<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 27, 2000
REGISTRATION NO. 333-
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--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
RADIAN GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6719 23-2691170
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1601 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103
(215) 564-6600
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
HOWARD S. YARUSS
SENIOR VICE PRESIDENT,
SECRETARY AND GENERAL COUNSEL
RADIAN GROUP INC.
1601 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103
(215) 564-6600
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C> <C>
SAMUEL BERGMAN, ESQ.
EXECUTIVE VICE PRESIDENT, SECRETARY
AND GENERAL COUNSEL
TREVOR S. NORWITZ, ESQ. ENHANCE FINANCIAL SERVICES GROUP DAVID W. BERNSTEIN, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ INC. CLIFFORD CHANCE ROGERS & WELLS LLP
51 WEST 52ND STREET 335 MADISON AVENUE, 25TH FLOOR 200 PARK AVENUE
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10166
(212) 403-1000 (212) 984-9200 (212) 878-8000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective and the satisfaction or waiver of all other conditions to the merger
of Enhance Financial Services Group Inc. with GOLD Acquisition Corporation, a
wholly owned subsidiary of Radian Group Inc.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
---------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
---------------
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(3) OFFERING PRICE FEE(4)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock of Registrant, par value $.001 per
share (and associated preferred stock purchase
rights)(1).................................... 9,784,150(2) $67.61 $661,541,959 $165,385.49
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Each share of Radian Group Inc. ("Radian") common stock ("Radian common
stock") is accompanied by a right to purchase Series A Junior Participating
Preferred Shares, par value $.001 per share, of the registrant. Prior to the
occurrence of certain events, none of which have occurred as of this date,
the rights will not be exercisable or evidenced separately from the common
stock.
(2) Based upon the estimate of the maximum number of shares of common stock,
$.10 par value per share (the "Enhance Financial Services common stock"), of
Enhance Financial Services Group Inc. ("Enhance Financial Services") that
will each be exchanged for 0.22 share of common stock, $.001 par value per
share of Radian pursuant to the merger described herein.
(3) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(1) of the Securities Act, based on the aggregate market value
on December 21, 2000, of the shares of Enhance Financial Services common
stock expected to be cancelled in connection with the merger and computed by
dividing (i) the product of (A) the average of the high and low prices of
Enhance Financial Services common stock as reported on the New York Stock
Exchange, Inc. on December 21, 2000, ($14.875) and (B) 44,473,409,
representing the maximum number of shares of Enhance Financial Services
common stock expected to be cancelled in connection with the merger, by (ii)
9,784,150, representing the maximum number of shares of Radian common stock
to be issued to Enhance Financial Services stockholders in connection with
the merger.
(4) The registration fee of $165,385.49 was calculated pursuant to Rule 457(f)
and Section 6 of the Securities Act, as follows: .000250 multiplied by the
proposed maximum aggregate offering price.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
SUBJECT TO COMPLETION [ ], 2001
[RADIAN LOGO TO COME] [ENHANCE FINANCIAL SERVICES LOGO TO COME]
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
Radian Group Inc. and Enhance Financial Services Group Inc. have agreed on
a merger transaction involving our two companies. Before we can complete the
merger, we must obtain the approval of our companies' stockholders. We are
sending you this Joint Proxy Statement/Prospectus to ask you to vote in favor of
the merger transaction and related matters.
In the merger, a subsidiary of Radian will merge with and into Enhance
Financial Services. As a result, Enhance Financial Services will become a wholly
owned subsidiary of Radian, and shareholders of Enhance Financial Services will
receive 0.22 (subject to adjustment to not less than 0.205) of a Radian common
share in return for each Enhance Financial Services common share they currently
own. Outstanding Radian common shares will remain unchanged in the merger. The
Radian common shares, including the shares issued to shareholders of Enhance
Financial Services in the merger, will continue to be listed on the New York
Stock Exchange under the trading symbol "RDN."
Enhance Financial Services will hold a special meeting of its shareholders
to consider and vote on the merger proposal. Radian will hold a special meeting
of its stockholders to consider and vote on the proposal to issue Radian common
shares in the merger.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend your
stockholders' meeting, please take the time to vote by completing the enclosed
proxy card and mailing it to us or, if you are an Enhance Financial Services
shareholder, you may also vote by following the Internet or telephone
instructions on the proxy card. If you sign, date and mail your proxy card
without indicating how you want to vote, your proxy will be counted as a vote
FOR each of the proposals presented. If you neither return your card nor, if you
are an Enhance Financial Services shareholder, vote by Internet or telephone, or
if you do not instruct your broker how to vote any shares held for you in
"street name," your shares will not be voted at the meeting.
APPROVAL OF THE MERGER BY THE ENHANCE FINANCIAL SERVICES SHAREHOLDERS
REQUIRES THE AFFIRMATIVE VOTE OF TWO-THIRDS OF ITS OUTSTANDING SHARES.
THEREFORE, AN ENHANCE FINANCIAL SERVICES SHAREHOLDER NOT VOTING HAS THE SAME
EFFECT AS VOTING AGAINST THE MERGER.
The dates, times and places of the stockholders' meetings are as follows:
<TABLE>
<CAPTION>
RADIAN STOCKHOLDERS: ENHANCE FINANCIAL SERVICES SHAREHOLDERS:
<S> <C>
[ ] [ ]
, 2001, [ ] a.m., local time , 2001, [ ] a.m., local time
</TABLE>
This Joint Proxy Statement/Prospectus gives you detailed information about
the merger we are proposing, and it includes our merger agreement as Annex A.
You can get more information about our companies from publicly available
documents we have filed with the Securities and Exchange Commission. We
encourage you to read carefully this entire document, including all its annexes,
and we especially encourage you to read the section on "Risk Factors" beginning
on page 15.
We enthusiastically support this compelling combination of two successful
companies, and we join with the members of our boards of directors in
recommending that you vote in favor of the merger and the related proposal.
<TABLE>
<S> <C>
----------------------------------------------- -----------------------------------------------
Frank P. Filipps Daniel Gross
Chairman and Chief Executive Officer President and Chief Executive Officer
Radian Group Inc. Enhance Financial Services Group Inc.
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES THAT WILL BE ISSUED IN
THE MERGER OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED [ ], 2001,
AND IS BEING FIRST MAILED TO STOCKHOLDERS ON OR ABOUT [ ], 2001.
<PAGE> 3
This document incorporates important business and financial information about
Radian and Enhance Financial Services that is not included in or delivered with
this document. This information is available without charge to stockholders upon
written or oral request at the applicable company's address and telephone number
listed on page 4. To obtain timely delivery, stockholders must request the
information no later than , 2001.
<PAGE> 4
ENHANCE FINANCIAL SERVICES GROUP INC.
335 MADISON AVENUE
NEW YORK, NY 10017
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 2001
------------------------
To the Shareholders of Enhance Financial Services Group Inc.:
A special meeting of shareholders of Enhance Financial Services Group Inc.
will be held on , 2001, at , local time, at ,
for the following purposes:
- To consider and vote upon a proposal to adopt the merger agreement among
Radian Group Inc., GOLD Acquisition Corporation, which is a newly formed
wholly owned subsidiary of Radian, and Enhance Financial Services, and
authorize the transactions contemplated by the merger agreement,
including the merger; and
- To transact such other business as may properly be brought before the
special meeting and any adjournments or postponements of it.
Holders of record of Enhance Financial Services common shares at the close
of business on , 2001 will be entitled to be notified of and to vote
at the special meeting or any adjournment or postponement of it.
THE ENHANCE FINANCIAL SERVICES BOARD OF DIRECTORS HAS UNANIMOUSLY
DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY IT,
INCLUDING THE MERGER, ARE IN THE BEST INTERESTS OF ENHANCE FINANCIAL SERVICES
AND ITS SHAREHOLDERS. ACCORDINGLY, THE ENHANCE FINANCIAL SERVICES BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO ADOPT THE MERGER AGREEMENT AND
AUTHORIZE THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE
MERGER, AT THE SPECIAL MEETING.
Please take the time to vote by completing and mailing the proxy card or by
following the Internet or telephone voting instructions on the enclosed proxy
card. A postage-prepaid envelope has been provided for your convenience if you
wish to vote by mail. You may revoke your proxy at any time before the vote is
taken by sending to the Secretary of Enhance Financial Services a proxy with a
later date or voting again by Internet or telephone. Alternatively, you may
revoke your proxy by delivering to the Secretary of Enhance Financial Services a
written revocation or by voting in person at the special meeting.
IT IS IMPORTANT THAT YOU SIGN, DATE AND RETURN THE PROXY CARD IN THE
ENCLOSED ENVELOPE OR VOTE BY INTERNET OR TELEPHONE SO THAT YOUR SHARES WILL BE
REPRESENTED WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU DO NOT
RETURN YOUR CARD OR VOTE BY INTERNET OR TELEPHONE, OR IF YOU DO NOT INSTRUCT
YOUR BROKER HOW TO VOTE ANY SHARES HELD FOR YOU IN "STREET NAME," YOUR SHARES
WILL NOT BE VOTED AT THE SPECIAL MEETING. BECAUSE ADOPTION OF THE MERGER
AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF TWO-THIRDS OF THE OUTSTANDING ENHANCE
FINANCIAL SERVICES SHARES, THAT WOULD HAVE THE SAME EFFECT AS YOUR VOTING
AGAINST THE MERGER.
REGARDLESS OF THE NUMBER OF SHARES YOU HOLD, YOUR VOTE IS VERY IMPORTANT.
By Order of the Board of Directors
Samuel Bergman
Executive Vice President, Secretary
and General Counsel
New York, NY
[ ] , 2001
PLEASE DO NOT SEND ANY ENHANCE FINANCIAL SERVICES STOCK CERTIFICATES AT THIS
TIME.
<PAGE> 5
RADIAN GROUP INC.
1601 MARKET STREET
PHILADELPHIA, PA 19103
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 2001
------------------------
To the Stockholders of Radian Group Inc.:
A special meeting of stockholders of Radian Group Inc. will be held on
, 2001, at , local time, at , for the following
purposes:
- To consider and vote upon a proposal to approve the issuance of the
Radian common shares to be received by Enhance Financial Services Group
Inc. shareholders in the proposed merger between a newly formed wholly
owned subsidiary of Radian and Enhance Financial Services; and
- To transact such other business as may properly be brought before the
special meeting and any adjournments or postponements of it.
Holders of record of Radian common shares at the close of business on
, 2001 will be entitled to be notified of and to vote at the special
meeting or any adjournment or postponement of it. A list of Radian stockholders
will be available for inspection at Radian's headquarters during ordinary
business hours for the ten-day period before the special meeting.
THE RADIAN BOARD OF DIRECTORS HAS DETERMINED THAT THE TRANSACTIONS
CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE ISSUANCE OF RADIAN SHARES,
ARE IN THE BEST INTERESTS OF RADIAN AND ITS STOCKHOLDERS. ACCORDINGLY, THE
RADIAN BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE AT THE SPECIAL
MEETING TO APPROVE THE SHARE ISSUANCE.
Please take the time to vote by completing and mailing the proxy card. A
postage-prepaid envelope has been provided for your convenience. You may revoke
your proxy at any time before the vote is taken by sending to the Secretary of
Radian a proxy with a later date. Alternatively, you may revoke your proxy by
delivering to the Secretary of Radian a written revocation or by voting in
person at the special meeting.
IT IS IMPORTANT THAT YOU SIGN, DATE AND RETURN THE PROXY CARD IN THE
ENCLOSED ENVELOPE SO THAT YOUR SHARES WILL BE REPRESENTED WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETING. IF YOU DO NOT RETURN YOUR CARD, OR IF YOU DO
NOT INSTRUCT YOUR BROKER HOW TO VOTE ANY SHARES HELD FOR YOU IN "STREET NAME,"
YOUR SHARES WILL NOT BE VOTED AT THE SPECIAL MEETING.
REGARDLESS OF THE NUMBER OF SHARES YOU HOLD, YOUR VOTE IS VERY IMPORTANT.
By Order of the Board of Directors
Howard S. Yaruss
Senior Vice President,
Secretary and General Counsel
Philadelphia, PA
[ ] , 2001
PLEASE DO NOT SEND ANY RADIAN STOCK CERTIFICATES.
<PAGE> 6
To find any one of the principal sections identified below, simply bend the
document slightly to expose the black tabs and open the document to the tab that
corresponds to the title of the section you wish to read.
<TABLE>
<S> <C>
TABLE OF CONTENTS -
QUESTIONS AND ANSWERS ABOUT THE MERGER -
SUMMARY -
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL -
INFORMATION
RISK FACTORS -
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS -
AND PRO FORMA INFORMATION
THE SPECIAL MEETINGS -
THE MERGER -
INTERESTS OF CERTAIN PERSONS IN THE MERGER -
THE MERGER AGREEMENT -
THE COMPANIES -
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION -
DESCRIPTION OF RADIAN CAPITAL STOCK -
COMPARISON OF STOCKHOLDER RIGHTS -
WHERE YOU CAN FIND MORE INFORMATION -
ANNEXES -
</TABLE>
i
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Questions and Answers about the Merger...................... 1
Summary..................................................... 4
Summary Historical and Unaudited Pro Forma Financial
Information............................................... 10
Risk Factors................................................ 15
Cautionary Statement Concerning Forward-Looking Statements
and Pro Forma Information................................. 17
The Special Meetings........................................ 18
Information about the Special Meetings and Voting......... 18
Matters Relating to the Special Meetings.................. 18
Voting by Proxy........................................... 20
How to Vote by Proxy...................................... 21
Other Voting Matters...................................... 21
Other Business; Adjournments.............................. 22
The Merger.................................................. 23
Background of the Merger.................................. 23
Reasons for the Merger; Recommendations of the Boards of
Directors.............................................. 26
Opinion of Enhance Financial Services' Financial
Advisor................................................ 29
Opinion of Radian's Financial Advisor..................... 33
Accounting Treatment...................................... 38
Regulatory Approvals...................................... 38
Rights of Dissenting Stockholders......................... 39
Federal Securities Law Consequences....................... 39
Certain Federal Income Tax Consequences of the Merger..... 39
Interests of Certain Persons in the Merger.................. 42
Change-in-Control Provisions.............................. 42
Options Held by Enhance Financial Services Executive
Officers and Directors................................. 43
Agreement to Indemnify Directors, Officers and
Employees.............................................. 43
Ownership of Securities of Enhance Financial Services..... 44
The Merger Agreement........................................ 47
General................................................... 47
Effective Time and Effects of the Merger.................. 47
What Enhance Financial Services Shareholders Will
Receive................................................ 47
Treatment of Enhance Financial Services Options........... 48
Representations and Warranties............................ 48
Restrictions on Activities of Radian and Enhance Financial
Services Pending the Merger............................ 49
What Radian and Enhance Financial Services Must Do to
Facilitate the Merger.................................. 51
Conditions to the Parties' Obligations.................... 51
Proposals by Persons Other than Radian.................... 52
Termination of the Merger Agreement....................... 52
Payments as a Result of Termination....................... 53
Option to Sell C-BASS..................................... 54
</TABLE>
ii
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Amendments................................................ 54
Indemnification of Enhance Financial Services Directors
and Officers........................................... 54
The Shareholder Support Agreements........................ 55
The Companies............................................... 56
Business of Enhance Financial Services.................... 56
Business of Radian........................................ 57
GOLD Acquisition Corporation.............................. 58
Unaudited Pro Forma Condensed Financial Information......... 59
Description of Radian Capital Stock......................... 66
Authorized Capital Stock.................................. 66
Common Stock.............................................. 66
Voting................................................. 66
Dividends.............................................. 66
Additional Rights...................................... 66
Preferred Stock........................................... 67
Anti-Takeover Provisions.................................. 67
Stockholder Rights Plan................................... 67
Insurance Laws............................................ 68
Preemptive Rights......................................... 69
Transfer Agent and Registrar.............................. 69
Stock Exchange Listing; Delisting and Deregistration of
Enhance Financial Services Common Stock................ 69
Comparison of Stockholder Rights............................ 70
Amendment of Certificate of Incorporation................. 70
Amendment of Bylaws....................................... 71
Authorized Capital Stock.................................. 71
Class Voting.............................................. 72
Cumulative Voting......................................... 72
Number and Classes of Directors........................... 72
Nomination of Directors................................... 73
Other Stockholder Proposals............................... 74
Qualification of Directors................................ 74
Removal of Directors...................................... 74
Filling Vacancies on the Board............................ 75
Indemnification of Directors and Officers................. 76
Limitation on Liability of Directors...................... 78
Transactions Involving Officers or Directors.............. 78
Provisions Affecting Control Share Acquisitions and
Business Combinations.................................. 79
Mergers, Acquisitions, Share Purchases and Certain Other
Transactions........................................... 81
Rights of Dissenting Stockholders......................... 82
Preemptive Rights of Stockholders......................... 83
</TABLE>
iii
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Right to Call Special Meetings of Stockholders............ 83
Stockholder Action Without a Meeting...................... 84
Stockholder Rights Plan................................... 84
Notice of Stockholders' Meetings.......................... 85
Dividends................................................. 85
Inspection of Stockholder Lists........................... 85
Legal Matters............................................... 87
Experts..................................................... 87
Independent Public Accountants.............................. 87
Other Matters............................................... 87
Certain Proxy Card Matters.................................. 87
Stockholder Proposals....................................... 88
Where You Can Find More Information......................... 88
Agreement and Plan of Merger, dated November 13, 2000,
among Enhance Financial Services Group Inc., GOLD
Acquisition Corporation and Radian Group Inc..................Annex A
Opinion of Morgan Stanley & Co. Incorporated, dated
November 12, 2000.............................................Annex B
Opinion of Goldman, Sachs & Co., dated
November 13, 2000.............................................Annex C
</TABLE>
iv
<PAGE> 10
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL HAPPEN IN THE MERGER?
A: In the merger, Enhance Financial Services will merge with GOLD Acquisition
Corporation, a wholly owned subsidiary of Radian created for the purpose of
effecting the merger. After the merger, Enhance Financial Services will be a
wholly owned subsidiary of Radian. Enhance Financial Services shareholders
will become Radian stockholders and will own approximately 18% of the Radian
common shares that are outstanding after the merger. Current Radian
stockholders will own the remaining approximately 82%.
Q: WHY ARE RADIAN AND ENHANCE FINANCIAL SERVICES PROPOSING THE MERGER?
A: Our companies are proposing the merger because, among other reasons, we
expect as a merged company to possess the cash flow and financial strength to
accelerate growth beyond the levels either company could achieve
individually. We believe our companies have complementary skills, and we seek
to combine Radian's strength in primary mortgage insurance with Enhance
Financial Services' leadership in financial guaranty coverages. In addition,
the merged company will have a more diverse revenue stream and risk profile
than either company would have standing alone and the merged company will be
better positioned to capitalize on and lead the trend toward convergence of
financial and insurance products.
Please read the more detailed description of each of our reasons for the
merger starting on page 26.
Q: WHAT WILL HAPPEN TO MY ENHANCE FINANCIAL SERVICES COMMON SHARES IN THE
MERGER?
A: You will receive 0.22 (subject to adjustment to not less than 0.205) of a
Radian common share for each Enhance Financial Services common share you own.
You will also receive cash in place of any fractional shares.
The Radian common shares received in the merger will be listed on the New
York Stock Exchange under ticker symbol "RDN."
Q: WHAT WILL HAPPEN TO MY RADIAN COMMON SHARES IN THE MERGER?
A: Nothing. Each Radian common share will remain outstanding as a Radian common
share.
Q: WHEN ARE THE STOCKHOLDERS' SPECIAL MEETINGS?
A: Each company's special meeting of stockholders will take place on
, 2001. The location of each special meeting is specified on the
cover page of this document.
Q: WHAT WILL HAPPEN AT THE STOCKHOLDERS' SPECIAL MEETINGS?
A: At Enhance Financial Services' special meeting, Enhance Financial Services
shareholders will vote on the merger agreement and the transactions
contemplated by the merger agreement, including the merger. At Radian's
special meeting, Radian stockholders will vote on the issuance of Radian
common shares in the merger.
We cannot complete the merger unless, among other things, Enhance Financial
Services shareholders vote to adopt the merger agreement and authorize the
transactions contemplated by the merger agreement, including the merger, and
Radian stockholders vote to approve the stock issuance in the merger.
Q: WHAT DO I DO TO VOTE?
A: After you read this Joint Proxy Statement/ Prospectus, mail your signed proxy
card in the enclosed return envelope or, if you are an Enhance Financial
Services shareholder, you may also vote by Internet or by telephone as soon
as possible, so that your shares may be represented at the applicable special
meeting. In order to ensure that we obtain your vote, please give your proxy
as instructed on your proxy card even if you currently plan to attend your
special meeting in person.
THE ENHANCE FINANCIAL SERVICES BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
ENHANCE FINANCIAL SERVICES SHAREHOLDERS VOTE FOR THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE MERGER.
1
<PAGE> 11
THE RADIAN BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT RADIAN STOCKHOLDERS
VOTE FOR THE ISSUANCE OF RADIAN COMMON SHARES IN THE MERGER.
Q: ARE THERE RISKS ASSOCIATED WITH THE MERGER THAT I SHOULD CONSIDER IN DECIDING
HOW TO VOTE?
A: Yes. There are risks associated with all business combinations, including the
merger. In particular, you should be aware that the number of Radian common
shares that Enhance Financial Services shareholders will receive will not
change as the market prices of Enhance Financial Services common shares and
Radian common shares fluctuate in the period before the merger. Accordingly,
the value of the Radian common shares that Enhance Financial Services
shareholders will receive in return for their Enhance Financial Services
common shares may be either less or more than it is at the date of this Joint
Proxy Statement/Prospectus. You should also be aware that the number of
Radian common shares that Enhance Financial Services shareholders will
receive may decrease from 0.22 to as low as 0.205, depending upon the audited
consolidated net worth of Singer Asset Finance Company, L.L.C., a subsidiary
of Enhance Financial Services, as of September 30, 2000. There also are a
number of other risks that are discussed in this document and in other
documents incorporated by reference in this document.
PLEASE READ WITH PARTICULAR CARE THE MORE DETAILED DESCRIPTION OF THE RISKS
ASSOCIATED WITH THE MERGER ON PAGES 15 THROUGH 16.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We expect to complete the merger as quickly as possible once all the
conditions to the merger, including obtaining the approvals of our
stockholders at the special meetings, are fulfilled. Fulfilling some of these
conditions, such as receiving certain governmental clearances or approvals,
is not entirely within our control. We currently expect to complete the
merger in the first quarter of 2001.
Q: SHOULD I SEND IN MY ENHANCE FINANCIAL SERVICES STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send written instructions to
Enhance Financial Services shareholders, including a letter of transmittal,
that explain how to exchange Enhance Financial Services stock certificates
for Radian stock certificates. Please do not send in any Enhance Financial
Services stock certificates until you receive these written instructions and
the letter of transmittal.
Q: HOW DO I VOTE MY SHARES IF MY SHARES ARE HELD IN "STREET NAME"?
A: You should contact your broker. Your broker can tell you how to instruct the
broker to vote your shares. Your broker will not vote your shares unless the
broker receives appropriate instructions from you.
Q: MAY I CHANGE MY VOTE EVEN AFTER RETURNING A PROXY CARD?
A: Yes. If you are an Enhance Financial Services shareholder and want to change
your vote, you may do so at any time before the Enhance Financial Services
special meeting by sending to the Secretary of Enhance Financial Services a
proxy with a later date or by voting again by Internet or telephone. You may
also revoke your proxy by delivering to the Secretary of Enhance Financial
Services a written revocation or by voting in person at the Enhance Financial
Services special meeting.
Similarly, if you are a Radian stockholder and want to change your vote, you
may do so at any time before the Radian special meeting by sending to the
Secretary of Radian a proxy with a later date. You may also revoke your proxy
by delivering to the Secretary of Radian a written revocation or by voting in
person at the Radian special meeting.
Enhance Financial Services shareholders or Radian stockholders that require
assistance in changing or revoking a proxy should contact Corporate Investor
Communications, Inc., our solicitation agent for the merger, at
[ ]. Corporate Investor Communications, Inc.'s telephone number
is 1-800- .
2
<PAGE> 12
Q: IF I HAVE MORE QUESTIONS ABOUT THE MERGER OR THE TWO COMPANIES, WHERE CAN I
FIND ANSWERS?
A: In addition to reading this document, its annexes and the documents we have
incorporated in this document by reference, you can find more information
about the merger or the two companies in our companies' filings with the
Securities and Exchange Commission and the New York Stock Exchange. Please
see pages 88 through 89.
3
<PAGE> 13
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. You should carefully
read this entire document and the other documents to which this document refers
to fully understand the merger. See "Where You Can Find More Information" on
page 88. Each item in this summary includes a page reference directing you to a
more complete description of that item.
GENERAL
This Joint Proxy Statement/Prospectus relates to the proposed acquisition of
Enhance Financial Services by Radian through a merger of Enhance Financial
Services with a wholly owned subsidiary of Radian.
THE COMPANIES (PAGE 56)
ENHANCE FINANCIAL SERVICES GROUP INC.
335 Madison Avenue
New York, NY 10017
(212) 984-9200
Enhance Financial Services insures and reinsures credit-based risks and acquires
and services credit-based assets in a variety of domestic and international
niche markets. Its businesses are divided into two operating segments, its
insurance businesses and its asset-based businesses, with the insurance
businesses being by far the larger operating segment. References to "Enhance
Financial Services," or to "we" or "us" in sections of this Joint Proxy
Statement/Prospectus about Enhance Financial Services refer to Enhance Financial
Services Group Inc. and its subsidiaries, unless the context indicates we are
referring only to Enhance Financial Services Group Inc.
RADIAN GROUP INC.
1601 Market Street
Philadelphia, PA 19103
(215) 564-6600
Radian Group Inc. ("Radian") is the parent company of Radian Guaranty Inc.,
which is one of the nation's largest private mortgage insurance companies.
Radian Guaranty Inc. provides private mortgage insurance and risk management
services to mortgage lending institutions, mortgage bankers, savings
institutions, commercial banks and other lenders through offices in key cities
nationwide. Private mortgage insurance protects lenders from default-related
losses on residential first mortgage loans made to home buyers who make down
payments of less than 20% of a home's purchase price and facilitates the sale of
mortgage loans in the secondary mortgage market.
GOLD ACQUISITION CORPORATION
1601 Market Street
Philadelphia, PA 19103
(215) 564-6600
GOLD Acquisition Corporation is a new, wholly owned subsidiary of Radian formed
for the purpose of effecting the merger.
THE SPECIAL MEETINGS (PAGE 18)
ENHANCE FINANCIAL SERVICES SHAREHOLDERS. The Enhance Financial Services special
meeting of shareholders will be held on [ ], 2001, at [ ] a.m.,
local time, at [ ]. At the Enhance Financial Services special
meeting, you will be asked to approve the merger agreement and the transactions
contemplated by the merger agreement, including the merger.
RADIAN STOCKHOLDERS. The Radian special meeting of stockholders will be held on
[ ], 2001, at [ ] a.m., local time, at [ ]. At the
Radian special meeting, you will be asked to approve the issuance of Radian
common shares to Enhance Financial Services shareholders in connection with the
merger.
RECORD DATE; VOTE REQUIRED (PAGES 18 AND 20)
ENHANCE FINANCIAL SERVICES SHAREHOLDERS. You can vote at the Enhance Financial
Services special meeting if you owned Enhance Financial Services common shares
at the close of business on [ ], 2001. On that date, there were
approximately [ ] Enhance Financial Services common shares outstanding
and entitled to vote. You can cast one vote for each Enhance Financial Services
common share you then owned.
Adoption of the merger agreement and authorization of the transactions
contemplated by the merger agreement, including the merger, requires the
approval of the holders of two-thirds of the outstanding Enhance Financial
Services common shares. As
4
<PAGE> 14
of , 2001, Enhance Financial Services directors and executive officers
beneficially owned approximately [ ]% of the outstanding Enhance Financial
Services common shares. These individuals have indicated that they intend to
vote in favor of the merger proposal, and some of them have contractually
committed to do so.
RADIAN STOCKHOLDERS. You can vote at the Radian special meeting if you owned
Radian common shares at the close of business on [ ], 2001. On that
date, there were approximately [ ] Radian common shares outstanding and
entitled to vote. You can cast one vote for each Radian common share you then
owned.
Approval of the share issuance requires the approval of a majority of the Radian
common shares present in person or by proxy at the special meeting and entitled
to vote. As of , 2001, Radian directors and executive officers
beneficially owned approximately [ ]% of the outstanding Radian common shares.
These individuals have indicated that they intend to vote in favor of the share
issuance proposal.
THE MERGER (PAGE 23)
The merger agreement is attached as Annex A to this document. Please read the
whole merger agreement carefully. The merger agreement is the legal document
that governs the merger.
GENERAL
We propose a merger transaction in which Enhance Financial Services will merge
with GOLD Acquisition Corporation, a wholly owned subsidiary of Radian created
for the purpose of effecting the merger. After the merger, Enhance Financial
Services will be a wholly owned subsidiary of Radian and Enhance Financial
Services shareholders will become Radian stockholders.
EXCHANGE OF ENHANCE FINANCIAL SERVICES SHARES (PAGE 47)
When we complete the merger, your Enhance Financial Services common shares will
be converted into Radian common shares.
ENHANCE FINANCIAL SERVICES SHAREHOLDERS. Each Enhance Financial Services common
share will automatically be converted into 0.22 (subject to adjustment to not
less than 0.205) of a Radian common share. The total number of Radian common
shares you will receive, therefore, will be equal to the number of Enhance
Financial Services common shares you own multiplied by 0.22 (or the adjusted
number), with cash being paid in place of any fractional shares. Enhance
Financial Services shareholders will own approximately 18% of the Radian common
shares outstanding after the merger.
RADIAN STOCKHOLDERS. Each Radian common share will remain issued and
outstanding as one Radian common share. Radian stockholders will own
approximately 82% of the Radian common shares outstanding after the merger.
ENHANCE FINANCIAL SERVICES STOCK OPTIONS (PAGE 48)
When we complete the merger, the outstanding options to purchase Enhance
Financial Services common shares will become options to purchase Radian common
shares. The number of common shares subject to such stock options and the
exercise price of such stock options will be adjusted according to the merger
exchange ratio.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
After the merger, the Radian board of directors will continue to manage the
business of Radian, which then will include the businesses of Enhance Financial
Services and its subsidiaries. The merged company will continue to be called
"Radian Group Inc." However, the insurance businesses of Enhance Financial
Services will operate under their current names as stand-alone units of Radian
and will maintain their operations and headquarters in New York City.
OUR RECOMMENDATIONS TO STOCKHOLDERS (PAGE 26)
ENHANCE FINANCIAL SERVICES SHAREHOLDERS. The Enhance Financial Services board
of directors believes that the merger is fair to you and in your best interests,
and it unanimously recommends that you vote FOR the proposal to adopt the merger
agreement and authorize the transactions contemplated by the merger agreement,
including the merger.
RADIAN STOCKHOLDERS. The Radian board of directors believes that the issuance
of Radian shares in the merger is fair to you and in your best interests, and it
unanimously recommends that you vote FOR
5
<PAGE> 15
the proposal to issue Radian common shares in the merger.
OPINION OF ENHANCE FINANCIAL SERVICES' FINANCIAL ADVISOR (PAGE 29)
Morgan Stanley & Co. Incorporated, Enhance Financial Services' financial
advisor, delivered a written opinion to the Enhance Financial Services board of
directors as to the fairness, from a financial point of view, of the exchange
ratio to the holders of Enhance Financial Services common shares as of November
12, 2000. We have attached this opinion, dated November 12, 2000, as Annex B to
this document. You should read this opinion completely to understand the
procedures followed, assumptions made, matters considered and limitations of the
review undertaken.
Morgan Stanley's opinion is addressed to the Enhance Financial Services board of
directors and does not constitute a recommendation to any shareholder as to how
that shareholder should vote in connection with the merger proposal.
OPINION OF RADIAN'S FINANCIAL ADVISOR (PAGE 33)
Goldman, Sachs & Co., Radian's financial advisor, delivered a written opinion to
the Radian board of directors as to the fairness, from a financial point of
view, to Radian of the exchange ratio. We have attached this opinion, dated
November 13, 2000, as Annex C to this document. You should read this opinion
completely to understand the procedures followed, assumptions made, matters
considered and limitations of the review undertaken.
Goldman Sachs' opinion is addressed to the Radian board of directors and does
not constitute a recommendation to any stockholder as to how that stockholder
should vote in connection with the proposal to issue shares in the merger.
CONDITIONS TO COMPLETION OF THE MERGER (PAGE 51)
The completion of the merger depends on a number of conditions being met or
waived. In addition to customary conditions relating to our compliance with the
merger agreement, these conditions include the following:
- approval of the merger agreement by Enhance Financial Services
shareholders and approval of the common share issuance by Radian
stockholders;
- receipt of all requisite governmental approvals, including the approvals
of the Kentucky and New York Insurance Departments, and other relevant
state insurance and other regulatory and antitrust approvals;
- absence of any injunction or legal restraint blocking the merger or
voiding the merger agreement;
- receipt of opinions from each of our counsel stating that the merger will
be tax-free to us and our stockholders; and
- absence of any event that has had or is likely to have a material adverse
effect on the other company.
Other conditions to the completion of the merger are described elsewhere in this
document. Please see pages 51 through 52.
TERMINATION OF THE AGREEMENT (PAGE 52)
We can agree at any time to terminate the merger agreement without completing
the merger, even if the Enhance Financial Services shareholders have adopted the
merger agreement and approved the merger and the Radian stockholders have
approved the share issuance. Also, either of us can decide, without the consent
of the other, to terminate the merger agreement in various circumstances,
including the following:
- if the merger has not been completed by June 30, 2001; provided that the
right to terminate the merger agreement under this provision will not be
available to any party whose breach of the merger agreement caused the
merger not to occur by such date;
- if the Enhance Financial Services shareholders do not approve the merger,
or if the Radian stockholders do not approve the share issuance; or
- if the other party materially breaches or fails to perform its
representations, warranties or obligations under the merger agreement and
the breaching party does not or cannot correct the breach within 30 days.
In addition, Enhance Financial Services may, without the consent of Radian,
decide to terminate the merger agreement if the Radian board of directors
withdraws or modifies, or resolves to withdraw or modify, its approval or
recommendation in favor of
6
<PAGE> 16
the share issuance in any manner adverse to Enhance Financial Services.
Enhance Financial Services may also, without the consent of Radian, decide to
terminate the merger agreement if the average Radian stock price over the 20
trading days before the stockholders' meetings is less than $51.35 per share and
the percentage decline in the price of Radian's shares is at least 15 percentage
points greater than the percentage decline in the average price of the shares of
a group of 20 specified insurance companies during the same period (unless
Radian adjusts the merger exchange ratio pursuant to a specified formula set out
in the merger agreement). See pages 52 through 53.
Radian may also, without the consent of Enhance Financial Services, decide to
terminate the merger agreement if the Enhance Financial Services board of
directors withdraws or modifies, or resolves to withdraw or modify, its approval
or recommendation of the merger agreement or merger in a manner adverse to
Radian, or if the Enhance Financial Services board of directors recommends or
resolves to recommend a competing business combination or similar transaction
for Enhance Financial Services with a third party.
Radian and Enhance Financial Services have the right to terminate the merger in
a number of other circumstances described elsewhere in this document. See pages
52 through 53.
TERMINATION FEES AND OBLIGATIONS (PAGE 53)
Enhance Financial Services must pay Radian a fee of $20 million in cash if, in
certain circumstances, the merger agreement is terminated because the Enhance
Financial Services shareholders do not approve the merger agreement and within
12 months after such termination, Enhance Financial Services enters into an
agreement relating to, or consummates, a transaction in which someone acquires a
significant portion of the equity securities or assets of Enhance Financial
Services or any of its insurance subsidiaries. The amount to be paid will
increase to $25 million if the transaction is with one of a specified group of
companies. Please see pages 53 through 54.
Enhance Financial Services must also pay Radian a fee of $20 million in cash if,
in certain circumstances, Radian terminates the merger agreement because:
- Enhance Financial Services materially breaches its obligations to
cooperate with regard to its shareholders' special meeting, not to
solicit acquisition proposals, to file this Joint Proxy
Statement/Prospectus, or not to take any action that prevents its
shareholders from voting upon the merger; or
- Enhance Financial Services' board of directors withdraws or changes its
recommendation of the merger agreement in a manner adverse to Radian,
refuses to affirm its recommendation within 10 days after receiving an
acquisition proposal from someone other than Radian or does not, after a
tender or exchange offer for more than 15% of Enhance Financial Services'
shares is commenced, recommend against acceptance of the offer.
In addition, if Radian terminates the merger agreement because Asset Guaranty
Insurance Company, a subsidiary of Enhance Financial Services, is downgraded, is
placed on credit watch or is placed on credit review with negative implications
by Standard & Poor's Rating Services, then Enhance Financial Services must pay
Radian $7.5 million. Furthermore, in certain circumstances, Radian or Enhance
Financial Services could be required to pay the other company's expenses up to a
maximum of $5 million. Please see pages 53 through 54.
If Enhance Financial Services terminates the merger agreement because Radian
materially breaches the merger agreement or because Radian's board of directors
withdraws or amends its recommendation of the merger agreement in a manner
adverse to Enhance Financial Services, or if either Radian or Enhance Financial
Services terminates the merger agreement because the merger did not take place
before June 30, 2001 because of a material breach by Radian or because the
Radian stockholders failed to approve the share issuance in the merger, Enhance
Financial Services will have an option to sell its interest in Credit-Based
Asset Servicing and Securitization LLC ("C-BASS") to Radian for $90 million
(subject to adjustment based on a valuation of the assets of C-BASS).
7
<PAGE> 17
ACCOUNTING TREATMENT (PAGE 38)
The merger will be treated as a "purchase" for accounting purposes. Therefore,
the purchase price will be allocated to the assets and liabilities of Enhance
Financial Services based on their estimated fair market values at the date of
acquisition and any excess of the purchase price over those fair market values
will be accounted for as goodwill.
SHAREHOLDER SUPPORT AGREEMENTS (PAGE 55)
The three members of the board of directors of Enhance Financial Services with
the largest holdings of Enhance Financial Services shares have agreed to vote
their shares in favor of the merger.
INTERESTS OF CERTAIN PEOPLE IN THE MERGER THAT ARE DIFFERENT FROM YOUR INTERESTS
(PAGE 42)
Some of Enhance Financial Services' directors and officers have interests in the
merger that are different from Enhance Financial Services shareholders'
interests:
- under certain circumstances the executive officers of Enhance Financial
Services will become entitled to substantial payments if their employment
terminates in anticipation of or within two years following the merger;
and
- options held by directors and executive officers of Enhance Financial
Services that normally would not vest (i.e., become exercisable) until
future years will vest immediately upon the closing of the merger.
Interests of Enhance Financial Services directors and executive officers in the
merger that are different from your interests are described in more detail
elsewhere in this document. For more information, please see pages 42 through
46.
Enhance Financial Services' board of directors knew about these additional
interests, and considered them, when it approved the merger and recommended that
the Enhance Financial Services' shareholders approve the merger transaction.
APPRAISAL RIGHTS (PAGE 39)
Under New York law, Enhance Financial Services shareholders are not entitled to
dissenters' rights in connection with the merger.
Under Delaware law, Radian stockholders are not entitled to appraisal rights in
connection with the merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (PAGE 39)
ENHANCE FINANCIAL SERVICES SHAREHOLDERS. We expect that, for U.S. federal
income tax purposes, the exchange of your Enhance Financial Services common
shares for Radian common shares as a result of the merger generally will not
cause you to recognize any gain or loss. You may, however, recognize income,
gain or loss with regard to any cash received instead of fractional shares.
We have conditioned the merger on Enhance Financial Services' receipt of a legal
opinion from its counsel that the U.S. federal income tax treatment will be as
we have described it in this document. This opinion will not bind the Internal
Revenue Service, which could take a different view.
RADIAN STOCKHOLDERS. Because Radian common shares remain unchanged, the merger
will not cause you to recognize any gain or loss for U.S. federal income tax
purposes.
We have conditioned the merger on Radian's receipt of a legal opinion from its
counsel that the U.S. federal income tax treatment will be as we have described
it in this document. This opinion will not bind the Internal Revenue Service,
which could take a different view.
This tax treatment may not apply to certain stockholders. Determining the actual
tax consequences of the merger to you may be complicated. These consequences
will depend on your specific situation and on variables not within our control.
You should consult your own tax advisor for a full understanding of the merger's
tax consequences for you.
CERTAIN DIFFERENCES IN THE RIGHTS OF STOCKHOLDERS (PAGE 70)
The rights of Enhance Financial Services shareholders currently are governed by
the New York Business Corporation Law and Enhance Financial Services' charter
and bylaws. The rights of Radian stockholders are governed by the Delaware
General Corporation Law and Radian's charter and bylaws. Upon our completing the
merger, Radian stockholders and former Enhance Financial Services shareholders
will both be Radian stockholders, and your rights will be governed by the
Delaware General Corporation Law
8
<PAGE> 18
and by the Radian charter and bylaws. See pages 70 to 86 for more specific
information.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (PAGE 13)
Radian common shares and Enhance Financial Services common shares are both
quoted on the New York Stock Exchange. On November 13, 2000, the last trading
day before we announced the merger, Radian common shares closed at $64.19 per
share and Enhance Financial Services common shares closed at $13.81 per share.
On [ ], 2001, the most recent practicable date before the mailing of
this document, Radian common shares closed at $[ ] per share and Enhance
Financial Services common shares closed at $[ ] per share.
Based on the 0.22 exchange ratio in the merger, the market value of the
consideration that Enhance Financial Services shareholders will receive in the
merger for Enhance Financial Services common shares would be $14.12 per share
based on the last sale price of Radian common shares on November 13, 2000, and
$[ ] per share based on the last sale price of Radian common shares on
[ ], 2001. If the exchange ratio were reduced to the minimum 0.205
shares, the market value would be $13.16 based on the November 13, 2000 last
sale price and $ based on the [ , 2001] last sale price. Of
course, the market price of Radian common shares will fluctuate before and after
the merger, whereas the exchange ratio will not change as a result of such
fluctuations. You should obtain current stock price quotations for Radian common
shares and Enhance Financial Services common shares.
REGULATORY APPROVALS (PAGE 38)
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, we may not
complete the merger unless we have made various filings with the Antitrust
Division of the U.S. Department of Justice and the Federal Trade Commission and
certain waiting periods have expired or have been terminated. On December 1,
2000, Radian and Enhance Financial Services submitted the required filings to
the Antitrust Division and the Federal Trade Commission. The waiting period
under the Hart-Scott-Rodino Act was terminated on December 20, 2000.
In addition, under the laws of certain states and certain other jurisdictions,
we may not complete the merger unless we make various filings with these states'
and jurisdictions' insurance regulatory authorities and these authorities
approve the merger. We expect that the merger will not violate any insurance
laws and that all the insurance regulatory authorities whose approval we must
seek will approve the merger.
LISTING OF RADIAN COMMON STOCK (PAGE 69)
We will list the shares of Radian common stock to be issued in connection with
the merger on the New York Stock Exchange.
RISK FACTORS (PAGE 15)
See pages 15 through 16 for certain factors that you should consider in
connection with the merger.
9
<PAGE> 19
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
ENHANCE FINANCIAL SERVICES SUMMARY HISTORICAL FINANCIAL INFORMATION
We have derived the summary historical financial information of Enhance
Financial Services set forth below for the years 1995-1999 from the information
Enhance Financial Services included in its annual reports on Form 10-K/A filed
for the fiscal years ended December 31, 1999 and 1998, and its annual reports on
Form 10-K filed for the fiscal years ended December 31, 1997 and 1996, except
for information for the quarters ended September 30, 2000 and 1999, which is
derived from Enhance Financial Services' quarterly report on Form 10-Q filed for
the quarter ended September 30, 2000 and is unaudited. You should read this
financial information in conjunction with the information in those reports by
Enhance Financial Services and in conjunction with the other information
incorporated by reference in this document. See "Where You Can Find More
Information." Amounts for 1998, 1997, 1996 and 1995 have been adjusted for the
2-for-1 stock split on June 26, 1998.
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
NINE MONTHS NINE MONTHS
ENDED ENDED AT OR FOR THE YEAR ENDED DECEMBER 31,
SEPTEMBER 30, SEPTEMBER 30, -------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------------- ------------- --------- --------- --------- --------- -------
(UNAUDITED) (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Premiums earned............... 81,349 75,294 103,851 102,337 85,455 77,433 62,950
Net investment income......... 47,277 42,762 58,053 53,423 50,618 47,462 44,159
Provision for losses.......... 22,699 9,223 26,156 10,324 9,755 9,184 9,513
Policy acquisition costs...... 31,127 27,022 39,959 35,007 30,020 26,703 21,053
Other operating expenses...... 93,936 53,446 70,122 53,556 37,366 13,197 12,715
Equity in net income of
affiliates.................. 21,128 17,026 19,708 14,066 8,778 274 115
Interest expense.............. 12,302 7,998 10,989 8,500 7,317 5,522 5,638
Pretax income (loss).......... (1,036) 65,630 69,444 112,807 93,956 76,390 63,840
Net income.................... 9,844 64,043 68,624 82,457 68,806 55,704 47,297
Net income per
share -- diluted............ 0.25 1.64 1.76 2.10 1.78 1.52 1.36
Cash dividends per share...... 0.18 0.18 0.24 0.23 0.22 0.20 0.18
Assets........................ 1,553,632 1,453,932 1,340,684 1,172,306 1,003,008 903,857
Investments................... 1,070,479 970,001 942,775 870,173 791,701 740,418
Reserve for losses............ 66,087 51,970 36,239 33,675 28,081 30,799
Unearned premiums............. 355,342 346,088 315,215 287,535 268,997 250,901
Short-term debt............... 174,382 113,941 54,290 43,500 42,500 15,000
Long-term debt................ 75,000 75,000 75,000 75,000 75,000 78,400
Deferred credit............... 122,250 138,000 0 0 0 0
Common stockholder's equity... 700,815 676,304 662,646 581,393 488,349 423,937
Book value per share.......... 18.34 17.77 17.50 15.55 13.52 12.30
</TABLE>
10
<PAGE> 20
RADIAN SUMMARY HISTORICAL FINANCIAL INFORMATION
We have derived the summary historical financial information of Radian set
forth below from the information Radian included in its previous annual reports
on Form 10-K, except for the information for the quarters ended September 30,
2000 and 1999, which is derived from Radian's quarterly report on Form 10-Q for
the quarter ended September 30, 2000 and is unaudited. You should read this
financial information in conjunction with the information in those reports by
Radian and in conjunction with the other information incorporated by reference
in this document. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
NINE MONTHS NINE MONTHS
ENDED ENDED AT OR FOR THE YEAR ENDED DECEMBER 31,
SEPTEMBER 30, SEPTEMBER 30, -------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------------- ------------- --------- --------- --------- --------- -------
(UNAUDITED) (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Premiums earned............... 387,072 348,843 472,635 405,252 330,039 250,270 164,693
Net investment income......... 60,310 49,166 67,259 59,862 52,394 46,882 33,564
Provision for losses.......... 115,038 130,073 174,143 166,377 147,421 112,575 65,560
Policy acquisition costs...... 38,822 48,913 58,777 58,479 41,807 35,335 29,997
Other operating expenses...... 40,314 47,564 62,659 59,720 41,592 31,902 23,205
Merger expenses............... 0 36,883 37,766 1,098 0 0 0
Compensation charge from
IPO......................... 0 0 0 0 0 0 35,741
Pretax income................. 261,260 145,653 219,466 197,913 159,161 122,167 46,793
Net income.................... 184,527 99,935 148,138 142,237 115,726 90,450 27,993
Net income per
share -- diluted............ 4.78 2.58 3.83 3.67 2.99 2.35 0.67
Cash dividends per share...... 0.09 0.07 0.10 0.07 0.07 0.06 0.06
Assets........................ 2,116,774 1,776,712 1,513,405 1,222,666 1,014,972 856,674
Investments................... 1,665,145 1,388,677 1,175,452 974,650 841,951 734,519
Reserve for losses............ 374,474 335,584 245,125 179,908 126,936 74,393
Unearned premiums............. 67,169 54,925 75,538 72,684 73,909 68,825
Redeemable preferred stock.... 40,000 40,000 40,000 40,000 40,000 40,000
Common stockholder's equity... 1,269,263 1,057,256 932,199 780,098 656,953 572,753
Book value per share.......... 33.59 28.34 25.30 21.38 18.10 15.86
</TABLE>
11
<PAGE> 21
UNAUDITED PRO FORMA CONDENSED SUMMARY FINANCIAL INFORMATION
The pro forma operating and balance sheet data as of September 30, 2000
give effect to the merger as if it occurred on that date. The pro forma income
statement data give effect to the merger as if it occurred on January 1, 1999.
We have included this unaudited pro forma condensed summary information
only for the purposes of illustration, and it does not necessarily indicate what
Radian's operating results or financial position would have been if the merger
between Radian and Enhance Financial Services had been completed at the dates
indicated. Moreover, this information does not necessarily indicate what the
future operating results or financial position of the combined company will be.
You should read this unaudited pro forma condensed summary financial information
in conjunction with the "Unaudited Pro Forma Condensed Financial Information"
included elsewhere in this document. This unaudited pro forma condensed summary
financial information does not reflect any adjustments to conform accounting
practices, or to reflect any cost savings or other synergies anticipated as a
result of the merger or any future merger-related expenses.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED
-----------------------------------
AT OR FOR THE
NINE MONTHS AT OR FOR THE
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------------
(THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Premiums earned........................................ 468,421 576,486
Net investment income.................................. 107,587 125,312
Provision for losses................................... 137,737 200,299
Policy acquisition costs............................... 60,553 80,243
Other operating expenses............................... 111,291 132,854
Pretax income.......................................... 293,816 308,349
Net income............................................. 205,706 214,991
Net income per share -- diluted........................ 4.36 4.56
Cash dividends per share(1)............................ 0.22 0.28
Assets................................................. 3,604,569
Investments............................................ 2,735,624
Reserve for losses..................................... 440,561
Unearned premiums...................................... 422,511
Redeemable preferred stock............................. 40,000
Common stockholders' equity............................ 1,847,785
Book value per share................................... 40.01
</TABLE>
12
<PAGE> 22
COMPARATIVE PER SHARE DATA
We have set forth below information concerning net income, cash dividends
declared and book value per share data for Radian and Enhance Financial Services
on both historical and pro forma bases and on a per share equivalent pro forma
basis for Enhance Financial Services. We have derived the pro forma net income
per share from the "Unaudited Pro Forma Condensed Financial Information"
presented elsewhere in this document (which gives effect to the merger under the
purchase accounting method). Pro forma cash dividends declared per share reflect
Radian cash dividends per share declared in the periods indicated. Book value
per share for the pro forma presentation is based upon the number of outstanding
Radian common shares, adjusted to include the estimated number of Radian common
shares to be issued in the merger. The per share equivalent pro forma data for
Enhance Financial Services common shares are based on the assumed conversion of
each of the Enhance Financial Services common shares into 0.22 of a Radian
common share. You should read the information set forth below in conjunction
with the audited and unaudited financial statements of Radian and Enhance
Financial Services, which are incorporated by reference, and the "Unaudited Pro
Forma Condensed Financial Information" and the notes to it presented elsewhere
in this document. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
COMPARATIVE PER SHARE
INFORMATION
------------------------------
AT OR FOR THE
NINE MONTHS AT OR FOR THE
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
<S> <C> <C>
UNAUDITED PRO FORMA COMBINED
Net income per common share -- basic..................... 4.42 4.67
Net income per common share -- diluted................... 4.36 4.56
Cash dividends per share................................. 0.22 0.28
Book value per common share.............................. 40.01 35.20
ENHANCE FINANCIAL SERVICES PER SHARE EQUIVALENTS
Net income (loss) per common share -- basic.............. 0.97 1.03
Net income (loss) per common share -- diluted............ 0.96 1.00
Cash dividends per share................................. 0.05 0.06
Book value per common share.............................. 8.80 7.74
ENHANCE FINANCIAL SERVICES -- HISTORICAL
Net income (loss) per common share -- basic.............. 0.26 1.81
Net income (loss) per common share -- diluted............ 0.25 1.76
Cash dividends per share................................. 0.18 0.24
Book value per common share.............................. 18.34 17.77
RADIAN -- HISTORICAL
Net income per common share -- basic..................... 4.84 3.92
Net income per common share -- diluted................... 4.78 3.83
Cash dividends per share................................. 0.09 0.10
Book value per common share.............................. 33.59 28.34
</TABLE>
13
<PAGE> 23
MARKET PRICE AND DIVIDEND DATA
In the table below, we present the range of the reported high and low sales
prices, as shown on the New York Stock Exchange Composite Tape, of the Radian
common shares and the Enhance Financial Services common shares, as well as the
per share dividends paid on those shares, for the calendar quarters indicated.
The Enhance Financial Services common share prices and dividend amounts for the
first and second quarters of 1998 are adjusted for the 2-for-1 stock split,
which occurred on June 26, 1998.
<TABLE>
<CAPTION>
RADIAN ENHANCE FINANCIAL SERVICES
COMMON SHARES COMMON SHARES
----------------------------- -----------------------------
CALENDAR YEAR HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
1998:
First quarter..................... $70.00 $55.63 $0.03 $35.00 $26.00 $0.055
Second quarter.................... 68.00 57.00 0.03 37.59 30.63 0.055
Third quarter..................... 68.75 36.56 0.03 37.31 25.00 0.06
Fourth quarter.................... 49.44 25.38 0.03 30.38 17.31 0.06
1999:
First quarter..................... 51.88 34.13 0.03 30.13 18.00 0.06
Second quarter.................... 51.88 33.31 0.03 22.88 18.00 0.06
Third quarter..................... 55.94 41.25 0.03 22.63 17.00 0.06
Fourth quarter.................... 55.69 41.25 0.03 19.31 15.50 0.06
2000:
First quarter..................... 49.56 34.25 0.03 16.38 10.75 0.06
Second quarter.................... 60.00 44.19 0.03 15.00 8.63 0.06
Third quarter..................... 73.13 51.31 0.03 17.00 12.69 0.06
Fourth quarter (through December
22, 2000)....................... 75.19 59.13 0.03 15.75 11.50
</TABLE>
On November 13, 2000, the last full trading day before our signing and
announcing the merger agreement, the last sale price of Radian common shares was
$64.19 per share and the last sale price of Enhance Financial Services common
shares was $13.81 per share, as reported on the New York Stock Exchange
Composite Tape. On , 2001, the most recent practicable date before
the mailing of this document to you, the last sale prices of Radian common
shares and Enhance Financial Services common shares were $ per share and
$ per share, respectively, as reported on the New York Stock Exchange
Composite Tape. Based on the 0.22 exchange ratio provided in the merger
agreement and the last sale price of Radian common shares on November 13, 2000,
the value of the Radian common shares to be received for each Enhance Financial
Services common share is $14.12 per share. We encourage you to obtain current
market quotations for Radian common shares and Enhance Financial Services common
shares.
Radian will file an application with the New York Stock Exchange to list on
that Exchange the Radian common shares that Enhance Financial Services
shareholders will receive in the merger.
In the merger agreement, Enhance Financial Services agreed that, until the
merger is completed or the merger agreement is terminated, Enhance Financial
Services will not make, declare or pay any dividends or distributions on its
Enhance Financial Services common shares, except for regular quarterly dividends
not exceeding $0.06 per share.
14
<PAGE> 24
RISK FACTORS
In considering whether to vote in favor of the merger transaction involving
our companies, you should consider all of the information we have included in
this document and its annexes and all of the information included in the
documents we have incorporated by reference. In addition, you should pay
particular attention to the following risks related to the merger.
THE MARKET VALUE OF RADIAN COMMON SHARES THAT ENHANCE FINANCIAL SERVICES
SHAREHOLDERS RECEIVE WILL VARY AS A RESULT OF POSSIBLE STOCK PRICE FLUCTUATIONS;
A DECLINE IN THE PRICE OF RADIAN'S COMMON STOCK COULD ADVERSELY IMPACT THE
CONSIDERATION ENHANCE FINANCIAL SERVICES SHAREHOLDERS ARE TO RECEIVE IN THE
MERGER.
The exchange ratio will not be adjusted as a result of any increase or
decrease in the price of either Radian common shares or Enhance Financial
Services common shares. The price of Radian common shares at the time the merger
is completed may be higher or lower than their price on the date of this
document or on the date of the special meetings of stockholders. Changes in the
business, operations or prospects of Radian or Enhance Financial Services,
market assessments of the benefits of the merger and of the likelihood that the
merger will be completed, regulatory considerations, general market and economic
conditions, or other factors may affect the prices of Radian common shares or
Enhance Financial Services common shares. Most of these factors are beyond our
control.
Because the merger will be completed only after the special meetings of our
stockholders are held, there is no way to be sure that the prices of the Radian
common shares described on page 14 will be indicative of their price at the time
the merger is completed. We urge you to obtain current market quotations for
both the Radian common shares and the Enhance Financial Services common shares.
Enhance Financial Services' only recourse in the event of a sharp decline
in the price of Radian common stock will be to terminate the merger agreement
and abandon the merger, which it is permitted to do if the 20 trading day
average market price of Radian common stock prior to the date of the
stockholders' meetings falls below 80% of its price at the date of the merger
agreement and the percentage decline in the market price of Radian common stock
is more than 15 percentage points greater than the decline in the average price
of the shares of a group of 20 insurance companies (unless Radian increases the
number of Radian common shares to be received by Enhance Financial Services
shareholders in the merger by adjusting the exchange ratio to take account of
the lesser of (i) 80% of the reduction in the price of the Radian shares and
(ii) the reduction in the average price of the shares of the 20 insurance
companies). As is discussed below, failure to complete the merger could cause a
decline in the price of Enhance Financial Services shares.
FAILURE TO SUCCESSFULLY INTEGRATE ENHANCE FINANCIAL SERVICES WITH RADIAN COULD
ADVERSELY AFFECT FUTURE OPERATIONS.
In deciding that the merger is in the best interests of our respective
stockholders, the Radian board of directors and the Enhance Financial Services
board of directors considered the potential complementary effects of combining
our companies' assets, personnel and operational expertise. Integrating
businesses, however, involves a number of special risks, including the
possibility that management may be distracted from regular business concerns by
the need to integrate operations, unforeseen difficulties in integrating
operations and systems, problems concerning assimilating and retaining the
employees of the combined company, challenges in retaining customers, and
potential adverse short-term or long-term effects on operating results.
Further, the reinsurance business is highly specialized and volatile.
Enhance Financial Services' past results were due in large part to the strength
and continuity of its management strategies. The success of Enhance Financial
Services as a Radian entity will depend in part on Radian's ability to retain
key management and to integrate its and Enhance Financial Services' operations
and personnel in a timely and efficient manner. As Radian is not currently
involved in the reinsurance business, this integration may be difficult. If
Radian and Enhance Financial Services cannot successfully integrate their
businesses, the combined companies may not be able to realize the expected
benefits of the merger.
15
<PAGE> 25
FAILURE TO COMPLETE THE MERGER COULD CAUSE A DECREASE IN THE VALUE OF ENHANCE
FINANCIAL SERVICES STOCK.
If the merger is not completed for any reason, the value of Enhance
Financial Services stock may decline due to any or all of the following:
- Enhance Financial Services may become obligated to pay Radian up to $20
million (or, under some circumstances, $25 million);
- Enhance Financial Services may become obligated to reimburse Radian's
expenses up to $5 million;
- Enhance Financial Services may have to bear its own costs related to the
merger, such as legal, accounting and financial advisor fees, even though
the merger is not completed;
- Enhance Financial Services will have foregone the opportunity to
participate in other sale transactions and may not be able to find a
suitable purchaser for its businesses in the foreseeable future;
- Enhance Financial Services will have suspended efforts to dispose of
non-insurance aspects of its businesses;
- Enhance Financial Services' credit ratings and its insurance
subsidiaries' financial strength ratings might be downgraded, which could
lead to the loss of key customers; and
- Enhance Financial Services will not have taken steps it otherwise might
have taken to relieve its significant cash flow problems.
REGULATORY AGENCIES COULD IMPOSE CONDITIONS ON, DELAY OR REFUSE TO APPROVE THE
MERGER.
To complete the merger, Enhance Financial Services and Radian must obtain
approvals or consents from insurance regulatory commissions and other government
agencies. These agencies may seek to impose conditions on Enhance Financial
Services or Radian before giving their approval or consent, and those conditions
could impede Enhance Financial Services' and Radian's businesses in the future.
In addition, a delay in obtaining the requisite regulatory approvals could delay
completion of the merger and failure to obtain significant regulatory approvals
could prevent the merger from taking place.
POOR PERFORMANCE BY SINGER ASSET FINANCE COMPANY, L.L.C. COULD NEGATIVELY IMPACT
STOCK PRICES.
Poor performance by Singer Asset Finance Company, L.L.C. ("Singer"), a
wholly owned subsidiary of Enhance Financial Services, and a negative reaction
to Singer's poor performance by credit rating agencies or others could
negatively impact our stock prices.
16
<PAGE> 26
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
AND PRO FORMA INFORMATION
This document and the documents incorporated by reference contain
forward-looking statements with respect to the merger and the financial
condition, results of operations, plans, objectives, future performance and
businesses of Radian and Enhance Financial Services. Often these statements
include words such as "believes," "expects," "anticipates," "estimates,"
"intends," "strategy," "plan," or similar words or expressions. In particular,
statements, express or implied, concerning future operating results or the
ability to generate income or cash flows are forward-looking statements.
These forward-looking statements involve certain risks and uncertainties.
Actual results may differ materially from those contemplated by these
forward-looking statements. You should understand that various possible factors,
in addition to those discussed elsewhere in this document and in the documents
referred to in this document, could affect the future results of either company
or of the combined company following the merger and could cause results to
differ materially from those expressed in these forward-looking statements,
including:
- revenues following the merger being lower than expected;
- costs or difficulties related to the integration of the business of
Radian and Enhance Financial Services being greater than expected;
- competitive pressures increasing in the industry or markets in which the
companies operate;
- changes in general economic conditions or in political or competitive
forces, which among other things could:
- increase claims under insurance policies written or reinsured by
Radian or Enhance Financial Services' insurance subsidiaries;
- reduce demand for insurance of the type written by Radian or Enhance
Financial Services' insurance subsidiaries; and
- increase defaults on paper held by Singer, Sherman Financial Group
LLC ("Sherman") or Credit-Based Asset Servicing and Securitization
LLC ("C-BASS"), each a subsidiary of Enhance Financial Services;
- changes in interest rates;
- changes in the securities markets;
- inability of key personnel to manage the integration of the two
companies;
- the possibility that our analyses of these risks and forces could be
incorrect or that the strategies developed to address them could be
unsuccessful; and
- risks described above under "Risk Factors."
Radian stockholders and Enhance Financial Services shareholders are
cautioned not to place undue reliance on forward looking statements, which speak
only as of the date of this document or, in the case of documents incorporated
by reference, the dates of those documents.
All subsequent written and oral forward-looking statements attributable to
Radian or Enhance Financial Services or any person acting on their behalf are
expressly qualified in their entirety by the cautionary statements contained or
referred to in this section. Neither Radian nor Enhance Financial Services
undertakes any obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this document or to reflect the occurrence of unanticipated events.
17
<PAGE> 27
THE SPECIAL MEETINGS
INFORMATION ABOUT THE SPECIAL MEETINGS AND VOTING
Enhance Financial Services and Radian will each hold a special meeting of
its stockholders. Our boards of directors have provided you with this Joint
Proxy Statement/Prospectus in order to solicit your proxy for use at the special
meetings.
MATTERS RELATING TO THE SPECIAL MEETINGS
TIME AND PLACE OF SPECIAL MEETINGS
<TABLE>
<CAPTION>
ENHANCE FINANCIAL SERVICES RADIAN
SPECIAL MEETING SPECIAL MEETING
-------------------------- ---------------
<S> <C>
, 2001 , 2001
[time and address] [time and address]
</TABLE>
PURPOSE OF SPECIAL MEETINGS IS TO VOTE ON THE FOLLOWING ITEMS
<TABLE>
<CAPTION>
ENHANCE FINANCIAL SERVICES RADIAN
SPECIAL MEETING SPECIAL MEETING
-------------------------- ---------------
<S> <C>
- A proposal to adopt the merger - A proposal to approve the
agreement and authorize the issuance of Radian common shares in
transactions contemplated by the the merger contemplated by the
merger agreement, including the merger agreement.
merger.
- Such other matters as may - Such other matters as may
properly come before the Enhance properly come before the Radian
Financial Services special special meeting.
meeting.
</TABLE>
RECORD DATE FOR THE SPECIAL MEETINGS
<TABLE>
<CAPTION>
ENHANCE FINANCIAL SERVICES RADIAN
SPECIAL MEETING SPECIAL MEETING
-------------------------- ---------------
<S> <C>
Holders of record of Enhance Holders of record of Radian common
Financial Services common shares at shares at the close of business on
the close of business on , 2001 will be entitled
, 2001 will be entitled to vote.
to vote.
</TABLE>
OUTSTANDING SHARES HELD ON RECORD DATE
<TABLE>
<CAPTION>
ENHANCE FINANCIAL SERVICES RADIAN
SPECIAL MEETING SPECIAL MEETING
-------------------------- ---------------
<S> <C>
As of , 2001, there were As of , 2001, there were
approximately outstanding approximately outstanding
Enhance Financial Services common Radian common shares. They are all
shares. They are all entitled to entitled to vote at the meeting.
vote at the meeting.
</TABLE>
18
<PAGE> 28
SHARES ENTITLED TO VOTE AT SPECIAL MEETINGS
<TABLE>
<CAPTION>
ENHANCE FINANCIAL SERVICES RADIAN
SPECIAL MEETING SPECIAL MEETING
-------------------------- ---------------
<S> <C>
Each Enhance Financial Services Each Radian common share that you
common share that you owned as of owned as of the record date entitles
the record date entitles you to one you to one vote.
vote.
Shares held by Enhance Financial Shares held by Radian or its
Services or its subsidiaries will subsidiaries will not be voted.
not be voted.
</TABLE>
QUORUM REQUIREMENT FOR SPECIAL MEETINGS
<TABLE>
<CAPTION>
ENHANCE FINANCIAL SERVICES RADIAN
SPECIAL MEETING SPECIAL MEETING
-------------------------- ---------------
<S> <C>
A quorum of Enhance Financial A quorum of Radian stockholders is
Services shareholders is necessary necessary to hold a valid Radian
to hold a valid Enhance Financial special meeting.
Services special meeting.
The presence in person or by proxy The presence in person or by proxy
at the Enhance Financial Services at the Radian special meeting of
special meeting of holders of a holders of a majority of the Radian
majority of the Enhance Financial common shares entitled to vote at
Services common shares entitled to the Radian special meeting is
vote at the Enhance Financial necessary for a quorum. Abstentions
Services special meeting is and broker non-votes count as
necessary for a quorum (although the present for establishing a quorum.
required vote of two-thirds of the Shares held by Radian do not count
outstanding shares to approve the toward a quorum.
merger exceeds the quorum
requirement). Abstentions and broker
non-votes count as present for
establishing a quorum. Shares held
by Enhance Financial Services or its
majority owned subsidiaries are not
entitled to vote and do not count
toward a quorum.
A "broker non-vote" occurs on a A "broker non-vote" occurs on a
proposal when a broker is not proposal when a broker is not
permitted to vote on that proposal permitted to vote on that proposal
without instruction from the without instruction from the
beneficial owner of the shares and beneficial owner of the shares and
no instruction is given. no instruction is given.
</TABLE>
19
<PAGE> 29
SHARES BENEFICIALLY OWNED BY ENHANCE FINANCIAL SERVICES AND RADIAN DIRECTORS
AND EXECUTIVE OFFICERS AS OF , 2001
<TABLE>
<CAPTION>
ENHANCE FINANCIAL SERVICES RADIAN
SPECIAL MEETING SPECIAL MEETING
-------------------------- ---------------
<S> <C>
Enhance Financial Services directors Radian directors and executive
and executive officers beneficially officers beneficially own
own Enhance Financial Radian common shares
Services common shares that are that are entitled to vote at the
entitled to vote at the meeting. meeting. These shares represent less
These shares represent less than than [ %] of the Radian common
[ %] of the Enhance Financial shares outstanding as of
Services common shares outstanding , 2001.
as of , 2001.
These individuals have indicated These individuals have indicated
that they intend to vote in favor of that they intend to vote in favor of
the merger proposal. Three of them, the share issuance proposal.
who hold Enhance
Financial Services common shares,
have contractually committed to vote
in favor of the merger proposal.
</TABLE>
VOTE NECESSARY AT SPECIAL MEETINGS TO APPROVE ENHANCE FINANCIAL SERVICES AND
RADIAN PROPOSALS
<TABLE>
<CAPTION>
ENHANCE FINANCIAL SERVICES RADIAN
SPECIAL MEETING SPECIAL MEETING
-------------------------- ---------------
<S> <C>
Adoption of the merger agreement and Approval of the share issuance in
authorization of the transactions the merger requires the approval of
contemplated by the merger the holders of a majority of the
agreement, including the merger, Radian common shares present and
requires the approval of the holders voting at the meeting.
of two-thirds of the outstanding
Enhance Financial Services common
shares.
Abstentions and broker non-votes Abstentions and broker non-votes
will have the same effect as votes will not be treated as votes cast
against the Enhance Financial and will have no effect on the
Services merger proposal. outcome of the votes on the issuance
of Radian common shares in the
merger.
</TABLE>
VOTING BY PROXY
VOTING YOUR PROXY. You may vote in person at your special meeting or by
proxy. We recommend you vote by proxy even if you plan to attend your special
meeting. You can always change your vote at the special meeting.
You may vote by proxy by completing and mailing the enclosed proxy card or,
if you are an Enhance Financial Services shareholder, you may also vote by
Internet or telephone by following the Internet or telephone instructions on the
proxy card. If you properly submit your proxy to us in time to vote, one of the
individuals named as your proxy will vote your shares as you have directed. You
may vote for or against the proposal or proposals submitted at your special
meeting or abstain from voting.
20
<PAGE> 30
HOW TO VOTE BY PROXY
IN WRITING*
<TABLE>
<CAPTION>
ENHANCE FINANCIAL SERVICES RADIAN
SPECIAL MEETING SPECIAL MEETING
-------------------------- ---------------
<S> <C>
Complete, sign, date and return your Complete, sign, date and return your
proxy card in the enclosed envelope. proxy card in the enclosed envelope.
</TABLE>
BY INTERNET OR TELEPHONE*
<TABLE>
<CAPTION>
ENHANCE FINANCIAL SERVICES RADIAN
SPECIAL MEETING SPECIAL MEETING
-------------------------- ---------------
<S> <C>
Go to and follow the Voting by Internet is not available
instructions. You will need to give to Radian stockholders.
the personal identification number
contained on your proxy card.
Or, call toll-free 1-800- Voting by telephone is not available
and follow the instructions. You to Radian stockholders.
will need to give the personal
identification number contained on
your proxy card.
</TABLE>
---------------
* If you hold shares through a brokerage firm or other custodial firm, please
follow the voting instructions for the voting form used by that firm.
If you submit your proxy but do not make specific choices, your proxy will
follow your board's recommendation and your shares will be voted as your board
recommended.
The Enhance Financial Services board of directors unanimously recommends
that you vote FOR approval of the merger agreement and the transactions
contemplated by the merger agreement, including the merger.
The Radian board of directors unanimously recommends that you vote FOR the
issuance of Radian common shares in the merger.
APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE
MERGER AGREEMENT, INCLUDING THE MERGER, BY ENHANCE FINANCIAL SERVICES
SHAREHOLDERS, AND APPROVAL OF THE ISSUANCE OF RADIAN COMMON SHARES IN THE MERGER
BY RADIAN STOCKHOLDERS, ARE CONDITIONS TO CONSUMMATION OF THE MERGER.
REVOKING YOUR PROXY. You may revoke your proxy before it is voted by:
- submitting a new proxy with a later date, including, if you are an
Enhance Financial Services shareholder, a proxy given by Internet or
telephone;
- notifying your company's Secretary in writing before your special meeting
that you have revoked your proxy; or
- voting in person at your special meeting.
OTHER VOTING MATTERS
VOTING IN PERSON. If you plan to attend your special meeting and wish to
vote in person, we will give you a ballot at your special meeting, even if you
have already sent in a proxy card. However, if your common shares are held in
the name of a brokerage firm or custodial firm, you must obtain from that firm
an account
21
<PAGE> 31
statement, letter or other evidence of your beneficial ownership of the common
shares. You must bring that documentation to your special meeting to gain
admission.
PEOPLE WITH DISABILITIES. We can provide reasonable assistance to help you
participate in your special meeting if you tell us about your disability and
your plan to attend. Please call or write the Secretary of your company at least
two weeks before your special meeting at the number or address provided on page
4.
PROXY SOLICITATION. Each of us will pay our own costs of soliciting
proxies.
In addition to this mailing, Enhance Financial Services and Radian
employees may solicit proxies personally, electronically or by telephone. We are
paying Corporate Investor Communications, Inc. a customary fee, plus expenses,
to assist with the solicitation.
The extent to which these proxy-soliciting efforts will be necessary
depends upon how promptly proxies are submitted. You should submit your proxy
without delay by mail or, if you are an Enhance Financial Services shareholder,
by Internet or telephone if you choose to vote by Internet or telephone. We also
will reimburse brokers and other nominees for their expenses in sending these
materials to you and getting your voting instructions.
DO NOT SEND IN ANY ENHANCE FINANCIAL SERVICES STOCK CERTIFICATES WITH YOUR
PROXY CARDS. OUR EXCHANGE AGENT WILL MAIL TRANSMITTAL FORMS WITH INSTRUCTIONS
FOR THE SURRENDER OF ENHANCE FINANCIAL SERVICES STOCK CERTIFICATES AFTER THE
COMPLETION OF THE MERGER.
OTHER BUSINESS; ADJOURNMENTS
We currently are not aware of any other business to be acted upon at either
special meeting. If, however, other matters are properly brought before either
special meeting, or any adjourned or postponed special meeting, your proxy
holders will have discretion to vote or act on those matters according to their
best judgment, including to adjourn the special meeting.
Either meeting can be adjourned one or more times with the approval of the
holders of a majority of the shares which are present in person or by proxy at
the special meeting, whether or not a quorum exists, without further notice
other than by an announcement made at the special meeting.
22
<PAGE> 32
THE MERGER
BACKGROUND OF THE MERGER
In August 1999, Moody's Investor Service, Inc. ("Moody's") downgraded
Enhance Financial Service's senior long term debt rating from Aa3 to A2 and the
financial strength rating of its principal reinsurance subsidiary from Aaa to
Aa2. On February 29, 2000, it placed Enhance Financial Services and its
principal reinsurance subsidiary on watch for a further possible downgrade. At
that time, it informed Enhance Financial Services that one of its concerns was
Enhance Financial Services' non-insurance businesses.
In part because of the concerns Moody's expressed and the negative impact a
further downgrade could have on the business of Enhance Financial Services'
insurance subsidiaries, and in part because of the continued low price of its
common stock and increasing cash needs, in February 2000 Enhance Financial
Services asked Morgan Stanley & Co. Incorporated ("Morgan Stanley") to advise it
about possible strategic alternatives and to help it explore a possible sale of
Enhance Financial Services or sales of some of its subsidiaries. Morgan Stanley
contacted 22 companies to ascertain whether they had any interest in acquiring
Enhance Financial Services and contacted an additional 23 companies about
whether they might be interested in purchasing one or more of Enhance Financial
Services' subsidiaries. It received written indications of possible interest in
Enhance Financial Services or one or more of its subsidiaries from eight
companies, including Radian.
In April 2000, Radian retained Goldman Sachs & Co. ("Goldman Sachs") to
assist Radian in evaluating a possible transaction with Enhance Financial
Services.
On May 19, 2000, Radian signed a confidentiality agreement with Enhance
Financial Services. Shortly after that, at the request of Enhance Financial
Services, Morgan Stanley sent Radian information about Enhance Financial
Services and its subsidiaries, and Radian, together with its accountants and
legal and financial advisors, began a review of Enhance Financial Services'
insurance business and some of its non-insurance subsidiaries.
In June 2000, Enhance Financial Services, through Morgan Stanley, received
three non-binding indications of interest regarding possible acquisitions of
Enhance Financial Services or its insurance subsidiaries, and received a
non-binding proposal to purchase Enhance Financial Services' 45.94% interest in
Credit-Based Asset Servicing and Securitization LLC ("C-BASS"). It also received
non-binding proposals to acquire the servicing rights held by Singer, and a
proposal from Singer's management to purchase its assets. However, the proposals
related to Singer appeared to be less favorable than allowing Singer's assets to
run off.
In August 2000, Enhance Financial Services entered into a letter of intent,
and late in September 2000 it entered into an agreement, to sell to Residential
Finance Corporation (a subsidiary of General Motors Acceptance Corporation) a
partnership that owned the 45.94% interest in C-BASS and some REMIC residual
interests. The agreement gave each of Enhance Financial Services and Residential
Finance Corporation the right to terminate the agreement if a sale of Enhance
Financial Services were separately arranged that precluded a sale of C-BASS.
However, Enhance Financial Services would have to pay $4 million if the
agreement with Residential Finance Corporation were terminated for that reason.
On September 20, 2000, the Enhance Financial Services board of directors
held an informal dinner meeting at which Morgan Stanley discussed the publicly
available information about Radian, including its business, financial condition,
operating results and trading history. On the following day, the board held a
formal meeting at which it discussed Radian's interest in a transaction with
Enhance Financial Services. At that meeting the board of directors also
discussed one other proposal with respect to a merger with Enhance Financial
Services, a proposal to acquire Enhance Financial Services' insurance
subsidiaries, and the possibility of Enhance Financial Services remaining an
independent company. At the conclusion of the meeting, the Enhance Financial
Services board of directors authorized its management and Morgan Stanley to
pursue a transaction with Radian.
On September 26, 2000, representatives of Goldman Sachs told
representatives of Morgan Stanley that Radian was interested in entering into a
transaction with Enhance Financial Services, subject to further due
23
<PAGE> 33
diligence. At that time, the parties were considering a transaction in which the
shareholders of Enhance Financial Services would receive a fraction of a share
of Radian common stock for each share of Enhance Financial Services common
stock, plus a contingent payment security based on future revenues of certain
non-core subsidiaries of Enhance Financial Services.
Radian and its advisors continued to conduct due diligence. On September
29, 2000, Radian sent Enhance Financial Services a draft merger agreement.
On October 17, 2000, Goldman Sachs presented information to the Radian
board of directors about Enhance Financial Services, including its business,
financial condition, operating results and trading history, and the information
relating to the value of Enhance Financial Services described elsewhere in this
Joint Proxy Statement/Prospectus under "Opinion of Radian's Financial Advisor."
During the October 17 meeting, the Radian board of directors considered the
proposed transaction with Enhance Financial Services. The Radian board of
directors then authorized its management to pursue the transaction within
parameters that had been discussed and directed representatives to continue to
conduct due diligence.
On October 27, 2000, Daniel Gross, President and Chief Executive Officer of
Enhance Financial Services, met at Radian's offices in Philadelphia with Frank
Filipps, Chairman and Chief Executive Officer of Radian, C. Robert Quint,
Executive Vice President and Chief Financial Officer of Radian, and Howard S.
Yaruss, Senior Vice President, Secretary and General Counsel of Radian, to
discuss whether Radian continued to be interested in a transaction with Enhance
Financial Services. The Radian representatives indicated that they continued to
be interested in a transaction but discussed certain due diligence concerns,
particularly regarding Singer and the commitment to fund Credit2B.com Inc. No
proposal was made at that meeting.
Further discussions were held during the following week, primarily between
representatives of Morgan Stanley and representatives of Goldman Sachs. On
November 8, a representative of Goldman Sachs informed a representative of
Morgan Stanley that, after consideration of certain due diligence matters,
particularly relating to Singer, and certain expenses to be incurred in
connection with the merger, Radian was proposing a merger ratio of 0.225 of a
Radian share per Enhance Financial Services share, although the parties had been
discussing an exchange ratio of 0.2375.
At a meeting of the Enhance Financial Services board of directors held on
November 8, Morgan Stanley made a presentation regarding the proposed
transaction with Radian. At that meeting, the Enhance Financial Services board
of directors also reviewed with counsel the transaction terms contemplated by
the draft merger agreement and the directors' fiduciary obligations in reviewing
the proposed transaction. Morgan Stanley's presentation materials were based on
the terms which had been discussed before November 8. Morgan Stanley discussed,
among other things, Enhance Financial Services' financial and trading history,
Radian's financial and trading history, the possibility of a downgrade of the
financial strength ratings of Enhance Financial Services' insurance subsidiaries
if no transaction was entered into and its potential implications, the
likelihood that Enhance Financial Services would be required to obtain a waiver
of certain debt covenants to pay future dividends and other information relating
to the value of Enhance Financial Services described elsewhere in this Joint
Proxy Statement/Prospectus under "Opinion of Enhance Financial Services'
Financial Advisor." A representative of Morgan Stanley informed the board of
directors that, as of that date, subject to and based upon various
considerations which would be set forth in its opinion, the terms described in
its presentation would be fair, from a financial point of view, to the holders
of Enhance Financial Services common stock. However, he said Morgan Stanley
would require a review by its fairness committee before it could deliver a
similar opinion with regard to an exchange ratio of 0.225. The Enhance Financial
Services board of directors then unanimously voted to approve the merger
agreement, subject to receipt of a fairness opinion from Morgan Stanley and to
resolution of certain open items.
After the November 8 board of directors meeting, because it appeared likely
that the costs incurred because of the merger were likely to be greater than had
been anticipated, Radian reduced the proposed exchange ratio to 0.22 of a Radian
share for each Enhance Financial Services share.
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<PAGE> 34
The Enhance Financial Services board of directors met by telephone on
November 12 to consider the revised exchange ratio. Morgan Stanley discussed
with the board of directors the financial impact of the change of the exchange
ratio. It then informed the board that it would be able to deliver its written
opinion that, subject to and based upon various considerations which would be
set forth in its written opinion, including the possibility that the financial
strength rating of Enhance Financial Services' insurance subsidiaries might be
downgraded if the merger did not take place and the likelihood that Enhance
Financial Services would be required to obtain a waiver of certain debt
covenants to pay future dividends, an exchange ratio of 0.22 was fair, from a
financial point of view, to the holders of Enhance Financial Services common
stock. The Enhance Financial Services' board of directors then unanimously
adopted the merger agreement and determined to recommend the merger to the
shareholders of Enhance Financial Services.
There were relatively minor changes to the proposed merger agreement on
November 13, 2000. Although none of these required further board of directors
action, Enhance Financial Services' Chief Executive Officer polled a majority of
Enhance Financial Services' directors to confirm that one of the changes was
within the parameters which had been discussed by the board of directors.
The two companies signed the Agreement and Plan of Merger on the evening of
November 13 and announced the transaction before the securities markets opened
on November 14.
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<PAGE> 35
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
ENHANCE FINANCIAL SERVICES.
The Enhance Financial Services board believes the merger will increase the
value of an Enhance Financial Services shareholder's investment in a shorter
period of time and with less risk than would be the case if Enhance Financial
Services remained a stand-alone entity. Accordingly, the Enhance Financial
Services board has unanimously adopted the merger agreement and voted to
recommend that the Enhance Financial Services shareholders vote for adoption of
the merger agreement and authorization of the merger.
The Enhance Financial Services board considered the following factors that
indicated that the merger would be beneficial to the Enhance Financial Services
shareholders:
- when the board voted upon the transaction on November 12, the value of
the Radian shares that an Enhance Financial Services shareholder would
receive in the merger exceeded the average market price during the
preceding 10 days by 8.7% and exceeded the average market price during
the preceding 30 days by 13.5%;
- the possibility that the credit rating of its insurance subsidiaries
would be downgraded if the merger transaction was not entered into;
- the transaction offered Enhance Financial Services' shareholders the
opportunity to benefit from owning shares of a stronger and more
diversified group of insurance and reinsurance companies;
- Morgan Stanley delivered its opinion that, as of November 12, 2000, and
subject to and based on the various considerations set forth in its
opinion, the exchange ratio pursuant to the merger agreement was fair,
from a financial point of view, to the holders of Enhance Financial
Services common stock;
- the transaction would protect shareholders against the risk that Enhance
Financial Services would be downgraded by credit ratings agencies and as
a result would suffer a significant loss of business;
- Morgan Stanley had contacted 22 potential purchasers of Enhance Financial
Services (as well as 23 potential purchasers of aspects of its business).
The only other company which had expressed what was viewed as a serious
interest in merging with Enhance Financial Services was a relatively
small insurance company that was confronted with many of the same issues
as those that confronted Enhance Financial Services. The only sale of a
significant aspect of Enhance Financial Services' business which had been
arranged was a sale of the partnership which owns Enhance Financial
Services' interest in C-BASS and some REMIC residuals;
- the risk profile of Radian's mortgage insurance business was different
from that of Enhance Financial Services' present business, and therefore
the transaction would offer a worthwhile risk diversification;
- the transaction would avoid approximately $30 million of writedowns and
tax benefit recaptures that would result from a separate sale of the
partnership which owns Enhance Financial Services' interest in C-BASS,
and that could adversely affect the price of Enhance Financial Services'
stock; and
- if the shareholders of Enhance Financial Services do not approve the
merger or the stockholders of Radian do not approve the share issuance,
Enhance Financial Services will nevertheless have the option to sell its
interest in C-BASS to Radian.
The board also considered the following respects in which the merger could
be adverse to the Enhance Financial Services shareholders:
- signing the merger agreement would entitle the company that had agreed to
purchase the partnership that owns Enhance Financial Services' interest
in C-BASS (just as it entitled Enhance Financial Services) to terminate
that agreement;
- although Enhance Financial Services would have the option to sell its
interest in C-BASS to Radian if, among other things, the Enhance
Financial Services shareholders did not approve the merger or the
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<PAGE> 36
Radian stockholders did not approve the share issuance in connection with
the merger, the sale price would be 10% less than the purchase price
under the already existing agreement, and there might be difficulties in
completing a sale to Radian that would not exist under the existing
contract. Failure to sell Enhance Financial Services' interest in C-BASS
would increase the likelihood that Enhance Financial Services' credit
rating would be downgraded; and
- Enhance Financial Services would be required to pay Radian a break-up fee
of $20 million (or, in some circumstances, $25 million), which is
approximately 4% of the total value of the merger consideration, if the
Enhance Financial Services board were to withdraw its recommendation that
shareholders adopt the merger agreement or if Enhance Financial Services
shareholders did not approve the transaction despite the board's
recommendation and Enhance Financial Services entered into another
disposition transaction within twelve months.
The discussion above is not intended to be exhaustive. However, it is
believed to include all the material factors that the Enhance Financial Services
board considered. The Enhance Financial Services board did not attempt to rank
or otherwise assign weights to the various factors it considered. To the extent
individual members of the Enhance Financial Services board may have given
weights to particular factors, it is very possible they gave different weights
to different factors. The only decision made by the Enhance Financial Services
board was a unanimous determination, in light of all the factors it considered,
to adopt the merger agreement and recommend that the shareholders adopt the
merger agreement and authorize the merger.
FOR THE REASONS DISCUSSED ABOVE, THE ENHANCE FINANCIAL SERVICES BOARD OF
DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE
BEST INTERESTS OF, ENHANCE FINANCIAL SERVICES AND ENHANCE FINANCIAL SERVICES
SHAREHOLDERS. ACCORDINGLY, THE ENHANCE FINANCIAL SERVICES BOARD UNANIMOUSLY
RECOMMENDS THAT ENHANCE FINANCIAL SERVICES SHAREHOLDERS VOTE FOR ADOPTION OF THE
MERGER AGREEMENT AND AUTHORIZATION OF THE MERGER.
RADIAN.
The Radian board unanimously determined that the terms of the merger are
fair to, and in the best interest of, Radian and its stockholders. Accordingly,
the Radian board of directors unanimously recommends that the stockholders of
Radian vote for approval of the issuance of Radian common stock in the merger.
In reaching its decision to approve the merger, the Radian board of
directors consulted with Radian's legal and financial advisors as well as with
Radian's management. The Radian board of directors considered a number of
material factors, including, without limitation, the following:
- Accretive to Earnings. The Radian board of directors and Radian's
management believed that the merger would be immediately accretive to
earnings per share;
- Trend Leader. The merger would allow Radian to capitalize on and lead
the trend toward convergence of financial and insurance products;
- Cash and Financial Strength to Grow. After the merger, Radian would have
the cash flow and financial strength to accelerate growth;
- Diversification. The Radian board of directors and Radian's management
believed that the merger presents an opportunity to diversify from a
private mortgage insurance company into a more general financial guaranty
insurance company, to acquire a leader in the financial guaranty
insurance business, to diversify Radian's revenue stream and risk
profile, and to diversify into a similar credit-based business line, and
presents a diversification opportunity to Radian and its stockholders
that exceeds that available to Radian on its own;
- Presentation of Financial Advisor. The financial presentation and
opinion of Goldman Sachs, Radian's financial advisor, as to the fairness,
from a financial point of view, to Radian of the exchange ratio, as more
fully described below under "Opinion of Radian's Financial Advisor";
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<PAGE> 37
- Terms and Condition of Merger. The terms and conditions of the merger,
which the Radian board of directors and Radian's management viewed as
fair to, and in the best interests of, Radian and Radian stockholders;
and
- AAA-rated Subsidiary. The merger allows Radian to acquire an AAA-rated
subsidiary.
All combinations, including the merger, also include certain risks and
disadvantages. The material potential risks and disadvantages to Radian
stockholders identified by the Radian board of directors and management in
considering the merger include the following:
- the time and resources required to complete the merger, with the
completion of the merger being subject to various conditions (see "The
Merger Agreement -- Conditions");
- the difficulties inherent in combining the two companies and the
potential distraction to management caused by a transaction of this
magnitude;
- as a result of the merger, the benefits of Radian's long-term strategic
plan would be shared by shareholders of Enhance Financial Services,
rather than enjoyed solely by Radian stockholders;
- the risk that the benefits sought from the merger, due to the matters
described under "Risk Factors" and other factors, might not be fully
achieved; and
- the risk that poor performance by Singer and a negative market reaction
to it could negatively impact Radian.
The Radian board of directors believed and continues to believe that these
potential risks and disadvantages are greatly outweighed by the potential
benefits anticipated to result from the merger.
This discussion of the factors considered by the Radian board of directors
is not intended to be exhaustive. Because of the wide variety of factors
considered in connection with its evaluation of the merger, the Radian board of
directors did not find it practicable to, and did not, quantify or otherwise
attempt to assign relative weights to the specific factors considered in
reaching its conclusions. In addition, individual directors may have given
different weights to different factors.
FOR THE REASONS DISCUSSED ABOVE, THE RADIAN BOARD OF DIRECTORS HAS
DETERMINED THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS
OF, RADIAN AND RADIAN STOCKHOLDERS. ACCORDINGLY, THE RADIAN BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT RADIAN STOCKHOLDERS VOTE FOR THE ISSUANCE OF RADIAN
COMMON SHARES IN CONNECTION WITH THE MERGER.
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<PAGE> 38
OPINION OF ENHANCE FINANCIAL SERVICES' FINANCIAL ADVISOR
In March 2000, Enhance Financial Services engaged Morgan Stanley to act as
its financial advisor to advise it in connection with strategic alternatives
regarding a possible sale of Enhance Financial Services or of certain
subsidiaries of Enhance Financial Services. In connection with Morgan Stanley's
engagement, Enhance Financial Services requested that Morgan Stanley evaluate
the fairness, from a financial point of view, of the exchange ratio pursuant to
the merger agreement to the holders of shares of Enhance Financial Services
common stock. On November 12, 2000, at a meeting of the Enhance Financial
Services board of directors held to consider the merger, Morgan Stanley rendered
its oral opinion, which opinion was confirmed in writing, that as of November
12, 2000, and based on and subject to the considerations described in the
opinion, the exchange ratio pursuant to the merger agreement is fair, from a
financial point of view, to holders of shares of Enhance Financial Services
common stock.
The full text of Morgan Stanley's written opinion, dated November 12, 2000,
which sets forth, among other things, the procedures followed, assumptions made,
matters considered and limitations on the review undertaken, in connection with
the opinion, is attached as Annex B to, and is incorporated by reference into,
this document. Enhance Financial Services shareholders are urged to read this
opinion carefully in its entirety. Morgan Stanley's opinion is addressed to the
Enhance Financial Services board of directors and only relates to the fairness
of the exchange ratio from a financial point of view to holders of shares of
Enhance Financial Services common stock. Morgan Stanley's opinion does not
address any other aspect of the proposed merger or any related transaction, and
does not constitute a recommendation to any shareholder as to how to vote at the
special meeting or as to any other matters relating to the merger. The summary
of Morgan Stanley's opinion in this document is qualified in its entirety by
reference to the full text of the opinion.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements and other
information of Enhance Financial Services and Radian;
- reviewed certain internal financial statements and other financial and
operating data concerning Enhance Financial Services and Radian;
- analyzed certain financial projections prepared by the management of
Enhance Financial Services;
- discussed the past and current operations and financial condition and the
prospects of Enhance Financial Services with senior executives of Enhance
Financial Services;
- discussed the past and current operations and financial condition and the
prospects of Radian with senior executives of Radian;
- reviewed the reported prices and trading activity for the Enhance
Financial Services common stock and the Radian common stock;
- compared the financial performance of Enhance Financial Services and
Radian and the prices and trading activity of the Enhance Financial
Services common stock and the Radian common stock with that of certain
other comparable publicly traded companies and their securities;
- reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
- participated in discussions and negotiations among representatives of
Enhance Financial Services and Radian and their financial and legal
advisors;
- reviewed the draft merger agreement and certain related documents; and
- considered such other factors and performed such other analyses as Morgan
Stanley deemed appropriate.
Morgan Stanley assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by it for the purposes of
its opinion. With respect to the financial projections,
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<PAGE> 39
Morgan Stanley assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the future
financial performance of Enhance Financial Services and Radian. In addition,
Morgan Stanley assumed that the merger will be consummated in accordance with
the terms set forth in the merger agreement, including, among other things, that
the merger will be treated as a tax-free reorganization and/or exchange, each
pursuant to the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code"). Morgan Stanley also assumed that in connection with the receipt of all
the necessary regulatory approvals for the proposed merger, no restrictions will
be imposed that would have a material adverse effect on the contemplated
benefits expected to be derived in the proposed merger. Morgan Stanley did not
make any independent valuation or appraisal of the assets or liabilities of
Enhance Financial Services, nor was Morgan Stanley furnished with any such
appraisals. Morgan Stanley's opinion is necessarily based on financial,
economic, market and other conditions as in effect on, and the information made
available to it as of, the date of its opinion.
In arriving at its opinion Morgan Stanley considered several factors which
could have a negative impact on Enhance Financial Services' business and
prospects, including the August 1999 decision by Moody's to downgrade the senior
long term debt rating from Aa3 to A2 and the insurance financial strength rating
of Enhance Reinsurance Company, a wholly owned subsidiary of Enhance Financial
Services, from Aaa to Aa2. In February 2000, Moody's placed these senior
long-term debt and insurance financial strength ratings under review for
possible further downgrade. Morgan Stanley was advised by Enhance Financial
Services that these further downgrades could significantly impact Enhance
Reinsurance Company's ability to retain existing business and write new
business. Morgan Stanley also was aware that Enhance Financial Services' net
loss incurred for the second quarter of 2000 required Enhance Financial Services
to seek a waiver of certain covenants, which it received, pursuant to its
unsecured credit facility to pay its third quarter 2000 dividend, and that a
similar waiver would likely be required to pay future dividends.
The following is a summary of the material financial analysis performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
written opinion. These summaries of financial analyses include information
presented in tabular format. In order to understand fully the financial analyses
used by Morgan Stanley, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses.
COMPARABLE COMPANIES ANALYSIS. Morgan Stanley selected the following
publicly traded companies, referred to herein as the "comparable companies,"
engaged in businesses that Morgan Stanley deemed similar to that of Enhance
Financial Services or its subsidiaries:
- Ambac Financial Group; and
- MBIA Inc.
Morgan Stanley determined the market capitalization for each of these
comparable companies based on the closing price per share as of November 10,
2000, using publicly available information. Morgan Stanley then arrived at a
range of comparable company multiples by dividing the share price of each
comparable company by its estimated earnings per share ("EPS") for 2000 and
2001. EPS estimates for 2000 and 2001 for these comparable companies were
obtained from the Institutional Brokers Estimate System ("IBES"). Morgan Stanley
then applied a ratio of approximately 62% to these comparable company multiples,
because the common stock price of Enhance Financial Services, primarily a
financial guaranty reinsurer, has traded for the last two years at an average
discount of 38% to the financial guaranty insurers, Ambac and MBIA. Year 2000
Price-to-Earnings ("P/E") estimates ranged between 8.0x and 11.0x, and 2001 P/E
estimates ranged between 6.0x and 8.0x. Morgan Stanley used Enhance Financial
Services management's EPS estimates for 2000 and 2001 to arrive at an implied
value range for Enhance Financial Services common stock. Morgan Stanley also
determined an implied equity value range using GAAP book value and adjusted GAAP
book value multiples for Enhance Financial Services. Based on these analyses,
Morgan Stanley arrived at an indicative equity value range for Enhance Financial
Services of $14.00 to $17.00 per fully diluted share. Morgan Stanley then
applied to this equity value range a premium paid for change of control of
between 5% and 25%, arriving at an implied equity value range of $14.70 to
$18.00 per fully diluted share.
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<PAGE> 40
Morgan Stanley selected these comparable companies on the basis of various
factors, including the size and similarity of the line of business; however, no
company utilized as a comparison in these analyses summarized above is identical
to Enhance Financial Services. As a result, these analyses are not purely
mathematical, but also take into account differences in financial and operating
characteristics of the subject companies and other factors that could affect the
public trading value of the subject companies to which Enhance Financial
Services is being compared.
PREMIUMS PAID IN SELECTED PRECEDENT TRANSACTIONS ANALYSIS. Morgan Stanley
reviewed five recent selected business combinations in the U.S. property and
casualty insurance sector and analyzed the premiums/discounts paid in these
transactions. Morgan Stanley selected these transactions because the target
companies were facing similar financial issues to that of Enhance Financial
Services at the time of sale. Morgan Stanley examined various multiples based on
publicly available information for these selected precedent transactions. The
table below lists the parties to the transactions and the equity value of these
transactions as multiples of GAAP Operating Income estimates, Book Value and
Adjusted Book Value:
<TABLE>
<CAPTION>
EQUITY VALUE AS MULTIPLE OF
-----------------------------------
GAAP OPERATING
INCOME
----------------- ADJUSTED
1 YEAR 2 YEARS BOOK BOOK
ACQUIROR TARGET DATE FORWARD FORWARD VALUE VALUE
-------- ----------------------- --------- ------- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
White Mountain Insurance CGNU-U.S. operations September NA NA 0.43x NA
2000
ACE Ltd. Capital Re May 1999 6.4x 6.1x 0.92x 0.64x
Trenwick Group Chartwell Re June 1999 8.9x 7.3x 0.79x NA
Fairfax Financial Hldgs. Ltd. TIG Holdings Inc. -- December 9.5x 8.6x 0.73x NA
Financial Institutions 1998
Co.
Gerling-Konzern Constitution Re July 1998 NA NA 1.10x NA
</TABLE>
Based on this analysis, Morgan Stanley arrived at an implied equity value
range for Enhance Financial Services of $14.00 to $18.00 per fully diluted
share.
No company or transaction utilized in the selected precedent transactions
analysis is identical to Enhance Financial Services or Radian or the merger. In
evaluating the precedent transactions, Morgan Stanley made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of Enhance Financial Services or Radian.
INDICATIVE SUM OF THE BIDS VALUATION. Morgan Stanley also calculated an
implied equity value range based on the highest bids Enhance Financial Services
received for individual subsidiaries and operations of Enhance Financial
Services. Enhance Financial Services received bids for its insurance operations,
Singer and its 46% ownership interests in each of C-BASS and Sherman. Morgan
Stanley aggregated the highest bid received for each of the individual
subsidiaries and operations of Enhance Financial Services and arrived at an
implied equity value range for Enhance Financial Services of $11.48 to $12.78
per fully diluted share.
In connection with the review of the merger by the Enhance Financial
Services board of directors, Morgan Stanley performed a variety of financial and
comparative analyses for purposes of rendering its opinion. The preparation of a
financial fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. In arriving at its
opinion, Morgan Stanley considered the results of all of its analyses as a whole
and did not attribute any particular weight to any analysis or factor considered
by it. Morgan Stanley believes that its analyses, and the summary set forth
above, must be considered as a whole, and that selecting portions of the
analyses and of the factors considered by Morgan Stanley, without considering
all of the analyses and factors, could create a misleading or incomplete view of
the processes underlying the analyses conducted by Morgan Stanley and its
opinion. In addition, Morgan Stanley may have given various analyses and factors
more or less weight than other analyses and factors and may have deemed various
assumptions more or less probable than other assumptions, so that the range of
valuations resulting
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<PAGE> 41
from any particular analysis described above should therefore not be taken to be
Morgan Stanley's view of the actual value of Enhance Financial Services or
Radian.
In performing its financial analyses, Morgan Stanley made numerous
assumptions with respect to Enhance Financial Services, industry performance,
general business, economic, market and financial conditions, and other matters,
many of which are beyond the control of Enhance Financial Services or Radian.
Any estimates contained in Morgan Stanley's analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by these analyses.
The analyses performed were prepared solely as part of Morgan Stanley's analysis
of the fairness from a financial point of view to the holders of the common
stock of Enhance Financial Services of the exchange ratio pursuant to the merger
agreement and were conducted in connection with the delivery by Morgan Stanley
of its opinion dated November 12, 2000 to the board of directors of Enhance
Financial Services. Morgan Stanley's analyses do not purport to be appraisals or
to reflect the prices at which shares of Enhance Financial Services might
actually trade. Because these estimates are inherently subject to uncertainty,
none of Enhance Financial Services, the Enhance Financial Services board of
directors, Morgan Stanley or any other person assumes responsibility if future
results or actual values differ materially from the estimates. The exchange
ratio in the merger was determined through arm's-length negotiations between
Enhance Financial Services and Radian and was approved by the Enhance Financial
Services board of directors. Morgan Stanley did not recommend any specific
exchange ratio to Enhance Financial Services or that any given exchange ratio
constituted the only appropriate exchange ratio for the merger.
Morgan Stanley is a nationally recognized investment banking and advisory
firm. Morgan Stanley, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. Morgan Stanley is a full
service securities firm engaged in securities trading and brokerage activities,
financing and financial advisory services in addition to its investment banking
activities. In the ordinary course of its trading, brokerage, and financing
activities, Morgan Stanley or its affiliates may at any time hold long or short
positions, and may trade or otherwise effect transactions, for its own account
or the accounts of its customers, in debt or equity securities or senior loans
of Enhance Financial Services, Radian or their affiliates. Morgan Stanley has,
from time to time in the past, provided financial advice and other services to
Enhance Financial Services.
Pursuant to Morgan Stanley's engagement letter, Enhance Financial Services
has agreed to pay Morgan Stanley a customary fee for its financial advisory
services in connection with the merger. Enhance Financial Services also agreed
to reimburse Morgan Stanley for its expenses incurred in performing its services
and to indemnify Morgan Stanley and its affiliates, their respective directors,
officers, agents and employees and each person, if any, controlling Morgan
Stanley or any of its affiliates against certain liabilities and expenses,
including certain liabilities under federal securities laws, related to or
arising out of Morgan Stanley's engagement and any related transactions.
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OPINION OF RADIAN'S FINANCIAL ADVISOR
Goldman Sachs has acted as Radian's exclusive financial advisor in
connection with the merger. Radian selected Goldman Sachs based on Goldman
Sachs' experience, expertise, reputation and familiarity with Radian's business.
Goldman Sachs is an internationally recognized investment banking firm, and is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, leveraged buyouts, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements, and valuations for corporate and other purposes.
In connection with Goldman Sachs' engagement, Radian requested that Goldman
Sachs evaluate the fairness, from a financial point of view, to Radian of the
exchange ratio provided for in the merger. On October 17, 2000, at a meeting of
the Radian board of directors held to consider the merger, Goldman Sachs
rendered to the Radian board of directors an oral opinion to the effect that, as
of that date and based on and subject to the matters described in its opinion,
the exchange ratio contemplated at the time was fair, from a financial point of
view, to Radian.
Goldman Sachs also delivered a written opinion dated November 13, 2000 to
the Radian board of directors, which sets forth the procedures followed,
assumptions made, matters considered and limitations on the review undertaken,
in connection with the opinion, and the full text of which is attached as Annex
C to and is incorporated into this document by reference. Radian stockholders
are urged to read this opinion carefully in its entirety. Goldman Sachs' opinion
is addressed to the Radian board of directors and only relates to the fairness
of the merger exchange ratio from a financial point of view to Radian. Goldman
Sachs' opinion does not address any other aspect of the proposed merger or any
related transaction, and does not constitute a recommendation to any stockholder
as to any matters relating to the merger. The summary of Goldman Sachs' opinion
in this document is qualified in its entirety by reference to the full text of
the opinion.
In connection with its opinion, Goldman Sachs reviewed, among other things:
- the merger agreement;
- annual reports to stockholders and annual reports on Form 10-K of Radian
and Enhance Financial Services for the five years ended December 31,
1999;
- statutory financial statements of Enhance Reinsurance Company and Asset
Guaranty Insurance Company ("Asset Guaranty"), wholly owned subsidiaries
of Enhance Financial Services, and Radian Guaranty, Inc. and Amerin
Guaranty Corporation, wholly owned subsidiaries of Radian, for the five
years ended December 31, 1999;
- interim reports to stockholders and quarterly reports on Form 10-Q of
Radian and Enhance Financial Services;
- other communications from Radian and Enhance Financial Services to their
respective stockholders;
- internal financial analyses and forecasts for Enhance Financial Services
prepared by its management; and
- internal financial analyses and forecasts for Radian and Enhance
Financial Services (after giving effect to the merger), including the
forecasts relating to the conduct of the businesses of Singer and Van-
American Insurance Company following the closing of the merger and after
giving effect to the loss and loss-adjustment-expense reserves and other
accounting adjustments to be made at or before closing of the merger,
prepared by the management of Radian.
Goldman Sachs also held discussions with members of the senior management
of Radian and Enhance Financial Services regarding their assessment of the
strategic rationale for, and the potential benefits of, the merger and the past
and current business operations, financial condition and future prospects of
their respective companies. Goldman Sachs noted that Radian was aware that
audited financial statements with respect to Singer do not exist and that the
consummation of the merger is conditioned on the receipt of an
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<PAGE> 43
audited consolidated balance sheet for Singer reflecting a net worth of not less
that $1.00. In addition, Goldman Sachs:
- reviewed the reported price and trading activity for Radian common stock
and Enhance Financial Services common stock;
- compared financial and stock market information for Radian and Enhance
Financial Services with similar information for other publicly traded
companies;
- reviewed the financial terms of recent business combinations in the
financial services industry specifically and in other industries
generally; and
- performed other studies and analyses that Goldman Sachs considered
appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information discussed with or reviewed by it and assumed
such accuracy and completeness for purposes of rendering its opinion. Goldman
Sachs assumed, with the consent of Radian, that the forecasts have been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of Radian and that the forecasts will be realized in the amounts
and time periods contemplated thereby. Goldman Sachs noted that it was not an
actuary and its services did not include actuarial determinations or evaluations
by it or any attempt to evaluate actuarial assumptions and, in that regard,
Goldman Sachs assumed the adequacy of the loss and loss-adjustment-expense
reserves and the accounting adjustments reflected in the forecasts and it
understood that, with respect to all loss and loss-adjustment-expense reserves,
Radian relied upon actuarial opinions, reports and advice of Radian's actuarial
advisors. In addition, Goldman Sachs did not make an independent evaluation or
appraisal of the assets and liabilities, contingent or otherwise, of Enhance
Financial Services or any of its subsidiaries (including any derivative or
off-balance-sheet assets or liabilities or loss and loss-adjustment-expense
reserves) and was not furnished with any such evaluation or appraisal other than
actuarial opinions, reports and advice of actuarial advisors referred to in the
preceding sentence. Goldman Sachs also assumed that all governmental, regulatory
or other conditions, consents or approvals necessary for the consummation of the
merger will be obtained or satisfied without any adverse effect on Radian or
Enhance Financial Services or on the contemplated benefits of the transaction
contemplated by the agreement as reflected in the forecasts. The advisory
services and opinion of Goldman Sachs were provided for the information and
assistance of the board of directors of Radian in connection with its
consideration of the merger, and the opinion does not constitute a
recommendation as to how any holder of Radian common stock should vote with
respect to the proposed issuance of the Radian common stock.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its opinion to the Radian board of
directors on November 13, 2000.
THE FOLLOWING SUMMARIES OF FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED IN
TABULAR FORMAT. YOU SHOULD READ THESE TABLES TOGETHER WITH THE TEXT OF EACH
SUMMARY.
(1) Historical Exchange Ratio Analysis. Goldman Sachs reviewed the
historical daily trading prices for Radian common stock and Enhance Financial
Services common stock for the period from November 13, 1997 to November 13,
2000. Goldman Sachs' analysis indicated that the three-year average of the
historical exchange ratio was 0.44x, the two-year average was 0.38x, the
one-year average was 0.28x and the exchange ratio as of November 13, 2000 was
0.22x, compared to the exchange ratio of 0.22x proposed in the merger.
(2) Selected Companies Analysis. Goldman Sachs reviewed and compared
selected financial information, ratios and public market multiples for Radian
and Enhance Financial Services to corresponding financial information, ratios
and public market multiples for the following five publicly traded companies:
- MBIA, Inc.;
- Ambac Financial Group, Inc.;
- MGIC Investment Corporation;
- PMI Group, Inc.; and
- Triad Guaranty, Inc.
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<PAGE> 44
Goldman Sachs calculated and compared various financial multiples and
ratios. The multiples and ratios of Radian and Enhance Financial Services were
calculated using the closing prices for their common stock as of November 13,
2000. The multiples and ratios for Radian, Enhance Financial Services and each
of the selected companies were based on Institutional Brokers Estimate System
("IBES") estimates and the most recent publicly available information. With
respect to the selected companies, Goldman Sachs considered:
- closing share price on November 13, 2000 as a percentage of 52-week high
share price;
- share price as a multiple of estimated IBES 2000 and estimated IBES 2001
earnings;
- percentage growth rate in earnings per share based on IBES estimated 2000
earnings to estimated 2001 earnings and IBES five-year estimates;
- share price as a multiple of the tangible book value of common equity
(excluding Accumulated Other Comprehensive Income); and
- share price as a multiple of the adjusted book value, which is the book
value of common equity plus net deferred premium revenue plus the present
value of future net installment premiums less deferred acquisition costs
less tax effect.
The results of these analyses are summarized as follows:
<TABLE>
<CAPTION>
SELECTED PUBLICLY-TRADED FINANCIAL GUARANTORS
AND MORTGAGE INSURERS
---------------------------------------------
MEDIAN: MEDIAN: ENHANCE
FINANCIAL MORTGAGE FINANCIAL
PERCENTAGE/MULTIPLE GUARANTORS INSURERS RADIAN SERVICES
------------------- ---------- -------- ------ ---------
<S> <C> <C> <C> <C>
November 13, 2000 share price as a
percentage of 52-week high share price.... 89.8 % 89.7 % 89.7% 72.0 %
Price/Earnings Multiples
2000 (Based on IBES estimates)............ 13.4 x 11.6 x 10.1x 11.1 x
2001 (Based on IBES estimates)............ 11.8 x 10.3 x 9.0 x 7.3 x
EPS Growth Rate Percentages (Based on IBES
estimates)
2001/2000................................. 14.2 % 12.5 % 11.8% N/A
Five-year................................. 13.8 % 14.0 % 15.0% 15.0 %
Price/Tangible Book......................... 1.86x 2.17x 1.93x 0.76x
Price/Adjusted Book......................... 1.28x N/A N/A 0.59x
</TABLE>
(3) Pro Forma Merger Analysis. Goldman Sachs prepared analyses of the
financial impact of the merger using the pro forma forecasts for Enhance
Financial Services and Radian provided by Radian's management. Goldman Sachs
compared the earnings per share of Radian on a stand-alone basis to the earnings
per share of the common stock of the combined company following consummation of
the merger assuming no synergies.
Based on such analyses, the merger would be accretive to Radian's earnings
per share in each of estimated 2001 and 2002.
(4) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to the following three selected transactions in the
financial services industry:
- Dexia S.A.'s acquisition of Financial Security Assurance Holdings Ltd. on
March 14, 2000;
- ACE Limited's acquisition of Capital Re Corporation on February 24, 1999;
and
- MBIA, Inc.'s acquisition of CapMAC Holdings, Inc. on October 29, 1998.
35
<PAGE> 45
For the selected transactions, Goldman Sachs compared:
- transaction price as a multiple of the tangible book value;
- transaction price as a multiple of the adjusted book value; and
- transaction price as a multiple of projected earnings based on IBES
estimates for the first fiscal year ("FY1") and second fiscal year
("FY2"), following the signing date.
The results of these analyses are summarized below:
<TABLE>
<CAPTION>
RADIAN/ENHANCE
RANGE FOR SELECTED FINANCIAL SERVICES
TRANSACTIONS MERGER
------------------ ------------------
<S> <C> <C>
Price/Tangible Book......................... 1.00x - 2.10x 0.77x
Price/Adjusted Book......................... 0.73x - 1.45x 0.60x
Price/FY1 (Based on IBES estimates)......... 6.3x - 14.8x 11.3x
Price/FY2 (Based on IBES estimates)......... 5.6x - 12.8x 7.5x
</TABLE>
(5) Contribution Analysis. Goldman Sachs reviewed specific historical and
estimated future operating and financial information based on publicly available
information and estimates provided by Radian's management and IBES estimates to
determine the contribution of each of Radian and Enhance Financial Services to
the combined company's revenues, net income, stated and tangible equity based on
Radian's share price on September 30, 2000, market capitalization based on
Radian's share price on November 13, 2000, and market capitalization at the deal
price.
The following tables set forth the contribution that Radian and Enhance
Financial Services would each have made to the combined company:
<TABLE>
<CAPTION>
ENHANCE FINANCIAL
TOTAL REVENUES RADIAN SERVICES
-------------- ------ -----------------
<S> <C> <C>
1999.............................................. 74% 26%
Net Income
1999.............................................. 68 32
2000 (Based on Radian estimates).................. 76 24
2000 (Based on IBES estimates).................... 83 17
2001 (Based on Radian estimates).................. 78 22
2001 (Based on IBES estimates).................... 79 21
Stated and Tangible Equity (September 30, 2000)..... 64 36
Market Capitalization (November 13, 2000)........... 82 18
Market Capitalization at Deal Price................. 81.7 18.3
</TABLE>
As described above, Goldman Sachs' opinion to the Radian board of directors
was one of many factors taken into consideration by the Radian board of
directors in making its determination to approve the merger. The foregoing
summary does not purport to be a complete description of the analyses performed
by Goldman Sachs.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes.
Goldman Sachs is familiar with Radian having provided certain investment
banking services to Radian from time to time, including having acted as Radian's
financial advisor in connection with, and having participated in certain of the
negotiations leading to, the agreement.
36
<PAGE> 46
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of Radian or Enhance Financial Services for its own account and for the accounts
of customers.
Pursuant to a letter agreement dated June 16, 2000, Radian engaged Goldman
Sachs to act as its financial advisor in connection with the possible
acquisition of the stock or assets of Enhance Financial Services. Pursuant to
the terms of this letter agreement, Radian agreed to pay Goldman Sachs a
customary fee for its financial advisory services in connection with the merger.
Radian also has agreed to reimburse Goldman Sachs for its reasonable
out-of-pocket expenses, including attorneys' fees, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
federal securities laws.
37
<PAGE> 47
ACCOUNTING TREATMENT
The merger will be treated as a "purchase" for accounting purposes.
Therefore, the purchase price will be allocated to Enhance Financial Services'
assets and liabilities based on their estimated fair market values at the
completion of the merger. Any excess of the purchase price over these fair
market values will be accounted for as goodwill.
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
("Hart-Scott-Rodino Act"), the merger may not be consummated until the
expiration of a 30 calendar-day waiting period, or early termination of the
waiting period, following the parties' filing of premerger and notification
report forms with the Federal Trade Commission and the Antitrust Division of the
U.S. Department of Justice. On December 1, 2000, Radian and Enhance Financial
Services submitted the required filings to the Federal Trade Commission and the
Antitrust Division. The waiting period under the Hart-Scott-Rodino Act was
terminated on December 20, 2000.
The Antitrust Division and the Federal Trade Commission frequently
scrutinize the legality under the antitrust laws of transactions like the
merger. At any time before or after the completion of the merger, the Federal
Trade Commission and the Antitrust Division could take any action under the
antitrust laws that they deem necessary or desirable in the public interest,
including seeking to enjoin the completion of the merger or seeking the
divestiture of substantial assets of Enhance Financial Services or Radian.
Enhance Financial Services and Radian believe that the completion of the merger
will not violate the antitrust laws. There can be no assurance, however, that a
challenge to the merger on antitrust grounds will not be made, or, if such a
challenge is made, what the result will be.
The insurance laws and regulations of all U.S. jurisdictions generally
require that, prior to the acquisition of control of an insurance company
domiciled or commercially domiciled in such jurisdiction through the acquisition
of or merger with the holding company parent of the insurance company, the
acquiror must obtain the approval of the commissioner of insurance in such
jurisdiction for the acquisition of control of the domestic insurance company.
Accordingly, completion of the merger is subject to the approval of the Kentucky
Insurance Department and the New York Insurance Department. Radian filed
applications for approval of the merger with the Kentucky Insurance Department
and the New York Insurance Department on December 7, 2000 and December 4, 2000,
respectively. Although the insurance laws and regulations of Kentucky provide
the Kentucky Commissioner of Insurance with the authority to hold a public
hearing prior to his making a determination of whether or not to approve a
proposed acquisition of control of a Kentucky-domiciled insurer, such a public
hearing is held at the discretion of the Kentucky Commissioner of Insurance.
The insurance laws of Bermuda require that prior notice filings be made
with the Bermudan insurance regulatory authorities regarding the merger. Radian
and Enhance Financial Services are also required to make an antitrust filing
with the Brazilian antitrust authorities. Radian is in the process of making the
requisite filings with the Bermudan and Brazilian regulatory authorities.
In addition, Radian will be required to make preacquisition notice filings
in certain jurisdictions in which our insurance company subsidiaries transact
business unless an exemption from the preacquisition notice requirement applies
to the merger. These filings relate to the competitive impact of the proposed
merger on the insurance markets in those jurisdictions. We anticipate that
Radian will be exempt from making such preacquisition notice filings in most of
such jurisdictions. If required, these filings generally are required by statute
to be reviewed within 30 days after receipt by the applicable state insurance
department, which may request additional information on the competitive impact
of the proposed merger on a one-time basis prior to the end of such 30-day
period. If additional information relating to the filing is requested by a state
insurance department reviewing the filing, the review period will end no later
than the 30th day after receipt of the additional information by the insurance
department. Approval of the merger is not required in these states, but the
insurance regulators could take actions that could have the effect of preventing
the merger by imposing conditions upon the merger that the parties may deem to
be unacceptable.
38
<PAGE> 48
There can be no assurances that the required regulatory approvals described
above will be received or, if they are received, whether the timing of such
approvals and any conditions to such regulatory approvals that may be imposed by
the regulators will allow for the merger to be completed.
Other than as we describe in this document, the merger does not require the
approval of any U.S. federal or state or foreign agency.
RIGHTS OF DISSENTING STOCKHOLDERS
ENHANCE FINANCIAL SERVICES SHAREHOLDERS. Enhance Financial Services
shareholders will not be entitled to any dissenters' rights under the New York
Business Corporation Law or any other applicable law in connection with the
merger.
RADIAN STOCKHOLDERS. Radian stockholders will not be entitled to appraisal
rights under the Delaware General Corporation Law or any other applicable law in
connection with the merger.
FEDERAL SECURITIES LAW CONSEQUENCES
All Radian common shares that Enhance Financial Services shareholders will
receive in the merger will be freely transferable, except for Radian common
shares that are received by persons who are deemed to be "affiliates" of Enhance
Financial Services under the Securities Act of 1933, as amended, at the time of
the Enhance Financial Services special meeting. These affiliates may resell the
Radian common shares they receive in the merger only in transactions permitted
by Rule 145 under the Securities Act or as otherwise permitted under the
Securities Act. Persons who may be deemed to be affiliates of Enhance Financial
Services for the above purposes generally include individuals or entities that
control, are controlled by or are under common control with, Enhance Financial
Services, and may include directors and certain executive officers of Enhance
Financial Services. The merger agreement requires that Enhance Financial
Services cause each of these affiliates to deliver to Radian, before the Enhance
Financial Services special meeting, a written agreement, attached as Exhibit
4.9-A to the merger agreement, to the effect that these persons will not sell,
transfer or otherwise dispose of any of the Radian common shares issued to them
in the merger in violation of the Securities Act or the related rules of the
Securities Exchange Commission (the "SEC").
This Joint Proxy Statement/Prospectus does not cover any resales of the
Radian common stock to be received by the shareholders of Enhance Financial
Services upon completion of the merger, and no person is authorized to make any
use of this Joint Proxy Statement/Prospectus in connection with any such resale.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following general discussion summarizes the anticipated material U.S.
federal income tax consequences of the merger to Enhance Financial Services
shareholders. This discussion addresses only those shareholders who hold their
Enhance Financial Services common shares as a capital asset, and does not
address all of the U.S. federal income tax consequences that may be relevant to
particular Enhance Financial Services shareholders in light of their individual
circumstances, or to Enhance Financial Services shareholders that are subject to
special rules, such as:
- financial institutions;
- mutual funds;
- tax-exempt organizations;
- insurance companies;
- dealers in securities or foreign currencies;
- traders in securities who elect to apply a mark-to-market method of
accounting;
- foreign holders;
39
<PAGE> 49
- persons who hold Enhance Financial Services common shares as a hedge
against currency risk or as part of a straddle, constructive sale or
conversion transaction; or
- holders who acquired their Enhance Financial Services common shares upon
the exercise of employee stock options or otherwise as compensation.
The following discussion is not binding on the Internal Revenue Service. It
is based upon the Internal Revenue Code, as amended, regulations, rulings and
decisions in effect as of the date of this document, all of which are subject to
change, possibly with retroactive effect. Tax consequences under state, local
and foreign laws, and U.S. federal laws other than U.S. federal income tax laws,
are not addressed.
Enhance Financial Services shareholders are strongly urged to consult their
tax advisors as to the specific tax consequences to them of the merger,
including the applicability and effect of U.S. federal, state and local and
foreign income and other tax laws in their particular circumstances.
In connection with the filing of the registration statement, of which this
Joint Proxy Statement/ Prospectus forms a part, Clifford Chance Rogers & Wells
LLP, counsel to Enhance Financial Services, delivered an opinion to Enhance
Financial Services, and Wachtell, Lipton, Rosen & Katz, counsel to Radian,
delivered an opinion to Radian, each dated the date of this Joint Proxy
Statement/Prospectus, to the effect that the merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. The opinions are based on certain assumptions and certain representations
made by Enhance Financial Services, Radian and GOLD Acquisition Corporation. An
opinion of counsel is not binding on the Internal Revenue Service or any court.
No ruling has been, or will be, sought from the Internal Revenue Service as to
the U.S. federal income tax consequences of the merger.
Assuming the merger qualifies as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, holders of Enhance Financial
Services common shares that receive Radian common shares in the merger will not
recognize gain or loss for U.S. federal income tax purposes, except with respect
to cash, if any, they receive in lieu of fractional Radian common shares. Each
stockholder's aggregate tax basis in the Radian common shares received in the
merger (including fractional shares deemed received and redeemed as described
below) will be the same as his aggregate tax basis in the Enhance Financial
Services common shares surrendered in the merger. The holding period of the
Radian common shares received in the merger (including fractional shares deemed
received and redeemed as described below) by a holder of Radian common shares
will include the holding period of Enhance Financial Services common shares that
the holder surrendered in the merger.
A holder of Enhance Financial Services common shares that receives cash in
lieu of a fractional Radian common share will be treated as having received the
fractional Radian share and then as having received the cash in redemption of
the fractional Radian share and generally will recognize gain or loss equal to
the difference between the amount of cash received and the holder's tax basis in
the Radian common shares (determined as described above) that is allocable to
the fractional share. That gain or loss generally will constitute capital gain
or loss. In the case of an individual stockholder, any of this capital gain
generally will be subject to a maximum U.S. federal income tax rate of 20% if
the individual has held the holder's Enhance Financial Services common shares
for more than 12 months on the date of the merger. The deductibility of capital
losses is subject to limitations for both individuals and corporations.
Because Radian common shares remain unchanged in the merger, the merger
will not cause Radian stockholders to recognize any gain or loss. No gain or
loss will be recognized by Radian, Enhance Financial Services and GOLD
Acquisition Corporation.
Radian and Enhance Financial Services will not be obligated to complete the
merger unless, among other things, they receive from their respective counsel
further opinions, dated the day on which the merger is to take place, to the
effect that the merger will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code. In rendering these opinions,
counsel may require and rely upon facts and representations contained in
certificates of the officers of Enhance Financial Services, Radian and GOLD
Acquisition Corporation.
40
<PAGE> 50
THE DISCUSSION SET FORTH ABOVE OF MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS INTENDED TO PROVIDE ONLY A GENERAL SUMMARY, AND IS NOT INTENDED
TO BE A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER. IN ADDITION, THE FOREGOING DISCUSSION
DOES NOT ADDRESS TAX CONSEQUENCES THAT MAY VARY WITH, OR ARE CONTINGENT ON,
INDIVIDUAL CIRCUMSTANCES. THIS DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES
OF ANY TRANSACTION OTHER THAN THE MERGER. ACCORDINGLY, EACH STOCKHOLDER IS
STRONGLY URGED TO CONSULT WITH SUCH HOLDER'S TAX ADVISOR TO DETERMINE THE
PARTICULAR UNITED STATES FEDERAL, STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX
CONSEQUENCES OF THE MERGER TO SUCH HOLDER.
41
<PAGE> 51
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Pursuant to Change-in-Control Protection Agreements, certain executive
officers of Enhance Financial Services will become entitled to substantial
payments if their employment terminates under certain circumstances in
anticipation of, or within a specified period following, the merger. The details
of these arrangements are discussed below. Also, pursuant to the
Change-in-Control Protection Agreements and Enhance Financial Services'
Management Severance Protection Plan (with respect to executive officers), and
pursuant to a board of directors resolution (with respect to directors), options
held by directors and executive officers that normally would not vest (i.e.,
become exercisable) until future years will vest immediately upon the closing of
the merger. The possibility of receiving change-in-control payments and
accelerated vesting of options may have given directors and executive officers
interests in the merger that are different from those of most of our common
shareholders.
CHANGE-IN-CONTROL PROVISIONS
Each of Daniel Gross (who is the President and Chief Executive Officer of
Enhance Financial Services and also a director on the board), Samuel Bergman,
Elaine Eisenman, Martin Kamarck, Brian Kleinberg and Richard Lutenski has
entered into a Change-in-Control Protection Agreement with Enhance Financial
Services. Consummation of the merger will constitute a "change-in-control" under
these agreements. Under the agreements, the executive will be entitled to
severance benefits if during certain specified periods, the executive's
employment is terminated other than for cause or the executive terminates his or
her employment for good reason, such as a reduction in pay and benefits, status,
or responsibilities. The periods during which such a termination without cause
triggers severance benefits are the two years following consummation of the
merger and the 90 days preceding consummation of the merger, although, during
the 90 days preceding consummation of the merger, the termination must be in
connection with the merger or at the initiative of Radian to trigger severance
benefits. The following are the severance benefits to which the executive would
be entitled:
- three times his or her base salary and bonus amount, with the bonus
amount based on the higher of the executive's bonus for the year
immediately preceding the calendar year of termination or the executive's
year 2000 bonus;
- a pro-rata bonus amount for the year of termination;
- outplacement services for six months (or cash in lieu of such services);
- coverage under Enhance Financial Services' welfare benefit programs for
36 months after termination; and
- if the executive was not vested in Enhance Financial Services'
supplemental pension plan, immediate vesting and a lump-sum payment under
that plan.
Each executive vice-president who is a party to a Change-in-Control
Protection Agreement is entitled to a tax "gross-up" if payments received due to
a control change (whether under the change-in-control agreement or otherwise)
are subject to the excise tax imposed by Section 4999 of the Internal Revenue
Code.
As indicated above, the cash component of the severance benefits to which
executive officers of Enhance Financial Services would be entitled upon a change
of control is dependent upon a number of factors, including the date on which
the merger is consummated and the date on which such officer's employment with
Enhance Financial Services terminates. The lump-sum cash severance payment (not
including tax "gross-up" payments for any excise tax which an executive officer
may be obligated to pay pursuant to Section 4999 of the Internal Revenue Code)
which each executive officer would receive if the merger was consummated on
March 31, 2001 and the employment of such officer was terminated on March 31,
2001 is as follows:
Daniel Gross - $3,254,560.12
Samuel Bergman - $1,927,032.55
Elaine Eisenman - $1,779,947.50
42
<PAGE> 52
Martin A. Kamarck - $2,596,541.84
Brian C. Kleinberg - $1,502,751.37
Richard P. Lutenski - $1,921,473.91
No director (other than Mr. Gross, who could receive a payment under a
Change-in-Control Protection Agreement in his capacity as President and Chief
Executive Officer of Enhance Financial Services) is entitled to receive a cash
payment as a result of the merger.
OPTIONS HELD BY ENHANCE FINANCIAL SERVICES EXECUTIVE OFFICERS AND DIRECTORS
As of December 6, 2000, Enhance Financial Services' executive officers and
directors held options to purchase a total of 3,629,517 shares of Enhance
Financial Services' common stock at exercise prices ranging from $7.25 to
$30.00, of which options to purchase 575,750 shares at exercise prices ranging
from $16.25 to $30.00 would not vest until February 2001 or later. However,
these options will automatically vest when the merger takes place. The number of
options that will vest as a result of the merger with regard to each executive
officer and each director is as follows (assuming a closing during February
2000):
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF OPTIONS AVERAGE OPTION
NAME AND TITLE ACCELERATED EXERCISE PRICE
-------------- ----------------- --------------
<S> <C> <C>
Daniel Gross.......................................... 281,250 $22.23
Samuel Bergman........................................ 42,250 21.49
Elaine J. Eisenman.................................... 42,750 22.16
Martin A. Kamarck..................................... 67,500 19.39
Brian C. Kleinberg.................................... 77,000 19.34
Richard P. Lutenski................................... 30,000 17.56
Brenton W. Harries.................................... 3,500 16.25
David R. Markin....................................... 3,500 16.25
Jay A. Novik.......................................... 3,500 16.25
Robert P. Saltzman.................................... 3,500 16.25
Wallace O. Sellers.................................... 3,500 16.25
Richard J. Shima...................................... 3,500 16.25
Spencer R. Stuart..................................... 3,500 16.25
Allan R. Tessler...................................... 3,500 16.25
Jerry Wind............................................ 3,500 16.25
</TABLE>
On , the price of 0.22 shares of Radian common stock (the
number of shares to be issued with regard to each share of Enhance Financial
Services' common stock) was $ .
AGREEMENT TO INDEMNIFY DIRECTORS, OFFICERS AND EMPLOYEES
The merger agreement provides that the surviving corporation of the merger
will honor for at least six years Enhance Financial Services' obligations to
indemnify its present and past directors, officers and employees with respect to
matters that occurred prior to the merger and maintain the insurance Enhance
Financial Services currently maintains for its directors or officers or similar
insurance, subject to certain limits, for at least six years.
Enhance Financial Services' board of directors knew about these additional
interests, and considered them, when it approved the merger and recommended that
Enhance Financial Services' shareholders approve the merger agreement.
43
<PAGE> 53
OWNERSHIP OF SECURITIES OF ENHANCE FINANCIAL SERVICES
The following table sets forth certain information with respect to the
beneficial ownership of the common stock par value $.10 of Enhance Financial
Services Group Inc. as of November 20, 2000 by (a) each shareholder known to
Enhance Financial Services to be the beneficial owner, within the meaning of
Section 13(d) of the Securities Exchange Act of 1934, as amended, of more than
5% of the outstanding shares of Enhance Financial Services common stock; (b)
each director of Enhance Financial Services; (c) each of the chief executive
officer and the other executive officers of Enhance Financial Services; and (d)
all executive officers and directors of Enhance Financial Services as a group.
Unless otherwise indicated, the address of each such person is c/o Enhance
Financial Services Group Inc., 335 Madison Avenue, New York, New York 10017.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS SHARES(1) CLASS
---------------- --------- ----------
<S> <C> <C>
Swiss Reinsurance Company................................... 3,400,000 8.9
Mythenquai 50/60
8022 Zurich, Switzerland
EQSF Advisers, Inc. ........................................ 3,310,050(2) 8.7
767 Third Avenue
New York, New York 10017-2023
Legg Mason Inc. ............................................ 2,213,235(3) 5.8
100 Light Street
Baltimore, Maryland 21202
Lazard Freres & Co. LLC..................................... 1,927,930(4) 5.0
30 Rockefeller Plaza
New York, New York 10020
Allan R. Tessler............................................ 506,500(5)(6) 1.3
Wallace O. Sellers.......................................... 843,800(5)(6) 2.2
Daniel Gross................................................ 1,352,500(5) 3.5
Samuel Bergman.............................................. 211,700(5) *
Elaine J. Eisenman.......................................... 28,450(5) *
Martin A. Kamarck........................................... 2,500 *
Brian C. Kleinberg.......................................... 31,000(5) *
Richard P. Lutenski......................................... 14,500 *
Brenton W. Harries.......................................... 36,500(6) *
David R. Markin............................................. 245,477(6)(7) *
Jay A. Novik................................................ 28,000 *
Robert P. Saltzman.......................................... 174,500(6)(8) *
Richard J. Shima............................................ 38,755(6) *
Spencer R. Stuart........................................... 37,606(6)(9) *
Frieda K. Wallison.......................................... 40,772(6) *
Jerry Wind.................................................. 26,957(6) *
All executive officers and directors as a group............. 3,629,517(10) 9.7
</TABLE>
---------------
* Less than 1%
(1) The table in this section is based upon information supplied by directors,
officers, and principal shareholders and Schedules 13D and 13G, if any,
filed with the SEC. Unless otherwise indicated in the footnotes to the
table and subject to the community property laws where applicable, each of
the shareholders named in this table has sole voting and investment power
with respect to the shares shown as beneficially owned by him or her.
(2) On November 14, 2000, EQSF Advisers, Inc., M.J. Whitman Advisers, Inc., and
their respective controlling person, Martin J. Whitman, jointly filed an
amendment to their joint Schedule 13G describing their respective ownership
of shares of Enhance Financial Services common stock as of
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<PAGE> 54
November 14, 2000 as set forth in this paragraph. EQSF has sole voting and
dispositive power over 3,310,050 shares of Enhance Financial Services
common stock and shared voting and dispositive power over no shares of
Enhance Financial Services common stock, MJWA has sole voting and
dispositive power over 1,122,327 shares of Enhance Financial Services
common stock and shared voting and dispositive power over no shares of
Enhance Financial Services common stock, and Mr. Whitman has sole or shared
voting or dispositive power over no shares of Enhance Financial Services
common stock as Mr. Whitman has disclaimed beneficial ownership over all
shares of Enhance Financial Services common stock over which EQSF and MJWA
have voting or dispositive power. Third Avenue Value Fund, an investment
company registered under the Investment Company Act of 1940, has the right
to receive dividends from, and the proceeds from the sale of, 2,444,500 of
the shares reported by EQSF; Third Avenue Small-Cap Value Fund, an
investment company registered under the Investment Company Act of 1940, has
the right to receive dividends from, and the proceeds from the sale of,
163,000 of the shares reported by EQSF; Third Avenue Variable Series Trust,
an investment company registered under the Investment Company Act of 1940,
has the right to receive dividends from, and the proceeds from the sale of,
44,950 of the shares reported by EQSF; Third Avenue Value Portfolio of the
WRL Series Fund, an investment company registered under the Investment
Company Act of 1940, has the right to receive dividends from, and the
proceeds from the sale of, 130,600 of the shares reported by EQSF; Style
Select Series Small Cap Value Portfolio, an investment company registered
under the Investment Company Act of 1940, has the right to receive
dividends from, and the proceeds from the sale of, 50,000 of the shares
reported by EQSF; and Style Select Series Focused Value Portfolio, an
investment company registered under the Investment Company Act of 1940, has
the right to receive dividends from, and the proceeds from the sale of,
477,000 of the shares reported by EQSF. Various clients for whom MJWA acts
as investment advisor have the right to receive dividends from, and the
proceeds of the sale of, the shares reported by MJWA.
(3) On February 16, 1999, Legg Mason, Inc. filed a Schedule 13G describing its
ownership of shares of Enhance Financial Services common stock at December
31, 1998 as follows: Legg Mason, Inc. has sole voting and dispositive power
over 2,126,500 shares of Enhance Financial Services common stock and shared
voting and dispositive power over 86,735 shares of Enhance Financial
Services common stock. Such shares of Enhance Financial Services common
stock are held by various identified subsidiaries of Legg Mason, Inc. and
by various of their clients, all of which have the power to dispose of the
shares held by them.
(4) On February 3, 2000, Lazard Freres & Co. LLC filed a Schedule 13G
describing its ownership of shares of Common Stock at December 31, 1999 as
follows: Lazard Freres has sole voting power over 1,589,605 and sole
dispositive power over 1,927,930 shares of Enhance Financial Services
common stock. Clients of Lazard Freres have the right to receive dividends
and proceeds of the sale of the Enhance Financial Services common stock. To
the knowledge of Lazard Freres, no such person has an interest relating to
more than 5% of the Enhance Financial Services common stock.
(5) Includes the shares set forth in (a) Column A below issuable to the named
director or officer upon the exercise of currently exercisable stock
options granted under Enhance Financial Services employee stock programs
and (b) Column B below owned by the named officer's spouse and children or
in trusts of which such officer is a trustee (as to which shares such
officer disclaims beneficial ownership).
<TABLE>
<CAPTION>
NAME A B
---- ------- -------
<S> <C> <C>
Allan R. Tessler................................. 44,000 4,000
Wallace O. Sellers............................... 308,300 517,000
Daniel Gross..................................... 932,500 204,000
Samuel Bergman................................... 202,500 9,200
Elaine J. Eisenman............................... 27,250 -0-
Martin A. Kamarck................................ 12,500 -0-
Brian C. Kleinberg............................... 26,000 -0-
Richard P. Lutenski.............................. 10,000 -0-
</TABLE>
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<PAGE> 55
(6) Includes shares issuable upon the exercise of the currently exercisable
portion of options granted to such director under the Non-Employee-Director
Stock Option Plan, as amended, as follows: Allan R. Tessler -- 18,500
shares; Wallace O. Sellers -- 14,500 shares; Brenton W. Harries -- 34,500
shares; David R. Markin -- 34,500 shares; Robert P. Saltzman -- 14,500
shares; Richard J. Shima -- 26,500 shares; Spencer R. Stuart -- 34,500
shares; Frieda K. Wallison -- 34,500 shares; and Jerry Wind -- 14,500
shares.
(7) Includes 200,000 shares held in a limited partnership in which Mr. Markin
and his wife are the limited partners and a trust controlled by Mr. Markin
is the general partner.
(8) Includes 160,000 shares held in a living trust account of which Mr.
Saltzman and his wife are co-trustees.
(9) Mr. Stuart's wife holds a durable power of attorney granting her joint
voting and dispositive power over the shares owned by Mr. Stuart.
(10) Includes 226,500 shares issuable to the directors of Enhance Financial
Services who are not employees of the Enhance Financial Services upon the
exercise of the currently exercisable portion of stock options granted to
them under the Non-Employee-Director Stock Option Plan; 1,858,800 shares
issuable to the executive officers upon the exercise of currently
exercisable options granted to them under the 1987 Long Term Incentive Plan
for Key Employees, as amended, and the 1997 Long Term Incentive Plan for
Key Employees, as amended; and 734,200 shares owned by spouses of executive
officers in trusts of which such officers are trustees or by executive
officers or their spouses as custodians for their children. Such persons
disclaim beneficial ownership of such shares owned by their spouses,
individually or as custodians, or by such trusts.
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<PAGE> 56
THE MERGER AGREEMENT
The following is a summary of the material terms of the merger agreement, a
copy of which is attached as Annex A to this document and is incorporated in
this document by reference. This summary is qualified in its entirety by
reference to the merger agreement. You should read the merger agreement because
it, and not this document, is the legal document that governs the merger.
GENERAL
The merger agreement provides the legal framework for Radian's acquisition
of Enhance Financial Services through a merger of a newly formed wholly owned
subsidiary of Radian with and into Enhance Financial Services. It covers, among
other things:
- the effective time and effects of the merger;
- what Enhance Financial Services' shareholders will receive;
- the treatment of Enhance Financial Services options;
- representations and warranties as to various facts regarding the parties;
- what the parties may not do until the effective time of the merger;
- what the parties must do to facilitate the merger;
- conditions that must be fulfilled before each party is obligated to
effect the merger;
- proposals by persons other than Radian;
- the circumstances under which the merger agreement may be terminated; and
- the effects of termination of the merger agreement.
The following sections briefly summarize each of the above categories. For
a more complete understanding of the contents of the merger agreement, please
see the merger agreement itself, which is attached to this Joint Proxy
Statement/Prospectus as Annex A.
EFFECTIVE TIME AND EFFECTS OF THE MERGER
The merger will become effective at 11:59 p.m. on the day when a
certificate of merger is filed with the Secretary of State of New York. This is
expected to occur on the third business day after the day on which all the
conditions to the obligations of the parties specified in the merger agreement
are fulfilled, but the day may be changed by the parties. It is expected that
the last substantive conditions to be fulfilled will be the votes at the
stockholders' meetings that are the subject of this Joint Proxy
Statement/Prospectus. Therefore it is expected that the merger will be effective
at 11:59 p.m. on the third business day after the day on which the stockholders'
meetings are held.
At the effective time of the merger, GOLD Acquisition Corporation, a wholly
owned subsidiary of Radian formed for the purpose of effecting the merger, will
merge with and into Enhance Financial Services and the separate corporate
existence of GOLD Acquisition will terminate. Enhance Financial Services will be
the surviving corporation in the merger. After the merger, the certificate of
incorporation and bylaws of the Radian subsidiary will remain in effect, except
that the name of GOLD Acquisition Corporation will be changed to Enhance
Financial Services Group Inc.
WHAT ENHANCE FINANCIAL SERVICES SHAREHOLDERS WILL RECEIVE
As a result of the merger, each share of Enhance Financial Services common
stock that is outstanding immediately before the merger will be converted into
the right to receive 0.22 of a share of Radian common stock. However, if an
audited consolidated balance sheet of Singer as of September 30, 2000 reflects a
net worth of less than $36 million, the number of Radian shares into which an
Enhance Financial Services share
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<PAGE> 57
will be converted (i.e., the exchange ratio) will be reduced by a formula set
forth in the merger agreement to the right to receive as low as 0.205 of a share
of Radian common stock.
The exchange ratio will not change to reflect increases or decreases in the
price of Radian stock. However, Enhance Financial Services will not have to
complete the transaction if both (a) the average closing price of Radian's
shares during the 20 trading days before the day of the Enhance Financial
Services shareholders meeting is less than $51.35 per share and (b) there is a
percentage decline in the price of Radian's shares between November 13, 2000
(when the price was $61.49) and the day before the Enhance Financial Services
shareholders meeting that is at least 15 percentage points greater than the
percentage decline in the average price of the shares of a group of 20 specified
insurance companies during the same period (unless Radian increases the number
of Radian common shares to be received by Enhance Financial Services
shareholders in the merger by adjusting the exchange ratio to take account of
the lesser of (i) 80% of the reduction in the price of the Radian shares and
(ii) the reduction in the average price of the shares of the 20 insurance
companies).
No fractional shares of Radian common stock will be issued as a result of
the merger. Instead, Enhance Financial Services shareholders will receive cash
with regard to any fractional shares to which they would have been entitled
based upon the average last sale price of Radian common stock on the 20 trading
days before the day of the merger.
In order to receive the merger consideration, an Enhance Financial Services
shareholder will have to complete and sign a letter of transmittal and return
it, together with the shareholder's Enhance Financial Services shares, to a
designated bank or trust company, which will act as exchange agent with regard
to the merger consideration.
TREATMENT OF ENHANCE FINANCIAL SERVICES OPTIONS
Each option to purchase Enhance Financial Services common stock that is
outstanding at the effective time of the merger will become an option to
purchase shares of Radian common stock on terms reflecting the exchange ratio.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations and warranties of the
parties. They are designed to provide snapshots of the companies as they existed
at the time the merger agreement was signed and will exist at the time of the
merger. They must be correct in all material respects on the day the merger
takes place. However, they will not be a basis for claims after the merger takes
place. Many of the representations and warranties are similar as to Enhance
Financial Services and Radian. They include the following:
- confirmation that each company has the corporate power to conduct its
business and is in good standing in its state of incorporation;
- confirmation that the merger will not violate agreements to which either
company is a party or court or governmental orders to which it is
subject;
- confirmation of the authorized and issued capital stock of each company;
- confirmation that reports filed with the SEC, including the financial
statements in them, were complete and accurate and, as to the financial
statements, in accordance with generally accepted accounting
principles -- because these reports contain detailed descriptions of the
companies, they are, in general, representations and warranties as to the
businesses of Radian and Enhance Financial Services;
- confirmation that the audited financial statements of each company's
insurance subsidiaries filed with insurance regulatory authorities were
complete and accurate and in conformity with the accounting practices
adopted by the insurance regulatory authorities;
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<PAGE> 58
- confirmation that during 2000 each company has been conducting its
business in the ordinary course consistent with past practice and (with
specified exceptions as to Enhance Financial Services) nothing has
occurred that has had a material effect upon it;
- confirmation that each company has all licenses and permits that are
material to it and has complied in all material respects with applicable
laws; and
- confirmation that each company has filed all tax returns, except for
nonmaterial tax returns of Enhance Financial Services' subsidiaries, in a
timely manner and has paid all taxes that were due.
Other representations and warranties by both parties involve the authority
of the parties to enter into the merger agreement, the enforceability of the
merger agreement, and the board of directors' approvals and recommendations to
shareholders.
There are additional representations and warranties relating only to
Enhance Financial Services and its subsidiaries. They include:
- confirmation that Enhance Financial Services has complied in all material
respects with applicable environmental laws;
- confirmation that Enhance Financial Services has no material actual or
contingent liabilities, except as described in reports previously filed
with the SEC, and except for contingent liabilities under insurance
policies in excess of the reserves required under generally accepted
accounting principles, and liabilities incurred in the ordinary course of
business since June 30, 2000;
- a list of all material contracts of Enhance Financial Services and its
subsidiaries;
- confirmation that all reinsurance and coinsurance treaties or agreements
of Enhance Financial Services or its insurance subsidiaries are in effect
(except to the extent to which the failure of treaties or agreements to
be in effect would not have a materially adverse effect upon them) and
that, with specified exceptions, no party that has ceded insurance to
Enhance Financial Services' subsidiaries has, or will have as a result of
the merger, the right to terminate a reinsurance contract on a cut-off
basis (i.e., to reassume the ceded insurance and require the Enhance
Financial Services subsidiary to return premiums that they had received
with regard to future periods);
- a list of all material litigation or similar proceedings involving
Enhance Financial Services or its subsidiaries;
- a list of Enhance Financial Services' commitments to make material loans
to, or investments in, other persons;
- a list of Enhance Financial Services' employee benefit plans and
confirmation that Enhance Financial Services and its subsidiaries have
complied with all legal requirements with regard to them; and
- confirmation that Enhance Financial Services has received an opinion of
Morgan Stanley to the effect that, as of the date of the merger
agreement, the exchange ratio was fair from a financial point of view to
Enhance Financial Services' shareholders.
RESTRICTIONS ON ACTIVITIES OF RADIAN AND ENHANCE FINANCIAL SERVICES PENDING THE
MERGER
The merger agreement contains restrictions on the conduct of the businesses
of each of Radian and Enhance Financial Services pending the merger. They are
designed to prevent major changes in either of the companies until the merger
takes place (except to the extent the other company consents to the changes). In
general, the merger agreement provides that Radian and Enhance Financial
Services and each of their respective subsidiaries will, except as consented to
by the other of them:
- operate its business in the ordinary course and in a manner consistent
with past practice (except, in the case of Radian, in certain
circumstances);
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<PAGE> 59
- use reasonable best efforts to preserve its business, to maintain the
goodwill of its business and the continued employment of its executive
officers and other employees and to maintain good relationships with its
vendors, suppliers, contractors and others;
- comply in all material respects with all applicable laws and regulations;
- not amend its certificate of incorporation or bylaws;
- not take any action that would make any representation and warranty in
the merger agreement untrue or result in any condition to the obligations
of the parties to consummate the merger not being satisfied; and
- not knowingly take any action that could prevent the merger from
qualifying as a reorganization under Section 368(a) of the Internal
Revenue Code.
The merger agreement also provides that Enhance Financial Services will,
except as consented to by Radian:
- at its expense, maintain its assets in good repair and condition;
- not make any borrowings other than borrowings up to $1,000,000 in the
aggregate in the ordinary course of business under existing working
capital lines;
- not enter into any commitments involving loans, capital contributions or
advances, except in each case up to $50,000 in the aggregate, and not
voluntarily incur any contingent liabilities, except in the ordinary
course of business;
- not redeem, acquire or purchase any of its stock or declare or pay any
dividends or other distributions to its shareholders, except for
quarterly dividends not exceeding $.06 per share, payments by
subsidiaries of Enhance Financial Services to Enhance Financial Services
or its wholly owned subsidiaries, or dividends of excess proceeds of
Credit2B.com Inc. as described in the merger agreement;
- not enter into any agreement with respect to the voting of its capital
stock;
- not make any loans or advances to any person, shareholders, officers,
directors or employees (other than loans, advances or capital
contributions to wholly owned subsidiaries of Enhance Financial Services
made in the ordinary course, capital contributions which Enhance
Financial Services is already committed to make, or advances for travel
and normal business expenses);
- maintain its books and records in the usual manner, in accordance with
generally accepted accounting principles;
- not acquire, purchase, sell or otherwise dispose of or encumber any
property or assets, except in the ordinary course of business consistent
with past practice and except as to Credit2B.com Inc. as provided in the
merger agreement;
- not increase the salaries of any employees, pay annual bonuses for 2000
totaling more than $6,245,938 or enter into or amend any employment,
severance or similar agreements or arrangements;
- not adopt, become an employer with respect to, or amend any employee
compensation, employee benefit or post-employment benefit plan;
- not take any action to accelerate the vesting of any stock-based
compensation (other than the consummation of the merger);
- not issue or sell any of its stock (except upon exercise of options which
were outstanding, or in accordance with the Enhance Financial Services
stock plan, as applicable, which were in effect, on the date of the
merger agreement) or securities convertible into shares of its stock, and
not split, combine or reclassify or amend any material term of its stock;
- not file any tax return other than in the ordinary course of business,
make any tax election, settle or compromise any tax liability or change
any method of accounting for tax purposes;
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<PAGE> 60
- not terminate or change significant agreements, or waive material rights
other than in the ordinary course of business consistent with past
practice;
- not make capital expenditures (other than subsidiaries' purchases of
assets in the ordinary course of their business) in excess of $50,000 for
Enhance Financial Services and its subsidiaries taken as a whole;
- not change its investment policies or accounting principles, except as
may be required by law, GAAP, SAP or Regulation S-X;
- not pay material claims, other than in the ordinary course of business or
in accordance with terms reflected or reserved against in Enhance
Financial Services' consolidated financial statements; and
- not amend any reinsurance agreement.
WHAT RADIAN AND ENHANCE FINANCIAL SERVICES MUST DO TO FACILITATE THE MERGER
The merger agreement requires Radian and Enhance Financial Services to take
various steps to facilitate completion of the merger, including:
- obtaining all necessary consents, approvals or waivers;
- making all necessary filings (including filings under the
Hart-Scott-Rodino Act);
- affording the other party access to information; and
- using its best efforts to cause the conditions to the other party's
obligations to be fulfilled.
CONDITIONS TO THE PARTIES' OBLIGATIONS
The parties' obligations to carry out the merger are subject to the
satisfaction of various conditions. These conditions include:
With regard to each party:
- the other party's representations and warranties being materially
accurate at the merger date;
- the other party's materially fulfilling its obligations under the merger
agreement;
- the absence of court or other governmental action that prohibits the
merger;
- approval of the merger agreement by Enhance Financial Services'
shareholders;
- expiration or termination of the waiting period under the
Hart-Scott-Rodino Act;
- all licenses, approvals and consents from governmental entities that are
necessary to complete the merger having been obtained;
- nothing having occurred which had or is likely to have a material adverse
effect on the other party; and
- receipt of an opinion from the party's counsel to the effect that the
merger will qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code.
With regard to Radian:
- Approval of the issuance of the Radian common shares by Radian's
stockholders;
- Enhance Financial Services receiving waivers of termination rights
relating to reinsurance treaties, of acceleration or certain other rights
in third-party contracts with Singer, and of senior officers' rights
under change-control-agreements;
- Audited consolidated balance sheet of Singer at September 30, 2000
showing a positive net worth (as such term is defined in the merger
agreement);
- Radian being reasonably satisfied that Singer will be able to fulfill its
obligations as a debt servicer;
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<PAGE> 61
- Enhance Financial Services' consolidated debt not exceeding $250 million;
- Asset Guaranty's having in effect $75 million of soft-capital financing
or a similar facility that will cause Standard & Poor's Rating Services
to reaffirm Asset Guaranty's AA rating;
- Enhance Financial Services not being liable for guarantees other than a
guarantee of $25 million of the obligation of Sherman (of which Enhance
Financial Services owns 45.5%); and
- Off-balance sheet financing with respect or relating to the assets of
Singer (other than a credit line from an affiliate of The Industrial Bank
of Japan) being in place and the terms of such financing having been
extended to match the duration or maturities of the particular assets to
which it relates, or the particular assets having been sold on terms
reasonably acceptable to Radian.
Either Radian or Enhance Financial Services may waive any of the conditions to
its obligations.
PROPOSALS BY PERSONS OTHER THAN RADIAN
Neither Enhance Financial Services nor anyone acting on its behalf may
solicit, encourage or otherwise facilitate any discussion, negotiation or
inquiry, or the making of a proposal or offer, with respect to an acquisition of
a significant portion of the equity securities or assets of Enhance Financial
Services or any of its insurance subsidiaries, except that Enhance Financial
Services may, after receipt of an appropriate confidentiality agreement that is
no less favorable to Enhance Financial Services than the confidentiality
agreement entered into by Enhance Financial Services and Radian, furnish
information to, and enter into discussions or negotiations with, a person who
makes an unsolicited written proposal if (a) Enhance Financial Services' board
determines in good faith, after consultation with its independent financial
advisor, that (i) the proposal (if consummated) would result in a transaction
for which financing is then fully committed or reasonably determined to be
available and (ii) that transaction would be more favorable over the long term
to Enhance Financial Services' shareholders than the merger, after taking into
account the strategic benefits anticipated to be derived from the merger and the
prospects of Radian and Enhance Financial Services as a combined company; and
(b) based upon written advice of outside counsel that there would be a
reasonable probability that the failure to enter into discussions or
negotiations would be held to be a breach of the Enhance Financial Services'
directors' fiduciary duties. Enhance Financial Services must promptly notify
Radian when Enhance Financial Services receives an acquisition proposal or
learns that any person is contemplating soliciting tenders of Enhance Financial
Services stock or otherwise proposes to acquire Enhance Financial Services or a
significant portion of its or its subsidiaries' assets, and will promptly
provide Radian with any additional material information Enhance Financial
Services obtains.
TERMINATION OF THE MERGER AGREEMENT
The parties may terminate the merger agreement by mutual consent, even
after the shareholders have approved it. The merger agreement also may be
terminated:
By either Enhance Financial Services or Radian if:
- the other party's representations and warranties were not complete and
accurate in all material respects (or, in certain circumstances, all
respects) when they were made;
- any of the conditions to its obligation to complete the merger is not
fulfilled;
- the other party breaches in a material respect any representation,
warranty, covenant or agreement contained in the agreement and does not
cure that breach within 30 days after notice from the other party (or by
the effective time of the merger, if earlier);
- the merger is not completed by June 30, 2001 (provided the terminating
party's failure to fulfill an obligation is not the cause of the merger
not being completed);
- a court or other governmental authority enjoins or otherwise prohibits
the merger; or
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<PAGE> 62
- the Enhance Financial Services shareholders do not approve the merger or
the Radian stockholders do not approve the share issuance.
By Radian if:
- Enhance Financial Services' board of directors withdraws or changes its
recommendation to its shareholders in a manner adverse to Radian, or
resolves to do so;
- Enhance Financial Services' board of directors refuses to affirm its
recommendation of the merger agreement within 10 days after receiving an
acquisition proposal from someone other than Radian;
- Enhance Financial Services' board of directors authorizes or recommends a
different transaction to its shareholders;
- Enhance Financial Services' board of directors fails to recommend
against, or states that it is taking no position with respect to, the
acceptance of a tender or exchange offer for 15% or more of Enhance
Financial Services' outstanding shares; or
- Asset Guaranty is downgraded, is placed on credit watch, or is placed on
credit review with negative implications by Standard & Poor's Rating
Services.
By Enhance Financial Services if:
- Radian's board of directors withdraws or changes its recommendation to
its stockholders in a manner adverse to Enhance Financial Services, or
resolves to do so; or
- both (a) the average closing price of Radian's shares during the 20
trading days before the day of the Enhance Financial Services
shareholders meeting is less than $51.35 per share and (b) there is a
percentage decline in the price of Radian's shares between November 13,
2000 (when the price was $61.49) and the day before the Enhance Financial
Services shareholders meeting that is at least 15 percentage points
greater than the percentage decline in the average price of the shares of
a group of 20 specified insurance companies during the same period
(unless Radian increases the number of Radian common shares to be
received by Enhance Financial Services shareholders in the merger by
adjusting the exchange ratio to take account of the lesser of (i) 80% of
the reduction in the price of the Radian shares and (ii) the reduction in
the average price of the shares of the 20 insurance companies).
PAYMENTS AS A RESULT OF TERMINATION
Enhance Financial Services will have to pay Radian $20 million if:
- (a) before the Enhance Financial Services shareholders meeting someone
publicly announces a proposal to acquire Enhance Financial Services or
its intention to make such a proposal, (b) the Enhance Financial Services
shareholders do not approve the adoption of the merger agreement, (c)
either Enhance Financial Services or Radian terminates the merger
agreement because the Enhance Financial Services shareholders do not
adopt it or the Radian stockholders do not approve the share issuance,
and (d) within 12 months after the merger agreement is terminated,
Enhance Financial Services enters into an agreement relating to, or
consummates, a transaction in which someone acquires a significant
portion of the equity securities or assets of Enhance Financial Services
or any of its insurance subsidiaries;
- Radian terminates the merger agreement because Enhance Financial
Services' board (i) withdraws or changes its recommendation of the merger
agreement in a manner adverse to Radian, (ii) refuses to affirm its
recommendation of the merger agreement within 10 days after receiving an
acquisition proposal from someone other than Radian, (iii) recommends or
resolves to recommend an acquisition proposal by someone other than
Radian or (iv) does not, after a tender or exchange offer for 15% or more
of Enhance Financial Services' shares is commenced, recommend against
acceptance of the offer or states that it is taking no position with
respect to acceptance of the offer;
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<PAGE> 63
- Radian terminates the merger agreement because Enhance Financial Services
willfully breaches its obligation not to solicit, encourage or facilitate
acquisition proposals; or
- Radian terminates the merger agreement because Enhance Financial Services
materially breaches its obligations to file a proxy statement relating to
the merger, to cooperate with regard to the meeting at which its
shareholders will vote on the merger and not to take any action that
prevents its shareholders from voting upon the merger.
In certain circumstances, the amount Enhance Financial Services must pay
will be increased to $25 million if the termination involves a definitive
agreement or transaction with, or an acquisition proposal by, American
International Group, Inc., MGIC Investment Corporation, PMI Group Inc., Old
Republic International Corporation or General Electric Company or any of their
affiliates.
Enhance Financial Services must pay Radian up to $5 million for its
out-of-pocket expenses incurred in connection with the merger if Radian
terminates the merger agreement because Enhance Financial Services fails to
obtain certain waivers or consents or Enhance Financial Services materially
breaches its obligations under the merger agreement, other than the material
breaches that would result in the $20 million payment mentioned above, or if the
merger does not close by June 30, 2001 due to a breach of the agreement by
Enhance Financial Services.
Radian must pay Enhance Financial Services up to $5 million for its
out-of-pocket expenses incurred in connection with the merger if Enhance
Financial Services terminates the merger agreement because Radian materially
breaches its obligations under the merger agreement.
Enhance Financial Services must pay Radian $7.5 million if Radian
terminates the merger agreement because Asset Guaranty is downgraded, is placed
on credit watch, or is placed on credit review with negative implications by
Standard & Poor's Rating Services.
OPTION TO SELL C-BASS
If Enhance Financial Services terminates the merger agreement because of a
material breach by Radian of its representations and warranties or obligations
under the merger agreement or because Radian's board withdraws or amends its
recommendation of the merger agreement in a manner adverse to Enhance Financial
Services, or if either Radian or Enhance Financial Services terminates the
merger agreement because the merger did not take place before June 30, 2001
because of a material breach by Radian or because the Radian stockholders did
not approve the share issuance, Enhance Financial Services will have an option
to sell to Radian Enhance Financial Services' 45.94% interest in C-BASS for $90
million (subject to adjustment based on a valuation of C-BASS's assets).
AMENDMENTS
The merger agreement may be amended by an agreement signed by both Radian
and Enhance Financial Services.
INDEMNIFICATION OF ENHANCE FINANCIAL SERVICES DIRECTORS AND OFFICERS
The surviving corporation in the merger will indemnify anyone who was a
director, officer or employee of Enhance Financial Services or any of its
subsidiaries, for a period not less than six years after the effective time of
the merger, against liabilities and expenses relating to acts or omissions in
those capacities before the effective time of the merger, to the same extent
provided in Enhance Financial Services' certificate of incorporation or bylaws,
or any indemnification agreements that were in effect at the date of the merger
agreement.
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<PAGE> 64
THE SHAREHOLDER SUPPORT AGREEMENTS
The following summary of the shareholder support agreements is qualified by
reference to the complete text of the shareholder support agreements. The form
of shareholder support agreement is attached as Exhibit 4.14-A to the merger
agreement.
Each of Daniel Gross, the president and chief executive officer and a
director of Enhance Financial Services; Allan R. Tessler, the chairman of the
board of directors of Enhance Financial Services; and Wallace O. Sellers, the
vice chairman of the board of directors of Enhance Financial Services, has
entered into a shareholder support agreement with Radian. Under the terms of the
shareholder support agreements, these three members of the board of directors of
Enhance Financial Services have agreed to vote their Enhance Financial Services
common shares in favor of the merger, to vote against any proposals relating to
a third party's acquisition of, or other business combination with, Enhance
Financial Services, and not to solicit, encourage or facilitate any third-party
acquisition of, or acquisition proposal relating to, Enhance Financial Services.
The three directors who executed shareholder support agreements own a total
of 1,130,000 shares (or 2.9% of the outstanding shares) of Enhance Financial
Services common stock. It is possible that the shareholder support agreements
might discourage some third parties from proposing an alternative transaction to
the current merger proposed by us, including one that might be more favorable
from a financial point of view to the stockholders of Radian or Enhance
Financial Services.
The boards of directors of Radian and Enhance Financial Services were aware
when they approved the merger that the three members of the Enhance Financial
Services board of directors would be asked to execute the shareholder support
agreements.
55
<PAGE> 65
THE COMPANIES
BUSINESS OF ENHANCE FINANCIAL SERVICES
Enhance Financial Services was incorporated in New York in 1985. We are a
holding company primarily engaged, through our subsidiaries, in reinsuring
guaranties by the four major U.S. monoline primary financial guaranty insurers
of municipal and asset-backed debt obligations. We are also engaged in other
insurance and reinsurance businesses, including direct financial guaranty
insurance, trade credit reinsurance and financial institutions insurance, and
several asset-based businesses that take advantage of our expertise in
performing sophisticated analysis of complex, credit-based risks.
Business Strategy
Our principal business strategy has been to apply intensive and prudent
credit underwriting and conservative investment policies to our financial
guaranty business, both primary and reinsurance, and to use our expertise in
underwriting credit risks to expand and develop our other insurance businesses.
In addition we pursued asset-based businesses and diversification efforts in
areas which would let us take advantage of our credit analysis skills and which
we believed have strong profit and growth potential relative to risk.
In late 1999, Moody's downgraded our credit rating from Aa3 to A2, and,
more importantly, the financial strength rating of our main insurance
subsidiary, Enhance Reinsurance Company, from Aaa to Aa2. On February 29, 2000,
Moody's placed us on watch for a possible further downgrade. We were also told
that Moody's was concerned primarily about the degree of our involvement in
non-insurance businesses. Stimulated in part by that, we undertook a review of
strategic alternatives that could maximize shareholder value. In March 2000, we
retained Morgan Stanley to act as our financial adviser in connection with
exploring strategic alternatives regarding a possible sale of Enhance Financial
Services or certain of its subsidiaries. The review led us to explore the
possibility of seeking buyers of aspects of our businesses or, alternatively, a
buyer for our entire company. We were concerned that if we did not accomplish
one of those results, we might face further downgrades in our, and our insurance
subsidiaries', credit and financial strength ratings.
In September 2000, we signed an agreement to sell our 45.94% interest in
C-BASS for $100 million, subject to possible reduction based upon a valuation of
C-BASS's assets, with mutual rights of the parties to terminate the agreement if
Enhance Financial Services entered into an agreement for sale of our entire
company which precluded a sale of our interest in C-BASS under this prior
agreement. The other party to the C-BASS sale agreement terminated that
agreement shortly after we signed the merger agreement.
In May 2000, we sold our 80% interest in AGS Financial LLC for nominal
consideration, in October 2000, we sold Enhance Life Benefits LLC for
approximately $1 million, and in December 2000, we disposed of certain assets,
including the pipeline of future lottery receivable and structured settlement
transactions, of Singer Asset Finance Company, L.L.C. to certain members of the
management of Singer. Those three transactions were the only ones we were able
to arrange for sale or disposition of portions of our business on what we
believed to be satisfactory terms.
Operations
Our businesses are divided into two operating segments, insurance
businesses and asset-based businesses, with the insurance businesses being by
far the larger operating segment. We have, since inception, conducted our
insurance businesses through two wholly owned financial guaranty insurance
subsidiaries, Enhance Reinsurance Company and Asset Guaranty.
Insurance Businesses
Within the insurance businesses, we provide credit-related insurance
coverage to meet the needs of customers in a wide variety of domestic and
international markets. Our largest business is the reinsurance of financial
guaranty insurance written by the four major monolines for both municipal and
non-municipal obligations. We provide reinsurance on a treaty and/or facultative
basis for those companies. We have also
56
<PAGE> 66
diversified into three other insurance lines: direct financial guaranty
insurance, trade credit reinsurance, and financial institutions insurance, which
includes excess-SIPC coverage and related products.
Reinsurance of financial guaranties issued by the four major monoline
insurers represented 44.4% of our gross premiums written for 1999. During 1999,
we received approximately 16.2% of the total reinsurance premiums ceded by the
four major monoline insurers. Our other insurance businesses represented 55.6%
of our gross premiums written for 1999.
Asset-Based and Other Businesses
We are also engaged in various asset-based businesses, primarily involving
the origination, purchase, servicing and securitization of special assets,
including state lottery awards, structured settlements, sub-performing,
non-performing and seller-financed residential mortgages and delinquent
unsecured consumer assets. In recent years, we expanded these asset-based
businesses to diversify our products and services into other areas. In addition,
we recently began an effort to create a business-to-business online credit
information and credit analysis system. Principal among our non-insurance
businesses are:
- C-BASS purchases, services, and securitizes credit-sensitive residential
mortgage loans and seller-financed mortgages. (We own 45.94% of C-BASS.)
- Sherman purchases, services, and securitizes delinquent unsecured
consumer assets, including charged-off credit card receivables. (We own
45.5% of Sherman.)
- Latin American initiatives (SBF Participacoes Ltda) provides surety
insurance, structured finance, and other credit-based products in Latin
America. (We own 45% of SBF.)
- Singer originates, purchases and securitizes state lottery awards,
structured settlements, and other consumer receivables. We are in the
process of winding down the operations of Singer. (We own 100% of
Singer.)
- Credit2B.com Inc. is seeking to develop a system by which credit
information and credit analysis about businesses can be provided to other
businesses over the Internet. (We own approximately 80% of Credit2B.)
Additional information about Enhance Financial Services and its
subsidiaries is included in the Enhance Financial Services documents filed with
the SEC, which are incorporated by reference in this document. See "Where You
Can Find More Information."
BUSINESS OF RADIAN
Radian is the parent company of Radian Guaranty Inc., one of the nation's
largest private mortgage insurance companies. Radian Guaranty Inc. provides
private mortgage insurance and risk management services to mortgage lending
institutions, mortgage bankers, savings institutions, commercial banks and other
lenders through offices in key cities nationwide. Private mortgage insurance
protects lenders from default-related losses on residential first mortgage loans
made to home buyers who make down payments of less than 20% of a home's purchase
price and facilitates the sale of mortgage loans in the secondary mortgage
market.
Radian Guaranty Inc., a wholly owned subsidiary of Radian, is restricted,
both by state insurance laws and regulations and the eligibility requirements of
Freddie Mac and Fannie Mae, to providing insurance on residential first mortgage
loans only. Radian Guaranty Inc. currently offers two principal types of private
mortgage insurance coverage, primary and pool. At December 31, 1999, primary
insurance comprised 94.3% of Radian Guaranty Inc.'s risk in force and pool
insurance comprised 5.7% of Radian Guaranty Inc.'s risk in force. The volume of
pool insurance written increased significantly in the past several years, but
declined in 2000 and is expected to remain a small part of the business written
in the future, primarily due to the stringent capital charges associated with
pool insurance.
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<PAGE> 67
At year-end 1999, Radian Guaranty Inc. had approximately 700 employees.
Radian's headquarters are located at 1601 Market Street, Philadelphia,
Pennsylvania 19103, and its telephone number is (215) 564-6600. Radian Guaranty
Inc. also has offices in 15 states. Additional information concerning Radian and
its subsidiaries is included in the Radian documents filed with the SEC, which
are incorporated by reference in this document. See "Where You Can Find More
Information."
GOLD ACQUISITION CORPORATION
GOLD Acquisition Corporation is a newly formed, wholly owned subsidiary of
Radian formed for the purpose of effecting the merger. In the merger, GOLD
Acquisition Corporation will merge with and into Enhance Financial Services,
with Enhance Financial Services as the surviving corporation.
GOLD Acquisition Corporation's headquarters are located at 1601 Market
Street, Philadelphia, PA 19103, and its telephone number is (215) 564-6600.
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<PAGE> 68
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed financial information should be
read in conjunction with the historical consolidated financial statements,
including the notes thereto, of Radian and Enhance Financial Services, which are
incorporated by reference in this document. The unaudited pro forma information
is presented for illustration purposes only, in accordance with the assumptions
set forth below, and is not necessarily indicative of the operating results or
financial position that would have occurred if the merger had been completed.
Nor is it necessarily indicative of future operating results or the financial
position of the combined enterprise.
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<PAGE> 69
NEW RADIAN GROUP INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
QUARTER ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
HISTORICAL
ENHANCE
HISTORICAL FINANCIAL PRO FORMA PRO FORMA
RADIAN SERVICES ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Investments......................... $1,665,145 $1,070,479 $2,735,624
Cash................................ 3,983 1,562 5,545
Investment in affiliates............ 0 139,938 139,938
Deferred policy acquisition costs... 67,103 126,270 (69,721)(1) 123,652
Prepaid and deferred federal income
taxes............................ 265,250 92,343 3,884(1) 361,477
Other assets........................ 115,293 123,040 238,333
---------- ---------- --------- ----------
TOTAL ASSETS................ $2,116,774 $1,553,632 $ (65,837) $3,604,569
========== ========== ========= ==========
LIABILITIES, DEFERRED CREDIT AND
STOCKHOLDERS' EQUITY
Liabilities
Unearned premiums................... $ 67,169 $ 355,342 $ 422,511
Reserve for losses.................. 374,474 66,087 440,561
Short-term debt..................... 0 174,382 174,382
Long-term debt...................... 0 75,000 75,000
Deferred federal income taxes....... 277,578 0 24,906(1) 302,484
Other liabilities................... 88,290 59,756 31,550(1)(2) 179,596
---------- ---------- --------- ----------
TOTAL LIABILITIES........... 807,511 730,567 56,456 1,594,534
---------- ---------- --------- ----------
Deferred Credit
Deferred credit..................... 0 122,250 0 122,250
---------- ---------- --------- ----------
Preferred Stockholder's Equity
Redeemable preferred stock.......... 40,000 0 40,000
---------- ---------- --------- ----------
Common Stockholder's Equity
Common stock........................ 38 4,016 (4,008)(1) 46
Additional paid-in capital.......... 541,600 254,763 323,751(1)(2) 1,120,114
Retained earnings................... 727,379 480,688 (480,688)(1) 727,379
Net unrealized gains (losses) on
investments, net of tax.......... 2,405 (6,066) 6,066(1) 2,405
Treasury stock...................... (2,159) (32,586) 32,586(1) (2,159)
---------- ---------- --------- ----------
TOTAL COMMON STOCKHOLDERS'
EQUITY.................... 1,269,263 700,815 (122,293) 1,847,785
---------- ---------- --------- ----------
TOTAL LIABILITIES, DEFERRED
CREDIT AND STOCKHOLDERS'
EQUITY.................... $2,116,774 $1,553,632 $ (65,837) $3,604,569
========== ========== ========= ==========
</TABLE>
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<PAGE> 70
NEW RADIAN GROUP INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
HISTORICAL
ENHANCE
HISTORICAL FINANCIAL PRO FORMA PRO FORMA
RADIAN SERVICES ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C>
REVENUES
Premiums earned........................ $387,072 $81,349 $468,421
Net investment income.................. 60,310 47,277 107,587
Equity in net income of affiliates..... 0 21,128 21,128
Other net income....................... 8,052 10,511 18,563
-------- ------- ------- --------
Total revenues................. 455,434 160,265 0 615,699
-------- ------- ------- --------
EXPENSES
Provision for losses................... 115,038 22,699 137,737
Policy acquisition costs............... 38,822 31,127 (9,396)(3) 60,553
Other operating expenses............... 40,314 95,173 (24,196)(5) 111,291
Interest expense....................... 0 12,302 12,302
Merger expenses........................ 0 0 0
-------- ------- ------- --------
Total expenses................. 194,174 161,301 (33,592) 321,883
-------- ------- ------- --------
Pretax income (loss)................... 261,260 (1,036) 33,592 293,816
Provision for income taxes (benefit)... 76,733 (10,880) 22,257(3)(4)(5) 88,110
-------- ------- ------- --------
Net income..................... 184,527 9,844 11,335 205,706
======== ======= ======= ========
Net income per common share -- basic... 4.84 0.26 4.42
======== ======= ========
Net income per common
share -- diluted.................... 4.78 0.25 4.36
======== ======= ========
Average number of common shares
outstanding -- basic................ 37,586 38,163 (29,767)(1) 45,982
======== ======= ======= ========
Average number of common and common
equivalent shares
outstanding -- diluted.............. 38,065 38,659 (30,154)(1) 46,570
======== ======= ======= ========
</TABLE>
61
<PAGE> 71
NEW RADIAN GROUP INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
HISTORICAL
ENHANCE
HISTORICAL FINANCIAL PRO FORMA PRO FORMA
RADIAN SERVICES ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C>
REVENUES
Premiums earned.......................... $472,635 $103,851 $576,486
Net investment income.................... 67,259 58,053 125,312
Equity in net income of affiliates....... 0 19,708 19,708
Other net income......................... 12,917 36,077 48,994
-------- -------- ------- --------
Total revenues................... 552,811 217,689 0 770,500
-------- -------- ------- --------
EXPENSES
Provision for losses..................... 174,143 26,156 200,299
Policy acquisition costs................. 58,777 39,959 (18,493)(3) 80,243
Other operating expenses................. 62,659 71,141 (946)(5) 132,854
Interest expense......................... 0 10,989 10,989
Merger expenses.......................... 37,766 0 37,766
-------- -------- ------- --------
Total expenses................... 333,345 148,245 (19,439) 462,151
-------- -------- ------- --------
Pretax income............................ 219,466 69,444 19,439 308,349
Provision for income taxes............... 71,328 820 21,210(3)(4)(5) 93,358
-------- -------- ------- --------
Net income....................... 148,138 68,624 (1,771) 214,991
======== ======== ======= ========
Net income per common share -- basic....... 3.92 1.81 4.67
======== ======== ========
Net income per common share -- diluted..... 3.83 1.76 4.56
======== ======== ========
Average number of common shares
outstanding -- basic..................... 36,975 38,000 (29,640)(1) 45,335
======== ======== ======= ========
Average number of common and common
equivalent shares
outstanding -- diluted................... 37,856 39,024 (30,439)(1) 46,441
======== ======== ======= ========
</TABLE>
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<PAGE> 72
NEW RADIAN GROUP INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined balance sheet has been prepared
assuming the acquisition took place as of September 30, 2000 and allocates the
total estimated purchase price to the fair value of assets and liabilities of
the acquired company based on preliminary valuations.
The unaudited pro forma condensed combined statements of income combine
Radian's and Enhance Financial Services' historical statements of income and
give effect to the acquisition as if it occurred on January 1, 1999, the
beginning of the earliest period presented.
The total estimated purchase price of Enhance Financial Services has been
allocated on a preliminary basis to assets and liabilities based on management's
estimates of their fair values with the excess of net assets acquired over costs
allocated to the present value of future insurance profits. These allocations
are subject to change pending a final determination and analysis of the total
purchase price and the fair values of the assets acquired and liabilities
assumed. The impact of these changes could be material.
(1) Adjustment to reflect the issuance of Radian common stock and related direct
acquisition expenses as the total purchase price for the net assets of
Enhance Financial Services, based on the assumed conversion of each of the
Enhance Financial Services common shares into 0.22 of a Radian common share,
the elimination of Enhance Financial Services stockholders' equity and the
write-down of Enhance Financial Services' deferred policy acquisition asset,
offset by the recognition of the present value of future insurance profits.
The present value of future insurance profits of Enhance Financial Services
is a preliminary estimate based on current facts and circumstances.
<TABLE>
<CAPTION>
IN THOUSANDS
------------
<S> <C> <C>
Current income tax benefit............................. $ 3,884
Enhance Financial Services common stock................ 4,016
Enhance Financial Services additional paid in
capital.............................................. 254,763
Enhance Financial Services retained earnings........... 480,688
Enhance Financial Services deferred policy
acquisition asset................................. $ 69,721
Deferred income tax liability........................ 24,906
Enhance Financial Services net unrealized loss on
investments, net of tax benefit................... 6,066
Enhance Financial Services treasury stock............ 32,586
Radian common stock.................................. 8
Radian additional paid in capital.................... 578,668
Accrued acquisition costs............................ 31,396
-------- --------
Totals................................................. $743,351 $743,351
======== ========
</TABLE>
The following chart indicates the components of the estimated purchase
price of the acquisition inherent in the adjusting entry:
<TABLE>
<CAPTION>
IN THOUSANDS
------------
<S> <C>
Radian common stock......................................... $553,197
Issuance of Radian options.................................. 25,479
Estimated direct acquisition costs, net of tax.............. 27,512
--------
Total estimated purchase price.................... $606,188
========
</TABLE>
The estimated purchase price will be issued in exchange for the net assets
of Enhance Financial Services on the closing date of the merger.
The purchase price of Enhance Financial Services reflects the issuance of
8,405,591 shares of Radian common stock at $65.813 per share which is the
average closing price of Radian common stock for the
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<PAGE> 73
three trading days preceding and the three days following the announcement
of the acquisition. Under the terms of the merger agreement, Radian has
also issued 1,332,120 Radian options to replace Enhance Financial Services
options, 938,126 of which are already vested. The value of the assumed
Radian option grant is based on a Black-Scholes valuation model assuming an
average life of 2.3 years, a risk-free interest rate of 6.75%, volatility
of 39.3% and a dividend yield of 0.18%.
The following table provides the preliminary allocation of the purchase
price inherent in the adjusting entry:
<TABLE>
<CAPTION>
IN THOUSANDS
------------
<S> <C>
Net assets of Enhance Financial Services:
Cash and investments...................................... $1,072,041
Investment in affiliates.................................. 139,938
Deferred policy acquisition asset......................... 56,549
Other assets, net......................................... 130,721
Unearned premiums......................................... (355,342)
Reserve for losses........................................ (66,087)
External debt financing................................... (249,382)
Deferred credit........................................... (122,250)
----------
Total purchase price........................................ $ 606,188
==========
</TABLE>
(2) Adjustment to accrue the cost of registering Radian shares to be issued for
Enhance Financial Services of $154,000.
<TABLE>
<CAPTION>
IN THOUSANDS
------------
<S> <C> <C>
Additional paid in capital.................................. $154
Accrued liabilities....................................... $154
</TABLE>
(3) Adjustment to reflect the change in amortization expense and the related
income tax expense associated with the write-down of Enhance Financial
Services' deferred policy acquisition asset, offset by an increase in
amortization expense and the related income tax benefit associated with the
estimated present value of future insurance profits recognized at January 1,
1999.
<TABLE>
<S> <C>
For the year ended December 31, 1999:
Decrease in deferred policy acquisition amortization...... $(18,493)
Increase in federal income tax expense.................... 6,473
For the nine months ended September 30, 2000:
Decrease in deferred policy acquisition amortization...... $ (9,396)
Increase in federal income tax expense.................... 3,288
</TABLE>
(4) Adjustment to reflect the reversal of an income tax benefit relating to
income tax reductions produced by an investment in a portfolio of
approximately 500 residential mortgage backed securities consisting of
residual interests in real estate mortgage investment conduits ("REMIC")
owned by Enhance Financial Services. These deductions were treated by
Enhance Financial Services as permanent tax differences due to a partnership
exit strategy that will not be executed by Radian. Therefore, the tax
deductions from the REMIC residuals will be treated as a timing difference
which eliminates the income tax benefit for GAAP purposes.
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<PAGE> 74
<TABLE>
<S> <C>
For or at the year ended December 31, 1999:
Increase in deferred federal income taxes payable......... $14,406
Increase in federal income tax expense.................... 14,406
For or at the nine months ended September 30, 2000:
Increase in deferred federal income taxes payable......... $10,500
Increase in federal income tax expense.................... 10,500
</TABLE>
(5) Reflects the adjustments and related income tax expense required to
eliminate the amortization of goodwill that was created as a result of prior
acquisitions of Enhance Financial Services.
<TABLE>
<S> <C>
For the year ended December 31, 1999:
Decrease in goodwill amortization......................... $ (946)
Increase in federal income tax expense.................... 331
For the nine months ended September 30, 2000:
Decrease in goodwill amortization......................... $(24,196)
Increase in federal income tax expense.................... 8,469
</TABLE>
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<PAGE> 75
DESCRIPTION OF RADIAN CAPITAL STOCK
The following description summarizes the terms of the capital stock of
Radian following the merger. For further information, please read Radian's
certificate of incorporation and Radian's bylaws. See "Where You Can Find More
Information."
AUTHORIZED CAPITAL STOCK
Radian's authorized capital stock consists of:
- 80,000,000 shares of Radian common stock, par value $.001 per share; and
- 20,000,000 shares of Radian series preferred stock, par value $.001 per
share of which 800,000 shares are designated $4.125 Preferred Stock
("$4.125 Preferred Stock") and 100,000 are designated Series A Junior
Participating Preferred Shares ("Series A Preferred Stock").
Following the merger:
- approximately shares of Radian common stock will be
outstanding;
- 800,000 shares of Radian $4.125 Preferred Stock will be outstanding;
- no shares of Series A Preferred Stock will be outstanding; and
- approximately 4,777,878 shares of Radian common stock and 100,000 shares
of Radian Series A Preferred Stock will be reserved for issuance.
COMMON STOCK
Voting
- Each share is entitled to one vote on all matters submitted to a vote;
and
- There is no cumulative voting.
Dividends
- Subject to preferred stock rights, common stockholders are entitled to
receive any dividends which are declared;
- The board of directors may declare dividends out of legally available
funds; and
- No dividends will be paid on the Radian common stock at any time when the
amount in the reserve account established in connection with the $4.125
Preferred Stock is less than three years of dividend payments on the
shares of $4.125 Preferred Stock then outstanding. The current amount in
such reserve account is sufficient to permit Radian to pay dividends on
the Radian common stock.
Additional Rights
- Subject to the preferred stock rights, common stockholders are entitled
to receive assets remaining after payment of liabilities on a ratable
basis;
- There are no preemptive rights;
- There are no conversion rights;
- There are no subscription rights; and
- There are no redemption rights.
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<PAGE> 76
PREFERRED STOCK
Radian has $4.125 Preferred Stock that is issued and outstanding and that
will remain outstanding after the merger. For more information see "Where You
Can Find More Information."
Radian also has authorized 100,000 shares of Series A Preferred Stock, of
which none are issued and outstanding. For more information see "-- Stockholder
Rights Plan" in this section.
ANTI-TAKEOVER PROVISIONS
The following provisions of Radian's certificate of incorporation, its
bylaws and the statutes summarized below may have an anti-takeover effect and
may delay, defer or prevent a tender offer or takeover attempt, including
attempts that might result in a premium over the market price for Radian's
shares.
The certificate of incorporation and bylaws provide:
- for a classified board of directors consisting of three classes as nearly
equal in size as possible;
- that directors can only be removed for cause and only upon the vote of
the holders of shares entitled to cast a majority of the votes that all
stockholders are entitled to cast at an election of directors;
- for preferred stock with such rights, preferences, privileges and
limitations as may be established by the board of directors;
- that stockholders may act only at an annual or special meeting or by
unanimous written consent;
- that special meetings of stockholders may only be called by the chairman
of the board or a majority of the board of directors;
- that, unless such action is approved by two-thirds of the entire board of
directors, certain corporate actions, such as amendments to the
certificate of incorporation and bylaws, and mergers and other business
combinations involving Radian, will require the vote of two-thirds of the
outstanding voting stock, voting as a class. In addition, any such action
must be approved by the holders of two-thirds of the outstanding shares
of $4.125 Preferred Stock; and
- advance notice procedures with regard to the nomination, other than by or
at the direction of the board of directors or a committee of the board,
of candidates for election as directors. These procedures provide that
the notice of proposed stockholder nominations for the election of
directors must be timely given in writing to the secretary of Radian
generally not less than 60 days before the meeting at which directors are
to be elected.
STOCKHOLDER RIGHTS PLAN
The Radian board of directors has adopted a stockholder rights plan. The
rights plan is designed to help insure that all stockholders of Radian receive
fair value for their shares of common stock in the event of any proposed
takeover of Radian and to guard against the use of partial tender offers or
other coercive tactics to gain control of Radian without offering fair value to
Radian's stockholders. The provisions of the rights plan may render an
unsolicited takeover of Radian more difficult or less likely to occur or might
prevent such a takeover, even though such takeover may offer Radian's
stockholders the opportunity to sell their stock at a price above the prevailing
market rate and may be favored by a majority of the stockholders of Radian.
A right was issued as a dividend on each outstanding share of Radian common
stock as of May 5, 1998. The right entitles its holder to purchase from Radian a
unit consisting of one one-thousandth of a share of the Series A Preferred
Stock, or a combination of securities and assets of equivalent value, at a
purchase price of $300, subject to adjustment. Ownership of the rights is
evidenced by certificates for common stock.
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Separate certificates will be issued for the rights upon the earlier of:
- 10 business days following a determination by the board of directors that
a person or group of affiliated or associated persons has acquired, or
obtained the right to acquire, beneficial ownership of 12% or more of the
outstanding shares of common stock; or
- 10 business days following the commencement of a tender offer or exchange
offer that would result in a person or group beneficially owning 12% or
more of the outstanding shares of common stock.
If someone acquires beneficial ownership of 12% or more of the outstanding
shares of common stock of Radian, each holder of a right will thereafter have
the right to receive, upon exercise, shares of common stock, or, upon the
determination of the Radian board, cash, property or other securities of Radian,
having a value equal to two times the exercise price of the right. Radian may
permit the holders to surrender rights with a value of 50% of what could be
purchased instead of the purchase price. All rights that are, or were,
beneficially owned by any person making such an acquisition or tender offer will
be null and void.
If following one of the events set forth in the preceding paragraph, Radian
is acquired in a merger or other business combination transaction in which it is
not the surviving corporation or 50% or more of Radian's assets or earning power
is sold or transferred, each holder of a right shall thereafter have the right
to receive, upon exercise, common shares of the acquiring company having a value
equal to two times the exercise price of the right, except to the extent that
such rights have been voided. Again, provision is made to permit surrender of
the rights in exchange for one-half of the value otherwise purchasable.
INSURANCE LAWS
Because Radian is an insurance holding company and, after the merger, will
have affiliated insurance companies domiciled in Illinois, New York, Kentucky,
Pennsylvania, Arizona, Texas and Vermont, the insurance laws of those states
could impose regulatory approval requirements on future purchases or
acquisitions of 10% or more of Radian common stock. Each of these states has
adopted a substantially equivalent version of the Insurance Holding Company
System Act, a model statute developed by the National Association of Insurance
Commissioners. Under the Holding Company Act, any transaction by which a person
will acquire control over an insurance company requires a Form A filing with,
and approval by, the insurance company's domiciliary insurance regulator. A
person is rebuttably presumed to acquire control over an insurer if the
transaction involves the purchase or acquisition of 10% or more of the insurer's
voting securities. These statutes would apply to a proposed purchase or
acquisition of 10% or more of Radian common stock and, unless a statutory
exemption were available, would require that the acquiror first make Form A
filings for approval of the acquisition in each of Illinois, New York, Kentucky,
Pennsylvania, Arizona, Texas and Vermont. The criteria for approval in these
jurisdictions are quite similar, but would be applied separately by each
domiciliary regulator relative to the transaction's impact on the affiliated
insurance company in that state. Under the Form A filings, the proposed acquiror
would have to demonstrate to the domiciliary regulator's satisfaction that:
- the transaction complies with law;
- following the change in control, the affiliated insurance company would
remain qualified for licensure;
- the transaction would not substantially lessen competition in the state
or tend to create a monopoly;
- the financial condition of the acquiror will not jeopardize the financial
stability of the affiliated insurance company or prejudice the interests
of its policyholders;
- any plan or proposals that the acquiror has to liquidate the affiliated
insurance company, to sell its assets, to consolidate or merge it with
any other person, to make any other material change in its business,
corporate structure or management, or to cause the affiliated insurance
company to enter into material agreements, arrangements or transactions
with others, are fair and reasonable, and not prejudicial or hazardous,
to its policyholders, and also are consistent with the public interest;
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- the competence, experience and integrity of those persons who control or
manage the acquiror do not make the transaction inconsistent with the
interests of the affiliated insurance company's policyholders or the
public interest;
- the transaction would not otherwise be hazardous or prejudicial to the
insurance-buying public; and
- the transaction would not be inequitable to the affiliated insurance
company's stockholders.
In addition to these Form A filing requirements, Connecticut, Michigan and
New Hampshire have statutory procedures under which a licensed foreign company
may be required to requalify for continued licensure following a change in
control, such as the purchase of 10% or more of Radian common stock. Some of the
Radian insurance company affiliates will be licensed in Connecticut, Michigan
and/or New Hampshire and therefore could have to requalify for continued
licensure following a change in control. Finally, Alaska, California, Florida,
Michigan, Texas and Utah have commercially domiciled statutes under which
foreign property and casualty insurers that have a stated percentage of their
total in-force business located in those states are treated as domestic
companies for Holding Company Act purposes. One consequence is that, for
transactions causing a change in control of such insurers, a Form A filing and
approval must be made in both the insurer's state of domicile and also its state
of commercial domicile. Based on current in-force statistics, it appears that
none of the Radian insurance company affiliates will be commercially domiciled
immediately following the closing of the merger. However, this could change in
the future, creating additional Form A filing and approval requirements
applicable to purchases and acquisitions of Radian common stock.
PREEMPTIVE RIGHTS
No holder of any shares of any class of stock of Radian will have any
preemptive or preferential right to acquire or subscribe for any unissued shares
of any class of stock or any authorized securities convertible into or carrying
any right, option or warrant to subscribe for or acquire shares of any class of
stock.
TRANSFER AGENT AND REGISTRAR
The principal transfer agent and registrar for Radian common stock after
the merger will be designated by Radian before the completion of the merger.
STOCK EXCHANGE LISTING; DELISTING AND DEREGISTRATION OF ENHANCE FINANCIAL
SERVICES COMMON STOCK
It is a condition to the merger that the shares of Radian common stock
issuable in connection with the merger be approved for listing on the New York
Stock Exchange. If the merger is completed, Enhance Financial Services common
stock will cease to be listed on the New York Stock Exchange and Enhance
Financial Services will cease to file periodic reports required by the
Securities Exchange Act of 1934.
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COMPARISON OF STOCKHOLDER RIGHTS
The rights of Enhance Financial Services shareholders are currently
governed by New York corporate law and the certificate of incorporation and
bylaws of Enhance Financial Services. The rights of Radian stockholders are
currently governed by Delaware corporate law and the certificate of
incorporation and bylaws of Radian. Following the merger, the rights of Enhance
Financial Services shareholders who become stockholders of Radian in the merger
and Radian stockholders will be governed by Delaware corporate law and the
certificate of incorporation and bylaws of Radian. The following is a summary of
some material differences between the rights of Enhance Financial Services
shareholders and the rights of Radian stockholders. These differences arise in
part from the differences between New York and Delaware law. Additional
differences arise from the certificate of incorporation (also called the
charter) and bylaws of the two companies. Although it is impractical to compare
all of the ways in which Delaware and New York law, and Enhance Financial
Services' and Radian's governing instruments, differ with respect to
stockholders' rights, the following discussion summarizes some significant
differences. The following discussions are not intended to be complete. You
should therefore also refer to New York and Delaware corporate law, and the
charters and bylaws of Enhance Financial Services and Radian.
AMENDMENT OF CERTIFICATE OF INCORPORATION
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ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
Under New York corporate law, subject to Under Delaware corporate law, unless the
limited exceptions, amendments to Enhance certificate of incorporation requires a
Financial Services' charter must be approved greater vote, a proposed amendment to the
by vote of a majority of all outstanding certificate of incorporation requires a
shares entitled to vote on the proposed declaration by the board of directors of such
amendment, except that charter provisions amendment's advisability and an affirmative
requiring a greater or class vote may only be vote of a majority of the voting power of the
amended by such vote. In addition, an outstanding stock entitled to vote thereon
amendment that negatively affects in certain and a majority of the voting power of the
ways holders of shares of a class or series outstanding stock of each class entitled to
requires authorization by a majority of the vote thereon.
votes of all outstanding shares of such class
or series. The Radian charter may be amended at any
regular or special meeting by:
The Enhance Financial Services charter may be
amended in accordance with New York corporate - the affirmative vote of the holders of a
law. majority of Radian common stock if such
amendment is approved by two-thirds of the
entire Radian board of directors;
- the affirmative vote of the holders of
two-thirds of Radian common stock; or
- the affirmative vote of two-thirds of the
entire board of directors.
Amendment of the super-majority provisions of
Radian's certificate of incorporation
described above requires the same
super-majority as specified in such
provisions.
Shares of Radian preferred stock currently
authorized in Radian's certificate of
incorporation may be issued by Radian's board
of directors without amending Radian's
certificate of incorporation or otherwise
obtaining the approval of Radian's
stockholders; provided that so long as any
$4.125 Preferred Stock is
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outstanding, the approval of the holders of
at least two-thirds of the outstanding shares
of the $4.125 Preferred Stock is required for
the issuance of certain types of stock. For
more information see "Where You Can Find More
Information."
AMENDMENT OF BYLAWS
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
Under New York corporate law, except as Under Delaware corporate law, the power to
otherwise provided in the certificate of adopt, alter and repeal bylaws is vested in
incorporation, bylaws may be amended, the stockholders, except to the extent that a
repealed or adopted by a majority of the corporation's certificate of incorporation
votes cast by the shares at the time entitled vests concurrent power in the board of
to vote in the election of any directors. directors.
When so provided in the certificate of
incorporation or a bylaw adopted by the The Radian bylaws may be amended at any
shareholders, bylaws also may be amended, regular or special meeting by:
repealed or adopted by the board of directors
by such vote as may be therein specified, - the affirmative vote of the holders of a
which vote may be greater than the vote majority of Radian common stock if such
otherwise prescribed by New York corporate amendment is approved by two-thirds of the
law, but any bylaw adopted by the board of entire Radian board of directors;
directors may be amended or repealed by the
shareholders entitled to vote thereon as - the affirmative vote of the holders of
provided by New York corporate law. two-thirds of Radian common stock; or
The Enhance Financial Services bylaws may - the affirmative vote of two-thirds of the
generally be amended by a majority of entire board of directors.
directors of the entire board of directors,
or by the holders of a majority of the voting
stock entitled to vote for the election of
directors. However:
- shareholders can repeal or amend
director-created bylaws by an affirmative
vote of the holders of a majority vote of
the shares entitled to vote for election of
directors; and
- if the board of directors adopts, amends or
repeals any bylaw regarding an impending
election of directors, notice is required
at the next meeting of shareholders for
election of directors setting forth such
bylaw and the change made.
AUTHORIZED CAPITAL STOCK
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
- 100,000,000 shares of common stock - 80,000,000 shares of common stock
- 5,000,000 shares of preferred stock - 20,000,000 shares of preferred stock
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CLASS VOTING
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
New York law provides that holders of the Delaware corporate law requires voting by
outstanding shares of a class are entitled to separate classes only with respect to charter
vote as a separate voting group if the rights amendments that adversely affect the holders
of that class are affected in certain of those classes or that increase or decrease
respects by certain plans of merger, plans of the aggregate number of authorized shares or
share exchange or charter amendments. the par value of the shares of any of those
classes.
The Radian charter provides the holders of
the $4.125 Preferred Stock with voting
rights, in certain circumstances, with
respect to the election of directors, the
issuance of certain stock, the consummation
of certain fundamental transactions and the
amendment of certain agreements and
documents.
CUMULATIVE VOTING
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
Cumulative voting entitles each shareholder Under Delaware corporate law, stockholders do
to cast an aggregate number of votes equal to not have the right to cumulate their votes in
the number of voting shares held, multiplied the election of directors unless such right
by the number of directors to be elected. is granted in the certificate of
Each shareholder may cast all of his or her incorporation.
votes for one nominee or distribute them
among two or more nominees, thus permitting The Radian charter does not provide for
holders of less than a majority of the cumulative voting for the election of
outstanding shares of voting stock to achieve directors.
board representation. Where cumulative voting
is not permitted, holders of all outstanding
shares of voting stock of a corporation elect
the entire board of directors of the
corporation, thereby precluding the election
of any directors by the holders of less than
a majority of the outstanding shares of
voting stock.
Under New York corporate law, shareholders do
not have the right to cumulate their votes in
the election of directors unless such right
is granted in the certificate of
incorporation.
The Enhance Financial Services charter does
not provide for cumulative voting for the
election of directors.
NUMBER AND CLASSES OF DIRECTORS
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
Subject to certain limitations, New York Delaware corporate law permits the
corporate law permits the number of directors certificate of incorporation or the bylaws of
of a corporation to be fixed by its bylaws, a corporation to contain provisions governing
by action of the shareholders or by action of the number and terms of directors. However,
the board of directors under the if the certificate of incorporation
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specific provision of a bylaw adopted by the contains provisions fixing the number of
shareholders. At each annual meeting of the directors, such number may not be changed
shareholders, directors are to be elected to without amending the certificate of
hold office until the next annual meeting, incorporation. Delaware corporate law also
except as described below for corporations permits the certificate of incorporation of a
with classified boards. New York corporate corporation or a bylaw adopted by the
law permits the certificate of incorporation stockholders to provide that directors be
or the specific provisions of a bylaw adopted divided into one, two or three classes, with
by the shareholders to provide that directors staggered terms of office, with only one
be divided into either two, three or four class of directors to be elected each year
classes. All classes must be as nearly equal for a maximum term of three years. Delaware
in number as possible. The term of office of corporate law also permits the certificate of
one class of directors shall expire each incorporation to confer upon holders of any
year, with the terms of office of no two class or series of stock the right to elect
classes expiring the same year. one or more directors to serve for such terms
and have such voting powers as are stated in
Enhance Financial Services' bylaws provide the certificate of incorporation. The terms
for a board of one class of five directors, of office and voting powers of directors so
but permit a majority of the authorized elected may be greater or less than those of
number of directors to increase or decrease any other director or class of directors.
the number of directors. The current number
of directors is 11. Radian's charter and bylaws provide that the
total number of directors shall be determined
by the Radian board, but shall not be less
than 9 or more than 14. A majority of the
entire Radian board present at a meeting at
which a quorum is present may increase or
decrease the number of directors. The current
number of directors is 14, divided into three
classes of five, five and four directors,
with each class serving a staggered
three-year term.
NOMINATION OF DIRECTORS
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
The Enhance Financial Services' bylaws The Radian bylaws provide that nominations by
require that shareholders provide notice of stockholders of persons for election to the
nominations no less than 60 nor more than 90 Radian board at a stockholders' meeting must
days before the anniversary of the be received not less than 60 days before the
immediately preceding annual meeting. In the meeting. If less than 75 days' notice or
event the annual meeting is called for a date prior public disclosure of the meeting date
that is not within 30 days before or after is given or made to the stockholders,
such anniversary date, shareholder notice however, then stockholder nominations must be
must be received no later than the close of received no less than 15 days following such
business on the tenth day following the day notice or public disclosure.
on which such notice of the date of the
annual meeting was mailed or public
disclosure of the date of the annual meeting
was made, whichever first occurs.
In the case of a special meeting of
shareholders called for the purpose of
electing directors, shareholder notice must
be received not later than the close of
business on the tenth day following the day
on which notice of the date of the special
meeting was mailed or public disclosure of
the date of the special meeting was made,
whichever first occurs.
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OTHER STOCKHOLDER PROPOSALS
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
The Enhance Financial Services' bylaws The Radian bylaws provide that stockholder
require that shareholders provide notice of proposals for other businesses to be
proposals no less than 60 nor more than 90 considered at the stockholders' meeting
days before the anniversary of the must be received not less than 60 days before
immediately preceding annual meeting. In the the meeting. If less than 75 days' notice or
event annual meeting is called for a date prior public disclosure of the meeting date
that is not within 30 days before or after is given or made to the stockholders,
such anniversary date, notice by the however, then stockholder proposals must be
shareholder in order to be timely must be received no less than 15 days following such
received no later than the close of business notice or public disclosure.
on the tenth day following the day on which
such notice of the date of the annual meeting
was mailed or public disclosure of the date
of the annual meeting was made, whichever
first occurs.
QUALIFICATION OF DIRECTORS
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
Under New York corporate law, a director need Under Delaware corporate law, a director need
not be a shareholder unless the certificate not be a stockholder unless the certificate
of incorporation or bylaws so requires. of incorporation or bylaws so requires.
Enhance Financial Services' governing Radian's certificate of incorporation does
documents do not contain such a requirement. not contain such a requirement, and its
bylaws provide that directors need not be
stockholders of Radian.
REMOVAL OF DIRECTORS
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
New York corporate law provides that any or Delaware corporate law provides that a
all of the directors may be removed for cause director or directors may be removed, with or
by vote of the shareholders, and, if the without cause, by the holders of a majority
certificate of incorporation or the specific in voting power of the shares then entitled
provisions of a bylaw adopted by the to vote at an election of directors, except
shareholders so provides, directors may be that:
removed by action of the board of directors.
If the certificate of incorporation or the - members of a classified board of directors
bylaws so provide, any or all of the may be removed only for cause, unless the
directors may be removed without cause by certificate of incorporation provides
vote of the shareholders. The removal of otherwise; and
directors, with or without cause, is subject
to the following: - in the case of a corporation having
cumulative voting, if less than the entire
- in the case of a corporation having board of directors is to be removed, no
cumulative voting, no director may be director may be removed without cause if
removed when the votes cast against such the votes cast against such director's
director's removal would be sufficient to removal would be sufficient to elect such
elect the director if voted cumulatively; director if then cumulatively voted at an
and election of the entire board of directors
or of the class of directors of which such
- if a director is elected by the holders of director is a part.
shares of any class or series, such
director may be removed only by the The Radian charter provides that any Radian
applicable vote of the holders of the director may be removed from office at any
time, but only for
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shares of that class or series voting as a cause, by vote of the holders of a majority
class. An action to procure a judgment of the voting stock entitled to vote at an
removing a director for cause may be election of directors.
brought by the attorney general or by the
holders of 10% of the outstanding shares,
whether or not entitled to vote.
The Enhance Financial Services bylaws provide
that any Enhance Financial Services director
can be removed:
- with cause by vote of a majority of the
entire board to the extent permitted by
law; and
- with or without cause by holders of a
majority of the shares entitled to vote at
an election of directors.
FILLING VACANCIES ON THE BOARD
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
Under New York corporate law, newly created Under Delaware corporate law, unless
directorships resulting from an increase in otherwise provided in the certificate of
the number of directors and vacancies incorporation or the bylaws, vacancies on a
occurring on the board of directors for any board of directors and newly created
reason, except the removal of directors directorships resulting from an increase in
without cause, may be filled by vote of the the authorized number of directors elected by
board of directors. Unless the certificate of all of the stockholders having the right to
incorporation or bylaws provide otherwise, a vote as a single class may be filled by a
vacancy in a directorship elected by holders majority of the directors then in office,
of a particular class of shares shall be although less than a quorum, or by the sole
filled by a vote of the other directors remaining director; however, in the case of a
elected by holders of the same class of classified board of directors, as provided by
shares. However, the certificate of Delaware corporate law and the Radian bylaws,
incorporation or bylaws may provide that such such vacancies and newly created
newly created directorships or vacancies are directorships may be filled by a majority of
to be filled by vote of the shareholders. the directors elected by such class or by the
Unless the certificate of incorporation or sole remaining director so elected. In the
the specific provisions of a bylaw adopted by case of a classified board of directors,
the shareholders provide that the board of directors elected to fill vacancies or newly
directors may fill vacancies occurring on the created directorships shall hold office until
board of directors by reason of the removal the next election of the class for which such
of directors without cause, such vacancies directors have been chosen, and until their
may be filled only by vote of the successors have been duly elected and
shareholders. A director elected to fill a qualified. In addition, under both Delaware
vacancy, unless elected by the shareholders, corporate law and the Radian bylaws, if, at
will hold office until the next meeting of the time of the filling of any such vacancy
shareholders at which the election of or newly created directorship, the directors
directors is in the regular order of business in office constitute less than a majority of
and until his or her successor has been the whole board of directors (as constituted
elected and qualified. immediately before any such increase), the
Delaware Court of Chancery may, upon
The Enhance Financial Services bylaws provide application of any stockholder or
that director vacancies occurring for any stockholders holding at least 10% of the
reason (including due to a removal without total number of outstanding shares entitled
cause or the creation of additional directors to vote for such directors, summarily order
by the directors) can be filled by: an election to fill any such vacancy or newly
created directorship, or replace the
directors chosen by the directors then in
office.
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- a majority of directors in office at the The Radian bylaws also provide that any
time even if less than a quorum remains; or vacancy on the Radian board of directors that
results from an increase in the number of
- in the case of any vacancy in the office of directors may be filled by a majority of the
any director, by the shareholders. directors then in office, provided that a
quorum is present. Any other vacancy may be
filled by a majority of the directors then in
office, even if less than a quorum, or by a
sole remaining director, except as limited
above.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
Under New York Corporate law, a corporation Delaware corporate law provides that, subject
may indemnify its directors and officers to certain limitations in the case of
made, or threatened to be made, a party to "derivative" suits brought by a corporation's
any action or proceeding, except for stockholders in its name, a corporation may
shareholder derivative suits, if such indemnify any person who is made a party to
director or officer acted in good faith, for any third-party suit or proceeding on account
a purpose that he or she reasonably believed of being a director, officer, employee or
to be in or, in the case of service to agent of the corporation against expenses,
another corporation or enterprise, not including attorney's fees, judgments, fines
opposed to the best interests of the and amounts paid in settlement reasonably
corporation, and, in criminal proceedings, in incurred by him or her in connection with the
addition, had no reasonable cause to believe action, through, among other things, a
his or her conduct was unlawful. In the case majority vote of a quorum consisting of
of shareholder derivative suits, the directors who were not parties to the suit or
corporation may indemnify a director or proceeding, if the person:
officer if he or she acted in good faith for
a purpose that he or she reasonably believed - acted in good faith and in a manner he or
to be in or, in the case of service to she reasonably believed to be in or not
another corporation or enterprise, not opposed to the best interests of the
opposed to the best interests of the corporation or, in some circumstances, at
corporation, except that no indemnification least not opposed to its best interests;
may be made in respect of (a) a threatened and
action, or a pending action that is settled
or otherwise disposed of, or (b) any claim, - in a criminal proceeding, had no reasonable
issue or matter as to which such individual cause to believe his or her conduct was
has been adjudged to be liable to the unlawful.
corporation, unless and only to the extent
that the court in which the action was To the extent a director, officer, employee
brought, or, if no action was brought, any or agent is successful in the defense of such
court of competent jurisdiction, determines, an action, suit or proceeding, the
upon application, that, in view of all the corporation is required by Delaware corporate
circumstances of the case, the individual is law to indemnify such person for reasonable
fairly and reasonably entitled to indemnity expense incurred thereby.
for such portion of the settlement amount and
expenses as the court deems proper. Radian's charter provides that Radian shall,
to the fullest extent permitted by the
Any individual who has been successful on the Delaware General Corporation Law, as the same
merits or otherwise in the defense of a civil may be amended and supplemented, indemnify
or criminal action or proceeding will be any and all past, present and future
entitled to indemnification. Except as directors and officers of Radian from and
provided in the preceding sentence, unless against any and all costs, expenses
ordered by a court pursuant to New York (including attorneys' fees), damages,
corporate law, any indemnification under New judgments, penalties, fines, punitive
York corporate law pursuant to the above damages, excise taxes assessed with respect
paragraph may be made only if authorized in to an employee benefit plan and amounts paid
the specific case and after a finding that in settlement in connection with any action,
the director or officer met the requisite suit or proceeding, whether by or in the
standard of conduct by the disinterested right of Radian, a class of its security holders
or otherwise, in which the
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directors if a quorum is available, or, director or officer may be involved as a
if such a quorum so directs or party of otherwise, by reason of the fact that
is unavailable, (a) the board of directors such person was serving as a director, officer,
upon the written opinion of independent legal employee or agent of Radian.
counsel or (b) the shareholders.
Radian also maintains insurance policies
The indemnification described above under New covering directors and officers against
York corporate law is not exclusive of other certain liabilities, including liabilities
indemnification rights to which a director or arising under the Securities Act of 1933.
officer may be entitled, whether contained in
the certificate of incorporation or bylaws,
or, when authorized by such certificate of In addition, pursuant to the merger
incorporation or bylaws, (a) a resolution of agreement, after the merger, the surviving
shareholders, (b) a resolution of directors corporation in the merger will indemnify the
or (c) an agreement providing for former and current directors, officers and
indemnification, provided that no employees of Enhance Financial Services and
indemnification may be made to or on behalf its subsidiaries for at least six years,
of any director or officer if a judgment or subject to certain limitations.
other final adjudication adverse to the
director or officer establishes that his or
her acts were committed in bad faith or were
the result of active and deliberate
dishonesty and were material to the cause of
action so adjudicated, or that he or she
personally gained in fact a financial profit
or other advantage to which he or she was not
legally entitled.
The Enhance Financial Services bylaws provide
that, except where prohibited by New York
law, Enhance Financial Services shall
indemnify directors, officers and employees
against civil or criminal liability for
judgments, fines, penalties, settlements, and
reasonable expenses including attorney fees
for the action itself or appeal unless a
judgment or other final adjudication
establishes that the indemnified committed:
- bad faith; or
- deliberate dishonesty material to the
action; or
- personally gained financial profit or some
other advantage to which the indemnified
was not legally entitled.
Enhance Financial Services cannot indemnify
any settlement or nonadjudicatory disposition
threatened or pending to which the Enhance
Financial Services has not consented.
Enhance Financial Services also maintains
insurance policies covering directors and
officers against certain liabilities,
including liabilities arising under the
Securities Act of 1933.
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LIMITATION ON LIABILITY OF DIRECTORS
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
New York corporate law permits Enhance Delaware corporate law provides that a
Financial Services to eliminate or limit the corporation may include in its charter a
personal liability of directors to Enhance provision eliminating or limiting the
Financial Services or its shareholders for personal liability of a director to the
damages for any breach of duty in such corporation or its stockholders for monetary
capacity except liability of a director (a) damages for breach of fiduciary duty as a
whose acts or omissions were in bad faith, director. However, the provision may not
involved intentional misconduct or a knowing eliminate or limit the liability of a
violation of law, (b) who personally gained a director for:
financial profit or other advantage to which
he or she was not legally entitled or (c) - breach of the duty of loyalty;
whose acts violated certain provisions of New
York law. - acts or omissions not in good faith or that
involve intentional misconduct or a knowing
The Enhance Financial Services charter violation of law;
provides that directors are not personally
liable to Enhance Financial Services or the - unlawful payments of dividends, certain
shareholders for damages from judgments, stock repurchases or redemptions; or
settlements, fines, penalties, punitive
damages, excise taxes from the employee - any transaction from which the director
benefit plan, and expenses, for any breach of derived an improper personal benefit.
duty except where a judgment or final
adjudication establishes: Radian's certificate of incorporation
contains a provision eliminating the personal
- that the director committed acts or liability of a Radian director to Radian and
omissions of bad faith, or intentional its stockholders for monetary damages for
misconduct or in violation of law; breach of fiduciary duty as a director,
except as restricted by Delaware corporate
- that the director financially profited or law.
gained other personal advantage to which he
was not legally entitled; or
- that the director's action violated Section
719 of the New York Business Corporation
Law.
TRANSACTIONS INVOLVING OFFICERS OR DIRECTORS
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
Under New York corporate law, no contract or Delaware corporate law provides that a
other transaction between the corporation and corporation may lend money to, or guarantee
one or more of its directors, or between the any obligation incurred by, its officers or
corporation and another corporation in which directors if, in the judgment of the board of
one or more of the directors or officers have directors, the loan or guarantee may
a substantial financial interest is void or reasonably be expected to benefit the
voidable for this reason alone, or by corporation. Any other contract or
presence of such director at any meeting transaction between the corporation and one
approving such transaction, or by such or more of its directors or officers is
directors' vote being counted for approval of neither void nor voidable solely because the
such transaction so long as the following interested director or officer was present,
conditions are met: participates or votes at the board or board
committee meeting that authorizes the
- material facts as to the director's contract or transaction, if either:
interest in the transaction must be
disclosed in good faith or known by the - the director's or officer's interest is
board of directors; the transaction made known to the disinterested directors or
the stockholders of
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must be approved by sufficient board votes the corporation, who thereafter approve the
without counting the interested director's transaction in good faith; or
vote, or, if the number of votes are
insufficient to approve the transaction, - the contract or transaction is fair to the
unanimous approval by disinterested corporation as of the time it is approved or
directors is required; or ratified by either the board of directors,
a committee thereof, or the stockholders.
- the material facts of the director's
interest must be disclosed in good faith or
known to shareholders; and the shareholders
entitled to vote on the transaction approve
such transaction.
Common or interested directors may be counted
to determine a quorum at a meeting of the
board of directors or of a committee which
approves such a transaction. The certificate
of incorporation may contain further
restrictions on such transactions and may
establish them void or voidable by the
corporation.
If such an interested transaction or contract
was not approved in the above manner, the
corporation may avoid the contract or
transaction unless the parties thereto
establish affirmatively that the contract or
transaction was fair and reasonable as to the
corporation at the time it was approved by
the board of directors, a committee, or the
shareholders.
The corporation generally may not lend money
to, or guarantee the obligation of, a
director of the corporation unless such loan
or guarantee is approved by the shareholders,
where a majority of shares entitled to vote
thereon constitute a quorum, but shares held
of record or beneficially by directors
benefited by such loan may not be included to
establish quorum and may not vote.
The Enhance Financial Services certificate of
incorporation and bylaws are silent on
transactions between the corporation and its
directors except that the bylaws specify that
the corporation may enter into agreements
with the directors that extend their rights
to indemnification and extension of expenses
to directors to the fullest extent permitted
by applicable law.
PROVISIONS AFFECTING CONTROL SHARE ACQUISITIONS AND BUSINESS COMBINATIONS
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
New York corporate law generally provides Delaware corporate law contains a business
that a New York corporation may not engage in combination statute that protects domestic
a business combination with an interested corporations from hostile takeovers, and from
shareholder for a period of five years actions following such a takeover, by
following the interested prohibiting some
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shareholder's becoming such. Such a business transactions once an acquiror has gained a
combination would be permitted where it is significant holding in the corporation.
approved by the board of directors before the Delaware corporate law generally prohibits
interested shareholder's becoming such, or "business combinations," including mergers,
within 30 days thereafter, if a good faith sales and leases of assets, issuances of
proposal regarding a business combination is securities and similar transactions by a
made in writing. corporation or a subsidiary with an
"interested stockholder" who beneficially
Covered business combinations include certain owns 15% or more of a corporation's voting
mergers and consolidations, dispositions of stock, within three years after the person or
assets or stock, plans for liquidation or entity becomes an interested stockholder,
dissolution, reclassifications of securities, unless:
recapitalizations and similar transactions.
An interested shareholder is generally a - the board of directors of the target
shareholder owning at least 20% of a corporation has approved, before the
corporation's outstanding voting stock. acquisition date, either the business
combination or the transaction that
In addition, New York corporations may not resulted in the person becoming an
engage at any time with any interested interested stockholder;
shareholder in a business combination other
than: - upon consummation of the transaction that
resulted in the person becoming an interested
- a business combination approved by the stockholder, the person owns at least 85%
board of directors before the stock of the corporation's voting stock
acquisition, or where the acquisition of (excluding shares owned by directors who
the stock had been approved by the board of are officers and shares owned by employee
directors before the stock acquisition; stock plans in which participants do not
have the right to determine confidentially
- a business combination approved by the whether shares will be tendered in a tender
affirmative vote of the holders of a or exchange offer); or
majority of the outstanding voting stock
not beneficially owned by the interested - after the person or entity becomes an
shareholder at a meeting for that purpose interested stockholder, the business
no earlier than five years after the stock combination is approved by the board of
acquisition; or directors and authorized by the vote of at
least 66 2/3% of the outstanding voting
- business combination in which the stock not owned by the interested
interested shareholder pays a formula price stockholder.
designed to ensure that all other
shareholders receive at least the highest These restrictions on interested stockholders
price per share that is paid by the do not apply under some circumstances,
interested shareholder and that meets including if the corporation, by action of
certain other requirements. its stockholders, adopts an amendment to its
charter or bylaws expressly electing not to
Enhance Financial Services is governed by New be governed by these provisions of Delaware
York corporate law, as described above. The corporate law. The amendment will be
Enhance Financial Services charter does not effective 12 months after it is adopted.
contain a provision regarding transactions
with interested shareholders. Neither Radian's certificate of incorporation
nor Radian's bylaws contain a provision
electing not to be governed by these
provisions of Delaware corporate law.
However, the transactions described below
require approval of two-thirds of the shares
entitled to vote if such transactions have
not been approved by two-thirds of the Radian
board:
- amendment of the Radian charter;
- adoption, amendment or repeal of the Radian
bylaws;
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- change in the number of directors
constituting the entire board of directors;
- removal of one or more directors;
and, any of the following, if such
transaction requires the approval of
stockholders under the Radian charter or
Delaware corporate law, each as then in
effect:
- the sale, lease, exchange or other
disposition of all or substantially all of
Radian's assets; or
- the merger, consolidation, division,
reorganization, recapitalization,
dissolution, liquidation or winding up of
Radian.
MERGERS, ACQUISITIONS, SHARE PURCHASES AND CERTAIN OTHER TRANSACTIONS
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
Under New York corporate law, the Under Delaware corporate law, a merger,
consummation by Enhance Financial Services of consolidation or sale of all or substantially
a merger, consolidation or disposition of all of a corporation's assets must be
substantially all of its assets requires the approved by the board of directors and by a
approval of two-thirds of all the shares of majority of the outstanding stock of the
Enhance Financial Services entitled to vote corporation entitled to vote thereon.
on the proposal, including, in certain However, no vote of stockholders of a
situations, the affirmative vote by the constituent corporation surviving a merger is
holders of a majority of all outstanding required, unless the corporation provides
shares of each class or series of shares otherwise in its certificate of incorporation
(which Radian's certificate of incorporation
does not), if:
- the merger agreement does not amend the
certificate of incorporation of the
surviving corporation;
- each share of stock of the surviving
corporation outstanding before the merger is
an identical outstanding or treasury share
after the merger; and
- either no shares of common stock of the
surviving corporation are to be issued or
delivered pursuant to the merger or, if
such common stock will be issued or
delivered, it will not increase the number
of shares of common stock outstanding
immediately before the merger by more than
20%.
Additional supermajority voting requirements
may be applicable in certain circumstances.
See "Description of Radian Capital
Stock -- Anti-Takeover Provisions" and
"-- Provisions Affecting Control Share
Acquisitions and Business Combinations."
</TABLE>
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RIGHTS OF DISSENTING STOCKHOLDERS
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
Under New York corporate law, appraisal Delaware corporate law provides stockholders
rights are generally available in connection of a corporation involved in a merger the
with a merger or consolidation, except that right to demand and receive payment of the
no appraisal rights are available: fair value of their stock in certain mergers.
However, appraisal rights are not available
- to the shareholder of a parent corporation to holders of shares:
merging with its subsidiary where the
parent owns at least 90% of the - listed on a national securities exchange;
subsidiary's outstanding stock and certain
additional requirements are met; - designated as a national market system
security on an interdealer quotation system
- to the shareholder of the surviving operated by the National Association of
corporation in a merger (other than a Securities Dealers, Inc.; or
merger described in the previous bullet
item) unless the merger adversely affects - held of record by more than 2,000
rights of the shares held by the shareholder stockholders;
in a certain way; or
unless holders of stock are required to
- to a shareholder of shares of any class or accept in the merger anything other than any
series of stock listed on a national combination of:
securities exchange or designated as a
national market system security on an - shares of stock or depository receipts of
interdealer quotation system by the the surviving corporation in the merger;
National Association of Securities Dealers,
Inc. - shares of stock or depository receipts of
another corporation that, at the effective
Under the statutory provisions described date of the merger, will be:
above, since shares of Enhance Financial
Services common stock are listed on the New - listed on a national securities exchange;
York Stock Exchange, Enhance Financial
Services common shareholders are not entitled - designated as a national market system
to appraisal rights in connection with a security on an interdealer quotation system
merger or consolidation. operated by the National Association of
Securities Dealers, Inc.; or
Appraisal rights are also available under New
York corporate law in connection with the - held of record by more than 2,000 holders;
sale, lease, exchange or other disposition of and
all or substantially all of a corporation's
assets other than a transaction wholly for - cash instead of fractional shares of stock
cash where shareholder approval is or depository receipts received.
conditioned upon the corporation's
dissolution and the distribution of all of Dissenters' appraisal rights are not
the corporation's net assets within one year available to the Radian stockholders with
after the transaction. respect to the merger because Delaware
corporate law does not require that Radian
Further, appraisal rights are available in stockholders vote to approve the merger
connection with a share exchange between two agreement. Moreover, Radian common stock is
corporations as authorized by New York listed on the New York Stock Exchange and is
corporate law, except with respect to shares currently held by more than 2,000
of a subject corporation that are not stockholders. As a result, assuming that the
acquired in the exchange or that are listed other conditions described above are
on a national securities exchange or satisfied, holders of Radian stock will not
designated as a national market system have appraisal rights in connection with
security on an interdealer quotation system consolidations and mergers involving Radian.
by the National Association of Securities
Dealers, Inc.
In addition, appraisal rights are available
to a shareholder of a subsidiary corporation
that merges
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with its parent corporation, or is acquired
by it in a share exchange, where the parent
owns at least 90% of the subsidiary's
outstanding stock and certain additional
requirements are met.
Appraisal rights are also available to a
shareholder who is not entitled to vote with
respect to a plan of merger or consolidation
and whose shares will be canceled or
exchanged in the merger or consolidation for
cash or other consideration other than shares
of the surviving or consolidated corporation
or another corporation.
PREEMPTIVE RIGHTS OF STOCKHOLDERS
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
Under New York corporate law, except as Delaware corporate law provides that no
otherwise provided in New York corporate law stockholder will have any preemptive rights
or in the certificate of incorporation, the to purchase additional securities of a
holders of equity shares are granted certain corporation unless the corporation's
preemptive rights. certificate of incorporation expressly grants
such rights.
The Enhance Financial Services charter
provides that stockholders will have no Radian's certificate of incorporation does
preemptive rights to purchase additional not provide for preemptive rights.
securities of Enhance Financial Services.
RIGHT TO CALL SPECIAL MEETINGS OF STOCKHOLDERS
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
New York corporate law provides that special Delaware corporate law provides that a
meetings of shareholders may be called by the special meeting of stockholders may be called
board of directors and by such persons as may by the board of directors or by such person
be authorized in the certificate of or persons as may be authorized by the
incorporation or the bylaws. certificate of incorporation or the bylaws.
New York corporate law also provides that if, The Radian bylaws provide that special
for a period of one month after the date meetings of Radian stockholders may be called
fixed by or under the bylaws for the annual by the chairman of the Radian board of
meeting of shareholders, or, if no date has directors or a majority of the Radian board
been so fixed, for a period of 13 months of directors.
after the last annual meeting, there is a
failure to elect a sufficient number of
directors to conduct the business of the
corporation, the board of directors shall
call a special meeting for the election of
directors. If such special meeting is not
called by the board of directors within two
weeks after the expiration of such period or
if it is called but there is a failure to
elect such directors for a period of two
months after the expiration of such period,
holders of 10% of the votes of the shares
entitled to vote in an election of directors
may, in writing, demand the call of a special
meeting for the election of directors.
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The Enhance Financial Services bylaws provide
that special meetings of Enhance Financial
Services shareholders may be called by:
- a majority of the board of directors;
- the chairman of the board of directors, if
any;
- the Secretary; or
- the President.
A special meeting must be called by the
President if the holders of shares
representing a majority of the outstanding
stock of all classes of record entitled to be
cast at the special meeting request a special
meeting in writing.
STOCKHOLDER ACTION WITHOUT A MEETING
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
New York corporate law provides that Under Delaware corporate law, unless
shareholder action may be taken without a otherwise provided in the certificate of
meeting upon the written consent of the incorporation, any action required or
holders of all outstanding shares entitled to permitted to be taken at a meeting of
vote and also allows, if the certificate of shareholders may be taken without a meeting,
incorporation so provides, shareholder action without prior notice and without a vote, if a
without a meeting upon the written consent of written consent or consents setting forth the
holders of outstanding shares having not less action taken is signed by the holders of
than the minimum number of votes that would outstanding stock having not less than the
be necessary to authorize such action at a minimum number of votes that would be
meeting at which all shares entitled to vote necessary to authorize or take such action at
thereon were present and voted. a meeting at which all shares entitled to
vote upon such action were present and voted.
The Enhance Financial Services certificate of
incorporation does not contain such a The Radian charter provides that Radian
provision. stockholders may not consent in writing
without a meeting to the taking of any
action, unless all Radian stockholders
entitled to vote consent in writing.
STOCKHOLDER RIGHTS PLAN
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
Enhance Financial Services has not Radian has implemented a stockholder rights
implemented a shareholder rights plan. plan under which a group of persons becomes
an acquiring person upon a public
announcement or determination by the Radian
board of directors that they have acquired or
intend to acquire 12% or more of Radian's
voting stock. This threshold can be reduced
by amendment. Each share of Radian common
stock issued in the merger will be issued
with an attached right. See "Description of
Radian Capital Stock -- Stockholder Rights
Plan."
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NOTICE OF STOCKHOLDERS' MEETINGS
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
New York corporate law requires notice of Delaware corporate law requires notice of
shareholders meetings to be sent to all stockholders meetings to be sent to all
stockholders of record entitled to vote at stockholders of record entitled to vote at
the meeting not less than 10 nor more than 60 the meeting not less than 10 nor more than 60
days before the date of the meeting, provided days before the date of the meeting.
that such notice may be given by third class
mail not fewer than 24 hours nor more than 60
days before the date of the meeting.
DIVIDENDS
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
New York corporate law provides that Delaware corporate law provides that
dividends may be declared, distributed or corporations may pay dividends out of surplus
paid out by the corporation on outstanding or, if there is no surplus, out of net
shares except as restricted by the profits for the fiscal year in which declared
certificate of incorporation, or unless the and for the preceding fiscal year. Delaware
corporation is insolvent or such distribution corporate law also provides that dividends
would make the corporation insolvent. The may not be paid out of net profits if, after
corporation generally can only make such the payment of the dividend, capital is less
distributions out of surplus. The net assets than the capital represented by the
of the corporation upon declaration or outstanding stock of all classes having a
distribution must remain at least equal to preference upon the distribution of assets.
the amount of the corporation's stated
capital. Enhance Financial Services Radian's certificate of incorporation
certificate of incorporation does not provide provides that the stockholders have the right
otherwise. to receive dividends if and when declared by
the board of directors. For more information
see "Description of Radian Capital
Stock -- Dividends" and "Where You Can Find
More Information."
INSPECTION OF STOCKHOLDER LISTS
ENHANCE FINANCIAL SERVICES RADIAN
--------------------------------------------- ---------------------------------------------
Under New York corporate law, any person who Delaware corporate law allows any stockholder
has been a shareholder of record has the to inspect the stock ledger and the other
right, upon five days written demand, to books and records of a corporation for a
examine the record of shareholders in person purpose reasonably related to that person's
and to make extracts, during usual business interest as a stockholder.
hours, for any purpose reasonably related to
such person's interest as a shareholder. Radian's bylaws provide that the list of
stockholders entitled to vote at a
A shareholder or other person may be denied stockholder meeting shall be open to
inspection upon refusal to furnish the inspection by any stockholder, for any
corporation, its transfer agent or registrar, purpose germane to the meeting, during usual
an affidavit that inspection is not desired business hours, for 10 days before the
for a purpose which is in the interest of a meeting.
business or object other than the business of
the corporation and that the shareholder or
person has not offered for sale any list of
shareholders of any corporation either from a
corporation formed, in New York or elsewhere,
for five years, and has not aided or
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abetted any person in procuring any record of
shareholders for such purpose.
Upon such refusal, the shareholder or person
making the demand may apply to the supreme
court in the judicial district where the
office of the corporation is located for an
order directing the corporation to show cause
why an order directing such inspection should
not be granted. The court shall then hear the
parties, by affidavit or otherwise, and if
the applicant appears qualified and entitled
to inspection, the court shall grant an order
compelling inspection and any further relief
the court deems just and proper.
The certificate of incorporation and bylaws
of Enhance Financial Services are silent on
rights of inspection.
</TABLE>
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LEGAL MATTERS
Clifford Chance Rogers & Wells LLP, counsel to Enhance Financial Services,
has rendered an opinion that the merger will qualify as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code.
The validity of the Radian common shares to be issued in the merger will be
passed upon for Radian by Howard S. Yaruss, Senior Vice President, Secretary and
General Counsel of Radian. Wachtell, Lipton, Rosen & Katz, special counsel to
Radian, has rendered an opinion that the merger will qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code.
EXPERTS
The consolidated financial statements of Enhance Financial Services and the
combined financial statements of C-BASS incorporated in this document by
reference from Enhance Financial Services' Annual Report on Form 10-K/A for the
year ended December 31, 1999 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports, which are incorporated by
reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements and the related financial statement
schedules of Radian incorporated in this document by reference from the Radian
Annual Report of Form 10-K for the year ended December 31, 1999 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Deloitte & Touche LLP, current independent certified
accountants of Enhance Financial Services, expect to be present at the Enhance
Financial Services special meeting and will be available to respond to
appropriate questions from Enhance Financial Services shareholders in
attendance. Although these representatives have stated that they do not intend
to make any statements at the Enhance Financial Services special meeting, they
will have the opportunity to do so.
Representatives of Deloitte & Touche LLP, current independent certified
accountants of Radian, expect to be present at the Radian special meeting and
will be available to respond to appropriate questions from Radian stockholders
in attendance. Although these representatives have stated that they do not
intend to make any statements at the Radian special meeting, they will have the
opportunity to do so.
OTHER MATTERS
Pursuant to New York law, the business that may be conducted at the Enhance
Financial Services special meeting is confined to the purpose described in the
notice of special meeting of shareholders that accompanies this document.
Pursuant to the Radian bylaws, the business that may be conducted at the
Radian special meeting is confined to the purpose described in the notice of
special meeting of stockholders that accompanies this document.
CERTAIN PROXY CARD MATTERS
Radian stockholders having shares registered in different names will
receive a proxy card for each registration. If your Radian common shares are
held by a broker as nominee, you will receive a voter information form from your
broker. All these Radian common shares will be voted in accordance with the
instructions on the proxy card.
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<PAGE> 97
STOCKHOLDER PROPOSALS
Any Enhance Financial Services shareholder who intends to present a
proposal at Enhance Financial Services' 2001 annual meeting of shareholders (if
there is one) for inclusion in the proxy statement and form of proxy relating to
that meeting is advised that the written proposal and any written statement in
support of the proposal must be received by the Secretary of Enhance Financial
Services at the principal executive offices not later than December 31, 2000.
Enhance Financial Services will not be required to include in its proxy
statement a form of proxy or shareholder proposal that is received after that
date or that otherwise fails to meet the requirements for shareholder proposals
established by regulations of the SEC. If the merger is consummated before the
date of this meeting, there will be no 2001 annual meeting of Enhance Financial
Services shareholders.
Any Radian stockholder who intends to present a proposal at Radian's 2001
annual meeting of stockholders for inclusion in the proxy statement and form of
proxy relating to that meeting is advised that the proposal must have been
received by Radian at its principal executive offices not later than December 4,
2000. Radian will not be required to include in its proxy statement a form of
proxy or stockholder proposal that has been or is received after that date or
that otherwise fails to meet the requirements for stockholder proposals
established by regulations of the SEC.
WHERE YOU CAN FIND MORE INFORMATION
Radian has filed with the SEC a registration statement on Form S-4 under
the Securities Act that registers the Radian common shares to be issued in the
merger to Enhance Financial Services shareholders. The registration statement,
including the attached annexes, exhibits and schedules, contains additional
relevant information about Radian and Enhance Financial Services. The rules and
regulations of the SEC allow us to omit certain information included in the
registration statement from this document.
In addition, Radian and Enhance Financial Services file reports, proxy
statements and other information with the SEC under the Securities Exchange Act
of 1934, as amended. Please call the SEC at 1-800-SEC-0330 for information on
public reference rooms. You may read and copy this information at the following
location of the SEC:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, DC 20549
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington, DC
20549, at prescribed rates. The SEC also maintains an Internet website that
contains reports, proxy statements and other information about issuers, like
Radian and Enhance Financial Services, who file electronically with the SEC. The
address of that website is http://www.sec.gov. You can also inspect reports,
proxy statements and other information about Radian and Enhance Financial
Services at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
The SEC allows Radian and Enhance Financial Services to "incorporate by
reference" information into this document. This means that the companies can
disclose important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is considered
to be a part of this document, except for any information that is superseded by
information that is included directly in this document.
This document incorporates by reference the documents listed below that
Radian and Enhance Financial Services have previously filed with the SEC. They
contain important information about our companies and their financial condition.
Some of these filings have been amended by later filings, which are also listed.
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<PAGE> 98
<TABLE>
<CAPTION>
ENHANCE FINANCIAL SERVICES COMMISSION FILINGS
(FILE NO. 1-10967) DESCRIPTION OR PERIOD
--------------------------------------------- ---------------------
<S> <C>
Annual Report on Form 10-K/A Year ended December 31, 1999
Quarterly Report on Form 10-Q/A Quarter ended March 31, 2000
Quarterly Report on Form 10-Q/A Quarter ended June 30, 2000
Quarterly Report on Form 10-Q Quarter ended September 30, 2000
Proxy Statement on Schedule 14A Filed on May 2, 2000 for Enhance Financial
Services' annual meeting held June 1, 2000
</TABLE>
<TABLE>
<CAPTION>
RADIAN COMMISSION FILINGS
(FILE NO. 1-11356) DESCRIPTION OR PERIOD
------------------------- ---------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1999
Quarterly Report on Form 10-Q Quarter ended March 31, 2000
Quarterly Report on Form 10-Q Quarter ended June 30, 2000
Quarterly Report on Form 10-Q Quarter ended September 30, 2000
Current Reports on Form 8-K Filed on November 15, 2000
Proxy Statement on Schedule 14A Filed on April 10, 2000 for Radian's annual
meeting held May 9, 2000
</TABLE>
Radian and Enhance Financial Services incorporate by reference additional
documents that either company may file with the SEC between the date of this
document and the dates of the Radian special meeting and the Enhance Financial
Services special meeting. These documents include periodic reports, such as
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K, as well as proxy statements.
You can obtain any of the documents incorporated by reference in this
document through Radian or Enhance Financial Services, as the case may be, or
from the SEC through the SEC's website at the address described above. Documents
incorporated by reference are available from the companies without charge,
excluding any exhibits to those documents, unless the exhibit is specifically
incorporated by reference as an exhibit in this document. You can obtain
documents incorporated by reference as an exhibit in this document by requesting
them in writing or by telephone from the appropriate company at the following
addresses:
<TABLE>
<CAPTION>
FOR ENHANCE FINANCIAL SERVICES SHAREHOLDERS: FOR RADIAN STOCKHOLDERS:
-------------------------------------------- ------------------------
<S> <C>
Enhance Financial Services Group Inc. Radian Group Inc.
335 Madison Avenue 1601 Market Street
New York, NY 10017 Philadelphia, PA 19103
(212) 984-9200 (215) 564-6600
</TABLE>
If you would like to request documents, please do so promptly to receive
them before the special meetings. If you request any incorporated documents from
us, we will mail them to you by first class mail, or another equally prompt
means, within one business day after we receive your request.
We have authorized no one to give you any information or to make any
representation about the merger or our companies that differs from or adds to
the information contained in this document or in the documents that our
companies have publicly filed with the SEC. Therefore, if anyone should give you
any different or additional information, you should not rely on it.
If you live in a jurisdiction in which it is unlawful to offer to exchange
or sell, or to ask for offers to exchange or buy, the securities offered by this
document, or to ask for proxies, or if you are a person to whom it is unlawful
to direct such activities, then the offer presented by this document does not
extend to you.
The information contained in this document speaks only as of the date
indicated on the cover of this document unless the information specifically
indicates that another date applies.
With respect to the information contained in this document, Enhance
Financial Services has supplied the information concerning Enhance Financial
Services and Radian has supplied the information concerning Radian and GOLD
Acquisition Corporation.
89
<PAGE> 99
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED
NOVEMBER 13, 2000
AMONG
ENHANCE FINANCIAL SERVICES GROUP INC.
GOLD ACQUISITION CORPORATION
AND
RADIAN GROUP INC.
<PAGE> 100
TABLE OF CONTENTS
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PAGE
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ARTICLE I MERGER OF ACQUISITION AND THE COMPANY............. A-1
1.1 The Merger........................................... A-1
1.2 Certificate of Incorporation......................... A-2
1.3 By-Laws.............................................. A-2
1.4 Directors............................................ A-2
1.5 Officers............................................. A-2
1.6 Stock of the Company................................. A-2
1.7 Stock of Sub......................................... A-2
1.8 Distributions with Regard to Company Stock........... A-3
1.9 Options and Warrants................................. A-4
1.10 Adjustment of Exchange Ratio......................... A-4
ARTICLE II EFFECTIVE TIME OF MERGER......................... A-4
2.1 Date of the Merger................................... A-4
2.2 Execution of Certificate of Merger................... A-4
2.3 Effective Time of the Merger......................... A-4
ARTICLE III REPRESENTATIONS AND WARRANTIES.................. A-5
3.1 Representations and Warranties of the Company........ A-5
3.2 Representations and Warranties of Parent and Sub..... A-16
3.3 Termination of Representations and Warranties........ A-19
ARTICLE IV ACTIONS PRIOR TO THE MERGER...................... A-19
4.1 Company's Activities Until Effective Time............ A-19
4.2 Parent's Activities Until Effective Time............. A-21
4.3 HSR Act Filings...................................... A-22
4.4 Licenses and Permits................................. A-22
4.5 Registration Statement, Proxy Statements and
Shareholders Meetings................................ A-22
4.6 No Solicitation of Offers; Notice of Proposals from
Others............................................... A-24
4.7 Appropriate Action; Consents......................... A-24
4.8 Cooperation.......................................... A-25
4.9 Company Affiliates; Reorganization................... A-25
4.10 Takeover Statutes.................................... A-25
4.11 Certain Contracts.................................... A-25
4.12 C-BASS............................................... A-26
4.13 Benefits............................................. A-26
4.14 Support Agreements................................... A-26
ARTICLE V CONDITIONS PRECEDENT TO MERGER.................... A-26
5.1 Conditions to the Company's Obligations.............. A-26
5.2 Conditions to Parent's and Sub's Obligations......... A-27
ARTICLE VI TERMINATION...................................... A-28
6.1 Right to Terminate................................... A-28
6.2 Manner of Terminating Agreement...................... A-31
6.3 Effect of Termination................................ A-31
ARTICLE VII ABSENCE OF BROKERS.............................. A-31
7.1 Representations and Warranties Regarding Brokers and
Others............................................... A-31
</TABLE>
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<PAGE> 101
<TABLE>
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PAGE
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ARTICLE VIII OTHER AGREEMENTS............................... A-31
8.1 Payment to Parent.................................... A-31
8.2 Indemnification for Prior Acts....................... A-32
8.3 Beneficiaries........................................ A-32
ARTICLE IX GENERAL.......................................... A-32
9.1 Expenses............................................. A-32
9.2 Access to Properties, Books and Records.............. A-33
9.3 Press Releases....................................... A-33
9.4 Entire Agreement..................................... A-33
9.5 Effect of Disclosures................................ A-33
9.6 Captions; Definitions................................ A-33
9.7 Prohibition Against Assignment; Benefit.............. A-33
9.8 Notices and Other Communications..................... A-33
9.9 Governing Law........................................ A-34
9.10 Amendments........................................... A-34
9.11 Counterparts......................................... A-34
EXHIBITS
Exhibit 4.9-A Affiliate Letter............................. A-36
Exhibit 4.14-A Shareholders Support Agreement............... A-39
</TABLE>
ii
<PAGE> 102
AGREEMENT AND PLAN OF MERGER
This is an Agreement and Plan of Merger (this "Agreement") dated November
13, 2000, among ENHANCE FINANCIAL SERVICES GROUP INC. (the "Company"), a New
York corporation, RADIAN GROUP INC. ("Parent"), a Delaware corporation, and GOLD
Acquisition Corporation ("Sub"), a New York corporation and wholly owned
subsidiary of Parent.
RECITALS
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved the merger of Sub with and into the Company (the "Merger"), upon
the terms and subject to the conditions set forth in this Agreement and in
accordance with the New York Business Corporation Law (the "NYBCL"), whereby the
issued and outstanding shares of Company Common Stock (as defined herein), other
than shares to be canceled in accordance with Section 1.6(b), will be converted
into the right to receive the Merger Consideration (as defined herein);
WHEREAS, as an inducement to Parent to enter into this Agreement, certain
significant shareholders of the Company are entering into an agreement with
Parent (the "Shareholders Support Agreement") pursuant to which each significant
shareholder has, among other things, agreed to vote such significant
shareholder's shares of Company Common Stock in favor of the Merger;
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger, and also to prescribe various conditions to the Merger; and
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
MERGER OF ACQUISITION AND THE COMPANY
1.1 The Merger. (a) Subject to the terms and conditions set forth in this
Agreement, at the Effective Time (as defined herein) pursuant to the Merger, Sub
will be merged into the Company, which will be the surviving corporation of the
Merger (the "Surviving Corporation"). Except as specifically provided in this
Agreement, at the Effective Time, (i) the real and personal property, other
assets, rights, privileges, immunities, powers, purposes and franchises of the
Company will continue unaffected and unimpaired by the Merger, (ii) the separate
existence of Sub will terminate, and Sub's real and personal property, other
assets, rights, privileges, immunities, powers, purposes and franchises will be
merged into the Surviving Corporation, and (iii) the Merger will have the other
effects specified in Section 906 of the NYBCL.
(b) Notwithstanding Section 1.1(a), Parent may elect to modify the
structure of the transactions contemplated by this Agreement, including, without
limitation, to provide for the merger of the Company directly with and into
Parent, so long as (i) there are no adverse tax or other consequences to the
holders of Company Common Stock as a result of such modification, (ii) the
consideration to be paid to the holders of Company Common Stock under this
Agreement is not thereby changed or reduced in form or amount, and (iii) such
modification will not materially delay or jeopardize receipt of any required
regulatory approvals or otherwise delay or jeopardize the closing of the
transactions contemplated hereby. In the event that Parent determines to do the
foregoing, the parties hereto agree to modify this Agreement and any exhibits,
annexes or schedules hereto to reflect such revised terms. In any such event,
Parent shall prepare appropriate amendments to this Agreement and any such
exhibits, annexes or schedules for execution by the parties hereto. The Company
agrees to cooperate fully with Parent to effect such amendments.
<PAGE> 103
1.2 Certificate of Incorporation. From the Effective Time until
subsequently amended, the Certificate of Incorporation of Sub immediately before
the Effective Time will be the Certificate of Incorporation of the Surviving
Corporation, except that it will provide that the name of the Surviving
Corporation will be "Enhance Financial Services Group Inc.," and that
Certificate of Incorporation, separate and apart from this Agreement, may be
certified as the Certificate of Incorporation of the Surviving Corporation.
1.3 By-Laws. From the Effective Time until subsequently amended, the
By-Laws of Sub immediately before the Effective Time will be the By-Laws of the
Surviving Corporation.
1.4 Directors. The directors of Sub immediately prior to the Effective
Time will be the directors of the Surviving Corporation after the Effective Time
and will hold office in accordance with the By-Laws of the Surviving
Corporation.
1.5 Officers. The officers of the Company immediately before the Effective
Time will be the officers of the Surviving Corporation after the Effective Time
and will hold office until successors are duly elected or appointed and
qualified in accordance with applicable law.
1.6 Stock of the Company. (a) Except as provided in Sections 1.6(b) and
(c), at the Effective Time, each share of common stock of the Company, par value
$.10 per share, ("Company Common Stock"), that is outstanding immediately before
the Effective Time will be converted into and become the right to receive 0.22
(as adjusted pursuant to the immediately succeeding sentence) (the "Exchange
Ratio") of a share of common stock, par value $.001 per share, of Parent (such
shares, together with the associated rights (the "Parent Shareholder Rights")
pursuant to the Amended and Restated Shareholder Rights Agreement, dated as of
January 19, 1999, by and between CMAC Investment Corporation (predecessor to
Parent) and the Bank of New York, as Rights Agent thereunder, the "Parent Common
Stock"), together with any associated Parent Shareholder Rights. If the Singer
September 30 Net Worth (as defined herein) shall be less than $36 million, then
the Exchange Ratio shall be reduced to equal 0.22 minus the quotient (rounded to
the nearest four decimal places) obtained by dividing (1) the quotient obtained
by dividing (a) the difference between $36 million and the Singer September 30
Net Worth by (b) 38,500,000, by (2) the Starting Price (as defined herein).
(b) Each share of Company Common Stock held in the treasury of the Company,
or by any direct or indirect wholly owned subsidiary of the Company, immediately
before the Effective Time will, at the Effective Time, be cancelled and cease to
exist, and no consideration will be paid with respect to any of those shares of
Company Common Stock.
(c) No fractional shares of Parent Common Stock will be issued as a result
of the Merger. Any holder of Company Common Stock that, but for this Section
1.6, would be entitled to receive a fraction of a share of Parent Common Stock
as a result of the Merger will, at the Effective Time, have the right to
receive, instead of that fraction of a share and without interest, cash equal to
the Market Value of a share of Parent Common Stock on the Merger Date (as
defined herein) times the fraction. As used herein, the "Market Value" of a
share of Parent Common Stock on a day means the average of the Last Sale Price
of a share of Parent Common Stock on each of the twenty New York Stock Exchange
trading days ending on, and including, that day. As used herein, the "Last Sale
Price" of a share of Parent Common Stock on a day given will be the last sale
price of a share of Parent Common Stock reported on the New York Stock Exchange
consolidated tape prior to 4:00 p.m. New York City time on that day.
(d) The Parent Common Stock into which a share of Company Common Stock is
converted in the Merger as provided in Section 1.6(a), together with the right
to receive cash instead of fractional shares, is referred to in this Agreement
as the "Merger Consideration."
1.7 Stock of Sub. At the Effective Time, each share of stock of Sub ("Sub
stock") which is outstanding immediately before the Effective Time will be
converted into and become one share of the same class of stock of the Surviving
Corporation. At the Effective Time, a certificate which represented Sub stock
will automatically become and be a certificate representing the number of shares
of the class of Surviving Corporation stock into which the Sub stock represented
by the certificate was converted.
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<PAGE> 104
1.8 Distributions with Regard to Company Stock. (a) Prior to the Effective
Time, Parent or Sub will designate a bank or trust company to act as
distributing agent in connection with the Merger (the "Distributing Agent"). At,
or immediately before, the Effective Time, Parent will provide the Distributing
Agent with the shares of Parent Common Stock and any funds which will have to be
distributed to holders of Company Common Stock under Section 1.6(c) as a result
of the Merger.
(b) After the Effective Time and until they are distributed to former
Company shareholders pursuant to this Agreement, the shares of Parent Common
Stock held by the Distributing Agent will be deemed to be outstanding, but the
Distributing Agent will not vote those shares or exercise any rights of a
shareholder of Parent with regard to those shares of Parent Common Stock. If any
dividends are paid with regard to shares of Parent Common Stock while they are
held by the Distributing Agent, the Distributing Agent will hold the dividends,
uninvested, until such shares of Parent Common Stock are distributed to former
holders of Company Common Stock pursuant to this Agreement, at which time the
dividends which have been paid with regard to the shares of Parent Common Stock
which are being distributed will be paid, without interest, to the persons to
whom the shares of Parent Common Stock are being distributed.
(c) While the Distributing Agent is holding cash provided by Parent under
Section 1.8(a), the Distributing Agent will invest the funds, as directed by
Parent, in obligations of or guaranteed by the United States of America or
obligations of an agency of the United States of America which are backed by the
full faith and credit of the United States of America, in commercial paper
obligations rated P-1 or A-1 or better by Moody's Investors Services Inc. or
Standard & Poors' Rating Services, a division of The McGraw-Hill Companies
("S&P"), or in deposit accounts, certificates of deposit or banker's acceptances
of, commercial banks with capital, surplus and undivided profits aggregating
more than $200 million (based on the most recent financial statements of the
banks which are then publicly available at the Securities and Exchange
Commission (the "SEC") or otherwise).
(d) Promptly after the Effective Time, the Surviving Corporation will cause
the Distributing Agent to mail to each person who was a record holder of Company
Common Stock at the Effective Time a form of letter of transmittal for use in
effecting the surrender of stock certificates representing Company Common Stock
("Certificates") in order to receive the Merger Consideration. When the
Distributing Agent receives a Certificate, together with a properly completed
and executed letter of transmittal and any other required documents, the
Distributing Agent will distribute to the holder of the Certificate, or as
otherwise directed in the letter of transmittal, the Merger Consideration with
regard to the shares represented by the Certificate, and the Certificate will be
cancelled. No interest will be paid or accrued on any cash payable upon the
surrender of a Certificate. If the Merger Consideration is to be issued to a
person other than the person in whose name a surrendered Certificate is
registered, the surrendered Certificate must be properly endorsed or otherwise
be in proper form for transfer, and the person who surrenders the Certificate
must provide funds for payment of any transfer or other Taxes (as defined
herein) required by reason of the distribution to a person other than the
registered holder of the surrendered Certificate or establish to the
satisfaction of Parent that the Tax has been paid. After the Effective Time, a
Certificate which has not been surrendered will represent only the right to
receive the Merger Consideration (including any dividends theretofore paid after
the Effective Time with regard to shares of Parent Common Stock included in the
Merger Consideration), without any interest.
(e) If a Certificate has 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 Parent, the posting by such Person of a
bond in such amount as Parent may direct as indemnity against any claim that may
be made against it with respect to such Certificate, Parent shall issue in
exchange for such lost, stolen or destroyed Certificate the Merger Consideration
deliverable pursuant to this Agreement in respect of the shares represented by
the Certificate.
(f) At any time which is more than six months after the Effective Time,
Parent may require the Distributing Agent to deliver to it any Parent Common
Stock and any funds which had been made available to the Distributing Agent and
have not been disbursed to former holders of Company Common Stock (including,
without limitation, interest and other income received by the Distributing Agent
in respect of the funds made
A-3
<PAGE> 105
available to it), and after the Parent Common Stock and funds have been
delivered to Parent, former shareholders of the Company must look to Parent for
the Merger Consideration. None of Parent, the Surviving Corporation or the
Distributing Agent will be liable to any former shareholder of the Company for
any Merger Consideration which is delivered to a public official pursuant to any
abandoned property, escheat or similar law.
(g) After the Effective Time, the Surviving Corporation will not record any
transfers of shares of Company Common Stock on the stock transfer books of the
Company or the Surviving Corporation, and the stock ledger of the Company will
be closed. If, after the Effective Time, Certificates are presented for
transfer, they will be cancelled and treated as having been surrendered for the
Merger Consideration.
1.9 Options and Warrants. At the Effective Time, all Company Stock Options
(as defined herein) which are then outstanding and unexercised shall cease to
represent a right to acquire shares of Company Common Stock and shall be
converted into options to purchase shares of Parent Common Stock on the same
terms and conditions under the applicable Company Stock Plan (as defined herein)
and the stock option agreement by which such Company Stock Option is evidenced.
From and after the Effective Time, (a) the number of shares of Parent Common
Stock purchasable upon exercise of such Company Stock Option shall equal the
product (rounded to the nearest share) of (1) the number of shares of Company
Common Stock that were subject to such Company Stock Option immediately prior to
the Effective Time and (2) the Exchange Ratio, and (b) the per share exercise
price under each such Company Stock Option shall be equal to the result (rounded
to the nearest cent) of dividing the per share exercise price of each such
Company Stock Option by the Exchange Ratio. Notwithstanding the foregoing, each
Company Stock Option that is intended to be an "incentive stock option" (as
defined in Section 422 of the Code) shall be adjusted in accordance with the
requirements of Section 424 of the Code. As used herein, "Company Stock Options"
shall mean each option to purchase shares of Company Common Stock under the
stock-based compensation and incentive plans of the Company set forth in Exhibit
1.9 (the "Company Stock Plans").
1.10 Adjustment of Exchange Ratio. If, after the date of this Agreement,
but prior to the Effective Time, the shares of Parent Common Stock issued and
outstanding shall, through a reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other similar change
(regardless of the method of effectuation of any of the foregoing, including by
way of a merger or otherwise) in the capitalization of Parent, increase or
decrease in number or be changed into or exchanged for a different kind or
number of securities, then an appropriate and proportionate adjustment shall be
made to the Exchange Ratio.
ARTICLE II
EFFECTIVE TIME OF MERGER
2.1 Date of the Merger. The day on which the Merger is to take place (the
"Merger Date") will be the third business day after the first day on which all
the conditions in Article V (other than conditions which are to be fulfilled on
the Merger Date) have been fulfilled or waived. The Merger Date may be changed
with the consent of the Company and Parent.
2.2 Execution of Certificate of Merger. Not later than 3:00 P.M. New York
City time on the day before the Merger Date, (a) Sub and the Company will each
execute a certificate of the merger (the "Certificate of Merger") which complies
with the requirements of Section 904 of the NYBCL, and deliver it to Wachtell,
Lipton, Rosen & Katz for filing with the Department of State of the State of New
York on behalf of the parties. Wachtell, Lipton, Rosen & Katz will be instructed
that, if it is notified on the Merger Date that all the conditions in Article V
have been fulfilled or waived, it is to cause the Certificate of Merger to be
filed on behalf of the parties with the Department of State of the State of New
York on the Merger Date or as soon after that date as is practicable.
2.3 Effective Time of the Merger. The Merger will become effective at
11:59 P.M. Albany, New York time on the day when the Certificate of Merger is
filed with the Department of State of the State of New York (that being the
"Effective Time").
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company represents
and warrants to Parent and Sub as follows:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York and has all
corporate powers and all Permits (as defined herein) of Governmental
Entities (as defined herein) required to carry on its business as now
conducted. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where such
qualification is necessary, other than jurisdictions in which the failure
to qualify, individually or in aggregate, would not be reasonably expected
to have a Material Adverse Effect (as defined herein) on the Company. The
Company has heretofore delivered to Parent true and complete copies of the
Certificate of Incorporation and By-laws of the Company as currently in
effect.
(b) The Company has all corporate power and authority necessary to
enable it to enter into this Agreement and carry out the transactions
contemplated by this Agreement. All corporate actions necessary to
authorize the Company to enter into this Agreement and carry out the
transactions contemplated by it, other than approval of the Merger and
adoption of this Agreement by the shareholders of the Company, have been
taken. This Agreement has been duly executed by the Company and is a valid
and binding agreement of the Company, enforceable against the Company in
accordance with its terms. The Company's Board of Directors has determined
that the Merger is fair to the Company's shareholders and has voted to
recommend to the Company's shareholders that they vote in favor of adopting
this Agreement and approving the Merger.
(c) Except as disclosed by the Company on Exhibit 3.1-C, neither the
execution, delivery and performance of this Agreement or of any document to
be delivered in accordance with this Agreement nor the consummation of the
transactions contemplated by this Agreement or by any document to be
delivered in accordance with this Agreement by the Company will (i)
contravene, violate, or result in a breach of, or (ii) require any consent
or other action by any person, give rise to any right of termination,
cancellation or acceleration of any right or obligation of the Company or
any of its subsidiaries (as defined in Section 3.1(e)) or to a loss of any
benefit to which the Company or any of its subsidiaries is entitled or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, the Certificate of Incorporation
or By-Laws of the Company, any material agreement or material instrument to
which the Company or any subsidiary of the Company is a party or by which
any of them is bound or any Permit or other similar authorization
affecting, or relating in any way to, the assets or business of the Company
or any of its subsidiaries, any law, or any order, rule or regulation of
any court, arbitrator or other judicial body, governmental agency or
instrumentality or other regulatory organization (each, a "Governmental
Entity") having jurisdiction over the Company or any of its subsidiaries or
result in the creation or imposition of any Lien on any asset of the
Company or any of its subsidiaries. As used herein, "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.
(d) Except as disclosed by the Company on Exhibit 3.1-D, no Permits of
Governmental Entities, or other governmental action, other than the
expiration or termination of waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), if any, are
required to permit the Company to fulfill all its obligations under this
Agreement or to consummate the transactions contemplated hereby.
(e) Each of the corporations and other entities of which the Company
owns, directly or indirectly, 50% or more of the capital stock, partnership
or membership interests or other equity, or possesses the power, directly
or indirectly, to elect a majority of the members of the board of directors
or other governing body of such corporation or other entity (each such
corporation or other entity with respect to a party hereto being a
"subsidiary" of that party hereto (provided, that for all purposes of this
Agreement
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unless expressly provided otherwise herein, each of Credit-Based Asset
Servicing and Securitization LLC ("C-BASS") and Sherman Financial Group LLC
("Sherman") shall be deemed to be subsidiaries of the Company)) has been
duly authorized, and is validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization, and is qualified
to do business as a foreign corporation in each jurisdiction in which it is
required to be qualified, except jurisdictions in which the failure to
qualify, individually or in the aggregate, would not be reasonably expected
to have a Material Adverse Effect on the Company. As used herein, "Material
Adverse Effect" with respect to a party hereto means a material adverse
effect (i) on the business, properties, assets, liabilities (including
contingent liabilities), condition (financial or otherwise), results of
operations or prospects of such party and its subsidiaries, taken as a
whole, or (ii) on the ability of such party timely to perform its
obligations under, or to consummate the transactions contemplated by, this
Agreement; provided, however, that changes or events set forth on Exhibit
3.1-E shall not constitute a Material Adverse Effect on the Company.
(f) The only authorized stock of the Company is 100,000,000 shares of
Company Common Stock and 5,000,000 shares of preferred stock. As of the
close of business on November 10, 2000, the only outstanding stock of the
Company was 38,223,467 shares of Company Common Stock. All the outstanding
shares of Company Common Stock have been duly authorized and issued and are
fully paid and non-assessable. Except as shown on Exhibit 3.1-F, the
Company has not issued any options, warrants or convertible or exchangeable
securities, and is not a party to any other agreements, which require, or
upon the passage of time, the payment of money or the occurrence of any
other event may require, the Company to issue or sell any of its stock.
Except as set forth in this Section 3.1(f) and except for changes since the
close of business on November 10, 2000, resulting from the exercise of
Company Stock Options outstanding on such date, there are no outstanding
(i) shares of capital stock or voting securities of the Company, (ii)
securities of the Company or any of its subsidiaries convertible into or
exchangeable for shares of capital stock or voting securities of the
Company or (iii) options or other rights to acquire from the Company or any
of its subsidiaries or other obligations of the Company to issue, any
capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company. Except
as disclosed on Exhibit 3.1-F, there are no outstanding obligations of the
Company or any of its subsidiaries to repurchase, redeem or otherwise
acquire or register for sale or offering any securities referred to in
clause (i), (ii) or (iii) above.
(g) Except as shown on Exhibit 3.1-G, (i) all the shares of stock or
other equity interests owned by the Company or a subsidiary of the Company
of each of the Company's subsidiaries are (to the extent such concept is
applicable) duly authorized, validly issued, fully paid, and
non-assessable, are owned by the Company or a subsidiary of the Company
free and clear of any Liens and are not subject to any preemptive rights,
and (ii) neither the Company nor any of its subsidiaries has issued any
options, warrants or convertible or exchangeable securities, or is a party
to any other agreements, which require, or upon the passage of time, the
payment of money or the occurrence of any other event may require, the
Company or any subsidiary to issue or sell any stock or other equity
interests in any of the Company's subsidiaries, and there are no
registration covenants or transfer or voting restrictions with respect to
outstanding securities of any of the Company's subsidiaries. Exhibit 3.1-G
sets forth a complete and correct list of all subsidiaries of the Company.
Except as disclosed by the Company in Exhibit 3.1-G, neither the Company
nor any of its subsidiaries holds any interest in a partnership or joint
venture of any kind.
(h) Since January 1, 1997, the Company has filed with the SEC all
forms, statements, reports and documents it has been required to file under
the Securities Act of 1933, as amended (the "Securities Act"), the
Securities Exchange Act of 1934 as amended (the "Exchange Act") or the
rules and regulations promulgated thereunder (collectively, the "Company
Reports"). The Company Reports, including the documents incorporated by
reference in each of them, each contained all the information required to
be included in it and, when it was filed and as of the date of such Company
Report, did not contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made in it,
in light of the circumstances under which they were made, not misleading
and
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complied as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act.
(i) (1) The Company's Annual Report on Form 10-K for the year ended
December 31, 1999 (as amended by the Form 10-K/A filed on September 20,
2000, the "Company 10-K") and its Report on Form 10-Q for the period ended
March 31, 2000 (as amended by the Form 10-Q/A filed on September 20, 2000,
the "Company March 10-Q") and its Report on Form 10-Q for the period ended
June 30, 2000 (as amended by the Form 10-Q/A filed on September 20, 2000,
the "Company June 10-Q") which the Company filed with the SEC, including
the documents incorporated by reference in each of them, each contained all
the information required to be included in it and, when it was filed, did
not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made in it, in
light of the circumstances under which they were made, not misleading and
complied as to form in all material respects with the applicable
requirements of the Exchange Act. Without limiting Section 3.1(h), the
financial statements included in the Company 10-K and the Company June 10-Q
all were prepared in accordance with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis (except to the
extent that unaudited interim financial information included in the Company
Reports does not contain notes and is subject to normal year end
adjustments) and present fairly the consolidated financial condition and
the consolidated results of operations and cash flows of the Company and
its subsidiaries at the dates, and for the periods, to which they relate.
Except as disclosed by the Company on Exhibit 3.1-I(1), at the date of this
Agreement, the Company has not filed any reports with the SEC with regard
to any period which ended, or any event which occurred after June 30, 2000.
The estimates of the Company's revenues and net income for the quarter
ended September 30, 2000, which were disclosed by the Company to Parent as
of the date hereof, are substantially similar to the Company's actual
revenues and net income for the quarter ended September 30, 2000.
(2) The audited balance sheets of the Company's insurance subsidiaries
as of December 31, 1999, 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, 1999 (the
"Insurance Subsidiary Annual Statements") filed with the insurance
regulatory authorities in their respective jurisdictions of domicile
(collectively, the "Regulators"), copies of which have been delivered to
Parent, 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.
As used herein, "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 the Company's insurance subsidiaries
and applied in a consistent manner throughout the periods involved. The
other information contained in the Insurance Subsidiary Annual Statements
fairly presents in all material respects the information required to be
contained therein in conformity with applicable requirements. The balance
sheets of the Company and its subsidiaries at dates after December 31,
1999, and the related statements of operations and statements of cash
flows, which have been filed with Regulators, copies of which have been
delivered to Parent, fairly present in all material respects the applicable
insurance subsidiaries' respective statutory financial conditions as of
such dates and the results of their respective operations and cash flows
for the periods then ended in conformity with SAP consistently applied.
(j) Except as disclosed by the Company in the Company June 10-Q or in
Exhibit 3.1-J, since December 31, 1999, (i) the Company and its
subsidiaries (other than insignificant subsidiaries not involved in the
insurance business) have conducted their respective businesses only in the
ordinary course and a manner consistent with past practice and (ii) nothing
has occurred and there has been no development or state of circumstances
which, individually or in aggregate, has had or would be reasonably
expected to have a Material Adverse Effect on the Company.
(k) The assets and properties owned, leased or licensed by the Company
and its subsidiaries constitute, in the aggregate, all the assets
(including Intellectual Property (as defined herein)) necessary to the
conduct of their businesses and operations as they currently are being
conducted. All such assets
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and properties (other than as Parent and the Company may mutually agree)
will be owned, leased or licensed by the Company 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 the Company and its subsidiaries prior to the Effective
Time.
(l) The Company and its subsidiaries have at all times complied, and
currently are complying, with all, and none of them is under investigation
with respect to or has been threatened to be charged with or given notice
of any violation of any, applicable Federal, state, local and foreign laws,
regulations, rules, judgments, injunctions or decrees, except failures to
comply which would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on the Company.
(m) (1) The Company and its subsidiaries have all licenses, consents,
authorizations, franchises, waivers, approvals, certificates, filings and
permits ("Permits") which are required to enable them to own and conduct
their businesses as they currently are being conducted, and all such
Permits are in full force and effect, except as would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse
Effect on the Company. Except as would not, individually or in the
aggregate, be reasonably expected to have a Material Adverse Effect on the
Company, no material violations exist in respect of any Permit of the
Company and its subsidiaries, and no proceeding or investigation is
pending, or to the best of the Company's knowledge threatened, that would
be reasonably likely to result in the suspension, revocation, limitation or
restriction of any Permit and, to the best of the Company's knowledge,
there is no reasonable basis for the assertion of any such material
violation or the institution of any such proceeding.
(2) All insurance policies issued by any subsidiary of the Company
which are 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.
(3) The Company and each subsidiary of the Company has filed all
material reports, statements, documents, registrations, filings or
submissions required to be filed by the Company or any subsidiary of the
Company, respectively, with any applicable Federal, state or local
regulatory authorities, including 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 the Company or any subsidiary of the Company 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 the Company.
(n) With the possible exception of Tax Returns (as defined herein) of
subsidiaries, which Tax Returns would not be material, the Company and each
of its subsidiaries has filed when due (taking account of extensions) all
Tax Returns which it has been required to file and has paid all Taxes shown
on such Tax Returns to be due. Such Tax Returns are complete and accurate
in all material respects. Such Tax Returns accurately reflect all Taxes
required to have been paid, except to the extent of items which may be
disputed by applicable taxing authorities but for which there is
substantial authority to support the position taken by the Company or its
subsidiary and which have been adequately reserved against in accordance
with GAAP on the consolidated balance sheet at June 30, 2000 included in
the Company June 10-Q. Except as shown on Exhibit 3.1-N, (i) no extension
of time given by the Company or any of its subsidiaries for completion of
the audit of any of its Tax Returns or for the assessment or collection of
any Tax has been requested or is in effect, (ii) there are no tax liens
against the Company or any of its subsidiaries or any of their assets,
except with respect to current Taxes not yet due, (iii) no Federal, state,
or local audits or other administrative proceedings or court proceedings
with regard to Taxes are presently
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pending or threatened in writing with regard to the Company or any of its
subsidiaries, (iv) neither the Company nor any subsidiary of the Company is
a party to or is bound by any agreement or arrangement providing for the
allocation or sharing of Taxes, (v) neither the Company nor any subsidiary
of the Company has participated in or cooperated with any international
boycott as that term is used in Section 999 of the Code, (vi) neither the
Company nor any subsidiary of the Company has filed a consent pursuant to
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as that term is defined
in Section 341(f)(4) of the Code) owned by the Company or any subsidiary of
the Company, (vii) no issues have been raised with the Company or any of
its subsidiaries by any taxing authority in connection with any audit or
examination of its Tax Returns, (viii) neither the Company nor any of its
subsidiaries has any liability for the Taxes of any person (other than the
Company and subsidiaries of the Company that are members of the affiliated
group of corporations (within the meaning of Section 1504 of the Code) of
which the Company is the common parent) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local or foreign law), as
successor or transferee, by contract or otherwise, (ix) within the past
five years, neither the Company nor any of its subsidiaries has been a
"distributing corporation" or a "controlled corporation" in a distribution
intended to qualify under Section 355(a) of the Code and (x) the Company is
not aware of any fact or circumstance that would reasonably be expected to
prevent the Merger from qualifying as a reorganization within the meaning
of Section 368(a) of the Code. For the purposes of this Agreement, "Taxes"
means all taxes (including withholding taxes), assessments, levies and
other like governmental charges, and any related interest or penalties. As
used herein, "Tax Return" means any report, return or other information
required to be supplied to a taxing authority in connection with Taxes.
(o) (i) The Company and its subsidiaries have all material
environmental Permits which are necessary to enable them to conduct their
businesses as they currently are being conducted without violating any
Environmental Law (as defined herein), which Permits are in full force and
effect, (ii) except as shown on Exhibit 3.1-O, neither the Company nor any
subsidiary has received any notice of material noncompliance or material
liability under any Environmental Law, (iii) the Company and its
subsidiaries are, and have been, in compliance in all material respects
with all Environmental Laws and (iv) neither the Company nor any subsidiary
is subject to any order of a Governmental Entity requiring the Company or
any subsidiary to take, or refrain from taking, any actions in order to
comply with any Environmental Law and no action or proceeding seeking such
an order or other action, claim, suit, proceeding, investigation or review
related to any Environmental Law is pending or, insofar as any officer of
the Company is aware, threatened against the Company. As used herein,
"Environmental Law" means any Federal, state, local or foreign law, rule,
regulation, guideline or other legally enforceable requirement of a
Governmental Entity relating to protection of the environment, to
environmental conditions which affect human health or safety or to
pollutants, contaminants, wastes or chemicals or any toxic, radioactive,
ignitable, corrosive, reactive or otherwise hazardous substances, wastes or
materials.
(p) None of the software, databases, computer firmware, computer
hardware (whether general or special purpose), or other similar or related
items of automated, computerized, and/or software system(s) that are used
or relied on by the Company or by any of its subsidiaries in the conduct of
their respective businesses malfunctioned, ceased to function, generated
incorrect data, or provided incorrect results when processing, providing
and/or receiving date-related data with respect to dates after December 31,
1999 due to the change from the twentieth to the twenty-first century, and
the Company has no reason to expect any such effects in the future.
(q) Except as shown on Exhibit 3.1-Q, there are no contracts,
agreements or other arrangements which could result in the payment by the
Company or by any subsidiary of an "Excess Parachute Payment" as that term
is used in Section 280G of the Code as a result of the transactions which
are the subject of this Agreement (either alone or in conjunction with any
other event).
(r) Except as shown on Exhibit 3.1-R, there are no material
liabilities of the Company or any subsidiary of the Company of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable
or otherwise, and there is no existing condition, situation or set of
circumstances which
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could reasonably be expected to result in such a liability, other than
liabilities provided for in the consolidated balance sheet of the Company
as of June 30, 2000 as set forth in the Company June 10-Q, contingent
liabilities under insurance policies in excess of the reserves required by
GAAP, and liabilities incurred since the date of such balance sheet in the
ordinary course of business, which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company; and liabilities or obligations under this Agreement.
(s) (1) Except as disclosed by the Company on Exhibit 3.1-S(1),
neither the Company 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 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 Company
Reports; (iii) any agreement which would prohibit or materially delay the
consummation of the Merger or any of the transactions contemplated by this
Agreement; (iv) 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 $500,000 (other than agreements
entered into by the Company or its subsidiaries after the date hereof in
accordance with this Agreement in the ordinary course of their businesses
(including insurance, reinsurance and surety obligations incurred by the
Company's insurance subsidiaries)); (v) any material license, franchise or
similar agreement necessary for the operation of the business of the
Company and its subsidiaries, taken as a whole, as it is operated as of the
date hereof; (vi) any agreement that restricts or prohibits the Company or
any subsidiary or affiliate of the Company 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 geographical area; (vii) any ceded reinsurance
agreement applicable to insurance in force written by any subsidiary of the
Company; (viii) any agreement containing "change in control" or similar
provisions relating to a change in control of the Company or any of its
subsidiaries; (ix) any "stop loss" agreement, other than those entered into
in the ordinary course of business consistent with past practice; (x) any
agreement (other than insurance policies or other similar agreements issued
by any subsidiary of the Company in the ordinary course of business)
pursuant to which the Company or any subsidiary of the Company is obligated
to indemnify any other person; (xi) any agreement (other than any option
agreement under a Company Stock Plan) with any affiliate of the Company
(other than a subsidiary of the Company) or any director, officer or
employee of the Company or any of its subsidiaries or affiliates; (xii) any
agreement relating to any joint venture or similar arrangement; (xiii) any
other agreement that is, in the Company's judgment, material to the
business or operations of the Company and its subsidiaries, taken as a
whole, or (xiv) any guaranty of any of the foregoing. As used in this
Section 3.1(s), "agreement" means any agreement, contract, arrangement,
commitment or understanding (whether written or oral).
(2) The Company has heretofore furnished or made available to Parent
complete and correct copies (or, if oral, accurate written summaries) of
the items listed in Exhibit 3.1-S(1), each as amended or modified to the
date hereof, including any waivers with respect thereto (the "Company
Significant Agreements"). Except as specifically disclosed therein: (i)
each of the Company Significant Agreements is valid and binding on the
Company or its subsidiaries, as applicable, and in full force and effect;
(ii) the Company 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 Company Significant Agreement; (iii)
neither the Company 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 Company Significant Agreement, except in
the case of clauses (ii) and (iii) above, such matters as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company. Set forth on Exhibit 3.1-S(2) is a
description of any material changes as of the date hereof to the amount and
terms of the indebtedness of the Company and its subsidiaries from that
described in the financial statement footnotes in the Company 10-K (or, as
to C-BASS and Sherman, from that shown on Exhibit 3.1-S(2)).
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(3) All reinsurance and coinsurance treaties or agreements, including
retrocessional agreements, to which the Company or any insurance subsidiary
of the Company is a party or under which the Company or any such insurance
subsidiary has any existing rights, obligations or liabilities are in full
force and effect, except for such treaties or agreements as to which the
failure to be in full force and effect, individually or in the aggregate,
would not be reasonably likely to have a Material Adverse Effect on the
Company. Except as disclosed by the Company on Exhibit 3.1-S(3)(A), neither
the Company nor any insurance subsidiary of the Company, nor, to the best
of the Company's knowledge, any other party to a reinsurance or coinsurance
treaty or agreement to which the Company or any insurance subsidiary of the
Company is a party, is in default in any material respect as to any
provision thereof, and no such agreement contains any provision providing
that the other party thereto may (whether with notice, lapse of time or
both) terminate such agreement solely by reason of the transactions
contemplated by this Agreement. The Company has not received any notice to
the effect that the financial condition of any other party to any such
agreement is impaired with the result that a default thereunder may
reasonably be anticipated, whether or not such default may be cured by the
operation of any offset clause in such agreement. Except as disclosed by
the Company on Exhibit 3.1-S(3)(A), as of the date hereof, no insurer or
reinsurer or group of affiliated insurers or reinsurers accounted for the
ceding to the Company and the insurance subsidiaries of the Company, or the
ceding by the Company and the insurance subsidiaries of the Company, of
insurance or reinsurance business in an aggregate amount equal to five
percent or more of the consolidated gross premiums written by the Company
and the insurance subsidiaries of the Company for the year ended December
31, 1999. Except for each of MBIA Inc. and its affiliates ("MBIA"), FGIC
(as defined herein) and Connie Lee Insurance Company, in each case as
disclosed in Exhibit 3.1-S(3)(B), no ceding company has any rights under
any circumstances whatsoever (other than as a result of future downgrades
in financial ratings) to terminate on a cut-off basis any reinsurance
contract it has entered into with an insurance subsidiary of the Company or
will obtain any such rights as a result of the transactions contemplated by
this Agreement, provided that nothing in this sentence shall affect
Parent's rights under Section 6.1(i).
(t) Except as shown on Exhibit 3.1-T or 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 the Company or any
subsidiary of the Company, there is no action, suit, investigation or
proceeding pending against, or to the knowledge of the Company threatened
against or affecting, the Company or any subsidiary of the Company or any
of their respective properties before any Governmental Entity which is
reasonably likely to result in damages individually in excess of $500,000
or 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
the Company threatened against or affecting, the Company or any subsidiary
of the Company or any of their respective properties before any
Governmental Entity which would reasonably be expected to prevent, enjoin,
alter or materially delay the transactions contemplated hereby. Neither the
Company nor any subsidiary of the Company 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.
(u) (1) 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 Insurance Subsidiary 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 any financial statements filed with Regulators with regard
to dates or periods after December 31, 1999 was reviewed by an independent
actuary to the extent required by applicable state insurance laws and
regulations. Each insurance subsidiary of the Company owns assets that
qualify as admitted assets under the insurance laws, rules and regulations
of the jurisdiction of domicile of such subsidiary in an amount equal to
the sum of all the reserves and liability amounts and the minimum statutory
capital and surplus as required by the insurance laws, rules and
regulations of the jurisdiction of domicile of such subsidiary. The
reserves set forth in the Insurance Subsidiary Annual Statements for the
years indicated for payment of insurance policy benefits,
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losses, claims and expenses were considered by management of the Company to
be adequate as of the date of such statements to cover the total amount of
all reasonably anticipated insurance liabilities of the insurance company
subsidiaries of the Company.
(2) Except as shown in Exhibit 3.1-U(2), each of the insurance
subsidiaries of the Company is entitled to take full credit in its
statutory financial statements pursuant to applicable insurance laws for
ceded reinsurance under all ceded reinsurance agreements in effect on the
date hereof to which any insurance subsidiary is a ceding party and under
which there is liability of either party to the agreement (collectively the
"Company Existing Reinsurance Agreements"), and except as disclosed by the
Company in Exhibit 3.1-U(2), there is no claim under any Company Existing
Reinsurance Agreement that is disputed by any other party to such Company
Existing Reinsurance Agreement.
(v) Other than with respect to Credit2B.com Inc., a Delaware
corporation ("Credit2B") as shown on Exhibit 3.1-V or in the ordinary
course of its portfolio investment activities or loss mitigation
activities, neither the Company 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 with respect
to any individual person or $1,000,000 in the aggregate.
(w) (1) Exhibit 3.1-W(1) includes a complete list of each employee
benefit plan, program, policy, practice, or other arrangement providing
benefits to any current or former employee, officer or director of the
Company or any of its subsidiaries or any beneficiary or dependent thereof
that is sponsored or maintained by the Company or any of its subsidiaries
or to which the Company or any of its subsidiaries contributes or is
obligated to contribute, whether formal or informal, written or not
written, including, without limitation, any employee welfare benefit plan
within the meaning of Section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), any employee pension benefit
plan within the meaning of Section 3(2) of ERISA (whether or not such plan
is subject to ERISA) and any bonus, incentive, deferred compensation,
vacation, stock purchase, stock option, severance, employment, change in
control or fringe benefit plan, program or agreement under which the
Company or any of its subsidiaries provides or may be required to provide
benefits to any current or former employee, officer or director of the
Company or any of its subsidiaries or any beneficiary or dependent thereof
(each, an "Employee Benefit Plan"). Except as disclosed by the Company on
Exhibit 3.1-W(2), neither the Company nor any subsidiary is a party to any
agreement or arrangement providing for annual future compensation of
$500,000 or more with any officer, consultant, director or employee.
(2) With respect to each Employee Benefit Plan, the Company has
delivered or made available to Parent a true, correct and complete copy of:
(i) each writing constituting a part of such Employee Benefit Plan,
including, without limitation, all plan documents, employee communications,
benefit schedules, trust agreements, and insurance contracts, other funding
vehicles and any amendments thereto (including, without limitation, the
Vice President Agreement Amendments); (ii) the most recent Annual Report
(Form 5500 Series) and accompanying schedule, if any; (iii) the current
summary plan description and any material modifications thereto, if any (in
each case, whether or not required to be furnished under ERISA); (iv) the
most recent annual financial report, if any; (v) the most recent actuarial
report, if any; and (vi) the most recent determination letter from the
Internal Revenue Service (the "IRS"), if any, or the pending determination
letter request submitted to the IRS for the Qualified Plans listed on
Exhibit 3.1-W(3). The Company has also delivered or made available to
Parent a true, correct and complete copy of each handbook, manual or
similar document, as currently in effect, which is distributed by the
Company or any subsidiary to its employees which lists or describes the
Employee Benefit Plans in which they are, or are entitled to be,
participants, which documents are consistent with the materials provided or
made available to Parent pursuant to the preceding sentence. Except as
specifically provided in the foregoing documents delivered or made
available to Parent, there are no amendments to any Employee Benefit Plan
that have been adopted or approved, nor has the Company or any of its
subsidiaries undertaken to make any such amendments or to adopt or approve
any new Employee Benefit Plan.
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(3) Exhibit 3.1-W(3) identifies each Employee Benefit Plan that is
intended to be a "qualified plan" within the meaning of Section 401(a) of
the Code (each, a "Qualified Plan"). The IRS has issued, or (in the case of
Qualified Plans listed on Exhibit 3.1-W(3)) there is a pending request for,
a favorable determination letter with respect to each Qualified Plan and
the related trust that has not been revoked, and there are no circumstances
and no events have occurred that could adversely affect the qualified
status of any Qualified Plan or the related trust. No Employee Benefit Plan
is intended to meet the requirements of Code Section 501(c)(9).
(4) All contributions required to be made to any Employee Benefit Plan
by applicable law or regulation or by any plan document or other
contractual undertaking, and all premiums due or payable with respect to
insurance policies funding any Employee Benefit Plan, for any period
through the date hereof have been timely made or paid in full or, to the
extent not required to be made or paid on or before the date hereof or to
the extent any Employee Benefit Plan is unfunded, have been fully reflected
on the financial statements included in the Company June 10-Q and/or the
financial statements of C-BASS and/or Sherman previously provided to Parent
or have been otherwise disclosed to Parent. Each Employee Benefit Plan that
is an employee welfare benefit plan under Section 3(1) of ERISA is either
(i) funded through an insurance company contract and is not a "welfare
benefit fund" within the meaning of Section 419 of the Code or (ii)
unfunded.
(5) With respect to each Employee Benefit Plan, the Company and its
subsidiaries have complied, and are now in compliance, in all material
respects, with all provisions of ERISA, the Code and all other laws and
regulations applicable to such Employee Benefit Plan and each Employee
Benefit Plan has been administered in all material respects in accordance
with its terms. There is not now, nor do any circumstances exist that could
give rise to, any requirement for the posting of security or the imposition
of any Lien on the assets of the Company or any of its subsidiaries with
respect to an Employee Benefit Plan under ERISA or the Code.
(6) With respect to each Employee Benefit Plan that is subject to
Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code: (i)
there does not exist any accumulated funding deficiency within the meaning
of Section 412 of the Code or Section 302 of ERISA, whether or not waived;
(ii) the fair market value of the assets of such Plan equals or exceeds the
actuarial present value of all accrued benefits under such Plan (whether or
not vested); (iii) no reportable event within the meaning of Section
4043(c) of ERISA for which the 30-day notice requirement has not been
waived has occurred, and the consummation of the transactions contemplated
by this agreement will not result in the occurrence of any such reportable
event; (iv) all premiums to the Pension Benefit Guaranty Corporation (the
"PBGC") have been timely paid in full; (v) no liability (other than for
premiums to the PBGC) under Title IV of ERISA has been or is expected to be
incurred by the Company or any of its subsidiaries; and (vi) the PBGC has
not instituted proceedings to terminate such Employee Benefit Plan and, to
the best of the Company's knowledge, no condition exists that presents a
risk that such proceedings will be instituted or which would constitute
grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any such Plan.
(7) (i) Except as set forth in Exhibit 3.1-W(7), no Employee Benefit
Plan is a "multiemployer plan" within the meaning of Section 4001(a)(3) of
ERISA (a "Multiemployer Plan") or a plan that has two or more contributing
sponsors at least two of whom are not under common control, within the
meaning of Section 4063 of ERISA (a "Multiple Employer Plan"); (ii) none of
the Company and its subsidiaries nor any of their respective ERISA
Affiliates (as defined herein) has, at any time during the last six years,
contributed to or been obligated to contribute to any Multiemployer Plan or
Multiple Employer Plan; and (iii) none of the Company and its subsidiaries
nor any ERISA Affiliates has incurred any liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer
Plan, as those terms are defined in Part I of Subtitle E of Title IV of
ERISA, that has not been satisfied in full.
(8) There does not now exist, nor do any circumstances exist that
could result in, any liability (i) under Title IV of ERISA, (ii) under
section 302 of ERISA, (iii) under sections 412 and 4971 of the
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Code, (iv) as a result of a failure to comply with the continuation
coverage requirements of section 601 et seq. of ERISA and section 4980B of
the Code, or (v) under corresponding or similar provisions of foreign laws
or regulations that would be a liability of the Company or any of its
subsidiaries following the Closing. Without limiting the generality of the
foregoing, neither the Company nor any of its subsidiaries, nor any of
their respective ERISA Affiliates, has engaged in any transaction described
in Section 4069 or Section 4204 or 4212 of ERISA.
(9) Exhibit 3.1-W(9) sets forth (i) an accurate and complete
description of each provision of any Employee Benefit Plan under which the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby could (either alone or in conjunction with
any other event) result in, cause the accelerated vesting, funding or
delivery of, or increase the amount or value of, any payment or benefit to
any employee, officer or director of the Company or any of its
subsidiaries, or could limit the right of the Company or any of its
subsidiaries to amend, merge, terminate or receive a reversion of assets
from any Employee Benefit Plan or related trust, (ii) the name of each
"disqualified individual" within the meaning of Section 280G of the Code,
(iii) the name of each person who has a contractual right to receive an
excise tax gross-up and (iv) the maximum amount of the "excess parachute
payments" within the meaning of Section 280G of the Code that could become
payable by the Company and its subsidiaries in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby (either alone or in conjunction with any
other event).
(10) None of the Company and its subsidiaries nor any other person,
including any fiduciary, has engaged in any "prohibited transaction" (as
defined in Section 4975 of the Code or Section 406 of ERISA), which could
subject any of the Employee Benefit Plans or their related trusts, the
Company, any of its subsidiaries or any person that the Company or any of
its subsidiaries has an obligation to indemnify, to any material Tax or
penalty imposed under Section 4975 of the Code or Section 502 of ERISA.
(11) There are no pending or threatened claims (other than claims for
benefits in the ordinary course), lawsuits or arbitrations which have been
asserted or instituted, and to the best of the Company's knowledge, no set
of circumstances exists which may reasonably give rise to a claim or
lawsuit, against any of the Employee Benefit Plans, or against any
fiduciaries thereof with respect to their duties to the Plans or the assets
of any of the trusts under any of the Employee Benefit Plans, which could
reasonably be expected to result in any material liability of the Company
or any of its subsidiaries to the PBGC, the Department of Treasury, the
Department of Labor, any Multiemployer Plan, any Employee Benefit Plan or a
participant therein.
(12) The Company, its subsidiaries and each member of their respective
business enterprises have complied with the Worker Adjustment and
Retraining Notification Act and all similar state, local and foreign laws
(collectively, "WARN") and the financial statements of the Company and each
of its subsidiaries included in the Company Reports reflect adequate
accruals for all current and expected liabilities (including pay in lieu of
notice) under WARN.
(13) All Employee Benefit Plans subject to the laws of any
jurisdiction outside of the United States (i) have been maintained in all
material respects in accordance with all applicable requirements, (ii) if
they are intended to qualify for special tax treatment, meet all
requirements for such treatment, and (iii) if they are intended to be
funded and/or book-reserved are fully funded and/or book-reserved, as
appropriate, based upon reasonable actuarial assumptions.
(14) As used herein, "ERISA Affiliate" means, with respect to any
entity, trade or business, any other entity, trade or business that is a
member of a group described in Section 414(b), (c), (m) or (o) of the Code
or Section 4001(b)(1) of ERISA that includes the first entity, trade or
business, or that is a member of the same "controlled group" as the first
entity, trade or business pursuant to Section 4001(a)(14) of ERISA.
(x) The Company 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
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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 the
Company and its subsidiaries does not infringe on or otherwise violate the
rights of any person; and, to the best of the Company's knowledge, no
person is challenging, infringing on or otherwise violating any right of
the Company or any subsidiary of the Company with respect to any
Intellectual Property owned by and/or licensed to the Company and its
subsidiaries. From and after the Effective Time, the Company 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 Intellectual Property used in the
conduct of their respective businesses and operations as currently
conducted in the same manner as such Intellectual Property has been used to
conduct such businesses and operations prior to the date hereof. As used
herein, "Intellectual Property" means 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 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 any
jurisdiction to limit the use or disclosure thereof by any person;
writings, software, computer code 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.
(y) To the best of the Company's knowledge, there are no
circumstances, and neither the Company nor its subsidiaries nor, to the
best of the Company's knowledge, any of its other affiliates has taken or
agreed to take any action, that would prevent the Merger from qualifying as
a reorganization within the meaning of Section 368(a) of the Code.
(z) The Board of Directors of the Company has duly 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
912 of the NYBCL. 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 the Company
or any of its subsidiaries is applicable to the Merger or the other
transactions contemplated hereby.
(aa) Since December 31, 1999, except as shown on Exhibit 3.1-AA(1),
there have been no transactions, agreements, arrangements or understandings
between the Company or its subsidiaries, on the one hand, and the Company's
affiliates (other than affiliates that are now and were at such time wholly
owned subsidiaries of the Company) 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. Except with respect to
Credit2B as set forth in Exhibit 3.1-AA(2), the Company is not obligated,
without its consent, to make any loan, advance or capital contributions to
or investments in any person, including C-BASS, Sherman or Credit2B.
(bb) Neither the Company nor any of its subsidiaries is an "investment
company" as defined under the Investment Company Act of 1940, as amended,
and neither the Company nor any of its subsidiaries sponsors any person
that is such an investment company.
(cc) The Board of Directors of the Company has received the opinion of
Morgan Stanley & Co. Incorporated, financial advisor to the Company, to the
effect that, as of the date of this Agreement, the Exchange Ratio is fair
from a financial point of view to the Company's shareholders.
(dd) (1) Each contract that is material to Singer's business to which
Singer (as defined herein) is a party (each, a "Singer Material Contract"
and collectively, the "Singer Material Contracts"), including all contracts
with respect to lottery, structured or viatical settlements or
securitizations related thereto, is
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a valid, binding and enforceable obligation of Singer. There is no default
under any Singer Material Contract by Singer or, to the Company's
knowledge, except as listed on Exhibit 3.1-DD, by any other party thereto,
and no event has occurred that with the lapse of time or the giving of
notice or both would constitute a default thereunder by Singer, or, to the
Company's knowledge, any other party, which default or event, individually
or in the aggregate, would reasonably be expected to have a Material
Adverse Effect on the Company. Except as listed on Exhibit 3.1-DD, as of
the date hereof, no party to any Singer Material Contract has given notice
to the Company or Singer or made a claim against the Company or Singer with
respect to any breach or default thereunder, which breach or default,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on the Company. Each Singer Material Contract,
together with any amendments thereto, has been disclosed to Parent, except
as set forth on Exhibit 3.1-DD. The enforceability of any Singer Material
Contract shall not be impaired by the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, and,
as of the date hereof, no Singer Material Contract requires that a
transaction of the kind contemplated by this Agreement receive the approval
of any party to such Singer Material Contract, except where such
impairments or failures to receive approvals, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect on the Company.
(2) Each Singer Material Contract is properly reflected on Singer's
servicing system as of the date hereof and the run-off model with respect
to Singer (the "Singer Run-Off Model") heretofore provided by the Company
to Parent properly reflects each Singer Material Contract, except to the
extent that the failure of any or all of the Singer Material Contracts
which require servicing of obligations to be properly reflected on Singer's
servicing system as of the date hereof and the failure of such Singer
Run-Off Model to properly reflect any or all of the Singer Material
Contracts to which the Singer Run-Off Model is relevant would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company.
(ee) This Agreement and each certificate or other instrument or
document furnished by or on behalf of the Company to Parent pursuant hereto
does not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated herein or therein or
necessary to make the statements contained herein or therein, in light of
circumstances under which they were made, not misleading.
3.2 Representations and Warranties of Parent and Sub. Each of Parent and
Sub represents and warrants to the Company as follows:
(a) Parent is a corporation duly organized, 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. Parent has
heretofore delivered to the Company true and complete copies of the
certificate of incorporation and bylaws of Parent as currently in effect.
Sub is a corporation duly organized, validly existing and in good standing
under the laws of the State of New York. Sub is a wholly owned subsidiary
of Parent.
(b) Each of Parent and Sub has all corporate power and authority
necessary to enable it to enter into this Agreement and carry out the
transactions contemplated by this Agreement. All corporate actions
necessary to authorize each of Parent and Sub to enter into this Agreement
and carry out the transactions contemplated by it, other than approval by
the shareholders of Parent, have been taken. This Agreement has been duly
executed by each of Parent and Sub and is a valid and binding agreement of
each of Parent and Sub, enforceable against each of Parent and Sub in
accordance with its terms. Parent's Board of Directors has determined that
the Merger is fair to Parent's shareholders and has voted to recommend to
Parent's shareholders that they vote in favor of adopting this Agreement
and approving the Merger.
(c) Neither the execution and delivery of this Agreement or of any
document to be delivered in accordance with this Agreement nor the
consummation of the transactions contemplated by this Agreement or by any
document to be delivered in accordance with this Agreement will contravene,
violate, result in a breach of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under,
the Certificate of Incorporation or By-Laws of either Parent or Sub, any
material agreement or material instrument to which either Parent or Sub or
any other subsidiary
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of Parent is a party or by which any of them is bound, any law, or any
order, rule or regulation of any Governmental Entity having jurisdiction
over Parent or any of its subsidiaries, including Sub.
(d) Except for any need to file any forms with or receive any Permits
of insurance regulatory authorities, no Permits of Governmental Entities,
or other governmental action, other than the expiration or termination of
waiting periods under the HSR Act, if any, and the Permits or actions
contemplated by Section 3.1(d), are required to permit each of Parent and
Sub to fulfill all its obligations under this Agreement.
(e) Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement. Sub has not, and at the
Effective Time will not have, engaged in any activities or incurred any
obligations or liabilities, except the activities relating to the
transactions contemplated by this Agreement and obligations and liabilities
incurred in connection with those activities and with the transactions
contemplated by this Agreement.
(f) Parent and each of its subsidiaries is qualified to do business as
a foreign corporation in each state in which it is required to be
qualified, except states in which the failure to qualify, in the aggregate,
would not have a Material Adverse Effect upon Parent.
(g) The only authorized stock of Parent is 100 million shares of
Parent Common Stock and 20 million shares of preferred stock, par value
$.001 per share. As of the close of business on November 10, 2000, the only
outstanding stock of Parent was 37,839,735 shares of Parent Common Stock
and 800,000 shares of $4.125 preferred stock, par value $.001 per share
(the "Parent Preferred Stock"). All the outstanding shares of Parent Common
Stock and Parent Preferred Stock have been duly authorized and issued and
are fully paid and non-assessable. Except as contemplated by this Agreement
and except for the Parent Shareholder Rights and not more than 6,500,000
options to acquire Parent Common Stock, as of the close of business on
November 10, 2000, Parent has not issued any options, warrants or
convertible or exchangeable securities, and is not a party to any other
agreements, which require, or upon the passage of time, the payment of
money or the occurrence of any other event may require, Parent to issue or
sell any of its stock.
(h) (i) Each of Parent's subsidiaries has been duly organized, and is
validly existing and in good standing under the laws of its state of
incorporation, (ii) all the shares of stock owned by Parent or a subsidiary
of Parent of each of Parent's subsidiaries are (to the extent such concept
is applicable) duly organized, validly issued, fully paid and
non-assessable, are owned by Parent or a subsidiary of Parent free and
clear of any Liens and are not subject to any preemptive rights, and (iii)
as of the date hereof, neither Parent nor any of its subsidiaries has
issued any options, warrants or convertible or exchangeable securities, or
is a party to any other agreements, which require, or upon the passage of
time, the payment of money or the occurrence of any other event may
require, Parent or any subsidiary to issue or sell any stock or other
equity interests in any of Parent's subsidiaries and there are no
registration covenants or transfer or voting restrictions with respect to
outstanding securities of any of Parent's subsidiaries.
(i) Since January 1, 1997, Parent has filed with the SEC all forms,
statements, reports and documents it has been required to file under the
Securities Act, the Exchange Act or the rules under them (collectively, the
"Parent Reports"). The Parent Reports, including the documents incorporated
by reference in each of them, each contained all the information required
to be included in it and, when it was filed and as of the date of such
Parent Report, did not contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
made in it, in light of the circumstances under which they were made, not
misleading and complied as to form in all material respects with the
applicable requirements of the Securities Act and the Exchange Act.
(j) (1) Parent's Annual Report on Form 10-K for the year ended
December 31, 1999 (the "Parent 10-K") and its Report on Form 10-Q for the
period ended March 31, 2000 (the "Parent March 10-Q") and its Report on
Form 10-Q for the period ended June 30, 2000 (the "Parent June 10-Q") which
Parent filed with the SEC, including the documents incorporated by
reference in each of them, each contained all the information required to
be included in it and, when it was filed, did
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not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made in it, in
light of the circumstances under which they were made, not misleading and
complied as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act. Without limiting
what is said in Section 3.2(i), the financial statements included in the
Parent 10-K and the Parent June 10-Q all were prepared in accordance with
GAAP applied on a consistent basis (except to the extent that unaudited
interim financial information included in the Parent Reports does not
contain notes and is subject to normal year end adjustments) and present
fairly the consolidated financial condition and the consolidated results of
operations and cash flows of Parent and its subsidiaries at the dates, and
for the periods, to which they relate. At the date of this Agreement,
Parent has not filed any reports with the SEC with regard to any period
which ended, or any event which occurred after, June 30, 2000.
(2) The audited balance sheets of Parent's insurance subsidiaries as
of December 31, 1999, 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, 1999 (the "Parent
Insurance Subsidiary Annual Statements") filed with the Regulators, copies
of which have been delivered to the Company, 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
Parent Insurance Subsidiary Annual Statements fairly presents in all
material respects the information required to be contained therein in
conformity with applicable requirements. The balance sheets of Parent and
its subsidiaries at dates after December 31, 1999, and the related
statements of operations and statements of cash flows, which have been
filed with Regulators, copies of which have been delivered to the Company,
fairly present in all material respects the applicable insurance
subsidiaries' respective statutory financial conditions as of such dates
and the results of their respective operations and cash flows for the
periods then ended in conformity with SAP consistently applied.
(k) Except as disclosed by Parent in the Parent June 10-Q, since
December 31, 1999, (i) Parent and its subsidiaries have conducted their
respective businesses only in the ordinary course and in a manner
consistent with past practice, and (ii) nothing has occurred and there has
been no development or state of circumstances which, individually or in
aggregate, has had or would reasonably be expected to have a Material
Adverse Effect on Parent.
(l) Parent and its subsidiaries have at all times complied, and
currently are complying, with all, and none of them is under investigation
with respect to or has been threatened to be charged with or given notice
of any violation of any, applicable Federal, state, local and foreign laws,
regulations, rules, judgments, injunctions or decrees, except failures to
comply which would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on Parent.
(m) (1) Parent and its subsidiaries have all Permits which are
required to enable them to conduct their businesses as they currently are
being conducted, and all such Permits are in full force and effect, except
as would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Parent. Except as would not, individually
or in the aggregate, be reasonably expected to have a Material Adverse
Effect on Parent, no material violations exist in respect of any Permit of
Parent and its subsidiaries, and no proceeding or investigation is pending,
or to the best of Parent's knowledge threatened, that would be reasonably
likely to result in the suspension, revocation, limitation or restriction
of any Permit and, to the best of Parent's knowledge, there is no
reasonable basis for the assertion of any such material violation or the
institution of any such proceeding.
(2) Parent and each subsidiary of Parent has filed all material
reports, statements, documents, registrations, filings or submissions
required to be filed by Parent or any subsidiary of Parent, respectively,
with any applicable Federal, state or local regulatory authorities,
including 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,
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registrations, filings or submissions that have not been satisfied. All
premium rates, rating plans and policy forms established or used by Parent
or any subsidiary of Parent that are required to be filed with or approved
by insurance regulatory authorities have been so filed or approved, and 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 Parent.
(n) Parent and each of its subsidiaries has filed when due (taking
account of extensions) all Tax Returns which it has been required to file
and has paid all Taxes shown on those returns to be due. Such Tax Returns
accurately reflect all Taxes required to have been paid, except to the
extent of items which may be disputed by applicable taxing authorities but
for which there is substantial authority to support the position taken by
Parent or its subsidiary and which have been adequately reserved against in
accordance with GAAP on the consolidated balance sheet at June 30, 2000
included in the Parent June 10-Q.
(o) To the best of Parent's knowledge, there are no circumstances, and
neither Parent nor its subsidiaries nor, to the best of Parent's knowledge,
any of its other affiliates has taken or agreed to take any action, that
would prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
3.3 Termination of Representations and Warranties. The representations and
warranties in Sections 3.1, 3.2 and 7.1 will terminate at the Effective Time,
and none of the Company, Parent or Sub will have any rights or claims as a
result of any of those representations or warranties after the Effective Time.
ARTICLE IV
ACTIONS PRIOR TO THE MERGER
4.1 Company's Activities Until Effective Time. From the date of this
Agreement to the Effective Time, or such earlier time as this Agreement is
terminated in accordance with Article VI, the Company will, and, to the extent
it has the power to do so, will cause each of its subsidiaries to, except with
the written consent of Parent:
(a) Operate its business in the ordinary course and in a manner
consistent with past practice, except that the Company may sell its
interest in Credit2B pursuant to the proviso in Section 4.1(j).
(b) Use reasonable best efforts to preserve intact its business,
maintain the goodwill of its business and the continued employment of its
executives and other employees and maintain good relationships with the
vendors, suppliers, contractors and others with which it does business.
(c) At its expense, maintain all its assets in good repair and
condition, except to the extent of reasonable wear and use and damage by
fire or other unavoidable casualty.
(d) Not incur any indebtedness for borrowed money or issue any debt
securities other than borrowings of up to $1,000,000 in the aggregate in
the ordinary course of business under working capital lines disclosed in
the notes to the consolidated balance sheet at December 31, 1999 included
in the Company 10-K; provided, however, that Singer shall use all
reasonable efforts to replace its warehouse financing with permanent
financing; provided further, however, that in no event shall the
consolidated debt on the consolidated balance sheet of the Company and its
subsidiaries (excluding C-BASS and Sherman) at any time prior to the
Effective Time exceed $250,000,000; provided further, however, that the
Company shall not between the date of this Agreement and the Effective Time
make or become liable for any guarantees other than the $25,000,000
guarantee with respect to Sherman previously disclosed to Parent (it being
understood that this subparagraph does not preclude subsidiaries from
entering into suretyship or insurance contracts or giving guarantees in the
ordinary course of their businesses consistent with past practice).
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(e) Not enter into any commitments involving loans, capital
contributions or advances (other than loans, capital contributions or
advances to or investments in wholly owned subsidiaries of the Company made
in the ordinary course consistent with past practice or loans, capital
contributions or advances which the Company or a subsidiary is at the date
of this Agreement committed to make as disclosed on Exhibit 4.1-E), except
in each case in the ordinary course of business in an amount not to exceed
$50,000 in the aggregate, and not voluntarily incur any contingent
liabilities, except in the ordinary course of the Company's insurance
business.
(f) Not (i) redeem, acquire or purchase any of its stock and not
declare, set aside, make or pay any dividends, or other distributions with
respect to its capital stock or repayments of debt to its shareholders,
other than (x) quarterly dividends not exceeding $.06 per share, (y)
payments by subsidiaries of the Company to the Company or to wholly owned
subsidiaries of the Company or (z) a dividend of Excess Credit2B Proceeds,
where "Excess Credit2B Proceeds" shall equal 60% of the pre-tax cash
proceeds derived from a disposition of Credit2B prior to the Closing Date
after deducting from such proceeds (A) all transaction costs associated
with such disposition, (B) all amounts contributed to Credit2B or required
to be contributed to Credit2B by the Company and (C) an appropriate reserve
for any liabilities, actual or contingent, of Credit2B for which the
Company may remain liable, or (ii) enter into any agreement with respect to
the voting of its capital stock.
(g) Not make (1) any loans, advances or capital contributions to or
investments in any person (including C-BASS, Sherman or Credit2B) (other
than loans, advances or capital contributions to or investments in wholly
owned subsidiaries of the Company made in the ordinary course consistent
with past practice or loans, advances or capital contributions which the
Company or a subsidiary is at the date of this Agreement committed to make
as disclosed on Exhibit 4.1-G) or (2) any loans or advances (other than
advances for travel and other normal business expenses) to shareholders,
directors, officers or employees.
(h) Maintain its books of account and records in the usual manner, in
accordance with GAAP applied on a basis consistent with the basis on which
they were applied in prior years, subject to normal year-end adjustments
and accruals.
(i) Comply in all material respects with all applicable laws and
regulations of Governmental Entities.
(j) Not acquire, purchase, sell or otherwise dispose of or encumber
any property or assets, create or assume any Lien on any material assets or
engage in any activities or transactions, except in each case in the
ordinary course of business consistent with past practices; provided,
however, that (1) the Company may sell Credit2B (provided further, however,
that such sale shall not have any adverse effect, or otherwise impose any
obligation or liability, contingent or otherwise, on the Company or any of
its subsidiaries, without Parent's prior written consent), (2) without
limiting the foregoing, the Company shall be precluded from selling its
interest in C-BASS pursuant to the Partnership Purchase Agreement (as
defined herein) in accordance with the terms of such Partnership Purchase
Agreement, and (3) the Company will, and will cause each of its
subsidiaries to, not sell, assign, transfer or otherwise dispose of, or
purchase or otherwise acquire, any assets of Singer Asset Finance Co.
("Singer"), other than assets set forth on Exhibit 4.1-J, which Exhibit
shall set forth the terms of any such sale, assignment, transfer,
disposition, purchase or acquisition.
(k) Not (i) increase the compensation payable or to become payable to
its officers or employees, (ii) pay annual bonuses for 2000 in excess of
the aggregate amount, and subject to the conditions, set forth in Exhibit
4.1-K, (iii) grant any rights to severance or termination pay to, or enter
into any employment or severance agreement with, any director, officer or
other employee, or establish, adopt, enter into, become an employer with
regard to 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, (iv) increase the benefits payable under any existing
severance or termination pay policies or employment
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agreements, (v) enter into any employment, deferred compensation or other
similar agreement (or amendment to any such existing agreement) or (vi)
take any action to accelerate the vesting of any stock-based compensation
(other than carrying out the transactions contemplated by this Agreement).
(l) Not amend its certificate of incorporation or by-laws or
equivalent documents.
(m) Not (i) 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
any of its capital stock (except upon exercise of options which are
outstanding on the date of this Agreement as disclosed by the Company in
Exhibit 3.1-F or in payment of directors fees in accordance with past
practice under the terms of the Director Stock Ownership Plan for those
directors who have elected prior to June 30, 2000 to receive their fees in
stock) or any options, warrants, rights of any kind to acquire such capital
stock or convertible or exchangeable securities (other than automatic
annual stock option grants under the Company's Non-Employee Directors'
Option Plan, if the Effective Time is after December 31, 2000, in an
aggregate amount not to exceed 70,000 shares of Company Common Stock) or
(ii) split, combine, or reclassify its capital stock or amend any material
term of any outstanding security.
(n) Not file any income Tax Return other than in the ordinary course
of business and consistent with past practice, make any Tax election,
settle or compromise any Tax liability or change any method of accounting
for Tax purposes.
(o) Not terminate, cancel or request any material change in, or agree
to any material change in, any Company Significant Agreement, or waive any
material rights (including any rights under confidentiality agreements)
other than in the ordinary course of business, consistent with past
practice.
(p) Not make or authorize any capital expenditure, other than capital
expenditures that are not, in the aggregate, in excess of $50,000 for the
Company and its subsidiaries taken as a whole (it being understood that
purchases of assets in the ordinary course of business by C-BASS or other
subsidiaries do not, for the purposes of this Agreement, constitute capital
expenditures).
(q) Not change any of its investment policies or any of the accounting
principles, practices, methods or policies (including 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.
(r) Not 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 prior to the
date hereof in the consolidated financial statements (or the notes thereto)
of the Company and its subsidiaries or incurred thereafter in the ordinary
course of business consistent with past practice.
(s) Not enter into any amendment to any reinsurance agreement
(including the proposed amendments referred to in Exhibit 3.1-C).
(t) Not take any action that would or would reasonably be expected to
make any representation and warranty of the Company hereunder untrue in any
material respect at, or as of any time prior to, the Effective Time, or
result in any condition to the obligation of the parties hereto to
consummate the Merger set forth in Article V not being satisfied.
(u) Not authorize or enter into any agreement, or commit or resolve,
to take any of the actions referred to in Sections 4.1(c) through (t)
above.
4.2 Parent's Activities Until Effective Time. From the date of this
Agreement to the Effective Time, or such earlier time as this Agreement is
terminated in accordance with Article VI, Parent will, and will cause each of
its subsidiaries to:
(a) Operate its business in the ordinary course and in a manner
consistent with past practices (provided, however, that Parent may engage
in any acquisition, merger or similar transaction if the Board
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of Directors of Parent determines that such acquisition, merger or similar
transaction is in the best interest of the shareholders of Parent).
(b) Use reasonable best efforts to maintain the goodwill of its
business and the continued employment of its executives and other employees
and to maintain good relationships with the vendors, supplies, contractors
and others with which it does business.
(c) Comply in all material respects with all applicable laws and
regulations of Governmental Entities.
(d) Not amend its certificate of incorporation or by-laws.
(e) Not take any action that would or would reasonably be expected to
make any representation and warranty of the Company hereunder untrue in any
material respect at, or as of any time prior to, the Effective Time, or
result in any condition to the obligation of the parties hereto to
consummate the Merger set forth in Article V not being satisfied.
(f) Not authorize or enter into any agreement, or commit, to take any
of the actions referred to in Sections 4.2(c) through (e) above.
4.3 HSR Act Filings. The Company and Parent will each make as promptly as
practicable the filing it is required to make under the HSR Act with regard to
the transactions which are the subject of this Agreement and each of them will
use reasonable best efforts (including providing information to the Federal
Trade Commission and the Department of Justice) to cause the waiting periods
required by the HSR Act to be terminated or to expire as promptly as
practicable. The Company and Parent will each provide information and cooperate
in all other respects to assist and cooperate with the other of them in making
its filing under the HSR Act.
4.4 Licenses and Permits. The Company and Parent will each, as promptly as
practicable, file all applications and use reasonable best efforts to obtain all
Permits of Governmental Entities (including approvals of transfers of Permits
and of a change in control of the Company and its subsidiaries) which are
necessary to enable the Company to effectuate the Merger and the other
transactions contemplated hereby and to enable the Company and its subsidiaries
to continue to conduct their respective businesses after the Effective Time
substantially as they are being conducted immediately before the Effective Time.
4.5 Registration Statement, Proxy Statements and Shareholders
Meetings. (a) Parent will file with the SEC as promptly as reasonably
practicable a registration statement under the Securities Act (the "Registration
Statement") on Form S-4 (or whatever other form may be applicable) with respect
to the issuance of the shares of Parent Common Stock which will be included in
the Merger Consideration, and Parent will use its reasonable best efforts to
cause the Registration Statement to become effective as promptly as reasonably
practicable. The Registration Statement will include a joint proxy
statement/prospectus, which will include the Parent proxy statement described in
Section 4.5(f) and the Company proxy statement described in Section 4.5(g).
(b) Parent will give lawyers, accountants and other representatives of the
Company reasonable access during normal business hours to the relevant books,
records and personnel of Parent and its subsidiaries which will be useful to
assure them that the disclosures about Parent and its subsidiaries in the
Registration Statement or in documents incorporated by reference into the
Registration Statement are complete and accurate.
(c) The Company will supply to Parent all information about the Company and
its subsidiaries which Parent is required to include in the Registration
Statement, including consolidated financial statements of the Company and its
subsidiaries at December 31, 1999 and for the three years ended on that date
which have been audited by Deloitte & Touche LLP, and any other required
financial statements of the Company and its subsidiaries, and in all other
respects cooperate with Parent in its efforts to cause the Registration
Statement to become effective as promptly as practicable, including giving
lawyers, accountants and other representatives of Parent reasonable access
during normal business hours to the books, records and personnel of the Company
and its subsidiaries which will be useful to assure them that the disclosures
about the Company and its
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subsidiaries in the Registration Statement or in documents incorporated by
reference into the Registration Statement are complete and accurate.
(d) The Company represents and warrants to Parent that the information
about the Company and its subsidiaries which the Company provides for inclusion
in the Registration Statement will be complete and accurate in all material
respects and will not include a misstatement of a material fact or omit to state
any material facts necessary to make the statements about the Company and its
subsidiaries included in the Registration Statement, in light of the
circumstances under which they are made, not misleading.
(e) Parent represents and warrants to the Company that the information
about Parent and its subsidiaries included in the Registration Statement will be
complete and accurate in all material respects and will not include a
misstatement of a material fact or omit to state any material facts necessary to
make the statements included in the Registration Statement, in light of the
circumstances under which they are made, not misleading.
(f) Parent will (i) file with the SEC as promptly as practicable a proxy
statement (which may be included in the Registration Statement) relating to a
meeting of its shareholders at which they will be asked to vote upon the
issuance of Parent Common Stock in the Merger, (ii) use its best efforts to
cause review of that proxy statement by the SEC staff to be completed as
promptly as practicable, (iii) subject to the last sentence of this Section
4.5(f), include in that proxy statement the recommendation of Parent's Board of
Directors that its shareholders vote in favor of the Merger, (iv) as promptly as
practicable after the SEC staff completes the review of the proxy statement and
informs Parent that it has no further comments about the proxy statement cause
the proxy statement and a form of proxy to be mailed to its shareholders (except
that if the proxy statement has already been mailed to Parent's shareholders,
only the form of proxy and any necessary supplements to the proxy statement need
be mailed) and cause a meeting of its shareholders to be held, as promptly as
practicable after the Registration Statement becomes effective, for the purpose
of voting upon the issuance of Parent Common Stock in the Merger (subject to any
adjournments which may be required to comply with law or with any order of a
Governmental Entity). Subject to compliance by the Board of Directors of Parent
with its fiduciary duties under applicable law as determined in good faith by
the Board of Directors of Parent after consultation with outside legal counsel,
Parent will use all reasonable best efforts to obtain the approval of its
shareholders required to consummate the transactions contemplated by this
Agreement and the Board of Directors of Parent shall recommend to the
shareholders of Parent that they approve the issuance of Parent Common Stock in
the Merger.
(g) The Company will (i) file with the SEC as promptly as practicable a
proxy statement (which may be included in the Registration Statement) relating
to a meeting of its shareholders at which they will be asked to vote upon the
Merger, (ii) use its best efforts to cause review of that proxy statement by the
SEC staff to be completed as promptly as practicable, (iii) subject to the last
sentence of this Section 4.5(g), include in that proxy statement the
recommendation of the Company's Board of Directors that its shareholders vote in
favor of the Merger, (iv) as promptly as practicable after the SEC staff
completes the review of the proxy statement and informs the Company that it has
no further comments about the proxy statement, cause the proxy statement and a
form of proxy to be mailed to its shareholders (except that if the proxy
statement has already been mailed to the Company's shareholders, only the form
of proxy and any necessary supplements to the proxy statement need be mailed)
and cause a meeting of its shareholders to be held, as promptly as practicable
after the Registration Statement becomes effective, for the purpose of voting
upon the Merger (subject to any adjournments which may be required to comply
with law or with any order of a Governmental Entity). Subject to compliance by
the Board of Directors of the Company with its fiduciary duties under applicable
law as determined in good faith by the Board of Directors of the Company after
consultation with outside legal counsel, the Company will use all reasonable
best efforts to obtain the approval of its shareholders required to consummate
the transactions contemplated by this Agreement and the Board of Directors of
the Company shall recommend to the shareholders of the Company that they adopt
this Agreement and approve the transactions contemplated hereby; provided,
however, that the Board of Directors of the Company may only withdraw, modify or
change its recommendation to the shareholders of the Company in connection with
an Acquisition Proposal (as defined herein) if that Acquisition Proposal is a
Superior Proposal (as defined herein).
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(h) The Company's Board of Directors will not take any action (including
terminating this Agreement except under circumstances permitted under Section
6.1) which prevents the Company's shareholders from voting upon the Merger, and
Parent's Board of Directors will not take any action (including terminating this
Agreement except under circumstances permitted under Section 6.1) which prevents
Parent's shareholders from voting upon the Merger.
4.6 No Solicitation of Offers; Notice of Proposals from Others. (a) The
Company will not, and will not permit any of its subsidiaries, officers,
directors, employees, agents or representatives (including any investment
banker, attorney or accountant retained by it or by any of its subsidiaries)
directly or indirectly to initiate, solicit, encourage or otherwise facilitate
(including by providing information) any discussion, negotiation or inquiry or
the making of any proposal or offer with respect to a merger, reorganization,
share exchange, consolidation or similar transaction involving the Company, or a
purchase of, or tender offer for, all or any significant portion of the
Company's equity securities or assets of the Company or any of its insurance
subsidiaries on a consolidated basis other than the transactions contemplated by
this Agreement (each of these being an "Acquisition Proposal"). The Company
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 Acquisition Proposal.
(b) Section 4.6(a) will not prevent the Company from, in response to an
unsolicited written Acquisition Proposal which the Company receives despite
complying with Section 4.6(a) and which the Company's Board of Directors
determines in good faith (x) after consultation with its independent financial
advisor, would result (if consummated in accordance with its terms) in a
transaction (i) for which financing, to the extent required, is then fully
committed or reasonably determined to be available by the Board of Directors of
the Company and (ii) would be more favorable over the long term to the Company's
shareholders than the Merger after taking into account the strategic benefits
anticipated to be derived from the Merger and the prospects of Parent and the
Company as a combined company and (y) based upon the written advice of outside
counsel that there would be a reasonable probability that the failure to do so
would be held to be a breach of the fiduciary duties of the Company's Board of
Directors under applicable law (a "Superior Proposal"), furnishing non-public
information (after receipt of an appropriate confidentiality agreement that is
no less favorable to the Company than the Confidentiality Agreement referred to
in Section 9.2 hereof between Parent and the Company) to the person, entity or
group (the "Potential Acquiror") which makes the Acquisition Proposal and
entering into discussions and negotiations with that Potential Acquiror.
(c) If the Company or any officer, agent or representative thereof receives
or is contacted with respect to an Acquisition Proposal, or the Company learns
that any person is contemplating soliciting tenders of Common Stock or otherwise
proposes to acquire the Company or a significant portion of its equity
securities or all or a significant portion of its and its subsidiaries' assets
if the Company's shareholders do not approve the Merger, the Company will
promptly (but in any event within 24 hours) notify Parent of that fact and
provide Parent with all information in the Company's possession regarding the
Acquisition Proposal, solicitation of tenders or other proposed transaction, and
the Company will promptly (but in any event within 24 hours), from time to time,
provide Parent with any additional material information the Company obtains
regarding the Acquisition Proposal, solicitation of tenders or other proposed
transaction.
4.7 Appropriate Action; Consents. (a) Subject to the terms and conditions
of this Agreement, the Company and Parent shall use their reasonable 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) cause the conditions set forth
in Sections 5.1(e) and (f) and 5.2(f) and (g) to be satisfied, 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 or any other applicable law; provided that the Company and
Parent shall cooperate with each other in connection with the making of all such
filings. The Company and Parent 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.
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(b) The Company and Parent 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) reasonable best 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 the Company or Parent as a result of
the transactions contemplated by this Agreement. In the event that either party
shall fail to obtain any third party consent described in this Section 4.7(b),
such party shall use reasonable best efforts, and shall take any such actions
reasonably requested by the other party hereto, to minimize any adverse effect
upon the Company and Parent, their respective subsidiaries and their respective
businesses resulting, or which could reasonably be expected to result after the
Effective Time, from the absence of such consent; provided, however, that such
efforts and actions shall not affect the conditions set forth in Article V.
4.8 Cooperation. Parent and the Company shall cooperate with each other
(i) with respect to the timing of the respective shareholder meetings
contemplated by Sections 4.5(f) and 4.5(g) and shall use their reasonable best
efforts to hold such meetings on the same day, (ii) in connection with the
preparation of the Registration Statement and the joint proxy statement to be
included therein, (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
waivers or making any such filings, furnishing information required in
connection therewith or with the Registration Statement and the joint proxy
statement included therein and seeking timely to obtain any such actions,
consents, approvals or waivers.
4.9 Company Affiliates; Reorganization. (a) Within 30 days of the date of
this Agreement, the Company shall deliver to Parent a letter identifying all
persons whom the Company believes may be deemed to be, at the date of the
Company shareholder meeting contemplated by Section 4.5(g), an affiliate of the
Company for purposes of Rule 145 of the Securities Act (each such person, a
"Rule 145 Affiliate"). The Company shall use its reasonable 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 letter referred to above as soon
as practicable and, in any event, prior to the date of the Company shareholder
meeting, substantially in the form of Exhibit 4.9-A.
(b) Each of the parties hereto shall use its 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,
that could prevent such transactions from qualifying as a reorganization within
the meaning of Section 368(a) of the Code.
4.10 Takeover Statutes. If any takeover statute is or may become
applicable to the Merger, each of Parent and the Company shall, to the extent
they have the power to do so, 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 any adverse effects of any
takeover statute on the Merger.
4.11 Certain Contracts. (a) The Company will use its reasonable and
commercially practicable best efforts, in consultation and cooperation with
Parent, to obtain from (1) MBIA prior to the Effective Time its written and
irrevocable waiver for at least three years of provisions of the Comprehensive
Automatic Treaty Reinsurance Agreement, effective as of January 1, 2000 (the
"Treaty"), to the extent such provisions would permit MBIA to terminate the
Treaty or any Prior Agreement (as defined in the Treaty) on a cut-off basis as a
result of the Merger and (2) Financial Guaranty Insurance Corporation and its
affiliates ("FGIC") prior to the Effective Time its written and irrevocable
waiver of provisions of the reinsurance agreements between FGIC and subsidiaries
of the Company (the "FGIC Agreements"), to the extent such provisions would
permit FGIC to terminate the FGIC Agreements as a result of the Company's 1999
ratings downgrade. The Company represents and warrants that the waivers referred
to in this Section 4.11(a) may be obtained (1) without the Company or Parent
being required to pay or provide any consideration therefor in excess of the
amounts set forth on Exhibit 4.11-A and (2) on substantially the terms set forth
on Exhibit 4.11-A.
(b) The Company will use its reasonable and commercially practicable best
efforts to ensure that any person or entity that is party to (or entitled to the
benefit of) a contract or agreement with Singer or any
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affiliate of Singer (including any securitization vehicle) pursuant to any
provision of which obligations or liabilities of Singer could be accelerated or
breached or would arise (or providing for rights or benefits in favor of Singer
or any affiliate of Singer that could be terminated or reduced) as a result of
this Agreement or the transactions contemplated hereby, including the Merger,
shall have agreed in writing, pursuant to a form of consent in form and
substance reasonably acceptable to Parent, to waive such provision.
4.12 C-BASS. If (i) the Company terminates this Agreement under Section
6.1(b), (ii) either Parent or the Company terminates this Agreement under
Section 6.1(d) because the Effective Time did not occur on or before June 30,
2001 as a result of the material breach by Parent of this Agreement, (iii)
either Parent or the Company terminates this Agreement under Section 6.1(e)
because the issuance of Parent Common Stock pursuant to this Agreement shall
have failed to receive the requisite vote for approval at the meeting of
Parent's shareholders held in connection with this Agreement or (iv) if the
Company terminates this Agreement under Section 6.1(h), then the Company will
have the option, exercisable by a notice given to Parent within 5 business days
after the Company or Parent terminates this Agreement, to require Parent to
purchase (directly or through one or more wholly owned subsidiaries) the 45.6%
interest in C-BASS owned by Enhance Residuals, L.P. for a purchase price equal
to 90% of (A) the Purchase Price (as defined in the Partnership Interest
Purchase Agreement (the "Partnership Purchase Agreement") dated September 28,
2000 among the Company, Enhance C-Bass Residual Finance Corporation, C-BASS,
Residential Funding Corporation and RFC Acquisition Corporation) less (B) the
Purchase Price Adjustment Amount (as defined in the Partnership Purchase
Agreement), if any, calculated under the Partnership Purchase Agreement (i.e.,
90% of the sum the Purchasers would have been required to pay under Section 2.2
of the Partnership Purchase Agreement), on customary terms to be mutually
agreed, with the closing to be held on the 30th day after the option is
exercised or as soon thereafter as practicable. Such purchase shall be subject
to any prior rights of third parties and the Company shall cooperate with Parent
to ensure that any such rights are honored.
4.13 Benefits. The Company shall use all commercially reasonable efforts
(1) to amend, and to obtain any required consents to amend, all the employment
agreements between the Company and all of the Senior Vice Presidents, which
Senior Vice Presidents are listed on Exhibit 4.13, to eliminate Section 5 (Tax
Reimbursement Payment) of each such agreement (each such agreement, as amended,
the "Vice President Agreement Amendments"), which Vice President Agreement
Amendments shall provide that no such employee has a right or claim for receipt
of such tax reimbursement payment, and (2) to reflect the prior agreement of
each of Richard J. Dunn and Tony M. Ettinger that the change-in-control
agreement which each is a party to expires on December 31, 2000.
4.14 Support Agreements. Each of Daniel Gross, Wallace O. Sellers, and
Allan R. Tessler, within five days of the execution of this Agreement, shall
enter into a Shareholders Support Agreement in substantially the form as
attached hereto as Exhibit 4.14-A.
ARTICLE V
CONDITIONS PRECEDENT TO MERGER
5.1 Conditions to the Company's Obligations. The obligations of the
Company to complete the Merger are subject to satisfaction of the following
conditions (any or all of which may be waived by the Company to the extent
permitted by law):
(a) The representations and warranties of Parent and Sub contained in
this Agreement will be true and correct in all material respects (except
that representations and warranties that are qualified by materiality,
Material Adverse Effect or words of similar import shall be true and
correct in all respects) on the Merger Date with the same effect as though
made on that date (except that representations or warranties which relate
expressly to a specified date or a specified period need only have been
true and correct with regard to the specified date or period), and Parent
will have delivered to the Company a certificate dated that date and signed
by the President or a Vice President of Parent to that effect.
(b) Parent and Sub will have fulfilled in all material respects all
their obligations under this Agreement required to have been fulfilled on
or before the Merger Date, and Parent will have delivered to
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the Company a certificate dated that date and signed by the President or a
Vice President of Parent to that effect.
(c) No order will have been entered by any Governmental Entity and be
in force which invalidates this Agreement or restrains the Company from
completing the transactions which are the subject of this Agreement.
(d) The Merger will have been approved by the holders of at least
two-thirds of the outstanding shares of Company Common Stock.
(e) The applicable waiting periods under the HSR Act will have expired
or been terminated.
(f) All licenses and approvals from all Governmental Entities
(including approvals of transfers of licenses and permits and of a change
in control of the Company and its subsidiaries) which are necessary to
complete the Merger will have been obtained, and all required approvals and
consents of Government Entities necessary to complete the Merger shall have
been obtained.
(g) The Company shall have received an opinion of Clifford Chance
Rogers & Wells LLP, counsel to the Company, dated the Merger Date, to the
effect that the Merger will qualify as a reorganization within the meaning
of Section 368(a) of the Code. In rendering its opinion, counsel may
require, and rely upon facts and representations contained in, certificates
of the officers of the Company, Parent and Sub.
(h) From the date hereof through the Effective Time, no Material
Adverse Effect on Parent shall have occurred, and there shall exist no
fact, development or state of circumstances that, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect
on Parent.
5.2 Conditions to Parent's and Sub's Obligations. The obligations of
Parent and Sub to complete the Merger are subject to the following conditions
(any or all of which may be waived by Parent to the extent permitted by law):
(a) The representations and warranties of the Company contained in
this Agreement will be true and correct in all material respects (except
that representations and warranties that are qualified by materiality,
Material Adverse Effect or words of similar import shall be true and
correct in all respects) on the Merger Date with the same effect as though
made on that date (except that representations or warranties which relate
expressly to a specified date or a specified period need only have been
true and correct with regard to the specified date or period), and the
Company will have delivered to Parent a certificate dated that date and
signed by the President or a Vice President of the Company to that effect.
(b) The Company will have fulfilled in all material respects all its
obligations under this Agreement required to have been fulfilled on or
before the Merger Date, and the Company will have delivered to Parent a
certificate dated that date and signed by the President or a Vice President
of the Company to that effect.
(c) No order will have been entered by any Governmental Entity and be
in force which invalidates this Agreement or restrains Parent or Sub from
completing the transactions which are the subject of this Agreement and no
action will be pending against the Company, Parent or Sub relating to the
transactions which are the subject of this Agreement which presents a
reasonable likelihood of resulting in an award of damages against the
Company, Parent or Sub which would have a Material Adverse Effect after the
Merger on Parent and its subsidiaries taken as a whole.
(d) The issuance of Parent Common Stock in the Merger will have been
approved by the holders of at least a majority in voting power of the
outstanding shares of Parent Common Stock.
(e) The Merger will have been approved by the holders of at least
two-thirds of the outstanding shares of Company Common Stock.
(f) The applicable waiting periods under the HSR Act will have expired
or been terminated.
(g) All licenses and approvals from all Governmental Entities
(including approvals of transfers of licenses and permits and of a change
in control of the Company and its subsidiaries) which are necessary
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to enable the Company and its subsidiaries to continue to conduct their
respective businesses after the Effective Time substantially as they are
being conducted immediately before the Effective Time will have been
obtained, and all required approvals and consents of Government Entities
and other third parties necessary to complete the Merger shall have been
obtained.
(h) Parent shall have received an opinion of Wachtell, Lipton, Rosen &
Katz, special counsel to Parent, dated the Merger Date, to the effect that
the Merger will qualify as a reorganization within the meaning of Section
368(a) of the Code. In rendering its opinion, counsel may require, and rely
upon facts and representations contained in, certificates of the officers
of the Company, Parent and Sub.
(i) The waivers and consents contemplated by Section 4.11(a), Section
4.11(b) and Section 4.13 (in the case of clause (1) of Section 4.13, with
respect to any Senior Vice Presidents who will be subject to tax as a
result of Section 280G of the Code) shall have been obtained.
(j) (1) Parent shall have received from the Company an audited balance
sheet of Singer as of September 30, 2000, audited by Deloitte & Touche LLP,
setting forth all assumptions and accounting policies related thereto, and
such assumptions and accounting policies shall be consistently applied from
prior periods, fairly presenting in all material respects the financial
position of Singer as of such date, and prepared in accordance with GAAP,
which audited balance sheet as of September 30, 2000 shall reflect a net
worth of Singer, after elimination of the $56 million indebtedness to the
Company and its subsidiaries existing at September 30, 2000 (the "Singer
September 30 Net Worth"), of at least $1.00, (2) Parent shall be reasonably
satisfied that there shall be sufficient and appropriate resources in place
for Singer to fulfill its servicing commitments, (3) the consolidated debt
of the Company and its subsidiaries (excluding C-BASS and Sherman) as of
the Effective Time shall not exceed $250,000,000, (4) the Company shall
have secured (for total consideration not to exceed $1,125,000 per year)
and have in effect with respect to Asset Guaranty Insurance Co. $75,000,000
of soft capital financing, reinsurance or a similar facility which in any
such case is sufficient to cause S&P to reaffirm to Asset Guaranty
Insurance Co.'s AA rating, and (5) the Company shall not have made or be
liable for any guarantees other than the $25,000,000 guarantee with respect
to Sherman previously disclosed to Parent (it being understood that this
subparagraph does not preclude subsidiaries from entering into suretyship
or insurance contracts or giving guarantees in the ordinary course of their
businesses consistent with past practice).
(k) All of the off-balance sheet financing with respect or relating to
the assets of Singer (other than the Loan and Security Agreement, dated as
of December 22, 1997, as amended, by and among Working Capital Management
Co., L.P., The Industrial Bank of Japan, Singer Asset Loan Receivables
L.L.C., and Singer Asset Finance Company, L.L.C., and related transaction
documents (the "Omnivore facility")) shall remain in place on comparable
terms and conditions after the Effective Time, provided, that the term of
any such financing shall be extended to match the duration or maturity of
the applicable assets of Singer or such assets shall be sold off on terms
and conditions reasonably acceptable to Parent.
(l) From the date hereof through the Effective Time, no Material
Adverse Effect on the Company shall have occurred, and there shall exist no
fact, development or state of circumstances that, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect
on the Company.
ARTICLE VI
TERMINATION
6.1 Right to Terminate. This Agreement may be terminated at any time prior
to the Effective Time (whether or not the Company's or Parent's shareholders
have approved the Merger):
(a) By mutual consent of the Company and Parent.
(b) By the Company upon a breach of or failure to perform in any
material respect (which breach or failure cannot be or has not been cured
within 30 days after the giving of notice to Parent of such breach or
failure) any representation, warranty, covenant or agreement on the part of
Parent set forth in
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this Agreement, such that the conditions set forth in Sections 5.1(a) or
(b) would not be satisfied if such breach or failure existed or were
continuing on the Merger Date.
(c) By Parent upon a breach of or failure to perform in any material
respect (which breach or failure cannot be or has not been cured within 30
days after the giving of notice to the Company of such breach or failure)
any representation, warranty, covenant or agreement on the part of the
Company set forth in this Agreement, such that the conditions set forth in
Sections 5.2(a) or (b) would not be satisfied if such breach or failure
existed or were continuing on the Merger Date.
(d) By either Parent or the Company, if the Effective Time shall not
have occurred on or before June 30, 2001; provided, however, that the right
to terminate this Agreement under this Section 6.1(d) shall not be
available to the party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date.
(e) By Parent or the Company if this Agreement shall fail to receive
the requisite vote for adoption or approval at the meeting of the Company's
shareholders or the meeting of Parent's shareholders held in connection
with this Agreement, including any adjournment or postponement thereof.
(f) By Parent, if (i) the Board of Directors of the Company withdraws,
modifies or changes its recommendation of this Agreement in any manner
adverse to Parent or shall have resolved to do so, (ii) after receiving a
bona fide Acquisition Proposal, the Board of Directors of the Company shall
have refused promptly (but in any case within 10 business days) to affirm
its recommendation of this Agreement, (iii) the Board of Directors of the
Company shall have recommended to the shareholders of the Company an
Acquisition Proposal or shall have resolved to do so, or (iv) a tender or
exchange offer for 15% or more of the outstanding shares of capital stock
of the Company is commenced, and the Board of Directors of the Company
fails to recommend against, or states that it is taking no position with
respect to, acceptance of such tender or exchange offer by the Company's
shareholders.
(g) By the Company at any time during the two business-day period
commencing two days after the Determination Date (as defined herein), if
both of the following conditions are satisfied:
(1) the Average Closing Price (as defined herein) shall be less
than $51.35; and
(2) (i) the number obtained by dividing the Average Closing Price
by the Starting Price (such number, the "Parent Ratio") shall be less
than (ii) the number obtained by dividing the Index Price (as defined
herein) on the Determination Date by the Index Price on the Starting
Date (as defined herein) and subtracting 0.15 from such quotient (such
number, the "Index Ratio");
subject to the following three sentences. If the Company elects to exercise
its termination right pursuant to the immediately preceding sentence, it
shall give prompt written notice to Parent; provided that such notice of
election to terminate may be withdrawn at any time within the
aforementioned two-day period. During the two business-day period
commencing with its receipt of such notice, Parent shall have the option of
adjusting the Exchange Ratio to equal the lesser of (i) the number equal to
the quotient (rounded to the nearest one-ten-thousandth), the numerator of
which is the product of 0.80, the Starting Price and the Exchange Ratio (as
then in effect) and the denominator of which is the Average Closing Price,
and (ii) the number equal to the quotient (rounded to the nearest
one-ten-thousandth), the numerator of which is the Index Ratio multiplied
by the Exchange Ratio (as then in effect) and the denominator of which is
the Parent Ratio. If Parent makes an election contemplated by the preceding
sentence, within such two business-day period, it shall give written notice
to the Company of such election and the revised Exchange Ratio, whereupon
no termination shall have occurred pursuant to this Section 6.1(g) and this
Agreement shall remain in effect in accordance with its terms (except as
the Exchange Ratio shall have been so modified), and any references in this
Agreement to "Exchange Ratio" shall thereafter be deemed to refer to the
Exchange Ratio as adjusted pursuant to this Section 6.1(g). For purposes of
this Section 6.1(g), the following terms shall have the meanings indicated:
"Average Closing Price" means the average of the last reported sale
prices per share of Parent Common Stock as reported on the New York
Stock Exchange consolidated tape (as reported in The
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Wall Street Journal or, if not reported therein, in another mutually
agreed upon authoritative source) for the 20 consecutive trading days on
the New York Stock Exchange ending at the close of trading on the
Determination Date.
"Determination Date" means the business day prior to the date of
the special meeting of the Company's shareholders.
"Index Group" means the group of each of the 20 insurance companies
listed below, the common stock of all of which shall be publicly traded
and as to which there shall not have been, since the Starting Date and
before the Determination Date, an announcement of a proposal for such
company to be acquired or for such company to acquire another company or
companies in transactions with a value exceeding 25% of the acquiror's
market capitalization as of the Starting Date. In the event that the
common stock of any such company ceases to be publicly traded or any
such announcement is made with respect to any such company, such company
will be removed from the Index Group, and the weights redistributed
proportionately for purposes of determining the Index Price. The 20
insurance companies and the weights attributed to them are as follows:
<TABLE>
<CAPTION>
COMPANY WEIGHTING
------- ---------
<S> <C>
American International Group, Inc.......................... 5%
Fannie Mae................................................. 5%
Freddie Mac................................................ 5%
Allstate Corporation....................................... 5%
Hartford Financial Services Group, Inc..................... 5%
Chubb Corporation.......................................... 5%
St. Paul Companies, Inc.................................... 5%
XL Capital Ltd............................................. 5%
Ace Limited................................................ 5%
CNA Financial Corporation.................................. 5%
MBIA Inc................................................... 5%
MGIC Investment Corporation................................ 5%
Cincinnati Financial Corporation........................... 5%
Ambac Financial Group, Inc. ............................... 5%
Countrywide Credit Industries, Inc. ....................... 5%
PMI Group Inc. ............................................ 5%
Old Republic International Corporation..................... 5%
W.R. Berkley Corporation................................... 5%
Ohio Casualty Corporation.................................. 5%
Triad Guaranty Inc. ....................................... 5%
---
100%
</TABLE>
"Index Price" on a given date means the weighted average (weighted
in accordance with the factors listed above) of the closing prices of
the companies comprising the Index Group.
"Starting Date" means November 13, 2000.
"Starting Price" shall mean $64.19, which was the last reported
sale price per share of Parent Common Stock on the Starting Date, as
reported on the New York Stock Exchange consolidated tape (as reported
in The Wall Street Journal or, if not reported therein, in another
mutually agreed upon authoritative source).
If any company belonging to the Index Group or Parent declares or
effects a stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares or similar transaction between the Starting
Date and the Determination Date, the prices for the common stock of such
company or Parent shall be appropriately adjusted for the purposes of
applying this Section 6.1(g).
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(h) By the Company if the Board of Directors of Parent withdraws,
modifies or changes its recommendation of this Agreement in any manner
adverse to the Company or shall have resolved to do so.
(i) By Parent, if Asset Guaranty Insurance Co. shall be (1)
downgraded, (2) placed on credit watch or (3) placed on credit review with
negative implications by S&P.
6.2 Manner of Terminating Agreement. If at any time the Company or Parent
has the right under Section 6.1 to terminate this Agreement, it can terminate
this Agreement by a written notice to the other of them that it is terminating
this Agreement.
6.3 Effect of Termination. If this Agreement is terminated pursuant to
Section 6.1, after this Agreement is terminated, neither party will have any
further rights or obligations under this Agreement other than the Company's
obligations under Section 8.1 and under the Confidentiality Agreement described
in Section 9.2. Nothing contained in this Section will, however, relieve either
party of liability for any breach of this Agreement which occurs before this
Agreement is terminated.
ARTICLE VII
ABSENCE OF BROKERS
7.1 Representations and Warranties Regarding Brokers and Others. The
Company and Parent each represents and warrants to the other of them that no
person acted as a broker, a finder or in any similar capacity in connection with
the transactions which are the subject of this Agreement, except that Goldman,
Sachs & Co. Incorporated acted as a financial advisor to Parent and Morgan
Stanley Dean Witter acted as a financial advisor to the Company. Parent will pay
all the fees and other charges of Goldman, Sachs & Co. Incorporated and the
Company will pay all the fees and other charges of Morgan Stanley Dean Witter.
The Company indemnifies Parent and Sub against, and agrees to hold each of them
harmless from, all losses, liabilities and expenses (including reasonable fees
and expenses of counsel and costs of investigation) incurred because of any
claim by anyone for compensation as a broker, a finder or in any similar
capacity by reason of services allegedly rendered to the Company in connection
with the transactions which are the subject of this Agreement. Parent
indemnifies the Company against, and agrees to hold it harmless from, all
losses, liabilities and expenses (including, but not limited to, reasonable fees
and expenses of counsel and costs of investigation) incurred because of any
claim by anyone for compensation as a broker, a finder or in any similar
capacity by reason of services allegedly rendered to Parent or Sub in connection
with the transactions which are the subject of this Agreement.
ARTICLE VIII
OTHER AGREEMENTS
8.1 Payment to Parent. (a) The Company and Parent agree that if (i) (w)
the Company shall fail to receive the requisite vote for adoption of this
Agreement at the meeting of the Company's shareholders, (x) Parent or the
Company shall terminate this Agreement pursuant to Section 6.1(e), (y) prior to
the time of the meeting of the Company's shareholders meeting a bona fide
Acquisition Proposal shall have become the subject of a public announcement or
any person shall have publicly announced an intention to make a proposal or
offer relating thereto and (z) within 12 months of such termination the Company
enters into a definitive agreement with any third party with respect to or
consummates any transaction contemplated by the definition of "Acquisition
Proposal", or (ii) Parent shall terminate this Agreement pursuant to Section
6.1(f) or Section 6.1(c) (in the case of Section 6.1(c), as a result of a
material breach by the Company of its obligations under Section 4.5(g) or (h) or
as a result of a willful breach by the Company of its obligations under Section
4.6), the Company shall pay Parent an amount equal to $20,000,000; provided,
however, that such amount shall equal $25,000,000 if (x) in the case of clause
(i) above, such agreement shall be made or such transaction consummated with, or
(y) in the case of clause (ii) above, an Acquisition Proposal shall be made by,
one or more of American International Group, Inc., MGIC Investment Corporation,
PMI Group Inc., Old Republic International Corporation or General Electric
Company or any of their affiliates. Such
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payment shall be made (A) in the case of a termination contemplated by clause
(i), prior to or concurrently with (and as a condition to) entering into such
definitive agreement or, if earlier, consummating such transaction, or (B) in
the case of a termination contemplated by clause (ii), promptly (but in any
event within 2 business days) following the receipt by the Company of written
notice of such termination from Parent.
(b) The Company and Parent agree that the payment provided for in Section
8.1(a) shall be the sole and exclusive remedy of Parent upon a termination of
this Agreement contemplated by Section 8.1(a), provided that nothing herein
shall relieve any party from liability for the willful breach of any of its
representations and warranties or the breach of any of its covenants or
agreements set forth in this Agreement.
(c) Any payment required to be made pursuant to Section 8.1(a), Section
8.1(e), Section 8.1(f) or Section 8.1(g) shall be made by wire transfer of
immediately available funds to an account designated by Parent.
(d) In the event that the Company shall fail to pay the amount contemplated
by Section 8.1(a), Section 8.1(e), Section 8.1(f) or Section 8.1(g) when due,
such amount shall be increased to include the costs and expenses incurred by
Parent (including, without limitation, fees of counsel) in connection with the
collection and enforcement of this Section 8.1.
(e) In the event that (i) the Company shall fail to obtain the waivers and
consents referred to in Section 5.2(i) and the Agreement is terminated by Parent
pursuant to either Section 6.1(c) or Section 6.1(d), or (ii) the Agreement is
terminated by Parent pursuant to Section 6.1(c), then the Company shall pay
Parent an amount equal to the actual out of pocket fees and expenses incurred by
Parent in connection with this Agreement and the transactions contemplated
hereby up to a maximum of $5,000,000.
(f) In the event that the Agreement is terminated by the Company pursuant
to Section 6.1(b), then Parent shall pay the Company an amount equal to the
actual out of pocket fees and expenses incurred by the Company in connection
with this Agreement and the transactions contemplated hereby up to a maximum of
$5,000,000.
(g) In the event that the Agreement is terminated by Parent pursuant to
Section 6.1(i), then the Company shall pay Parent an amount equal to $7,500,000.
8.2 Indemnification for Prior Acts. The Surviving Corporation will (i)
honor, and will not amend or modify for a period of not less than six years
after the Effective Time, any obligation of the Company to indemnify present and
former directors, officers or employees of the Company or its subsidiaries
(each, an "Indemnified Party") with respect to matters which occurred or occur
prior to the Effective Time and (ii) keep in force for at least six years after
the Effective Time directors and officers liability insurance, insuring the
persons who were directors or officers of the Company at or before the Effective
Time, which provides coverage which is at least as broad as that under the
policy which is in force immediately before the Effective Time, and is in an
amount at least as great (and with a deductible retention at least as small) as
that under the policy which is in force immediately before the Effective Time
(or such lesser amount as is the maximum amount which can be obtained for an
annual premium equal to 150% of the annual premium for the policy which is in
force immediately before the Effective Time).
8.3 Beneficiaries. The provisions in Section 8.2 are intended to be for
the benefit of, and will be enforceable by, the respective directors, officers
and employees of the Company or its subsidiaries to which it relates and their
heirs and representatives and will be binding upon the Surviving Corporation.
ARTICLE IX
GENERAL
9.1 Expenses. Except as specifically provided in this Agreement, the
Company and Parent will each pay its own expenses (and Parent will pay Sub's
expenses) in connection with the transactions which are the subject of this
Agreement, including legal fees.
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9.2 Access to Properties, Books and Records. From the date of this
Agreement until the Effective Time, the Company will, and will (to the extent it
has the power to do so) cause each of its subsidiaries to, give representatives
of Parent full access during normal business hours to all of their respective
properties, books and records and personnel and shall provide reasonable
cooperation in connection with their review and investigation. The information
Parent or its representatives receive as a result of their access to the
properties, books and records of the Company or its subsidiaries will be subject
to the Confidentiality Agreement dated May 19, 2000 between Parent and the
Company, which Confidentiality Agreement will remain in effect until the
Effective Time. No investigation by Parent or other information received by
Parent shall operate as a waiver or otherwise affect any representation,
warranty or agreement given or made by the Company hereunder.
9.3 Press Releases. The Company and Parent will consult with each other
before issuing any press release or otherwise making any public statement with
respect to this Agreement or the Merger, except that nothing in this Section 9.3
will prevent either party from making any statement when and as required by law
or by the rules of any securities exchange or securities quotation or trading
system on which securities of that party or an affiliate are listed, quoted or
traded.
9.4 Entire Agreement. This Agreement, the Confidentiality Agreement
described in Section 9.2 and the documents to be delivered in accordance with
this Agreement contain the entire agreement among the Company, Parent and Sub
relating to the transactions which are the subject of this Agreement and those
other documents, all prior negotiations, understandings and agreements between
the Company and either Parent or Sub are superceded by this Agreement and those
other documents, and there are no representations, warranties, understandings or
agreements concerning the transactions which are the subject of this Agreement
of those other documents other than those expressly set forth in this Agreement
or those other documents.
9.5 Effect of Disclosures. Any information disclosed by a party in any
representation or warranty contained in this Agreement (including exhibits to
this Agreement) will be treated as having been disclosed in connection with each
representation and warranty made by that party in this Agreement, provided that
it is apparent on its face from such disclosure that it also applies to the
other representations and warranties (or exhibits numbered to correspond to such
other representations and warranties) to which such information relates.
9.6 Captions; Definitions. The captions of the articles and paragraphs of
this Agreement are for reference only, and do not affect the meaning or
interpretation of this Agreement. The definitions herein shall apply equally to
both the singular and the plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include," "includes," and "including"
shall be deemed to be followed by the phrase "without limitation."
9.7 Prohibition Against Assignment; Benefit. Except in connection with a
change in structure permitted by Section 1.1(b), neither this Agreement nor any
right of any party under it may be assigned. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except as otherwise
expressly set forth herein, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
9.8 Notices and Other Communications. Any notice or other communication
under this Agreement must be in writing and will be deemed given when it is
delivered in person or sent by facsimile (with proof of receipt at the number to
which it was required to be sent), on the business day after the day on which it
is sent by a major nationwide overnight delivery service, or on the third
business day after the day on which it is mailed by first class mail from within
the United States of America, to the following addresses (or such other
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address as may be specified after the date of this Agreement by the person to
which the notice or communication is sent):
If to the Company:
Enhance Financial Services Group Inc.
335 Madison Avenue
New York, NY 10017
Attention: General Counsel
Facsimile: 212-682-5377
with a copy to:
David W. Bernstein
Clifford Chance Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Facsimile: 212-878-8375
If to Parent or Sub:
Radian Group Inc.
1601 Market Street
Philadelphia, PA 19103
Attn: General Counsel
Facsimile: 215-405-9160
with a copy to:
Trevor S. Norwitz
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Facsimile: 212-403-2000
9.9 Governing Law. This Agreement will be governed by, and construed
under, the substantive laws of the State of New York, without giving effect to
the conflict of laws principles thereof that would apply the laws of any other
jurisdiction.
9.10 Amendments. This Agreement may be amended by, but only by, a document
in writing signed by both the Company and Parent.
9.11 Counterparts. This Agreement may be executed in two or more
counterparts, some of which may be signed by fewer than all the parties or may
contain facsimile copies of pages signed by some of the parties. Each of those
counterparts will be deemed to be an original copy of this Agreement, but all of
them together will constitute one and the same agreement.
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IN WITNESS WHEREOF, the Company, Parent and Sub have executed this
Agreement, intending to be legally bound by it, on the day shown on the first
page of this Agreement.
ENHANCE FINANCIAL SERVICES
GROUP INC.
By: /s/ DANIEL GROSS
---------------------------------
Name: Daniel Gross
Title: President and CEO
RADIAN GROUP INC.
By: /s/ FRANK FILIPPS
----------------------------------
Name: Frank Filipps
Title: CEO
GOLD ACQUISITION CORPORATION
By: /s/ FRANK FILIPPS
----------------------------------
Name: Frank Filipps
Title: President
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EXHIBIT 4.9-A
FORM OF ENHANCE AFFILIATE LETTER
---------------------------------------------------
, 2000
Radian Group Inc.
1601 Market Street
Philadelphia, PA 19103
Ladies and Gentlemen:
The undersigned, a holder of shares of common stock, par value $.10 per
share ("Enhance Common Stock"), of Enhance Financial Services Group Inc., a New
York corporation ("Enhance"), is entitled to receive in connection with the
merger (the "Merger") of GOLD Acquisition Corporation ("Sub"), a New York
corporation and a wholly owned subsidiary of Radian Group Inc., a Delaware
corporation ("Radian"), with and into Enhance, securities of Radian (the "Radian
Securities"). The undersigned acknowledges that the undersigned may be deemed an
"affiliate" of Enhance as the term affiliate is defined under Rule 144, and
interpreted for purposes of paragraphs (c) and (d) of Rule 145 ("Rule 145") of
the rules and regulations of the Securities and Exchange Commission (the "SEC")
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
If in fact the undersigned were an affiliate under the Securities Act, the
undersigned's ability to sell, assign or transfer the Radian Securities received
by the undersigned in exchange for any shares of Enhance Common Stock in
connection with the Merger may be restricted unless such transaction is
registered under the Securities Act or an exemption from such registration is
available. The undersigned understands that such exemptions are limited and has
discussed with its counsel or counsel for Enhance the nature and condition of
such exemptions to the extent it believed necessary. The undersigned understands
that neither Radian nor Enhance will be required to maintain the effectiveness
of any registration statement under the Securities Act for the purposes of
resale of Radian Securities by the undersigned.
The undersigned hereby represents to and covenants with Radian that the
undersigned will not, directly or indirectly, sell, assign, transfer, or
otherwise dispose of any of the Radian Securities issued to the undersigned in
exchange for shares of Enhance Common Stock in connection with the Merger except
(i) pursuant to an effective registration statement under the Securities Act,
(ii) in conformity with the volume and other limitations of Rule 145 or (iii) in
a transaction which, in the opinion of the general counsel of Radian or other
counsel reasonably satisfactory to Radian or as described in a "no-action" or
interpretive letter from the Staff of the SEC specifically issued with respect
to a transaction to be engaged in by the undersigned, is not required to be
registered under the Securities Act.
In the event of a sale or other disposition by the undersigned of Radian
Securities pursuant to Rule 145, the undersigned will supply Radian with
evidence of compliance with such Rule, in the form of a letter in the form of
Annex I hereto. The undersigned understands that Radian may instruct its
transfer agent to withhold the transfer of any Radian Securities owned by the
undersigned, but that upon receipt of such evidence of compliance or the
availability of an exemption from registration under the Securities Act, the
transfer agent shall effectuate the transfer of Radian Securities sold as
indicated in the letter.
The undersigned acknowledges and agrees that the legend set forth below may
be placed on certificates representing Radian Securities received by the
undersigned in connection with the Merger or held by a transferee thereof, which
legend may be removed by delivery of substitute certificates upon receipt of an
opinion in form and substance reasonably satisfactory to Radian from independent
counsel reasonably satisfactory to Radian to the effect that such legend is no
longer required for purposes of the Securities Act.
There may be placed on the certificates for Radian Securities issued to the
undersigned, or any substitutions therefor, a legend stating in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of 1933
applies. The shares have not been acquired by the holder
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<PAGE> 138
with a view to, or for resale in connection with, any distribution thereof
within the meaning of the Securities Act of 1933. The shares may not be
sold, pledged or otherwise transferred except in accordance with an
exemption from the registration requirements of the Securities Act of
1933."
The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations imposed
upon the distribution, sale, transfer or other disposition of Radian Securities
and (ii) the receipt by Radian of this letter is an inducement to Radian's
obligations to consummate the Merger.
If you are in agreement with the foregoing, please so indicate by signing
below and returning a copy of this letter to the undersigned, at which time this
letter shall become a binding agreement between us.
Very truly yours,
--------------------------------------
Name:
Date:
Agreed and accepted this
day of , 2000
----- ----------
RADIAN GROUP INC.
By
--------------------------------------------
Name:
Title:
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<PAGE> 139
ANNEX I
, 200
Radian Group Inc.
1601 Market Street
Philadelphia, PA 19103
Attention: Corporate Secretary
On , 200 , the undersigned sold the securities
("Securities") of Radian Group Inc. ("Radian") described below in the space
provided for that purpose. The Securities were acquired by the undersigned in
connection with the merger of GOLD Acquisition Corporation, a New York
corporation and wholly owned subsidiary of Radian, with and into Enhance
Financial Services Group Inc., a New York corporation.
Based upon the most recent report or statement filed by Radian with the
Securities and Exchange Commission, the Securities sold by the undersigned were
within the prescribed limitations set forth in paragraph (e) of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Act").
The undersigned hereby represents to Radian that the Securities were sold
in "brokers' transactions" within the meaning of Section 4(4) of the Act or in
transactions directly with a "market maker" as that term is defined in Section
3(a)(38) of the Securities Exchange Act of 1934, as amended. The undersigned
further represents to Radian that the undersigned has not solicited or arranged
for the solicitation of orders to buy the Securities, and that the undersigned
has not made any payment in connection with the offer or sale of the Securities
to any person other than to the broker who executed the order in respect of such
sale.
Very truly yours,
DESCRIPTION OF SECURITIES SOLD:
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<PAGE> 140
EXHIBIT 4.14-A
THIS AGREEMENT (this "Agreement"), dated as of , 2000, is by
and among Radian Group Inc., a Delaware corporation (the "Acquiror") and
(the "Shareholder").
WHEREAS, concurrently herewith, Enhance Financial Services Group Inc., a
New York corporation (the "Company"), the Acquiror and a wholly-owned subsidiary
of the Acquiror are entering into an Agreement and Plan of Merger (as the same
may be amended from time to time, the "Merger Agreement"; capitalized terms used
without definition herein have the meanings ascribed thereto in the Merger
Agreement);
WHEREAS, Shareholder is the beneficial owner of the number of shares of
Company Common Stock set forth in Schedule I hereto (the "Subject Shares");
WHEREAS, approval of the Merger Agreement by the shareholders of the
Company is a condition to the consummation of the Merger; and
WHEREAS, as a condition to its entering into the Merger Agreement, the
Acquiror has required that Shareholder agree, and Shareholder has agreed, to
enter into this Agreement;
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote. (a) Shareholder hereby agrees to attend the
meeting of stockholders of the Company to be called and held for the purpose of
obtaining the approval of the Stockholders of the Company of the Merger
Agreement and the Merger (the "Company Meeting"), in person or by proxy, and to
vote (or cause to be voted) all Subject Shares, and any other voting securities
of the Company that Shareholder owns or has the right to vote (whether such
ownership or right exists as of the date hereof or is obtained thereafter), (i)
for approval and adoption of the Merger Agreement and the Merger and (ii)
against any proposals relating to an acquisition of control of the Company by,
or any other business combination of the Company or any of its subsidiaries
with, any person or entity other than the Acquiror or its affiliates. Such
agreement to vote shall apply also to any adjournment or adjournments of the
Company Meeting, and to any other meeting of shareholders or action by written
consent at which any item of business referred to in the preceding sentence is
presented for approval.
(b) Shareholder hereby agrees that at all times prior to and including the
date of the Company Meeting, Shareholder shall continue to own and have the
right to vote the number and kind of Subject Shares listed in Schedule I hereto.
(c) To the extent inconsistent with the foregoing provisions of this
Section 1, Shareholder hereby revokes any and all previous proxies with respect
to Shareholder's Subject Shares or any other voting securities of the Company.
Section 2. No Solicitation. Shareholder shall not, directly or indirectly,
solicit or encourage (including by way of furnishing information), or take any
other action to facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal
with respect to the Company or any insurance subsidiary of the Company.
Shareholder shall promptly (and in any event, within 24 hours of becoming aware
of an inquiry or proposal) advise the Acquiror orally and in writing of any such
inquiries or proposals of which Shareholder becomes aware. Notwithstanding the
foregoing, no action by a Shareholder who is a director or officer of the
Company at the time of such action, to the extent taken in such capacity and in
compliance with Section 4.6 of the Merger Agreement, shall be deemed to violate
this Section 2.
Section 3. Securities Act Covenants and Representations. Shareholder
hereby agrees and represents to the Acquiror as follows:
(a) Shareholder has been advised that the offering, sale and delivery
of Parent Common Stock pursuant to the Merger will be registered under the
Securities Act on the Registration Statement.
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Shareholder has also been advised, however, that to the extent Shareholder
is considered an "affiliate" of the Company at the time the Merger
Agreement is submitted to a vote of the shareholders of the Company, any
public offering or sale by Shareholder of any Parent Common Stock received
by Shareholder in the Merger will, under current law, require either (i)
the further registration under the Securities Act of any shares of Parent
Common Stock to be sold by Shareholder, (ii) compliance with Rule 145
promulgated by the SEC under the Securities Act or (iii) the availability
of another exemption from such registration under the Securities Act.
Shareholder hereby acknowledges and agrees that the Parent is under no
obligation to register the sale, transfer or other disposition of Parent
Common Stock by Shareholder or on Shareholder's behalf under the Securities
Act, or to take any other action necessary in order to make compliance with
an exemption from such registration available.
(b) Shareholder has read this Agreement and the Merger Agreement and
has discussed their requirements and other applicable limitations upon
Shareholder's ability to sell, transfer or otherwise dispose of Parent
Common Stock, to the extent Shareholder believed necessary, with
Shareholder's counsel or counsel for the Company.
(c) Shareholder also understands that stop transfer instructions will
be given to the Acquiror's transfer agent with respect to Parent Common
Stock and that a legend will be placed on the certificates for the Parent
Common Stock issued to Shareholder, or any substitutions therefor, to the
extent Shareholder is considered an "affiliate" of the Company at the time
the Merger Agreement is submitted to a vote of the shareholders of the
Company.
Section 4. Further Assurances. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of its obligations under this Agreement. Without limiting the generality of the
foregoing, none of the parties hereto shall enter into any agreement or
arrangement (or alter, amend or terminate any existing agreement or arrangement)
if such action would impair the ability of any party to effectuate, carry out or
comply with all the terms of this Agreement. If requested by the Acquiror,
Shareholder agrees to execute a letter to the Acquiror representing that
Shareholder has complied with Shareholder's obligations hereunder as of the date
of such letter.
Section 5. Representations and Warranties of the Shareholder. Shareholder
represents and warrants to the Acquiror that: this Agreement (i) has been duly
authorized, executed and delivered by Shareholder and (ii) constitutes the valid
and binding agreement of Shareholder, enforceable against Shareholder in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws of general
application which may affect the enforcement of creditors' rights generally and
by general equitable principles; Shareholder is the record and beneficial owner
of the Subject Shares set forth on Schedule I, with sole voting and dispositive
power over such Subject Shares (except as may be described on Schedule I); the
Subject Shares listed on Schedule I hereto are the only voting securities of the
Company owned (beneficially or of record) by Shareholder; the Subject Shares are
owned by Shareholder free and clear of all liens, charges, encumbrances,
agreements and commitments of every kind; and neither the execution or delivery
of this Agreement nor the consummation by Shareholder of the transactions
contemplated hereby will violate any provisions of any law, rule or regulation
applicable to Shareholder or any contract or agreement to which Shareholder is a
party, other than such violations of contracts or agreements as would not
prevent or delay the performance by Shareholder of his or her obligations
hereunder or impose any liability or obligation on the Company or the Acquiror.
Section 6. Effectiveness and Termination. It is a condition precedent to
the effectiveness of this Agreement that the Merger Agreement shall have been
executed and delivered by each of the parties thereto and be in full force and
effect. In the event the Merger Agreement is terminated in accordance with its
terms, this Agreement shall automatically terminate and be of no further force
or effect. Upon such termination, except for any rights any party may have in
respect of any breach by any other party of its or his obligations hereunder,
none of the parties hereto shall have any further obligation or liability
hereunder.
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Section 7. Miscellaneous.
(a) Notices, Etc. All notices, requests, demands or other communications
required by or otherwise with respect to this Agreement shall be in writing and
shall be deemed to have been duly given to any party when delivered personally
(by courier service or otherwise), when delivered by telecopy and confirmed by
return telecopy, or seven days after being mailed by first-class mail, postage
prepaid in each case to the applicable addresses set forth below:
If to Shareholder, at the address of Shareholder as set forth on the
shareholder list maintained by or on behalf of the Company;
If to the Acquiror:
Radian Group Inc.
1601 Market Street
Philadelphia, PA 19103
Attn: Howard S. Yaruss
Telecopy: (215) 405-9160
With a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attn: Trevor S. Norwitz, Esq.
Telecopy: (212) 403-2000
or to such other address as such party shall have designated by notice so given
to each other party.
(b) Amendments, Waivers, Etc. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated except by an instrument
in writing signed by the Acquiror and Shareholder.
(c) Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns, including without limitation in the case of any
corporate party hereto any corporate successor by merger or otherwise, and in
the case of any individual party hereto any trustee, executor, heir, legatee or
personal representative succeeding to the ownership of Shareholder's Subject
Shares or other securities subject to this Agreement. Notwithstanding any
transfer of Subject Shares, the transferor shall remain liable for the
performance of all obligations under this Agreement of the transferor.
(d) Entire Agreement. This Agreement embodies the entire agreement and
understanding among the parties relating to the subject matter hereof and
supersedes all prior agreements and understandings relating to such subject
matter. There are no representations, warranties or covenants by the parties
hereto relating to such subject matter other than those expressly set forth in
this Agreement.
(e) Severability. If any term of this Agreement or the application thereof
to any party or circumstance shall be held invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such term to the
other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law, provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
(f) Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that any party may,
in its sole discretion, apply to a court of competent jurisdiction for specific
performance or injunctive or such other relief as such court may deem just and
proper in order to enforce this Agreement or prevent any violation hereof and,
to the extent permitted by applicable law, each party waives any objection to
the imposition of such relief.
A-41
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(g) Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by any party shall not preclude the simultaneous or
later exercise of any other such right, power or remedy by such party.
(h) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(i) No Third-Party Beneficiaries. This Agreement is not intended to be for
the benefit of and shall not be enforceable by any person or entity who or which
is not a party hereto.
(j) No Jury Trial. Each party hereto hereby waives any right to a trial by
jury in connection with any such action, suit or proceeding.
(k) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
(l) Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof.
(m) Counterparts. This Agreement may be executed by facsimile and in any
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one instrument.
(n) Expenses. Each of the Acquiror and Shareholder shall bear its or his
or her own expenses, as the case may be, incurred in connection with this
Agreement and the transactions contemplated hereby, except that in the event of
a dispute concerning the terms or enforcement of this Agreement, the prevailing
party in any such dispute shall be entitled to reimbursement of reasonable legal
fees and disbursements from the other party or parties to such dispute.
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<PAGE> 144
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
RADIAN GROUP INC.
By:
------------------------------------
Name:
Title:
[SHAREHOLDER]
--------------------------------------
Name:
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<PAGE> 145
SCHEDULE I
SHARE OWNERSHIP
<TABLE>
<S> <C>
----------------------------------------------------- -----------------------------------------------------
Name Shares owned as of the date hereof
</TABLE>
A-44
<PAGE> 146
ANNEX B
November 12, 2000
Board of Directors
Enhance Financial Services Group Inc.
335 Madison Avenue
New York, New York 10017
Members of the Board:
We understand that Enhance Financial Services Group Inc. ("Enhance"),
Radian Group Inc. ("Radian") and GOLD Acquisition Corporation, a wholly owned
subsidiary of Radian ("Merger Sub"), propose to enter into an Agreement and Plan
of Merger, substantially in the form of the draft dated November 5, 2000 (the
"Merger Agreement"), which provides, among other things, for the merger (the
"Merger") of Merger Sub with and into Enhance. Pursuant to the Merger, Enhance
will become a wholly owned subsidiary of Radian and each outstanding share of
common stock, $.10 par value (the "Enhance Common Stock"), other than shares
held in treasury or held by any direct or indirect wholly owned subsidiary of
Enhance, will be converted into the right to receive 0.22 of a share (the
"Exchange Ratio") of common stock, par value $.001 per share, of Radian (the
"Radian Common Stock"), subject to adjustment under certain circumstances. The
terms and conditions of the Merger are more fully set forth in the Merger
Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to the holders of
shares of Enhance Common Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Enhance and Radian;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning Enhance and Radian;
(iii) analyzed certain financial projections prepared by the
management of Enhance;
(iv) discussed the past and current operations and financial condition
and the prospects of Enhance with senior executives of Enhance;
(v) discussed the past and current operations and financial condition
and the prospects of Radian with senior executives of Radian;
(vi) reviewed the reported prices and trading activity for the Enhance
Common Stock and the Radian Common Stock;
(vii) compared the financial performance of Enhance and Radian and the
prices and trading activity of the Enhance Common Stock and the Radian
Common Stock with that of certain other comparable publicly-traded
companies and their securities;
(viii) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(ix) participated in discussion and negotiations among representatives
of Enhance and Radian and their financial and legal advisors;
(x) reviewed the draft Merger Agreement and certain related documents;
and
(xi) considered such other factors and performed such other analyses
as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have
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<PAGE> 147
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial performance
of Enhance and Radian. In addition, we have assumed that the Merger will be
consummated in accordance with the terms set forth in the Merger Agreement,
including, among other things, that the Merger will be treated as a tax-free
reorganization and/or exchange, each pursuant to the Internal Revenue Code of
1986. We also have assumed that in connection with the receipt of all the
necessary regulatory approvals for the proposed Merger, no restrictions will be
imposed that would have a material adverse effect on the contemplated benefits
expected to be derived in the proposed Merger. We have not made any independent
valuation or appraisal of the assets or liabilities of Enhance, nor have we been
furnished with any such appraisals. Our opinion is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
In arriving at our opinion we have considered several factors which could
have a negative impact on Enhance's business and prospects, including the August
1999 decision by Moody's Investor Service ("Moody's") to downgrade the senior
long term debt rating from Aa3 to A2 and the insurance financial strength rating
of Enhance Reinsurance Company, a wholly owned subsidiary of Enhance, from Aaa
to Aa2. In February 2000, Moody's placed such senior long term debt and
insurance financial strength ratings under review for possible further
downgrade. We have been advised by Enhance that such further downgrades could
significantly impact Enhance's ability to retain existing business and write new
business. We are also aware that Enhance's net loss incurred for the second
quarter of 2000 required Enhance to seek a waiver of certain covenants, which it
has received, pursuant to its unsecured credit facility to pay its third quarter
2000 dividend, and that such a waiver will likely be required to pay future
dividends.
We have acted as financial advisor to the Board of Directors of Enhance in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Enhance and have received fees for
the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of Enhance only and may not be used for any other purpose without our
prior written consent. In addition, this opinion does not in any manner address
the prices at which the Radian Common Stock will trade following consummation of
the Merger, and Morgan Stanley & Co. Incorporated expresses no opinion or
recommendation as to how the shareholders of Enhance and Radian should vote at
the shareholders' meetings held in connection with the Merger.
Based on and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from the
financial point of view to the holders of shares of the Enhance Common Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ STEVEN J. GOULART
------------------------------------
Steven J. Goulart
Managing Director
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<PAGE> 148
ANNEX C
PERSONAL AND CONFIDENTIAL
----------------------------------------
November 13, 2000
Board of Directors
Radian Group Inc.
1601 Market Street
Philadelphia, Pennsylvania 19103
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Radian Group, Inc. ("Parent") of the Exchange Ratio (as defined below)
proposed to be paid by Parent pursuant to the Agreement and Plan of Merger,
dated as of November 13, 2000 (the "Agreement"), among Enhance Financial
Services Group Inc. ("Enhance"), Parent and GOLD Acquisition Corporation, a
wholly-owned subsidiary of Parent ("Sub"). Pursuant to the Agreement, at the
Effective Time (as defined in the Agreement), Sub will merge with and into
Enhance (the "Merger") and each issued and outstanding share of Common Stock,
par value $0.10 per share (each, a "Share"), of Enhance will be converted into
the right to receive 0.22 of a share of Common Stock, par value $0.001 per share
("Parent Common Stock"), of Parent, as such ratio may be adjusted pursuant to
the Agreement if the Singer September 30 Net Worth (as defined in the Agreement)
shall be less than $36 million (the "Exchange Ratio"). We understand that the
Agreement permits Enhance to sell Credit2B prior to closing the Merger and
distribute a dividend equal to not more than sixty percent of Excess Credit2B
Proceeds (as defined in the Agreement).
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with Parent having provided certain investment banking services to
Parent from time to time, including having acted as its financial advisor in
connection with, and having participated in certain of the negotiations leading
to, the Agreement.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K for
each of Parent and Enhance for the five years ended December 31, 1999; Statutory
Financial Statements of Enhance Reinsurance Company and Asset Guaranty Insurance
Company, wholly-owned subsidiaries of Enhance, and Radian Guaranty Inc. and
Amerin Guaranty Corporation, both wholly-owned subsidiaries of Parent, for the
five years ended December 31, 1999; certain interim reports to stockholders and
Quarterly Reports on Form 10-Q for each of Parent and Enhance; certain other
communications from Parent and Enhance to their respective stockholders; certain
internal financial analyses and forecasts for Enhance prepared by the management
of Enhance; and certain internal financial analyses and forecasts for Enhance
and Parent (after giving effect to the Merger), including the forecasts relating
to the conduct of the businesses of Singer and Van-American Insurance Company
following the closing of the Merger and after giving effect to the loss and
loss-adjustment-expense reserves and other accounting adjustments expected to be
made at or prior to closing of the Merger (the "accounting adjustments"),
prepared by the management of Parent (the "Forecasts"). We also have held
discussions with members of the senior management of Parent and Enhance
regarding their assessment of the strategic rationale for, and the potential
benefits of, the Merger and the past and current business operations, financial
condition and future prospects of their respective companies. As you are aware,
audited financial statements with respect to Singer Asset Finance Company, LLC,
a wholly-owned subsidiary of Enhance ("Singer"), do not exist and the Merger is
conditioned on, among other things, the receipt of audited financial statements
for Singer reflecting a net worth of not less than $1.00. In addition, we have
reviewed the reported price and trading activity for the Shares and the shares
of Parent Common Stock, compared certain financial and stock market information
for Parent and Enhance with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations in the
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<PAGE> 149
Radian Group, Inc.
November 13, 2000
Page 2
financial guarantor industry specifically and in other industries generally and
performed such other studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information discussed with or reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. In that
regard, we have assumed with your consent that the Forecasts have been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of Parent and that the Forecasts will be realized in the amounts
and time periods contemplated thereby. We are not actuaries and our services did
not include actuarial determinations or evaluations by us or any attempt to
evaluate actuarial assumptions and, in that regard, we have assumed the adequacy
of the loss and loss-adjustment-expense reserves and the accounting adjustments
reflected in the Forecasts and we understand that with respect to all loss and
loss-adjustment-expense reserves you have relied upon actuarial opinions,
reports and advice of actuarial advisors to Parent. In addition, we have not
made an independent evaluation or appraisal of the assets and liabilities,
contingent or otherwise, of Enhance or any of its subsidiaries (including any
derivative or off-balance-sheet assets or liabilities or loss and
loss-adjustment-expense reserves) and we have not been furnished with any such
evaluation or appraisal other than the actuarial opinions, reports and advice of
actuarial advisors referred to in the preceding sentence. We also have assumed
that all governmental, regulatory or other conditions, consents or approvals
required for the consummation of the Merger will be obtained or satisfied
without any adverse effect on Enhance, Parent or on the contemplated benefits of
the transaction contemplated by the Agreement as reflected in Forecasts. Our
advisory services and the opinion expressed herein are provided for the
information and assistance of the Board of Directors of Parent in connection
with its consideration of the Merger and such opinion does not constitute a
recommendation as to how any holder of shares of Parent Common Stock should vote
with respect to the transactions contemplated by the Agreement.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio proposed to be paid by Parent pursuant to the Agreement is fair
from a financial point of view to Parent.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
--------------------------------------
(GOLDMAN, SACHS & CO.)
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation, in its certificate of incorporation, to limit or eliminate, subject
to certain statutory limitations, the liability of directors to the corporation
or its stockholders for monetary damages for breaches of fiduciary duty, except
for liability (a) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the Delaware General Corporation Law, or (d) for any transaction
from which the director derived an improper personal benefit. Articles Eighth
and Ninth of Radian's Certificate of Incorporation provide that the directors of
the corporation shall be protected from personal liability, through
indemnification or otherwise, and Article Ninth of Radian's Certificate of
Incorporation provides that officers of the corporation shall be indemnified, in
each case, to the fullest extent permitted under the General Corporation Law of
the State of Delaware as from time to time in effect.
Under Section 145 of the Delaware General Corporation Law, a corporation
has the power to indemnify directors and officers under certain prescribed
circumstances and subject to certain limitations against certain costs and
expenses, including attorneys' fees actually and reasonably incurred in
connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which any of them is a party by reason of
being a director or officer of the corporation if it is determined that the
director or officer acted in accordance with the applicable standard of conduct
set forth in such statutory provision. Article Seventh of Radian's Bylaws
provides that Radian will indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that he is or was a director, officer
or other authorized representative of Radian, or is or was serving at the
request of Radian as a director, officer, employee or agent of another entity,
against certain liabilities, costs and expenses. Article Seventh further permits
Radian to maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of Radian, or is or was serving at the request of
Radian as a director, officer, employee or agent of another entity, against any
liability asserted against such person and incurred by such person in any such
capacity or arising out of his status as such, whether or not Radian would have
the power to indemnify such person against such liability under the Delaware
General Corporation Law. Article Seven of the Bylaws of Radian facilitates
enforcement of the right of directors and officers to be indemnified by
establishing such right as a contract right pursuant to which the person
entitled thereto may bring suit as if the indemnification provisions of the
Bylaws were set forth in a separate written contract between Radian and the
director or officer.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. See Index to Exhibits.
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(d) The undersigned registrant hereby undertakes that every prospectus: (i)
that is filed pursuant to paragraph (c) immediately preceding, or (ii) that
purports to meet the requirements of Sections 10(a)(3) of the Securities Act and
is used in connection with an offering of securities subject to Rule 415, will
be filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Philadelphia,
Commonwealth of Pennsylvania, on December 26, 2000.
RADIAN GROUP INC.
By: /s/ FRANK P. FILIPPS
------------------------------------
Frank P. Filipps
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated. Each person whose signature appears
below in so signing also makes, constitutes and appoints Frank P. Filipps, C.
Robert Quint and Howard S. Yaruss, his or her true attorney-in-fact, with full
power of substitution, for him or her in any and all capacities, to execute and
cause to be filed with the Securities and Exchange Commission any or all
amendments and post-effective amendments to this registration statement, with
exhibits thereto and other documents in connection therewith, and hereby
ratifies and confirms all that said attorney-in-fact or his substitute or
substitutes may do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ FRANK P. FILIPPS Chairman of the Board and December 26, 2000
--------------------------------------------------- Chief Executive Officer
Frank P. Filipps (Principal Executive Officer)
/s/ C. ROBERT QUINT Executive Vice President and December 26, 2000
--------------------------------------------------- Chief Financial Officer
C. Robert Quint (Principal Financial and
Accounting Officer)
/s/ HOWARD S. YARUSS Senior Vice President, December 26, 2000
--------------------------------------------------- Secretary and General
Howard S. Yaruss Counsel
/s/ STEPHEN T. HOPKINS Director December 26, 2000
---------------------------------------------------
Stephen T. Hopkins
/s/ ROBERT W. RICHARDS Director December 26, 2000
---------------------------------------------------
Robert W. Richards
Director
---------------------------------------------------
Anthony W. Schweiger
/s/ JAMES C. MILLER Director December 26, 2000
---------------------------------------------------
James C. Miller
</TABLE>
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<PAGE> 153
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JAMES W. JENNINGS Director December 22, 2000
---------------------------------------------------
James W. Jennings
Director
---------------------------------------------------
Roy J. Kasmar
/s/ LARRY E. SWEDROE Director December 22, 2000
---------------------------------------------------
Larry E. Swedroe
/s/ HERBERT WENDER Director December 26, 2000
---------------------------------------------------
Herbert Wender
/s/ DAVID C. CARNEY Director December 26, 2000
---------------------------------------------------
David C. Carney
/s/ HOWARD B. CULANG Director December 22, 2000
---------------------------------------------------
Howard B. Culang
/s/ DR. CLAIRE M. FAGIN Director December 26, 2000
---------------------------------------------------
Dr. Claire M. Fagin
Director
---------------------------------------------------
Rosemarie Greco
/s/ RONALD W. MOORE Director December 22, 2000
---------------------------------------------------
Ronald W. Moore
</TABLE>
II-4
<PAGE> 154
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of November 13, 2000,
by and between Radian Group Inc., GOLD Acquisition
Corporation and Enhance Financial Services Group Inc.
(included as Annex A to the accompanying Joint Proxy
Statement/Prospectus included in this Registration
Statement).
2.2 Shareholder Support Agreement by and among Radian Group Inc.
and Daniel Gross, dated as of November 18, 2000.*
2.3 Shareholder Support Agreement by and among Radian Group Inc.
and Wallace O. Sellers, dated as of November 18, 2000.*
2.4 Shareholder Support Agreement by and among Radian Group Inc.
and Allan R. Tessler, dated as of November 18, 2000.*
3.1 Certificate of Incorporation of the Registrant, as amended
(incorporated by reference to Exhibit 3.1 to the
Registrant's Form 10-K filed on March 31, 2000,
incorporating by reference to Appendix II to the
Registrant's DEF 14A filed May 11, 1999).
3.2 Bylaws of the Registrant, as amended (incorporated by
reference to Exhibit 3.2 to the Registrant's Form 10-K filed
on March 31, 2000, incorporating by reference to Exhibit 3.2
to the Registrant's Registration Statement on Form S-4 filed
May 6, 1999).
4.1 Specimen certificate for $4.125 Preferred Stock of the
Registrant (incorporated by reference to Exhibit 4.1 to the
Registrant's Form 10-K filed on March 31, 2000).
4.2 Certificate of Designations relating to $4.125 Preferred
Stock of the Registrant (incorporated by reference to
Exhibit 4.2 to the Registrant's Form 10-K filed on March 31,
2000, incorporating by reference to Exhibit 4.2 to the
Registrant's Form 10-K filed on March 30, 1993).
4.3 Amended and Restated Rights Agreement (incorporated by
reference to Exhibit 4.5 to the Registrant's Form 10-K filed
on March 31, 2000, incorporating by reference to Exhibit 4.4
to the Registrant's Registration Statement on Form S-4 filed
May 6, 1999).
4.4 Standstill and Voting Agreement dated October 27, 1992
between the Registrant and Reliance Group Holdings, Inc.
(incorporated by reference to Exhibit 4.4 to the
Registrant's Form 10-K filed on March 31, 2000,
incorporating by reference to Exhibit 4.4 to the
Registrant's Form 10-K filed on March 30, 1993).
5.1 Opinion of Howard S. Yaruss, Senior Vice President,
Secretary and General Counsel of the Registrant, as to the
legality of the securities being registered.**
8.1 Opinion of Wachtell, Lipton, Rosen & Katz as to certain U.S.
federal income tax matters.**
8.2 Opinion of Clifford Chance Rogers & Wells LLP as to certain
U.S. federal income tax matters.**
23.1 Consent of Deloitte & Touche LLP*
23.2 Consent of Deloitte & Touche LLP*
99.1 Form of Proxy to be used by Radian Group Inc.**
99.2 Form of Proxy to be used by Enhance Financial Services Group
Inc.**
99.3 Opinion of Goldman, Sachs & Co. (included as Annex C to the
Joint Proxy Statement/ Prospectus included in this
Registration Statement).
99.4 Opinion of Morgan Stanley & Co. Incorporated. (included as
Annex B to the Joint Proxy Statement/Prospectus included in
this Registration Statement).
</TABLE>
---------------
* Filed herewith
** To be filed by amendment
