(11)
Liens in favor of the Company or any Restricted Subsidiary;
(12)
Liens arising from the rendering of a final judgment or order against the
Company or any Restricted Subsidiary that does not give rise to an Event of
Default;
(13)
Liens securing reimbursement obligations with respect to letters of credit that
encumber documents and other property relating to such letters of credit and the
products and proceeds thereof;
(14)
Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of
goods;
(15)
Liens encumbering customary initial deposits and margin deposits, and other
Liens that are within the general parameters customary in the industry and
incurred in the ordinary course of business, in each case, securing Indebtedness
under Hedging Obligations not entered into for speculative investment purposes
and designed to protect the Company or any of its Restricted Subsidiaries from
fluctuations in interest rates, currencies or the price of commodities or
securities;
(16)
Liens arising out of conditional sale, title retention, consignment or similar
arrangements for the sale of goods entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business in accordance with
the past practices of the Company and its Restricted Subsidiaries prior to the
Closing Date;
(17)
Liens on shares of Capital Stock of any Unrestricted Subsidiary to secure
Indebtedness of such Unrestricted Subsidiary; and
(18)
Liens on or sales of receivables or mortgages in the ordinary course of business
of the Company and its Subsidiaries.
“Person”
means an individual, a corporation, a partnership, a limited liability company,
an association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality
thereof.
“PIK
Preferred Stock” means Preferred Stock the terms of which do not permit the
declaration or payment of any dividend or other distribution thereon or with
respect thereto, or the redemption or conversion thereof, in each such case
prior to the payment in full of the Company’s obligations under the
Debentures.
“Preferred
Stock” of any Person means any Capital Stock of such Person that has
preferential rights to any other Capital Stock of such Person with respect to
dividends or redemptions or upon liquidation.
“Program”
means the TARP Capital Purchase Program of Treasury, the terms and conditions of
which shall be set forth in a letter agreement between Treasury and the Company
and documentation related thereto, including, but not limited to, a securities
purchase agreement, certificate of designations for the TARP Preferred Stock and
warrant (such letter agreement and related documentation collectively, the
“Program Documentation”).
“Purchase
Money Indebtedness” means indebtedness (1) incurred to finance the cost
(including the cost of improvement or construction and fees and expenses related
to the acquisition) of real or personal property acquired after the Closing
Date, provided that (a) the amount of such indebtedness does not exceed 100% of
such cost, and (b) such indebtedness is incurred prior to, at the time of, or
within twelve months after the later of the acquisition, the completion of
construction or the commencement of full operation of such property; or (2)
issued in exchange for, or the net proceeds of which are used to refinance or
refund, then outstanding Purchase Money Indebtedness and any refinancings or
refundings thereof. The term “Indebtedness” for purposes of clause (a)(3) under
“—Covenants—Limitation on Indebtedness and Issuances of Preferred Stock” and
clauses (4) and (6) of “—Covenants—Limitation on Liens” shall be deemed to
include “Purchase Money Indebtedness.”
“Qualified
Equity Offering” means the issuance or sale after the issue date of the TARP
Preferred Stock of Tier 1 qualifying perpetual Preferred Stock or Common Stock
of the Company for cash or any other offering defined as a Qualified Equity
Offering in the Program Documentation.
“Regulated
Sale” means any sale, transfer or other disposition (including by way of merger,
consolidation or Sale-Leaseback Transaction) in one transaction or a series of
related transactions by the Company or any of its Restricted Subsidiaries or
Regulated Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries or Regulated Subsidiaries of:
(1) all
or any of the common stock of any Regulated Subsidiary that constitutes a
Significant Subsidiary, or
(2) all
or substantially all of the property and assets of an operating unit or business
of any Regulated Subsidiary that constitutes a Significant
Subsidiary,
in each
case, that is not governed by the provisions of the indenture applicable to
mergers, consolidations and sales of assets of the Company; provided that
“Regulated Sale” shall not include an issuance, sale, transfer or other
disposition of Capital Stock by a Regulated Subsidiary to the Company, a Wholly
Owned Restricted Subsidiary or a Wholly Owned Regulated Subsidiary.
“Regulated
Subsidiary” means a Broker Dealer Regulated Subsidiary, a Bank Regulated
Subsidiary or an Insurance Regulated Subsidiary or any other Subsidiary subject
to minimum capital requirements or other similar material regulatory
requirements imposed by applicable regulatory authorities.
“Related
Business” means any financial services business which is the same as or
ancillary or complementary to any business of the Company and its Restricted
Subsidiaries and Regulated Subsidiaries that is being conducted on the Closing
Date, including, but not limited to, activities under Section 4(k) of the Bank
Holding Company Act, as amended, or Section 10 of the Home Owners’ Loan Act, as
amended, broker-dealer services, insurance, investment advisory services,
specialist and other market making activities, trust services, underwriting and
the creation of and offers and sales of interests in mutual funds.
“Replacement
Assets” means, on any date, property or assets (other than current assets) of a
nature or type or that are used in a business (or an Investment in a company
having property or assets of a nature or type, or engaged in a business) similar
or related to the nature or type of the property and assets of, or the business
of, the Company and its Restricted Subsidiaries existing on such
date.
“Restricted
Subsidiary” means any Subsidiary of the Company other than an Unrestricted
Subsidiary, or a Regulated Subsidiary.
“Sale-Leaseback
Transaction” means, with respect to any Person, an arrangement whereby such
Person sells or transfers property and then or thereafter leases such property
or any substantial part thereof which such Person intends to use for
substantially the same purpose or purposes as the property sold or transferred,
provided that for purposes of this definition, “property” shall not include
Investment Securities.
“S&P”
means Standard & Poor’s Ratings Group, a division of The McGraw-Hill
Companies, and its successors.
“Significant
Subsidiary” means, at any date of determination, any Restricted Subsidiary that,
together with its Subsidiaries, (1) for the most recent fiscal year of the
Company, accounted for more than 10% of the consolidated revenues of the Company
and its Restricted Subsidiaries or (2) as of the end of such fiscal year, was
the owner of more than 10% of the consolidated assets of the Company and its
Restricted Subsidiaries, all as set forth on the most recently available
consolidated financial statements of the Company for such fiscal
year.
“Stated
Maturity” means, (1) with respect to any debt security, the date specified in
such debt security as the fixed date on which the final installment of principal
of such debt security is due and payable and (2) with respect to any scheduled
installment of principal of or interest on any debt security, the date specified
in such debt security as the fixed date on which such installment is due and
payable.
“Stock
Loan” means a “Loan” as used in the Master Securities Loan Agreement published
from time to time by the Bond Market Association.
“Subsidiary”
means, with respect to any Person, any corporation, association or other
business entity of which more than 50% of the voting power of the outstanding
Voting Stock is owned, directly or indirectly, by such Person and one or more
other Subsidiaries of such Person.
“Subsidiary
Guarantor” means any Domestic Subsidiary which provides a Debenture Guarantee of
the Company’s obligations under the indenture and the Debentures pursuant to the
“—Covenants—Future Subsidiary Guarantees.”
“Substitution
Permanent Equity” means an economic interest of the Company classified as
permanent equity under U.S. GAAP exchangeable for TARP Warrants at Treasury’s
option if either (1) stockholder approval is required for the issuance of TARP
Warrants but not obtained within 18 months of Treasury’s investment in the
Company or (2) in the future the Company’s Common Stock is no longer listed or
traded on a national securities exchange or securities association, equal to the
fair market value of the TARP Warrants so exchanged or any other instrument or
security required to be issued in the Program Documentation.
“TARP
Preferred Stock” means senior perpetual Preferred Stock initially issued to
Treasury qualifying as Tier 1 capital pursuant to the Program
Documentation.
“TARP
Warrants” means warrants on the Common Stock of the Company initially issued to
Treasury pursuant to the Program Documentation.
“Temporary
Cash Investment” means any of the following:
(1)
direct obligations of the United States of America or any agency thereof or
obligations fully and unconditionally guaranteed by the United States of America
or any agency thereof, in each case maturing within one year unless such
obligations are deposited by the Company (x) to defease any Indebtedness or (y)
in a collateral or escrow account or similar arrangement to prefund the payment
of interest on any indebtedness;
(2)
demand deposits, time deposit accounts, bankers acceptances, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America, and which bank or trust
company (i) has capital, surplus and undivided profits aggregating in excess of
$100 million (or the foreign currency equivalent thereof) and has outstanding
debt which is rated “A” (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined in
Rule 436 under the Securities Act) or (ii) is a money market fund sponsored by a
registered broker dealer or mutual fund distributor;
(3)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (1) above entered into with a bank
or trust company meeting the qualifications described in clause (2)
above;
(4)
commercial paper, maturing not more than one year after the date of acquisition,
issued by a corporation (other than an Affiliate of the Company) organized and
in existence under the laws of the United States of America, any state thereof
or any foreign country recognized by the United States of America with a rating
at the time as of which any investment therein is made of “P-1” (or higher)
according to Moody’s or “A-1” (or higher) according to S&P;
(5)
securities with maturities of six months or less from the date of acquisition
issued or fully and unconditionally guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least “A” by S&P or Moody’s;
and
(6) any
mutual fund that has at least 95% of its assets continuously invested in
investments of the types described in clauses (1) through (5)
above.
“Trade
Payables” means, with respect to any Person, any accounts payable or any other
indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person or any of its Subsidiaries arising in the ordinary
course of business in connection with the acquisition of goods or
services.
“Transaction
Date” means, with respect to the Incurrence of any Indebtedness, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
“Treasury”
means the United States Department of Treasury.
“Unrestricted
Subsidiary” means (1) any Subsidiary of the Company that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below; and (2) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary or Regulated Subsidiary (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, the Company or any Restricted Subsidiary; provided that (A) any Guarantee by
the Company or any Restricted Subsidiary of any Indebtedness of the Subsidiary
being so designated shall be deemed an “Incurrence” of such Indebtedness and an
“Investment” by the Company or such Restricted Subsidiary (or both, if
applicable) at the time of such designation; (B) either (I) the Subsidiary to be
so designated has total assets of $1,000 or less or (II) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
“Limitation on Restricted Payments” covenant and (C) if applicable, the
Incurrence of Indebtedness and the Investment referred to in clause (A) of this
proviso would be permitted under the “Limitation on Indebtedness and Issuance of
Preferred Stock” and “Limitation on Restricted Payments” covenants. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that (a) no Default or Event of Default shall have occurred
and be continuing at the time of or after giving effect to such designation and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately after such designation would, if Incurred at such time, have been
permitted to be Incurred (and shall be deemed to have been Incurred) for all
purposes of the indenture. Any such designation by the Board of Directors shall
be evidenced to the trustee by promptly filing with the trustee a copy of the
board resolution giving effect to such designation and an Officers’ Certificate
certifying that such designation complied with the foregoing
provisions.
“U.S.
Government Obligations” means securities that are (1) direct obligations of the
United States of America for the payment of which its full faith and credit is
pledged or (2) obligations of a Person controlled or supervised by and acting as
an agency or instrumentality of the United States of America the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case, are not callable or redeemable
at the option of the issuer thereof at any time prior to the Stated Maturity of
the Debentures, and shall also include a depository receipt issued by a bank or
trust company as custodian with respect to any such U.S. Government Obligation
or a specific payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder of a depository
receipt; provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation or the specific payment of interest on or principal
of the U.S. Government Obligation evidenced by such depository
receipt.
“Well
Capitalized” means “well capitalized” within the meaning of 12 U.S.C. §1831o, as
determined by a particular Bank Regulated Subsidiary’s appropriate federal
banking agency, but in no event less than the amount required in a capital
directive or other capital requirement by a federal banking agency.
“Wholly
Owned” means, with respect to any Subsidiary of any Person, the ownership all of
the outstanding Capital Stock of such Subsidiary by such Person or one or more
Wholly Owned Subsidiaries of such Person.
DESCRIPTION
OF OTHER INDEBTEDNESS
The
following is a description of the 2011 Notes, 2013 Notes, 2015 Notes and 2017
Notes. In this section, we sometimes refer to the 2011 Notes, 2013
Notes and 2015 Notes collectively as the “Senior Notes” in order to distinguish
them from the 2017 Notes. For purposes of this “Description of Other
Indebtedness”, except as expressly stated or where the context otherwise
requires, the term the “Notes” includes the Senior Notes and the 2017 Notes; it
does not include the Debentures.
Overview
The
2011 Notes
Pursuant
to an indenture dated as of June 8, 2004, between E*TRADE Financial
Corporation (the “Company”) and The Bank of New York, as trustee (the
“Trustee”), the Company issued $400,000,000 aggregate principal amount of 8.0%
Senior Notes Due 2011 on June 8, 2004 and $100,000,000 aggregate principal
amount of 8.0% Senior Notes Due 2011 on September 19, 2005. Such
indenture, as supplemented by the first supplemental indenture thereto dated
September 19, 2005 and the second supplemental indenture thereto dated
November 1, 2006, and the third supplemental indenture thereto dated
July 9, 2009, is referred to in this “Description of Other Indebtedness” as
the “2011 Notes Indenture”. In the Debt Exchange, $431,871,000
aggregate principal amount of our 2011 Notes were exchanged
for Debentures.
The
2013 Notes
Pursuant
to an indenture dated as of September 19, 2005, between the Company and the
Trustee, the Company issued $350,000,000 aggregate principal amount of 7.375%
Senior Notes Due 2013 on September 19, 2005 and $250,000,000 aggregate
principal amount of 7.375% Senior Notes Due 2013 on November 10,
2005. Such indenture, as supplemented by the first supplemental
indenture thereto dated November 10, 2005 and the second supplemental
indenture thereto dated November 1, 2006, is referred to in this
“Description of Other Indebtedness” as the “2013 Notes Indenture”.
The
2015 Notes
Pursuant
to an indenture dated as of November 22, 2005, between the Company, and the
Trustee, the Company issued $300,000,000 aggregate principal amount of 7.875%
Senior Notes Due 2015 on November 22, 2005. Such indenture, as
supplemented by the supplemental indenture thereto dated November 1, 2006,
is referred to in this “Description of Other Indebtedness” as the “2015 Notes
Indenture”.
The
2017 Notes
Pursuant
to an indenture dated as of November 29, 2007, between the Company and the
Trustee, the Company issued $1,786,000,000 aggregate principal amount of 12.5%
Springing Lien Notes Due 2017 on November 29, 2007 (plus capitalized
interest, the “Initial 2017 Notes”) and $150,000,000 aggregate principal amount
of 12.5% Springing Lien Notes Due 2017 on January 18, 2008 (plus
capitalized interest, the “Additional 2017 Notes”). Such indenture,
as supplemented by the first supplemental indenture thereto dated December 27,
2007, the second supplemental indenture thereto dated January 18, 2008, and
the third supplemental indenture thereto dated July 9, 2009, is referred to
in this “Description of Notes” as the “2017 Notes Indenture”. Through
June 30, 2009, the Company had elected to capitalize interest payable on the
2017 Notes on certain previous interest payment dates such that there was
approximately $2.016 billion outstanding aggregate principal amount of Initial
2017 Notes and approximately $169.3 million outstanding aggregate principal
amount of Additional 2017 Notes as of such date. The Company
currently expects to capitalize future interest payments through May 2010.
Although the Initial 2017 Notes and the Additional 2017 Notes were issued in two
tranches and are not fungible, for purposes of this “Description of Other
Indebtedness”, except as expressly stated or where the context otherwise
requires, the term the “2017 Notes” includes the Initial 2017 Notes and the
Additional 2017 Notes. If in the future the Company so elects to
capitalize all or a portion of the interest payable on the 2017 Notes on
interest payment dates occurring on or prior to May 31, 2010 as permitted
by the 2017 Notes Indenture, the term the “2017 Notes” will also include such
additional
principal amount. In the Debt Exchange, $1,310,000,000 aggregate
principal amount of our 2017 Notes were exchanged for Debentures.
The 2011
Notes Indenture, 2013 Notes Indenture, 2015 Notes Indenture and 2017 Notes
Indenture are collectively referred to in this prospectus as the “Indentures”
and each as an “Indenture”. In addition, we may refer to the 2011
Notes Indenture, 2013 Notes Indenture and the 2015 Notes Indenture as the
“Senior Notes Indentures”. The terms of the Notes include those
stated in their respective Indentures and those made part of the Indentures by
reference to the Trust Indenture Act of 1939, as amended (the
“TIA”).
The
following is a summary of the material provisions of the Indentures but does not
restate the Indentures in their entirety. Definitions of certain
capitalized terms used in the following summary can be found under the
subheading “—Definitions”. We urge holders of the Notes to read the
Indentures because they, and not this description, define the rights of such
holders as holders of the Notes. Copies of the Indentures are
available upon request from the Company. For purposes of this
“Description of Other Indebtedness”, the terms “we”, “us”, “our” and the
“Company” mean E*TRADE Financial Corporation and its successors under the
Indentures, in each case excluding its subsidiaries.
Our
broker dealer and bank regulated subsidiaries, which we refer to as our
Regulated Subsidiaries, are generally not subject to many of the restrictive
covenants in the Indentures which place limitations on the Company’s actions,
and where they are subject to covenants, there are numerous exceptions and
limitations. As of December 31, 2008, our Regulated Subsidiaries
represented substantially all of our total consolidated assets. In
2008 and 2006, our Regulated Subsidiaries generated substantially all of
our consolidated net revenues, and in 2007 certain of our Regulated Subsidiaries
generated substantially all of the losses that caused us to have negative
consolidated net revenues.
General
The 2011
Notes will mature on June 15, 2011 and are initially limited to
$500,000,000 aggregate principal amount. The 2013 Notes will mature
on September 15, 2013 and are initially limited to $600,000,000 aggregate
principal amount. The 2015 Notes will mature on December 1, 2015
and are initially limited to $300,000,000 aggregate principal
amount. The 2017 Notes will mature on November 30, 2017 and are
initially limited to $1,936,000,000 (plus capitalized interest, if any)
aggregate principal amount.
The Notes
are general senior obligations of the Company. The Notes rank equal
in right of payment with all of the Company’s existing and future unsubordinated
indebtedness, and rank senior in right of payment to all of the Company’s
existing and future subordinated indebtedness. The Notes are not
currently secured by any property or assets or guaranteed by the subsidiaries
through which the Company currently conducts substantially all of its
operations. Accordingly, currently the Notes are effectively
subordinated to any currently secured debt to the extent of the collateral
securing such debt. The Notes are not currently guaranteed by any of
our subsidiaries. Unless and until one or more of our subsidiaries
guarantee the Notes, the Notes will be effectively subordinated to the
liabilities of all of our subsidiaries.
In the
future, upon the occurrence of the Trigger Date the Company will be required to
secure the 2017 Notes and cause the Restricted Subsidiaries to guarantee the
2017 Notes as described below under “—Covenants—Springing Lien” and
“—Covenants—Future Subsidiary Guarantees”. In addition, the 2019
Indenture will require the Debentures to be equally and ratably secured with the
2017 Notes and will require the Company to cause the Restricted Subsidiaries to
guarantee the Debentures. Even if the 2017 Notes become guaranteed by
certain of our subsidiaries and secured by certain of our assets following the
occurrence of the Trigger Date, such guarantees and security may not provide
holders of the 2017 Notes with any further protection and holders of the 2017
Notes could lose some or all of their investment in the 2017
Notes. In addition, upon the occurrence of the Trigger Date, any
outstanding Senior Notes will be effectively subordinated to the 2017 Notes and
the Debentures to the extent of the collateral securing the 2017 Notes and the
Debentures unless and until such outstanding Senior Notes are equally and
ratably secured. For further information regarding risks related to
owning the Notes, please see “Risk Factors”.
The Notes
are represented in the form of global notes in fully registered book-entry form
without interest coupons that are on deposit with the Trustee as custodian for
The Depository Trust Company, also referred to as
DTC, in
New York, New York and registered in the name of DTC or its nominee, in each
case for credit to an account of a direct or indirect participant as described
below. See “—Book-Entry; Delivery and Form”.
Interest
Interest
on the 2011 Notes accrues at a rate of 8.0% per annum and is payable
semi-annually in cash on each June 15 and December 15, commencing
December 15, 2004. We make interest payments to the persons who
are registered holders at the close of business on the June 1 and
December 1 immediately preceding the applicable interest payment
date.
Interest
on the 2013 Notes accrues at a rate of 7.375% per annum and is payable
semi-annually in cash on each March 15 and September 15, commencing
March 15, 2006. We make interest payments to the persons who are
registered holders at the close of business on the March 1 and
September 1 immediately preceding the applicable interest payment
date.
Interest
on the 2015 Notes accrues at a rate of 7.875% per annum and is payable
semi-annually in cash on each June 1 and December 1, commencing
June 1, 2006. We make interest payments to the persons who are
registered holders at the close of business on the May 15 and
November 15 immediately preceding the applicable interest payment
date.
Interest
on the 2017 Notes accrues at a rate of 12.5% per annum and is payable
semi-annually in cash on each May 31 and November 30, commencing
May 31, 2008; provided, however, that on any interest payment date
occurring on or prior to May 31, 2010, the Company shall have the option to
capitalize and to add to the principal amount of the 2017 Notes all or a portion
of the interest payable on the 2017 Notes on such interest payment date and,
provided further, that on any interest payment date occurring after May 31,
2010, all interest on the 2017 Notes shall be payable in cash. The
interest so capitalized is referred to herein as “Capitalized Interest” and
shall constitute principal amount of the 2017 Notes for all purposes of the 2017
Notes and the 2017 Notes Indenture. We will make interest payments to
the persons who are registered holders at the close of business on the
May 15 and November 15 immediately preceding the applicable interest
payment date.
Interest
on the Notes accrues from the most recent date on which interest on the Notes
was paid or, if no interest has been paid, from and including the date on which
the Notes were originally issued. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
Optional
Redemption
General
The
Company may redeem the 2011 Notes, in whole or in part, at any time and from
time to time on or after June 15, 2008. The redemption price for
the 2011 Notes (expressed as a percentage of principal amount), will be as
follows, plus accrued and unpaid interest to the redemption date:
If
Redeemed During the Twelve-Month
Period
Commencing June 15
|
|
Redemption
Price
|
|
2009
|
|
|
102.000
|
% |
2010
and thereafter
|
|
|
100.000
|
% |
The
Company may redeem the 2013 Notes, in whole or in part, at any time and from
time to time on or after September 15, 2009. The redemption
price for the 2013 Notes (expressed as a percentage of principal amount), will
be as follows, plus accrued and unpaid interest to the redemption
date:
If
Redeemed During the Twelve-Month
Period
Commencing September 15
|
|
Redemption
Price
|
|
2009
|
|
|
103.688
|
% |
2010
|
|
|
101.844
|
% |
2011
and thereafter
|
|
|
100.000
|
% |
The
Company may redeem the 2015 Notes, in whole or in part, at any time and from
time to time on or after December 1, 2010. The redemption price
for the 2015 Notes (expressed as a percentage of principal amount), will be as
follows, plus accrued and unpaid interest to the redemption date:
If
Redeemed During the Twelve-Month
Period
Commencing December 1
|
|
Redemption
Price
|
|
2010
|
|
|
103.938
|
% |
2011
|
|
|
102.625
|
% |
2012
|
|
|
101.313
|
% |
2013
and thereafter
|
|
|
100.000
|
% |
The
Company may redeem the 2017 Notes, in whole or in part, at any time and from
time to time on or after November 30, 2012. The redemption price
for the Notes (expressed as a percentage of principal amount), will be as
follows, plus accrued and unpaid interest to the redemption date:
If
Redeemed During the Twelve-Month
Period
Commencing December 1
|
|
Redemption
Price
|
|
2012
|
|
|
112.500
|
% |
2013
|
|
|
109.375
|
% |
2014
|
|
|
106.250
|
% |
2015
|
|
|
103.125
|
% |
2016
and thereafter
|
|
|
100.000
|
% |
The
Company may also redeem the 2013 Notes, 2015 Notes and the 2017 Notes with the
proceeds of public equity offerings, and the 2017 Notes in connection with a
Change of Control.
Optional
Redemption of the 2017 Notes in connection with Public Equity
Offerings
At any
time and from time to time prior to November 30, 2012, the Company may
redeem the 2017 Notes with the Net Cash Proceeds received by the Company from
one or more sales of its Capital Stock (other than Disqualified Stock) at a
redemption price of 112.5% of their principal amount, plus accrued and unpaid
interest; provided that
at least 65% of the aggregate principal amount of the 2017 Notes originally
issued remains outstanding after each such redemption and notice of any such
redemption is mailed within 90 days of each such sale of Capital
Stock. The Company currently does not expect to exercise this
repurchase right.
Ranking
The Notes
are general senior obligations of the Company. The Notes rank equal
in right of payment with all of the Company’s existing and future unsubordinated
indebtedness, and rank senior in right of payment to all of the Company’s
existing and future subordinated indebtedness. The Senior Notes are
not, and the 2017 Notes are not initially, secured by any property or assets and
are not guaranteed by the subsidiaries through which the Company currently
conducts substantially all of its operations. Accordingly, the Senior
Notes are, and the 2017 Notes are at least initially, effectively subordinated
to the liabilities of our subsidiaries and to any secured debt to the extent of
the collateral securing such debt.
In the
future, upon the occurrence of the Trigger Date the Company will be required to
secure the 2017 Notes and cause the Restricted Subsidiaries to guarantee the
2017 Notes as described below under “—Covenants—Springing Lien” and
“—Covenants—Future Subsidiary Guarantees”. In addition, the 2019
Indenture will require the Debentures to be equally and ratably secured with the
2017 Notes and will require the Company to cause the Restricted Subsidiaries to
guarantee the Debentures. Even if the 2017 Notes become guaranteed by
certain of our subsidiaries and secured by certain of our assets following the
occurrence of the Trigger Date, such guarantees and security may not provide
holders of the 2017 Notes with any further protection and holders of the 2017
Notes could lose some or all of their investment in the 2017
Notes. In addition, upon the occurrence of the Trigger Date, any
outstanding Senior Notes will be effectively subordinated to the 2017 Notes and
the Debentures to the extent of the
collateral
securing the 2017 Notes and the Debentures unless and until such outstanding
Senior notes are equally and ratably secured. For further information
regarding the risks related to owning the Notes, please see “Risk
Factors”.
Absence
of FDIC Insurance and Guarantees
The Notes
are not savings accounts or deposits with E*TRADE Bank or any other Subsidiary
of the Company nor are they insured by the FDIC or by the United States or any
agency or fund of the United States. In addition, the Notes are not
obligations of, or guaranteed by any of our Subsidiaries. Subject to
the occurrence of the Trigger Date and the occurrence of the actions set forth
under “—Covenants—Springing Lien” (which apply only to the 2017 Notes), the
Notes are not secured by our assets or those of any of our
Subsidiaries.
Sinking
Fund
There
will be no sinking fund payments for the Notes.
Governing
Law
The
Indentures, including the Note Guarantees, and the Notes are governed by, and
construed in accordance with, the laws of the State of New York.
Covenants
Overview
In the
Indentures, the Company has agreed to covenants that limit its and its
Restricted Subsidiaries’ and, in certain limited cases, Regulated Subsidiaries’,
ability, among other things, to:
·
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incur
additional debt and issue Preferred
Stock;
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·
|
pay
dividends, acquire shares of Capital Stock, make payments on subordinated
debt or make investments;
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·
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place
limitations on distributions from Regulated Subsidiaries or Restricted
Subsidiaries;
|
·
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issue
or sell Capital Stock of Regulated Subsidiaries or Restricted
Subsidiaries;
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·
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sell
or exchange assets;
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·
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enter
into transactions with stockholders and
Affiliates;
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Pursuant
to the Indentures, the covenants under “—Limitation on Indebtedness and
Issuances of Preferred Stock”, “—Limitation on Restricted Payments”,
“—Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries or Regulated Subsidiaries” “—Limitation on the Issuance and Sale of
Capital Stock of Restricted Subsidiaries or Regulated Subsidiaries”, “—Future
Subsidiary Guarantees”, “—Limitation on Transactions with Stockholders and
Affiliates”, “—Limitation on Liens”, “—Limitation on Sale-Leaseback
Transactions”, and “—Limitation on Asset Sales”, apply to the Company and the
Restricted Subsidiaries, but in certain cases do not apply to Regulated
Subsidiaries to the same extent or at all.
If a
Change of Control occurs, each holder of Notes will have the right to require
the Company to repurchase all or a part of the holder’s Notes at a price equal
to 101% of their principal amount, plus any accrued interest to the date of
repurchase.
Limitation
on Indebtedness and Issuances of Preferred Stock
(a) The
Company will not, and will not permit any of its Restricted Subsidiaries to,
Incur any Indebtedness, including Disqualified Stock (other
than: (i) the 2011 Notes, any 2011 Notes Guarantees and other
Indebtedness existing on the Closing Date under the 2011 Notes Indenture;
(ii) the 2013 Notes, any 2013 Notes Guarantees, the 2011 Notes and other
Indebtedness existing on the Closing Date under the 2013 Notes Indenture;
(iii) the 2015 Notes, any 2015 Notes Guarantees, the 2013 Notes, the 2011
Notes and other Indebtedness existing on the Closing Date under the 2015 Notes
Indenture; and (iv) the 2017 Notes, any 2017 Notes Guarantees and other
Indebtedness existing on the Closing Date under the 2017 Notes Indenture) and
the Company will not permit any Restricted Subsidiary to issue Preferred Stock;
provided that the
Company or any Subsidiary Guarantor may Incur Indebtedness and any Restricted
Subsidiary may Incur Acquired Indebtedness if, after giving effect to the
Incurrence of such Indebtedness and the receipt and application of the proceeds
therefrom, the Consolidated Fixed Charge Coverage Ratio would be greater than
2.50 to 1.0.
Notwithstanding
the foregoing, the Company and any Restricted Subsidiary (except as specified
below) may Incur each and all of the following:
(1) Indebtedness
of the Company under any Credit Facility in an aggregate principal amount at any
one time outstanding (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of the Company and its
Restricted Subsidiaries thereunder) not to exceed $300 million;
(2) Indebtedness
owed (A) to the Company or any Subsidiary Guarantor evidenced by an
unsubordinated promissory note or (B) to any Restricted Subsidiary or
Regulated Subsidiary; provided that (x) any
event which results in any such Restricted Subsidiary or Regulated Subsidiary
ceasing to be a Restricted Subsidiary or Regulated Subsidiary or any subsequent
transfer of such Indebtedness (other than to the Company or another Restricted
Subsidiary or Regulated Subsidiary) shall be deemed, in each case, to constitute
an Incurrence of such Indebtedness not permitted by this clause (2) and
(y) if the Company (or any Subsidiary that is a Subsidiary Guarantor at the
time such Indebtedness is Incurred) is the obligor on such Indebtedness, such
Indebtedness must be expressly contractually subordinated in right of payment to
the Notes, in the case of the Company, or the Note Guarantee, in the case of a
Subsidiary Guarantor;
(3) Indebtedness
issued in exchange for, or the net proceeds of which are used to refinance or
refund, then outstanding Indebtedness (other than Indebtedness outstanding under
clause (1), (2) or (4)) and any refinancings thereof in an amount not
to exceed the amount so refinanced or refunded (plus premiums, accrued interest,
fees and expenses); provided
that (a) Indebtedness the proceeds of which are used to refinance or
refund the Notes or Indebtedness that is pari passu with, or
subordinated in right of payment to, the Notes or a Note Guarantee shall only be
permitted under this clause (3) if (x) in case the Notes are
refinanced in part or the Indebtedness to be refinanced is pari passu with the Notes or
a Note Guarantee, such new Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such new Indebtedness is outstanding,
is expressly made pari
passu with, or subordinate in right of payment to, the remaining Notes or
the Note Guarantee, or (y) in case the Indebtedness to be refinanced is
subordinated in right of payment to the Notes or a Note Guarantee, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is issued or remains outstanding, is
expressly made subordinate in right of payment to the Notes or the Note
Guarantee at least to the extent that the Indebtedness to be refinanced is
subordinated to the Notes or the Note Guarantee, (b) such new Indebtedness,
determined as of the date of Incurrence of such new Indebtedness, does not
mature prior to the Stated Maturity of the Indebtedness to be refinanced or
refunded, and the Average Life of such new Indebtedness is at least equal to the
remaining Average Life of the Indebtedness to be refinanced or refunded and
(c) such new Indebtedness is Incurred by the Company or a Subsidiary
Guarantor or by the Restricted Subsidiary that is the obligor on the
Indebtedness to be refinanced or refunded;
(4) a)
In the case of the 2011 Notes, Indebtedness of the Company, to the extent the
net proceeds thereof are promptly (A) used to purchase 2011 Notes tendered
in an Offer to Purchase made as a result of a Change in Control or
(B) deposited to defease the 2011 Notes as described under
“—Defeasance”;
(b) In
the case of the 2013 Notes, Indebtedness of the Company, to the extent the net
proceeds thereof are promptly (A) used to purchase 2013 Notes or 2011 Notes
tendered in an Offer to Purchase made as a result of a Change in Control or
(B) deposited to defease the 2013 Notes or 2011 Notes as described under
“—Defeasance”;
(c) In
the case of the 2015 Notes, Indebtedness of the Company, to the extent the net
proceeds thereof are promptly (A) used to purchase 2015 Notes, 2013 Notes
or 2011 Notes tendered in an Offer to Purchase made as a result of a Change in
Control or (B) deposited to defease the 2015 Notes, 2013 Notes or 2011
Notes as described under “—Defeasance”;
(d) In
the case of the 2017 Notes, Indebtedness of the Company, to the extent the net
proceeds thereof are promptly (A) used to purchase 2017 Notes, 2015 Notes,
2013 Notes or 2011 Notes tendered in an Offer to Purchase made as a result of a
Change in Control or (B) deposited to defease the 2017 Notes, 2015 Notes,
2013 Notes or 2011 Notes as described under “—Defeasance”; and
(5) Guarantees
of Indebtedness of the Company or of any Restricted Subsidiary by any Restricted
Subsidiary provided the Guarantee of such Indebtedness is permitted by and made
in accordance with the “Future Subsidiary Guarantees” covenant.
(e) Notwithstanding
any other provision of this “Limitation on Indebtedness and Issuances of
Preferred Stock” covenant, the maximum amount of Indebtedness that may be
Incurred pursuant to this “Limitation on Indebtedness and Issuances of Preferred
Stock” covenant will not be deemed to be exceeded, with respect to any
outstanding Indebtedness due solely to the result of fluctuations in the
exchange rates of currencies or due to fluctuations in the value of commodities
or securities which underlie such Indebtedness. For the purposes of
determining compliance with any restriction on the Incurrence of Indebtedness
(x), the U.S dollar equivalent principal amount of any Indebtedness denominated
in a foreign currency shall be calculated based on the relevant currency
exchange rate in effect on the date such Indebtedness was Incurred, in the case
of term debt, or first committed, in the case of revolving credit debt and
(y) the principal amount of any Indebtedness which is calculated by
reference to any underlying security or commodity shall be calculated based on
the relevant closing price of such commodity or security on the date such
Indebtedness was incurred.
(f) For
each series of Notes, for purposes of determining any particular amount of
Indebtedness under this “Limitation on Indebtedness and Issuances of Preferred
Stock” covenant, (x) Indebtedness outstanding under any Credit Facility on
the applicable Closing Date for such series of Notes shall be treated as
Incurred pursuant to clause (1) of the second paragraph of clause
(a) of this “Limitation on Indebtedness and Issuances of Preferred Stock”
covenant, (y) Guarantees, Liens or obligations with respect to letters of
credit supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included and (z) any Liens granted pursuant
to the equal and ratable provisions referred to in the “Limitation on Liens”
covenant shall not be treated as Indebtedness. For purposes of
determining compliance with this “Limitation on Indebtedness and Issuances of
Preferred Stock” covenant, if an item of Indebtedness meets the criteria of more
than one of the types of Indebtedness described above (other than Indebtedness
referred to in clause (x) of the preceding sentence), including under the
first paragraph of part (a), the Company, in its sole discretion, shall
classify, and from time to time may reclassify, such item of
Indebtedness.
(g) Neither
the Company nor any Subsidiary Guarantor will Incur any Indebtedness if such
Indebtedness is subordinate in right of payment to any other Indebtedness unless
such Indebtedness is also subordinate in right of payment to the Notes or the
applicable Note Guarantee to the same extent.
(h) The
Company will not permit any Regulated Subsidiary (x) to Incur any
Indebtedness the proceeds of which are not invested in the business of such Bank
Regulated Subsidiary (or any Subsidiary of such Bank Regulated Subsidiary) or
such Broker Dealer Regulated Subsidiary (or any Subsidiary of such Broker Dealer
Regulated Subsidiary which is also a Regulated Subsidiary) and (y) to Incur
any Indebtedness for the purpose, directly or indirectly, of dividending or
distributing the proceeds of such Indebtedness to the Company or any Restricted
Subsidiary; except that
the Incurrence of Indebtedness by a Regulated Subsidiary that does not comply
with (x) or (y) above shall be permitted provided that such Incurrence
complies with paragraph (a) of this “—Limitation on Indebtedness and
Issuances of Preferred Stock” covenant as if such paragraph applied to such
Regulated Subsidiary.
Limitation
on Restricted Payments
(a) The
Company will not, and will not permit any Restricted Subsidiary or Regulated
Subsidiary to, directly or indirectly,
(1) declare
or pay any dividend or make any distribution on or with respect to its Capital
Stock held by Persons other than the Company or any of its Restricted
Subsidiaries or Regulated Subsidiaries (other than (w) dividends or
distributions payable solely in shares of its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to acquire shares of
such Capital Stock, (x) pro rata dividends or distributions on Common Stock
of Restricted Subsidiaries or Regulated Subsidiaries held by minority
stockholders, (y) dividends or distributions on non-voting Preferred Stock
the proceeds from the sale of which were invested in the business of such
Regulated Subsidiary (or any Subsidiary of such Regulated Subsidiary which is
also a Regulated Subsidiary), and (z) pro rata dividends on Preferred Stock
of Subsidiaries that are real estate investment trusts, including Highland REIT,
Inc., held by minority stockholders;
(2) purchase,
call for redemption or redeem, retire or otherwise acquire for value any shares
of Capital Stock of (A) the Company or any Subsidiary Guarantor (including
options, warrants or other rights to acquire such shares of Capital Stock) held
by any Person (other than the Company, any Restricted Subsidiary or any
Regulated Subsidiary) or (B) a Restricted Subsidiary or Subsidiary
Guarantor (including options, warrants or other rights to acquire such shares of
Capital Stock) held by any Affiliate of the Company (other than the Company or a
Wholly Owned Restricted Subsidiary or Wholly Owned Regulated
Subsidiary);
(3) make
any voluntary or optional principal payment, or voluntary or optional
redemption, repurchase, defeasance, or other acquisition or retirement for
value, of Indebtedness of the Company that is subordinated in right of payment
to the Notes or any Indebtedness of a Subsidiary Guarantor that is subordinated
in right of payment to a Note Guarantee; or
(4) (a) with respect to the
Company and any Restricted Subsidiary, make any Investment, other than a
Permitted Investment, in any Person, and (b) with respect to any Regulated
Subsidiary, make any Investment in an Unrestricted Subsidiary (such payments or
any other actions described in clauses (1) through (4) above being
collectively “Restricted Payments”);
if, at the time of, and after giving
effect to, the proposed Restricted Payment:
(A) a
Default or Event of Default shall have occurred and be continuing;
(B) the
Company could not Incur at least $1.00 of Indebtedness under the first paragraph
of part (a) of the “Limitation on Indebtedness and Issuances of Preferred
Stock” covenant;
(C) the
subsidiary subject to the Restricted Payment is both a Regulated Subsidiary and
a Significant Subsidiary that is not in compliance with applicable regulatory
capital or other material requirements of its regulators, such as the OTS or
FDIC, or any applicable state, federal or self regulatory organization, or would
fail to be in compliance with applicable regulatory requirements as a
consequence of the payment; or
(D) the
aggregate amount of all Restricted Payments made after the applicable Closing
Date shall exceed the sum of:
(1) 50%
of the aggregate amount of the Adjusted Consolidated Net Income (or, if the
Adjusted Consolidated Net Income is a loss, minus 100% of the amount of such
loss) accrued on a cumulative basis during the period (taken as one accounting
period) beginning on April 1, 2004 and ending on the last day of such
fiscal quarter preceding the Transaction Date for which reports have been filed
with the SEC or provided to the Trustee, provided that such Adjusted
Consolidated Net Income may only be recognized during those quarters for which
the Company has filed reports with the SEC to the extent provided in “—SEC
Reports and Reports to Holders” or has furnished comparable financial
information to the Trustee; plus
(2) the
aggregate Net Cash Proceeds received by the Company after the Closing Date (in
the case of the 2011 Notes) or April 1, 2004 (in the case of the 2013, 2015
and 2017 Notes) as a capital contribution or from
the
issuance and sale of its Capital Stock (other than Disqualified Stock or
Preferred Stock) to a Person who is not a Subsidiary of the Company, including
an issuance or sale permitted by the Indentures of Indebtedness of the Company
for cash subsequent to the Closing Date (in the case of the 2011 Notes) or
April 1, 2004 (in the case of the 2013, 2015 and 2017 Notes) upon the
conversion of such Indebtedness into Capital Stock (other than Disqualified
Stock) of the Company, or from the issuance to a Person who is not a Subsidiary
of the Company of any options, warrants or other rights to acquire Capital Stock
of the Company (in each case, exclusive of any Disqualified Stock or any
options, warrants or other rights that are redeemable at the option of the
holder, or are required to be redeemed, prior to the Stated Maturity of the
Notes); plus
(3) an
amount equal to the net reduction in Investments (other than reductions in
Permitted Investments) in any Person resulting from payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other transfers of
assets, in each case to the Company or any Restricted Subsidiary or Regulated
Subsidiary or from the Net Cash Proceeds from the sale of any such Investment
(except, in each case, to the extent any such payment or proceeds are included
in the calculation of Adjusted Consolidated Net Income), from the release of any
Guarantee or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
“Investments”), not to exceed, in each case, the amount of Investments
previously made by the Company or any Restricted Subsidiary or Regulated
Subsidiary in such Person or Unrestricted Subsidiary; plus
(4) $100
million.
(b) The
foregoing provision shall not be violated by reason of:
(1) the
payment of any dividend or redemption of any Capital Stock within 60 days after
the related date of declaration or call for redemption if, at said date of
declaration or call for redemption, such payment or redemption would comply with
the preceding paragraph;
(2) the
redemption, repurchase, defeasance or other acquisition or retirement for value
of Indebtedness that is subordinated in right of payment to the Notes or any
Note Guarantee including premium, if any, and accrued interest, with the
proceeds of, or in exchange for, Indebtedness Incurred under clause (3) of
the second paragraph of part (a) of the “Limitation on Indebtedness and
Issuances of Preferred Stock” covenant;
(3) the
repurchase, redemption or other acquisition of Capital Stock of the Company, a
Subsidiary Guarantor, a Restricted Subsidiary or a Regulated Subsidiary (or
options, warrants or other rights to acquire such Capital Stock) or a dividend
on such Capital Stock in exchange for, or out of the proceeds of a capital
contribution or a substantially concurrent offering of, shares of Capital Stock
(other than Disqualified Stock) of the Company (or options, warrants or other
rights to acquire such Capital Stock); provided that such options,
warrants or other rights are not redeemable at the option of the holder, or
required to be redeemed, in each case other than in connection with a Change of
Control of the Company (provided that prior to any such repurchase, redemption
or other acquisition in connection with a change of control, the Company has
made an Offer to Purchase and purchased all Notes validly tendered for payment
in accordance with the “Repurchase of Notes Upon a Change of Control” covenant),
prior to the respective Stated Maturity of the Notes;
(4) the
making of any principal payment or the repurchase, redemption, retirement,
defeasance or other acquisition for value of Indebtedness which is subordinated
in right of payment to the Notes or any Note Guarantee in exchange for, or out
of the proceeds of a capital contribution or a substantially concurrent offering
of, shares of the Capital Stock (other than Disqualified Stock) of the Company
(or options, warrants or other rights to acquire such Capital Stock); provided that such options,
warrants or other rights are not redeemable at the option of the holder, or
required to be redeemed, in each case other than in connection with a Change of
Control of the Company (provided that prior to any such repurchase, redemption
or other acquisition in connection with a change of control, the Company has
made an Offer to Purchase and purchased all Notes validly tendered for payment
in accordance with the “—Repurchase of Notes Upon a Change of Control”
covenant), prior to the respective Stated Maturity of the Notes;
(5) payments
or distributions to dissenting stockholders pursuant to applicable law, pursuant
to or in connection with a consolidation, merger or transfer of assets of the
Company, any Restricted Subsidiary or any
Regulated
Subsidiary and that, in the case of the Company, comply with the provisions of
the Indentures applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of the Company;
(6) Investments
acquired as a capital contribution to, or in exchange for, or out of the
proceeds of a substantially concurrent offering of, Capital Stock (other than
Disqualified Stock) of the Company;
(7) the
repurchase of Capital Stock deemed to occur upon the exercise of options or
warrants if such Capital Stock represents all or a portion of the exercise price
thereof;
(8) the
repurchase, redemption or other acquisition of the Company’s Capital Stock (or
options, warrants or other rights to acquire such Capital Stock) from Persons
who are or were formerly employees of the Company and their Affiliates, heirs
and executors; provided
that the aggregate amount of all such repurchases pursuant to this clause
(8) shall not exceed $50 million;
(9) the
repurchase of Common Stock of the Company, or the declaration or payment of
dividends on Common Stock (other than Disqualified Stock) of the Company; provided that the aggregate
amount of all such declarations, payments or repurchases pursuant to this clause
(9) shall not exceed $100 million in any fiscal year; provided further that at the
time of declaration of such dividend or at the time of such repurchase
(x) no Default or Event of Default has occurred and is continuing, and
(y) the Company is able to Incur at least an additional $1.00 of
Indebtedness pursuant to the first paragraph of the “—Limitation on Indebtedness
and Issuances of Preferred Stock” covenant; or
(10) the
repurchase, redemption or other acquisition of the Outstanding Convertible
Notes,
provided that, except in the
case of clause (1), no Default or Event of Default (excluding, in each case,
clause (i) of “Events of Default”) shall have occurred and be continuing or
occur as a consequence of the actions or payments set forth
therein.
(c) Each
Restricted Payment permitted pursuant to the preceding paragraph (other than the
Restricted Payment referred to in clause (10) thereof, clause
(2) thereof, an exchange of Capital Stock for Capital Stock or Indebtedness
referred to in clause (3) or (4) thereof, an Investment acquired as a
capital contribution or in exchange for Capital Stock referred to in clause
(6) thereof, the repurchase of Capital Stock referred to in clause
(7) thereof, the repurchase of Common Stock referred to in clause
(9) thereof), and the Net Cash Proceeds from any issuance of Capital Stock
referred to in clause (3), (4) or (6), shall be included in calculating
whether the conditions of clause (D) of the first paragraph of this
“Limitation on Restricted Payments” covenant have been met with respect to any
subsequent Restricted Payments. If the proceeds of an issuance of
Capital Stock of the Company are used for the redemption, repurchase or other
acquisition of the Notes, or Indebtedness that is pari passu with the Notes or
any Note Guarantee, then the Net Cash Proceeds of such issuance shall be
included in clause (D) of the first paragraph of this “Limitation on
Restricted Payments” covenant only to the extent such proceeds are not used for
such redemption, repurchase or other acquisition of Indebtedness.
(d) For
purposes of determining compliance with this “—Limitation on Restricted
Payments” covenant, (x) the amount, if other than in cash, of any
Restricted Payment shall be determined in good faith by the Board of Directors,
whose determination shall be conclusive and evidenced by a Board Resolution and
(y) if a Restricted Payment meets the criteria of more than one of the
types of Restricted Payments described in the above clauses, including the first
paragraph of this “—Limitation on Restricted Payments” covenant, the Company, in
its sole discretion, may order and classify, and from time to time may
reclassify, such Restricted Payment if it would have been permitted at the time
such Restricted Payment was made and at the time of such
reclassification.
In
connection with the Debt Exchange and the successful consent solicitation, this
covenant was amended in the 2011 Notes Indenture and the 2017 Notes Indenture
upon the execution of supplemental indentures dated July 9, 2009 in the
following manner:
(A) deleting
the word “or” after the semicolon in clause (b)(9), replacing the comma after
the word “Notes” with a semicolon in clause (b)(10) and adding the following
after such clause (b)(10):
“(11) any
payment of dividends with respect to the TARP Preferred Stock, any Substitution
Permanent Equity or any Capital Stock issued by the Company in any Qualified
Equity Offering; provided the aggregate face
amount of any Preferred Stock issued by the Company in all Qualified Equity
Offerings does not exceed $500,000,000 and the dividend rate on any Preferred
Stock issued in a Qualified Equity Offering does not exceed 9.9% per annum;
or
(12) any
redemption or repurchase of any shares of TARP Preferred Stock, any TARP
Warrants, any Substitution Permanent Equity or any Capital Stock issued by the
Company in any Qualified Equity Offering, in each case using the Net Cash
Proceeds of one or more Qualified Equity Offerings; provided the aggregate face
amount of any Preferred Stock issued by the Company in all Qualified Equity
Offerings does not exceed $500,000,000 and the dividend rate on any Preferred
Stock issued in a Qualified Equity Offering does not exceed 9.9% per
annum,”
(B) amending
and restating clause (c) in its entirety as follows:
“Each
Restricted Payment permitted pursuant to the preceding paragraph (other than the
Restricted Payment referred to in clauses (10), (11) or (12) thereof, clause (2)
thereof, an exchange of Capital Stock for Capital Stock or Indebtedness referred
to in clause (3) or (4) thereof, an Investment acquired as a capital
contribution or in exchange for Capital Stock referred to in clause (6) thereof,
the repurchase of Capital Stock referred to in clause (7) thereof or the
repurchase of Common Stock referred to in clause (9) thereof), and the Net Cash
Proceeds from any issuance of Capital Stock referred to in clause (3), (4) or
(6), shall be included in calculating whether the conditions of clause (D) of
the first paragraph of this Section 4.04 have been met with respect to any
subsequent Restricted Payments. If the proceeds of an issuance of Capital Stock
of the Company are used for the redemption, repurchase or other acquisition of
the Notes, or Indebtedness that is pari passu with the Notes or any Note
Guarantee, then the Net Cash Proceeds of such issuance shall be included in
clause (D) of the first paragraph of this Section 4.04 only to the extent such
proceeds are not used for such redemption, repurchase or other acquisition of
Indebtedness.”
The 2013
Notes Indenture and 2015 Notes Indentures were not so amended.
Limitation
on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries or
Regulated Subsidiaries
The
Company will not, and will not permit any Restricted Subsidiary or Regulated
Subsidiary to, create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary or Regulated Subsidiary (other than any Subsidiary
Guarantor) to:
(1) pay
dividends or make any other distributions permitted by applicable law on any
Capital Stock of such Restricted Subsidiary or Regulated Subsidiary owned by the
Company or any other Restricted Subsidiary or Regulated Subsidiary;
(2) pay
any Indebtedness owed to the Company or any other Restricted Subsidiary or
Regulated Subsidiary;
(3) make
loans or advances to the Company or any other Restricted Subsidiary or Regulated
Subsidiary; or
(4) transfer
any of its property or assets to the Company or any other Restricted Subsidiary
or Regulated Subsidiary.
The
foregoing provisions shall not restrict any encumbrances or
restrictions:
(1) existing
on the applicable Closing Date for each series of Notes in any Credit Facility,
the Indentures or any other agreements in effect on such Closing Date, and any
extensions, refinancings, renewals or replacements of such agreements; provided that the
encumbrances and restrictions in any such extensions, refinancings, renewals or
replacements taken as a whole are no less favorable in any material respect to
the holders than those encumbrances or restrictions that are then in effect and
that are being extended, refinanced, renewed or replaced;
(2) existing
under or by reason of applicable law including rules and regulations of and
agreements with any regulatory authority having jurisdiction over the Company,
any Restricted Subsidiary, or any Regulated Subsidiary,
including,
but not limited to the OTS, the FDIC, the SEC or any self regulatory
organization of which such Regulated Subsidiary is a member, or the imposition
of conditions or requirements pursuant to the enforcement authority of any such
regulatory authority;
(3) existing
with respect to any Person or the property or assets of such Person acquired by
the Company or any Restricted Subsidiary or Regulated Subsidiary, existing at
the time of such acquisition and not incurred in contemplation thereof, which
encumbrances or restrictions are not applicable to any Person or the property or
assets of any Person other than such Person or the property or assets of such
Person so acquired and any extensions, refinancings, renewals or replacements
thereof; provided that
the encumbrances and restrictions in any such extensions, refinancings, renewals
or replacements taken as a whole are no less favorable in any material respect
to the holders than those encumbrances or restrictions that are then in effect
and that are being extended, refinanced, renewed or replaced;
(4) in
the case of clause (4) of the first paragraph of this “—Limitation on
Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries or
Regulated Subsidiaries” covenant:
(A) that
restrict in a customary manner the subletting, assignment or transfer of any
property or asset that is a lease, license, conveyance or contract or similar
property or asset;
(B) existing
by virtue of any transfer of, agreement to transfer, option or right with
respect to, or Lien on, any property or assets of the Company, any Restricted
Subsidiary or any Regulated Subsidiary not otherwise prohibited by the
Indentures; or
(C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary or
Regulated Subsidiary in any manner material to the Company or any Restricted
Subsidiary or Regulated Subsidiary taken as a whole; or
(5) with
respect to a Restricted Subsidiary or Regulated Subsidiary and imposed pursuant
to an agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of, such
Restricted Subsidiary or Regulated Subsidiary.
Nothing
contained in this “—Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries or Regulated Subsidiaries” covenant shall
prevent the Company, any Restricted Subsidiary or any Regulated Subsidiary from
(1) creating, incurring, assuming or suffering to exist any Liens otherwise
permitted in the “Limitation on Liens” covenant or (2) restricting the sale
or other disposition of property or assets of the Company or any of its
Restricted Subsidiaries or Regulated Subsidiaries that secure Indebtedness of
the Company or any of its Restricted Subsidiaries or Regulated
Subsidiaries.
Limitation
on the Issuance and Sale of Capital Stock of Restricted Subsidiaries or
Regulated Subsidiaries
The
Company will not sell, and will not permit any Restricted Subsidiary or
Regulated Subsidiary, directly or indirectly, to issue or sell, any shares of
Capital Stock of a Restricted Subsidiary or Regulated Subsidiary (including
options, warrants or other rights to purchase shares of such Capital Stock)
except:
(1) (i) with
respect to the capital stock of a Restricted Subsidiary, to the Company or a
Wholly Owned Restricted Subsidiary or, (ii) in the case of Regulated
Subsidiary, to the Company, a Wholly Owned Restricted Subsidiary or a Wholly
Owned Regulated Subsidiary;
(2) issuances
of director’s qualifying shares or sales to foreign nationals of shares of
Capital Stock of foreign Restricted Subsidiaries, to the extent required by
applicable law;
(3) if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary and any Investment
in such Person remaining after giving effect to such issuance or sale would have
been permitted to be made under the “—Limitation on Restricted Payments”
covenant if made on the date of such issuance or sale;
(4) (i) sales
of Common Stock (including options, warrants or other rights to purchase shares
of such Common Stock but excluding Disqualified Stock) of a Restricted
Subsidiary or a Regulated Subsidiary by the Company, a Restricted Subsidiary or
a Regulated Subsidiary, provided that the Company or
such Restricted Subsidiary or Regulated Subsidiary applies the Net Cash Proceeds
of any such sale in accordance with clause (A) or (B) of the
“—Limitation on Asset Sales” covenant and (ii) issuances of Preferred Stock
of a Restricted Subsidiary if such Restricted Subsidiary would be entitled to
Incur such Indebtedness under the “—Limitations on Indebtedness and Issuances of
Preferred Stock” covenant; or
(5) sales
of Capital Stock, other than Common Stock, by a Regulated Subsidiary or a
Subsidiary of such Regulated Subsidiary, the proceeds of which are invested in
the business of such Regulated Subsidiary.
Future
Subsidiary Guarantees
The
Company will not permit any Restricted Subsidiary or Regulated Subsidiary,
directly or indirectly, to Guarantee any Indebtedness (“Guaranteed
Indebtedness”) of the Company or any Restricted Subsidiary (other than a Foreign
Subsidiary), unless (a) such Restricted Subsidiary or Regulated Subsidiary,
to the extent permitted by law, simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a Guarantee (a “Subsidiary
Guarantee”) of payment of the Notes by such Restricted Subsidiary or Regulated
Subsidiary and (b) such Restricted Subsidiary or Regulated Subsidiary
waives and will not in any manner whatsoever claim or take the benefit or
advantage of, any rights of reimbursement, indemnity or subrogation or any other
rights against the Company or any other Restricted Subsidiary or Regulated
Subsidiary as a result of any payment by such Restricted Subsidiary or Regulated
Subsidiary under its Subsidiary Guarantee until the Notes have been paid in
full. The obligations of any such future Subsidiary Guarantor will be
limited so as not to constitute a fraudulent conveyance under applicable federal
or state laws. In addition, in the case of the 2017 Notes, on the
Trigger Date, the Company shall cause each of its Restricted Subsidiaries to
execute and deliver a Subsidiary Guarantee of payment of the 2017 Notes by each
such Restricted Subsidiary, to the extent permitted by law. Also on the Trigger
Date, the 2019 Indenture will require the Company to cause the Restricted
Subsidiaries to guarantee the Debentures.
If the
Guaranteed Indebtedness is (A) pari passu in right of
payment with the Notes or any Note Guarantee, then the Guarantee of such
Guaranteed Indebtedness shall be pari passu in right of
payment with, or subordinated to, the Subsidiary Guarantee or
(B) subordinated in right of payment to the Notes or any Note Guarantee,
then the Guarantee of such Guaranteed Indebtedness shall be subordinated in
right of payment to the Subsidiary Guarantee at least to the extent that the
Guaranteed Indebtedness is subordinated to the Notes or the Notes
Guarantee.
Notwithstanding
the foregoing, any Subsidiary Guarantee by a Restricted Subsidiary or Regulated
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon any:
(1) sale,
exchange or transfer, to any Person not an Affiliate of the Company, of all of
the Company’s and each Restricted Subsidiary’s and Regulated Subsidiary’s
Capital Stock in, or all or substantially all the assets of, such Restricted
Subsidiary or Regulated Subsidiary (which sale, exchange or transfer is not
prohibited by the Indentures) or upon the designation of such Restricted
Subsidiary or Regulated Subsidiary as an Unrestricted Subsidiary in accordance
with the terms of the Indentures; or
(2) the
release or discharge of the Guarantee which resulted in the creation of such
Subsidiary Guarantee, except a discharge or release by or as a result of payment
under such Guarantee.
Limitation
on Transactions with Stockholders and Affiliates
The
Company will not, and will not permit any Restricted Subsidiary or Regulated
Subsidiary to, directly or indirectly, enter into, renew or extend any
transaction (including, without limitation, the purchase, sale, lease or
exchange of property or assets, or the rendering of any service) with any
Affiliate of the Company or any Affiliates of any Restricted Subsidiary or
Regulated Subsidiary, except upon fair and reasonable terms no less favorable to
the Company or such Restricted Subsidiary or Regulated Subsidiary than could be
obtained, at the time of such transaction or, if such transaction is pursuant to
a written agreement, at the time of the execution of the agreement providing
therefor, in a comparable arm’s-length transaction with a Person that is not
such a holder or an Affiliate.
The
foregoing limitation does not limit, and shall not apply to:
(1) transactions
(A) approved by a majority of the disinterested members of the Board of
Directors or (B) for which the Company, a Restricted Subsidiary or a
Regulated Subsidiary delivers to the Trustee a written opinion of a nationally
recognized investment banking, accounting, valuation or appraisal firm stating
that the transaction is fair to the Company or such Restricted Subsidiary or
Regulated Subsidiary from a financial point of view;
(2) any
transaction solely among the Company, its Wholly Owned Restricted Subsidiaries
or its Wholly Owned Regulated Subsidiaries or any combination
thereof;
(3) the
payment of reasonable and customary regular fees to directors of the Company who
are not employees of the Company and customary indemnification arrangements
entered into by the Company;
(4) any
payments or other transactions pursuant to any tax-sharing agreement between the
Company and any other Person with which the Company files a consolidated tax
return or with which the Company is part of a consolidated group for tax
purposes;
(5) any
sale of shares of Capital Stock (other than Disqualified Stock) of the
Company;
(6) the
granting or performance of registration rights under a written agreement and
approved by the Board of Directors of the Company, containing customary terms,
taken as a whole;
(7) loans
to an Affiliate who is an officer, director or employee of the Company, a
Restricted Subsidiary or a Regulated Subsidiary by a Regulated Subsidiary in the
ordinary course of business in accordance with Sections 7 and 13(k) of the
Exchange Act;
(8) deposit,
checking, banking and brokerage products and services typically offered to our
customers on substantially the same terms and conditions as those offered to our
customers, or in the case of a Bank Regulated Subsidiary, as otherwise permitted
under Regulation O promulgated by the Board of Governors of under the Federal
Reserve System; or
(9) any
Permitted Investments or any Restricted Payments not prohibited by the
“—Limitation on Restricted Payments” covenant.
Notwithstanding
the foregoing, any transaction or series of related transactions covered by the
first paragraph of this “—Limitation on Transactions with Stockholders and
Affiliates” covenant and not covered by clauses (2) through (6) of
this paragraph, (a) the aggregate amount of which exceeds $15 million in
value, must be approved or determined to be fair in the manner provided for in
clause (1)(A) or (B) above and (b) the aggregate amount of which
exceeds $25 million in value, must be determined to be fair in the manner
provided for in clause (1)(B) above.
Limitation
on Liens
The
Company will not, and will not permit any Restricted Subsidiary to, create,
incur, assume or suffer to exist any Lien on any of its assets or properties of
any character, or any shares of Capital Stock or Indebtedness of any Restricted
Subsidiary, without making effective provision for all of the Notes and all
other amounts due under the Indentures to be directly secured equally and
ratably with (or, if the obligation or liability to be secured by such Lien is
subordinated in right of payment to the Notes, prior to) the obligation or
liability secured by such Lien.
The
foregoing limitation does not apply to:
(1) (a) In
the case of the 2011 Notes, 2013 Notes or 2015 Notes, Liens existing on the
applicable Closing Date;
(b) In the case of the 2017 Notes, Liens existing on the Closing Date
(other than the Liens securing Indebtedness (including Hedging Obligations with
respect thereto) under any Credit Facility);
(2) Liens
granted after the applicable Closing Date for each series of Notes on any assets
or Capital Stock of the Company or its Restricted Subsidiaries created in favor
of the holders;
(3) Liens
with respect to the assets of a Restricted Subsidiary granted by such Restricted
Subsidiary to the Company or a Wholly Owned Restricted Subsidiary or Wholly
Owned Regulated Subsidiary to secure Indebtedness owing to the Company or such
other Restricted Subsidiary or Regulated Subsidiary;
(4) Liens
securing Indebtedness which is Incurred to refinance secured Indebtedness which
is permitted to be Incurred under clause (3) of the second paragraph of the
“Limitation on Indebtedness and Issuances of Preferred Stock” covenant; provided that such Liens do
not extend to or cover any property or assets of the Company or any Restricted
Subsidiary or Regulated Subsidiary other than the property or assets securing
the Indebtedness being refinanced;
(5) (a) For
the 2011 Notes, Liens securing Indebtedness of the Company under any Credit
Facility in an aggregate principal amount at any one time outstanding (with
letters of credit being deemed to have a principal amount equal to the maximum
potential liability of the Company and its Restricted Subsidiaries thereunder)
not to exceed $300 million;
(b) For the 2013 Notes and 2015 Notes, Liens securing Indebtedness
(including Hedging Obligations with respect thereto) in an aggregate amount not
to exceed the greater of (x) $300 million or (y) an amount equal to
the Secured Indebtedness Cap on the dates on which such Lien is to be
incurred;
(c) For the 2017 Notes, Liens securing Indebtedness (including Hedging
Obligations with respect thereto) under any Credit Facility in an amount not to
exceed $300 million.
(6) Liens
(including extensions and renewals thereof) upon real or personal property
acquired after the applicable Closing Date; provided that (a) any
such Lien is created solely for the purpose of securing Indebtedness Incurred,
in accordance with the “—Limitation on Indebtedness and Issuances of Preferred
Stock” covenant, to finance the cost (including the cost of improvement or
construction and fees and expenses related to the acquisition) of the item of
property or assets subject thereto and such Lien is created prior to, at the
time of or within twelve months after the later of the acquisition, the
completion of construction or the commencement of full operation of such
property, (b) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such cost and (c) any such Lien shall not extend to
or cover any property or assets other than such item of property or assets and
any improvements on such item;
(7) Liens
on cash set aside at the time of the Incurrence of any Indebtedness, or
government securities purchased with such cash, in either case to the extent
that such cash or government securities pre-fund the payment of interest on such
Indebtedness and are held in a collateral or escrow account or similar
arrangement to be applied for such purpose;
(8) Liens
incurred by the Company or a Restricted Subsidiary for the benefit of a
Regulated Subsidiary in the ordinary course of business including Liens incurred
in the Broker Dealer Regulated Subsidiary’s securities business with respect to
obligations that do not exceed $200 million at any one time outstanding and that
are not incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than trade credit in the ordinary course of business);
or
(9) Permitted
Liens.
Limitation
on Sale-Leaseback Transactions
The
Company will not, and will not permit any Restricted Subsidiary or Regulated
Subsidiary to, enter into any Sale-Leaseback Transaction involving any of its
assets or properties whether now owned or hereafter acquired.
The
foregoing restriction does not apply to any Sale-Leaseback Transaction
if:
(1) the
lease is for a period, including renewal rights, of not in excess of three
years;
(2) the
lease secures or relates to industrial revenue or pollution control
bonds;
(3) the
transaction is solely among the Company, its Wholly Owned Restricted
Subsidiaries or its Wholly Owned Regulated Subsidiaries or any combination
thereof; or
(4) the
Company or such Restricted Subsidiary or Regulated Subsidiary, within 12 months
after the sale or transfer of any assets or properties is completed, applies an
amount not less than the net proceeds received from such sale in accordance with
clause (A) or (B) of the third paragraph of the “—Limitation on Asset
Sales” covenant.
Limitation
on Asset Sales
The
Company will not, and will not permit any Restricted Subsidiary to, consummate
any Asset Sale, unless (1) the consideration received by the Company or
such Restricted Subsidiary is at least equal to the Fair Market Value of the
assets sold or disposed of and (2) at least 75% of the consideration
received consists of (a) cash or Temporary Cash Investments, (b) the
assumption of unsubordinated Indebtedness of the Company or any Subsidiary
Guarantor or Indebtedness of any other Restricted Subsidiary (in each case,
other than Indebtedness owed to the Company), provided that the Company,
such Subsidiary Guarantor, such Restricted Subsidiary, as the case may be is
irrevocably and unconditionally released from all liability under such
Indebtedness or (c) Replacement Assets.
The
Company will not, and will not permit any Restricted Subsidiary or Regulated
Subsidiary to consummate any Regulated Sale unless (1) the consideration
received by the Company or such Restricted Subsidiary or Regulated Subsidiary is
at least equal to the Fair Market Value of the assets sold or disposed of and
(2) at least 75% of the consideration received consists of (a) cash or
Temporary Cash Investments, (b) the assumption of unsubordinated
Indebtedness of the Company or any Subsidiary Guarantor or Indebtedness of any
other Restricted Subsidiary or Regulated Subsidiary (in each case, other than
Indebtedness owed to the Company), provided that the Company,
such Subsidiary Guarantor, such Restricted Subsidiary or such Regulated
Subsidiary, as the case may be is irrevocably and unconditionally released from
all liability under such Indebtedness or (c) Replacement
Assets.
If and to
the extent that the Net Cash Proceeds received by the Company or any of its
Restricted Subsidiaries or Regulated Subsidiaries (excluding the first $300
million of Net Cash Proceeds received by the Company or any of its Restricted
Subsidiaries or Regulated Subsidiaries from Asset Sales and Regulated Sales
after the applicable Closing Date) from one or more Asset Sales or Regulated
Sales in any period of 12 consecutive months exceed 10% of Consolidated Net
Worth (determined as of the date closest to the commencement of such 12-month
period for which a consolidated balance sheet of the Company and its
Subsidiaries has been filed with the SEC or provided to the Trustee), then the
Company shall or shall cause the relevant Restricted Subsidiary or Regulated
Subsidiary to:
(1) within
twelve months after the date Net Cash Proceeds so received exceed 10% of
Consolidated Net Worth,
(A) apply
an amount equal to such excess Net Cash Proceeds to permanently repay
unsubordinated Indebtedness of the Company or Indebtedness or to redeem or
repurchase Capital Stock, otherwise permitted by the Indentures, of any
Restricted Subsidiary or Regulated Subsidiary, in each case owing to or owned by
a Person other than the Company or any Affiliate of the Company; or
(B) invest
an equal amount, or the amount not so applied pursuant to clause (A) (or
enter into a definitive agreement committing to so invest within 12 months after
the date of such agreement), in Replacement Assets; and
(2) apply
(no later than the end of the 12-month period referred to in clause
(1)) such excess Net Cash Proceeds (to the extent not applied pursuant to
clause (1)) as provided in the following paragraphs of this “—Limitation on
Asset Sales” covenant.
If and to
the extent that the Net Cash Proceeds received by the Company or any of its
Restricted Subsidiaries or Regulated Subsidiaries from one or more Regulated
Sales in any period of 12 consecutive months exceed 10% of Consolidated Net
Worth (determined as of the date closest to the commencement of such 12-month
period for which a consolidated balance sheet of the Company and its
Subsidiaries has been filed with the SEC or provided to the Trustee), then the
Company shall or shall cause the relevant Restricted Subsidiary or Regulated
Subsidiary to apply (no later than the end of the 12-month period referred to in
clause (1)) such excess Net Cash Proceeds (to the extent
not
applied pursuant to clause (1)) as provided in the following paragraphs of
this “—Limitation on Asset Sales” covenant.
The
amount of such excess Net Cash Proceeds required to be applied (or to be
committed to be applied) during such 12-month period as set forth in clause
(1) of the preceding sentence and not applied as so required by the end of
such period shall constitute “Excess Proceeds”.
If, as of
the first day of any calendar month, the aggregate amount of Excess Proceeds not
theretofore subject to an Offer to Purchase pursuant to this “—Limitation on
Asset Sales” covenant totals at least $50 million, the Company must commence,
not later than the fifteenth Business Day of such month, and consummate an Offer
to Purchase from the holders (and if required by the terms of any Indebtedness
that is pari passu with the Notes (“Pari Passu Indebtedness”), from the holders
of such Pari Passu Indebtedness) on a pro rata basis an aggregate principal
amount of Notes (and Pari Passu Indebtedness) equal to the Excess Proceeds on
such date, at a purchase price equal to 100% of their principal amount, plus, in
each case, accrued interest (if any) to the Payment Date.
To the
extent that the aggregate amount of Notes and Pari Passu Indebtedness so validly
tendered and not properly withdrawn pursuant to an Offer to Purchase is less
than the Excess Proceeds, the Company may use any remaining Excess Proceeds for
any other purpose which is permitted by the Indentures.
If the
aggregate principal amount of Notes surrendered by holders thereof and other
Pari Passu Indebtedness surrendered by holders or lenders, collectively, exceeds
the amount of Excess Proceeds, the Trustee shall select the Notes and Pari Passu
Indebtedness to be purchased on a pro rata basis on the basis of the aggregate
principal amount of tendered Notes and Pari Passu Indebtedness. Upon
completion of such Offer to Purchase, the amount of Excess Proceeds shall be
reset to zero.
Limitation
on Lines of Business
The
Company will not, and will not permit any Restricted Subsidiary or Regulated
Subsidiary to, engage in any business other than a Related
Business.
Maintenance
of Capitalization under the 2017 Notes Indenture
Under the
2017 Notes Indenture, the Company will not permit any Bank Regulated Subsidiary
that constitutes a federally insured depositary institution to fail to be at
least Well Capitalized for a period of more than 30 consecutive days in any
fiscal quarter of the Company.
Repurchase
of Notes upon a Change of Control
Under the
2017 Notes Indenture, the Company must commence, within 30 days of the
occurrence of a Change of Control, and consummate an Offer to Purchase for all
2017 Notes then outstanding, at a purchase price equal to 101% of their
principal amount, plus accrued interest (if any) to the Payment
Date.
Under the
Senior Notes Indentures, the Company must commence, within 30 days of the later
of (1) the occurrence of a Change of Control, and (2) a Rating
Decline, and consummate an Offer to Purchase for all 2011, 2013 and 2015 Notes
then outstanding, at a purchase price equal to 101% of their principal amount,
plus accrued interest (if any) to the Payment Date; provided that the Company
shall not be required to make an Offer to Purchase unless a Rating Decline
occurs.
There can
be no assurance that the Company will have sufficient funds available at the
time of any Change of Control to make any debt payment (including repurchases of
Notes) required by the foregoing covenant (as well as may be contained in other
securities of the Company which might be outstanding at the time).
The above
covenant requiring the Company to repurchase the Notes will, unless consents are
obtained, require the Company to repay all Indebtedness then outstanding which
by its terms would prohibit such Note repurchase, either prior to or
concurrently with such Note repurchase.
The
Company will not be required to make an Offer to Purchase upon the occurrence of
a Change of Control, if a third party makes an offer to purchase the Notes in
the manner, at the times and price and otherwise in compliance with the
requirements of the Indentures applicable to an Offer to Purchase for a Change
of Control and purchases all Notes validly tendered and not withdrawn in such
offer to purchase.
SEC
Reports and Reports to Holders
The
Company will deliver to the Trustee within 30 days after the filing of the same
with the Securities and Exchange Commission, copies of the quarterly and annual
reports and of the information, documents and other reports, if any, which the
Company is required to file with the Securities and Exchange Commission pursuant
to Section 13 or 15(d) of the Exchange Act. Notwithstanding that
the Company may not be subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act, the Company will file with the Securities and
Exchange Commission, to the extent permitted, and provide the Trustee and
holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act, provided that the Company
need not file such reports or other information if, and so long as, it would not
be required to do so pursuant to Rule 12h-5 under the Exchange
Act. The Company will also comply with the other provisions of the
TIA, Section 314(a).
Springing
Lien under the 2017 Notes Indenture
Promptly
following the occurrence of the Trigger Date, the Company will take such actions
as are reasonably necessary and as the Trustee may reasonably request (including
delivery of security agreements, pledge agreements, financing statements and
other security documents, authorization documents and opinions of counsel) to
ensure and confirm that the obligations of the Company under the 2017 Notes and
of each Subsidiary Guarantor that is a Restricted Subsidiary under any
Subsidiary Guarantee (up to a maximum amount of Indebtedness under the 2017
Notes that would not result in or require any of the 2011 Notes, the 2013 Notes
or the 2015 Notes becoming directly secured equally and ratably with the 2017
Notes pursuant to the provisions of the 2011 Notes Indenture, the 2013 Notes
Indenture or the 2015 Notes Indenture, as the case may be) are secured by a
first priority ((i) junior only to (x) the Liens existing on the Closing
Date for the 2017 Notes and (y) Liens securing any Credit Facility in the
amount not to exceed $300,000,000 and (ii) otherwise, subject only to Liens
permitted by the covenants described under “—Limitation on Liens”) perfected
Lien on (I) the ownership interest of the Company and each such Subsidiary
Guarantor in the stock and other equity interests of each Domestic Subsidiary;
(II) the ownership interest of the Company and each such Subsidiary Guarantor in
the stock and other equity interests of each direct Foreign Subsidiary of the
Company and of each Domestic Subsidiary; provided that neither the Company nor
any Domestic Subsidiary shall be required to pledge more than 65% of the stock
and other equity interest in any Foreign Subsidiary; and (III) all other present
and future assets and properties (including, without limitation, accounts
receivable, inventory, real property, machinery, equipment, contracts,
trademarks, copyrights, patents, license rights, intercompany notes and other
investment property, and general intangibles) of the Company and each such
Subsidiary Guarantor, except in each of (I), (II) and (III) such property and
assets constituting Excluded Collateral.
In
furtherance of the foregoing, the Company will, and will cause each Domestic
Subsidiary to, execute and deliver to the Trustee (A) from time to time
prior to the Trigger Date, such documents as are reasonably necessary and as the
Trustee may reasonably request to ensure that the Liens described above on
substantially all personal property (other than property described in clause
(ii) of the preceding sentence) of the Company and its Domestic
Subsidiaries will be created and perfected promptly after the Trigger Date;
(B) not later than 30 days after the Trigger Date, a mortgage or deed of
trust with respect to each parcel of real estate owned by the Company or any
Domestic Subsidiary; (C) as soon as reasonably practicable after the
Trigger Date, such documentation (including title insurance policies, flood
plain certifications and other customary documents) as is reasonably necessary
and as the Trustee may reasonably request in connection with the mortgages and
deeds of trust described in clause (B) above and (D) as soon as
reasonably practicable after the Trigger Date, all documents necessary to create
and perfect the Liens described in clause (ii) of the preceding
sentence. The Company agrees that after the Trigger Date it will use,
and will cause each applicable Subsidiary to use, commercially reasonable
efforts to promptly deliver all items required by clauses (C) and
(D) of the preceding sentence.
For the
avoidance of doubt, (a) the Company shall not, and shall not permit the
Subsidiary Guarantors to, secure Indebtedness under the 2017 Notes and the
Subsidiary Guarantees in excess of the amount that is permitted to be
secured
under the provisions of the 2013 Notes Indenture and the 2015 Notes Indenture
without granting equal and ratable security to the holders of the 2015 Notes,
the 2013 Notes and/or the 2011 Notes and (b) at any time the Consolidated
EBITDA of the Company for the most recently ended Four Quarter Period exceeds
the amount of Indebtedness under the 2017 Notes heretofore secured in compliance
with the provisions of this section, the Company shall secure the additional
amount of Indebtedness under the 2017 Notes, such that the aggregate amount of
Indebtedness under the 2017 Notes secured in compliance with the provisions of
this section equals the amount of the Consolidated EBITDA of the Company for the
most recently ended Four Quarter Period.
Beyond
the exercise of reasonable care in the custody thereof, the Trustee shall have
no duty as to any Collateral in its possession or control or in the possession
or control of any agent or bailee or any income thereon or as to preservation of
rights against prior parties or any other rights pertaining thereto and the
Trustee shall not be responsible for filing any financing or continuation
statements or recording any documents or instruments in any public office at any
time or times or otherwise perfecting or maintaining the perfection of any
security interest in the Collateral. The Trustee shall be deemed to
have exercised reasonable care in the custody of the Collateral in its
possession if the Collateral is accorded treatment substantially equal to that
which it accords its own property and shall not be liable or responsible for any
loss or diminution in the value of any of the Collateral, by reason of the act
or omission of any carrier, forwarding agency or other agent or bailee selected
by the Trustee in good faith. The Trustee shall not be responsible
for the existence, genuineness or value of any of the Collateral or for the
validity, perfection, priority or enforceability of the Liens in any of the
Collateral, whether impaired by operation of law or by reason of any of any
action or omission to act on its part hereunder, except to the extent such
action or omission constitutes gross negligence, bad faith or willful misconduct
on the part of the Trustee, for the validity or sufficiency of the Collateral or
any agreement or assignment contained therein, for the validity of the title of
the Company to the Collateral, for insuring the Collateral or for the payment of
taxes, charges, assessments or Liens upon the Collateral or otherwise as to the
maintenance of the Collateral.
Effectiveness
of Covenants
The
covenants described under “—Limitation on Indebtedness and Issuances of
Preferred Stock”, “—Limitation on Restricted Payments”, “—Limitation on
Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries or
Regulated Subsidiaries” “—Limitation on the Issuance and Sale of Capital Stock
of Restricted Subsidiaries or Regulated Subsidiaries”, “—Future Subsidiary
Guarantees”, “—Limitation on Transactions with Stockholders and Affiliates”,
“—Limitation on Sale-Leaseback Transactions”, “—Limitation on Asset Sales”,
“—SEC reports”, “—Limitation on Lines of Business”, “—Maintenance of
Capitalization”, and “—Springing Lien” (the “Terminated Covenants”) will no
longer be in effect upon the Company attaining Investment Grade
Status. The Terminated Covenants will not be reinstated regardless of
whether the Company’s credit rating is subsequently downgraded from Investment
Grade Status.
Collateral
Documents and Security under the 2017 Notes Indenture
Upon
securing the 2017 Notes in accordance with the “—Covenants—Springing Lien”
covenant described above, the following provisions shall apply:
(1) The
Company shall appoint a Collateral Agent which shall be entitled to the
protections, immunities and indemnities as provided in a supplemental indenture
attached to the 2017 Notes Indenture.
(2) In
order to secure the due and punctual payment of the 2017 Notes, the Company and
the Subsidiary Guarantors will enter into the Collateral Documents to create the
Note Liens on the Collateral in accordance with the terms thereof.
Upon any
realization upon the Collateral, the proceeds thereof shall be applied, subject
to the terms of the Intercreditor Agreement, in accordance with the Collateral
Documents and the 2017 Notes Indenture.
The Note
Liens will be released automatically:
|
(i)
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as
to all of the Collateral, upon payment in full of the principal of, and
accrued and unpaid interest and premium, if any, on the 2017
Notes;
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|
(ii)
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as
to all of the Collateral, upon defeasance or discharge of the 2017 Notes
in accordance with the provisions described in “—Defeasance”
below;
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|
(iii)
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as
to any property or assets constituting Collateral that is sold,
transferred or otherwise disposed of by the Company or any of its
Subsidiaries in a transaction not prohibited by the 2017 Notes Indenture,
at the time of such sale, transfer or disposition;
or
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|
(iv)
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as
to any property constituting Collateral that is owned by a Subsidiary
Guarantor that has been released from its obligations under its Subsidiary
Guarantee in accordance with “—Covenants—Future Subsidiary Guarantees”,
concurrently with the release of such
Guarantee.
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The
Company and each Subsidiary Guarantor may, without any release or consent by the
Trustee or the Collateral Agent, perform a number of activities in the ordinary
course in respect of the Collateral to the extent not restricted or prohibited
by the Collateral Documents and the 2017 Notes Indenture, including, without
limitation, (i) selling or otherwise disposing of, in any transaction or
series of related transactions, any property subject to the Note Liens which has
become worn out, defective or obsolete or not used or useful in the business,
(ii) abandoning, terminating, canceling, releasing or making alternations
in or substitutions of any leases or contracts subject to the Note Liens,
(iii) surrendering or modifying any franchise, license or permit subject to
the Note Liens which it may own or under which it may be operating;
(iv) altering, repairing, replacing, changing the location or position of
and adding to its structures, machinery, systems, equipment, fixtures and
appurtenances; (v) granting a license of any intellectual property;
(vi) selling, transferring or otherwise disposing of inventory in the
ordinary course of business; (vii) selling, collecting, liquidating,
factoring or otherwise disposing of accounts receivable in the ordinary course
of business; (viii) making cash payments (including for the repayment of
Indebtedness) from cash that is at any time part of the Collateral in the
ordinary course of business that are not otherwise prohibited by the 2017 Notes
Indenture; and (ix) abandoning any property which is not longer used or
useful in the Company’s business. The release of any Collateral from
the Note Liens pursuant to the terms of the 2017 Notes Indenture and the
Collateral Documents shall not be deemed to impair the security under the 2017
Notes Indenture in contravention of the provisions thereof if and to the extent
that the Collateral is released pursuant to the terms described in this
paragraph.
In the
event that the Company delivers an Officers’ Certificate certifying that
(a) its obligations under the 2017 Notes Indenture have been defeased or
discharged by complying with the provisions described in “—Defeasance” or
(b) a Subsidiary Guarantor shall have been released from its obligations
under its Subsidiary Guarantee the Note Liens on all property and assets
(including any Capital Stock) constituting Collateral (in the case of clause
(a)) or the property and assets (including any Capital Stock) constituting
Collateral owned by such Subsidiary Guarantor (in the case of clause (b)) shall
be released, and the Collateral Agent shall (i) at the Company’s expense,
promptly execute and deliver such releases, termination statements and other
instruments (in recordable form, where appropriate) as the Company or any
Subsidiary Guarantor, as applicable, may reasonably request to evidence the
termination of such Note Liens and (ii) not be deemed to hold such Note
Liens for the benefit of the Trustee and the holders of 2017 Notes.
Events
of Default
The
following events are defined as “Events of Default” in the
Indentures:
(a) default
in the payment of principal of (or premium, if any, on) any Note when the same
becomes due and payable at maturity, upon acceleration, redemption or
otherwise;
(b) default
in the payment of interest on any Note when the same becomes due and payable,
and such default continues for a period of 30 days;
(c) default
in the performance or breach of the provisions of the Indentures applicable to
mergers, consolidations and transfers of all or substantially all of the assets
of the Company or the failure by the Company to make or consummate an Offer to
Purchase in accordance with the “—Limitation on Asset Sales” or “—Repurchase of
Notes upon a Change of Control” covenant;
(d) the
Company or any Subsidiary Guarantor defaults in the performance of or breaches
any other covenant or agreement in one or more of the Indentures or under a
series of Notes (other than a default specified in clause (a), (b) or
(c) above) and such default or breach continues for a period of 30
consecutive days after written notice by the Trustee or the holders of 25% or
more in aggregate principal amount of the applicable series of
Notes;
(e) there
occurs with respect to any issue or issues of Indebtedness of the Company or any
Significant Subsidiary having an outstanding principal amount of $20 million or
more in the aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created, (I) an event of
default that has caused the holder thereof to declare such Indebtedness to be
due and payable prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or annulled
within 45 days of such acceleration or (II) the failure to make a principal
payment at the final (but not any interim) fixed maturity and such defaulted
payment shall not have been made, waived or extended;
(f) any
final judgment or order (not covered by insurance), that is non-appealable, for
the payment of money in excess of $20 million in the aggregate for all such
final judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Company or any Significant Subsidiary and shall not be paid or discharged, and
there shall be any period of 45 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final judgments
or orders outstanding and not paid or discharged against all such Persons to
exceed $20 million during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be in
effect;
(g) a
court having jurisdiction in the premises enters a decree or order for
(A) relief in respect of the Company or any Significant Subsidiary in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, (B) appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Company or
any Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) the winding up
or liquidation of the affairs of the Company or any Significant Subsidiary and,
in each case, such decree or order shall remain unstayed and in effect for a
period of 60 consecutive days;
(h) the
Company or any Significant Subsidiary (A) commences a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an involuntary case
under any such law, (B) consents to the appointment of or taking possession
by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Company or any Significant Subsidiary or for all or
substantially all of the property and assets of the Company or any Significant
Subsidiary or (C) effects any general assignment for the benefit of
creditors;
(i) failure
by any Broker Dealer Regulated Subsidiary that is a Significant Subsidiary to
meet the minimum capital requirements imposed by applicable regulatory
authorities, and such condition continues for a period of 30 days after the
Company or such Broker Dealer Regulated Subsidiary first becomes aware of such
failure;
(j) failure
by any Bank Regulated Subsidiary that is a Significant Subsidiary to be at least
“adequately capitalized”, as defined in regulations of applicable regulatory
authorities; provided that an Event of Default under this clause (j) shall
not have occurred until (x) 45 days from the time that such Bank Regulated
Subsidiary has notice or is deemed to have notice of such failure unless a capital restoration
plan has been filed the with OTS within that time (y) the expiration of a
90-day period commencing on the earlier of the date of initial submission of a
capital restoration plan to the OTS (unless such capital plan is approved by the
OTS before the expiration of such 90-day period or, if the OTS has notified us
that it needs additional time to determine whether to approve such capital plan,
in which case such 90-day period shall be extended until the OTS determines
whether to approve such capital plan, such capital plan is approved by the OTS
upon the expiration of such extended period);
(k) if
the Company or any Subsidiary that holds Capital Stock of a Broker Dealer
Regulated Subsidiary that is a Significant Subsidiary shall become ineligible to
hold such Capital Stock by reason of a statutory disqualification or
otherwise;
(l)
the Commission shall revoke the registration of any Broker Dealer Regulated
Subsidiary that is a Significant Subsidiary as a broker-dealer under the
Exchange Act or any such Broker Dealer Regulated Subsidiary shall fail to
maintain such registration;
(m) the
Examining Authority (as defined in Rule 15c3-1) for any Broker Dealer Regulated
Subsidiary that is a Significant Subsidiary shall suspend (and shall not
reinstate within 10 days) or shall revoke such Broker Dealer Regulated
Subsidiary’s status as a member organization thereof;
(n) the
occurrence of any event of acceleration in a subordination agreement, as defined
in Appendix D to Rule 15c3-1 of the Exchange Act, to which the Company or any
Broker Dealer Regulated Subsidiary that is a Significant Subsidiary is a party;
or
(o) any
Subsidiary Guarantor that is a Significant Subsidiary repudiates its obligations
under its Note Guarantee or, except as permitted by the Indentures, any Note
Guarantee is determined to be unenforceable or invalid or shall for any reason
cease to be in full force and effect;
In
addition, the following events are defined as Events of Default under the 2017
Notes Indenture: (a) failure of the Company to comply with the
“—Maintenance of Capitalization” covenant of the 2017 Notes Indenture; and
(b) any Lien on property or assets with a Fair Market Value in excess of
$5,000,000 purported to be created under any Collateral Document shall cease to
be, or shall be asserted by the Company or any of its Subsidiaries not to be, a
valid and perfected Lien on any Collateral, with the priority required by the
applicable Collateral Document, except (i) as a result of the sale or other
disposition of the applicable Collateral in a transaction permitted under the
2017 Notes Indenture or (ii) as a result of the failure by the Trustee or a
collateral agent appointed by the trustee to maintain possession of any stock
certificates, promissory notes or other instruments delivered to it under the
Collateral Documents.
If an
Event of Default (other than an Event of Default specified in clause (g) or
(h) above that occurs with respect to the Company or any Subsidiary
Guarantor) occurs and is continuing under one of more of the Indentures, the
Trustee or the holders of at least 25% in aggregate principal amount of the
Notes under each Indenture, then outstanding, by written notice to the Company
(and to the Trustee if such notice is given by the holders), may, and the
Trustee at the request of such holders shall, declare the principal of, premium,
if any, and accrued interest on the applicable series of Notes to be immediately
due and payable. Upon a declaration of acceleration, such principal
of, premium, if any, and accrued interest shall be immediately due and
payable. In the event of a declaration of acceleration because an
Event of Default set forth in clause (e) above has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if the event of default triggering such Event of Default pursuant
to clause (e) shall be remedied or cured by the Company or the relevant
Significant Subsidiary or waived by the holders of the relevant Indebtedness
within 60 days after the declaration of acceleration with respect
thereto. If an Event of Default specified in clause (g) or
(h) above occurs with respect to the Company, the principal of, premium, if
any, and accrued interest on the Notes then outstanding shall automatically
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holder. The holders of at least a
majority in principal amount of the outstanding Notes of a series by written
notice to the Company and to the Trustee, may waive all past defaults and
rescind and annul a declaration of acceleration and its consequences with
respect to such series of Notes if (x) all existing Events of Default,
other than the nonpayment of the principal of, premium, if any, and interest on
the applicable series of Notes that have become due solely by such declaration
of acceleration, have been cured or waived and (y) the rescission would not
conflict with any judgment or decree of a court of competent
jurisdiction. For information as to the waiver of defaults, see
“—Modification and Waiver”.
The
holders of at least a majority in aggregate principal amount of the outstanding
Notes of a series 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 on the Trustee. However, the Trustee may refuse to
follow any direction that conflicts with law or the applicable Indenture, that
may involve the Trustee in personal liability, or that the Trustee determines in
good faith may be unduly prejudicial to the rights of holders of Notes of such
series not joining in the giving of such direction and may take any other action
it deems proper that is not inconsistent with any such direction received from
holders of Notes of such series. A holder may not pursue any remedy
with respect to the Indentures or the Notes unless:
(1) the
holder gives the Trustee written notice of a continuing Event of
Default;
(2) the
holders of at least 25% in aggregate principal amount of outstanding Notes under
the applicable Indenture make a written request to the Trustee to pursue the
remedy;
(3) such
holder or holders offer the Trustee indemnity satisfactory to the Trustee
against any costs, liability or expense;
(4) the
Trustee does not comply with the request within 60 days after receipt of the
request and the offer of indemnity; and
(5) during
such 60-day period, the holders of a majority in aggregate principal amount of
the outstanding Notes under the applicable Indenture do not give the Trustee a
direction that is inconsistent with the request.
However,
such limitations do not apply to the right of any holder of a Note to receive
payment of the principal of, premium, if any, or interest on, such Note or to
bring suit for the enforcement of any such payment, on or after the due date
expressed in the Notes, which right shall not be impaired or affected without
the consent of the holder.
Officers
of the Company must certify, on or before a date not more than 90 days after the
end of each fiscal year, that a review has been conducted of the activities of
the Company and its Restricted Subsidiaries and Regulated Subsidiaries and the
Company’s and its Restricted Subsidiaries’ and its Regulated Subsidiaries’
performance under the Indentures and that, to their knowledge, the Company has
fulfilled all obligations thereunder, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default and the nature
and status thereof. The Company will also be obligated to notify the
Trustee of any default or defaults in the performance of any covenants or
agreements under the Indentures.
Consolidation,
Merger and Sale of Assets
The
Company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its property
and assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions) to, any Person or permit any Person to merge
with or into it unless:
(1) it
shall be the continuing Person, or the Person (if other than it) formed by such
consolidation or into which it is merged or that acquired or leased such
property and assets of (the “Surviving Person”) shall be an entity organized and
validly existing under the laws of the United States of America or any
jurisdiction thereof and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, all of the Company’s obligations under
the Indentures and the Notes; provided, that if such
continuing Person or Person shall not be a corporation, such entity shall
organize or have a wholly-owned Subsidiary in the form of a corporation
organized and validly existing under the laws of the United States or any
jurisdiction thereof, and shall cause such corporation to expressly assume, as a
party to the supplemental indenture referenced above, as a co-obligor, each of
such continuing Person or Person’s obligations under the Indentures and the
Notes;
(2) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing;
(3) immediately
after giving effect to such transaction on a pro forma basis, the Company
or the Surviving Person, as the case may be, shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction;
(4) immediately
after giving effect to such transaction on a pro forma basis the Company
or the Surviving Person, as the case may be, could Incur at least $1.00 of
Indebtedness under the first paragraph of the “—Limitation on Indebtedness and
Issuances of Preferred Stock” covenant;
(5) it
delivers to the Trustee an Officers’ Certificate (attaching the arithmetic
computations to demonstrate compliance with clauses (3) and (4)) and
Opinion of Counsel, in each case stating that such consolidation, merger or
transfer and such supplemental indenture complies with this provision and that
all conditions precedent provided for herein relating to such transaction have
been complied with; and
(6) each
Subsidiary Guarantor, unless such Subsidiary Guarantor is the Person with which
the Company has entered into a transaction under this “—Consolidation, Merger
and Sale of Assets” section, shall have by amendment to its Note Guarantee
confirmed that its Note Guarantee shall apply to the obligations of the Company
or the Surviving Person in accordance with the Notes and the Indentures; provided, however, that
clauses (3) and (4) above do not apply if, in the good faith
determination of the Board of Directors of the Company, whose determination
shall be evidenced by a board resolution, the principal purpose of such
transaction is to change the state of organization or convert the form of
organization of the Company to another form, and any such transaction shall not
have as one of its purposes the evasion of the foregoing
limitations.
Defeasance
Defeasance
and Discharge
Each
Indenture provides that the Company will be deemed to have paid and will be
discharged from any and all obligations in respect of the Notes issued
thereunder on the 123rd day after the deposit referred to below, and the
provisions of the Indenture will no longer be in effect with respect to the
Notes issued thereunder (except for, among other matters, certain obligations to
register the transfer or exchange of the Notes, to replace stolen, lost or
mutilated Notes, to maintain paying agencies and to hold monies for payment in
trust) if, among other things:
(A) the
Company has deposited with the Trustee, in trust, money and/or U.S. Government
Obligations that through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Notes issued pursuant to such Indenture on the Stated Maturity of such payments
in accordance with the terms of the Indenture and the Notes issued
thereunder;
(B) the
Company has delivered to the Trustee (1) either (x) an Opinion of
Counsel to the effect that the holders of the applicable series of Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of the Company’s exercise of its option under this “—Defeasance” provision and
will be subject to federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such deposit, defeasance
and discharge had not occurred, which Opinion of Counsel must be based upon (and
accompanied by a copy of) a ruling of the Internal Revenue Service to the same
effect unless there has been a change in applicable federal income tax law after
the applicable Closing Date such that a ruling is no longer required or
(y) a ruling directed to the Trustee received from the Internal Revenue
Service to the same effect as the aforementioned Opinion of Counsel and
(2) an Opinion of Counsel to the effect that the defeasance trust is not
required to register as an investment company under the Investment Company Act
of 1940 and, after the passage of 123 days following the deposit, the trust fund
will not be subject to the effect of Section 547 of the United States
Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law;
and
(C) immediately
after giving effect to such deposit on a pro forma basis, no Event of
Default, or event that after the giving of notice or lapse of time or both would
become an Event of Default, shall have occurred and be continuing on the date of
such deposit or during the period ending on the 123rd day after the date of such
deposit, and such deposit shall not result in a breach or violation of, or
constitute a default under, any other agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound.
Defeasance
of Certain Covenants and Certain Events of Default
The
Indentures further provide that the provisions of the Indentures will no longer
be in effect with respect to clauses (3) and (4) under
“—Consolidation, Merger and Sale of Assets” and all the covenants described
herein under “—Covenants”, clause (c) under “—Events of Default” with
respect to such clauses (3) and (4) under “—Consolidation, Merger and
Sale of Assets”, clause (d) under “—Events of Default” with respect to such
other covenants and clauses (e) and (f) under “—Events of Default”
shall be deemed not to be Events of Default upon, among other things, the
deposit with the Trustee, in trust, of money and/or U.S. Government Obligations
that through the payment of interest and principal in respect thereof in
accordance with their terms will provide money in an amount sufficient to pay
the principal of, premium, if any, and accrued interest on the Notes on the
Stated Maturity of such payments in accordance with the terms of the Indentures
and the applicable series of Notes, the
satisfaction
of the provisions described in clauses (B)(2) and (C) of the preceding
paragraph and the delivery by the Company to the Trustee of an Opinion of
Counsel to the effect that, among other things, the holders will not recognize
income, gain or loss for federal income tax purposes as a result of such deposit
and defeasance of certain covenants and Events of Default and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred.
Defeasance
and Certain Other Events of Default
If the
Company exercises its option to omit compliance with certain covenants and
provisions of an Indenture with respect to a series of Notes as described in the
immediately preceding paragraph and the Notes of such series are declared due
and payable because of the occurrence of an Event of Default that remains
applicable, the amount of money and/or U.S. Government Obligations on deposit
with the Trustee will be sufficient to pay amounts due on such series of Notes
at the time of their Stated Maturity but may not be sufficient to pay amounts
due on such series of Notes at the time of the acceleration resulting from such
Event of Default. However, the Company will remain liable for such
payments, and any Subsidiary Guarantor’s Note Guarantee with respect to such
payments will remain in effect.
Satisfaction
and Discharge
Each
Indenture will be discharged and will cease to be of further effect as to all
Notes issued thereunder when:
(1) either:
(a) all
Notes issued thereunder that have been authenticated and delivered (other than
destroyed, lost or stolen Notes that have been replaced, Notes that are paid and
Notes for whose payment money or securities have theretofore been deposited in
trust and thereafter repaid to the Company) have been delivered to the Trustee
for cancellation and the Company has paid all sums payable under the Indentures;
or
(b) all
Notes issued thereunder mature within one year or are to be called for
redemption within one year and the Company has irrevocably deposited with the
Trustee, as trust funds in trust solely for the benefit of the holders, money or
U.S. Government Obligations sufficient, without consideration of any
reinvestment of interest, to pay principal, premium, if any, and accrued
interest on such series of Notes to the date of maturity or redemption and all
other sums payable under the Indenture;
(2) no
Default or Event of Default shall have occurred and be continuing on the date of
such deposit and such deposit will not result in a breach or violation of, or
constitute a default under such Indenture or any other instrument to which the
Company or any Subsidiary Guarantor is a party or by which the Company or any
Subsidiary Guarantor is bound; and
(3) the
Company has delivered irrevocable instructions to the Trustee to apply the
deposited money toward the payment of the Notes issued thereunder at maturity or
the redemption date, as applicable.
In
addition, the Company must deliver an Officers’ Certificate and an Opinion of
Counsel to the Trustee stating that all conditions precedent to satisfaction and
discharge have been satisfied.
Modification
and Waiver
Each
Indenture may be amended or supplemented, without the consent of any holder,
to:
(a) cure
any ambiguity, defect or inconsistency in the Indentures, provided that such amendments
or supplements shall not, in the good faith opinion of the Board of Directors of
the Company as evidenced by a board resolution, adversely affect the interest of
the holders in any material respect;
(b) comply
with the provisions described under “—Consolidation, Merger and Sale of Assets”
or “—Guarantees by Restricted Subsidiaries”;
(c) comply
with any requirements of the Securities and Exchange Commission in connection
with the qualification of the Indentures under the TIA;
(d) evidence
and provide for the acceptance of appointment by a successor
Trustee;
(e) make
any change that, in the good faith opinion of the Board of Directors as
evidenced by a board resolution, does not materially and adversely affect the
rights of any holder;
(f)
to provide for uncertificated Notes in addition to or in place of certificated
Notes issued thereunder;
(g) add
Guarantees with respect to the Notes issued thereunder in accordance with the
applicable provisions of the Indentures; or
(h) secure
the Notes;
In
addition, each Senior Notes Indenture may be amended or supplemented without the
consent of any holder to: (a) provide for the issuance of
Additional Notes of the series of Notes issued thereunder in accordance with the
respective Indentures; or (b) conform any provisions contained in the
Indentures to the “Description of Notes” sections contained in certain
offering documents as described in the Indentures.
Modifications
and amendments of each Indenture may be made by the Company and the Trustee with
the consent of the holders of not less than a majority in aggregate principal
amount of the outstanding Notes issued thereunder; provided, however, that no
such modification or amendment may, without the consent of each holder affected
thereby:
(1) change
the Stated Maturity of the principal of, or any installment of interest on, any
Note issued thereunder;
(2) reduce
the principal amount of, or premium, if any, or interest on, any Note issued
thereunder;
(3) change
the optional redemption dates or optional redemption prices of the Notes issued
thereunder from that stated under “—Optional Redemption”;
(4) change
the place or currency of payment of principal of, or premium, if any, or
interest on, any Note issued thereunder;
(5) impair
the right to institute suit for the enforcement of any payment on or after the
Stated Maturity (or, in the case of a redemption, on or after the Redemption
Date) of any Note issued thereunder;
(6) waive
a default in the payment of principal of, premium, if any, or interest on the
Notes issued thereunder or modify any provision of such Indenture relating to
modification or amendment thereof;
(7) reduce
the above-stated percentage of outstanding Notes of such series, the consent of
whose holders is necessary to modify or amend the applicable
indenture;
(8) release
any Subsidiary Guarantor from its Notes Guarantee, except as provided in such
Indenture;
(9) reduce
the percentage or aggregate principal amount of outstanding Notes issued
thereunder the consent of whose holders is necessary for waiver of compliance
with certain provisions of the Indenture or for waiver of certain
defaults.
In
addition, under the 2017 Notes Indenture, the amount of 2017 Notes issued
pursuant to the 2017 Notes Indenture cannot be increased above $1,936,000,000
(plus any capitalized interest) without the consent of each holder of the 2017
Notes.
No
Liability of Directors, Officers, Employees, Incorporators, Members and
Stockholders.
No
director, officer, employee, incorporator, member or stockholder of the Company
or any Subsidiary Guarantor, as such, will have any liability for any
obligations of the Company or such Subsidiary Guarantor under
the
Notes, any Note Guarantee or the Indentures or for any claim based on, in
respect of, or by reason of, such obligations. Each holder of Notes
by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the
Notes.
The
Trustee
Except
during the continuance of a Default, the Trustee will not be liable, except for
the performance of such duties as are specifically set forth in the
Indentures. If an Event of Default has occurred and is continuing,
the Trustee will use the same degree of care and skill in its exercise of the
rights and powers vested in it under the Indentures as a prudent person would
exercise under the circumstances in the conduct of such person’s own
affairs.
The
Indentures and the provisions of the TIA incorporated by reference therein
contain limitations on the rights of the Trustee, should it become a creditor of
the Company, to obtain payment of claims in certain cases or to realize on
certain property received by it in respect of any such claims, as security or
otherwise. The Trustee is permitted to engage in other transactions;
provided, however, that
if it acquires any conflicting interest, it must eliminate such conflict or
resign.
Book-Entry;
Delivery and Form
The Notes
are represented in the form of global notes in fully registered book-entry form
without interest coupons that are on deposit with the Trustee as custodian for
The Depository Trust Company, also referred to as DTC, in New York, New York and
registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant as described below.
Except as
set forth below, the global notes may be transferred, in whole but not in part,
only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the global notes may not be
exchanged for notes in certificated form except in the limited circumstances
described below. See “—Exchange of Book-Entry Notes for Certificated
Notes”. In addition, transfer of beneficial interests in the global
notes will be subject to the applicable rules and procedures of DTC and its
direct or indirect participants (including, if applicable, those of Euroclear
and Clearstream), which may change from time to time.
The Notes
may be presented for registration of transfer and exchange at the offices of the
registrar.
Depositary
Procedures
DTC has
advised the Company that DTC is a limited-purpose trust company created to hold
securities for its participating organizations and to facilitate the clearance
and settlement of transactions in those securities between the Participants
through electronic book-entry changes in accounts of the
participants. The participants include securities brokers and dealers
(including the initial purchasers), banks, trust companies, clearing
corporations and certain other organizations. Access to DTC’s system
is also available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. Persons who are not
participants may beneficially own securities held by or on behalf of DTC only
through the participants or the indirect participants. The ownership
interest and transfer of ownership interest of each actual purchaser of each
security held by or on behalf of DTC are recorded on the records of the
participants and the indirect participants.
DTC has
also advised the Company that, pursuant to procedures established by
it,
(1) upon
deposit of the global notes, DTC will credit the accounts of participants
designated by the beneficiaries with portions of the principal amount of the
global notes; and
(2) ownership
of such interests in the global notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC (with
respect to the participants) or by the participants and the indirect
participants (with respect to other owners of beneficial interests in the global
notes).
All
interests in a global note, including those held through Euroclear or
Clearstream, may be subject to the procedures and requirements of
DTC. Those interests held through Euroclear or Clearstream may also
be subject to the procedures and requirements of such system.
The laws
of some states require that certain persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to
transfer beneficial interests in a global note to such persons may be limited to
that extent. Because DTC can act only on behalf of the participants,
which in turn act on behalf of the indirect participants and certain banks, the
ability of a person having beneficial interests in a global note to pledge such
interests to persons or entities that do not participate in the DTC system or
otherwise take actions in respect of such interests, may be affected by the lack
of a physical certificate evidencing such interests.
Except
as described below, owners of interests in the global notes will not have notes
registered in their names, will not receive physical delivery of notes in
certificated form and will not be considered the registered owners or holders
thereof under the indenture for any purpose.
Payments
in respect of the principal of (and premium, if any) and interest on a global
note registered in the name of DTC or its nominee will be payable to DTC or its
nominee in its capacity as the registered holder under the
indentures. Under the terms of the indenture, the Company and the
Trustee will treat the persons in whose names the notes, including the global
notes, are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently,
none of the Company, the placement agents, the Trustee nor any agent of the
Company, the placement agents or the Trustee has or will have any responsibility
or liability for (1) any aspect or accuracy of DTC’s records or any
participant’s or indirect participant’s records relating to the beneficial
ownership or (2) any other matter relating to the actions and practices of
DTC or any of the participants or the indirect participants.
The
Company understands that DTC’s current practice, upon receipt of any payment in
respect of securities such as the notes (including principal and interest), is
to credit the accounts of the relevant participants with the payment on the
payment date, in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the relevant security as shown on the records
of DTC. Payments by the participants and the indirect participants to
the beneficial owners of notes will be governed by standing instructions and
customary practices and will not be the responsibility of DTC, the Trustee or
the Company. None of the Company nor the Trustee will be liable for
any delay by DTC or any of the participants in identifying the beneficial owners
of the notes, and the Company and the Trustee may conclusively rely on and will
be protected in relying on instructions from DTC or its nominee as the
registered owner of the global notes for all purposes.
Except
for trades involving only Euroclear and Clearstream participants, interests in
the global notes will trade in DTC’s same-day funds settlement system and
secondary market trading activity in such interests will therefore settle in
immediately available funds, subject in all cases to the rules and procedures of
DTC and the participants.
Transfers
between participants in DTC will be effected in accordance with DTC’s procedures
and will be settled in same-day funds. Transfers between
accountholders in Euroclear and Clearstream will be effected in the ordinary way
in accordance with their respective rules and operating procedures.
Subject
to compliance with the transfer restrictions applicable to the Notes described
herein, cross-market transfers between the accountholders in DTC on the one hand
and directly or indirectly through Euroclear or Clearstream accountholders, on
the other hand, will be effected through DTC in accordance with DTC’s rules on
behalf of Euroclear or Clearstream, as the case may be, by its respective
depository; however, such cross-market transactions will require delivery of
instructions to Euroclear or Clearstream, as the case may be, by the
counterparty in such system in accordance with the rules and procedures and
within the established deadlines (Brussels time) of such
system. Euroclear or Clearstream, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depository to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant global note in DTC, and making
or receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear or Clearstream accountholders
may not deliver instructions directly to the depositories for Euroclear or
Clearstream.
Because
of time zone differences, the securities account of a Euroclear or Clearstream
accountholder purchasing an interest in a global note from an accountholder in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear or Clearstream)
immediately following the settlement date of DTC. Cash received in
Euroclear or Clearstream as a result of sales of interests in a global note by
or through a Euroclear or Clearstream accountholder to a participant in DTC will
be received with value on the settlement date of DTC but will be available in
the relevant Euroclear or Clearstream cash account only as of the business day
for Euroclear or Clearstream following DTC’s settlement date.
The
Company understands that DTC will take any action permitted to be taken by a
holder of notes only at the direction of one or more participants in whose
account with DTC interests in the global notes are credited and only in respect
of such portion of the aggregate principal amount at maturity of the notes as to
which such participant or participants has or have given such
direction. However, if any of the events described under “—Exchange
of Book-Entry Notes for Certificated Notes” occurs, DTC reserves the right to
exchange the global notes for notes in certificated form and to distribute such
notes to its participants.
The
information in this section concerning DTC, Euroclear and Clearstream and their
book-entry systems has been obtained from sources that the Company believes to
be reliable, but the Company takes no responsibility for the accuracy
thereof.
Although
DTC, Euroclear and Clearstream have agreed to the foregoing procedures to
facilitate transfers of interests in the global notes among accountholders in
DTC and accountholders of Euroclear and Clearstream, they are under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the
initial purchasers or the Trustee nor any agent of the Company, the initial
purchasers or the Trustee will have any responsibility for the performance by
DTC, Euroclear or Clearstream or their respective participants, indirect
participants or accountholders of their respective obligations under the rules
and procedures governing their operations.
Exchange
of Book-Entry Notes for Certificated Notes
A global
note is exchangeable for definitive notes in registered certificated form
if:
(1) DTC
(A) notifies the Company that it is unwilling or unable to continue as
depository for the global note and the Company thereupon fails to appoint a
successor depository or (B) has ceased to be a clearing agency registered
under the Exchange Act; or
(2) there
shall have occurred and be continuing a Default or an Event of Default with
respect to the notes.
In all
the above cases, certificated notes delivered in exchange for any global note or
beneficial interests therein will be registered in the names, and issued in any
approved denominations, requested by or on behalf of DTC (in accordance with its
customary procedures).
Definitions
Set forth
below are defined terms used in the covenants and other provisions of the
Indentures. Reference is made to the Indentures for other capitalized
terms used in this “Description of Other Indebtedness” for which no definition
is provided. Please note that there are differences in the
definitions among the various series of Notes. Although some of these
differences have been described below, we urge holders of the Notes to read the
Indentures because they (and not this description) define their rights as
holders of the Notes.
“2011 Notes” means 8.0% Senior
Notes due 2011 issued by the Company pursuant to the 2011 Notes Indenture,
together with any exchange notes issued therefor.
“2011 Notes Indenture” means
the indenture dated as of June 8, 2004, between the Company and The Bank of
New York, as trustee, as amended or supplemented from time to time, including
the supplemental indentures dated September 19, 2005, November 1, 2006
and July 9, 2009.
“2013 Notes” means 7.375%
Senior Notes due 2013 issued by the Company pursuant to the 2013 Notes
Indenture, together with any exchange notes issued therefor.
“2013 Notes Indenture” means
the indenture dated as of September 19, 2005 between the Company and The
Bank of New York, as trustee, as amended or supplemented from time to time,
including the supplemental indentures dated November 10, 2005 and
November 1, 2006.
“2015 Notes” means 7.875%
Senior Notes due 2015 issued by the Company pursuant to the 2015 Notes
Indenture, together with any exchange notes issued therefor.
“2015 Notes Indenture” means
the indenture dated as of November 22, 2005 between the Company and The
Bank of New York, as trustee, as amended or supplemented from time to time,
including the supplemental indenture dated November 1, 2006.
“2017 Notes” means 12.5%
Springing Notes due 2017 (plus any Capitalized Interest) issued by the Company
pursuant to the 2017 Notes Indenture.
“2017 Notes Indenture” means
the indenture dated as of November 29, 2007 between the Company and The
Bank of New York, as trustee, as amended or supplemented from time to time,
including the supplemental indentures dated December 27, 2007,
January 18, 2008 and July 9, 2009.
“Acquired Indebtedness” means
Indebtedness of a Person existing at the time such Person becomes a Restricted
Subsidiary or Indebtedness of a Restricted Subsidiary assumed in connection with
an Asset Acquisition by such Restricted Subsidiary; provided such Indebtedness
was not Incurred in connection with or in contemplation of such Person becoming
a Restricted Subsidiary or such Asset Acquisition.
“Adjusted Consolidated Net
Income” means, for any period, the aggregate net income (or loss) of the
Company and its Restricted Subsidiaries and Regulated Subsidiaries for such
period determined in conformity with GAAP; provided that the following
items shall be excluded in computing Adjusted Consolidated Net Income (without
duplication):
(1) the
net income (or loss) of any Person that is not a Restricted Subsidiary or
Regulated Subsidiary, except that the Company’s equity in the net income of any
such Person for such period (to the extent not otherwise excluded pursuant to
clauses (2) through (6) below) will be included up to the aggregate
amount of cash actually distributed by such Person during such period to the
Company or to its Restricted Subsidiaries or Regulated Subsidiaries (less
minority interest therein) as a dividend or other distribution;
(2) the
net income (or loss) of any Person accrued prior to the date it becomes a
Restricted Subsidiary or Regulated Subsidiary or is merged into or consolidated
with the Company or any of its Restricted Subsidiaries or Regulated Subsidiaries
or all or substantially all of the property and assets of such Person are
acquired by the Company or any of its Restricted Subsidiaries or Regulated
Subsidiaries;
(3) the
net income of any Restricted Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by such Restricted Subsidiary of
such net income is not at the time permitted by the operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to such Restricted
Subsidiary;
(4) the
net income of any Regulated Subsidiary (x) to the extent that the
declaration or payment of dividends or similar distributions by such Regulated
Subsidiary of such net income is not at the time permitted by the operation of
the terms of its charter or any agreement or instrument with a Person, other
than such Regulated Subsidiaries applicable regulatory authorities, or any
judgment or decree applicable to such Regulated Subsidiary (y) other than
to the extent that such Regulated Subsidiary reasonably believes, in good faith,
that such net income could be distributed, declared or paid as a dividend or
similar distribution without causing such Regulated Subsidiary to fail to be at
least “adequately capitalized” as defined in the regulations of applicable
regulatory authorities, or to meet minimum capital requirements imposed by
applicable regulatory authorities;
(5) any
gains or losses (on an after-tax basis) attributable to Asset Sales or Regulated
Sales;
(6) solely
for purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of the “—Limitation on
Restricted Payments” covenant, any amount paid or accrued as dividends on
Preferred Stock of the Company owned by Persons other than the Company and any
of its Restricted Subsidiaries and Regulated Subsidiaries;
(7) all
extraordinary gains and, solely for purposes of calculating the Consolidated
Fixed Charge Coverage Ratio, extraordinary losses;
(8) the
cumulative effect of changes in accounting principles; and
(9) the
net after-tax effect of impairment charges related to goodwill and other
intangible assets.
“Affiliate” means, as applied
to any Person, any other Person directly or indirectly controlling, controlled
by, or under direct or indirect common control with, such Person. For
purposes of this definition, “control” (including, with correlative meanings,
the terms “controlling”, “controlled by” and “under common control with”), as
applied to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise. Notwithstanding the foregoing, in no event will Citadel be
deemed to be an Affiliate of the Company under the 2017 Notes
Indenture.
“Asset Acquisition” means
(1) an investment by the Company or any of its Restricted Subsidiaries or
Regulated Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or a Regulated Subsidiary or shall be merged into
or consolidated with the Company or any of its Restricted Subsidiaries or
Regulated Subsidiaries; provided that such Person’s
primary business is a Related Business or (2) an acquisition by the Company
or any of its Restricted Subsidiaries or Regulated Subsidiaries of the property
and assets of any Person other than the Company or any of its Restricted
Subsidiaries or Regulated Subsidiaries that constitute substantially all of a
division or line of business of such Person that is a Related
Business.
“Asset Sale” means any sale,
transfer or other disposition (including by way of merger, consolidation or
Sale-Leaseback Transaction) in one transaction or a series of related
transactions by the Company or any of its Restricted Subsidiaries to any Person
other than the Company or any of its Restricted Subsidiaries or Regulated
Subsidiaries of:
(1) all
or any of the Capital Stock of any Restricted Subsidiary;
(2) all
or substantially all of the property and assets of an operating unit or business
of the Company or any of its Restricted Subsidiaries; or
(3) any
other property and assets (other than the Capital Stock or other Investment in
an Unrestricted Subsidiary) of the Company or any of its Restricted Subsidiaries
outside the ordinary course of business of the Company or such Restricted
Subsidiary, and, in each case, that is not governed by the provisions of the
Indentures applicable to mergers, consolidations and sales of assets of the
Company; provided that
“Asset Sale” shall not include:
(a) sales
or other dispositions of Investment Securities, inventory, receivables and other
current assets;
(b) sales,
transfers or other dispositions of assets constituting a Permitted Investment or
Restricted Payment permitted to be made under the “Limitation on Restricted
Payments” covenant;
(c) sales,
transfers or other dispositions of assets with a Fair Market Value not in excess
of $2.5 million in any transaction or series of related
transactions;
(d) any
sale, transfer, assignment or other disposition of any property equipment that
has become damaged, worn out, obsolete or otherwise unsuitable for use in
connection with the business of the Company or its Restricted
Subsidiaries;
(e) an
issuance of Capital Stock by a Restricted Subsidiary or the sale, transfer or
other disposition by the Company or a Restricted Subsidiary of the Capital Stock
of a Restricted Subsidiary or Regulated Subsidiary, in each case to the Company,
a Wholly Owned Restricted Subsidiary or a Wholly Owned Regulated Subsidiary;
or
(f) Permitted
Liens, or foreclosure on assets as a result of Liens permitted under the
“—Limitation on Liens” covenant.
“Average Life” means, at any
date of determination with respect to any debt security, the quotient obtained
by dividing (1) the sum of the products of (a) the number of years
from such date of determination to the dates of each successive scheduled
principal payment of such debt security and (b) the amount of such
principal payment by (2) the sum of all such principal
payments.
“Bank Regulated Subsidiary”
means (i) ETB Holdings, Inc. (provided that such entity is a savings and
loan holding company, as defined under the Home Owners’ Loan Act, as amended, or
a bank holding company, as defined under the Bank Holding Company Act, as
amended, but in no event shall such entity mean, or include, the Company),
(ii) any direct or indirect insured depository institution subsidiary of
the Company that is regulated by foreign, federal or state banking regulators,
including, without limitation, the OTS and the FDIC or (iii) any Subsidiary
of a Bank Regulated Subsidiary all of the Common Stock of which is owned by such
Bank Regulated Subsidiary and the sole purpose of which is to issue trust
preferred or similar securities where the proceeds of the sale of such
securities are invested in such Bank Regulated Subsidiary and where such
proceeds would be treated as Tier I capital were such Bank Regulated Subsidiary
a bank holding company regulated by the Board of Governors of the Federal
Reserve System.
“Board of Directors” means,
with respect to any Person, the Board of Directors of such Person or any duly
authorized committee of such Board of Directors, or any other group performing
comparable functions.
“Broker Dealer Regulated
Subsidiary” means any direct or indirect subsidiary of the Company that
is registered as a broker dealer pursuant to Section 15 of the Exchange Act
or that is regulated as a broker dealer or underwriter under any foreign
securities law.
“Business Day” means any day
except a Saturday, Sunday or other day on which commercial banks in New York
City or in the city where the Corporate Trust Office of the Trustee is located
are authorized by law to close.
“Capital Stock” means, with
respect to any Person, any and all shares, interests, participations or other
equivalents (however designated, whether voting or non-voting) in equity of such
Person, whether outstanding on the applicable Closing Date or issued thereafter,
including, without limitation, all Common Stock and Preferred
Stock.
“Capitalized Interest” has the
meaning set forth under “—Interest” under the 2017 Notes Indenture.
“Capitalized Lease” means, as
applied to any Person, any lease of any property (whether real, personal or
mixed) of which the discounted present value of the rental obligations of such
Person as lessee, in conformity with GAAP, is required to be capitalized on the
balance sheet of such Person.
“Capitalized Lease
Obligations” means the discounted present value of the rental obligations
under a Capitalized Lease.
“Change of Control” means such
time as:
(1) a
“person” or “group” (within the meaning of Sections 13(d) and 14(d)(2) of the
Exchange Act), becomes the ultimate “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act) of more than 50% of the total voting power of the
Voting Stock of the Company on a fully diluted basis; or
(2) individuals
who on the applicable Closing Date constitute the Board of Directors (together
with any new directors whose election by the Board of Directors or whose
nomination by the Board of Directors for election by the Company’s stockholders
was approved by a vote of at least a majority of the members of the Board of
Directors then in office who either were members of the Board of Directors on
such Closing Date or whose election or
nomination
for election was previously so approved) cease for any reason to constitute a
majority of the members of the Board of Directors then in office;
or
Under the
2017 Notes Indenture, “Change of Control” also includes:
(3) the
adoption of a plan of liquidation of the Company; or
(4) a
voluntary sale, conveyance, exchange or transfer of all or substantially all of
the property and assets of the Company and its Subsidiaries on a consolidated
basis in one transaction or a series of related transactions; or
(5) the
consummation of any merger or business combination if, after such transaction,
holders of the Company’s Voting Stock before the transaction do not hold a
majority of the voting power of the Company’s Voting Stock immediately after the
transaction.
“Change of Control Agreement”
means a definitive agreement the consummation of which will result in a Change
of Control.
“Citadel” means Citadel
Limited Partnership and/or any of its Affiliates.
“Closing Date” for any series
of Notes means the date on which such Notes were originally issued under their
respective Indentures. For the 2011 Notes, the Closing Date is
June 8, 2004, for the 2013 Notes, the Closing Date is September 19,
2005, for the 2015 Notes, the Closing Date is November 22, 2005, and for
the 2017 Notes, the Closing Date is November 29, 2007.
“Collateral” means all
property (whether tangible or intangible, real or personal), assets and Capital
Stock of the Company and its Subsidiaries in which a security interest is
granted as provided in “—Covenants—Springing Lien”, excluding, however, the
Excluded Collateral.
“Collateral Agent” means the
Person appointed as such in accordance with the terms of “—Collateral Documents
and Security”.
“Collateral Documents” means
each and every agreement, document and instrument executed by the Company or any
of its Subsidiaries for purposes of giving effect to the provisions described in
“—Covenants—Springing Lien”, including the Intercreditor Agreement.
“Common Stock” means, with
respect to any Person, any and all shares, interests, participations or other
equivalents (however designated, whether voting or non-voting) of such Person’s
equity, other than Preferred Stock of such Person, whether outstanding on the
applicable Closing Date or issued thereafter, including, without limitation, all
series and classes of such common stock.
“Consolidated EBITDA” means,
for any period, Adjusted Consolidated Net Income for such period plus, to the
extent such amount was deducted in calculating such Adjusted Consolidated Net
Income:
(1) Consolidated
Interest Expense;
(2) income
taxes;
(3) depreciation
expense;
(4) amortization
expense; and
(5) all
other non-cash items reducing Adjusted Consolidated Net Income (other than items
that will require cash payments and for which an accrual or reserve is, or is
required by GAAP to be, made), less all non-cash items increasing Adjusted
Consolidated Net Income, all as determined on a consolidated basis for the
Company, its Restricted Subsidiaries and its Regulated Subsidiaries in
conformity with GAAP; provided that, if any
Restricted Subsidiary or Regulated Subsidiary is not a Wholly Owned Restricted
Subsidiary, or Wholly Owned Regulated Subsidiary, as the case may be,
Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in
accordance with GAAP) by an amount equal to (A) the amount of the Adjusted
Consolidated Net Income
attributable
to such Restricted Subsidiary or Regulated Subsidiary multiplied by (B) the
percentage of Common Stock of such Restricted Subsidiary or Regulated Subsidiary
not owned on the last day of such period by the Company or any of its Restricted
Subsidiaries or any of its Wholly Owned Regulated Subsidiaries.
“Consolidated Fixed Charge Coverage
Ratio” means, with respect to any Person, the ratio of Consolidated
EBITDA of such Person during the most recent four full fiscal quarters (the
“Four Quarter Period”), for which financial statements are available, ending on
or prior to the date of the transaction giving rise to the need to calculate the
Consolidated Fixed Charge Coverage Ratio (the “Transaction Date”), to
Consolidated Fixed Charges of such Person for the Four Quarter
Period. In addition to and without limitation of the foregoing, for
purposes of this definition, Consolidated EBITDA and Consolidated Fixed Charges
shall be calculated after giving effect on a pro forma basis for the period of
such calculation to:
(1) the
incurrence or repayment of any Indebtedness of such Person or any of its
Restricted Subsidiaries or Regulated Subsidiaries (and the application of the
proceeds thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes pursuant to working
capital facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be (and
the application of the proceeds thereof), occurred on the first day of the Four
Quarter Period; and
(2) any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of such
Person or one of its Restricted Subsidiaries or Regulated Subsidiaries
(including any Person who becomes a Restricted Subsidiary or Regulated
Subsidiaries as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA attributable to the assets which are the subject of the
Asset Acquisition or Asset Sale during the Four Quarter Period) occurring during
the Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or
Asset Acquisition (including the incurrence, assumption or liability for any
such Acquired Indebtedness) occurred on the first day of the Four Quarter
Period.
If such
Person or any of its Restricted Subsidiaries or Regulated Subsidiaries directly
or indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if such
Person or any Restricted Subsidiary of such Person had directly incurred or
otherwise assumed such guaranteed Indebtedness. Furthermore, in
calculating “Consolidated Fixed Charges”:
(3) interest
on outstanding Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date;
(4) if
interest on any Indebtedness actually incurred on the Transaction Date may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other rates, then the
interest rate in effect on the Transaction Date will be deemed to have been in
effect during the Four Quarter Period; and
(5) notwithstanding
clause (1) above, interest on Indebtedness determined on a fluctuating
basis, to the extent such interest is covered by agreements relating to Interest
Swap Obligations, shall be deemed to accrue at the rate per annum resulting
after giving effect to the operation of such agreements.
“Consolidated Fixed Charges”
means, with respect to any Person for any period, the sum, without duplication,
of (1) Consolidated Interest Expense, plus (2) the product of
(A) the amount of all dividend payments on any series of Preferred Stock of
such Person (other than (x) dividends paid in Qualified Capital Stock and
(y) dividends on the Preferred Stock, the net proceeds of which will be
used for the Distribution, to the extent they are paid in kind or accrete,
except to the extent they constitute Disqualified Capital Stock) paid, accrued
or scheduled to be paid or accrued during such period times (B) a fraction,
the numerator of which is one and the denominator of which is one minus the then
current effective consolidated federal, state and local tax rate of such Person,
expressed as a decimal.
“Consolidated Interest
Expense” means, for any period, the aggregate amount of interest in
respect of Indebtedness (including, without limitation, amortization of original
issue discount on any Indebtedness and the interest portion of any deferred
payment obligation of the type described under clause (4) of the definition
of “Indebtedness”, calculated in accordance with the effective interest method
of accounting; all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers’ acceptance financing; Indebtedness
that is Guaranteed or secured by the Company, any of its Restricted
Subsidiaries, or any of its Regulated Subsidiaries), and all but the principal
component of rentals in respect of Capitalized Lease Obligations paid, accrued
or scheduled to be paid or to be accrued by the Company, its Restricted
Subsidiaries and its Regulated Subsidiaries during such period; excluding,
however:
(1) any
amount of such interest of any Restricted Subsidiary or Regulated Subsidiary if
the net income of such Restricted Subsidiary or Regulated Subsidiary is excluded
in the calculation of Adjusted Consolidated Net Income pursuant to clause
(3) or (4) of the definition thereof (but only in the same proportion
as the net income of such Restricted Subsidiary or Regulated Subsidiary is
excluded from the calculation of Adjusted Consolidated Net Income pursuant to
clause (3) or (4) of the definition thereof) and
(2) (a) For
the 2011 Notes, any premiums, fees and expenses (and any amortization thereof)
payable in connection with the offering of the 2011 Notes, all as determined on
a consolidated basis (without taking into account Unrestricted Subsidiaries) in
conformity with GAAP, and (3) interest payments on trust preferred or
similar securities issued by a Regulated Subsidiary to the extent the proceeds
of the sale of such securities are invested in a Regulated
Subsidiary.
(b) For the 2013 Notes, any premiums, fees and expenses (and any
amortization thereof) payable in connection with the offering of the 2013 Notes
and the 2011 Notes, all as determined on a consolidated basis (without taking
into account Unrestricted Subsidiaries) in conformity with GAAP, and
(3) interest payments on trust preferred or similar securities issued by a
Regulated Subsidiary to the extent the proceeds of the sale of such securities
are invested in a Regulated Subsidiary.
(c) For the 2015 Notes, any premiums, fees and expenses (and any
amortization thereof) payable in connection with the offering of the 2015 Notes,
the 2013 Notes and the 2011 Notes, all as determined on a consolidated basis
(without taking into account Unrestricted Subsidiaries) in conformity with GAAP,
and (3) interest payments on trust preferred or similar securities issued
by a Regulated Subsidiary to the extent the proceeds of the sale of such
securities are invested in a Regulated Subsidiary.
(d) For the 2017 Notes, any premiums, fees and expenses (and any
amortization thereof) payable in connection with the offering of the Notes as
determined on a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP, and (3) interest payments on trust
preferred or similar securities issued by a Regulated Subsidiary to the extent
the proceeds of the sale of such securities are invested in a Regulated
Subsidiary.
“Consolidated Net Worth”
means, at any date of determination, stockholders’ equity as set forth on the
most recently available quarterly or annual consolidated balance sheet of the
Company and its Restricted Subsidiaries and Regulated Subsidiaries (which shall
be as of a date not more than 90 days prior to the date of such computation, and
which shall not take into account Unrestricted Subsidiaries), plus, to the
extent not included, any Preferred Stock of the Company, less any amounts
attributable to Disqualified Stock or any equity security convertible into or
exchangeable for Indebtedness, the cost of treasury stock and the principal
amount of any promissory notes receivable from the sale of the Capital Stock of
the Company or any of its Restricted Subsidiaries or Regulated Subsidiaries,
each item to be determined in conformity with GAAP (excluding the effects of
foreign currency exchange adjustments under Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 52).
“Credit Facility” means a
credit facility of, or Guaranteed by, the Company and used by the Company, its
Restricted Subsidiaries or its Regulated Subsidiaries for working capital and
other general corporate purposes together with the related documents (including,
without limitation, any guarantee agreements and security documents), as such
agreements may be amended (including any amendment and restatement),
supplemented, replaced or otherwise modified from time to time.
“Default” means any event that
is, or after notice or passage of time or both would be, an Event of
Default.
“Disqualified Stock” means any
class or series of Capital Stock of any Person that by its terms or otherwise is
(1) required to be redeemed prior to a date that is 123 days following the
Stated Maturity of the Notes, (2) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (3) convertible into or exchangeable for Capital Stock
referred to in clause (1) or (2) above or Indebtedness having a
scheduled maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an “asset sale” or “change of control”
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the “asset sale” or “change of control” provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in the “—Limitation on Asset Sales”
and “—Repurchase of Notes upon a Change of Control” covenants and such Capital
Stock specifically provides that such Person will not repurchase or redeem any
such stock pursuant to such provision prior to the Company’s repurchase of such
Notes as are required to be repurchased pursuant to the “—Limitation on Asset
Sales” and “—Repurchase of Notes upon a Change of Control”
covenants.
“Domestic Subsidiary” means
any Restricted Subsidiary of the Company with total assets as determined under
GAAP of at least $100,000, as set forth on the most recently available quarterly
or annual consolidated balance sheet of such Restricted Subsidiary other than a
Restricted Subsidiary that is (1) a Foreign Subsidiary or (2) a
Subsidiary of any such Foreign Subsidiary.
“Exchange Act” means the
Securities Exchange Act of 1934, as amended.
“Excluded Collateral” means
those assets of the Company and its Subsidiaries as to which
(a) (i) Citadel, if Citadel holds a majority in principal amount of
outstanding 2017 Notes or (ii) the Company’s Board of Directors if Citadel
does not hold a majority in principal amount of outstanding 2017 Notes, as
applicable, shall have determined in good faith that the costs of obtaining a
security interest are unreasonably excessive in relation to the benefits to the
holders of the security afforded thereby (which determination shall be delivered
to the Trustee or a collateral agent appointed by the trustee to maintain
possession of any stock certificates, promissory notes or other instruments
delivered to it under the Collateral Documents) or (b) the grant of
security interest (x) is prohibited by or requires approval under the
applicable law, regulation or rule including those of self-regulatory
organizations, or (y) is prohibited by a contractual arrangement existing
on the Closing Date for the 2017 Notes or any contractual arrangement entered
into after the Closing Date for the 2017 Notes and approved by the holders of a
majority in principal amount of outstanding 2017 Notes.
“Fair Market Value” means the
price that would be paid in an arm’s-length transaction between an informed and
willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy which, if determined by the Board of Directors as
evidenced by a Board Resolution, shall be conclusively determined.
“FDIC” means the Federal
Deposit Insurance Corporation.
“Final Closing” is defined in
the Investment Agreement.
“Foreign Subsidiary” means any
Subsidiary of the Company that is an entity which is a controlled foreign
corporation under Section 957 of the Internal Revenue Code or any
subsidiary that is otherwise organized under the laws of a jurisdiction other
than the United States, any state thereof, or the District of
Columbia.
“GAAP” means generally
accepted accounting principles in the United States of America as in effect as
of the applicable Closing Date for each series of Notes, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations contained
or referred to in the Indentures shall be computed in conformity with GAAP
applied on a consistent basis, except that calculations made for purposes of
determining compliance with the terms of the covenants and with
other
provisions of the Indenture shall be made without giving effect to
(1) (a) for the 2011 Notes, the amortization of any expenses incurred
in connection with the offering of the 2011 Notes; (b) for the 2013 Notes,
the amortization of any expenses incurred in connection with the offering of the
2011 Notes and 2013 Notes; (c) for the 2015 Notes, the amortization of any
expenses incurred in connection with the offering of the 2011 Notes, 2013 Notes
and 2015 Notes; or (d) for the 2017 Notes, the amortization of any expenses
incurred in connection with the offering of the Notes; and (2) except as
otherwise provided, the amortization or writedown of any amounts required or
permitted by Accounting Principles Board Opinion Nos. 16 and 17 and Statement of
Financial Accounting Standards No. 142.
“Guarantee” means any
obligation, contingent or otherwise, of any Person directly or indirectly
guaranteeing any Indebtedness of any other Person and, without limiting the
generality of the foregoing, any obligation, direct or indirect, contingent or
otherwise, of such Person (1) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Indebtedness of such other Person
(whether arising by virtue of partnership arrangements, or by agreements to
keep-well, to purchase assets, goods, securities or services (unless such
purchase arrangements are on arm’s-length terms and are entered into in the
ordinary course of business), to take-or-pay, or to maintain financial statement
conditions or otherwise) or (2) entered into for purposes of assuring in
any other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided that the term
“Guarantee” shall not include endorsements for collection or deposit in the
ordinary course of business, letters of credit issued by a Bank Regulated
Subsidiary in the ordinary course of its business or STAMP or other signature
guarantees made by a Regulated Subsidiary in the ordinary course of its
business. The term “Guarantee” used as a verb has a corresponding
meaning.
“Hedging Obligations” means,
with respect to any Person, the obligations of such person under
(i) currency exchange, interest rate, commodity, credit or equity swap,
forward or futures agreements, currency exchange, interest rate, commodity,
credit or equity cap agreements, currency exchange, interest rate, commodity,
credit or equity collar agreements, or currency exchange, interest rate,
commodity, credit or equity puts or calls, and (ii) other agreements or
arrangements designed to protect such Person, directly or indirectly, against
fluctuations in currency exchange, interest rate, commodity or equity
prices.
“Incur” means, with respect to
any Indebtedness, to incur, create, issue, assume, Guarantee or otherwise become
liable for or with respect to, or become responsible for, the payment of,
contingently or otherwise, such Indebtedness; provided that (1) any
Indebtedness of a Person existing at the time such Person becomes a Restricted
Subsidiary will be deemed to be incurred by such Restricted Subsidiary at the
time it becomes a Restricted Subsidiary and (2) neither the accrual of
interest nor the accretion of original issue discount shall be considered an
Incurrence of Indebtedness.
“Indebtedness” means, with
respect to any Person at any date of determination (without
duplication):
(1) all
indebtedness of such Person for borrowed money;
(2) all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments;
(3) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto, but
excluding letters of credit issued by such Person and excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (1) or (2) above or
(5), (6) or (7) below) entered into in the ordinary course of business
of such Person to the extent such letters of credit are not drawn upon or, if
drawn upon, to the extent such drawing is reimbursed no later than the third
Business Day following receipt by such Person of a demand for
reimbursement);
(4) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is recorded as a liability under GAAP
and due more than six months after the date of placing such property in service
or taking delivery and title thereto or the completion of such services, except
Trade Payables;
(5) all
Capitalized Lease Obligations;
(6) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person; provided that the amount of
such Indebtedness shall be the lesser of (A) the Fair Market Value of such
asset at such date of determination and (B) the amount of such
Indebtedness;
(7) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person;
(8) Acquired
Indebtedness;
(9) to
the extent not otherwise included in this definition, net obligations under
Hedging Obligations (other than Hedging Obligations not entered into for
speculative investment purposes and designed to protect the Company or its
Restricted Subsidiaries or Regulated Subsidiaries against fluctuations in
commodity prices, equity prices, foreign currency exchange rates or interest
rates and that do not increase the Indebtedness of the obligor outstanding at
any time other than as a result of fluctuations in commodity prices, foreign
currency exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder); and
(10) all
obligations to redeem or repurchase Preferred Stock issued by such Person, other
than PIK Preferred Stock, provided that Indebtedness
shall not include:
(a) obligations
arising from products and services offered by Bank Regulated Subsidiaries or
Broker Dealer Regulated Subsidiaries in the ordinary course including, but not
limited to, deposits, CDs, prepaid forward contracts, swaps, exchangeable debt
securities, foreign currency purchases or sales and letters of
credit;
(b) indebtedness
or other obligations incurred in the ordinary course arising from margin
lending, Stock Loan activities or foreign currency settlement obligations of a
Broker Dealer Regulated Subsidiary;
(c) indebtedness
of the Company or any Restricted Subsidiary represented by letters of credit for
the account of the Company or such Restricted Subsidiary, as the case may be, in
order to provide security for workers’ compensation claims, payment obligations
in connection with self-insurance or similar requirements in the ordinary course
of business;
(d) Purchase
Money Indebtedness of the Company or any Restricted Subsidiary not to exceed at
any one time outstanding 5% of Consolidated Net Worth;
(e) indebtedness
arising from agreements of the Company or a Restricted Subsidiary providing for
indemnification, adjustment of purchase price or similar obligations, in each
case, incurred or assumed in connection with the disposition of any business,
assets or a Subsidiary, other than Guarantees of Indebtedness Incurred by any
Person acquiring all or any portion of such business, assets or a Subsidiary for
the purpose of financing such acquisition;
(f) indebtedness
Incurred by Professional Path, Inc. in the ordinary course of its proprietary
trading activities in an amount not to exceed at any one time outstanding of $5
million;
(g) advances
from the Federal Home Loan Bank, Federal Reserve Bank (or similar institution),
repurchase and reverse repurchase agreements relating to Investment Securities,
medium term notes, treasury tax and loan balances, special direct investment
balances, bank notes, commercial paper, term investment option balances,
brokered certificates of deposit, dollar rolls, and fed funds purchased, in each
case incurred in the ordinary course of a Regulated Subsidiary’s
business;
(h) Indebtedness
Incurred by a Regulated Subsidiary and Guaranteed by the Company (i)(A) the
proceeds of which are used to satisfy applicable minimum capital requirements
imposed by applicable regulatory authorities of such Regulated Subsidiary and
(B) where the provision of such Guarantee by the Company is required by the
applicable regulatory authority or (ii) where the provision of such
Guarantee by the Company is required by a bank, clearing house or other market
participant in connection with the ordinary course of a Broker Dealer Regulated
Subsidiary’s business.
The
amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation, provided
(A) that
the amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP,
(B) that
money borrowed and set aside at the time of the Incurrence of any Indebtedness
in order to prefund the payment of the interest on such Indebtedness shall not
be deemed to be “Indebtedness” so long as such money is held to secure the
payment of such interest and
(C) that
Indebtedness shall not include:
(1) any
liability for federal, state, local or other taxes,
(2) performance,
surety or appeal bonds provided in the ordinary course of business
or
(3) agreements
providing for indemnification, adjustment of purchase price or similar
obligations, or Guarantees or letters of credit, surety bonds or performance
bonds securing any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in any case Incurred in connection
with the disposition of any business, assets or Restricted Subsidiary (other
than Guarantees of Indebtedness Incurred by any Person acquiring all or any
portion of such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition), so long as the principal amount does not to exceed
the gross proceeds actually received by the Company or any Restricted Subsidiary
in connection with such disposition.
“Indentures” means the 2017
Notes Indenture, the 2015 Notes Indenture, the 2013 Notes Indenture and the 2011
Notes Indenture.
“Insurance Regulated
Subsidiary” means any Subsidiary which conducts an insurance business
such that it is regulated by any supervisory agency, state insurance department
other state, federal or foreign insurance regulatory body or the National
Association of Insurance Commissioners.
“Intercreditor Agreement”
means an intercreditor agreement among the Company, the Collateral Agent and the
representative under the Credit Facility, in form and substance reasonably
satisfactory to Citadel, if Citadel holds a majority in principal amount of
outstanding 2017 Notes and, otherwise, in all instances in the form agreed upon
by the Company and the representative under the Credit Facility, which
Intercreditor Agreement, among other things may contain (a) provisions
permitting the holders of the first priority liens, without the consent of the
holders of the 2017 Notes, to change, waive, modify or vary the Collateral
Documents or release Collateral and (b) waivers of certain rights of the
holders of the 2017 Notes in bankruptcy or insolvency procedures.
“Interest Swap Obligations”
means the obligations of any Person pursuant to any arrangement with any other
Person, whereby, directly or indirectly, such Person is entitled to receive from
time to time periodic payments calculated by applying either a floating or a
fixed rate of interest on a stated notional amount in exchange for periodic
payments made by such other Person calculated by applying a fixed or a floating
rate of interest on the same notional amount and shall include, without
limitation, interest rate swaps, caps, floors, collars and similar
agreements.
“Investment” in any Person
means any direct or indirect advance, loan or other extension of credit
(including, without limitation, by way of Guarantee or similar arrangement; but
excluding Investment Securities, advances to customers or suppliers in the
ordinary course of business that are, in conformity with GAAP, recorded as
accounts receivable, prepaid expenses or deposits on the balance sheet of the
Company or its Restricted Subsidiaries and endorsements for collection or
deposit arising in the ordinary course of business) or capital contribution to
(by means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase or
acquisition of Capital Stock, bonds, notes, debentures or other similar
instruments issued by, such Person and shall include (1) the designation of
a Restricted Subsidiary as an Unrestricted Subsidiary or as a Regulated
Subsidiary and (2) the retention of the Capital Stock (or any other
Investment) by the Company or
any of
its Restricted Subsidiaries, of (or in) any Person that has ceased to be a
Restricted Subsidiary, including without limitation, by reason of any
transaction permitted by clause (3) or (4) of the “—Limitation on the
Issuance and Sale of Capital Stock of Restricted Subsidiaries or Regulated
Subsidiaries” covenant. For purposes of the definition of
“Unrestricted Subsidiary” and the “—Limitation on Restricted Payments” covenant,
(a) the amount of or a reduction in an Investment shall be equal to the
Fair Market Value thereof at the time such Investment is made or reduced and
(b) in the event the Company or a Restricted Subsidiary makes an Investment
by transferring assets to any Person and as part of such transaction receives
Net Cash Proceeds, the amount of such Investment shall be the Fair Market Value
of the assets less the amount of Net Cash Proceeds so received, provided the Net Cash
Proceeds are applied in accordance with clause (A) or (B) of the
“—Limitation on Asset Sales” covenant.
“Investment Agreement” means
the Master Investment and Securities Purchase Agreement, dated as of the date of
the 2017 Notes Indenture, between the Company and Citadel.
“Investment Grade Status”
shall occur when the Notes receive a rating of “BBB-” or higher from S&P or
a rating of “Baa3” or higher from Moody’s.
“Investment Securities” means
marketable securities of a Person (other than an Affiliate or joint venture of
the Company or any Restricted Subsidiary or any Regulated Subsidiary),
mortgages, credit card and other loan receivables, futures contracts on
marketable securities, interest rates and foreign currencies used for the
hedging of marketable securities, mortgages or credit card and other loan
receivables purchased, borrowed, sold, loaned or pledged by such Person in the
ordinary course of its business.
“Lien” means any mortgage,
pledge, security interest, encumbrance, lien or charge of any kind (including,
without limitation, any conditional sale or other title retention agreement or
lease in the nature thereof or any agreement to give any security
interest).
“Moody’s” means Moody’s
Investors Service, Inc. and its successors.
“Net Cash Proceeds”
means:
(a) with
respect to any Asset Sale or Regulated Sale, the proceeds of such Asset Sale or
Regulated Sale in the form of cash or cash equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of
(1) brokerage
commissions and other fees and expenses (including attorney’s fees, accountants’
fees, underwriters’, placement agents’ and other investment bankers’ fees,
commissions and consultant fees) related to such Asset Sale or Regulated
Sale;
(2) provisions
for all taxes (whether or not such taxes will actually be paid or are payable)
as a result of such Asset Sale or Regulated Sale without regard to the
consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, together with any actual distributions to
stockholders of the type contemplated under clause (b)(9) under the covenant
entitled “—Limitation on Restricted Payments” with respect to the taxable income
relating to such Asset Sale or Regulated Sale;
(3) payments
made to repay Indebtedness or any other obligation outstanding at the time of
such Asset Sale or Regulated Sale that either (x) is secured by a Lien on
the property or assets sold or (y) is required to be paid as a result of
such sale; and
(4) appropriate
amounts to be provided by the Company, any Restricted Subsidiary or any
Regulated Subsidiary as a reserve against any liabilities associated with such
Asset Sale or Regulated Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale or Regulated Sale, all as determined in conformity with GAAP;
and
(b) with
respect to any issuance or sale of Capital Stock, the proceeds of such issuance
or sale in the form of cash or cash equivalents, including payments in respect
of deferred payment obligations (to the extent corresponding to the principal,
but not interest, component thereof) when received in the form of cash or cash
equivalents and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of attorney’s fees, accountants’
fees, underwriters’ or placement agents’ fees, discounts or commissions and
brokerage, consultant and other fees incurred in connection with such issuance
or sale and net of taxes paid or payable as a result thereof.
“Note Guarantee” means any
Guarantee of the obligations of the Company under the Indentures and the Notes
by any Subsidiary Guarantor.
“Note Lien” means all Liens
that secure the obligations under the 2017 Notes and the Subsidiary
Guarantees.
“Obligations” means any
principal, interest, penalties, fees, indemnifications, reimbursements, damages
and other liabilities payable under the documentation governing any
Indebtedness.
“Offer to Purchase” means an
offer to purchase Notes by the Company from the holders commenced by mailing a
notice to the Trustee and each holder stating:
(1) the
covenant pursuant to which the offer is being made and that all Notes validly
tendered will be accepted for payment on a pro rata basis;
(2) the
purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the “Payment Date”);
(3) that
any Note not tendered will continue to accrue interest pursuant to its
terms;
(4) that,
unless the Company defaults in the payment of the purchase price, any Note
accepted for payment pursuant to the Offer to Purchase shall cease to accrue
interest on and after the Payment Date;
(5) that
holders electing to have a Note purchased pursuant to the Offer to Purchase will
be required to surrender the Note, together with the form entitled “Option of
the Holder to Elect Purchase” on the reverse side of the Note completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the Business Day immediately preceding the Payment
Date;
(6) that
holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the third Business Day
immediately preceding the Payment Date, a telegram, facsimile transmission or
letter setting forth the name of such holder, the principal amount of Notes
delivered for purchase and a statement that such holder is withdrawing his
election to have such Notes purchased; and
(7) that
holders whose Notes are being purchased only in part will be issued new Notes
equal in principal amount to the unpurchased portion of the Notes surrendered;
provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
multiples of $1,000.
On the
Payment Date, the Company shall (a) accept for payment on a pro rata basis Notes or
portions thereof tendered pursuant to an Offer to Purchase; (b) deposit
with the Paying Agent money sufficient to pay the purchase price of all Notes or
portions thereof so accepted; and (c) deliver, or cause to be delivered, to
the Trustee all Notes or portions thereof so accepted together with an Officers’
Certificate specifying the Notes or portions thereof accepted for payment by the
Company. The Paying Agent shall promptly mail to the holders of Notes
so accepted payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail to such holders a new Note equal in
principal amount to any unpurchased portion of the Note surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
multiples of $1,000. The Company will publicly announce the results
of an Offer to Purchase as soon as practicable after the Payment
Date. The Trustee shall act as the Paying Agent for an Offer to
Purchase. The Company will comply with Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable, if the Company is required to repurchase
Notes pursuant to an Offer to Purchase.
“Officer” means the chairman
of the Board of Directors, the president or chief executive officer, any vice
president, the chief financial officer, the treasurer or any assistant
treasurer, or the secretary or any assistant secretary, of the
Company.
“Officers’ Certificate” means
a certificate signed in the name of the Company (i) by the chairman of the
Board of Directors, the president or chief executive officer or a vice president
and (ii) by the chief financial officer, the treasurer or any assistant
treasurer or the secretary or any assistant secretary.
“Opinion of Counsel” means an
opinion from legal counsel, that meets the requirements of the
Indentures.
“Outstanding Convertible
Notes” means 6.00% convertible subordinated notes due February 2007,
issued by the Company pursuant to the indenture dated February 1, 2000,
outstanding on the applicable Closing Date for each series of Notes, and, for
the 2011 Notes and 2013 Notes, “Outstanding Convertible Notes” also includes the
6.75% convertible subordinated notes due May 2008, issued by the Company
pursuant to an indenture dated May 29, 2001, outstanding on the Closing
Date for such Notes.
“OTS” means the Office of
Thrift Supervision.
“Permitted Investment”
means:
(1) an
Investment in the Company or a Restricted Subsidiary or a Regulated Subsidiary
or a Person which will, upon the making of such Investment, become a Restricted
Subsidiary or Regulated Subsidiary or be merged or consolidated with or into or
transfer or convey all or substantially all its assets to, the Company or a
Restricted Subsidiary or Regulated Subsidiary; provided that such person’s
primary business is a Related Business on the date of such
Investment;
(2) Temporary
Cash Investments and Investment Securities;
(3) payroll,
travel and similar advances to cover matters that are expected at the time of
such advances ultimately to be treated as expenses in accordance with
GAAP;
(4) stock,
obligations or securities received in satisfaction of judgments;
(5) an
Investment in an Unrestricted Subsidiary consisting solely of an Investment in
another Unrestricted Subsidiary;
(6) Hedging
Obligations not entered into for speculative investment purposes and designed to
protect the Company or its Restricted Subsidiaries or Regulated Subsidiaries
against fluctuations in commodity prices, securities prices, foreign currency
exchange rates or interest rates; and
(7) any
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the “—Limitation on
Asset Sales” covenant.
“Permitted Liens”
means:
(1) Liens
for taxes, assessments, governmental charges or claims that are being contested
in good faith by appropriate legal proceedings promptly instituted and
diligently conducted and for which a reserve or other appropriate provision, if
any, as shall be required in conformity with GAAP shall have been
made;
(2) statutory
and common law Liens of landlords and carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other similar Liens (including a lender’s
unexercised rights of set-off) arising in the ordinary course of business and
with respect to amounts not yet delinquent or being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made;
(3) Liens
incurred or deposits made in the ordinary course of business in connection with
workers’ compensation, unemployment insurance and other types of social
security;
(4) Liens
incurred or deposits made to secure the performance of tenders, bids, leases,
statutory or regulatory obligations, bankers’ acceptances, surety and appeal
bonds, government contracts, performance and return-of-money bonds and other
obligations of a similar nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money);
(5) easements,
rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or any of its
Restricted Subsidiaries;
(6) leases
or subleases granted to others that do not materially interfere with the
ordinary course of business of the Company and its Restricted Subsidiaries,
taken as a whole;
(7) Liens
encumbering property or assets under construction arising from progress or
partial payments by a customer of the Company or its Restricted Subsidiaries
relating to such property or assets;
(8) any
interest or title of a lessor in the property subject to any Capitalized Lease
or operating lease;
(9) Liens
arising from filing Uniform Commercial Code financing statements regarding
leases;
(10) Liens
on property of, or on shares of Capital Stock or Indebtedness of, any Person
existing at the time such Person becomes, or becomes a part of, any Restricted
Subsidiary; provided
that such Liens do not extend to or cover any property or assets of the Company
or any Restricted Subsidiary other than the property or assets
acquired;
(11) Liens
in favor of the Company or any Restricted Subsidiary;
(12) Liens
arising from the rendering of a final judgment or order against the Company or
any Restricted Subsidiary that does not give rise to an Event of
Default;
(13) Liens
securing reimbursement obligations with respect to letters of credit that
encumber documents and other property relating to such letters of credit and the
products and proceeds thereof;
(14) Liens
in favor of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of
goods;
(15) Liens
encumbering customary initial deposits and margin deposits, and other Liens that
are within the general parameters customary in the industry and incurred in the
ordinary course of business, in each case, securing Indebtedness under Hedging
Obligations not entered into for speculative investment purposes and designed to
protect the Company or any of its Restricted Subsidiaries from fluctuations in
interest rates, currencies or the price of commodities or
securities;
(16) Liens
arising out of conditional sale, title retention, consignment or similar
arrangements for the sale of goods entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business in accordance with
the past practices of the Company and its Restricted Subsidiaries prior to the
applicable Closing Date;
(17) Liens
on shares of Capital Stock of any Unrestricted Subsidiary to secure Indebtedness
of such Unrestricted Subsidiary; and
(18) (a) For
the Senior Notes, Liens on or sales of receivables or mortgages.
(b) For the 2017 Notes, Liens on or sales of receivables or mortgages in
the ordinary course of business of the Company or its Subsidiaries.
“Person” means an individual,
a corporation, a partnership, a limited liability company, an association, a
trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
“PIK Preferred Stock” means
Preferred Stock the terms of which do not permit the declaration or payment of
any dividend or other distribution thereon or with respect thereto, or the
redemption or conversion thereof, in each such case prior to the payment in full
of the Company’s obligations under the Notes.
“Preferred Stock” of any
Person means any Capital Stock of such Person that has preferential rights to
any other Capital Stock of such Person with respect to dividends or redemptions
or upon liquidation.
“Purchase Money Indebtedness”
means indebtedness (1) incurred to finance the cost (including the cost of
improvement or construction and fees and expenses related to the acquisition) of
real or personal property acquired after the applicable Closing Date, provided
that (a) the amount of such indebtedness does not exceed 100% of such cost,
and (b) such indebtedness is incurred prior to, at the time of, or within
twelve months after the later of the acquisition, the completion of construction
or the commencement of full operation of such property; or (2) issued in
exchange for, or the net proceeds of which are used to refinance or refund, then
outstanding Purchase Money Indebtedness and any refinancings or refundings
thereof. The term “Indebtedness” for purposes of clause (a)(3) under
“—Covenants—Limitation on Indebtedness and Issuances of Preferred Stock” and
clauses (4) and (6) of “—Covenants—Limitation on Liens” shall be
deemed to include “Purchase Money Indebtedness”.
“Rating Agency” means any
“nationally recognized statistical rating organization”, as such term is defined
for purposes of Rule 436(g)(2) under the Securities Act.
“Rating Decline” means for a
particular series of Notes, (i) a decrease of one or more gradations
(including gradations within Rating Categories as well as between Rating
Categories) in the rating of the notes by both Moody’s and S&P or
(ii) a withdrawal of the rating of the Notes by Moody’s and S&P, in
each case, directly as a result of a Change of Control; provided, however, that such
decrease or withdrawal occurs on, or within 30 days following, the date of
public notice of the occurrence of a Change of Control or of the intention by
the Company, or a stockholder of the Company, as applicable, to effect a Change
of Control, which period shall be extended so long as the rating of the Notes
relating to the Change of Control as noted by the Rating Agency is under
publicly announced consideration for downgrade by the applicable Rating
Agency.
“Regulated Sale” means any
sale, transfer or other disposition (including by way of merger, consolidation
or Sale-Leaseback Transaction) in one transaction or a series of related
transactions by the Company or any of its Restricted Subsidiaries or Regulated
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries or Regulated Subsidiaries of:
(1) all
or any of the Common Stock of any Regulated Subsidiary that constitutes a
Significant Subsidiary, or
(2) all
or substantially all of the property and assets of an operating unit or business
of any Regulated Subsidiary that constitutes a Significant Subsidiary, in each
case, that is not governed by the provisions of the Indentures applicable to
mergers, consolidations and sales of assets of the Company; provided that “Regulated
Sale” shall not include an issuance, sale, transfer or other disposition of
Capital Stock by a Regulated Subsidiary to the Company, a Wholly Owned
Restricted Subsidiary or a Wholly Owned Regulated Subsidiary.
“Regulated Subsidiary” means a
Broker Dealer Regulated Subsidiary, a Bank Regulated Subsidiary or an Insurance
Regulated Subsidiary or any other Subsidiary subject to minimum capital
requirements or other similar material regulatory requirements imposed by
applicable regulatory authorities.
“Related Business” means any
financial services business which is the same as or ancillary or complementary
to any business of the Company and its Restricted Subsidiaries and Regulated
Subsidiaries that is being conducted on the applicable Closing Date, including,
but not limited to, activities under Section 4(k) of the Bank Holding
Company Act, as amended, or Section 10 of the Home Owners’ Loan Act, as
amended, broker-dealer services, insurance, investment advisory services,
specialist and other market making activities, trust services, underwriting and
the creation of and offers and sales of interests in mutual funds.
“Replacement Assets” means, on
any date, property or assets (other than current assets) of a nature or type or
that are used in a business (or an Investment in a company having property or
assets of a nature or type, or engaged
in a
business) similar or related to the nature or type of the property and assets
of, or the business of, the Company and its Restricted Subsidiaries and its
Regulated Subsidiaries existing on such date.
“Restricted Subsidiary” means
any Subsidiary of the Company other than an Unrestricted Subsidiary, or a
Regulated Subsidiary.
“Sale-Leaseback Transaction”
means, with respect to any Person, an arrangement whereby such Person sells or
transfers property and then or thereafter leases such property or any
substantial part thereof which such Person intends to use for substantially the
same purpose or purposes as the property sold or transferred, provided that for purposes of
this definition, “property” shall not include Investment
Securities.
“S&P” means
Standard & Poor’s Ratings Group, a division of The McGraw-Hill
Companies, and its successors.
“Secured Indebtedness Cap”
means, on any date, an amount equal to 1.0 times the Consolidated EBITDA of the
Company for the most recently ended Four Quarter Period for which financial
statements are available immediately preceding such date. For
purposes of making the computation referred to above, Consolidated EBITDA shall
be calculated after giving effect on a pro forma basis for the period of such
calculation to any Asset Sales or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted Subsidiaries or
Regulated Subsidiaries (including any Person who becomes a Restricted Subsidiary
or Regulated Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for acquired indebtedness and also including
any Consolidated EBITDA attributable to the assets which are the subject of the
Asset Acquisition or Asset Sale during the Four Quarter Period) occurring during
the Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the date of such calculation, as if such Asset
Sale or Asset Acquisition (including the incurrence, assumption or liability for
any such Acquired Indebtedness) occurred on the first day of the Four Quarter
Period.
“Securities Act” means the
Securities Act of 1933, as amended.
“Significant Subsidiary”
means, at any date of determination, any Restricted Subsidiary that, together
with its Subsidiaries, (1) for the most recent fiscal year of the Company,
accounted for more than 10% of the consolidated revenues of the Company and its
Restricted Subsidiaries or (2) as of the end of such fiscal year, was the
owner of more than 10% of the consolidated assets of the Company and its
Restricted Subsidiaries, all as set forth on the most recently available
consolidated financial statements of the Company for such fiscal
year.
“Stated Maturity” means,
(1) with respect to any debt security, the date specified in such debt
security as the fixed date on which the final installment of principal of such
debt security is due and payable and (2) with respect to any scheduled
installment of principal of or interest on any debt security, the date specified
in such debt security as the fixed date on which such installment is due and
payable.
“Stock Loan” means a “Loan” as
used in the Master Securities Loan Agreement published from time to time by the
Bond Market Association.
“Subsidiary” means, with
respect to any Person, any corporation, association or other business entity of
which more than 50% of the voting power of the outstanding Voting Stock is
owned, directly or indirectly, by such Person and one or more other Subsidiaries
of such Person.
“Subsidiary Guarantor” means
any Domestic Subsidiary which provides a Note Guarantee of the Company’s
obligations under the Indentures and the Notes pursuant to the
“—Covenants—Future Subsidiary Guarantees”.
“Temporary Cash Investment”
means any of the following:
(1) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, in each case maturing within one year unless such obligations
are deposited by the Company (x) to defease any Indebtedness or (y) in
a collateral or escrow account or similar arrangement to prefund the payment of
interest on any indebtedness;
(2) demand
deposits, time deposit accounts, bankers acceptances, certificates of deposit
and money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States of America, and which bank or trust company
(i) has capital, surplus and undivided profits aggregating in excess of
$100 million (or the foreign currency equivalent thereof) and has outstanding
debt which is rated “A” (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined in
Rule 436 under the Securities Act) or (ii) is a money market fund sponsored
by a registered broker dealer or mutual fund distributor;
(3) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (1) above entered into with a bank or trust
company meeting the qualifications described in clause
(2) above;
(4) commercial
paper, maturing not more than one year after the date of acquisition, issued by
a corporation (other than an Affiliate of the Company) organized and in
existence under the laws of the United States of America, any state thereof or
any foreign country recognized by the United States of America with a rating at
the time as of which any investment therein is made of “P-1” (or higher)
according to Moody’s or “A-1” (or higher) according to S&P;
(5) securities
with maturities of six months or less from the date of acquisition issued or
fully and unconditionally guaranteed by any state, commonwealth or territory of
the United States of America, or by any political subdivision or taxing
authority thereof, and rated at least “A” by S&P or Moody’s;
and
(6) any
mutual fund that has at least 95% of its assets continuously invested in
investments of the types described in clauses (1) through (5)
above.
“Trade Payables” means, with
respect to any Person, any accounts payable or any other indebtedness or
monetary obligation to trade creditors created, assumed or Guaranteed by such
Person or any of its Subsidiaries arising in the ordinary course of business in
connection with the acquisition of goods or services.
“Transaction Date” means, with
respect to the Incurrence of any Indebtedness, the date such Indebtedness is to
be Incurred and, with respect to any Restricted Payment, the date such
Restricted Payment is to be made.
“Trigger Date” means the
earlier of (a) the first date on which the Company is allowed to grant
Liens to secure Indebtedness in excess of $300,000,000 under the 2011 Notes
without granting equal and ratable security to the holders of the 2015 Notes,
2013 Notes and/or 2011 Notes and (b) the date of the redemption of the 2011
Notes.
“Unrestricted Subsidiary”
means (1) any Subsidiary of the Company that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of Directors in the
manner provided below; and (2) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Restricted
Subsidiary or Regulated Subsidiary (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, the Company or any Restricted Subsidiary; provided that (A) any
Guarantee by the Company or any Restricted Subsidiary of any Indebtedness of the
Subsidiary being so designated shall be deemed an “Incurrence” of such
Indebtedness and an “Investment” by the Company or such Restricted Subsidiary
(or both, if applicable) at the time of such designation; (B) either
(I) the Subsidiary to be so designated has total assets of $1,000 or less
or (II) if such Subsidiary has assets greater than $1,000, such designation
would be permitted under the “Limitation on Restricted Payments” covenant and
(C) if applicable, the Incurrence of Indebtedness and the Investment
referred to in clause (A) of this proviso would be permitted under the
“Limitation on Indebtedness and Issuance of Preferred Stock” and “Limitation on
Restricted Payments” covenants. The Board of Directors may designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that (a) no
Default or Event of Default shall have occurred and be continuing at the time of
or after giving effect to such designation and (b) all Liens and
Indebtedness of such Unrestricted Subsidiary outstanding immediately after such
designation would, if Incurred at such time, have been permitted to be Incurred
(and shall be deemed to have been Incurred) for all purposes of the
Indentures. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of
the Board
Resolution giving effect to such designation and an Officers’ Certificate
certifying that such designation complied with the foregoing
provisions.
“U.S. Government Obligations”
means securities that are (1) direct obligations of the United States of
America for the payment of which its full faith and credit is pledged or
(2) obligations of a Person controlled or supervised by and acting as an
agency or instrumentality of the United States of America the payment of which
is unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case, are not callable or redeemable
at the option of the issuer thereof at any time prior to the Stated Maturity of
the Notes, and shall also include a depository receipt issued by a bank or trust
company as custodian with respect to any such U.S. Government Obligation or a
specific payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder of a depository
receipt; provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of interest on or principal of the U.S.
Government Obligation evidenced by such depository receipt.
“Voting Stock” means with
respect to any Person, Capital Stock of any class or kind ordinarily having the
power to vote for the election of directors, managers or other voting members of
the governing body of such Person.
“Well Capitalized” means “well
capitalized” within the meaning of 12 U.S.C. §1831o, as determined by a
particular Bank Regulated Subsidiary’s appropriate federal banking agency, but
in no event less than the amount required in a capital directive or other
capital requirement by a federal banking agency.
“Wholly Owned” means, with
respect to any Subsidiary of any Person, the ownership all of the outstanding
Capital Stock of such Subsidiary by such Person or one or more Wholly Owned
Subsidiaries of such Person.
In
connection with the Debt Exchange and the successful consent solicitation, the
following definitions were added to the 2011 Notes Indenture and 2017 Notes
Indenture upon the execution of supplemental indentures dated July 9, 2009
amending the 2011 Notes Indenture and 2017 Notes Indenture.
“Exchange Securities” means up
to an aggregate of $435,500,000 principal amount of convertible senior
debentures of the Company issued in exchange for the 2011 Notes and up to an
aggregate of $1,310,000,000 principal amount of convertible senior debentures of
the Company issued in exchange for the 2017 Notes.
“Program” means the TARP
Capital Purchase Program of Treasury.
“Program Documentation” means
the letter agreement between Treasury and the Company setting forth the terms
and conditions of the Program and all other documentation related thereto,
including, but not limited to, a securities purchase agreement, certificate of
designations for the TARP Preferred Stock and TARP Warrants.
“Qualified Equity Offering”
means the issuance or sale after the issue date of the TARP Preferred Stock of
Tier 1 qualifying perpetual Preferred Stock or Common Stock of the Company for
cash or any other offering defined as a Qualified Equity Offering in the Program
Documentation.
“Substitution Permanent
Equity” means an economic interest of the Company classified as permanent
equity under U.S. GAAP exchangeable for TARP Warrants at Treasury’s option if
either (1) stockholder approval is required for the issuance of TARP Warrants
but not obtained within 18 months of Treasury’s investment in the Company or (2)
in the future the Company’s Common Stock is no longer listed or traded on a
national securities exchange or securities association, equal to the fair market
value of the TARP Warrants so exchanged or any other instrument or security
required to be issued in the Program Documentation.
“TARP Preferred Stock” means
senior perpetual Preferred Stock initially issued to Treasury qualifying as Tier
1 capital pursuant to the Program Documentation.
“TARP Warrants” means warrants
on the Common Stock of the Company initially issued to Treasury pursuant to the
Program Documentation.
“Treasury” means the United
States Department of Treasury.
MATERIAL
U.S. FEDERAL TAX CONSIDERATIONS
Subject
to the qualifications and limitations described below, the following are the
material U.S. federal income tax consequences and certain estate tax
consequences of the ownership and disposition of Debentures and common
stock. This discussion applies only to Debentures and common stock
that are held as capital assets. In addition, this discussion does
not describe all of the tax consequences that may be relevant to a holder in
light of the holder’s particular circumstances or to holders subject to special
rules, such as:
·
|
certain
financial institutions;
|
·
|
persons
holding Debentures or common stock as part of a hedge, “straddle,”
integrated transaction or similar
transactions;
|
·
|
U.S.
Holders (as defined below) whose functional currency is not the U.S.
dollar;
|
·
|
partnerships
or other entities classified as partnerships for U.S. federal income tax
purposes;
|
·
|
persons
subject to the alternative minimum tax;
and
|
·
|
Non-U.S.
Holders (as defined below) that own, or are deemed to own, more than 5% of
the Company’s common stock or more than 5% of the fair market value of the
Debentures, or Non-U.S. Holders that, on the date of any acquisition of
any Debentures, own Debentures with a fair market value of more than 5% of
the fair market value of the common stock of the
Company.
|
If an
entity that is classified as a partnership for U.S. federal income tax purposes
holds Debentures or common stock, the U.S. federal income tax treatment of a
partner will generally depend on the status of the partner and upon the
activities of the partnership. Partnerships holding Debentures or
common stock and partners in such partnerships should consult their tax advisors
as to the particular U.S. federal income tax consequences of holding and
disposing of Debentures or common stock.
This
discussion is based on the Internal Revenue Code of 1986, as amended (the
“Code”), administrative pronouncements, judicial decisions and final, temporary
and proposed Treasury Regulations, changes to any of which subsequent to the
date of this prospectus supplement may affect the tax consequences described
herein, possibly with retroactive effect. Persons considering
acquiring Debentures or common stock should consult their tax advisors with
regard to the application of the U.S. federal income tax laws to their
particular situations as well as any tax consequences arising under the laws of
any state, local or foreign taxing jurisdiction.
TAX
CONSEQUENCES TO U.S. HOLDERS
As used
herein, the term “U.S. Holder” means a beneficial owner of a Debenture or common
stock that is, for U.S. federal income tax purposes:
·
|
an
individual citizen or resident of the United
States;
|
·
|
a
corporation, or other entity taxable as a corporation, created or
organized in or under the laws of the United States, any state thereof or
the District of Columbia; or
|
·
|
an
estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source.
|
The term
“U.S. Holder” also includes certain former citizens and residents of the United
States.
Tax
Treatment of the Debentures
Characterization
of the Debentures
It is
uncertain whether the Debentures should be classified as debt or equity for U.S.
federal income tax purposes. The determination of whether an
instrument is debt or equity for U.S. federal income tax purposes requires a
judgment based on all relevant facts and circumstances. There is no
statutory, judicial or administrative authority that directly addresses the U.S.
federal income tax treatment of instruments issued with terms and under
circumstances similar to the Debentures, and no rulings have been sought or are
expected to be sought from the Internal Revenue Service (the “IRS”) with respect
to the Debentures. The Company currently intends to take the position
that the Debentures should be treated as debt for U.S. federal income tax
purposes and to comply with the related information reporting and income tax
withholding obligations, as applicable, on that basis. However, such
position is not binding on the IRS or any court, and there can be no assurance
that the IRS or a court will agree with such position. If the
Debentures were treated as equity, rather than debt, for U.S. federal income tax
purposes, any accruals of income on the Debentures attributable to the
Debentures being issued at a discount may be treated for U.S. federal income tax
purposes as deemed dividends.
U.S.
Holders should consult their own tax advisors regarding the proper
classification of the Debentures for U.S. federal income tax purposes and the
tax consequences to them of the Debentures being treated as equity instead of
debt. Except where otherwise explicitly noted, the remainder of this
discussion assumes that the Debentures will be respected as debt for U.S.
federal income tax purposes.
Issue
Price of the Debentures
The issue
price of the Debentures will depend on whether the 2017 Notes or the Debentures
are “publicly traded” within the meaning of applicable Treasury
regulations. If either the 2017 Notes or the Debentures are publicly
traded, the issue price of the Debentures will equal the fair market value of
the Debentures (if the Debentures are publicly traded) or the 2017 Notes (if the
Debentures are not publicly traded), in each case on the date of the issuance of
the Debentures. If neither the 2017 Notes nor the Debentures are
publicly traded, the issue price of a Debenture will equal the present value of
its stated principal amount using a discount rate specified by the
IRS. While not entirely clear, the Company will take the position
that the 2017 Notes are publicly traded within the meaning of the applicable
Treasury regulations. The Debentures may also be publicly traded
within the meaning of the applicable Treasury regulations.
Original
Issue Discount on the Debentures
If the
issue price of the Debentures is less than the principal amount of the
Debentures (or $1,000 per Debenture), they will be considered to have been
issued with original issue discount (“OID”) for U.S. federal income tax
purposes, subject to a statutory de minimis exception. U.S. Holders
of Debentures will be required to include OID in income for federal income tax
purposes as it accrues, in accordance with a constant yield method based on a
compounding of interest, before the receipt of cash payments attributable to
this income. Under this method, U.S. Holders of Debentures generally
will be required to include in income increasingly greater amounts of OID in
successive accrual periods.
Conversion
of Debentures into Common Stock
A U.S.
Holder’s conversion of a Debenture into common stock and cash in lieu of a
fractional share of common stock will not be a taxable event, except that the
receipt of cash in lieu of a fractional share of common stock will generally
result in capital gain or loss (measured by the difference between the cash
received in lieu of the fractional share and the U.S. Holder’s tax basis in the
fractional share). However, the amount of any gain attributable to
accrued market discount not previously included in income will be treated as
ordinary income as described below under “—Market Discount on a
Debenture.” If, at the time of conversion, there is accrued market
discount in excess of the amount so treated as ordinary income, such excess will
be shifted to the common stock received and treated as described below under
“—Tax Treatment of Common Stock—Sale or Other Disposition of Common
Stock.”
A U.S.
Holder’s tax basis in the common stock received upon a conversion of a Debenture
(including any basis allocable to a fractional share) will equal the tax basis
of the Debenture that was converted. A U.S. Holder’s tax basis in a
fractional share will be determined by allocating the holder’s tax basis in the
common stock between the common stock received upon conversion and the
fractional share, in accordance with their respective fair market
values.
The U.S.
Holder’s holding period for the common stock received will include the U.S.
Holder’s holding period for the Debenture converted.
Constructive
Dividends on the Debentures
The
conversion rate of the Debentures will be adjusted in certain
circumstances. Under the Code and applicable Treasury regulations,
adjustments that have the effect of increasing a holder’s interest in the
Company’s assets or earnings and profits may, in some circumstances, result in a
deemed distribution to the holder.
If the
Company were to make a distribution of cash or property to stockholders (for
example, distributions of evidences of indebtedness or assets) and the
conversion rate of the Debentures were increased pursuant to the anti-dilution
provisions of the indenture, such increase would be deemed to be a distribution
to the U.S. Holders of the Debentures. In addition, any other
increase in the conversion rate of the Debentures may, depending on the
circumstances, be deemed to be a distribution to the U.S. Holders. In
certain circumstances, the failure to make an adjustment of the conversion rate
may result in a taxable distribution to holders of the Company’s common stock or
holders of Debentures, if as a result of such failure the proportionate interest
of the stockholders or the Debenture holders (as the case may be) in the assets
or earnings and profits of the Company is increased.
Any
deemed distribution will be taxed in the same manner as an actual
distribution. See “Tax Treatment of Common Stock—Taxation of
Distributions” below. However, it is unclear whether such deemed
distributions would be eligible for the reduced tax rate applicable to certain
dividends paid to non-corporate holders or for the dividends-received deduction
applicable to certain dividends paid to corporate holders. U.S.
Holders should consult their tax advisors as to the tax consequences of
receiving constructive dividends.
Constant
Yield Election
A U.S.
Holder may make an election to include in gross income all interest that accrues
on a Debenture (including stated interest, acquisition discount, OID, de minimis
OID, market discount, de minimis market discount, and unstated interest, as
adjusted by any amortizable bond premium or acquisition premium) in accordance
with a constant yield method based on the compounding of interest (“constant
yield election”).
Market
Discount on a Debenture
If a U.S.
Holder purchases a Debenture for an amount that is less than its adjusted issue
price (as defined below), the amount of the difference will be treated as market
discount for U.S. federal income tax purposes, unless this difference is less
than a specified de minimis amount. For this purpose (and for the
purpose of the acquisition premium rules described below), the adjusted issue
price of a Debenture is the sum of the issue price of the Debenture (as
described above) and the aggregate amount of previously accrued
OID. A U.S. Holder will be required to treat any gain on the sale,
exchange, retirement or other disposition of a Debenture, as ordinary income to
the extent of the market discount accrued on the Debenture at the time of
disposition unless this market discount has been previously included in income
by the holder pursuant to an election by the holder to include market discount
in income as it accrues or pursuant to a constant yield election by the U.S.
Holder as described under “Constant Yield Election” above. A U.S.
Holder’s tax basis in a Debenture will be increased by any amount of market
discount that was previously included in the U.S. Holder’s income. If
a Debenture is disposed of in certain nontaxable transactions (not including a
conversion into common stock), accrued market discount will be includible as
ordinary income to the holder as if the holder had sold the Debenture at its
then fair market value. In addition, the holder may be required to
defer, until maturity of the Debenture or its earlier disposition (including
certain nontaxable transactions, but not including a conversion into common
stock), the deduction of all or a portion of the interest expense on any
indebtedness incurred or maintained to purchase or carry the
Debenture.
Acquisition
Premium and Amortizable Bond Premium on a Debenture
A U.S.
Holder who purchases a Debenture for an amount that is greater than its adjusted
issue price but less than or equal to the sum of all amounts payable on the
Debenture after the purchase date will be considered to have purchased the
Debenture at an acquisition premium. Under the acquisition premium
rules, the amount of OID that the holder must include in its gross income with
respect to the Debenture for any taxable year will be reduced by the portion of
acquisition premium properly allocable to that year.
If a U.S.
Holder purchases a Debenture for an amount that is greater than the sum of all
amounts payable on the Debenture, the holder will be considered to have
purchased the Debenture with amortizable bond premium. A U.S. Holder
who purchases a Debenture with amortizable bond premium will not be required to
accrue any OID in respect of such Debenture. In general, amortizable
bond premium with respect to any Debenture will be equal in amount to the excess
of the purchase price over the sum of all amounts payable on the
Debenture. A U.S. Holder of a Debenture would ordinarily be able to
elect to amortize this bond premium, using a constant yield method, over the
remaining term of the holder’s Debenture to generally offset qualified stated
interest on the note; however, because the Debentures do not have any qualified
stated interest, U.S. Holders of Debentures would not be able to use amortizable
bond premium to offset any income.
If a U.S.
Holder makes a constant yield election (as described under “Constant Yield
Election” above) for a Debenture with amortizable bond premium, such election
will result in a deemed election to amortize bond premium for all of the
holder’s debt instruments with amortizable bond premium and may be revoked only
with the permission of the IRS with respect to debt instruments acquired after
revocation.
Sale,
Exchange or Retirement of a Debenture
Upon the
sale, exchange or retirement of a Debenture (other than a conversion into common
stock), a U.S. Holder will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement and
the holder’s adjusted tax basis in the Debenture. A U.S. Holder’s
adjusted tax basis in a Debenture generally will equal the cost of such
Debenture to such holder, increased by any amounts includible in income by the
holder as market discount and OID and reduced by any amortized bond premium on
such Debenture. Gain on the sale, exchange or retirement of a Debenture will be
ordinary income to the extent of any market discount not previously included in
the holder’s taxable income. Otherwise, gain or loss realized on the
sale, exchange or retirement of a Debenture will generally be capital gain or
loss and will be long-term capital gain or loss if at the time of sale, exchange
or retirement the Debenture has been held by the holder for more than one
year. Long-term capital gains recognized by non-corporate U.S.
Holders are currently subject to reduced tax rates. The deductibility
of capital losses may be subject to limitations.
Possible
Effect of a Consolidation or Merger on the Debentures
In
certain situations, the Company may consolidate or merge into another entity (as
described above under “Description of Debentures—Consolidation, Merger and Sale
of Assets”). Depending on the circumstances, a change in the obligor
of the Debentures as a result of the consolidation or merger could result in a
deemed taxable exchange to a U.S. Holder and the modified Debenture could be
treated as newly issued at that time, potentially resulting in the recognition
of taxable gain or loss.
Possible
Characterization of the Debentures as Contingent Payment Debt
Instruments
The
Company may be required to repurchase the Debentures at 101% of their principal
amount upon a Fundamental Change or a Change of Control, as described under
“Description of Debentures—Fundamental Change Permits Holders to Require Us to
Repurchase Debentures.” Although the issue is not free from doubt,
the Company intends to take the position that the possibility of such payments
does not result in the Debentures being treated as contingent payment debt
instruments under the applicable Treasury regulations. The Company’s
position is not binding on the IRS. If the IRS takes a position
contrary to that described above, a U.S. Holder may be required to accrue
interest income based upon a “comparable yield,” regardless of the holder’s
method of accounting. Such yield would be higher than the yield
determined under the OID rules described above. In addition, any gain
on the sale, exchange, retirement or other taxable disposition of the Debentures
(including any gain realized on conversion)
would be
recharacterized as ordinary income. U.S. Holders should consult their
tax advisors regarding the tax consequences of the Debentures being treated as
contingent payment debt instruments. The remainder of this discussion
assumes that the Debentures are not treated as contingent payment debt
instruments.
Tax
Treatment of Common Stock
Taxation
of Distributions
Distributions
paid on common stock, other than certain pro rata distributions of common stock,
will be treated as a dividend to the extent paid out of current or accumulated
earnings and profits and will be includible in income by the U.S. Holder and
taxable as ordinary income when received. If a distribution exceeds
the Company’s current and accumulated earnings and profits, the excess will be
first treated as a tax-free return of the U.S. Holder’s investment, up to the
U.S. Holder’s tax basis in the common stock. Any remaining excess
will be treated as a capital gain. Dividends received by
non-corporate U.S. Holders in tax years prior to 2011 will be eligible to be
taxed at reduced rates if the U.S. Holders meet certain holding period and other
applicable requirements. Dividends received by corporate U.S. Holders
will be eligible for the dividends-received deduction if the U.S. Holders meet
certain holding period and other applicable requirements.
The
Company does not currently expect to pay cash dividends on common
stock.
Sale
or Other Disposition of Common Stock
For U.S.
federal income tax purposes, gain or loss a U.S. Holder realizes on the sale or
other disposition of common stock will be capital gain or loss (except to the
extent of any accrued market discount not previously included in the U.S.
Holder’s taxable income), and will be long-term capital gain or loss if the U.S.
Holder held the common stock for more than one year. The amount of
the U.S. Holder’s gain or loss will be equal to the difference between the U.S.
Holder’s tax basis in the common stock disposed of and the amount realized on
the disposition. Long-term capital gains recognized by non-corporate
U.S. Holders will be subject to reduced tax rates. The deductibility
of capital losses may be subject to limitations.
Backup
Withholding and Information Reporting
Information
returns will be filed with the IRS in connection with payments on the
Debentures, dividends on the common stock and the proceeds from a sale or other
disposition of the Debentures or the common stock. A U.S. Holder will
be subject to U.S. backup withholding on these payments if the U.S. Holder fails
to provide its taxpayer identification number to the paying agent and comply
with certain certification procedures or otherwise establish an exemption from
backup withholding. The amount of any backup withholding from a
payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s
U.S. federal income tax liability and may entitle the U.S. Holder to a refund,
provided that the required information is timely furnished to the
IRS.
TAX
CONSEQUENCES TO NON-U.S. HOLDERS
As used
herein, a “Non-U.S. Holder” means, for U.S. federal income tax purposes, a
beneficial owner of a Debenture or common stock that is:
·
|
a
nonresident alien individual;
|
·
|
a
foreign corporation; or
|
·
|
a
foreign trust or estate.
|
The term
“Non-U.S. Holder” does not include a holder who is an individual present in the
United States for 183 days or more in the taxable year of disposition and who is
not otherwise a resident of the United States for U.S. federal income tax
purposes. Such a holder should consult his or her tax advisor
regarding the U.S. federal tax consequences of the ownership and disposition of
Debentures or common stock.
Payments
on the Debentures
Subject
to the discussion below concerning the characterization of the Debentures and
the discussion below concerning backup withholding, payments of principal, OID
and premium on the Debentures by the Company or any paying agent to any Non-U.S.
Holder will not be subject to U.S. federal withholding tax, provided that, in
the case of OID,
·
|
the
Non-U.S. Holder does not own, actually or constructively, 10 percent or
more of the total combined voting power of all classes of stock of the
Company entitled to vote and is not a controlled foreign corporation
related, directly or indirectly, to the Company through stock ownership;
and
|
·
|
the
certification requirement described below has been fulfilled with respect
to the beneficial owner, as discussed
below.
|
OID on a
Debenture will not be exempt from withholding tax unless the beneficial owner of
the Debenture certifies on a properly executed IRS Form W-8BEN, under penalties
of perjury, that it is not a United States person.
If a
Non-U.S. Holder of a Debenture is engaged in a trade or business in the United
States, and if OID on the Debenture is effectively connected with the conduct of
this trade or business, the Non-U.S. Holder, although exempt from the
withholding tax discussed in the preceding paragraphs, will generally be taxed
in the same manner as a U.S. Holder (see “Tax Consequences to U.S. Holders”
above), subject to an applicable income tax treaty providing otherwise, except
that the Non-U.S. Holder will be required to provide to the Company a properly
executed IRS Form W-8ECI in order to claim an exemption from withholding
tax. These holders should consult their own tax advisors with respect
to other U.S. tax consequences of the ownership and disposition of Debentures
including the possible imposition of a branch profits tax at a rate of 30% (or a
lower treaty rate).
As
discussed under “Tax Consequences to U.S. Holders—Tax Treatment of the
Debentures—Characterization of the Debentures” above, the classification of the
Debentures as debt or equity is uncertain. If the Debentures were
equity, rather than debt, for U.S. federal income tax purposes, any accruals of
income on the Debentures attributable to the Debentures being issued at a
discount may be treated for U.S. federal income tax purposes as deemed
dividends. Accordingly, if the IRS successfully challenges our
position that the Debentures are debt for U.S. federal income tax purposes, any
such deemed dividends on Debentures held by a Non-U.S. Holder would generally be
subject to information reporting as such and withholding of income tax at a rate
of 30% (or such lower rate as specified by an applicable income tax
treaty). Furthermore, because there will be no current interest
payments on the Debentures, such withholding could be made from shares of common
stock received upon conversion, from a payment of principal at maturity or from
the proceeds of a sale or other disposition of the
Debentures. Non-U.S. Holders should consult their own tax advisors
regarding the possibility of withholding tax with respect to payments on the
Debentures.
Sale,
Exchange or Other Disposition of Debentures or Shares of Common
Stock
Subject
to the discussion below concerning backup withholding, a Non-U.S. Holder
generally will not be subject to U.S. federal income tax on gain recognized on a
sale or other disposition of Debentures or common stock, unless:
·
|
the
gain is effectively connected with a trade or business of the Non-U.S.
Holder in the United States, subject to an applicable income tax treaty
providing otherwise, or
|
·
|
the
Company is or has been a U.S. real property holding corporation, as
defined in the Code, at any time within the five-year period preceding the
disposition or the Non-U.S. Holder’s holding period, whichever period is
shorter, and the common stock has ceased to be traded on an established
securities market prior to the beginning of the calendar year in which the
sale or disposition occurs.
|
The
Company believes that it is not, and does not anticipate becoming, a U.S. real
property holding corporation.
If a
Non-U.S. Holder is engaged in a trade or business in the United States and gain
recognized by the Non-U.S. Holder on a sale or other disposition of Debentures
or common stock is effectively connected with a conduct of such
trade or
business, the Non-U.S. Holder will generally be taxed in the same manner as a
U.S. Holder (see “Tax Consequences to U.S. Holders” above), subject to an
applicable income tax treaty providing otherwise. Non-U.S. Holders
whose gain from dispositions of Debentures or common stock may be effectively
connected with a conduct of a trade or business in the United States should
consult their tax advisors with respect to the U.S. tax consequences of the
ownership and disposition of Debentures and common stock, including the possible
imposition of a branch profits tax.
Dividends
The
Company does not currently expect to pay cash dividends on common
stock. In the event that the Company does pay dividends, dividends
paid to a Non-U.S. Holder of common stock and deemed dividends on the Debentures
(as described above under “Tax Consequences to U.S. Holders—Tax Treatment of the
Debentures—Constructive Dividends on the Debentures”) generally will be subject
to withholding tax at a 30% rate or a reduced rate specified by an applicable
income tax treaty. In order to obtain a reduced rate of withholding,
a Non-U.S. Holder will be required to provide a properly executed IRS Form
W-8BEN certifying its entitlement to benefits under a treaty.
The
withholding tax does not apply to dividends paid to a Non-U.S. Holder who
provides a properly executed Form W-8ECI, certifying that the dividends are
effectively connected with the Non-U.S. Holder’s conduct of a trade or business
within the United States. Instead, the effectively connected
dividends will be subject to regular U.S. income tax as if the Non-U.S. Holder
were a U.S. resident. A non-U.S. corporation receiving effectively
connected dividends may also be subject to an additional “branch profits tax”
imposed at a rate of 30% (or a lower treaty rate).
In the
case of any constructive dividend on a Debenture, it is possible that the U.S.
federal tax on the constructive dividend would be withheld from shares of common
stock or sales proceeds subsequently paid or credited to a Non-U.S.
Holder. A Non-U.S. Holder who is subject to withholding tax under
such circumstances should consult its own tax advisor as to whether it can
obtain a refund for all or a portion of the withholding tax.
Federal
Estate Tax Considerations for Holders of Debentures and Common
Stock
Individual
Non-U.S. Holders and entities the property of which is potentially includible in
such an individual’s gross estate for U.S. federal estate tax purposes (for
example, a trust funded by such an individual and with respect to which the
individual has retained certain interests or powers), should note that, absent
an applicable treaty benefit, a Debenture will be treated as U.S. situs property
subject to U.S. federal estate tax if payments on the Debenture, if received by
the decedent at the time of death, would have been:
·
|
subject
to U.S. federal withholding tax (even if the IRS Form W-8BEN certification
requirement described above were satisfied);
or
|
·
|
effectively
connected with the conduct by the holder of a trade or business in the
United States.
|
In
addition, if the Debentures were treated as equity for U.S. tax purposes (see
“Tax Consequences to U.S. Holders—Tax Treatment of the
Debentures—Characterization of the Debentures” above), absent an applicable
treaty benefit, they would be treated as U.S. situs property subject to U.S.
federal estate tax.
Individual
Non-U.S. Holders and entities the property of which is potentially includible in
such an individual’s gross estate for U.S. federal estate tax purposes (for
example, a trust funded by such an individual and with respect to which the
individual has retained certain interests or powers), should note that, absent
an applicable treaty benefit, the common stock will be treated as U.S. situs
property subject to U.S. federal estate tax.
Backup
Withholding and Information Reporting
Information
returns will be filed with the IRS in connection with payments on the Debentures
and common stock. Unless the Non-U.S. Holder complies with
certification procedures to establish that it is not a United States person,
information returns may be filed with the IRS in connection with the proceeds
from a sale or other disposition of the Debentures or common stock and the
Non-U.S. Holder may be subject to U.S. backup withholding on payments on the
Debentures and on the common stock or on the proceeds from a sale or other
disposition of the
Debentures
or common stock. The certification procedures required to claim the
exemption from withholding tax on OID described above will satisfy the
certification requirements necessary to avoid backup withholding as
well. The amount of any backup withholding from a payment to a
Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S.
federal income tax liability and may entitle the Non-U.S. Holder to a refund,
provided that the required information is timely furnished to the
IRS.
The
selling securityholders, including their transferees, pledgees or donees or
their successors (all of whom may be selling securityholders), may from time to
time offer and sell pursuant to this prospectus supplement any or all of the
securities. When we refer to the “selling securityholders” in this
prospectus supplement, we mean such entities listed in the table below, as well
as their transferees, pledges or donees or their successors.
The
following table and related footnotes set forth information with respect to the
selling securityholders and the principal amounts of the securities beneficially
owned by each selling securityholder that may be offered under this prospectus
supplement. Unless set forth below, none of the selling
securityholders has nor had within the past three years any material
relationship with us or any of our predecessors or affiliates. The
information is based on information provided by or on behalf of the selling
securityholders to us in a selling securityholder questionnaire and is as of the
date specified by the selling securityholders in such
questionnaire. The selling securityholders may offer all, some or
none of the securities, in one or more offerings. Because the selling
securityholders may offer all or some portion of the securities, no estimate can
be given as to the amount of the securities 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 securities since the date on which they
provided the information regarding their securities in transactions exempt from
the registration requirements of the Securities Act of 1933.
Selling
Securityholders (1)(2)(3)
|
|
Principal
Amount of Class A Debentures That May Be Sold (4)
|
|
|
Shares
of common stock that may be sold (4) (5)
|
|
Wingate
Capital Ltd.
|
|
$ |
0 |
|
|
|
45,454,545 |
|
Citadel
Equity Fund Ltd.
|
|
$ |
1,029,670,000 |
|
|
|
120,354,531 |
|
Citadel
Derivatives Trading Ltd.
|
|
$ |
0 |
|
|
|
47,848 |
|
Citadel
Securities LLC
|
|
$ |
0 |
|
|
|
326,645 |
|
Total:
|
|
$ |
1,029,670,000 |
|
|
|
166,183,569 |
|
(1)
|
Information regarding the selling
securityholders may change from time to time. Any such changed
information will be set forth in supplements to this prospectus supplement
if required.
|
(2)
|
All
selling securityholders listed in this table are affiliates of
Citadel.
|
(3)
|
For
a description of recent transactions involving the selling securityholders
and their affiliates, please see “E*TRADE Financial Corporation—Recent
Developments” and the transactions and arrangements described in the
Prospectus Supplement dated June 18, 2009, filed by the Company in
connection with the Public Equity Offering as a supplement to the
prospectus forming part of the Registration Statement on Form S-3ASR (File
No. 333-158636) filed on April 17,
2009.
|
(4)
|
Assumes
the offer and sale of all securities beneficially owned by the selling
securityholders named in the table, although the securityholders are not
obligated to sell any securities.
|
(5)
|
An
indeterminate number of shares of Common Stock may be issued upon
conversion of the Class A Debentures, not to exceed 995,812,379
shares.
|
The
selling securityholders and their transferees, pledgees, donees or any of their
successors-in-interest to securities received from a selling securityholder as a
gift, partnership distribution or other non-sale-related transfer after the date
of this prospectus supplement (all of whom may be selling securityholders), may
sell the securities from time to time on any stock exchange or automated
interdealer quotation system on which the securities are listed, on any market
or trading facility on which the securities are traded or in private
transactions, subject to applicable law. These sales may be public or
private, at prices and on terms then prevailing at the time of sale, at prices
related to the prevailing market prices, fixed prices or negotiated
prices. Prices may change over time. The securities may be
sold by the selling securityholders directly to one or more purchasers, through
agents designated from time to time or to or through broker-dealers and/or
underwriters designated from time to time. In the event the
securities are publicly offered through broker-dealers, underwriters or agents,
the selling securityholders may enter into agreements with respect
thereto.
The
selling securityholders may, subject to applicable law, also use any one or more
of the following methods when selling securities:
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
·
|
block
trades in which the broker-dealer will attempt to sell the securities as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
·
|
privately
negotiated transactions;
|
·
|
“at
the market” to or through market makers or into an existing market for the
securities;
|
·
|
through
transactions in options, swaps or other derivatives (whether
exchange-listed or otherwise); including the exercise of such instruments
by the selling securityholders or other
persons;
|
·
|
sales
by broker-dealers of a specified amount of securities at a stipulated
price per security;
|
·
|
through
distribution of the securities by any selling securityholder to its
partners, members or stockholders;
|
·
|
underwritten
offerings;
|
·
|
a
combination of any such methods of sale;
or
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
selling securityholders may from time to time pledge or grant a security
interest in some or all of the securities owned by them and, if they default in
the performance of their secured obligations, the pledgees or secured parties
may offer and sell the securities from time to time under this prospectus
supplement, or under another prospectus supplement, amending the list of selling
securityholders to include the pledgee, transferee or other successors in
interest as selling stockholders under this prospectus supplement.
The
selling securityholders may also transfer, devise or gift the securities by
other means not described in this prospectus supplement. Furthermore,
any securities covered by this prospectus which qualify for sale pursuant to
Rule 144 or Rule 144A or other exemptions from registration under of the
Securities Act may be sold pursuant to such exemption rather than pursuant to
this prospectus supplement.
The
selling securityholders may enter into hedging or other derivative transactions
with broker-dealers or other financial institutions in connection with
distributions of the securities or otherwise. In such transactions,
broker-
dealers
or financial institutions may engage in short sales of the securities in the
course of hedging the position they assume with the selling
securityholders. The selling securityholders may (a) engage in
short sales and other transactions in our securities; (b) engage in
transactions in, and hold positions in, puts and calls, forward-exchange
contracts, and collars, and other derivatives of our securities; and
(c) sell or deliver the securities in connection with these transactions or
positions, including as a result of the exercise of options or other derivatives
by the selling securityholders or other persons. If the selling
securityholders sell securities short, they may redeliver the securities to
close out such short positions. The selling securityholders may also
enter into option or other transactions with broker-dealers or financial
institutions which require the delivery to the broker-dealer or the financial
institution of the securities. The broker-dealer or financial
institution may then resell or otherwise transfer such securities under this
prospectus. In addition, the selling securityholders may loan their
securities to broker-dealers or financial institutions who are counterparties to
hedging transactions and the broker-dealers, financial institutions or
counterparties may sell the borrowed securities into the public
market. The selling securityholders may also pledge their securities
to their brokers or financial institutions and under the margin loan the broker
or financial institution may, from time to time, offer and sell the pledged
securities.
In order
to comply with the securities laws of some states, if applicable, the securities
may be sold in these jurisdictions only through registered or licensed brokers
or dealers. In addition, in some states the securities 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.
The
selling securityholders may engage agents, underwriters or broker-dealers, and
any broker-dealers may arrange for other broker-dealers, to participate in
effecting sales of the securities. The selling securityholders and
any underwriters, broker-dealers or agents that participate in the sale of the
securities 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 securities may be deemed to be underwriting
discounts and commissions under the Securities Act whether received from us,
from the selling securityholders or from purchasers of offered securities for
whom they act as agent. 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. Selling
securityholders, underwriters, broker-dealers and agents 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 and may be subject
to statutory liabilities, including, but not limited to, liability under
Sections 11, 12 and 17 of the Securities Act of 1933 and Rule 10b-5 under the
Exchange Act.
Each
selling securityholder and any other person participating in the sale of
securities will be subject to, and has acknowledged that it understands its
obligation to comply with, the applicable provisions of the Exchange Act and the
rules thereunder relating to stock manipulation, particularly Regulation M,
which may limit the timing of purchases and sales of any of the securities by
the selling securityholders and any other person participating in the sale of
the securities. Regulation M may also restrict the ability of
any person engaged in the distribution of the securities to engage in
market-making activities with respect to the securities. All of the
foregoing may affect the marketability of the securities and the ability of any
person or entity to engage in market-making activities with respect to the
securities.
To the
extent required, the specific securities to be sold, the names of the selling
securityholders, the respective purchase prices and public offering prices, the
names of any agent, broker-dealer or underwriter and any applicable commissions
or discounts with respect to a particular offer will be set forth in another
prospectus supplement or, if appropriate, a post-effective amendment to the
registration statement to which this prospectus supplement relates or any
periodic or current report under the Exchange Act that is incorporated by
reference in this prospectus supplement.
Each of
the selling securityholders will act independently of us in making decisions
with respect to the timing, manner and size of each sale. We will not
receive any of the proceeds from this offering. The aggregate
proceeds to the selling securityholders from the sale of the securities offered
by them will be the purchase price of the securities 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 securities to be made directly or
through agents.
To our
knowledge, there are currently no plans, arrangements or understandings between
any selling securityholders and any underwriter, broker-dealer or agent
regarding the sale of the securities. Selling securityholders may
ultimately not sell all, and conceivably may not sell any, of the securities
offered by them under this prospectus supplement. Because the selling
securityholders may offer all or some portion of the above referenced securities
under this prospectus supplement or otherwise, no estimate can be given as to
the amount or percentage of such securities that will be held by the selling
securityholders upon termination of any such sale.
Our
outstanding common stock is listed for trading on the NASDAQ Global Select
Market. We have no plans to list the Notes on a securities exchange
or to include the Notes in any automated quotation system upon their
registration and can give no assurance about the development of any trading
market for the Notes.
We
entered into a registration rights agreement for the benefit of the selling
securityholders to register their securities 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 our respective
directors, officers and controlling persons against specific liabilities in
connection with the offer and sale of the securities, including liabilities
under the Securities Act. We have agreed, among other things, to pay
all expenses of the shelf registration statement to which this prospectus
supplement relates, including fees and expenses of one counsel acting on behalf
of the selling securityholders not to exceed $20,000.
Under the
registration rights agreement, we are obligated to use our reasonable best
efforts to keep the registration statement continuously effective under the
Securities Act until the earlier of:
(1) the
date as of which all securities have been sold pursuant to a registration
statement filed under the Securities Act;
(2) the
date as of which each of the selling securityholders is permitted to sell its
securities without registration pursuant to Rule 144 under the Securities Act
without volume limitation or other restrictions on transfer thereunder;
and
(3) the
date all securities cease to be outstanding.
Our
obligation to keep the registration statement to which this prospectus
supplement relates effective is subject to specified, permitted exceptions set
forth in the registration rights agreement. In these cases, we may
prohibit offers and sales of the securities pursuant to the registration
statement to which this prospectus supplement relates.
We may
(not more than once in any 6-month period) suspend for a reasonable period of
time (not to exceed 60 calendar days) the use of the registration statement to
which this prospectus supplement relates if, in the good faith determination of
our Board, the use of this registration statement would reasonably be expected
to materially adversely affect or materially interfere with any bona fide
material financing of the Company or any material transaction under
consideration by the Company or would require the disclosure of information that
has not been, and is not otherwise required to be, disclosed to the public, the
premature disclosure of which would materially adversely affect the
Company. If such a suspension occurs and to the extent required under
the Securities Act, we will file a prospectus supplement or post-effective
amendment to the registration statement to which this prospectus supplement
relates.
WHERE
YOU CAN FIND MORE INFORMATION
We file
annual, quarterly and current reports, proxy statements and other information
with the SEC. You may read and copy any document that we file at the
Public Reference Room of the SEC at 100 F Street, N.E., Washington,
D.C. 20549. You may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains a website at www.sec.gov, from which interested
persons can electronically access our SEC filings, including the registration
statement of which this prospectus supplement forms a part and the exhibits and
schedules thereto.
The SEC
allows us to “incorporate by reference” the information we file with them, which
means that we can disclose important information to you by referring you to
those documents. The information incorporated by reference is an
important part of this prospectus supplement, and information that we file later
with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below
and all documents subsequently filed with the SEC pursuant to Section 13(a),
13(c), 14, or 15(d) of the Exchange Act, prior to the termination of the
offering under this prospectus supplement:
(a) our
Annual Report on Form 10-K for the year ended December 31, 2008, filed with
the SEC on February 26, 2009, except for Items 6, 7 and 8, which were
updated on the Current Report on Form 8-K filed with the SEC on May 14,
2009;
(b) our
Quarterly Reports on Form 10-Q for the three months ended March 31, 2009,
filed with the SEC on May 5, 2009 and the three months ended June 30, 2009,
filed with the SEC on August 6, 2009;
(c) our
Current Reports on Form 8-K filed with the SEC on May 8, 2009, May 14, 2009,
June 10, 2009, June 10, 2009, June 17, 2009, June 19, 2009, June 23, 2009,
June 30, 2009, July 2, 2009, July 9, 2009, July 22, 2009, August 19,
2009, August 20, 2009, August 25, 2009, September 9, 2009, September 14,
2009 and September 15, 2009 and our Current Report on Form 8-K/A filed on August
26, 2009; and
(d) The
description of our capital stock and the rights associated therewith included in
our Registration Statement on Form 8-A12B filed with the SEC on
December 26, 2006, including any amendments or reports filed for the
purpose of updating such descriptions.
Any
statement contained in a previously filed document incorporated by reference
into this prospectus supplement is deemed to be modified or superseded for
purposes of this prospectus supplement and accompanying prospectus to the extent
that a statement contained in this prospectus supplement, or in a subsequently
filed document also incorporated by reference herein, modifies or supersedes
that statement.
You may
request a copy of these filings at no cost by writing or telephoning the office
of Investor Relations, E*TRADE Financial Corporation, 135 East 57th Street, New
York, New York 10022, (888) 772-3477. Information about us, including
our SEC filings, is also available at our website at
www.etrade.com. The information on our website is not a part of, or
incorporated by reference in, this prospectus supplement or the accompanying
prospectus and should not be relied upon in determining whether to make an
investment in our securities.
PROSPECTUS
E*TRADE
Financial Corporation
Common
Stock, Preferred Stock, Debt Securities,
Depositary Shares, Rights, Warrants,
Purchase
Contracts, and Units
We may
issue shares of our common stock and preferred stock, debt securities,
depositary shares, rights, warrants, purchase contracts and units, and we or any
selling security holders may offer and sell these securities from time to time
in one or more offerings. This prospectus describes the general terms
of these securities and the general manner in which these securities will be
offered. We will provide the specific terms of these securities in
supplements to this prospectus. The prospectus supplements will also
describe the specific manner in which these securities will be offered and may
also supplement, update or amend information contained in this
document. You should read this prospectus and the applicable
prospectus supplement before you invest.
We and
any selling security holders may offer these securities in amounts, at prices
and on terms determined at the time of offering. The securities may
be sold directly to you, through agents, or through underwriters and
dealers. If agents, underwriters or dealers are used to sell the
securities, we will name them and describe their compensation in a prospectus
supplement.
Our
common stock is listed on the NASDAQ Global Select Market under the symbol
“ETFC.” On April 15, 2009, the last reported sale price on the Nasdaq
Global Select Market for our common stock was $2.08.
Investing
in these securities involves certain risks. See “Item 1A – Risk
Factors” beginning on page 6 of our Annual Report on Form 10-K for the year
ended December 31, 2008, incorporated by reference herein. We may include
specific risk factors in an applicable prospectus supplement under the heading
"Risk Factors."
Neither
the Securities and Exchange Commission (the “SEC”) nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
The
date of this prospectus is April 17, 2009
You
should rely only on the information contained in or incorporated by reference in
this prospectus in any supplement hereto or in any related free-writing
prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer of these securities
in any state where the offer is not permitted. You should not assume
that the information contained in or incorporated by reference in this
prospectus is accurate as of any date other than the date on the front of this
prospectus. The terms “E*TRADE,” the “Company,” “we,” “us,” and “our”
refer to E*TRADE Financial Corporation and, except where expressly indicated or
the context otherwise requires, its subsidiaries.
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E*TRADE
Financial Corporation is a financial services company that provides online
brokerage and related products and services primarily to individual retail
investors, under the brand “E*TRADE Financial.” Our products and services
include investor-focused banking, primarily sweep deposits and savings products,
and asset gathering. Our competitive strategy is to attract and retain customers
by emphasizing low-cost, ease of use and innovation, with delivery of our
products and services primarily through online and technology-intensive
channels.
Our
corporate offices are located at 135 East 57th Street, New York, New York 10022.
We were incorporated in California in 1982 and reincorporated in Delaware in
July 1996. We operate directly and through numerous subsidiaries many of which
are overseen by governmental and self-regulatory organizations. Our most
significant subsidiaries are described below:
·
|
E*TRADE
Bank is a Federally chartered savings bank that provides investor-focused
banking services to retail customers nationwide and deposit accounts
insured by the Federal Deposit Insurance Corporation
(“FDIC”);
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·
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E*TRADE
Capital Markets, LLC is a registered broker-dealer and
market-maker;
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·
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E*TRADE
Clearing LLC is the clearing firm for our brokerage subsidiaries and is a
wholly-owned operating subsidiary of E*TRADE Bank. Its main purpose is to
transfer securities from one party to another;
and
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·
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E*TRADE
Securities LLC is a registered broker-dealer and the primary provider of
brokerage services to our
customers.
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We
provide services primarily to customers in the U.S. through our website at
www.etrade.com. We also offer, either alone or with our partners, branded retail
websites outside of the U.S. the most significant of which are: Denmark,
Estonia, Finland, France, Germany, Hong Kong, Iceland, the Netherlands, Norway,
Singapore, Sweden, the United Arab Emirates and the United Kingdom.
In
addition to our websites, we also provide services through our network of
customer service representatives, relationship managers and investment advisors.
We provide these services over the phone or in person through our 29 E*TRADE
Financial Centers.
We
maintain a website at www.etrade.com where general information about us is
available. Information on our website is not a part of this
prospectus.
About
this Prospectus
This
prospectus is part of a registration statement that we filed with the SEC
utilizing a “shelf” registration process. Under this shelf process, we or
selling security holders may sell any combination of the securities described in
this prospectus in one or more offerings. This prospectus provides you with a
general description of the securities we or selling security holders may offer.
Each time we sell securities, we will provide a prospectus supplement that will
contain specific information about the terms of that offering. The prospectus
supplement may also add, update or change information contained in this
prospectus. You should read both this prospectus and any prospectus supplement
together with additional information described under the heading “Where You Can
Find More Information.”
We file
annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document that we
file at the Public Reference Room of the SEC at 100 F Street, N.E., Washington,
D.C. 20549. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the
SEC maintains a website at www.sec.gov, from which interested persons can
electronically access our SEC filings, including the registration statement of
which this prospectus forms a part and the exhibits and schedules
thereto.
The SEC
allows us to “incorporate by reference” the information we file with them, which
means that we can disclose important information to you by referring you to
those documents. The information incorporated by reference is an important part
of this prospectus, and information that we file later with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below and all documents subsequently filed with the SEC
pursuant to Section 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), prior to the termination of the offering
under this prospectus:
|
(a)
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Annual
Report on Form 10-K for the year ended December 31, 2008 filed with
the SEC on February 26, 2009;
and
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(b)
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The
description of our capital stock and the rights associated therewith
included in our Registration Statement on Form 8-A12B filed with the SEC
on December 26, 2006, including any amendments or reports filed for the
purpose of updating such
descriptions.
|
Any
statements contained in a previously filed document incorporated by reference
into this prospectus is deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained in this prospectus, or in a
subsequently filed document also incorporated by reference herein, modifies or
supersedes that statement.
You
may request a copy of these filings at no cost by writing or telephoning the
office of Investor Relations, E*TRADE Financial Corporation, 135 East 57th
Street, New York, New York 10022, (888) 772-3477. Information
about us, including our SEC filings, is also available at our website at www.etrade.com. However,
the information on our website is not a part of, or incorporated by reference
in, this prospectus or any prospectus supplement that we file and should not be
relied upon in determining whether to make an investment in our
securities.
Certain
information included in this prospectus and in the documents we incorporate
herein by reference may be deemed to be “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”) and Section 21E of the Exchange Act. Statements in this
prospectus that are not statements of historical facts are hereby identified as
forward-looking statements for these purposes. In particular, statements that we
make under the heading “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in our Annual Report on Form 10-K for the
year ended December 31, 2008 relating to our overall volume trends, and industry
forces, margin trends, anticipated capital expenditures and our strategies are
forward-looking statements. When used in this document, the words “may,”
“believe”, “expect”, “intend,” “anticipate”, “estimate”, “project”, “plan”,
“should” and similar expressions are intended to identify forward-looking
statements.
These
statements are based on assumptions and assessments made by our management in
light of their experience and their perception of historical trends, current
conditions, expected future developments and other factors they believe to be
appropriate. Any forward-looking statements are not guarantees of our future
performance and are subject to risks and uncertainties that could cause actual
results, developments and business decisions to differ materially from those
contemplated by such forward-looking statements. We disclaim any duty to update
any forward-looking statements. Some of the factors that may cause actual
results, developments and business decisions to differ materially from those
contemplated by such forward-looking statements are set forth under “Risk
Factors” and discussed under the heading “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” in our Annual Report on Form
10-K for the year ended December 31, 2008, including the
following:
·
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our
potential inability to return to profitability, particularly in light of
the significant losses we incurred in 2008 and the substantial diminution
in customer assets and accounts we experienced as a result of the losses
in our institutional business segment in
2007;
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·
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potential
increases in our provision for loan losses if the residential real estate
and credit markets continue to deteriorate and potential concerns about
our continued viability;
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·
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our
potential inability to retain our current customer assets and accounts and
to rebuild our franchise by reclaiming customers and growing
assets;
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·
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our
potential inability to service our substantial indebtedness and obtain
additional financing, as well as the challenges we face due to our
substantial leverage;
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·
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liabilities
and costs associated with investigations and lawsuits, including those
relating to our losses from mortgage loans and asset-backed
securities;
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·
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our
potential inability to compete
effectively;
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·
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adverse
changes in general economic conditions, including fluctuations in interest
rates;
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·
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adverse
changes in governmental regulations or enforcement practices;
and
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·
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other
factors described elsewhere in this prospectus or in our current and
future filings with the SEC.
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We have
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or risks. New
information, future events or risks may cause the forward-looking events we
discuss in this prospectus not to occur.
We intend
to use the net proceeds from the sale of the securities for working capital and
general corporate purposes, including, but not limited to, funding our
operations and financing capital expenditures. We may also invest the
proceeds in certificates of deposit, U.S. government securities or certain other
interest-bearing securities. If we decide to use the net proceeds
from a particular offering of securities for a specific purpose, we will
describe that in the related prospectus supplement.
We have
never declared or paid cash dividends on our common stock. Although we do not
currently have any plans to pay cash dividends on our common stock, we may do so
in the future (subject to any applicable contractual or other
restrictions).
The
following table sets forth our consolidated ratio of earnings to fixed charges
and preferred stock dividends:
|
For
the Year Ended December 31,
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Ratio
of earnings to fixed charges
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(a)
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(b)
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1.61
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1.75
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1.95
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Ratio
of earnings to fixed charges and preferred stock dividends
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(a)
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(b)
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1.61
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1.75
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1.95
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The ratio
of earnings to fixed charges is computed by dividing (i) income (loss) before
income taxes, discontinued operations and the cumulative effect of accounting
changes less equity in the income (loss) of investments plus fixed charges less
the preference securities dividend requirement of consolidated subsidiaries by
(ii) fixed charges. Fixed charges include, as applicable, interest expense,
amortization of debt issuance costs, the estimated interest component of rent
expense (calculated as one-third of net rent expense) and the preference
securities dividend requirement of consolidated subsidiaries.
(a)
Earnings for the year ended December 31, 2008 were inadequate to cover
fixed charges. The coverage deficiency was $1.3 billion.
(b)
Earnings for the year ended December 31, 2007 were inadequate to cover
fixed charges. The coverage deficiency was $2.2 billion.
The
following description of our capital stock is based upon our Restated
Certificate of Incorporation (“Certificate of Incorporation”), our Bylaws
(“Bylaws”) and applicable provisions of law. We have summarized
certain portions of the Certificate of Incorporation and Bylaws
below. The summary is not complete. The Certificate of
Incorporation and Bylaws are incorporated by reference in the registration
statement of which this prospectus forms a part and are exhibits to our Annual
Report on Form 10-K for the year ended December 31, 2008. You should
read the Certificate of Incorporation and Bylaws for the provisions that are
important to you.
Certain
provisions of the Delaware General Corporation Law (“DGCL”), the Certificate of
Incorporation and the Bylaws summarized in the following paragraphs may have an
anti-takeover effect. This may delay, defer or prevent a tender offer
or takeover attempt that a stockholder might consider in its best interests,
including those attempts that might result in a premium over the market price
for its shares.
General
Our
authorized capital stock consists of 1,200,000,000 shares of common stock,
$0.01 par value per share and 1,000,000 shares of preferred stock,
$0.01 par value per share. As of April 14, 2009, we had
outstanding 572,104,465 shares of our common stock. As of April 14,
2009, we had 1,858 stockholders of record.
Each
holder of common stock is entitled to one vote per share held on all matters to
be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably the dividends, if any, as may be declared from time
to time by our board of directors out of funds legally available for the payment
of dividends. If we liquidate, dissolve or wind-up our business, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior distribution rights of preferred
stock, if any, then outstanding. The common stock has no preemptive
or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are fully paid and
non-assessable, and any shares of common stock to be issued upon completion of
our offering will be fully paid and non-assessable.
Stockholder
Rights Plan
Our board
of directors adopted a Stockholder Rights Plan in July 2001. In
connection with the Stockholder Rights Plan, our board of directors declared and
paid a dividend of one participating preferred share purchase right for each
share of common stock outstanding on July 17, 2001. In addition, each
share of common stock issued after July 17, 2001 was issued, or will be issued,
with an accompanying participating preferred share purchase
right. Each right entitles the holder, under certain circumstances,
to purchase from us one one-thousandth of a share of Series B Participating
Cumulative Preferred Stock, par value $0.01 per share, at an exercise price of
$50.00 per one-thousandth of a share of Series B Participating Cumulative
Preferred Stock.
The
rights are evidenced by the certificates for, and are transferred with, our
common stock and will not separate from the underlying common stock and will not
be exercisable until the earlier of either (i) 10 days following a public
announcement that a person or group of affiliated or associated persons has
acquired, or obtained the right to acquire, beneficial ownership of securities
representing 10% or more of the outstanding shares of the Company’s common stock
(an “Acquiring Person”) or (ii) 10 business days (or such later date as may be
determined by our board of directors before any person has become an Acquiring
Person) following the commencement of a tender offer or exchange offer which
would result in any person or group of persons becoming an Acquiring Person. The
rights will expire on the earlier of (a) July 9, 2011 or (b) redemption of
exchange of the rights by the Company, as described below.
The board
of directors may exchange the rights at a ratio of one share of common stock for
each right at any time after a person or group of affiliated or associated
persons has become an Acquiring Person but before such person or group of
affiliated or associated persons acquires beneficial ownership of 50% or more of
the outstanding shares of our common stock. The board of directors may also
redeem the rights at a price of $.01 per right at any time before any person has
become an Acquiring Person.
If, after
the rights become exercisable, we agree to merge into another entity, another
merges into us or we sell more than 50% of our assets, each right will entitle
the holder to purchase, at a price equal to the exercise price of the right, a
number of shares of common stock of such surviving or acquiring entity having a
then-current value of two times the exercise price of the rights.
This
description is not complete and is qualified, in its entirety, by reference to
the Rights Agreement dated as of July 9, 2001, a copy of which was filed as
Exhibit 99.2 to our Current Report on Form 8-K filed on July 10, 2001, including
any amendments or reports filed for the purpose of updating such
description.
Anti-Takeover
Effects or Provisions of Our Certificate of Incorporation, Bylaws, Stockholder
Rights Plan, and Delaware Law
Certificate
of Incorporation and Bylaws
Our
Certificate of Incorporation and Bylaws contain provisions that could discourage
potential takeover attempts and make more difficult attempts by stockholders to
change management.
Our
Certificate of Incorporation and Bylaws provide for a classified board of
directors and permit the board to create new directorships and to elect new
directors to serve for the full term of the class of directors in which the new
directorship was created. The terms of the directors are staggered to provide
for the election of approximately one-third of the board members each year, with
each director serving a three-year term. In uncontested elections, each director
must be elected to the board by the majority of the votes cast with respect to
the director’s election, and must submit his or her resignation to the board if
he or she does not obtain the required majority. The board has the power to
decide whether or not to accept the resignation, but must publicly disclose its
decision and, if the resignation is rejected, its rationale within 90 days
following certification of the stockholder vote. The board (or its remaining
members, even though less than a quorum) is also empowered to fill vacancies on
the board occurring for any reason, including a vacancy from an enlargement of
the board; however, a vacancy created by the removal of a director by the
stockholders or court order may be filled only by the vote of a majority of the
shares at a meeting at which a quorum is present. Any director so elected
according to the preceding sentence shall hold office for the remainder of the
term of the class of directors in which the new directorship was created or the
vacancy occurred. A director or the entire board may be removed by stockholders,
with or without cause, by the affirmative vote of two-thirds of the outstanding
voting stock. Our Certificate of Incorporation does not provide for cumulative
voting in the election of directors.
Our
Certificate of Incorporation provides that stockholders may take action only at
an annual meeting or special meeting and may not take action by written consent.
Special meetings of our stockholders may only be called by our Chairman of the
board, our President, a majority of the number of directors constituting the
full board, or the holders of not less than 10% of our outstanding voting
stock.
Under the
terms of our Bylaws, stockholders who intend to present business or nominate
persons for election to the board at annual meetings of stockholders must
provide notice to our corporate secretary no more than 150 days and no less than
120 days prior to the date of the proxy statement for the prior annual meeting,
as more fully set forth in our Bylaws.
Our
Certificate of Incorporation provides that, in addition to the requirements of
the Delaware General Corporation Law described below, any business combination
with an interested stockholder, as these terms are defined in our Certificate of
Incorporation and summarized below, requires the affirmative vote of two-thirds
of the outstanding voting stock, unless two-thirds of the number of directors
constituting the full board approve the transaction.
A
business combination is defined for purposes of this provision of our
Certificate of Incorporation as:
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a
merger or consolidation of us or any of our subsidiaries with an
interested stockholder or with a corporation that is or would become an
affiliate or associate, with these terms defined for purposes of this
provision of our Certificate of Incorporation as they are defined in the
Exchange Act, of an interested
stockholder,
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any
sale, lease, exchange, mortgage, pledge, transfer or other disposition to
or with, or proposed by or on behalf of, an interested stockholder or any
affiliate or associate of an interested stockholder involving any assets
of ours or our subsidiaries that constitute 5% or more of our total
assets,
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the
issuance or transfer by us or by any of our subsidiaries of any of our or
their securities to, or proposed by or on behalf of, an interested
stockholder or any affiliate or associate of an interested stockholder in
exchange for cash, securities or other property that constitute 5% or more
of our total assets,
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the
adoption of any plan or proposal for our liquidation or dissolution or any
spin-off or split-up of any kind of us or any of our subsidiaries,
proposed by or on behalf of an interested stockholder or an affiliate or
associate of an interested stockholder,
or
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any
reclassification, recapitalization, or merger or consolidation of us with
any of our subsidiaries or any similar transaction that has the effect,
directly or indirectly, of increasing the percentage of the outstanding
shares of (i) any class of equity securities of us or any of our
subsidiaries or (ii) any class of securities of us or any of our
subsidiaries convertible into equity securities of us or any of our
subsidiaries which are directly or indirectly owned by an interested
stockholder or an affiliate or associate of an interested
stockholder.
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An
interested stockholder is defined for purposes of this provision of our
Certificate of Incorporation as an individual, corporation or other entity
which, as of the record date for notice of the transaction or immediately prior
to the transaction:
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is
one of our associates or affiliates and at any time within the prior
two-year period was the beneficial owner, directly or indirectly, of 10%
or more of our outstanding voting securities,
or
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is,
or was at any time within the prior two-year period, the beneficial owner,
directly or indirectly, of 10% or more of our outstanding voting
securities, or
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is
under circumstances described in more detail in our Certificate of
Incorporation, an assignee of any of the persons described
above.
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A person
is the beneficial owner of any voting securities which:
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that
person or any of its affiliates or associates, beneficially owns, directly
or indirectly,
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that
person or any of its affiliates or associates has, directly or indirectly,
the right to acquire (whether such right is exercisable immediately or
subject only to the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or the right to vote
pursuant to any agreement, arrangement or understanding,
or
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are
beneficially owned, directly or indirectly, by any other person with which
the person in question or any of its affiliates or associates has any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital
stock.
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As
described below under “Description of Preferred Stock,” our board of directors
has the authority to issue preferred stock in one or more series and to fix the
powers, rights, designations preferences, qualifications, limitations and
restrictions applicable to the preferred stock. The issuance of preferred stock
may have the effect of delaying, deferring or preventing potential takeover
attempts without further action by the stockholders and may adversely affect the
voting and other rights of the holders of our common stock.
These
provisions of our Certificate of Incorporation and Bylaws may deter any
potential unfriendly offers or other efforts to obtain control of us that are
not approved by our board of directors. Such provisions could deprive our
stockholders of opportunities to realize a premium on their common stock and
could make removal of incumbent directors more difficult. At the same time,
these provisions may have the effect of inducing any persons seeking to control
us or seeking a business combination with us to negotiate terms acceptable to
our board of
directors.
These provisions of our Certificate of Incorporation and Bylaws can be changed
or amended only by the affirmative vote of the holders of at least two-thirds of
our outstanding voting stock.
Stockholder
Rights Plan
The
Stockholder Rights Plan approved by our board of directors is designed to
protect and maximize the value of our outstanding equity interests in the event
of an unsolicited attempt to acquire us in a manner or on terms not approved by
our board of directors and that prevents our stockholders from realizing the
full value of their shares of our common stock. The rights are not intended to
prevent a takeover of us.
We may
redeem the rights at a price of $0.01 per right at any time prior to the
acquisition of 10% or more of our outstanding common stock by a single acquiror
or group. Accordingly, the rights should not interfere with any merger or
business combination approved by our board of directors.
However,
the rights may have the effect of rendering more difficult or discouraging an
acquisition of us that is deemed undesirable by our board of directors. The
rights may cause substantial dilution to a person or group that attempts to
acquire us on terms or in a manner not approved by our board of directors,
except pursuant to an offer conditioned upon the negotiation, purchase or
redemption of the rights.
Delaware
Law
We are
subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. In general, Section 203
prohibits a Delaware corporation from engaging in any business combination with
any interested stockholder for a period of three years following the date that
the stockholder became an interested stockholder, unless:
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the
transaction is approved by the board before the date the interested
stockholder attained that status;
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upon
consummation of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85%
of the voting stock of the corporation outstanding at the time the
transaction commenced; or
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on
or after the date the business combination is approved by the board and
authorized at a meeting of stockholders by at least two-thirds of the
outstanding voting stock that is not owned by the interested
stockholder.
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Section 203
defines “business combination” to include the following:
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any
sale, lease, exchange, mortgage, transfer, pledge or other disposition of
10% or more of the assets of the corporation involving the interested
stockholder;
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any
merger or consolidation involving the corporation or any majority-owned
subsidiary and the interested
stockholder;
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subject
to certain exceptions, any transaction that results in the issuance or
transfer by the corporation or by any majority-owned subsidiary of any
stock of the corporation or of such subsidiary to the interested
stockholder;
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any
transaction involving the corporation or any majority-owned subsidiary
that has the effect of increasing the proportionate share of the stock of
any class or series of the corporation beneficially owned by the
interested stockholder; or
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the
receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation or any majority-owned
subsidiary.
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In
general, Section 203 defines “interested stockholder” to be any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by any of these entities or persons.
A
Delaware corporation may opt out of this provision either with an express
provision in its original Certificate of Incorporation or in an amendment to its
Certificate of Incorporation or Bylaws approved by its stockholders. We have not
opted out of this provision. Section 203 could prohibit or delay mergers or
other takeover or change in control attempts and, accordingly, may discourage
attempts to acquire us.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is American Stock Transfer
& Trust Company, N.A.
Listing
Our
common stock is listed for trading on the NASDAQ Global Select Market under the
trading symbol “ETFC.”
This
prospectus describes certain general terms and provisions of our preferred
stock. When we offer to sell a particular series of preferred stock,
we will describe the specific terms of the securities in a supplement to this
prospectus. The prospectus supplement will also indicate whether the
general terms and provisions described in this prospectus apply to the
particular series of preferred stock. The preferred stock will be
issued under a certificate of designation relating to each series of preferred
stock and is also subject to our Certificate of Incorporation.
We have
summarized certain terms of the certificate of designation below. The
summary is not complete. The certificate of designation will be filed
with the SEC in connection with an offering of preferred stock.
Under our
Certificate of Incorporation, our board of directors has the authority
to:
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create
one or more series of preferred
stock,
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issue
shares of preferred stock in any series up to the maximum number of shares
of preferred stock authorized, and
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determine
the preferences, rights, privileges and restrictions of any
series.
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Our board
may issue authorized shares of preferred stock, as well as authorized but
unissued shares of common stock, without further stockholder action, unless
stockholder action is required by applicable law or by the rules of a stock
exchange or quotation system on which any series of our stock may be listed or
quoted.
The
prospectus supplement will describe the terms of any preferred stock being
offered, including:
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the
number of shares and designation or title of the
shares;
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any
liquidation preference per share;
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any
redemption, repayment or sinking fund
provisions;
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any
dividend rate or rates and the dates of payment (or the method for
determining the dividend rates or dates of
payment);
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if
other than the currency of the United States, the currency or currencies
including composite currencies in which the preferred stock is denominated
and/or in which payments will or may be
payable;
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the
method by which amounts in respect of the preferred stock may be
calculated and any commodities, currencies or indices, or value, rate or
price, relevant to such
calculation;
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whether
the preferred stock is convertible or exchangeable and, if so, the
securities or rights into which the preferred stock is convertible or
exchangeable, and the terms and conditions of conversion or
exchange;
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the
place or places where dividends and other payments on the preferred stock
will be payable; and
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any
additional voting, dividend, liquidation, redemption and other rights,
preferences, privileges, limitations and
restrictions.
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All
shares of preferred stock offered will be fully paid and
non-assessable. Any shares of preferred stock that are issued will
have priority over the common stock with respect to dividend or liquidation
rights or both.
Our board
of directors could create and issue a series of preferred stock with rights,
privileges or restrictions which effectively discriminates against an existing
or prospective holder of preferred stock as a result of the holder beneficially
owning or commencing a tender offer for a substantial amount of common stock.
One of the effects of authorized but unissued and unreserved shares of capital
stock may be to make it more difficult or discourage an attempt by a potential
acquirer to obtain control of our company by means of a merger, tender offer,
proxy contest or otherwise. The issuance of these shares of capital stock may
defer or prevent a change in control of our company without any further
stockholder action.
In
connection with our Stockholder Rights Plan, our board of directors has
designated and reserved for issuance a series of 500,000 shares of Series B
Participating Cumulative Preferred Stock, par value $0.01 per share. We may
issue these shares of preferred stock under certain circumstances if the rights
distributed to our stockholders pursuant to our Stockholder Rights Plan become
exercisable. See “Description of Common Stock—Stockholder Rights
Plan.”
The
transfer agent for each series of preferred stock will be described in the
relevant prospectus supplement.
Our debt
securities, consisting of notes, debentures or other evidences of indebtedness,
may be issued from time to time in one or more series pursuant to, in the case
of senior debt securities, a senior indenture to be entered into between us and
a trustee to be named therein, and in the case of subordinated debt securities,
a subordinated indenture to be entered into between us and a trustee to be named
therein. The terms of our debt securities will include those set forth in the
indentures and those made a part of the indentures by the Trust Indenture Act of
1939.
Because
the following is only a summary of selected provisions of the indentures and the
debt securities, it does not contain all information that may be important to
you. This summary is not complete and is qualified in its entirety by reference
to the base indentures and any supplemental indentures thereto or officer’s
certificate or board resolution related thereto. We urge you to read the
indentures because the indentures, not this description, define the rights of
the holders of the debt securities. The senior indenture and the subordinated
indenture will be substantially in the forms included as exhibits to the
registration statement of which this prospectus is a part.
As used
in this section of the prospectus and under the captions “Description of Capital
Stock,” “Description of Warrants” and “Description of Units,” the terms “we,”
“us” and “our” refer only to E*TRADE and not to any existing or future
subsidiaries of E*TRADE.
General
The
senior debt securities will constitute unsecured and unsubordinated obligations
of ours and will rank pari passu with our other unsecured and unsubordinated
obligations. The subordinated debt securities will constitute our
unsecured
and subordinated obligations and will be junior in right of payment to our
Senior Indebtedness (including senior debt securities), as described under the
heading “Certain Terms of the Subordinated Debt
Securities—Subordination.”
We
conduct most of our operations through subsidiaries. Consequently, our ability
to pay our obligations, including our obligation to pay principal or interest on
the debt securities, to pay the debt securities at maturity or upon redemption
or to buy the debt securities may depend on our subsidiaries repaying
investments and advances we have made to them, and on our subsidiaries’ earnings
and their distributing those earnings to us. The debt securities will be
effectively subordinated to all obligations (including trade payables and
preferred stock obligations) of our subsidiaries. Our subsidiaries are separate
and distinct legal entities and have no obligation, contingent or otherwise, to
pay any amounts due on the debt securities or to make funds available to us to
do so. Our subsidiaries’ ability to pay dividends or make other payments or
advances to us will depend on their operating results and will be subject to
applicable laws and contractual restrictions. The indentures will not limit our
subsidiaries’ ability to enter into other agreements that prohibit or restrict
dividends or other payments or advances to us.
The debt
securities will be our unsecured obligations. Our secured debt and other secured
obligations will be effectively senior to the debt securities to the extent of
the value of the assets securing such debt or other obligations.
You
should look in the prospectus supplement for any additional or different terms
of the debt securities being offered, including the following
terms:
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the
debt securities’ designation;
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the
aggregate principal amount of the debt
securities;
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the
percentage of their principal amount (i.e. price) at which the debt
securities will be issued;
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the
date or dates on which the debt securities will mature and the right, if
any, to extend such date or dates;
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the
rate or rates, if any, per year, at which the debt securities will bear
interest, or the method of determining such rate or
rates;
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the
date or dates from which such interest will accrue, the interest payment
dates on which such interest will be payable or the manner of
determination of such interest payment dates and the record dates for the
determination of holders to whom interest is payable on any interest
payment date;
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the
right, if any, to extend the interest payment periods and the duration of
that extension;
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the
manner of paying principal and interest and the place or places where
principal and interest will be
payable;
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provisions
for a sinking fund purchase or other analogous fund, if
any;
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the
period or periods, if any, within which, the price or prices at which, and
the terms and conditions upon which the debt securities may be redeemed,
in whole or in part, at our option or at your
option;
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the
form of the debt securities;
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any
provisions for payment of additional amounts for taxes and any provision
for redemption, if we must pay such additional amounts in respect of any
debt security;
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the
terms and conditions, if any, upon which we may have to repay the debt
securities early at your option;
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the
currency, currencies or currency units for which you may purchase the debt
securities and the currency, currencies or currency units in which
principal and interest, if any, on the debt securities may be
payable;
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the
terms and conditions upon which conversion or exchange of the debt
securities may be effected, if any, including the initial conversion or
exchange price or rate and any adjustments thereto and the period or
periods when a conversion or exchange may be
effected;
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whether
and upon what terms the debt securities may be
defeased;
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any
events of default or covenants in addition to or in lieu of those set
forth in the indenture;
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provisions
for electronic issuance of debt securities or for debt securities in
uncertificated form; and
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any
other terms of the debt securities, including any terms which may be
required by or advisable under applicable laws or regulations or advisable
in connection with the marketing of the debt
securities.
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We may
from time to time, without notice to or the consent of the holders of any series
of debt securities, create and issue further debt securities of any such series
ranking equally with the debt securities of such series in all respects (or in
all respects other than the payment of interest accruing prior to the issue date
of such further debt securities or except for the first payment of interest
following the issue date of such further debt securities). Such further debt
securities may be consolidated and form a single series with the debt securities
of such series and have the same terms as to status, redemption or otherwise as
the debt securities of such series.
You may
present debt securities for exchange and you may present debt securities for
transfer in the manner, at the places and subject to the restrictions set forth
in the debt securities and the applicable prospectus supplement. We will provide
you those services without charge, although you may have to pay any tax or other
governmental charge payable in connection with any exchange or transfer, as set
forth in the indenture.
Debt
securities will bear interest at a fixed rate or a floating rate. Debt
securities bearing no interest or interest at a rate that at the time of
issuance is below the prevailing market rate (original issue discount
securities) may be sold at a discount below their stated principal amount.
Special U.S. federal income tax considerations applicable to any such discounted
debt securities or to certain debt securities issued at par which are treated as
having been issued at a discount for U.S. federal income tax purposes will be
described in the applicable prospectus supplement.
We may
issue debt securities with the principal amount payable on any principal payment
date, or the amount of interest payable on any interest payment date, to be
determined by reference to one or more currency exchange rates, securities or
baskets of securities, commodity prices or indices. You may receive a payment of
principal on any principal payment date, or a payment of interest on any
interest payment date, that is greater than or less than the amount of principal
or interest otherwise payable on such dates, depending on the value on such
dates of the applicable currency, security or basket of securities, commodity or
index. Information as to the methods for determining the amount of principal or
interest payable on any date, the currencies, securities or baskets of
securities, commodities or indices to which the amount payable on such date is
linked and certain additional tax considerations will be set forth in the
applicable prospectus supplement.
Certain
Terms of the Senior Debt Securities
Covenants
Unless
otherwise indicated in a prospectus supplement, the senior debt securities will
not contain any financial or restrictive covenants, including covenants
restricting either us or any of our subsidiaries from incurring, issuing,
assuming or guarantying any indebtedness secured by a lien on any of our or our
subsidiaries’ property or capital stock, or restricting either us or any of our
subsidiaries from entering into sale and leaseback transactions.
Consolidation,
Merger and Sale of Assets
Unless we
indicate otherwise in a prospectus supplement, we may not consolidate with or
merge into any other person, in a transaction in which we are not the surviving
corporation, or convey, transfer or lease our properties and assets
substantially as an entirety to any person, unless:
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the
successor entity, if any, is a U.S. corporation, limited liability
company, partnership or trust (subject to certain exceptions provided for
in the senior indenture);
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the successor entity assumes our
obligations on the senior debt securities and under the senior
indenture;
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immediately
after giving effect to the transaction, no default or event of default
shall have occurred and be continuing;
and
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certain
other conditions are met.
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No
Protection in the Event of a Change of Control
Unless
otherwise indicated in a prospectus supplement with respect to a particular
series of senior debt securities, the senior debt securities will not contain
any provisions which may afford holders of the senior debt securities protection
in the event we have a change in control or in the event of a highly leveraged
transaction (whether or not such transaction results in a change in
control).
Events
of Default
An event
of default for any series of senior debt securities is defined under the senior
indenture as being:
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our
default in the payment of principal or premium on the senior debt
securities of such series when due and payable whether at maturity, upon
acceleration, redemption, or otherwise, if that default continues for a
period of five days (or such other period as may be specified for such
series);
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our
default in the payment of interest on any senior debt securities of such
series when due and payable, if that default continues for a period of 60
days (or such other period as may be specified for such
series);
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our
default in the performance of or breach of any of our other covenants or
agreements in the senior indenture applicable to senior debt securities of
such series, other than a covenant breach which is specifically dealt with
elsewhere in the senior indenture, and that default or breach continues
for a period of 90 consecutive days after we receive written notice from
the trustee or from the holders of 25% or more in aggregate principal
amount of the senior debt securities of such
series;
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there
occurs any other event of default provided for in such series of senior
debt securities;
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a
court having jurisdiction enters a decree or order
for:
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relief
in respect of us in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in
effect;
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appointment
of a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of us or for all or substantially all of our property and
assets; or
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the
winding up or liquidation of our affairs and such decree or order shall
remain unstayed and in effect for a period of 60 consecutive
days.
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commence
a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consent to the entry of an
order for relief in an involuntary case under any such
law;
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consent
to the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of ours for
all or substantially all of our property and assets;
or
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effect
any general assignment for the benefit of
creditors.
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The
default by us under any other debt, including any other series of debt
securities, is not a default under the senior indenture.
If an
event of default other than an event of default specified in the last two bullet
points above occurs with respect to a series of senior debt securities and is
continuing under the senior indenture, then, and in each and every such case,
either the trustee or the holders of not less than 25% in aggregate principal
amount of such series then outstanding under the senior indenture (each such
series voting as a separate class) by written notice to us and to the trustee,
if such notice is given by the holders, may, and the trustee at the request of
such holders shall, declare the principal amount of and accrued interest, if
any, on such senior debt securities to be immediately due and
payable.
If an
event of default specified in the last two bullet points above occurs with
respect to us and is continuing, either the trustee or the holders of not less
than 25% in aggregate principal amount of the senior debt securities of all
series then outstanding under the senior indenture (treated as one class) may,
by written notice to us and to the trustee, if such notice is given by the
holders, declare the entire principal amount of, and accrued interest, if any,
on each series of senior debt securities then outstanding to be immediately due
and payable.
Upon a
declaration of acceleration, the principal amount of and accrued interest, if
any, on such senior debt securities shall be immediately due and payable. Unless
otherwise specified in the prospectus supplement relating to a series of senior
debt securities originally issued at a discount, the amount due upon
acceleration shall include only the original issue price of the senior debt
securities, the amount of original issue discount accrued to the date of
acceleration and accrued interest, if any.
Upon
certain conditions, declarations of acceleration may be rescinded and annulled
and past defaults may be waived by the holders of a majority in aggregate
principal amount of all the senior debt securities of such series affected by
the default, each series voting as a separate class (or, of all the senior debt
securities, as the case may be, voting as a single class). Furthermore, subject
to various provisions in the senior indenture, the holders of at least a
majority in aggregate principal amount of a series of senior debt securities, by
notice to the trustee, may waive an existing default or event of default with
respect to such senior debt securities and its consequences, except a default in
the payment of principal of or interest on such senior debt securities or in
respect of a covenant or provision of the senior indenture which cannot be
modified or amended without the consent of the holders of each such senior debt
security. Upon any such waiver, such default shall cease to exist, and any event
of default with respect to such senior debt securities shall be deemed to have
been cured, for every purpose of the senior indenture; but no such waiver shall
extend to any subsequent or other default or event of default or impair any
right consequent thereto. For information as to the waiver of defaults, see
“—Modification and Waiver.”
The
holders of at least a majority in aggregate principal amount of a series of
senior debt securities 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 on the trustee with respect to such senior debt securities.
However, the trustee may refuse to follow any direction that conflicts with law
or the senior indenture, that may involve the trustee in personal liability, or
that the trustee determines in good faith may be unduly prejudicial to the
rights of holders of such series of senior debt securities not joining in the
giving of such direction and may take any other action it deems proper that is
not inconsistent with any such direction received from holders of such series of
senior debt securities. A holder may not pursue any remedy with respect to the
senior indenture or any series of senior debt securities unless:
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the
holder gives the trustee written notice of a continuing event of
default;
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the
holders of at least 25% in aggregate principal amount of such series of
senior debt securities make a written request to the trustee to pursue the
remedy in respect of such event of
default;
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the
requesting holder or holders offer the trustee indemnity satisfactory to
the trustee against any costs, liability, or
expense;
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the
trustee does not comply with the request within 60 days after receipt of
the request and the offer of indemnity;
and
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during
such 60-day period, the holders of a majority in aggregate principal
amount of such series of senior debt securities do not give the trustee a
direction that is inconsistent with the
request.
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These
limitations, however, do not apply to the right of any holder of a senior debt
security to receive payment of the principal of or interest, if any, on such
senior debt security, or to bring suit for the enforcement of any such payment,
on or after the due date for the senior debt securities, which right shall not
be impaired or affected without the consent of the holder.
The
senior indenture requires certain of our officers to certify, on or before a
fixed date in each year in which any senior debt security is outstanding, as to
their knowledge of our compliance with all conditions and covenants under the
senior indenture.
Discharge
and Defeasance
The
senior indenture provides that, unless the terms of any series of senior debt
securities provides otherwise, we may discharge our obligations with respect to
a series of senior debt securities and the senior indenture with respect to such
series of senior debt securities if:
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we
pay or cause to be paid, as and when due and payable, the principal of and
any interest on all senior debt securities of such series outstanding
under the senior indenture;
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·
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all
senior debt securities of such series previously authenticated and
delivered with certain exceptions, have been delivered to the trustee for
cancellation and we have paid all sums payable by us under the senior
indenture; or
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·
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the
senior debt securities of such series mature within one year or all of
them are to be called for redemption within one year under arrangements
satisfactory to the trustee for giving the notice of redemption, and we
irrevocably deposit in trust with the trustee, as trust funds solely for
the benefit of the holders of the senior debt securities of such series,
for that purpose, the entire amount in cash or, in the case of any series
of senior debt securities payments on which may only be made in U.S.
dollars, U.S. government obligations (maturing as to principal and
interest in such amounts and at such times as will insure the availability
of cash sufficient), after payment of all federal, state and local taxes
or other charges and assessments in respect thereof payable by the
trustee, to pay principal of and interest on the senior debt securities of
such series to maturity or redemption, as the case may be, and to pay all
other sums payable by us under the senior
indenture.
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With
respect to the first and second bullet points, only our obligations to
compensate and indemnify the trustee and our right to recover unclaimed money
held by the trustee under the senior indenture shall survive. With respect to
the third bullet point, certain rights and obligations under the senior
indenture (such as our obligation to maintain an office or agency in respect of
such senior debt securities, to have moneys held for payment in trust, to
register the transfer or exchange of such senior debt securities, to deliver
such senior debt securities for replacement or to be canceled, to compensate and
indemnify the trustee and to appoint a successor trustee, and our right to
recover unclaimed money held by the trustee) shall survive until such senior
debt securities are no longer outstanding. Thereafter, only our obligations to
compensate and indemnify the trustee and our right to recover unclaimed money
held by the trustee shall survive.
Unless
the terms of any series of senior debt securities provide otherwise, on the
121st day after the date of deposit of the trust funds with the trustee, we will
be deemed to have paid and will be discharged from any and all obligations in
respect of the series of senior debt securities provided for in the funds, and
the provisions of the senior indenture will no longer be in effect with respect
to such senior debt securities (“legal defeasance”); provided that the following
conditions shall have been satisfied:
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we
have irrevocably deposited in trust with the trustee as trust funds solely
for the benefit of the holders of the senior debt securities of such
series, for payment of the principal of and interest on the senior debt
securities of such series, cash in an amount or, in the case of any series
of senior debt securities payments on which can only be made in U.S.
dollars, U.S. government obligations (maturing as to principal and
interest
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at such
times and in such amounts as will insure the availability of cash) or a
combination thereof sufficient (in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the trustee), after payment of all federal, state and local taxes
or other charges and assessments in respect thereof payable by the trustee, to
pay and discharge the principal of and accrued interest on the senior debt
securities of such series to maturity or earlier redemption, as the case may be,
and any mandatory sinking fund payments on the day on which such payments are
due and payable in accordance with the terms of the senior indenture and the
senior debt securities of such series;
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such
deposit will not result in a breach or violation of, or constitute a
default under, the senior indenture or any other material agreement or
instrument to which we are a party or by which we are
bound;
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no
default or event of default with respect to the senior debt securities of
such series shall have occurred and be continuing on the date of such
deposit;
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we
shall have delivered to the trustee either an officer’s certificate and an
opinion of counsel that the holders of the senior debt securities of such
series will not recognize income, gain or loss for federal income tax
purposes as a result of our exercising our option under this provision of
the senior indenture and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred or a ruling by the
Internal Revenue Service to the same effect;
and
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we
have delivered to the trustee an officer’s certificate and an opinion of
counsel, in each case stating that all conditions precedent provided for
in the senior indenture relating to the contemplated defeasance of the
senior debt securities of such series have been complied
with.
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Subsequent
to the legal defeasance above, certain rights and obligations under the senior
indenture (such as our obligation to maintain an office or agency in respect of
such senior debt securities, to have moneys held for payment in trust, to
register the exchange of such senior debt securities, to deliver such senior
debt securities for replacement or to be canceled, to compensate and indemnify
the trustee and to appoint a successor trustee, and our right to recover
unclaimed money held by the trustee) shall survive until such senior debt
securities are no longer outstanding. After such senior debt securities are no
longer outstanding, only our obligations to compensate and indemnify the trustee
and our right to recover unclaimed money held by the trustee shall
survive.
Modification
and Waiver
We and
the trustee may amend or supplement the senior indenture or the senior debt
securities without the consent of any holder:
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to
convey, mortgage or pledge any assets as security for the senior debt
securities of one or more series;
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to
evidence the succession of another corporation to us, and the assumption
by such successor corporation of our covenants, agreements and obligations
under the senior indenture;
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to
cure any ambiguity, defect, or inconsistency in the senior indenture or in
any supplemental indenture; provided that such amendments or supplements
shall not adversely affect the interests of the holders of the senior debt
securities of any series in any material respect, or to conform the senior
indenture or the senior debt securities to the description of senior debt
securities of such series set forth in this prospectus or a prospectus
supplement;
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to
comply with the provisions described under “—Certain
Covenants—Consolidation, Merger and Sale of
Assets”;
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to
evidence and provide for the acceptance of appointment hereunder by a
successor trustee, or to make such changes as shall be necessary to
provide for or facilitate the administration of the trusts in the senior
indenture by more than one trustee;
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to
provide for or add guarantors with respect to the senior debt securities
of any series;
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to
establish the form or forms or terms of the senior debt securities as
permitted by the senior indenture;
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to
make any change that is necessary or desirable provided that such change
shall not adversely affect the interests of the holders of the senior debt
securities of any series in any material
respect;
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to
add to our covenants such new covenants, restrictions, conditions or
provisions for the protection of the holders, and to make the occurrence,
or the occurrence and continuance, of a default in any such additional
covenants, restrictions, conditions or provisions an event of
default;
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to
make any change to the senior debt securities of any series so long as no
senior debt securities of such series are outstanding;
or
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to
make any change that does not adversely affect the rights of any
holder.
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Other
amendments and modifications of the senior indenture or the senior debt
securities issued may be made, and our compliance with any provision of the
senior indenture with respect to any series of senior debt securities may be
waived, with the consent of the holders of not less than a majority of the
aggregate principal amount of the outstanding senior debt securities of all
series affected by the amendment or modification (voting as one class);
provided, however, that each affected holder must consent to any modification,
amendment or waiver that:
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changes
the stated maturity of the principal of, or any installment of interest
on, any senior debt securities of such
series;
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reduces
the principal amount of, or premium, if any, or interest on, any senior
debt securities of such series;
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·
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changes
the place or currency of payment of principal of, or premium, if any, or
interest on, any senior debt securities of such
series;
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changes
the provisions for calculating the optional redemption price, including
the definitions relating thereto;
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·
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changes
the provisions relating to the waiver of past defaults or changes or
impairs the right of holders to receive payment or to institute suit for
the enforcement of any payment of any senior debt securities of such
series on or after the due date
therefor;
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reduces
the above-stated percentage of outstanding senior debt securities of such
series the consent of whose holders is necessary to modify or amend or to
waive certain provisions of or defaults under the senior
indenture;
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waives
a default in the payment of principal of or interest on the senior debt
securities;
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adversely
affects the rights of such holder under any mandatory redemption or
repurchase provision or any right of redemption or repurchase at the
option of such holder; or
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modifies
any of the provisions of this paragraph, except to increase any required
percentage or to provide that certain other provisions cannot be modified
or waived without the consent of the holder of each senior debt security
of such series affected by the
modification.
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It shall
not be necessary for the consent of the holders under this section of the senior
indenture to approve the particular form of any proposed amendment, supplement
or waiver, but it shall be sufficient if such consent approves the substance
thereof. After an amendment, supplement or waiver under this section of the
senior indenture becomes effective, the trustee must give to the holders
affected thereby certain notice briefly describing the amendment, supplement or
waiver. We will mail supplemental indentures to holders upon request. Any
failure by the trustee to give such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such supplemental
indenture or waiver.
No
Personal Liability of Incorporators, Stockholders, Officers,
Directors
The
senior indenture provides that no recourse shall be had under or upon any
obligation, covenant, or agreement of ours in the senior indenture or any
supplemental indenture, or in any of the senior debt securities or because of
the creation of any indebtedness represented thereby, against any incorporator,
stockholder, officer or director of ours or of any successor person thereof
under any law, statute or constitutional provision or by the enforcement of any
assessment or by any legal or equitable proceeding or otherwise. Each holder, by
accepting the senior debt securities, waives and releases all such
liability.
Concerning
the Trustee
The
senior indenture provides that, except during the continuance of a default, the
trustee will not be liable, except for the performance of such duties as are
specifically set forth in the senior indenture. If an event of default has
occurred and is continuing, the trustee will exercise such rights and powers
vested in it under the senior indenture and will use the same degree of care and
skill in its exercise as a prudent person would exercise under the circumstances
in the conduct of such person’s own affairs.
We may
have normal banking relationships with the trustee under the senior indenture in
the ordinary course of business.
Unclaimed
Funds
All funds
deposited with the trustee or any paying agent for the payment of principal,
interest, premium or additional amounts in respect of the senior debt securities
that remain unclaimed for two years after the maturity date of such senior debt
securities will be repaid to us upon our request. Thereafter, any right of any
noteholder to such funds shall be enforceable only against us, and the trustee
and paying agents will have no liability therefor.
Governing
Law
The
senior indenture and the debt securities will be governed by, and construed in
accordance with, the internal laws of the State of New York.
Certain
Terms of the Subordinated Debt Securities
Other
than the terms of the subordinated indenture and subordinated debt securities
relating to subordination, or otherwise as described in the prospectus
supplement relating to a particular series of subordinated debt securities, the
terms of the subordinated indenture and subordinated debt securities are
identical in all material respects to the terms of the senior indenture and
senior debt securities. Additional or different subordination terms may be
specified in the prospectus supplement applicable to a particular
series.
Subordination
The
indebtedness evidenced by the subordinated debt securities is subordinate to the
prior payment in full of all our Senior Indebtedness, as defined in the
subordinated indenture. During the continuance beyond any applicable grace
period of any default in the payment of principal, premium, interest or any
other payment due on any of our Senior Indebtedness, we may not make any payment
of principal of, or premium, if any, or interest on the subordinated debt
securities. In addition, upon any payment or distribution of our assets upon any
dissolution, winding up, liquidation or reorganization, the payment of the
principal of, or premium, if any, and interest on the subordinated debt
securities will be subordinated to the extent provided in the subordinated
indenture in right of payment to the prior payment in full of all our Senior
Indebtedness. Because of this subordination, if we dissolve or otherwise
liquidate, holders of our subordinated debt securities may receive less,
ratably, than holders of our Senior Indebtedness. The subordination provisions
do not prevent the occurrence of an event of default under the subordinated
indenture.
The term
“Senior Indebtedness” of a person means with respect to such person the
principal of, premium, if any, interest on, and any other payment due pursuant
to any of the following, whether outstanding on the date of the subordinated
indenture or incurred by that person in the future:
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all
of the indebtedness of that person for money borrowed, including any
indebtedness secured by a mortgage or other lien which is (1) given
to secure all or part of the purchase price of property subject to the
mortgage or lien, whether given to the vendor of that property or to
another lender, or (2) existing on property at the time that person
acquires it;
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all
of the indebtedness of that person evidenced by notes, debentures, bonds
or other securities sold by that person for
money;
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all
of the lease obligations which are capitalized on the books of that person
in accordance with generally accepted accounting
principles;
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all
indebtedness of others of the kinds described in the first two bullet
points above and all lease obligations of others of the kind described in
the third bullet point above that the person, in any manner, assumes or
guarantees or that the person in effect guarantees through an agreement to
purchase, whether that agreement is contingent or otherwise;
and
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all
renewals, extensions or refundings of indebtedness of the kinds described
in the first, second or fourth bullet point above and all renewals or
extensions of leases of the kinds described in the third or fourth bullet
point above;
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unless, in the case of any
particular indebtedness, lease, renewal, extension or refunding, the instrument
or lease creating or evidencing it or the assumption or guarantee relating to it
expressly provides that such indebtedness, lease, renewal, extension or
refunding is not superior in right of payment to the subordinated debt
securities. Our senior debt securities constitute Senior Indebtedness for
purposes of the subordinated debt indenture.
At our
option, we may elect to offer fractional shares of preferred stock, rather than
full shares of preferred stock. If we do elect to offer fractional shares of
preferred stock, we will issue to the public receipts for depositary shares and
each of these depositary shares will represent a fraction of a share of a
particular series of preferred stock, as specified in the applicable prospectus
supplement. Each owner of a depositary share will be entitled, in proportion to
the applicable fractional interest in shares of preferred stock underlying that
depositary share, to all rights and preferences of the preferred stock
underlying that depositary share. These rights may include dividend, voting,
redemption and liquidation rights.
The
shares of preferred stock underlying the depositary shares will be deposited
with a bank or trust company selected by us to act as depositary, under a
deposit agreement between us, the depositary and the holders of the depositary
receipts. The depositary will be the transfer agent, registrar and dividend
disbursing agent for the depositary shares.
The
depositary shares will be evidenced by depositary receipts issued pursuant to
the depositary agreement. Holders of depositary receipts agree to be bound by
the deposit agreement, which requires holders to take certain actions such as
filing proof of residence and paying certain charges.
The
summary of terms of the depositary shares contained in this prospectus is not
complete. You should refer to the forms of the deposit agreement, our
certificate of incorporation and the certificate of designation for the
applicable series of preferred stock that are, or will be, filed with the
SEC.
Dividends
The
depositary will distribute cash dividends or other cash distributions, if any,
received in respect of the series of preferred stock underlying the depositary
shares to the record holders of depositary receipts in proportion to the number
of depositary shares owned by those holders on the relevant record date. The
relevant record date for depositary shares will be the same date as the record
date for the preferred stock.
In the
event of a distribution other than in cash, the depositary will distribute
property received by it to the record holders of depositary receipts that are
entitled to receive the distribution, unless the depositary determines that it
is not feasible to make the distribution. If this occurs, the depositary, with
our approval, may adopt another method for the distribution, including selling
the property and distributing the net proceeds to the holders.
Liquidation
Preference
If a
series of preferred stock underlying the depositary shares has a liquidation
preference, in the event of the voluntary or involuntary liquidation,
dissolution or winding up of E*TRADE, holders of depositary shares will be
entitled to receive the fraction of the liquidation preference accorded each
share of the applicable series of preferred stock, as set forth in the
applicable prospectus supplement.
Redemption
If a
series of preferred stock underlying the depositary shares is subject to
redemption, the depositary shares will be redeemed from the proceeds received by
the depositary resulting from the redemption, in whole or in part, of the
preferred stock held by the depositary. Whenever we redeem any preferred stock
held by the depositary, the depositary will redeem, as of the same redemption
date, the number of depositary shares representing the preferred stock so
redeemed. The depositary will mail the notice of redemption to the record
holders of the depositary receipts promptly upon receiving the notice from us
and no fewer than 20 or more than 60 days, unless otherwise provided in the
applicable prospectus supplement, prior to the date fixed for redemption of the
preferred stock.
Voting
Upon
receipt of notice of any meeting at which the holders of preferred stock are
entitled to vote, the depositary will mail the information contained in the
notice of meeting to the record holders of the depositary receipts underlying
the preferred stock. Each record holder of those depositary receipts on the
record date will be entitled to instruct the depositary as to the exercise of
the voting rights pertaining to the amount of preferred stock underlying that
holder’s depositary shares. The record date for the depositary will be the same
date as the record date for the preferred stock. The depositary will try, as far
as practicable, to vote the preferred stock underlying the depositary shares in
accordance with these instructions. We will agree to take all action that may be
deemed necessary by the depositary in order to enable the depositary to vote the
preferred stock in accordance with these instructions. The depositary will not
vote the preferred stock to the extent that it does not receive specific
instructions from the holders of depositary receipts.
Withdrawal
of Preferred Stock
Owners of
depositary shares will be entitled to receive upon surrender of depositary
receipts at the principal office of the depositary and payment of any unpaid
amount due to the depositary, the number of whole shares of preferred stock
underlying their depositary shares.
Partial
shares of preferred stock will not be issued. Holders of preferred stock will
not be entitled to deposit the shares under the deposit agreement or to receive
depositary receipts evidencing depositary shares for the preferred
stock.
Amendment
and Termination of Deposit Agreement
The form
of depositary receipt evidencing the depositary shares and any provision of the
deposit agreement may be amended by agreement between us and the depositary.
However, any amendment which materially and adversely alters the rights of the
holders of depositary shares, other than fee changes, will not be effective
unless the amendment has been approved by at least a majority of the outstanding
depositary shares. The deposit agreement may be terminated by the depositary or
us only if:
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all
outstanding depositary shares have been redeemed;
or
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there
has been a final distribution of the preferred stock in connection with
our dissolution and such distribution has been made to all the holders of
depositary shares.
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Charges
of Depositary
We will
pay all transfer and other taxes and governmental charges arising solely from
the existence of the depositary arrangement. We will also pay charges of the
depositary in connection with:
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the
initial deposit of the preferred
stock;
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the
initial issuance of the depositary
shares;
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any
redemption of the preferred stock;
and
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all
withdrawals of preferred stock by owners of depositary
shares.
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Holders
of depositary receipts will pay transfer, income and other taxes and
governmental charges and other specified charges as provided in the deposit
agreement for their accounts. If these charges have not been paid, the
depositary may:
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refuse
to transfer depositary shares;
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withhold
dividends and distributions; and
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sell
the depositary shares evidenced by the depositary
receipt.
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Miscellaneous
The
depositary will forward to the holders of depositary receipts all reports and
communications we deliver to the depositary that we are required to furnish to
the holders of the preferred stock. In addition, the depositary will make
available for inspection by holders of depositary receipts at the principal
office of the depositary, and at such other places as it may from time to time
deem advisable, any reports and communications we deliver to the depositary as
the holder of preferred stock.
Neither
the depositary nor E*TRADE will be liable if either the depositary or E*TRADE is
prevented or delayed by law or any circumstance beyond either the depositary or
E*TRADE’s control in performing their respective obligations under the deposit
agreement. E*TRADE’s obligations and the depositary’s obligations will be
limited to the performance in good faith of E*TRADE or the depositary’s
respective duties under the deposit agreement. Neither the depositary nor
E*TRADE will be obligated to prosecute or defend any legal proceeding in respect
of any depositary shares or preferred stock unless satisfactory indemnity is
furnished. E*TRADE and the depositary may rely on:
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written
advice of counsel or accountants;
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information
provided by holders of depositary receipts or other persons believed in
good faith
to be competent to give such information;
and
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documents
believed to be genuine and to have been signed or presented by the proper
party or parties.
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Resignation
and Removal of Depositary
The
depositary may resign at any time by delivering a notice to us. We may remove
the depositary at any time. Any such resignation or removal will take effect
upon the appointment of a successor depositary and its acceptance of such
appointment. The successor depositary must be appointed within 60 days after
delivery of the notice for resignation or removal. The successor depositary must
be a bank and trust company having its principal office in the United States of
America and having a combined capital and surplus of at least
$150,000,000.
Federal
Income Tax Consequences
Owners of
the depositary shares will be treated for federal income tax purposes as if they
were owners of the preferred stock underlying the depositary shares. As a
result, owners will be entitled to take into account for federal
income
tax purposes and deductions to which they would be entitled if they were holders
of such preferred stock. No gain or loss will be recognized for federal income
tax purposes upon the withdrawal of preferred stock in exchange for depositary
shares. The tax basis of each share of preferred stock to an exchanging owner of
depositary shares will, upon such exchange, be the same as the aggregate tax
basis of the depositary shares exchanged. The holding period for preferred stock
in the hands of an exchanging owner of depositary shares will include the period
during which such person owned such depositary shares.
We may
issue rights to purchase our common stock, preferred stock or other offered
security independently or together with any other offered security. Any rights
that we may issue may or may not be transferable by the person purchasing or
receiving the rights. In connection with any rights offering to our
stockholders, we may enter into a standby underwriting or other arrangement with
one or more underwriters or other persons pursuant to which such underwriters or
other person would purchase any offered securities remaining unsubscribed for
after such rights offering. Each series of rights will be issued under a
separate rights agent agreement to be entered into between us and a bank or
trust company, as rights agent, that we will name in the applicable prospectus
supplement. The rights agent will act solely as our agent in connection with the
certificates relating to the rights of the series of certificates and will not
assume any obligation or relationship of agency or trust for or with any holders
of rights certificates or beneficial owners of rights.
We may
issue warrants to purchase our debt or equity securities or securities of third
parties or other rights, including rights to receive payment in cash or
securities based on the value, rate or price of one or more specified
commodities, currencies, securities or indices, or any combination of the
foregoing. Warrants may be issued independently or together with any other
securities and may be attached to, or separate from, such securities. Each
series of warrants will be issued under a separate warrant agreement to be
entered into between us and a warrant agent. The terms of any warrants to be
issued and a description of the material provisions of the applicable warrant
agreement will be set forth in the applicable prospectus
supplement.
We may
issue purchase contracts for the purchase or sale of:
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debt
or equity securities issued by us or securities of third parties, a basket
of such securities, an index or indices or such securities or any
combination of the above as specified in the applicable prospectus
supplement;
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Each
purchase contract will entitle the holder thereof to purchase or sell, and
obligate us to sell or purchase, on specified dates, such securities, currencies
or commodities at a specified purchase price, which may be based on a formula,
all as set forth in the applicable prospectus supplement. We may,
however, satisfy our obligations, if any, with respect to any purchase contract
by delivering the cash value of such purchase contract or the cash value of the
property otherwise deliverable or, in the case of purchase contracts on
underlying currencies, by delivering the underlying currencies, as set forth in
the applicable prospectus supplement. The applicable prospectus
supplement will also specify the methods by which the holders may purchase or
sell such securities, currencies or commodities and any acceleration,
cancellation or termination provisions or other provisions relating to the
settlement of a purchase contract.
The
purchase contracts may require us to make periodic payments to the holders
thereof of vice versa, which payments may be deferred to the extent set forth in
the applicable prospectus supplement, and those payments may
be
unsecured or prefunded on some basis. The purchase contracts may
require the holders thereof to secure their obligations in a specified manner to
be described in the applicable prospectus supplement. Alternatively,
purchase contracts may require holders to satisfy their obligations thereunder
when the purchase contracts are issued. Our obligation to settle such
pre-paid purchase contracts on the relevant settlement date may constitute
indebtedness. Accordingly, pre-paid purchase contracts will be issued
under either the senior indenture or the subordinated indenture.
As
specified in the applicable prospectus supplement, we may issue units consisting
of one or more purchase contracts, rights, warrants, debt securities, depositary
shares, shares of preferred stock, shares of common stock or any combination of
such securities.
Each debt
security, depositary share, warrant and unit will be represented either by a
certificate issued in definitive form to a particular investor or by one or more
global securities representing the entire issuance of securities. Certificated
securities in definitive form and global securities will be issued in registered
form. Definitive securities name you or your nominee as the owner of the
security, and in order to transfer or exchange these securities or to receive
payments other than interest or other interim payments, you or your nominee must
physically deliver the securities to the trustee, registrar, paying agent or
other agent, as applicable. Global securities name a depositary or its nominee
as the owner of the debt securities, warrants or units represented by these
global securities. The depositary maintains a computerized system that will
reflect each investor’s beneficial ownership of the securities through an
account maintained by the investor with its broker/dealer, bank, trust company
or other representative, as we explain more fully below.
Global
Securities
We may
issue the registered debt securities, depositary shares, warrants and units in
the form of one or more fully registered global securities that will be
deposited with a depositary or its nominee identified in the applicable
prospectus supplement and registered in the name of that depositary or nominee.
In those cases, one or more registered global securities will be issued in a
denomination or aggregate denominations equal to the portion of the aggregate
principal or face amount of the securities to be represented by registered
global securities. Unless and until it is exchanged in whole for securities in
definitive registered form, a registered global security may not be transferred
except as a whole by and among the depositary for the registered global
security, the nominees of the depositary or any successors of the depositary or
those nominees.
If not
described below, any specific terms of the depositary arrangement with respect
to any securities to be represented by a registered global security will be
described in the prospectus supplement relating to those securities. We
anticipate that the following provisions will apply to all depositary
arrangements.
Ownership
of beneficial interests in a registered global security will be limited to
persons, called participants, that have accounts with the depositary or persons
that may hold interests through participants. Upon the issuance of a registered
global security, the depositary will credit, on its book-entry registration and
transfer system, the participants’ accounts with the respective principal or
face amounts of the securities beneficially owned by the participants. Any
dealers, underwriters or agents participating in the distribution of the
securities will designate the accounts to be credited. Ownership of beneficial
interests in a registered global security will be shown on, and the transfer of
ownership interests will be effected only through, records maintained by the
depositary, with respect to interests of participants, and on the records of
participants, with respect to interests of persons holding through participants.
The laws of some states may require that some purchasers of securities take
physical delivery of these securities in definitive form. These laws may impair
your ability to own, transfer or pledge beneficial interests in registered
global securities.
So long
as the depositary, or its nominee, is the registered owner of a registered
global security, that depositary or its nominee, as the case may be, will be
considered the sole owner or holder of the securities represented by the
registered global security for all purposes under the applicable indenture,
warrant agreement or unit agreement. Except as described below, owners of
beneficial interests in a registered global security will not be entitled to
have the securities represented by the registered global security registered in
their names, will not receive or be entitled to receive physical delivery of the
securities in definitive form and will not be considered the owners or holders
of the securities under the applicable indenture, warrant agreement or unit
agreement. Accordingly, each person owning a beneficial interest in a registered
global security must rely on the procedures of the depositary for that
registered global security and, if that person is not a participant, on the
procedures of the participant through which the person owns its interest, to
exercise any rights of a holder under the applicable indenture, warrant
agreement or unit agreement. We understand that under existing industry
practices, if we request any action of holders or if an owner of a beneficial
interest in a registered global security desires to give or take any action that
a holder is entitled to give or take under the applicable indenture, warrant
agreement or unit agreement, the depositary for the registered global security
would authorize the participants holding the relevant beneficial interests to
give or take that action, and the participants would authorize beneficial owners
owning through them to give or take that action or would otherwise act upon the
instructions of beneficial owners holding through them.
Principal,
premium, if any, and interest payments on debt securities, and any payments to
holders with respect to warrants or units, represented by a registered global
security registered in the name of a depositary or its nominee will be made to
the depositary or its nominee, as the case may be, as the registered owner of
the registered global security. None of E*TRADE, the trustee, any warrant agent,
unit agent or any other agent of E*TRADE, agent of the trustee or agent of such
warrant agent or unit agent will have any responsibility or liability for any
aspect of the records relating to payments made on account of beneficial
ownership interests in the registered global security or for maintaining,
supervising or reviewing any records relating to those beneficial ownership
interests.
We expect
that the depositary for any of the securities represented by a registered global
security, upon receipt of any payment of principal, premium, interest or other
distribution of underlying securities or other property to holders of that
registered global security, will immediately credit participants’ accounts in
amounts proportionate to their respective beneficial interests in that
registered global security as shown on the records of the depositary. We also
expect that payments by participants to owners of beneficial interests in a
registered global security held through participants will be governed by
standing customer instructions and customary practices, as is now the case with
the securities held for the accounts of customers in bearer form or registered
in “street name,” and will be the responsibility of those
participants.
If the
depositary for any of these securities represented by a registered global
security is at any time unwilling or unable to continue as depositary or ceases
to be a clearing agency registered under the Exchange Act, and a successor
depositary registered as a clearing agency under the Exchange Act is not
appointed by us within 90 days, we will issue securities in definitive form in
exchange for the registered global security that had been held by the
depositary. Any securities issued in definitive form in exchange for a
registered global security will be registered in the name or names that the
depositary gives to the relevant trustee, warrant agent, unit agent or other
relevant agent of ours or theirs. It is expected that the depositary’s
instructions will be based on directions received by the depositary from
participants with respect to ownership of beneficial interests in the registered
global security that had been held by the depositary.
We or
selling security holders may sell the securities being offered hereby in the
following manner or any manner specified in a prospectus
supplement:
·
|
directly
to purchasers;
|
·
|
through
underwriters; and
|
If any
securities are sold pursuant to this prospectus by any persons other than us, we
will, in a prospectus supplement, name the selling security holders, indicate
the nature of any relationship such holders have had with us or any of our
affiliates during the three years preceding such offering, state the amount of
securities of the class owned by such security holder prior to the offering and
the amount to be offered for the security holder’s account, and state the amount
and (if one percent or more) the percentage of the class to be owned by such
security holder after completion of the offering.
We or any
selling security holder may directly solicit offers to purchase securities, or
agents may be designated to solicit such offers. We will, in the prospectus
supplement relating to such offering, name any agent that could be viewed as an
underwriter under the Securities Act and describe any commissions that we or any
selling security holder must pay. Any such agent will be acting on a best
efforts basis for the period of its appointment or, if indicated in the
applicable prospectus supplement, on a firm commitment basis. Agents, dealers
and underwriters may be customers of, engage in transactions with, or perform
services for us or any selling security holder in the ordinary course of
business.
If any
underwriters or agents are utilized in the sale of the securities in respect of
which this prospectus is delivered, we and, if applicable, any selling security
holder will enter into an underwriting agreement or other agreement with them at
the time of sale to them, and we will set forth in the prospectus supplement
relating to such offering the names of the underwriters or agents and the terms
of the related agreement with them.
If a
dealer is utilized in the sale of the securities in respect of which the
prospectus is delivered, we will sell such securities to the dealer, as
principal. The dealer may then resell such securities to the public at varying
prices to be determined by such dealer at the time of resale.
Remarketing
firms, agents, underwriters and dealers may be entitled under agreements which
they may enter into with us to indemnification by us and by any selling security
holder against certain civil liabilities, including liabilities under the
Securities Act, and may be customers of, engage in transactions with or perform
services for us or any selling security holder in the ordinary course of
business.
In order
to facilitate the offering of the securities, any underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
securities or any other securities the prices of which may be used to determine
payments on such securities. Specifically, any underwriters may overallot in
connection with the offering, creating a short position for their own accounts.
In addition, to cover overallotments or to stabilize the price of the securities
or of any such other securities, the underwriters may bid for, and purchase, the
securities or any such other securities in the open market. Finally, in any
offering of the securities through a syndicate of underwriters, the underwriting
syndicate may reclaim selling concessions allowed to an underwriter or a dealer
for distributing the securities in the offering if the syndicate repurchases
previously distributed securities in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the securities above independent
market levels. Any such underwriters are not required to engage in these
activities and may end any of these activities at any time.
Any
underwriter, agent or dealer utilized in the initial offering of securities will
not confirm sales to accounts over which it exercises discretionary authority
without the prior specific written approval of its customer.
The
validity of the securities in respect of which this prospectus is being
delivered will be passed on for us by Davis Polk & Wardwell.
The
consolidated financial statements incorporated in this prospectus by reference
from the Company’s Annual Report on Form 10-K for the year ended December 31,
2008, and the effectiveness of the Company’s internal control over financial
reporting have been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their reports (which reports (1)
express an unqualified opinion on the consolidated financial statements and
include an explanatory paragraph referring to the adoption of Financial
Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income
Taxes—an Interpretation of FASB Statement No. 109, as of January 1, 2007,
and the adoption of Statement of Financial Accounting Standard (“SFAS”) No. 157,
Fair Value Measurement,
and SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities, on January
1, 2008, and (2) express an unqualified opinion on the effectiveness of internal
control over financial reporting) which are incorporated herein by
reference. Such consolidated financial statements have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
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