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Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
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<SEC-DOCUMENT>0000950130-02-002262.txt : 20020415
<SEC-HEADER>0000950130-02-002262.hdr.sgml : 20020415
ACCESSION NUMBER: 0000950130-02-002262
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 10
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020329
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: 1934 Act
SEC FILE NUMBER: 001-09583
FILM NUMBER: 02594931
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
<FILENAME>d10k.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>
<PAGE>
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, 2001.
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 21, 2002 was $8,032,111,440.00.
As of March 21, 2002, 148,166,601 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, 2001 are incorporated by
reference into Parts I and II. Portions of the Definitive Proxy Statement of the
Registrant, dated which will be filed on or before April 3, 2002, 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 services to public finance
clients and financial institutions on a global basis. Financial guarantee
insurance provides an unconditional and irrevocable guarantee of the payment of
the principal of, and interest or other amounts owing on, insured obligations
when due. The Company conducts its financial guarantee business through its
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. MBIA Corp. is the parent of MBIA Insurance Corp. of Illinois ("MBIA
Illinois") and Capital Markets Assurance Corporation ("CapMAC"), both financial
guarantee companies that were acquired by MBIA Corp. MBIA Corp. also owns MBIA
Assurance S.A. ("MBIA Assurance"), a French insurance company, which writes
financial guarantee insurance in the countries of the European Community.
Generally, throughout the text, references to MBIA Corp. include the activities
of its subsidiaries, MBIA Illinois, MBIA Assurance and CapMAC. 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. On March 21, 2000, the two companies restructured the
joint venture and agreed to begin marketing and originating financial guarantee
insurance outside the United States independently, and also to continue to
maintain certain reciprocal reinsurance arrangements for international business
until the end of 2001.
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 financial guarantees for debt service
reserve funds. As a result of the triple-A ratings assigned to insured
obligations, the principal economic value of financial guarantee insurance to
the entity issuing the obligations is the savings in interest costs 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.
MBIA Corp. issues financial guarantees for municipal bonds,
asset-backed and mortgage-backed securities, investor-owned utility bonds, bonds
issued by highly rated sovereign and sub-sovereign entities and collateralized
obligations of corporations and financial institutions, both in the new issue
and secondary markets. The municipal obligations that MBIA Corp. insures include
tax-exempt and taxable indebtedness of states, counties, cities, utility
districts and other political subdivisions, as well as airports, higher
education and health care facilities and similar authorities. The asset-backed
and structured finance obligations insured by MBIA Corp. typically consist of
securities that are payable from or which are tied to the performance of a
specified pool of assets that have a defined cash flow, such as residential and
commercial mortgages, a variety of consumer loans, corporate loans and bonds,
trade and export receivables, equipment and real property leases and
infrastructure projects.
MBIA Corp. has a Triple-A financial strength rating from Standard and
Poor's Corporation ("S&P"), which it received in 1974; from Moody's Investors
Service, Inc. ("Moody's"), which it received in 1984; from Fitch, Inc.
("Fitch"), which it received in 1995; and from Rating and Investment
Information, Inc. ("RII"), which it received in 1998. Obligations which are
guaranteed by MBIA Corp. are rated Triple-A primarily based on these
claims-paying ratings of MBIA Corp. Both S&P and Moody's have also continued the
Triple-A rating on MBIA Assurance, MBIA Illinois and CapMAC guaranteed bond
issues. The Triple-A ratings are important to the operation of the Company's
business and any reduction in these ratings could have a material adverse effect
on MBIA Corp.'s ability to compete and could have a material adverse effect on
the business, operations and financial results of the Company.
The Company also provides investment management products and financial
services through a group of subsidiary companies, all of which are owned by our
wholly-owned subsidiary, MBIA Asset Management, LLC. These services include cash
management, the issuance of municipal investment agreements, discretionary asset
management, purchase and administrative services, and municipal revenue
enhancement services. MBIA Municipal Investors Service Corporation ("MBIA-MISC")
provides cash management and investment placement services to local governments,
school districts and other institutional clients, providing those clients with
fund administration services. MBIA Investment Management Corp. ("IMC")
offers guaranteed investment agreements primarily for
<PAGE>
bond proceeds to states and municipalities. MBIA Capital Management Corp.
("CMC") performs fixed income investment management services for the investment
portfolios of the Company, MBIA Corp., MBIA-MISC, IMC and selected external
clients. In 1998, the Company acquired what is now 1838 Investment Advisors, LLC
("1838"), an investment advisor to equity mutual funds and to third party
clients.
MBIA MuniServices Company ("MuniServices") provides revenue enhancement
services and products (discovery, audit, collections/recovery, enforcement and
information services) to state and local governments. The Company continues to
own a majority interest in Capital Asset Holdings GP, Inc. and certain
affiliated entities (collectively, "Capital Asset"). Capital Asset was in the
business of acquiring and servicing tax liens. The Company became a majority
owner in December, 1998, when it acquired the interest of Capital Asset's
founder. In 1999, the Company announced that it was exiting the tax lien
business. Capital Asset's primary activity today is servicing the three
securitizations of tax liens that are insured by MBIA Corp.
Statements included in this Form 10-K which are not historical or
current facts are "forward-looking statements" made pursuant to the safe harbor
provisions of the private Securities Litigation Reform Act of 1998. The words
"believe," "anticipate," "project," "plan," "expect," "intend," "will likely
result," or "will continue," and similar expressions identify forward-looking
statements. These statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical earnings and
those presently anticipated or projected. We wish to caution readers not to
place undue reliance on any such forward-looking statements, which speak only as
of their respective dates. The following are some of the factors that could
cause actual results to differ materially from estimates contained in or
underlying the Company's forward-looking statements: (1) fluctuations in the
economic, credit or interest rate environment in the United States or abroad;
(2) level of activity within the national and international credit markets; (3)
competitive conditions and pricing levels; (4) legislative or regulatory
developments; (5) technological developments; (6) changes in tax laws; (7) the
effects of mergers, acquisitions and divestitures; and (8) uncertainties that
have not been identified at this time. The Company undertakes no obligation to
publicly correct or update any forward-looking statement if it later becomes
aware that such result is not likely to be achieved.
MBIA Corp. Insured Portfolio
At December 31, 2001, 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 $6.7 billion of
intercompany investment management transactions) was $452.4 billion. Net
insurance in force was $722.4 billion.
Since generally MBIA Corp. guarantees to the holder of the underlying
obligation the timely payment of amounts due on such obligation in accordance
with its original payment schedule, in the case of a default on an insured
obligation, payments under the insurance policy cannot be accelerated unless
MBIA Corp. consents to the acceleration. Otherwise, MBIA Corp. is required to
pay principal, interest or other amounts only as originally scheduled payments
come due.
MBIA Corp. seeks to maintain a diversified insured portfolio designed
to manage and diversify risk based on a variety of criteria including revenue
source, issue size, type of asset, industry concentrations, type of bond and
geographic area. As of December 31, 2001, MBIA Corp. had 34,315 policies
outstanding (excluding 566 policies relating to investment management
transactions guaranteed by MBIA Corp.). These policies are diversified among
10,524 "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, 2001:
MBIA Corp. Original Par Amount Per Issue
as of December 31, 2001 (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 25,736 75.0% $52.2 11.5%
$10-25 million 3,500 10.2 45.8 10.1
$25-50 million 2,104 6.1 55.3 12.2
$50-100 million 1,434 4.2 69.5 15.4
Greater than $100 million 1,541 4.5 229.6 50.8
--------------- -------------- --------------- ---------------
Total 34,315 100.0% $452.4 100.0%
=============== ============== =============== ===============
</TABLE>
- ------------------------
(1) Excludes $6.7 billion relating to investment management transactions
guaranteed by MBIA Corp.
3
<PAGE>
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, 2001 was
10.5 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, 2001 was $58.3 billion.
MBIA Corp. had, until the early-1990's, written only financial
guarantees for municipal issuers in the United States. Municipal bonds consist
of both taxable and tax-exempt bonds and notes that are issued by states,
cities, political subdivisions, utility districts, airports, health care
institutions, higher educational facilities, housing authorities and other
similar agencies. These types of obligations are supported by taxes,
assessments, fees related to use of projects, lease payments, etc. By the
mid-1990's, MBIA Corp. had begun to write guarantees for the structured finance
and asset-backed market. In general, structured finance and asset-backed
obligations are secured by or payable from a specific pool of assets having an
ascertainable cash flow. These obligations are either "pass-through"
obligations, which represent interests in the related assets, or "pay-through"
obligations, which generally are debt obligations collateralized by the related
assets. MBIA Corp. also insures payments due under credit derivatives, including
termination payments, that may become due upon the occurrence of certain events.
These types of obligations also generally have the benefit of
over-collateralization, excess cash flow or one or more forms of credit
enhancement to cover credit risks associated with the related assets. Structured
finance and asset-backed obligations contain certain risks: asset risk, which
relates to the amount and quality of asset coverage; and structural risk, which
relates to the extent to which the transaction structure protects the interests
of the investors. In general, the asset risk is addressed by sizing the asset
pool based on the historical performance of the assets. Structural risks include
bankruptcy and tax risks. Structured and asset-backed securities are usually
designed to protect the investors from the bankruptcy or insolvency of the
entity that originated the underlying assets as well as from the bankruptcy or
insolvency of the servicer. These issues concern whether the sale of the assets
by the originator to the issuer would be upheld in the event of the bankruptcy
or insolvency of the originator and whether the servicer of the assets may be
required to delay the remittance of any cash collections held by it or received
by it after the time it becomes subject to bankruptcy or insolvency proceedings.
In addition, servicer risk, the risk that problems at the servicer level could
result in a decline in the collection of cash payments, may also be present in
the transaction. The ability of the servicer (the entity which is responsible
for collecting the cash flow from the asset pool) to properly service and
collect on the underlying assets is also a factor in determining future asset
performance. These issues are addressed through MBIA Corp.'s underwriting
guidelines and procedures.
Outside of the United States, sovereign and sub-sovereign, structured
and asset-backed, utilities and other issuers are increasingly using financial
guarantee insurance. Ongoing privatization efforts have shifted the burden from
the government to public and private capital markets, where investors may seek
the security of financial guarantee insurance. There is also growing interest in
asset-backed securitization. While the principles of securitization have been
increasingly applied in overseas markets, development in particular countries
has varied due to the sophistication of the local capital markets and the impact
of financial regulatory requirements, accounting standards and legal systems. It
is expected that securitization will continue to expand internationally, at
varying rates in each country. MBIA Corp. insures both asset-backed and
structured transactions, sovereign and sub-sovereign debt issues, utilities,
project financings and other obligations in selected international markets. MBIA
Corp. believes that the risk profile of the international business it insures is
generally the same as in the United States, but recognizes that there are
particular risks related to each country and region. These risks include the
legal and political situation, the capital markets and currency exchange risks.
MBIA Corp. monitors these risks carefully.
4
<PAGE>
MBIA Corp. Insured Portfolio by Bond Type
as of December 31, 2001 (1)
(In billions)
Bond Type
Net Par % of Net
Amount Par Amount
Global Public Finance Outstanding Outstanding
United States
- -------------
General Obligation $ 99.7 22.0%
Utilities 48.2 10.7
Special Revenue 36.4 8.0
Health Care 36.3 8.0
Transportation 24.8 5.5
Higher Education 17.1 3.8
Investor-Owned Utilities 15.8 3.5
Housing 14.2 3.1
--------------------------------
Total United States 292.5 64.6
--------------------------------
Non-United States
- -----------------
Investor-Owned Utilities 2.2 0.5
Sovereign 1.6 0.4
Utilities 1.5 0.3
Transportation 1.4 0.3
Sub-Sovereign 0.8 0.2
Health Care 0.4 0.1
Housing 0.2 0.0
--------------------------------
Total Non-United States 8.1 1.8
--------------------------------
Total Global Public Finance 300.6 66.4
--------------------------------
5
<PAGE>
Net Par % of Net
Amount Par Amount
Global Structured Finance Outstanding Outstanding
United States
- -------------
Asset-Backed:
Auto 16.7 3.7
Credit Cards 15.8 3.5
Leasing 6.3 1.4
Other 5.4 1.2
Mortgage-Backed:
Home Equity 24.9 5.5
Other 9.2 2.0
First Mortgage 6.7 1.5
Corporate Debt Obligations 16.6 3.7
Pooled Corp. Obligations & Other 9.3 2.0
Financial Risk 3.9 0.9
-----------------------------
Total United States 114.8 25.4
-----------------------------
Non-United States
- -----------------
Corporate Debt Obligations 21.1 4.7
Pooled Corp. Obligations & Other 8.1 1.8
Mortgage-Backed:
First Mortgage 4.0 0.9
Other 0.7 0.1
Home Equity 0.4 0.1
Asset-Backed 1.3 0.3
Financial Risk 1.4 0.3
-----------------------------
Total Non-United States 37.0 8.2
-----------------------------
Total Global Structured Finance 151.8 33.6
-----------------------------
Total $452.4 100.0%
=============================
- ------------------------
(1) Excludes $6.7 billion relating to investment management transactions
guaranteed by MBIA Corp.
6
<PAGE>
As of December 31, 2001, of the $452.4 billion outstanding net par
amount of obligations insured, $300.6 billion, or 66%, were insured in the
global public finance market and $151.8 billion, or 34%, were insured in the
global structured finance 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)
(In millions)
<TABLE>
<CAPTION>
Bond Type 1997 1998 1999 2000 2001
<S> <C> <C> <C> <C> <C>
Global Public Finance
United States
- -------------
General Obligation $ 14,068 $ 15,468 $ 9,981 $ 9,829 $ 15,848
Utilities 6,944 6,475 2,440 2,747 6,350
Special Revenue 4,384 7,369 4,627 5,746 5,567
Housing 1,817 2,093 1,872 1,294 2,723
Higher Education 2,537 4,072 1,434 1,645 2,110
Investor Owned Utilities 1,548 1,477 1,340 2,523 1,652
Health Care 7,523 8,174 3,529 1,276 1,244
Transportation 6,097 4,174 709 2,637 1,098
----------- -------------- ------------- ------------ ------------
Total United States 44,918 49,302 25,932 27,697 36,592
----------- -------------- ------------- ------------ ------------
Total Non-United States 1,023 1,038 692 1,437 2,923
----------- -------------- ------------- ------------ ------------
Total Global Public Finance 45,941 50,340 26,624 29,134 39,515
----------- -------------- ------------- ------------ ------------
Global Structured Finance
United States
- -------------
Asset Backed:
Auto 3,452 3,424 5,872 10,400 14,443
Credit Cards 1,782 4,077 1,844 9,100 8,418
Leasing 3,883 1,044 1,726 1,408 2,307
Other 1,711 1,562 2,149 1,576 1,958
Mortgage Backed:
Home Equity 17,895 16,041 10,191 4,656 7,206
First Mortgage 2,536 2,434 5,205 2,171 2,561
Other 911 2,145 10,098 1,893 2,234
Corporate Debt Obligations 202 980 1,462 5,287 10,492
Pooled Corp. Obligations & Other 21 4,085 1,717 2,306 3,282
Financial Risk 3,338 2,441 1,409 1,905 149
----------- -------------- ------------- ------------ ------------
Total United States 35,731 38,233 41,673 40,702 53,050
----------- -------------- ------------- ------------ ------------
Total Non-United States 3,852 6,708 5,061 15,424 11,114
----------- -------------- ------------- ------------ ------------
Total Global Structured Finance 39,583 44,941 46,734 56,126 64,164
----------- -------------- ------------- ------------ ------------
Total $ 85,524 $ 95,281 $ 73,358 $ 85,260 $ 103,679
=========== ============== ============= ============ ============
</TABLE>
_____________________________________
(1) Par amount insured by year, net of reinsurance.
7
<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, the Republic of Singapore and the Republic of
France. MBIA Assurance is licensed to write business in France. The following
table sets forth the geographic distribution of MBIA Corp.'s net par outstanding
including the ten largest states:
MBIA Corp. Insured Portfolio by State
As of December 31, 2001 (1)
<TABLE>
<CAPTION>
Net Par % of Net
Amount Par Amount
Outstanding Outstanding
(In billions)
<S> <C> <C>
Domestic
California $ 46.8 10.4%
New York 42.2 9.3
Florida 20.4 4.5
Texas 15.9 3.5
New Jersey 15.0 3.3
Pennsylvania 13.4 2.9
Illinois 13.1 2.9
Massachusetts 12.7 2.8
Michigan 8.9 2.0
Ohio 8.2 1.8
--------------- ---------------
Sub-Total 196.6 43.4
All Other States 107.9 23.9
Nationally Diversified 102.8 22.7
--------------- ---------------
Total United States 407.3 90.0
International
Regional Specific 20.1 4.4
Internationally Diversified 22.0 4.9
Other 3.0 0.7
--------------- ---------------
Total International 45.1 10.0
--------------- ---------------
Total $ 452.4 100.0%
=============== ===============
</TABLE>
________________________
(1) Excludes $6.7 billion relating to investment management transactions
guaranteed by MBIA Corp.
MBIA Corp. has underwriting guidelines that limit the net insurance in
force for any one insured credit and is subject to both rating agency and
regulatory single-risk limits with respect to any bond issue insured by it. As
of December 31, 2001, MBIA Corp.'s net par amount outstanding for its ten
largest insured public finance credits totaled $21.3 billion, representing 4.7%
of MBIA Corp.'s total net par amount outstanding, and for its ten largest
structured finance credits (without aggregating common issuers), the net par
outstanding was $15.3 billion, representing 3.4% of the total.
8
<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, Asia, Latin America and other
areas outside the United States. 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. On
March 21, 2000, the two companies restructured the joint venture. Under the
restructuring, the companies agreed to begin marketing and originating financial
guarantee insurance outside the United States independently, and also to
continue to maintain certain reciprocal reinsurance arrangements for
international business until at least the end of 2001. After the end of 2001,
there are no such reciprocal reinsurance arrangements in place. In the first
quarter of 2001, the Company entered into a memorandum of understanding with
Mitsui Marine and Fire Insurance Co. Ltd. relating to financial guarantee
insurance in Japan, including certain reciprocal reinsurance agreements.
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. For
municipal bond issues involving competitive bidding, 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.
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.
Operations
The worldwide insurance operations of MBIA Corp. are conducted through
the Global Public Finance Division, the Global Structured Finance Division, the
Risk Management Group and the Insured Portfolio Management Group. The Global
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 Global
Public Finance Division. With respect to larger, complex, or unique
transactions, underwriting is performed by a committee consisting of senior
representatives of Global Public Finance, Risk Management, Insured Portfolio
Management, and the Company's Finance Department. For all transactions done by
the Global Structured Finance Division and 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 the head of the applicable business unit, one officer from Risk
Management and a third officer from either Risk Management or Insured Portfolio
Management. Certain transactions, based on size, complexity, or other factors,
must also be approved by a division-level committee consisting of senior
representatives of Global Structured Finance, Risk Management, Insured Portfolio
Management, Legal and the Company's Finance Department. Premium rates for all
groups within the insurance operations enterprise are established by a Pricing
Committee with representation from the Business Analysis Group (pricing and
quantitative analysis) and the relevant insurance operations group.
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
structured finance transactions, these include economic and social trends, debt
management, financial management, adequacy of anticipated cash flow,
satisfactory legal
9
<PAGE>
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 global structured finance transactions,
MBIA Corp.'s underwriting guidelines, analysis and due diligence focus 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 legal segregation of the assets, cash flow analysis, the size and
source of first loss protection, and asset performance triggers and financial
covenants. All non-U.S. transactions also include an assessment of country risk.
Such guidelines are subject to periodic review by senior committees which are
responsible for establishing and maintaining underwriting standards and criteria
for all insurance products.
The Credit Analysis Group within Risk Management analyzes and monitors
MBIA Corp.'s direct and indirect exposure to financial institutions and
corporate entities with respect to seller/servicer exposure, investment
contracts, letters of credit, swaps, liquidity and other facilities supporting
MBIA-insured issues, and recommends terms and conditions, as well as capacity
guidelines for such exposures. The Portfolio Management Group within Risk
Management analyzes the insured portfolio by various quantitative tools to test
for diversity and credit quality, as well as to recommend guidelines for risk
concentrations.
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, servicers, underwriters, and other interested
parties to deal with the concern in order to try to avoid a default. The Insured
Portfolio Management Group works closely with the Risk Management and New
Business Departments to provide feedback on insured issue performance and credit
risk parameters.
To date, MBIA Corp. has had 40 insured issues requiring claim payments.
There are currently 8 additional insured issues for which case loss reserves
have been established but claims have not yet been paid (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 and triggers, assistance in resolving management
problems, transfer of servicing and working with the issuer to develop potential
political solutions. In most cases, 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 payments on insured obligations on their 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. There can be no assurance, however, that there will be no
material losses in the future in respect of any issues guaranteed by MBIA Corp.,
MBIA Illinois, MBIA Assurance or CapMAC.
Once an obligation is insured, the issuer and the trustee are typically
required to furnish financial and asset related information, including audited
financial statements, periodically to the Insured Portfolio Management Group for
review. Potential problems uncovered through this review, such as poor financial
results, low fund balances, covenant or trigger violations, trustee or servicer
problems, 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.
During the underwriting process, 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 or trigger 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 three departments in the Insured Portfolio Management Group.
The Global Public Finance Group handles all types of domestic and international
municipal issues such as general obligation, utility and special revenue
10
<PAGE>
bonds. It also follows project financings, future flow transactions and
collateralized debt obligation issues. The units within the Global Structured
Finance Group are responsible for domestic and international asset-backed and
other structured transactions. The Enterprise Group is responsible for all
health care, housing and student loan transactions. Each of the three groups is
responsible for processing waiver and consent requests and other deal
modifications within their areas.
The Global Public Finance Group 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. 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 units within the Global Structured Finance Group monitor 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 Enterprise Group, which monitors insured health care, student loan and
single and multi-family housing transactions as well as all pool programs,
performs similar functions to, and applies the same policies and procedures as,
the Global Public Finance and Global Structured Finance Groups. In addition, it
is responsible for remedial activities on weaker credits.
Investment Management Services
Over the last ten years, the Company's investment management businesses
have expanded their services to the public sector and added new revenue sources.
MBIA Asset Management, LLC is the holding company under which the resources and
capabilities of our four investment management subsidiaries have been
consolidated.
MBIA-MISC provides cooperative cash management services directly to local
governments and school districts. It also provides customized asset management
and treasury management consulting services for municipal and quasi-public
sector clients. In addition, MBIA-MISC performs investment fund administration
services for clients, which provide an additional source of revenue. MBIA-MISC
is a Securities and Exchange Commission registered investment adviser. MBIA-MISC
operates in 20 states and the Commonwealth of Puerto Rico.
IMC provides customized guaranteed investment agreements and flexible
repurchase agreements for bond proceeds and other public funds. At year-end
2001, principal and accrued interest outstanding on investment and repurchase
agreements was $6.1 billion compared with $4.8 billion at year-end 2000. IMC may
use derivative contracts in the course of providing its investment agreements as
a protection against interest rate risks. While these derivatives are designed
to help manage interest rate risk, they may involve amounts in excess of those
reflected in the financial statements.
In 1998, the Company acquired 1838, a full-service asset management firm
with a strong institutional focus. 1838 currently has approximately $11.9
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 and now manages substantially all of
the Company's investment portfolio. CMC is an NASD member and both CMC and 1838
are registered investment advisers.
11
<PAGE>
Municipal Services
MuniServices
MuniServices provides revenue enhancement services and products (discovery,
audit, collections/recovery, enforcement and information services) to municipal
clients through a single national enterprise. MuniServices uses a consultative
marketing strategy to focus clients on its unique capability to identify and
recover revenues across the full range of tax sources under performance-based,
self-funding business contracts.
Capital Asset
Through its interest in Capital Asset, between May, 1996 and December,
1998, the Company was involved in the business of acquiring and servicing
delinquent real estate tax liens from municipalities. In December, 1998, the
Company became a majority owner of Capital Asset. During the first two quarters
of 1999, the Company attempted to sell its interest in Capital Asset. At the end
of the second quarter of 1999, the Company ceased these efforts and decided to
limit the activities of Capital Asset primarily to the servicing of the
portfolios then being serviced by Capital Asset. In the second quarter of 1999,
the Company completed an internal evaluation of Capital Asset's tax lien
portfolio, as a result of which the Company determined that it was necessary to
write down its investment in Capital Asset by $102 million. In the third quarter
of 1999, Capital Asset engaged a specialty servicer of residential mortgages to
help manage its business and operations and to assist in administering the tax
lien portfolios serviced by Capital Asset.
In the third quarter of 1999, Capital Asset also completed the refinancing
of substantially all of its remaining tax liens. These liens were originally
financed through a commercial paper warehouse facility that matured at the end
of the third quarter, and which was guaranteed by the Company. The refinancing
was accomplished through a securitization transaction in which the tax liens
were sold to a qualifying special purpose vehicle which in turn issued notes
secured by those liens. The proceeds of the securitization were used primarily
to extinguish the warehouse facility. This was Capital Asset's third
securitization of tax liens and MBIA Corp. has insured all of the notes issued
by these securitizations. These securitizations were structured through the sale
by Capital Asset of substantially all of its tax liens to off-balance sheet
qualifying special purpose vehicles that were established in connection with
these securitizations. These vehicles are not included in the consolidation of
the MBIA group. The first transaction, done in 1997, had an original net par
insured of $328 million and at year-end 2001 had $67 million net par insured
outstanding; the second transaction, executed in 1998, had an original net par
insured of $132 million, with the year-end 2001 net par insured outstanding at
$24 million; the 1999 transaction was issued at $196 million net par insured
outstanding and at year-end 2001 had $136 million net par insured outstanding
(these net par insured outstanding amounts give no effect to the value of
collateral). MBIA Corp. has established case basis loss reserves related to
these policies (from which approximately $6.9 million in claims have been paid
to date), but there can be no assurance that such reserves will be sufficient to
cover future potential losses, if any, under such policies.
Capital Asset continues to have certain contingent liabilities outstanding,
including various individual and class action lawsuits. The claims giving rise
to these lawsuits are a result of Capital Asset's business activities that took
place primarily before the Company assumed majority ownership and Capital Asset
is defending these lawsuits. The Company has no reason to believe that it has
financial liability for these lawsuits. Plaintiffs in one of the class action
lawsuits have filed a lawsuit against MBIA Corp. and certain affiliates claiming
that the securitization completed by Capital Asset in 1999 was a fraudulent
transfer under state law because the tax liens sold to the special purpose
vehicle were sold at less than their fair value and because the transaction
allegedly was done to avoid the effect of an adverse legal ruling against
Capital Asset on certain issues. Although there are inherent risks in any
litigation, the Company believes that it has substantial defenses on the merits
of those claims and intends to defend against the claims vigorously.
12
<PAGE>
Competition
The financial guarantee insurance business is highly competitive: there are
four other monolines that write financial guarantee insurance and another in the
process of becoming licensed in the United States. The other principal insurers
in 2001 in public finance 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. The two principal competitors in the new issue structured finance
securities market in 2001 were Financial Security Assurance and Ambac Assurance
Corporation.
Financial guarantee insurance also competes with other forms of credit
enhancement, including senior-subordinated structures, 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.
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 and the maximum size of any single risk exposure
which may be written. 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 primarily 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.
13
<PAGE>
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, 2001, MBIA Corp. retained approximately 82% of the gross
debt service outstanding of all transactions insured by it, MBIA Assurance,
CapMAC and MBIA Illinois, and ceded approximately 18% to treaty and facultative
reinsurers. The principal reinsurers of MBIA Corp., MBIA Assurance, CapMAC and
MBIA Illinois are ACE Guaranty Re Inc., Radian Reinsurance, Inc., AXA Re
Finance, Munich Reinsurance Corp. and Ambac Assurance Corporation. These
reinsurers, whose claims-paying ability is rated Triple-A by S&P, reinsured
approximately 76% of the total ceded insurance in force at December 31, 2001.
All of the other reinsurers reinsured approximately 24% of the total ceded
insurance in force at December 31, 2001 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, 2001 and 2000 by bond type and by geographic location are set
forth in Note 21 to the Consolidated Financial Statements of MBIA Inc. and
Subsidiaries. The downgrade or default of one or more of the Company's
reinsurers could have an adverse impact on the Company's results of operations.
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
State legal requirements.
MBIA Corp. and MBIA Illinois entered into a reinsurance agreement under
which MBIA Corp. reinsured 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, 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. 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.
MBIA Corp. and CapMAC have 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 and currently manages
substantially all of the Company's investment portfolio.
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 is an important but
secondary objective.
14
<PAGE>
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.
For 2001, approximately 60% of the Company's net income, was derived from
after-tax earnings on its investment portfolio (excluding the amounts 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, 1999, 2000 and 2001.
Investment Income of the Company (1)
<TABLE>
<CAPTION>
1999 2000 2001
(In thousands)
<S> <C> <C> <C>
Investment income before expenses (2) $365,823 $400,754 $427,262
Investment expenses 6,367 6,769 7,600
-------- -------- --------
Net investment income before income taxes 359,456 393,985 419,662
Net realized gains 25,160 32,884 8,896
-------- -------- --------
Total investment income before income taxes $384,616 $426,869 428,558
======== ======== ========
Total investment income after income taxes $312,200 $335,435 $343,788
======== ======== ========
</TABLE>
______________________________
(l) Excludes investment income from investment management services and
municipal services segments.
(2) Includes taxable and tax-exempt interest income.
15
<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, 2001, 2000 and 1999.
Investment Portfolio by Security Type
as of December 31, 2001
<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 $ 859,450 3.85 % $ 813,146 4.69 %
GNMAs 116,119 6.24 191,115 3.54
Other mortgage & asset-backed securities 423,942 5.50 2,580,908 3.12
Corporate obligations 1,430,425 5.96 2,106,481 5.17
Foreign obligations (2) 260,132 5.27 561,463 6.02
----------------- ----------- ----------------- ---------
Total 3,090,068 5.26 6,253,113 4.67
Tax-exempt bonds:
State & municipal 4,330,956 4.98 - -
----------------- ----------- ----------------- ----------
Total long-term investments 7,421,023 5.10 6,253,113 4.67
Short-term investments (3) 293,791 5.36 412,868 2.61
----------------- ----------- ----------------- ---------
Total fixed-income investments 7,714,814 5.11 % 6,665,981 4.54 %
Other investments (4) 135,376 - - -
----------------- -----------------
Total investments $7,850,190 - $6,665,981 -
================= =================
</TABLE>
_________________________
(1) Prospective market yields as of December 31, 2001. 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>
Investment Portfolio by Security Type
as of December 31, 2000
<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 $ 841,683 6.34 % $ 443,581 6.09 %
GNMAs 156,284 7.04 149,989 6.49
Other mortgage & asset-backed securities 317,964 6.64 2,954,242 6.20
Corporate obligations 1,388,535 6.87 919,547 7.15
Foreign obligations (2) 235,378 6.28 282,278 7.07
----------------- ----------- ----------------- ---------
Total 2,939,844 6.66 4,749,637 6.43
Tax-exempt bonds:
State & municipal 3,800,283 7.62 - -
----------------- ----------- ----------------- ---------
Total long-term investments 6,740,127 7.20 4,749,637 6.43
Short-term investments (3) 376,604 6.57 246,971 6.05
----------------- ----------- ----------------- ---------
Total fixed-income investments 7,116,731 7.17 % 4,996,608 6.42 %
Other investments (4) 119,591 - - -
----------------- -----------------
Total investments $7,236,322 - $4,996,608 -
================= =================
</TABLE>
_____________________________
(1) Prospective market yields as of December 31, 2000 . 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.
17
<PAGE>
Investment Portfolio by Security Type
as of December 31, 1999
<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 $ 600,350 7.45 % $1,237,005 6.67 %
GNMAs 146,976 7.68 67,950 7.16
Other mortgage & asset-backed securities 267,531 7.94 1,880,944 6.94
Corporate obligations 1,148,565 7.50 766,180 7.61
Foreign obligations (2) 158,938 7.21 317,755 7.66
----------------- ----------- ----------------- ---------
Total 2,322,360 7.53 4,269,834 7.04
Tax-exempt bonds:
State & municipal 3,461,619 8.72 - -
----------------- ------------ ----------------- ---------
Total long-term investments 5,783,979 8.24 4,269,834 7.04
Short-term investments (3) 274,022 5.92 219,717 6.17
----------------- ------------ ----------------- ---------
Total fixed-income investments 6,058,001 8.14 % 4,489,551 7.00 %
Other investments (4) 146,038 - - -
----------------- -----------------
Total investments $6,204,039 - $4,489,551 -
================= =================
</TABLE>
____________________________
(1) Prospective market yields as of December 31, 1999. 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.
18
<PAGE>
The average maturity of the insurance fixed-income portfolio excluding
short-term investments as of December 31, 2001 was 13.1 years. After allowing
for estimated principal pre-payments on mortgage pass-through securities, the
duration of the portfolio was 7.5 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, 2001
<TABLE>
<CAPTION>
Investment
Insurance Management Services
Fair Value % of Total Fair Value % of Total
(In thousands) Fixed-Income (In thousands) Fixed-Income
Maturity Investments Investments
<S> <C> <C> <C> <C>
Within 1 year $ 293,791 3.8% $ 412,868 6.2%
Beyond 1 year but within 5 years 1,271,864 16.5 2,305,455 34.6
Beyond 5 years but within 10 years 1,506,518 19.5 1,420,403 21.3
Beyond 10 years but within 15 years 1,455,672 18.9 695,400 10.4
Beyond 15 years but within 20 years 1,240,611 16.1 620,927 9.3
Beyond 20 years 1,946,358 25.2 1,210,928 18.2
---------- ------- ---------- -------
Total fixed-income investments $7,714,814 100.0% $6,665,981 100.0%
========== ======= ========== =======
</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
as of December 31, 2001 (1)
<TABLE>
<CAPTION>
Investment
Insurance Management Services
Fair Value % of Total Fair Value % of Total
(In thousands) Fixed-Income (In thousands) Fixed-Income
Quality Rating Investments Investments
<S> <C> <C> <C> <C>
Aaa $4,925,659 65.0% $4,703,968 70.6%
Aa 1,604,104 21.2 843,046 12.6
A 968,297 12.8 1,075,732 16.1
Baa 75,068 1.0 43,235 0.7
---------- ------- ---------- -------
$7,573,128 100.0% $6,665,981 100.0%
========== ======= ========== =======
</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.
19
<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, the Republic of Singapore 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. MBIA Assurance has
used the provisions of the Third Non-life Insurance Directive to operate in the
United Kingdom both on a services and branch basis and is, to a limited extent,
subject to supervision by the Financial Services Authority. The extent of state
insurance regulation and supervision varies by jurisdiction, but New York,
Illinois 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, asset-backed securities
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 laws 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 and asset-backed securities 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. California, Connecticut, Florida, Illinois and
New York also limit the net insured unpaid principal on a municipal bond issued
by a single entity and backed by a single revenue source to 75% of
policyholders' surplus and contingency reserves. California, Connecticut, and
New York, among other things, require that the lesser of the insured average
debt service and the insured unpaid principal (reduced by the extent to which
unpaid principal of the supporting assets exceeds the insured unpaid principal),
divided by nine, on each issue of asset-backed securities issued by a single
entity shall not exceed 10% of policyholders' surplus and contingency reserves,
while Florida limits insured unpaid principal for any one risk 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.
20
<PAGE>
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. Under New York, California,
Connecticut, Florida, and New Jersey law, aggregate insured unpaid principal and
interest under policies insuring asset-backed securities (again, in the case of
New York, California, Connecticut, and Florida, net of reinsurance) are limited
to certain multiples of policyholders' surplus and contingency reserves. New
York, California, Connecticut, and other states impose a 150:1 limit for insured
investment grade asset-backed securities, although more restrictive limits on
asset-backed securities of other types exist. For example, New York, California,
Connecticut, and Florida impose a 50:1 limit for non-investment grade
asset-backed securities.
The Company, MBIA Corp., MBIA Illinois, and CapMAC also are subject to
regulation under 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
inter-corporate transfers of assets, and of transactions between insurance
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, or (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
16 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 9 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.
21
<PAGE>
Losses and Reserves
The Company's policy is to provide (I) specific, identified loss reserves
to cover estimated losses on policies for which the Company has determined that
it is likely to incur losses ("case basis reserves"), and (II) general,
unallocated loss reserves to cover losses that may be reasonably estimated to
occur on its insured obligations over the lives of such obligations. The
aggregate loss reserves, at any financial statement date, are the Company's best
estimate of the reserves needed to cover both types of losses, including
expected costs of settlement.
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. For the past three years, the total
reserve has been calculated by applying a loss factor, determined based on an
independent research agency study of bond defaults, to net incurred debt service
written. Beginning with 2002, to more accurately match the recognition of
incurred losses with the related premium revenue, the formula has been altered
so that the Company will begin to reserve based upon a percentage of earned
premiums instead of a percentage of net debt service written. The formula will
be reviewed on a regular basis. At December 31, 2001, $210.9 million (which
reflects anticipated recoveries) of the $483.3 million reserve for loss and loss
adjustment expenses represents case basis reserves, and, of the case basis
reserves, $215.0 million is attributable to a health care facility in
Pennsylvania and four tax lien transactions (on which no recoveries are
expected). The remaining case basis reserves represent various housing
financings and structured finance transactions, the largest of which is $5.6
million. 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.
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 the 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 formula discussed above. 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.
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 9 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:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1998 1999 2000 2001
<S> <C> <C> <C> <C> <C>
MBIA Corp.
Loss ratio 1.2% 8.0% 12.3% 6.2% 9.3%
Expense ratio 21.2 16.8 23.6 22.1 13.4
Combined ratio 22.4 24.8 35.9 28.3 22.7
Financial guarantee industry (1)
Loss ratio 8.3% 22.8% 4.2% 4.0 *
Expense ratio 28.1 22.7 24.1 27.9 *
Combined ratio 36.4 45.5 28.3 31.9 *
</TABLE>
__________________________
(1) Industry statistics were taken from the 2000 Industry Financial Results of
the Association of Financial Guaranty Insurors.
22
<PAGE>
* Not available.
23
<PAGE>
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,
1997 1998 1999 2000 2001
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
MBIA Corp.
Net insurance in force $ 513,736 $ 595,895 $ 635,883 $ 680,878 $722,408
Qualified statutory capital 3,140 3,741 4,152 4,505 4,940
Policyholders' leverage ratio 164:1 159:1 153:1 151:1 146:1
Financial guarantee industry (1)
Net insurance in force $1,262,697 $1,416,433 $1,616,226 1,639,829 *
Qualified statutory capital 8,851 9,833 11,139 11,845 *
Policyholders' leverage ratio 143:1 144:1 145:1 138:1 *
</TABLE>
___________________________
(1) Industry statistics were taken from the 2000 Industry Financial Results of
the Association of Financial Guaranty Insurors.
* Not available.
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
Virtually all of the insurance policies issued by MBIA Corp., MBIA
Assurance, MBIA Illinois and CapMAC provide an unconditional and irrevocable
guarantee of the payment to a designated paying agent for the holders of the
insured obligations of an amount equal to the principal of and interest or other
amounts due on the insured obligations that have not been paid. In the event of
a default in payment of principal, interest or other insured amounts by an
issuer, the insurance company promises to make funds available in the amount of
the default on the next business day following notification. Each insurance
company has a Fiscal Agency Agreement with a bank which provides for this
payment upon receipt of proof of ownership of the obligations due, as well as
upon receipt of instruments appointing the insurer as agent for the holders and
evidencing the assignment of the rights of the holders with respect to the
payments made by the insurer. Even if the holders are permitted by the terms of
the insured obligations to have the full amount of principal, accrued interest
or other amounts due, declared due and payable immediately in the event of a
default, the insurer is required to pay only the amounts scheduled to be paid,
but not in fact paid, on each originally scheduled payment date.
24
<PAGE>
Rating Agencies
Moody's, S&P, Fitch and RII perform periodic reviews of MBIA Corp. and
other companies providing financial guarantee insurance. Their reviews focus on
the insurer's operations, financial conditions, 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 confirmed their Triple-A claims-paying ratings
assigned to MBIA Corp., CapMAC, MBIA Illinois and to MBIA Assurance in every
year since those ratings were granted. 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.
Investment Considerations
Claims-Paying Ability Rating
----------------------------
MBIA Corp.'s ability to attract new business and to compete with other
triple-A rated financial guarantors is largely dependent on the Triple-A claims
paying ratings assigned to it by the major rating agencies. Although MBIA Corp.
intends to comply with the requirements of the rating agencies to maintain such
ratings, no assurance can be given that these requirements will not change or
that, even if MBIA Corp. complies with these requirements, one or more of such
rating agencies will not reduce or withdraw their claims-paying ability ratings
of MBIA Corp. in the future. MBIA Corp.'s ability to attract new business and to
compete with other triple-A rated financial guarantors, and its results of
operations and financial condition, would be materially adversely affected by
any reduction in its ratings. See "Business - Rating Agencies".
Competition
-----------
The businesses engaged in by MBIA Corp. are highly competitive. MBIA
Corp. faces competition from other financial guarantee insurance companies,
other providers of third-party credit enhancement, such as multi-line insurance
companies and banks, and alternative executions which do not employ third-party
credit enhancement. To the extent that there is no increase in the dollar volume
of obligations that require guaranties, increased competition, either in terms
of price or new providers of credit enhancement, would likely have an adverse
effect on MBIA Corp.'s business. See "Business - Competition".
Effect of September 11
----------------------
In addition to the tragic loss of life, the terrorist attacks in New
York City and Washington, D.C. on September 11, 2001 disrupted and are expected
to continue to disrupt commerce worldwide. These events have had a direct
material adverse impact on certain industries and on general economic activity.
The Company has exposure in certain sectors that will suffer increased
stress as a direct result of these events. The Company's exposure to New York
City and New York State and their respective agencies, to domestic airports and
to domestic enhanced equipment trust certificate aircraft securitizations has
experienced increased stress as a result of these events, including a
downgrading of the ratings of some of the underlying issuers. Other exposures
that depend on revenues from business and personal travel, such as bonds backed
by hotel taxes and car rental fleet securitizations, are also likely to see
direct increased stress as a result of these events. In addition, certain other
sectors in which the Company has insured exposure such as consumer loan
securitizations (e.g., home equity, auto
25
<PAGE>
loan and credit card transactions) and certain collateralized debt obligations
backed by high yield bonds have seen increased delinquencies and defaults in the
underlying pools of loans.
In accordance with the Company's underwriting criteria, transactions
insured by the Company are structured to endure significant stress under various
stress assumptions, including an assumed economic recession. The Company has
assessed each of its related portfolio exposures and, based on the transaction
structures and on the Company's evaluation of the likely effects and impact of
these events, the Company believes at this time that it will not incur any
material losses due to these events. There can be no assurance, however, that
the Company will not incur material losses due to these exposures if the
economic stress caused by these events in certain sectors is more severe than
the Company currently foresees and had assumed in underwriting its exposures.
Market and Other Factors
------------------------
The demand for financial guarantee insurance depends upon many factors,
some of which are beyond the control of MBIA Corp. While all the major financial
guarantee insurers have triple-A claims-paying ability ratings from the major
rating agencies, investors may from time to time distinguish among financial
guarantors on the basis of various factors, including size, insured portfolio
concentration and financial performance. These distinctions may result in
differentials in trading levels for securities insured by particular financial
guarantors which, in turn, may provide a competitive advantage to those
financial guarantors with better trading characteristics. Conversely, various
investors may, due to regulatory or internal guidelines, lack additional
capacity to purchase securities insured by certain financial guarantors, which
may provide a competitive advantage to guarantors with fewer insured obligations
outstanding.
Prevailing interest rate levels affect demand for financial guarantee
insurance to the extent that lower interest rates are accompanied by narrower
spreads between insured and uninsured obligations. The purchase of insurance
during periods of relatively narrower interest rate spreads will generally
provide lower cost savings to the issuer than during periods of relatively wider
spreads. These lower cost savings could be accompanied by a corresponding
decrease in demand for financial guarantee insurance. However, historically, the
level of refundings during lower interest rate periods has increased the demand
for insurance.
The perceived financial strength of financial guarantee insurers also
affects demand for financial guarantee insurance. Should a major financial
guarantee insurer, or the industry generally, have its claims-paying ability
rating lowered, or suffer for some other reason deterioration in investors'
confidence, demand for financial guarantee insurance may be reduced
significantly.
Premium rates are affected by factors such as the insurer's appraisal
of the insured credit, the spread between interest rates prevailing on insured
and uninsured obligations and capital charges associated with these exposures as
determined by the rating agencies and regulators, as well as competition for
such business among financial guarantee insurance providers and other forms of
credit enhancement. Lower interest rates generally result in lower premium
amounts to the extent that premium amounts are based on the total dollar amount
of principal interest and other amounts insured.
Regulation
----------
The financial guarantee insurance industry has historically been and
will continue to be subject to the direct and indirect effects of governmental
regulation, including changes in tax laws and legal precedents affecting
asset-backed and municipal obligations. No assurance can be given that future
legislative regulatory or judicial changes will not adversely affect MBIA
Corp.'s business. See "Business - Regulation" for a description of current
insurance regulations affecting MBIA Corp.
Adequacy of Loss Reserves
-------------------------
The financial guarantees issued by MBIA Corp. insure the financial
performance of the obligations guaranteed over an extended period of time, in
some cases over 30 years, under policies that MBIA Corp. cannot cancel. As a
result of the lack of statistical loss data due to the low level of losses in
MBIA Corp.'s financial guarantee business and in the financial guarantee
industry in general, particularly in the structured asset-backed
area, MBIA Corp. does not use traditional actuarial approaches to determine its
loss reserves. Instead, a general loss
26
<PAGE>
reserve is established in an amount deemed adequate to cover the expected levels
of losses and loss adjustment expense on MBIA's overall portfolio. The size of
the general loss reserve is determined by a formula, the components of which are
reviewed regularly. Management believes that the current level of general loss
reserves is adequate to cover the estimated liability for claims and the related
adjustment expenses with respect to financial guarantees issued by MBIA Corp.
The establishment of the appropriate level of loss reserves is an inherently
uncertain process involving numerous estimates and subjective judgments by
management, and therefore there can be no assurance that losses in MBIA Corp.'s
insured portfolio will not exceed the loss reserves. Losses from future
defaults, depending on their magnitude, could have a material adverse effect on
the results of operations and financial condition of MBIA Corp. See "Business -
Losses and Reserves".
Realization of Installment Premiums
-----------------------------------
Due to the annuity nature of a significant percentage of its premium
income, MBIA Corp. has an embedded future revenue stream. The amount of
installment premiums actually realized by MBIA Corp. could be reduced in the
future due to factors such as early termination of insurance contracts or
accelerated prepayments of underlying obligations. Although increases in
installment premium due to renewals of existing insurance contracts historically
have been greater than reductions, there can be no assurance that future
circumstances might not cause a net reduction overall, resulting in lower
revenues.
Reinsurance
-----------
MBIA Corp.'s ability to maintain reinsurance capacity is important to
its business. In order to comply with regulatory, rating agency or internal
single risk retention limits for transactions of significant size, MBIA Corp.
needs access to sufficient reinsurance capacity to underwrite large
transactions. If MBIA Corp. were to become unable to obtain sufficient
reinsurance, this could have an adverse impact on its ability to issue policies
for large transactions. See "Business - Reinsurance". MBIA Corp. remains liable
for insurance ceded to reinsurers to the extent such reinsurers are unable to
meet their obligations.
Anti-Takeover Provisions
------------------------
The Company's Charter and Bylaws contain special notice and other
provisions the effect of which could be to discourage non-negotiated takeover
attempts, which takeovers some stockholders might otherwise deem to be in their
interests.
Given the importance of MBIA Corp.'s triple-A ratings to the Company's
business, as a practical matter, a change of control would require confirmation
in advance from the rating agencies that such transaction would not result in a
downgrading of the claims-paying ability rating assigned to MBIA Corp. The
Company's Rights Plan originally adopted to deter non-negotiated takeovers,
expired in December 2001. The Board elected not to renew the Rights Plan.
The insurance laws of New York provide that no person, other than an
authorized insurer, may acquire control of the Company and thus indirect control
of MBIA Corp., or any other New York-domiciled insurance subsidiary of the
Company, unless it has given prior written notice to MBIA Corp. and any such
subsidiary and received the prior approval of the Superintendent of Insurance of
the State of New York. Furthermore, any purchaser of 10% or more of the
outstanding shares of the Company's Common Stock would be presumed to have
acquired such control unless the Superintendent of Insurance determined
otherwise. Therefore, any takeover of the Company effectively requires
regulatory approval. This regulatory restriction may effectively reduce the
probability of a takeover without the cooperation of management.
Investment Management Services Businesses
-----------------------------------------
The Company's Investment Management Services businesses have grown as a
proportion of its overall business (see "Investment Management Businesses"). As
their contribution continues to grow, events that negatively affect the
performance of the Investment Management Services businesses could affect the
overall performance of the Company.
27
<PAGE>
Capital Facilities
MBIA Corp. is party to a Credit Agreement, dated as of December 29,
1989 (the "Credit Agreement"), with various highly rated banks to provide MBIA
Corp. with an unconditional, irrevocable line of credit to cover losses in
excess of a specified amount with respect to its public finance policies. The
line of credit is available to be drawn upon by MBIA Corp., in an amount up to
$900 million, after MBIA Corp. has incurred, during the period commencing
October 27, 2001 and ending October 31, 2008, cumulative losses (net of any
recoveries) in excess of $900 million or 5.6% of average annual debt service in
respect of MBIA Corp.'s public finance policies. 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 public finance 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, 2008, 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.
In 2001, the Company also entered into a $150 million soft capital
facility with certain highly rated reinsurers. Under this facility, the Company
has the right to issue, and the reinsurers have the obligation to purchase
(subject to certain conditions), preferred stock or variable rate subordinated
notes in a par amount that is equal to the amount by which losses incurred by
MBIA Corp. during the term of the facility with respect to substantially all of
its insured book exceed a certain specified level (the "Attachment Point"), up
to $150 million in the aggregate,. The facility has an initial term of ten years
and is expected to be extended annually. The Attachment Point is reset annually
as of December 31 as a percentage of MBIA Corp.'s insured portfolio. As of
December 31, 2001, the Attachment Point was $1.65 billion.
In 2001, MBIA Corp. also entered into a $211 million excess of loss
reinsurance facility with certain highly rated reinsurers. Under this facility,
the reinsurers have agreed to reimburse MBIA Corp. for all losses, up to $211
million in the aggregate, incurred by MBIA Corp. during the term of the
reinsurance agreement with respect to its structured finance policies in excess
of a certain specified level (the "Stop Loss Attachment Point"). The facility
has an initial term of seven years and is expected to be extended annually. The
Stop Loss Attachment Point is reset annually as of December 31 as a percentage
of MBIA Corp.'s insured portfolio. As of December 31, 2001, the Stop Loss
Attachment point was $900 million, increasing to $1.01 billion in January, 2002.
Employees
As of March 21, 2002, the Company had 601 employees. No employee is
covered by a collective bargaining agreement. The Company considers its employee
relations to be satisfactory.
Executive Officers
The executive officers of the Company and their present ages and
positions with the Company are set forth below.
<TABLE>
<CAPTION>
Name Age Position and Term of Office
---- --- ---------------------------
<S> <C> <C>
Joseph W. Brown 53 Chairman and Chief Executive Officer (officer since January, 1999)
Gary C. Dunton 46 President (officer since January, 1998)
Richard L. Weill 59 Vice President (officer since 1989)
Neil G. Budnick 47 Vice President and Chief Financial Officer (officer since 1992)
John B. Caouette 57 Vice President (officer since February, 1998)
Ram D. Wertheim 47 Vice President and General Counsel (officer since January, 2000)
Kevin D. Silva 48 Vice President and Chief Administrative Officer (officer since 1995)
Ruth M. Whaley 46 Vice President and Chief Risk Officer (officer since 1999)
Robert T. Wheeler 59 Vice President and Chief Technology Officer (officer since May, 2000)
John S. Pizzarelli 46 Vice President (officer since November, 2000)
Mark S. Zucker 53 Vice President (officer since November, 2000)
</TABLE>
28
<PAGE>
Joseph W. Brown is Chairman and Chief Executive Officer of the Company
(effective January 7, 1999) and a director of the Company. Prior to joining the
Company in January 1999, Mr. Brown was Chairman of the Board of Talegen
Holdings, Inc.
Gary C. Dunton is President and Chief Operating Officer of the Company
and a director of the Company. 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.
Richard L. Weill is Vice President and Secretary of the Company. Mr.
Weill joined the Company in 1989 and since that time has held a variety of
positions.
Neil G. Budnick is Vice President and Chief Financial Officer of the
Company. Mr. Budnick has been primarily involved in the insurance operations
area of MBIA Corp. since joining the Company in 1983.
John B. Caouette is Vice President of the Company. Mr. Caouette was,
until February of 1998, the Chairman and Chief Executive Officer of CapMAC
Holdings Inc.
Ram D. Wertheim is Vice President and General Counsel of the Company.
From February of 1998 until January, 2000, he served in various capacities in
the Structured Finance Division. Mr. Wertheim was, until February of 1998, the
General Counsel of CapMAC Holdings Inc.
Kevin D. Silva is Vice President and Chief Administrative Officer of
the Company. He has been in charge of the Management Services Division of MBIA
Corp. since joining the Company in late 1995.
Ruth M. Whaley is Vice President and Chief Risk Officer of the Company.
She was, until February of 1998, the Chief Underwriting Officer of CapMAC
Holdings Inc.
Robert T. Wheeler is Vice President and Chief Technology Officer of the
Company. From 1985 until April of 2000, he was the Managing Director and Chief
Information Officer of US Fire Insurance Company.
John S. Pizzarelli is Vice President of the Company and head of the
Public Finance Division. Since joining MBIA Corp. in 1985, he has been primarily
involved in the public finance area.
Mark D. Zucker is Vice President of the Company and head of the
Structured Finance Division. Prior to joining the Company he was Chief Credit
Officer - Investment Banking at Rabobank International.
Item 2. Properties
MBIA Corp. owns the 265,000 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 also has rental space in New
York, New York, San Francisco, California, Paris, France, Madrid, Spain, Sydney,
Australia and London, England. The Company believes that these facilities are
adequate and suitable for its current needs.
Item 3. Legal Proceedings
In the normal course of operating its businesses, the Company may be
involved in various legal proceedings. Several class-action lawsuits have been
filed naming securitization trusts insured by MBIA Corp. as defendants. Various
allegations have been made against the originators of the mortgage loans which
are the assets of these trusts including violations of state and federal truth
in lending laws. Although the Company has not been named in these suits, as the
insurer we are monitoring them and assisting in their defense. We do not expect
there to be any material losses in the trusts as a result of these lawsuits, but
no assurances can be given as to the potential outcome of these actions. There
are no other material lawsuits pending or, to the knowledge of the Company,
threatened, to which the Company or any of its subsidiaries is a party. See
"Capital Asset" for a description of certain litigation against the Company and
certain of its subsidiaries related to its investment in Capital Asset.
29
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
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 page 62 of the Company's 2001 Annual Report to
Shareholders and is incorporated herein by reference. As of March 21, 2002,
there were 851 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 26-27 of the Company's 2001 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 28-37 of
the Company's 2001 Annual Report to Shareholders is incorporated by reference.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
See the information under the heading "Market Risk" in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" as set
forth on page 37 of the Company's 2001 Annual Report to Shareholders which 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 38-60 of the Company's
2001 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 April 3, 2002, which is
incorporated by reference.
30
<PAGE>
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 in the "Report of the Compensation and Organization Committee on
Executive Compensation" and in the five compensation tables in the Company's
Proxy Statement, dated April 3, 2002, which is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners
and management is set forth under "Security Ownership of Certain Beneficial
Owners" and "Security Ownership of Directors and Executive Officers" in the
Company's Proxy Statement, dated April 3, 2002, 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 April 3, 2002, which is incorporated by reference.
31
<PAGE>
PART IV
-------
Item 14.
(a) Financial Statements and Financial Statement Schedules and
Exhibits.
1. Financial Statements
--------------------
MBIA Inc. has incorporated by reference from the 2001 Annual Report to
Shareholders the following consolidated financial statements of the Company:
<TABLE>
<CAPTION>
Annual Report to Shareholders
Page(s)
<S> <C>
MBIA INC. AND SUBSIDIARIES
Report of independent accountants. 38
Consolidated balance sheets as of December 31, 2001 and 39
2000.
Consolidated statements of income for the years ended 40
December 31, 2001, 2000 and 1999.
Consolidated statements of changes in shareholders' 41
equity for the years ended December 31, 2001, 2000 and 1999.
Consolidated statements of cash flows for the years 42
ended December 31, 2001, 2000 and 1999.
Notes to consolidated financial statements. 43-60
</TABLE>
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, 2001.
II Condensed financial information of Registrant for
December 31, 2001, 2000 and 1999.
IV. Reinsurance for the years ended December 31, 2001, 2000
and 1999.
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.
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 to 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"), as amended December 20, 1995, incorporated by reference to Exhibit
3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 (Comm. File 1-9583) (the "2000 10-K"), as further amended
September 5, 2001.
32
<PAGE>
3.2. By-Laws as Amended as of March 19, 1998, incorporated by
reference to Exhibit 3.2 of the 1998 10-K.
4. Instruments Defining the Rights of Security Holders, including
--------------------------------------------------------------
Indentures.
- -----------
4.1 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.
4.2 Bond Purchase and Paying Agent Agreement between MBIA Inc. and
various banks, entered into as of December 12, 2000 in connection with CHF
175,000,000 4.5% Bonds, due June 15, 2010, incorporated by reference to Exhibit
4.2 to the 2000 10-K.
10. Material Contracts
------------------
10.01. 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, as supplemented by the Amended and Restated
Tax Allocation Agreement Supplement No. 1, dated as of August 31, 1999,
incorporated by reference to Exhibit 10.06 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,1999 (Comm. File No. 1-9583)
(the "1999 10-K").
10.02. Note Subscription Agreement and Preferred Shares Subscription
Agreement, both dated as of December 27, 2001 between MBIA Inc. and certain
reinsurers.
10.03. 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, incorporated by reference to Exhibit 10.10 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998 (Comm. File No. 1-9583)
(the "1998 10-K").
10.04. 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, incorporated by reference to Exhibit 10.13 to the 1998 10-K, as further
amended and restated by the Second Amendment to the Second Amended and Restated
Credit Agreement, dated as of October 29, 1999, incorporated by reference to
Exhibit 10.13 to the 1999 10-K, as further amended and
33
<PAGE>
restated by the Third Amendment to the Second Amendment and Restated Credit
Agreement, dated as of October 27, 2000, incorporated by reference to Exhibit
10.04 to the 2000 10-K, as further amended by the Fourth Amendment to the Second
Amended and Restated Credit Agreement, dated as of October 31, 2001.
10.05. 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.
10.06. 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.
10.07. 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.
10.08. 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.
10.09. 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.
10.10. 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.
10.11. Reinsurance Agreement, dated as of April 1, 1998, between
CapMAC and MBIA Corp., incorporated by reference to Exhibit 10.30 to the 1998
10-K.
10.12. Reinsurance Agreement, dated as of January 1, 1999, between
MBIA Illinois and MBIA Corp., incorporated by reference to Exhibit 10.31 to the
1998 10-K.
10.13. Agreement and Plan of Merger by and among the Company, MBIA
Acquisition, Inc. and 1838 Investment Advisors, Inc., dated as of June 19, 1998,
incorporated by reference to Exhibit 10.32 to the 1998 10-K.
10.14. 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, incorporated by reference to Exhibit 10.33 to the
1998 10-K, as amended by a Notice of Extension of Final Maturity Date, with
various lending institutions, dated as of August 2000, incorporated by reference
to Exhibit 10.14 to the 2000 10-K, as further amended by the First Amendment,
dated as of February 9, 2001, the Second Amendment to the Credit Agreement,
dated as of July 31, 2001, and the Third Amendment, dated as of December 7,
2001.
10.15. 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, incorporated by reference to Exhibit 10.34 to the
1998 10-K, as amended by a Notice of Extension of Final Maturity Date, with
various lending institutions, dated as of August 2000, incorporated by reference
to Exhibit 10.15 to the 2000 10-K as further amended by the First Amendment,
dated as of February 9,
34
<PAGE>
2001, the Second Amendment to the Credit Agreement, dated as of July 31, 2001,
and the Third Amendment, dated as of December 7, 2001.
10.16. 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, incorporated by reference to
Exhibit 10.48 to the 1998 10-K.
10.17. 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,
incorporated by reference to Exhibit 10.49 to the 1998 10-K.
10.18. 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, incorporated
by reference to Exhibit 10.50 to the 1998 10-K.
10.19. ISDA Master Agreement, dated May 2, 2000, between Deutsche
Bank AG and MBIA Inc., as supplemented by the Schedule to the ISDA Master
Agreement and the Credit Support Annex, incorporated by reference to Exhibit
10.19 to the 2000 10-K.
Executive Compensation Plans and Arrangements
The following Exhibits identify all existing executive compensation plans
and arrangements:
10.20. MBIA Inc. 2000 Stock Option Plan, effective May 11, 2000,
incorporated by reference to Exhibit 10.20 to the 2000 10-K.
10.21. 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").
10.22. 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")).
10.23. 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.
10.24. 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.
10.25. 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.
35
<PAGE>
10.26. MBIA Inc. 1996 Incentive Plan, effective as of January 1,
1996, incorporated by reference to Exhibit 10.70 to the 1995 10-K.
10.27. 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.
10.28. CapMAC Employee Stock Ownership Plan, incorporated by
reference to Exhibit 10.18 to the CapMAC Form S-1, as Amended and Restated,
effective January 1, 1999, incorporated by reference to Exhibit 10.28 to the
2000 10-K.
10.29. 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, incorporated by reference to Exhibit 10.25 to the 1998 10-K.
10.30. ESOP Loan Agreement by and between MBIA Inc. and the CapMAC
Employee Stock Ownership Plan Trust, dated June 30, 1999, incorporated by
reference to Exhibit 10.30 to the 2000 10-K.
10.31. 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").
10.32. 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.
10.33. 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, incorporated by reference to Exhibit 10.35 to the 1998 10-K.
10.34. Terms of Employment letter between MBIA and Joseph W. Brown,
Jr., dated January 7, 1999, incorporated by reference to Exhibit 10.36 to the
1998 10-K.
10.35. Stock Option Agreement between MBIA Inc. and Joseph W. Brown,
Jr., dated January 7, 1999, incorporated by reference to Exhibit 10.37 to the
1998 10-K.
10.36. Key Employee Employment Protection Agreement between MBIA Inc.
and Joseph W. Brown, Jr., dated January 20, 1999, incorporated by reference to
Exhibit 10.38 to the 1998 10-K.
10.37. Key Employee Employment Protection Agreement between MBIA Inc.
and Neil G. Budnick, dated January 25, 1999, incorporated by reference to
Exhibit 10.39 to the 1998 10-K.
10.38. Key Employee Employment Protection Agreement between MBIA Inc.
and W. Thacher Brown, dated January 25, 1999, incorporated by reference to
Exhibit 10.40 to the 1998 10-K.
10.39. Key Employee Employment Protection Agreement between MBIA Inc.
and John B. Caouette, dated January 25, 1999, incorporated by reference to
Exhibit 10.41 to the 1998 10-K.
10.40. Key Employee Employment Protection Agreement between MBIA Inc.
and Gary C. Dunton, dated January 25, 1999, incorporated by reference to Exhibit
10.42 to the 1998 10-K.
10.41. Key Employee Employment Protection Agreement between MBIA Inc.
and Louis G. Lenzi, dated January 25, 1999, incorporated by reference to Exhibit
10.43 to the 1998 10-K.
10.42. Key Employee Employment Protection Agreement between MBIA Inc.
and Kevin D. Silva , dated January 25, 1999, incorporated by reference to
Exhibit 10.44 to the 1998 10-K.
36
<PAGE>
10.43. Key Employee Employment Protection Agreement between MBIA Inc.
and Richard L. Weill, dated January 25, 1999, incorporated by reference to
Exhibit 10.45 to the 1998 10-K.
10.44. Key Employee Employment Protection Agreement between MBIA Inc.
and Ruth M. Whaley, dated January 25, 1999, incorporated by reference to Exhibit
10.46 to the 1998 10-K.
10.45. Key Employee Employment Protection Agreement between MBIA Inc.
and Michael J. Maguire, dated March 19, 1999, incorporated by reference to
Exhibit 10.47 to the 1998 10-K.
10.46. Key Employee Employment Protection Agreement between MBIA Inc.
and John S. Pizzarelli, dated March 14, 2000, incorporated by reference to
Exhibit 10.46 to the 2000 10-K.
10.47. Key Employee Employment Protection Agreement between MBIA Inc.
and Ram D. Wertheim, dated January 24, 2000, incorporated by reference to
Exhibit 10.47 to the 2000 10-K.
10.48. Key Employee Employment Protection Agreement between MBIA Inc.
and Robert T. Wheeler, dated April 17, 2000, incorporated by reference to
Exhibit 10.48 to the 2000 10-K.
10.49. Key Employee Employment Protection Agreement between MBIA Inc.
and Mark S. Zucker, dated March 14, 2000, incorporated by reference to Exhibit
10.49 to the 2000 10-K.
10.50 MBIA Inc. Restricted Stock Plan for Non-Employee Directors,
effective as of March 21, 2002, incorporated by reference to the MBIA Inc. Form
S-8 filed on March 14, 2002 (Reg. No. 333-84300) (the"2002 S-8").
10.51 Amended and Restated Deferred Compensation and Stock Ownership
Plan for Non-Employee Directors, effective as of March 21, 2002, incorporated by
reference to the 2002 S-8.
13. Annual Report to Shareholders of MBIA Inc. for fiscal year
ended December 31, 2001. 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
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 2001.
37
<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, 2002 By /s/Joseph W. Brown
--------------------------------------
Name: Joseph W. Brown
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Joseph W. Brown Chairman and Director March 29, 2002
- ------------------------------------------
Joseph W. Brown
/s/ Douglas C. Hamilton Vice President and March 29, 2002
- ------------------------------------------ Controller
Douglas C. Hamilton
/s/David H. Elliott Director March 29, 2002
- ------------------------------------------
David H. Elliott
/s/David C. Clapp Director March 29, 2002
- ------------------------------------------
David C. Clapp
/s/Gary C. Dunton Director March 29, 2002
- ------------------------------------------
Gary C. Dunton
/s/Claire L. Gaudiani Director March 29, 2002
- ------------------------------------------
Claire L. Gaudiani
</TABLE>
38
<PAGE>
<TABLE>
<S> <C> <C>
/s/William H. Gray, III Director March 29, 2002
- ------------------------------------------
William H. Gray, III
/s/Freda S. Johnson Director March 29, 2002
- ------------------------------------------
Freda S. Johnson
/s/Daniel P. Kearney Director March 29, 2002
- ------------------------------------------
Daniel P. Kearney
/s/James A. Lebenthal Director March 29, 2002
- ------------------------------------------
James A. Lebenthal
/s/John A. Rolls Director March 29, 2002
- ------------------------------------------
John A. Rolls
</TABLE>
39
<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 1, 2002 appearing in the 2001 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.
February 1, 2002
<PAGE>
SCHEDULE I
MBIA INC. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS, OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 2001
(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 $ 1,178,078 $ 1,210,554 $ 1,210,554
State and municipal
obligations 4,265,143 4,330,956 4,330,956
Corporate and other
obligations 6,078,101 6,212,069 6,212,069
Mortgage-backed 1,875,537 1,920,557 1,920,557
----------- ----------- -----------
Total fixed-maturities 13,396,859 13,674,136 13,674,136
Short-term investments 706,659 XXXXXXX 706,659
Other investments 135,376 XXXXXXX 135,376
----------- ----------- -----------
Total investments $14,238,894 XXXXXXX $14,516,171
=========== =========== ===========
</TABLE>
<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 accounting principles
generally accepted in the United States of America 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 Subsidiaries
During 2001 and 2000, MBIA Corp. declared and paid dividends of $212.4
million and $197.3 million to MBIA Inc. In 2001, MBIA Asset Management LLC
made a distribution of $20.0 million to MBIA Inc. In 2000, MBIA Asset
Management Corp. declared and paid dividends of $25.0 million to MBIA Inc.
4. Obligations under Municipal Investment and Repurchase Agreements
The municipal investment and repurchase agreement business, as described
in footnotes 2 and 19 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 II
MBIA INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31, 2001 December 31, 2000
----------------- -----------------
<S> <C> <C>
ASSETS
Investments:
Municipal investment agreement portfolio
held as available-for-sale at fair value
(amortized cost $5,104,478 and $4,452,992) $ 5,605,181 $ 4,263,207
Municipal investment agreement portfolio
pledged as collateral at fair value
(amortized cost $577,790 and $211,214) 586,915 211,440
Fixed maturity securities held as available-for-sale
at fair value (amortized cost $106,496 and $72,607) 106,197 74,594
Short-term investments, at amortized cost
(which approximates fair value) 4,466 106,001
------------ ------------
Total investments 6,302,759 4,655,242
Cash and cash equivalents 30,968 30,684
Securities purchased under agreements
to resell or borrowed -- 559,624
Investment in and amounts due from
wholly-owned subsidiaries 5,211,729 4,809,122
Accrued investment income 64,265 43,299
Receivable for investments sold 134,265 11,275
Other assets 34,417 26,776
------------ ------------
Total assets $ 11,778,403 $ 10,136,022
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Municipal investment agreements $ 4,790,172 $ 3,461,095
Municipal repurchase agreements 699,577 757,643
Long-term debt 797,512 783,802
Short-term debt -- 99,992
Securities sold under agreeements
to repurchase or loaned 557,818 734,624
Deferred income taxes 20,019 8,376
Payable for investments purchased 79,859 5,566
Dividends payable 22,274 20,205
Other liabilities 28,534 41,306
------------ ------------
Total liabilities 6,995,765 5,912,609
------------ ------------
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 - 400,000,000 and 200,000,000;
issued shares - 151,950,991 and 151,159,943 151,951 151,160
Additional paid-in capital 1,195,802 1,169,200
Retained earnings 3,415,517 2,934,608
Accumulated other comprehensive income,
net of deferred income tax provision
of $91,222 and $57,141 145,321 85,707
Unallocated ESOP shares (1,983) (2,950)
Unearned compensation - restricted stock (11,335) (10,659)
Treasury stock - 3,516,921 in 2001 and
3,314,037 shares in 2000 (112,635) (103,653)
------------ ------------
Total shareholders' equity 4,782,638 4,223,413
------------ ------------
Total liabilities and shareholders' equity $ 11,778,403 $ 10,136,022
============ ============
</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
---------------------------------------
2001 2000 1999
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Net investment income $ 236,837 $ 223,575 $ 188,826
Net realized gains (losses) 7,776 8,386 (8,639)
Change in fair value of derivative instruments 476 -- --
Investment management services income 31,360 23,088 12,733
Investment management services realized gains (losses) 3,817 (1,820) 1,185
--------- --------- ---------
Total revenues 280,266 253,229 194,105
--------- --------- ---------
Expenses:
Interest expense 68,021 54,460 52,857
Operating expenses 15,293 19,452 135,737
--------- --------- ---------
Total expenses 83,314 73,912 188,594
--------- --------- ---------
Gain before income taxes and equity in earnings
of subsidiaries 196,952 179,317 5,511
Benefit for income taxes (26,620) (16,742) (17,617)
--------- --------- ---------
Gain before equity in earnings of subsidiaries 223,572 196,059 23,128
Equity in earnings of subsidiaries 349,062 332,578 297,402
--------- --------- ---------
Income before cumulative effect of accounting change 572,634 528,637 320,530
Cumulative effect of accounting change (2,543) -- --
--------- --------- ---------
Net income $ 570,091 $ 528,637 $ 320,530
========= ========= =========
</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
----------------------------------------------
2001 2000 1999
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 570,091 $ 528,637 $ 320,530
Adjustments to reconcile net income
to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries (349,062) (332,578) (297,402)
Net realized (gains) losses on sales of investments (11,593) (6,566) 7,454
Benefit for deferred income taxes (8,625) (118) (52)
Other, net (40,011) (11,421) 1,364
------------ ----------- -----------
Total adjustments to net income (409,291) (350,683) (288,636)
------------ ----------- -----------
Net cash provided by operating activities 160,800 177,954 31,894
------------ ----------- -----------
Cash flows from investing activities:
Purchase of fixed-maturity securities (13,555,970) (4,433,020) (4,776,543)
Sale of fixed-maturity securities 13,534,744 4,360,435 4,767,905
Sale (purchase) of short-term investments 102,388 (106,001) --
Purchases for municipal investment agreement portfolio,
net of payable for investments purchased (9,374,432) (5,346,474) (2,541,312)
Sales from municipal investment agreement portfolio,
net of receivable for investments sold 7,684,881 4,754,985 1,324,531
Contributions to subsidiaries (3,003) (130) (3,178)
Advances to subsidiaries, net (29,271) 56,310 135,690
------------ ----------- -----------
Net cash used by investing activities (1,640,663) (713,895) (1,092,907)
------------ ----------- -----------
Cash flows from financing activities:
Net (repayment) proceeds from (retirement) issuance
of long-term debt (3,750) 196,108 --
Net repayment from retirement of short-term debt (99,992) -- --
Dividends paid (87,112) (80,708) (79,764)
Purchase of treasury stock (8,982) (77,955) (24,698)
Proceeds from issuance of municipal
investment and repurchase agreements 3,857,293 2,478,519 2,547,714
Payments for drawdowns of
municipal investment agreements (2,584,400) (2,141,733) (1,373,250)
Securities loaned or sold under
agreements to repurchase, net 382,817 147,422 (7,493)
Exercise of stock options 24,273 23,683 14,616
------------ ----------- -----------
Net cash provided by financing activities 1,480,147 545,336 1,077,125
------------ ----------- -----------
Net increase in cash and cash equivalents 284 9,395 16,112
Cash and cash equivalents - beginning of year 30,684 21,289 5,177
------------ ----------- -----------
Cash and cash equivalents - end of year $ 30,968 $ 30,684 $ 21,289
============ =========== ===========
Supplemental cash flow disclosures:
Income taxes paid $ 2,151 $ 1,411 $ 149
Interest paid:
Long-term debt 60,527 52,388 52,338
</TABLE>
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes.
<PAGE>
SCHEDULE IV
MBIA INC. AND SUBSIDIARIES
REINSURANCE
for the Years Ended December 31, 2001, 2000 and 1999
(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>
2001 $839,386 $235,362 $25,840 $629,864 4.1%
---- -------- -------- ------- -------- ---
2000 $641,452 $189,316 $45,956 $498,092 9.2%
---- -------- -------- ------- -------- ---
1999 $590,597 $171,256 $34,274 $453,615 7.6%
---- -------- -------- ------- -------- ---
</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, 2001
Commission File No. 1-9583
- --------------------------------------------------------------------------------
MBIA Inc.
<PAGE>
Exhibit Index
3.1. Restated Certificate of Incorporation, dated August 17, 1990,
incorporated by reference to Exhibit 3.1 to 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"), as amended December 20, 1995, incorporated by reference to Exhibit 3.1
to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2000 (Comm. File 1-9583) (the "2000 10-K"), as further amended September 5,
2001.
10.02. Note Subscription Agreement and Preferred Shares Subscription
Agreement, both dated as of December 27, 2001 between MBIA Inc. and certain
reinsurers.
10.04. 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, incorporated by reference to Exhibit 10.13 to the 1998 10-K, as further
amended and restated by the Second Amendment to the Second Amended and Restated
Credit Agreement, dated as of October 29, 1999, incorporated by reference to
Exhibit 10.13 to the 1999 10-K, as further amended and restated by the Third
Amendment to the Second Amendment and Restated Credit Agreement, dated as of
October 27, 2000, incorporated by reference to Exhibit 10.04 to the 2000 10-K,
as further amended by the Fourth Amendment to the Second Amended and Restated
Credit Agreement, dated as of October 31, 2001.
10.14. 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, incorporated by reference to Exhibit 10.33 to the
1998 10-K, as amended by a Notice of Extension of Final Maturity Date, with
various lending institutions, dated as of August 2000, incorporated by reference
to Exhibit 10.14 to the 2000 10-K, as further amended by the First Amendment,
dated as of February 9, 2001, the Second Amendment to the Credit Agreement,
dated as of July 31, 2001, and the Third Amendment, dated as of December 7,
2001.
10.15. 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, incorporated by reference to Exhibit 10.34 to the
1998 10-K, as amended by a Notice of Extension of Final Maturity Date, with
various lending institutions, dated as of August 2000, incorporated by reference
to Exhibit 10.15 to the 2000 10-K as further amended by the First Amendment,
dated as of February 9, 2001, the Second Amendment to the Credit Agreement,
dated as of July 31, 2001, and the Third Amendment, dated as of December 7,
2001.
13. Annual Report to Shareholders of MBIA Inc. for fiscal year ended
December 31, 2001. 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.
<PAGE>
21. List of Subsidiaries
23. Consent of PricewaterhouseCoopers LLP
99. Additional Exhibits - MBIA Corp. GAAP Financial Statements
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>3
<FILENAME>dex31.txt
<DESCRIPTION>RESTATED CERTIFICATE OF INCORPORATION
<TEXT>
<PAGE>
EXHIBIT 3.1
MBIA INC.
(Stock Corporation)
AMENDED AND RESTATED
--------------------
CERTIFICATE OF INCORPORATION
----------------------------
1. The name of the Corporation is MBIA Inc.
2. The nature of the business to be transacted, or the purposes to be
promoted or carried out by the corporation, are as follows:
The Corporation shall have the power to engage in any lawful act or
activity for which corporations may be formed under the Stock
Corporation Act of the State of Connecticut.
3. The designation of each class of shares, the authorized number of
shares of each such class, and the par value (if any) of each such
share thereof, are as follows:
The total number of shares of capital stock that the Corporation shall
have authority to issue is Four Hundred Ten Million (410,000,000)
shares, of which Four Hundred Million (400,000,000) shares shall be
common stock, par value $1.00 per share, and of which Ten Million
(10,000,000) shares shall be preferred stock, par value $1.00 per
share.
Immediately following the effectiveness of the Amended and Restated
Certificate of Incorporation filed with the Secretary of the State of
the State of Connecticut on May 21, 1987, there shall be a 736-for-1
stock split applicable to each share of common stock of the corporation
issued and outstanding immediately prior to such time, so that each
share of common stock of the Corporation issued and outstanding
immediately prior to such time shall be changed into 736 shares of such
common stock.
4. The terms, limitations and relative rights and preferences of each
class of shares and series thereof (if any), or an express grant of
authority to the Board of Directors pursuant to Section 33-341 of the
Stock Corporation Act of the State of Connecticut, Connecticut General
Statutes, are as follows:
Each share of common stock shall have one vote on all matters on which
shareholders are entitled to vote by this Amended and Restated
Certificate of Incorporation, the By-Laws of the Corporation, or the
statutes of Connecticut. Each share of common stock shall participate
equally in any dividend distribution and upon liquidation or
dissolution.
1
<PAGE>
Authority is hereby expressly vested in the Board of Directors of the
Corporation pursuant to the Stock Corporation Act of the State of
Connecticut to adopt from time to time resolutions and amendments to
this Amended and Restated Certificate of Incorporation providing for
the issuance of the Corporation's authorized and unissued shares of
preferred stock, fixing and determining the terms, limitations, and
relative rights and preferences of the preferred stock, establishing
series and fixing and. determining the variations as among particular
series of the preferred stock. The resolution or resolutions providing
for the issue of shares of a particular series shall fix, subject to
applicable laws, the designation, rights, preferences and limitations
of the shares of each such series. The authority of the Board of
Directors with respect to each series shall include, but not be limited
to, determination of the following:
(a) the number of shares constituting such series, including
the authority to increase or decrease such number, and the distinctive
designation of such series;
(b) the dividend rate of the shares of such series, whether the
dividends shall be cumulative and, if so, the date from which they
shall be cumulative, and the relative rights of priority, if any, of
payment of dividends on shares of such series;
(c) the right, if any, of the Corporation to redeem shares of
such series and the terms and conditions of such redemption, including
the redemption price;
(d) the rights of the shares in case of a voluntary or
involuntary liquidation, dissolution or winding up of the Corporation,
and the relative rights of priority, if any, of payment of shares of
such series;
(e) the voting rights, if any, of the shares of such series and
the terms and conditions under which such voting rights may be
exercised;
(f) the obligation, if any, of the Corporation to provide a
retirement or sinking fund or funds of a similar nature and the terms
and conditions of such obligation;
(g) the terms and conditions, if any, upon which shares of such
series shall be convertible into or exchangeable for shares of stock of
any other class or classes or of any other series of preferred stock,
including the price or prices or the rate or rates of conversion or
exchange and the terms of adjustment, if any; and
(h) any other terms, rights, preferences or limitations of the
shares of such series as may be permitted by law.
2
<PAGE>
The Board of Directors may not make any change in the designations,
terms, limitations or relative rights or preferences of shares of
preferred stock after their issuance, except upon compliance with any
applicable provisions of the applicable law, of the By-Laws of the
Corporation and of such designations, terms, limitations and relative
rights and preferences.
5. The minimum amount of stated capital with which the Corporation shall
commence business is Five Hundred Thousand Dollars ($500,000) and Five
Hundred Thousand Dollars ($500,000) in capital surplus.
6. Upon the offering or sale by the Corporation of its shares or
securities convertible into shares (including warrants, rights to
subscribe and options to acquire shares), no shareholder shall have the
preemptive right to purchase any such shares or securities.
7. The Corporation has expressly elected not to be governed by Sections
33-374a to 33-374c, inclusive, of the Stock Corporation Act of the
State of Connecticut, Connecticut General Statutes, pursuant to the
authority granted by Section 33-374c thereof.
8. The Board of Directors of the Corporation, when evaluating any offer of
another party to (a) make a tender or exchange offer for any equity
security of the Corporation, (b) merge or consolidate the Corporation
into or with another corporation, or (c) purchase or otherwise acquire
all or substantially all of the properties and assets of the
Corporation, shall, in connection with the exercise of its judgment in
determining what is in the best interests of the Corporation as a
whole, be authorized to give due consideration to such factors as the
Board of Directors determines to be relevant, including, without
limitation:
(i) the interests of the Corporation's shareholders;
(ii) whether the proposed transaction might violate federal or state
laws;
(iii) the form and amount of consideration being offered in the
proposed transaction, not only in relation to the then current
market price for the outstanding capital stock of the
Corporation, but also in relation to (1) the market price for
the capital stock of the Corporation over a period of years,
(2) the estimated price that might be achieved in a freely
negotiated sale of the Corporation as a whole or in part or
through orderly liquidation, (3) the premiums over market price
paid for the securities of other corporations in similar
transactions,(4) current political, economic and other factors
bearing on securities prices, and (5) the Corporation's then
current value (including its financial condition and the
unrealized value of its properties and assets determined over a
period of years), its long-term plans and its future prospects
as an independent going concern; and
3
<PAGE>
(iv) the social, legal, environmental and economic effects on (1)
policy holders, employees, clients, suppliers and other
affected persons, firms and corporations, (2) the communities
and economic regions in which the Corporation and its
subsidiaries operate or are located and (3) any of the
businesses and properties of the Corporation or of any of its
subsidiaries.
In connection with such evaluation, the Board of Directors is
authorized to conduct such investigations and to engage in such legal
proceedings as the Board of Directors may determine.
Notwithstanding anything to the contrary contained in this Amended and
Restated Certificate of Incorporation, the By-Laws of the Corporation
or otherwise (and notwithstanding the fact that a lesser percentage may
be specified by law, this Amended and Restated Certificate of
Incorporation or the By-Laws of the Corporation), the affirmative vote
of the holders of at least 80% of the voting power of all of the shares
of the Corporation then entitled to vote generally in the election of
Directors shall be required to amend or repeal, or adopt any provision
inconsistent with, this Section 8.
9. No person who is or was a director of the corporation shall be
personally liable to the corporation or its shareholders for monetary
damages for breach of duty as a director in an amount that exceeds the
compensation received by the director for serving the Corporation
during the year of the violation if such breach did not (a) involve a
knowing and culpable violation of law by the director, (b) enable the
director or an associate, as defined in subdivision (3) of Section
33-374d of the Connecticut Stock Corporation Act as in effect on the
effective date hereof and as it may be amended from time to time, to
receive an improper personal economic gain, (c) show a lack of good
faith and a conscious disregard for the duty of the director to the
Corporation under circumstances in which the director was aware that
such conduct or omission created an unjustifiable risk of serious
injury to the corporation, (d) constitute a sustained and unexcused
pattern of inattention that amounted to an abdication of the director's
duty to the Corporation, or (e) create liability under Section 33-321
of the Connecticut Stock Corporation Act as in effect on the effective
date hereof and as it may be amended from time to time. This Section 9
shall not limit or preclude the liability of a person who is or was a
director for any act or omission occurring prior to the effective date
hereof. Any lawful repeal or modification of this Section 9 or the
adoption of any provision inconsistent herewith by the Board of
Directors and the shareholders of the Corporation shall not, with
respect to a person who is or was a director, adversely affect any
limitation of liability, right or protection of such person existing
hereunder with respect to any breach of duty occurring prior to the
effective date of such repeal, modification or adoption of a provision
inconsistent herewith.
4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.02
<SEQUENCE>4
<FILENAME>dex1002.txt
<DESCRIPTION>NOTE SUBSCRIPTION AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 10.02
NOTE SUBSCRIPTION AGREEMENT
Up to $150,000,000 Aggregate Principal Amount
of Variable Rate Subordinated Notes
Due 15 Years from Original Issuance Date
MBIA, INC.
December 27, 2001
MBIA, Inc.
113 King Street
Armonk, New York 10504
Ladies and Gentlemen:
Swiss Re Financial Products Corporation, a Delaware corporation ("SRFPC"),
and XXXXX, a Delaware corporation ("XXXXX"), and together with SRFPC, the
"Providers"), and Swiss Re Capital Markets Corporation, a Delaware corporation,
as agent for the Providers ("SRCMC"), hereby confirm their agreement with MBIA,
Inc., a Connecticut corporation (the "Company"), with respect to the future
issue and sale by the Company, and the commitments for purchase by the
Providers, subject to the terms and conditions set forth herein, of up to
$150,000,000 aggregate principal amount of Variable Rate Subordinated Notes Due
15 Years from Original Issuance Date (the "Notes") of the Company. Capitalized
terms used herein shall have the meanings attributed thereto in Section 1
hereof.
The Providers understand that on any day during the Commitment Period on
which Incurred Losses exceed the Trigger Point (each such date, a "Trigger
Date") but in no event more frequently than once every 30 days, subject to the
terms and conditions stated herein, the Company shall have the right to require
the Providers to purchase Notes in an aggregate principal amount equal to the
amount by which Incurred Losses on such Trigger Date exceed the Trigger Point as
of such Trigger Date, minus the aggregate principal amount of Notes sold to the
Providers prior to such Trigger Date, but in no event exceeding the amount of
the Available Commitment in effect at such time. No Provider shall be obligated
to purchase more than its Pro Rata Share of the Notes. Incurred Losses shall be
determined in respect of certain financial guaranty insurance policies issued by
any of MBIA Insurance Corporation ("MBIA Corp."), MBIA Assurance, S.A., Capital
Markets Assurance Corporation, MBIA Insurance Corp. of Illinois and any other
financial guaranty company wholly owned by, or consolidated on the balance sheet
of, MBIA Corp. or the Company (collectively, the "Insurers"), as described in
greater detail herein.
The Providers understand that the Company may agree to issue, from time to
time, additional commitments for the purchase of Notes in excess of $150,000,000
aggregate principal amount to one or more subsequent providers (each, a
"Subsequent Provider"), although SRFPC
<PAGE>
and XXXXX shall have no obligation to purchase such additional commitments. The
Company acknowledges and agrees that the Providers may also request that all or
a portion of the Commitments evidenced by this Agreement be assigned to
Subsequent Providers; provided, however, that in no event shall the aggregate
Commitments of SRFPC be less than $50,000,000.
1. Definitions. Except as otherwise defined herein and except where
-----------
the context otherwise requires, the following terms shall have the following
meanings:
"AAA" has the meaning given to such term in Section 14.
"Affiliate" shall mean any management employee or director of the
Company or any Subsidiary, or holder of five percent (5%) or more of any
class of capital stock of the Company, or any member of their respective
immediate families or any corporation or other entity directly or
indirectly controlled by one or more of such management employees,
directors or 5% stockholders or members of their immediate families.
"Agreement" means this Note Subscription Agreement.
"Available Commitment" means, as of any date of determination during
the Commitment Period, the amount of the Commitments, minus (i) the face
amount of Notes sold to the Providers or with respect to which a Note
Issuance Request has been given to the Providers and not rescinded before
such date (it being understood that if for any reason one or more
Providers defaults on its Commitments to purchase Notes on any Closing
Date, such defaulting Provider's Pro Rata Share of the Available
Commitment shall be increased by the aggregate principal amount of Notes
such Provider failed to purchase), and (ii) any reduction of the
Commitments by the Company as set forth in Section 2(c), plus the amount
----
of any Notes redeemed pursuant to Sections 2(g) or 3(c).
"Average Investment Rating" means the weighted average of the issue
credit ratings of the investments held in the investment portfolio by MBIA
Corp. (measured by the then-current fair market value of such
investments), as determined by S&P or Moody's (or if neither of S&P or
Moody's is then providing such service, another NRSRO then providing such
service), where (i) a debt rating of AAA or Aaa equals 1.0, AA or Aa
equals 2.0, A or A equals 3.0, BBB or Baa equals 4.0 and any rating below
BBB or Baa equals 7.0, respectively; (ii) a short term issue credit rating
of A-1+ and P-1 equals 2.0, A-1 and P-1 equals 2.5, and A-2 and P-2 equals
4; (iii) a debt rating by the NAIC of NAIC 1 equals 2, NAIC 2 equals 4 and
NAIC 3 equals 7, but only if any such NAIC-rated debt has not otherwise
been rated by S&P or Moody's; (iv) any unrated money market mutual fund
equals 3, and (v) any investment not rated as set forth in the foregoing
clauses (i) through (iv) equals 10. In the event that S&P or Moody's do
not have equivalent ratings within the investment class described in the
foregoing clause (i), the lower of the two ratings shall apply, and in the
event that only one NRSRO issues ratings within such investment class,
such single rating shall apply.
"Business Day" means any day, other than a Saturday or Sunday, that
is neither a legal holiday nor a day on which banking institutions are
authorized or required by law,
2
<PAGE>
regulation or executive order to close in The City of New York, New York
and that is also a London Banking Day.
"Capital Lease Obligations" means, as to any Person, the obligations
of such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under
GAAP and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such
time determined in accordance with GAAP.
"Case Basis Reserves" means the specific, identified loss reserves
established by an Insurer to cover estimated losses on policies for which
such Insurer has determined that it is likely to incur losses.
"Change in Control" means, with respect to any Person, the
acquisition by any other Person, or any two or more other Persons acting
in concert, of beneficial ownership (within the meaning of Rule 13d-3
under the 1934 Act), directly or indirectly, of securities of such Person
(or other securities convertible into such securities) representing 30% or
more of the combined voting power of all securities of such Person
entitled to vote in the election of directors, other than securities
having such power only by reason of the happening of a contingency.
"Claims Paying Ratio" means (i) the aggregate outstanding net debt
service insured by the Reference Portfolio Insurers divided by (ii) the
sum of (A) the aggregate statutory capital (including contingency
reserves, if any) of the Reference Portfolio Insurers, (B) the aggregate
unearned premium reserve (calculated on an after tax basis) of the
Reference Portfolio Insurers, (C) the aggregate statutory loss and loss
adjustment expense reserves of the Reference Portfolio Insurers, (D) the
aggregate present value of future installment premiums (calculated on an
after tax basis on the same basis as the Company calculates adjusted book
value for external reporting purposes) of the Reference Portfolio
Insurers, and (E) the aggregate face amount of soft capital facilities
(including, without limitation, "stop loss" reinsurance facilities, bank
facilities, letters of credit, the Commitments under this Agreement or
similar facilities) available to the Company or any such Reference
Portfolio Insurer which would make available to Company or any such
Reference Portfolio Insurer funds to cover losses under any policies
issued by any Reference Portfolio Insurer.
"Closing Date" means each date scheduled for the delivery of, and
payment for, Notes underlying the Commitments, pursuant to a Note Issuance
Request properly delivered to the Providers.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" has the meaning ascribed to such term in Section
5(a)(13).
"Commitments" means the obligation of the Providers to purchase an
aggregate principal amount of Notes from time to time during the
Commitment Period not to
3
<PAGE>
exceed the amount set forth on Schedule A, provided that the obligation
of each Provider shall not exceed its Pro Rata Share of the Commitments.
"Commitment Fee" means any commitment fee payable by the Company to
a Provider pursuant to a Note Commitment Fee Agreement.
"Commitment Period" means the period from and including the
Effective Date to, but excluding, the Commitment Termination Date.
"Commitment Termination Date" means the earliest to occur of (i)
purchase by the Providers of an aggregate principal amount of Notes equal
to the Commitments, (ii) the tenth anniversary of the date of this
Agreement, and (iii) such other termination of the Commitments as provided
herein.
"Company" means MBIA, Inc., a Connecticut corporation.
"Covenant Default" has the meaning ascribed to such term in Section
7(c).
"Covenant Default Rate" has the meaning ascribed to such term in
Section 7(c).
"Debt to Capital Ratio" with respect to any Person means, as of the
end of any fiscal quarter, the ratio, determined on a consolidated basis
on such date, of (i) the aggregate outstanding Indebtedness of such Person
on such date, to (ii) the aggregate outstanding Indebtedness of such
Person on such date, plus Shareholders' Equity, plus, the accumulated
---- ----
amount, if any, by which Incurred Losses exceed earned premium plus
investment income, as reported by the Reference Portfolio Insurers in
their respective statutory financial statements, from the Effective Date
to the end of such fiscal quarter.
"Default Fee" has the meaning ascribed to such term in Section 7(c).
"Default Rate" has the meaning ascribed to such term in Section
7(c).
"Effective Date" means December 27, 2001.
"Employee Benefit Plan" means any "employee benefit plan" as defined
in Section 3(3) of ERISA which is or was maintained or contributed to by
the Company, any of its Subsidiaries or any of their respective ERISA
Affiliates.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" means, as applied to any Person, (i) any
corporation which is a member of a controlled group of corporations within
the meaning of Section 414(b) of the Code of which that Person is a
member; (ii) any trade or business (whether or not incorporated) which is
a member of a group of trades or businesses under common control within
the meaning of Section 414(c) of the Code of which that Person is a
member; and (iii) any member of an affiliated service group within the
meaning of Section 414(m) or (o) of the Code of which that Person, any
corporation described in
4
<PAGE>
clause (i) above or any trade or business described in clause (ii) above
is a member. Any former ERISA Affiliate of the Company or any of its
Subsidiaries shall continue to be considered an ERISA Affiliate of the
Company or such Subsidiary within the meaning of this definition with
respect to the period such entity was an ERISA Affiliate of the Company or
such Subsidiary and with respect to liabilities arising after such period
for which the Company or such Subsidiary could be liable under the Code or
ERISA.
"ERISA Event" means (i) a "reportable event" within the meaning of
Section 4043 of ERISA and the regulations issued thereunder with respect
to any Pension Plan (excluding those for which the provision for 30-day
notice to the PBGC has been waived by regulation); (ii) the failure to
meet the minimum funding standard of Section 412 of the Code with respect
to any Pension Plan (whether or not waived in accordance with Section
412(d) of the Code) or the failure to make by its due date a required
installment under Section 412(m) of the Code with respect to any Pension
Plan or the failure to make any required contribution to a Multiemployer
Plan; (iii) the provision by the administrator of any Pension Plan
pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate
such plan in a distress termination described in Section 4041(c) of ERISA;
(iv) the withdrawal by the Company, any of its Subsidiaries or any of
their respective ERISA Affiliates from any Pension Plan with two or more
contributing sponsors or the termination of any such Pension Plan
resulting in liability pursuant to Section 4063 or 4064 of ERISA; (v) the
institution by the PBGC of proceedings to terminate any Pension Plan, or
the occurrence of any event or condition which might constitute grounds
under ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan; (vi) the imposition of liability on the
Company, any of its Subsidiaries or any of their respective ERISA
Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of
the application of Section 4212(c) of ERISA; (vii) the withdrawal of the
Company, any of its Subsidiaries or any of their respective ERISA
Affiliates in a complete or partial withdrawal (within the meaning of
Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is
any potential liability therefor, or the receipt by Company, any of its
Subsidiaries or any of their respective ERISA Affiliates of notice from
any Multiemployer Plan that it is in reorganization or insolvency pursuant
to Section 4241 or 4245 of ERISA, or that it intends to terminate or has
terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of
an act or omission which could give rise to the imposition on the Company,
any of its Subsidiaries or any of their respective ERISA Affiliates of
material fines, penalties, taxes or related charges under Section 4975 of
the Code or under Section 502(i) of ERISA in respect of any Employee
Benefit Plan; (ix) the assertion of a material claim (other than routine
claims for benefits) against any Employee Benefit Plan other than a
Multiemployer Plan or the assets thereof, or against the Company, any of
its Subsidiaries or any of their respective ERISA Affiliates in connection
with any Employee Benefit Plan; (x) receipt from the Internal Revenue
Service of notice of the failure of any Pension Plan (or any other
Employee Benefit Plan intended to be qualified under Section 401(a) of the
Code) to qualify under Section 401(a) of the Code, or the failure of any
trust forming part of any Pension Plan to qualify for exemption from
taxation under Section 501(a) of the Code; or (xi) the imposition of a
Lien pursuant to Section 401(a)(29) or 412(n) of the Code or pursuant to
ERISA with respect to any Pension Plan.
5
<PAGE>
"Event of Default" has the meaning ascribed to such term in Section
10.
"Event of Suspension" has the meaning ascribed to such term in
Section 9.
"Exercise Date" means any date on which the Company sends a Note
Issuance Request to the Providers to purchase Notes.
"GAAP" means generally accepted accounting principles in the United
States, applied consistently.
"Incurred Losses" means, as of any Exercise Date, the aggregate
amount during the period commencing on the Effective Date to and including
such Exercise Date of (i) claims on the Reference Portfolio paid by any of
the Reference Portfolio Insurers, net of any Reinsurance with respect to
any such claims, plus (ii) the change since the Effective Date in the
----
aggregate amount of Case Basis Reserves net of expected recoveries in
effect with respect to the Reference Portfolio on such Exercise Date
established by any of the Reference Portfolio Insurers in accordance with
statutory accounting standards, net of any Reinsurance, plus (iii) loss
----
adjustment expense on the Reference Portfolio, minus (iv) recoveries by a
-----
Reference Portfolio Insurer of any portion of amounts paid under the
foregoing clauses (i) and (iii).
"Indebtedness" of any Person as of any date shall mean (i) all
indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services or which is evidenced by a note,
bond, debenture or similar instrument, (ii) all Capital Lease Obligations
of such Person, and (iii) all liabilities secured by any lien on any
property owned by such Person, even though such Person has not assumed or
otherwise become liable for the payment thereof; provided, however, that
-------- -------
such term shall not include municipal investment agreements, municipal
repurchase agreements or securities loaned or sold under agreements to
repurchase.
"Insurers" has the meaning ascribed to such term in the second
introductory paragraph.
"Licenses" has the meaning ascribed to such term in Section 5(a)(4).
"LIBOR" has the meaning ascribed to such term in Exhibit 2(a)-1.
"London Banking Day" means a day on which commercial banks are open
for business (including dealings in United States dollars) in London.
"Loss Adjustment Amount" has the meaning ascribed to such term in
Section 2(g).
"Material Adverse Effect" means (i) a material adverse change in, or
a material adverse effect upon, the business, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries, taken as a
whole, which results, or with the giving of notice or lapse of time would
result, in a material impairment of the ability of the Company to perform
under this Agreement or any related transaction documents, or (ii) a
6
<PAGE>
material adverse effect upon the legality, validity, binding effect or
enforceability against the Company of this Agreement or any related
transaction documents.
"MBIA Corp." has the meaning ascribed to such term in the second
introductory paragraph.
"Moody's" means Moody's Investors Service, Inc. or any successor
thereto.
"Multiemployer Plan" means any Employee Benefit Plan which is a
"multiemployer plan" as defined in Section 3(37) of ERISA.
"NAIC" means the ratings office of the National Association of
Insurance Commissioners.
"Net Insured Face Amount" means, with respect to any insured
obligation, the notional par amount of such insured obligation, minus the
-----
amount of such insured obligation subject to Reinsurance. As used herein,
"Net Insured Face Amount" includes all notional amounts of insured credit
derivatives but excludes all other insured derivatives.
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
"Note Commitment Fee Agreements" means any agreement between the
Company and any Provider with respect to the payment of Commitment Fees.
"Note Issuance Request" has the meaning ascribed to such term in
Section 2(a).
"Notes" shall have the meaning as defined in the first introductory
paragraph.
"NRSRO" means a nationally recognized statistical rating
organization.
"Original Issuance Date" means, with respect to any issuance of
Notes, the date when any such Notes are issued and sold in accordance with
this Agreement.
"Parties" has the meaning given to such term in Section 14.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereto.
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Section 412 of the Code or Section
302 of ERISA.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land
7
<PAGE>
trusts, business trusts or other organizations, whether or not legal
entities, and governments (whether federal, state or local, domestic or
foreign, and including political subdivisions thereof) and agencies or
other administrative or regulatory bodies thereof.
"Portfolio Certificate" has the meaning ascribed to such term in
Section 7(a)(6).
"Pro Rata Share", with respect to each Provider, means the
percentage set forth opposite such Provider on Schedule A.
"Providers" has the meaning as defined in the first introductory
paragraph.
"Ratings Non-Compliance Period" means the period commencing on the
date that the Company's senior unsecured debt ratings by S&P or Moody's
are reduced to A+/A1 or lower, respectively, or the date that any
Reference Portfolio Insurer's insurance financial strength ratings by S&P
or Moody's are reduced to AA+/Aa1 or lower, respectively, and ending on
the date that the ratings of the Company and the Reference Portfolio
Insurers increase to AA-/Aa3 or higher and AAA/Aaa, respectively.
"Redemption Amount" has the meaning ascribed to such term in Section
2(g).
"Redemption Date" has the meaning ascribed to such term in Section
2(g).
"Reference Portfolio" means all financial guaranty insurance
policies issued by any of the Reference Portfolio Insurers or reinsurance
assumed by any of such Reference Portfolio Insurers. Notwithstanding the
foregoing, "Reference Portfolio" shall not include insurance or
reinsurance of unsecured obligations of Southern California Edison Company
and Pacific Gas and Electric Company, until such time, if any, as any such
unsecured obligation is upgraded to a rating of Baa3/BBB- or better by
Moody's and S&P, respectively, and such obligation maintains such ratings
for a period of 6 months.
"Reference Portfolio Insurer" means all Insurers other than those
Insurers which the Company has advised the Providers in writing are
"excluded Insurers" for purposes of determining the Reference Portfolio,
provided that MBIA Corp. remains at all times a Reference Portfolio
Insurer.
"Reinsurance" means any reinsurance agreement or arrangement under
which a third party reinsures any individual or related group of policies
on a quota share or non-proportional basis, but excluding any reinsurance
of the type customarily referred to as "stop loss."
"Senior Indebtedness" means Indebtedness of the Company outstanding
as of the Effective Date, or thereafter created, for all liabilities
senior to or pari passu with money borrowed from banks, insurance
companies and other financial institutions, unless the instrument creating
or evidencing such Indebtedness provides that such Indebtedness is not
senior to the Notes.
"Shareholders' Equity" of any Person at any date means such number
as calculated in accordance with GAAP as of such date.
8
<PAGE>
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. or any successor thereto.
"SRCMC" has the meaning as defined in the first introductory
paragraph.
"Structuring Fee" means the structuring fee payable by the Company
to SRCMC pursuant to the Structuring Fee Agreement.
"Structuring Fee Agreement" means the agreement of even date
herewith between the Company and SRCMC, setting forth the Structuring Fee
payable by the Company to SRCMC.
"Subsequent Provider" has the meaning as defined in the third
introductory paragraph.
"Subsidiary" means any corporation or other entity with a GAAP net
worth in excess of $10 million of which at least a majority of the
securities or other ownership interest having ordinary voting power
(absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company or any of its other Subsidiaries.
"Tangible Net Worth" means, as at any date for any Person, the sum
of the following with respect to such Person and its Subsidiaries
(determined on a consolidated basis without duplication in accordance with
GAAP):
(i) Shareholders' Equity; minus
-----
(ii) the net present value of any liabilities due to the PBGC
or to any Employee Benefit Plan under Section 412 of the Code,
Section 302 of ERISA or Title IV of ERISA (to the extent not
otherwise deducted in the calculation of Shareholders' Equity);
minus
-----
(iii) the book value of all intangible assets.
"Termination Date" means December 27, 2011.
"Trigger Date" has the meaning ascribed to such term in the second
introductory paragraph.
"Trigger Point" means, as of any date with respect to the Reference
Portfolio, the sum of (i) 0.10% of the aggregate Net Insured Face Amount
of the domestic public finance general obligation portfolio, plus (ii)
----
0.30% of aggregate Net Insured Face Amount of the domestic public finance
non-general obligation portfolio, plus (iii) 0.30% of the aggregate Net
----
Insured Face Amount of the portion of the international structured finance
and domestic structured finance portfolios which are rated triple A
(explicitly or via a "shadow" rating) by all (and in no event less than
one) NRSROs which rate such obligations, plus (iv) 0.50% of the aggregate
----
Net Insured Face Amount of the portion of the domestic structured finance
portfolio which is not rated triple A by all (and in no
9
<PAGE>
event less than one) NRSROs, plus (v) 0.70% of the aggregate Net Insured
----
Face Amount of the domestic health care and domestic investor-owned
utility portfolios, plus (vi) 0.80% of the aggregate Net Insured Face
----
Amount of the Reference Portfolio not included in (i) through (v) above,
in each case determined as of the close of business on December 31 of the
preceding calendar year.
"US$" or "$" means United States Dollars. To the extent any losses,
liabilities or other amounts described or referred to in this Agreement
are stated or denominated in currencies other than United States Dollars,
such losses, liabilities or amounts shall be stated, for purposes of this
Agreement, in their respective United States Dollar equivalents as shown
in the Company's financial statements.
2. Subscription. (a) General. Subject to the terms and conditions
------------ -------
contained herein, including, without limitation, Section 2(g) below, each
Provider hereby irrevocably subscribes for and agrees to purchase Notes in an
aggregate principal amount not to exceed its Pro Rata Share of the Commitments.
Upon the occurrence of any Trigger Date occurring during the Commitment Period,
the Company may request in writing (a "Note Issuance Request") that each
Provider purchase its Pro Rata Share of the Notes in an aggregate principal
amount which shall equal the amount by which Incurred Losses on such Trigger
Date exceed the Trigger Point as of such Trigger Date, minus the aggregate
-----
principal amount of Notes issued and sold to the Providers prior to such Trigger
Date; provided that the principal amount of the Notes issued at any time during
the Commitment Period shall not exceed the Available Commitment then in effect.
The Company shall make each Note Issuance Request in the manner set forth in
Section 3 of this Agreement. The Notes shall be issued in the form of, and upon
the terms set forth in, the form of Note attached hereto as Exhibit 2(a)-1. Each
Note issued pursuant to this Agreement shall have a maturity of 15 years from
the Original Issuance Date applicable to such Note and shall bear interest at a
rate of LIBOR plus the applicable Margin, as such terms are defined in Exhibit
2(a)-1.
(b) Limitations. Each Note Issuance Request by the Company during the
-----------
Commitment Period shall be in aggregate increments of $5,000,000 or integral
multiples of $1,000,000 in excess thereof (or in the event that the Available
Commitment at such time is less than such amounts, the amount of the Available
Commitment). The Company shall not make more than one Note Issuance Request
during any 30 calendar day period.
(c) Reduction of Commitments. The Commitments may be permanently reduced
------------------------
(i) at the option of the Company, upon 10 Business Days' written notice to the
Providers, in a minimum amount of $5,000,000 and integral multiples of
$1,000,000 in excess thereof (or in the event that the Available Commitment at
such time is less than such amounts, the amount of the Available Commitment).
The Commitments of any Provider shall terminate on the earliest to occur of (i)
upon the occurrence of an Event of Default referred to in Sections 10(e) and
10(f), (ii) at the option of such Provider, upon the occurrence of any other
Event of Default, and (iii) on the Termination Date. In the case of clause (ii)
above, such termination shall take effect upon the date of written notice from
such Provider to the Company. The Available Commitment shall be permanently
reduced on each Original Issuance Date in an amount equal to the purchase price
of the Notes purchased on such date (subject to increase in accordance with the
provisions of Section 2(g)).
10
<PAGE>
(d) Payment of Structuring Fee. On the effective date of any commitments
--------------------------
to purchase Notes, SRCMC shall be deemed to have earned, and the Company shall
pay to SRCMC, the Structuring Fee. The Structuring Fee shall be incurred by the
Company only once, on the applicable effective date.
(e) Payment of Fees. On the Effective Date, and on each anniversary
---------------
thereafter during the Commitment Period, each Provider shall be deemed to have
earned, and the Company shall pay to such Provider, its Pro Rata Share of the
Commitment Fee, as set forth in the Note Commitment Fee Agreements.
(f) Ranking. The Notes will be subordinated in right of payment to all
-------
Senior Indebtedness. The subordination of the Notes to Senior Indebtedness shall
not affect the obligation of the Company to make, or prevent the Company from
making, other than as provided in the Notes, payments at any time of principal
of, premium, if any, or interest on the Notes.
(g) Provider's Redemption Option. Following any Exercise Date, in the
----------------------------
event that there shall be a reduction (the "Loss Adjustment Amount") in the
Incurred Losses as set forth in the Note Issuance Request applicable to such
Exercise Date (as a result of the reduction of Case Basis Reserves, recoveries
or other adjustments, whether determined upon review by the Company or by a
Provider pursuant to Section 3(c) below), each Provider shall have the right to
require the Company to redeem a principal amount of Notes equal to its Pro Rata
Share of the Loss Adjustment Amount (the "Redemption Amount"). Such redemption
shall be made on the form of notice attached to such Note and shall occur on the
date (the "Redemption Date") stated therein, which shall be not less than 5
Business Days after the date of such notice. The Company shall redeem such
portion of Notes in cash at a purchase price equal to 100% of the Redemption
Amount plus accrued and unpaid interest on the Redemption Amount to, but
excluding, the Redemption Date. If on any Redemption Date the Company does not
have sufficient funds to pay the Redemption Amount to any Provider, the Notes
underlying such payment obligation shall continue to accrue interest at the
applicable rate plus the Default Rate provided by Section 7(c) of this
Agreement, until such time as the Redemption Amount is paid in full. In such
event, the Company's obligation to redeem the Notes shall be deferred until the
first Business Day on which the Company shall have sufficient funds, at which
time the Company shall pay the Redemption Amount immediately to the Providers.
3. Method of Exercise and Redemption. (a) Funding of Commitments will
---------------------------------
generally be scheduled to occur on a specified date, as mutually agreed upon by
the Company and the Providers, within 5 to 10 Business Days after the Providers
receive a Note Issuance Request (as defined below). In no event, however, shall
a Closing Date occur more than 20 Business Days after receipt of a Note Issuance
Request unless all parties otherwise agree.
(b) In the event that the Company desires to make a Note Issuance Request
in connection with any Trigger Date occurring during the Commitment Period, the
Company shall deliver such Note Issuance Request (in the form attached hereto as
Exhibit 3) to the Providers, in accordance with the notice provisions of Section
13. Each Note Issuance Request shall specify (i) the aggregate purchase price
for the Notes to be issued, (ii) the amount of the Incurred Losses and the
Trigger Point as of the Exercise Date and (iii) the proposed Closing Date, which
shall not
11
<PAGE>
be less than 5 Business Days or more than 20 Business Days after the date of
receipt of the Note Issuance Request.
(c) Within 20 Business Days after any Closing Date, the Providers shall
be permitted reasonable access to loss records of the Company and its applicable
Subsidiaries relating to the Incurred Losses referred to in the applicable Note
Issuance Request (including, without limitation, policy files, claim files, and
loss and loss reserve files, or information and personnel, during normal
business hours of the Company and its applicable Subsidiaries). If any Provider
determines that any information or calculations contained in, or delivered with,
the Note Issuance Request, or any of the representations and warranties made, or
documents delivered, on the Closing Date in respect of such Note Issuance
Request, were materially inaccurate or misleading, and such defect, if known,
would have prevented the Closing Date from occurring, such Provider shall have
the right, subject to the dispute resolution provisions contained in Section 14
hereof, to require the Company to redeem any such Notes pursuant to Section
2(g).
(d) The Providers shall make available, on the applicable Closing Date
(or the next following Business Day if such Closing Date is not a Business Day),
by wire transfer of immediately available funds, in U.S. dollars, the aggregate
purchase price specified in the Note Issuance Request (less any fees deducted as
provided in the next sentence), against the delivery by the Company of the
Notes. On any Closing Date, the purchase price payable to the Company with
respect to the Notes to be issued on such date shall be reduced by the aggregate
amount of any Structuring Fee, Commitment Fees, Default Fees or any other
charges, fees or other costs hereunder which remain unpaid as of such Closing
Date.
4. Closings. Delivery of and payment for the Notes which are required to
--------
be delivered on any applicable Closing Date shall be made at the offices of the
Providers set forth in Section 13 (or such other place as may be determined by
agreement among the Company, the Providers and SRCMC), at 10:00 a.m., New York
time, on such Closing Date. Delivery of such Notes shall be made against payment
of the purchase price to the order of the Company in immediately available funds
by transfer to an account designated by the Company or by such other means as
shall be acceptable to the Company, the Providers and SRCMC. Payment for the
Notes shall be subject to delivery on the Closing Date of a certificate (in the
form of Exhibit 4 attached hereto) signed by the Chief Financial Officer,
Treasurer or Controller of the Company, certifying compliance with the
conditions set forth in Section 12(b).
5. Representations and Warranties of the Company and its Subsidiaries.
------------------------------------------------------------------
(a) The Company, on its behalf and on behalf of each of its Subsidiaries,
represents and warrants to the Providers and SRCMC as of the date hereof that:
(1) Existence and Qualification. The Company has been duly
---------------------------
incorporated and is validly existing as a corporation in good standing
under the laws of the State of Connecticut with full corporate power
and authority to enter into and perform its obligations under this
Agreement and to own its properties and conduct its business as
currently being conducted. The Company is in good standing in each
jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except
12
<PAGE>
where the failure to so qualify or be in good standing would not have
a Material Adverse Effect.
(2) Existence and Qualification of Reference Portfolio Insurers.
-----------------------------------------------------------
Each Reference Portfolio Insurer has been duly organized and is
validly existing and in good standing under the laws of the
jurisdiction of its organization, has all requisite power and
authority to own, lease and operate its properties and conduct its
business as currently being conducted and is duly qualified to
transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except
where the failure to so qualify or be in good standing would not have
a Material Adverse Effect; all of the issued and outstanding shares of
capital stock or other equity interests, as applicable, of each
Reference Portfolio Insurer have been duly authorized and are validly
issued, fully paid and non-assessable and, except for qualifying
shares, are owned by the Company, directly or through subsidiaries,
free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity; and none of the outstanding shares of
capital stock of any Reference Portfolio Insurer was issued in
violation of preemptive or other similar rights of any securityholder
of such Reference Portfolio Insurer.
(3) No Material Changes. Since the date of filing of the
-------------------
Company's Annual Report on Form 10-K for the year ended December 31,
2000, except as otherwise stated therein or in any subsequently filed
Quarterly Report on Form 10-Q, or as disclosed in any subsequently
filed Current Report on Form 8-K filed prior to the date hereof, there
has been no material adverse change in the condition, financial or
otherwise, or in the earnings, operations, business affairs or
business prospects of the Company and its Subsidiaries, considered as
one enterprise, whether or not arising in the ordinary course of
business.
(4) Regulatory Matters. The Insurers have all requisite licenses,
------------------
permits and authority that are necessary for the conduct of their
respective insurance businesses, except where the failure to obtain
such licenses, permits or authorities would not have a Material
Adverse Effect (collectively, "Licenses"), such Licenses are in full
force and effect, and no proceeding is pending or, to the Company's
knowledge, threatened to suspend, revoke or limit any such License.
(5) Binding Obligations. The acceptance of the subscription
-------------------
hereof by the Company, as evidenced by its signature on the signature
page of this Agreement, and the execution, delivery and performance of
this Agreement will have been duly authorized by all necessary action
on behalf of the Company, and this Agreement, by virtue of such
acceptance, will, upon approval hereof by the Company's Board of
Directors, be a legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except
as enforcement thereof may be limited by bankruptcy, insolvency or
other laws related to or affecting the enforcement of creditors'
rights generally or by equitable principles.
13
<PAGE>
(6) Options or Rights with Respect to Insurers. There are (i) no
------------------------------------------
outstanding subscriptions, warrants, options, calls or commitments of
any character relating to or entitling any Person to purchase or
otherwise acquire any stock of any Insurer and (ii) no obligations or
securities convertible into or exchangeable for shares of any stock of
any Insurer or any commitments of any character relating to or
entitling any Person to purchase or otherwise acquire any such
obligations or securities.
(7) Absence of Litigation. There are no legal or governmental
---------------------
proceedings pending to which the Company or any Insurer is a party or
of which any property of the Company or any Insurer is the subject,
and which, if determined adversely to the Company or any Insurer could
reasonably be expected, individually or in the aggregate, to result in
a Material Adverse Effect; and to the best of the Company's knowledge,
no such proceedings are threatened nor has the Company been informed
that it or an Insurer is the subject of an investigation by
governmental authorities. There are no outstanding orders, judgments,
injunctions or decrees of any governmental authority against the
Company or any Insurer.
(8) No Violation or Conflict. Neither the Company nor any Insurer
------------------------
has any knowledge that it is, or with the giving of notice or passage
of time or both, would be, in breach or violation of any of the terms
or provisions of or in default under (i) any statute, rule or
regulation applicable to the Company or any Subsidiary, (ii) any
indenture, contract, lease, mortgage, deed of trust, note or other
agreement or instrument for over $25,000,000 to which the Company or
any Subsidiary is a party or by which it may be bound, (iii) its
certificate of incorporation, by-laws or other organizational
documents, and (iv) any order, decree or judgment of any court or
governmental agency or body having jurisdiction over the Company or
any Subsidiary except, with respect to breaches, violations or
defaults contemplated by clauses (i), (ii), (iii) or (iv), for such
breaches, violations or defaults that could not, individually or in
the aggregate, be reasonably expected to result in a Material Adverse
Effect. The performance of this Agreement by the Company and the
consummation of the transactions herein contemplated will not, with
the giving of notice or passage of time or both, result in a breach or
violation of any of the terms or provisions of or constitute a default
under or accelerate obligations under (w) any material statute, rule
or regulation applicable to the Company or any Subsidiary, (x) any
indenture, contract, mortgage, lease, deed of trust, note or other
agreement or instrument for over $25,000,000 to which the Company or
any Subsidiary is a party or by which it is bound, (y) the Company's
or any Subsidiary's certificate of incorporation or by-laws or (z) any
order, decree or judgment of any court or governmental agency or body
having jurisdiction over the Company or any Subsidiary or any of their
properties; provided, however, that no breach of the foregoing
representation and warranty shall be deemed to have occurred if such
breach arises from a failure by the Company to satisfy a debt leverage
test as a consequence of the issuance of the Notes.
14
<PAGE>
(9) Compliance with 1940 Act. The Company is not an "investment
------------------------
company" or an entity "controlled" by an "investment company" as such
terms are defined in the 1940 Act.
(10) Compliance with 1933 Act. It is not necessary in connection
------------------------
with the offering of the Commitments or the underlying Notes, to
register the Commitments or such Notes under the 1933 Act or to
qualify and indenture under the Trust Indenture Act of 1939, as
amended. No authorization, approval or consent of any court or
governmental authority or agency is necessary in connection with the
valid authorization, issuance, sale and delivery of the Commitments or
the underlying Notes, except such as may be required under the Blue
Sky laws or other securities or insurance securities laws of the
various states, which the Company represents have been complied with,
and any other requirements applicable to subscribers for Commitments,
as to which the Company makes no representation.
(11) No General Solicitation. None of the Company or any
-----------------------
Affiliate or any Person acting on its behalf (other than SRCMC, as to
which no representation is made) has (A) engaged, in connection with
the offering of subscriptions for the Commitments, in any form of
general solicitation or general advertising (as those terms are used
within the meaning of Regulation D under the 1933 Act), or (B)
solicited offers for, or offered or sold, subscriptions for the
Commitments and the underlying Notes by means of any form of general
solicitation or general advertising (as those terms are used in
Regulation D under the 1933 Act) or in any manner involving a public
offering within the meaning of Section 5 of the 1933 Act.
(12) Employee Benefit Plans.
----------------------
(i) The Company and each of its Subsidiaries are in
compliance with all applicable provisions and requirements of
ERISA, the Code and the regulations and published interpretations
thereunder with respect to each of their Employee Benefit Plans,
and have performed all their obligations under each of their
Employee Benefit Plans, except where the failure to comply or
perform would not have a Material Adverse Effect. Each Employee
Benefit Plan maintained by the Company and its Subsidiaries which
is intended to qualify under Section 401(a) of the Code is so
qualified.
(ii) No ERISA Event has occurred or is reasonably expected
to occur, except where such occurrence would not have a Material
Adverse Effect.
(13) 1934 Act Compliance. The Company's most recent Annual Report
-------------------
filed on Form 10-K and its Quarterly Reports filed on Form 10-Q and
any Current Reports filed on Form 8-K filed after the date of such
Form 10-K, at the time they were filed with the U.S. Securities and
Exchange Commission (the
15
<PAGE>
"Commission") and as of the Effective Date, complied and comply in all
material respects with the requirements of the 1934 Act and the rules
and regulations of the Commission under the 1934 Act and, at the
Effective Date, do not include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(b) The Company, on its behalf and on behalf of each of its Subsidiaries,
shall be deemed to have represented to each Provider as of each Closing Date
that:
(1) Existence and Qualification. The Company has been duly
---------------------------
incorporated and is validly existing as a corporation in good standing
under the laws of the State of Connecticut with full corporate power
and authority to enter into and perform its obligations under this
Agreement including, without limitation, the issuance and sale of the
Notes, and to own its properties and conduct its business as currently
being conducted. The Company is in good standing in each jurisdiction
in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except
where the failure to so qualify or be in good standing would not have
a Material Adverse Effect.
(2) Existence and Qualification of Reference Portfolio Insurers.
-----------------------------------------------------------
Each Reference Portfolio Insurer has been duly organized and is
validly existing and in good standing under the laws of the
jurisdiction of its organization, has all requisite power and
authority to own, lease and operate its properties and conduct its
business as currently being conducted and is duly qualified to
transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except
where the failure to so qualify or be in good standing would not have
a Material Adverse Effect; all of the issued and outstanding shares of
capital stock or other equity interests, as applicable, of each
Reference Portfolio Insurer have been duly authorized and are validly
issued, fully paid and non-assessable and, except for qualifying
shares, are owned by the Company, directly or through subsidiaries,
free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity; and none of the outstanding shares of
capital stock of any Reference Portfolio Insurer was issued in
violation of preemptive or other similar rights of any securityholder
of such Reference Portfolio Insurer.
(3) Binding Obligations. The acceptance of the subscription
-------------------
hereof by the Company as evidenced by its signature on the signature
page of this Agreement, the execution, delivery and performance of
this Agreement and the issuance of the Notes, will have been duly
authorized by all necessary action on behalf of the Company, and this
Agreement, by virtue of such acceptance, and the Notes will be a
legal, valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency or other laws related
to or affecting the enforcement of creditors' rights generally or by
equitable principles.
16
<PAGE>
(4) Options or Rights with Respect to Insurers. There are (i) no
------------------------------------------
outstanding subscriptions, warrants, options, calls or commitments of
any character relating to or entitling any Person to purchase or
otherwise acquire any stock of any Insurer and (ii) no obligations or
securities convertible into or exchangeable for shares of any stock of
any Insurer or any commitments of any character relating to or
entitling any Person to purchase or otherwise acquire any such
obligations or securities.
(5) Compliance with 1940 Act. The Company is not an "investment
------------------------
company" or an entity "controlled" by an "investment company" as such
terms are defined in the 1940 Act.
(6) Compliance with 1933 Act. Assuming the Notes are issued and
------------------------
sold in the manner provided for herein, it is not necessary in
connection with the issuance and sale of the Notes underlying the
Commitments, to register such underlying Notes under the 1933 Act or
to qualify an indenture under the Trust Indenture Act of 1939, as
amended. No authorization, approval or consent of any court or
governmental authority or agency is necessary in connection with the
valid authorization, issuance, sale and delivery of such underlying
Notes, except such as may be required under the Blue Sky laws or other
securities or insurance securities laws of the various states, which
the Company represents have been complied with, and any other
requirements applicable to purchasers of Notes, as to which the
Company makes no representation.
(7) No General Solicitation. None of the Company or any Affiliate
-----------------------
or any Person acting on its behalf (other than SRCMC, as to which no
representation is made) has (A) engaged, in connection with the
offering of the underlying Notes, in any form of general solicitation
or general advertising (as those terms are used within the meaning of
Regulation D under the 1933 Act), or (B) solicited offers for, or
offered or sold, the underlying Notes by means of any form of general
solicitation or general advertising (as those terms are used in
Regulation D under the 1933 Act) or in any manner involving a public
offering within the meaning of Section 5 of the 1933 Act.
(8) Employee Benefit Plans.
----------------------
(i) The Company and each of its Subsidiaries are in
compliance with all applicable provisions and requirements of
ERISA, the Code and the regulations and published interpretations
thereunder with respect to each of their Employee Benefit Plans,
and have performed all their obligations under each of their
Employee Benefit Plans, except where the failure to comply or
perform would not have a Material Adverse Effect. Each Employee
Benefit Plan maintained by the Company and its Subsidiaries which
is intended to qualify under Section 401(a) of the Code is so
qualified.
17
<PAGE>
(ii) No ERISA Event has occurred or is reasonably expected
to occur, except where such occurrence would not have a Material
Adverse Effect.
6. Representations and Warranties of Providers. Each Provider, severally
-------------------------------------------
and not jointly, represents and warrants to the Company as of the date hereof,
and as of each Closing Date (excluding the first clause in the first sentence in
Section 6(b)), as follows:
(a) Existence and Qualifications of Provider. The Provider is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, and the Provider has the full
corporate power and authority to execute and deliver this Agreement, and to
perform its obligations under, and consummate the transactions contemplated by,
this Agreement, including, without limitation, the purchase of the Notes
pursuant to the making of a Note Issuance Request by the Company as described in
this Agreement.
(b) No Violation or Conflict. The execution and delivery of this Agreement
------------------------
by the Provider, and the performance of the Provider under this Agreement, do
not violate or conflict with any applicable law, any provision of the Provider's
organizational documents or any order or judgment of any court or other
government agency applicable to the Provider, or any contractual restriction
binding upon or affecting the Provider.
(c) Consents. All governmental and other consents that are required to
--------
have been obtained by the Provider with respect to the execution and delivery of
this Agreement have been obtained by the Provider and are in full force and
effect and all conditions of any such consents have been complied with.
(d) Investment Representation. The Provider understands that the
-------------------------
Commitments and the issuance of the underlying Notes upon the making by the
Company of a Note Issuance Request under this Agreement have not been and will
not be registered under the 1933 Act and the underlying Notes will be issued in
reliance upon exemptions form the registration requirements of the 1933 Act. The
Provider represents that (a) it is executing its Commitment and acquiring any
underlying Notes solely for its own account, for investment purposes only, and
not with a view to distribution, fractionalization or resale thereof, except as
otherwise permitted under this Agreement, (b) it will not sell or otherwise
dispose of its Commitment or any underlying Notes except in compliance with the
registration requirements or exemption provisions of applicable securities laws
including the 1933 Act, (c) it has not relied on the Company for any explanation
of the application of the various U.S. state and federal securities laws with
regard to the execution of its Commitment or the acquisition of the underlying
Notes, (d) it has access to complete information regarding the business and
finances of the Company, and has received, read and understood the contents of
the Company's SEC filings, (e) it has such knowledge and experience in business
and financial matters that it has been able to fully understand and completely
evaluate the risks and merits of acquiring its Commitment and holding any
underlying Notes, (f) it is able to bear the economic risk and limitation in
liquidity of its Commitment and of an investment in the Notes, (g) it has
reviewed all documents furnished to it in connection with the investment in the
Commitments and the underlying Notes contemplated hereby, (h) it is an
"accredited investor" as such term is defined in Regulation D,
18
<PAGE>
as amended, under the 1933 Act, (i) it is not a broker-dealer subject to
Regulation T of the United States Federal Reserve Board, (j) in making its
decision to acquire the Commitments and the underlying Notes, it has relied upon
independent investigations made by it and, to the extent believed by it to be
appropriate, its representatives, in addition to the representations and
warranties and agreements of the Company contained herein, and (k) it and its
representatives have been given the opportunity to examine all documents and to
ask questions of, and to receive answers from, the Company and its
representatives concerning the terms and conditions of the purchase of the
Commitments and the underlying Notes and to obtain any additional information
which it or its representatives deem necessary.
(e) Binding Obligations. The execution of this Agreement has been duly
-------------------
authorized by all necessary corporate action of the Provider, and this Agreement
(a) constitutes the legal, valid and binding obligation of the Provider, and (b)
is enforceable against the Provider in accordance with its terms (subject to
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors' rights generally and subject, as to enforceability, to
equitable principles of general application).
7. Covenants and Agreements of the Company. (a) The Company covenants and
---------------------------------------
agrees with the Providers for the duration of the Commitment Period and for so
long as any Notes remain outstanding that:
(1) Audited Financial Statements of the Company. The Company shall
-------------------------------------------
deliver to the Providers, within ten Business Days after the filing of
its Form 10-K with the Commission, income statements for such fiscal
year, balance sheets as of the end of such fiscal year and statements
of cash flows for such fiscal year, together with such notes thereto
as are appropriate, prepared in accordance with GAAP and setting forth
in each case in comparative form the figures for the previous fiscal
year, all in reasonable detail and certified by the independent public
accountants of the Company. The parties hereto agree that delivery of
the Company's Form 10-K will satisfy such information requirements, as
long as the information required under this paragraph is contained in
such Form 10-K. Notwithstanding the foregoing, in the event that the
Company is no longer a publicly held company, the Company shall
deliver the information required under this paragraph within 90 days
of the end of such fiscal year.
(2) Audited Financial Statements of MBIA Corp. The Company shall cause
-----------------------------------------
MBIA Corp. to deliver to the Providers, within ten Business Days after
the filing of any statutory financial statements, income statements
for such fiscal year, balance sheets as of the end of such fiscal year
and statements of cash flows for such fiscal year, together with such
notes thereto as are appropriate, prepared in accordance with
applicable statutory accounting principles consistently applied
(except as noted in the audit comments thereto) and setting forth in
each case in comparative form the figures for the previous fiscal
year, all in reasonable detail and certified by the independent public
accountants of MBIA Corp. The parties hereto agree that the delivery
of MBIA Corp's statutory financial statements will satisfy such
information requirements, as long as the information required under
this paragraph is contained therein. Notwithstanding the foregoing,
the Company
19
<PAGE>
shall deliver the information required under this paragraph no later
than 70 days after the end of such year.
(3) Unaudited Financial Statements of the Company. The Company shall
---------------------------------------------
deliver to the Providers, within ten Business Days after the filing of
a Form 10-Q by the Company with the Commission, unaudited income
statements for such quarter and the current fiscal year to date and
unaudited balance sheets as of the end of such quarter, along with
statements of profits and losses and cash flows for such quarter and
the current fiscal year to date, prepared in accordance with GAAP
(except for the omission of financial statement footnotes and subject
to recurring year-end adjustments), certified by the Chief Financial
Officer, Treasurer, or Controller of the Company. The parties hereto
agree that the delivery of the Company's Form 10-Q will satisfy such
information requirements, as long as the information required under
this paragraph is contained in such Form 10-Q.
(4) Unaudited Financial Statements of MBIA Corp. The Company shall
-------------------------------------------
cause MBIA Corp. to deliver to the Providers, within ten Business Days
after the filing of any statutory financial statements, unaudited
income statements for such quarter and the current fiscal year to date
and unaudited balance sheets as of the end of such quarter, along with
statements of profits and losses and cash flows for such quarter and
the current fiscal year to date, prepared in accordance with
applicable statutory accounting principles consistently applied
(except as noted in the audit comments thereto), certified by the
Chief Financial Officer, Treasurer, or Controller of MBIA Corp. The
parties hereto agree that the delivery of MBIA Corp.'s statutory
financial statements will satisfy such information requirements, as
long as the information required under this paragraph is contained
therein.
(5) Other Informational Filings. The Company shall deliver to the
---------------------------
Providers, within ten Business Days after the filing of any Form 8-K
(or any successor form) of the Company with the Commission, copies of
such Form 8-K or successor form.
(6) Certification; Officer's Certificates. The quarterly and annual
-------------------------------------
reports described in Sections 7(a)(1) through 7(a)(4) shall be
certified by the Chief Financial Officer, Treasurer, or Controller of
the Company or MBIA Corp., as the case may be. Such certified
financial information shall be submitted with a certificate of the
Chief Financial Officer, Treasurer, or Controller of the Company (the
"Portfolio Certificate") setting forth (i) (A) annually, the insured
obligations comprising the Reference Portfolio, and (B) quarterly, any
insured obligations added to the Reference Portfolio since the annual
certification described in foregoing clause (A) most recently
delivered to the Providers, and (ii) calculating in reasonable detail
as of the date of the most recent financial statements described in
Sections 7(a)(1) through 7(a)(4), (A) annually, the Trigger Point, (B)
quarterly, to the extent published or otherwise provided by the
Company, "Quarterly Operating Supplemental Statements" (as currently
reflected on the Company's world wide web page), (C) quarterly, so
long as the Commitments are outstanding, cumulative Incurred Losses,
including Case Basis Reserves during
20
<PAGE>
the Commitment Period (to the extent not otherwise required to be
delivered hereunder), (D) quarterly, evidence of occurrence, amount of
Case Basis Reserves (to the extent not otherwise required to be
delivered hereunder), and (E) quarterly, a certification that no
default of the nature contemplated in Section 7(a)(7) below or Event
of Default has occurred, or if any such event has occurred, the nature
and extent of such default or Event of Default.
(7) Notice of Default. The Company shall deliver to the Providers
-----------------
notice of an event of default or similar event as defined in any
mortgage, indenture, instrument or agreement under which there may be
issued, or by which there may be secured or evidenced, any
Indebtedness of the Company or any of its Subsidiaries in an aggregate
principal amount in excess of $25,000,000, whether such Indebtedness
now exists or shall hereafter be created, promptly, but in any event
within 3 Business Days after the Company's first knowledge of the
occurrence thereof.
(8) Compliance with ERISA. The Company shall, and shall cause all of
---------------------
its Subsidiaries to, comply with all applicable laws, regulations and
similar requirements of governmental authorities relating to ERISA,
the Code and the PBGC, except where the necessity of such compliance
is being contested in good faith through appropriate proceedings
diligently pursued, or where failure to comply with any such laws
would not, alone or in the aggregate, have a Material Adverse Effect.
Any breach of this covenant shall be deemed to have been cured upon
the delivery by the Company to the Providers of correspondence or
other evidence from the Department of Labor, PBGC, Internal Revenue
Service or other governmental authority having jurisdiction over such
matter, establishing that any fines have been paid or such matter has
otherwise been fully resolved.
(9) Notice of ERISA Event. The Company shall deliver to the Providers
---------------------
notice of an ERISA Event promptly, but in any event within 10 Business
Days of the Company's first knowledge of the occurrence of such ERISA
Event.
(10) Books, Records and Inspections. The Company shall, and shall
------------------------------
cause each of its Subsidiaries to, permit any authorized
representatives designated by SRCMC or the Providers to visit the
offices of the Company or of any of its Subsidiaries, to inspect, copy
and take extracts from its and their financial and accounting records,
and to discuss its and their affairs, finances and accounts with its
and their officers and independent public accountants (provided that
Company may, if it so chooses, be present at or participate in any
such discussion), all upon reasonable notice and at such reasonable
times during normal business hours and as often as may reasonably be
requested.
(11) GAAP and Statutory Records. The Company shall maintain systems of
--------------------------
accounting established and administered in accordance with sound
business practices and sufficient in all respects to permit
preparation of financial statements in conformity with GAAP. The
Insurers shall maintain systems of accounting established and
administered in accordance with sound business practices and
sufficient in all respects to permit preparation of statutory
financial
21
<PAGE>
statements prepared in accordance with applicable statutory accounting
principles consistently applied. Any breach of this covenant shall be
deemed to have been cured upon the delivery by the Company to the
Providers of a letter from the Company's independent auditors stating
that the Company's or the relevant Insurer's accounting systems
satisfy the requirements of this Section 7(a)(11).
(12) Insurance. The Company shall, and shall cause each of its
---------
Subsidiaries to, maintain or cause to be maintained, with financially
sound and reputable insurers, such public liability insurance, third
party property damage insurance, business interruption insurance and
casualty insurance with respect to liabilities, losses or damage in
respect of the assets, properties and businesses of the Company and
its Subsidiaries as may customarily be carried or maintained under
similar circumstances by corporations of established reputation
engaged in similar businesses, in each case in such amounts (giving
effect to self-insurance), with such deductibles, covering such risks
and otherwise on such terms and conditions as shall be customary for
corporations similarly situated in the industry, except where the
failure to so maintain such insurance would not result in a Material
Adverse Effect.
(13) Corporate Franchises. The Company and each Insurer will at all
--------------------
times preserve and keep in full force and effect its existence as a
corporation, limited partnership or limited liability company, as the
case may be, and all rights and franchises material to its business,
including its qualification to do business in each state where it is
required by law to so qualify.
(14) Payment of Obligations. The Company and each of the Reference
----------------------
Portfolio Insurers shall perform, observe, comply and fulfill all of
their respective payment obligations contained in any indenture,
mortgage, deed of trust, contract, undertaking, agreement or other
instrument to which it is a party or by which it or any of its
properties is bound or to which it or any of its properties is
subject, except where the failure to so perform, observe, comply and
fulfill would not have a Material Adverse Effect.
(15) Rating. The Company shall use its best efforts to obtain and
------
maintain a rating on the Notes from the Securities Valuation Office of
the National Association of Insurance Commissioners.
(16) Further Assurances. The Company and its Subsidiaries shall, from
------------------
time to time, execute and deliver such documents, agreements and
reports, and perform such acts as SRCMC or the Providers at any time
may reasonably request to carry out the purposes and otherwise
implement the terms and provisions provided for in this Agreement.
(b) Grace Periods. In the event that the Company defaults in the
-------------
performance of the affirmative covenants described in Sections 7(a)(6)(ii)(E)
and 7(a)(7), the Company shall be entitled to a grace period of 5 Business Days
after the occurrence of such event. In the event that the Company defaults in
the performance of any other affirmative covenants described in
22
<PAGE>
Section 7(a), the Company shall be entitled to a grace period of 30 Business
Days after the occurrence of such event.
(c) In the event that the Company fails to observe or perform any
covenant, condition or agreement to be observed under the affirmative covenants
in Section 7(a) in any material respect and such failure to observe or perform
such affirmative covenant continues uncured for a period beyond the applicable
grace period described in Section (7)(b) (a "Covenant Default"), the Company
shall pay to each Provider ((x) without notice from the Providers, in the case
of Covenant Defaults relating to Sections 7(a)(7) through 7(a)(9) and 7(a)(11)
through 7(a)(16), and (y) upon request of the Providers (such notice to be given
in accordance with Section 13), in the case of Covenant Defaults relating to
Sections 7(a)(1) through 7(a)(6) and 7(a)(10)), such Provider's Pro Rata Share
of a fee (a "Default Fee") calculated from the initial date of the event causing
the Covenant Default (the "Covenant Default Date") to the date such Covenant
Default is cured, by multiplying the Available Commitment at such time by the
applicable rate (a "Default Rate") multiplied by the number of days the Covenant
Default is continuing during the applicability of such Default Rate divided by
365. The Default Rate upon the occurrence of a Covenant Default shall be 1% per
annum. The Company shall pay the Default Fee to the Providers at the end of each
calendar month (with respect to such month or any part thereof) following the
Default Date and any remaining unpaid Default Fees upon the date such Covenant
Default has been cured. Notwithstanding the foregoing, in the event that the
Company has provided the quarterly information certificate required by Section
7(a)(6) to the Providers within the specified time period, and the Providers
determine that such certificate or any required enclosures are incomplete, the
Providers shall give notice thereof, describing in reasonable detail to the
Company any deficiencies therein. In such event, the applicable Default Fee
shall accrue from the date of the Providers' notice, rather than the Covenant
Default Date, and shall be payable upon the Company's failure to provide such
requested information in full within 15 Business Days after the date of the
Providers' notice.
8. Commitment Fee Covenants. (a) The Company, on its behalf and on behalf
------------------------
of its Subsidiaries, covenants and agrees with the Providers that:
(1) Investment Covenant. At all times during the Commitment Period,
-------------------
the Company and its Subsidiaries, taken as a whole, shall maintain an
Average Investment Rating of 2.25 or less. In calculating the Average
Investment Rating, the Company may exclude (i) up to 5% of the
aggregate fair market value, as determined in good faith by the
Treasurer or the Chief Financial Officer of the Company, of the
investments of the Company and its Subsidiaries, taken as a whole, and
(ii) any investments determined in good faith by the Treasurer or the
Chief Financial Officer of the Company to constitute "investment
agreement portfolio assets".
(2) Debt Covenant. At all times during the Commitment Period, the
-------------
Company shall not permit its Debt to Capital Ratio, as determined at
the end of any fiscal quarter, to be greater than 27.6%.
23
<PAGE>
(3) Claims Paying Covenant. At all times during the Commitment Period,
----------------------
the Reference Portfolio Insurers shall maintain a Claims Paying Ratio
of less than or equal to 100.
(b) If during any Ratings Non-Compliance Period occurring during the
Commitment Period, the Company and its Subsidiaries, taken as a whole, fail to
meet any of the commitment fee covenants described in Section 8(a), then the
Commitment Fees shall be increased by 0.25% per annum, accruing from the first
day of such Ratings Non-Compliance Period until the earlier to occur of (i) the
date such failure to meet the commitment fee covenants is cured and (ii) such
Rating Non-Compliance Period ends. The Company shall pay the increased
Commitment Fees to the Providers at the end of each calendar month (with respect
to such month or any part thereof) and any remaining unpaid increased Commitment
Fees upon the earlier to occur of (i) the date such failure to meet the
commitment fee covenants is cured and (ii) the Ratings Non-Compliance Period
ends.
9. Event of Suspension. Upon (a) a default in payment beyond any
-------------------
applicable grace period with respect to (i) the Notes (including a default in
payment of any Redemption Amount), or (ii) any Indebtedness (other than the
Notes) of the Company or any of its Subsidiaries in excess of $25,000,000, or
(b) the failure of the Company or MBIA Corp. to deliver to the Providers the
quarterly and annual reports required under Sections 7(a) of this Agreement
after receiving written notice from the Providers and after the lapse of any
applicable grace period in respect thereof (each, an "Event of Suspension"), the
Company's right to make a Note Issuance Request and the Providers' obligation to
purchase Notes shall be suspended until such time, if any, as such Event of
Suspension is cured or waived in its entirety by such Provider. Upon the cure or
waiver in full of the Event of Suspension, the Company's right to make a Note
Issuance Request and the Providers' obligation to purchase Notes shall be
reinstated and exist as if no such Event of Suspension had occurred.
Notwithstanding the foregoing, upon the occurrence of an Event of Suspension,
the Default Fee shall continue to accrue and be payable to the Providers as set
forth in Section 7(c).
10. Events of Default. Any of following conditions or events shall
-----------------
constitute an event of default (each, an "Event of Default") under this
Agreement:
(a) Breach of Representations and Warranties. Any representation or
----------------------------------------
warranty contained in Section 5(a) shall not be true, complete and correct in
any material respect on the date as of which made;
(b) Failure to Pay Fees. Failure by Company to pay the Structuring Fee,
-------------------
Commitment Fees (including such amount payable under Section 8(b)) or Default
Fees after the later of (i) 5 Business Days after receipt of notice by
registered U.S. mail, return receipt requested, properly given pursuant to
Section 13, or (ii) 45 days after their due date;
(c) Payment Default. Default in payment beyond any applicable grace period
---------------
with respect to any Indebtedness of the Company or any of its Subsidiaries in
excess of $25,000,000, whether such Indebtedness now exists or shall hereafter
be created, which results in the obligation becoming due and payable prior to
the date on which it would otherwise have become
24
<PAGE>
due and payable or upon the basis of which the obligation is declared by the
holders thereof to be due and payable prior to the date on which it would
otherwise have become due and payable;
(d) Non-Monetary Default. An event of default or like or similar event,
--------------------
other than failure to pay as described in clause (c) above, as defined in any
mortgage, indenture or instrument under which there may be issued, or by which
there may be secured or evidenced, any Indebtedness of the Company or any of its
Subsidiaries that is outstanding in an aggregate principal amount in excess of
$25,000,000, whether such Indebtedness now exists or shall hereafter be created,
shall happen and such Indebtedness shall upon such ground become or be declared
due and payable prior to the date on which it would otherwise have become due
and payable, and such acceleration shall not have been rescinded or annulled, or
such Indebtedness shall not have been discharged;
(e) Insolvency or Voluntary Bankruptcy. (i) The Company or any one or
----------------------------------
more of the Reference Portfolio Insurers shall have an order for relief entered
with respect to it or commence a voluntary case under federal bankruptcy law or
under any other applicable bankruptcy, insolvency or similar state or federal
law now or hereafter in effect, or shall consent to the entry of an order for
relief in an involuntary case, or to the conversion of an involuntary case to a
voluntary case, under any such law, or shall consent to the appointment of or
taking possession by a receiver, trustee or other custodian for all or a
substantial part of its property; or the Company or any one or more of the
Reference Portfolio Insurers shall make any assignment for the benefit of
creditors, or (ii) the Company or any one or more of the Reference Portfolio
Insurers shall be unable, or shall fail generally, or shall admit in writing its
inability, to pay its debts as such debts become due, or (iii) the Board of
Directors of the Company or any one or more of the Reference Portfolio Insurers
(or any committee thereof) shall adopt any resolution or otherwise authorize any
action to approve any of the actions referred to in clause (i) or (ii) above or
in Section 10(f) below;
(f) Involuntary Bankruptcy. The entry by a court having jurisdiction in
----------------------
the premises of (i) a decree or order for relief in respect of the Company or
any one or more of the Reference Portfolio Insurers in an involuntary case or
proceeding under federal bankruptcy law or any other applicable federal or state
law, or (ii) a decree or order adjudging the Company or any one or more of the
Reference Portfolio Insurers bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company or any one or more of the Reference Portfolio
Insurers under federal bankruptcy or any other applicable federal or state law,
or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator
or other similar official of the Company or any one or more of the Reference
Portfolio Insurers or of any substantial part of the property of any of them, or
ordering the winding up or liquidation of any of their affairs or (iii) there
shall be commenced against the Company or any one or more of the Reference
Portfolio Insurers any case, proceeding or other action seeking issuance of a
warrant, attachment, execution, discharge or similar process against all or any
substantial part of its assets that results in the entry of an order for any
such relief that shall not have been vacated, discharged, stayed or bonded
pending appeal within 60 days from the entry thereof;
(g) Failure to Maintain Tangible Net Worth. The Company shall fail to
--------------------------------------
maintain a consolidated Tangible Net Worth in excess of $300,000,000;
25
<PAGE>
(h) Consolidation, Merger, Sale of Assets. The Company or any of its
-------------------------------------
Subsidiaries shall wind up, liquidate or dissolve its or their affairs,
experience a Change in Control, enter into any transaction of merger or
consolidation, or sell, convey, transfer or otherwise dispose of all or
substantially all of its or any of their assets to any Person, or agree to do
any of the foregoing at a future time during which this Agreement is in effect
or any Notes are outstanding, which results in a default or Event of Default
under this Agreement or results in a Ratings Non-Compliance Period which
commences during the 180 days following such event. Notwithstanding the
foregoing, the following shall not constitute an Event of Default under this
clause (h):
(1) sales or dispositions of assets by the Company or any of its
Subsidiaries in the ordinary course of business;
(2) sales or dispositions of assets by the Company or any of its
Subsidiaries which singly or in the aggregate, in the case of
insurance assets, have a GAAP book value on the date of disposition
that constitute less than 15% of the sum of the Company's consolidated
Shareholders' Equity, or in the case of non-insurance assets, in
unlimited amounts at their fair market value, where fair market value
has been determined by a nationally recognized investment banking or
appraisal firm and set forth in a fairness opinion of such firm
addressed to the Providers;
(3) the merger or consolidation of the Company or any of its
Subsidiaries with or into, or liquidation into, any other of its
Subsidiaries or the Company, as the case may be, so long as such
Subsidiary (in the case of a merger or consolidation not involving the
Company) or the Company is the surviving Person; and
(4) the delivery by the Company to the Providers, prior to the
proposed action, of a written confirmation from S&P or Moody's
confirming that the consummation of such proposed action would not
result in a downgrade or withdrawal of the rating assigned to the
Company by such NRSRO.
(It is understood and agreed that upon any transfer of all or substantially all
of the assets of the Company in accordance with the foregoing clauses (1)
through (4), the successor Person formed by such transfer shall succeed to, and
be substituted for, and may exercise every right and power of, the Company under
this Agreement with the same effect as if such successor Person had been named
as the Company herein.)
11. Conditions to the Company's Obligations. The obligations of the
---------------------------------------
Company hereunder shall be subject to, at and as of the Effective Date, the
satisfaction of the following conditions:
(a) The Company shall have received an executed counterpart of this
Agreement from each of the Providers.
(b) The Company shall have received from Sidley Austin Brown & Wood LLP or
in-house counsel of any Provider an opinion (or, if any Provider is a non-U.S.
entity, an opinion of its in-house counsel or local counsel) dated the Effective
Date and addressed to the Company, S&P and Moody's, substantially to the effect
that this Agreement (i) constitutes the legal, valid and binding obligation of
the Providers, and (ii) is enforceable against the Providers in
26
<PAGE>
accordance with its terms (subject to applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to equitable principles of general application).
In rendering its opinion, Sidley Austin Brown & Wood LLP (or such other counsel)
may rely upon the opinions of in-house counsel to the Providers as to the due
authorization, execution and delivery by such Provider of this Agreement.
12. Conditions to the Providers' Commitments. (a) The several commitments
----------------------------------------
of the Providers hereunder shall be subject to the satisfaction of the following
conditions (with the following conditions (1)-(4) to be satisfied at and as of
the Effective Date and conditions (5) and (6) to be satisfied as promptly
thereafter as possible):
(1) The Company shall have accepted the subscription contained herein
and the Providers shall have received an executed counterpart of this
Agreement.
(2) The Providers shall have received from the general counsel for
the Company, an opinion, dated the Effective Date, substantially in
the form of Exhibit 12(a)(2) hereto.
(3) The Providers shall have received a certificate in the form of
Exhibit 12(a)(3), dated the Effective Date, and certified by the Chief
Financial Officer, Treasurer or Controller of the Company to the
effect that:
(i) The Company has complied with all agreements and satisfied
all conditions on its part to be performed or satisfied at or
before the Effective Date; and
(ii) The representations and warranties of the Company contained
in Section 5(a) herein are true, complete, and correct at and as
of the Effective Date.
(4) The Company shall have made all material filings required under
applicable state and/or federal securities laws in connection with the
transactions contemplated by this Agreement. The Company shall have
received all other authorizations, consents, approvals, licenses,
filings and registrations required in connection with the execution,
delivery, performance, validity and enforceability of this Agreement.
(5) The Providers shall have received a certificate (or equivalent
customary documentation, with respect to non-U.S. entities) of the
appropriate public official in the jurisdiction of organization of the
Company and the Reference Portfolio Insurers as to the due
organization and good standing of the Company and the Reference
Portfolio Insurers together with a certified copy (or equivalent
customary documentation, with respect to non-U.S. entities) of the
organizational documents of the Company and the Reference Portfolio
Insurers and shall have received certificates of appropriate public
officials of each other jurisdiction in which the Company and each
Reference Portfolio Insurer is required to qualify to do business as a
foreign organization as to the due qualification and good standing of
the Company and each Reference Portfolio Insurer.
27
<PAGE>
(6) The Providers shall have received a copy, certified by the
Secretary of the Company, of the actions of the Board of Directors of
the Company, authorizing, ratifying and approving the Note
Subscription Agreement in the form as executed on December 27, 2001,
including the issuance of the Commitments and the underlying Notes.
(b) The several commitments of the Providers, at and as of each Closing
Date, shall be subject to the following conditions:
(1) The Providers shall have received from the general counsel for
the Company, an opinion, dated as of each Closing Date, substantially
in the form of Exhibit 12(b)(1) hereto.
(2) The Providers shall have received the Note Issuance Request from
the Company.
(3) The Providers shall have received a certificate in the form of
Exhibit 4, dated such Closing Date, certified by the Chief Financial
Officer, Treasurer or Controller of the Company to the effect that:
(i) The Company has complied with all agreements and satisfied
all conditions on its part to be performed or satisfied under
this Section 12(b) on such Closing Date; and
(ii) The representations and warranties of the Company contained
in Section 5(b) hereof are true and correct at and as of such
Closing Date.
(4) At and as of such Closing Date, there shall not have occurred and
been continuing an Event of Default or Event of Suspension.
(5) The Company shall have made all material filings required under
applicable state and/or federal securities laws in connection with the
issuance of the Notes on such Closing Date.
(6) The Providers shall have received a certificate of the
appropriate public official in the jurisdiction of organization of the
Company and the Reference Portfolio Insurers as to the due
organization and good standing of the Company and the Reference
Portfolio Insurers, together with a certified copy of any amendments
to the organizational documents of the Company and the Reference
Portfolio Insurers filed after any previous delivery of such documents
to the Providers.
(7) No action, suit or other third-party proceeding by or before any
governmental authority shall have resulted in the issuance of an order
or other similar action enjoining the issuance of the Notes.
(8) The Providers shall have received their respective Notes.
28
<PAGE>
13. Notices. Any notice or other communication required or
-------
permitted under this Agreement shall be in writing and shall be deemed to have
been given (a) on the date of delivery if delivered personally or by facsimile
transmission, receipt confirmed, (b) twenty-four (24) hours after sending it by
a nationally recognized overnight delivery service, or (c) five (5) Business
Days after mailing, if sent by certified, registered or express mail, postage
prepaid, if properly addressed or directed to such party at the appropriate
address or facsimile number set forth below (or at such other address or
facsimile number as such party may designate from time to time by notice duly
given in accordance with the terms of this Section 13):
If to the Company:
MBIA, Inc.
113 King Street
Armonk, New York 10504
Attn: Chief Financial Officer
Telephone No.: 914-765-3490
Fax No.: 914-765-3080
with a copy to:
MBIA, Inc.
113 King Street
Armonk, New York 10504
Attn: General Counsel
Telephone No.: 914-765-3945
Fax No.: 914-765-3919
If to Swiss Re Capital Markets Corporation:
55 East 52/nd/ Street
New York, NY 10055
Attention: Treasurer
Telephone No.: (212) 317-5400
Fax No.: (212) 317-5450
with a copy to:
Swiss Re Capital Markets Corporation
55 East 52/nd/ Street
New York, NY 10055
Attention: General Counsel
Telephone No.: (212) 317-5400
Fax No.: (212) 317-5450
29
<PAGE>
If to Swiss Re Financial Products Corporation:
55 East 52/nd/ Street
New York, NY 10055
Attention: Treasurer
Telephone No.: (212) 317-5400
Fax No.: (212) 317-5450
with a copy to:
Swiss Re Financial Products Corporation
55 East 52/nd/ Street
New York, NY 10055
Attention: General Counsel
Telephone No.: (212) 317-5400
Fax No.: (212) 317-5450
If to XXXXX:
XXXXXXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXX
30
<PAGE>
14. Dispute Resolution. Any disputes arising under or in
------------------
connection with this Agreement shall be resolved by a court of law having the
appropriate jurisdiction over the parties and subject matter, subject to Section
17(b) of this Agreement. Notwithstanding the foregoing, any disputes arising out
of Sections 2(g) and 3(c) in respect of the determination of the aggregate
principal amount of Notes issued on any Closing Date (i.e., the calculation of
Incurred Losses, Trigger Point, etc.) shall be resolved by binding arbitration,
to be held in New York, New York in accordance with the rules and procedures of
the American Arbitration Association (the "AAA"). The Company and each of the
Providers (individually, a "Party", and together, the "Parties") will each
select an arbitrator within 15 days after demand for arbitration is made by a
Party. If an additional arbitrator is deemed necessary and the arbitrators
selected by the Parties are unable to agree on an additional arbitrator within
that period, then any Party may request that the AAA select such additional
arbitrator. Each Party shall bear its own expenses incurred in connection with
arbitration, and the fees and expenses of the arbitrators shall be shared
equally by the Parties and advanced by them from time to time as required.
Except as may otherwise be agreed in writing by the Parties or as ordered by the
arbitrators upon substantial justification shown, the hearing for the dispute
will be held within 60 days of submission of the dispute to arbitration. The
arbitrators will render their final determination within 30 days following
conclusion of the hearing and any required post-hearing briefing or other
proceedings ordered by the arbitrators. The decision of the arbitrators will be
final and binding and not subject to judicial review.
15. Transfers of Obligations or Notes. No Provider shall sell,
---------------------------------
assign or otherwise transfer its rights or obligations under this Agreement
(including, without limitation, the Commitments) (i) except pursuant to an
exemption from the registration requirements of the 1933 Act, and (ii) to an
investor having a rating at the time of such sale, assignment or transfer less
than AAA/Aaa by S&P and Moody's, respectively, and which has not been previously
approved in writing by the Company. The Company acknowledges and agrees that the
Providers may transfer interests in issued and outstanding Notes without the
prior consent of the Company in whole or in part only to one or more affiliates
of the Providers (it being further understood that the Providers may not
transfer the Commitments to any of their affiliates). The Company agrees to
provide reasonable assistance to any Provider or SRCMC in connection with the
documentation of any permitted transfer of the Notes or Commitments.
16. Indemnification for Broker's Fees. The Company agrees to
---------------------------------
indemnify, defend and hold harmless SRCMC from any and all claims, costs and
expenses (including reasonable attorney's fees and disbursements) in respect of
the assertions of any broker, finder, agent or other person seeking compensation
for the subscription for the Commitments or the underlying Notes or for other
services rendered in connection with such transactions.
17. Miscellaneous.
-------------
(a) The representations, warranties and agreements of the
Providers and of the Company set forth herein are continuing in nature and shall
survive the acceptance of the subscription contained herein and the closings
with respect to the Notes.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. The parties hereby submit to
the exclusive jurisdiction of the federal
31
<PAGE>
and state courts located in New York County with respect to any dispute arising
under this Agreement, the agreements and instruments entered into in connection
herewith or the transactions contemplated hereby or thereby. THE PARTIES HEREBY
WAIVE A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY
PARTY HERETO AGAINST ANY OTHER PARTY HERETO IN RESPECT OF ANY MATTER ARISING OUT
OF OR IN CONNECTION WITH THIS AGREEMENT OR THE COMMITMENTS.
(c) The descriptive headings in this Agreement are for convenience
of reference only and shall not be deemed to alter or affect the meaning or
interpretation of any provision of this Agreement.
(d) This Agreement contains the entire agreement of the parties
with respect to the subject matter of this Agreement, and there are no
representations, covenants or other agreements except as stated or referred to
herein. This Agreement may be amended only by a writing executed by the party
against whom such amendment is sought to be enforced.
(e) This Agreement may be executed in one or more counterparts,
all of which shall constitute one and the same instrument.
(f) Except (i) as may be required by law (including the
requirements for any filings made by the Company under the 1933 Act or 1934 Act,
or pursuant to the order or ruling of any regulatory authority having
jurisdiction over the Company or the Insurers), or (ii) as may be required by
any rating agency in respect of its rating of the Company or any Insurer, the
Company, SRFPC and SRCMC hereby agree not to disclose that XXXXX is a party to
this Agreement or any of the agreements executed in connection herewith
(including the disclosure of XXXXX's name or the name, if any, of its
affiliates) or the nature or amount of its Commitments hereunder, except that
XXXXX may be referred to in press releases as "a leading reinsurance company"
and its ratings may be disclosed. In the event the disclosure of XXXXX's
identity pursuant to clauses (i) or (ii) of the foregoing sentence is required,
the Company, SRFPC and SRCMC agree to give advance notice to XXXXX of such
disclosure.
(g) This Agreement shall be binding upon and inure to the benefit
of the parties and their respective successors and assigns and legal
representatives, and any reference to a specific partyin this Agreement shall
include such party's permitted successors or assigns.
32
<PAGE>
If the foregoing is in accordance of our agreement, please sign and
return a duplicate hereof, whereupon this Note Subscription Agreement and your
acceptance will represent a binding agreement between SRCMC, the Providers and
the Company.
SWISS RE FINANCIAL
PRODUCTS CORPORATION,
a Delaware corporation
By:
--------------------------------------
Name:
Title:
SWISS RE CAPITAL MARKETS
CORPORATION, a Delaware corporation
By:
--------------------------------------
Name:
Title:
XXXXX,
a Delaware corporation
By:
--------------------------------------
Name:
Title:
ACCEPTED this 27/th/ day of December, 2001
By MBIA, INC., a Connecticut corporation
By:
-----------------------------------------
Name:
Title:
33
<PAGE>
Schedule A
Commitments
Amount Percentage
------ ----------
Swiss Re Financial Products Corporation $100,000,000 66 2/3%
XXXXX $ 50,000,000 33 1/3%
<PAGE>
EXHIBIT 2(a)-1
FORM OF NOTE
2A-1
<PAGE>
EXHIBIT 3
[FORM OF NOTE ISSUANCE REQUEST]
NOTE ISSUANCE REQUEST
Reference is made to that certain Note Subscription Agreement dated
December 27, 2001, as amended, supplemented or otherwise modified to the date
hereof (as so amended, supplemented or otherwise modified, the "Agreement"), by
and among MBIA, Inc., a Connecticut corporation (the "Company"), Swiss Re
Capital Markets Corporation, and Swiss Re Financial Products Corporation and
XXXXX (the "Providers"). This is the Note Issuance Request referred to in the
Agreement. Capitalized terms used but not defined in this Note Issuance Request
shall have the meanings given to them in the Subscription Agreement.
The aggregate purchase price for the Notes to be issued at this time
under the Note Issuance Request is: $__________
The Closing Date with respect to such Notes will be: __________
The Trigger Date occurred on: __________
The aggregate purchase price with respect to such Notes has been
computed pursuant to the terms of the Subscription Agreement based on the
figures set forth below, which have been determined as of the Trigger Date.
<TABLE>
<S> <C> <C> <C>
A. Incurred Losses on
Reference Portfolio $__________
(i) Claims paid by Insurers (net of
Reinsurance): $_____________
(ii) Case Basis Reserves (net of Reinsurance): + $_____________
(iii) Loss adjustment expense: + $_____________ $_____________
(iv) Recoveries of amounts paid under (i) and
(iii) above: - $_____________
Total $==========
B. Trigger Point
Notional
(i) Domestic public amount: $_____________
finance general Amount subject
obligation portfolio to Reinsurance: - $_____________
$_____________ x0.10% $_____________
</TABLE>
3A-1
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Notional
(ii) Domestic public amount: $_____________
finance non-general Amount subject
obligation portfolio to Reinsurance: - $_____________
$_____________ x0.30% + $_____________
(iii) International Notional
structured finance amount:
and domestic $_____________
structured finance Amount subject
rated AAA to Reinsurance: - $_____________
$_____________ x0.30% + $_____________
Notional
(iv) Domestic structured amount:
finance portfolio not $_____________
rated AAA Amount subject
to Reinsurance: - $_____________
$_____________ x0.50% + $_____________
Notional
(v) Domestic health care amount:
and domestic $_____________
investor-owned Amount subject
utility portfolios to Reinsurance: - $_____________
$_____________ x0.70% + $_____________
Notional
(vi) Reference Portfolio amount:
minus (i) through (v) $_____________
above. Amount subject
to Reinsurance: - $_____________
$_____________ x0.80% + $_____________ - $_____________
C. Aggregate principal amount
of previously issued and sold
Notes: - $_____________
D. Aggregate purchase price: $
=============
</TABLE>
The purchase price for the Notes shall be remitted in immediately
available funds to the account of the Company pursuant to the following wire
transfer instructions:
DATED:_____________________ MBIA, Inc.
By: __________________________
Title: __________________________
3A-2
<PAGE>
EXHIBIT 4
[FORM OF OFFICER'S CERTIFICATE]
OFFICER'S CERTIFICATE
The undersigned officer of MBIA, Inc., a Connecticut corporation (the
"Company"), does hereby deliver this certificate on behalf of the Company
pursuant to Section 12(b)(3) of the Note Subscription Agreement dated December
27, 2001 (the "Agreement") between the Company, Swiss Re Financial Products
Corporation, Swiss Re Capital Markets Corporation and XXXXX, and hereby
certifies that:
(A) The Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied under Section
12(b) of the Agreement on the date hereof; and
(B) The representations and warranties of the Company contained in
Section 5(b) of the Agreement are true and correct at and as of
the date hereof.
Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Agreement.
Dated: _____________, 20_____ MBIA, Inc.
___________________________________
Name:
Title: [Chief Financial Officer] [Treasurer]
[Controller]
4-1
<PAGE>
EXHIBIT 12(a)(2)
OPINION OF COUNSEL
EFFECTIVE DATE
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Connecticut.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as currently being conducted
and to enter into and perform its obligations under the Note Subscription
Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(iv) Each Insurer has been duly organized and is validly existing and
in good standing under the laws of the jurisdiction of its organization, has all
requisite power and authority to own, lease and operate its properties and
conduct its business as currently being conducted and is duly qualified to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify or
be in good standing would not have a Material Adverse Effect; all of the issued
and outstanding shares of capital stock or other equity interests, as
applicable, of each Insurer have been duly authorized and are validly issued,
fully paid and non-assessable and, except for qualifying shares, are owned by
the Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; and none of the
outstanding shares of capital stock of any Insurer was issued in violation of
preemptive or other similar rights of any securityholder of such Insurer.
(v) Each Insurer has all requisite licenses, permits and authority
that are necessary for the conduct of its insurance business, except where the
failure to obtain such licenses, permits or authorities would not have a
Material Adverse Effect (collectively, "Licenses"), such Licenses are in full
force and effect, and no proceeding is pending or, to the best of my knowledge,
threatened to suspend, revoke or limit any such License.
(vi) There are (i) no outstanding subscriptions, warrants, options,
calls or commitments of any character relating to or entitling any Person to
purchase or otherwise acquire any stock of any Insurer and (ii) no obligations
or securities convertible into or exchangeable for shares of any stock of any
Insurer or any commitments of any character relating to or entitling any Person
to purchase or otherwise acquire any such obligations or securities.
(vii) The Note Subscription Agreement has been duly authorized,
executed and delivered by the Company and (assuming the due authorization,
execution and delivery thereof by the other parties thereto) constitutes a
legal, valid and binding agreement of the Company,
12A2-1
<PAGE>
enforceable against the Company in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting enforcement of creditors' rights generally
and except as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
(viii) Upon the subscription for the Commitments and the subsequent
issuance and delivery of the underlying Notes as provided in the Note
Subscription Agreement, it will not be necessary in connection with the
subscription for the Commitments or the issuance of the underlying Notes to
register such Commitments or Notes under the 1933 Act or to qualify an indenture
under the Trust Indenture Act of 1939, as amended. No authorization, approval or
consent of any court or governmental authority or agency is necessary in
connection with the valid issuance, sale and delivery of the Notes, except such
as may be required under the Blue Sky laws or other securities or insurance
securities laws of the various states, and any other requirements applicable to
purchasers of Notes.
(ix) To the best of my knowledge, there is no pending or threatened
any action, suit, proceeding, inquiry or investigation, to which the Company or
any Insurer is a party, or to which the property of the Company or any Insurer
is subject, before or brought by any court or governmental agency or body,
domestic or foreign, which may reasonably be expected to result, individually or
in the aggregate, in a Material Adverse Effect, or which might reasonably be
expected to materially and adversely affect the assets, properties or operations
thereof, taken as a whole, or the consummation of the transactions contemplated
in the Note Subscription Agreement or the performance by the Company of its
obligations thereunder.
(x) Neither the Company nor any Insurer is, or with the giving of
notice or passage of time or both, would be, in breach or violation of any of
the terms or provisions of or in default under (i) any statute, rule or
regulation applicable to the Company or any Insurer, (ii) any indenture,
contract, lease, mortgage, deed of trust, note or other agreement or instrument
for over $25,000,000 to which the Company or any Insurer is a party or by which
it may be bound, (iii) its certificate of incorporation, by-laws or other
organizational documents, and (iv) any order, decree or judgment of any court or
governmental agency or body having jurisdiction over the Company or any Insurer
except, with respect to breaches, violations or defaults contemplated by clauses
(i), (ii), (iii) or (iv), for such breaches, violations or defaults that could
not, individually or in the aggregate, be reasonably expected to result in a
Material Adverse Effect. The opinions stated in clauses (i), (ii) and (iv) are
stated to the best of my knowledge. The performance of the Note Subscription
Agreement by the Company and the consummation of the transactions therein
contemplated will not, with the giving of notice or passage of time or both,
result in a breach or violation of any of the terms or provisions of or
constitute a default under or accelerate obligations under (w) any material
statute, rule or regulation applicable to the Company or any Insurer, (x) any
indenture, contract, mortgage, lease, deed of trust, note or other agreement or
instrument for over $25,000,000 to which the Company or any Insurer is a party
or by which it is bound, (y) the Company's or any Insurer's certificate of
incorporation or by-laws or (z) any order, decree or judgment of any court or
governmental agency or body having jurisdiction over the Company or any Insurer
or any of their properties.
12A2-2
<PAGE>
(xi) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the 1940
Act.
12A2-3
<PAGE>
EXHIBIT 12(a)(3)
[FORM OF OFFICER'S CERTIFICATE]
OFFICER'S CERTIFICATE
The undersigned officer of MBIA, Inc., a Connecticut corporation (the
"Company"), does hereby deliver this certificate on behalf of the Company
pursuant to Section 12(a)(3) of the Note Subscription Agreement dated December
27, 2001 (the "Agreement") between the Company, Swiss Re Financial Products
Corporation, Swiss Re Capital Markets Corporation and XXXXX, and hereby
certifies that:
(A) The Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or
before the date hereof; and
(B) The representations and warranties of the Company contained in
Section 5(a) of the Agreement are true, complete, and correct
at and as of the date hereof.
Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Agreement.
Dated: December 27, 2001 MBIA, Inc.
____________________________________________
Name:
Title: [Chief Financial Officer] [Treasurer]
[Controller]
12A3
<PAGE>
EXHIBIT 12(b)(1)
OPINION OF COUNSEL
CLOSING DATE
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Connecticut.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as currently being conducted
and to enter into and perform its obligations under the Notes.
(iii) The Notes, have been duly executed and delivered in the manner
contemplated in the Note Subscription Agreement and constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally or by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
(iv) It is not necessary in connection with the issuance of the
Securities to register such Notes under the 1933 Act or to qualify an indenture
under the Trust Indenture Act of 1939, as amended. No authorization, approval or
consent of any court or governmental authority or agency is necessary in
connection with the valid issuance, sale and delivery of the Notes, except such
as may be required under the Blue Sky laws or other securities or insurance
securities laws of the various states, and any other requirements applicable to
purchasers of Notes.
(v) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the 1940
Act.
(vi) No Event of Default under the Note Subscription Agreement has
occurred and is continuing.
12B
<PAGE>
PREFERRED SHARES SUBSCRIPTION AGREEMENT
Up to 75,000 Shares
Series A Preferred Stock
Par Value $1.00 Per Share
MBIA, INC.
December 27, 2001
MBIA, Inc.
113 King Street
Armonk, New York 10504
Ladies and Gentlemen:
Swiss Re Financial Products Corporation, a Delaware corporation
("SRFPC"), and XXXXX, a Delaware corporation ("XXXXX"), and together with SRFPC,
the "Providers"), and Swiss Re Capital Markets Corporation, a Delaware
corporation, as agent for the Providers ("SRCMC"), hereby confirm their
agreement with MBIA, Inc., a Connecticut corporation (the "Company"), with
respect to the future issue and sale by the Company, and the commitments for
purchase by the Providers, subject to the terms and conditions set forth herein,
of an aggregate of up to 75,000 shares of Series A Preferred Stock, par value
$1.00 per share (the "Preferred Shares"), having a liquidation preference (the
"Liquidation Preference") of $2,000 per share. Capitalized terms used herein
shall have the meanings attributed thereto in Section 1 hereof.
Pursuant to the terms and conditions of a Note Subscription Agreement
(the "Note Subscription Agreement") of even date herewith by and among the
Company, the Providers and SRCMC, the Company has the right to require the
Providers to purchase up to $150,000,000 aggregate principal amount of its
Variable Rate Subordinated Notes Due 15 Years from Original Issuance Date (the
"Notes"). The Providers understand that not less than 30 days but not more than
180 days after each issuance of Notes pursuant to the Note Subscription
Agreement, the Company shall be vested with the right to require each Provider
to acquire through the tender of outstanding Notes held by such Provider, or
otherwise, such number of Preferred Shares as may be determined by dividing the
aggregate principal amount of the Notes issued by 100% of the Liquidation
Preference of the Preferred Shares, subject to the terms and conditions more
fully described herein.
The Providers understand that the Company may agree to issue, from time
to time, additional commitments for the purchase of Preferred Shares in excess
of 75,000 shares to one or more subsequent providers (each, a "Subsequent
Provider"), although SRFPC and XXXXX shall have no obligation to purchase such
additional commitments. The Company acknowledges and agrees that the Providers
may also request that all or a portion of the Commitments evidenced by this
Agreement be assigned to Subsequent Providers; provided, however, that in no
event shall the aggregate Commitments of SRFPC be less than 25,000 shares.
<PAGE>
1. Definitions. Except as otherwise defined herein and except
-----------
where the context otherwise requires, the following terms shall have the
following meanings:
"Affiliate" shall mean any management employee or director of
the Company or any Subsidiary, or holder of five percent (5%) or more
of any class of capital stock of the Company, or any member of their
respective immediate families or any corporation or other entity
directly or indirectly controlled by one or more of such management
employees, directors or 5% stockholders or members of their immediate
families.
"Agreement" means this Preferred Shares Subscription
Agreement.
"Available Commitment" means, as of any date of determination
during the Commitment Period, the number of Preferred Shares
representing the Commitments, minus (i) the number of Preferred Shares
-----
sold to the Providers or with respect to which a Notice of Issuance has
been given to the Providers and not rescinded before such date (it
being understood that if for any reason one or more Providers defaults
on its Commitments to purchase Preferred Shares on any Issuance Date,
such defaulting Provider's Pro Rata Share of the Available Commitment
shall be increased by the aggregate number of Preferred Shares such
Provider failed to purchase), and (ii) any reduction of the Commitments
by the Company as set forth in Section 2(c).
"Business Day" means any day, other than a Saturday or Sunday,
that is neither a legal holiday nor a day on which banking institutions
are authorized or required by law, regulation or executive order to
close in The City of New York, New York and that is also a London
Banking Day.
"Certificate of Amendment" means the Certification of
Amendment of the Company's Restated Certificate of Incorporation, in
the form attached as Exhibit 1, establishing pursuant to Section
33-666(d) of the Connecticut Business Corporation Act the designations,
preferences, and rights related to the Preferred Shares.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" has the meaning ascribed to such term in Section
5(n).
"Commitments" means the obligation of the Providers to
purchase an aggregate number of Preferred Shares from time to time
during the Commitment Period not to exceed the number set forth on
Schedule A, provided that the obligation of each Provider shall not
exceed its Pro Rata Share of the Commitments.
"Commitment Period" means the period from and including the
Effective Date to, but excluding, the Commitment Termination Date.
"Commitment Termination Date" means the earliest to occur of
(i) purchase by the Providers of an aggregate number of Preferred
Shares equal to the Commitments, (ii) 180 days after the tenth
anniversary of the date of this Agreement, and (iii) such other
termination of the Commitments as provided herein.
2
<PAGE>
"Company" means MBIA, Inc., a Connecticut corporation.
"Effective Date" means December 27, 2001, or such other date
as may be agreed upon by and among the Company, the Providers and
SRCMC.
"Employee Benefit Plan" means any "employee benefit plan" as
defined in Section 3(3) of ERISA which is or was maintained or
contributed to by the Company, any of its Subsidiaries or any of their
respective ERISA Affiliates.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means, as applied to any Person, (i) any
corporation which is a member of a controlled group of corporations
within the meaning of Section 414(b) of the Code of which that Person
is a member; (ii) any trade or business (whether or not incorporated)
which is a member of a group of trades or businesses under common
control within the meaning of Section 414(c) of the Code of which that
Person is a member; and (iii) any member of an affiliated service group
within the meaning of Section 414(m) or (o) of the Code of which that
Person, any corporation described in clause (i) above or any trade or
business described in clause (ii) above is a member. Any former ERISA
Affiliate of the Company or any of its Subsidiaries shall continue to
be considered an ERISA Affiliate of the Company or such Subsidiary
within the meaning of this definition with respect to the period such
entity was an ERISA Affiliate of the Company or such Subsidiary and
with respect to liabilities arising after such period for which the
Company or such Subsidiary could be liable under the Code or ERISA.
"ERISA Event" means (i) a "reportable event" within the
meaning of Section 4043 of ERISA and the regulations issued thereunder
with respect to any Pension Plan (excluding those for which the
provision for 30-day notice to the PBGC has been waived by regulation);
(ii) the failure to meet the minimum funding standard of Section 412 of
the Code with respect to any Pension Plan (whether or not waived in
accordance with Section 412(d) of the Code) or the failure to make by
its due date a required installment under Section 412(m) of the Code
with respect to any Pension Plan or the failure to make any required
contribution to a Multiemployer Plan; (iii) the provision by the
administrator of any Pension Plan pursuant to Section 4041(a)(2) of
ERISA of a notice of intent to terminate such plan in a distress
termination described in Section 4041(c) of ERISA; (iv) the withdrawal
by the Company, any of its Subsidiaries or any of their respective
ERISA Affiliates from any Pension Plan with two or more contributing
sponsors or the termination of any such Pension Plan resulting in
liability pursuant to Section 4063 or 4064 of ERISA; (v) the
institution by the PBGC of proceedings to terminate any Pension Plan,
or the occurrence of any event or condition which might constitute
grounds under ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan; (vi) the imposition of
liability on the Company, any of its Subsidiaries or any of their
respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of
ERISA or by reason of the application of Section 4212(c) of ERISA;
(vii) the withdrawal of the Company, any of its Subsidiaries or any of
their respective ERISA Affiliates in a complete or partial withdrawal
(within the meaning of Sections 4203 and 4205 of
3
<PAGE>
ERISA) from any Multiemployer Plan if there is any potential liability
therefor, or the receipt by Company, any of its Subsidiaries or any of
their respective ERISA Affiliates of notice from any Multiemployer
Plan that it is in reorganization or insolvency pursuant to Section
4241 or 4245 of ERISA, or that it intends to terminate or has
terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence
of an act or omission which could give rise to the imposition on the
Company, any of its Subsidiaries or any of their respective ERISA
Affiliates of material fines, penalties, taxes or related charges
under Section 4975 of the Code or under Section 502(i) of ERISA in
respect of any Employee Benefit Plan; (ix) the assertion of a material
claim (other than routine claims for benefits) against any Employee
Benefit Plan other than a Multiemployer Plan or the assets thereof, or
against the Company, any of its Subsidiaries or any of their respective
ERISA Affiliates in connection with any Employee Benefit
Plan; (x) receipt from the Internal Revenue Service of notice of the
failure of any Pension Plan (or any other Employee Benefit Plan
intended to be qualified under Section 401(a) of the Code) to qualify
under Section 401(a) of the Code, or the failure of any trust forming
part of any Pension Plan to qualify for exemption from taxation under
Section 501(a) of the Code; or (xi) the imposition of a Lien pursuant
to Section 401(a)(29) or 412(n) of the Code or pursuant to ERISA with
respect to any Pension Plan.
"Exercise Date" means any date on which the Company sends a
Notice of Issuance to the Providers to purchase Preferred Shares.
"GAAP" means generally accepted accounting principles in the
United States, applied consistently.
"Incurred Losses" has the meaning given in the Note
Subscription Agreement.
"Insurers" means any of MBIA Corp., MBIA Assurance, S.A.,
Capital Markets Assurance Corporation, MBIA Insurance Corp. of Illinois
and any other financial guaranty company wholly owned by, or
consolidated on the balance sheet of, MBIA Corp. or MBIA, Inc.
"Issuance Date" shall have the meaning ascribed to such term
in Section 3(b).
"Licenses" has the meaning ascribed to such term in Section
5(d).
"LIBOR" has the meaning ascribed to such term in Exhibit 1.
"Liquidation Preference" has the meaning ascribed to such term
in the first introductory paragraph.
"London Banking Day" means a day on which commercial banks are
open for business (including dealings in United States dollars) in
London.
"Material Adverse Effect" means (i) a material adverse change
in, or a material adverse effect upon, the business, condition
(financial or otherwise) or prospects of the Company and its
Subsidiaries, taken as a whole, which results, or with the giving of
notice or lapse of time would result, in a material impairment of the
ability of the
4
<PAGE>
Company to perform under this Agreement or any related transaction
documents, or (ii) a material adverse effect upon the legality,
validity, binding effect or enforceability against the Company of this
Agreement or any related transaction documents.
"MBIA Corp." means MBIA Insurance Corporation.
"Moody's" means Moody's Investors Service, Inc. or any
successor thereto.
"Multiemployer Plan" means any Employee Benefit Plan which is
a "multiemployer plan" as defined in Section 3(37) of ERISA.
"NAIC" means the ratings office of the National Association of
Insurance Commissioners.
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as
amended.
"1940 Act" means the Investment Company Act of 1940, as
amended.
"Note Subscription Agreement" has the meaning ascribed to such
term in the second introductory paragraph.
"Notes" shall have the meaning as defined in the second
introductory paragraph.
"Notice of Issuance" means the notice attached hereto as
Exhibit 3(b).
"NRSRO" means a nationally recognized statistical rating
organization.
"Original Issuance Date" means, with respect to any issuance
of Notes, the date when any such Notes are issued and sold in
accordance with the Note Subscription Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereto.
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Section 412 of the Code or
Section 302 of ERISA.
"Person" means and includes natural persons, corporations,
limited partnerships, general partnerships, limited liability
companies, limited liability partnerships, joint stock companies, joint
ventures, associations, companies, trusts, banks, trust companies, land
trusts, business trusts or other organizations, whether or not legal
entities, and governments (whether federal, state or local, domestic or
foreign, and including political subdivisions thereof) and agencies or
other administrative or regulatory bodies thereof.
"Preferred Shares" has the meaning given to such term in the
first introductory paragraph, to be issued pursuant to the Certificate
of Amendment attached hereto as Exhibit 1.
5
<PAGE>
"Preferred Shares Commitment Fee" means any commitment fee
payable by the Company to a Provider pursuant to a Preferred Shares
Commitment Fee Agreement.
"Preferred Shares Commitment Fee Agreement" means any
agreement between the Company and the Providers with respect to the
payment of Preferred Shares Commitment Fees.
"Pro Rata Share", with respect to each Provider, means the
percentage set forth opposite such Provider on Schedule A.
"Providers" has the meaning as defined in the first
introductory paragraph.
"Reference Portfolio" means all financial guaranty insurance
policies issued by any of the Reference Portfolio Insurers or
reinsurance assumed by any of such Reference Portfolio Insurers.
Notwithstanding the foregoing, "Reference Portfolio" shall not include
insurance or reinsurance of unsecured obligations of Southern
California Edison Company and Pacific Gas and Electric Company, until
such time, if any, as any such unsecured obligation is upgraded to a
rating of Baa3/BBB- or better by Moody's and S&P, respectively, and
such obligation maintains such ratings for a period of 6 months.
"Reference Portfolio Insurer" means all Insurers other than
those Insurers which the Company has advised the Providers in writing
are "excluded Insurers" for purposes of determining the Reference
Portfolio, provided that MBIA Corp. remains at all times a Reference
Portfolio Insurer.
"Reinsurance" means any reinsurance agreement or arrangement
under which a third party reinsures any individual or related group of
policies on a quota share or non-proportional basis, but excluding any
reinsurance of the type customarily referred to as "stop loss."
"Shareholders' Equity" of any Person at any date means such
number as calculated in accordance with GAAP as of such date.
"S&P" means Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc. or any successor thereto.
"SRCMC" has the meaning as defined in the first introductory
paragraph.
"Structuring Fee Agreement" means the agreement of even date
herewith between the Company and SRCMC, setting forth the structuring
fee payable by the Company to SRCMC.
"Subsequent Provider" has the meaning as defined in the third
introductory paragraph.
"Subsidiary" means any corporation or other entity with a GAAP
net worth in excess of $10 million of which at least a majority of the
securities or other ownership interest having ordinary voting power
(absolutely or contingently) for the election of
6
<PAGE>
directors or other persons performing similar functions are at the time
owned directly or indirectly by the Company or any of its other
Subsidiaries.
"Termination Date" means December 27, 2011.
"Trigger Date" has the meaning ascribed to such term in the Note
Subscription Agreement.
"Trigger Point" has the meaning ascribed to such term in the Note
Subscription Agreement.
"US$" or "$" means United States Dollars. To the extent any losses,
liabilities or other amounts described or referred to in this Agreement are
stated or denominated in currencies other than United States Dollars, such
losses, liabilities or amounts shall be stated, for purposes of this
Agreement, in their respective United States Dollar equivalents as shown in
the Company's financial statements.
2. Subscription. (a) General. Subject to the terms and conditions
------------ -------
contained herein, each Provider hereby irrevocably subscribes for and agrees to
purchase an aggregate number of Preferred Shares not to exceed its Pro Rata
Share of the Commitments. Such Preferred Shares shall be issued and sold
pursuant to Section 3 of this Agreement.
(b) Payment of Fees. On the Effective Date, and on each anniversary of the
---------------
Effective Date thereafter during the Commitment Period, each Provider shall be
deemed to have earned, and the Company shall pay to each Provider, the Preferred
Shares Commitment Fee, as set forth in the Preferred Share Commitment Fee
Agreement.
(c) Reduction of Commitments. The Commitments may be permanently reduced
------------------------
(i) at the option of the Company, upon 10 Business Days' written notice to the
Providers, in a minimum amount of 2,500 shares and integral multiples of 500
shares in excess thereof (or in the event that the Available Commitment at such
time is less than such amounts, the amount of the Available Commitment). The
Commitments of any Provider shall terminate on the earliest to occur of (i) upon
the occurrence of an Event of Default referred to in Sections 10(e) and 10(f) of
the Note Subscription Agreement, (ii) at the option of such Provider, upon the
occurrence of any other Event of Default under the Note Subscription Agreement,
and (iii) on the Termination Date. In the case of clause (ii) above, such
termination shall take effect upon the date of written notice from such Provider
to the Company. The Available Commitment shall be permanently reduced on each
Issuance Date in an amount equal to the number of Preferred Shares purchased on
such date.
(d) No Obligation of SRCMC to Purchase Preferred Shares. SRCMC shall not
---------------------------------------------------
have any obligation to purchase the Preferred Shares from the Company as
principal.
(e) No Redemption Upon Adjustment. The Providers' redemption rights
-----------------------------
pursuant to Section 2(g) of the Note Subscription Agreement (pursuant to which
the Providers may redeem such amount of Notes as were issued with respect to an
amount of Incurred Losses subsequently adjusted), shall not apply to any issued
and outstanding Preferred Shares. Notwithstanding the foregoing, had the Company
not required the Provider to acquire Preferred Shares and all or a
7
<PAGE>
portion of the related Notes would have been eligible for redemption under
Section 2(g) of the Note Subscription Agreement, then the Company shall not
issue another Note Issuance Request pursuant to the Note Subscription Agreement
until such time as Incurred Losses on any subsequent Trigger Date exceed the sum
of (i) the Trigger Point and (ii) the aggregate Liquidation Preference of all or
such portion of such Preferred Shares. During the period when the Company is not
permitted to issue a Note Issuance Request pursuant to this Section 2(e), the
dividend rate on the Preferred Shares shall be increased by 2.0%.
3. Method of Exercise. (a) General. Not less than 30 days but not more
------------------ -------
than 180 days after any Original Issuance Date, the Company may require each
Provider to purchase such number of Preferred Shares, having a Liquidation
Preference of $2,000 per share, as is determined by dividing the aggregate
principal amount of such Provider's Notes to be issued on such Original Issuance
Date by the Liquidation Preference.
(b) Method of Issuance. To effect an issuance and sale of Preferred Shares,
------------------
the Company shall complete and manually sign a notice of issuance ("Notice of
Issuance") in the form attached hereto as Exhibit 3(b) and deliver the Notice of
Issuance to the Providers in accordance with the procedures set forth below. The
Notice of Issuance shall set forth a date, upon notice of no less than 15 but no
more than 30 days (the "Issuance Date") on which such Providers shall purchase
the Preferred Shares. The Company shall pay any transfer or similar tax, if
required.
(c) Payment. On the Issuance Date, each Provider shall have the option to
-------
purchase the Preferred Shares either (i) by delivering such amount of Notes,
duly endorsed, having an aggregate face amount equal to the Liquidation
Preference of the Preferred Shares to be issued, (ii) in cash (in which case (A)
such Provider's Notes shall remain outstanding, with all rights and benefits
contained herein unaffected by the Notice of Issuance, and (B) such Provider's
Available Commitment shall not be reduced by such number of Preferred Shares
issued), or (iii) in any combination of the methods of payment set forth in
clauses (i) or (ii). The payment election set forth in the preceding sentence
shall be in the sole and absolute discretion of the Provider.
(d) Fractional Shares. The Company shall not issue a fractional Preferred
-----------------
Share upon any such issuance. Instead, the Company shall remit cash to the
Provider in lieu of the fractional share, based on the Liquidation Preference,
rounding to the nearest whole cent with one half cent being rounded upwards.
(e) Validity. Any Preferred Shares issued pursuant to this Section shall be
--------
(i) validly issued, fully paid and nonassessable, (ii) free of any preemptive
rights, (iii) free and clear of any lien, encumbrance or other restriction, and
(iv) issued in compliance with the requirements of federal and state securities
laws.
4. Closings. Delivery of and payment for the Preferred Shares which are
--------
required to be delivered on any applicable Issuance Date shall be made at the
offices of the Providers set forth in Section 10 (or such other place as may be
determined by agreement among the Company, the Providers and SRCMC), at 10:00
a.m., New York time, on such Issuance Date. Delivery of such Preferred Shares
shall be made against payment of the purchase price to the
8
<PAGE>
order of the Company by the tender of duly endorsed Notes, or if all or a
portion of the purchase price is paid in cash, in immediately available funds by
transfer to an account designated by the Company or by such other means as shall
be acceptable to the Company, the Providers and SRCMC. Payment for the Preferred
Shares shall be subject to delivery on the Issuance Date of a certificate (in
the form of Exhibit 4 attached hereto) signed by the Chief Financial Officer,
Treasurer or Controller of the Company, certifying compliance with the
conditions set forth in Section 9(b).
5. Representations and Warranties of the Company and its Subsidiaries. The
------------------------------------------------------------------
Company, on its behalf and on behalf of each of its Subsidiaries, represents and
warrants to the Providers and SRCMC as of the date hereof that:
(a) Existence and Qualification. The Company has been duly incorporated and
---------------------------
is validly existing as a corporation in good standing under the laws of the
State of Connecticut with full corporate power and authority to enter into and
perform its obligations under this Agreement and to own its properties and
conduct its business as currently being conducted. Upon the filing of the
Certificate of Amendment prior to the first Issuance Date, the Company will have
the authority to issue and deliver the Preferred Shares. The Company is in good
standing in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of business,
except where the failure to so qualify or be in good standing would not have a
Material Adverse Effect.
(b) Existence and Qualification of Reference Portfolio Insurers. Each
-----------------------------------------------------------
Reference Portfolio Insurer has been duly organized and is validly existing and
in good standing under the laws of the jurisdiction of its organization, has all
requisite power and authority to own, lease and operate its properties and
conduct its business as currently being conducted and is duly qualified to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify or
be in good standing would not have a Material Adverse Effect; all of the issued
and outstanding shares of capital stock or other equity interests, as
applicable, of each Reference Portfolio Insurer have been duly authorized and
are validly issued, fully paid and non-assessable and, except for qualifying
shares, are owned by the Company, directly or through subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; and none of the outstanding shares of capital stock of any Reference
Portfolio Insurer was issued in violation of preemptive or other similar rights
of any securityholder of such Reference Portfolio Insurer.
(c) No Material Changes. Since the date of filing of the Company's Annual
-------------------
Report on Form 10-K for the year ended December 31, 2000, except as otherwise
stated therein or in any subsequently filed Quarterly Report on Form 10-Q, or as
disclosed in any subsequently filed Current Report on Form 8-K filed prior to
the date hereof, there has been no material adverse change in the condition,
financial or otherwise, or in the earnings, operations, business affairs or
business prospects of the Company and its Subsidiaries, considered as one
enterprise, whether or not arising in the ordinary course of business.
(d) Regulatory Matters. The Insurers have all requisite licenses, permits
------------------
and authority that are necessary for the conduct of their respective insurance
businesses, except
9
<PAGE>
where the failure to obtain such licenses, permits or authorities would not have
a Material Adverse Effect (collectively, "Licenses"), such Licenses are in full
force and effect, and no proceeding is pending or, to the Company's knowledge,
threatened to suspend, revoke or limit any such License.
(e) Binding Obligations. The acceptance of the subscription hereof by the
-------------------
Company as evidenced by its signature on the signature page of this Agreement,
the execution, delivery and performance of this Agreement and, on or prior to
the first issuance of Preferred Shares, the Certificate of Amendment, will have
been duly authorized by all necessary action on behalf of the Company, and this
Agreement, by virtue of such acceptance, will be the legal, valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except as enforcement thereof may be limited by bankruptcy, insolvency or
other laws related to or affecting the enforcement of creditors' rights
generally or by equitable principles. On or prior to the first issuance of
Preferred Shares, the Certificate of Amendment will have been filed with the
Secretary of State of the State of Connecticut.
(f) Preferred Shares. On or prior to the initial Issuance Date, the
----------------
Preferred Shares shall have been duly authorized, validly issued, fully paid and
nonassessable, and no securityholder of the Company shall have any preemptive
rights with respect to any Preferred Shares. Upon issuance pursuant to this
Agreement, the Preferred Shares shall be free and clear of any lien, encumbrance
or other restriction, and upon delivery as provided in this Agreement, the
Provider will acquire good title to the Preferred Shares, free and clear of any
lien, encumbrance or other restriction, other than any such lien, encumbrance or
other restriction arising from the actions of such Provider. On the date of
filing of the Certificate of Amendment, the Company shall have reserved for
issuance an aggregate of 100,000 Preferred Shares for issuance on one or more
Issuance Dates pursuant to this Agreement. There are (i) no outstanding
subscriptions, warrants, options, calls or commitments of any character relating
to or entitling any Person to purchase or otherwise acquire Preferred Shares,
(ii) no obligations or securities convertible into or exchangeable for Preferred
Shares or any commitments of any character relating to or entitling any Person
to purchase or otherwise acquire any such obligations or securities and (iii) no
understandings or agreements with respect to the purchase or voting of any of
Preferred Shares.
(g) Absence of Litigation. There are no legal or governmental proceedings
---------------------
pending to which the Company or any Insurer is a party or of which any property
of the Company or any Insurer is the subject, and which, if determined adversely
to the Company or any Insurer could reasonably be expected, individually or in
the aggregate, to result in a Material Adverse Effect; and to the best of the
Company's knowledge, no such proceedings are threatened nor has the Company been
informed that it or an Insurer is the subject of an investigation by
governmental authorities. There are no outstanding orders, judgments,
injunctions or decrees of any governmental authority against the Company or any
Insurer.
(h) No Violation or Conflict. Neither the Company nor any Insurer has any
------------------------
knowledge that it is, or with the giving of notice or passage of time or both,
would be, in breach or violation of any of the terms or provisions of or in
default under (i) any statute, rule or regulation applicable to the Company or
any Subsidiary, (ii) any indenture, contract, lease, mortgage, deed of trust,
note or other agreement or instrument for over $25,000,000 to which the
10
<PAGE>
Company or any Subsidiary is a party or by which it may be bound, (iii) its
certificate of incorporation, by-laws or other organizational documents, and
(iv) any order, decree or judgment of any court or governmental agency or body
having jurisdiction over the Company or any Subsidiary except, with respect to
breaches, violations or defaults contemplated by clauses (i), (ii), (iii) or
(iv), for such breaches, violations or defaults that could not, individually or
in the aggregate, be reasonably expected to result in a Material Adverse Effect.
The performance of this Agreement by the Company and the consummation of the
transactions herein contemplated will not, with the giving of notice or passage
of time or both, result in a breach or violation of any of the terms or
provisions of or constitute a default under or accelerate obligations under (w)
any material statute, rule or regulation applicable to the Company or any
Subsidiary, (x) any indenture, contract, mortgage, lease, deed of trust, note or
other agreement or instrument for over $25,000,000 to which the Company or any
Subsidiary is a party or by which it is bound, (y) the Company's or any
Subsidiary's certificate of incorporation or by-laws or (z) any order, decree or
judgment of any court or governmental agency or body having jurisdiction over
the Company or any Subsidiary or any of their properties; provided, however,
that no breach of the foregoing representation and warranty shall be deemed to
have occurred if such breach arises from a failure by the Company to satisfy a
debt leverage test as a consequence of the issuance of the Notes.
(i) Options or Rights with Respect to Insurers. There are (i) no
------------------------------------------
outstanding subscriptions, warrants, options, calls or commitments of any
character relating to or entitling any Person to purchase or otherwise acquire
any stock of any Insurer and (ii) no obligations or securities convertible into
or exchangeable for shares of any stock of any Insurer or any commitments of any
character relating to or entitling any Person to purchase or otherwise acquire
any such obligations or securities.
(j) Compliance with 1940 Act. The Company is not an "investment company" or
------------------------
an entity "controlled" by an "investment company" as such terms are defined in
the 1940 Act.
(k) Compliance with 1933 Act. Assuming the Preferred Shares are issued and
------------------------
delivered as provided herein, it is not necessary in connection with the
offering of the Commitments or the issuance of the Preferred Shares to register
such Commitments or such Preferred Shares under the 1933 Act. No authorization,
approval or consent of any court or governmental authority or agency is
necessary in connection with the valid authorization, issuance, sale and
delivery of the Commitments or the Preferred Shares, except such as may be
required under the Blue Sky laws or other securities or insurance securities
laws of the various states, which the Company represents have been complied
with, and any other requirements applicable to subscribers for Commitments or to
purchasers of Preferred Shares, as to which the Company makes no representation.
(l) No General Solicitation. None of the Company or any Affiliate or any
-----------------------
Person acting on its behalf (other than SRCMC) has (A) engaged, in connection
with the offering of the Commitments or the Preferred Shares, in any form of
general solicitation or general advertising (as those terms are used within the
meaning of Regulation D under the 1933 Act), or (B) solicited offers for, or
offered or sold, such Preferred Shares by means of any form of general
solicitation or general advertising (as those terms are used in Regulation D
under the 1933 Act) or in any manner involving a public offering within the
meaning of Section 5 of the 1933 Act.
11
<PAGE>
(m) Employee Benefit Plans.
----------------------
(1) The Company and each of its Subsidiaries are in compliance with
all applicable provisions and requirements of ERISA, the Code and the
regulations and published interpretations thereunder with respect to
each of their Employee Benefit Plans, and have performed all their
obligations under each of their Employee Benefit Plans, except where
the failure to comply or perform would not have a Material Adverse
Effect. Each Employee Benefit Plan maintained by the Company and its
Subsidiaries which is intended to qualify under Section 401(a) of the
Code is so qualified.
(2) No ERISA Event has occurred or is reasonably expected to occur,
except where such occurrence would not have a Material Adverse Effect.
(n) 1934 Act Compliance. The Company's most recent Annual Report filed on
-------------------
Form 10-K and its Quarterly Reports filed on Form 10-Q and any Current Reports
filed on Form 8-K filed after the date of such Form 10-K, at the time they were
filed with the U.S. Securities and Exchange Commission (the "Commission") and as
of the Effective Date, complied and comply in all material respects with the
requirements of the 1934 Act and the rules and regulations of the Commission
under the 1934 Act and, at the Effective Date, do not include an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
The representations and warranties set forth in Sections 5(a) (first
sentence), (e), (f) and (j) through (l) shall be deemed repeated by the Company
on each Issuance Date.
6. Representations and Warranties of Providers. Each Provider, severally
-------------------------------------------
and not jointly, represents and warrants to the Company as of the date hereof,
and as of each Issuance Date (excluding the first clause in the first sentence
in Section 6(b)), as follows:
(a) Existence and Qualifications of Provider. The Provider is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, and the Provider has the full
corporate power and authority to execute and deliver this Agreement, and to
perform its obligations under, and consummate the transactions contemplated by,
this Agreement, including, without limitation, the purchase of the Preferred
Shares pursuant to the making of a Notice of Issuance by the Company as
described in this Agreement.
(b) No Violation or Conflict. The execution and delivery of this Agreement
------------------------
by the Provider, and the performance of the Provider under this Agreement, do
not violate or conflict with any applicable law, any provision of the Provider's
organizational documents or any order or judgment of any court or other
government agency applicable to the Provider, or any contractual restriction
binding upon or affecting the Provider.
(c) Consents. All governmental and other consents that are required to
--------
have been obtained by the Provider with respect to the execution and delivery of
this Agreement have been obtained by the Provider and are in full force and
effect and all conditions of any such consents have been complied with.
12
<PAGE>
(d) Investment Representation. The Provider understands that the
-------------------------
Commitments and the issuance of the underlying Preferred Shares upon the making
by the Company of a Notice of Issuance under this Agreement have not been and
will not be registered under the 1933 Act and the underlying Preferred Shares
will be issued in reliance upon exemptions form the registration requirements of
the 1933 Act. The Provider represents that (a) it is executing its Commitment
and acquiring any Preferred Shares solely for its own account, for investment
purposes only, and not with a view to distribution, fractionalization or resale
thereof, except as otherwise permitted under this Agreement, (b) it will not
sell or otherwise dispose of its Commitment or any Preferred Shares except in
compliance with the registration requirements or exemption provisions of
applicable securities laws including the 1933 Act, (c) it has not relied on the
Company for any explanation of the application of the various U.S. state and
federal securities laws with regard to the execution of its Commitment or the
acquisition of the Preferred Shares, (d) it has access to complete information
regarding the business and finances of the Company, and has received, read and
understood the contents of the Company's SEC filings, (e) it has such knowledge
and experience in business and financial matters that it has been able to fully
understand and completely evaluate the risks and merits of acquiring its
Commitment and holding any Preferred Shares, (f) it is able to bear the economic
risk and limitation in liquidity of its Commitment and of an investment in the
Preferred Shares, (g) it has reviewed all documents furnished to it in
connection with the investment in the Commitments and the underlying Preferred
Shares contemplated hereby, (h) it is an "accredited investor" as such term is
defined in Regulation D, as amended, under the 1933 Act, (i) it is not a
broker-dealer subject to Regulation T of the United States Federal Reserve
Board, (j) in making its decision to acquire the Commitments and the underlying
Preferred Shares, it has relied upon independent investigations made by it and,
to the extent believed by it to be appropriate, its representatives, in addition
to the representations and warranties and agreements of the Company contained
herein, and (k) it and its representatives have been given the opportunity to
examine all documents and to ask questions of, and to receive answers from, the
Company and its representatives concerning the terms and conditions of the
purchase of the Commitments and the underlying Preferred Shares and to obtain
any addition information which it or its representatives deem necessary.
(e) Binding Obligations. The execution of this Agreement has been duly
-------------------
authorized by all necessary corporate action of the Provider, and this Agreement
(a) constitutes the legal, valid and binding obligation of the Provider, and (b)
is enforceable against the Provider in accordance with its terms (subject to
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors' rights generally and subject, as to enforceability, to
equitable principles of general application).
7. Covenants and Agreements of the Company. The Company covenants and
---------------------------------------
agrees with the Providers for the duration of the Commitment Period and for so
long as any Preferred Shares remain outstanding that:
(a) Audited Financial Statements of the Company. The Company shall deliver
-------------------------------------------
to the Providers, within ten Business Days after the filing of its Form 10-K
with the Commission, income statements for such fiscal year, balance sheets as
of the end of such fiscal year and statements of cash flows for such fiscal
year, together with such notes thereto as are appropriate, prepared in
accordance with GAAP and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail and certified by
the independent
13
<PAGE>
public accountants of the Company. The parties hereto agree that delivery of the
Company's Form 10-K will satisfy such information requirements, as long as the
information required under this paragraph is contained in such Form 10-K.
Notwithstanding the foregoing, in the event that the Company is no longer a
publicly held company, the Company shall deliver the information required under
this paragraph within 90 days of the end of such fiscal year.
(b) Audited Financial Statements of MBIA Corp. The Company shall cause MBIA
-----------------------------------------
Corp. to deliver to the Providers, within ten Business Days after the filing of
any statutory financial statements, income statements for such fiscal year,
balance sheets as of the end of such fiscal year and statements of cash flows
for such fiscal year, together with such notes thereto as are appropriate,
prepared in accordance with applicable statutory accounting principles
consistently applied (except as noted in the audit comments thereto) and setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and certified by the independent public accountants of
MBIA Corp. The parties hereto agree that the delivery of MBIA Corp's statutory
financial statements will satisfy such information requirements, as long as the
information required under this paragraph is contained therein. Notwithstanding
the foregoing, the Company shall deliver the information required under this
paragraph no later than 70 days after the end of such year.
(c) Unaudited Financial Statements of the Company. The Company shall
---------------------------------------------
deliver to the Providers, within ten Business Days after the filing of a Form
10-Q by the Company with the Commission, unaudited income statements for such
quarter and the current fiscal year to date and unaudited balance sheets as of
the end of such quarter, along with statements of profits and losses and cash
flows for such quarter and the current fiscal year to date, prepared in
accordance with GAAP (except for the omission of financial statement footnotes
and subject to recurring year-end adjustments), certified by the Chief Financial
Officer, Treasurer, or Controller of the Company. The parties hereto agree that
the delivery of the Company's Form 10-Q will satisfy such information
requirements, as long as the information required under this paragraph is
contained in such Form 10-Q.
(d) Unaudited Financial Statements of MBIA Corp. The Company shall cause
-------------------------------------------
MBIA Corp. to deliver to the Providers, within ten Business Days after the
filing of any statutory financial statements, unaudited income statements for
such quarter and the current fiscal year to date and unaudited balance sheets as
of the end of such quarter, along with statements of profits and losses and cash
flows for such quarter and the current fiscal year to date, prepared in
accordance with applicable statutory accounting principles consistently applied
(except as noted in the audit comments thereto), certified by the Chief
Financial Officer, Treasurer, or Controller of MBIA Corp. The parties hereto
agree that the delivery of MBIA Corp.'s statutory financial statements will
satisfy such information requirements, as long as the information required under
this paragraph is contained therein.
(e) Other Informational Filings. The Company shall deliver to the
---------------------------
Providers, within ten Business Days after the filing of any Form 8-K (or any
successor form) of the Company with the Commission, copies of such Form 8-K or
successor form.
14
<PAGE>
(f) Certification; Officer's Certificates. The quarterly and annual
-------------------------------------
reports described in Sections 7(a)(1) through 7(a)(4) shall be certified by the
Chief Financial Officer, Treasurer, or Controller of the Company or MBIA Corp.,
as the case may be.
8. Conditions to the Company's Obligations. The obligations of the
---------------------------------------
Company hereunder shall be subject to, at and as of the Effective Date, the
satisfaction of the following conditions:
(a) The Company shall have received an executed counterpart of this
Agreement from each of the Providers.
(b) The Company shall have received from Sidley Austin Brown & Wood LLP or
in-house counsel of any Provider an opinion (or, if any Provider is a non-U.S.
entity, an opinion of its in-house counsel or local counsel) dated the Effective
Date and addressed to the Company, S&P & Moody's, substantially to the effect
that this Agreement (i) constitutes the legal, valid and binding obligation of
the Providers, and (ii) is enforceable against the Providers in accordance with
its terms (subject to applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights generally and subject, as
to enforceability, to equitable principles of general application). In rendering
its opinion, Sidley Austin Brown & Wood LLP (or such other counsel) may rely
upon the opinions of in-house counsel to the Provider as to the due
authorization, execution and delivery by such Provider of this Agreement.
9. Conditions to the Providers' Commitments. (a) The several commitments
----------------------------------------
of the Providers hereunder shall be subject to the satisfaction of the following
conditions (with the following conditions (1)-(4) and (6) to be satisfied at and
as of the Effective Date and condition (5) to be satisfied as promptly
thereafter as possible):
(1) The Company shall have accepted the subscription contained herein
and the Providers shall have received an executed counterpart of this
Agreement.
(2) The Providers shall have received from the general counsel for the
Company, an opinion, dated the Effective Date, substantially in the
form of Exhibit (9)(a)(2) hereto.
(3) The Providers shall have received a certificate in the form of
Exhibit 12(a)(3), dated the Effective Date, and certified by the Chief
Financial Officer, Treasurer or Controller of the Company to the
effect that:
(i) The Company has complied with all agreements and satisfied
all conditions on its part to be performed or satisfied at or before
the Effective Date; and
(ii) The representations and warranties of the Company contained
in Section 5 herein are true, complete, and correct at and as of the
Effective Date.
(4) The Company shall have made all material filings required under
applicable state and/or federal securities laws in connection with the
transactions contemplated by this Agreement. The Company shall have
received all other
15
<PAGE>
authorizations, consents, approvals, licenses, filings and
registrations required in connection with the execution, delivery,
performance, validity and enforceability of this Agreement.
(5) The Providers shall have received a certificate (or equivalent
customary documentation, with respect to non-U.S. entities) of the
appropriate public official in the jurisdiction of organization of the
Company and the Reference Portfolio Insurers as to the due
organization and good standing of the Company and the Reference
Portfolio Insurers together with a certified copy (or equivalent
customary documentation, with respect to non-U.S. entities) of the
organizational documents of the Company and the Reference Portfolio
Insurers and shall have received certificates of appropriate public
officials of each other jurisdiction in which the Company and each
Reference Portfolio Insurer is required to qualify to do business as a
foreign organization as to the due qualification and good standing of
the Company and each Reference Portfolio Insurer.
(6) The Providers shall have received a copy, certified by the
Secretary of the Company, of the actions of the Board of Directors of
the Company authorizing, ratifying, and approving the Preferred Shares
Subscription Agreement in the form as executed on December 27, 2001,
including the issuance of the Commitments and the underlying Preferred
Shares.
(b) The several commitments of the Providers, at and as of each Issuance
Date, shall be subject to the following conditions:
(1) The Providers shall have received from the general counsel for the
Company, an opinion, dated as of each Issuance Date, substantially in
the form of Exhibit 9(b)(1) hereto.
(2) The Providers shall have received the Notice of Issuance from the
Company.
(3) The Providers shall have received a certificate, dated such
Issuance Date, certified by the Chief Financial Officer, Treasurer or
Controller of the Company to the effect that:
(i) The Company has complied with all agreements and satisfied
all conditions on its part to be performed or satisfied under this
Section 9(b) on such Issuance Date; and
(ii) The representations and warranties of the Company required
to be made on such Issuance Date are true and correct at and as of
such Issuance Date.
(4) At and as of such Issuance Date, there shall not have occurred and
been continuing an Event of Default under the Note Subscription
Agreement or any Notes.
16
<PAGE>
(5) The Company shall have made all material filings required under
applicable state and/or federal securities laws in connection with the
issuance of the Preferred Shares on such Issuance Date.
(6) No action, suit or other third-party proceeding by or before any
governmental authority shall have resulted in the issuance of an order
or other similar action enjoining the issuance of the Preferred
Shares.
(7) The Providers shall have received certificates representing their
Preferred Shares.
10. Notices. Any notice or other communication required or permitted under
-------
this Agreement shall be in writing and shall be deemed to have been given (a) on
the date of delivery if delivered personally or by facsimile transmission,
receipt confirmed, (b) twenty-four (24) hours after sending it by a nationally
recognized overnight delivery service, or (c) five (5) Business Days after
mailing, if sent by certified, registered or express mail, postage prepaid, if
properly addressed or directed to such party at the appropriate address or
facsimile number set forth below or at such other address or facsimile number as
such party may designate from time to time by notice duly given in accordance
with the terms of this Section 10:
If to the Company:
MBIA, Inc.
113 King Street
Armonk, New York 10504
Attn: Chief Financial Officer
Telephone No.: 914-765-3490
Fax No.: 914-765-3080
with a copy to:
MBIA, Inc.
113 King Street
Armonk, New York 10504
Attn: General Counsel
Telephone No.: 914-765-3945
Fax No.: 914-765-3919
If to Swiss Re Capital Markets Corporation:
55 East 52/nd/ Street
New York, NY 10055
Attention: Treasurer
Telephone No.: (212) 317-5400
Fax No.: (212) 317-5450
17
<PAGE>
with a copy to:
Swiss Re Capital Markets Corporation
55 East 52/nd/ Street
New York, NY 10055
Attention: General Counsel
Telephone No.: (212) 317-5400
Fax No.: (212) 317-5450
If to Swiss Re Financial Products Corporation:
55 East 52/nd/ Street
New York, NY 10055
Attention: Treasurer
Telephone No.: (212) 317-5400
Fax No.: (212) 317-5450
with a copy to:
Swiss Re Financial Products Corporation
55 East 52/nd/ Street
New York, NY 10055
Attention: General Counsel
Telephone No.: (212) 317-5400
Fax No.: (212) 317-5450
If to XXXXX:
XXXXXXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXX
11. Dispute Resolution. Any disputes arising under or in connection with
------------------
this Agreement shall be resolved by a court of law having the appropriate
jurisdiction over the parties and subject matter, subject to Section 14(b) of
this Agreement.
12. Transfers of Obligations or Preferred Shares. No Provider shall sell,
--------------------------------------------
assign or otherwise transfer its rights or obligations under this Agreement
(including, without limitation, the Commitments) (i) except pursuant to an
exemption from the registration requirements of the 1933 Act, and (ii) to an
investor having a rating at the time of such sale, assignment or transfer less
than AAA/Aaa by S&P and Moody's, respectively, and which has not been previously
approved in writing by the Company. The Company acknowledges and agrees that the
Providers may transfer interests in issued and outstanding Preferred Shares
without the prior consent of the Company in whole or in part only to one or more
affiliates of the Providers (it being further understood that the Providers may
not transfer the Commitments to any of their affiliates). The
18
<PAGE>
Company agrees to provide reasonable assistance to any Provider or SRCMC in
connection with the documentation of any permitted transfer of the Preferred
Shares or Commitments.
13. Indemnification for Broker's Fees. The Company agrees to indemnify,
---------------------------------
defend and hold harmless SRCMC from any and all claims, costs and expenses
(including reasonable attorney's fees and disbursements) in respect of the
assertions of any broker, finder, agent or other person seeking compensation for
the subscription for the Commitments or the underlying Preferred Shares or for
other services rendered in connection with such transactions.
14. Miscellaneous.
-------------
(a) The representations, warranties and agreements of the Providers and of
the Company set forth herein are continuing in nature and shall survive the
acceptance of the subscription contained herein and the issuances with respect
to the Preferred Shares.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York. The parties hereby submit to the exclusive
jurisdiction of the federal and state courts located in New York County with
respect to any dispute arising under this Agreement, the agreements and
instruments entered into in connection herewith or the transactions contemplated
hereby or thereby. THE PARTIES HEREBY WAIVE A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST ANY OTHER PARTY
HERETO IN RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR THE COMMITMENTS.
(c) The descriptive headings in this Agreement are for convenience of
reference only and shall not be deemed to alter or affect the meaning or
interpretation of any provision of this Agreement.
(d) This Agreement contains the entire agreement of the parties with
respect to the subject matter of this Agreement, and there are no
representations, covenants or other agreements except as stated or referred to
herein. This Agreement may be amended only by a writing executed by the party
against whom such amendment is sought to be enforced.
(e) This Agreement may be executed in one or more counterparts, all of
which shall constitute one and the same instrument.
(f) Except (i) as may be required by law (including the requirements for
any filings made by the Company under the 1933 Act or 1934 Act, or pursuant to
the order or ruling of any regulatory authority having jurisdiction over the
Company or the Insurers), or (ii) as may be required by any rating agency in
respect of its rating of the Company or any Insurer, the Company, SRFPC and
SRCMC hereby agree not to disclose that XXXXX is a party to this Agreement or
any of the agreements executed in connection herewith (including the disclosure
of XXXXX's name or the name, if any, of its affiliates) or the nature or amount
of its Commitments hereunder, except that XXXXX may be referred to in press
releases as "a leading reinsurance company" and its ratings may be disclosed. In
the event the disclosure of XXXXX's identity pursuant to clauses (i) or (ii) of
the foregoing sentence is required, the Company, SRFPC and SRCMC agree to give
advance notice to XXXXX of such disclosure.
19
<PAGE>
(g) This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns and legal representatives,
and any reference to a specific party in this Agreement shall include such
party's permitted successors or assigns.
20
<PAGE>
If the foregoing is in accordance of our agreement, please sign and return
a duplicate hereof, whereupon this Preferred Shares Subscription Agreement and
your acceptance will represent a binding agreement between SRCMC, the Providers
and the Company.
SWISS RE FINANCIAL
PRODUCTS CORPORATION,
a Delaware corporation
By: __________________________________
Name:
Title:
SWISS RE CAPITAL MARKETS
CORPORATION, a Delaware corporation
By: __________________________________
Name:
Title:
XXXXX,
a Delaware corporation
By: __________________________________
Name:
Title:
ACCEPTED this 27/th/ day of December, 2001
By MBIA, INC., a Connecticut corporation
By: __________________________________
Name:
Title:
21
<PAGE>
Schedule A
Commitments
Amount Percentage
------ ----------
Swiss Re Financial Products Corporation 50,000 shares 66 2/3%
XXXXX 25,000 shares 33 1/3%
A-1
<PAGE>
EXHIBIT 1
Certificate of Amendment
1A-1
<PAGE>
EXHIBIT 3(b)
[FORM OF NOTICE OF ISSUANCE]
NOTICE OF ISSUANCE
[Provider]
[Address]
Attention:
Dear Sir/Madam:
Reference is hereby made to the Preferred Shares Subscription Agreement
(the "Subscription Agreement") dated December 27, 2001 by and among MBIA, Inc.,
a Connecticut corporation (the "Company"), SRCMC and the Providers named
therein. This Notice represents the Company's request that you purchase shares
of the Company's Series A Preferred Stock, par value $1.00 per share (the
"Preferred Shares"), having a liquidation preference of $2,000 per share (the
"Liquidation Preference"). Capitalized terms used but not defined herein shall
have the meanings given to such terms in the Subscription Agreement.
The aggregate principal amount of the Notes subject to this Notice of
Issuance is: $_________
The date of issuance with respect to such Preferred Shares will be:
____________, 20___
The number of Preferred Shares to be acquired by [Provider] in
connection with such issuance has been computed pursuant to the terms of the
Notes based on the figures set forth below:
Aggregate principal
amount of Notes: Liquidation Preference: Number of Preferred Shares:
$________________ / $2,000 = ________________
Cash payment for fractional shares: $______________.
3B-1
<PAGE>
[In the event that you elect to pay cash for the Preferred Shares in lieu
of tendering the Notes as payment thereof, the purchase price for the Preferred
Shares shall be remitted in immediately available funds to the account of the
Company pursuant to the following wire transfer instructions:]
MBIA, INC.
By: _____________________________
Name:________________________
Title:_______________________
Dated: ____________, 20__
9A2-2
<PAGE>
EXHIBIT 4
[FORM OF OFFICER'S CERTIFICATE]
OFFICER'S CERTIFICATE
The undersigned officer of MBIA, Inc., a Connecticut corporation (the
"Company"), does hereby deliver this certificate on behalf of the Company
pursuant to Section 9(b)(3) of the Preferred Shares Subscription Agreement dated
December 27, 2001 (the "Agreement") between the Company, Swiss Re Financial
Products Corporation, Swiss Re Capital Markets Corporation and XXXXX, and hereby
certifies that:
(A) The Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied under Section 9(b)
of the Agreement on the date hereof; and
(B) The representations and warranties of the Company required to be made
on the date hereof are true and correct at and as of the date hereof.
Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Agreement.
Dated: _____________, 20_____ MBIA, Inc.
_____________________________________
Name:
Title: [Chief Financial Officer] [Treasurer]
[Controller]
3B-1
<PAGE>
EXHIBIT 9(a)(2)
OPINION OF COUNSEL
EFFECTIVE DATE
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Connecticut.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as currently being conducted
and to enter into and perform its obligations under the Certificate of
Amendment.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(iv) Each Insurer has been duly organized and is validly existing and
in good standing under the laws of the jurisdiction of its organization, has all
requisite power and authority to own, lease and operate its properties and
conduct its business as currently being conducted and is duly qualified to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify or
be in good standing would not have a Material Adverse Effect; all of the issued
and outstanding shares of capital stock or other equity interests, as
applicable, of each Insurer have been duly authorized and are validly issued,
fully paid and non-assessable and, except for qualifying shares, are owned by
the Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; and none of the
outstanding shares of capital stock of any Insurer was issued in violation of
preemptive or other similar rights of any securityholder of such Insurer.
(v) Each Insurer has all requisite licenses, permits and authority
that are necessary for the conduct of its insurance business, except where the
failure to obtain such licenses, permits or authorities would not have a
Material Adverse Effect (collectively, "Licenses"), such Licenses are in full
force and effect, and no proceeding is pending or, to the best of my knowledge,
threatened to suspend, revoke or limit any such License.
(vi) There are (i) no outstanding subscriptions, warrants, options,
calls or commitments of any character relating to or entitling any Person to
purchase or otherwise acquire any stock of any Insurer and (ii) no obligations
or securities convertible into or exchangeable for shares of any stock of any
Insurer or any commitments of any character relating to or entitling any Person
to purchase or otherwise acquire any such obligations or securities.
(vii) The Preferred Shares Subscription Agreement has been duly
authorized, executed and delivered by the Company and (assuming the due
authorization, execution and delivery
9A3-1
<PAGE>
thereof by the other parties thereto) constitutes a legal, valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting enforcement of creditors'
rights generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
(viii) The Preferred Shares, when issued and delivered by the Company
pursuant to the Preferred Shares Subscription Agreement against payment of the
consideration set forth therein, will be validly issued and fully paid and
non-assessable; and no holder of the Preferred Shares is or will be subject to
personal liability by reason of being such a holder. There are (i) no
outstanding subscriptions, warrants, options, calls or commitments of any
character relating to or entitling any Person to purchase or otherwise acquire
Preferred Shares, (ii) no obligations or securities convertible into or
exchangeable for Preferred Shares or any commitments of any character relating
to or entitling any Person to purchase or otherwise acquire any such obligations
or securities and (iii) no understandings or agreements with respect to the
purchase or voting of any of Preferred Shares.
(ix) The issuance of the Preferred Shares is not subject to
preemptive or other similar rights of any securityholder of the Company.
(x) Upon the subscription for the Commitments and subsequent
issuance and delivery of the underlying Preferred Shares as provided in the
Preferred Shares Subscription Agreement, it is not necessary in connection with
the subscription for the Commitments or the issuance of the underlying Preferred
Shares to register such Commitments or Preferred Shares under the 1933 Act. No
authorization, approval or consent of any court or governmental authority or
agency is necessary in connection with the valid issuance, sale and delivery of
the Preferred Shares, except such as may be required under the Blue Sky laws or
other securities or insurance securities laws of the various states, and any
other requirements applicable to purchasers of Preferred Shares.
(xi) To the best of my knowledge, there is not pending or threatened
any action, suit, proceeding, inquiry or investigation, to which the Company or
any Insurer is a party, or to which the property of the Company or any Insurer
is subject, before or brought by any court or governmental agency or body,
domestic or foreign, which may reasonably be expected to result, individually or
in the aggregate, in a Material Adverse Effect, or which might reasonably be
expected to materially and adversely affect the assets, properties or operations
thereof, taken as a whole, or the consummation of the transactions contemplated
in the Preferred Shares Subscription Agreement or the performance by the Company
of its obligations thereunder.
(xii) Neither the Company nor any Insurer is, or with the giving of
notice or passage of time or both, would be, in breach or violation of any of
the terms or provisions of or in default under (i) any statute, rule or
regulation applicable to the Company or any Insurer, (ii) any indenture,
contract, lease, mortgage, deed of trust, note or other agreement or instrument
for over $25,000,000 to which the Company or any Insurer is a party or by which
it may be bound, (iii) its certificate of incorporation, by-laws or other
organizational documents, and (iv) any
9A2-2
<PAGE>
order, decree or judgment of any court or governmental agency or body having
jurisdiction over the Company or any Insurer except, with respect to breaches,
violations or defaults contemplated by clauses (i), (ii), (iii) or (iv), for
such breaches, violations or defaults that could not, individually or in the
aggregate, be reasonably expected to result in a Material Adverse Effect. The
opinions stated in clauses (i), (ii) and (iv) are stated to the best of my
knowledge. The performance of the Preferred Shares Subscription Agreement by the
Company and the consummation of the transactions therein contemplated will not,
with the giving of notice or passage of time or both, result in a breach or
violation of any of the terms or provisions of or constitute a default under or
accelerate obligations under (w) any material statute, rule or regulation
applicable to the Company or any Insurer, (x) any indenture, contract, mortgage,
lease, deed of trust, note or other agreement or instrument for over $25,000,000
to which the Company or any Insurer is a party or by which it is bound, (y) the
Company's or any Insurer's certificate of incorporation or by-laws or (z) any
order, decree or judgment of any court or governmental agency or body having
jurisdiction over the Company or any Insurer or any of their properties.
(xiii) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the 1940
Act. 1.
9A2-3
<PAGE>
EXHIBIT 9(a)(3)
[FORM OF OFFICER'S CERTIFICATE]
OFFICER'S CERTIFICATE
The undersigned officer of MBIA, Inc., a Connecticut corporation (the
"Company"), does hereby deliver this certificate on behalf of the Company
pursuant to Section 9(a)(3) of the Preferred Shares Subscription Agreement dated
December 27, 2001 (the "Agreement") between the Company, Swiss Re Financial
Products Corporation, Swiss Re Capital Markets Corporation and XXXXX, and hereby
certifies that:
(A) The Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or
before the date hereof; and
(B) The representations and warranties of the Company contained in
Section 5 of the Agreement are true, complete, and correct at
and as of the date hereof.
Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Agreement.
Dated: December 27, 2001 MBIA, Inc.
------------------------------
Name:
Title: [Chief Financial Officer] [Treasurer]
[Controller]
9A3-1
<PAGE>
EXHIBIT 9(b)(1)
OPINION OF COUNSEL
ISSUANCE DATE
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Connecticut.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to perform its obligations under the Certificate of
Amendment.
(iii) The Preferred Shares have been validly issued and delivered by
the Company pursuant to the Preferred Shares Subscription Agreement, are fully
paid and non-assessable, and no holder of the Preferred Shares is or will be
subject to personal liability by reason of being such a holder. There are (i) no
outstanding subscriptions, warrants, options, calls or commitments of any
character relating to or entitling any Person to purchase or otherwise acquire
Preferred Shares, (ii) no obligations or securities convertible into or
exchangeable for Preferred Shares or any commitments of any character relating
to or entitling any Person to purchase or otherwise acquire any such obligations
or securities and (iii) no understandings or agreements with respect to the
purchase or voting of any of Preferred Shares.
(iv) The issuance of the Preferred Shares is not subject to
preemptive or other similar rights of any securityholder of the Company.
(v) It is not necessary in connection with the issuance of the
Preferred Shares to register such Preferred Shares under the 1933 Act. No
authorization, approval or consent of any court or governmental authority or
agency is necessary in connection with the valid issuance, sale and delivery of
the Preferred Shares, except such as may be required under the Blue Sky laws or
other securities or insurance securities laws of the various states, and any
other requirements applicable to purchasers of Preferred Shares.
(vi) No Event of Default under the Note Subscription Agreement or
under any Notes has occurred and is continuing.
9B-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.04
<SEQUENCE>5
<FILENAME>dex1004.txt
<DESCRIPTION>FIRST RESTATED CREDIT AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.04
FOURTH 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 31, 2001
_____________
<PAGE>
FOURTH AMENDMENT
THIS FOURTH AMENDMENT, dated as of October 31, 2001 (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")
------
and individually as a Bank;
WHEREAS, the parties hereto are parties to the Second Amended and
Restated Credit Agreement, dated as of October 1, 1997, as amended by the First
Amendment thereto dated as of October 1, 1998, the Second Amendment thereto
dated as of October 29, 1999, the Third Amendment thereto, dated as of October
27, 2000, and as further modified by certain Assignment and Assumption
Agreements (as defined therein) (as so amended and modified, the "Credit
------
Agreement"); 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. Amendment. The definition of the term "Expiration Date"
---------
contained in Exhibit A to the Credit Agreement is hereby amended and restated to
read in its entirety as follows:
"`Expiration Date' shall mean the date on which the
---------------
right to obtain Loans terminates, initially October 31, 2008,
as such date may be extended pursuant to Section 3.3."
Section 1.3. Commitments. The aggregate Commitments of the Banks are
-----------
hereby amended so that, from and after October 31, 2001 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.
Section 1.4. Additional Bank. By its execution and delivery of this
---------------
Amendment, Barclays Bank PLC, New York Branch (the "Additional Bank"), hereby
---------------
agrees to be bound, and
<PAGE>
shall have the rights under the Credit Agreement and the Loan Documents, as a
Bank having a Commitment equal to the amount specified in Schedule 1 to this
Amendment, and the Agents and MBIA each hereby consent to the Additional Bank
becoming a Bank. The Additional Bank acknowledges and agrees that the Agents (i)
make no representation or warranty and assume no responsibility with respect to
any statements, warranties and representations made in or in connection with the
Credit Agreement or any of the Loan Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or any of the Loan Documents or any other instrument or document
furnished pursuant thereto; and (ii) make no representation or warranty and
assumes no responsibility with respect to the financial condition of or the
performance or observance by MBIA of any of their obligations under the Credit
Agreement, any of the Loan Documents or any other instrument or document
furnished pursuant thereto. The Additional Bank further (i) confirms that it has
received a copy of the Credit Agreement, together with copies of the financial
statements and SEC Reports referred to therein, and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into the Credit Agreement; (ii) agrees that it will,
independently and without reliance upon the Agents and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under the Credit Agreement;
(iii) agrees to the provisions of Article 8 of the Credit Agreement and appoints
and authorizes the Agents on its behalf to exercise such powers under the Credit
Agreement and the other Loan Documents, as are delegated to the Agents by the
terms thereof and hereof, together with such powers as are reasonably incidental
thereto; and (iv) agrees that it will be bound by all of the terms and
conditions of the Credit Agreement and the other Loan Documents and will perform
in accordance with their terms all of the obligations which by the terms of the
Credit Agreement and the other Loan Documents are required to be performed by it
as a Bank.
Section 1.5. Terminating Bank. The parties acknowledge that pursuant to
----------------
a separate instrument, Lloyds TSB Bank PLC (the "Terminating Bank"), MBIA and
----------------
the Agents have agreed that concurrently with the effectiveness of this
Amendment, the Terminating Bank's entire Commitment and role as a Bank under the
Credit Agreement is terminated and that the Terminating Bank shall have no
further liabilities, obligations or rights under the Credit Agreement, except
for those liabilities, obligations and rights which survive the termination of
the Commitment of a Bank under the Credit Agreement.
ARTICLE 2.
CONDITIONS PRECEDENT
--------------------
Section 2.1. Conditions Precedent to Amendment Effective Date. The
------------------------------------------------
provisions of Article 1 hereof shall become effective as of October 31, 2001
when this Amendment shall have been executed and delivered by MBIA, each Agent
and consented to by each Bank and 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 November 16, 2001, the provisions of
Article 1 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.
2
<PAGE>
(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.
(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, Vice Chairman,
Managing Director, 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 29, 1999, 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 31, 2001, 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) 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 31, 2001, in a principal amount equal to the amount of
its Commitment or of the increase in its Commitment, as applicable.
3
<PAGE>
(e) 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.
(f) 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, 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
4
<PAGE>
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.
-------------------------
(a) 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, 2000, 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, 2000, and (ii) the unaudited consolidated and
consolidating balance sheets of MBIA Inc. and its subsidiaries as of March 31
and June 30, 2001, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the three months ended March 31, 2001,
the six months ended June 30, 2001. 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, 2001.
(b) 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, 2000 and its quarterly statements and financial statements as filed
with the Department for the periods ended March 31, 2001 and June 30, 2001. 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.
(c) 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, 2000,
its quarterly reports on Form 10-Q of MBIA Inc. for each of the quarters ended
March 31, 2001 and June 30, 2001 and each current report on Form 8-K filed by
MBIA Inc. on or after January 1, 2001, each as filed with the Securities and
Exchange Commission. Such annual, quarterly and current reports were prepared in
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
5
<PAGE>
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.
Section 3.6. Confirmation of Representations and Warranties. MBIA
----------------------------------------------
hereby confirms that its representations and warranties set forth in the 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 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. Severability. 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.
6
<PAGE>
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.
7
<PAGE>
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 _____________________________
Name:
Title:
S-1
<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A. "RABOBANK
NEDERLAND", New York Branch, as
Administrative Agent and as a Bank
By _____________________________
Name:
Title:
By _____________________________
Name:
Title:
S-2
<PAGE>
DEUTSCHE BANK AG, New York Branch,
as Documentation Agent and as a Bank
By _____________________________
Name:
Title:
By _____________________________
Name:
Title:
S-3
<PAGE>
BANKS:
------
LANDESBANK BADEN
WURTTEMBERG, NEW YORK
BRANCH, as a Bank
By: _______________________________
Name:
Title:
By: _______________________________
Name:
Title:
S-4
<PAGE>
CREDIT SUISSE FIRST BOSTON, NEW
YORK BRANCH, as a Bank
By: ___________________________
Name:
Title:
By: ___________________________
Name:
Title:
S-5
<PAGE>
BANK OF AMERICA, NA,
as a Bank
By: ___________________________
Name:
Title:
S-6
<PAGE>
BAYERISCHE LANDESBANK
GIROZENTRALE, NEW YORK
BRANCH, as a Bank
By:____________________________
Name:
Title:
By:____________________________
Name:
Title:
S-7
<PAGE>
LANDESBANK HESSEN-THURINGEN
GIROZENTRALE, NEW YORK
BRANCH, as a Bank
By: ___________________________
Name:
Title:
By: ___________________________
Name:
Title:
S-8
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK
BRANCH, as a Bank
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
S-9
<PAGE>
BAYERISCHE HYPO- UND
VEREINSBANK AG, NEW YORK
BRANCH, as a Bank
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
S-10
<PAGE>
THE BANK OF NEW YORK,
as a Bank
By: ______________________________
Name:
Title:
S-11
<PAGE>
DGZ.ODEKABANK DEUTSCHE
KOMMUNALBANK, as a Bank
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
S-12
<PAGE>
BARCLAYS BANK PLC, NEW YORK
BRANCH, as a Bank
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
S-13
<PAGE>
COMMONWEALTH BANK OF
AUSTRALIA, NEW YORK BRANCH,
as a Bank
By:________________________________
Name:
Title:
S-14
<PAGE>
FLEET NATIONAL BANK, as a Bank
By:________________________________
Name:
Title:
S-15
<PAGE>
THE BANK OF NOVA SCOTIA,
as a Bank
By:________________________________
Name:
Title:
S-16
<PAGE>
KBC BANK, N.V., as a Bank
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
S-17
<PAGE>
NORDDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK
BRANCH, as a Bank
By:____________________________
Name:
Title:
By:____________________________
Name:
Title:
S-18
<PAGE>
BANCO SANTANDER CENTRAL
HISPANO S.A., NEW YORK BRANCH,
as a Bank
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
S-19
<PAGE>
THE CHASE MANHATTAN BANK,
as a Bank
By:_________________________
Name:
Title:
S-20
<PAGE>
DEXIA CREDIT LOCAL, NEW YORK
AGENCY, as a Bank
By:________________________________
Name:
Title:
S-21
<PAGE>
SCHEDULE 1
TO FOURTH AMENDMENT
BANKS, ADDRESSES AND COMMITMENTS
--------------------------------
<TABLE>
<CAPTION>
Name and Notice Address of Bank Commitment
- ------------------------------- ----------
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. $ 150,000,000
"Rabobank Nederland", New York Branch
245 Park Avenue, 37/th/ Floor
New York, NY 10167
Attn: Angela R. Reilly
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Landesbank Baden Wurttemberg, $ 100,000,000
New York Branch
535 Madison Avenue
New York, NY 10022
Attn: Robert O'Brien
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Credit Suisse First Boston, $ 80,000,000
New York Branch
Eleven Madison Avenue
New York, NY 10010-3629
Attn: Jay Chall
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Deutsche Bank AG, New York Branch $ 70,000,000
Deutsche Bank Securities Inc.
31 West 52/nd/ Street
New York, NY 10019
Attn: Clinton Johnson
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Bank of America, N.A. $ 53,750,000
901 Main Street, 66/th/ Floor
Dallas, Texas 75202
Attn: Mehul Mehta
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Bayerische Landesbank Girozentrale, $ 50,000,000
New York Branch
560 Lexington Avenue, 17/th/ Floor
New York, NY 10022
Attn: Robert Albano
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Notice Address of Bank Commitment
- ------------------------------- ----------
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Landesbank Hessen-Thuringen Girozentrale, $ 50,000,000
New York Branch
420 Fifth Avenue, 24/th/ Floor
New York, NY 10018
Attn: John Sarno
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Westdeutsche Landesbank Girozentrale $ 50,000,000
New York Branch
1211 Avenue of the Americas
New York, NY 10036
Attn: Lillian Tung Lum, VP
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Bayerische Hypo- und Vereinsbank AG, $ 46,491,229
New York Branch
150 East 42/nd/ Street
New York, NY 10017-4679
Attn: Michael Davis
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
The Bank of New York $ 40,000,000
Insurance Division
1 Wall Street, 17/th/ Floor
New York, NY 10286
Attn: Louis DiFranco
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
DGZ DekaBank Deutsche Kommunalbank $ 35,000,000
International Finance Department
Taunusanlage 10
D-60329 Frankfurt am Main
GERMANY
Attn: Stephan Wagner
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Barclays Bank PLC, New York Branch $25,000,000
222 Broadway
New York, NY 10038
(212) 412-7672
Attn: Alison McGuigan
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Commonwealth Bank of Australia, $ 25,000,000
New York Branch
599 Lexington Avenue
New York, NY 10022
Attn: Randy Kase
- --------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------- --------------------------------------
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Name and Notice Address of Bank Commitment
- ------------------------------- ----------
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Fleet National Bank $ 25,000,000
777 Main Street, CT-MO 0250
Hartford, CT 06115
Attn: David Albanesi
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
The Bank of Nova Scotia $ 23,245,614
One Liberty Plaza
New York, NY 10006
Attn: David Schwartzbard
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
KBC Bank, N.V. $ 20,000,000
125 West 55/th/ Street
New York, NY 10019
Attn: Patrick Owens
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Norddeutsche Landesbank Girozentrale, $ 18,596,491
New York Branch
1114 Avenue of the Americas, 37/th/ Floor
New York, NY 10036
Attn: Georg Peters
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Banco Santander Central Hispano S.A., $ 18,596,491
New York Branch
45 East 53/rd/ Street
New York, NY 10022
Attn: Victoria Moreno
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
The Chase Manhattan Bank $ 10,021,929
270 Park Avenue, 20/th/ Floor
New York, NY 10017
Attn: Marybeth Mullen
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Dexia Credit Local, New York Agency $ 9,298,246
445 Park Avenue
New York, NY 10022
Attn: James Beck
- --------------------------------------------------------------------------------------------------------------
TOTAL $900,000,000
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(iii)
<PAGE>
EXHIBIT A
TO FOURTH AMENDMENT
Form of Opinion of General Counsel of MBIA
------------------------------------------
October 31, 2001
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: Fourth Amendment, dated as of October 31, 2001, 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 Fourth
Amendment, dated as of October 31, 2001 (the "Amendment"), to the Second Amended
and Restated Credit Agreement dated as of October 1, 1997, as heretofore amended
(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
A-1
<PAGE>
MBIA and copies 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:
1. 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 and the additional Notes dated October 31, 2001 being issued to
certain parties (the "Transaction Documents").
2. 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.
3. 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.
4. 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>
5. 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.
6. 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.
7. 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 FOURTH AMENDMENT
Form of Opinion of Kutak Rock
-----------------------------
October 31, 2001
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: Fourth Amendment, dated as of October 31, 2001, 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 Fourth
Amendment, dated as of October 31, 2001 (the "Amendment"), to the Second Amended
and Restated Credit Agreement dated as of October 1, 1997, as heretofore amended
(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 and the additional Notes
dated October 31, 2001 being issued to certain parties.
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
B-2
<PAGE>
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 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 October
1, 1997, delivered in connection with the Second Amended and Restated 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 (except for the financing statements
described in our October 1, 1997 opinion and 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.
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 furnished 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
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>6
<FILENAME>dex1014.txt
<DESCRIPTION>CREDIT AGREEMENT (364 AGREEMENT)
<TEXT>
<PAGE>
Exhibit 10.14
FIRST AMENDMENT
---------------
FIRST AMENDMENT (the "Amendment"), dated as of February 9, 2001, among
MBIA INC. ("Parent"), a Connecticut corporation, MBIA INSURANCE CORPORATION
("Corp.")' a New York stock insurance corporation, one or more Designated
Borrowers from time to time party thereto, the lenders from time to time party
thereto (each a "Lender" and, collectively, the "Lenders"), BANK ONE, NA (f/k/a
The First National Bank of Chicago), as Syndication Agent (the "Syndication
Agent"), FLEET NATIONAL BANK, as Documentation Agent (the "Documentation
Agent"), and DEUTSCHE BANK AG, NEW YORK BRANCH, as Administrative Agent (the
"Administrative Agent"). Unless otherwise defined herein, capitalized terms used
herein and defined in the Credit Agreement referred to below are used herein as
so defined.
W I T N E S E T H:
- - - - - - - - -
WHEREAS, Parent, Corp., the Designated Borrowers, the Lenders, the
Documentation Agent, the Syndication Agent and the Administrative Agent, are
party to a Credit Agreement, dated as of August 28, 1998 whereby the Lenders
have agreed to make Loans to the Borrowers of up to $200,000,000, which amount
was subsequently increased to $217,000,000 (as the same has been amended,
modified or supplemented to, but not including, the date hereof, the "Credit
Agreement");
WHEREAS, subject to the terms and conditions set forth below, the
parties hereto wish to amend the Credit Agreement as provided herein;
NOW, THEREFORE, it is agreed;
A. Amendment
---------
Section 7.07 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"Leverage Ratio. Parent and Corp. will not permit the ratio of
--------------
Consolidated Total Debt to Consolidated Total Capitalization at any time to
exceed 0.2762:1.00."
B. Miscellaneous Provisions
------------------------
1. In order to induce the Lenders to enter into this Amendment, each
of Parent and Corp. hereby represents and warrants that (i) the representations
and warranties of each of Parent and Corp. contained in the Credit Agreement are
true and correct in all material respects on and as of the Amendment Effective
Date (as defined below) (except with respect to any representations and
warranties limited by their terms to a specific date, which shall be true and
correct in all material respects as of such date), and (ii) there exists no
Default or Event of Default under the Credit Agreement on the Amendment
Effective Date, in each case after giving effect to this Amendment.
<PAGE>
2. This Amendment is limited as specified and shall not constitute an
amendment, modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.
3. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
4. This Amendment shall become effective on the date (the "Amendment
Effective Date") when the Borrowers and the Required Lenders shall have signed a
counterpart hereof (whether the same or different counterparts) and shall have
delivered (including by way of telecopier) the same to the Administrative Agent.
5. From and after the Amendment Effective Date, all references in the
Credit Agreement and in the other Credit Documents shall be deemed to be
referenced to the Credit Agreement as modified hereby.
* * *
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed and delivered as of the date first above written.
MBIA INC.
By:____________________________
Title:
MBIA INSURANCE CORPORATION
By:____________________________
Title:
<PAGE>
DEUTSCHE BANK AG, NEW YORK BRANCH,
Individually and as Administrative Agent
By:_________________________________
Title:
<PAGE>
BANK ONE, NA, Individually and as Syndication
Agent
By:______________________________
Title:
<PAGE>
FLEET NATIONAL BANK, Individually and as
Documentation Agent
By _____________________________________
Title:
<PAGE>
BANCA MONTE DEI PASCHI DI SIENA S.p.A.
By: __________________________________
Title:
<PAGE>
BANK OF MONTREAL
By: ____________________________________
Title:
<PAGE>
THE CHASE MANHATTAN BANK
By: ____________________________________
Title:
<PAGE>
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION
By:_____________________________
Title:
<PAGE>
FORTIS (USA) FINANCE LLC
By:_____________________________
Title:
<PAGE>
BANCO SANTANDER CENTRAL HISPANO
S.p.A., New York Branch
By: ___________________________
Title:
<PAGE>
COMMERZBANK AG, NEW YORK BRANCH
By: ___________________________
Title:
<PAGE>
NATIONAL AUSTRALIA BANK LIMITED,
NEW YORK BRANCH
By: ____________________________
Title:
<PAGE>
NORDDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By: ___________________________
Title:
<PAGE>
SECOND AMENDMENT TO THE CREDIT AGREEMENT
----------------------------------------
SECOND AMENDMENT (the "Amendment"), dated as of July 31, 2001, among
MBIA INC. ("Parent"), a Connecticut corporation, MBIA INSURANCE CORPORATION
("Corp.")' a New York stock insurance corporation, one or more Designated
Borrowers from time to time party thereto, the lenders from time to time party
thereto (each a "Lender" and, collectively, the "Lenders"), BANK ONE, NA (f/k/a
The First National Bank of Chicago), as Syndication Agent (the "Syndication
Agent"), FLEET NATIONAL BANK, as Documentation Agent (the "Documentation
Agent"), and DEUTSCHE BANK AG, NEW YORK BRANCH, as Administrative Agent (the
"Administrative Agent"). Unless otherwise defined herein, capitalized terms used
herein and defined in the Credit Agreement referred to below are used herein as
so defined.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Parent, Corp., the Designated Borrowers, the Lenders, the
Documentation Agent, the Syndication Agent and the Administrative Agent, are
party to a Credit Agreement, dated as of August 28, 1998 whereby the Lenders
have agreed to make Loans to the Borrowers of up to $200,000,000, which amount
was subsequently increased to $217,000,000 (as the same has been amended,
modified or supplemented to, but not including, the date hereof, the "Credit
Agreement");
WHEREAS, subject to the terms and conditions set forth below, the
parties hereto wish to amend the Credit Agreement as provided herein;
NOW, THEREFORE, it is agreed;
A. Amendments
----------
1. Section 7.01(v) of the Credit Agreement is hereby amended by
deleting the text "and in no event for a period exceeding 90 days in each case"
appearing in the last line thereof.
2. Section 7.07 of the Credit Agreement is hereby amended to read
in its entirety as follows:
"Leverage Ratio. Parent and Corp. will not permit the ratio of
--------------
Consolidated Total Debt to Consolidated Total Capitalization at any
time to exceed 0.30:1.00."
3. Section 8.01(h) is hereby amended by (i) deleting the term
"Subsidiary" appearing in the first line thereof and (ii) inserting the term
"Material Subsidiary" in lieu thereof.
4. Section 8.01(i) is hereby amended by (i) deleting the term
"Subsidiary" appearing in the second line thereof and inserting the term
"Material Subsidiary" in lieu thereof and (ii)
<PAGE>
deleting the term "Subsidiary" appearing in the penultimate line thereof and
inserting the term "Material Subsidiary" in lieu thereof.
5. Section 8.01(k) of the Credit Agreement is hereby amended by
(i) deleting the number "$10,000,000" appearing therein and (ii) inserting the
number "$25,000,000" in lieu thereof.
6. The definition of the term "Debt" contained in Section 9 of
the Credit Agreement is hereby amended by (i) inserting the following at the end
of clause (ii) therein, "except for (I) the obligations referred to in the
parenthetical in clause (x) below and (II) investment agreements entered into by
Parent or any of its Subsidiaries in the ordinary course of business in
connection with the asset management business of MBIA Asset Management and its
Subsidiaries," (ii) deleting the word "and" appearing at the end of clause
(viii) therein and (iii) inserting the following new clause (x) immediately
after clause (ix) contained therein:
"and (x) solely for the purpose of determining the ratio of
Consolidated Total Debt to Consolidated Total Capitalization pursuant
to Section 7.07, obligations under any repurchase agreements secured by
Liens constituting a borrowing of funds for a period exceeding 90 days
(other than obligations under such repurchase agreements entered into
by Parent or any of its Subsidiaries in the ordinary course of business
in connection with the asset management business of MBIA Asset
Management and its Subsidiaries),"
7. Section 9 of the Credit Agreement is hereby further amended by
adding the following new defined terms in the appropriate alphabetical order:
"Material Subsidiary" shall mean any Subsidiary with a Net Worth
greater than $5,000,000.
"MBIA Asset Management" shall mean MBIA Asset Management, LLC, a
limited liability company organized under the laws of Delaware.
B. Miscellaneous Provisions
------------------------
1. In order to induce the Lenders to enter into this Amendment,
each of Parent and Corp. hereby represents and warrants that (i) the
representations and warranties of each of Parent and Corp. contained in the
Credit Agreement are true and correct in all material respects on and as of the
Amendment Effective Date (as defined below) (except with respect to any
representations and warranties limited by their terms to a specific date, which
shall be true and correct in all material respects as of such date), and (ii)
there exists no Default or Event of Default under the Credit Agreement on the
Amendment Effective Date, in each case after giving effect to this Amendment.
2. This Amendment is limited as specified and shall not
constitute an amendment, modification, acceptance or waiver of any other
provision of the Credit Agreement or any other Credit Document.
-2-
<PAGE>
3. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
4. This Amendment shall become effective on the date (the
"Amendment Effective Date") when the Borrowers and the Required Lenders shall
have signed a counterpart hereof (whether the same or different counterparts)
and shall have delivered (including by way of telecopier) the same to the
Administrative Agent.
5. From and after the Amendment Effective Date, all references in
the Credit Agreement and in the other Credit Documents shall be deemed to be
referenced to the Credit Agreement as modified hereby.
* * *
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed and delivered as of the date first above written.
MBIA INC.
By:______________________________
Title:
MBIA INSURANCE CORPORATION
By:______________________________
Title:
<PAGE>
DEUTSCHE BANK AG, NEW YORK BRANCH,
Individually and as
Administrative Agent
By:___________________________________
Title:
By:___________________________________
Title:
<PAGE>
BANK ONE, NA, Individually and as Syndication
Agent
By:___________________________________________
Title:
<PAGE>
FLEET NATIONAL BANK, Individually and
as Documentation Agent
By:__________________________________
Title:
<PAGE>
BANCA MONTE DEI PASCHI DI SIENA
S.p.A.
By:____________________________
Title
<PAGE>
BANK OF MONTREAL
By:__________________________________
Title:
<PAGE>
THE CHASE MANHATTAN BANK
By:_______________________________
Title:
<PAGE>
BANK OF AMERICA NATIONAL ASSOCIATION
By:_______________________________
Title:
<PAGE>
FORTIS (USA) FINANCE LLC
By:__________________________________
Title:
<PAGE>
BANCO SANTANDER CENTRAL HISPANO
S.p.A., New York Branch
By:__________________________________
Title:
<PAGE>
COMMERZBANK AG, NEW YORK BRANCH
By:__________________________________
Title:
<PAGE>
NATIONAL AUSTRALIA BANK LIMITED,
NEW YORK BRANCH
By:__________________________________
Title:
<PAGE>
NORDDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By:__________________________________
Title:
<PAGE>
THIRD AMENDMENT
---------------
THIRD AMENDMENT (this "Amendment"), dated as of December 7, 2001 among
MBIA INC. ("Parent"), a Connecticut corporation, MBIA INSURANCE CORPORATION
("Corp."), a New York stock insurance corporation, one or more Designated
Borrowers from time to time party thereto, the lenders from time to time party
thereto (each a "Lender" and, collectively, the "Lenders"), BANK ONE, NA (f/k/a
The First National Bank of Chicago), as Syndication Agent (the "Syndication
Agent"), FLEET NATIONAL BANK, as Documentation Agent (the "Documentation
Agent"), and DEUTSCHE BANK AG, NEW YORK BRANCH, as Administrative Agent (the
"Administrative Agent"). Unless otherwise defined herein, capitalized terms used
herein and defined in the Credit Agreement referred to below are used herein as
so defined.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Parent, Corp., the Designated Borrowers, the Lenders, the
Syndication Agent, Documentation Agent and the Administrative Agent, are party
to a Credit Agreement, dated as of August 28, 1998 whereby the Lenders have
agreed to make Loans to the Borrowers of up to $400,000,000, which amount was
subsequently increased to $433,000,000 (as the same has been amended, modified
or supplemented to, but not including, the date hereof, the "Credit Agreement");
WHEREAS, subject to the terms and conditions set forth below, the
parties hereto wish to amend the Credit Agreement as provided herein;
NOW, THEREFORE, it is agreed;
A. Amendments
----------
1. Section 8.01(b) of the Credit Agreement is hereby amended by
deleting the text ", 7.07" appearing therein.
2. Section 8.01(d) of the Credit Agreement is hereby amended by
adding to the end of the text contained in the parenthetical appearing in the
second line thereof the new text ", but including, without limitation, any
covenant contained in Section 7.07".
3. The definition of the term "Agents" contained in Section 9 of
the Credit Agreement is hereby amended by (i) deleting the text ", the
Syndication Agent and the Documentation Agent" and (ii) inserting the text "and
the Co-Syndication Agents" in lieu thereof.
<PAGE>
4. Section 9 of the Credit Agreement is hereby amended by deleting the
terms "Syndication Agent" and "Documentation Agent" in their entirety.
5. Section 9 of the Credit Agreement is hereby further amended by
adding the following new defined term in the appropriate alphabetical order:
"Co-Syndication Agent" shall mean each of The Bank of New York, Bank
One, NA, Barclays Bank PLC and Fleet National Bank in their capacities as such.
6. Section 10.01 is hereby amended by (i) deleting the text ", The
First National Bank of Chicago as Syndication Agent and Fleet National Bank as
Documentation Agent" appearing in the first sentence thereof and (ii) inserting
the text "and each of The Bank of New York, Bank One, NA, Barclays Bank PLC and
Fleet National Bank as Co-Syndication Agents" in lieu thereof.
7. Section 10.09(d) is hereby amended by (i) deleting the text "Each
of the Documentation Agent and the Syndication Agent" appearing in the first
sentence thereof and (ii) inserting "Each of the Co-Syndication Agents" in lieu
thereof.
8. Section 10.10 of the Credit Agreement is hereby amended by (i)
deleting the text "Documentation Agent; Syndication Agent" appearing in the
--------------------------------------
heading thereof and inserting the heading "Co-Syndication Agents" in lieu
---------------------
thereof and (ii) deleting the text "the Documentation Agent or the Syndication
Agent" appearing in the first sentence thereof and inserting the text "any of
the Co-Syndication Agents" in lieu thereof.
B. Miscellaneous Provisions
------------------------
1. In order to induce the Lenders to enter into this Amendment, each
of Parent and Corp. hereby represents and warrants that (i) the representations
and warranties of each of Parent and Corp. contained in the Credit Agreement are
true and correct in all material respects on and as of the Amendment Effective
Date (as defined below) (except with respect to any representations and
warranties limited by their terms to a specific date, which shall be true and
correct in all material respects as of such date), and (ii) there exists no
Default or Event of Default under the Credit Agreement on the Amendment
Effective Date, in each case after giving effect to this Amendment.
2. This Amendment is limited as specified and shall not constitute an
amendment, modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.
3. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
-2-
<PAGE>
4. This Amendment shall become effective on the date (the "Amendment
Effective Date") when the Borrowers and the Required Lenders shall have signed a
counterpart hereof (whether the same or different counterparts) and shall have
delivered (including by way of telecopier) the same to the Administrative Agent.
5 . From and after the Amendment Effective Date, all references in the
Credit Agreement and in the other Credit Documents shall be deemed to be
referenced to the Credit Agreement as modified hereby.
* * *
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed and delivered as of the date first above written.
MBIA INC.
By:__________________________
Title:
MBIA INSURANCE CORPORATION
By:__________________________
Title:
<PAGE>
DEUTSCHE BANK AG, NEW YORK BRANCH,
Individually and as Administrative Agent
By:_______________________________________
Title:
By:_______________________________________
Title:
[SIGNATURE PAGE TO THE THIRD AMENDMENT TO THE MULTI-YEAR CREDIT AGREEMENT]
<PAGE>
BANK ONE, NA,
Individually and as Co-Syndication Agent
By:_______________________________________
Title:
[SIGNATURE PAGE TO THE THIRD AMENDMENT TO THE MULTI-YEAR CREDIT AGREEMENT]
<PAGE>
THE BANK OF NEW YORK,
Individually and as Co-Syndication Agent
By:_______________________________________
Title:
[SIGNATURE PAGE TO THE THIRD AMENDMENT TO THE MULTI-YEAR CREDIT AGREEMENT]
<PAGE>
BARCLAYS BANK PLC,
Individually and as Co-Syndication Agent
By:_______________________________________
Title:
[SIGNATURE PAGE TO THE THIRD AMENDMENT TO THE MULTI-YEAR CREDIT AGREEMENT]
<PAGE>
FLEET NATIONAL BANK,
Individually and as Co-Syndication Agent
By:_______________________________________
Title:
[SIGNATURE PAGE TO THE THIRD AMENDMENT TO THE MULTI-YEAR CREDIT AGREEMENT]
<PAGE>
BANK OF AMERICA, N.A
By:_______________________________________
Title:
[SIGNATURE PAGE TO THE THIRD AMENDMENT TO THE MULTI-YEAR CREDIT AGREEMENT]
<PAGE>
THE CHASE MANHATTAN BANK
By:_______________________________________
Title:
[SIGNATURE PAGE TO THE THIRD AMENDMENT TO THE MULTI-YEAR CREDIT AGREEMENT]
<PAGE>
BANK OF MONTREAL
By:_______________________________________
Title:
[SIGNATURE PAGE TO THE THIRD AMENDMENT TO THE MULTI-YEAR CREDIT AGREEMENT]
<PAGE>
BANCO SANTANDER CENTRAL HISPANO,
S.p.A., New York Branch
By:_____________________________
Title:
[SIGNATURE PAGE TO THE THIRD AMENDMENT TO THE MULTI-YEAR CREDIT AGREEMENT]
<PAGE>
NATIONAL AUSTRALIA BANK LIMITED,
NEW YORK BRANCH
By:_____________________________
Title:
[SIGNATURE PAGE TO THE THIRD AMENDMENT TO THE MULTI-YEAR CREDIT AGREEMENT]
<PAGE>
NORDDEUTSCHE LANDESBANK GIROZENTRALE,
NEW YORK BRANCH AND/OR CAYMAN ISLANDS
BRANCH
By:___________________________________________
Title:
[SIGNATURE PAGE TO THE THIRD AMENDMENT TO THE MULTI-YEAR CREDIT AGREEMENT]
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15
<SEQUENCE>7
<FILENAME>dex1015.txt
<DESCRIPTION>CREDIT AGREEMENT (5 YEAR AGREEMENT)
<TEXT>
<PAGE>
Exhibit 10.15
FIRST AMENDMENT
---------------
FIRST AMENDMENT (the "Amendment"), dated as of February 9, 2001, among
MBIA INC. ("Parent"), a Connecticut corporation, MBIA INSURANCE CORPORATION
("Corp.")' a New York stock insurance corporation, one or more Designated
Borrowers from time to time party thereto, the lenders from time to time party
thereto (each a "Lender" and, collectively, the "Lenders"), BANK ONE, NA (f/k/a
The First National Bank of Chicago), as Syndication Agent (the "Syndication
Agent"), FLEET NATIONAL BANK, as Documentation Agent (the "Documentation
Agent"), and DEUTSCHE BANK AG, NEW YORK BRANCH, as Administrative Agent (the
"Administrative Agent"). Unless otherwise defined herein, capitalized terms used
herein and defined in the Credit Agreement referred to below are used herein as
so defined.
W I T N E S E T H:
- - - - - - - - -
WHEREAS, Parent, Corp., the Designated Borrowers, the Lenders, the
Documentation Agent, the Syndication Agent and the Administrative Agent, are
party to a Credit Agreement, dated as of August 28, 1998 whereby the Lenders
have agreed to make Loans to the Borrowers of up to $400,000,000, which amount
was subsequently increased to $433,000,000 (as the same has been amended,
modified or supplemented to, but not including, the date hereof, the "Credit
Agreement");
WHEREAS, subject to the terms and conditions set forth below, the
parties hereto wish to amend the Credit Agreement as provided herein;
NOW, THEREFORE, it is agreed;
A. Amendment
---------
Section 7.07 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"Leverage Ratio. Parent and Corp. will not permit the ratio of
--------------
Consolidated Total Debt to Consolidated Total Capitalization at any time to
exceed 0.2762:1.00."
B. Miscellaneous Provisions
------------------------
1. In order to induce the Lenders to enter into this Amendment, each
of Parent and Corp. hereby represents and warrants that (i) the representations
and warranties of each of Parent and Corp. contained in the Credit Agreement are
true and correct in all material respects on and as of the Amendment Effective
Date (as defined below) (except with respect to any representations and
warranties limited by their terms to a specific date, which shall be true and
correct in all material respects as of such date), and (ii) there exists no
Default or Event of Default under the Credit Agreement on the Amendment
Effective Date, in each case after giving effect to this Amendment.
<PAGE>
2. This Amendment is limited as specified and shall not constitute an
amendment, modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.
3. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
4. This Amendment shall become effective on the date (the "Amendment
Effective Date") when the Borrowers and the Required Lenders shall have signed a
counterpart hereof (whether the same or different counterparts) and shall have
delivered (including by way of telecopier) the same to the Administrative Agent.
5. From and after the Amendment Effective Date, all references in the
Credit Agreement and in the other Credit Documents shall be deemed to be
referenced to the Credit Agreement as modified hereby.
* * *
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed and delivered as of the date first above written.
MBIA INC.
By:_________________________________
Title:
MBIA INSURANCE CORPORATION
By:_________________________________
Title:
<PAGE>
DEUTSCHE BANK AG, NEW YORK BRANCH,
Individually and as Administrative Agent
By:_______________________________________
Title:
<PAGE>
BANK ONE, NA, Individually and as Syndication
Agent
By:_________________________________________
Title:
<PAGE>
FLEET NATIONAL BANK, Individually and as
Documentation Agent
By:_____________________________________
Title:
<PAGE>
BANCA MONTE DEI PASCHI DI SIENA S.p.A.
By:__________________________________
Title:
<PAGE>
BANK OF MONTREAL
By:______________________________
Title:
<PAGE>
THE CHASE MANHATTAN BANK
By:____________________________________
Title:
<PAGE>
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION
By:_________________________________
Title:
<PAGE>
FORTIS (USA) FINANCE LLC
By:________________________________
Title:
<PAGE>
BANCO SANTANDER CENTRAL HISPANO,
S.p.A., New York Branch
By:_______________________________
Title:
<PAGE>
COMMERZBANK AG, NEW YORK BRANCH
By:_____________________________
Title:
<PAGE>
NATIONAL AUSTRALIA BANK LIMITED,
NEW YORK BRANCH
By:______________________________
Title:
<PAGE>
NORDDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By:___________________________________
Title:
<PAGE>
SECOND AMENDMENT TO THE CREDIT AGREEMENT
----------------------------------------
SECOND AMENDMENT TO THE CREDIT AGREEMENT (the "Amendment"), dated as of
July 31, 2001, among MBIA INC. ("Parent"), a Connecticut corporation, MBIA
INSURANCE CORPORATION ("Corp."), a New York stock insurance corporation, one or
more Designated Borrowers from time to time party thereto, the lenders from time
to time party thereto (each a "Lender" and, collectively, the "Lenders"), BANK
ONE, NA (f/k/a The First National Bank of Chicago), as Syndication Agent (the
"Syndication Agent"), FLEET NATIONAL BANK, as Documentation Agent (the
"Documentation Agent"), and DEUTSCHE BANK AG, NEW YORK BRANCH, as Administrative
Agent (the "Administrative Agent"). Unless otherwise defined herein, capitalized
terms used herein and defined in the Credit Agreement referred to below are used
herein as so defined.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Parent, Corp., the Designated Borrowers, the Lenders, the
Documentation Agent, the Syndication Agent and the Administrative Agent, are
party to a Credit Agreement, dated as of August 28, 1998 whereby the Lenders
have agreed to make Loans to the Borrowers of up to $400,000,000, which amount
was subsequently increased to $433,000,000 (as the same has been amended,
modified or supplemented to, but not including, the date hereof, the "Credit
Agreement");
WHEREAS, subject to the terms and conditions set forth below, the
parties hereto wish to amend the Credit Agreement as provided herein;
NOW, THEREFORE, it is agreed;
A. Amendments
----------
1. Section 7.01(v) of the Credit Agreement is hereby amended by
deleting the text "and in no event for a period exceeding 90 days in each case"
appearing in the last line thereof.
2. Section 7.07 of the Credit Agreement is hereby amended to read in
its entirety as follows:
"Leverage Ratio. Parent and Corp. will not permit the ratio of
--------------
Consolidated Total Debt to Consolidated Total Capitalization at any
time to exceed 0.30:1.00."
3. Section 8.01(h) is hereby amended by (i) deleting the term
"Subsidiary" appearing in the first line thereof and (ii) inserting the term
"Material Subsidiary" in lieu thereof.
<PAGE>
4. Section 8.01(i) is hereby amended by (i) deleting the term
"Subsidiary" appearing in the second line thereof and inserting the term
"Material Subsidiary" in lieu thereof and (ii) deleting the term "Subsidiary"
appearing in the penultimate line thereof and inserting the term "Material
Subsidiary" in lieu thereof.
5. Section 8.01(k) of the Credit Agreement is hereby amended by (i)
deleting the number "$10,000,000" appearing therein and (ii) inserting the
number "$25,000,000" in lieu thereof.
6. The definition of the term "Debt" contained in Section 9 of the
Credit Agreement is hereby amended by (i) inserting the following at the end of
clause (ii) therein, "except for (I) the obligations referred to in the
parenthetical in clause (x) below and (II) investment agreements entered into by
Parent or any of its Subsidiaries in the ordinary course of business in
connection with the asset management business of MBIA Asset Management and its
Subsidiaries," (ii) deleting the word "and" appearing at the end of clause
(viii) therein and (iii) inserting the following new clause (x) immediately
after clause (ix) contained therein:
"and (x) solely for the purpose of determining the ratio of
Consolidated Total Debt to Consolidated Total Capitalization pursuant
to Section 7.07, obligations under any repurchase agreements secured by
Liens constituting a borrowing of funds for a period exceeding 90 days
(other than obligations under such repurchase agreements entered into
by Parent or any of its Subsidiaries in the ordinary course of business
in connection with the asset management business of MBIA Asset
Management and its Subsidiaries),"
7. Section 9 of the Credit Agreement is hereby further amended by
adding the following new defined terms in the appropriate alphabetical order:
"Material Subsidiary" shall mean any Subsidiary with a Net Worth
greater than $5,000,000.
"MBIA Asset Management" shall mean MBIA Asset Management, LLC, a
limited liability company organized under the laws of Delaware.
B. Miscellaneous Provisions
------------------------
1. In order to induce the Lenders to enter into this Amendment, each
of Parent and Corp. hereby represents and warrants that (i) the representations
and warranties of each of Parent and Corp. contained in the Credit Agreement are
true and correct in all material respects on and as of the Amendment Effective
Date (as defined below) (except with respect to any representations and
warranties limited by their terms to a specific date, which shall be true and
correct in all material respects as of such date), and (ii) there exists no
Default or Event of Default under the Credit Agreement on the Amendment
Effective Date, in each case after giving effect to this Amendment.
2. This Amendment is limited as specified and shall not constitute an
amendment, modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.
-2-
<PAGE>
3. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
4. This Amendment shall become effective on the date (the "Amendment
Effective Date") when the Borrowers and the Required Lenders shall have signed a
counterpart hereof (whether the same or different counterparts) and shall have
delivered (including by way of telecopier) the same to the Administrative Agent.
5. From and after the Amendment Effective Date, all references in the
Credit Agreement and in the other Credit Documents shall be deemed to be
referenced to the Credit Agreement as modified hereby.
* * *
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed and delivered as of the date first above written.
MBIA INC.
By:____________________________
Title:
MBIA INSURANCE CORPORATION
By:____________________________
Title:
<PAGE>
DEUTSCHE BANK AG, NEW YORK BRANCH,
Individually and as Administrative Agent
By:____________________________
Title:
By:____________________________
Title:
<PAGE>
BANK ONE, NA, Individually and as Syndication
Agent
By:_____________________________
Title:
<PAGE>
FLEET NATIONAL BANK, Individually and
as Documentation Agent
By:___________________________________
Title:
<PAGE>
BANCA MONTE DEI PASCHI DI SIENA
S.p.A.
By:____________________________
Title:
<PAGE>
BANK OF MONTREAL
By:____________________________
Title:
<PAGE>
THE CHASE MANHATTAN BANK
By:________________________________
Title:
<PAGE>
BANK OF AMERICA NATIONAL
ASSOCIATION
By:_______________________________
Title:
<PAGE>
FORTIS (USA) FINANCE LLC
By:__________________________________
Title:
<PAGE>
BANCO SANTANDER CENTRAL HISPANO,
S.p.A., New York Branch
By:_____________________________
Title:
<PAGE>
COMMERZBANK AG, NEW YORK
BRANCH
By:_____________________________
Title:
<PAGE>
NATIONAL AUSTRALIA BANK LIMITED,
NEW YORK BRANCH
By:______________________________
Title:
<PAGE>
NORDDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By:___________________________
Title:
<PAGE>
THIRD AMENDMENT
---------------
THIRD AMENDMENT (this "Amendment"), dated as of December 7, 2001 among
MBIA INC. ("Parent"), a Connecticut corporation, MBIA INSURANCE CORPORATION
("Corp."), a New York stock insurance corporation, one or more Designated
Borrowers from time to time party thereto, the lenders from time to time party
thereto (each a "Lender" and, collectively, the "Lenders"), BANK ONE, NA (f/k/a
The First National Bank of Chicago), as Syndication Agent (the "Syndication
Agent"), FLEET NATIONAL BANK, as Documentation Agent (the "Documentation
Agent"), and DEUTSCHE BANK AG, NEW YORK BRANCH, as Administrative Agent (the
"Administrative Agent"). Unless otherwise defined herein, capitalized terms used
herein and defined in the Credit Agreement referred to below are used herein as
so defined.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Parent, Corp., the Designated Borrowers, the Lenders, the
Syndication Agent, Documentation Agent and the Administrative Agent, are party
to a Credit Agreement, dated as of August 28, 1998 whereby the Lenders have
agreed to make Loans to the Borrowers of up to $200,000,000, which amount was
subsequently increased to $217,000,000 (as the same has been amended, modified
or supplemented to, but not including, the date hereof, the "Credit Agreement");
WHEREAS, subject to the terms and conditions set forth below, the
parties hereto wish to amend the Credit Agreement as provided herein;
NOW, THEREFORE, it is agreed;
A. Amendments
----------
1. Section 8.01(b) of the Credit Agreement is hereby amended by
deleting the text ",7.07" appearing therein.
2. Section 8.01(d) of the Credit Agreement is hereby amended by adding
to the end of the text contained in the parenthetical appearing in the second
line thereof the new text ", but including, without limitation, any covenant
contained in Section 7.07".
3. The definition of the term "Agents" contained in Section 9 of the
Credit Agreement is hereby amended by (i) deleting the text ", the Syndication
Agent and the Documentation Agent" and (ii) inserting the text "and the
Co-Syndication Agents" in lieu thereof.
<PAGE>
4. Section 9 of the Credit Agreement is hereby amended by deleting the
terms "Syndication Agent" and "Documentation Agent" in their entirety.
5. Section 9 of the Credit Agreement is hereby further amended by
adding the following new defined term in the appropriate alphabetical order:
"Co-Syndication Agent" shall mean each of The Bank of New York, Bank
One, NA, Barclays Bank PLC and Fleet National Bank in their capacities as such.
6. Section 10.01 is hereby amended by (i) deleting the text ", The
First National Bank of Chicago as Syndication Agent and Fleet National Bank as
Documentation Agent" appearing in the first sentence thereof and (ii) inserting
the text "and each of The Bank of New York, Bank One, NA, Barclays Bank PLC and
Fleet National Bank as Co-Syndication Agents" in lieu thereof.
7. Section 10.09(d) is hereby amended by (i) deleting the text "Each
of the Documentation Agent and the Syndication Agent" appearing in the first
sentence thereof and (ii) inserting "Each of the Co-Syndication Agents" in lieu
thereof.
8. Section 10.10 of the Credit Agreement is hereby amended by (i)
deleting the text "Documentation Agent; Syndication Agent" appearing in the
--------------------------------------
heading thereof and inserting the heading "Co-Syndication Agents" in lieu
---------------------
thereof and (ii) deleting the text "the Documentation Agent or the Syndication
Agent" appearing in the first sentence thereof and inserting the text "any of
the Co-Syndication Agents" in lieu thereof.
B. Miscellaneous Provisions
------------------------
1. In order to induce the Lenders to enter into this Amendment, each
of Parent and Corp. hereby represents and warrants that (i) the representations
and warranties of each of Parent and Corp. contained in the Credit Agreement are
true and correct in all material respects on and as of the Amendment Effective
Date (as defined below) (except with respect to any representations and
warranties limited by their terms to a specific date, which shall be true and
correct in all material respects as of such date), and (ii) there exists no
Default or Event of Default under the Credit Agreement on the Amendment
Effective Date, in each case after giving effect to this Amendment.
2. This Amendment is limited as specified and shall not constitute an
amendment, modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.
3. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
-2-
<PAGE>
4. This Amendment shall become effective on the date (the "Amendment
Effective Date") when the Borrowers and the Required Lenders shall have signed a
counterpart hereof (whether the same or different counterparts) and shall have
delivered (including by way of telecopier) the same to the Administrative Agent.
5. From and after the Amendment Effective Date, all references in the
Credit Agreement and in the other Credit Documents shall be deemed to be
referenced to the Credit Agreement as modified hereby.
* * *
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed and delivered as of the date first above written.
MBIA INC.
By:__________________________
Title:
MBIA INSURANCE CORPORATION
By:___________________________
Title:
[SIGNATURE PAGE TO THE THIRD AMENDMENT TO THE 364-DAY CREDIT AGREEMENT]
<PAGE>
DEUTSCHE BANK AG, NEW YORK BRANCH,
Individually and as Administrative Agent
By:_____________________________
Title:
By:______________________________
Title:
[SIGNATURE PAGE TO THE THIRD AMENDMENT TO THE 364-DAY CREDIT AGREEMENT]
<PAGE>
THE BANK OF NEW YORK,
Individually and as Co-Syndication Agent
By:________________________________
Title:
[SIGNATURE PAGE TO THE THIRD AMENDMENT TO THE 364-DAY CREDIT AGREEMENT]
<PAGE>
BANK ONE, NA,
Individually and as Co-Syndication Agent
By:_____________________________
Title:
[SIGNATURE PAGE TO THE THIRD AMENDMENT TO THE 364-DAY CREDIT AGREEMENT]
<PAGE>
BARCLAYS BANK PLC,
Individually and as Co-Syndication Agent
By:_______________________________________
Title:
[SIGNATURE PAGE TO THE THIRD AMENDMENT TO THE 364-DAY CREDIT AGREEMENT]
<PAGE>
FLEET NATIONAL BANK,
Individually and as Co-Syndication Agent
By:_______________________________________
Title:
[SIGNATURE PAGE TO THE THIRD AMENDMENT TO THE 364-DAY CREDIT AGREEMENT]
<PAGE>
BANK OF AMERICA, N.A
By:_______________________________
Title:
[SIGNATURE PAGE TO THE THIRD AMENDMENT TO THE 364-DAY CREDIT AGREEMENT]
<PAGE>
THE CHASE MANHATTAN BANK
By:________________________________
Title:
[SIGNATURE PAGE TO THE THIRD AMENDMENT TO THE 364-