1
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
dated as of
November 22, 1998
between
AMERIN CORPORATION
and
CMAC INVESTMENT CORPORATION
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TABLE OF CONTENTS
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ARTICLE 1
THE MERGER
SECTION 1.01. The Merger ................................................. 2
SECTION 1.02. Conversion of Shares ....................................... 2
SECTION 1.03. CMAC Stock ................................................. 3
SECTION 1.04. Surrender and Payment ...................................... 3
SECTION 1.05. Stock Options and Restricted Stock ......................... 4
SECTION 1.06. Adjustments ................................................ 5
SECTION 1.07. Fractional Shares .......................................... 6
SECTION 1.08. Withholding Rights ......................................... 6
SECTION 1.09. Lost Certificates .......................................... 6
ARTICLE 2
THE SURVIVING CORPORATION
SECTION 2.01. Certificate of Incorporation ............................... 6
SECTION 2.02. Bylaws ..................................................... 6
SECTION 2.03. Board and Board Committees of the Surviving Corporation .... 7
SECTION 2.04. Management ................................................. 7
SECTION 2.05. Headquarters ............................................... 8
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF AMERIN
SECTION 3.01. Corporate Existence and Power .............................. 8
SECTION 3.02. Corporate Authorization .................................... 8
SECTION 3.03. Governmental Authorization ................................. 9
SECTION 3.04. Non-Contravention .......................................... 9
SECTION 3.05. Capitalization ............................................. 10
SECTION 3.06. Assets Necessary ........................................... 10
SECTION 3.07. Subsidiaries ............................................... 10
SECTION 3.08. Licenses and Permits; Policies; Regulatory Matters ......... 11
SECTION 3.09. SEC Filings ................................................ 12
SECTION 3.10. Financial Statements ....................................... 13
SECTION 3.11. Registration Statement; Joint Proxy Statement .............. 14
SECTION 3.12. Absence of Certain Changes or Events ....................... 14
SECTION 3.13. Material Liabilities; Investments .......................... 15
SECTION 3.14. Compliance with Laws and Court Orders ...................... 15
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SECTION 3.15. Material Contracts ......................................... 15
SECTION 3.16. Non-Claims Litigation ...................................... 18
SECTION 3.17. Reserves; Reinsurance ...................................... 18
SECTION 3.18. Loans and Advances ......................................... 19
SECTION 3.19. Finders'Fees ............................................... 19
SECTION 3.20. Opinion of Financial Advisor ............................... 19
SECTION 3.21. Taxes ...................................................... 19
SECTION 3.22. Employee Benefit Plans ..................................... 20
SECTION 3.23. Environmental Matters ...................................... 22
SECTION 3.24. Intellectual Property; Software ............................ 23
SECTION 3.25. Properties ................................................. 24
SECTION 3.26. Pooling; Tax Treatment ..................................... 25
SECTION 3.27. Takeover Statutes .......................................... 25
SECTION 3.28. Transactions with Affiliates ............................... 25
SECTION 3.29. Business Information ....................................... 26
SECTION 3.30. Year 2000 .................................................. 26
SECTION 3.31. Rights Agreement ........................................... 26
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF CMAC
SECTION 4.01. Corporate Existence and Power .............................. 26
SECTION 4.02. Corporate Authorization .................................... 27
SECTION 4.03. Governmental Authorization ................................. 27
SECTION 4.04. Non-Contravention .......................................... 28
SECTION 4.05. Capitalization ............................................. 28
SECTION 4.06. Assets Necessary ........................................... 29
SECTION 4.07. Subsidiaries ............................................... 29
SECTION 4.08. Licenses and Permits; Policies; Regulatory Matters ......... 30
SECTION 4.09. SEC Filings ................................................ 30
SECTION 4.10. Financial Statements ....................................... 31
SECTION 4.11. Registration Statement; Joint Proxy Statement .............. 32
SECTION 4.12. Absence of Certain Changes or Events ....................... 32
SECTION 4.13. Material Liabilities; Investments .......................... 33
SECTION 4.14. Compliance with Laws and Court Orders ...................... 33
SECTION 4.15. Material Contracts ......................................... 33
SECTION 4.16. Non-Claims Litigation ...................................... 35
SECTION 4.17. Reserves; Reinsurance ...................................... 36
SECTION 4.18. Loans and Advances ......................................... 37
SECTION 4.19. Finders'Fees ............................................... 37
SECTION 4.20. Opinion of Financial Advisor ............................... 37
SECTION 4.21. Taxes ...................................................... 37
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SECTION 4.22. Employee Benefit Plans ..................................... 38
SECTION 4.23. Environmental Matters ...................................... 40
SECTION 4.24. Intellectual Property; Software ............................ 40
SECTION 4.25. Properties ................................................. 41
SECTION 4.26. Pooling; Tax Treatment ..................................... 41
SECTION 4.27. Takeover Statutes .......................................... 42
SECTION 4.28. Transactions with Affiliates ............................... 42
SECTION 4.29. Business Information ....................................... 42
SECTION 4.30. Year 2000 .................................................. 43
SECTION 4.31. Rights Agreement ........................................... 43
ARTICLE 5
COVENANTS
SECTION 5.01. Conduct of Amerin .......................................... 43
SECTION 5.02. Conduct of CMAC ............................................ 46
SECTION 5.03. Stockholder Meetings; Proxy Materials; Form S-4 ............ 50
SECTION 5.04. Director and Officer Liability ............................. 51
SECTION 5.05. Registration of Substitute Option Shares ................... 52
SECTION 5.06. Stock Exchange Listing ..................................... 52
SECTION 5.07. Employee Benefits .......................................... 52
SECTION 5.08. Access to Information ...................................... 52
SECTION 5.09. Non-Solicitation by Amerin; Other Offers for Amerin ........ 53
SECTION 5.10. Non-Solicitation by CMAC; Other Offers for CMAC ............ 55
SECTION 5.11. Notices of Certain Events .................................. 56
SECTION 5.12. Appropriate Action; Consents; Filings ...................... 57
SECTION 5.13. Cooperation ................................................ 58
SECTION 5.14. Public Announcements ....................................... 58
SECTION 5.15. Affiliates; Pooling of Interests; Reorganization ........... 58
SECTION 5.16. Takeover Statutes .......................................... 59
SECTION 5.17. Employment Agreement ....................................... 59
ARTICLE 6
CONDITIONS TO THE MERGER
SECTION 6.01. Conditions to the Obligations of Each Party ................ 59
SECTION 6.02. Conditions to the Obligations of CMAC ...................... 60
SECTION 6.03. Conditions to the Obligations of Amerin .................... 61
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ARTICLE 7
TERMINATION
SECTION 7.01. Termination ................................................ 63
SECTION 7.02. Effect of Termination ...................................... 66
SECTION 7.03. Certain Fees ............................................... 66
ARTICLE 8
MISCELLANEOUS
SECTION 8.01. Notices .................................................... 67
SECTION 8.02. Nonsurvival of Representations, Warranties, Covenants and
Agreements .......................................................... 68
SECTION 8.03. Amendments; No Waivers ..................................... 68
SECTION 8.04. Expenses ................................................... 68
SECTION 8.05. Successors and Assigns ..................................... 68
SECTION 8.06. Governing Law .............................................. 68
SECTION 8.07. Jurisdiction ............................................... 68
SECTION 8.08. Waiver of Jury Trial ....................................... 69
SECTION 8.09. Counterparts; Effectiveness ................................ 69
SECTION 8.10. Entire Agreement ........................................... 69
SECTION 8.11. Captions ................................................... 69
SECTION 8.12. Severability ............................................... 69
SECTION 8.13. Specific Performance ....................................... 70
SECTION 8.14. Definitions and Usage ...................................... 70
Amerin Schedule of Exceptions
CMAC Schedule of Exceptions
Exhibit A Certificate of Incorporation
Exhibit B-1 Affiliate's Letter (CMAC)
Exhibit B-2 Affiliate's Letter (Amerin)
Exhibit C Tax Opinion of Morgan, Lewis & Bockius
Exhibit D Tax Opinion of Davis Polk & Wardwell
Exhibit E-1 Amerin Tax Representation Letter
Exhibit E-2 CMAC Tax Representation Letter
Exhibit F Employment Agreement
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") dated as of November 22,
1998 between Amerin Corporation, a Delaware corporation ("AMERIN"), and CMAC
Investment Corporation, a Delaware corporation ("CMAC").
W I T N E S S E T H
WHEREAS, the Boards of CMAC and Amerin deem it advisable and in the best
interests of each corporation and its respective stockholders that CMAC and
Amerin enter into a strategic business combination in order to advance the
long-term business interests of CMAC and Amerin, and have therefore declared
this Agreement to be advisable and approved this Agreement, the Merger (as
hereinafter defined) and the other transactions contemplated by this Agreement;
and
WHEREAS, the combination of CMAC and Amerin shall be effected by the terms
of this Agreement through a transaction in which Amerin will merge with and into
CMAC, CMAC will continue as the surviving corporation and the stockholders of
Amerin will become stockholders of CMAC, which will be renamed a name mutually
agreed upon between the parties prior to Closing (as hereinafter defined); and
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "CODE"); and
WHEREAS, for financial accounting purposes, it is intended that the Merger
will be accounted for as a pooling of interests transaction; and
WHEREAS, CMAC and Amerin desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, and intending to be
legally bound, the parties agree as follows:
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ARTICLE 1
THE MERGER
SECTION 1.01. The Merger. (a) At the Effective Time, Amerin shall be
merged (the "MERGER") with and into CMAC in accordance with the General
Corporation Law of the State of Delaware ("DELAWARE LAW"), whereupon the
separate existence of Amerin shall cease, and CMAC shall continue as the
surviving corporation (the "SURVIVING CORPORATION").
(b) The closing of the Merger (the "CLOSING") shall take place at 10:00
a.m. on a date to be specified by the parties (the "CLOSING DATE"), which date
shall be no later than the second business day after satisfaction of the
conditions set forth in Article 6, at the offices of Morgan, Lewis & Bockius
LLP, 1701 Market Street, Philadelphia, PA 19103, unless another time, date or
place is agreed in writing by the parties hereto.
(c) Upon the Closing, Amerin and CMAC will file a certificate of merger
(the "CERTIFICATE OF MERGER") with the Delaware Secretary of State and make all
other filings or recordings required by Delaware Law in connection with the
Merger. The Merger shall become effective at such time (the "EFFECTIVE TIME") as
the Certificate of Merger is duly filed with the Delaware Secretary of State (or
at such later time as may be agreed in writing by the parties hereto and
specified in the Certificate of Merger).
(d) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, powers, privileges and franchises and be subject to all
of the obligations, liabilities, restrictions and disabilities of Amerin and
CMAC, all as provided under Delaware Law.
SECTION 1.02. Conversion of Shares. At the Effective Time:
(a) each share of common stock, par value $.01 per share, of Amerin
outstanding immediately prior to the Effective Time (the "AMERIN STOCK"),
together with the preferred share purchase rights issued to the holders thereof
pursuant to that certain Rights Agreement (the "AMERIN RIGHTS AGREEMENT") dated
as of October 14, 1998 between Amerin and Norwest Bank Minnesota, National
Association (the "AMERIN STOCKHOLDER RIGHTS") and attached thereto, shall
(except as otherwise provided in Section 1.02(b) and subject to Section 1.07) be
converted into the right to receive .5333 (the "EXCHANGE RATIO") fully paid and
nonassessable shares of the common stock, par value $.001 per share, of CMAC
(the "CMAC STOCK"), together with the same number of preferred share purchase
rights issued to the holders thereof pursuant to that certain Rights Agreement
(the "CMAC RIGHTS AGREEMENT") dated as of April 14, 1998 between CMAC and The
Bank of New York (the "CMAC STOCKHOLDER RIGHTS") and attached thereto,
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subject to adjustment as provided in Section 1.06 (the "MERGER CONSIDERATION");
and
(b) each share of Amerin Stock held by Amerin as treasury stock or owned
by CMAC or any of its Subsidiaries immediately prior to the Effective Time shall
be canceled, and no payment shall be made with respect thereto.
SECTION 1.03. CMAC Stock. At and after the Effective Time, each share of
CMAC Stock issued and outstanding immediately prior to the Effective Time shall
remain an issued and outstanding share of common stock of the Surviving
Corporation and shall not be affected by the Merger.
SECTION 1.04. Surrender and Payment. (a) Prior to the Effective Time, CMAC
shall appoint an agent (the "EXCHANGE AGENT") for the purpose of exchanging
certificates representing Amerin Stock (the "CERTIFICATES") for the Merger
Consideration. As of the Effective Time, the Surviving Corporation will make
available to the Exchange Agent, as needed, the Merger Consideration to be paid
in respect of shares of Amerin Stock. Promptly after the Effective Time, CMAC
will send, or will cause the Exchange Agent to send, to each holder of shares of
Amerin Stock at the Effective Time a letter of transmittal for use in such
exchange (which shall specify that the delivery shall be effected, and risk of
loss and title shall pass, only upon proper delivery of the Certificates to the
Exchange Agent).
(b) Each holder of shares of Amerin Stock that have been converted into
the right to receive the Merger Consideration will be entitled to receive, upon
surrender to the Exchange Agent of a Certificate, together with a properly
completed letter of transmittal, the Merger Consideration in respect of the
Amerin Stock represented by such Certificate. Until so surrendered, each such
Certificate shall, after the Effective Time, represent for all purposes only the
right to receive such Merger Consideration.
(c) If any portion of the Merger Consideration is to be paid to a person
other than the person in whose name the Certificate is registered, it shall be a
condition to such payment that the Certificate so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the person
requesting such payment shall pay to the Exchange Agent any transfer or other
taxes required as a result of such payment to a person other than the registered
holder of such Certificate or shall establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no further registration of
transfers of shares of Amerin Stock. If, after the Effective Time, Certificates
are presented to the Surviving Corporation, they shall be canceled and exchanged
for
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the consideration provided for, and in accordance with the procedures set forth,
in this Section.
(e) Any portion of the Merger Consideration made available to the Exchange
Agent pursuant to Section 1.04(a) that remains unclaimed by the holders of
shares of Amerin Stock six months after the Effective Time shall be returned to
the Surviving Corporation, upon demand, and any such holder who has not
exchanged shares of Amerin Stock for the Merger Consideration prior to that time
shall thereafter look only to the Surviving Corporation for payment of the
Merger Consideration in respect of such shares of Amerin Stock. Notwithstanding
the foregoing, the Surviving Corporation shall not be liable to any holder of
shares of Amerin Stock for any amount paid to a public official pursuant to
applicable abandoned property laws. Any amounts remaining unclaimed by holders
of shares of Amerin Stock two years after the Effective Time (or such earlier
date immediately prior to such time as such amounts would otherwise escheat to
or become property of any Governmental Entity) shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation free and clear
of any claims or interest of any person previously entitled thereto.
(f) No dividends, interest or other distributions with respect to CMAC
Stock constituting part of the Merger Consideration shall be paid to the holder
of any unsurrendered Certificates until such Certificates are surrendered as
provided in this Section. Upon such surrender, there shall be paid, without
interest, to the person in whose name the CMAC Stock has been registered, all
dividends, interest and other distributions payable in respect of such
securities on a date subsequent to, and in respect of a record date after, the
Effective Time.
SECTION 1.05. Stock Options and Restricted Stock. (a) At the Effective
Time, each option to purchase shares of Amerin Stock outstanding under any
employee or director stock option or compensation plan or arrangement of Amerin,
whether or not exercisable and whether or not vested, shall be assumed by CMAC
and shall constitute an option (a "SUBSTITUTE OPTION") to acquire, on the same
terms and conditions as were applicable under such assumed option (giving effect
to any acceleration of vesting arising in connection with the transactions
contemplated hereby), that number of shares of CMAC Stock equal to the product
of the Exchange Ratio times the number of shares of Amerin Stock subject to such
option, at a price per share (rounded to the nearest $0.001) equal to the
aggregate exercise price for the shares of Amerin Stock subject to such option
divided by the number of full shares of CMAC Stock deemed to be purchasable
pursuant to such option; provided, however, that (i) subject to the provisions
of clause (ii) below, the number of shares of CMAC Stock that may be purchased
upon exercise of such Substitute Option shall not include any fractional shares,
and, upon the last such exercise of such Substitute Option, CMAC shall pay to
the
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holder thereof an amount of cash equal to such fraction multiplied by the
closing price of CMAC Stock as reported on the NYSE on the date of such
exercise, and (ii) in the case of any Substitute Option to which Section 421 of
the Code applies by reason of its qualification under Section 422 of the Code,
the option price, the number of shares purchasable pursuant to such Substitute
Option and the terms and conditions of exercise of such Substitute Option shall
be determined in order to comply with Section 424 of the Code. The provisions of
this Section 1.05 shall in all events be interpreted and effected in a manner
that is consistent with the parties' obligations under Section 5.15.
(b) If any shares of Amerin Stock outstanding at the Effective Time are
subject to any contractual restrictions (other than contractual restrictions
that lapse or cease as a result of consummation of the Merger) relating to the
continued performance of services to Amerin or any of its Subsidiaries by the
holder, such restrictions shall continue to apply to the CMAC Stock received by
such holder pursuant to this Article 1 in respect of such restricted shares of
Amerin Stock and shall thereafter relate to the continuing performance of
services by the holder to the Surviving Corporation.
(c) Prior to the Effective Time, Amerin will obtain such consents, if any,
as may be necessary to give effect to the provisions of this Section. In
addition, prior to the Effective Time, CMAC and Amerin will make such
amendments, if any, to the terms of the stock option or compensation plans or
arrangements of CMAC and Amerin, as the case may be, and take such other actions
as are necessary to give effect to the provisions of this Section.
(d) Promptly after the Effective Time, the Surviving Corporation shall
send to each holder of a Substitute Option a notice informing such holder of the
amendments to the terms of such holder's Amerin option effected pursuant to this
Section 1.05.
SECTION 1.06. Adjustments. If at any time during the period between the
date of this Agreement and the Effective Time, any change in the outstanding
shares of capital stock of Amerin or CMAC shall occur, including by reason of
any reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon with a record date during
such period, the Merger Consideration shall be equitably adjusted to eliminate
the effects of such event.
SECTION 1.07. Fractional Shares. No fractional shares of CMAC Stock shall
be issued in connection with the Merger. In lieu of the issuance of any such
fractional share, the Surviving Corporation shall pay to each former Amerin
stockholder who otherwise would be entitled to receive such fractional share as
a result of the Merger an amount in cash determined by multiplying the closing
sale
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price of CMAC Stock on the New York Stock Exchange (the "NYSE") on the trading
day immediately preceding the Effective Time by the fraction of a share of CMAC
Stock to which such holder otherwise would have been entitled.
SECTION 1.08. Withholding Rights. The Surviving Corporation shall be
entitled to deduct and withhold from the consideration otherwise payable to any
person pursuant to this Article such amounts as it is required to deduct and
withhold with respect to the making of such payment under any provision of
federal, state, local or foreign tax law. To the extent that amounts are so
withheld by the Surviving Corporation, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
shares of Amerin Stock in respect of which such deduction and withholding was
made by the Surviving Corporation.
SECTION 1.09. Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond, in such
reasonable amount as the Surviving Corporation may determine is reasonably
necessary as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed Certificate the Merger Consideration deliverable in
respect thereof pursuant to this Agreement.
ARTICLE 2
THE SURVIVING CORPORATION
SECTION 2.01. Certificate of Incorporation. The certificate of
incorporation of the Surviving Corporation after the Effective Time shall be as
set forth in Exhibit A until thereafter changed or amended as provided therein
or by applicable law.
SECTION 2.02. Bylaws. The bylaws of CMAC in effect immediately prior to
the Effective Time shall be the bylaws of the Surviving Corporation after the
Effective Time until thereafter changed or amended as provided therein or by
applicable law, except that (i) Section 4.02 thereof shall be amended to provide
that the size of the Surviving Corporation Board may be changed, until the
Surviving Corporation's annual stockholder meeting to be held in the year 2000
(the "2000 ANNUAL MEETING"), only with the approval of two-thirds of the entire
Surviving Corporation Board and, thereafter, only with the approval of a
majority of the directors present at a meeting at which a quorum is present,
(ii) Section 4.04(a) thereof shall be amended to provide that vacancies and
newly created
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directorships resulting from any increase in the authorized number of directors
of the Surviving Corporation Board may be filled, until the 2000 Annual Meeting,
only with the approval of two-thirds of the remaining Board members and,
thereafter, only with the approval of a majority of the remaining directors
present at a meeting at which a quorum is present, (iii) Section 4.10(a) thereof
shall be amended to provide that, until the 2000 Annual Meeting, two-thirds of
the entire Surviving Corporation Board shall constitute a quorum for the
transaction of business and, thereafter, a majority of the entire Surviving
Corporation Board shall constitute a quorum for the transaction of business.
SECTION 2.03. Board and Board Committees of the Surviving Corporation.
CMAC shall take all action necessary so that at the Effective Time (i the
Surviving Corporation Board shall consist of the number of members mutually
agreed upon by CMAC and Amerin prior to the Effective Time; provided that such
number shall not be less than nine or more than fourteen, (ii) approximately 62%
of the Surviving Corporation Board shall consist of members designated by CMAC
prior to the Effective Time, all of whom are either members of the CMAC Board on
the date of this Agreement or are designees acceptable to Amerin (the "CMAC
DIRECTOR DESIGNEES"), (iii) approximately 38% of the Surviving Corporation Board
shall consist of members designated by Amerin prior to the Effective Time, all
of whom are either members of the Amerin Board on the date of this Agreement or
are designees acceptable to CMAC (the "AMERIN DIRECTOR DESIGNEES"), (iv) the
CMAC Director Designees and the Amerin Director Designees shall be divided as
evenly as possible among the classes of the Surviving Corporation Board, (v)
each committee of the Surviving Corporation Board that does not have more than
four members shall consist of at least one Amerin Director Designee, (vi) each
committee of the Surviving Corporation Board that does have more than four
members shall consist of that number of Amerin Director Designees that
corresponds to their proportionate representation on the Surviving Corporation
Board and (vii) Roy J. Kasmar shall be a member of the Executive Committee of
the Surviving Corporation Board.
SECTION 2.04. Management. CMAC shall take all action necessary to appoint
(i) Frank P. Filipps as Chairman of the Board and Chief Executive Officer of the
Surviving Corporation at the Effective Time and (ii) Roy J. Kasmar as President
and Chief Operating Officer of the Surviving Corporation at the Effective Time.
Mr. Filipps and Mr. Kasmar shall consult with each other on the selection of the
other executive officers of the Surviving Corporation.
SECTION 2.05. Headquarters. The Surviving Corporation shall cause its
headquarters to be located in Philadelphia, Pennsylvania.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF AMERIN
Amerin represents and warrants to CMAC that, except as disclosed in the
Amerin Schedule of Exceptions (which will identify exceptions by specific
Section references) or as otherwise expressly contemplated by this Agreement:
SECTION 3.01. Corporate Existence and Power. Amerin is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all corporate powers and all governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted, except for those licenses, authorizations, permits,
consents and approvals the absence of which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on Amerin.
Amerin is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where such qualification is necessary, except for
those jurisdictions where failure to be so qualified would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
Amerin. Amerin has heretofore delivered to CMAC true and complete copies of the
certificate of incorporation and bylaws of Amerin as currently in effect.
SECTION 3.02. Corporate Authorization. (a The execution, delivery and
performance by Amerin of this Agreement and the consummation of the transactions
contemplated hereby are within the corporate powers of Amerin and, except for
the required approval of Amerin's stockholders in connection with the
consummation of the Merger, have been duly authorized by all necessary corporate
action. The affirmative vote of the holders of a majority of the outstanding
shares of Amerin Stock is the only vote of the Amerin stockholders necessary in
connection with the consummation of the Merger. No other vote of the Amerin
stockholders is necessary in connection with this Agreement or the consummation
of the transactions contemplated hereby. This Agreement constitutes a valid and
binding agreement of Amerin.
(b The Amerin Board, at a meeting duly called and held, has (i) determined
that this Agreement and the transactions contemplated hereby (including the
Merger) are fair to and in the best interests of Amerin's stockholders, (ii)
declared advisable and approved and adopted this Agreement and the transactions
contemplated hereby (including the Merger) and (iii) resolved to recommend
approval and adoption of this Agreement by its stockholders.
SECTION 3.03. Governmental Authorization. The execution, delivery and
performance by Amerin of this Agreement and the consummation by Amerin of the
transactions contemplated hereby require no action by or in respect of, or
filing with, any domestic or foreign governmental body, agency, official or
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authority ("GOVERNMENTAL ENTITY") other than (i) the filing of a certificate of
merger in accordance with Delaware Law, (ii compliance with any applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR
ACT"), the Securities Act of 1933 ("SECURITIES ACT"), the Securities Exchange
Act of 1934 ("EXCHANGE ACT") or any other applicable securities laws, (iii
approvals and filings under the insurance laws of the jurisdictions set forth in
Section 3.03 of the Amerin Schedule of Exceptions and (iv) any other filings,
approvals or authorizations which, if not obtained or made, would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Amerin.
SECTION 3.04. Non-Contravention. The execution, delivery and performance
by Amerin of this Agreement and the consummation by Amerin of the transactions
contemplated hereby do not and will not (i) contravene or violate the
certificate of incorporation or bylaws of Amerin or the equivalent documents of
any of its Subsidiaries, (ii) assuming compliance with the matters referred to
in Section 3.03, contravene or violate any applicable law, rule, regulation,
judgment, injunction, order or decree binding upon or applicable to Amerin or
any of its Subsidiaries, (iii) require any consent or other action by any person
under, constitute a default under, or give rise to any right of termination,
cancellation or acceleration of any right or obligation of Amerin or any of its
Subsidiaries or to a loss of any benefit to which Amerin or any of its
Subsidiaries is entitled under any provision of any agreement or other
instrument binding upon Amerin or any of its Subsidiaries or any license,
franchise, permit, certificate, approval or other similar authorization
affecting, or relating in any way to, the assets or business of Amerin or any of
its Subsidiaries or (iv) result in the creation or imposition of any Lien on any
asset of Amerin or any of its Subsidiaries except, in the case of clauses (ii),
(iii) and (iv), for such matters as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Amerin. For purposes
of this Agreement, "LIEN" means, with respect to any property or asset, any
mortgage, lien, pledge, charge, security interest, encumbrance or other adverse
claim of any kind in respect of such property or asset.
SECTION 3.05. Capitalization. The authorized capital stock of Amerin
consists of (i) 100,000,000 shares of Amerin Stock, of which 50,000,000 shares
are voting common stock ("VOTING AMERIN STOCK") and 50,000,000 shares are
nonvoting common stock ("NONVOTING AMERIN STOCK"); (ii) 10,000,000 shares of
Preferred Stock, par value $.01 per share, of which 300,000 shares have been
designated Series A Participating Cumulative Preferred Stock (the "SERIES A
PREFERRED STOCK"); and (iii) 113,173 shares of 13.5% Convertible Preferred
Stock, par value $.01 per share. As of November 16, 1998, there were outstanding
26,507,948 shares of Amerin Stock, of which 24,851,039 shares are Voting Amerin
Stock and 1,656,909 shares are Nonvoting Amerin Stock, and no shares of
Preferred Stock (including Series A Preferred Stock) and 13.5%
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Convertible Preferred Stock. As of November 16, 1998, there were outstanding
options to purchase an aggregate of 1,832,326 shares of Voting Amerin Stock at
an average exercise price of $17.75 per share (of which options to purchase an
aggregate of 436,020 shares of Voting Amerin Stock were exercisable). All
outstanding shares of capital stock of Amerin have been duly authorized and
validly issued and are fully paid and non-assessable. Except for the Amerin
Stockholder Rights, except as set forth in this Section and except for changes
since November 16, 1998 resulting from the exercise of employee stock options
outstanding on such date, there are no outstanding (i) shares of capital stock
or voting securities of Amerin, (ii) securities of Amerin or any of its
Subsidiaries convertible into or exchangeable for shares of capital stock or
voting securities of Amerin or (iii) options or other rights to acquire from
Amerin or any of its Subsidiaries or other obligations of Amerin to issue, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of Amerin. There are no outstanding
obligations of Amerin or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any securities referred to in clauses (i), (ii) or (iii)
above.
SECTION 3.06. Assets Necessary. Amerin and its Subsidiaries own, lease or
license all material property and assets (including without limitation
Intellectual Property and Software) necessary to carry on their businesses and
operations as presently conducted. All such material assets and properties
(other than as CMAC and Amerin may mutually agree) will be owned, leased or
licensed by Amerin and its Subsidiaries at the Effective Time and will as of the
Effective Time permit the Surviving Corporation and its Subsidiaries to conduct
such businesses and operations in substantially the same manner as such
businesses and operations have been conducted by Amerin prior to the Effective
Time.
SECTION 3.07. Subsidiaries. (a Each Subsidiary of Amerin is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has all corporate powers and all governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted, except for those licenses, authorizations,
permits, consents and approvals the absence of which would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
Amerin. Each Subsidiary of Amerin is duly qualified, or otherwise authorized, to
transact business as a corporation and is in good standing in each jurisdiction
where such qualification is necessary, except for those jurisdictions where
failure to be so qualified would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Amerin. Section
3.07(a) of the Amerin Schedule of Exceptions sets forth a complete and correct
list of all Amerin's Subsidiaries. Neither Amerin nor any of its Subsidiaries
holds any interest in a partnership or joint venture of any kind.
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(b) All of the outstanding capital stock of, or other voting securities or
ownership interests in, each Subsidiary of Amerin is owned by Amerin, directly
or indirectly, free and clear of any Lien and free of any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other voting securities or ownership
interests), other than any restrictions imposed under the Securities Act. Except
as set forth in this Section, there are no outstanding (i shares of capital
stock or other voting securities or ownership interests in any of Amerin's
Subsidiaries, (ii) securities of Amerin or any of its Subsidiaries convertible
into or exchangeable for shares of capital stock or other voting securities or
ownership interests in any of Amerin's Subsidiaries or (iii options or other
rights to acquire from Amerin or any of its Subsidiaries, or other obligations
of Amerin or any of its Subsidiaries to issue, any capital stock or other voting
securities or ownership interests in, or any securities convertible into or
exchangeable for any capital stock or other voting securities or ownership
interests in, any of Amerin's Subsidiaries. There are no outstanding obligations
of Amerin or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any of the securities referred to in clauses (i), (ii) or (iii) above.
SECTION 3.08. Licenses and Permits; Policies; Regulatory Matters. (a
Amerin and its Subsidiaries hold all material consents, licenses, franchises,
permits, waivers, approvals or other similar authorizations (the "PERMITS")
necessary for the ownership and conduct of the respective businesses of Amerin
and its Subsidiaries, in the manner now conducted, in each of the jurisdictions
in which Amerin and its Subsidiaries conduct or operate their respective
businesses, and such Permits are in full force and effect in all material
respects. No material violations exist in respect of any Permit of Amerin and
its Subsidiaries, and no proceeding or investigation is pending, or to the
Knowledge of Amerin threatened, that would be reasonably likely to result in the
suspension, revocation, limitation or restriction of any Permit and, to the
Knowledge of Amerin, there is no reasonable basis for the assertion of any such
material violation or the institution of any such proceeding.
(b) All insurance policies issued by any Subsidiary of Amerin as now in
force are, to the extent required under applicable law, in a form acceptable to
applicable regulatory authorities, or have been filed with and not objected to
by such authorities within the period provided for such objection.
(c) Amerin and each Subsidiary of Amerin has filed all material reports,
statements, documents, registrations, filings or submissions required to be
filed by Amerin or any Subsidiary of Amerin, respectively, with any applicable
federal, state or local regulatory authorities, including but not limited to
state insurance regulatory authorities. All such material reports, statements,
documents, registrations, filings and submissions complied in all material
respects with
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applicable law in effect when filed and no material deficiencies have been
asserted by any such regulatory authority with respect to such reports,
statements, documents, registrations, filings or submissions that have not been
satisfied. All premium rates, rating plans and policy forms established or used
by Amerin or any Subsidiary of Amerin that are required to be filed with or
approved by insurance regulatory authorities have been so filed or approved, the
premiums charged conform in all material respects to the premiums so filed or
approved and comply in all material respects with the insurance laws applicable
thereto, except where the failure to make such filing or obtain such approval
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Amerin.
(d) None of the information to be supplied by Amerin for inclusion in the
approvals and filings under the insurance laws of the jurisdictions set forth in
Section 3.03 of the Amerin Schedule of Exceptions will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading.
SECTION 3.09. SEC Filings. (a Amerin has delivered to CMAC (i) its annual
report on Form 10-K for its fiscal year ended December 31, 1997 (the "AMERIN
10-K"), (ii) its quarterly reports on Form 10-Q for its fiscal quarters ended
after December 31, 1997, (iii) its proxy or information statements relating to
meetings of, or actions taken without a meeting by, the stockholders of Amerin
held since December 31, 1997 and (iv) all of its other reports, statements,
schedules, prospectuses and registration statements filed with the Securities
and Exchange Commission (the "SEC") since December 31, 1997 (the documents
referred to in this Section 3.09(a) being referred to collectively as the
"AMERIN SEC FILINGS"). Amerin's quarterly report on Form 10-Q for its fiscal
quarter ended September 30, 1998 is referred to herein as the "AMERIN 10-Q".
(b) As of its filing date, each Amerin SEC Filing complied as to form in
all material respects with the applicable requirements of the Securities Act and
the Exchange Act.
(c) As of its filing date, each Amerin SEC Filing filed pursuant to the
Exchange Act did not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
(d) Each such registration statement, if any, as amended or supplemented,
if applicable, filed pursuant to the Securities Act did not, as of the date such
statement or amendment became effective, 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.
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SECTION 3.10. Financial Statements. (a) The audited consolidated financial
statements and unaudited consolidated interim financial statements of Amerin
included in the Amerin SEC Filings fairly present, in conformity with GAAP
applied on a consistent basis (except as may be indicated in the notes thereto),
the consolidated financial position of Amerin and its Subsidiaries as of the
dates thereof and their consolidated results of operations and cash flows for
the periods then ended (subject to normal year-end adjustments in the case of
any unaudited consolidated interim financial statements). For purposes of this
Agreement, "AMERIN BALANCE SHEET" means the audited consolidated balance sheet
of Amerin as of December 31, 1997 set forth in the Amerin 10-K and "AMERIN
BALANCE SHEET DATE" means December 31, 1997. For purposes of this Agreement, the
"AMERIN UNAUDITED SEPTEMBER BALANCE SHEET" means the unaudited consolidated
balance sheet of Amerin and its Subsidiaries as of September 30, 1998.
(b) The audited balance sheets of Amerin's Subsidiaries as of December 31,
1997, and the related statements of operations and statements of cash flows for
the year then ended, and their respective annual statements for the fiscal year
ended December 31, 1997 (the "AMERIN ANNUAL STATEMENTS") filed with the
insurance regulatory authorities in their respective jurisdictions of domicile
(collectively, the "REGULATORS"), copies of which have been delivered to CMAC,
fairly present in all material respects their respective statutory financial
conditions as of such date and the results of their respective operations and
cash flows for the year then ended in conformity with SAP. The other information
contained in the Amerin Annual Statements fairly presents in all material
respects the information required to be contained therein in conformity with
SAP. The balance sheets of Amerin and its Subsidiaries in respect of any period
ending after December 31, 1997, and the related statements of operations and
statements of cash flows, which have been filed with Regulators, copies of which
have been delivered to CMAC, fairly present in all material respects their
respective statutory financial conditions as of such date and the results of
their respective operations and cash flows for the period then ended in
conformity with SAP consistently applied.
SECTION 3.11. Registration Statement; Joint Proxy Statement. None of the
information to be supplied by Amerin for inclusion or incorporation by reference
in the joint proxy statement relating to the meetings of Amerin's shareholders
and CMAC's shareholders to be held in connection with the Merger (together with
any amendments thereof or supplements thereto, the "JOINT PROXY STATEMENT") and
in the registration statement on Form S-4 to be filed by CMAC with the SEC with
respect to the CMAC Stock to be issued to Amerin's shareholders in connection
with the Merger (together with any amendments thereto, the "REGISTRATION
STATEMENT") in which the Joint Proxy Statement shall be included as a prospectus
will (i) in the case of the Joint Proxy Statement, at the
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time of the mailing thereof, at the time of the Amerin Stockholder Meeting, 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 in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading or (ii) in the case of the Registration Statement, at
the time it becomes effective, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading. The Joint Proxy Statement
and the Registration Statement will comply (with respect to information relating
to Amerin) as to form in all material respects with the applicable provisions of
the Securities Act and the Exchange Act. Notwithstanding the foregoing, Amerin
makes no representation or warranty with respect to any information supplied by
CMAC which is contained in the Registration Statement or the Joint Proxy
Statement.
SECTION 3.12. Absence of Certain Changes or Events. Since December 31,
1997, Amerin and its Subsidiaries have conducted their businesses only in the
ordinary course and in a manner consistent with past practice and, since such
date, there has not been (a) any event, occurrence, development or state of
circumstances or facts which would, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on Amerin (other than an event,
occurrence, development or state of circumstances or facts related to (i) the
United States economy or securities markets in general, (ii) this Agreement or
the transactions contemplated hereby or the announcement thereof or (iii) the
mortgage insurance industry in general), (b) any event that could reasonably be
expected to prevent or materially delay the performance of this Agreement by
Amerin, or (c) any action taken by Amerin or any of its Subsidiaries that, if
taken during the period from the date of this Agreement through the Effective
Time, would constitute a breach of Section 5.01.
SECTION 3.13. Material Liabilities; Investments. (a) There are no
liabilities of Amerin or any Subsidiary of Amerin of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
and there is no existing condition, situation or set of circumstances which
could reasonably be expected to result in such a liability, other than:
(i) liabilities provided for in the Amerin Balance Sheet;
(ii) liabilities incurred since the Amerin Balance Sheet Date in the
ordinary course of business, which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
Amerin; and
(iii) liabilities or obligations under this Agreement.
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(b) Section 3.13(b) of the Amerin Schedule of Exceptions describes in
reasonable detail all of Amerin's Investment Assets as of September 30, 1998.
"INVESTMENT ASSETS" means, with respect to any person, any investment
assets (whether or not required by GAAP or SAP to be reflected on a balance
sheet) beneficially owned (within the meaning of Rule 13d-3 under the Exchange
Act) by such person or any Subsidiary of such person, including but not limited
to bonds, notes, debentures, mortgage loans, collateral loans and all other
instruments of indebtedness, stocks, partnership or joint venture interests and
all other equity interests, certificates issued by or interests in trusts,
derivatives and all other assets acquired for investment purposes.
SECTION 3.14. Compliance with Laws and Court Orders. Amerin and each of
its Subsidiaries is and has been in compliance with, and to the Knowledge of
Amerin, is not under investigation with respect to and has not been threatened
to be charged with or given notice of any violation of, any applicable law,
rule, regulation, judgment, injunction, order or decree, except for such matters
as would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Amerin.
SECTION 3.15. Material Contracts. (a) Neither Amerin nor any of its
Subsidiaries is a party to or bound by:
(i) any agreement any of the benefits or costs of which will be
increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement;
(ii) any insurance related agreement with outside parties (other
than any such agreement that is cancelable within 60 days without the
payment of any penalty and other than insurance policies or other similar
agreements issued by any Subsidiary of Amerin in the ordinary course of
its business as to which Amerin has provided the principal forms to CMAC),
including, but not limited to, those relating to borrower counseling and
contract underwriting;
(iii) any agreement which is a "material contract" (as such term is
defined in Item 601(b)(10) of Regulation S-K under the Securities Act and
the Exchange Act) that has not been filed or incorporated by reference in
the Amerin SEC Filings;
(iv) any agreement which would prohibit or materially delay the
consummation of the Merger or any of the transactions contemplated by this
Agreement;
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(v) any agreement relating to indebtedness for borrowed money or any
guarantee or similar agreement relating thereto, other than any such
agreement with, or relating to, an aggregate outstanding principal amount
or guaranteed obligation not exceeding $1,000,000;
(vi) any material license, franchise or similar agreement necessary
for the operation of the business of Amerin and its Subsidiaries, taken as
a whole;
(vii) any material agency, dealer, sales representative, marketing
or other similar agreement, other than any agency agreement on the
relevant Subsidiaries' standard independent agency form;
(viii) any agreement that restricts or prohibits Amerin or any
Subsidiary or Affiliate of Amerin from competing with any person in any
line of business or from competing in, engaging in or entering into any
line of business in any area and which would so restrict or prohibit
Amerin or any Subsidiary or Affiliate of Amerin after the Effective Time;
(ix) any reinsurance agreement (in each case applicable to insurance
in force);
(x) any agreement containing "change in control" or similar
provisions relating to a change in control of Amerin or any of its
Subsidiaries;
(xi) any "stop loss" agreement, other than those entered into in the
ordinary course of business consistent with past practice;
(xii) any agreement (other than insurance policies or other similar
agreements issued by any Subsidiary of Amerin in the ordinary course of
its business) pursuant to which Amerin or any Subsidiary of Amerin is
obligated to indemnify any other person;
(xiii) any agreement (other than any option agreement) with any
Affiliate of Amerin or any director, officer or employee of Amerin or any
of its Subsidiaries or Affiliates;
(xiv) any other material agreement; or
(xv) any guaranty of any of the foregoing.
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For the purposes of this Section 3.15(a), "agreement" means any agreement,
contract, arrangement, commitment or understanding (whether written or oral).
(b) Amerin has heretofore furnished or made available to CMAC complete and
correct copies (or, if oral, accurate written summaries) of the items listed in
Section 3.15 of the Amerin Schedule of Exceptions, each as amended or modified
to the date hereof, including any waivers with respect thereto (the "AMERIN
SIGNIFICANT AGREEMENTS"). Except as specifically disclosed therein: (i) each of
the Amerin Significant Agreements is valid and binding on Amerin or of its
Subsidiaries as applicable, and in full force and effect; (ii) Amerin and each
of its Subsidiaries, as applicable, have in all material respects performed all
material obligations required to be performed by them to date under each Amerin
Significant Agreement; (iii) neither Amerin nor any of its Subsidiaries knows
of, or has received notice of, any violation or default (or any condition which
with the passage of time or the giving of notice would cause such a violation of
or a default) by any party under any Amerin Significant Agreement, except as, in
the case of clauses (ii) and (iii), such matters as would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
Amerin. Set forth on Section 3.15 of the Amerin Schedule of Exceptions is a
description of any material changes as of the date hereof to the amount and
terms of the indebtedness of Amerin and its Subsidiaries from that described in
the notes to the Amerin 10-K.
SECTION 3.16. Non-Claims Litigation. Except for any action, suit,
investigation or proceeding that involves a claim under any insurance,
reinsurance or indemnity policy, fidelity bond, surety bond or similar contract
or undertaking issued or entered into by Amerin or any Subsidiary of Amerin,
there is no action, suit, investigation or proceeding pending against, or to the
Knowledge of Amerin threatened against or affecting, Amerin or any Subsidiary of
Amerin or any of their respective properties before any court, arbitrator, or
any Governmental Entity which is reasonably likely to result in actual damages
individually in excess of $500,000 or actual damages in the aggregate in excess
of $1,000,000. There is no action, suit, investigation or proceeding pending
against, or to the Knowledge of Amerin threatened against or affecting, Amerin
or any Subsidiary of Amerin or any of their respective properties before any
court, arbitrator, or any Governmental Entity which would reasonably be expected
to prevent, enjoin, alter or materially delay the transactions contemplated
hereby. Neither Amerin nor any Subsidiary of Amerin nor any of their respective
properties is subject to any material order or judgment which would prevent or
delay the consummation of the transactions contemplated hereby.
SECTION 3.17. Reserves; Reinsurance. (a) Each reserve and other liability
amount in respect of the insurance business, including without limitation
reserve
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and other liability amounts in respect of insurance policies, established or
reflected in the Amerin Annual Statements was reviewed and certified by an
independent actuary in accordance with applicable state insurance laws and
regulations. Each reserve and other liability amount in respect of the insurance
business, including without limitation reserve and other liability amounts in
respect of insurance policies, established or reflected in the Amerin Unaudited
September Balance Sheet was reviewed by an independent actuary to the extent
required by applicable state insurance laws and regulations. Each reserve and
other liability amount established or reflected in the Amerin Annual Statements
or the Amerin Unaudited September Balance Sheet was in conformity with SAP and
in compliance with the requirements of the insurance laws, rules and regulations
of the respective jurisdictions of domicile of each Subsidiary of Amerin as of
the date thereof. Each Subsidiary of Amerin owns assets that qualify as admitted
assets under the insurance laws, rules and regulations of the respective
jurisdictions of domicile of such Subsidiary in an amount equal to the sum of
all such reserves and liability amounts and its minimum statutory capital and
surplus as required by the insurance laws, rules and regulations of the
respective jurisdictions of domicile of such Subsidiary. The reserves set forth
in the Amerin Annual Statements for the years indicated for payment of all
insurance policy benefits, losses, claims and expenses were considered adequate
as of the date of such statements by management of Amerin to cover the total
amount of all reasonably anticipated liabilities of Amerin and its Subsidiaries.
(b) Section 3.17(b) of the Amerin Schedule of Exceptions lists, to the
extent not otherwise set forth in Section 3.15 of the Amerin Schedule of
Exceptions, all ceded reinsurance agreements in force as of the date hereof to
which any Subsidiary of Amerin is a party and under which there is liability by
either party to the agreement (collectively, the "AMERIN EXISTING REINSURANCE
AGREEMENTS"). Section 3.17(b) of the Amerin Schedule of Exceptions also lists
any reinsurance agreement pursuant to which Amerin or any of its Subsidiaries
has assumed any insurance obligations. Neither Amerin nor any of its
Subsidiaries has any reason to believe that any amount recoverable by any of the
Subsidiaries of Amerin pursuant to any Amerin Existing Reinsurance Agreement is
not fully collectible in due course and, to the Knowledge of Amerin, there is no
reason to believe that the financial condition of any such other party is
impaired to the extent that a default thereunder may reasonably be anticipated.
Each of the Subsidiaries of Amerin is entitled to take full credit in its
statutory financial statements pursuant to applicable insurance laws for ceded
reinsurance under the Amerin Existing Reinsurance Agreements to which it is a
party, and there is no claim under any Amerin Existing Reinsurance Agreement
that is disputed by any other party to such agreement.
SECTION 3.18. Loans and Advances. Other than in the ordinary course of its
portfolio investment activities or loss mitigation activities, neither Amerin
nor
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any of its Subsidiaries has any contractual commitment to make any loan, advance
or capital contribution to, or investment in, any other person in excess of
$500,000.
SECTION 3.19. Finders' Fees. Except for Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") and Morgan Stanley, there is no investment
banker, broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of Amerin or any of its Subsidiaries who might be
entitled to any fee or commission in connection with the transactions
contemplated by this Agreement.
SECTION 3.20. Opinion of Financial Advisor. The Amerin Board has received
the opinion of DLJ, financial advisor to Amerin, to the effect that, as of the
date of this Agreement, the Exchange Ratio is fair from a financial point of
view to Amerin's stockholders.
SECTION 3.21. Taxes. Except as set forth in the Amerin Balance Sheet
(including the notes thereto) and except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on Amerin,
(i) all Tax returns, statements, reports, forms, and similar filings
(collectively, the "AMERIN RETURNS") required to be filed with any taxing
authority by, or with respect to, Amerin and its Subsidiaries with respect to
Taxes have been filed in accordance with all applicable laws, (ii) Amerin and
its Subsidiaries have timely paid all Taxes shown as due and payable on the
Amerin Returns that have been so filed, and, as of the time of filing, the
Amerin Returns correctly reflected the facts regarding the income, business,
assets, operations, activities and the status of Amerin and its Subsidiaries
(other than Taxes which are being contested in good faith and for which adequate
reserves are reflected on the Amerin Balance Sheet), (iii) Amerin and its
Subsidiaries have made provision for all Taxes payable by Amerin and its
Subsidiaries for which no Amerin Return has yet been filed, (iv) the charges,
accruals and reserves for Taxes with respect to Amerin and its Subsidiaries
reflected on each of the Amerin Balance Sheet and the Amerin Unaudited September
Balance Sheet are adequate under GAAP to cover the Tax liabilities accruing
through the date thereof, (v) there is no action, suit, proceeding, audit or
claim now proposed or pending against or with respect to Amerin or any of its
Subsidiaries in respect of any Tax, (vi) no Amerin Returns have been examined by
the Internal Revenue Service ("IRS"), and the IRS has not made assessments with
respect to such returns, and (vii) there is in effect no extension or waiver of
the applicable statute of limitations of any jurisdiction regarding the
assessment or collection of any Tax.
For purposes of this Agreement, "TAXES" or "TAX" means any taxes, duties,
assessments, fees, levies, or similar governmental charges, together with any
interest, penalties, and additions to tax, imposed by any taxing authority,
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wherever located (i.e., whether federal, state, local, municipal, or foreign),
including, without limitation, all net income, gross income, gross receipts, net
receipts, sales, use, transfer, franchise, privilege, profits, social security,
disability, withholding, payroll, unemployment, employment, excise, severance,
property, windfall profits, value added, ad valorem, occupation, or any other
similar governmental charge or imposition.
SECTION 3.22. Employee Benefit Plans. (a) Section 3.22 of the Amerin
Schedule of Exceptions identifies each "employee benefit plan", as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"),
each employment, severance or similar contract, plan, arrangement or policy
applicable to any director or officer of Amerin and each plan, fund, program,
policy, contract, commitment or arrangement providing for compensation, bonuses,
profit-sharing, stock option or other stock related rights or other forms of
incentive or deferred compensation, vacation benefits, insurance coverage
(including any self-insured arrangements), health or medical benefits,
disability benefits, workers' compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance benefits), whether
formal or informal, written or oral, which (i) is sponsored, maintained,
administered or contributed to by Amerin or any of its ERISA Affiliates (as
defined below) or under which Amerin or any of its ERISA Affiliates has any
obligation to contribute to, or any liability and (ii) covers any employee or
former employee, director or former director, consultant or former consultant,
independent contractor or former independent contractor, or present or former
beneficiary, dependent or assignee of any such employee, former employee,
director, former director, independent contractor, former independent
contractor, consultant or former consultant of Amerin or any of its
Subsidiaries. Such plans are referred to collectively herein as the "AMERIN
EMPLOYEE PLANS." Amerin has delivered or made available to CMAC, with respect to
all Amerin Employee Plans, true, complete and correct copies of the following
(including all amendments thereto): all plan documents, handbooks, manuals,
material employee communications and similar documents governing employment
policies, practices and procedures; all of the most recent summary plan
descriptions and any subsequent summaries of material modifications; Forms
series 5500 as filed with the IRS (including all required reports and supporting
schedules) for the most recent plan year; all trust agreements with respect to
the Amerin Employee Plans; copies of any contracts with service providers and
insurers providing benefits for participants or liability insurance or bonding
for the sponsors, administrators or trustees of any Amerin Employee Plan; most
recent annual audit and accounting of plan assets for all funded plans; and, as
applicable, the most recent IRS determination letters and IRS opinion letters
for all plans qualified under Section 401(a) of the Code. An "ERISA AFFILIATE"
of an entity is any enterprise which, with such entity, forms or formed at any
time since September 2, 1994, a controlled group of corporations
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within the meaning of Section 414(b) of the Code, a group of trades or
businesses under common control within the meaning of Section 414(c) of the
Code, or any affiliated service group within the meaning of Section 414(m) of
the Code.
(b) Each Amerin Employee Plan has been maintained in compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations (including but not limited to ERISA and the Code) which
are applicable to such Plan, including without limitation requirements as to
contributions, insurance premiums, fiduciary administration, plan operations,
employee classification and plan design, except where failure(s) to so comply
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Amerin.
(c) No Amerin Employee Plan constitutes a "multiemployer plan", as defined
in Section 3(37) of ERISA (a "MULTIEMPLOYER PLAN"), and no Amerin Employee Plan
is maintained in connection with any trust described in Section 501(c)(9) of the
Code. No Amerin Employee Plans are subject to Title IV of ERISA, Section 302 of
ERISA or Section 412 of the Code. Neither Amerin nor any of its Subsidiaries has
ever sponsored, maintained or contributed to, or incurred any liability with
respect to, any employee benefit plan subject to Title IV of ERISA (including
any Multiemployer Plan). Neither CMAC nor any of its ERISA Affiliates has
incurred any material liability under Title IV of ERISA arising in connection
with the termination of, or complete or partial withdrawal from, any plan
covered or previously covered by Title IV of ERISA. Nothing done or omitted to
be done and no transaction or holding of any asset under or in connection with
any Amerin Employee Plan has or will make Amerin or any Subsidiary, any officer
or director of Amerin or any Subsidiary subject to any liability under Title I
of ERISA or liable for any tax or penalty pursuant to Section 4975 of the Code
or Part 4 of Subtitle I of ERISA that, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on Amerin.
(d) Each Amerin Employee Plan which is intended to be qualified under
Section 401(a) of the Code has been determined by the IRS to be so qualified and
has been so qualified during the period from its adoption to date, and each
trust forming a part thereof has been determined by the IRS to be exempt from
tax pursuant to Section 501(a) of the Code and, to the Knowledge of Amerin,
nothing has occurred and no facts have arisen since such IRS determination that
would jeopardize the tax qualified status of any such Amerin Employee Plan or
the tax-exempt status of any related trust.
(e) There has been no amendment to, written interpretation or announcement
(whether or not written) by Amerin or any of its ERISA Affiliates relating to,
or change in employee participation or coverage under, any Amerin
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Employee Plan which would increase materially the expense of maintaining such
Amerin Employee Plan above the level of the expense incurred in respect thereof
for the fiscal year ended on the Amerin Balance Sheet Date.
(f) Neither Amerin nor any Subsidiary is a party to or subject to any
union contract or any employment contract or arrangement providing for annual
future compensation of $500,000 or more with any officer, consultant, director
or employee.
SECTION 3.23. Environmental Matters. (a) Except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Amerin,
(i) no notice, notification, demand, request for information,
citation, summons or order has been received by, no complaint has been
filed against, no penalty has been assessed against, and no investigation,
action, claim, suit, proceeding or review is pending or, to the Knowledge
of Amerin, is threatened by any Governmental Entity or other person
against, Amerin or any of its Subsidiaries, in each case relating to or
arising out of any Environmental Law;
(ii) Amerin and each of its Subsidiaries are and have been in
compliance with all Environmental Laws and all Environmental Permits; and
(iii) there are no liabilities of or relating to Amerin or any of
its Subsidiaries of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, arising under or relating
to any Environmental Law and there are no facts, conditions, situations or
set of circumstances which could reasonably be expected to result in or be
the basis for any such liability.
(b) The following terms shall have the meaning set forth below:
"ENVIRONMENTAL LAWS" means any federal, state, local or foreign law
(including, without limitation, common law), treaty, judicial decision,
regulation, rule, judgment, order, decree, injunction, permit or governmental
restriction or requirement or any agreement with any Governmental Entity,
relating to human health and safety, the environment or to pollutants,
contaminants, wastes or chemicals or any toxic, radioactive, ignitable,
corrosive, reactive or otherwise hazardous substances, wastes or materials.
"ENVIRONMENTAL PERMITS" means, with respect to any person, all permits,
licenses, franchises, certificates, approvals and other similar authorizations
of
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Governmental Entities required by Environmental Laws and necessary to the
business of such person as currently conducted.
"AMERIN" and "ITS SUBSIDIARIES" shall, for purposes of this Section,
include any entity which is, in whole or in part, a corporate predecessor of
Amerin or any of its Subsidiaries.
SECTION 3.24. Intellectual Property; Software. (a) Amerin and its
Subsidiaries own or otherwise have rights to use and, as of and from the
Effective Time, will own or otherwise have rights to use (in each case, free and
clear of any material Liens or other material limitations or restrictions) all
Intellectual Property used in their respective businesses as currently conducted
and as contemplated to be conducted; the use of any Intellectual Property by
Amerin and its Subsidiaries does not infringe on or otherwise violate the rights
of any person; and, to the Knowledge of Amerin, no person is challenging,
infringing on or otherwise violating any right of Amerin or any Subsidiary of
Amerin with respect to any Intellectual Property owned by and/or licensed to
Amerin and its Subsidiaries.
(b) Amerin and its Subsidiaries own or have valid and enforceable licenses
or other rights to use (in each case, free and clear of any material Liens or
other material limitations or restrictions) all Software used in the conduct of
their respective businesses and operations as currently conducted; the use of
the Software by Amerin and its Subsidiaries does not infringe on or otherwise
violate the rights of any person; and, to the Knowledge of Amerin, no person is
challenging, infringing on or otherwise violating any right of Amerin or any
Subsidiary of Amerin with respect to any Software used by Amerin and its
Subsidiaries. Except as set forth in Section 3.24(b) of the Amerin Schedule of
Exceptions, from and after the Effective Time, Amerin and its Subsidiaries will
own or have valid and enforceable licenses or other rights to use (in each case,
free and clear of any material Liens or other material limitations or
restrictions) all Software used in the conduct of their respective businesses
and operations as currently conducted in the same manner as such Software has
been used to conduct such businesses and operations prior to the date hereof.
"INTELLECTUAL PROPERTY" shall mean: trademarks, service marks, brand
names, certification marks, trade dress, assumed names, trade names and other
indications of origin, the goodwill associated with the foregoing and
registrations in any jurisdiction of, and applications in any jurisdiction to
register, the foregoing, including any extension, modification or renewal of any
such registration or application; inventions, discoveries and ideas, whether
patentable or not in any jurisdiction; patents, applications for patents
(including but not limited to divisions, continuations, continuations in part
and renewal applications), and any renewals, extensions or reissues thereof, in
any jurisdiction; nonpublic information, trade secrets and confidential
information and rights in
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any jurisdiction to limit the use or disclosure thereof by any person; writings
and other works, whether copyrightable or not in any jurisdiction; registrations
or applications for registration of copyrights in any jurisdiction, and any
renewals or extensions thereof; and any similar intellectual property or
proprietary rights; provided that "Intellectual Property" shall not include
Software.
"SOFTWARE" shall mean all computer and telecommunication software
including source and object code and documentation and any other media
(including but not limited to manuals, journals and reference books).
SECTION 3.25. Properties. Amerin and its Subsidiaries have good title to,
or in the case of leased property have valid leasehold interests in, all of
their respective properties and assets (whether real or personal, tangible or
intangible) except for imperfections in title or invalidities in leasehold
interests that do not, individually or in the aggregate, materially detract from
the value reflected on the Amerin Balance Sheet. None of such properties or
assets is subject to any Liens, except:
(i) Liens reflected on the Amerin Balance Sheet;
(ii) Liens for Taxes not yet due or being contested in good faith
(and for which adequate accruals or reserves have been established on the
Amerin Balance Sheet); and
(iii) Liens which do not, individually or in the aggregate,
materially detract from the value reflected on the Amerin Balance Sheet or
materially interfere with any present or intended use of any material
properties or assets.
SECTION 3.26. Pooling; Tax Treatment. (a) Amerin intends that the Merger
be accounted for under the "pooling of interests" method under the requirements
of Opinion No. 16 (Business Combinations) of the Accounting Principles Board of
the American Institute of Certified Public Accountants (APB No. 16), as amended
by Statements of the Financial Accounting Standards Board, and the related
interpretations of the American Institute of Certified Public Accountants, the
Financial Accounting Standards Board, and the rules and regulations of the SEC.
(b) To the best of Amerin's Knowledge, neither Amerin nor any of its
Affiliates has taken or agreed to take any action that would prevent the Merger
from qualifying (i) for "pooling of interests" accounting treatment as described
in (a) above or (ii) as a reorganization within the meaning of Section 368(a) of
the Code.
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SECTION 3.27. Takeover Statutes. The Amerin Board has approved the Merger
and this Agreement, and such approval is sufficient to render inapplicable to
the Merger, this Agreement and the transactions contemplated by this Agreement
the restrictions on "business combinations" set forth in Section 203 of the
Delaware Law. To the best of Amerin's Knowledge, no other "fair price",
"moratorium", "control share acquisition" or other similar antitakeover statute
or regulation enacted under state or federal laws in the United States
applicable to Amerin or any of its Subsidiaries is applicable to the Merger or
the other transactions contemplated hereby.
SECTION 3.28. Transactions with Affiliates. Since December 31, 1997, there
have been no transactions, agreements, arrangements or understandings between
Amerin or its Subsidiaries, on the one hand, and Amerin's Affiliates (other than
wholly-owned Subsidiaries of Amerin) or other persons, on the other hand, that
would be required to be disclosed under Item 404 of Regulation S-K under the
Securities Act and the Exchange Act.
SECTION 3.29. Business Information. The information Amerin has heretofore
provided to CMAC regarding the composition and performance of Amerin's
portfolios of primary and pool insurance and reinsurance is accurate and
includes all material information concerning such portfolios. Amerin has
provided CMAC with complete copies of all contracts and other business
arrangements with respect to the provision of insurance and any related services
(including without limitation primary insurance plans, pool insurance
commitments, reinsurance agreements, and contract underwriting arrangements).
Prior to the date of this Agreement, Amerin has disclosed to CMAC the terms and
provisions of any insurance or ancillary product, plan or service that are not
fully set forth in formal business agreements.
SECTION 3.30. Year 2000. Amerin has undertaken a concerted effort to
ensure that all of the Software, databases, computer firmware, computer hardware
(where general or special purpose), and other similar or related items of
automated, computerized, and/or software system(s) that are used or relied on by
Amerin or by any of its Subsidiaries in the conduct of their respective
businesses will not malfunction, will not cease to function, will not generate
incorrect data, and will not provide incorrect results when processing,
providing and/or receiving date-related data with respect to any dates after
December 31, 1999. Amerin reasonably believes that such effort will be
successful.
SECTION 3.31. Rights Agreement. Amerin has taken all necessary action with
respect to all of the outstanding Amerin Stockholder Rights so that, as of
immediately prior to the Effective Time, as a result of entering into this
Agreement or consummating the Merger and the other transactions contemplated by
this Agreement, (i) neither Amerin nor CMAC will have any obligations under
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the Amerin Stockholder Rights or the Amerin Rights Agreement and (ii) the
holders of the Amerin Stockholder Rights will have no rights under the Amerin
Stockholder Rights or the Amerin Rights Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF CMAC
CMAC represents and warrants to Amerin that, except as disclosed in the
CMAC Schedule of Exceptions (which will identify exceptions by specific Section
references) or as otherwise expressly contemplated by this Agreement:
SECTION 4.01. Corporate Existence and Power. CMAC is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all corporate powers and all governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted, except for those licenses, authorizations, permits,
consents and approvals the absence of which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on CMAC.
CMAC is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where such qualification is necessary, except for
those jurisdictions where failure to be so qualified would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
CMAC. CMAC has heretofore delivered to Amerin true and complete copies of the
certificate of incorporation and bylaws of CMAC as currently in effect.
SECTION 4.02. Corporate Authorization. (a) The execution, delivery and
performance by CMAC of this Agreement and the consummation of the transactions
contemplated hereby are within the corporate powers of CMAC and, except for the
required approval of CMAC's stockholders in connection with the consummation of
the Merger, have been duly authorized by all necessary corporate action. The
affirmative vote of the holders of not less than a majority of the outstanding
shares of CMAC Stock is the only vote of the CMAC stockholders necessary in
connection with the consummation of the Merger. No other vote of the CMAC
stockholders is necessary in connection with this Agreement or the consummation
of the transactions contemplated hereby. This Agreement constitutes a valid and
binding agreement of CMAC.
(b) The CMAC Board, at a meeting duly called and held, has (i) determined
that this Agreement and the transactions contemplated hereby (including the
Merger) are fair to and in the best interests of CMAC's stockholders, (ii)
declared advisable and approved and adopted this Agreement and the transactions
contemplated hereby (including the Merger and the issuance
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of CMAC Stock pursuant to this Agreement), and (iii) resolved to recommend
approval and adoption of this Agreement by its stockholders.
SECTION 4.03. Governmental Authorization. The execution, delivery and
performance by CMAC of this Agreement and the consummation by CMAC of the
transactions contemplated hereby require no action by or in respect of, or
filing with, any Governmental Entity other than (i) the filing of a certificate
of merger in accordance with Delaware Law, (ii) compliance with any applicable
requirements of the HSR Act, the Securities Act, the Exchange Act or any other
applicable securities laws, (iii) approvals and filings under the insurance laws
of the jurisdictions set forth in Section 4.03 of the CMAC Schedule of
Exceptions and (iv) any other filings, approvals or authorizations which, if not
obtained or made, would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on CMAC.
SECTION 4.04. Non-Contravention. The execution, delivery and performance
by CMAC of this Agreement and the consummation by CMAC of the transactions
contemplated hereby do not and will not (i) contravene or violate the
certificate of incorporation or bylaws of CMAC or the equivalent documents of
any of its Subsidiaries, (ii) assuming compliance with the matters referred to
in Section 4.03, contravene or violate any applicable law, rule, regulation,
judgment, injunction, order or decree binding upon or applicable to CMAC or any
of its Subsidiaries, (iii) require any consent or other action by any person
under, constitute a default under, or give rise to any right of termination,
cancellation or acceleration of any right or obligation of CMAC or any of its
Subsidiaries or to a loss of any benefit to which CMAC or any of its
Subsidiaries is entitled under any provision of any agreement or other
instrument binding upon CMAC or any of its Subsidiaries or any license,
franchise, permit, certificate, approval or other similar authorization
affecting, or relating in any way to, the assets or business of CMAC or any of
its Subsidiaries or (iv) result in the creation or imposition of any Lien on any
asset of CMAC or any of its Subsidiaries except, in the case of clauses (ii),
(iii) and (iv), for such matters as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on CMAC.
SECTION 4.05. Capitalization. The authorized capital stock of CMAC
consists of 80,000,000 shares of CMAC Stock and 20,000,000 shares of Preferred
Stock, par value $.001 per share, of which 800,000 shares have been designated
$4.125 Preferred Stock ( the "$4.125 PREFERRED STOCK"). As of November 16, 1998,
there were outstanding 22,703,958 shares of CMAC Stock, and 800,000 shares of
Preferred Stock, all of which are shares of $4.125 Preferred Stock. As of
November 16, 1998, there were outstanding options to purchase an aggregate of
1,461,152 shares of CMAC Stock at an average exercise price of $21.33 per share
(of which options to purchase an aggregate of 736,577 shares of CMAC Stock were
exercisable). All outstanding shares of capital stock of CMAC have
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been duly authorized and validly issued and are fully paid and non-assessable.
Except for the CMAC Stockholder Rights, except as set forth in this Section,
except for changes since November 16, 1998 resulting from the exercise of
employee stock options outstanding on such date and except for the transactions
contemplated hereby, there are no outstanding (i) shares of capital stock or
voting securities of CMAC, (ii) securities of CMAC or any of its Subsidiaries
convertible into or exchangeable for shares of capital stock or voting
securities of CMAC or (iii) options or other rights to acquire from CMAC or any
of its Subsidiaries or other obligations of CMAC to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of CMAC. There are no outstanding obligations of CMAC
or any of its Subsidiaries to repurchase, redeem or otherwise acquire any
securities referred to in clauses (i), (ii) or (iii) above.
SECTION 4.06. Assets Necessary. CMAC and its Subsidiaries own, lease or
license all material property and assets (including without limitation
Intellectual Property and Software) necessary to carry on their businesses and
operations as presently conducted. All such material assets and properties
(other than as CMAC and Amerin may mutually agree) will be owned, leased or
licensed by CMAC and its Subsidiaries at the Effective Time and will as of the
Effective Time permit the Surviving Corporation and its Subsidiaries to conduct
such businesses and operations substantially in the same manner as such
businesses and operations have been conducted by CMAC prior to the Effective
Time.
SECTION 4.07. Subsidiaries. (a) Each Subsidiary of CMAC is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has all corporate powers and all governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted, except for those licenses, authorizations,
permits, consents and approvals the absence of which would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
CMAC. Each Subsidiary of CMAC is duly qualified, or otherwise authorized, to
transact business as a corporation and is in good standing in each jurisdiction
where such qualification is necessary, except for those jurisdictions where
failure to be so qualified would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on CMAC. Section
4.07(a) of the CMAC Schedule of Exceptions sets forth a complete and correct
list of all CMAC's Subsidiaries. Neither CMAC nor any of its Subsidiaries holds
any interest in a partnership or joint venture of any kind.
(b) All of the outstanding capital stock of, or other voting securities or
ownership interests in, each Subsidiary of CMAC is owned by CMAC, directly or
indirectly, free and clear of any Lien and free of any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such
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capital stock or other voting securities or ownership interests), other than any
restrictions imposed under the Securities Act. Except as set forth in this
Section, there are no outstanding (i) shares of capital stock or other voting
securities or ownership interests in any of CMAC's Subsidiaries, (ii) securities
of CMAC or any of its Subsidiaries convertible into or exchangeable for shares
of capital stock or other voting securities or ownership interests in any of
CMAC's Subsidiaries or (iii) options or other rights to acquire from CMAC or any
of its Subsidiaries, or other obligations of CMAC or any of its Subsidiaries to
issue, any capital stock or other voting securities or ownership interests in,
or any securities convertible into or exchangeable for any capital stock or
other voting securities or ownership interests in, any of CMAC's Subsidiaries.
There are no outstanding obligations of CMAC or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any of the securities referred to in
clauses (i), (ii) or (iii) above.
SECTION 4.08. Licenses and Permits; Policies; Regulatory Matters. (a) CMAC
and its Subsidiaries hold all Permits necessary for the ownership and conduct,
in the manner now conducted, of the respective businesses of CMAC and its
Subsidiaries in each of the jurisdictions in which CMAC and its Subsidiaries
conduct or operate their respective businesses, and such Permits are in full
force and effect in all material respects. No material violations exist in
respect of any Permit of CMAC and its Subsidiaries, and no proceeding or
investigation is pending, or to the Knowledge of CMAC threatened, that would be
reasonably likely to result in the suspension, revocation, limitation or
restriction of any Permit and, to the Knowledge of CMAC, there is no reasonable
basis for the assertion of any such material violation or the institution of any
such proceeding.
(b) All insurance policies issued by any Subsidiary of CMAC as now in
force are, to the extent required under applicable law, in a form acceptable to
applicable regulatory authorities, or have been filed with and not objected to
by such authorities within the period provided for such objection.
(c) CMAC and each Subsidiary of CMAC has filed all material reports,
statements, documents, registrations, filings or submissions required to be
filed by CMAC or any Subsidiary of CMAC, respectively, with any applicable
federal, state or local regulatory authorities, including but not limited to
state insurance regulatory authorities. All such material reports, statements,
documents, registrations, filings and submissions complied in all material
respects with applicable law in effect when filed and no material deficiencies
have been asserted by any such regulatory authority with respect to such
reports, statements, documents, registrations, filings or submissions that have
not been satisfied. All premium rates, rating plans and policy forms established
or used by CMAC or any Subsidiary of CMAC that are required to be filed with or
approved by insurance regulatory authorities have been so filed or approved, the
premiums charged conform in all material respects to the premiums so filed or
approved and
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comply in all material respects with the insurance laws applicable thereto,
except where the failure to make such filing or obtain such approval would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on CMAC. None of the information to be supplied by CMAC for
inclusion in the approvals and filings under the insurance laws of the
jurisdictions set forth in Section 4.03 of the CMAC Schedule of Exceptions will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading.
SECTION 4.09. SEC Filings. (a) CMAC has delivered to Amerin (i) its annual
report on Form 10-K for its fiscal year ended December 31, 1997 (the "CMAC
10-K"), (ii) its quarterly reports on Form 10-Q for its fiscal quarters ended
after December 31, 1997, (iii) its proxy or information statements relating to
meetings of, or actions taken without a meeting by, the stockholders of CMAC
held since December 31, 1997 and (iv) all of its other reports, statements,
prospectuses, schedules and registration statements filed with the SEC since
December 31, 1997 (the documents referred to in this Section 4.09(a) being
referred to collectively as the "CMAC SEC FILINGS"). CMAC's quarterly report on
Form 10-Q for its fiscal quarter ended September 30, 1998 is referred to herein
as the "CMAC 10-Q".
(b) As of its filing date, each CMAC SEC Filing complied as to form in all
material respects with the applicable requirements of the Securities Act and the
Exchange Act.
(c) As of its filing date, each CMAC SEC Filing filed pursuant to the
Exchange Act did not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
(d) Each such registration statement, if any, as amended or supplemented,
if applicable, filed pursuant to the Securities Act did not, as of the date such
statement or amendment became effective, 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.
SECTION 4.10. Financial Statements. (a) The audited consolidated financial
statements and unaudited consolidated interim financial statements of CMAC
included in the CMAC SEC Filings fairly present, in conformity with GAAP applied
on a consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of CMAC and its Subsidiaries as of the dates
thereof and their consolidated results of operations and cash flows for the
periods then ended (subject to normal year-end adjustments in the case of any
unaudited consolidated interim financial statements). For purposes of this
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Agreement, "CMAC BALANCE SHEET" means the audited consolidated balance sheet of
CMAC as of December 31, 1997 set forth in the CMAC 10-K and "CMAC BALANCE SHEET
DATE" means December 31, 1997. For the purposes of this Agreement, the "CMAC
UNAUDITED SEPTEMBER BALANCE SHEET" means the unaudited consolidated balance
sheet of CMAC and its Subsidiaries as of September 30, 1998.
(b) The audited balance sheets of CMAC's Subsidiaries as of December 31,
1997, and the related statements of operations and statements of cash flows for
the year then ended, and their respective annual statements for the fiscal year
ended December 31, 1997 (the "CMAC ANNUAL STATEMENTS") filed with the
Regulators, copies of which have been delivered to Amerin, fairly present in all
material respects their respective statutory financial conditions as of such
date and the results of their respective operations and cash flows for the year
then ended in conformity with SAP. The other information contained in the CMAC
Annual Statements fairly presents in all material respects the information
required to be contained therein in conformity with SAP. The balance sheets of
CMAC and its Subsidiaries in respect of any period ending after December 31,
1997, and the related statements of operations and statements of cash flows,
which have been filed with Regulators, copies of which have been delivered to
Amerin, fairly present in all material respects their respective statutory
financial conditions as of such date and the results of their respective
operations and cash flows for the period then ended in conformity with SAP
consistently applied.
SECTION 4.11. Registration Statement; Joint Proxy Statement. None of the
information to be supplied by CMAC for inclusion or incorporation by reference
in the Joint Proxy Statement and the Registration Statement and any amendments
thereto will (i) in the case of the Joint Proxy Statement, at the time of the
mailing thereof, at the time of the CMAC Stockholder Meeting, 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 in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading or (ii) in the case of the Registration Statement, at the time it
becomes effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. The Joint Proxy Statement and the
Registration Statement will comply (with respect to information relating to
CMAC) as to form in all material respects with the applicable provisions of the
Securities Act and the Exchange Act. Notwithstanding the foregoing, CMAC makes
no representation or warranty with respect to any information supplied by Amerin
which is contained in the Registration Statement or the Joint Proxy Statement.
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SECTION 4.12. Absence of Certain Changes or Events. Since December 31,
1997, CMAC and its Subsidiaries have conducted their businesses only in the
ordinary course and in a manner consistent with past practice and, since such
date, there has not been (a) any event, occurrence, development or state of
circumstances or facts which would, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on CMAC (other than an event,
occurrence, development or state of circumstances or facts related to (i) the
United States economy or securities markets in general, (ii) this Agreement or
the transactions contemplated hereby or the announcement thereof or (iii) the
mortgage insurance industry in general), (b) any event that could reasonably be
expected to prevent or materially delay the performance of this Agreement by
CMAC, or (c) any action taken by CMAC or any of its Subsidiaries that, if taken
during the period from the date of this Agreement through the Effective Time,
would constitute a breach of Section 5.02.
SECTION 4.13. Material Liabilities; Investments. (a) There are no
liabilities of CMAC or any Subsidiary of CMAC of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, and there
is no existing condition, situation or set of circumstances which could
reasonably be expected to result in such a liability, other than:
(i) liabilities provided for in the CMAC Balance Sheet;
(ii) liabilities incurred since the CMAC Balance Sheet Date in the
ordinary course of business, which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
CMAC; and
(iii) liabilities or obligations under this Agreement.
(b) Section 4.13(b) of the CMAC Schedule of Exceptions describes in
reasonable detail all of CMAC's Investment Assets as of September 30, 1998.
SECTION 4.14. Compliance with Laws and Court Orders. CMAC and each of its
Subsidiaries is and has been in compliance with, and to the Knowledge of CMAC,
is not under investigation with respect to and has not been threatened to be
charged with or given notice of any violation of, any applicable law, rule,
regulation, judgment, injunction, order or decree, except for such matters as
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on CMAC.
SECTION 4.15. Material Contracts. (a) Neither CMAC nor any of its
Subsidiaries is a party to or bound by:
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(i) any agreement any of the benefits or costs of which will be
increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement;
(ii) any insurance related agreement with outside parties (other
than any such agreement that is cancelable within 60 days without the
payment of any penalty and other than insurance policies or other similar
agreements issued by any Subsidiary of CMAC in the ordinary course of its
business as to which CMAC has provided the principal forms to Amerin),
including, but not limited to, those relating to borrower counseling and
contract underwriting;
(iii) any agreement which is a "material contract" (as such term is
defined in Item 601(b)(10) of Regulation S-K under the Securities Act and
the Exchange Act) that has not been filed or incorporated by reference in
the CMAC SEC Filings;
(iv) any agreement which would prohibit or materially delay the
consummation of the Merger or any of the transactions contemplated by this
Agreement;
(v) any agreement relating to indebtedness for borrowed money or any
guarantee or similar agreement relating thereto, other than any such
agreement with, or relating to, an aggregate outstanding principal amount
or guaranteed obligation not exceeding $1,000,000;
(vi) any material license, franchise or similar agreement necessary
for the operation of the business of CMAC and its Subsidiaries, taken as a
whole;
(vii) any material agency, dealer, sales representative, marketing
or other similar agreement, other than any agency agreement on the
relevant Subsidiaries' standard independent agency form;
(viii) any agreement that restricts or prohibits CMAC or any
Subsidiary or Affiliate of CMAC from competing with any person in any line
of business or from competing in, engaging in or entering into any line of
business in any area and which would so restrict or prohibit CMAC or any
Subsidiary or Affiliate of CMAC after the Effective Time;
(ix) any reinsurance agreement (in each case applicable to insurance
in force);
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(x) any agreement containing "change in control" or similar
provisions relating to a change in control of CMAC or any of its
Subsidiaries;
(xi) any "stop loss" agreement, other than those entered into in the
ordinary course of business consistent with past practice;
(xii) any agreement (other than insurance policies or other similar
agreements issued by any Subsidiary of CMAC in the ordinary course of its
business) pursuant to which CMAC or any Subsidiary of CMAC is obligated to
indemnify any other person;
(xiii) any agreement (other than any option agreement) with any
Affiliate of CMAC or any director, officer or employee of CMAC or any of
its Subsidiaries or Affiliates;
(xiv) any other material agreement; or
(xv) any guaranty of any of the foregoing.
For the purposes of this Section 4.15(a), "agreement" means any agreement,
contract, arrangement, commitment or understanding (whether written or oral).
(b) CMAC has heretofore furnished or made available to Amerin complete and
correct copies (or, if oral, accurate written summaries) of the items listed in
Section 4.15 of the CMAC Schedule of Exceptions, each as amended or modified to
the date hereof, including any waivers with respect thereto (the "CMAC
SIGNIFICANT AGREEMENTS"). Except as specifically disclosed therein: (i) each of
the CMAC Significant Agreements is valid and binding on CMAC or its Subsidiaries
as applicable and in full force and effect; (ii) CMAC and each of its
Subsidiaries, as applicable, have in all material respects performed all
material obligations required to be performed by them to date under each CMAC
Significant Agreement; (iii) neither CMAC nor any of its Subsidiaries knows of,
or has received notice of, any violation or default (or any condition which with
the passage of time or the giving of notice would cause such violation of or a
default) by any party under any CMAC Significant Agreement or any other loan or
credit agreement, note, bond, mortgage, indenture or loan, except as, in the
case of clauses (ii) and (iii), such matters would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on CMAC. Set
forth on Section 4.15 of the CMAC Schedule of Exceptions is a description of any
material changes as of the date hereof to the amount and terms of the
indebtedness of CMAC and its Subsidiaries from that described in the notes to
the CMAC 10-K.
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SECTION 4.16. Non-Claims Litigation. Except for any action, suit,
investigation or proceeding that involves a claim under any insurance,
reinsurance or indemnity policy, fidelity bond, surety bond or similar contract
or undertaking issued or entered into by CMAC or any Subsidiary of CMAC, there
is no action, suit, investigation or proceeding pending against, or to the
Knowledge of CMAC threatened against or affecting, CMAC or any Subsidiary of
CMAC or any of their respective properties before any court, arbitrator, or any
Governmental Entity which is reasonably likely to result in actual damages
individually in excess of $500,000 or actual damages in the aggregate in excess
of $1,000,000. There is no action, suit, investigation or proceeding pending
against, or to the Knowledge of CMAC threatened against or affecting, CMAC or
any Subsidiary of CMAC or any of their respective properties before any court,
arbitrator, or any Governmental Entity which would reasonably be expected to
prevent, enjoin, alter or materially delay the transactions contemplated hereby.
Neither CMAC nor any Subsidiary of CMAC nor any of their respective properties
is subject to any material order or judgment which would prevent or delay the
consummation of the transactions contemplated hereby.
SECTION 4.17. Reserves; Reinsurance. (a) Each reserve and other liability
amount in respect of the insurance business, including without limitation
reserve and other liability amounts in respect of insurance policies,
established or reflected in the CMAC Annual Statements was reviewed and
certified by an independent actuary in accordance with applicable state
insurance laws and regulations. Each reserve and other liability amount in
respect of the insurance business, including without limitation reserve and
other liability amounts in respect of insurance policies, established or
reflected in the CMAC Unaudited September Balance Sheet was reviewed by an
independent actuary to the extent required by applicable state insurance laws
and regulations. Each reserve and other liability amount established or
reflected in the CMAC Annual Statements or the CMAC Unaudited September Balance
Sheet was in conformity with SAP and in compliance with the requirements of the
insurance laws, rules and regulations of the respective jurisdictions of
domicile of each Subsidiary of CMAC as of the date thereof. Each Subsidiary of
CMAC owns assets that qualify as admitted assets under the insurance laws, rules
and regulations of the respective jurisdictions of domicile of such Subsidiary
in an amount equal to the sum of all such reserves and liability amounts and its
minimum statutory capital and surplus as required by the insurance laws, rules
and regulations of the respective jurisdictions of domicile of such Subsidiary.
The reserves set forth in the CMAC Annual Statements for the years indicated for
payment of all insurance policy benefits, losses, claims and expenses were
considered adequate as of the date of such statements by management of CMAC to
cover the total amount of all reasonably anticipated liabilities of CMAC and its
Subsidiaries.
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(b) Section 4.17(b) of CMAC Schedule of Exceptions lists, to the extent
not otherwise listed on Schedule 4.15 of the CMAC Schedule of Exceptions, all
ceded reinsurance agreements in force as of the date hereof to which any
Subsidiary of CMAC is a party and under which there is liability by either party
to the agreement (collectively, the "CMAC EXISTING REINSURANCE AGREEMENTS").
Section 4.17(b) of the CMAC Schedule of Exceptions also lists any reinsurance
agreement pursuant to which CMAC or any of its Subsidiaries has assumed any
insurance obligations. Neither CMAC nor any of its Subsidiaries has any reason
to believe that any amount recoverable by any of the Subsidiaries of CMAC
pursuant to any CMAC Existing Reinsurance Agreement is not fully collectible in
due course and, to the Knowledge of CMAC, there is no reason to believe that the
financial condition of any such other party is impaired to the extent that a
default thereunder may reasonably be anticipated. Each of the Subsidiaries of
CMAC is entitled to take full credit in its statutory financial statements
pursuant to applicable insurance laws for ceded reinsurance under the CMAC
Existing Reinsurance Agreements to which it is a party, and there is no claim
under any CMAC Existing Reinsurance Agreement that is disputed by any other
party to such agreement.
SECTION 4.18. Loans and Advances. Other than in the ordinary course of its
portfolio investment activities or loss mitigation activities, neither CMAC nor
any of its Subsidiaries has any contractual commitment to make any loan, advance
or capital contribution to, or investment in, any other person in excess of
$500,000.
SECTION 4.19. Finders' Fees. Except for Schroder & Co. Inc., there is no
investment banker, broker, finder or other intermediary which has been retained
by or is authorized to act on behalf of CMAC or any of its Subsidiaries who
might be entitled to any fee or commission in connection with the transactions
contemplated by this Agreement.
SECTION 4.20. Opinion of Financial Advisor. The CMAC Board has received
the opinion of Schroder & Co. Inc., financial advisor to CMAC, to the effect
that, as of the date of this Agreement, the Exchange Ratio is fair from a
financial point of view to CMAC.
SECTION 4.21. Taxes. Except as set forth in the CMAC Balance Sheet
(including the notes thereto) and except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on CMAC, (i)
all Tax returns, statements, reports, forms, and similar filings (collectively,
the "CMAC RETURNS") required to be filed with any taxing authority by, or with
respect to, CMAC and its Subsidiaries with respect to Taxes have been filed in
accordance with all applicable laws, (ii) CMAC and its Subsidiaries have timely
paid all Taxes shown as due and payable on the CMAC Returns that have been so
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filed, and, as of the time of filing, the CMAC Returns correctly reflected the
facts regarding the income, business, assets, operations, activities and the
status of CMAC and its Subsidiaries (other than Taxes which are being contested
in good faith and for which adequate reserves are reflected on the CMAC Balance
Sheet), (iii) CMAC and its Subsidiaries have made provision for all Taxes
payable by CMAC and its Subsidiaries for which no CMAC Return has yet been
filed, (iv) the charges, accruals and reserves for Taxes with respect to CMAC
and its Subsidiaries reflected on each of the CMAC Balance Sheet and the CMAC
Unaudited September Balance Sheet are adequate under GAAP to cover the Tax
liabilities accruing through the date thereof, (v) there is no action, suit,
proceeding, audit or claim now proposed or pending against or with respect to
CMAC or any of its Subsidiaries in respect of any Tax, (vi) all CMAC Returns for
fiscal years ending on or before December 31, 1985 have been examined by the
Internal Revenue Service, and any assessments with respect to such returns have
been paid in full, and (vii) there is in effect no extension or waiver of the
applicable statute of limitations of any jurisdiction regarding the assessment
or collection of any Tax.
SECTION 4.22. Employee Benefit Plans. (a) Section 4.22 of the CMAC
Schedule of Exceptions identifies each "employee benefit plan", as defined in
Section 3(3) of ERISA, each employment, severance or similar contract, plan,
arrangement or policy applicable to any director or officer of CMAC and each
plan, fund, program, policy, contract, commitment or arrangement, providing for
compensation, bonuses, profit-sharing, stock option or other stock related
rights or other forms of incentive or deferred compensation, vacation benefits,
insurance coverage (including any self-insured arrangements), health or medical
benefits, disability benefits, workers' compensation, supplemental unemployment
benefits, severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life insurance benefits),
whether formal or informal, written or oral, which (i) is sponsored, maintained,
administered or contributed to by CMAC or any of its ERISA Affiliates or under
which CMAC or any of its ERISA Affiliates has any liability and (ii) covers any
employee or former employee of CMAC or any of its Subsidiaries. Copies of such
plans and arrangements (and, if applicable, related trust agreements) and all
amendments thereto and written interpretations thereof have been furnished or
made available to Amerin together with the most recent annual report (Form 5500
including, if applicable, Schedule B thereto) prepared in connection with any
such plan. Such plans are referred to collectively herein as the "CMAC EMPLOYEE
PLANS".
(b) Each CMAC Employee Plan has been maintained in compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations (including but not limited to ERISA and the Code) which
are applicable to such plan, including without limitation requirements as to
contributions, insurance premiums, fiduciary administration, plan operations,
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employee classification and plan design, except where failure(s) to so comply
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on CMAC.
(c) No CMAC Employee Plan constitutes a Multiemployer Plan, and neither
CMAC nor any ERISA Affiliate contributes to, and has ever contributed to or had
any other liability with respect to a Multiemployer Plan. No CMAC Employee Plan
is maintained in connection with any trust described in Section 501(c)(9) of the
Code. The only CMAC Employee Plans that are subject to Title IV of ERISA,
Section 302 of ERISA or Section 412 of the Code (the "CMAC RETIREMENT PLANS")
are identified in Section 4.22 of the CMAC Schedule of Exceptions. As of the
CMAC Balance Sheet Date, the fair market value of the assets of each CMAC
Retirement Plan (excluding for these purposes any accrued but unpaid
contributions) exceeded the present value of all benefits accrued under such
CMAC Retirement Plans determined by using the interest rate and actuarial
assumptions used for funding purposes in the January 1, 1998 actuarial report.
No "accumulated funding deficiency", as defined in Section 412 of the Code, has
been incurred with respect to any CMAC Retirement Plan, whether or not waived.
CMAC knows of no "reportable event", within the meaning of Section 4043 of
ERISA, and no event described in Section 4041, 4042, 4062 or 4063 of ERISA has
occurred in connection with any CMAC Employee Plan, other than a "reportable
event" that would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on CMAC. No condition exists and no event has
occurred that could constitute grounds for termination of any CMAC Retirement
Plan and neither CMAC nor any of its ERISA Affiliates has incurred any material
liability under Title IV of ERISA arising in connection with the termination of,
or complete or partial withdrawal from, any plan covered or previously covered
by Title IV of ERISA. Nothing done or omitted to be done and no transaction or
holding of any asset under or in connection with any CMAC Employee Plan has or
will make CMAC or any Subsidiary, any officer or director of CMAC or any
Subsidiary subject to any liability under Title I of ERISA or liable for any tax
or penalty pursuant to Section 4975 of the Code or Part 4 of Subtitle I of ERISA
that, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on CMAC.
(d) Each CMAC Employee Plan which is intended to be qualified under
Section 401(a) of the Code has been determined by the IRS to be so qualified and
has been so qualified during the period from its adoption to date, and each
trust forming a part thereof has been determined by the IRS to be exempt from
tax pursuant to Section 501(a) of the Code and to the Knowledge of CMAC, nothing
has occurred and no facts have arisen since such IRS determination that would
jeopardize the tax-qualified status of any such CMAC Employee Plan or the
tax-exempt status of any related trust.
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(e) There has been no amendment to, written interpretation or announcement
(whether or not written) by CMAC or any of its ERISA Affiliates relating to, or
change in employee participation or coverage under, any CMAC Employee Plan which
would increase materially the expense of maintaining such CMAC Employee Plan
above the level of the expense incurred in respect thereof for the fiscal year
ended on the CMAC Balance Sheet Date.
(f) Neither CMAC nor any Subsidiary is a party to or subject to any union
contract or any employment contract or arrangement providing for annual future
compensation of $500,000 or more with any officer, consultant, director or
employee.
SECTION 4.23. Environmental Matters. (a) Except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on CMAC,
(i) no notice, notification, demand, request for information,
citation, summons or order has been received by, no complaint has been
filed against, no penalty has been assessed against, and no investigation,
action, claim, suit, proceeding or review is pending or, to the Knowledge
of CMAC, is threatened by any Governmental Entity or other person against,
CMAC or any of its Subsidiaries, in each case relating to or arising out
of any Environmental Law;
(ii) CMAC and each of its Subsidiaries are and have been in
compliance with all Environmental Laws and all Environmental Permits; and
(iii) there are no liabilities of or relating to CMAC or any of its
Subsidiaries of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, arising under or relating
to any Environmental Law and there are no facts, conditions, situations or
set of circumstances which could reasonably be expected to result in or be
the basis for any such liability.
(b) The following terms shall have the meaning set forth below:
"CMAC" and "ITS SUBSIDIARIES" shall, for purposes of this Section, include
any entity which is, in whole or in part, a corporate predecessor of CMAC or any
of its Subsidiaries.
SECTION 4.24. Intellectual Property; Software. (a) CMAC and its
Subsidiaries own or otherwise have rights to use and, as of and from the
Effective Time, will own or otherwise have rights to use (in each case, free and
clear of any
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material Liens or other material limitations or restrictions) all Intellectual
Property used in their respective businesses as currently conducted and as
contemplated to be conducted; the use of any Intellectual Property by CMAC and
its Subsidiaries does not infringe on or otherwise violate the rights of any
person; and, to the Knowledge of CMAC, no person is challenging, infringing on
or otherwise violating any right of CMAC or any Subsidiary of CMAC with respect
to any Intellectual Property owned by and/or licensed to CMAC and its
Subsidiaries.
(b) CMAC and its Subsidiaries own or have valid and enforceable licenses
or other rights to use (in each case, free and clear of any material Liens or
other material limitations or restrictions) all Software used in the conduct of
their respective businesses and operations as currently conducted; the use of
the Software by CMAC and its Subsidiaries does not infringe on or otherwise
violate the rights of any person; and, to the Knowledge of CMAC, no person is
challenging, infringing on or otherwise violating any right of CMAC or any
Subsidiary of CMAC with respect to any Software used by CMAC and its
Subsidiaries. Except as set forth in Section 4.24(b) of the CMAC Schedule of
Exceptions, from and after the Effective Time, CMAC and its Subsidiaries will
own or have valid and enforceable licenses or other rights to use (in each case,
free and clear of any material Liens or other material limitations or
restrictions) all Software used in the conduct of their respective businesses
and operations as currently conducted in the same manner as such Software has
been used to conduct such businesses and operations prior to the date hereof.
SECTION 4.25. Properties. CMAC and its Subsidiaries have good title to, or
in the case of leased property have valid leasehold interests in, all of their
respective properties and assets (whether real or personal, tangible or
intangible) except for imperfections in title or invalidities in leasehold
interests that do not, individually or in the aggregate, materially detract from
the value reflected on the CMAC Balance Sheet. None of such properties or assets
is subject to any Liens, except:
(i) Liens reflected on the CMAC Balance Sheet;
(ii) Liens for Taxes not yet due or being contested in good faith
(and for which adequate accruals or reserves have been established on the
CMAC Balance Sheet); and
(iii) Liens which do not, individually or in the aggregate,
materially detract from the value reflected on the CMAC Balance Sheet or
materially interfere with any present or intended use of any material
properties or assets.
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SECTION 4.26. Pooling; Tax Treatment. (a) CMAC intends that the
Merger be accounted for under the "pooling of interests" method under the
requirements of Opinion No. 16 (Business Combinations) of the Accounting
Principles Board of the American Institute of Certified Public Accountants
(APB No. 16), as amended by Statements of the Financial Accounting Standards
Board, and the related interpretations of the American Institute of Certified
Public Accountants, the Financial Accounting Standards Board, and the rules
and regulations of the SEC.
(b) To the best of CMAC's Knowledge, neither CMAC nor any of its
Affiliates has taken or agreed to take any action that would prevent the Merger
from qualifying (i) for "pooling of interests" accounting treatment as described
in (a) above or (ii) as a reorganization within the meaning of Section 368(a) of
the Code.
SECTION 4.27. Takeover Statutes. The CMAC Board has approved the Merger
and this Agreement, and such approval is sufficient to render inapplicable to
the Merger, this Agreement and the transactions contemplated by this Agreement
the restrictions on "business combinations" set forth in Section 203 of the
Delaware Law. To the best of CMAC's Knowledge, no other "fair price",
"moratorium", "control share acquisition" or other similar antitakeover statute
or regulation enacted under state or federal laws in the United States
applicable to CMAC or any of its Subsidiaries is applicable to the Merger or the
other transactions contemplated hereby.
SECTION 4.28. Transactions with Affiliates. Since December 31, 1997, there
have been no transactions, agreements, arrangements or understandings between
CMAC or its Subsidiaries, on the one hand, and CMAC's Affiliates (other than
wholly-owned Subsidiaries of CMAC) or other persons, on the other hand, that
would be required to be disclosed under Item 404 of Regulation S-K under the
Securities Act and the Exchange Act.
SECTION 4.29. Business Information. The information CMAC has heretofore
provided to Amerin regarding the composition and performance of CMAC's
portfolios of primary and pool insurance and reinsurance is accurate and
includes all material information concerning such portfolios. CMAC has provided
Amerin with complete copies of all contracts and other business arrangements
with respect to the provision of insurance and any related services (including
without limitation primary insurance plans, pool insurance commitments,
reinsurance agreements, and contract underwriting arrangements). Prior to the
date of this Agreement, CMAC has disclosed to Amerin the terms and provisions of
any insurance or ancillary product, plan or service that are not fully set forth
in formal business agreements.
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SECTION 4.30. Year 2000. CMAC has undertaken a concerted effort to ensure
that all of the Software, databases, computer firmware, computer hardware
(whether general or special purpose), and other similar or related items of
automated, computerized, and/or software system(s) that are used or relied on by
CMAC or by any of its Subsidiaries in the conduct of their respective businesses
will not malfunction, will cease to function, will not generate incorrect data,
and will not provide incorrect results when processing, providing and/or
receiving date-related data with respect to any dates after December 31, 1999.
CMAC reasonably believes that such effort will be successful.
SECTION 4.31. Rights Agreement. CMAC has taken all necessary action with
respect to all of the outstanding CMAC Stockholder Rights so that, as of
immediately prior to the Effective Time, as a result of entering into this
Agreement or consummating the Merger and the other transactions contemplated by
this Agreement, (i) neither Amerin nor CMAC will have any obligations under the
CMAC Stockholder Rights or the CMAC Rights Agreement and (ii) the holders of the
CMAC Stockholder Rights will have no rights under the CMAC Stockholder Rights or
the CMAC Rights Agreement.
ARTICLE 5
COVENANTS
SECTION 5.01. Conduct of Amerin. Amerin agrees that from the date hereof
until the Effective Time, except as set forth in Section 5.01 of the Amerin
Schedule of Exceptions or as otherwise contemplated by this Agreement or with
the prior written consent of CMAC, Amerin and its Subsidiaries shall conduct
their business in the ordinary course consistent with past practice and shall
use their reasonable best efforts to preserve intact their business
organizations and relationships with third parties and to keep available the
services of their present officers and employees. Without limiting the
generality of the foregoing, from the date hereof until the Effective Time,
except as set forth in Section 5.01 of the Amerin Schedule of Exceptions or as
otherwise contemplated by this Agreement or with the prior written consent of
CMAC, Amerin will not, and will not permit any of its Subsidiaries to:
(a) adopt or propose any change in its certificate of incorporation or
bylaws or equivalent documents;
(b) amend any material term of any outstanding security of Amerin or any
of its Subsidiaries, or reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its capital stock;
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(c) merge or consolidate with any other person;
(d) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee, encumber, or authorize the issuance, sale, pledge, disposition,
grant, transfer, lease, license, guarantee or encumbrance of (i) any shares of
capital stock of Amerin or any of its Subsidiaries of any class, or securities
convertible or exchangeable or exercisable for any shares of such capital stock,
or any options, warrants or other rights of any kind to acquire any shares of
such capital stock or such convertible or exchangeable securities, or any other
ownership interest of Amerin or any of its Subsidiaries or (ii) except in the
ordinary course of business and in a manner consistent with past practice, any
property or assets of Amerin or any of its Subsidiaries, except (A) the issuance
of Amerin Stock upon the exercise of Amerin options, (B) pursuant to contracts
or agreements in force at the date of this Agreement and set forth in the Amerin
Schedule of Exceptions or (C) sales, transfers or dispositions of receivables in
connection with the securitization of such receivables;
(e) acquire, sell, lease, license, mortgage, otherwise encumber or dispose
of any assets outside the ordinary course of business and which involve amounts
in excess of $1,000,000 individually, or $2,000,000 in the aggregate, or enter
into any contract, agreement, commitment or transaction with respect thereto
outside the ordinary course of business consistent with past practice;
(f) create or assume any Lien on any material asset, other than in the
ordinary course consistent with past practice;
(g) 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 (except for dividends paid by any wholly-owned Subsidiary of
Amerin to Amerin or to any other wholly-owned Subsidiary of Amerin in the
ordinary course) or repurchase, redeem or acquire any of its outstanding shares
of capital stock, or enter into any agreement with respect to the voting of its
capital stock;
(h) (i) incur any indebtedness for borrowed money or issue any debt
securities to assume, guarantee or endorse, or otherwise as an accommodation
become responsible for, the obligations of any person for borrowed money, except
for (A) indebtedness incurred to refinance any existing indebtedness of CMAC,
Amerin or any of their respective Subsidiaries in connection with the Merger or
(B) other indebtedness for borrowed money with a maturity of not more than one
year in a principal amount not, in the aggregate, in excess of $1,000,000, (ii)
terminate, cancel or request any material change in, or agree to any material
change in, any Amerin Significant Agreement or, except in connection with
transactions permitted under this Section 5.01, enter into any contract or
agreement material to the business, results of operations or financial condition
of
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Amerin and its Subsidiaries taken as a whole, in either case other than in the
ordinary course of business, consistent with past practice, (iii) make or
authorize any capital expenditure, other than capital expenditures that are not,
in the aggregate, in excess of $1,000,000 for Amerin and its Subsidiaries taken
as a whole; or (iv) enter into or amend any contract, agreement, commitment or
arrangement that, if fully performed, would not be permitted under this Section
5.01;
(i) make any material loan, advance or capital contributions to or
investments in any person other than loans, advances or capital contributions to
or investments in wholly-owned Subsidiaries of Amerin made in the ordinary
course consistent with past practices;
(j) change any of its investment policies or any of the accounting
principles, practices, methods or policies (including but not limited to any
reserving methods, practices or policies) used by it, except as may be required
as a result of a change in law, GAAP, SAP or Regulation S-X promulgated under
the Securities Act and Exchange Act;
(k) change the method of determining the GAAP reserves for any guaranty
fund assessment, special insurance assessment or similar assessment or tax;
(l) pay, discharge or satisfy any material 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 consistent with past practice or in accordance with their
terms of liabilities reflected or reserved against in the consolidated financial
statements (or the notes thereto) of Amerin and its Subsidiaries or incurred in
the ordinary course of business consistent with past practice;
(m) make any Tax election or settle or compromise any material Tax
liability;
(n) (i) increase the compensation payable or to become payable to its
officers or employees (except for increases in accordance with past practices in
salaries or wages of employees of Amerin or any of its Subsidiaries), (ii) grant
any rights to severance or termination pay to, or enter into any employment or
severance agreement with, any director, officer or other employee of Amerin or
any Subsidiary, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer or employee, except as
contemplated by this Agreement or to the extent required by applicable law or
the terms of a collective bargaining
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agreement, (iii) increase the benefits payable under any existing severance or
termination pay policies or employment agreements, (iv) enter into any
employment, deferred compensation or other similar agreement (or amendment to
any such existing agreement), (v) take any affirmative action to accelerate the
vesting of any stock-based compensation or (vi) make any loans or advances to
any directors, officers or employees, except in connection with transfers or for
ordinary travel and business expenses in the ordinary course of business
consistent with past practice;
(o) (i) enter into any reinsurance contract, other than in the ordinary
course of business consistent with past practice, or (ii) enter into any treaty
reinsurance contract, or (iii) commute any reinsurance contract, or (iv) enter
into or commute any reinsurance contract purchased by any Subsidiary of Amerin,
except where required by a Regulator or a Governmental Entity;
(p) enter into, extend or renew any traditional or modified pool insurance
policy, transaction or arrangement, other than in the ordinary course of
business consistent with past practice;
(q) take any action that would or would reasonably be expected to make any
representation and warranty of Amerin hereunder untrue in any material respect
at, or as of any time prior to, the Effective Time; or
(r) agree or commit to do any of the foregoing.
SECTION 5.02. Conduct of CMAC. CMAC agrees that from the date hereof until
the Effective Time, except as set forth in Section 5.02 of the CMAC Schedule of
Exceptions or as otherwise contemplated by this Agreement or with the prior
written consent of Amerin, CMAC and its Subsidiaries shall conduct their
business in the ordinary course consistent with past practice and shall use
their reasonable best efforts to preserve intact their business organizations
and relationships with third parties and to keep available the services of their
present officers and employees. Without limiting the generality of the
foregoing, from the date hereof until the Effective Time, except as set forth in
Section 5.02 of the CMAC Schedule of Exceptions or as otherwise contemplated by
this Agreement or with the prior written consent of Amerin, CMAC will not, and
will not permit any of its Subsidiaries to:
(a) adopt or propose any change in its certificate of incorporation or
bylaws or equivalent documents, except as contemplated by this Agreement;
(b) amend any material term of any outstanding security of CMAC or any of
its Subsidiaries, or reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock;
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(c) merge or consolidate with any other person;
(d) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee, encumber, or authorize the issuance, sale, pledge, disposition,
grant, transfer, lease, license, guarantee or encumbrance of (i) any shares of
capital stock of CMAC or any of its Subsidiaries of any class, or securities
convertible or exchangeable or exercisable for any shares of such capital stock,
or any options, warrants or other rights of any kind to acquire any shares of
such capital stock or such convertible or exchangeable securities, or any other
ownership interest of CMAC or any of its Subsidiaries or (ii) except in the
ordinary course of business and in a manner consistent with past practice, any
property or assets of CMAC or any of its Subsidiaries, except (A) the issuance
of CMAC Stock upon the exercise of CMAC options, (B) the award of options in the
ordinary course of business and consistent with past practice, (C) pursuant to
contracts or agreements in force at the date of this Agreement or (D) sales,
transfers or dispositions of receivables in connection with the securitization
of such receivables;
(e) acquire, sell, lease, license, mortgage, otherwise encumber or dispose
of any assets outside the ordinary course of business and which involve amounts
in excess of $1,000,000 individually, or $2,000,000 in the aggregate, or enter
into any contract, agreement, commitment or transaction with respect thereto
outside the ordinary course of business consistent with past practice;
(f) create or assume any Lien on any material asset, other than in the
ordinary course consistent with past practice;
(g) except for a redemption of the $4.125 Preferred Stock in order to
comply with the condition set forth in Section 6.01(h), 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 (except for dividends paid
by any wholly-owned Subsidiary of CMAC to CMAC or to any other wholly-owned
Subsidiary of CMAC in the ordinary course and except for regular quarterly cash
dividends of $.03 per share on the CMAC Stock or regular quarterly cash
dividends of $1.03125 per share on the $4.125 Preferred Stock) or repurchase,
redeem or acquire any of its outstanding shares of capital stock, or enter into
any agreement with respect to the voting of its capital stock;
(h) (i) incur any indebtedness for borrowed money or issue any debt
securities to assume, guarantee or endorse, or otherwise as an accommodation
become responsible for, the obligations of any person for borrowed money, except
for (A) indebtedness incurred to refinance any existing indebtedness of CMAC,
Amerin or any of their respective Subsidiaries in connection with the Merger,
(B) other indebtedness for borrowed money with a maturity of not more than one
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year in a principal amount not, in the aggregate, in excess of $1,000,000, (C)
indebtedness incurred to finance the payment by CMAC of the dividends on the
$4.125 Preferred Stock permitted by Section 5.02(g) or (D) indebtedness in the
form of variable rate subordinated notes issued to depository institution
customers of Commonwealth Mortgage Assurance Company in the ordinary course of
business, (ii) terminate, cancel or request any material change in, or agree to
any material change in, any CMAC Significant Agreement or, except in connection
with transactions permitted under this Section 5.02, enter into any contract or
agreement material to the business, results of operations or financial condition
of Amerin and its Subsidiaries taken as a whole, in either case other than in
the ordinary course of business, consistent with past practice, (iii) make or
authorize any capital expenditure, other than capital expenditures that are not,
in the aggregate, in excess of $1,000,000 for CMAC and its Subsidiaries taken as
a whole; or (iv) enter into or amend any contract, agreement, commitment or
arrangement that, if fully performed, would not be permitted under this Section
5.02;
(i) make any material loan, advance or capital contributions to or
investments in any person other than loans, advances or capital contributions to
or investments in wholly-owned Subsidiaries of CMAC made in the ordinary course
consistent with past practices;
(j) change any of its investment policies or any of the accounting
principles, practices, methods or policies (including but not limited to any
reserving methods, practices or policies) used by it, except as may be required
as a result of a change in law, GAAP, SAP or Regulation S-X promulgated under
the Securities Act and Exchange Act;
(k) change the method of determining the GAAP reserves for any guaranty
fund assessment, special insurance assessment or similar assessment or tax;
(l) pay, discharge or satisfy any material 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 consistent with past practice or in accordance with their
terms of liabilities reflected or reserved against in the consolidated financial
statements (or the notes thereto) of CMAC and its Subsidiaries or incurred in
the ordinary course of business consistent with past practice;
(m) make any Tax election or settle or compromise any material Tax
liability;
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(n) (i) increase the compensation payable or to become payable to its
officers or employees (except for increases in accordance with past practices in
salaries or wages of employees of CMAC or any of its Subsidiaries), (ii) grant
any rights to severance or termination pay to, or enter into any employment or
severance agreement with, any director, officer or other employee of CMAC or any
Subsidiary, or establish, adopt, enter into or amend any collective bargaining,
bonus, profit sharing, thrift, compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the benefit of
any director, officer or employee, except as contemplated by this Agreement or
to the extent required by applicable law or the terms of a collective bargaining
agreement, (iii) increase the benefits payable under any existing severance or
termination pay policies or employment agreements, (iv) enter into any
employment, deferred compensation or other similar agreement (or amendment to
any such existing agreement), (v) take any affirmative action to accelerate the
vesting of any stock-based compensation or (vi) make any loans or advances to
any directors, officers or employees, except in connection with transfers or for
ordinary travel and business expenses in the ordinary course of business
consistent with past practice;
(o) (i) enter into any reinsurance contract, other than in the ordinary
course of business consistent with past practice, or (ii) enter into any treaty
reinsurance contract, or (iii) commute any reinsurance contract, or (iv) enter
into or commute any reinsurance contract purchased by any Subsidiary of CMAC,
except where required by a Regulator or a Governmental Entity;
(p) enter into any traditional or modified pool insurance policy,
transaction or arrangement, other than in the ordinary course of business
consistent with past practice;
(q) take any action that would or would reasonably be expected to make any
representation and warranty of CMAC hereunder untrue in any material respect at,
or as of any time prior to, the Effective Time; or
(r) agree or commit to do any of the foregoing.
SECTION 5.03. Stockholder Meetings; Proxy Materials; Form S-4. (a) Amerin
shall cause a meeting of its stockholders (the "AMERIN STOCKHOLDER MEETING") to
be duly called and held as soon as reasonably practicable after the date of this
Agreement for the purpose of voting on the approval and adoption of this
Agreement and the Merger (the "AMERIN STOCKHOLDER Approval"). Subject to Section
5.09, the Amerin Board shall recommend approval and adoption of this Agreement
and the Merger by Amerin's stockholders. In connection with the Amerin
Stockholder Meeting, Amerin (i) will promptly prepare and file with the SEC,
will use its best efforts to have cleared by the SEC and will thereafter mail
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to its stockholders as promptly as practicable the Joint Proxy Statement and all
other proxy materials for such meeting, (ii) will use its best efforts to obtain
the Amerin Stockholder Approval and (iii) will otherwise comply with all legal
requirements applicable to such meeting.
(b) CMAC shall cause a meeting of its stockholders (the "CMAC STOCKHOLDER
MEETING") to be duly called and held as soon as reasonably practicable after the
date of this Agreement for the purpose of voting on the approval and adoption of
this Agreement and the Merger and the issuance of CMAC Stock pursuant to the
Agreement (the "CMAC STOCKHOLDER APPROVAL"). Subject to Section 5.10, the CMAC
Board shall recommend approval and adoption of this Agreement, the Merger and
the issuance of CMAC Stock pursuant to this Agreement by CMAC's stockholders. In
connection with the CMAC Stockholder Meeting, CMAC (i) will promptly prepare and
file with the SEC, will use its best efforts to have cleared by the SEC and will
thereafter mail to its stockholders as promptly as practicable the Joint Proxy
Statement and all other proxy materials for such meeting, (ii) will use its best
efforts to obtain the CMAC Stockholder Approval and (iii) will otherwise comply
with all legal requirements applicable to such meeting.
(c) Amerin and CMAC shall cooperate and promptly prepare and CMAC shall
file with the SEC as soon as practicable the Registration Statement, a portion
of which Registration Statement shall also serve as the Joint Proxy Statement.
The respective parties will cause the Joint Proxy Statement and the Registration
Statement to comply as to form in all material respects with the applicable
provisions of the Securities Act, the Exchange Act and the rules and regulations
thereunder. CMAC shall use its best efforts, and Amerin will cooperate with
CMAC, to have the Registration Statement declared effective by the SEC as
promptly as practicable. CMAC shall use its best efforts to obtain, prior to the
effective date of the Registration Statement, all necessary state securities law
or "blue sky" permits or approvals required to carry out the transactions
contemplated by this Agreement and Amerin shall provide all reasonable
assistance requested by CMAC in connection therewith. No amendment or supplement
to the Joint Proxy Statement will be made by Amerin or CMAC without the approval
of the other party, which will not be unreasonably withheld. CMAC will advise
Amerin, promptly after it receives notice thereof, of the time when the
Registration Statement has become effective or any supplement or amendment has
been filed, the issuance of any stop order, the suspension of the qualification
of the CMAC Stock issuable in connection with the Merger for offering or sale in
any jurisdiction, or any request by the SEC for amendment of the Joint Proxy
Statement or the Registration Statement or comments thereon and responses
thereto or requests by the SEC for additional information. If at any time prior
to the Effective Time any information relating to Amerin or CMAC, or any of
their respective Affiliates, officers or directors, should be discovered by
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Amerin or CMAC which should be set forth in an amendment or supplement to any of
the Registration Statement or the Joint Proxy Statement, so that any of such
documents would not include any misstatement of a material fact or omit to state
any material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other party hereto and an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law, disseminated to
the stockholders of Amerin and CMAC.
SECTION 5.04. Director and Officer Liability. (a) CMAC agrees that all
rights to indemnification and exculpation from liabilities for acts or omissions
occurring at or prior to the Effective Time now existing in favor of the current
or former directors or officers of Amerin and its Subsidiaries as provided in
their respective certificates of incorporation or bylaws (or comparable
organizational documents) and any indemnification agreements of Amerin, the
existence of which does not constitute a breach of this Agreement, shall be
assumed by CMAC, as the Surviving Corporation in the Merger, without further
action, as of the Effective Time and shall survive the Merger and shall continue
in full force and effect in accordance with their terms. In addition, from and
after the Effective Time, directors and officers of Amerin who become directors
and officers of CMAC will be entitled to the same indemnity rights and
protections as are afforded to other directors and officers of the Surviving
Corporation.
(b) In the event that the Surviving Corporation or any of its successors
or assigns (i) consolidates with or merges into any other person and is not the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any person, then, and in each such case, proper provision will be made so
that the successors and assigns of the Surviving Corporation assume the
obligations set forth in this Section 5.04.
(c) For six years after the Effective Time, the Surviving Corporation
shall maintain in effect directors' and officers' liability insurance covering
acts or omissions occurring prior to the Effective Time with respect to those
persons who are currently covered by Amerin's directors' and officers' liability
insurance policy on terms with respect to such coverage and amount which, in the
aggregate, are no less favorable than those of Amerin's current policy in effect
on the date hereof; provided that in no event shall the Surviving Corporation be
required to pay more than 175% of the current annual premium.
(d) The provisions of this Section 5.04 are intended to be for the benefit
of, and will be enforceable by, each indemnified party, his or her heirs and his
or her personal representatives and are in addition to, and not in substitution
for, any
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other rights to indemnification or contribution that any such person may have by
contract or otherwise.
SECTION 5.05. Registration of Substitute Option Shares. CMAC shall take
such action as is necessary to ensure that the offer and sale of CMAC Stock
pursuant to the Substitute Options is effected in compliance with the Securities
Act, and that the CMAC Stock underlying such Substitute Options is fully
resalable by the holders thereof upon exercise without regard to any holding
period therefor. CMAC shall promptly take any action required to be taken under
foreign or state securities or Blue Sky laws in connection with the issuance of
CMAC Stock pursuant to the Substitute Options.
SECTION 5.06. Stock Exchange Listing. CMAC shall use its best efforts to
cause the shares of CMAC Stock to be issued in connection with the Merger (and
upon the exercise of Substitute Options) to be listed on the NYSE, subject to
official notice of issuance.
SECTION 5.07. Employee Benefits. From and after the Effective Time, the
Surviving Corporation shall cause the employees of Amerin and its Subsidiaries
to receive compensation and employee benefits that are, in the aggregate, no
less generous than those currently received by similarly situated employees of
CMAC and its Subsidiaries.
SECTION 5.08. Access to Information. (a) From the date hereof until the
Effective Time, Amerin will give CMAC, its counsel, financial advisors, auditors
and other authorized representatives reasonable access during normal business
hours to the offices, properties, books and records of Amerin and its
Subsidiaries, will furnish to CMAC, its counsel, financial advisors, auditors
and other authorized representatives such financial and operating data and other
information as such Persons may reasonably request and will instruct Amerin's
employees, auditors, counsel and financial advisors to cooperate with CMAC in
its investigation of the business of Amerin and its Subsidiaries; provided that
no investigation pursuant to this Section shall affect any representation or
warranty given by Amerin to CMAC hereunder. Such information shall be held in
confidence to the extent required by, and in accordance with, the provisions of
the confidentiality agreement dated July 29, 1997 between CMAC and Amerin (the
"CONFIDENTIALITY AGREEMENT").
(b) From the date hereof until the Effective Time, CMAC will give Amerin,
its counsel, financial advisors, auditors and other authorized representatives
reasonable access during normal business hours to the offices, properties, books
and records of CMAC and its Subsidiaries, will furnish to Amerin, its counsel,
financial advisors, auditors and other authorized representatives such financial
and operating data and other information as such
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Persons may reasonably request and will instruct CMAC's employees, auditors,
counsel and financial advisors to cooperate with Amerin in its investigation of
the business of CMAC and its Subsidiaries; provided that no investigation
pursuant to this Section shall affect any representation or warranty given by
CMAC to Amerin hereunder. Such information shall be held in confidence to the
extent required by, and in accordance with, the Confidentiality Agreement.
SECTION 5.09. Non-Solicitation by Amerin; Other Offers for Amerin. (a)
Amerin agrees that it shall not, nor shall it permit any of its Subsidiaries to,
nor shall it authorize or permit any officer, director or employee or any
investment banker, attorney, accountant, agent or other advisor or
representative of Amerin or any of its Subsidiaries to, (i) solicit, initiate or
knowingly encourage the submission of any Amerin Acquisition Proposal, (ii)
enter into any agreement with respect to any Amerin Acquisition Proposal or
(iii) participate in any discussions or negotiations regarding, or furnish to
any person any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Amerin Acquisition Proposal; provided,
however, that Amerin may, in response to unsolicited requests therefor,
participate in discussions or negotiations with, or furnish information pursuant
to a confidentiality agreement no less favorable to such party than the
Confidentiality Agreement to, any person who indicates a willingness to make a
Amerin Superior Proposal and the Amerin Board determines in good faith after
consultation with its financial advisor that such Amerin Superior Proposal is
reasonably capable of being completed on the terms proposed. For all purposes of
this Agreement, "AMERIN ACQUISITION PROPOSAL" means any proposal for a merger,
consolidation, share exchange, business combination or other similar transaction
involving Amerin or any of its Subsidiaries or any proposal or offer to acquire,
directly or indirectly, an equity interest in, any voting securities of, or a
substantial portion of the assets of, Amerin or any of its Subsidiaries, other
than the transactions contemplated by this Agreement. Amerin immediately shall
cease and cause to be terminated all existing discussions or negotiations with
any persons conducted heretofore with respect to, or that could reasonably be
expected to lead to, any Amerin Acquisition Proposal.
(b) Neither the Amerin Board nor any committee thereof shall (i) withdraw
or modify, or propose to withdraw or modify, in a manner adverse to CMAC, the
approval or recommendation by the Amerin Board or any such committee of this
Agreement and the transactions contemplated by this Agreement or (ii) approve or
recommend, or propose to approve or recommend, any Amerin Acquisition Proposal.
Notwithstanding the foregoing, (i) the Amerin Board may approve or recommend a
Amerin Superior Proposal (and, in connection therewith, withdraw or modify its
approval or recommendation of this Agreement or the Merger) if the Amerin Board
determines in good faith, after
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taking into account its fiduciary duties, that such action is in the best
interests of Amerin's stockholders and (ii) nothing contained in this Agreement
shall prevent the Amerin Board from complying with Rule 14d-9 and Rule 14e-2
promulgated under the Exchange Act with regard to a Amerin Acquisition Proposal.
For all purposes of this Agreement, "AMERIN SUPERIOR PROPOSAL" means a bona fide
written proposal made by a third party to acquire Amerin pursuant to a tender or
exchange offer, a merger, a share exchange, a sale of all or substantially all
its assets or otherwise on terms which a majority of the members of the Amerin
Board determines in good faith, after taking into account the advice of
independent financial advisors and after taking into account the strategic
benefits anticipated to be derived from the Merger and the prospects of CMAC and
Amerin as a combined company, to be more favorable over the long term to Amerin
and its stockholders than the Merger and for which financing, to the extent
required, is then fully committed or reasonably determined to be available by
the Amerin Board.
(c) Amerin shall notify CMAC promptly (but in no event later than 24
hours) after receipt by Amerin or any of its advisors of a Amerin Acquisition
Proposal or any request for nonpublic information in connection with a Amerin
Acquisition Proposal or for access to the properties, books or records of Amerin
or any of its Subsidiaries by any person that informs CMAC or any of its
advisors that it is considering making, or has made, a Amerin Acquisition
Proposal. Such notice to CMAC shall be made orally and in writing and shall
indicate the identity of the offeror and the terms and conditions of such
proposal, inquiry or contact. Amerin shall keep CMAC informed, on a current
basis, of the status and details (including amendments or proposed amendments)
of any such Amerin Acquisition Proposal or request and the status of any
negotiations or discussions.
SECTION 5.10. Non-Solicitation by CMAC; Other Offers for CMAC. (a) CMAC
agrees that it shall not, nor shall it permit any of its Subsidiaries to, nor
shall it authorize or permit any officer, director or employee or any investment
banker, attorney, accountant, agent or other advisor or representative of CMAC
or any of its Subsidiaries to, (i) solicit, initiate or knowingly encourage the
submission of any CMAC Acquisition Proposal, (ii) enter into any agreement with
respect to any CMAC Acquisition Proposal or (iii) participate in any discussions
or negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any CMAC
Acquisition Proposal; provided, however, that CMAC may, in response to
unsolicited requests therefor, participate in discussions or negotiations with,
or furnish information pursuant to a confidentiality agreement no less favorable
to such party than the Confidentiality Agreement to, any person who indicates a
willingness to make a CMAC Superior Proposal and the CMAC Board determines in
good faith after consultation with its financial advisor that such
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CMAC Superior Proposal is reasonably capable of being completed on the terms
proposed. For all purposes of this Agreement, "CMAC ACQUISITION PROPOSAL" means
any proposal for a merger, consolidation, share exchange, business combination
or other similar transaction involving CMAC or any of its Subsidiaries or any
proposal or offer to acquire, directly or indirectly, an equity interest in, any
voting securities of, or a substantial portion of the assets of, CMAC or any of
its Subsidiaries, other than the transactions contemplated by this Agreement.
CMAC immediately shall cease and cause to be terminated all existing discussions
or negotiations with any persons conducted heretofore with respect to, or that
could reasonably be expected to lead to, any CMAC Acquisition Proposal.
(b) Neither the CMAC Board nor any committee thereof shall (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Amerin, the
approval or recommendation by the CMAC Board or any such committee of this
Agreement and the transactions contemplated by this Agreement or (ii) approve or
recommend, or propose to approve or recommend, any CMAC Acquisition Proposal.
Notwithstanding the foregoing, (i) the CMAC Board may approve or recommend a
CMAC Superior Proposal (and, in connection therewith, withdraw or modify its
approval or recommendation of this Agreement or the Merger) if the CMAC Board
determines in good faith, after taking into account its fiduciary duties, that
such action is in the best interests of CMAC's stockholders and (ii) nothing
contained in this Agreement shall prevent the CMAC Board from complying with
Rule 14d-9 and Rule 14e-2 promulgated under the Exchange Act with regard to a
CMAC Acquisition Proposal. For all purposes of this Agreement, "CMAC SUPERIOR
PROPOSAL" means a bona fide written proposal made by a third party to acquire
CMAC pursuant to a tender or exchange offer, a merger, a share exchange, a sale
of all or substantially all its assets or otherwise on terms which a majority of
the members of the CMAC Board determines in good faith, after taking into
account the advice of independent financial advisors and after taking into
account the strategic benefits anticipated to be derived from the Merger and the
prospects of CMAC and Amerin as a combined company, to be more favorable over
the long term to CMAC and its stockholders than the Merger and for which
financing, to the extent required, is then fully committed or reasonably
determined to be available by the CMAC Board.
(c) CMAC shall notify Amerin promptly (but in no event later than 24
hours) after receipt by CMAC or any of its advisors of a CMAC Acquisition
Proposal or any request for nonpublic information in connection with a CMAC
Acquisition Proposal or for access to the properties, books or records of CMAC
or any of its Subsidiaries by any person that informs CMAC or any of its
advisors that it is considering making, or has made, a CMAC Acquisition
Proposal. Such notice to Amerin shall be made orally and in writing and shall
indicate the identity
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of the offeror and the terms and conditions of such proposal, inquiry or
contact. CMAC shall keep Amerin informed, on a current basis, of the status and
details (including amendments or proposed amendments) of any such CMAC
Acquisition Proposal or request and the status of any negotiations or
discussions.
SECTION 5.11. Notices of Certain Events. (a) Amerin and CMAC shall
promptly notify each other of:
(i) any notice or other communication from any person alleging that
the consent of such person is or may be required in connection with the
transactions contemplated by this Agreement; and
(ii) any notice or other communication from any Governmental Entity
in connection with the transactions contemplated by this Agreement.
(b) Amerin shall promptly notify CMAC of any actions, suits, claims,
investigations or proceedings commenced or, to its Knowledge threatened against,
relating to or involving or otherwise affecting Amerin or any Subsidiary of
Amerin which, if pending on the date of this Agreement, would have been required
to have been disclosed pursuant to Section 3.16 or which relate to the
consummation of the transactions contemplated by this Agreement.
(c) CMAC shall promptly notify Amerin of any actions, suits, claims,
investigations or proceedings commenced or, to its Knowledge threatened against,
relating to or involving or otherwise affecting CMAC or any Subsidiary of CMAC
which, if pending on the date of this Agreement, would have been required to
have been disclosed pursuant to Section 4.16 or which relate to the consummation
of the transactions contemplated by this Agreement.
SECTION 5.12. Appropriate Action; Consents; Filings. (a) Subject to the
terms and conditions of this Agreement, Amerin and CMAC shall use their best
efforts to (i) take, or cause to be taken, all actions, and do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations, to consummate the Merger and the other transactions contemplated by
this Agreement as promptly as practicable, (ii) obtain from any Governmental
Entity any Permits required to be obtained or made by CMAC or Amerin or any of
their Subsidiaries in connection with the authorization, execution and delivery
of this Agreement and the consummation of the transactions contemplated herein,
and (iii) make all necessary filings, and thereafter make any other required
submissions, with respect to this Agreement and the Merger required under the
Securities Act and the Exchange Act any other applicable law; provided that
Amerin and CMAC shall cooperate with each other in connection with the making of
all such filings, including providing copies of all such documents to the
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non-filing party and its advisors prior to filing and, if requested, accepting
all reasonable additions, deletions or changes suggested in connection
therewith. Amerin and CMAC shall furnish to each other all information required
for any application or other filing to be made pursuant to the rules and
regulations of any applicable law in connection with the transactions
contemplated by this Agreement.
(b) Amerin and CMAC shall give (or shall cause their respective
Subsidiaries to give) any notices to third parties, and use (or shall cause
their respective Subsidiaries to use) all reasonable efforts to obtain any third
party consents (i) necessary, proper or advisable to consummate the transactions
contemplated by this Agreement or (ii) required to prevent the occurrence of a
Material Adverse Effect on Amerin or CMAC. In the event that either party shall
fail to obtain any third party consent described in this Section 5.12(b), such
party shall use all reasonable efforts, and shall take any such actions
reasonably requested by the other party hereto, to minimize any adverse effect
upon Amerin and CMAC, their respective Subsidiaries and their respective
businesses resulting, or which could reasonably be expected to result after the
Effective Time, from the failure to obtain such consent.
(c) No later than 30 days after the date hereof, CMAC shall determine
whether to seek the consent of the holders of the $4.125 Preferred Stock to the
Merger or to redeem the $4.125 Preferred Stock in accordance with its terms and
shall notify Amerin of its decision. Promptly thereafter CMAC shall take all
actions necessary to obtain the required consent or redeem the $4.125 Preferred
Stock, as the case may be, including, without limitation, calling any required
meeting of the holders of $4.125 Preferred Stock or seeking their written
consent (and, in such case, establishing a date by which such consent must be
given), giving all required notices of redemption and obtaining all required
financing required in order to effect the redemption of the $4.125 Preferred
Stock. If CMAC elects to seek the consent of the holders of the $4.125 Preferred
Stock and such holders refuse or fail to give their consent on or before the
date set by CMAC to receive such consent, then, CMAC shall take immediately
thereafter all actions necessary to redeem, as of the Effective Time, the $4.125
Preferred Stock.
SECTION 5.13. Cooperation. CMAC and Amerin shall cooperate with each other
(i) with respect to the timing of the CMAC Stockholder Meeting and the Amerin
Stockholder Meeting and shall use their reasonable efforts to hold such meetings
on the same day, (ii) in connection with the preparation of the Joint Proxy
Statement, (iii) in determining whether any action by or in respect of, or
filing with, any Governmental Entity is required, or any actions, consents,
approvals or waivers are required to be obtained from parties to any material
contracts, in connection with the consummation of the transactions contemplated
by this Agreement, and (iv) in seeking any such actions, consents, approvals or
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waivers or making any such filings, furnishing information required in
connection therewith or with the Joint Proxy Statement and seeking timely to
obtain any such actions, consents, approvals or waivers.
SECTION 5.14. Public Announcements. So long as this Agreement is in
effect, CMAC and Amerin will consult with each other before issuing any press
release or making any SEC filing or other public statement with respect to this
Agreement or the transactions contemplated hereby and, except as may be required
by applicable law, court process or any listing agreement with any national
securities exchange, will not issue any such press release or make any such SEC
filing or other public statement prior to such consultation and providing the
other party with a reasonable opportunity to comment thereon.
SECTION 5.15. Affiliates; Pooling of Interests; Reorganization. Within 30
days of the date of this Agreement, each of CMAC and Amerin shall deliver to the
other a letter identifying all persons whom such party believes may be deemed to
be, at the date of the CMAC Stockholder Meeting or the Amerin Stockholder
Meeting, as the case may be, an Affiliate of CMAC or Amerin, as the case may be
under Rule 145 of the Securities Act or under applicable SEC accounting releases
with respect to pooling of interests accounting treatment (each such person, a
"RULE 145 AFFILIATE"). Each of CMAC and Amerin shall use their best efforts to
obtain a written agreement from each person who is identified as a person who
may be deemed to be a Rule 145 Affiliate in the applicable letter referred to
above as soon as practicable and, in any event, within 45 days of the date of
this Agreement, substantially in the form of Exhibit B-1 or B-2, as applicable.
Each of the parties hereto shall use their best efforts to cause the
transactions contemplated by this Agreement to qualify, and shall not knowingly
take any action, except for the transactions contemplated by this Agreement,
which could prevent such transactions from qualifying (i) for pooling of
interests accounting treatment and (ii) as a reorganization within the meaning
of Section 368(a) of the Code.
SECTION 5.16. Takeover Statutes. If any takeover statute is or may become
applicable to the Merger, each of CMAC and Amerin shall take such actions as are
necessary so that the Merger may be consummated as promptly as practicable on
the terms contemplated hereby and otherwise act to eliminate or minimize the
effects of any takeover statute on the Merger.
SECTION 5.17. Employment Agreement. CMAC and Roy J. Kasmar shall enter
into the Employment Agreement no later than the date on which all conditions to
the Merger set forth in Section 6.01 and 6.03 (other than the condition set
forth in Section 6.03(f)) have been satisfied.
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ARTICLE 6
CONDITIONS TO THE MERGER
SECTION 6.01. Conditions to the Obligations of Each Party. The
obligations of Amerin and CMAC to consummate the Merger are subject to the
satisfaction of the following conditions:
(a) this Agreement, the Merger and the transactions contemplated by the
this Agreement shall have been approved and adopted by the common stockholders
of Amerin and CMAC in accordance with Delaware Law and applicable stock exchange
rules;
(b) any applicable waiting period under the HSR Act relating to the Merger
and the transactions contemplated by this Agreement shall have expired or been
terminated;
(c) CMAC and Amerin shall have obtained regulatory approvals permitting
the Surviving Corporation to operate in states accounting for more than 90% of
the premiums earned from new insurance written by CMAC and Amerin during the
nine full calendar months immediately preceding the Effective Time; provided
that, in any event, all required approvals in the states set forth in Section
6.01(c) of the CMAC Schedule of Exceptions shall have been obtained;
(d) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Merger;
(e) the Registration Statement shall have been declared effective by the
SEC and no stop order suspending the effectiveness of the Registration Statement
shall be in effect and no proceedings for such purpose shall be pending before
or threatened by the SEC;
(f) the shares of CMAC Stock to be issued in connection with the Merger
and upon exercise of the Substitute Options shall have been approved for listing
on the NYSE, subject to official notice of issuance;
(g) CMAC and Amerin each shall have received a letter from their
respective independent accountants addressed to CMAC or Amerin, as the case may
be, and dated as of the Closing Date to the effect that the Merger will qualify
for "pooling of interests" accounting treatment under Opinion 16 of the
Accounting Principles Board and applicable SEC rules and regulations; and
(h) The Merger shall have been approved by the holders of at least
two-thirds of the outstanding shares of $4.125 Preferred Stock or all of the
outstanding shares of $4.125 Preferred Stock shall have been redeemed.
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SECTION 6.02. Conditions to the Obligations of CMAC. The obligations of
CMAC to consummate the Merger are subject to the satisfaction of the following
further conditions:
(a) the representations and warranties of Amerin set forth in this
Agreement that are qualified as to Material Adverse Effect (including the
representation and warranty set forth in Section 3.12) shall be true and correct
as of the Effective Time and the representations and warranties that are not so
qualified, taken together, shall be true and correct in all material respects,
in each case as though made as of the Effective Time (except to the extent any
such representation or warranty expressly speaks as of an earlier date or time);
and CMAC shall have received a certificate signed on behalf of Amerin by an
executive officer of Amerin to such effect;
(b) Amerin shall have complied in all respects with the covenants
contained in Sections 5.01(a), (b), (c) or (g) and in all material respects with
the other covenants required to be complied with by it under this Agreement and
shall have performed in all material respects each obligation and agreement
required to be performed by it under this Agreement, in each case at or prior to
the Effective Time; and CMAC shall have received a certificate signed on behalf
of Amerin by an executive officer of Amerin to such effect;
(c) CMAC shall have received an opinion of Morgan, Lewis & Bockius LLP, in
form and substance reasonably satisfactory to CMAC and substantially in the form
of Exhibit C (following Morgan, Lewis & Bockius LLP's receipt of representations
of officers of Amerin and CMAC substantially in the form of Exhibits E-1 and
E-2), on the basis of certain facts, representations and assumptions set forth
in such opinion, dated the Closing Date, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization qualifying under the
provisions of Section 368(a) of the Code and that each of CMAC and Amerin will
be a party to the reorganization within the meaning of Section 368(b) of the
Code;
(d) there shall not have been any downgrading of the claims-paying ability
rating of Amerin Guaranty Corporation below the level of "Aa3" as determined by
Moody's Investors Service, Inc. and "AA" as determined by Standard & Poor's
Rating Group, a Division of McGraw-Hill Corporation, nor shall either rating
agency have given any indication of an intention to downgrade Amerin Guaranty
Corporation or Commonwealth Mortgage Assurance Company below "Aa3" or "AA", as
the case may be, in each case after giving effect to the transactions
contemplated by this Agreement; and
(e) there shall not have been any change in either (i) the laws, statutes
or regulations governing Amerin, or (ii) in the interpretation of any laws,
statutes or
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regulations governing Amerin by a court of competent jurisdiction or any
Governmental Entity that would materially impair the ability of Amerin to
conduct its business in the ordinary course and in a manner consistent with past
practice.
SECTION 6.03. Conditions to the Obligations of Amerin. The obligations of
Amerin to consummate the Merger are subject to the satisfaction of the following
further conditions:
(a) the representations and warranties of CMAC set forth in this Agreement
that are qualified as to Material Adverse Effect (including the representation
and warranty set forth in Section 4.12) shall be true and correct as of the
Effective Time and the representations and warranties that are not so qualified,
taken together, shall be true and correct in all material respects, in each case
as though made as of the Effective Time (except to the extent any such
representation or warranty expressly speaks as of an earlier date or time); and
Amerin shall have received a certificate signed on behalf of CMAC by an
executive officer of CMAC to such effect;
(b) CMAC shall have complied in all respects with the covenants contained
in Sections 5.02(a), (b), (c) or (g) and in all material respects with the other
covenants required to be complied with by it under this Agreement and shall have
performed in all material respects each obligation and agreement required to be
performed by it under this Agreement, in each case at or prior to the Effective
Time; and Amerin shall have received a certificate signed on behalf of CMAC by
an executive officer of CMAC to such effect;
(c) Amerin shall have received an opinion of Davis Polk & Wardwell, in
form and substance reasonably satisfactory to Amerin and substantially in the
form of Exhibit D (following Davis Polk & Wardwell's receipt of representations
of officers of Amerin and CMAC substantially in the form of Exhibits E-1 and
E-2), on the basis of certain facts, representations and assumptions set forth
in such opinion, dated the Closing Date, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization qualifying under the
provisions of Section 368(a) of the Code and that each of CMAC and Amerin will
be a party to the reorganization within the meaning of Section 368(b) of the
Code;
(d) there shall not have been any downgrading of the claims-paying ability
rating of Commonwealth Mortgage Assurance Company below the level of "Aa3" as
determined by Moody's Investors Service, Inc. and "AA" as determined by Standard
& Poors Rating Group, a Division of McGraw-Hill Corporation, nor shall either
rating agency have given any indication of an intention to downgrade
Commonwealth Mortgage Assurance Company or Amerin Guaranty Corporation
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below "Aa3" or "AA", as the case may be, after giving effect to the transactions
contemplated by this Agreement;
(e) there shall not have been any change in either (i) the laws, statutes
or regulations governing CMAC, or (ii) in the interpretation of any laws,
statutes or regulations governing CMAC by a court of competent jurisdiction or
any Governmental Entity that would materially impair the ability of CMAC to
conduct its business in the ordinary course and in a manner consistent with past
practice; and
(f) CMAC and Roy J. Kasmar shall have executed the Employment Agreement.
ARTICLE 7
TERMINATION
SECTION 7.01. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement and the Merger by the Boards
or stockholders of Amerin or CMAC):
(a) by mutual written agreement of Amerin and CMAC;
(b) by either Amerin or CMAC, if
(i) (x) at the CMAC Stockholder Meeting (or any adjournment or
postponement thereof), the CMAC Stockholder Approval shall not have been
obtained or (y) at the Amerin Stockholder Meeting (or any adjournment or
postponement thereof), the Amerin Stockholder Approval shall not have been
obtained;
(ii) the Merger has not been consummated on or before April 30,
1999; provided that the right to terminate this Agreement pursuant to this
Section 7.01(b) shall not be available to any party whose breach of or
failure to perform any provision of this Agreement results in the failure
of the Merger to be consummated by such time and provided, further, that
such date may be extended for up to two months by either party by written
notice to the other party if the Merger would have been consummated by
April 30, 1999 but for the failure to obtain any regulatory approval
necessary to consummate the Merger and such regulatory approval can
reasonably be expected to be obtained within such two-month period;
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(iii) any judgment, injunction, order or decree enjoining any party
from consummating the Merger shall have been entered and become final and
non-appealable;
(iv) the Amerin Board shall have determined to recommend a Amerin
Acquisition Proposal to its stockholders and to enter into a binding
written agreement concerning such Amerin Acquisition Proposal after
determining, pursuant to Section 5.09, that such Amerin Acquisition
Proposal constitutes a Amerin Superior Proposal; provided that Amerin may
not exercise its right to terminate under this Section 7.01(b)(iv) (and
may not enter into a binding written agreement with respect to such Amerin
Acquisition Proposal) unless and until Amerin shall have provided CMAC
prior written notice at least two business days prior to such termination
that the Amerin Board has authorized and intends to effect the termination
of this Agreement pursuant to this Section 7.01(b)(iv), specifying the
material terms and conditions of such Amerin Acquisition Proposal; or
(v) the CMAC Board shall have determined to recommend a CMAC
Acquisition Proposal to its stockholders and to enter into a binding
written agreement concerning such CMAC Acquisition Proposal after
determining, pursuant to Section 5.10, that such CMAC Acquisition Proposal
constitutes a CMAC Superior Proposal; provided that CMAC may not exercise
its right to terminate under this Section 7.01(b)(v) (and may not enter
into a binding written agreement with respect to such CMAC Acquisition
Proposal) unless and until CMAC shall have provided Amerin prior written
notice at least two business days prior to such termination that the CMAC
Board has authorized and intends to effect the termination of this
Agreement pursuant to this Section 7.01(b)(v), specifying the material
terms and conditions of such CMAC Acquisition Proposal;
(c) by CMAC, if:
(i) any of the representations and warranties of Amerin set forth in
this Agreement that are qualified as to Material Adverse Effect shall fail
to be true and correct as of the date hereof or any of the other
representations and warranties of Amerin set forth in this Agreement,
taken together, shall fail to be true and correct in all material respects
as of the date hereof and, in either case, either (x) the senior officers
of Amerin shall have had, as of the date hereof, actual knowledge of such
failure or (y) such senior officers shall not have had such knowledge and
such failure could not reasonably be expected to be cured by the Closing
Date without causing material delay of the Closing or requiring Amerin to
take
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an action that would violate the terms of this Agreement or cause any of
the conditions to closing set forth herein to fail to be satisfied;
provided that, before exercising any such right to terminate, CMAC shall
provide Amerin 10 business days prior written notice of its intent to
terminate, specifying, in reasonable detail, the basis for termination;
(ii) there shall have occurred a breach or failure to perform any
covenant or agreement set forth in this Agreement that, if not cured by
the Closing Date, would cause the condition set forth in Section 6.02(b)
to fail to be satisfied or there shall have occurred any event, or any
fact shall have arisen that, if not cured by the Closing Date, would cause
the conditions set forth in Section 6.02(a) to fail to be satisfied and,
in either case, such breach or failure could not reasonably be expected to
be cured by the Closing Date, without causing a material delay in the
Closing or requiring Amerin to take an action that would violate the terms
of this Agreement or cause another failure of a condition to closing to be
satisfied, or reasonably could be expected to be cured within such time
period but Amerin shall fail to pursue expeditiously such cure; provided
that, before exercising any such right to terminate, CMAC shall provide
Amerin with 10 business days prior written notice of its intent to
terminate, specifying in reasonable detail, the basis for termination;
(iii) the Amerin Board shall withdraw or modify, or propose to
withdraw or modify, in a manner adverse to CMAC, its approval or
recommendation of this Agreement or the Merger or shall have resolved to
do so; or
(iv) Amerin or any of its Affiliates shall have materially and
knowingly breached the covenant contained in Section 5.09;
(d) by Amerin, if:
(i) any of the representations and warranties of CMAC set forth in
this Agreement that are qualified as to Material Adverse Effect shall fail
to be true and correct as of the date hereof or any of the other
representations and warranties of CMAC set forth in this Agreement, taken
together, shall fail to be true and correct in all material respects as of
the date hereof and, in either case, either (x) the senior officers of
CMAC shall have had, as of the date hereof, actual knowledge of such
failure or (y) such senior officers shall not have had such knowledge and
such failure could not reasonably be expected to be cured by the Closing
Date without causing material delay of the Closing or requiring CMAC to
take an action that would violate the terms of this Agreement or cause any
of the conditions to closing set forth herein to fail to be satisfied;
provided
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that, before exercising any such right to terminate, Amerin shall provide
CMAC 10 business days prior written notice of its intent to terminate,
specifying, in reasonable detail, the basis for termination;
(ii) there shall have occurred a breach or failure to perform any
covenant or agreement set forth in this Agreement that, if not cured by
the Closing Date, would cause the condition set forth in Section 6.03(b)
to fail to be satisfied or there shall have occurred any event, or any
fact shall have arisen that, if not cured by the Closing Date, would cause
the conditions set forth in Section 6.03(a) to fail to be satisfied and,
in either case, such breach or failure could not reasonably be expected to
be cured by the Closing Date, without causing a material delay in the
Closing or requiring CMAC to take an action that would violate the terms
of this Agreement or cause another failure of a condition to closing to be
satisfied, or reasonably could be expected to be cured within such time
period but CMAC shall fail to pursue expeditiously such cure; provided
that, before exercising any such right to terminate, Amerin shall provide
CMAC with 10 business days prior written notice of its intent to
terminate, specifying in reasonable detail, the basis for termination;
(iii) the CMAC Board shall withdraw or modify, in a manner adverse
to Amerin, its approval or recommendation of this Agreement or the Merger
or shall have resolved to do so; or
(iv) CMAC or any of its Affiliates shall have materially and
knowingly breached the covenant contained in Section 5.10.
The party desiring to terminate this Agreement pursuant to this Section
7.01 (other than pursuant to Section 7.01(a)) shall give notice of such
termination to the other party.
SECTION 7.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 7.01, this Agreement shall become void and of no effect with
no liability on the part of any party hereto, except that (i) the agreements
contained in Sections 7.03, 8.04, 8.06, 8.07 and 8.08 and this Section 7.02
shall survive the termination hereof and (ii) no such termination shall release
any party of any liabilities or damages resulting from any willful or grossly
negligent breach by that party of any provision of this Agreement.
SECTION 7.03. Certain Fees. (a) In addition to any amount payable pursuant
to Section 7.02, Amerin shall pay to CMAC, as a fee and in reimbursement of
expenses relating to the transactions contemplated by this Agreement,
$22,000,000 upon the termination of this Agreement pursuant to
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Section 7.01(b)(iv), 7.01(c)(iii) or 7.01(c)(iv). Such payment shall be made
within two business days of any such termination.
(b) In addition to any amount payable pursuant to Section 7.02, CMAC shall
pay to Amerin, as a fee and in reimbursement of expenses relating to the
transactions contemplated by this Agreement, $22,000,000 upon the termination of
this Agreement pursuant to Section 7.01(b)(v), 7.01(d)(iii) or 7.01(d)(iv). Such
payment shall be made within two business days of any such termination.
ARTICLE 8
MISCELLANEOUS
SECTION 8.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including facsimile transmission)
and shall be given,
if to CMAC, to:
CMAC Investment Corporation
1601 Market Street
Philadelphia, PA 19103
Attention: Howard S. Yaruss, Esq.
Facsimile No.: (215) 405-9160
with a copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
Attention: James W. McKenzie, Jr., Esq.
Facsimile No.: (215) 963-5299
if to Amerin, to:
Amerin Corporation
200 East Randolph Drive
49th Floor
Chicago, Illinois 60601
Attention: Randolph C. Sailer II, Esq.
Facsimile No.: (312) 540-3978
with a copy to:
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Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Diane G. Kerr, Esq.
Facsimile No.: (212) 450-5590
or such other address or fax number as such party may hereafter specify for the
purpose by notice to the other parties hereto. All such notices, requests and
other communications shall be deemed received on the date of receipt by the
recipient thereof if received prior to 5 p.m. in the place of receipt and such
day is a business day in the place of receipt. Otherwise, any such notice,
request or communication shall be deemed not to have been received until the
next succeeding business day in the place of receipt.
SECTION 8.02. Nonsurvival of Representations, Warranties, Covenants and
Agreements. None of the representations, warranties, covenants and agreements
contained herein or in any certificate or other writing delivered pursuant
hereto shall survive the Effective Time, except for covenants and agreements
which, by their terms, are to be performed after the Effective Time.
SECTION 8.03. Amendments; No Waivers. (a) Any provision of this Agreement
may be amended or waived prior to the Effective Time if, but only if, such
amendment or waiver is in writing and is signed, in the case of an amendment, by
each party to this Agreement or in the case of a waiver, by the party against
whom the waiver is to be effective; provided that after the adoption of this
Agreement by the stockholders of either Amerin or CMAC, there shall be made no
amendment that by law requires further approval by such stockholders without
such further approval.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 8.04. Expenses. Except as otherwise provided in this Agreement,
all costs and expenses incurred in connection with this Agreement shall be paid
by the party incurring such cost or expense.
SECTION 8.05. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or
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otherwise transfer any of its rights or obligations under this Agreement without
the consent of each other party hereto.
SECTION 8.06. Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of Delaware, without regard to
principles of conflicts of laws.
SECTION 8.07. Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby may be brought in
any federal court located in the State of Delaware or any Delaware state court,
and each of the parties hereby consents to the jurisdiction of such courts (and
of the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient form. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 8.01 shall be deemed
effective service of process on such party.
SECTION 8.08. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 8.09. Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto. Except for
Section 5.04 hereof, no provision of this Agreement is intended to confer upon
any person other than the parties hereto any rights or remedies hereunder.
SECTION 8.10. Entire Agreement. This Agreement and the Confidentiality
Agreement constitute the entire agreement between the parties with respect to
the subject matter of this Agreement and supersedes all prior agreements and
understandings, both oral and written, between the parties with respect to the
subject matter hereof and thereof.
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SECTION 8.11. Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof
SECTION 8.12. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any parts. Upon such
a determination, such term, provision, covenant or restriction shall be deemed
reformed in such jurisdiction to the maximum limitations permitted by the
applicable law of such jurisdiction.
SECTION 8.13. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof in addition to any other
remedy to which they are entitled at law or in equity.
SECTION 8.14. Definitions and Usage. (a) For purposes of this
Agreement:
"AFFILIATE" means, with respect to any person, any other person directly
or indirectly controlling, controlled by, or under common control with such
person. The term "control" means possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise.
"BOARD" means with respect to any corporation the Board of Directors of
such corporation.
"EMPLOYMENT AGREEMENT" means the employment agreement to be executed
between CMAC and Roy J. Kasmar, substantially in accordance with the terms set
forth on Exhibit F.
"GAAP" means U.S. generally accepted accounting principles.
"KNOWLEDGE" of any person which is not an individual means the Knowledge
of such person's officers after reasonable inquiry.
"MATERIAL ADVERSE EFFECT" means with respect to CMAC or Amerin a material
adverse effect (i) on the business, properties, assets, liabilities (contingent
or otherwise), condition (financial or otherwise) or results of operations of
CMAC
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and its Subsidiaries, taken as a whole, or Amerin and its Subsidiaries, taken as
a whole, as the case may be, or (ii) on the ability of CMAC or Amerin, as the
case may be, to perform its obligations under, or to consummate the transactions
contemplated by, this Agreement.
"OFFICER" means, in the case of CMAC and Amerin, any executive officer of
CMAC or Amerin, as applicable, within the meaning of Rule 3b-7 of the Exchange
Act.
"PERSON" means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"SAP" means the accounting procedures and practices prescribed or
permitted from time to time by the National Association of Insurance
Commissioners and adopted, permitted or promulgated by the respective states of
incorporation of Amerin and its Subsidiaries or CMAC and its Subsidiaries, as
the case may be, and employed in a consistent manner throughout the periods
involved.
"SUBSIDIARY" means, with respect to any person, any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the Board or other persons performing similar functions are at any
time directly or indirectly owned by such person.
A reference in this Agreement to any statute shall be to such statute as
amended from time to time, and to the rules and regulations promulgated
thereunder.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
TERM SECTION
---- -------
$4.125 Preferred Stock................ 4.05
Affiliate............................. 8.14(a)
Agreement............................. preamble
Amerin................................ Preamble
Amerin 10-K........................... 3.09(a)(i)
Amerin 10-Q........................... 3.09(a)(iv)
Amerin Annual Statements.............. 3.10(b)
Amerin Acquisition Proposal........... 5.09
Amerin Annual Statements.............. 3.10(b)
Amerin Balance Sheet.................. 3.10(a)
Amerin Balance Sheet Date............. 3.10(a)
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TERM SECTION
---- -------
Amerin Director Designees............... 2.03
Amerin Employee Plans................... 3.22(a)
Amerin Existing Reinsurance Agreements.. 3.17(b)
Amerin Returns.......................... 3.21(i)
Amerin SEC Filings...................... 3.09(a)(iv)
Amerin Significant Agreements........... 3.15(b)
Amerin Stock............................ 1.02(a)
Amerin Stockholder Approval............. 5.03(a)
Amerin Stockholder Meeting.............. 5.03(a)
Amerin Stockholder Rights............... 1.02(a)
Amerin Superior Proposal................ 5.09(b)
Amerin Unaudited September Balance
Sheet................................... 3.10(a)
Certificate of Merger................... 1.01(c)
Certificates............................ 1.04(a)
Closing................................. 1.04(b)
Closing Date............................ 1.04(b)
CMAC.................................... Preamble
CMAC 10-K............................... 4.09(a)(i)
CMAC 10-Q............................... 4.09(a)(iv)
CMAC Annual Statements.................. 4.10(b)
CMAC Acquisition Proposal............... 5.10
CMAC Balance Sheet...................... 4.10(a)
CMAC Balance Sheet Date................. 4.10(a)
CMAC Director Designees................. 2.03
CMAC Employee Plans..................... 4.22(a)(ii)
CMAC Existing Reinsurance Agreements.... 4.17(b)
CMAC Retirement Plans................... 4.22(c)
CMAC Returns............................ 4.21(i)
CMAC SEC Filings........................ 4.09(a)(iv)
CMAC Significant Agreements............. 4.15(b)
CMAC Stock.............................. 1.02(a)
CMAC Stockholder Approval............... 5.03(b)
CMAC Stockholder Meeting................ 5.03(b)
CMAC Stockholder Rights................. 1.02(a)
CMAC Superior Proposal.................. 5.10(b)
CMAC Unaudited September Balance Sheet.. 4.10(a)
Code.................................... Preamble
Confidentiality Agreement............... 5.08(a)
Corporation............................. 2.01
Delaware Law............................ 1.01(a)
DLJ..................................... 3.19
Effective Time.......................... 1.01(c)
Employment Agreement.................... 8.14(a)
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TERM SECTION
---- -------
Environmental Laws.................... 3.23(b)
Environmental Permits................. 3.23(b)
ERISA................................. 3.22(a)
ERISA Affiliate....................... 3.22(a)
Exchange Act.......................... 3.03(ii)
Exchange Agent........................ 1.04(a)
Exchange Ratio........................ 1.02(a)
Existing Reinsurance Agreements....... 3.17(b)
GAAP.................................. 8.14(a)
Governmental Entity................... 3.03
HSR Act............................... 3.03(a)(ii)
Intellectual Property................. 3.23(b)
Investment Assets..................... 3.13(b)
IRS................................... 3.21
Joint Proxy Statement................. 3.11
Knowledge............................. 8.14(a)
Lien.................................. 3.04
Material Adverse Effect............... 8.14(a)
Merger................................ 1.01(a)
Merger Consideration.................. 1.02(a)
Multiemployer Plan.................... 3.22(c)
Nonvoting Amerin Stock................ 3.05
NYSE.................................. 1.07
officer............................... 8.14(a)
Permits............................... 3.08(a)
person................................ 8.14(a)
Registration Statement................ 3.11
Regulators............................ 3.10(b)
Rule 145 Affiliate.................... 5.15
SAP................................... 8.14(a)
SEC................................... 3.09(a)(iv)
Securities Act........................ 3.03(ii)
Series A Preferred Stock.............. 3.05
Significant Agreements................ 3.15(b)
Software.............................. 3.24(b)
Subsidiary............................ 8.14(a)
Substitute Option..................... 1.05(a)
Surviving Corporation................. 1.01(a)
Tax/Taxes............................. 3.21
2000 Annual Meeting................... 2.02
Voting Amerin Stock................... 3.05
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
CMAC INVESTMENT CORPORATION
By: /s/ Frank P. Filipps
------------------------------------------
Name: Frank P. Filipps
Title: President and Chief Executive
Officer
AMERIN CORPORATION
By: /s/ Roy J. Kasmar
------------------------------------------
Name: Roy J. Kasmar
Title: President and Chief Operating
Officer