AGREEMENT AND PLAN OF MERGER
DATED
NOVEMBER 13, 2000
AMONG
ENHANCE FINANCIAL SERVICES GROUP INC.
GOLD ACQUISITION CORPORATION
AND
RADIAN GROUP INC.
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TABLE OF CONTENTS
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ARTICLE I MERGER OF ACQUISITION AND THE COMPANY.........................2
1.1 The Merger.......................................................2
1.2 Certificate of Incorporation.....................................3
1.3 By-Laws..........................................................3
1.4 Directors........................................................3
1.5 Officers.........................................................3
1.6 Stock of the Company.............................................3
1.7 Stock of Sub.....................................................5
1.8 Distributions with Regard to Company Stock.......................5
1.9 Options and Warrants.............................................8
1.10 Adjustment of Exchange Ratio.....................................9
ARTICLE II EFFECTIVE TIME OF MERGER......................................9
2.1 Date of the Merger...............................................9
2.2 Execution of Certificate of Merger...............................9
2.3 Effective Time of the Merger....................................10
ARTICLE III REPRESENTATIONS AND WARRANTIES...............................10
3.1 Representations and Warranties of the Company...................10
3.2 Representations and Warranties of Parent and Sub................38
3.3 Termination of Representations and Warranties...................44
ARTICLE IV ACTIONS PRIOR TO THE MERGER..................................45
4.1 Company's Activities Until Effective Time.......................45
4.2 Parent's Activities Until Effective Time........................50
4.3 HSR Act Filings.................................................51
4.4 Licenses and Permits............................................52
4.5 Registration Statement, Proxy Statements and Shareholders
Meetings........................................................52
4.6 No Solicitation of Offers; Notice of Proposals from Others......56
4.7 Appropriate Action; Consents....................................57
4.8 Cooperation.....................................................58
4.9 Company Affiliates; Reorganization..............................59
4.10 Takeover Statutes...............................................59
4.11 Certain Contracts...............................................60
4.12 C-BASS..........................................................61
4.13 Benefits........................................................62
4.14 Support Agreements..............................................62
ARTICLE V CONDITIONS PRECEDENT TO MERGER...............................62
5.1 Conditions to the Company's Obligations.........................62
5.2 Conditions to Parent's and Sub's Obligations....................64
ARTICLE VI TERMINATION..................................................67
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6.1 Right to Terminate..............................................67
6.2 Manner of Terminating Agreement.................................72
6.3 Effect of Termination...........................................72
ARTICLE VII ABSENCE OF BROKERS...........................................72
7.1 Representations and Warranties Regarding Brokers and Others.....72
ARTICLE VIII OTHER AGREEMENTS.............................................73
8.1 Payment to Parent...............................................73
8.2 Indemnification for Prior Acts..................................75
8.3 Beneficiaries...................................................76
ARTICLE IX GENERAL......................................................76
9.1 Expenses........................................................76
9.2 Access to Properties, Books and Records.........................76
9.3 Press Releases..................................................77
9.4 Entire Agreement................................................77
9.5 Effect of Disclosures...........................................77
9.6 Captions; Definitions...........................................78
9.7 Prohibition Against Assignment; Benefit.........................78
9.8 Notices and Other Communications................................78
9.9 Governing Law...................................................79
9.10 Amendments......................................................79
9.11 Counterparts....................................................79
EXHIBITS
Exhibit 4.9-A Affiliate Letter
Exhibit 4.14-A Shareholders Support Agreement
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AGREEMENT AND PLAN OF MERGER
This is an Agreement and Plan of Merger (this "Agreement") dated November
13, 2000, among ENHANCE FINANCIAL SERVICES GROUP INC. (the "Company"), a New
York corporation, RADIAN GROUP INC. ("Parent"), a Delaware corporation, and GOLD
Acquisition Corporation ("Sub"), a New York corporation and wholly owned
subsidiary of Parent.
RECITALS
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved the merger of Sub with and into the Company (the "Merger"), upon
the terms and subject to the conditions set forth in this Agreement and in
accordance with the New York Business Corporation Law (the "NYBCL"), whereby the
issued and outstanding shares of Company Common Stock (as defined herein), other
than shares to be canceled in accordance with Section 1.6(b), will be converted
into the right to receive the Merger Consideration (as defined herein);
WHEREAS, as an inducement to Parent to enter into this Agreement, certain
significant shareholders of the Company are entering into an agreement with
Parent (the "Shareholders Support Agreement") pursuant to which each significant
shareholder has, among other things, agreed to vote such significant
shareholder's shares of Company Common Stock in favor of the Merger;
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger, and also to prescribe various conditions to the Merger; and
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
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NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
MERGER OF ACQUISITION AND THE COMPANY
1.1 THE MERGER. (a) Subject to the terms and conditions set forth in
this Agreement, at the Effective Time (as defined herein) pursuant to the
Merger, Sub will be merged into the Company, which will be the surviving
corporation of the Merger (the "Surviving Corporation"). Except as specifically
provided in this Agreement, at the Effective Time, (i) the real and personal
property, other assets, rights, privileges, immunities, powers, purposes and
franchises of the Company will continue unaffected and unimpaired by the Merger,
(ii) the separate existence of Sub will terminate, and Sub's real and personal
property, other assets, rights, privileges, immunities, powers, purposes and
franchises will be merged into the Surviving Corporation, and (iii) the Merger
will have the other effects specified in Section 906 of the NYBCL.
(b) Notwithstanding Section 1.1(a), Parent may elect to modify
the structure of the transactions contemplated by this Agreement, including,
without limitation, to provide for the merger of the Company directly with and
into Parent, so long as (i) there are no adverse tax or other consequences to
the holders of Company Common Stock as a result of such modification, (ii) the
consideration to be paid to the holders of Company Common Stock under this
Agreement is not thereby changed or reduced in form or amount, and (iii) such
modification will not materially delay or jeopardize receipt of any required
regulatory approvals or otherwise delay or jeopardize the closing of the
transactions contemplated hereby. In the event that Parent determines to do the
foregoing, the parties hereto agree to modify this Agreement and any
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exhibits, annexes or schedules hereto to reflect such revised terms. In any such
event, Parent shall prepare appropriate amendments to this Agreement and any
such exhibits, annexes or schedules for execution by the parties hereto. The
Company agrees to cooperate fully with Parent to effect such amendments.
1.2 CERTIFICATE OF INCORPORATION. From the Effective Time until
subsequently amended, the Certificate of Incorporation of Sub immediately before
the Effective Time will be the Certificate of Incorporation of the Surviving
Corporation, except that it will provide that the name of the Surviving
Corporation will be "Enhance Financial Services Group Inc.," and that
Certificate of Incorporation, separate and apart from this Agreement, may be
certified as the Certificate of Incorporation of the Surviving Corporation.
1.3 BY-LAWS. From the Effective Time until subsequently amended, the
By-Laws of Sub immediately before the Effective Time will be the By-Laws of the
Surviving Corporation.
1.4 DIRECTORS. The directors of Sub immediately prior to the
Effective Time will be the directors of the Surviving Corporation after the
Effective Time and will hold office in accordance with the By-Laws of the
Surviving Corporation.
1.5 OFFICERS. The officers of the Company immediately before the
Effective Time will be the officers of the Surviving Corporation after the
Effective Time and will hold office until successors are duly elected or
appointed and qualified in accordance with applicable law.
1.6 STOCK OF THE COMPANY. (a) Except as provided in Sections 1.6(b)
and (c), at the Effective Time, each share of common stock of the Company, par
value $.10 per share, ("Company Common Stock"), that is outstanding immediately
before the Effective Time will be converted into and become the right to receive
0.22 (as adjusted pursuant to the immediately succeeding sentence) (the
"Exchange Ratio") of a share of common stock, par value $.001 per
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share, of Parent (such shares, together with the associated rights (the "Parent
Shareholder Rights") pursuant to the Amended and Restated Shareholder Rights
Agreement, dated as of January 19, 1999, by and between CMAC Investment
Corporation (predecessor to Parent) and the Bank of New York, as Rights Agent
thereunder, the "Parent Common Stock"), together with any associated Parent
Shareholder Rights. If the Singer September 30 Net Worth (as defined herein)
shall be less than $36 million, then the Exchange Ratio shall be reduced to
equal 0.22 minus the quotient (rounded to the nearest four decimal places)
obtained by dividing (1) the quotient obtained by dividing (a) the difference
between $36 million and the Singer September 30 Net Worth by (b) 38,500,000, by
(2) the Starting Price (as defined herein).
(b) Each share of Company Common Stock held in the treasury of
the Company, or by any direct or indirect wholly owned subsidiary of the
Company, immediately before the Effective Time will, at the Effective Time, be
cancelled and cease to exist, and no consideration will be paid with respect to
any of those shares of Company Common Stock.
(c) No fractional shares of Parent Common Stock will be issued as
a result of the Merger. Any holder of Company Common Stock that, but for this
Section 1.6, would be entitled to receive a fraction of a share of Parent Common
Stock as a result of the Merger will, at the Effective Time, have the right to
receive, instead of that fraction of a share and without interest, cash equal to
the Market Value of a share of Parent Common Stock on the Merger Date (as
defined herein) times the fraction. As used herein, the "Market Value" of a
share of Parent Common Stock on a day means the average of the Last Sale Price
of a share of Parent Common Stock on each of the twenty New York Stock Exchange
trading days ending on, and including, that day. As used herein, the "Last Sale
Price" of a share of Parent Common Stock on a day
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given will be the last sale price of a share of Parent Common Stock reported on
the New York Stock Exchange consolidated tape prior to 4:00 p.m. New York City
time on that day.
(d) The Parent Common Stock into which a share of Company Common
Stock is converted in the Merger as provided in Section 1.6(a), together with
the right to receive cash instead of fractional shares, is referred to in this
Agreement as the "Merger Consideration."
1.7 STOCK OF SUB. At the Effective Time, each share of stock of Sub
("Sub stock") which is outstanding immediately before the Effective Time will be
converted into and become one share of the same class of stock of the Surviving
Corporation. At the Effective Time, a certificate which represented Sub stock
will automatically become and be a certificate representing the number of shares
of the class of Surviving Corporation stock into which the Sub stock represented
by the certificate was converted.
1.8 DISTRIBUTIONS WITH REGARD TO COMPANY STOCK. (a) Prior to the
Effective Time, Parent or Sub will designate a bank or trust company to act as
distributing agent in connection with the Merger (the "Distributing Agent"). At,
or immediately before, the Effective Time, Parent will provide the Distributing
Agent with the shares of Parent Common Stock and any funds which will have to be
distributed to holders of Company Common Stock under Section 1.6(c) as a result
of the Merger.
(b) After the Effective Time and until they are distributed
to former Company shareholders pursuant to this Agreement, the shares of Parent
Common Stock held by the Distributing Agent will be deemed to be outstanding,
but the Distributing Agent will not vote those shares or exercise any rights of
a shareholder of Parent with regard to those shares of Parent Common Stock. If
any dividends are paid with regard to shares of Parent Common Stock while they
are held by the Distributing Agent, the Distributing Agent will hold the
dividends,
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uninvested, until such shares of Parent Common Stock are distributed to former
holders of Company Common Stock pursuant to this Agreement, at which time the
dividends which have been paid with regard to the shares of Parent Common Stock
which are being distributed will be paid, without interest, to the persons to
whom the shares of Parent Common Stock are being distributed.
(c) While the Distributing Agent is holding cash provided by
Parent under Section 1.8(a), the Distributing Agent will invest the funds, as
directed by Parent, in obligations of or guaranteed by the United States of
America or obligations of an agency of the United States of America which are
backed by the full faith and credit of the United States of America, in
commercial paper obligations rated P-1 or A-1 or better by Moody's Investors
Services Inc. or Standard & Poors' Rating Services, a division of The
McGraw-Hill Companies ("S&P"), or in deposit accounts, certificates of deposit
or banker's acceptances of, commercial banks with capital, surplus and undivided
profits aggregating more than $200 million (based on the most recent financial
statements of the banks which are then publicly available at the Securities and
Exchange Commission (the "SEC") or otherwise).
(d) Promptly after the Effective Time, the Surviving Corporation
will cause the Distributing Agent to mail to each person who was a record holder
of Company Common Stock at the Effective Time a form of letter of transmittal
for use in effecting the surrender of stock certificates representing Company
Common Stock ("Certificates") in order to receive the Merger Consideration. When
the Distributing Agent receives a Certificate, together with a properly
completed and executed letter of transmittal and any other required documents,
the Distributing Agent will distribute to the holder of the Certificate, or as
otherwise directed in the letter of transmittal, the Merger Consideration with
regard to the shares represented by the
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Certificate, and the Certificate will be cancelled. No interest will be paid or
accrued on any cash payable upon the surrender of a Certificate. If the Merger
Consideration is to be issued to a person other than the person in whose name a
surrendered Certificate is registered, the surrendered Certificate must be
properly endorsed or otherwise be in proper form for transfer, and the person
who surrenders the Certificate must provide funds for payment of any transfer or
other Taxes (as defined herein) required by reason of the distribution to a
person other than the registered holder of the surrendered Certificate or
establish to the satisfaction of Parent that the Tax has been paid. After the
Effective Time, a Certificate which has not been surrendered will represent only
the right to receive the Merger Consideration (including any dividends
theretofore paid after the Effective Time with regard to shares of Parent Common
Stock included in the Merger Consideration), without any interest.
(e) If a Certificate has been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by Parent, the
posting by such Person of a bond in such amount as Parent may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, Parent shall issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration deliverable pursuant to this Agreement in
respect of the shares represented by the Certificate.
(f) At any time which is more than six months after the Effective
Time, Parent may require the Distributing Agent to deliver to it any Parent
Common Stock and any funds which had been made available to the Distributing
Agent and have not been disbursed to former holders of Company Common Stock
(including, without limitation, interest and other income received by the
Distributing Agent in respect of the funds made available to it), and after the
Parent Common Stock and funds have been delivered to Parent, former shareholders
of the
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Company must look to Parent for the Merger Consideration. None of Parent, the
Surviving Corporation or the Distributing Agent will be liable to any former
shareholder of the Company for any Merger Consideration which is delivered to a
public official pursuant to any abandoned property, escheat or similar law.
(g) After the Effective Time, the Surviving Corporation will not
record any transfers of shares of Company Common Stock on the stock transfer
books of the Company or the Surviving Corporation, and the stock ledger of the
Company will be closed. If, after the Effective Time, Certificates are presented
for transfer, they will be cancelled and treated as having been surrendered for
the Merger Consideration.
1.9 OPTIONS AND WARRANTS. At the Effective Time, all Company Stock
Options (as defined herein) which are then outstanding and unexercised shall
cease to represent a right to acquire shares of Company Common Stock and shall
be converted into options to purchase shares of Parent Common Stock on the same
terms and conditions under the applicable Company Stock Plan (as defined herein)
and the stock option agreement by which such Company Stock Option is evidenced.
From and after the Effective Time, (a) the number of shares of Parent Common
Stock purchasable upon exercise of such Company Stock Option shall equal the
product (rounded to the nearest share) of (1) the number of shares of Company
Common Stock that were subject to such Company Stock Option immediately prior to
the Effective Time and (2) the Exchange Ratio, and (b) the per share exercise
price under each such Company Stock Option shall be equal to the result (rounded
to the nearest cent) of dividing the per share exercise price of each such
Company Stock Option by the Exchange Ratio. Notwithstanding the foregoing, each
Company Stock Option that is intended to be an "incentive stock option" (as
defined in Section 422 of the Code) shall be adjusted in accordance with the
requirements of Section 424 of
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the Code. As used herein, "Company Stock Options" shall mean each option to
purchase shares of Company Common Stock under the stock-based compensation and
incentive plans of the Company set forth in Exhibit 1.9 (the "Company Stock
Plans").
1.10 ADJUSTMENT OF EXCHANGE RATIO. If, after the date of this
Agreement, but prior to the Effective Time, the shares of Parent Common Stock
issued and outstanding shall, through a reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
similar change (regardless of the method of effectuation of any of the
foregoing, including by way of a merger or otherwise) in the capitalization of
Parent, increase or decrease in number or be changed into or exchanged for a
different kind or number of securities, then an appropriate and proportionate
adjustment shall be made to the Exchange Ratio.
ARTICLE II
EFFECTIVE TIME OF MERGER
2.1 DATE OF THE MERGER. The day on which the Merger is to take place
(the "Merger Date") will be the third business day after the first day on which
all the conditions in Article V (other than conditions which are to be fulfilled
on the Merger Date) have been fulfilled or waived. The Merger Date may be
changed with the consent of the Company and Parent.
2.2 EXECUTION OF CERTIFICATE OF MERGER. Not later than 3:00 P.M. New
York City time on the day before the Merger Date, (a) Sub and the Company will
each execute a certificate of the merger (the "Certificate of Merger") which
complies with the requirements of Section 904 of the NYBCL, and deliver it to
Wachtell, Lipton, Rosen & Katz for filing with the Department of State of the
State of New York on behalf of the parties. Wachtell, Lipton, Rosen & Katz will
be instructed that, if it is notified on the Merger Date that all the conditions
in Article V have been fulfilled or waived, it is to cause the Certificate of
Merger to be filed on behalf of the parties with
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the Department of State of the State of New York on the Merger Date or as soon
after that date as is practicable.
2.3 EFFECTIVE TIME OF THE MERGER. The Merger will become effective at
11:59 P.M. Albany, New York time on the day when the Certificate of Merger is
filed with the Department of State of the State of New York (that being the
"Effective Time").
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Parent and Sub as follows:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of New York and has all
corporate powers and all Permits (as defined herein) of Governmental Entities
(as defined herein) required to carry on its business as now conducted. The
Company is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where such qualification is necessary, other than
jurisdictions in which the failure to qualify, individually or in aggregate,
would not be reasonably expected to have a Material Adverse Effect (as defined
herein) on the Company. The Company has heretofore delivered to Parent true and
complete copies of the Certificate of Incorporation and By-laws of the Company
as currently in effect.
(b) The Company has all corporate power and authority necessary
to enable it to enter into this Agreement and carry out the transactions
contemplated by this Agreement. All corporate actions necessary to authorize the
Company to enter into this Agreement and carry out the transactions contemplated
by it, other than approval of the Merger and adoption of this Agreement by the
shareholders of the Company, have been taken. This Agreement has been
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duly executed by the Company and is a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms. The
Company's Board of Directors has determined that the Merger is fair to the
Company's shareholders and has voted to recommend to the Company's shareholders
that they vote in favor of adopting this Agreement and approving the Merger.
(c) Except as disclosed by the Company on Exhibit 3.1-C, neither
the execution, delivery and performance of this Agreement or of any document to
be delivered in accordance with this Agreement nor the consummation of the
transactions contemplated by this Agreement or by any document to be delivered
in accordance with this Agreement by the Company will (i) contravene, violate,
or result in a breach of, or (ii) require any consent or other action by any
person, give rise to any right of termination, cancellation or acceleration of
any right or obligation of the Company or any of its subsidiaries (as defined in
Section 3.1(e)) or to a loss of any benefit to which the Company or any of its
subsidiaries is entitled or constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, the Certificate of
Incorporation or By-Laws of the Company, any material agreement or material
instrument to which the Company or any subsidiary of the Company is a party or
by which any of them is bound or any Permit or other similar authorization
affecting, or relating in any way to, the assets or business of the Company or
any of its subsidiaries, any law, or any order, rule or regulation of any court,
arbitrator or other judicial body, governmental agency or instrumentality or
other regulatory organization (each, a "Governmental Entity") having
jurisdiction over the Company or any of its subsidiaries or result in the
creation or imposition of any Lien on any asset of the Company or any of its
subsidiaries. As used herein, "Lien" means,
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with respect to any property or asset, any mortgage, lien, pledge, charge,
security interest, encumbrance or other adverse claim of any kind in respect of
such property or asset.
(d) Except as disclosed by the Company on Exhibit 3.1-D, no
Permits of Governmental Entities, or other governmental action, other than the
expiration or termination of waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), if any, are
required to permit the Company to fulfill all its obligations under this
Agreement or to consummate the transactions contemplated hereby.
(e) Each of the corporations and other entities of which the
Company owns, directly or indirectly, 50% or more of the capital stock,
partnership or membership interests or other equity, or possesses the power,
directly or indirectly, to elect a majority of the members of the board of
directors or other governing body of such corporation or other entity (each such
corporation or other entity with respect to a party hereto being a "subsidiary"
of that party hereto (PROVIDED, that for all purposes of this Agreement unless
expressly provided otherwise herein, each of Credit-Based Asset Servicing and
Securitization LLC ("C-BASS") and Sherman Financial Group LLC ("Sherman") shall
be deemed to be subsidiaries of the Company)) has been duly authorized, and is
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization, and is qualified to do business as a foreign
corporation in each jurisdiction in which it is required to be qualified, except
jurisdictions in which the failure to qualify, individually or in the aggregate,
would not be reasonably expected to have a Material Adverse Effect on the
Company. As used herein, "Material Adverse Effect" with respect to a party
hereto means a material adverse effect (i) on the business, properties, assets,
liabilities (including contingent liabilities), condition (financial or
otherwise), results of operations or prospects of such party and its
subsidiaries, taken as a whole, or (ii) on the ability of such party
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timely to perform its obligations under, or to consummate the transactions
contemplated by, this Agreement; PROVIDED, HOWEVER, that changes or events set
forth on Exhibit 3.1-E shall not constitute a Material Adverse Effect on the
Company.
(f) The only authorized stock of the Company is 100,000,000
shares of Company Common Stock and 5,000,000 shares of preferred stock. As of
the close of business on November 10, 2000, the only outstanding stock of the
Company was 38,223,467 shares of Company Common Stock. All the outstanding
shares of Company Common Stock have been duly authorized and issued and are
fully paid and non-assessable. Except as shown on Exhibit 3.1-F, the Company has
not issued any options, warrants or convertible or exchangeable securities, and
is not a party to any other agreements, which require, or upon the passage of
time, the payment of money or the occurrence of any other event may require, the
Company to issue or sell any of its stock. Except as set forth in this Section
3.1(f) and except for changes since the close of business on November 10, 2000,
resulting from the exercise of Company Stock Options outstanding on such date,
there are no outstanding (i) shares of capital stock or voting securities of the
Company, (ii) securities of the Company or any of its subsidiaries convertible
into or exchangeable for shares of capital stock or voting securities of the
Company or (iii) options or other rights to acquire from the Company or any of
its subsidiaries or other obligations of the Company to issue, any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of the Company. Except as disclosed on
Exhibit 3.1-F, there are no outstanding obligations of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire or register for sale or
offering any securities referred to in clause (i), (ii) or (iii) above.
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(g) Except as shown on Exhibit 3.1-G, (i) all the shares of stock
or other equity interests owned by the Company or a subsidiary of the Company of
each of the Company's subsidiaries are (to the extent such concept is
applicable) duly authorized, validly issued, fully paid, and non-assessable, are
owned by the Company or a subsidiary of the Company free and clear of any Liens
and are not subject to any preemptive rights, and (ii) neither the Company nor
any of its subsidiaries has issued any options, warrants or convertible or
exchangeable securities, or is a party to any other agreements, which require,
or upon the passage of time, the payment of money or the occurrence of any other
event may require, the Company or any subsidiary to issue or sell any stock or
other equity interests in any of the Company's subsidiaries, and there are no
registration covenants or transfer or voting restrictions with respect to
outstanding securities of any of the Company's subsidiaries. Exhibit 3.1-G sets
forth a complete and correct list of all subsidiaries of the Company. Except as
disclosed by the Company in Exhibit 3.1-G, neither the Company nor any of its
subsidiaries holds any interest in a partnership or joint venture of any kind.
(h) Since January 1, 1997, the Company has filed with the SEC all
forms, statements, reports and documents it has been required to file under the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934 as amended (the "Exchange Act") or the rules and
regulations promulgated thereunder (collectively, the "Company Reports"). The
Company Reports, including the documents incorporated by reference in each of
them, each contained all the information required to be included in it and, when
it was filed and as of the date of such Company Report, did not contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made in it, in light of the circumstances under
which they were made, not misleading and complied as
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to form in all material respects with the applicable requirements of the
Securities Act and the Exchange Act.
(i) (1) The Company's Annual Report on Form 10-K for the year
ended December 31, 1999 (as amended by the Form 10-K/A filed on September 20,
2000, the "Company 10-K") and its Report on Form 10-Q for the period ended March
31, 2000 (as amended by the Form 10-Q/A filed on September 20, 2000, the
"Company March 10-Q") and its Report on Form 10-Q for the period ended June 30,
2000 (as amended by the Form 10-Q/A filed on September 20, 2000, the "Company
June 10-Q") which the Company filed with the SEC, including the documents
incorporated by reference in each of them, each contained all the information
required to be included in it and, when it was filed, did not contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made in it, in light of the circumstances under which
they were made, not misleading and complied as to form in all material respects
with the applicable requirements of the Exchange Act. Without limiting Section
3.1(h), the financial statements included in the Company 10-K and the Company
June 10-Q all were prepared in accordance with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis (except to the
extent that unaudited interim financial information included in the Company
Reports does not contain notes and is subject to normal year end adjustments)
and present fairly the consolidated financial condition and the consolidated
results of operations and cash flows of the Company and its subsidiaries at the
dates, and for the periods, to which they relate. Except as disclosed by the
Company on Exhibit 3.1-I(1), at the date of this Agreement, the Company has not
filed any reports with the SEC with regard to any period which ended, or any
event which occurred after June 30, 2000. The estimates of the Company's
revenues and net income for the quarter ended
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September 30, 2000, which were disclosed by the Company to Parent as of the date
hereof, are substantially similar to the Company's actual revenues and net
income for the quarter ended September 30, 2000.
(2) The audited balance sheets of the Company's insurance
subsidiaries as of December 31, 1999, and the related statements of operations
and statements of cash flows for the year then ended, and their respective
annual statements for the fiscal year ended December 31, 1999 (the "Insurance
Subsidiary Annual Statements") filed with the insurance regulatory authorities
in their respective jurisdictions of domicile (collectively, the "Regulators"),
copies of which have been delivered to Parent, fairly present in all material
respects their respective statutory financial conditions as of such date and the
results of their respective operations and cash flows for the year then ended in
conformity with SAP. As used herein, "SAP" means the accounting procedures and
practices prescribed or permitted from time to time by the National Association
of Insurance Commissioners and adopted, permitted or promulgated by the
respective states of incorporation of the Company's insurance subsidiaries and
applied in a consistent manner throughout the periods involved. The other
information contained in the Insurance Subsidiary Annual Statements fairly
presents in all material respects the information required to be contained
therein in conformity with applicable requirements. The balance sheets of the
Company and its subsidiaries at dates after December 31, 1999, and the related
statements of operations and statements of cash flows, which have been filed
with Regulators, copies of which have been delivered to Parent, fairly present
in all material respects the applicable insurance subsidiaries' respective
statutory financial conditions as of such dates and the results of their
respective operations and cash flows for the periods then ended in conformity
with SAP consistently applied.
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(j) Except as disclosed by the Company in the Company June 10-Q
or in Exhibit 3.1-J, since December 31, 1999, (i) the Company and its
subsidiaries (other than insignificant subsidiaries not involved in the
insurance business) have conducted their respective businesses only in the
ordinary course and a manner consistent with past practice and (ii) nothing has
occurred and there has been no development or state of circumstances which,
individually or in aggregate, has had or would be reasonably expected to have a
Material Adverse Effect on the Company.
(k) The assets and properties owned, leased or licensed by the
Company and its subsidiaries constitute, in the aggregate, all the assets
(including Intellectual Property (as defined herein)) necessary to the conduct
of their businesses and operations as they currently are being conducted. All
such assets and properties (other than as Parent and the Company may mutually
agree) will be owned, leased or licensed by the Company and its subsidiaries at
the Effective Time and will as of the Effective Time permit the Surviving
Corporation and its subsidiaries to conduct such businesses and operations in
substantially the same manner as such businesses and operations have been
conducted by the Company and its subsidiaries prior to the Effective Time.
(l) The Company and its subsidiaries have at all times complied,
and currently are complying, with all, and none of them is under investigation
with respect to or has been threatened to be charged with or given notice of any
violation of any, applicable Federal, state, local and foreign laws,
regulations, rules, judgments, injunctions or decrees, except failures to comply
which would not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect on the Company.
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(m) (1) The Company and its subsidiaries have all licenses,
consents, authorizations, franchises, waivers, approvals, certificates, filings
and permits ("Permits") which are required to enable them to own and conduct
their businesses as they currently are being conducted, and all such Permits are
in full force and effect, except as would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on the
Company. Except as would not, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect on the Company, no material
violations exist in respect of any Permit of the Company and its subsidiaries,
and no proceeding or investigation is pending, or to the best of the Company's
knowledge threatened, that would be reasonably likely to result in the
suspension, revocation, limitation or restriction of any Permit and, to the best
of the Company's knowledge, there is no reasonable basis for the assertion of
any such material violation or the institution of any such proceeding.
(2) All insurance policies issued by any subsidiary of the
Company which are now in force are, to the extent required under applicable law,
in a form acceptable to applicable regulatory authorities, or have been filed
with and not objected to by such authorities within the period provided for such
objection.
(3) The Company and each subsidiary of the Company has filed
all material reports, statements, documents, registrations, filings or
submissions required to be filed by the Company or any subsidiary of the
Company, respectively, with any applicable Federal, state or local regulatory
authorities, including to state insurance regulatory authorities. All such
material reports, statements, documents, registrations, filings and submissions
complied in all material respects with applicable law in effect when filed and
no material deficiencies have been asserted by any such regulatory authority
with respect to such reports, statements, documents,
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registrations, filings or submissions that have not been satisfied. All premium
rates, rating plans and policy forms established or used by the Company or any
subsidiary of the Company that are required to be filed with or approved by
insurance regulatory authorities have been so filed or approved, the premiums
charged conform in all material respects to the premiums so filed or approved
and comply in all material respects with the insurance laws applicable thereto,
except where the failure to make such filing or obtain such approval would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company.
(n) With the possible exception of Tax Returns (as defined
herein) of subsidiaries, which Tax Returns would not be material, the Company
and each of its subsidiaries has filed when due (taking account of extensions)
all Tax Returns which it has been required to file and has paid all Taxes shown
on such Tax Returns to be due. Such Tax Returns are complete and accurate in all
material respects. Such Tax Returns accurately reflect all Taxes required to
have been paid, except to the extent of items which may be disputed by
applicable taxing authorities but for which there is substantial authority to
support the position taken by the Company or its subsidiary and which have been
adequately reserved against in accordance with GAAP on the consolidated balance
sheet at June 30, 2000 included in the Company June 10-Q. Except as shown on
Exhibit 3.1-N, (i) no extension of time given by the Company or any of its
subsidiaries for completion of the audit of any of its Tax Returns or for the
assessment or collection of any Tax has been requested or is in effect, (ii)
there are no tax liens against the Company or any of its subsidiaries or any of
their assets, except with respect to current Taxes not yet due, (iii) no
Federal, state, or local audits or other administrative proceedings or court
proceedings with regard to Taxes are presently pending or threatened in writing
with regard to the Company or any of its subsidiaries, (iv) neither the Company
nor any subsidiary of the
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Company is a party to or is bound by any agreement or arrangement providing for
the allocation or sharing of Taxes, (v) neither the Company nor any subsidiary
of the Company has participated in or cooperated with any international boycott
as that term is used in Section 999 of the Code, (vi) neither the Company nor
any subsidiary of the Company has filed a consent pursuant to Section 341(f) of
the Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as that term is defined in Section
341(f)(4) of the Code) owned by the Company or any subsidiary of the Company,
(vii) no issues have been raised with the Company or any of its subsidiaries by
any taxing authority in connection with any audit or examination of its Tax
Returns, (viii) neither the Company nor any of its subsidiaries has any
liability for the Taxes of any person (other than the Company and subsidiaries
of the Company that are members of the affiliated group of corporations (within
the meaning of Section 1504 of the Code) of which the Company is the common
parent) under Treasury Regulation Section 1.1502-6 (or any similar provision of
state, local or foreign law), as successor or transferee, by contract or
otherwise, (ix) within the past five years, neither the Company nor any of its
subsidiaries has been a "distributing corporation" or a "controlled corporation"
in a distribution intended to qualify under Section 355(a) of the Code and (x)
the Company is not aware of any fact or circumstance that would reasonably be
expected to prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code. For the purposes of this Agreement,
"Taxes" means all taxes (including withholding taxes), assessments, levies and
other like governmental charges, and any related interest or penalties. As used
herein, "Tax Return" means any report, return or other information required to
be supplied to a taxing authority in connection with Taxes.
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(o) (i) The Company and its subsidiaries have all material
environmental Permits which are necessary to enable them to conduct their
businesses as they currently are being conducted without violating any
Environmental Law (as defined herein), which Permits are in full force and
effect, (ii) except as shown on Exhibit 3.1-O, neither the Company nor any
subsidiary has received any notice of material noncompliance or material
liability under any Environmental Law, (iii) the Company and its subsidiaries
are, and have been, in compliance in all material respects with all
Environmental Laws and (iv) neither the Company nor any subsidiary is subject to
any order of a Governmental Entity requiring the Company or any subsidiary to
take, or refrain from taking, any actions in order to comply with any
Environmental Law and no action or proceeding seeking such an order or other
action, claim, suit, proceeding, investigation or review related to any
Environmental Law is pending or, insofar as any officer of the Company is aware,
threatened against the Company. As used herein, "Environmental Law" means any
Federal, state, local or foreign law, rule, regulation, guideline or other
legally enforceable requirement of a Governmental Entity relating to protection
of the environment, to environmental conditions which affect human health or
safety or to pollutants, contaminants, wastes or chemicals or any toxic,
radioactive, ignitable, corrosive, reactive or otherwise hazardous substances,
wastes or materials.
(p) None of the software, databases, computer firmware, computer
hardware (whether general or special purpose), or other similar or related items
of automated, computerized, and/or software system(s) that are used or relied on
by the Company or by any of its subsidiaries in the conduct of their respective
businesses malfunctioned, ceased to function, generated incorrect data, or
provided incorrect results when processing, providing and/or receiving
date-related data with respect to dates after December 31, 1999 due to the
change from
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the twentieth to the twenty-first century, and the Company has no reason to
expect any such effects in the future.
(q) Except as shown on Exhibit 3.1-Q, there are no contracts,
agreements or other arrangements which could result in the payment by the
Company or by any subsidiary of an "Excess Parachute Payment" as that term is
used in Section 280G of the Code as a result of the transactions which are the
subject of this Agreement (either alone or in conjunction with any other event).
(r) Except as shown on Exhibit 3.1-R, there are no material
liabilities of the Company or any subsidiary of the Company of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
which could reasonably be expected to result in such a liability, other than
liabilities provided for in the consolidated balance sheet of the Company as of
June 30, 2000 as set forth in the Company June 10-Q, contingent liabilities
under insurance policies in excess of the reserves required by GAAP, and
liabilities incurred since the date of such balance sheet in the ordinary course
of business, which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Company; and liabilities or
obligations under this Agreement.
(s) (1) Except as disclosed by the Company on Exhibit 3.1-S(1),
neither the Company nor any of its subsidiaries is a party to or bound by (i)
any agreement any of the benefits or costs of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement; (ii) any agreement which is
a "material contract" (as such term is defined in Item 601(b)(10) of Regulation
S-K under the Securities Act and the Exchange Act) that has not been filed or
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incorporated by reference in the Company Reports; (iii) any agreement which
would prohibit or materially delay the consummation of the Merger or any of the
transactions contemplated by this Agreement; (iv) any agreement relating to
indebtedness for borrowed money or any guarantee or similar agreement relating
thereto, other than any such agreement with, or relating to, an aggregate
outstanding principal amount or guaranteed obligation not exceeding $500,000
(other than agreements entered into by the Company or its subsidiaries after the
date hereof in accordance with this Agreement in the ordinary course of their
businesses (including insurance, reinsurance and surety obligations incurred by
the Company's insurance subsidiaries)); (v) any material license, franchise or
similar agreement necessary for the operation of the business of the Company and
its subsidiaries, taken as a whole, as it is operated as of the date hereof;
(vi) any agreement that restricts or prohibits the Company or any subsidiary or
affiliate of the Company from competing with any person in any line of business
or from competing in, engaging in or entering into any line of business in any
geographical area; (vii) any ceded reinsurance agreement applicable to insurance
in force written by any subsidiary of the Company; (viii) any agreement
containing "change in control" or similar provisions relating to a change in
control of the Company or any of its subsidiaries; (ix) any "stop loss"
agreement, other than those entered into in the ordinary course of business
consistent with past practice; (x) any agreement (other than insurance policies
or other similar agreements issued by any subsidiary of the Company in the
ordinary course of business) pursuant to which the Company or any subsidiary of
the Company is obligated to indemnify any other person; (xi) any agreement
(other than any option agreement under a Company Stock Plan) with any affiliate
of the Company (other than a subsidiary of the Company) or any director, officer
or employee of the Company or any of its subsidiaries or affiliates; (xii) any
agreement relating to any joint venture or similar arrangement;
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(xiii) any other agreement that is, in the Company's judgment, material to the
business or operations of the Company and its subsidiaries, taken as a whole, or
(xiv) any guaranty of any of the foregoing. As used in this Section 3.1(s),
"agreement" means any agreement, contract, arrangement, commitment or
understanding (whether written or oral).
(2) The Company has heretofore furnished or made available to
Parent complete and correct copies (or, if oral, accurate written summaries) of
the items listed in Exhibit 3.1-S(1), each as amended or modified to the date
hereof, including any waivers with respect thereto (the "Company Significant
Agreements"). Except as specifically disclosed therein: (i) each of the Company
Significant Agreements is valid and binding on the Company or its subsidiaries,
as applicable, and in full force and effect; (ii) the Company and each of its
subsidiaries, as applicable, have in all material respects performed all
material obligations required to be performed by them to date under each Company
Significant Agreement; (iii) neither the Company nor any of its subsidiaries
knows of, or has received notice of, any violation or default (or any condition
which with the passage of time or the giving of notice would cause such a
violation of or a default) by any party under any Company Significant Agreement,
except in the case of clauses (ii) and (iii) above, such matters as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company. Set forth on Exhibit 3.1-S(2) is a description of
any material changes as of the date hereof to the amount and terms of the
indebtedness of the Company and its subsidiaries from that described in the
financial statement footnotes in the Company 10-K (or, as to C-BASS and Sherman,
from that shown on Exhibit 3.1-S(2)).
(3) All reinsurance and coinsurance treaties or agreements,
including retrocessional agreements, to which the Company or any insurance
subsidiary of the Company is
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<PAGE>
a party or under which the Company or any such insurance subsidiary has any
existing rights, obligations or liabilities are in full force and effect, except
for such treaties or agreements as to which the failure to be in full force and
effect, individually or in the aggregate, would not be reasonably likely to have
a Material Adverse Effect on the Company. Except as disclosed by the Company on
Exhibit 3.1-S(3)(A), neither the Company nor any insurance subsidiary of the
Company, nor, to the best of the Company's knowledge, any other party to a
reinsurance or coinsurance treaty or agreement to which the Company or any
insurance subsidiary of the Company is a party, is in default in any material
respect as to any provision thereof, and no such agreement contains any
provision providing that the other party thereto may (whether with notice, lapse
of time or both) terminate such agreement solely by reason of the transactions
contemplated by this Agreement. The Company has not received any notice to the
effect that the financial condition of any other party to any such agreement is
impaired with the result that a default thereunder may reasonably be
anticipated, whether or not such default may be cured by the operation of any
offset clause in such agreement. Except as disclosed by the Company on Exhibit
3.1-S(3)(A), as of the date hereof, no insurer or reinsurer or group of
affiliated insurers or reinsurers accounted for the ceding to the Company and
the insurance subsidiaries of the Company, or the ceding by the Company and the
insurance subsidiaries of the Company, of insurance or reinsurance business in
an aggregate amount equal to five percent or more of the consolidated gross
premiums written by the Company and the insurance subsidiaries of the Company
for the year ended December 31, 1999. Except for each of MBIA Inc. and its
affiliates ("MBIA"), FGIC (as defined herein) and Connie Lee Insurance Company,
in each case as disclosed in Exhibit 3.1-S(3)(B), no ceding company has any
rights under any circumstances whatsoever (other than as a result of future
downgrades in financial ratings) to terminate on a
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cut-off basis any reinsurance contract it has entered into with an insurance
subsidiary of the Company or will obtain any such rights as a result of the
transactions contemplated by this Agreement, PROVIDED that nothing in this
sentence shall affect Parent's rights under Section 6.1(i).
(t) Except as shown on Exhibit 3.1-T or for any action, suit,
investigation or proceeding that involves a claim under any insurance,
reinsurance or indemnity policy, fidelity bond, surety bond or similar contract
or undertaking issued or entered into by the Company or any subsidiary of the
Company, there is no action, suit, investigation or proceeding pending against,
or to the knowledge of the Company threatened against or affecting, the Company
or any subsidiary of the Company or any of their respective properties before
any Governmental Entity which is reasonably likely to result in damages
individually in excess of $500,000 or damages in the aggregate in excess of
$1,000,000. There is no action, suit, investigation or proceeding pending
against, or to the knowledge of the Company threatened against or affecting, the
Company or any subsidiary of the Company or any of their respective properties
before any Governmental Entity which would reasonably be expected to prevent,
enjoin, alter or materially delay the transactions contemplated hereby. Neither
the Company nor any subsidiary of the Company nor any of their respective
properties is subject to any material order or judgment which would prevent or
delay the consummation of the transactions contemplated hereby.
(u) (1) Each reserve and other liability amount in respect of the
insurance business, including, without limitation, reserve and other liability
amounts in respect of insurance policies, established or reflected in the
Insurance Subsidiary Annual Statements was reviewed and certified by an
independent actuary in accordance with applicable state insurance laws and
regulations. Each reserve and other liability amount in respect of the insurance
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<PAGE>
business, including, without limitation, reserve and other liability amounts in
respect of insurance policies, established or reflected in any financial
statements filed with Regulators with regard to dates or periods after December
31, 1999 was reviewed by an independent actuary to the extent required by
applicable state insurance laws and regulations. Each insurance subsidiary of
the Company owns assets that qualify as admitted assets under the insurance
laws, rules and regulations of the jurisdiction of domicile of such subsidiary
in an amount equal to the sum of all the reserves and liability amounts and the
minimum statutory capital and surplus as required by the insurance laws, rules
and regulations of the jurisdiction of domicile of such subsidiary. The reserves
set forth in the Insurance Subsidiary Annual Statements for the years indicated
for payment of insurance policy benefits, losses, claims and expenses were
considered by management of the Company to be adequate as of the date of such
statements to cover the total amount of all reasonably anticipated insurance
liabilities of the insurance company subsidiaries of the Company.
(2) Except as shown in Exhibit 3.1-U(2), each of the
insurance subsidiaries of the Company is entitled to take full credit in its
statutory financial statements pursuant to applicable insurance laws for ceded
reinsurance under all ceded reinsurance agreements in effect on the date hereof
to which any insurance subsidiary is a ceding party and under which there is
liability of either party to the agreement (collectively the "Company Existing
Reinsurance Agreements"), and except as disclosed by the Company in Exhibit
3.1-U(2), there is no claim under any Company Existing Reinsurance Agreement
that is disputed by any other party to such Company Existing Reinsurance
Agreement.
(v) Other than with respect to Credit2B.com Inc., a Delaware
corporation ("Credit2B") as shown on Exhibit 3.1-V or in the ordinary course of
its portfolio investment
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activities or loss mitigation activities, neither the Company nor any of its
subsidiaries has any contractual commitment to make any loan, advance or capital
contribution to, or investment in, any other person in excess of $500,000 with
respect to any individual person or $1,000,000 in the aggregate.
(w) (1) Exhibit 3.1-W(1) includes a complete list of each
employee benefit plan, program, policy, practice, or other arrangement providing
benefits to any current or former employee, officer or director of the Company
or any of its subsidiaries or any beneficiary or dependent thereof that is
sponsored or maintained by the Company or any of its subsidiaries or to which
the Company or any of its subsidiaries contributes or is obligated to
contribute, whether formal or informal, written or not written, including,
without limitation, any employee welfare benefit plan within the meaning of
Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), any employee pension benefit plan within the meaning of Section 3(2)
of ERISA (whether or not such plan is subject to ERISA) and any bonus,
incentive, deferred compensation, vacation, stock purchase, stock option,
severance, employment, change in control or fringe benefit plan, program or
agreement under which the Company or any of its subsidiaries provides or may be
required to provide benefits to any current or former employee, officer or
director of the Company or any of its subsidiaries or any beneficiary or
dependent thereof (each, an "Employee Benefit Plan"). Except as disclosed by the
Company on Exhibit 3.1-W(2), neither the Company nor any subsidiary is a party
to any agreement or arrangement providing for annual future compensation of
$500,000 or more with any officer, consultant, director or employee.
(2) With respect to each Employee Benefit Plan, the Company
has delivered or made available to Parent a true, correct and complete copy of:
(i) each writing
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constituting a part of such Employee Benefit Plan, including, without
limitation, all plan documents, employee communications, benefit schedules,
trust agreements, and insurance contracts, other funding vehicles and any
amendments thereto (including, without limitation, the Vice President Agreement
Amendments); (ii) the most recent Annual Report (Form 5500 Series) and
accompanying schedule, if any; (iii) the current summary plan description and
any material modifications thereto, if any (in each case, whether or not
required to be furnished under ERISA); (iv) the most recent annual financial
report, if any; (v) the most recent actuarial report, if any; and (vi) the most
recent determination letter from the Internal Revenue Service (the "IRS"), if
any, or the pending determination letter request submitted to the IRS for the
Qualified Plans listed on Exhibit 3.1-W(3). The Company has also delivered or
made available to Parent a true, correct and complete copy of each handbook,
manual or similar document, as currently in effect, which is distributed by the
Company or any subsidiary to its employees which lists or describes the Employee
Benefit Plans in which they are, or are entitled to be, participants, which
documents are consistent with the materials provided or made available to Parent
pursuant to the preceding sentence. Except as specifically provided in the
foregoing documents delivered or made available to Parent, there are no
amendments to any Employee Benefit Plan that have been adopted or approved, nor
has the Company or any of its subsidiaries undertaken to make any such
amendments or to adopt or approve any new Employee Benefit Plan.
(3) Exhibit 3.1-W(3) identifies each Employee Benefit Plan
that is intended to be a "qualified plan" within the meaning of Section 401(a)
of the Code (each, a "Qualified Plan"). The IRS has issued, or (in the case of
Qualified Plans listed on Exhibit 3.1-W(3)) there is a pending request for, a
favorable determination letter with respect to each Qualified Plan and the
related trust that has not been revoked, and there are no circumstances and
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no events have occurred that could adversely affect the qualified status of any
Qualified Plan or the related trust. No Employee Benefit Plan is intended to
meet the requirements of Code Section 501(c)(9).
(4) All contributions required to be made to any Employee
Benefit Plan by applicable law or regulation or by any plan document or other
contractual undertaking, and all premiums due or payable with respect to
insurance policies funding any Employee Benefit Plan, for any period through the
date hereof have been timely made or paid in full or, to the extent not required
to be made or paid on or before the date hereof or to the extent any Employee
Benefit Plan is unfunded, have been fully reflected on the financial statements
included in the Company June 10-Q and/or the financial statements of C-BASS
and/or Sherman previously provided to Parent or have been otherwise disclosed to
Parent. Each Employee Benefit Plan that is an employee welfare benefit plan
under Section 3(1) of ERISA is either (i) funded through an insurance company
contract and is not a "welfare benefit fund" within the meaning of Section 419
of the Code or (ii) unfunded.
(5) With respect to each Employee Benefit Plan, the Company
and its subsidiaries have complied, and are now in compliance, in all material
respects, with all provisions of ERISA, the Code and all other laws and
regulations applicable to such Employee Benefit Plan and each Employee Benefit
Plan has been administered in all material respects in accordance with its
terms. There is not now, nor do any circumstances exist that could give rise to,
any requirement for the posting of security or the imposition of any Lien on the
assets of the Company or any of its subsidiaries with respect to an Employee
Benefit Plan under ERISA or the Code.
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(6) With respect to each Employee Benefit Plan that is
subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code:
(i) there does not exist any accumulated funding deficiency within the meaning
of Section 412 of the Code or Section 302 of ERISA, whether or not waived; (ii)
the fair market value of the assets of such Plan equals or exceeds the actuarial
present value of all accrued benefits under such Plan (whether or not vested);
(iii) no reportable event within the meaning of Section 4043(c) of ERISA for
which the 30-day notice requirement has not been waived has occurred, and the
consummation of the transactions contemplated by this agreement will not result
in the occurrence of any such reportable event; (iv) all premiums to the Pension
Benefit Guaranty Corporation (the "PBGC") have been timely paid in full; (v) no
liability (other than for premiums to the PBGC) under Title IV of ERISA has been
or is expected to be incurred by the Company or any of its subsidiaries; and
(vi) the PBGC has not instituted proceedings to terminate such Employee Benefit
Plan and, to the best of the Company's knowledge, no condition exists that
presents a risk that such proceedings will be instituted or which would
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any such Plan.
(7) (i) Except as set forth in Exhibit 3.1-W(7), no Employee
Benefit Plan is a "multiemployer plan" within the meaning of Section 4001(a)(3)
of ERISA (a "Multiemployer Plan") or a plan that has two or more contributing
sponsors at least two of whom are not under common control, within the meaning
of Section 4063 of ERISA (a "Multiple Employer Plan"); (ii) none of the Company
and its subsidiaries nor any of their respective ERISA Affiliates (as defined
herein) has, at any time during the last six years, contributed to or been
obligated to contribute to any Multiemployer Plan or Multiple Employer Plan; and
(iii) none of the Company and its subsidiaries nor any ERISA Affiliates has
incurred any liability
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to a Multiemployer Plan as a result of a complete or partial withdrawal from
such Multiemployer Plan, as those terms are defined in Part I of Subtitle E of
Title IV of ERISA, that has not been satisfied in full.
(8) There does not now exist, nor do any circumstances exist
that could result in, any liability (i) under Title IV of ERISA, (ii) under
section 302 of ERISA, (iii) under sections 412 and 4971 of the Code, (iv) as a
result of a failure to comply with the continuation coverage requirements of
section 601 et seq. of ERISA and section 4980B of the Code, or (v) under
corresponding or similar provisions of foreign laws or regulations that would be
a liability of the Company or any of its subsidiaries following the Closing.
Without limiting the generality of the foregoing, neither the Company nor any of
its subsidiaries, nor any of their respective ERISA Affiliates, has engaged in
any transaction described in Section 4069 or Section 4204 or 4212 of ERISA.
(9) Exhibit 3.1-W(9) sets forth (i) an accurate and complete
description of each provision of any Employee Benefit Plan under which the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby could (either alone or in conjunction with any other event)
result in, cause the accelerated vesting, funding or delivery of, or increase
the amount or value of, any payment or benefit to any employee, officer or
director of the Company or any of its subsidiaries, or could limit the right of
the Company or any of its subsidiaries to amend, merge, terminate or receive a
reversion of assets from any Employee Benefit Plan or related trust, (ii) the
name of each "disqualified individual" within the meaning of Section 280G of the
Code, (iii) the name of each person who has a contractual right to receive an
excise tax gross-up and (iv) the maximum amount of the "excess parachute
payments" within the meaning of Section 280G of the Code that could become
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payable by the Company and its subsidiaries in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby (either alone or in conjunction with any other event).
(10) None of the Company and its subsidiaries nor any other
person, including any fiduciary, has engaged in any "prohibited transaction" (as
defined in Section 4975 of the Code or Section 406 of ERISA), which could
subject any of the Employee Benefit Plans or their related trusts, the Company,
any of its subsidiaries or any person that the Company or any of its
subsidiaries has an obligation to indemnify, to any material Tax or penalty
imposed under Section 4975 of the Code or Section 502 of ERISA.
(11) There are no pending or threatened claims (other than
claims for benefits in the ordinary course), lawsuits or arbitrations which have
been asserted or instituted, and to the best of the Company's knowledge, no set
of circumstances exists which may reasonably give rise to a claim or lawsuit,
against any of the Employee Benefit Plans, or against any fiduciaries thereof
with respect to their duties to the Plans or the assets of any of the trusts
under any of the Employee Benefit Plans, which could reasonably be expected to
result in any material liability of the Company or any of its subsidiaries to
the PBGC, the Department of Treasury, the Department of Labor, any Multiemployer
Plan, any Employee Benefit Plan or a participant therein.
(12) The Company, its subsidiaries and each member of their
respective business enterprises have complied with the Worker Adjustment and
Retraining Notification Act and all similar state, local and foreign laws
(collectively, "WARN") and the financial statements of the Company and each of
its subsidiaries included in the Company Reports reflect adequate accruals for
all current and expected liabilities (including pay in lieu of notice) under
WARN.
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(13) All Employee Benefit Plans subject to the laws of any
jurisdiction outside of the United States (i) have been maintained in all
material respects in accordance with all applicable requirements, (ii) if they
are intended to qualify for special tax treatment, meet all requirements for
such treatment, and (iii) if they are intended to be funded and/or book-reserved
are fully funded and/or book-reserved, as appropriate, based upon reasonable
actuarial assumptions.
(14) As used herein, "ERISA Affiliate" means, with respect to
any entity, trade or business, any other entity, trade or business that is a
member of a group described in Section 414(b), (c), (m) or (o) of the Code or
Section 4001(b)(1) of ERISA that includes the first entity, trade or business,
or that is a member of the same "controlled group" as the first entity, trade or
business pursuant to Section 4001(a)(14) of ERISA.
(x) The Company and its subsidiaries own or otherwise have rights
to use and, as of and from the Effective Time, will own or otherwise have rights
to use (in each case, free and clear of any material Liens or other material
limitations or restrictions) all Intellectual Property used in their respective
businesses as currently conducted and as contemplated to be conducted; the use
of any Intellectual Property by the Company and its subsidiaries does not
infringe on or otherwise violate the rights of any person; and, to the best of
the Company's knowledge, no person is challenging, infringing on or otherwise
violating any right of the Company or any subsidiary of the Company with respect
to any Intellectual Property owned by and/or licensed to the Company and its
subsidiaries. From and after the Effective Time, the Company and its
subsidiaries will own or have valid and enforceable licenses or other rights to
use (in each case, free and clear of any material Liens or other material
limitations or restrictions) all Intellectual Property used in the conduct of
their respective businesses and
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operations as currently conducted in the same manner as such Intellectual
Property has been used to conduct such businesses and operations prior to the
date hereof. As used herein, "Intellectual Property" means trademarks, service
marks, brand names, certification marks, trade dress, assumed names, trade names
and other indications of origin, the goodwill associated with the foregoing, and
registrations in any jurisdiction of, and applications in any jurisdiction to
register, the foregoing, including any extension, modification or renewal of any
such registration or application; inventions, discoveries and ideas, whether
patentable or not in any jurisdiction; patents, applications for patents
(including divisions, continuations, continuations in part and renewal
applications), and any renewals, extensions or reissues thereof, in any
jurisdiction; nonpublic information, trade secrets and confidential information
and rights in any jurisdiction to limit the use or disclosure thereof by any
person; writings, software, computer code and other works, whether copyrightable
or not in any jurisdiction; registrations or applications for registration of
copyrights in any jurisdiction, and any renewals or extensions thereof; and any
similar intellectual property or proprietary rights.
(y) To the best of the Company's knowledge, there are no
circumstances, and neither the Company nor its subsidiaries nor, to the best of
the Company's knowledge, any of its other affiliates has taken or agreed to take
any action, that would prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.
(z) The Board of Directors of the Company has duly approved the
Merger and this Agreement, and such approval is sufficient to render
inapplicable to the Merger, this Agreement and the transactions contemplated by
this Agreement the restrictions on "business combinations" set forth in Section
912 of the NYBCL. No other "fair price", "moratorium", "control share
acquisition" or other similar antitakeover statute or regulation enacted under
state
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or Federal laws in the United States applicable to the Company or any of its
subsidiaries is applicable to the Merger or the other transactions contemplated
hereby.
(aa) Since December 31, 1999, except as shown on Exhibit
3.1-AA(1), there have been no transactions, agreements, arrangements or
understandings between the Company or its subsidiaries, on the one hand, and the
Company's affiliates (other than affiliates that are now and were at such time
wholly owned subsidiaries of the Company) or other persons, on the other hand,
that would be required to be disclosed under Item 404 of Regulation S-K under
the Securities Act and the Exchange Act. Except with respect to Credit2B as set
forth in Exhibit 3.1-AA(2), the Company is not obligated, without its consent,
to make any loan, advance or capital contributions to or investments in any
person, including C-BASS, Sherman or Credit2B.
(bb) Neither the Company nor any of its subsidiaries is an
"investment company" as defined under the Investment Company Act of 1940, as
amended, and neither the Company nor any of its subsidiaries sponsors any person
that is such an investment company.
(cc) The Board of Directors of the Company has received the
opinion of Morgan Stanley & Co. Incorporated, financial advisor to the Company,
to the effect that, as of the date of this Agreement, the Exchange Ratio is fair
from a financial point of view to the Company's shareholders.
(dd) (1) Each contract that is material to Singer's business to
which Singer (as defined herein) is a party (each, a "Singer Material Contract"
and collectively, the "Singer Material Contracts"), including all contracts with
respect to lottery, structured or viatical settlements or securitizations
related thereto, is a valid, binding and enforceable obligation of Singer. There
is no default under any Singer Material Contract by Singer or, to the Company's
knowledge, except as listed on Exhibit 3.1-DD, by any other party thereto, and
no event has
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occurred that with the lapse of time or the giving of notice or both would
constitute a default thereunder by Singer, or, to the Company's knowledge, any
other party, which default or event, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on the Company. Except
as listed on Exhibit 3.1-DD, as of the date hereof, no party to any Singer
Material Contract has given notice to the Company or Singer or made a claim
against the Company or Singer with respect to any breach or default thereunder,
which breach or default, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on the Company. Each Singer Material
Contract, together with any amendments thereto, has been disclosed to Parent,
except as set forth on Exhibit 3.1-DD. The enforceability of any Singer Material
Contract shall not be impaired by the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby, and, as of the date
hereof, no Singer Material Contract requires that a transaction of the kind
contemplated by this Agreement receive the approval of any party to such Singer
Material Contract, except where such impairments or failures to receive
approvals, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect on the Company.
(2) Each Singer Material Contract is properly reflected on
Singer's servicing system as of the date hereof and the run-off model with
respect to Singer (the "Singer Run-Off Model") heretofore provided by the
Company to Parent properly reflects each Singer Material Contract, except to the
extent that the failure of any or all of the Singer Material Contracts which
require servicing of obligations to be properly reflected on Singer's servicing
system as of the date hereof and the failure of such Singer Run-Off Model to
properly reflect any or all of the Singer Material Contracts to which the Singer
Run-Off Model is relevant would not, individually or in the aggregate, have a
Material Adverse Effect on the Company.
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(ee) This Agreement and each certificate or other instrument or
document furnished by or on behalf of the Company to Parent pursuant hereto does
not and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated herein or therein or necessary to
make the statements contained herein or therein, in light of circumstances under
which they were made, not misleading.
3.2 REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. Each of Parent
and Sub represents and warrants to the Company as follows:
(a) Parent is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all corporate
powers and all governmental licenses, authorizations, permits, consents and
approvals required to carry on its business as now conducted. Parent has
heretofore delivered to the Company true and complete copies of the certificate
of incorporation and bylaws of Parent as currently in effect. Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York. Sub is a wholly owned subsidiary of Parent.
(b) Each of Parent and Sub has all corporate power and authority
necessary to enable it to enter into this Agreement and carry out the
transactions contemplated by this Agreement. All corporate actions necessary to
authorize each of Parent and Sub to enter into this Agreement and carry out the
transactions contemplated by it, other than approval by the shareholders of
Parent, have been taken. This Agreement has been duly executed by each of Parent
and Sub and is a valid and binding agreement of each of Parent and Sub,
enforceable against each of Parent and Sub in accordance with its terms.
Parent's Board of Directors has determined that the Merger is fair to Parent's
shareholders and has voted to recommend to
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Parent's shareholders that they vote in favor of adopting this Agreement and
approving the Merger.
(c) Neither the execution and delivery of this Agreement or of
any document to be delivered in accordance with this Agreement nor the
consummation of the transactions contemplated by this Agreement or by any
document to be delivered in accordance with this Agreement will contravene,
violate, result in a breach of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, the
Certificate of Incorporation or By-Laws of either Parent or Sub, any material
agreement or material instrument to which either Parent or Sub or any other
subsidiary of Parent is a party or by which any of them is bound, any law, or
any order, rule or regulation of any Governmental Entity having jurisdiction
over Parent or any of its subsidiaries, including Sub.
(d) Except for any need to file any forms with or receive any
Permits of insurance regulatory authorities, no Permits of Governmental
Entities, or other governmental action, other than the expiration or termination
of waiting periods under the HSR Act, if any, and the Permits or actions
contemplated by Section 3.1(d), are required to permit each of Parent and Sub to
fulfill all its obligations under this Agreement.
(e) Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement. Sub has not, and at the Effective
Time will not have, engaged in any activities or incurred any obligations or
liabilities, except the activities relating to the transactions contemplated by
this Agreement and obligations and liabilities incurred in connection with those
activities and with the transactions contemplated by this Agreement.
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(f) Parent and each of its subsidiaries is qualified to do
business as a foreign corporation in each state in which it is required to be
qualified, except states in which the failure to qualify, in the aggregate,
would not have a Material Adverse Effect upon Parent.
(g) The only authorized stock of Parent is 100 million shares of
Parent Common Stock and 20 million shares of preferred stock, par value $.001
per share. As of the close of business on November 10, 2000, the only
outstanding stock of Parent was 37,839,735 shares of Parent Common Stock and
800,000 shares of $4.125 preferred stock, par value $.001 per share (the "Parent
Preferred Stock"). All the outstanding shares of Parent Common Stock and Parent
Preferred Stock have been duly authorized and issued and are fully paid and
non-assessable. Except as contemplated by this Agreement and except for the
Parent Shareholder Rights and not more than 6,500,000 options to acquire Parent
Common Stock, as of the close of business on November 10, 2000, Parent has not
issued any options, warrants or convertible or exchangeable securities, and is
not a party to any other agreements, which require, or upon the passage of time,
the payment of money or the occurrence of any other event may require, Parent to
issue or sell any of its stock.
(h) (i) Each of Parent's subsidiaries has been duly organized,
and is validly existing and in good standing under the laws of its state of
incorporation, (ii) all the shares of stock owned by Parent or a subsidiary of
Parent of each of Parent's subsidiaries are (to the extent such concept is
applicable) duly organized, validly issued, fully paid and non-assessable, are
owned by Parent or a subsidiary of Parent free and clear of any Liens and are
not subject to any preemptive rights, and (iii) as of the date hereof, neither
Parent nor any of its subsidiaries has issued any options, warrants or
convertible or exchangeable securities, or is a party to any other agreements,
which require, or upon the passage of time, the payment of money or the
occurrence
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of any other event may require, Parent or any subsidiary to issue or sell any
stock or other equity interests in any of Parent's subsidiaries and there are no
registration covenants or transfer or voting restrictions with respect to
outstanding securities of any of Parent's subsidiaries.
(i) Since January 1, 1997, Parent has filed with the SEC all
forms, statements, reports and documents it has been required to file under the
Securities Act, the Exchange Act or the rules under them (collectively, the
"Parent Reports"). The Parent Reports, including the documents incorporated by
reference in each of them, each contained all the information required to be
included in it and, when it was filed and as of the date of such Parent Report,
did not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made in it, in light of
the circumstances under which they were made, not misleading and complied as to
form in all material respects with the applicable requirements of the Securities
Act and the Exchange Act.
(j) (1) Parent's Annual Report on Form 10-K for the year ended
December 31, 1999 (the "Parent 10-K") and its Report on Form 10-Q for the period
ended March 31, 2000 (the "Parent March 10-Q") and its Report on Form 10-Q for
the period ended June 30, 2000 (the "Parent June 10-Q") which Parent filed with
the SEC, including the documents incorporated by reference in each of them, each
contained all the information required to be included in it and, when it was
filed, did not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made in it, in light of
the circumstances under which they were made, not misleading and complied as to
form in all material respects with the applicable requirements of the Securities
Act and the Exchange Act. Without limiting what is said in Section 3.2(i), the
financial statements included in the Parent 10-K and the Parent June 10-Q all
were prepared in accordance with GAAP applied
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on a consistent basis (except to the extent that unaudited interim financial
information included in the Parent Reports does not contain notes and is subject
to normal year end adjustments) and present fairly the consolidated financial
condition and the consolidated results of operations and cash flows of Parent
and its subsidiaries at the dates, and for the periods, to which they relate. At
the date of this Agreement, Parent has not filed any reports with the SEC with
regard to any period which ended, or any event which occurred after, June 30,
2000.
(2) The audited balance sheets of Parent's insurance
subsidiaries as of December 31, 1999, and the related statements of operations
and statements of cash flows for the year then ended, and their respective
annual statements for the fiscal year ended December 31, 1999 (the "Parent
Insurance Subsidiary Annual Statements") filed with the Regulators, copies of
which have been delivered to the Company, fairly present in all material
respects their respective statutory financial conditions as of such date and the
results of their respective operations and cash flows for the year then ended in
conformity with SAP. The other information contained in the Parent Insurance
Subsidiary Annual Statements fairly presents in all material respects the
information required to be contained therein in conformity with applicable
requirements. The balance sheets of Parent and its subsidiaries at dates after
December 31, 1999, and the related statements of operations and statements of
cash flows, which have been filed with Regulators, copies of which have been
delivered to the Company, fairly present in all material respects the applicable
insurance subsidiaries' respective statutory financial conditions as of such
dates and the results of their respective operations and cash flows for the
periods then ended in conformity with SAP consistently applied.
(k) Except as disclosed by Parent in the Parent June 10-Q, since
December 31, 1999, (i) Parent and its subsidiaries have conducted their
respective businesses only in the
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ordinary course and in a manner consistent with past practice, and (ii) nothing
has occurred and there has been no development or state of circumstances which,
individually or in aggregate, has had or would reasonably be expected to have a
Material Adverse Effect on Parent.
(l) Parent and its subsidiaries have at all times complied, and
currently are complying, with all, and none of them is under investigation with
respect to or has been threatened to be charged with or given notice of any
violation of any, applicable Federal, state, local and foreign laws,
regulations, rules, judgments, injunctions or decrees, except failures to comply
which would not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect on Parent.
(m) (1) Parent and its subsidiaries have all Permits which are
required to enable them to conduct their businesses as they currently are being
conducted, and all such Permits are in full force and effect, except as would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Parent. Except as would not, individually or in the aggregate,
be reasonably expected to have a Material Adverse Effect on Parent, no material
violations exist in respect of any Permit of Parent and its subsidiaries, and no
proceeding or investigation is pending, or to the best of Parent's knowledge
threatened, that would be reasonably likely to result in the suspension,
revocation, limitation or restriction of any Permit and, to the best of Parent's
knowledge, there is no reasonable basis for the assertion of any such material
violation or the institution of any such proceeding.
(2) Parent and each subsidiary of Parent has filed all
material reports, statements, documents, registrations, filings or submissions
required to be filed by Parent or any subsidiary of Parent, respectively, with
any applicable Federal, state or local regulatory authorities, including to
state insurance regulatory authorities. All such material reports,
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statements, documents, registrations, filings and submissions complied in all
material respects with applicable law in effect when filed and no material
deficiencies have been asserted by any such regulatory authority with respect to
such reports, statements, documents, registrations, filings or submissions that
have not been satisfied. All premium rates, rating plans and policy forms
established or used by Parent or any subsidiary of Parent that are required to
be filed with or approved by insurance regulatory authorities have been so filed
or approved, and the premiums charged conform in all material respects to the
premiums so filed or approved and comply in all material respects with the
insurance laws applicable thereto, except where the failure to make such filing
or obtain such approval would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on Parent.
(n) Parent and each of its subsidiaries has filed when due
(taking account of extensions) all Tax Returns which it has been required to
file and has paid all Taxes shown on those returns to be due. Such Tax Returns
accurately reflect all Taxes required to have been paid, except to the extent of
items which may be disputed by applicable taxing authorities but for which there
is substantial authority to support the position taken by Parent or its
subsidiary and which have been adequately reserved against in accordance with
GAAP on the consolidated balance sheet at June 30, 2000 included in the Parent
June 10-Q.
(o) To the best of Parent's knowledge, there are no
circumstances, and neither Parent nor its subsidiaries nor, to the best of
Parent's knowledge, any of its other affiliates has taken or agreed to take any
action, that would prevent the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code.
3.3 TERMINATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties in Sections 3.1, 3.2 and 7.1 will terminate at
the Effective Time, and none of the
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Company, Parent or Sub will have any rights or claims as a result of any of
those representations or warranties after the Effective Time.
ARTICLE IV
ACTIONS PRIOR TO THE MERGeR
4.1 COMPANY'S ACTIVITIES UNTIL EFFECTIVE TIME. From the date of this
Agreement to the Effective Time, or such earlier time as this Agreement is
terminated in accordance with Article VI, the Company will, and, to the extent
it has the power to do so, will cause each of its subsidiaries to, except with
the written consent of Parent:
(a) Operate its business in the ordinary course and in a manner
consistent with past practice, except that the Company may sell its interest in
Credit2B pursuant to the proviso in Section 4.1(j).
(b) Use reasonable best efforts to preserve intact its business,
maintain the goodwill of its business and the continued employment of its
executives and other employees and maintain good relationships with the vendors,
suppliers, contractors and others with which it does business.
(c) At its expense, maintain all its assets in good repair and
condition, except to the extent of reasonable wear and use and damage by fire or
other unavoidable casualty.
(d) Not incur any indebtedness for borrowed money or issue any
debt securities other than borrowings of up to $1,000,000 in the aggregate in
the ordinary course of business under working capital lines disclosed in the
notes to the consolidated balance sheet at December 31, 1999 included in the
Company 10-K; PROVIDED, HOWEVER, that Singer shall use all reasonable efforts to
replace its warehouse financing with permanent financing; PROVIDED FURTHER,
HOWEVER, that in no event shall the consolidated debt on the consolidated
balance sheet of the
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Company and its subsidiaries (excluding C-BASS and Sherman) at any time prior to
the Effective Time exceed $250,000,000; PROVIDED FURTHER, HOWEVER, that the
Company shall not between the date of this Agreement and the Effective Time make
or become liable for any guarantees other than the $25,000,000 guarantee with
respect to Sherman previously disclosed to Parent (it being understood that this
subparagraph does not preclude subsidiaries from entering into suretyship or
insurance contracts or giving guarantees in the ordinary course of their
businesses consistent with past practice).
(e) Not enter into any commitments involving loans, capital
contributions or advances (other than loans, capital contributions or advances
to or investments in wholly owned subsidiaries of the Company made in the
ordinary course consistent with past practice or loans, capital contributions or
advances which the Company or a subsidiary is at the date of this Agreement
committed to make as disclosed on Exhibit 4.1-E), except in each case in the
ordinary course of business in an amount not to exceed $50,000 in the aggregate,
and not voluntarily incur any contingent liabilities, except in the ordinary
course of the Company's insurance business.
(f) Not (i) redeem, acquire or purchase any of its stock and not
declare, set aside, make or pay any dividends, or other distributions with
respect to its capital stock or repayments of debt to its shareholders, other
than (x) quarterly dividends not exceeding $.06 per share, (y) payments by
subsidiaries of the Company to the Company or to wholly owned subsidiaries of
the Company or (z) a dividend of Excess Credit2B Proceeds, where "Excess
Credit2B Proceeds" shall equal 60% of the pre-tax cash proceeds derived from a
disposition of Credit2B prior to the Closing Date after deducting from such
proceeds (A) all transaction costs associated with such disposition, (B) all
amounts contributed to Credit2B or required to be
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contributed to Credit2B by the Company and (C) an appropriate reserve for any
liabilities, actual or contingent, of Credit2B for which the Company may remain
liable, or (ii) enter into any agreement with respect to the voting of its
capital stock.
(g) Not make (1) any loans, advances or capital contributions to
or investments in any person (including C-BASS, Sherman or Credit2B) (other than
loans, advances or capital contributions to or investments in wholly owned
subsidiaries of the Company made in the ordinary course consistent with past
practice or loans, advances or capital contributions which the Company or a
subsidiary is at the date of this Agreement committed to make as disclosed on
Exhibit 4.1-G) or (2) any loans or advances (other than advances for travel and
other normal business expenses) to shareholders, directors, officers or
employees.
(h) Maintain its books of account and records in the usual
manner, in accordance with GAAP applied on a basis consistent with the basis on
which they were applied in prior years, subject to normal year-end adjustments
and accruals.
(i) Comply in all material respects with all applicable laws and
regulations of Governmental Entities.
(j) Not acquire, purchase, sell or otherwise dispose of or
encumber any property or assets, create or assume any Lien on any material
assets or engage in any activities or transactions, except in each case in the
ordinary course of business consistent with past practices; PROVIDED, HOWEVER,
that (1) the Company may sell Credit2B (PROVIDED FURTHER, HOWEVER, that such
sale shall not have any adverse effect, or otherwise impose any obligation or
liability, contingent or otherwise, on the Company or any of its subsidiaries,
without Parent's prior written consent), (2) without limiting the foregoing, the
Company shall be precluded from selling its interest in C-BASS pursuant to the
Partnership Purchase Agreement (as defined herein) in
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accordance with the terms of such Partnership Purchase Agreement, and (3) the
Company will, and will cause each of its subsidiaries to, not sell, assign,
transfer or otherwise dispose of, or purchase or otherwise acquire, any assets
of Singer Asset Finance Co. ("Singer"), other than assets set forth on Exhibit
4.1-J, which Exhibit shall set forth the terms of any such sale, assignment,
transfer, disposition, purchase or acquisition.
(k) Not (i) increase the compensation payable or to become
payable to its officers or employees, (ii) pay annual bonuses for 2000 in excess
of the aggregate amount, and subject to the conditions, set forth in Exhibit
4.1-K, (iii) grant any rights to severance or termination pay to, or enter into
any employment or severance agreement with, any director, officer or other
employee, or establish, adopt, enter into, become an employer with regard to or
amend any collective bargaining, bonus, profit sharing, thrift, compensation,
employment, termination, severance or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any director, officer or employee, except as
contemplated by this Agreement or to the extent required by applicable law or
the terms of a collective bargaining agreement, (iv) increase the benefits
payable under any existing severance or termination pay policies or employment
agreements, (v) enter into any employment, deferred compensation or other
similar agreement (or amendment to any such existing agreement) or (vi) take any
action to accelerate the vesting of any stock-based compensation (other than
carrying out the transactions contemplated by this Agreement).
(l) Not amend its certificate of incorporation or by-laws or
equivalent documents.
(m) Not (i) issue, sell, pledge, dispose of, grant, transfer,
lease, license, guarantee, encumber or authorize the issuance, sale, pledge,
disposition, grant, transfer, lease,
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license, guarantee or encumbrance of any of its capital stock (except upon
exercise of options which are outstanding on the date of this Agreement as
disclosed by the Company in Exhibit 3.1-F or in payment of directors fees in
accordance with past practice under the terms of the Director Stock Ownership
Plan for those directors who have elected prior to June 30, 2000 to receive
their fees in stock) or any options, warrants, rights of any kind to acquire
such capital stock or convertible or exchangeable securities (other than
automatic annual stock option grants under the Company's Non-Employee Directors'
Option Plan, if the Effective Time is after December 31, 2000, in an aggregate
amount not to exceed 70,000 shares of Company Common Stock) or (ii) split,
combine, or reclassify its capital stock or amend any material term of any
outstanding security.
(n) Not file any income Tax Return other than in the ordinary
course of business and consistent with past practice, make any Tax election,
settle or compromise any Tax liability or change any method of accounting for
Tax purposes.
(o) Not terminate, cancel or request any material change in, or
agree to any material change in, any Company Significant Agreement, or waive any
material rights (including any rights under confidentiality agreements) other
than in the ordinary course of business, consistent with past practice.
(p) Not make or authorize any capital expenditure, other than
capital expenditures that are not, in the aggregate, in excess of $50,000 for
the Company and its subsidiaries taken as a whole (it being understood that
purchases of assets in the ordinary course of business by C-BASS or other
subsidiaries do not, for the purposes of this Agreement, constitute capital
expenditures).
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(q) Not change any of its investment policies or any of the
accounting principles, practices, methods or policies (including any reserving
methods, practices or policies) used by it, except as may be required as a
result of a change in law, GAAP, SAP or Regulation S-X promulgated under the
Securities Act and Exchange Act.
(r) Not pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction in
the ordinary course of business consistent with past practice or in accordance
with their terms of liabilities reflected or reserved against prior to the date
hereof in the consolidated financial statements (or the notes thereto) of the
Company and its subsidiaries or incurred thereafter in the ordinary course of
business consistent with past practice.
(s) Not enter into any amendment to any reinsurance agreement
(including the proposed amendments referred to in Exhibit 3.1-C).
(t) Not take any action that would or would reasonably be
expected to make any representation and warranty of the Company hereunder untrue
in any material respect at, or as of any time prior to, the Effective Time, or
result in any condition to the obligation of the parties hereto to consummate
the Merger set forth in Article V not being satisfied.
(u) Not authorize or enter into any agreement, or commit or
resolve, to take any of the actions referred to in Sections 4.1(c) through (t)
above.
4.2 PARENT'S ACTIVITIES UNTIL EFFECTIVE TIME. From the date of this
Agreement to the Effective Time, or such earlier time as this Agreement is
terminated in accordance with Article VI, Parent will, and will cause each of
its subsidiaries to:
(a) Operate its business in the ordinary course and in a manner
consistent with past practices (PROVIDED, HOWEVER, that Parent may engage in any
acquisition, merger or similar
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transaction if the Board of Directors of Parent determines that such
acquisition, merger or similar transaction is in the best interest of the
shareholders of Parent).
(b) Use reasonable best efforts to maintain the goodwill of its
business and the continued employment of its executives and other employees and
to maintain good relationships with the vendors, supplies, contractors and
others with which it does business.
(c) Comply in all material respects with all applicable laws and
regulations of Governmental Entities. (
d) Not amend its certificate of incorporation or by-laws.
(e) Not take any action that would or would reasonably be
expected to make any representation and warranty of the Company hereunder untrue
in any material respect at, or as of any time prior to, the Effective Time, or
result in any condition to the obligation of the parties hereto to consummate
the Merger set forth in Article V not being satisfied.
(f) Not authorize or enter into any agreement, or commit, to take
any of the actions referred to in Sections 4.2(c) through (e) above.
4.3 HSR ACT FILINGS. The Company and Parent will each make as
promptly as practicable the filing it is required to make under the HSR Act with
regard to the transactions which are the subject of this Agreement and each of
them will use reasonable best efforts (including providing information to the
Federal Trade Commission and the Department of Justice) to cause the waiting
periods required by the HSR Act to be terminated or to expire as promptly as
practicable. The Company and Parent will each provide information and cooperate
in all other respects to assist and cooperate with the other of them in making
its filing under the HSR Act.
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4.4 LICENSES AND PERMITS. The Company and Parent will each, as
promptly as practicable, file all applications and use reasonable best efforts
to obtain all Permits of Governmental Entities (including approvals of transfers
of Permits and of a change in control of the Company and its subsidiaries) which
are necessary to enable the Company to effectuate the Merger and the other
transactions contemplated hereby and to enable the Company and its subsidiaries
to continue to conduct their respective businesses after the Effective Time
substantially as they are being conducted immediately before the Effective Time.
4.5 REGISTRATION STATEMENT, PROXY STATEMENTS AND SHAREHOLDERS
MEETINGS. (a) Parent will file with the SEC as promptly as reasonably
practicable a registration statement under the Securities Act (the "Registration
Statement") on Form S-4 (or whatever other form may be applicable) with respect
to the issuance of the shares of Parent Common Stock which will be included in
the Merger Consideration, and Parent will use its reasonable best efforts to
cause the Registration Statement to become effective as promptly as reasonably
practicable. The Registration Statement will include a joint proxy
statement/prospectus, which will include the Parent proxy statement described in
Section 4.5(f) and the Company proxy statement described in Section 4.5(g).
(b) Parent will give lawyers, accountants and other
representatives of the Company reasonable access during normal business hours to
the relevant books, records and personnel of Parent and its subsidiaries which
will be useful to assure them that the disclosures about Parent and its
subsidiaries in the Registration Statement or in documents incorporated by
reference into the Registration Statement are complete and accurate.
(c) The Company will supply to Parent all information about the
Company and its subsidiaries which Parent is required to include in the
Registration Statement, including
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consolidated financial statements of the Company and its subsidiaries at
December 31, 1999 and for the three years ended on that date which have been
audited by Deloitte & Touche LLP, and any other required financial statements of
the Company and its subsidiaries, and in all other respects cooperate with
Parent in its efforts to cause the Registration Statement to become effective as
promptly as practicable, including giving lawyers, accountants and other
representatives of Parent reasonable access during normal business hours to the
books, records and personnel of the Company and its subsidiaries which will be
useful to assure them that the disclosures about the Company and its
subsidiaries in the Registration Statement or in documents incorporated by
reference into the Registration Statement are complete and accurate.
(d) The Company represents and warrants to Parent that the
information about the Company and its subsidiaries which the Company provides
for inclusion in the Registration Statement will be complete and accurate in all
material respects and will not include a misstatement of a material fact or omit
to state any material facts necessary to make the statements about the Company
and its subsidiaries included in the Registration Statement, in light of the
circumstances under which they are made, not misleading.
(e) Parent represents and warrants to the Company that the
information about Parent and its subsidiaries included in the Registration
Statement will be complete and accurate in all material respects and will not
include a misstatement of a material fact or omit to state any material facts
necessary to make the statements included in the Registration Statement, in
light of the circumstances under which they are made, not misleading.
(f) Parent will (i) file with the SEC as promptly as practicable
a proxy statement (which may be included in the Registration Statement) relating
to a meeting of its shareholders at which they will be asked to vote upon the
issuance of Parent Common Stock in
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the Merger, (ii) use its best efforts to cause review of that proxy statement by
the SEC staff to be completed as promptly as practicable, (iii) subject to the
last sentence of this Section 4.5(f), include in that proxy statement the
recommendation of Parent's Board of Directors that its shareholders vote in
favor of the Merger, (iv) as promptly as practicable after the SEC staff
completes the review of the proxy statement and informs Parent that it has no
further comments about the proxy statement cause the proxy statement and a form
of proxy to be mailed to its shareholders (except that if the proxy statement
has already been mailed to Parent's shareholders, only the form of proxy and any
necessary supplements to the proxy statement need be mailed) and cause a meeting
of its shareholders to be held, as promptly as practicable after the
Registration Statement becomes effective, for the purpose of voting upon the
issuance of Parent Common Stock in the Merger (subject to any adjournments which
may be required to comply with law or with any order of a Governmental Entity).
Subject to compliance by the Board of Directors of Parent with its fiduciary
duties under applicable law as determined in good faith by the Board of
Directors of Parent after consultation with outside legal counsel, Parent will
use all reasonable best efforts to obtain the approval of its shareholders
required to consummate the transactions contemplated by this Agreement and the
Board of Directors of Parent shall recommend to the shareholders of Parent that
they approve the issuance of Parent Common Stock in the Merger.
(g) The Company will (i) file with the SEC as promptly as
practicable a proxy statement (which may be included in the Registration
Statement) relating to a meeting of its shareholders at which they will be asked
to vote upon the Merger, (ii) use its best efforts to cause review of that proxy
statement by the SEC staff to be completed as promptly as practicable, (iii)
subject to the last sentence of this Section 4.5(g), include in that proxy
statement the
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recommendation of the Company's Board of Directors that its shareholders vote in
favor of the Merger, (iv) as promptly as practicable after the SEC staff
completes the review of the proxy statement and informs the Company that it has
no further comments about the proxy statement, cause the proxy statement and a
form of proxy to be mailed to its shareholders (except that if the proxy
statement has already been mailed to the Company's shareholders, only the form
of proxy and any necessary supplements to the proxy statement need be mailed)
and cause a meeting of its shareholders to be held, as promptly as practicable
after the Registration Statement becomes effective, for the purpose of voting
upon the Merger (subject to any adjournments which may be required to comply
with law or with any order of a Governmental Entity). Subject to compliance by
the Board of Directors of the Company with its fiduciary duties under applicable
law as determined in good faith by the Board of Directors of the Company after
consultation with outside legal counsel, the Company will use all reasonable
best efforts to obtain the approval of its shareholders required to consummate
the transactions contemplated by this Agreement and the Board of Directors of
the Company shall recommend to the shareholders of the Company that they adopt
this Agreement and approve the transactions contemplated hereby; provided,
however, that the Board of Directors of the Company may only withdraw, modify or
change its recommendation to the shareholders of the Company in connection with
an Acquisition Proposal (as defined herein) if that Acquisition Proposal is a
Superior Proposal (as defined herein).
(h) The Company's Board of Directors will not take any action
(including terminating this Agreement except under circumstances permitted under
Section 6.1) which prevents the Company's shareholders from voting upon the
Merger, and Parent's Board of Directors will not take any action (including
terminating this Agreement except under
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circumstances permitted under Section 6.1) which prevents Parent's shareholders
from voting upon the Merger.
4.6 NO SOLICITATION OF OFFERS; NOTICE OF PROPOSALS FROM OTHERS.
(a) The Company will not, and will not permit any of its subsidiaries, officers,
directors, employees, agents or representatives (including any investment
banker, attorney or accountant retained by it or by any of its subsidiaries)
directly or indirectly to initiate, solicit, encourage or otherwise facilitate
(including by providing information) any discussion, negotiation or inquiry or
the making of any proposal or offer with respect to a merger, reorganization,
share exchange, consolidation or similar transaction involving the Company, or a
purchase of, or tender offer for, all or any significant portion of the
Company's equity securities or assets of the Company or any of its insurance
subsidiaries on a consolidated basis other than the transactions contemplated by
this Agreement (each of these being an "Acquisition Proposal"). The Company
immediately shall cease and cause to be terminated all existing discussions or
negotiations with any persons conducted heretofore with respect to, or that
could reasonably be expected to lead to, any Acquisition Proposal.
(b) Section 4.6(a) will not prevent the Company from, in
response to an unsolicited written Acquisition Proposal which the Company
receives despite complying with Section 4.6(a) and which the Company's Board of
Directors determines in good faith (x) after consultation with its independent
financial advisor, would result (if consummated in accordance with its terms) in
a transaction (i) for which financing, to the extent required, is then fully
committed or reasonably determined to be available by the Board of Directors of
the Company and (ii) would be more favorable over the long term to the Company's
shareholders than the Merger after taking into account the strategic benefits
anticipated to be derived from the Merger
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and the prospects of Parent and the Company as a combined company and (y) based
upon the written advice of outside counsel that there would be a reasonable
probability that the failure to do so would be held to be a breach of the
fiduciary duties of the Company's Board of Directors under applicable law (a
"Superior Proposal"), furnishing non-public information (after receipt of an
appropriate confidentiality agreement that is no less favorable to the Company
than the Confidentiality Agreement referred to in Section 9.2 hereof between
Parent and the Company) to the person, entity or group (the "Potential
Acquiror") which makes the Acquisition Proposal and entering into discussions
and negotiations with that Potential Acquiror.
(c) If the Company or any officer, agent or representative
thereof receives or is contacted with respect to an Acquisition Proposal, or the
Company learns that any person is contemplating soliciting tenders of Common
Stock or otherwise proposes to acquire the Company or a significant portion of
its equity securities or all or a significant portion of its and its
subsidiaries' assets if the Company's shareholders do not approve the Merger,
the Company will promptly (but in any event within 24 hours) notify Parent of
that fact and provide Parent with all information in the Company's possession
regarding the Acquisition Proposal, solicitation of tenders or other proposed
transaction, and the Company will promptly (but in any event within 24 hours),
from time to time, provide Parent with any additional material information the
Company obtains regarding the Acquisition Proposal, solicitation of tenders or
other proposed transaction.
4.7 APPROPRIATE ACTION; CONSENTS. (a) Subject to the terms and
conditions of this Agreement, the Company and Parent shall use their reasonable
best efforts to (i) take, or cause to be taken, all actions, and do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations, to consummate the Merger and the other transactions
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contemplated by this Agreement as promptly as practicable, (ii) cause the
conditions set forth in Sections 5.1(e) and (f) and 5.2(f) and (g) to be
satisfied, and (iii) make all necessary filings, and thereafter make any other
required submissions, with respect to this Agreement and the Merger required
under the Securities Act and the Exchange Act or any other applicable law;
PROVIDED that the Company and Parent shall cooperate with each other in
connection with the making of all such filings. The Company and Parent shall
furnish to each other all information required for any application or other
filing to be made pursuant to the rules and regulations of any applicable law in
connection with the transactions contemplated by this Agreement.
(b) The Company and Parent shall give (or shall cause their
respective subsidiaries to give) any notices to third parties, and use (or shall
cause their respective subsidiaries to use) reasonable best efforts to obtain
any third party consents (i) necessary, proper or advisable to consummate the
transactions contemplated by this Agreement or (ii) required to prevent the
occurrence of a Material Adverse Effect on the Company or Parent as a result of
the transactions contemplated by this Agreement. In the event that either party
shall fail to obtain any third party consent described in this Section 4.7(b),
such party shall use reasonable best efforts, and shall take any such actions
reasonably requested by the other party hereto, to minimize any adverse effect
upon the Company and Parent, their respective subsidiaries and their respective
businesses resulting, or which could reasonably be expected to result after the
Effective Time, from the absence of such consent; PROVIDED, HOWEVER, that such
efforts and actions shall not affect the conditions set forth in Article V.
4.8 COOPERATION. Parent and the Company shall cooperate with each
other (i) with respect to the timing of the respective shareholder meetings
contemplated by Sections 4.5(f) and 4.5(g) and shall use their reasonable best
efforts to hold such meetings on the same day, (ii) in
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connection with the preparation of the Registration Statement and the joint
proxy statement to be included therein, (iii) in determining whether any action
by or in respect of, or filing with, any Governmental Entity is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement, and (iv) in seeking any such
actions, consents, approvals or waivers or making any such filings, furnishing
information required in connection therewith or with the Registration Statement
and the joint proxy statement included therein and seeking timely to obtain any
such actions, consents, approvals or waivers.
4.9 COMPANY AFFILIATES; REORGANIZATION. (a) Within 30 days of the
date of this Agreement, the Company shall deliver to Parent a letter identifying
all persons whom the Company believes may be deemed to be, at the date of the
Company shareholder meeting contemplated by Section 4.5(g), an affiliate of the
Company for purposes of Rule 145 of the Securities Act (each such person, a
"Rule 145 Affiliate"). The Company shall use its reasonable best efforts to
obtain a written agreement from each person who is identified as a person who
may be deemed to be a Rule 145 Affiliate in the letter referred to above as soon
as practicable and, in any event, prior to the date of the Company shareholder
meeting, substantially in the form of Exhibit 4.9-A.
(b) Each of the parties hereto shall use its best efforts to
cause the transactions contemplated by this Agreement to qualify, and shall not
knowingly take any action, except for the transactions contemplated by this
Agreement, that could prevent such transactions from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
4.10 TAKEOVER STATUTES. If any takeover statute is or may become
applicable to the Merger, each of Parent and the Company shall, to the extent
they have the power to do so, take
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such actions as are necessary so that the Merger may be consummated as promptly
as practicable on the terms contemplated hereby and otherwise act to eliminate
or minimize any adverse effects of any takeover statute on the Merger.
4.11 CERTAIN CONTRACTS. (a) The Company will use its reasonable and
commercially practicable best efforts, in consultation and cooperation with
Parent, to obtain from (1) MBIA prior to the Effective Time its written and
irrevocable waiver for at least three years of provisions of the Comprehensive
Automatic Treaty Reinsurance Agreement, effective as of January 1, 2000 (the
"Treaty"), to the extent such provisions would permit MBIA to terminate the
Treaty or any Prior Agreement (as defined in the Treaty) on a cut-off basis as a
result of the Merger and (2) Financial Guaranty Insurance Corporation and its
affiliates ("FGIC") prior to the Effective Time its written and irrevocable
waiver of provisions of the reinsurance agreements between FGIC and subsidiaries
of the Company (the "FGIC Agreements"), to the extent such provisions would
permit FGIC to terminate the FGIC Agreements as a result of the Company's 1999
ratings downgrade. The Company represents and warrants that the waivers referred
to in this Section 4.11(a) may be obtained (1) without the Company or Parent
being required to pay or provide any consideration therefor in excess of the
amounts set forth on Exhibit 4.11-A and (2) on substantially the terms set forth
on Exhibit 4.11-A.
(b) The Company will use its reasonable and commercially
practicable best efforts to ensure that any person or entity that is party to
(or entitled to the benefit of) a contract or agreement with Singer or any
affiliate of Singer (including any securitization vehicle) pursuant to any
provision of which obligations or liabilities of Singer could be accelerated or
breached or would arise (or providing for rights or benefits in favor of Singer
or any affiliate of Singer that could be terminated or reduced) as a result of
this Agreement or the transactions
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contemplated hereby, including the Merger, shall have agreed in writing,
pursuant to a form of consent in form and substance reasonably acceptable to
Parent, to waive such provision.
4.12 C-BASS. If (i) the Company terminates this Agreement under
Section 6.1(b), (ii) either Parent or the Company terminates this Agreement
under Section 6.1(d) because the Effective Time did not occur on or before June
30, 2001 as a result of the material breach by Parent of this Agreement, (iii)
either Parent or the Company terminates this Agreement under Section 6.1(e)
because the issuance of Parent Common Stock pursuant to this Agreement shall
have failed to receive the requisite vote for approval at the meeting of
Parent's shareholders held in connection with this Agreement or (iv) if the
Company terminates this Agreement under Section 6.1(h), then the Company will
have the option, exercisable by a notice given to Parent within 5 business days
after the Company or Parent terminates this Agreement, to require Parent to
purchase (directly or through one or more wholly owned subsidiaries) the 45.6%
interest in C-BASS owned by Enhance Residuals, L.P. for a purchase price equal
to 90% of (A) the Purchase Price (as defined in the Partnership Interest
Purchase Agreement (the "Partnership Purchase Agreement") dated September 28,
2000 among the Company, Enhance C-Bass Residual Finance Corporation, C-BASS,
Residential Funding Corporation and RFC Acquisition Corporation) less (B) the
Purchase Price Adjustment Amount (as defined in the Partnership Purchase
Agreement), if any, calculated under the Partnership Purchase Agreement (i.e.,
90% of the sum the Purchasers would have been required to pay under Section 2.2
of the Partnership Purchase Agreement), on customary terms to be mutually
agreed, with the closing to be held on the 30th day after the option is
exercised or as soon thereafter as practicable. Such purchase shall be subject
to any prior rights of third parties and the Company shall cooperate with Parent
to ensure that any such rights are honored.
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4.13 BENEFITS. The Company shall use all commercially reasonable
efforts (1) to amend, and to obtain any required consents to amend, all the
employment agreements between the Company and all of the Senior Vice Presidents,
which Senior Vice Presidents are listed on Exhibit 4.13, to eliminate Section 5
(Tax Reimbursement Payment) of each such agreement (each such agreement, as
amended, the "Vice President Agreement Amendments"), which Vice President
Agreement Amendments shall provide that no such employee has a right or claim
for receipt of such tax reimbursement payment, and (2) to reflect the prior
agreement of each of Richard J. Dunn and Tony M. Ettinger that the
change-in-control agreement which each is a party to expires on December 31,
2000.
4.14 SUPPORT AGREEMENTS. Each of Daniel Gross, Wallace O. Sellers, and
Allan R. Tessler, within five days of the execution of this Agreement, shall
enter into a Shareholders Support Agreement in substantially the form as
attached hereto as Exhibit 4.14-A.
ARTICLE V
CONDITIONS PRECEDENT TO MERGER
5.1 CONDITIONS TO THE COMPANY'S OBLIGATIONS. The obligations of the
Company to complete the Merger are subject to satisfaction of the following
conditions (any or all of which may be waived by the Company to the extent
permitted by law):
(a) The representations and warranties of Parent and Sub
contained in this Agreement will be true and correct in all material respects
(except that representations and warranties that are qualified by materiality,
Material Adverse Effect or words of similar import shall be true and correct in
all respects) on the Merger Date with the same effect as though made on that
date (except that representations or warranties which relate expressly to a
specified date or a specified period need only have been true and correct with
regard to the specified date or
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period), and Parent will have delivered to the Company a certificate dated that
date and signed by the President or a Vice President of Parent to that effect.
(b) Parent and Sub will have fulfilled in all material respects
all their obligations under this Agreement required to have been fulfilled on or
before the Merger Date, and Parent will have delivered to the Company a
certificate dated that date and signed by the President or a Vice President of
Parent to that effect.
(c) No order will have been entered by any Governmental Entity
and be in force which invalidates this Agreement or restrains the Company from
completing the transactions which are the subject of this Agreement.
(d) The Merger will have been approved by the holders of at least
two-thirds of the outstanding shares of Company Common Stock.
(e) The applicable waiting periods under the HSR Act will have
expired or been terminated.
(f) All licenses and approvals from all Governmental Entities
(including approvals of transfers of licenses and permits and of a change in
control of the Company and its subsidiaries) which are necessary to complete the
Merger will have been obtained, and all required approvals and consents of
Government Entities necessary to complete the Merger shall have been obtained.
(g) The Company shall have received an opinion of Clifford Chance
Rogers & Wells LLP, counsel to the Company, dated the Merger Date, to the effect
that the Merger will qualify as a reorganization within the meaning of Section
368(a) of the Code. In rendering its opinion, counsel may require, and rely upon
facts and representations contained in, certificates of the officers of the
Company, Parent and Sub.
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(h) From the date hereof through the Effective Time, no Material
Adverse Effect on Parent shall have occurred, and there shall exist no fact,
development or state of circumstances that, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect on Parent.
5.2 CONDITIONS TO PARENT'S AND SUB'S OBLIGATIONS. The obligations
of Parent and Sub to complete the Merger are subject to the following conditions
(any or all of which may be waived by Parent to the extent permitted by law):
(a) The representations and warranties of the Company contained
in this Agreement will be true and correct in all material respects (except that
representations and warranties that are qualified by materiality, Material
Adverse Effect or words of similar import shall be true and correct in all
respects) on the Merger Date with the same effect as though made on that date
(except that representations or warranties which relate expressly to a specified
date or a specified period need only have been true and correct with regard to
the specified date or period), and the Company will have delivered to Parent a
certificate dated that date and signed by the President or a Vice President of
the Company to that effect.
(b) The Company will have fulfilled in all material respects all
its obligations under this Agreement required to have been fulfilled on or
before the Merger Date, and the Company will have delivered to Parent a
certificate dated that date and signed by the President or a Vice President of
the Company to that effect.
(c) No order will have been entered by any Governmental Entity
and be in force which invalidates this Agreement or restrains Parent or Sub from
completing the transactions which are the subject of this Agreement and no
action will be pending against the Company, Parent or Sub relating to the
transactions which are the subject of this Agreement
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which presents a reasonable likelihood of resulting in an award of damages
against the Company, Parent or Sub which would have a Material Adverse Effect
after the Merger on Parent and its subsidiaries taken as a whole.
(d) The issuance of Parent Common Stock in the Merger will have
been approved by the holders of at least a majority in voting power of the
outstanding shares of Parent Common Stock.
(e) The Merger will have been approved by the holders of at least
two-thirds of the outstanding shares of Company Common Stock.
(f) The applicable waiting periods under the HSR Act will have
expired or been terminated.
(g) All licenses and approvals from all Governmental Entities
(including approvals of transfers of licenses and permits and of a change in
control of the Company and its subsidiaries) which are necessary to enable the
Company and its subsidiaries to continue to conduct their respective businesses
after the Effective Time substantially as they are being conducted immediately
before the Effective Time will have been obtained, and all required approvals
and consents of Government Entities and other third parties necessary to
complete the Merger shall have been obtained.
(h) Parent shall have received an opinion of Wachtell, Lipton,
Rosen & Katz, special counsel to Parent, dated the Merger Date, to the effect
that the Merger will qualify as a reorganization within the meaning of Section
368(a) of the Code. In rendering its opinion, counsel may require, and rely upon
facts and representations contained in, certificates of the officers of the
Company, Parent and Sub.
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(i) The waivers and consents contemplated by Section 4.11(a),
Section 4.11(b) and Section 4.13 (in the case of clause (1) of Section 4.13,
with respect to any Senior Vice Presidents who will be subject to tax as a
result of Section 280G of the Code) shall have been obtained.
(j) (1) Parent shall have received from the Company an audited
balance sheet of Singer as of September 30, 2000, audited by Deloitte & Touche
LLP, setting forth all assumptions and accounting policies related thereto, and
such assumptions and accounting policies shall be consistently applied from
prior periods, fairly presenting in all material respects the financial position
of Singer as of such date, and prepared in accordance with GAAP, which audited
balance sheet as of September 30, 2000 shall reflect a net worth of Singer,
after elimination of the $56 million indebtedness to the Company and its
subsidiaries existing at September 30, 2000 (the "Singer September 30 Net
Worth"), of at least $1.00, (2) Parent shall be reasonably satisfied that there
shall be sufficient and appropriate resources in place for Singer to fulfill its
servicing commitments, (3) the consolidated debt of the Company and its
subsidiaries (excluding C-BASS and Sherman) as of the Effective Time shall not
exceed $250,000,000, (4) the Company shall have secured (for total consideration
not to exceed $1,125,000 per year) and have in effect with respect to Asset
Guaranty Insurance Co. $75,000,000 of soft capital financing, reinsurance or a
similar facility which in any such case is sufficient to cause S&P to reaffirm
to Asset Guaranty Insurance Co.'s AA rating, and (5) the Company shall not have
made or be liable for any guarantees other than the $25,000,000 guarantee with
respect to Sherman previously disclosed to Parent (it being understood that this
subparagraph does not preclude subsidiaries from entering into suretyship or
insurance contracts or giving guarantees in the ordinary course of their
businesses consistent with past practice).
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(k) All of the off-balance sheet financing with respect or
relating to the assets of Singer (other than the Loan and Security Agreement,
dated as of December 22, 1997, as amended, by and among Working Capital
Management Co., L.P., The Industrial Bank of Japan, Singer Asset Loan
Receivables L.L.C., and Singer Asset Finance Company, L.L.C., and related
transaction documents (the "Omnivore facility")) shall remain in place on
comparable terms and conditions after the Effective Time, PROVIDED, that the
term of any such financing shall be extended to match the duration or maturity
of the applicable assets of Singer or such assets shall be sold off on terms and
conditions reasonably acceptable to Parent.
(l) From the date hereof through the Effective Time, no Material
Adverse Effect on the Company shall have occurred, and there shall exist no
fact, development or state of circumstances that, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect on the
Company.
ARTICLE VI
TERMINATION
6.1 RIGHT TO TERMINATE. This Agreement may be terminated at any time
prior to the Effective Time (whether or not the Company's or Parent's
shareholders have approved the Merger):
(a) By mutual consent of the Company and Parent.
(b) By the Company upon a breach of or failure to perform in any
material respect (which breach or failure cannot be or has not been cured within
30 days after the giving of notice to Parent of such breach or failure) any
representation, warranty, covenant or agreement on the part of Parent set forth
in this Agreement, such that the conditions set forth in Sections
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5.1(a) or (b) would not be satisfied if such breach or failure existed or were
continuing on the Merger Date.
(c) By Parent upon a breach of or failure to perform in any
material respect (which breach or failure cannot be or has not been cured within
30 days after the giving of notice to the Company of such breach or failure) any
representation, warranty, covenant or agreement on the part of the Company set
forth in this Agreement, such that the conditions set forth in Sections 5.2(a)
or (b) would not be satisfied if such breach or failure existed or were
continuing on the Merger Date.
(d) By either Parent or the Company, if the Effective Time shall
not have occurred on or before June 30, 2001; PROVIDED, HOWEVER, that the right
to terminate this Agreement under this Section 6.1(d) shall not be available to
the party whose failure to fulfill any obligation under this Agreement shall
have been the cause of, or resulted in, the failure of the Effective Time to
occur on or before such date.
(e) By Parent or the Company if this Agreement shall fail to
receive the requisite vote for adoption or approval at the meeting of the
Company's shareholders or the meeting of Parent's shareholders held in
connection with this Agreement, including any adjournment or postponement
thereof.
(f) By Parent, if (i) the Board of Directors of the Company
withdraws, modifies or changes its recommendation of this Agreement in any
manner adverse to Parent or shall have resolved to do so, (ii) after receiving a
bona fide Acquisition Proposal, the Board of Directors of the Company shall have
refused promptly (but in any case within 10 business days) to affirm its
recommendation of this Agreement, (iii) the Board of Directors of the Company
shall have recommended to the shareholders of the Company an Acquisition
Proposal or shall
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have resolved to do so, or (iv) a tender or exchange offer for 15% or more of
the outstanding shares of capital stock of the Company is commenced, and the
Board of Directors of the Company fails to recommend against, or states that it
is taking no position with respect to, acceptance of such tender or exchange
offer by the Company's shareholders.
(g) By the Company at any time during the two business-day period
commencing two days after the Determination Date (as defined herein), if both of
the following conditions are satisfied:
(1) the Average Closing Price (as defined herein) shall be
less than $51.35; and
(2) (i) the number obtained by dividing the Average Closing
Price by the Starting Price (such number, the "Parent Ratio") shall be
less than (ii) the number obtained by dividing the Index Price (as defined
herein) on the Determination Date by the Index Price on the Starting Date
(as defined herein) and subtracting 0.15 from such quotient (such number,
the "Index Ratio");
subject to the following three sentences. If the Company elects to exercise its
termination right pursuant to the immediately preceding sentence, it shall give
prompt written notice to Parent; provided that such notice of election to
terminate may be withdrawn at any time within the aforementioned two-day period.
During the two business-day period commencing with its receipt of such notice,
Parent shall have the option of adjusting the Exchange Ratio to equal the lesser
of (i) the number equal to the quotient (rounded to the nearest
one-ten-thousandth), the numerator of which is the product of 0.80, the Starting
Price and the Exchange Ratio (as then in effect) and the denominator of which is
the Average Closing Price, and (ii) the number equal to the quotient (rounded to
the nearest one-ten-thousandth), the numerator of which is the Index
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Ratio multiplied by the Exchange Ratio (as then in effect) and the denominator
of which is the Parent Ratio. If Parent makes an election contemplated by the
preceding sentence, within such two business-day period, it shall give written
notice to the Company of such election and the revised Exchange Ratio, whereupon
no termination shall have occurred pursuant to this Section 6.1(g) and this
Agreement shall remain in effect in accordance with its terms (except as the
Exchange Ratio shall have been so modified), and any references in this
Agreement to "Exchange Ratio" shall thereafter be deemed to refer to the
Exchange Ratio as adjusted pursuant to this Section 6.1(g). For purposes of this
Section 6.1(g), the following terms shall have the meanings indicated:
"Average Closing Price" means the average of the last reported sale
prices per share of Parent Common Stock as reported on the New York Stock
Exchange consolidated tape (as reported in THE WALL STREET JOURNAL or, if not
reported therein, in another mutually agreed upon authoritative source) for the
20 consecutive trading days on the New York Stock Exchange ending at the close
of trading on the Determination Date.
"Determination Date" means the business day prior to the date of the
special meeting of the Company's shareholders.
"Index Group" means the group of each of the 20 insurance companies listed
below, the common stock of all of which shall be publicly traded and as to which
there shall not have been, since the Starting Date and before the Determination
Date, an announcement of a proposal for such company to be acquired or for such
company to acquire another company or companies in transactions with a value
exceeding 25% of the acquiror's market capitalization as of the Starting Date.
In the event that the common stock of any such company ceases to be publicly
traded or any such announcement is made with respect to any such company, such
company will be
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removed from the Index Group, and the weights redistributed proportionately for
purposes of determining the Index Price. The 20 insurance companies and the
weights attributed to them are as follows:
COMPANY WEIGHTING
------- ---------
American International Group, Inc. 5%
Fannie Mae 5%
Freddie Mac 5%
Allstate Corporation 5%
Hartford Financial Services Group, Inc. 5%
Chubb Corporation 5%
St. Paul Companies, Inc. 5%
XL Capital Ltd 5%
Ace Limited 5%
CNA Financial Corporation 5%
MBIA Inc. 5%
MGIC Investment Corporation 5%
Cincinnati Financial Corporation 5%
Ambac Financial Group, Inc. 5%
Countrywide Credit Industries, Inc. 5%
PMI Group Inc. 5%
Old Republic International Corporation 5%
W.R. Berkley Corporation 5%
Ohio Casualty Corporation 5%
Triad Guaranty Inc. 5%
------
100%
"Index Price" on a given date means the weighted average (weighted in
accordance with the factors listed above) of the closing prices of the
companies comprising the Index Group.
"Starting Date" means November 13, 2000.
"Starting Price" shall mean $64.19, which was the last reported sale price
per share of Parent Common Stock on the Starting Date, as reported on the New
York Stock Exchange consolidated tape (as reported in THE WALL STREET JOURNAL
or, if not reported therein, in another mutually agreed upon authoritative
source).
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<PAGE>
If any company belonging to the Index Group or Parent declares or effects a
stock dividend, reclassification, recapitalization, split-up, combination,
exchange of shares or similar transaction between the Starting Date and the
Determination Date, the prices for the common stock of such company or Parent
shall be appropriately adjusted for the purposes of applying this Section
6.1(g).
(h) By the Company if the Board of Directors of Parent withdraws,
modifies or changes its recommendation of this Agreement in any manner adverse
to the Company or shall have resolved to do so.
(i) By Parent, if Asset Guaranty Insurance Co. shall be (1)
downgraded, (2) placed on credit watch or (3) placed on credit review with
negative implications by S&P.
6.2 MANNER OF TERMINATING AGREEMENT. If at any time the Company or
Parent has the right under Section 6.1 to terminate this Agreement, it can
terminate this Agreement by a written notice to the other of them that it is
terminating this Agreement.
6.3 EFFECT OF TERMINATION. If this Agreement is terminated pursuant
to Section 6.1, after this Agreement is terminated, neither party will have any
further rights or obligations under this Agreement other than the Company's
obligations under Section 8.1 and under the Confidentiality Agreement described
in Section 9.2. Nothing contained in this Section will, however, relieve either
party of liability for any breach of this Agreement which occurs before this
Agreement is terminated.
ARTICLE VII
ABSENCE OF BROKERS
7.1 REPRESENTATIONS AND WARRANTIES REGARDING BROKERS AND OTHERS. The
Company and Parent each represents and warrants to the other of them that no
person acted as a broker, a
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finder or in any similar capacity in connection with the transactions which are
the subject of this Agreement, except that Goldman, Sachs & Co. Incorporated
acted as a financial advisor to Parent and Morgan Stanley Dean Witter acted as a
financial advisor to the Company. Parent will pay all the fees and other charges
of Goldman, Sachs & Co. Incorporated and the Company will pay all the fees and
other charges of Morgan Stanley Dean Witter. The Company indemnifies Parent and
Sub against, and agrees to hold each of them harmless from, all losses,
liabilities and expenses (including reasonable fees and expenses of counsel and
costs of investigation) incurred because of any claim by anyone for compensation
as a broker, a finder or in any similar capacity by reason of services allegedly
rendered to the Company in connection with the transactions which are the
subject of this Agreement. Parent indemnifies the Company against, and agrees to
hold it harmless from, all losses, liabilities and expenses (including, but not
limited to, reasonable fees and expenses of counsel and costs of investigation)
incurred because of any claim by anyone for compensation as a broker, a finder
or in any similar capacity by reason of services allegedly rendered to Parent or
Sub in connection with the transactions which are the subject of this Agreement.
ARTICLE VIII
OTHER AGREEMENTS
8.1 PAYMENT TO PARENT. (a) The Company and Parent agree that if (i)
(w) the Company shall fail to receive the requisite vote for adoption of this
Agreement at the meeting of the Company's shareholders, (x) Parent or the
Company shall terminate this Agreement pursuant to Section 6.1(e), (y) prior to
the time of the meeting of the Company's shareholders meeting a bona fide
Acquisition Proposal shall have become the subject of a public announcement or
any person shall have publicly announced an intention to make a proposal or
offer relating thereto
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and (z) within 12 months of such termination the Company enters into a
definitive agreement with any third party with respect to or consummates any
transaction contemplated by the definition of "Acquisition Proposal", or (ii)
Parent shall terminate this Agreement pursuant to Section 6.1(f) or Section
6.1(c) (in the case of Section 6.1(c), as a result of a material breach by the
Company of its obligations under Section 4.5(g) or (h) or as a result of a
willful breach by the Company of its obligations under Section 4.6), the Company
shall pay Parent an amount equal to $20,000,000; PROVIDED, HOWEVER, that such
amount shall equal $25,000,000 if (x) in the case of clause (i) above, such
agreement shall be made or such transaction consummated with, or (y) in the case
of clause (ii) above, an Acquisition Proposal shall be made by, one or more of
American International Group, Inc., MGIC Investment Corporation, PMI Group Inc.,
Old Republic International Corporation or General Electric Company or any of
their affiliates. Such payment shall be made (A) in the case of a termination
contemplated by clause (i), prior to or concurrently with (and as a condition
to) entering into such definitive agreement or, if earlier, consummating such
transaction, or (B) in the case of a termination contemplated by clause (ii),
promptly (but in any event within 2 business days) following the receipt by the
Company of written notice of such termination from Parent.
(b) The Company and Parent agree that the payment provided for in
Section 8.1(a) shall be the sole and exclusive remedy of Parent upon a
termination of this Agreement contemplated by Section 8.1(a), PROVIDED that
nothing herein shall relieve any party from liability for the willful breach of
any of its representations and warranties or the breach of any of its covenants
or agreements set forth in this Agreement.
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(c) Any payment required to be made pursuant to Section 8.1(a),
Section 8.1(e), Section 8.1(f) or Section 8.1(g) shall be made by wire transfer
of immediately available funds to an account designated by Parent.
(d) In the event that the Company shall fail to pay the amount
contemplated by Section 8.1(a), Section 8.1(e), Section 8.1(f) or Section
8.1(g)when due, such amount shall be increased to include the costs and expenses
incurred by Parent (including, without limitation, fees of counsel) in
connection with the collection and enforcement of this Section 8.1.
(e) In the event that (i) the Company shall fail to obtain the
waivers and consents referred to in Section 5.2(i) and the Agreement is
terminated by Parent pursuant to either Section 6.1(c) or Section 6.1(d), or
(ii) the Agreement is terminated by Parent pursuant to Section 6.1(c), then the
Company shall pay Parent an amount equal to the actual out of pocket fees and
expenses incurred by Parent in connection with this Agreement and the
transactions contemplated hereby up to a maximum of $5,000,000.
(f) In the event that the Agreement is terminated by the
Company pursuant to Section 6.1(b), then Parent shall pay the Company an amount
equal to the actual out of pocket fees and expenses incurred by the Company in
connection with this Agreement and the transactions contemplated hereby up to a
maximum of $5,000,000.
(g) In the event that the Agreement is terminated by Parent
pursuant to Section 6.1(i), then the Company shall pay Parent an amount equal to
$7,500,000.
8.2 INDEMNIFICATION FOR PRIOR ACTS. The Surviving Corporation will
(i) honor, and will not amend or modify for a period of not less than six years
after the Effective Time, any obligation of the Company to indemnify present and
former directors, officers or employees of the Company or its subsidiaries
(each, an "Indemnified Party") with respect to matters which
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occurred or occur prior to the Effective Time and (ii) keep in force for at
least six years after the Effective Time directors and officers liability
insurance, insuring the persons who were directors or officers of the Company at
or before the Effective Time, which provides coverage which is at least as broad
as that under the policy which is in force immediately before the Effective
Time, and is in an amount at least as great (and with a deductible retention at
least as small) as that under the policy which is in force immediately before
the Effective Time (or such lesser amount as is the maximum amount which can be
obtained for an annual premium equal to 150% of the annual premium for the
policy which is in force immediately before the Effective Time).
8.3 BENEFICIARIES. The provisions in Section 8.2 are intended to be
for the benefit of, and will be enforceable by, the respective directors,
officers and employees of the Company or its subsidiaries to which it relates
and their heirs and representatives and will be binding upon the Surviving
Corporation.
ARTICLE IX
GENERAL
9.1 EXPENSES. Except as specifically provided in this Agreement, the
Company and Parent will each pay its own expenses (and Parent will pay Sub's
expenses) in connection with the transactions which are the subject of this
Agreement, including legal fees.
9.2 ACCESS TO PROPERTIES, BOOKS AND RECORDS. From the date of this
Agreement until the Effective Time, the Company will, and will (to the extent it
has the power to do so) cause each of its subsidiaries to, give representatives
of Parent full access during normal business hours to all of their respective
properties, books and records and personnel and shall provide reasonable
cooperation in connection with their review and investigation. The information
Parent or its representatives receive as a result of their access to the
properties, books and records
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of the Company or its subsidiaries will be subject to the Confidentiality
Agreement dated May 19, 2000 between Parent and the Company, which
Confidentiality Agreement will remain in effect until the Effective Time. No
investigation by Parent or other information received by Parent shall operate as
a waiver or otherwise affect any representation, warranty or agreement given or
made by the Company hereunder.
9.3 PRESS RELEASES. The Company and Parent will consult with each
other before issuing any press release or otherwise making any public statement
with respect to this Agreement or the Merger, except that nothing in this
Section 9.3 will prevent either party from making any statement when and as
required by law or by the rules of any securities exchange or securities
quotation or trading system on which securities of that party or an affiliate
are listed, quoted or traded.
9.4 ENTIRE AGREEMENT. This Agreement, the Confidentiality Agreement
described in Section 9.2 and the documents to be delivered in accordance with
this Agreement contain the entire agreement among the Company, Parent and Sub
relating to the transactions which are the subject of this Agreement and those
other documents, all prior negotiations, understandings and agreements between
the Company and either Parent or Sub are superceded by this Agreement and those
other documents, and there are no representations, warranties, understandings or
agreements concerning the transactions which are the subject of this Agreement
of those other documents other than those expressly set forth in this Agreement
or those other documents.
9.5 EFFECT OF DISCLOSURES. Any information disclosed by a party
in any representation or warranty contained in this Agreement (including
exhibits to this Agreement) will be treated as having been disclosed in
connection with each representation and warranty made by that party in this
Agreement, provided that it is apparent on its face from such disclosure that it
also applies
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to the other representations and warranties (or exhibits numbered to correspond
to such other representations and warranties) to which such information relates.
9.6 CAPTIONS; DEFINITIONS. The captions of the articles and
paragraphs of this Agreement are for reference only, and do not affect the
meaning or interpretation of this Agreement. The definitions herein shall apply
equally to both the singular and the plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include," "includes," and "including"
shall be deemed to be followed by the phrase "without limitation."
9.7 PROHIBITION AGAINST ASSIGNMENT; BENEFIT. Except in connection
with a change in structure permitted by Section 1.1(b), neither this Agreement
nor any right of any party under it may be assigned. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except as otherwise
expressly set forth herein, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
9.8 NOTICES AND OTHER COMMUNICATIONS. Any notice or other
communication under this Agreement must be in writing and will be deemed given
when it is delivered in person or sent by facsimile (with proof of receipt at
the number to which it was required to be sent), on the business day after the
day on which it is sent by a major nationwide overnight delivery service, or on
the third business day after the day on which it is mailed by first class mail
from within the United States of America, to the following addresses (or such
other address as may be specified after the date of this Agreement by the person
to which the notice or communication is sent):
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If to the Company:
Enhance Financial Services Group Inc.
335 Madison Avenue
New York, NY 10017
Attention: General Counsel
Facsimile: 212-682-5377
with a copy to:
David W. Bernstein
Clifford Chance Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Facsimile: 212-878-8375
If to Parent or Sub:
Radian Group Inc.
1601 Market Street
Philadelphia, PA 19103
Attn: General Counsel
Facsimile: 215-405-9160
with a copy to:
Trevor S. Norwitz
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Facsimile: 212-403-2000
9.9 GOVERNING LAW. This Agreement will be governed by, and construed
under, the substantive laws of the State of New York, without giving effect to
the conflict of laws principles thereof that would apply the laws of any other
jurisdiction.
9.10 AMENDMENTS. This Agreement may be amended by, but only by, a
document in writing signed by both the Company and Parent.
9.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, some of which may be signed by fewer than all the parties or may
contain facsimile copies of
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pages signed by some of the parties. Each of those counterparts will be deemed
to be an original copy of this Agreement, but all of them together will
constitute one and the same agreement.
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IN WITNESS WHEREOF, the Company, Parent and Sub have executed this
Agreement, intending to be legally bound by it, on the day shown on the first
page of this Agreement.
ENHANCE FINANCIAL SERVICES GROUP
INC.
By: /s/ Daniel Gross
-------------------------------
Name: Daniel Gross
Title: President and CEO
RADIAN GROUP INC.
By: /s/ Frank Filipps
-------------------------------
Name: Frank Filipps
Title: CEO
GOLD ACQUISITION CORPORATION
By: /s/ Frank Filipps
-------------------------------
Name: Frank Filipps
Title: President
<PAGE>
EXHIBIT 4.9-A
FORM OF ENHANCE AFFILIATE LETTER
--------------------------------
, 2000
Radian Group Inc.
1601 Market Street
Philadelphia, PA 19103
Ladies and Gentlemen:
The undersigned, a holder of shares of common stock, par value $.10 per
share ("Enhance Common Stock"), of Enhance Financial Services Group Inc., a New
York corporation ("Enhance"), is entitled to receive in connection with the
merger (the "Merger") of GOLD Acquisition Corporation ("Sub"), a New York
corporation and a wholly owned subsidiary of Radian Group Inc., a Delaware
corporation ("Radian"), with and into Enhance, securities of Radian (the "Radian
Securities"). The undersigned acknowledges that the undersigned may be deemed an
"affiliate" of Enhance as the term affiliate is defined under Rule 144, and
interpreted for purposes of paragraphs (c) and (d) of Rule 145 ("Rule 145") of
the rules and regulations of the Securities and Exchange Commission (the "SEC")
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
If in fact the undersigned were an affiliate under the Securities Act, the
undersigned's ability to sell, assign or transfer the Radian Securities received
by the undersigned in exchange for any shares of Enhance Common Stock in
connection with the Merger may be restricted unless such transaction is
registered under the Securities Act or an exemption from such registration is
available. The undersigned understands that such exemptions are limited and has
discussed with its counsel or counsel for Enhance the nature and condition of
such exemptions to the extent it believed necessary. The undersigned understands
that neither Radian nor Enhance will be required to maintain the effectiveness
of any registration statement under the Securities Act for the purposes of
resale of Radian Securities by the undersigned.
The undersigned hereby represents to and covenants with Radian that the
undersigned will not, directly or indirectly, sell, assign, transfer, or
otherwise dispose of any of the Radian Securities issued to the undersigned in
exchange for shares of Enhance Common Stock in connection with the Merger except
(i) pursuant to an effective registration statement under the Securities Act,
(ii) in conformity with the volume and other limitations of Rule 145 or (iii) in
a transaction which, in the opinion of the general counsel of Radian or other
counsel reasonably satisfactory to Radian or as described in a "no-action" or
interpretive letter from the Staff of the SEC specifically issued with respect
to a transaction to be engaged in by the undersigned, is not required to be
registered under the Securities Act.
In the event of a sale or other disposition by the undersigned of Radian
Securities pursuant to Rule 145, the undersigned will supply Radian with
evidence of compliance with such Rule, in the form of a letter in the form of
Annex I hereto. The undersigned understands that Radian may instruct its
transfer agent to withhold the transfer of any Radian Securities owned by
<PAGE>
the undersigned, but that upon receipt of such evidence of compliance or the
availability of an exemption from registration under the Securities Act, the
transfer agent shall effectuate the transfer of Radian Securities sold as
indicated in the letter.
The undersigned acknowledges and agrees that the legend set forth below
may be placed on certificates representing Radian Securities received by the
undersigned in connection with the Merger or held by a transferee thereof, which
legend may be removed by delivery of substitute certificates upon receipt of an
opinion in form and substance reasonably satisfactory to Radian from independent
counsel reasonably satisfactory to Radian to the effect that such legend is no
longer required for purposes of the Securities Act.
There may be placed on the certificates for Radian Securities issued to
the undersigned, or any substitutions therefor, 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 applies.
The shares have not been acquired by the holder with a view to, or for
resale in connection with, any distribution thereof within the meaning of
the Securities Act of 1933. The shares may not be sold, pledged or
otherwise transferred except in accordance with an exemption from the
registration requirements of the Securities Act of 1933."
The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations imposed
upon the distribution, sale, transfer or other disposition of Radian Securities
and (ii) the receipt by Radian of this letter is an inducement to Radian's
obligations to consummate the Merger.
<PAGE>
If you are in agreement with the foregoing, please so indicate by signing
below and returning a copy of this letter to the undersigned, at which time this
letter shall become a binding agreement between us.
Very truly yours,
--------------------------
Name:
Date:
Agreed and accepted this
____ day of _____________, 2000
RADIAN GROUP INC.
By
------------------------
Name:
Title:
<PAGE>
Annex I
_______________, 200_
Radian Group Inc.
1601 Market Street
Philadelphia, PA 19103
Attention: Corporate Secretary
On ______ __, 200_, the undersigned sold the securities ("Securities") of
Radian Group Inc. ("Radian") described below in the space provided for that
purpose. The Securities were acquired by the undersigned in connection with the
merger of GOLD Acquisition Corporation, a New York corporation and wholly owned
subsidiary of Radian, with and into Enhance Financial Services Group Inc., a New
York corporation.
Based upon the most recent report or statement filed by Radian with the
Securities and Exchange Commission, the Securities sold by the undersigned were
within the prescribed limitations set forth in paragraph (e) of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Act").
The undersigned hereby represents to Radian that the Securities were sold
in "brokers' transactions" within the meaning of Section 4(4) of the Act or in
transactions directly with a "market maker" as that term is defined in Section
3(a)(38) of the Securities Exchange Act of 1934, as amended. The undersigned
further represents to Radian that the undersigned has not solicited or arranged
for the solicitation of orders to buy the Securities, and that the undersigned
has not made any payment in connection with the offer or sale of the Securities
to any person other than to the broker who executed the order in respect of such
sale.
Very truly yours,
DESCRIPTION OF SECURITIES SOLD:
<PAGE>
EXHIBIT 4.14-A
THIS AGREEMENT (this "Agreement"), dated as of ____________, 2000,
is by and among Radian Group Inc., a Delaware corporation (the "Acquiror") and
____________________ (the "Shareholder").
WHEREAS, concurrently herewith, Enhance Financial Services Group
Inc., a New York corporation (the "Company"), the Acquiror and a wholly-owned
subsidiary of the Acquiror are entering into an Agreement and Plan of Merger (as
the same may be amended from time to time, the "Merger Agreement"; capitalized
terms used without definition herein have the meanings ascribed thereto in the
Merger Agreement);
WHEREAS, Shareholder is the beneficial owner of the number of shares
of Company Common Stock set forth in Schedule I hereto (the "Subject Shares");
WHEREAS, approval of the Merger Agreement by the shareholders of
the Company is a condition to the consummation of the Merger; and
WHEREAS, as a condition to its entering into the Merger Agreement,
the Acquiror has required that Shareholder agree, and Shareholder has agreed, to
enter into this Agreement;
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote. (a) Shareholder hereby agrees to
-----------------
attend the meeting of stockholders of the Company to be called and held for the
purpose of obtaining the approval of the Stockholders of the Company of the
Merger Agreement and the Merger (the "Company Meeting"), in person or by proxy,
and to vote (or cause to be voted) all Subject Shares, and any other voting
securities of the Company that Shareholder owns or has the right to vote
(whether such ownership or right exists as of the date hereof or is obtained
thereafter), (i) for approval and adoption of the Merger Agreement and the
Merger and (ii) against any proposals relating to an acquisition of control of
the Company by, or any other business combination of the Company or any of its
subsidiaries with, any person or entity other than the Acquiror or its
affiliates. Such agreement to vote shall apply also to any adjournment or
adjournments of the Company Meeting, and to any other meeting of shareholders or
action by written consent at which any item of business referred to in the
preceding sentence is presented for approval.
<PAGE>
(b) Shareholder hereby agrees that at all times prior to and
including the date of the Company Meeting, Shareholder shall continue to own and
have the right to vote the number and kind of Subject Shares listed in Schedule
I hereto.
(c) To the extent inconsistent with the foregoing provisions of this
Section 1, Shareholder hereby revokes any and all previous proxies with respect
to Shareholder's Subject Shares or any other voting securities of the Company.
Section 2. No Solicitation. Shareholder shall not, directly or
---------------
indirectly, solicit or encourage (including by way of furnishing information),
or take any other action to facilitate, any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal with respect to the Company or any insurance subsidiary of
the Company. Shareholder shall promptly (and in any event, within 24 hours of
becoming aware of an inquiry or proposal) advise the Acquiror orally and in
writing of any such inquiries or proposals of which Shareholder becomes aware.
Notwithstanding the foregoing, no action by a Shareholder who is a director or
officer of the Company at the time of such action, to the extent taken in such
capacity and in compliance with Section 4.6 of the Merger Agreement, shall be
deemed to violate this Section 2.
Section 3. Securities Act Covenants and Representations.
--------------------------------------------
Shareholder hereby agrees and represents to the Acquiror as follows:
(a) Shareholder has been advised that the offering, sale and
delivery of Parent Common Stock pursuant to the Merger will be registered under
the Securities Act on the Registration Statement. Shareholder has also been
advised, however, that to the extent Shareholder is considered an "affiliate" of
the Company at the time the Merger Agreement is submitted to a vote of the
shareholders of the Company, any public offering or sale by Shareholder of any
Parent Common Stock received by Shareholder in the Merger will, under current
law, require either (i) the further registration under the Securities Act of any
shares of Parent Common Stock to be sold by Shareholder, (ii) compliance with
Rule 145 promulgated by the SEC under the Securities Act or (iii) the
availability of another exemption from such registration under the Securities
Act. Shareholder hereby acknowledges and agrees that the Parent is under no
obligation to register the sale, transfer or other disposition of Parent Common
Stock by Shareholder or on Shareholder's behalf under the Securities Act, or to
take any other action necessary in order to make compliance with an exemption
from such registration available.
(b) Shareholder has read this Agreement and the Merger Agreement and
has discussed their requirements and other applicable limitations upon
Shareholder's ability to sell, transfer or otherwise dispose of Parent Common
Stock, to the extent Shareholder believed necessary, with Shareholder's counsel
or counsel for the Company.
<PAGE>
(c) Shareholder also understands that stop transfer instructions
will be given to the Acquiror's transfer agent with respect to Parent Common
Stock and that a legend will be placed on the certificates for the Parent Common
Stock issued to Shareholder, or any substitutions therefor, to the extent
Shareholder is considered an "affiliate" of the Company at the time the Merger
Agreement is submitted to a vote of the shareholders of the Company.
Section 4. Further Assurances. Each party shall execute and deliver
------------------
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of its obligations under this Agreement. Without limiting the
generality of the foregoing, none of the parties hereto shall enter into any
agreement or arrangement (or alter, amend or terminate any existing agreement or
arrangement) if such action would impair the ability of any party to effectuate,
carry out or comply with all the terms of this Agreement. If requested by the
Acquiror, Shareholder agrees to execute a letter to the Acquiror representing
that Shareholder has complied with Shareholder's obligations hereunder as of the
date of such letter.
Section 5. Representations and Warranties of the Shareholder.
-------------------------------------------------
Shareholder represents and warrants to the Acquiror that: this Agreement (i) has
been duly authorized, executed and delivered by Shareholder and (ii) constitutes
the valid and binding agreement of Shareholder, enforceable against Shareholder
in accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws of general
application which may affect the enforcement of creditors' rights generally and
by general equitable principles; Shareholder is the record and beneficial owner
of the Subject Shares set forth on Schedule I, with sole voting and dispositive
power over such Subject Shares (except as may be described on Schedule I); the
Subject Shares listed on Schedule I hereto are the only voting securities of the
Company owned (beneficially or of record) by Shareholder; the Subject Shares are
owned by Shareholder free and clear of all liens, charges, encumbrances,
agreements and commitments of every kind; and neither the execution or delivery
of this Agreement nor the consummation by Shareholder of the transactions
contemplated hereby will violate any provisions of any law, rule or regulation
applicable to Shareholder or any contract or agreement to which Shareholder is a
party, other than such violations of contracts or agreements as would not
prevent or delay the performance by Shareholder of his or her obligations
hereunder or impose any liability or obligation on the Company or the Acquiror.
Section 6. Effectiveness and Termination. It is a condition
-----------------------------
precedent to the effectiveness of this Agreement that the Merger Agreement shall
have been executed and delivered by each of the parties thereto and be in full
force and effect. In the event the Merger Agreement is terminated in accordance
with its terms, this
<PAGE>
Agreement shall automatically terminate and be of no further force or effect.
Upon such termination, except for any rights any party may have in respect of
any breach by any other party of its or his obligations hereunder, none of the
parties hereto shall have any further obligation or liability hereunder.
Section 7. Miscellaneous.
-------------
(a) Notices, Etc. All notices, requests, demands or other
------------
communications required by or otherwise with respect to this Agreement shall be
in writing and shall be deemed to have been duly given to any party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage prepaid in each case to the applicable addresses set
forth below:
If to Shareholder, at the address of Shareholder as set forth on
the shareholder list maintained by or on behalf of the Company;
If to the Acquiror:
Radian Group Inc.
1601 Market Street
Philadelphia, PA 19103
Attn: Howard S. Yaruss
Telecopy: (215) 405-9160
With a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attn: Trevor S. Norwitz, Esq.
Telecopy: (212) 403-2000
or to such other address as such party shall have designated by notice so given
to each other party.
(b) Amendments, Waivers, Etc. This Agreement may not be
------------------------
amended, changed, supplemented, waived or otherwise modified or terminated
except by an instrument in writing signed by the Acquiror and Shareholder.
(c) Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of and be enforceable by the parties and their
<PAGE>
respective successors and assigns, including without limitation in the case of
any corporate party hereto any corporate successor by merger or otherwise, and
in the case of any individual party hereto any trustee, executor, heir, legatee
or personal representative succeeding to the ownership of Shareholder's Subject
Shares or other securities subject to this Agreement. Notwithstanding any
transfer of Subject Shares, the transferor shall remain liable for the
performance of all obligations under this Agreement of the transferor.
(d) Entire Agreement. This Agreement embodies the entire agreement
----------------
and understanding among the parties relating to the subject matter hereof and
supersedes all prior agreements and understandings relating to such subject
matter. There are no representations, warranties or covenants by the parties
hereto relating to such subject matter other than those expressly set forth in
this Agreement.
(e) Severability. If any term of this Agreement or the application
------------
thereof to any party or circumstance shall be held invalid or unenforceable to
any extent, the remainder of this Agreement and the application of such term to
the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law, provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
(f) Specific Performance. The parties acknowledge that money damages
--------------------
are not an adequate remedy for violations of this Agreement and that any party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunctive or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
(g) Remedies Cumulative. All rights, powers and remedies provided
-------------------
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise or beginning of
the exercise of any thereof by any party shall not preclude the simultaneous or
later exercise of any other such right, power or remedy by such party.
(h) No Waiver. The failure of any party hereto to exercise any
---------
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
<PAGE>
(i) No Third-Party Beneficiaries. This Agreement is not intended to
----------------------------
be for the benefit of and shall not be enforceable by any person or entity who
or which is not a party hereto.
(j) No Jury Trial. Each party hereto hereby waives any right to
-------------
a trial by jury in connection with any such action, suit or proceeding.
(k) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
(l) Name, Captions, Gender. The name assigned this Agreement
----------------------
and the section captions used herein are for convenience of reference only
and shall not affect the interpretation or construction hereof.
(m) Counterparts. This Agreement may be executed by facsimile and in
------------
any number of counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one instrument.
(n) Expenses. Each of the Acquiror and Shareholder shall bear its or
--------
his or her own expenses, as the case may be, incurred in connection with this
Agreement and the transactions contemplated hereby, except that in the event of
a dispute concerning the terms or enforcement of this Agreement, the prevailing
party in any such dispute shall be entitled to reimbursement of reasonable legal
fees and disbursements from the other party or parties to such dispute.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
RADIAN GROUP INC.
By:
-------------------------------
Name:
Title:
[SHAREHOLDER]
------------------------------------
NAME:
<PAGE>
Schedule I
----------
Share Ownership
-------------------------------- ---------------------------------
Name Shares owned as of the date hereof
