<PAGE>
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, 2000
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 30, 2000, there were outstanding 33,517,995 shares of Common Stock, par
value $0.01 per share, of the registrant (includes 505,110 shares of Common
Stock owned by a trust on behalf of the Company and excludes 158,306 shares of
Common Stock actually held in treasury).
<PAGE>
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Financial Security Assurance Holdings Ltd. and Subsidiaries
Consolidated Balance Sheets - March 31, 2000 and
December 31, 1999 3
Consolidated Statements of Income and Comprehensive Income -
Three months ended March 31, 2000 and 1999 4
Consolidated Statement of Changes in Shareholders' Equity
- Three months ended March 31, 2000 5
Consolidated Statements of Cash Flows
- Three months ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II OTHER INFORMATION, AS APPLICABLE
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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 2000 1999
---- ----
<S> <C> <C>
Bonds at market value (amortized cost of $1,817,574 and
$1,919,677) $ 1,812,879 $ 1,852,669
Equity investments at market value (cost of $23,354 and
$30,104) 18,924 23,606
Short-term investments 155,825 263,747
----------- -----------
Total investments 1,987,628 2,140,022
Cash 6,280 6,284
Deferred acquisition costs 197,604 198,048
Prepaid reinsurance premiums 294,812 285,105
Reinsurance recoverable on unpaid losses 9,710 9,492
Receivable for securities sold 72,411 40,635
Investment in unconsolidated affiliates 30,382 29,709
Other assets 193,251 196,349
----------- -----------
TOTAL ASSETS $ 2,792,078 $ 2,905,644
=========== ===========
LIABILITIES AND MINORITY INTEREST, REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS' EQUITY
Deferred premium revenue $ 842,684 $ 844,146
Losses and loss adjustment expenses 89,504 87,309
Deferred federal income taxes 50,718 43,341
Ceded reinsurance balances payable 35,583 36,387
Payable for securities purchased 83,494 243,519
Notes payable 230,000 230,000
Minority interest 33,914 32,945
Accrued expenses and other liabilities 146,445 135,313
----------- -----------
TOTAL LIABILITIES AND MINORITY INTEREST 1,512,342 1,652,960
----------- -----------
Redeemable preferred stock (20,000,000 shares authorized;
2,000,000 issued and outstanding; par value of $.01 per share) 20 20
Additional paid-in capital - preferred 680 680
----------- -----------
REDEEMABLE PREFERRED STOCK 700 700
----------- -----------
Common stock (200,000,000 shares authorized; 33,676,301
issued; par value of $.01 per share) 337 337
Additional paid-in capital - common 843,377 836,853
Accumulated other comprehensive loss (net of deferred
income tax benefit of $3,194 and $25,727) (5,932) (47,779)
Accumulated earnings 419,686 436,417
Deferred equity compensation 40,670 52,670
Less treasury stock at cost (669,337 and 961,418 shares held) (19,102) (26,514)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 1,279,036 1,251,984
----------- -----------
TOTAL LIABILITIES AND MINORITY INTEREST,
REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY $ 2,792,078 $ 2,905,644
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
March 31,
--------------------------
2000 1999
<S> <C> <C>
Revenues:
Net premiums written (net of premiums ceded of $29,931 and
$28,424) $ 36,936 $ 49,910
Decrease (increase) in deferred premium revenue 10,648 (8,616)
-------- --------
Premiums earned (net of premiums ceded of $19,896 and
$15,441) 47,584 41,294
Net investment income 28,433 22,024
Net realized gains (losses) (28,835) 824
Other income 269 58
-------- --------
TOTAL REVENUES 47,451 64,200
-------- --------
Expenses:
Losses and loss adjustment expenses (net of reinsurance
recoveries of $55 and $194) 1,781 2,175
Interest expense 4,154 4,154
Policy acquisition costs 9,681 9,917
Other operating expenses 59,830 4,520
-------- --------
TOTAL EXPENSES 75,446 20,766
-------- --------
Minority interest and equity earnings (296) (585)
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES (28,291) 42,849
Benefit (provision) for income taxes 15,509 (10,692)
-------- --------
NET INCOME (LOSS) (12,782) 32,157
-------- --------
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities:
Holding gains (losses) arising during period 22,683 (13,086)
Less: reclassification adjustment for gains (losses)
included in net income (19,164) 536
-------- --------
Other comprehensive income (loss) 41,847 (13,622)
-------- --------
COMPREHENSIVE INCOME $ 29,065 $ 18,535
======== ========
As based upon net income:
Basic earnings (loss) per common share $ (0.38) $ 1.05
======== ========
Diluted earnings (loss) per common share $ (0.38) $ 1.01
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Additional Accumulated Deferred
Paid-In Other Comp- Equity
Common Capital - rehensive Accumulated Compen- Treasury
Stock Common Income Earnings sation Stock Total
----- ------ ------ -------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1999 $337 $836,853 $(47,779) $436,417 $52,670 $(26,514) $1,251,984
Net loss (12,782) (12,782)
Net unrealized gain on investments 41,847 41,847
Dividends paid on common stock
($0.12 per share) (3,949) (3,949)
Deferred equity compensation 6,811 6,811
Deferred equity payout 6,524 (18,811) 7,564 (4,723)
Purchase of 2,989 shares of common
stock (152) (152)
BALANCE, March 31, 2000 $337 $843,377 $ (5,932) $419,686 $40,670 $(19,102) $1,279,036
==== ======== ======== ======== ======= ========= ==========
</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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Premiums received, net $ 28,377 $ 43,967
Policy acquisition and other operating
expenses paid, net (71,729) (50,390)
Loss and LAE recovered (paid), net 679 (723)
Net investment income received 28,955 18,955
Recoverable advances paid (709) (1,265)
Federal income taxes paid (12,452) (1,889)
Interest paid (4,134) (3,903)
Other, net (848) 707
--------- ---------
Net cash provided by (used for)
operating activities (31,861) 5,459
--------- ---------
Cash flows from investing activities:
Proceeds from sales of bonds 735,196 450,625
Purchases of bonds (847,255) (422,458)
Purchases of property and equipment (2,321) (176)
Net decrease (increase) in short-term
securities 109,460 (41,255)
Other investments, net 1,785 4,281
--------- ---------
Net cash used for investing activities (3,135) (8,983)
--------- ---------
Cash flows from financing activities:
Dividends paid (3,949) (3,403)
Treasury stock 13,936 13,974
Other 25,005 (49)
--------- ---------
Net cash provided by financing activities 34,992 10,522
--------- ---------
Net increase (decrease) in cash (4) 6,998
Cash at beginning of period 6,284 3,490
--------- ---------
Cash at end of period $ 6,280 $ 10,488
========= =========
</TABLE>
See notes to condensed financial statements.
6
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
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 company subsidiaries, collectively known as
FSA) in the business of providing financial guaranty insurance on
asset-backed and municipal obligations. At March 31, 2000, the Company was
owned 21.0% by White Mountains Insurance Group, Ltd. (White Mountains), 8.0%
by The Tokio Marine and Fire Insurance Co., Ltd. (Tokio Marine), 7.7% by XL
Capital Ltd (XL), 5.2% by MediaOne Capital Corporation (MediaOne) and 58.1%
by the public and employees. These percentages are calculated based upon
outstanding shares, which are reduced by treasury shares as presented in
these financial statements.
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 accounting principles
generally accepted in the United States. These statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1999 Annual Report to Shareholders. The
accompanying financial statements have not been audited by independent
accountants in accordance with auditing standards generally accepted in the
United States 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, 2000
and for all periods presented have been made. The December 31, 1999 condensed
balance sheet data was derived from audited financial statements, but does
not include all disclosures required by accounting principles generally
accepted in the United States. The results of operations for the periods
ended March 31, 2000 and 1999 are not necessarily indicative of the operating
results for the full year.
3. WEIGHTED AVERAGE COMMON SHARES INFORMATION
Weighted average common shares for the periods presented have been
computed below in accordance with Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share."
THREE MONTHS ENDED MARCH 31,
2000 1999
---- ----
(shares in thousands)
Weighted average common shares outstanding used in
the computation of net income per share:
Common shares outstanding 32,899 30,113
Shares unissued under employee equity
compensation plans 523 400
------ ------
Basic common shares outstanding 33,422 30,513
Shares contingently issuable under employee
equity compensation plans -- 404
Stock options -- 24
Convertible preferred stock -- 849
------ ------
Diluted common shares outstanding * 33,422 31,790
* The diluted net loss per is based on 33,422,000 common shares outstanding due
to the anti-dilution provisions of SFAS No. 128.
7
<PAGE>
4. MERGER
On March 14, 2000, the Company announced that it had entered into a merger
agreement pursuant to which the Company would become a wholly owned subsidiary
of Dexia S.A., a publicly held Belgian corporation, subject to receipt of
shareholder and regulatory approvals and satisfaction of other closing
conditions. Pursuant to the merger, each outstanding share of the Company's
common stock (unless directly or indirectly owned by Dexia S.A. and except for
treasury shares) will be converted into the right to receive $76.00 in cash.
Dexia S.A., through its bank subsidiaries, is primarily engaged in the business
of public finance in France, Belgium and other European countries.
In conjunction with this transaction, the Company anticipates, at closing,
valuing its liabilities under the Company's equity-based compensation plans at
the transaction price and changing its assumption regarding those plans by
assuming all future payments will be settled in cash or, as the case may be,
exchanged at the cash value for alternative investments and settled upon
expiration of any applicable deferral period. It also intends to settle its
Forward Share agreements at the merger price.
While the effect on the Company's consolidated operating results and
financial position between March 31, 2000 and the closing date (assuming the
transaction closes) cannot be accurately predicted, had the above transaction
been effective at March 31, 2000, the pro forma effect would have been to
decrease reported first quarter 2000 net income by $27,400,000 and increase
March 31, 2000 stockholders' equity by $8,400,000.
There can be no assurance that this transaction will close or that it will
close without modification.
8
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
2000 AND 1999 FIRST QUARTER RESULTS
The Company's 2000 first quarter net loss was $12.8 million, compared with net
income of $32.2 million for the same period in 1999, a decrease of 139.8%. Core
net income (operating net income less the after-tax effect of refundings and
prepayments) was $41.7 million, compared with $30.7 million for the same period
in 1999, an increase of 35.8%. Total core revenues in the first quarter of 2000
increased $14.7 million, from $58.5 million in 1999 to $73.2 million in 2000,
while total core expenses increased only $1.2 million. Operating net income (net
income less the after-tax effect of net realized capital gains or losses and the
cost of the equity based compensation programs and other non-operating items)
was $43.2 million for the first quarter of 2000 versus $33.1 million for the
comparable period in 1999, an increase of $10.1 million or 30.7%.
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. The discount rate
used to calculate the gross PV premiums written is 5.77% for 2000 and was 5.93%
for 1999. The discount rates represent the average pre-tax yield on the
Company's investment portfolio for the previous three years. 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 decreased 14.6%, from $78.3 million for the first quarter
of 1999 to $66.9 million for the first quarter of 2000. Gross PV premiums
written decreased 48.9%, from $122.1 million in the first quarter of 1999 to
$62.3 million in the first quarter of 2000. The major factor behind the decline
in first quarter business was lower overall new-issue volume in certain markets
served by the Company, as a result of higher interest rates, market volatility
and Y2K-related acceleration of business into the fourth quarter of 1999, which
reduced the pipeline in the first quarter of 2000. In the first quarter of 2000,
U.S. asset-backed gross PV premiums written were $26.8 million, as compared with
$37.7 million in 1999, a decrease of 28.9%, U.S. municipal gross PV premiums
written were $20.8 million, as compared with $43.7 million in 1999, a decrease
of 52.4%, and international gross PV premiums were $14.7 million as compared
with $40.7 million in 1999, a decrease of 63.9%.
In the first quarter of 2000, the Company insured par value of bonds totaling
$7.8 billion compared with $12.9 billion in 1999, a decrease of 39.2%. FSA's
first quarter U.S. asset-backed component fell 35.4% to $3.6 billion, while its
U.S. municipal sector decreased 31.5% to $3.8 billion and the international
sector fell 77.1% to $0.4 billion. Net premiums written were $36.9 million for
the first quarter of 2000, a decrease of 26.0% when compared with 1999. Net
premiums earned for the first quarter of 2000 were $47.6 million, compared with
$41.3 million in the first quarter of 1999, an increase of 15.2%. Premiums
earned from refundings and prepayments were $3.1 million for the first quarter
of 2000 and $4.9 million for the same period of 1999, contributing $1.5 million
and $2.3 million, respectively, to after-tax earnings. Net premiums earned for
the quarter grew 22.3% relative to the same period in 1999 when the effects of
refundings and prepayments are eliminated.
Net investment income was $28.4 million for the first quarter of 2000 and $22.0
million for the comparable period in 1999, an increase of 29.1%. The Company's
effective tax rate on investment income was 15.4% for the first quarter of 1999
compared with 13.5% for the same period in 2000. In the first quarter of 2000,
the Company realized $28.8 million in net capital losses as compared with net
capital gains of $0.8 million for the same period in 1999. Capital gains and
losses are a by-product of the normal investment management process and will
vary substantially from period to period.
9
<PAGE>
The provision for losses and loss adjustment expenses during the first quarter
of 2000 was $1.8 million compared with $2.2 million in 1999, representing
additions to the Company's general loss reserve. The additions to the general
loss 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, 2000, the unallocated balance in the Company's
general loss reserve was $56.6 million.
Total policy acquisition and other operating expenses (excluding the cost of
equity-based compensation programs, which was $56.3 million for the first
quarter of 2000 and $2.1 million for the same period in 1999) were $13.1 million
for the first quarter of 2000 compared with $12.4 million for the same period in
1999, an increase of 5.4%. Excluding the effects of refundings, total policy
acquisition and other operating expenses were $12.3 million for the first
quarter of 2000 compared with $11.1 million for the same period in 1999, an
increase of 10.6%. The increase was the result of higher personnel costs. The
increase in equity based compensation is due to the rise in market value of the
Company's common stock due to the previously announced merger agreement with
Dexia S.A.
Loss before income tax benefit for the first quarter of 2000 was $28.3 million
compared with income before income taxes of $42.8 million for the same period in
1999.
The weighted average number of diluted shares of common stock outstanding
increased from 31,790,000 for the quarter ended March 31, 1999, to 33,422,000
during the first quarter of 2000. This increase was primarily due to 2.6 million
shares the Company issued in the fourth quarter of 1999. Diluted earnings per
share decreased from $1.01 for the first quarter of 1999 to a loss of $0.38 for
the same period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated invested assets at March 31, 2000, net of unsettled
security transactions, were $1,976.5 million, compared with the December 31,
1999 balance of $1,937.1 million. These balances include the change in the
market value of the investment portfolio, which had an unrealized loss position
of $9.1 million at March 31, 2000, compared with an unrealized loss position of
$73.5 million at December 31, 1999. At March 31, 2000, the Company had, at the
holding company level, an investment portfolio of $18.5 million available to
fund the liquidity needs of its activities outside of its insurance operations.
Because the majority of the Company's operations are conducted through FSA, the
long-term ability of the Company to service its debt and to declare and pay
dividends will largely depend upon its receipt of dividends from, or payment on
surplus notes by, FSA and upon external financings.
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
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 paid no
dividends in 1999. Based upon FSA's statutory statements for the quarter ended
March 31, 2000, and considering dividends that can be paid by its subsidiary,
the maximum amount available for payment of dividends by FSA without regulatory
approval over the following 12 months is approximately $81.2 million. In
addition, the Company holds $120.0 million of surplus notes of FSA. Payments of
principal or interest on such notes may be made with the approval of the New
York Insurance Department.
Dividends paid by the Company to its shareholders in the first quarter increased
to $3.9 million in 2000 from $3.4 million in 1999 and to $0.1200 per common
share in 2000 from $0.1125 in 1999. In addition to paying dividends, the Company
uses funds to make debt service payments.
The Company has outstanding $100.0 million of 6.950% Senior Quarterly Income
Debt Securities due November 1, 2098 and callable on or after November 1, 2003
and $130.0 million of 7.375% Senior Quarterly Income Debt Securities due
September 30, 2097 and callable on or after September 18, 2002.
10
<PAGE>
In 1996, the Company entered into forward agreements with two financial
institutions (the Counterparties) in respect of 1,750,000 shares (the Forward
Shares) of the Company's common stock. Under the forward agreements, the Company
has the obligation either (i) to purchase the Forward Shares from the
Counterparties for a price equal to $26.50 per share plus carrying costs or (ii)
to direct the Counterparties to sell the Forward Shares, with the Company
receiving any excess or making up any shortfall between the sale proceeds and
$26.50 per share plus carrying costs (net of dividends) in cash or additional
shares, at its option. The Company made the economic benefit and risk of 750,000
of these shares available for subscription by certain of the Company's employees
and directors. When an individual participant exercises Forward Shares under the
subscription program, the Company settles with the participant but does not
necessarily close out the corresponding Forward Share position with the
Counterparties. At March 31, 2000, 562,200 Forward Shares remained in the
program. Of these, 33,078 shares were held for the benefit of the Company as a
result of the repurchase of Forward Shares from employees and directors, and
529,122 shares continued to be held for the benefit of employees and directors.
In the fourth quarter of 1999, the Company entered into additional forward
agreements with two counterparties to purchase 750,000 Forward Shares at an
initial cost of $53.50 per share. These agreements are similar to the Forward
Share agreements described above, and the economic benefit and risk of these
shares are for the account of the Company's employees and directors as described
above. At March 31, 2000, all 750,000 shares were outstanding. In total, for
both plans, net income will be affected by approximately $0.8 million, or $0.03
per share, for each dollar change in the Company's share price.
FSA's primary uses of funds are to pay operating expenses and to pay dividends
to, or repay surplus notes held by, its parent. FSA's funds are also required to
satisfy claims, if any, under insurance policies in the event of default by an
issuer of an insured obligation and the unavailability or exhaustion of other
payment sources in the transaction, such as the cash flow or collateral
underlying the obligations. FSA seeks to structure asset-backed transactions to
address liquidity risks by matching insured payments with available cash flow or
other payment sources. The insurance policies issued by FSA provide, in general,
that payments of principal, interest and other amounts insured by FSA may not be
accelerated by the holder of the obligation but are paid by FSA in accordance
with the obligation's original payment schedule or, at FSA's option, on an
accelerated basis. These policy provisions prohibiting acceleration of certain
claims are mandatory under Article 69 of the New York Insurance Law and serve to
reduce FSA's liquidity requirements.
The Company believes that FSA's expected operating liquidity needs, both on a
short- and long-term basis, can be funded from its operating cash flow. In
addition, FSA has a number of sources of liquidity that are available to pay
claims on a short- and long-term basis: cash flow from written premiums, FSA's
investment portfolio and earnings thereon, reinsurance arrangements with
third-party reinsurers, liquidity lines of credit with banks, and capital market
transactions.
FSA has a credit arrangement, aggregating $150.0 million at March 31, 2000, that
is provided by commercial banks and intended for general application to
transactions insured by FSA and its insurance company subsidiaries. At March 31,
2000, there were no borrowings under this arrangement, which expires on April
27, 2001, unless extended. In addition, there are credit arrangements assigned
to specific insured transactions. In August 1994, FSA entered into a facility
agreement with Canadian Global Funding Corporation and Hambros Bank Limited.
Under the agreement, FSA can arrange financing for transactions subject to
certain conditions. The amount of this facility was $186.9 million, of which
$99.4 million was unutilized at March 31, 2000.
FSA has a standby line of credit in the amount of $240.0 million with a group of
international banks to provide loans to FSA after it has incurred, during the
term of the facility, cumulative municipal losses (net of any recoveries) in
excess of the greater of $240.0 million or 5.75% of average annual debt service
of the covered portfolio. The obligation to repay loans made under this
agreement is a limited recourse obligation payable solely from, and
collateralized by, a pledge of recoveries realized on defaulted insured
obligations in the covered portfolio, including certain installment premiums and
other collateral. This commitment has a term that began on April 30, 1999 and
will expire on April 30, 2007 and contains an annual renewal provision subject
to approval by the banks. No amounts have been utilized under this commitment as
of March 31, 2000.
The Company has no plans for material capital expenditures within the next
twelve months.
11
<PAGE>
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements regarding, among other
things, the Company's plans and prospects. Important factors, including general
market conditions and the competitive environment, could cause actual results to
differ materially from those described in such forward-looking statements.
Certain of these factors are described in more detail under the heading
"Forward-Looking Statements" in Item 1 of the Company's Annual Report on Form
10-K, for the year ended December 31, 1999. Forward-looking statements in this
report are expressly qualified by all such factors. The Company undertakes no
obligation to revise or update any forward-looking statements to reflect changes
in events or expectations or otherwise.
12
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Agreement and Plan of Merger dated as of March 14, 2000, by and
among Dexia S.A., Dexia Credit local de France S.A., PAJY Inc.
and Financial Security Assurance Holdings Ltd. (filed as
Exhibit 2.1 to Current Report on Form 8-K (Commission File No.
1-12644) dated March 14, 2000, and incorporated herein by
reference).
10.2++ Severance Policy for Senior Management (as Amended and
Restated Effective March 13, 2000).
27 Financial data schedules.
99 Financial statements of Financial Security Assurance Inc. for
the quarterly period ended March 31, 2000.
++ Management contract or compensatory plan or arrangement required to
be filed.
(b) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K dated March 14, 2000,
with the Securities and Exchange Commission, with respect to the
Company's announcement that it had entered into an Agreement and
Plan of Merger dated as of March 14, 2000, by and among Dexia S.A.,
PAJY Inc. and the Company, pursuant to which the Company will become
a wholly owned subsidiary of Dexia S.A. through the merger of PAJY
Inc. with and into the Company.
13
<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 12, 2000 Jeffrey S. Joseph
Managing Director & Controller (Chief Accounting
Officer)
14
<PAGE>
Exhibit Index
Exhibit No. Exhibit
- ----------- -------
10.1 Agreement and Plan of Merger dated as of March 14, 2000, by and
among Dexia S.A., Dexia Credit local de France S.A., PAJY Inc.
and Financial Security Assurance Holdings Ltd. (filed as
Exhibit 2.1 to Current Report on Form 8-K (Commission File No.
1-12644) dated March 14, 2000, and incorporated herein by
reference).
10.2 Severance Policy for Senior Management (as Amended and Restated
Effective March 13, 2000).
27 Financial data schedules.
99 Financial statements of Financial Security Assurance Inc. for the
quarterly period ended March 31, 2000.
<PAGE>
EXHIBIT 10.2
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
SEVERANCE POLICY FOR SENIOR MANAGEMENT
(AS AMENDED AND RESTATED EFFECTIVE MARCH 13, 2000)
<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........................................................5
SECTION 5. PAYMENT OF SEVERANCE PAY......................................6
SECTION 6. REINSTATEMENT.................................................6
SECTION 7. WAIVER AND RELEASE AGREEMENT..................................6
SECTION 8. PLAN ADMINISTRATION...........................................7
SECTION 9. AMENDMENT/TERMINATION/VESTING.................................7
SECTION 10. PAY AND OTHER BENEFITS........................................7
SECTION 11. NO ASSIGNMENT.................................................8
SECTION 12. RECOVERY OF PAYMENTS MADE BY MISTAKE..........................8
SECTION 13. REPRESENTATIONS CONTRARY TO THE PLAN..........................9
SECTION 14. NO EMPLOYMENT RIGHTS..........................................9
SECTION 15. COMPANY INFORMATION...........................................9
SECTION 16. CONFIDENTIALITY...............................................9
SECTION 17. PLAN FUNDING.................................................10
SECTION 18. APPLICABLE LAW...............................................10
SECTION 19. SEVERABILITY.................................................10
SECTION 20. PLAN YEAR....................................................10
SECTION 21. RETURN OF COMPANY PROPERTY...................................10
<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
hereby amended and restated, as set forth in this Plan document, effective as of
March 13, 2000, to (i) provide reimbursement on a grossed-up basis for excise
taxes that might be payable by eligible employees due in respect of any payment
after giving effect to a "Change in Control" (as defined herein) of the Company,
and (ii) restrict adverse amendments to the Plan for eligible employees through
December 31, 2004. 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.
<PAGE>
page 2
An otherwise eligible employee shall NOT be eligible for Severance Pay and
Severance Benefits under the Plan if:
(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
<PAGE>
page 3
Office or the Chief Operating Officer of the Company) shall be
eligible to receive twelve (12) months of pay.
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
<PAGE>
page 4
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 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.
(c) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(1) GROSS-UP PAYMENTS. Anything in the Plan to the contrary
notwithstanding, in the event that it shall be determined that
any payment or distribution by the Company to or for the
benefit of an eligible employee (whether paid or payable or
distributed or distributable pursuant to the terms of the Plan
or otherwise) (a " PAYMENT") would be subject to the excise
tax imposed by Sections 280G and 4999 of the Internal Revenue
Code of 1986, as amended (the "CODE"), or that any interest or
penalties are incurred by an eligible employee with respect to
such excise tax (such excise tax, together with any such
interest and penalties, being hereinafter collectively
referred to as the "EXCISE TAX"), then the eligible employee
shall be entitled to receive an additional payment (the
"GROSS-UP PAYMENT") in an amount such that after payment by
the eligible employee of all taxes (including any interest or
penalties imposed with respect to such taxes and Excise Tax)
imposed upon the Gross-Up Payment, the eligible employee
retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
(2) DETERMINATION OF GROSS-UP PAYMENTS. Notwithstanding the
provisions of Section 8, all determinations required to be
made under this Section 3(c), including whether and when the
Gross-Up Payment is required and the amount of such Gross-Up
Payment including any determination of the parachute payments
under Code Section 280G(b)(2), and the assumptions to be
utilized in arriving at such determinations shall be made by a
nationally recognized certified public accounting firm that is
mutually selected by the eligible employee and the Company
(the
<PAGE>
page 5
"ACCOUNTING FIRM") which shall provide detailed supporting
calculations both to the Company and the eligible employee
within 15 business days of the receipt of notice from the
eligible employee that there has been a Payment, or such
earlier time as is requested by the Company. All fees and
expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment shall be paid by the Company to
the eligible employee within five days of the receipt of the
Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the
eligible employee. As a result of uncertainty in the
application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is
possible that the Gross-Up Payment made will have been an
amount less than the Company should have paid pursuant to this
Section 3(c) (the "Underpayment"). In the event that the
eligible employee thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the
eligible employee.
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.
<PAGE>
page 6
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 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.
<PAGE>
page 7
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 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
The Company may terminate or amend the Plan at any time and from time to time,
for any reason or no reason; PROVIDED, HOWEVER, that any such termination or
amendment of the Plan that is adverse to the interest of any eligible employee
under the Plan shall be effective only (i) as to any eligible employee first
becoming an Employee after the date of such amendment or termination or (ii) as
to any other employee, on or after December 31, 2004. 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
<PAGE>
page 8
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:
(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.
<PAGE>
page 9
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.
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 10
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: Chairman and Chief Executive Officer
----------------------------------------
<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)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 1,968,704
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 18,924
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,987,628
<CASH> 6,280
<RECOVER-REINSURE> 9,710
<DEFERRED-ACQUISITION> 197,604
<TOTAL-ASSETS> 2,792,078
<POLICY-LOSSES> 89,504
<UNEARNED-PREMIUMS> 842,684
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 230,000
0
700
<COMMON> 843,714
<OTHER-SE> 435,322
<TOTAL-LIABILITY-AND-EQUITY> 2,792,078
47,584
<INVESTMENT-INCOME> 28,433
<INVESTMENT-GAINS> (28,835)
<OTHER-INCOME> 269
<BENEFITS> 1,781
<UNDERWRITING-AMORTIZATION> 9,681
<UNDERWRITING-OTHER> 63,984
<INCOME-PRETAX> (28,291)
<INCOME-TAX> (15,509)
<INCOME-CONTINUING> (12,782)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,782)
<EPS-BASIC> 0
<EPS-DILUTED> (0.38)
<RESERVE-OPEN> 77,817
<PROVISION-CURRENT> 1,781
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> (196)
<RESERVE-CLOSE> 79,794
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<PAGE>
EXHIBIT 99
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
Condensed Consolidated Financial Statements
March 31, 2000
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
INDEX
FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income
and Comprehensive 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 2000 1999
---- ----
<S> <C> <C>
Bonds at market value (amortized cost of $1,806,653 and
$1,903,932) $ 1,801,753 $ 1,837,085
Equity investments at market value (cost of $10,100) 9,755 9,768
Short-term investments 154,867 257,030
----------- -----------
Total investments 1,966,375 2,103,883
Cash 3,765 4,153
Deferred acquisition costs 197,604 198,048
Prepaid reinsurance premiums 294,812 285,105
Reinsurance recoverable on unpaid losses 9,710 9,492
Receivable for securities sold 67,765 40,635
Other assets 161,176 145,837
----------- -----------
TOTAL ASSETS $ 2,701,207 $ 2,787,153
=========== ===========
LIABILITIES AND MINORITY INTEREST AND SHAREHOLDER'S EQUITY
Deferred premium revenue $ 842,684 $ 844,146
Losses and loss adjustment expenses 89,504 87,309
Deferred federal income taxes 74,346 53,357
Ceded reinsurance balances payable 35,583 36,387
Payable for securities purchased 83,884 239,295
Long-term debt 120,000 120,000
Minority interest 33,914 32,945
Accrued expenses and other liabilities 60,570 78,768
----------- -----------
TOTAL LIABILITIES AND MINORITY INTEREST 1,340,485 1,492,207
----------- -----------
Common stock (500 shares authorized, issued and
outstanding; par value of $30,000 per share) 15,000 15,000
Additional paid-in capital 841,036 832,556
Accumulated other comprehensive income (net of deferred
income tax benefit of $1,836 and $23,513) (3,409) (43,666)
Accumulated earnings 508,095 491,056
----------- -----------
TOTAL SHAREHOLDER'S EQUITY 1,360,722 1,294,946
----------- -----------
TOTAL LIABILITIES AND MINORITY INTEREST AND
SHAREHOLDER'S EQUITY $ 2,701,207 $ 2,787,153
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
---- ----
<S> <C> <C>
REVENUES:
Net premiums written (net of premiums ceded of
$29,931 and $28,424) $ 36,936 $ 49,910
Decrease (increase) in deferred premium revenue 10,648 (8,616)
-------- --------
Premiums earned (net of premiums ceded of
$19,896 and $15,441) 47,584 41,294
Net investment income 27,998 21,491
Net realized gains (losses) (26,812) 3,468
Other income 58 43
-------- --------
TOTAL REVENUES 48,828 66,296
-------- --------
EXPENSES:
Losses and loss adjustment expenses (net of
reinsurance recoveries of $55 and $194) 1,781 2,175
Policy acquisition costs 9,681 9,917
Other operating expenses 19,743 8,145
-------- --------
TOTAL EXPENSES 31,205 20,237
-------- --------
Minority interest and equity earnings (379) (584)
-------- --------
INCOME BEFORE INCOME TAXES 17,244 45,475
Provision for income taxes 205 11,570
-------- --------
NET INCOME 17,039 33,905
-------- --------
Other comprehensive income (loss), net of tax: Unrealized losses
on securities:
Holding gains (losses) arising during period 22,409 (8,831)
Less: reclassification adjustment for gains (losses)
included in net income (17,849) 2,254
-------- --------
Other comprehensive income (loss) 40,258 (11,085)
-------- --------
COMPREHENSIVE INCOME $ 57,297 $ 22,820
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Premiums received, net $ 28,377 $ 43,967
Policy acquisition and other operating expenses
paid, net (31,394) (34,990)
Recoverable advances paid (709) (1,265)
Loss and LAE recovered (paid), net 679 (723)
Net investment income received 28,079 20,633
Federal income taxes paid (10,949) (1,889)
Interest paid (1,500)
Other, net (2,354) (1,903)
--------- ---------
Net cash provided by operating activities 10,229 23,830
--------- ---------
Cash flows from investing activities:
Proceeds from sales of bonds 694,871 395,309
Purchases of bonds (806,855) (372,420)
Purchases of property and equipment (2,291) (154)
Net decrease (increase) in short-term securities 103,647 (40,005)
Other investments, net 11 10
--------- ---------
Net cash used for investing activities (10,617) (17,260)
--------- ---------
Net increase (decrease) in cash (388) 6,570
Cash at beginning of period 4,153 2,729
--------- ---------
Cash at end of period $ 3,765 $ 9,299
========= =========
</TABLE>
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, 2000 AND 1999
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 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, 2000 and for all periods presented, have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted. These
statements should be read in conjunction with the Company's December 31, 1999
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 accounting principles generally accepted
in the United States. The results of operations for the periods ended March
31, 2000 and 1999 are not necessarily indicative of the operating results for
the full year.
3. MERGER
On March 14, 2000, the Parent announced that it had entered into a merger
agreement pursuant to which the Parent would become a wholly owned subsidiary of
Dexia S.A., a publicly held Belgian corporation, subject to shareholder approval
and satisfaction of regulatory and other closing conditions.
4
