EXHIBIT 2
CONFORMED COPY
__________________________________________________________
AGREEMENT AND PLAN OF MERGER
Among
MBIA INC.
CMA ACQUISITION CORPORATION
and
CAPMAC HOLDINGS INC.
Dated as of November 13, 1997
__________________________________________________________
TABLE OF CONTENTS
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Page
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ARTICLE I
THE MERGER.................. 1
SECTION 1.1 The Merger................................. 1
SECTION 1.2 Effective Time............................. 1
SECTION 1.3 Effects of the Merger...................... 2
SECTION 1.4 Certificate of Incorporation; By-Laws...... 2
SECTION 1.5 Directors and Officers..................... 2
SECTION 1.6 Conversion of Securities................... 2
SECTION 1.7 Treatment of Options....................... 3
SECTION 1.8 Fractional Interests....................... 4
SECTION 1.9 Surrender of Shares; Stock Transfer Books.. 4
SECTION 1.10 Closing and Closing Date.................. 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY...... 7
SECTION 2.1 Organization............................... 7
SECTION 2.2 Capitalization............................. 8
SECTION 2.3 Company Subsidiaries....................... 9
SECTION 2.4 Corporate Authorization; Validity of
Agreement; Company Action 9
SECTION 2.5 Consents and Approvals; No Violations...... 10
SECTION 2.6 SEC Reports and Financial Statements....... 11
SECTION 2.7 Absence of Certain Changes................. 12
SECTION 2.8 Absence of Undisclosed Liabilities......... 13
SECTION 2.9 Information Supplied....................... 13
SECTION 2.10 Employee Benefit Plans.................... 14
SECTION 2.11 Compliance................................ 15
SECTION 2.12 No Default................................ 15
SECTION 2.13 Investment Advisor; Investment Company.... 16
SECTION 2.14 Absence of Litigation..................... 16
SECTION 2.15 Taxes..................................... 16
SECTION 2.16 Opinion of Financial Advisors............. 17
SECTION 2.17 Accounting Matters........................ 17
SECTION 2.18 Tax Matters............................... 17
SECTION 2.19 Brokers................................... 17
SECTION 2.20 Ownership of Parent Common Stock.......... 18
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB... 18
SECTION 3.1 Organization............................... 18
SECTION 3.2 Capitalization............................. 19
SECTION 3.3 Parent Subsidiaries........................ 20
SECTION 3.4 Corporate Authorization; Validity of
Agreement; Necessary Action................20
SECTION 3.5 Consents and Approvals; No Violations...... 20
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SECTION 3.6 SEC Reports and Financial Statements....... 21
SECTION 3.7 Absence of Certain Changes................. 22
SECTION 3.8 Absence of Undisclosed Liabilities......... 23
SECTION 3.9 Information Supplied....................... 23
SECTION 3.10 Compliance................................ 24
SECTION 3.11 No Default................................ 24
SECTION 3.12 Investment Advisor; Investment Company.... 25
SECTION 3.13 Absence of Litigation..................... 25
SECTION 3.14 Taxes..................................... 25
SECTION 3.15 Opinion of Financial Advisors............. 26
SECTION 3.16 Ownership of Company Common Stock......... 26
SECTION 3.17 Accounting Matters........................ 26
SECTION 3.18 Tax Matters............................... 27
SECTION 3.19 Brokers................................... 27
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER.... 27
SECTION 4.1 Conduct of Business of the Company
Pending the Merger......................... 27
SECTION 4.2 Conduct of Business of Parent Pending the
Merger..................................... 29
SECTION 4.3 Pooling and Tax-Free Reorganization
Treatment................................. 30
ARTICLE V
ADDITIONAL AGREEMENTS............ 31
SECTION 5.1 Preparation of Form S-4 and the Proxy
Statement; Stockholder Meetings............31
SECTION 5.2 Accountants' Letters....................... 32
SECTION 5.3 Access to Information; Confidentiality..... 32
SECTION 5.4 No Solicitation of Transactions............ 33
SECTION 5.5 Employee Benefits Matters.................. 35
SECTION 5.6 Directors' and Officers' Indemnification
and Insurance...............................36
SECTION 5.7 Further Action; Reasonable Best Efforts.... 37
SECTION 5.8 Public Announcements....................... 38
SECTION 5.9 Stock Exchange Listing..................... 39
SECTION 5.10 Affiliates................................ 39
ARTICLE VI
CONDITIONS OF MERGER............. 39
SECTION 6.1 Conditions to Obligation of Each Party to
Effect the Merger...........................39
SECTION 6.2 Conditions to Obligations of the Company
to Effect the Merger........................40
SECTION 6.3 Conditions to Obligations of Parent and
Sub to Effect the Merger....................41
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER 42
SECTION 7.1 Termination................................ 42
SECTION 7.2 Effect of Termination...................... 43
SECTION 7.3 Fees and Expenses.......................... 44
SECTION 7.4 Amendment.................................. 44
SECTION 7.5 Waiver..................................... 45
ARTICLE VIII
GENERAL PROVISIONS.............. 45
SECTION 8.1 Non-Survival of Representations,
Warranties and Agreements.................. 45
SECTION 8.2 Notices.................................... 45
SECTION 8.3 Certain Definitions........................ 46
SECTION 8.4 Severability............................... 47
SECTION 8.5 Entire Agreement; Assignment............... 47
SECTION 8.6 Parties in Interest........................ 48
SECTION 8.7 Governing Law.............................. 48
SECTION 8.8 Headings................................... 48
SECTION 8.9 Counterparts............................... 48
Exhibit A -- Form of Affiliate Letter
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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
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ACQUISITION CORPORATION, a Delaware corporation and a wholly owned subsidiary of
Parent ("Sub"), and CAPMAC HOLDINGS INC., a Delaware corporation (the
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"Company").
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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
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of the State of Delaware ("DGCL"), upon the terms and subject to the conditions
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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
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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
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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
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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
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satisfaction or waiver of the conditions set forth in Article VI, the parties
hereto shall cause the Merger to be
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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
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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").
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SECTION 1.3 Effects of the Merger. The Merger shall have the effects
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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
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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
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Time, shall be the certificate of incorporation of the Surviving Corporation
until thereafter and further amended as provided therein and under the DGCL.
(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
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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
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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
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outstanding immediately prior to the Effective Time (other than any shares
of Company Common Stock to be cancelled pursuant to
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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
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amount of Parent Common Stock into which each such share of Company Common
Stock is converted being referred to herein as the "Merger Consideration").
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For purposes of this Agreement, "Exchange Ratio" means $35.00 divided by
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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
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prices of Parent Common Stock on the New York Stock Exchange ("NYSE")
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Composite Transactions Tape as reported by The Wall Street Journal (or if
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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
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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
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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,
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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.
(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
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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
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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
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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
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with the Merger (the "Exchange Agent") to receive the shares of Parent Common
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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
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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.
(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
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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
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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
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have been terminated and the transactions herein contemplated shall have been
abandoned pursuant to the provisions of Section 7.1, the closing (the "Closing")
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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
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the Company shall agree.
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
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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
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adverse change or effect that is materially adverse to
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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
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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
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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
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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
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
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subsidiaries free and clear of all liens, charges, security interests, options,
claims or encumbrances of any nature whatsoever (collectively, "Liens").
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SECTION 2.3 Company Subsidiaries. (a) Section 2.3(a) of the Company
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Disclosure Schedule sets forth the name of each of the Company's subsidiaries
that is an insurance company (collectively, the "Company Insurance
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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
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Action. (a) The Company has full corporate power and authority to execute and
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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
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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.
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(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
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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
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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 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
11
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
12
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,
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
13
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
14
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.
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.
15
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, 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
16
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
17
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.
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
18
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
19
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, 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
20
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.
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
21
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
22
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 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
23
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
24
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 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
25
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
26
that have not been paid for the periods covered by such financial statements.
Except as disclosed in Section 3.14 of the Parent Disclosure 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".
27
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 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
28
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
29
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 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
30
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
31
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.
(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
32
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 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,
33
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
34
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 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
35
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
36
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.
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
37
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 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,
38
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.
39
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.
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
40
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
------
41
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.
(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
42
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;
43
(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.
(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
-------- -------
44
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.
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.
45
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
46
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.
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;
47
(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
48
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 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
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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
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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.
49
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.
By:/s/ Xxxxx X. Xxxxxxx
---------------------------
Title: Chairman
CMA ACQUISITION CORPORATION
By:/s/ Xxxxx X. Xxxxxxx
--------------------------
Title: President
CAPMAC HOLDINGS INC.
By:/s/ Xxxx X. Xxxxxxxx
--------------------------
Title: Chairman of the Board,
President and Chief
Executive Officer
Exhibit A
____________, 1997
MBIA Inc.
000 Xxxx Xxxxxx
Xxxxxx, Xxx Xxxx 00000
Re: Merger Agreement
----------------
Ladies and Gentlemen:
MBIA Inc., a Connecticut corporation ("Parent"), CMA Acquisition
Corporation, a Delaware corporation ("Sub"), and CapMAC Holdings Inc., a
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Delaware corporation (the "Company"), have entered into an Agreement and Plan of
Merger dated November 13, 1997 (the "Merger Agreement"), pursuant to which Sub
would be merged with and into the Company (the "Merger"), and each outstanding
share of Company Common Stock would be converted into the right to receive
shares of Parent Common Stock. Capitalized terms used herein and not defined
have the meanings assigned to them in the Merger Agreement.
The undersigned has been advised that as of the date the Merger is
submitted to stockholders of the Company for approval, the undersigned may be an
"affiliate" of the Company, as the term is defined for purposes of paragraph (c)
of Rule 145 of the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act") and may be deemed an
"affiliate" of the Company 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, although nothing contained
herein shall be construed as an admission of either such fact.
Parent has requested the undersigned to represent and agree, and the
undersigned represents and agrees, with Parent as follows:
1. Pooling.
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From and after 30 days prior to the Effective Time, the undersigned will
not sell, transfer, exchange or otherwise, directly or indirectly, dispose of,
or reduce the risk of loss (by short sale or otherwise) or enter into any
contract or other arrangement with respect to, or consent to the sale or
exchange of or other disposition of any interest in, any securities of the
Company or Parent until after such time as Parent has published financial
results covering at least 30 days of combined operations of Parent and the
Company after the Effective Time in the form of a quarterly earnings report, an
effective registration statement filed with the SEC, a report to the SEC on Form
10-K, 10-Q or 8-K, or any other public
filing or announcement which includes such combined results of operations. The
undersigned understands that certificates representing the shares of Parent
Common Stock, if any, received by the undersigned in the Merger will be placed
on the "stock-transfer list" maintained by Parent's transfer agent and will
remain so listed until the publication of such financial results and that there
will be placed on the certificate(s) representing such stock, or any
certificates delivered in substitution therefor, a legend stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN A LETTER AGREEMENT DATED AS OF
_________, 1997 RELATING THERETO, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF MBIA INC."
Parent agrees and covenants that (i) Parent will use its reasonable best
efforts to publish financial results covering at least 30 days of combined
operations of Parent and the Company after the Effective Time of the Merger, as
soon as practicable and in no event later than 45 days after the end of the
first fiscal quarter which includes at least 30 days of such combined operations
after the Effective Time if such 30 days is included in any of the first three
fiscal quarters of Parent, and in no event later than 60 days after the end of
the first fiscal quarter which includes at least 30 days of combined operations
of Parent and the Company if such 30 days is included in the fourth fiscal
quarter of Parent; and (ii) promptly after such publication the stop transfer
instructions and legends referred to above shall be terminated or removed.
2. Rule 145.
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The undersigned has been advised that the issuance of shares of Parent
Common Stock pursuant to the Merger will be registered under the Securities Act
pursuant to a registration statement on Form S-4. The undersigned has also been
advised that, if the undersigned is in fact an "affiliate" of the Company at the
time the Merger is submitted to a vote of the stockholders of the Company, Rule
145 under the Securities Act will restrict the undersigned's sales of shares of
Parent Common Stock, if any, received in the Merger. The undersigned has been
advised that if the undersigned is to subject to Rule 145, the undersigned may
not sell or otherwise dispose of any shares of Parent Common Stock except in
accordance with Rule 145(d) under the Securities Act or pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act.
The undersigned understands and agrees that:
(i) Parent is under no obligation to register the sale, transfer or
other disposition of the shares of Parent
Common Stock to be received by the undersigned in the Merger except as set
forth in written agreements, if any, with the undersigned which have been
entered into by Parent or which have been specifically assumed by Parent.
(ii) Stop transfer instructions will be given to the transfer
agent of Parent with respect to the shares of Parent Common Stock to be
received by the undersigned in the Merger, and there will be placed on the
certificate representing such stock, or any certificates delivered in
substitution therefor, a legend stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
APPLIES. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WIT RULE 145(D) OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR EXEMPTION FROM REGISTRATION UNDER THE ACT."
(iii) Unless the transfer by the undersigned of the shares of Parent
Common Stock is a sale made in conformity with the provisions of Rule
145(d), or is made pursuant to a registration statement under the
Securities Act, Parent reserves the right to put an appropriate legend on
the certificate issued to a transferee.
In connection with the foregoing, Parent agrees as follows:
(i) For so long as and to the extent necessary to permit the
undersigned to sell the shares of Parent Common Stock pursuant to Rule 145
and, to the extent applicable, Rule 144 under the Securities Act, Parent
shall use reasonable best efforts to file, on a timely basis, all reports
required to be filed with the Securities and Exchange Commission ("SEC") by
it pursuant to Section 13 of the Exchange Act, so long as it is subject to
such requirement, furnish to the undersigned upon request a written
statement as to whether Parent has complied with such reporting
requirements during the 12 months preceding any proposed sale under Rule
145 and otherwise use its reasonable best efforts to permit such sales
pursuant to Rule 145 and Rule 144. Parent has filed, on a timely basis,
all reports required to be filed with the SEC under Section 13 of the
Securities Exchange Act of 1934, as amended, during the preceding 12
months.
(ii) Parent agrees that the stock transfer instructions and legends
referred to above shall be terminated or removed if the undersigned shall
have delivered to Parent a copy of a letter from the staff of the SEC or an
opinion of counsel with recognized expertise in securities law matters, in
form and substance
satisfactory to Parent, to the effect that such instructions and legends
are not required for the purposes of the Securities Act.
This letter agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
This letter agreement shall terminate if and when the Merger Agreement is
terminated according to its terms.
Please indicate your agreement with the foregoing by signing the
acknowledgement below on the enclosed copies of this letter, and returning the
same to the undersigned, whereupon this letter agreement shall become an effect
agreement between Parent and the undersigned.
Very truly yours,
__________________________________
By: _______________________________
Name:
Title:
Acknowledged and agreed as of
the date hereof.
MBIA INC.
By ___________________________
Name:
Title:
