-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
Tu8GBPFBdetlPIWklvL1INxKZ5ANLDhNrTuxyhj7pBAuGgWx3I1iH8cds+lC1nAn
IVZt7YJnw4oOs8lq9aIHDg==
<SEC-DOCUMENT>0000891554-99-000610.txt : 19990331
<SEC-HEADER>0000891554-99-000610.hdr.sgml : 19990331
ACCESSION NUMBER: 0000891554-99-000610
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 34
CONFORMED PERIOD OF REPORT: 19981231
FILED AS OF DATE: 19990330
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: MBIA INC
CENTRAL INDEX KEY: 0000814585
STANDARD INDUSTRIAL CLASSIFICATION: SURETY INSURANCE [6351]
IRS NUMBER: 061185706
STATE OF INCORPORATION: CT
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-09583
FILM NUMBER: 99578359
BUSINESS ADDRESS:
STREET 1: 113 KING ST
CITY: ARMONK
STATE: NY
ZIP: 10504
BUSINESS PHONE: 9142734545
MAIL ADDRESS:
STREET 1: 113 KING ST
CITY: ARMONK
STATE: NY
ZIP: 10504
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<DESCRIPTION>ANNUAL REPORT
<TEXT>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1998.
Commission file number 1-9583
MBIA INC.
(Exact name of registrant as specified in its charter)
Connecticut 06-1185706
(State of Incorporation) (I.R.S. Employer Identification No.)
113 King Street, Armonk, New York 10504
(Address of principal executive offices) (Zip Code)
(914) 273-4545
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock, par value $1 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No __.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 25, 1999 was $ 5,885,163,919.00
As of March 25, 1999, 99,748,541 shares of Common Stock, par value $1 per
share, were outstanding.
Documents incorporated by reference. Portions of Registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1998 are incorporated by
reference into Parts I and II. Portions of the Definitive Proxy Statement of the
Registrant, dated March 29, 1999 are incorporated by reference into Parts I and
III.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (SS 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
<PAGE>
PART I
Item 1. Business
MBIA Inc. (the "Company") is engaged in providing financial guarantee
insurance and investment management and financial and consulting services to
public finance clients and financial institutions on a global basis. Financial
guarantees for municipal bonds, asset-backed and mortgage-backed securities,
investor-owned utility bonds, and debt of high-quality financial institutions,
both in the new issue and secondary markets, are provided through the Company's
wholly-owned subsidiary, MBIA Insurance Corporation ("MBIA Corp."). MBIA Corp.
is the successor to the business of the Municipal Bond Insurance Association
(the "Association") which began writing financial guarantees for municipal bonds
in 1974.
In 1989, the Company purchased Bond Investors Guaranty Insurance Company
("BIG Ins."), another municipal bond insurance company. MBIA Corp. reinsured the
net exposure on the municipal bond insurance policies previously issued by BIG
Ins. (See "Business-Reinsurance" below) and changed the name of BIG Ins. to MBIA
Insurance Corp. of Illinois ("MBIA Illinois").
In 1990, the Company formed a French company, MBIA Assurance S.A.
("MBIA Assurance"), to write financial guarantee insurance in the countries of
the international community. MBIA Assurance, which is a wholly-owned subsidiary
of MBIA Corp., writes policies insuring sovereign risk, public infrastructure
financings, asset-backed transactions and certain obligations of corporations
and financial institutions. In September 1995, MBIA Corp. entered into a joint
venture agreement with Ambac Assurance Corporation for the purpose of jointly
marketing financial guarantee insurance outside the United States.
In February, 1998, the Company acquired CapMAC Holdings Inc. ("Holdings"),
in a stock-for-stock merger. Holdings, through its wholly-owned subsidiary
Capital Markets Assurance Corporation ("CapMAC"), insures structured
asset-backed, corporate, municipal and other financial obligations in the U.S.
and international capital markets. CapMAC also provides financial guarantee
reinsurance for structured asset-backed, corporate, municipal and other
financial obligations written by other major insurance companies. Generally,
throughout the text references to MBIA Corp. include the activities of its
subsidiaries, MBIA Illinois, MBIA Assurance and CapMAC.
Financial guarantee insurance provides an unconditional and irrevocable
guarantee of the payment of the principal of and interest on insured obligations
when due. MBIA Corp.'s substantial capital base permits it to support a large
portfolio of insured obligations and to write new business. MBIA Corp. primarily
insures obligations which are sold in the new issue and secondary markets, or
which are held in unit investment trusts ("UIT") and by mutual funds. It also
provides surety bonds for debt service reserve funds. The principal economic
value of financial guarantee insurance to the entity offering the obligations is
the savings in interest costs resulting from the difference in the market yield
between an insured obligation and the same obligation on an uninsured basis. In
addition, for complex financings and for obligations of issuers that are not
well-known by investors, insured obligations receive greater market acceptance
than uninsured obligations. The financial guarantee industry is subject to the
direct and indirect effects of governmental regulation, including changes in tax
laws affecting the municipal and asset-backed debt markets. No assurance can be
given that future legislative or regulatory changes might not adversely affect
the results of operations and financial conditions of the Company.
The Association was the first issuer of financial guarantees to receive
both the AAA claims-paying rating from Standard and Poor's Corporation ("S&P"),
which it received in 1974, and the Aaa claims-paying rating from Moody's
Investors Service, Inc. ("Moody's"), which it received in 1984. Both rating
agencies have continuously issued Triple-A claims-paying ratings for MBIA Corp.
and Triple-A ratings to obligations guaranteed by MBIA Corp. Both rating
agencies have also continued the Triple-A rating on MBIA Illinois and CapMAC
guaranteed bond issues. In addition, in 1995 MBIA Corp. received a Triple-A
claims-paying rating from Fitch IBCA, Inc. ("Fitch").
The Company also provides investment management products and financial and
consulting services through a group of subsidiary companies. These services
include cash management, municipal investment agreements, discretionary asset
management, purchase and administrative services, tax discovery and compliance,
tax audit, analysis and information services and bond administration services.
MBIA Municipal Investors Service Corporation ("MBIA-MISC") provides cash
management services and investment placement services to local governments and
school districts, and provides those clients with fund administration services
In 1996, MBIA-MISC acquired American Money Management Associates, Inc. ("AMMA")
which offers investment and treasury management consulting services to municipal
and quasi-municipal clients.
1
<PAGE>
In 1997, MBIA MuniServices Company ("MuniServices"), formed to provide bond
administration, revenue enhancement and other services to state and local
governments, acquired (i) the Municipal Tax Bureau entities ("MTB"), which
provide tax revenue compliance and collection services to the public sector and
(ii) MBIA MuniFinancial to provide debt administration services to
municipalities. Early in 1998, MuniServices acquired Municipal Resource
Consultants which specializes in providing revenue enhancement and information
services to municipalities. In 1996, MuniServices acquired an equity interest in
Capital Asset Holdings, which purchases and services delinquent taxes for
municipalities. In 1998, the Company increased its ownership in Capital Asset
Holdings to 86% in order to control the future of that entity.
MBIA Investment Management Corp. ("IMC") offers guaranteed investment
agreements primarily for bond proceeds to states and municipalities. MBIA
Capital Management Corp. ("CMC") performs investment management services for the
Company, MBIA-MISC, IMC and selected external clients. In July of 1998, the
Company merged with 1838 Investment Advisors, Inc. a provider of asset
management services.
Additionally in 1997, the Company formed MBIA & Associates Consulting, Inc.
to provide strategic financial planning and management consulting to state and
local governments, colleges and universities, and international entities.
Through the acquisition of CapMAC, the Company is also providing advisory
services to specialty finance companies, making equity investments in those
companies, and creating synthetic investment products.
MBIA Corp. Insured Portfolio
At December 31, 1998, the net par amount outstanding on MBIA Corp.'s
insured obligations (including insured obligations of MBIA Illinois, MBIA
Assurance and CapMAC but excluding the guarantee of $3.5 billion of obligations
of IMC (see "Operations-Miscellaneous")) was $359.5 billion, comprised of $316.9
billion in new issues and $42.6 billion in secondary market issues. Net
insurance in force was $595.9 billion.
MBIA Corp. guarantees to the holder of the underlying obligation the timely
payment of the principal of and interest on such obligation in accordance with
its original payment schedule. Accordingly, in the case of a default on an
insured obligation, payments under the insurance policy cannot be accelerated by
the holder. MBIA Corp. will be required to pay principal and interest only as
originally scheduled payments come due.
MBIA Corp. seeks to maintain a diversified insured portfolio designed to
spread risk based on a variety of criteria including revenue source, issue size,
type of bond and geographic area. As of December 31, 1998, MBIA Corp. had 34,566
policies outstanding. These policies are diversified among 9,276 "credits,"
which MBIA Corp. defines as any group of issues supported by the same revenue
source.
2
<PAGE>
The table below sets forth information with respect to the original par
amount written per issue in MBIA Corp.'s portfolio as of December 31, 1998:
MBIA Corp. Original Par Amount Per Issue
as of December 31, 1998 (1)
<TABLE>
<CAPTION>
% of Total
Number of Number of Net Par % of Net
Original Par Amount Issues Issues Amount Par Amount
Written Per Issue Outstanding Outstanding Outstanding Outstanding
(In billions)
<S> <C> <C> <C> <C>
Less than $10 million 27,526 79.6% $ 46.7 13.0%
$10-25 million 3,063 8.9 40.0 11.1
$25-50 million 1,744 5.1 47.3 13.2
$50-100 million 1,157 3.3 58.7 16.3
Greater than $100 million 1,076 3.1 166.8 46.4
------ ------ ------ ------
Total 34,566 100.0% $359.5 100.0%
====== ====== ====== ======
</TABLE>
- ----------
(1) Excludes IMC's $3.5 billion relating to municipal investment agreements
guaranteed by MBIA Corp.
MBIA Corp. underwrites financial guarantee insurance on the assumption that
the insurance will remain in force until maturity of the insured obligations.
MBIA Corp. estimates that the average life (as opposed to the stated maturity)
of its insurance policies in force at December 31, 1998 was 11.0 years. The
average life was determined by applying a weighted average calculation, using
the remaining years to maturity of each insured obligation, and weighting them
on the basis of the remaining debt service insured. No assumptions were made for
any future refundings of insured issues. Average annual debt service on the
portfolio at December 31, 1998 was $38.5 billion.
3
<PAGE>
The table below shows the diversification of MBIA Corp.'s insured
portfolio by bond type:
MBIA Corp. Insured Portfolio by Bond Type
as of December 31, 1998 (1)
(In billions)
Bond Type
Number Net Par % of Net
Of Issues Amount Par Amount
Domestic Outstanding Outstanding Outstanding
Municipal
General obligation 12,694 $ 83.6 23.2%
Utilities 4,895 45.0 12.5
Health care 2,241 38.5 10.7
Transportation 1,543 23.7 6.6
Special Revenue 1,787 23.4 6.5
Higher Education 1,498 14.8 4.1
Housing 2,161 10.7 3.0
ID & PCR 1,037 7.8 2.2
Other 75 3.3 0.9
------ ------ ------
Total Municipal 27,931 250.8 69.7
------ ------ ------
Structured Finance* 850 80.8 22.5
Other 5,462 10.8 3.0
------ ------ ------
Total Domestic 34,243 342.4 95.2
------ ------ ------
International
Infrastructure 114 3.4 1.0
Structured Finance* 102 11.7 3.2
Other 107 2.0 0.6
------ ------ ------
Total International 323 17.1 4.8
------ ------ ------
Total 34,566 $359.5 100.0%
====== ====== ======
* Asset/mortgage-backed
- ----------
(1) Excludes IMC's $3.5 billion relating to municipal investment agreements
guaranteed by MBIA Corp.
4
<PAGE>
As of December 31, 1998, of the $359.5 billion outstanding net par amount
of obligations insured, $250.8 billion, or 70%, consisted of municipal bonds,
$91.6 billion, or approximately 25%, consisted primarily of
asset/mortgage-backed transactions and investor-owned utility obligations and
$17.1 billion or approximately 5% consisted of transactions done in the
international market.
The table below shows the diversification by type of insurance written by
MBIA Corp. in each of the last five years:
MBIA Corp. Net Par Amount by Bond Type (1)
Bond Type 1994 1995 1996 1997 1998
(In millions)
Domestic
Municipal
General obligation $11,165 $10,226 $13,036 $13,798 $15,424
Health care 3,695 2,913 4,310 7,414 8,174
Utilities 4,880 5,098 6,749 6,877 6,458
Special Revenue 1,896 1,952 3,787 3,110 6,374
Higher Education 1,346 1,312 2,132 2,517 4,217
Transportation 1,767 2,624 3,153 6,059 4,175
Housing 886 1,962 1,802 1,791 2,093
Other 600 1,240 401 1,301 1,077
Industrial Development &
Pollution Control Revenue 1,486 1,155 693 781 237
------- ------- ------- ------- -------
Total Municipal 27,721 28,482 36,063 43,648 48,229
------- ------- ------- ------- -------
Structured Finance* 10,135 14,053 24,451 32,563 35,781
Other 1,782 1,562 4,740 4,438 3,525
------- ------- ------- ------- -------
Total Domestic $39,638 $44,097 $65,254 $80,649 $87,535
------- ------- ------- ------- -------
International
Structured Finance* 1,470 7,003 4,039 2,586 6,267
Infrastructure 262 626 839 1,080 778
Other 1,055 884 1,341 1,209 701
------- ------- ------- ------- -------
Total International 2,787 8,513 6,219 4,875 7,746
------- ------- ------- ------- -------
Total $42,425 $52,610 $71,473 $85,524 $95,281
======= ======= ======= ======= =======
* Asset/mortgage-backed
- ----------
(1) Par amount insured by year, net of reinsurance.
5
<PAGE>
MBIA Corp. is licensed to write business in all 50 states, the District of
Columbia, Guam, the Northern Mariana Islands, the U.S. Virgin Islands, Puerto
Rico, the Kingdom of Spain and the Republic of France. MBIA Assurance is
licensed to write business in France. The following table sets forth by
geographic location the areas in which MBIA Corp. has at least 2% of its total
net par amount outstanding:
MBIA Corp. Insured Portfolio By State
as of December 31, 1998 (1)
Number of Net Par % of Net
Issues Amount Par Amount
Outstanding Outstanding Outstanding
State (In billions)
California 3,681 $ 40.3 11.2%
New York 5,310 38.3 10.7
Florida 1,589 19.8 5.5
Pennsylvania 2,278 14.0 3.9
New Jersey 1,884 13.5 3.8
Texas 2,131 13.5 3.8
Illinois 1,275 12.8 3.5
Massachusetts 1,107 10.1 2.8
Ohio 1,076 8.1 2.2
Michigan 1,066 8.0 2.2
------ ------ -----
Sub-Total 21,397 178.4 49.6
All Other States 12,004 96.0 26.7
Nationally Diversified 842 68.0 18.9
------ ------ -----
Total United States 34,243 342.4 95.2
International 323 17.1 4.8
------ ------ -----
Total 34,566 $359.5 100.0%
====== ====== =====
- ---------
(1) Excludes IMC's $3.5 billion relating to municipal investment agreements
guaranteed by MBIA Corp.
MBIA Corp. has underwriting guidelines that limit the net insurance in
force for any one insured credit. MBIA Corp. has not exceeded any applicable
regulatory single-risk limit with respect to any bond issue insured by it. As of
December 31, 1998, MBIA Corp.'s net par amount outstanding for its ten largest
insured municipal credits totaled $15.1 billion, representing 4.2% of MBIA
Corp.'s total net par amount outstanding, and for its ten largest structured
finance credits, the net par outstanding was $16.2 billion, or 4.5% of the
total.
6
<PAGE>
MBIA Corp. Insurance Programs
MBIA Corp. offers financial guarantee insurance in both the new issue and
secondary markets. At present, no new financial guarantee insurance is being
offered by MBIA Illinois or CapMAC, but it is possible that either of those
entities may insure transactions in the future. MBIA Corp. and MBIA Assurance
offer financial guarantee insurance in Europe and other areas outside the United
States.
Transactions in the new issue market are sold either through negotiated
offerings or competitive bidding. In the first case, either the issuer or the
underwriter purchases the insurance policy directly from MBIA Corp. On
competitive bid issues, the insurance is offered as an option to the
underwriters bidding on the transaction. The successful bidder would then have
the option to purchase the insurance.
In the secondary market, MBIA Corp. provides insurance on whole and partial
maturities in response to requests from bond traders and institutions who trade
in the secondary market. MBIA Corp. also offers insurance to the unit investment
trust market through ongoing arrangements with investment banks and financial
service companies. Each issue in the trust is insured, in some cases until
maturity, in others only while it is held in the trust. Lastly, insurance is
offered in the mutual fund sector through ongoing arrangements with the fund
sponsors. All fund issues are insured on a "while-in-trust" basis, but in some
cases, MBIA Corp. is committed to offer insurance to maturity to the sponsor for
an additional premium.
The following table indicates the percentage of net par outstanding with
respect to each type of insured program:
MBIA Corp. Types of Insured Programs
as of December 31, 1998 (1)
Net Par Amount
Type of Program Outstanding % Of Net Par
(In billions) Amount Outstanding
New Issue $316.9 88.1%
Secondary market issues
Unit investment trusts 9.1 2.5
Mutual funds 0.2 0.1
Other secondary market issues 33.3 9.3
------ -----
Total $359.5 100.0%
====== =====
- ----------
(1) Excludes IMC's $3.5 billion relating to municipal investment agreements
guaranteed by MBIA Corp.
7
<PAGE>
Operations
The insurance operations of MBIA Corp. are conducted through the Public
Finance Division, the Structured Finance Division, the joint venture with Ambac
(for all international transactions) and the Risk Management Group. The Public
Finance Division has underwriting authority with respect to certain categories
of business up to pre-determined par amounts based on a risk-ranking system. In
order to ensure that the guidelines are followed, Risk Management monitors and
periodically reviews underwriting decisions made by the Public Finance Division.
With respect to larger, complex, or unique transactions, underwriting is
performed by a committee consisting of senior representatives of Public Finance,
Risk Management, Insured Portfolio Management, and the Company's Finance
Department. For all transactions done by the Structured Finance Division or for
international deals, MBIA Corp.'s review and approval procedure has two stages.
The first stage consists of screening, credit review and structuring by the
appropriate business unit, in consultation with Risk Management officers. The
second stage, consisting of the final review and approval of credit and
structure, is performed by a committee consisting of two Risk Management
officers and the head of the applicable business unit. Certain transactions,
based on size, complexity, or other factors, must also be approved by a
division-level committee consisting of senior representatives of Structured
Finance or the joint venture, Risk Management and Insured Portfolio Management.
Premium rates for Public Finance transactions are established by the Market
Research Department and Structured Finance premiums are set by analysts in the
division, in conjunction with the Risk Management Group's quantitative analysis
team. Pricing for international transactions is done by analysts working in the
joint venture, in conjunction with the Market Research Department.
Risk Management
The Risk Management Group is responsible for adherence to MBIA Corp.'s
underwriting guidelines and procedures which are designed to maintain an insured
portfolio with low risk characteristics. MBIA Corp. maintains underwriting
guidelines based on those aspects of credit quality that it deems important for
each category of obligation considered for insurance. For Public Finance and
international infrastructure transactions, these include economic and social
trends, debt management, financial management, adequacy of anticipated cash
flow, satisfactory legal structure and other security provisions, viable tax and
economic bases, adequacy of loss coverage and project feasibility, including a
satisfactory consulting engineer's report, if applicable. For Structured Finance
and international structured finance transactions, MBIA Corp's underwriting
guidelines, analysis and due diligence focus primarily on seller/servicer credit
and operational quality, the quality and historical and projected performance of
the asset pool, and the strength of the structure, including cash flow analysis,
the size and source of first loss protection, and asset performance triggers and
financial covenants. Such guidelines are subject to periodic review by an
interdivisional committee which is responsible for establishing and maintaining
underwriting standards and criteria for all insurance products.
The financial institution and corporate analysis groups within Risk
Management underwrite and monitor (in conjunction with Insured Portfolio
Management) MBIA Corp.'s direct and indirect exposure to financial institutions
and other corporate entities with respect to seller/servicer exposure,
investment contracts, letters of credit and liquidity facilities supporting
MBIA-insured issues, and recommends limits on such exposures. The department
provides in-depth financial analyses of financial institutions for which there
is existing or proposed exposure and gives advice on related contract terms,
transfers of these instruments to new institutions and renewal dates and
procedures.
Insured Portfolio Management:
The Insured Portfolio Management Group is responsible for monitoring
outstanding issues insured by MBIA Corp. This group's first function is to
detect any deterioration in credit quality or changes in the economic or
political environment which could interrupt the timely payment of debt service
on an insured issue. Once a problem is detected, the group then works with the
issuer, trustee, bond counsel, underwriters and other interested parties to deal
with the concern before it develops into a default. The Insured Portfolio
Management Group works closely with Risk Management and New Business Departments
to provide feedback on insured issue performance and credit risk parameters.
Although MBIA Corp. has to date had only eighteen insured issues requiring
claim payments for which it has not been fully reimbursed, there are eight
additional insured issues for which case loss reserves have been established
(see "Losses and Reserves" below). Other potential losses have been avoided
through the early detection of problems and subsequent negotiations with the
issuer and other parties involved. In a limited number of instances, the
solution involved the restructuring of insured issues or underlying security
arrangements. More often, MBIA Corp. utilizes a variety of other techniques to
resolve problems, such as enforcement of covenants, assistance in resolving
management problems and working with the issuer to develop potential political
solutions. Issuers are under no obligation to restructure insured issues or
underlying security arrangements in order to prevent losses. Moreover, MBIA
Corp. is obligated to pay amounts equal to defaulted interest and principal
payments on insured bonds on their
8
<PAGE>
respective due dates even if the issuer or other parties involved refuse to
restructure or renegotiate the terms of the insured bonds or related security
arrangements. The Company's experience is that early detection and continued
involvement by the Insured Portfolio Management Group are crucial in avoiding or
minimizing claims on insurance policies.
Once an obligation is insured, the issuer and the trustee are typically
required to furnish financial information, including audited financial
statements, annually to the Insured Portfolio Management Group for review.
Potential problems uncovered through this review, such as low operating fund
balances, covenant violations, trustee or servicer problems, tax certiorari
proceedings or excessive litigation, could result in an immediate surveillance
review and an evaluation of possible remedial actions. The Insured Portfolio
Management Group also monitors state finances and budget developments and
evaluates their impact on local issuers.
The Company's computerized credit surveillance system records situations
where follow-up is needed, such as letter of credit renewal, construction status
and the receipt of additional data after the closing of a transaction. At
underwriting, issues are given an internal credit rating. All credits are
monitored according to a frequency of review schedule that is based on risk type
and credit quality. Issues that experience financial difficulties, deteriorating
economic conditions, excessive litigation or covenant violations are placed on
the appropriate review list and are subject to surveillance reviews at intervals
commensurate to the problem which has been detected.
There are four departments in the Insured Portfolio Management Group. The
Public Finance Portfolio Management Department handles the traditional types of
domestic municipal issues such as general obligation, utility, special revenue
and health care bonds. The Structured Finance Portfolio Management Department is
responsible for domestic housing, asset backed and other structured
transactions. The International Portfolio Management Department is responsible
for all international transactions. The Financial Institutions and Corporate
Department monitors direct exposure to financial institutions and corporate
obligors across the entire insured portfolio and provides analytical support to
the other three departments.
The Public Finance Portfolio Management Department reviews and reports on
the major credit quality factors of risks insured by the Company, evaluates the
impact of new developments on insured weaker credits and carries out remedial
activity. In addition, it performs analysis of financial statements and key
operating data on a large scale basis and maintains various databases for
research purposes. It responds to consent and waiver requests and monitors pool
programs. This department is responsible for preparing special reports which
include analyses of regional economic trends, proposed tax limitations, the
impact of employment trends on local economies or legal developments affecting
bond security.
The Structured Finance Portfolio Management Department monitors insured
structured finance programs, focusing on the adequacy of reserve balances and
investment of earnings, the status of mortgage or loan delinquencies and
underlying insurance coverage and the performance of the trustee for insured
issues. Monitoring of issues typically involves review of records and
statements, review of transaction documents with regard to compliance, analysis
of cash flow adequacy and communication with trustees. Review of servicer
performance is also conducted through site visits with management, review of
servicer financial statements, review of servicer reports where available and
contacts with program administrators and trustees. The department also carries
out remedial activity on weaker credits.
The International Portfolio Management Departments monitors insured
international programs. This departments monitors all credit types, including
sovereign, sub-sovereign issuers, single risk and structured finance
transactions. The department applies similar policies and procedures as the
Public Finance and Structured Finance Portfolio Management Departments. The
department is responsible for remedial activities on weaker credits.
Investment Management Services
Over the last eight years, the Company's investment management businesses
have expanded their services to the public sector and added new revenue sources.
MBIA-MISC provides cash management services and fixed-rate investment
placement services directly to local governments and school districts. In
addition, MBIA-MISC performs investment fund administration services for
clients, which provide an additional source of revenue. AMMA provides investment
and treasury management consulting services for municipal and quasi-public
sector clients. Both MBIA-MISC and AMMA are Securities and Exchange Commission
registered investment advisers. MBIA-MISC/AMMA operates in 20 states and the
Commonwealth of Puerto Rico.
9
<PAGE>
IMC provides customized guaranteed investment agreements and flexible
repurchase agreements for bond proceeds and other public funds. At year-end
1998, principal and accrued interest outstanding on investment agreements was
$3.5 billion compared with $3.2 billion at year-end 1997.
In 1998, the Company merged with 1838 Investment Advisors, Inc. an asset
management firm with over $7.0 billion in equity, fixed income and balanced
portfolios. CMC provides investment management services for IMC's investment
agreements, MBIA-MISC's municipal cash management programs and MBIA Corp.'s
insurance related fixed-income investment portfolios, as well as third-party
accounts. CMC assumed full management for MBIA Corp.'s insurance related
fixed-income investment portfolios in 1996. CMC is also a registered investment
advisor.
Financial and Consulting Services
MuniServices provides various financial, consulting and administrative
services to municipal clients through a network of subsidiaries. MTB offers tax
revenue enhancement, compliance and collection services to public clients.
Municipal Resources Consultants, acquired in early 1998, provides revenue
enhancement and related information services to public sector clients. MBIA
MuniFinancial provides municipalities in California and other neighboring states
with debt administration, disclosure, arbitrage rebate and related services.
Capital Asset acquires delinquent tax liens and services them for the benefit of
municipalities. The Company is continuing to examine its investment in Capital
Asset and it is likely that the Company will sell its interest in that company.
The Company cannot as yet assess the economic impact of that sale although it is
anticipated that it will result in a modest write-off. MBIA & Associates
Consulting, Inc. has begun to provide strategic planning and management
consulting to public sector clients.
Competition
The financial guarantee insurance business is highly competitive. In 1998
MBIA Corp. was the largest insurer of new issue long-term municipal bonds,
accounting for 36% of the par amount of such insured bonds. The other principal
insurers in 1998 were Ambac Assurance Corporation, Financial Guaranty Insurance
Company and Financial Security Assurance Inc., all of which, like MBIA Corp.,
have Aaa and AAA claims-paying ratings from Moody's and S&P, respectively.
According to Asset Sales Report, in 1998 MBIA Corp. was the leading insurer of
new issue asset/mortgage-backed securities. The two principal competitors in
this area in 1998 were Financial Security Assurance and Ambac Assurance
Corporation.
Financial guarantee insurance also competes with other forms of credit
enhancement, including over-collateralization, letters of credit and guarantees
(for example, mortgage guarantees where pools of mortgages secure debt service
payments) provided by banks and other financial institutions, some of which are
governmental agencies or have been assigned the highest credit ratings awarded
by one or more of the major rating agencies. Letters of credit are most often
issued for periods of less than 10 years, although there is no legal restriction
on the issuance of letters of credit having longer terms. Thus, financial
institutions and banks issuing letters of credit compete directly with MBIA
Corp. to guarantee short-term notes and bonds with a maturity of less than 10
years. To the extent that banks providing credit enhancement may begin to issue
letters of credit with commitments longer than 10 years, the competitive
position of financial guarantee insurers, such as MBIA Corp., could be adversely
affected. Letters of credit also are frequently used to assure the liquidity of
a short-term put option for a long-term bond issue. This assurance of liquidity
effectively confers on such issues, for the short term, the credit standing of
the financial institution providing the facility, thereby competing with MBIA
Corp. and other financial guarantee insurers in providing interest cost savings
on such issues. Financial guarantee insurance and other forms of credit
enhancement also compete in nearly all instances with the issuer's alternative
of foregoing credit enhancement and paying a higher interest rate. If the
interest savings from insurance or another form of credit enhancement are not
greater than the cost of such credit enhancement, the issuer will generally
choose to issue bonds without enhancement. MBIA Corp. also competes in the
international market with composite (multi-line) insurers.
There are minimum capital requirements imposed on a financial guarantee
insurer by Moody's and S&P to obtain Triple-A claims-paying ratings. Also, under
a New York law, multi-line insurers are prohibited from writing financial
guarantee insurance in New York State. See "Business-Regulation." However, there
can be no assurance that major multi-line insurers or other financial
institutions will not participate in financial guarantee insurance in the
future, either directly or through monoline subsidiaries.
10
<PAGE>
Reinsurance
State insurance laws and regulations, as well as Moody's and S&P, impose
minimum capital requirements on financial guarantee companies, limiting the
aggregate amount of insurance which may be written and the maximum size of any
single risk exposure which may be assumed. MBIA Corp. increases its capacity to
write new business by using treaty and facultative reinsurance to reduce its
gross liabilities on an aggregate and single risk basis.
From its reorganization in December 1986 through December 1987, MBIA Corp.
reinsured a portion of each policy through quota and surplus share reinsurance
treaties. Each treaty provides reinsurance protection with respect to policies
written by MBIA Corp. during the term of the treaty, for the full term of the
policy. Under its quota share treaty MBIA Corp. ceded a fixed percentage of each
policy insured. Since 1988, MBIA Corp. has entered into only surplus share
treaties under which a variable percentage of risk over a minimum size is ceded,
subject to a maximum percentage specified in the treaty. Reinsurance ceded under
the treaties is for the full term of the underlying policy.
MBIA Corp. also enters into facultative reinsurance arrangements from time
to time primarily in connection with issues which, because of their size,
require additional capacity beyond MBIA Corp.'s retention and treaty limits.
Under these facultative arrangements, portions of MBIA Corp.'s liabilities are
ceded on an issue-by-issue basis. MBIA Corp. utilizes facultative arrangements
as a means of managing its exposure to single issuers to comply with regulatory
and rating agency requirements, as well as internal underwriting and portfolio
management criteria.
As a primary insurer, MBIA Corp. is required to honor its obligations to
its policyholders whether or not its reinsurers perform their obligations to
MBIA Corp. The financial position of all reinsurers is monitored by MBIA Corp.
on a regular basis.
As of December 31, 1998, MBIA Corp. retained approximately 85% of the gross
debt service outstanding of all transactions insured by it, MBIA Assurance and
MBIA Illinois, and ceded approximately 15% to treaty and facultative reinsurers.
The principal reinsurers of MBIA Corp., CapMAC and MBIA Illinois are Capital Re
Management Corporation, Enhance Reinsurance Company, AXA Re Finance, Munich
Reinsurance Corp., and KRE Reinsurance, Ltd. The first four of these reinsurers,
whose claims-paying ability is rated Triple-A by S&P, reinsured approximately
67% of the total ceded insurance in force at December 31, 1998. The other
principal reinsurer is rated AA by S&P. All of the other reinsurers reinsured
approximately 33% of the total ceded insurance in force at December 31, 1998 and
are diversified geographically and by lines of insurance written. MBIA Corp.'s
net retention on the policies it writes varies from time to time depending on
its own business needs and the capacity available in the reinsurance market. The
amounts of reinsurance ceded at December 31, 1998 and 1997 by bond type and by
geographic location are set forth in Note 16 to the Consolidated Financial
Statements of MBIA Inc. and Subsidiaries.
MBIA Corp. and MBIA Assurance have entered into a reinsurance agreement
providing for MBIA Corp.'s reimbursement of the risks of MBIA Assurance and a
net worth maintenance agreement in which MBIA Corp. agrees to maintain the net
worth of MBIA Assurance, to remain its sole shareholder and not to pledge its
shares. Under the reinsurance agreement MBIA Corp. agrees to reimburse MBIA
Assurance on an excess of loss basis for losses incurred in each calendar year
for net retained insurance liability, subject to certain contract limitations.
Under the net worth maintenance agreement, MBIA Corp. agrees to maintain a
minimum capital and surplus position in accordance with French and New York
legal requirements.
In connection with the BIG Ins. acquisition, MBIA Corp. and MBIA Illinois
entered into a reinsurance agreement under which MBIA Corp. agreed to reinsure
100% of all business written by MBIA Illinois, net of cessions by MBIA Illinois
to third party reinsurers, in exchange for MBIA Illinois' transfer of the assets
underlying the related unearned premium and contingency reserves. Pursuant to
such reinsurance agreement with MBIA Illinois, MBIA Corp. reinsured all of the
net exposure of $30.9 billion, or approximately 68% of the gross debt service
outstanding, of the municipal bond insurance portfolio of MBIA Illinois, the
remaining 32% having been previously ceded to treaty and facultative reinsurers
of MBIA Illinois. MBIA Corp. retroceded 3% and 1% of this portfolio to its
treaty and facultative reinsurers in 1990 and 1991, respectively; additionally,
in 1990, 10% of this portfolio was ceded back to MBIA Illinois to comply with
regulatory requirements. Effective January 1, 1999, MBIA Corp. and MBIA Illinois
entered into a replacement reinsurance agreement whereby MBIA Corp. agreed to
accept as reinsurance from MBIA Illinois 100 % of the net liabilities and other
obligations of MBIA Illinois, for losses paid on or after that date, thereby
eliminating the 10% retrocession arrangement previously in place.
11
<PAGE>
In connection with the CapMAC acquisition, MBIA Corp. and CapMAC entered
into a reinsurance agreement, effective April 1, 1998, under which MBIA Corp.
agreed to reinsure 100% of the net liability and other obligations of CapMAC in
exchange for CapMAC's payment of a premium equal to the ceded reserves and
contingency reserves. Pursuant to such reinsurance agreement with CapMAC, MBIA
Corp. reinsured all of the net exposure of $31.6 billion, or approximately 78%
of the gross debt service outstanding, the remaining 22% having been previously
ceded to treaty and facultative reinsurers of CapMAC.
Investments and Investment Policy
The Finance Committee of the Board of Directors of the Company approves the
general investment objectives and policies of the Company, and also reviews more
specific investment guidelines. On January 1, 1996 CMC assumed full management
of all of MBIA Corp.'s consolidated investment portfolios. Certain investments
of the Company and MBIA Assurance related to non-U.S. insurance operations are
managed by independent managers.
To continue to provide strong capital resources and claims-paying
capabilities for its insurance operations, the investment objectives and
policies for insurance operations set quality and preservation of capital as the
primary objective subject to an appropriate degree of liquidity. Maximization of
after-tax investment income and investment returns are an important but
secondary objective.
Investment objectives, policies and guidelines related to the Company's
municipal investment agreement business are also subject to review and approval
by the Finance Committee of the Board of Directors. The primary investment
objectives are to preserve capital, to achieve an investment duration that
closely approximates the expected duration of related liabilities, and to
maintain appropriate liquidity. The investment agreement assets are managed by
CMC subject to an investment management agreement between IMC and CMC.
12
<PAGE>
For 1998, approximately 68% of the Company's net income was derived from
after-tax earnings on its investment portfolio (excluding the amounts earned on
investment agreement assets which are recorded as a component of investment
management services revenues). The following table sets forth investment income
and related data for the years ended December 31, 1996, 1997 and 1998:
Investment Income of the Company (1)
1996 1997 1998
(In thousands)
Investment income before expenses (2) $268,280 $305,569 $337,565
Investment expenses 3,133 3,571 5,763
-------- -------- --------
Net investment income before income taxes 265,147 301,998 331,802
Net realized gains 9,936 16,903 29,962
-------- -------- --------
Total investment income before income taxes $275,083 $318,901 $361,764
======== ======== ========
Total investment income after income taxes $232,975 $263,071 $296,232
======== ======== ========
- ----------
(l) Excludes investment income and realized gains and losses from investment
management services and municipal and financial services segments
(2) Includes taxable and tax-exempt interest income.
13
<PAGE>
The tables below set forth the composition of the Company's investment
portfolios. The weighted average yields in the tables reflect the nominal yield
on market value as of December 31, 1998, 1997 and 1996.
Investment Portfolio by Security Type
as of December 31, 1998
<TABLE>
<CAPTION>
Investment
Insurance Management Services
Weighted Weighted
Fair Value Average Fair Value Average
Investment Category (in thousands) Yield (1) (in thousands) Yield (1)
<S> <C> <C> <C> <C>
Fixed income investments:
Long-term bonds:
Taxable bonds:
U.S. Treasury & Agency obligations $ 487,132 6.15% $1,404,668 5.54%
GNMAs 154,088 6.58 100,033 6.42
Other mortgage & asset backed securities 206,171 6.25 849,922 5.33
Corporate obligations 1,026,847 5.85 842,330 6.05
Foreign obligations(2) 136,416 5.45 292,979 6.46
---------- ---- ---------- ----
Total 2,010,654 5.99 3,489,932 5.71
Tax-exempt bonds:
State & municipal 3,873,399 7.15 -- --
---------- ---- ---------- ----
Total long-term investments 5,884,053 6.76 3,489,932 5.71
Short-term investments(3) 423,194 4.94 188,297 5.03
---------- ---- ---------- ----
Total fixed income investments 6,307,247 6.63% 3,678,229 5.68%
Other investments(4) 94,975 -- -- --
---------- ----------
Total investments $6,402,222 -- $3,678,229 --
========== ==========
</TABLE>
- ----------
(1) Prospective market yields as of December 31, 1998. Yield on tax-exempt
bonds is presented on a taxable bond equivalent basis using a 35% federal
income tax rate
(2) Consists of U.S. denominated foreign government and corporate securities.
(3) Taxable and tax-exempt investments, including bonds with a remaining
maturity of less than one year.
(4) Consists of equity investments and other fixed income investments; yield
information not meaningful.
14
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio by Security Type
as of December 31, 1997
Investment
Insurance Management Services
Weighted Weighted
Fair Value Average Fair Value Average
Investment Category (in thousands) Yield (1) (in thousands) Yield (1)
<S> <C> <C> <C> <C>
Fixed income investments:
Long-term bonds:
Taxable bonds:
U.S. Treasury & Agency obligations $ 472,100 6.87% $1,106,396 6.08%
GNMAs 148,065 7.15 105,865 6.91
Other mortgage & asset backed securities 189,904 6.60 726,126 6.03
Corporate obligations 836,334 6.38 691,252 6.49
Foreign obligations(2) 165,506 6.27 300,232 6.73
---------- ---- ---------- ----
Total 1,811,909 6.58 2,929,871 6.26
Tax-exempt bonds:
State & municipal 3,399,402 7.36 -- --
---------- ---- ---------- ----
Total long-term investments 5,211,311 7.09 2,929,871 6.26
Short-term investments(3) 303,898 5.19 411,523 5.73
---------- ---- ---------- ----
Total fixed income investments 5,515,209 6.99% 3,341,394 6.19%
Other investments(4) 51,693 -- -- --
---------- ----------
Total investments $5,566,902 -- $3,341,394 --
========== ==========
</TABLE>
- ----------
(1) Prospective market yields as of December 31, 1997. Yield on tax-exempt bonds
is presented on a taxable bond equivalent basis using a 35% federal income
tax rate.
(2) Consists of U.S. denominated foreign government and corporate securities.
(3) Taxable and tax-exempt investments, including bonds with a remaining
maturity of less than one year.
(4) Consists of equity investments and other fixed income investments; yield
information not meaningful.
15
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio by Security Type
as of December 31, 1996
Investment
Insurance Management Services
Weighted Weighted
Fair Value Average Fair Value Average
Investment Category (in thousands) Yield (1) (in thousands) Yield (1)
<S> <C> <C> <C> <C>
Fixed income investments:
Long-term bonds:
Taxable bonds:
U.S. Treasury & Agency obligations $ 415,007 7.29% $1,121,511 6.32%
GNMAs 107,217 7.56 71,315 7.35
Other mortgage & asset backed securities 136,913 7.13 767,271 5.92
Corporate obligations 469,823 6.78 706,574 6.82
Foreign obligations(2) 152,392 6.87 182,885 7.37
---------- ---- ---------- ----
Total 1,281,352 7.06 2,849,556 6.43
Tax-exempt bonds:
State & municipal 3,173,770 8.07 -- --
---------- ---- ---------- ----
Total long-term investments 4,455,122 7.78 2,849,556 6.43
Short-term investments(3) 209,840 5.85 443,742 5.65
---------- ---- ---------- ----
Total fixed income investments 4,664,962 7.70% 3,293,298 6.33%
Other investments(4) 49,737 -- -- --
---------- ----------
Total investments $4,714,699 -- $3,293,298 --
========== ==========
</TABLE>
- ----------
(1) Prospective market yields as of December 31, 1996. Yield on tax-exempt
bonds is presented on a taxable bond equivalent basis using a 35% federal
income tax rate.
(2) Consists of U.S. denominated foreign government and corporate securities.
(3) Taxable and tax-exempt investments, including bonds with a remaining
maturity of less than one year.
(4) Consists of equity investments and other fixed income investments; yield
information not meaningful.
16
<PAGE>
The average maturity of the insurance fixed income portfolio excluding
short-term investments as of December 31, 1998 was 11.1 years. After allowing
for estimated principal pre-payments on mortgage pass-through securities, the
duration of the portfolio was 6.8 years.
The table below sets forth the distribution by maturity of the Company's
consolidated fixed income investments:
Fixed Income Investments by Maturity
as of December 31, 1998
<TABLE>
<CAPTION>
Insurance Investment
Management Services
% of Total % of Total
Fair Value Fixed Income Fair Value Fixed Income
Maturity In thousands) Investments (In thousands) Investments
<S> <C> <C> <C> <C>
Within 1 year $ 423,194 6.7% $ 188,297 5.1%
Beyond 1 year but within 5 years 1,044,997 16.6 960,503 26.1
Beyond 5 years but within 10 years 1,749,798 27.7 834,206 22.7
Beyond 10 years but within 15 years 999,642 15.8 254,631 6.9
Beyond 15 years but within 20 years 1,020,534 16.2 603,252 16.4
Beyond 20 years 1,069,082 17.0 837,340 22.8
---------- ----- ---------- -----
Total fixed income investments $6,307,247 100.0% $3,678,229 100.0%
========== ==========
</TABLE>
The quality distribution of the Company's fixed income investments based on
ratings of Moody's was as shown in the table below:
Fixed Income Investments by Quality Rating (1)
as of December 31, 1998
<TABLE>
<CAPTION>
Investment
Insurance Management Services
% of Total % of Total
Fair Value Fixed Income Fair Value Fixed Income
Quality Rating (In thousands) Investments (In thousands) Investments
<S> <C> <C> <C> <C>
Aaa $3,671,994 60.7% $2,675,396 72.7%
Aa 1,262,103 20.9 314,972 8.6
A 1,053,863 17.4 687,861 18.7
Baa 56,948 1.0 -- --
---------- ------ ---------- -----
$6,044,908 100.0% $3,678,229 100.0%
========== ==========
</TABLE>
- ----------
(1) Excludes short-term investments with an original maturity of less than one
year, but includes bonds having a remaining maturity of less than one year.
17
<PAGE>
Regulation
MBIA Corp. is licensed to do insurance business in, and is subject to
insurance regulation and supervision by, the State of New York (its state of
incorporation), the 49 other states, the District of Columbia, Guam, the
Northern Mariana Islands, the U.S. Virgin Islands, Puerto Rico, the Kingdom of
Spain and the Republic of France. MBIA Assurance is licensed to do insurance
business in France and is subject to regulation under the corporation and
insurance laws of the Republic of France. The extent of state insurance
regulation and supervision varies by jurisdiction but New York and most other
jurisdictions have laws and regulations prescribing minimum standards of
solvency, including minimum capital requirements, and business conduct which
must be maintained by insurance companies. These laws prescribe permitted
classes and concentrations of investments. In addition, some state laws and
regulations require the approval or filing of policy forms and rates. MBIA Corp.
is required to file detailed annual financial statements with the New York
Insurance Department and similar supervisory agencies in each of the other
jurisdictions in which it is licensed. The operations and accounts of MBIA Corp.
are subject to examination by these regulatory agencies at regular intervals.
MBIA Corp. is licensed to provide financial guarantee insurance under
Article 69 of the New York Insurance Law. Article 69 defines financial guarantee
insurance to include any guarantee under which loss is payable upon proof of
occurrence of financial loss to an insured as a result of certain events. These
events include the failure of any obligor on or any issuer of any debt
instrument or other monetary obligation to pay principal, interest, premium,
dividend or purchase price of or on such instrument or obligation, when due.
Under Article 69, MBIA Corp. is licensed to transact financial guarantee
insurance, surety insurance and credit insurance and such other kinds of
business to the extent necessarily or properly incidental to the kinds of
insurance which MBIA Corp. is authorized to transact. In addition, MBIA Corp. is
empowered to assume or reinsure the kinds of insurance described above.
As a financial guarantee insurer, MBIA Corp. is required by the laws of New
York, California, Connecticut, Florida, Illinois, Iowa, New Jersey and Wisconsin
to maintain contingency reserves on its municipal bond and other financial
guarantee liabilities. Under New Jersey, Illinois and Wisconsin regulations,
contributions by such an insurer to its contingency reserves are required to
equal 50% of earned premiums on its municipal bond business. Under New York law,
such an insurer is required to contribute to contingency reserves 50% of
premiums as they are earned on policies written prior to July 1, 1989 (net of
reinsurance) and, with respect to policies written on and after July 1, 1989,
must make contributions over a period of 15 or 20 years (based on issue type),
or until the contingency reserve for such insured issues equals the greater of
50% of premiums written for the relevant category of insurance or a percentage
of the principal guaranteed, varying from 0.55% to 2.5%, depending upon the type
of obligation guaranteed (net of reinsurance, refunding, refinancings and
certain insured securities). California, Connecticut, Iowa and Florida law
impose a generally similar requirement. In each of these states, MBIA Corp. may
apply for release of portions of the contingency reserves in certain
circumstances.
The laws and regulations of these states also limit both the aggregate and
individual municipal bond risks that MBIA Corp. may insure on a net basis.
California, Connecticut, Florida, Illinois and New York, among other things,
limit insured average annual debt service on insured municipal bonds with
respect to a single entity and backed by a single revenue source (net of
qualifying collateral and reinsurance) to 10% of policyholders' surplus and
contingency reserves. In New Jersey, Virginia and Wisconsin, the average annual
debt service on any single issue of municipal bonds (net of reinsurance) is
limited to 10% of policyholders' surplus. Other states that do not explicitly
regulate financial guarantee or municipal bond insurance do impose single risk
limits which are similar in effect to the foregoing. California, Connecticut,
Florida, Illinois and New York also limit the net insured unpaid principal
issued by a single entity and backed by a single revenue source to 75% of
policyholders' surplus and contingency reserves.
Under New York, California, Connecticut, Florida, Illinois, New Jersey and
Wisconsin law, aggregate insured unpaid principal and interest under policies
insuring municipal bonds (in the case of New York, California, Connecticut,
Florida and Illinois, net of reinsurance) are limited to certain multiples of
policyholders' surplus and contingency reserves. New York, California,
Connecticut, Florida, Illinois and other states impose a 300:1 limit for insured
municipal bonds, although more restrictive limits on bonds of other types do
exist. For example, New York, California, Connecticut and Florida impose a 100:1
limit for certain types of non-municipal bonds.
The Company, MBIA Corp., MBIA Illinois and CapMAC are subject to regulation
under the insurance holding company statutes of New York, Illinois and other
jurisdictions in which MBIA Corp., MBIA Illinois and CapMAC are licensed to
write insurance. The requirements of holding company statutes vary from
jurisdiction to jurisdiction but generally require insurance holding companies,
such as the Company, and their insurance subsidiaries, to register and file
certain reports describing, among other information, their capital structure,
ownership and financial condition. The holding company statutes also generally
require prior approval of changes in control, of certain dividends and other
intercorporate transfers of assets, and of transactions between insurance
18
<PAGE>
companies, their parents and affiliates. The holding company statutes impose
standards on certain transactions with related companies, which include, among
other requirements, that all transactions be fair and reasonable and that those
exceeding specified limits receive prior regulatory approval.
Prior approval by the New York Insurance Department is required for any
entity seeking to acquire "control" of the Company, MBIA Corp or CapMAC. Prior
approval by the Illinois Department of Insurance is required for any entity
seeking to acquire "control" of the Company, MBIA Corp., MBIA Illinois or
CapMAC. In many states, including New York and Illinois, "control" is presumed
to exist if 10% or more of the voting securities of the insurer are owned or
controlled by an entity, although the supervisory agency may find that "control"
in fact does or does not exist when an entity owns or controls either a lesser
or greater amount of securities.
The laws of New York regulate the payment of dividends by MBIA Corp. and
provide that a New York domestic stock property/casualty insurance company (such
as MBIA Corp.) may not declare or distribute dividends except out of statutory
earned surplus. New York law provides that the sum of (i) the amount of
dividends declared or distributed during the preceding 12-month period and (ii)
the dividend to be declared may not exceed the lesser of (a) 10% of
policyholders' surplus, as shown by the most recent statutory financial
statement on file with the New York Insurance Department, and (b) 100% of
adjusted net investment income for such 12-month period (the net investment
income for such 12-month period plus the excess, if any, of net investment
income over dividends declared or distributed during the two-year period
preceding such 12-month period), unless the New York Superintendent of Insurance
approves a greater dividend distribution based upon a finding that the insurer
will retain sufficient surplus to support its obligations and writings. See Note
13 to the Consolidated Financial Statements of MBIA Inc. and Subsidiaries.
The foregoing dividend limitations are determined in accordance with
Statutory Accounting Practices ("SAP"), which generally produce statutory
earnings in amounts less than earnings computed in accordance with Generally
Accepted Accounting Principles ("GAAP"). Similarly, policyholders' surplus,
computed on a SAP basis, will normally be less than net worth computed on a GAAP
basis. See Note 5 to the Consolidated Financial Statements of MBIA Inc. and
Subsidiaries.
MBIA Corp., MBIA Illinois and CapMAC are exempt from assessments by the
insurance guarantee funds in the majority of the states in which they do
business. Guarantee fund laws in most states require insurers transacting
business in the state to participate in guarantee associations which pay claims
of policyholders and third-party claimants against impaired or insolvent
insurance companies doing business in the state. In most states, insurers
licensed to write only municipal bond insurance, financial guarantee insurance
and other forms of surety insurance are exempt from assessment by these funds
and their policyholders are prohibited from making claims on these funds.
Losses and Reserves
The Company's policy is to provide for loss reserves to cover losses that
may be reasonably estimated on its insured obligations over the lives of such
obligations. The loss reserve, at any financial statement date, is the Company's
estimate of the identified and unidentified losses on the obligations it has
insured, including expected costs of settlement.
Both MBIA Illinois and CapMAC are currently inactive and their insurance
business is in run-off. MBIA Corp. has reinsured their respective net
liabilities on financial guarantee insurance business and maintains required
reserves in connection therewith.
To the extent that specific insured issues are identified as currently or
likely to be in default, the present value of the expected payments, including
costs of settlement, net of expected recoveries, is allocated within the total
loss reserve as a case basis reserve. At December 31, 1998, $188.6 million of
the $270.1 million reserve for loss and loss adjustment expense represents case
basis reserves, of which $162.8 million and $20.3 million are attributable to
two health care facilities in Pennsylvania. The remaining case basis reserves
represent various housing financings and structured finance transactions, the
largest of which is $3.6 million.
The reserves for losses and loss adjustment expenses are based on
estimates, and there can be no assurance that the ultimate liability will not
exceed such estimates. To the extent that actual case losses for any period are
less than the unallocated portion of total loss reserve, there will be no impact
on the Company's earnings for that period other than an addition to the reserve
which results from applying the loss rate factor to new debt service insurance.
To the extent that case losses, for any period, exceed the unallocated portion
of the total loss reserve, the excess will be charged against the Company's
earnings for that period. The Company periodically reviews the appropriateness
of the loss reserves and loss rate factor and is currently conducting such
an analysis.
19
<PAGE>
SAP Ratios
The financial statements in this Form 10-K are prepared on the basis of
GAAP. For reporting to state regulatory authorities, SAP is used. See Note 5 to
the Consolidated Financial Statements of MBIA Inc. and Subsidiaries.
The SAP combined ratio is a traditional measure of underwriting
profitability for insurance companies. The SAP loss ratio (which is losses
incurred divided by premiums earned), SAP expense ratio (which is underwriting
expenses divided by net premiums written) and SAP combined ratio (which is the
sum of the loss and expense ratios) for MBIA Corp. and for the financial
guarantee industry, which includes the monoline primary insurers (including MBIA
Corp.) and monoline reinsurers, are shown in the table below:
Years Ended December 31,
1995 1996 1997 1998
MBIA Corp.
Loss ratio 0.4% 1.7% 1.2% 8.0%
Expense ratio 27.2 22.8 21.2 16.8
Combined ratio 27.6 24.5 22.4 24.8
Financial guarantee industry (1)
Loss ratio 5.3% 4.9% 8.3% *
Expense ratio 32.7 31.6 28.1 *
Combined ratio 38.0 36.5 36.4 *
- ----------
(1) Industry statistics were taken from the 1997 Annual Report of the
Association of Financial Guaranty Insurors.
* Not Available.
The SAP loss ratio differs from the GAAP loss ratio because the GAAP ratio
recognizes a provision for unidentified losses. The SAP expense ratio varies
from the GAAP expense ratio because the GAAP ratio recognizes the deferral of
policy acquisition costs and includes the amortization of purchase accounting
adjustments, principally goodwill. In addition, the SAP expense ratio is
calculated using premiums written while the GAAP expense ratio uses premiums
earned.
Net insurance in force, qualified statutory capital (which is comprised of
policyholders' surplus and the contingency reserve), and policyholders' leverage
ratios for MBIA Corp. and for the financial guarantee industry are shown in the
table below:
<TABLE>
<CAPTION>
As of December 31,
1995 1996 1997 1998
(Dollars in millions)
<S> <C> <C> <C> <C>
MBIA Corp.
Net insurance in force $359,175 $ 434,417 $ 513,736 $595,895
Qualified statutory capital 2,257 2,620 3,140 3,741
Policyholders' leverage ratio 159:1 166:1 164:1 159:1
Financial guarantee industry(1)
Net insurance in force $895,559 $1,076,821 $1,262,697 *
Qualified statutory capital 6,495 7,350 8,851 *
Policyholders' leverage ratio 138:1 147:1 143:1 *
</TABLE>
- ----------
(1) Industry statistics were taken from the 1997 Annual Report of the
Association of Financial Guaranty Insurors.
* Not Available.
20
<PAGE>
The policyholders' leverage ratio is the ratio of net insurance in force to
qualified statutory capital. This test is sometimes focused on as a measure of a
company's claims-paying capacity. The Company believes that the leverage ratio
has significant limitations since it compares the total debt service
(undiscounted) coming due over the next 30 years or so to a company's current
capital base. It thereby fails to recognize future capital that will be
generated during the period of risk being measured, arising from unearned
premium reserve and future installment premium commitments. Further, the
leverage ratio does not consider the underlying quality of the issuers whose
debt service is insured and thereby does not differentiate among the risk
characteristics of a financial guarantor's insured portfolio, nor does it give
any benefit for third-party commitments such as standby lines of credit.
MBIA Corp. Insurance Policies
The insurance policies issued by MBIA Corp. provide an unconditional and
irrevocable guarantee of the payment to a designated paying agent for the
bondholders of an amount equal to the principal of and interest on insured bonds
not paid when due. In the event of a default in payment of principal or interest
by an issuer, MBIA Corp. promises to make funds available in the amount of the
default on the next business day following notification. MBIA Corp. has a Fiscal
Agency Agreement with State Street Bank and Trust Company, N.A. to provide for
this payment upon receipt of proof of ownership of the bonds, as well as upon
receipt of instruments appointing MBIA Corp. as agent for the bondholders and
evidencing the assignment of bondholder rights with respect to the debt service
payments made by MBIA Corp. Even if bondholders are permitted by the indenture
securing the bonds to have the full amount of principal of the bonds, together
with accrued interest, declared due and payable immediately in the event of a
default, MBIA Corp. is required to pay only the principal and interest scheduled
to be paid, but not in fact paid, on each original principal and interest
payment date.
MBIA Assurance writes policies that are substantially similar in coverage
and manner of payment to the MBIA Corp. policies. The MBIA Illinois insurance
policies provide for payments on default in substantially the same manner as the
MBIA Corp. policies. Financial guaranty insurance written by CapMAC generally
guarantees to the holder of the guaranteed obligation the timely payment of
principal and interest in accordance with the obligation's original payment
schedule. In the case of a default on the insured obligation, payment under the
insurance policy generally may not be accelerated by the holder without the
consent of CapMAC, even though the underlying obligation may be accelerated.
Rating Agencies
Moody's, S&P and Fitch perform periodic reviews of MBIA Corp. and other
companies providing financial guarantee insurance. Their reviews focus on the
insurer's underwriting policies and procedures and on the issues insured.
Additionally, each rating agency has certain criteria as to exposure limits and
capital requirements for financial guarantors.
The rating agencies have reaffirmed their Triple-A claims-paying ratings
assigned to MBIA Corp., CapMAC, MBIA Illinois and to MBIA Assurance. The ratings
for MBIA Illinois and CapMAC are based in significant part on reinsurance
agreements between MBIA Corp. and MBIA Illinois and MBIA Corp. and CapMAC,
respectively. The rating of MBIA Assurance is based in significant part on the
reinsurance agreement between MBIA Corp. and MBIA Assurance and the net worth
maintenance agreement between the two parties. See "Business-Reinsurance."
Although MBIA Corp. intends to comply with the requirements of the rating
agencies, no assurance can be given that these requirements will not change or
that, even if MBIA Corp. complies with these requirements, one or more rating
agencies will not reduce or withdraw their rating. MBIA Corp.'s ability to
attract new business and to compete with other financial guarantors, and its
results of operations and financial condition would be materially adversely
affected by any reduction in its ratings.
Credit Agreement
MBIA Corp. entered into a Credit Agreement, dated as of December 29, 1989,
which has been amended from time to time (the "Credit Agreement") with Credit
Suisse, New York Branch ("Credit Suisse") to provide MBIA Corp. with an
unconditional, irrevocable line of credit. The Credit Agreement was amended and
restated by the Second Amended and Restated Credit Agreement, dated as of
October 1, 1997 among MBIA Corp., Credit Suisse, as Administrative Agent and a
consortium of highly rated banks. The Credit Agreement was further amended as of
October 1, 1998 to extend the expiration date and to replace the Administrative
Agent, Credit Suisse, with Cooperatieve Centrale Raiffeissen-Boerenleenbank B.A.
"Robobank Nederland." The line of credit is available to
21
<PAGE>
be drawn upon by MBIA Corp., in an amount up to $825 million, after MBIA Corp.
has incurred, during the period commencing October 1, 1997 and ending October
31, 2005, cumulative losses (net of any recoveries) in excess of $825 million or
4.00% of average annual debt service. The obligation to repay loans made under
the Credit Agreement is a limited recourse obligation of MBIA Corp. payable
solely from, and secured by a pledge of, recoveries realized on defaulted
insured obligations, from certain pledged installment premiums and other
collateral. Borrowings under the Credit Agreement are repayable on the
expiration date of the Credit Agreement. The current expiration date of the
Credit Agreement is October 31, 2005, subject to annual extensions under certain
circumstances. The Credit Agreement contains covenants that, among other things,
restrict MBIA Corp.'s ability to encumber assets or merge or consolidate with
another entity.
Employees
As of March 25, 1999, the Company had 939 employees. No employee is covered
by a collective bargaining agreement. The Company considers its employee
relations to be satisfactory.
Forward-Looking Statements
The Company through its management may from time to time make
forward-looking statements. Important factors, including general market
conditions and the competitive environment, could cause actual results to differ
materially from those contained in any forward-looking statements. The Company
undertakes no obligation to update any forward-looking statements to reflect
changes in events or expectations or otherwise.
Executive Officers
The executive officers of the Company and their present ages and positions
with the Company are set forth below.
Name Age Position and Term of Office
----- ---- ---------------------------
David H. Elliott 57 Chairman (officer since 1986)
Joseph W. Brown, Jr. 50 Chief Executive Officer (officer
since January 1999)
Richard L. Weill 56 Vice Chairman (officer since 1989)
Neil G. Budnick 44 Chief Financial Officer and Treasurer
(officer since 1992)
John B. Caouette 54 President, Structured Finance Division
(officer since February, 1998)
Gary C. Dunton 43 President, Public Finance Division and
President, Investment Management and
Financial Services Division
(officer since January, 1998)
Louis G. Lenzi 50 General Counsel and Secretary
(officer since 1986)
Kevin D. Silva 45 Senior Vice President (officer
since 1995)
Ruth M. Whaley 43 Chief Risk Officer (officer since
January 1999)
David H. Elliott is Chairman of the Company and of MBIA Corp. It is
expected that he will step down as Chairman in May. From 1991 to 1998, he was
also the Company's Chief Executive Officer and, from 1986 to 1991, he served as
the President and Chief Operating Officer of the Company and MBIA Corp. He is a
director of MBIA Corp. and was the President of the Association from 1976 to
1980 and from 1982 through 1986.
Joseph W. Brown, Jr. is Chief Executive Officer of the Company (effective
January 7, 1999) and a director of MBIA Corp. It is expected that Mr. Brown will
be appointed Chairman in May. Prior to joining the Company in January 1999, Mr.
Brown was Chairman of the Board of Talegen Holdings, Inc.
Richard L. Weill is Vice Chairman of the Company, President of MBIA Corp.
and a director of MBIA Corp. From 1989 through 1991, Mr. Weill was General
Counsel and Corporate Secretary of the Company. Mr. Weill was previously a
partner with the law firm of Kutak Rock, with which he had been associated from
1969 to 1989.
Kevin D. Silva is Senior Vice President of the Company and MBIA Corp. and a
director of MBIA Corp. He has been in charge of the Management Services Division
of MBIA Corp. since joining the Company in late 1995.
22
<PAGE>
Neil G. Budnick is Chief Financial Officer and Treasurer of the Company and
MBIA Corp. and a director of MBIA Corp. Mr. Budnick has been primarily involved
in the insurance operations area of MBIA Corp. since joining the Company in
1983.
John B. Caouette is President, Structured Finance Division of the Company
and MBIA Corp. and a director of MBIA Corp. Mr. Caouette was, until February of
1998, the Chairman and Chief Executive Officer of CapMAC Holdings Inc.
Gary C. Dunton is President, Public Finance Division and President,
Investment Management and Financial Services Division of the Company and MBIA
Corp. and a director of MBIA Corp. Mr. Dunton was, prior to joining the Company
as an officer, a director of the Company and President of the Family and
Business Insurance Group, USF&G Insurance.
Louis G. Lenzi is General Counsel and Secretary of the Company and MBIA
Corp. He is also a director of MBIA Corp. Mr. Lenzi has held various legal
positions within the Company and MBIA Corp. since 1984.
Ruth M. Whaley is the Chief Risk Officer of the Company and MBIA Corp. and
a director of MBIA Corp.. She was, until February of 1998, the Chief
Underwriting Officer of CapMAC Holdings Inc.
Item 2. Properties
MBIA Corp. owns the 157,500 square foot office building on approximately
15.5 acres of property in Armonk, New York, in which the Company and MBIA Corp.
have their headquarters. The Company is currently in the process of constructing
a 105,000 square foot addition to the Armonk property at an estimated cost of
$35.0 million. The Company also has rental space in New York, New York, San
Francisco, California, Paris, France, Madrid, Spain and Sydney, Australia. The
Company believes that these facilities are adequate and suitable for its current
needs.
Item 3. Legal Proceedings
There are no material lawsuits pending or, to the knowledge of the Company,
threatened to which the Company or any of its subsidiaries is a party.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
23
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information concerning the market for the Company's Common Stock and
certain information concerning dividends appears under the heading "Shareholder
Information" on the inside back cover of the Company's 1998 Annual Report to
Shareholders and is incorporated herein by reference. As of March 25, 1999,
there were 504 shareholders of record of the Company's Common Stock. The
information concerning dividends on the Company's Common Stock is under
"Business - Regulation" in this report.
Item 6. Selected Financial Data
The information under the heading "Selected Financial and Statistical Data"
as set forth on pages 34-35 of the Company's 1998 Annual Report to Shareholders
is incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" as set forth on pages 36-43 of
the Company's 1998 Annual Report to Shareholders is incorporated by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company, the Report of
Independent Accountants thereon by PricewaterhouseCoopers LLP and the unaudited
"Quarterly Financial Information" are set forth on pages 44-64 of the Company's
1998 Annual Report to Shareholders and are incorporated by reference.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding directors is set forth under "Election of Directors"
in the Company's Proxy Statement, dated March 29, 1999, which is incorporated by
reference.
Information regarding executive officers is set forth under Item 1,
"Business - Executive Officers," in this report.
Item 11. Executive Compensation
Information regarding compensation of the Company's executive officers is
set forth under "Compensation of Executive Officers" in the Company's Proxy
Statement, dated March 29, 1999, which is incorporated by reference.
24
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners and
management is set forth under "Election of Directors" and "Security Ownership of
Certain Beneficial Owners" in the Company's Proxy Statement, dated March 29,
1999, which is incorporated by reference.
Item 13. Certain Relationships and Related Transactions
Information regarding relationships and related transactions is set forth
under "Certain Relationships and Related Transactions" in the Company's Proxy
Statement dated March 29, 1999, which is incorporated by reference.
PART IV
Item 14.
(a) Financial Statements and Financial Statement Schedules and
Exhibits.
1. Financial Statements
MBIA Inc. has incorporated by reference from the 1998 Annual Report to
Shareholders the following consolidated financial statements of the Company:
Annual Report
to Shareholders
Page(s)
MBIA INC. AND SUBSIDIARIES
Report of independent accountants. 44
Consolidated balance sheets as of December 31, 1998 and 45
1997.
Consolidated statements of income for the years ended 46
December 31, 1998, 1997 and 1996.
Consolidated statements of changes in shareholders' 47
Equity for the years ended December 31, 1998, 1997 and
1996.
Consolidated statements of cash flows for the years 48
Ended December 31, 1998, 1997 and 1996.
Notes to consolidated financial statements. 49-64
2. Financial Statement Schedules
The following financial statement schedules are filed as part of this
report.
Schedule Title
-------- -----
I Summary of investments, other than investments in related
parties, as of December 31, 1998.
II Condensed financial information of Registrant
for December 31, 1998, 1997 and 1996.
IV Reinsurance for the years
ended December 31, 1998, 1997 and 1996.
The report of the Registrant's independent accountants with respect to the
above listed financial statement schedules is included with the schedules.
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
25
<PAGE>
3. Exhibits
(An exhibit index immediately preceding the Exhibits indicates the page
number where each exhibit filed as part of this report can be found.)
3. Articles of Incorporation and By-Laws.
3.1. Restated Certificate of Incorporation, dated August 17, 1990,
incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1990 (Comm. File 1-9583) (the "1990
10-K").
3.2. By-Laws as Amended as of March 19, 1998.
10. Material Contracts
10.06. Amended and Restated Tax Allocation Agreement, dated as of January
1, 1990, between the Company and MBIA Corp., incorporated by reference to
Exhibit 10.66 to the 1989 10-K.
10.07. Reinsurance Agreement, dated as of December 31, 1990, between MBIA
Corp. and Bond Investors Guaranty Insurance Company, incorporated by reference
to Exhibit 10.54 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990 (Comm. File No. 1-9583) (the "1990 10-K").
10.08. Revolving Credit Agreement, dated as of February 15, 1991, between
the Company and Credit Suisse, New York Branch, incorporated by reference to
Exhibit 10.76 to the 1991 10-K, as amended by the First Amendment to Revolving
Credit Agreement, dated as of September 30, 1992, incorporated by reference to
Exhibit 10.61 to the 1992 10-K, as further amended by the Second Amendment to
Revolving Credit Agreement, dated as of September 30, 1994, incorporated by
reference to Exhibit 10.48 to the 1994 10-K, as further amended by the Third
Amendment to Revolving Credit Agreement, dated as of May 23, 1996, incorporated
by reference to Exhibit 10.43 to the Company's Annual Report on Form 10-K for
fiscal year ended December 31, 1996 (Comm. File No. 1-9583) (the "1996 10-K").
10.09. Rights Agreement, dated as of December 12, 1991, between the Company
and Mellon Bank, N.A., incorporated by reference to the Company's Current Report
on Form 8-K, filed on December 31, 1991, incorporated by reference to Exhibit
10.62 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 (Comm. File No. 1-9583) (the "1993 10-K"), as amended by
Amendment to Rights Agreement, dated as of October 24, 1994, incorporated by
reference to Exhibit 10.49 to the 1994 10-K.
10.10. Trust Agreement, dated as of December 31, 1991, between MBIA Corp.
and Fidelity Management Trust Company, incorporated by reference to Exhibit
10.64 to the 1992 10-K, as amended by the Amendment to Trust Agreement, dated as
of April 1, 1993, incorporated by reference to Exhibit 10.64 to the 1993 10-K,
as amended by First Amendment to Trust Agreement, dated as of January 21, 1992,
as further amended by Second Amendment to Trust Agreement, dated as of March 5,
1992, as further amended by Third Amendment to Trust Agreement, dated as of
April 1, 1993, as further amended by the Fourth Amendment to Trust Agreement,
dated as of July 1, 1995, incorporated by reference to Exhibit 10.47 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995
(Comm. File No. 1-9583) (the "1995 10-K"), as amended by Fifth Amendment to
Trust Agreement, dated as of November 1, 1995, as further amended by Sixth
Amendment to Trust Agreement, dated as of January 1, 1996, incorporated by
reference to Exhibit 10.46 to the 1996 10-K, further amended by Seventh
Amendment to Trust Agreement, dated as of October 15, 1997, incorporated by
reference to Exhibit 10.36 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (Comm. File No. 1-9583) (the "1997 10-K") as
further amended by the Eighth Amendment to Trust Agreement, dated as of January
1, 1998 and by the Ninth Amendment to Trust Agreement, dated as of March 1,
1999.
10.12. Indenture, dated as of August 1, 1990, between MBIA Inc. and The
First National Bank of Chicago, Trustee, incorporated by reference to Exhibit
10.72 to the 1992 10-K.
10.13. First Restated Credit Agreement, dated as of October 1, 1993, among
MBIA Corp., Credit Suisse, New York Branch, as Agent, Credit Suisse, New York
Branch, Caisse Des Depots Et Consignations, Deutsche Bank AG, Bayerische
Landesbank Girozentrale and Landesbank Hessen-Thuringen Girozentrale, as amended
by an Assignment and Assumption Agreement, dated as of December 31, 1993, among
MBIA Corp., Credit Suisse, New York Branch, as Agent and Assignor and Deutsche
Bank AG,
26
<PAGE>
New York Branch, as further amended by a Modification Agreement, dated as of
January 1, 1994, among Deutsche Bank, AG, New York Branch, MBIA Corp. and Credit
Suisse, New York Branch, as Agent, as amended by a Joinder Agreement, dated
December 31, 1993, among Credit Suisse, New York Branch, as Agent,
Sudwestdeutsche Landesbank Girozentrale and MBIA Corp., incorporated by
reference to Exhibit 10.78 to the 1993 10-K, as amended by the First Amendment
to First Restated Credit Agreement, dated as of September 23, 1994, incorporated
by reference to Exhibit 10.63 to the 1994 10-K, as further amended by the Second
Amendment to the First Restated Credit Agreement, dated as of January 1, 1996,
and as further amended by the Third Amendment to the First Restated Credit
Agreement, dated as of October 1, 1996, incorporated by reference to Exhibit
10.57 to the 1996 10-K, as further amended and restated by the Second Amended
and Restated Credit Agreement, dated as of October 1, 1997, incorporated by
reference to Exhibit 10.46 to the 1997 10-K, as further amended by the First
Amendment to Second Amended and Restated Credit Agreement, dated as of October
1, 1998.
10.14. Net Worth Maintenance Agreement, dated as of November 1, 1991,
between MBIA Corp. and MBIA Assurance S.A., as amended by Amendment to Net Worth
Agreement, dated as of November 1, 1991, incorporated by reference to Exhibit
10.79 to 1993 10-K.
10.15. Reinsurance Agreement, dated as of January 1, 1993, between MBIA
Assurance S.A. and MBIA Corp., incorporated by reference to Exhibit 10.80 to the
1993 10-K.
10.16. Credit Agreement, dated as of August 31, 1994, among Municipal Bond
Investors Assurance Corporation, the Company, Wachovia Bank of Georgia, N.A.,
Banco Santander, The Sumitomo Bank, Ltd., New York Branch, The Chase Manhattan
Bank, N.A., Commerzbank Aktiengesellschaft, The Industrial Bank of Japan,
Limited New York Branch and NBD Bank, N.A., and as further amended by the First
Amendment to Credit Agreement, dated as of October 14, 1994, incorporated by
reference to Exhibit 10.66 to the 1994 10-K, as amended by the Second Amendment
to Credit Agreement, dated as of October 31, 1995, incorporated by reference to
Exhibit 10.61 to 1995 10-K.
10.17. Investment Services Agreement, effective as of April 28, 1995,
between MBIA Insurance Corporation and MBIA Securities Corp., as amended by
Amendment No. 1, dated as of December 29, 1995, incorporated by reference to
Exhibit 10.65 to the 1995 10-K, as further amended by Amendment No. 2 to
Investment Services Agreement, dated January 14, 1997, incorporated by reference
to Exhibit 10.53 to the 1997 10-K.
10.18. Investment Services Agreement, effective January 2, 1996, between
MBIA Insurance Corp. of Illinois and MBIA Securities Corp., incorporated by
reference to Exhibit 10.66 to the 1995 10-K.
10.21. Agreement and Plan of Merger among the Company, CMA Acquisition
Corporation and CapMAC Holdings Inc. ("CapMAC"), dated as of November 13, 1997,
incorporated by reference to the Company's Form S-4 (Reg. No. 333-41633) filed
on December 5, 1997.
10.22. Amendment No. 1 to Agreement and Plan of Merger among the Company,
CMA Acquisition Corporation and CapMAC Holdings Inc. ("CapMAC"), dated January
16, 1998, incorporated by reference to the Company's Post Effective Amendment
No. 1 to Form S-4 (Reg. No. 333-41633) filed on January 21, 1998.
10.30. Reinsurance Agreement, dated as of April 1, 1998, between CapMAC and
MBIA Corp.
10.31. Reinsurance Agreement, dated as of January 1, 1999, between MBIA
Illinois and MBIA Corp.
10.32. Agreement and Plan of Merger by and among the Company, MBIA
Acquisition, Inc. and 1838 Investment Advisors, Inc., dated as of June 19, 1998.
27
<PAGE>
10.33. Credit Agreement (364 day agreement) among the Company, MBIA Corp.,
various designated borrowers, various lending institutions, Deutsche Bank AG,
New York Branch, as Administrative Agent, The First National Bank of Chicago, as
Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of
August 28, 1998.
10.34. Credit Agreement (5 year agreement) among the Company, MBIA Corp.,
various designated borrowers, various lending institutions, Deutsche Bank AG,
New York Branch, as Administrative Agent, The First National Bank of Chicago, as
Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of
August 28, 1998
10.48. Ambac Assurance Corporation, AMBAC Insurance UK Limited, MBIA
Insurance Corporation, and MBIA Assurance S.A. Agreement Regarding A Global
Joint Venture, effective as of January 15, 1999.
10.49. Special Excess Of Loss Reinsurance Agreement, between MBIA Insurance
Corporation and/or MBIA Assurance S.A. and/or any other insurance or reinsurance
company subsidiaries of MBIA Inc. listed in Exhibit No. 1 and Muenchener
Rueckversicherungs-Gesellshaft, effective September 1, 1998.
10.50. Second Special Per Occurrence Excess Of Loss Reinsurance Agreement,
between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other
insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No.
1 and AXA Re Finance S.A., effective September 1, 1998.
10.51. Third Special Per Occurrence Excess Of Loss Reinsurance Agreement,
between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other
insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No.
1 and Zurich Reinsurance (North America), Inc., effective September 15, 1998.
Executive Compensation Plans and Arrangements
The following Exhibits identify all existing executive compensation plans
and arrangements:
10.01. MBIA Inc. 1987 Stock Option Plan, incorporated by reference to
Exhibit 10.13 to the 1987 S-1, as amended by the First Amendment to the MBIA
Inc. 1987 Stock Option Plan, effective June 1, 1995, as further amended by the
Second Amendment to the MBIA Inc. 1987 Stock Option Plan, effective as of
January 7, 1999.
10.02. MBIA Inc. Deferred Compensation and Excess Benefit Plan,
incorporated by reference to Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1988 (Comm. File No. 1-9583)
(the "1988 10-K"), as amended as of July 22, 1992, incorporated by reference to
Exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 (Comm. File No. 1-9583) (the "1992 10-K").
10.03. MBIA Inc. Employees Pension Plan, amended and restated effective
January 1, 1987, incorporated by reference to Exhibit 10.28 of the Company's
Amendment No. 1 to the 1987 S-1, as further amended and restated as of December
12, 1991, incorporated by reference to Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991 (Comm. File No.
1-9583) (the "1991 10-K"), as further amended and restated effective January 1,
1994, incorporated by reference to Exhibit 10.16 of the Company's Annual Report
on Form 10-K for fiscal year ended December 31, 1994 (Comm. File No. 1-9583)
(the "1994 10-K").
10.04. MBIA Inc. Employees Profit Sharing Plan, as amended and restated
effective January 1, 1987, incorporated by reference to Exhibit 10.29 to
Amendment No. 1 to the 1987 S-1, as further amended by Amendment dated December
8, 1988, incorporated by reference to Exhibit 10.21 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989 (Comm. File No.
1-9583) (the "1989 10-K"), as further amended and restated as of December 12,
1991, incorporated by reference to Exhibit 10.19 to the 1991 10-K, as further
amended and restated as of May 7, 1992, incorporated by reference to Exhibit
10.17 to the 1992 10K, as further amended and restated effective January 1,
1994, incorporated by reference to Exhibit 10.17 to the 1994 10-K.
10.05. MBIA Corp. Split Dollar Life Insurance Plan, dated as of February 9,
1988, issued by Aetna Life Insurance and Annuity Company, incorporated by
reference to Exhibit 10.23 to the 1989 10-K.
28
<PAGE>
10.11. MBIA Inc. Employees Change of Control Benefits Plan, effective as of
January 1, 1992, incorporated by reference to Exhibit 10.65 to the 1992 10-K.
10.19. MBIA Inc. 1996 Incentive Plan, effective as of January 1, 1996,
incorporated by reference to Exhibit 10.70 to the 1995 10-K.
10.20. MBIA Inc. 1996 Directors Stock Unit Plan, effective as of December
4, 1996, incorporated by reference to Exhibit 10.70 to the 1996 10-K.
10.23. Employment Agreement, dated as of June 25, 1992, between CapMAC
Acquisition Corp. and John B. Caouette, incorporated by reference to Exhibit
10.7 of CapMAC's Registration Statement on Form S-1 (Reg. No. 33-982554), filed
in 1992, as amended (the "CapMAC Form S-1").
10.24. CapMAC Employee Stock Ownership Plan, incorporated by reference to
Exhibit 10.18 to the CapMAC Form S-1.
10.25. CapMAC Employee Stock Ownership Plan Trust Agreement, incorporated
by reference to Exhibit 10.19 to the CapMAC Form S-1, as amended by Amendment
No. 2 to the CapMAC Employee Stock Ownership Plan, executed December 22, 1998.
10.26. ESOP Loan Agreement by and between CapMAC and the ESOP Trust dated
as of June 25, 1992, incorporated by reference to Exhibit 10.20 to the CapMAC
Form S-1.
10.27. Deferred Compensation and Restricted Stock Agreement, dated as of
December 7, 1995, between John B. Caouette and CapMAC, incorporated by reference
to Exhibit 10.28 of the CapMAC Annual Report on Form 10-K for the year ended
December 31, 1995 (the "CapMAC 1995 10-K").
10.28. Deferred Compensation and Restricted Stock Agreement, dated as of
December 7, 1995, between Joyce S. Richardson and CapMAC, incorporated by
reference to Exhibit 10.35 of the CapMAC 1995 10-K.
10.29. Deferred Compensation and Restricted Stock Agreement, dated as of
December 7, 1995, between Ram D. Wertheim and CapMAC, incorporated by reference
to Exhibit 10.35 of the CapMAC 1995 10-K.
10.35. Retirement and Consulting Agreement, between the Company and David
H. Elliott, dated as of January 7, 1999 and Summary Retirement and Consulting
Agreement, between the Company and David H. Elliott, dated as of January 7,
1999.
10.36. Terms of Employment letter between MBIA and Joseph W. Brown, Jr.,
dated January 7, 1999.
10.37. Stock Option Agreement between MBIA Inc. and Joseph W. Brown, Jr.,
dated January 7, 1999.
10.38. Key Employee Employment Protection Agreement between MBIA Inc. and
Joseph W. Brown, Jr., dated January 20, 1999.
10.39. Key Employee Employment Protection Agreement between MBIA Inc. and
Neil G. Budnick, dated January 25, 1999.
10.40. Key Employee Employment Protection Agreement between MBIA Inc. and
W. Thacher Brown, dated January 25, 1999.
10.41. Key Employee Employment Protection Agreement between MBIA Inc. and
John B. Caouette, dated January 25, 1999.
10.42. Key Employee Employment Protection Agreement between MBIA Inc. and
Gary C. Dunton, dated January 25, 1999
29
<PAGE>
10.43. Key Employee Employment Protection Agreement between MBIA Inc. and
Louis G. Lenzi, dated January 25, 1999.
10.44. Key Employee Employment Protection Agreement between MBIA Inc. and
Kevin D. Silva , dated January 25, 1999.
10.45. Key Employee Employment Protection Agreement between MBIA Inc. and
Richard L. Weill, dated January 25, 1999.
10.46. Key Employee Employment Protection Agreement between MBIA Inc. and
Ruth M. Whaley, dated January 25, 1999.
10.47. Key Employee Employment Protection Agreement between MBIA Inc. and
Michael J. Maguire, dated March 19, 1999.
13. Annual Report to Shareholders of MBIA Inc. for fiscal year ended
December 31, 1998. Such report is furnished for the information of the
Commission only and, except for those portions thereof which are expressly
incorporated by reference in this Annual Report on Form 10-K, is not to be
deemed filed as part of this report.
21. List of Subsidiaries
23. Consent of PricewaterhouseCoopers LLP
24. Power of Attorney
27. Financial Data Schedule
99. Additional Exhibits - MBIA Corp. GAAP Financial Statements
(b) Reports on Form 8-K: The Company filed no report on Form 8-K in the
fourth quarter of 1998.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MBIA Inc.
(Registrant)
Dated: March 29, 1999 By /s/ David H. Elliott
--------------------------------
Name: David H. Elliott
Title: Chairman
Pursuant to the requirements of Instruction D to Form 10-K under the
Securities Exchange Act of 1934, this Report has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ David H. Elliott Chairman and Director March 29, 1999
-----------------------------
David H. Elliott
/s/ Elizabeth B. Sullivan Vice President and March 29, 1999
----------------------------- Controller
Elizabeth B. Sullivan
/s/ Joseph W. Brown, Jr. * Director March 29, 1999
-----------------------------
Joseph W. Brown, Jr.
/s/ David C. Clapp * Director March 29, 1999
-----------------------------
David C. Clapp
/s/ Gary C. Dunton Director March 29, 1999
-----------------------------
Gary C. Dunton
31
<PAGE>
/s/ Claire L. Gaudiani * Director March 29, 1999
-----------------------------
Claire L. Gaudiani
/s/ William H. Gray, III * Director March 29, 1999
-----------------------------
William H. Gray, III
/s/ Freda S. Johnson * Director March 29, 1999
-----------------------------
Freda S. Johnson
/s/ Daniel P. Kearney * Director March 29, 1999
-----------------------------
Daniel P. Kearney
/s/ James A. Lebenthal * Director March 29, 1999
-----------------------------
James A. Lebenthal
/s/ Pierre-Henri Richard * Director March 29, 1999
-----------------------------
Pierre-Henri Richard
/s/ John A. Rolls * Director March 29, 1999
-----------------------------
John A. Rolls
/s/ Richard L. Weill Director March 29, 1999
-----------------------------
Richard L. Weill
*By /s/ Louis G. Lenzi
-----------------------------
Louis G. Lenzi
Attorney-in Fact
32
<PAGE>
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors of MBIA Inc.:
Our audits of the consolidated financial statements referred to in our report
dated February 2, 1999 appearing on page 44 of the 1998 Annual Report to
Shareholders of MBIA Inc. (which report and consolidated financial statements
are incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the financial statement schedules listed in item 14(a)(2) of this
Form 10-K. In our opinion, these financial statement schedules present fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 2, 1999
<PAGE>
SCHEDULE I
MBIA INC. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS, OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D
AMOUNT AT WHICH
FAIR SHOWN IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED-MATURITIES
Bonds:
United States Treasury
and Government
agency obligations $ 443,130 $ 490,415 $ 490,415
State and municipal
obligations 3,633,841 3,873,399 3,873,399
Corporate and other
obligations 3,162,344 3,303,693 3,303,693
Mortgage-backed 1,679,525 1,706,478 1,706,478
----------- ----------- ----------
Total fixed-maturities 8,918,840 9,373,985 9,373,985
SHORT-TERM INVESTMENTS 611,491 XXXXXXX 611,491
OTHER INVESTMENTS 99,393 XXXXXXX 94,975
----------- ----------- ----------
Total investments $9,629,724 XXXXXXX $10,080,451
=========== =========== ===========
</TABLE>
<PAGE>
SCHEDULE II
MBIA INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
ASSETS
<S> <C> <C>
Investments:
Municipal investment agreement portfolio
held as available-for-sale at fair value
(amortized cost $2,683,882 and $1,986,139) $2,737,874 $2,020,489
Short-term investments, at amortized cost
(which approximates fair value) --- 2,300
----------------- -----------------
Total investments 2,737,874 2,022,789
Cash and cash equivalents 5,177 3,891
Securities borrowed or purchased under
agreements to resell 648,281 512,283
Investment in and amounts due from
wholly-owned subsidiaries 4,542,945 3,906,852
Accrued investment income 24,900 22,389
Receivables for investments sold 15,439 11,272
Other assets 9,774 10,368
----------------- -----------------
Total assets $7,984,390 $6,489,844
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Municipal investment agreements $2,055,225 $1,356,926
Municipal repurchase agreements 632,409 567,897
Long-term debt 673,996 473,878
Short-term debt --- 20,000
Securities loaned or sold under
agreements to repurchase 683,352 645,583
Deferred income taxes 18,818 11,973
Payable for investments purchased 65,757 14,925
Dividends payable 19,897 17,449
Other liabilities 42,719 19,701
----------------- -----------------
Total liabilities 4,192,173 3,128,332
----------------- -----------------
Shareholders' Equity:
Preferred stock, par value $1 per
share; authorized shares - 10,000,000;
issued and outstanding shares - none --- ---
Common stock, par value $1 per share;
authorized shares - 200,000,000;
issued shares - 99,569,625 and 98,754,487 99,570 98,754
Additional paid-in capital 1,169,192 1,133,950
Retained earnings 2,246,221 1,901,608
Accumulated other comprehensive income,
net of deferred income taxes
of $157,410 and $132,026 288,915 236,095
Unallocated ESOP shares (4,044) (4,083)
Unearned compensation - restricted stock (6,807) (4,812)
Treasury stock - 21,717 shares in 1998 (830) ---
----------------- -----------------
Total shareholders' equity 3,792,217 3,361,512
----------------- -----------------
Total liabilities and shareholders' equity $7,984,390 $6,489,844
================= =================
</TABLE>
The condensed financial statements should be read in
conjunction with the consolidated financial statements and
notes thereto and the accompanying notes.
<PAGE>
SCHEDULE II
MBIA INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------------------------------
1998 1997 1996
------------------ -------------- -------------
<S> <C> <C> <C>
Revenues:
Net investment income $ (178) $ (909) $ 283
Investment management
services income 4,553 4,469 2,806
Investment management
services realized gains (losses) 4,253 202 (2,549)
------------------ -------------- -------------
Total revenues 8,628 3,762 540
------------------ -------------- -------------
Expenses:
Interest expense 38,875 34,762 32,705
Operating expenses 67,252 4,304 2,384
------------------ -------------- -------------
Total expenses 106,127 39,066 35,089
------------------ -------------- -------------
Loss before income taxes
and equity in earnings
of subsidiaries (97,499) (35,304) (34,549)
Benefit for income taxes (13,888) (12,444) (10,911)
------------------ -------------- -------------
Loss before equity in earnings
of subsidiaries (83,611) (22,860) (23,638)
Equity in earnings of subsidiaries 516,339 428,470 371,374
------------------ -------------- -------------
Net income $432,728 $405,610 $347,736
================== ============== =============
</TABLE>
The condensed financial statements should be read in
conjunction with the consolidated financial statements and
notes thereto and the accompanying notes.
<PAGE>
SCHEDULE II
MBIA INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 432,728 $ 405,610 $ 347,736
Adjustments to reconcile net income
to net cash provided by
operating activities:
Equity in undistributed
earnings of subsidiaries (516,339) (387,970) (342,374)
Net realized (gains) losses on
sales of investments (4,253) (202) 2,549
Benefit for deferred income taxes (30) --- ---
Other, net 27,823 297 593
--------------- --------------- ---------------
Total adjustments to net income (492,799) (387,875) (339,232)
--------------- --------------- ---------------
Net cash provided by
operating activities (60,071) 17,735 8,504
--------------- --------------- ---------------
Cash flows from investing activities:
Purchase of fixed-maturity
securities --- --- ---
Sale of fixed-maturity securities --- --- ---
Sale (purchase) of short-term investments 2,300 3,898 (6,198)
Sale of other investments --- --- ---
Purchases for municipal investment
agreement portfolio, net of payable
for investments purchased (2,351,385) (1,264,882) (1,189,132)
Sales from municipal investment
agreement portfolio, net of receivable
for investments sold 1,707,407 845,365 464,593
Contributions to subsidiaries (17,616) (93,666) (11,301)
Advances to subsidiaries, net (62,085) (96,597) (21,764)
--------------- --------------- ---------------
Net cash used by investing activities (721,379) (605,882) (763,802)
--------------- --------------- ---------------
Cash flows from financing activities:
Net proceeds from issuance of
common stock --- 127,775 54,880
Net proceeds from issuance
of long-term debt 197,113 98,880 ---
Net proceeds from issuance of
short-term debt (20,000) (9,100) 11,100
Dividends paid (85,667) (76,743) (69,795)
Proceeds from issuance of municipal
investment and repurchase agreements 2,065,200 1,499,080 1,504,140
Payments for drawdowns of
municipal investment agreements (1,306,389) (1,195,939) (786,938)
Securities loaned or sold under
agreements to repurchase, net (98,229) 133,300 ---
Exercise of stock options 30,708 14,372 28,218
--------------- --------------- ---------------
Net cash provided by financing activities 782,736 591,625 741,605
--------------- --------------- ---------------
Net (decrease) increase in cash and
cash equivalents 1,286 3,478 (13,693)
Cash and cash equivalents
-beginning of year 3,891 413 14,106
--------------- --------------- ---------------
Cash and cash equivalents
-end of year $ 5,177 $ 3,891 $ 413
=============== =============== ===============
Supplemental cash flow disclosures:
Income taxes paid $ 618 $ 1,568 $ 305
Interest paid:
Long-term debt 39,499 32,953 32,850
Short-term debt 1,057 2,017 1,309
</TABLE>
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes.
<PAGE>
SCHEDULE II
MBIA INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. CONDENSED FINANCIAL STATEMENTS
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the Company's
consolidated financial statements and the notes thereto.
2. SIGNIFICANT ACCOUNTING POLICIES
The Parent company carries its investments in subsidiaries under the equity
method.
3. DIVIDENDS FROM SUBSIDIARY
No dividends were paid by MBIA Corp. to MBIA Inc. in 1998 and 1997.
In 1996, MBIA Corp. declared and paid dividends of $29,000,000 to MBIA Inc.
Also, in 1997 MBIA Investment Management Corp. declared and paid dividends
of $40,500,000 to MBIA Inc.
4. OBLIGATIONS UNDER MUNICIPAL INVESTMENT AND REPURCHASE AGREEMENTS
The municipal investment and repurchase agreement business, as described in
footnotes 2 and 15 to the consolidated financial statements of MBIA Inc.
and Subsidiaries (which are incorporated by reference in the 10-K), is
conducted by both the Registrant and its wholly owned subsidiary, MBIA
Investment Management Corp.
<PAGE>
SCHEDULE IV
MBIA INC. AND SUBSIDIARIES
REINSURANCE
for the Years Ended December 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
Percentage
Insurance Gross Ceded to Other Assumed from of Amount
Premiums Written Amount Value Other Companies Net Amount Assumed to Net
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 $664,269 $156,064 $12,781 $520,986 2.5%
---- -------- -------- ------- -------- ----
1997 $635,660 $116,526 $18,188 $537,322 3.4%
---- -------- -------- ------- -------- ----
1996 $507,535 $69,956 $27,747 $465,326 6.0%
---- -------- -------- ------- -------- ----
</TABLE>
<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
- --------------------------------------------------------------------------------
Exhibits
to
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
Commission File No. 1-9583
- -------------------------------------------------------------------------------
MBIA Inc.
<PAGE>
Exhibit Index
3.2. By-Laws as Amended as of March 19, 1998.
10.01. MBIA Inc. 1987 Stock Option Plan, incorporated by reference to
Exhibit 10.13 to the 1987 S-1, as amended by the First Amendment to the MBIA
Inc. 1987 Stock Option Plan, effective June 1, 1995, as further amended by the
Second Amendment to the MBIA Inc. 1987 Stock Option Plan, effective as of
January 7, 1999.
10.10. Trust Agreement, dated as of December 31, 1991, between MBIA Corp.
and Fidelity Management Trust Company, incorporated by reference to Exhibit
10.64 to the 1992 10-K, as amended by the Amendment to Trust Agreement, dated as
of April 1, 1993, incorporated by reference to Exhibit 10.64 to the 1993 10-K,
as amended by First Amendment to Trust Agreement, dated as of January 21, 1992,
as further amended by Second Amendment to Trust Agreement, dated as of March 5,
1992, as further amended by Third Amendment to Trust Agreement, dated as of
April 1, 1993, as further amended by the Fourth Amendment to Trust Agreement,
dated as of July 1, 1995, incorporated by reference to Exhibit 10.47 to the 1995
10-K, as amended by Fifth Amendment to Trust Agreement, dated as of November 1,
1995, as further amended by Sixth Amendment to Trust Agreement, dated as of
January 1, 1996, incorporated by reference to Exhibit 10.46 to the 1996 10-K,
further amended by Seventh Amendment to Trust Agreement, dated as of October 15,
1997, incorporated by reference to Exhibit 10.36 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 (Comm. File No. 1-9583)
(the "1997 10-K"), as further amended by the Eighth Amendment to Trust
Agreement, dated as of January 1, 1998 and by the Ninth Amendment to Trust
Agreement, dated as of March 1, 1999.
10.13. First Restated Credit Agreement, dated as of October 1, 1993, among
MBIA Corp., Credit Suisse, New York Branch, as Agent, Credit Suisse, New York
Branch, Caisse Des Depots Et Consignations, Deutsche Bank AG, Bayerische
Landesbank Girozentrale and Landesbank Hessen-Thuringen Girozentrale, as amended
by an Assignment and Assumption Agreement, dated as of December 31, 1993, among
MBIA Corp., Credit Suisse, New York Branch, as Agent and Assignor and Deutsche
Bank AG, New York Branch, as further amended by a Modification Agreement, dated
as of January 1, 1994, among Deutsche Bank, AG, New York Branch, MBIA Corp. and
Credit Suisse, New York Branch, as Agent, as amended by a Joinder Agreement,
dated December 31, 1993, among Credit Suisse, New York Branch, as Agent,
Sudwestdeutsche Landesbank Girozentrale and MBIA Corp., incorporated by
reference to Exhibit 10.78 to the 1993 10-K, as amended by the First Amendment
to First Restated Credit Agreement, dated as of September 23, 1994, incorporated
by reference to Exhibit 10.63 to the 1994 10-K, as further amended by the Second
Amendment to the First Restated Credit Agreement, dated as of January 1, 1996,
and as further amended by the Third Amendment to the First Restated Credit
Agreement, dated as of October 1, 1996, incorporated by reference to Exhibit
10.57 to the 1996 10-K, as further amended and restated by the Second Amended
and Restated Credit Agreement, dated as of October 1, 1997, incorporated by
reference to Exhibit 10.46 to the 1997 10-K, as further amended by the First
Amendment to Second Amended and Restated Credit Agreement, dated as of October
1, 1998.
10.30. Reinsurance Agreement, dated as of April 1, 1998, between CapMAC and
MBIA Corp.
10.31. Reinsurance Agreement, dated as of January 1, 1999, between MBIA
Illinois and MBIA Corp.
10.32. Agreement and Plan of Merger by and among the Company, MBIA
Acquisition, Inc. and 1838 Investment Advisors, Inc., dated as of June 19, 1998.
10.33. Credit Agreement (364 day agreement) among the Company, MBIA Corp.,
various designated borrowers, various lending institutions, Deutsche Bank AG,
New York Branch, as Administrative Agent, The First National Bank of Chicago, as
Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of
August 28, 1998.
10.34. Credit Agreement (5 year agreement) among the Company, MBIA Corp.,
various designated borrowers, various lending institutions, Deutsche Bank AG,
New York Branch, as Administrative Agent, The First National Bank of Chicago, as
Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of
August 28, 1998
<PAGE>
10.35. Retirement and Consulting Agreement, between the Company and David
H. Elliott, dated as of January 7, 1999 and Summary Retirement and Consulting
Agreement, between the Company and David H. Elliott, dated as of January 7,
1999.
10.36. Terms of Employment letter between MBIA and Joseph W. Brown, Jr.,
dated January 7, 1999.
10.37. Stock Option Agreement between MBIA Inc. and Joseph W. Brown, Jr.,
dated January 7, 1999.
10.38. Key Employee Employment Protection Agreement between MBIA Inc. and
Joseph W. Brown, Jr., dated January 20, 1999.
10.39. Key Employee Employment Protection Agreement between MBIA Inc. and
Neil G. Budnick, dated January 25, 1999.
10.40. Key Employee Employment Protection Agreement between MBIA Inc. and
W. Thacher Brown, dated January 25, 1999.
10.41. Key Employee Employment Protection Agreement between MBIA Inc. and
John B. Caouette, dated January 25, 1999.
10.42. Key Employee Employment Protection Agreement between MBIA Inc. and
Gary C. Dunton, dated January 25, 1999.
10.43. Key Employee Employment Protection Agreement between MBIA Inc. and
Louis G. Lenzi, dated January 25, 1999.
10.44. Key Employee Employment Protection Agreement between MBIA Inc. and
Kevin D. Silva , dated January 25, 1999.
10.45. Key Employee Employment Protection Agreement between MBIA Inc. and
Richard L. Weill, dated January 25, 1999.
10.46. Key Employee Employment Protection Agreement between MBIA Inc. and
Ruth M. Whaley, dated January 25, 1999.
10.47. Key Employee Employment Protection Agreement between MBIA Inc. and
Michael J. Maguire, dated March 19, 1999.
10.48. Ambac Assurance Corporation, AMBAC Insurance UK Limited, MBIA
Insurance Corporation, and MBIA Assurance S.A. Agreement Regarding A Global
Joint Venture, effective as of January 15, 1999.
10.49. Special Excess Of Loss Reinsurance Agreement, between MBIA Insurance
Corporation and/or MBIA Assurance S.A. and/or any other insurance or reinsurance
company subsidiaries of MBIA Inc. listed in Exhibit No. 1 and Muenchener
Rueckversicherungs-Gesellshaft, effective September 1, 1998.
10.50. Second Special Per Occurrence Excess Of Loss Reinsurance Agreement,
between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other
insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No.
1 and AXA Re Finance S.A., effective September 1, 1998.
10.51. Third Special Per Occurrence Excess Of Loss Reinsurance Agreement,
between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other
insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No.
1 and Zurich Reinsurance (North America), Inc., effective September 15, 1998.
<PAGE>
13. Annual Report to Shareholders of MBIA Inc. for fiscal year ended
December 31, 1998. Such report is furnished for the information of the
Commission only and, except for those portions thereof which are expressly
incorporated by reference in this Annual Report on Form 10-K, is not to be
deemed filed as part of this report.
21. List of Subsidiaries
23. Consent of PricewaterhouseCoopers LLP
24. Power of Attorney
27. Financial Data Schedule
99. Additional Exhibits - MBIA Corp. GAAP Financial Statements
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>2
<DESCRIPTION>BY-LAWS
<TEXT>
MBIA INC.
BY-LAWS
As Amended as of
March 19, 1998
<PAGE>
MBIA Inc.
BY-LAWS
TABLE OF CONTENTS
Section Page
- ------- ----
ARTICLE I
SHAREHOLDERS
1.01 Annual Meetings .......................................... 1
1.02 Special Meetings ......................................... 1
1.03 Notice of Meetings; Waiver ............................... 1
1.04 Quorum ................................................... 2
1.05 Voting ................................................... 2
1.06 Adjournment .............................................. 2
1.07 Proxies .................................................. 3
1.08 Organization; Procedure .................................. 3
1.09 Order of Business ........................................ 3
ARTICLE II
BOARD OF DIRECTORS
2.01 General Powers ........................................... 5
2.02 Number ................................................... 5
2.03 Qualifications of Directors .............................. 5
2.04 Election and Term of Directors ........................... 5
2.05 Regular Meetings ......................................... 6
2.06 Special Meetings; Notice.................................. 6
2.07 Quorum; Voting ........................................... 6
2.08 Adjournment .............................................. 7
2.09 Action Without a Meeting ................................. 7
2.10 Regulations; Manner of Acting ............................ 7
2.11 Resignations ............................................. 7
2.12 Removal of Directors ..................................... 7
2.13 Vacancies and Newly Created
Directorships .......................................... 7
2.14 Compensation ............................................. 8
2.15 Action by Telephonic Communications ...................... 8
<PAGE>
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
3.01 How Constituted .......................................... 8
3.02 Powers ................................................... 8
3.03 Proceedings .............................................. 9
3.04 Quorum and Manner of Acting .............................. 9
3.05 Resignations ............................................. 10
3.06 Removal .................................................. 10
3.07 Vacancies ................................................ 10
ARTICLE IV
OFFICERS
4.01 Number ................................................... 10
4.02 Election ................................................. 10
4.03 Removal and Resignation; Vacancies ....................... 10
4.04 Authority and Duties of Officers ......................... 11
4.05 The Chairman ............................................. 11
4.06 The Secretary ............................................ 11
4.07 Additional Officers ...................................... 12
4.08 Security ................................................. 12
ARTICLE V
CAPITAL STOCK
5.01 Certificates of Stock .................................... 12
5.02 Lost, Stolen or Destroyed Certificates ................... 13
5.03 Transfers of Stock; Registered
Shareholders ........................................... 13
5.04 Record Date .............................................. 13
5.05 Transfer Agent and Registrar ............................. 14
<PAGE>
ARTICLE VI
OFFICES
6.01 Registered Office ........................................ 14
6.02 Other Offices ............................................ 14
ARTICLE VII
GENERAL PROVISIONS
7.01 Dividends ................................................ 15
7.02 Reserves ................................................. 15
7.03 Execution of Instruments ................................. 15
7.04 Deposits ................................................. 15
7.05 Checks, Drafts, etc ...................................... 15
7.06 Sale, Transfer, etc. of Securities ....................... 15
7.07 Voting as Shareholder .................................... 16
7.08 Fiscal Year .............................................. 16
7.09 Seal ..................................................... 16
7.10 Books and Records; Inspection ............................ 16
ARTICLE VIII
AMENDMENT OF BY-LAWS
8.01 Amendment ................................................ 16
<PAGE>
BY-LAWS
ARTICLE I
SHAREHOLDERS
Section 1.01. Annual Meetings. The Annual Meeting of the shareholders of
the Corporation for the election of Directors and for the transaction of such
other business as properly may come before such meeting shall be held on the
first Thursday in May at 10:00 A.M. at such place, either within or without the
State of Connecticut, or at such other date and hour as in may be fixed from
time to time by resolution of the Board of Directors and set forth in the notice
or waiver of notice of the meeting. Any previously scheduled Annual Meeting may
be postponed by resolution of the Board of Directors upon notice given on or
prior to the date previously scheduled for such Annual Meeting of the
shareholders. [Section 33-695(a)(b).](1)
Section 1.02. Special Meetings. Special Meetings of the shareholders may be
called at any time by the Chairman, the Vice Chairman, the Secretary, or any two
Directors. A Special Meeting shall be called by the Chairman or the Vice
Chairman, immediately upon receipt of a written request therefor delivered to
the Secretary of the Corporation by shareholders holding not less than 10% of
the voting power of all shares entitled to vote at the meeting, which request
shall state the purpose or purposes of such meeting. If the Chairman or the Vice
Chairman shall fail to call such meeting within 15 days after receipt of such
request, any shareholder executing such request may call such meeting. Such
Special Meetings of the shareholders shall be held at such places, within or
without the State of Connecticut, as shall be specified in the respective
notices or waivers of notice thereof. At any Special Meeting of shareholders,
only such business may be transacted as is related to the purposes set forth in
the notice thereof. [Section 33696.]
Section 1.03. Notice of Meetings: Waiver. A notice in writing of each
meeting of shareholders shall be given by or at the direction of the Chairman or
the Vice Chairman or Secretary or the officer or person calling the meeting to
each shareholder of record entitled to vote at such meeting, by leaving such
notice with the shareholder or at the shareholder's residence or usual place of
business, or by mailing a copy thereof addressed to such shareholder at the
last-known post-office address as last shown on the
- --------------------------------------------------------------------------------
(1) Citations are to the Connecticut Business Corporation Act, and are
inserted for reference only, and do not constitute a part of the By-Laws.
1
<PAGE>
stock records of the Corporation, postage prepaid, not less than ten days nor
more than 60 days before the date of the meeting. Each notice of a meeting of
shareholders shall state the place, date and hour of the meeting. The general
purpose or purposes for which a Special Meeting is called shall be stated in the
notice thereof, and no other business shall be transacted at the meeting.
No notice of any meeting of shareholders need be given to any shareholder
who submits a signed waiver of notice, in person or by proxy, whether before or
after the meeting. Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the shareholders need be specified in a
written waiver of notice. The Secretary of the Corporation shall cause any such
waiver to be filed with the records of the meeting. The attendance of any
shareholder, in person or by proxy, at a meeting of shareholders without
protesting, prior to or at the commencement of the meeting, the lack of proper
notice shall be deemed to be a waiver by such shareholder of notice of such
meeting.
Except as set forth in Section 1.06 of these By-Laws, notice of any
adjourned meeting of the shareholders of the Corporation need not be given.
[Sections 33-699, 33-700.]
Section 1.04. Quorum. Except as otherwise required by law or by the
Certificate of Incorporation, the presence in person or by proxy of the holders
of a majority of the shares of stock entitled to vote at any meeting of
shareholders shall constitute a quorum for the transaction of business at such
meeting. The shareholders present at a duly held meeting at which a quorum is
present may continue to do business for the remainder of the meeting and any
adjournment of it unless a new record date is or must be set for the adjourned
meeting, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum. [Section 33-709.]
Section 1.05. Voting. Every holder of record of shares entitled to vote at
a meeting of shareholders shall be entitled to one vote for each share standing
in his or her name on the books of the Corporation on the record date fixed
pursuant to Section 5.04 of these By-Laws. Shares standing in the name of
another domestic or foreign corporation of any type or kind may be voted by such
officer, agent or proxy as the By-Laws of such corporation may provide, or in
the absence of such provision, as the Board of Directors of such Corporation may
determine. If a meeting of shareholders is duly held and if a quorum exists,
action on a matter, other than the election of Directors, is approved by the
shareholders if the votes cast by the shareholders favoring the action exceed
the votes cast opposing the action, unless the Certificate of Incorporation,
these By-laws or the law requires a greater number of affirmative votes.
[Sections 33-705, 33-709.]
Section 1.06. Adjournment. If a quorum is not present at any meeting of the
shareholders, the shareholders present in person or by proxy shall have the
power to adjourn any such meeting until a quorum is present, without notice
other than
2
<PAGE>
announcement at any such meeting of the place, date and hour to which such
meeting is adjourned. However, if after the adjournment the Board of Directors
fixes a new record date for the adjourned meeting pursuant to Section 5.04 of
these By-Laws, a notice of the adjourned meeting, conforming to the requirements
of Section 1.03 hereof, shall be given to each shareholder of record entitled to
vote at such meeting. The holders of a majority of the voting power of the
shares entitled to vote represented at a meeting may adjourn such meeting from
time to time. At any adjourned meeting at which a quorum is present, any
business may be transacted that might have been transacted on the original date
of the meeting. [Section 33-699(e).]
Section 1.07. Proxies. Every person entitled to vote or execute consents,
waivers or releases in respect of shares may do so either in person or by one or
more agents authorized by a written proxy executed by such person. No such proxy
shall be voted or acted upon after the expiration of 11 months from the date of
such proxy, unless it expressly specifies a longer length of time for which it
is to continue in force or limits its use to a particular meeting not yet held.
Every proxy shall be revocable at the will of the shareholder executing it,
unless it states that it is irrevocable and the appointment of proxy is coupled
with an interest. An appointment of a proxy is effective when received by the
Secretary of the Corporation or other officer or agent authorized to tabulate
votes. [Section 33-706.]
Section 1.08. Organization; Procedure. At every meeting of shareholders the
presiding officer shall be the Chairman or, in the event of his absence or
disability, the Vice Chairman, or in the absence of such officers, a presiding
officer chosen by a majority of the shareholders present in person or by proxy.
The order of business and all other matters of procedure at every meeting of
shareholders may be determined by such presiding officer. The Secretary, or, in
his absence, an appointee of the presiding officer, shall act as Secretary of
the meeting.
Section 1.09. Order of Business.
(a) At any Annual Meeting or Special Meeting of the shareholders, only
such business shall be conducted as shall have been brought before the
Annual Meeting or the Special Meeting (i) by or at the direction of
the Board of Directors or (ii) by any shareholder who complies with
the procedures set forth in this Section 1.09.
(b) For business properly to be brought before an Annual Meeting or
Special Meeting by a shareholder, the shareholder must have given
timely notice thereof in proper written form to the Secretary of the
Corporation. To be timely, a shareholder's notice must be delivered to
or mailed and received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the
Annual Meeting or Special Meeting; provided,
3
<PAGE>
however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the Annual Meeting or Special Meeting
is given or made to shareholders, notice by the shareholder to be
timely must be received not later than the close of business on the
tenth day following the day on which such notice of the date of the
Annual Meeting or Special Meeting was mailed or such public disclosure
was made. To be in proper written form, a shareholder's notice to the
Secretary shall set forth in writing as to each matter the shareholder
proposes to bring before the Annual Meeting or Special Meeting: (i) a
brief description of the business desired to be brought before the
Annual Meeting or Special Meeting and the reasons for conducting such
business at the Annual Meeting or Special Meeting; (ii) the name and
address, as they appear on the Corporation's books, of the shareholder
proposing such business; (iii) the class and number of shares of the
Corporation which are beneficially owned by the shareholder; and (iv)
any material interest of the shareholder in such business.
Notwithstanding anything in the By-Laws to the contrary, no business
shall be conducted at an Annual Meeting or Special Meeting except in
accordance with the procedures set forth in this Section 1.09. The
chairman of an Annual Meeting or Special Meeting shall, if the facts
warrant, determine and declare to the Meeting, that business was not
properly brought before such Meeting in accordance with the provisions
of this Section 1.09 and, if he or she should so determine, he or she
shall so declare to such meeting and any such business not properly
brought before such meeting shall not be transacted.
(c) For a shareholder to nominate persons for election to the Board of
Directors of the Corporation, the shareholder may nominate persons for
election as Directors only if such intention to make such nomination
is given by timely notice thereof in proper written form to the
Secretary of the Corporation. To be timely, a shareholder's notice of
nomination must be delivered to or mailed and received at the
principal offices of the Corporation not less than 60 days nor more
than 90 days prior to the Annual Meeting or Special Meeting at which
Directors will be elected; provided however, that in the event that
less than 70 days' notice or prior public disclosure of the date of
such meeting is given or made to shareholders, notice by the
shareholder to be timely must be received not later than the close of
business on the tenth day following the day on which such notice of
the date of such meeting was mailed or such public disclosure was
made. To be in proper written form, a shareholder's notice to the
Secretary shall set forth
4
<PAGE>
in writing (a) as to each person whom the shareholder proposes to
nominate for election or re-election as a Director, (i) the name, age,
business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and
number of shares of stock of the Corporation which are beneficially
owned by such person and (iv) any other information relating to such
person that is required to be disclosed in solicitations of proxies
for election of Directors, or is otherwise required under the rules
and regulations of the Securities and Exchange Commission (including
without limitation such, person's written consent to being named in
the proxy statement as a nominee and to serving as a Director if
elected) and (b) as to the shareholder giving the notice, (i) the name
and address, as they appear on the Corporation's books, of such
shareholder and, (ii) the class and number of shares of stock of the
Corporation which are beneficially owned by such shareholder. The
chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance
with the procedures of this Section 1.09 and, if the chairman of the
meeting should so determine, he or she shall so declare to the meeting
and the defective nomination shall be disregarded.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. General Powers. All the powers of the Corporation shall be
exercised by or under the authority of the Board of Directors, and except as may
otherwise be provided by law, by the Certificate of Incorporation or by these
By-Laws, the business and affairs of the Corporation shall be managed by or
under the direction of its Board of Directors. [Section 33-735(b).]
Section 2.02. Number. The number of Directors constituting the entire Board
of Directors shall be not less than three and not more than 15, and the number
of directorships at any time within such maximum and minimum shall be the number
fixed by resolution of the shareholders or by resolution adopted by a 66-2/3%
vote of the Board of Directors or, in the absence thereof, shall be the number
of Directors elected at the preceding Annual Meeting of shareholders [Section
33-737.]
Section 2.03. Qualifications of Directors. Directors need not be residents
of the State of Connecticut or shareholders of the Corporation. [Section
33-736.]
5
<PAGE>
Section 2.04. Election and Term of Directors. Except as otherwise provided
in Section 2.14 of these By-Laws, the Directors shall be elected at each Annual
Meeting of the shareholders to hold office until the next Annual Meeting of
shareholders. Each Director shall hold office for the term for which he or she
is elected and until such director's successor has been duly elected and
qualified, or until a earlier death, resignation, removal or a court order
stating that by reason of incompetency or any other lawful cause, he or she is
no longer a Director in office. If the Annual Meeting for the election of
Directors is not held on the date designated therefor, the Directors shall cause
the meeting to be held as soon thereafter as convenient. At each meeting of the
shareholders for the election of Directors, at which a quorum is present, the
Directors shall be elected by a plurality of the votes cast by the holders of
shares entitled to vote in such election. [Sections 33-712, 33-737, 33-739]
Section 2.05. Regular Meetings. The Board of Directors shall meet for the
purpose of electing officers and appointing committees, if any, and for the
transaction of such other business as may properly come before such meeting,
immediately following adjournment of the Annual Meeting of the shareholders at
the place of such Annual Meeting of the shareholders. Notice of such meeting of
the Board of Directors need not be given. Additional regular meetings of the
Directors may be held at such places, dates and times as shall be determined
from time to time by resolution of the Directors. Notice of regular meetings
need not be given, except that if the Board of Directors shall fix or change the
time or place of any such regular meeting, notice of such action shall be mailed
promptly, or sent by telegram or facsimile, to each Director who shall not have
been present at the meeting at which such action was taken, addressed to such
Director at his or her usual place of business, or shall be delivered
personally. Notice of such action need not be given to any Director who attends
the first regular meeting after such action is taken without protesting the lack
of notice, prior to or at the commencement of such meeting, or to any Director
who submits a signed waiver of notice, whether before or after such meeting.
[Sections 33-748, 33-750.]
Section 2.06. Special Meetings, Notice. Special Meetings of the Board of
Directors shall be held whenever called by the Chairman, the Vice Chairman, the
Secretary or any two Directors, at such place (within or without the State of
Connecticut), as may be specified in the respective notices or waivers of notice
of such meetings. At least two days' written or oral notice of Special Meetings
of the Board of Directors shall be given to each Director. A written waiver of
notice signed by a Director entitled to such notice, whether before or after the
time stated therein, shall be equivalent to the giving of such notice. The
Secretary of the Corporation shall cause any such waiver to be filed with the
records of the meeting. The attendance of a Director at a meeting without
protesting, prior to or at the commencement of the meeting, the lack of proper
notice shall be deemed to be a waiver by such Director of notice of such
meeting. No notice need be given of any adjourned meeting, unless the time and
place of the adjourned meeting are not announced at the time of adjournment, in
which case notice conforming to the requirements of this section shall be given
to each Director. [Sections33-750,33-751.]
6
<PAGE>
Section 2.07. Quorum; Voting. Except as provided in the Certificate of
Incorporation of this Corporation, a majority of the number of directorships at
the time shall constitute a quorum for the transaction of business. Except as
otherwise provided herein, required by law or the Certificate of Incorporation
of this Corporation, the vote of a majority of the Directors present at any
meeting at which a quorum is present shall be the act of the Board of Directors.
[Section 33-752.]
Section 2.08. Adjournment. A majority of the Directors present, whether or
not quorum is present, may adjourn any meeting of the Board of Directors to
another time or place. Notice of the adjourned meeting shall be given to the
extent required by Section 2.05 of these By-Laws.
Section 2.09. Action Without a Meeting. If all the Directors severally or
collectively consent in writing to any action taken or to be taken by the
Corporation, and the number of such Directors constitutes a quorum for such
action, such action shall be as valid corporate action as though it had been
authorized at a meeting of the Board of Directors. The Secretary shall file such
consents with the minutes of the meetings of the Board of Directors. [Section
33-749.]
Section 2.10. Regulations; Manner of Acting. To the extent consistent with
applicable law, the Certificate of Incorporation and these By-Laws, the Board of
Directors may adopt such rules and regulations for the conduct of meetings of
the Board of Directors and for the management of the affairs and business of the
Corporation as the Board of Directors may deem appropriate. The Directors shall
act only as a Board, and the individual Directors shall have no power as such.
At every meeting of the Board of Directors, the presiding officer shall be the
Chairman or, in the event of his or her absence or disability, a presiding
officer chosen by a majority of the Directors present.
Section 2.1 1. Resignations. Any Director may resign at any time by
delivering a written notice of resignation, signed by such Director, to the
Board of Directors. Such resignation shall be effective immediately upon receipt
by the Corporation if no time is specified, or at such later time as the
resigning Director may specify. [Section 33-741.]
Section 2.12. Removal of Directors. Any Director or Directors my be removed
either with or without cause at any time by the affirmative vote of the holders
of a majority of all the shares of stock outstanding and entitled to vote, at a
Special Meeting of the shareholders called for such purpose, which purpose must
be set forth in the notice of the meeting. [Section 33-742.]
Section 2.13. Vacancies and Newly Created Directorships. Subject to the
provisions of Section 2.02 hereof, any newly created directorships resulting
from any increase in the number of Directors and any vacancies occurring on the
Board of
7
<PAGE>
Directors for any other reason shall be filled for the unexpired term by a vote
of 66-2/3 % of the Board of Directors (measuring the percentage of the
directorships on the Board of Directors, in the case of any vacancy occurring by
reason of an increase in the number of directorships, by the percentage prior to
the vote on the increase). [Section 33-744.]
Section 2.14. Compensation. The amount, if any, which each Director shall
be entitled to receive as compensation for his or her services as such shall be
approved from time to time by the Board of Directors. [Section 33-745.]
Section 2.15. Action by Telephonic Communications. Members of the Board of
Directors, or any Committee designated by the Board, may participate in a
meeting of the Board of Directors or such Committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time. Participation
in a meeting pursuant to this provision shall constitute presence in person at
such meeting. [Section 33-748(b).]
ARTICLE III
EXECUTIVE COMMITTEE. AUDIT COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted. The Board of Directors, by resolution or
resolutions adopted by a vote of 66-2/3% of the Board of Directors, may
designate two or more Directors to constitute an Executive Committee, an Audit
Committee or other Committees. The Board may so designate one or more Directors
as alternate member(s) of any Committee who may replace any absent or
disqualified member(s) at any meeting of the Committee. Any such Committee may
be abolished or redesignated from time to time by resolution or resolutions
similarly adopted by the Board of Directors. Each such Committee shall serve at
the pleasure of the Board of Directors. Each member of any such Committee shall
hold office until a successor shall have been designated or until such member
shall cease to be a Director, or until his or her earlier death, resignation or
removal. [Section 33-753.]
Section 3.02. Powers. During the intervals between the meetings of the
Board of Directors, unless otherwise provided from time to time by resolutions
adopted by a vote of 66-2/3% of the Board of Directors, the Executive Committee,
if such a Committee shall have been established, shall have and may exercise all
the powers of the Board of Directors in the management of the business and
affairs of the Corporation, subject to the limitations set forth below. No
Committee, including the Executive Committee, shall have any power or authority
in reference to the following matters:
(a) the declaration of any distribution or dividend in respect of
shares of stock of the Corporation;
8
<PAGE>
(b) approving or proposing to shareholders any action as to which
shareholder approval is required by law;
(c) the filling of vacancies on the Board of Directors or on any
Committee thereof;
(d) the amendment of the Certificate of Incorporation pursuant to
Section 33-796 of the Connecticut Business Corporation Act;
(e) the amendment or repeal of the By-Laws, or the adoption of new
By-Laws;
(f) the approval of a plan of merger not requiring shareholder
approval;
(g) the authorization or approval of the reacquisition of shares,
except according to a formula or method prescribed by the Board of
Directors; or
(h) the authorizing or approving of the issuance or sale or contract
for sale of shares, or the determination of the designation and relative
rights, preferences and limitations of a class or series of shares, except
that the Board of Directors may authorize a Committee or a senior executive
officer of the Corporation to do so within limits specifically prescribed
by the Board of Directors.
Subject to the foregoing limitations, each other such Committee shall have and
may exercise such powers of the Board as may be provided by resolution or
resolutions similarly adopted. [Section 33-753(e)(f).]
Section 3.03. Proceedings. Any such Committee may fix its own rules of
procedure and may meet at such place (within or without the State of
Connecticut), at such date and time and upon such notice, if any, as it shall
determine from time to time. Such Committee shall keep a record of its
proceedings and shall report any such proceedings to the Board of Directors at
the first meeting of the Board of Directors following any such proceedings.
Section 3.04. Quorum and Manner of Acting. Except as may be otherwise
provided in the resolution designating any such Committee, at all meetings of
any such Committee the presence of members constituting a majority of the total
authorized membership of such Committee, but in no event less than two, shall
constitute a quorum for the transaction of business; and the act of the majority
of the members present at any meeting at which a quorum is present, but in no
event less than two, shall be the act of such Committee. Any action required or
permitted to be taken at any
9
<PAGE>
meeting of any such Committee may be taken without a meeting, if all members of
such Committee shall consent to such action in writing and such writing or
writings are filed with the proceedings of the Committee. The members of any
such Committee shall act only as a Committee, and the individual members of such
Committee shall have no power as such. [Sections 33-749, 33-752, 33-753(d).]
Section 3.03. Resignations. Any member of any Committee may resign at any
time by delivering a written notice of resignation, signed by such member, to
the Board of Directors. Unless otherwise specified therein, such resignation
shall take effect upon delivery.
Section 3.06. Removal. Any member of any such Committee may be removed at
any time, with or without cause, by resolution adopted by a vote of 66-2/3% of
the Board of Directors.
Section 3.07. Vacancies. If any vacancy shall occur in any such Committee,
by reason of disqualification, death, resignation, removal or otherwise, the
remaining members shall continue to act, if they are at least two in number, and
any such vacancy may be filled by resolution adopted by a vote of 66-2/3% of the
Board of Directors.
ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the Corporation shall be elected by
the Board of Directors and shall include a Chairman, a Vice Chairman, a
Secretary and such other officers as the Board may appoint from time to time.
Any two or more offices may be held by the same person. No officer, except the
Chairman, need be a Director of the Corporation. [Section 33-763.]
Section 4.02. Election. Unless otherwise determined by the Board of
Directors, the officers of the Corporation shall be elected by the Board of
Directors at the first meeting of the Board of Directors following each annual
meeting of the shareholders, and shall be elected to hold office until the first
meeting of the Board following the next succeeding annual meeting of the
shareholders. Each officer shall hold office until a successor has been elected
and qualified, or until such officer's earlier death, resignation or removal.
Section 4.03. Removal and Resignation; Vacancies. Any officer may be
removed with or without cause at any time by the Board of Directors, but without
10
<PAGE>
prejudice to such officer's contract rights, if any. Any officer may resign at
any time by delivering a written notice of resignation, signed by such officer,
to the Board of Directors. Unless otherwise specified therein, such resignation
shall take effect upon delivery. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise, shall be filled by the
Board of Directors. [Section 33-766.]
Section 4.04. Authority and Duties of Officers. The officers of the
Corporation shall have such authority and shall exercise such powers and perform
such duties as may be specified in these By-Laws, except that in any event each
officer shall exercise such powers and perform such duties as may be required by
law.
Section 4.05. The Chairman. The Chairman shall have the following powers
and duties:
(a) He or she shall perform such duties, in addition to those
specified below, as may be assigned by the Board of Directors.
(b) He or she shall preside at all shareholders' meetings.
(c) He or she shall preside at all meetings of the Board of Directors.
Section 4.06. The Secretary. The Secretary shall have the following powers
and duties:
(a) He or she shall keep or cause to be kept a record of all the
proceedings of the meetings of the shareholders and of the Board of
Directors in books provided for that purpose.
(b) He or she shall cause all notices to be duly given in accordance
with the provisions of these By-Laws and as required by law.
(c) Whenever any Committee shall be appointed pursuant to a resolution
of the Board of Directors, he or she shall furnish a copy of such
resolution to the members of such Committee.
(d) He or she shall be the custodian of the records and of the seal of
the Corporation and cause such seal (or a facsimile thereof) to be affixed
to all certificates representing shares of the Corporation prior to the
issuance thereof and to all instruments the execution of which on behalf of
the Corporation under its seal shall have been duly authorized in
accordance with these By-Laws, and when so affixed he or she may attest the
same.
11
<PAGE>
(e) He or she shall properly maintain and file all books, reports,
statements, certificates and all other documents and records required by
law, the Certificate of Incorporation or these By-Laws.
(f) He or she shall have charge of the stock books and ledgers of the
Corporation and shall cause the stock and transfer books to be kept in such
manner as to show at any time the number of shares of stock of the
Corporation of each class issued and outstanding, the names (alphabetically
arranged) and the addresses of the holders of record of such shares, the
number of shares held by each holder and the date as of which each became
such holder of record.
(g) He or she shall sign certificates representing shares of the stock
of the Corporation the issuance of which shall have been authorized by the
Board of Directors.
(h) He or she shall perform, in general, all duties incident to the
office of Secretary and such other duties as may be given to him or her by
these By-Laws or as may be assigned to him or her from time to time by the
Board of Directors, the Chairman or the Vice Chairman.
Section 4.07. Additional Officers. The Board of Directors may elect such
other officers and agents as it may deem appropriate, and such other officers
and agents shall hold their offices for such terms and shall exercise such
powers and perform such duties as may be determined from time to time by the
Board of Directors.
Section 4.08. Security. The Board of Directors may require any officer or
agent of the Corporation to provide security for the faithful performance of his
or her duties, in such amount and of such character as may be determined from
time to time by the Board of Directors.
ARTICLE V
CAPITAL STOCK
Section 5.01. Certificates of Stock. Every holder of stock in the
Corporation shall be entitled to a certificate or certificates certifying the
number of shares owned by him or her in such Corporation. Share certificates may
be under seal, or facsimile seal, of the Corporation and shall be signed by (1)
the Chairman and by the Secretary or (2) by any two officers of the Corporation
so authorized to sign by a resolution of the Board of Directors, except that
such signatures may be facsimile if such certificate is signed by a transfer
agent, transfer clerk acting on behalf of such corporation
12
<PAGE>
or registrar. Each certificate representing shares shall set forth upon the face
thereof as at the time of the issue: (1) The name of the Corporation; (2) a
statement that the Corporation is organized under the laws of Connecticut; (3)
the name of the person to whom issued, or that the same is issued to bearer; (4)
the number, class and designation of series, if any, of shares which such
certificate represents; and (5) the par value of each share represented by such
certificate or a statement that the shares are without par value. The Board of
Directors of the Corporation may provide by resolution that some or all of any
or all classes and series of its shares shall be uncertificated shares, provided
that such resolution shall not apply to shares represented by a certificate
until such certificate is surrendered to the Corporation. Within a reasonable
time after the issuance of uncertificated shares, the Corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates. [Section 33-676.]
Section 5.02. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct that a new certificate be issued in place of any
certificate previously issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate, setting forth such allegation. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of any such new certificate.
Section 5.03. Transfers of Stock; Registered Shareholders
(a) Shares of stock of the Corporation shall be transferable only upon
the books of the Corporation kept for such purpose upon surrender to the
Corporation or its transfer agent or agents of a certificate (unless such
shares shall be uncertificated shares) representing shares, duly endorsed
or accompanied by appropriate evidence of succession, assignment or
authority to transfer. Within a reasonable time after the transfer of
uncertificated shares, the Corporation shall send to the registered owner
thereof a written notice containing the information required to be set
forth or stated on certificates.
(b) The Board of Directors, subject to these By-Laws, may make such
rules, regulations and conditions as it may deem expedient concerning the
subscription for, issue, transfer and registration of, shares of stock.
Except as otherwise provided by law, the Corporation, prior to due
presentment for registration of transfer, may treat the registered owner of
shares as the person exclusively entitled to vote, to receive
notifications, and otherwise to exercise all the rights and powers of an
owner. [Section 33-678.]
13
<PAGE>
Section 5.04. Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, to demand a special meeting or entitled to receive payment
of any distribution, or for any other proper purpose, the Board of Directors may
provide that the stock transfer books shall be closed for a stated period but
such period shall not exceed, in any case, 70 days. If the stock transfer books
are closed for the purpose of determining shareholders entitled to notice of or
to vote at a meeting of shareholders, such books shall be closed for at least 10
full days immediately preceding the date of such meeting. In lieu of closing the
stock transfer books, the Board of Directors by resolution may fix a date as the
record date for any such determination of shareholders, such date in any case to
be not earlier than the date such action is taken by the Board of Directors and
not more than 70 days, and, in case of a meeting of shareholders, not less than
10 full days, immediately preceding the date on which the particular event,
requiring such determination of shareholders, is to occur. When a determination
of shareholders of record entitled to notice of or to vote at any meeting of
shareholders has been made as provided in this Section 5.04, such determination
shall apply to any adjournment thereof, unless the Board of Directors fixes a
new record date for the adjourned meeting, which it shall do if the meeting is
adjourned to a date more than 120 days after the date fixed for the original
meeting. [Section 33-701.]
Section 5.05. Transfer Agent and Registrar. The Board of Directors may
appoint one or more transfer agents and one or more registrars, and may require
all certificates representing shares to bear the signature of any such transfer
agents or registrars. The same person may act as transfer agent and registrar
for the Corporation.
ARTICLE VI
OFFICES
Section 6.01. Registered Office. The registered office of the Corporation
in the State of Connecticut shall be located in the City of Hartford. [Section
33-660.]
Section 6.02. Other Offices. The Corporation may maintain offices or places
of business at such other locations within or without the State of Connecticut
as the Board of Directors may from time to time determine or as the business of
the Corporation may require.
14
<PAGE>
ARTICLE VII
GENERAL PROVISIONS
Section 7.01. Dividends. Subject to any Applicable provisions of law and
the Certificate of Incorporation, dividends or other distributions upon the
outstanding shares of the Corporation may be declared by the Board of Directors
at any regular or Special Meeting of the Board of Directors and any such
dividend or distribution may be paid in case, property or the Corporation's own
shares. [Section 33-674, 33-687.]
Section 7.02. Reserves. There may be set apart from time to time out of any
funds of the Corporation available for dividends such reserve or reserves as the
Board of Directors may deem appropriate and the Board of Directors may similarly
modify or abolish any such reserve.
Section 7.03. Execution of Instruments. Subject to the approval of the
Board of Directors, the Chairman, the Vice Chairman, the Secretary or any other
officer may enter into any contract or execute and deliver any instrument in the
name and on behalf of the Corporation. The Board of Directors may authorize any
other officer or agent to enter into any contract or execute and deliver any
instrument in the name and on behalf of the Corporation. Any such authorization
may be general or limited to specific contracts or instruments.
Section 7.04. Deposits. Any funds of the Corporation may be deposited from
time to time in such banks, trust companies or other depositories as may be
determined by the Board of Directors or by such officers or agents as may be
authorized by the Board of Directors to make such determination.
Section 7.05. Checks, Drafts, etc. All notes, drafts, bills of exchange,
acceptances, checks, endorsements and other evidences of indebtedness of the
corporation, and its orders for the payment of money shall be signed by such
officer or officers or such agent or agents of the Corporation, and in such
manner, as the Board of Directors, the Chairman or the Vice Chairman from time
to time may determine.
Section 7.06. Sale, Transfer, etc. of Securities. To the extent authorized
by the Board of Directors, the Chairman or the Vice Chairman together with the
Secretary may sell, transfer, endorse, and assign any shares of stock, bonds or
other securities owned by or held in the name of the Corporation, and may make,
execute and deliver in the name of the Corporation, under its corporate seal,
any instruments that may be appropriate to effect any such sale, transfer,
endorsement or assignment.
15
<PAGE>
Section 7.07. Voting as Shareholder. Unless otherwise determined by
resolution of the Board of Directors, the Chairman or the Vice Chairman shall
have full power and authority on behalf of the Corporation to attend any meeting
of shareholders of any corporation in which the Corporation may hold stock, and
to act, vote (or execute proxies to vote) and exercise in person or by proxy all
other rights, powers and privileges incident to the ownership of such stock;
such officers acting on behalf of the Corporation shall have full power and
authority to execute any instrument expressing consent to or dissent from any
action of any such corporation without a meeting; and the Board of Directors may
by resolution from time to time confer such power and authority upon any other
person or persons. All acts, votes and exercises of other rights, powers and
privileges incident to the ownership of stock in subsidiaries of the Corporation
shall be carried out only pursuant to resolutions of the Board of Directors
adopted in accordance with these By-Laws.
Section 7.08. Fiscal Year. Unless otherwise determined by the Board of
Directors, the fiscal year of the Corporation shall, in each calendar year,
commence on the first day of January of each year and shall terminate on the
last day of December.
Section 7.09. Seal. The seal of the Corporation shall be circular in form
and shall contain the name of the Corporation, the year of its incorporation and
the words "INCORPORATED CONNECTICUT." The seal may be used by causing it or a
facsimile thereof to be impressed, affixed or reproduced, or may be used in any
other lawful manner.
Section 7.10. Books and Records Inspection. Except to the extent otherwise
required by law, the books and records of the Corporation shall be kept at such
place or places within or without the State of Connecticut as may be determined
from time to time by the Board of Directors.
ARTICLE VIII
AMENDMENT OF BY-LAWS
Section 8.01. Amendment. All By-Laws of the Corporation, whether adopted by
the Board of Directors or the shareholders, shall be subject to amendment,
alteration or repeal:
(a) by the affirmative vote of the holders of not less than 80% of the
voting power of shares entitled to vote at any Annual or Special Meeting of
shareholders, the notice of which shall have specified or
16
<PAGE>
summarized the proposed amendment, alternation, repeal or new By-Laws, or
(b) by the affirmative vote of Directors holding a majority of the
Directorships at any Regular or Special Meeting of Directors the notice or
waiver of notice of which, unless none is required hereunder, shall have
specified or summarized the proposed amendment, alteration, repeal or new
By-Laws,
provided, however, that Section 1.02 (regarding special meetings of
shareholders), Section 2.02 (regarding the number of Directors), Section 2.07
(regarding quorum and voting requirements for Directors), Section 2.12
(regarding removal of Directors), Section 2.13 (regarding vacancies and newly
created Directorships), Sections 3.01, 3.02, 3.06 and 3.07 (regarding Committees
and their members), and this Section 8.01 (regarding amendments) may be amended,
altered, or repealed only by the affirmative vote of either (i) the holders of
not less than 80% of the voting power of shares entitled to vote at any Annual
or Special Meeting of shareholders, the notice of which shall have specified or
summarized the proposed amendment, alteration or repeal, or (ii) by a vote of
66-2/3% of the Board of Directors at any Regular or Special Meeting of Directors
the notice of which shall have specified the proposed amendment, alteration or
repeal. The shareholders may at any time provide in the By-Laws that any other
specified provision or provisions of the By-Laws may be amended, altered or
repealed only in the manner specified in the foregoing clause (a) or in the
foregoing proviso, in which event such provision or provisions shall be subject
to amendment, alteration or repeal only in such manner. [Section 33-806.]
17
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.01
<SEQUENCE>3
<DESCRIPTION>FIRST AMENDMENT
<TEXT>
FIRST AMENDMENT
TO THE MBIA INC.
1987 STOCK OPTION PLAN
WHEREAS, MBIA Inc. (the "Company") maintains the MBIA Inc. 1987 Stock
Option Plan (the "Plan");
WHEREAS, pursuant to Section 17 of the Plan, the Company has reserved the
right to amend the Plan; and
WHEREAS, the Company desires to amend the Plan;
NOW, THEREFORE, the Plan is amended effective as of June 1, 1995 as
follows:
1. Section 3(a) of the Plan is amended to read as follows:
Subject to adjustment as provided in Section 14 below, the
aggregate number of shares of Common Stock to be delivered upon
exercise of all Options granted under the Plan shall not exceed
4,753,011 shares.
2. Section 6(d) of the Plan is amended to delete the second sentence
thereof, and to add a new second sentence thereof, to read as follows:
There shall be no limitation on the number of shares of Common Stock
which an Optionee may be granted to purchase, except that no Optionee
may be granted an Option to purchase shares of Common Stock in excess
of 500,000 shares within any 12 month period (subject to adjustment as
provided in Section 14 below) or (ii) the number of shares remaining
available for Option grants under the Plan.
IN WITNESS WHEREOF, the Company has caused this amendment to be executed by
its duly authorized officers this 15th day of August, 1997.
ATTEST MBIA INC.
By: /s/ Louis G. Lenzi By: /s/ Kevin D. Silva
--------------------------- ----------------------------
Secretary
<PAGE>
SECOND AMENDMENT
TO THE MBIA INC.
1987 STOCK OPTION PLAN
WHEREAS, MBIA Inc. (the "Company") maintains the MBIA Inc. 1987 Stock
Option Plan (the "Plan");
WHEREAS, pursuant to Section 17 of the Plan, the Company has reserved the
right to amend the Plan; and
WHEREAS, the Company desires to amend the Plan;
NOW, THEREFORE, the Plan is amended effective as of January 7, 1999 as
follows:
1. Section 6(c) is amended to delete the words "approved by the Board of
Directors" from the last sentence thereof.
2. Section 8 is amended to delete the word "The" at the beginning thereof,
and to insert in lieu thereof the following:
Except as otherwise expressly provided in the Plan to the contrary, the
3. Section 10 of the Plan (including the heading thereof) is amended to
delete such Section in its entirety and to add a new section 10 in lieu thereof,
to read as follows:
10. Transferability of Options and SARs.
Unless the Committee (or any person or person to whom the Committee shall
delegate the authority to administer the transferability of Stock Options
and/or SARs) shall permit (on such terms and conditions as it shall
establish) an Option (other than an Incentive Stock Option) or SAR to be
transferred to (i) a member of the Participant's immediate family as
determined by the Committee or its delegate; (ii) to a trust, partnership,
limited liability company or similar vehicle for the benefit of the
Participant and such immediate family members; or (iii) to a charity which
is exempt from taxation under Section 501(c)(3) of the Code or a private
foundation exempt from taxation under Section 509 of the Code
(collectively, the "Permitted Transferees"), no Option or SAR shall be
assignable or transferable except by will or the laws of descent and
distribution, and except to the extent required by law, no right
<PAGE>
or interest of any Participant shall be subject to any lien, obligation or
liability of the Participant. All rights with respect to Options or SARs
granted to a Participant under the Plan shall be exercisable during his
lifetime only by such Participant or, if applicable, the Permitted
Transferees. The rights of a Permitted Transferee shall be limited to the
rights conveyed to such Transferee, who shall be subject to and bound by
the terms of the agreement or agreements between the Participant and the
Company.
4. Section 14 of the Plan is amended to delete such Section in its entirety
and a new section 14 is added in lieu thereof to read as follows:
(a) Recapitalization, etc. In the event of a stock dividend, stock
split or recapitalization or a corporate reorganization in which the
Company is a surviving corporation, including without limitation a merger,
consolidation, split-up or spin-off or a liquidation or distribution of
securities or assets (other than cash dividends), the number or kinds of
shares subject to the Plan, the maximum number of shares which may be
awarded to any Optionee as provided in Section 6(d), or any Option or SAR
previously granted and the Option Price may be adjusted by the Committee as
it determines to be appropriate in its sole discretion. Any fractional
shares resulting from such adjustment may be eliminated.
(b) Special Transactions. Except as provided in this Section 14(b) or
Section 14(c) below, in the event of a Change of Control (as defined
below), each Option and SAR (whether on not then exercisable) shall be
canceled in exchange for a payment in cash of an amount equal to the
excess, if any, of the Change of Control Price over the exercise price for
such Option or SAR, regardless of the exercise schedule otherwise
applicable to such Option or SAR. Notwithstanding the immediately preceding
sentence, if there shall occur a Change of Control and the common equity of
the Company is still registered under Section 12 (g) of the 1934 Act, no
Option or SAR can be canceled and settled in cash without the consent of
the holder thereof.
(c) Alternative Awards. Notwithstanding Section 14(b) and except as
otherwise provided in any agreement, no cancellation, acceleration of
exercisability, vesting, cash settlement or other payment shall occur with
respect to any Option or SAR or any class of Options or SARs if the
Committee reasonably determines in good faith prior to the occurrence of a
Change of Control that such Option or SAR shall be honored or assumed, or
new rights substituted therefor (such honored, assumed or substituted
awards hereinafter called an "Alternative Award"), by a Participant's
employer (or the parent or a Subsidiary of such employers) immediately
following the Change of Control, provided that any such Alternative Award
must:
2
<PAGE>
(1) be based on stock which is traded on an established securities
market, or which will be so traded within 60 days of the Change
of Control;
(2) provide such Participant (or each Participant in a class of
Participants) with rights and entitlements substantially
equivalent to or better than the rights, terms and conditions
applicable under such Option or SAR including, but not limited
to, an identical or better exercise or vesting schedule and
identical or better timing and methods of payment;
(1) have substantially equivalent economic value to such Option or
SAR (determined at the time of the Change of Control); and
(3) have terms and conditions which provide that in the event that
the Participant's employment is involuntarily terminated or
constructively terminated, any conditions on a Participant's
rights under, or exercis-ability applicable to, each such
Alternative Award shall be waived or shall lapse, as the case may
be and the Participant shall have until the earlier of the
expiration of the term of such Option or SAR or the ninetieth day
following the date of such termination (or such longer period
following such termination as shall be established in a written
agreement between the Company and the Participant) to exercise
such Option or SAR.
For this purpose, a constructive termination shall mean a termination by a
Participant following a material reduction in the Participant's base salary or a
Participant's incentive compensation opportunity or a material reduction in the
Participant's responsibilities, in either case without the Participant's written
consent; provided that if the Participant is otherwise a party to an agreement
with the Company regarding the continuation of his or her employment following a
Change of Control, the provisions of that agreement shall govern the
determination of whether a constructive termination shall have occurred.
(d) Definitions. For the purposes of this Section 14, the following terms
shall have the meanings set forth below:
A "Change of Control" shall be deemed to have occurred if
(i) any person, as such term is currently used is Section 13(d) or
l4(d) of the 1934 Act, other than the Company, its majority owned
subsidiaries, or any employee benefit plan of the Company or any of its
majority-owned subsidiaries, becomes a "beneficial owner" (as such term is
currently used in Rule 13 d-3, as
3
<PAGE>
promulgated under 1934 Act) of 25% or more of the Voting Power of the
Company,
(ii) on any date, a majority of the Board consists of individuals
other than Incumbent Directors, which term means the members of the Board
who were serving on the Board at beginning of any 24-month period ending
with such date (or another date specified by the Committee), provided that
any individual who becomes a director subsequent to that date whose
election or nomination for election was supported by two-thirds of the
directors who then comprised the Incumbent Directors shall be considered to
be an Incumbent Director for purposes of this subsection 14(d)(ii);
(iii) the stockholders of the Company approve a merger, consolidation,
share exchange, division, sale or other disposition of substantially all of
the assets of the Company (a "Corporate Event"), as a result of which the
shareholders of the Company immediately prior to such Corporate Event (the
Company Shareholders) shall not hold, directly or indirectly, immediately
following such Corporate Event a majority of the Voting Power of (x) in the
case of a merger or consolidation, the surviving or resulting corporation,
(y) in the case of a share exchange, the acquiring corporation or (z) in
the case of a division or a sale or other disposition of substantially all
of the Company's assets, each surviving, resulting or acquiring
corporation; provided that, such a division or sale shall not be a Change
of Control for purposes of this Plan to the extent that, following such
Corporate Event; the participant continues to be employed by a surviving,
resulting or acquiring entity with respect to which the Company
Shareholders hold, directly or indirectly, a majority of the Voting Power
immediately following such Corporate Event.
"Change of Control Price" means the highest price per share of Stock
offered in conjunction with any transaction resulting in a Change of Control (as
determined in good faith by the Committee if any part of the offered price is
payable other than in cash) or, in the case of a Change of Control occurring
solely by reason of a change in the composition of the Board, the highest Fair
Market Value of the Stock on any of the 30 trading days immediately preceding
the date on which a Change of Control occurs.
A specified percentage of "Voting Power" of a company shall mean such
number of the Voting Securities as shall enable the holders thereof to cast such
percentage of all the votes which could be cast in an annual election of
directors and "Voting Securities" shall mean all securities of a company
entitling the holders thereof to vote in an annual election of directors.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this amendment to be executed by
its duly authorized officers and to be effective as of the 7th day of January
1999.
MBIA INC.
By: /s/ Kevin D. Silva
-----------------------------
Its:
ATTEST
By: /s/ Louis G. Lenzi
--------------------------
Its: Secretary
5
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>4
<DESCRIPTION>EIGHTH AMENDMENT TO TRUST AGREEMENT
<TEXT>
EIGHTH AMENDMENT TO TRUST AGREEMENT BETWEEN
FIDELITY MANAGEMENT TRUST COMPANY AND
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION
THIS EIGHTH AMENDMENT, dated as of the first day of January, 1998, by and
between Fidelity Management Trust Company (the "Trustee") and Municipal Bond
Investors Assurance Corporation (the "Sponsor");
WITNESSETH:
WHEREAS, the Trustee and the Sponsor heretofore entered into a Trust
Agreement dated December 31, 1991, with regard to the MBIA Inc. Employees
Pension Plan and 401 (k) Salary Deferral Plan (individually and collectively,
the "Plan"); and
WHEREAS, the Trustee and the Sponsor now desire to amend said Trust
Agreement as provided for in Section 13 thereof;
NOW THEREFORE, in consideration of the above premises the Trustee and the
Sponsor hereby amend the Trust Agreement by:
(1) Amending Schedule "B" by restating the "Annual Participant Fee"
and Sponsor Stock Trustee Fee sections as follows:
o Annual Participant Fee $15.00 per participant*, subject to
a $5,000 per year minimum, billed and
payable quarterly.
o To the extent that assets are invested in Sponsor Stock,
0.10% of such assets in the Trust payable pro rata quarterly
on the basis of such assets as of the calendar quarter's
last valuation date, but no less than $10,000 nor more than
$50,000 per year.
(2) Amending the "Trustee Fees" section of Schedule "B" to eliminate
the Mutual Fund Trustee Fee.
(3) Amending Schedule "B" to eliminate the Plan Sponsor Workstation
fee.
(4) Amending Schedule "B" by adding a new "Note" section as follows.
Note: These fees have been negotiated and accepted based on the
following Plan characteristics: total current plan assets of
$79.1 million, current participation of 429 participants, current
MIP assets of $6.7 million, current stock assets of $20.2 million
and total Fidelity managed Mutual Fund assets of $52.2 million.
Fees will be subject to revision if these Plan characteristics
change significantly by either falling below or exceeding current
or projected levels. Fees also have been based on the use of up
to 11 investment options, and such fees will be subject to
revision if additional investment options are added.
<PAGE>
IN WITNESS WHEREOF, the Trustee and the Sponsor have caused this Eighth
Amendment to be executed by their duly authorized officers effective as of the
day and year first above written.
MBIA INC. FIDELITY MANAGEMENT TRUST COMPANY
By /s/ [ILLEGIBLE] 12/15/97 By /s/ [ILLEGIBLE] 1/23/98
------------------------- ------------------------------
Date Vice President Date
<PAGE>
Fidelity Institutional
Retirement Services Company
- --------------------------------------------------------------------------------
A division of Fidelity Investments Institutional Services Company, Inc.
300 Puritan Way, MM3H
Marlborough, MA 01752-3078
January 29, 1998
Mr. Alan Perlman
MBIA Inc.
113 King Street
Armonk, NY 10504
Dear Mr. Pearlman:
Enclosed please find one fully-executed original of the Eighth Amendment to the
Trust Agreement for your files.
Please call Michelle Maziarz with any questions regarding this document. She can
be reached at (508) 357-5028.
Sincerely,
/s/ Dianne Candido
Dianne A. Candido
Contracts Administration Assistant
/dc
Enclosure
cc: Erin Delaney, I41A
Mary Drake, MM3C
Ann Emerson, TS213
Kara Rose Hearns, MM3I
Wendy Ennis, KN3C
<PAGE>
MBIA
MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
914 765 3880
Fax: 914 755 3299
e-mail: avin.silva@mbia.com
Kevin D. Silva
Senior Vice President
Director, Management Services
Schedule "E"
Ms. Jacqueline W. McCarthy
Fidelity Investment Institutional Operations Company
82 Devonshire Street
Boston, Massachusetts 02109
MBIA Inc. Employees Plan, MBIA Inc. Employees
Profit Sharing and 401 (k) Salary Deferral Plan
Dear Ms. McCarthy:
This letter is sent to you in accordance with Section 7(c) of the Trust
Agreement, dated as of January 1, 1992, between MBIA and Fidelity Management
Trust Company. I hereby designate Neil G. Budnick, Alan Pearlman and myself, as
the individuals who may provide directions upon which Fidelity Management Trust
Company shall be fully protected in relying. Only one such individual need
provide any direction. The signature of each designated individual is set forth
below and certified to be such.
You may rely upon each designation and certification set forth in this
letter until I deliver to you written notice of the termination of authority of
a designated individual.
Very truly yours
Date: 3/10/99 /s/ Kevin D. Silva
-----------------------------
Kevin D. Silva
Senior Vice President
Director, Management Services
Designated Individuals:
/s/ Neil G. Budnick
- -------------------------------------
Neil G. Budnick
President and Chief Financial Officer
/s/ Kevin D. Silva
- -------------------------------------
Kevin D. Silva
Senior Vice President
Director, Management Services
/s/ Alan Pearlman
- -------------------------------------
Alan Pearlman
Vice President, Manager
Compensation and Benefits
<PAGE>
NINTH AMENDMENT TO TRUST AGREEMENT BETWEEN
FIDELITY MANAGEMENT TRUST COMTANY AND
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION
THIS NINTH AMENDMENT, dated as of the first day of March, 1999, by and
between Fidelity Management Trust Company (the "Trustee") and Municipal Bond
Investors Assurance Corporation (the "Sponsor");
WITNESSETH:
WHEREAS, the Trustee and the Sponsor heretofore entered into a Trust
Agreement dated December 31, 1991, with regard to the MBIA Inc. Employees
Pension Plan and 401 (k) Salary Deferral Plan (individually and collectively,
the "Plan"); and
WHEREAS, the Trustee and the Sponsor now desire to amend said Trust
Agreement as provided for in Section 13 thereof,
NOW THEREFORE, in consideration of the above premises the Trustee and the
Sponsor hereby amend the Trust Agreement by:
(1) Amending Section 4(b), Available Investment Options, by redefining
"Mutual Funds" as follows:
(i) securities issued by investment companies advised by Fidelity
Management & Research Company ("Fidelity Mutual Funds") and certain
securities issued by registered investment companies not advised by
Fidelity Management & Research Company ("Non-Fidelity Mutual Funds")
(collectively referred to as "Mutual Funds").
(2) Amending Section 4(d), Mutual Funds, by inserting the following
sentence before the first sentence:
All transactions involving Non-Fidelity Mutual Funds shall be done in
accordance with the Operational Guidelines for Non-Fidelity Mutual
Funds attached hereto as Schedule "H".
(3) Amending the "investment options" section of Schedules "A" and "C" by
adding the following:
-1838 Fixed Income Fund
-1838 International Equity Fund
-1838 Small Cap Equity Fund
(4) Amending Schedule "B" by adding "Non-Fidelity Mutual Funds" as
follows:
Non-Fidelity Mutual Funds: No additional fee for the 1838 Funds.
<PAGE>
(5) Adding Schedule "H", Operational Guidelines for Non-Fidelity Mutual
Funds, as attached.
IN WITNESS WHEREOF, the Trustee and the Sponsor have caused this Eighth
Amendment to be executed by their duly authorized officers effective as of the
day and year first above written.
MBIA INC. FIDELITY MANAGEMENT TRUST
COMPANY
By /s/ [ILLEGIBLE] 3/11/99 By
------------------------- -------------------------
Date Vice President Date
<PAGE>
Schedule "H"
OPERATIONAL GUIDELINES FOR NON-FIDELITY MUTUAL FUNDS
Pricing
By 7:00 p.m. Eastern Time ("ET") each Business Day, the Non-Fidelity Mutual Fund
Vendor (Fund Vendor) will input the following information ("Price Information")
into the Fidelity Participant Recordkeeping System ("FPRS") via the remote
access price screen that Fidelity Investments Institutional Operations Company,
Inc. ("FIIOC"), an affiliate of the Trustee, has provided to the Fund Vendor:
(1) the net asset value for each Fund at the Close of Trading, (2) the change in
each Fund's net asset value from the Close of Trading on the prior Business Day,
and (3) in the case of an income fund or funds, the daily accrual for interest
rate factor ("mil rate"). FIIOC must receive Price Information each Business Day
(a "Business Day" is any day the New York Stock Exchange is open). If on any
Business Day the Fund Vendor does not provide such Price Information to FIIOC,
FIIOC shall pend all associated transaction activity in the Fidelity Participant
Recordkeeping System ("FPRS") until the relevant Price Information is made
available by Fund Vendor.
Trade Activity and Wire Transfers
By 7:00 a.m. ET each Business Day following Trade Date ("Trade Date plus One"),
FIIOC will provide, via facsimile, to the Fund Vendor a consolidated report of
net purchase or net redemption activity that occurred in each of the Funds up to
4:00 p.m. ET on the prior Business Day. The report will reflect the dollar
amount of assets and shares to be invested or withdrawn for each Fund. FIIOC
will transmit this report to the Fund Vendor each Business Day, regardless of
processing activity. In the event that data contained in the 7:00 a.m. ET
facsimile transmission represents estimated trade activity, FIIOC shall provide
a final facsimile to the Fund Vendor by no later than 9:00 a.m. ET. Any
resulting adjustments shall be processed by the Fund Vendor at the net asset
value for the prior Business Day.
The Fund Vendor shall send via regular mail to FIIOC transaction confirms for
all daily activity in each of the Funds. The Fund Vendor shall also send via
regular mail to FIIOC, by no later than the fifth Business Day following
calendar month close, a monthly statement for each Fund. FIIOC agrees to notify
the Fund Vendor of any balance discrepancies within twenty (20) Business Days of
receipt of the monthly statement.
<PAGE>
For purposes of wire transfers, FIIOC shall transmit a daily wire for
aggregate purchase activity and the Fund Vendor shall transmit a daily wire
for aggregate redemption activity, in each case including all activity
across all Funds occurring on the same day.
Participant Communications
The Fund Vendor shall provide internally-prepared fund descriptive
information approved by the Funds' legal counsel for use by FIIOC in its
written participant communication materials. FHOC shall utilize historical
performance data obtained from third-party vendors (currently Morningstar,
Inc., FACTSET Research Systems and Lipper Analytical Services) in telephone
conversations with plan participants and in quarterly participant
statements. The Sponsor hereby consents to FIIOC's use of such materials and
acknowledges that FHOC is not responsible for the accuracy of such
third-party information. FIIOC shall seek the approval of the Fund Vendor
prior to retaining any other third-party vendor to render such data or
materials under this Agreement.
Compensation
FIIOC shall be entitled to fees as set forth in a separate agreement with the
Fund Vendor.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>5
<DESCRIPTION>AMENDED AND RESTATED CREDIT AGREEMENT
<TEXT>
EXECUTION COPY
================================================================================
FIRST AMENDMENT
to
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
among
MBIA INSURANCE CORPORATION
(MBIA)
THE BANKS SIGNATORY HERETO
RABOBANK NEDERLAND
New York Branch
as Administrative Agent
and
DEUTSCHE BANK AG
New York Branch
as Documentation Agent
----------
Dated as of October 1, 1998
----------
================================================================================
<PAGE>
FIRST AMENDMENT
THIS FIRST AMENDMENT, dated as of October 1, 1998 (this "Amendment"),
between MBIA INSURANCE CORPORATION, a New York stock insurance corporation
("MBIA"), the financial institutions which have executed this Amendment below as
Banks (as defined below), COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.
"RABOBANK NEDERLAND", New York Branch ("Rabobank"), as Administrative Agent for
the Banks (in such capacity, the "Administrative Agent") and individually as a
Bank, and DEUTSCHE BANK AG, New York Branch, as Documentation Agent for the
Banks (in such capacity, together with the Administrative Agent, the "Agents");
WHEREAS, the parties hereto are parties to the Second Amended and Restated
Credit Agreement, dated as of October 1, 1997 (the "Credit Agreement");
WHEREAS, Credit Suisse First Boston, New York Branch, desires to resign as
Administrative Agent for the Banks; the Majority Banks, with the consent of
MBIA, desire to appoint Rabobank as successor Administrative Agent pursuant to
the terms of the Credit Agreement, and Rabobank is willing to accept such
appointment; and
WHEREAS, the parties hereto desire, upon the terms and subject to the
conditions hereinafter set forth, to extend the Expiration Date (as defined
below) and to otherwise modify the Credit Agreement in certain respects;
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound hereby,
agree as follows:
ARTICLE 1
MODIFICATIONS TO LOAN DOCUMENTS
Section 1.1. Defined Terms. Except as otherwise specified herein, terms
used in this Amendment and defined in Exhibit A of the Credit Agreement shall
have the meanings provided in such Exhibit A.
Section 1.2. Amendments.
(a) Section 3.3 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
"Section 3.3 Extension of Commitments. The Expiration Date may be
extended from time to time with the consent of the Administrative Agent and
all Banks (other than Nonextending Banks whose Commitments have been
terminated), each in their sole discretion, as provided in this Section
3.3. Not later than August 1, 1999, and not later than each August 1
thereafter in respect of succeeding one-year extension periods provided
<PAGE>
for below, or such later date to which the Administrative Agent and the
Majority Banks may consent in writing, MBIA may notify the Administrative
Agent if MBIA desires to have the Expiration Date extended for a period of
one year from the date on which it is then scheduled to occur. The
Administrative Agent shall promptly give the Banks notice of its receipt of
any such request and shall request each Bank to consent to such extension,
unless the Administrative Agent has determined to withhold its consent to
such extension. Such notice and request from the Administrative Agent to
the Banks may be given by the Administrative Agent subject to a reservation
by the Administrative Agent of its right to withhold consent to such
extension at a later date. Each Bank which elects to give its consent to
such extension shall deliver such consent to the Administrative Agent and
MBIA prior to the later to occur of (a) 90 days following the date of
MBIA'S request and (b) the August 1 of the year which is six years prior to
then scheduled Expiration Date (or in each case such later date to which
the Administrative Agent and MBIA have consented). Any Bank which has not
given its consent within such period shall be deemed to be a "Nonextending
Bank", and MBIA shall have the right at any time thereafter to elect to
terminate the Commitment of such Nonextending Bank by not less than five
Business Days' prior notice to such Nonextending Bank and the
Administrative Agent unless, prior to the effectiveness of such
termination, (i) any Loan has been made or (ii) any Default or Event of
Default has occurred and is continuing. Any such termination shall be
effective on the date specified in such notice."
(b) The following definitions contained in Exhibit A to the Credit
Agreement are hereby amended and restated to read in its entireties as
follows:
"'Base Rate' shall mean the higher of (i) the rate of interest
announced by Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
"Rabobank Nederland", New York Branch, in New York City from time to
time as its base rate, each change in such fluctuating interest rate
to take effect simultaneously with the corresponding change in such
base rate, but in no event in excess of the maximum interest rate
permitted by applicable law and (ii) 1/2 of 1% per annum above the
Bank's Federal Funds Rate (as defined below) for overnight funds. For
such purpose, the 'Federal Funds Rate' shall mean, for any day, the
fluctuating interest rate per annum at which said branch, as a branch
of a foreign bank, in its sole discretion, can acquire federal funds
in the New York City interbank term (or overnight, as the case may be)
federal funds market or other funding sources available to said
branch, through brokers of recognized standing, for a period and in an
amount comparable to the period and amount requested by MBIA."
"'Commitment Period' shall mean initially the period commencing
on October 1, 1998 and ending on October 31, 2005 (or, if such day is
not a Business Day, on the next preceding Business Day) and, from and
after the date of any extension of the Expiration Date pursuant to
Section 3.3 to a date later than October 31, 2005), shall mean the
period commencing on the first day of November which immediately
follows the 31st day of October which is seven years prior to the
Expiration Date, and ending on the Expiration Date (or, if such day is
not a Business Day, on the next preceding Business Day)."
-3-
<PAGE>
"'Expiration Date' shall mean the date on which the right to
obtain Loans terminates, initially October 31, 2005, as such date may
be extended pursuant to Section 3.3."
Section 1.3 Commitments.
(a) The respective Commitments of the Banks are hereby amended so that,
from and after October 7, 1998 until the termination or further modification
thereof as provided in the Credit Agreement, such Commitments shall be as set
forth on Schedule 1 to this Amendment.
(b) The parties acknowledge that, after giving effect to certain notices of
changes of address delivered on or prior to the date hereof, the respective
addresses of the Banks for purposes of Section 10.7 of the Credit Agreement are
as set forth on Schedule 1 to this Amendment.
Section 1.4. Succession of Administrative Agent
(a) Credit Suisse First Boston, New York Branch, hereby confirms that it
has resigned as Administrative Agent, effective as of October 7, 1998. The Banks
hereby waive notice of such resignation and hereby appoint Rabobank as successor
Administrative Agent effective as of October 7, 1998, and MBIA hereby waives
notice of such resignation and consents to such appointment, in each case
pursuant to Section 8.7 of the Credit Agreement. The parties acknowledge that
Rabobank, in its capacity as successor Administrative Agent, automatically and
without further action of the parties becomes the successor Collateral Agent
under the Security Agreement. The parties further acknowledge and hereby confirm
that, as provided in Section 8.7 of the Credit Agreement, the provisions of
Sections 8.2 through 8.5 of the Credit Agreement shall continue to inure to the
benefit Credit Suisse First Boston, New York Branch, and its successors and
assigns, in respect of any action taken or omitted to be taken by it in its
capacity as Agent while it was an Agent under the Credit Agreement or any Loan
Document, notwithstanding its resignation as an Agent thereunder.
(b) From and after October 7, 1998,
(i) the address of the Administrative Agent and the Collateral
Agent for purposes of the Credit Agreement and Security Agreement
shall be:
245 Park Avenue
New York, New York 10167-0062
Attention: Angela Reilly
Telecopy: (212) 309-5139
or as the Administrative Agent may direct by written notice to all
other parties to the Credit Agreement;
(ii) the Payment Office of the Administrative Agent shall be 245
Park Avenue, New York, New York 10167-0062, or such other office as
the Administrative Agent may from time to time designate by notice to
MBIA; and
-4-
<PAGE>
(iii) each Note and Fronting Bank Note shall be payable at the
office of the Administrative Agent at 245 Park Avenue, New York, New
York 10167-0062, or such other office as the Administrative Agent may
from time to time designate by notice to MBIA and the holder of such
Note.
(c) From and after October 7, 1998, each reference in the Credit Agreement
(including in the exhibits thereto), the Notes, the Security Agreement, each
Fronting Bank Supplement and the other Loan Documents to the name or address of
the Administrative Agent shall be deemed to be (and, to the extent required, is
hereby amended to be) a reference to the name or address, as the case may be, of
Rabobank as set forth herein.
(d) Each Bank hereby agrees to attach a copy of this Amendment to each Note
and Fronting Bank Note held by it prior to any assignment or other transfer
thereof or of any interest therein by such Bank, unless such Note or Fronting
Bank Note has been issued or reissued by MBIA on or after the date of this
Amendment and specifies the place of payment described in Section 1.4(b)(iii)
above.
(e) MBIA and Credit Suisse First Boston, New York Branch, hereby agree that
the Agent Fee Letter, dated October 7, 1997, between them is hereby terminated
effective as of appointment of Rabobank as successor Administrative Agent
hereunder.
(f) MBIA hereby agrees to deliver to the Rabobank, as Administrative Agent,
promptly after the effectiveness of its appointment as Administrative Agent
hereunder, a true and complete copy of Exhibit E to the Credit Agreement (list
of insured obligations excluded from the Covered Portfolio), as most recently
updated pursuant to the definition of "Covered Portfolio" contained in Exhibit A
to the Credit Agreement.
ARTICLE 2
CONDITIONS PRECEDENT
Section 2. 1. Conditions Precedent to Amendment Effective Date. The
provisions of Article I hereof shall become effective as of October 7, 1998 when
this Amendment shall have been executed and delivered by MBIA, Rabobank, Credit
Suisse First Boston, New York Branch, Deutsche Bank AG, New York Branch, as
Documentation Agent, and each Bank and, except in the case of the provisions of
Section 1.4, when the following conditions have been fulfilled to the reasonable
satisfaction of the Agents. If such conditions shall not have been satisfied on
or prior to October 13, 1998, this provisions of Article 1 (other than Section
1.4 thereof) shall not be given effect unless otherwise consented to by the
Agents and the Majority Banks, but otherwise this Amendment shall remain in full
force and effect.
(a) There shall exist no Default or Event of Default, and all
representations and warranties made by MBIA herein or in any of the Loan
Documents shall be true and correct with the same effect as though such
representations and warranties had been made at and as of such time.
-5-
<PAGE>
(b) The Administrative Agent shall have received each of the following, in
form and substance satisfactory to the Administrative Agent:
(i) a certificate of any two of the President, any Vice President or
the Treasurer of MBIA to the effect that the conditions set forth in
Section 2.1(a) hereof have been satisfied and that no governmental filings,
consents and approvals are necessary to be secured by MBIA in order to
permit the borrowing under the Credit Agreement, as modified hereby, the
grant of the Lien under the Security Agreement and the execution, delivery
and performance in accordance with their respective terms of this Amendment
and the other Loan Documents and the consummation of the transactions
contemplated hereby and thereby, each of which shall be in full force and
effect;
(ii) copies of the duly adopted resolutions of the Board of Directors
of MBIA, or an authorized committee thereof, authorizing the execution,
delivery and performance in accordance with their respective terms of this
Amendment and the other documents to be executed and delivered by MBIA
described herein (collectively, the "Amendment Documents"), accompanied by
a certificate of the Secretary or an Assistant Secretary of MBIA stating as
to (A) the effect that such resolutions are in full force and effect, (B)
the incumbency and signatures of the officers signing the Amendment
Documents on behalf of MBIA, and (C) the effect that, from and after
October 7, 1997, there has been no amendment, modification or revocation of
the articles of incorporation or by-laws of MBIA;
(iii) opinions of the General Counsel of MBIA and Kutak Rock, MBIA's
counsel, each dated October 7, 1998, which are substantially to the effect
set forth in the forms attached hereto as, respectively, Exhibits A and B;
and
(iv) such other documents, instruments, approvals (and, if reasonably
requested by the Administrative Agent or the Majority Banks, duplicates or
executed copies thereof certified by an appropriate governmental official
or an authorized officer of MBIA) or opinions as the Administrative Agent
or the Majority Banks may reasonably request.
(c) The Administrative Agent shall have received reasonably satisfactory
evidence that long-term obligations insured by MBIA are publicly assigned a
rating of Aaa, by Moody's and AAA by S&P by reason of such insurance.
(d) The Bank Fee Letter shall have been modified in a manner satisfactory
to MBIA and the Agents and consented to by all of the Banks.
(e) MBIA shall have entered into a replacement Agent Fee Letter with
Rabobank, as Administrative Agent, in form and substance satisfactory to
Rabobank.
(f) Each Bank which is becoming a party to the Credit Agreement or which is
increasing its Commitment shall have received a Note or an additional Note dated
as of October 7, 1998, in a principal amount equal to the amount of its
Commitment or of the increase in its Commitment, as applicable.
-6-
<PAGE>
(g) The currently effective Fronting Bank Supplements and related Fronting
Bank Notes, and fee letters shall have been modified in a manner satisfactory to
MBIA, the Administrative Agent and each Fronting Bank affected by such
modifications.
(h) Credit Suisse First Boston, New York Branch, as resigning Collateral
Agent, shall have executed and delivered to Rabobank, as Collateral Agent,
assignments of each effective financing statement with respect to the Security
Agreement.
(i) Termination letters shall be executed by each of the Banks terminating
its Commitment.
(j) All corporate and legal proceedings and all instruments in connection
with the transactions contemplated by this Amendment and the Loan Documents
shall be satisfactory in form and substance to the Administrative Agent and its
counsel.
Section 2.2. Certificate as to Effective Date. A certificate of the Agents
delivered to MBIA stating that the provisions of Article 1 shall have become
effective shall be conclusive evidence thereof and shall be binding on MBIA,
each Agent and each Bank. In delivering such certificate, and without limiting
the general application of Section 8.8 or other provisions of Article 8 of the
Credit Agreement to the actions of the Agents hereunder, the Agents shall be
entitled to rely conclusively on the certificate of officers of MBIA delivered
pursuant to Section 2.1(b)(i) as to the satisfaction of the conditions set forth
in Section 2.1 (a).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
In order to induce the Agents and the Banks to enter into this Amendment
and proceed with the transaction contemplated hereby, MBIA makes the following
representations and warranties to the Agents and the Banks, which shall survive
the execution and delivery of this Amendment and the making of any Loans:
Section 3.1. Due Authorization. Etc. The execution, delivery and
performance by MBIA of the Amendment Documents and the Loan Documents as amended
thereby are within its corporate powers, have been duly authorized by all
necessary corporate action and do not and will not (i) violate any provision of
any law, rule, regulation (including, without limitation, the New York Insurance
Law, the Investment Company Act of 1940, as amended, or Regulations T, U or X of
the Board of Governors of the Federal Reserve System), order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to MBIA or of the corporate charter or by-laws of MBIA, (ii)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which MBIA is a
party or by which it or its properties may be bound or affected, or (iii) result
in, or require, the creation or imposition of any Lien upon or with respect to
any of the properties now owned or hereafter acquired by MBIA (other than as
contemplated by the Loan Documents), other than, in the case of clauses (ii) and
(iii), breaches, defaults or Liens which could not materially and adversely
affect the business, assets,
-7-
<PAGE>
operations or financial condition of MBIA or the ability of MBIA to perform its
obligations under any Loan Document.
Section 3.2. Approvals. No consent, approval or other action by, or any
notice to or filing with any court or administrative or governmental body is or
will be necessary for the valid execution, delivery or performance by MBIA of
the Amendment Documents or the Loan Documents as amended thereby.
Section 3.3. Enforceability. Each Amendment Document and each Loan Document
as amended thereby constitutes a legal, valid and binding obligation of MBIA,
enforceable against MBIA in accordance with their respective terms, except as
such enforceability may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
the availability of equitable remedies, whether such matter is heard in a court
of law or a court of equity.
Section 3.4. Financial Statements, etc. (i) MBIA has heretofore furnished
to the Agents (i) the audited consolidated and unaudited consolidating balance
sheets of MBIA Inc. and its subsidiaries at December 31, 1997, the related
audited consolidated statements of income, changes in stockholders' equity and
financial position or cash flows, as the case may be, and unaudited
consolidating statements of income for the year ended December 31, 1997, and
(ii) the unaudited consolidated and consolidating balance sheets of MBIA Inc.
and its subsidiaries as of March 31 and June 30, 1998, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the three months ended March 31, 1998, the six months ended June 30,
1998. Such financial statements were prepared in accordance with generally
accepted accounting principles consistently applied and present fairly the
consolidated financial position and consolidated results of operations and cash
flows of MBIA Inc. and its subsidiaries and the financial position and results
of operations and cash flows of MBIA at the dates and for the periods indicated
therein. There has been no material adverse change in the consolidated financial
position or consolidated results of operations or cash flows of MBIA Inc. and
its subsidiaries taken as a whole or of MBIA since June 30, 1998.
(ii) MBIA has heretofore furnished to the Agents its annual statements and
its financial statements as filed with the Department for the year ended
December 31, 1997 and its quarterly statements and financial statements as filed
with the Department for the periods ended March 31, 1998 and June 30, 1998. Such
annual and quarterly statements and financial statements were prepared in
accordance with the statutory accounting principles set forth in the New York
Insurance Law, all of the assets described therein were the absolute property of
MBIA at the dates set forth therein, free and clear of any liens or claims
thereon, except as therein stated, and each such Annual Statement is a full and
true statement of all the assets and liabilities and of the condition and
affairs of MBIA as of such dates and of its income and deductions therefrom for
the year or quarter ended on such dates.
(iii) MBIA has heretofore furnished to the Agents a copy of the annual
report on Form 10-K of MBIA Inc. for the fiscal year ended December 31, 1997,
its quarterly reports on Form 10-Q of MBIA Inc. for each of the quarters ended
March 31, 1998 and June 30, 1998 and each current report on Form 8-K filed by
MBIA Inc. on or after January 1, 1998, each as filed with the Securities and
Exchange Commission. Such annual, quarterly and current reports were prepared in
-8-
<PAGE>
accordance with the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder.
Section 3.5. Covered Portfolio. Substantially all of the Insured
Obligations in the Covered Portfolio are insured by MBIA under Insurance
Contracts in the form or forms heretofore supplied to the Agents in accordance
with MBIA's underwriting criteria as heretofore disclosed to the Agents, and in
MBIA's reasonable judgment such Insured Obligations represent an overall risk of
loss (based on all factors including without limitation investment quality and
geographical and market diversification) which is not materially greater than
the risk of loss represented by all of MBIA's Insured Obligations as of the date
hereof MBIA has heretofore supplied to Rabobank copies of each such form which
was earlier supplied to Credit Suisse First Boston, New York Branch, as
Administrative Agent, or to the Documentation Agent and has heretofore disclosed
to Rabobank the underwriting criteria which was earlier disclosed to Credit
Suisse First Boston, New York Branch, as Administrative Agent, or to the
Documentation Agent.
Section 3.6. Confirmation of Representations and Warranties. MBIA hereby
confirms that its representations and warranties set forth in the Credit
Agreement (including without limitation those set forth in Article 5 of the
Restated Credit Agreement) are true and correct as of the date hereof.
Section 3.7. Disclosure. There is no fact known to MBIA which materially
adversely affects the business, assets, operations or financial condition of
MBIA or the ability of MBIA to perform its obligations under any Amendment
Document or any Loan Document as amended thereby which has not been set forth in
this Amendment, in the financial statements or reports required to be delivered
pursuant to Section 3.4 hereof.
ARTICLE 4
MISCELLANEOUS
Section 4.1. Credit Agreement. Except as expressly modified as contemplated
hereby, the Credit Agreement and the other Loan Documents are hereby confirmed
to be in full force and effect in accordance with their respective terms. This
Amendment is intended by the parties to constitute an amendment and modification
to, and otherwise to constitute a continuation of, the Credit Agreement and the
Loan Documents, and is not intended by any party and shall not be construed to
constitute a novation thereof or of any Debt of MBIA hereunder.
Section 4.2. Survival. All covenants, agreements, representations and
warranties made herein or in any Loan Document or in any certificate, document
or instrument delivered pursuant hereto or thereto shall survive the effective
date hereof, the making of any Loan and the occurrence of the Expiration Date
and shall continue in full force and effect so long as principal of or interest
on any Loan, Note or Fronting Bank Note remains outstanding or unpaid, any other
amount payable by MBIA under the Credit Agreement as amended hereby, any Note,
Fronting Bank Note or any other Loan Document remains unpaid or any other
obligation of MBIA to perform any other act hereunder or under the Credit
Agreement as amended hereby, any Note, Fronting Bank
-9-
<PAGE>
Note or any other Loan Document remains unsatisfied or the Banks have any
obligation to make a Loan or any other advance of moneys to MBIA under the
Credit Agreement as amended hereby.
Section 4.3. Severabilily. Any provision of this Amendment which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or nonauthorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
Section 4.4. Successors and Assigns. This Amendment is a continuing
obligation and binds, and the benefits hereof shall inure to, the parties hereto
and their respective successors and assigns; provided that MBIA may not transfer
or assign any or all, of its rights or obligations hereunder except as permitted
by Section 10.8 of the Credit Agreement.
Section 4.5. Amendments. No provision of this Amendment shall be waived,
amended or supplemented except as provided in Section 10.12 of the Credit
Agreement.
Section 4.6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK
Section 4.7. Headings. Section headings in this Amendment are included
herein for convenience or reference only and shall not constitute a part of this
Amendment for any other purpose.
Section 4.8. Counterparts. This Amendment may be executed in several
counterparts, each of which shall be regarded as the original and all of which
shall constitute one and the same Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
MBIA, INSURANCE CORPORATION
By /s/ Julliette S. Tehrani
----------------------------------------
Name: Julliette S. Tehrani
Title: Executive Vice President
CFO & Treasurer
-10-
<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN
BOERENLEENBANK B.A. "RABOBANK
NEDERLAND", New York Branch, as successor
Administrative Agent and as a Bank
By /s/ [ILLEGIBLE]
----------------------------------------
Name:
[INITIALED] Title:
By /s/ Dana W. Hemenway
----------------------------------------
Name: Dana W. Hemenway
Title: Vice President
-11-
<PAGE>
DEUTSCHE BANK, AG, New York Branch,
as Documentation Agent and as a Bank
By /s/ John S. McGill
----------------------------------------
Name: John S. McGill
Title: Vice President
By /s/ Gayma Z. Shivriarain
----------------------------------------
Name: Gayma Z. Shivriarain
Title: Vice President
-12-
<PAGE>
CREDIT SUISSE FIRST BOSTON,
New York Branch, as resigning
Administrative Agent and as a Bank
By /s/ Jay Chall
----------------------------------------
Name: Jay Chall
Title: Director
By /s/ Andrea E. Shkane
----------------------------------------
Name: Andrea E. Shkane
Title: Vice President
-13-
<PAGE>
CAISSE DES DEPOTS ET CONSIGNATIONS,
as a credit facility provider
By /s/ D.L. Askren
----------------------------------------
Name: D.L. Askren
Title: Authorized Signer
By /s/ [ILLEGIBLE]
----------------------------------------
Name: [ILLEGIBLE]
Title: Authorized Signer
-14-
<PAGE>
BAYERISCHE LANDESBANK
GIROZENTRALE, New York Branch,
as a Bank
By /s/ Scott Allison
----------------------------------------
Name: Scott Allison
Title: First Vice President
By /s/ Alexander Kohnert
----------------------------------------
Name: Alexander Kohnert
Title: Vice President
-15-
<PAGE>
LANDESBANK HESSEN-THURINGEN
GIROZENTRALE, New York Branch, as a Bank
By /s/ Lisa S. Pent
----------------------------------------
Name: Lisa S. Pent
Title: Senior Vice President
Manager
By /s/ John A. Sarno
----------------------------------------
Name: John A. Sarno
Title: President & Portfolio Manager
-16-
<PAGE>
LLOYDS BANK PLC
By /s/ Amy Vespasiano
----------------------------------------
Name: AMY VESPASIANO
Title: VICE PRESIDENT
STRUCTURED FINANCE
V024
By /s/ Louise Miller
----------------------------------------
Name: Louise Miller
Title: Assistant Vice President
Structured Finance
M256
-17-
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, New York Branch, as a Bank
By /s/ Lillian Tung Lum
----------------------------------------
Name: Lillian Tung Lum
Title: Vice President
By /s/ Anne T. McKenna
----------------------------------------
Name: Anne T. McKenna
Title: Associate
-18-
<PAGE>
FLEET NATIONAL BANK, as a Bank
By /s/ E.B. Shelley
----------------------------------------
Name: E.B. Shelley
Title: Vice President
-19-
<PAGE>
THE CHASE MANHATTAN BANK,
as a Bank
By /s/ Helen L. Newcomb
----------------------------------------
Name: Helen L. Newcomb
Title: Vice President
-20-
<PAGE>
DEUTSCHE GIROZENTRALE
DEUTSCHE KOMMUNALBANK, as a Bank
By /s/ Dr. N. Hasslinger
----------------------------------------
Name: Dr. N. Hasslinger
Title: Senior Vice President
By /s/ St. Wagner
----------------------------------------
Name: St. Wagner
Title: Vice President
-21-
<PAGE>
BANCO SANTANDER, S.A., New York Branch,
as a Bank
By /s/ Edward M. O'Loghien
----------------------------------------
Name: Edward M. O'Loghien
Title: Vice President
Asset Backed Finance Group
By /s/ John Hennessy
----------------------------------------
Name: JOHN HENNESSY
Title: MANAGER
ASSET BACKED FINANCE GROUP
-22-
<PAGE>
KBC BANK, N.V., as a Bank
By /s/ Robert Snauffer
----------------------------------------
Name: ROBERT SNAUFFER
Title: FIRST VICE PRESIDENT
By /s/ Marcel Claes
----------------------------------------
Name: MARCEL CLAES
Title: DEPUTY GENERAL MANAGER
-23-
<PAGE>
NORDDEUTSCHE LANDESBANK
GIROZENTRALE, New York Branch, as a Bank
By /s/ Stephanie Finnen
----------------------------------------
Name: Stephanie Finnen
Title: VP
By /s/ Stephen K. Hunter
----------------------------------------
Name: Stephen K. Hunter
Title: SVP
-24-
<PAGE>
CREDIT LOCAL DE FRANCE, New York
Agency, as a Bank
By /s/ David Weinstein
----------------------------------------
Name: DAVID WEINSTEIN
Title: VICE PRESIDENT
By /s/ James R. Miller
----------------------------------------
Name: JAMES R. MILLER
Title: GENERAL MANAGER
CLF NY AGENCY
-25-
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
as a Bank
By /s/ Louis DiFranco
----------------------------------------
Name: LOUIS DIFRANCO
Title: VICE PRESIDENT
-26-
<PAGE>
EXHIBIT A
TO FIRST AMENDMENT
Form of Opinion of General Counsel of MBIA
[date]
Each of the Banks which are parties to the Credit Agreement
referred to herein
c/o Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
("Rabobank Nederland"), New York Branch
as Administrative Agent
245 Park Avenue
New York, New York 10167-0062
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
("Rabobank Nederland"), New York Branch,
as Administrative Agent
245 Park Avenue
New York, New York 10167-0062
Deutsche Bank AG, New York Branch,
as Documentation Agent
31 West 52nd Street
New York, NY 10019
Re: First Amendment, dated as of October 1, 1998, to Second Amended and
Restated Credit Agreement dated as of October 1, 1997, with MBIA
Insurance Corporation
Ladies and Gentlemen:
I am General Counsel of MBIA Insurance Corporation, a New York stock insurance
corporation ("MBIA"). This opinion is being given in connection with First
Amendment, dated as of October 1, 1998 (the "Amendment"), to the Second Amended
and Restated Credit Agreement dated as of October 1, 1997 (as amended by the
Amendment, the "Credit Agreement") among MBIA, Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. (Rabobank Nederland), New York Branch, as a Bank
and as Administrative Agent, Deutsche Bank AG, New York Branch, as a Bank and as
Documentation Agent, and the other Banks signatory thereto. All capitalized
terms used herein and not otherwise defined shall have the respective meanings
assigned thereto in the Credit Agreement.
As General Counsel to MBIA, I am familiar with its Restated Charter and its
By-Laws, as amended to date, and I have responsibility for supervision of MBIA's
insurance regulatory compliance. I have examined such certificates of public
officials, such certificates of officers of MBIA and copies
A-1
<PAGE>
certified to my satisfaction of such corporate documents and records of MBIA and
of such other papers as I have deemed relevant and necessary for the opinions
set forth below. In all such examinations, I have assumed the genuineness of all
signatures, the authority to sign and the authenticity of all documents
submitted to me as originals. I have also assumed the conformity with the
originals of all documents submitted to me as copies. I have relied upon
certificates of public officials and of officers of MBIA with respect to the
accuracy of factual matters contained therein which were not independently
established.
Based upon the foregoing, it is my opinion that:
(a) MBIA is a stock insurance corporation duly incorporated and
validly existing in good standing under the laws of the State of New York
and has the corporate power and all requisite licenses and franchises
required to carry on its insurance and other business, as now being
conducted in the State of New York and in each other jurisdiction where the
nature of the business transacted by it makes such qualification necessary,
except any jurisdiction other than the State of New York where failure to
so qualify would not have a material adverse effect on the business,
assets, operations or financial condition of MBIA or the ability of MBIA to
perform its obligations under the Amendment, the Credit Agreement, the
additional Notes dated October 7, 1998 being issued to certain parties, the
amended and restated Bank Fee Letter dated as of October 7, 1998 and the
replacement Agent Fee Letter dated as of October 7, 1998 (the "Transaction
Documents").
(b) The execution, delivery and performance of the Transaction
Documents are within the corporate powers of MBIA, have been duly
authorized by all necessary corporate action and do not (i) violate any
provision of the Restated Charter of By-Laws of MBIA, (ii) violate any
provision of law, rule, regulation (including without limitation, the New
York Insurance Law, the Investment Company Act of 1940, as amended, or
Regulations T, U or X of the Board of Governors of the Federal Reserve
System), order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to MBIA the violation of which
would affect the validity or enforceability of any of the Transaction
Documents or the ability of MBIA to perform its obligations under the
Transaction Documents, (iii) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which MBIA is a party or by which it or its
properties may be bound or affected or (iv) result in, or require, the
creation or imposition of any Lien upon or with respect to any of the
properties now owned or hereafter acquired by MBIA (other than as
contemplated by the Loan Documents), other than, in the case of clauses
(iii) and (iv), breaches, defaults or Liens which could not materially and
adversely affect the business, assets, operations or financial condition of
MBIA or the ability of MBIA to perform its obligations under the
Transaction Documents.
(c) To the best of my knowledge, no consent, approval or other action
by, or any notice to or filing with, any court or administrative or
governmental body is required in connection with the execution, delivery or
performance by MBIA of the Transaction Documents.
(d) To the best of my knowledge, there is no action, suit, proceeding
or investigation before or by any court, arbitrator or administrative or
governmental body pending or threatened against MBIA, wherein an adverse
decision, ruling or finding would materially and adversely affect (i) the
business, assets, operations or financial condition of MBIA, (ii) the
transactions contemplated by the Credit Agreement or (iii) the validity or
enforceability of the Transaction Documents.
A-2
<PAGE>
(e) To the best of my knowledge, MBIA is not in violation of any
provision of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect having applicability to
MBIA or of the Restated Charter or By-Laws of MBIA, or in default under any
material indenture, agreement, lease or instrument to which it is a party
or by which it or any of its properties may be subject or bound, where such
violation or default may result in a material adverse effect on the
business, assets, operations or financial condition of MBIA or on its
ability to perform its obligations under the Transaction Documents.
(f) To the best of my knowledge, MBIA is in compliance with the New
York Insurance Law and the regulations of the Department thereunder and
with all other applicable federal state and other laws, rules and
regulations relating to its insurance and other business, except with
respect to failures, if any, to comply which singly or in the aggregate do
not have a material adverse effect on the business, assets, operations or
financial condition of MBIA or the ability of MBIA to perform its
obligations under any of the Transaction Documents.
(g) All of the issued and outstanding capital stock of MBIA is owned
beneficially and of record by MBIA Inc., subject to no Liens. There are no
options or similar rights of any Person to acquire any such capital stock
or any other capital stock of MBIA.
This opinion is being furnished to you and your participants in connection with
the execution of the Credit Agreement, and it is not to be used, circulated,
quoted or otherwise referred to for any purpose without my express written
consent.
Very truly yours,
[General Counsel]
A-3
<PAGE>
EXHIBIT B
TO FIRST AMENDMENT
Form of Opinion of Kutak, Rack
[date]
Each of the Banks which are
parties to the Credit Agreement
referred to herein
c/o Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A.
("Rabobank Nederland"), New York Branch
as Administrative Agent
245 Park Avenue
New York, New York 10167-0062
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
("Rabobank Nederland"), New York Branch,
as Administrative Agent
245 Park Avenue
New York, New York 10167-0062
Deutsche Bank AG, New York Branch,
as Documentation Agent
31 West 52nd Street
New York, NY 100 1 9
Re: First Amendment, dated as of October 1, 1998, to Second Amended and
Restated Credit Agreement dated as of October 1, 1997, with MBIA
Insurance Corporation
Ladies and Gentlemen:
This opinion is furnished to you in connection with the First Amendment,
dated as of October 1, 1998 (the "Amendment"), to the Second Amended and
Restated Credit Agreement dated as of October 1, 1997 (as amended by the
Amendment, the "Credit Agreement") among MBIA, Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. (Rabobank Nederland), New York Branch, as a Bank
and as Administrative Agent, Deutsche Bank AG, New York Branch, as a Bank and as
Documentation Agent, and the other Banks signatory thereto. All capitalized
terms used herein and not otherwise defined have the meanings assigned thereto
in the Credit Agreement. As used herein, "Transaction Documents" means the
Amendment, the Credit Agreement, the additional Notes dated October 7, 1998
being issued to certain parties, the amended and restated Bank Fee Letter dated
as of October 7, 1998 and the replacement Agent Fee Letter dated as of October
7, 1998.
B-1
<PAGE>
We have acted as special counsel to MBIA in connection with the execution
and delivery of the Transaction Documents. In this connection, we have examined
the Transaction Documents and such certificates of public officials, such
certificates of officers of MBIA, and copies certified to our satisfaction of
such corporate documents and records of MBIA, and such other documents as we
have deemed necessary or appropriate for the opinions set forth below. We have
relied upon such certificates of public officials and of officers of MBIA with
respect to the accuracy of factual matters contained therein which were not
independently established.
We have also assumed (i) the due execution and delivery, pursuant to due
authorization, of each document referred to in the immediately preceding
paragraph by all parties other than MBIA to such document, (ii) the authenticity
of all such documents submitted to us as originals, (iii) the genuineness of all
signatures and (iv) the conformity to the originals of all such documents
submitted to us as copies.
Based upon the foregoing and upon such investigation as we have deemed
necessary, we are of the opinion that:
1. MBIA is a stock insurance corporation, duly incorporated and validly
existing under the laws of the State of New York, and is licensed and authorized
to carry on its business under the laws of the State of New York.
2. Each Transaction Document has been duly executed and is a valid and
binding obligation of MBIA enforceable in accordance with its terms, except that
such enforceability may be limited by laws relating to bankruptcy, insolvency,
reorganization, moratorium, receivership and other similar laws affecting
creditors' rights generally and by general principles of equity and the
enforceability as to rights to indemnity thereunder as may be subject to
limitations of public policy.
3. The execution, delivery and performance of the Transaction Documents do
not (a) violate any provision of the Restated Charter or Bylaws of MBIA or (b)
violate any provision of law (including without limitation the New York
Insurance Law or the Investment Company Act of 1940, as amended) or, to the best
of our knowledge, any rule or regulation (including without limitation
Regulation T, U or X of the Board of Governors of the Federal Reserve System)
presently in effect having applicability to MBIA the violation of which would
(i) affect the validity or enforceability of any Transaction Document or the
ability of MBIA to perform its obligations thereunder, (ii) adversely affect the
Banks or their rights under any Transaction Document or (iii) materially
adversely affect the business, assets, operations or financial condition of
MBIA.
4. To the best of our knowledge, no consent, approval or other action by or
any notice to or filing with any court or administrative or governmental body is
required in connection with the execution, delivery or performance by MBIA of
the Transaction Documents. No consent, approval or other action by or any notice
to or filing with the Department is required in connection with the execution,
delivery or performance by MBIA of the Transaction Documents.
5. Except with respect to MBIA's obligations to pay the principal of and
interest on the Loans, the obligations of MBIA under the Transaction Documents
will rank, under the New York Insurance Law, at least pari passu in priority of
payment with all other unsecured obligations of MBIA, including without
limitation MBIA's obligation to pay claims under Insurance Contracts
B-2
<PAGE>
under the New York Insurance Law, subject, however, to statutory priorities
granted to certain claims under Sections 7426 and 7435 of the New York Insurance
Law.
6. The effectiveness of the Transaction Documents does not adversely affect
the opinions set forth in paragraphs 6 and 7 of our opinion dated November 30,
1993, delivered in connection with the first restatement of the Credit
Agreement, dated as of such date, with respect to the Security Interest (as
defined in such opinion) and the collateral assignment of Collateral referred to
therein. No filings under the UCC are required to perfect or to continue the
perfection of the Security Interest (subject to the matters described in the
paragraph following paragraph 7 of such opinion) in favor of the Collateral
Agent for the benefit of the Banks in all of MBIA's right, title and interest in
and to the Collateral, to the extent that the Security Interest can be perfected
by the filing of financing statements under the UCC. We note that the filing of
an assignment of filed financing statements by the predecessor Collateral Agent
to the successor Collateral Agent pursuant to Section 9-405 of the UCC may be
required for the successor Collateral Agent to exercise certain rights of a
secured party of record with respect to such financing statements.
In rendering the opinions expressed herein, we express no opinion as to the
laws of any jurisdiction other than the State of New York and the federal laws
of the United States of America.
This opinion is being famished to you and your participants solely in
connection with the execution of the Amendment, and it is not to be used,
circulated, quoted or otherwise referred to for any purpose without our express
written consent.
Very truly yours,
B-3
<PAGE>
SCHEDULE 1
TO FIRST AMENDMENT
BANKS ADDRESSES AND COMMITMENTS
Rabo Deutsche order of comm./alpha
Name and Notice Address of Bank Commitment
- ------------------------------- ----------
Cooperative Centrale Raiffeisen- $100,000,000
Boerenleenbank B.A. "Rabobank Nederland",
New York Branch
245 Park Avenue
New York, NY 10167
Attn: Angela R. Reilly
Deutsche Bank AG, New York Branch $165,000,000
31 West 52nd Street
New York, NY 10019
Attn: Clinton W. Johnson, Director
Caisse des Depots et Consignations $100,000,000
CDC North America, Inc.
9 West 57th Street - 36th Floor
New York, NY 10019
Attn: David L. Askren, Senior Vice President
Credit Suisse First Boston, $100,000,000
Eleven Madison Avenue
New York, NY 10010-3629
Attn: James Lee
Bayerische Landesbank Girozentrale, $50,000,000
New York Branch
560 Lexington Avenue
New York, NY 10022
Attn: Scott Allison
<PAGE>
Landesbank Hessen-Thuringen Girozentrale, $50,000,000
New York Branch
420 Fifth Avenue
New York, NY 10018
Attn: Lisa Pent
Lloyds Bank Plc, $50,000,000
New York Branch
575 Fifth Avenue, 18th Floor
New York, NY 10017
Attn: Louise Miller
Westdeutsche Landesbank Girozentrale, $50,000,000
New York Branch
1211 Avenue of the Americas
New York, NY 10036
Attn: Lillian Tung Lum
Fleet National Bank $30,000,000
777 Main Street, CT-MO 0250
Hartford, CT 06115
Attn: Elizabeth Shelley
The Chase Manhattan Bank $25,000,000
270 Park Avenue - 20th Floor
New York, NY 10017
Attn: Helen Newcomb
Deutsche Girozentrale Deutsche $25,000,000
Kommunalbank
Taunusanlage 10
Postfach 11 0542
D-60040 Frankfurt Am Main 11
GERMANY
Attn: Stephen Wagner
Banco Santander, S.A., $20,000,000
New York Branch
45 East 53rd Street
New York, NY 10022
Attn: Greta Greathouse
-2-
<PAGE>
KBC Bank, N.V. $20,000,000
125 West 55th Street
New York, NY 1001 9
Attn: Kate McCarthy
Eric Raskin
Norddeutsche Landesbank Girozentrale, $20,000,000
New York Branch
1270 Avenue of the Americas
New York, NY 10020
Attn: Jens Beerman
Credit Local de France, $10,000,000
New York Agency
450 Park Avenue, 3rd Floor
New York, NY 10022
Attn: Ben Hollaster
The First National Bank of Chicago $10,000,000
153 West 51st Street
New York, NY 10019
Attn: Louis Defranco
TOTAL: $825,000,000
-3-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.25
<SEQUENCE>6
<DESCRIPTION>EMPLOYEE STOCK OWNERSHIP AGREEMENT
<TEXT>
AMENDMENT NO. 2
TO THE
CapMAC Employee Stock Ownership Plan
WHEREAS, CapMAC Holdings ("the Company"), a Delaware corporation has
maintained the CapMAC Employee Stock Ownership (the Plan) for the Employees of
CapMAC Services, Inc.; and
WHEREAS, is a stock for stock exchange the Company has merged its assets and
operations with those of MBIA ("the Employer"), effective February 17, 1998; and
WHEREAS, the Employer wishes to amend the Plan formula used to allocate
shares that are released from the suspense account each year; and
WHEREAS, the Employer wishes to allocate a limited number of shares under
the CapMAC ESOP for the short period January 1, 1998 through February 17, 1998
for those Participants who were formerly employed by CapMAC and who were in
active service on February 17, 1998 based on amounts paid on the ESOP loan
through such date; and
WHEREAS, Section 15.03 of the Plan allows the Employer to amend the Plan at
any time; and
NOW, THEREFORE, the Plan amended as follows:
1. Effective February 17, 1998, Section 6.01(a) of the Plan shall be
redesignated Section 6.01(a)(i) and a new paragraph (a)(ii) shall be added
to 6.01(a) to read as follows:
6.01 Allocation of Contributions
(a)(ii) Notwithstanding anything herein to the contrary, the Account maintained
for each Participant will be credited of February 17, 1998 with Participant's
allocable share of (i) Shares purchased by the Trust Fund using cash contributed
by or on behalf of the Participating Company employing such Participant (or
contributed directly to the Trust Fund) and (ii) Shares released from the
Suspense Subfund pursuant to Section 63 (a)(ii) and allocable to the
contribution made by or on behalf of such Participating Company pursuant to
Section 6.4. The Allocation of contributions of each Participating Company
during the period January I through February 17, 1998 shall be made only to the
Accounts of those Participants who were Employees of a Participating Company as
of February 17, 1998. Shares shall be allocated for this period in accordance
with Section 6.1 (b) except that Compensation as defined in Section 6.1 (b),
shall be limited to Compensation earned from January 1, 1998 through February
17, 1998. For the period from February 18, 1998 through December 31, 1998 and
subsequent Plan years shares shall be allocated in accordance with 6.1(a)(i)
except that Compensation as defined in 6.l(b) shall be limited to Compensation
earning from February 18, 1998 through December 31, 1998 and 6.l(b).
<PAGE>
2. Effective January 1, 1998, section 6.3(a) shall be redesignated as section
6.3(a)(i) and an additional paragraphs (a)(ii) and (a)(iii) shall be added
thereto to read as follows:
(a)(ii) Notwithstanding anything herein to the contrary, for the period
beginning January 1 through February 17, 1998 the number of shares released from
the Suspense Subfund shall equal the number of unreleased Shares attributable to
such Exempt Loan immediately before such release multiplies by the Special
Release Fraction.
For purposes of this Section 6.3 (a)(ii) the term "Special Release Fraction"
shall mean a fraction, the numerator of which is the amount of principal and
interest paid on the Exempt Loan for the period January 1, 1998 to February 17,
1998 and the denominator of which is the sum of the numerator plus the principal
and interest to be paid on such Exempt Loan for the remainder of the 1998 year
and all future years during the term of such Exempt Loan (determined without
reference to any possible extensions or renewals thereof). For purposes of
computing the denominator of the Release Fraction under this Section 6.3(a)(ii),
if the interest rate on the Exempt Loan is variable, the interest rate to be
paid subsequently to February 17, 1998 shall be calculated by assuming that the
interest rate in effect as of February 17, 1998 will be the interest rate in
effect for the remainder of the term of the Exempt Loan. Notwithstanding the
foregoing, in the event such Exempt Loan shall be repaid with the proceeds of a
subsequent Exempt Loan (the "Substitute Loan"), such repayment shall not operate
to release all such Shares in the Suspense Subfund, but, rather such release
shall be effected pursuant to the foregoing provisions of this Section on the
basis of payments of principal and interest on such Substitute Loan.
(iii) For the period February 18, 1998 through December 31, 1998 and Plan years
thereafter, the provisions of Section 6.3(a)(i) shall apply.
IN WITNESS THEREOF this amendment No.2 has been executed this 22nd day of
December, 1998.
MBIA
By: /s/ Kevin D. Silva
----------------------------------
Name: Kevin D. Silva
Title: S.V.P. Management Services
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.30
<SEQUENCE>7
<DESCRIPTION>REINSURANCE AGREEMENT
<TEXT>
REINSURANCE AGREEMENT
This Agreement is dated as of the 1st day of April, 1998, between Capital
Markets Assurance Corporation (hereinafter referred to as the "Ceding Company")
and MBIA Insurance Corporation (hereinafter referred to as the "Reinsurer").
W I T N E S S E T H:
WHEREAS, the Ceding Company and the Reinsurer are both stock insurance
corporations and domiciled in New York; and
WHEREAS, the Ceding Company has written financial guaranty insurance; and
WHEREAS, the Ceding Company and the Reinsurer are members of the same
holding company system; and
WHEREAS, the Ceding Company presently intends to cease writing such
insurance, except to honor outstanding commitments; and
WHEREAS, the Ceding Company desires to code and the Reinsurer desires to
reinsure the Ceding Company's net liability on all insurance of the Ceding
Company now in force and hereafter written by the Ceding Company to honor
outstanding commitments on the terms hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and understandings
contained herein and upon the terms and conditions set forth below, the parties
hereto agree as follows:
ARTICLE 1
Cover:
1.1 The Ceding Company hereby cedes as reinsurance to the Reinsurer, and
the Reinsurer hereby accepts as reinsurance from the Ceding Company, one hundred
percent (100%) of the net liability and other obligations of the Ceding Company
under all Covered Business, as defined in Article 2, including extra contractual
obligations relating thereto to the extent that such obligations are reinsurable
under the Insurance Law of the State of New York.
<PAGE>
ARTICLE 2
Covered Business:
2.1 Covered Business shall mean all of the Ceding Company's net retention
on its financial guaranty insurance business, whether written on a direct basis
or assumed from other insurers, and shall include the Ceding Company's interest
in any contingent commissions due or which become due to the Ceding Company from
other reinsurers ("third party reinsurers"). In determining said net retention,
amounts paid or payable to the Ceding Company by its third party reinsurers
shall be excluded, except where such payable amounts are more than ten (IO) days
overdue. Any recovery of such overdue amounts from a third party reinsurer which
occurs subsequent to payment by the Reinsurer hereunder shall be credited
pursuant to Article 9.
ARTICLE 3
Definitions:
3.1 As used in this Agreement:
(a) "Effective Letter of Credit" shall mean, as of any date, an Eligible
Letter of Credit delivered to the Ceding Company and having an expiration date
at least one month after such date.
(b) "Eligible Letter of Credit" shall mean a clean irrevocable letter of
credit in favor of the Ceding Company issued by a bank chosen by the Reinsurer,
complying with the requirements of applicable law to allow the Ceding Company to
claim reserve credit for liabilities ceded hereunder and complying with
requirements of the Insurance Department of the State of New York.
(c) "Effective Security" shall mean, as of any date, the full amount of
Effective Letters of Credit.
(d) "Ceded Reserves" shall mean, as of any date, the aggregate. of the
unearned premium reserve and the loss reserve, if any, required to be carried by
the Ceding Company for the liabilities ceded hereunder in accordance with
statutory accounting practices, before giving effect to any reserve credit for
the cession made hereby (but after giving effect to the cessions and assumptions
referred to in Article 2 regardless of whether the Ceding Company is permitted
to claim reserve credit for the cessions referred to in Article 2).
(e) "Contingency Reserve" shall mean contingency reserve as defined in
Section 6903 (a) of the New York Insurance Law.
2
<PAGE>
ARTICLE 4
Period:
4.1 This Reinsurance Agreement shall be effective as of 11:59 P.M., Eastern
Standard Time, April 1, 1998 (the "Effective Time"). This Reinsurance Agreement
will be terminated or amended in accordance with Section 6906(a) of the New York
Insurance Law.
ARTICLE 5
Reinsurance Premium and Accounts:
5.1 The Ceding Company shall pay to the Reinsurer as of the Effective Time
a reinsurance premium equal to the Ceded Reserves and the Contingency Reserve as
of the Effective Time. An estimated payment of such initial reinsurance premium
shall be made not later than the Effective Time. As soon as practicable but no
later than 60 days thereafter, the Ceding Company will provide the Reinsurer
with a portfolio representing the Ceded Reserves and the Contingency Reserve as
of the Effective Time and if the Ceded Reserves and the Contingency Reserve
differ from the estimated payment made pursuant to the preceding sentence, an
appropriate adjusting payment between the parties shall be made. Such portfolio
shall also set forth the Contingency Reserve required to be established as of
the Effective Time.
5.2 Within 20 days following the end of each month, the Ceding Company will
render or cause to be rendered a net account to the Reinsurer for the month
showing the Ceding Company's interest in the following:
(a) Net written premium accounted for during the month (being the gross
written premium less returns and cancellations and net of reinsurance ceded by
the Ceding Company to third-party reinsurers).
(b) Any contingent commission paid to the Ceding Company by third-party
reinsurers during the month.
(c) Any loss or loss expense paid during the month on losses occurring
during the term of this Agreement.
(d) Subrogations, salvage or other recoveries made during the month on
losses occurring during the term of the Agreement.
5.3 Within 15 days after receipt of the account, the Reinsurer shall send
confirmation of the account or relevant objections to the Ceding Company.
3
<PAGE>
(a) The Ceding Company shall remit any net balance payable to the Reinsurer
at the same time as the account is rendered.
(b) The Reinsurer shall remit any net balance payable to the Ceding Company
at the same time as the account is confirmed, but at the latest within 15 days
following receipt of the account.
(c) Even if the Reinsurer has objections in regard to the account, the
uncontested balance shall be immediately remitted. Following the immediate
clarification of the questions which have arisen, the difference in amount shall
be settled at once by the party in debt.
5.4 Within 30 days following the end of each calendar quarter, the Ceding
Company shall furnish a report as to reserves, together with any other
information which the Reinsurer may require for its accounting records and which
may be reasonably available to the Ceding Company.
5.5 Within 45 days following the end of each calendar year, the Ceding
Company shall furnish to the Reinsurer for the calendar year a summary account
split up per underwriting year for 100% of the business ceded hereunder,
together with any other information which the Reinsurer may require for its
accounting records and which may be reasonably available to the Ceding Company.
5.6 No ceding commission shall be payable in respect of this Reinsurance
Agreement. 5.7 All settlements of account under this Agreement between the
Ceding Company and the Reinsurer shall be made in cash or its equivalent.
ARTICLE 6
Security:
6.1 When a governing body of any jurisdiction in which the Ceding Company
legally operates or to which it submits requires as a condition to credit for
the reinsurance provided by this Agreement that the Reinsurer post a Letter of
Credit for the benefit of the Ceding Company, establish a Trust Account for the
benefit of the Ceding Company or deposit funds under the control of the Ceding
Company, the Reinsurer shall post and maintain such a Letter of Credit,
establish such a Trust Account, or deposit such funds in the form and amount
necessary to permit the Ceding Company to avoid on any statutory financial
statement filed by the Ceding Company the penalty to surplus which would result
from the loss of credit for the reinsurance.
6.2 Notwithstanding any other provisions of this Agreement, it is agreed
that any Letter of Credit provided under section 6.1 of this Article 6 shall be
drawn upon
4
<PAGE>
and utilized by the Ceding Company or its successors in interest only for one or
more of the following purposes:
(a) to reimburse the Ceding Company for losses and loss expenses paid by
the Ceding Company under this Agreement;
(b) to fund an account with the Ceding Company in an amount at least equal
to the deduction allowed for the reinsurance provided by this agreement, from
the Ceding Company's liabilities for Policies ceded under the agreement, such
amount to include, if applicable, but not be limited to, amounts for contingency
reserves, loss reserves for paid, reported and incurred but not reported
("IBNR") losses, loss expense reserves and unearned premium reserves; or
(c) to pay any other amounts the Ceding Company claims are due under the
Agreement.
All of the foregoing should be applied without diminution because of
insolvency on the part of the Ceding Company or Reinsurer.
6.3 If the Reinsurer elects to provide a Letter of Credit under section 6.1
of this Article, the Reinsurer shall cause the Letter of Credit to be issued, in
place and effective no later than the "as of date" of the first quarterly filing
prepared by the Ceding Company for the appropriate regulatory authority after
the effective date of this Agreement.
ARTICLE 7
Service of Covered Business:
7.1 The Ceding Company shall service the Covered Business with respect to
collection and payment of premium, notice, service of process and investigation,
settlement, defense and payment of claims on all Covered Business and with
respect to all reinsurance ceded by the Ceding Company to third-party
reinsurers. The Ceding Company will remit all premiums collected to the
Reinsurer and third-party reinsurers in accordance with their respective
interests.
ARTICLE 8
Claims:
8.1 The Ceding Company shall settle or defend claims. The Reinsurer shall,
within one hour of receiving written or telephonic notice of any claim, (any
telephonic notice to be subsequently confirmed in writing) pay the Reinsurer's
share of all losses and loss expenses, excluding unallocated loss expenses.
5
<PAGE>
ARTICLE 9
Salvage:
9.1 The Ceding Company will credit the Reinsurer with its proportionate
share of any recoveries, salvages or reimbursements on account of claims and
settlements involving reinsurance hereunder.
9.2 In the event there are any recoveries, salvages or reimbursements
recovered subsequent to a loss settlement, it is agreed that, if the expenses
incurred in obtaining salvage or other recoveries are less than the amount
recovered, such expenses shall be borne by each party in the proportion that
each party benefits from the recoveries, otherwise, the amount recovered shall
first be applied to the reimbursement of the expense of recovery and the
remaining expense shall be borne by the Ceding Company and the Reinsurer in
proportion to the liability of each party for the loss before such recovery had
been obtained. Expenses hereunder shall exclude all office expenses and salaries
of officers and employees of the Ceding Company.
ARTICLE 10
Access to Records:
10.1 The Reinsurer shall, at all reasonable times during the term of this
Agreement and thereafter, have the right to inspect the books, records and
documents of the Ceding Company with respect to the Covered Business.
ARTICLE 11
Reserves:
11.1 The Reinsurer agrees to maintain proper unearned premium, loss and
loss expense reserves upon the liabilities ceded hereunder in accordance with
accounting practices prescribed or permitted by each of the Insurance
Departments of the States of New York and California. The Reinsurer shall also
establish as of the Effective Time a statutory contingency reserve in an amount
equal to the statutory contingency reserve required to be carried by the Ceding
Company immediately prior to the Effective Time.
ARTICLE 12
Original Conditions:
12.1 All insurances and reinsurances falling under this Agreement shall be
subject to the same terms, rates, conditions and waivers, and to the same
modifications, alterations and cancellations, as the respective policies
constituting the Covered Business.
6
<PAGE>
ARTICLE 13
Follow the Fortunes:
13.1 This Agreement shall be construed as an honorable undertaking between
the parties hereto and shall not be defeated by technical legal construction, it
being the intention of this Agreement that the fortunes of the Reinsurer shall
follow the fortunes of the Ceding Company. Nothing herein shall in any manner
create any obligations or establish any rights against the Reinsurer in favor of
any third parties or any persons not parties to this Agreement.
ARTICLE 14
Errors and Omissions:
14.1 Any inadvertent error, omission or delay in connection with this
Agreement shall not affect the liability which otherwise would have attached to
either party, provided such error, omission or delay is rectified as soon as
possible after discovery.
ARTICLE 15
Offset:
15.1 Each party hereto shall have, and may exercise at any time and from
time to time, the right to offset any balance or balances, whether on account of
premiums or on account of losses or otherwise, due from such party to the other
(or, if more than one, any other) party hereto under this Agreement, and may
offset the same against any balance or balances due or to become due to the
former from the latter under the same. The party asserting the right of offset
shall have and may exercise such right whether the balance or balances due or to
become due to such party from the other are on account of premiums or on account
of losses or otherwise and regardless of the capacity, whether as assuming
reinsurer or as ceding company, in which each party acted under the agreement
or, if more than one, the different agreements involved. In the event of the
insolvency of a party hereto, offsets shall be allowed only in accordance with
the provisions of Section 7427 of the Insurance Law of the State of New York.
ARTICLE 16
Insolvency:
16.1 In the event of the insolvency of the Ceding Company or its successor
in interest this reinsurance shall be payable directly to the Ceding Company, or
directly to its liquidator, receiver, conservator or statutory successor, on the
basis of the liability of the Ceding Company without diminution because of the
insolvency of the
7
<PAGE>
Ceding Company or because the liquidator, receiver, conservator or statutory
successor of the Ceding Company has failed to pay all or a portion of any claim.
It is agreed, however, that the liquidator, receiver, conservator or statutory
successor of the Ceding Company shall give written notice to the Reinsurer of
the pendency of the claim against the Ceding Company indicating the policy or
bond reinsured which claim would involve a possible liability on the part of the
Reinsurer within a reasonable time after such claim is filed in the conservation
or liquidation proceeding or in the receivership, and that during the pendency
of such claim, the Reinsurer may investigate such claim and interpose at its own
expense, in the proceeding where such claim is to be adjudicated any defense or
defenses that it may deem available to the Ceding Company or its liquidator,
receiver, conservator or statutory successor. The expense thus incurred by the
Reinsurer shall be chargeable, subject to the approval of the court, against the
Ceding Company as part of the expense of conservation or liquidation to the
extent of a pro rata share of the benefit which may accrue to the Ceding Company
solely as a result of the defense undertaken by the Reinsurer.
16.2 The Reinsurance shall be payable by the Reinsurer to the Ceding
Company or to its liquidator, receiver, conservator or statutory successor,
except as provided by section 4118 (a) of the New York Insurance Law or except
(a) where the policy specifically provided another payee of such reinsurance in
the event of the insolvency of the Ceding Company and (b) where the Reinsurer
with the consent of the direct insured or insureds has assumed such policy
obligations of the Ceding Company as direct obligations of the Reinsurer to the
payees under such policies and in substitution for the obligations of the Ceding
Company to such payees.
ARTICLE 17
Miscellaneous:
17.1 This Agreement shall be governed by the laws of the State of New York.
17.2 The parties hereto agree to execute and deliver such farther
instruments and do such farther acts as may be necessary and proper to carry out
the purposes of this Reinsurance Agreement.
17.3 If any provision of this Reinsurance Agreement or the applicability
thereto to any person or circumstance is held invalid, the remainder of this
Reinsurance Agreement, including the remainder of the section in which such
provision appears, or the applicability of such provision to other persons or
circumstances, shall not be affected thereby.
17.4 This Reinsurance Agreement contains the entire understanding of the
parties with respect to the subject matter hereto. There are no restrictions,
promises, warranties, covenants or undertakings with respect to such subject
matter, other than
8
<PAGE>
those expressly set forth herein. This Reinsurance Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter. This Reinsurance Agreement is binding on and shall inure to the
benefit of the parties hereto, their successors and assigns.
At Armonk, Capital Markets Assurance Corporation
New York
By: /s/ [ILLEGIBLE]
------------------------
President
At Armonk, MBIA Insurance Corporation
New York
By: /s/ Richard Weill
------------------------
President
9
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.31
<SEQUENCE>8
<DESCRIPTION>REINSURANCE AGREEMENT
<TEXT>
REINSURANCE AGREEMENT
This Agreement dated as of the lst day of January, 1999, between MBIA
Insurance Corp. of Illinois, (formerly known as Bond Investors Guaranty
Insurance Company), an Illinois corporation (hereinafter referred to as the
"Ceding Company"), and MBIA Insurance Corporation, (formerly known as Municipal
Bond Investors Assurance Corporation), a New York stock insurance company
(hereinafter referred to as the "Reinsurer").
WITNESSETH:
WHEREAS, the Ceding Company is an Illinois corporation; and
WHEREAS, the Ceding Company has written municipal bond and municipal note
guaranty insurance; and
WHEREAS, the Ceding Company has ceased writing such insurance, except to
honor outstanding commitments, and has entered into a Reinsurance Agreement
dated December 31, 1990 with the Reinsurer (the "Prior Agreement"); and
WHEREAS, the parties hereto now desire to terminate the Prior Agreement on
a cutoff basis as of the Effective Date hereof, and to replace the Prior
Agreement with this Agreement in connection with any losses paid on and after
the Effective Date hereof; and
WHEREAS, the Ceding Company desires to cede and the Reinsurer desires to
reinsure the Ceding Company's liability on all insurance of the Ceding Company
now in force and hereafter written by the Ceding Company to honor outstanding
commitments on the terms hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and understandings
contained herein and upon the terms and conditions set forth below, the parties
hereto agree as follows:
ARTICLE I
Cover:
1.1 The Ceding Company hereby cedes as reinsurance to the Reinsurer, and
the Reinsurer hereby accepts as reinsurance from the Ceding Company, one hundred
percent (100%) of the net liability and other obligations of the Ceding Company
under all Covered Business, as defined in Article 2, including extra contractual
obligations relating thereto. In no event shall coverage be provided to the
extent that such coverage is not permitted under New York law.
<PAGE>
ARTICLE 2
Covered Business:
2.1 Covered Business shall mean all of the Ceding Company's net retention
on business written by the Ceding Company. Such net retention: (a) is net of
cessions by the Ceding Company to other reinsurers (the "third party
reinsurers"); (b) includes all liabilities assumed by the Ceding Company; (c)
includes the Ceding Company's interest in any contingent commissions due or
which become due to the Ceding Company from third-party reinsurers.
ARTICLE 3
Definitions:
3.1 As used in this Agreement:
(a) "Effective Letter of Credit" shall mean, as of any date, an Eligible
Letter of Credit delivered to the Ceding Company and having an expiration date
at least one month after such date.
(b) "Eligible Letter of Credit" shall mean a clean irrevocable letter of
credit in favor of the Ceding Company issued by a bank chosen by the Reinsurer,
complying with the requirements of applicable law to allow the Ceding Company to
claim reserve credit for liabilities ceded hereunder and complying with
requirements of the Insurance Department of the State of New York and the
Illinois Department of Insurance.
(c) "Effective Security" shall mean, as of any date, the full amount of
Effective Letters of Credit.
(d) "Ceded Reserves" shall mean, as of any date, the aggregate of the
unearned premium reserve and the loss reserve, if any, required to be carried by
the Ceding Company for the liabilities ceded hereunder in accordance with
statutory accounting practices, before giving effect to any reserve credit for
the cession made hereby (but after giving effect to the cessions and assumptions
referred to in Article 2 regardless of whether the Ceding Company is permitted
to claim reserve credit for the cessions referred to in Article 2).
(e) "Contingency Reserve" shall mean contingency reserve as defined in
Section 6903(a) of the New York Insurance Law.
2
<PAGE>
ARTICLE 4
Period:
4.1. This Reinsurance Agreement shall be effective as of 12:01 A.M.,
Eastern Standard Time, January 1, 1999 (the "Effective Time"). This Reinsurance
Agreement will be terminated or amended in accordance with Section 6906(a) of
the New York Insurance Law. Cancellation will be at year end after first giving
90 days notice.
ARTICLE 5
Reinsurance Premium and Accounts:
5.1. The Ceding Company shall pay to the Reinsurer as of the Effective Time
a reinsurance premium equal to the Ceded Reserves and the Contingency Reserve as
of the Effective Time. An estimated payment of such initial reinsurance premium
shall be made not later than the Effective Time. As soon as practicable but no
later than 60 days thereafter, the Ceding Company will provide the Reinsurer
with a portfolio representing the Ceded Reserves and the Contingency Reserve as
of the Effective Time and if the Ceded Reserves and the Contingency Reserve
differ from the estimated payment made pursuant to the preceding sentence, an
appropriate adjusting payment between the parties shall be made. Such portfolio
shall also set forth the contingency reserve required to be established as of
the Effective Time.
5.2 Within 20 days following the end of each month, the Ceding Company will
render or cause to be rendered a net account to the Reinsurer for the month
showing the Ceding Company's interest in the following:
(a) Net written premium accounted for during the month (being the gross
written premium less returns and cancellations and net of reinsurance ceded by
the Ceding Company to third-party reinsurers).
(b) Any contingent commission paid to the Ceding Company by third-party
reinsurers during the month.
(c) Any loss or loss expense paid during the month on losses occurring
during the term of this Agreement.
(d) Subrogations, salvage or other recoveries made during the month on
losses occurring during the term of the Agreement.
3
<PAGE>
5.3 Within 15 days after receipt of the account, the Reinsurer shall send
confirmation of the account or relevant objections to the Ceding Company.
(a) The Ceding Company shall remit any net balance payable to the
Reinsurer at the same time as the account is rendered.
(b) The Reinsurer shall remit any net balance payable to the Ceding
Company at the same time as the account is confirmed, but at the latest
within 15 days following receipt of the account.
(c) Even if the Reinsurer has objections in regard to the account, the
uncontested balance shall be immediately remitted. Following the immediate
clarification of the questions which have arisen, the difference in amount
shall be settled at once by the party in debt.
5.4 Within 30 days following the end of each calendar quarter, the Ceding
Company shall furnish a report as to reserves, together with any other
information which the Reinsurer may require for its accounting records and which
may be reasonably available to the Ceding Company.
5.5 Within 45 days following the end of each calendar year, the Ceding
Company shall furnish to the Reinsurer for the calendar year a summary account
split up per underwriting year for 100% of the business ceded hereunder,
together with any other information which the Reinsurer may require for its
accounting records and which may be reasonably available to the Ceding Company.
5.6 No ceding commission shall be payable in respect of this Reinsurance
Agreement.
5.7 All settlements of account under this Agreement between the Ceding
Company and the Reinsurer shall be made in cash or its equivalent.
ARTICLE 6
Security:
6.1 When a governing body of any jurisdiction in which the Ceding Company
legally operates or to which it submits requires as a condition to credit for
the reinsurance provided by this Agreement that the Reinsurer post a Letter of
Credit for the benefit of the Ceding Company, establish a Trust Account for the
benefit of the Ceding Company or deposit funds under the control of the Ceding
Company, the Reinsurer shall post and maintain such a Letter of Credit,
establish such a Trust Account, or deposit such funds in the form and amount
necessary to permit the Ceding Company to avoid on any statutory financial
statement filed by the Ceding Company the penalty to surplus which would result
from the loss of credit for the reinsurance.
4
<PAGE>
6.2 Notwithstanding any other provisions of this Agreement, it is agreed
that any Letter of Credit provided under section 6.1 of this Article 6 shall be
drawn upon and utilized by the Ceding Company or its successors in interest only
for one or more of the following purposes:
(a) to reimburse the Ceding Company for losses and loss expenses paid
by the Ceding Company under this Agreement;
(b) to fund an account with the Ceding Company in an amount at least
equal to the deduction allowed for the reinsurance provided by this
Agreement, from the Ceding Company's liabilities for Policies ceded under
the Agreement, such amount to include, if applicable, but not be limited
to, amounts for contingency reserves, loss reserves for paid, reported and
incurred but not reported ("IBNR") losses, loss expense reserves and
unearned premium reserves; or
(c) to pay any other amounts the Ceding Company claims are due under
the Agreement.
All of the foregoing should be applied without diminution because of
insolvency on the part of the Ceding Company or Reinsurer.
6.3 If the Reinsurer elects to provide a Letter of Credit under section 6.1
of this Article, the Reinsurer shall cause the Letter of Credit to be issued, in
place and effective no later than the "as of date" of the first quarterly filing
prepared by the Ceding Company for the appropriate regulatory authority after
the effective date of this Agreement.
ARTICLE 7
Service of Covered Business:
7.1 The Ceding Company shall service the Covered Business with respect to
collection and payment of premium, notice, service of process and investigation,
settlement, defense and payment of claims on all Covered Business and with
respect to all reinsurance ceded by the Ceding Company to third-party
reinsurers. The Ceding Company will remit all premiums collected to the
Reinsurer and third-party reinsurers in accordance with their respective
interests.
ARTICLE 8
Claims:
8.1 The Ceding Company shall settle or defend claims. The Reinsurer shall,
within one hour of receiving written or telephonic notice of any claim, (any
telephonic notice to be subsequently confirmed in writing) pay the Reinsurer's
share of all losses and loss expense, excluding unallocated loss expense.
5
<PAGE>
ARTICLE 9
Salvage:
9.1 The Ceding Company will credit the Reinsurer with its proportionate
share of any recoveries, salvages or reimbursements on account of claims and
settlements involving reinsurance hereunder.
9.2 In the event there are any recoveries, salvages or reimbursements
recovered subsequent to a loss settlement, it is agreed that, if the expenses
incurred in obtaining salvage or other recoveries are less than the amount
recovered, such expenses shall be borne by each party in the proportion that
each party benefits from the recoveries, otherwise, the amount recovered shall
first be applied to the reimbursement of the expense of recovery and the
remaining expense shall be borne by the Ceding Company and the Reinsurer in
proportion to the liability of each party for the loss before such recovery had
been obtained. Expenses hereunder shall exclude all office expenses and salaries
of officers and employees of the Ceding Company.
ARTICLE 10
Access to Records:
10.1 The Reinsurer shall, at all reasonable times during the term of this
Agreement and thereafter, have the right to inspect the books, records and
documents of the Ceding Company with respect to the Covered Business.
ARTICLE 11
Reserves:
11.1 The Reinsurer agrees to maintain proper unearned premium, loss and
loss expense reserves upon the liabilities ceded hereunder in accordance with
accounting practices prescribed or permitted by each of the Insurance
Departments of the States of New York and California. The Reinsurer shall also
establish as of the Effective Time a statutory contingency reserve in an amount
equal to the statutory contingency reserve required to be carried by the Ceding
Company immediately prior to the Effective Time.
ARTICLE 12
Original Conditions:
12.1 All insurances and reinsurances falling under this Agreement shall be
subject to the same terms, rates, conditions and waivers, and to the same
modifications, alterations and cancellations, as the respective policies
constituting the Covered Business.
6
<PAGE>
ARTICLE 13
Follow the Fortunes:
13.1 This Agreement shall be construed as an honorable undertaking between
the parties hereto and shall not be defeated by technical legal construction, it
being the intention of this Agreement that the fortunes of the Reinsurer shall
follow the fortunes of the Ceding Company. Nothing herein shall in any manner
create any obligations or establish any rights against the Reinsurer in favor of
any third parties or any persons not parties to this Agreement.
ARTICLE 14
Errors and Omissions:
14.1 Any inadvertent error, omission or delay in connection with this
Agreement shall not affect the liability which otherwise would have attached to
either party, provided such error, omission or delay is rectified as soon as
possible after discovery.
ARTICLE 15
Offset:
15.1 Each party hereto shall have, and may exercise at any time and from
time to time, the right to offset any balance or balances, whether on account of
premiums or on account of losses or otherwise, due from such party to the other
(or, if more than one, any other) party hereto under this Agreement, and may
offset the same against any balance or balances due or to become due to the
former from the latter under the same. The party asserting the right of offset
shall have and may exercise such right whether the balance or balances due or to
become due to such party from the other are on account of premiums or on account
of losses or otherwise and regardless of the capacity, whether as assuming
reinsurer or as ceding company, in which each party acted under the agreement
or, if more than one, the different agreements involved. In the event of the
insolvency of a party hereto, offsets shall be allowed only in accordance with
the provisions of Section 7427 of the Insurance Law of the State of New York.
7
<PAGE>
ARTICLE 16
Insolvency:
16.1 In the event of the insolvency of the Ceding Company or its successor
in interest this reinsurance shall be payable directly to the Ceding Company, or
directly to its liquidator, receiver, conservator or statutory successor, on the
basis of the liability of the Ceding Company without diminution because of the
insolvency of the Ceding Company or because the liquidator, receiver,
conservator or statutory successor of the Ceding Company has failed to pay all
or a portion of any claim. It is agreed, however, that the liquidator, receiver,
conservator or statutory successor of the Ceding Company shall give written
notice to the Reinsurer of the pendency of the claim against the Ceding Company
indicating the policy or bond reinsured which claim would involve a possible
liability on the part of the Reinsurer within a reasonable time after such claim
is filed in the conservation or liquidation proceeding or in the receivership,
and that during the pendency of such claim, the Reinsurer may investigate such
claim and interpose at its own expense, in the proceeding where such claim is to
be adjudicated any defense or defenses that it may deem available to the Ceding
Company or its liquidator, receiver, conservator or statutory successor. The
expense thus incurred by the Reinsurer shall be chargeable, subject to the
approval of the court, against the Ceding Company as part of the expense of
conservation or liquidation to the extent of a pro rata share of the benefit
which may accrue to the Ceding Company solely as a result of the defense
undertaken by the Reinsurer.
16.2 The Reinsurance shall be payable by the Reinsurer to the Ceding
Company or to its liquidator, receiver, conservator or statutory successor,
except as provided by section 4118 (a) of the New York Insurance Law or except
(a) where the policy specifically provided another payee of such reinsurance in
the event of the insolvency of the Ceding Company and (b) where the Reinsurer
with the consent of the direct insured or insureds has assumed such policy
obligations of the Ceding Company as direct obligations of the Reinsurer to the
payees under such policies and in substitution for the obligations of the Ceding
Company to such payees.
ARTICLE 17
Effective Date: Termination of Prior Agreement
17.1 This Agreement shall take effect as of January 1, 1999 (the "Effective
Date") and shall apply to all losses paid by the Ceding Company on or after that
date and during the term hereof.
17.2 The parties agree that the Prior Agreement shall be terminated as of
said Effective Date, and the Reinsurer shall not be liable under the Prior
Agreement for losses on or after the Effective Date, which shall be covered by
this Agreement.
8
<PAGE>
17.3 The Ceding Company shall transfer to the Reinsurer all Ceded Reserves
and Contingency Reserves held by it as of the Effective Date of this Agreement
in connection with Covered Business subject to the Prior Agreement.
ARTICLE 18
Miscellaneous:
18.1 This Agreement shall be governed by the laws of the State of New York.
18.2 The parties hereto agree to execute and deliver such further
instruments and do such further acts as may be necessary and proper to carry out
the purposes of this Reinsurance Agreement.
18.3 If any provision of this Reinsurance Agreement or the applicability
thereto to any person or circumstance is held invalid, the remainder of this
Reinsurance Agreement, including the remainder of the section in which such
provision appears, or the applicability of such provision to other persons or
circumstances, shall not be affected thereby.
18.4 This Reinsurance Agreement contains the entire understanding of the
parties with respect to the subject matter hereto. There are no restrictions,
promises, warranties, covenants or undertakings with respect to such subject
matter, other than those expressly set forth herein. This Reinsurance Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter. This Reinsurance Agreement is binding on and
shall inure to the benefit of the parties hereto, their successors and assigns.
At Armonk, MBIA INSURANCE CORP. OF ILLINOIS
New York
By: /s/ David H. Elliott
------------------------------
President
David H. Elliott
At Armonk, MBIA INSURANCE CORPORATION
New York
By: /s/ Richard L. Weill
------------------------------
President
Richard L. Weill
9
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.32
<SEQUENCE>9
<DESCRIPTION>AGREEMENT AND PLAN OF MERGER
<TEXT>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MBIA INC.,
MBIA ACQUISITION, INC.
and
1838 INVESTMENT ADVISORS, INC.
Dated as of June 19, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS ............................................................ 1
ARTICLE II
THE MERGER
Section 2.01. The Merger .............................................. 6
Section 2.02. Effective Time of Merger ................................ 6
Section 2.03. Certificate of Incorporation of Surviving Corporation ... 6
Section 2.04. Bylaws of Surviving Corporation ......................... 7
Section 2.05. Directors and Officers of Surviving Corporation ......... 7
Section 2.06. The Closing ............................................. 7
Section 2.07. Conversion of Acquisition Common Stock .................. 7
Section 2.08. Conversion of 1838 Common Stock ......................... 7
Section 2.09. Exchange of 1838 Certificates ........................... 7
Section 2.10. Stock Transfer Books .................................... 8
Section 2.11. Reorganization .......................................... 8
Section 2.12. Nonsolicitation ......................................... 8
ARTICLE III
OTHER AGREEMENTS
Section 3.01. Disclosure Schedule ..................................... 9
Section 3.02. Legal Conditions to Merger .............................. 9
Section 3.03. Public Announcements .................................... 9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF 1838
Section 4.01. Ownership of Stock ...................................... 10
Section 4.02. Ownership of 1838, L.P .................................. 10
Section 4.03. Existence, Good Standing and Authority .................. 10
Section 4.04. Capital Stock ........................................... 10
Section 4.05. Subsidiaries and Investments ............................ 11
Section 4.06. No Violation or Conflict ................................ 11
Section 4.07. Litigation .............................................. 11
Section 4.08. Financial Statements .................................... 11
Section 4.09. Title to Properties and Assets .......................... 11
<PAGE>
Section 4.10. Existing Contracts ...................................... 12
Section 4.11. Contractual Defaults .................................... 12
Section 4.12. Reserved ................................................ 12
Section 4.13. Insurance Policies ...................................... 12
Section 4.14. Employee Benefit Plans .................................. 12
Section 4.15. Status .................................................. 14
Section 4.16. Taxes ................................................... 14
Section 4.17. Employee Matters ........................................ 16
Section 4.18. Credit Agreements ....................................... 16
Section 4.19. Record Books ............................................ 16
Section 4.20. MPCM Loan/Stockholder Distribution Obligations .......... 16
Section 4.21. Accounts Receivable/Working Capital ..................... 16
Section 4.22. Customer Contracts ...................................... 16
Section 4.23. Affiliate and Insider Transactions ...................... 17
Section 4.24. Compliance With Laws .................................... 17
Section 4.25. Absence of Certain Developments ......................... 18
Section 4.26. Material Adverse Change ................................. 19
Section 4.27. Bank Accounts and Powers of Attorney .................... 19
Section 4.28. Broker's or Finder's Fees ............................... 19
Section 4.29. Business Activities of 1838 ............................. 19
Section 4.30. Regulatory Documents .................................... 19
Section 4.31. Ineligible Persons ...................................... 20
Section 4.32. Funds ................................................... 20
Section 4.33. Investment Company Contracts ............................ 20
Section 4.34. Technology and Intellectual Property .................... 21
Section 4.35. Year 2000 ............................................... 21
Section 4.36. Redemption Agreement .................................... 21
Section 4.37. Former Stockholders ..................................... 21
Section 4.38. Disclosure .............................................. 22
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS OF
MBIA AND ACQUISITION
Section 5.01. Organization ............................................ 22
Section 5.02. Authorization; Enforceability ........................... 22
Section 5.03. No Violation or Conflict ................................ 22
Section 5.04. Litigation .............................................. 22
Section 5.05. Brokers ................................................. 23
Section 5.06. SEC Reports and Financial Statements .................... 23
Section 5.07. Material Adverse Change ................................. 23
Section 5.08. MBIA Stock .............................................. 23
Section 5.09. Capitalization .......................................... 23
Section 5.10. Certain Tax-Related Matters ............................. 23
ii
<PAGE>
ARTICLE VI
COVENANTS OF 1838
Section 6.01. Conduct of Business of 1838 ............................. 24
Section 6.02. Approval by Investment Company Contract Clients ......... 25
Section 6.03. Approval by Investment Advisory Contract Clients ........ 26
Section 6.04. Insurance ............................................... 26
Section 6.05. Maintenance of Records .................................. 26
Section 6.06. Full Access ............................................. 26
Section 6.07. Exclusivity ............................................. 26
Section 6.08. Accounting Matters ...................................... 27
ARTICLE VII
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF MBIA AND ACQUISITION
Section 7.01. No Material Adverse Change .............................. 27
Section 7.02. Compliance with Agreement ............................... 27
Section 7.03. Hart Scott Rodino, Act .................................. 27
Section 7.04. Pooling Opinion ......................................... 27
Section 7.05. 1838 Stockholder Approval ............................... 27
Section 7.06. 1838 Opinion Letter ..................................... 27
Section 7.07. Approval by 1838, L.P.'s Clients ........................ 27
Section 7.08. No Litigation ........................................... 28
Section 7.09. Representations and Warranties Accurate ................. 28
Section 7.10. Officer's Certificate ................................... 28
Section 7.11. Employment of Key Employees ............................. 28
Section 7.12. No Adverse Claims ....................................... 28
Section 7.13. Additional Documentation ................................ 28
Section 7.14. Approval by Board ....................................... 28
Section 7.15. Joint Advisory Agreement ................................ 28
Section 7.16. Purchase of Minority Interest ........................... 28
Section 7.17. MBIA Common Stock Price ................................. 28
Section 7.18. Final Disclosure Schedule ............................... 29
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF 1838
AND THE 1838 STOCKHOLDERS
Section 8.01. Compliance With Agreement ............................... 29
Section 8.02. Proceedings and Instruments Satisfactory ................ 29
Section 8.03. No Litigation ........................................... 29
Section 8.04. Representations and Warranties of MBIA and Acquisition .. 29
Section 8.05. MBIA Opinion Letter ..................................... 29
iii
<PAGE>
Section 8.06. Approvals ............................................... 29
Section 8.07. No Material Adverse Change .............................. 29
Section 8.08. MBIA Common Stock Price ................................. 30
Section 8.09. Hart-Scott-Rodino ....................................... 30
Section 8.1O. Stockholder Approval .................................... 30
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification by 1838 Stockholders .................... 30
Section 9.02. Limitation of Indemnification ........................... 30
Section 9.03. Procedure for Indemnification-Third Parties ............. 31
Section 9.04. Procedures for Claims by Indemnified Parties ............ 32
Section 9.05. Indemnification by MBIA ................................. 32
Section 9.06. Exclusive Remedies ...................................... 33
ARTICLE X
MISCELLANEOUS
Section 10.01. Survival of Representations, Warranties and Covenants ... 33
Section 10.02. Entire Agreement; Amendment ............................. 34
Section 10.03. Expenses ................................................ 34
Section 10.04. Governing Law ........................................... 34
Section 10.05. Assignment .............................................. 34
Section 10.06. Notices ................................................. 34
Section 10.07. Counterparts; Headings .................................. 35
Section 10.08. Interpretation .......................................... 35
Section 10.09. Severability ............................................ 35
Section 10.10. Further Assurances ...................................... 35
Section 10.11. Waivers ................................................. 35
Section 10.12. Successors In Interest .................................. 36
Section 10.13. ACKNOWLEDGEMENT BY 1838 STOCKHOLDERS .................... 36
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made as of this day of June 19th, 1998
by and among MBIA INC. ("MBIA"), 1838 INVESTMENT ADVISORS, INC. ("1838") and
MBIA ACQUISITION, INC. ("Acquisition").
RECITALS
WHEREAS, 1838 is a Delaware corporation whose sole business activity is the
management and holding of its partnership interest in 1838 Investment Advisors,
L.P. ("1838, L.P."); and
WHEREAS, 1838, L.P. is a Delaware limited partnership engaged in the
business of providing investment advice and related services (the "Business
Activities"); and
WHEREAS, the stockholders of 1838 (the "1838 Stockholders") own 558,200
shares of common stock of 1838 (the "1838 Common Stock"); and
WHEREAS, it is the intention of the parties hereto that, upon effectuation
of the Merger contemplated by this Agreement, that MBIA shall own all of the
outstanding shares of the 1838 Common Stock; and
WHEREAS, the respective Boards of Directors of MBIA, 1838 and Acquisition
have (a) determined that the merger of Acquisition with and into 1838 (the
"Merger") pursuant to, and subject to all of the terms and conditions of, this
Agreement is advisable, fair and in the best interests of MBIA, 1838 and
Acquisition and their respective stockholders and (b) approved the Merger, this
Agreement and the transactions contemplated by this Agreement; and
WHEREAS, the respective Board of Directors of 1838 and Acquisition have
resolved that this Agreement and the Merger be submitted to their respective
stockholders for approval; and
WHEREAS, all of the 1838 Stockholders have approved by execution and
delivery of the Selling Stockholder Letter and MBIA as the sole stockholder of
Acquisition (the "Acquisition Stockholder") has approved, by written consent,
the terms of the Merger as set forth herein; and
NOW, THEREFORE, in consideration of the Recitals and of the mutual
covenants, conditions and agreements set forth herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed that:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
specified:
<PAGE>
"Acquisition" shall mean MBIA Acquisition, Inc., a Delaware corporation and
a wholly-owned subsidiary of MBIA.
"Acquisition Stockholder" shall mean MBIA.
"Advisers Act" shall mean the Investment Advisers Act of 1940, as amended,
and the rules and regulations issued by the SEC thereunder.
"Agreement" shall mean this Agreement and Plan of Merger, together with the
Exhibits attached hereto and together with the Disclosure Schedule
"Articles of Merger" shall mean Articles of Merger in a form approved for
filing with the Delaware Department of State which shall have the executed Plan
of Merger attached thereto.
"Brown" shall mean W. Thacher Brown as the President/Chief Executive
Officer of 1838 and as the representative of the 1838 Stockholders.
"Business Activities" shall have the meaning set forth in the Recitals
hereto.
"Closing Date" shall mean July 31, 1998 or such other date as may be
mutually agreed upon by the parties.
"Code" shall mean the Internal Revenue Code of 1986, as the same may be in
effect from time to time.
"Customer Contracts" shall have the meaning set forth in Section 4.22
hereof,
"Disclosure Schedule" shall mean the Disclosure Schedule, a form of which
is attached to this Agreement which shall be delivered to MBIA in accordance
with the terms of Section 3.01 of this Agreement.
"Effective Time of Merger" shall have the meaning set forth in Section 2.02
hereof.
"1838" shall mean 1838 Investment Advisors, Inc., a Delaware corporation.
"1838 Common Stock" or "Stock" shall mean all of the issued and outstanding
shares of common stock of 1838.
"1838 Counsel Opinion" shall mean an opinion of counsel to 1838 in form and
substance reasonably acceptable to N4BIA.
"1838, L.P." shall mean 1838 Investment Advisors, L.P., a Delaware limited
partnership.
"1838, L.P. EBITDA" shall mean the 1838, L.P. earnings before interest,
taxes, depreciation and amortization.
"1838, L.P. Material Adverse Effect" shall mean any event, condition or
fact which is, or reasonably may be expected to be, materially adverse to the
financial condition, properties,
2
<PAGE>
business or results of operations of 1838, L.P. when considered in their
entirety; provided, however, that the foregoing shall not include general
economic or market conditions.
"1838, L.P. Partnership Interests" shall mean all of 1838's right, title
and interest in 1838, L.P.
"1838 Stockholders" shall mean all of the holders of 1838 Common Stock on
the Closing Date, as set forth on Exhibit A.
"Employee Benefit Plans" shall mean any pension plan, profit-sharing plan,
bonus plan, incentive compensation plan, stock ownership plan, stock purchase
plan, stock option plan, stock appreciation plan, employee benefit plan,
employee benefit policy, retirement plan, fringe benefit program, insurance
plan, severance plan, disability plan, health care plan, sick leave plan, death
benefit plan or any other plan or program to provide retirement income, fringe
benefits or other benefits to former or current employees of 1838, L.P.
"Environmental Laws" shall mean any federal, state or local statute, law,
rule, regulation, ordinance, code, permit or policy relating to Hazardous
Materials, environmental matters or the protection of public health and safety.
"ERISA' shall mean the Employee Retirement Income Security Act of 1974, as
the same may be in effect from time to time, and all rules and regulations
issued pursuant thereto.
"Excess Working Capital" shall mean the amount by which the current assets
of 1838, L.P. exceed its current liabilities as those amounts are determined in
accordance with GAAP; provided, however, current liabilities shall not be deemed
to include any portion of the MPCM Loan or the Stockholder Distribution
Obligations, regardless of its classification under GAAP.
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
amended.
"Fiscal Year" shall mean 1838's fiscal year, which is the calendar year.
"Fund" shall mean a registered investment company or series thereof to
which 1838, L.P. provides advisory or subadvisory services.
"GAAP" shall mean generally accepted accounting principles consistently
applied.
"Hazardous Materials" means any substance that (a) requires investigation,
removal or remediation under any Environmental Law, (b) is defined or identified
as a "hazardous waste" or "hazardous substance" under any Environmental Law or
(c) is toxic, explosive, corrosive, flammable, carcinogenic or otherwise
hazardous.
"Investment Advisory Contract" shall mean any investment advisory agreement
entered into by 1838, L.P. for the purpose of providing investment advisory
services to a client which is not a registered investment company or series
thereof.
"Investment Company Act" shall mean the Investment Company Act of 1940, as
amended and the rules and regulations of the SEC thereunder.
3
<PAGE>
"Investment Company Contract" shall mean an investment advisory agreement
entered into by 1838, L.P. for the purpose of providing investment advisory or
subadvisory services to a registered investment company or series thereof
"Joint Advisory Agreement" shall mean the Joint Advisory and Marketing
Agreement by and among 1838, 1838, L.P. and MPCM and dated September 30, 1994.
"Key Employees" shall mean W. Thacher Brown, John Springrose and George W.
Gephart.
"Knowledge of 1838" shall mean the actual knowledge of Brown, John J.
McElroy HI or George W. Gephart, Jr.
"Knowledge of MBIA" shall mean the actual knowledge of Gary Dunton, Peggy
Garfunkel, James O'Keefe, Clifford Corso, Robert Ohanesian, Jeffrey Kostiw,
Richard Walz and Pauline Cullen.
"Law" shall mean any common law and federal, state, local or other law,
rule, regulation or governmental requirement of any kind, and the rules,
regulations and orders promulgated thereunder by any regulatory agencies or
other Persons.
"Lien" shall mean, with respect to any asset: (a) any mortgage, pledge,
lien, charge, claim, restriction, reservation, condition, easement, covenant,
lease, encroachment, title defect, imposition, security interest or other
encumbrance of any kind; and (b) the interest of a vendor or lessor under any
conditional sale agreement, financing lease or other title retention agreement
relating to such asset.
"Limited Partnership Agreement" shall mean the Agreement of Limited
Partnership of 1838, L.P. as amended and restated as of September 30, 1994 and
as further amended through May 15,1998.
"MBIA" shall mean MBIA Inc.
"MBIA Common Stock" shall mean shares of the common stock, $1.00 par value,
of MBIA Inc. to be exchanged for 1838 Common Stock pursuant to Section 2.08
hereof.
"MBIA Counsel Opinion" shall mean an opinion of counsel to MBIA. in form
and substance reasonably acceptable to 1 83 8.
"MBIA Material Adverse Effect" shall mean any event, condition or fact
which is, or reasonably may be expected to be, materially adverse to the
financial condition, properties, business or results of operations of MBIA when
considered in their entirety; provided, however, that the foregoing shall not
include general economic or market conditions.
"Merger" shall mean the merger of Acquisition with and into 1838 pursuant
to this Agreement.
"MPCM" shall mean MeesPierson Capital Management, Inc.
4
<PAGE>
"MPCM Loan" shall mean an obligation of 1838, L.P. in the original
principal amount of $12,000,000, the proceeds of which were used to acquire the
1838, L.P. partnership interests of MPCM.
"Multiemployer Plan" has the meaning given in ERISA Section 3(37)(A).
"Organizational Documents" means (a) Certificate of Incorporation, bylaws
and stockholders agreements of a corporation; (b) the limited partnership
agreement and the certificate of limited partnership of a limited partnership;
(c) any charter or similar document adopted or filed in connection with the
creation, formation or organization of any entity; and (d) any amendment to any
of the foregoing.
"PBGC' shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto. "Pension Plan" has the meaning in ERISA Section 3(2)(A).
"Permits" shall mean all material licenses, pen-nits, approvals,
franchises, qualifications, certificates of convenience and necessity,
permissions, agreements, rate and other orders and governmental authorizations
required for the conduct of the business of 1838.
"Person" shall mean a natural person, corporation, trust, partnership,
governmental entity, agency or branch or department thereof, or any other legal
entity.
"Plan of Merger" shall mean the Plan of Merger between 1838 and Acquisition
in substantially the form of Exhibit D attached to this Agreement.
"Redemption Agreement" shall mean the 1838 Investment Advisors, L.P.
Redemption and Amendment Agreement dated as of May 15, 1998 among 1838,1838,
L.P. and MPCM.
"Regulatory Documents" shall mean all reports, registration statements and
other documents, together with amendments, required by any governmental agency
or authority.
"SEC' shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Laws" shall mean all applicable federal and state securities
laws and the rules and regulations issued thereunder.
"Selling Stockholder Letter" shall mean the letter to be delivered by the
1838 Stockholders in the form of Exhibit G hereto.
"Stockholder Distribution Obligation" shall mean, collectively, any
declared obligation of 1838, L.P. to distribute partnership earnings to 1838 and
any declared obligation of 1838 to dividend corporate income to the 1838
Stockholders.
"Stockholders' Agreement" shall mean the Stockholders' Agreement dated
September 30, 1994 by and among 1838 and the stockholders named therein,
including all amendments thereto.
5
<PAGE>
"Tax" shall mean any federal and Commonwealth of Pennsylvania (including
its local governments) income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code ss. 59A), customs duties, capital stock, franchise,
profits, withholding, social security (other similar), unemployment disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated or other tax of any kind
whatsoever, including any interest, penalty or addition thereto, whether
disputed or not.
"Tax Return" shall mean any return, declaration, report, claim for refund
or information return or statement relating to Taxes, including any schedule or
attachment thereto and including any amendment thereof.
"Welfare Plan" shall have the meaning set forth in ERISA Section 3(l).
ARTICLE II
THE MERGER
Section 2.01. The Merger. This Agreement provides for the merger of
Acquisition with and into 1838, whereby each outstanding share of 1838 Common
Stock will be converted into shares of MBIA Common Stock as described in this
Agreement. As of the Effective Time of Merger, Acquisition will be merged with
and into 1838, which shall be the surviving corporation in the Merger (the
"Surviving Corporation") and shall continue to be governed by the Laws of the
State of Delaware as a wholly-owned subsidiary of MBIA, and the separate
existence of Acquisition shall thereupon cease. The Merger shall be pursuant to
the provisions of, and shall be with the effects provided in, the Delaware
General Corporation Law and any other applicable law.
Section 2.02. Effective Time of Merger. The consummation of the Merger
shall be effected on the Closing Date or as soon thereafter as all of the
conditions to the Merger have been satisfied or waived. The Merger shall become
effective as of the close of business on the date of the filing of the Articles
of Merger with the Delaware Department of State. The date and time on which the
Merger shall become effective is referred to in this Agreement as the "Effective
Time of Merger."
Section 2.03. Certificate of Incorporation of Surviving Corporation. The
Certificate of Incorporation of Acquisition as in effect immediately prior to
the Effective Time of Merger shall be the Certificate of Incorporation of the
Surviving Corporation until amended in accordance with Law.
Section 2.04. Bylaws of Surviving Corporation. The Bylaws of 183 8 as in
effect immediately prior to the Effective Time of Merger as amended at the
Effective Time of Merger (the "Amended Bylaws") shall be the Bylaws of the
Surviving Corporation until amended in accordance with Law.
Section 2.05. Directors and Officers of Surviving Corporation. The duly
qualified and acting directors and officers of Acquisition immediately prior to
the Effective Time of Merger
6
<PAGE>
shall be the directors and officers of the Surviving Corporation, to hold office
as provided in the Bylaws of the Surviving Corporation until replaced in
accordance with the Amended Bylaws.
Section 2.06. The Closing. Immediately prior to the filings referred to by
Section 2.02 hereof, a closing of the transactions contemplated by this
Agreement shall take place at the offices of Drinker, Biddle & Reath, Suite 300,
1000 Westlakes Drive, Berwyn, Pennsylvania at 10:00 a.m. local time on the
Closing Date for the purpose of confirming the satisfaction of or, if
permissible, waiver of the conditions set forth in Sections 7 and 8.
Section 2.07. Conversion of Acquisition Common Stock. At the Effective Time
of Merger, and without any action on the part of the holders thereof, each share
of common stock of Acquisition issued and outstanding at the Effective Time of
Merger shall be converted into one share of 1838 Common Stock.
Section 2.08. Conversion of 1838 Common Stock.
(a) Conversion. At the Effective Time of Merger, and without any
action on the part of the holders thereof, each share of 1838 Common Stock
issued and outstanding at the Effective Time of Merger shall be converted
into 2.134 shares of MBIA Common Stock (the "Exchange Ratio") on the terms
and conditions set forth in this Agreement.
(b) Fractional Interests. No fractional interests in MBIA Common Stock
shall be issued in connection with the Merger. If the Exchange Ratio
results in a fractional share of MBIA Common Stock due to an 1838
Stockholder, then such stockholder shall receive, in lieu of such
fractional interests, cash (without interest) in an amount equal to the
product of such fractional part of a share of MBIA Common Stock multiplied
by the market price of MBIA Common Stock at the end of the second trading
day prior to the Closing Date as reported by the New York Stock Exchange,
rounded down to the nearest cent.
(c) Notwithstanding the foregoing, if between the date of this
Agreement and the Effective Time the outstanding shares of 1838 Common
Stock or MBIA Common Stock shall have been changed into a different number
of shares or a different class, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares, the Exchange Ratio shall be correspondingly adjusted to
reflect such stock dividend, subdivision, reclassification, split,
combination or exchange of shares.
Section 2.09. Exchange of 1838 Certificates
(a) Exchange Agent. As of the Effective Time of Merger, MBIA shall act
as exchange agent, or shall designate a bank or trust company to act as
exchange agent (in either case, the "Exchange Agent") for the benefit of
the 1838 Stockholders. MBIA shall make available to the Exchange Agent,
immediately prior to the Effective Time, certificates representing the
shares of MBIA Common Stock issuable in exchange for the 1838 Common Stock.
7
<PAGE>
(b) Exchange of Shares. On the Effective Time of Merger, the 1838
Stockholders shall surrender to the Exchange Agent the certificates which,
immediately prior to the Effective Time of Merger, represented outstanding
shares of 1838 Common Stock (the "1838 Certificates"), Upon surrender of an
1838 Certificate for cancellation to the Exchange Agent, together with such
other documents as the Exchange Agent may reasonably require, the holder of
such 1838 Certificate shall receive in exchange therefor a certificate
representing that number of whole shares of MBIA Common Stock and any
payment for fractional interests to which such holder is entitled in
respect of such 1838 Certificate pursuant to the provisions of Section 2.08
above and the 1838 Certificate so surrendered shall forthwith be canceled.
(c) No Further Rights in 1838 Common Stock. All shares of MBIA Common
Stock issued upon conversion of the 1838 Common Stock in accordance with
the terms of this Agreement shall be deemed to have been issued in full
satisfaction of all rights pertaining to the 1838 Common Stock.
Section 2. 1 0. Stock Transfer Books. From and after the Effective Time of
Merger, the holders of 1838 Certificates outstanding immediately prior to the
Effective Time of Merger shall cease to have any rights with respect to such
shares of 1838 Common Stock except as otherwise provided in this Agreement or by
Law.
Section 2.1 1. Reorganization. The parties intend that this Agreement be a
plan of reorganization within the meaning of Section 368(a) of the Code and that
the Merger be a tax-free reorganization under Section 368(a) of the Code. The
1838 Stockholders shall obtain such opinions and approvals from their tax
advisors as they deem appropriate regarding the compliance of the terms of the
Merger with Section 368(a) of the Code.
Section 2.12. Nonsolicitation. As an inducement to MBIA to enter into this
Agreement, the 1838 Stockholders set forth on Exhibit A-1 hereto (the
"Nonsoliciting Stockholders") agree to abide by the provisions of the
nonsolicitation agreement set forth in subsection (a) for a period of two (2)
years after the Closing Date.
(a) Covenants. Each Nonsoliciting Stockholder agrees that he/she will
not (i) contact any person who was a client or who was employed by a client
of 1838 or 1838, L.P. regarding his/her ability to perform investment,
management and financial services for them except on behalf of 1838 or
1838, L.P. or (ii) enter into contracts with a client of 1838 or 1838, L.P.
to provide services similar to those performed by the Nonsoliciting
Stockholder on behalf of 1838 and/or 1838, L.P., regardless of whether the
Nonsoliciting Stockholder solicited the business of such client.
(b) Penalties. In the event that a Nonsoliciting Stockholder violates
the terms of the covenant set out in subsection (a), any one or more of the
following penalties shall be enforced against him or her:
(i) Disgorgement. If a Nonsoliciting Stockholder violates the
covenant, then 1838 and/or 1838, L.P. is entitled to an accounting and
payment of all profits which the stockholder has realized as a result
of such violation(s); and
8
<PAGE>
(ii) Any remedies available at law and equity including, without
limitation, injunctive relief
ARTICLE III
OTHER AGREEMENTS
Section 3.01. Disclosure Schedule. Not less than one (1) business day prior
to its execution of this Agreement, 1838 shall deliver to MBIA a preliminary
Disclosure Schedule in the form attached hereto. Not less than three (3)
Business Days prior to the Closing Date, 1838 will deliver to M13IA a final
Disclosure Schedule and shall deliver, on the Closing Date, a certificate dated
as of the Closing Date and signed by Brown as President and Chief Executive
Officer of 1838 stating that, except as set forth in the Certificate, the final
Disclosure Schedule is true and accurate as of the Closing Date.
Section 3.02. Legal Conditions to Merger. Each party to this Agreement will
(a) take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on it with respect to the Merger; (b) promptly
cooperate with and furnish information to the other parties in connection with
any such requirements imposed upon any of them in connection with the Merger;
and (c) take all reasonable actions necessary to obtain (and will cooperate with
the other parties in obtaining) any consent, authorization, order or approval
of, or any exemption by, any governmental entity or other public or private
Person, required to be obtained or made by the parties to this Agreement in
connection with the Merger or the taking of any action contemplated thereby or
by this Agreement.
Section 3.03. Public Announcements. Subject to each party's disclosure
obligations imposed by Law, 1838, the 1838 Stockholders, Acquisition and MBIA
will cooperate with each other in the development and distribution of all news
releases and other public information disclosures with respect to this Agreement
or any of the transactions contemplated hereby and, except as may be required by
law, shall not issue any public announcement or statement with respect thereto
prior to consultation with the other parties.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF 1838
1838 and the 1838 Stockholders make the following representations and
warranties to MBIA, all of which shall be true as of the date of this Agreement
and the Closing Date:
Section 4.01. Ownership of Stock The 1838 Stockholders are the lawful
owners of the Stock which constitutes 100% of the outstanding common stock of
1838, free and clear of all liens, encumbrances, restrictions and claims of
every kind (except for the Stockholders Agreement). The schedule of the 1838
Stockholders and the percentage of Stock owned by each of them set forth on
Exhibit A hereto is complete and accurate in all respects. All of the issued and
outstanding shares have been duly authorized and are validly issued, fully paid
and nonassessable. There are no outstanding or authorized option, warrants,
purchase rights, subscription rights, conversion rights, exchange rights or
other contracts or commitments that
9
<PAGE>
could require 1838 to issue, sell or otherwise cause to become outstanding any
of the Stock. There are no outstanding or authorized stock appreciation, phantom
stock, profit participation or similar rights with respect to 1838. There are no
liens, encumbrances or other restrictions, contractual or otherwise, which could
serve to restrict the transfer or acquisition of the Stock.
Section 4.02. Ownership of 1838, L.P. 1838 owns 99.33 percent of the 1838,
L.P. partnership interests and all of the partnership interests of 1838, L.P.
are held by 1838 and W. Thacher Brown. The 1838 Stockholders have no right,
title, interest or claim in or against the 1838, L.P. partnership interests or
any of the assets of 1838, L.P. Except as set forth on the Disclosure Schedule,
the 1838, L.P. Partnership Interests are free and clear of all liens,
encumbrances, restrictions and claims of any kind and 1838 has not entered into
any agreements, written or oral, regarding the sale or encumbrance of the 1838,
L.P. Partnership Interests. Except as set forth in the Stockholders' Agreement
and the Disclosure Schedule, neither the 1838 Stockholders nor 1838 is a party
to any agreement the terms of which prohibit the 1838 Stockholders from
conveying the Stock and the 1838, L.P. Partnership Interests to MBIA, or which
would cause an acceleration of any obligations of 1838 or 1838, L.P.
Section 4.03. Existence, Good Standing and Authority. 1838 is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. 1838 has the power to own its property and to carry on its
business as now being conducted. 1838 is duly qualified to do business in
Pennsylvania, which is the only jurisdiction in which the character or location
of the properties owned or leased by 1838 makes such qualification necessary.
The execution, delivery and performance of this Agreement by 1838 and all of the
documents and instruments required by this Agreement to be executed by 1838 are
within the corporate power of 1838 and have been duly authorized by the Board of
Directors. 1838, L.P. is a Delaware limited partnership, governed by the
provisions of the Delaware Revised Uniform Limited Partnership Act and has the
power to own its property and carry on its business as now being conducted. To
the extent required by applicable law, 1838, L.P. is qualified to do business in
Pennsylvania. The Limited Partnership Agreement remains in full force and effect
and has not been amended or modified. 1838 and W. Thacher Brown are the only
partner's in 1838, L.P.
Section 4.04. Capital Stock 1838 has an authorized capitalization
consisting of 1,000,000 shares of common stock of which 558,200 shares are
issued and outstanding. Such outstanding shares have been duly authorized and
validly issued and are fully paid and nonassessable. There are no outstanding
options, warrants, rights, calls, commitments, conversion rights, rights of
exchange, plans or other agreements of any character providing for the purchase,
issuance or sale of any shares of the capital stock of 1838, other than as
contemplated by this Agreement and as set forth in the Stockholders Agreement.
Section 4.05. Subsidiaries and Investments. Except with respect to the
1838, L.P. Partnership Interests, 1838 does not own directly or indirectly, any
capital stock or other equity or proprietary interest in other corporations,
partnerships, associations, trust, joint ventures or other entities. 1838, L.P.
does not own, directly or indirectly, any capital stock or other equity or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity except as set forth on the Disclosure Schedule.
10
<PAGE>
Section 4.06. No Violation or Conflict. Except as disclosed on the
Disclosure Schedule, the execution, delivery and performance of this Agreement
by 1838 Stockholders does not and will not conflict with or violate any Law, the
Organizational Documents or any contract, agreement or lease of 1838 or 1838,
L.P.
Section 4.07. Litigation. Except as disclosed on the Disclosure Schedule,
to the knowledge of 1838 there is no pending or threatened litigation or
proceeding against or affecting 1838 or 1838, L.P. before any court, arbitrator
or governmental department, board, agency or instrumentality; and there
currently is no judgment, decree, order, writ, or injunction of any court,
arbitrator or governmental department, board, agency or instrumentality pending
against the 1838 or 1838, L.P.
Section 4.08. Financial Statements. The financial statements for 1838 and
1838, L.P. listed on the Disclosure Schedule, each of which has previously been
provided to MBIA (collectively referred to as the "Financial Statements"), have
been prepared in accordance with generally accepted accounting principles
("GAAP"), in a manner consistently applied and present fairly the financial
condition of 1838 and 1838, L.P. as of the date indicated, except as described
in the Disclosure Schedule. Except as disclosed on the Disclosure Schedule,
neither 1838 nor 1838, L.P. had any liabilities or obligations of any nature,
whether absolute, accrued, contingent or otherwise, and whether due or to become
due, which would, individually or in the aggregate, have an 1838, L.P. Material
Adverse Effect, and which are not reflected or reserved against in the Financial
Statements as of the date of each of the Financial Statements. Neither 1838 nor
1838, L.P. have any liabilities or obligations of any nature, whether absolute,
accrued, contingent or otherwise, whether due or to become due, as of the
Closing Date, except as disclosed on the Disclosure Schedule.
Section 4.09. Title to Properties and Assets. Neither 1838 nor 1838, L.P.
have ever owned or controlled any real property other than leased office space.
1838 and 1838, L.P. have good and marketable title to all of their personal
property reflected on the Financial Statements and which is material to the
business of 1838 and 1838, L.P., free and clear of all Liens or rights of third
parties and all such property is in good and useable condition and complies in
all material respects with all applicable laws, ordinances, codes, rules and
regulations. All property and assets held by 1838 and 1838, L.P. under leases
are held under-valid and enforceable leases, neither 1838 nor 1838, L.P. are in
default under any such lease, each lease will continue in full force and effect
immediately after the consummation of the transactions contemplated by this
Agreement, and there is no material dispute between 1838 and/or 1838, L.P. and
other parties to such leases or the owners of the leased property. Each item of
furniture, fixtures and equipment with a book value in excess of $1,000 or lease
payments in excess of $1,000 per month which are owned or leased by 1838 or
1838, L.P. on the Closing Date are set forth on the Disclosure Schedule.
Section 4.10. Existing Contracts. Except as disclosed on the Disclosure
Schedule, neither 1838 nor 1838, L.P. is a party to or bound by any written or
oral (i) contract with any labor union, (ii) employment, agency, consulting or
similar contract, (iii) lease, whether as lessor or lessee, with respect to any
real or personal property that cannot be canceled by it without material cost or
penalty upon six months' or less notice and involving a rent of more than $1,000
a month, (iv) material contract or commitment extending beyond six months from
the date of this
11
<PAGE>
Agreement (other than investment advisory agreements with clients), (v) contract
or commitment involving more than $1,000 a month for other than the purchase of
merchandise and supplies in the ordinary course of business (other than
investment advisory agreements with clients), (vi) guaranty, suretyship,
indemnification or contribution agreement, other than obligations, if any, of
1838 to indemnify its officers and directors in accordance with its
Organizational Documents (vii) any agreement by 1838 or 1838, L.P. not to
compete in any business or geographical area or (viii) other material contract
not made in the ordinary course of business.
Section 4.11. Contractual Defaults. Except as disclosed on the Disclosure
Schedule, neither 183.8 nor 1838, L.P. is in default, and no event has occurred
which, with the passage of time or the giving of notice, or both, will
constitute a default on the part of 1838 or 1838, L.P., under any agreement,
indenture, loan agreement or other instrument to which it is a party or by which
it or any of its assets is bound or to which any of its assets is subject,
except where such default would not have an 1838, L.P. Material Adverse Effect.
All parties with whom 1838 and/or 1838, L.P. have material leases, agreements or
contracts or who owe material obligations to 1838 and 1838, L.P. are in
compliance therewith in all material respects.
Section 4.12. Reserved.
Section 4.13. Insurance Policies. The Disclosure Schedule sets forth a list
of all of the insurance policies and bonds carried by or on behalf of 1838 and
1838, L.P. as of the Closing Date, all of which are currently in fall force and
effect. To the knowledge of 1838, no application filed for such insurance
policies and bonds contains any material misstatement of fact or fails to state
any material fact which may adversely affect the insurance coverage provided. To
the knowledge of 1838 after due inquiry of appropriate 1838, L.P. personnel,
1838 and 1838, L.P. have properly and adequately notified all such insurance
carriers of any and all claims known to 1838 and 1838, L.P. with respect to the
employees, operations and properties of 1838 and 1838, L.P. for which 1838 and
1838, L.P. are insured (and all such pending claims are set forth on the
Disclosure Schedule) and has complied with all other material requirements and
conditions of such policies and bonds.
Section 4.14. Employee Benefit Plans. Except as set forth in the Disclosure
Schedule:
(i) The Disclosure Schedule lists each Employee Benefit Plan that 1838
and/or 1838, L,P. maintains or to which 1838 and/or 1838, L.P. contributes.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the Code and other
applicable laws.
(B) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGCls and Summary Plan
Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part 6
of Subtitle B of Title I of ERISA and of Code ss.
12
<PAGE>
4980B have been met with respect to each such Employee Benefit Plan
which is a Welfare Plan.
(C) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid
to each such Employee Benefit Plan which is a Pension Plan. All
premiums or other payments for all periods ending on or before the
Closing Date have been paid with respect to each such Employee Benefit
Plan which is a Welfare Plan.
(D) Each such Employee Benefit Plan which is a Pension Plan meets
the requirements of a "qualified plan" under Code ss. 401(a) and has
received, within the last two years, a favorable determination letter
from the Internal Revenue Service.
(E) The market value of assets under each such Employee Benefit
Plan which is a Pension Plan equals or exceeds the present value of
all vested and nonvested liabilities thereunder determined in
accordance with PBGC methods, factors and assumptions applicable to a
Pension Plan terminating on the date for determination.
(F) 1838 Stockholders has delivered to M131A correct and complete
copies of the plan documents and summary plan descriptions, the most
recent determination letter received from the Internal Revenue
Service, the most recent Form 5500 Annual Report and all related trust
agreements, insurance contracts, and other funding agreements which
implement each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that 1838 and/or 1838,
L.P. maintains or ever has maintained or to which any of them contributes,
ever has contributed or ever has been required to contribute:
(A) No such Employee Benefit Plan which is a Pension Plan has
been completely or partially terminated or been the subject of a
"reportable event" as defined in ERISA Section 4043 as to which
notices would be required to be filed with the PBGC. No proceeding by
the PBGC to terminate any such Pension Plan has been instituted or, to
the best knowledge of the 1838 Stockholders, threatened.
(B) There have been no "prohibited transactions" under Code ss.
4975(c) nor ERISA ss. 406 with respect to any such Employee Benefit
Plan. No person or entity administering such Employee Benefit Plan has
any liability for breach of fiduciary duty or any other failure to act
or comply in connection with the administration or investment of the
assets of any such Employee Benefit Plan. No action, suit, proceeding,
hearing or investigation with respect to the administration or the
investment of the assets of any such Employee Benefit Plan (other
13
<PAGE>
than routine claims for benefits) is pending or, to the best knowledge
of the 1838 Stockholders, threatened. The 1838 Stockholders have no
knowledge of any basis for any such action, suit, proceeding, hearing
or investigation.
(C) Neither 1838 nor 1838, L.P. has incurred, and 1838
Stockholders have no reason to expect that 1838 or 1838, L.P. will
incur any liability to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any withdrawal liability)
or under the Code with respect to any such Employee Benefit Plan which
is a Pension Plan.
(iii) Neither 1838 nor 1838, L.P. contributed to or ever has been
required to contribute to any Multiemployer Plan or has any liability
(including withdrawal liability) under any Multiemployer Plan.
(iv) Neither 1838 nor 1838, L.P. maintains nor ever have maintained
and neither 1838 nor 1838, L.P. have ever contributed to, or ever has been
required to contribute to, any Welfare Plan providing medical, health or
life or other welfare-type benefits for current or future retired or
terminated employees, their spouses or their dependents,
Section 4.15. Status. Except as disclosed on the Disclosure Schedule, to
the knowledge of 1838, no act or default on the part of 1838 or 1838, L.P. has
occurred which could result in the assessment of civil money penalties against
1838 or 1838, L.P., or which violates any federal or state law or regulation,
and neither 1838 nor 1838, L.P. is currently subject to any regulatory order or
agreement, or other regulatory action. 1838 and 1838, L.P. have filed all
applications, reports, returns and filing information data with federal and
state authorities and regulatory agencies as are required by federal or state
law or regulations.
Section 4.16. Taxes.
(i) 1838 and 1838, L.P. have timely filed all federal Tax Returns that
they were required to file and have filed all Tax Returns required by the
Commonwealth of Pennsylvania and its local governments. All such Tax
Returns were correct and complete in all respects. All Taxes owed by 1838
and 1838, L.P. (whether or not shown on any Tax Return) have been timely
paid, Neither 1838 nor 1838, L.P. is currently the beneficiary of any
extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where 1838 and 1838, L.P. do
not file Tax Returns that the income of either 1838 or 1838, L.P. is
subject to taxation by that jurisdiction. There are no security interests
on any of the assets of 1838 or 1838, L.P. that arose in connection with
any failure (or alleged failure) to pay any Tax.
(ii) 1838 and 1838, L.P. have withheld and paid all Taxes required to
have been withheld and paid in correction with amounts paid or
14
<PAGE>
owing to any employee, independent contractor, creditor, stockholder or
other third party.
(iii) Neither 1838 nor 1838, L.P. expect any authority to assess any
additional Taxes for any period for which Tax Returns have been filed.
There is no dispute or claim concerning any Tax liability of 1838 or 1838,
L.P. either (A) claimed or raised by any authority in writing or (B) as to
which 1838 Stockholders have knowledge based upon personal contact with any
agent of such authority. The Disclosure Schedule lists all federal, state,
local and foreign income Tax Returns filed with respect to 1838 and 1838,
L.P. for taxable periods ended on or after December 31, 1996, and indicates
if any of those Tax Returns that have been audited or currently are the
subject of audit. Neither 1838 nor 1838, L.P. have waived any statute of
limitations in respect of Taxes or agreed to any extension of time with
respect to a tax assessment or deficiency.
(iv) 1838 has not filed a consent under Code ss. 341(f) concerning
collapsible corporation. 1838 has not made any payment, is not obligated to
make any payments and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Code ss. 280G. 1838 has not been a United States real
property holding corporation within the meaning of Code ss. 897(c)(2)
during the applicable period specified in Code ss. 897(c)(1)(A)(ii). 1838
is not a party to any Tax allocation or sharing agreement. 1838 (A) has not
been a member of an affiliated group filing a consolidated federal income
Tax Return and (B) has no liability for the Taxes of any other person or
entity under Reg. ss. 1.1502-6 (or any similar provision of state, local or
foreign law) as a transferee or successor, by contract or otherwise.
(v) The Disclosure Schedule sets forth, as of the most recent
practicable date, the basis of 1838 and 1838, L.P. in their assets and the
amount of any net operating loss, net capital loss, unused tax credits or
excess charitable contribution.
(vi) Since its inception, 1838, L.P. has been properly treated as a
partnership for tax purposes and no tax authority has ever asserted that it
should not so be treated. Since its inception, the only partners of 1838,
L.P. have been 1838, W. Thacher Brown, MPCM and Lambert Brussels Advisory
Corporation. Since its inception, 1838 has been properly treated as an
S-Corp. pursuant to a timely filed election and consent of stockholders, no
taxing authority has ever asserted that it should not be so treated. Since
its inception, 1838's only stockholders have been the 1838 Stockholders and
the former stockholders set forth on Exhibit A.
Section 4.17. Employee Matters. 1838 has no employees and has never had an
employee. Except as disclosed on the Disclosure Schedule, to the knowledge of
1838 after due inquiry of appropriate 1838, L.P. personnel, there is no present
or former employee of 1838, L.P. who has any claim against 1838 or 1838, L.P.
(whether under Law or under any employee
15
<PAGE>
agreement, whether oral, written or implied) for any reason including, without
limitation, on account of or for (i) overtime pay, other than overtime pay for
the current payroll period; (h) wages or salaries, other than wages or salaries
for the current payroll period; (iii) vacations, sick leave, time off or pay in
lieu of vacation, sick leave or time off, other than vacation, sick leave or
time off (or pay in lieu thereof) earned in the 12-month period immediately
preceding the date of this Agreement, (iv) harassment or discrimination or (v)
the Merger.
Section 4.18. Credit Agreements. Except as disclosed on the Disclosure
Statement and except for the MPCM Loan, n6ither 1838 nor 1838, L.P. is a party
to or bound by any written or oral long-term debt agreement, credit agreement,
sale-lease back agreement, revolving credit agreement, financing agreement or
mortgage on real property, in which 1838 or 1838, L.P. is named the lender or
the debtor (or mortgagor).
Section 4.19. Record Books. Except as set forth in the Disclosure Schedule,
the minute book and stock record book of 1838 are complete and correct in all
material respects and record all material transactions required to be recorded
under any and all applicable state and federal laws or regulations.
Section 4.20. MPCM Loan/Stockholder Distribution Obligations. On the
Closing Date, the sum of (i) the unpaid principal balance and accrued interest
on the MPCM Loan and (ii) the Stockholder Distribution Obligations, shall not
exceed fifteen million, seven hundred fifty-eight thousand four hundred
forty-two dollars (SI 5,758,442)
Section 4.21. Accounts Receivable/Working Capital. All accounts receivable
- -as reflected on 1838, L.P.'s books (the "Accounts Receivable") and records have
been generated in the ordinary course of 1838, L.P.'s business. Not more than
$250,000 of the Accounts Receivable are more than 90 days past due. No offset,
claim of offset or claim of material liability on the part of 1838, L.P. has
been asserted by any obligor with respect to the Accounts Receivable. As of the
Closing Date, the Excess Working Capital for 1838, L.P. will not be less than
three million dollars ($3,000,000).
Section 4.22. Customer Contracts. As of the Closing Date, 1838, L.P. had in
place the agreements with institutional clients set forth on the Disclosure
Schedule (the "Customer Contracts"). 1838, L.P. has not received notice of
intent to terminate (or materially reduce the scope of) any of the Customer
Contracts, nor has 1838, L.P. sent notice to terminate (or materially reduce the
scope of) any of the Customer Contracts, except as set forth on the Disclosure
Schedule.
Section 4.23. Affiliate and Insider Transactions. Except as disclosed in
the Disclosure Schedule, neither the 1838 Stockholders nor any member of the
immediate family of the 1838 Stockholders or any entity in which the 1838
Stockholders owns any beneficial interest (other than a publicly-held
corporation) has any loan agreement, note or borrowing arrangement or, to the
knowledge of 1838, any other agreement with 1938 or 1838, L.P. or any interest
in any property, real, personal or mixed, tangible or intangible, used in or
pertaining to the business of 1838 or 1838, L.P. For purposes of the preceding
sentence, the members of the immediate family of the 1838 Stockholders will
consist of the spouse, parents, children, siblings, and mothers-and
fathers-in-law of such persons.
16
<PAGE>
Section 4.24. Compliance With Laws.
(a) Except as disclosed on the Disclosure Schedule, to the knowledge of
1838, 1838 and 1838, L.P. have complied in all material respects with all
applicable laws and regulations of foreign, federal, state and local governments
and all agencies thereof which affect the business or any owned or leased
properties of 1838 or 1838, L.P. and to which 1838 or 1838, L.P. may be subject
(including without limitation Environmental Laws and the Occupational Safety and
Health Act of 1970, or any other state or federal acts, including rules and
regulations thereunder, regulating, or otherwise affecting employee health and
safety or the environment); and there are no currently pending claims or notices
by any such governments or agencies against 1838 or 1838, L.P. alleging a
violation of any such law or regulation where such violation would have an 1838,
L.P. Material Adverse Effect.
(b) Except as disclosed in the Disclosure Schedule, to the knowledge of
1838, 1838 and 1838, L.P. each hold, and has at all times held, all Permits
necessary for the lawful ownership and use of 1838, L.P.'s properties and assets
and the conduct of their businesses under and pursuant to every, and has
complied in all material respects with each, and is not default in any material
respect under any applicable law relating to 1838, L.P. or any of its assets,
properties or operations where such default would have an 1838, L.P. Material
Adverse Effect. Neither 1838 nor 1838, L.P. knows of any outstanding violations
by it of any of the above nor has received notice asserting any such violation
by it. All Permits are valid and in good standing and are not subject to any
suspension, modification or revocation or proceedings related thereto.
(c) Except as disclosed in the Disclosure Schedule and except for normal
examinations conducted by any governmental authority in the regular course of
the business of 1838 or 1838, L.P., to the knowledge of 1838, no governmental
authority has initiated any administrative proceeding or investigation into the
business or operations of 1838, L.P. There is no unresolved violation or
exception by any governmental authority with respect to any report or statement
by any governmental authority relating to any examination of 1838 or 1838, L.P.
(d) 1838 and 1838, L.P. have at all times maintained records which
accurately reflect transactions in reasonable detail and accounting controls,
policies and procedures sufficient to ensure that such transactions are recorded
in a manner which permits the preparation of financial statements in accordance
with GAAP and applicable regulatory accounting requirements.
(e) All proxy statements to be prepared for use by the Funds in connection
with the transactions contemplated by this Agreement (other than any information
provided or to be provided by MBIA in writing relating to MBIA and its
affiliates expressly for use in the proxy statements) will be accurate and
complete and will not contain, at the times such proxy materials are furnished
to the stockholders, or at the time of the meetings thereof, any untrue
statements of a material fact, or omit to state any material fact required to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
17
<PAGE>
Section 4.25. Absence of Certain Developments. Except as set forth on the
Disclosure Schedule or the Financial Statements, neither 1838 nor 1838, L.P.
have since December 31, 1997:
a. issued or sold any of its Stock, securities convertible into or
exchangeable for Stock, warrants, options or other rights to acquire Stock,
or any of its bonds or other securities other than the issuance of 27,200
additional shares of Stock as of January 1, 1998;
b. redeemed or purchased, directly or indirectly, any shares of its
Stock or declared or paid any dividends or distributions with respect to
any shares of Stock;
c. borrowed any amount or incurred or become subject to any material
liability, except accounts payable incurred in the ordinary course of
business and the MPCM Loan;
d. discharged or satisfied any material lien or encumbrance on its
properties or assets or paid any material liability, other than in the
ordinary course of business;
e. mortgaged, pledged or subjected to any lien or other encumbrance,
any of its assets except in the ordinary course of business, liens and
encumbrances for current property taxes not yet due and payable, liens and
encumbrances which do not materially affect the value of, or interfere with
the current use or ability to convey, the property subject hereto or
affected thereby;
f. sold, assigned or transferred (including without limitation
transfers to any employees, stockholders or affiliates of 1838, L.P.) any
assets, except in the ordinary course of business;
g. canceled any material debts or claims or waived any rights of
material value, except in the ordinary course of business;
h. except as previously disclosed to MBIA in writing, made or granted
any bonus or any wage, salary or compensation increase to any director,
officer or employee except as disclosed on the Disclosure Schedule;
i. made or granted any increase in any Employee Benefit Plan or
arrangement or amended or terminated any existing Employee Benefit Plan or
arrangement or adopted any new Employee Benefit Plan or arrangement, except
as required by law;
j. made capital expenditures or commitments therefor in excess of
$200,000 in the aggregate;
k. suffered any theft, damage, destruction or loss of or to any
property or properties owned or used by 1838, L.P., whether or not covered
by insurance, which would individually or in the aggregate have an 1838,
L.P. Material Adverse Effect; or
18
<PAGE>
l. taken any other action or entered into any other material
transaction or contract other than in the ordinary course of business.
Section 4.26. Material Adverse Change. There has been no 183 8, L.P.
Material Adverse Effect since December 31, 1997.
Section 4.27. Bank Accounts and Powers of Attorney. Except as set forth in
the Disclosure Schedule, 1838 (a) has no bank account or safe deposit box and
(b) has given no power of attorney to any person.
Section 4.28. Broker's or Finder's Fees. No agent, broker, person or firm
acting on behalf of the 1838 Stockholders, 1838 or 1838, L.P. is, or will be,
entitled to any commission or broker's or finder's fees from any of the parties
hereto, or from any person controlling, controlled by or under common control
with any of the parties hereto, in connection with any of the transactions
contemplated herein.
Section 4.29. Business Activities of 1838. Since its inception, 1838 has
not engaged in any business activities other than its participation in 1838,
L.P.
Section 4.30. Regulatory Documents. Except as set forth in the Disclosure
Schedule:
(a) Since January 1, 1996, 1838 and 1838, L.P. have timely filed all
reports, registration statements and other documents, together with any
amendments required to be made with respect thereto, that were required to
be filed with any governmental authority, including the SEC, and has paid
all fees and assessments due and payable in connection therewith.
(b) As of their respective dates, the Regulatory Documents of 1838
complied in all material respects with the requirements of applicable laws
and none of 1838's or 1838, L.P.'s Regulatory Documents, as of their
respective dates, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. 1838 has previously delivered
or made available to MBIA a complete copy of each 1838's and 1838, L.P.'s
Regulatory Documents filed with the SEC after January 1, 1996 and prior to
the date hereof (including a Form ADV as in effect on the date hereof) and
will deliver to MBIA promptly after the filing thereof a complete copy of
each Regulatory Document filed with the SEC after the date hereof and prior
to the Closing Date.
Section 4.31. Ineligible Persons. Neither 1838 nor any "affiliated person"
(as defined in the Investment Company Act) thereof, is ineligible pursuant to
Section 9(a) or 9(b) of the Investment Company Act to serve as an investment
advisor (or in any other capacity contemplated by the Investment Company Act) to
a registered investment company. Neither 1838 nor any "associated person" (as
defined in the Advisers Act) thereof, is ineligible pursuant to Section 203 of
the Advisers Act to serve as an investment adviser or as an associated person to
a registered investment adviser. Neither 1838 nor any "associated person" (as
defined in the Exchange Act) thereof, is ineligible pursuant to Section 15(b) of
the Exchange Act to serve as a broker-dealer or as an associated person to a
registered broker-dealer.
19
<PAGE>
Section 4.32. Funds.
(a) The Disclosure Schedule sets forth a true, complete and correct
list, as of the date hereof, of each Fund for which 1838, L.P. acts as
investment advisor or subadvisor. Each Fund that is an entity is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has the requisite corporate, trust or
partnership power and authority to own its properties and to carry on its
business as it is now conducted, and is qualified to do business in each
jurisdiction where it is required to do so under applicable law, except
where the failure to have such power, authority or qualification is not
reasonably expected to have an 1838, L.P. Material Adverse Effect. Each
Fund is, and at all times has been registered with the SEC as an Investment
Company in accordance with the requirements of the Investment Company Act.
In addition, shares of each Fund have been registered under the Securities
Act of 1933, as amended, as required by that act and the rules and
regulations issued by the SEC thereunder. Except with respect to the first
sentence of this Section 4.32(a), the foregoing representations shall not
be deemed applicable to any Funds for which 1838, L.P. acts as an
investment subadvisor.
(b) Except as set forth in the Disclosure Schedule, (i) the shares of
each Fund have been duly and validly issued and are fully paid and
nonassessable and the shares of each Fund are qualified for public offering
and sale in each jurisdiction where offers are made to the extent required
under applicable law; and (ii) to the extent within the control of 1838,
L.P., each Fund has been operated since its organization and is currently
operating in compliance in all material respects with applicable law.
Section 4.33. Investment Company Contracts. Each Investment Company
Contract subject to Section 15 of the Investment Company Act has been duly
approved at all times in compliance in all material respects with Section 15 of
the Investment Company Act and all other applicable laws. 1838, L.P. has
performed its duties and obligations under each Investment Company Contract in
accordance with the Investment Company Act and all other applicable laws, except
for such failures of performance which, individually or in the aggregate, are
not reasonably expected to have an 1838, L.P. Material Adverse Effect.
Section 4.34. Technology and Intellectual Property
(a) The Disclosure Schedule lists any (i) domestic and foreign
registered trademarks and service marks, registered copyrights and patents,
(ii) applications for registration of any of the foregoing and (iii)
unregistered trademarks, service marks, trade names, logos and assumed
names owned by 1838, L.P. and necessary to conduct the business of 1838,
L.P.. The items, together with all other material trademarks, service
marks, trade names, logos, assumed names, patents, copyrights, trade
secrets, computer software, formulae, designs and inventions currently used
in or necessary to conduct the business of 1838, L.P. constitute the
"Intellectual Property."
(b) 1838, L.P. owns all right, title and interest in and to the
Intellectual Property listed on the Disclosure Schedule.
20
<PAGE>
(c) The Intellectual Property listed in the Disclosure Schedule, does
not infringe any patent, copyright or trade secret of any third party and
such Intellectual Property has not been forfeited to the public domain.
(d) No claims have been asserted by any person or entity against 1838,
L.P. that the use of the Intellectual Property listed on the Disclosure
Schedule infringes upon the Intellectual Property rights of such person or
entity and 1838 is not aware of any valid basis for such claim.
Section 4.35. Year 2000. 1838 has caused 1838, L.P. to complete a thorough
assessment of all of its operating and technology systems, including all
software products and services utilized by 1838, L.P., for any risk that the
Year 2000 will cause business disruption or operational failure. 1838 has set
forth on the Disclosure Schedule any Year 2000 risks identified in that
assessment and any remediation plans in place or contemplated to be put in
place. To the knowledge of 1838 after due inquiry of appropriate 1838, L.P.
personnel, all software owned by or licensed to 1838, L.P. is designed to be
used prior to, during and after the calendar year 2000 A.D.
Section 4.36. Redemption Agreement. The Redemption Agreement has been duly
executed by all parties thereto and was effective to convey all right, title and
interest of NTCM in the 1838 Partnership Interests to 1838. All amounts due to
MPCM under the Redemption Agreement have been fully paid and all other material
obligations of 1838 and 1838, L.P. thereunder have been performed. There are no
amounts due to MPCM by 1838, L.P. and MPCM has been paid, or has released its
rights with respect to, all past and future income of 1838, L.P.
Section 4.37. Former Stockholders. Except as set forth in the Disclosure
Schedule, there are no pending or, to the knowledge of 1838, threatened claims
against 1838 or 1838, L.P. by former 1838 Stockholders.
Section 4.38. Disclosure. The representations and warranties set forth in
this Article IV do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Article IV not misleading.
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS OF
MBIA AND ACQUISITION
MBIA and Acquisition hereby represent, warrant and covenant to the 1838
Stockholders that:
Section 5.01. Organization.
(a) Organization. Each of MBIA and Acquisition is a corporation duly
and validly organized and existing in good standing under the Laws of the
state of its incorporation.
21
<PAGE>
(b) Corporate Power and Authority. Each of MBIA and Acquisition has
full corporate power and authority and all Permits necessary to carry on
its business as it is now conducted and to own, lease and operate its
assets and properties.
Section 5.02. Authorization; Enforceability. The execution, delivery and
performance of this Agreement by MBIA and Acquisition and all of the documents
and instruments required by this Agreement to be executed and delivered by MBIA
and Acquisition (a) are within the corporate power of MBIA and Acquisition, (b)
have been duly authorized by all necessary corporate action by MBIA and
Acquisition and (c) do not require any approval of the stockholders of MBIA.
This Agreement is, and the other documents and instruments required by this
Agreement to be executed and delivered by MBIA and Acquisition will be, when
executed and delivered by MBIA and Acquisition, the valid and binding
obligations of MBIA and Acquisition, enforceable against MBIA and Acquisition in
accordance with their respective terms, except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar Laws generally affecting the rights of creditors and subject to general
equity principles. The MBIA Common Stock to be issued pursuant to this Agreement
will be, when issued, duly authorized, validly issued and fully paid.
Section 5.03. No Violation or Conflict. The execution, delivery and
performance of this Agreement by MBIA and Acquisition do not and will not
conflict with or violate any Law, the Organizational Documents of MBIA,. the
Organizational Documents of Acquisition or any material contract or agreement to
which MBIA or Acquisition is a party or by which either of them is bound.
Section 5.04. Litigation. To the knowledge of MBIA, there are no actions,
suits or proceedings against MBIA or Acquisition, or both, by any Person which
question the validity, legality or propriety of the transactions contemplated by
this Agreement.
Section 5.05. Brokers. No agent, broker, person or firm acting on behalf of
MBIA or Acquisition will be entitled to any brokers,' finders' or any similar
fee in connection with the transactions contemplated by this Agreement except
Berkshire Capital Corporation and Morgan Keegan & Co., Inc., the fees of whom
shall be paid by MBIA.
Section 5.06. SEC Reports and Financial Statements. MBIA has properly and
timely filed with the SEC and has -made available to 1838, 1838, L.P. and the
1838 Stockholders true and complete copies of all forms, reports, schedules,
statements and other documents required to be filed by it and its subsidiaries
since January 1, 1997 (hereinafter referred to collectively, with all
amendments, exhibits and schedules thereto, as the "MBIA SEC Documents"). As of
their respective dates or, if amended, as of the date of the last such
amendment, the MBIA SEC Documents (a) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading and (b) complied as to form in all
material respects with the applicable requirements of the Exchange Act and the
Securities Act, as the case may be, and the applicable rules and regulations of
the SEC thereunder. Each of the consolidated financial statements (including any
related notes and schedules) included in the MBIA SEC Documents complies as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, has
22
<PAGE>
been prepared in accordance with GAAP (except as may be indicated in the notes
thereto and except, in the case of unaudited interim financial statements, as
permitted by Form 10-Q of the SEC) and fairly presents in all material respects
the consolidated financial position and the consolidated results of operations
and cash flows (and changes in financial position, if any) of MBIA and its
consolidated subsidiaries as at the dated thereof or for the periods presented
therein (subject, in the case of unaudited interim financial statements, to
normal year-end adjustments). All material agreements, contracts and other
documents required to be filed as exhibits to any of the MBIA SEC Documents have
been so filed.
Section 5.07. Material Adverse Change. There has been no MBIA Material
Adverse Effect since December 31, 1997.
Section 5.08. MBIA Stock The MBIA Common Stock to be issued pursuant to
this Agreement will be, when issued, duly authorized, validly issued and fully
paid.
Section 5.09. Capitalization The authorized capital stock of MBIA consists
of 200,000,000 shares of MBIA Common Stock and 10,000,000 shares of preferred
stock, par value $1.00 per share. As of April 30, 1998 (i) 97,618,497 shares of
MBIA Common Stock were issued and outstanding, (ii) no shares of MBIA Common
Stock were held in the treasury of MBIA, (iii) options to acquire an aggregate
of 3,909,798 shares of MBIA Common Stock were outstanding pursuant to MBIA's
stock option plans and (iv) no shares of preferred stock were issued and
outstanding. There have been no material changes to the capitalization of MBIA
from April 30, 1998 through the date of this Agreement.
Section 5.10. Certain Tax-Related Matters.
(a) MBIA has no plan or intention to have or permit 1838 to issue
additional shares of its stock after the Merger.
(b) MBIA has no plan or intention to reacquire any of the shares of
MBIA Common Stock issued in the Merger.
(c) MBIA has no plan or intention to liquidate 1838; to merge 1838
with or into another corporation (aside from Acquisition); to sell or
otherwise dispose of the stock of 1838 except for transfers of stock to
corporations controlled by MBIA within the meaning of Code ss. 368(c); or
to cause 1838 to sell or otherwise dispose of any of its assets, except for
disposition made in the ordinary course of business or transfers of assets
to a corporation controlled by 1838 within the meaning of Code ss. 368(c).
(d) Following the Merger, MBIA shall cause 1838 to continue at least
one significant historic business line of 1838, or use a significant
portion of its historic business assets in a business, in each case within
the meaning of Reg. ss. 1.368-1(d) of the Code.
ARTICLE VI
COVENANTS OF 1838
23
<PAGE>
Section 6.01. Conduct of Business of 1838. During the period from the date
of this Agreement and continuing through the Closing Date, except as expressly
contemplated or permitted by this Agreement or with the prior written consent of
MBIA, 1838 shall (a) carry on its and 1838, L.P.'s business in the ordinary
course consistent with prudent business practice; (b) use its best efforts to
preserve its present business organization and relationships; (c) use its best
efforts to keep available the present services of 1838, L.P.'s employees and (d)
use its best efforts to preserve its rights, franchises, goodwill and relations
with 1838, L.P.'s customers and others with whom it conducts business.
Without limiting the generality of the foregoing, except as expressly
permitted by this Agreement or consented to in writing by MBIA, 1838 shall not:
(i) create, renew, amend, terminate or cancel, or take any other
action that may result in the creation, renewal, amendment,
termination or cancellation of, any lease relating to furniture,
fixtures and equipment or contracts to which it or 1838, L.P. is a
party except in the ordinary course of business;
(ii) take any action impairing its or 1838, L.P.'s rights in any
contract or purchased asset other than in the ordinary course of
business;
(iii) purchase or lease or cause 1838, L.P. to purchase or lease
any assets from, or sell or lease any assets to, any affiliate or
seller,
(iv) adopt, amend, renew or terminate any employee program,
agreement, arrangement or policy between 1838, L.P. and one or more of
its employees;
(v) commit any act or omission which constitutes a breach or
default under any contract or license to which it or 1838, L.P. is a
party or by which it or any of its properties is bound the effect of
which could reasonably be expected to cause an 1838, L.P. Material
Adverse Effect;
(vi) commit any act or omission which would materially violate
any applicable law, statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to 1838 or
1838, L.P. or any of their properties, contracts or assets;
(vii) on its own or 1838, L.P.'s behalf, waive any right or
modify or amend any commitment, or incur an material debt or
obligation, in each case other than in the ordinary course of
business;
(viii) guarantee or cause 1838, L.P. to guarantee any material
debt or obligation of any Person;
(ix) voluntarily divest 1838, L.P. of the management of any
mutual fund or other assets currently under management;
(x) cause 1838, L.P. to enter into any new line of business;
24
<PAGE>
(xi) cause 1838, L.P. to increase salary or compensation of any
1838, L.P, employees;
(xii) acquire or agree to acquire in any manner, including by way
of merger, consolidation, purchase of an equity interest or assets,
any business or any corporation, partnership, association or other
business organization or division thereof or cause 1838, L.P. to do
the same; or
(xiii) make or declare any distributions of 1838, L.P. or 1838
assets except that 1838, L.P. may distribute accumulated earnings to
1838, 1838 may dividend such amounts to the 1838 Stockholders and
1838, L.P. and 1838 may declare Stockholder Distribution Obligations
provided, however, such distributions and/or declarations shall not
cause the Excess Working Capital to be less than three million dollars
($3,000,000) on the Closing Date or cause a breach of Section 4.20
hereof
Section 6.02. Approval by Investment Company Contract Clients.
(a) 1838, L.P. will use its best efforts to obtain, as promptly as
practicable, the approval of the Board of Directors and stockholders of
each Fund, pursuant to the provisions of Section 15 of the Investment
Company Act applicable thereto, of new Investment Company Contract
reflecting MBIA's ownership of 1838 which provide for substantially
identical services, at comparable costs, to the Funds to those in effect
immediately prior to the Closing Date.
(b) 1838, L.P. shall use its best efforts to assure, prior to the
Closing Date, the satisfaction of the conditions set forth in Section 15(f)
of the Investment Company Act with respect to each Fund.
Section 6.03. Approval by Investment Advisory Contract Clients. The parties
understand that the Merger will constitute an assignment, within the meaning of
the Advisers Act of the Investment Advisory Contracts. 1838 agrees to cause
1838, L.P. to inform its advisory clients of the transactions contemplated by
this Agreement and to use its best efforts to obtain the consent of its clients
to the assignment of their advisory contracts. Pursuant to such efforts, 1838
will notify advisory clients of the Merger and the resulting assignment of their
contracts and request that such clients furnish their written consent to the
assignments. It is agreed that where clients fail to furnish written consent
prior to the Effective Time of Merger, such non-responding clients will continue
to receive advisory services in accordance with the terms of their respective
contracts and that such non-responding clients will be deemed by the parties to
have consented to the assignment where such client continues to accept such
advisory services for at least 15 days after the Effective Time of Merger.
Clients will be advised by 1838 of the foregoing treatment of their accounts in
the event that they do not provide a response to the consent request. Where a
client advisory contract prohibits an assignment or provides for termination of
the contract upon assignments, 1838 agrees to use its best efforts to convince
clients to enter into new advisory contract with 1838, L.P. prior to the
Effective Time of Merger.
25
<PAGE>
Section 6.04. Insurance. 1838 will ensure that 1838, L.P. maintains in
effect until the Closing Date all casualty and public liability policies
maintained by 1838, L.P. on the date hereof, the purchased assets and the
assumed liabilities, or will procure comparable replacement policies and
maintain such replacement policies in effect until the Closing Date.
Section 6.05. Maintenance of Records. Through the Closing Date, 1838, L.P.
will maintain the records in the same manner and with the same care that the
records have been maintained prior to the execution of this Agreement.
Section 6.06. Full Access. 1838 will permit, and cause 1838, L.P. to permit
representatives of MBIA to have fall access to all premises, properties,
personnel, books, records (including tax and licensing records), contracts and
documents of or pertaining to the 1838, L.P.
Section 6.07. Exclusivity. Unless this Agreement shall be terminated by
mutual consent of the parties hereto, neither 1838 nor the 1838 Stockholders
will solicit, initiate or encourage the submission of any proposal or offer from
any Person relating to the acquisition of the 1838 Common Stock or any
substantial portion of the assets of 1838, L.P. (including any acquisition
structured as a merger, consolidation or share exchange) or participate in any
discussions or negotiations regarding any of the foregoing.
Section 6.08. Accounting Matters. 1838 will use its best efforts to obtain
a letter from Coopers & Lybrand LLP to the effect that 1838 is eligible to be
acquired in a transaction to be accounted for using "pooling of interests"
accounting treatment and will use its best efforts to avoid taking any action
(other than actions contemplated by this Agreement) that would prevent MBIA from
accounting for the business combination to be effected by the Merger as a
pooling of interests.
ARTICLE VII
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF MBIA AND ACQUISITION
All of the agreements and obligations of MBIA under this Agreement are
subject to the fulfillment, on or prior to the Closing Date, of the following
conditions precedent, any or all of which may be waived in whole or in part in
writing by MBIA:
Section 7.01. No Material Adverse Change. No 1838, L.P. Material Adverse
Effect shall have occurred.
Section 7.02. Compliance with Agreement. 1838, 1838, L.P. and the 1838
Stockholders shall have performed and complied with all of the agreements,
covenants and conditions required by this Agreement to be performed or complied
with by them on or prior to the Closing Date, All documentation relating to the
Merger shall be in form and substance acceptable to MBIA and, if applicable,
MBIA's rating agencies.
Section 7.03. Hart Scott Rodino Act. All necessary requirements of the Hart
Scott Rodino Act shall have been complied with and any "waiting periods"
applicable to the Merger and to the transactions described in this Agreement
which are imposed by the Hart Scott Rodino
26
<PAGE>
Act shall have expired prior to the Closing Date or shall have been terminated
by the appropriate agency.
Section 7.04. Pooling Opinion. MBIA shall have received a letter from
Coopers & Lybrand LLP to the effect that no conditions exist that would preclude
accounting for the Merger as a "pooling of interests" if consummated in
accordance with this Agreement and such letter shall not have been withdrawn.
Section 7.05. 1838 Stockholder Approval. All of the 1838 Stockholders shall
have delivered a Selling Stockholder Letter and executed this Agreement.
Section 7.06. 1838 Opinion Letter. MBIA shall have received the 1838
Counsel Opinion dated the Closing Date.
Section 7.07. Approval by 1838, L.P. Is Clients. At least three (3) days
prior to the Closing Date, 1838 must deliver documentation satisfactory to MBIA
certifying that clients representing no more than fifteen percent (15%) of 1838,
L.P.'s revenues as of March 31, 1998, shall have delivered notices of
termination of their advisory contracts as a result of notices of the
acquisition contemplated by this Agreement.
Section 7.08. No Litigation. No court or governmental authority of
competent jurisdiction shall have issued a permanent order restraining,
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement, and no person, firm, corporation or governmental
agency which is not a party to this Agreement shall have instituted an action or
proceeding seeking to restrain, enjoin or prohibit the consummation of the
transactions contemplated by this Agreement.
Section 7.09. Representations and Warranties Accurate. Subject to the final
Disclosure Schedule and the certificate required by Section 3.01 above, the
representations and warranties contained in this Agreement and the information
in the Schedules and Exhibits hereto shall be true and accurate in all material
respects, both on the date hereof and as of the Closing Date.
Section 7.10. Officer's Certificate. 1838 shall have delivered to MBIA an
officer's certificate on behalf of 1838 executed by Brown as President of 1838
certifying to the matters set forth in Section 7.09 above.
Section 7.11. Employment of Key Employees. An employment agreement in form
and substance acceptable to MBIA between 1838 (or MBIA Asset Management
Corporation) and each of the Key Employees must be in full force and effect.
Section 7.12. No Adverse Claims. There must not have been made or
threatened by any entity or person any claim that such person or entity is the
holder, beneficial holder or pledgee of any of the 1838 Stock or the 1838, L.P.
Partnership Interests.
Section 7.13. Additional Documentation. 1838 shall have delivered such
additional documentation as may be reasonably requested by MBIA within a
reasonable timeframe to further effectuate and/or evidence the transactions
contemplated herein and compliance by 1838 and the 1838 Stockholders of their
representations, warranties and obligations hereunder.
27
<PAGE>
Section 7.14. Approval by Board. Any material amendments or modifications
of the terms of the Merger as contemplated by this Agreement must have been
approved by the MBIA board of directors.
Section 7.15. Joint Advisory Agreement. Except as set forth on the
Disclosure Schedule, the Joint Advisory Agreement shall have been terminated
with no remaining obligations of 1838 or 1838, L.P. to any party thereto.
Section 7.16. Purchase of Minority Interest. 1838, MBIA or MBIA's designee
shall have purchased, simultaneous with the Merger, all of the partnership
interests of 1838, L.P. owned by Brown.
Section 7.17. MBIA Common Stock Price. As of the end of the business day
immediately preceding the Closing Date, the market price of MBIA Common Stock as
reported by the New York Stock Exchange shall not be greater than $83.00 per
share or less than $65.00 per share.
Section 7.18. Final Disclosure Schedule. The final disclosure schedule and
the officer's certificate delivered by 1838 pursuant to Section 3.01 hereof
shall not contain any material additional liabilities or potential liabilities
of 1838 or 1838, L.P.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF 1838
AND THE 1838 STOCKHOLDERS
Each and every obligation of 1838 and the 1838 Stockholders to be performed
on the Closing Date shall be subject to the satisfaction prior to or on the
Closing Date of the following express conditions precedent:
Section 8.01. Compliance With Agreement. MBIA and Acquisition shall have
performed and complied in all material respects with all of their obligations
under this Agreement which are to be performed or complied with by them prior to
or on the Closing Date.
Section 8.02. Proceedings and Instruments Satisfactory. All proceedings,
corporate or other, to be taken in connection with the transactions contemplated
by this Agreement, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to the 1838 Stockholders, and MBIA and
Acquisition shall have made available to the 1838 Stockholders for examination
the originals or true and correct copies of all documents which the 1838
Stockholders may reasonably request in connection with the transactions
contemplated by this Agreement.
Section 8.03. No Litigation. No suit, action or other proceeding shall be
pending before any court seeking an injunction or other restraint against the
consummation of the transactions contemplated by this Agreement or seeking
material damages or other material payments as a result of the consummation of
the Merger.
28
<PAGE>
Section 8.04. Representations and Warranties of MBIA and Acquisition. The
representations and warranties made by MBIA and Acquisition in this Agreement
shall be true and correct in all material respects, both on the date hereof and
as of the Closing Date.
Section 8.05. MBIA Opinion Letter. MBIA shall have delivered to the 1838
Stockholders the MBIA Counsel Opinion dated the Closing Date.
Section 8.06. Approvals. UBIA shall have obtained all approvals for the
Merger as are required by its Organizational Documents and by applicable law.
Section 8.07. No Material Adverse Change. No MBIA Material Adverse Effect
shall have occurred.
Section 8.08. MBIA Common Stock Price. As of the business day immediately
preceding the Closing Date, the market price of MBIA Common Stock as reported by
the New York Stock Exchange shall not be greater than $83.00 per share nor less
than $65.00 per share.
Section 8.09. Hart-Scott-Rodino. All necessary requirements of the
Hart-Scott-Rodino Act shall have been complied with any "waiting periods"
applicable to the Merger and the transactions described in this Agreement which
are imposed by the Hart-Scott-Rodino Act shall have expired prior to the Closing
Date or shall have been terminated by the appropriate agency.
Section 8.10. Stockholder Approval. 1838 Stockholders not holding less than
the percentage of 1838 Common Stock required under the Delaware General
Corporation Law for approval of a merger shall have duly approved the terms of
the Merger.
ARTICLE IX
INDEMNIFICATION
Section 9.01. Indemnification by 1838 Stockholders. Each of the 1838
Stockholders (the "Indemnifying Parties") severally agrees to indemnify, defend
and hold harmless MBIA, Acquisition, 1838 and 1838, L.P. (the "Indemnified
Parties") for any loss, liability, claim, obligation, damage (including
incidental and consequential damages), expense (including interest, penalties,
reasonable attorneys' fees and the costs and disbursements thereof) or
diminution in value (collectively, the "Damages"), arising from or in connection
with:
(a) any breach of any representation or warranty concerning 1838,
1838, L.P. and/or such 1838 Stockholder in this Agreement (including all
Schedules and Exhibits hereto) or in any certificate or document delivered
by 183 8 pursuant to this Agreement;
(b) any breach or nonfulfillment of any covenant or obligation of 1838
and/or such 1838 Stockholder under this Agreement;
(c) any misrepresentation in or omission from any certificate or other
instrument furnished or to be furnished to MBIA concerning 1838, 1838, L.P.
or such 1838 Stockholder hereunder;
29
<PAGE>
(d) any claims by MPCM against the Indemnified Parties arising from or
relating to the Joint Advisory Agreement, the Limited Partnership Agreement
or arising from or related to the redemption by MPCM of its 1838, L.P.
Partnership Interests in 1838, L.P. pursuant to the Redemption Agreement.
Section 9.02. Limitation of Indemnification. The Indemnifying Parties as a
whole shall have no liability to the Indemnified Parties with respect to the
matters described in subsections 9.01(a) through (d) above or any other
provisions of this Agreement until the total of all Damages under those
subsections exceeds three hundred thousand dollars ($300,000) and then only for
the amount by which those Damages exceed three hundred thousand dollars
($300,000). The liability of each Indemnifying Party for Damages for which all
Indemnifying Parties are liable shall be a pro rata share of the Damages
determined by such Indemnifying Party's ownership of 1838 Common Stock on the
Closing Date as set forth on Exhibit A hereto. The maximum liability under any
circumstances for each Indemnifying Party shall be limited to an amount
determined as the number of shares of MBIA Common Stock received by such
Indemnifying Party in the Merger times thirty-seven dollars ($37.00).
Section 9.03. Procedure for Indemnification-Third Parties.
(a) In the case of any claim, other than a claim asserted by a third
party, as to which indemnity may be sought by an Indemnified Party, notice
shall be given by the Indemnified Party to the Indemnifying Parties.
(b) Promptly after receipt by an Indemnified Party of any notice of
the commencement of any claim, proceeding or action (a "Proceeding") by a
third party to recover damages which would, if such action is successful,
result in Indemnification Obligations under this Article IX, such
Indemnified Party shall provide notice to the Indemnifying Parties of such
Proceeding. The Indemnified Party shall permit the Indemnifying Party (at
the expense of such Indemnifying Party) to assume the defense of any claim
or any litigation resulting therefrom, provided that (i) the Indemnifying
Party shall make such election within ten (10) days after receipt of the
notice of claim from the Indemnified Party, (ii) the counsel for the
Indemnifying Party who shall conduct the defense of such claim or
litigation shall be reasonably satisfactory to the Indemnified Party, (iii)
the Indemnified Party may participate in such defense at such Indemnified
Party's expense, and (iv) the omission by any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
indemnification obligation under this Agreement except to the extent that
such omission has a material adverse effect on the Indemnifying Party's
ability to defend against such claim.
(c) Except with the prior written consent of the Indemnified parties,
the Indemnifying Parties, in the defense of any such claim or litigation,
shall not consent to entry of any judgment or enter into any settlement
that provides for injunctive or other nonmonetary relief affecting the
Indemnified Party or that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to such Indemnified Party of a
release from all liability with respect to such claim or litigation. In the
event that the Indemnifying Party does not accept the defense of any matter
as above provided, (A) the Indemnified Party shall have the MI right to
defend against any such claim or
30
<PAGE>
demand and shall be entitled to settle or agree to pay in full such claim
or demand after fifteen (15) days prior written notice to the Indemnifying
Parties; and (B) all legal and other expenses reasonably incurred by the
Indemnified Party shall be home by the Indemnifying Party. Notwithstanding
any other provision of this Section 9.03, in the event that the Indemnified
Party shall in good faith determine that the Indemnified Party may have
available to it one or more defenses or counterclaims that are inconsistent
with one or more of those that may be available to the Indemnifying Party
in respect of such claim or any litigation relating thereto, the
Indemnified Party shall have the right at all times to take over and assume
control over the defense, settlement, negotiations or litigation relating
to any such claim at the sole cost of the Indemnified Party, provided that
if the Indemnified Party does so take over and assume control, the
Indemnified Party shall not settle such claim or litigation without the
written consent of the Indemnifying Party, such consent not to be
unreasonably withheld. In any event, the Indemnified Parties and the
Indemnifying Parties shall cooperate in the defense of any claim or
litigation subject to this Section 9.03 and the records of each shall be
available to the other with respect to such defense.
(d) The Indemnifying Parties hereby appoint Brown as their agent for
all notices, consultations and agreements required or permitted under this
Article IX until such time as the Indemnified Parties shall be informed
otherwise in writing, and agree to be bound by his actions and agreements
as agent hereunder.
(e) The Indemnified Parties hereby appoint MBIA as their agent for all
notices, consultations and agreements required or permitted under this
Article IX until such time as the Indemnifying Parties shall be informed
otherwise in writing, and agree to be bound by MBIA's actions and
agreements as agent hereunder.
(f) The Indemnified Parties shall not be entitled to bring any new
claim for Damages arising. from a breach of a representation or warranty,
whether under this Article IX or otherwise, after the survival period with
respect to the representation and warranty giving rise to the claim for
Damages shall have expired as set forth in Section 10.01 hereof.
Section 9.04. Procedures for Claims by Indemnified Parties. Any of the
Indemnified Parties may assert a claim for payment or reimbursement of Damages
by sending notice thereof to the Indemnifying Parties in accordance with
Sections 9.03 and 10.06 hereof The Indemnifying Parties shall have 30 days after
the date any such notice is sent (the "Notice Period") to notify the Indemnified
Parties of any defenses asserted by the Indemnifying Parties to such claim for
Damages. If the notice to the Indemnifying Parties so states, failure by the
Indemnifying Parties to respond within the Notice Period shall be deemed an
admission of liability by the Indemnifying Parties with respect to the claim for
Damages and they shall thereafter be barred from raising any defense or denial
of liability relating thereto.
Section 9.05. Indemnification by MBIA.
(a) M13IA agrees to indemnify each 1838 Stockholder for all Damages
incurred by such 1838 Stockholder arising from or in connection with:
31
<PAGE>
(i) any breach of any representation or warranty made by MBIA in
this Agreement or any certificate or document delivered by MBIA
pursuant to this Agreement; and
(ii) any breach or nonfulfillment of any covenant or obligation
of MBIA under this Agreement.
(b) The 1838 Stockholders may assert a claim for payment or
reimbursement for Damages by sending notice thereof to MBIA and MBIA shall
have thirty (30) days after the date of such notice to notify the 1838
Stockholders of any defenses asserted by MBIA to the 1838 Stockholders'
claim for Damages. If the notice to MBIA so states, failure by MBIA to
respond within such thirty (30) day period shall be deemed an admission of
liability of MBIA with respect to the Damages and it shall thereafter be
barred from raising any defense or denial of liability relating thereto.
(c) The 1838 Stockholders shall not be entitled to bring any new claim
for Damages arising from a breach of a representation or warranty, whether
under this Article IX or otherwise, after the survival period with respect
to the representation and warranty giving rise to the claim for Damages
shall have expired as set forth in Section 10.01 hereof.
(d) The maximum liability of MBIA to each 1838 Stockholder under this
Section 9.05 shall be limited to an amount determined as the number of
shares of M131A Common Stock received by such 1838 Stockholder in the
Merger' multiplied by thirty seven dollars ($37.00).
Section 9.06. Exclusive Remedies. The indemnification rights set forth in
this Article IX shall be the sole and exclusive remedy for the matters set forth
in Sections 9.01 and 9.05 hereof, provided, however, that nothing in this
Article IX shall limit the remedies available to the Indemnified Parties or the
1838 Stockholders with respect to (i) claims of alleged fraud or deceit with
respect to the Merger, (ii) actions seeking specific performance of this
Agreement or any provision hereof, (iii) remedies available to the Indemnified
Parties or the 1838 Stockholders to enforce their right to indemnification and
(iv) remedies available to the 1838 Stockholders under any applicable Securities
Laws.
ARTICLE X
MISCELLANEOUS
Section 10.01. Survival of Representations, Warranties and Covenants. The
representations and warranties of 1838, the 1838 Stockholders, MBIA and
Acquisition contained in or made pursuant to this Agreement will survive the
Closing Date for a period of the lesser of (i) twelve (12) months or (ii) the
date of issuance of the first audited financial statements of MBIA following the
Merger regardless of any investigation made by or on behalf of the parties
hereto or the results of any such investigation, and the participation of either
party in such investigation will not constitute a waiver of any representation
or warranty of any other party. MBIA and 1838 shall each deliver to the other
party, on the Closing Date, a certificate stating
32
<PAGE>
that, as of the Closing Date, such party has no knowledge of any breach of the
other party's representations and warranties herein or, if such party has
knowledge of a breach, specifying any such breaches to which the party has
knowledge. The respective covenants and agreements of the 1838 Stockholders and
MBIA set forth in this Agreement (including, without limitation, Section 2.12
and all provisions of Article IX) shall survive the consummation of the
transactions contemplated by this Agreement.
Section 10.02. Entire Agreement; Amendment. This Agreement and the
documents referred to in this Agreement and required to be delivered pursuant to
this Agreement constitute the entire agreement among the parties pertaining to
the subject matter of this Agreement, and supersede all prior and
contemporaneous agreements, understandings, negotiations and discussions of the
parties, whether oral or written, and there are no warranties, representations
or other agreements between the parties in connection with the subject matter of
this Agreement, except as specifically set forth in this Agreement. No
amendment, supplement, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision of this Agreement, whether or not
similar, nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided. At any time prior to the Effective Time of Merger, the
Boards of Directors of the constituent corporations to the Merger may amend this
Agreement, provided that any amendment made subsequent to the adoption of this
Agreement by the 1838 Stockholders shall not (1) alter or change the amount or
kind of shares, securities, cash, property and/or rights to be received in
exchange for or on conversion of all or any of the shares of 1838 Common Stock,
(2) alter or change any term of the certificate of incorporation of the
Surviving Corporation to be effected by the Merger, or (3) alter or change any
of the terms and conditions of this Agreement if such alteration or change would
adversely affect the holders of any class of such constituent corporation.
Section 10.03. Expenses. MBIA, Acquisition, 1838 and the 1838 Stockholders
shall each pay their respective expenses incurred in connection with the
negotiation and preparation of this Agreement and the consummation of the
transactions contemplated hereby, including, without limitation, their
respective legal fees, expenses, commissions and filing fees regardless of
whether such transactions are consummated. MBIA shall pay all fees associated
with the Hart-Scott-Rodino filing and up to ten thousand dollars ($10,000) of
1838's accounting fees incurred in connection with the Merger.
Section 10.04. Governing Law. This Agreement shall be construed and
interpreted according to the Laws of the State of Delaware except that the
provisions of Section 2.12 hereof shall be governed by the laws of the
Commonwealth of Pennsylvania.
Section 10.05. Assignment. Neither MBIA nor 1838 may assign any of their
rights, liabilities or obligations under this Agreement without the prior
written consent of the other parties hereto, except that MBIA may assign its
rights to any entity or person affiliated with it.
Section 10.06. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when personally
33
<PAGE>
delivered or deposited in the United States Mail, mailed first class, certified
and return receipt requested, addressed as follows:
If to MBIA or Acquisition: MBIA Inc.
113 King Street
Armonk, NY 10504
Attention: Peggy D. Garfunkel
with a copy to: MBIA Inc.
113 King Street
Armonk, NY 10504
Attention: General Counsel
If to 1838, 1838 Stockholders 1838 Investment Advisors, Inc.
or the Indemnifying Parties: Radnor Corporate Center, Suite 320
Radnor, PA 19087
Attention: W. Thacher Brown
with a copy to: Drinker, Biddle & Reath
Suite 300
1000 Westlakes Drive
Berwyn, PA 19312
Attention: Thomas E. Wood, Esq.
Section 10.07. Counterparts, Headings. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, but such
counterparts shall together constitute but one and the same Agreement. The table
of contents and article and section headings in this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
Section 10.08. Interpretation. Unless the context requires otherwise, all
words used in this Agreement in the singular number shall extend to and include
the plural, all words in the plural number shall extend to and include the
singular, and all words in any gender shall extend to and include all genders.
The language used in this Agreement shall be deemed to be language chosen by the
parties to this Agreement to express their mutual intent. In the event an
ambiguity or question of intent or interpretation arises concerning the language
of this Agreement, this Agreement shall be construed as if drafted jointly by
the parties to this Agreement and no presumption or burden of proof will arise
favoring or disfavoring any party to this Agreement by virtue of the authorship
of any of the provisions of this Agreement.
Section 10.09. Severability. If any provision, clause or part of this
Agreement, or the application thereof under certain circumstances, is held
invalid, the remainder of this Agreement, or the application of such provision,
clause or part under other circumstances, shall not be affected thereby unless
such invalidity materially impairs the ability of the parties to consummate the
transactions contemplated by this Agreement.
34
<PAGE>
Section 10.10. Further Assurances. If, at any time after the Closing Date,
any farther action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, properties, rights, privileges, powers and franchises
of either Acquisition or 1838, the officers of the Surviving Corporation are
fully authorized to take any such action in the name of Acquisition or 1838.
Section 10.11. Waivers. No failure or delay on the part of any party in
exercising any right, power or remedy hereunder will operate as a waiver
thereof, nor will any single or partial exercise of any right, power or remedy
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy hereunder.
Section 10.12. Successors In Interest. This Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective legal
representatives, heirs, successors and permitted assigns.
Section 10.13. ACKNOWLEDGEMENT BY 1838 STOCKHOLDERS. BY THEIR EXECUTION OF
THE SELLING STOCKHOLDER LETTER, EACH OF THE 1838 STOCKHOLDERS (1) APPROVES THE
TERMS OF THE MERGER AS SET OUT HEREIN, (11) ACKNOWLEDGES AND AGREES TO THE
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE 1838 STOCKHOLDERS SET OUT
HEREIN AND (III) AGREES TO BE BOUND BY THE NONSOLICITATION PROVISIONS IN SECTION
2.10 (IF APPLICABLE) AND THE INDEMNIFICATION PROVISIONS OF ARTICLE IX HEREOF.
THE 1838 STOCKHOLDERS FURTHER ACKNOWLEDGE THAT THIS AGREEMENT IS A LEGALLY
BINDING DOCUMENT AND THAT THEY HAVE CONSULTED WITH LEGAL COUNSEL REGARDING THIS
AGREEMENT TO THE EXTENT THEY DEEM APPROPRIATE.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE PAGE FOLLOWS]
35
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of
Reorganization to be duly executed as of the day and year first above written.
MBIA INC.
Attest:
By: /s/[ILLEGIBLE]
By: /s/ Louis G. Lenzi ----------------------------
---------------------------
Secretary
MBIA ACQUISITION, INC.
Attest:
By: /s/ Margaret D. Garfunkel
By: /s/ Louis G. Lenzi ----------------------------
--------------------------- Title: Vice President
Secretary --------------------------
1838 INVESTMENT ADVISORS, INC.
Attest:
By:
By: /s/ [ILLEGIBLE] -----------------------------
----------------------------- Title: /s/ [ILLEGIBLE]
--------------------------
Certificate of the Secretary
of
MBIA Acquisition, Inc.
I, the undersigned, as Secretary of MBIA Acquisition Inc. ("Acquisition"),
hereby certify that the Agreement and Plan of Merger dated as of June 18, 1998
(the "Agreement") between MBIA Inc., 1838 Investment Advisors, Inc. and
Acquisition has been adopted by Acquisition, pursuant to Section 251(f) of the
Delaware General Corporation Law. I certify further that no shares of
Acquisition were outstanding prior to the adoption of the resolution, dated as
of June 19, 1998, approving the Agreement by the Board of Directors of
Acquisition.
DATED as of this, 19th day of June, 1998.
/s/ Louis G. Lenzi
--------------------------------
Louis G. Lenzi, Secretary
<PAGE>
The 1838 Stockholders hereby acknowledge their nonsolicitation (if
applicable) and indemnification obligations under Section 2.12 and Article 9,
respectively of this Agreement, and agree to be bound by the terms thereof.
/s/ W. Thacher Brown
--------------------------
W. Thacher Brown
/s/ John Springrose
--------------------------
John Springrose
/s/ George W. Gephart, JR
--------------------------
George W. Gephart, JR
/s/ Cynthia R. Axelrod
--------------------------
Axelrod, Cynthia R.
/s/ Anna M. Bencrowsky
--------------------------
Bencrowsky, Anna M.
/s/ Michael F. Biemer
--------------------------
Biemer, Michael F.
/s/ J. Barron Clancy
--------------------------
Clancy, J. Barron
/s/ Thomas A. Considine
--------------------------
Considine, Thomas A.
/s/ Frederic N. Dittman
--------------------------
Dittmann, Frederic N.
/s/ John H. Donaldson
--------------------------
Donaldson, John H.
/s/ Joseph T. Doyle, Jr.
--------------------------
<PAGE>
Doyle, Jr. Joseph T.
/s/ Kenneth A. Egan
--------------------------
Egan, Kenneth A.
/s/ Robert W. Herz
--------------------------
Herz, Robert W.
/s/ Stephen D. Kepes
--------------------------
Kepes, Stephen D.
/s/ Amy B. Lieb
--------------------------
Lieb, Amy B.
/s/ John J. McElroy
--------------------------
McElroy, John J.
/s/ Rhonda McNavish
--------------------------
McNavish, Rhonda
/s/ James E. Moore, III
--------------------------
Moore, III, James E.
/s/ Patricia J. Myers
--------------------------
Myers, Patricia J.
/s/ Edward Powell
--------------------------
Powell, Edward
/s/ Nancy W. Tetley
--------------------------
Tetley, Nancy W.
/s/ Hnas Van Den Berg
--------------------------
Van Den Berg, Hans
2
<PAGE>
/s/ Denise E. White
--------------------------
White, Denise E.
/s/ Marcia Zercoe
--------------------------
Zercoe, Marcia
3
<PAGE>
EXHIBITS AND SCHEDULES
Disclosure Schedule
Exhibit A 1838 Shareholder List (Current and Former)
Exhibit A-1 Nonsoliciting Shareholder List
Exhibit 13 Plan of Merger
Exhibit C Furniture, Fixtures and Equipment
Exhibit D Customer Contracts
Exhibit E Selling Stockholder Letter
<PAGE>
PRELIMINARY DISCLOSURE SCHEDULE
6/19/98
This Disclosure Statement is made and given pursuant to the Agreement and Plan
of Merger dated June 19, 1998 by and among MBIA Inc.. MBIA Acquisition, Inc. and
1838 Investment Advisors. Inc. (the "Agreement"). The section numbers in this
Disclosure Schedule correspond to the section numbers in the Agreement; however,
any information disclosed herein under any section number shall be deemed to be
disclosed and incorporated into any other schedule number under the Agreement
where such disclosure would be appropriate. Any term defined in the Agreement
shall have the same meaning when used in this Disclosure Schedule as when used
in the Agreement unless the context otherwise requires.
4.02 1838 Inc, had to accelerate our payments to Jim Balog in order to do deal
with MBIA.
4.05 1938 LP owns shares in the 1838 International Fund.
4.06 Stockholders' Agreement
4.07 Edward Shute, a former employee of 1838 who was terminated in 1993 has
periodically threatened legal action for wrongful termination and
inadequate reimbursement for his stock.
4.08 1997 Financial Statements were provided to MBIA. As indicated in Sec.
4.1.0 the MPCM loan and stockholder (partner) distribution obligations
total $15,758,442.
4.09 See Schedule 4.09 1838 leased additional space contagious to its current
office space on June 1, 1998. As part of the lease, 1839 has a building
allowance of $5 per square foot. There is no provision on the balance
sheet for build out expenses or furniture.
4.10 See Schedule 4.10. 1838 LP is restricted from solicitation activities in
the Netherlands. 1838 LP has a verbal agreement with Ken Egan, a retired
employee, to pay finders fees on certain accounts so long as they remain
with 1838 LP.
4.11 1838 LP may be in default with respect to the One Meridian Bank lease.
Total liability was less than $75,000 in 1991 dollars.
4.13 See Schedule 4.13
4.14 See Schedule 4.14
4.16 (iii) List of Tax Returns -
1838 LP:
Federal - 1065 US Partnership Return of Income
State - PA-65 Commonwealth of PA Partnership Information Return
Local - Radnor Business Privilege Tax (Gross Receipts)
1838 Inc,
Federal 1120S - US Income Tax S-Corp
State - RCT-101 PA Corp Tax Report (Capital Stock Tax)
State - Delaware Annual Franchise Tax Report
(v) The 12/31/97 basis of 1838 LP's assets are: Invested = IV $563,123,
Investment in International Fund $121,142. The 12/31/97 basis of 1838
Inc. is investment in 1838 LP of $4,731,354.
<PAGE>
4-17 Edward Shute has asserted various claims against 1838 Inc. (see 4.07) One
current and one former employee have complained of verbal harrassment
from their supervisor. The matter was resolved and the current employee
cliams the situation has not recurred.
4.19 The minutes book may not be complete, particularly prior to the 1991
office fire
4.22 See schedule 4,22. American College of Cardiology will be reducing assets
by approximately 35%.
4.23 Several family members of 1838 employees are investment advisory clients
of 1839 LP.
4.25 1838 has hired three summer employees. In addition, 1938 is searching to
fill two vacant clerical positions and one equity analyst position.
4.27 See Schedule 4.27
4.32 1838 acts as advisor to the following funds: 1838 Investment Advisors
Fund 1838 Bond Debenture Trading Fund 1838 acts as sub-advisor to the
following funds: Market Street Fund SEI Small Cap Value Fund
4.32 (b) Rodney Square, administrator to the 1838 Funds failed to timely
comply with blue sky regulations in various states.
4.35 With regard to year 2000 compliance, 1838 Investment Advisors in-house
systems are recently developed and have taken year 2000 into
consideration. Conversion to Access 8 from Access 2 brings these
applications into compliance. Over the past two years our equipment and
infrastructure (including telecommunications and voice mail) have been
either upgraded or newly purchased addressing year 2000 issues in the
process. The Novell server 3.1.2 will be certified Y2K compliant by
Novell, with patches. However, we are moving to an NT environment prior
to Y2K, which Microsoft states is "compliant or compliant with minor
issues." The latest release of GIM2 (5.3.0.14), the firm's portfolio
accounting system, brings the application to full compliance. We are in
the process of installing and testing the application. We anticipate this
will be completed by July 15. We are in contact and working with our data
providers and institutional interfaces (DTC), to ensure compliance with
these systems. 1838 LP has not assessed operating and technology systems
used by vendors to or clients of 1838, i.e. brokers, custodians. DTC,
etc. We are contracting with JVC Consulting for a Y2K audit to be
completed by the end of July. The purpose of the audit will be to certify
our findings or identify any exposure we may have missed.
4.37 Edward Shute is the only shareholder who has threatened claims against
1838. Shareholder sales since 1993 are detailed on exhibit 4.37. Other
former stockholders include Edward Shute, Robert Vitale and Joan
Echevarria.
7.15 1938 LP remains party to a continuing investment management agreement
with Fortis, Inc., successor to MPCM.
<PAGE>
Depreciation for 1838 on MeesPierson Assets for 1998
<TABLE>
<CAPTION>
Date of
Original Cost Life Service January February March April May
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MeesPierson Computer Equipment
Printer 1,299.00 5 11/93 21.65 21.65 21.65 21.65 21.65
Model & 486 DX2 2,087.85 5 7/94 34.80 34.80 34.80 34.80 34.80
Total 3,385.85 56.45 56.45 56.45 56.45 56.45
MeesPierson Software
General Ledger Software 18,698.30 5 7/93 311.64 311.64 311.64 311.64 311.64
Software 608.54 3 5/94
Custom Report Software 600.00 3 3/94
Software Upgrade 742.70 3 9/94
Network Upgrade 1,908.00 5 1/95 31.80 31.80 31.80 31.80 31.80
Total 22,557.54 343.44 343.44 343.44 343.44 343.44
MeesPierson Office Furn & Equip
Chair 1,203.10 7 1/91 14.32
Bookcase 543.00 7 2/91 6.46 6.46
Side Chair 782.00 7 2/91 9.31 9.31
Chairs 450.25 7 5/91 5.36 5.36 5.36 5.36 5.36
English & 473.36 7 2/92 5.64 5.64 5.64 5.64 5.64
Desk 66 x 1,447.71 7 4/92 17.23 17.23 17.23 17.23 17.23
Modular T 348.76 7 4/92 4.15 4.15 4.15 4.15 4.15
Wing Chair 1,519.41 7 4/92 18.09 18.09 18.09 18.09 18.09
Arm Chair 1,348.22 7 4/92 16.05 16.05 16.05 16.05 16.05
Bookcase 524.30 7 4/92 6.24 6.24 6.24 6.24 6.24
Copier 10,265.50 5 5/92
Fax Machine 2,200.00 5 5/92
Fax Machine 535.00 5 7/92
Credenza & other att - 2 7,195.75 7 9/93 85.66 85.66 85.66 85.66 85.66
Credenza & other att - 2 4,626.50 7 11/93 55.08 55.08 55.08 55.08 55.08
Custom 3 1,678.57 1 1/95
Total 35,141.43 243.59 229.27 213.50 213.50 213.50
<CAPTION>
June July August September October November December
<S> <C> <C> <C> <C> <C> <C> <C>
Printer 21.65 21.65 21.65 21.65 21.65
Model & 486 DX2 34.80 34.80 34.80 34.80 34.80 34.80 34.80
Total 56.45 56.45 56.45 56.45 56.45 34.80 34.80
MeesPierson Software
General Ledger Software 311.64
Software
Custom Report Software
Software Upgrade
Network Upgrade 31.80 31.80 31.80 31.80 31.80 31.80 31.80
Total 343.44 31.80 31.80 31.80 31.80 31.80 31.80
MeesPierson Office Furn & Equip
Chair
Bookcase
Side Chair
Chairs
English & 5.64 5.64 5.64 5.64 5.64 5.64 5.64
Desk 66 x 17.23 17.23 17.23 17.23 17.23 17.23 17.23
Modular T 4.15 4.15 4.15 4.15 4.15 4.15 4.15
Wing Chair 18.09 18.09 18.09 18.09 18.09 18.09 18.09
Arm Chair 16.05 16.05 16.05 16.05 16.05 16.05 16.05
Bookcase 6.24 6.24 6.24 6.24 6.24 6.24 6.24
Copier
Fax Machine
Fax Machine
Credenza & other att - 2 85.66 85.66 85.66 85.66 85.66 85.66 85.66
Credenza & other att - 2 55.08 55.08 55.08 55.08 55.08 55.08 55.08
Custom 3
Total 208.14 208.14 208.14 208.14 208.14 208.14 208.14
</TABLE>
SMH/Deprec98/MPCM/6/11/98
<PAGE>
New Computer Software-1998
105-5101 Deprec. Exp of
100-1517 Accum Deprec. On New Computer Software
<TABLE>
<CAPTION>
Date of
Original Cost Life Service January February March April May
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New Computer Software
Integrated Decision Systems 139,542.00 5 08/94 2,325.70 2,325.70 2,325.70 2,325.70 2,325.70
Reflects 25% Discount
$20,130 is for Informix
JVC-Software to connt Unix S 738.03 5 06/94 12.30 12.30 12.30 12.30 12.30
IDS Star 5.02 (Software) 1,960.00 3 07/94
IDS NET (DOS) 4.10DDB (S 1,995.00 3 07/94
JVC-Palindrome UG 2.06 757.00 3 12/94
Novell GRP Win Upgrade 2,890.99 3 03/95 60.31 60.31
Mobius Group M-Search Up 4,750.00 3 6/95 131.94 131.94 131.94 131.94 131.94
Zonics System Management 1,531.70 3 6/95 42.55 42.55 42.55 42.55 42.55
Zonics System Management 7,072.85 3 7/95 196.47 196.47 196.47 196.47 196.47
Zonics System Management 8,379.30 3 7/95 232.76 232.76 232.76 232.76 232.76
Zonics System Management 6,667.40 3 7/95 185.21 185.21 185.21 185.21 185.21
Zonics System Management 8,379.30 3 7/95 232.76 232.76 232.76 232.76 232.76
Great Plains Version 8 Upgr 1,515.27 3 6/95 46.60 46.60 46.60 46.60 46.60
IDS Globalized Data Conver 1,875.00 3 8/95 52.08 52.08 52.08 52.08 52.08
IDS Rating Analysis and Mar 2,812.50 3 8/95 78.13 78.13 78.13 78.13 78.13
Zonics System Management 5,360.95 3 9/95 148.92 148.92 148.92 148.92 148.92
IDS Asset Alloc. Block Spec 837.50 3 9/95 26.04 26.04 26.04 26.04 26.04
Decision Systems Compsoft 22,500.00 3 7/95 625.00 625.00 625.00 625.00 625.00
IDS Custom Trans. Ledger 2,250.00 3 10/95 62.50 62.50 62.50 62.50 62.50
IDS Portfolio Changes Repor 3,187.50 3 10/95 88.54 88.54 88.54 88.54 88.54
IDS DTC, Autotasking, Swe 662.50 3 10/95 23.96 23.96 23.96 23.96 23.96
IDS Globalize Data Conversi 625.00 3 10/95 17.36 17.36 17.36 17.36 17.36
Informix Runtime Intel Windo 3,556.94 3 11/95 98.80 98.80 98.80 98.80 98.80
JVC Tech Microsoft Win for 495.99 3 6/96 13.76 13.76 13.76 13.76 13.76
IDS Users 33-64 Upgrade 24,059.30 3 6/96 668.31 668.31 668.31 668.31 668.31
Integrated Decision Systems 19,000.00 3 6/97 528.00 528.00 528.00 528.00 528.00
Financial Models-Auto Reco 25,000.00 3 8/97 694.00 694.00 694.00 694.00 694.00
JVC Tech Novell Netware V 2,281.12 3 12/97 63.36 63.36 63.36 63.36 63.36
Capital Mgmt-CMS BondEdg 2,509.00 3 12/97 69.70 69.70 69.70 69.70 69.70
Informix 27,044.76 3 1/98 751.36 751.36 751.36 751.24
SQL 4.20.UC1 License Sun Microsystems SN #AAC#J269824
Online 5.10.UC1 Development/User Lic SN #AAC#R269825
Star TCP/IP 5.10.UC1 Dev/User Lic SN #AAC#N269826
Monthly Total 330,536.30 4,419.36 5,170.72 5,090.29 5,090.29 5,090.29
<CAPTION>
June July August September October November December
<S> <C> <C> <C> <C> <C> <C> <C>
Integrated Decision Systems 2,325.70 2,325.70 2,325.70 2,325.70 2,325.70 2,325.70 2,325.70
Reflects 25% Discount
$20,130 is for Informix
JVC-Software to connt Unix S 12.30 12.30 12.30 12.30 12.30 12.30 12.30
IDS Star 5.02 (Software)
IDS NET (DOS) 4.10DDB (S
JVC-Palindrome UG 2.06
Novell GRP Win Upgrade
Mobius Group M-Search Up
Zonics System Management
Zonics System Management 196.47
Zonics System Management 232.76
Zonics System Management 185.21
Zonics System Management 232.76
Great Plains Version 8 Upgr
IDS Globalized Data Conver 52.08 52.08
IDS Rating Analysis and Mar 78.13 78.13
Zonics System Management 148.92 148.92 148.92
IDS Asset Alloc. Block Spec 26.04 26.04 26.04
Decision Systems Compsoft 625.00
IDS Custom Trans. Ledger 62.50 62.50 62.50 62.50
IDS Portfolio Changes Repor 88.54 88.54 88.54 88.54
IDS DTC, Autotasking, Swe 23.96 23.96 23.96 23.96
IDS Globalize Data Conversi 17.36 17.36 17.36 17.36
Informix Runtime Intel Windo 98.80 98.80 98.80 98.80 98.80
JVC Tech Microsoft Win for 13.76 13.76 13.76 13.76 13.76 13.76 13.76
IDS Users 33-64 Upgrade 668.31 668.31 668.31 668.31 668.31 668.31 668.31
Integrated Decision Systems 528.00 528.00 528.00 528.00 528.00 528.00 528.00
Financial Models-Auto Reco 694.00 694.00 694.00 694.00 694.00 694.00 694.00
JVC Tech Novell Netware V 63.36 63.36 63.36 63.36 63.36 63.36 63.36
Capital Mgmt-CMS BondEdg 69.70 69.70 69.70 69.70 69.70 69.70 69.70
Informix 751.24 751.24 751.24 751.24 751.24 751.24 751.24
SQL 4.20.UC1 License Sun Microsystems SN #AAC#J269824
Online 5.10.UC1 Development/User Lic SN #AAC#R269825
Star TCP/PIP 5.10.UC1 Dev/User Lic SN #AAC#269826
Monthly Total 4,869.20 3,397.00 3,266.79 3,091.83 2,699.47 2,800.67 2,800.67
</TABLE>
SMH/Deprec98/Software/6/11/98
<PAGE>
Furniture/Fixtures Small Cap - 1998
400-1515 Accum. Dep. F/F Small Cap
400-5100 Deprec. Exp F/F Small Cap
<TABLE>
<CAPTION>
Date of
Original Cost Life Service January February March April May
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Furniture/Fixture
JRC Furniture 874.15 5 11/94 14.57 14.57 14.57 14.57 14.57
Computer Equip
Vircom HP Lase 1,797.99 3 2/98 49.74 49.95 49.95
SMH/Deprec98/Small cap/6/11/98
<CAPTION>
June July August September October November December
<S> <C> <C> <C> <C> <C> <C> <C>
Furniture/Fixture
JRC Furniture 14.57 14.57 14.57 14.57 14.57 14.57 14.57
Computer Equip
Vircom HP Lase 49.95 49.95 49.95 49.95 49.95 49.95 49.95
</TABLE>
SMH/Deprec98/Small cap/6/11/98
<PAGE>
Furniture/Fixtures Marketing - 1998
1515-300 Accum. Dep. F/F Marketing
5100-300 Deprec. Exp F/F Marketing
<TABLE>
<CAPTION>
Date of
Original Cost Life Service January February March April May
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Furniture/Fixture
J. Rothbard Conf Table & Base 749.98 5 7/96 50.00 12.50
J. Rothbard Pedestal File JHS 640.88 5 10/96 42.72 10.68
Total 1,390.74 62.72 23.18
Computer Equipment Depreciation-Marketing 1998
300-1515 Accum. Dep. Computers
300-5101 Depreciation Exp. Computers
Gateway 2000 3,427.49 5 11/96 57.12 57.12 57.12 57.12 57.12
Gateway Solo 9100 S5 Portable 5,132.00 3 10/97 144.50 142.50 142.50 142.50 142.50
Gateway -1 GP6 300 System 3,638.00 3 10/97 103.00 101.00 101.00 101.00 101.00
Gateway - GP6 300 System 3,257.00 3 1/98 90.55 90.47 90.47 90.47
Total 15,454.49 304.62 391.17 391.09 391.09 391.09
<CAPTION>
June July August September October November December
<S> <C> <C> <C> <C> <C> <C> <C>
Furniture/Fixture
J. Rothbard Conf Table & Base 12.50 12.50 12.50 12.50 12.50 12.50 12.50
J. Rothbard Pedestal File JHS 10.68 10.68 10.68 10.68 10.68 10.68 10.68
Total 23.18 23.18 23.18 23.18 23.18 23.18 23.18
Computer Equipment Depreciation-Marketing 1998
300-1515 Accum. Dep. Computers
300-5101 Depreciation Exp. Computers
Gateway 2000 57.12 57.12 57.12 57.12 57.12 57.12 57.12
Gateway Solo 9100 S5 Portable 142.50 142.50 142.50 142.50 142.50 142.50 142.50
Gateway -1 GP6 300 System 101.00 101.00 101.00 101.00 101.00 101.00 101.00
Gateway - GP6 300 System 90.47 90.47 90.47 90.47 90.47 90.47 90.47
Total 391.09 391.09 391.09 391.09 391.09 391.09 391.09
</TABLE>
SMH/Deprec98/Mktg/6/11/98
<PAGE>
Leasehold Improvements Depreciation 1998
100-1525 Accumulated Amort. Leasehold
100-5102 Amort. Exp. Leasehold
<TABLE>
<CAPTION>
Date of
Original Cost Life Service January February March April May
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leasehold Improvements
Wiring - JVC 17,606.64 120.00 12/91 146.72 146.72 146.72 146.72 146.72
Build Out for MeesPierson 3,660.00 84.00 12/94 43.57 43.57 43.57 43.57 43.57
G. Erickson & Sons Construction-Deposit 12,437.00 66.00 6/96 193.23 193.23 193.23 193.23 193.23
G. Erickson & Sons Construction-Final Payment 18,342.61 66.00 6/96 300.51 300.51 300.51 300.51 300.51
Monthly Total 52,046.25 684.03 684.03 684.03 684.03 684.03
<CAPTION>
June July August September October November December
<S> <C> <C> <C> <C> <C> <C> <C>
Leasehold Improvements
Wiring - JVC 146.72 146.72 146.72 146.72 146.72 146.72 146.72
Build Out for MeesPierson 43.57 43.57 43.57 43.57 43.57 43.57 43.57
G. Erickson & Sons Construction-Deposit 193.23 193.23 193.23 193.23 193.23 193.23 193.23
G. Erickson & Sons Construction-Final Payment 300.51 300.51 300.51 300.51 300.51 300.51 300.51
Monthly Total 684.03 684.03 684.03 684.03 684.03 684.03 684.03
</TABLE>
SMH/Deprec98/Leasehold/6/11/98
<PAGE>
IS Computer Equipment Depreciation - 1998
100-5101 Depreciation Exp. Computers
100-1516 Accum. Deprec. Computers IS
<TABLE>
<CAPTION>
Date of
Original Cost Life Service January February March April May
<S> <C> <C> <C> <C> <C> <C> <C> <C>
IS Computer Equipment
Micro Computer Industries 42,634.00 5 06/94 710.57 710.57 710.57 710.57 710.57
Micro Computer Industries (TAX) 2,558.04 5 07/94 42.63 42.63 42.63 42.63 42.63
JVC- Exabyte ext 4200C 2-4GB 1,253.00 3 12/94
JVC- 3COM Etherlink-Card Server 1,854.27 3 12/94
Cartel System CPU Fan, Motherboard 10,176.00 5 1/95 169.60 169.60 169.60 169.60 169.60
Cartel System Motherboard Qty 5 10,176.00 5 2/95 169.60 169.60 169.60 169.60 169.60
JVC Kalpana EPS Ether SW Sport 2,336.24 5 7/95 38.93 38.93 38.93 38.93 38.93
Cartel Sys. 486 DX2-66 Comp. 10,176.00 5 3/95 169.60 169.60 169.60 169.60 169.60
Intersolv Conversion DB Tool Kit 5,678.26 5 6/95 94.64 94.64 94.64 94.64 94.64
Cartel System 4,070.40 5 10/95 67.64 67.64 67.64 67.64 67.64
Dell Direct CUS-HD Qty 1 821.50 5 10/95 13.69 13.69 13.69 13.69 13.69
Surestore 2000E 2GB Tape Dr.SN#P 1,114.70 3 2/97 30.96 30.96 30.96 30.96 30.96
MovinColl Portable AC Unit 2,326.70 3 11/97 63.95 63.95 63.95 63.95 63.95
Peripheral Ultra 2 Model 300 Series 22,967.38 5 1/98 382.18 382.18 382.18 382.18
Peripheral Tape Drive, Monitor 4,784.84 5 1/98 79.59 79.75 79.75 79.75
Cleo 3780 Plus Interface w/Sync Cabl 2,114.70 3 2/98 58.75 58.75 58.75
Ethernet Switch 3,402.50 3 3/98 95.00 94.50
Sun 9gb Disk Drive 2,141.13 3 4/98 59.33
Cisco 2516 Router 2,149.50 3 4/98 59.65
4 Baystack 350T StandAlone/Rackm 6,955.45 3 4/98 248.76
Monthly Total 141,690.61 1,572.01 2,033.78 2,093.01 2,188.31 2,555.85
<CAPTION>
June July August September October November December
<S> <C> <C> <C> <C> <C> <C> <C>
IS Computer Equipment
Micro Computer Industries 710.57 710.57 710.57 710.57 710.57 710.57 710.57
Micro Computer Industries (TAX) 42.63 42.63 42.63 42.63 42.63 42.63 42.63
JVC- Exabyte ext 4200C 2-4GB
JVC- 3COM Etherlink-Card Server
Cartel System CPU Fan, Motherboard 169.60 169.60 169.60 169.60 169.60 169.60 169.60
Cartel System Motherboard Qty 5 169.60 169.60 169.60 169.60 169.60 169.60 169.60
JVC Kalpana EPS Ether SW Sport 38.93 38.93 38.93 38.93 38.93 38.93 38.93
Cartel Sys. 486 DX2-66 Comp. 169.60 169.60 169.60 169.60 169.60 169.60 169.60
Intersolv Conversion DB Tool Kit 94.64 94.64 94.64 94.64 94.64 94.64 94.64
Cartel System 67.64 67.64 67.64 67.64 67.64 67.64 67.64
Dell Direct CUS-HD Qty 1 13.69 13.69 13.69 13.69 13.69 13.69 13.69
Surestore 2000E 2GB Tape Dr.SN#P 30.96 30.96 30.96 30.96 30.96 30.96 30.96
MovinColl Portable AC Unit 63.95 63.95 63.95 63.95 63.95 63.95 63.95
Peripheral Ultra 2 Model 300 Series 382.18 382.18 382.18 382.18 382.18 382.18 382.18
Peripheral Tape Drive, Monitor 79.75 79.75 79.75 79.75 79.75 79.75 79.75
Cleo 3780 Plus Interface w/Sync Cabl 58.75 58.75 58.75 58.75 58.75 58.75 58.75
Ethernet Switch 94.50 94.50 94.50 94.50 94.50 94.50 94.50
Sun 9gb Disk Drive 59.48 59.48 59.48 59.48 59.48 59.48 59.48
Cisco 2516 Router 59.71 59.71 59.71 59.71 59.71 59.71 59.71
4 Baystack 350T StandAlone/Rackm 248.85 248.85 248.85 248.85 248.85 248.85 248.85
Monthly Total 2,555.85 2,555.85 2,555.85 2,555.85 2,555.85 2,555.85 2,555.85
</TABLE>
SMH/Deprec98/IS/6/11/98
<PAGE>
Computer Equipment Depreciation - 1998
5101-100 Depreciation Exp. Computers
1515-100 Accumulated Dep. Computers
<TABLE>
<CAPTION>
Date of
Original Cost Life Service January February March April May
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Computer Equipment
Time Stamp Machine - ATR Systems 450.50 5 09/91
Cabinet, Lotus - JVC 7,164.51 5 12/91
Intel Netport - JVC 1,023.96 5 01/92
Intel Netport - JVC 624.27 5 02/92
Companion Switches, boxes for 1,752.00 5 03/92
comp. Monitor - JVC 5
Ethernet Interface, Hardware for 583.50 5 4/92
printer - JVC
MicroAge of Exton 560.31 5 06/92
Harvard Graphics Upgrade
JVC Physical Installation 1,120.00 5 03/93 16.67 16.67 16.67
JVC New Server & Equipment 5,892.06 5 09/93 98.21 98.21 98.21 98.21 98.21
Haverford Sys - NEC 27" VGA Scan Montr 3,164.10 5 01/94 52.74 52.74 52.74 52.74 52.74
Tektronic Phaser Color Printer - JVC 10,600.00 5 05/94 176.67 176.67 176.67 176.67 176.67
JVC-Concenter Board 1,814.67 5 06/94 30.24 30.24 30.24 30.24 30.24
UCI-486DX's w/monitor @2/1900 4,028.00 5 06/94 67.13 67.13 67.13 67.13 67.13
UCI-486DX w/monitor @1/1934.50 1,934.50 5 06/94 32.24 32.24 32.24 32.24 32.24
UCI-486DX w/420 meg. @2/1450 +tax 3,074.00 3 10/94
JVC- HP Laserjet 4MP @ 2139 +tax 2,311.75 3 10/94
CompUSA-Laptop comptr (3yr parts) 3,497.95 3 10/94
UCI-486DX w/monitor @1/1700 +tax 1,602.00 3 10/94
Cartel System -Pentium Qty 3 8,199.10 5 6/95 136.65 136.65 136.65 136.65 136.65
MicroCenter Laser Jet Printer 3,782.08 5 7/95 63.03 63.03 63.03 63.03 63.03
JVC Cybex PC Companion-VGA 1,583.51 5 6/95 26.39 26.39 26.39 26.39 26.39
Mice, Connectors, Modems, Serial Boards 744.68 5 7/95 12.41 12.41 12.41 12.41 12.41
JVC Networth 24 Port and 4 Patch Cable 1,791.40 5 7/95 29.86 29.86 29.86 29.86 29.86
Arch Assoc. HP Laserjet 4SI 3,683.50 5 8/95 61.39 61.39 61.39 61.39 61.39
JVC HP Vectra VLS 2,660.60 5 11/95 44.34 44.34 44.34 44.34 44.34
JVC HP Vectra VL 2,416.80 5 12/95 40.28 40.28 40.28 40.28 40.28
JVC HP Vectra VL3, Pentium 60 5,676.63 5 12/95 94.61 94.61 94.61 94.61 94.61
JVC HP Vectra VL3, Pentium 90 3,340.96 5 12/95 55.68 55.68 55.68 55.68 55.68
Dell Direct Sales L.P. Hard Drive 781.96 5 1/96 4.70 4.70 4.70 4.70 4.70
JVC HP Vectra VL4 P120 16 Megs 3,332.34 5 396 55.54 55.54 55.54 55.54 55.54
JVC HP P/133, 16 Megs Qty 2 6,797.14 5 3/96 113.29 113.29 113.29 113.29 113.29
JVC HP Laserjet Printer 2,648.64 5 4/96 47.48 47.48 47.48 47.48 47.48
MicroCenter US Fax Modem 639.84 5 4/96 10.66 10.66 10.66 10.66 10.66
MicroCenter 5,063.52 5 4/96 84.39 84.39 84.39 84.39 84.39
JVC Tech Minitowers and Adapters 18,519.90 5 5/96 325.33 325.33 325.33 325.33 325.33
Printer for Trading Amer. Exp. 1,852.88 5 5/96 216.16 216.16 216.16 216.16 216.16
Gateway 2000 17,137.20 5 11/96 285.62 285.62 285.62 285.62 285.62
Winbook Corp. 5,260.94 5 12/96 67.68 67.68 67.68 67.68 67.68
MicroCenter Laser Jet printer 886.00 5 12/96 14.77 14.77 14.77 14.77 14.77
Gateway GDBPPRO200PIA-3 Computers 10,101.00 5 1/97 168.35 168.35 168.35 168.35 168.35
Gateway GDBPPRO200PIA-5 Computers 15,885.00 5 2/97 264.75 264.75 264.75 264.75 264.75
Gateway GDPPPRO200PIA-2 Computers 7,522.00 5 2/97 125.37 125.37 125.37 125.37 125.37
Micro Ctr-Memory additions 1,398.56 5 3/97 23.31 23.31 23.31 23.31 23.31
JVC-LAN Tape Backup Drive-SS# P01360 1,405.67 5 3/97 23.43 23.43 23.43 23.43 23.43
SSI-Phaser 350 Color Printer, 24mb, 600x3 5,367.00 5 3/97 69.78 69.78 69.78 69.78 69.78
<CAPTION>
June July August September October November December
<S> <C> <C> <C> <C> <C> <C> <C>
Computer Equipment
Time Stamp Machine - ATR Systems
Cabinet, Lotus - JVC
Intel Netport - JVC
Intel Netport - JVC
Companion Switches, boxes for
comp. Monitor - JVC
Ethernet Interface, Hardware for
printer - JVC
MicroAge of Exton
Harvard Graphics Upgrade
JVC Physical Installation
JVC New Server & Equipment 98.21 98.21 98.21 98.21
Haverford Sys - NEC 27" VGA Scan Montr 52.74 52.74 52.74 52.74 52.74 52.74 52.74
Tektronic Phaser Color Printer - JVC 176.67 176.67 176.67 176.67 176.67 176.67 176.67
JVC-Concenter Board 30.24 30.24 30.24 30.24 30.24 30.24 30.24
UCI-486DX's w/monitor @2/1900 67.13 67.13 67.13 67.13 67.13 67.13 67.13
UCI-486DX w/monitor @1/1934.50 32.24 32.24 32.24 32.24 32.24 32.24 32.24
UCI-486DX w/420 meg. @2/1450 +tax
JVC- HP Laserjet 4MP @ 2139 +tax
CompUSA-Laptop comptr (3yr parts)
UCI-486DX w/monitor @1/1700 +tax
Cartel System -Pentium Qty 3 136.65 136.65 136.65 136.65 136.65 136.65 136.65
MicroCenter Laser Jet Printer 63.03 63.03 63.03 63.03 63.03 63.03 63.03
JVC Cybex PC Companion-VGA 26.39 26.39 26.39 26.39 26.39 26.39 26.39
Mice, Connectors, Modems, Serial Boards 12.41 12.41 12.41 12.41 12.41 12.41 12.41
JVC Networth 24 Port and 4 Patch Cable 29.86 29.86 29.86 29.86 29.86 29.86 29.86
Arch Assoc. HP Laserjet 4SI 61.39 61.39 61.39 61.39 61.39 61.39 61.39
JVC HP Vectra VLS 44.34 44.34 44.34 44.34 44.34 44.34 44.34
JVC HP Vectra VL 40.28 40.28 40.28 40.28 40.28 40.28 40.28
JVC HP Vectra VL3, Pentium 60 94.61 94.61 94.61 94.61 94.61 94.61 94.61
JVC HP Vectra VL3, Pentium 90 55.68 55.68 55.68 55.68 55.68 55.68 55.68
Dell Direct Sales L.P. Hard Drive 4.70 4.70 4.70 4.70 4.70 4.70 4.70
JVC HP Vectra VL4 P120 16 Megs 55.54 55.54 55.54 55.54 55.54 55.54 55.54
JVC HP P/133, 16 Megs Qty 2 113.29 113.29 113.29 113.29 113.29 113.29 113.29
JVC HP Laserjet Printer 47.48 47.48 47.48 47.48 47.48 47.48 47.48
MicroCenter US Fax Modem 10.66 10.66 10.66 10.66 10.66 10.66 10.66
MicroCenter 84.39 84.39 84.39 84.39 84.39 84.39 84.39
JVC Tech Minitowers and Adapters 325.33 325.33 325.33 325.33 325.33 325.33 325.33
Printer for Trading Amer. Exp. 216.16 216.16 216.16 216.16 216.16 216.16 216.16
Gateway 2000 285.62 285.62 285.62 285.62 285.62 285.62 285.62
Winbook Corp. 67.68 67.68 67.68 67.68 67.68 67.68 67.68
MicroCenter Laser Jet printer 14.77 14.77 14.77 14.77 14.77 14.77 14.77
Gateway GDBPPRO200PIA-3 Computers 168.35 168.35 168.35 168.35 168.35 168.35 168.35
Gateway GDBPPRO200PIA-5 Computers 264.75 264.75 264.75 264.75 264.75 264.75 264.75
Gateway GDPPPRO200PIA-2 Computers 125.37 125.37 125.37 125.37 125.37 125.37 125.37
Micro Ctr-Memory additions 23.31 23.31 23.31 23.31 23.31 23.31 23.31
JVC-LAN Tape Backup Drive-SS# P01360 23.43 23.43 23.43 23.43 23.43 23.43 23.43
SSI-Phaser 350 Color Printer, 24mb, 600x3 69.78 69.78 69.78 69.78 69.78 69.78 69.78
</TABLE>
SMH/Deprec98/Comp Equip/6/11/98
<PAGE>
Computer Equipment Depreciation - 1998
5101-100 Depreciation Exp. Computers
1515-100 Accumulated Dep. Computers
<TABLE>
<CAPTION>
Date of
Original Cost Life Service January February March April May
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Computer Equipment
Networking Plus-Bay Networks 4,221.00 5 3/97 70.35 70.35 70.35 70.35 70.35
Gateway 3 Computers-T. Brown SN 00068 10,077.00 5 4/97 167.95 167.95 167.95 167.95 167.95
Networking Plus-Computer Room Cable In 1,000.00 5 4/97 16.67 16.67 16.67 16.67 16.67
Peak Comp Svcs - P166 Barebones Sys/18 1,124.66 5 5/97 16.74 16.74 16.74 16.74 16.74
American Communications 8,000.00 5 7/97 153.00 133.00 133.00 133.00 133.00
ACS-Telephone System 24,035.00 5 7/97 435.00 400.00 400.00 400.00 400.00
RCI, Inc.-Telephone System 14,052.00 5 7/97 234.20 234.20 234.20 234.20 234.20
American Communications-Telephone Syst 41,696.38 5 7/97 691.38 695.00 695.00 695.00 695.00
ITS Mailing System 2,722.60 5 6/97 45.38 45.38 45.38 45.38 45.38
ITS Mailing Systems 2,704.60 5 6/97 45.08 45.08 45.08 45.08 45.08
Peak Comp Svcs - P168 Barebones, 32Mg 1,418.28 5 6/97 23.64 23.64 23.64 23.64 23.64
ACS-Telephone System 16,000.00 5 7/97 70.00 270.00 270.00 270.00 270.00
Networking Plus-Phone System Fax Svc 4,183.05 5 7/97 70.75 69.70 69.70 69.70 69.70
Peak Comp Svcs - P166 Barebones Sys/18 905.24 3 7/97 24.99 25.15 25.15 25.15 25.15
Networking Plus-HP Vectra P166, 128MB 3,166.96 5 8/97 52.78 52.78 52.78 52.78 52.78
Thacher: Winbook S/E #3346707631 4,416.99 5 9/97 73.60 73.60 73.60 73.60 73.60
JVC-Compaq Proliant 2500 6/200 512 IS/N 10,095.18 5 12/97 168.43 168.43 168.43 168.43 168.43
Amex-Computer Projector 3,174.70 3 10/97 94.70 89.00 89.00 89.00 89.00
Staples-HP Laser Jet5se Printer 1,113.00 3 10/97 28.00 31.00 31.00 31.00 31.00
ACS-Telephone System 4,000.00 5 7/97 66.47 66.67 66.67 66.67
Gateway 2 GP6-300 Systems 6,794.00 3 1/98 188.80 188.72 188.72 188.72
Gateway GP6-300 Systems 3,307.00 3 1/98 91.90 91.86 91.86 91.86
Vircom HP Laserjet 4000N S/N #USEF069 1,720.38 3 2/98 47.37 47.80 47.80
GP6-333 System 3,688.00 3 3/98 102.25 102.45
2 GP6-333 Systems 5,926.00 3 3/98 165.00 164.60
3 GP6-333 Systems 9,411.00 3 4/98 261.65
2 Solo 5100 Best Buy Laptops 7,648.00 3 4/98 212.60
GP6-333 System 3,399.00 3 4/98 94.30
Monthly Total 390,598.05 5,465.79 5,956.69 6,004.44 6,253.45 6,621.80
<CAPTION>
June July August September October November December
<S> <C> <C> <C> <C> <C> <C> <C>
Computer Equipment
Networking Plus-Bay Networks 70.35 70.35 70.35 70.35 70.35 70.35 70.35
Gateway 3 Computers-T. Brown SN 00068 167.95 167.95 167.95 167.95 167.95 167.95 167.95
Networking Plus-Computer Room Cable In 16.67 16.67 16.67 16.67 16.67 16.67 16.67
Peak Comp Svcs - P166 Barebones Sys/18 16.74 16.74 16.74 16.74 16.74 16.74 16.74
American Communications 133.00 133.00 133.00 133.00 133.00 133.00 133.00
ACS-Telephone System 400.00 400.00 400.00 400.00 400.00 400.00 400.00
RCI, Inc.-Telephone System 234.20 234.20 234.20 234.20 234.20 234.20 234.20
American Communications-Telephone Syst 695.00 695.00 695.00 695.00 695.00 695.00 695.00
ITS Mailing System 45.38 45.38 45.38 45.38 45.38 45.38 45.38
ITS Mailing Systems 45.08 45.08 45.08 45.08 45.08 45.08 45.08
Peak Comp Svcs - P168 Barebones, 32Mg 23.64 23.64 23.64 23.64 23.64 23.64 23.64
ACS-Telephone System 270.00 270.00 270.00 270.00 270.00 270.00 270.00
Networking Plus-Phone System Fax Svc 69.70 69.70 69.70 69.70 69.70 69.70 69.70
Peak Comp Svcs - P166 Barebones Sys/18 25.15 25.15 25.15 25.15 25.15 25.15 25.15
Networking Plus-HP Vectra P166, 128MB 52.78 52.78 52.78 52.78 52.78 52.78 52.78
Thacher: Winbook S/E #3346707631 73.60 73.60 73.60 73.60 73.60 73.60 73.60
JVC-Compaq Proliant 2500 6/200 512 IS/N 168.43 168.43 168.43 168.43 168.43 168.43 168.43
Amex-Computer Projector 89.00 89.00 89.00 89.00 89.00 89.00 89.00
Staples-HP Laser Jet5se Printer 31.00 31.00 31.00 31.00 31.00 31.00 31.00
ACS-Telephone System 66.67 66.67 66.67 66.67 66.67 66.67 66.67
Gateway 2 GP6-300 Systems 188.72 188.72 188.72 188.72 188.72 188.72 188.72
Gateway GP6-300 Systems 91.86 91.86 91.86 91.86 91.86 91.86 91.86
Vircom HP Laserjet 4000N S/N #USEF069 47.80 47.80 47.80 47.80 47.80 47.80 47.80
GP6-333 System 102.45 102.45 102.45 102.45 102.45 102.45 102.45
2 GP6-333 Systems 164.60 164.60 164.60 164.60 164.60 164.60 164.60
3 GP6-333 Systems 261.41 261.41 261.41 261.41 261.41 261.41 261.41
2 Solo 5100 Best Buy Laptops 212.44 212.44 212.44 212.44 212.44 212.44 212.44
GP6-333 System 94.42 94.42 94.42 94.42 94.42 94.42 94.42
Monthly Total 6,621.52 6,621.52 6,621.52 6,621.52 6,723.31 6,723.31 6,723.3