EXHIBIT 10.57
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
MBIA INC.
CMA ACQUISITION CORPORATION
AND
CAPMAC HOLDINGS INC.
DATED AS OF NOVEMBER 13, 1997
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
ARTICLE I
THE MERGER
SECTION 1.1 The Merger................................................. A-1
SECTION 1.2 Effective Time............................................. A-1
SECTION 1.3 Effects of the Merger...................................... A-1
SECTION 1.4 Certificate of Incorporation; By-Laws...................... A-1
SECTION 1.5 Directors and Officers..................................... A-2
SECTION 1.6 Conversion of Securities................................... A-2
SECTION 1.7 Treatment of Options....................................... A-2
SECTION 1.8 Fractional Interests....................................... A-3
SECTION 1.9 Surrender of Shares; Stock Transfer Books.................. A-3
SECTION 1.10 Closing and Closing Date................................... A-4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 2.1 Organization............................................... A-5
SECTION 2.2 Capitalization............................................. A-5
SECTION 2.3 Company Subsidiaries....................................... A-6
Corporate Authorization; Validity of Agreement; Company
SECTION 2.4 Action..................................................... A-6
SECTION 2.5 Consents and Approvals; No Violations...................... A-6
SECTION 2.6 SEC Reports and Financial Statements....................... A-7
SECTION 2.7 Absence of Certain Changes................................. A-8
SECTION 2.8 Absence of Undisclosed Liabilities......................... A-8
SECTION 2.9 Information Supplied....................................... A-8
SECTION 2.10 Employee Benefit Plans..................................... A-9
SECTION 2.11 Compliance................................................. A-9
SECTION 2.12 No Default................................................. A-9
SECTION 2.13 Investment Advisor; Investment Company..................... A-10
SECTION 2.14 Absence of Litigation...................................... A-10
SECTION 2.15 Taxes...................................................... A-10
SECTION 2.16 Opinion of Financial Advisors.............................. A-11
SECTION 2.17 Accounting Matters......................................... A-11
SECTION 2.18 Tax Matters................................................ A-11
SECTION 2.19 Brokers.................................................... A-11
SECTION 2.20 Ownership of Parent Common Stock........................... A-11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
SECTION 3.1 Organization............................................... A-11
SECTION 3.2 Capitalization............................................. A-11
SECTION 3.3 Parent Subsidiaries........................................ A-12
Corporate Authorization; Validity of Agreement; Necessary
SECTION 3.4 Action..................................................... A-12
SECTION 3.5 Consents and Approvals; No Violations...................... A-13
SECTION 3.6 SEC Reports and Financial Statements....................... A-13
i
PAGE
----
SECTION 3.7 Absence of Certain Changes................................. A-14
SECTION 3.8 Absence of Undisclosed Liabilities......................... A-14
SECTION 3.9 Information Supplied....................................... A-14
SECTION 3.10 Compliance................................................. A-14
SECTION 3.11 No Default................................................. A-15
SECTION 3.12 Investment Advisor; Investment Company..................... A-15
SECTION 3.13 Absence of Litigation...................................... A-15
SECTION 3.14 Taxes...................................................... A-15
SECTION 3.15 Opinion of Financial Advisors.............................. A-16
SECTION 3.16 Ownership of Company Common Stock.......................... A-16
SECTION 3.17 Accounting Matters......................................... A-16
SECTION 3.18 Tax Matters................................................ A-16
SECTION 3.19 Brokers.................................................... A-16
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.1 Conduct of Business of the Company Pending the Merger...... A-16
SECTION 4.2 Conduct of Business of Parent Pending the Merger........... A-18
SECTION 4.3 Pooling and Tax-Free Reorganization Treatment.............. A-18
ARTICLE V
ADDITIONAL AGREEMENTS
Preparation of Form S-4 and the Proxy Statement;
SECTION 5.1 Stockholder Meetings....................................... A-19
SECTION 5.2 Accountants' Letters....................................... A-19
SECTION 5.3 Access to Information; Confidentiality..................... A-20
SECTION 5.4 No Solicitation of Transactions............................ A-20
SECTION 5.5 Employee Benefits Matters.................................. A-21
SECTION 5.6 Directors' and Officers' Indemnification and Insurance..... A-22
SECTION 5.7 Further Action; Reasonable Best Efforts.................... A-22
SECTION 5.8 Public Announcements....................................... A-23
SECTION 5.9 Stock Exchange Listing..................................... A-23
SECTION 5.10 Affiliates................................................. A-23
ARTICLE VI
CONDITIONS OF MERGER
Conditions to Obligation of Each Party to Effect the
SECTION 6.1 Merger..................................................... A-24
Conditions to Obligations of the Company to Effect the
SECTION 6.2 Merger..................................................... A-24
Conditions to Obligations of Parent and Sub to Effect the
SECTION 6.3 Merger..................................................... A-25
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination................................................ A-25
SECTION 7.2 Effect of Termination...................................... A-26
ii
PAGE
----
SECTION 7.3 Fees and Expenses............................................ A-26
SECTION 7.4 Amendment.................................................... A-27
SECTION 7.5 Waiver....................................................... A-27
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Non-Survival of Representations, Warranties and Agreements... A-27
SECTION 8.2 Notices...................................................... A-27
SECTION 8.3 Certain Definitions.......................................... A-28
SECTION 8.4 Severability................................................. A-28
SECTION 8.5 Entire Agreement; Assignment................................. A-28
SECTION 8.6 Parties in Interest.......................................... A-29
SECTION 8.7 Governing Law................................................ A-29
SECTION 8.8 Headings..................................................... A-29
SECTION 8.9 Counterparts................................................. A-29
Exhibit A--Form of Affiliate Letter
iii
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 13, 1997 (the
"Agreement''), among MBIA INC., a Connecticut corporation ("Parent''), CMA
ACQUISITION CORPORATION, a Delaware corporation and a wholly owned subsidiary
of Parent ("Sub''), and CAPMAC HOLDINGS INC., a Delaware corporation (the
"Company'').
WHEREAS, the Board of Directors of the Company has determined that it is in
the best interests of the Company and the stockholders of the Company to enter
into this Agreement with Parent and Sub, providing for the merger (the
"Merger'') of Sub with the Company in accordance with the General Corporation
Law of the State of Delaware ("DGCL''), upon the terms and subject to the
conditions set forth herein;
WHEREAS, the Board of Directors of Parent and Sub has each approved the
Merger of Sub with and into the Company in accordance with the DGCL upon the
terms and subject to the conditions set forth herein;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code''); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests".
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions of this
Agreement and in accordance with the DGCL, at the Effective Time (as defined
in Section 1.2), Sub shall be merged with and into the Company. As a result of
the Merger, the separate corporate existence of Sub shall cease and the
Company shall continue as the surviving corporation of the Merger (the
"Surviving Corporation''). At Parent's election, any direct wholly-owned
subsidiary of Parent other than Sub may be merged with and into the Company
instead of Sub. In the event of such an election, the parties agree to execute
an appropriate amendment to this Agreement in order to reflect such election.
SECTION 1.2 Effective Time. As soon as practicable after the satisfaction or
waiver of the conditions set forth in Article VI, the parties hereto shall
cause the Merger to be consummated by filing this Agreement or a certificate
of merger or a certificate of ownership and merger (the "Certificate of
Merger'') with the Secretary of State of the State of Delaware, in such form
as required by and executed in accordance with the relevant provisions of the
DGCL (the date and time of the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware (or such later time as is
specified in the Certificate of Merger) being the "Effective Time'').
SECTION 1.3 Effects of the Merger. The Merger shall have the effects set
forth in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing and subject thereto, at the Effective Time all the
property, rights, privileges, immunities, powers and franchises of the Company
and Sub shall vest in the Surviving Corporation, and all debts, liabilities
and duties of the Company and Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
SECTION 1.4 Certificate of Incorporation; By-Laws. (a) At the Effective Time
and without any further action on the part of the Company and Sub, the
Restated Certificate of Incorporation of the Company (as amended, the
"Certificate of Incorporation''), as in effect immediately prior to the
Effective Time, shall be the certificate of incorporation of the Surviving
Corporation until thereafter and further amended as provided therein and under
the DGCL.
A-1
(b) At the Effective Time and without any further action on the part of the
Company and Sub, the By-Laws of Sub shall be the By-Laws of the Surviving
Corporation and thereafter may be amended or repealed in accordance with their
terms or the Certificate of Incorporation of the Surviving Corporation and as
provided by law.
SECTION 1.5 Directors and Officers. The directors of Sub immediately prior
to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of
the Company immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed (as the case may be) and qualified.
SECTION 1.6 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Sub, the Company or the
holders of any of the following securities:
(a) Subject to Section 1.8, each share of common stock, par value $.01
per share, of the Company (the "Company Common Stock'') issued and
outstanding immediately prior to the Effective Time (other than any shares
of Company Common Stock to be cancelled pursuant to Section 1.6(b)) shall
be converted into the right to receive a fraction equal to the Exchange
Ratio (as defined below) of a share of common stock, par value $1.00 per
share, of Parent (the "Parent Common Stock'') (the amount of Parent Common
Stock into which each such share of Company Common Stock is converted being
referred to herein as the "Merger Consideration''). For purposes of this
Agreement, "Exchange Ratio'' means $35.00 divided by the Parent Common
Stock Price (as defined below), rounded to the nearest 1/10,000, provided
that (i) if the Parent Common Stock Price is less than $53.00, the Exchange
Ratio shall be equal to .6604 and (ii) if the Parent Common Stock Price is
more than $70.00, the Exchange Ratio shall be equal to .5. "Parent Common
Stock Price'' means the average of the closing sales prices of Parent
Common Stock on the New York Stock Exchange ("NYSE'') Composite
Transactions Tape as reported by The Wall Street Journal (or if not
reported thereby, any other authoritative source) on each of the 15
consecutive trading days immediately preceding the third trading day prior
to the Effective Time. As of the Effective Time, all such shares of Company
Common Stock shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of Company Common Stock shall
cease to have any rights with respect thereto, except the right to receive
the Merger Consideration and any cash in lieu of fractional shares of
Parent Common Stock to be issued or paid in consideration therefor upon
surrender of such certificate in accordance with Section 1.9, without
interest.
(b) Each share of Company Common Stock held in the treasury of the
Company and each share of Company Common Stock owned by Parent, Sub or any
other direct or indirect subsidiary of Parent or of the Company, in each
case immediately prior to the Effective Time, shall be cancelled and
retired without any conversion thereof and no payment or distribution shall
be made with respect thereto.
(c) Each share of common, preferred or other capital stock of Sub issued
and outstanding immediately prior to the Effective Time shall be converted
into and become one validly issued, fully paid and nonassessable share of
identical common, preferred or other capital stock of the Surviving
Corporation.
SECTION 1.7 Treatment of Options. (a) At the Effective Time, each
outstanding stock option and any related stock appreciation right granted to
employees and non-employee directors of the Company and its subsidiaries with
respect to Company Common Stock (together, an "Option''), whether or not then
exercisable, shall be deemed assumed by Parent and deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
such Option prior to the Effective Time, the number (rounded to the nearest
whole number) of shares of Parent Common Stock as the holder of such Option
would have been entitled to receive pursuant to the Merger had such holder
exercised such Option in full immediately prior to the Effective Time (not
taking into account whether or not such Option was in fact exercisable), at a
price per share equal to (x) the aggregate price for Company Common Stock
otherwise purchasable pursuant to such Option divided by (y) the number of
shares of Parent Common Stock deemed purchasable pursuant to such Option.
A-2
(b) As soon as practicable after the Effective Time, Parent shall deliver to
each holder of an outstanding Option an appropriate notice setting forth such
holder's rights pursuant thereto, and such Option shall continue in effect on
the same terms and conditions (including antidilution provisions).
(c) Parent shall take all corporation action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery
pursuant to the terms set forth in this Section 1.7.
(d) Subject to any applicable limitations under the Securities Act of 1933,
as amended (the "Securities Act''), Parent shall either (i) file a
registration statement on Form S-8 (or any successor form), effective as of
the Effective Time, with respect to the shares of Parent Common Stock issuable
upon exercise of the Options, or (ii) file any necessary amendments to the
Company's previously filed registration statements on Form S-8 in order that
Parent will be deemed a "successor registrant" thereunder, and in either event
Parent shall use all reasonable efforts to maintain the effectiveness of such
registration statement(s) (and maintain the current status of the prospectus
or prospectuses relating thereto) for so long as such Options remain
outstanding.
SECTION 1.8 Fractional Interests. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued in connection with
the Merger, and such fractional interests will not entitle the owner thereof
to any rights of a stockholder of Parent. In lieu of any such fractional
interests, each holder of shares of Company Common Stock exchanged pursuant to
Section 1.6(a) who would otherwise have been entitled to receive a fraction of
a share of Parent Common Stock (after taking into account all shares of
Company Common Stock then held of record by such holder) shall receive cash
(without interest) in an amount equal to the product of such fractional part
of a share of Parent Common Stock multiplied by the Parent Common Stock Price,
rounded down to the nearest cent.
SECTION 1.9 Surrender of Shares; Stock Transfer Books. (a) As of or as soon
as reasonably practicable after the Effective Time, Sub shall designate a bank
or trust company who shall be reasonably satisfactory to the Company to act as
agent for the holders of shares of Company Common Stock in connection with the
Merger (the "Exchange Agent'') to receive the shares of Parent Common Stock
(and any cash payable in lieu of any fractional shares of Parent Common Stock)
to which holders of shares of Company Common Stock shall become entitled
pursuant to Sections 1.6(a) and 1.8. As soon as reasonably practicable as of
or after the Effective Time, Parent or Sub will make available to the Exchange
Agent sufficient shares of Parent Common Stock and cash to make all exchanges
pursuant to Section 1.9(b).
(b) Promptly after the Effective Time, the Surviving Corporation shall cause
to be mailed to each record holder, as of the Effective Time, of an
outstanding certificate or certificates which immediately prior to the
Effective Time represented shares of Company Common Stock (the
"Certificates''), a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange
Agent) and instructions for use in effecting the surrender of the Certificates
in exchange for certificates representing shares of Parent Common Stock
therefor. Upon surrender to the Exchange Agent of a Certificate, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant to such instructions, the holder of such Certificate shall be
entitled to receive in exchange therefor, (i) a certificate representing that
number of whole shares of Parent Common Stock which such holder has the right
to receive pursuant to the provisions of Section 1.6(a) and (ii) cash in lieu
of any fractional shares of Parent Common Stock to which such holder is
entitled pursuant to Section 1.8, after giving effect to any required tax
withholdings, and the Certificate so surrendered shall forthwith be cancelled.
If the exchange of certificates representing shares of Parent Common Stock is
to be made to a person other than the person in whose name the surrendered
Certificate is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or shall be otherwise in
proper form for transfer and that the person requesting such payment shall
have paid any transfer and other taxes required by reason of the exchange of
certificates representing shares of Parent Common Stock to a person other than
the registered holder of the Certificate surrendered or shall have established
to the satisfaction of the Surviving Corporation that such tax either has been
paid or is not applicable.
A-3
(c) At any time following one year after the Effective Time, the Surviving
Corporation shall be entitled to require the Exchange Agent to deliver to it
any shares of Parent Common Stock (and any cash payable in lieu of any
fractional shares of Parent Common Stock) which had been made available to the
Exchange Agent and which have not been disbursed to holders of Certificates,
and thereafter such holders shall be entitled to look to the Surviving
Corporation (subject to abandoned property, escheat or other similar laws)
only as general creditors thereof with respect to the shares of Parent Common
Stock (and any cash payable in lieu of any fractional shares of Parent Common
Stock) payable upon due surrender of their Certificates. Notwithstanding the
foregoing, neither the Surviving Corporation nor the Exchange Agent shall be
liable to any holder of a Certificate for shares of Parent Common Stock (and
any cash payable in lieu of any fractional shares of Parent Common Stock)
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law, subject, however, to the Surviving Corporation's
obligation to pay any dividends or make any other distributions with a record
date prior to the Effective Time which may have been declared or made by the
Company on such shares of Company Common Stock in accordance with the terms of
this Agreement or prior to the date of this Agreement and which remain unpaid
at the Effective Time.
(d) At the Effective Time, the stock transfer books of the Company shall be
closed and thereafter there shall be no further registration of transfers of
shares of Company Common Stock on the records of the Company. From and after
the Effective Time, the holders of Certificates evidencing ownership of shares
of Company Common Stock outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such shares of Company Common
Stock except as otherwise provided for herein or by applicable law, subject,
however, to the Surviving Corporation's obligation to pay any dividends or
make any other distributions with a record date prior to the Effective Time
which may have been declared or made by the Company Common Stock in accordance
with the terms of this Agreement or prior to the date of this Agreement and
which remain unpaid at the Effective Time.
(e) No dividends or other distributions declared or made after the Effective
Time with respect to shares of Parent Common Stock shall be paid to the holder
of any unsurrendered Certificate with respect to the shares of Parent Common
Stock it is entitled to receive and no cash payment in lieu of fractional
interests shall be paid pursuant to Section 1.8 until the holder of such
Certificate shall surrender such Certificate in accordance with the provisions
of this Agreement. Upon such surrender, there shall be paid to the person in
whose name the certificates representing such shares of Parent Common Stock
shall be issued, any dividends or distributions with respect to such shares of
Parent Common Stock which have a record date after the Effective Time and
shall have become payable between the Effective Time and the time of such
surrender. In no event shall the person entitled to receive such dividends or
distributions be entitled to receive interest thereon.
(f) If between the date hereof and the Effective Time, the outstanding
shares of Company Common Stock or Parent Common Stock shall be changed into a
different number of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares, or any dividend
payable in stock or other securities shall be declared thereon with a record
date within such period, the Exchange Ratio shall be adjusted accordingly to
provide to the holders of Company Common Stock and Parent Common Stock the
same economic effect as contemplated by this Agreement prior to such
reclassification, recapitalization, split-up, combination, exchange or
dividend.
SECTION 1.10 Closing and Closing Date. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to the provisions of Section 7.1, the closing (the "Closing'') of
this Agreement shall take place (a) at 10:00 a.m. (New York City time) on the
second business day after all of the conditions to the respective obligations
of the parties set forth in Article VI hereof shall have been satisfied or
waived or (b) at such other time and date as Parent and the Company shall
agree (such date and time on and at which the Closing occurs being referred to
herein as the "Closing Date''). The Closing shall take place at such location
as Parent and the Company shall agree.
A-4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
SECTION 2.1 Organization. Each of the Company and its Significant
Subsidiaries (as defined in Section 8.3) is a corporation, partnership or
other entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization, and has all
requisite corporate or other power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry
on its business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority and
governmental approvals would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect (as defined below) on the
Company and its subsidiaries, taken as a whole. Each of the Company and its
Significant Subsidiaries is duly qualified or licensed to do business and in
good standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company and its subsidiaries, taken as a whole. The Company has heretofore
furnished to Parent a complete and correct copy of the Certificate of
Incorporation and Amended and Restated By-Laws of the Company as currently in
effect.
As used in this Agreement, "Material Adverse Effect'' means any adverse
change or effect that is materially adverse to the financial condition,
results of operations, assets, liabilities or business of a person or on the
ability of such person to perform its obligations hereunder, but shall exclude
any change or effect resulting from any occurrence or condition generally
affecting the industry in which such person and its subsidiaries operate
(including without limitation any change or proposed change in insurance laws
or regulations in any jurisdiction or official interpretations thereof) and
any occurrence or condition arising out of the transactions contemplated by
this Agreement or the public announcement thereof.
SECTION 2.2 Capitalization. (a) The authorized capital stock of the Company
consists of 50,000,000 shares of Company Common Stock and 20,000,000 shares of
preferred stock, par value $.01 per share. As of October 31, 1997, (i)
17,331,104 shares of Company Common Stock were issued and outstanding, (ii) 85
shares of Company Common Stock were held in the treasury of the Company, (iii)
options to acquire an aggregate of 2,628,017 shares of Company Common Stock
were outstanding pursuant to Options and (iv) no shares of preferred stock
were issued and outstanding. All the outstanding shares of the Company's
capital stock are duly authorized, validly issued, fully paid and non-
assessable and not subject to preemptive rights. There are no bonds,
debentures, notes or other indebtedness having voting rights (or convertible
into securities having such rights) ("Voting Debt'') of the Company or any of
its subsidiaries issued and outstanding. Except as set forth above, as set
forth in Section 2.2(a) of the disclosure schedule delivered by the Company to
Parent on or prior to the date hereof (the "Company Disclosure Schedule'') and
for the transactions contemplated by this Agreement, (i) there are no shares
of capital stock of the Company authorized, issued or outstanding and (ii)
there are no existing options, warrants, calls, preemptive rights,
subscriptions or other rights, proxies, convertible securities, agreements,
arrangements or commitments of any character, relating to the issued or
unissued capital stock of the Company or any of its subsidiaries, obligating
the Company or any of its subsidiaries to issue, redeem, purchase, transfer or
sell or cause to be issued, transferred or sold any shares of capital stock or
Voting Debt of, or other equity interest in, the Company or any of its
subsidiaries or securities convertible into or exchangeable for such shares or
equity interests or obligations of the Company or any of its subsidiaries to
grant, extend or enter into any such option, warrant, call, subscription or
other right, convertible security, agreement, arrangement or commitment.
(b) Except as set forth in Section 2.2(b) of the Company Disclosure
Schedule, all of the outstanding shares of capital stock of each of the
Company's subsidiaries are beneficially owned by the Company, directly or
A-5
indirectly, and all such shares have been validly issued and are fully paid
and nonassessable and are owned by either the Company or one of its
subsidiaries free and clear of all liens, charges, security interests,
options, claims or encumbrances of any nature whatsoever (collectively,
"Liens'').
SECTION 2.3 Company Subsidiaries. (a) Section 2.3(a) of the Company
Disclosure Schedule sets forth the name of each of the Company's subsidiaries
that is an insurance company (collectively, the "Company Insurance
Subsidiaries''). Each of the Company Insurance Subsidiaries is (i) duly
licensed or authorized as an insurance company in its jurisdiction of
incorporation and (ii) duly licensed or authorized as an insurance company in
each other jurisdiction where it is required to be so licensed or authorized,
except where the failure to be so licensed or authorized would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect on the Company and its subsidiaries, taken as a whole.
(b) Except for the Company's subsidiaries and except as set forth on Section
2.3(b) of the Company Disclosure Schedule, the Company does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or
entity that directly or indirectly conducts any activity which is material to
the Company.
SECTION 2.4 Corporate Authorization; Validity of Agreement; Company
Action. (a) The Company has full corporate power and authority to execute and
deliver this Agreement and, subject to obtaining, with respect to the Merger,
the approval of this Agreement by the holders of a majority of the outstanding
shares of Company Common Stock (the "Company Stockholder Approval''), to
consummate the transactions contemplated hereby. The execution, delivery and
performance by the Company of this Agreement, and the consummation by it of
the transactions contemplated hereby, have been duly and validly authorized by
its Board of Directors and, except for obtaining the Company Stockholder
Approval and the filing of the Certificate of Merger as required by the DGCL,
no other corporate action or proceedings on the part of the Company are
necessary to authorize the execution and delivery by the Company of this
Agreement, and the consummation by it of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Company and,
assuming this Agreement constitutes a valid and binding obligation of Parent
and Sub, constitutes a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except that such enforcement
(i) may be subject to applicable bankruptcy, insolvency or other similar laws,
now or hereafter in effect, affecting creditors' rights generally, and (ii) is
subject to general principles of equity.
(b) The Board of Directors of the Company has duly and validly approved and
taken all corporate action required to be taken by the Board of Directors for
the consummation of the transactions contemplated by this Agreement,
including, but not limited to, all actions necessary to render the provisions
of Section 203 of the DGCL inapplicable to this Agreement.
(c) The affirmative vote of the holders of a majority of the outstanding
shares of Company Common Stock entitled to vote thereon is the only vote of
the holders of any class or series of the Company's capital stock necessary to
approve this Agreement, the Merger and the transactions contemplated hereby.
SECTION 2.5 Consents and Approvals; No Violations. Except as set forth in
Section 2.5 of the Company Disclosure Schedule and for all filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Exchange Act (as defined herein), the
Securities Act, the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended (the "HSR Act''), state securities or "blue sky" laws, state takeover
laws, state insurance regulatory laws and commissions, and for the filing and
recordation of the Certificate of Merger as required by the DGCL and
appropriate documents with the relevant authorities of other states in which
the Company is qualified to do business, and except as may result from any
facts or circumstances relating solely to Parent or Sub or its affiliates,
neither the execution, delivery or performance of this Agreement nor the
consummation by the Company of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (i) conflict
with or result in any breach of any provision of the Certificate of
Incorporation or Amended and Restated By-laws or similar organizational
A-6
documents of the Company or of any of its subsidiaries, (ii) require any
filing with, or permit, authorization, consent or approval of, any court, or
other governmental or other regulatory authority, commission or agency (a
"Governmental Entity''), except where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings would not
reasonably be expected to have a Material Adverse Effect on the Company and
its subsidiaries, taken as a whole, and would not materially impair the
ability of the Company to consummate the Merger or the other transactions
contemplated hereby, (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise
to any right of termination, cancellation, loss or acceleration) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
guarantee, other evidence of indebtedness, lease, license, contract, agreement
or other similar instrument or obligation to which the Company or any of its
Significant Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound, (iv) result in the creation or imposition
of any Lien on any asset of the Company or any of the Company's subsidiaries
or (v) violate any order, writ, injunction, decree, judgment, law, ordinance,
statute, rule or regulation applicable to the Company, any of its Significant
Subsidiaries or any of their properties or assets, except in the case of
clauses (iii), (iv) and (v) for violations, breaches, defaults, or rights of
termination, cancellation, loss or acceleration, or creations of Liens, which
would not reasonably be expected to have a Material Adverse Effect on the
Company and its subsidiaries, taken as a whole.
SECTION 2.6 SEC Reports and Financial Statements. (a) The Company has filed
with the SEC and has heretofore made available to Parent true and complete
copies of, all forms, reports, schedules, statements and other documents
required to be filed by it and its subsidiaries since January 1, 1996 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act''), and the
Securities Act (as such documents have been amended since the time of their
filing, together with all exhibits and schedules thereto collectively, the
"Company SEC Documents''). As of their respective dates or, if amended, as of
the date of the last such amendment, the Company SEC Documents (a) did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (b) complied as to form in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the
case may be, and the applicable rules and regulations of the SEC thereunder.
Each of the consolidated financial statements (including any related notes and
schedules) included in the Company SEC Documents complies as to form in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, has been
prepared in accordance with generally accepted accounting principles ("GAAP'')
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto and except, in the case of unaudited interim
financial statements, as permitted by Form 10-Q of the SEC) and fairly
presents in all material respects the consolidated financial position and the
consolidated results of operations and cash flows (and changes in financial
position, if any) of the Company and its consolidated subsidiaries as of the
dates thereof or for the periods presented therein (subject, in the case of
unaudited interim financial statements, to normal year-end adjustments). All
material agreements, contracts and other documents required to be filed as
exhibits to any of the Company SEC Documents have been so filed.
(b) The Annual Statement and Quarterly Statements of Capital Markets
Assurance Corporation, a New York domiciled stock insurance company and a
wholly owned subsidiary of the Company (the "Company Insurer''), as filed with
the New York Superintendent of Insurance (the "New York Superintendent'') for
the year ended December 31, 1996 (the "Company Annual Statutory Statement'')
and the quarters ended March 31, 1997 and June 30, 1997 (the "Company
Quarterly Statutory Statements''), respectively, together with all exhibits
and schedules thereto (the Company Annual Statutory Statement and Company
Quarterly Statutory Statements, together with all exhibits and schedules
thereto, are referred to as the "Company Statutory Financial Statements''),
have been prepared in all material respects in accordance with the accounting
practices prescribed or permitted by the National Association of Insurance
Commissioners (the "NAIC'') and the New York Insurance Department for purposes
of financial reporting to the state's insurance regulators ("New York
Statutory Accounting Principles''), and such accounting practices have been
applied on a basis consistent with New York Statutory Accounting Principles
throughout the periods involved, except as expressly set forth in the notes,
A-7
exhibits or schedules thereto, and the Company Statutory Financial Statements
present fairly in all material respects the financial position and the results
of operations for the Company Insurer as of the dates and for the periods
therein in accordance with New York Statutory Accounting Principles. The
Company has heretofore made available to Parent true and complete copies of
the Company Statutory Financial Statements.
SECTION 2.7 Absence of Certain Changes. Except as disclosed in the Company
SEC Documents filed and publicly available prior to the date of this Agreement
(the "Company Filed SEC Documents'') or in Section 2.7 of the Company
Disclosure Schedule and except as otherwise provided in or contemplated by
this Agreement, since June 30, 1997, there has not occurred (i) any Material
Adverse Effect on the Company and its subsidiaries, taken as a whole, (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the equity interests of
the Company or any of its subsidiaries, other than regular quarterly cash
dividends and dividends paid by wholly owned subsidiaries, (iii) (x) any
granting by the Company or any of its subsidiaries to any executive officer or
other employee of the Company or any of its subsidiaries of any increase in
compensation, except in the ordinary course of business consistent with past
practice or as was required under employment agreements in effect as of June
30, 1997, (y) any granting by the Company or any of its subsidiaries to any
such executive officer of any increase in severance or termination plans,
agreements or arrangements with any of their employees, except as part of a
standard employment package to any person promoted or hired, or as was
required under employment, severance or termination agreements in effect as of
June 30, 1997, or (z) except for employment agreements in the ordinary course
of business consistent with past practice with employees other than any
executive officer of the Company, any entry by the Company or any of its
subsidiaries into any employment, consulting, severance, termination or
indemnification agreement with any such employee or executive officer or (iv)
any change by the Company or any of its subsidiaries in accounting principles
or methods, except insofar as may be required by a change in GAAP or New York
Statutory Accounting Principles. Since July 1, 1997, the Company and its
subsidiaries have conducted their respective businesses in the ordinary course
consistent with past practice.
SECTION 2.8 Absence of Undisclosed Liabilities. Except as disclosed in the
Company SEC Documents filed prior to the date hereof or in Section 2.8 of the
Company Disclosure Schedule, neither the Company nor any of its subsidiaries
has incurred any liabilities or obligations (absolute, accrued, contingent or
otherwise) which would be required to be reflected on a balance sheet or in
the notes thereto prepared in accordance with GAAP applied on a consistent
basis, other than liabilities or obligations for surety bonds incurred in the
ordinary course of business and liabilities or obligations which would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company and its subsidiaries, taken as a whole.
SECTION 2.9 Information Supplied. None of the information supplied by the
Company for inclusion or incorporation by reference in (i) the registration
statement on Form S-4 to be filed with the SEC by Parent in connection with
the issuance of shares of Parent Common Stock in the Merger, or any of the
amendments or supplements thereto (collectively, the "Form S-4'') will, at the
time the Form S-4 becomes effective under the Securities Act and at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the proxy statement to be
distributed in connection with the Company's meeting of stockholders to vote
upon this Agreement or any of the amendments or supplements to such proxy
statement (collectively, the "Proxy Statement''), will, at the date it is
first mailed to the Company's stockholders and at the time of the meeting of
the Company's stockholders held to vote on approval of this Agreement, be
false or misleading with respect to any material fact, or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Company
Stockholders Meeting (as defined herein) which has become false or misleading,
except that no representation is made by the Company with respect to
statements made or incorporated by reference in the Form S-4 or the Proxy
Statement based on information supplied by Parent or Sub specifically for
inclusion or incorporation by reference in the Proxy Statement. The Proxy
Statement and the Form S-4 will comply as to form in all material respects
with the requirements of the Exchange Act and the rules and regulations
thereunder.
A-8
SECTION 2.10 Employee Benefit Plans. (a) Except as set forth in the Company
SEC Documents or in Section 2.10 of the Company Disclosure Schedule (the plans
disclosed in such Section 2.10 or in the Company SEC Documents, being the
"Company Plans''), the Company has no material "employee benefit plan" (within
the meaning of section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA'')), severance, change-in-control or employment plan,
program or agreement, stock option, bonus plan, or incentive plan or program.
Copies of the Company Plans (or, where the Company Plan is not written, a
description thereof) have been or will be made available to Parent.
(b) Each Company Plan has been administered and is in compliance with the
terms of such Company Plan and all applicable laws, rules and regulations
except where any failure to comply, either individually or in the aggregate,
would result in liability that would not reasonably be expected to have a
Material Adverse Effect on the Company and its subsidiaries, taken as a whole.
(c) Except as set forth on Section 2.10(c) of the Company Disclosure
Schedule, each Company Plan intended to be qualified has received a favorable
determination from the Internal Revenue Service and to the Company's
knowledge, nothing has occurred since that would adversely affect such
qualification.
(d) Except as set forth on Section 2.10(d) of the Company Disclosure
Schedule: (i) no Company Plan is subject to Title IV of ERISA, and (ii) during
the past five (5) years, neither the Company nor any member of its "Controlled
Group" (defined as any organization which is a member of a controlled group of
organizations within the meaning of Code sections 414(b), (c), (m) or (o)) has
contributed to, or sponsored, any plan subject to Title IV of ERISA or
incurred any Title IV liability which remains unsatisfied.
(e) Except as set forth on Section 2.10(e) of the Company Disclosure
Schedule, no litigation or administrative or other proceeding involving any
Company Plans or other employment related matter is pending or, to the
Company's knowledge, is threatened, except where an adverse determination,
either individually or in the aggregate, would result in liability that would
not reasonably be expected to have a Material Adverse Effect on the Company
and its subsidiaries, taken as a whole.
SECTION 2.11 Compliance. (a) Each of the Company and its subsidiaries has in
effect all federal, state, local and foreign governmental approvals,
authorizations, certificates, filings, franchises, licenses, notices, permits
and rights ("Permits'') necessary for it to own, lease or operate its
properties and assets and to carry on its business as now conducted, and there
has occurred no default under any such Permit, except for the lack of Permits
or defaults under Permits which lack or default would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect of the
Company and its subsidiaries, taken as a whole. Except as disclosed in the
Company Filed SEC Documents, the Company and its subsidiaries are in
compliance with all applicable statutes, laws, ordinances, rules, orders,
decrees and regulations (including insurance laws and regulations) of any
Governmental Entity, and all notices, reports, documents and other information
required to be filed thereunder within the last three years were properly
filed and were in compliance with such laws, except for noncompliance which
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Company and its subsidiaries, taken as a whole.
The business of the Company and its subsidiaries has been and is being
conducted in compliance with the Permits, except where noncompliance would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company and its subsidiaries, taken as a whole. Except as disclosed in the
Company Filed SEC Documents and except for routine examinations by state
Governmental Entities charged with supervision of insurance companies
("Insurance Regulators''), as of the date of this Agreement, to the knowledge
of the Company, no investigation by any Governmental Entity with respect to
the Company or any of its subsidiaries is pending or threatened.
SECTION 2.12 No Default. Except as set forth in the Company SEC Documents or
Section 2.12 of the Company Disclosure Schedule, neither the Company nor its
subsidiaries is in violation or breach of, or default under (and no event has
occurred which with notice or the lapse of time or both would constitute a
violation or breach of, or default under) any term, condition or provision of
(a) its organizational documents, (b) any note,
A-9
bond, mortgage, deed of trust, security interest, indenture, license,
agreement, plan, contract, lease, commitment or other instrument or obligation
to which the Company or its subsidiaries is a party or by which they or any of
their properties or assets may be bound or affected, (c) any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company or
its subsidiaries or any of their properties or assets, or (d) any permit,
license, governmental authorization, consent or approval necessary for the
Company or its subsidiaries to conduct their respective businesses as
currently conducted, except in the case of clauses (b), (c) and (d) above for
breaches, defaults or violations which would not individually or in the
aggregate have a Material Adverse Effect on the Company and its subsidiaries,
taken as a whole.
SECTION 2.13 Investment Advisor; Investment Company. Except as set forth in
the Company SEC Documents or Section 2.13 of the Company Disclosure Schedule,
neither the Company nor its subsidiaries conducts activities of an "investment
advisor" as such term is defined in Section (a)(20) of the Investment Company
Act of 1940, as amended (the "ICA"), whether or not registered under the
Investment Advisers Act of 1940, as amended. Neither the Company nor its
subsidiaries is an "investment company" as defined under the ICA, and neither
the Company nor its subsidiaries sponsors any person that is such an
investment company.
SECTION 2.14 Absence of Litigation. Except as disclosed in the Company Filed
SEC Documents, as of the date hereof, there is no suit, claim, action,
proceeding or investigation (excluding those in the ordinary course of
business relating to policies of insurance or reinsurance written by the
Company and its subsidiaries) pending or, to the knowledge of the Company,
threatened against the Company or any subsidiary, or any property or asset of
the Company or any subsidiary, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign, which, if
adversely determined, would reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect on the Company and its subsidiaries,
taken as a whole. Except as disclosed in the Company Filed SEC Documents, as
of the date hereof, neither the Company nor any subsidiary nor any property or
asset of the Company or any subsidiary is subject to any order, writ,
judgment, injunction, decree, determination or award that would reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect
on the Company and its subsidiaries, taken as a whole.
SECTION 2.15 Taxes. The Company and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of which
the Company or any of its subsidiaries is or has been a member has timely
filed all material Tax Returns required to be filed by it, has paid all Taxes
shown thereon to be owing and has provided adequate reserves in its most
recent financial statements for any Taxes that have not been paid for the
periods covered by such financial statements. Except as disclosed in Section
2.15 of the Company Disclosure Schedule, none of the Company or its
subsidiaries has granted any extension or waiver of the statute of limitations
period applicable to any material Tax Return, which period (after giving
effect to such extension or waiver) has not expired. Except as disclosed in
Section 2.15 of the Company Disclosure Schedule, no audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Return of the Company and its subsidiaries as to
which any taxing authority has asserted in writing any claim which, if
adversely determined, individually or in the aggregate would have a Material
Adverse Effect on the Company and its subsidiaries, taken as a whole. Except
as disclosed in Section 2.15 of the Company Disclosure Schedule, the Company
and its subsidiaries have not received any notice of deficiency or assessment
from any taxing authority with respect to liabilities for income and other
material Taxes which have not been fully paid or finally settled. There are no
liens with respect to Taxes upon any of the properties or assets of the
Company or its subsidiaries other than liens for Taxes not yet due and
payable. As used herein, "Taxes'' shall mean any taxes of any kind, including
but not limited to those on or measured by or referred to as income, gross
receipts, sales, use, ad valorem, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, value
added, property or windfall profits taxes, customs, duties or similar fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts imposed by any
governmental authority, domestic or foreign. As used herein, "Tax Return''
shall mean any return, report or statement required to be filed with any
Governmental Entity with respect to Taxes.
A-10
SECTION 2.16 Opinion of Financial Advisors. The Company has received an
opinion from Salomon Brothers Inc to the effect that the consideration to be
received by the stockholders of the Company pursuant to the Merger is fair to
such stockholders from a financial point of view.
SECTION 2.17 Accounting Matters. Neither the Company nor, to its knowledge,
any of its affiliates, has taken or agreed to take any action that (without
regard to any action taken or agreed to be taken by Parent or any of its
affiliates) would prevent Parent from accounting for the business combination
to be effected by the Merger as a "pooling of interests".
SECTION 2.18 Tax Matters. To the Company's knowledge, neither the Company
nor any of its affiliates has taken or agreed to take any action, or knows of
any circumstances, that (without regard to any action taken or agreed to be
taken by Parent or any of its affiliates) would prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Code.
SECTION 2.19 Brokers. No broker, finder or investment banker (other than
Salomon Brothers Inc and SBC Warburg Dillon Read) is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
SECTION 2.20 Ownership of Parent Common Stock. As of the date hereof,
neither the Company nor, to its knowledge, any of its affiliates or associates
(as such terms are defined under the Exchange Act), (i) beneficially owns,
directly or indirectly, or (ii) is party to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of,
in each case, shares of capital stock of Parent or any securities convertible
into or exercisable or exchangeable for capital stock of Parent, which in the
aggregate represent 5% or more of the outstanding shares of such capital
stock, after giving effect to the conversion, exercise or exchange of all such
securities beneficially owned by the Company and its affiliates or associates
which are convertible into or exercisable or exchangeable for capital stock of
Parent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
SECTION 3.1 Organization. Each of Parent, its Significant Subsidiaries and
Sub is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, and has all requisite
corporate power and authority and all necessary governmental approvals to own,
lease and operate its properties and to carry on its business as now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power, authority and governmental approvals would
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Parent and its subsidiaries, taken as a whole. Each
of Parent, its Significant Subsidiaries and Sub is duly qualified or licensed
to do business and in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to
be so duly qualified or licensed and in good standing would not, individually
or in the aggregate reasonably be expected to have a Material Adverse Effect
on Parent and its subsidiaries, taken as a whole. Sub has not heretofore
conducted any business other than in connection with this Agreement and the
transactions contemplated hereby. Parent has heretofore furnished to the
Company a complete and correct copy of the Restated Certificate of
Incorporation and By-Laws of Parent and the Certificate of Incorporation and
By-Laws of Sub, each as currently in effect.
SECTION 3.2 Capitalization. (a) The authorized capital stock of Parent
consists of 200,000,000 shares of Parent Common Stock and 10,000,000 shares of
preferred stock, par value $1.00 per share. As of October 31,
A-11
1997, (i) 89,366,104 shares of Parent Common Stock were issued and
outstanding, (ii) no shares of Parent Common Stock were held in the treasury
of Parent, (iii) options to acquire an aggregate of 2,457,536 shares of Parent
Common Stock were outstanding pursuant to Parent's stock option plans (the
"Parent Stock Plans'') and (iv) no shares of preferred stock were issued and
outstanding. All the outstanding shares of Parent's capital stock are duly
authorized, validly issued, fully paid and non-assessable. There is no Voting
Debt of Parent or any of its subsidiaries issued and outstanding. Except as
set forth above, as set forth in Section 3.2(a) of the disclosure schedule
delivered by Parent to the Company on or prior to the date hereof (the "Parent
Disclosure Schedule''), and for the transactions contemplated by this
Agreement, (i) there are no shares of capital stock of Parent authorized,
issued or outstanding and (ii) there are no existing options, warrants, calls,
preemptive rights, subscriptions or other rights, proxies, convertible
securities, agreements, arrangements or commitments of any character, relating
to the issued or unissued capital stock of Parent or any of its subsidiaries,
obligating Parent or any of its subsidiaries to issue, redeem, purchase,
transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or Voting Debt of, or other equity interest in, Parent or any of
its subsidiaries or securities convertible into or exchangeable for such
shares or equity interests or obligations of Parent or any of its subsidiaries
to grant, extend or enter into any such option, warrant, call, subscription or
other right, convertible security, agreement, arrangement or commitment.
(b) Except as set forth in Section 3.2(b) of the Parent Disclosure Schedule,
all of the outstanding shares of capital stock of each of Parent's
subsidiaries are beneficially owned by Parent, directly or indirectly, and all
such shares have been validly issued and are fully paid and nonassessable and
are owned by either Parent or one of its subsidiaries free and clear of all
Liens, except where the failure to own such shares free and clear would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Parent and its subsidiaries, taken as a whole.
(c) The authorized capital stock of Sub consists of 1000 shares of common
stock, par value $.01 per share, all of which have been validly issued and are
fully paid and nonassessable and are owned by Parent, free and clear of all
Liens, and as of the Closing Date, all the issued and outstanding shares of
the common stock of Sub will be owned by Parent free and clear of all Liens.
SECTION 3.3 Parent Subsidiaries. Each of Parent's subsidiaries that is an
insurance company (collectively, the "Parent Insurance Subsidiaries'') is (i)
duly licensed or authorized as an insurance company in its jurisdiction of
incorporation and (ii) duly licensed or authorized as an insurance company in
each other jurisdiction where it is required to be so licensed or authorized,
except where the failure to be so licensed or authorized would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect on Parent and its subsidiaries, taken as a whole.
SECTION 3.4 Corporate Authorization; Validity of Agreement; Necessary
Action. (a) Each of Parent and Sub has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by each of Parent
and Sub of this Agreement and the consummation by each of Parent and Sub of
the transactions contemplated hereby have been duly and validly authorized by
its Board of Directors, and, except for the filing of the Certificate of
Merger as required by the DGCL, no other corporate action or proceedings on
the part of Parent and Sub are necessary to authorize the execution and
delivery by Parent and Sub of this Agreement, and the consummation by Parent
and Sub of the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Parent and Sub, and, assuming this Agreement
constitutes a valid and binding obligation of the Company, constitutes a valid
and binding obligation of each of Parent and Sub, enforceable against each of
them in accordance with its terms, except that such enforcement (i) may be
subject to applicable bankruptcy, insolvency or other similar laws, now or
hereafter in effect, affecting creditors' rights generally, and (ii) is
subject to general principles of equity.
(b) This Agreement has been approved by Parent, as the sole stockholder of
Sub. No other vote of holders of any class or series of capital stock of
Parent or Sub is necessary to approve this Agreement, the Merger and the
transactions contemplated hereby.
A-12
SECTION 3.5 Consents and Approvals; No Violations. Except for all filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the Securities Act, the
DGCL, the HSR Act, state securities or "blue sky" laws, state takeover laws
and state insurance regulatory laws and commissions, and except as may result
from any facts or circumstances relating solely to the Company or its
affiliates, neither the execution, delivery or performance of this Agreement
by Parent and Sub nor the consummation by Parent and Sub of the transactions
contemplated hereby nor compliance by Parent and Sub with any of the
provisions hereof will (i) conflict with or result in any breach of any
provision of the certificate of incorporation or by-laws of Parent, any of its
subsidiaries or Sub, (ii) require any filing with, or permit, authorization,
consent or approval of, any Governmental Entity, except where the failure to
obtain such permits, authorizations, consents or approvals or to make such
filings would not reasonably be expected to have a Material Adverse Effect on
Parent and its subsidiaries taken as a whole and would not materially impair
the ability of Parent and Sub to consummate the Merger or the other
transactions contemplated hereby, (iii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation, loss or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, guarantee, other evidence of indebtedness, lease, license,
contract, agreement or other similar instrument or obligation to which Parent,
any of its subsidiaries or Sub is a party or by which any of them or any of
their properties or assets may be bound, (iv) result in the creation or
imposition of any Lien on any asset of Parent or its subsidiaries or (v)
violate any order, writ, injunction, decree, judgment, law, ordinance,
statute, rule or regulation applicable to Parent, any of its Significant
Subsidiaries or Sub or any of their properties or assets, except in the case
of clauses (iii), (iv) and (v) for violations, breaches, defaults, or rights
of termination, cancellation, loss or acceleration, or creations of Liens,
which would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Parent and its subsidiaries, taken as a
whole.
SECTION 3.6 SEC Reports and Financial Statements. (a) Parent has filed with
the SEC and has heretofore made available to the Company true and complete
copies of, all forms, reports, schedules, statements and other documents
required to be filed by it and its subsidiaries since January 1, 1996 under
the Exchange Act, and the Securities Act (as such documents have been amended
since the time of their filing, together with all exhibits and schedules
thereto collectively, the "Parent SEC Documents''). As of their respective
dates or, if amended, as of the date of the last such amendment, the Parent
SEC Documents (a) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading and (b) complied as to form in all
material respects with the applicable requirements of the Exchange Act and the
Securities Act, as the case may be, and the applicable rules and regulations
of the SEC thereunder. Each of the consolidated financial statements
(including any related notes and schedules) included in the Parent SEC
Documents complies as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
SEC with respect thereto, has been prepared in accordance with GAAP applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto and except, in the case of unaudited interim financial
statements, as permitted by Form 10-Q of the SEC) and fairly presents in all
material respects the consolidated financial position and the consolidated
results of operations and cash flows (and changes in financial position, if
any) of Parent and its consolidated subsidiaries as at the dates thereof or
for the periods presented therein (subject, in the case of unaudited interim
financial statements, to normal year-end adjustments). All material
agreements, contracts and other documents required to be filed as exhibits to
any of the Parent SEC Documents have been so filed.
(b) The Annual Statement and Quarterly Statements of MBIA Insurance
Corporation, a New York domiciled stock insurance company and a wholly owned
subsidiary of Parent (the "Parent Insurer''), as filed with the New York
Superintendent for the year ended December 31, 1996 (the "Parent Annual
Statutory Statement'') and the quarters ended March 31, 1997 and June 30, 1997
(the "Parent Quarterly Statutory Statements''), respectively, together with
all exhibits and schedules thereto (the Parent Annual Statutory Statement and
Parent Quarterly Statutory Statements, together with all exhibits and
schedules thereto, are referred to as the "Parent Statutory Financial
Statements''), have been prepared in all material respects in
A-13
accordance with the accounting practices prescribed or permitted by the NAIC
and the New York Statutory Accounting Principles, and such accounting
practices have been applied on a basis consistent with New York Statutory
Accounting Principles throughout the periods involved, except as expressly set
forth in the notes, exhibits or schedules thereto, and the Parent Statutory
Financial Statements present fairly in all material respects the financial
position and the results of operations for the Parent Insurer as of the dates
and for the periods therein in accordance with New York Statutory Accounting
Principles. Parent has heretofore made available to the Company true and
complete copies of the Parent Statutory Financial Statements.
SECTION 3.7 Absence of Certain Changes. Except as disclosed in the Parent
SEC Documents filed and publicly available prior to the date of this Agreement
(the "Parent Filed SEC Documents'') or in Section 3.7 of the Parent Disclosure
Schedule and except as otherwise provided in or contemplated by this
Agreement, since June 30, 1997, there has not occurred (i) any Material
Adverse Effect on Parent and its subsidiaries, taken as a whole, (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the equity interests of
Parent or any of its subsidiaries, other than regular quarterly cash dividends
and dividends paid by wholly owned subsidiaries, (iii) (x) any granting by
Parent or any of its subsidiaries to any executive officer or other employee
of Parent or any of its subsidiaries of any increase in compensation, except
in the ordinary course of business consistent with past practice or as was
required under employment agreements in effect as of June 30, 1997, (y) any
granting by Parent or any of its subsidiaries to any such executive officer of
any increase in severance or termination plans, agreements or arrangements
with any of their employees, except as part of a standard employment package
to any person promoted or hired, or as was required under employment,
severance or termination agreements in effect as of June 30, 1997, or (z)
except for employment agreements in the ordinary course of business consistent
with past practice with employees other than any executive officer of Parent,
any entry by Parent or any of its subsidiaries into any employment,
consulting, severance, termination or indemnification agreement with any such
employee or executive officer or (iv) any change by Parent or any of its
subsidiaries in accounting principles or methods, except insofar as may be
required by a change in GAAP or New York Statutory Accounting Principles.
Since July 1, 1997, Parent and its subsidiaries have conducted their
respective businesses in the ordinary course consistent with past practice.
SECTION 3.8 Absence of Undisclosed Liabilities. Except as disclosed in the
Parent SEC Documents filed prior to the date hereof or in Section 3.8 of the
Parent Disclosure Schedule, neither Parent nor any of its subsidiaries has
incurred any liabilities or obligations (absolute, accrued, contingent or
otherwise) which would be required to be reflected on a balance sheet or in
the notes thereto prepared in accordance with GAAP applied on a consistent
basis, other than liabilities or obligations for surety bonds incurred in the
ordinary course of business and liabilities or obligations which would not,
individually or in the aggregate, have a Material Adverse Effect on Parent and
its subsidiaries, taken as a whole.
SECTION 3.9 Information Supplied. None of the information supplied by Parent
for inclusion or incorporation by reference in (i) the Form S-4 will, at the
time the Form S-4 becomes effective under the Securities Act and at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Proxy Statement will, at the
date it is first mailed to the Company's stockholders and at the time of the
Company Stockholders Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading or necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Stockholders Meeting which has become
false or misleading, except that no representation is made by Parent with
respect to statements made or incorporated by reference therein based on
information supplied by the Company specifically for inclusion or
incorporation by reference in the Proxy Statement. The Form S-4 will comply as
to form in all material respects with the requirements of the Exchange Act and
the rules and regulations thereunder.
SECTION 3.10 Compliance. Each of Parent and its subsidiaries has in effect
all federal, state, local and foreign governmental Permits necessary for it to
own, lease or operate its properties and assets and to carry on
A-14
its business as now conducted, and there has occurred no default under any
such Permit, except for the lack of Permits or defaults under Permits which
lack or default would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect of Parent and its subsidiaries,
taken as a whole. Except as disclosed in the Parent Filed SEC Documents,
Parent and its subsidiaries are in compliance with all applicable statutes,
laws, ordinances, rules, orders, decrees and regulations (including insurance
laws and regulations) of any Governmental Entity, and all notices, reports,
documents and other information required to be filed thereunder within the
last three years were properly filed and were in compliance with such laws,
except for noncompliance which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Parent and its
subsidiaries, taken as a whole. The business of Parent and its subsidiaries
has been and is being conducted in compliance with the Permits, except where
noncompliance would not, individually or in the aggregate, have a Material
Adverse Effect on Parent and its subsidiaries, taken as a whole. Except as
disclosed in the Parent Filed SEC Documents and except for routine
examinations by Insurance Regulators, as of the date of this Agreement, to the
knowledge of Parent, no investigation by any Governmental Entity with respect
to Parent or any of its subsidiaries is pending or threatened.
SECTION 3.11 No Default. Except as set forth in the Parent SEC Documents or
Section 3.11 of the Parent Disclosure Schedule, neither Parent nor its
subsidiaries is in violation or breach of, or default under (and no event has
occurred which with notice or the lapse of time or both would constitute a
violation or breach of, or default under) any term, condition or provision of
(a) its organizational documents, (b) any note, bond, mortgage, deed of trust,
security interest, indenture, license, agreement, plan, contract, lease,
commitment or other instrument or obligation to which Parent or its
subsidiaries is a party or by which they or any of their properties or assets
may be bound or affected, (c) any order, writ, injunction, decree, statute,
rule or regulation applicable to Parent or its subsidiaries or any of their
properties or assets, or (d) any permit, license, governmental authorization,
consent or approval necessary for Parent or its subsidiaries to conduct their
respective businesses as currently conducted, except in the case of clauses
(b), (c) and (d) above for breaches, defaults or violations which would not
individually or in the aggregate have a Material Adverse Effect on Parent and
its subsidiaries, taken as a whole.
SECTION 3.12 Investment Advisor; Investment Company. Except as set forth in
the Parent SEC Documents or Section 3.12 of the Parent Disclosure Schedule,
neither Parent nor its subsidiaries conducts activities of an "investment
advisor" as such term is defined in Section (a)(20) of the Investment Company
Act of 1940, as amended (the "ICA"), whether or not registered under the
Investment Advisers Act of 1940, as amended. Neither Parent nor its
subsidiaries is an "investment company" as defined under the ICA, and neither
Parent nor its subsidiaries sponsors any person that is such an investment
company.
SECTION 3.13 Absence of Litigation. Except as disclosed in the Parent Filed
SEC Documents, as of the date hereof, there is no suit, claim, action,
proceeding or investigation (excluding those in the ordinary course of
business relating to policies of insurance or reinsurance written by Parent
and its subsidiaries) pending or, to the knowledge of Parent, threatened
against Parent or any subsidiary, or any property or asset of Parent or any
subsidiary, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, which, if adversely
determined, individually or in the aggregate, would reasonably be expected to
have a Material Adverse Effect on Parent and its subsidiaries, taken as a
whole. Except as disclosed in the Parent Filed SEC Documents, as of the date
hereof, neither Parent nor any subsidiary nor any property or asset of Parent
or any subsidiary is subject to any order, writ, judgment, injunction, decree,
determination or award that would reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect on Parent and its
subsidiaries, taken as a whole.
SECTION 3.14 Taxes. Parent and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of which
Parent or any of its subsidiaries is or has been a member has timely filed all
material Tax Returns required to be filed by it, has paid all Taxes shown
thereon to be owing and has provided adequate reserves in its most recent
financial statements for any Taxes that have not been paid for the periods
covered by such financial statements. Except as disclosed in Section 3.14 of
the Parent Disclosure
A-15
Schedule, none of Parent or its subsidiaries has granted any extension or
waiver of the statute of limitations period applicable to any material Tax
Return, which period (after giving effect to such extension or waiver) has not
expired. Except as disclosed in Section 3.14 of the Parent Disclosure
Schedule, no audits or other administrative proceedings or court proceedings
are presently pending with regard to any Taxes or Tax Return of Parent and its
subsidiaries as to which any taxing authority has asserted in writing any
claim which, if adversely determined, individually or in the aggregate would
have a Material Adverse Effect on Parent and its subsidiaries, taken as a
whole. Except as disclosed in Section 3.14 of the Parent Disclosure Schedule,
Parent and its subsidiaries have not received any notice of deficiency or
assessment from any taxing authority with respect to liabilities for income
and other material Taxes which have not been fully paid or finally settled.
There are no liens with respect to Taxes upon any of the properties or assets
of Parent or its subsidiaries other than liens for Taxes not yet due and
payable.
SECTION 3.15 Opinion of Financial Advisors. Parent has received an opinion
from Xxxxxx Brothers Inc. to the effect that the Merger Consideration is fair
to Parent from a financial point of view.
SECTION 3.16 Ownership of Company Common Stock. As of the date hereof,
neither Parent nor, to its knowledge, any of its affiliates or associates (as
such terms are defined under the Exchange Act), (i) beneficially owns,
directly or indirectly, or (ii) is party to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of,
in each case, shares of capital stock of the Company or any securities
convertible into or exercisable or exchangeable for capital stock of the
Company, which in the aggregate represent 5% or more of the outstanding shares
of such capital stock, after giving effect to the conversion, exercise or
exchange of all such securities beneficially owned by Parent and its
affiliates or associates which are convertible into or exercisable or
exchangeable for capital stock of the Company.
SECTION 3.17 Accounting Matters. Neither Parent nor Sub, nor to Parent's
knowledge, any affiliate of Parent, has taken or agreed to take any action
that (without regard to any action taken or agreed to be taken by the Company
or any of its affiliates) would prevent Parent from accounting for the
business combination to be effected by the Merger as a "pooling of interests".
SECTION 3.18 Tax Matters. To Parent's knowledge, neither Parent nor Sub, nor
any affiliate of Parent, has taken or agreed to take any action, or knows of
any circumstances, that (without regard to any action taken or agreed to be
taken by the Company or any of its affiliates) would prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Code.
SECTION 3.19 Brokers. No broker, finder or investment banker (other than
Xxxxxx Brothers Inc.) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.1 Conduct of Business of the Company Pending the Merger. The
Company covenants and agrees that, during the period from the date hereof
until the Effective Time, unless Parent shall otherwise agree in writing,
except as contemplated by this Agreement, the businesses of the Company and
its subsidiaries shall be conducted only in, and the Company and its
subsidiaries shall not take any action except in, the ordinary course of
business and in a manner consistent with past practice; and the Company and
its subsidiaries shall each use its reasonable best efforts to preserve
substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the present key officers and
employees of the Company and its subsidiaries and to preserve the present
relationships and goodwill of the Company and its subsidiaries with those
persons with which the Company or any of its subsidiaries has significant
business relations. By way of
A-16
amplification and not limitation, except as set forth in Section 4.1 of the
Company Disclosure Schedule, neither the Company nor any of its subsidiaries
shall, during such period, directly or indirectly do, or commit to do, any of
the following without the prior written consent of Parent:
(a) Amend or otherwise change its certificate of incorporation or by-laws
or equivalent organizational documents;
(b) Issue, sell, pledge, dispose of or encumber, or authorize, (A) any
shares of capital stock, or any options, warrants, convertible securities
or other rights of any kind to acquire any shares of capital stock, or any
other ownership interest, of the Company or any of its subsidiaries (except
for the issuance of up to 2,628,017 shares of Company Common Stock required
to be issued pursuant to the terms of Options outstanding as of the date of
this Agreement) or (B) any assets that are material to the Company or any
of its subsidiaries, taken as whole except for sales in the ordinary course
of business and in a manner consistent with past practice or as may be
necessary to pay claims arising under insurance policies written or
reinsured by the Company and its subsidiaries;
(c) Declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock (other than regular quarterly cash dividends consistent with
past practice, in an amount not to exceed $.02 per share);
(d) Reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) Acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof; or (ii) incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee or endorse, or otherwise as
an accommodation become responsible for, the obligations of any person, or
make any loans, advances or capital contributions to, or investments in,
any other person (other than in the ordinary course of business consistent
with past practice and pursuant to existing credit agreements or
arrangements);
(f) Except to the extent required under existing employee and director
benefit plans, agreements or arrangements as in effect on the date of this
Agreement, increase the compensation or fringe benefits of any of its
directors, officers or employees, except for increases in salary or wages
of officers or employees in the ordinary course of business in accordance
with past practice, or grant any severance or termination pay not currently
required to be paid under existing severance plans to or enter into any
employment, consulting or severance agreement or arrangement with any
present or former director, officer or other employee of the Company or any
of its subsidiaries, or establish, adopt, enter into or amend or terminate
any collective bargaining agreement or Company Plan, including, but not
limited to, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees.
(Nothing in this Section 4.1(f) shall be construed to limit the Company's
ability to pay annual bonuses for services rendered in 1997 in a manner
consistent with past practices and in an amount not to exceed the amount
set forth in Section 4.1 of the Company Disclosure Schedule);
(g) Except as may be required as a result of a change in law or in GAAP
or New York Statutory Accounting Principles, change any of the accounting
practices or principles used by it;
(h) Make any material tax election, amend any Tax Return or settle or
compromise any material federal, state, local or foreign tax liability;
(i) Settle or compromise any pending or threatened suit, action or claim
which is material or which relates to the transactions contemplated hereby;
(j) Pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business and consistent with past practice of liabilities reflected or
reserved against in the financial
A-17
statements of the Company or incurred in the ordinary course of business
and consistent with past practice, of liabilities required to be paid,
discharged or satisfied pursuant to the terms of any contract in existence
on the date hereof (including, without limitation, outstanding insurance
policies);
(k) (i) Take any action that would reasonably be expected to result in
any of its representations or warranties set forth in this Agreement, being
or becoming untrue in any material respect, (ii) omit, or agree to omit, to
take any action that would reasonably be expected to prevent any such
representation or warranty from being or becoming untrue in any material
respect or (iii) take, or agree to take, any action that would reasonably
be expected to result in any of the conditions of the Merger set forth in
Article 6 not being satisfied; or
(l) Take, or offer or propose to take, or agree to take in writing or
otherwise, any of the actions described in Sections 4.1(a) through 4.1(k).
SECTION 4.2 Conduct of Business of Parent Pending the Merger. Parent
covenants and agrees that, during the period from the date hereof until the
Effective Time, unless the Company shall otherwise agree in writing, except as
contemplated by this Agreement, the businesses of Parent and its subsidiaries
shall be conducted only in, and Parent and its subsidiaries shall not take any
action except in, the ordinary course of business and in a manner consistent
with past practice; and Parent and its subsidiaries shall each use its
reasonable best efforts to preserve substantially intact the business
organization of Parent and its subsidiaries, to keep available the services of
the present key officers and employees of Parent and its subsidiaries and to
preserve the present relationships of Parent and its subsidiaries with those
persons with which Parent or any of its subsidiaries has significant business
relations. By way of amplification and not limitation, except as set forth on
Section 4.2 of the Parent Disclosure Schedule, neither Parent nor any of its
subsidiaries shall, during such period, directly or indirectly do, or commit
to do, any of the following without the prior written consent of the Company:
(a) Amend or otherwise change its certificate of incorporation or by-laws
or equivalent organizational documents;
(b) Issue, sell, pledge, dispose of or encumber, or authorize, any shares
of capital stock, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest, of Parent or any of its subsidiaries (except for the
issuance of up to 2,457,536 shares of Parent Common Stock required to be
issued pursuant to the terms of options outstanding as of the date of this
Agreement);
(c) Declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock;
(d) Reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) Take any action that would reasonably be expected to result in
any of its representations or warranties set forth in this Agreement, being
or becoming untrue in any material respect, (ii) omit, or agree to omit, to
take any action that would reasonably be expected to prevent any such
representation or warranty from being or becoming untrue in any material
respect or (iii) take, or agree to take, any action that would reasonably
be expected to result in any of the conditions of the Merger set forth in
Article 6 not being satisfied; or
(f) Take, or offer or propose to take, or agree to take in writing or
otherwise, any of the actions described in Sections 4.2(a) through 4.2(e).
SECTION 4.3 Pooling and Tax-Free Reorganization Treatment. (a) Neither the
Company nor Parent shall, or shall permit any of their respective subsidiaries
to, take or cause to be taken any action that (without regard to any action
taken or agreed to be taken by Parent or its affiliates or the Company or its
affiliates, respectively) to its knowledge would reasonably be expected to
adversely affect the ability of Parent to treat the Merger as a "pooling of
interests" for accounting purposes.
A-18
(b) Neither the Company nor Parent shall, or shall permit any of their
respective subsidiaries to, take or cause to be taken any action that (without
regard to any action taken or agreed to be taken by Parent or its affiliates
or the Company or its affiliates, respectively) to its knowledge would
reasonably be expected to adversely affect the ability of the Merger to
qualify as a "reorganization" within the meaning of Section 368(a) of the
Code.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Preparation of Form S-4 and the Proxy Statement; Stockholder
Meetings. (a) Promptly following the date of this Agreement, the Company shall
prepare and file with the SEC the Proxy Statement, and Parent shall prepare
and file with the SEC the Form S-4, in which the Proxy Statement will be
included as a prospectus. Each of the Company and Parent shall use its
reasonable best efforts to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing. The Company will
use its reasonable best efforts to cause the Proxy Statement to be mailed to
the Company's stockholders as promptly as practicable after the Form S-4 is
declared effective under the Securities Act. Parent shall also take any action
(other than qualifying to do business in any jurisdiction in which it is not
now so qualified) required to be taken under any applicable state securities
law in connection with the issuance of Parent Common Stock in the Merger, and
the Company shall furnish all information concerning the Company and the
holders of the Company Common Stock and rights to acquire Company Common Stock
pursuant to the Company Plans as may be reasonably required in connection with
any such action. Each of Parent and the Company shall furnish all information
concerning itself to the other as may be reasonably requested in connection
with any such action and the preparation, filing and distribution of the Form
S-4 and the preparation, filing and distribution of the Proxy Statement. The
Company, Parent and Sub each agree to correct any information provided by it
for use in the Form S-4 or the Proxy Statement which shall have become false
or misleading.
(b) The Company, acting through its Board of Directors, shall, subject to
and in accordance with applicable law and its Certificate of Incorporation and
By-Laws, promptly and duly call, give notice of, convene and hold as soon as
practicable following the date upon which the Form S-4 becomes effective a
meeting of the holders of Company Common Stock for the purpose of voting to
approve and adopt this Agreement and the transactions contemplated hereby (the
"Company Stockholders Meeting''). The Board of Directors of the Company shall,
(i) recommend approval and adoption of this Agreement and the transactions
contemplated hereby, by the stockholders of the Company and include in the
Proxy Statement such recommendation and (ii) take all reasonable and lawful
action to solicit and obtain such approval, except, in the case of each of
clauses (i) and (ii), to the extent the Board of Directors of the Company
shall have withdrawn or modified its approval or recommendation of this
Agreement or the Merger in a manner adverse to Parent or Sub as permitted by
Section 5.4.
SECTION 5.2 Accountants' Letters. (a) The Company shall use its reasonable
best efforts to cause to be delivered to Parent a "comfort" letter of KPMG
Peat Marwick LLP, the Company's independent public accountants, dated a date
within two business days before the date on which the Form S-4 shall become
effective and addressed to Parent, in form and substance reasonably
satisfactory to Parent and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4. In connection with the Company's efforts
to obtain such letter, if requested by KPMG Peat Marwick LLP, Parent shall
provide a representation letter to KPMG Peat Marwick LLP, complying with the
Statement on Auditing Standards No. 72 ("SAS 72''), if then required.
(b) Parent shall use its reasonable best efforts to cause to be delivered to
the Company a "comfort" letter of Coopers & Xxxxxxx LLP, Parent's independent
public accountants, dated a date within two business days before the date on
which the Form S-4 shall become effective and addressed to the Company, in
form and substance reasonably satisfactory to the Company and customary in
scope and substance for letters delivered by
A-19
independent public accountants in connection with registration statements
similar to the Form S-4. In connection with Parent's efforts to obtain such
letter, if requested by Coopers & Xxxxxxx LLP, the Company shall provide a
representation letter to Coopers & Xxxxxxx LLP complying with SAS 72, if then
required.
SECTION 5.3 Access to Information; Confidentiality. From the date hereof to
the Effective Time, the Company shall, and shall cause its subsidiaries,
officers, directors, employees, auditors and other agents to, upon reasonable
notice, afford the officers, employees, auditors and other agents of Parent,
reasonable access, consistent with applicable law, at all reasonable times to
its officers, employees, agents, properties, and offices, and to all books and
records, and shall furnish Parent with all financial, operating and other data
and information as Parent, through its officers, employees or agents, may from
time to time reasonably request. All information obtained by or on behalf of
Parent pursuant to this Section 5.3 shall be kept confidential in accordance
with the Confidentiality Agreement dated September 24, 1997 between Parent and
the Company (the "Confidentiality Agreement").
SECTION 5.4 No Solicitation of Transactions. (a) The Company shall, shall
cause its subsidiaries to, and shall direct and use its best efforts to cause
any officers, directors, employees, representatives and agents of the Company
and its subsidiaries to immediately cease any existing discussions or
negotiations with any parties conducted heretofore with respect to any
Acquisition Proposal. The term "Acquisition Proposal" shall mean any inquiry,
proposal or offer from or to any person relating to (i) any merger,
consolidation, share exchange, business combination or other similar
transaction involving the Company or any of its subsidiaries; (ii) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition of 15% or
more of the assets of the Company and its subsidiaries, taken as a whole, in a
single transaction or in a series of transactions; (iii) any tender offer or
exchange offer for 15% or more of the outstanding shares of capital stock of
the Company or any of its subsidiaries, or the filing of a registration
statement under the Securities Act in connection therewith; (iv) any person or
group having acquired beneficial ownership of 15% or more of the outstanding
shares of capital stock of the Company or any of its subsidiaries; or (v) any
proposal, plan, or intention to do any of the foregoing, either publicly
announced or otherwise communicated to the Company, or any agreement to engage
in any of the foregoing.
(b) Except as set forth in this Section 5.4, the Company shall not and shall
not permit any of its subsidiaries to, and shall direct and cause the
officers, directors, employees, representatives or agents of the Company or
its subsidiaries not to, directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with, or furnish any
information or access to, any corporation, partnership, person or other entity
or group (other than Parent and Sub, any affiliate or associate of Parent or
Sub or any designees of Parent or Sub) concerning, or agree to or endorse any
Acquisition Proposal. Notwithstanding the foregoing, the Company may, directly
or indirectly, furnish information and access, in each case only in response
to a written request for such information or access made after the date hereof
by any person which was not encouraged, solicited or initiated by the Company
or any of its officers, directors, employees, representatives or agents after
the date hereof, and participate in discussions and negotiate with such person
concerning any Acquisition Proposal, if, and only to the extent that (i) such
person has submitted a bona fide definitive written Acquisition Proposal to
the Board of Directors of the Company, (ii) the Board, after consultation with
its independent financial advisors, determines that (x) the person making such
Acquisition Proposal is reasonably capable of completing such Acquisition
Proposal, taking into account the legal, financial, regulatory and other
aspects of such Acquisition Proposal and the person making such Acquisition
Proposal and (y) such Acquisition Proposal involves consideration to the
Company's stockholders and other terms and conditions that, taken as a whole,
are superior to the Merger (a proposal described in this clause (ii), a
"Superior Proposal''), and (iii) the Board determines in good faith, based
upon the advice of outside counsel to the Company, that taking any such action
is necessary for the Board to comply with its fiduciary duty to stockholders
under applicable law.
(c) The Board of Directors of the Company shall not (i) withdraw or modify,
or propose publicly to withdraw or modify, in a manner adverse to Parent or
Sub, the approval or recommendation by such Board of Directors of this
Agreement or the Merger, (ii) approve or recommend, or propose publicly to
approve or
A-20
recommend, any Acquisition Proposal or (iii) enter into any definitive
agreement with respect to any Acquisition Proposal, unless, in the case of
each of the foregoing clauses (i), (ii) and (iii), (A) the Company receives a
bona fide definitive written Acquisition Proposal which is a Superior Proposal
and was not solicited after the date hereof, (B) the Company's Board of
Directors determines in good faith, based upon the advice of outside counsel
to the Company, that it is necessary to comply with its fiduciary duties to
stockholders under applicable law for the Board of Directors to approve or
recommend such Acquisition Proposal and (C) Parent does not make within 5
business days of receipt of the Company's written notification of its
intention to enter into a definitive agreement with respect to a Superior
Proposal an offer that the Board of Directors of the Company determines in
good faith, after consultation with its independent financial advisors,
involves consideration to the Company's stockholders and other terms and
conditions that, taken as a whole, are at least as favorable, from a financial
point of view, to the stockholders of the Company as the Superior Proposal. If
the Board has withdrawn or modified its approval or recommendation of this
Agreement or the Merger and/or approved or recommended an Acquisition
Proposal, in each case in conformity with the provisions of the preceding
sentence, then the Company may terminate this Agreement pursuant to Section
7.1(d) and Parent may terminate this Agreement pursuant to Section 7.1(c).
(d) Nothing contained in this Section 5.4 shall prevent the Board from
taking, and disclosing to the Company's stockholders, a position contemplated
by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any
tender offer or from making any disclosure to the Company's stockholders if,
in the good faith judgment of the Board of Directors, based upon the advice of
outside counsel to the Company, such disclosure is required under applicable
law; provided that, except as otherwise permitted in this Section 5.4, the
Company does not approve or recommend, or propose to approve or recommend, an
Acquisition Proposal.
(e) Nothing contained in this Agreement or the Confidentiality Agreement
shall be construed to prohibit Parent from making a competing proposal in
response to any Acquisition Proposal.
(f) The Company agrees not to release any third party from, or waive any
provisions of, any confidentiality or standstill agreement to which the
Company is a party, unless the Board shall have determined in good faith,
based upon the advice of outside counsel, that releasing such third party or
waiving such provisions is necessary to comply with the Board's fiduciary
duties to the stockholders of the Company under applicable law.
Notwithstanding anything contained in this Agreement to the contrary, any
action by the Board of Directors permitted by this Section 5.4 shall not
constitute a breach of this Agreement by the Company.
SECTION 5.5 Employee Benefits Matters. (a) During the period from the
Effective Time until the end of the twelfth month following the Effective
Time, Parent shall maintain or cause to be maintained base salaries, bonus
opportunities, employee pension and welfare plans for the benefit of employees
and former employees of the Company or its subsidiaries, which are equal to or
greater than those base salaries, bonus opportunities and other benefits
provided under the Company Plans that are in effect on the date hereof. Prior
to the Effective Time, Parent and the Company shall cooperate to facilitate a
smooth transition with respect to the continued employment of Company
employees and the Company shall permit Parent reasonable access to its
employees to enable Parent to effect such transition.
(b) Parent will, or will cause the Surviving Corporation to, (i) waive all
limitations as to preexisting conditions, exclusions and waiting periods with
respect to participation and coverage requirements applicable to the employees
of the Company under any welfare plan that such employees may be eligible to
participate in after the Effective Time, (ii) provide each employee of the
Company with credit for any co-payments and deductibles paid prior to the
Effective Time in satisfying any applicable deductible or out-of-pocket
requirements under any welfare plans that such employees are eligible to
participate in after the Effective Time, and (iii) provide each employee of
the Company with credit for all service with the Company and its affiliates
under each employee benefit plan, program, or arrangement of the Sub or its
affiliates in which such employees are eligible to participate; provided,
however, that in no event shall the employees be entitled to any credit to the
extent that it would result in a duplication of benefits with respect to the
same period of service.
A-21
SECTION 5.6 Directors' and Officers' Indemnification and Insurance. (a) The
By-Laws of the Surviving Corporation shall contain provisions no less
favorable with respect to indemnification than are set forth in the By-laws of
the Company, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at the
Effective Time were directors, officers or employees of the Company.
(b) Parent shall cause to be maintained in effect for six years from the
Effective Time the current policies of the directors' and officers' liability
insurance maintained by the Company (provided that Parent may substitute
therefor policies of at least the same coverage containing terms and
conditions which are not materially less advantageous) with respect to matters
occurring prior to the Effective Time to the extent available or, if such
coverage is not available, the best available coverage; provided, however,
that in no event shall Parent or the Company be required to expend more than
an amount per year equal to 200% of current annual premiums paid by the
Company to maintain or procure insurance coverage pursuant hereto, but in such
case shall purchase as much coverage as possible for such amount.
(c) For six years after the Effective Time, Parent agrees that it will and
it will cause the Surviving Corporation to indemnify and hold harmless each
present and former director and officer of the Company, determined as of the
Effective Time, against any costs or expenses (including reasonable attorneys'
fees), judgments, fines, losses, claims, damages or liabilities (collectively,
"Costs'') (but only to the extent such Costs are not otherwise covered by
insurance and paid) incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring
at or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to which such person was or is a party or is
threatened to be made a party by reason of the fact that he was or is a
director or officer of the Company, to the fullest extent permitted under
applicable law (and Parent shall, or shall cause the Surviving Corporation to,
also advance expenses as incurred to the fullest extent permitted under
applicable law provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification).
SECTION 5.7 Further Action; Reasonable Best Efforts. (a) Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all reasonably
appropriate action, and to do or cause to be done, all things reasonably
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
as soon as practicable, including but not limited to (i) cooperation in the
preparation and filing of the Proxy Statement, any required filings under the
HSR Act, filings with the New York Superintendent or other state or foreign
insurance commissions or regulations and any amendments to any thereof, (ii)
using its reasonable best efforts to promptly make all required regulatory
filings and applications including, without limitation, responding promptly to
requests for further information and to obtain all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with the Company and its subsidiaries as
are necessary for the consummation of the transactions contemplated by this
Agreement and to fulfill the conditions to the Merger, (iii) taking all
actions which may be reasonably necessary to prevent any Governmental Entity
from taking steps to obtain, or from issuing, any order, injunction, decree,
judgment or ruling or the taking of any other action restraining, enjoining or
otherwise prohibiting the Merger, including, without limitation, agreeing to
effect such divestitures of assets or businesses of the Company or Parent, or
agreeing to such limitations on the Company's or Parent's future operations,
as may be necessary to forestall such order, decree, ruling or action, (iv)
the Company and Parent each agreeing to take all actions which may be
reasonably necessary to contest and resist any action seeking to have imposed
any order, decree, judgment, injunction, ruling or other order (whether
temporary, preliminary or permanent) (an "Order'') that would delay, restrain,
enjoin or otherwise prohibit consummation of the Merger and in the event that
any such temporary or preliminary Order is entered in any proceeding that
would make consummation of the Merger in accordance with the terms of this
Agreement unlawful or that would prevent or delay consummation of the Merger
or the other transactions contemplated by this Agreement, to use its
reasonable best efforts to take promptly any and all steps (including the
appeal thereof, the posting of a bond or the taking of the steps
A-22
contemplated by clause (i) of this paragraph) reasonably necessary to vacate,
modify or suspend such Order so as to permit such consummation as promptly as
practicable after the date hereof and (v) cooperation in connection with
obtaining the opinions of special counsel described in Sections 6.2(c) and
6.3(c) including, without limitation, providing to special counsel, and, if
required by counsel as necessary for purposes of such opinions, using
reasonable efforts to cause each person who beneficially owns five percent or
more of the outstanding shares of the Company Common Stock to provide to
special counsel, such representation letters as are reasonably required by
special counsel to enable them to render such opinions. Notwithstanding the
foregoing, neither party shall be obligated to take any action pursuant to the
foregoing if the taking of such action or such compliance or the obtaining of
such consent, authorization, order, approval or exemption is likely, in such
party's reasonable opinion, (x) to have a Material Adverse Effect on such
party and its subsidiaries, taken as a whole, or to impact in a materially
adverse manner the economic or business benefits of the transactions
contemplated by this Agreement so as to render inadvisable the consummation of
the Merger or (y) to impose on Parent or its subsidiaries or on the Company or
its subsidiaries a requirement to dispose of any assets which individually or
in the aggregate would be deemed to constitute a significant amount of assets,
as the case may be, to Parent and its subsidiaries, taken as a whole, or to
the Company and its subsidiaries, taken as a whole, under Instruction 4 of
Item 2 of Form 8-K (any condition referred to in subsections (x) and (y)
above, a "Material Condition''). In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall use their reasonable best efforts to take all such necessary action.
(b) The Company and Parent each shall keep the other apprised of the status
of matters relating to completion of the transactions contemplated hereby,
including promptly furnishing the other with copies of notices or other
communications received by Parent or the Company, as the case may be, or any
of their subsidiaries, from any Governmental Entity with respect to the Merger
or any of the other transactions contemplated by this Agreement. The parties
hereto will consult and cooperate with one another, and consider in good faith
the views of one another in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to the HSR Act or any other antitrust law.
SECTION 5.8 Public Announcements. Parent and the Company shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to the Merger and shall not issue any such press
release or make any such public statement prior to such consultation, except
as may be required by law or any listing agreement with its securities
exchange.
SECTION 5.9 Stock Exchange Listing. Parent shall use its best efforts to
have approved for listing on the NYSE prior to the Effective Time, subject to
official notice of issuance, the Parent Common Stock to be issued pursuant to
the Merger and under the Company Plans.
SECTION 5.10 Affiliates. (a) Prior to the Closing Date, the Company shall
deliver to Parent a letter identifying all persons who are, at the time this
Agreement is submitted for approval to the stockholders of the Company,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act
or for purposes of qualifying the Merger for "pooling of interests" accounting
treatment under Opinion 16 of the Accounting Principles Board and applicable
SEC rules and regulations. The Company shall use its reasonable best efforts
to cause each such person to deliver to Parent on or prior to the Closing Date
a written agreement substantially in the form attached as Exhibit A hereto.
(b) Prior to the Closing Date, Parent shall deliver to the Company a letter
identifying all persons who are, at the time this Agreement is submitted for
approval to the stockholders of the Company, "affiliates" for purposes of
qualifying the Merger for "pooling of interests" accounting treatment under
Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations. Parent shall use its reasonable best efforts to cause all persons
who are "affiliates" of Parent for purposes of qualifying the Merger for
pooling of interests accounting treatment under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations to comply with
paragraph number 1, as applicable, of Exhibit A hereto.
A-23
ARTICLE VI
CONDITIONS OF MERGER
SECTION 6.1 Conditions to Obligation of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following
conditions:
(a) The Company Stockholder Approval shall have been obtained.
(b) No statute, injunction or other order (whether temporary, preliminary
or permanent) shall have been promulgated or issued by any Governmental
Entity of competent jurisdiction which prohibits, restrains, enjoins or
restricts the consummation of the Merger; provided, however, that each of
the parties shall have used its reasonable best efforts to prevent the
entry of any such order and to appeal as promptly as possible any
injunction or other order that may be entered.
(c) Any waiting period applicable to the Merger under the HSR Act shall
have terminated or expired.
(d) All orders, approvals and consents of (i) the New York Insurance
Department and (ii) all other Material Insurance Regulatory Approvals which
are required in connection with the Merger shall have been obtained;
provided, however, that such orders, approvals and consents may be subject
to conditions other than Material Conditions. As used herein, the term
"Material Insurance Regulatory Approvals'' shall mean the approvals of the
state insurance regulatory department or authority of each state or country
other than those states that the failure to obtain would not be reasonably
expected to have a Material Adverse Effect on the Company and its
subsidiaries, taken as a whole, or Parent and its subsidiaries, taken as a
whole.
(e) The Form S-4 shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking a stop
order, and any material "blue sky" and other state securities laws
applicable to the registration and qualification of the Parent Common Stock
issuable or required to be reserved for issuance pursuant to this Agreement
shall have been complied with.
(f) The shares of Parent Common Stock issuable to Company stockholders
pursuant to this Agreement and such other shares of Parent Common Stock
required to be reserved for issuance in connection with the Merger shall
have been authorized for listing on the NYSE subject to official notice of
issuance.
(g) Parent shall have received a letter from Coopers & Xxxxxxx LLP to the
effect that the Merger qualifies for "pooling of interests" accounting
treatment if consummated in accordance with this Agreement and such letter
shall not have been withdrawn. The Company shall have received a letter
from KPMG Peat Marwick LLP to the effect that the Company is eligible to be
acquired in a transaction to be accounted for using "pooling of interests"
accounting treatment and such letter shall not have been withdrawn.
(h) There shall not be any action taken, nor any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger which imposes a Material Condition on any party.
SECTION 6.2 Conditions to Obligations of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the satisfaction at or prior to the Closing Date of the following additional
conditions:
(a) Parent and Sub shall have performed or complied with in all material
respects their agreements and covenants contained in this Agreement
required to be performed or complied with at or prior to the Closing Date
and the representations and warranties of Parent and Sub contained in this
Agreement shall be true and correct in all respects on and as of the
Closing Date with the same force and effect as if made on and as of such
date (except to the extent such representations and warranties speak as of
an earlier date), except where the failure to be true and correct shall not
constitute a Material Adverse Effect on Parent and its subsidiaries, taken
as a whole. The Company shall have received a certificate signed on behalf
of Parent by the chief executive officer and chief financial officer of
Parent and Sub to such effect.
(b) On the date of the Proxy Statement, the Company shall have received
from Salomon Brothers Inc a letter, dated such date, confirming the opinion
referred to in Section 2.16.
A-24
(c) The Company shall have received an opinion of Xxxxxxx Xxxxxxx &
Xxxxxxxx, special counsel to the Company, dated as of the Effective Time,
to the effect that the Merger will constitute a reorganization for Federal
income tax purposes within the meaning of section 368(a) of the Code. In
rendering such opinion, Xxxxxxx Xxxxxxx & Xxxxxxxx may require and rely
upon representations contained in the certificates of officers of Parent,
Sub, the Company and others, as well as certificates of shareholders who
beneficially own five percent or more of the outstanding shares of the
Company Common Stock if Xxxxxxx Xxxxxxx & Xxxxxxxx determines that such
certificates are necessary for purposes of rendering such opinion.
SECTION 6.3 Conditions to Obligations of Parent and Sub to Effect the
Merger. The obligations of Parent and Sub to effect the Merger shall be
subject to the satisfaction at or prior to the Closing Date of the following
additional conditions:
(a) The Company shall have performed or complied with in all material
respects its agreements and covenants contained in this Agreement required
to be performed or complied with at or prior to the Closing Date and the
representations and warranties of the Company contained in this Agreement
shall be true and correct in all respects on and as of the Closing Date
with the same force and effect as if made on and as of such date (except to
the extent such representations and warranties speak as of an earlier
date), except where the failure to be true and correct shall not constitute
a Material Adverse Effect on the Company and its subsidiaries, taken as a
whole. Parent shall have received a certificate signed on behalf of the
Company by the chief executive officer and chief financial officer of the
Company to such effect.
(b) Parent shall have received the agreements referred to in Section 5.10
of each person identified as an "affiliate" of the Company.
(c) Parent and Sub shall have received an opinion of Debevoise &
Xxxxxxxx, special counsel to Parent and Sub, dated as of the Effective
Time, to the effect that the Merger will constitute a reorganization for
Federal income tax purposes within the meaning of section 368(a) of the
Code. In rendering such opinion, Debevoise & Xxxxxxxx may require and rely
upon representations contained in the certificates of officers of Parent,
Sub, the Company and others, as well as certificates of shareholders who
beneficially own five percent or more of the outstanding shares of the
Company Common Stock if Debevoise & Xxxxxxxx determines that such
certificates are necessary for purposes of rendering such opinion.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
whether before or after the Company Stockholder Approval:
(a) By mutual written consent of Parent, Sub and the Company;
(b) By Parent or the Company:
(i) if any Governmental Entity located or having jurisdiction within
the United States shall have issued a final order, injunction, decree,
judgment or ruling or taken any other final action restraining,
enjoining or otherwise prohibiting the Merger and such order,
injunction, decree, judgment, ruling or other action is or shall have
become final and nonappealable; provided, however, that the right to
terminate this Agreement pursuant to this Section 7.1(b)(i) shall not
be available to any party who has not used its reasonable best efforts
to cause such order to be lifted;
(ii) if the Merger shall not have been consummated on or before May
31, 1998 (other than due to the failure of the party seeking to
terminate this Agreement to perform its obligations under this
Agreement required to be performed at or prior to the Effective Time);
or
(iii) if upon a vote at a duly held Company Stockholders Meeting or
any adjournment thereof at which the Company Stockholder Approval shall
have been voted upon, the Company Stockholder Approval shall not have
been obtained.
A-25
(c) By Parent if prior to the Closing Date the Board of Directors of the
Company shall have withdrawn, or modified in a manner adverse to Parent,
its approval or recommendation of this Agreement or the Merger or shall
have recommended an Acquisition Proposal, or shall have resolved to effect
any of the foregoing.
(d) By the Company in accordance with Section 5.4; provided that such
termination under this clause (d) shall not be effective until the Company
has made payment of the Termination Fee required by Section 7.3.
(e) By Parent if (a) there has been a breach by the Company of any
representation or warranty contained in this Agreement which has a Material
Adverse Effect on the Company and its subsidiaries, taken as a whole, or
(b) there has been a material breach of any of the covenants or agreements
set forth in this Agreement on the part of the Company, which breach in the
case of either clause (a) or clause (b) is not curable or, if curable, is
not cured within thirty days after written notice of such breach has been
given by the Parent to the Company.
(f) By the Company if (a) there has been a breach by Parent or Sub of any
representation or warranty contained in this Agreement which has a Material
Adverse Effect on Parent and its subsidiaries, taken as a whole, or (b)
there has been a material breach of any of the covenants or agreements set
forth in this Agreement on the part of Parent, which breach in the case of
either clause (a) or clause (b) is not curable or, if curable is not cured
within thirty days after written notice of such breach has been given by
the Company to Parent.
SECTION 7.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto except as set
forth in Section 7.3 and Section 8.1; provided, however, that nothing herein
shall relieve any party from liability for any wilful breach hereof.
SECTION 7.3 Fees and Expenses.
(a) The Company shall pay, or cause to be paid, in same day funds to Parent
$19.4 million (the "Termination Fee'') under the circumstances and at the
times set forth as follows:
(i) if Parent terminates this Agreement pursuant to Section 7.1(c)
hereof, the Company shall pay the Termination Fee upon demand;
(ii) if the Company terminates this Agreement pursuant to Section 7.1(d)
hereof, the Company shall pay the Termination Fee concurrently therewith;
(iii) if (1) Parent terminates this Agreement pursuant to Section
7.1(b)(iii) or 7.1(e) and (2) prior to such termination an Acquisition
Proposal shall have been publicly announced (other than an Acquisition
Proposal made prior to the date hereof) and (3) within six months
thereafter, (A) the Company enters into a definitive agreement with respect
to an Acquisition Proposal or an Acquisition Proposal is consummated
involving any party (x) with whom the Company had any discussions with
respect to an Acquisition Proposal, (y) to whom the Company furnished
information with respect to or with a view to an Acquisition Proposal or
(z) who had submitted a proposal or expressed any interest publicly in an
Acquisition Proposal, in the case of each of clauses (x), (y) and (z),
prior to such termination, or (B) the Company enters into a definitive
agreement with respect to a Superior Proposal, or a Superior Proposal is
consummated, then, in the case of either (A) or (B) above, the Company
shall pay the Termination Fee upon the earlier of the execution of such
agreement or upon consummation of such Acquisition Proposal or Superior
Proposal.
(b) Except as otherwise specifically provided herein, each party shall bear
its own expenses in connection with this Agreement and the transactions
contemplated hereby.
A-26
SECTION 7.4 Amendment. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided, however, that, after approval of
the Merger by the stockholders of the Company, no amendment may be made which
would reduce the amount or change the type of consideration into which each
share of Company Common Stock shall be converted upon consummation of the
Merger. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
SECTION 7.5 Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if
set forth in an instrument in writing signed by the party or parties to be
bound thereby.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Non-Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall terminate
at the Effective Time or upon the termination of this Agreement pursuant to
Section 7.1, as the case may be, except that the agreements set forth in
Article I, Section 5.5, Section 5.6 and Article VIII shall survive the
Effective Time and those set forth in Section 5.3, Section 5.8, Section 7.3
and Article VIII shall survive termination of this Agreement.
SECTION 8.2 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by
telecopy, or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
if to Parent or Sub:
MBIA Inc.
000 Xxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxx Xxxxxxx
with an additional copy to:
Debevoise & Xxxxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Telecopy No.: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx
if to the Company:
CapMAC Holdings Inc.
000 Xxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxxxx
with a copy to:
Xxxxxxx Xxxxxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
A-27
SECTION 8.3 Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliate'' of a person means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person;
(b) "beneficial owner'' with respect to any Shares means a person who
shall be deemed to be the beneficial owner of such Shares (i) which such
person or any of its affiliates or associates beneficially owns, directly
or indirectly, (ii) which such person or any of its affiliates or
associates (as such term is defined in Rule 12b-2 of the Exchange Act) has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant
to any agreement, arrangement or understanding or upon the exercise of
consideration rights, exchange rights, warrants or options, or otherwise,
or (B) the right to vote pursuant to any agreement, arrangement or
understanding or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its
affiliates or person with whom such person or any of its affiliates or
associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any shares;
(c) "control'' (including the terms "controlled by'' and "under common
control with'') means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management policies of a person, whether through the ownership of stock, as
trustee or executor, by contract or credit arrangement or otherwise;
(d) "knowledge'' means, with respect to the Company, the actual knowledge
of those persons listed in Section 8.3 of the Company Disclosure Schedule,
and with respect to Parent, the actual knowledge of those persons listed in
Section 8.3 of the Parent Disclosure Schedule;
(e) "person'' means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in
Section 13(d)(3) of the Exchange Act);
(f) "Significant Subsidiary'' of the Company, the Surviving Corporation,
Parent or any other person means a subsidiary of such person that would
constitute a "significant subsidiary" of such person within the meaning of
Rule 1.02(v) of Regulation S-X as promulgated by the SEC; and
(g) "subsidiary'' or "subsidiaries'' of the Company, the Surviving
Corporation, Parent or any other person means any corporation, partnership,
joint venture or other legal entity of which the Company, the Surviving
Corporation, Parent or such other person, as the case may be (either alone
or through or together with any other subsidiary), owns, directly or
indirectly, 50% or more of the stock or other equity interests the holder
of which is generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal
entity.
SECTION 8.4 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to
the fullest extent possible.
SECTION 8.5 Entire Agreement; Assignment. This Agreement constitutes the
entire agreement among the parties with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof.
Without limiting the generality of the foregoing, this Agreement supersedes
and replaces the letter agreement between Parent and the Company dated October
22, 1997, which letter agreement is hereby terminated and shall be of no
further force or effect from and after the date of this Agreement. This
Agreement shall not be assigned by operation of law or otherwise, except that
Parent and Sub may assign all or any of their respective rights and
obligations
A-28
hereunder to any direct or indirect wholly owned subsidiary or subsidiaries of
Parent, provided that no such assignment shall relieve the assigning party of
its obligations hereunder if such assignee does not perform such obligations.
SECTION 8.6 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, except for the provisions of Section 5.6, is
intended to or shall confer upon any other person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 8.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
SECTION 8.8 Headings. The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 8.9 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be executed as of the date first written above by their respective officers
thereunto duly authorized.
MBIA INC.
/s/ Xxxxx X. Xxxxxxx
By: ______________________________
Title: Chairman
CMA ACQUISITION CORPORATION
/s/ Xxxxx X. Xxxxxxx
By: ______________________________
Title: President
CAPMAC HOLDINGS INC.
/s/ Xxxx X. Xxxxxxxx
By: ______________________________
Title: Chairman of the
Board,President and
ChiefExecutive Officer
A-29
