Exhibit 10.01
October 28, 1992
Commonwealth Land Title Insurance Company
Reliance Insurance Company
Reliance Group Holdings, Inc.
Park Avenue Plaza
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Dear Sirs:
This letter is written to confirm certain understandings among CMAC
Investment Corporation (the "Company"), Commonwealth Mortgage Assurance Company
and its subsidiaries, Commonwealth Mortgage Assurance Company of Arizona and
Commonwealth Mortgage Assurance Company Service Company (collectively, "CMAC"),
Commonwealth Land Title Insurance Company ("CLTIC"), Reliance Insurance Company
("RIC") and Reliance Group Holdings, Inc. ("Reliance") with respect to the
registration and public offering of (a) 5,700,000 shares of common stock of the
Company held by CLTIC, and (b) 3,404,000 shares of common stock to be issued by
the Company (the shares to be sold by CLTIC and the Company being referred to
herein as the "Shares").
1. For purposes of Paragraph 2 hereof, the following definitions shall
apply:
(a) "CMAC shall mean and include CMAC and the Company.
(b) "Federal Taxes" shall mean all income taxes (including estimated
taxes) imposed by the United States.
(c) "Adjustment" shall mean any change in an item of income, gain,
loss, deduction or credit of CMAC or the Company, including but not limited to,
changes attributable to amended federal tax returns, deficiencies asserted by a
federal taxing authority, audit, examination, proceeding or litigation resulting
from any of the foregoing events, but only after such change becomes final by
virtue of an agreement between the pertinent taxpayer and the Internal Revenue
Service or of the conclusion of any administrative or judicial proceedings in
connection with the items that are the subject of the proposed adjustment;
provided that "Adjustment" shall not include any disallowance of the worthless
stock deduction for CMAC's investment in the common stock of Telemundo Group,
Inc.
(d) "Pre-Closing Date Interest" shall mean all interest payable for
periods ending on or before the Closing Date on federal income tax assessments
attributable to CMAC.
(e) "Post-Closing Date Interest" shall mean all interest payable for
periods after the Closing Date on federal income tax assessments attributable to
CMAC.
(f) "Federal Tax Rate" shall mean 34%.
2. Consolidated Group Tax Matters. (a) Reliance shall file a
consolidated federal tax return for the taxable year ended December 31, 1992,
which tax return shall include in the consolidated taxable income therein
reported for the Reliance consolidated group the taxable income of CMAC for the
period commencing January 1, 1992 and ending on the date on which the closing of
the sale of the Shares shall occur (the "Closing Date") computed in accordance
with Treasury Regulation Section 1.1502-76(b)(4).
(b) Reliance shall file, or cause to be filed, when due, all federal
income tax and information returns and reports (including federal estimated tax
returns) which are required to be filed with respect to CMAC for all periods
during which CMAC has been a member of the Reliance consolidated group and will
pay, or cause to be paid, when due, all amounts which are shown as due and owing
on such returns and reports.
(c) Reliance agrees to indemnify and hold harmless CMAC against any and
all Federal Taxes, together with any related interest, penalties or additions to
tax, relating to members of Reliance's consolidated group other than CMAC
arising pursuant to Treasury Regulation Section 1.1502-6(a) with respect to all
periods during which CMAC has been a member of the Reliance consolidated group.
(d) On or before the Closing Date, CMAC shall pay to CLTIC, in cash, an
amount equal to Federal Taxes of CMAC for the period from January 1, 1992
through October 31, 1992 as determined in accordance with the terms of the
current tax sharing arrangement between CMAC and RIC, less the amounts
previously paid (or applied against such taxes) by CMAC to CLTIC with respect to
Federal Taxes of CMAC for such period.
(e) On or before September 30, 1993, CMAC shall pay to CLTIC, or CLTIC
shall pay to CMAC as the case may be, in cash, an amount equal to Federal Taxes
of CMAC for the period from January 1, 1992 through the Closing Date, as
determined in accordance with the terms of the current tax sharing arrangement
between CMAC and RIC, less the amounts previously paid including any amount paid
under paragraph (d) hereof (or applied against such taxes) by CMAC to CLTIC,
or by CLTIC to CMAC as the case may be, with respect to Federal Taxes of CMAC
for such period.
(f) (i) If there is an Adjustment to any item reported on a federal tax
return that increases the taxable income or reduces the taxable loss of the
Reliance consolidated group for a period ending
-2-
prior to, on, or including the Closing Date (the "Reliance Increase") and such
Adjustment results in a corresponding change to CMAC's taxable income in a
period beginning on or after the Closing Date with the result that Federal Taxes
of CMAC are or could have been reduced in such period, then CMAC shall pay to
Reliance an amount equal to the product of (x) the Reliance Increase multiplied
by (y) the Federal Tax Rate, plus Post-Closing Date Interest. Payments pursuant
to this Paragraph 2(f)(i) are to be made, in cash, on the date which is five
business days after CMAC has been notified of the Adjustment, and (ii) if there
is an Adjustment to any item reported on a federal tax return that increases
the taxable income or reduces the taxable loss of CMAC for a period beginning on
or after the Closing Date (the "CMAC Increase") and such Adjustment results in a
corresponding change to Reliance's taxable income in a period ending prior to,
on, or including the Closing Date with the result that Federal Taxes of the
Reliance consolidated group are reduced, then Reliance shall pay to CMAC an
amount equal to the product of (x) the CMAC Increase multiplied by (y) the
Federal Tax Rate. Payments pursuant to this Paragraph 2(f)(ii) are to be made,
in cash, on the date which is five business days after Reliance has been
notified of the Adjustment.
(g) CMAC agrees to reimburse, indemnify and hold harmless CLTIC, RIC
and Reliance against any and all loss, liability, claim, damage and expense
whatsoever for (1) Federal Taxes attributable to CMAC with respect to all
periods during which CMAC has been a member of the Reliance consolidated group
for any Adjustment that is not subject to reimbursement pursuant to paragraph
(f) above. (2) any penalties or additions to tax attributable to CMAC with
respect to all periods during which CMAC has been a member of the Reliance
consolidated group, and (3) Pre-Closing Date Interest. Reliance agrees to limit
the aggregate amount of such reimbursements by CMAC under this Paragraph 2(g) to
the sum of (x) $1,853,000, the amount included in the federal income tax
liability account on CMAC's June 30, 1992 balance sheet, and (y) the federal
income tax benefit, if any, derived by CMAC from all such payments by CMAC under
this Paragraph 2(g). Payments pursuant to this Paragraph 2(g) are to be made, in
cash, on the date which is five business days after CMAC has been notified of
the Adjustment.
(h)(i) Reliance shall have the sole right to control federal income tax
audits or contests for all periods during which CMAC has been a member of the
Reliance consolidated group; provided however, that Reliance shall not, without
the prior written consent of CMAC which consent shall not be unreasonably
withheld, change any tax election affecting CMAC, file any amended return or
enter into any compromise or settlement of any audit or contest which could
result in an Adjustment giving rise to a liability of CMAC for Federal Taxes,
including interest, penalties or additions to tax, or decreasing the amount of
any refund of Federal Taxes of CMAC. Notwithstanding the foregoing, CMAC shall
at its own expense and cost, including without limitation all attorneys' fees,
accountants' fees, court costs and related expenses, pursue, defend or conduct
any audit or contest which could result in an Adjustment giving rise to a
liability of CMAC to the extent the aforementioned consent is withheld by CMAC.
-3-
(ii) CMAC shall have the sole right to control federal tax audits or
contests for all periods beginning after the Closing Date; provided, however,
that CMAC shall not, without the prior written consent of Reliance which consent
shall not be unreasonably withheld, change any tax election affecting Reliance,
file any amended return or enter into any compromise or settlement of any audit
or contest which could result in an Adjustment giving rise to a liability for
Federal Taxes of Reliance, or decreasing the amount of any refund of Federal
Taxes of Reliance. Notwithstanding the foregoing, Reliance shall at its own
expense and cost, including without limitation all attorneys' fees, accountants'
fees, court costs and related expenses, pursue, defend or conduct any audit or
contest which could result in an Adjustment giving rise to a liability of
Reliance to the extent the aforementioned consent is withheld by Reliance.
(i) Reliance, RIC, CLTIC and CMAC shall each make available to the
other party on a reasonable basis for examination and copying, books, records
and documents relevant to the determination of any Federal Taxes.
(j) Except as specifically provided in Paragraphs 2(d) and 2(e) above,
the current tax sharing arrangement between CMAC and RIC is hereby terminated
and this Letter Agreement comprises the entire understanding between the parties
with respect to tax liabilities. Reliance, RIC and CLTIC shall have no claim
against CMAC for any amounts with respect to taxes and CMAC shall have no claim
against Reliance, RIC and CLTIC, or any affiliate thereof, for any amounts with
respect to taxes, except as provided herein. The Capital Maintenance Agreement,
dated January 5, 1987, between CMAC and Reliance is hereby terminated and
neither party thereto shall have any claim against the other relating to such
agreement.
-4-
Sincerely,
Commonwealth Mortgage Assurance Company
By:
--------------------------------------
Commonwealth Mortgage Assurance Company
of Arizona
By:
--------------------------------------
Commonwealth Mortgage Assurance Company
Service Company
By:
--------------------------------------
CMAC Investment Corporation
By:
---------------------------------------
Accepted as of the date
first written above:
Commonwealth Land Title Insurance Company
By:
---------------------------------------
-5-
Reliance Insurance Company
By:
---------------------------------------
Reliance Group Holdings, Inc.
By:
--------------------------------------
-6-
