SELECTIVE INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2168890
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
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Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
(1) Amount represents principal amount at maturity.
(2) Estimated solely for the purpose of determining the registration fee based on the issue price per note of $380.12 on September 18, 2002.
(3) Reflects the number of shares of common stock issuable upon conversion of the notes being registered hereunder at the rate of 12.9783 shares of common stock per $1,000 principle amount at maturity of the notes. Pursuant to Rule 416 under the Securities Act of 1933, as amended, this registration statement also registers such additional number of shares of the Registrant's common stock as may become deliverable upon conversion of the notes to prevent dilution resulting from stock splits, stock dividends and similar transactions. No additional registration fee is required pursuant to Rule 457(i) under the Securities Act.
The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities nor a solicitation of an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion, dated November 26, 2002
[SELECTIVE INSURANCE GROUP, INC. LOGO]
The Offering:
This prospectus relates to $305,000,000 aggregate principal amount at maturity of Senior Convertible Notes due 2032 of Selective Insurance Group, Inc. The notes may be sold from time to time by or on behalf of the selling securityholders named in this prospectus or in supplements to this prospectus. This prospectus also relates to 3,958,382 shares of our common stock, par value $2.00 per share, issuable upon conversion of the notes held by certain selling securityholders, plus such additional indeterminate number of shares as may become issuable upon conversion of the notes by reason of adjustment to the conversion price in certain circumstances.
The selling securityholders may sell all or a portion of the notes in market transactions, negotiated transactions or otherwise and at prices which will be determined by the prevailing market price for the notes or in negotiated transactions. The selling securityholders also may sell all or a portion of the shares of common stock from time to time on the Nasdaq, in negotiated transactions or otherwise, and at prices which will be determined by the prevailing market price for the shares or in negotiated transactions. The selling securityholders will receive all of the proceeds from the sale of the notes and the common stock. We will not receive any proceeds from the sale of notes or common stock by the selling securityholders.
Interest on the notes at the rate of 1.6155% per year on the principal amount at maturity is payable semiannually in arrears in cash on March 24 and September 24 of each year, beginning March 24, 2003, until September 24, 2009. After that date, we will not pay cash interest on the notes prior to maturity unless contingent cash interest becomes payable. Instead, on September 24, 2032, the maturity date of the notes, a holder will receive $1,000 per note. The rate of accrual of original issue discount represents a yield to maturity of 4.25% per year, computed on a semiannual bond equivalent basis and calculated from September 24, 2009. The notes are senior unsecured obligations and rank equally with our existing and future senior unsecured indebtedness. In addition, the notes will effectively rank junior to any future secured indebtedness as to the assets securing such indebtedness and to all indebtedness and other obligations of our subsidiaries as to the assets of those subsidiaries. The notes are not listed on any securities exchange or included in any automated quotation system.
Convertibility of the Notes:
Holders may convert each of their notes into 12.9783 shares of our common stock, subject to adjustment, (1) during any calendar quarter after December 31, 2002, if the sale price of our common stock reaches specified thresholds during the preceding calendar quarter, (2) during any period in which the credit rating of the notes is below a specified level, (3) if the notes are called for redemption, or (4) if specified corporate transactions have occurred. Upon conversion, we will have the right to deliver, in lieu of our common stock, cash or a combination of cash and common stock in an amount described herein. Our common stock currently trades on the Nasdaq under the symbol "SIGI." On November 25, 2002, the last reported bid price of our common stock on Nasdaq was $25.32 per share.
Contingent Cash Interest:
We will pay contingent cash interest to the holders of the notes during any six-month period commencing after September 24, 2009 if the average market price of a note for a five trading day measurement period preceding the applicable six-month period equals 120% or more of the sum of the issue price, accrued original issue discount and accrued cash interest, if any, for such note. The contingent cash interest payable per note in respect of any quarterly period within any six-month period will equal the greater of (1) any regular cash dividends paid by us per share on our common stock during that quarterly period multiplied by the then applicable conversion rate or (2) $0.15 multiplied by 12.9783. For United States federal income tax purposes, the notes will constitute contingent payment debt instruments. You should read the discussion on "Material United States Federal Income Tax Consequences" relevant to the notes beginning on page 44.
Purchase of the Notes by Selective at the Option of the Holder:
Holders may require us to purchase all or a portion of their notes on September 24, 2009 at a price of $380.12 per note plus accrued and unpaid cash interest, if any, on September 24, 2012 at a price of $431.23 per note plus accrued and unpaid cash interest, if any, on September 24, 2017 at a price of $532.15 per note plus accrued and unpaid cash interest, if any, on September 24, 2022 at a price of $656.68 per note plus accrued and unpaid cash interest, if any, and on September 24, 2027 at a price of $810.36 per note plus accrued and unpaid cash interest, if any. We may choose to pay the purchase price of such notes in cash or common stock or a combination of cash and common stock. In addition, if a change in control of Selective occurs on or prior to September 24, 2009, each holder may require us to purchase for cash all or a portion of such holder's notes at a price equal to the sum of the issue price plus accrued original issue discount and accrued and unpaid cash interest, if any, to the date of purchase.
Redemption of the Notes at Our Option:
We may redeem for cash all or a portion of the notes for cash at any time on or after September 24, 2007, at the prices set forth in the "Description of Notes -- Redemption of Notes at Our Option."
Investing in the notes involves risks, some of which are described in the "Risk Factors" section beginning on page 9 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of 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 November 26, 2002.
TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION............................................i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................ii
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.............................ii
SUMMARY........................................................................1
RISK FACTORS...................................................................9
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES...............................19
USE OF PROCEEDS...............................................................19
PRICE RANGE AND DIVIDEND HISTORY OF OUR COMMON STOCK..........................20
DESCRIPTION OF NOTES..........................................................21
DESCRIPTION OF OUR OTHER INDEBTEDNESS.........................................40
DESCRIPTION OF OUR CAPITAL STOCK..............................................41
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES........................44
SELLING SECURITYHOLDERS.......................................................51
PLAN OF DISTRIBUTION..........................................................54
LEGAL MATTERS.................................................................56
EXPERTS.......................................................................56
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You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus or any documents incorporated by reference is accurate only as of the date on the front cover of the applicable document. Our business, financial condition, results of operations and prospects may have changed since that date.
This prospectus is based on information provided by us and by other sources that we believe are reliable. We cannot assure you that any information provided by other sources is accurate or complete. This prospectus summarizes certain documents and other information and we refer you to them for a more complete understanding of what we discuss in this prospectus. In making an investment decision, you must rely on your own examination of our company and the terms of this offering and the notes, including the merits and risks involved.
We are not making any representation to any purchaser of the notes regarding the legality of an investment in the notes by such purchaser under any legal investment or similar laws or regulations. You should not consider any information in this prospectus to be legal, business or tax advice. You should consult your own attorney, business advisor and tax advisor for legal, business and tax advice regarding an investment in the notes.
References in this prospectus to "Selective," "we," "us" and "our" refer to Selective Insurance Group, Inc., an insurance holding company incorporated in New Jersey, and its subsidiaries, unless the context otherwise requires.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information and reporting requirements of the Securities Exchange Act of 1934, as amended, under which we file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy this information at the following locations of the Securities and Exchange Commission:
Public Reference Room North East Regional Office Midwest Regional Office
450 Fifth Street, N.W. 233 Broadway 500 West Madison Street
Room 1024 New York, New York 10279 Suite 1400
Washington, D.C. 20549 Chicago, Illinois 60661
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You may also obtain copies of this information by mail from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Room 1024, Washington, DC 20549, at prescribed rates. Please call the Securities and Exchange Commission at (800) SEC-0330 for further information about the Public Reference Room.
The Securities and Exchange Commission also maintains an internet website that contains reports, proxy statements and other information about issuers that file electronically with the Securities and Exchange Commission. The address of that site is www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We are "incorporating by reference" into this prospectus certain information that we file with the Securities and Exchange Commission, which means that we are disclosing important information to you by referring you to those documents. The information incorporated by reference is deemed to be part of this prospectus, except for any information superseded by information contained directly in this prospectus. This prospectus incorporates by reference the documents set forth below that we have previously filed with the Securities and Exchange Commission. These documents contain important information about us and our finances.
Selective SEC Filings (File No. 000-08641) Period
Annual Report on Form 10-K.......................... Year Ended December 31,
2001
Quarterly Reports on Form 10-Q...................... Quarterly Periods Ended
March 31, 2002, June 30,
2002 and September 30,
2002
Current Report on Form 8-K ......................... Filed September 17, 2002
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All documents that we file with the Securities and Exchange Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act from the date of this prospectus to the end of the offering under this prospectus shall also be deemed to be incorporated herein by reference and will automatically update information included in or previously incorporated by reference in this prospectus.
You may request a copy of these filings, at no cost, by writing or calling us at the following address or telephone number:
Corporate Secretary Selective Insurance Group, Inc. 40 Wantage Avenue Branchville, New Jersey 07890 (973) 948-3000
Exhibits to the filings will not be sent, however, unless those exhibits have specifically been incorporated by reference in that filing.
Information contained on our website is not intended to be incorporated by reference in this prospectus and you should not consider that information a part of this prospectus.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the information incorporated by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to our intentions, beliefs, projections, estimations or forecasts of future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, or performance to be materially different from those expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by use of words such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "target," "project," "intend," "believe," "estimate," "predict," "potential," "pro forma," "seek," "likely" or "continue" or other comparable terminology. These statements are only predictions and we can give no assurance that such expectations will prove to be correct.
Factors which could cause our actual results to differ materially from those projected, forecasted or estimated by us in forward-looking statements, include, but are not limited to:
o the frequency and severity of catastrophic events, including hurricanes, windstorms, earthquakes, hail, severe winter weather, fires explosions and terrorism;
o adverse economic, market or regulatory conditions;
o our concentration in a number of east coast and midwestern states;
o the adequacy of our loss reserves;
o the cost and availability of reinsurance;
o our ability to collect on reinsurance and the solvency of our reinsurers;
o uncertainties related to insurance rate increases and business retention;
o changes in insurance regulations that impact our ability to write and/or cease writing insurance policies in one or more states particularly changes in New Jersey automobile insurance laws and regulations;
o our ability to maintain favorable ratings from A.M. Best, Standard & Poor's and Moody's;
o fluctuations in interest rates and the performance of the financial markets which may affect our investment income;
o our entry into new markets and businesses; and
o other risks and uncertainties we identify in this prospectus and other documents incorporated by reference.
We undertake no obligation, other than as may be required under the federal securities laws, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We do not assume responsibility for the accuracy and completeness of the forward-looking statements. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under "Risk Factors."
We caution you that these risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. We cannot predict such new risk factors, nor can we assess the impact, if any, of such new risk factors on our businesses or the extent to which any factor or combination of factors may cause actual results to differ materially from those expressed or implied by any forward-looking statements. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur.
For these statements, we claim the protection of the safe harbor for forward-looking statements contained in Section 27A of the Securities Act.
You should carefully read this prospectus and the documents incorporated by reference in their entirety. They contain information that you should consider when making your investment decision.
SUMMARY
The following summary is qualified in its entirety by the more detailed information included elsewhere or incorporated by reference in this prospectus. Because this is a summary, it may not contain all the information that may be important to you. You should read the entire prospectus, as well as the information incorporated by reference, before making an investment decision.
We are a holding company that, through our subsidiaries, offers property and casualty insurance products and diversified insurance services products. Through our five property and casualty insurance subsidiaries, Selective Insurance Company of America, Selective Way Insurance Company, Selective Insurance Company of New York, Selective Insurance Company of the Southeast, and Selective Insurance Company of South Carolina, we offer primary and alternative market property and casualty insurance for commercial and personal risks.
Our property and casualty insurance products are sold through approximately 800 independent insurance agents in 20 northeastern, southeastern and midwestern states. We offer a broad range of commercial insurance and alternative risk management products to small and medium sized businesses and government entities. Our commercial insurance products represent 80% of the company's insurance operations. We also provide personal insurance products to individuals and families in ten states, which represents 20% of our insurance operations.
Our diversified insurance services operation offers medical claim management services to insurance companies and other businesses through Alta Services LLC, a managed care organization, and Consumer Health Network Plus, LLC, a preferred provider organization; human resources administration services and risk management products through Selective HR Solutions, Inc.; and flood insurance policy, administration and claims services for the National Flood Insurance Program, through FloodConnect, LLC.
Our principal executive offices are located at 40 Wantage Avenue, Branchville, New Jersey 07890. Our telephone number at that address is (973) 948-3000. Our website address is www.selective.com. We do not intend the information on our website to constitute part of this prospectus.
Corporate Strategy
Our corporate strategy is to create profitable growth and long-term shareholder value. Our goal is to establish ourselves as the market of choice for each of the independent agents who distribute our products and services. We intend to achieve this goal by focusing on our customers' needs and tailoring our products and services to meet and exceed those needs.
We place a high value on the quality of the independent agents selling our products and services. The strength of our relationships with our agents is the foundation of our company's success. As insurance counselors, independent agents help their customers determine the coverages and services they need to protect their assets and help us analyze potential exposures to loss.
Our agency management specialists work closely with agents in their offices. This on-site approach, supported by six regional offices and technology links to automated systems, enables a quick response to business opportunities. A parallel program puts claim management specialists in the field working with agents, insureds and claimants.
Behind the risk management products and services we offer is a strong underwriting tradition and knowledge of our regional markets. The field and regional staffs are backed by customer-focused strategic business units that quickly develop and market products designed to meet customers' developing needs.
Our long-standing service ethic is strengthened by the use of new technology tools. By using Internet technology to remove friction and redundant work from both the sales and service processes, we are significantly increasing both our effectiveness and efficiency. We have taken major steps toward creating a straight-through processing environment -- empowering agents and employees to do more customer-related and creative work.
The Notes
Notes......................... $305,000,000 aggregate principal amount at
maturity of senior convertible notes due
September 24, 2032. Each note was issued at a
price of $380.12 per note and has a principal
amount at maturity of $1,000.
Maturity Date................. September 24, 2032.
Cash Interest................. 1.6155% per year on the principal amount at
maturity, payable semiannually in arrears in
cash on March 24 and September 24 of each year,
beginning March 24, 2003, until September 24,
2009.
Contingent Cash Interest...... We will pay contingent cash interest to holders
of the notes during any six-month period from
March 25 to September 24 and from September 25
to March 24, commencing September 25, 2009, if
the average market price of a note for the
Applicable Five Trading Day Period equals 120%
or more of the sum of the issue price, accrued
original issue discount and accrued cash
interest, if any, for a note to the day
immediately preceding the relevant six-month
period. "Applicable Five Trading Day Period"
means the five trading days ending on the third
trading day immediately preceding the relevant
six-month period, unless Selective declares a
dividend for which the record date falls prior
to the first day of a six-month period but the
payment date falls within such six-month
period, in which case the "Applicable Five
Trading Day Period" means the five trading days
ending on the third trading day immediately
preceding such record date.
The contingent cash interest payable per note
in respect of any quarterly period within any
six-month period will equal the greater of (a)
any regular cash dividends per share paid by us
on our common stock during that quarterly
period multiplied by the then applicable
conversion rate or (b) $0.15 multiplied by
12.9783.
Contingent cash interest, if any, will accrue
and be payable to holders of notes as of the
record date for the related regular cash
dividend or, if we do not pay a regular cash
dividend on our common stock during a quarter
within the relevant six-month period, to
holders of notes as of the fifteenth day
preceding the last day of the relevant
six-month period. Such payments will be paid on
the payment date of the related regular cash
dividend or, if we do not pay a regular cash
dividend on our common stock during a quarter
within the relevant six-month period, on the
last day of the relevant six-month period.
Original issue discount will continue to accrue
at the yield to maturity whether or not
contingent cash interest is paid.
Yield-to-Maturity of Notes.... 4.25% per year, computed on a semiannual bond
equivalent basis and calculated from September
24, 2002, excluding any contingent cash
interest.
Original Issue Discount....... We offered our notes at an issue price
significantly below the principal amount at
maturity of the notes. As a result, the notes
were issued with original issue discount, which
for non-tax purposes will accrue daily at a
rate of 4.25% per year beginning on September
24, 2009, calculated on a semiannual bond
equivalent basis using a 360-day year comprised
of
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twelve 30-day months.
Tax Original Issue Discount... The notes are debt instruments subject to the
United States federal income tax contingent
payment debt regulations. You should be aware
that, even if we do not pay any contingent cash
interest on the notes, you will be required to
include imputed interest in your gross income
for United States federal income tax purposes.
For United States federal income tax purposes,
interest, also referred to as tax original
issue discount, accrues from September 24,
2002, at a constant rate of 6.60% per year,
calculated on a semiannual bond equivalent
basis, which represents the yield on our
comparable non-contingent, nonconvertible,
fixed-rate debt instrument with terms and
conditions otherwise similar to the notes. U.S.
holders are required to include tax original
issue discount (including the portion of the
tax original issue discount represented by cash
interest payments) in their gross income as it
accrues regardless of their method of tax
accounting. The rate at which the tax original
issue discount accrues for United States
federal income tax purposes exceeds payments of
cash interest and exceeds the stated yield of
4.25% for accrued original issue discount.
You also will recognize gain or loss on the
sale, purchase by us at your option, exchange,
conversion or redemption of a note in an amount
equal to the difference between the amount
realized on the sale, purchase by us at your
option, exchange, conversion or redemption,
including the fair market value of any common
stock received upon conversion or otherwise,
and your adjusted tax basis in the note. Any
gain recognized by you on the sale, purchase by
us at your option, exchange, conversion or
redemption of a note generally will be ordinary
interest income; any loss will be ordinary loss
to the extent of the interest previously
included in income, and thereafter, capital
loss. See "Material United States Federal
Income Tax Consequences."
Conversion Rights............. For each $1,000 principal amount of notes
surrendered for conversion, if the conditions
for conversion are satisfied, you will receive
12.9783 shares of our common stock.
In lieu of delivering shares of our common
stock upon conversion of all or any portion of
the notes, we may elect to pay holders
surrendering notes cash or a combination of
cash and shares of our common stock for the
notes surrendered. If we elect to pay holders
cash for their notes, the payment will be based
on the average sale price of our common stock
for the five consecutive trading days
immediately following either:
o the date of our notice of our election to
deliver cash, which we must give within
two business days after receiving a
conversion notice, unless we have earlier
given notice of redemption as described
in this prospectus; or
o the conversion date, if we have given
notice of redemption specifying that we
intend to deliver cash upon conversion
thereafter.
The conversion rate may be adjusted for certain
reasons, but will not be adjusted for accrued
original issue discount, accrued cash interest,
any contingent cash interest or interest
payable upon conversion to a semiannual coupon
note upon the occurrence of a tax event. Upon
conversion, a holder will not receive any cash
payment representing
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accrued original issue discount, accrued cash
interest or contingent cash interest. Instead,
accrued original issue discount, accrued cash
interest or contingent cash interest will be
deemed paid by the shares of common stock
received by the holder on conversion.
If, as of the last day of any calendar quarter
beginning with the quarter ending December 31,
2002, the closing sale price of our common
stock for at least 20 trading days in a period
of 30 consecutive trading days ending on the
last trading day of such quarter is more than a
specified percentage (120% until and including,
September 30, 2009, thereafter declining
approximately 0.11% per quarter to 110% on the
last day of the quarter ending June 30, 2032)
of the accreted conversion price per share of
common stock (excluding accrued cash interest,
if any) on the last day of such quarter, then
on any business day during the following
calendar quarter holders may surrender notes
for conversion into shares of common stock. The
accreted conversion price per share as of any
day will equal the sum of the issue price of
the note plus the accrued original issue
discount or accrued cash interest, if any,
divided by the number of shares issuable upon
conversion of a note subject to any adjustments
to the conversion rate through that day.
Holders may also surrender notes for conversion
during any period in which the credit rating
assigned to the notes is Ba2 or lower by
Moody's Investors Service, Inc. ("Moody's") or
BB or lower by Standard & Poor's Credit Market
Services, a division of the McGraw-Hill
Companies ("Standard & Poor's"), the notes are
no longer rated by either Moody's or Standard &
Poor's, or the credit rating assigned to the
notes has been suspended or withdrawn by either
Moody's or Standard & Poor's.
Notes or portions of notes in integral
multiples of $1,000 principal amount at
maturity called for redemption may be
surrendered for conversion until the close of
business on the second business day prior to
the redemption date. In addition, if we make a
significant distribution to our stockholders or
if we are a party to certain consolidations,
mergers or binding share exchanges, notes may
be surrendered for conversion, as provided in
"Description of Notes -- Conversion Rights."
The ability to surrender notes for conversion
will expire at the close of business on
September 23, 2032.
Optional Conversion to Semiannual
Coupon Notes upon Tax Event.. From and after the occurrence of a tax event,
as described in this prospectus, at our option,
interest in lieu of future accrued original
issue discount will accrue on each note from
the option exercise date at 4.25% per year,
calculated on a semiannual bond equivalent
basis, on the restated principal amount and
will be payable semiannually. Any such interest
in lieu of original issue discount will be
computed in the same manner and payable at the
same time as the cash interest and will accrue
from the most recent date to which cash
interest, if payable, has been paid or provided
for or, if no cash interest is payable or has
been paid or provided for, the option exercise
date. In such event, the redemption price,
purchase price and change in control purchase
price will be adjusted, as described herein.
However, there will be no change in the
holder's conversion rights. See "Description of
Notes-- Optional Conversion to Semiannual
Coupon Notes upon Tax Event."
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Redemption of Notes at Our
Option....................... We may redeem for cash all or a portion of the
notes at any time on or after September 24,
2007, at redemption prices set forth in this
prospectus. See "Description of Notes--
Redemption of Notes at Our Option."
Purchase of the Notes by
Selective at the Option of
the Holder................... Holders may require us to purchase all or a
portion of their notes on each of the following
dates at the following prices, plus accrued and
unpaid cash interest, if any, to the purchase
date:
o on September 24, 2009 at a price of
$380.12 per note;
o on September 24, 2012 at a price of
$431.23 per note;
o on September 24, 2017 at a price of
$532.15 per note;
o on September 24, 2022 at a price of
$656.68 per note; and
o on September 24, 2027 at a price of
$810.36 per note.
We may pay the purchase price in cash or shares
of our common stock or in a combination of cash
and shares of our common stock. If we elect to
pay the purchase price, in whole or in part, in
shares of our common stock, the number of
shares we deliver will be equal to the portion
of the purchase price to be paid in common
stock divided by the market price of a share of
common stock. If we elect to pay all or part of
the purchase price in shares of our common
stock, we will notify holders not less than 20
business days before the applicable purchase
date, specifying the percentages of cash and
common stock.
Change in Control............. Upon a change in control of Selective on or
before September 24, 2009, the holders may
require us to purchase for cash all or a
portion of their notes at a price equal to the
sum of the issue price plus accrued original
issue discount and accrued and unpaid cash
interest, if any, to the date of purchase.
Ranking....................... The notes are senior unsecured obligations of
Selective and rank equal in right of payment to
all of our other senior unsecured indebtedness.
The notes will be effectively subordinated to
any future secured indebtedness as to the
assets securing such indebtedness.
In addition, we are structured as a holding
company, and we conduct most of our business
operations through our subsidiaries. The notes
will be effectively subordinated to all
existing and future indebtedness and other
liabilities and commitments of our
subsidiaries.
As of September 30, 2002, after giving effect
to the offering of the notes and the
application of the net proceeds, we would have
had an aggregate of $269.9 million of senior
unsecured indebtedness outstanding and no
secured indebtedness outstanding. As of
September 30, 2002, our subsidiaries had an
aggregate of approximately $210.3 million of
outstanding obligations, which consisted
primarily of trade payables.
Use of Proceeds............... The selling securityholders will receive all of
the net proceeds from the sale of the notes or
the shares of common stock sold under this
prospectus. We will not receive any of the
proceeds from sales by the
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selling securityholders of the notes or the
underlying common stock.
Guarantees.................... None.
Sinking Fund.................. None.
DTC Eligibility............... The notes were issued in fully registered
book-entry form and are represented by one or
more permanent global notes without coupons.
Global notes have been deposited with a
custodian for and registered in the name of a
nominee of The Depository Trust Company in New
York, New York. Beneficial interests in global
notes are shown on, and transfers thereof are
effected only through, records maintained by
DTC and its direct and indirect participants,
and your interest in any global note may not be
exchanged for certificated notes, except in
limited circumstances described herein. See
"Description of Notes-- Book-Entry System."
Nasdaq symbol for our Common
Stock........................ Our common stock is quoted on the Nasdaq under
the symbol "SIGI."
Risk Factors.................. See "Risk Factors" beginning on page 9 of this
prospectus and the other information in this
prospectus for a discussion of factors you
should consider carefully before deciding to
invest in the notes.
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Summary Historical Consolidated Financial and Operating Data
The following table sets forth our summary historical consolidated financial data. The statement of operations data, share data, and balance sheet data as of and for each of the years in the five-year period ended December 31, 2001 have been derived from our audited financial statements. The statements of operations data, share data and balance sheet data as of and for each of the nine-month periods ended September 30, 2002 and 2001 have been derived from our unaudited financial statements, which information reflects all adjustments consisting of normal recurring adjustments necessary for a fair presentation of our financial condition and results of operations for the relevant periods and, in the opinion of management, have been prepared on the same basis as our audited consolidated financial statements. Results for the nine months ended September 30, 2002 are not necessarily indicative of results of operations for the full fiscal year.
Nine months
ended September 30, Year ended December 31,
------------------------- -------------------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
------------ ----------- ----------- ----------- ------------- ------------ ------------
Statement of Operations Data:
Net premiums written...... 817,171 711,569 $ 925,420 $ 843,604 $ 811,677 $ 748,873 $ 717,618
Net premiums earned....... 730,784 651,530 883,048 821,265 799,065 722,992 676,268
Net investment income
earned.................. 74,097 71,383 96,767 99,495 96,531 99,196 100,530
Net realized gains
(losses)................ 1,219 5,233 6,816 4,191 29,377 (2,139) 6,021
Diversified insurance
services revenue(1)(2).. 60,873 52,493 69,626 57,527 29,764 14,100 8,236
Total revenues............ 869,847 782,701 1,059,020 986,217 957,879 837,329 794,183
Underwriting loss......... (30,479) (43,291) (60,638) (65,122) (54,147) (24,986) (3,022)
Diversified insurance
services net income
(loss) from continuing
operations(1)(2)........ 3,266 (237) (201) 3,605 3,473 1,440 495
Operating income from
continuing operations... 28,986 16,113 21,888 23,962 35,146 54,961 65,694
(Loss) from discontinued
operations (2).......... (122) (258) (625) (151) (524) -- --
Net income................ 29,657 19,257 25,693 26,535 53,717 53,570 69,608
Ratio of earnings to
fixed charges........... 3.8x 2.4x 2.4x 2.5x 6.4x 6.7x 9.2x
Comprehensive income...... 47,395 17,825 24,405 49,166 16,088 78,842 105,931
Total assets.............. 3,063,861 2,695,644 $2,702,319 $2,590,903 $2,507,545 $2,432,168 $2,306,191
Notes payable and
debentures.............. 254,706 163,601 156,433 163,634 81,585 88,791 96,559
Stockholders' equity...... 639,326 586,781 591,160 577,797 569,964 607,583 565,316
Statutory premiums to
surplus ratio (3)....... 2.0:1 1.8:1 1.8:1 1.7:1 1.6:1 1.5:1 1.5:1
Statutory combined
ratio(1)(4)............. 103.3% 106.3% 106.7% 108.2% 105.7% 103.2% 100.1%
Combined ratio (1)(4)..... 104.2% 106.6% 106.9% 107.9% 106.8% 103.6% 100.3%
Yield on investment,
before-tax.............. 5.2% 5.4% 5.4% 5.8% 5.6% 5.7% 6.0%
Debt to capitalization (5) 28.5% 21.8% 21.0% 22.1% 12.5% 13.2% 14.6%
Return on average equity.. 6.2% 3.6% 4.4% 4.6% 9.1% 9.1% 13.4%
Per share data:
Net income:
Basic..................... 1.18 0.78 $ 1.05 $ 1.07 $ 1.98 $ 1.88 $ 2.41
Diluted................... 1.11 0.73 0.98 1.01 1.87 1.74 2.27
Dividends to stockholders. 0.45 0.45 0.60 0.60 0.59 0.56 0.56
Stockholders' equity...... 24.20 23.04 23.15 22.92 21.46 21.30 19.32
(footnotes on following page)
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(1) Flood business is included in statutory underwriting results in accordance with prescribed statutory accounting practices. On a GAAP basis only, flood servicing revenue and expense has been reclassified from underwriting results to Diversified Insurance Services. Prior years have been restated to reflect this reclassification as well as the exclusion of results from discontinued operations.
(2) In December 2001, our management adopted a plan to divest Selective of its 100% ownership interest in PDA Software Services, Inc. (PDA). PDA was purchased in 1998 as part of our newly forming Diversified Insurance Services segment under which its results have historically been reported in accordance with FAS 131, "Disclosures about Segments of an Enterprise and Related Information."
(3) Regulatory and rating agencies use the statutory premiums to surplus ratio as a measure of solvency, viewing an increase in the ratio as a possible increase in solvency risk. Management and analysts also view this ratio as a measure of the effective use of capital since, as the ratio increases, revenue per dollar of invested capital increases, indicating the possible opportunity for an increased return.
(4) Changes in both the GAAP and statutory combined ratios are viewed by management and analysts as indicative of changes in the profitability of underwriting operations. A ratio over 100% is indicative of an underwriting loss, and a ratio below 100% is indicative of an underwriting profit.
(5) The debt to capitalization ratio for the nine months ended September 30, 2002 does not include the exercise of the overallotment option. A pro forma debt to capitalization ratio at September 30, 2002, which includes the exercise of the overallotment on October 16, 2002 in the amount of $15.2 million and the paydown of our 7.84% private placement note on November 15, 2002 in the amount of $7.1 million, is 29.1%.
RISK FACTORS
You should carefully consider the following risks, as well as the other information contained in this prospectus, before investing in the notes. If any of the following risks actually occur, our business could be harmed. You should refer to the other information set forth in this prospectus and our consolidated financial statements and the related notes incorporated by reference herein.
Risks Related to the Offering
Your right to receive payments on these notes will be effectively subordinated to the rights of any future secured creditors. The notes, in certain other circumstances, may effectively be subordinated to any existing and future liabilities of us or our subsidiaries.
The notes represent unsecured obligations of Selective. Accordingly, holders of any future secured indebtedness will have claims that are superior to your claims as holders of the notes to the extent of the value of the assets securing that other indebtedness. In the event of any distribution or payment of our assets in any foreclosure, dissolution, winding-up, liquidation, reorganization, or other bankruptcy proceeding, holders of secured indebtedness will have superior claim to those of our assets that constitute their collateral. In any of the foregoing events, we cannot assure you that there will be sufficient assets to pay amounts due on the notes. Holders of the notes will participate ratably with all holders of our unsecured indebtedness that ranks equally in right of payment with the notes, and potentially with all of our other general creditors, based upon the respective amounts owed to each holder or creditor, in our remaining assets. As a result, holders of notes may receive less, ratably, than holders of secured indebtedness.
In addition, we are a holding company and conduct substantially all our operations through our subsidiaries. As a result, holders of the notes will be effectively subordinated to the debt and other liabilities of our subsidiaries. Therefore, in the event of the insolvency or liquidation of a subsidiary, following payment by such subsidiary of its liabilities, such subsidiary may not have sufficient remaining assets to make payments to us as a shareholder or otherwise. In the event of a default by a subsidiary under any credit arrangement or other indebtedness, its creditors could accelerate such debt, prior to such subsidiary distributing amounts to us that we could have used to make payments on the notes. In addition, if we caused a subsidiary to pay a dividend to us to make payment on the notes, and such dividend were determined to be a fraudulent transfer, holders of the notes would be required to return the payment to the subsidiary's creditors.
We and our subsidiaries will be able to incur substantial additional indebtedness in the future, which may be senior to the notes. The terms of the notes do not impose any limitation on our or our subsidiaries' ability to issue or incur such additional debt.
Furthermore, if we fail to deliver our common stock upon conversion of a note and thereafter become the subject of bankruptcy proceedings, a holder's claim for damages arising from our failure could be subordinated to all of our existing and future obligations.
We are a holding company, and we may not have access to the cash that is needed to make payment on the notes.
Although substantially all of our operations are conducted through our subsidiaries, none of our subsidiaries is obligated to make funds available to us for payment on the notes. Accordingly, our ability to make payments on the notes and pay dividends on the common stock that may be issued upon a conversion of the notes is dependent on the earnings and the distribution of funds from our subsidiaries. Restrictions on our subsidiaries' ability to pay dividends or to make other cash payments to us may materially affect our ability to pay principal and interest on our indebtedness and dividends on the common stock we may issue upon a conversion of the notes.
Our subsidiaries are permitted under the terms of our indebtedness to incur additional indebtedness that may restrict or prohibit the making of distributions, the payment of dividends or the making of loans by our subsidiaries to us. We cannot assure you that the agreements governing the current and future indebtedness of our
subsidiaries will permit our subsidiaries to provide us with sufficient dividends, distributions or loans to fund payments on these notes when due.
The insurance subsidiaries may declare and pay dividends to us only if they are permitted to do so under the insurance regulations of their respective domiciliary state. All of the states in which our insurance subsidiaries are domiciled regulate the payment of dividends. Some states, including New Jersey, North Carolina and South Carolina, require that we give notice to the relevant state insurance commissioner prior to our insurance subsidiaries declaring any dividends and distributions payable to us. During the notice period, the state insurance commissioner may disallow all or part of the proposed dividend if it determines that the insurer's surplus as regards policyholders is not reasonable in relation to the insurer's liabilities and adequate to its financial needs, or in the case of New Jersey, if the regulatory authority determines that the insurer is otherwise in a hazardous financial condition. The aggregate amount of dividends calculated in accordance with state regulations that may be paid in 2002 from all of our insurance subsidiaries with prior regulatory approval is anticipated to be approximately $49.0 million, of which $18.5 million has been approved and paid as of November 25, 2002. We anticipate no objections to the payment of these dividends.
Notwithstanding the foregoing, if insurance regulators otherwise determine that payment of a dividend or any other payment to an affiliate would be detrimental to an insurance subsidiary's policyholders or creditors, because of the financial condition of the insurance subsidiary or otherwise, the regulators may block dividends or other payments to affiliates that would otherwise be permitted without prior approval.
The insurance subsidiaries' sources of funds consist primarily of premiums and contract fees, investment income and proceeds from sales and redemption of investments. Such funds are applied primarily to payment of claims, insurance operating expenses, income taxes and the purchase of investments, as well as dividends and other payments.
We may not be able to pay cash dividends in the future.
For the quarters ending March 31, 2002, June 30, 2002 and September 30, 2002 and each of the four quarters for the fiscal years ending December 31, 2000 and December 31, 2001 we have paid a $0.15 per share cash dividend. Any future cash dividends will depend upon our results of operations, financial conditions, cash requirements, the availability of a surplus and other factors, including the ability of our subsidiaries to make distributions to us, which ability is restricted in the manner described above.
We may not have the ability to purchase notes at the option of the holders or upon a change in control or to raise the funds necessary to finance the purchases.
On September 24, 2009, 2012, 2017, 2022 and 2027, holders of the notes may require us to purchase their notes. However, it is possible that we would not have sufficient funds at that time to make the required purchase of notes. We may be required to pay all or a portion of the purchase price in shares of our common stock, subject to satisfying the conditions in the indenture for making such payments. If we were unable to satisfy the conditions in the indenture to use shares of our common stock to pay the purchase price, we could be in default of our obligations on the notes. In addition, if a holder requires us to purchase all or a portion of its notes and we elect to deliver shares of our common stock, and we then become the subject of bankruptcy proceedings, a holder may not be able to rescind its notice obligating us to purchase all or a portion of its notes, and a holder's claim may be subordinated to all of our existing and future obligations.
In addition, upon the occurrence of certain specific kinds of change in control events occurring on or before September 24, 2009, holders may require us to purchase for cash all or any portion of their notes. However, it is possible that, upon a change in control, we may not have sufficient funds at that time to make the required purchase of notes, and we may be unable to raise the funds necessary.
As described above, we are a holding company and our cash flow depends on distributions to us from our subsidiaries, which are restricted in the manner described above. Accordingly, our ability to purchase the notes at
the option of the holder upon a change in control event will depend in part on the ability of our subsidiaries to make distributions to us.
In addition, the terms of any future indebtedness we incur may also restrict our ability to purchase notes upon a change in control or if we are otherwise required to purchase notes at the option of the holder. If such indebtedness contained such a restriction, we would have to seek the consent of the lenders or repay those borrowings. If we were unable to obtain the necessary consent or unable to repay those borrowings, we would be unable to purchase the notes and, as a result, would be in default under the notes.
You should consider the United States federal income tax consequences of owning the notes.
The notes will be characterized as indebtedness for United States federal income tax purposes. Accordingly, you will be required to include interest with respect to the notes in your income. The notes will constitute contingent payment debt instruments. Consequently, the notes will be treated as issued with original issue discount for United States federal income tax purposes, and you will be required to include such original issue discount in your income as it accrues for United States federal income tax purposes in advance of receipt of any payment on the notes to which the income is attributable.
The amount of tax original issue discount required to be included by you for each year will be in excess of the stated yield to maturity of the notes. You will recognize gain or loss on the sale, purchase by us at your option, exchange, conversion or redemption of a note in an amount equal to the difference between the amount realized on the sale, purchase by us at your option, exchange, conversion or redemption, including the fair market value of any of our common stock received upon conversion or otherwise, and your adjusted tax basis in the notes. Any gain recognized by you on the sale, purchase by us at your option, exchange, conversion or redemption of a note generally will be ordinary interest income; any loss will be ordinary loss to the extent of the interest previously included in income, and thereafter, capital loss.
To understand how this may affect you, you should seek advice from your own tax advisor prior to purchasing these notes. See "Material United States Federal Income Tax Consequences" for a more detailed discussion of the United States federal income tax consequences to the holders of the notes of the purchase, ownership and disposition of the notes.
An active trading market for the notes may not develop.
The notes comprise a new issue of securities for which there is currently no public market. The notes will not be listed on any securities exchange or included in any automated quotation system. We do not know whether an active trading market will develop for the notes. If the notes are traded after their initial issuance, they may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar securities, the price of our common stock, its and our performance and other factors. We do not intend to apply for listing of the notes on any securities exchange or other stock market.
Risks Related to Our Business
Catastrophic events can have a significant impact on our financial and operational condition.
Results of property insurers are subject to weather and other conditions prevailing in an accident year. While one year may be relatively free of major weather or other disasters, another year may have numerous such events causing results for such a year to be materially worse than for other years.
Our insurance subsidiaries have experienced, and are expected in the future to experience, catastrophe losses. It is possible that a catastrophic event or a series of multiple catastrophic events could have a material adverse effect on the operating results and financial condition of the insurance subsidiaries, thereby limiting the ability of the insurance subsidiaries to pay dividends.
Various events can cause catastrophes, including hurricanes, windstorms, earthquakes, hail, terrorism, explosions, severe winter weather and fires. The frequency and severity of these catastrophes are inherently unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposures in the area affected by the event and the severity of the event. Although catastrophes can cause losses in a variety of property and casualty lines, most of the catastrophe-related claims of our insurance subsidiaries are related to homeowners' coverages.
Our insurance subsidiaries seek to reduce their exposure to catastrophe losses through the purchase of catastrophe reinsurance. Nevertheless, reinsurance may prove inadequate if
o a major catastrophic loss exceeds the reinsurance limit, or
o an insurance subsidiary pays a number of smaller catastrophic loss claims which, individually, fall below the subsidiary's retention level.
In the past ten years the single largest catastrophe event generated claims of $14.1 million net of reinsurance. In that same period, total catastrophe losses in any one-year ranged from $2.1 million to $19.6 million net of reinsurance.
Our geographic concentration ties our performance to the economic and regulatory conditions and weather-related events in the east coast and midwestern states.
Our property and casualty insurance business is concentrated geographically. Approximately 40% of our net premiums written are for insurance policies written in New Jersey. Other East Coast states, including Connecticut, Delaware, Georgia, Maryland, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Virginia and several Midwestern states, including Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, Ohio and Wisconsin, account for substantially all of our other business. Consequently, unusually severe storms or other natural or man-made disasters which destroy property in the states in which we write insurance could adversely affect our operations. Our revenues and profitability are also subject to prevailing economic and regulatory conditions in those states in which we write insurance. Because our business is concentrated in a limited number of markets, we may be exposed to risks of adverse developments that are greater than the risks of having business in a greater number of markets.
We face significant competition from other regional and national insurance companies, agents and from self-insurance.
We compete with regional and national insurance companies, including direct writers of insurance coverage. Many of these competitors are larger than we are and have greater financial, technical and operating resources. In addition, we face competition within each insurance agency which sells our insurance, because most of our agencies represent more than one insurance company.
The property and casualty insurance industry is highly competitive on the basis of both price and service. If our competitors price their products more aggressively, our ability to grow or renew our business may be adversely impacted. There are many companies competing for the same insurance customers in the geographic areas in which we operate. The Internet may also emerge as a significant source of new competition, both from existing competitors using their brand name and resources to write business through this new distribution channel and from new competitors.
We also face competition because of entities which self-insure, primarily in the commercial insurance market. Many of our customers and potential customers are examining the benefits and risks of self-insuring as an alternative to traditional insurance.
A number of new, proposed or potential legislative or industry developments could further increase competition in the property and casualty insurance industry. These developments include:
o the enactment of the Gramm-Leach-Bliley Act of 1999, which could result in increased competition from new entrants to the insurance market, including banks and other financial service companies;
o programs in which state-sponsored entities provide property insurance in catastrophe-prone areas or other alternative market types of coverage; and
o changing practices caused by the internet, which have led to greater competition in the insurance business and, in some cases, greater expectations for customer service.
New competition from these developments could cause the supply or demand for insurance to change, which could adversely affect our results of operations and financial condition.
We are heavily regulated in the states in which we operate.
We are subject to extensive supervision and regulation in the states in which we transact business. The primary purpose of supervision and regulation is to protect individual policyholders and not shareholders or other investors. Our business can be adversely affected by private passenger automobile insurance regulations and any other regulations affecting property and casualty insurance companies. For example, laws and regulations can reduce or set rates at levels which we do not believe are adequate for the risks we insure. Other laws and regulations can limit our ability to cancel or refuse to renew policies and require us to offer coverage to all consumers. Changes in laws and regulations, or their interpretations, pertaining to insurance, including workers' compensation, health care or managed care, and to preferred provider organizations and professional employer organizations, may also have an adverse effect on our business. Although the federal government does not directly regulate the insurance industry, federal initiatives, from time to time, can also impact the insurance industry.
In addition, proposals intended to control the cost and availability of health care services have been debated in the U.S. Congress and state legislatures. Although we do not write health insurance, rules affecting healthcare services can affect workers' compensation, commercial and personal automobile, liability and other insurance which we do write. We cannot determine whether or in what form health care reform legislation may be adopted by the U.S. Congress or any state legislature. We also cannot determine the nature and effect, if any, that the adoption of health care legislation or regulations, or changing interpretations, at the federal or state level would have on us.
Examples of regulatory risks include:
Automobile Insurance Regulation
In March 1999, we began to implement a state-mandated 15% rate reduction for all personal automobile policies in New Jersey. As a result of this roll-back, our annual premiums in this line have been reduced. The effect of this rollback continued through 2001 decreasing premium collected and adversely impacting profitability. In addition, the New Jersey Urban Enterprise Zone Program requires New Jersey auto insurers, including us, to write involuntary urban auto insurance proportionate to our voluntary market share. This business is and will most likely continue to be unprofitable.
South Carolina law established a joint underwriting association for automobile insurance. We are required to be a member along with other automobile insurers in South Carolina. As a member of this association, we have to write automobile insurance for some involuntary risks, and we share in the profit or loss of the association. On March 1, 2003, the association will be replaced by an assigned risk plan. This plan will assign risks which are unable to obtain coverage voluntarily to insurers based on their market share. We are unable at this time to assess the impact of these changes on our results of operations.
Workers' Compensation Insurance Regulation
Because we voluntarily write workers' compensation insurance, we are required by state law to write involuntary coverage. Insurance companies that underwrite voluntary workers' compensation insurance can either write involuntary coverage assigned by state regulatory authorities or participate in a sharing arrangement. We
currently write involuntary coverage assigned to us in a sharing arrangement. We currently write involuntary coverage assigned to us directly from the State of New Jersey, and this business is unprofitable.
Homeowners Insurance Regulation
New Jersey regulations prohibit us from canceling or non-renewing
homeowners insurance policies for any arbitrary, capricious or unfairly
discriminatory reason or without adequate notice to the insured. We are subject
to regulatory provisions that are designed to address problems in the homeowners
property insurance marketplace. These provisions regulate matters relating to
the availability and affordability of such insurance and take two forms:
voluntary and involuntary. Involuntary provisions, such as the New Jersey Fair
Access to Insurance Requirements (FAIR), generally result in assessments to us.
The New Jersey FAIR writes fire and extended coverage on homeowners for those
individuals unable to secure insurance elsewhere. Insurance companies who
voluntarily write homeowners insurance in New Jersey are assessed a portion of
any deficit from the New Jersey FAIR based on their share of the voluntary
market. Similar involuntary plans exist in most other states where we operate.
A change in our market share in New Jersey could adversely impact the results in our private passenger automobile business.
New Jersey insurance regulations require New Jersey auto insurers to involuntarily write private passenger automobile insurance for individuals who are unable to obtain insurance in the voluntary market at the same premium rates that are applicable to policies which the insurers voluntarily write. The amount of involuntary insurance which an insurer must write in New Jersey depends on the insurer's market share in New Jersey -- the greater the market share the more involuntary coverage the insurer is required to write. The underwriting of involuntary personal automobile insurance in New Jersey is unprofitable.
In 2001, insurance companies having an aggregate share of nearly 25% of the market for New Jersey private passenger automobile insurance publicly announced their intentions to either withdraw from New Jersey or to reduce their writing of private passenger automobile insurance in New Jersey. It is uncertain whether these insurance companies will actually follow through on their announced intentions. The impact of their actions, if any, is also uncertain. However, the withdrawal from New Jersey of insurance companies that write a significant amount of private passenger automobile insurance coverage or the reduction in their writing of that coverage could result in an increase in our market share in New Jersey if their insureds were to purchase private passenger automobile insurance from us. Our results of operations in this business could be materially adversely affected if we were required to write significantly more involuntary automobile insurance.
The New Jersey Department of Banking and Insurance previously issued an order allowing State Farm Indemnity Company to non-renew a limited portion of its existing New Jersey voluntary private passenger automobile insurance. On September 13, 2002, the department issued an order that establishes a method to equitably distribute State Farm's insured vehicles among the remaining private passenger automobile insurers in the state. The implementation of this order would increase the number of private passenger vehicles we insure in New Jersey by approximately 3,300 vehicles.
The property and casualty insurance industry is cyclical.
Historically, the results of the property and casualty insurance industry have been subject to significant fluctuations due to competition, economic conditions, interest rates and other factors. For example, in 2000 and 2001, commercial pricing increased, but had decreased for several years preceding 2000. Furthermore, the industry's profitability is affected by unpredictable developments, including:
o natural and man-made disasters;
o fluctuations in interest rates and other changes in the investment environment that affect returns on our investments;
o inflationary pressures that affect the size of losses; and
o judicial decisions that affect insurers' liabilities.
The demand for property and casualty insurance, particularly commercial lines, can also vary with the overall level of economic activity.
Our reserves may not be adequate to cover estimated losses and expenses.
We are required to maintain loss reserves for our estimated liability for losses and loss expenses associated with reported and unreported claims for each accounting period. From time to time we have to increase reserves, and if our reserves are inadequate, we will be required to further increase reserves. An increase in reserves results in an increase in losses and a reduction in our net income and stockholders' equity for the period in which the deficiency in reserves is identified and could have a material adverse effect on our results of operations, liquidity and financial condition. Our reserve amounts are estimated based on what we expect the ultimate settlement and claim administration expenses to be. These estimates are based on facts and circumstances of which we are aware, predictions of future events, and trends in claims severity and frequency and other subjective factors. There is no method for precisely estimating our ultimate liability for settlement and claims.
We regularly review our reserving techniques and our overall amount of reserves. We also review:
o information regarding each claim for losses;
o our loss history and the industry's loss history;
o legislative enactments, judicial decisions and legal developments regarding damages;
o changes in political attitudes; and
o trends in general economic conditions, including inflation.
We cannot be certain that the reserves we establish are adequate or will be adequate in the future.
Our ability to reduce our exposure to risks depends on the availability and cost of reinsurance.
We transfer our exposure to some risks to others through reinsurance arrangements with other insurance and reinsurance companies. Under our reinsurance arrangements, another insurer assumes a specified portion of our losses and loss adjustment expenses in exchange for a specified portion of policy premiums. The availability, amount and cost of reinsurance depend on market conditions and may vary significantly. Any decrease in the amount of our reinsurance will increase our risk of loss. Furthermore, we face a credit risk with respect to reinsurance. When we obtain reinsurance, we are still liable for those transferred risks if the reinsurer cannot meet those obligations. Therefore, the inability of any of our reinsurers to meet its financial obligations could materially and adversely affect our operations.
Reinsurers experienced significant losses related to the terrorist events of September 11, 2001. As a result, we may incur significantly higher reinsurance costs and more restrictive terms and conditions. Also, there may be reduced availability of reinsurance for some types of commercial exposures.
We depend on our investments to support our operations and to provide a significant portion of our revenues and earnings.
We, like many other property and casualty insurance companies, depend on income from our investment portfolio for a significant portion of our revenues and earnings. Any significant decline in our investment income as a result of falling interest rates, decreased dividend payment rates or general market conditions would have an adverse effect on our results. Any significant decline in the market value of our investments would reduce our shareholders equity and our policyholders surplus which could impact our ability to write additional premiums. In
addition our notes payable are subject to certain debt-to-capitalization restrictions which could also be impacted by a significant decline in investment values.
We depend on our independent insurance agents.
We market and sell our insurance products through independent, non-exclusive insurance agencies and brokers. Agencies and brokers are not obligated to promote our insurance products, and they may also sell our competitors' insurance products. As a result, our business depends in part on the marketing and sales efforts of these agencies and brokers. As we diversify and expand our business geographically, we may need to expand our network of agencies and brokers to successfully market our products. If these agencies and brokers fail to market our products successfully, our business may be adversely impacted. Also, independent agents may decide to sell their businesses to banks, other insurance agencies, or other businesses. Agents with a Selective appointment may decide to buy other agents. Changes in ownership or agencies, or expansion of agencies through acquisition could adversely affect an agency's ability to control growth and profitability, thereby adversely affecting our business.
We may be adversely impacted by a change in our rating.
Insurance companies are subject to financial strength ratings produced by external rating agencies. Higher ratings generally indicate financial stability and a strong ability to pay claims. Ratings are assigned by rating agencies to insurers based upon factors relevant to policyholders. Ratings are not recommendations to buy, hold or sell our common stock.
The principal agencies that cover the property and casualty industry are A.M. Best Company, Standard & Poor's and Moody's. We believe our ability to write business is most influenced by our rating from A.M. Best. We are currently rated "A+" (Superior) by A.M. Best, which is their second highest of fifteen ratings. A rating below "A" from A.M. Best could materially adversely affect the business we write. We believe that ratings from Standard & Poor's or Moody's, although important, have less of an impact on our business. We are currently rated "A" by Standard & Poor's and "A2" by Moody's. An unfavorable change in either of these ratings could make it more expensive for us to access capital markets and would increase the interest rate charged to us under our current lines of credit. We cannot be sure that we will maintain our current lines of credit. We cannot be sure that we will maintain our current A.M. Best, Standard & Poor's or Moody's ratings.
We employ anti-takeover measures that may discourage potential acquirors of our company, which could adversely affect the value of our common stock.
We own, directly or indirectly, all of the shares of stock of insurance subsidiaries domiciled in the states of New Jersey, New York, North Carolina and South Carolina. State insurance laws require prior approval by state insurance departments of any acquisition or control of a domestic insurance company or of any company which controls a domestic insurance company. Any purchase of 10% or more of our outstanding common stock would require prior action by all or some of the insurance commissioners of the above-referenced states.
In addition, other factors may discourage, delay or prevent a change of control of Selective. These include, among others, provisions in our certificate of incorporation, as amended, relating to:
o supermajority voting and fair price to our business combinations;
o staggered terms for our directors;
o supermajority voting requirements to amend the foregoing provisions;
o our stockholder rights plan;
o guaranteed payments which must be made to our officers upon a change of control; and
o the ability of our board of directors to issue "blank check" preferred stock.
The New Jersey Shareholders Protection Act provides, among other things, that a New Jersey corporation, such as Selective, may not engage in business combinations specified in the statute with a shareholder having indirect or direct beneficial ownership of 10% or more of the voting power of our outstanding stock (an interested shareholder) for a period of five years following the date on which the shareholder became an interested shareholder, unless the business combination is approved by the board of directors of the corporation before the date the shareholder became an interested shareholder. These provisions also could have the effect of depriving shareholders of an opportunity to receive a premium over the prevailing market price if a hostile takeover were attempted and may adversely affect the value of our common stock.
We depend on key personnel.
The success of our business is dependent, to a large extent, on our ability to attract and retain key employees, in particular our senior officers, key management, sales, information systems, underwriting, claims, managed care, professional employer organization, and corporate personnel. Competition to attract and retain key personnel is intense. While we have employment agreements with a number of key managers, in general, we do not have employment contracts or non-compete arrangements with our employees.
We face risks from technology-related failures.
Increasingly, our businesses are dependent on computer and Internet-enabled technology. Our inability to anticipate or manage problems with technology associated with scalability, security, functionality or reliability could adversely impact our businesses.
We face risks in the professional employment organization business.
Regulatory
The operations of Selective HR Solutions are affected by numerous federal and state laws and regulations relating to employment matters, benefits plans and taxes. In performing services for its clients, Selective HR Solutions assumes some obligations of an employer under these laws and regulations. If these federal or state laws are ultimately applied in a manner unfavorable to Selective HR Solutions, it could have a material adverse effect on our operations and financial condition.
Liability for worksite employee payroll
In providing its services, Selective HR Solutions assumes the obligations to pay the salaries, wages and related benefit costs and payroll taxes of its clients' worksite employees. Clients are required to fund these obligations for us. If clients failed to fund these obligations, and if these obligations were to be significant, it could have a material adverse effect on our results of operations or financial condition.
Liabilities for Client and Employee Actions
Selective HR Solutions establishes, by contract, division of responsibility with the client for various personnel management matters, including compliance with and liability under various governmental regulations. Because of this relationship, however, Selective HR Solutions may be subject to liability for the clients' violations of laws and regulations. Although the agreements with clients generally obligate them to indemnify Selective HR Solutions for any liability attributable to the conduct of the clients, Selective HR Solutions may not be able to collect on the contractual indemnification claim. In addition, worksite employees may be deemed to be agents of Selective HR Solutions subjecting Selective HR Solutions to liability for the actions of those worksite employees which could have a material adverse effect on our results of operations or financial condition.
Class action litigation could affect our business practices and financial results.
The insurance industry has been the target of class action litigation in the following areas:
o after-market crash parts;
o urban homeowner underwriting practices;
o health maintenance organization practices; and
o personal injury protection payments.
It is possible that future class action litigation could adversely affect our insurance and diversified insurance services businesses.
Unionization of medical providers could impact our operations.
Our subsidiary Consumer Health Network (CHN) builds medical provider networks and leases networks to insurers, medical management companies, third party administrators and other medical claim payors. The lessors receive medical fee discounts from network providers in exchange for patient volume commitments. If medical providers, such as physicians, decided to unionize, that might impair CHN's ability to maintain and grow networks, negotiate fee discount arrangements and lease networks to their customers. These events would have an adverse impact not only on CHN, but also on Alta Services, our managed care subsidiary, which leases CHN networks, and Selective as a whole because we rely, in part, on provider networks and discounts to manage our claim medical expenses.
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
Set forth below is information concerning our ratio of earnings to fixed charges on a consolidated basis for the periods indicated. This ratio shows the extent to which our business generates enough earnings after the payment of all expenses other than interest to make required interest payments on our debt.
For the purpose of computing the ratios of earnings to fixed charges, "earnings" consist of income before tax and fixed charges. "Fixed charges" consist of interest expenses and amortization of expenses related to indebtedness and the portion of rental expense, which is considered to be representative of the interest factors in our leases.
Nine Months
Ended Year Ended December 31,
September 30, -----------------------------------------------
2002 2001 2000 1999 1998 1997
---------------- --------- --------- -------- --------- --------
Ratio of earnings to fixed charges................ 3.8x 2.4x 2.5x 6.4x 6.7x 9.2x
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USE OF PROCEEDS
The selling securityholders will receive all of the net proceeds from the sale of the notes or the shares of common stock sold under this prospectus. We will not receive any of the proceeds from sales by the selling securityholders of the notes or the underlying common stock.
PRICE RANGE AND DIVIDEND HISTORY OF OUR COMMON STOCK
Our common stock is quoted on the Nasdaq National Market under the symbol "SIGI." On November 25, 2002, the last reported bid price of the common stock on Nasdaq was $25.32 per share. The following table sets forth for the periods indicated below the high and low bid information for our common stock as quoted on Nasdaq, and dividends paid, for each quarterly period during the fiscal years 2000, 2001 and 2002.
Dividend
High Low Paid
Fiscal Year Ended December 31, 2000 ------------ --------------- -------------
Quarter ended March 31....................................... $17.31 $14.63 $0.15
Quarter ended June 30........................................ 20.38 16.63 0.15
Quarter ended September 30................................... 19.38 17.19 0.15
Quarter ended December 31.................................... 25.88 15.25 0.15
Fiscal Year Ended December 31, 2001
Quarter ended March 31....................................... $26.94 $15.94 $0.15
Quarter ended June 30........................................ 28.21 22.25 0.15
Quarter ended September 30................................... 27.90 20.08 0.15
Quarter ended December 31.................................... 26.10 20.50 0.15
Fiscal Year Ended December 31, 2002
Quarter ended March 31....................................... $27.74 $19.36 $0.15
Quarter ended June 30........................................ 31.48 25.66 0.15
Quarter ended September 30................................... 28.07 20.45 0.15
Quarter ended December 31 (through November 25).............. 25.69 20.09 -
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For the quarters ending March 31, 2002, June 30, 2002 and September 30, 2002 and each of the four quarters for the fiscal years ending December 31, 2000 and December 31, 2001, we have paid a $0.15 per share cash dividend. We expect to pay comparable dividends in the future. However, any future cash dividends will depend upon our results of operations, financial condition, cash requirements, the availability of a surplus and such other factors as our board of directors may deem relevant. See "Risk Factors."
DESCRIPTION OF NOTES
We issued the notes under an indenture, dated as of September 24, 2002, between Selective Insurance Group, Inc., as issuer, and National City Bank, as trustee. The notes constitute senior debt securities under the indenture. The following summarizes the material provisions of the indenture and the notes and does not purport to be complete and is subject to, and qualified by reference to, all of the provisions of the indenture and the notes, which we urge you to read because they define your rights as a note holder. A copy of the indenture has been filed with the SEC as an exhibit to this registration statement. As used in this description of notes, the words "we," "us," "our" or "Selective" refer only to Selective Insurance Group, Inc. and do not include any current or future subsidiary of Selective Insurance Group, Inc.
General
The notes are limited to $305,000,000 aggregate principal amount at maturity. The notes mature on September 24, 2032. The principal amount at maturity of each note will be $1,000. The notes will be payable at the principal corporate trust office of the paying agent, which initially will be an office or agency of the trustee, or an office or agency maintained by us for such purpose, in the Borough of Manhattan, The City of New York.
The notes bear cash interest at the rate of 1.6155% per year on the principal amount at maturity from the issue date, or from the most recent date to which interest has been paid or provided for, until September 24, 2009. During such period, cash interest will be payable semiannually in arrears on March 24 and September 24 of each year, commencing on March 24, 2003, to holders of record at the close of business on the March 9 or September 9 immediately preceding such interest payment date. Each payment of cash interest on the notes will include interest accrued through the day before the applicable interest payment date (or purchase, redemption or, in certain circumstances, conversion date, as the case may be). Any payment required to be made on any day that is not a business day will be made on the next succeeding business day.
The notes were offered at an issue price of $380.12 per note, a substantial discount from their $1,000 principal amount at maturity. Beginning September 24, 2009, for non-tax purposes the notes will accrue original issue discount while they remain outstanding at a rate of 4.25% per year. Original issue discount is the difference between the issue price and the principal amount (or stated redemption price for federal income tax purposes) at maturity of a note. The calculation of the accrual of original issue discount will be on a semiannual bond equivalent basis, using a 360-day year composed of twelve 30-day months.
The notes are debt instruments subject to the contingent payment debt regulations. The notes were issued with original issue discount for United States federal income tax purposes. Even if we do not pay any contingent cash interest on the notes, holders will be required to include accrued tax original issue discount (including the portion of the tax original issue discount represented by cash interest payments) in their gross income for federal income tax purposes as it accrues from September 24, 2002. The rate at which the tax original issue discount will accrue will exceed the stated yield of 4.25% for accrued original issue discount. See "Material United States Federal Income Tax Consequences."
Original issue discount or cash interest, as the case may be, will cease to accrue on a note upon its maturity, conversion, purchase by us at the option of a holder or redemption. We may not reissue a note that has matured or been converted, purchased by us at your option, redeemed or otherwise cancelled, except for registration of transfer, exchange or replacement of such note.
Notes may be presented for conversion at the office of the conversion agent and for exchange or registration of transfer at the office of the registrar. The conversion agent and the registrar shall initially be the trustee. No service charge will be made for any registration of transfer or exchange of notes. However, we may require the holder to pay any tax, assessment or other governmental charge payable as a result of such transfer or exchange.
Ranking of the Notes
The notes are senior unsecured obligations of Selective and rank equal in right of payment to all of our other senior unsecured indebtedness. The notes will be effectively subordinated to any future secured indebtedness to the extent of the assets securing such indebtedness. In addition, we are structured as a holding company, and we conduct most of our business operations through our subsidiaries. The notes will be effectively subordinated to all existing and future indebtedness and other liabilities and obligations of our subsidiaries, which are distinct legal entities having no obligation to pay any amounts pursuant to the notes or to make funds available therefor. In addition, since our subsidiaries are insurance companies, their ability to pay dividends to us is subject to regulatory limitations. See "Risk Factors -- Risks Related to the Offering -- We are a holding company, and we may not have access to the cash that is needed to make payment on the notes."
As of September 30, 2002, after giving effect to the offering of the notes and the application of the net proceeds, we would have had an aggregate of $269.9 million of senior unsecured indebtedness outstanding and no secured indebtedness outstanding. As of September 30, 2002, our subsidiaries had an aggregate of approximately $210.3 million of outstanding obligations, which consisted primarily of trade payables.
Conversion Rights
A holder may convert a note, in integral multiples of $1,000 principal amount at maturity, into common stock only if the conditions for conversion described below are satisfied. In addition, a holder may convert a note only until the close of business on the second business day prior to the redemption date if we call a note for redemption. A note for which a holder has delivered a purchase notice or a change in control purchase notice requiring us to purchase the note may be surrendered for conversion only if such notice is withdrawn in accordance with the indenture.
For each $1,000 principal amount of notes surrendered for conversion, if the conditions for conversion are satisfied, a holder will receive 12.9783 shares of our common stock, subject to adjustment upon the occurrence of certain events described below. A holder of a note otherwise entitled to a fractional share will receive cash equal to the applicable portion of the then current sale price of our common stock on the trading day immediately preceding the conversion date. Upon a conversion, we will have the option to deliver cash or a combination of cash and shares of our common stock for the notes surrendered as described below. The ability to surrender notes for conversion will expire at the close of business on September 23, 2032.
To convert a note into shares of common stock, a holder must:
o complete and manually sign a conversion notice, a form of which is on the back of the note, and deliver the conversion notice to the conversion agent;
o surrender the note to the conversion agent;
o if required by the conversion agent, furnish appropriate endorsements and transfer documents; and
o if required, pay all transfer or similar taxes.
On conversion of a note, a holder will not receive any cash payment of interest representing accrued original issue discount or, except as described below, any accrued cash interest or contingent cash interest. Instead, accrued original issue discount or accrued cash interest or contingent cash interest will be deemed paid by the shares of common stock received by the holder on conversion. Delivery to the holder of the full number of shares of common stock into which the note is convertible, together with any cash payment of such holder's fractional shares, will thus be deemed:
o to satisfy our obligation to pay the principal amount at maturity of the note;
o to satisfy our obligation to pay accrued original issue discount or accrued cash interest attributable to the period from the issue date through the conversion date; and
o to satisfy our obligation to pay accrued contingent interest, if any, attributable to the most recent accrual date.
As a result, accrued original issue discount or accrued cash interest is deemed paid in full rather than cancelled, extinguished or forfeited. Notwithstanding the foregoing, accrued cash interest, if any, will be payable upon any conversion of notes at the option of the holder made concurrently with or after acceleration of the notes following an event of default described under "-- Events of Default and Acceleration" below. Holders of notes surrendered for conversion during the period from the close of business on any regular record date next preceding any interest payment date to the opening of business on such interest payment date will receive the semiannual interest payable on such notes on the corresponding interest payment date notwithstanding the conversion, and such notes upon surrender must be accompanied by funds equal to the amount of such payment, unless such notes have been called for redemption, in which case no such payment shall be required.
If contingent cash interest is payable to holders of notes during any particular six-month period, and such notes are converted after the applicable accrual or record date therefor and prior to the next succeeding interest payment date, holders of such notes at the close of business on the accrual or record date will receive the contingent cash interest payable on such notes on the corresponding interest payment date notwithstanding the conversion. Such notes, upon surrender for conversion, must be accompanied by funds equal to the amount of contingent cash interest payable on the principal amount of notes so converted, unless such notes have been called for redemption, in which case no such payment shall be required.
The conversion rate will not be adjusted for accrued original issue discount, accrued cash interest, any contingent cash interest or interest payable upon occurrence of a tax event. A certificate for the number of full shares of common stock into which any note is converted, together with any cash payment for fractional shares, will be delivered through the conversion agent as soon as practicable following the conversion date. For a discussion of the tax treatment of a holder receiving shares of our common stock upon surrendering notes for conversion, see "Material United States Federal Income Tax Consequences."
In lieu of delivery of shares of our common stock upon notice of conversion of any notes (for all or any portion of the notes), we may elect to pay holders surrendering notes an amount in cash per note (or a portion of a note) based on the average sale price of our common stock for the five consecutive trading days immediately following either (a) the date of our notice of our election to deliver cash, which we must give within two business days after receiving a conversion notice, unless we have earlier given notice of redemption as described in this prospectus; or (b) the conversion date, if we have given notice of redemption specifying that we intend to deliver cash upon conversion thereafter, in either case multiplied by the conversion rate in effect on that date. We will inform the holders through the trustee no later than two business days following the conversion date of our election to deliver shares of our common stock or to pay cash in lieu of delivery of the shares, unless we have already informed holders of our election in connection with our optional redemption of the notes as described under "-- Redemption of Notes at Our Option." If we elect to deliver all of such payment in shares of our common stock, the shares will be delivered through the conversion agent no later than the fifth business day following the conversion date. If we elect to pay all or a portion of such payment in cash, the payment, including any delivery of our common stock, will be made to holders surrendering notes no later than the tenth business day following the applicable conversion date. If an event of default, as described under "-- Events of Default and Acceleration" below (other than a default in a cash payment upon conversion of the notes), has occurred and is continuing, we may not pay cash upon conversion of any notes or portion of a note (other than cash for fractional shares).
We will adjust the conversion rate for:
(1) dividends or distributions on our common stock payable in our common stock or other capital stock of Selective;
(2) subdivisions, combinations or certain reclassifications of our common stock;
(3) distributions to all holders of our common stock of certain rights to purchase shares of our common stock for a period expiring within 60 days of issuance of the notes at less than the then current sale price of our common stock at that time; and
(4) distributions to the holders of our common stock of a portion of our assets (including shares of capital stock of, or similar equity interests in, a subsidiary or other business unit of ours) or debt securities issued by us or certain rights to purchase our securities (excluding cash dividends or other cash distributions from current or retained earnings other than extraordinary cash dividends). "Extraordinary cash dividends" means the amount of any cash dividend or distribution that, together with all other cash dividends paid during the preceding 12-month period, are on a per share basis in excess of the sum of (i) 5% of the sale price of the shares of our common stock on the day preceding the date of declaration of such dividend or distribution and (ii) the quotient of the amount of any contingent cash interest paid on a note during such 12-month period divided by the number of shares of common stock issuable upon conversion of a note at the conversion rate in effect on the payment date of such contingent cash interest.
In the event that we elect to make a distribution to all holders of shares of our common stock pursuant to clause (3) or (4) of the preceding paragraph, which, in the case of clause (4), has a per share value equal to more than 10% of the sale price of our shares of common stock on the day preceding the declaration date for such distribution, we will be required to give notice to the holders of notes at least 20 days prior to the date for such distribution and, upon the giving of such notice, the notes may be surrendered for conversion at any time until the close of business on the business day prior to the date of distribution or until we announce that such distribution will not take place.
In the event that we pay a dividend or make a distribution on shares of our common stock consisting of capital stock of, or similar equity interests in, a subsidiary or other business unit of ours, the conversion rate will be adjusted based on the market value of the securities so distributed relative to the market value of our common stock, in each case based on the average closing prices of those securities for the 10 trading days commencing on and including the fifth trading day after the date on which "ex-dividend trading" commences for such dividend or distribution on the principal United States securities exchange or market on which the securities are then listed or quoted.
No adjustment to the conversion rate need be made if holders of the notes may participate in the transaction without conversion or in certain other cases.
In addition, the indenture provides that upon conversion of the notes, the holders of such notes will receive, in addition to the shares of common stock issuable upon such conversion, the rights related to such common stock pursuant to our existing and any future shareholder rights plan, whether or not such rights have separated from the common stock at the time of such conversion. However, there shall not be any adjustment to the conversion privilege or conversion rate as a result of
o the issuance of the rights;
o the distribution of separate certificates representing the rights;
o the exercise or redemption of such rights in accordance with any rights agreement; or
o the termination or invalidation of the rights.
Notwithstanding the foregoing, if a holder of notes exercising the right of conversion attaching thereto after the distribution of rights pursuant to our shareholder rights plan is not entitled to receive the rights that would otherwise be attributable (but for the date of conversion) to the shares of common stock received upon such conversion, the conversion rate will be adjusted pursuant to clause (4) of the fourth preceding paragraph. If such an adjustment is made and such rights are later redeemed, invalidated or terminated, then a corresponding reversing adjustment will be made to the conversion rate on an equitable basis.
The indenture permits us to increase the conversion rate from time to time.
Holders of the notes may, in certain circumstances, be deemed to have received a distribution subject to United States federal income tax as a dividend upon:
o a taxable distribution to holders of common stock that results in an adjustment of the conversion rate on the notes;
o an increase in the conversion rate at our discretion; or
o failure to adjust the conversion rate in some instances.
See "Material United States Federal Income Tax Consequences."
If we are a party to a consolidation, merger or binding share exchange or a transfer of all or substantially all of our assets, the right to convert a note into common stock may be changed into a right to convert it into the kind and amount of securities, cash or other assets of Selective or another person which the holder would have received if the holder had converted the holder's note immediately prior to the transaction.
The conversion agent will, on our behalf, determine if the notes are convertible and notify the trustee and us accordingly. If the conditions to the conversion of the notes have been satisfied, we will promptly notify the holders of the notes thereof and use our reasonable best efforts to post this information on our website or otherwise publicly disclose this information.
Conversion Based on Common Stock Price. If, as of the last day of any
calendar quarter beginning with the quarter ending December 31, 2002, the
closing sale price of our common stock for at least 20 trading days in a period
of 30 consecutive trading days ending on the last trading day of such calendar
quarter is more than the following percentage of the accreted conversion price
per share of common stock (excluding accrued cash interest, if any) on the last
day of such quarter, then on any business day during the following calendar
quarter holders may surrender notes for conversion into shares of common stock:
(a) 120% until and including September 30, 2009 and (b) declining approximately
0.11% per calendar quarter thereafter to 110% on the last day of the quarter
ending June 30, 2032. Upon a conversion, we will have the right to deliver cash
or a combination of cash and common stock, as described below.
The accreted conversion price per share as of any day will equal the sum of the issue price of a note plus the accrued original issue discount or accrued cash interest, if any, divided by the number of shares of common stock issuable upon conversion of a note on that day, subject to any adjustments to the conversion rate through that day. The closing sale price of our common stock on any trading day means the closing per share sale price (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on such date on the principal national securities exchange on which the common stock is listed or, if our common stock is not listed on a national securities exchange, as reported by the Nasdaq system or otherwise as provided in the indenture.
The conversion trigger price per share of our common stock in respect of each of the first 28 fiscal quarters following issuance of the notes is $35.15. This conversion trigger price reflects the accreted conversion price per share of common stock (excluding accrued cash interest, if any) multiplied by 120%. Thereafter, the accreted conversion price per share of common stock increases each fiscal quarter by the accreted original issue discount for the quarter. The conversion trigger price per share for the fiscal quarter beginning July 1, 2032 is $83.94. The foregoing conversion trigger prices assume that no events have occurred that would require an adjustment to the conversion rate.
Conversion Rights Based on Credit Ratings Downgrade. Holders may also surrender notes for conversion during any period in which the credit rating assigned to the notes is Ba2 or lower by Moody's or BB or lower by Standard & Poor's, the notes are no longer rated by either Moody's or Standard & Poor's, or the credit rating assigned to the notes has been suspended or withdrawn by either Moody's or Standard & Poor's. The notes will
cease to be convertible pursuant to this paragraph during any period or periods in which all of the credit ratings are increased above such levels.
Conversion Based on Redemption. A holder may surrender for conversion a note called for redemption at any time prior to the close of business on the second business day immediately preceding the redemption date, even if it is not otherwise convertible at such time. A note for which a holder has delivered a purchase notice or a change in control purchase notice, as described below, requiring us to purchase such note may be surrendered for conversion only if such notice is withdrawn in accordance with the indenture.
A "business day" is any weekday that is not a day on which banking institutions in The City of New York are authorized or obligated to close. A "trading day" is any day on which the NYSE is open for trading or, if the applicable security is quoted on the Nasdaq, a day on which trades may be made on such market or, if the applicable security is not so listed, admitted for trading or quoted, any business day.
Conversion upon Occurrence of Certain Corporate Transactions. If we are party to a consolidation, merger or binding share exchange or a transfer of all or substantially all of our assets, a note may be surrendered for conversion at any time from and after the date which is 15 days prior to the anticipated effective date of the transaction until the date that is 15 days after the actual effective date of such transaction, and at the effective date, the right to convert a note into common stock will be changed into a right to convert it into the kind and amount of securities, cash or other assets of Selective or another person which the holder would have received if the holder had converted the holder's notes immediately prior to the transaction. If such transaction also constitutes a change in control of Selective, the holder will be able to require us to purchase all or a portion of such holder's notes as described under "-- Change in Control Permits Purchase of Notes by Selective at the Option of the Holder."
The notes will also be convertible upon the occurrence of certain distributions resulting in an adjustment to the conversion price as described above.
Contingent Cash Interest
Subject to the accrual and record date provisions described below, we will pay contingent cash interest to the holders of the notes during any six-month period from March 25 to September 24 and from September 25 to March 24, commencing September 25, 2009, if the average market price of a note for the Applicable Five Trading Day Period equals 120% or more of the sum of the issue price, accrued original issue discount and accrued cash interest, if any, for a note to the day immediately preceding the first day of the applicable six-month period. "Applicable Five Trading Day Period" means the five trading days ending on the third trading day immediately preceding the first day of the relevant six-month period, unless Selective declares a dividend for which the record date falls prior to the first day of a six-month period but the payment date falls within such six-month period, in which case the "Applicable Five Trading Day Period" means the five trading days ending on the third trading day immediately preceding such record date.
The amount of contingent cash interest payable per note in respect of any quarterly period within any such six-month period in which contingent interest is payable will equal the greater of (a) any regular cash dividends paid by us per share on our common stock during that quarterly period multiplied by the number of shares of our common stock deliverable upon exchange of a note or (b) $0.15 multiplied by 12.9783. For United States federal income tax purposes, the notes constitute contingent payment debt instruments.
Contingent cash interest, if any, will accrue and be payable to holders of notes as of the record date for the related regular cash dividend or, if we do not pay a regular cash dividend on our common stock during a quarter within the relevant six-month period, to holders of notes as of the 15th day preceding the last day of the relevant six-month period. Such payments will be paid on the payment date of the related regular cash dividend or, if we do not pay a regular cash dividend on our common stock during a quarter within the relevant six-month period, on the last day of the relevant six-month period. Original issue discount will continue to accrue at the yield to maturity whether or not contingent cash interest is paid.
Regular cash dividends mean quarterly or other periodic cash dividends on our common stock as declared by our board of directors as part of its cash dividend payment practices and that are not designated by it as extraordinary or special or other nonrecurring dividends.
The market price of a note on any date of determination means the average of the secondary market bid quotations per note obtained by the bid solicitation agent for $10 million principal amount at maturity of notes at approximately 4:00 p.m., New York City time, on such determination date from three independent nationally recognized securities dealers we select, provided that if:
o at least three such bids are not obtained by the bid solicitation agent; or
o in our reasonable judgment, the bid quotations are not indicative of the secondary market value of the notes,
then the market price of the note will equal (a) the then applicable conversion rate of the notes multiplied by (b) the average sale price of our common stock on the five trading days ending on such determination date, appropriately adjusted.
The bid solicitation agent is National City Bank, the trustee. We may change the bid solicitation agent, but the bid solicitation agent will not be our affiliate. The bid solicitation agent will solicit bids from securities dealers that are believed by us to be willing to bid for the notes.
Upon determination that note holders will be entitled to receive contingent cash interest during a relevant six-month period, we will issue a press release and publish such information on our website or through such other public medium as we may use at that time.
We may unilaterally increase the amount of contingent cash interest we may pay or pay interest or other amounts we are not obligated to pay, but we will have no obligation to do so.
Redemption of Notes at Our Option
No sinking fund is provided for the notes. Prior to September 24, 2007, we cannot redeem the notes at our option. Beginning on September 24, 2007, we may redeem the notes for cash, as a whole at any time or from time to time in part. We will give not less than 30 days' or more than 60 days' notice of redemption by mail to holders of notes.
If redeemed at our option, the notes will be redeemed at a price equal to the sum of the issue price, plus the call premium, if any, plus accrued original issue discount and accrued and unpaid cash interest, if any, on such notes to the applicable redemption date. The table below shows the redemption prices of a note on September 24, 2007, on each September 24 thereafter prior to maturity and at maturity on September 24, 2032. In addition, the redemption price of a note that is redeemed between the dates listed below would include an additional amount reflecting the additional accrued original issue discount or cash interest, if any, that has accrued on such note since the immediately preceding date in the table below.
(2) (4)
Redemption Date (1) Accrued Original (3) Redemption
September 24: Note Issue Price Issue Discount Call Premium Price (1)+(2)+(3)
------------------- ---------------- ------------------ ------------ -----------------
2007............................. $380.12 $ -- $4.62 $384.74
2008............................. 380.12 -- 2.31 382.43
2009............................. 380.12 -- -- 380.12
2010............................. 380.12 16.33 -- 396.45
2011............................. 380.12 33.36 -- 413.48
2012............................. 380.12 51.11 -- 431.23
2013............................. 380.12 69.64 -- 449.76
2014............................. 380.12 88.96 -- 469.08
2015............................. 380.12 109.10 -- 489.22
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(2) (4)
Redemption Date (1) Accrued Original (3) Redemption
September 24: Note Issue Price Issue Discount Call Premium Price (1)+(2)+(3)
------------------- ---------------- ------------------ ------------ -----------------
2016............................. $380.12 $130.12 $ -- $510.24
2017............................. 380.12 152.03 -- 532.15
2018............................. 380.12 174.89 -- 555.01
2019............................. 380.12 198.73 -- 578.85
2020............................. 380.12 223.59 -- 603.71
2021............................. 380.12 249.52 -- 629.64
2022............................. 380.12 276.56 -- 656.68
2023............................. 380.12 304.77 -- 684.89
2024............................. 380.12 334.19 -- 714.31
2025............................. 380.12 364.87 -- 744.99
2026............................. 380.12 396.87 -- 776.99
2027............................. 380.12 430.24 -- 810.36
2028............................. 380.12 465.05 -- 845.17
2029............................. 380.12 501.35 -- 881.47
2030............................. 380.12 539.21 -- 919.33
2031............................. 380.12 578.70 -- 958.82
At stated maturity............... 380.12 619.88 -- 1,000.00
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If we convert the notes to semiannual coupon notes following the occurrence of a tax event, the notes will be redeemable at the restated principal amount plus accrued and unpaid interest from the date of the conversion through the redemption date. However, in no event may the notes be redeemed prior to September 24, 2007. For more information on this optional conversion, see "Optional Conversion to Semiannual Coupon Notes upon Tax Event."
If less than all of the outstanding notes are to be redeemed, the trustee will select the notes to be redeemed in principal amounts at maturity of $1,000 or integral multiples of $1,000. In this case, the trustee may select the notes by lot, pro rata or by any other method the trustee considers fair and appropriate. If a portion of a holder's notes is selected for partial redemption and the holder converts a portion of the notes, the converted portion will be deemed to be part of the portion of notes selected for redemption.
Purchase of Notes by Selective at the Option of the Holder
On the purchase dates of September 24, 2009, September 24, 2012, September 24, 2017, September 24, 2022 and September 24, 2027, we may, at the option of the holder, be required to purchase, at the purchase price set forth below plus accrued and unpaid cash interest, if any, to the purchase date, all or a portion of such holder's outstanding notes for which a written purchase notice has been properly delivered by the holder and not withdrawn, subject to certain additional conditions. Holders may submit their written purchase notice to the paying agent at any time from the opening of business on the date that is 20 business days prior to such purchase date until the close of business on the business day immediately preceding such purchase date.
The purchase price of a note will be:
o $380.12 per note on September 24, 2009;
o $431.23 per note on September 24, 2012;
o $532.15 per note on September 24, 2017;
o $656.68 per note on September 24, 2022; and
o $810.36 per note on September 24, 2027.
The above purchase prices reflect a price equal to the sum of the issue price and accrued original issue discount, if any, on such notes as of the applicable purchase date. We may, at our option, elect to pay the purchase price in cash or shares of our common stock, or any combination thereof, see "Certain United States Federal Income Tax Considerations -- United States Holders -- Sale, Exchange, Conversion or Redemption of Notes."
If prior to a purchase date the notes have been converted to semiannual coupon notes following the occurrence of a tax event, the purchase price will be equal to the restated principal amount plus accrued and unpaid cash interest from the date of the conversion to the purchase date. For more information on this optional conversion, see "-- Optional Conversion to Semiannual Coupon Notes upon Tax Event."
We will be required to give notice on a date not less than 20 business days prior to each purchase date to all holders at their addresses shown in the register of the registrar, and to beneficial owners as required by applicable law, stating among other things:
o the amount of the purchase price;
o whether we will pay the purchase price of the notes in cash or common stock or any combination thereof, specifying the percentages of each;
o if we elect to pay in common stock, the calculation of the market price of the common stock; and
o the procedures that holders must follow to require us to purchase their notes.
The purchase notice given by each holder electing to require us to purchase notes shall state:
o the certificate numbers of the holder's notes to be delivered for purchase;
o the portion of the principal amount at maturity of notes to be purchased, which must be $1,000 or an integral multiple of $1,000;
o that the notes are to be purchased by us pursuant to the applicable provisions of the notes; and
o in the event we elect, pursuant to the notice that we are required to give, to pay the purchase price in common stock, in whole or in part, but the purchase price is ultimately to be paid to the holder entirely in cash because any of the conditions to payment of the purchase price or portion of the purchase price in common stock is not satisfied prior to the close of business on the purchase date, as described below, whether the holder elects:
o to withdraw the purchase notice as to some or all of the notes to which it relates; or
o to receive cash in respect of the entire purchase price for all notes or portions of notes subject to such purchase notice.
If the purchase price for the notes subject to the purchase notice is ultimately to be paid to a holder entirely in cash because we have not satisfied one or more of the conditions to payment of the purchase price in common stock prior to the close of business on the purchase date, a holder shall be deemed to have elected to receive cash in respect of the entire purchase price for all such notes unless such holder has properly notified us of its election to withdraw the purchase notice.
Any purchase notice may be withdrawn by the holder by a written notice of withdrawal delivered to the paying agent prior to the close of business on the business day prior to the purchase date. The notice of withdrawal shall state:
o the principal amount at maturity being withdrawn;
o the certificate numbers of the notes being withdrawn; and
o the principal amount at maturity, if any, of the notes that remain subject to the purchase notice.
If we elect to pay the purchase price, in whole or in part, in shares of our common stock, the number of shares we deliver will be equal to the portion of the purchase price to be paid in common stock divided by the market price of a share of common stock. We will pay cash based on the market price for all fractional shares of common stock in the event we elect to deliver common stock in payment, in whole, or in part, of the purchase price. For a discussion of the tax treatment of a holder receiving cash, common stock or any combination thereof, see "Material United States Federal Income Tax Consequences."
The market price of our common stock shall be an amount equal to the average of the sale prices of our common stock for the five-trading-day period ending on the third business day prior to the applicable purchase date, or, if such business day is not a trading day, then on the last trading day prior to such business day, appropriately adjusted to take into account any occurrence that would result in an adjustment of the conversion rate with respect to the common stock. See "-- Conversion Rights" for a description of the manner in which the sale price of our common stock is determined.
Because the market price of our common stock is determined prior to the applicable purchase date, holders of notes bear the market risk with respect to the value of the common stock to be received from the date such market price is determined to such purchase date. We may pay the purchase price or any portion of the purchase price in common stock only if the information necessary to calculate the market price is published in a daily newspaper of national circulation.
Upon determination of the actual number of shares of common stock in accordance with the foregoing provisions, we will promptly issue a press release and publish such information on our website or through such other public medium as we may use at that time.
Our right to purchase notes, in whole or in part, with common stock is subject to our satisfying various conditions, including:
o listing the common stock on the principal United States securities exchange on which our common stock is then listed or, if not so listed, on Nasdaq;
o the registration of the common stock under the Securities Act and the Exchange Act, if required; and
o any necessary qualification or registration under applicable state securities law or the availability of an exemption from such qualification and registration.
If such conditions are not satisfied with respect to a holder prior to the close of business on the purchase date, we will pay the purchase price of the notes of the holder entirely in cash. See "Material United States Federal Income Tax Consequences." We may not change the form or components or percentages of components of consideration to be paid for the notes once we have given the notice that we are required to give to holders of notes, except as described in the first sentence of this paragraph.
In connection with any purchase offer, we will, if required:
o comply with the provisions of Rule 13e-4, Rule l4e-1 and any other tender offer rules under the Exchange Act which may then be applicable; and
o file Schedule TO or any other required schedule under the Exchange Act.
Payment of the purchase price for a note for which a purchase notice has been delivered and not validly withdrawn is conditioned upon delivery of the note, together with necessary endorsements, to the paying agent at any time after delivery of the purchase notice. Payment of the purchase price for the note will be made as soon as
practicable but in no event more than three business days following the later of the purchase date or the time of delivery of the note.
If the paying agent holds money or securities sufficient to pay the purchase price of the note on the business day following the purchase date in accordance with the terms of the indenture, then, immediately after the purchase date, the note will cease to be outstanding and cash interest or original issue discount on such note will cease to accrue, whether or not the note is delivered to the paying agent. Thereafter, all other rights of the holder shall terminate, other than the right to receive the purchase price upon delivery of the note.
No notes may be purchased for cash at the option of holders if there has occurred and is continuing an event of default with respect to the notes, other than a default in the payment of the purchase price with respect to such notes.
Change in Control Permits Purchase of Notes by Selective at the Option of the Holder
In the event of a change in control of Selective on or before September 24, 2009, each holder will have the right, at the holder's option, subject to the terms and conditions of the indenture, to require us to purchase for cash all or any portion of the holder's notes. However, the principal amount at maturity submitted for purchase by a holder must be $1,000 or an integral multiple of $1,000.
We will be required to purchase the notes as of a date no later than 30 business days after the occurrence of such change in control at a cash price equal to the sum of the issue price plus accrued original issue discount and accrued cash interest, if any, on such note to such date of purchase.
If prior to such date of purchase upon a change in control the notes have been converted to semiannual coupon notes following the occurrence of a tax event, we will be required to purchase the notes at a cash price equal to the restated principal amount plus accrued and unpaid interest from the date of the conversion to such date of purchase.
Within 15 days after the occurrence of a change in control, we are obligated to mail to the trustee and to all holders of notes at their addresses shown in the register of the registrar and to beneficial owners as required by applicable law a notice regarding the change in control, which notice shall state, among other things:
o the events causing a change in control;
o the date of such change in control;
o the last date on which the purchase right may be exercised;
o the change in control purchase price;
o the change in control purchase date;
o the name and address of the paying agent and the conversion agent;
o the conversion rate and any adjustments to the conversion rate resulting from such change in control;
o that notes with respect to which a change in control purchase notice is given by the holder may be converted only if the change in control purchase notice has been withdrawn in accordance with the terms of the indenture; and
o the procedures that holders must follow to exercise these fights.
To exercise this right, the holder must deliver a written notice to the paying agent prior to the close of business on the business day prior to the change in control purchase date. The required purchase notice upon a change in control shall state:
o the certificate numbers of the notes to be delivered by the holder;
o the portion of the principal amount at maturity of notes to be purchased, which portion must be $1,000 or an integral multiple of $1,000; and
o that we are to purchase such notes pursuant to the applicable provisions of the notes.
Any such change in control purchase notice may be withdrawn by the holder by a written notice of withdrawal delivered to the paying agent prior to the close of business on the business day prior to the change in control purchase date. The notice of withdrawal shall state:
o the principal amount at maturity being withdrawn;
o the certificate numbers of the notes being withdrawn; and
o the principal amount at maturity, if any, of the notes that remain subject to a change in control purchase notice.
Payment of the change in control purchase price for a note for which a change in control purchase notice has been delivered and not validly withdrawn is conditioned upon delivery of the note, together with necessary endorsements, to the paying agent at any time after the delivery of such change in control purchase notice. Payment of this change in control purchase price for such note will be made promptly following the later of the change in control purchase date or the time of delivery of such note.
If the paying agent holds money sufficient to pay the change in control purchase price of the note on the business day following the change in control purchase date in accordance with the terms of the indenture, then immediately after the change in control purchase date, cash interest or original issue discount on the note will cease to accrue, whether or not the note is delivered to the paying agent. Thereafter, all other rights of the holder shall terminate, other than the right to receive the change in control purchase price upon delivery of the note.
Under the indenture, a "change in control" of Selective is deemed to have occurred upon the occurrence of any of the following:
o the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of our and our subsidiaries' assets, taken as a whole, to any person or group; or
o the adoption of a plan relating to our liquidation or dissolution; or
o the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any person or group becomes the beneficial owner, directly or indirectly, of more than 50% of the voting power of our outstanding voting stock; or
o the first day on which more than a majority of the members of our board of directors are not continuing directors.
"Continuing directors" means any member of our board of directors who:
o was a member of our board of directors on the date of original issuance of the notes; or
o was nominated for election to our board of directors with the approval of, or whose election to our board of directors was ratified by, at least a majority of the continuing directors who were members of our board of directors at the time of such nomination or election.
The indenture does not permit our board of directors to waive our obligation to purchase notes at the option of holders in the event of a change in control.
In connection with any purchase offer in the event of a change in control, we will:
o comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act which may then be applicable; and
o file Schedule TO or any other required schedule under the Exchange Act.
The change in control purchase feature of the notes may, in certain circumstances, make more difficult or discourage a takeover of Selective. The change in control purchase feature, however, is not the result of our knowledge of any specific effort:
o to accumulate shares of common stock;
o to obtain control of us by means of a merger, tender offer, solicitation or otherwise; or
o part of a plan by management to adopt a series of anti-takeover provisions.
Instead, the change in control purchase feature is a standard term contained in other offerings of securities similar to the notes that have been marketed by the initial purchasers. The terms of the change in control purchase feature resulted from negotiations between the initial purchasers and us.
We could, in the future, enter into certain transactions, including certain recapitalizations, that would not constitute a change in control with respect to the change in control purchase feature of the notes but that would increase the amount of our or our subsidiaries' outstanding indebtedness.
No notes may be purchased at the option of holders upon a change in control if there has occurred and is continuing an event of default with respect to the notes, other than a default in the payment of the change in control purchase price with respect to the notes.
Events of Default and Acceleration
The following are events of default under the indenture:
o default in the payment of any principal amount (including accrued original issue discount and, if the notes have been converted to semiannual coupon notes following a tax event, the restated principal amount) at maturity, redemption price, purchase price, or change in control purchase price due with respect to the notes, when the same become due and payable;
o default in payment of any interest under the notes, which default continues for 30 days;
o our failure to comply with any of our other agreements in the notes or the indenture upon our receipt of notice of such default from the trustee or from holders of not less than 25% in aggregate principal amount at maturity of the notes, and our failure to cure (or obtain a waiver of) such default within 60 days after we receive such notice;
o default in the payment of principal when due or resulting in acceleration of other indebtedness of ours for borrowed money where the aggregate principal amount with respect to which the default or
acceleration has occurred exceeds $10 million, and such acceleration has not been rescinded or annulled within a period of 10 days after written notice to us by the trustee or to us and the trustee by the holders of at least 25% in principal amount at maturity of the notes; or
o certain events of bankruptcy, insolvency or reorganization affecting us.
If an event of default shall have happened and be continuing, either the trustee or the holders of not less than 25% in aggregate principal amount at maturity of the notes then outstanding may declare the issue price of the notes plus the original issue discount on the notes accrued through the date of such declaration, and any accrued and unpaid cash interest (or, if the notes have been converted to semiannual coupon notes following a tax event, the restated principal amount, plus accrued and unpaid interest) through the date of such declaration, to be immediately due and payable. In the case of certain events of bankruptcy or insolvency, the issue price of the notes plus the original issue discount accrued thereon, together with any accrued and unpaid cash interest (or, if the notes have been converted to semiannual coupon notes following a tax event, the restated principal amount, plus accrued and unpaid interest) through the occurrence of such event shall automatically become and be immediately due and payable.
Mergers and Sales of Assets
The indenture provides that we may not consolidate with or merge into any person or convey, transfer or lease our properties and assets substantially as an entity to another person unless:
o the resulting, surviving or transferee person is a corporation organized and existing under the laws of the United States, any state thereof or the District of Columbia, and such corporation (if other than us) assumes all our obligations under the notes and the indenture;
o after giving effect to the transaction no event of default, and no event that, after notice or passage of time, would become an event of default, has occurred and is continuing; and
o other conditions described in the indenture are met.
Upon the assumption of our obligations by such corporation in such circumstances, subject to certain exceptions, we shall be discharged from all obligations under the notes and the indenture. Although such transactions are permitted under the indenture, certain of the foregoing transactions occurring could constitute a change in control of Selective, permitting each holder to require us to purchase the notes of such holder as described above.
Optional Conversion to Semiannual Coupon Notes upon Tax Event
From and after the date of the occurrence of a tax event we shall have the option to elect to have interest in lieu of future accrued original issue discount or cash interest accrue at 4.25% per year on a principal amount per note equal to the sum of the issue price, accrued original issue discount and accrued cash interest, if any, on such note on the date of the tax event or the date on which we exercise such option, whichever is later.
Such interest shall accrue from the option exercise date, and shall be payable semiannually on the interest payment dates of March 24 and September 24 of each year to holders of record at the close of business on the March 9 or September 9 immediately preceding the interest payment date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Interest will accrue from the most recent date to which interest, if applicable, has been paid or provided for or, if no interest is payable or has been paid or provided for, from the option exercise date. In the event that we exercise our option to pay interest in lieu of accrued original issue discount or accrued cash interest, if any, the redemption price, purchase price and change in control purchase price on the notes will be adjusted. However, there will be no change in the holder's conversion rights.
A "tax event" means that we shall have received an opinion from independent tax counsel experienced in such matters to the effect that, on or after the date of this prospectus, as a result of
o any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein; or
o any amendment to, or change in, an interpretation or application of such laws or regulations by any legislative body, court, governmental agency or regulatory authority,
in each case which amendment or change is enacted, promulgated, issued or announced or which interpretation is issued or announced or which action is taken, on or after the date of this prospectus, there is more than an insubstantial risk that accrued original issue discount payable on the notes either:
o would not be deductible on a current accrual basis; or
o would not be deductible under any other method;
in either case in whole or in part, by us (by reason of deferral, disallowance, or otherwise) for United States federal income tax purposes.
The Clinton administration previously proposed to change the tax law to defer the deduction of original issue discount on convertible debt instruments until the issuer pays the interest. Congress did not enact those proposed changes. It is not certain what the views of the Bush administration are on this issue and we cannot assure you that the same or a similar proposal will not be proposed and enacted.
If a similar proposal were ever enacted and made applicable to the notes in a manner that would limit our ability to either:
o deduct the interest, including the accrued original issue discount, payable on the notes on a current accrual basis; or
o deduct the interest, including accrued original issue discount, payable on the notes under any other method for United States federal income tax purposes,
such enactment would result in a tax event and the terms of the notes would be subject to modification at our option as described above.
The modification of the terms of notes by us upon a tax event as described above could possibly alter the timing of income recognition by holders of the notes with respect to the semiannual payments of interest due on the notes after the date on which we exercise our option to pay interest in lieu of accrued original issue discount or accrued cash interest, if any, on the notes.
Modification
The trustee and we may modify or amend the indenture or the notes with the consent of the holders of not less than a majority in aggregate principal amount at maturity of the notes then outstanding. However, the consent of the holders of each outstanding note would be required to:
o alter the manner of calculation or rate of accrual of original issue discount or interest on any note or change the time of payment;
o make any note payable in money or securities other than that stated in the note;
o change the stated maturity of any note;
o reduce the principal amount at maturity, restated principal amount, issue price, accrued original issue discount, redemption price, purchase price or change in control purchase price with respect to any note;
o make any change that adversely affects the rights of a holder to convert any note;
o make any change that adversely affects the right to require us to purchase a note;
o impair the right to institute suit for the enforcement of any payment with respect to the notes or with respect to conversion of the notes; or
o change the provisions in the indenture that relate to modifying or amending the indenture.
Without the consent of any holder of notes, the trustee and we may enter into supplemental indentures for any of the following purposes:
o to evidence a successor to us and the assumption by that successor of our obligations under the indenture and the notes;
o to add to our covenants for the benefit of the holders of the notes or to surrender any right or power conferred upon us;
o to secure our obligations in respect of the notes;
o to cure any ambiguity or inconsistency in the indenture; or
o to make any change that does not adversely affect the rights of any holder of the notes.
The holders of a majority in principal amount at maturity of the outstanding notes may, on behalf of all the holders of all notes:
o waive compliance by us with restrictive provisions of the indenture, as detailed in the indenture; or
o waive any past default under the indenture and its consequences, except a default in the payment of the principal amount at maturity, issue price, accrued and unpaid interest, accrued original issue discount, redemption price, purchase price or change in control purchase price or obligation to deliver common stock upon conversion with respect to any note or in respect of any provision which under the indenture cannot be modified or amended without the consent of the holder of each outstanding note affected.
Discharge of the Indenture
We may satisfy and discharge our obligations under the indenture by delivering to the trustee for cancellation all outstanding notes or by depositing with the trustee, the paying agent or the conversion agent, if applicable, after the notes have become due and payable, whether at stated maturity or any redemption date, or any purchase date, or a change in control purchase date, or upon conversion or otherwise, cash or shares of common stock (as applicable under the terms of the indenture) sufficient to pay all of the outstanding notes and paying all other sums payable under the indenture.
Calculations in Respect of Notes
We will be responsible for making all calculations called for under the notes. These calculations include, but are not limited to, determination of the average market prices of the notes and of our common stock and amounts of contingent cash interest payments, if any, payable on the notes. We will make all these calculations in good faith
and, absent manifest error, our calculations will be final and binding on holders of notes. We will provide a schedule of our calculations to the trustee, and the trustee is entitled to rely upon the accuracy of our calculations without independent verification.
Limitations of Claims in Bankruptcy
If a bankruptcy proceeding is commenced in respect of Selective, the claim of a holder of a note is, under title 11 of the United States Code, limited to the issue price of the note plus that portion of the original issue discount, together with any unpaid cash interest or contingent cash interest, that has accrued from the date of issue to the commencement of the proceeding.
Governing Law
The indenture and the notes are governed by, and construed in accordance with, the law of the State of New York.
Information Concerning the Trustee
National City Bank is the trustee, registrar, paying agent and conversion agent under the indenture for the notes.
Book-Entry System
The notes were issued in the form of global securities without coupons held in fully registered book-entry form. DTC or its nominee, Cede & Co., is the sole registered holder of the notes for all purposes under the indenture. Owners of beneficial interests in the notes represented by the global securities will hold their interests pursuant to the procedures and practices of DTC. As a result, beneficial interests in any such securities will be shown on, and may only be transferred through, records maintained by DTC and its direct and indirect participants and any such interest may not be exchanged for certificated securities, except in limited circumstances. Owners of beneficial interests must exercise any rights in respect of their interests, including any right to convert or require purchase of their interests in the notes, in accordance with the procedures and practices of DTC. Beneficial owners will not be holders and will not be entitled to any rights under the global securities or the indenture. Selective and the trustee, and any of their respective agents, may treat DTC as the sole holder and registered owner of the global securities.
Exchange of Global Securities
Notes represented by a global security will be exchangeable for certificated securities with the same terms only if:
o DTC is unwilling or unable to continue as depositary or if DTC ceases to be a clearing agency registered under the Exchange Act and a successor depositary is not appointed by us within 90 days;
o we decide to discontinue use of the system of book-entry transfer through DTC (or any successor depositary); or
o a default under the indenture occurs and is continuing.
DTC has advised us as follows: DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC facilitates the settlement of transactions among its participants through electronic computerized book-entry changes in participants' accounts, eliminating the need for physical movement of securities certificates. DTC's participants include securities brokers and dealers, including the initial purchasers, banks, trust companies, clearing corporations and other organizations, some of whom and/or their representatives, own DTC. Access to DTC's book-entry system
is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly.
Registration Rights
When we issued the notes we entered into a registration rights
agreement with the initial purchasers. As required under that agreement, we have
filed with the SEC, at our expense, a shelf registration statement, of which
this prospectus forms a part, covering resale of the notes and the shares of our
common stock issued upon conversion of the notes. Under the terms of the
agreement, we have agreed to use reasonable efforts to cause the shelf
registration statement to become effective within 180 days of September 18,
2002, and to keep a shelf registration statement effective until the earlier of
(1) the sale pursuant to the shelf registration statement of all the notes and
the shares of common stock issuable upon conversion of the notes and (2) the
expiration of the holding period applicable to such securities held by persons
that are not affiliates of Selective under Rule 144(k) under the Securities Act,
or any successor provision, subject to certain permitted exceptions. We are
permitted to suspend the use of a prospectus that is part of a shelf
registration statement under certain circumstances relating to corporate
developments, public filings with the SEC and similar events for a period not to
exceed 45 days in any three-month period and not to exceed an aggregate of 120
days in any 12-month period.
We have agreed to pay predetermined liquidated damages as described herein ("liquidated damages") to holders of the notes and holders of shares of common stock issuable upon conversion of the notes if a shelf registration statement is not timely made effective or if the prospectus is unavailable for the periods in excess of those permitted above. Such liquidated damages shall accrue until such failure to file or become effective or unavailability is cured, (i) in respect of any notes, at a rate per year equal to 0.25% for the first 90 day period after the occurrence of such event and 0.5% thereafter of the applicable principal amount (as defined below) thereof and, (ii) in respect of any shares of common stock issued upon conversion at a rate per year equal to 0.25% for the first 90 day period and 0.5% thereafter of the then applicable conversion price (as defined below). So long as the failure to become effective or unavailability continues, we will pay liquidated damages in cash on March 24 and September 24 of each year to the holders of record of the notes or shares of common stock on the immediately preceding March 9 or September 9. When such registration default is cured, accrued and unpaid liquidated damages will be paid in cash to the record holder as of the date of such cure.
A holder who sells notes and shares of common stock issued upon conversion of the notes pursuant to the shelf registration statement generally will be required to be named as a selling securityholder in the related prospectus, deliver a prospectus to purchasers and be bound by certain provisions of the registration rights agreement that are applicable to such holder, including certain indemnification provisions. We will pay all expenses of a shelf registration statement, provide to each registered holder copies of such prospectus, notify each registered holder when the shelf registration statement has become effective and take certain other actions as are required to permit, subject to the foregoing, unrestricted resales of the notes and the shares of common stock issued upon conversion of the notes.
The term "applicable principal amount" means, as of any date of determination, with respect to each $1,000 principal amount at maturity of notes, the sum of the initial issue price of such notes plus accrued original issue discount and any accrued cash interest with respect to such notes through such date of determination or, if no notes are then outstanding, such sum calculated as if such notes were then outstanding.
The term "applicable conversion price" means, as of any date of determination, the applicable principal amount per $1,000 principal amount at maturity of notes as of such date of determination divided by the conversion rate in effect as of such date of determination or, if no notes are then outstanding, the conversion rate that would be in effect were notes then outstanding.
We agreed in the registration rights agreement to give notice to all holders of the filing and effectiveness of a shelf registration statement by release made to Reuters Economic Services and Bloomberg Business News or other reasonable means of distribution. A holder who sells notes or shares of common stock issued upon conversion of the notes pursuant to the shelf registration statement must complete and deliver to us a notice and questionnaire (the "questionnaire") at least five business days prior to any intended distribution of notes and our shares of common stock issuable in respect of the notes pursuant to a shelf registration statement. Holders are required to complete and
deliver the questionnaire prior to the effectiveness of a shelf registration statement so that such holder may be named as a selling securityholder in the related prospectus. Upon receipt of such a completed questionnaire, together with such other information as may be reasonably requested by us, from a holder following the effectiveness of a shelf registration statement, we will, as promptly as practicable, file such amendments to a shelf registration statement or supplements to a related prospectus as are necessary to permit such holder to deliver such prospectus to purchasers of notes and our shares of common stock issuable upon conversion of the notes, subject to our right to suspend the use of the prospectus as described above. Any holder that does not complete and deliver a questionnaire or provide such other information will not be named as a selling securityholder in the prospectus and therefore will not be permitted to sell the notes or our shares of common stock issuable upon conversion of the notes pursuant to the shelf registration statement.
This summary of certain provisions of the registration rights agreement is subject to, and is qualified in its entirety by reference to, all the provisions of the registration rights agreement, a copy of which has been filed with the SEC as an exhibit to this registration statement.
DESCRIPTION OF OUR OTHER INDEBTEDNESS
Convertible Subordinated Debentures
On December 29, 1982, we issued convertible subordinated debentures in the principal amount of $25.0 million. The debentures bear interest at a rate of 8.75% per annum, which is payable on the unpaid principal semiannually on January 1 and July 1 in each year to holders of record at the close of business on the preceding December 15 and June 15, respectively. The debentures are convertible into common stock at an effective conversion price of $7.08 per share. The principal amount of the debentures, including any accrued interest, is due on January 1, 2008.
Notes Payable
Between 1994 and 2000, we entered into two note purchase agreements with various lenders for three series of senior notes at interest rates ranging from 8.63% to 8.87%. The aggregate principal amount of these senior notes currently outstanding is $145.5 million. Each note purchase agreement contains restrictive covenants that limit our ability to declare dividends or incur additional indebtedness in excess of certain debt-to-capitalization ratios. At September 30, 2002, the amount available for dividends to stockholders under said restrictions was $166.8 million for the 8.77% senior notes and $129.1 million for the 8.63% and 8.87% senior notes. After taking into account this offering, we will be in compliance with the debt-to-capitalization ratios under all three note purchase agreements.
The 8.63% and 8.87% senior notes
On May 4, 2000, we entered into a $30.0 million and a $61.5 million note purchase agreement with various lenders covering the 8.63% and 8.87% senior notes, respectively.
For the 8.63% senior notes, we are required to pay $6.0 million principal amount in each year commencing on May 4, 2003 and ending on May 4, 2007, inclusive, together with accrued interest thereon. For the 8.87% senior notes, we are required to pay $12.3 million principal amount in each year commencing on May 4, 2006 and ending on May 4, 2010, inclusive, together with accrued interest thereon. The unpaid principal amount of the 8.63% and 8.87% senior notes accrues interest and is payable semiannually on May 4 and November 4 of each year, until the principal is paid in full.
The 8.77% senior notes
On August 12, 1994, we entered into a $54.0 million note purchase agreement with various lenders covering the 8.77% senior notes. We are required to pay $18.0 million principal amount in each year commencing on August 1, 2003 and ending on August 1, 2005, inclusive, together with accrued interest thereon. The unpaid principal amount of the 8.77% senior notes accrues interest and is payable semiannually on February 1 and August 1 of each year, until the principal is paid in full.
Revolving Lines of Credit
As of November 25, 2002, we had revolving lines of credit totaling $50.0 million with State Street Corporation and Wachovia Bank, National Association ($25.0 million each). As of November 25, 2002, there was no balance outstanding. Interest is determined on a LIBOR, prime rate or money market rate basis at our option.
DESCRIPTION OF OUR CAPITAL STOCK
Our authorized capital stock consists of 180,000,000 shares of common stock, $2.00 par value per share, and 5,000,000 shares of preferred stock without par value.
Common Stock
As of October 31, 2002, there were 26,427,028 shares of common stock outstanding, held of record by approximately 8,525 stockholders. The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Subject to preferences that may be applicable to any outstanding shares of preferred stock, the holders of common stock are entitled to receive ratably those dividends as may be declared by the board of directors out of funds legally available therefor. In the event of a liquidation, our dissolution or winding up, holders of the common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock, and all shares of common stock to be issued upon the conversion of the notes and the 8.75% convertible subordinated debentures due 2008, are fully paid and nonassessable. Our common stock is quoted on Nasdaq under the symbol "SIGI."
Preferred Stock
There are no shares of preferred stock outstanding. The board of directors has the authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock without par value in one or more series and to fix the preferences, rights and qualifications, limitations or restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of the series. We believe that the board of directors' authority to set the terms of, and our ability to issue, preferred stock provides flexibility in connection with possible financing transactions in the future. The issuance of preferred stock, however, could adversely affect the voting power of holders of common stock, and the likelihood that the holders will receive dividend payments and payments upon liquidation. The issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control in us. We have no present plan to issue any shares of preferred stock.
Rights Plan
On February 2, 1999, our board of directors approved an amended and restated stockholders' rights plan. Our rights plan is designed to make it more costly and thus more difficult to gain control of us without the consent of our board of directors. The description presented below is intended as a summary only and is qualified in its entirety by reference to the rights agreement, a form of which previously has been filed with the Securities and Exchange Commission and is incorporated by reference.
Our rights plan provides that each of our shares of common stock will have the right to purchase from us one two-hundredth of a share of Series A Junior Preferred Stock at a price of $80.00, subject to customary anti-dilution protection adjustment.
The rights are attached to all certificates representing outstanding shares of our common stock, and no separate right certificates have been distributed. The rights will separate from the shares of our common stock approximately ten days after an announcement that a person or group has acquired 15% or more of our common stock, or commences a tender offer which would result in their acquiring more than 15% of our common stock.
After rights separate from our common stock, certificates representing the rights will be mailed to record holders of our common stock. Once distributed, the separate right certificates alone will represent the rights.
The rights are not exercisable until the date rights separate and will expire on February 2, 2009, unless extended or unless earlier redeemed or exchanged by us.
The shares of Series A Junior Preferred Stock purchasable upon exercise of the rights are nonredeemable. Each share of Series A Junior Preferred Stock will be entitled to a minimum preferential quarterly dividend payment of $1.00 per share but will be entitled to an aggregate dividend of 100 times the dividend declared per share of our common stock. In the event of liquidation, the holders of the Series A Junior Preferred Stock will be entitled to a minimum preferential liquidation payment of $100.00 per share but will be entitled to an aggregate payment of 100 times the payment made per share of our common stock.
Each holder of Series A Junior Preferred Stock will have one vote, and each one two-hundredth of a Series A Junior Preferred Stock will have one two-hundredths vote, voting together with the holders of our common stock.
In the event of any merger, consolidation or other transaction in which shares of our common stock are exchanged, each Series A Junior Preferred Stock will be entitled to receive 100 times the amount received per share of our common stock. These rights are protected by customary anti-dilution provisions.
In the event any person or group becomes an acquiring person or we are acquired in a merger, or 50% or more of our assets are sold, proper provision will be made so that each holder of a right, other than rights beneficially owned by the acquiring person (which will have become void), will thereafter have the right to receive, at a purchase price of $80.00, subject to adjustment, that number of shares of our common stock having a market value of twice the $80.00 exercise price, subject to adjustment.
At any time after a person or group has become an acquiring person and prior to the acquisition by such person or group of 50% or more of shares of our common stock, our board of directors may exchange rights, other than the rights held by such acquiring person which would have become void, in whole or in part, for shares of our common stock at an exchange ratio of one share of our common stock, or one two-hundredth of a share of our Series A Junior Preferred Stock, per right, subject to adjustment.
The terms of the rights may generally be amended by our board of directors without the consent of the holders of the rights.
Until a right is exercised, the holder will have no rights as a stockholder.
The rights should not interfere with any merger or other business combination approved by the board of directors since the rights may be redeemed by us at redemption price of $0.01 per right prior to the time that an acquiring person has acquired beneficial ownership of 15% or more of our common stock.
New Jersey Shareholders Protection Act
The New Jersey Shareholders Protection Act provides, among other things, that a New Jersey corporation, such as Selective, may not engage in business combinations specified in the statute with a shareholder having indirect or direct beneficial ownership of 10% or more of the voting power of our outstanding stock (an interested shareholder) for a period of five years following the date on which the shareholder became an interested shareholder, unless that business combination is approved by the board of directors of the corporation before the date the shareholder became an interested shareholder. These provisions also could have the effect of depriving shareholders of an opportunity to receive a premium over the prevailing market price if a hostile takeover were attempted.
Antitakeover Provisions of Our Certificate of Incorporation
Our restated certificate of incorporation contains certain provisions that have the effect of discouraging, delaying or preventing takeover attempts. Under the restated certificate of incorporation, the affirmative vote of the holders of at least 66 2/3% of our stock entitled to vote for the election of directors is required to approve certain "business combinations" unless any such business combination is approved by "continuing directors" or unless the holders of our common stock receive in such business combination reasonably uniform purchase terms and consideration as specified in the restated certificate of incorporation. Our restated certificate of incorporation also
provides for a classified board of directors. The amendment or repeal of these provisions requires the affirmative vote of the holders of at least 66 2/3% of our stock entitled to vote for the election of directors.
Limitations on Liability and Indemnification of Officers and Directors
Our restated certificate of incorporation provides that, to the fullest extent permitted by New Jersey law, none of our directors will be personally liable to us or to our stockholders for monetary damages for breach of any duty. The provision effectively eliminates our rights and the rights of our stockholders to recover monetary damages against a director for any breach of duty as a director. Our bylaws provide for indemnification of our officers and directors to the fullest extent permitted by applicable law.
Transfer Agent and Registrar
EquiServe Trust Company, N.A. is the transfer agent and registrar for our common stock.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
General
This is a summary of certain material United States federal income tax consequences relevant to holders of the notes and, where noted, common stock issuable upon conversion or repurchase of the notes. This summary is based upon the Internal Revenue Code of 1986, as amended (the "Code"), administrative pronouncements, judicial decisions and existing and proposed Treasury regulations now in effect, all of which are subject to change (possibly with retroactive effect) or differing interpretations. The discussion below deals only with notes and common stock held as capital assets and does not purport to deal with persons in special tax situations, such as financial institutions, insurance companies, regulated investment companies, dealers in securities or currencies, partnerships or other entities classified as partnerships for United States federal income tax purposes, tax-exempt entities, persons holding notes in a tax-deferred or tax-advantaged account, persons who hold the notes whose functional currency is not the United States dollar or persons holding notes as a hedge against currency risks, as a position in a "straddle" or as part of a "hedge," "conversion" or other risk-reduction transaction for tax purposes. Persons considering the purchase of the notes should consult their own tax advisors concerning the application of the United States federal income tax laws to their particular situations as well as any consequences of the purchase, ownership and disposition of the notes or common stock arising under the laws of any state, local, foreign or other taxing jurisdiction.
We do not address all of the tax consequences that may be relevant to a holder of notes. In particular, we do not address:
o the United States federal income tax consequences to shareholders in, or partners or beneficiaries of, an entity that is a holder of notes or common stock;
o the United States federal estate, gift or alternative minimum tax consequences of the purchase, ownership or disposition of notes or common stock; and
o any state, local or foreign tax consequences of the purchase, ownership or disposition of notes or common stock.
No statutory or judicial authority directly addresses the treatment of all aspects of the notes for United States federal income tax purposes. The Internal Revenue Service (the "IRS") has recently issued a revenue ruling with respect to instruments similar to the notes. This ruling supports certain aspects of the treatment described below. No ruling has been or is expected to be sought from the IRS with respect to the United States federal income tax consequences of the issues that are not addressed in the recently released revenue ruling. The IRS would not be precluded from taking contrary positions. As a result, no assurance can be given that the IRS will agree with all of the tax characterizations and the tax consequences described below.
We urge prospective investors to consult their own tax advisors with respect to the tax consequences to them of the purchase, ownership and disposition of notes and common stock in light of their own particular circumstances, including the tax consequences under state, local, foreign and other tax laws and the possible effects of changes in United States federal or other tax laws.
Classification of the Notes
We have received an opinion from our counsel, Shearman & Sterling, that the notes will be treated as indebtedness for United States federal income tax purposes and that the notes will be subject to the Treasury regulations governing contingent payment debt instruments (to which we refer as the "contingent debt regulations"). Pursuant to the terms of the indenture, we and every holder agree (in the absence of administrative pronouncement or judicial ruling to the contrary), for United States federal income tax purposes, to treat the notes as debt instruments that are subject to the contingent debt regulations and to be bound by our application of the contingent debt regulations to the notes, including generally our determination of the rate at which interest will be deemed to accrue on the notes and the related "projected payment schedule" determined by us as described below.
Notwithstanding the issuance of the recent revenue ruling, the proper application of the contingent debt regulations to the notes is not entirely certain, and no assurance can be given that the IRS will not assert that the notes should be treated differently. A different treatment from that described below could affect the amount, timing, source and character of income, gain or loss with respect to an investment in the notes. In particular, a holder might be required to accrue interest income at a higher or lower rate, might not recognize income, gain or loss upon conversion of a note into common stock, and might recognize capital gain or loss upon a taxable disposition of a note. Holders should consult their tax advisors concerning the tax treatment of holding a note.
The remainder of this discussion assumes that the notes are treated as indebtedness subject to the contingent debt regulations.
United States Holders
For purposes of this discussion, a United States Holder is a beneficial owner of the notes or common stock who or which is:
o a citizen or individual resident of the United States for United States federal income tax purposes;
o a corporation, including any entity treated as a corporation for United States federal income tax purposes, created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
o an estate if its income is subject to United States federal income taxation regardless of its source; or
o a trust if (1) a United States court can exercise primary supervision over its administration and (2) one or more United States persons have the authority to control all of its substantial decisions.
Notwithstanding the preceding sentence, certain trusts in existence on August 20, 1996, and treated as United States persons prior to such date, may also be treated as United States Holders.
Accrual of Interest on the Notes
Pursuant to the contingent debt regulations, United States Holders of the notes will be required to accrue interest income on the notes on a constant-yield basis, as described below, regardless of whether such holders use the cash or accrual method of tax accounting. Accordingly, United States Holders will be required to include interest in income each year in excess of the accruals on the notes for non-tax purposes and in excess of any interest payments actually received in that year.
The contingent debt regulations provide that a United States Holder must accrue an amount of ordinary interest income, as original issue discount for United States federal income tax purposes, for each accrual period prior to and including the maturity date of the notes that equals:
(1) the product of (i) the adjusted issue price (as defined below) of the notes as of the beginning of the accrual period and (ii) the comparable yield to maturity (as defined below) of the notes, adjusted for the length of the accrual period;
(2) divided by the number of days in the accrual period; and
(3) multiplied by the number of days during the accrual period that the United States Holder held the notes.
A note's issue price is the first price at which a substantial amount of the notes is sold to the public, excluding sales to bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers. The adjusted issue price of a note is its issue price increased by any interest
income previously accrued, determined without regard to any adjustments to interest accruals described below, and decreased by the projected amount of any payments previously made with respect to the notes.
Shearman & Sterling, our counsel, has advised us that the term "comparable yield" means the annual yield we would pay, as of the initial issue date of the notes, on a fixed-rate, nonconvertible debt security with no contingent payments, but with terms and conditions otherwise comparable to those of the notes. Based in part on that advice, we intend to take the position that the comparable yield for the notes is 6.60%, compounded semiannually. The precise manner of calculating the comparable yield is not entirely clear.
The contingent debt regulations require that we provide to United States Holders, solely for United States federal income tax purposes, a schedule of the projected amounts of payments (to which we refer as "projected payments") on the notes. This schedule must produce a yield to maturity that equals the comparable yield. The projected payment schedule includes estimates for certain contingent interest payments and an estimate for a payment at maturity taking into account the conversion feature. In this connection, the fair market value of any common stock (and cash, if any) received by a holder upon conversion will be treated as a contingent payment. The comparable yield and the projected payment schedule will be set forth in the indenture. United States Holders also may obtain the projected payment schedule by submitting a written request for such information to us at: Selective Insurance Group, Inc., Treasury Operations, 40 Wantage Avenue, Branchville, New Jersey 07890.
For United States federal income tax purposes, a United States Holder must use the comparable yield and the projected payment schedule in the indenture in determining its interest accruals and the adjustments thereto (described below) in respect of the notes unless such United States Holder timely discloses and justifies the use of other estimates to the IRS. A United States Holder that determines its own comparable yield or projected payment schedule also must establish that our comparable yield or projected payment schedule is unreasonable.
The comparable yield and the projected payment schedule are not used for any purpose other than to determine a holder's interest accruals and adjustments thereto in respect of the notes for United States federal income tax purposes. They do not constitute a projection or representation regarding the actual amounts payable on the notes or the value at any time of the common stock into which the notes may be converted.
We may be required to make payments of liquidated damages if we do not cause to be declared effective a registration statement, as described under "Description of Notes -- Registration Rights." We intend to take the position for United States federal income tax purposes that any payments of liquidated damages should be taxable to United States Holders as additional ordinary income when received or accrued, in accordance with their method of tax accounting. Our determination is binding on holders of the notes, unless they explicitly disclose that they are taking a different position to the IRS on their tax returns for the year during which they acquire the note. The IRS could take a contrary position from that described above, which could affect the timing and character of United States Holders' income from the notes with respect to the payments of liquidated damages.
If we do fail to cause to be declared effective a registration statement, United States Holders should consult their tax advisers concerning the appropriate tax treatment of the payment of liquidated damages with respect to the notes.
Adjustments to Interest Accruals on the Notes
If, during any taxable year, a United States Holder of notes receives actual payments with respect to such notes that, in the aggregate, exceed the total amount of projected payments for that taxable year, the United States Holder will incur a "net positive adjustment" under the contingent debt regulations equal to the amount of such excess. The United States Holder will treat a "net positive adjustment" as additional interest income. For this purpose, the payments in a taxable year include the fair market value of property (including common stock received upon conversion or repurchase of the notes) received in that year.
If a United States Holder receives in a taxable year actual payments with respect to the notes that, in the aggregate, are less than the amount of projected payments for that taxable year, the United States Holder will incur a "net negative adjustment" under the contingent debt regulations equal to the amount of such deficit. This negative
adjustment will (a) reduce the United States Holder's interest income on the notes for that taxable year, and (b) to the extent of any excess after the application of (a), give rise to an ordinary loss to the extent of the United States Holder's interest income on the notes during prior taxable years, reduced to the extent such interest was offset by prior net negative adjustments. Any negative adjustment in excess of the amounts described in (a) and (b) will be carried forward to offset future interest income with respect to the notes or to reduce the amount realized on a sale, exchange, conversion or retirement of the notes.
If a United States Holder purchases notes at a discount or premium to the adjusted issue price, the discount will be treated as a positive adjustment and the premium will be treated as a negative adjustment. The United States Holder must reasonably allocate the adjustment over the remaining term of the notes by reference to the accruals of original issue discount at the comparable yield or to the projected payments. It may be reasonable to allocate the adjustment over the remaining term of the notes pro rata with the accruals of original issue discount at the comparable yield. You should consult your tax advisor regarding these allocations.
Sale, Exchange, Conversion or Redemption of Notes
Generally, the sale or exchange of a note or the redemption of a note for cash will result in taxable gain or loss to a United States Holder. As described above, our calculation of the projected payment schedule for the notes, which generally is binding on holders of notes, includes the receipt of stock upon conversion as a contingent payment with respect to the notes. Accordingly, we intend to treat the receipt of common stock by a United States Holder upon (a) the conversion of a note or (b) a United States Holder's exercise of a put right that we elect to pay in common stock as a payment under the contingent debt regulations. So viewed, a conversion of a note into common stock, or a repurchase where we elect to pay in common stock, also will result in taxable gain or loss to a United States Holder.
The amount of gain or loss on a sale, exchange, conversion or redemption will be equal to the difference between (a) the amount of cash plus the fair market value of any other property received by the United States Holder, including the fair market value of any common stock received, and (b) the United States Holder's adjusted tax basis in the note.
A United States Holder's adjusted tax basis in a note generally will be equal to the United States Holder's original purchase price for the note, increased by any interest income previously accrued by the United States Holder (determined without regard to any adjustments to interest accruals described above, other than adjustments to reflect discount or premium to the adjusted issue price, if any) and decreased by the amount of any projected payments that previously have been scheduled to be made in respect of the notes (without regard to the actual amount paid).
Gain recognized upon a sale, exchange, conversion or redemption of a note generally will be treated as ordinary interest income; any loss will be ordinary loss to the extent of interest previously included in income, and thereafter capital loss (which will be long-term if the note is held for more than one year). The deductibility of capital losses is subject to limitations.
A United States Holder's tax basis in common stock received upon a conversion of a note, or upon a United States Holder's exercise of a put right that we elect to pay in common stock, will equal the then current fair market value of such common stock. The United States Holder's holding period for the common stock received will commence on the day immediately following the date of conversion or repurchase.
Constructive Dividends to Holders of Notes
If at any time we were to make a distribution of property to our stockholders that would be taxable to the stockholders as a dividend for United States federal income tax purposes and, in accordance with the anti-dilution provisions of the notes, the conversion rate of the notes were increased, such increase might be deemed to be the payment of a taxable dividend to holders of the notes.
For example, an increase in the conversion rate in the event of distributions of our evidences of indebtedness or our assets or an increase in the event of an extraordinary cash dividend generally would result in deemed dividend treatment to holders of the notes, but an increase in the event of stock dividends or the distribution of rights to subscribe for common stock generally would not.
Dividends on Common Stock
If we make distributions on our common stock, the distributions generally will be treated as dividends to a United States Holder of our common stock to the extent of our current or accumulated earnings and profits as of the year of distribution, then as tax-free return of capital to the extent of the United States Holder's adjusted tax basis in the common stock and thereafter as gain from the sale or exchange of that stock.
Disposition of Common Stock
Upon the disposition of common stock received on conversion or repurchase of a note, a United States Holder generally will recognize capital gain or loss equal to the difference between (i) the amount of cash and the fair market value of any property received upon the sale or exchange and (ii) the United States Holder's adjusted tax basis in the common stock. That capital gain or loss will be long-term if the United States Holder's holding period is more than one year. The deductibility of capital losses is subject to limitations.
Non-United States Holders
As used herein, the term "Non-United States Holder" means a beneficial holder of a note or common stock that is, for United States federal income tax purposes:
o an individual who is classified as a nonresident for United States federal income tax purposes;
o a foreign corporation; or
o an estate or trust that is not a United States estate or trust, as described above.
Notes
We intend to treat payments of contingent interest made to a Non-United States Holder (other than (i) the receipt of common stock upon conversion of a note and (ii) any payment of contingent cash interest made in any period up to the floor amount (i.e., $1.95)) as subject to United States federal withholding tax. Therefore, Non-United States Holders will be subject to withholding on such payments of contingent interest at a rate of 30%, subject to reduction (a) by an applicable treaty if the Non-United States Holder provides an IRS Form W-8BEN certifying that it is entitled to such treaty benefits or (b) upon the receipt of a Form W-8ECI from a Non-United States Holder claiming that the payments are effectively connected with the conduct of a United States trade or business. A Non-United States Holder that is subject to the withholding tax should consult its own tax advisor as to whether it can obtain a refund for a portion of the withholding tax because some portion of the contingent interest represents a return of principal under the contingent debt regulations, or on some other grounds.
All other payments on the notes made to a Non-United States Holder, including a payment in common stock pursuant to a conversion, and any gain realized on a sale or exchange of the notes (other than gain attributable to accrued contingent interest payments), will be exempt from United States income or withholding tax, provided that: (i) such Non-United States Holder does not own, actually or constructively, 10% or more of the total combined voting power of all classes of our stock entitled to vote, is not a controlled foreign corporation related, directly or indirectly, to us through stock ownership, and is not a bank receiving certain types of interest; (ii) the statement requirement set forth in section 871(b) or section 881(c) of the Code has been fulfilled with respect to the beneficial owner, as discussed below; (iii) such payments and gain are not effectively connected with the conduct by such Non-United States Holder of a trade or business in the United States; (iv) our common stock continues to be actively traded within the meaning of section 871(h)(4)(C)(v)(I) of the Code (which, for these purposes and subject to certain exceptions, includes trading on the Nasdaq National Market); and (v) we are not and have not been a United States
real property holding corporation ("USRPHC"). We believe that we are not and have never been, nor do we anticipate becoming, a USRPHC. However, if a Non-United States Holder of a note were deemed to have received a constructive dividend (see "United States Holders -- Constructive Dividends to Holders of Notes" above), the Non-United States Holder generally would be subject to United States withholding tax at a 30% rate, subject to reduction by an applicable treaty, on the taxable amount of such dividend.
The statement requirement referred to in the preceding paragraph will be fulfilled if the beneficial owner of a note certifies on IRS Form W-8BEN, under penalties of perjury, that it is not a United States person and provides its name and address or otherwise satisfies applicable documentation requirements.
Common Stock
Dividends paid to a Non-United States Holder of common stock generally will be subject to withholding tax at a 30% rate subject to reduction (a) by an applicable treaty if the Non-United States Holder provides an IRS Form W-8BEN certifying that it is entitled to such treaty benefits or (b) upon the receipt of a Form W-8ECI from a Non-United States Holder claiming that the payments are effectively connected with the conduct of a United States trade or business.
A Non-United States Holder generally will not be subject to United States federal income tax on gain realized on the sale or exchange of common stock unless (a) the gain is effectively connected with the conduct of a trade or business of the Non-United States Holder, (b) in the case of a Non-United States Holder who is a nonresident alien individual, the individual is present in the United States for 183 or more days in the taxable year of the disposition and certain other conditions are met, or (c) we are or have been a USRPHC. We believe that we are not and have never been, nor do we anticipate becoming, a USRPHC.
Income Effectively Connected with a United States Trade or Business
If a Non-United States Holder of notes or common stock is engaged in a trade or business in the United States, and if interest on the notes, dividends on the stock, or gain realized on the sale or exchange of the notes or common stock is effectively connected with the conduct of such trade or business, the Non-United States Holder, although exempt from the withholding tax discussed in the preceding paragraphs, will generally be subject to regular United States federal income tax on interest, dividends and any gain realized on the sale or exchange (and, with respect to the notes, conversion of the notes into common stock) of the notes or common stock in the same manner as if it were a United States Holder. Such a Non-United States Holder would be required to provide to the withholding agent a properly executed IRS Form W-8ECI (or successor form) in order to claim an exemption from withholding tax. In addition, if such a Non-United States Holder is a foreign corporation, such holder may be subject to a branch profits tax equal to 30% (or such lower rate provided by an applicable treaty) of its effectively connected earnings and profits for the taxable year, subject to certain adjustments.
Backup Withholding Tax and Information Reporting
Payments of principal, premium, if any, and interest (including original issue discount and a payment in common stock pursuant to a conversion of a note) on the notes, payments on the common stock, and the proceeds of dispositions of the notes or common stock may be subject to information reporting and United States federal backup withholding tax if the United States Holder thereof fails to supply an accurate taxpayer identification number or otherwise fails to comply with applicable United States information reporting or certification requirements. A Non-United States Holder may be subject to United States backup withholding tax on payments on the notes or common stock and the proceeds from a sale or other disposition of the notes or common stock unless the Non-United States Holder complies with certification procedures to establish that it is not a United States person. Any amounts so withheld will be allowed as a credit against a United States Holder's United States federal income tax liability and may entitle a holder to a refund, provided the required information is timely furnished to the IRS.
Tax Event
The modification of the terms of the notes by us upon a Tax Event as described in "Description of Notes -- Optional Conversion to Semiannual Coupon Notes upon Tax Event," could possibly alter the timing of income recognition by the holders with respect to the semiannual payments of interest due after the option exercise date.
SELLING SECURITYHOLDERS
The notes originally were issued by us and sold by Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston Corporation, Ferris, Baker Watts, Incorporated and Sandler O'Neill & Partners, L.P., as the initial purchasers, in transactions exempt from the registration requirements of the Securities Act of 1933 to persons reasonably believed by the initial purchasers to be qualified institutional buyers. Selling securityholders, including their transferees, pledges or donees or their successors, may from time to time offer and sell any or all of the notes and the common stock into which the notes are convertible pursuant to this prospectus. The selling securityholders may offer all, some or none of the notes and the common stock.
The table below sets forth the name of each selling securityholder, the principal amounts of notes that may be offered by each selling securityholder under this prospectus and the number of shares of common stock into which the notes are convertible. The information is based on information provided to us by or on behalf of the selling securityholders on or prior to November 22, 2002. The selling securityholders identified below may have sold, transferred or otherwise disposed of all or a portion of their notes or common stock since the date on which they provided this information in transactions exempt from the registration requirements of the Securities Act. Information about the selling securityholders may change from time to time. Any changed information will be set forth in prospectus supplements or post-effective amendments, as required.
Because the selling securityholders may offer all or some portion of the notes or the common stock into which the notes are convertible, we cannot estimate the amount of notes or common stock that may be held by the selling securityholders upon the completion of any sales. For information on the procedure for sales by selling securityholders, read the disclosure under the heading "Plan of Distribution" below.
Principal
Amount Number of
of Notes Number of Shares of
Beneficially Shares of Common Percentage
Owned Percentage of Common Stock Stock That of Common
Name of That May Be Notes Beneficially May Be Stock
Selling Securityholder(1) Sold Outstanding Owned(2) Sold(3)(4) Outstanding(5)
------------------------------------------------- ---------------- ---------------- -------------- -------------- -----------------
AIG DKR Sound Shore Holding Ltd. $3,061,000 1.00% N/A 39,726 *
AIG DKR Sound Shore Opportunity Holding
Fund Ltd. 3,095,000 1.01% N/A 40,167 *
AIG DKR Sound Shore Strategic Holding
Ltd. 2,344,000 * N/A 30,421 *
AKELA Capital Master Fund Ltd. 11,000,000 3.61% N/A 142,761 *
Allstate Life Insurance 2,000,000 * 13,200(6) 25,956 *
Argent Classic Convertible Arbitrage Fund
(Bermuda) Ltd. 2,000,000 * N/A 25,956 *
Argent Low Lev Convertible Arbitrage Fund
Ltd. 2,000,000 * N/A 25,956 *
BNP Paribus Equity Strategies, SNC 20,850,000 6.84% 26,003 270,597 1.12%
Calamos Convertible Fund - Calamos
Investment Trust 13,300,000 4.36% N/A 172,611 *
Calamos Convertible Growth & Income Fund
- Calamos Investment Trust 10,900,000 3.57% N/A 141,463 *
Calamos Convertible Portfolio - Calamos
Advisor Trust 300,000 * N/A 3,893 *
CC Investments LOC 250,000 * N/A 3,244 *
Chrysler Corporation Master Retirement
Trust 2,595,000 * N/A 33,678 *
Context Convertible Arbitrage Fund, LP 165,000 * N/A 2,141 *
Context Convertible Arbitrage Offshore, LP 85,000 * N/A 1,103 *
Cooper Neff Convertible Strategies (Cayman)
Master Fund L.P. 11,189,000 3.67% N/A 145,214 *
Deephaven Domestic Convertible Trading 3,250,000 1.07% N/A 42,179 *
|
Principal
Amount Number of
of Notes Number of Shares of
Beneficially Shares of Common Percentage
Owned Percentage of Common Stock Stock That of Common
Name of That May Be Notes Beneficially May Be Stock
Selling Securityholder(1) Sold Outstanding Owned(2) Sold(3)(4) Outstanding(5)
------------------------------------------------- ---------------- ---------------- -------------- -------------- -----------------
Ltd.
Delta AIR Lines Master Trust
(c/o Oaktree Capital Management, LLC) 655,000 * N/A 8,500 *
Delta Pilots D & S Trust (c/o Oaktree
Capital Management, LLC) 360,000 * N/A 4,672 *
GDO Equity Arbitrage Master Fund 1,000,000 * N/A 12,978 *
JMG Convertible Investments LP 1,500,000 * N/A 19,467 *
KBC Financial Products USA Inc. 3,000,000 * N/A 38,934 *
Marathon Global Convertible Master Fund
Ltd. 5,000,000 1.64% N/A 64,891 *
McMahan Securities Co. L.P. 12,250,000 4.02% N/A 158,984 *
MLQA Convertible Securities Arbitrage Ltd 12,000,000 3.93% N/A 155,739 *
Microsoft Corporation 935,000 * N/A 12,134 *
Motion Picture Industry Health Plan-Active
Member Fund 170,000 * N/A 2,206 *
Motion Picture Industry Health Plan-Retiree
Member Fund 105,000 * N/A 1,362 *
OCM Convertible Trust 1,725,000 * N/A 22,387 *
Partner Reinsurance Company, Ltd. 540,000 * N/A 7,008 *
Qwest Occupational Health Trust 200,000 * N/A 2,595 *
State Employee's Retirement Fund of the
State of Delaware 715,000 * N/A 9,279 *
Sturgen Limited 2,711,000 * N/A 35,184 *
Sunrise Partners Limited Partnership 12,750,000 4.18% N/A 165,473 *
SusQuehanna Capital Group 5,000,000 1.64% N/A 64,891 *
UFJ Investments Asia Limited 250,000 * N/A 3,244 *
Victus Capital LP 17,000,000 5.57% N/A 220,631 *
Zurich Institutional Benchmarks Master Fund
Ltd. 500,000 * N/A 6,489 *
Any other holder of notes or future transferee,
pledgee, donee or successor of any holder 138,250,000 45.33% N/A 1,794,249 6.79%
----------- ------ --- --------- -----
Total $305,000,000 100.00% 39,203 3,958,382(7) 14.98%
============ ======= ====== ============ ======
|
(1) Also includes any sale of the notes and the underlying common stock by pledgees, donees, transferees or other successors in interest that receive such securities by pledge, gift, distribution or other non-sale related transfer from the named selling securityholders. Information about other selling securityholders will be set forth in prospectus supplements or in other documents that we file from time to time with the Securities and Exchange Commission that are incorporated by reference in this prospectus, if required. See "Where You Can Find More Information."
(2) Excludes common stock issuable upon conversion of the selling securityholder's notes.
(3) Assumes conversion of all of the selling securityholder's notes at a conversion rate of 12.9783 per note and a cash payment in lieu of the issuance of any fractional share interest. However, this conversion rate is subject to adjustment as described under "Description of the Notes -- Conversion Rights." As a result, the number of shares of common stock issuable upon conversion of the notes may increase or decrease in the future.
(4) Reflects rounding down of fractional common stock issuable to each selling securityholder upon conversion of the notes.
(5) Calculated based on Rule 13d-3 of the Securities Exchange Act of 1934 using 26,427,028 shares of common stock outstanding as of October 31, 2002. In calculating this amount, we did not treat as outstanding the common stock issuable upon conversion of notes.
(6) Consists of 9,000 shares held by Allstate Insurance Company, 3,100 shares held by Allstate Retirement Plan and 1,100 shares held by Agents Pension Plan.
(7) Column does not add up correctly because the fractional shares to which the holders would be entitled have been disregarded.
None of the selling securityholders listed above has, or within the past three years had, any position, office or any material relationship with us or any of our affiliates.
To the extent that any of the selling securityholders identified above are broker-dealers, they are deemed to be, under interpretations of the Securities and Exchange Commission, "underwriters" within the meaning of the Securities Act.
With respect to selling securityholders that are affiliates of broker-dealers, we believe that such entities acquired their notes or underlying common stock in the ordinary course of business and, at the time of the purchase of the notes or the underlying common stock, such selling securityholders had no agreements or understandings, directly or indirectly, with any person to distribute the notes or underlying common stock. To the extent that we become aware that such entities did not acquire their notes or underlying common stock in the ordinary course of business or did have such an agreement or understanding, we will file a post-effective amendment to the registration statement of which this prospectus forms a part to designate such affiliate as an "underwriter" within the meaning of the Securities Act.
Only selling securityholders identified above who beneficially own the notes set forth opposite each such selling securityholder's name in the foregoing table on the effective date of the registration statement, of which this prospectus forms a part, may sell such securities pursuant to the registration statement. Prior to any use of this prospectus in connection with an offering of the notes or the underlying common stock by any holder not identified above, the registration statement of which this prospectus forms a part will be amended by a post-effective amendment to set forth the name and aggregate amount of notes beneficially owned by the selling securityholder intending to sell such notes or the underlying common stock and the aggregate amount of notes or the number of shares of the underlying common stock to be offered. The prospectus, which will be a part of such a post-effective amendment, will also disclose whether any selling securityholder selling in connection with such prospectus has held any position or office with, has been employed by or otherwise has had a material relationship with us during the three years prior to the date of the prospectus if such information has not been disclosed herein.
PLAN OF DISTRIBUTION
The notes and the underlying common stock are being registered to permit the resale of such securities by the holders of them from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the selling securityholders of the notes and common stock. We will bear the fees and expenses incurred in connection with our obligation to register the notes and the underlying common stock. These fees and expenses include registration and filing fees, printing and duplications expenses, fees and disbursements of our counsel, reasonable fees and disbursements of the trustee and its counsel and of the registrar and transfer agent for the common stock, and fees and disbursements of one firm of legal counsel for the securityholders. However, the selling securityholders will pay all underwriting discounts, commissions and agent's commissions, if any.
The selling securityholders may offer and sell the notes and the common stock into which the notes are convertible from time to time in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale or at negotiated prices. Such sales may be effected by a variety of methods, including the following:
o in market transactions;
o in privately negotiated transactions;
o through the writing of options;
o in a block trade in which a broker-dealer will attempt to sell a block of securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;
o if we agree to it prior to the distribution, through one or more underwriters on a firm commitment or best-efforts basis;
o through broker-dealers, which may act as agents or principals;
o directly to one or more purchasers;
o through agents; or
o in any combination of the above or by any other legally available means.
In connection with the sales of the notes and the common stock into which the notes are convertible or otherwise, the selling securityholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the offered securities, short and deliver the notes and the common stock into which the notes are convertible to close out such short positions, or loan or pledge the notes and the common stock into which the notes are convertible to broker-dealers that in turn may sell such securities.
If a material arrangement with any underwriter, broker, dealer or other agent is entered into for the sale of any notes and the common stock into which the notes are convertible through a secondary distribution or a purchase by a broker or dealer, or if other material changes are made in the plan of distribution of the notes and the common stock into which the notes are convertible, a prospectus supplement will be filed, if necessary, under the Securities Act disclosing the material terms and conditions of such arrangement. The underwriter or underwriters with respect to an underwritten offering of notes and the common stock into which the notes are convertible and the other material terms and conditions of the underwriting will be set forth in a prospectus supplement relating to such offering and, if an underwriting syndicate is used, the managing underwriter or underwriters will be set forth on the cover of the prospectus supplement. In connection with the sale of the notes and the common stock into which the notes are convertible, underwriters will receive compensation in the form of underwriting discounts or commissions and may also receive commissions from purchasers of notes and underlying common stock for whom they may act as agent. Underwriters may sell to or through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters or commissions from the purchasers for whom they may act as agent.
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 notes or the underlying common stock by the selling securityholders. Selling securityholders may decide not to sell all or a portion of the notes or the underlying common stock offered by them pursuant to this prospectus or may decide not to sell notes or the underlying common stock under this prospectus. In addition, any selling securityholder may transfer, devise or give the notes or the underlying common stock by other means not described in this prospects. Any notes or underlying common stock covered by this prospectus that qualify for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under Rule 144 or Rule 144A rather than pursuant to this prospectus.
The selling securityholders and any underwriters, broker-dealers or agents participating in the distribution of the notes and the common stock into which the notes are convertible may be deemed to be "underwriters" within the meaning of the Securities Act, and any profit on the sale of the notes or common stock by the selling securityholders and any commissions received by any such underwriters, broker-dealers or agents may be deemed to be underwriting commissions under the Securities Act. If the selling securityholders were deemed to be underwriters, the selling securityholders may be subject to statutory liabilities including, but not limited to, those of Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act.
The selling securityholders and any other person participating in the distribution will be subject to the applicable provisions of the Exchange Act and the rules and regulations under the Exchange Act, including, without limitation, Regulation M, which may limit the timing of purchases and sales of any of the notes and the common stock into which the notes are convertible by the selling securityholders and any other relevant person. Furthermore, Regulation M may restrict the ability of any person engaged in the distribution of the notes and the common stock into which the notes are convertible to engage in market-making activities with respect to the particular notes and the common stock into which the notes are convertible being distributed. All of the above may affect the marketability of the notes and the common stock into which the notes are convertible and the ability of any person or entity to engage in market-making activities with respect to the notes and the common stock into which the notes are convertible.
Under the securities laws of certain states, the notes and the common stock into which the notes are convertible may be sold in those states only through registered or licensed brokers or dealers. In addition, in certain states the notes and the common stock into which the notes are convertible may not be sold unless the notes and the common stock into which the notes are convertible have been registered or qualified for sale in the state or an exemption from registration or qualification is available and complied with.
We have agreed to indemnify the selling securityholders against certain civil liabilities, including certain liabilities arising under the Securities Act, and the selling securityholders will be entitled to contribution from us in connection with those liabilities. The selling securityholders will indemnify us against certain civil liabilities, including liabilities arising under the Securities Act, and will be entitled to contribution from the selling securityholders in connection with those liabilities.
We are permitted to suspend the use of this prospectus under certain circumstances relating to corporate developments, public filings with the SEC and similar events for a period not to exceed 45 days in any three-month period and not to exceed an aggregate of 120 days in any 12-month period. If the duration of such suspension exceeds any of the periods above-mentioned, we have agreed to pay liquidated damages. Please refer to the section entitled "Description of Notes--Registration Rights."
LEGAL MATTERS
Certain legal matters regarding the notes and the shares of common stock issuable upon conversion thereof have been passed upon for us by Thornton R. Land, General Counsel of Selective.
EXPERTS
The consolidated financial statements and schedules of Selective Insurance Group, Inc. and subsidiaries as of December 31, 2001 and 2000, and for each of the years in the three-year period ended December 31, 2001, have been incorporated by reference herein in reliance upon the reports of KPMG LLP, independent accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses payable by the registrant in connection with the issuance and distribution of the notes and underlying common stock being registered hereby, other than underwriting discounts and commissions. All the amounts shown are estimates, except the SEC registration fee.
Securities and Exchange Commission registration fee................... $ 8,149
Accounting Fees and Expenses.......................................... $ 24,000
Legal fees and expenses............................................... $ 225,659
Printing fees and expenses............................................ $ 39,571
Trustee's fees and expenses........................................... $ 12,000
NASDAQ listing fees................................................... $ 22,500
Miscellaneous......................................................... $ 16,630
-----------------
Total........................................................ $ 348,509
=================
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Item 15. Indemnification of Directors and Officers
Selective is organized under the laws of the State of New Jersey. The New Jersey Business Corporation Act, as amended (the "Act"), provides that a New Jersey corporation has the power generally to indemnify its directors, officers, employees and other agents against expenses and liabilities in connection with any proceeding involving such person by reason of his being a corporate agent, other than a proceeding by or in the right of the corporation, if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal proceeding, such person had no reasonable cause to believe his conduct was unlawful. In the case of an action brought by or in the right of the corporation, indemnification of directors, officers, employees and other agents against expenses is permitted if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, however, no indemnification is permitted in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the New Jersey Superior Court, or the court in which such proceeding was brought, shall determine upon application that despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to such indemnification. Expenses incurred by a director, officer, employee or other agent in connection with a proceeding may be, under certain circumstances, paid by the corporation in advance of the final disposition of the proceeding as authorized by the board of directors. The power to indemnify and advance expenses under the Act does not exclude other rights to which a director, officer, employee or other agent of the corporation may be entitled under the certificate of incorporation, by-laws, agreement, vote of shareholders or otherwise; provided that no indemnification is permitted to be made to or on behalf of such person if a judgment or other final adjudication adverse to such person establishes that his acts or omissions were in breach of his duty or loyalty to the corporation, were not in good faith or involved a violation of the law, or resulted in the receipt by such person of an improper personal benefit.
Under the Act, a New Jersey corporation has the power to purchase and maintain insurance on behalf of any director, officer, employee or other agent against any expenses incurred in any proceeding and any liabilities asserted against him by reason of his being or having been a corporate agent, whether or not the corporation has the power to indemnify him against such expenses and liabilities under the Act. All powers granted to a New Jersey corporation discussed above may be exercised by such corporation notwithstanding the absence of any provision in its certificate of incorporation or by-laws authorizing the exercise of such powers. However, a New Jersey corporation may, with certain limitations, provide in its certificate of incorporation that a director or officer shall not be personally liable, or shall be liable only to the extent therein provided, to the corporation or its shareholders for damages for breach of any duty owed to the corporation or its shareholders.
Reference is made to Sections 14A:3-5 and 14A:2-7(3) of the Act in connection with the above summary of indemnification and insurance.
Section (a) of Article Ninth of Selective's Restated Certificate of Incorporation, and Section 14 of Selective's by-laws provide generally that a director shall not be personally liable to Selective or its stockholders for damages for breach of any duty owed to Selective or its stockholders, except to the extent such personal liability may not be eliminated or limited under the Act. Such provisions further provide generally that an officer of Selective shall not be personally liable to Selective or its stockholders for damages for breach of any duty owed to Selective or its stockholders, except to the extent and for the duration of any period of time such personal liability may be eliminated or limited under the Act.
Section (b) of Article Ninth of Selective's Restated Certificate of Incorporation, and Section 14 of Selective's by-laws, provide generally that each person who was or is made a party to or involved in a pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding, or any appeal therein or any inquiry or investigation which could lead to such action, suit or proceeding by reason of his or her being or having been a director or officer of Selective or any constituent corporation absorbed by Selective in a consolidation or merger, or by reason of his or her having been a director, officer, trustee, employee or agent of another entity, serving as such at the request of Selective, or the legal representative of any such person, shall be indemnified and held harmless by Selective to the fullest extent permitted by the Act (but, in the case of any amendments, only to the extent such amendment permits Selective to provide broader indemnification rights than the Act permitted prior to such amendment). Such provisions of the Restated Certificate of Incorporation and by-laws of Selective provide, under certain circumstances, for a right to be paid by Selective the expenses incurred in connection with any proceeding in advance of the final disposition of such proceeding, as authorized by the Board of Directors.
The directors and officers of Selective are insured by policies purchased by Selective against liability and expenses incurred in their capacity as directors or officers.
Item 16. Exhibits
The exhibits to this registration statement are listed in the Exhibit Index to this registration statement, which Exhibit Index is hereby incorporated by reference.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; provided, however, that notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the
registration statement; provided, however, that the undertakings set forth in clauses (i) and (ii) above do not apply if the information required to be included in a post-effective amendment by those clauses is contained in periodic reports filed by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this registration statement;
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering;
(b) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the city of Branchville, State of New Jersey, on the 26 day of November, 2002.
SELECTIVE INSURANCE GROUP, INC.
By: /s/Gregory E. Murphy
------------------------------
Gregory E. Murphy
Chairman of the Board, President
and Chief Executive Officer
|
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Dale A. Thatcher and Thornton R. Land, jointly and severally, his or her true and lawful attorneys-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact full power and authority to do and perform each and every act and thing requisite and necessary to be done and hereby ratifying and confirming all that each of said attorneys-in-fact or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Gregory E. Murphy Chairman of the Board, President and November 26, 2002
--------------------------------- Chief Executive Officer
Gregory E. Murphy
/s/ Dale A. Thatcher Senior Vice President of Finance, Chief November 26, 2002
--------------------------------- Financial Officer and Treasurer
Dale A. Thatcher
/s/ Paul D. Bauer Director November 26, 2002
---------------------------------
Paul D. Bauer
/s/ A. David Brown Director November 26, 2002
---------------------------------
A. David Brown
/s/ William A. Dolan, II Director November 26, 2002
---------------------------------
William A. Dolan, II
/s/ C. Edward Herder Director November 26, 2002
---------------------------------
C. Edward Herder
/s/ William M. Kearns, Jr. Director November 26, 2002
---------------------------------
William M. Kearns, Jr.
/s/ S. Griffin McClellan, III Director November 26, 2002
---------------------------------
S. Griffin McClellan, III
|
/s/ John F. Rockart Director November 26, 2002 --------------------------------- John F. Rockart /s/ William M. Rue Director November 26, 2002 --------------------------------- William M. Rue /s/ Thomas D. Sayles, Jr. Director November 26, 2002 --------------------------------- Thomas D. Sayles, Jr. /s/ Joan Lamm-Tennant Director November 26, 2002 --------------------------------- Joan Lamm-Tennant, Ph.D. /s/ J. Brian Thebault Director November 26, 2002 --------------------------------- J. Brian Thebault |
EXHIBIT INDEX
Exhibit No. Description of Exhibits
----------- -----------------------
3.1 Restated Certificate of Incorporation of Selective Insurance
Group, Inc., as amended (incorporated herein by reference to
Exhibit 3.1 to our annual report on Form 10-K for the year
ended December 31, 1997, File No. 000-08641).
3.2 By-laws of Selective Insurance Group, Inc., as amended
(incorporated herein by reference to Exhibit 3.2 to our
annual report on Form 10-K for the year ended December 31,
2001, File No. 0-8641).
4.1* Indenture dated September 24, 2002, between the Selective
Insurance Group, Inc. and National City Bank, as Trustee
relating to the Senior Convertible Notes due 2032, including
the form of notes.
4.2 Amended and Restated Rights Agreement, dated February 2,
1999, between Selective Insurance Group, Inc. and First
Chicago Trust (incorporated herein by reference to the
Current Report on Form 8-K filed February 2, 1999, File No.
0-8641).
4.3* Registration Rights Agreement dated as of September 24, 2002
among Selective Insurance Group, Inc. and Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Credit Suisse First Boston Corporation, Ferris Baker Watts,
Inc., Sandler O'Neill & Partners, L.P. relating to the
Senior Convertible Notes due 2032.
5.1* Opinion of Thornton R. Land, Esq., General Counsel of
Selective Insurance Group, Inc.
12.1* Computation of Ratio of Earnings to Fixed Charges.
23.1* Consent of KPMG LLP, as independent accountants.
23.2 Consent of Thornton R. Land, Esq. (contained in Exhibit
5.1).
24.1 Power of Attorney (contained on signature page).
25.1* Form T-1 Statement of Eligibility of Trustee under the Trust
Indenture Act of 1939 of Nation City Bank.
------------------
|
* Filed herewith.
SELECTIVE INSURANCE GROUP, INC.,
ISSUER
AND
NATIONAL CITY BANK,
TRUSTEE
Senior Convertible Notes due 2032
INDENTURE
Dated as of September 24, 2002
CROSS REFERENCE TABLE*
TIA Section.................................. Indenture Section
310(a)(1).................................... 7.10
(a)(2).................................. 7.10
(a)(3).................................. N.A.
(a)(4).................................. N.A.
(b)..................................... 7.08; 7.10
(c)..................................... N.A.
311(a)....................................... 7.11
(b)..................................... 7.11
(c)..................................... N.A.
312(a)....................................... 2.05
(b)..................................... 15.03
(c)..................................... 15.03
313(a)....................................... 7.06
(b)(1).................................. N.A.
(b)(2).................................. 7.06
(c)..................................... 15.02
(d)..................................... 7.06
314(a)....................................... 4.02; 4.03; 15.02
(b)..................................... N.A.
(c)(1).................................. 15.04
(c)(2).................................. 15.04
(c)(3).................................. N.A.
(d)..................................... N.A.
(e)..................................... 15.05
(f)..................................... N.A.
315(a)....................................... 7.01
(b)..................................... 7.05; 15.02
(c)..................................... 7.01
(d)..................................... 7.01
(e)..................................... 6.11
316(a) (last sentence)....................... 2.08
(a)(1)(A)............................... 6.05
(a)(1)(B)............................... 6.04
(a)(2).................................. N.A.
(b)..................................... 6.07
317(a)(1).................................... 6.08
(a)(2).................................. 6.09
(b)..................................... 2.04
318(a)....................................... 15.01
N.A. means Not Applicable.
ii
----------------
|
* Note: This Cross Reference Table shall not, for any purpose, be deemed to be part of the Indenture.
TABLE OF CONTENTS*
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions....................................................1
SECTION 1.02 Other Definitions..............................................7
SECTION 1.03 Incorporation by Reference of the TIA..........................8
SECTION 1.04 Rules of Construction..........................................8
SECTION 1.05 Acts of Holders................................................9
ARTICLE 2
THE SECURITIES
SECTION 2.01 Form and Dating...............................................10
SECTION 2.02 Execution and Authentication..................................12
SECTION 2.03 Registrar, Paying Agent, Conversion Agent and
Bid Solicitation Agent..................................12
SECTION 2.04 Paying Agent to Hold Money and Securities in Trust............13
SECTION 2.05 Securityholder Lists..........................................13
SECTION 2.06 Transfer and Exchange.........................................13
SECTION 2.07 Replacement Securities........................................15
SECTION 2.08 Outstanding Securities; Determinations of Holders' Action.....16
SECTION 2.09 Temporary Securities..........................................16
SECTION 2.10 Cancellation..................................................17
SECTION 2.11 Persons Deemed Owners.........................................17
SECTION 2.12 Global Securities.............................................17
SECTION 2.13 CUSIP Numbers.................................................22
ARTICLE 3
REDEMPTION AND PURCHASES
SECTION 3.01 Right to Redeem; Notices to Trustee...........................22
SECTION 3.02 Selection of Securities to Be Redeemed........................22
SECTION 3.03 Notice of Redemption..........................................23
SECTION 3.04 Effect of Notice of Redemption................................24
SECTION 3.05 Deposit of Redemption Price...................................24
SECTION 3.06 Securities Redeemed in Part...................................24
SECTION 3.07 Conversion Arrangement on Call for Redemption.................25
SECTION 3.08 Purchase of Securities at Option of the Holder................25
SECTION 3.09 Purchase of Securities at Option of the
Holder upon Change in Control...........................32
SECTION 3.10 Effect of Purchase Notice or Change in
Control Purchase Notice.................................35
------------------------
* Note: This Table of Contents shall not, for any purpose, be deemed to be
part of the Indenture.
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SECTION 3.11 Deposit of Purchase Price or Change in
Control Purchase Price..................................36
SECTION 3.12 Securities Purchased in Part..................................36
SECTION 3.13 Repayment to the Company......................................36
ARTICLE 4
COVENANTS
SECTION 4.01 Payment of Securities.........................................37
SECTION 4.02 SEC and Other Reports.........................................37
SECTION 4.03 Compliance Certificate........................................37
SECTION 4.04 Further Instruments and Acts..................................38
SECTION 4.05 Maintenance of Office or Agency...............................38
SECTION 4.06 Delivery of Certain Information...............................38
SECTION 4.07 Covenant to Comply With Securities Laws
Upon Purchase of Securities.............................38
SECTION 4.08 Waiver of Compliance..........................................39
ARTICLE 5
SUCCESSOR CORPORATION
SECTION 5.01 When Company May Merge or Transfer Assets.....................39
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01 Events of Default.............................................40
SECTION 6.02 Acceleration..................................................41
SECTION 6.03 Other Remedies................................................42
SECTION 6.04 Waiver of Past Defaults.......................................42
SECTION 6.05 Control by Majority...........................................43
SECTION 6.06 Limitation on Suits...........................................43
SECTION 6.07 Rights of Holders to Receive Payment..........................43
SECTION 6.08 Collection Suit by Trustee....................................44
SECTION 6.09 Trustee May File Proofs of Claim..............................44
SECTION 6.10 Priorities....................................................44
SECTION 6.11 Undertaking for Costs.........................................45
SECTION 6.12 Waiver of Stay, Extension or Usury Laws.......................45
ARTICLE 7
TRUSTEE
SECTION 7.01 Duties of Trustee.............................................46
SECTION 7.02 Rights of Trustee.............................................47
SECTION 7.03 Individual Rights of Trustee..................................48
SECTION 7.04 Trustee's Disclaimer..........................................48
SECTION 7.05 Notice of Defaults............................................48
SECTION 7.06 Reports by Trustee to Holders.................................49
SECTION 7.07 Compensation and Indemnity....................................49
SECTION 7.08 Replacement of Trustee........................................50
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SECTION 7.09 Successor Trustee by Merger...................................50
SECTION 7.10 Eligibility; Disqualification.................................51
SECTION 7.11 Preferential Collection of Claims Against Company.............51
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01 Discharge of Liability on Securities..........................51
SECTION 8.02 Repayment to the Company......................................51
ARTICLE 9
AMENDMENTS
SECTION 9.01 Without Consent of Holders....................................51
SECTION 9.02 With Consent of Holders.......................................52
SECTION 9.03 Compliance with TIA...........................................53
SECTION 9.04 Revocation and Effect of Consents, Waivers and Actions........53
SECTION 9.05 Notation on or Exchange of Securities.........................53
SECTION 9.06 Trustee to Sign Supplemental Indentures.......................53
SECTION 9.07 Effect of Supplemental Indentures.............................54
ARTICLE 10
SPECIAL TAX EVENT CONVERSION
SECTION 10.01 Optional Conversion to Semiannual Coupon Note upon Tax Event..54
ARTICLE 11
CONVERSION
SECTION 11.01 Conversion Privilege..........................................54
SECTION 11.02 Conversion Procedure..........................................55
SECTION 11.03 Fractional Shares.............................................57
SECTION 11.04 Taxes on Conversion...........................................57
SECTION 11.05 Company to Provide Stock......................................57
SECTION 11.06 Adjustment for Change in Capital Stock........................58
SECTION 11.07 Adjustment for Rights Issue...................................58
SECTION 11.08 Adjustment for Other Distributions............................59
SECTION 11.09 When Adjustment May Be Deferred...............................62
SECTION 11.10 When No Adjustment Required...................................62
SECTION 11.11 Notice of Adjustment..........................................63
SECTION 11.12 Voluntary Increase............................................63
SECTION 11.13 Notice of Certain Transactions................................63
SECTION 11.14 Reorganization of Company; Special Distributions..............63
SECTION 11.15 Company Determination Final...................................64
SECTION 11.16 Trustee's Adjustment Disclaimer...............................64
SECTION 11.17 Simultaneous Adjustments......................................65
SECTION 11.18 Successive Adjustments........................................65
SECTION 11.19 Rights Issued in Respect of Common
Stock Issued Upon Conversion............................65
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ARTICLE 12
PAYMENT OF INTEREST
SECTION 12.01 Interest Payments.............................................65
SECTION 12.02 Defaulted Interest............................................66
SECTION 12.03 Interest Rights Preserved.....................................67
ARTICLE 13
CONTINGENT CASH INTEREST
SECTION 13.01 Contingent Cash Interest......................................67
SECTION 13.02 Payment of Contingent Cash Interest;
Contingent Cash Interest Rights Preserved...............68
SECTION 13.03 Bid Solicitation Agent........................................68
ARTICLE 14
TAX MATTERS
SECTION 14.01 Tax Treatment.................................................68
SECTION 14.02 Comparable Yield and Projected Payment Schedule...............69
ARTICLE 15
MISCELLANEOUS
SECTION 15.01 TIA Controls..................................................70
SECTION 15.02 Notices.......................................................70
SECTION 15.03 Communication by Holders with Other Holders...................71
SECTION 15.04 Certificate and Opinion as to Conditions Precedent............71
SECTION 15.05 Statements Required in Certificate or Opinion.................71
SECTION 15.06 Separability Clause...........................................71
SECTION 15.07 Rules by Trustee, Paying Agent, Conversion Agent
and Registrar...........................................72
SECTION 15.08 Calculations..................................................72
SECTION 15.09 Legal Holidays................................................72
SECTION 15.10 GOVERNING LAW.................................................72
SECTION 15.11 No Recourse Against Others....................................72
SECTION 15.12 Successors....................................................72
SECTION 15.13 Multiple Originals............................................72
Appendix 1 Projected Payment Schedule
Exhibit A-1 Form of Face of Global Security
Exhibit A-2 Form of Certificated Security
Exhibit B-1 Transfer Certificate
Exhibit B-2 Form of Letter to be Delivered by Accredited Investors
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INDENTURE dated as of September 24, 2002 by and among SELECTIVE INSURANCE GROUP, INC., a New Jersey corporation (the "Company") and National City Bank, a national banking association (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of Senior Convertible Notes due 2032 (collectively, the "Securities" and each, individually, a "Security") having the terms, tenor, amount and other provisions hereinafter set forth, and, to provide therefor, the Company has duly authorized the execution and delivery of this Indenture.
All things necessary to make the Securities, when the Securities are duly executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid and binding agreement of the Company, in accordance with their and its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions.
"144A Global Security" means a permanent Global Security in the form of the Security attached hereto as Exhibit A-1, and that is deposited with and registered in the name of the Depositary, representing Securities sold in reliance on Rule 144A under the Securities Act.
"Affiliate" of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any specified person means the power to direct or cause the direction of the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Applicable Procedures" means, with respect to any transfer or transaction involving a Global Security or beneficial interest therein, the rules and procedures of the Depositary for such Security, in each case to the extent applicable to such transaction and as in effect from time to time.
"Average Sale Price" means the average of the Sale Prices of the Common Stock for the shorter of:
(a) 30 consecutive Trading Days ending on the last full Trading Day prior to the Time of Determination with respect to the rights, warrants or options or distribution in respect of which the Average Sale Price is being calculated, or
(b) the period (x) commencing on the date next succeeding the first public announcement of (i) the issuance of rights, warrants or options or (ii) the distribution, in each case, in respect of which the Average Sale Price is being calculated and (y) proceeding through the last full Trading Day prior to the Time of Determination with respect to the rights, warrants or options or distribution in respect of which the Average Sale Price is being calculated (excluding days within such period, if any, which are not Trading Days), or
(c) the period, if any, (x) commencing on the date next succeeding the Ex-Dividend Time with respect to the next preceding (i) issuance of rights, warrants or options or (ii) distribution, in each case, for which an adjustment is required by the provisions of Section 11.06(c), 11.07 or 11.08 hereof and (y) proceeding through the last full Trading Day prior to the Time of Determination with respect to the rights, warrants or options or distribution in respect of which the Average Sale Price is being calculated (excluding days within such period, if any, which are not Trading Days).
In the event that the Ex-Dividend Time (or in the case of a subdivision,
combination or reclassification, the effective date with respect thereto) with
respect to a dividend, subdivision, combination or reclassification to which
Section 11.06(a), (b), (d) or (e) hereof applies occurs during the period
applicable for calculating "Average Sale Price" pursuant to the definition in
the preceding sentence, "Average Sale Price" shall be calculated for such period
in a manner determined by the Board of Directors to reflect the impact of such
dividend, subdivision, combination or reclassification on the Sale Price of the
Common Stock during such period.
"Bankruptcy Law" means title 11, United States Code, or any similar Federal or state law for the relief of debtors.
"Board of Directors" means either the board of directors of the Company or any duly authorized committee of such board.
"Business Day" means each day of the year other than a Saturday or a Sunday or other day on which banking institutions in The City of New York are required or authorized to close.
"Capital Stock" for any corporation means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) stock or other equity issued by that corporation.
"Certificated Securities" means any of the Securities that are in the form of the Securities attached hereto as Exhibit A-2.
"Common Stock" shall mean the shares of Common Stock, $2.00 par value per share, of the Company as it exists on the date of this Indenture or any other shares of Capital Stock of the Company into which the Common Stock shall be reclassified or changed.
"Company" means the party named as the "Company" in the first paragraph of this Indenture until a successor replaces it pursuant to the applicable provisions of this Indenture and, thereafter, shall mean such successor. The foregoing sentence shall likewise apply to any subsequent such successor or successors.
"Company Request" or "Company Order" means a written request or order signed in the name of the Company by any two Officers.
"Contingent Cash Interest" shall mean such cash interest payable, as described in Article 13 hereof.
"Corporate Trust Office" means the principal office of the Trustee at which at any time its corporate trust business shall be administered, which office at the date hereof is located at 101 West Washington Street, Suite 655 South, Indianapolis, Indiana 46255, or such other address as the Trustee may designate from time to time by notice to the Company, or the principal corporate trust office of any successor Trustee (or such other address as a successor Trustee may designate from time to time by notice to the Company).
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law.
"Debt" means with respect to the Company at any date, without duplication, obligations (other than nonrecourse obligations) for borrowed money or evidenced by bonds, debentures, notes or similar instruments.
"Default" means any event which is, or after notice or passage of time or both would be, an Event of Default.
"Ex-Dividend Time" means with respect to stockholders of the Company entitled to receive rights, warrants or options or a distribution, the time immediately prior to the commencement of "ex-dividend" trading for such rights, warrants or options or distribution on Nasdaq or such other national or regional exchange or market on which the Common Stock is then listed or quoted.
"Global Securities" means any of the Securities that are in the form of the Securities attached hereto as Exhibit A-1, and to the extent that such Securities are required to bear the Legend required by Section 2.06 hereof, such Securities will be in the form of a 144A Global Security.
"Holder" or "Securityholder" means a person in whose name a Security is registered on the Registrar's books.
"Indenture" means this instrument, as amended or supplemented from time to time in accordance with the terms hereof, including, if applicable, the provisions of the TIA that are deemed to be a part hereof.
"Institutional Accredited Investor Security" means a Security in the form of the Security attached hereto as Exhibit A-2, representing Securities sold to Institutional Accredited Investors.
"Issue Date" of any Security means the date on which the Security was originally issued or deemed issued as set forth on the face of the Security.
"Issue Price" of any Security means, in connection with the original issuance of such Security, the initial issue price at which the Security is sold as set forth on the face of the Security.
"Nasdaq" means the Nasdaq Stock Market's National Market.
"NYSE" means the New York Stock Exchange.
"Officer" means the Chairman of the Board, the Vice Chairman, the Chief Executive Officer, the President, any Executive Vice President, any Senior Vice President, any Vice President, the Treasurer or the Secretary or any Assistant Treasurer or Assistant Secretary of the Company.
"Officers' Certificate" means a written certificate containing the information specified in Sections 15.04 and 15.05 hereof, signed in the name of the Company by any two Officers, and delivered to the Trustee. An Officers' Certificate given pursuant to Section 4.03 hereof shall be signed by the principal executive financial or accounting Officer of the Company but need not contain the information specified in Sections 15.04 and 15.05 hereof.
"Opinion of Counsel" means a written opinion containing the information specified in Sections 15.04 and 15.05, from legal counsel who is acceptable to the Trustee. The counsel may be an employee of, or counsel to, the Company or the Trustee.
"Original Issue Discount" of any Security means the difference between the Issue Price and the Principal Amount at Maturity of the Security as set forth on the face of the Security, which shall accrue as set forth in the form of Security.
"person" or "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, or government or any agency or political subdivision thereof.
"Principal Amount at Maturity" of a Security means the principal amount at maturity as set forth on the face of the Security.
"Record Date" means either a Regular Record Date or a Contingent Cash Interest Record Date.
"Redemption Date" or "redemption date" means the date specified for redemption of the Securities in accordance with the terms of the Securities and this Indenture.
"Redemption Price" or "redemption price" shall have the meaning set forth in paragraph 6 of the Securities.
"Regular Cash Dividends" means quarterly or other periodic cash dividends on the Common Stock as declared by the Board of Directors as part of its cash dividend payment practices that are not designated by the Board of Directors as extraordinary or special or other non-recurring dividends.
"Responsible Officer" means, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, with direct responsibility for the administration of this Indenture and also means, any other officer to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject.
"Restricted Security" means a Security required to bear the restrictive legend set forth in the form of Security set forth in Exhibits A-1 and A-2 of this Indenture.
"Rule 144" means Rule 144 under the Securities Act (or any successor rule having substantially similar provisions), as it may be amended from time to time.
"Rule 144A" means Rule 144A under the Securities Act (or any successor rule having substantially similar provisions), as it may be amended from time to time.
"Sale Price" of Capital Stock on any date means (a) the closing per share sale price (or, if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on such date as reported in the composite transactions for the principal United States securities exchange on which the Capital Stock is traded or, if the Capital Stock is not listed on a United States national or regional securities exchange, as reported by the National Association of Securities Dealers Automated Quotation System or by the National Quotation Bureau Incorporated or (b) in the absence of such quotation, such price as the Company shall reasonably determine on the basis of such quotations as most accurately reflecting the price that a fully-informed buyer, acting on his own accord, would pay to a fully-informed seller, acting on his own accord in an arms-length transaction, for a share of such Capital Stock.
"SEC" means the United States Securities and Exchange Commission.
"Security" or "Securities" means any of the Company's Senior Convertible Notes due 2032, as amended or supplemented from time to time, issued under this Indenture.
"Securityholder" or "Holder" means a person in whose name a Security is registered on the Registrar's books.
"Stated Maturity", when used with respect to any Security, means the date specified in such Security as the fixed date on which an amount equal to the Principal Amount at Maturity of such Security is due and payable.
"Subsidiary" means (a) a corporation, a majority of whose Capital Stock with voting power, under ordinary circumstances, to elect directors is, at the date of determination, directly or indirectly owned by the Company, by one or more Subsidiaries of the Company or by the Company and one or more Subsidiaries of the Company, (b) a partnership in which the Company or a Subsidiary of the Company holds a majority interest in the equity capital or profits of such partnership, or (c) any other person (other than a corporation or a partnership) in which the Company, a Subsidiary of the Company or the Company and one or more Subsidiaries of the Company, directly or indirectly, at the date of determination, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of a majority of the directors or other governing body of such person.
"Tax Event" means that the Company shall have received an opinion from independent tax counsel experienced in such matters to the effect that, on or after September 18, 2002, as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein or (b) any amendment to, or change in, an interpretation or application (including through litigation or a settlement involving the Company) of such laws or regulations by any legislative body, court, governmental agency or regulatory authority, in each case which amendment or change is enacted, promulgated, issued or announced or which interpretation is issued or announced or which action is taken, on or after September 18, 2002, there is more than an insubstantial risk that accrued Original Issue Discount payable on the Securities either (i) would not be deductible on a current accrual basis or (ii) would not be deductible under any other method, in either case in whole or in part, by the Company (by reason of deferral, disallowance, or otherwise) for United States federal income tax purposes.
"TIA" means the Trust Indenture Act of 1939 as in effect on the date of this Indenture; provided, however, that in the event the TIA is amended after such date, TIA means, to the extent required by any such amendment, the TIA as so amended.
"Time of Determination" means the time and date of the earlier of (a) the
determination of stockholders entitled to receive rights, warrants or options or
a distribution, in each case, to which Section 11.07 or 11.08 hereof applies and
(b) the Ex-Dividend Time.
"Trading Day" means a day during which trading in securities generally occurs on the NYSE or, if the Common Stock is not listed on the NYSE, on the principal other national or regional securities exchange on which the Common Stock is then listed or, if the Common Stock is not listed on a national or regional securities exchange, on the National Association of Securities Dealers Automated Quotation System or, if the Common Stock is not quoted on the National Association of Securities Dealers Automated Quotation System, on the principal other market on which the Common Stock is then traded.
"Trustee" means the party named as the "Trustee" in the first paragraph of this Indenture until a successor replaces it pursuant to the applicable provisions of this Indenture and, thereafter, shall mean such successor. The foregoing sentence shall likewise apply to any subsequent such successor or successors.
SECTION 1.02 Other Definitions.
Term Defined in
Section
"Act"..................................................... 1.05(a)
"Agent Members"........................................... 2.12(e)
"beneficial owner"........................................ 3.09(a)
"Bid Solicitation Agent".................................. 2.03
"cash".................................................... 3.08(b)
"Change in Control"....................................... 3.09(a)
"Change in Control Purchase Date"......................... 3.09(a)
"Change in Control Purchase Notice"....................... 3.09(c)
"Change in Control Purchase Price"........................ 3.09(a)
"Common Stock Record Date"................................ 13.01
"Company Notice".......................................... 3.08(e)
"Company Notice Date"..................................... 3.08(c)
"Contingent Cash Interest Payment Date"................... 13.02
"Contingent Cash Interest Record Date".................... 13.02
"Continuing Directors".................................... 3.09(a)
"Conversion Agent"........................................ 2.03
"Conversion Date"......................................... 11.02
"Conversion Rate"......................................... 11.01
"Defaulted Interest"...................................... 12.02
"Depositary".............................................. 2.01(a)
"DTC"..................................................... 2.01(a)
"Event of Default"........................................ 6.01
"Ex-Dividend Measurement Period".......................... 11.08
"Exchange Act"............................................ 3.08(d)
"Extraordinary Cash Dividend"............................. 11.08
"Five-Trading-Day Measurement Period"..................... 13.01
"Institutional Accredited Investors"...................... 2.01(b)
"Interest Payment Date"................................... 10.01
"Legal Holiday"........................................... 15.09
"Legend".................................................. 2.06(f)
"Market Price"............................................ 3.08(d)
"Notice of Default"....................................... 6.01
"Option Exercise Date".................................... 10.01
"Paying Agent"............................................ 2.03
"Protected Purchaser"..................................... 2.07
"Purchase Date"........................................... 3.08(a)
"Purchase Notice"......................................... 3.08(a)
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"Purchase Price".......................................... 3.08(a) "QIBs".................................................... 2.01(a) "Registrar"............................................... 2.03 "Regular Record Date"..................................... 10.01 "Relevant Cash Dividends"................................. 11.08 "Relevant Value".......................................... 13.01 "Restated Principal Amount"............................... 10.01 "Rights".................................................. 11.19 "Rights Agreement"........................................ 11.19 "Rule 144A Information"................................... 4.06 "Securities Act".......................................... 3.08(d) "Security Market Price"................................... 13.01 "Semiannual Period"....................................... 13.01 "Special Record Date"..................................... 12.02 "Tax Event Date".......................................... 10.01 "Tax Original Issue Discount"............................. 14.02 |
SECTION 1.03 Incorporation by Reference of the TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company.
All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions.
SECTION 1.04 Rules of Construction. Unless the context otherwise requires:
(a) a defined term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to it in accordance with United States generally accepted accounting principles as in effect from time to time;
(c) "or" is not exclusive;
(d) "including" means including, without limitation; and
(e) words in the singular include the plural, and words in the plural include the singular.
SECTION 1.05 Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments (which may take the form of an electronic writing or messaging or otherwise be in accordance with customary procedures of the Depositary or the Trustee) of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing (which may be in electronic form); and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, when it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent (either of which may be in electronic form) shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution (or electronic delivery) or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing or delivering such instrument or writing acknowledged to such officer the execution (or electronic delivery) thereof. When such execution is by a signer acting in a capacity other than such signer's individual capacity, such certificate or affidavit shall also constitute sufficient proof of such signer's authority. The fact and date of the execution of any such instrument or writing (electronic or otherwise), or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the register maintained by the Registrar.
(d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security.
(e) If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a resolution of the Board of Directors, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the outstanding Securities shall be computed as of such record date; provided, that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture within six months after the record date.
ARTICLE 2
THE SECURITIES
SECTION 2.01 Form and Dating. The Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibits A-1 and A-2 attached hereto, which are a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage (provided, that any such notation, legend or endorsement required by usage is in a form acceptable to the Company). The Company shall provide any such notations, legends or endorsements to the Trustee in writing. Each Security shall be dated the date of its authentication.
(a) 144A Global Securities. Securities offered and sold within the United States to "qualified institutional buyers" as defined in Rule 144A ("QIBs") in reliance on Rule 144A shall be issued initially in the form of a 144A Global Security, which shall be deposited with the Trustee at its Corporate Trust Office, as custodian for the Depositary and registered in the name of The Depository Trust Company ("DTC") or the nominee thereof (such depositary, or any successor thereto, and any such nominee being hereinafter referred to as the "Depositary") duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate Principal Amount at Maturity of the 144A Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary as hereinafter provided.
(b) Institutional Accredited Investor Securities. Except as provided in
Section 2.12(a)(i) and in this Section 2.01 or 2.06, owners of beneficial
interests in Global Securities will not be entitled to receive physical delivery
of Certificated Securities. Securities offered and sold within the United States
to institutional "accredited investors" as defined in Rule 501(a)(1), (2), (3)
and (7) under the Securities Act ("Institutional Accredited Investors") shall be
issued, if in the form of Certificated Securities, initially in the form of an
Institutional Accredited Investor Security, duly executed by the Company and
authenticated by the Trustee as hereinafter provided.
(c) Global Securities in General. Each Global Security shall represent such of the outstanding Securities as shall be specified therein and each shall provide that it shall represent the aggregate Principal Amount at Maturity of outstanding Securities
from time to time endorsed thereon and that the aggregate Principal Amount at Maturity of outstanding Securities represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges, redemptions and conversions.
Any adjustment of the aggregate Principal Amount at Maturity of a Global Security to reflect the amount of any increase or decrease in the Principal Amount at Maturity of outstanding Securities represented thereby shall be made by the Trustee in accordance with instructions given by the Holder thereof as required by Section 2.12 hereof and shall be made on the records of the Trustee and the Depositary.
(d) Book-Entry Provisions. This Section 2.01(d) shall apply only to Global Securities deposited with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance with this
Section 2.01(d), authenticate and deliver initially one or more Global
Securities that (i) shall be registered in the name of the Depositary, (ii)
shall be delivered by the Trustee to the Depositary or pursuant to the
Depositary's instructions or held by the Trustee as custodian for such
Depositary and (iii) shall bear legends substantially to the following effect:
"UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS, IN WHOLE BUT NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN ARTICLE TWO OF THE INDENTURE REFERRED TO ON THE REVERSE HEREOF."
(e) Certificated Securities. Securities not issued as interests in the Global Securities will be issued in certificated form substantially in the form of Exhibit A-2 attached hereto.
(f) U.S. Tax Legend. All Securities shall bear the following legend:
THIS NOTE WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE UNITED STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED. THE ISSUE PRICE OF
THIS NOTE WAS $380.12 PER $1,000 OF PRINCIPAL AMOUNT AT MATURITY; THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, INCLUDING CASH INTEREST PAYABLE THROUGH SEPTEMBER 24, 2009 TAXABLE AS ORIGINAL ISSUE DISCOUNT UNDER TREASURY REGULATION SECTION 1.1273-1, IS PROJECTED TO BE $1,595.93 PER $1,000 OF PRINCIPAL AMOUNT AT MATURITY; HOWEVER, THE ACTUAL AMOUNT OF ORIGINAL ISSUE DISCOUNT IS INDETERMINABLE AS OF THE ISSUE DATE; THE ISSUE DATE IS SEPTEMBER 24, 2002; AND THE YIELD TO MATURITY FOR THE PURPOSES OF ACCRUING TAX ORIGINAL ISSUE DISCOUNT IS 6.60% PER ANNUM, CALCULATED ON A SEMIANNUAL BOND EQUIVALENT BASIS.
SECTION 2.02 Execution and Authentication. The Securities shall be executed on behalf of the Company by any Officer. The signature of the Officer on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of an individual who was at the time of the execution of the Securities the proper Officer of the Company shall bind the Company, notwithstanding that such individual has ceased to hold such office prior to the authentication and delivery of such Securities or did not hold such office at the date of authentication of such Securities.
No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized officer of the Trustee and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder.
The Trustee shall authenticate and deliver Securities for original issue in an aggregate Principal Amount at Maturity of up to $305,000,000 upon a Company Order without any further action by the Company. The aggregate Principal Amount at Maturity of Securities outstanding at any time may not exceed the amount set forth in the foregoing sentence, except as provided in Section 2.07 hereof
The Securities shall be issued only in registered form without coupons and only in denominations of $1,000 of Principal Amount at Maturity and any integral multiple thereof.
SECTION 2.03 Registrar, Paying Agent, Conversion Agent and Bid Solicitation Agent. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange ("Registrar"), an office or agency where Securities may be presented for purchase or payment ("Paying Agent") and an office or agency where Securities may be presented for conversion ("Conversion Agent"). The Company shall also appoint a bid solicitation agent (the "Bid Solicitation Agent") to act pursuant to Article 13. The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may have one or more co-registrars, one or more additional paying
agents and one or more additional conversion agents. The term Paying Agent includes any additional paying agent, including any named pursuant to Section 4.05 hereof. The term Conversion Agent includes any additional conversion agent, including any named pursuant to Section 4.05 hereof.
The Company shall enter into an appropriate agency agreement with any Registrar or co-registrar, Paying Agent, Conversion Agent or Bid Solicitation Agent (other than the Trustee). The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Registrar, Paying Agent, Conversion Agent or Bid Solicitation Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.07 hereof. The Company or any Subsidiary or an Affiliate of either of them may act as Paying Agent, Registrar, Conversion Agent or co-registrar. None of the Company or any Subsidiary or any Affiliate of the Company or any Subsidiary may act as Bid Solicitation Agent.
The Company initially appoints the Trustee as Registrar, Conversion Agent, Paying Agent and Bid Solicitation Agent in connection with the Securities.
SECTION 2.04 Paying Agent to Hold Money and Securities in Trust. Except as otherwise provided herein, not later than 10:00 a.m., New York City time, on each due date of payments in respect of any Security, the Company shall deposit with the Paying Agent a sum of money (in immediately available funds if deposited on the due date) or Common Stock sufficient to make such payments when so becoming due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money and Common Stock held by the Paying Agent for the making of payments in respect of the Securities and shall notify the Trustee of any default by the Company in making any such payment. At any time during the continuance of any such default, the Paying Agent shall, upon the written request of the Trustee, forthwith pay to the Trustee all money and Common Stock so held in trust. If the Company, a Subsidiary or an Affiliate of either of them acts as Paying Agent, it shall segregate the money and Common Stock held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money and Common Stock held by it to the Trustee and to account for any funds and Common Stock disbursed by it. Upon doing so, the Paying Agent shall have no further liability for the money or Common Stock.
SECTION 2.05 Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall cause to be furnished to the Trustee at least semiannually on March 9 and September 9 a listing of Securityholders dated within 15 days of the date on which the list is furnished and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders.
SECTION 2.06 Transfer and Exchange. Subject to Section 2.12 hereof,
(a) Upon surrender for registration of transfer of any Security, together with a written instrument of transfer satisfactory to the Registrar duly executed by the Securityholder or such Securityholder's attorney duly authorized in writing, at the office or agency of the Company
designated as Registrar or co-registrar pursuant to Section 2.03 hereof, the Company shall execute, and the Trustee upon receipt of a Company Order shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denomination or denominations, of a like aggregate Principal Amount at Maturity. The Company shall not charge a service charge for any registration of transfer or exchange, but the Company or the Trustee may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges that may be imposed in connection with the registration of transfer or exchange of the Securities from the Securityholder requesting such registration of transfer or exchange.
At the option of the Holder, Certificated Securities may be exchanged for other Securities of any authorized denomination or denominations, of a like aggregate Principal Amount at Maturity, upon surrender of the Securities to be exchanged, together with a written instrument of transfer satisfactory to the Registrar duly executed by the Securityholder or such Securityholder's attorney duly authorized in writing, at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee upon receipt of a Company Order shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive.
The Company shall not be required to make, and the Registrar need not register, transfers or exchanges of Securities selected for redemption (except, in the case of Securities to be redeemed in part, the portion thereof not to be redeemed) or any Securities in respect of which a Purchase Notice or Change in Control Purchase Notice has been given and not withdrawn by the Holder thereof in accordance with the terms of this Indenture (except, in the case of Securities to be purchased in part, the portion thereof not to be purchased) or any Securities for a period of 15 days before the mailing of a notice of redemption of Securities to be redeemed.
(b) Notwithstanding any provision to the contrary herein, so long as a Global Security remains outstanding and is held by or on behalf of the Depositary, transfers of a Global Security, in whole or in part, shall be made only in accordance with Section 2.12 hereof and this Section 2.06(b). Transfers of a Global Security shall be limited to transfers of such Global Security in whole, or in part, to nominees of the Depositary or to a successor of the Depositary or such successor's nominee.
(c) Successive registrations and registrations of transfers and exchanges as aforesaid may be made from time to time as desired, and each such registration shall be noted on the register for the Securities.
(d) Any Registrar appointed pursuant to Section 2.03 hereof shall provide to the Trustee such information as the Trustee may reasonably require in connection with the delivery by such Registrar of Securities upon registration of transfer or exchange of Securities.
(e) No Registrar shall be required to make registrations of transfer or exchange of Securities during any periods designated in the text of the Securities or in this Indenture as periods during which such registration of transfers and exchanges need not be made.
(f) If Securities are issued upon the registration of transfer, exchange or replacement of Securities subject to restrictions on transfer and bearing the legends set forth on the form of Security attached hereto as Exhibits A-1 and A-2 setting forth such restrictions (collectively, the "Legend"), or if a request is made to remove the Legend on a Security, the Securities so issued shall bear the Legend, or the Legend shall not be removed, as the case may be, unless there is delivered to the Company and the Registrar such satisfactory evidence, which shall include an Opinion of Counsel, as may be reasonably required by the Company and the Registrar, that neither the Legend nor the restrictions on transfer set forth therein are required to ensure that transfers thereof comply with the provisions of Rule 144A or Rule 144 or that such Securities are not "restricted" within the meaning of Rule 144. Upon (i) provision of such satisfactory evidence, or (ii) notification by the Company to the Trustee and Registrar of the sale of such Security pursuant to a registration statement that is effective at the time of such sale, the Trustee, upon receipt of a Company Order, shall authenticate and deliver a Security that does not bear the Legend. If the Legend is removed from the face of a Security and the Security is subsequently held by an Affiliate of the Company, the Company shall use reasonable efforts to reinstate the Legend.
The Trustee and the Registrar shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Depositary participants or beneficial owners of interests in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.
SECTION 2.07 Replacement Securities. If (a) any mutilated Security is surrendered to the Trustee, or (b) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a protected purchaser within the meaning of Article 8 of the Uniform Commercial Code (a "Protected Purchaser"), the Company shall execute and upon receipt of a Company Order, the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and Principal Amount at Maturity, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, or is about to be purchased by the Company pursuant to Article 3 hereof, the Company in its discretion may, instead of issuing a new Security, pay or purchase such Security, as the case may be.
Upon the issuance of any new Securities under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 2.08 Outstanding Securities; Determinations of Holders' Action. Securities outstanding at any time are all the Securities authenticated by the Trustee, except for those cancelled by it, those paid pursuant to Section 2.10 hereof and delivered to it for cancellation and those described in this Section 2.08 as not outstanding. A Security does not cease to be outstanding because the Company or an Affiliate thereof holds the Security; provided, however, that in determining whether the Holders of the requisite Principal Amount at Maturity of Securities have given or concurred in any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Subject to the foregoing, only Securities outstanding at the time of such determination shall be considered in any such determination (including, without limitation, determinations pursuant to Articles 6 and 9).
If a Security is replaced pursuant to Section 2.07 hereof, the replaced Security ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to each of them that the replaced Security is held by a Protected Purchaser unaware that such Security has been replaced, in which case the replacement security shall be deemed not to be outstanding.
If the Paying Agent holds, in accordance with this Indenture, on a Redemption Date, or on the Business Day following the Purchase Date or a Change in Control Purchase Date, or on Stated Maturity, money or securities, if permitted hereunder, sufficient to pay Securities payable on that date, then immediately after such Redemption Date, Purchase Date, Change in Control Purchase Date or Stated Maturity, as the case may be, such Securities shall cease to be outstanding and Original Issue Discount and interest (including Contingent Cash Interest), if any, or cash interest on such Securities shall cease to accrue; provided, that if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture.
If a Security is converted in accordance with Article 11, then from and after the time of conversion on the Conversion Date, such Security shall cease to be outstanding and Original Issue Discount and interest (including Contingent Cash Interest), if any, or cash interest shall cease to accrue on such Security.
SECTION 2.09 Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon a Company Order, the Trustee shall
authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for such purpose pursuant to Section 2.03, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and upon Company Order the Trustee shall authenticate and deliver in exchange therefor a like Principal Amount at Maturity of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities.
SECTION 2.10 Cancellation. All Securities surrendered for payment, purchase by the Company pursuant to Article 3 hereof, conversion, redemption or registration of transfer or exchange shall, if surrendered to any person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. The Company may not issue new Securities to replace Securities it has paid or delivered to the Trustee for cancellation or that any Holder has converted pursuant to Article 11 hereof. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of by the Trustee in accordance with the Trustee's customary procedures.
SECTION 2.11 Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of the Security or the payment of any Redemption Price, Purchase Price or Change in Control Purchase Price in respect thereof and interest (including Contingent Cash Interest), if any, or cash interest thereon, for the purpose of conversion and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.
SECTION 2.12 Global Securities. Notwithstanding any other provisions of
this Indenture or the Securities, (i) transfers of a Global Security, in whole
or in part, shall be made only in accordance with Sections 2.06 and 2.12(a)(i)
hereof, (ii) transfer of a beneficial interest in a Global Security for a
Certificated Security shall comply with Sections 2.06 and 2.12(a)(i) hereof, and
(iii) transfers of a Certificated Security shall comply with Sections 2.06 and
2.12(a)(ii) hereof and transfer of a Certificated Security for a Beneficial
Interest in a Global Security shall comply with Sections 2.06 and 2.12(a)(iii)
hereof.
(a) Transfer of Global Security. A Global Security may not be transferred, in whole or in part, to any Person other than the Depositary or a nominee or any successor thereof, and no such transfer to any such other Person may be registered; provided, that this Section 2.12(a) shall not prohibit any transfer of a Security that is issued in exchange for a Global Security but is not itself a Global Security. No transfer of a Security to any Person shall be effective under this Indenture or the Securities unless and until such Security has been registered in the name of such Person. Nothing in this Section 2.12(a) shall prohibit or render ineffective any transfer of a beneficial interest in a Global Security effected in accordance with the other provisions of this Section 2.12(a).
(i) Restrictions on Transfer of a Beneficial Interest in a Global Security for a Certificated Security. A beneficial interest in a Global Security may not be exchanged for a Certificated Security except upon satisfaction of the requirements set forth below. Upon receipt by the Trustee of a request for transfer of a beneficial interest in a Global Security in accordance with Applicable Procedures for a Certificated Security in the form satisfactory to the Trustee, together with:
(A) so long as the Securities are Restricted Securities, certification, in the form set forth in Exhibit B-1 attached hereto, and, if requested by the Company or the Registrar, certification in the form set forth in Exhibit B-2 attached hereto, that such beneficial interest in the Global Security is being transferred to an Institutional Accredited Investor that satisfies the definitions set forth in subparagraphs (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act;
(B) written instructions to the Trustee to make, or direct the Registrar to make, an adjustment on its books and records with respect to such Global Security to reflect a decrease in the aggregate Principal Amount at Maturity of the Securities represented by the Global Security, such instructions to contain information regarding the Depositary account to be credited with such decrease; and
(C) if the Company or Registrar so requests, an Opinion of Counsel or other evidence reasonably satisfactory to them as to the compliance with the restrictions set forth in the Legend,
then the Trustee shall cause, or direct the Registrar to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Registrar, the aggregate Principal Amount at Maturity of Securities represented by the Global Security to be decreased by the aggregate Principal Amount at Maturity of the Certificated Security to be issued, shall authenticate and deliver such Certificated Security and shall debit or cause to be debited to the account of the Person specified in such instructions a beneficial interest in the Global Security equal to the Principal Amount at Maturity of the Certificated Security so issued.
(ii) Transfer and Exchange of Certificated Securities. When Certificated Securities are presented to the Registrar with a request:
(x) to register the transfer of such Certificated Securities; or
(y) to exchange such Certificated Securities for an equal Principal Amount at Maturity of Certificated Securities of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, however, that the Certificated Securities surrendered for registration of transfer or exchange:
(A) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and
(B) so long as such Securities are Restricted Securities, such
Securities are being transferred or exchanged pursuant to an
effective registration statement under the Securities Act or, if
being transferred pursuant to clause (1), (2) or (3) of this
Section 2.12(a)(ii)(B), are accompanied by the additional
information and documents specified in each such clause, as
applicable:
(1) if such Certificated Securities are being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect; or
(2) if such Certificated Securities are being transferred to the Company, a certification to that effect; or
(3) if such Certificated Securities are being transferred pursuant to an exemption from registration (1) a certification to that effect (in the form set forth in Exhibit B-1 and B-2 attached hereto, if applicable) and (2) if the Company or Registrar so requests, an opinion of counsel or other evidence reasonably satisfactory to them as to the compliance with the restrictions set forth in the Legend.
(iii) Restrictions on Transfer of a Certificated Security for a Beneficial Interest in a Global Security. A Certificated Security may not be exchanged for a beneficial interest in a Global Security except upon satisfaction of the requirements set forth below.
Upon receipt by the Trustee of a Certificated Security, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Trustee, together with:
(A) so long as the Securities are Restricted Securities, certification, in the form set forth in Exhibit B-1 attached hereto, that such Certificated Security is being transferred to a QIB in accordance with Rule 144A; and
(B) written instructions directing the Trustee to make, or to direct the Registrar to make, an adjustment on its books and records with respect to such Global Security to reflect an increase in the aggregate Principal Amount at Maturity of the Securities represented by the Global Security, such instructions to contain information regarding the Depositary account to be credited with such increase; and
then the Trustee shall cancel such Certificated Security and cause, or direct the Registrar to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Registrar, the aggregate Principal Amount at Maturity of Securities represented by the Global Security to be increased by the aggregate Principal Amount at Maturity of the Certificated Security to be exchanged, and shall credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Global Security equal to the Principal Amount at Maturity of the Certificated Security so cancelled. If no Global Securities are then outstanding, the Company shall issue and the Trustee, upon receipt of a Company Order, shall authenticate a new Global Security in the appropriate Principal Amount at Maturity.
(b) Subject to the succeeding paragraph, every Security shall be subject to the restrictions on transfer provided in the Legend including the requirement of the delivery of an Opinion of Counsel, if so provided. Whenever any Restricted Security is presented or surrendered for registration of transfer or for exchange for a Security registered in a name other than that of the Holder, such Security must be accompanied by a certificate in substantially the form set forth in Exhibit B-1 attached hereto, dated the date of such surrender and signed by the Holder of such Security, as to compliance with such restrictions on transfer. The Registrar shall not be required to accept for such registration of transfer or exchange any Security not so accompanied by a properly completed certificate.
(c) The restrictions imposed by the Legend upon the transferability of any Security shall cease and terminate when such Security has been sold pursuant to an effective registration statement under the Securities Act or transferred in compliance with Rule 144 or, if earlier, upon the expiration of the holding period applicable to sales thereof under paragraph (k) of Rule 144. Any Security as to which such restrictions on transfer shall have expired in accordance with their terms or shall have terminated may, upon a surrender of such Security for exchange to the Registrar in accordance with the provisions of this Section 2.12 (accompanied, in the event that such restrictions on transfer have terminated by reason of a transfer in compliance with Rule 144, by an opinion of counsel having substantial experience in practice under the Securities Act and otherwise reasonably acceptable to the Company, addressed to the Company, the Trustee and the Registrar and in form acceptable to the Company, to the effect that the transfer of such Security has been made in compliance with Rule 144), be exchanged for a new Security, of like tenor and aggregate Principal Amount at Maturity, which shall not bear the restrictive Legend. The Company shall inform the Trustee of the effective date of any registration statement registering the Securities under the Securities Act. The Trustee and the Registrar shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the aforementioned opinion of counsel or registration statement.
(d) As used in the preceding two paragraphs of this Section 2.12, the term "transfer" encompasses any sale, pledge, transfer, hypothecation or other disposition of any Security.
(e) The provisions of clauses (i), (ii), (iii), (iv) and (v) of this
Section 2.12(e) shall apply only to Global Securities:
(i) Notwithstanding any other provisions of this Indenture or the
Securities, except as provided in Section 2.12(a)(i) hereof, a Global
Security shall not be exchanged in whole or in part for a Security
registered in the name of any Person other than the Depositary or one or
more nominees thereof; provided, that a Global Security may be exchanged
for Securities registered in the names of any person designated by the
Depositary in the event that (A) the Depositary has notified the Company
that it is unwilling or unable to continue as Depositary for such Global
Security or such Depositary has ceased to be a "clearing agency" registered
under the Exchange Act, and a successor Depositary is not appointed by the
Company within 90 days; (B) the Company elects to discontinue use of the
system of book-entry transfer through DTC (or any successor depositary); or
(C) an Event of Default has occurred and is continuing with respect to the
Securities. Any Global Security exchanged pursuant to clause (A) of this
sub-section shall be so exchanged in whole and not in part, and any Global
Security exchanged pursuant to clause (B) of this sub-section may be
exchanged in whole or from time to time in part as directed by the
Depositary. Any Security issued in exchange for a Global Security or any
portion thereof shall be a Global Security; provided, that any such
Security so issued that is registered in the name of a person other than
the Depositary or a nominee thereof shall not be a Global Security.
(ii) Securities issued in exchange for a Global Security or any portion thereof shall be issued in definitive, fully registered form, without interest coupons, shall have an aggregate Principal Amount at Maturity equal to that of such Global Security or portion thereof to be so exchanged, shall be registered in such names and be in such authorized denominations as the Depositary shall designate and shall bear the applicable legends provided for herein. Any Global Security to be exchanged in whole shall be surrendered by the Depositary to the Registrar. With regard to any Global Security to be exchanged in part, to give effect to any conversion, redemption or other disposition of such part or otherwise, either such Global Security shall be so surrendered for exchange or, if the Trustee is acting as custodian for the Depositary or its nominee with respect to such Global Security, the Principal Amount at Maturity thereof shall be reduced, by an amount equal to the portion thereof to be so exchanged, by means of an appropriate adjustment made on the records of the Trustee. Upon any such surrender or adjustment, the Trustee shall authenticate and deliver the Security issuable on such exchange to or upon the order of the Depositary or an authorized representative thereof.
(iii) Subject to the provisions of clause (v) of this Section 2.12(e), the registered Holder may grant proxies and otherwise authorize any Person, including Agent Members (as defined below) and persons that may hold interests through Agent Members, to take any action which a holder is entitled to take under this Indenture or the Securities.
(iv) In the event of the occurrence of any of the events specified in clause (i) above, the Company will promptly make available to the Trustee a reasonable supply of Certificated Securities in definitive, fully registered form, without interest coupons.
(v) Neither any members of, or participants in, the Depositary (collectively, the "Agent Members") nor any other Persons on whose behalf Agent Members may act shall have any rights under this Indenture with respect to any Global Security registered in the name of the Depositary or any nominee thereof, or under any such Global Security, and the Depositary or such nominee, as the case may be, may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and holder of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or such nominee, as the case may be, or impair, as between the Depositary, its Agent Members and any other person on whose behalf an Agent Member may act, the operation of customary practices of such Persons governing the exercise of the rights of a holder of any Security.
SECTION 2.13 CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP numbers.
ARTICLE 3
REDEMPTION AND PURCHASES
SECTION 3.01 Right to Redeem; Notices to Trustee. The Company, at its option, may redeem the Securities in accordance with the provisions of paragraphs 6 and 8 of the Securities. Prior to September 24, 2007, the Company may not redeem the Securities. Beginning on September 24, 2007, the Company may redeem the Securities for cash in whole at any time, or in part from time to time. If the Company elects to redeem Securities pursuant to paragraph 6 of the Securities, it shall notify the Trustee in writing of the Redemption Date, the Principal Amount at Maturity of Securities to be redeemed, the Redemption Price and the amount of accrued and unpaid cash interest, if any, payable on the Redemption Date.
The Company shall give the notice to the Trustee provided for in this
Section 3.01 by a Company Order, at least 45 days before the Redemption Date
(unless a shorter notice shall be satisfactory to the Trustee). If fewer than
all the Securities are to be redeemed, the record date relating to such
redemption shall be selected by the Company and given to the Trustee, which
record date shall not be less than ten days after the date of notice to the
Trustee.
SECTION 3.02 Selection of Securities to Be Redeemed. If less than all the outstanding Securities are to be redeemed, the Trustee shall select the Securities to be redeemed
pro rata or by lot or by any other method the Trustee considers fair and appropriate (so long as such method is not prohibited by the rules of any stock exchange on which the Securities are then listed). The Trustee shall make the selection at least 30 days but not more than 60 days before the Redemption Date from outstanding Securities not previously called for redemption. The Trustee may select for redemption portions of the Principal Amount at Maturity of Securities that have denominations larger than $1,000.
Securities and portions of them the Trustee selects shall be in Principal Amounts at Maturity of $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall promptly notify the Company in writing of the Securities or portions of Securities to be redeemed.
If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. Securities which have been converted during a selection of Securities to be redeemed may be treated by the Trustee as outstanding for the purpose of such selection.
SECTION 3.03 Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first-class mail, postage prepaid, to each Holder of Securities to be redeemed.
The notice shall identify the Securities to be redeemed and shall state:
(a) the Redemption Date;
(b) the Redemption Price, or if then not ascertainable, the manner of calculation thereof, and accrued and unpaid cash interest, if any, or the amount of Contingent Cash Interest, if any, payable on the Redemption Date;
(c) the Conversion Rate;
(d) the name and address of the Paying Agent and Conversion Agent;
(e) that Securities called for redemption may be converted at any time before the close of business on the second Business Day immediately preceding the Redemption Date, even if not otherwise convertible at such time;
(f) that Holders who want to convert Securities must satisfy the requirements set forth in paragraph 9 of the Securities;
(g) if applicable, the election of the Company (which, subject to the provisions of Article 11 of the Indenture, shall be irrevocable) to deliver shares of Common Stock or to pay cash in lieu of delivery of such shares with respect to any Security that may be converted after mailing of such notice prior to the Redemption Date;
(h) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price and accrued and unpaid cash interest, if any, or the Redemption Price and Contingent Cash Interest, if any;
(i) if fewer than all the outstanding Securities are to be redeemed, the certificate number and Principal Amounts at Maturity of the particular Securities to be redeemed;
(j) that, unless the Company defaults in making payment of such Redemption Price and any cash interest which is due and payable, Original Issue Discount or cash interest, including Contingent Cash Interest and semiannual interest, will cease to accrue on and after the Redemption Date;
(k) the CUSIP number of the Securities; and
(l) any other information the Company desires, in its own discretion, to present.
At the Company's request, the Trustee shall give the notice of redemption to Holders in the Company's name and at the Company's expense; provided, that the Company makes such request at least five Business Days (unless a shorter period shall be satisfactory to the Trustee) prior to the date such notice of redemption must be mailed.
SECTION 3.04 Effect of Notice of Redemption. Once notice of redemption is given, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price (together with accrued and unpaid cash interest, if any, or together with any Contingent Cash Interest, if any, to but not including the date of redemption) stated in the notice except for Securities which are converted in accordance with the terms of this Indenture. Upon surrender to the Paying Agent, such Securities shall be paid at the Redemption Price (together with accrued and unpaid cash interest, if any, or together with any Contingent Cash Interest, if any, to but not including the date of redemption) stated in the notice.
SECTION 3.05 Deposit of Redemption Price. Prior to 10:00 a.m. New York City time, on any Redemption Date, the Company shall deposit with the Paying Agent (or if the Company or a Subsidiary or an Affiliate of either of them is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the Redemption Price of, and any accrued and unpaid interest (either cash interest or Contingent Cash Interest, if any) to but not including the date of redemption with respect to, all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which on or prior thereto have been delivered by the Company to the Trustee for cancellation or have been converted. The Paying Agent shall as promptly as practicable return to the Company any money not required for that purpose because of conversion of Securities pursuant to Article 11 hereof. If such money is then held by the Company in trust and is not required for such purpose it shall be discharged from such trust.
SECTION 3.06 Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate and
deliver to the Holder a new Security in an authorized denomination equal in Principal Amount at Maturity to the unredeemed portion of the Security surrendered.
SECTION 3.07 Conversion Arrangement on Call for Redemption. In connection with any redemption of Securities, the Company may arrange for the purchase and conversion of any Securities called for redemption by an agreement with one or more investment banks or other purchasers to purchase such Securities by paying to the Trustee in trust for the Securityholders, on or prior to 10:00 a.m. New York City time on the Redemption Date, an amount that, together with any amounts deposited with the Trustee by the Company for the redemption of such Securities, is not less than the Redemption Price of, and any accrued and unpaid interest (either cash interest or Contingent Cash Interest) with respect to, such Securities. Notwithstanding anything to the contrary contained in this Article 3, the obligation of the Company to pay the Redemption Prices of such Securities shall be deemed to be satisfied and discharged to the extent such amount is so paid by such purchasers. If such an agreement is entered into, any Securities not duly surrendered for conversion by the Holders thereof may, at the option of the Company, be deemed, to the fullest extent permitted by law, acquired by such purchasers from such Holders and (notwithstanding anything to the contrary contained in Article 11) surrendered by such purchasers for conversion, all as of immediately prior to the close of business on the second Business Day prior to the Redemption Date, subject to payment of the above amount as aforesaid. The Trustee shall hold and pay to the Holders whose Securities are selected for redemption any such amount paid to it for purchase and conversion in the same manner as it would moneys deposited with it by the Company for the redemption of Securities. Without the Trustee's prior written consent, no arrangement between the Company and such purchasers for the purchase and conversion of any Securities shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Trustee as set forth in this Indenture, and the Company agrees to indemnify the Trustee from, and hold it harmless against, any loss, liability or expense arising out of or in connection with any such arrangement for the purchase and conversion of any Securities between the Company and such purchasers, including the costs and expenses incurred by the Trustee in the defense of any claim or liability arising out of or in connection with the exercise or performance of any of its powers, duties, responsibilities or obligations under this Indenture.
SECTION 3.08 Purchase of Securities at Option of the Holder.
(a) General. Securities shall be purchased by the Company pursuant to paragraph 7 of the Securities as of September 24, 2009, 2012, 2017, 2022 and 2027 (each, a "Purchase Date"), at the purchase price of $380.12 per $1,000 of Principal Amount at Maturity as of September 24, 2009, of $431.23 per $1,000 of Principal Amount at Maturity as of September 24, 2012, of $532.15 per $1,000 of Principal Amount at Maturity as of September 24, 2017, of $656.68 per $1,000 Principal Amount at Maturity as of September 24, 2022, and of $810.36 per $1,000 Principal Amount at Maturity as of September 24, 2027, in each case plus accrued and unpaid cash interest, if any, to the Purchase Date (each, a "Purchase Price", as applicable), at the option of the Holder thereof, upon:
(i) delivery to the Paying Agent, by the Holder, of a written notice of purchase (a "Purchase Notice") at any time from the opening of business on the date that
is 20 Business Days prior to a Purchase Date until the close of business on such Purchase Date stating:
(A) the certificate number of the Security which the Holder will deliver to be purchased,
(B) the portion of the Principal Amount at Maturity of the Security which the Holder will deliver to be purchased, which portion must be a Principal Amount at Maturity of $1,000 or an integral multiple thereof,
(C) that such Security shall be purchased as of the Purchase Date pursuant to the terms and conditions specified in paragraph 7 of the Securities and in this Indenture, and
(D) in the event the Company elects, pursuant to Section 3.08(b)
hereof, to pay the Purchase Price to be paid as of such Purchase Date,
in whole or in part, in shares of Common Stock but such portion of the
Purchase Price shall ultimately be payable to such Holder entirely in
cash because any of the conditions to payment of the Purchase Price in
Common Stock is not satisfied prior to the close of business on such
Purchase Date, as set forth in Section 3.08(d) hereof, whether such
Holder elects (1) to withdraw such Purchase Notice as to some or all
of the Securities to which such Purchase Notice relates (stating the
Principal Amount at Maturity and certificate numbers of the Securities
as to which such withdrawal shall relate), or (2) to receive cash in
respect of the entire Purchase Price for all Securities (or portions
thereof) to which such Purchase Notice relates; and
(ii) delivery of such Security to the Paying Agent prior to, on or after the Purchase Date (together with all necessary endorsements) at the offices of the Paying Agent, such delivery being a condition to receipt by the Holder of the Purchase Price therefor; provided, however, that such Purchase Price shall be so paid pursuant to this Section 3.08 only if the Security so delivered to the Paying Agent shall conform in all respects to the description thereof in the related Purchase Notice, as determined by the Company.
If a Holder, in such Holder's Purchase Notice and in any written notice of withdrawal delivered by such Holder pursuant to the terms of Section 3.10 hereof, fails to indicate such Holder's choice with respect to the election set forth in clause (D) of Section 3.08(a)(i) hereof, such Holder shall be deemed to have elected to receive cash in respect of the Purchase Price for all Securities subject to such Purchase Notice in the circumstances set forth in such clause (D).
The Company shall purchase from the Holder thereof, pursuant to this
Section 3.08, a portion of a Security if the Principal Amount at Maturity of
such portion is $1,000 or an integral multiple of $1,000. Provisions of this
Indenture that apply to the purchase of all of a Security also apply to the
purchase of such portion of such Security.
Any purchase by the Company contemplated pursuant to the provisions of this
Section 3.08 shall be consummated by the delivery of the consideration to be
received by the Holder (together with accrued and unpaid cash interest, if any,
or together with any Contingent Cash Interest, if any,) as promptly as
practicable following the later of the Purchase Date and the time of delivery of
the Security, but in no event more than three Business Days following the later
of the Purchase Date or the time of delivery of the Security.
Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent the Purchase Notice contemplated by this Section 3.08(a) shall have the right to withdraw such Purchase Notice at any time prior to the close of business on the Business Day prior to the Purchase Date by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 3.10 hereof.
The Paying Agent shall promptly notify the Company of the receipt by it of any Purchase Notice or written notice of withdrawal thereof.
(b) Company's Right to Elect Manner of Payment of Purchase Price. The Securities to be purchased pursuant to Section 3.08(a) hereof may be paid for, at the election of the Company, in U.S. legal tender ("cash") or Common Stock, or in any combination of cash and Common Stock, subject to the conditions set forth in Sections 3.08(c) and (d) hereof. The Company shall designate, in the Company Notice delivered pursuant to Section 3.08(e) hereof, whether the Company will purchase the Securities for cash or Common Stock, or, if a combination thereof, the percentages or amounts of the Purchase Price of Securities in respect of which it will pay in cash or Common Stock; provided, that the Company will pay cash for fractional interests in Common Stock. For purposes of determining the existence of potential fractional interests, all Securities subject to purchase by the Company held by a Holder shall be considered together (no matter how many separate certificates are to be presented). Each Holder whose Securities are purchased pursuant to this Section 3.08 shall receive the same percentage of cash or Common Stock in payment of the Purchase Price for such Securities, except (i) as provided in Section 3.08(d) hereof with regard to the payment of cash in lieu of fractional shares of Common Stock and (ii) in the event that the Company is unable to purchase the Securities of a Holder or Holders for Common Stock because any necessary qualifications or registrations of the Common Stock under applicable state securities laws cannot be obtained, the Company may purchase the Securities of such Holder or Holders for cash. The Company may not change its election with respect to the consideration (or components or percentages of components thereof) to be paid once the Company has given its Company Notice to Securityholders except pursuant to this Section 3.08(b) or pursuant to Section 3.08(d) hereof in the event of a failure to satisfy, prior to the close of business on the Purchase Date, any condition to the payment of the Purchase Price, in whole or in part, in Common Stock.
At least three Business Days before the Company Notice Date, the Company shall deliver an Officers' Certificate to the Trustee specifying:
(i) the manner of payment selected by the Company,
(ii) the information required by Section 3.08(e) hereof,
(iii) if the Company elects to pay the Purchase Price, or a specified percentage thereof, in Common Stock, that the conditions to such manner of payment set forth in Section 3.08(d) have been or will be complied with, and
(iv) whether the Company desires the Trustee to give the Company Notice required by Section 3.08(e) hereof.
(c) Purchase with Cash. On each Purchase Date, at the option of the Company, the Purchase Price of Securities in respect of which a Purchase Notice pursuant to Section 3.08(a) hereof has been given, or a specified percentage thereof, may be paid by the Company with cash equal to the aggregate Purchase Price of such Securities. If the Company elects to purchase Securities with cash, the Company Notice, as provided in Section 3.08(e) hereof, shall be sent to Holders (and to beneficial owners as required by applicable law) not less than 20 Business Days prior to such Purchase Date (the "Company Notice Date").
(d) Payment by Issuance of Common Stock. On each Purchase Date, at the option of the Company, the Purchase Price of Securities in respect of which a Purchase Notice pursuant to Section 3.08(a) hereof has been given, or a specified percentage thereof, may be paid by the Company by the issuance of a number of shares of Common Stock equal to the quotient obtained by dividing (i) the amount of cash to which the Securityholders would have been entitled had the Company elected to pay all or such specified percentage, as the case may be, of the Purchase Price of such Securities in cash by (ii) the Market Price of a share of Common Stock, subject to the next succeeding paragraph.
The Company will not issue a fractional share of Common Stock in payment of the Purchase Price. Instead the Company will pay cash for the current market value of the fractional share. The current market value of a fraction of a share shall be determined by multiplying the Market Price by such fraction and rounding the product to the nearest whole cent. It is understood that if a Holder elects to have more than one Security purchased, the number of shares of Common Stock shall be based on the aggregate amount of Securities to be purchased.
Upon a payment by Common Stock pursuant to the terms hereof, that portion
of accrued Original Issue Discount, cash interest or Contingent Cash Interest,
if any, attributable to the period from the Issue Date to the Purchase Date with
respect to the purchased Security shall not be cancelled, extinguished or
forfeited but rather shall be deemed paid in full to the Holder through the
delivery of the Common Stock in exchange for the Security being purchased
pursuant to the terms hereof, and the fair market value of such Common Stock
(together with any cash payments in lieu of fractional shares of Common Stock)
shall be treated as issued, to the extent thereof, first in exchange for the
accrued Original Issue Discount, cash interest or Contingent Cash Interest, if
any, through the Purchase Date, and the balance, if any, of the fair market
value of such shares of Common Stock shall be treated as issued in exchange for
the Issue Price of the Security being purchased pursuant to the provisions
hereof. If the Company elects to purchase the Securities by the issuance of
shares of Common Stock, the Company Notice, as provided in Section 3.08(e)
hereof, shall be sent to the Holders (and to beneficial owners as required by
applicable law) not later than the Company Notice Date.
The Company's right to exercise its election to purchase the Securities pursuant to this Section 3.08 through the issuance of shares of Common Stock shall be conditioned upon:
(i) the Company's not having given its Company Notice of an election to pay entirely in cash and its giving of timely Company Notice of election to purchase all or a specified percentage of the Securities with Common Stock as provided herein;
(ii) the shares of Common Stock having been admitted for listing or admitted for listing subject to notice of issuance on the principal United States securities exchange on which the Common Stock is then listed or, if the Common Stock is not then listed on a national or regional securities exchange, as quoted on the National Association of Securities Dealers Automated Quotation System;
(iii) the registration of the shares of Common Stock to be issued in respect of the payment of the Purchase Price under the Securities Act of 1933, as amended (the "Securities Act"), or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in each case, if required;
(iv) any necessary qualification or registration under applicable state securities laws or the availability of an exemption from such qualification and registration; and
(v) the receipt by the Trustee of an Officers' Certificate and an
Opinion of Counsel each stating that (A) the terms of the issuance of the
Common Stock are in conformity with this Indenture and (B) the shares of
Common Stock to be issued by the Company in payment of the Purchase Price
in respect of Securities have been duly authorized and, when issued and
delivered pursuant to the terms of this Indenture in payment of the
Purchase Price in respect of the Securities, will be validly issued, fully
paid and non-assessable and, to the best of such counsel's knowledge, free
from preemptive rights under law or material contracts, and, in the case of
such Officers' Certificate, stating that conditions (i), (ii), (iii) and
(iv) above and the condition set forth in the second succeeding sentence
have been satisfied and, in the case of such Opinion of Counsel, stating
that conditions (ii) and (iii) above have been satisfied.
Such Officers' Certificate shall also set forth the number of shares of Common Stock to be issued for each $1,000 Principal Amount at Maturity of Securities and the Sale Price of a share of Common Stock on each Trading Day during the period for which the Market Price is calculated. The Company may pay the Purchase Price (or any portion thereof) in Common Stock only if the information necessary to calculate the Market Price is published in a daily newspaper of national circulation. If the foregoing conditions are not satisfied with respect to a Holder or Holders prior to the close of business on the Purchase Date and the Company has elected to purchase the Securities pursuant to this Section 3.08 through the issuance of shares of Common Stock, the Company shall pay the entire Purchase Price of the Securities of such Holder or Holders in cash.
The "Market Price" of the Common Stock means the average of the Sale Prices of the Common Stock for the five Trading Day period ending on the third Business Day (if the third Business Day prior to the applicable Purchase Date is a Trading Day or, if not, then on the last
Trading Day prior to such Business Day) prior to the applicable Purchase Date, appropriately adjusted to take into account the occurrence, during the period commencing on the first of such Trading Days during such five Trading Day period and ending on such Purchase Date, of any event described in Section 11.06, 11.07 or 11.08 hereof; subject, however, to the conditions set forth in Sections 11.09 and 11.10 hereof.
(e) Notice of Election. The Company's notice of election to purchase with cash or Common Stock or any combination thereof shall be sent to the Holders (and to beneficial owners as required by applicable law) in the manner provided in Section 15.02 hereof at the time specified in Section 3.08(c) or (d) hereof, as applicable (the "Company Notice"). Such Company Notice shall state the manner of payment elected and shall contain the following information:
In the event the Company has elected to pay the Purchase Price (or a specified percentage thereof) with Common Stock, the Company Notice shall:
(i) state that each Holder will receive Common Stock with a Market Price determined as of a specified date prior to the Purchase Date equal to such specified percentage of the Purchase Price of the Securities held by such Holder (except any cash amount to be paid in lieu of fractional shares);
(ii) set forth the method of calculating the Market Price of the Common Stock; and
(iii) state that because the Market Price of Common Stock will be determined prior to the Purchase Date, Holders will bear the market risk with respect to the value of the Common Stock to be received from the date such Market Price is determined to the Purchase Date.
In any case, each Company Notice shall include a form of Purchase Notice to be completed by a Securityholder and shall state:
(i) the Purchase Price, the Conversion Rate and accrued and unpaid cash interest, including Contingent Cash Interest, if any, that will be accrued and payable with respect to the Securities as of the Purchase Date;
(ii) whether the Company will pay the Purchase Price in cash or in Common Stock or any combination thereof, specifying the percentage of each;
(iii) the name and address of the Paying Agent and the Conversion Agent;
(iv) that Securities as to which a Purchase Notice has been given may be converted pursuant to Article 11 hereof only if the applicable Purchase Notice has been withdrawn in accordance with the terms of this Indenture;
(v) that Securities must be surrendered to the Paying Agent to collect payment of the Purchase Price and accrued and unpaid cash interest (or accrued and unpaid Contingent Cash Interest), if any;
(vi) that the Purchase Price for any Security as to which a Purchase Notice has been given and not withdrawn, together with any cash interest payable or any Contingent Cash Interest payable with respect thereto, will be paid promptly following the later of the Purchase Date and the time of surrender of such Security as described in (v);
(vii) the procedures the Holder must follow to exercise rights under this Section 3.08 and a brief description of those rights;
(viii) briefly, the conversion rights of the Securities and that Holders who want to convert Securities must satisfy the requirements set forth in paragraph 9 of the Securities;
(ix) the procedures for withdrawing a Purchase Notice (including,
without limitation, for a conditional withdrawal pursuant to the terms of
Section 3.08(a)(i)(D) or Section 3.10 hereof);
(x) that, unless the Company defaults in making payment of such Purchase Price and cash interest, if any, Original Issue Discount and cash interest, including Contingent Cash Interest, if any, on Securities surrendered for purchase will cease to accrue on and after the Purchase Date; and
(xi) the CUSIP number of the Securities.
At the Company's request, the Trustee shall give such Company Notice in the Company's name and at the Company's expense; provided, however, that, in all cases, the text of such Company Notice shall be prepared by the Company.
Upon determination of the actual number of shares of Common Stock to be issued for each $1,000 Principal Amount at Maturity of Securities, the Company will issue a press release and publish such determination on the Company's web site on the World Wide Web or through such other public medium as the Company may use from time to time.
(f) Covenants of the Company. All shares of Common Stock delivered upon purchase of the Securities shall be newly issued shares or treasury shares, shall be duly authorized, validly issued, fully paid and nonassessable and shall be free from preemptive rights and free of any lien or adverse claim created by the Company.
The Company shall use its reasonable efforts to list or cause to have quoted any shares of Common Stock to be issued to purchase Securities on the principal United States securities exchange or over-the-counter or other domestic market on which any other shares of the Common Stock are then listed or quoted. The Company will promptly inform the Trustee in writing of any such listing.
(g) Procedure upon Purchase. The Company shall deposit cash (in respect of a cash purchase under Section 3.08(c) hereof or for fractional interests as applicable) or shares of Common Stock, or a combination thereof, as applicable, at the time and in the manner as provided in Section 3.11 hereof, sufficient to pay the aggregate Purchase Price of, and any accrued and unpaid interest or any Contingent Cash Interest, if any, with respect to all Securities
to be purchased pursuant to this Section 3.08. As soon as practicable after the Purchase Date, the Company shall deliver to each Holder entitled to receive Common Stock through the Paying Agent, a certificate for the number of full shares of Common Stock issuable in payment of the Purchase Price and cash in lieu of any fractional interests. The person in whose name the certificate for Common Stock is registered shall be treated as a holder of record of shares of Common Stock on the Business Day following the Purchase Date. Subject to Section 3.08(d) hereof, no payment or adjustment will be made for dividends on the Common Stock the record date for which occurred on or prior to the Purchase Date.
(h) Taxes. If a Holder of a Security is paid in Common Stock, the Company shall pay any documentary, stamp or similar issue or transfer tax due on such issue of shares of Common Stock. However, the Holder shall pay any such tax which is due because the Holder requests the shares of Common Stock to be issued in a name other than the Holder's name. The Paying Agent may refuse to deliver the certificates representing the Common Stock being issued in a name other than the Holder's name until the Paying Agent receives a sum sufficient to pay any tax which will be due because the shares of Common Stock are to be issued in a name other than the Holder's name. Nothing herein shall preclude any income tax withholding required by law or regulations.
SECTION 3.09 Purchase of Securities at Option of the Holder upon Change in Control.
(a) If there shall have occurred a Change in Control on or before September 24, 2009, Securities shall be purchased by the Company, at the option of the Holder thereof, at a purchase price specified in paragraph 7 of the Securities (the "Change in Control Purchase Price"), as of the date that is no later than 30 Business Days after the occurrence of the Change in Control but in no event prior to the date on which such Change in Control occurs (the "Change in Control Purchase Date"), subject to satisfaction by or on behalf of the Holder of the requirements set forth in Section 3.09(c) hereof.
A "Change in Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to any "person" or "group" (as such terms are used in Section 13(d) of the Exchange Act), (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" or "group" (as such terms are used in Section 13(d) of the Exchange Act) becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly through one or more intermediaries, of more than 50% of the voting power of the outstanding voting stock of the Company, or (iv) the first day on which more than a majority of the members of the Board of Directors of the Company are not Continuing Directors.
"Continuing Directors" means, as of any date of determination, any member of the Board of Directors who (i) was a member of the Board of Directors on September 24, 2002 or (ii) was nominated for election to the Board of Directors with the approval of, or whose
election to the Board of Directors was ratified by, at least a majority of the Continuing Directors who were members of the Board of Directors at the time of such nomination or election.
(b) Within 15 days after the occurrence of a Change in Control, the Company shall mail a written notice of Change in Control by first-class mail to the Trustee and to each Holder (and to beneficial owners as required by applicable law). The notice shall include a form of Change in Control Purchase Notice to be completed by the Securityholder and shall state:
(i) briefly, the events causing a Change in Control and the date of such Change in Control;
(ii) the date by which the Change in Control Purchase Notice pursuant to this Section 3.09 must be given;
(iii) the Change in Control Purchase Date;
(iv) the Change in Control Purchase Price and any accrued and unpaid cash interest payable with respect to the Securities as of the Change in Control Purchase Date;
(v) the name and address of the Paying Agent and the Conversion Agent;
(vi) the Conversion Rate and any adjustments thereto resulting from the Change in Control;
(vii) that Securities as to which a Change in Control Purchase Notice has been given may be converted pursuant to Article 11 hereof only if the Change in Control Purchase Notice has been withdrawn in accordance with the terms of this Indenture;
(viii) that Securities must be surrendered to the Paying Agent to collect payment of the Change in Control Purchase Price and accrued and unpaid cash interest, if any;
(ix) that the Change in Control Purchase Price for any Security as to which a Change in Control Purchase Notice has been duly given and not withdrawn, together with any accrued and unpaid cash interest payable with respect thereto, will be paid promptly following the later of the Change in Control Purchase Date and the time of surrender of such Security as described in Section 3.09(b)(viii) hereof;
(x) briefly, the procedures the Holder must follow to exercise rights under this Section 3.09;
(xi) briefly, the conversion rights of the Securities;
(xii) the procedures for withdrawing a Change in Control Purchase Notice;
(xiii) that, unless the Company defaults in making payment of such Change in Control Purchase Price and cash interest, if any on Securities surrendered for purchase, Original Issue Discount and any cash interest on Securities surrendered for purchase will cease to accrue on and after the Change in Control Purchase Date; and
(xiv) the CUSIP number of the Securities.
(c) A Holder may exercise its rights specified in Section 3.09(a) hereof upon delivery of a written notice of purchase (a "Change in Control Purchase Notice") to the Paying Agent at any time prior to the close of business on the Business Day prior to the Change in Control Purchase Date, stating:
(i) the certificate number or numbers of the Security or Securities which the Holder will deliver to be purchased;
(ii) the portion of the Principal Amount at Maturity of the Security which the Holder will deliver to be purchased, which portion must be $1,000 or an integral multiple thereof; and
(iii) that such Security shall be purchased pursuant to the terms and conditions specified in paragraph 7 of the Securities.
The delivery of such Security to the Paying Agent at any time after the delivery of the Change in Control Purchase Notice (together with all necessary endorsements) at the offices of the Paying Agent shall be a condition to the receipt by the Holder of the Change in Control Purchase Price therefor; provided, however, that such Change in Control Purchase Price shall be so paid pursuant to this Section 3.09 only if the Security so delivered to the Paying Agent shall conform in all respects to the description thereof set forth in the related Change in Control Purchase Notice.
The Company shall purchase from the Holder thereof, pursuant to this
Section 3.09, a portion of a Security if the Principal Amount at Maturity of
such portion is $1,000 or an integral multiple of $1,000. Provisions of this
Indenture that apply to the purchase of all of a Security also apply to the
purchase of such portion of such Security.
Any purchase by the Company contemplated pursuant to the provisions of this
Section 3.09 shall be consummated by the delivery of the consideration to be
received by the Holder (together with accrued and unpaid cash interest, if any)
promptly following the later of the Change in Control Purchase Date and the time
of delivery of the Security to the Paying Agent in accordance with this Section
3.09.
Notwithstanding anything herein to the contrary, any Holder delivering to
the Paying Agent the Change in Control Purchase Notice contemplated by this
Section 3.09(c) shall have the right to withdraw such Change in Control Purchase
Notice at any time prior to the close of business on the Business Day prior to
the Change in Control Purchase Date by delivery of a written notice of
withdrawal to the Paying Agent in accordance with Section 3.10 hereof.
The Paying Agent shall promptly notify the Company of the receipt by it of any Change in Control Purchase Notice or written withdrawal thereof.
The Company shall not be required to comply with this Section 3.09 if a third party mails a written notice of Change in Control in the manner, at the times and otherwise in
compliance with this Section 3.09 and repurchases all Securities for which a Change in Control Purchase Notice shall be delivered and not withdrawn.
SECTION 3.10 Effect of Purchase Notice or Change in Control Purchase Notice. Upon receipt by the Paying Agent of the Purchase Notice or Change in Control Purchase Notice specified in Section 3.08(a) or Section 3.09(c) hereof, as applicable, the Holder of the Security in respect of which such Purchase Notice or Change in Control Purchase Notice, as the case may be, was given shall (unless such Purchase Notice or Change in Control Purchase Notice is withdrawn as specified in the following two paragraphs) thereafter be entitled to receive solely the Purchase Price or Change in Control Purchase Price, as the case may be, and any accrued and unpaid cash interest, with respect to such Security. Such Purchase Price or Change in Control Purchase Price which price reflects the Issue Price plus accrued Original Issue Discount and accrued and unpaid cash interest, including Contingent Cash Interest, if any, shall be paid to such Holder, subject to receipt of funds and/or securities by the Paying Agent, promptly following the later of (x) the Purchase Date or the Change in Control Purchase Date, as the case may be, with respect to such Security (provided that the conditions in Section 3.08(a) or Section 3.09(c) hereof, as applicable, have been satisfied) and (y) the time of delivery of such Security to the Paying Agent by the Holder thereof in the manner required by Section 3.08(a) or Section 3.09(c) hereof, as applicable. Securities in respect of which a Purchase Notice or Change in Control Purchase Notice, as the case may be, has been given by the Holder thereof may not be converted pursuant to Article 11 hereof on or after the date of the delivery of such Purchase Notice or Change in Control Purchase Notice, as the case may be, unless such Purchase Notice or Change in Control Purchase Notice, as the case may be, has first been validly withdrawn as specified in the following two paragraphs.
A Purchase Notice or Change in Control Purchase Notice, as the case may be, may be withdrawn by means of a written notice of withdrawal delivered to the office of the Paying Agent in accordance with the Purchase Notice or Change in Control Purchase Notice, as the case may be, at any time prior to the close of business on the Business Day prior to the Purchase Date or the Change in Control Purchase Date, as the case may be, specifying:
(a) the certificate number or numbers of the Security or Securities in respect of which such notice of withdrawal is being submitted,
(b) the Principal Amount at Maturity of the Security or Securities with respect to which such notice of withdrawal is being submitted, and
(c) the Principal Amount at Maturity, if any, of such Security which remains subject to the original Purchase Notice or Change in Control Purchase Notice, as the case may be, and which has been or will be delivered for purchase by the Company.
A written notice of withdrawal of a Purchase Notice may be in the form set forth in the preceding paragraph or may be in the form of a conditional withdrawal contained in a Purchase Notice pursuant to the terms of Section 3.08(a)(i)(D) hereof.
There shall be no purchase of any Securities pursuant to Section 3.08 hereof (other than through the issuance of Common Stock in payment of the Purchase Price, including
cash in lieu of fractional shares) or 3.09 hereof if there has occurred (prior to, on or after, as the case may be, the giving, by the Holders of such Securities, of the required Purchase Notice or Change in Control Purchase Notice, as the case may be) and is continuing an Event of Default (other than a default in the payment of the Purchase Price or Change in Control Purchase Price, as the case may be, and any accrued and unpaid cash interest or Contingent Cash Interest with respect to such Securities). The Paying Agent will promptly return to the respective Holders thereof any Securities (x) with respect to which a Purchase Notice or Change in Control Purchase Notice, as the case may be, has been withdrawn in compliance with this Indenture, or (y) held by it during the continuance of an Event of Default (other than a default in the payment of the Purchase Price or Change in Control Purchase Price, as the case may be, and any accrued and unpaid cash interest or Contingent Cash Interest with respect to such Securities) in which case, upon such return, the Purchase Notice or Change in Control Purchase Notice with respect thereto shall be deemed to have been withdrawn.
SECTION 3.11 Deposit of Purchase Price or Change in Control Purchase Price. Prior to 10:00 a.m., New York City time, on the second Business Day following the Purchase Date or the Change in Control Purchase Date, as the case may be, the Company shall deposit with the Trustee or with the Paying Agent (or, if the Company or a Subsidiary or an Affiliate of either of them is acting as the Paying Agent, shall segregate and hold in trust as provided in Section 2.04 hereof) an amount of money (in immediately available funds if deposited on such Business Day) or Common Stock, if permitted hereunder, sufficient to pay the aggregate Purchase Price or Change in Control Purchase Price, as the case may be, of, and any accrued and unpaid cash interest and Contingent Cash Interest, if any, with respect to all the Securities or portions thereof which are to be purchased as of the Purchase Date or Change in Control Purchase Date, as the case may be.
SECTION 3.12 Securities Purchased in Part. Any Security which is to be purchased only in part shall be surrendered at the office of the Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder in aggregate Principal Amount at Maturity equal to, and in exchange for, the portion of the Principal Amount at Maturity of the Security so surrendered which is not purchased.
SECTION 3.13 Repayment to the Company. The Trustee and the Paying Agent shall promptly return to the Company any cash or shares of Common Stock that remain unclaimed as provided in paragraph 15 of the Securities, together with interest or dividends, if any, thereon (subject to the provisions of Section 7.01(f) hereof), held by them for the payment of the Purchase Price or Change in Control Purchase Price, as the case may be, or contingent interest, if any; provided, however, that to the extent that the aggregate amount of cash or shares of Common Stock deposited by the Company pursuant to Section 3.11 hereof exceeds the aggregate Purchase Price or Change in Control Purchase Price, as the case may be, of, and the accrued and unpaid contingent interest with respect to, the Securities or portions thereof which the Company is obligated to purchase as of the Purchase Date or Change in Control Purchase Date, as the case may be, whether as a result of withdrawal or otherwise, then promptly after the
second Business Day following the Purchase Date or Change in Control Purchase Date, as the case may be, the Trustee shall return any such excess to the Company together with interest or dividends, if any, thereon (subject to the provisions of Section 7.01(f) hereof).
ARTICLE 4
COVENANTS
SECTION 4.01 Payment of Securities. The Company shall promptly make all payments in respect of the Securities on the dates and in the manner provided in the Securities or pursuant to this Indenture. Any amounts to be given to the Trustee or Paying Agent, shall be deposited with the Trustee or Paying Agent by 10:00 a.m., New York City time, by the Company. Principal Amount at Maturity, Restated Principal Amount, Issue Price plus accrued Original Issue Discount, Redemption Price, Purchase Price, Change in Control Purchase Price, cash interest and Contingent Cash Interest, if any, shall be considered paid on the applicable date due if on such date (or, in the case of a Purchase Price or Change in Control Purchase Price, on the Business Day following the applicable Purchase Date or Change in Control Purchase Date, as the case may be) the Trustee or the Paying Agent holds, in accordance with this Indenture, money or securities, if permitted hereunder, sufficient to pay all such amounts then due.
The Company shall, to the extent permitted by law, pay cash interest on overdue amounts at the rate per annum set forth in paragraph 1 of the Securities, compounded semiannually, which interest shall accrue from the date such overdue amount was originally due to the date payment of such amount, including interest thereon, has been made or duly provided for. All such interest shall be payable on demand. The accrual of such interest on overdue amounts shall be in lieu of, and not in addition to, the continued accrual of Original Issue Discount.
SECTION 4.02 SEC and Other Reports. If requested by the Trustee, the Company shall deliver to the Trustee, within 30 days after it files such annual and quarterly reports, information, documents and other reports with the SEC, copies of its annual report and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. The Company also shall comply with the provisions of TIA Section 314(a); provided, that no report required thereby to be filed with the SEC need be so filed unless this Indenture is qualified under the TIA. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of the same shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates).
SECTION 4.03 Compliance Certificate. The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company (beginning with the fiscal year ending on December 31, 2002) an Officers' Certificate, stating whether or not to the knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge.
SECTION 4.04 Further Instruments and Acts. Upon request of the Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out the purposes of this Indenture.
SECTION 4.05 Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, The City of New York, an office or agency of the Trustee, Registrar, Paying Agent and Conversion Agent where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer, exchange, purchase, redemption or conversion and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The office of the Trustee, located at The Depository Trust Company, Transfer Agent Drop Service, 55 Water Street, Jeanette Park Entrance, New York, New York 10041, shall initially be such office or agency for all of the aforesaid purposes. The Company shall give prompt written notice to the Trustee of the location, and of any change in the location, of any such office or agency (other than a change in the location of the office of the Trustee). If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 15.02 hereof.
The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes.
SECTION 4.06 Delivery of Certain Information. At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, upon the request of a Holder or any beneficial holder of Securities or shares of Common Stock which are restricted securities issued upon conversion thereof, the Company will promptly furnish or cause to be furnished Rule 144A Information (as defined below) to such Holder or any beneficial holder of Securities or holder of shares of Common Stock issued upon conversion of Securities, or to a prospective purchaser of any such security designated by any such holder, as the case may be, to the extent required to permit compliance by such Holder or holder with Rule 144A under the Securities Act in connection with the resale of any such security. "Rule 144A Information" shall be such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act.
SECTION 4.07 Covenant to Comply With Securities Laws Upon Purchase of
Securities. In connection with any offer to purchase or purchase of Securities
under Section 3.08 or 3.09 hereof (provided that such offer or purchase
constitutes an "issuer tender offer" for purposes of Rule 13e-4 (which term, as
used herein, includes any successor provision thereto) under the Exchange Act at
the time of such offer or purchase), the Company shall to the extent applicable
(a) comply with Rule 13e-4 and Rule 14e-1 under the Exchange Act, (b) file the
related Schedule TO (or any successor schedule, form or report) under the
Exchange Act, and (c) otherwise comply with all Federal and state securities
laws so as to permit the rights and
obligations under Sections 3.08 and 3.09 hereof to be exercised in the time and in the manner specified in Sections 3.08 and 3.09 hereof.
SECTION 4.08 Waiver of Compliance. The Company may omit in any particular instance to comply with any covenant or condition set forth in Sections 4.01 to 4.07, inclusive, if before the time for such compliance the Holders of a majority in aggregate Principal Amount at Maturity of the Securities at the time outstanding shall notify the Company that they elect to either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect.
ARTICLE 5
SUCCESSOR CORPORATION
SECTION 5.01 When Company May Merge or Transfer Assets. The Company shall not consolidate with or merge with or into any other person or convey, transfer or lease all or substantially all of its properties and assets to any person, nor will the Company permit any Subsidiary to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, would result in a sale, assignment, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company and its Subsidiaries on a consolidated basis to any other person or persons, unless:
(a) either (i) the Company or such Subsidiary shall be the surviving corporation or (ii) the person (if other than the Company) formed by such consolidation or into which the Company or such Subsidiary is merged or the person which acquires by conveyance, transfer or lease the properties and assets of the Company or such Subsidiary substantially as an entirety (A) shall be organized and validly existing under the laws of the United States or any state thereof or the District of Columbia and (B) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all of the obligations of the Company or such Subsidiary under the Securities and this Indenture;
(b) immediately after giving effect to such transaction, no Default shall have occurred and be continuing; and
(c) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this Article 5 and that all conditions precedent herein provided for relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise) of the properties and assets of one or more Subsidiaries (other than to the Company or another Subsidiary), which, if such assets were owned by the Company, would constitute all or
substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company.
The successor person formed by such consolidation or into which the Company
or the applicable Subsidiary is merged or the successor person to which such
conveyance, transfer or lease is made shall succeed to, and be substituted for,
and may exercise every right and power of, the Company or the applicable
Subsidiary under this Indenture with the same effect as if such successor had
been named as the Company or the applicable Subsidiary herein; and thereafter,
except in the case of a lease and any obligations the Company or the applicable
Subsidiary may have under a supplemental indenture pursuant to Section 11.14
hereof, the Company or the applicable Subsidiary shall be discharged from all
obligations and covenants under this Indenture and the Securities. Subject to
Section 9.06 hereof, the Company, the applicable Subsidiary, the Trustee and the
successor person shall enter into a supplemental indenture to evidence the
succession and substitution of such successor person and such discharge and
release of the Company and the applicable Subsidiary.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01 Events of Default. An "Event of Default" occurs if:
(a) the Company defaults in payment of any cash interest (including interest which becomes payable after the Securities have been converted to semiannual Coupon Notes following the occurrence of a Tax Event) or any Contingent Cash Interest and such default continues for 30 days;
(b) the Company defaults in the payment of the Principal Amount at Maturity (or, if the Securities have been converted to semiannual coupon notes following a Tax Event pursuant to Section 10.01 of this Indenture, the Restated Principal Amount), Issue Price plus accrued Original Issue Discount and any cash interest, including any Contingent Cash Interest, Redemption Price, Purchase Price or Change in Control Purchase Price on any Security when the same becomes due and payable at its Stated Maturity, upon redemption, upon declaration, when due for purchase by the Company or otherwise;
(c) the Company fails to comply with any of its agreements in the
Security or this Indenture (other than those referred to in clauses (a) and
(b) above) and such failure continues for 60 days after receipt by the
Company of a Notice of Default;
(d) default under any Debt, whether such Debt now exists or is created later, which default results in the acceleration of such Debt and the principal amount of all Debt so accelerated, together with all Debt due and payable but not paid prior to the end of any grace period, is $10,000,000 or more, and such acceleration has not been rescinded or annulled within a period of 10 days after receipt by the Company of a Notice of Default from the Trustee; provided, however, that if any such default shall be cured, waived, rescinded or annulled, then the Event of Default by reason thereof shall be deemed not to have occurred;
(e) the Company pursuant to or under or within the meaning of any Bankruptcy Law:
(i) commences a voluntary case or proceeding;
(ii) consents to the entry of an order for relief against it in an involuntary case or proceeding or the commencement of any case against it;
(iii) consents to the appointment of a Custodian of it or for any substantial part of its property;
(iv) makes a general assignment for the benefit of its creditors;
(v) files a petition in bankruptcy or answer or consent seeking reorganization or relief; or
(vi) consents to the filing of such petition or the appointment of or taking possession by a Custodian; or
(f) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(i) is for relief against the Company in an involuntary case or proceeding, or adjudicates the Company insolvent or bankrupt;
(ii) appoints a Custodian of the Company or for any substantial part of its property; or
(iii) orders the winding up or liquidation of the Company;
and such order or decree remains unstayed and in effect for 60 days.
A Default under clause (c) or clause (d) above is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in aggregate Principal Amount at Maturity of the Securities at the time outstanding notify the Company and the Trustee, of the Default and the Company does not cure such Default (and such Default is not waived) within the time specified in clause (c) or clause (d) above after actual receipt of such notice. Any such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after it becomes aware of the occurrence thereof, written notice of any event which with the giving of notice or the lapse of time, or both, would become an Event of Default under clause (3) or clause (4) above, its status and what action the Company is taking or proposes to take with respect thereto.
SECTION 6.02 Acceleration. If an Event of Default (other than an Event of Default specified in Section 6.01(e) or (f) in respect of the Company) occurs and is continuing, the Trustee by written Notice to the Company, or the Holders of at least 25% in
aggregate Principal Amount at Maturity of the Securities at the time outstanding by notice to the Company and the Trustee, may declare the Issue Price plus accrued Original Issue Discount and any accrued and unpaid cash interest or any Contingent Cash Interest (or if the Securities have been converted to semiannual coupon notes following a Tax Event, the Restated Principal Amount, plus accrued interest), through the date of declaration on all the Securities to be immediately due and payable. Upon such a declaration, such Issue Price plus accrued Original Issue Discount, and such accrued and unpaid cash interest, if any, or any Contingent Cash Interest shall be due and payable immediately. If an Event of Default specified in Section 6.01(e) or (f) occurs in respect of the Company and is continuing, the Issue Price plus accrued Original Issue Discount and any accrued and unpaid cash interest or any Contingent Cash Interest (or, if the Securities have been converted to semiannual coupon notes following a Tax Event, the Restated Principal Amount, plus accrued interest), on all the Securities shall become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholders. The Holders of a majority in aggregate Principal Amount at Maturity of the Securities at the time outstanding, by notice to the Trustee (and without notice to any other Securityholder) may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of the Issue Price plus accrued Original Issue Discount and any accrued and unpaid cash interest or any Contingent Cash Interest (or, if the Securities have been converted to semiannual coupon notes following a Tax Event, the Restated Principal Amount, plus accrued interest), that have become due solely as a result of acceleration and if all amounts due to the Trustee under Section 7.07 hereof have been paid. No such rescission shall affect any subsequent Default or impair any right consequent thereto.
SECTION 6.03 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of the Issue Price plus accrued Original Issue Discount and any accrued and unpaid cash interest or any Contingent Cash Interest, (or, if the Securities have been converted to semiannual coupon notes following a Tax Event, the Restated Principal Amount, plus accrued interest), on the Securities or to enforce the performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if the Trustee does not possess any of the Securities or does not produce any of the Securities in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of, or acquiescence in, the Event of Default. Except as set forth in Section 2.07 hereof, no remedy is exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04 Waiver of Past Defaults. Subject to Section 6.02, the Holders of a majority in aggregate Principal Amount at Maturity of the Securities at the time outstanding, by notice to the Trustee (and without notice to any other Securityholder), may waive an existing Default and its consequences except (a) an Event of Default described in Section 6.01(a) or (b), (b) a Default in respect of a provision that under Section 9.02 cannot be amended without the consent of each Securityholder affected or (c) a Default which constitutes a failure to convert any Security in accordance with the terms of Article 11. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any
consequent right. This Section 6.04 shall be in lieu of Section 316(a)1(B) of the TIA and such Section 316(a)1(B) is hereby expressly excluded from this Indenture, as permitted by the TIA.
SECTION 6.05 Control by Majority. The Holders of a majority in aggregate Principal Amount at Maturity of the Securities at the time outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines in good faith is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability unless the Trustee is offered indemnity satisfactory to it. This Section 6.05 shall be in lieu of Section 316(a)1(A) of the TIA and such Section 316(a)1(A) is hereby expressly excluded from this Indenture, as permitted by the TIA.
SECTION 6.06 Limitation on Suits. A Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless:
(a) the Holder gives to the Trustee written notice stating that an Event of Default is continuing;
(b) the Holders of at least 25% in aggregate Principal Amount at Maturity of the Securities at the time outstanding make a written request to the Trustee to pursue the remedy;
(c) such Holder or Holders offer to the Trustee security or indemnity satisfactory to the Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after receipt of such notice, request and offer of security or indemnity; and
(e) the Holders of a majority in aggregate Principal Amount at Maturity of the Securities at the time outstanding do not give the Trustee a direction inconsistent with the request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights of any other Securityholder or to obtain a preference or priority over any other Securityholder.
SECTION 6.07 Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of the Principal Amount at Maturity (or if the Securities have been converted to semiannual coupon notes following a Tax Event pursuant to Article 10 hereof, the Restated Principal Amount, plus accrued and unpaid cash interest), Issue Price plus accrued Original Issue Discount, Redemption Price, Purchase Price, Change in Control Purchase Price, or cash interest, including Contingent Cash Interest, if any, in respect of the Securities held by such Holder, on or after the respective due dates expressed in the Securities or any Redemption Date, and to convert the Securities in accordance with Article 11 hereof, or to bring suit for the enforcement of any such payment on or after such respective dates or the right to convert, shall not be impaired or affected adversely without the consent of such Holder.
SECTION 6.08 Collection Suit by Trustee. If an Event of Default described in Section 6.01(a) or (b) hereof occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount owing with respect to the Securities and the amounts provided for in Section 7.07 hereof.
SECTION 6.09 Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the Principal Amount at Maturity, Restated Principal Amount, Issue Price plus accrued Original Issue Discount, cash interest, including Contingent Cash Interest, Redemption Price, Purchase Price, Change in Control Purchase Price shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of any such amount) shall be entitled and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of the Principal Amount at Maturity, Restated Principal Amount, Issue Price plus accrued Original Issue Discount, cash interest, including Contingent Cash Interest, if any, Redemption Price, Purchase Price or Change in Control Purchase Price (or, if the Securities have been converted to semiannual coupon notes following a Tax Event, the Restated Principal Amount, plus accrued interest), as the case may be, and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel or any other amounts due the Trustee under Section 7.07 hereof) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.10 Priorities. If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order:
FIRST: to the Trustee for amounts due under Section 7.07 hereof;
SECOND: to Securityholders for amounts due and unpaid on the Securities for the Principal Amount at Maturity, Restated Principal Amount, Issue Price plus
accrued Original Issue Discount, cash interest, including Contingent Cash Interest, if any, Redemption Price, Purchase Price or Change in Control Purchase Price (or, if the Securities have been converted to semiannual coupon notes following a Tax Event, the Restated Principal Amount, plus accrued and unpaid cash interest), as the case may be, ratably, without preference or priority of any kind, according to such amounts due and payable on the Securities; and
THIRD: the balance, if any, to the Company.
The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. At least 15 days before such record date, the Trustee shall mail to each Securityholder and the Company a notice that states the record date, the payment date and the amount to be paid.
SECTION 6.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant (other than the Trustee) in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in aggregate Principal Amount at Maturity of the Securities at the time outstanding. This Section 6.11 shall be in lieu of Section 315(e) of the TIA and such Section 315(e) is hereby expressly excluded from this Indenture, as permitted by the TIA.
SECTION 6.12 Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury or other law wherever enacted, now or at any time hereafter in force, which would prohibit or forgive the Company from paying all or any portion of the Principal Amount at Maturity, Restated Principal Amount, Issue Price plus accrued Original Issue Discount, cash interest, including Contingent Cash Interest, if any, Redemption Price, Purchase Price or Change in Control Purchase Price (or, if the Securities have been converted to semiannual coupon notes following a Tax Event, the Restated Principal Amount, plus accrued and unpaid interest), as contemplated herein, or which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
ARTICLE 7
TRUSTEE
SECTION 7.01 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee need perform only those duties that are specifically set forth in this Indenture and no others; and
(ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture, but in case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture, but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein.
This Section 7.01(b) shall be in lieu of Section 315(a) of the TIA and such
Section 315(a) is hereby expressly excluded from this Indenture, as permitted by
the TIA.
(c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that:
(i) this paragraph (c) does not limit the effect of paragraph (b) of this Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof.
Subparagraphs (c)(i), (ii) and (iii) of this Section 7.01 shall be in lieu of
Sections 315(d)(1), 315(d)(2) and 315(d)(3) of the TIA and such Sections
315(d)(1), 315(d)(2) and 315(d)(3) are hereby expressly excluded from this
Indenture, as permitted by the TIA.
(d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (e) of this Section 7.01.
(e) The Trustee may refuse to perform any duty or exercise any right or power or extend or risk its own funds or otherwise incur any financial liability unless it receives indemnity satisfactory to it against any loss, liability or expense.
(f) Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee (acting in any capacity hereunder) shall be under no liability for interest on any money received by it hereunder unless otherwise agreed in writing with the Company.
SECTION 7.02 Rights of Trustee. Subject to its duties and responsibilities under the provisions of Section 7.01 hereof, and, except as expressly excluded from this Indenture pursuant to said Section 7.01 hereof, subject also to its duties and responsibilities under the TIA:
(a) the Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
(b) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, conclusively rely upon an Officers' Certificate;
(c) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;
(d) the Trustee shall not be liable for any action taken, suffered or omitted to be taken by it in good faith which it believes to be authorized or within its rights or powers conferred under this Indenture;
(e) the Trustee may consult with counsel selected by it and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel;
(f) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders, pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which may be incurred therein or thereby;
(g) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a resolution of the Board of Directors;
(h) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation;
(i) the Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by a Responsible Officer of the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture;
(j) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder;
(k) the Trustee may request that the Company deliver an Officers' Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers' Certificate may be signed by any person authorized to sign an Officers' Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded; and
(l) the permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as duties.
SECTION 7.03 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar, Conversion Agent or co-registrar may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11 hereof.
SECTION 7.04 Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use or application of the proceeds from the Securities, it shall not be responsible for any statement in the registration statement for the Securities under the Securities Act or in the Indenture or the Securities (other than its certificate of authentication), or the determination as to which beneficial owners are entitled to receive any notices hereunder.
SECTION 7.05 Notice of Defaults. If a Default occurs and if it is known to a Responsible Officer of the Trustee, the Trustee shall give to each Securityholder notice of the Default within 90 days after such Responsible Officer obtains knowledge of such Default unless such Default shall have been cured or waived before the giving of such notice. Except in the
case of a Default described in Section 6.01(a) or (b) hereof, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of Securityholders. The second sentence of this Section 7.05 shall be in lieu of the proviso to Section 315(b) of the TIA and such proviso is hereby expressly excluded from this Indenture, as permitted by the TIA. The Trustee shall not be deemed to have knowledge of a Default unless a Responsible Officer of the Trustee has received written notice of such Default.
SECTION 7.06 Reports by Trustee to Holders. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, the Trustee shall mail to each Securityholder a brief report dated as of such May 15 that complies with TIA Section 313(a), if required by such Section 313(a). The Trustee also shall comply with TIA Section 313(b).
A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC (but only if this Indenture is then qualified under the TIA) and with each securities exchange, if any, on which the Securities are listed. The Company agrees to promptly notify the Trustee whenever the Securities become listed on any securities exchange and of any delisting thereof.
SECTION 7.07 Compensation and Indemnity. The Company agrees:
(a) to pay to the Trustee from time to time such reasonable compensation as the Company and the Trustee shall from time to time agree in writing for all services rendered by it hereunder (which compensation shall not be limited (to the extent permitted by law) by any provision of law in regard to the compensation of a trustee of an express trust);
(b) to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses, advances and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and
(c) to indemnify the Trustee and its agents for, and to hold them harmless against, any loss, liability or expense (including reasonable attorney's fees and expenses and taxes (other than taxes based upon, measured by or determined by the income of the Trustee)) incurred without negligence or bad faith on their part, arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs and expenses of defending itself against any claim (whether asserted by the Company or any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder.
To secure the Company's payment obligations in this Section 7.07, the Holders shall have been deemed to have granted to the Trustee a lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay the Principal Amount at Maturity, Issue Price plus accrued Original Issue Discount, Redemption Price, Purchase Price,
Change in Control Purchase Price, cash interest or Contingent Cash Interest, if any, as the case may be, on particular Securities.
The Company's payment obligations pursuant to this Section 7.07 shall survive the discharge of this Indenture and the resignation or removal of the Trustee. When the Trustee incurs expenses after the occurrence of a Default specified in Section 6.01(e) or (f) hereof, the expenses including the reasonable charges and expenses of its counsel, are intended to constitute expenses of administration under any Bankruptcy Law.
SECTION 7.08 Replacement of Trustee. The Trustee may resign by so notifying
the Company; provided, however, that no such resignation shall be effective
until a successor Trustee has accepted its appointment pursuant to this Section
7.08. The Holders of a majority in aggregate Principal Amount at Maturity of the
Securities at the time outstanding may remove the Trustee by so notifying the
Trustee and the Company. The Company shall remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged bankrupt or insolvent;
(c) a receiver or public officer takes charge of the Trustee or its property; or
(d) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint, by resolution of its Board of Directors, a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company satisfactory in form and substance to the retiring Trustee and the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07 hereof.
If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of a majority in aggregate Principal Amount at Maturity of the Securities at the time outstanding may petition any court of competent jurisdiction at the expense of the Company for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10 hereof, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
SECTION 7.09 Successor Trustee by Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or
assets to, another corporation, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee.
SECTION 7.10 Eligibility; Disqualification. The Trustee shall at all times
satisfy the requirements of TIA Sections 310(a)(1) and 310(b). The Trustee (or
its parent holding company) shall have a combined capital and surplus of at
least $50,000,000 as set forth in its most recent published annual report of
condition. Nothing herein contained shall prevent the Trustee from filing with
the Commission the application referred to in the penultimate paragraph of TIA
Section 310(b).
SECTION 7.11 Preferential Collection of Claims Against Company. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01 Discharge of Liability on Securities. When (a) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to Section 2.07 hereof) for cancellation or (b) all outstanding Securities have become due and payable and the Company irrevocably deposits with the Trustee, the Paying Agent (if the Paying Agent is not the Company or any of its Affiliates) or the Conversion Agent cash or, if expressly permitted by the terms of the Securities or the Indenture, Common Stock sufficient to pay all amounts due and owing on all outstanding Securities (other than Securities replaced pursuant to Section 2.07 hereof), and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to Section 7.07 hereof, cease to be of further effect. The Trustee shall join in the execution of a document prepared by the Company acknowledging satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers' Certificate and Opinion of Counsel and at the cost and expense of the Company.
SECTION 8.02 Repayment to the Company. The Trustee and the Paying Agent shall return to the Company upon written request any money or securities held by them for the payment of any amount with respect to the Securities that remains unclaimed for two years, subject to applicable unclaimed property law. After return to the Company, Holders entitled to the money or securities must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person and the Trustee and the Paying Agent shall have no further liability to the Securityholders with respect to such money or securities for that period commencing after the return thereof.
ARTICLE 9
AMENDMENTS
SECTION 9.01 Without Consent of Holders. The Company and the Trustee may amend this Indenture or the Securities without the consent of any Securityholder:
(a) to cure any ambiguity, omission, defect or inconsistency;
(b) to comply with Article 5 or Section 11.14 hereof;
(c) to secure the Company's obligations under the Securities and this Indenture;
(d) to add to the Company's covenants for the benefit of the Securityholders or to surrender any right or power conferred upon the Company;
(e) to make any change to comply with the TIA, or any amendment thereto, or to comply with any requirement of the SEC in connection with the qualification of the Indenture under the TIA, or as necessary in connection with the registration of the Securities under the Securities Act; or
(f) to make any change that does not adversely affect the rights of any Holders (it being understood that any amendment described in clause (a) of this Section 9.01 made solely to conform this Indenture to the final offering memorandum provided to investors in connection with the initial offering of the Securities will be deemed not to adversely affect the rights or interests of Holders).
SECTION 9.02 With Consent of Holders. With the written consent of the Holders of at least a majority in aggregate Principal Amount at Maturity of the Securities at the time outstanding, the Company and the Trustee may amend this Indenture or the Securities. However, without the consent of each Securityholder affected, an amendment to this Indenture or the Securities may not:
(a) reduce the percentage in Principal Amount at Maturity of Securities whose Holders must consent to an amendment;
(b) make any change in the manner or rate of accrual of Original Issue
Discount or cash interest, including Contingent Cash Interest, reduce the
rate of cash interest, including Contingent Cash Interest, referred to in
paragraph 1 of the Securities, reduce the rate of interest referred to in
Section 10.01 upon the occurrence of a Tax Event or extend the time for
payment of Original Issue Discount or cash interest, including Contingent
Cash Interest, if any, on any Security;
(c) reduce the Principal Amount at Maturity, Restated Principal Amount, Issue Price, accrued Original Issue Discount or cash interest, with respect to any Security, or extend the Stated Maturity of any Security;
(d) reduce the Redemption Price, Purchase Price or Change in Control Purchase Price of any Security;
(e) make any Security payable in money or securities other than that stated in the Security;
(f) make any change in Article 10 hereof, or this Section 9.02, except to increase any percentage set forth therein;
(g) make any change that adversely affects the right to convert any Security;
(h) make any change that adversely affects the right to require the Company to purchase the Securities in accordance with the terms thereof and this Indenture;
(i) change the provisions of this Indenture that relate to modifying or annexing this Indenture; or
(j) impair the right to institute suit for the enforcement of any payment with respect to, or conversion of, the Securities.
It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof.
After an amendment under this Section 9.02 becomes effective, the Company shall mail to each Holder a notice briefly describing the amendment.
SECTION 9.03 Compliance with TIA. Every supplemental indenture executed pursuant to this Article 9 shall comply with the TIA.
SECTION 9.04 Revocation and Effect of Consents, Waivers and Actions. Until an amendment, consent, waiver or other action by Holders becomes effective, a consent thereto by a Holder of a Security hereunder is a continuing consent by the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same obligation as the consenting Holder's Security, even if notation of the amendment, consent, waiver or other action is not made on the Security. However, any such Holder or subsequent Holder may revoke the consent as to such Holder's Security or portion of the Security if the Trustee receives the notice of revocation before the date as of which the amendment, consent, waiver or action is made effective. After an amendment, consent, waiver or action becomes effective, it shall bind every Securityholder.
SECTION 9.05 Notation on or Exchange of Securities. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article 9 may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for outstanding Securities.
SECTION 9.06 Trustee to Sign Supplemental Indentures. The Trustee shall sign any supplemental indenture authorized pursuant to this Article 9 if the amendment contained therein does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign such supplemental indenture. In signing such supplemental indenture the Trustee shall receive, and (subject to the provisions of Section 7.01 hereof) shall be fully protected in relying upon, in addition to the documents required by Section 15.04 hereof, an Officers' Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture.
SECTION 9.07 Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.
ARTICLE 10
SPECIAL TAX EVENT CONVERSION
SECTION 10.01 Optional Conversion to Semiannual Coupon Note upon Tax Event.
From and after (a) the date of the occurrence of a Tax Event (the "Tax Event
Date") and (b) the date the Company exercises the option provided for in this
Section 10.01, whichever is later (the "Option Exercise Date"), at the option of
the Company, interest in lieu of future Original Issue Discount or cash interest
shall accrue at the rate of 4.25% per annum, calculated on a semiannual bond
equivalent basis, on a Restated Principal Amount, per $1,000 original Principal
Amount at Maturity (the "Restated Principal Amount") equal to the Issue Price
plus Original Issue Discount accrued through the Option Exercise Date and shall
be payable semiannually on March 24 and September 24 of each year (each an
"Interest Payment Date") to Holders of record at the close of business on each
March 9 or September 9, respectively, (each a "Regular Record Date") immediately
preceding such Interest Payment Date. Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months and will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the Option Exercise Date. Within 15 days of the occurrence of a Tax Event,
the Company shall deliver a written notice of such Tax Event by facsimile and
first-class mail to the Trustee and within 15 days of its exercise of such
option the Company shall deliver a written notice of the Option Exercise Date by
facsimile and first-class mail to the Trustee and by first class mail to the
Holders of the Securities. From and after the Option Exercise Date, (a) the
Company shall be obligated to pay at Stated Maturity, in lieu of the Principal
Amount at Maturity of a Security, the Restated Principal Amount thereof plus
accrued and unpaid interest on such Security, (b) "Issue Price and accrued
Original Issue Discount," "Issue Price plus Original Issue Discount" or similar
words, as used herein, shall mean Restated Principal Amount plus accrued and
unpaid interest with respect to any Security and (c) Contingent Cash Interest
will cease to accrue on the Securities. Securities authenticated and delivered
after the Option Exercise Date may, and shall if required by the Trustee, bear a
notation in a form approved by the Trustee as to the conversion of the
Securities to semiannual coupon notes. No other changes to this Indenture shall
result as a result of the events described in this Section 10.01.
ARTICLE 11
CONVERSION
SECTION 11.01 Conversion Privilege. A Holder of a Security may convert such Security into shares of Common Stock at any time prior to the close of business on September 23, 2032, subject to the provisions of this Article 11 and paragraph 9 of the Securities. Upon determination that Holders are or will be entitled to convert their Securities into Common Stock in accordance with paragraph 9 of the Securities, the Company will issue a press release and publish such determination on the Company's website or through such other public medium as the Company may use at that time. The number of shares of Common Stock
issuable upon conversion of a Security per $1,000 of Principal Amount at Maturity thereof (the "Conversion Rate") shall be determined in accordance with the provisions of paragraph 9 of the Securities.
A Holder may convert a portion of the Principal Amount at Maturity of a Security if the portion is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to conversion of all of a Security also apply to conversion of a portion of a Security.
The Holders' rights to convert Securities into shares of Common Stock is subject to the Company's right to elect instead to pay each such Holder the amount of cash set forth in the next succeeding sentence, in lieu of delivering such shares of Common Stock, subject to the last sentence of this paragraph. The amount of cash to be paid pursuant to Section 11.02 hereof for each $1,000 Principal Amount at Maturity of a Security upon conversion shall be equal to the average Sale Price of the Common Stock for the five consecutive Trading Days immediately following (i) the date of the Company's notice of its election to deliver cash upon conversion, if the Company shall not have given a notice of redemption pursuant to Section 3.03, or (ii) the Conversion Date, in the case of a conversion following such a notice of redemption specifying an intent to deliver cash upon conversion, in either case multiplied by the Conversion Rate in effect on such Conversion Date. The Company shall not pay cash in lieu of delivering shares of Common Stock upon the conversion of any Security pursuant to the terms of this Article 11 (other than cash in lieu of fractional shares pursuant to Section 11.03 hereof) if there has occurred (prior to, on or after, as the case may be, the Conversion Date or the date on which the Company delivers its notice of whether such Security shall be converted into Common Stock or cash pursuant to Section 3.02 hereof) and is continuing an Event of Default (other than a default in a cash payment upon conversion of such Security).
SECTION 11.02 Conversion Procedure. To convert a Security, a Holder must satisfy the requirements in paragraph 9 in the Securities. The date on which the Holder satisfies all those requirements is the conversion date (the "Conversion Date"). The Conversion Agent shall notify the Company of the Conversion Date within one Business Day following the Conversion Date. Within two Business Days following the Conversion Date, the Company shall deliver to the Holder, through the Trustee, written notice of whether such Security shall be converted into shares of Common Stock or paid in cash, unless the Company shall have previously delivered a notice of redemption pursuant to Section 3.03 hereof. If the Company shall have notified the Holder that all of such Security shall be converted into shares of Common Stock, the Company shall deliver to the Holder through the Conversion Agent, as promptly as practicable but in any event no later than the fifth Business Day following the Conversion Date a certificate for the number of full shares of Common Stock deliverable upon the conversion and cash in lieu of any fractional share determined pursuant to Section 11.03 hereof. Except as provided in the last sentence in the third paragraph of Section 11.01 hereof, if the Company shall have notified the Holder that all or a portion of such Security shall be paid in cash, the Company shall deliver to the Holder surrendering such Security the amount of cash payable with respect to such Security no later than the tenth Business Day following such Conversion Date, together with a certificate for the number of full shares of Common Stock deliverable upon the conversion and cash in lieu of any fractional share determined pursuant to Section 11.03 hereof. Except as provided in the last sentence in the third paragraph of Section 11.01 hereof, the Company may not change its election with respect to the consideration to be delivered upon
conversion of a Security once the Company has notified the Holder in accordance with this paragraph. If shares of Common Stock are delivered as consideration, then the person in whose name the certificate representing such shares is registered shall be treated as a stockholder of record on and after the Conversion Date; provided, however, that no surrender of a Security on any date when the stock transfer books of the Company shall be closed shall be effective to constitute the person or persons entitled to receive the shares of Common Stock upon such conversion as the record holder or holders of such shares of Common Stock on such date, but such surrender shall be effective to constitute the person or persons entitled to receive such shares of Common Stock as the record holder or holders thereof for all purposes at the close of business on the next succeeding day on which such stock transfer books are open; such conversion shall be at the Conversion Rate in effect on the date that such Security shall have been surrendered for conversion, as if the stock transfer books of the Company had not been closed. Upon conversion of a Security, such person shall no longer be a Holder of such Security.
No payment or adjustment will be made for dividends on, or other distributions with respect to, any Common Stock except as provided in this Article 11. On conversion of a Security, that portion of accrued Original Issue Discount and cash interest, including Contingent Cash Interest, if any, attributable to the period from the Issue Date of the Security through but not including the Conversion Date, with respect to the converted Security shall not be cancelled, extinguished or forfeited, but rather shall be deemed to be paid in full to the Holder thereof through delivery of the Common Stock (together with the cash payment, if any, in lieu of fractional shares) in exchange for the Security being converted pursuant to the provisions hereof (except to the extent that semiannual and contingent interest are paid in cash as provided in paragraph 9 of the Securities); and such cash, if any, and/or the fair market value of such shares of Common Stock (together with any such cash payment in lieu of fractional shares) shall be treated as delivered, to the extent thereof, first in exchange for accrued Original Issue Discount and cash interest, including Contingent Cash Interest, if any, accrued through the Conversion Date, and the balance, if any, of such fair market value of such Common Stock (and any such cash payment in lieu of fractional shares) shall be treated as issued in exchange for the Issue Price of the Security being converted pursuant to the provisions hereof. Notwithstanding the foregoing, accrued cash interest will be payable upon conversion of Securities made concurrently with or after acceleration of Securities following an Event of Default.
If the Holder converts more than one Security at the same time, the number of shares of Common Stock issuable upon the conversion shall be based on the total Principal Amount at Maturity of the Securities converted.
If the last day on which a Security may be converted is a Legal Holiday, the Security may be surrendered on the next succeeding day that is not a Legal Holiday.
A Security surrendered for conversion based on (a) the Common Stock price may be surrendered for conversion at any time during the applicable calendar quarter, (b) the Security being called for redemption may be surrendered for conversion at any time prior to the close of business on the second Business Day immediately preceding the Redemption Date, even if it is not otherwise convertible at such time, (c) a credit downgrade may be surrendered for conversion until the close of business on any Business Day during the period of the continuance of the credit downgrade as more fully described in paragraph 9 of the Security, and (d) upon the occurrence
of certain corporate transactions more fully described in paragraph 9 of the Security may be surrendered for conversion at any time from and after the date which is 15 days prior to the anticipated effective date of such transaction until 15 days after the actual date of such transaction, and if such day is not a Business Day, the next occurring Business Day following such day; but in each of (a), (b), (c) and (d) above, in no event later than the close of business on September 23, 2032.
Upon surrender of a Security that is converted in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder, a new Security in an authorized denomination equal in Principal Amount at Maturity to the unconverted portion of the Security surrendered.
SECTION 11.03 Fractional Shares. The Company will not issue a fractional share of Common Stock upon conversion of a Security. Instead, the Company will deliver cash for the current market value of the fractional share. The current market value of a fractional share shall be determined, to the nearest 1/1,000th of a share, by multiplying the per share Sale Price of the Common Stock, on the last Trading Day prior to the Conversion Date, by the fractional amount and rounding the product to the nearest whole cent.
SECTION 11.04 Taxes on Conversion. If a Holder converts a Security, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon the conversion. However, the Holder shall pay any such tax which is due because the Holder requests the shares to be issued in a name other than the Holder's name and any income tax which is imposed on the Holder as a result of the conversion. The Conversion Agent may refuse to deliver the certificates representing the Common Stock being issued in a name other than the Holder's name until the Conversion Agent receives a sum sufficient to pay any tax which will be due because the shares are to be issued in a name other than the Holder's name. Nothing herein shall preclude the Company from any tax withholding or directing the withholding of any tax required by law or regulations.
SECTION 11.05 Company to Provide Stock. The Company shall, prior to issuance of any Securities under this Article 11, and from time to time as may be necessary, reserve out of its authorized but unissued Common Stock a sufficient number of shares of Common Stock to permit the conversion of the Securities.
All shares of Common Stock delivered upon conversion of the Securities shall be newly issued shares or treasury shares, shall be duly and validly issued and fully paid and nonassessable and shall be free from preemptive rights and free of any lien or adverse claim created by the Company.
The Company will endeavor promptly to comply with all federal and state securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Securities, if any, and will list or cause to have quoted such shares of Common Stock on each national securities exchange or in the over-the-counter market or such other market on which the Common Stock is then listed or quoted.
SECTION 11.06 Adjustment for Change in Capital Stock. Except as set forth in Section 11.14 hereof, if, after the Issue Date of the Securities, the Company:
(a) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock or other Capital Stock;
(b) subdivides its outstanding shares of Common Stock into a greater number of shares;
(c) combines its outstanding shares of Common Stock into a smaller number of shares; or
(d) issues by reclassification of its Common Stock any shares of its Capital Stock (other than rights, warrants or options for its Capital Stock);
then the conversion privilege and the Conversion Rate in effect immediately prior to such action shall be adjusted so that the Holder of a Security thereafter converted may receive the number of shares or other units of Capital Stock of the Company which such Holder would have owned immediately following such action if such Holder had converted the Security immediately prior to such action.
The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification.
If after an adjustment a Holder of a Security upon conversion of such Security may receive shares of two or more classes of Capital Stock of the Company, the Conversion Rate shall thereafter be subject to adjustment upon the occurrence of an action taken with respect to any such class of Capital Stock as is contemplated by this Article 11 with respect to the Common Stock, on terms comparable to those applicable to Common Stock in this Article 11.
SECTION 11.07 Adjustment for Rights Issue. Except as set forth in Sections 11.14 and 11.19 hereof, if after the Issue Date, the Company distributes any rights, warrants or options to all holders of its Common Stock entitling them, for a period expiring within 60 days of the Issue Date for each distribution to purchase shares of Common Stock at a price per share less than the Sale Price of the Common Stock as of the Time of Determination, the Conversion Rate shall be adjusted in accordance with the formula:
where:
R' = the adjusted Conversion Rate.
R = the current Conversion Rate.
O = the number of shares of Common Stock outstanding on the record date for the distribution to which this Section 11.07 is being applied.
N = the number of additional shares of Common Stock offered pursuant to the distribution.
P = the offering price per share of the additional shares.
M = the Average Sale Price, minus, in the event that there occurs (i) a
distribution to which Section 11.06(d) applies or (ii) a distribution to which
Section 11.08 applies, for which, in each case, (x) the record date shall occur
on or before the record date for the distribution to which this Section 11.07
applies and (y) the Ex-Dividend Time shall occur on or after the date of the
Time of Determination for the distribution to which this Section 11.07 applies,
the fair market value (on the record date for the distribution to which this
Section 11.07 applies) of the
(1) Capital Stock of the Company distributed in respect of each share of Common Stock in such Section 11.06(d) distribution or
(2) assets of the Company or debt securities or any rights, warrants or options to purchase securities of the Company distributed in respect of each share of Common Stock in such Section 11.08 distribution,
as the case may be.
The Board of Directors shall determine fair market values for the purposes of this Section 11.07.
The adjustment shall become effective immediately after the record date for the determination of shareholders entitled to receive the rights, warrants or options to which this Section 11.07 applies. If all of the shares of Common Stock subject to such rights, warrants or options have not been issued when such rights, warrants or options expire, then the Conversion Rate shall promptly be readjusted to the Conversion Rate which would then be in effect had the adjustment upon the issuance of such rights, warrants or options been made on the basis of the actual number of shares of Common Stock issued upon the exercise of such rights, warrants or options.
No adjustment shall be made under this Section 11.07 if the application of the formula stated above in this Section 11.07 would result in a value of R' that is equal to or less than the value of R.
SECTION 11.08 Adjustment for Other Distributions. (a) If, after the Issue Date of the Securities, the Company distributes to all holders of its Common Stock any of its assets, excluding distributions of Capital Stock or equity interests referred to in Section 11.08(b), or debt securities or any rights, warrants or options to purchase securities of the Company (including securities or cash, but excluding (x) distributions of Capital Stock referred to in Section 11.06 and distributions of rights, warrants or options referred to in Section 11.07 and (y) cash dividends or other cash distributions that are paid out of consolidated current net earnings or earnings retained in the business as shown on the books of the Company unless such cash
dividends or other cash distributions are Extraordinary Cash Dividends) the Conversion Rate shall be adjusted, subject to the provisions of Section 11.08(c), in accordance with the formula:
where:
R' = the adjusted Conversion Rate.
R = the current Conversion Rate.
M = the Average Sale Price , minus, in the event that there occurs a
distribution to which Section 11.06(d) applies, for which (i) the record date
shall occur on or before the record date for the distribution to which this
Section 11.08(a) applies and (ii) the Ex-Dividend Time shall occur on or after
the date of the Time of Determination for the distribution to which this Section
11.08(a) applies, the fair market value (on the record date for the distribution
to which this Section 11.08(a) applies) of any Capital Stock of the Company
distributed in respect of each share of Common Stock in such Section 11.06(d)
distribution.
F = the fair market value (on the record date for the distribution to which this Section 11.08(a) applies) of the assets, securities, rights, warrants or options to be distributed in respect of each share of Common Stock in the distribution to which this Section 11.08(a) is being applied (including, in the case of cash dividends or other cash distributions giving rise to an adjustment, all such cash distributed concurrently).
The Board of Directors shall determine fair market values for the purposes of this Section 11.08(a).
The adjustment shall become effective immediately after the record date for the determination of shareholders entitled to receive the distribution to which this Section 11.08(a) applies.
For purposes of this Section 11.08, the term "Extraordinary Cash Dividend" shall mean any cash dividend with respect to the Common Stock the amount of which, together with the aggregate amount of cash dividends on the Common Stock to be aggregated with such cash dividend in accordance with the provisions of this paragraph, equals or exceeds the threshold percentage set forth in item (i) below. For purposes of item (i) below, the "Measurement Period" with respect to a cash dividend on the Common Stock shall mean the 365 consecutive day period ending on the date prior to the Ex-Dividend Time with respect to such cash dividend, and the "Relevant Cash Dividends" with respect to a cash dividend on the Common Stock shall mean the cash dividends on the Common Stock with Ex-Dividend Times occurring in the Measurement Period.
(i) If, upon the date prior to the Ex-Dividend Time with respect to a cash dividend on the Common Stock, the aggregate amount of such cash dividend together
with the amounts of all Relevant Cash Dividends equals or exceeds on a per
share basis the sum of (a) 5% of the Sale Price of the Common Stock on the
last Trading Day preceding the date of declaration by the Board of
Directors of the cash dividend or distribution with respect to which this
provision is being applied, and (b) the quotient of the amount of any
Contingent Cash Interest paid on a Security during the Ex-Dividend
Measurement Period and divided by the number of shares of Common Stock
issuable upon conversion of a Security pursuant to Article 11 at the
Conversion Rate in effect on the payment date or such relevant Contingent
Cash Interest Payment Date, then such cash dividend together with all
Relevant Cash Dividends shall be deemed to be an Extraordinary Cash
Dividend, and for purposes of applying the formula set forth in this
Section 11.08(a), the value of "F" shall be equal to (y) the aggregate of
the amount of such cash dividend together with the amount of all Relevant
Cash Dividends, minus (z) the aggregate amount of all Relevant Cash
Dividends for which a prior adjustment in the Conversion Rate was
previously made under this Section 11.08.
(ii) In making the determination required by item (i) above, the amount of cash dividends paid on a per share basis and the amount of any Relevant Cash Dividends specified in item (i) above, shall be appropriately adjusted to reflect the occurrence during such period of any event described in Section 11.06 hereof.
(b) If, after the Issue Date of the Securities, the Company pays a dividend or makes a distribution to all holders of its Common Stock consisting of Capital Stock of any class or series, or similar equity interests, of or relating to a Subsidiary or other business unit of the Company, the Conversion Rate shall be adjusted in accordance with the formula:
R' = R x (1 + F/M)
where:
R' = the adjusted Conversion Rate.
R = the current Conversion Rate.
M = the average of the Post-Distribution Prices of the Common Stock for the 10 Trading Days commencing on and including the fifth Trading Day after the date on which "ex-dividend trading" commences for such dividend or distribution on the principal United States exchange or market which such securities are then listed or quoted (the "Ex-Dividend Date").
F = the fair market value of the securities distributed in respect of each share of Common Stock in the distribution to which this Section 11.08(b) applies, which shall be determined by multiplying the number of securities distributed in respect of each share of Common Stock in the distribution by the average of the Post-Distribution Prices of those securities for the 10 Trading Days commencing on and including the fifth Trading Day after the Ex-Dividend Date.
"Post-Distribution Price" of Capital Stock or any similar equity interest on any date means the closing per unit sale price (or, if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the
average ask prices) on such date for trading of such units on a "when issued" basis without due bills (or similar concept) as reported in the composite transactions for the principal United States securities exchange on which such Capital Stock or equity interest is traded or, if the Capital Stock or equity interest, as the case may be, is not listed on a United States national or regional securities exchange, as reported by the National Association of Securities Dealers Automated Quotation System or by the National Quotation Bureau Incorporated; provided that if on any date such units have not traded on a "when issued" basis, the Post-Distribution Price shall be the closing per unit sale price (or, if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on such date for trading of such units on a "regular way" basis without due bills (or similar concept) as reported in the composite transactions for the principal United States securities exchange on which such Capital Stock or equity interest is traded or, if the Capital Stock or equity interest, as the case may be, is not listed on a United States national or regional securities exchange, as reported by the National Association of Securities Dealers Automated Quotation System or by the National Quotation Bureau Incorporated. In the absence of such quotation, the Company shall be entitled to determine the Post-Distribution Price on the basis of such quotations which reflect the post-distribution value of the Capital Stock or equity interests as it considers appropriate.
(c) In the event that, with respect to any distribution to which Section 11.08 would otherwise apply, the difference "M-F" as defined in the formula set forth in Section 11.08 is less than $1.00 or "F" is equal to or greater than "M", then the adjustment provided by Section 11.08 shall not be made and in lieu thereof the provisions of Section 11.14 shall apply to such distribution.
SECTION 11.09 When Adjustment May Be Deferred. No adjustment in the Conversion Rate need be made unless the adjustment would require an increase or decrease of at least 1% in the Conversion Rate. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment and all adjustments that are made and carried forward shall be taken in the aggregate in order to determine if the 1% threshold is met.
All calculations under this Article 11 shall be made to the nearest cent or to the nearest 1/1,000th of a share, as the case may be.
SECTION 11.10 When No Adjustment Required. No adjustment need be made for a transaction referred to in Section 11.06, 11.07, 11.08 or 11.14 hereof if Securityholders may participate in the transaction. Such participation by Securityholders may include participation without conversion or upon conversion; provided, that if such participation is upon conversion, an adjustment shall be made at such time as the Securityholders are no longer entitled to participate.
No adjustment need be made for rights to purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest.
Unless otherwise required by a provision of this Article 11, no adjustment need be made for a change in the par value or no par value of the Common Stock.
To the extent the Securities become convertible pursuant to this Article 11 into cash, no adjustment need be made thereafter as to the cash. Interest will not accrue on the cash.
No adjustment will be made pursuant to this Article 11 that would result, through the application of two or more provisions hereof, in the duplication of any adjustment.
SECTION 11.11 Notice of Adjustment. Whenever the Conversion Rate is adjusted, the Company shall promptly mail to Securityholders a notice of the adjustment. The Company shall file with the Trustee and the Conversion Agent such notice and a certificate from the Company's independent public accountants briefly stating the facts requiring the adjustment and the manner of computing it. Upon receipt by it of such notice, and at the written request of the Company, the Conversion Agent will promptly mail such notice to Securityholders at the Company's expense. The certificate shall be conclusive evidence that the adjustment is correct. Neither the Trustee nor any Conversion Agent shall be under any duty or responsibility with respect to any such certificate except to exhibit the same to any Holder desiring inspection thereof.
SECTION 11.12 Voluntary Increase. The Company from time to time may increase the Conversion Rate by any amount for any period of time. Whenever the Conversion Rate is increased, the Company shall mail to Securityholders and file with the Trustee and the Conversion Agent a notice of the increase. The Company shall mail the notice at least 15 days before the date the increased Conversion Rate takes effect. The notice shall state the increased Conversion Rate and the period it will be in effect.
A voluntary increase of the Conversion Rate does not change or adjust the Conversion Rate otherwise in effect for purposes of Section 11.06, 11.07 or 11.08 or 11.14 hereof.
SECTION 11.13 Notice of Certain Transactions. If:
(a) the Company takes any action that would require an adjustment in the Conversion Rate pursuant to Section 11.06, 11.07 or 11.08 hereof (unless no adjustment is to occur pursuant to Section 11.10 hereof); or
(b) the Company takes any action that would require a supplemental indenture pursuant to Section 11.14; or
(c) there is a liquidation or dissolution of the Company;
then the Company shall mail to Securityholders and file with the Trustee and the Conversion Agent a notice stating the proposed record date for a dividend or distribution or the proposed effective date of a subdivision, combination, reclassification, consolidation, merger, binding share exchange, transfer, liquidation or dissolution. The Company shall file and mail the notice at least 15 days before such date. Failure to file or mail the notice or any defect in it shall not affect the validity of the transaction.
SECTION 11.14 Reorganization of Company; Special Distributions. If the Company is a party to a transaction subject to Article 5 hereof (other than a sale of all or
substantially all of the assets of the Company in a transaction in which the holders of Common Stock immediately prior to such transaction do not receive securities, cash, property or other assets of the Company or any other Person) or a merger or binding share exchange which reclassifies or changes its outstanding Common Stock, the Person obligated to deliver securities, cash or other assets upon conversion of Securities shall, no later than the closing date of such transaction, enter into a supplemental indenture. If the issuer of securities deliverable upon conversion of Securities is an Affiliate of the successor Company, that issuer shall, no later than the closing date of such transaction, join in the supplemental indenture.
The supplemental indenture shall provide that the Holder of a Security may convert it into the kind and amount of securities, cash or other assets which such Holder would have received immediately after the consolidation, merger, binding share exchange or transfer if such Holder had converted the Security immediately before the effective date of the transaction, assuming (to the extent applicable) that such Holder was not a constituent Person or an Affiliate of a constituent Person to such transaction. The supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practical to the adjustments provided for in this Article 11. The successor Company shall mail to Securityholders a notice briefly describing the supplemental indenture.
If this Section applies, neither Section 11.06 nor 11.07 hereof applies.
If the Company makes a distribution to all holders of its Common Stock of any of its assets, or debt securities or any rights, warrants or options to purchase securities of the Company that would otherwise result in an adjustment in the Conversion Rate pursuant to the provisions of Section 11.08 hereof, then, from and after the record date for determining the holders of Common Stock entitled to receive the distribution, a Holder of a Security that converts such Security in accordance with the provisions of this Indenture shall upon such conversion be entitled to receive, in addition to the shares of Common Stock into which the Security is convertible, the kind and amount of securities, cash or other assets comprising the distribution that such Holder would have received if such Holder had converted the Security immediately prior to the record date for determining the holders of Common Stock entitled to receive the distribution.
SECTION 11.15 Company Determination Final. Any determination that the Company or the Board of Directors must make pursuant to Section 11.03, 11.06, 11.07, 11.08, 11.09, 11.10, 11.14 or 11.17 hereof is conclusive.
SECTION 11.16 Trustee's Adjustment Disclaimer. The Trustee has no duty to determine when an adjustment under this Article 11 should be made, how it should be made or what it should be. The Trustee has no duty to determine whether a supplemental indenture under Section 11.14 hereof need be entered into or whether any provisions of any supplemental indenture are correct. The Trustee shall not be accountable for and makes no representation as to the validity or value of any securities or assets issued upon conversion of Securities. The Trustee shall not be responsible for the Company's failure to comply with this Article 11. Each Conversion Agent (other than the Company or an Affiliate of the Company) shall have the same protection under this Section 11.16 as the Trustee.
SECTION 11.17 Simultaneous Adjustments. In the event that this Article 11
requires adjustments to the Conversion Rate under more than one of Sections
11.06, 11.07 or 11.08 hereof, and the record dates for the distributions giving
rise to such adjustments shall occur on the same date, then such adjustments
shall be made by applying, first, the provisions of Section 11.06 hereof,
second, the provisions of Section 11.08 hereof and, third, the provisions of
Section 11.07 hereof.
SECTION 11.18 Successive Adjustments. After an adjustment to the Conversion Rate under this Article 11, any subsequent event requiring an adjustment under this Article 11 shall cause an adjustment to the Conversion Rate as so adjusted.
SECTION 11.19 Rights Issued in Respect of Common Stock Issued Upon
Conversion. Each share of Common Stock issued upon conversion of Securities
pursuant to this Article 11 shall be entitled to receive the appropriate number
of common stock or preferred stock purchase rights, as the case may be (the
"Rights"), if any, that all shares of Common Stock are entitled to receive and
the certificates representing the Common Stock issued upon such conversion shall
bear such legends, if any, in each case as may be provided by the terms of any
shareholder rights agreement adopted by the Company, as the same may be amended
from time to time (in each case, a "Rights Agreement"). If such Rights Agreement
requires that each share of Common Stock issued upon conversion of Securities at
any time prior to the distribution of separate certificates representing the
Rights be entitled to receive such Rights, then, notwithstanding anything else
to the contrary in the foregoing sections of this Article 11, there shall not be
any adjustment to the conversion privilege or Conversion Rate or any other term
or provision of the Securities as a result of the issuance of Rights, the
distribution of separate certificates representing the Rights, the exercise or
redemption of such Rights in accordance with any such Rights Agreement, or the
termination or invalidation of such Rights. Notwithstanding anything in this
Section 11.19 to the contrary, if a Holder of Securities exercising his right of
conversion after the distribution of Rights pursuant to a Rights Agreement is
not entitled to receive the Rights that would otherwise be attributable (but for
the date of conversion) to the shares of Common Stock to be issued upon
conversion, the Conversion Rate will be adjusted for the distribution of such
Rights pursuant to Section 11.08(a). If such an adjustment is made and such
Rights are later redeemed, invalidated or terminated, then a corresponding
reversing adjustment will be made to the Conversion Rate on an equitable basis.
ARTICLE 12
PAYMENT OF INTEREST
SECTION 12.01 Interest Payments. Semiannual, cash or Contingent Cash Interest on any Security that is payable in cash, and is punctually paid or duly provided for, on any applicable payment date shall be paid to the person in whose name that Security is registered at the close of business on the Record Date or accrual date, as the case may be, for such interest at the office or agency of the Company maintained for such purpose. Each installment of semiannual or cash interest or Contingent Cash Interest on any Security shall be paid in same-day funds by transfer to an account maintained by the payee located inside the United States, if the Trustee shall have received proper wire transfer instructions from such payee not later than the related Record Date or accrual date, as the case may be, or, if no such instructions have been received, by check mailed to the payee at its address set forth on the Registrar's books. In the
case of a permanent Global Security, semiannual or cash interest or Contingent Cash Interest payable on any applicable payment date will be paid to the Depositary, with respect to that portion of such permanent Global Security held for its account by Cede & Co. for the purpose of permitting such party to credit the interest received by it in respect of such permanent Global Security to the accounts of the beneficial owners thereof.
SECTION 12.02 Defaulted Interest. Except as otherwise specified with
respect to the Securities, any semiannual or cash interest or Contingent Cash
Interest on any Security that is payable, but is not punctually paid or duly
provided for, within 30 days following any applicable payment date (herein
called "Defaulted Interest", which term shall include any accrued and unpaid
interest that has accrued on such defaulted amount in accordance with paragraph
1 of the Securities), shall be paid by the Company, at its election in each case
(x) to the Holder as of Special Record Date, as determined in accordance with
clause (a) below, or (y) in the manner set forth in clause (b) below:
(a) The Company may elect to make payment of any Defaulted Interest to the persons in whose names the Securities are registered at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment (which shall not be less than 20 days after such notice is received by the Trustee), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a special record date (the "Special Record Date") for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities at his address as it appears on the list of Securityholders maintained pursuant to Section 2.05 hereof not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the persons in whose names the Securities are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (b) of this Section 12.02.
(b) The Company may make payment of any Defaulted Interest on the Securities in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee.
SECTION 12.03 Interest Rights Preserved. Subject to the foregoing provisions of this Article 12 and Section 2.06 hereof, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to semiannual or cash and Contingent Cash Interest accrued and unpaid, and to accrue, which were carried by such other Security.
ARTICLE 13
CONTINGENT CASH INTEREST
SECTION 13.01 Contingent Cash Interest. The Company shall make Contingent Cash Interest payments to the Holders of Securities, as set forth in Section 13.02 below, during any six month period from March 25 to September 24 and from September 25 to March 24, beginning with the six-month period commencing on September 25, 2009 (each, a "Semiannual Period") if, but only if, the average of the Security Market Prices for the Applicable Five Trading Day Period equals 120% or more of the Relevant Value of such Security. During any Semiannual Period when Contingent Cash Interest is payable pursuant to this section, each Contingent Cash Interest payment due and payable on each $1,000 Principal Amount at Maturity shall be calculated for any quarterly period within the applicable Semiannual Period, and in each instance shall equal the greater of the applicable Conversion Rate at such time with respect to the Securities as determined in accordance with Article 11 hereof and paragraph 9 of the Securities, multiplied by the greater of (a) the sum of all Regular Cash Dividends paid by the Company per share on the Common Stock during the applicable quarter of such Semiannual Period multiplied by the Conversion Rate in effect at the time and (b) $0.15 multiplied by 12.9783.
As used in this Article 13, "Applicable Five Trading Day Period" means the
five Trading Days ending on the third Trading Day immediately preceding the
first day of the applicable Semiannual Period; provided, however, that if the
Company declares a dividend on the Common Stock for which the record date (the
"Common Stock Record Date") falls prior to the first day of the next Semiannual
Period, but the payment date for the Common Stock falls within such Semiannual
Period, then, the "Applicable Five Trading Day Period" shall mean the five
Trading Days ending on the third Trading Day immediately preceding such Common
Stock Record Date. "Relevant Value" means the sum of the Issue Price, the
accrued Original Issue Discount and accrued cash interest, if any, on such
Security to the day immediately preceding the first day of the applicable
Semiannual Period. "Security Market Price" means, as of any date of
determination, the average of the secondary market bid quotations per $1,000
Principal Amount at Maturity of Securities obtained by the Bid Solicitation
Agent for $5 million Principal Amount at Maturity of Securities at approximately
4:00 p.m., New York City time, on such determination date from three independent
nationally recognized securities dealers (none of which shall be an Affiliate of
the Company) selected by the Company; provided, however, that if (a) at least
three such bids are not obtained by the Bid Solicitation Agent or (b) in the
Company's reasonable judgment, the bid quotations are not indicative of the
secondary market value of the Securities as of such determination date, then the
Securities Market Price for such determination date shall equal the product of
(i) the Conversion Rate in effect as of such determination date multiplied by
(ii) the average Sale Price of the Common Stock for the five Trading Days ending
on such determination date, appropriately adjusted to take into account the
occurrence, during the period commencing on the first of such Trading Days
during such five Trading Day period and ending
on such determination date, of any event described in Section 11.06, 11.07 or 11.08 hereof (subject to the conditions set forth in Sections 11.08 and 11.10 hereof).
The Original Issue Discount of the Securities will continue to accrue whether or not Contingent Cash Interest payments are made.
SECTION 13.02 Payment of Contingent Cash Interest; Contingent Cash Interest Rights Preserved. If payable, Contingent Cash Interest on a Security shall be paid to the Person who is the Holder of that Security as of the record date for the related Common Stock dividend, or, if the Company does not pay a Regular Cash Dividend on the Common Stock during a quarter within the Semiannual Period, to the Person who is the holder of that Security on the 15th day preceding the last day of such Semiannual Period (the "Contingent Cash Interest Record Date"). Such payments shall be paid on the payment date for the related Common Stock dividend, or, if the Company does not pay a Regular Cash Dividend on the Common Stock during a quarter within the Semiannual Period, on the last day of the Semiannual Period (in each case, a "Contingent Cash Interest Payment Date"). Each payment of Contingent Cash Interest on any Security shall be paid (A) if such Security is held in the form of a Global Note, in the same-day funds by transfer to an account maintained by the payee located inside the United States, or (B) if such Security is held in the form of a Certificated Note, by check, mailed to the address of such Holder as set forth in the Security Register. In the case of a Global Note, interest payable on any Contingent Cash Interest Payment Date will be paid to the Depositary for the purpose of permitting DTC to credit the interest received by it in respect of such Global Note to the accounts of the beneficial owners thereof.
Upon determination that Holders of Securities will be entitled to receive Contingent Cash Interest during a Semiannual Period, prior to the start of such Semiannual Period, the Company will issue a press release and publish such information on its website or through such other public medium as the Company may use at the time.
The Company may unilaterally increase the amount of Contingent Cash Interest it is required to pay or pay interest or other amounts it is not obligated to pay but will have no obligation to do so.
SECTION 13.03 Bid Solicitation Agent. The Bid Solicitation Agent shall solicit bids from securities dealers which the Company indicates that it believes are willing to bid for the Securities. The Company initially appoints the Trustee to act as the Bid Solicitation Agent. The Company may change the Bid Solicitation Agent at its discretion; provided, however, that the Bid Solicitation Agent may not be an Affiliate of the Company.
ARTICLE 14
TAX MATTERS
SECTION 14.01 Tax Treatment. The parties hereto hereby agree, and each Holder and any beneficial holder of a Security by its purchase of a Security hereby agrees (in the absence of administrative pronouncement or judicial ruling to the contrary):
(a) to treat the Securities as indebtedness of the Company for all United States federal income tax purposes;
(b) to treat the Securities as debt instruments that are subject to U.S. Treasury Regulation section 1.1275-4(b); and
(c) to treat any payment to and receipt by a Holder of Common Stock upon conversion of a Security, or upon a purchase by the Company at the option of the Holder of a Security where the Company elects to pay in Common Stock, as a contingent payment under U.S. Treasury Regulation section 1.1275-4(b).
SECTION 14.02 Comparable Yield and Projected Payment Schedule. Solely for purposes of applying U.S. Treasury Regulation section 1.1275-4 to the Notes:
(a) for United States Federal income tax purposes, the Company shall accrue interest with respect to outstanding Securities as tax original issue discount ("Tax Original Issue Discount") according to the "noncontingent bond method," as set forth in U.S. Treasury Regulation section 1.1275-4(b) using a comparable yield of 6.90%, compounded semiannually, and the projected payment schedule attached as Annex 1 to this Indenture;
(b) the Company shall file with the Trustee promptly at the end of each calendar year (i) a written notice specifying the amount of Tax Original Issue Discount for United States federal income tax purposes (including daily rates and accrual periods) accrued on outstanding Securities as of the end of such year and (ii) such other specific information relating to such Tax Original Issue Discount that the Company determines to be relevant under the Internal Revenue Code of 1986, as amended from time to time, including the amount of any adjustment made under the noncontingent bond method to account for the amount of any difference between the amount of an actual payment and the amount of a projected payment; and
(c) the Company acknowledges and agrees, and each Holder and any
beneficial holder of a Security, by its purchase of a Security
shall be deemed to acknowledge and agree, that (i) the comparable
yield means the annual yield the Company would pay, as of the
Issue Date, on a fixed rate, nonconvertible debt security with no
contingent payments, but with terms and conditions otherwise
comparable to those of the Securities, (ii) the projected payment
schedule is determined on the basis of an assumption of linear
growth of stock price and a constant growth in dividend yield,
(iii) the comparable yield and the projected payment schedule are
not determined for any purpose other than for the purpose of
applying U.S. Treasury Regulation section 1.1275-4(b)(4) to the
Security and (iv) the comparable yield and the projected payment
schedule do not constitute a projection or representation
regarding the actual amounts payable on the Securities.
ARTICLE 15
MISCELLANEOUS
SECTION 15.01 TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control.
SECTION 15.02 Notices. Any request, demand, authorization, notice, waiver, consent or communication shall be in writing and delivered in person or delivery by courier guaranteeing overnight delivery or mailed by first-class mail, postage prepaid, addressed as follows or transmitted by facsimile transmission (confirmed by guaranteed overnight courier) to the following facsimile numbers:
if to the Company:
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890
Attention: General Counsel Telephone: (973) 948-1322 Facsimile: (973) 948-0282
with a copy of any notice given pursuant to Article 6 hereof to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Michael Schiavone
Telephone: (212) 848-4000
Facsimile: (212) 848-7179
if to the Trustee:
National City Bank
c/o National City Bank of Indiana
101 West Washington Street, Suite 655 South
Indianapolis, Indiana 46255
Attention: Ann Forey
Telephone: (317) 267-8872
Facsimile: (317) 267-7658
The Company or the Trustee by notice given to the other in the manner provided above may designate additional or different addresses for subsequent notices or communications.
Any notice or communication given to a Securityholder shall be mailed to the Securityholder, by first-class mail, postage prepaid, at the Securityholder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not received by the addressee.
If the Company mails a notice or communication to the Securityholders, it shall mail a copy to the Trustee and each Registrar, Paying Agent, Conversion Agent or co-registrar.
SECTION 15.03 Communication by Holders with Other Holders. Securityholders may communicate pursuant to TIA Section 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar, the Paying Agent, the Conversion Agent and anyone else shall have the protection of TIA Section 312(c).
SECTION 15.04 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and
(b) an Opinion of Counsel stating that, in the opinion of such counsel, such actions are authorized or permitted by this Indenture and that all such conditions precedent have been complied with.
SECTION 15.05 Statements Required in Certificate or Opinion. Each Officers' Certificate or Opinion of Counsel with respect to compliance with a covenant or condition provided for in this Indenture shall include to the extent required by the Trustee:
(a) a statement that each person making such Officers' Certificate or Opinion of Counsel has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Officers' Certificate or Opinion of Counsel are based;
(c) a statement that, in the opinion of each such person, he has made such examination or investigation as is necessary to enable such person to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(d) a statement that, in the opinion of such person, such covenant or condition has been complied with.
SECTION 15.06 Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 15.07 Rules by Trustee, Paying Agent, Conversion Agent and Registrar. The Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar, Conversion Agent and the Paying Agent may make reasonable rules for their functions.
SECTION 15.08 Calculations. The calculation of the Purchase Price, Change in Control Purchase Price, Conversion Rate, Market Price, Sale Price of the Common Stock and each other calculation to be made hereunder shall be the obligation of the Company. All calculations made by the Company as contemplated pursuant to this Section 15.08 shall be final and binding on the Company and the Holders absent manifest error. The Trustee, Paying Agent and Conversion Agent shall not be obligated to recalculate, recompute or confirm any such calculations.
SECTION 15.09 Legal Holidays. A "Legal Holiday" is any day other than a Business Day. If any specified date (including a date for giving notice) is a Legal Holiday, the action shall be taken on the next succeeding day that is not a Legal Holiday, and, if the action to be taken on such date is a payment in respect of the Securities, no Original Issue Discount or interest, if any, shall accrue for the intervening period.
SECTION 15.10 GOVERNING LAW. THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS INDENTURE AND THE SECURITIES.
SECTION 15.11 No Recourse Against Others. A director, officer, employee, agent, representative, stockholder or equity holder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities.
SECTION 15.12 Successors. All agreements of the Company in this Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor.
SECTION 15.13 Multiple Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture.
IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed this Indenture on behalf of the respective parties hereto as of the date first above written.
SELECTIVE INSURANCE GROUP, INC.
By: /s/ Dale A. Thatcher
----------------------------
Name: Dale A. Thatcher
Title: Senior Vice President
and Chief Financial
Officer
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NATIONAL CITY BANK, as Trustee
By: /s/ Ann Forey
----------------------------
Name: Ann Forey
Title: Vice President
|
ANNEX 1
Projected Payment Schedule*
Projected Interest Payment per
Period Ending $1,000 Principal Amount at Maturity of Notes*
March 24, 2003 8.08
September 24, 2003 8.08
March 24, 2004 8.08
September 24, 2004 8.08
March 24, 2005 8.08
September 24, 2005 8.08
March 24, 2006 8.08
September 24, 2006 8.08
March 24, 2007 8.08
September 24, 2007 8.08
March 24, 2008 8.08
September 24, 2008 8.08
March 24, 2009 8.08
September 24, 2009 8.08
December 1, 2009 -
March 1, 2010 -
June 1, 2010 -
September 1, 2010 -
December 1, 2010 -
March 1, 2011 -
June 1, 2011 -
September 1, 2011 -
December 1, 2011 -
March 1, 2012 1.95
June 1, 2012 1.95
September 1, 2012 1.95
December 1, 2012 1.95
March 1, 2013 1.95
June 1, 2013 1.95
September 1, 2013 1.95
December 1, 2013 1.95
March 1, 2014 1.95
June 1, 2014 1.95
December 1, 2014 1.95
March 1, 2015 1.95
June 1, 2015 1.95
September 1, 2015 1.95
|
Annex 1-1
Projected Interest Payment per
Period Ending $1,000 Principal Amount at Maturity of Notes*
September 1, 2015 1.95
December 1, 2015 1.95
March 1, 2016 1.95
June 1, 2016 1.95
September 1, 2016 1.95
December 1, 2016 1.95
June 1, 2017 1.95
September 1, 2017 1.95
December 1, 2017 1.95
March 1, 2018 1.95
June 1, 2018 1.95
September 1, 2018 1.95
December 1, 2018 1.95
March 1, 2019 1.95
June 1, 2019 1.95
September 1, 2019 1.95
December 1, 2019 1.95
March 1, 2020 1.95
June 1, 2020 1.95
September 1, 2020 1.95
December 1, 2020 1.95
March 1, 2021 1.95
June 1, 2021 1.95
September 1, 2021 1.95
December 1, 2021 1.95
March 1, 2022 1.95
June 1, 2022 1.95
September 1, 2022 1.95
December 1, 2022 1.95
March 1, 2023 1.95
June 1, 2023 1.95
September 1, 2023 1.95
December 1, 2023 1.95
March 1, 2024 1.95
June 1, 2024 1.95
September 1, 2024 1.95
December 1, 2024 1.95
March 1, 2025 1.95
June 1, 2025 1.95
September 1, 2025 1.95
December 1, 2025 1.95
March 1, 2026 1.95
June 1, 2026 1.95
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Annex 1-2
Projected Interest Payment per
Period Ending $1,000 Principal Amount at Maturity of Notes*
September 1, 2026 1.95
December 1, 2026 1.95
March 1, 2027 1.95
June 1, 2027 1.95
September 1, 2027 1.95
December 1, 2027 1.95
March 1, 2028 1.95
June 1, 2028 1.95
September 1, 2028 1.95
December 1, 2028 1.95
March 1, 2029 1.95
June 1, 2029 1.95
September 1, 2029 1.95
December 1, 2029 1.95
March 1, 2030 1.95
June 1, 2030 1.95
September 1, 2030 1.95
December 1, 2030 1.95
March 1, 2031 1.95
June 1, 2031 1.95
September 1, 2031 1.95
December 1, 2031 1.95
March 1, 2032 1.95
June 1, 2032 1.95
Terminal Value at Maturity $1,703.82
|
* The comparable yield and the schedule of projected payments are determined on the basis of an assumption of linear growth of the stock price and a constant growth in dividend yield and are not determined for any purpose other than for the determination of interest accruals and adjustments thereof in respect of the Securities for United States federal income tax purposes. The comparable yield and the schedule of projected payments do not constitute a projection or representation regarding the amounts payable on Securities.
Annex 1-3
EXHIBIT A-1
[FORM OF FACE OF GLOBAL SECURITY]
THIS NOTE WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE UNITED STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED. THE ISSUE PRICE OF THIS NOTE WAS $380.12 PER $1,000 OF PRINCIPAL AMOUNT AT MATURITY; THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, INCLUDING CASH INTEREST PAYABLE THROUGH SEPTEMBER 24, 2009 TAXABLE AS ORIGINAL ISSUE DISCOUNT UNDER TREASURY REGULATION SECTION 1.1273-1, IS PROJECTED TO BE $1,595.93 PER $1,000 OF PRINCIPAL AMOUNT AT MATURITY; HOWEVER, THE ACTUAL AMOUNT OF ORIGINAL ISSUE DISCOUNT IS INDETERMINABLE AS OF THE ISSUE DATE; THE ISSUE DATE IS SEPTEMBER 24, 2002; AND THE YIELD TO MATURITY FOR THE PURPOSES OF ACCRUING TAX ORIGINAL ISSUE DISCOUNT IS 6.60% PER ANNUM, CALCULATED ON A SEMIANNUAL BOND EQUIVALENT BASIS.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY, OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN ARTICLE TWO OF THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY, THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
A-1-1
THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL, OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE"), WHICH IS TWO YEARS AFTER (X) THE LATER OF THE LAST DAY SECURITIES OF THIS ISSUE WERE ISSUED AND (Y) THE LAST DATE ON WHICH SELECTIVE INSURANCE GROUP, INC. (THE "COMPANY" OR THE "ISSUER") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHICH NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, (D) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (C) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF ANY HOLDER THAT IS NOT AN AFFILIATE OF THE COMPANY AFTER THE RESALE RESTRICTION TERMINATION DATE.
THE FOREGOING LEGEND MAY BE REMOVED FROM THIS SECURITY ON SATISFACTION OF
THE CONDITIONS SPECIFIED IN THE INDENTURE.
A-1-2
SELECTIVE INSURANCE GROUP, INC.
Senior Convertible Note due 2032
No. A-1 CUSIP: 816300AA5 Issue Date: September 24, 2002 Issue Price: $380.12 Original Issue Discount: $619.88 (for each $1,000 Principal (for each $1,000 Principal Amount at Maturity) Amount at Maturity) |
SELECTIVE INSURANCE GROUP, INC., a New Jersey corporation (herein called the "Company"), promises to pay to Cede & Co. or registered assigns, the Principal Amount at Maturity of TWO HUNDRED SIXTY FIVE MILLION DOLLARS $265,000,000 on September 24, 2032.
This Security shall not bear interest except as specified on the other side of this Security. Original Issue Discount will accrue as specified on the other side of this Security. This Security is convertible as specified on the other side of this Security.
Additional provisions of this Security are set forth on the other side of this Security.
Dated: September 24, 2002 SELECTIVE INSURANCE GROUP, INC.
By:
-----------------------------
Title:
By:
-----------------------------
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Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
National City Bank,
as Trustee, certifies that this
is one of the Securities referred
to in the within-mentioned Indenture.
A-1-3
[FORM OF REVERSE SIDE OF ALL SECURITIES]
Senior Convertible Notes due 2032
1. Interest.
The Company promises to pay interest in cash on the Principal Amount at Maturity of this Note at the rate per annum of 1.6155% from the Issue Date, or from the most recent date to which interest has been paid or provided for, until September 24, 2009. During such period, the Company will pay cash interest semiannually in arrears on March 24 and September 24 of each year (each an "Interest Payment Date") to Holders of record at the close of business on each March 9 or September 9 (whether or not a business day) (each a "Regular Record Date") immediately preceding such Interest Payment Date. Cash interest on the Securities will accrue from the most recent date to which interest has been paid or duly provided or, if no interest has been paid, from the Issue Date. Cash interest will be computed on the basis of a 360-day year of twelve 30-day months.
After September 24, 2009, this Security shall not bear interest, except as specified in this paragraph or in paragraphs 5 and 11 hereof. If the Principal Amount at Maturity hereof or any portion of such Principal Amount at Maturity is not paid when due (whether upon acceleration pursuant to Section 6.02 of the Indenture, upon the date set for payment of the Redemption Price pursuant to paragraph 6 hereof, upon the date set for payment of the Purchase Price or Change in Control Purchase Price pursuant to paragraph 7 hereof or upon the Stated Maturity of this Security) or if cash interest (including semiannual or Contingent Cash Interest, if any) due hereon or any portions of such cash interest is not paid when due in accordance with paragraphs 5 or 11 hereof, then in each such case the overdue amount shall, to the extent permitted by law, bear interest at the rate of 4.25% per annum, compounded semiannually, which interest shall accrue from the date such overdue amount was originally due to the date payment of such amount, including interest thereon, has been made or duly provided for. All such interest shall be payable on demand. The accrual of such interest on overdue amounts shall be in lieu of, and not in addition to, the continued accrual of Original Issue Discount or cash interest.
Original Issue Discount (the difference between the Issue Price and the Principal Amount at Maturity of the Security), in the period during which a Security remains outstanding, shall accrue at 4.25% per annum beginning on September 24, 2009, on a semiannual bond equivalent basis using a 360-day year composed of twelve 30-day months.
2. Method of Payment.
Subject to the terms and conditions of the Indenture, the Company will make payments in respect of Redemption Prices, Purchase Prices, Change in Control Purchase Prices and at Stated Maturity to Holders who surrender Securities to a Paying Agent to collect such payments in respect of the Securities. In addition, the Company will pay cash interest from the Issue Date until September 24, 2009, as more fully described in paragraph 1 hereof. The Company will pay any cash amounts in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may make such cash payments by check payable in such money.
A-1-4
3. Paying Agent, Conversion Agent, Registrar and Bid Solicitation Agent.
Initially, National City Bank, a national banking association (the "Trustee"), will act as Paying Agent, Conversion Agent, Registrar and Bid Solicitation Agent. The Company may appoint and change any Paying Agent, Conversion Agent, Registrar or co-registrar or Bid Solicitation Agent without notice, other than notice to the Trustee except that the Company will maintain at least one Paying Agent in the State of New York, City of New York, Borough of Manhattan, which shall initially be an office or agency of the Trustee. The Company or any of its Subsidiaries or any of their Affiliates may act as Paying Agent, Conversion Agent, Registrar or co-registrar. None of the Company, any of its Subsidiaries or any of their Affiliates shall act as Bid Solicitation Agent.
4. Indenture.
The Company issued the Securities pursuant to an Indenture dated as of September 24, 2002 (the "Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as in effect from time to time (the "TIA"). Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the TIA for a statement of those terms.
The Securities are general unsecured and unsubordinated obligations, of the Company, limited to $305,000,000 aggregate Principal Amount at Maturity (subject to Section 2.07 of the Indenture). The Indenture does not limit other indebtedness of the Company, secured or unsecured.
5. Contingent Cash Interest.
Subject to the conditions of the Indenture and the accrual and record date provisions specified in this paragraph 5, the Company shall pay Contingent Cash Interest to the Securityholders during any Semiannual Period, with the initial six-month period commencing on September 25, 2009, if, but only if, the average of the Security Market Prices for the Applicable Five Trading Day Period equals 120% or more of the Relevant Value of such Security.
Contingent Cash Interest, if any, will accrue and be payable to holders of this Security as of the Contingent Cash Interest Record Date or a Common Stock Record Date, as applicable. Original Issue Discount will continue to accrue at 4.25% whether or not Contingent Cash Interest is paid.
The amount of Contingent Cash Interest payable per $1,000 Principal Amount at Maturity hereof in respect of any quarterly period of the applicable Contingent Cash Interest Period shall equal the greater of (x) the sum of all Regular Cash Dividends paid by the Company per share of Common Stock during that three-month period of the applicable Contingent Cash Interest Period multiplied by the number of shares of Common Stock into which $1,000 Principal Amount at Maturity hereof is convertible pursuant to paragraph 9 hereof as of the accrual date for such Contingent Cash Interest and (y) $0.15 multiplied by 12.9783.
A-1-5
Upon determination that Securityholders will be entitled to receive Contingent Cash Interest during a Semiannual Period, the Company shall issue a press release and publish such information on its web site or through such other public medium it may use at the time.
6. Redemption at the Option of the Company.
No sinking fund is provided for the Securities. The Securities are redeemable for cash as a whole, or from time to time in part, at any time at the option of the Company in accordance with the Indenture at the Redemption Prices set forth below; provided, that the Securities are not redeemable prior to September 24, 2007.
The table below shows Redemption Prices of a Security per $1,000 Principal Amount at Maturity on the dates shown below and at Stated Maturity, which prices reflect accrued Original Issue Discount calculated to each such date. The Redemption Price of a Security redeemed between such dates shall include an additional amount reflecting the additional Original Issue Discount accrued since the immediately preceding date in the table to, but not including, the Redemption Date and any accrued and unpaid cash interest.
[Remainder of page intentionally left blank]
A-1-6
(2) (4)
(1) Accrued Original (3) Redemption Price
Redemption Date Note Issue Price Issue Discount Call Premium (1) + (2) + (3)
September 24,
2007..................... $380.12 $ 4.62 $384.74
2008..................... $380.12 2.31 382.43
2009..................... $380.12 380.12
2010..................... $380.12 16.33 396.45
2011..................... $380.12 33.36 413.48
2012..................... $380.12 51.11 431.23
2013..................... $380.12 69.64 449.76
2014..................... $380.12 88.96 469.08
2015..................... $380.12 109.10 489.22
2016..................... $380.12 130.12 510.24
2017..................... $380.12 152.03 532.15
2018..................... $380.12 174.89 555.01
2019..................... $380.12 198.73 578.85
2020..................... $380.12 223.59 603.71
2021..................... $380.12 249.52 629.64
2022..................... $380.12 276.56 656.68
2023..................... $380.12 304.77 684.89
2024..................... $380.12 334.19 714.31
2025..................... $380.12 364.87 744.99
2026..................... $380.12 395.87 776.99
2027..................... $380.12 430.24 810.36
2028..................... $380.12 465.05 845.17
2029..................... $380.12 501.35 881.47
2030..................... $380.12 539.21 919.33
2031..................... $380.12 578.70 958.82
At stated maturity....... $380.12 619.88 1,000.00
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If this Security has been converted to a semiannual coupon note following the occurrence of a Tax Event, the Redemption Price will be equal to the Restated Principal Amount plus accrued and unpaid interest from the date of such conversion to but not including the Redemption Date; but in no event will this Security be redeemable before September 24, 2007.
7. Purchase by the Company at the Option of the Holder.
Subject to the terms and conditions of the Indenture, the Company shall become obligated to purchase, at the option of the Holder, the Securities held by such Holder on the following Purchase Dates and at the following Purchase Prices, plus accrued and unpaid cash interest, if any, per $1,000 Principal Amount at Maturity, upon delivery of a Purchase Notice containing the information set forth in the Indenture, at any time from the opening of business on the date that is 20 Business Days prior to such Purchase Date until the close of business on the
A-1-7
day immediately preceding such Purchase Date and upon delivery of the Securities to the Paying Agent by the Holder as set forth in the Indenture.
Purchase Date Price Purchase September 24, 2009 $ 380.12 September 24, 2012 $ 431.23 September 24, 2017 $ 532.15 September 24, 2022 $ 656.68 September 24, 2027 $ 810.36 |
The Purchase Price (equal to the Issue Price plus accrued Original Issue Discount to the Purchase Date) may be paid, at the option of the Company, in cash or by the issuance and delivery of shares of Common Stock of the Company, or in any combination thereof in accordance with the Indenture.
If prior to a Purchase Date this Security has been converted to a semiannual coupon note following the occurrence of a Tax Event, the Purchase Price will be equal to the Restated Principal Amount plus accrued and unpaid cash interest from the date of conversion to the Purchase Date as provided in the Indenture.
At the option of the Holder and subject to the terms and conditions of the Indenture, the Company shall become obligated to purchase the Securities held by such Holder no later than 30 Business Days after the occurrence of a Change in Control of the Company on or prior to September 24, 2009, but in no event prior to the date on which such a Change in Control occurs, for a Change in Control Purchase Price equal to the Issue Price plus accrued Original Issue Discount and accrued and unpaid cash interest, including Contingent Cash Interest, if any, to but not including the Change in Control Purchase Date, which Change in Control Purchase Price shall be paid in cash. If prior to a Change in Control Purchase Date this Security has been converted to a semiannual coupon note following the occurrence of a Tax Event, the Change in Control Purchase Price shall be equal to the Restated Principal Amount plus accrued cash interest from the date of conversion to the Change in Control Purchase Date.
A third party may make the offer and purchase of the Securities in lieu of the Company in accordance with the Indenture.
Holders have the right to withdraw any Purchase Notice or Change in Control Purchase Notice, as the case may be, by delivering to the Paying Agent a written notice of withdrawal in accordance with the provisions of the Indenture.
If cash (and/or securities if permitted under the Indenture) sufficient to pay the Purchase Price or Change in Control Purchase Price, as the case may be, of all Securities or portions thereof to be purchased as of the Purchase Date or the Change in Control Purchase Date, as the case may be, is deposited with the Paying Agent on the Business Day following the Purchase Date or the Change in Control Purchase Date, as the case may be, Original Issue Discount or
A-1-8
cash interest (including semiannual and Contingent Cash Interest), if any, shall cease to accrue on such Securities (or portions thereof) on such Purchase Date or Change in Control Purchase Date, as the case may be, and the Holder thereof shall have no other rights as such (other than the right to receive the Purchase Price or Change in Control Purchase Price, as the case may be, if any, upon surrender of such Security).
8. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at the Holder's registered address. If money sufficient to pay the Redemption Price of, and accrued and unpaid cash interest, if any, with respect to, all Securities (or portions thereof) to be redeemed on the Redemption Date is deposited with the Paying Agent prior to or on the Redemption Date, on such Redemption Date, Original Issue Discount or cash interest (including semiannual and Contingent Cash Interest), if any, shall cease to accrue on such Securities or portions thereof. Securities in denominations larger than $1,000 of Principal Amount at Maturity may be redeemed in part but only in integral multiples of $1,000 of Principal Amount at Maturity.
9. Conversion.
Conversion Based on Sale Price of Common Stock. Subject to the provisions of this paragraph 9 and notwithstanding the fact that any other condition to conversion described below has not been satisfied, Holders may convert the Securities into Common Stock on a Conversion Date if the Sale Price of the Common Stock for at least 20 Trading Days in a period of 30 consecutive Trading Days ending on the last Trading Day of the most recently ended fiscal quarter, commencing with the quarter ending December 31, 2002, is greater than the conversion trigger price per share. The "conversion trigger price" for any fiscal quarter shall be the following percentage of the accreted conversion price per share (calculated without giving effect to accrued cash interest, if any) of Common Stock on the last day of such calendar quarter: (a) 120% until and including September 30, 2009 and (b) declining ratably 0.11% per calendar quarter thereafter to 110% on the last day of the calendar quarter ending June 30, 2032. If the foregoing condition is satisfied, then the Securities will be convertible at any time at the option of the Holder, through their maturity.
The "accreted conversion price per share" of Common Stock as of any day equals the quotient of:
o the Issue Price and accrued Original Issue Discount or accrued cash interest to that day, divided by
o the number of shares of Common Stock issuable upon conversion of $1,000 Principal Amount at Maturity of Securities on that day pursuant to this paragraph 9 and Article 11 of the Indenture.
Conversion Based on Credit Ratings Downgrade. Subject to the provisions of this paragraph 9 and the Indenture and notwithstanding the fact that any other condition to conversion has not been satisfied, the Securities shall be convertible into Common Stock at the
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election of a Holder on a Conversion Date at any time that (a) the credit rating assigned to the Securities by Moody's Investors Service Inc. and its successors ("Moody's") is Ba2 or lower or the credit rating assigned to the Securities by Standard & Poor's Credit Market Services, a division of the McGraw-Hill Companies Inc. and its successors ("Standard & Poor's") is BB or lower, or (b) the Securities are no longer rated by either or both of Moody's or Standard & Poor's, or (c) either or both of Moody's or Standard & Poor's have suspended or withdrawn their ratings of the Securities.
Conversion upon Redemption. Subject to the provisions of this paragraph 9 and notwithstanding the fact that any other condition described herein to conversion has not been satisfied, a Holder may convert into Common Stock a Security or portion of a Security which has been called for redemption pursuant to paragraph 6 hereof, but such Securities may be surrendered for conversion only until the close of business on the second Business Day immediately preceding the Redemption Date.
Conversion Upon Certain Distributions. Subject to the provisions of this
paragraph 9 and notwithstanding the fact that any other condition to conversion
has not been satisfied, in the event that the Company declares a dividend or
distribution described in Section 11.07 of the Indenture, or a dividend or a
distribution described in Section 11.08 of the Indenture and, in the case of a
dividend or distribution described in Section 11.08 of the Indenture, the sum of
(a) the fair market value, per share, of such dividend or distribution per share
of Common Stock, and (b) the quotient of (1) the amount of Contingent Cash
Interest paid on the Securities during the Ex-Dividend Measurement Period
divided by (2) the number of shares of Common Stock issuable upon conversion of
Securities at the Conversion Rate in effect at the Ex-Dividend Time, as
determined in the Indenture, exceeds 5% of the Sale Price of the Common Stock on
the Business Day immediately preceding the date of declaration for such dividend
or distribution, the Securities may be surrendered for conversion beginning on
the date the Company gives notice to the Holders of such right, which shall not
be less than 20 days prior to the Ex-Dividend Time for such dividend or
distribution, and Securities may be surrendered for conversion at any time
thereafter until the close of business on the Business Day prior to the
Ex-Dividend Time or until the Company announces that such dividend or
distribution will not take place.
Conversion Upon Occurrence of Certain Corporate Transactions. Subject to the provisions of this paragraph 9 and notwithstanding the fact that any other condition described herein to conversion has not been satisfied, in the event the Company is a party to a consolidation, merger or binding share exchange pursuant to which the Common Stock would be converted into cash, securities or other property as set forth in Section 11.14 of the Indenture, the Securities may be surrendered for conversion at any time from and after the date which is 15 days prior to the date announced by the Company as the anticipated effective time until 15 days after the actual effective date of such transaction, and at the effective time of such transaction the right to convert a Security into Common Stock will be deemed to have changed into a right to convert it into the kind and amount of cash, securities or other property which the holder would have received if the holder had converted its Security immediately prior to the transaction.
A Security in respect of which a Holder has delivered a Purchase Notice or Change in Control Purchase Notice exercising the option of such Holder to require the Company to
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purchase such Security may be converted only if such notice of exercise is withdrawn in accordance with the terms of the Indenture.
The initial Conversion Rate is 12.9783 shares of Common Stock per $1,000 Principal Amount at Maturity, subject to adjustment in the case of certain events described in the Indenture. The Company will deliver cash or a check in lieu of any fractional share of Common Stock. The ability to surrender Securities for conversion will expire at the close of business on September 23, 2032.
In the event the Company exercises its option pursuant to Section 10.01 of the Indenture to have interest in lieu of Original Issue Discount or cash interest accrue on the Security following a Tax Event, the Holder will be entitled on conversion to receive the same number of shares of Common Stock such Holder would have received if the Company had not exercised such option.
Accrued and unpaid interest in lieu of Original Issue Discount and cash interest, including Contingent Cash Interest, if any, will not be paid on Securities that are converted following a Tax Event; provided, however, that Securities surrendered for conversion during the period, in the case of interest in lieu of Original Issue Discount, from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date, shall be entitled to receive such interest, in lieu of Original Issue Discount, payable on such Securities on the corresponding Interest Payment Date and (except Securities with respect to which the Company has mailed a notice of redemption) Securities surrendered for conversion during such periods must be accompanied by payment of an amount equal to the interest in lieu of Original Issue Discount with respect thereto that the registered Holder is to receive.
To convert a Security, a Holder must (a) complete and manually sign the conversion notice (or complete and manually sign a facsimile of such notice) and deliver such notice to the Conversion Agent, (b) surrender the Security to the Conversion Agent, (c) furnish appropriate endorsements and transfer documents if required by the Conversion Agent, the Company or the Trustee and (d) pay any transfer or similar taxes, if required.
A Holder may convert a portion of a Security if the Principal Amount at Maturity of such portion is $1,000 or an integral multiple of $1,000. No payment or adjustment will be made for dividends on the Common Stock except as provided in the Indenture. On conversion of a Security, accrued Original Issue Discount and any accrued and unpaid cash interest (or interest if the Company has exercised its option provided for in paragraph 11 hereof), including Contingent Cash Interest, attributable to the period from the Issue Date (or, if the Company has exercised the option referred to in paragraph 11 hereof, the later of (x) the date of such exercise and (y) the date on which interest was last paid) through the Conversion Date shall not be cancelled, extinguished or forfeited, but rather shall be deemed to be paid in full to the Holder thereof through the delivery of the Common Stock (together with the cash payment, if any, in lieu of fractional shares) in exchange for the Security being converted pursuant to the terms hereof; and the fair market value of such shares of Common Stock (together with any such cash payment in lieu of fractional shares) shall be treated as issued, to the extent thereof, first in exchange for Original Issue Discount and any accrued and unpaid cash interest (or interest, if the Company
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has exercised its option provided for in paragraph 11 hereof), including Contingent Cash Interest, accrued through the Conversion Date, and the balance, if any, of such fair market value of such Common Stock (and any such cash payment) shall be treated as issued in exchange for the Issue Price of the Security being converted pursuant to the provisions hereof.
The Conversion Rate will be adjusted in accordance with Article 11 of the Indenture for dividends or distributions on Common Stock payable in Common Stock or other Capital Stock; subdivisions, combinations or certain reclassifications of Common Stock; distributions to all holders of Common Stock of certain rights to purchase Common Stock for a period expiring within 60 days of the Issue Date at less than the Sale Price of the Common Stock at the Time of Determination; and distributions to such holders of assets or debt securities of the Company or certain rights to purchase securities of the Company (excluding certain cash dividends or distributions) and certain rights pursuant to shareholder rights plans. The Company from time to time may voluntarily increase the Conversion Rate.
If the Company is a party to a consolidation, merger or binding share exchange or a transfer of all or substantially all of its assets, or upon certain distributions described in the Indenture, the right to convert a Security into Common Stock may be changed into a right to convert it into securities, cash or other assets of the Company or another person.
10. [INTENTIONALLY OMITTED.]
11. Tax Event.
(a) From and after (i) the date (the "Tax Event Date") of the occurrence of a Tax Event and (ii) the date the Company exercises the option provided for in this paragraph 11, whichever is later (the "Option Exercise Date"), at the option of the Company, interest in lieu of future Original Issue Discount shall accrue at the rate of 4.25% per annum on a principal amount per Note (the "Restated Principal Amount") equal to the Issue Price plus Original Issue Discount accrued through the Option Exercise Date and shall be payable semiannually on March 24 and September 24 of each year (each an "Interest Payment Date") to Holders of record at the close of business on each March 9 and September 9, respectively, (each a "Regular Record Date") immediately preceding such Interest Payment Date. Interest will be computed on a semiannual bond equivalent basis using a 360-day year comprised of twelve 30-day months and will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the Option Exercise Date.
(b) Interest on any Security that is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the person in whose name that Security is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company maintained for such purpose. Each installment of interest on any Security shall be paid in same-day funds by transfer to an account maintained by the payee located inside the United States.
12. Defaulted Interest.
Except as otherwise specified with respect to the Securities, any Defaulted Interest on any Security shall forthwith cease to be payable to the registered Holder thereof on the relevant
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Regular Record Date or accrual date, as the case may be, and such Defaulted Interest shall be paid by the Company as provided for in Section 12.02 of the Indenture.
13. Denominations; Transfer; Exchange.
The Securities are in fully registered form, without coupons, in denominations of $1,000 of Principal Amount at Maturity and integral multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not transfer or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or any Securities in respect of which a Purchase Notice or Change in Control Purchase Notice has been given and not withdrawn (except, in the case of a Security to be purchased in part, the portion of the Security not to be purchased) or any Securities for a period of 15 days before the mailing of a notice of redemption of Securities to be redeemed.
14. Persons Deemed Owners.
The registered Holder of this Security may be treated as the owner of this Security for all purposes.
15. Unclaimed Money or Securities.
The Trustee and the Paying Agent shall return to the Company upon written request any money or securities held by them for the payment of any amount with respect to the Securities that remains unclaimed for two years, subject to applicable unclaimed property laws. After return to the Company, Holders entitled to the money or securities must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person.
16. Amendment; Waiver.
Subject to certain exceptions set forth in the Indenture, (a) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in aggregate Principal Amount at Maturity of the Securities at the time outstanding and (b) certain Defaults may be waived with the written consent of the Holders of a majority in aggregate Principal Amount at Maturity of the Securities at the time outstanding. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article 5 or Section 11.14 of the Indenture, to secure the Company's obligations under this Security or to add to the Company's covenants for the benefit of the Securityholders or to surrender any right or power conferred, to comply with any requirement of the SEC in connection with the qualification of the Indenture under the TIA, or as necessary in connection with the registration of the Securities under the Securities Act or to make any change that does not adversely affect the rights of any Holders.
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17. Defaults and Remedies.
Under the Indenture, Events of Default include (a) default in payment of any cash interest (including any interest which becomes payable after the Securities have been converted to notes paying semiannual interest following the occurrence of a Tax Event) or any Contingent Cash Interest and such default continues for 30 days; (b) default in payment of the Principal Amount at Maturity (or, if the Securities have been converted to semiannual coupon notes following a Tax Event, the Restated Principal Amount), Issue Price plus accrued Original Issue Discount or cash interest, Redemption Price, Purchase Price or Change in Control Purchase Price, as the case may be, in respect of the Securities when the same becomes due and payable; (c) failure by the Company to comply with other agreements in the Indenture or the Securities, subject to notice and lapse of time; (d) default in the payment of any principal when due or resulting in acceleration of other indebtedness of the Company for borrowed money where the aggregate principal amount with respect to which the default or acceleration has occurred exceeds $10,000,000, and such acceleration has not been rescinded or annulled within a period of 10 days after receipt by the Company of a Notice of Default, subject to notice and lapse of time; provided, however, that if any such default shall be cured, waived, rescinded or annulled, then the Event of Default by reason thereof shall be deemed not to have occurred; and (e) certain events of bankruptcy or insolvency. If an Event of Default occurs and is continuing, the Trustee, or the Holders of at least 25% in aggregate Principal Amount at Maturity of the Securities at the time outstanding, may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Issue Price plus Original Issue Discount and any accrued and unpaid cash interest or any Contingent Cash Interest (or, if the Securities have been converted to semiannual coupon notes following a Tax Event, the Restated Principal Amount, plus accrued interest) on the Securities becoming due and payable immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives indemnity or security reasonably satisfactory to it. Subject to certain limitations, Holders of a majority in aggregate Principal Amount at Maturity of the Securities at the time outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of amounts specified in clause (a) or (b) above) if it determines that withholding notice is in their interests.
18. Trustee Dealings with the Company.
Subject to certain limitations imposed by the TIA, if applicable, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee.
19. No Recourse Against Others.
A director, officer, employee, agent, representative, stockholder or equity holder, as such, of the Company shall not have any liability for any obligations of the Company under the
A-1-14
Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities.
20. Authentication.
This Security shall not be valid until an authorized signatory of the Trustee manually signs the Trustee's Certificate of Authentication on the other side of this Security.
21. Abbreviations.
Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act).
22. GOVERNING LAW.
THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THIS
SECURITY.
A-1-15
The Company will furnish to any Securityholder upon written request and without charge a copy of the Indenture which has in it the text of this Security in larger type. Requests may be made to:
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890
Attention: General Counsel
A-1-16
ASSIGNMENT FORM
To assign this Security, fill in the To convert this Security into Common
form below: Stock of the Company, check the box:
I or we assign and transfer this / /
Security to
----------------------------------- To convert only part of this Security,
state the Principal Amount at Maturity
----------------------------------- to be converted (which must be $1,000
or an integral multiple of $1,000):
(Insert assignee's soc. sec. or tax
ID no.) $
------------------------------------
-----------------------------------
If you want the stock certificate made
----------------------------------- out in another person's name, fill in
the form below:
-----------------------------------
(Print or type assignee's name, -------------------------------------
address and zip code) -------------------------------------
(Insert other person's soc. sec. or
and irrevocably appoint tax ID no.)
agent to transfer -------------------------------------
----------------- this Security on
the books of the Company. The -------------------------------------
agent may substitute another to act
for him. -------------------------------------
-------------------------------------
(Print or type other person's name,
address and zip code)
|
A-1-17
Date: Your Signature:
----------------- ---------------------------------------
-------------------------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Security)
|
A-1-18
EXHIBIT A-2
[Form of Face of Certificated Security]
THIS NOTE WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE UNITED STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED. THE ISSUE PRICE OF THIS NOTE WAS $380.12 PER $1,000 OF PRINCIPAL AMOUNT AT MATURITY; THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, INCLUDING CASH INTEREST PAYABLE THROUGH SEPTEMBER 24, 2009 TAXABLE AS ORIGINAL ISSUE DISCOUNT UNDER TREASURY REGULATION SECTION 1.1273-1, IS PROJECTED TO BE $1,595.93 PER $1,000 OF PRINCIPAL AMOUNT AT MATURITY; HOWEVER, THE ACTUAL AMOUNT OF ORIGINAL ISSUE DISCOUNT IS INDETERMINABLE AS OF THE ISSUE DATE; THE ISSUE DATE IS SEPTEMBER 24, 2002; AND THE YIELD TO MATURITY FOR THE PURPOSES OF ACCRUING TAX ORIGINAL ISSUE DISCOUNT IS 6.60% PER ANNUM, CALCULATED ON A SEMIANNUAL BOND EQUIVALENT BASIS.
[INCLUDE IF SECURITY IS A CERTIFICATED SECURITY TO BE HELD BY AN
INSTITUTIONAL ACCREDITED INVESTOR--IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOLLOWING RESTRICTIONS.]
THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY, THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL, OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE"), WHICH IS TWO YEARS AFTER THE LATER OF (X) THE LAST DAY SECURITIES OF THIS ISSUE WERE ISSUED AND (Y) AND THE LAST DATE ON WHICH SELECTIVE INSURANCE GROUP, INC. (THE "COMPANY" OR THE "ISSUER") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHICH NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
A-2-1
RULE 144A, (C) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2),(3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, (D) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (C) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF ANY HOLDER THAT IS NOT AN AFFILIATE OF THE COMPANY AFTER THE RESALE RESTRICTION TERMINATION DATE.
THE FOREGOING LEGEND MAY BE REMOVED FROM THIS SECURITY ON SATISFACTION OF
THE CONDITIONS SPECIFIED IN THE INDENTURE.
A-2-2
SELECTIVE INSURANCE GROUP, INC.
Senior Convertible Note due 2032
No. A-1 CUSIP: 816300AA5 Issue Date: September 24, 2002 Issue Price: $380.12 Original Issue Discount: $619.88 (for each $1,000 Principal (for each $1,000 Principal Amount at Maturity) Amount at Maturity) |
SELECTIVE INSURANCE GROUP, INC., a New Jersey corporation (herein called the "Company"), promises to pay to Cede & Co. or registered assigns, the Principal Amount at Maturity of TWO HUNDRED SIXTY FIVE MILLION $265,000,000 on September 24, 2032.
This Security shall not bear interest except as specified on the other side of this Security. Original Issue Discount will accrue as specified on the other side of this Security. This Security is convertible as specified on the other side of this Security.
Additional provisions of this Security are set forth on the other side of this Security.
Dated: September 24, 2002 SELECTIVE INSURANCE GROUP, INC.
By:
-------------------------------
Title:
By:
-------------------------------
|
Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
NATIONAL CITY BANK,
as Trustee, certifies that this
is one of the Securities referred
to in the within-mentioned Indenture.
A-2-3
[Form of Reverse Side of Certificated Security is the same the Form of Reverse Side of Global Security]
A-2-4
EXHIBIT B-1
Transfer Certificate
In connection with any transfer of any of the Securities within the period prior to the expiration of the holding period applicable to the sales thereof under Rule 144(k) (or any successor provision) under the Securities Act of 1933, as amended (the "Securities Act"), the undersigned registered owner of this Security hereby certifies with respect to $__________ Principal Amount at Maturity of the above-captioned securities presented or surrendered on the date hereof (the "Surrendered Securities") for registration of transfer, or for exchange or conversion where the securities issuable upon such exchange or conversion are to be registered in a name other than that of the undersigned registered owner (each such transaction being a "transfer"), that such transfer complies with the restrictive legend set forth on the face of the Surrendered Securities for the reason checked below:
|_| The transfer of the Surrendered Securities is made to the Company or any subsidiaries; or
|_| The transfer of the Surrendered Securities complies with Rule 144A under the Securities Act; or
|_| The transfer of the Surrendered Securities is to an institutional
accredited investor, as described in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act; or
|_| The transfer of the Surrendered Securities is pursuant to an effective registration statement under the Securities Act; or
|_| The transfer of the Surrendered Securities is pursuant to an offshore transaction in accordance with Rule 904 under the Securities Act; or
|_| The transfer of the Surrendered Securities is pursuant to another available exemption from the registration requirement of the Securities Act.
and unless the box below is checked, the undersigned confirms that, to the undersigned's knowledge, such Securities are not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act (an "Affiliate").
|_| The transferee is an Affiliate of the Company.
DATE:
------------- -------------------------------------
Signature(s)
|
(If the registered owner is a corporation, partnership or fiduciary, the title of the Person signing on behalf of such registered owner must be stated.)
B-1-1
EXHIBIT B-2
Form of Letter to be Delivered by Accredited Investors
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890
Attention: Chief Financial Officer
National City Bank
c/o National City Bank of Indiana
101 West Washington Street, Suite 655 South
Indianapolis, Indiana 46255
Attention: Corporate Trust Department
Dear Sirs:
We are delivering this letter in connection with the proposed transfer of $_________ Principal Amount at Maturity of the Senior Convertible Notes due 2032 (the "Securities") issued by Selective Insurance Group, Inc. (the "Company"), which are convertible into shares of the Company's Common Stock, $2.00 par value per share (the "Common Stock").
We hereby confirm that:
(i) we are an "accredited investor" within the meaning of Rule
501(a)(1), (2) or (3) under the Securities Act of 1933, as amended (the
"Securities Act"), or an entity in which all of the equity owners are
accredited investors within the meaning of Rule 501(a)(1), (2) or (3) under
the Securities Act (an "Institutional Accredited Investor");
(ii) the purchase of Securities by us is for our own account or for the account of one or more other Institutional Accredited Investors or as fiduciary for the account of one or more trusts, each of which is an "accredited investor" within the meaning of Rule 501(a)(7) under the Securities Act and for each of which we exercise sole investment discretion or (B) we are a "bank," within the meaning of Section 3(a)(2) of the Securities Act, or a "savings and loan association" or other institution described in Section 3(a)(5)(A) of the Securities Act that is acquiring Securities as fiduciary for the account of one or more institutions for which we exercise sole investment discretion;
(iii) we will acquire Securities having a minimum principal amount at maturity of not less than $[ ] for our own account or for any separate account for which we are acting;
(iv) we have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of purchasing Securities; and
(v) we are not acquiring Securities with a view to distribution thereof or with any present intention of offering or selling Securities or the Common Stock issuable upon
B-2-1
conversion thereof, except as permitted below; provided, that the disposition of our property and property of any accounts for which we are acting as fiduciary shall remain at all times within our control.
We understand that the Securities were originally offered and sold in a transaction not involving any public offering within the United States within the meaning of the Securities Act and that the Securities and the Common Stock issuable upon conversion thereof (the Securities and such Common Stock hereinafter referred to as the "Securities") have not been registered under the Securities Act, and we agree, on our own behalf and on behalf of each account for which we acquire any Securities, that if in the future we decide to resell or otherwise transfer such Securities prior to the date (the "Resale Restriction Termination Date") which is two years after the later of the last day the Securities of this issue were issued and the last date on which the Company or an affiliate of the Company was the owner of the Security, such Securities may be resold or otherwise transferred only (i) to Selective Insurance Group, Inc. or any subsidiary thereof, or (ii) for as long as the Securities are eligible for resale pursuant to Rule 144A, to a person it reasonably believes is a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) that purchases for its own account or for the account of a qualified institutional buyer to which notice is given that the transfer is being made in reliance on Rule 144A, or (iii) to an Institutional Accredited Investor that is acquiring the Security for its own account, or for the account of such Institutional Accredited Investor for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act, or (iv) pursuant to another available exemption from registration under the Securities Act (if applicable), or (v) pursuant to a registration statement which has been declared effective under the Securities Act and, in each case, in accordance with any applicable securities laws of any state of the United States or any other applicable jurisdiction and in accordance with the legends set forth on the Securities. We further agree to provide any person purchasing any of the Securities from us other than pursuant to clause (v) above a notice advising such purchaser that resales of such securities are restricted as stated herein. We understand that the trustee or the transfer agent, as the case may be, for the Securities will not be required to accept for registration of transfer any Securities pursuant to (iii) or (iv) above except upon presentation of evidence satisfactory to the Company that the foregoing restrictions on transfer have been complied with. We further understand that any Securities will be in the form of definitive physical certificates and that such certificates will bear a legend reflecting the substance of this paragraph other than certificates representing Securities transferred pursuant to clause (v) above.
We acknowledge that the Company, others and you will rely upon our confirmations, acknowledgments and agreements set forth herein, and we agree to notify you promptly in writing if any of our representations or warranties herein ceases to be accurate and complete.
B-2-2
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK.
Title:
Address:
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of September 24, 2002 by and among Selective Insurance Group, Inc., a New Jersey corporation (the "Company"), and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), and each of the other Initial Purchasers (the "Initial Purchasers") named in Schedule A to the Purchase Agreement, dated September 18, 2002 (the "Purchase Agreement"), among the Company and the Initial Purchasers. In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Purchase Agreement.
The Company agrees with the Initial Purchasers, (i) for their benefit as Initial Purchasers and (ii) for the benefit of the beneficial owners (including the Initial Purchasers) from time to time of the Notes (as defined herein), and the beneficial owners from time to time of the Underlying Common Stock (as defined herein) issued upon conversion of Notes (each of the foregoing a "Holder" and together the "Holders"), as follows:
SECTION 1. Definitions. Capitalized terms used herein without definition shall have their respective meanings set forth in the Purchase Agreement. In addition to the terms that are defined elsewhere in this Agreement, the following terms shall have the following meanings:
"Affiliate" with respect to any specified person, has the meaning specified in Rule 144.
"Applicable Conversion Price" means, as of any date of determination, the Applicable Principal Amount per $1,000 principal amount at maturity of Notes as of such date of determination divided by the Conversion Rate in effect as of such date of determination or, if no Notes are then outstanding, the Conversion Rate that would be in effect were Notes then outstanding.
"Applicable Principal Amount" means, as of any date of determination, (1) with respect to each $1,000 principal amount at maturity of Notes, the sum of the initial issue price of such Notes ($380.12) plus accrued original issue discount and any accrued cash interest with respect to such Notes through such date of determination, (2) if the Notes have been converted to Semi-Annual Coupon Notes upon a Tax Event, the Restated Principal Amount with respect to the Notes, or (3) if no Notes are then outstanding, such sum calculated as if such Notes were then outstanding.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in The City of New York are authorized or obligated by law or executive order to close.
"Common Stock" means any shares of the common stock, $2.00 par value, of the Company and any other shares of common stock as may constitute "Common Stock" for purposes of the Indenture, including the Underlying Common Stock.
"Conversion Rate" has the meaning assigned to such term in the Indenture.
"Damages Accrual Period" has the meaning specified in Section 2(e) hereof.
"Damages Payment Date" means each March 24 and September 24.
"Deferral Notice" has the meaning specified in Section 3(i) hereof.
"Deferral Period" has the meaning specified in Section 3(i) hereof.
"Effectiveness Deadline Date" has the meaning specified in Section 2(a) hereof.
"Effectiveness Period" means the period of two years from the Issue Date or such shorter period ending on the date that all Registrable Securities have ceased to be Registrable Securities.
"Event" has the meaning specified in Section 2(e) hereof.
"Event Date" has the meaning specified in Section 2(e) hereof.
"Event Termination Date" has the meaning specified in Section 2(e) hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
"Filing Deadline Date" has the meaning specified in Section 2(a) hereof.
"Holder" has the meaning specified in the second paragraph of this Agreement.
"Indenture" means the Indenture dated as of the date hereof between the Company and National City Bank, as trustee, pursuant to which the Notes are being issued.
"Initial Shelf Registration Statement" has the meaning specified in Section 2(a) hereof.
"Issue Date" means September 24, 2002.
"Liquidated Damages Amount" has the meaning specified in Section 2(e) hereof.
"Losses" has the meaning specified in Section 6 hereof.
"Material Event" has the meaning specified in Section 3(i) hereof.
"Notes" means the Senior Convertible Notes due 2032 of the Company to be purchased pursuant to the Purchase Agreement.
"Notice and Questionnaire" means a written notice delivered to the Company containing substantially the information called for by the Selling Securityholder Notice and Questionnaire attached as Annex A to the Offering Memorandum of the Company dated September 18, 2002 relating to the Notes.
"Notice Holder" means on any date, any Holder that has delivered a Notice and Questionnaire to the Company on or prior to such date.
"Prospectus" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 415 promulgated under the Securities Act), as amended or supplemented by any amendment or prospectus supplement, including post-effective amendments, and all materials incorporated by reference or explicitly deemed to be incorporated by reference in such Prospectus.
"Purchase Agreement" has the meaning specified in the first paragraph of this Agreement.
"Record Holder" means with respect to any Damages Payment Date relating to any Note or shares of Underlying Common Stock as to which any Liquidated Damages Amount has accrued, the registered Holder of such Note or such shares of Underlying Common Stock, as the case may be, on the 15th day immediately prior to the next succeeding Damages Payment Date or, if all Events giving rise to the Liquidated Damages Amount payable on such Damage Payment Date have been cured and no such Event is continuing on such date, as of the date on which the last such Event was cured.
"Registrable Securities" means the Notes and the Underlying Common Stock until such securities have been converted or exchanged and, at all times subsequent to any such conversion or exchange, any securities into or for which such securities have been converted or exchanged, and any security issued with respect thereto upon any stock dividend, split, merger or similar event until, in the case of any such security, the earliest of (i) its effective registration under the Securities Act and resale in accordance with the Registration Statement covering it, (ii) expiration of the holding period that would be applicable thereto under Rule 144(k) were it not held by an Affiliate of the Company, or (iii) its sale to the public pursuant to Rule 144.
"Registration Expenses" has the meaning specified in Section 5 hereof.
"Registration Statement" means any registration statement of the Company that covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all materials incorporated by reference or explicitly deemed to be incorporated by reference in such registration statement.
"Restated Principal Amount" has the meaning assigned to such term in the Indenture.
"Restricted Securities" has the meaning assigned to such term in Rule 144.
"Rule 144" means Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar or successor rule or regulation hereafter adopted by the SEC having substantially the same effect as such Rule.
"Rule 144A" means Rule 144A under the Securities Act, as such Rule may be amended from time to time, or any similar or successor rule or regulation hereafter adopted by the SEC having substantially the same effect as such Rule.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder.
"Semi-Annual Coupon Notes" has the meaning assigned to such term in the Indenture.
"Shelf Registration Statement" has the meaning specified in Section 2(a) hereof.
"Subsequent Shelf Registration Statement" has the meaning specified in
Section 2(b) hereof.
"Tax Event" has the meaning assigned to such term in the Indenture.
"TIA" means the Trust Indenture Act of 1939, as amended.
"Trustee" means National City Bank (or any successor entity), the Trustee under the Indenture.
"Underlying Common Stock" means the Common Stock into which the Notes are convertible or issued upon any such conversion.
SECTION 2. Shelf Registration.
(a) The Company shall prepare and file or cause to be prepared and filed with the SEC no later than a date which is ninety (90) days after the Issue Date (the "Filing Deadline Date") a Registration Statement for an offering to be made on a delayed or continuous basis pursuant to Rule 415 of the Securities Act (a "Shelf Registration Statement") registering the resale from time to time by Holders of all of the Registrable Securities (the "Initial Shelf Registration Statement"). The Initial Shelf Registration Statement shall be on an appropriate form permitting registration of such Registrable Securities for resale by such Holders in accordance with the methods of distribution reasonably elected by the Holders and set forth in the Initial Shelf Registration Statement;
provided, that in no event will such method(s) of distribution take the form of
an underwritten offering of the Registrable Securities without the prior
agreement of the Company (such consent to be withheld or granted in the
Company's sole and absolute discretion). The Company shall use reasonable
efforts to cause the Initial Shelf Registration Statement to be declared
effective under the Securities Act no later than the date (the "Effectiveness
Deadline Date") that is one-hundred and eighty (180) days after the Issue Date,
and to keep the Initial Shelf Registration Statement (or any Subsequent Shelf
Registration Statement) continuously effective under the Securities Act (subject
to Section 3(i)) until the expiration of the Effectiveness Period. Each Holder
that became a Notice Holder on or prior to the date ten (10) Business Days prior
to the time that the Initial Shelf Registration Statement became effective shall
be named as a selling security holder in the Initial Shelf Registration
Statement and the related Prospectus in such a manner as to permit such Holder
to deliver such Prospectus to purchasers of Registrable Securities in accordance
with applicable law (other than laws not generally applicable to all such
Holders). Notwithstanding the foregoing, no Holder shall be entitled to have the
Registrable Securities held by it covered by such Shelf Registration Statement
unless such Holder has provided a Notice and Questionnaire in accordance with
Section 2(d) and is in compliance with Section 4. None of the Company's security
holders (other than the Holders of Registrable Securities) shall have the right
to include any of the Company's securities in the Shelf Registration Statement.
(b) If the Initial Shelf Registration Statement or any Subsequent Shelf Registration Statement ceases to be effective for any reason at any time during the Effectiveness Period (other than as provided in Section 3(i)), the Company shall use reasonable efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within thirty (30) days of such cessation of effectiveness amend the Shelf Registration Statement in a manner reasonably expected by the Company to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional Shelf Registration Statement covering all of the securities that as of the date of such filing are Registrable Securities (a "Subsequent Shelf Registration Statement"). If a Subsequent Shelf Registration Statement is filed, the Company shall use reasonable efforts to cause the Subsequent Shelf Registration Statement to become effective as promptly as is reasonably practicable after such filing or, if filed during a Deferral Period, after the expiration of such Deferral Period, and to keep such Registration Statement (or Subsequent Shelf Registration Statement) continuously effective (subject to Section 3(i)) until the end of the Effectiveness Period.
(c) The Company shall supplement and amend the Shelf Registration Statement if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement, if required by the Securities Act or, to the extent to which the Company does not reasonably object, as reasonably requested by the Initial Purchasers or by the Trustee on behalf of the registered Holders.
(d) Each Holder of Registrable Securities agrees that if such Holder wishes to sell Registrable Securities pursuant to a Shelf Registration Statement and related Prospectus, it will do so only in accordance with this Section 2(d) and Sections 3(i) and 4 of
the Agreement. Each Holder of Registrable Securities wishing to sell Registrable
Securities pursuant to a Shelf Registration Statement and related Prospectus
agrees to deliver a Notice and Questionnaire to the Company at least five (5)
Business Days prior to any intended distribution of Registrable Securities under
the Shelf Registration Statement. From and after the date the Initial Shelf
Registration Statement is declared effective, the Company shall, as promptly as
is reasonably practicable after the date a Notice and Questionnaire is
delivered, (i) if required by applicable law, file with the SEC a post-effective
amendment to the Shelf Registration Statement or prepare and, if required by
applicable law, file a supplement to the related Prospectus or a supplement or
amendment to any document incorporated therein by reference or file any other
document required by the SEC so that the Holder delivering such Notice and
Questionnaire is named as a selling security holder in the Shelf Registration
Statement and the related Prospectus in such a manner as to permit such Holder
to deliver such Prospectus to purchasers of the Registrable Securities in
accordance with applicable law (other than laws not generally applicable to all
Holders of Registrable Securities wishing to sell Registrable Securities
pursuant to the Shelf Registration Statement and related Prospectus) and, if the
Company shall file a post-effective amendment to the Shelf Registration
Statement, use reasonable efforts to cause such post-effective amendment to be
declared effective under the Securities Act as promptly as is reasonably
practicable; (ii) provide such Holder copies of any documents filed pursuant to
Section 2(d)(i); and (iii) notify such Holder as promptly as is reasonably
practicable after the effectiveness under the Securities Act of any
post-effective amendment filed pursuant to Section 2(d)(i); provided, that if
such Notice and Questionnaire is delivered during a Deferral Period, the Company
shall so inform the Holder delivering such Notice and Questionnaire and shall
take the actions set forth in clauses (i), (ii) and (iii) above upon expiration
of the Deferral Period in accordance with Section 3(i); provided, further, that
if under applicable law the Company has more than one option as to the type or
manner of making any such filing, it will make the required filing or filings in
the manner or of a type that is reasonably expected to result in the earliest
availability of the Prospectus for effecting resales of Registrable Securities.
Notwithstanding anything contained herein to the contrary, the Company shall be
under no obligation to name any Holder that is not a Notice Holder as a selling
security holder in any Registration Statement or related Prospectus; provided,
however, that any Holder that becomes a Notice Holder pursuant to the provisions
of Section 2(d) of this Agreement (whether or not such Holder was a Notice
Holder at the time the Registration Statement was initially declared effective)
shall be named as a selling security holder in the Registration Statement or
related Prospectus subject to and in accordance with the requirements of this
Section 2(d). Notwithstanding the provisions of Section 3, any amendment or
supplement to the Registration Statement pursuant to this Section 2(d) that
solely lists additional selling security holders need not be submitted for
review by other Notice Holders or the Initial Purchasers.
(e) The parties hereto agree that the Holders of Registrable Securities will suffer damages, and that it would not be feasible to ascertain the extent of such damages with precision, if (i) the Initial Shelf Registration Statement has not been filed on or prior to the Filing Deadline Date, (ii) the Initial Shelf Registration Statement has not been declared effective under the Securities Act on or prior to the Effectiveness Deadline Date, or (iii) the aggregate duration of Deferral Periods in any period exceeds the number of days permitted in respect of such period pursuant to Section 3(i) hereof (each of the events of a type described
in any of the foregoing clauses (i) through (iii) are individually referred to herein as an "Event," and the Filing Deadline Date in the case of clause (i), the Effectiveness Deadline Date in the case of clause (ii), and the date on which the aggregate duration of Deferral Periods in any period exceeds the number of days permitted by Section 3(i) hereof in the case of clause (iii), being referred to herein as an "Event Date"). Events shall be deemed to continue until the "Event Termination Date," which shall be the following dates with respect to the respective types of Events: the date the Initial Shelf Registration Statement is filed in the case of an Event of the type described in clause (i), the date the Initial Shelf Registration Statement is declared effective under the Securities Act in the case of an Event of the type described in clause (ii), termination of the Deferral Period that caused the limit on the aggregate duration of Deferral Periods in a period set forth in Section 3(i) to be exceeded in the case of the commencement of an Event of the type described in clause (iii).
Accordingly, commencing on (and including) any Event Date and ending on (but excluding) the next date after an Event Termination Date (a "Damages Accrual Period"), the Company agrees to pay, as liquidated damages and not as a penalty, an amount (the "Liquidated Damages Amount"), payable on the Damages Payment Dates to Record Holders of then outstanding Notes that are Registrable Securities or of then outstanding shares of Underlying Common Stock issued upon conversion of Notes that are Registrable Securities, as the case may be, accruing, for each portion of such Damages Accrual Period beginning on and including a Damages Payment Date (or, in respect of the first time that the Liquidation Damages Amount is to be paid to Holders on a Damages Payment Date as a result of the occurrence of any particular Event, from the Event Date) and ending on but excluding the first to occur of (A) the date of the end of the Damages Accrual Period or (B) the next Damages Payment Date, at a rate per annum equal to one-quarter of one percent (0.25%) for the first 90-day period from the Event Date, and thereafter at a rate per annum equal to one-half of one percent (0.5%) of the aggregate Applicable Principal Amount of such Notes or the aggregate Applicable Conversion Price of the shares of Underlying Common Stock, as the case may be, in each case determined as of the Business Day immediately preceding the next Damages Payment Date; provided, that in the case of a Damages Accrual Period that is in effect solely as a result of an Event of the type described in clause (ii) of the immediately preceding paragraph, no Liquidated Damages Amount shall be payable by the Company to any Holder if no Holder has delivered a Notice and Questionnaire to the Company in accordance with Section 2(d) and the failure to receive such a Notice and Questionnaire prevents the performance necessary to keep such Event from occurring; provided, further, that any Liquidated Damages Amount accrued with respect to any Note or portion thereof called for redemption on a redemption date or converted into Underlying Common Stock on a conversion date or to Semi-Annual Coupon Notes prior to the Damages Payment Date, shall, in any such event, be paid instead to the Holder who submitted such Note or portion thereof for redemption or conversion on the applicable redemption date or conversion date, as the case may be, on such date (or promptly following the conversion date, in the case of conversion). Notwithstanding the foregoing, no Liquidated Damages Amounts shall accrue as to any Registrable Security from and after the earlier of (x) the date such security is no longer a Registrable Security and (y) expiration of the Effectiveness Period. The rate of accrual of the Liquidated Damages Amount with respect to any period shall not exceed the rate provided for in this paragraph notwithstanding the occurrence of multiple concurrent Events. Following the cure of all Events requiring the payment by the Company of
Liquidated Damages Amounts to the Holders of Registrable Securities pursuant to this Section, the accrual of Liquidated Damages Amounts will cease (without in any way limiting the effect of any subsequent Event requiring the payment of the Liquidated Damages Amount by the Company).
The Trustee, subject to the applicable provisions of the Indenture, shall be entitled, for the benefit of Holders of Notes, Underlying Common Stock or Semi-Annual Coupon Notes, to seek any available remedy for the enforcement of this Agreement, including for the payment of any Liquidated Damages Amount. Notwithstanding the foregoing, the parties agree that the sole monetary damages payable for a violation of the terms of this Agreement with respect to which liquidated damages are expressly provided shall be such liquidated damages. Nothing shall preclude a Notice Holder or Holder of Registrable Securities from pursuing or obtaining specific performance or other equitable relief with respect to this Agreement.
All of the Company's obligations set forth in this Section 2(e) that are outstanding with respect to any Registrable Security at the time such security ceases to be a Registrable Security shall survive until such time as all such obligations with respect to such security have been satisfied in full (notwithstanding termination of this Agreement pursuant to Section 8(k)).
The parties hereto agree that the liquidated damages provided for in this
Section 2(e) constitute a reasonable estimate of the damages that may be
incurred by Holders of Registrable Securities by reason of the failure of the
Shelf Registration Statement to be filed or declared effective or available for
effecting resales of Registrable Securities in accordance with the provisions
hereof.
SECTION 3. Registration Procedures. In connection with the registration obligations of the Company under Section 2 hereof, the Company shall:
(a) Before filing any Registration Statement or Prospectus or any
amendments or supplements (other than supplements that solely add one or more
Notice Holders as selling security holders) thereto with the SEC, furnish to the
Initial Purchasers copies of all such documents proposed to be filed and use
reasonable efforts to reflect in each such document when so filed with the SEC
such comments as the Initial Purchasers reasonably shall propose within three
(3) Business Days of the delivery of such copies to the Initial Purchasers.
(b) Prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable period specified in Section 2(a); cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and use reasonable efforts to comply with the provisions of the Securities Act applicable to it with respect to the disposition of all securities covered by such Registration Statement during the Effectiveness Period in accordance with the intended
methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or such Prospectus as so supplemented.
(c) As promptly as reasonably practicable give notice to the Notice Holders and the Initial Purchasers (i) when any Prospectus, Prospectus supplement, Registration Statement or post-effective amendment to a Registration Statement has been filed with the SEC and, with respect to a Registration Statement or any post-effective amendment, when the same has been declared effective (provided, however, that the Company shall not be required by this clause (i) to notify (A) the Initial Purchasers of the filing of a Prospectus supplement that solely adds one or more Notice Holders as selling security holders or (B) any Notice Holder of the filing of a Prospectus supplement that solely adds one or more other Notice Holders as selling security holders), (ii) of any request, following the effectiveness of the Initial Shelf Registration Statement under the Securities Act, by the SEC or any other federal or state governmental authority for amendments or supplements to any Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC or any other federal or state governmental authority of any stop order or injunction suspending or enjoining the use of any Prospectus or the effectiveness of any Registration Statement or the initiation or threatening of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (v) of the occurrence of (but not the nature of or details concerning) a Material Event (provided, however, that no notice by the Company shall be required pursuant to this clause (v) in the event that the Company either promptly files a Prospectus supplement to update the Prospectus or a Current Report on Form 8-K or other appropriate Exchange Act report that is incorporated by reference into the Registration Statement, which, in either case, contains the requisite information with respect to such Material Event that results in such Registration Statement no longer containing any untrue statement of material fact or omitting to state a material fact necessary to make the statements contained therein not misleading) and (vi) of the determination by the Company that a post-effective amendment to a Registration Statement will be filed with the SEC, which notice may, at the discretion of the Company (or as required pursuant to Section 3(i)), state that it constitutes a Deferral Notice, in which event the provisions of Section 3(i) shall apply.
(d) Use reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement or the lifting of any suspension of qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction in which they have been qualified for sale, in either case as soon as reasonably possible or, if any such order or suspension is made effective during any Deferral Period, as soon as reasonably possible after the expiration of such Deferral Period.
(e) If reasonably requested by the Initial Purchasers or any Notice Holder, as promptly as reasonably practicable incorporate in a Prospectus supplement or post-effective amendment to a Registration Statement such information as the Initial Purchasers or such Notice Holder shall, on the basis of a written opinion of nationally-recognized counsel experienced in such matters, determine to be required to be
included therein by applicable law and make any required filings of such Prospectus supplement or such post-effective amendment; provided, that the Company shall not be required to take any actions under this Section 3(e) that are not, in the reasonable opinion of counsel for the Company, in compliance with applicable law.
(f) As promptly as reasonably practicable after the filing of such documents with the SEC furnish to each Notice Holder and the Initial Purchasers, upon their written request and without charge, at least one (1) conformed copy of the Registration Statement and any amendment thereto, including financial statements, but excluding schedules, all documents incorporated or deemed to be incorporated therein by reference and all exhibits (unless requested in writing to the Company by such Notice Holder or the Initial Purchasers, as the case may be).
(g) During the Effectiveness Period, deliver to each Notice Holder in connection with any sale of Registrable Securities pursuant to a Registration Statement, without charge, as many copies of the Prospectus or Prospectuses relating to such Registrable Securities (including each preliminary prospectus) and any amendment or supplement thereto as such Notice Holder may reasonably request; and the Company hereby consents (except during such periods that a Deferral Notice is outstanding and has not been revoked) to the use of such Prospectus or each amendment or supplement thereto by each Notice Holder in connection with any offering and sale of the Registrable Securities covered by such Prospectus or any amendment or supplement thereto in the manner set forth therein.
(h) Subject to Section 3(i), prior to any public offering of the
Registrable Securities pursuant to the Shelf Registration Statement, use
reasonable efforts to register or qualify or cooperate with the Notice Holders
in connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions within the United
States as any Notice Holder reasonably requests in writing (which request may be
included in the Notice and Questionnaire), it being agreed that no such
registration or qualification will be made unless so requested; prior to any
public offering of the Registrable Securities pursuant to the Shelf Registration
Statement, use reasonable efforts to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
in connection with such Notice Holder's offer and sale of Registrable Securities
pursuant to such registration or qualification (or exemption therefrom) and do
any and all other acts or things necessary to enable the disposition in such
jurisdictions of such Registrable Securities in the manner set forth in the
relevant Registration Statement and the related Prospectus; provided, that the
Company will not be required to (i) qualify as a foreign corporation or as a
dealer in securities in any jurisdiction where it is not otherwise qualified or
(ii) take any action that would subject it to general service of process in
suits or to taxation in any such jurisdiction where it is not then so subject.
(i) Upon (A) the issuance by the SEC of a stop order suspending the effectiveness of the Shelf Registration Statement or the initiation of proceedings with respect to the Shelf Registration Statement under Section 8(d) or 8(e) of the Securities Act, (B) the occurrence of any event or the existence of any fact (a "Material Event") as a result of which any Registration Statement shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or any Prospectus shall contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading (including, in any such case, as a result of the
non-availability of financial statements), or (C) the occurrence or existence of
any pending corporate development that, in the discretion of the Company, makes
it appropriate to suspend the availability of the Shelf Registration Statement
and the related Prospectus, (i) in the case of clause (B) above, subject to the
next sentence, as promptly as practicable prepare and file a post-effective
amendment to such Registration Statement or a supplement to the related
Prospectus or any document incorporated therein by reference or file any other
required document that would be incorporated by reference into such Registration
Statement and Prospectus so that such Registration Statement does not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and such Prospectus does not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, as thereafter delivered to the
purchasers of the Registrable Securities being sold thereunder, and, in the case
of a post-effective amendment to a Registration Statement, subject to the next
sentence, use reasonable efforts to cause it to be declared effective as
promptly as is reasonably practicable, and (ii) give notice to the Notice
Holders that the availability of the Shelf Registration Statement is suspended
(a "Deferral Notice") and, upon receipt of any Deferral Notice, each Notice
Holder agrees not to sell any Registrable Securities pursuant to the
Registration Statement until such Notice Holder's receipt of copies of the
supplemented or amended Prospectus provided for in clause (i) above, or until it
is advised in writing by the Company that the Prospectus may be used, and has
received copies of any additional or supplemental filings that are incorporated
or deemed incorporated by reference in such Prospectus. The Company will use
reasonable efforts to ensure that the use of the Prospectus may be resumed (x)
in the case of clause (A) above, as promptly as is practicable, (y) in the case
of clause (B) above, as soon as, in the sole judgment of the Company, public
disclosure of such Material Event would not be prejudicial to or contrary to the
interests of the Company or, if necessary to avoid unreasonable burden or
expense, as soon as reasonably practicable thereafter and (z) in the case of
clause (C) above, as soon as, in the discretion of the Company, such suspension
is no longer appropriate. So long as the period during which the availability of
the Registration Statement and any Prospectus is suspended (the "Deferral
Period") does not exceed forty-five (45) days during any three (3) month period
or one hundred and twenty (120) days during any twelve (12) month period, the
Company shall not incur any obligation to pay liquidated damages pursuant to
Section 2(e).
(j) If reasonably requested in writing in connection with a disposition of Registrable Securities pursuant to a Registration Statement, make reasonably available for inspection during normal business hours by a representative for the Notice Holders of such Registrable Securities and any broker-dealers, attorneys and accountants retained by such Notice Holders, all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and cause the appropriate executive officers, directors and designated employees of the Company and its subsidiaries to make reasonably
available for inspection during normal business hours all relevant information reasonably requested by such representative for the Notice Holders or any such broker-dealers, attorneys or accountants in connection with such disposition, in each case as is customary for similar "due diligence" examinations; provided, however, that such persons shall first agree in writing with the Company that any information that is reasonably designated by the Company in writing as confidential at the time of delivery of such information shall be kept confidential by such persons and shall be used solely for the purposes of exercising rights under this Agreement, unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (ii) disclosure of such information is required by law (including any disclosure requirements pursuant to federal securities laws in connection with the filing of any Registration Statement or the use of any Prospectus referred to in this Agreement), (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard by any such person or (iv) such information becomes available to any such person from a source other than the Company and such source is not bound by a confidentiality agreement; and provided, further, that the foregoing inspection and information gathering shall, to the greatest extent possible, be coordinated on behalf of all the Notice Holders and the other parties entitled thereto by the counsel referred to in Section 5.
(k) Comply with all applicable rules and regulations of the SEC and make generally available to its security holders earning statements (which need not be audited) satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) commencing on the first day of the first fiscal quarter of the Company commencing after the effective date of a Registration Statement, which statements shall cover said 12-month periods.
(l) Cooperate with each Notice Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities sold pursuant to a Registration Statement, and cause such Registrable Securities to be in such denominations as are permitted by the Indenture and registered in such names as such Notice Holder may request in writing at least two Business Days prior to any sale of such Registrable Securities.
(m) Provide a CUSIP number for all Registrable Securities covered by each Registration Statement not later than the effective date of such Registration Statement and provide the Trustee for the Notes and the transfer agent for the Common Stock with certificates for the Registrable Securities that are in a form eligible for deposit with The Depository Trust Company.
(n) Make reasonable effort to provide such information as is required for any filings required to be made with the National Association of Securities Dealers, Inc.
(o) Upon (i) the filing of the Initial Shelf Registration Statement and
(ii) the effectiveness of the Initial Shelf Registration Statement, announce the
same, in each case by release to Businesswire or other means of dissemination
reasonably expected to make such information known publicly.
(p) Take all actions necessary, or reasonably requested by the Holders of a majority of the Registrable Securities being sold, in order to expedite or facilitate disposition of such Registrable Securities; provided, that the Company shall not be required to take any action in connection with an underwritten offering without its consent (such consent to be withheld or granted in the Company's sole and absolute discretion); and
(q) Cause the Indenture to be qualified under the TIA not later than the effective date of any Registration Statement; and in connection therewith, cooperate with the Trustee to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and execute, and use reasonable efforts to cause the Trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner.
SECTION 4. Holder's Obligations. Each Holder agrees, by acquisition of the
Registrable Securities, that no Holder of Registrable Securities shall be
entitled to sell any of such Registrable Securities pursuant to a Registration
Statement or to receive a Prospectus relating thereto, unless such Holder has
furnished the Company with a Notice and Questionnaire as required pursuant to
Section 2(d) hereof (including the information required to be included in such
Notice and Questionnaire) and the information set forth in the next sentence.
Each Notice Holder agrees promptly to furnish to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such Notice Holder not misleading, any other information
regarding such Notice Holder and the distribution of such Registrable Securities
as may be required to be disclosed in the Registration Statement under
applicable law or pursuant to SEC comments, any information otherwise required
by the Company to comply with applicable law or regulations and any information
as the Company may reasonably request. Each Holder further agrees, following
termination of the Effectiveness Period, to notify the Company within ten (10)
Business Days of a request, of the amount of Registrable Securities sold
pursuant to the Registration Statement and, in the absence of a response, the
Company may assume that all of the Holder's Registrable Securities were so sold.
SECTION 5. Registration Expenses. The Company shall bear all fees and expenses incurred in connection with the performance by the Company of its obligations under Sections 2 and 3 of this Agreement whether or not any of the Registration Statements are declared effective. Such fees and expenses shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (x) with respect to filings required to be made with the National Association of Securities Dealers, Inc. and (y) of compliance with federal and state securities or Blue Sky laws to the extent such filings or compliance are required pursuant to this Agreement (including, without limitation, reasonable fees and disbursements of the counsel specified in the next sentence in connection with Blue Sky qualifications of the Registrable Securities under the laws of such jurisdictions as the Notice Holders of a majority of the Registrable Securities being sold pursuant to a Registration Statement may designate)), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company), (iii) duplication expenses relating to copies of any Registration Statement or Prospectus delivered to any Holders hereunder, (iv) fees and
disbursements of counsel for the Company in connection with the Shelf Registration Statement, and (v) reasonable fees and disbursements of the Trustee and its counsel and of the registrar and transfer agent for the Common Stock. In addition, the Company shall bear or reimburse the Notice Holders for the fees and disbursements of one firm of legal counsel for the Holders, which shall, upon the written consent of the Initial Purchasers (which shall not be unreasonably withheld), be another nationally recognized law firm experienced in securities law matters designated by the Company. In addition, the Company shall pay the internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange on which the same securities of the Company are then listed and the fees and expenses of any person, including special experts, retained by the Company.
SECTION 6. Indemnification; Contribution.
(a) The Company agrees to indemnify and hold harmless the Initial Purchasers and each Holder of Registrable Securities and each person, if any, who controls any Initial Purchaser or any Holder of Registrable Securities within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, as follows:
(i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided, that (subject to Section 6(d) below) any such settlement is effected with the prior written consent of the Company; and
(iii) subject to Section 6(c) below, against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Initial Purchasers, such Holder of Registrable Securities (which also acknowledges the indemnity provisions herein) or any person, if any, who controls any Initial Purchaser or any such Holder of Registrable Securities expressly for use in the Registration Statement (or any amendment thereto), or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto); provided, further, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense (1) arising from an offer or sale of Registrable Securities occurring during a Deferral Period, if a Deferral Notice was given to such Notice Holder in accordance with Section 8(c), or (2) if the Holder fails to deliver at or prior to the written confirmation of sale, the most recent Prospectus, as amended or supplemented, and such Prospectus, as amended or supplemented, would have corrected such untrue statement or omission or alleged untrue statement or omission of a material fact and the delivery thereof was required by law.
(b) In connection with any Shelf Registration in which a Holder, including,
without limitation, the Initial Purchasers, of Registrable Securities is
participating, in furnishing information relating to such Holder of Registrable
Securities to the Company in writing expressly for use in such Registration
Statement, any preliminary prospectus, the Prospectus or any amendments or
supplements thereto, the Holders of such Registrable Securities agree, severally
and not jointly, to indemnify and hold harmless the Initial Purchasers and each
person, if any, who controls any Initial Purchaser within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act and the
Company, and each person, if any, who controls the Company within the meaning of
either such Section, against any and all loss, liability, claim, damage and
expense described in the indemnity contained in subsection (a) of this Section,
as incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), or any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Holder of
Registrable Securities (which also acknowledges the indemnity provisions herein)
or any person, if any, who controls any such Holder of Registrable Securities
expressly for use in the Registration Statement (or any amendment thereto) or
such preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
The Initial Purchasers agree to indemnify and hold harmless the Company,
the Holders of Registrable Securities, and each person, if any, who controls the
Company or any Holder of Registrable Securities within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act against any
and all loss, liability, claim, damage and expense described in the indemnity
contained in subsection (a) of this Section, as incurred, but only with respect
to untrue statements or omissions, or alleged untrue statements or omissions,
made in the Registration Statement (or any amendment thereto), or any
preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company or on behalf of by the Initial Purchasers expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto).
(c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action or proceeding commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of these indemnity provisions. The indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain a separate firm as its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for (a) the reasonable fees and expenses of more than one firm (in addition to any local counsel) for the Initial Purchaser, Holders of Registrable Securities, and all persons, if any, who control the Initial Purchaser or Holders of Registrable Securities within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (b) the reasonable fees and expenses of more than one firm (in addition to any local counsel) for the Company, its directors, and each person, if any, who controls the Company within the meaning of either such Section, and that all such reasonable fees and expenses shall be reimbursed as they are incurred. In the event a separate firm is retained for the Initial Purchasers, Holders of Registrable Securities, and control persons of any Initial Purchaser and Holders of Registrable Securities, such firm shall be designated in writing by the Initial Purchasers. In the event a separate firm is retained for the Company, and such directors, officers and control persons of the Company, such firm shall be designated in writing by the Company. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 6(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 60 days after
receipt by such indemnifying party of aforesaid request, (ii) such indemnifying
party shall have received notice of the terms of such settlement at least 45
days prior to such settlement being entered into and (iii) such indemnifying
party shall not have reimbursed such indemnified party in accordance with such
request prior to the date of such settlement; provided, that an indemnifying
party shall not be liable for any such settlement effected without its consent
if such indemnifying party (1) reimburses such indemnified party in accordance
with such request to the extent it considers such request to be reasonable and
(2) provides written notice to the indemnified party describing any unpaid
balance it believes is unreasonable and the reasons therefor, in each case prior
to the date of such settlement.
(e) If the indemnification to which an indemnified party is entitled under this Section 6 is for any reason unavailable to or insufficient although applicable in accordance with its terms to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, in such proportion as is appropriate to reflect the relative fault of the indemnifying party or parties on the one hand and of the indemnified party on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.
The relative fault of the Company on the one hand and the Holders of the Registrable Securities or the Initial Purchasers on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Holder of the Registrable Securities or the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(e) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 6(e). The aggregate amount of losses, liabilities, claims, damages, and expenses incurred by an indemnified party and referred to above in this Section 6(e) shall be deemed to include any out-of-pocket legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 6, neither the Holder of any Registrable Securities nor the Initial Purchasers shall be required to indemnify or contribute any amount in excess of the amount by which the total price at which the Registrable
Securities sold by such Holder of Registrable Securities or by the Initial Purchasers, as the case may be, and distributed to the public were offered to the public exceeds the amount of any damages that such Holder of Registrable Securities or the Initial Purchasers have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 6(e), each person, if any, who controls any
Initial Purchaser or any Holder of Registrable Securities within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act shall have
the same rights to contribution as the Initial Purchasers or such Holder, and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act shall have the same
rights to contribution as the Company.
SECTION 7. Information Requirements. The Company covenants that, if at any time before the end of the Effectiveness Period the Company is not subject to the reporting requirements of the Exchange Act, it will cooperate with any Holder of Registrable Securities and take such further reasonable action as any Holder of Registrable Securities may reasonably request in writing (including, without limitation, making such reasonable representations as any such Holder may reasonably request), all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitations of Rule 144 and Rule 144A and customarily taken in connection with sales pursuant to such exemptions. Upon the written request of any Holder of Registrable Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such filing requirements, unless such a statement has been included in the Company's most recent report required to be filed and filed pursuant to Section 13 or Section 15(d) of Exchange Act. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities under any section of the Exchange Act.
SECTION 8. Miscellaneous
(a) No Conflicting Agreements. The Company is not, as of the date hereof, a party to, nor shall it, on or after the date of this Agreement, enter into, any agreement with respect to the Company's securities that conflicts with the rights granted to the Holders of Registrable Securities in this Agreement. The Company represents and warrants that the rights granted to the Holders of Registrable Securities hereunder do not in any way conflict with the rights granted to the holders of the Company's securities under any other agreements.
(b) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of a majority of the then
outstanding Underlying Common Stock constituting Registrable Securities
(with Holders of Notes or Semi-Annual Coupon Notes deemed to be the Holders, for
purposes of this Section, of the number of outstanding shares of Underlying
Common Stock into which such Notes or Semiannual Coupon Notes are or would be
convertible or exchangeable as of the date on which such consent is requested).
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders of Registrable Securities whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other Holders of Registrable Securities may be given by Holders of at
least a majority of the Registrable Securities being sold by such Holders
pursuant to such Registration Statement; provided, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence. Each Holder of Registrable
Securities outstanding at the time of any such amendment, modification,
supplement, waiver or consent or thereafter shall be bound by any such
amendment, modification, supplement, waiver or consent effected pursuant to this
Section 8(b), whether or not any notice, writing or marking indicating such
amendment, modification, supplement, waiver or consent appears on the
Registrable Securities or is delivered to such Holder.
(c) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand delivery, by telecopier, by courier
guaranteeing overnight delivery or by first-class mail, return receipt
requested, and shall be deemed given (i) when made, if made by hand delivery,
(ii) upon confirmation, if made by telecopier, (iii) one (1) Business Day after
being deposited with such courier, if made by overnight courier or (iv) on the
date indicated on the notice of receipt, if made by first-class mail, to the
parties as follows:
if to a Holder of Registrable Securities that is not a Notice Holder, at the address for such Holder then appearing in the Registrar (as defined in the Indenture);
if to a Notice Holder, at the most current address given by such Holder to the Company in a Notice and Questionnaire or any amendment thereto;
if to the Company, to:
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890
Telephone No. (973) 948-1322
Facsimile No. (973) 948-0282
Attention: General Counsel
and
Shearman & Sterling 599 Lexington Avenue New York, NY 10022 Telephone No. (212) 848-4813 Facsimile No. (646) 848-4813 Attention: Michael Schiavone
and
if to the Initial Purchasers, to:
Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated
4 World Financial Center
New York, New York 10080
Attention: Jeff Consolino
Telephone No. (212) 449-8333
Facsimile No. (212) 449-6739
or to such other address as such person may have furnished to the other persons identified in this Section 8(c) in writing in accordance herewith.
(d) Approval of Holders. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its Affiliates (other than the Initial Purchasers or subsequent Holders of Registrable Securities if such subsequent Holders are deemed to be such affiliates solely by reason of their holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.
(e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties and, without requiring any express assignment, shall inure to the benefit of and be binding upon each Holder of any Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be original and all of which taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.
(i) Severability. If any term, provision, covenant or restriction of this Agreement is held to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law.
(j) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and the registration rights granted by the Company with respect to the Registrable Securities. Except as provided in the Purchase Agreement, there are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Company with respect to the Registrable Securities. This Agreement supersedes all prior agreements and undertakings among the parties with respect to such registration rights.
(k) Termination. This Agreement and the obligations of the parties hereunder shall terminate upon the end of the Effectiveness Period, except for any liabilities or obligations under Sections 4, 5 or 6 hereof and the obligations to make payments of and provide for liquidated damages under Section 2(e) hereof to the extent such damages accrue prior to the end of the Effectiveness Period, each of which shall remain in effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.
Very truly yours,
SELECTIVE INSURANCE GROUP, INC.
By /s/ Dale A. Thatcher
--------------------------
Name: Dale A. Thatcher
Title: Senior Vice
President and Chief
Financial Officer
|
Accepted as of the date
first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
CREDIT SUISSE FIRST BOSTON CORPORATION
FERRIS, BAKER WATTS, INCORPORATED
SANDLER O'NEILL & PARTNERS, L.P.
AS THE SEVERAL INITIAL PURCHASERS
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:/s/ Joseph E. (Jeff) Consolino ------------------------------ Name: Title: |
For itself and on behalf of the other Initial Purchasers named in Schedule A to the Purchase Agreement
[LOGO OF SELECTIVE INSURANCE GROUP, INC.]
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890
Tel: 973 948 1322
Fax: 973-948-0282
E-mail: thornton.land@selective.com
Thornton R. Land
Executive Vice President
November 26, 2002
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, NJ 07890
Ladies and Gentlemen:
This opinion is furnished to you in connection with a registration statement on Form S-3 (the "Registration Statement"), filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended, for the registration of $305,000,000 aggregate principal amount at maturity of Senior Convertible Notes due 2032 (the "Notes") of Selective Insurance Group, Inc., a New Jersey corporation (the "Company"), and 3,958,382 shares of common stock of the Company, par value $2.00 per share (the "Shares"), issuable upon conversion of the Notes. The Notes and the Shares are being registered on behalf of the holders of the Notes.
As Executive Vice President and General Counsel for the Company, I have examined and relied upon the information set forth in the Registration Statement, the Indenture dated as of September 24, 2002 (the "Indenture"), between the Company and National City Bank, as trustee (the "Trustee"), a specimen of the Notes and the originals, or copies identified to my satisfaction, of such corporate records of the Company, certificates of public officials, officers of the Company and other persons, and such other documents, agreements and instruments as I have deemed necessary as a basis for the opinion hereinafter expressed. In my examinations, I have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to me as originals and the conformity with the originals of all documents submitted to me as copies.
My opinions set forth below are limited to the law of the State of New Jersey and the federal laws of the United States, and I do not express any opinion concerning any other law.
Based upon and subject to the foregoing, I am of the opinion that:
(i) The Notes have been duly authorized by the Company and, assuming the Notes have been duly authenticated by the Trustee in accordance with the provisions of the Indenture, constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors' rights generally, and except as the enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law).
(ii) The Shares issuable upon conversion of the Notes have been duly and validly authorized and reserved for issuance upon such conversion by all necessary corporate action, and such Shares, when issued upon conversion of the Notes in accordance with the terms of the Indenture, will be duly and validly issued and fully paid and non-assessable.
I understand that this opinion is to be used in connection with the Registration Statement. I hereby consent to the filing of this opinion as part of the Registration Statement and to the use of my name therein and in the related prospectus under the caption "Legal Matters."
Very truly yours,
/s/ Thornton R. Land Thornton R. Land |
Selective Insurance Group, Inc.
Computation of ratio of earnings to fixed charges
(in thousands, except for ratios)
Nine Months
Ended
September 30, Year ended December 31,
2002 2001 2000 1999 1998 1997
---- ---- ---- ---- ---- ----
Pre-tax income (1) $35,596 $23,698 $24,544 $63,403 $63,704 $ 91,020
Add: fixed charges 12,598 17,402 16,385 11,714 11,275 11,104
------ ------ ------- ------- ------- --------
Income, as adjusted $48,194 $41,100 $40,929 $75,117 $74,979 $102,124
======= ======= ======= ======= ======= ========
Fixed charges:
Interest expense $10,457 $14,019 $13,745 $ 9,270 $ 9,409 $ 9,592
Debt expense 102 136 108 64 73 81
Portion of rents representative of
the interest factor 2,039 2,740 2,532 2,380 1,793 1,431
------- ------- ------- ------- ------- --------
Total fixed charges $12,598 $17,402 $16,385 $11,714 $11,275 $ 11,104
======= ======= ======= ======= ======= ========
Ratio of earnings to fixed charges 3.8 2.4 2.5 6.4 6.7 9.2
=== === === === === ===
|
(1) 2000 and prior years have not been restated for the effects of accounting for PDA Software Services, Inc. as a discontinued operation.
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Selective Insurance Group, Inc.
We consent to incorporation by reference in the registration statement on Form S-3 of Selective Insurance Group, Inc. of our reports dated February 6, 2002, relating to the consolidated balance sheets of Selective Insurance Group, Inc. and its subsidiaries as of December 31, 2001 and 2000, and related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2001, and all related financial statement schedules, which reports appear in or are incorporated by reference in the December 31, 2001 annual report on Form 10-K of Selective Insurance Group, Inc. and to the reference to our firm under the heading "Experts" in the registration statement on Form S-3 of Selective Insurance Group, Inc.
/s/ KPMG LLP ------------------------ New York, New York November 26, 2002 |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an application to determine eligibility of a Trustee pursuant to section 305(b) (2)
NATIONAL CITY BANK
( Exact name of Trustee as specified in its charter)
34-0420310
(I.R.S. Employer Identification No.)
1900 East Ninth Street
Cleveland, Ohio 44114
(Address of principal executive offices) (zip code)
David L. Zoeller
Senior Vice President and General Counsel
National City Corporation
1900 East Ninth Street
Cleveland, Ohio 44114
(216) 575-9313
(Name, address and telephone number of agent for service)
SELECTIVE INSURANCE GROUP, INC.
(Exact name of obligor as specified in its charter)
NEW JERSEY 22-2168890
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40 Wantage Avenue
Branchville, New Jersey 07890
(Address of principal (zip code)
executive offices)
Senior Convertible Notes due 2032
(Title of the Indenture securities)
|
GENERAL
1. General information. Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it is subject.
Comptroller of the Currency, Washington, D.C. The Federal Reserve Bank of Cleveland, Cleveland, Ohio Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
National City Bank is authorized to exercise corporate trust powers.
2. Affiliations with obligor. If the obligor is an affiliate of the trustee, describe such affiliation.
NONE
16. List of exhibits
(1) A copy of the Articles of Association of the Trustee.
Incorporated herein by reference is Charter No. 786 Merger No. 1043 the Articles of Association of National City Bank, which Articles of Association were included as a part of Exhibit 1 to Form T-1 filing made by said National City Bank with the Securities and Exchange Commission in November 1973 (File No. 2-49786).
Incorporated herein by reference is an amendment to the Articles of Association of National City Bank, which amendment was included as a part of Exhibit 1 to Form T-1 filing made by said National City Bank with the Securities and Exchange Commission in April 1996 (File No. 333-02761)
(2) A copy of the certificate of authority of the Trustee to commence business:
(a) a copy of the certificate of NCB National Bank to commence business.
Incorporated herein by reference is a true and correct copy of the certificate issued by the Comptroller of the Currency under date of April 26, 1973, whereby NCB National Bank was authorized to commence the business of banking as a National banking Association, which true copy of said Certificate was included as Exhibit 2(a) to Form T-1 filing made by said National City Bank with the Securities and Exchange Commission in November 1973 (File 2-49786)
(b) a copy of the approval of the merger of The National City Bank of Cleveland into NCB National Bank under the charter of NCB National Bank and under the title "National City Bank."
Incorporated herein by reference is a true and correct copy of the certificate issued by the Comptroller of the Currency under date of April 27, 1973, whereby the National City Bank of Cleveland was merged into NCB National Bank, which true copy of said certificate was included as Exhibit 2(b) to Form T-1 filing made by said National City Bank with the Securities and Exchange Commission in November 1973 (File 2-49786).
(3) A copy of the authorization of the Trustee to exercise corporate trust powers.
Incorporated herein by reference is a true and correct copy of the certificate dated April 13, 1973 issued by the Comptroller of the Currency whereby said National City Bank has been granted the right to exercise certain trust powers, which true copy of said certificate was included as Exhibit 3 to Form T-1 filing made by said National City Bank with the Securities and Exchange Commission in November 1973 (File 2-49786).
(4) A copy of existing By-Laws of the Trustee.
Incorporated herein by reference is a true and correct copy of the National City Bank By-Laws as amended through January 1, 1993. This true copy of said By-Laws was included as Exhibit 4 to Form T-1 filing made by National City Bank with the Securities and Exchange Commission in March, 1995 (File 22-26594).
(5) Not applicable.
(6) Consent of the United States Institutional Trustee required by Section 321(b) of the Act.
Attached hereto as Exhibit 6 is the Consent of the Trustee in accordance with Section 321 (b) of the Trust Indenture Act of 1939 as amended.
(7) A copy of the latest report of condition of the Trustee published pursuant to law or the requirements of its supervising or examining authority.
Attached hereto as Exhibit 7 is the latest report of condition of National City Bank.
(8) Not applicable.
(9) Not applicable.
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended, and to the extent required thereby to enable it to act as an indenture trustee, National City Bank hereby consents as of the date hereof that reports of examinations of it by the Treasury Department, the Comptroller of the Currency, the Board of Governors of the Federal Reserve Banks, the Federal Deposit Insurance Corporation or of any other Federal or State authority having the right to examine National City Bank, may be furnished by similar authorities to the Securities and Exchange Commission upon request thereon.
NATIONAL CITY BANK
By /s/ Faith Berning
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Faith Berning
Sr. Vice President
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SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee, National City Bank, a national banking association organized and existing under the laws of the United States of America, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Cleveland, and State of Ohio, on the 22nd day of November, 2002.
NATIONAL CITY BANK
By /s/ Faith Berning
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Faith Berning
Sr. Vice President
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REPORT OF CONDITION
NATIONAL CITY BANK
(Including Domestic and Foreign Subsidiaries) In the State of Ohio, at the close of business on September 30, 2002
ASSETS
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(In Thousands)
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin .................... $ 1,885,830
Interest-bearing balances ............................................. 850
Securities:
Held-to-maturity securities ........................................... 0
Available-for-sale securities ......................................... 4,371,854
Federal funds sold and securities purchased under agreement to resell:
Federal funds sold in domestic offices ................................ 14,900
Securities purchased under agreements to resell ....................... 66,239
Loans and lease financing receivables:
Loans and leases held for sale ........................................ 249,958
Loans and leases, net of unearned income .................. $ 32,738,032
Less: Allowance for loan and lease losses ................. 472,270
Loans and leases, net of unearned income and allowance ................ 32,265,762
Assets held in trading accounts ............................................ 302,944
Premises and fixed assets (including capitalized leases) ................... 400,710
Other real estate owned .................................................... 7,785
Customers' liability to this bank on acceptances outstanding ............... 4,509
Intangible assets .......................................................... 93,725
Other assets ............................................................... 3,348,943
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TOTAL ASSETS .......................................................... $ 43,014,009
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LIABILITIES
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Deposits:
In domestic offices ................................................... $ 20,228,979
Non-interest bearing .................................. $ 4,594,810
Interest-bearing ...................................... 15,634,169
In foreign offices, Edge and Agreement subsidiaries, and IBFs ......... 1,817,628
Interest-bearing ...................................... 1,817,628
Federal funds purchased and securities sold under agreements to repurchase..
Federal funds purchased in domestic offices ........................... 1,096,867
Securities sold under agreements to repurchase ........................ 1,296,421
Trading Liabilities ........................................................ 20
Other borrowed money ....................................................... 11,609,327
Bank's liability on acceptances executed and outstanding ................... 4,509
Subordinated notes and debentures .......................................... 1,355,376
Other liabilities .......................................................... 2,695,549
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TOTAL LIABILITIES ..................................................... 40,104,676
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EQUITY CAPITAL
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Common Stock ............................................................... 7,311
Surplus .................................................................... 563,618
Retained earnings .......................................................... 2,364,299
Accumulated other comprehensive income ..................................... (25,895)
TOTAL EQUITY CAPITAL .................................................. 2,909,333
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TOTAL LIABILITIES AND EQUITY CAPITAL .................................. $ 43,014,009
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