SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 1-12644
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
(Exact name of registrant as specified in its charter)
NEW YORK 13-3261323
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
350 PARK AVENUE
NEW YORK, NEW YORK 10022
(Address of principal executive offices)
(212) 826-0100
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
At April 28,1996, there were outstanding 31,268,660 shares of Common Stock, par
value $0.01 per share, of the registrant.
<PAGE>
INDEX
-----
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Financial Security Assurance Holdings Ltd. and
Subsidiaries Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Income - Three months ended
March 31, 1996 and 1995 4
Consolidated Statement of Changes in Shareholders'
Equity - Three months ended March 31, 1996 5
Consolidated Statements of Cash Flows
- Three months ended March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION, AS APPLICABLE
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1996 1995
<S> <C> <C>
Bonds, at market value (amortized cost of $1,066,251 and
$1,027,414) $1,064,964 $1,058,076
Stocks, at market value 10,000
Short-term investments 76,297 52,666
----------- -----------
Total investments 1,151,261 1,110,742
Cash 2,299 1,118
Deferred acquisition costs 131,404 132,951
Prepaid reinsurance premiums 139,014 133,548
Reinsurance recoverable on unpaid losses 62,126 61,532
Receivable for securities sold 2,298 2,326
Other assets 56,620 48,045
----------- -----------
TOTAL ASSETS $1,545,022 $1,490,262
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Unearned premiums $ 479,240 $ 463,897
Losses and loss adjustment expenses 114,024 111,759
Deferred federal income taxes 30,404 41,936
Ceded reinsurance balances payable 13,576 13,664
Payable for securities purchased 70,021 9,516
Notes payable 30,000 30,000
Accrued expenses and other liabilities 37,374 41,543
----------- -----------
TOTAL LIABILITIES 774,639 712,315
----------- -----------
Preferred stock (3,000,000 shares authorized; 2,000,000
issued and outstanding; par value of $.01 per share) 20 20
Common stock (50,000,000 shares authorized; 32,276,301
issued; par value of $.01 per share) 323 323
Additional paid-in capital - preferred 680 680
Additional paid-in capital - common 696,253 696,253
Unrealized gain (loss) on investments (net of deferred
income tax (benefit) provision of ($450) and $10,731) (836) 19,931
Accumulated earnings 89,459 72,410
Deferred equity compensation 8,658 6,504
Less treasury stock at cost (1,007,641 and 774,276 shares
held) (24,174) (18,174)
------------ -----------
TOTAL SHAREHOLDERS' EQUITY 770,383 777,947
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,545,022 $1,490,262
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
March 31,
---------------------------------------
1996 1995
---- ----
<S> <C> <C>
Revenues:
Net premiums written (net of premiums ceded
of $18,441 and $7,236) $34,139 $19,557
Decrease (increase) in unearned premiums (11,405) (4,342)
-------- -------
Premiums earned (net of premiums ceded of
$12,979 and $7,893) 22,734 15,215
Net investment income 15,682 12,354
Net realized gains 1,534 (4,793)
Other income 62 197
-------- ----------
TOTAL REVENUES 40,012 22,973
-------- ----------
Expenses:
Losses and loss adjustment expenses (net of
reinsurance recoveries of $560 and $999): 1,625 1,700
Interest expense 541 57
Policy acquisition costs 7,655 3,601
Other operating expenses 3,957 3,201
-------- ---------
TOTAL EXPENSES 13,778 8,559
-------- ---------
INCOME BEFORE INCOME TAXES 26,234 14,414
Provision for income taxes 6,690 3,609
--------
NET INCOME $19,544 $10,805
========= =========
Weighted average common shares outstanding 31,387 25,993
========= =========
Earnings per common share $ 0.62 $ 0.42
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE><CAPTION>
Additional Additional Unrealized
Paid-In Paid-In Gain Deferred
Preferred Common Capital - Capital - (Loss) on Accumulated Equity Treasury
Stock Stock Preferred Common Investments Earnings Compensation Stock Total
----- ----- --------- ------ ----------- -------- ------------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1995 $20 $323 $680 $696,253 $19,931 $72,410 $6,504 $(18,174) $777,947
Net income 19,544 19,544
Net unrealized gain
on investments (20,767) (20,767)
Dividends paid on common stock
($0.08 per share) (2,495) (2,495)
Deferred equity compensation 2,154 2,154
Repurchase of common stock (6,000) (6,000)
--- ---- ---- ------- ------ ------- -------- -------- --------
BALANCE,
March 31, 1996 $20 $323 $680 $696,253 $ (836) $89,459 $8,658 $(24,174) $770,383
=== ==== ==== ======= ====== ======= ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
1996 1995
---- ----
Cash flows from operating activities:
Premiums received, net $ 35,371 $ 15,755
Policy acquisition and other operating expenses
paid, net (22,192) (13,253)
Loss and LAE recovered (paid), net 105 (291)
Net investment income received 17,181 12,472
Recoverable advances paid (8,100) (4,159)
Federal income taxes recovered (paid) (1,799) 4,228
Interest paid (339) (464)
Other, net 65 (2,805)
----------- -----------
Net cash provided by operating activities 20,292 11,483
---------- ----------
Cash flows from investing activities:
Proceeds from sales of bonds 180,722 151,035
Purchases of bonds (167,486) (31,718)
Purchases of property and equipment (548) (340)
Net increase in short-term securities (23,304) (123,851)
---------- ---------
Net cash used for investing activities (10,616) (4,874)
---------- -----------
Cash flows from financing activities:
Payment of management notes (5,624)
Dividends paid (2,495) (2,078)
Treasury stock (6,000) (1,368)
----------- -----------
Net cash used for financing activities (8,495) (9,070)
----------- -----------
Net increase (decrease) in cash 1,181 (2,461)
Cash at beginning of period 1,118 2,742
----------- -----------
Cash at end of period $ 2,299 $ 281
========== ===========
See notes to condensed consolidated financial statements.
6
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1. ORGANIZATION AND OWNERSHIP
Financial Security Assurance Holdings Ltd. (the Company) is an insurance
holding company domiciled in the State of New York. The Company is primarily
engaged (through its insurance subsidiaries, collectively known as FSA) in the
business of providing financial guaranty insurance on asset- backed and
municipal obligations. At March 31, 1996, the Company was owned 50.7% by U S
WEST Capital Corporation (U S WEST), 7.9% by Fund American Enterprises Holdings,
Inc. (Fund American), 6.2% by The Tokio Marine and Fire Insurance Co., Ltd.
(Tokio Marine) and 35.2% by the public and employees.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with instructions to Form 10-Q and, accordingly, do not include all
of the information and disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 1995 Annual
Report to Shareholders. The accompanying financial statements have not been
audited by independent accountants in accordance with generally accepted
auditing standards but, in the opinion of management, all adjustments, which
include only normal recurring adjustments, necessary to present fairly the
financial position, results of operations and cash flows at March 31, 1996 and
for all periods presented have been made. The December 31, 1995 condensed
balance sheet data was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
The results of operations for the periods ended March 31, 1996 and 1995 are not
necessarily indicative of the operating results for the full year.
Certain amounts in the 1995 financial statements have been reclassed to
conform to the 1996 presentation.
In the first quarter of 1996, the Company has recharacterized its cash
equivalents as short term investments. The amount of cash equivalents
recharacterized were $24.3 million and $38.1 million, as of March 31, 1996 and
December 31, 1995, respectively.
3. SUBSEQUENT EVENT
In the second quarter of 1996, the Board of Directors of the Company
approved (i) the purchase of 1.0 million shares of the Company's common stock
from U S WEST for a purchase price of $26.50 per share, payable in cash and (ii)
entering into a forward agreement with National Westminster Bank Plc and its
designee(s) (the Counterparty) in respect of up to 1.75 million shares (the
Forward Shares) of the Company's common stock. Under the forward agreement, the
Company will have the right to either (a) purchase the Forward Shares from the
Counterparty for a price equal to $26.50 per share plus carrying costs or (b)
direct the Counterparty to sell the Forward Shares, receiving any excess or
making up any shortfall between the sale proceeds and $26.50 per share plus
carrying costs in cash or additional shares, at its option. U S WEST has also
agreed to sell to Fund American 1.0 million shares of the Company's common stock
for a purchase price of $26.50 per share.
In May 1996, U S WEST, Inc. sold to Salomon Inc debt exchangeable for
common stock ("DECS") which, at maturity, is exchangable, at the option of U S
WEST, Inc., for up to 9,796,303 shares of the Company's common stock owned by
US WEST.
7
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1996 AND 1995 FIRST QUARTER RESULTS
The Company's 1996 first quarter net income was $19.5 million, compared with
$10.8 million for the same period in 1995, an increase of 80.9%. The increase
was primarily attributable to higher core net income and capital gains. In
December 1995, a subsidiary of the Company merged with Capital Guaranty, so that
in the first quarter of 1996 the Company began to realize the benefits of the
merger when compared to the previous year as total core revenues increased $8.4
million, from $25.8 million in 1995 to $34.1 million in 1996, while total core
expenses increased only $2.8 million. In addition the Company recognized
after-tax capital gains of $1.0 million in the first quarter of 1996 compared to
$3.1 million of capital losses in the first quarter of 1995.
Operating net income (net income less the after-tax effect of net realized
capital gains or losses) was $18.5 million for the first quarter of 1996 versus
$13.9 million for the comparable period in 1995, an increase of $4.6 million or
33.2%. Core net income (operating net income less the after-tax effect of
refundings and prepayments) was $17.6 million for the first quarter of 1996
versus $12.9 million for the comparable period in 1995, an increase of $4.7
million or 5.9%.
There are two measures of gross premiums originated for a given period. Gross
premiums written captures premiums collected in the period, whether collected
up-front for business originated in the period, or in installments for business
originated in prior periods. An alternative measure, the gross present value of
premiums written (gross PV premiums written) reflects future installment
premiums discounted to a present value, as well as up-front premiums, but only
for business originated in the period. The Company considers gross PV premiums
written to be the better indicator of a given period's origination activity
because a substantial part of the Company's premiums are collected in
installments, a practice typical of the asset-backed business. Regardless of the
measure used, quarter to quarter comparisons are of limited significance because
originations fluctuate from quarter to quarter but historically have not
exhibited a seasonal pattern.
Gross premiums written increased 96.3%, from $26.8 million for the first quarter
of 1995 to $52.6 million for the first quarter of 1996. Gross PV premiums
written also increased from $41.1 million in the first quarter of 1995 to $61.4
million in 1996, an increase of 49.3%. In the first quarter of 1996,
asset-backed gross PV premiums written were $37.2 million, as compared to $25.2
million in 1995, as several large, high-premium transactions were underwritten
within the pooled corporate obligations sector. However, management does not
necessarily believe that this same growth level within the asset-backed sector
will continue throughout the year. For the municipal business, gross PV premiums
written in the first quarter increased from $15.9 million in 1995 to $24.2
million in 1996, an increase of 52.4%. This increase was primarily attributable
to the additional underwriting capabilities the Company realized from the
merger.
In the first quarter of 1996, the Company insured bonds totaling $5.4 billion, a
34.6% increase over the same period in 1995. The first quarter asset-backed
component rose 4.6% to $3.0 billion while the municipal sector rose 110.8% to
$2.4 billion. Compared with the combined FSA and Capital Guaranty first quarter
production in 1995, the increase would have been 22.8%.
Net premiums written were $34.1 million for the first quarter of 1996, an
increase of $14.5 million or 74.6% when compared with $19.6 million in 1995. The
increase in net premiums written was less than that of gross premiums written
because the Company increased the amounts ceded on a facultative basis for the
asset-backed business in 1996 as compared to the first quarter of 1995. This
facultative reinsurance was utilized on the several large, high-premium
transactions noted above, and therefore this level of reinsurance may not
continue at the same rate over the year.
8
<PAGE>
Net premiums earned for the first quarter of 1996 were $22.7 million, compared
with $15.2 million in 1995, an increase of 49.4%. Premiums earned from
refundings and prepayments were $4.3 million for the first quarter of 1996 and
$2.0 million for the same period of 1995, with both periods contributing $1.0
million to after-tax earnings. Net premiums earned for the quarter grew 39.1%
relative to 1995 when the effects of refundings and prepayments are eliminated.
While prepayments may continue throughout the remainder of the year, no
assurances can be given that they will continue at the same level that was
experienced in the first quarter of 1996.
Net investment income was $15.7 million for the first quarter of 1996 and $12.4
million for the comparable period in 1995, an increase of 26.9%. The increase in
investment income is primarily due to additional invested assets acquired in the
merger. The Company's effective tax rate on investment income has decreased from
22.9% for the first quarter of 1995 to 18.6% in 1996, as the holdings of
tax-exempt securities has increased. In the first quarter of 1996, the Company
realized net capital gains of gains of $1.5 million as compared with realized
net capital losses of $4.8 million for the same period in 1995. Capital gains
are a by-product of the normal investment management process and will vary
substantially from period to period.
The provisions for losses and loss adjustment expenses during the first quarters
of 1996 and 1995 were $1.6 million and $1.7 million, respectively, representing
additions to the Company's general loss reserve. The additions to the general
reserve represent management's estimate of the amount required to adequately
cover the net cost of claims. The Company will, on an ongoing basis, monitor
these reserves and may periodically adjust such reserves based on the Company's
actual loss experience, its future mix of business, and future economic
conditions. At March 31, 1996, the unallocated balance in the Company's general
loss reserve was $33.3 million.
Total policy acquisition and other operating expenses were $11.6 million for the
first quarter of 1996 compared with $6.8 million for the same period in 1995, an
increase of 70.7%. Excluding the effects of refundings, total policy acquisition
and other operating expenses were $8.7 million for the first quarter of 1996
compared with $6.4 million for the same period in 1995, an increase of 35.8%.
The increase was primarily the result of higher DAC amortization due to a higher
level of premiums earned and increased accruals for performance plan payouts due
to another plan year added to the accrual base.
Income before income taxes for the first quarter of 1996 was $26.2 million, up
from $14.4 million, or 82.0%, for the same period in 1995.
The Company's effective tax rate for the first quarter of 1996 was 25.5%
compared with 25.0% for the same period in 1995. The increase in effective tax
rates from the first quarter of 1995 to 1996 was due to higher levels income at
full statutory tax rates.
For the quarter ended March 31, 1996, the weighted average number of shares of
common stock outstanding increased to 31,387,000 from 25,993,000 during the
first quarter of 1995. This increase was due to additional shares issued by the
Company in the merger with Capital Guaranty. Earnings per share increased from
$0.42 for the first quarter of 1995 to $0.62 for the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated invested assets and cash equivalents at March 31,
1996, net of unsettled security transactions, was $1,084.0 million, a 1.8%
decrease from the December 31, 1995 balance of $1,103.6 million. This decrease
is primarily the result of a change in the market value of the investment
portfolio, which included an unrealized gain position of $30.7 million at
December 31, 1995 and an unrealized loss position of $1.3 million at March 31,
1996.
Because the operations of the Company are conducted through FSA, the ability of
the Company to declare and pay dividends both on a short- and long-term basis
will be largely dependent upon FSA's ability to do so and upon external
financings.
9
<PAGE>
FSA's ability to pay dividends is dependent upon FSA's financial condition,
results of operations, cash requirements, rating agency approval and other
related factors and is also subject to restrictions contained in the insurance
laws and related regulations of New York and other states. Under New York State
insurance law, FSA may pay dividends out of earned surplus, provided that,
together with all dividends declared or distributed by FSA during the preceding
12 months, the dividends do not exceed the lesser of (i) 10% of policyholders'
surplus as of its last statement filed with the New York Superintendent of
Insurance or (ii) adjusted net investment income during this period. FSA, in
January 1996, declared a dividend of $10.0 million to the Company which was paid
in February 1996. FSA, on April 24, 1996, declared a dividend of $8.0 million.
As a customary condition for approving in September, 1994, the application of
Fund American for a change in control of FSA, the prior approval of the New York
Superintendent is required for payment of dividends by FSA to the Company for a
period of two years following such change of control. Such prior approvals have
been obtained by FSA in respect of such quarterly dividend since September, 1994
in the ordinary course.
FSA has several sources of liquidity as discussed in the Company's 1995 Annual
Report to Shareholders. In addition to these sources, FSA on April 30, 1996,
entered into an agreement with a AAA/Aaa rated international bank for a $125.0
million credit facility which expires on January 31, 2003, unless extended. This
facility is a seven-year stand-by irrevocable limited recourse line-of-credit
which provides liquidity and credit support to FSA in the event losses from
municipal obligations in FSA's insured portfolio exceed specified limits.
Repayment of amounts drawn under the line will be limited primarily to
recoveries of losses related to such municipal obligations.
A subsidiary of the Company has $30.0 million outstanding long-term debt. The
Company has no plans for capital expenditures within the next twelve months.
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(1) Financial statements of Financial Security Assurance Inc. for
the quarterly period ended March 31, 1996.
(2) Employment Agreement dated December 20, 1995, between the
Company and Michael Djordjevich
(3) Severance Policy for Senior Management (Effective February 8,
1995)
(4) 1993 Equity Participation Plan, as Amended and Restated as of
February 14, 1996
(5) Amended and Restated By-laws of the Company, as amended and
restated on February 14, 1996
(b) Reports on Form 8-K
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
By /s/ Jeffrey S. Joseph
May 13, 1996 Jeffrey S. Joseph
Managing Director & Controller (Chief Accounting Officer)
12
<PAGE>
Exhibit Index
Exhibit No. Exhibit
1. Financial statements of Financial Security Assurance Inc. for the
quarterly period ended March 31, 1996
2. Employment Agreement dated December 20, 1995, between the Company
and Michael Djordjevich
3. Severance Policy for Senior Management (Effective February 8,
1995)
4. 1993 Equity Participation Plan, as Amended and Restated as of
February 14, 1996
5. Amended and Restated By-laws of the Company, as amended and
restated on February 14, 1996
EXHIBIT 1
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
Condensed Consolidated Financial Statements
March 31, 1996
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
INDEX
FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
The New York State Insurance Department recognizes only statutory accounting
practices for determining and reporting the financial condition and results of
operations of an insurance company, for determining its solvency under the New
York Insurance Law, and for determining where its financial condition warrants
the payment of a dividend to its stockholders. No consideration is given by the
New York State Insurance Department to financial statements prepared in
accordance with generally accepted accounting principles in making such
determinations.
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
MARCH 31, December 31,
ASSETS 1996 1995
---- ----
<S> <C> <C>
Bonds at market value (amortized
cost of $1,045,913 and $1,006,084) $1,044,779 $1,036,382
Cash equivalents 74,315 49,845
------------- ------------
Total investments 1,119,094 1,086,227
Cash 1,876 555
Deferred acquisition costs 131,404 132,951
Prepaid reinsurance premiums 139,014 133,548
Reinsurance recoverable on unpaid losses 62,126 61,532
Receivable for securities sold 2,298 2,326
Other assets 76,418 59,499
------------- ------------
TOTAL ASSETS $1,532,230 $1,476,638
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Unearned premiums $ 479,240 $ 463,897
Losses and loss adjustment expenses 114,024 111,759
Deferred federal income taxes 31,879 43,205
Ceded reinsurance balances payable 13,575 13,664
Payable for securities purchased 70,021 9,516
Accrued expenses and other liabilities 44,314 44,611
------------- -------------
TOTAL LIABILITIES 753,053 686,652
------------ ------------
Common stock (1,000 shares authorized; 750 shares
issued and outstanding; par value of $20,000 per share) 15,000 15,000
Additional paid-in capital 681,470 681,470
Unrealized gain (loss) on investments (net of deferred
income tax provision (benefit) of ($397) and $10,604) (737) 19,694
Accumulated earnings 83,444 73,822
------------- -------------
TOTAL SHAREHOLDER'S EQUITY 779,177 789,986
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $1,532,230 $1,476,638
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
1996 1995
---- ----
REVENUES:
Net premiums written (net of premiums ceded of
$18,441 and $7,236) $34,139 $19,557
Increase in unearned premiums (11,405) (4,342)
-------- ---------
Premiums earned (net of premiums ceded of
$12,979 and $7,893) 22,734 15,215
Net investment income 15,224 11,918
Net realized gains (losses) 1,534 (4,801)
Other income 1 177
------------ ----------
TOTAL REVENUES 39,493 22,509
-------- --------
EXPENSES:
Losses and loss adjustment expenses (net of
reinsurance recoveries of $560 and $999) 1,625 1,700
Policy acquisition costs 7,655 3,601
Other operating expenses 3,660 2,922
--------- ---------
TOTAL EXPENSES 12,940 8,223
-------- ---------
INCOME BEFORE INCOME TAXES 26,553 14,286
Provision for income taxes 6,931 3,611
--------- ---------
NET INCOME $19,622 $10,675
======= =======
See notes to condensed consolidated financial statements.
2
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
1996 1995
----
Cash flows from operating activities:
Premiums received, net $ 35,371 $ 15,755
Policy acquisition and other operating expenses
paid, net (33,104) (13,084)
Recoverable advances paid (8,100) (4,159)
Loss and LAE recovered (paid), net 105 (291)
Net investment income received 16,613 11,937
Federal income taxes paid (1,799)
Interest paid (339) (407)
Other, net 5,044 (2,054)
---------- -----------
Net cash provided by operating activities 13,791 7,697
---------- -----------
Cash flows from investing activities:
Proceeds from sales of bonds 179,715 145,776
Purchases of bonds (157,486) (31,720)
Purchases of property and equipment (540) (330)
Net decrease in short-term securities (24,159) (119,805)
---------- ---------
Net cash used for investing activities (2,470) (6,079)
---------- -----------
Cash flows from financing activities:
Dividends paid (10,000) (4,000)
---------- -----------
Net cash used for financing activities (10,000) (4,000)
---------- -----------
Net increase (decrease) in cash 1,321 (2,382)
Cash at beginning of period 555 2,663
---------- -----------
Cash at end of period $ 1,876 $ 281
========== ===========
See notes to condensed consolidated financial statements.
3
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1. ORGANIZATION AND OWNERSHIP
Financial Security Assurance Inc. (the Company), a wholly owned subsidiary
of Financial Security Assurance Holdings Ltd. (the Parent), is an insurance
company domiciled in the State of New York. The Company is primarily
engaged in the business of providing financial guaranty insurance on
asset-backed financings and municipal obligations.
2. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by the Company and are unaudited. In the opinion of management, all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the financial position, results of operations and cash flows at
March 31, 1996 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These statements should be read in conjunction
with the Company's December 31, 1995 consolidated financial statements and notes
thereto. The year-end condensed balance sheet was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. The results of operations for the periods ended March 31,
1996 and 1995 are not necessarily indicative of the operating results for the
full year.
Certain amounts in the 1995 financial statements have been reclassed to
conform to the 1996 presentation.
In the first quarter of 1996, the Company has recharacterized its cash
equivalents as short term investments. The amount of cash equivalents
recharacterized were $22.3 million and $35.3 million, as of March 31, 1996 and
December 31, 1995, respectively.
3. SUBSEQUENT EVENT
FSA on April 30, 1996, entered into an agreement with a AAA/Aaa rated
international bank for a $125.0 million credit facility which expires on January
31, 2003. This facility is a seven-year stand-by irrevocable limited recourse
line-of-credit which will provide liquidity to FSA in the event claims from
municipal obligations exceed specified limits. Repayment of any amounts drawn
under the line will be limited primarily to the amount of recoveries of losses
related to policy obligations.
4
EMPLOYMENT AGREEMENT
AGREEMENT, made December 20, 1995, by and between FINANCIAL SECURITY
ASSURANCE HOLDINGS LTD., a New York corporation (the "Company") and MICHAEL
DJORDJEVICH (the "Executive").
RECITALS
--------
WHEREAS, the Company, FSACG Inc. and Capital Guaranty Corporation
("Capital") have entered into a merger agreement dated as of August 18, 1995
(the "Merger Agreement") pursuant to which a merger Capital shall become a
wholly owned subsidiary of the Company;
WHEREAS, Executive is currently the Chairman and Chief Executive
Officer of Capital;
WHEREAS, the Company desires that Executive serve as the Vice Chairman
of the Company and desires to provide Executive with compensation and other
benefits on the terms and conditions set forth in this Agreement;
WHEREAS, Executive is willing to accept such employment and perform
services for the Company, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
1. Employment.
-----------
1.1 Position. Subject to the terms and conditions of this Agreement,
--------
the Company agrees to employ Executive during the term hereof as its sole Vice
Chairman, and Executive hereby accepts employment as the sole Vice Chairman of
the Company, and agrees to devote his full working time and efforts, to the best
of his ability, experience and talent, to the performance of services, duties
and responsibilities in connection therewith. Executive shall perform such
<PAGE>
duties and exercise such powers, commensurate with his position, as the Vice
Chairman as the Board of Directors of the Company (the "Board") shall from time
to time delegate to him.
1.2 Directorship. Executive shall be nominated to serve on, and the
------------
Company shall make its best efforts to assure his election to, the Company's
Board in accordance with the provisions of Section 5.6 of the Merger Agreement.
As a member of the Company's Board, Executive shall serve as Chairman of the
Finance Committee of the Board and as a member of the Underwriting Committee of
the Board. Executive shall also be a member of the Office of the Chairman.
2. Term of Employment. Executive's term of employment under this
------------------
Agreement shall commence upon the day (the "Commencement Date") following
closing date of the Merger (the "Closing Date") and, subject to the terms
hereof, shall terminate on the earlier of (i) December 31, 1996 or (ii)
termination of Executive's employment pursuant to this Agreement (alternatively,
the "Termination Date").
3. Compensation.
------------
3.1 Salary. The Company shall pay Executive a base salary ("Base
------
Salary") at an annual rate of $425,000. Executive shall be entitled to a salary
increase on November 1, 1996, which shall be no less than the average rate of
salary increase for the top five executives of the Company (other than the
Executive) for the last preceding fiscal year. Base Salary shall be payable in
equal periodic installments in accordance with the ordinary payroll practices of
the Company.
3.2 Annual Bonus. The Company shall pay to Executive an incentive
------------
bonus ("Bonus"), with respect to the fiscal year ending December 31, 1996. The
Bonus in respect of fiscal year 1996 shall be one of the top five bonuses paid
in such year by the Company or any of its subsidiaries, and in no event shall be
less than $200,000. The Bonus for each fiscal year shall be paid in cash when
bonuses are paid generally to other senior executives of the Company;
<PAGE>
provided, however, that the Bonus in respect of fiscal year 1996 shall be paid
- -------- -------
no later than thirty days after the expiration of the Term.
4. Stock Options and Other Equity Awards.
--------------------------------------
4.1 Assumed Options. On the Closing Date, Executive's options with
---------------
respect to shares of common stock of Capital shall be converted to options to
acquire stock of the Company ("Assumed Options") on the basis set forth in
Section 1(b)(i) of Exhibit C to the Merger Agreement. Assumed Options held by
Executive shall vest in equal installments over a twelve-month period commencing
on the Commencement Date.
4.2 Other Equity Awards. With respect to fiscal year 1996 of the
-------------------
Company, Executive shall be entitled to receive equity awards on the same basis
and at the same times as other senior executives of the Company; provided, that
in no event shall Executive be granted fewer equity awards than the average
number of equity awards granted to the top five executives of the Company (other
than the Executive) in such fiscal year (the "Average Grant"), except that in
the event that senior executives of the Company are granted equity awards in
fiscal year 1996 with performance or vesting periods in excess of one year,
Executive's grant with respect to such awards may be adjusted by multiplying the
Average Grant by a fraction the numerator of which is 1 and the denominator of
which is the number of years with respect to which the Average Grant is made.
Executive's grant of such an equity award shall fully vest no later than
December 31, 1996.
5. Employee Benefits.
------------------
5.1 Employee Benefit Programs, Plans and Practices. During the term of
----------------------------------------------
his employment hereunder, Executive shall be eligible to participate in all
employee benefit programs, plans and practices (commensurate with his positions
in the Company and to the extent permitted under any employee benefit plan) in
accordance with the terms thereof, which the Company generally makes available
to its senior executives.
<PAGE>
5.2 Vacation and Fringe Benefits. Executive shall be entitled to no
----------------------------
less than the number of paid vacation days customarily accorded senior
executives of the Company in each calendar year. In addition, Executive shall be
entitled to the perquisites and other fringe benefits generally made available
to all members of the Management Committee of the Company.
5.3 Directors' and Officers Insurance. During the term of this
----------------------------------
Agreement, the Company shall keep in effect a standard policy of directors' and
officers' liability insurance for officers and directors of the Company, which
shall cover Executive in such capacity, with coverage levels no less than the
levels in effect on the Commencement Date.
6. Expenses. Executive is authorized to incur reasonable expenses in
--------
carrying out his duties and responsibilities under this Agreement, including,
without limitation, expenses for travel and similar items related to such duties
and responsibilities. The Company will reimburse Executive for all such expenses
upon presentation by Executive from time to time of appropriately itemized and
approved (consistent with the Company's policy) accounts of such expenditures.
7. Offices. Executive shall be based in San Francisco, California
-------
where his principal services for the Company shall be performed. The Company
shall maintain an office commensurate with Executive's position with full-time
secretarial assistance in San Francisco. In addition, the Company shall provide
Executive with a secondary office on the executive floor of the Company's
offices in New York, New York with accommodations consistent with Executive's
status and duties with the Company. Executive shall travel as reasonably
required consistent with the provisions of this Section 7.
8. Termination of Employment.
--------------------------
8.1 Termination Without Cause or for Good Reason. (a) If Executive's
--------------------------------------------
employment is terminated by the Company without Cause, or if Executive
terminates his employment for Good Reason, Executive shall be entitled to
receive (i) a severance payment (the "Severance Payment") in an amount equal to
the sum of (A) Executive's annual Base Salary as in
<PAGE>
effect on the Date of Termination and (B) an amount equal to the executive's
Bonus for the fiscal year preceding Executive's termination, multiplied by a
fraction, the numerator of which is the number of days elapsed in the Company's
fiscal year on the date of Executive's termination and the denominator of which
is 365, (ii) a payment in respect of accrued but unused vacation days (the
"Vacation Payment") and (iii) compensation earned but not yet paid (including
any Bonus payments) (the "Compensation Payment"). In addition, the Company shall
provide Executive, for a period of one year following Executive's termination,
with all welfare benefits to which Executive provided to Executive under Section
5.1 hereof on the same terms and conditions as such benefits were provided to
Executive on the day prior to Executive's date of termination.
(b) For purposes of this Agreement, "Good Reason" shall mean any of
the following (without Executive's express prior written consent):
(i) the assignment to Executive by the Company of duties
materially inconsistent with his position, duties,
responsibilities, titles or offices as set forth in Section
1 hereof;
(ii) the removal from or the failure to be elected to and to
continue in the positions set forth in Section 1.2 hereof;
(iii) the failure of the Company to perform any of its other
obligations under this Agreement; or
(iv) a relocation of Executive's principal office to a location
outside of a radius of 30 miles from its location on the
date of this Agreement.
(c) For purposes of this Agreement, "Cause" shall mean gross
misconduct by the Executive in the performance of his duties and
responsibilities under this Agreement.
8.2 Permanent Disability. If the Executive becomes disabled to an
--------------------
extent which would entitle him to long term benefits under the Company's
long-term disability benefit plans applicable to senior executive officers as in
effect on the date hereof) ("Permanent Disability"), the Company or Executive
may terminate Executive's employment and Executive shall be entitled to the
following:
<PAGE>
(i) the Bonus in respect of the fiscal year in which his
termination occurs, prorated by a fraction, the numerator of
which is the number of days elapsed in the Company's fiscal
year on the date of Executive's termination and the
denominator of which is 365;
(ii) the Vacation Payment and the Compensation Payment; and
(iii) such payments under applicable plans or programs, including
but not limited to those referred to in Section 5.1 hereof,
to which he is entitled pursuant to the terms of such plans
or programs.
8.3 Death. In the event of the termination of Executive's employment
-----
due to death during the term hereof, Executive's estate or designated
beneficiaries shall be entitled to the payments and benefits enumerated in
Section 8.2(i)-(iii) hereof.
8.4 Voluntary Termination by Executive; Discharge for Cause. (a) In
-------------------------------------------------------
the event that Executive's employment is terminated (i) by the Company for Cause
or (ii) by Executive other than for Good Reason or other than as a result of the
Executive's Permanent Disability or death, prior to the Termination Date (a
"Voluntary Termination"), Executive shall be entitled to receive the
Compensation Payment and the Vacation Payment. In addition, in the event of a
Voluntary Termination, Executive shall also be entitled to a severance payment
in an amount equal to the sum of (i) one-half of Executive's annual base Salary
as in effect on Executive's date of termination and (ii) an amount equal to the
Executive's Bonus for the fiscal year preceding Executive's termination,
multiplied by a fraction, the numerator of which is the number of days elapsed
in the Company's fiscal year on the date of Executive's termination and the
denominator of which is 365.
(b) Termination of Executive by the Company for Cause shall be made by
delivery to Executive of a notice from the Chairman of the Company setting forth
in reasonable detail the basis for such termination.
8.5 Termination After Expiration of Term. If after the expiration of
------------------------------------
the term of this Agreement, the Company terminates Executive's employment
without Cause or Executive
<PAGE>
terminates his employment for Good Reason, Executive shall be entitled to a
severance payment in an amount equal to Executive's annual Base Salary as in
effect on the date of Executive's termination. In addition, the Company shall
provide Executive, for a period of one year following Executive's termination,
with all welfare benefits to which Executive provided to Executive under Section
5.1 hereof on the same terms and conditions as such benefits were provided to
Executive on the day prior to Executive's date of termination.
8.6 Timing of Payments. All payments hereunder in respect of
------------------
Executive's termination (including, without limitation, the Severance Payment,
the Vacation Payment and the Compensation Payment) shall be paid by the Company
to Executive within 30 days after the termination of Executive's employment. All
amounts due to Executive under any provision of this Section 8 shall only be
payable upon Executive's execution of the standard form of waiver and
termination agreement of the Company.
8.7 Offset for Other Severance Payments. The amount of any payment due
-----------------------------------
to Executive under any provision of this Section 8 shall be reduced by the
amount of any severance payment made to Executive under any severance plan or
program of the Company.
9. Notices. All notices or communications hereunder shall be in
-------
writing, addressed as follows:
<PAGE>
To the Company:
Bruce E. Stern
Financial Security Assurance Holdings Ltd.
350 Park Avenue
New York, New York 10022
To Executive:
Michael Djordjevich
74 Arguello Circle
San Rafael, California 94901
with a copy to:
Kenneth C. Edgar, Jr.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Any such notice or communication shall be delivered by hand or by courier or
sent certified or registered mail, return receipt requested, postage prepaid,
addressed as above (or to such other address as such party may designate in a
notice duly delivered as described above), and the third business day after the
actual date of mailing shall constitute the time at which notice was given.
10. Separability; Legal Fees. If any provision of this Agreement shall
------------------------
be declared to be invalid or unenforceable by a court of competent jurisdiction,
in whole or in part, such invalidity or unenforceability shall not affect the
remaining provisions hereof which shall remain in full force and effect. Each
party shall bear the costs of any legal fees and other fees and expenses which
may be incurred in respect of enforcing its respective rights under this
Agreement.
11. Assignment. This contract shall be binding upon and inure to the
----------
benefit of the heirs and representatives of Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights or
obligations hereunder shall be assignable or otherwise subject to hypothecation
by Executive (except for payments due under Section 8.3, which may
<PAGE>
be transferred by will or by operation of the laws of intestate succession)
or by the Company, except that the Company may assign this Agreement to any
successor (whether by merger, purchase or otherwise) to all or substantially
all of the stock, assets or businesses of the Company, if such successor
expressly agrees to assume the obligations of the Company hereunder.
12. Amendment. This Agreement may only be amended by written agreement
---------
of the parties hereto.
13. Nondisclosure of Confidential Information. (a) Executive shall
-----------------------------------------
not, without the prior written consent of the Company, use, divulge, disclose or
make accessible to any other person, firm, partnership, corporation or other
entity any Confidential Information pertaining to the business of the Company or
any of its affiliates, except (i) while employed by the Company, in the business
of and for the benefit of the Company, or (ii) when required to do so by a court
of competent jurisdiction, by any governmental agency having supervisory
authority over the business of the Company, or by any administrative body or
legislative body (including a committee thereof) with purported or apparent
jurisdiction to order Executive to divulge, disclose or make accessible such
information. For purposes of this Section 13(a), "Confidential Information"
shall mean non-public information concerning the Company's financial data,
strategic business plans, product development (or other proprietary product
data), customer lists, marketing plans and other non-public, proprietary and
confidential information of the Company, its affiliates or its customers, that
is not otherwise available to the public.
(b) Executive agrees that any breach of the covenants contained in
this Section 13 would irreparably injure the Company. Accordingly, Executive
agrees that the Company may, in addition to pursuing any other remedies it may
have in law or in equity, obtain an injunction against Executive from any court
having jurisdiction over the matter restraining any further violation of this
Agreement by Executive.
<PAGE>
14. Limitation on Payments. If any amount payable to Executive
----------------------
pursuant to the Agreement or any other payment, which is deemed to constitute a
"parachute payment" as defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), would result in the imposition on Executive of an
excise tax under Section 4999 of the Code the amounts payable under paragraph 8
hereof shall be reduced by the smallest amount necessary to avoid the imposition
of such excise tax; but such amounts shall be reduced only if, by reason of such
reduction, the Net After Tax Benefit (as hereinafter defined) for Executive
shall exceed the Net After Tax Benefit if such reduction were not made. The
foregoing calculations shall be made, at the Company's expense. Net After Tax
Benefit means the sum of (i) the total amounts payable to Executive under the
Agreement, plus (ii) all other payments and benefits which Executive receives or
is entitled to receive from the Company that would constitute a Parachute
Payment, less (iii) the amount of federal, state and local income taxes payable
with respect to the foregoing calculated at the maximum marginal income tax rate
for each year in which the foregoing shall be paid Executive, less (iv) the
amount of excise taxes imposed with respect to the payments and benefits
described in (i) and (ii) above by Section 4999 of the Code.
15. Beneficiaries; References. Executive shall be entitled to select
-------------------------
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
16. Survivorship. The respective rights and obligations of the parties
------------
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended
<PAGE>
preservation of such rights and obligations. The provisions of this Section 16
are in addition to the survivorship provisions of any other section of this
Agreement.
17. Governing Law. This Agreement shall be construed, interpreted and
-------------
governed in accordance with the laws of the State of New York, without reference
to rules relating to conflicts of law.
18. Withholding. The Company shall be entitled to withhold from
-----------
payment any amount of withholding required by law.
19. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which will be deemed an original.
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
By /s/ Robert P. Cochran
Name: Robert P. Cochran
Title: President and Chief Executive
Officer
/s/ Michael Djordjevich
MICHAEL DJORDJEVICH
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
SEVERANCE POLICY FOR SENIOR MANAGEMENT
(EFFECTIVE FEBRUARY 8, 1995)
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. ESTABLISHMENT AND PURPOSE OF THE PLAN...... 1
SECTION 2. ELIGIBLE EMPLOYEES......................... 1
SECTION 3. SEVERANCE PAY AND SEVERANCE BENEFITS....... 2
SECTION 4. OFFSET..................................... 4
SECTION 5. PAYMENT OF SEVERANCE PAY................... 4
SECTION 6. REINSTATEMENT.............................. 5
SECTION 7. WAIVER AND RELEASE AGREEMENT............... 5
SECTION 8. PLAN ADMINISTRATION........................ 5
SECTION 9. AMENDMENT/TERMINATION/VESTING.............. 6
SECTION 10. PAY AND OTHER BENEFITS..................... 6
SECTION 11. NO ASSIGNMENT.............................. 7
SECTION 12. RECOVERY OF PAYMENTS MADE BY MISTAKE....... 7
SECTION 13. REPRESENTATIONS CONTRARY TO THE PLAN....... 7
SECTION 14. NO EMPLOYMENT RIGHTS....................... 8
SECTION 15. COMPANY INFORMATION........................ 8
SECTION 16. CONFIDENTIALITY............................ 8
SECTION 17. PLAN FUNDING............................... 9
SECTION 18. APPLICABLE LAW.............................. 9
SECTION 19. SEVERABILITY................................ 9
SECTION 20. PLAN YEAR................................... 9
SECTION 21. RETURN OF COMPANY PROPERTY.................. 9
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
SEVERANCE POLICY FOR SENIOR MANAGEMENT
SECTION 1 ESTABLISHMENT AND PURPOSE OF THE PLAN
- --------- -------------------------------------
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD. (hereinafter "FSA") has adopted the
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD. SEVERANCE POLICY FOR SENIOR
MANAGEMENT (hereinafter the "PLAN"), for the benefit of the Senior Management
(as hereinafter defined) of FSA and its current direct and indirect wholly-owned
subsidiaries (collectively referred to herein as the "COMPANY"), as described
herein. The Plan was adopted effective as of February 8, 1995. The Plan is an
unfunded welfare benefit plan for purposes of the Employee Retirement Income
Security Act of 1974, as amended (hereinafter "ERISA") and a severance pay plan
within the meaning of the United States Department of Labor regulations section
2510.3-2(b). The purpose of the Plan is to provide an eligible employee whose
employment terminates as described in Section 2 with Severance Pay and Severance
Benefits for a specified period of time.
SECTION 2 ELIGIBLE EMPLOYEES
- --------- ------------------
Members of Senior Management who have been employed with the Company for at
least one (1) year and whose employment is (i) terminated by the Company for any
reason other than for cause or (ii) constructively terminated, are eligible to
participate in the Plan and shall be considered "ELIGIBLE EMPLOYEES" under the
Plan. "SENIOR MANAGEMENT" means, and shall be limited to, the permanent members
of the Management Committee of the Company on the effective date of the Plan and
any person who shall hereafter be designated as eligible to participate in the
Plan by written notice thereof, signed by the President of the Company and
expressly stating that such person is a member of "Senior Management" for
purposes of the Plan. The permanent members of the Management Committee of the
Company on the effective date of the Plan are (a) the Chief Executive Officer of
the Company, (b) the Chief Operating Officer of the Company, (c) the General
Counsel of the Company, (d) the Chief Financial Officer of the Company, (e) the
Managing Director in charge of the Financial Guaranty Department of Financial
Security Assurance Inc., (f) the Chief Underwriting Officer of Financial
Security Assurance Inc. and (g) the Managing Director in charge of the Insured
Portfolio Management Department of Financial Security Assurance Inc. Termination
"FOR CAUSE" means termination for unethical practices, illegal conduct or gross
insubordination, but specifically excludes termination as a result of
substandard performance. "CONSTRUCTIVE TERMINATION" of employment occurs if an
eligible employee's compensation opportunity is significantly reduced out of
line with Company results, or if there is a material reduction in
responsibilities. The determination as to whether an employee has been (i)
terminated for cause, or (ii) constructively terminated, will be made by the
Plan Administrator, in its sole discretion.
An otherwise eligible employee shall NOT be eligible for Severance Pay and
Severance Benefits under the Plan if:
<PAGE>
page 2
(a) the eligible employee's employment with the Company terminates by
reason of death or disability;
(b) the eligible employee's employment with the Company terminates
through retirement, voluntary resignation, job abandonment or
failure to report for work;
(c) the eligible employee's employment with the Company is
involuntarily terminated after the eligible employee refuses a
transfer to a new position at the same geographical location of
the Company, and such transfer does not constitute a constructive
termination;
(d) the eligible employee is employed in a Company operation or
facility substantially all of the assets of which are sold and
the eligible employee is offered a comparable position, as
determined by the Plan Administrator, with the purchaser;
(e) the eligible employee fails or refuses to continue in the
employment of the Company until the end of the notice period
provided for in the notice of termination described in Section 3
below (absent constructive termination during such notice
period); or
(f) the Plan is terminated.
SECTION 3 SEVERANCE PAY AND SEVERANCE BENEFITS
- --------- ------------------------------------
In exchange for providing the Plan Administrator a valid Waiver and Release
Agreement in a form acceptable to the Company, an eligible employee shall be
eligible to receive Severance Pay and Severance Benefits in accordance with the
paragraphs set forth below. The consideration for the voluntary Waiver and
Release Agreement shall be the Severance Pay and the Severance Benefits that the
eligible employee would not otherwise be eligible to receive.
(a) SEVERANCE PAY. An eligible employee shall be eligible to receive
Severance Pay in accordance with the following:
(1) CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER: Each
eligible employee who served as the Chief Executive Officer
or the Chief Operating Officer of the Company shall be
eligible to receive eighteen (18) months of pay.
(2) PERMANENT MEMBERS OF MANAGEMENT COMMITTEE: Each eligible
employee who served as a permanent member of the Management
Committee of the Company (and who did not serve as the Chief
Executive Office or the Chief Operating Officer of the
Company) shall be eligible to receive twelve (12) months of
pay.
<PAGE>
page 3
For purposes of determining the amount of Severance Pay to which
an eligible employee is entitled, "MONTHS OF PAY" (a) shall be
determined on the basis of (a) the eligible employee's monthly salary
on his or her separation date and (b) shall include the eligible
employee's most recent bonus (or three year average, if higher), with
one-twelfth (1/12th) of such bonus amount being allocated to each
month of pay. An eligible employee's base salary and bonus shall
include amounts deferred under the Financial Security Assurance
Holdings Ltd. Deferred Compensation Plan and the Financial Security
Assurance Inc. Cash or Deferred Plan, and amounts allocated to the
Financial Security Assurance Flex Plan. For this purpose, "BONUS"
shall also include any amounts converted into an equity bonus under
the Financial Security Assurance Holdings Ltd. 1993 Equity
Participation Plan. For all purposes of the Plan, the term "SEPARATION
DATE" shall mean the last day the eligible employee is actively
employed by the Company. In the event an eligible employee receives
formal written notice of a future termination of employment and
employment is not terminated until the date provided in such notice,
then the Plan Administrator may, in its discretion, reduce the period
of Severance Pay by the length of the notice period, in an amount of
up to one-third (1/3) of the severance period. For purposes of the
Plan, "SEVERANCE PERIOD" shall mean the period of time over which an
eligible employee is to receive Severance Pay pursuant to this Section
3.
(b) SEVERANCE BENEFITS.
------------------
(1) CONTINUATION OF HOSPITAL, MEDICAL, DENTAL, PRESCRIPTION DRUG AND
----------------------------------------------------------------
VISION COVERAGES. An eligible employee may elect continuation of
----------------
his or her Company sponsored hospital, medical, dental,
prescription drug and vision benefits ("HEALTH BENEFITS") under
COBRA, as defined in Section 4980B(f)(2) of the Internal Revenue
Code of 1986, as amended ("COBRA COVERAGE") for a period of up to
eighteen (18) months following the separation date. The eligible
employee shall pay the same premium paid by active employees for
their Company sponsored health benefits and the Company shall pay
the remaining portion of the premium during the severance period.
The COBRA coverage provided at this reduced cost shall continue
until the end of the month for which the eligible employee is
permitted to pay the same premium paid by similarly situated
active employees for their Company sponsored health benefits.
After the end of the severance period, the eligible employee may
elect to continue his or her health benefits under COBRA for up
to the remainder of the eighteen (18) months; however, the
eligible employee must pay the full premium for such coverage
plus a two percent (2%) administrative charge, or 102% of the
total premium cost. If the eligible employee dies prior to the
end of the period of time that he or she would have received his
or her Severance Benefits, and if the eligible employee's spouse
and/or dependents are entitled to continued COBRA coverage, the
Company shall pay the entire
<PAGE>
page 4
cost of such coverage for the remainder of the severance period.
Thereafter, the spouse and/or dependents may elect to continue
COBRA coverage; however they must pay the full premium cost for
such coverage plus a two percent (2%) administrative charge.
(2) LIFE INSURANCE BENEFITS. Coverage under the Financial
Security Assurance Inc. Life and AD & D Insurance Plan shall
continue on the same basis as for similarly situated active
employees during the severance period to the extent, if any,
that the insurance carrier will so allow.
(3) DISABILITY INSURANCE COVERAGE. Coverage under Company
sponsored disability insurance shall continue on the same
basis as for similarly situated active employees during the
severance period to the extent, if any, that the insurance
carrier will so allow.
The Plan Administrator, acting in its sole discretion may, in writing, enhance
the amount of Severance Pay and/or Severance Benefits that an eligible employee
is eligible to receive over the amount of Severance Pay and Severance Benefits
described above and/or make available to the eligible employee other forms of
Severance Benefits.
SECTION 4 OFFSET
- --------- ------
Severance Pay and Severance Benefits provided under the Plan shall be offset by
any severance pay or severance benefits provided to an eligible employee under
an authorized written employment agreement containing a severance provision, an
authorized written severance agreement, or any other group
reorganization/restructuring benefit plan or program sponsored by the Company.
By accepting Severance Pay and Severance Benefits under the Plan, an eligible
participant waives all rights to receive benefits under the Financial Security
Assurance Holdings Ltd. Severance Policy. In the event an eligible employee who
is receiving Severance Pay and Severance Benefits under the Plan is employed
with any other employer during the severance period, due and unpaid Severance
Pay shall be offset by an amount equal to fifty percent (50%) of the
compensation received by the eligible employee from the new employment during
the severance period, and Severance Benefits shall cease. The eligible employee
shall be obligated to refund any amounts paid by the Company as Severance Pay
that exceed the amount of Severance Pay payable to the eligible employee
hereunder giving effect to the offset referred to in the preceding sentence. An
eligible employee shall, as a condition of receiving Severance Pay and Severance
Benefits under the Plan, undertake to provide to the Company prompt notice of
the commencement of any new employment of such eligible employee during the
severance period.
SECTION 5 PAYMENT OF SEVERANCE PAY
- --------- ------------------------
Severance Pay that becomes payable shall be paid in installments in accordance
with the Company's regular payroll payment schedule commencing with the first
regular payroll payment date occurring after expiration of the seven (7) day
period during which an eligible employee
<PAGE>
page 5
may revoke his or her Waiver and Release Agreement (as explained more fully
below under the Section entitled "WAIVER AND RELEASE AGREEMENT"); however, the
Plan Administrator reserves the right in its sole discretion to pay Severance
Pay in a lump sum. All legally required taxes and any sums owing to the Company
shall be deducted from Severance Pay payments.
SECTION 6 REINSTATEMENT
- --------- -------------
If an eligible employee returns to a temporary assignment with the Company while
receiving Severance Pay and Severance Benefits, payments of Severance Pay and
availability of Severance Benefits shall cease during the period of temporary
employment and shall resume at the conclusion of the temporary assignment. In
the event that an eligible employee who is receiving Severance Pay or Severance
Benefits is permanently reemployed by the Company, the payment of Severance Pay
and the availability of Severance Benefits under the Plan shall cease as of the
date his or her reemployment begins.
SECTION 7 WAIVER AND RELEASE AGREEMENT
- --------- ----------------------------
In order to receive Severance Pay and Severance Benefits, an eligible employee
must submit a signed Waiver and Release Agreement form to the Plan Administrator
no later than twenty-one (21) days after his or her separation date. If the
termination of the eligible employee is part of a group termination, the signed
Waiver and Release Agreement must be submitted to the Plan Administrator no
later than forty-five (45) days after his or her separation date. Attached to
the Waiver and Release Agreement, if required by law, as Attachment I will be a
list of job titles and ages of employees of the Company who are eligible for the
Plan, and as Attachment II will be a list of the ages of employees of the
Company who are not eligible for the Plan. An eligible employee may revoke his
or her signed Waiver and Release Agreement within seven (7) days of his or her
signing the Waiver and Release Agreement. A revocation by an eligible employee
must be made in writing and must be received by the Plan Administrator within
such seven (7) day period. An eligible employee who timely revokes his or her
Waiver and Release Agreement shall not be eligible to receive any Severance Pay
and Severance Benefits under the Plan. An eligible employee who timely submits a
signed Waiver and Release Agreement form and who does not exercise his or her
right of revocation shall be eligible to receive Severance Pay and Severance
Benefits. Eligible employees shall be encouraged to contact their personal
attorney to review the Waiver and Release Agreement form if they so desire.
SECTION 8 PLAN ADMINISTRATION
- --------- -------------------
FSA shall serve as the "Plan Administrator" of the Plan and a "named fiduciary"
within the meaning of such terms as defined in ERISA. The Plan Administrator
shall have the discretionary authority to determine eligibility for Plan
benefits and to construe the terms of the Plan, including the making of factual
determinations. The decisions of the Plan Administrator shall be
<PAGE>
page 6
final and conclusive with respect to all questions concerning the administration
of the Plan. The Plan Administrator may delegate to other persons
responsibilities for performing certain of the duties of the Plan Administrator
under the terms of the Plan and may seek such expert advice as the Plan
Administrator deems reasonably necessary with respect to the Plan. The Plan
Administrator shall be entitled to rely upon the information and advice
furnished by such delegatees and experts, unless actually knowing such
information and advice to be inaccurate or unlawful. The Plan Administrator
shall establish and maintain a reasonable claims procedure, including a
procedure for appeal of denied claims. In no event shall an eligible employee or
any other person be entitled to challenge a decision of the Plan Administrator
in court or in any other administrative proceeding unless and until the claim
and appeals procedures established under the Plan have been complied with and
exhausted.
SECTION 9 AMENDMENT/TERMINATION/VESTING
- --------- -----------------------------
Eligible employees do not have any vested right to Severance Pay or Severance
Benefits under the Plan and FSA reserves the right in its sole discretion to
amend or terminate the Plan in writing at any time. Any amendment or termination
of the Plan shall be adopted by the Board of Directors of FSA and executed by an
authorized officer of FSA. In no event will the termination of the Plan reduce
Severance Pay and Severance Benefits previously granted to an eligible employee
under the Plan.
SECTION 10 PAY AND OTHER BENEFITS
- ---------- ----------------------
An eligible employee's participation in all of the Company's employee pension
benefit plans and employee welfare plans in which he or she is enrolled as of
his or her separation date shall cease as of his or her separation date, except
as provided above with respect to COBRA coverage and life insurance benefits.
All pay and other benefits, including unreimbursed valid business expenses and
accrued but unpaid salary (but excluding Plan benefits), payable to an eligible
employee upon his or her separation date shall be paid in accordance with the
terms of those established policies, plans and procedures. An eligible employee
who is participating in the Plan shall not be eligible for any other type of
severance benefits under any other severance pay plan, program or policy of the
Company. Eligible employees shall receive payment for unused vacation days on
the first payroll date following the eligible employee's termination of
employment. Such payment shall be equal to one twentieth (1/20th) of one month
of Severance Pay for every vacation day and shall be paid in a single lump sum
payment. Such payment shall not reduce the amount of Severance Pay otherwise
payable to the eligible employee under the Plan. For purposes of the foregoing,
(a) total vacation days for any eligible employee in respect of any
calendar year shall equal the sum of:
<PAGE>
page 7
(1) carryover vacation days to which the eligible employee is
entitled in accordance with Company policy from the year
prior to the year in which the eligible employee's
separation date occurred; and
(2) the product (rounded up to the nearest whole number) of:
(A) the annual number of vacation days to which the
eligible employee is entitled in accordance with
Company policy; and
(B) a fraction,
(i) the numerator of which is the number of days of the
year which have elapsed from the January 1 of the
year in which the eligible employee's separation
date occurs through and including the eligible
employee's separation date, and
(ii) the denominator of which is three hundred and
sixty-five (365); and
(b) unused vacation days for any eligible employee in respect of
any calendar year will equal total vacation days in respect
of such year determined in accordance with subsection (a)
above, less vacation days used in such year.
SECTION 11 NO ASSIGNMENT
- ---------- -------------
Severance Pay or Severance Benefits payable under the Plan shall not be subject
to anticipation, alienation, pledge, sale, transfer, assignment, garnishment,
attachment, execution, encumbrance, levy, lien, or charge, and any attempt to
cause such Severance Pay or Severance Benefits to be so subjected shall not be
recognized, except to the extent required by law.
SECTION 12 RECOVERY OF PAYMENTS MADE BY MISTAKE
- ---------- ------------------------------------
An eligible employee shall be required to return to the Company any Severance
Pay or Severance Benefits, or portion thereof, made by a mistake of fact or law.
SECTION 13 REPRESENTATIONS CONTRARY TO THE PLAN
- ---------- ------------------------------------
No employee, officer, or director of the Company has the authority to alter,
vary or modify the terms of the Plan except by means of an authorized written
amendment to the Plan. No verbal or written representations contrary to the
terms of the Plan and its written amendments shall be binding upon the Plan, the
Plan Administrator or the Company.
<PAGE>
page 8
SECTION 14 NO EMPLOYMENT RIGHTS
- ---------- --------------------
The Plan shall not confer employment rights upon any person. No person shall be
entitled, by virtue of the Plan, to remain in the employ of the Company and
nothing in the Plan shall restrict the right of the Company to terminate the
employment of any eligible employee at any time.
SECTION 15 COMPANY INFORMATION
- ---------- -------------------
Eligible employees may have access to Company Information. Recognizing that the
disclosure or improper use of such Company Information will cause serious and
irreparable injury to the Company, as a condition of receiving Severance Pay and
Severance Benefits eligible employees with such access acknowledge that (i) they
will not at any time, directly or indirectly, disclose Company Information to
any third party or otherwise retain or use such Company Information for their
own benefit or the benefit of others, (ii) if they disclose or improperly use
any Company Information, the Company shall be entitled to apply for and receive
an injunction to restrain any violation of this paragraph, and (iii) eligible
employees shall be liable for any damages the Company incurs, including
litigation costs and reasonable attorneys' fees.
"COMPANY INFORMATION" shall mean any confidential, financial, marketing,
business, technical or other information, including, without limitation,
information that the eligible employee prepared, caused to be prepared, received
in connection with and/or contemporaneous with his or her employment with the
Company, such as information provided by customers that is not generally known
in the industry, objective and subjective evaluations of management,
transactions or proposed transactions, trade secrets, personnel information and
marketing methods and techniques. The term "COMPANY INFORMATION" specifically
excludes information that is generally known in the industry (except when known
based upon the eligible employee's actions in contravention of this provision)
or that is otherwise publicly available.
SECTION 16 CONFIDENTIALITY
Eligible employees are prohibited from disclosing the existence of this Plan and
its terms and conditions, to any other past, present or future employees of the
Company, or to any other person, except (and in such cases, only to the extent
necessary) to the eligible employee's immediate family, attorneys, accountants,
financial advisors, lending institutions, federal, state or local taxing
authorities, or as otherwise required by law, or for the enforcement of the Plan
terms.
<PAGE>
page 9
SECTION 17 PLAN FUNDING
- -----------------------
No eligible employee shall acquire by reason of the Plan any right in or title
to any assets, funds, or property of the Company. Any Severance Pay or Severance
Benefits that become payable under the Plan are unfunded obligations of the
Company and shall be paid from the general assets of the Company. No employee,
officer, director or agent of the Company guarantees in any manner the payment
of Severance Pay or Severance Benefits.
SECTION 18 APPLICABLE LAW
- -------------------------
The Plan shall be governed and construed in accordance with ERISA and in the
event that any reference shall be made to State law, the internal laws of the
State of New York shall apply.
SECTION 19 SEVERABILITY
- -----------------------
If any provision of the Plan is found, held or deemed by a court of competent
jurisdiction to be void, unlawful or unenforceable under any applicable statute
or other controlling law, the remainder of the Plan shall continue in full force
and effect.
SECTION 20 PLAN YEAR
- --------------------
The ERISA plan year of the Plan shall be the calendar year.
SECTION 21 RETURN OF COMPANY PROPERTY
- ---------- --------------------------
All Company property (including keys, credit cards, identification cards, office
equipment, portable computers and cellular telephones) and Company Information
(including all copies, duplicates, reproductions or excerpts thereof) must be
returned by the eligible employee as of his or her separation date in order for
such eligible employee to commence receiving Severance Pay and Severance
Benefits under the Plan.
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
By: /s/ Robert P. Cochran
----------------------------------------
Its: President
---------------------------------------
<PAGE>
ATTACHMENT I TO
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
SEVERANCE POLICY FOR SENIOR MANAGEMENT
WAIVER AND RELEASE AGREEMENT
(1) Waiver and Release, Etc. In consideration for the Severance Pay and
Severance Benefits to be provided to me under the terms of the FINANCIAL
SECURITY ASSURANCE HOLDINGS LTD. SEVERANCE POLICY FOR SENIOR MANAGEMENT
(hereinafter, the "Plan"), I, on behalf of myself and my heirs, executors,
administrators, attorneys and assigns, hereby waive, release and forever
discharge FINANCIAL SECURITY ASSURANCE HOLDINGS LTD. (hereinafter, the
"Company") and the Company's parent, subsidiaries, divisions and affiliates,
whether direct or indirect, its and their joint ventures and joint venturers
(including its and their respective directors, officers, associates, employees,
shareholders, partners and agents, past, present and future), and each of its
and their respective successors and assigns (hereinafter collectively referred
to as "Releasees"), from any and all known or unknown actions, causes of action,
claims or liabilities of any kind which have or could be asserted against the
Releasees arising out of or related to my employment with and/or separation from
employment with the Company and/or any of the other Releasees and/or any other
occurrence up to and including the later of the date of this Agreement and the
date of termination of employment with the Company and/or any of the other
Releasees, including but not limited to:
(a) claims, actions, causes of action or liabilities arising
under Title VII of the Civil Rights Act, as amended, the Age
Discrimination in Employment Act, as amended, the Employee
Retirement Income Security Act, as amended, the
Rehabilitation Act, as amended, the Americans with
Disabilities Act, as amended, the Family and Medical Leave
Act, as amended, and/or any other federal, state,
municipal, or local employment discrimination statutes
(including, but not limited to, claims based on age, sex,
attainment of benefit plan rights, race, religion,
national origin, marital status, sexual orientation,
ancestry, harassment, parental status, handicap, disability,
retaliation, and veteran status); and/or
(b) claims, actions, causes of action or liabilities arising under
any other federal, state, municipal, or local statute, law,
ordinance or regulation; and/or
(c) any other claim whatsoever including, but not limited to,
claims for severance pay, claims based upon breach of
contract, wrongful termination, defamation, intentional
infliction of emotional distress, tort, personal injury,
invasion of privacy, violation of public policy, negligence
and/or any other common law, statutory or other claim
whatsoever arising out of or relating to my employment with
and/or separation from employment with the Company and/or any
of the other Releasees,
but excluding the right to file an administrative charge or participate in an
investigation conducted by the Equal Employment Opportunity Commission (the
"EEOC"), any claims which I may make under state workers' compensation or
unemployment laws, and/or any claims which by law I cannot waive. I am waiving,
however, any right to monetary recovery should the EEOC or any other agency
pursue any claim on my behalf. I further waive, release, and discharge the
<PAGE>
page 2
Company and/or any of the other Releasees from any reinstatement rights that I
have or could have and I acknowledge that I have not suffered any on-the-job
injury for which I have not already filed a claim. I also agree, without any
reservation whatsoever, never to sue the Company and/or any of the Releasees on
the basis of any and all claims of any type to date arising out of any aspect of
my employment with and/or separation from employment with the Company and/or any
of the Releasees. I understand that this Agreement includes a release of all
known and unknown claims arising up to and including the date of this Agreement.
(2) Company Information. I acknowledge that I may have access to
certain confidential and other information of the Company, referred to in the
Plan as "Company Information". Recognizing that the disclosure or improper use
of Company Information may cause serious and irreparable injury to the Company,
I agree that I will not at any time, directly or indirectly, disclose Company
Information or use Company Information for my own benefit or the benefit of any
other party except as permitted under the Plan.
(3) Cooperation; Return of Company Property. I agree to cooperate with
the Company with respect to providing information with respect to matters with
which I was involved at the time of my termination of employment. I agree to
return to the Company all Company property in my possession as promptly as
practicable, including, without limitation, any keys, credit cards, documents
and records, identification cards, office equipment, portable computers, mobile
telephones and parking permits.
(4) Consequences of Breach. In the event that I breach this Agreement
by violating any of the provisions of paragraph (1), (2) or (3), I acknowledge
that (q) the Company shall be entitled to apply for and receive an injunction to
restrain any violation of such paragraphs, (b) I shall be required to pay the
Company's and/or any of the Releasees' litigation costs and expenses, including
reasonable attorneys' fees, associated with defending against my lawsuit and (c)
I shall be obligated to repay to the Company eighty percent (80%) of the
Severance Pay already paid to me and to forfeit eighty percent (80%) of the
Severance Pay not yet paid to me. Such repayment and/or forfeiture shall not
affect the validity of this Agreement.
(5) Offset. I understand that, in the event I become employed with any
other employer during the severance period, due and unpaid Severance Pay will be
offset by an amount equal to fifty percent (50%) of the compensation received by
me from the new employment during the severance period, and Severance Benefits
shall cease. I agree to refund any amounts paid by the Company as Severance Pay
that exceed the amount of Severance Pay payable to me under the Plan giving
effect to the offset referred to in the preceding sentence. I further agree to
provide to the Company prompt notice of the commencement of any such new
employment.
(6) Other Plans. I understand that this Agreement will not limit any of
my rights or obligations in respect of any Company sponsored plans, each of
which has its own provisions governing the rights of employees thereunder in
respect of which I agree to remain bound, except that I hereby waive, release
and shall not assert in any forum any claim or right arising out of or in
connection with my termination of employment on the basis that such termination
interfered
<PAGE>
page 3
with attainment of any rights under such a plan or was otherwise discriminatory
or illegal. The foregoing plans include the Company's pension plans (Money
Purchase Plan and Supplemental Executive Retirement Plan), Cash or Deferred Plan
(401(k) plan), home computer program, cafeteria plan ("flex plan"), medical
plans, Supplemental Restricted Stock Plan, 1993 Equity Participation Plan and
Deferred Compensation Plan. I understand that, for purposes of determining my
rights under the foregoing plans, my employment with the Company will be deemed
to have been terminated by the Company without cause.
(7) Review and Revocation Periods. I acknowledge that I have been given
at least twenty-one (21) days to consider this Agreement thoroughly and I was
encouraged to consult with my personal attorney, if desired, before signing
below. I understand that I may revoke this Agreement within seven (7) days after
its signing and that any revocation must be made in writing and submitted within
such seven (7) day period to the Plan Administrator. I further understand that
if I revoke this Agreement, I shall not receive Severance Pay and Severance
Benefits under the Plan.
(8) Severability. I agree that if any provision of this Agreement is
found, held or deemed by a court of competent jurisdiction to be void, unlawful
or unenforceable under any applicable statute or controlling law, the remainder
of this Agreement shall continue in full force and effect.
(9) Governing Law. This Agreement is deemed made and entered into in
the State of New York, and in all respects shall be interpreted, enforced and
governed under the internal laws of the State of New York, to the extent not
governed by federal law. Any dispute under this Agreement shall be adjudicated
by a court of competent jurisdiction in the State of New York.
THE UNDERSIGNED HEREBY ACKNOWLEDGES AND AGREES THAT HE OR SHE HAS
CAREFULLY READ AND FULLY UNDERSTANDS ALL THE PROVISIONS OF THIS AGREEMENT AND
HAS VOLUNTARILY ENTERED INTO THIS AGREEMENT BY SIGNING BELOW AS OF THE DATE SET
FORTH BELOW.
- ----------------------------------------------
(Print name)
- ---------------------------------------------- --------------------------
(Signature) (Date)
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
---------------------------------------
1993 EQUITY PARTICIPATION PLAN
---------------------------------------
Amended and Restated as of February 14, 1996
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
-----------------------------
1993 EQUITY PARTICIPATION PLAN
-----------------------------
SECTION CONTENTS PAGE
- --------------------------------------------------------------------------------
Section 1. General Purpose of Plan; Definitions.... 1
Section 2. Administration.......................... 4
Section 3. Stock Subject to Plan................... 6
Section 4. Eligibility............................. 6
Section 5. Stock Options........................... 7
Section 6. Restricted Stock....................... 10
Section 7. Equity Bonuses.......................... 12
Section 8. Performance Shares...................... 17
Section 9. Transfer, Leave of Absence, etc......... 26
Section 10. Amendments and Termination.............. 26
Section 11. General Provisions...................... 26
Section 12. Effective Date of Plan.................. 28
Section 13. Term of Plan............................ 28
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
1993 EQUITY PARTICIPATION PLAN
(AMENDED AND RESTATED AS OF FEBRUARY 14, 1996)
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS
The name of this plan is the Financial Security Assurance Holdings Ltd.
1993 Equity Participation Plan (the "Plan"). The purpose of the Plan is to
enable the Company to retain and attract executives and employees who will
contribute to the Company's success by their ability, ingenuity and industry,
and to enable such executives and employees to participate in the long-term
growth of the Company by obtaining a proprietary interest in the Company or the
cash equivalent thereof.
The Plan shall be unfunded. All obligations of the Company under the Plan
shall be paid from the general assets of the Company.
For purposes of the Plan, the following terms shall be defined as set forth
below:
a. "Act" means the Securities Exchange Act of 1934, as amended.
b. "Board" means the Board of Directors of Financial Security Assurance
Holdings Ltd.
c. "Bonus Account" means an account established under Section 7 to record
Equity Bonuses and related credits and debits.
d. "Cause" means a Participant's commission of a felony, or a Participant's
misconduct or dishonesty, any of which is directly and materially harmful to the
business or reputation of the Company.
e. "Change in Control" means (i) an event or series of events as a result
of which any "person" or "group" (as such terms are defined in Rule 13d-5 under
the Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Act) of shares of capital stock entitling the holder thereof to
cast more than 50% of the votes for the election of directors of the Company; or
(ii) the approval by the Company's shareholders of the Company's consolidation
with or merger into another corporation, or another corporation's merger into
the Company, or the conveyance, transfer or lease of all or substantially all of
its assets to any person, or the liquidation or dissolution of the Company;
provided that a Change in Control shall not arise from any event or series of
events as a result of which U S WEST, Inc. or Fund American Enterprises
Holdings, Inc. is or becomes the beneficial owner
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<PAGE>
of shares of capital stock entitling it to cast more than 50% of the votes for
the election of directors of the Company.
f. "Code" means the Internal Revenue Code of 1986, as amended.
g. "Committee" means the Committee referred to in Section 2.
h. "Company" means Financial Security Assurance Holdings Ltd. (and, unless
required otherwise by the context, its Subsidiaries), a corporation organized
under the laws of the State of New York (or any successor corporation).
i. "Disability" means permanent and total disability as determined under
the Company's long-term disability program or as otherwise determined by the
Committee.
j. "Disinterested Person" shall have the meaning set forth in Rule
16b-3(c)(2)(i) as promulgated by the Securities and Exchange Commission under
the Act, or any successor definition adopted by the Commission.
k. "Division" means any of the operating units or divisions of the Company
designated as a Division by the Committee.
l. "Equity Bonus" means a bonus accrued for and paid in accordance with
Section 7.
m. "Fair Market Value" per share of Stock as of a particular date means (i)
the closing sales price per share on a national securities exchange for the last
preceding date on which there was a sale of Stock on such exchange, or (ii) if
Stock is then traded on an over-the-counter market, the average of the closing
bid and asked prices for Stock in such over-the-counter market for the last
preceding date on which there was a sale of Stock in such market, or (iii) if
Stock is not then listed on a national securities exchange or traded in an
over-the-counter market, such value as the Committee in its sole discretion may
determine; provided that, if Stock is then so listed but there has been no
trading for ten business days, the "Fair Market Value" shall be such value as
the Committee in its sole discretion may determine.
n. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
o. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
2
<PAGE>
p. "Participant" means any employee of the Company selected for
participation in the Plan by the Committee (either as an optionee with respect
to Stock Options or as a recipient with respect to Restricted Stock, Equity
Bonuses or Performance Shares).
q. "Performance Cycle" means a time period specified by the Committee at
the time a grant of Performance Shares is made, during which the performance of
the Company, a Subsidiary or a Division will be measured.
r. "Performance Objectives" means goals set by the Committee with respect,
but not limited to: (i) earnings per share of Stock, (ii) pre-tax profits, (iii)
net earnings or net worth, (iv) absolute and/or relative return on equity or
assets, (v) any combination of the foregoing, or (vi) any other standard or
standards deemed appropriate by the Committee at the time a grant of Performance
Shares is made. Performance Objectives may be in respect of the performance of
the Company and its Subsidiaries (which may be on a consolidated basis), a
Subsidiary or a Division.
s. "Performance Shares" means Performance Shares granted to a Participant
under Section 8 of the Plan.
t. "Realization Event" means an event described in the first sentence of
Section 7(f) (without regard to any additional deferrals under the other
provisions of Section 7(f)).
u. "Retirement" means retirement from active employment with the Company,
on or after the normal retirement date specified in the Company's pension plan
or as otherwise determined by the Committee, or, if determined by the Committee
in advance, early retirement (after satisfaction of any age and/or service
requirements imposed by the Committee).
v. "Restricted Stock" means an award of shares of Stock that are subject to
restrictions under Section 6.
w. "Stock" means the Common Stock, $.01 par value per share, of Financial
Security Assurance Holdings Ltd.
x. "Stock Option" means any option to purchase shares of Stock granted
pursuant to Section 5.
y. "Subsidiary" means any corporation (other than the Company) that is a
"subsidiary corporation" with respect to the Company under Section 424(f) of the
Code. In the event the Company becomes a subsidiary of another company, the
provisions hereof applicable to Subsidiaries shall, unless otherwise determined
by
3
<PAGE>
the Committee, also be applicable to any Company that is a "parent
corporation" with respect to the Company under Section 424(e) of the Code.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by a Committee of not less than two
Disinterested Persons, who shall be members of and appointed by the Board of
Directors of the Company and who shall serve at the pleasure of the Board,
unless otherwise determined by the Board.
The Committee shall have the power and authority to grant to Participants,
pursuant to the terms of the Plan: (a) Stock Options, (b) Restricted Stock, (c)
Equity Bonuses and (d) Performance Shares.
In particular, the Committee shall have the authority:
(i) to select the officers and other key employees of the Company to
whom Stock Options, Restricted Stock, Equity Bonuses and/or Performance
Shares may from time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Restricted Stock, Equity Bonuses or
Performance Shares, or a combination of any of the foregoing, are to be
granted hereunder;
(iii) to determine the number of shares to be covered by each such
award granted hereunder; provided that not more than one-half of the shares
available for distribution hereunder may be covered by options granted to
any single Participant over the life of the Plan;
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but not
limited to, any vesting requirements or other restrictions or performance
criteria relating to any Stock Option, Restricted Stock award, Equity Bonus
or Performance Shares and/or the shares of Stock relating thereto);
(v) to establish or assist in the establishment of a program under
which the Company or a third party may make bona fide loans on arm's length
terms to any or all optionees hereunder to assist such optionees with the
satisfaction of any or all of the obligations that such optionees may have
hereunder (including, without limitation, a loan program under which the
Company or third party would advance the aggregate option price to the
optionee and be repaid with Stock obtained upon the exercise of a Stock
Option, or the proceeds thereof);
4
<PAGE>
(vi) to determine whether, and to what extent any one or more
specified Performance Objectives, relating to an award of Performance
Shares under the Plan, have been met by the Company over any one
Performance Cycle; and
(vii) to determine whether, to what extent and under what
circumstances stock and other amounts otherwise payable with respect to an
award under the Plan shall be deferred either automatically or at the
election of the Participant.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret provisions of the Plan and any
award issued under the Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan. Without limiting the
generality of the foregoing, the Committee may (subject to such considerations
as may arise under Section 16 of the Act, or under other corporate, securities
and tax laws) take any steps it deems appropriate, that are not materially
substantive and are not inconsistent with the purposes and intent of the Plan,
to take into account the provisions of Section 162(m) of the Code and the
Committee may take any steps it deems appropriate (including amending the terms
or imposing further conditions on any award issued under the Plan), that are not
inconsistent with the purposes and intent of the Plan, to take into account any
proposed or existing legislation or regulations (whether U.S. federal, state, or
local or foreign), or to obtain or maintain favorable taxation, exchange control
or securities regulatory treatment for the Company or a Participant.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding, in the absence of bad faith or manifest error, on
all persons (including, without limitation, any interpretations of the Plan),
including the Company and Participants, and otherwise entitled to the maximum
deference permitted by law.
To the maximum extent permitted by law, the Committee and the members
thereof shall be indemnified by the Company for all action and inaction by each
of them in connection with the administration of the Plan or otherwise in
connection with the Plan.
5
<PAGE>
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for distribution
under the Plan, other than under Section 7, shall be 2,110,780; such shares may
consist, in whole or in part, of authorized and unissued shares, treasury
shares, re-acquired shares, or shares purchased by a grantor trust as provided
for in Section 8. The total number of shares of Stock available with respect to
Equity Bonuses under Section 7 shall be as set forth under Section 7.
If any shares that have been optioned cease to be subject to option, if any
shares subject to any Restricted Stock award granted hereunder are forfeited or
such award otherwise terminates, or if any shares issuable pursuant to any
Performance Shares award granted hereunder cease to be issuable thereunder or
such award otherwise terminates, such shares shall again be available for
distribution in connection with future awards under the Plan.
The aggregate number of shares reserved for issuance under the Plan and the
number and option price of shares subject to outstanding options and the number
of shares issuable pursuant to outstanding Performance Shares and to the Equity
Bonus provisions hereof shall be appropriately adjusted by the Committee in the
event of any increase or decrease in the number of outstanding shares of Stock
resulting from payment of a Stock dividend on Stock, a subdivision or
combination of shares of Stock, a reclassification of Stock, a recapitalization
involving the Company or in the event of a merger or consolidation in which the
Company shall be the surviving corporation.
SECTION 4. ELIGIBILITY.
Officers and other employees of the Company (but not any person who serves
only as a director) who are responsible for or contribute to the management,
growth and/or profitability of the business of the Company are eligible to be
granted Stock Options, Restricted Stock awards, Performance Shares and/or Equity
Bonuses under the Plan. The optionees and other Participants under the Plan
shall be selected from time to time by the Committee, in its sole discretion,
from among those eligible, and the Committee shall determine, in its sole
discretion, the number of shares covered by each award.
6
<PAGE>
SECTION 5. STOCK OPTIONS.
Any Stock Options granted under the Plan shall be in such form as the
Committee may from time to time approve. Such stock option shall be evidenced by
a written agreement between the Company and the optionee.
The Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of options. To the
extent that any option does not qualify as an Incentive Stock Option, it shall
constitute a separate Non-Qualified Stock Option.
Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Option Price. The option price per share of Stock purchasable under
------------
a Stock Option shall be determined by the Committee at the time of grant and may
be more or less than 100% of the Fair Market Value of the Stock on the date of
the grant of the Option. If an employee owns or is deemed to own (by reason of
the attribution rules applicable under Section 424(d) of the Code) more than 10%
of the combined voting power of all classes of stock of the Company, and an
Incentive Stock Option is granted to such employee, the option price shall be no
less than 110% of the Fair Market Value of the Stock on the date the option is
granted.
(b) Option Term. The term of each Stock Option shall be fixed by the
-----------
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted and no Non-Qualified Stock Option
shall be exercisable more than ten years and one day after the day the option is
granted. If an employee owns or is deemed to own (by reason of the attribution
rules of Section 424(d) of the Code) more than 10% of the combined voting power
of all classes of stock of the Company and an Incentive Stock Option is granted
to such employee, the term of such option shall be no more than five years from
the date of grant.
(c) Exercisability. Stock Options shall be exercisable at such time or
--------------
times as determined by the Committee (taking into account, without limitation,
Section 16 of the Act) at or after grant. If the Committee provides, in its
discretion, that any option is exercisable only in installments, the Committee
may waive such installment exercise provisions at any time. The aggregate Fair
Market Value, determined as of the date a Stock Option is granted, of the Stock
for which any optionee may be awarded Incentive Stock Options which are first
exercisable by the
7
<PAGE>
optionee during any calendar year under the Plan (or any other stock option plan
required to be taken into account under Section 422(d) of the Code) shall not
exceed $100,000; provided that any Stock Options purporting to be Incentive
Stock Options that are granted in excess of this $100,000 limitation shall be
treated as Non-Qualified Stock Options.
(d) Method of Exercise. Stock Options may be exercised in whole or in part
------------------
during the option period by giving written notice of exercise to the Company
specifying the number of shares to be purchased. Such notice shall be
accompanied by payment in full of the purchase price, either by certified, bank
or personal check as determined by the Committee (or, if the Committee has
established or assisted with the establishment of a Company or third-party loan
program in accordance with the Plan for which the optionee is eligible, with the
proceeds of a loan from the Company or third party), in its sole discretion, at
or after grant. Payment in full or in part may also be made in the form of Stock
(not subject to restrictions) already owned by the optionee based on the Fair
Market Value of the Stock on the date the option is exercised. No shares of
Stock shall be issued until full payment therefor has been made. An optionee
shall generally have the rights to dividends or other rights of a stockholder
with respect to shares subject to the option when the optionee has given written
notice of exercise, has paid in full for such shares, and, if requested, has
given the representation described in paragraph (a) of Section 11.
(e) Non-Transferability of Options. No Stock Option shall be
------------------------------
transferable by the optionee, or otherwise subject to voluntary or involuntary
sale, pledge, anticipation, alienation, encumbrance, assignment, garnishment or
attachment, other than by will or by the laws of descent and distribution, and
all Stock Options shall be exercisable, during the optionee's lifetime, only by
the optionee.
(f) Termination by Death. If an optionee's employment by the Company
--------------------
terminates by reason of death, the Stock Option (whether or not then otherwise
exercisable) may thereafter be immediately exercised by the legal representative
of the estate or by the legatee of the optionee under the will of the optionee,
for a period of one year (or such shorter period as the Committee shall specify
at grant) from the date of such death or until the expiration of the stated term
of the option, whichever period is the shorter.
(g) Termination by Reason of Disability. If an optionee's employment by
-----------------------------------
the Company terminates by reason of Disability, any Stock Option (whether or not
then otherwise exercisable) held by such optionee may thereafter be exercised,
but may not be exercised after one year (or such shorter period as the Committee
shall specify at grant) from the date of such termination of employment or the
expiration of the stated term of the option, whichever period is the shorter;
provided, however, that, if the optionee dies within such period, any
unexercised Stock Option held by such optionee shall thereafter be exercisable
for a period of twelve months from the
8
<PAGE>
date of such death or for the stated term of the option, whichever period is the
shorter. In the event of termination of employment by reason of Disability, if
an Incentive Stock Option is exercised after the expiration of the exercise
period that applies for purposes of Section 422 of the Code, the option will
then and thereafter be treated as a Non-Qualified Stock Option.
(h) Termination by Reason of Retirement. If an optionee's employment by
-----------------------------------
the Company terminates by reason of Retirement, any Stock Option (whether or not
then otherwise exercisable) held by such optionee may thereafter be exercised,
but may not be exercised after three years (or such shorter period as Committee
shall specify at grant) from the date of such termination of employment or the
expiration of the stated term of the option, whichever period is the shorter;
provided, however, that, if the optionee dies within such three-year period, any
unexercised Stock Option held by such optionee shall thereafter be exercisable
for a period of twelve months from the date of such death or for the stated term
of the option, whichever period is the shorter. In the event of termination of
employment by reason of Retirement, if an Incentive Stock Option is exercised
after the expiration of the exercise period that applies for purposes of Section
422 of the Code, the option will then and thereafter be treated as a
Non-Qualified Stock Option.
(i) Termination by the Optionee or for Cause; Termination Without
-------------------------------------------------------------
Cause. Unless otherwise determined by the Committee, if an optionee's employment
- -----
by the Company is terminated by the optionee for any reason other than death,
Disability or Retirement, or by the Company for Cause, the Stock Option shall
thereupon be terminated, except that options that have become exercisable under
the terms of the applicable award agreement may be exercised for the lesser of
three months or the balance of the option's term. Unless otherwise determined by
the Committee, if an optionee's employment is terminated by the Company without
Cause (and not by reason of Disability or Retirement), any Stock Option (whether
or not then otherwise exercisable) held by such optionee may thereafter be
exercised, but may not be exercised after nine months from the date of such
termination of employment or the expiration of the stated term of the option,
whichever period is the shorter; provided, however, that, if the optionee dies
within such period, any unexercised Stock Option held by such optionee shall
thereafter be exercisable for a period of twelve months from the date of such
death or for the stated term of the option, whichever period is the shorter. In
the event of such a termination of employment without Cause, if an Incentive
Stock Option is exercised after the expiration of the exercise period that
applies for purposes of Section 422 of the Code, the option will then and
thereafter be treated as a Non-Qualified Stock Option.
(j) Change in Control. In the event of a Change in Control of the
-----------------
Company all outstanding unexercised Stock Options shall become immediately
exercisable. If the optionee shall so elect by notice to the Company within the
later
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<PAGE>
of 60 days or the first available window period (as provided in Rule 16b-3(e)(1)
and (3) under the Act) following such Change in Control, the optionee's
outstanding unexercised Stock Options shall be cancelled and the Company shall
immediately pay and the optionee shall immediately receive in cash an amount
equal to the product of (i) the difference between (a) the greater of the (then
current) Fair Market Value of Company Stock, the Fair Market Value within 30
days preceding such Change in Control or the highest offered price in any tender
offer for shares of Company Stock and (b) the exercise price of the cancelled
Stock Options and (ii) the number of unexercised Stock Options then held by the
optionee.
(k) No Rights until Option Exercised. Neither any optionee hereunder nor
--------------------------------
any person entitled to exercise the optionee's rights in the event of death
shall have any rights of a stockholder with respect to the shares subject to
each Option, except to the extent that a certificate for such shares shall have
been issued upon the exercise of each Option as provided for herein.
SECTION 6. RESTRICTED STOCK.
(a) Administration. Shares of Restricted Stock may be issued either alone
--------------
or in addition to other awards granted under the Plan. The Committee shall
determine the officers and key employees of the Company to whom, and the time or
times at which, grants of Restricted Stock will be made, the number of shares to
be awarded, the time or times within which such awards may be subject to
forfeiture, and all other conditions of the awards. The Committee may also
condition the grant of Restricted Stock upon the attainment of specified
performance goals. The provisions of Restricted Stock awards need not be the
same with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of an award of
-----------------------
shares of Restricted Stock shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the then applicable terms and conditions.
(i) Each recipient shall be issued a stock certificate in respect of
shares of Restricted Stock awarded under the Plan. Such certificate shall
be registered in the name of the recipient, and shall bear an appropriate
legend referring to the terms, conditions, and restrictions applicable to
such award, substantially in the following form:
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Financial Security Assurance
10
<PAGE>
Holdings Ltd. 1993 Equity Participation Plan and an Agreement entered
into between the registered owner and Financial Security Assurance
Holdings Ltd. Copies of such Plan and Agreement are on file in the
offices of Financial Security Assurance Holdings Ltd., 350 Park
Avenue, New York, New York 10022.
(ii) The Committee shall require that the stock certificates
evidencing such shares shall be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the Participant shall have delivered a stock power,
endorsed in blank, relating to the stock covered by such award. If and when
such restrictions so lapse, the stock certificates shall be delivered by
the Company to the recipient or his or her designee.
(c) Restrictions and Conditions. The shares of Restricted Stock awarded
---------------------------
pursuant to the Plan shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of the Plan and the award agreements,
during a period set by the Committee commencing with the date of such award
and ending on a date established by the Committee (the "Restriction
Period"), the recipient shall not be permitted voluntarily or involuntarily
to sell, transfer, pledge, anticipate, alienate, encumber or assign shares
of Restricted Stock awarded under the Plan (or have such shares attached or
garnished). Within these limits, the Committee may provide for the lapse of
such restrictions in installments where deemed appropriate.
(ii) Except as provided in paragraph (c)(i) of this Section 6, the
recipient shall have, in respect of the shares of Restricted Stock, all of
the rights of a stockholder of the Company, including the right to vote the
shares, and the right to receive any cash dividends. The Committee may, in
its sole discretion, defer the payment of any cash dividends otherwise
payable until such date or dates upon which the restrictions on the related
shares of Restricted Stock shall lapse. Certificates for shares of Stock
(not subject to restrictions) shall be delivered to the grantee promptly
after, and only after, the period of forfeiture shall expire without
forfeiture in respect of such shares of Restricted Stock.
(iii) Subject to the provisions of the award agreement and paragraphs
(c)(iv) and (c)(v) of this Section 6, upon termination of employment for
any reason during the Restriction Period, all shares still subject to
restriction shall be forfeited by the recipient.
11
<PAGE>
(iv) In the event a recipient's employment is terminated by the
Company (other than for Cause), the Committee may (in its sole discretion),
when it finds that a waiver would be in the best interests of the Company,
waive in whole or in part any or all remaining restrictions with respect to
such recipient's shares of Restricted Stock.
(v) In the event of Death, Disability, Retirement or a Change in
Control (as previously defined herein) during the Restriction Period,
restrictions will immediately lapse on all Restricted Stock granted under
this Section 6.
SECTION 7. EQUITY BONUSES.
(a) Stock Subject to Equity Bonuses. The number of shares of Stock that may
-------------------------------
be allocated under this Section 7 shall be 10,000,000. If any Equity Bonus (or
related Stock) is forfeited, the shares allocated and/or otherwise to be
distributed under this Section 7 with respect thereto shall again be available
for distribution in connection with future awards under the Plan.
(b) Awards of Equity Bonuses. Subject to the other terms of the Plan,
------------------------
Equity Bonuses may be granted to Participants in lieu of cash bonuses otherwise
payable thereto. The amount of any Equity Bonus for a year shall be determined
by the Committee (i) under a formula established by the Committee and applicable
to one or more groups of Participants or one or more individual Participants,
(ii) on a Participant-by-Participant basis or (iii) pursuant to any combination
of the foregoing methods. Without limitation by specification, this formula may
mandate that a designated percentage of the cash bonus otherwise payable be
granted as an Equity Bonus and that Participants be allowed to elect (in
accordance with procedures established by the Committee) that an amount up to
such additional percentage of such cash bonus, as designated by the Committee,
be payable in the form of an Equity Bonus. Unless expressly determined to the
contrary by the Committee, no such Equity Bonus with respect to a Participant
shall be greater than the excess of (i) the amount of the bonus payable to the
Participant for the year without regard to this Section 7, over (ii) the amount
(if any) of such bonus that is (A) deferred (or diverted to another use (e.g.,
without limitation, to the purchase of Company stock or the payment of medical
premiums or other expenses)) at the option of the Company, a Subsidiary or the
Participant in accordance with any otherwise existing deferral (or other)
program offered by the Company or a Subsidiary or (B) otherwise excluded for
these programs by the Committee. The amount of any bonus payable without regard
to this Section 7 shall be reduced (but not to below zero) by the amount of the
applicable Equity Bonus. No Equity Bonus (or credit or payment with respect
thereto) shall be transferable by the Participant, or otherwise subject to
voluntary or involuntary sale, pledge, anticipation,
12
<PAGE>
alienation, encumbrance, assignment, garnishment or attachment, other than by
will or by the laws of descent and distribution.
(c) Vesting and Conditions. Subject to the following provisions of this
----------------------
Section 7(c), and to any fluctuations in value over time, each Participant shall
be 100% vested in the Participant's Equity Bonus (and any allocations of Stock
or other amounts related thereto). A Participant shall forfeit any Equity Bonus
(and Stock or other allocations attributable thereto) if, prior to the
Realization Event applicable to that Equity Bonus, the Participant is terminated
for Cause. In addition, unless determined otherwise by the Committee, the
following individuals shall not be entitled to an Equity Bonus for a year
(whether or not the Equity Bonus has already been awarded to the Participant or
any related allocations have been made):
(i) An individual who, prior to the last day of such year, has
notified the Company that the individual intends to terminate employment
with the Company effective in such year or the next succeeding year.
(ii) An individual who, prior to the last day of such year, has been
notified by the Company that the individual's employment with the Company
will be terminated effective in such year or the next succeeding year.
(iii) An individual whose employment with the Company terminates prior
to the end of such year.
The Committee may require that, prior to receiving any distribution of Stock
under this Section 7, each Participant shall be required to certify in a form
acceptable to the Committee that at no time on or after the implementation of
this Section 7 (or such earlier date as may be specified by the Committee), and
before the occurrence of the Realization Event with respect to which the
distribution is to be made, has the Participant, directly or indirectly, held
any equity or derivative security position with respect to Stock, such as a
short sale, a long put option or a short call option, that increases in value as
the value of Stock decreases. If the Participant does not make such
certification, the Participant shall receive a distribution with respect to the
applicable Equity Bonus equal to the number of shares of Stock otherwise to be
distributed as of the Realization Event reduced by 0.1765 multiplied by the
number of shares of Stock otherwise to be distributed as of the Realization
Event. The number of shares by which the distribution is reduced shall be
forfeited as of such Realization Event. If a Participant makes a false
certification, the Participant shall forfeit as of such Realization Event all of
the shares allocated to his accounts in respect of Equity Bonuses. All amounts
forfeited hereunder shall be treated as purchases for the Plan in accordance
with rules to be established by the Committee.
13
<PAGE>
(d) Accounts. Each Participant's Bonus Account shall be credited with a
--------
number of shares of Stock equal to the dollar amount of such Participant's
Equity Bonus award divided by the product of 0.85 multiplied by the Fair Market
Value of Stock on the date on which the shares are credited to such
Participant's Bonus Account. The establishment and maintenance of, and credits
to (including without limitation credits of Stock) and deductions from, the
Bonus Accounts (whether under the foregoing sentence or otherwise under this
Section 7) shall be mere bookkeeping entries, and shall not vest in the employee
or his beneficiary any right, title or interest in or to any specific assets of
the Company. All payments from the Bonus Accounts shall be made from the general
funds of the Company, and, except as provided below, no special or separate fund
shall be established or other segregation of assets made to assure such
payments.
(e) Deemed Dividends. For each dividend declared and paid on shares of
----------------
Stock, an amount equal to such dividend (referred to herein as "deemed
dividend") shall be credited with respect to each share of Stock allocated to
the Bonus Accounts. The Committee may provide that such amounts be deemed
reinvested in additional Stock (which would thereupon be credited to the Bonus
Accounts), and may provide that the credit resulting from such reinvestment be
equal to the dollar amount of the deemed dividend divided by the product of 0.85
multiplied by the Fair Market Value of Stock on the date on which the shares are
credited to such Participant's Bonus Account.
(f) Distributions. Except as otherwise determined by the Committee, amounts
-------------
attributable to Equity Bonuses shall be distributed upon the first to occur of
(i) the expiration of the period specified by the Board or Committee beginning
on the date as of which the Equity Bonus is awarded, (ii) the occurrence of a
Change in Control, (iii) the termination of this Section 7 pursuant to Section
10, (iv) the Participant's termination of employment with the Company as a
result of the Participant's Disability or (v) the Participant's Death.
Notwithstanding the foregoing, the Committee may permit Participants to elect
additional deferral and/or to receive earlier distributions. In the case of
additional deferral, the Committee may establish rules under which Stock
allocated to a Bonus Account may (i) continue to be allocated as such, and/or
(ii) may be converted to cash and credited from time to time with earnings in
accordance with procedures determined by the Committee. Distributions shall be
made in Stock and/or cash, as determined and in accordance with rules to be
established by the Committee (which may be rules of general applicability or
rules applicable to specified Participants), except that fractional shares shall
be in cash.
(g) Funding. Prior to the award of any Equity Bonus, the Committee shall
-------
establish a funding vehicle (a "Fund") to assist the Company with its
obligations under this Section 7. The Committee may provide that credits and
allocations
14
<PAGE>
otherwise provided for by this Section 7 shall be adjusted to take
into account the amount and timing of purchases and sales of, and dividends with
respect to, Stock under such Fund; the manner in which such Fund otherwise
operates; the amount of Stock in such Fund from time to time; and such other
factors as the Committee may deem relevant; provided that the limitation in
Section 7(a) may not be adjusted under this sentence. Any Fund shall be designed
not to cause the Plan to be considered to be funded for tax purposes or for
purposes of Title I of the Employee Retirement Income Security Act of 1974, as
amended.
(h) Allocations from a Fund. Without limiting the generality of Section
-----------------------
7(g), the Committee shall establish rules regarding Stock purchases by a Fund
and related allocations to Bonus Accounts that are consistent with the following
rules:
(i) The Fund may make purchases and/or receive contributions of Stock,
with such Stock to be allocated as indicated below. If, on November 30 of
each calendar year (or such other date as may be specified by the
Committee), the number of unallocated shares held in the Fund is at least
equal to 90% (on such other percentage specified by the Committee) of the
amount of shares necessary to satisfy the total amount of Equity Bonuses
granted for such calendar year, each Participant's Bonus Account shall be
credited with a number of shares of Stock equal to the dollar amount of
such Participant's Equity Bonus divided by the product of 0.85 multiplied
by the average cost per share of Stock (as determined in accordance with
rules established by the Committee) purchased (or deemed purchased) by the
Fund, with such cost being determined as of November 30 (or such other
date) of the calendar year for which the Equity Bonus was granted to such
Participant. In the event that the number of shares held in the Fund is
less than 90% (or such other percentage) of the number of shares necessary
to satisfy the total amount of Equity Bonuses granted for a year, each
Participant's Stock Account shall be credited with a number of shares of
Stock equal to the dollar amount of such Participant's Equity Bonus divided
by the product of 0.85 multiplied by the average cost per share of Stock on
the date on which the shares are credited to such Participant's Bonus
Account.
(ii) If, as of the date a Bonus Award is granted, the number of
unallocated shares held in the Fund is insufficient to satisfy such Equity
Bonus, the date on which Stock in respect of such Equity Bonus is credited
to a Participant's Bonus Account shall be deferred until such date as the
number of unallocated shares held in the Fund equals or exceeds the number
of shares with respect to such Equity Bonus.
(iii) If the date as of which Equity Bonuses are granted for a
calendar year is on or prior to the record date for the dividends payable
on Stock but the number of unallocated shares held in the Fund is
insufficient to
15
<PAGE>
satisfy such Equity Awards, (A) for purposes of Section 7(h)(iv) and (vi),
the unallocated shares held in the Fund shall be treated as held in each
Participant's Account pro rata in proportion to each Participant's Bonus
for such calendar year and (B) Financial Security Assurance Holdings Ltd.
shall make a contribution to the Fund equal to the difference between (I)
the dividends that would have been paid on shares in respect of Equity
Bonuses for such calendar year had the Fund held sufficient Equity shares
to satisfy the Equity Bonuses for such calendar year and (II) the dividends
actually paid on the shares held in the Fund. For purposes of Section
7(h)(iv) and (vi), the Company contribution described in clause (B) of the
foregoing sentence shall be treated as a dividend paid on Stock held in a
Participant's Bonus Account, pro rata in proportion to each Participant's
Equity Bonus for such calendar year.
(iv) As of the payment date for dividends paid (or deemed paid) on
Stock held (or deemed held) in a Participant's Bonus Account as of the
record date for such dividends, each such Participant's Bonus Account shall
be credited with the number of shares of Stock that are in fact purchased
or deemed to have been purchased with such dividends and the additional
17.65% compensation contribution made in respect of such dividends, as
determined pursuant to Section 7(h)(vi).
(v) Each Participant's Bonus Account shall be reduced by the number of
shares of Stock distributed to the Participant in respect of an Equity
Bonus, whether such shares are distributed from the Fund or directly from
the Company.
(vi) All dividends paid on Stock held in the Fund shall be reinvested
in Stock as follows:
(A) Subject to Section 7(h)(vi)(B), as soon as practicable after
the payment date for dividends paid (or deemed paid) on Stock credited
(or deemed to be credited) to Participants' Bonus Accounts, the
Company shall contribute to the Fund, as compensation to Participants,
an amount equal to 17.65% of such dividends (or deemed dividends)
(less required withholding taxes, if any). As soon as practicable
after receipt of such dividends (or deemed dividends) and such 17.65%
contribution, the Fund shall use such dividends (or deemed dividends)
and contribution to purchase Stock.
(B) To the extent that the Committee elects by notice to the
Fund, the Company's 17.65% contribution obligation shall be satisfied
out of the unallocated Stock in the Fund. If the Committee makes such
an election, the contribution obligation shall be satisfied (I) first
from
16
<PAGE>
the dividends paid on unallocated shares of Stock held in the Fund and
(II) second from unallocated shares of Stock held in the Fund, based
on the Fair Market Value of the shares on the relevant payment date.
Any such share shall be deemed to have been purchased at such Fair
Market Value for allocation purposes.
(C) Shares of Stock purchased or deemed purchased pursuant to
Section 7(h)(vi)(A) or (B) shall be allocated to the Participant's
Bonus Accounts with respect to which they were purchased.
(D) As soon as practicable after receipt of dividends paid on
unallocated Stock held in the Fund, the Fund shall use the amount of
such dividends to purchase Stock. Shares of Stock purchased pursuant
to this Section 7(h)(vi)(D) (other than with dividends used to satisfy
the Company's contribution obligation pursuant to Section 7(h)(vi)(B))
shall be held unallocated in the Fund, pending allocation.
(vii) Other Rules. It is expressly understood that this Section 7
-----------
provides general parameters with respect to the awarding of Equity Bonuses
and the making of payments in connection therewith. Without limiting the
generality of Section 2, prior to the award of any Equity Bonus, the
Committee shall adopt such additional provisions (not inconsistent with
this Section 7) relating to Equity Bonuses as it may deem necessary or
advisable to implement the purposes and intent of this Section 7, which
provisions, if and when adopted, are hereby incorporated herein by
reference.
SECTION 8. PERFORMANCE SHARES.
(a) Administration and Awards. The Committee, in its discretion, may grant
-------------------------
Performance Shares to one or more Participants. The terms and conditions of any
grant of Performance Shares shall be set forth in a written agreement between
the Company and the Participant. Such written agreement may permit a Participant
to make elections thereunder with respect to the Performance Objective(s)
applicable thereto and/or the method(s) of calculating such Performance
Objective(s). Performance Shares shall be denominated in shares of Stock and,
contingent upon the attainment of specified Performance Objectives within one or
more Performance Cycles, and subject to the Company's rights as set forth in
paragraph (c) of this Section 8, represent the right to receive a distribution
of Stock and/or payment of cash following the completion of each Performance
Cycle, as provided in paragraph (b) of this Section 8. The Committee shall
determine the extent to which any one or more Performance Objectives have been
achieved by the Company in the applicable Performance Cycle. In the absence of
bad faith or manifest error, the Committee's determination shall be final and
binding upon a Participant.
17
<PAGE>
Performance Shares may be granted to a Participant prior to or during a
Performance Cycle, but distributions and payments with respect thereto may only
be made following the completion of a Performance Cycle, except as otherwise
provided in paragraph (e) of this Section 8 following a Change in Control. The
number of Performance Shares subject to an award shall be allocated among the
Performance Cycle(s) covered by such award in such manner as the Committee shall
determine. The written agreement evidencing the award of Performance Shares
shall specify the number of Performance Shares subject to the award, the number
and duration of the Performance Cycles to which those Performance Shares relate,
the Performance Objectives, the identification of the Performance Cycle(s)
within which such Performance Objectives must be satisfied, the number of
Performance Shares allocated to each such Performance Cycle, and the vesting
provisions with respect to such Performance Shares (i.e., the date or, if
vesting is on an installment basis, the dates after which the Participant shall
have indefeasible right to the distribution and/or payment described in
paragraph (b) of this Section 8, if any, with respect to certain or all
Performance Shares subject to the award), subject to the limitations thereon
described below. The number of Performance Shares allocated to a Performance
Cycle under any award of Performance Shares shall not exceed 100,000.
If any change shall occur in or affect the Stock or Performance Shares on
account of any increase or decrease in the number of outstanding shares of Stock
resulting from payment of a Stock dividend on Stock, a subdivision or
combination of shares of Stock, a reclassification of Stock, a recapitalization
involving the Company or in the event of a merger or consolidation in which the
Company shall be the surviving corporation, the Committee shall make such
adjustments, if any, that it deems necessary in the number of Performance Shares
allocated to awards of Performance Shares then outstanding to reflect such
change in capitalization.
To reflect a change in tax laws or regulations or accounting principles,
the Committee shall make such adjustments in the Performance Objectives set
forth in all outstanding awards of Performance Shares in respect of Performance
Cycles not then completed so as to reflect such change to preserve the value of
the Performance Shares consistent with the intent and the purpose of the Plan,
provided the Company's independent auditors shall have determined that such
adjustments shall not result in the Company's loss of deductibility under
Section 162(m) with respect to Participants whose compensation is, in the
reasonable belief of the Committee, subject thereto. Further, with respect to a
Participant, the deductibility of whose award of Performance Shares will not, in
the reasonable belief of the Committee, be subject to Section 162(m) of the
Code, the Committee may, in its discretion and independent of any determination
made by the Company's independent auditors, adjust the Performance Objective(s)
in respect of Performance Cycles not then completed so as to reflect a change in
tax laws or regulations or accounting
18
<PAGE>
principles to preserve the value of the Performance Shares consistent with the
intent and the purpose of the Plan.
Performance Shares shall be vested at such time or times as determined by
the Committee (taking into account, without limitation, Section 16 of the Act)
at the date of award, provided that acceleration of vesting may be granted by
the Committee after the date of award, but in no event shall the Committee
provide a vesting schedule which would vest fewer Performance Shares in a
Participant through the completion of a particular Performance Cycle than the
aggregate number of Performance Shares allocated to such Performance Cycle and
all Performance Cycles included in such award which have been previously
completed. If the Committee provides, in its discretion, that any award is
vested only in installments, the Committee may waive such installment vesting
provisions at any time.
Upon termination of a Participant's employment by the Company without
Cause, unvested Performance Shares awarded on or prior to January 1, 1996, shall
all vest and those awarded after January 1, 1996, shall vest pro-rata in
proportion to the percentage of the Performance Cycle for such Performance
Shares during which the Participant was employed by the Company. In addition,
all unvested Performance Shares shall vest (i) upon death, Disability or (unless
the Participant is older than 58 years old at January 1, 1996) Retirement of the
Participant while employed by the Company and (ii) as set forth in paragraph (e)
of this Section 8 in the event of a Change in Control. Except as provided above,
Performance Shares not vested on the date of termination of employment shall be
forfeited.
(b) Distributions and Payments on Completion of Performance Cycle. In
-------------------------------------------------------------
furtherance of an election discussed in paragraph (c) of this Section 8,
distributions of shares of Stock and/or payments of cash with respect to
Performance Shares allocated to a particular Performance Cycle covered by an
award shall be made to the Participant within one hundred twenty (120) days
after the completion of such Performance Cycle in accordance with the
Committee's determination of the achievement of the applicable Performance
Objectives, unless the agreement evidencing the award provides for the deferral
of such distribution or payment, in which event the terms and conditions of the
deferral shall be set forth in the agreement. Provided a Participant who has
been granted a Performance Shares award shall have been employed by the Company
through the date on which a particular Performance Cycle shall have been
completed, or such Participant's employment with the Company shall have been
terminated prior thereto by reason of death, Disability or Retirement, or by the
Company without Cause, such Participant shall be entitled to receive with
respect to each such award:
19
<PAGE>
(i) a number of shares of Stock to be determined in accordance with
the following formula:
a x b = c ; or
(ii) a cash payment in an amount to be determined in accordance with
the following formula:
a x b x d = e; or
(iii) a combination of Stock and cash in the amounts determined in
accordance with the formulae set forth in clauses (i) and (ii) above,
provided, however, that, in such event, in each such formula a shall be
multiplied by the percentage that represents the portion of the Performance
Shares allocated to such Performance Cycle to be paid in Stock or cash, as
the case may be;
where:a = the number of Performance Shares granted in such award allocated
to the applicable Performance Cycle;
b = a percentage (which may be more than 100%), which represents
the extent to which the Performance Objectives set forth in such
award have been achieved by the Company in the applicable
Performance Cycle;
c = the number of shares of Stock to be distributed to a
Participant at the end of the applicable Performance Cycle
pursuant to such award;
d = the Fair Market Value of a share of Stock as of the last day of
the applicable Performance Cycle or such other date as the
Committee shall specify in such award; and
e = the amount of the cash to be paid to the Participant at the end
of the applicable Performance Cycle pursuant to such award.
The Committee may, in its sole and absolute discretion, provide that in the
event a Participant shall not have been employed by the Company through the date
on which a particular Performance Cycle covered by such Participant's award
shall have been completed, such Participant may be entitled to a distribution of
Stock and/or cash in respect of Performance Shares which have vested but with
respect to which a distribution or payment had not previously been made with
respect thereto, by allocating such vested, but unpaid, Performance Shares to
the remaining
20
<PAGE>
uncompleted Performance Cycles covered by such Participant's award in such
amounts as it determines, but in no event shall such Participant receive
allocations more favorable than the original allocations made in such
Participant's award.
(c) Election to Receive Stock or Cash. Subject to any deferral election
---------------------------------
made pursuant to the terms and conditions of an agreement evidencing an award
hereunder, and the Committee's absolute and sole discretion to satisfy the
Company's obligations hereunder by payment of cash as set forth below, at least
six (6) months prior to the date on which a Performance Cycle shall be completed
with respect to a Participant's award of Performance Shares, such Participant
may make an election to receive such Participant's distribution, if any,
following completion of such Performance Cycle, in shares of Stock and/or cash.
Such election shall be made in writing and shall be delivered to the Company's
Chief Financial Officer or General Counsel, or such other officer as the
Committee shall from time to time designate. Notwithstanding any cash election,
the Committee may in its sole and absolute discretion satisfy the Company's
obligations to any Participant by delivery of shares of Stock, subject to the
availability of such Stock under the Plan. If the Participant shall fail to make
a timely election, the Committee shall have the sole discretion to deliver
shares of Stock and/or pay cash to satisfy any such obligation.
In the event Participants elect to receive shares of Stock in satisfaction
of the Company's obligations under paragraph (b) of this Section 8 with respect
to the completion of a particular Performance Cycle, and the aggregate number of
shares of Stock subject to such elections, together with the number of shares of
Stock subject to outstanding Stock Options and outstanding Restricted Stock
awards as of the date of completion of such Performance Cycle, exceeds the
maximum number of shares of Stock reserved and available for distribution under
the Plan, other than under Section 7, the Committee shall have the absolute and
sole discretion to satisfy such obligations by reducing the number of shares of
Stock subject to such elections to that number which, when added to the number
of outstanding Stock Options and Restricted Stock awards, equals the maximum
number of shares of Stock so reserved and available for distribution under the
Plan. In such event, the Committee shall reduce the number of shares of Stock
pursuant to each Participant's election pro rata, based upon the number of
shares of Stock otherwise issuable pursuant to such elections. The Company shall
satisfy the obligations to such Participants, which remain unsatisfied following
a distribution made pursuant to the foregoing reduction, by paying cash to such
Participants in accordance with the formula, and within the time period, set
forth in paragraph (b) of this Section 8.
(d) Dividend Reinvestment. At the time an award of Performance Shares is
---------------------
granted, the Committee may, in its discretion, determine that, in the event cash
dividends are paid on the Stock during any Performance Cycle, there shall be an
increase in the number of Performance Shares subject to awards under this
Section 8. The aggregate number of additional Performance Shares issuable to a
21
<PAGE>
Participant holding an outstanding Performance Shares award on the date of
payment of a cash dividend shall be determined in accordance with the following
formula:
(i x j) = l
-------
k
where:i = the number of Performance Shares allocated to all Performance
Cycles included in a Participant's award which have not been completed
or which have been completed but with respect to which payments have
not been made prior to the payment date of the cash dividend;
j = the per share of Stock cash dividend paid;
k = the Fair Market Value of a share of Stock on the payment date of the
cash dividend; and
l = the aggregate number of additional Performance Shares allocable
among all Performance Cycles included in a Participant's award which
have not been completed or which have been completed but with respect
to which payments have not been made prior to the payment date of the
cash dividend.
The number of Performance Shares allocated to each Performance Cycle
included in a Participant's award which has not been completed or which has been
completed but has not been paid prior to the payment date of the cash dividend
shall be increased in relative proportion to the number of Performance Shares
allocated to all such Performance Cycles prior to such adjustment. Further, all
such additional Performance Shares shall immediately vest in the Participant.
(e) Change in Control. In the event of a Change in Control, all
Participants who then hold awards of Performance Shares will immediately become
fully vested with respect thereto ("Accelerated Shares"); provided that such
accelerated vesting shall not apply to Performance Shares awarded after January
1, 1996, if a Plan Continuation shall have occurred as provided below in this
paragraph (e) ("Non-Accelerated Shares"). In the event of a Change in Control, a
Participant shall be entitled to a cash payment, or payments, pursuant to
paragraph (b) of this Section 8 with respect to all Performance Cycles completed
on or prior to the date of the Change in Control as provided in said paragraph;
in addition, the Committee shall value all Accelerated Shares in respect of
Performance Cycles which shall not have been completed on or before the date of
the Change in Control based upon the formulae set forth in paragraph (b) of this
Section 8 except that b shall be equal to a percentage (the "Minimum
Percentage")
22
<PAGE>
equal to the greater of (i) the average of the percentages (which may have been
more than 100%), which represented the extent to which Performance Objectives
were achieved by the Company in all Performance Cycles completed on or before
the date of the Change in Control; and (ii) 50%; provided that, in the case of
Performance Shares awarded after January 1, 1996, b shall equal (i) for all
Performance Cycles that do not include at least one completed year at the
Operative Date (as defined below), 100%, and (ii) for all Performance Cycles
that include at least one completed year at the Operative Date, a percentage
(which may be more than 100%), which represents the extent to which the
Performance Objectives set forth in such award have been achieved by the Company
in the applicable Performance Cycle assuming that the Company achieved 100% of
its Performance Objectives for each year not completed at the Operative Date.
For purposes of the foregoing, the "Operative Date" shall mean the date of the
Change in Control. On the date one year after the Change in Control (the
"One-Year Period"), the Company shall pay a Participant the cash to which such
Participant is entitled with respect to the Performance Shares whose vesting has
been accelerated based on the Change in Control unless, prior thereto, such
Participant's employment shall have been terminated by the Company for Cause or
such Participant shall have voluntarily terminated his/her employment without
Good Reason (defined below), in either of which events such Participant shall
forfeit all rights to such Performance Shares whose vesting has been accelerated
based upon the Change in Control and which would not otherwise have vested and
all rights to payment attributable to application of the Minimum Percentage and
any distribution of Stock and/or cash with respect thereto. In the case of any
Performance Cycle completed during the One-Year Period, payment of any amount
due shall be made in accordance with Section 8(b), provided that any incremental
payment due pursuant to the foregoing provisions of this Section 8(e) by reason
of application of the Minimum Percentage shall be payable at the end of the
One-Year Period unless forfeited.
In the event of a Change in Control, the Board of Directors may elect
by resolution prior to the Change in Control to continue the Plan (a "Plan
Continuation"), in which event all Non-Accelerated Shares shall vest and be
payable as if no Change in Control had occurred except as otherwise provided in
the next two succeeding sentences. Following a Plan Continuation, if a
Participant's employment shall be terminated by the Company without Cause or
such Participant shall voluntarily terminate his/her employment for Good Reason,
in either case prior to the completion of any Performance Cycle in respect of
any Non-Accelerated Shares, then (i) all Non-Accelerated Shares outstanding at
the date of the Change in Control and having Performance Cycles which shall not
have been completed prior to the date of termination of employment shall be
deemed to be Accelerated Shares ("Re-Accelerated Shares") for purposes of this
paragraph (e) and (ii) payment in respect of such Re-Accelerated Shares shall be
made as provided in this paragraph (e) for Accelerated Shares (except that the
"Operative Date" shall mean the date of termination of employment) and shall be
paid immediately if the One-Year Period
23
<PAGE>
shall have elapsed. In the event of a Plan Continuation, the Committee shall
make such adjustments, if any, to the Performance Objectives and/or the method
of calculating the Performance Objectives as it shall deem necessary or
appropriate to preserve the value of the Non-Accelerated Shares consistent with
the intent and the purpose of the Plan.
For the purposes of this Section 8(e) "Good Reason" shall mean, in the
context of a voluntary termination by a Participant of his employment with the
Company, such termination within 90 days after the occurrence of any one of the
following events without the Participant's express written consent:
(i) the assignment to such Participant of any duties inconsistent with
the Participant's position, duties, responsibilities, and status with the
Company (or a Subsidiary) immediately prior to a Change in Control, or a
substantive change in the Participant's titles or offices as in effect
immediately prior to a Change in Control, or any removal of the Participant
from or any failure to reelect the Participant to such positions, except in
connection with the termination of the Participant's employment by the
Company (or a Subsidiary) for Cause of by the Participant other than for
Good Reason; or
(ii) if the Participant's total cash compensation opportunities,
including salary and incentives, for any fiscal year are less than the
total cash compensation opportunities made available to the Participant in
the completed fiscal year immediately preceding the Change in Control;
(iii) the failure of the Company (or a Subsidiary) to continue in
effect any benefits or perquisites, or any pension, life insurance, medical
insurance or disability plan in which the Participant was participating
immediately prior to a Change in Control unless the Company (or a
Subsidiary) provides the Participant with a plan or plans that provide
substantially similar benefits, or the taking of any action by the Company
(or a Subsidiary) that would adversely affect the Participant's benefits
under any of such plans or deprive the Participant of any material fringe
benefit enjoyed by the Participant immediately prior to a Change in
Control; or
(iv) any relocation of the Participant from the city where the
Participant was located at the time of the Change in Control; or
(v) following a Change in Control, Financial Security Assurance Inc.
ceases to be a Subsidiary, or the Company sells or otherwise disposes of,
in one transaction or a series of related transactions, assets or earning
power aggregating more than 30% of the assets (taken at asset value as
stated on the books of the Company determined in accordance with generally
accepted
24
<PAGE>
accounting principles consistently applied) or earning power of the Company
(on an individual basis) of the Company and its Subsidiaries (on a
consolidated basis) to any other person or persons; or
(vi) following a Change in Control, if the Participant is employed by
a Subsidiary of the Company, such Subsidiary either ceases to be a
Subsidiary of the Company or sells or otherwise disposes of, in one
transaction or a series of related transactions, assets or earning power
aggregating more than 30% of the assets (taken at asset value as stated on
the books of the subsidiary determined in accordance with generally
accepted accounting principles consistently applied) or earning power of
such subsidiary (on an individual basis) or such Subsidiary and its
Subsidiaries (on a consolidated basis) to any other person or persons.
(f) Holders of Performance Shares Not To Be Treated As Stockholders.
---------------------------------------------------------------
Neither any Participant awarded Performance Shares hereunder, nor any person
entitled to exercise a Participant's rights thereto in the event of death, shall
have any rights of a stockholder with respect to any share of Stock subject to
such Participant's award of Performance Shares, except to the extent that a
certificate for such shares shall have been issued as provided for herein.
(g) Non-Transferability of Performance Shares. No Performance Share shall
-----------------------------------------
be transferrable by a Participant, or otherwise subject to voluntary or
involuntary sale, pledge, anticipation, alienation, encumbrance, assignment,
garnishment or attachment, other than by will or by the laws of descent and
distribution.
(h) Funding. Prior to the award of any Performance Shares, the Committee
-------
shall establish a funding vehicle, which may or may not be the Fund referred to
in Section 7 hereof, to assist the Company with its obligations under this
Section 8. The Committee may provide that credits and allocations otherwise
provided for by this Section 8 shall be adjusted to take into account the amount
and timing of purchases and sales of, and dividends with respect to, Stock under
such fund; the manner in which such fund otherwise operates; the amount of Stock
in such fund from time to time; and such other factors as the Committee may deem
relevant; provided that the limitation in Section 3 hereof may not be adjusted
under this sentence. Any fund shall be designed not to cause the plan to be
considered to be funded for tax purposes or for purposes of Title I of the
Employee Retirement Income Security Act of 1974, as amended.
25
<PAGE>
SECTION 9. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
a. a transfer of an employee from the Company to a Subsidiary, or from a
Subsidiary to the Company, or from one Subsidiary to another; or
b. a leave of absence, approved in writing by the Committee, for military
service or sickness, or for any other purpose approved by the Company if the
period of such leave does not exceed ninety (90) days (or such longer period as
the Committee may approve, in its sole discretion).
SECTION 10. AMENDMENTS AND TERMINATION
The Board may amend, alter, or discontinue the Plan (or any portion
thereof), but no amendment, alteration or discontinuation shall be made which
would impair the rights of an optionee or recipient with respect to any Stock
Option, Restricted Stock award, Equity Bonus or Performance Shares theretofore
granted, without the optionee's or recipient's consent; provided that the Board
may not make any amendment in the Plan that would, if such amendment were not
approved by the holders of the Stock, cause the Plan to fail to comply with (a)
Section 16 of the Act (or Rule 16b-3 under the Act), or (b) any other
requirement of applicable law or regulation, unless and until the approval of
the holders of such Stock is obtained.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively, but no such amendment shall impair the
rights of any holder without his consent.
SECTION 11. GENERAL PROVISIONS
a. The Committee may require each person purchasing shares pursuant to a
Stock Option under the Plan to represent to and agree with the Company in
writing that the optionee is acquiring the shares without a view toward
distribution thereof. The certificates for such shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan pursuant to any
Restricted Stock or Performance Shares awards shall be subject to such
stock-transfer orders and other restrictions as the Committee may deem advisable
under the rules, regulations, and other requirements of the Securities and
Exchange Commission, any stock exchange upon which the Stock is then listed, and
any applicable Federal or state securities
26
<PAGE>
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions. The foregoing
provisions of this paragraph shall not be effective if and to the extent that
the shares of Stock delivered under the Plan are covered by an effective and
current registration statement under the Securities Act of 1933, as amended,
such that application of such provisions is no longer required, or if and so
long as the Committee otherwise determines that such application is no longer
required.
b. Subject to paragraph (d) below, recipients of Restricted Stock or Stock
in respect of Equity Bonuses or Performance Shares under the Plan are not
required to make any payment or provide consideration other than the rendering
of past services and/or the commitment to render and rendering of future
services.
c. Nothing contained in the Plan shall prevent the Board of Directors from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of the
Plan shall not confer upon any employee of the Company or any Subsidiary any
right to continued employment with the Company, nor shall it interfere in any
way with the right of the Company to terminate the employment of any of its
employees at any time.
d. Each Participant shall, no later than the date as of which the value of
an award first becomes includible in the gross income of the Participant for
Federal income tax purposes, pay to the Company or make arrangements
satisfactory to the Committee regarding payment of any Federal, state or local
taxes of any kind required by law to be withheld with respect to the award;
provided, however, that such tax withholding requirement may be met by the
withholding of shares of Stock otherwise deliverable to the Participant,
pursuant to procedures approved by the Committee. The obligations of the Company
under the Plan shall be conditional on such payment or arrangements and the
Company shall, to the extent permitted by law, have the right to deduct any such
taxes from any payment of any kind otherwise due to the Participant. The
Committee, in its discretion (and giving consideration to, without limitation,
Section 16 of the Act), may permit an optionee hereunder to satisfy the
withholding obligation, in whole or in part, by irrevocably electing to have the
Company withhold shares of Stock, otherwise to be obtained upon the exercise of
a Stock Option, having a Fair Market Value equal to the amount required to be
withheld.
e. At the time of grant, the Committee may provide in connection with any
grant made under the Plan that the shares of Stock received as a result of such
grant shall be subject to a right of first refusal, pursuant to which the
Participant shall be required to offer to the Company any shares that the
Participant wishes to
27
<PAGE>
sell, with the price being the then Fair Market Value of the Stock, subject to
such other terms and conditions as the Committee may specify at the time of
grant.
f. Notwithstanding any other provision of the Plan, if the Committee
determines that an individual entitled to take action or receive payments
hereunder is an infant or incompetent by reason of physical or mental
disability, it may permit such action to be made by or cause such payments to be
made to a legal guardian, custodian or comparable party, without any further
responsibility with respect thereto under the Plan.
SECTION 12. EFFECTIVE DATE OF PLAN
The Plan shall be effective on the date it is approved by a vote of the
holders of a majority of the total outstanding Stock. The Plan shall not become
effective unless it is so approved.
SECTION 13. TERM OF PLAN
No Stock Option, Restricted Stock award, Performance Shares award or Equity
Bonus shall be granted pursuant to the Plan on or after the tenth anniversary of
the date of stockholder approval, but awards theretofore granted may extend
beyond that date.
28
AMENDED AND RESTATED
BYLAWS
of
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
as amended and restated on
February 14, 1996
ARTICLES I
OFFICES
The principal office of the Corporation in the State of New York shall be
located in the City of New York, County of New York. The Corporation may have
such other offices, either within or without the State of New York, as the Board
of Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the Shareholders shall be
--------------
held on such date as the Board of Directors shall designate in each year for the
purpose of electing Directors and for the transaction of such other business as
may come before the meeting. If no designation is made for any year, the date of
meeting shall be the second Thursday in the month of May in such year. If the
day fixed for the annual meeting shall be a legal holiday in the State of New
York, such meeting shall be held on the next succeeding business day.
Section 2. Special Meetings. Special meetings of the Shareholders may be
----------------
called by the Chairman, the President or the Board of Directors, and shall be
called by the Chairman, the President or the Secretary at the request of the
holders of not less than ten percent (10%) of the outstanding shares of the
Corporation entitled to vote at the meeting.
Section 3. Place of Meeting. The Chairman, the President or the Board of
----------------
Directors may designate any place, either within or without the State of New
York, as the place of meeting for any annual meeting or for any special meeting
called by the Chairman, the President or the Board of Directors. A notice signed
by the holders of not less than ten percent (10%) of the outstanding shares of
the Corporation entitled to vote at the meeting may designate any place, either
within or without the State of New York, as the place for the holding of such
meeting. If no designation is made, or if a special meeting be otherwise called,
the place of meeting shall be the registered office of the Corporation in the
State of New York.
Section 4. Notice of Meeting. Written notice of every meeting of
-----------------
Shareholders shall state the place, date and hour of the meeting and, unless it
is the annual meeting, indicate that it is being issued by or at the direction
of the person or persons calling the meeting. Notice of a special meeting shall
also state the purpose or purposes for which the meeting is called. If, at any
meeting, action is proposed to be taken which would, if taken, entitle
Shareholders fulfilling the statutory requirements to receive payment for their
shares, the notice of such meeting shall
<PAGE>
include a statement of that purpose and to that effect and shall be accompanied
by a copy of the relevant statutory provision or an outline of its material
terms. A copy of the notice of any meeting shall be given, personally or by
mail, not less than 10 or more than 50 days before the date of the meeting, to
each Shareholder entitled to vote at such meeting. If mailed, such notice shall
be deemed given when deposited in the United States mail, postage prepaid,
directed to the Shareholder at his address as it appears on the record of
Shareholders, or, if he shall have filed with the Secretary of the Corporation
a written request that notices to him be mailed to some other address, then
directed to him at such other address.
Section 5. Adjournments. The Shareholders present at a meeting of
------------
Shareholders may adjourn the meeting despite the absence of a quorum. When a
determination of Shareholders entitled to notice of or to vote at any meeting of
Shareholders has been made, such determination shall apply to any adjournment
thereof, unless the Board of Directors fixes a new record date for the adjourned
meeting. When a meeting is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting if the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and at the adjourned meeting the Corporation may transact
any business that might have been transacted on the original date of the
meeting. However, if after the adjournment the Board of Directors fixes a new
record date for the adjourned meeting, a notice of the adjourned meeting shall
be given to each Shareholder of record entitled to notice on the new record
date.
Section 6. Fixing of Record Date. For the purpose of determining
---------------------
Shareholders entitled to notice of or to vote at any meeting of Shareholders or
any adjournment thereof, or Shareholders entitled to receive payment of any
dividend, or in order to make a determination of Shareholders for any other
proper purpose, the Board of Directors may fix in advance a date as the record
date for any such determination of Shareholders, such date in any case to be not
more than 50 days and, in case of a meeting of Shareholders, not less than 10
days prior to the date on which the particular action requiring such
determination of Shareholders is to be taken. If no record date is fixed for the
determination of Shareholders entitled to notice of or to vote at a meeting of
Shareholders, the record date shall be at the close of business on the day next
preceding the day on which notice of the meeting is given, or if no notice is
given, the day on which the meeting is held. If no record date is fixed for the
determination of Shareholders for any other purpose, the record date shall be at
the close of business on the day on which the resolution of the Board of
Directors relating thereto is adopted. When a determination of Shareholders
entitled to vote at any meeting of Shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof unless
the Board of Directors fixes a new record date.
Section 7. Voting Lists. A list of Shareholders as of the record date,
------------
certified by the Secretary or by the transfer agent, shall be produced at any
meeting of Shareholders upon the request thereat or prior thereto of any
Shareholder. If the right to vote at any meeting is challenged, the inspectors
of election, or person presiding thereat, shall require such list of
Shareholders to be produced as evidence of the right of the persons challenged
to vote at such meeting, and all persons who appear from such list to be
Shareholders entitled to vote thereat may vote at such meeting.
<PAGE>
Section 8. Quorum. The holders of a majority of the outstanding shares of
------
the Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of Shareholders. If the holders of less than a
majority of the outstanding shares entitled to vote are represented at a
meeting, a majority of the shares so represented may adjourn the meeting. At any
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified.
Section 9. Proxies. Every Shareholder entitled to vote may authorize
-------
another person or persons to act for him by proxy. Every proxy must be signed by
the Shareholder or his attorney in fact. No proxy shall be valid more than
eleven months after it is executed, unless otherwise provided in the proxy.
Section 10. Voting of Shares by Corporate Holders. Shares standing in the
-------------------------------------
name of another corporation may be voted by such officer, agent or proxy as the
Bylaws of such corporation may prescribe, or, in the absence of such provisions,
as the board of directors of such corporation may determine.
Section 11. Informal Action by Shareholders. Any action required or
-------------------------------
permitted to be taken at a meeting of the Shareholders, may be taken without a
meeting on written consent, setting forth the action so taken, signed by the
holders of all outstanding shares entitled to vote thereon.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business of the Corporation shall be managed
under the direction of the Board of Directors.
Section 2. Number, Tenure and Qualifications.
(a) Number. the number of Directors constituting the entire Board of
Directors shall not be less than three nor more than 20. The number of
directors shall be determined by a majority vote of the entire Board of
Directors.
(b) Tenure. Except as provided in Sections 4 and 5 of this Article
III, each Director shall hold office until the expiration of the term for
which he is elected and until his successor has been elected and qualified.
(c) Qualifications. At all times a majority of the Directors shall be
citizens and residents of the United States. Each Director shall be at
least eighteen years of age.
Section 3. Election of Directors. Directors shall be elected at each annual
---------------------
meeting of the Shareholders.
<PAGE>
Section 4. Resignation. Any Director of the Corporation may resign at any
-----------
time by giving written notice to the Chairman, the President or the Secretary of
the Corporation. The resignation of any Director shall take effect at the time
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 5. Vacancies. Except as otherwise provided in the Certificate of
---------
Incorporation, newly created directorships resulting from an increase in the
number of Directors and vacancies occurring in the Board of Directors for any
reason, including the removal of a Director, may be filled by a majority vote of
the remaining directors then if office. A Director elected to fill a vacancy,
unless elected by the Shareholders, shall be elected to hold office until the
next meeting of Shareholders at which the election of Directors is in the
regular order of business, and until his successor has been elected and
qualified.
Section 6. Regular Meetings. Regular meetings of the Board of Directors may
----------------
be held without notice immediately after, and at the same place as, the annual
meeting of Shareholders. The Board of Directors may provide, by resolution, the
time and place, either within or without the State of New York, for the holding
of additional regular meetings thereof upon notice specified in such resolution.
Section 7. Special Meetings. Special meetings of the Board of Directors may
----------------
be called by or at the request of the Chairman, the President or any two
Directors. The persons authorized to call such special meetings may fix any
place, either within or without the State of New York, as the place for holding
any such special meeting.
Section 8. Notices for Special Meetings. Written notice of any special
----------------------------
meeting of the Board of Directors shall be given at least one day in advance of
the day on which such special meeting shall be held. Any such notice may be
personally delivered, transmitted by telex, telegram or telecopy, or mailed to
each Director at his business address, postage prepaid. Any such notice
personally delivered shall be effective upon delivery. Any such notice
transmitted by telex, telegram or telecopy shall be effective one business day
after mailing. Any such notice shall state the place, date and hour of the
meeting and indicate that it is being issued by or at the direction of the
person calling the meeting. Neither the business to be transacted at, nor the
purpose of, any such special meeting need be specified in such notice.
Section 9. Quorum. A quorum shall consist of a majority of the Directors
------
then in office.
Section 10. Manner of Acting. The vote of the majority of the Directors
----------------
present at a meeting of the Board of Directors at the time of the vote, if a
quorum is present at such time, shall be the act of the Board of Directors.
Resolutions so adopted shall be filed with the minutes of the proceedings of the
Board or committee.
Section 11. Meeting by Telephone Conference. One or more members of the
-------------------------------
Board of Directors may participate in a meeting of the Board of Directors by
means of a conference telephone or similar communications equipment that allows
all persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
<PAGE>
Section 12. Action by Written Consent. Any action required or permitted to
-------------------------
be taken by the Board of Directors or any committee thereof may be taken without
a meeting if all members thereof consent in writing to the adoption of a
resolution authorizing the action. Resolutions so adopted shall be filed with
the minutes of the proceedings of the Board of Directors or any such committee.
Section 13. Compensation. By resolution of the Board of Directors, the
------------
Directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors, and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as Director. No such
payment shall preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefor.
ARTICLE IV
COMMITTEES
Section 1. Executive Committee. The Board of Directors may, by resolution
-------------------
adopted by a majority of the entire Board of Directors, designate an Executive
Committee consisting of three or more Directors, which Committee shall have and
may exercise, when the Board is not in session, the power of the Board of
Directors in the management of the business and affairs of the Corporation, but
the Executive Committee shall not have the power to submit to the Shareholders
any action which requires Shareholders' approval, fill vacancies in the Board of
Directors or any committee thereof, fix compensation of Directors or committee
members, amend or repeal these Bylaws or adopt new bylaws, or amend or repeal
any resolution of the Board which by its terms shall not be so amendable or
repealable.
Section 2. Other Committees. The Board of Directors may establish such
----------------
other committees having such duties and powers as the Board of Directors may
deem appropriate, but in no event shall any such committee have any of the
powers which may not be granted to the Executive Committee.
Section 3. Meeting by Telephone Conference. One or more members of any
-------------------------------
committee may participate in a meeting of such committee by means of a
conference telephone or similar communications equipment that allows all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
Section 4. Administrative Matters. Each committee may make rules for the
----------------------
conduct of its business and may appoint such committees and assistants as it
shall from time to time deem necessary. A majority of the members of each
committee shall constitute a quorum. Each committee shall keep written minutes
of their transactions and report such minutes to the Board of Directors at the
next regular meeting thereof.
<PAGE>
ARTICLE V
OFFICERS
Section 1. Number. The officers of the Corporation shall be a Chairman, a
------
Vice Chairman, a President, one or more Managing Directors, one or more Vice
Presidents, a Secretary and a Treasurer, each of whom shall be elected by the
Board of Directors. The offices of the Chairman and Vice Chairman may be vacant.
Such other officers and assistant officers as may be deemed necessary may be
elected or appointed by the Board of Directors. Any two or more offices may be
held by the same person except the offices of President and Secretary; provided,
however, that if all of the issued and outstanding stock is held by one person,
that person may hold all or any combination of offices.
Section 2. Election and Term of Office. The officers of the Corporation to
---------------------------
be elected annually by the Board of Directors shall be elected at the first
regular meeting of the Board of Directors held after each annual meeting of the
Shareholders. If the election shall not be held at such meeting, such election
shall be held as soon thereafter as practicable. Each officer shall hold office
until his successor shall have been duly elected and shall have qualified or
until his death or until he shall resign or shall have been removed in the
manner hereinafter provided.
Section 3. Resignations. Any officer may resign at any time by giving
------------
written notice of his or her resignation to the Board of Directors, or to
another officer of the Corporation, provided that such other officer is the
Chairman, the President or the Secretary of the Corporation. Subject to the
contractual obligations of the person so resigning, any such resignation shall
take effect at the time of the delivery of such notice.
Section 4. Removal. Any officer or agent elected or appointed by the Board
-------
of Directors may be removed by the Board of Directors with or without cause, but
any such removal shall be without prejudice to the contract rights, if any, of
the person so removed.
Section 5. Vacancies. A vacancy in any office, because of death,
---------
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
Section 6. Chairman. The Chairman shall preside at all meetings of the
--------
Board of Directors and shall have and perform such other duties as from time to
time may be assigned by the Board of Directors. The Chairman may execute, with
or without the Secretary, an Assistant Secretary or another proper officer of
the Corporation thereunto authorized by the Board of Directors, certificates for
shares of the Corporation, deeds, mortgages, bonds, contracts or other
instruments which the Board of Directors has authorized to be executed, except
in cases where the execution thereof shall be expressly delegated by the Board
of Directors or by these Bylaws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise executed.
Section 7. Vice Chairman. The Vice Chairman shall, in the absence of the
-------------
Chairman, or in the event of the Chairman's death, disability or refusal to act,
preside at all meetings of the
<PAGE>
Shareholders and the Board of Directors. The Vice Chairman shall perform such
other duties as from time to time may be assigned by these Bylaws or by the
Board of Directors.
Section 8. President. The President, unless the Board of Directors
---------
specifically determines otherwise, shall be the Chief Executive Officer of the
Corporation and, subject to the control of the Board of Directors, shall in
general supervise and control all of the business and affairs of the
Corporation. The President shall, in the absence of the Chairman and the Vice
Chairman, or in the event of their death, inability or refusal to act, preside
at all meetings of the Shareholders and the Board of Directors. The President
may execute, with or without the Secretary, an Assistant Secretary or another
proper officer of the Corporation thereunto authorized by the Board of
Directors, certificates for shares of the Corporation, deeds, mortgages, bonds,
contracts or other instruments which the Board of Directors has authorized to be
executed, except in cases where the execution thereof shall be expressly
delegated by the Board of Directors or by these Bylaws to some other officer or
agent of the Corporation, or shall be required by law to be otherwise executed.
The President shall perform such other duties as from time to time may be
assigned by these Bylaws or by the Board of Directors.
Section 9. Managing Directors. The Managing Directors shall perform such
------------------
duties as from time to time may be assigned by these Bylaws or by the Board of
Directors, the Chairman or the President of the Corporation. Any Managing
Director may be assigned the title and duties of Chief Operating Officer by the
Board of Directors or the President. The Managing Directors may execute, with or
without the Secretary, an Assistant Secretary or another proper officer of the
Corporation thereunto authorized by the Board of Directors, any contracts or
other instruments which the Board of Directors has authorized to be executed,
except in cases where the execution thereof shall be expressly delegated by the
Board of Directors or by these Bylaws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise executed.
Section 10. Vice Presidents. The Vice Presidents shall perform such duties
---------------
as from time to time may be assigned by these Bylaws or by the Board of
Directors, the Chairman or the President of the Corporation.
Section 11. The Secretary. The Secretary shall:
-------------
(a) keep the minutes of the meetings of the Shareholders and the Board
of Directors in one or more books provided for that purpose;
(b) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law;
(c) be custodian of the corporate records and of the seal of the
Corporation and see that the seal of the Corporation is affixed to all
documents the execution of which on behalf of the Corporation under its
seal is duly authorized;
(d) keep a registration of the post office address of each Shareholder
which has been furnished to the Secretary by such Shareholder;
<PAGE>
(e) execute with any other duly authorized officer of the Corporation,
certificates for shares of the Corporation, deeds, mortgages, bonds,
contracts or other instruments which the Board of Directors has authorized
to be executed, except in cases where the execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some
other officer or agent of the Corporation, or shall be required by law to
be otherwise executed;
(f) have general charge of the stock transfer books of the
Corporation; and
(g) in general perform all duties incident to the office of Secretary
and such other duties as from time to time may be assigned by these Bylaws
or by the Board of Directors, the Chairman or the President of the
Corporation.
Section 12. The Treasurer. The Treasurer shall have charge and custody of
------------
and be responsible for all funds and securities of the Corporation, receive and
give receipts of moneys due and payable to the Corporation, and deposit all such
moneys in the name of the Corporation in such banks, trust companies or other
depositories as shall be selected by the Corporation. The Treasurer shall also
perform all other duties incident to the office of the Treasurer and such other
duties as from time to time may be assigned by these Bylaws or by the Board of
Directors, the Chairman or the President of the Corporation. If required by the
Board of Directors, the Treasurer shall give a bond for the faithful discharge
of his or her duties in such sum and with such surety as the Board of Directors
shall determine.
Section 13. Assistant Secretaries and Assistant Treasurers. The Assistant
----------------------------------------------
Secretaries and Assistant Treasurers may execute, with any duly authorized
officer of the Corporation, certificates for shares of the Corporation, deeds,
mortgages, bonds, contracts or other instruments which the Board of Directors
has authorized to be executed, except in cases where the execution thereof shall
be expressly delegated by the Board of Directors or by these Bylaws to some
other officer or agent of the Corporation, or shall be required by law to be
otherwise executed. The Assistant Secretaries and Assistant Treasurers shall
also perform such other duties as shall be assigned by the Board of Directors or
any duly authorized officer of the Corporation, and in the absence of the
Secretary or Treasurer, respectively, shall have all of the powers and duties of
the Secretary and Treasurer, respectively. The Assistant Treasurers shall, if
required by the Board of Directors, give bonds for the faithful discharge of
their duties in such sums and with such sureties as the Board of Directors shall
determine.
Section 14. Salaries. Except for any employees of the Corporation whose
--------
salary may be fixed in an employment agreement, the salaries of the officers
shall be fixed from time to time by the Board of Directors or a compensation
committee thereof. No officer shall be prevented from receiving such salary by
reason of the fact that he or she is also a Director of the Corporation.
<PAGE>
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any officer or
----------
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the Corporation
-----
and no evidences of indebtedness shall be issued in its name unless authorized
by a resolution of the Board of Directors. Such authority may be general or
confined to specific instances.
Section 3. Checks, Drafts. All checks, drafts or other orders for the
--------------
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation, shall be signed by such officer or officers, agent or agents of
the Corporation and in such manner as shall from time to time be determined by
resolution of the Board of Directors.
Section 4. Deposits. All funds of the Corporation shall be deposited from
--------
time to time to the credit of the Corporation in such banks, trust companies or
other depositories as the Board of Directors may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of the
-----------------------
Corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the Chairman or the President or
any Managing Director of the Corporation and by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer of the Corporation. When
such a certificate is countersigned by a transfer agent or registered by a
registrar, the signatures of such officers may be facsimile. All certificates
for shares shall be consecutively numbered or otherwise identified. Each
certificate shall state upon the face thereof that the Corporation is formed
under the laws of the State of New York, the name of the person or persons to
whom it is issued and the number of shares it represents. All certificates
surrendered to the Corporation for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and cancelled, except that in case of a lost,
destroyed or mutilated certificate a new one may be issued therefor upon such
terms and indemnity to the Corporation as the Board of Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of the Corporation shall
------------------
be made only on the stock transfer books of the Corporation by the holder of
record thereof or by his legal representative, who shall furnish proper evidence
of authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares are registered on the books of the Corporation shall be deemed
by the Corporation to be the owner thereof for all purposes.
<PAGE>
Section 3. Record Owner. The Corporation shall keep at its principal
------------
office, or at the office of its transfer agent or registrar in the State of New
York, a record containing the names and addresses of all Shareholders, the
number of shares held by each and the dates when they respectively became the
owners of record thereof. The Corporation shall be entitled to treat the holder
of record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, unless the laws of the State of New York
expressly provide otherwise.
ARTICLE VIII
DIVIDENDS
The Board of Directors may from time to time declare, and the Corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its Certificate of Incorporation.
ARTICLE IX
SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the Corporation,
the state of incorporation and the words "Corporate Seal."
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given to any Shareholder or Director
of the Corporation, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the meeting shall be deemed
equivalent to the giving of such notice. The attendance of any Shareholder at a
meeting, in person or by proxy, without protesting, prior to the conclusion of
the meeting, the lack of notice of such meeting, shall constitute a waiver of
notice by him. The attendance of any Director at a meeting without protesting,
prior thereto or at its commencement, the lack of notice to him shall constitute
a waiver of notice.
ARTICLE XI
INDEMNIFICATION AND INSURANCE
Section 1. Indemnification.
(a) The Corporation shall indemnify any person made, or threatened to
be made, a party to an action or proceeding (including, without limitation,
one by or in the right of the Corporation to procure a judgment in its
favor), whether civil or criminal,
<PAGE>
including an action by or in the right of any other Corporation of any type
or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, which any director or officer
of the Corporation served in any capacity at the request of the
Corporation, by reason of the fact that he, his testator or intestate, was
a director or officer of the Corporation, or served such other corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise at the request of the Corporation in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees actually and necessarily incurred as a result
of such action or proceeding, or any appeal therein, provided that no
indemnification may be made to or on behalf of such person if (i) his
acts were committed in bad faith or were the result of his active and
deliberate dishonesty and were material to such action or proceedings or
(ii) he personally gained in fact a financial profit or other advantage
to which he was not legally entitled.
(b) The termination of any such civil or criminal action or proceeding
by judgment, settlement, conviction or upon a plea of nolo contendere, or
its equivalent, shall not in itself create a presumption that any such
person did not act in good faith, for a purpose which he reasonably
believed to be in, or, in the case of service for any other corporation or
any partnership, joint venture, trust, employee benefit plan or other
enterprise, not opposed to, the best interests of the Corporation or that
he had reasonable cause to believe that his conduct was unlawful.
Section 2. Other Indemnification. The Corporation may, to the fullest
extent permitted by law, indemnify or advance the expenses of any other person
including agents and employees to whom the Corporation is permitted by law to
provide indemnification or advancement of expenses.
Section 3. Payment of Expenses in Advance. To the fullest extent permitted
by the New York Business Corporation Law, the Corporation will advance to any
person who may be entitled to indemnification under Sections 1 or 2 sums with
which to pay expenses incurred by that person in defending against the claims,
actions or proceedings for which such person may become entitled to
indemnification, upon receipt of an undertaking by or on behalf of such person
to repay the sums which are advanced if it is ultimately determined that such
person is not entitled to indemnification under Sections 1 or 2 or to the extent
the sums which are advanced exceed the indemnification to which such person is
entitled.
Section 4. Enforcement, Defenses. The right to indemnification or
advancement of expenses granted by this Article shall be enforceable by the
person in any court of competent jurisdiction if the Corporation denies such
request, in whole or in part, or if no disposition thereof is made within 60
days. Such person's expenses incurred in connection with successfully
establishing his right to indemnification, in whole or in part, in any such
action shall also be indemnified by the Corporation. It shall be a defense to
any such action (other than an action brought to enforce a claim for the
advancement of expenses under Section 3 of this Article where the required
undertaking has been received by the Corporation) that the claimant has
conducted himself in a manner which would preclude the Corporation from
indemnifying him pursuant to Sections 1 or 2 of this Article, but the burden of
proving such defense shall be on the Corporation.
<PAGE>
Neither the failure of the Corporation (including its Board of Directors, its
independent legal counsel, and its Shareholders) to have made a determination
that indemnification of the claimant is proper in the circumstances, nor the
fact that there has been an actual determination by the Corporation (including
its Board of Directors, its independent legal counsel, and its Shareholders)
that indemnification of the claimant is not proper in the circumstances shall
be a defense to the action or create a presumption that the claimant is not
entitled to indemnification.
Section 5. Survival: Savings Clause; Preservation of Other Rights.
(a) The foregoing indemnification provisions shall be deemed to be a
contract between the Corporation and each person who serves in such
capacity at any time while these provisions are in effect, and any repeal
or modification of the New York Business Corporation Law shall not affect
any right or obligation then existing with respect to any state of facts
then or previously existing or any action or proceeding previously or
thereafter brought or threatened based in whole or in part upon any such
state of facts, except as provided by law. Such a contract right may not be
modified retroactively without the consent of such person, except as
provided by law.
(b) If this Article or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each person entitled to indemnification hereunder
against judgments, fines, amounts paid in settlement and expenses
(including attorneys' fees) incurred in connection with any actual or
threatened action or proceeding, whether civil or criminal, including any
actual or threatened action by or in the right of the Corporation, or any
appeal therein, to the full extent permitted by any applicable portion of
this Article that shall not have been invalidated and to the full extent
permitted by applicable law.
(c) The indemnification provided by this Article shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under any other bylaw, agreement, vote of shareholders or directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a
person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person. The
Corporation is hereby authorized to provide further indemnification if it
deems advisable by resolution of Shareholders or directors, by amendment of
these Bylaws or by agreement.
Section 6. New York Business Corporation Law. All references to the New
York Business Corporation Law in this Article XI shall mean such Law as it may
from time to time be amended.
Section 7. Insurance. The Corporation may purchase and maintain insurance
to indemnify officers, directors and others against costs or liabilities
incurred by them in connection with the performance of their duties and any
activities undertaken by them for, or at the request of, the Corporation, to the
fullest extent permitted by the New York Business Corporation Law.
<PAGE>
ARTICLE XII
AMENDMENTS
These Bylaws may be amended or repealed only by action of the Board of
Directors or by the affirmative vote of the holders of a majority of the
outstanding shares of the Corporation entitled to vote.
