AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 2002
REGISTRATION NO. 333-86626
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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RADIAN GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 23-2691170
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1601 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103
(215) 564-6600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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HOWARD S. YARUSS
EXECUTIVE VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
RADIAN GROUP INC.
1601 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103
(215) 564-6600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPY TO:
STEVEN C. ROBBINS, ESQ.
REED SMITH LLP
ONE LIBERTY PLACE, 1650 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103
(215) 851-8100
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement, as determined
by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
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If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registrations statement number of the earlier effective registration statement
for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED JULY , 2002.
[RADIAN LOGO]
RADIAN GROUP INC.
$220,000,000 2.25% SENIOR CONVERTIBLE DEBENTURES DUE 2022
AND
3,809,524 SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE DEBENTURES
($57.75 PER SHARE)
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This prospectus covers the resale by the selling securityholders, listed
beginning on page 53 herein, of our 2.25% Senior Convertible Debentures, and
shares of our common stock issuable upon conversion of the debentures.
Shares of our common stock are quoted on the New York Stock Exchange under
the symbol "RDN." The last reported sale price of the shares on May 29, 2002,
was $53.20 per share.
We do not intend to list the debentures for trading on any securities
exchange or any automated quotation system.
Pursuant to the terms of the indenture, we and each holder of the
debentures will agree, for United States federal income tax purposes, to treat
the debentures as indebtedness that is subject to the regulations governing
contingent payment debt instruments. See "United States Taxation."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING THESE SECURITIES.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is July , 2002.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and historical consolidated financial statements, including the
notes to those financial statements, appearing elsewhere in, or incorporated by
reference to, this prospectus. Investors should carefully consider the
information set forth under "Risk Factors." Throughout this prospectus, unless
the context otherwise requires, the term "Radian Group" refers to Radian Group
Inc. and the terms "we," "us" and "our" refer to Radian Group Inc. and its
subsidiaries.
RADIAN GROUP INC.
OUR BUSINESSES
We are a broad based credit enhancement company. We are a leading provider
of private mortgage insurance coverage, mortgage related services and financial
guaranty insurance. We have been a provider of private mortgage insurance in the
United States since 1978. Our current strategic focus is to diversify our
product offering both domestically and internationally through completed
acquisitions and introductions of new products. This diversification is well
underway.
Our private mortgage insurance business covers residential first mortgage
loans and expands home ownership opportunities by enabling people to purchase
homes with less than 20% down payments. Private mortgage insurance also
facilitates the sale of mortgage loans in the secondary mortgage market,
principally to Fannie Mae and Freddie Mac. We also provide credit insurance on
non-traditional mortgage related assets, such as second mortgages and
manufactured housing, and provide credit enhancement to mortgage related capital
market transactions. Our mortgage insurance subsidiaries have claims paying
ratings of "AA" (excellent) by Standard & Poor's Rating Services, a division of
McGraw-Hill Companies, Inc. referred to herein as S&P, and Fitch Ratings,
referred to herein as Fitch, and a financial strength rating of "Aa3"
(excellent) by Moody's Investors Service, Inc., referred to herein as Moody's.
Our mortgage insurance subsidiaries generated 77.7% of our total consolidated
earnings for the year ended December 31, 2001.
In addition to private mortgage insurance, we provide a wide range of
mortgage services, including internet-based mortgage processing, closing and
settlement services that reduce the cost and time needed for our customers to
close on loans. We also purchase, service and securitize credit impaired and
seller financed residential mortgages, and we purchase and service delinquent
unsecured consumer assets. Our mortgage services subsidiaries generated 6.7% of
our total consolidated earnings for the year ended December 31, 2001. For
purposes of this summary, we have included the results of RadianExpress.com,
Inc. (formerly known as ExpressClose.com, Inc.) in mortgage services because it
is more consistent with our strategy of diversifying our revenue base through
expanded mortgage services.
Our financial guaranty business focuses on both directly insuring and
reinsuring municipal bonds and structured products such as asset-backed
obligations and credit default swaps. We believe there will be substantial
opportunities for growth in the financial guaranty sector, particularly in the
direct structured product business. Through Radian Reinsurance Inc. (formerly
known as Enhance Reinsurance Company and referred to herein as "Radian
Reinsurance"), we reinsure financial guaranties of municipal and structured
product debt obligations from primary monoline financial guaranty companies.
Radian Reinsurance has a financial strength rating of "AAA" by S&P and Fitch and
"Aa2" by Moody's. Through Radian Asset Assurance Inc. (formerly known as Asset
Guaranty Insurance Company and referred to herein as Radian Asset Assurance), we
are a direct writer of municipal bond insurance and financial guaranty insurance
for structured finance products, including credit default swaps and asset-backed
transactions and we also write trade credit reinsurance. Radian Asset Assurance
has a claims paying ability rating of "AA" by S&P and Fitch. Our financial
guaranty subsidiaries generated 15.6% of our total consolidated earnings for the
year ended December 31, 2001.
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Our consolidated net income was $248.9 million for the year ended December
31, 2000, and $360.4 million for the year ended December 31, 2001. As of
December 31, 2001, our total assets were $4.4 billion and our shareholders'
equity was $2.3 billion.
OUR STRATEGY
Our primary objective is to be a global credit enhancement services company
providing superior returns while diversifying our product offering. The key
components of our strategy are as follows:
- Continue to grow our U.S. mortgage insurance and financial guaranty
businesses;
- Leverage our core competencies in new businesses, both domestically and
internationally; and
- Focus on being a low cost provider of services through technology and
risk management.
Our principal executive offices are located at 1601 Market Street,
Philadelphia, Pennsylvania 19103. Our telephone number is (215) 564-6600, and
our internet address is www.radiangroupinc.com. The information contained on
that web site is not incorporated by reference in this prospectus and shall not
be considered a part of this prospectus.
THE OFFERING
Issuer........................ Radian Group Inc.
Securities Offered............ $220,000,000 aggregate principal amount of
2.25% Senior Convertible Debentures due 2022.
Offering Price................ Each debenture will be issued at a price equal
to 100% of its principal amount plus accrued
interest, if any, from January 11, 2002.
Maturity Date................. January 1, 2022.
Ranking....................... The debentures will be senior unsecured
obligations of ours and will rank equal in
right of payment with all our existing and
future senior unsecured indebtedness including
$250,000,000 in principal amount of our 7.75%
Debentures due 2011.
Also, as of the date of this prospectus, we
have no secured indebtedness and $75,000,000 of
outstanding debt of our subsidiaries which is
structurally senior to the debentures.
Interest Payment Dates........ January 1 and July 1, beginning July 1, 2002.
Interest Rate................. 2.25% per annum.
Contingent Interest........... The interest rate on the debentures will
increase to the reset rate for any semi-annual
period commencing on January 1, 2005, 2007,
2009, 2012 and 2017, each of which we refer to
as a reset rate determination date, if the
trading price condition for that semi-annual
period is satisfied. The trading price
condition is satisfied for any semi-annual
period if the closing sale price of our common
stock for any 20 out of the last 30 trading
days ending five days prior to the first day of
such semi-annual period is
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less than or equal to 60% of the conversion
price of the debentures in effect for each of
those 20 trading days.
Following an increase to the reset rate, the
interest rate on the debentures will remain the
reset rate unless and until the first day of a
subsequent semi-annual period for which the
trading price condition is not satisfied, at
which time the interest rate on the debentures
will revert to 2.25% per annum and will remain
at such rate unless and until the trading price
condition is satisfied for a semi-annual period
commencing on a subsequent reset rate
determination date.
If the reset rate is in effect for a particular
semi-annual period, we will pay a portion of
any increase represented by the change to the
reset rate as cash interest at an annualized
rate of 0.35% per annum (0.175% per semi-annual
period) and any remaining increase in interest
will be added to the principal amount of the
debentures (but which will not affect the
number of shares of common stock issuable upon
conversion of the debentures) and will be
accrued and payable at maturity, upon any
repurchase at the option of the holder or upon
any optional redemption by us.
The reset rate determined as of each reset rate
determination date will be equal to 75% of the
rate that would, in the sole judgment of the
reset rate agent, result in a trading price of
par of a hypothetical issue of senior,
nonconvertible, noncontingent, fixed rate debt
securities of ours with:
- a final maturity comparable to the
debentures;
- an aggregate principal amount equal to the
principal amount of the debentures then
outstanding; and
- covenants and other provisions that are,
insofar as would be practicable for an issue
of senior, nonconvertible, noncontingent,
fixed-rate debt securities, substantially
identical to those of the debentures, but
which are not subject to repurchase by us at
the option of the holder.
In no case, however, will the reset rate ever
be greater than 12% or less than 2.60%. Also,
if the reset rate agent has not established the
reset rate for the applicable semi-annual
period, or if the reset rate agent determines
in its sole judgement that there is no suitable
reference rate from which the reset rate may be
determined, the reset rate for that period will
be the reset rate most recently determined.
This is true except if there is no reset rate
most recently determined, in which case the
reset rate shall be a rate mutually agreed upon
by the reset rate agent and us reflecting
current market conditions. The reset rate will
remain in effect until the reset rate agent
determines that
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there is a suitable reference rate at which
time the reset rate agent shall determine a new
reset rate.
Conversion Rights............. Holders may convert their debentures prior to
stated maturity under any of the following
circumstances:
- during any conversion period if the closing
sale price of our common stock for at least
20 trading days in the 30 trading day period
ending on the first day of such conversion
period is more than 120% of the conversion
price on that thirtieth trading day;
- during the five business day period following
any 10 consecutive trading-day period in
which the average of the trading prices, as
defined in this prospectus, for a debenture
was less than 105% of the average sale
prices, as defined in this prospectus, of our
common stock multiplied by the number of
shares into which such debenture is then
convertible;
- during any period after the 30th day
following the initial issuance of the
debentures that the credit rating assigned to
the debentures by both Moody's and S&P is
below Baa3 and BBB-, respectively, or if
neither rating agency is rating the
debentures;
- if we have called the debentures for
redemption; or
- upon the occurrence of specified corporate
transactions described under "Description of
the Debentures -- Conversion Rights."
For each $1,000 in principal amount of
debentures surrendered for conversion, a holder
initially will receive 17.316 shares of our
common stock. This represents an initial
conversion price of $57.75 per share of common
stock. The conversion rate (and the conversion
price) may be adjusted for certain reasons, but
will not be adjusted for accrued interest, if
any. Upon conversion, holders will not receive
any cash payment representing accrued interest.
Instead, accrued interest will be deemed paid
by the common stock received by holders on
conversion. Debentures or portions of
debentures called for redemption will be
convertible by the holder until the close of
business on the second business day prior to
the redemption date.
A "conversion period" will be the period from
and including the thirtieth trading day in a
fiscal quarter to but not including the
thirtieth trading day in the immediately
following fiscal quarter.
Sinking Fund.................. None.
Optional Redemption by Radian
Group....................... We may not redeem the debentures prior to
January 1, 2005. We may redeem some or all of
the debentures on or after January 1, 2005, for
a price equal to the principal amount of the
debentures plus any accrued and unpaid
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interest, including contingent interest and
additional interest, if any, on such redemption
date.
Repurchase Right of Holders... Each holder of the debentures may require us to
repurchase all or a portion of his, her or its
debentures on January 1, 2005, 2007, 2009, 2012
and 2017 at a price equal to the principal
amount thereof plus any accrued and unpaid
interest, including contingent interest and
additional interest, if any, to the date of
purchase. We may choose to pay the purchase
price in cash, common stock, or a combination
of cash and shares of our common stock. If we
elect to pay all or a portion of the purchase
price in common stock, the shares of common
stock will be valued at 97.5% of the average
closing sale price for the 20 trading days
ending on the third day prior to the repurchase
date.
Change of Control............. Upon a change of control of Radian Group, the
holder may require us, subject to certain
conditions, to repurchase all or a portion of
his, her or its debentures. We will pay a
purchase price equal to the principal amount of
such debentures plus any accrued and unpaid
interest, including contingent interest and
additional interest, if any, to the purchase
date. We may choose to pay the purchase price
in cash, common stock, or a combination of cash
and shares of our common stock. If we elect to
pay all or a portion of the purchase price in
common stock, the shares of our common stock
will be valued at 97.5% of the average sale
price for 20 trading days ending on the third
day prior to the repurchase date.
Events of Default............. If there is an event of default on the
debentures, the principal amount of the
debentures, plus any accrued and unpaid
interest, including contingent interest and
additional interest, if any, may be declared
immediately due and payable. These amounts
automatically become due and payable in
specified circumstances described under
"Description of the Debentures -- Events of
Default."
NYSE Symbol for our Common
Stock....................... Our common stock is traded on the New York
Stock Exchange under the symbol "RDN."
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RISK FACTORS
Our future results may be affected by the following material risks and
uncertainties:
RISKS IN GENERAL
LOSING THE BUSINESS OF ANY MAJOR CUSTOMER COULD HARM OUR FINANCIAL PERFORMANCE
Since our formation by the merger of Amerin Corporation into CMAC
Investment Corporation on June 9, 1999, we have been dependent on a small number
of customers for a substantial portion of our business risk. Our top 10 mortgage
insurance customers were responsible for 46.1% of the direct primary risk in
force, which refers to an aggregate amount equal to the principal amount of each
of our insured loans multiplied by the percentage of that loan insured by us, at
December 31, 2001. Our top 10 mortgage insurance customers were also responsible
for 45.0% of our primary new insurance written in 2001.
The concentration of business with our lenders may increase as a result of
mergers or other factors. Such lenders may reduce the amount of business
currently given to us or cease doing business with us altogether. Our master
policies and related lender agreements do not, and by law cannot, require our
lenders to do business with us. The loss of business from any major lender could
materially adversely affect our business and financial results.
Radian Reinsurance currently derives substantially all of its reinsurance
premium revenues from four primary insurers. In addition, 42.0% of the total
gross premiums of Radian Reinsurance and Radian Asset Assurance were also
derived from these four primary insurers in 2001, as follows:
PERCENTAGE OF
2001 GROSS
NAME PREMIUMS
---- -------------
MBIA Insurance Corporation.................................. 18.8%
Financial Security Assurance Inc............................ 15.2%
Ambac Assurance Corporation................................. 6.0%
Financial Guaranty Insurance Company........................ 2.0%
A substantial reduction in the amount of insurance ceded by one or more of
these four principal clients could have a material adverse effect on Radian
Reinsurance's gross written premiums and, consequently, our results of
operations.
INCREASED CLAIMS AND LOSSES ON POLICIES COULD HARM FINANCIAL PERFORMANCE
The factors identified below affect our industry in general and will affect
us. Any of these factors could cause claims and losses on the policies issued by
us to increase. Any increase in claims and losses may materially adversely
affect our financial condition and results of operations.
(1) THE CONCENTRATION OF OUR BUSINESS IN RELATIVELY FEW STATES COULD INCREASE
CLAIMS AND LOSSES
We can be particularly affected by economic downturns in states where large
portions of our business are concentrated. As of December 31, 2001, our
subsidiary Radian Guaranty Inc.
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(referred to herein as "Radian Guaranty") had a relatively high percentage of
primary risk in force concentrated in the following 10 states:
PERCENTAGE OF
DIRECT PRIMARY
RISK IN FORCE
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- California 16.4%
- Florida 7.4%
- New York 6.4%
- Texas 5.2%
- Georgia 4.4%
- Arizona 4.0%
- New Jersey 3.8%
- Illinois 3.6%
- Pennsylvania 3.6%
- Colorado 2.8%
Continued and prolonged adverse economic conditions in these states could
result in high levels of claims and losses. In addition, refinancing activity,
which is the payoff of an existing mortgage loan combined with the establishment
of a new mortgage loan, such as that which occurred in 1998 and 2001, and which
is expected to occur at reduced levels in 2002, can have the effect of
concentrating insurance in force in economically weaker areas, since loans in
areas experiencing property value appreciation are less likely to require
mortgage insurance at the time of refinancing than are loans in areas
experiencing limited or no property value appreciation.
Radian Reinsurance and Radian Asset Assurance also had relatively high
percentages of insurance in force concentrated in six states (California, New
York, Florida, Texas, Pennsylvania and Illinois) which accounted for 40.3% of
their insurance in force at December 31, 2001.
(2) WE CANNOT CANCEL POLICIES OR ADJUST RENEWAL PREMIUMS TO PROTECT OURSELVES
FROM ADDITIONAL RISK, UNANTICIPATED CLAIMS OR LOSSES
Generally, we cannot cancel mortgage insurance coverage we provide. Also,
we generally fix renewal premium rates for the life of the policy when issued.
If the risk underlying a particular product develops more adversely than
anticipated or if national and regional economies undergo unanticipated stress,
we cannot increase renewal premium rates or cancel coverage to offset against
such adverse developments.
Similarly, we generally cannot cancel the financial guaranty insurance
coverage we provide and premiums are generally fixed at issuance of the policy.
If the risk underlying a particular financial guaranty coverage develops more
adversely than anticipated, or if national and regional economies undergo
unanticipated stress, we cannot generally increase premium rates under existing
coverage or cancel coverage to offset against such adverse developments.
(3) A SIGNIFICANT PORTION OF OUR RISK IN FORCE CONSISTS OF LOANS WITH
LOAN-TO-VALUE RATIOS IN EXCESS OF 90%, WHICH GENERALLY RESULT IN MORE
CLAIMS THAN LOANS WITH LOWER LOAN-TO-VALUE RATIOS
The loan-to-value ratio is the ratio of the original loan amount to the
value of the property. At December 31, 2001:
- 49.5% of our primary risk in force consisted of mortgage loans with
loan-to-value ratios, (referred to herein as LTVs), greater than 90.01%;
- 43.5% of our primary risk in force consisted of mortgage loans with LTVs
greater than 90.01%, but less than or equal to 95.00%;
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- 6.0% of our primary risk in force consisted of mortgage loans with LTVs
greater than 95.00%; and
- 13.7% of our primary risk in force consisted of adjustable rate mortgage
loans.
Loans with LTVs greater than 90% are expected to have claim incidence rates
substantially higher than mortgage loans with LTVs equal to or less than 90%. In
the case of adjustable rate mortgage loans, such loans generally have higher
claim incidence rates than fixed rate loans.
(4) PREMIUM RATES MAY GENERATE INSUFFICIENT INCOME TO COVER LOSSES
Our mortgage insurance premium rates are based upon the expected risk of
claim on the insured loan, and take into account the LTVs, loan type, mortgage
term, occupancy status and coverage percentage. Similarly, our financial
guaranty premiums rates are based upon the expected risk of claim on the insured
obligation, and take into account, among other factors, the credit rating and
worthiness of the issuer of insured obligations, the type of insured obligation,
the policy term and the structure of the transaction being insured. In addition,
the premium rates take into account persistency, operating expenses and
reinsurance costs, as well as profit and capital needs and the prices offered by
competitors. However, premiums earned, and the associated investment income, may
ultimately prove to be inadequate to compensate for future losses. Some of our
loans are classified as "Alt-A" and "A minus." These loan programs enable
borrowers with either less than normal documentation or less than ideal credit
histories to obtain mortgages and mortgage insurance and are considered riskier
than our general portfolio. At December 31, 2001, Alt-A loans constituted 9.4%
and A minus loans constituted 7.8% of Radian Group's primary risk in force.
(5) GENERAL ECONOMIC FACTORS MAY ADVERSELY AFFECT OUR LOSS EXPERIENCE
We believe that our loss experience, and the loss experience of other
mortgage insurers and financial guarantors, would be materially and adversely
affected by extended national or regional economic recessions, falling housing
values, rising unemployment rates, interest rate volatility or combinations of
such factors. Such economic events could also materially adversely impact the
demand for housing and, consequently, mortgage insurance.
(6) THE MAJORITY OF CLAIMS UNDER PRIVATE MORTGAGE INSURANCE POLICIES HAVE
HISTORICALLY OCCURRED DURING THE THIRD THROUGH THE SIXTH YEAR AFTER
ISSUANCE OF THE POLICIES
As of December 31, 2001, approximately 66.9% of our primary risk in force
had not yet reached its anticipated highest claim frequency years. As a result,
our loss experience on these loans is expected to significantly increase as
policies continue to age. If the claim frequency on our risk in force
significantly exceeds the claim frequency that was assumed in setting premium
rates, our financial condition, results of operations and cash flows would be
materially and adversely affected.
(7) PAYING A SIGNIFICANT NUMBER OF CLAIMS UNDER CERTAIN INSURANCE PROGRAMS WE
WRITE COULD HARM FINANCIAL PERFORMANCE
We expect to continue offering traditional pool insurance, which is
generally considered riskier than primary insurance. Under primary insurance, an
insurer's exposure is limited to a specified percentage of any unpaid principal,
delinquent interest and related expenses on an individual loan. Under
traditional pool insurance, there is an aggregate exposure limit -- a "stop
loss" -- on a pool of loans, which amount is generally between 1% and 10% of the
initial aggregate loan balance of the entire pool of loans. Under our pool
insurance, we could be required to pay the full amount of every loan in the pool
that is in default and upon which a claim is made until the stop loss is
reached, rather than a percentage of that amount. As of December 31, 2001, $1.6
billion of our risk in force is attributable to pool insurance. If we are
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required to pay a significant number of claims under our pool insurance, then
our financial condition and results of operations could be materially and
adversely affected. We also recently commenced operations in Radian Insurance
Inc. (referred to herein as "Radian Insurance"), our wholly-owned subsidiary,
which writes credit insurance on non-traditional mortgage related assets.
These types of insurance products are generally riskier than our
traditional mortgage insurance products and, as a result, may have higher claims
payouts. Payment of a significant number of claims by Radian Insurance could
materially and adversely affect our financial condition and results of
operations.
(8) DELEGATED UNDERWRITING MAY CAUSE US TO INSURE, AND PAY CLAIMS RELATED TO,
UNACCEPTABLY RISKY LOANS THAT WE WOULD NOT HAVE OTHERWISE INSURED AS
UNDERWRITERS
Radian Guaranty and other mortgage insurers offer programs of delegated
underwriting to some of their customers. Delegated underwriting is a program
whereby certain lenders are permitted to commit an insurer, like us, to insure
loans using underwriting guidelines that have been agreed to in advance by the
insurer and the lender. Amerin Guaranty Corporation (referred to herein as
"Amerin Guaranty") has written substantially all of its insurance on a delegated
underwriting basis. We expect to continue offering delegated underwriting to
customers of Radian Guaranty that are currently authorized to use delegated
underwriting, and may expand the availability of delegated underwriting to
additional customers. The performance of loans insured through programs of
delegated underwriting has not been tested over an extended period of time. The
performance of such loans has not been tested in a period of adverse economic
conditions.
Once a lender is accepted for delegated underwriting, the insurer generally
may not refuse to insure, or rescind coverage on, a particular loan originated
by such lender even if the insurer reevaluates the loan's risk profile or if the
lender fails to follow delegated underwriting criteria. Our ability to take
action against a lender will be limited by access to data with which to assess
the risk of a lender's insured loans and to assess compliance with applicable
criteria. Moreover, we would remain at risk for any loans insured by a lender
prior to its curtailing or terminating a lender's delegated underwriting
authority. A lender could possibly cause us to insure a material volume of loans
with unacceptable risk profiles before that lender's delegated underwriting
authority is terminated.
IF CLAIMS-PAYING ABILITY RATINGS OR FINANCIAL STRENGTH RATINGS ARE DOWNGRADED,
THEN LENDERS AND THE SECURITIZATION MARKET MAY NOT PURCHASE MORTGAGES OR
SECURITIES INSURED BY US WHICH WOULD HARM OUR FINANCIAL PERFORMANCE
The claims-paying ability, an S&P and Fitch rating, or financial strength
rating, a Moody's rating, of our subsidiaries may be downgraded by one or more
rating agencies in the future. As of the date of this prospectus, our
subsidiaries have been assigned the following financial strength and
claims-paying ratings by the rating agencies listed:
MOODY'S S&P FITCH
--------- --- -----
Radian Guaranty............................................. Aa3 AA AA
Amerin Guaranty............................................. Aa3 AA AA
Radian Insurance............................................ Aa3 AA AA
Radian Reinsurance.......................................... Aa2 AAA AAA
Radian Asset Assurance...................................... Not Rated AA AA
At no time have the ratings of any of these subsidiaries fallen below their
current levels.
Any downgrading of our ratings below current levels could have a material
adverse effect on our results of operations and prospects. Adverse developments
in these subsidiaries' financial
9
condition or results of operations, by virtue of underwriting or investment
losses or otherwise, or changes in the views of the rating agencies, could cause
the rating agencies to lower their ratings. If the financial
strength/claims-paying ratings of Radian Guaranty, Radian Insurance or Amerin
Guaranty fall below "Aa3" from Moody's or "AA" from S&P and Fitch, then national
mortgage lenders, and a large segment of the mortgage securitization market,
including Fannie Mae and Freddie Mac, generally will not purchase mortgages or
mortgage-backed securities insured by them.
In addition, Radian Reinsurance and Radian Asset Assurance are parties to
several agreements with primary insurers that grant them the right to recapture
business ceded to Radian Reinsurance or Radian Asset Assurance under these
agreements if the financial strength rating or claims-paying ability rating, as
applicable, is downgraded below minimum rates established in the agreements.
This recapture of business by a primary insurer could have a material adverse
effect on deferred premium revenue and recognition of future income from such
agreements.
AN INCREASE IN OUR SUBSIDIARIES' RISK TO CAPITAL RATIO AND/OR LEVERAGE RATIO MAY
PREVENT THEM FROM WRITING NEW INSURANCE, WHICH WOULD HARM OUR FINANCIAL
PERFORMANCE
Moody's, S&P and Fitch regularly monitor Radian Guaranty, Amerin Guaranty,
Radian Insurance, Radian Reinsurance and Radian Asset Assurance and their
respective subsidiaries and the amount of insurance risk that may be written by
such subsidiaries in conjunction with the issuance and maintenance of their
financial strength and claims-paying ability ratings. Moody's and S&P have also
entered into an agreement with Radian Guaranty which obligates Radian Guaranty
to maintain at least $30 million of capital in Radian Insurance as a condition
of the issuance and maintenance of Radian Insurance's "Aa3" and "AA" financial
strength and claims-paying ability ratings. We may be required to enter into
similar agreements in the future. If so, our subsidiaries have several
alternatives available to control their risk to capital ratios or leverage
ratios, including obtaining capital contributions from us, purchasing additional
quota share or excess of loss reinsurance or reducing the amount of new business
written. However, we may not be able to raise additional funds, or do so on a
timely basis, in order to make a capital contribution to our subsidiaries. In
addition, reinsurance may not be available to the subsidiaries or, if available,
may not be available on satisfactory terms. To date, our subsidiaries have not
had any difficulty in maintaining appropriate risk to capital or leverage
ratios. A material reduction in statutory capital, whether resulting from
underwriting or investment losses or otherwise or a disproportionate increase in
risk in force, could increase the risk to capital ratio or leverage ratio. To
date, none of our subsidiaries has been limited in its ability to write new
business. However, an increase in the risk to capital ratio or leverage ratio
could limit our subsidiaries' ability to write new business, which then could
materially adversely affect our results of operations and prospects. In
addition, new regulations affecting Fannie Mae and Freddie Mac may restrict
their ability to purchase loans which are insured by "AA" ranked companies, such
as Radian Guaranty and Amerin Guaranty. These regulations will not be fully
phased-in until 2006.
WE WILL SIGNIFICANTLY INCREASE OUR LEVERAGE AS A RESULT OF THE SALE OF THE
DEBENTURES
In connection with the sale of the debentures, we have incurred $220
million of indebtedness. As a result of this indebtedness, our principal
obligations have increased substantially over our prior obligations, and the
degree to which we are leveraged increased from 13.6% at December 31, 2001,
prior to the issuance of the debentures, to approximately 19.5% at March 31,
2002, after the issuance of the debentures. The degree to which we are leveraged
could materially and adversely affect our ability to obtain financing for
working capital, acquisitions or other purposes and could make us more
vulnerable to industry and economic downturns and competitive pressures. Our
ability to meet our debt service obligations will be dependent upon
10
our future performance, which will be subject to financial, business and other
factors affecting our operations, many of which are beyond our control.
WE COMPETE WITH PRIVATE MORTGAGE INSURERS, GOVERNMENTAL AGENCIES AND OTHERS
WHICH MAY REDUCE REVENUES
The mortgage insurance industry is increasingly competitive. Such
competition may reduce revenues, which could in turn decrease the value of
investments in us. The principal sources of direct and indirect competition are:
- other private mortgage insurers, some of which are subsidiaries of well
capitalized, diversified public companies and, therefore have higher
claims-paying ability ratings and greater access to capital than us;
- federal and state governmental and quasi-governmental agencies,
principally the Federal Housing Administration; and
- mortgage lenders that forgo third-party coverage and retain the full risk
of loss on their high LTV loans.
The United States private mortgage insurance industry is both highly
dynamic and intensely competitive. Many factors bear on the relative position of
the private mortgage insurance industry versus the "direct" government and
quasi-governmental competition and the "indirect" competition of major lending
institutions, including:
- legislative and/or regulatory initiatives which affect the FHA's
competitive position; and
- the capital adequacy of, and alternative business opportunities for,
lending institutions.
In 2001, our combined market share of the private mortgage insurance market
based on new primary insurance was 15.6%, according to Inside Mortgage Finance,
a publisher of market share data. However, our market share of new insurance
written may not grow and could decrease in the future. Our most significant
competitors, and their market share of the private mortgage insurance business,
as of December 31, 2001 is as follows:
MARKET SHARE OF
COMPETITOR NEW INSURANCE WRITTEN
---------- ---------------------
Mortgage Guaranty Insurance Corporation..................... 25.0%
PMI Mortgage Insurance Company.............................. 18.4%
GE Capital Mortgage Insurance Corporation................... 15.4%
United Guaranty Corporation................................. 12.9%
The financial guaranty industry is also highly competitive. The principal
sources of direct and indirect competition are:
- companies that specialize in financial guaranty insurance or reinsurance;
- multiline insurers that have recently increased their participation in
financial guaranty reinsurance, certain of which have formed strategic
alliances with some of the U.S. primary financial guaranty insurers;
- other forms of credit enhancement, including letters of credit,
guaranties and credit default swaps provided primarily by foreign and
domestic banks and other financial institutions, some of which are
governmental entities or have been assigned the highest credit ratings
awarded by one or more of the major rating agencies
Competition in the financial guaranty reinsurance business is based upon
many factors, including overall financial strength, pricing, service and
evaluation by the rating agencies of claims-paying ability or financial
strength. The agencies allow credit to a ceding primary insurer's
11
capital requirements and single-risk limits for reinsurance ceded in an amount
that is a function of the claims-paying ability or financial strength rating of
the reinsurer.
Although we believe that competition from multiline reinsurers and new
monoline financial guaranty insurers will continue to be limited due to (a) the
declining number of multiline insurers with the required financial strength and
(b) the barriers to entry for new reinsurers posed by state insurance law and
rating agency criteria governing minimum capitalization, some of these companies
may have greater financial resources or be better capitalized than Radian
Reinsurance or Radian Asset Assurance and/or have been assigned higher credit
ratings by one or more of the major rating agencies.
WE FACE ADDITIONAL RISKS IN OUR FINANCIAL GUARANTY AND OTHER INSURANCE
BUSINESSES
Our subsidiaries, Radian Reinsurance and Radian Asset Assurance, maintain
reserves in amounts sufficient to pay their estimated ultimate liability for
losses and loss adjustment expenses, as required by law. These loss reserves are
based upon the estimated claim rate and related claim amount. These estimates
are regularly reviewed and updated using the most current information available.
Since none of Radian Reinsurance, Radian Asset Assurance or the financial
guaranty industry has had an actuarially significant number of losses in its
financial guaranty reinsurance activities, we do not believe that traditional
actuarial approaches used in the property/casualty industry apply in the
determination of loss reserves for financial guaranty insurers. Consequently, we
establish reserves in our financial guaranty business either when (1) a primary
insurer provides for losses and loss adjustment expenses, or (2) in our opinion,
a default is probable on an insured risk, and the amount of such reserve is
based on an analysis of the individual insured risk. Although we believe the
reserves established at our financial guaranty insurance subsidiaries will prove
to be adequate, there can be no assurance that such reserves actually will be
adequate. Our results of operations would be adversely affected if reserves are
insufficient to cover the actual related claims paid and loss-related expenses
incurred.
In addition, the demand for financial guaranty insurance and the demand for
the primary insurance and reinsurance that Radian Reinsurance and Radian Asset
Assurance provide depend on many factors that are generally not in our control,
including:
- prevailing interest rates;
- investor concern regarding the credit quality of municipalities and
corporations;
- investor perception of the strength of financial guaranty providers and
the guaranty offered;
- premium rates charged for financial guaranty insurance;
- the availability of other forms of credit enhancement; and
- governmental regulation, including changes in tax laws affecting the
municipal, asset-backed and trade credit debt markets.
IF MORTGAGE LENDERS AND INVESTORS SELECT ALTERNATIVES TO PRIVATE MORTGAGE
INSURANCE, THE AMOUNT OF INSURANCE THAT WE WRITE COULD DECLINE SIGNIFICANTLY,
WHICH COULD REDUCE OUR REVENUES AND PROFITS
Alternatives to private mortgage insurance include:
- government mortgage insurance programs, including those of the FHA and
the Veterans Administration ("VA");
- investors holding mortgages in their portfolios and self-insuring;
12
- investors using credit enhancements other than private mortgage insurance
or using other credit enhancements in conjunction with reduced levels of
private mortgage insurance coverage; and
- mortgage lenders structuring mortgage originations to avoid private
mortgage insurance, such as a first mortgage with an 80% loan-to-value
ratio and a second mortgage with a 10% loan-to-value ratio, which is
referred to as an 80-10-10 loan, rather than a first mortgage with a 90%
loan-to-value ratio.
These alternatives, or new alternatives to private mortgage insurance that may
develop, could reduce the demand for private mortgage insurance and cause our
revenues and profitability to decline.
In October 1999, the Federal Housing Finance Board authorized each Federal
Home Loan Bank to offer programs to purchase single-family conforming mortgage
loans originated by participating member institutions under the single-family
member mortgage assets program. In July 2000, the Federal Housing Finance Board
gave permanent authority to each Federal Home Loan Bank to purchase these loans
from member institutions without any volume cap. Under the Board's rules, member
institutions are also authorized to provide credit enhancement for eligible
loans. Any expansion of the Federal Home Loan Banks' ability to use alternatives
to mortgage insurance could reduce the demand for private mortgage insurance and
harm our financial condition and results of operations.
LEGISLATION AND REGULATORY CHANGES MAY REDUCE DEMAND FOR PRIVATE MORTGAGE
INSURANCE, WHICH COULD HARM OUR BUSINESS
Increases in the maximum loan amount that the FHA can insure can reduce the
demand for private mortgage insurance. Effective January 1, 2001, the maximum
individual loan amount that the FHA can insure was increased to $239,250. In
addition, the FHA has streamlined its down-payment formula and made FHA
insurance more competitive with private mortgage insurance in areas with higher
home prices. As of January 1, 2001, the FHA reduced the up-front mortgage
insurance premiums it charges on loans from 2.25% to 1.50% of the original loan
amounts. These and other legislative and regulatory changes have caused, and may
cause in the future, demand for private mortgage insurance to decrease and this
could harm our financial condition and results of operations.
OUR FAILURE OR INABILITY TO KEEP PACE WITH THE TECHNOLOGICAL DEMANDS OF OUR
CUSTOMERS OR WITH THE TECHNOLOGY-RELATED PRODUCTS AND SERVICES OFFERED BY OUR
COMPETITORS COULD SIGNIFICANTLY HARM OUR BUSINESS AND FINANCIAL PERFORMANCE
Participants in the mortgage lending and mortgage insurance industries
increasingly rely on e-commerce and other technology to provide and expand their
products and services. An increasing number of our customers require that we
provide our products and services electronically via the internet or electronic
data transmission, and the percentage of our new insurance written delivered
electronically is increasing. We expect this trend to continue and, accordingly,
believe that it is essential that we continue to invest substantial resources in
maintaining electronic connectivity with our customers and, more generally, in
e-commerce and technology. Our business will suffer if we do not satisfy all
technological demands of our customers and keep pace with the technological
capabilities of our competitors.
13
RISKS RELATING TO THE DEBENTURES AND THE OFFERING
WE ARE A HOLDING COMPANY THAT DEPENDS ON THE ABILITY OF OUR SUBSIDIARIES TO PAY
DIVIDENDS TO US IN ORDER TO SERVICE OUR DEBT
Our principal source of cash to make payments on our debt are dividends and
other distributions from our subsidiaries, which are limited, among other
things, by the level of their liquidity, earnings and cash. Under applicable
state insurance law, the amount of cash dividends and other distributions that
our insurance subsidiaries may pay is restricted. Moreover, in connection with
obtaining approval from the New York Insurance Department for our acquisition of
Enhance Financial Services Group, Inc., two of Enhance Financial Services'
operating subsidiaries, Radian Reinsurance, our financial guaranty reinsurance
subsidiary, and Radian Asset Assurance Insurance, a direct insurer and reinsurer
of financial guaranty and other similar obligations, have agreed not to declare
or pay dividends for a period of two years following the acquisition. Our
subsidiaries may also be restricted in their ability to pay dividends in order
to maintain adequate capital requirements necessary to retain their ratings from
applicable rating agencies. Although we currently expect our subsidiaries to pay
us sufficient dividends to service our debt, a significant deterioration in the
subsidiaries' earnings or cash flow, as a result of an economic downturn and a
corresponding decrease in credit quality or otherwise, could limit their ability
to pay cash dividends to us, which, in turn, would limit our ability to service
our debt.
In addition, as a holding company, the rights of creditors, including the
holders of the debentures, to participate in our assets upon any liquidation,
receivership or reorganization will be junior and subject to the prior claims of
the subsidiaries' creditors, including policyholders. As of the date of this
prospectus, the total amount of our subsidiaries' indebtedness is $75,000,000,
represented by the 6.75% debentures of Enhance Financial Services due 2003.
OUR STOCK PRICE, AND THEREFORE THE PRICE OF THE DEBENTURES, MAY BE SUBJECT TO
SIGNIFICANT FLUCTUATIONS AND VOLATILITY
The market price of our common stock has been subject to significant
fluctuations, as reflected in the chart below, which indicates the high and low
trading price of our common stock per quarter for the past five years:
OUR COMMON STOCK PRICE
1997 1998 1999 2000 2001 2002
--------------- --------------- --------------- --------------- --------------- ---------------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
1st Quarter.......... $18.69 $16.19 $34.63 $27.97 $25.50 $17.50 $24.25 $17.28 $37.53 $26.91 $49.80 $40.48
2nd Quarter.......... 23.94 16.63 33.63 28.53 25.66 16.66 29.56 22.66 43.87 32.48 55.56* 48.00*
3rd Quarter.......... 27.50 22.03 34.34 18.31 27.78 21.00 35.78 25.88 42.62 30.10
4th Quarter.......... 30.41 25.41 24.41 14.00 27.59 20.63 38.31 30.22 43.38 32.25
---------------
* Through May 29, 2002.
These fluctuations could continue and could cause fluctuations in the price
of the debentures. Among the factors that could affect our common stock price
are those discussed above as well as:
- increases in our loss experience, including as a result of national or
regional economic recessions, declining values of homes, higher
unemployment rates and deteriorating borrower credit;
- legislative or regulatory changes that may affect the demand for private
mortgage insurance;
- actions by Fannie Mae and Freddie Mac;
- interest rate volatility;
14
- quarterly variations in our operating results;
- changes in our capital requirements due to initiatives by The Office of
Federal Housing Enterprise Oversight and/or the rating agencies;
- changes in revenue or earnings estimates or publication of research
reports by analysts;
- speculation in the press or investment community;
- strategic actions by us or our competitors, such as new product
announcements, acquisitions or restructuring;
- general market conditions; and
- domestic and international economic factors unrelated to our performance.
The stock markets have experienced extreme volatility that has often been
unrelated to the operating performance of particular companies. These broad
market fluctuations may adversely affect the trading price of our common stock
and of the debentures.
YOU SHOULD CONSIDER THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF OWNING
DEBENTURES
Under the indenture, we will agree, and by acceptance of a beneficial
interest in the debentures each beneficial owner of the debentures will be
deemed to have agreed, among other things, for United States federal income tax
purposes, to treat the debentures as indebtedness that is subject to the
Internal Revenue Service Rules governing debt instruments that provide for
payments that are contingent in amount and the discussion below assumes that the
debentures will be so treated. However, no assurance can be given that the
Internal Revenue Service will not assert that the debentures should be treated
differently. Such treatment could affect how much interest income is included in
the beneficial owner's taxable income and when it is included with the result
that the beneficial owners may recognize more interest income sooner than we
anticipate. In general, beneficial owners of the debentures will be required to
recognize interest income on the debentures in the manner described herein,
regardless of when the beneficial owner would otherwise be required to include
interest on the debentures in income under its normal method of tax accounting.
Beneficial owners will be required, in general, to recognize interest based on
the rate at which we would issue a fixed rate nonconvertible debt instrument
with terms and conditions similar to the debentures, rather than at the lower
rate based on the interest earned on the debentures for non-tax purposes and in
excess of the cash interest payments they receive. Accordingly, owners of
debentures will likely be required to include interest in taxable income in each
year in excess of the interest earned on the debentures for non-tax purposes.
Furthermore, upon a sale, conversion or redemption of a debenture, beneficial
owners will recognize gain or loss for tax purposes equal to the difference
between the proceeds and the beneficial owner's tax basis in the debentures. In
general, the proceeds realized by beneficial owners will include, in the case of
a conversion, the fair market value of the stock received upon the conversion of
the debentures into our common stock. Any gain on a sale, conversion or
redemption of a debenture will be treated as interest income for tax purposes.
Please consult your own tax advisors as to the United States federal, state,
local or other tax consequences of acquiring, owning and disposing of the
debentures. A summary of the United States federal income tax consequences of
ownership of the debentures is described in this prospectus under the heading
"United States Taxation."
15
A DOWNGRADE, SUSPENSION OR WITHDRAWAL OF THE RATING ASSIGNED BY A RATING AGENCY
TO THE DEBENTURES, IF ANY, COULD CAUSE THE LIQUIDITY OR MARKET VALUE OF THE
DEBENTURES TO DECLINE SIGNIFICANTLY
We have requested ratings of the debentures by S&P, Moody's and Fitch.
There can be no assurance that any of those rating agencies will assign a rating
to the debentures or, if assigned, what such ratings will be. In addition, there
can be no assurance that any rating so assigned will remain for any given period
of time or that a rating will not be lowered or withdrawn entirely by a rating
agency if in that rating agency's judgment future circumstances relating to the
basis of the rating, such as adverse changes in our business, so warrant.
THERE MAY BE NO PUBLIC MARKET FOR THE DEBENTURES, AND THERE ARE RESTRICTIONS ON
RESALE OF THE DEBENTURES
Prior to this offering, there has been no trading market for the
debentures. Although the initial purchasers have advised us that they currently
intend to make a market in the debentures, they are not obligated to do so and
may discontinue their market-making activities at any time without notice.
Consequently, we cannot be sure that any market for the debentures will develop,
or if one does develop, that it will be maintained. If an active market for the
debentures fails to develop or be sustained, the trading price of the debentures
could decline. We do not intend to apply for listing of the debentures on any
securities exchange or any automated quotation system.
[Remainder of page intentionally left blank.]
16
RADIAN GROUP
RADIAN GROUP'S BUSINESSES
We provide private mortgage insurance coverage in the United States on
residential mortgage loans through our subsidiaries, Radian Guaranty and Amerin
Guaranty. Private mortgage insurance protects mortgage lenders and investors
from default related losses on residential first mortgage loans made primarily
to home buyers who make down payments of less than 20% of the home's purchase
price. Private mortgage insurance also facilitates the sale of such mortgage
loans in the secondary mortgage market, principally to Freddie Mac and Fannie
Mae. Radian Guaranty is restricted to providing insurance on residential first
mortgage loans only. Amerin Guaranty has previously offered insurance of
residential first mortgages only, but beginning October 1, 2001, has been
licensed as an insurer of second mortgages only and is restricted to writing new
business on second mortgages.
In September 2000, we commenced operations in Radian Insurance, a
subsidiary which writes credit insurance on non-traditional mortgage related
assets, such as second mortgages and manufactured housing, and provides credit
enhancement to mortgage related capital market transactions. Beginning October
1, 2001, Amerin Guaranty was licensed to conduct second mortgage insurance in
all 50 states and second mortgage insurance done by Radian Group will most
likely be written in Amerin Guaranty.
Additionally, through Enhance Financial Services Group, Inc. and its
operating subsidiaries, we insure and reinsure credit-based risks and acquire
and service credit-based assets in a variety of domestic and international niche
markets. This business is divided into two operating segments, the insurance
business and the asset-based businesses, with the insurance business being by
far the larger operating segment.
RECENT DEVELOPMENTS
On September 13, 2001, the Office of Federal Housing Enterprise Oversight
issued final risk-based capital regulations for Fannie Mae and Freddie Mac
(together, known as Government Sponsored Entities, or GSEs). Proposed revisions
to these regulations were announced on December 11, 2001; these revisions are
currently subject to public comment prior to finalization. The most relevant
provision of these regulations to us is a new distinction that is being made
between AAA rated insurers and AA rated insurers. Specifically, the new
regulations (if revised as proposed) create guidelines that reduce the credit
the GSEs are given for exposure ceded to AAA insurers by 3.5% while exposure
ceded to AA insures, like our operating subsidiaries, is reduced by 8.75%. The
regulations are scheduled to become enforceable September 13, 2002 and we will
phase in these cuts on a straight-line basis over a period of 10 years (if
revised as proposed).
We have several contemplated actions we believe should mitigate any adverse
effects of the regulations. These include one or more of the following:
- upgrading the ratings of one or more of our operating subsidiaries by
obtaining additional capital, reinsurance or a soft capital facility,
- increasing the amount of coverage so as to eliminate the reduction,
- utilizing Radian Reinsurance, which is AAA rated, or;
- providing protection against loss to the GSEs through a derivative
contract rather than through an insurance policy -- the form favored
under the current version of the regulations.
17
Given these alternatives and the strong incentive the GSEs have to work
with us, we believe we are sufficiently positioned to implement whatever
solutions the new regulations will ultimately require.
We do not anticipate any material loss resulting from the tragic events in
New York City or Washington, D.C. of September 11, 2001. Our financial guaranty
subsidiaries, Radian Asset Assurance and Radian Reinsurance, have completed a
review of their exposures and confirmed that no insurance losses related to
these events are expected. We continue to monitor closely our insurance and
reinsurance portfolio and maintain regular dialogue with our reinsurance
clients. Specifically, Radian Asset Assurance has no direct insured net par
exposure to the World Trade Center, Battery Park City Authority, Enhanced
Equipment Trust Certificates, the Port Authority of New York and New Jersey or
the Metropolitan Washington D.C. Airport Authority. However, Radian Asset
Assurance and Radian Reinsurance do maintain approximately $868 million in total
exposure (approximately $406 million in par exposure) related to the Port
Authority of New York and New Jersey through reinsurance agreements with the
AAA-rated primary bond insurers. Similarly, Radian Reinsurance has no reason to
doubt the assessment of its primary clients, who have each affirmed their
expectations for no material losses resulting from these events.
RADIAN GROUP'S OFFICES
Our principal executive offices are located at 1601 Market Street,
Philadelphia, Pennsylvania 19103. Our telephone number at that location is (215)
564-6600. We also have offices in 21 states. Our Internet address is
www.radiangroupinc.com. The information contained on our web site is not
incorporated by reference in this prospectus and shall not be considered a part
of this prospectus.
FORWARD-LOOKING STATEMENTS
The statements contained in this prospectus and any prospectus supplement
that are not historical facts are "forward-looking statements," as defined in
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, which can be identified by the use of forward-looking
terminology such as "estimates," "projects," "anticipates," "expects,"
"intends," "believes," or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy that involve risks and
uncertainties. These forward-looking statements involve risks and uncertainties
including, but not limited to, the following:
- the risk that housing demand may decrease as a result of
higher-than-expected interest rates, adverse economic conditions, or
other reasons;
- the risk that seasonality may be different from the historical pattern;
- the risk that the market share of the segment of the mortgage market
served by the mortgage insurance industry may decline as a result of
competition from government programs or other substitute products;
- the risk that we may not adequately integrate the business of Enhance
Financial Services Group Inc. to maximize the expected benefits of the
acquisition;
- the risk that our share of originations having private mortgage insurance
may decline as a result of competition or other factors; and
- the risk that the addition of the business of Radian Insurance may not be
successful.
18
Investors are also directed to other risks discussed beginning on page 6 of
this prospectus and in documents filed by us with the Securities and Exchange
Commission.
These statements are only estimates or predictions and cannot be relied
upon. We can give no assurance that future results will be achieved. Actual
events or results may differ materially as a result of risks facing us or actual
results differing from the assumptions underlying such statements. These risks
and assumptions could cause actual results to vary materially from future
results indicated, expressed or implied in the forward-looking statements
included in the prospectus.
All forward-looking statements made in this prospectus and any prospectus
supplement that are attributable to us or persons acting on behalf of us are
expressly qualified in their entirety by the factors listed above in the section
captioned "Risk Factors" and other cautionary statements included in this
prospectus. We disclaim any obligation to update information contained in any
forward-looking statement.
19
RATIO OF EARNINGS TO FIXED CHARGES AND TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth our historical ratio of earnings to fixed
charges and to combined fixed charges and preferred stock dividends from
continuing operations. Earnings consist of income from continuing operations
before income taxes, extraordinary items, cumulative effect of accounting
changes, equity in net income of affiliates and fixed charges. Fixed charges
consist of interest expense and capitalized interest. Combined fixed charges and
preferred stock dividends consist of fixed charges, as defined above, and the
amount of pre-tax earnings required to pay the dividends on our preferred stock.
THREE-MONTH
PERIOD ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------ ------------
2001 2000 1999 1998 1997 2002
---- ---- ---- ---- ---- ----
Ratio of earnings to fixed charges........... 25.0x 151.1x 105.1x 165.8x 203.0x 18.7x
Ratio of earnings to combined fixed charges
and preferred stock dividends.............. 21.6x 63.4x 41.6x 45.0x 39.9x 17.0x
USE OF PROCEEDS
We will not receive any proceeds from the sale of the debentures or the
shares of common stock offered by this prospectus.
20
DESCRIPTION OF DEBENTURES
We issued the debentures under an indenture dated January 11, 2002, between
us and The Bank of New York, as trustee. Initially, The Bank of New York acted
as paying agent, conversion agent and calculation agent for the debentures. The
terms of the debentures include those provided in the indenture and those
provided in the registration rights agreement, which we entered into with Banc
of America Securities LLC and Lehman Brothers, Inc., the initial purchasers, on
January 11, 2002. The debentures offered hereby were originally sold to the
initial purchasers for resale pursuant to Rule 144A under the Securities Act of
1933.
The following description is only a summary of the material provisions of
the debentures, the indenture and the registration rights agreement. The summary
is not complete and is subject to, and qualified by reference to, all of the
provisions of the debentures, the indenture and the registration rights
agreement. We urge you to read these documents in their entirety because they
and not this description, define your rights as holders of these debentures.
Copies of these documents have been filed as exhibits to the registration
statement of which this prospectus forms a part.
When we refer to Radian Group in this section, we refer only to Radian
Group Inc., a Delaware corporation, and not its subsidiaries.
BRIEF DESCRIPTION OF THE DEBENTURES
The debentures offered hereby:
- constitute $220,000,000 in aggregate principal amount;
- bear interest at a per annum rate of 2.25% payable semiannually on each
January 1 and July 1 beginning July 1, 2002;
- bear contingent interest in the circumstances described under
"-- Contingent Interest;"
- are general unsecured obligations of Radian Group, ranking equally with
all of our other unsecured senior indebtedness and senior in right of
payment to any subordinated indebtedness; as indebtedness of Radian Group
the debentures will be effectively subordinated to all indebtedness and
liabilities of our subsidiaries;
- are convertible into our common stock initially at a conversion price of
$57.75 per share, under the conditions and subject to adjustment as
described under "-- Conversion Rights;"
- are redeemable at our option in whole or in part beginning on January 1,
2005 upon the terms set forth under "-- Optional Redemption by Radian
Group;"
- are subject to repurchase by us at your option on January 1, 2005, 2007,
2009, 2012 and 2017 or upon a change of control, upon the terms and
repurchase prices set forth below under "-- Repurchase of Debentures at
the Option of Holders;" and
- are due on January 1, 2022, unless earlier converted, redeemed by us at
our option or repurchased by us at your option.
The indenture does not contain any financial covenants and does not
restrict us from paying dividends, incurring additional indebtedness or issuing
or repurchasing our other securities. The indenture also does not protect you in
the event of a highly leveraged transaction or a change of control of Radian
Group, except to the extent described under "-- Repurchase of Debentures at the
Option of Holders -- Change of Control Put" below.
Under the indenture, we have agreed, and by acceptance of a beneficial
interest in the debentures each beneficial owner of the debentures will be
deemed to have agreed, among other things, for United States federal income tax
purposes, to treat the debentures as indebtedness
21
that is subject to the regulations governing contingent payment debt instruments
and the discussion below assumes that the debentures will be so treated.
However, no assurance can be given that the IRS will not assert that the
debentures should be treated differently. Such treatment could affect the
amount, timing and character of income, gain or loss in respect of an investment
in the debentures. See "United States Taxation -- Classification of the
Debentures."
In general, beneficial owners of the debentures are required to accrue
interest income on the debentures in the manner described herein, regardless of
whether such owner uses the cash or accrual method of tax accounting. Beneficial
owners will be required, in general, to accrue interest based on the rate at
which we would issue a fixed rate nonconvertible debt instrument with terms and
conditions similar to the debentures, rather than at a lower rate based on the
accruals on the debentures for non-tax purposes. Accordingly, owners of
debentures will likely be required to include interest in taxable income in each
year in excess of the accruals on the debentures for non-tax purposes.
Furthermore, upon a sale, exchange, conversion or redemption of a debenture, you
will recognize gain or loss equal to the difference between your amount realized
and your adjusted tax basis in the debentures. In general, the amount realized
by you will include, in the case of a conversion, the fair market value of the
stock you receive. Any gain on a sale, exchange, conversion or redemption of a
debenture will be treated as ordinary interest income. Please consult your own
tax advisors as to the United States federal, state, local or other tax
consequences of acquiring, owning and disposing of the debentures. See "United
States Taxation."
No sinking fund is provided for the debentures. The debentures are not
subject to defeasance. The debentures have been issued only in registered form,
without coupons, in denominations of $1,000 and any integral multiple of $1,000
above that amount. No service charge will be made for any registration of
transfer or exchange of debentures, but we may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
You may present definitive debentures for conversion, registration of
transfer and exchange, without service charge, at our office or agency in New
York City, which shall initially be the principal corporate trust office of the
trustee presently located at 101 Barclay Street, Floor 21 West, New York, NY
10286.
For information regarding conversion, registration of transfer and exchange
of global debentures, see "-- Form, Denomination and Registration."
INTEREST
The debentures will bear interest at a rate of 2.25% per annum from January
11, 2002. We will also pay contingent interest on the debentures in the
circumstances described under "-- Contingent Interest." We will pay interest
semiannually on January 1 and July 1 of each year beginning July 1, 2002, to the
holders of record at the close of business on the preceding December 15 and June
15, respectively. There are two exceptions to the preceding sentence:
- In general, we will not pay accrued and unpaid interest on any debentures
that are converted into our common stock. See "-- Conversion Rights." If
a holder of debentures converts after a record date for an interest
payment but prior to the corresponding interest payment date, the holder
will receive on that interest payment date accrued and unpaid interest on
those debentures, notwithstanding the holder's conversion of those
debentures prior to that interest payment date, because that holder will
have been the holder of record on the corresponding record date. However,
at the time that holder surrenders debentures for conversion, the holder
must pay to us an amount equal to the interest that has accrued and that
will be paid on the related interest payment date. The preceding sentence
does not apply, however, to a holder that converts debentures that are
called by us for redemption after a record date for an interest payment
but prior to the corresponding
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interest payment date. Accordingly, if we elect to redeem debentures on a
date that is after a record date but prior to the corresponding interest
payment date, and prior to the redemption date a holder of debentures
selected for redemption chooses to convert those debentures, the holder
will not be required to pay us, at the time that holder surrenders those
debentures for conversion, the amount of interest it will receive on the
interest payment date.
- We will pay interest to a person other than the holder of record on the
record date if we elect to redeem, or holders elect to require us to
repurchase, the debentures on a date that is after a record date but on
or prior to the corresponding interest payment date. In this instance, we
will pay accrued and unpaid interest on the debentures being redeemed to,
but not including, the redemption date to the same person to whom we will
pay the principal of those debentures.
Except as provided below, we will pay interest on:
- global debentures to DTC in immediately available funds;
- any definitive debentures having an aggregate principal amount of
$5,000,000 or less by check mailed to the holders of those debentures;
and
- any definitive debentures having an aggregate principal amount of more
than $5,000,000 by wire transfer in immediately available funds if
requested by the holders of those debentures.
At maturity we will pay interest on the definitive debentures at our office
or agency in New York City which initially will be the principal corporate trust
office of the trustee presently located at 101 Barclay Street, Floor 21 West,
New York, NY 10286.
We will pay principal on:
- global Debentures to DTC in immediately available funds; and
- any definitive debentures at our office or agency in New York City, which
initially will be the office or agency of the trustee in New York City.
Interest generally will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
CONTINGENT INTEREST
The interest rate on the debentures will increase to the reset rate for any
semi-annual period commencing on January 1, 2005, 2007, 2009, 2012 or 2017, each
of which we refer to as a reset rate determination date, if the trading price
condition for that semi-annual period is satisfied. The trading price condition
is satisfied for any semi-annual period if the closing sale price of our common
stock for any 20 out of the last 30 trading days ending five days prior to the
first day of such semi-annual period is less than or equal to 60% of the
conversion price of the debentures in effect for each of those 20 trading days.
Following an increase to the reset rate, the interest rate on the
debentures will remain the reset rate unless and until the first day of a
subsequent semi-annual period for which the trading price condition is not
satisfied, at which time the interest rate on the debentures will revert to
2.25% per annum and will remain at such rate unless and until the trading price
condition is satisfied for a semi-annual period commencing on a subsequent reset
rate determination date.
If the reset rate is in effect for a particular semi-annual period, we will
pay a portion of any increase represented by the change to the reset rate as
cash interest at an annualized rate of 0.35% per annum (0.175% per semi-annual
period) and any remaining increase in interest will be added to the principal
amount of the debentures (but which will not affect the number of shares
23
of common stock issuable upon conversion of the debentures) and will be accrued
and payable at maturity, upon any repurchase at the option of the holder or upon
any optional redemption by Radian Group. Interest, additional interest and
contingent interest will accrue on any such remaining increase in interest and
be payable at such times as interest, additional interest and contingent
interest is otherwise payable.
The reset rate determined as of each reset rate determination date will be
equal to 75% of the rate that would, in the sole judgment of the Reset Rate
Agent, result in a trading price of par of a hypothetical issue of senior,
nonconvertible, noncontingent, fixed rate debt securities of Radian Group with:
- a final maturity comparable to the debentures then outstanding;
- an aggregate principal amount equal to the principal amount of the
debentures then outstanding; and
- covenants and other provisions that are, insofar as would be practicable
for an issue of senior, nonconvertible, noncontingent, fixed-rate debt
securities, substantially identical to those of the debentures, but which
are not subject to repurchase by Radian Group at the option of the
holder.
In no case, however, will the reset rate ever be greater than 12% or less than
2.60%. Also, if the Reset Rate Agent has not established the reset rate for the
applicable semi-annual period, or if the Reset Rate Agent determines in its sole
judgment that there is no suitable reference rate from which the reset rate may
be determined, the reset rate for that period will be the reset rate most
recently determined (except if there is no reset rate most recently determined,
in which case the reset rate shall be a rate mutually agreed upon by the Reset
Rate Agent and us reflecting current market conditions), such reset rate to
remain in effect until the Reset Rate Agent shall determine a new reset rate.
We will appoint a Reset Rate Agent, which will not be Radian Group or any
of its affiliates or employees. For the determination of the reset rate, the
Reset Rate Agent will seek indicative reference rates from three
nationally-recognized investment banks, and the reset rate shall be the average
of such three indicative reference rates, provided that if at least three such
indicative reference rates cannot reasonably be obtained by the Reset Rate
Agent, but two such indicative reference rates are obtained, then the average of
the two indicative reference rates shall be used, and if only one such
indicative reference rate can reasonably be obtained by the Reset Rate Agent
this one indicative reference rate shall be used. The determination of any reset
rate will be conclusive and binding upon the Reset Rate Agent, Radian Group, the
trustee and the holders of the debentures, in the absence of manifest error.
Initially, we expect to appoint Banc of America Securities LLC as Reset Rate
Agent. We may remove the Reset Rate Agent and appoint a successor Reset Rate
Agent at any time.
The "sale price" of our common stock on any date means the closing per
share sale price (or if no closing per share price is reported, the average of
the bid and ask prices or, if more than one in either case, the average of the
average bid and the average ask prices) on that date as reported on the New York
Stock Exchange or, if our common stock is not listed on the New York Stock
Exchange, then as reported by the Nasdaq system.
In the event contingent interest is payable, we will disseminate a press
release through Dow Jones & Company, Inc. or Bloomberg Business News containing
this information or publish the information on our Web site or through such
other public medium as we may use at that time.
We will pay the cash component of contingent interest, if any, in the same
manner as we will pay interest described above under "-- Interest," and your
obligations in respect of the payment of contingent interest in connection with
the conversion of any debentures will also be the same as described under
"-- Interest."
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CONVERSION RIGHTS
GENERAL
You may convert any outstanding debentures (or portions of outstanding
debentures) as described below into our common stock, initially at the
conversion price of $57.75 per share (equal to a conversion rate of 17.316
shares per $1,000 principal amount of debentures). The conversion price is
subject to adjustment as described below. We will not issue fractional shares of
common stock upon conversion of debentures. Instead, we will pay a cash
adjustment based upon the sale price of our common stock on the business day
immediately preceding the conversion date. You may convert debentures only in
denominations of $1,000 and integral multiples of $1,000.
You may surrender debentures for conversion into our common stock prior to
the stated maturity only under the following circumstances:
MARKET PRICE CONDITIONS:
- during any conversion period, as described below, if the closing sale
price of our common stock for at least 20 trading days in the 30 trading
day period ending on the first day of the conversion period was more than
120% of the conversion price on that thirtieth trading day;
- during the five business-day period following any 10 consecutive
trading-day period in which the average of the trading prices, as
described below, for the debentures for that 10 trading-day period was
less than 105% of the average conversion value, as described below, for
the debentures during that period;
- credit rating event: during any period after the 30th day following the
initial issuance of the debentures in which the credit rating assigned to
the debentures by both Moody's and S&P is below Baa3 or BBB-,
respectively, or that neither rating agency is rating the debentures;
- Notice of redemption: if we have called the debentures for redemption; or
- Specified corporate transactions: upon the occurrence of the specified
corporate transactions discussed below.
If you have exercised your right to require us to repurchase your
debentures as described under "-- Repurchase of Debentures at the Option of
Holders," you may convert your debentures into our common stock only if you
withdraw your notice of exercise and convert your debentures prior to the close
of business on the business day immediately preceding the applicable repurchase
date.
CONVERSION UPON SATISFACTION OF MARKET PRICE CONDITIONS
You may surrender any of your debentures for conversion into our common
stock during any conversion period if the closing sale price of our common stock
for at least 20 trading days in the 30 trading-day period ending on the first
day of the conversion period exceeds 120% of the conversion price on that
thirtieth trading day. A "conversion period" will be the period from and
including the thirtieth trading day in a fiscal quarter to but not including the
thirtieth trading day in the immediately following fiscal quarter.
You also may surrender any of your debentures for conversion into our
common stock during the five business-day period following any 10 consecutive
trading-day period in which the average of the trading prices for the debentures
for that 10 trading-day period was less than 105% of the average conversion
value for the debentures during that period. "Conversion value" is equal to the
product of the sale price for our common stock on a given day multiplied by the
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then current conversion rate, which is the number of shares of common stock into
which each $1,000 principal amount of debentures is then convertible. The
"trading price" of the debentures on any date of determination means the average
of the secondary market bid quotations per debenture obtained by us or the
calculation agent for $10,000,000 principal amount at maturity of the debentures
at approximately 3:30 p.m., New York City time, on such determination date from
three independent nationally recognized securities dealers we select, provided
that if at least three such bids cannot reasonably be obtained by us or the
calculation agent, but two such bids are obtained, then the average of the two
bids shall be used, and if only one such bid can reasonably be obtained by us or
the calculation agent, this one bid shall be used. If either we or the
calculation agent cannot reasonably obtain at least one bid for $10,000,000
principal amount at maturity of the debentures from a nationally recognized
securities dealer or in our reasonable judgment, the bid quotations are not
indicative of the secondary market value of the debentures, then the trading
price of the debentures will equal (a) the then-applicable conversion rate of
the debentures multiplied by (b) the sale price of our common stock on such
determination date.
CONVERSION UPON CREDIT RATING EVENT
You may surrender any of your debentures for conversion during any period
in which the credit ratings assigned to the debentures by both Moody's and S&P
are below Baa3 or BBB-, respectively, or in which the credit ratings assigned to
the debentures are suspended or withdrawn by both rating agencies or in which
neither rating agency is rating the debentures.
CONVERSION UPON NOTICE OF REDEMPTION
You may surrender for conversion any debentures we call for redemption at
any time prior to the close of business on the day that is two business days
prior to the redemption date, even if the debentures are not otherwise
convertible at that time. If you have already delivered a purchase notice or a
change of control purchase notice with respect to a debenture, however, you may
not surrender that debenture for conversion until you have withdrawn the notice
in accordance with the indenture.
CONVERSION UPON SPECIFIED CORPORATE TRANSACTIONS
Even if none of the other conditions described above have occurred, if:
- we distribute to all holders of our common stock certain rights entitling
them to purchase, for a period expiring within 60 days, common stock at
less than the sale price of the common stock at the time of the
announcement of such distribution;
- we elect to distribute to all holders of our common stock cash or other
assets, debt securities or certain rights to purchase our securities,
which distribution has a per share value exceeding 10% of the sale price
of the common stock on the day preceding the declaration date for the
distribution; or
- a change of control as described under "-- Repurchase of Debentures at
the Option of Holders -- Change of Control Put" occurs but holders of
debentures do not have the right to require us to repurchase their
debentures as a result of such change of control because either: (1) the
sale price of our common stock for a specified period prior to such
change of control exceeds a specified level or (2) because the
consideration received in such change of control consists of freely
tradeable stock and the debentures become convertible into that stock
(each as more fully described under "-- Repurchase of Debentures at the
Option of Holders -- Change of Control Put"), then
we must notify you at least 20 days prior to the ex-dividend date for the
distribution or within 30 days of the occurrence of the change of control, as
the case may be. Once we have given that notice, you may surrender your
debentures for conversion at any time until the earlier of
26
close of business on the business day prior to the ex-dividend date or our
announcement that the distribution will not take place, in the case of a
distribution, or within 30 days of the change of control notice, in the case of
a change of control. In the case of a distribution, no adjustment to the ability
of a holder of debentures to convert will be made if the holder will otherwise
participate in the distribution without conversion or in certain other cases.
In addition, if we are party to a consolidation, merger or binding share
exchange pursuant to which our common stock would be converted into cash,
securities or other property, a holder may surrender debentures for conversion
at any time from and after the date which is 15 days prior to the anticipated
effective date of the transaction until 15 days after the actual date of the
transaction. If we are a party to a consolidation, merger or binding share
exchange pursuant to which our common stock is converted into cash, securities
or other property, then at the effective time of the transaction, the right to
convert a debenture into common stock will be changed into a right to convert
the debentures into the kind and amount of cash, securities or other property
which the holder would have received if the holder had converted such debentures
immediately prior to the transaction. If the transaction also constitutes a
"change of control," as defined below, the holder can require us to repurchase
all or a portion of its debentures as described under "-- Repurchase of
Debentures at the Option of Holders -- Change of Control Put."
CONVERSION PROCEDURES
Except as provided below, if you convert your debentures into our common
stock on any day other than an interest payment date, you will not receive any
interest that has accrued on those debentures since the prior interest payment
date. By delivering to the holder the number of shares issuable upon conversion,
determined by dividing the principal amount of the debentures being converted by
the conversion price (stated as an amount per $1.00 principal amount of
debentures), together with a cash payment in lieu of any fractional shares, we
will satisfy our obligation with respect to the debentures. That is, accrued and
unpaid interest will be deemed to be paid in full rather than canceled,
extinguished or forfeited.
If you convert after a record date for an interest payment but prior to the
corresponding interest payment date, you will receive on the interest payment
date interest accrued on those debentures, notwithstanding the conversion of
debentures prior to the interest payment date, because you will have been the
holder of record on the corresponding record date. However, at the time you
surrender any debentures for conversion, you must pay us an amount equal to the
interest that has accrued and that will be paid on the debentures being
converted on the interest payment date. The preceding sentence does not apply to
debentures that are converted after being called by us for redemption after a
record date for an interest payment but prior to the corresponding interest
payment date. Accordingly, if we call your debentures for redemption on a date
that is after a record date for an interest payment but prior to the
corresponding interest payment date, and prior to the redemption date you choose
to convert your debentures, you will not be required to pay us at the time you
surrender your debentures for conversion the amount of interest on the
debentures you will receive on the date that has been fixed for redemption.
You will not be required to pay any taxes or duties relating to the
issuance or delivery of our common stock if you exercise your conversion rights,
but you will be required to pay any tax or duty which may be payable relating to
any transfer involved in the issuance or delivery of the common stock in a name
other than your own. Certificates representing shares of common stock will be
issued or delivered only after all applicable taxes and duties, if any payable
by you have been paid.
27
To convert interests in a global debenture, you must deliver to DTC the
appropriate instruction form for conversion pursuant to DTC's conversion
program. To convert a definitive debenture, you must:
- complete the conversion notice on the back of the debentures (or a
facsimile thereof);
- deliver the completed conversion notice and the debentures to be
converted to the specified office of the conversion agent;
- pay all funds required, if any, relating to interest on the debentures to
be converted to which you are not entitled, as described in the second
preceding paragraph; and
- pay all taxes or duties, if any as described in the preceding paragraph.
The conversion date will be the date on which all of the foregoing
requirements have been satisfied. The debentures will be deemed to have been
converted immediately prior to the close of business on the conversion date. A
certificate for the number of shares of common stock into which the debentures
are converted (and cash in lieu of any fractional shares) will be delivered as
soon as practicable on or after the conversion date.
CONVERSION PRICE ADJUSTMENTS
We will adjust the initial conversion price for certain events, including:
- issuances of our common stock as a dividend or distribution to all
holders of our common stock;
- certain subdivisions and combinations of our common stock;
- issuances to all holders of our common stock of certain rights or
warrants to purchase our common stock (or securities convertible into our
common stock) at less than (or having a conversion price per share less
than) the current market price of our common stock at the time of the
announcement of such issuance;
- distributions to all holders of our common stock of shares of our capital
stock (other than our common stock), evidences of our indebtedness or
assets, including securities, but excluding:
-- the rights and warrants referred to in the immediately preceding bullet
point,
-- any dividends and distributions in connection with a reclassification,
change, consolidation, merger combination, sale or conveyance resulting
in a change in the conversion consideration pursuant to the fourth
succeeding paragraph, or
-- any dividends or distributions paid exclusively in cash;
- distributions consisting exclusively of cash to all holders of our common
stock to the extent that those distributions, combined together with:
-- all other all-cash distributions made within the preceding 12 months
for which no adjustment has been made, plus
-- any cash and the fair market value of other consideration paid for in
any tender offers by us or any of our subsidiaries for our common stock
expiring within the preceding 12 months for which no adjustment has
been made,
exceeds 10% of our market capitalization on the record date for that
distribution; our "market capitalization," as of any date, is the product of the
sale price of our common stock on such date times the number of shares of our
common stock then outstanding; and
28
- purchases of our common stock pursuant to a tender offer made by us or
any of our subsidiaries to the extent such purchases involve an aggregate
consideration that, together with:
-- any cash and the fair market value of any other consideration paid in
any other tender offer by us or any of our subsidiaries for our common
stock expiring within the 12 months preceding the tender offer for
which no adjustment has been made, plus
-- the aggregate amount of any all-cash distributions referred to in the
immediately preceding bullet point to all holders of our common stock
within 12 months preceding the expiration of the tender offer for which
no adjustments have been made,
exceeds 10% of our market capitalization on the expiration of the tender offer.
We will not make any adjustment if holders of debentures may participate in
the transactions described above or in certain other cases. In cases:
- where the fair market value of assets, debt securities or certain rights,
warrants or options to purchase our securities that are applicable to one
share of common stock and are distributed to stockholders equals or
exceeds the average sale price of the common stock over a specified
period, or
- in which the average sale price of the common stock over a specified
period exceeds the fair market value of the assets, debt securities or
rights, warrants or options so distributed by less than $1.00,
rather than being entitled to an adjustment in the conversion price, the holder
of a debenture will be entitled to receive upon conversion, in addition to the
shares of common stock, the kind and amount of assets, debt securities or
rights, warrants or options comprising the distribution that the holder would
have received if the holder had converted its debentures immediately prior to
the record date for determining the shareholders entitled to receive the
distribution.
We will not make an adjustment in the conversion price unless the
adjustment would require a change of at least 1% in the conversion price in
effect at that time. We will carry forward and take into account in any
subsequent adjustment any adjustment that would otherwise be required to be
made.
If we:
- reclassify or change our common stock (other than changes resulting from
a subdivision or combination); or
- consolidate or combine with or merge into or are a party to a binding
share exchange with any person or sell or convey to another person all
or substantially all of our property and assets,
and the holders of our common stock receive (or the common stock is converted
into) stock, other securities or other property or assets (including cash or any
combination thereof) with respect to or in exchange for their common stock,
then, at the effective time of the transaction you may convert your debentures
into the consideration that you would have received if you had converted your
Debentures immediately prior to the reclassification, change, consolidation,
combination, merger sale or conveyance. We may not become a party to any such
transaction unless its terms are consistent with the foregoing.
In the event that we distribute shares of capital stock of a subsidiary of
ours, the conversion rate will be adjusted, if at all, based on the market value
of the subsidiary stock so distributed relative to the market value of our
common stock, in each case over a measurement period following the distribution.
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In the event we elect to make a distribution described in the third or
fourth bullet of the first paragraph of this subsection "-- Conversion Price
Adjustments," which, in the case of the fourth bullet, has a per share value
equal to more than 10% of the sale price of our shares of common stock on the
day preceding the declaration date for the distribution, then, if the
distribution would also trigger a conversion right under "-- Conversion Upon
Specified Corporate Transactions," or if the debentures are otherwise
convertible, we will be required to give notice to you at least 20 days prior to
the ex-dividend date for the distribution and, upon the giving of notice, the
debentures may be surrendered for conversion at any time until the close of
business on the business day prior to the ex-dividend date or until we announce
that the distribution will not take place. No adjustment to the conversion price
or to your ability to convert will be made if you will otherwise participate in
the distribution without conversion or in certain other cases.
If a taxable distribution to holders of our common stock or other
transaction occurs which results in any adjustment of the conversion price, you
may in certain circumstances, be deemed to have received a distribution subject
to United States federal income tax as a dividend. In certain other
circumstances, the absence of an adjustment may result in a taxable dividend to
the holders of our common stock. See "United States Taxation -- United States
Holders -- Constructive Dividends."
To the extent permitted by law, from time to time we may reduce the
conversion price of the debentures by any amount for any period of at least 20
days. In that case, we will give at least 15 days notice of the reduction. We
may also reduce the conversion price, as our board of directors deems advisable
to avoid or diminish any income tax to holders of our common stock resulting
from any dividend or distribution of stock (or rights to acquire stock) or from
any event treated as such for income tax purposes.
OPTIONAL REDEMPTION BY RADIAN GROUP
Prior to January 1, 2005, the debentures will not be redeemable at our
option. Beginning on January 1, 2005, we may redeem the debentures for cash at
any time as a whole, or from time to time in part, at a redemption price equal
to the principal amount of those debentures plus any accrued and unpaid
interest, including contingent interest, and additional interest, if any, on
those debentures to the redemption date. We will give you at least 30 days but
not more than 60 days notice of redemption by mail. Debentures or portions of
debentures called for redemption will be convertible by you until the close of
business on the second business day prior to the redemption date.
If we do not redeem all of the debentures, the trustee will select the
debentures to be redeemed in principal amounts of $1,000 or integral multiples
of $1,000 by lot or on a pro rata basis. If any debentures are to be redeemed in
part only we will issue a new debenture or debentures in principal amount equal
to the unredeemed principal portion thereof. If a portion of your debentures is
selected for partial redemption and you convert a portion of your debentures,
the converted portion will be deemed to be taken from the portion selected for
redemption.
REPURCHASE OF DEBENTURES AT THE OPTION OF HOLDERS
OPTIONAL PUT
On January 1, 2005, 2007, 2009, 2012 and 2017 you may require us to
repurchase any outstanding debentures for which you have properly delivered and
not withdrawn a written repurchase notice, subject to certain additional
conditions, at a purchase price equal to the principal amount of those
debentures plus any accrued and unpaid interest, including contingent interest
and additional interest, if any, on those debentures to the repurchase date. You
may submit your debentures for repurchase to the paying agent at any time from
the opening of business on the date that is 20 business days prior to the
repurchase date until the close of business on the third business day prior to
the repurchase date.
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Instead of paying the purchase price in cash, we may pay the purchase price
in common stock, cash or a combination of common stock and cash, at our option.
The number of shares of common stock a holder will receive will equal the
relevant amount of the purchase price divided by 97.5% of the average of the
sale price of our common stock for the 20 trading days immediately preceding and
including the third day prior to the repurchase date. However, we may not pay
the purchase price in common stock or a combination of common stock and cash,
unless we satisfy certain conditions prior to the repurchase date as provided in
the indenture, including:
- registration of the shares of our common stock to be issued upon
repurchase under the Securities Act and the Exchange Act, if required;
- qualification of the shares of our common stock to be issued upon
repurchase under applicable state securities laws, if necessary, or the
availability of an exemption therefrom; and
- listing of our common stock on a United States national securities
exchange or quotation thereof in an inter-dealer quotation system of any
registered United States national securities association.
We will be required to give you notice at least 20 business days prior to
each repurchase date at your address shown in the register of the registrar and
to beneficial owners as required by applicable law stating among other things,
the procedures that you must follow to require us to repurchase your debentures
as described below and whether the purchase price will be paid in cash or common
stock, or a combination with a portion payable in cash or common stock.
Because the sale price of our common stock will be determined prior to the
applicable repurchase date, you bear the market risk that our common stock will
decline in value between the date the sale price is calculated and the
repurchase date.
The repurchase notice given by you electing to require us to repurchase
debentures shall be given so as to be received by the paying agent no later than
the close of business on the third business day prior to the repurchase date and
must state:
- the certificate numbers of your debentures to be delivered for
repurchase;
- the portion of the principal amount of debentures to be repurchased,
which must be $1,000 or an integral multiple of $1,000; and
- that the debentures are to be repurchased by us pursuant to the
applicable provisions of the debentures.
You may withdraw any repurchase notice by delivering a written notice of
withdrawal to the paying agent prior to the close of business on the repurchase
date. The notice of withdrawal shall state:
- the principal amount of debentures being withdrawn;
- the certificate numbers of the debentures being withdrawn; and
- the principal amount, if any of the debentures that remain subject to
the repurchase notice.
In connection with any repurchase we will, to the extent applicable:
- comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender
offer rules under the Exchange Act which may then be applicable; and
- file Schedule TO or any other required schedule under the Exchange Act.
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Our obligation to pay the purchase price for debentures for which a
repurchase notice has been delivered and not validly withdrawn is conditioned
upon you delivering the debentures, together with necessary endorsements, to the
paying agent at any time after delivery of the repurchase notice. We will cause
the purchase price for the debentures to be paid promptly following the later of
the repurchase date or the time of delivery of the debentures, together with
such endorsements.
If the paying agent holds money or common stock sufficient to pay the
purchase price of the debentures for which a repurchase notice has been given on
the business day following the repurchase date in accordance with the terms of
the indenture, then, immediately after the repurchase date, the debentures will
cease to be outstanding and interest on the debentures will cease to accrue,
whether or not the debentures are delivered to the paying agent. Thereafter all
other rights of the holder shall terminate, other than the right to receive the
purchase price upon delivery of the debentures.
Our ability to repurchase debentures for cash may be limited by
restrictions on the ability of Radian Group to obtain funds for such repurchase
through dividends from its subsidiaries and the terms of our then existing
borrowing agreements.
CHANGE OF CONTROL PUT
If a change of control, as described below, occurs, you will have the right
(subject to certain exceptions set forth below) to require us to repurchase all
of your debentures not previously called for redemption, or any portion of those
debentures, that is equal to $1,000 in principal amount or a whole multiple of
$1,000 at a purchase price equal to the principal amount of all debentures you
require us to repurchase plus any accrued and unpaid interest, including
contingent interest and additional interest, if any, on those debentures to the
repurchase date. Notwithstanding the foregoing, we may be required to offer to
repurchase our other senior debt on a pro rata basis with the debentures, upon a
change of control, if similar change of control offers are or will be required
by our other senior debt.
Instead of paying the purchase price in cash, we may pay the purchase price
in our common stock or, in the case of a merger in which we are not the
surviving corporation, common stock, ordinary shares or American Depositary
Shares of the surviving corporation or its direct or indirect parent
corporation, cash or a combination of the applicable securities and cash, at our
option. The number of shares of the applicable common stock or securities a
holder will receive will equal the relevant amount of the purchase price divided
by 97.5% of the average of the sale price of the applicable common stock or
securities for the 20 trading days immediately preceding and including the third
day prior to the repurchase date. However, we may not pay the purchase price in
the applicable common stock or securities or a combination of the applicable
common stock or securities and cash, unless we satisfy certain conditions prior
to the repurchase date as provided in the indenture, including:
- registration of the shares of the applicable common stock or securities
to be issued upon repurchase under the Securities Act and the Exchange
Act, if required;
- qualification of the shares of the applicable common stock or securities
to be issued upon repurchase under applicable state securities laws, if
necessary, or the availability of an exemption therefrom; and
- listing of the applicable common stock or securities on a United States
national securities exchange or quotation thereof in an inter-dealer
quotation system of any registered United States national securities
association.
Within 30 days after the occurrence of a change of control, we are required
to give you notice of the occurrence of the change of control and of your
resulting repurchase right and whether the purchase price will be paid in cash
the applicable common stock or securities, or a
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combination with a portion payable in cash or the applicable common stock or
securities. The repurchase date will be 30 days after the date we give notice of
a change of control. To exercise the repurchase right, you must deliver prior to
the close of business on the business day immediately preceding the repurchase
date, written notice to the trustee of your exercise of your repurchase right,
together with the debentures with respect to which your right is being
exercised. You may withdraw this notice by delivering to the paying agent a
notice of withdrawal prior to the close of business on the business day
immediately preceding the repurchase date.
Because the sale price of the applicable common stock or securities will be
determined prior to the applicable repurchase date, you bear the market risk
that the applicable common stock or securities will decline in value between the
date the sale price is calculated and the repurchase date.
A "change of control" will be deemed to have occurred at such time after
the original issuance of the debentures when any of the following has occurred:
- the acquisition by any person, including any syndicate or group deemed to
be a "person" under Section 13(d)(3) of the Exchange Act of beneficial
ownership, directly or indirectly through a purchase, merger or other
acquisition transaction or series of purchase, merger or other
acquisition transactions, of shares of our capital stock entitling that
person to exercise 50% or more of the total voting power of all shares of
our capital stock entitled to vote generally in elections of directors,
other than any acquisition by us, any of our subsidiaries or any of our
employee benefit plans (except that any of those persons shall be deemed
to have beneficial ownership of all securities it has the right to
acquire, whether the right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition); or
- the first day on which a majority of the members of the board of
directors of Radian Group are not continuing directors; or
- our consolidation or merger with or into any other person, any merger of
another person into us, or any conveyance, transfer, sale, lease or other
disposition of all or substantially all of our properties and assets to
another person, other than:
-- any transaction:
(1) that does not result in any reclassification, conversion, exchange
or cancellation of outstanding shares of our capital stock; and
(2) pursuant to which holders or our capital stock immediately prior to
the transaction have the entitlement to exercise, directly or
indirectly 50% or more of the total voting power of all shares of
capital stock entitled to vote generally in elections of directors
of the continuing or surviving person immediately after giving
effect to such issuance; and
-- any merger, share exchange, transfer of assets or similar transaction
solely for the purpose of changing our jurisdiction of incorporation
and resulting in a reclassification, conversion or exchange of
outstanding shares of common stock, if at all, solely into shares of
common stock, ordinary shares or American Depositary Shares ("ADRs") of
the surviving entity or a direct or indirect parent of the surviving
corporation.
However, notwithstanding the foregoing, you will not have the right to
require us to repurchase your debentures if:
- the sale price per share of our common stock for any five trading days
within:
-- the period of 10 consecutive trading days ending immediately after the
later of the change of control or the public announcement of the change
of control, in the case of a change of control under the first or
second bullet point above, or
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-- the period of 10 consecutive trading days ending immediately before the
change of control, in the case of a change of control under the third
bullet point above, equals or exceeds 110% of the conversion price of
the debentures in effect on each of those five trading days; or
- 100% of the consideration in the transaction or transactions (other than
cash payments for fractional shares and cash payments made in respect of
dissenters' appraisal rights) constituting a change of control consists
of shares of common stock, ordinary shares or ADRs traded or to be traded
immediately following a change of control on a national securities
exchange or the Nasdaq National Market, and, as a result of the
transaction or transactions, the debentures become convertible into that
common stock, ordinary shares or ADRs (and any rights attached thereto).
Beneficial ownership shall be determined in accordance with Rule 13d-3
promulgated by the SEC under the Exchange Act. The term "person" includes any
syndicate or group that would be deemed to be a "person" under Section 13(d)(3)
of the Exchange Act.
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders if an issuer tender offer occurs and may apply
if the repurchase option becomes available to you. We will comply with this rule
and file Schedule TO (or any similar schedule) to the extent applicable at that
time.
The definition of change of control includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of "all or substantially all"
of our assets. There is no precise, established definition of the phrase
"substantially all" under applicable law. Accordingly, your ability to require
us to repurchase your debentures as a result of a conveyance, transfer, sale,
lease or other disposition of less than all our assets may be uncertain.
If the paying agent holds money or common stock sufficient to pay the
purchase price of the debentures which you have elected to require us to
repurchase on the business day following the repurchase date in accordance with
the terms of the indenture, then, immediately after the repurchase date, those
debentures will cease to be outstanding and interest on the debentures will
cease to accrue, whether or not the debentures are delivered to the paying
agent. Thereafter all other of your rights shall terminate, other than the right
to receive the purchase price upon delivery of the debentures.
The foregoing provisions would not necessarily protect you if highly
leveraged or other transactions involving us occur that may affect you
adversely. We could, in the future, enter into certain transactions, including
certain recapitalizations, that would not constitute a change of control with
respect to the change of control purchase feature of the debentures but that
would increase the amount of our (or our subsidiaries) outstanding indebtedness.
Our ability to repurchase debentures for cash upon the occurrence of a
change of control is subject to important limitations. Our ability to repurchase
the debentures for cash may be limited by restrictions on the ability of Radian
Group to obtain funds for such repurchase through dividends from its
subsidiaries. In addition, the occurrence of a change of control could cause an
event of default under or be prohibited or limited by the terms of our other
senior debt. We cannot assure you that we would have the financial resources, or
would be able to arrange financing, to pay the purchase price in cash for all
the debentures that might be delivered seeking to exercise the repurchase right.
The change of control purchase feature of the debentures may in certain
circumstances make more difficult or discourage a takeover of our company. The
change of control purchase feature, however, is not the result of our knowledge
of any specific effort:
- to accumulate shares of our common stock;
- to obtain control of us by means of a merger, tender offer solicitation
or otherwise; or
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- by management to adopt a series of anti-takeover provisions.
Instead, the change of control purchase feature is a standard term
contained in securities similar to the debentures. However, none of our other
debt, nor that of our subsidiaries, contains this type of change of control
feature. Similarly, a change of control will not cause a default in, or trigger
any payments on, our other debt or that of our subsidiaries.
MERGER AND SALES OF ASSETS
The indenture provides that Radian Group may not consolidate with or merge
into any other person or convey, transfer, sell, lease or otherwise dispose of
all or substantially all of its properties and assets to another person unless,
among other things:
- the resulting, surviving or transferee person is organized and existing
under the laws of the United States, any state thereof, or the District
of Columbia;
- such person assumes all obligations of Radian Group under the debentures
and the indenture; and
- Radian Group or such successor is not then or immediately thereafter in
default under the indenture.
The occurrence of certain of the foregoing transactions could constitute a
change of control.
This covenant includes a phrase relating to the conveyance, transfer, sale,
lease or disposition of "all or substantially all" of our assets. There is no
precise, established definition of the phrase "substantially all" under
applicable law. Accordingly, there may be uncertainty as to whether a
conveyance, transfer, sale, lease or other disposition of less than all our
assets is subject to this covenant.
EVENTS OF DEFAULT
Each of the following constitutes an event of default under the indenture:
- default in our obligation to convert debentures into shares of our common
stock upon exercise of a holder's conversion right;
- default in our obligation to repurchase debentures at the option of
holders;
- default in our obligation to redeem debentures after we have exercised
our redemption option;
- default in our obligation to pay any accrued and unpaid interest,
including contingent interest or additional interest, if any, in each
case, when due and payable, and continuance of such default for a period
of 30 days;
- our failure to perform or observe any other term, covenant or agreement
contained in the debentures or the indenture for a period of 60 days
after written notice of such failure, requiring us to remedy the same,
shall have been given to us by the trustee or to us and the trustee by
the holders of at least 25% in aggregate principal amount of the
debentures then outstanding;
- our failure to pay when due at maturity or a default that results in the
acceleration of maturity of any of our other indebtedness or that of any
designated subsidiary (excluding non-recourse debt) having an aggregate
principal amount outstanding of at least $15,000,000, unless the
indebtedness is discharged or the acceleration is rescinded or annulled,
in each case within 15 days after written notice of default is given to
us by the trustee or the holders of at least 10% in principal amount of
the outstanding debentures; and
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- certain events of bankruptcy, insolvency or reorganization with respect
to us or any of our subsidiaries that is a significant subsidiary or any
group of two or more subsidiaries that, taken as a whole, would
constitute a significant subsidiary.
Our "designated subsidiaries" shall mean Radian Guaranty, Amerin Guaranty,
Radian Reinsurance, Radian Asset Assurance and any other existing or future,
direct or indirect, subsidiary of Radian Group whose assets constitute 15% or
more of the total assets of Radian Group on a consolidated basis.
The Indenture will provide that the trustee shall, within 90 days of the
occurrence of a default, give to the registered holders of the debentures notice
of all uncured defaults known to it, but the trustee shall be protected in
withholding such notice if it, in good faith, determines that the withholding of
such notice is in the best interest of such registered holders, except in the
case of a default in the payment of the principal of or interest on, any of the
debentures when due or in the payment of any redemption or repurchase
obligation.
If certain events of default specified in the last bullet point above shall
occur and be continuing, then automatically the principal amount of the
debentures and any accrued and unpaid interest, including contingent interest
and additional interest, if any, through such date shall become immediately due
and payable. If any other event of default, shall occur and be continuing (the
default not having been cured or waived as provided under "-- Modification and
Waiver" below), the trustee or the holders of at least 25% in aggregate
principal amount of the debentures then outstanding may declare the debentures
due and payable at their principal amount together with any accrued and unpaid
interest, including contingent interest and additional interest, if any, and
thereupon the trustee may, at its discretion, proceed to protect and enforce the
rights of the holders of debentures by appropriate judicial proceedings. Such
declaration may be rescinded or annulled with the written consent of the holders
of a majority in aggregate principal amount of the debentures then outstanding
upon the conditions provided in the indenture.
The indenture contains a provision entitling the trustee, subject to the
duty of the trustee during default to act with the required standard of care, to
be indemnified by the holders of debentures before proceeding to exercise any
right or power under the indenture at the request of such holders. The indenture
provides that the holders of a majority in aggregate principal amount of the
debentures then outstanding through their written consent, may direct the time,
method and place of conducting any proceeding for any remedy available to the
trustee or exercising any trust or power conferred upon the trustee.
We will be required to furnish annually to the trustee a statement as to
the fulfillment of our obligations under the indenture.
MODIFICATION AND WAIVER
CHANGES REQUIRING APPROVAL OF EACH AFFECTED HOLDER
The indenture (including the terms and conditions of the debentures) cannot
be modified or amended without the written consent or the affirmative vote of
the holder of each debenture affected by such change to:
- change the maturity of the principal of, or any installment of interest
or any contingent interest or additional interest on, any debenture;
- reduce the principal amount of, or any interest or contingent interest on
(including any payment of additional interest), redemption price or
purchase price (including change of control purchase price) on any
debenture;
- impair or adversely affect the conversion rights of any holder of
debentures;
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- reduce the value of our common stock to which reference is made in
determining whether an interest adjustment will be made on the
debentures, or change the method by which this value is calculated;
- change the currency of payment of such debenture or interest thereon;
- alter the manner of calculation or rate of accrual of interest, or
contingent interest or additional interest on any debenture or extend the
time for payment of any such amount;
- impair the right to institute suit for the enforcement of any payment on
or with respect to, or conversion of, any debenture;
- modify our obligations to maintain an office or agency in New York City;
- except as otherwise permitted or contemplated by provisions concerning
corporate reorganizations, adversely affect the repurchase option of
holders or the conversion rights of holders of the debentures;
- modify the redemption provisions of the indenture in a manner adverse to
the holders of debentures;
- reduce the percentage in aggregate principal amount of debentures
outstanding necessary to modify or amend the indenture or to waive any
past default; or
- reduce the percentage in aggregate principal amount of debentures
outstanding required for the adoption of a resolution.
CHANGES REQUIRING MAJORITY APPROVAL
The indenture (including the terms and conditions of the debentures) may be
modified or amended, subject to the provisions described above with the written
consent of the holders of at least a majority in aggregate principal amount of
the debentures at the time outstanding.
CHANGES REQUIRING NO APPROVAL
The indenture (including the terms and conditions of the debentures) may be
modified or amended by us and the trustee, without the consent of the holder of
any debenture, for the purposes of, among other things:
- adding to our covenants for the benefit of the holders of debentures;
- surrendering any right or power conferred upon us;
- providing for conversion rights of holders of debentures if any
reclassification or change of our common stock or any consolidation,
merger or sale of all or substantially all of our assets occurs;
- providing for the assumption of our obligations to the holders of
debentures in the case of a merger, consolidation, conveyance, transfer
or lease;
- reducing the conversion price, provided that the reduction will not
adversely affect the interests of the holders of debentures;
- complying with the requirements of the SEC in order to effect or maintain
the qualification of the indenture under the Trust Indenture Act of 1939,
as amended;
- making any changes or modifications necessary in connection with the
registration of the debentures under the Securities Act as contemplated
in the registration rights agreement; provided that such change or
modification does not, in the good faith opinion of our board of
directors and the trustee, adversely affect the interests of the holders
of debentures in any material respect;
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- curing any ambiguity or correcting or supplementing any defective
provision contained in the indenture; provided that such modification or
amendment does not, in the good faith opinion of our board of directors
and the trustee, adversely affect the interests of the holders of
debentures in any material respect; or
- adding or modifying any other provisions with respect to matters or
questions arising under the indenture which we and the trustee may deem
necessary or desirable and which will not adversely affect the interests
of the holders of debentures.
FORM, DENOMINATION AND REGISTRATION
Denomination and Registration. The debentures have been issued in fully
registered form, without coupons, in denominations of $1,000 principal amount at
maturity and whole multiples of $1,000.
Global Debentures: Book-Entry Form. The debentures are evidenced by one or
more global debentures deposited with the trustee as custodian for DTC, and
registered in the name of Cede & Co. as DTC's nominee.
Record ownership of the global debentures may be transferred, in whole or
in part, only to another nominee of DTC or to a successor of DTC or its nominee,
except as set forth below. You may hold your interests in the global debentures
directly through DTC if you are a participant in DTC, or indirectly through
organizations which are direct DTC participants if you are not a participant in
DTC. Transfers between direct DTC participants will be effected in the ordinary
way in accordance with DTC's rules and will be settled in same-day funds. You
may also beneficially own interests in the global debentures held by DTC through
certain banks, brokers, dealers, trust companies and other parties that clear
through or maintain a custodial relationship with a direct DTC participant,
either directly or indirectly.
So long as Cede & Co., as nominee of DTC, is the registered owner of the
global debentures, Cede & Co. for all purposes will be considered the sole
holder of the global debentures. Except as provided below, owners of beneficial
interests in the global debentures:
- will not be entitled to have certificates registered in their names;
- will not receive or be entitled to receive physical delivery of
certificates in definitive form; and
- will not be considered holders of the global debentures.
The laws of some states require that certain persons take physical delivery
of securities in definitive form. Consequently, the ability of an owner of a
beneficial interest in a global security to transfer the beneficial interest in
the global security to such persons may be limited.
We will wire, through the facilities of the trustee, payments of principal,
premium, if any, and interest payments on the global debentures to Cede & Co.,
the nominee of DTC, as the registered owner of the global debentures. None of
Radian Group, the trustee and any paying agent will have any responsibility or
be liable for paying amounts due on the global debentures to owners of
beneficial interests in the global debentures.
It is DTC's current practice, upon receipt of any payment of principal of
and premium, if any, and interest on the global debentures, to credit
participants' accounts on the payment date in amounts proportionate to their
respective beneficial interests in the debentures represented by the global
debentures, as shown on the records of DTC, unless DTC believes that it will not
receive payment on the payment date. Payments by DTC participants to owners of
beneficial interests in debentures represented by the global debentures held
through DTC participants will be the responsibility of DTC participants, as is
now the case with securities held for the accounts of customers registered in
"street name."
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If you would like to convert your debentures into common stock pursuant to
the terms of the debentures, you should contact your broker or other direct or
indirect DTC participant to obtain information on procedures, including proper
forms and cut-off times, for submitting those requests.
Because DTC can only act on behalf of DTC participants, who in turn act on
behalf of indirect DTC participants and other banks, your ability to pledge your
interest in the debentures represented by global debentures to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of such interest, may be affected by the lack of a physical certificate.
Neither Radian Group nor the trustee (nor any registrar, paying agent or
conversion agent under the indenture) will have any responsibility for the
performance by DTC or direct or indirect DTC participants of their obligations
under the rules and procedures governing their operations. DTC has advised us
that it will take any action permitted to be taken by a holder of debentures,
including, without limitation, the presentation of debentures for conversion as
described below, only at the direction of one or more direct DTC participants to
whose account with DTC interests in the global debentures are credited and only
for the principal amount at maturity of the debentures for which directions have
been given.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act, as amended. DTC was created to hold securities
for DTC participants and to facilitate the clearance and settlement of
securities transactions between DTC participants through electronic book-entry
changes to the accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include
certain other organizations, such as the initial purchasers of the debentures.
Certain DTC participants or their representatives, together with other entities,
own DTC. Indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through, or maintain a custodial
relationship with, a participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the global debentures among DTC participants, it is
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
us within 90 days, we will cause debentures to be issued in definitive form in
exchange for the global debentures. None of Radian Group, the trustee or any of
their respective agents will have any responsibility for the performance by DTC
or direct or indirect DTC participants of their obligations under the rules and
procedures governing their operations, including maintaining, supervising or
reviewing the records relating to, or payments made on account of, beneficial
ownership interests in global debentures.
According to DTC, the foregoing information with respect to DTC has been
provided to its participants and other members of the financial community for
information purposes only and is not intended to serve as a representation,
warranty or contract modification of any kind.
GOVERNING LAW
The indenture and the debentures will be governed by, and construed in
accordance with, the laws of the State of New York, without regard to conflict
of laws principals thereof.
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INFORMATION CONCERNING THE TRUSTEE
The Bank of New York, as trustee under the indenture, has been appointed by
us as paying agent, conversion agent, calculation agent, registrar and custodian
with regard to the debentures. The trustee or its affiliates may from time to
time in the future provide banking and other services to us in exchange for a
fee.
CALCULATIONS IN RESPECT OF DEBENTURES
We or our agents will be responsible for making all calculations called for
under the debentures. These calculations include, but are not limited to,
determination of the market prices of the debentures and of our common stock and
amounts of interest and contingent payments, if any, on the debentures. We or
our agents will make all these calculations in good faith and, absent manifest
error, our and their calculations will be final and binding on holders of
debentures. We or our agents will provide a schedule of these calculations to
the trustee, and the trustee is entitled to conclusively rely upon the accuracy
of these calculations without independent verification.
DESCRIPTION OF CAPITAL STOCK
The following description summarizes the terms of our capital stock which
may be issued pursuant to a prospectus supplement. The particular terms of any
capital securities will be set forth in the prospectus supplement which relates
to such securities. For further information, please read our certificate of
incorporation and bylaws. See "Where You Can Find More Information."
AUTHORIZED CAPITAL STOCK
Radian Group's authorized capital stock consists of:
- 200,000,000 shares of Radian Group common stock, par value $.001 per
share; and
- 20,000,000 shares of Radian Group preferred stock, par value $.001 per
share of which 800,000 shares are designated $4.125 Preferred Stock and
100,000 are designated Series A Junior Participating Preferred Shares.
As of the close of business on May 21, 2002:
- 94,669,431 shares of Radian Group common stock were outstanding;
- 800,000 shares of Radian Group $4.125 Preferred Stock were outstanding;
- no shares of Series A Preferred Stock were outstanding; and
- approximately 8,620,560 shares of Radian Group common stock and 100,000
shares of Radian Group Series A Preferred Stock were 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;
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- the board of directors may declare dividends out of legally available
funds; and
- no dividends will be paid on the Radian Group 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 Group to pay
dividends on the Radian Group 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.
- There are no redemption rights.
PREFERRED STOCK
We have $4.125 Preferred Stock that is issued and outstanding. For more
information see "Where You Can Find More Information."
Radian Group 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 Group'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 Group'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 Group, 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
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- 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;
- procedures providing that the notice of proposed stockholder nominations
for the election of directors must be timely given in writing to the
secretary of Radian Group generally not less than 60 days before the
meeting at which directors are to be elected.
STOCKHOLDER RIGHTS PLAN
Our board of directors has adopted a stockholder rights plan. The rights
plan is designed to help insure that all stockholders of Radian Group receive
fair value for their shares of common stock in the event of any proposed
takeover of Radian Group and to guard against the use of partial tender offers
or other coercive tactics to gain control of Radian Group without offering fair
value to Radian Group's stockholders. The provisions of the rights plan may
render an unsolicited takeover of Radian Group more difficult or less likely to
occur or might prevent such a takeover, even though such takeover may offer
Radian Group'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 Group.
A right was issued as a dividend on each outstanding share of Radian Group
common stock as of May 5,1998. The right entitles its holder to purchase from
Radian Group 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. 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 Group, 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 Group board, cash, property or other securities of
Radian Group, having a value equal to two times the exercise price of the right.
Radian Group 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
Group is acquired in a merger or other business combination transaction in which
it is not the surviving corporation or 50% or more of Radian Group'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 Group is an insurance holding company and has 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 Group common stock. Each of these states
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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 Group 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;
- 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 Group common stock. Some
of the Radian Group insurance company affiliates are 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 Group insurance company affiliates are currently commercially
domiciled in those states. However, this could change in the future,
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creating additional Form A filing and approval requirements applicable to
purchases and acquisitions of Radian Group common stock.
PREEMPTIVE RIGHTS
No holder of any shares of any class of stock of Radian Group has 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 Group common stock is
The Bank of New York.
UNITED STATES TAXATION
This discussion describes the material United States federal income tax
consequences of ownership and disposition of the debentures we are offering and,
to the extent described below, our common stock received upon an exchange,
conversion or redemption of the debentures. This discussion constitutes the
opinion of Reed Smith LLP, as special tax counsel to Radian Group. It applies to
you only if you acquire a debenture in the offering and you hold your debenture
as a capital asset for tax purposes. This section does not apply to you if you
are a member of a class of holders subject to special rules, such as:
- a dealer in securities or currencies;
- a trader in securities that elects to use a mark-to-market method of
accounting for your securities holdings;
- a bank;
- a life insurance company;
- a tax-exempt organization;
- a person that owns debentures that are a hedge or that are hedged against
interest rate risks;
- a person that owns debentures as part of a straddle or conversion
transaction for tax purposes; or
- a U.S. person whose functional currency for tax purposes is not the U.S.
dollar.
This discussion is based on the Internal Revenue Code of 1986, as amended,
its legislative history, existing and proposed regulations under the Internal
Revenue Code, published rulings and court decisions, all as currently in effect.
These laws are subject to change, possibly on a retroactive basis.
No statutory, administrative or judicial authority directly addresses the
treatment of the debentures or instruments similar to the debentures for United
States federal income tax purposes. No rulings have been sought or are expected
to be sought from the Internal Revenue Service (the "IRS") with respect to any
of the United States federal income tax consequences discussed below, and no
assurance can be given that the IRS will not take contrary positions. As a
result, no assurance can be given that the IRS will agree with the tax
characterizations and the tax consequences described below.
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We urge prospective investors to consult their own tax advisors with
respect to the tax consequences to them of the purchase, ownership and
disposition of the debentures and the common stock in light of their own
particular circumstances, including the tax consequences under state, local,
foreign and other tax laws and the possible effects of changes in United States
federal or other tax laws.
CLASSIFICATION OF THE DEBENTURES
Pursuant to the terms of the indenture, we and each holder of the
debentures agree, for United States federal income tax purposes, to treat the
debentures as indebtedness that is subject to the regulations governing
contingent payment debt instruments, and the remainder of this discussion
assumes that the debentures will be so treated. However, no assurance can be
given that the IRS will not assert that the debentures should be treated
differently. Such treatment could affect the amount, timing and character of
income, gain or loss in respect of an investment in the debentures.
UNITED STATES HOLDER
This discussion applies to U.S. Holders. You are a U.S. holder if you are a
beneficial owner of a debenture and you are:
- a citizen or resident of the United States;
- a domestic corporation;
- an estate whose income is subject to United States federal income tax
regardless of its source; or
- a trust if a United States court can exercise primary supervision over
the trust's administration and one or more United States persons are
authorized to control all substantial decisions of the trust.
A beneficial owner of debentures that is a non-U.S. Holder (as defined in
"-- Non-U.S. Holders" below) should see "-- Non-U.S. Holders" below.
Under the rules governing contingent payment debt obligations, you will be
required to accrue interest income on the debentures, in the amounts described
below, regardless of whether you use the cash or accrual method of tax
accounting. Accordingly, you would likely be required to include interest in
taxable income in each year in excess of the accruals on the debentures for
non-tax purposes and in excess of any interest payments actually received in
that year.
Interest Accruals on the Debentures
You must accrue an amount of ordinary income for United States federal
income tax purposes, for each accrual period prior to and including the maturity
date of a debenture, that equals:
- the product of (i) the adjusted issue price (as defined below) of the
debenture as of the beginning of the accrual period; and (ii) the
comparable yield (as defined below) of the debenture, adjusted for the
length of the accrual period;
- divided by the number of days in the accrual period; and
- multiplied by the number of days during the accrual period that you held
the debenture;
adjusted, as described below, to reflect the difference between the actual and
projected amounts of any contingent payment on the debentures.
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The issue price of a debenture is the first price (excluding amounts
attributable to pre-issuance interest) at which a substantial amount of the
debentures is sold to the public, excluding bond houses, brokers or similar
persons or organizations acting in the capacity of underwriters, placement
agents or wholesalers. The adjusted issue price of a debenture is its issue
price increased by any interest income previously accrued, determined without
regard to any adjustments to interest accruals described below and decreased by
the projected amounts of any payments previously made with respect to the
debenture.
The term "comparable yield" means the annual yield that an issuer of a
contingent payment debt obligation would pay, as of the initial issue date, on a
fixed rate nonconvertible debt security with no contingent payments, but with
terms and conditions otherwise comparable to those of the instrument.
We are required to provide to you, solely for United States federal income
tax purposes, a schedule of the projected amounts of payments on the debentures.
This schedule must produce the comparable yield. The projected payment schedule
includes estimates for payments of contingent interest and an estimate for a
payment at maturity taking into account the exchange feature. The comparable
yield and projected payment schedule are available from Radian Group by
telephoning Radian Group Inc. Investor Relations Department at (215) 564-6600 or
submitting a written request for such information to: Radian Group Inc., 1601
Market Street, Philadelphia, Pennsylvania 19103, Attention: Investor Relations
Department.
For United States federal income tax purposes, you must use the comparable
yield and projected payment schedule in determining your interest accruals, and
the adjustments thereto described below, in respect of the debentures, unless
you timely disclose and justify the use of other estimates to the IRS. If you
determine your own comparable yield or projected payment schedule, you must also
establish that our comparable yield or projected payment schedule is
unreasonable.
THE COMPARABLE YIELD AND PROJECTED PAYMENT SCHEDULE ARE NOT DETERMINED FOR ANY
PURPOSE OTHER THAN FOR THE DETERMINATION OF YOUR INTEREST ACCRUALS AND
ADJUSTMENTS THEREOF IN RESPECT OF THE DEBENTURES FOR UNITED STATES FEDERAL
INCOME TAX PURPOSES AND DO NOT CONSTITUTE A PROJECTION OR REPRESENTATION
REGARDING THE ACTUAL AMOUNTS PAYABLE TO HOLDERS OF THE DEBENTURES.
Adjustments to Interest Accruals on the Debenture
If you receive actual payments with respect to a debenture in a taxable
year that in the aggregate exceed the total amount of projected payments for
that taxable year, you would incur a "net positive adjustment" equal to the
amount of such excess. You would treat the "net positive adjustment" as
additional interest income for the taxable year. For this purpose, the payments
in a taxable year include the fair market value of property received in that
year.
If you receive actual payments with respect to a debenture in a taxable
year that in the aggregate were less than the amount of the projected payments
for that taxable year, you would incur a "net negative adjustment" equal to the
amount of such deficit. This adjustment will (a) reduce your interest income on
the debentures for that taxable year, and (b) to the extent of any excess after
the application of (a), give rise to an ordinary loss to the extent of your
interest income on the debenture during prior taxable years, reduced to the
extent such interest was offset by prior net negative adjustments.
Sale, Exchange, Conversion or Redemption of the Debentures
Generally, the sale, exchange or conversion of a debenture, or the
redemption of a debenture for cash, will result in taxable gain or loss to you.
As described above, our calculation
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of the comparable yield and the projected payment schedule for the debentures
includes the receipt of stock upon exchange as a contingent payment with respect
to the debentures. Accordingly, we intend to treat the receipt of our common
stock by you upon the exchange or conversion of a debenture, or upon the
redemption of a debenture where we elect to pay in common stock, as a contingent
payment. As described above, you are generally bound by our determination of the
comparable yield and projected payment schedule. Under this treatment, an
exchange or conversion or such a redemption will also result in taxable gain or
loss to you. The amount of gain or loss on a taxable sale, exchange, conversion,
or redemption will be equal to the difference between (a) the amount of cash
plus the fair market value of any other property received by you, including the
fair market value of any common stock received, and (b) your adjusted tax basis
in the debenture. Your adjusted tax basis in a debenture will generally be equal
to your original purchase price for the debenture, increased by any interest
income previously accrued by you (determined without regard to any adjustments
to interest accruals described above), and decreased by the amount of any
projected payments previously made on the debenture to you. Gain recognized upon
a sale, exchange, conversion, or redemption of a debenture will generally be
treated as ordinary interest income if there are any remaining unpaid contingent
payments at the time of such an event; any loss generally will be ordinary loss
to the extent of interest previously included in income, and thereafter, capital
loss (which will be long-term if the debenture is held for more than one year).
The deductibility of net capital losses by individuals and corporations is
subject to limitations.
Your tax basis in our common stock received upon an exchange or conversion
of a debenture or upon your exercise of a put right that we elect to pay in
common stock will equal the then current fair market value of such common stock.
Your holding period for the common stock received will commence on the day
immediately following the date of exchange, conversion, or redemption.
Constructive Dividends
If at any time we make a distribution of property to our stockholders that
would be taxable to the stockholders as a dividend for federal income tax
purposes and, in accordance with the anti-dilution provisions of the debentures,
the conversion rate of the debentures is increased, such increase may be deemed
to be the payment of a taxable dividend to you.
For example, an increase in the conversion rate in the event of
distribution of our evidence of indebtedness or our assets or an increase in the
event of an extraordinary cash dividend will generally result in deemed dividend
treatment to you, but generally an increase in the event of stock dividends or
the distribution of rights to subscribe for common stock will not.
NON-U.S. HOLDERS
This discussion describes the tax consequences to a non-U.S. Holder. You
are a non-U.S. Holder if you are the beneficial owner of a debenture and are,
for United States federal income tax purposes:
- a nonresident alien individual;
- a foreign corporation;
- a foreign partnership; or
- an estate or trust that in either case is not subject to United States
federal income tax on a net income basis on income or gain from a
debenture.
If you are a U.S. Holder, this section does not apply to you.
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Payments Made With Respect to the Debentures
Under United States federal income and estate tax law, and subject to the
discussions of backup withholding and dividends below, if you are a non-U.S.
Holder:
- we and other U.S. payors generally will not be required to deduct United
States withholding tax at a 30% rate (or at a lower rate if you are
eligible for the benefits of an applicable income tax treaty that
provides for a lower rate) from payments of interest and principal to you
if, in the case of payments of interest:
(1) you do not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock entitled to vote,
(2) you are not a controlled foreign corporation that is related to us
through stock ownership, and
(3) the U.S. payor does not have actual knowledge or reason to know
that you are a United States person and:
(a) you have furnished to the U.S. payor an IRS Form W-8BEN or an
acceptable substitute form upon which you certify, under penalties of
perjury, that you are a non-United States person,
(b) in the case of payments made outside the United States to you
at an offshore account (generally, an account maintained by you at a
bank or other financial institution at any location outside the United
States), you have furnished to the U.S. payor documentation that
establishes your identity and your status as a non-United States person,
(c) the U.S. payor has received a withholding certificate
(furnished on an appropriate IRS Form W-8 or an acceptable substitute
form) from a person claiming to be:
i. a withholding foreign partnership (generally a foreign
partnership that has entered into an agreement with the IRS to assume
primary withholding responsibility with respect to distributions and
guaranteed payments it makes to its partners),
ii. a qualified intermediary (generally a non-United States
financial institution or clearing organization or a non-United States
branch or office of a United States financial institution or clearing
organization that is a party to a withholding agreement with the
IRS), or
iii. a U.S. branch of a non-United States bank or of a
non-United States insurance company,
and the withholding foreign partnership, qualified intermediary or
U.S. branch has received documentation upon which it may rely to
treat the payment as made to a non-United States person in accordance
with U.S. Treasury regulations (or, in the case of a qualified
intermediary, in accordance with its agreement with the IRS),
(d) the U.S. payor receives a statement from a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business,
i. certifying to the U.S. payor under penalties of perjury that
an IRS Form W-8BEN or an acceptable substitute form has been received
from you by it or by a similar financial institution between it and
you, and
ii. to which is attached a copy of the IRS Form W-8BEN or
acceptable substitute form, or
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(e) the U.S. payor otherwise possesses documentation upon which it
may rely to treat the payment as made to a non-United States person in
accordance with U.S. Treasury regulations;
- no deduction for any United States federal withholding tax will be made
from any gain that you realize on the sale or exchange of your debenture;
and
- if interest paid to you is "effectively connected" with your conduct of a
trade or business within the United States, and, if required by an
applicable tax treaty, the interest is attributable to a permanent
establishment that you maintain in the United States, we and other payors
generally are not required to withhold tax from the interest, provided
that you have furnished to us or another payor a valid Internal Revenue
Service Form W-8ECI or an acceptable substitute form upon which you
represent, under penalties of perjury, that:
(1) you are a non-United States person, and
(2) the interest is effectively connected with your conduct of a trade
or business within the United States and is includible in your gross
income.
"Effectively connected" interest is taxed at rates applicable to United
States citizens, resident aliens and domestic United States corporations.
Dividends on Common Stock and Constructive Dividends
Except as described below, if you are a non-U.S. Holder of common stock,
dividends paid to you are subject to withholding of United States federal income
tax at a 30% rate or at a lower rate if you are eligible for the benefits of an
applicable income tax treaty that provides for a lower rate. Moreover, if you
are a non-U.S. Holder of a debenture and you receive a constructive dividend as
a result of a change in the exchange ratio of your debenture, we and other
payors may withhold on other payments made on your debentures in between the
date of the constructive dividend and the due date for filing of Form 1042-S
(including extensions) for the tax year in which the constructive dividend is
made if the relevant payor has control over, or custody of money or property
owned by you and knowledge of the facts that give rise to the withholding. Even
if you are eligible for a lower treaty rate, we and other payors will generally
be required to withhold at a 30% rate (rather than the lower treaty rate) on
dividend or other payments to you, unless you have furnished to us or another
payor:
- a valid Internal Revenue Service Form W-8BEN or an acceptable substitute
form upon which you certify, under penalties of perjury, your status as a
non-United States person and your entitlement to the lower treaty rate
with respect to such payments; or
- in the case of payments made outside the United States to an offshore
account (generally, an account maintained by you at an office or branch
of a bank or other financial institution at any location outside the
United States), other documentary evidence establishing your entitlement
to the lower treaty rate in accordance with U.S. Treasury regulations.
If you are eligible for a reduced rate of United States withholding tax
under a tax treaty, you may obtain a refund of any amounts withheld in excess of
that rate by filing a refund claim with the United States Internal Revenue
Service.
If dividends paid to you are "effectively connected" with your conduct of a
trade or business within the United States, and, if required by an applicable
tax treaty, the dividends or constructive dividends are attributable to a
permanent establishment that you maintain in the United States, we and other
payors generally are not required to withhold tax from the dividends or any
other payments, provided that you have furnished to us or another payor a valid
Internal Revenue
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Service Form W-8ECI or an acceptable substitute form upon which you represent,
under penalties of perjury, that:
- you are a non-United States person, and
- the dividends or constructive dividends are effectively connected with
your conduct of a trade or business within the United States and are
includible in your gross income.
"Effectively connected" dividends are taxed at rates applicable to United States
citizens, resident aliens and domestic United States corporations.
If you are a corporate non-U.S. Holder, "effectively connected" dividends
or constructive dividends that you receive may, under certain circumstances, be
subject to an additional "branch profits tax" at a 30% rate or at a lower rate
if you are eligible for the benefits of an applicable income tax treaty that
provides for a lower rate.
Gain on Disposition of Common Stock
If you are a non-U.S. Holder, you generally will not be subject to United
States federal income tax on gain that you recognize on a disposition of common
stock unless:
- the gain is "effectively connected" with your conduct of a trade or
business in the United States, and the gain is attributable to a
permanent establishment that you maintain in the United States, if that
is required by an applicable income tax treaty as a condition for
subjecting you to United States taxation on a net income basis,
- you are an individual, you hold the common stock as a capital asset, you
are present in the United States for 183 or more days in the taxable year
of the sale and certain other conditions exist, or
- we are or have been a United States real property holding corporation for
federal income tax purposes and you held, directly or indirectly, at any
time during the five-year period ending on the date of disposition, more
than 5% of the common stock and you are not eligible for any treaty
exemption. The 5% rate is available only if, at the time of your
disposition of our common stock, that class of stock is regularly traded
on an established securities market, otherwise your sale of the stock of
a current or former United States real property holding company is
taxable unless there is an applicable treaty exemption.
If you are a corporate non-U.S. Holder, "effectively connected" gains that
you recognize may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or at a lower rate if you are eligible for
the benefits of an income tax treaty that provides a lower rate.
We have not been, are not and do not anticipate becoming a United States
real property holding corporation for United States federal income tax purposes.
United States Federal Estate Tax
A debenture held by an individual who at death is not a citizen or resident
of the United States will not be includible in the individual's gross estate for
United States federal estate tax purposes if:
- the decedent did not actually or constructively own 10% or more of the
total combined voting power of all classes of our stock entitled to vote
at the time of death, and
- the income on the debenture would not have been effectively connected
with a United States trade or business of the decedent at the same time.
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However, shares of common stock held by the decedent at the time of death will
be included in the decedent's gross estate for United States federal estate tax
purposes unless an applicable estate tax treaty provides otherwise.
BACKUP WITHHOLDING AND INFORMATION REPORTING
U.S. Holders
In general, if you are a non-corporate U.S. Holder, we and other payors are
required to report to the IRS all payments of principal, and interest on your
debenture, including amounts accruing under the rules for contingent payment
debt instruments, and dividends on our common stock. In addition, we and other
payors are required to report to the IRS any payment of proceeds of the sale of
your debentures before maturity within the United States. Additionally, backup
withholding will apply to any payments, if you fail to provide an accurate
taxpayer identification number on a Form W-9 or acceptable substitute form, or
we or other payors are notified by the IRS that you have failed to report all
interest and dividends required to be shown on your federal income tax returns.
The amount of any backup withholding from a payment will be allowed as a credit
against your U.S. federal income tax liability and may entitle you to a refund,
provided that the required information is furnished to the IRS.
Non-U.S. Holders
In general, payments of principal, dividends and interest made by us and
other payors to you will not be subject to backup withholding and information
reporting, provided that the certification requirements described above under
"Non-U.S. Holders" are satisfied or you otherwise establish an exemption.
In general, payment of the proceeds from the sale of debentures or common
stock effected at a United States office of a broker is subject to both United
States backup withholding and information reporting. If, however, you are a
United States alien holder, you will not be subject to backup withholding and
information reporting on such a sale provided that:
- the broker does not have actual knowledge or reason to know that you are
a United States person and you have furnished the broker:
(1) an appropriate IRS Form W-8 or an acceptable substitute form upon
which you certify, under penalties of perjury, that you are a non-United
States person, or
(2) other documentation upon which it may rely to treat the payment as
made to a non-United States person in accordance with U.S. Treasury
regulations, or
- you otherwise establish an exemption.
If you fail to establish an exemption and the broker does not possess
adequate documentation of your status as a non-United States person, the
payments may be subject to information reporting and backup withholding.
However, backup withholding will not apply with respect to payments made outside
the United States to an offshore account maintained by you unless the payor has
actual knowledge that you are a United States person. We and other payors are
required to report payments of interest on your debentures and dividends on your
common stock on IRS Form 1042-S even if the payments are not otherwise subject
to information reporting requirements.
In general, payment of the proceeds from the sale of debentures or common
stock effected at a foreign office of a broker will not be subject to
information reporting or backup withholding.
51
However, a sale effected at a foreign office of a broker will be subject to
information reporting and backup withholding if:
- the proceeds are transferred to an account maintained by you in the
United States,
- the payment of proceeds or the confirmation of the sale is mailed to you
at a United States address, or
- the sale has some other specified connection with the United States as
provided in U.S. Treasury regulations,
unless the broker does not have actual knowledge or reason to know that you are
a United States person and the documentation requirements described above
(relating to a sale of debentures or common stock effected at a United States
office of a broker) are met or you otherwise establish an exemption.
In addition, payment of the proceeds from the sale of debentures or common
stock effected at a foreign office of a broker will be subject to information
reporting if the sale is effected at a foreign office of a broker that is:
- a United States person,
- a controlled foreign corporation for United States tax purposes,
- a foreign person 50% or more of whose gross income is effectively
connected with the conduct of a United States trade or business for a
specified three-year period, or
- a foreign partnership, if at any time during its tax year:
(1) one or more of its partners are "U.S. persons", as defined in U.S.
Treasury regulations, who in the aggregate hold more than 50% of the income
or capital interest in the partnership, or
(2) such foreign partnership is engaged in the conduct of a United
States trade or business,
unless the broker does not have actual knowledge or reason to know that you are
a United States person and the documentation requirements described above
(relating to a sale of debentures or common stock effected at a United States
office of a broker) are met or you otherwise establish an exemption. Backup
withholding will apply if the sale is subject to information reporting and the
broker has actual knowledge that you are a U.S. person.
You generally may obtain a refund of any amounts withheld under the backup
withholding rules that exceed your income tax liability by filing a refund claim
with the Internal Revenue Service.
SELLING SECURITYHOLDERS
The debentures were originally issued by us to the initial purchasers, in a
transaction exempt from the registration requirements of the Securities Act, and
were immediately resold by the initial purchasers to persons reasonably believed
by them to be "qualified institutional buyers" as defined by Rule 144A under the
Securities Act. The selling securityholders, including their transferees,
pledgees or donees or their successors, may from time to time offer and sell
pursuant to this prospectus or a supplement hereto any or all of the debentures
and common stock into which the debentures are convertible.
The table below sets forth the name of each selling securityholder, the
aggregate principal amount of debentures beneficially owned by each selling
securityholder that may be offered under this prospectus and the number of
shares of common stock into which such debentures are convertible. We have
prepared the table based on information given to us by or on behalf of
52
the selling securityholders on or prior to May 28, 2002. Unless set forth below,
to our knowledge, none of the selling securityholders has, or within the past
three years has had, any material relationship with us or any of our
predecessors or affiliates or beneficially owns in excess of 1% of our
outstanding common stock (such percentage of beneficial ownership is based on
Rule 13d-3(d)(i) of the Exchange Act, using 94,669,431 shares of stock
outstanding as of May 21, 2002 and, for each holder, treating as outstanding the
number of shares of common stock issuable upon conversion of all that holder's
debentures, but assuming no conversion of any other holder's debentures and not
including shares of common stock that may be issued by us upon purchase of
debentures by us at the option of the holder). The selling securityholders may
offer all, some or none of the debentures or common stock into which the
debentures are convertible. Because the selling securityholders may offer all or
some portion of the debentures or the common stock, no estimate can be given as
to the amount of the debentures or the common stock that will be held by the
selling securityholders upon termination of any sales. In addition, the selling
securityholders identified below may have sold, transferred or otherwise
disposed of all or a portion of their debentures since the date on which they
provided the information regarding their debentures in transactions exempt from
the registration requirements of the Securities Act.
Information concerning the selling securityholders may change from time to
time and any changed information will be set forth in supplements to this
prospectus if and when necessary.
SELLING SECURITYHOLDERS
AMOUNT OWNED NUMBER OF SHARES
PRIOR TO THIS OF COMMON STOCK
OFFERING AND PERCENT OF INTO WHICH THE
NAME OF SELLING SECURITYHOLDER/ OFFERED HEREBY OUTSTANDING AMOUNT OFFERED IS
REGISTERED HOLDER (IN DOLLARS) DEBENTURES CONVERTIBLE
------------------------------- -------------- ----------- -----------------
McMahan Securities Co. L.P./Bear Stearns Securities
Corporation......................................... 5,000,000 2.27% 86,580
UBS AG London Branch/Cede & Co. ...................... 7,500,000 3.41% 129,870
Sam Investments LDC/Bear Stearns Securities
Corporation......................................... 20,000,000 9.09% 346,320
Spear Leeds & Kellogg L.P.(1)......................... 500,000 * 8,658
First Union National Bank............................. 11,640,000 5.29% 201,558
Bear Stearns & Co. Inc./Bear Stearns Securities
Corporation......................................... 2,500,000 1.14% 43,290
White River Securities LLC/Bear Stearns Securities
Corporation......................................... 2,500,000 1.14% 43,290
HBK Master Fund L.P./Deutsche Banc Alex. Brown Inc. .. 4,000,000 1.82% 69,264
Grace Brothers Management, LLC/Morgan Stanley......... 1,500,000 * 25,974
BNP Paribas Equity Strategies, SNC/Goldman Sachs &
Co. ................................................ 2,000,000 * 34,632
SG Cowen Securities Corp. ............................ 12,000,000 5.45% 207,792
State of Florida Office of the Treasurer/JP Morgan
Chase............................................... 2,500,000 1.14% 43,290
Consulting Group Capital Markets Funds/State
Street(2)........................................... 800,000 * 13,852
CALAMOS(R) Market Neutral Fund -- CALAMOS(R)
Investment Trust/Prudential Securities.............. 15,610,000 7.07% 269,436
CALAMOS(R) Convertible Fund -- CALAMOS(R) Investment
Trust/Bank of New York & Firstar.................... 1,075,000 * 18,614
CALAMOS(R) Convertible Growth and Income Fund --
CALAMOS(R) Investment Trust/Bank of New York &
Firstar............................................. 1,825,000 * 31,601
Innovest Finanzdienstleistungs AG(3).................. 420,000 * 7,272
53
AMOUNT OWNED NUMBER OF SHARES
PRIOR TO THIS OF COMMON STOCK
OFFERING AND PERCENT OF INTO WHICH THE
NAME OF SELLING SECURITYHOLDER/ OFFERED HEREBY OUTSTANDING AMOUNT OFFERED IS
REGISTERED HOLDER (IN DOLLARS) DEBENTURES CONVERTIBLE
------------------------------- -------------- ----------- -----------------
Black Diamond Offshore Ltd./Merrill Lynch Pierce
Fenner & Smith...................................... 1,364,000 * 23,619
Double Black Diamond Offshore LDC/Merrill Lynch Pierce
Fenner & Smith...................................... 6,337,000 2.88% 109,732
Banc of America Securities LLC/Cede & Co. ............ 1,850,000 *
Black Diamond Convertible Offshore LDC/Merrill Lynch
Pierce Fenner & Smith............................... 2,269,000 1.03 39,290
JP Morgan Securities Inc.............................. 1,000,000 * 17,316
Worldwide Transactions Ltd.(4)........................ 340,000 * 5,887
Black Diamond Capital I, Ltd./Merrill Lynch Pierce
Fenner & Smith...................................... 340,000 * 5,887
Convertible Securities Fund/Bank of America........... 136,000 * 2,354
Equity & Convertible Fund/Bank of America............. 1,500,000 * 25,974
Nations Convertible Securities Fund/Bank of New York.. 7,000,000 3.18% 121,212
Global Bermuda Limited Partnership/Morgan Stanley &
Co. Inc. ........................................... 800,000 * 13,582
Lakeshore International, Ltd./Morgan Stanley & Co.
Inc. ............................................... 3,200,000 1.45% 55,411
Clinton Riverside Convertible Portfolio Limited/Bear
Stearns............................................. 3,750,000 1.70% 64,935
Clinton Multistrategy Master Fund, Ltd./Bear
Stearns............................................. 3,750,000 1.70% 64,935
TD Securities (USA) Inc.(5)........................... 1,000,000 * 17,316
Akela Capital Master Fund, Ltd.(6).................... 2,000,000 * 34,632
Deutsche Bank......................................... 22,700,000 10.32% 393,073
Allstate Insurance Company/Cede & Co. ................ 300,000 * 5,194
Allstate Life Insurance Company/Cede & Co. ........... 1,500,000 * 25,974
KBC Financial Products (Cayman Island) Limited/Bear
Stearns............................................. 5,000,000 2.27% 86,580
Delta Airlines Master Trust/JP Morgan Chase........... 1,900,000 * 32,900
Vopak USA Inc. Retirement Plan (f.k.a. Van Waters &
Rogers, Inc. Retirement Plan)/State Street Bank &
Trust Company....................................... 300,000 * 5,194
Port Authority of Allegheny County Retirement and
Disability Allowance Plan for the Employees
Represented by Local 85 of the Amalgamated Transit
Union/Mellon Trust.................................. 640,000 * 11,082
The Dow Chemical Company Employees' Retirement Plan/JP
Morgan Chase........................................ 2,500,000 1.14% 43,290
Genesee County Employees' Retirement System/ Comerica
Bank................................................ 350,000 * 6,060
Southern Farm Bureau Life Insurance Company/State
Street Bank & Trust Company......................... 700,000 * 12,121
Dorinco Reinsurance Company/The Northern Trust
Company............................................. 700,000 * 12,121
City of Knoxville Pension Program/State Street Bank &
Trust Company....................................... 300,000 * 5,194
Macomb County Employees' Retirement System/ Standard
Federal............................................. 315,000 * 5,454
CareFirst of Maryland, Inc./Mercantile Safe Deposit
and Trust Company................................... 175,000 * 3,030
54
AMOUNT OWNED NUMBER OF SHARES
PRIOR TO THIS OF COMMON STOCK
OFFERING AND PERCENT OF INTO WHICH THE
NAME OF SELLING SECURITYHOLDER/ OFFERED HEREBY OUTSTANDING AMOUNT OFFERED IS
REGISTERED HOLDER (IN DOLLARS) DEBENTURES CONVERTIBLE
------------------------------- -------------- ----------- -----------------
FreeState Health Plan, Inc./Mercantile Safe Deposit
and Trust Company................................... 40,000 * 692
CareFirst Blue Choice, Inc./SunTrust Bank............. 40,000 * 692
Group Hospitalization and Medical Services, Inc./
SunTrust Bank....................................... 175,000 * 3,030
American Fidelity Assurance Company/InvestTrust....... 250,000 * 4,329
Jackson County Employees' Retirement System/ Comerica
Bank................................................ 150,000 * 2,597
Knoxville Utilities Board Retirement System/State
Street Bank & Trust Company......................... 180,000 * 3,116
Boilermaker -- Blacksmith Pension Trust/Brotherhood
Bank................................................ 1,300,000 * 22,510
NORCAL Mutual Insurance Company/The Bank of New
York................................................ 250,000 * 4,329
Aventis Pension Master Trust/Mellon Trust............. 230,000 * 3,982
Louisiana Workers' Compensation Corporation/ Deutsche
Bank................................................ 310,000 * 5,367
Delta Pilots Disability and Survivorship Trust/JP
Morgan Chase........................................ 420,000 * 7,272
Drury University/Investors Bank & Trust............... 35,000 * 606
SCI Endowment Care Common Trust Fund -- National
Fiduciary Services/National Fiduciary Services...... 75,000 * 1,298
SCI Endowment Care Common Trust Fund -- Suntrust/
Suntrust Bank....................................... 50,000 * 865
Union Carbide Retirement Account/JP Morgan Chase...... 1,300,000 * 22,510
United Food and Commercial Workers Local 1262 and
Employers Pension Fund/Smith Barney Corporate
Trust............................................... 560,000 * 9,696
City of Albany Pension Plan/Merrill Lynch............. 210,000 * 3,636
City of Birmingham Retirement & Relief System/
Deutsche Bank....................................... 600,000 * 10,389
HealthNow New York, Inc./M&T Bank..................... 125,000 * 2,164
The Cockrell Foundation/Salomon Smith Barney, Inc..... 75,000 * 1,298
Greek Catholic Union of the USA/Salomon Smith Barney,
Inc. ............................................... 50,000 * 865
Kettering Medical Center Funded Depreciation Account/
Merrill Lynch....................................... 70,000 * 1,212
SPT/Prudential Securities, Inc. ...................... 1,500,000 * 25,974
The Fondren Foundation/Chase Texas.................... 75,000 * 1,298
Physicians' Reciprocal Insurers Account #7/Citibank
N.A. ............................................... 900,000 * 15,584
Southdown Pension Plan/Mellon Trust................... 130,000 * 2,251
---------------
* Less than one percent.
1. Investment power over the debentures held by this entity is held by Mr. Dean
Pohl.
2. Investment power over the debentures held by this entity is held by Mr. Nick
Calamos.
3. Investment power over the debentures held by this entity is held by Mr.
Justin Kass.
4. Investment power over the debentures held by this entity is held by Mr. Clint
Carlson.
55
5. Investment power over the debentures held by this entity is held by Mr.
Hareesh Paranjape.
6. Investment power over the debentures held by this entity is held by Mr.
Anthony B. Bosco.
PLAN OF DISTRIBUTION
The debentures and the common stock into which the debentures are
convertible are being registered to permit public secondary trading of these
securities by the holders thereof from time to time after the date of this
prospectus. We will not receive any of the proceeds from the offering of the
debentures or the common stock by selling securityholders.
The selling securityholders, including their pledgees or donees, may sell
the debentures and the common stock into which the debentures are convertible
directly to purchasers or through underwriters, broker-dealers or agents. If the
debentures or the common stock into which the debentures are convertible are
sold through underwriters or broker-dealers, the selling securityholder will be
responsible for underwriting discounts or commissions or agent's commissions.
These discounts, concessions or commissions as to any particular underwriter,
broker-dealer or agent may be in excess of those customary in the types of
transactions involved.
The debentures and the common stock into which the debentures are
convertible may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of sale, at varying prices determined at
the time of sale, or at negotiated prices. Such sales may be effected in
transactions, which may involve block transactions:
- on any national securities exchange or quotation service on which the
debentures or the common stock may be listed or quoted at the time of
sale;
- in the over-the-counter market;
- in transactions otherwise than on such exchanges or services or in the
over-the-counter market; or
- through the writing of options.
In connection with sales of the debentures and the common stock into which
the debentures are convertible or otherwise, the selling securityholders may
enter into hedging transactions with broker-dealers, which may in turn engage in
short sales of the debentures and the common stock into which the debentures are
convertible in the course of hedging the positions they assume. The selling
securityholders may also sell short the debentures and the common stock into
which the debentures are convertible and deliver the debentures or the common
stock into which the debentures are convertible to close out short positions, or
lend or pledge the debentures or the common stock into which the debentures are
convertible to broker-dealers that in turn may sell such securities.
The aggregate proceeds to the selling securityholders from the sale of the
debentures or common stock into which the debentures are convertible offered by
them hereby will be the purchase price of the debentures or common stock less
discounts and commissions, if any. Each of the selling securityholders reserves
the right to accept and, together with their agents from time to time, to
reject, in whole or in part, any proposed purchase of debentures or common stock
to be made directly or through agents. We will not receive any of the proceeds
from this offering.
In order to comply with the securities laws of some states, if applicable,
the debentures and common stock into which the debentures are convertible may be
sold in these jurisdictions only through registered or licensed brokers or
dealers. In addition, in some states the debentures and common stock may not be
sold unless they have been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied with.
56
The selling securityholders and any underwriters, broker-dealers or agents
that participate in the sale of the debentures and common stock may be
"underwriters" within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling securityholders who are "underwriters" within the meaning of Section
2(11) of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act. The selling securityholders have
acknowledged that they understand their obligations to comply with the
provisions of the Exchange Act and the rules thereunder relating to stock
manipulation, particularly Regulation M.
In addition, any securities covered by this prospectus that qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this prospectus. A selling
securityholder may not sell any debentures or common stock described in this
prospectus and may not transfer, devise or gift these securities by other means
not described in this prospectus.
To the extent required, the specific debentures or common stock to be sold,
the names of the selling securityholders, the respective purchase prices and
public offering prices, the names of any agent, dealer or underwriter and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a
post-effective amendment to the registration statement of which this prospectus
is a part.
We entered into a registration rights agreement for the benefit of the
holders of the debentures to register their debentures and common stock under
applicable federal and state securities laws under specific circumstances and at
specific times. The registration rights agreement provides for
cross-indemnification of the selling securityholders and us and their and our
respective directors, officers and controlling persons against specific
liabilities in connection with the offer and sale of the debentures and the
common stock, including liabilities under the Securities Act. We have agreed,
among other things, to bear all expenses (other than underwriting discounts and
selling commissions) in connection with the registration and sale of the
debentures and the common stock covered by this prospectus.
LEGAL MATTERS
Certain legal matters have been passed upon for Radian Group Inc. by Reed
Smith LLP, Philadelphia, Pennsylvania and for the initial purchasers by Davis
Polk & Wardwell, New York, New York.
EXPERTS
The consolidated financial statements and the related financial statement
schedules incorporated herein by reference from the Radian Group Inc. Annual
Report on Form 10-K for the year ended December 31, 2001 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.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus incorporates documents by reference which are not presented
in or delivered with this prospectus.
All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 after the date of this prospectus and prior
to the termination of the offering of the securities, are incorporated by
reference into and are deemed to be a part of this prospectus from the date of
filing of those documents.
57
You should rely only on the information contained in this document or that
which we have referred you to. We have not authorized anyone to provide you with
any additional information.
The following documents, which have been filed by us with the Securities
and Exchange Commission are incorporated by reference into this prospectus:
- our Annual Report on Form 10-K for the year ended December 31, 2001;
- our Quarterly Report on Form 10-Q for the three-month period ended March
31, 2002;
- our description of our common stock that is contained in our Registration
Statement on Form 8-A filed on August 24, 1992, under the Securities
Exchange Act of 1934, including any amendment or report filed for the
purpose of updating such description; and
- our description of our $4.125 Preferred Stock that is contained in our
Registration Statement on Form S-1 (Registration No. 33-51188) filed on
August 24, 1992, including any amendment or report filed for the purpose
of updating that description.
We have filed reports, proxy statements and other information with the SEC.
Copies of these reports, proxy statements and other information may be inspected
and copied at the public reference facilities maintained by the SEC at:
Judiciary Plaza Citicorp Center
Room 1024 500 West Madison Street
450 Fifth Street, N.W. Suite 1400
Washington, D.C. 20549 Chicago, Illinois 60661
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Room of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC maintains a website
that contains reports, proxy statements and other information regarding us. The
address of the SEC website is http://www.sec.gov.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that such statement is modified or
replaced by a statement contained in this prospectus or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference into this prospectus. Any such statement so modified or superseded
shall not be deemed, except as so modified or replaced, to constitute a part of
this prospectus. We will provide without charge to each person to whom a copy of
this prospectus has been delivered, upon the written or oral request of any such
person, a copy of any or all of the documents referred to above that have been
or may be incorporated in this prospectus by reference (other than exhibits to
such documents unless such exhibits are themselves specifically incorporated by
reference). Requests for such copies should be directed to the following: Radian
Group Inc., 1601 Market Street, Philadelphia, Pennsylvania, 19103, Attention:
Investor Relations, telephone (215) 564-6600.
This prospectus is not an offer to sell nor is it seeking an offer to buy
our securities in any jurisdiction where the offer or sale is not permitted. The
information contained or incorporated by reference in this prospectus is correct
as of the date of this prospectus, regardless of the time of the delivery of
this prospectus or any sale of our securities.
58
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------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS
AN OFFER TO SELL ONLY THE SECURITIES IT DESCRIBES, BUT ONLY UNDER CIRCUMSTANCES
AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN
THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
------------------------
TABLE OF CONTENTS
PAGE
----
Summary................................ 1
Risk Factors........................... 6
Radian Group........................... 17
Forward-Looking Statements............. 18
Ratio of Earnings to Fixed Charges and
to Combined Fixed Charges and
Preferred Stock Dividends............ 20
Use of Proceeds........................ 20
Description of Debentures.............. 21
Description of Capital Stock........... 40
United States Taxation................. 44
Selling Securityholders................ 52
Plan of Distribution................... 56
Legal Matters.......................... 57
Experts................................ 57
Where You Can Find More Information.... 57
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$220,000,000
RADIAN GROUP INC.
2.25% SENIOR CONVERTIBLE
DEBENTURES DUE 2022
CONVERTIBLE INTO
3,809,524 SHARES OF
COMMON STOCK
------------------------
[RADIAN LOGO]
------------------------------------------------------
------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses of the sale and
distribution of the securities being registered, all of which are being borne by
Radian Group.
ITEM AMOUNT
---- ------
SEC Registration Fee........................................ $ 20,240
Trustee's Fee............................................... 14,500
*Attorney's Fees and Expenses............................... 25,000
*Accountants' Fees and Expenses............................. 25,000
*Miscellaneous.............................................. 50,000
TOTAL.................................................. $134,740
---------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
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 DGCL, or (d) for any transaction from which
the director derived an improper personal benefit. Article Eighth of Radian
Group's Second Amended and Restated Certificate of Incorporation provides that
the personal liability of directors of Radian Group is eliminated to the fullest
extent permitted by Section 102(b)(7) of the DGCL.
Under Section 145 of DGCL, 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 VII of Radian Group's Amended and Restated Bylaws provides that Radian
Group 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 Group, or is or was serving at the request of Radian
Group as a director, officer, employee or agent of another entity, against
certain liabilities, costs and expenses. Article VII further permits Radian
Group 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 Group 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
Group would have the power to indemnify such person against such liability under
the DGCL.
II-1
ITEM 16. EXHIBITS
3.1* Second Amended and Restated Certificate of Incorporation of
the Registrant.
3.2* Amended and Restated By-laws of the Registrant.
3.3*** Amendment to Second Amended and Restated Certificate of
Incorporation of the Registrant filed with the Secretary of
the State of Delaware on June 14, 2001
4.1** Indenture dated January 11, 2002 between Radian Group, Inc.
and The Bank of New York.
4.1(a) Form of 2.25% Senior Convertible Debenture due 2022
(included within Exhibit 4.1)
4.2++ Registration Rights Agreement dated January 11, 2002.
5.1++ Opinion of Reed Smith LLP.
8.1+ Opinion of Reed Smith LLP regarding tax matters.
12.1++ Statement re: computation of ratios of earnings to fixed
charges and to combined fixed charges and preferred stock
dividends.
23.1+ Consent of Deloitte & Touche LLP.
23.2++ Consent of Reed Smith LLP (included in Exhibit 5.1).
23.3+ Consent of Reed Smith LLP (included in Exhibit 8.1)
24.1++ Powers of Attorney.
25.1++ Form T-1 Statement of Eligibility and Qualification of
Trustee for Indenture under the Trust Indenture Act of 1939.
---------------
* Incorporated by reference to the same exhibit number in the Registrant's
Registration Statement on Form S-4 (Reg. No. 333-65440) filed on July 19,
2001
** Incorporated by reference to Exhibit 4.10 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 2001.
*** Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 2001.
+ Filed herewith
++ Previously filed.
ITEM 17. UNDERTAKINGS
A.Undertaking Regarding Rule 415 Offerings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum
II-2
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change in such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
B.Undertaking Regarding Filings Incorporating Subsequent Exchange Act Documents
by Reference
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 (and where applicable each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) 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.
II-3
H. Undertaking in Respect of Indemnification
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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 registrants in the
successful defense of any action, suit or proceeding) is asserted by such
officer, director 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 of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
J. Qualification of Trust Indentures under the Trust Indenture Act of 1939 for
delayed offerings.
The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act ("Act") in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Act.
[Remainder of page intentionally left blank]
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and 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 this
26th day of June, 2002.
RADIAN GROUP INC.
By: /s/ FRANK P. FILIPPS
------------------------------------
Frank P. Filipps
Chief Executive Officer
(Principal Executive Officer)
Each of the undersigned directors and officers of Radian Group Inc. hereby
severally constitutes and appoints Howard S. Yaruss and Frank P. Filipps, and
each of them, as attorneys-in-fact for the undersigned, in any and all
capacities, with full power of substitution, to sign any amendments to this
registration statement (including post-effective amendments) and any subsequent
registration statement filed by Radian Group Inc. pursuant to Rule 462(b) of the
Securities Act of 1933, and to file the same with exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that each said
attorney-in-fact, or any of them, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated and on the dates indicated.
/s/ FRANK P. FILIPPS Chief Executive Officer and Chairman June 26, 2002
-------------------------------------- of the Board
Frank P. Filipps
* Director June 26, 2002
--------------------------------------
Herbert Wender
* President, Chief Operating Officer and June 26, 2002
-------------------------------------- Director
Roy J. Kasmar
* Executive Vice President and Chief June 26, 2002
-------------------------------------- Financial Officer
C. Robert Quint
* Vice President and Controller June 26, 2002
--------------------------------------
John J. Calamari
* Director June 26, 2002
--------------------------------------
James W. Jennings
* Director June 26, 2002
--------------------------------------
Robert W. Richards
II-5
* Director June 26, 2002
--------------------------------------
Anthony W. Schweiger
* Director June 26, 2002
--------------------------------------
Howard B. Culang
* Director June 26, 2002
--------------------------------------
Rosemarie B. Greco
* Director June 26, 2002
--------------------------------------
Stephen T. Hopkins
* Director June 26, 2002
--------------------------------------
Ronald W. Moore
* By his signature set forth below, the undersigned pursuant to duly authorized
powers of attorney filed with the Securities and Exchange Commission, has
signed this Amendment No. 2 to the Registration Statement on behalf of the
persons indicated.
By: /s/ FRANK P. FILIPPS June 26, 2002
--------------------------------------
Frank P. Filipps
Attorney-in-Fact
II-6
EXHIBIT INDEX
3.1* Second Amended and Restated Certificate of Incorporation of
the Registrant.
3.2* Amended and Restated By-laws of the Registrant.
3.3*** Amendment to Second Amended and Restated Certificate of
Incorporation of the Registrant filed with the Secretary of
the State of Delaware on June 14, 2001
4.1** Indenture dated January 11, 2002 between Radian Group, Inc.
and The Bank of New York.
4.1(a) Form of 2.25% Senior Convertible Debenture due 2022
(included within Exhibit 4.1)
4.2++ Registration Rights Agreement dated January 11, 2002.
5.1++ Opinion of Reed Smith LLP.
8.1+ Opinion of Reed Smith LLP regarding tax matters.
12.1++ Statement re: computation of ratios of earnings to fixed
charges and to combined fixed charges and preferred stock
dividends.
23.1+ Consent of Deloitte & Touche LLP.
23.2++ Consent of Reed Smith LLP (included in Exhibit 5.1).
23.3+ Consent of Reed Smith LLP (included in Exhibit 8.1).
24.1++ Powers of Attorney.
25.1++ Form T-1 Statement of Eligibility and Qualification of
Trustee for Indenture under the Trust Indenture Act of 1939.
---------------
* Incorporated by reference to the same exhibit number in the Registrant's
Registration Statement on Form S-4 (Reg. No. 333-65440) filed on July 19,
2001
** Incorporated by reference to Exhibit 4.10 to Registrant's Annual Report on
Form 10-K for the year-ended December 31, 2001.
*** Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 2001.
+ Filed herewith
++ Previously filed.