportionate Share of
any Recovery in respect of any Loss covered by the Reinsurer under this
Agreement at the times and in the manner specified in the Accounts, Reports
and Payments Article.
(2) "Recovery", as used in this Agreement means any amount received by the
Company in respect of any Loss covered by the Reinsurer under this
Agreement whether by subrogation, salvage, or reimbursement from the Issuer
(or from an underlying obligor of that Issuer).
ARTICLE 12
REINSURANCE FOLLOWS ORIGINAL POLICIES
This Agreement shall be construed as an honorable undertaking between the
parties hereto and shall not be defeated by technical legal construction, it
being the intention of this Agreement that the fortunes of the Reinsurer shall
follow the fortunes of the Company. Nothing herein shall in any manner create
any obligations or establish any rights against the Reinsurer in favor of any
third parties or any persons not parties to this Reinsurance Agreement.
ARTICLE 13
REINSURANCE TAX
In consideration of the terms under which this Agreement is issued, the Company
undertakes not to claim any deduction of the premium hereon when making Canadian
tax returns or when
Effective: September 1, 1998 7 of 16
<PAGE>
making tax returns, other than Income or Profits Tax returns, to any state or
territory in the United States of America or to the District of Columbia.
ARTICLE 14
FEDERAL EXCISE TAX
(This Article applies only to those reinsurers domiciled outside of the United
States of America who are not exempt from the Federal Excise Tax.)
The Reinsurer has agreed to allow for the purpose of paying the Federal Excise
Tax the percentage specified by United States law of the premium payable hereon
to the extent such premium is subject to Federal Excise Tax.
In the event of any return of premium becoming due hereunder, the Reinsurer will
deduct the percentage specified by United States law from the amount of the
return and the Company or its agent should take steps to recover the Tax from
the United States Government.
ARTICLE 15
ACCESS TO RECORDS
The Reinsurer shall have the right to inspect at all reasonable times during the
currency of the Agreement and thereafter, the books, records and documents of
the Company with respect to its participation in the insurance or reinsurance
provided by the Company.
ARTICLE 16
CURRENCY
Where the word "dollars" and/or the sign "$" appear in this Agreement, they
shall mean United States dollars, except in those cases where the original
policy is issued by the Company in Canadian dollars, in which case they shall
mean Canadian dollars.
For purposes of this Agreement, where the Company receives premiums or pays
losses in currencies other than United States or Canadian currency, such
premiums or losses shall be converted into United States dollars at the actual
rates of exchange at which these premiums or losses are entered in the Company's
books.
Effective: September 1, 1998 8 of 16
<PAGE>
ARTICLE 17
SERVICE OF SUIT
(This Article shall apply only if the Reinsurer is domiciled outside of the
United States of America or if the Reinsurer is not authorized in the State of
New York.)
(1) In the event of the failure of the Reinsurer to pay any amount claimed to
be due hereunder, the Reinsurer, at the request of the Company, will submit
to the jurisdiction of a court of competent jurisdiction within the United
States of America. Nothing in this Article constitutes or should be
understood to constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United States of
America, to remove an action to a district court of the United States of
America, or to seek a transfer of a case to another court as permitted by
the laws of the United States of America or of any State in the United
States of America. It is further agreed that service of process on the
Reinsurer in such suit may be made upon Messrs. Mendes & Mount, 750 Seventh
Avenue, New York, New York 10019-6829 (or other agent previously designated
by the Reinsurer which designation has been previously notified to the
Company), and that in any suit instituted against the Reinsurer, the
Reinsurer will abide by the final decision of such court or, in the case of
an appeal, the appellate court.
(2) The above-named firm is authorized and directed to accept service of
process on behalf of the Reinsurer in any such suit and/or upon the request
of the Company to give written undertaking to the Company that such firm
will enter a general appearance upon the Reinsurer's behalf in the event
such a suit shall be instituted.
(3) Further, pursuant to any statute of any state, territory or district of the
United States of America which makes provision therefor, the Reinsurer
hereon hereby designates the superintendent, commissioner or director of
insurance or other officer specified for that purpose in the statute, or
his successor or successors in office, as its true and lawful attorney upon
whom may be served any lawful process in action, suit or proceeding
instituted by or on behalf of the Company or any beneficiary hereunder
arising out of this Agreement, and hereby designates the above named as the
person to whom the said officer is authorized to mail such process or a
true copy thereof.
ARTICLE 18
ARBITRATION
(1) As a condition precedent to any right of action hereunder, any dispute
arising out of or related to this Agreement shall be submitted to the
decision of a board of arbitration composed of two arbitrators and an
umpire, meeting in Armonk, New York, unless otherwise agreed.
Effective: September 1, 1998 9 of 16
<PAGE>
(2) The members of the board of arbitration shall be active or retired
disinterested officials of insurance or reinsurance companies. Each party
shall appoint its arbitrator, and the two arbitrators shall choose an
umpire before instituting the hearing. If the respondent fails to appoint
its arbitrator within four weeks after being requested to do so by the
claimant, the latter shall also appoint the second arbitrator. If the two
arbitrators fail to agree upon the appointment of an umpire within four
weeks after their nominations, the umpire shall be selected by the regional
director of the American Arbitration Association in New York, New York, or
the regional director's delegate.
(3) The claimant shall submit its initial brief within 20 days from appointment
of the umpire. The respondent shall submit its brief within 20 days after
receipt of the claimant's brief and the claimant shall submit a reply brief
within 10 days after receipt of the respondent's brief.
(4) The board shall make its decision with regard to the custom and usage of
the insurance and reinsurance business. The board shall issue its decision
in writing based upon a hearing in which evidence may be introduced without
following strict rules of evidence but in which cross-examination and
rebuttal shall be allowed. The board shall make its decision within 60 days
following the termination of the hearings unless the parties consent to an
extension. The majority decision of the board shall be final and binding
upon all parties to the proceeding. Judgment may be entered upon the award
of the board in any court having jurisdiction thereof.
(5) If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party for purposes of this
Article and communications shall be made by the Company to each of the
reinsurers constituting the one party provided, however, that nothing
herein shall impair the rights of such reinsurers to assert several, rather
than joint, defenses or claims, nor be construed as changing the liability
of the reinsurers under the terms of this Agreement from several to joint.
(6) Each party shall bear the expense of its own arbitrator and shall jointly
and equally bear with the other party the expense of the umpire. The
remaining costs of the arbitration proceedings shall be allocated by the
board.
(7) Unless prohibited by applicable law, an arbitral award hereunder and any
judgment thereon shall bear interest from the date the arbitral award was
rendered at the rate equal from time to time to the rate publicly announced
by Citibank, N. A., as its base rate plus 2%.
(8) The parties consent to the jurisdiction of the Supreme Court of the State
of New York, County of New York, and of the United States District Court
for the Southern District of New York, for all purposes in connection with
such arbitration, including without limitation any application to compel
arbitration or to confirm an arbitration award. The parties consent that
any process or notice of motion or other application to either of said
Courts, and any paper in connection with arbitration, may be served by
certified mail, return receipt requested, or by personal service or in such
other manner as may be permissible under the rules of the applicable court
or panel provided a reasonable time for appearances
Effective: September 1, 1998 10 of 16
<PAGE>
is allowed. Service upon the Company shall be directed to the Company, in care
of the Company's General Counsel. Service upon the Reinsurer shall be directed
to the Reinsurer in care of its President.
ARTICLE 19
INDEMNIFICATION AND ERRORS AND OMISSIONS
Any recitals in this Agreement to the terms and provisions of any original
insurance or reinsurance are merely descriptive. The Reinsurer is reinsuring, to
the amount herein provided, the obligations of the Company under any original
insurance or reinsurance. The Company shall be the sole judge as to:
(a) what shall constitute a claim or loss covered under any original
insurance or reinsurance written by the Company;
(b) the Company's liability thereunder; and
(c) the amount or amounts which it shall be proper for the Company to pay
thereunder.
The Reinsurer shall be bound by the judgment of the Company as to the
obligation(s) and liability(ies) of the Company under any original insurance or
reinsurance.
Any inadvertent error, omission or delay in complying with the terms and
conditions of this Agreement shall not be held to relieve either party hereto
from any liability which would attach to it hereunder if such error, omission or
delay had not been made, provided such error, omission or delay is rectified
immediately upon discovery.
ARTICLE 20
INSOLVENCY
(1) In the event of the insolvency of the Company, the reinsurance provided by
this Agreement shall be payable by the Reinsurer on the basis of the
liability of the Company under the Policies ceded without diminution
because of the insolvency of the Company or because its liquidator,
receiver, conservator or statutory successor (hereinafter referred to as
the "Liquidator") has failed to pay all or a portion of any claim. The
Liquidator shall give written notice to the Reinsurer of the pendency of a
claim against the Company under any Policy ceded to Reinsurers and covered
by this Agreement within a reasonable time after such claim is filed in the
conservation or liquidation proceeding or in the receivership. During the
pendency of such claim, the Reinsurer may investigate such claim and
interpose at its own expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses that it may deem available to the
Company or the Liquidator. The expense thus incurred by the Reinsurer shall
be chargeable, subject to the approval of the court, against
Effective: September 1, 1998 11 of 16
<PAGE>
the Company as part of the expense of conservation or liquidation to the extent
of a Proportionate Share of the benefit which may accrue to the Company solely
as a result of the defense undertaken by the Reinsurer.
(2) Where two or more Reinsurers are involved in the same claim and a majority
in interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Agreement as though such
expense has been incurred by the Company.
(3) The reinsurance provided by this Agreement shall be payable by the
Reinsurer to the Company or to the Liquidator, except (a) where the Policy
specifically provides another payee of such reinsurance in the event of the
insolvency of the Company, and (b) where the Reinsurer with the consent of
the direct insured(s) has assumed the obligations of the Company under the
Policies as the direct obligations of the Reinsurer to the payees under
such Policies and in substitution for the obligations of the Company to
such payees.
ARTICLE 21
SECURITY
(l) When a governing body of any jurisdiction in which the Company legally
operates or to which it submits, requires as a condition to credit for the
reinsurance provided by this Agreement that the Reinsurer post a Letter of
Credit for the benefit of the Company, establish a Trust Account for the
benefit of the Company or deposit funds under the control of the Company,
the Reinsurer shall post and maintain such a Letter of Credit, establish
such a Trust Account, or deposit such funds in the form and amount
necessary to permit the Company to avoid on any statutory financial
statement filed by the Company the penalty to surplus which would result
from the loss of credit for the reinsurance.
(2) Notwithstanding any other provisions of this Agreement, it is agreed that
any Letter of Credit provided under section (1) of this Article, shall be
drawn upon and utilized by the Company or its successors in interest only
for one or more of the following purposes:
(a) to reimburse the Company for the Reinsurer's Proportionate Share of
Losses and Allocated Loss Adjustment Expenses paid by the Company
under this Agreement;
(b) to reimburse the Company for the Reinsurer's Proportionate Share of
Refunding Debits;
(c) if this Agreement has been terminated pursuant to the Commencement and
Termination Article, to reimburse the Company for unearned premium due
to the Company;
(d) to fund an account with the Company in an amount at least equal to the
deduction allowed for the reinsurance provided by this Agreement, from
the Company's liabilities for Policies ceded under the Agreement, such
amount to include,
Effective: September 1, 1998 12 of 16
<PAGE>
if applicable, but not be limited to, amounts for contingency
reserves, loss reserves for paid, reported and incurred but not
reported ("IBNR") losses, allocated loss adjustment expense reserves
and unearned premium reserves; or
(e) to pay any other amounts the Company claims are due under the
Agreement.
All of the foregoing should be applied without diminution because of
insolvency on the part of the Company or Reinsurer.
(3) If the Reinsurer elects to provide a Letter of Credit under section (1) of
this Article, the Reinsurer shall cause the Letter of Credit to be issued,
in place and effective no later than the "as of date" of the first
quarterly filing prepared by the Company for the appropriate regulatory
authority after the effective date of this Agreement.
ARTICLE 22
CONFIDENTIALITY
The Reinsurer agrees that it will maintain the confidentiality of the all
information presented as a result of this Agreement including, but not limited
to the bonds, the basic agreements, the reinsurance undertaken with respect to
the bonds, all underlying transactions and underlying obligations, and all
certificates, reports, agreements, notices, and communications of any sort
relating to any of the foregoing in its communications with third parties,
except to the extent required by law, regulation, or order, and except as may be
made to the Reinsurer's legal counsel, auditors, and accountants, to Standard &
Poor's Corporation, Moody's Investor Services, Inc., Duff & Phelps Corporation,
or any other rating agency in connection with their rating of the Reinsurer and
except as may be necessary or appropriate in connection with any retrocession,
subject to the receipt of a written confidentiality commitment from the proposed
retrocessional reinsurer. The Reinsurer and its legal counsel, auditors, and
accountants will have no obligation of confidentiality in respect or any
information that may be available to the public or become available to the
public through no fault of such person.
ARTICLE 23
OFFSET
Each party hereto shall have, and may exercise at any time and from time to
time, the right to offset balance or balances, whether on account of premiums or
on account of Losses or otherwise, due from such party to the other party hereto
under this Agreement or under any other reinsurance agreement heretofore or
hereafter entered into by and between them, and may offset the same against any
balance or balances due or to become due to the former from the latter under the
same or any other reinsurance agreement between them. The party asserting the
right of offset shall have and may exercise such right whether the balance(s)
due or to become due to such party from the other are on account of premiums or
on account of Losses or otherwise and
Effective: September 1, 1998 13 of 16
<PAGE>
regardless of the capacity, whether as assuming reinsurer or as ceding company,
in which each party acted under the agreement or, if more than one, the
different agreements involved. In the event of the insolvency of a party hereto,
offsets shall be allowed only in accordance with the provisions of Section 7427
of the Insurance Law of the State of New York.
ARTICLE 24
GOVERNING LAW
This Agreement shall be governed by the laws of the State of New York.
ARTICLE 25
INTERMEDIARY
Guy Carpenter & Company, Inc., Two World Trade Center, New York, New York,
10048, is hereby recognized as the Intermediary by which this Agreement was
negotiated and through which all communications relating hereto including, but
not limited to, notices, statements, premiums, return premiums, commissions,
taxes, Losses, Allocated Loss Adjustment Expenses, salvage and Loss settlements,
shall be transmitted to both parties, except as may be otherwise specified in
respect of a wire transfer payment of a Loss (section (2) of the Claims and
Losses Article). It is understood, as regards remittances due either party
hereunder, that payment by the Company to the Intermediary shall constitute
payment to the Reinsurer, but payment by the Reinsurer to the Intermediary shall
constitute payment to the Company only to the extent such payments are actually
received by the Company.
ARTICLE 26
PARTICIPATION
The Reinsurer's Percentage Share of the Interests and Liabilities set out in
this Agreement is 100% of up to $50,000,000.
Effective: September 1, 1998 14 of 16
<PAGE>
IN WITNESS WHEREOF the parties hereto, by their respective duly authorized
officers, have executed this SECOND SPECIAL PER OCCURRENCE EXCESS OF LOSS
REINSURANCE AGREEMENT, in triplicate, as of the dates recorded below:
ACCEPTED:
At: Armonk, New York
this 30th day of December , 1998.
MBIA INSURANCE CORPORATION
MBIA Assurance, S. A.
and/or any other insurance or reinsurance company subsidiaries
of MBIA Inc. listed in Exhibit No. 1 attached to this Agreement
/s/ Julliette S. Tehrani
- ------------------------------------------
and at: Funchal Madeira
this 22nd day of December , 1998.
AXA RE FINANCE S.A.
/s/ Christophe Renia
- ------------------------------------------
Senior Vice President [STAMP]
15 of 16
Effective: September l, 1998 15 of 16
<PAGE>
EXHIBIT NO. 1
Insurance and/or Reinsurance Company Subsidiaries
Included within the Definition of Company hereunder
MBIA Assurance S. A.
MBIA Insurance Corporation
MBIA Insurance Corp. of Illinois
Capital Markets Assurance Corporation
16 of 16
Effective: September 1, 1998 16 of 16
THIRD SPECIAL PER OCCURRENCE EXCESS OF LOSS
REINSURANCE AGREEMENT
(hereinafter referred to as "Agreement")
made and entered into by and between
MBIA Insurance Corporation, Armonk, New York; and/or MBIA
Assurance S. A., Paris, France; and/or any other insurance or
reinsurance company subsidiaries of MBIA Inc. listed in Exhibit
No. 1 attached to this Agreement (hereinafter referred to as
the"Company"), and
ZURICH REINSURANCE (NORTH AMERICA), INC.
(hereinafter referred to as the "Reinsurer").
In consideration of the mutual covenants hereinafter contained, the parties
hereto agree as follows:
ARTICLE 1
ACQUISITION
In the event that, following the execution of this Agreement, the Company
notifies the Reinsurer of a proposed acquisition by the Company of an insurance
company (a "Target") and provides the Reinsurer with such due diligence
information as the Reinsurer may reasonably request with respect to such Target
(including without limitation information relating to the effect on this
Agreement of the inclusion of the Target as a reinsured hereunder) (the
"Information"), the Reinsurer shall use its best efforts to provide, within 30
days following receipt of the Information, a written notice to the Company which
notice shall state whether or not the Reinsurer will consent to the inclusion of
such Target as a reinsured hereunder upon consummation of the acquisition of
such Target by the Company. If the Reinsurer consents to the inclusion of a
Target as a reinsured hereunder, such Target shall be included in the term
"Company" from and after the date on which the Company's acquisition of the
Target is consummated, and the Company shall prepare and deliver to the
Reinsurer an addendum to this Agreement that revises Exhibit #1 to include the
name of such Target thereon. The 30-day period referred to above shall not
commence until all of the Information reasonably requested by the Reinsurer has
been received by the Reinsurer.
Effective: September 15, 1998 1 of 12
<PAGE>
ARTICLE 2
COMMENCEMENT AND TERMINATION
Covering Incurred Losses from September 15, 1998 (the "Effective Date") through
December 31, 1998 (the "Termination Date"), both days inclusive. "Standard Time"
shall mean the time as described in the Policies.
Notwithstanding the termination of this Agreement as herein provided, the
provisions of this Agreement shall continue to apply to all unfinished business
hereunder to the end that all obligations and liabilities assumed by a party
hereunder prior to such termination shall be fully performed and discharged.
ARTICLE 3
BUSINESS AND TERRITORY COVERED
This Agreement shall cover all Policies in force and attaching on or after the
Effective Date that:
(A) provide insurance against financial loss by reason of nonpayment of
regularly scheduled principal and interest obligations arising under Issues
sold by Issuers domiciled anywhere in the world provided the debt
instruments or any other monetary obligations are denominated or payable in
the currency of (i) an Organization of Economic Cooperation and Development
("OECD") country or (ii) such other country whose sovereign rating is
investment grade; provided, however, with respect to (ii) above, that any
such debt instrument or other monetary obligation that is denominated in a
currency other than the Issuer's domestic currency shall either be (x)
investment grade or (y) the Company shall have entered into a currency swap
with respect to such instrument or obligation that (I) eliminates all
exchange risk thereunder or (II) exchanges the currency risk thereunder for
the risk of an OECD currency that enables the transaction to be of
investment grade quality, and
(B) are classified by the Company as corporate utility debt guarantee
insurance, debt service reserve fund surety bonds, investment grade
asset-backed securities guarantee insurance, investment grade corporate
debt guarantee insurance, investment grade structured finance guarantee
insurance, municipal bond guarantee insurance, or municipal note guarantee
insurance.
The liability of the Reinsurer shall be subject in all respects to all the
general and specific stipulations, clauses, waivers, extensions, modifications
and endorsements of any of the Company's Policies, subject to the exclusions set
forth in the Exclusions Article and the other terms and conditions of this
Agreement as set forth herein.
Effective: September 15, 1998 2 of 12
<PAGE>
ARTICLE 4
EXCLUSIONS
The following general exclusions shall apply in respect of all business ceded to
the Reinsurer under this Agreement:
A. Assumed reinsurance. However, not to exclude intercompany reinsurance with
other subsidiaries of MBIA Inc. and/or business structured as reinsurance
which would otherwise be written as insurance; this exception does not
require the Company to cede business covered hereunder that has already
been ceded to another applicable reinsurance cover.
B. Business written by the Company not described in the Business and Territory
Article.
C. All liability of the Company arising by agreement, operation of law, or
otherwise from its participation or membership, whether voluntary or
involuntary, in any Insolvency Fund. "Insolvency Fund" includes any
Guaranty Fund, Insolvency Fund, Plan, Pool, Association, Fund, or other
arrangement, howsoever denominated, established or governed which provides
for any assessment of, or payment, or assumption by the Company of part of
any claim, debt, charge, fee, or other obligation of an insurer, or its
successors, or assigns which has been declared by any competent authority
to be insolvent or which otherwise is deemed unable to meet any claim,
debt, charge, fee, or other obligation in whole or in part.
ARTICLE 5
REINSURANCE CLAUSE
The Reinsurer shall pay up to $70,000,000 Ultimate Net Loss each and every
Occurrence excess of $0 Ultimate Net Loss each and every Occurrence. The
Reinsurer shall pay the Company as Ultimate Net Loss recoverable hereunder is
Incurred. The aggregate limit of this Agreement shall never exceed $70,000,000
over the term of this Agreement.
ARTICLE 6
DEFINITIONS
A. "Allocated Loss Adjustment Expenses" as used in this Agreement means all
court costs, interest upon judgments, and mitigation, investigation,
adjustment, and legal expenses chargeable to: (i) the mitigation,
investigation, negotiation, settlement of or defense against a Loss, (ii)
loss prevention, mitigation or investigation in respect of Policies as to
which the Company has posted a loss reserve, (iii) the investigation and
workout of a potential Loss, or (iv) the protection, perfection and
exercise of any subrogation or salvage or reimbursement rights or security
interests with respect to a Policy. Allocated Loss
Effective: September 15, 1998 3 of 12
<PAGE>
Adjustment Expenses shall exclude all office expenses and salaries of
officials and employees of the Company.
B. "Incurred" as used in this Agreement in respect of the Company's Loss and
Allocated Loss Adjustment Expenses means the date and time such Loss and
Allocated Loss Adjustment Expense is recorded on the books and records of
the Company with respect to the estimated amount of default of the Issuer's
obligation to pay principal or interest pursuant to the terms of a bond,
note, or other instrument insured by a Policy.
C. "Issue" as used in this Agreement means all obligations of one Issuer sold
simultaneously, secured by a single revenue source (with essentially the
same structure) or, in the case of structured finance or asset-backed
securities, secured by a common pool of assets and, in either case, covered
by a Policy. The Company shall be the sole judge of what constitutes one
Issue.
D. "Issuer" as used in this Agreement means, with respect to an Issue, the
entity issuing the bonds, notes, or other instruments comprising the Issue.
The Company shall be the sole judge of what constitutes one Issuer.
E. "Loss" as used in this Agreement means the actual or, in the Company's best
judgment, anticipated amounts of principal and interest for which the
Company is liable with respect to all claims under all Policies.
F. "Occurrence" as used in this Agreement means an: actual or, in the
Company's best judgment, anticipated default by an individual Issuer.
G. "Policy" as used in this Agreement means each binder, policy, surety bond
or contract of insurance or amendment or endorsement thereto issued by the
Company and constituting business covered as defined in the Business and
Territory Covered Article.
H. "Ultimate Net Loss" as used herein shall mean the Company's estimate of the
sum of Loss and Allocated Loss Adjustment Expense Incurred by the Company
from all Issues of an Issuer less reinsurance recoveries which inure to the
benefit of this Agreement, if any, which shall include the remaining limits
on the Company's First and Second Special Per Occurrence Excess of Loss
Programs, less any salvage or subrogation recoveries as appearing on the
Company's books at the time of all interim and/or final adjustment to the
Ultimate Net Loss hereunder.
For the purposes of determining Ultimate Net Loss and the amount of
reinsurance recoverable hereunder prior to the final maturity of any Issue,
the Company's estimated Loss and Allocated Loss Adjustment Expense shall be
determined based on the Company's annual or quarterly statements, as the
case may be.
Effective: September 15, 1998 4 of 12
<PAGE>
The following shall apply with respect to Ultimate Net Loss herein:
I. Nothing in this Definition shall be construed as meaning the Reinsurer
shall not pay the amount of reinsurance recoverable hereunder until the
actual Ultimate Net Loss has been determined.
II. The Company shall make quarterly adjustments to its estimates of Ultimate
Net Loss beginning in the third and fourth quarters of 1998. The final
adjustment to any Ultimate Net Loss hereunder shall be made seven years
after the Termination Date of this Agreement (or by mutual agreement at
some other time). Such final adjustment of Ultimate Net Loss shall be based
upon the Company's estimate of Ultimate Net Loss as entered on the
Company's books at such time.
ARTICLE 7
PREMIUM
The Company shall pay to the Reinsurer a flat premium equal to $350,000, payable
upon execution of this Agreement.
ARTICLE 8
ACCOUNTS, REPORTS AND PAYMENTS
A. The Company shall furnish to the Reinsurer quarterly accounts of business
ceded hereunder within 25 days after the close of each calendar year
quarter, showing: the sums of Loss, Allocated Loss Adjustment Expenses,
salvage and subrogation, and Ultimate Net Loss hereunder on paid and
Incurred bases, as well as adjustments thereto.
To the extent that the amount of reinsurance recoverable hereunder
increases, the Reinsurer shall owe the Company such increase in the amount
of reinsurance recoverable hereunder over that recoverable under the prior
account; but in no event shall the Reinsurer's liability over the term of
this Agreement exceed $70,000,000; to the extent that the Company's amount
of reinsurance recoverable hereunder decreases, the Company shall owe the
Reinsurer such decrease in the amount of reinsurance recoverable hereunder
below that recoverable under the prior account.
Such net balance shown shall be payable by the debtor party at the time the
account is rendered, if the Company is the debtor party, and within 45 days
of the Reinsurer's receipt of the account, if the Reinsurer is the debtor
party.
Effective: September 15, 1998 5 of 12
<PAGE>
B. On a quarterly basis, the Company shall provide the Reinsurer with a
listing of all Occurrences with Incurred Ultimate Net Loss in excess of
$25,000,000.
ARTICLE 9
CLAIMS AND LOSSES
The Company shall have complete and sole control of and direction of all efforts
to: (i) mitigate, investigate, negotiate, settle or defend a Loss, (ii) prevent,
mitigate, or investigate a probable Loss under Policies as to which the Company
has posted a loss reserve, (iii) investigate and workout a potential Loss, and
(iv) to protect, perfect and exercise any subrogation, salvage or reimbursement
rights or security interests with respect to any Loss under a Policy, and shall
take any action as it may deem advisable with respect thereto. All Loss
settlements by the Company, all salvage and subrogation settlements, and all
settlements with an Issuer (or with an underlying obligor of that Issuer), shall
be final, conclusive and unconditionally binding upon the Reinsurer.
ARTICLE 10
SALVAGE AND SUBROGATION
(1) The Company shall pay the Reinsurer the Reinsurer's proportionate share of
any Recovery in respect of any Loss covered by a Policy covered under this
Agreement at the times and in the manner specified in the Accounts, Reports
and Payments Article.
(2) "Recovery" as used in this Article means any amount received by the Company
in respect of any Loss covered by a Policy covered under this Agreement
whether by subrogation, salvage, or reimbursement from the Issuer (or from
an underlying obligor of that Issuer).
ARTICLE 11
REINSURANCE FOLLOWS ORIGINAL POLICIES
This Agreement shall be construed as an honorable undertaking between the
parties hereto and shall not be defeated by technical legal construction, it
being the intention of this Agreement that the fortunes of the Reinsurer shall
follow the fortunes of the Company. Nothing herein shall in any manner create
any obligations or establish any rights against the Reinsurer in favor of any
third parties or any persons not parties to this Agreement.
Effective: September 15, 1998 6 of 12
<PAGE>
ARTICLE 12
TAXES
In consideration of the terms under which this Agreement is issued, the Company
undertakes not to claim any deduction of the premium hereon when making Canadian
tax returns or when making tax returns, other than Income or Profits Tax
returns, to any state or territory in the United States of America or to the
District of Columbia.
ARTICLE 13
ACCESS TO RECORDS
The Reinsurer shall have the right to inspect at all reasonable times during the
currency of the Agreement and thereafter, the books, records and documents of
the Company with respect to this Agreement.
ARTICLE 14
CURRENCY
Where the word "dollars" and/or the sign "$" appear in this Agreement, they
shall mean United States dollars.
For purposes of this Agreement, where the Company receives premiums or pays
losses in currencies other than United States currency, such premiums or losses
shall be converted into United States dollars at the actual rates of exchange at
which these premiums or losses are entered in the Company's books.
ARTICLE 15
ARBITRATION
(1) As a condition precedent to any right of action hereunder, any dispute
arising out of or related to this Agreement shall be submitted to the
decision of a board of arbitration composed of two arbitrators and an
umpire, meeting in Armonk, New York, unless otherwise agreed.
(2) The members of the board of arbitration shall be active or former and
disinterested officials of insurance or reinsurance companies. Each party
shall appoint its arbitrator, and the two arbitrators shall choose an
umpire before instituting the hearing. If the respondent fails to appoint
its arbitrator within four weeks after being requested to do so by the
claimant, the latter shall also appoint the second arbitrator. If the two
arbitrators fail to agree upon the
Effective: September 15, 1998 7 of 12
<PAGE>
appointment of an umpire within four weeks after their nominations, the
umpire shall be selected within four weeks by the regional director of the
American Arbitration Association in New York, New York, or the regional
director's delegate.
(3) The claimant shall submit its initial brief within 20 days from appointment
of the umpire. The respondent shall submit its brief within 20 days after
receipt of the claimant's brief and the claimant shall submit a reply brief
within 10 days after receipt of the respondent's brief.
(4) The board shall make its decision with regard to the custom and usage of
the insurance and reinsurance business. The board shall issue its decision
in writing based upon a hearing in which evidence may be introduced without
following strict rules of evidence but in which cross-examination and
rebuttal shall be allowed. The board shall make its decision within 60 days
following the termination of the hearings unless the parties consent to an
extension. The majority decision of the board shall be final and binding
upon all parties to the proceeding. Judgment may be entered upon the award
of the board in any court having jurisdiction thereof.
(5) Each party shall bear the expense of its own arbitrator and shall jointly
and equally bear with the other party the expense of the umpire. The
remaining costs of the arbitration proceedings shall be allocated by the
board.
(6) Unless prohibited by applicable law, an arbitral award hereunder and any
Judgment thereon shall bear interest from the date the arbitral award was
rendered at the rate equal from time to time to the rate publicly announced
by Citibank, N. A., as its base rate plus 2%.
(7) The parties consent to the jurisdiction of the Supreme Court of the State
of New York, County of New York, and of the United States District Court
for the Southern District of New York, for all purposes in connection with
such arbitration, including without limitation any application to compel
arbitration or to confirm an arbitration award. The parties consent that
any process or notice of motion or other application to either of said
Courts, and any paper in connection with arbitration, may be served by
certified mail, return receipt requested, or by personal service or in such
other manner as may be permissible under the rules of the applicable court
or panel provided a reasonable time for appearances is allowed. Service
upon the Company shall be directed to the Company, in care of the Company's
General Counsel. Service upon the Reinsurer shall be directed to the
Reinsurer in care of its President.
ARTICLE 16
INDEMNIFICATION AND ERRORS AND OMISSIONS
Any recitals in this Agreement to the terms and provisions of any original
insurance or reinsurance are merely descriptive. The Reinsurer is reinsuring, to
the amount herein provided,
Effective: September 15, 1998 8 of 12
<PAGE>
the obligations of the Company under any original insurance or reinsurance. The
Company shall be the sole judge as to:
(a) what shall constitute a claim or loss covered under any original
insurance or reinsurance written by the Company;
(b) the Company's liability thereunder; and
(c) the amount or amounts which it shall be proper for the Company to pay
thereunder.
The Reinsurer shall be bound by the judgment of the Company as to the
obligation(s) and liability(ies) of the Company under any original insurance or
reinsurance.
Any inadvertent error, omission or delay in complying with the terms and
conditions of this Agreement shall not be held to relieve either party hereto
from any liability which would attach to it hereunder if such error, omission or
delay had not been made, provided such error, omission or delay is rectified
immediately upon discovery.
ARTICLE 17
INSOLVENCY
(1) In the event of the insolvency of the Company, the reinsurance provided by
this Agreement shall be payable by the Reinsurer on the basis of the
liability of the Company under the Policies ceded without diminution
because of the insolvency of the Company or because its liquidator,
receiver, conservator or statutory successor (hereinafter referred to as
the "Liquidator") has failed to pay all or a portion of any claim. The
Liquidator shall give written notice to the Reinsurer of the pendency of a
claim against the Company under any Policy ceded to Reinsurers and covered
by this Agreement within a reasonable time after such claim is filed in the
conservation or liquidation proceeding or in the receivership. During the
pendency of such claim, the Reinsurer may investigate such claim and
interpose at its own expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses that it may deem available to the
Company or the Liquidator. The expense thus incurred by the Reinsurer shall
be chargeable, subject to the approval of the court, against the Company as
part of the expense of conservation or liquidation to the extent of the
benefit which may accrue to the Company solely as a result of the defense
undertaken by the Reinsurer.
(2) The reinsurance provided by this Agreement shall be payable by the
Reinsurer to the Company or to the Liquidator, except as provided by
Section 4118(A)(l)(a) (relating to Fidelity and Surety Risks) of the
Insurance Law of New York or except (a) where the Policy specifically
provides another payee of such reinsurance in the event of the insolvency
of the Company, and (b) where the Reinsurer with the consent of the direct
insured(s) has assumed the obligations of the Company under the Policies as
the direct
Effective: September 15, 1998 9 of 12
<PAGE>
obligations of the Reinsurer to the payees under such Policies and in
substitution for the obligations of the Company to such payees.
ARTICLE 18
CONFIDENTIALITY
The Reinsurer agrees that it will maintain the confidentiality of the all
information presented as a result of this Agreement including, but not limited
to the bonds, the basic agreements, the reinsurance undertaken with respect to
the bonds, all underlying transactions and underlying obligations, and all
certificates, reports, agreements, notices, and communications of any sort
relating to any of the foregoing in its communications with third parties,
except to the extent required by law, regulation, or order, and except as may be
made to the Reinsurer's legal counsel, auditors, and accountants, to Standard &
Poor's Corporation, Moody's Investor Services, Inc., Duff & Phelps Corporation,
or any other rating agency in connection with their rating of the Reinsurer and
except as may be necessary or appropriate in connection with any retrocession,
subject to the receipt of a written confidentiality commitment from the proposed
retrocessional reinsurer. The Reinsurer and its legal counsel, auditors, and
accountants will have no obligation of confidentiality in respect or any
information that may be available to the public or become available to the
public through no fault of such person.
ARTICLE 19
GOVERNING LAW
This Agreement shall be governed by the laws of the State of New York.
ARTICLE 20
INTERMEDIARY
Guy Carpenter & Company, Inc., Two World Trade Center, New York, New York,
10048, is hereby recognized as the Intermediary by which this Agreement was
negotiated and through which all communications relating hereto including, but
not limited to, notices, statements, premiums, return premiums, commissions,
taxes, Losses, Allocated Loss Adjustment Expenses, salvage and Loss settlements,
shall be transmitted to both parties. It is understood, as regards remittances
due either party hereunder, that payment by the Company to the Intermediary
shall constitute payment to the Reinsurer, but payment by the Reinsurer to the
Intermediary shall constitute payment to the Company only to the extent such
payments are actually received by the Company.
Effective September 15, 1998 10 of 12
<PAGE>
ARTICLE 21
PARTICIPATION
The Reinsurer's Percentage Share of the Interests and Liabilities set out in
this Agreement is 100% of up to $70,000,000.
IN WITNESS WHEREOF the parties hereto, by their respective duly authorized
officers, have executed this THIRD SPECIAL PER OCCURRENCE EXCESS OF LOSS
REINSURANCE AGREEMENT, in triplicate, as of the dates recorded below:
ACCEPTED:
At: Armonk, New York
this 31st day of December, 1998.
MBIA INSURANCE CORPORATION
MBIA Assurance, S. A.
and/or any other insurance or reinsurance company subsidiaries
of MBIA Inc. listed in Exhibit No. 1 attached to this Agreement
/s/ Julliette S. Tehrani
- ------------------------------------------
and at:
this 30th day of December ,1998.
ZURICH REINSURANCE (NORTH AMERICA), INC.
/s/ [ILLEGIBLE]
- ------------------------------------------
Effective: September 15, 1998 11 of 12
<PAGE>
EXHIBIT NO. 1
Insurance and/or Reinsurance Company Subsidiaries
Included within the Definition of Company hereunder
MBIA Assurance S. A.
MBIA Insurance Corporation
MBIA Insurance Corp. of Illinois
Capital Markets Assurance Corporation
Effective: September 15, 1998 12 of 12
SELECTED FINANCIAL AND STATISTICAL DATA
MBIA Inc. and Subsidiaries
<TABLE>
<CAPTION>
Dollars in millions
except per share amounts 1998 1997 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP SUMMARY
INCOME STATEMENT DATA:
Insurance:
Gross premiums written $ 677 $ 654 $ 535 $ 406 $ 405 $ 504 $ 377 $ 269
Premiums earned 425 351 294 244 241 249 169 132
Advisory fees 26 17 11 7 5 1 1 --
Net investment income 332 302 265 233 204 189 155 132
Net realized gains 30 17 10 13 10 11 10 3
Insurance operating income 643 530 453 385 360 353 260 207
Investment management
operating income (loss) 29 17 18 11 5 (1) (1) (2)
Income before income taxes 565 525 448 375 347 339 249 190
NET INCOME 433 406 348 290 270 268 193 145
NET INCOME PER COMMON SHARE
BASIC 4.37 4.18 3.68 3.21 3.00 3.00 2.24 1.89
DILUTED 4.32 4.12 3.62 3.15 2.96 2.95 2.20 1.87
- ---------------------------------------------------------------------------------------------------------------------------
GAAP SUMMARY
BALANCE SHEET DATA:
Investments 10,080 8,908 8,008 6,937 5,069 3,735 2,701 1,961
Total assets 11,797 10,385 9,031 7,670 5,711 4,320 3,234 2,438
Deferred premium revenue 2,251 2,090 1,854 1,662 1,538 1,413 1,202 1,019
Loss reserves 270 103 70 49 45 37 28 21
Municipal investment and
repurchase agreements 3,485 3,151 3,259 2,642 1,526 493 -- --
Long-term debt 689 489 389 389 314 314 314 199
Shareholders' equity 3,792 3,362 2,761 2,497 1,881 1,761 1,533 1,063
Book value per share 38.15 34.09 28.98 27.02 20.92 19.77 17.19 13.79
Dividends declared per
common share 0.790 0.770 0.725 0.655 0.570 0.470 0.380 0.310
- ---------------------------------------------------------------------------------------------------------------------------
STATUTORY DATA:
Net income 510 404 335 287 229 263 194 149
Capital and surplus 2,290 1,952 1,661 1,469 1,250 1,124 1,044 647
Contingency reserve 1,451 1,188 959 788 652 561 419 316
- ---------------------------------------------------------------------------------------------------------------------------
Qualified statutory capital 3,741 3,140 2,620 2,257 1,902 1,685 1,463 963
Unearned premium reserve 2,324 2,193 1,971 1,768 1,640 1,484 1,248 1,044
Loss reserves 188 15 10 7 22 8 14 12
- ---------------------------------------------------------------------------------------------------------------------------
Total policyholders'
reserves 6,253 5,348 4,601 4,032 3,564 3,177 2,725 2,019
Present value of installment
premiums 644 537 443 347 249 234 211 151
Standby line of credit &
stop loss 900 900 775 700 650 625 550 500
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL CLAIMS-PAYING RESOURCES 7,797 6,785 5,819 5,079 4,463 4,036 3,486 2,670
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS:
GAAP
Loss ratio 8.2% 9.1% 6.9% 5.6% 3.9% 3.5% 3.6% 13.0%
Underwriting expense ratio 24.7 31.0 32.9 35.2 32.9 31.2 34.6 30.1
Combined ratio 32.9 40.1 39.8 40.8 36.8 34.7 38.2 43.1
Statutory
Loss ratio 8.0 1.2 1.7 0.4 8.7 (3.3) 2.3 12.7
Underwriting expense ratio 16.8 21.2 22.8 27.2 28.3 22.0 20.7 20.4
Combined ratio 24.8 22.4 24.5 27.6 37.0 18.7 23.0 33.1
NET DEBT SERVICE OUTSTANDING $595,895 $513,736 $434,417 $359,175 $315,340 $273,630 $225,220 $184,604
NET PAR AMOUNT OUTSTANDING $359,472 $303,803 $252,896 $201,326 $173,760 $147,326 $114,317 $ 90,043
- ---------------------------------------------------------------------------------------------------------------------------
Dollars in millions
except per share amounts 1990 1989
- -------------------------------------------------------
GAAP SUMMARY
INCOME STATEMENT DATA:
Insurance:
Gross premiums written $ 211 $ 159
Premiums earned 107 91
Advisory fees -- --
Net investment income 115 80
Net realized gains -- --
Insurance operating income 181 136
Investment management
operating income (loss) -- --
Income before income taxes 165 135
NET INCOME 127 102
NET INCOME PER COMMON SHARE
BASIC 1.68 1.39
DILUTED 1.66 1.37
- -------------------------------------------------------
GAAP SUMMARY
BALANCE SHEET DATA:
Investments 1,724 1,501
Total assets 2,159 1,904
Deferred premium revenue 902 811
Loss reserves 5 --
Municipal investment and
repurchase agreements -- --
Long-term debt 200 195
Shareholders' equity 932 777
Book value per share 12.17 10.54
Dividends declared per
common share 0.240 0.205
- -------------------------------------------------------
STATUTORY DATA:
Net income 127 84
Capital and surplus 579 485
Contingency reserve 261 216
- -------------------------------------------------------
Qualified statutory capital 840 701
Unearned premium reserve 926 828
Loss reserves -- --
- -------------------------------------------------------
Total policyholders'
reserves 1,766 1,529
Present value of installment
premiums 134 90
Standby line of credit &
stop loss 500 325
- -------------------------------------------------------
TOTAL CLAIMS-PAYING RESOURCES 2,400 1,944
- -------------------------------------------------------
FINANCIAL RATIOS:
GAAP
Loss ratio 4.7% 0.0%
Underwriting expense ratio 33.7 38.5
Combined ratio 38.4 38.5
Statutory
Loss ratio 0.0 0.0
Underwriting expense ratio 23.4 31.6
Combined ratio 23.4 31.6
NET DEBT SERVICE OUTSTANDING $157,707 $137,221
NET PAR AMOUNT OUTSTANDING $ 75,979 $ 65,290
- -------------------------------------------------------
</TABLE>
(34 & 35)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MBIA Inc. and Subsidiaries
INTRODUCTION
- ------------
1998 was a rewarding but challenging year for MBIA. We posted strong operating
results in our insurance and investment management segments, increasing
shareholder value while preserving and strengthening our Triple-A rating. In
1998 we merged with and successfully completed the integration of CapMAC
Holdings Inc. (CapMAC), a leading insurer of structured finance transactions,
and 1838 Investment Advisors, Inc. (1838), a full-service asset management firm.
These mergers established strong foundations for growth in both our core
insurance and asset management segments, and have already achieved combined
results that exceed the sum of the individual parts. On the other hand, the year
also produced two significant disappointments. The first--the bankruptcy of a
large issuer whose debt was insured by MBIA--was mitigated by our general loss
reserving policy and our prudent reinsurance program. The second--unacceptable
returns in our municipal services segment--was addressed through reorganization
and consolidation. All in all, 1998's strong financial results continued to
strengthen our balance sheet and Triple-A ratings.
RESULTS OF OPERATIONS
- ---------------------
SUMMARY
MBIA continued to report strong operating results in 1998. The following chart
presents highlights of our consolidated financial results for 1998, 1997 and
1996. All of the numbers shown below and all of the data contained in this
report have been restated to reflect the mergers, which have been accounted for
as "pooling of interests."
Percent Change
--------------
1998 1997
vs. vs.
1998 1997 1996 1997 1996
- ----------------------------------------------------------------------------
Net income (in millions):
As reported $433 $406 $348 7% 17%
Excluding one-
time charges $482 $406 $348 19% 17%
- ----------------------------------------------------------------------------
Per share data:*
Net income:
As reported $4.32 $4.12 $3.62 5% 14%
Excluding one-
time charges $4.81 $4.12 $3.62 17% 14%
Operating earnings $4.58 $3.99 $3.53 15% 13%
Core earnings $4.19 $3.69 $3.26 14% 13%
Book value $38.15 $34.09 $28.98 12% 18%
Adjusted book value $53.28 $48.19 $42.16 11% 14%
- ----------------------------------------------------------------------------
* All earnings per share are diluted and all per share results have been
retroactively adjusted to include the effect of a two-for-one stock split
effective October 1, 1997.
Core earnings, which exclude the effects of refundings and calls on our
insured issues, realized capital gains and losses on our investment portfolio
and nonrecurring charges, provide the most indicative measure of our underlying
profit. Core earnings per share at $4.19 for 1998 grew by 14% over 1997,
following a 13% increase in 1997. This continues our unbroken streak of
double-digit increases since we became a public company in 1987. In 1998, for
the first time, investment management services contributed significantly to core
earnings growth. The investment management services' contribution to core
earnings increased by 70% over 1997, reflecting both the impact of the 1838
merger as well as the foundation set by our other investment management
businesses. Insurance operations continued their consistent support of core
earnings growth with a 17% increase for both years.
Our 1998 net income grew 19% excluding one-time charges, or by 17% on a per
share basis. In 1997 net income increased by 17%, which translated to a 14% per
share increase. For both years the difference in growth rates between income and
per share data reflects the equity capital we raised in 1997. Including the
one-time charges, net income increased by 7% for 1998 over 1997.
Operating earnings per share, which exclude the impact of realized gains
and losses and one-time charges, increased by 15% and 13% for 1998 and 1997,
respectively.
Our book value at year-end 1998 was $38.15 per share, up from $34.09 at
year-end 1997 and $28.98 at year-end 1996. As with core earnings, a more
appropriate measure of a financial guarantee company's intrinsic value is its
adjusted book value. It is defined as book value plus the after-tax effects of
net deferred premium revenue, net of deferred acquisition costs, the present
value of unrecorded future installment premiums, and the unrealized gains or
losses on investment contract liabilities. The following table presents the
components of our adjusted book value per share:
Percent Change
--------------
1998 1997
vs. vs.
1998 1997 1996 1997 1996
- ----------------------------------------------------------------------------
Book value $38.15 $34.09 $28.98 12 % 18 %
After-tax value of:
Net deferred premium
revenue, net of deferred
acquisition costs 10.91 10.45 9.70 4 % 8 %
Present value of future
installment premiums* 4.21 3.54 3.02 19 % 17 %
Unrealized gain on
investment contract
liabilities** 0.01 0.11 0.46 (91)% (76)%
- ----------------------------------------------------------------------------
Adjusted book value $53.28 $48.19 $42.16 11 % 14 %
- ----------------------------------------------------------------------------
* The discount rate used to present value future installment premiums was 9%.
** The unrealized gain on investment contract liabilities is offset by a
corresponding gain on the market value of the assets.
(36)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MBIA Inc.
Our adjusted book value per share was $53.28 at year-end 1998, an 11%
increase from year-end 1997 following 14% growth in the preceding year. The
increases in both years reflect consistently strong operating results and the
growth in new businesses. The 1997 growth was especially impacted by the
increase in the fair value of our fixed-income investment portfolios. Compared
to the sharp decline in interest rates in 1997, 1998's interest rate movement
was relatively flat.
FINANCIAL GUARANTEE INSURANCE
Business was strong in 1998 and 1997, fueled by a robust economy and record
demand for insurance. Par insured across all business lines was up 24%. The
credit quality of new business insured improved significantly over that insured
in prior years, reflecting the health of the nation's economy, the strength of
municipal issuers and a conscious effort on MBIA's part. Adjusted gross premiums
written (AGP) totaled $832 million in 1998. At 12%, our AGP growth rate has been
consistently high over the past two years. AGP includes our upfront premiums as
well as the estimated present value of current and future premiums from
installment-based insurance policies issued in the period. Gross premiums
written (GPW), as reported in our financial statements, reflects cash receipts
only and does not include the value of future premium receipts expected for
installment policies originated in the period. MBIA's premium production in
terms of AGP and GPW for the last three years is presented in the following
table:
Percent Change
--------------
1998 1997
vs. vs.
In millions 1998 1997 1996 1997 1996
- ----------------------------------------------------------------------------
Premiums written:
AGP $832 $741 $664 12% 12%
GPW $677 $654 $535 4% 22%
- ----------------------------------------------------------------------------
We estimate the present value of our total future installment premium
stream on outstanding policies to be $644 million at year-end 1998, compared
with $537 million at year-end 1997 and $443 million at year-end 1996.
MUNICIPAL MARKET New issue volume in 1998 was the second largest in
history--second only to 1993. The market has followed a consistent growth
pattern that we predicted several years ago. While volume in any year can
fluctuate, we believe the municipal market will continue to be a growing one. In
addition, insured penetration continued at record levels, resulting in the
highest ever insured volume in 1998. Municipal rating upgrades have outnumbered
downgrades, and the credit quality of business MBIA is insuring remains very
strong. Again in 1998, we maintained our market leadership in the growing new
issue municipal market. MBIA's domestic municipal AGP and GPW were down versus
1997 levels. The decline reflects a shift in the book towards lower-risk sectors
and stronger credit quality. It also reflects the differences in opportunities
presented each year. In 1997 we closed several large one-off deals that were not
replicated in 1998. Domestic new issue municipal market information and MBIA's
par and premium writings in both the new issue and secondary domestic municipal
finance markets are shown in the following table:
Percent Change
--------------
1998 1997
vs. vs.
Domestic Municipal 1998 1997 1996 1997 1996
- ----------------------------------------------------------------------------
Total new issue market:*
Par value (in billions) $255 $194 $162 32 % 20%
Insured penetration 55% 54% 52%
MBIA market share 36% 42% 40%
MBIA insured:
Par value (in billions) $58 $48 $40 21 % 20%
Premiums (in millions):
AGP $416 $440 $366 (5)% 20%
GPW $405 $435 $368 (7)% 18%
- ----------------------------------------------------------------------------
* Market data are reported on a sale date basis while MBIA's insured data are
based on closing date information. Typically, there can be a one- to
four-week delay between the sale date and closing date of an insured issue.
STRUCTURED FINANCE MARKET The integration of MBIA's and CapMAC's operations is
virtually complete. By all measures, the merger with CapMAC was an extremely
positive move for MBIA with improved portfolio diversity and financial
performance. We are excited about the many and varied opportunities for growth
that we now have in structured finance. Furthermore, we were determined not to
let productivity slip in the merger year, and we were successful beyond our
expectations in that objective. During 1998 we saw AGP increase and improvement
in return margins and average credit quality of the business written. Most
notable, but perhaps less visible, MBIA's participation in private and
commercial paper asset-backed markets increased significantly, with over one
half of AGP generated outside the public market. New issuance in the public
asset-backed market was down from last year's record levels, primarily due to
market turmoil in the third and fourth quarters. Insurance penetration in the
U.S. asset-backed market was nominally higher during 1998. MBIA had a 44% share
of the public asset-backed market in 1998, up from 41% in 1997. Private and
(37)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MBIA Inc. and Subsidiaries
commercial paper asset-backed markets--not reflected in volume or market share
statistics--represent significant and growing segments of MBIA's structured
finance business. 1998 demonstrated that MBIA is well positioned to participate
in this segment as a result of our merger with CapMAC. Details regarding the
asset-backed market and MBIA's par and premium writings in both the domestic new
issue and secondary structured finance markets are shown in the table below:
Percent Change
--------------
1998 1997
Domestic vs. vs.
Structured Finance 1998 1997 1996 1997 1996
- ----------------------------------------------------------------------------
Total asset-backed market:*
Par value (in billions) $167 $175 $152 (5)% 15%
MBIA insured:
Par value (in billions) $46 $38 $27 21 % 41%
Premiums (in millions):
AGP $191 $166 $158 15 % 5%
GPW $126 $102 $83 24 % 23%
- -----------------------------------------------------------------------------
* Market data exclude mortgage-backed securities and private placements.
INTERNATIONAL MARKET In late 1995, we formed a joint venture with Ambac
Assurance Corporation (another leading Triple-A-rated financial guarantee
insurer) to market financial guarantee insurance internationally. This
initiative has contributed to a substantial expansion of our international
business as evidenced by the growth in premium writings over the past two years.
Although a couple of transactions are experiencing stress, all of our
international deals, including our Asian deals and emerging-market CBO
transactions, are performing satisfactorily, and we do not expect losses. We are
monitoring developments in the currency markets in Asia and Latin America very
closely to determine the impact on our international book. Korea has recently
been upgraded by Fitch, Moody's and S&P to investment grade. The MBIA-AMBAC
International joint venture announced an alliance in 1998 in Japan with Yasuda
Fire and Marine Insurance Co. Ltd. and Mitsui Marine and Fire Insurance Co. Ltd.
With respect to Europe, at this time it is too early to measure the impact of
the Euro on our business, although we expect it to stimulate debt issuance and
insurance. The advent of the Euro eliminates currency risk between member
countries from transactions originating in one of the member countries. The
remaining risk is credit risk, which is the risk covered by our guarantee.
Insurance is expected to be a popular feature of cross-border transactions. Our
company's municipal and structured finance international business volume in the
new issue and secondary markets for the last three years is illustrated as
follows:
<PAGE>
Percent Change
---------------
1998 1997
vs. vs.
International 1998 1997 1996 1997 1996
- -----------------------------------------------------------------------------
Par value (in billions) $11 $5 $8 120% (38)%
Premiums (in millions):
AGP $189 $105 $108 79% (3)%
GPW $112 $91 $60 23% 52 %
- -----------------------------------------------------------------------------
REINSURANCE Premiums ceded to reinsurers from all insurance operations were
$156 million, $117 million and $70 million in 1998, 1997 and 1996, respectively.
Cessions as a percentage of GPW increased to 23% in 1998 from 13% in 1996 (with
1997 midway at 18%). The increase in our cession rate was largely driven by
portfolio shaping, as we focused on reducing larger single risks across the
portfolio. This is consistent with our emphasis on a strong balance sheet. In
addition, we are freeing up capacity to write additional business in the
mortgage/home equity sector. Going forward we expect our cession rate to run
between 15% and 20% of new writings.
Most of our reinsurers are rated Double-A or higher by S&P, or Single-A or
higher by A. M. Best Co. Although we remain liable for all reinsured risks, we
are confident that we will recover the reinsured portion of any losses, should
they occur.
PREMIUMS EARNED Premiums are recognized over the life of the bonds we insure.
The slow premium recognition coupled with compounding investment income from
investing our premiums and capital form a solid foundation for consistent
revenue growth. In 1998 and 1997, premiums earned from scheduled amortization
increased by 19% and 20%, respectively. These strong increases reflect the
additive effect of new premiums written, especially from international and
structured finance installment business.
Refunded premiums also generated high revenues in 1998. When an
MBIA-insured bond issue is refunded or retired early, the related deferred
premium revenue is earned immediately. The amount of bond refundings and calls
is influenced by a variety of factors such as prevailing interest rates, the
coupon rates of the bond issue, the issuer's desire or ability to modify bond
covenants and applicable regulations under the Internal Revenue Code. The
composition of MBIA's premiums earned in terms of its scheduled and refunded
components is illustrated below:
Percent Change
--------------
1998 1997
vs. vs.
In millions 1998 1997 1996 1997 1996
- ----------------------------------------------------------------------------
Premiums earned:
Scheduled $357 $300 $250 19% 20%
Refunded 68 51 44 33% 16%
- ----------------------------------------------------------------------------
Total $425 $351 $294 21% 19%
(38)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MBIA Inc.
INVESTMENT INCOME Our insurance-related investment income (exclusive of
capital gains) increased to $332 million in 1998, up from $302 million in 1997
and $265 million in 1996. These increases were primarily due to the growth of
cash flow available for investment. Our cash flows were generated from
operations, the compounding of previously earned and reinvested investment
income and the addition of funds from financing activities. Insurance-related
net realized capital gains were $30 million in 1998, $17 million in 1997 and $10
million in 1996. These realized gains were generated as a result of ongoing
management of the investment portfolio.
ADVISORY FEES The company collects fee revenues in conjunction with certain
structured finance transactions. In 1998 and 1997, advisory fee revenues
increased by 53% and 59%, respectively, reflecting the company's increased
structured finance activity. Certain fees are deferred and earned over the life
of the related transactions.
LOSSES AND LOSS ADJUSTMENT EXPENSES (LAE) We maintain a general loss reserve
based on our estimate of unidentified losses from our insured obligations. The
total reserve is calculated by applying a risk factor based on a study of bond
defaults to net debt service written. To the extent that we identify specific
insured issues as currently or likely to be in default, the present value of our
expected payments, net of expected reinsurance and collateral recoveries, is
allocated within the total loss reserve as case-specific reserves.
We periodically evaluate our estimates for losses and LAE and any resulting
adjustments are reflected in current earnings. We believe that our reserving
methodology and the resulting reserves are adequate to cover the ultimate net
cost of claims. However, the reserves are necessarily based on estimates, and
there can be no assurance that any ultimate liability will not exceed such
estimates. The following table shows the case-specific and unallocated
components of our total loss and LAE reserves at the end of the last three
years, as well as our loss provision for the last three years:
Percent Change
--------------
1998 1997
vs. vs.
In millions 1998 1997 1996 1997 1996
- ----------------------------------------------------------------------------
Reserves:
Case-specific $189 $25 $20 656% 25%
Unallocated 81 78 50 4% 56%
- ----------------------------------------------------------------------------
Total $270 $103 $70 162% 47%
Provision $35 $32 $20 9% 60%
- ---------------------------------------------------------------------------
As mentioned previously, the bankruptcy of a large issuer -- specifically a
Pennsylvania hospital group--was a significant disappointment in 1998. The large
increase in the case-specific reserve reflects our current estimate of
anticipated losses arising from this group. At this time our outstanding reserve
for this claim, net of reinsurance, totals $163 million. To date we have
received $170 million in reinsurance recoveries and have paid $18 million for
debt service and loss adjustment expenses. After reinsurance, the amount
incurred by MBIA for this loss totaled $11 million in 1998.
Over the three-year period from 1996 through 1998, our provision for losses
and LAE increased in tandem with new business writings in accordance with our
loss reserving methodology. The changes in the case-specific reserve had no
impact on our net income since they were offset by corresponding changes in the
unallocated portion of the total reserve.
OPERATING EXPENSES In addition to premium volume, the success of the merger
with CapMAC and our ability to optimize the synergies inherent in the
combination was strongly evident in the area of insurance expenses. The
merger-related cost cutting and restructurings of 1998 should continue to
improve our expense ratios in 1999 and thereafter.
Those expenses related to the production of our insurance business (policy
acquisition costs) are deferred and recognized over the period in which the
related premiums are earned. Our company's policy acquisition costs, general
operating expenses and total insurance operating expenses, as well as related
expense measures, are shown below:
Percent Change
--------------
1998 1997
vs. vs.
In millions 1998 1997 1996 1997 1996
- ----------------------------------------------------------------------------
Policy acquisition
costs, net $35 $35 $30 -- 17%
Operating 70 74 67 (5)% 10%
- ----------------------------------------------------------------------------
Total insurance
operating expenses $105 $109 $97 (4)% 12%
Expense ratio:
GAAP 24.7% 31.0% 32.9%
Statutory 16.8% 21.2% 22.8%
- ----------------------------------------------------------------------------
For 1998, policy acquisition costs net of deferrals remained even with 1997 at
$35 million following a 17% increase in 1997. The ratio of policy acquisition
(39)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MBIA Inc. and Subsidiaries
costs net of deferrals to earned premiums has declined from 10% in 1997 and 1996
to 8% in 1998. This decline reflects the positive impact of increases in both
installment premium revenues and ceding commission income.
Operating expenses decreased by 5% in 1998 following a 10% increase in
1997. The 1998 decline resulted from the synergies of the CapMAC merger.
Financial guarantee insurance companies also use the statutory expense
ratio (expenses before deferrals as a function of net premiums written) as a
measure of expense management. Our company's 1998 statutory and GAAP expense
ratios have improved over both 1997 and 1996, again reflecting the success of
the merger.
INSURANCE INCOME MBIA's insurance income reached $673 million in 1998, up 23%
over 1997. This growth was the product not only of strong revenue growth but
also of our disciplined expense management.
INVESTMENT MANAGEMENT SERVICES
In 1998 after our merger with 1838, we formed a holding company, MBIA Asset
Management Corporation, to consolidate the resources and capabilities of our
four investment management services. The success of our merger with 1838 showed
immediate operating benefits, and all of our investment management franchises
had record performances in 1998. Of special note was the 30% increase in
operating revenues achieved while investment management expenses held the line
at only a 9% growth rate. The table below summarizes our consolidated investment
management results over the last three years:
Percent Change
--------------
1998 1997
vs. vs.
In millions 1998 1997 1996 1997 1996
- ----------------------------------------------------------------------------
Revenues $65 $50 $47 30% 6 %
Expenses 36 33 29 9% 12 %
- ----------------------------------------------------------------------------
Operating income 29 17 18 70% (4)%
Realized gains 14 3 2 315% 33 %
- ----------------------------------------------------------------------------
Income $43 $20 $20 111% --
- ----------------------------------------------------------------------------
MBIA Asset Management Corporation is comprised of 1838, MBIA Municipal Investors
Services Corp. (MBIA-MISC), MBIA Investment Management Corp. (IMC) and MBIA
Capital Management Corp. (CMC). The following provides a summary of each of
these businesses:
1838 is a full-service asset management firm with a strong institutional focus.
It manages over $7 billion in equity, fixed-income and balanced portfolios for a
client base comprised of municipalities, endowments, foundations, corporate
employee benefit plans and high-net-worth individuals. 1838 recorded superior
performance during the year in its large-cap equity fund, which was up 41% for
the year, compared to the S&P 500, which was up 28%.
MBIA-MISC provides cash management, investment fund administration and
fixed-rate investment placement services directly to local governments and
school districts. In late 1996, MBIA-MISC acquired American Money Management
Associates, Inc. (AMMA), which provides investment and treasury management
consulting services for municipal and quasi-public-sector clients. Both
MBIA-MISC and AMMA are Securities and Exchange Commission (SEC)-registered
investment advisers and at year-end had $6.2 billion in assets under management,
up 43% over 1997's $4.3 billion.
IMC provides state and local governments with tailored investment agreements for
bond proceeds and other public funds, such as construction, loan origination,
capitalized interest and debt service reserve funds. At year-end 1998, principal
and accrued interest outstanding on investment and repurchasing agreements was
$3.5 billion, compared with $3.2 billion at year-end 1997. At amortized cost,
the assets supporting IMC's investment agreement were also at $3.5 billion and
$3.2 billion at year-end 1998 and 1997. These assets are comprised of
high-quality securities with an average credit quality rating of Double-A.
IMC from time-to-time uses derivative financial instruments to manage
interest rate risk. We have established policies limiting the amount, type and
concentration of such instruments. By matter of policy, derivative positions can
only be used to hedge interest rate exposures and not for speculative trading
purposes. At year-end 1998, our exposure to derivative financial instruments was
not material.
CMC is an SEC-registered investment adviser and National Association of
Securities Dealers member firm. CMC specializes in fixed-income management for
institutional funds and provides investment management services for IMC's
investment agreements, MBIA-MISC's municipal cash management programs and MBIA's
insurance related portfolios. By year-end 1998, CMC's assets under management
increased by 31% over year-end 1997.
MUNICIPAL AND FINANCIAL SERVICES
MBIA MuniServices Company (MBIA MuniServices)(formerly known as Strategic
Services, Inc.) was established in 1996 to provide bond administration, revenue
(40)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MBIA Inc.
enhancement and other services to state and local governments. In 1996, MBIA
MuniServices acquired an equity interest in Capital Asset Holdings, Inc.
(Capital Asset), a purchaser and servicer of delinquent tax certificates.
Capital Asset also provides a series of services to assist taxing authorities in
the preparation, analysis, packaging and completion of delinquent tax obligation
sales. In December 1998, MBIA MuniServices acquired Capital Asset's founder's
equity interest.
In January 1997, MBIA MuniServices acquired a 95% interest in Municipal Tax
Bureau (MTB), a provider of tax revenue compliance and collection services to
public entities. In July 1997, MBIA MuniServices acquired MuniFinancial, a
public finance consulting firm specializing in municipal debt administration. In
January 1998, Municipal Resource Consultants (MRC), a revenue audit and
information services firm, was also acquired.
In 1998 the municipal and financial services operations lost $20 million,
including a realized loss of $9 million on our investment in Capital Asset. This
compared to operating income of $4 million in 1997 and $1 million in 1996.
During the fourth quarter of 1998, MBIA began reorganizing the operations of two
subsidiaries, MTB and MRC, into MBIA MuniServices to form a nationwide provider
of revenue enhancement services to the public sector.
CORPORATE
INTEREST EXPENSE In 1998, 1997 and 1996, respectively, we incurred $45 million,
$39 million and $35 million of interest expense. The increases in interest
expense reflect our long-term debt financings of $50 million in November 1998,
$150 million in September 1998 and $100 million in July 1997.
OTHER EXPENSES The large increase in other expenses in 1998 is due primarily to
the inclusion of the $75 million of one-time charges related to our mergers with
CapMAC and 1838 and the reorganization of our Municipal and Financial Services
Division.
The merger-related charges totaled $49 million and consisted of
severance of $22 million, professional services such as legal, consulting and
auditing of $15 million, stay bonuses of $8 million, and expenses related to the
elimination of duplicate operations of $4 million. Of these amounts, $15
million, $14 million and $4 million relating to severance, professional services
and elimination of duplicate operations, respectively, were paid as of year-end
1998.
The merger-related severance charge of $22 million represents the
estimated cost of terminating approximately 150 employees of MBIA, CapMAC and
1838 whose positions were determined to be duplicative at the time of the
respective mergers. As of December 31, 1998, virtually all of these identified
employees had been terminated.
The reorganization of our Municipal Services Division involved the
closing of some operations in our tax discovery and collection unit as well as
the integration of the profitable operations of our revenue enhancement unit
into MBIA MuniServices. The reorganization-related charges totaled $26 million
and related to the write-off of goodwill and other asset impairments (such as
accounts receivable). The goodwill was being amortized over a fifteen-year
period and the amortization was not material to the results of operations of the
company. The amount written off was determined in conjunction with our
reorganization and consolidation of the Municipal Services Division, after a
thorough analysis of the recoverability of these assets in accordance with
Statement of Financial Accounting Standards 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
In 1996 and 1997, other corporate expenses were composed primarily of
non-insurance goodwill amortization and general corporate overhead. In 1997 and
1998, other expenses also include the breakeven activities of MBIA & Associates
Consulting, Inc. It was established in 1997 to provide assistance to state and
local governments, colleges and universities, and international public- and
private-sector clients seeking to strengthen their strategic financial planning
and management capabilities.
TAXES
Our tax policy is to optimize our after-tax income by maintaining the
appropriate mix of taxable and tax-exempt investments. However, we will see our
tax rate fluctuate from time-to-time as we manage our investment portfolio on a
total return basis. Our effective tax rate has increased marginally over the
past three years--to 23.4% in 1998 from 22.8% in 1997 and 22.5% in 1996. This
reflects the gradual shift in our investment portfolio to a higher proportion of
taxable securities.
CAPITAL RESOURCES
- -----------------
We carefully manage our capital resources to optimize our cost of capital while
maintaining appropriate claims-paying resources to sustain our Triple-A
claims-paying ratings. At year-end 1998, our total shareholders' equity was $3.8
billion, with total long-term borrowings at $689 million. We use debt financing
(41)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MBIA Inc. and Subsidiaries
to lower our overall cost of capital, thereby increasing our return on
shareholders' equity. We maintain debt at levels we consider to be prudent based
on our cash flow and total capital. The following table shows our long-term debt
and ratios we use to measure it:
1998 1997 1996
- ---------------------------------------------------------------------------
Long-term debt (in millions) $689 $489 $389
Long-term debt to total capital 15% 13% 12%
Ratio of earnings to fixed charges 13.1x 14.1x 13.5x
- ---------------------------------------------------------------------------
In addition, our insurance company has an $825 million irrevocable standby line
of credit facility with a group of major Triple-A rated banks to provide funds
for the payment of claims in the event that severe losses should occur. The
agreement is for a seven-year term, which expires on October 31, 2005, and,
subject to approval by the banks, may be renewed annually to extend the term to
seven years beyond the renewal date. Our insurance company also maintains
stop-loss reinsurance coverage of $75 million in excess of incurred losses of
$150 million.
From time to time we access the capital markets to support the growth of
our businesses. In July 1997, to provide us with additional capital for growth,
we raised $126 million of equity and issued $100 million of 30-year debentures.
In September 1998, we issued $150 million of 30-year debentures, and, in
November 1998, we issued $50 million of 40-year notes.
As of year-end 1998, total claims-paying resources for our insurance
company stood at $7.8 billion, a 15% increase over 1997.
LIQUIDITY
- ---------
Cash flow needs at the parent company level are primarily for dividends to our
shareholders and interest payments on our debt. These requirements have
historically been met by upstreaming dividend payments from our insurance
company, which generates substantial cash flow from premium writings and
investment income. In 1998, operating cash flow was $682 million, a 24% increase
from $549 million in 1997.
Under New York state insurance law, without prior approval of the
superintendent of the state insurance department, financial guarantee insurance
companies can pay dividends from earned surplus subject to retaining a minimum
capital requirement. In our case, dividends in any 12-month period cannot be
greater than 10% of policyholders' surplus. In 1998 our insurance company paid
no dividends and at year-end 1998 had dividend capacity in excess of $228
million without special regulatory approval.
Our company has significant liquidity supporting its businesses. At
year-end 1998, cash equivalents and short-term investments totaled $444 million.
Should significant cash flow reductions occur in any of our businesses, for any
combination of reasons, we have additional alternatives for meeting ongoing cash
requirements. They include, among other things, selling or pledging our
fixed-income investments from our investment portfolio, tapping existing
liquidity facilities and new borrowings.
Our company has substantial external borrowing capacity. We maintain two
short-term bank lines totaling $650 million with a group of worldwide banks. At
year-end 1998, there were no balances outstanding under these lines.
Our investment portfolio provides a high degree of liquidity since it is
comprised of readily marketable high-quality fixed-income securities and
short-term investments. At year-end 1998, the fair value of our consolidated
investment portfolio increased 13% to $10.1 billion, as shown below:
Percent Change
--------------
In millions 1998 1997 1998 vs. 1997
- ----------------------------------------------------------------------------
Insurance operations:
Amortized cost $6,083 $5,292 15%
Unrealized gain 319 275 16%
- ----------------------------------------------------------------------------
Fair value $6,402 $5,567 15%
- ----------------------------------------------------------------------------
Municipal investment
agreements:
Amortized cost $3,542 $3,242 9%
Unrealized gain 136 99 37%
- ----------------------------------------------------------------------------
Fair value $3,678 $3,341 10%
- ----------------------------------------------------------------------------
Total portfolio at fair value $10,080 $8,908 13%
- ----------------------------------------------------------------------------
The growth of our insurance-related investments in 1998 was the result of
positive cash flows and proceeds from our financing activities, as well as an
increase in unrealized gains caused by lower interest rates at year-end. The
fair value of investments related to our municipal investment agreement business
increased 10% to $3.7 billion at year-end 1998.
Our investment portfolios are considered to be available-for-sale, and the
differences between their fair value and amortized cost, net of applicable
taxes, are reflected as an adjustment to shareholders' equity. Differences
between fair value and amortized cost arise primarily as a result of changes in
interest rates occurring after a fixed-income security is purchased, although
other factors influence fair value, including credit-related actions, supply and
demand forces and other market factors. The weighted-average credit quality of
our fixed-income portfolios has been maintained at Double-A since our inception.
Since we generally intend to hold most of our investments to maturity as part of
our risk management strategy, we expect to realize a value substantially equal
to amortized cost.
(42)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MBIA Inc.
MARKET RISK
- -----------
The fair values of some of our company's reported financial instruments are
subject to change as a result of potential interest rate movements. This
interest rate sensitivity can be estimated by projecting a hypothetical increase
in interest rates of 1.0%. Based on asset maturities and interest rates as of
year-end 1998, this hypothetical increase in interest rates would result in an
after-tax decrease in net fair value of our company's financial instruments of
$203 million. This projected change in fair value is primarily a result of our
company's "fixed-maturity securities" asset portfolio, which loses value with
increases in interest rates. Since our company is able and primarily expects to
hold the securities to maturity, it does not expect to recognize any adverse
impact to income or cash flows under the above scenario.
Our company's investment portfolio holdings are primarily U.S.
dollar-denominated fixed-income securities including municipal bonds, U.S.
government bonds, mortgage-backed securities, collateralized mortgage
obligations, corporate bonds and asset-backed securities. In modeling
sensitivity to interest rates for the taxable securities, U.S. treasury rates
are changed instantaneously by 1.0%, and the option-adjusted spreads of the
securities are held constant. Tax-exempt securities are subjected to a change in
the Municipal Triple-A General Obligation curve that would be equivalent to a
1.0% taxable interest rate change based on year-end taxable/tax-exempt ratios.
Simulation for tax-exempts is performed treating securities on a
duration-to-worst-case basis. For the liabilities evaluation, where appropriate,
the assumed discount rates used to estimate the present value of future cash
flows are increased by 1.0%.
YEAR 2000
- ----------
With the new millennium approaching, MBIA is actively managing a high-priority
Year 2000 (Y2K) program addressing the issue of whether its computer systems can
correctly distinguish between the years 1900 and 2000. The company has
established an independent Y2K testing lab in its Armonk office, with a
committee of business unit managers overseeing the project. MBIA has a budget of
$1.13 million for its 1998-2000 Y2K efforts. Expenditures are proceeding as
anticipated, and we do not expect the project budget to materially exceed this
amount. As of December 31, 1998, we have spent $326 thousand on the project.
Since the mid-1990s, MBIA has completed the re-engineering or installation of
three internally designed "mission-critical" computer systems at a cost of
approximately $11 million. The three systems are: MBIA Information Deal Analysis
System (MIDAS), which provides analysis and accounting for MBIA's financial
guarantee business; Sales Trading and Accounting Records System (STARS), which
provides administrative and client support for MBIA's municipal pooled
investment business; and Municipal Agreement Record System (MARS), which
provides analytical and accounting support for MBIA's investment agreement
business. These systems were designed as Y2K-compliant. These expenditures are
not reflected in our Y2K budget.
MBIA has initiated a comprehensive Y2K plan which includes the following
phases: assessment--completed in the second quarter of 1998;
remediation--completed in the fourth quarter of 1998; testing--completed for
STARS in the third quarter of 1998, MARS in the fourth quarter of 1998 and MIDAS
with the initial phase completed in the fourth quarter of 1998 (final testing
completion expected by the end of the first quarter of 1999); and contingency
planning--to be completed in the first quarter of 1999. This plan covers
"mission-critical" internally developed systems, vendor software, hardware and
certain third-party entities through which we conduct our business. Testing to
date indicates that functions critical to the financial guarantee business, both
domestic and international (MIDAS), were Y2K-ready as of December 31, 1998.
Additional testing will continue throughout 1999. In addition, MBIA's subsidiary
companies are actively managing their own Y2K efforts and are expected to meet
varying readiness deadlines before yearend. It is not possible at this time to
determine whether a subsidiary's Y2K failure would have a material impact on
MBIA. Additionally, MBIA is reviewing all ancillary support functions.
Evaluation, testing and re-testing will continue throughout 1999.
An area of risk to MBIA's financial guarantee business is the potential
inability of an issuer, or its trustee or paying agent, to make payments on an
MBIA-insured transaction because of failure to be Y2K-ready. To mitigate this
risk, we are surveying trustees, paying agents and selected high-volume issuers
to determine their readiness. While the survey is not complete, results to date
indicate that all respondents are either ready or planning to be ready by late
1999. If MBIA is asked to pay a claim in situations where the issuer's system
fails, we will do so and would expect to recover such payment in a short time
period. While it is not possible to predict the extent of such payments, we
believe that MBIA has adequate sources of liquidity to cover these payments.
(43)
<PAGE>
REPORT ON MANAGEMENT'S RESPONSIBILITY AND REPORT OF INDEPENDENT ACCOUNTANTS
MBIA Inc. and Subsidiaries
REPORT ON MANAGEMENT'S RESPONSIBILITY
- -------------------------------------
Management is responsible for the preparation, integrity and objectivity of the
consolidated financial statements and other financial information presented in
this annual report. The accompanying consolidated financial statements were
prepared in accordance with generally accepted accounting principles, applying
certain estimates and judgments as required.
MBIA's internal controls are designed to provide reasonable assurance as to
the integrity and reliability of the financial statements and to adequately
safeguard, verify and maintain accountability of assets. Such controls are based
on established written policies and procedures and are implemented by trained,
skilled personnel with an appropriate segregation of duties. These policies and
procedures prescribe that MBIA and all its employees are to maintain the highest
ethical standards and that its business practices are to be conducted in a
manner which is above reproach.
PricewaterhouseCoopers LLP, independent accountants, is retained to audit
the company's financial statements. Their accompanying report is based on audits
conducted in accordance with generally accepted auditing standards, which
include the consideration of the company's internal controls to establish a
basis for reliance thereon in determining the nature, timing and extent of audit
tests to be applied.
The board of directors exercises its responsibility for these financial
statements through its Audit Committee, which consists entirely of independent
non-management board members. The Audit Committee meets periodically with the
independent accountants, both privately and with management present, to review
accounting, auditing, internal controls and financial reporting matters.
/s/David H. Elliott
- -------------------
David H. Elliott
Chairman
/s/ Neil G. Budnick
- -------------------
Neil G. Budnick
Chief Financial Officer and Treasurer
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
To the Board of Directors and Shareholders of MBIA Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and changes in shareholders' equity and cash
flows present fairly, in all material respects, the financial position of MBIA
Inc. and Subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
New York, New York
February 2, 1999
(44)
<PAGE>
CONSOLIDATED BALANCE SHEETS
MBIA Inc. and Subsidiaries
<TABLE>
<CAPTION>
Dollars in thousands except per share amounts December 31, 1998 December 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed-maturity securities held as available-for-sale
at fair value (amortized cost $5,565,060 and $4,936,760) $5,884,053 $5,211,311
Short-term investments, at amortized cost (which
approximates fair value) 423,194 303,898
Other investments 94,975 51,693
- ---------------------------------------------------------------------------------------------------------------------------------
6,402,222 5,566,902
Municipal investment agreement portfolio held as available-for-sale
at fair value (amortized cost $3,542,077 and $3,241,703) 3,678,229 3,341,394
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS 10,080,451 8,908,296
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 20,757 26,296
Securities borrowed or purchased under agreements to resell 538,281 472,963
Accrued investment income 126,990 121,090
Deferred acquisition costs 230,085 216,165
Prepaid reinsurance premiums 352,699 289,508
Goodwill (less accumulated amortization of $62,423 and $55,788) 120,681 121,642
Property and equipment, at cost (less accumulated depreciation
of $39,934 and $31,882) 81,457 66,709
Receivable for investments sold 49,497 13,435
Other assets 195,666 148,887
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $11,796,564 $10,384,991
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deferred premium revenue $2,251,211 $2,090,460
Loss and loss adjustment expense reserves 270,114 103,061
Municipal investment agreements 2,587,339 1,974,165
Municipal repurchase agreements 897,718 1,177,022
Long-term debt 688,996 488,878
Short-term debt --- 20,000
Securities loaned or sold under agreements to repurchase 573,352 606,263
Deferred income taxes 343,896 298,498
Deferred fee revenue 42,964 48,126
Payable for investments purchased 95,598 44,007
Other liabilities 253,159 172,999
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 8,004,347 7,023,479
- ---------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
Shareholders' Equity:
Preferred stock, par value $1 per share; authorized shares--
10,000,000; issued and outstanding--none --- ---
Common stock, par value $1 per share; authorized shares--
200,000,000; issued shares--99,569,625 and 98,754,487 99,570 98,754
Additional paid-in capital 1,169,192 1,133,950
Retained earnings 2,246,221 1,901,608
Accumulated other comprehensive income, net of deferred income
taxes of $157,410 and $132,026 288,915 236,095
Unallocated ESOP shares (4,044) (4,083)
Unearned compensation--restricted stock (6,807) (4,812)
Treasury stock--21,717 shares in 1998 (830) ---
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 3,792,217 3,361,512
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $11,796,564 $10,384,991
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
MBIA Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31
---------------------------------------------------
Dollars in thousands except per share amounts 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INSURANCE
Revenues:
Gross premiums written $677,050 $653,848 $535,282
Ceded premiums (156,064) (116,526) (69,956)
- ---------------------------------------------------------------------------------------------------------------------------
Net premiums written 520,986 537,322 465,326
Increase in deferred premium revenue (96,436) (185,827) (171,288)
- ---------------------------------------------------------------------------------------------------------------------------
Premiums earned (net of ceded premiums
of $92,873, $62,353 and $48,679) 424,550 351,495 294,038
Net investment income 331,802 301,998 265,147
Net realized gains 29,962 16,903 9,936
Advisory fees 26,130 17,110 10,786
- ---------------------------------------------------------------------------------------------------------------------------
Total insurance revenues 812,444 687,506 579,907
Expenses:
Losses and loss adjustment 34,683 31,877 20,149
Policy acquisition costs, net 34,613 34,897 30,016
Operating 70,330 74,075 66,720
- ---------------------------------------------------------------------------------------------------------------------------
Total insurance expenses 139,626 140,849 116,885
- ---------------------------------------------------------------------------------------------------------------------------
Insurance income 672,818 546,657 463,022
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT MANAGEMENT SERVICES
Revenues 65,032 49,999 47,115
Expenses 36,012 32,958 29,328
- ---------------------------------------------------------------------------------------------------------------------------
Operating income 29,020 17,041 17,787
Net realized gains 14,179 3,416 2,572
- ---------------------------------------------------------------------------------------------------------------------------
Investment management services income 43,199 20,457 20,359
- ---------------------------------------------------------------------------------------------------------------------------
MUNICIPAL AND FINANCIAL SERVICES
Revenues 29,392 25,189 1,399
Expenses 40,682 20,694 274
- ---------------------------------------------------------------------------------------------------------------------------
Operating (loss) income (11,290) 4,495 1,125
Net realized losses (9,165) --- ---
- ---------------------------------------------------------------------------------------------------------------------------
Municipal and financial services (loss) income (20,455) 4,495 1,125
- ---------------------------------------------------------------------------------------------------------------------------
CORPORATE
Interest expense 44,620 38,645 34,665
Other expenses 85,904 7,712 1,426
- ---------------------------------------------------------------------------------------------------------------------------
Corporate expenses (130,524) (46,357) (36,091)
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 565,038 525,252 448,415
Provision for income taxes 132,310 119,642 100,679
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME $432,728 $405,610 $347,736
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE:
BASIC $4.37 $4.18 $3.68
DILUTED $4.32 $4.12 $3.62
- ---------------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding:
Basic 98,978,641 96,937,314 94,368,038
Diluted 100,163,014 98,344,163 96,159,066
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
MBIA Inc. and Subsidiaries
<TABLE>
<CAPTION>
For the years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------------------------------------------------
Accumulated
Common Stock Additional Other
--------------------- Paid-in Retained Comprehensive
In thousands except per share amounts Shares Amount Capital Earnings Income
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 92,810 $92,810 $906,182 $1,296,311 $212,924
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- -- 347,736 --
Other comprehensive income:
Change in unrealized appreciation of
investments net of change in deferred
income taxes of $50,874 -- -- -- -- (93,738)
Change in foreign currency translation -- -- -- -- (3,889)
Other comprehensive income
Total comprehensive income
Net proceeds from issuance of shares 1,690 1,690 53,190 -- --
Allocation of ESOP shares -- -- -- -- --
Unearned compensation - restricted stock -- -- -- -- --
Exercise of stock options 958 958 24,931 (1,757) --
Dividends (declared per common share
$0.725, paid per common share $0.708) -- -- -- (69,644) --
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 95,458 95,458 984,303 1,572,646 115,297
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- -- 405,610 --
Other comprehensive income:
Change in unrealized appreciation of
investments net of change in deferred
income taxes of $(69,337) -- -- -- -- 128,782
Change in foreign currency translation -- -- -- -- (7,984)
Other comprehensive income
Total comprehensive income
Net proceeds from issuance of shares 2,679 2,679 125,096 -- --
Allocation of ESOP shares -- -- -- -- --
Unearned compensation - restricted stock 67 67 3,729 -- --
Stock issued for acquisition 120 120 6,880 -- --
Exercise of stock options 430 430 13,942 -- --
Dividends (declared per common share
$0.770, paid per common share $0.765) -- -- -- (76,648) --
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 98,754 98,754 1,133,950 1,901,608 236,095
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- -- 432,728 --
Other comprehensive income:
Change in unrealized appreciation of
investments net of change in deferred
income taxes of $(25,384) -- -- -- -- 48,042
Change in foreign currency translation -- -- -- -- 4,778
Other comprehensive income
Total comprehensive income
Treasury shares acquired -- -- 830 -- --
Allocation of ESOP shares -- -- -- -- --
Unearned compensation - restricted stock 71 71 4,449 -- --
Exercise of stock options 745 745 29,963 -- --
Dividends (declared per common share
$0.790, paid per common share $0.785) -- -- -- (88,115) --
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 99,570 $99,570 $1,169,192 $2,246,221 $288,915
- --------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Con't)
For the years ended December 31, 1998, 1997 and 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Unearned
Unallocated Compensation Treasury Stock Total
ESOP Restricted --------------------- Shareholders'
In thousands except per share amounts Shares Stock Shares Amount Equity
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1996 $(6,497) $(426) $(148) $(4,086) $2,497,218
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- -- -- 347,736
Other comprehensive income:
Change in unrealized appreciation of
investments net of change in deferred
income taxes of $50,874 -- -- -- -- (93,738)
Change in foreign currency translation -- -- -- -- (3,889)
------------
Other comprehensive income (97,627)
------------
Total comprehensive income 250,109
------------
Net proceeds from issuance of shares -- -- -- -- 54,880
Allocation of ESOP shares 1,067 -- -- -- 1,067
Unearned compensation - restricted stock -- (625) -- -- (625)
Exercise of stock options -- -- 148 4,086 28,218
Dividends (declared per common share
$0.725, paid per common share $0.708) -- -- -- -- (69,644)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 (5,430) (1,051) -- -- 2,761,223
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- -- -- 405,610
Other comprehensive income:
Change in unrealized appreciation of
investments net of change in deferred
income taxes of $(69,337) -- -- -- -- 128,782
Change in foreign currency translation -- -- -- -- (7,984)
------------
Other comprehensive income 120,798
------------
Total comprehensive income 526,408
------------
Net proceeds from issuance of shares -- -- -- -- 127,775
Allocation of ESOP shares 1,347 -- -- -- 1,347
Unearned compensation - restricted stock -- (3,761) -- -- 35
Stock issued for acquisition -- -- -- -- 7,000
Exercise of stock options -- -- -- -- 14,372
Dividends (declared per common share
$0.770, paid per common share $0.765) -- -- -- -- (76,648)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 (4,083) (4,812) -- -- 3,361,512
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- -- -- 432,728
Other comprehensive income:
Change in unrealized appreciation of
investments net of change in deferred
income taxes of $(25,384) -- -- -- -- 48,042
Change in foreign currency translation -- -- -- -- 4,778
------------
Other comprehensive income 52,820
------------
Total comprehensive income 485,548
------------
Treasury shares acquired -- -- (22) (830) --
Allocation of ESOP shares 39 -- -- -- 39
Unearned compensation - restricted stock -- (1,995) -- -- 2,525
Exercise of stock options -- -- -- -- 30,708
Dividends (declared per common share
$0.790, paid per common share $0.785) -- -- -- -- (88,115)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $(4,044) $(6,807) (22) $(830) $3,792,217
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
DISCLOSURE OF RECLASSIFICATION AMOUNT: 1996 1997 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized appreciation of investments
arising during the period, net of taxes $(85,451) $141,747 $78,142
Reclassification of adjustment, net of taxes (8,287) (12,965) (30,100)
-------- -------- -------
Net unrealized appreciation, net of taxes $(93,738) $128,782 $48,042
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
MBIA Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31
Dollars in thousands 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $432,728 $405,610 $347,736
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accrued investment income (5,900) (12,501) (18,420)
Increase in deferred acquisition costs (13,920) (19,276) (20,088)
Increase in prepaid reinsurance premiums (63,191) (54,173) (21,277)
Increase in deferred premium revenue 159,627 240,000 192,565
Increase in loss and loss adjustment
expense reserves 167,053 32,762 21,246
Depreciation 8,174 6,284 4,949
Amortization of goodwill 9,051 7,751 6,380
Amortization of bond discount, net (22,699) (20,191) (20,933)
Net realized gains on sale of investments (34,976) (20,319) (12,508)
Deferred income taxes 19,943 13,191 9,521
Other, net 26,155 (30,606) 338
- ----------------------------------------------------------------------------------------------------------------
Total adjustments to net income 249,317 142,922 141,773
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 682,045 548,532 489,509
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed-maturity securities, net of
payable for investments purchased (2,479,245) (2,296,490) (1,743,180)
Sale of fixed-maturity securities, net of
receivable for investments sold 1,102,460 1,336,458 931,033
Redemption of fixed-maturity securities, net of
receivable for investments redeemed 745,515 251,793 281,860
Purchase of short-term investments (97,177) (15,022) (5,705)
Purchase of other investments (51,769) (559) (394)
Sale of other investments 1,785 1,223 862
Purchases for municipal investment
agreement portfolio, net of payable for
investments purchased (2,456,265) (1,447,004) (1,861,126)
Sales from municipal investment agreement
portfolio, net of receivable for investments sold 2,218,342 1,487,437 1,264,033
Capital expenditures, net of disposals (22,909) (17,369) (10,150)
Other, net (8,098) (14,554) (2,445)
- ----------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (1,047,361) (714,087) (1,145,212)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock -- 127,775 54,880
Net proceeds from issuance of long-term debt 197,113 98,880 ---
Net (repayment) proceeds from (retirement)
issuance of short-term debt (20,000) (9,100) 11,100
Dividends paid (85,667) (76,743) (69,795)
Proceeds from issuance of municipal 2,352,908 1,823,422 2,242,872
investment and repurchase agreements
Payments for drawdowns of municipal investment (2,017,056) (1,930,321) (1,628,310)
investment and repurchase agreements
Securities loaned or sold under agreements to (98,229) 133,300 ---
to repurchase, net
Exercise of stock options 30,708 14,372 28,218
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 359,777 181,585 638,965
- ----------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (5,539) 16,030 (16,738)
Cash and cash equivalents - beginning of year 26,296 10,266 27,004
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of year $20,757 $26,296 $10,266
- ----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income tax paid $108,297 $103,065 $79,671
Interest paid:
Municipal investment and repurchase agreements $202,502 $195,344 $172,237
Long-term debt 39,499 32,953 32,850
Short-term debt 1,057 2,017 1,309
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MBIA Inc. and Subsidiaries
NOTE 1: BUSINESS AND ORGANIZATION
- ---------------------------------
MBIA Inc. (the company) was incorporated in Connecticut on November 12, 1986 as
a licensed insurer and, through a series of transactions during December 1986,
became the successor to the business of the Municipal Bond Insurance Association
(the Association), a voluntary unincorporated association of insurers writing
municipal bond and note insurance as agent for the member insurance companies.
The company operates its insurance business primarily through its wholly owned
subsidiary, MBIA Insurance Corporation (MBIA Corp.).
Effective December 31, 1989, the company acquired for $288 million all of
the outstanding stock of Bond Investors Group, Inc. (BIG), the parent company of
Bond Investors Guaranty Insurance Company, which was subsequently renamed MBIA
Insurance Corp. of Illinois (MBIA Illinois). The acquisition of BIG has been
accounted for as a purchase, and the price was allocated to the net assets of
the acquired company based on the fair value of such assets and liabilities at
the date of acquisition.
In 1990, the company formed MBIA Assurance, S.A. (MBIA Assurance), a wholly
owned French subsidiary, to write financial guarantee insurance in the
international community. MBIA Assurance provides insurance for public
infrastructure financings, structured finance transactions and certain
obligations of financial institutions. The stock of MBIA Assurance was
contributed to MBIA Corp. in 1991 and, pursuant to a reinsurance agreement with
MBIA Corp., a substantial amount of the risks insured by MBIA Assurance is
reinsured by MBIA Corp.
At the end of 1990, MBIA Municipal Investors Services Corporation
(MBIA-MISC) was formed as a wholly owned subsidiary of the company. MBIA-MISC
operates cooperative cash management programs for school districts and
municipalities.
In 1993, the company formed a wholly owned subsidiary, MBIA Investment
Management Corp. (IMC). IMC provides guaranteed investment agreements to states,
municipalities and municipal authorities that are guaranteed as to principal and
interest.
In 1994, the company formed a wholly owned subsidiary, MBIA Securities
Corp., which was subsequently renamed MBIA Capital Management Corp. (CMC). CMC
provides fixed-income investment management services for the company, its
municipal cash management service businesses and public pension funds.
In 1996, MBIA-MISC acquired American Money Management Associates, Inc.
(AMMA), which provides investment and treasury management consulting services
for municipal and quasi-public-sector clients.
In 1996, the company formed a wholly owned subsidiary, Strategic Services,
Inc., which was subsequently renamed MBIA MuniServices Company (MBIA
MuniServices). Also in 1996, MBIA MuniServices acquired an interest in Capital
Asset Holdings, Inc. (Capital Asset), a limited partnership that buys, services
and manages delinquent municipal tax liens. In December 1998, MBIA MuniServices
acquired Capital Asset's founder's equity interest. In January 1997, MBIA
MuniServices acquired a 95 percent interest in the Municipal Tax Bureau (MTB) of
Philadelphia, a provider of tax compliance services to state and local
governments. In July 1997, MBIA MuniServices acquired MuniFinancial, a public
finance consulting firm specializing in municipal debt administration. In
January 1998, Municipal Resource Consultants (MRC), a revenue audit and
information services firm, was acquired.
On February 17, 1998, MBIA Inc. consummated a merger with CapMAC Holdings
Inc. (CapMAC). CapMAC operated its insurance business primarily through its
wholly owned subsidiary, Capital Markets Assurance Corporation (CMAC). On July
31, 1998, MBIA Inc. completed a merger of its investment management business
with 1838 Investment Advisors (1838). See Note 3 for details on these two
mergers.
In June 1998, MBIA Asset Management Corporation (MBIA-AMC) was formed as a
wholly owned subsidiary of the company to consolidate the resources and
capabilities of our investment management services. In July 1998, the company
contributed the common stock of MBIA-MISC, IMC, CMC and 1838 to MBIA-AMC.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles (GAAP). The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
accounting policies are as follows:
CONSOLIDATION The consolidated financial statements include the accounts of the
company and its significant subsidiaries. All significant intercompany balances
have been eliminated. Certain amounts have been reclassified in prior years'
financial statements to conform to the current presentation.
INVESTMENTS The company's entire investment portfolio is considered
available-for-sale and is reported in the financial statements at fair value,
with unrealized gains and losses, net of deferred taxes, reflected as a separate
component of shareholders' equity.
Bond discounts and premiums are amortized using the effective-yield method
over the remaining term of the securities. For pre-refunded bonds, the remaining
term is determined based on the contractual refunding date. Short-term
investments are carried at amortized cost, which approximates fair value, and
include all fixed-maturity securities--other than those held in the municipal
investment agreement portfolio--with a remaining term to maturity of less than
one year. Investment income is recorded as earned. Realized gains or losses on
the sale of investments are determined by specific identification and are
included as a separate component of revenues.
(49)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MBIA Inc. and Subsidiaries
Investment income from the municipal investment agreement portfolio is
recorded as a component of investment management services revenues. Municipal
investment agreement portfolio accrued interest income, receivables for
investments sold, and payables for investments purchased are included in the
respective consolidated accounts.
Other investments include the company's interest in a limited partnership,
a mutual fund that invests principally in marketable equity securities and other
equity investments. The company records dividends from these investments as a
component of investment income. In addition, the company records its share of
the unrealized gains and losses on these investments, net of applicable deferred
income taxes, as a separate component of shareholders' equity.
CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand and
demand deposits with banks.
SECURITIES BORROWED OR PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES
LOANED OR SOLD UNDER AGREEMENTS TO REPURCHASE Securities borrowed or purchased
under agreements to resell and securities loaned or sold under agreements to
repurchase are accounted for as collateralized transactions and are recorded at
principal or contract value. It is the company's policy to take possession of
securities borrowed or purchased under agreements to resell.
The company minimizes the credit risk that counterparties to transactions
might be unable to fulfill their contractual obligations by monitoring customer
credit exposure and collateral value and requiring additional collateral to be
deposited with the company when deemed necessary.
POLICY ACQUISITION COSTS Policy acquisition costs include only those expenses
that relate primarily to, and vary with, premium production. For business
produced directly by MBIA Corp., such costs include compensation of employees
involved in underwriting and policy issuance functions, certain rating agency
fees, state premium taxes and certain other underwriting expenses, reduced by
ceding commission income on premiums ceded to reinsurers. Policy acquisition
costs are deferred and amortized over the period in which the related premiums
are earned.
PREMIUM REVENUE RECOGNITION Upfront premiums are earned pro rata over the period
of risk. Premiums are allocated to each bond maturity based on par amount and
are earned on a straight-line basis over the term of each maturity. Installment
premiums are earned over each installment period--generally one year or less.
When an insured issue is retired early, is called by the issuer, or is in
substance paid in advance through a refunding or defeasance accomplished by
placing U.S. Government securities in escrow, the remaining deferred premium
revenue is earned at that time, since there is no longer risk to the company.
Accordingly, deferred premium revenue represents the portion of premiums written
that is applicable to the unexpired risk of insured bonds and notes.
ADVISORY FEE REVENUE RECOGNITION The company collects certain advisory fees for
services rendered in connection with advising clients as to the most appropriate
structure to use for a given structured finance transaction that the company
will insure. Advisory fees are deferred and earned consistent with the premium
revenues generated on the transactions.
GOODWILL Goodwill represents the excess of the cost of acquisitions over the
tangible net assets acquired. Goodwill attributed to the acquisition of MBIA
Corp. is amortized by the straight-line method over 25 years. Goodwill
attributed to the acquisition of MBIA Illinois is amortized according to the
recognition of future profits from its deferred premium revenue and installment
premiums, except for a minor portion attributed to state licenses, which is
amortized by the straight-line method over 25 years. Goodwill attributed to the
acquisition of all other subsidiaries is amortized by the straight-line method
over 15 years.
PROPERTY AND EQUIPMENT Property and equipment consist of the company's
headquarters, furniture, fixtures and equipment, which are recorded at cost and
are depreciated by the straight-line method over their estimated service lives
ranging from 3 to 31 years. Maintenance and repairs are charged to expense as
incurred.
LOSSES AND LOSS ADJUSTMENT EXPENSES Loss and loss adjustment expenses (LAE)
reserves are established in an amount equal to the company's estimate of
identified or case basis reserves and unallocated losses, including costs of
settlement, on the obligations it has insured.
Case basis reserves are established when specific insured issues are
identified as currently or likely to be in default. Such a reserve is based on
the present value of the expected loss and LAE payments, net of recoveries under
salvage and subrogation rights. The total reserve is calculated by applying a
loss factor, determined based on an independent rating agency study of bond
defaults, to net debt service written. When a case basis reserve is recorded, a
corresponding reduction is made to the unallocated reserve.
Management of the company periodically reevaluates its estimates for losses
and LAE, and any resulting adjustments are reflected in current earnings.
Management believes that the reserves are adequate to cover the ultimate net
cost of claims; however, because the reserves are based on estimates, there can
be no assurance that the ultimate liability will not exceed such estimates.
MUNICIPAL INVESTMENT AGREEMENTS AND MUNICIPAL REPURCHASE AGREEMENTS Municipal
investment agreements and municipal repurchase agreements are recorded as
liabilities on the balance sheet at the time such agreements are executed. The
liabilities for municipal investment and repurchase agreements are carried at
the face value of the agreement plus accrued interest, whereas the related
assets are recorded at fair value. Investment management services revenues
include investment income on the assets underlying the municipal investment
agreement portfolio, net of interest expense at rates specified in the
agreements, computed daily based upon the outstanding balances.
(50)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MBIA Inc. and Subsidiaries
DERIVATIVES The company's policies with respect to the use of derivative
financial instruments include limitations with respect to the amount, type and
concentration of such instruments. The company uses interest rate swaps for
hedging purposes as part of its overall risk management strategy. Gains and
losses on the derivative financial instruments that qualify as accounting hedges
of existing assets and liabilities are included with the carrying amounts and
amortized over the remaining lives of the assets and liabilities as an
adjustment to interest income or expense. When a hedged asset is sold or
liability extinguished, the unamortized gain or loss on the related hedge is
recognized in income. Gains and losses on derivative financial instruments that
do not qualify as accounting hedges are recognized in current period income. At
year-end 1998, the company's exposure to derivative financial instruments was
not material.
INVESTMENT MANAGEMENT SERVICES OPERATIONS Investment management services
revenues are comprised of the net investment income and operating revenues of
MBIA-MISC, IMC, CMC and 1838. The operating expenses of MBIA-MISC, IMC, CMC and
1838 are reported in investment management services expenses.
MUNICIPAL AND FINANCIAL SERVICES OPERATIONS Municipal and financial services
revenues are comprised of the net investment income and operating revenues of
MTB, MuniFinancial, MRC and Capital Asset. The operating expenses of MTB,
MuniFinancial, MRC and Capital Asset are reported in municipal and financial
services expenses.
CORPORATE EXPENSES Corporate expenses consist of interest expenses,
non-insurance goodwill amortization, general corporate overhead expenses and
non-recurring charges.
INCOME TAXES Deferred income taxes are provided with respect to the temporary
differences between the tax bases of assets and liabilities and the reported
amounts in the financial statements that will result in deductible or taxable
amounts in future years when the reported amount of the asset or liability is
recovered or settled. Such temporary differences relate principally to premium
revenue recognition, deferred acquisition costs and the contingency reserve.
The Internal Revenue Code permits companies writing financial guarantee
insurance to deduct from taxable income amounts added to the statutory
contingency reserve, subject to certain limitations. The tax benefits obtained
from such deductions must be invested in non-interest-bearing U.S. Government
tax and loss bonds. The company records purchases of tax and loss bonds as
payments of federal income taxes. The amounts deducted must be restored to
taxable income when the contingency reserve is released, at which time the
company may present the tax and loss bonds for redemption to satisfy the
additional tax liability.
FOREIGN CURRENCY TRANSLATION Assets and liabilities denominated in foreign
currencies are translated at year-end exchange rates. Operating results are
translated at average rates of exchange prevailing during the year. Unrealized
gains or losses resulting from translation are included as a separate component
of shareholders' equity. Gains and losses resulting from transactions in foreign
currencies are recorded in current income.
NOTE 3: MERGERS WITH CAPMAC AND 1838
- -------------------------------------
On February 17, 1998, the company consummated a merger with CapMAC by exchanging
8.1 million shares of its common stock for all of the common stock of CapMAC.
Each share of CapMAC was exchanged for 0.4675 of one share of MBIA Inc. common
stock. On July 31, 1998, the company completed a merger of its investment
management business with 1838 through the issuance of 1.1 million shares of
common stock. Each share of 1838 was exchanged for 2.134 shares of MBIA Inc.
The mergers constituted tax-free reorganizations and have been accounted
for as pooling of interests under Accounting Principles Board (APB) Opinion No.
16. Accordingly, all prior period consolidated financial statements presented
have been restated to include the combined results of operations, financial
position and cash flows of CapMAC and 1838 as though they had always been a part
of MBIA Inc.
There were no transactions between MBIA Inc., CapMAC and/or 1838 prior to
the combinations, and immaterial adjustments were recorded to conform CapMAC's
and 1838's accounting policies. Certain reclassifications were made to the
CapMAC and 1838 financial statements to conform to the company's presentations.
The results of operations for the separate companies and the combined
amounts for 1997 and 1996 presented in the consolidated financial statements
follow:
Years ended December 31
- ------------------------------------------------------------------
In thousands 1997 1996
- ------------------------------------------------------------------
Premiums earned
MBIA $299,335 $253,481
CapMAC 52,160 40,557
- ------------------------------------------------------------------
Combined $351,495 $294,038
- ------------------------------------------------------------------
Net income
MBIA $374,176 $322,163
CapMAC 23,989 19,679
1838 7,445 5,894
- ------------------------------------------------------------------
Combined $405,610 $347,736
- ------------------------------------------------------------------
For the six-month period ended June 30, 1998, 1838's revenues and net income
were $12.6 million and $4.6 million, respectively.
Effective April 1, 1998, CMAC ceded its portfolio of net insured
obligations in exchange for cash and investments equal to its statutory unearned
premium and contingency reserves of $176 million to MBIA Corp. Subsequent to
this cession, the company contributed the common stock of CMAC to MBIA Corp.
(51)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MBIA Inc. and Subsidiaries
NOTE 4: RECENT ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
In March 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee issued Statement of Position (SOP)
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The Statement requires that entities capitalize certain
internal-use software costs once certain criteria are met. The statement is
effective for fiscal years beginning after December 15, 1998. The company will
adopt SOP 98-1 in 1999. Adoption of SOP 98-1 is not expected to have a material
impact on the consolidated financial statements.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) 133, "Accounting for
Derivative Instruments and Hedging Activities." The statement requires companies
to recognize all derivatives as either assets or liabilities, with the
instruments measured at fair value. The accounting for changes in fair value,
gains or losses, depends on the intended use of the derivative and its resulting
designation. The statement is effective for fiscal years beginning after June
15, 1999. The company will adopt SFAS 133 by January 1, 2000. Adoption of SFAS
133 is not expected to have a material impact on the consolidated financial
statements.
NOTE 5: STATUTORY ACCOUNTING PRACTICES
- ---------------------------------------
The financial statements have been prepared on the basis of GAAP, which differs
in certain respects from the statutory accounting practices prescribed or
permitted by the insurance regulatory authorities. Statutory accounting
practices differ from GAAP in the following respects:
o upfront premiums are earned only when the related risk has expired rather
than over the period of the risk;
o acquisition costs are charged to operations as incurred rather than
deferred and amortized as the related premiums are earned;
o a contingency reserve is computed on the basis of statutory requirements,
and reserves for losses and LAE are established at present value for
specific insured issues that are identified as currently or likely to be in
default. Under GAAP, reserves are established based on the company's
reasonable estimate of the identified and unallocated losses and LAE on
the insured obligations it has written;
o federal income taxes are only provided on taxable income for which income
taxes are currently payable, while under GAAP, deferred income taxes are
provided with respect to temporary differences;
o fixed-maturity securities are reported at amortized cost rather than fair
value;
o tax and loss bonds purchased are reflected as admitted assets as well as
payments of income taxes; and
o certain assets designated as "non-admitted assets" are charged directly
against surplus but are reflected as assets under GAAP.
The following is a reconciliation of consolidated shareholders' equity
presented on a GAAP basis for the company and its consolidated subsidiaries to
statutory capital and surplus for MBIA Corp. and its subsidiaries:
As of December 31
- ----------------------------------------------------------
In thousands 1998 1997
- ----------------------------------------------------------
Company's GAAP
shareholders' equity $3,792,217 $3,361,512
Contributions to MBIA Corp. 485,738 459,567
Premium revenue recognition (448,250) (413,729)
Deferral of acquisition costs (230,085) (216,165)
Unrealized gains (450,587) (377,161)
Contingency reserve (1,450,413) (1,187,882)
Loss and LAE reserves 81,489 77,816
Deferred income taxes 348,534 298,498
Tax and loss bonds 162,523 130,055
Goodwill (90,950) (95,829)
Other 89,753 (85,172)
- ----------------------------------------------------------
Statutory capital and surplus $2,289,969 $1,951,510
- ----------------------------------------------------------
Consolidated net income of MBIA Corp. determined in accordance with statutory
accounting practices for the years ended December 31, 1998, 1997 and 1996 was
$509.9 million, $404.4 million and $335.3 million, respectively.
NOTE 6: PREMIUMS EARNED FROM REFUNDED AND CALLED BONDS
- -------------------------------------------------------
Premiums earned include $68.4 million, $50.9 million and $44.4 million for 1998,
1997 and 1996, respectively, related to refunded and called bonds.
NOTE 7: INVESTMENTS
- --------------------
The company's investment objective is to optimize long-term, after-tax returns
while emphasizing the preservation of capital through maintenance of
high-quality investments with adequate liquidity. The company's investment
policies limit the amount of credit exposure to any one issuer. The
fixed-maturity portfolio is comprised of high-quality (average rating Double-A)
taxable and tax-exempt investments of diversified maturities.
The following tables set forth the amortized cost and fair value of the
fixed-maturities and short-term investments included in the consolidated
investment portfolio of the company, as of December 31, 1998 and 1997.
(52)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MBIA Inc. and Subsidiaries
Gross Gross
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
- ------------------------------------------------------------------------------
December 31, 1998
Taxable bonds
United States Treasury
and Government Agency $ 517,015 $ 47,637 $ (351) $ 564,301
Corporate and
other obligations 3,555,858 145,224 (3,875) 3,697,207
Mortgage-backed 1,684,081 27,918 (965) 1,711,034
Tax-exempt bonds
State and
municipal obligations 3,773,377 241,200 (1,643) 4,012,934
- ------------------------------------------------------------------------------
Total $9,530,331 $461,979 $(6,834) $9,985,476
- ------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
- ------------------------------------------------------------------------------
December 31, 1997
Taxable bonds
United States Treasury
and Government Agency $ 547,206 $ 30,668 $ (4) $ 577,870
Corporate and
other obligations 3,156,676 96,520 (1,114) 3,252,082
Mortgage-backed 1,495,667 30,579 (1,054) 1,525,192
Tax-exempt bonds
State and
municipal obligations 3,282,812 219,613 (966) 3,501,459
- -------------------------------------------------------------------------------
Total $8,482,361 $377,380 $(3,138) $8,856,603
- ------------------------------------------------------------------------------
Fixed-maturity investments carried at fair value of $12.0 million as of December
31, 1998 and 1997 were on deposit with various regulatory authorities to comply
with insurance laws.
A portion of the obligations under municipal investment and repurchase
agreements require the company to pledge securities as collateral. As of
December 31, 1998 and 1997, the fair value of securities pledged as collateral
with respect to these obligations approximated $1.9 billion and $1.8 billion,
respectively.
The following table sets forth the distribution by expected maturity of the
fixed-maturities and short-term investments at amortized cost and fair value at
December 31, 1998. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations.
Amortized Fair
In thousands Cost Value
- -----------------------------------------------------------------------
Within 1 year $ 609,214 $ 609,214
Beyond 1 yr but within 5 yrs 1,611,852 1,659,022
Beyond 5 yrs but within 10 yrs 1,803,020 1,913,486
Beyond 10 yrs but within 15 yrs 1,040,833 1,137,264
Beyond 15 yrs but within 20 yrs 1,203,057 1,286,931
Beyond 20 yrs 1,578,274 1,668,525
- -----------------------------------------------------------------------
7,846,250 8,274,442
Mortgage-backed 1,684,081 1,711,034
- -----------------------------------------------------------------------
Total fixed-maturities and
short-term investments $9,530,331 $9,985,476
- -----------------------------------------------------------------------
NOTE 8: INVESTMENT INCOME AND GAINS AND LOSSES
- -----------------------------------------------
Investment income consists of:
Years ended December 31
- -------------------------------------------------------------------------
In thousands 1998 1997 1996
- -------------------------------------------------------------------------
Fixed-maturities $331,857 $299,069 $261,200
Short-term investments 5,692 8,042 7,463
Other investments 16 (1,542) (383)
- -------------------------------------------------------------------------
Gross investment income 337,565 305,569 268,280
Investment expenses 5,763 3,571 3,133
Net investment income 331,802 301,998 265,147
- -------------------------------------------------------------------------
Net realized gains (losses):
Fixed-maturities
Gains 32,211 25,963 17,532
Losses (3,149) (5,877) (5,889)
- -------------------------------------------------------------------------
Net 29,062 20,086 11,643
- -------------------------------------------------------------------------
Other investments
Gains 901 564 333
Losses (1) (3,747) (2,040)
- -------------------------------------------------------------------------
Net 900 (3,183) (1,707)
- -------------------------------------------------------------------------
Total net realized gains 29,962 16,903 9,936
- -------------------------------------------------------------------------
Total investment income $361,764 $318,901 $275,083
- -------------------------------------------------------------------------
Total investment income excludes investment income and realized gains and losses
from our investment management and municipal and financial services segments.
Net unrealized gains consist of:
(53)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MBIA Inc. and Subsidiaries
As of December 31
- ---------------------------------------------------------
In thousands 1998 1997
- ---------------------------------------------------------
Fixed-maturities:
Gains $461,979 $377,380
Losses (6,834) (3,138)
- ---------------------------------------------------------
Net 455,145 374,242
- ---------------------------------------------------------
Other investments:
Gains 2,936 2,976
Losses (7,494) (57)
- ---------------------------------------------------------
Net (4,558) 2,919
- ---------------------------------------------------------
Total 450,587 377,161
Deferred income taxes 157,410 132,026
- ---------------------------------------------------------
Unrealized gains, net $293,177 $245,135
- ---------------------------------------------------------
The deferred income taxes relate primarily to unrealized gains and losses on the
company's fixed-maturity investments, which are reflected in shareholders'
equity.
The change in net unrealized gains (losses) consists of:
Years ended December 31
- -------------------------------------------------------------
In thousands 1998 1997 1996
- -------------------------------------------------------------
Fixed-maturities $80,903 $196,042 $(146,050)
Other investments (7,477) 2,077 1,438
- -------------------------------------------------------------
Total 73,426 198,119 (144,612)
Deferred income taxes 25,384 69,337 (50,874)
- -------------------------------------------------------------
Unrealized gains
(losses), net $48,042 $128,782 $ (93,738)
- -------------------------------------------------------------
NOTE 9: INCOME TAXES
- ---------------------
The company files a consolidated tax return that includes all of its U.S.
subsidiaries. The provision for income taxes is composed of:
Years ended December 31
- -------------------------------------------------------------
In thousands 1998 1997 1996
- -------------------------------------------------------------
Current $112,367 $106,452 $ 91,158
Deferred 19,943 13,190 9,521
- -------------------------------------------------------------
Total $132,310 $119,642 $100,679
- -------------------------------------------------------------
The provision for income taxes gives effect to permanent differences between
financial and taxable income. Accordingly, the company's effective income tax
rate differs from the statutory rate on ordinary income. The reasons for the
company's lower effective tax rates are as follows:
Years ended December 31
- ---------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------
Income taxes computed
on pre-tax financial
income at statutory rates 35.0% 35.0% 35.0%
Increase (reduction) in
taxes resulting from:
Tax-exempt interest (10.8) (10.6) (12.1)
Amortization of goodwill 0.4 0.3 0.4
Other (1.2) (1.9) (0.8)
- ---------------------------------------------------------------
Provision for income taxes 23.4% 22.8% 22.5%
- ---------------------------------------------------------------
The company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The effect on tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the
enactment date.
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities at December 31, 1998 and 1997 are presented below:
In thousands 1998 1997
- ------------------------------------------------------------------
Deferred tax assets:
Tax and loss bonds $160,064 $130,080
Alternative minimum
tax credit carryforward 54,722 62,279
Loss and loss adjustment
expense reserves 26,458 23,762
Other 53,745 92,099
- ------------------------------------------------------------------
Total gross deferred
tax assets 294,989 308,220
- ------------------------------------------------------------------
Deferred tax liabilities:
Contingency reserve 280,203 229,389
Deferred premium revenue 106,555 154,240
Deferred acquisition costs 77,953 73,081
Unrealized gains 157,410 132,026
Contingent commissions 408 408
Other 16,356 17,574
- ------------------------------------------------------------------
Total gross deferred
tax liabilities 638,885 606,718
- ------------------------------------------------------------------
Net deferred tax liability $343,896 $298,498
- ------------------------------------------------------------------
The company believes that a valuation allowance is unnecessary in connection
with the deferred tax assets.
NOTE 10: NET INCOME PER COMMON SHARE
- -------------------------------------
In February 1997, the FASB issued SFAS 128, "Earnings per Share," effective for
financial statements issued for periods ending after December 15, 1997. SFAS 128
established standards for computing and presenting earnings per share (EPS).
Under the new standard, basic EPS is computed by dividing income applicable to
common stock by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the additional dilution that could occur from
employee stock options and other items that could potentially result in the
issuance of common stock. The company has adopted this Statement and, as
required, has restated all prior-period EPS data presented. The following table
provides a reconciliation of the denominator of the basic EPS computation to the
denominator of the diluted EPS computation:
(54)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MBIA Inc. and Subsidiaries
Years ended December 31
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
Net income (in thousands) $432,728 $405,610 $347,736
Basic weighted
average shares 98,978,641 96,937,314 94,368,038
Effect of stock options 1,184,373 1,406,849 1,791,028
- -------------------------------------------------------------------------------
Diluted weighted
average shares 100,163,014 98,344,163 96,159,066
- -------------------------------------------------------------------------------
Basic EPS $4.37 $4.18 $3.68
Diluted EPS $4.32 $4.12 $3.62
- -------------------------------------------------------------------------------
Options to purchase 621,244, 292,100 and 256,028 shares of common stock during
1998, 1997 and 1996, respectively, were not included in the computation of
diluted EPS because the options exercise price was greater than the average
market price of common shares during the respective years.
NOTE 11: BUSINESS SEGMENTS
- ---------------------------
MBIA Inc., through its subsidiaries, is a leading provider of financial
guarantee and specialized financial services. MBIA provides innovative and
cost-effective products and services that meet the credit enhancement, financial
and investment needs of its public- and private-sector clients, domestically and
internationally. MBIA Inc. has three principal businesses: financial guarantee,
investment management services, and municipal & financial services. Each of
these is a business segment, with its respective financial performance detailed
in this report.
Financial guarantee business provides an unconditional and irrevocable
guarantee of the payment of principal and interest on insured obligations when
due.
Investment management services business provides an array of products and
services to the public and not-for-profit sectors. These include local
government investment pools, investment agreements, and discretionary and
non-discretionary portfolio management services.
Municipal and financial services business purchases and services municipal
real estate tax lien certificates and provides tax compliance services to public
sector entities.
Business segment results are presented gross of intersegment transactions,
which are not material to each segment. The following provides each business
segment's revenues, operating income, income (loss) and assets:
Year ended December 31, 1998
- --------------------------------------------------------------------------------
Investment Municipal &
Financial Management Financial
In thousands Guarantee Services Services Total
- -------------------------------------------------------------------------------
Operating revenues $ 782,482 $ 65,032 $ 29,392 $ 876,906
Expenses (139,626) (36,012) (40,682) (216,320)
- --------------------------------------------------------------------------------
Operating income 642,856 29,020 (11,290) 660,586
Realized gains (losses) 29,962 14,179 (9,165) 34,976
- --------------------------------------------------------------------------------
Income (loss)
from segments $ 672,818 $ 43,199 $(20,455) 695,562
- --------------------------------------------------------------------------------
Corporate expenses (130,524)
- --------------------------------------------------------------------------------
Pretax income $ 565,038
- --------------------------------------------------------------------------------
Segment assets $7,133,425 $4,497,333 $165,806 $11,796,564
- --------------------------------------------------------------------------------
Year ended December 31, 1997
- --------------------------------------------------------------------------------
Investment Municipal &
Financial Management Financial
In thousands Guarantee Services Services Total
- -------------------------------------------------------------------------------
Operating revenues $ 670,603 $ 49,999 $ 25,189 $ 745,791
Expenses (140,849) (32,958) (20,694) (194,501)
- -------------------------------------------------------------------------------
Operating income 529,754 17,041 4,495 551,290
Realized gains 16,903 3,416 --- 20,319
- -------------------------------------------------------------------------------
Income from segments $ 546,657 $ 20,457 $ 4,495 571,609
- -------------------------------------------------------------------------------
Corporate expenses (46,357)
- -------------------------------------------------------------------------------
Pretax income $ 525,252
- -------------------------------------------------------------------------------
Segment assets $6,200,516 $4,082,446 $102,029 $10,384,991
- -------------------------------------------------------------------------------
(55)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MBIA Inc. and Subsidiaries
Year ended December 31, 1996
- --------------------------------------------------------------------------------
Investment Municipal &
Financial Management Financial
In thousands Guarantee Services Services Total
- -------------------------------------------------------------------------------
Operating revenues $ 569,971 $ 47,115 $ 1,399 $ 618,485
Expenses (116,885) (29,328) (274) (146,487)
- --------------------------------------------------------------------------------
Operating income 453,086 17,787 1,125 471,998
Realized gains 9,936 2,572 --- 12,508
- --------------------------------------------------------------------------------
Income from segments $ 463,022 $ 20,359 $ 1,125 484,506
- --------------------------------------------------------------------------------
Corporate expenses (36,091)
- --------------------------------------------------------------------------------
Pretax income $ 448,415
- --------------------------------------------------------------------------------
Segment assets $5,319,809 $3,679,974 $31,094 $9,030,877
- --------------------------------------------------------------------------------
NOTE 12: STOCK SPLIT
- ---------------------
On September 17, 1997, the board of directors approved a two-for-one stock
split, to be effected in the form of a 100% stock dividend payable on October
29, 1997 to shareholders of record as of October 1, 1997. An amount equal to the
par value of common shares issued was transferred from additional paid-in
capital to the common stock account. This transfer has been reflected in the
Consolidated Statements of Changes in Shareholders' Equity at January 1, 1996.
All references to the number of common shares, except shares authorized, and to
per share information in the consolidated financial statements and related
notes, have been adjusted to reflect the stock split on a retroactive basis.
NOTE 13: DIVIDENDS AND CAPITAL REQUIREMENTS
- --------------------------------------------
Under New York state insurance law, MBIA Corp. may pay dividends only from
earned surplus subject to the maintenance of a minimum capital requirement. The
dividends in any 12-month period may not exceed the lesser of 10% of its
policyholders' surplus as shown on its last filed statutory basis financial
statements or of adjusted net investment income, as defined, for such 12-month
period, without prior approval of the superintendent of the New York State
Insurance Department.
In accordance with such restrictions on the amount of dividends that can be
paid in any 12-month period, MBIA Corp. had in excess of $228 million available
for the payment of dividends to the company as of December 31, 1998. In 1998 and
1997, no dividends were paid by MBIA Corp. to the company due to cash available
from financing activities. In 1996, MBIA Corp. declared and paid dividends of
$29 million to the company.
The insurance departments of New York state and certain other statutory
insurance regulatory authorities, and the agencies that rate the bonds insured
by MBIA Corp. and its subsidiaries, have various requirements relating to the
maintenance of certain minimum ratios of statutory capital and reserves to net
insurance in force. MBIA Corp. and its subsidiaries were in compliance with
these requirements as of December 31, 1998.
NOTE 14: LONG-TERM DEBT AND LINES OF CREDIT
- --------------------------------------------
Long-term debt consists of:
As of December 31
- ---------------------------------------------------
In thousands 1998 1997
- ---------------------------------------------------
7.520% Notes due 1999-2002 $ 15,000 $ 15,000
9.000% Notes due 2001 100,000 100,000
9.375% Notes due 2011 100,000 100,000
8.200% Debentures due 2022 100,000 100,000
7.000% Debentures due 2025 75,000 75,000
7.150% Debentures due 2027 100,000 100,000
6.625% Debentures due 2028 150,000 ---
6.950% Notes due 2038 50,000 ---
- ---------------------------------------------------
690,000 490,000
Less unamortized discount 1,004 1,122
- ---------------------------------------------------
Total $688,996 $488,878
- ---------------------------------------------------
The company's long-term debt is subject to certain covenants, none of which
significantly restrict the company's operating activities or dividend-paying
ability.
MBIA Corp. has a standby line of credit commitment in the amount of $825
million with a group of major Triple-A-rated banks to provide loans to MBIA
Corp. if it incurs cumulative losses (net of any recoveries) from October 7,
1998 in excess of the greater of $825 million or 4.00% of average annual debt
service. The obligation to repay loans made under this agreement is a limited
recourse obligation payable solely from, and collateralized by, a pledge of
recoveries realized on defaulted insured obligations including certain
installment premiums and other collateral. This commitment has a seven-year term
expiring on October 31, 2005, and contains an annual renewal provision subject
to approval by the bank group. CMAC maintains stop-loss reinsurance coverage of
$75 million in excess of incurred losses of $150 million.
The company and MBIA Corp. maintain bank liquidity facilities totaling $650
million. During 1998, these facilities replaced existing facilities aggregating
$450 million. At December 31, 1997, $20 million was outstanding under those
facilities.
The company has outstanding letters of credit for MBIA-MISC that are
intended to support the net asset value of certain investment pools managed by
MBIA-MISC. These letters can be drawn upon in the event the liquidation of such
assets at below cost is required.
(56)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MBIA Inc. and Subsidiaries
NOTE 15: OBLIGATIONS UNDER MUNICIPAL INVESTMENT AGREEMENTS AND MUNICIPAL
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
Obligations under municipal investment agreements and municipal repurchase
agreements are recorded as liabilities on the balance sheet based upon proceeds
received plus unpaid accrued interest from that date. Upon the occurrence of
certain contractually agreed-upon events, some of these funds may be withdrawn
at various times prior to maturity at the option of the investor. As of December
31, 1998, the interest rates on these agreements ranged from 2.5% to 8.02%.
Principal payments due under these investment agreements in each of the
next five years ending December 31 and thereafter, based upon expected
withdrawal dates, were as follows:
In thousands Principal Amount
- ----------------------------------------------------
Expected withdrawal date:
1999 $1,170,515
2000 702,480
2001 284,307
2002 131,305
2003 49,329
Thereafter 1,112,543
- ----------------------------------------------------
Total $3,450,479
- ----------------------------------------------------
IMC also provides agreements obligating it to purchase designated securities in
a bond reserve fund at par value upon the occurrence of certain contractually
agreed-upon events. The opportunities and risks in these agreements are
analogous to those of municipal investment agreements and municipal repurchase
agreements. The total par value of securities subject to these agreements was
$43 million at December 31, 1998.
NOTE 16: NET INSURANCE IN FORCE
- --------------------------------
MBIA Corp. guarantees the timely payment of principal and interest on municipal,
asset-/mortgage-backed and other non-municipal securities. MBIA Corp.'s ultimate
exposure to credit loss in the event of nonperformance by the insured is
represented by the insurance in force as set forth below.
As of December 31, 1998, insurance in force, net of cessions to reinsurers,
had a range of maturity of 1-41 years. The distribution of net insurance in
force by geographic location, excluding $3.5 billion and $3.2 billion relating
to IMC municipal investment agreements guaranteed by MBIA Corp. in 1998 and
1997, respectively, is set forth in the following table:
<TABLE>
<CAPTION>
As of December 31
- -------------------------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------- ---------------------------------
Net Number % of Net Net Number % of Net
$ in billions Insurance of Issues Insurance Insurance of Issues Insurance
Geographic Location In Force Outstanding In Force In Force Outstanding In Force
- ----------------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic:
California $ 76.3 3,681 12.8% $ 68.8 3,455 13.4%
New York 61.6 5,310 10.3 38.2 5,057 7.4
Florida 36.1 1,589 6.1 33.1 1,578 6.5
New Jersey 26.2 1,884 4.4 24.7 1,885 4.8
Texas 25.3 2,131 4.2 24.7 2,099 4.8
Pennsylvania 24.7 2,278 4.1 23.0 2,262 4.5
Illinois 23.7 1,275 4.0 20.3 1,236 4.0
Massachusetts 18.4 1,107 3.1 15.5 1,089 3.0
Michigan 14.6 1,066 2.5 11.2 1,032 2.2
Ohio 13.8 1,076 2.3 12.5 1,014 2.4
Subtotal 320.7 21,397 53.8 272.0 20,707 53.0
Nationally diversified 81.7 842 13.7 75.3 746 14.6
Other states 169.0 12,004 28.4 148.3 11,532 28.9
- -------------------------------------------------------------------------------------------------------
Total domestic 571.4 34,243 95.9 495.6 32,985 96.5
International 24.5 323 4.1 18.1 279 3.5
- -------------------------------------------------------------------------------------------------------
Total $595.9 34,566 100.0% $513.7 33,264 100.0%
- -------------------------------------------------------------------------------------------------------
</TABLE>
(57)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MBIA Inc. and Subsidiaries
The insurance policies issued by MBIA Corp. are unconditional commitments
to guarantee timely payment on the bonds and notes to bondholders. The
creditworthiness of each insured issue is evaluated prior to the issuance of
insurance, and each insured issue must comply with MBIA Corp.'s underwriting
guidelines. Further, the payments to be made by the issuer on the bonds or notes
may be backed by a pledge of revenues, reserve funds, letters of credit,
investment contracts or collateral in the form of mortgages or other assets. The
right to such money or collateral would typically become MBIA Corp.'s upon the
payment of a claim by MBIA Corp.
Under certain MBIA Corp.'s structured asset-backed transactions, a pool of
assets covering at least 100% of the principal amount guaranteed under its
insurance contract is sold or pledged to a special-purpose bankruptcy remote
entity. MBIA Corp.'s primary risk from such insurance contracts is the
impairment of cash flows due to delinquency or loss on the underlying assets.
MBIA Corp. therefore evaluates all the factors affecting past and future asset
performance by studying historical data on losses, delinquencies and recoveries
of the underlying assets. Each transaction is reviewed to ensure that an
appropriate legal structure is used to protect against the bankruptcy risk of
the originator of the assets. Along with the legal structure, an additional
level of first-loss protection is also created to protect against losses due to
credit or dilution. This first level of loss protection is usually available
from reserve funds, excess cash flows, overcollateralization or recourse to a
third party. The level of first-loss protection depends upon the historical
losses and dilution of the underlying assets, but is typically several times the
normal historical loss experience for the underlying type of assets. The
distribution of net insurance in force by type of bond is set forth in the table
below:
<TABLE>
<CAPTION>
As of December 31
- ---------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------- ---------------------------------
Net Number % of Net Net Number % of Net
$ in billions Insurance of Issues Insurance Insurance of Issues Insurance
Type of Bond In Force Outstanding In Force In Force Outstanding In Force
- ------------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Municipal:
General obligation $140.7 12,694 23.6% $119.5 12,096 23.3%
Utilities 80.9 4,895 13.6 75.4 4,775 14.7
Health care 70.9 2,241 11.9 62.2 2,248 12.1
Transportation 46.2 1,543 7.7 40.6 1,503 7.9
Special revenue 42.8 1,787 7.2 34.2 1,653 6.7
Higher education 26.7 1,498 4.5 20.6 1,366 4.0
Housing 22.3 2,161 3.7 18.9 1,896 3.7
Industrial development
and pollution
control revenue 19.4 1,037 3.3 19.6 943 3.8
Other 5.6 75 0.9 12.5 543 2.4
- ------------------------------------------------------------- ---------------------------------
Total municipal 455.5 27,931 76.4 403.5 27,023 78.6
- ------------------------------------------------------------- ---------------------------------
Structured finance* 97.1 850 16.3 74.8 709 14.5
- ------------------------------------------------------------- ---------------------------------
Other:
Investor-owned
utilities 13.0 5,068 2.2 11.0 4,872 2.2
Financial institution 5.4 381 0.9 5.8 366 1.1
Corporate direct 0.4 13 0.1 0.5 15 0.1
- ------------------------------------------------------------- ---------------------------------
Total other 18.8 5,462 3.2 17.3 5,253 3.4
- ------------------------------------------------------------- ---------------------------------
Total domestic 571.4 34,243 95.9 495.6 32,985 96.5
- ------------------------------------------------------------- ---------------------------------
International
Infrastructure:
Sovereign 1.6 32 0.3 1.9 35 0.4
Transportation 1.4 12 0.2 0.8 5 0.1
Sub-sovereign 1.2 44 0.2 1.4 53 0.3
Higher education 0.9 13 0.1 0.6 1 0.1
Housing 0.6 3 0.1 0.3 2 0.1
Health care 0.4 6 0.1 0.2 6 --
Utilities 0.4 4 0.1 0.8 60 0.2
- ------------------------------------------------------------- ---------------------------------
Total infrastructure 6.5 114 1.1 6.0 162 1.2
- ------------------------------------------------------------- ---------------------------------
Structured finance* 14.8 102 2.5 9.3 76 1.8
Other:
Investor-owned utilities 1.8 72 0.3 0.6 7 0.1
Financial institution 1.0 29 0.1 1.9 25 0.4
Corporate direct 0.4 6 0.1 0.3 9 --
- ------------------------------------------------------------- ---------------------------------
Total other 3.2 107 0.5 2.8 41 0.5
- ------------------------------------------------------------- ---------------------------------
Total international 24.5 323 4.1 18.1 279 3.5
- ------------------------------------------------------------- ---------------------------------
Total $595.9 34,566 100.0% $513.7 33,264 100.0%
- ------------------------------------------------------------- ---------------------------------
*Asset-/mortgage-backed
</TABLE>
(58)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MBIA Inc. and Subsidiaries
NOTE 17: REINSURANCE
- ---------------------
MBIA Corp. reinsures exposure with other insurance companies under various
treaty and facultative reinsurance contracts, both on a pro rata and excess of
loss basis. In the event that any or all of the reinsurers were unable to meet
their obligations, MBIA Corp. would be liable for such defaulted amounts.
Amounts deducted from gross insurance in force for reinsurance ceded by
MBIA Corp. and its subsidiaries were $108.2 billion and $76.6 billion at
December 31, 1998 and 1997, respectively. The distribution of ceded insurance in
force by type of bond and geographic location is set forth in the following
tables:
As of December 31
------------------------------------------------
1998 1997
----------------------- -----------------------
% of % of
Ceded Ceded Ceded Ceded
In billions Insurance Insurance Insurance Insurance
Type of Bond In Force In Force In Force In Force
- --------------------------------------------- -----------------------
Domestic
Municipal:
Utilities $ 15.5 14.3% $11.6 15.1%
General obligation 15.4 14.2 12.3 16.1
Health care 13.4 12.4 8.0 10.5
Transportation 10.6 9.8 9.6 12.5
Special revenue 5.8 5.3 5.0 6.5
Industrial
development
and pollution
control revenue 3.8 3.5 3.3 4.3
Housing 2.3 2.1 1.7 2.2
Higher education 1.7 1.6 1.3 1.7
Other 1.2 1.1 2.7 3.5
- --------------------------------------------- ----------------------
Total municipal 69.7 64.3 55.5 72.4
Structured finance* 19.5 18.0 8.4 11.0
- --------------------------------------------- ----------------------
Other:
Investor-owned
utilities 1.3 1.2 0.5 0.6
Financial inst. 0.9 0.8 1.3 1.7
Corporate direct 0.1 0.1 0.2 0.3
- --------------------------------------------- ----------------------
Total other 2.3 2.1 2.0 2.6
- --------------------------------------------- ----------------------
Total domestic 91.5 84.4 65.9 86.0
- --------------------------------------------- ----------------------
International
Infrastructure:
Transportation 1.3 1.2 0.4 0.5
Higher education 1.0 0.9 0.7 0.9
Sovereign 0.8 0.7 1.0 1.3
Sub-sovereign 0.4 0.4 0.6 0.8
Utilities 0.4 0.4 -- --
Health care 0.2 0.2 0.2 0.3
Housing 0.1 0.1 -- --
- --------------------------------------------- ----------------------
Total
infrastructure 4.2 3.9 2.9 3.8
- --------------------------------------------- ----------------------
Structured finance* 11.1 10.3 6.6 8.6
- --------------------------------------------- ----------------------
Other:
Financial inst 0.5 0.5 1.0 1.3
Corporate direct 0.5 0.5 -- --
Investor-owned
utilities 0.4 0.4 0.2 0.3
- --------------------------------------------- ----------------------
Total other 1.4 1.4 1.2 1.6
- --------------------------------------------- ----------------------
Total int'l 16.7 15.6 10.7 14.0
- --------------------------------------------- ----------------------
Total $108.2 100.0% $76.6 100.0%
- --------------------------------------------- ----------------------
* Asset-/mortgage-backed
As of December 31
------------------------------------------------
1998 1997
----------------------- -----------------------
% of % of
Ceded Ceded Ceded Ceded
In billions Insurance Insurance Insurance Insurance
Geographic Location In Force In Force In Force In Force
- --------------------------------------------- -----------------------
Domestic:
California $ 12.4 11.5% $10.4 13.6%
New York 10.7 9.9 6.1 8.0
New Jersey 5.4 5.0 3.7 4.9
Texas 5.3 4.9 4.0 5.2
Pennsylvania 3.8 3.5 3.0 3.9
Massachusetts 3.7 3.4 3.0 3.9
Illinois 3.4 3.1 2.7 3.5
Florida 3.2 3.0 2.6 3.4
Puerto Rico 3.1 2.9 2.4 3.1
Colorado 2.3 2.1 2.4 3.1
- --------------------------------------------- -----------------------
Subtotal 53.3 49.3 40.3 52.6
Nationally
diversified 14.6 13.5 8.3 10.8
Other states 23.6 21.8 17.3 22.6
- --------------------------------------------- -----------------------
Total domestic 91.5 84.6 65.9 86.0
International 16.7 15.4 10.7 14.0
- --------------------------------------------- -----------------------
Total $108.2 100.0% $76.6 100.0%
- --------------------------------------------- -----------------------
As part of the company's portfolio shaping activity in 1998, the company has
entered into facultative share reinsurance agreements with highly rated
reinsurers that obligate the company to cede future premiums to the reinsurers
through January 1, 2005. Certain reinsurance contracts in 1998 were accounted
for on a retroactive basis in accordance with SFAS 113.
Ceding commissions received from reinsurers before deferrals were $37.2
million, $20.8 million and $13.7 million in 1998, 1997 and 1996, respectively.
In 1998, $170.0 million was received in reinsurance recoveries related to the
bankruptcy of a Pennsylvania hospital group.
NOTE 18: PENSION AND PROFIT SHARING PLANS
- ------------------------------------------
The company has a non-contributory, defined contribution pension plan to which
the company contributes 10% of each eligible employee's annual total
compensation. Pension expense for the years ended December 31, 1998, 1997 and
1996 was $7.3 million, $4.6 million and $3.9 million, respectively. The company
also has a profit-sharing/401(k) plan that allows eligible employees to
contribute up to 10% of eligible compensation. The company matches employee
contributions up to the first 5% of total compensation. Company contributions to
the profit-sharing/401(k) plan aggregated $2.9 million, $1.9 million and $1.7
million for the years ended December 31, 1998, 1997 and 1996, respectively. The
profit-sharing/401(k) plan company match amounts are invested in common stock of
the company. Amounts relating to the above plans that exceed limitations
established by federal regulations are contributed to a non-qualified deferred
compensation plan. In 1998 former CapMAC and 1838 employees were covered under
the company's pension and profit-sharing plans.
(59)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MBIA Inc. and Subsidiaries
NOTE 19: LONG-TERM INCENTIVE PLANS
- -----------------------------------
On March 2, 1987, the company adopted a plan for key employees of the company
and its subsidiaries to enable those employees to acquire shares of common stock
of the company or to benefit from appreciation in the price of the common stock
of the company. Options granted will either be Incentive Stock Options (ISOs),
where they qualify under Section 422(a) of the Internal Revenue Code, or
Non-Qualified Stock Options (NQSOs).
ISOs and NQSOs may be granted at a price not less than 100% of the fair
value of the company's common stock as determined on the date granted. Options
will be exercisable as specified at the time of grant and expire ten years from
the date of grant (or shorter if specified or following termination of
employment).
The board of directors of the company has authorized a maximum of 9,311,122
shares of the company's common stock to be granted as options. As of December
31, 1998, 6,925,872 options had been granted, net of expirations and
cancellations, leaving the total number available for future grants at
2,385,250. Options granted through 1990 are exercisable in equal annual
installments on each of the first three anniversaries of the grant at 100% of
the market price at the date of grant. The options granted from 1991 through
1994 are exercisable in five equal annual installments commencing one year after
the date of grant. On all options granted from 1991 through 1994, accelerated
vesting and exercisability of those options is possible if the company's return
on equity for the year is at least equal to the threshold return on equity
specified in the annual financial plan and if earnings per share are at least
2.5% greater than plan earnings per share.
In December 1995, the MBIA Inc. Board of Directors approved the "MBIA
Long-Term Incentive Program." The incentive program includes a stock option
program and adds a compensation component linked to the growth in adjusted book
value per share (ABV) of the company's stock. Awards under the long-term program
are divided equally between the two components, with 50% of the award given in
stock options and 50% of the award (multiplied by a 1.5 conversion factor for
the December 1995 award only) to be paid in cash or shares of company stock.
Target levels for the option/incentive award are established as a
percentage of total salary and bonus, based upon the recipient's position.
Awards under the long-term program typically will be granted from the vice
president level up to and including the chairman and chief executive officer.
The ABV portion of the long-term incentive program may be awarded every
year. The 1998 award will cover growth in ABV from December 31, 1998 through
December 31, 2001; the 1997 award will cover growth in ABV from December 31,
1997 through December 31, 2000; and the 1995 award will cover growth in ABV from
December 31, 1995 through December 31, 1998, with a base line growth of 12% on
all awards. The amount to be paid in respect of such award will be adjusted
upward or downward based on the actual ABV growth, with a minimum growth of 8%
necessary to receive any payment and an 18% growth needed to receive the maximum
payment of 200% of the target levels. The amount, if any, to be paid under this
portion of the program will be paid in early 2002 for the 1998 award, in early
2001 for the 1997 award and early 1999 for the 1995 award in the form of cash or
shares of the company's common stock. Subsequent awards, if any, will be made
every year with concomitant payments occurring after the three-year cycle.
During 1998, 1997 and 1996, $5.5 million, $3.7 million and $2.9 million,
respectively, were recorded as a charge related to the 1998, 1997 and 1995 ABV
awards.
The stock option grants, which may continue to be awarded every year,
provide the right to purchase shares of common stock at the fair value (closing
price) of the stock on the date of the grant. Each option vests over five years
and has a ten-year term. Prior option grants are not taken into account in
determining the number of options granted in any year. In December 1998, 575,430
options were awarded.
In December 1995, the company adopted a restricted stock program whereby
key executive officers are granted restricted shares of the company's stock.
These stock awards may only be sold three or four years from the date of grant,
at which time the awards fully vest.
In 1998 and 1997, respectively, 52,776 and 73,608 restricted shares (net of
cancelled shares) of the company's stock were granted to certain officers of the
company. The fair value of the shares awarded in 1998 and 1997 determined on the
grant date was $3.4 million and $4.4 million, respectively, and has been
recorded as "Unearned compensation restricted stock" and is shown as a separate
component of shareholders' equity. Unearned compensation is amortized to expense
over the appropriate three- to four-year vesting period. Compensation expense
related to the restricted stock was $1.3 million, $0.9 million and $1.6 million
for the years ended December 31, 1998, 1997 and 1996, respectively.
In 1992, CapMAC adopted an Employee Stock Ownership Plan (ESOP) to provide
its employees the opportunity to obtain beneficial interests in the stock of
CapMAC through a trust (the ESOP Trust). The ESOP Trust purchased 350,625 shares
of the company's stock. The ESOP Trust financed its purchase of common stock
with a loan from the company in the amount of $10 million. The ESOP loan is
evidenced by a promissory note delivered to the company. An amount representing
unearned employee compensation, equivalent in value to the unpaid balance of the
ESOP loan, is recorded as "Unallocated ESOP shares" and is shown as a separate
component of shareholders' equity.
The company is required to make contributions to the ESOP Trust, which
enables the ESOP Trust to service its loan to the company. The ESOP expense is
calculated using the shares allocated method. Shares are released for allocation
to the participants and held in trust for the employees based upon the ratio of
the current year's principal and interest payment to the sum of principal and
(60)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MBIA Inc. and Subsidiaries
interest payments estimated over the life of the loan. As of December 31, 1998
and 1997, 208,789 and 207,570 shares, respectively, were allocated to the
participants. Compensation expense related to the ESOP was $1.3 million and $2.4
million for the years ended December 31, 1997 and 1996, respectively.
In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation," effective for financial statements for fiscal years beginning
after December 15, 1995. SFAS 123 required the company to adopt, at its
election, either 1) the provisions in SFAS 123 which require the recognition of
compensation expense for employee stock-based compensation plans, or 2) the
provisions in SFAS 123 which require the pro forma disclosure of net income and
earnings per share as if the recognition provisions of SFAS 123 had been
adopted. SFAS 123 explicitly provides that employers may continue to account for
their employee stock-based compensation plans using the accounting prescribed by
APB Opinion 25, "Accounting for Stock Issued to Employees" (APB 25). The company
adopted the disclosure requirements of SFAS 123 effective January 1, 1996 and
continues to account for its employee stock-based compensation plans under APB
25. Accordingly, the adoption of SFAS 123 had no impact on the company's
financial position or results of operations. As the table below shows, had
compensation cost for the company's stock option program been recognized based
on the fair value at the grant date, consistent with the recognition provisions
of SFAS 123, the impact on the company's net income and earnings per share would
not have been material. However, since the options vest over five years and
additional awards could be made in future years, the effects of applying SFAS
123 in 1998 are not likely to be representative of the effects on reported net
income and earnings per share for future years.
Years ended December 31
-------------------------------------------
1998 1997 1996
-------------------------------------------
Net income (in thousands):
Reported $432,728 $405,610 $347,736
Pro-forma 430,224 404,180 347,046
Basic earnings per share:
Reported $4.37 $4.18 $3.68
Pro-forma 4.35 4.17 3.68
Diluted earnings per share:
Reported $4.32 $4.12 $3.62
Pro-forma 4.30 4.11 3.61
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996, respectively; exercise price
of $63.8152, $64.7661 and $48.8219; dividend yield of 1.254%, 1.220% and 1.492%;
expected volatility of .2392, .2070 and .2110; risk-free interest rate of 4.63%,
5.80% and 5.96%; and expected option term of 5.86, 5.72 and 5.52 years.
A summary of the company's stock option plan as of December 31, 1998, 1997
and 1996, and changes during the years ending on those dates, is presented
below:
1998
---------------------------
Weighted
Number Avg. Price
Options of Shares per Share
- ---------------------------------------------------------------------
Outstanding at beginning
of year 4,033,930 $37.0004
Granted 575,430 63.8152
Exercised 744,670 69.6068
Expired or canceled 187,968 60.9160
- ---------------------------------------------------------------------
Outstanding at year end 3,676,722 $42.2626
- ---------------------------------------------------------------------
Exercisable at year end 2,093,075 $29.3722
Weighted-average fair value
per share of options
granted during the year $18.1565
- ---------------------------------------------------------------------
1997
---------------------------
Weighted
Number Avg. Price
Options of Shares per Share
- ---------------------------------------------------------------------
Outstanding at beginning
of year 4,049,879 $31.7892
Granted 449,274 64.7661
Exercised 430,314 57.3585
Expired or canceled 34,909 34.5547
- ---------------------------------------------------------------------
Outstanding at year end 4,033,930 $37.0004
- ---------------------------------------------------------------------
Exercisable at year end 2,450,080 $26.9218
- ---------------------------------------------------------------------
Weighted-average fair value
per share of options
granted during the year $18.3756
- ---------------------------------------------------------------------
1996
---------------------------
Weighted
Number Avg. Price
Options of Shares per Share
- ---------------------------------------------------------------------
Outstanding at beginning
of year 4,529,632 $24.0847
Granted 672,481 48.8219
Exercised 1,105,561 41.1025
Expired or canceled 46,673 29.6053
- ---------------------------------------------------------------------
Outstanding at year end 4,049,879 $31.7892
- ---------------------------------------------------------------------
Exercisable at year end 2,512,278 $24.9806
- ---------------------------------------------------------------------
Weighted-average fair value
per share of options
granted during the year $14.0875
- ---------------------------------------------------------------------
(61)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MBIA Inc. and Subsidiaries
The following table summarizes information about the plan's stock options
at December 31, 1998:
<TABLE>
<CAPTION>
Weighted-Average
Number Remaining Number
Range of Average Outstanding Contractual Weighted-Average Exercisable Weighted-Average
Exercise Prices at 12/31/98 Life in Years Exercise Price 12/31/98 Exercise Price
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$12.1880 to $30.0630 1,699,955 3.95 $25.1981 1,533,355 $24.9781
$34.500 to $52.4050 820,907 6.45 43.3264 549,902 40.8650
$56.9510 to $72.7260 1,155,860 9.23 66.6041 9,818 71.9240
- -------------------------------------------------------------------------------------------------------
Total 3,676,722 6.17 $42.2626 2,093,075 $29.3722
- -------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 20: SHAREHOLDERS' RIGHTS PLAN
- -----------------------------------
In December 1991, the board of directors of the company declared a dividend
distribution of one preferred share purchase right (a Right) for each
outstanding share of the company's common stock. Each Right entitles its holder
to purchase from the company one one-hundredth of a share of the company'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
the company (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 the company's common stock and (ii) ten business days
(or later as may be determined by the board of directors) 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 the
company's 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 the company's common stock if the board of directors
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.
If the acquiring person or group acquires beneficial ownership of 10% or
more of the company's common stock (except pursuant to a tender or exchange
offer for all outstanding common stock of the company, determined by the
company's independent directors to be at a fair price and in the best interests
of the company and its shareholders), 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 company having a fair value of $320.
Similarly, if after an acquiring person or group so acquires 10% or more of
the company's common stock, the company 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 the company'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 board of
directors 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 the
company's common stock, the board of directors of the company 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 board of directors
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.
NOTE 21: RELATED PARTY TRANSACTIONS
- ------------------------------------
Since 1989, MBIA Corp. has executed five surety bonds to guarantee the payment
obligations of the members of the Association which had their S&P claims-paying
rating downgraded from Triple-A on their previously issued Association policies.
In the event that they do not meet their Association policy payment obligations,
MBIA Corp. will pay the required amounts directly to the paying agent. The
aggregate outstanding exposure on these surety bonds as of December 31, 1998 is
$340 million.
MBIA MuniServices provides financing to Capital Asset under various
borrowing arrangements. The net balance outstanding under these agreements at
December 31, 1998 and 1997 was $86.8 million and $49.7 million, respectively,
including accrued interest, and is included in other assets on the company's
consolidated balance sheet. Net interest earned under these agreements during
1998 and 1997 was $8.1 million and $7.0 million, respectively.
(62)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MBIA Inc. and Subsidiaries
NOTE 22: PUBLIC OFFERINGS OF COMMON STOCK
- -----------------------------------------
In July 1997, the company completed a public offering of 2,300,000 new shares of
the company's common stock. The company realized $126 million in new capital
from the offering. In February 1996, the company completed a public offering of
7,780,000 shares of the company's common stock. Of the shares offered, 6,240,000
were sold by an existing shareholder and 1,540,000 were new shares offered by
the company. The company realized $55 million in new capital from the offering.
In June 1992, the company granted 1,042,537 warrants to non-employee
stockholders to purchase common stock. The warrants expire in June 1999. During
1996, 257,775 warrants were exercised. The exercise of the warrants being
cashless resulted in the issuance of 150,422 shares of common stock. During
1997, the company exercised its right to purchase all outstanding warrants for
its common stock. As a result, 44,314 warrants were exercised for cash resulting
in the issuance of 44,314 shares of common stock, and 740,448 warrants were
exercised on a cashless basis resulting in the issuance of 378,848 shares of
common stock.
NOTE 23: FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------
The estimated fair value amounts of financial instruments shown in the following
table have been determined by the company using available market information and
appropriate valuation methodologies. However, in certain cases considerable
judgment has been necessarily required to interpret market data to develop
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amount the company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
FIXED-MATURITY SECURITIES--The fair value of fixed-maturity securities is based
upon quoted market prices, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.
SHORT-TERM INVESTMENTS--Short-term investments are carried at amortized cost
which approximates fair value.
OTHER INVESTMENTS--Other investments include the company's interest in a limited
partnership and a mutual fund that invests principally in marketable equity
securities and other equity investments. The fair value of these investments is
based on quoted market prices.
MUNICIPAL INVESTMENT AGREEMENT PORTFOLIO--The municipal investment agreement
portfolio is comprised of fixed-maturity securities and short-term investments.
Its fair value equals the quoted market prices, if available, of its
fixed-maturities plus the amortized cost of its short-term investments which,
because of their short duration, is a reasonable estimate of fair value. If a
quoted market price is not available for a fixed-maturity security, fair value
is estimated using quoted market prices for similar securities.
CASH AND CASH EQUIVALENTS, RECEIVABLE FOR INVESTMENTS SOLD, SHORT-TERM DEBT, AND
PAYABLE FOR INVESTMENTS PURCHASED--The carrying amounts of these items are a
reasonable estimate of their fair value.
SECURITIES BORROWED OR PURCHASED UNDER AGREEMENTS TO RESELL--The fair value is
estimated based upon the quoted market prices of the transactions' underlying
collateral.
PREPAID REINSURANCE PREMIUMS--The fair value of the company's prepaid
reinsurance premiums is based on the estimated cost of entering into an
assumption of the entire portfolio with third-party reinsurers under current
market conditions.
DEFERRED PREMIUM REVENUE--The fair value of the company's deferred premium
revenue is based on the estimated cost of entering into a cession of the entire
portfolio with third-party reinsurers under current market conditions.
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES--The carrying amount is composed of
the present value of the expected cash flows for specifically identified claims
combined with an estimate for unidentified claims. Therefore, the carrying
amount is a reasonable estimate of the fair value of the reserve.
LONG-TERM DEBT--The fair value is estimated based on the quoted market prices
for the same or similar securities.
MUNICIPAL INVESTMENT AGREEMENTS AND MUNICIPAL REPURCHASE AGREEMENTS--The fair
values of municipal investment agreements and municipal repurchase agreements
are estimated using discounted cash flow calculations based upon interest rates
currently being offered for similar agreements with maturities consistent with
those remaining for the agreements being valued.
SECURITIES LOANED OR SOLD UNDER AGREEMENTS TO REPURCHASE--The fair value is
estimated based upon the quoted market prices of the transactions' underlying
collateral.
INSTALLMENT PREMIUMS--The fair value is derived by calculating the present value
of the estimated future cash flow stream discounted at 9%.
(63)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MBIA Inc. and Subsidiaries
<TABLE>
<CAPTION>
As of December 31, 1998 As of December 31, 1997
---------------------------------------------------------------
Carrying Estimated Carrying Estimated
In thousands Amount Fair Value Amount Fair Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Fixed-maturity securities $5,884,053 $5,884,053 $5,211,311 $5,211,311
Short-term investments 423,194 423,194 303,898 303,898
Other investments 94,975 94,975 51,693 51,693
Municipal investment
agreement portfolio 3,678,229 3,678,229 3,341,394 3,341,394
Cash and cash equivalents 20,757 20,757 26,296 26,296
Securities borrowed or
purchased under
agreements to resell 538,281 540,864 472,963 473,841
Prepaid reinsurance premiums 352,699 297,238 289,508 245,613
Receivable for investments sold 49,497 49,497 13,435 13,435
LIABILITIES:
Deferred premium revenue 2,251,211 1,939,971 2,090,460 1,795,890
Loss and loss adjustment
expense reserves 270,114 270,114 103,061 103,061
Municipal investment
agreements 2,587,339 2,665,069 1,974,165 2,024,230
Municipal repurchase
agreements 897,718 939,860 1,177,022 1,214,641
Long-term debt 688,996 735,443 488,878 536,871
Short-term debt -- -- 20,000 20,000
Securities loaned or sold
under agreements
to repurchase 573,352 585,872 606,263 607,304
Payable for investments
purchased 95,598 95,598 44,007 44,007
OFF-BALANCE SHEET INSTRUMENTS:
Installment premiums -- 644,132 -- 536,929
</TABLE>
NOTE 24: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- --------------------------------------------------------
A summary of selected quarterly income statement information follows:
In thousands except
per share amounts
1998 First Second Third Fourth Year
- --------------------------------------------------------------------------------
Gross premiums written $121,387 $199,040 $167,872 $188,751 $677,050
Net premiums written 107,054 171,760 140,374 101,798 520,986
Premiums earned 99,642 104,613 106,159 114,136 424,550
Investment income and
realized gains and losses 94,942 89,046 97,583 85,207 366,778
All other revenues 29,849 30,959 31,518 28,228 120,554
Income before
income taxes 130,078 159,062 143,580 132,318 565,038
Net income $102,105 $119,029 $108,243 $103,351 $432,728
Net income per
common share:*
Basic $ 1.03 $ 1.20 $ 1.09 $ 1.04 $ 4.37
Diluted $ 1.02 $ 1.19 $ 1.08 $ 1.03 $ 4.32
- --------------------------------------------------------------------------------
1997 First Second Third Fourth Year
- --------------------------------------------------------------------------------
Gross premiums written $109,301 $184,539 $147,428 $212,580 $653,848
Net premiums written 98,973 155,433 123,796 159,120 537,322
Premiums earned 83,874 85,948 88,174 93,499 351,495
Investment income and
realized gains and losses 76,159 75,750 83,639 86,769 322,317
All other revenues 18,631 19,057 23,970 30,640 92,298
Income before
income taxes 124,358 126,224 137,194 137,476 525,252
Net income $ 98,474 $ 98,175 $106,552 $102,409 $405,610
Net income per
common share:*
Basic $ 1.03 $ 1.02 $ 1.09 $ 1.04 $ 4.18
Diluted $ 1.01 $ 1.01 $ 1.07 $ 1.03 $ 4.12
- --------------------------------------------------------------------------------
*Due to the changes in the number of shares outstanding,
quarterly per share amounts may not add to the totals for the years.
(64)
SUBSIDIARIES OF MBIA INC.
NAME OF SUBSIDIARY STATE OF INCORPORATION
- ------------------ ----------------------
MBIA Insurance Corporation New York
Municipal Issuers Service Corporation New York
MBIA Asset Management Corporation Delaware
MBIA Municipal Investors Service Corporation Delaware
MBIA Investment Management Corp. Delaware
MBIA Capital Management Corp. Delaware
1838 Investment Advisors, Inc. Delaware
MBIA Capital Corp. Delaware
MBIA Services Company Delaware
MBIA MuniServices Company Delaware
MBIA-AMBAC International Marketing
Services, Pty. Limited Australia
MBIA Assurance S.A. France
MBIA Insurance Corp. of Illinois Illinois
American Money Management Associates, Inc. Colorado
Municipal Tax Collection Bureau, Inc. Pennsylvania
MBIA MuniFinancial California
John T. Austin, Inc. California
Allen W. Charkow, Inc. California
Municipal Resource Consultants California
Muni Resources, LLC Delaware
Capital Asset Holdings GP, Inc. Florida
CapMAC Holdings Inc. Delaware
Capital Markets Assurance Corporation New York
CapMAC Financial Services, Inc. Delaware
CapMAC Financial Services (Europe) Ltd. United Kingdom
CapMAC Asia Ltd. Bermuda
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
MBIA Inc. and Subsidiaries on the forms S-3 (No. 333-15003 and 333-60039 and
333-62961) and S-8 (Nos. 33-22441 and 33-46062 and 333-34101) of:
(1) Our report dated February 2, 1999, on our audits of the consolidated
financial statements of MBIA Inc. and Subsidiaries as of December 31, 1998
and 1997, and for each of the three years in the period ended December 31,
1998, which report is incorporated by reference in this Annual Report on
Form 10-K for fiscal year ended December 31, 1998;
(2) Our report dated February 2, 1999 on our audits of the financial statement
schedules of MBIA Inc. and Subsidiaries, which report is included in this
Annual Report on Form 10-K for the fiscal year ended December 31, 1998; and
(3) Our report dated February 2, 1999 on our audits of the consolidated
financial statements of MBIA Insurance Corporation and Subsidiaries as of
December 31, 1998 and 1997, and for each of the three years in the period
ended December 31, 1998, which is included in exhibit 99 to this Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 30, 1999
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints each of Richard L. Weill
and Louis G. Lenzi as his/her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him/her and in his/her name,
place and stead, in any and all capacities, to sign the Annual Report on Form
10-K of MBIA Inc. for the year ended December 31, 1998, and any or all
amendments thereto, and to file the same, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his/her substitute, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, I have set my hand this 18th day of March, 1999.
/s/ David C. Clapp /s/ Freda S. Johnson
----------------------------- -----------------------------
David C. Clapp Freda S. Johnson
/s/ Claire L. Gaudiani /s/ Daniel P. Kearney
----------------------------- -----------------------------
Claire L. Gaudiani Daniel P. Kearney
/s/ James A. Lebenthal /s/ William H. Gray, III
----------------------------- -----------------------------
James A. Lebenthal William H. Gray, III
/s/ John A. Rolls /s/ Pierre-Henri Richard
----------------------------- -----------------------------
John A. Rolls Pierre-Henri Richard
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 5,884,053
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 5,884,053
<CASH> 20,757
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 230,085
<TOTAL-ASSETS> 11,796,564
<POLICY-LOSSES> 270,114
<UNEARNED-PREMIUMS> 2,251,211
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 688,996
0
0
<COMMON> 99,570
<OTHER-SE> 3,692,647
<TOTAL-LIABILITY-AND-EQUITY> 11,796,564
424,550
<INVESTMENT-INCOME> 331,802
<INVESTMENT-GAINS> 29,962
<OTHER-INCOME> 125,568
<BENEFITS> 34,683
<UNDERWRITING-AMORTIZATION> 34,613
<UNDERWRITING-OTHER> 70,330
<INCOME-PRETAX> 565,038
<INCOME-TAX> 132,310
<INCOME-CONTINUING> 432,728
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 432,728
<EPS-PRIMARY> 4.37
<EPS-DILUTED> 4.32
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
MBIA INSURANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1998 and 1997
and for the years ended
December 31, 1998, 1997 and 1996
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
MBIA INSURANCE CORPORATION:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and changes in shareholder's equity and cash
flows present fairly, in all material respects, the financial position of MBIA
Insurance Corporation and Subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion expressed
above.
/s/ PricewaterhouseCoopers
- --------------------------
PricewaterhouseCoopers LLP
New York, New York
February 2, 1999
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- --------------------------
ASSETS
<S> <C> <C>
Investments:
Fixed-maturity securities held as available-for-sale
at fair value (amortized cost $5,565,060 and $4,600,528) $5,884,053 $4,867,254
Short-term investments, at amortized cost
(which approximates fair value) 423,188 242,730
Other investments 17,850 16,802
--------------- ----------------
TOTAL INVESTMENTS 6,325,091 5,126,786
Cash and cash equivalents 6,546 3,983
Securities purchased under agreements to resell 187,500 182,820
Accrued investment income 91,239 78,601
Deferred acquisition costs 230,085 154,100
Prepaid reinsurance premiums 352,699 252,893
Goodwill (less accumulated amortization of
$52,031 and $47,152) 90,950 95,829
Property and equipment, at cost (less accumulated
depreciation of $23,840 and $18,256) 71,952 53,484
Receivable for investments sold 33,880 1,616
Other assets 97,970 37,437
--------------- ----------------
TOTAL ASSETS $7,487,912 $5,987,549
=============== ================
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Deferred premium revenue $ 2,251,211 $ 1,984,104
Loss and loss adjustment expense reserves 270,114 78,872
Securities sold under agreements to repurchase 187,500 182,820
Deferred income taxes 303,407 251,134
Deferred fee revenue 33,785 ---
Payable for investments purchased 29,523 23,020
Other liabilities 135,027 103,740
--------------- ----------------
TOTAL LIABILITIES 3,210,567 2,623,690
--------------- ----------------
Shareholder's Equity:
Common stock, par value $150 per share; authorized,
issued and outstanding - 100,000 shares 15,000 15,000
Additional paid-in capital 1,491,033 1,139,949
Retained earnings 2,566,222 2,042,323
Accumulated other comprehensive income,
net of deferred income tax provision of
of $112,283 and $94,416 205,090 166,587
--------------- ----------------
TOTAL SHAREHOLDER'S EQUITY 4,277,345 3,363,859
--------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $7,487,912 $5,987,549
=============== ================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
(2)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31
-----------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Gross premiums written $725,269 $544,974 $462,444
Ceded premiums (149,280) (79,781) (54,852)
-------------- -------------- --------------
Net premiums written 575,989 465,193 407,592
Increase in deferred premium revenue (166,182) (165,858) (154,111)
-------------- -------------- --------------
Premiums earned (net of ceded
premiums of $49,474,
$43,734 and $38,893) 409,807 299,335 253,481
Net investment income 326,391 282,460 247,286
Net realized gains 29,891 17,478 11,740
Advisory fees 23,964 --- ---
Other 713 1,201 3,163
-------------- -------------- --------------
Total revenues 790,766 600,474 515,670
-------------- -------------- --------------
Expenses:
Losses and loss adjustment 33,661 18,673 15,334
Policy acquisition costs, net 33,168 27,873 24,660
Operating 65,445 50,016 46,654
-------------- -------------- --------------
Total expenses 132,274 96,562 86,648
-------------- -------------- --------------
Income before income taxes 658,492 503,912 429,022
Provision for income taxes 134,593 112,904 90,562
-------------- -------------- --------------
Net income $523,899 $391,008 $338,460
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
(3)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
For the years ended December 31, 1998, 1997 and 1996
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
----------------- Paid-in Retained Comprehensive Shareholder's
Shares Amount Capital Earnings Adjustment Equity
--------- --------- ------------ ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 100,000 $15,000 $1,021,584 $1,341,855 $147,433 $2,525,872
--------- --------- ------------ ---------- ---------- -----------
Comprehensive income:
Net income --- --- --- 338,460 --- 338,460
Other comprehensive income:
Change in unrealized
appreciation of investments
net of change in deferred
income taxes of $26,197 --- --- --- --- (47,861) (47,861)
Change in foreign
currency translation --- --- --- --- (3,892) (3,892)
----------
Other comprehensive income (51,753)
----------
Total comprehensive income 286,707
----------
Dividends declared
(per common share $290.00) --- --- --- (29,000) --- (29,000)
Tax reduction related to tax
sharing agreement with MBIA Inc. --- --- 20,292 --- --- 20,292
-------- --------- ------------ ---------- ---------- -----------
Balance, December 31, 1996 100,000 15,000 1,041,876 1,651,315 95,680 2,803,871
-------- --------- ------------ ---------- ---------- -----------
Comprehensive income:
Net income --- --- --- 391,008 --- 391,008
Other comprehensive income:
Change in unrealized
appreciation of investments
net of change in deferred
income taxes of $(42,241) --- --- --- --- 78,418 78,418
Change in foreign
currency translation --- --- --- --- (7,511) (7,511)
----------
Other comprehensive income 70,907
----------
Total comprehensive income 461,915
----------
Capital contribution from MBIA Inc. --- --- 80,000 --- --- 80,000
Tax reduction related to tax
sharing agreement with MBIA Inc. --- --- 18,073 --- --- 18,073
-------- --------- ------------ ---------- ---------- -----------
Balance, December 31, 1997 100,000 15,000 1,139,949 2,042,323 166,587 3,363,859
-------- --------- ------------ ---------- ---------- -----------
Comprehensive income:
Net income --- --- --- 523,899 --- 523,899
Other comprehensive income:
Change in unrealized
appreciation of investments
net of change in deferred
income taxes of $17,867 --- --- --- --- 34,084 34,084
Change in foreign
currency translation --- --- --- --- 4,419 4,419
----------
Other comprehensive income 38,503
----------
Comprehensive income 562,402
----------
Capital contribution from MBIA Inc. --- --- 324,915 --- --- 324,915
Tax reduction related to tax
sharing agreement with MBIA Inc. --- --- 26,169 --- --- 26,169
-------- --------- ------------ ---------- ---------- -----------
Balance, December 31, 1998 100,000 $15,000 $1,491,033 $2,566,222 $205,090 $4,277,345
======== ========= ============ ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Disclosure of reclassification amount:
Unrealized appreciation of investments
arising during the period, net of taxes $53,415 $89,536 $(40,074)
Reclassification of adjustment, net of taxes (19,331) (11,118) (7,787)
------- ------- --------
Net unrealized appreciation, net of taxes $34,084 $78,418 $(47,861)
======= ======= ========
</TABLE>
The accompany notes are an integral part of the consolidated
financial statements.
(4)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31
------------------------------------------------------
1998 1997 1996
------------------- ------------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 523,899 $ 391,008 $ 338,460
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in accrued investment income (12,638) (13,407) (4,947)
Increase in deferred acquisition costs (75,985) (6,350) (7,402)
Increase in prepaid reinsurance premiums (99,806) (36,047) (15,959)
Increase in deferred premium revenue 265,983 201,905 170,070
Increase in loss and loss adjustment
expense reserves 191,242 19,558 16,809
Depreciation 5,626 3,934 2,952
Amortization of goodwill 4,879 4,889 4,896
Amortization of bond (discount) premium, net (15,831) (10,830) (7,526)
Net realized gains on sale of investments (29,891) (17,478) (11,740)
Deferred income taxes 21,856 13,382 8,982
Other, net 43,593 50,258 26,687
----------------- ------------------ ------------------
Total adjustments to net income 299,028 209,814 182,822
----------------- ------------------ ------------------
Net cash provided by operating activities 822,927 600,822 521,282
----------------- ------------------ ------------------
Cash flows from investing activities:
Purchase of fixed-maturity securities, net
of payable for investments purchased (2,800,008) (2,090,236) (1,519,213)
Sale of fixed-maturity securities, net of
receivable for investments sold 1,086,973 1,247,860 873,823
Redemption of fixed-maturity securities,
net of receivable for investments redeemed 745,516 190,803 158,087
Sale (purchase) of short-term investments, net (158,339) (18,922) 4,676
Sale (purchase) of other investments, net (527) 664 468
Capital expenditures, net of disposals (18,894) (10,296) (8,970)
----------------- ------------------ ------------------
Net cash used by investing activities (1,145,279) (680,127) (491,129)
----------------- ------------------ ------------------
Cash flows from financing activities:
Capital contribution from MBIA Inc. 324,915 80,000 ---
Dividends paid --- --- (29,000)
----------------- ------------------ ------------------
Net cash used by financing activities 324,915 80,000 (29,000)
----------------- ------------------ ------------------
Net increase in cash and cash equivalents 2,563 695 1,153
Cash and cash equivalents - beginning of year 3,983 3,288 2,135
----------------- ------------------ ------------------
Cash and cash equivalents - end of year $ 6,546 $ 3,983 $ 3,288
================= ================== ==================
Supplemental cash flow disclosures:
Income taxes paid $ 105,451 $ 82,125 $ 63,018
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
(5)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
- -----------------------------
MBIA Insurance Corporation (MBIA Corp.), formerly known as Municipal Bond
Investors Assurance Corporation, is a wholly owned subsidiary of MBIA Inc. MBIA
Inc. was incorporated in Connecticut on November 12, 1986 as a licensed insurer
and, through a series of transactions during December 1986, became the successor
to the business of the Municipal Bond Insurance Association (the Association), a
voluntary unincorporated association of insurers writing municipal bond and note
insurance as agent for the member insurance companies.
Effective December 31, 1989, MBIA Inc. acquired for $288 million all of
the outstanding stock of Bond Investors Group, Inc. (BIG), the parent company of
Bond Investors Guaranty Insurance Company (BIG Ins.), which was subsequently
renamed MBIA Insurance Corp. of Illinois (MBIA Illinois).
In January 1990, MBIA Illinois ceded its portfolio of net insured
obligations to MBIA Corp. in exchange for cash and investments equal to its
unearned premium reserve of $153 million. Subsequent to this cession, MBIA Inc.
contributed the common stock of BIG to MBIA Corp. resulting in additional
paid-in capital of $200 million. The insured portfolio acquired from BIG Ins.
consists of municipal obligations with risk characteristics similar to those
insured by MBIA Corp. On December 31, 1990, BIG was merged into MBIA Illinois.
Also in 1990, MBIA Inc. formed MBIA Assurance S.A. (MBIA Assurance), a
wholly owned French subsidiary, to write financial guarantee insurance in the
international community. MBIA Assurance provides insurance for public
infrastructure financings, structured finance transactions and certain
obligations of financial institutions. The stock of MBIA Assurance was
contributed to MBIA Corp. in 1991 resulting in additional paid-in capital of $6
million. Pursuant to a reinsurance agreement with MBIA Corp., a substantial
amount of the risks insured by MBIA Assurance is reinsured by MBIA Corp.
In 1993, MBIA Inc. formed a wholly owned subsidiary, MBIA Investment
Management Corp. (IMC). IMC provides guaranteed investment agreements to states,
municipalities and municipal authorities that are guaranteed as to principal and
interest. MBIA Corp. insures IMC's outstanding investment agreement liabilities.
In 1994, MBIA Inc. formed a wholly owned subsidiary, MBIA Securities
Corp., which was subsequently renamed MBIA Capital Management Corp. (CMC). CMC
provides fixed-income investment management services for MBIA Inc., its
municipal cash management service businesses and public pension funds. In 1995,
portfolio management for a portion of MBIA Corp.'s insurance related investment
portfolio was transferred to CMC; the management of the balance of this
portfolio was transferred in January 1996.
(6)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On February 17, 1998 MBIA Inc. and CapMAC Holdings Inc. (CapMAC)
consummated a merger. Under the terms of the merger, CapMAC shareholders
received 0.4675 of a share of MBIA Inc. common stock for each CapMAC share, for
a total of 8,102,255 newly issued shares of MBIA Inc. common stock, the value of
which was $536 million. On April 1, 1998, the company assumed the net insured
obligations of Capital Markets Assurance Corporation (CMAC) in exchange for
investments equal to $176.1 million. The cession of the deferred premium revenue
(net of prepaid reinsurance premiums) in the amount of $68.2 million has been
reflected as a component of gross premium written in the second quarter of 1998.
Subsequent to the cession MBIA Inc. contributed the common stock of CMAC to the
company resulting in additional paid-in capital of $324.9 million.
2. SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------
The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles (GAAP). The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
accounting policies are as follows:
CONSOLIDATION
The consolidated financial statements include the accounts of MBIA Corp. and its
wholly owned subsidiaries. All significant intercompany balances have been
eliminated. Certain amounts have been reclassified in prior years' financial
statements to conform to the current presentation.
INVESTMENTS
MBIA Corp.'s entire investment portfolio is considered available-for-sale and is
reported in the financial statements at fair value, with unrealized gains and
losses, net of deferred taxes, reflected as a separate component of
shareholder's equity.
Bond discounts and premiums are amortized using the effective-yield method
over the remaining term of the securities. For pre-refunded bonds the remaining
term is determined based on the contractual refunding date. Short-term
investments are carried at amortized cost, which approximates fair value, and
include all fixed-maturity securities with a remaining term to maturity of less
than one year. Investment income is recorded as earned. Realized gains or losses
on the sale of investments are determined by specific identification and are
included as a separate component of revenues.
(7)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other investments include MBIA Corp.'s interest in a limited partnership
and a mutual fund which invests principally in marketable equity securities.
MBIA Corp. records dividends from these investments as a component of investment
income. In addition, MBIA Corp. records its share of the unrealized gains and
losses on these investments, net of applicable deferred income taxes, as a
separate component of shareholder's equity.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and demand deposits with banks.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE
Securities purchased under agreements to resell and securities sold under
agreements to repurchase are accounted for as collateralized transactions and
are recorded at principal or contract value. It is MBIA Corp.'s policy to take
possession of securities purchased under agreements to resell.
MBIA Corp. minimizes the credit risk that counterparties to transactions
might be unable to fulfill their contractual obligations by monitoring customer
credit exposure and collateral value and requiring additional collateral to be
deposited with MBIA Corp. when deemed necessary.
POLICY ACQUISITION COSTS
Policy acquisition costs include only those expenses that relate primarily to,
and vary with, premium production. For business produced directly by MBIA Corp.,
such costs include compensation of employees involved in underwriting and policy
issuance functions, certain rating agency fees, state premium taxes and certain
other underwriting expenses, reduced by ceding commission income on premiums
ceded to reinsurers. Policy acquisition costs are deferred and amortized over
the period in which the related premiums are earned.
PREMIUM REVENUE RECOGNITION
Upfront premiums are earned pro rata over the period of risk. Premiums are
allocated to each bond maturity based on par amount and are earned on a
straight-line basis over the term of each maturity. Installment premiums are
earned over each installment period - generally one year or less. When an
insured issue is retired early, is called by the issuer, or is in substance paid
in advance through a refunding or defeasance accomplished by placing U.S.
Government securities in escrow, the remaining deferred premium revenue, net of
the portion which is credited to a new policy in those cases where MBIA Corp.
insures the refunding issue, is earned at that time, since there is no longer
risk to MBIA Corp. Accordingly, deferred premium revenue represents the portion
of premiums written that is applicable to the unexpired risk of insured bonds
and notes.
(8)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ADVISORY FEE REVENUE RECOGNITION
MBIA Corp. collects certain advisory fees for services rendered in connection
with advising clients as to the most appropriate structure to use for a given
structured finance transaction that the company will insure. Advisory fees are
deferred and earned consistent with the premium revenues generated on the
transactions.
GOODWILL
Goodwill represents the excess of the cost of acquisitions over the tangible net
assets acquired. Goodwill attributed to the acquisition of MBIA Corp. is
amortized by the straight-line method over 25 years. Goodwill attributed to the
acquisition of MBIA Illinois is amortized according to the recognition of future
profits from its deferred premium revenue and installment premiums, except for a
minor portion attributed to state licenses, which is amortized by the
straight-line method over 25 years.
PROPERTY AND EQUIPMENT
Property and equipment consists of MBIA Corp.'s headquarters, furniture,
fixtures and equipment, which are recorded at cost and are depreciated on the
straight-line method over their estimated service lives ranging from 3 to 31
years. Maintenance and repairs are charged to expenses as incurred.
LOSSES AND LOSS ADJUSTMENT EXPENSES
Loss and loss adjustment expense (LAE) reserves are established in an amount
equal to MBIA Corp.'s estimate of identified or case basis reserves and
unallocated losses, including costs of settlement, on the obligations it has
insured.
Case basis reserves are established when specific insured issues are
identified as currently or likely to be in default. Such a reserve is based on
the present value of the expected loss and LAE payments, net of recoveries,
under salvage and subrogation rights. The total reserve is calculated by
applying a loss factor, determined based on an independent rating agency study
of bond defaults, to net debt service written. When a case basis reserve is
recorded, a corresponding reduction is made to the unallocated reserve.
Management of MBIA Corp. periodically evaluates its estimates for losses
and LAE and any resulting adjustments are reflected in current earnings.
Management believes that the reserves are adequate to cover the ultimate net
cost of claims, but the reserves are necessarily based on estimates, and there
can be no assurance that the ultimate liability will not exceed such estimates.
(9)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
INCOME TAXES
MBIA Corp. is included in the consolidated tax return of MBIA Inc. The tax
provision for MBIA Corp. for financial reporting purposes is determined on a
stand alone basis. Any benefit derived by MBIA Corp. as a result of the tax
sharing agreement with MBIA Inc. and its subsidiaries is reflected directly in
shareholder's equity for financial reporting purposes.
Deferred income taxes are provided with respect to the temporary
differences between the tax bases of assets and liabilities and the reported
amounts in the financial statements that will result in deductible or taxable
amounts in future years when the reported amount of the asset or liability is
recovered or settled. Such temporary differences relate principally to premium
revenue recognition, deferred acquisition costs and the contingency reserve.
The Internal Revenue Code permits companies writing financial guarantee
insurance to deduct from taxable income amounts added to the statutory
contingency reserve, subject to certain limitations. The tax benefits obtained
from such deductions must be invested in non-interest bearing U.S. Government
tax and loss bonds. MBIA Corp. records purchases of tax and loss bonds as
payments of federal income taxes. The amounts deducted must be restored to
taxable income when the contingency reserve is released, at which time MBIA
Corp. may present the tax and loss bonds for redemption to satisfy the
additional tax liability.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated at
year-end exchange rates. Operating results are translated at average rates of
exchange prevailing during the year. Unrealized gains or losses resulting from
translation are included as a separate component of shareholder's equity.
Gains and losses resulting from transactions in foreign currencies are recorded
in current income.
3. RECENT ACCOUNTING PRONOUNCEMENTS
- ------------------------------------
In March 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee issued Statement of Position (SOP)
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The statement requires that entities capitalize certain
internal-use software costs once certain criteria are met. The statement is
effective for fiscal years beginning after December 15, 1998. The company will
adopt SOP 98-1 in 1999. Adoption of SOP 98-1 is not expected to have a material
impact on the consolidated financial statements.
(10)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. STATUTORY ACCOUNTING PRACTICES
- ----------------------------------
The financial statements have been prepared on the basis of GAAP, which differs
in certain respects from the statutory accounting practices prescribed or
permitted by the insurance regulatory authorities. Statutory accounting
practices differ from GAAP in the following respects:
o upfront premiums are earned only when the related risk has expired rather
than over the period of the risk;
o acquisition costs are charged to operations as incurred rather than
deferred and amortized as the related premiums are earned;
o a contingency reserve is computed on the basis of statutory requirements,
and reserves for case basis losses and LAE are established, at present
value, for specific insured issues that are identified as currently or
likely to be in default. Under GAAP, reserves are established based on
MBIA Corp.'s reasonable estimate of the identified and unallocated losses
and LAE on the insured obligations it has written;
o federal income taxes are only provided on taxable income for which income
taxes are currently payable, while under GAAP, deferred income taxes are
provided with respect to temporary differences;
o fixed-maturity securities are reported at amortized cost rather than fair
value;
o tax and loss bonds purchased are reflected as admitted assets as well as
payments of income taxes; and
o certain assets designated as "non-admitted assets" are charged directly
against surplus but are reflected as assets under GAAP.
(11)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following is a reconciliation of consolidated shareholder's equity
presented on a GAAP basis to statutory capital and surplus for MBIA Corp. and
its subsidiaries:
As of December 31
------------------------------------------
In thousands 1998 1997
-----------------------------------------------------------------------------
GAAP shareholder's equity $4,277,345 $3,363,859
Premium revenue recognition (448,250) (408,654)
Deferral of acquisition costs (230,085) (154,100)
Unrealized (gains) losses (321,653) (269,702)
Contingency reserve (1,450,413) (1,094,117)
Loss and loss adjustment
expense reserves 81,489 53,938
Deferred income taxes 303,407 251,134
Tax and loss bonds 162,523 129,508
Goodwill (90,950) (95,829)
Other 6,556 (15,839)
-----------------------------------------------------------------------------
Statutory capital and surplus $2,289,969 $1,760,198
-----------------------------------------------------------------------------
Aggregate net income of MBIA Corp. and its subsidiaries determined in
accordance with statutory accounting practices for the years ended December 31,
1998, 1997 and 1996 was $498.2 million, $377.1 million and $316.6 million,
respectively.
5. PREMIUMS EARNED FROM REFUNDED AND CALLED BONDS
- --------------------------------------------------
Premiums earned include $68.4 million, $50.9 million and $44.4 million for 1998,
1997 and 1996, respectively, related to refunded and called bonds.
6. INVESTMENTS
- ---------------
MBIA Corp.'s investment objective is to optimize long-term, after-tax returns
while emphasizing the preservation of capital through maintenance of
high-quality investments with adequate liquidity. MBIA Corp.'s investment
policies limit the amount of credit exposure to any one issuer. The
fixed-maturity portfolio is comprised of high-quality (average rating Double-A)
taxable and tax-exempt investments of diversified maturities.
The following tables set forth the amortized cost and fair value of the
fixed-maturities and short-term investments included in the consolidated
investment portfolio of MBIA Corp. as of December 31, 1998 and 1997:
(12)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1998
Taxable bonds
United States Treasury
and Government Agency $ 38,984 $ 770 $ (174) $ 39,580
Corporate and other
obligations 1,543,654 60,867 (1,950) 1,602,571
Mortgage-backed 632,232 20,614 (690) 652,156
Tax-exempt bonds
State and municipal
obligations 3,773,378 241,200 (1,644) 4,012,934
- -------------------------------------------------------------------------------------------------------------
Total $5,988,248 $323,451 $(4,458) $6,307,241
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1997
Taxable bonds
United States Treasury
and Government Agency $ 6,451 $ 191 $ --- $ 6,642
Corporate and other
obligations 1,193,321 36,106 (472) 1,228,955
Mortgage-backed 541,898 18,659 (732) 559,825
Tax-exempt bonds
State and municipal
obligations 3,101,588 213,551 (577) 3,314,562
- ---------------------------------------------------------------------------------------------------------------
Total $ 4,843,258 $268,507 $(1,781) $5,109,984
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(13)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fixed-maturity investments carried at fair value of $12.0 million and $7.7
million as of December 31, 1998 and 1997, respectively, were on deposit with
various regulatory authorities to comply with insurance laws.
The following table sets forth the distribution by expected maturity of the
fixed-maturities and short-term investments at amortized cost and fair value at
December 31, 1998. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations.
Amortized Fair
In thousands Cost Value
---------------------------------------------------------------------------
Maturity
Within 1 year $ 423,188 $ 423,188
Beyond 1 year but within 5 years 751,065 790,907
Beyond 5 years but within 10 years 1,392,855 1,488,916
Beyond 10 years but within 15 years 906,424 987,981
Beyond 15 years but within 20 years 921,647 978,708
Beyond 20 years 960,837 985,385
---------------------------------------------------------------------------
Mortgage-backed 632,232 652,156
---------------------------------------------------------------------------
Total fixed-maturities and
short-term investments $5,988,248 $6,307,241
---------------------------------------------------------------------------
(14)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INVESTMENT INCOME AND GAINS AND LOSSES
- -----------------------------------------
Investment income consists of:
Years ended December 31
--------------------------------------
In thousands 1998 1997 1996
- ---------------------------------------------------------------------
Fixed-maturities $326,820 $279,900 $245,109
Short-term investments 5,311 5,676 4,961
Other investments 16 (4) 61
- ---------------------------------------------------------------------
Gross investment income 332,147 285,572 250,131
Investment expenses 5,756 3,112 2,845
- ---------------------------------------------------------------------
Net investment income 326,391 282,460 247,286
Net realized gains (losses):
Fixed-maturities:
Gains 32,211 22,791 16,760
Losses (3,149) (5,877) (5,353)
- ---------------------------------------------------------------------
Net 29,062 16,914 11,407
- ---------------------------------------------------------------------
Other investments:
Gains 829 564 333
Losses --- --- ---
- ---------------------------------------------------------------------
Net 829 564 333
- ---------------------------------------------------------------------
Total net realized gains 29,891 17,478 11,740
- ---------------------------------------------------------------------
Total investment income $356,282 $299,938 $259,026
- ---------------------------------------------------------------------
Net unrealized gains consist of:
As of December 31
-------------------------------
In thousands 1998 1997
- ------------------------------------------------------------
Fixed-maturities:
Gains $323,451 $268,507
Losses (4,458) (1,781)
- ------------------------------------------------------------
Net 318,993 266,726
- ------------------------------------------------------------
Other investments:
Gains 2,660 3,033
Losses --- (57)
- ------------------------------------------------------------
Net 2,660 2,976
- ------------------------------------------------------------
Total 321,653 269,702
Deferred income taxes 112,283 94,416
- ------------------------------------------------------------
Unrealized gains, net $209,370 $175,286
- ------------------------------------------------------------
(15)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The change in net unrealized gains (losses) consists of:
<TABLE>
<CAPTION>
Years ended December 31
-------------------------------------------------
In thousands 1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed-maturities $52,267 $118,588 $(75,497)
Other investments (316) 2,071 1,439
- ------------------------------------------------------------------------------------
Total 51,951 120,659 (74,058)
Deferred income taxes 17,867 42,241 (26,197)
- ------------------------------------------------------------------------------------
Unrealized gains (losses), net $34,084 $78,418 $(47,861)
- ------------------------------------------------------------------------------------
</TABLE>
8. Income Taxes
The provision for income taxes is composed of:
Years ended December 31
-----------------------------------------------------
In thousands 1998 1997 1996
- ---------------------------------------------------------------------------
Current $112,737 $ 99,522 $ 81,580
Deferred 21,856 13,382 8,982
- ---------------------------------------------------------------------------
Total $134,593 $112,904 $ 90,562
- ---------------------------------------------------------------------------
The provision for income taxes gives effect to permanent differences
between financial and taxable income. Accordingly, MBIA Corp.'s effective income
tax rate differs from the statutory rate on ordinary income. The reasons for
MBIA Corp.'s lower effective tax rates are as follows:
Years ended December 31
----------------------------
1998 1997 1996
- -----------------------------------------------------------------------
Income taxes computed on pre-tax
financial income at statutory rates 35.0% 35.0% 35.0%
Increase (reduction) in taxes
resulting from:
Tax-exempt interest (9.1) (10.6) (12.0)
Amortization of goodwill 0.3 0.3 0.4
Other (5.8) (2.3) (2.3)
- -----------------------------------------------------------------------
Provision for income taxes 20.4% 22.4% 21.1%
- -----------------------------------------------------------------------
(16)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MBIA Corp. recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The effect on tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the
enactment date.
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities at December 31, 1998 and 1997 are presented below:
<TABLE>
<CAPTION>
In thousands 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Tax and loss bonds $160,064 $130,080
Alternative minimum tax credit carryforward 54,722 62,279
Loss and loss adjustment expense reserves 26,458 18,878
Other 46,516 7,444
- -----------------------------------------------------------------------------------
Total gross deferred tax assets 287,760 218,681
- -----------------------------------------------------------------------------------
Deferred tax liabilities
Contingency reserve 280,203 234,904
Deferred premium revenue 106,555 77,150
Deferred acquisition costs 77,753 53,935
Unrealized gains 112,283 94,416
Contingent commissions 408 408
Other 13,965 9,002
- -----------------------------------------------------------------------------------
Total gross deferred tax liabilities 591,167 469,815
- -----------------------------------------------------------------------------------
Net deferred tax liability $303,407 $251,134
- -----------------------------------------------------------------------------------
</TABLE>
MBIA Corp. believes that no valuation allowance is necessary in connection
with the deferred tax assets.
9. DIVIDENDS AND CAPITAL REQUIREMENTS
- --------------------------------------
Under New York state insurance law, MBIA Corp. may pay dividends only from
earned surplus subject to the maintenance of a minimum capital requirement. The
dividends in any 12-month period may not exceed the lesser of 10% of its
policyholders' surplus as shown on its last filed statutory-basis financial
statements, or of adjusted net investment income, as defined, for such 12-month
period, without prior approval of the superintendent of the New York State
Insurance Department.
(17)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In accordance with such restrictions on the amount of dividends which can
be paid in any 12-month period, MBIA Corp. had $228 million available for the
payment of dividends as of December 31, 1998. In 1998 and 1997 no dividends were
paid by MBIA Corp. due to cash available from financing activities. In 1996,
MBIA Corp. declared and paid $29 million to MBIA Inc.
Under Illinois Insurance Law, MBIA Illinois may pay a dividend from
unassigned surplus, and the dividends in any 12-month period may not exceed the
greater of 10% of policyholders' surplus (total capital and surplus) at the end
of the preceding calendar year, or the net income of the preceding calendar year
without prior approval of the Illinois State Insurance Department.
In accordance with such restrictions on the amount of dividends which can
be paid in any 12-month period, MBIA Illinois had $14.9 million available for
the payment of dividends as of December 31, 1998.
The insurance departments of New York state and certain other statutory
insurance regulatory authorities and the agencies that rate the bonds insured by
MBIA Corp. and its subsidiaries have various requirements relating to the
maintenance of certain minimum ratios of statutory capital and reserves to net
insurance in force. MBIA Corp. and its subsidiaries were in compliance with
these requirements as of December 31, 1998.
10. LINES OF CREDIT
- --------------------
MBIA Corp. has a standby line of credit commitment in the amount of $825 million
with a group of major Triple-A rated banks to provide loans to MBIA Corp. if it
incurs cumulative losses (net of any recoveries) from October 7, 1998 in excess
of the greater of $825 million or 4.00% of average annual debt service. The
obligation to repay loans made under this agreement is a limited recourse
obligation payable solely from, and collateralized by, a pledge of recoveries
realized on defaulted insured obligations including certain installment premiums
(18)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
and other collateral. This commitment has a seven-year term expiring on October
31, 2005, and contains an annual renewal provision subject to approval by the
bank group. CMAC maintains stop-loss reinsurance coverage of $75 million in
excess of incurred losses of $150 million.
MBIA Corp. and MBIA Inc. maintain bank liquidity facilities totaling $650
million. During 1998, these facilities replaced existing facilities aggregating
$450 million. At December 31, 1997, $20 million was outstanding under these
facilities.
11. NET INSURANCE IN FORCE
- ---------------------------
MBIA Corp. guarantees the timely payment of principal and interest on municipal,
asset-/mortgage-backed and other non-municipal securities. MBIA Corp.'s ultimate
exposure to credit loss in the event of nonperformance by the insured is
represented by the insurance in force as set forth below.
As of December 31, 1998, insurance in force, net of cessions to reinsurers,
had a range of maturity of 1-41 years. The distribution of net insurance in
force by geographic location and type of bond, including $3.5 billion and $3.2
billion relating to IMC's municipal investment agreements guaranteed by MBIA
Corp. in 1998 and 1997, respectively, is set forth in the following table:
<TABLE>
<CAPTION>
As of December 31
- -------------------------------------------------------------------------------------------------------------------------------
$ in billions 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
Net Number % of Net Net Number % of Net
Geographic Insurance of Issues Insurance Insurance of Issues Insurance
Location In Force Outstanding In Force In Force Outstanding In Force
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic
California $ 76.3 3,681 12.7% $ 68.4 3,441 14.1%
New York 65.1 5,684 10.9 40.4 5,265 8.3
Florida 36.1 1,589 6.0 33.0 1,577 6.8
New Jersey 26.2 1,884 4.4 24.6 2,086 5.1
Texas 25.3 2,131 4.2 24.5 1,859 5.0
Pennsylvania 24.7 2,278 4.1 22.7 2,209 4.7
Illinois 23.7 1,275 4.0 20.0 1,191 4.1
Massachusetts 18.4 1,107 3.1 15.5 1,085 3.2
Michigan 14.6 1,066 2.4 12.4 1,005 2.5
Ohio 13.8 1,076 2.3 11.1 1,016 2.3
- -------------------------------------------------------------------------------------------------------------------------------
Subtotal 324.2 21,771 54.1 272.6 20,734 56.1
Nationally
diversified 81.7 842 13.6 55.8 502 11.5
Other states 169.0 12,004 28.2 147.3 11,429 30.3
- -------------------------------------------------------------------------------------------------------------------------------
Total domestic 574.9 34,617 95.9 475.7 32,665 97.9
International 24.5 323 4.1 10.1 207 2.1
- -------------------------------------------------------------------------------------------------------------------------------
Total $599.4 34,940 100.0% $485.8 32,872 100.0%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(19)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The insurance policies issued by MBIA Corp. are unconditional commitments to
guarantee timely payment on the bonds and notes to bondholders. The
creditworthiness of each insured issue is evaluated prior to the issuance of
insurance and each insured issue must comply with MBIA Corp.'s underwriting
guidelines. Further, the payments to be made by the issuer on the bonds or notes
may be backed by a pledge of revenues, reserve funds, letters of credit,
investment contracts or collateral in the form of mortgages or other assets. The
right to such money or collateral would typically become MBIA Corp.'s upon the
payment of a claim by MBIA Corp.
Under certain MBIA Corp.'s structured asset-backed transactions, a pool of
assets covering at least 100% of the principal amount guaranteed under its
insurance contract is sold or pledged to a special-purpose bankruptcy remote
entity. MBIA Corp.'s primary risk from such insurance contracts is the
impairment of cash flows due to delinquency or loss on the underlying assets.
MBIA Corp. therefore evaluates all the factors affecting past and future asset
performance by studying historical data on losses, delinquencies and recoveries
of the underlying assets. Each transaction is reviewed to ensure that an
appropriate legal structure is used to protect against the bankruptcy risk of
the originator of the assets. Along with the legal structure, an additional
level of first-loss protection is also created to protect against losses due to
credit or dilution. This first level of loss protection is usually available
from reserve funds, excess cash flows, overcollateralization or recourse to a
third party. The level of first-loss protection depends upon the historical
losses and dilution of the underlying assets, but is typically several times the
normal historical loss experience for the underlying type of assets. The
distribution of net insurance in force by type of bond is set forth in the table
below:
(20)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
As of December 31
- ---------------------------------------------------------------------------------------------------------------------------------
$ in billions 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
Net Number % of Net Net Number % of Net
Insurance of Issues Insurance Insurance of Issues Insurance
Type of Bond In Force Outstanding In Force In Force Outstanding In Force
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic
Municipal:
General obligation $140.7 12,694 23.6% $118.8 12,016 24.5%
Utilities 80.9 4,895 13.5 75.1 4,739 15.5
Health care 70.9 2,241 11.8 62.2 2,246 12.8
Transportation 46.2 1,543 7.7 40.5 1,487 8.3
Special revenue 42.8 1,787 7.1 34.0 1,641 7.0
Higher education 26.7 1,498 4.5 20.4 1,359 4.2
Housing 22.3 2,161 3.7 18.9 1,891 3.9
Industrial
development and
pollution control
revenue 19.4 1,037 3.2 19.6 943 4.0
Other 5.6 75 0.9 11.4 539 2.4
- ---------------------------------------------------------------------------------------------------------------------------------
Total municipal 455.5 27,931 76.0 400.9 26,861 82.6
- ---------------------------------------------------------------------------------------------------------------------------------
Structured finance* 97.1 850 16.2 56.1 510 11.5
- ---------------------------------------------------------------------------------------------------------------------------------
Other:
Investor owned utility 13.0 5,068 2.2 9.4 4,610 1.9
Financial institution 5.4 381 0.9 5.8 366 1.2
Corporate direct 3.9 387 0.6 3.5 318 0.7
- ---------------------------------------------------------------------------------------------------------------------------------
Total other 22.3 5,836 3.7 18.7 5,294 3.8
- ---------------------------------------------------------------------------------------------------------------------------------
Total domestic 574.9 34,617 95.9 475.7 32,665 97.9
- ---------------------------------------------------------------------------------------------------------------------------------
International
Infrastructure:
Sovereign 1.6 32 0.3 1.3 21 0.3
Transportation 1.4 12 0.2 0.8 5 0.2
Sub-sovereign 1.2 44 0.2 1.4 53 0.3
Higher education 0.9 13 0.1 0.6 1 0.1
Housing 0.6 3 0.1 0.3 2 0.1
Health care 0.4 6 0.1 0.2 6 ---
Utilities 0.4 4 0.1 0.8 60 0.2
- ---------------------------------------------------------------------------------------------------------------------------------
Total infrastructure 6.5 114 1.1 5.4 148 1.2
- ---------------------------------------------------------------------------------------------------------------------------------
Structured finance* 14.8 102 2.5 2.6 32 0.5
- ---------------------------------------------------------------------------------------------------------------------------------
Other:
Investor owned utility 1.8 72 0.3 0.2 3 ---
Financial institution 1.0 29 0.1 1.9 24 0.4
Corporate direct 0.4 6 0.1 --- --- ---
- ---------------------------------------------------------------------------------------------------------------------------------
Total other 3.2 107 0.5 2.1 27 0.4
- ---------------------------------------------------------------------------------------------------------------------------------
Total international 24.5 323 4.1 10.1 207 2.1
- ---------------------------------------------------------------------------------------------------------------------------------
Total $599.4 34,940 100.0% $485.8 32,872 100.0%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Asset-/mortgage-backed
(21)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. REINSURANCE
- ----------------
MBIA Corp. reinsures portions of its risks with other insurance companies
through various quota and surplus share reinsurance treaties and facultative
agreements. In the event that any or all of the reinsurers were unable to meet
their obligations, MBIA Corp. would be liable for such defaulted amounts.
Amounts deducted from gross insurance in force for reinsurance ceded by
MBIA Corp. and its subsidiaries were $108.2 billion and $67.0 billion, at
December 31, 1998 and 1997, respectively. The distribution of ceded insurance in
force by geographic location and type of bond is set forth in the following
tables:
<TABLE>
<CAPTION>
As of December 31
- ------------------------------------------------------------------------------------------------------
In billions 1998 1997
- ------------------------------------------------------------------------------------------------------
% of % of
Ceded Ceded Ceded Ceded
Insurance Insurance Insurance Insurance
Geographic Location In Force In Force In Force In Force
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic
California $ 12.4 11.5% $10.4 15.5%
New York 10.7 9.9 5.8 8.7
New Jersey 5.4 5.0 3.7 5.5
Texas 5.3 4.9 4.0 6.0
Pennsylvania 3.8 3.5 2.9 4.3
Massachusetts 3.7 3.4 3.0 4.5
Illinois 3.4 3.1 2.7 4.0
Florida 3.2 3.0 2.6 3.9
Puerto Rico 3.1 2.9 2.3 3.4
Colorado 2.3 2.1 2.4 3.6
- -----------------------------------------------------------------------------------------------------
Subtotal 53.3 49.3 39.8 59.4
Nationally diversified 14.6 13.5 3.4 5.0
Other states 23.6 21.8 19.1 28.6
- -----------------------------------------------------------------------------------------------------
Total domestic 91.5 84.6 62.3 93.0
International 16.7 15.4 4.7 7.0
- -----------------------------------------------------------------------------------------------------
Total $108.2 100.0% $67.0 100.0%
- -----------------------------------------------------------------------------------------------------
</TABLE>
(22)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
As of December 31
- --------------------------------------------------------------------------------
In billions 1998 1997
- --------------------------------------------------------------------------------
% of % of
Ceded Ceded Ceded Ceded
Insurance Insurance Insurance nsurance
Type of Bond In Force In Force In Force In Force
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic
Municipal:
Utilities $15.5 14.3% $11.5 17.2%
General obligation 15.4 14.2 12.1 18.1
Health care 13.4 12.4 8.0 12.0
Transportation 10.6 9.8 9.6 14.3
Special revenue 5.8 5.3 5.0 7.5
Industrial
development and
pollution control revenue 3.8 3.5 3.2 4.7
Housing 2.3 2.1 1.7 2.5
Higher education 1.7 1.6 1.3 1.9
Other 1.2 1.1 2.7 4.0
- --------------------------------------------------------------------------------
Total municipal 69.7 64.3 55.1 82.2
- --------------------------------------------------------------------------------
Structured finance* 19.5 18.0 5.6 8.3
- --------------------------------------------------------------------------------
Other:
Investor-owned utility 1.3 1.2 0.1 0.3
Financial institution 0.9 0.8 1.3 1.9
Corporate direct 0.1 0.1 0.2 0.3
- --------------------------------------------------------------------------------
Total other 2.3 2.1 1.6 2.5
- --------------------------------------------------------------------------------
Total domestic 91.5 84.4 62.3 93.0
- --------------------------------------------------------------------------------
International
Infrastructure:
Transportation 1.3 1.2 0.4 0.6
Higher education 1.0 0.9 0.6 0.9
Sovereign 0.8 0.7 0.7 1.1
Sub-sovereign 0.4 0.4 0.6 0.9
Utilities 0.4 0.4 0.1 0.1
Health care 0.2 0.2 0.2 0.3
Housing 0.1 0.1 --- ---
- --------------------------------------------------------------------------------
Total infrastructure 4.2 3.9 2.6 3.9
- --------------------------------------------------------------------------------
Structured finance* 11.1 10.3 1.3 1.9
- --------------------------------------------------------------------------------
Other:
Financial institution 0.5 0.5 0.8 1.2
Corporate direct 0.5 0.5 --- ---
Investor-owned utilities 0.4 0.4 --- ---
- --------------------------------------------------------------------------------
Total other 1.4 1.4 0.8 1.2
- --------------------------------------------------------------------------------
Total international 16.7 15.6 4.7 7.0
- --------------------------------------------------------------------------------
Total $108.2 100.0% $67.0 100.0%
- --------------------------------------------------------------------------------
</TABLE>
* Asset-/mortgage-backed
(23)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As part of the MBIA Corp's portfolio shaping activity in 1998, the company has
entered into facultative share reinsurance agreements with highly rated
reinsurers that obligate the company to cede future premiums to the reinsurers
through January 1, 2005. Certain reinsurance contracts in 1998 were accounted
for on a retroactive basis in accordance with SFAS 113.
Ceding commissions received from reinsurers before deferrals were $37.2
million, $20.8 million and $13.7 million in 1998, 1997 and 1996, respectively.
In 1998, $170.0 million was received in reinsurance recoveries related to the
bankruptcy of a Pennsylvania hospital group.
13. EMPLOYEE BENEFITS
- ----------------------
MBIA Corp. participates in MBIA Inc.'s pension plan covering substantially all
employees. The pension plan is a defined contribution plan and MBIA Corp.
contributes 10% of each eligible employee's annual total compensation. Pension
expense for the years ended December 31, 1998, 1997 and 1996 was $5.9 million,
$3.9 million and $3.4 million, respectively. MBIA Corp. also has a profit
sharing/401(k) plan which allows eligible employees to contribute up to 10% of
eligible compensation. MBIA Corp. matches employee contributions up to the first
5% of total compensation. MBIA Corp. contributions to the profit sharing plan
aggregated $2.6 million, $1.6 million and $1.5 million for the years ended
December 31, 1998, 1997 and 1996, respectively. The 401(k) plan amounts are
invested in common stock of MBIA Inc. Amounts relating to the above plans that
exceed limitations established by Federal regulations are contributed to a
non-qualified deferred compensation plan. In 1998, former CMAC employees were
covered under MBIA Inc.'s pension and profit sharing plans. Of the above amounts
for the pension and profit sharing plans, $5.3 million, $3.4 million and $3.0
million for the years ended December 31, 1998, 1997 and 1996, respectively, were
included in policy acquisition costs.
MBIA Corp. also participates in the "MBIA Long-Term Incentive Program". The
incentive program includes a stock option program and adds a compensation
component linked to the growth in adjusted book value per share (ABV) of MBIA
Inc.'s stock. Awards under the long-term program are divided equally between the
two components, with 50% of the award given in stock options and 50% of the
award (multiplied by a 1.5 conversion factor for the December 1995 award only)
paid in cash or shares of MBIA Inc.'s stock. Target levels for the
option/incentive award are established as a percentage of total salary and
(24)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
bonus, based upon the recipient's position. The awards under the long-term
program typically will be granted from the vice president level up to and
including the chairman and chief executive officer.
The ABV portion of the long-term incentive program may be awarded every
year. The 1998 award will cover growth in ABV from December 31, 1998 through
December 31, 2001; the 1997 award will cover growth in ABV from December 31,
1997 through December 31, 2000; and the 1995 award will cover growth in ABV from
December 31, 1995 through December 31, 1998, with a base line growth of 12% on
all awards. The amount to be paid in respect of such award will be adjusted
upward or downward based on the actual ABV growth with a minimum growth of 8%
necessary to receive any payment and an 18% growth needed to receive the maximum
payment of 200% of the target levels. The amount, if any, to be paid under this
portion of the program will be paid in early 2002 for the 1998 award, in early
2001 for the 1997 award and early 1999 for the 1995 award in the form of cash or
shares of MBIA Inc.'s common stock. Subsequent awards, if any, will be made
every year with concomitant payments occurring after the three-year cycle.
During 1998, 1997 and 1996, $4.8 million, $3.2 million and $2.6 million,
respectively, were recorded as a charge related to the 1998, 1997 and 1995 ABV
awards. Of these amounts, $3.0 million, $2.0 million and $1.6 million were
included in policy acquisition costs for the same respective periods.
MBIA Corp. also participates in MBIA Inc.'s restricted stock program,
adopted in December 1995, whereby key executive officers of MBIA Corp. are
granted restricted shares of MBIA Inc. common stock. These stock awards may only
be sold three or four years from the date of grant, at which time the awards
fully vest. Compensation expense related to the restricted stock was $0.9
million, $0.5 million and $0.2 million for the years ended December 31, 1998,
1997 and 1996, respectively, of which $0.5 million, $0.3 million and $0.1
million were included in policy acquisition costs.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) 123, "Accounting for Stock-Based
Compensation," effective for financial statements for fiscal years beginning
after December 15, 1995. SFAS 123 required MBIA Inc. to adopt, at its election,
either 1) the provisions in SFAS 123 which require the recognition of
compensation expense for employee stock-based compensation plans, or 2) the
provisions in SFAS 123 which require the pro forma disclosure of net income and
earnings per share as if the recognition provisions of SFAS 123 had been
adopted. MBIA Inc. adopted the disclosure requirements of SFAS 123 effective
(25)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
January 1, 1996 and continues to account for its employee stock-based
compensation plans under Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees". Accordingly, the adoption of SFAS 123 had no
impact on MBIA Corp.'s financial position or results of operations. Had
compensation cost for the MBIA Inc. stock option program been recognized based
on the fair value at the grant date consistent with the recognition provisions
of SFAS 123, the impact on MBIA Corp.'s net income would not have been material.
14. RELATED PARTY TRANSACTIONS
- -------------------------------
Since 1989, MBIA Corp. has executed five surety bonds to guarantee the payment
obligations of the members of the Association who had their Standard & Poor's
Corporation claims-paying rating downgraded from Triple-A on their previously
issued Association policies. In the event that they do not meet their
Association policy payment obligations, MBIA Corp. will pay the required amounts
directly to the paying agent. The aggregate outstanding exposure on these surety
bonds as of December 31, 1998 is $340 million.
Included in other assets at December 31, 1998 is a $45.4 million net
receivable from MBIA Inc. and other subsidiaries. As of December 31, 1997,
included in other liabilities is a $27.1 million net payable to MBIA Inc. and
other subsidiaries.
MBIA Corp. entered into an agreement with MBIA Inc. and IMC whereby MBIA
Corp. held securities subject to agreements to resell of $187.5 million and
$182.8 million as of December 31, 1998 and 1997, respectively, and transferred
securities subject to agreements to repurchase of $187.5 million and $182.8
million as of December 31, 1998 and 1997. These agreements have a term of less
than one year. The interest expense relating to these agreements was $11.1
million and $8.3 million, respectively, for the years ended December 31, 1998
and 1997. The interest income relating to these agreements was $11.6 million and
$8.4 million, respectively, for the years ended December 31, 1998 and 1997.
(26)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
- ----------------------------------------
The estimated fair value amounts of financial instruments shown in the following
table have been determined by MBIA Corp. using available market information and
appropriate valuation methodologies. However, in certain cases considerable
judgment is necessarily required to interpret market data to develop estimates
of fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amount MBIA Corp. could realize in a current market exchange.
The use of different market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.
FIXED-MATURITY SECURITIES - The fair value of fixed-maturity securities is based
upon quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.
SHORT-TERM INVESTMENTS - Short-term investments are carried at amortized cost
which approximates fair value.
OTHER INVESTMENTS - Other investments include MBIA Corp.'s interest in a limited
partnership and a mutual fund that invests principally in marketable equity
securities. The fair value of these investments is based on quoted market
prices.
CASH AND CASH EQUIVALENTS, RECEIVABLE FOR INVESTMENTS SOLD AND PAYABLE FOR
INVESTMENTS PURCHASED - The carrying amounts of these items are a reasonable
estimate of their fair value.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL - The fair value is estimated
based upon the quoted market prices of the transactions' underlying
collateral.
PREPAID REINSURANCE PREMIUMS - The fair value of MBIA Corp.'s prepaid
reinsurance premiums is based on the estimated cost of entering into an
assumption of the entire portfolio with third party reinsurers under current
market conditions.
DEFERRED PREMIUM REVENUE - The fair value of MBIA Corp.'s deferred premium
revenue is based on the estimated cost of entering into a cession of the entire
portfolio with third party reinsurers under current market conditions.
(27)
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES - The carrying amount is composed of
the present value of the expected cash flows for specifically identified claims
combined with an estimate for unallocated claims. Therefore, the carrying amount
is a reasonable estimate of the fair value of the reserve.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - The fair value is estimated
based upon the quoted market prices of the transactions' underlying collateral.
INSTALLMENT PREMIUMS - The fair value is derived by calculating the present
value of the estimated future cash flow stream discounted at 9%.
<TABLE>
<CAPTION>
As of December 31, 1998 As of December 31, 1997
- -----------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
In thousands Amount Fair Value Amount Fair Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Fixed-maturity securities $5,884,053 $5,884,053 $4,867,254 $4,867,254
Short-term investments 423,188 423,188 242,730 242,730
Other investments 17,850 17,850 16,802 16,802
Cash and cash equivalents 6,546 6,546 3,983 3,983
Securities purchased under
agreements to resell 187,500 299,412 182,820 203,333
Prepaid reinsurance
premiums 352,699 297,238 252,893 218,571
Receivable for
investments sold 33,880 33,880 1,616 1,616
LIABILITIES:
Deferred premium
revenue 2,251,211 1,939,971 1,984,104 1,716,477
Loss and loss adjustment
expense reserves 270,114 270,114 78,872 78,872
Securities sold under
agreements to repurchase 187,500 194,491 182,820 191,932
Payable for investments
purchased 29,523 29,523 23,020 23,020
OFF-BALANCE SHEET INSTRUMENTS:
Installment premiums --- 644,132 --- 349,619
</TABLE>
(28)
