MASTER INVESTMENT AND SECURITIES PURCHASE AGREEMENT By and Between WINGATE CAPITAL LTD. and E*TRADE FINANCIAL CORPORATION Dated as of November 29, 2007
Exhibit
10.1
By
and
Between
▇▇▇▇▇▇▇
CAPITAL LTD.
and
E*TRADE
FINANCIAL CORPORATION
Dated
as
of November 29, 2007
Table
of Contents
Page
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ARTICLE
I
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Definitions
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Section
1.01.
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Definitions
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2
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Section
1.02.
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General
Interpretive Principles
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7
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ARTICLE
II
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Sale
and Purchase of the Securities
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Section
2.01.
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Initial
Closing and Final Closing
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7
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ARTICLE
III
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Representations
and Warranties
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Section
3.01.
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Representations
and Warranties of the Company
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11
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Section
3.02.
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Representations
and Warranties of Purchaser
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23
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ARTICLE
IV
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Additional
Agreements of the Parties
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Section
4.01.
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Taking
of Necessary Action
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25
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Section
4.02.
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Financial
Statements and Other Reports
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25
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Section
4.03.
|
Inspection
of Property
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25
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Section
4.04.
|
Securities
Laws; Legends; Transferability.
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26
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Section
4.05.
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Lost,
Stolen, Destroyed or Mutilated Securities
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27
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Section
4.06.
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Regulatory
Matters
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27
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Section
4.07.
|
Board
of Directors
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29
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|
Section
4.08.
|
Confidentiality
Agreement; Publicity
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30
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Section
4.09.
|
PORTAL
and CUSIPs and DTC Eligibility
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30
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Section
4.10.
|
NASDAQ
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30
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Section
4.11.
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Replacement
of Revolving Credit Facility
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30
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Section
4.12.
|
10-K
Filing
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30
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Section
4.13.
|
Purchaser
Acquisition of Additional Common Stock
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30
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Section
4.14.
|
Use
of Proceeds
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31
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Section
4.15.
|
Investment
Policy Covenant
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31
|
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Section
4.16.
|
Put
Rights
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32
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Section
4.17.
|
Call
Rights
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32
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Section
4.18.
|
Change
of Control
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33
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ARTICLE
V
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|
Conditions
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Section
5.01.
|
Conditions
of Purchase at Initial Closing
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33
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Section
5.02.
|
Conditions
of Sale at Initial Closing
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35
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-i-
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Section
5.03.
|
Conditions
of Purchase at Final Closing
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36
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Section
5.04.
|
Conditions
of Sale at Final Closing
|
36
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ARTICLE
VI
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|
Miscellaneous
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Section
6.01.
|
Survival
of Representations and Warranties
|
37
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Section
6.02.
|
Notices
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37
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Section
6.03.
|
Entire
Agreement; Third Party Beneficiaries; Amendment
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38
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Section
6.04.
|
Termination
of Final Closing Obligation
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38
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Section
6.05.
|
Counterparts
|
38
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Section
6.06.
|
Governing
Law
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38
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|
Section
6.07.
|
Public
Announcements
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39
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Section
6.08.
|
Expenses
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39
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|
Section
6.09.
|
Indemnification
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39
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Section
6.10.
|
Successors
and Assigns
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42
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Section
6.11.
|
Remedies;
Waiver
|
42
|
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Section
6.12.
|
Securities
Contract; Qualified Financial Contract
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42
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|
Section
6.13.
|
Consent
to Jurisdiction; WAIVER OF JURY TRIAL
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43
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Section
6.14.
|
Severability
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43
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Section
6.15.
|
Headings
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43
|
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Section
6.16.
|
Aggregation
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43
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Section
6.17.
|
Specific
Performance
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43
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Section
6.18.
|
Arm’s
Length Transactions
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43
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Section
6.19.
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No
Presumption
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43
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Exhibits
A - Form
of Indenture for Springing Lien Notes (including form of Springing Lien
Notes)
B - Form
of Order Handling Agreement
B-1
- Form of Canadian Direct Market Access Agreement
C - ABS
Purchase Agreement
D - Form
of Registration Rights Agreement
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E
- Form of Parent
Guaranty
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-ii-
MASTER
INVESTMENT AGREEMENT
MASTER
INVESTMENT AND SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as
of November 29, 2007, by and between ▇▇▇▇▇▇▇ Capital Ltd. (“Purchaser”),
and E*Trade Financial Corporation, a Delaware corporation (the
“Company”). Capitalized terms not otherwise defined where used shall have
the meanings ascribed thereto in ARTICLE I.
RECITALS:
WHEREAS,
at the Initial Closing (as defined below) Purchaser has agreed to purchase
and
the Company has agreed to issue or sell, or to cause one of its Subsidiaries,
in
the case of clause (d) below, to sell, subject to the terms and conditions
of
this Agreement:
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(a)
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$1,500,152,000
aggregate principal amount of its 12.5% Springing Lien Notes due
2017 (the
“Springing Lien Notes”) to be issued at the Initial Closing in
accordance with the terms and conditions of the Indenture for the
Springing Lien Notes in the form attached hereto as Exhibit A (the
“Springing Lien Notes
Indenture”);
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(b)
|
$185,848,000
aggregate principal amount of its Springing Lien Notes in exchange
for the
Existing Notes Consideration (as defined
below);
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(c)
|
30,741,901
shares of the Company’s common stock, par value $.01 per share (the
“Common Stock”), of which 10,000,000 will be issued to Purchaser at
the Initial Closing and 20,741,901 will be issued to Purchaser immediately
following termination or expiration of any applicable waiting period
under
the HSR Act with respect to such issuance;
and
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(d)
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the
ABS Assets pursuant to the ABS Purchase Agreement (each as defined
below).
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WHEREAS,
at the Initial Closing, (a) Purchaser or an Affiliate of Purchaser, the Company
and E*Trade Securities LLC will enter into an Equities and Options Order
Handling Agreement in the form attached hereto as Exhibit B to route 40%
of the retail “normal market size” or NMS securities order flow and all of the
options order flow of the Company, E*Trade Securities LLC and any other
affiliate of the Company to Purchaser or its Affiliate for a three-year period,
and (b) Purchaser or an Affiliate of Purchaser, and E*Trade Capital Markets
LLC
will enter into a Canadian Direct Market Access Agreement in the form attached
hereto as Exhibit B-1 (such agreements together, the “Order
Handling Agreement”);
WHEREAS,
the OTS has indicated their approval of a notice filed by the
Company pursuant to 12 CFR 563.22(c) with respect to the transfer of
the ABS Assets;
WHEREAS,
the Company has agreed to issue to Purchaser subject to the terms and conditions
of this Agreement:
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(a)
|
an
additional $150,000,000 aggregate principal amount of its Springing
Lien
Notes; and
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(b)
|
an
additional 49,125,186 shares of Common Stock (together with the shares
of
Common Stock issued pursuant to clause (c) of the first WHEREAS clause,
the “Purchased Common Stock” and the Purchased Common Stock
together with the Springing Lien Notes being issued pursuant to this
Agreement, the “Securities”);
and
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WHEREAS,
the Company and Purchaser desire to set forth certain agreements
herein.
NOW
THEREFORE, in consideration of the premises and the representations, warranties
and agreements herein contained and intending to be legally bound hereby, the
parties hereby agree as follows:
ARTICLE
I
Definitions
Section
1.01. Definitions.
As
used in
this Agreement, the following terms shall have the meanings set forth
below:
“ABS
Assets” shall mean the Company’s portfolio of asset backed securities listed
on Schedule A to the ABS Purchase Agreement.
“ABS
Purchase Agreement” shall mean the purchase agreement to be executed by the
Company, E*Trade Bank, E*Trade Global Asset Management, Inc., and Purchaser
or
its Affiliate at the Initial Closing with respect to the purchase by Purchaser
or its Affiliate of the ABS Assets, which shall be in the form attached hereto
as Exhibit C.
“Affiliate”
or “affiliate” shall mean, with respect to any Person, any other Person
which directly or indirectly controls or is controlled by or is under common
control with such Person. As used in this definition, “control” (including its
correlative meanings, “controlled by” and “under common control with”) shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities
or
partnership or other ownership interests, by contract or otherwise). To the
extent that any such term is used in relation to or in connection with any
statute and the definition of such term in such statute is broader or different,
then, in such context, such term shall have the meaning set forth in such
statute.
“Agreement”
shall have the meaning set forth in the preamble hereto.
“Ancillary
Documents” shall mean the Registration Rights Agreement, the ABS Purchase
Agreement, the Springing Lien Notes Indenture (including the Springing Lien
Notes), and the Order Handling Agreement.
“Banking
Authority” shall have the meaning set forth in Section 3.01(q).
-2-
“Business
Day” shall mean any day, other than a Saturday, Sunday or a day on which
banking institutions in the City of New York, New York are authorized or
obligated by law or executive order to close.
“Change
of Control” shall have the meaning given to such term in the Springing Lien
Notes Indenture.
“Change
of Control
Agreement” means a
definitive agreement the consummation of which will result in a Change of
Control.
“Change
of Control Payment
Amount” shall
have the meaning set forth in Section 4.17.
“CIBC
Act” shall mean the Change in Bank Control Act, as amended, 12 U.S.C.
§1817(j).
“Code”
shall mean the United States Internal Revenue Code of 1986, as
amended.
“Commitment
Fee” shall mean $47,142,857.14.
“Common
Stock” shall have the meaning set forth in the Recitals.
“Company”
shall have the meaning set forth in the preamble hereto.
“Company
Disclosure Schedule” shall have the meaning set forth in Section
3.01.
“Company
Group” shall have the meaning set forth in Section 3.01(k).
“Company
Indemnitees” shall have the meaning set forth in Section
6.09(b).
“Company
Pension Plans” and “Company Plans” shall have the meanings set forth
in Section 3.01(k).
“Competitor”
shall mean any of the entities listed on Section 1.01 of the Company Disclosure
Schedule.
“Confidentiality
Agreement” shall mean that certain Mutual Non-Disclosure Agreement, dated
November 12, 2007, between the Company and Citadel Limited
Partnership.
“Deductible”
shall have the meaning set forth in Section 6.09(d).
“DGCL”
shall mean the Delaware General Corporation Law.
“ERISA”
shall have the meaning set forth in Section 3.01(k).
“Exchange
Act” shall mean the Securities Exchange Act of 1934, as
amended.
“Existing
Notes Accrued Interest” shall mean an amount in cash equal to all accrued
and unpaid interest on the notes constituting the Existing Notes Consideration
calculated through and including the Initial Closing Date.
-3-
“Existing
Notes Consideration” shall mean $185,848,000 in aggregate principal amount
of the Company’s (A) 8% senior notes due 2011, (B) 7.875% senior notes due 2015
and/or (C) 7.375% senior notes due 2013, held by Purchaser or one of its
Affiliates on the Initial Closing Date.
“E*Trade
Bank” shall mean E*Trade Bank and each of its Subsidiaries.
“FDIC”
shall mean the Federal Deposit Insurance Corporation.
“Final
Cash Consideration” shall mean initially $150,000,000, and shall be reduced
in accordance with the provisions of Section 2.01(c)(v).
“Final
Closing” and “Final Closing Date” shall have the meanings set forth
in Section 2.01(b).
“GAAP”
shall mean generally accepted accounting principles in the United States of
America.
“Governmental
Entity” shall mean any court, administrative agency or commission or other
governmental authority or instrumentality, whether federal, state, local or
foreign, and any applicable industry self-regulatory organization.
“HSR
Act” shall mean the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended.
“Indemnified
Party” shall have the meaning set forth in Section 6.09(f).
“Indemnifying
Party” shall have the meaning set forth in Section 6.09(f).
“Initial
Closing” and “Initial Closing Date” shall have their meanings set
forth in Section 2.01(a).
“Initial
Consideration” shall mean $1,500,152,000.
“Intellectual
Property” shall mean trademarks, service marks, brand names, certification
marks, trade dress and other indications of origin, the goodwill associated
with
the foregoing and registrations in any jurisdiction of, and applications in
any
jurisdiction to register, the foregoing, including any extension, modification
or renewal of any such registration or application; inventions, discoveries
and
ideas, whether patentable or not, in any jurisdiction; patents, applications
for
patents (including divisions, continuations, continuations in part and renewal
applications), and any renewals, extensions or reissues thereof, in any
jurisdiction; nonpublic information, trade secrets and confidential information
and rights in any jurisdiction to limit the use or disclosure thereof by any
person; writings and other works, whether copyrightable or not, in any
jurisdiction; and registrations or applications for registration of copyrights
in any jurisdiction, and any renewals or extensions thereof; and any similar
intellectual property or proprietary rights.
“IRS”
shall have the meaning set forth in Section 3.01(l).
-4-
“Loan
Portfolio Announcement” shall have the meaning set forth in Section
6.07.
“Loss”
shall have the meaning set forth in Section 6.09(a).
“Material
Adverse Effect” shall mean any material adverse effect on (a) the financial
condition, results of operations, assets, liabilities or business of the Company
and its Subsidiaries taken as a whole (provided, however,
that, with respect to this clause (a), a “Material Adverse Effect” shall not be
deemed to include any effects to the extent resulting from (i) changes, after
the date hereof, in generally accepted accounting principles or regulatory
accounting requirements applicable to companies in the industries in which
the
Company and its Subsidiaries operate, (ii) changes, after the date hereof,
in
laws, rules or regulations of general applicability or interpretations thereof
by Governmental Entities, (iii) actions or omissions of the Company taken with
the prior written consent of Purchaser, (iv) changes, after the date hereof,
in
general economic or market conditions generally affecting the other companies
in
the industries in which the Company and its Subsidiaries operate, (v) any change
in the market price or trading volume of the Common Stock or other securities
of
the Company after the date hereof (provided that this clause (v) shall not
exclude any underlying circumstance, change, event, fact, development or effect
which may have caused such change in market price or trading volume), (vi)
the
failure of the Company to meet any internal or public projections, forecasts
or
estimates or earnings for any period ending on or after September 30, 2007
(provided that this clause (vi) shall not exclude any underlying circumstance,
change, event, fact, development or effect which may have caused such failure
to
meet projections, forecasts, estimates or earnings), or (vii) changes in global,
national or regional political conditions, including the outbreak or escalation
of war or acts of terrorism, except, with respect to clauses (i), (ii), (iv)
and
(vii), to the extent such changes are disproportionately adverse to the
financial condition, results of operations, assets, liabilities or business
of
the Company and its Subsidiaries, taken as a whole, as compared with other
companies participating in the applicable industry), (b) the ability of the
Company to perform its obligations under this Agreement or the Ancillary
Documents or (c) the validity or enforceability of this Agreement or any of
the
Ancillary Documents or the rights or remedies of Purchaser hereunder and
thereunder.
“NASDAQ”
shall mean the Nasdaq Global Market of the Nasdaq Stock Market,
Inc.
“Order
Handling Agreement” shall have the meaning set forth in the
Recitals.
“OTS”
shall mean the Office of Thrift Supervision.
“Parent
Guaranty” shall mean the Guaranty in the form attached hereto as Exhibit
E pursuant to which Citadel Wellington LLC will guaranty, on the terms and
conditions set forth therein, certain obligations of Purchaser hereunder and
under the Registration Rights Agreement.
“Permitted
Transfer” shall mean any Transfer by Purchaser (i) to an Affiliate; (ii) in
the form of a pledge, hypothecation (provided such hypothecation does not
require registration under the Securities Act) or encumbrance of such Purchased
Common Stock for financing purposes; (iii) to an acquiring or offering Person
in
a transaction that is a Change of Control (as defined in the Springing Liens
Notes Indenture) or a tender offer for more than a majority of the outstanding
shares of the Company’s Common Stock, or (iv) with respect to any Purchaser
that
-5-
is
an
investment fund, any other investment fund with respect to which the sponsor
and
discretionary investment manager or advisor of such Purchaser or an Affiliate
thereof, serves as sponsor and discretionary investment manager or
advisor.
“Person”
or “person” shall mean an individual, corporation, association,
partnership, group (as such term is used in Section 13(d)(3) of the Exchange
Act), trust, joint venture, business trust or unincorporated organization,
or a
government or any agency or political subdivision thereof.
“Purchased
Common Stock” shall have the meaning set forth in the Recitals.
“Purchaser”
shall have the meaning set forth in the preamble hereto.
“Purchaser
Indemnitees” shall have the meaning set forth in Section
6.09(a).
“Purchaser
Information” shall have the meaning set forth in Section
3.02(f).
“Purchaser
Schedule” shall mean a schedule to this Agreement provided or required to be
provided by Purchaser.
“Recent
10-K” shall have the meaning set forth in Section 3.01.
“Registration
Rights Agreement” shall mean the registration rights agreement to be
executed by the Company and Purchaser at the Initial Closing, which shall be
in
the form attached hereto as Exhibit D.
“Regulatory
Filings” shall have the meaning set forth in Section 3.01(r).
“Reports”
shall have the meaning set forth in Section 3.01(f).
“Restated
Certificate of Incorporation” shall mean the Restated Certificate of
Incorporation of the Company as filed as Exhibit 3.1 to the Company’s
Quarterly Report on Form 10-Q, filed November 7, 2003.
“Rights
Agreement” shall have the meaning set forth in Section 3.01(e).
“S&LHC
Act” shall mean the Savings and Loan Holding Company Act, as amended, 12
U.S.C. §1467a.
“SEC”
shall mean the United States Securities and Exchange Commission.
“Securities”
shall have the meaning set forth in the Recitals.
“Securities
Act” shall mean the Securities Act of 1933, as amended.
“Springing
Lien Notes” shall have the meaning set forth in the Recitals.
“Springing
Lien Notes Indenture” shall have the meaning set forth in the
Recitals.
-6-
“Subsidiary”
shall mean, with respect to any Person, any other Person of which 50% or more
of
the shares of the voting securities or other voting interests are owned or
controlled, or the ability to select or elect 50% or more of the directors
or
similar managers is held, directly or indirectly, by such first Person or one
or
more of its Subsidiaries, or by such first Person, or by such first Person
and
one or more of its Subsidiaries.
“Tax”
or “Taxes” shall mean all federal, state, local, and foreign income,
excise, gross receipts, gross income, ad valorem, profits, gains, property,
capital, sales, transfer, use, payroll, employment, severance, withholding,
duties, intangibles, franchise, backup withholding, and other taxes, charges,
levies or like assessments together with all penalties and additions to tax
and
interest thereon.
“Tax
Return” shall mean a report, return or other information (including any
amendments) required to be supplied to a governmental entity with respect to
Taxes including, where permitted or required, combined or consolidated returns
for any group of entities that includes the Company or any of its
Subsidiaries.
“Transactions”
shall have the meaning set forth in Section 3.01(c).
“Transfer”
shall mean, directly or indirectly, to sell, transfer, assign, pledge, encumber,
hypothecate or similarly dispose of, or to enter into any contract, option
or
other arrangement or understanding with respect to the sale,
transfer, assignment, pledge, encumbrance, hypothecation or similar
disposition of, and shall include a short sale or the entry into of any other
hedging or other derivative transaction that has the effect of materially
changing the economic benefits and risks of ownership.
“Voting
Debt” shall have the meaning set forth in Section 3.01(e).
“Well
Capitalized” shall have the meaning set forth in 12 C.F.R. §
565.4(b)(1).
Section
1.02. General Interpretive
Principles. Whenever used in this Agreement, except as otherwise
expressly provided or unless the context otherwise requires, any noun or pronoun
shall be deemed to include the plural as well as the singular and to cover
all
genders. The name assigned this Agreement and the section captions used herein
are for convenience of reference only and shall not be construed to affect
the
meaning, construction or effect hereof. Whenever the words “include,”
“includes,” or “including” are used in this Agreement, they shall be deemed to
be followed by the words “without limitation.” Unless otherwise
specified, the terms “hereto,” “hereof,” “herein” and similar terms refer to
this Agreement as a whole (including the exhibits, schedules and disclosure
statements hereto), and references herein to Articles or Sections refer to
Articles or Sections of this Agreement.
ARTICLE
II
Sale
and Purchase of the Securities
Section
2.01. Initial Closing and Final Closing.
(a) Initial
Closing.
-7-
(i) Subject
to the satisfaction or waiver of the conditions set forth in Section 5.01 and
Section 5.02 of this Agreement, and in reliance upon the representations and
warranties hereinafter set forth, the purchase and sale of:
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(A)
|
$1,686,000,000
aggregate principal amount of Springing Lien
Notes;
|
|
(B)
|
10,000,000
shares of the Purchased Common Stock;
and
|
|
(C)
|
the
ABS Assets (the “Initial
Closing”)
|
shall
take place at the offices of Fried, Frank, Harris, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP,
▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇, concurrently with the execution and delivery
of this Agreement by the parties (the date that the Initial Closing occurs,
the
“Initial Closing Date”).
(ii) At
the Initial Closing: (A) the Company will deliver to Purchaser (1) certificates
for the shares of Common Stock in the amounts set forth in the Section
2.01(a)(i)(B) registered in the name of Purchaser; (2) $1,686,000,000 of
executed Springing Lien Notes which shall be reflected in one or more global
notes representing the Springing Lien Notes and held by The Depository Trust
Corporation or its nominee (or a custodian on its behalf); (3) an executed
copy
of the ABS Purchase Agreement, the Registration Rights Agreement, the Springing
Lien Notes Indenture and the Order Handling Agreement; (4) the Commitment Fee
by
wire transfer of immediately available funds to the accounts set forth on
Purchaser Schedule 2.01(a); and (5) the Existing Notes Accrued Interest by
wire
transfer of immediately available funds to the accounts set forth on Purchaser
Schedule 2.01(a); (B) Purchaser, in full payment for such shares of the
Purchased Common Stock and such Springing Lien Notes, will deliver (1) the
Initial Consideration by wire transfer of immediately available funds to the
accounts set forth on Company Disclosure Schedule 2.01(a), and
(2) the Existing Notes Consideration; (C) Purchaser will deliver to the Company
an executed copy of the Parent Guaranty and an executed counterpart to the
Registration Rights Agreement, the ABS Purchase Agreement and the Order Handling
Agreement; (D) the Company will contribute the full amount of the Initial
Consideration to E*Trade Bank and $50,000,000 of any other consideration
received with respect to the Springing Lien Notes sold contemporaneously
herewith to any Person other than Purchaser; (E) following delivery to Purchaser
of the written certification of the Company’s Chief Financial Officer that the
actions contemplated by preceding clause (D) have been completed, E*Trade Bank,
E*Trade Global Asset Management, Inc. and Purchaser will consummate the purchase
and sale of the ABS Assets pursuant to the ABS Purchase Agreement; and (F)
each
party shall take or cause to happen such other actions, and shall execute and
deliver such other instruments or documents, as shall be required under Section
5.01 and Section 5.02.
(iii) Notwithstanding
any other provision of this Agreement, after the Initial Closing Date in
consideration, in part, of the payments made by Purchaser at the Initial
Closing, Purchaser shall have the right to receive an additional 20,741,901
shares of the Purchased Common Stock, which shares of Purchased Common Stock
shall be issued by the Company to Purchaser upon termination or expiration
of
any applicable waiting periods with respect to such issuance under the HSR
Act. Immediately upon expiration or notice of termination of
any such applicable waiting period, the Company shall issue such
additional
-8-
shares
to
Purchaser registered in the name of Purchaser. The Company
shall not be required to issue such additional shares at any time that there
shall be in effect any law, rule or regulation or any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of such issuance. Notwithstanding the
foregoing, in the event Purchaser determines that the issuance of all of such
shares of Purchased Common Stock under this Section 2.01(a)(iii) will or may
give rise to regulatory concerns for Purchaser or its Affiliates, Purchaser
may
elect to receive a fewer number of shares of Purchased Common Stock otherwise
issuable pursuant to this 2.01(a)(iii), and the number of shares not issued
to
Purchaser as a result of such election shall be issued to Purchaser at the
time
shares of Purchased Common Stock are issued to Purchaser pursuant to Section
2.01(b)(i)(A) at the Final Closing or pursuant to Section 2.01(b)(iii), as
applicable. Notwithstanding the foregoing or anything to the
contrary herein, until the earlier of the Final Closing or the date shares
of
Purchased Common Stock are issuable to Purchaser pursuant to Section
2.01(b)(iii), Purchaser shall not have the right to receive any shares of Common
Stock to the extent that, after receiving such shares, Purchaser (together
with
its Affiliates) would beneficially own in excess of 9.90% of the number of
shares of Common Stock outstanding immediately after giving effect to such
issuance (the “Issuance Limitation”). For purposes of
this Section, beneficial ownership shall be calculated in accordance with Rule
13(d)(3) of the Exchange Act. By not less than sixty-one (61) days’
prior written notice to the Company, Purchaser may, at its election, increase
or
decrease the Issuance Limitation to any other percentage not in excess of 9.90%
specified in such notice, and the Issuance Limitation shall continue to apply
until such sixty-first day (or such later date, as determined by Purchaser,
as
may be specified in such notice).
(iv) If
the Initial Closing is consummated, the conditions to the Initial Closing set
forth in Sections 5.01 and 5.02 shall be deemed to have been
satisfied or waived, and neither party shall assert the failure of any such
condition as the basis for failing to consummate the Final Closing or as the
basis for terminating this Agreement.
(b) Final
Closing.
(i) On
the third Business Day following the satisfaction or waiver (to the extent
permitted by applicable law) of the conditions set forth in Section 5.03 and
Section 5.04 (other than those conditions that by their nature are to be
satisfied at the Final Closing, but subject to the satisfaction or waiver of
such conditions) (the “Final Closing” and the date that the Final Closing
occurs, the “Final Closing Date”), and in reliance upon the
representations and warranties hereinafter set forth and in consideration,
in
part, of the payments made by the Purchaser at the Final Closing or allocable
portions of the payments made by Purchaser at the Initial Closing, the Company
will issue:
(A)
49,125,186 shares of Purchased Common Stock; and
(B)
$150,000,000 of Springing Lien Notes.
The
Final
Closing shall take place at the offices of Fried, Frank, Harris, ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ on the Final Closing
Date. Notwithstanding the foregoing or any other provision in this
Agreement, the Company shall not be obligated to consummate the Final Closing
or
any Additional Closing with respect to all or
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any
portion of the $150,000,000 of Springing Lien Notes to the extent that its
Chief
Financial Officer certifies in writing to the Company and Purchaser that the
Company cannot incur all or any portion of such additional indebtedness under
the terms of its existing indentures.
(ii) At
the Final Closing, (A) the Company will deliver to Purchaser (1) certificates
for the shares of Common Stock in the amounts set forth in Section 2.01(b)(i)(A)
registered in the name of Purchaser; and (2) $150,000,000 of executed Springing
Lien Notes which shall be reflected in one or more global notes representing
the
Springing Lien Notes and held by The Depository Trust Corporation or its nominee
(or a custodian on its behalf); (B) Purchaser, in exchange for such shares
of
Purchased Common Stock and Springing Lien Notes, will deliver to the Company
the
Final Cash Consideration by wire transfer of immediately available funds to
the
accounts set forth on Schedule 2.01; (C) the Company shall contribute all
of the Final Cash Consideration on the Final Closing Date to E*Trade
Bank, and (D) each party shall take or cause to happen such other actions,
and shall execute and deliver such other instruments or documents, as shall
be
required under Section 5.03 and Section 5.04.
(iii) Notwithstanding
any other provision of this Agreement, whether or not the Final Closing is
consummated, the shares of Purchased Common Stock contemplated by Section
2.01(b)(i)(A) above shall be issued by the Company to Purchaser immediately
following (A) the expiration or termination of any applicable waiting periods
under the HSR Act with respect to the issuance of Purchased Common Stock after
the Initial Closing and (B) the acceptance by the OTS of a rebuttal of control
submission for the proposed Transactions without, unless approved by Purchaser
in its sole discretion, the imposition of any Burdensome Condition (subject
to
the absence of any law, rule or regulation or any order or regulation or any
order, decree or injunction of a court or agency of competent jurisdiction
which
enjoins or prohibits such sale); provided, however, that in the event Purchaser
determines that the issuance of such shares will or may give rise to regulatory
concerns for Purchaser or its Affiliates, Purchaser may elect to delay receipt
of all or any portion of such shares until Purchaser is reasonably satisfied
that receipt of such shares is permitted by regulatory
authorities. The Company shall issue such additional shares to
Purchaser registered in the name of Purchaser.
(c) (i) Notwithstanding
Section 2.01(b) above, following the date hereof, Purchaser shall use its
commercially reasonable efforts to assign prior to January 15, 2008 in
accordance with Section 6.10, and if such right is not exercised prior to
January 15, 2008, the Company shall have the right, upon the prior consent
of
Purchaser (such consent not to be unreasonably withheld), to assign, Purchaser’s
right to purchase the Springing Lien Notes to be purchased on the Final Closing
Date. Any such assignment shall only be made in increments of
$50,000,000 (or a lesser amount if, as of the Final Closing Date, an amount
less
than such amount that has not previously been purchased has been
assigned).
(ii) The
sale of the Springing Lien Notes to an assignee as set forth in Section
2.01(c)(i) shall be an “Additional Closing” and shall occur promptly
after such assignment (subject to the absence of any law, rule or regulation
or
any order or regulation or any order, decree or injunction of a court or agency
of competent jurisdiction which enjoins or prohibits such sale).
(iii) On
the date each such Additional Closing occurs (such date, the “Additional
Closing Date”), in consideration of the payment made by the assignee on
such
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Additional
Closing Date, the Company will issue such assignee for each $50,000,000 (or
such
lesser amount as permitted by Section 2.01(c)) increment assigned to such
assignee, $50,000,000 (or such lesser amount as permitted by Section 2.01(c))
of
Springing Lien Notes.
(iv) At
each such Additional Closing, (A) the Company will deliver to such assignee
$50,000,000 (or such lesser amount as permitted by Section 2.01(c)) of executed
Springing Lien Notes, which will be reflected in one or more global notes
representing the Springing Lien Notes and held by the Depository Trust
Corporation or its nominee (or a custodian on its behalf); (B) such assignee,
in
exchange for such Springing Lien Notes shall deliver to the Company $50,000,000
(or such lesser amount as permitted by Section 2.01(c)) by wire transfer of
immediately available funds to the account specified by the Company; and (C)
the
Company will contribute the proceeds of such Additional Closing to E*Trade
Bank.
(v) Upon
the occurrence of an Additional Closing, the amount of Springing Lien Notes
to
be issued under Section 2.01(b) shall be reduced for the Springing Lien Notes
issued under this Section 2.01(c) and the Final Cash Consideration shall be
reduced dollar for dollar for any funds received by the Company pursuant to
Section 2.01(c)(iv).
ARTICLE
III
Representations
and Warranties
Section
3.01. Representations and Warranties of the
Company. Except as disclosed in (i) the Company’s 10-K covering
the year ended December 31, 2006 (the “Recent 10-K”) and the Reports
filed with the SEC by the Company after the Recent 10-K (excluding any risk
factor disclosures contained in such documents under the heading “Risk Factors”
and any disclosure of risks included in any “forward-looking statements”
disclaimer or other statements that are similarly non-specific and are
predictive or forward−looking in nature and excluding any exhibits to or
referenced in such Reports) or (ii) in the disclosure schedule (the “Company
Disclosure Schedule”) delivered by the Company to Purchaser prior to the
execution of this Agreement (which schedule sets forth, among other things,
items, the disclosure of which is necessary or appropriate, either in response
to an express disclosure requirement contained in a provision hereof or as
an
exception to one or more representations or warranties contained in this Section
3.01, or to one or more of the Company’s covenants; provided,
however, that disclosure in any section of such Company Disclosure
Schedule shall apply only to the indicated Section of this Agreement except
to
the extent that it is reasonably apparent that such disclosure is relevant
to
another Section of this Agreement), the Company represents and warrants to
Purchaser, as of the date hereof (or as of such specific date in the case of
any
representation or warranty expressly made as of a specific date), as
follows:
(a) Organization
and Good Standing of the Company; Organizational Documents. The
Company is a Delaware corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority and governmental authorizations to own, operate and lease
its properties and to carry on its business as it is being conducted on the
date
of this Agreement. The Company is duly licensed or qualified as a
foreign corporation for the transaction of business and is in good standing
under
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the
laws
of each other jurisdiction in which it owns or leases properties, or conducts
any business, so as to require such qualification, except where the failure
to
be so licensed or qualified in any such jurisdiction would not reasonably be
expected to have a Material Adverse Effect. True, complete and
correct copies of the Company’s restated certificate of incorporation and
by-laws, as in effect as of the date of this Agreement, are publicly available
on the SEC’s website.
(b) Organization
and Good Standing of Subsidiaries. Each Subsidiary of the Company
is duly organized, validly existing and in good standing under the laws of
its
jurisdiction of organization, and has all requisite corporate or other
organizational power and authority and governmental authorizations to own,
operate and lease its properties and to carry on its business as it is now
being
conducted, and is duly licensed or qualified to do business in each other
jurisdiction in which it owns or leases properties, or conducts any business,
so
as to require such qualification, except where the failure to be so authorized,
licensed or qualified in any such jurisdiction, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect. The deposit accounts of E*Trade Bank are insured by the FDIC
to the fullest extent permitted by the Federal Deposit Insurance Act and the
rules and regulations of the FDIC thereunder, and all premiums and assessments
required to be paid in connection therewith have been paid when
due.
(c) Authorization;
No Conflicts.
(i) The
Company and each Subsidiary that is or will be a party to an Ancillary Document
have full corporate or other organizational power and authority to execute
and
deliver this Agreement and the Ancillary Documents to which it is or will be
a
party and to consummate the transactions contemplated hereby and thereby (the
“Transactions”). The execution, delivery and performance by
the Company and each Subsidiary that is or will be a party to an Ancillary
Document of this Agreement and each Ancillary Document to which it is or will
be a party and the consummation of the Transactions (including the
issuance of the Securities as contemplated by this Agreement) have been duly
authorized by the Board of Directors (or equivalent governing body) of the
Company or the relevant Subsidiary. No other corporate or other
organizational proceedings on the part of the Company (including approval of
the
Company’s stockholders), including under the NASDAQ rules and regulations
relating to the continued listing of the Common Stock under the Nasdaq, or
any
Subsidiary are necessary to authorize the execution, delivery and performance
by
the Company and each Subsidiary that is or will be a party to an Ancillary
Document of this Agreement and each Ancillary Document and consummation of
the
Transactions (including the issuance of the Securities as
contemplated by this Agreement). This Agreement has been, and at or
prior to the Initial Closing or Final Closing, as applicable, each Ancillary
Document to which it is a party will be, duly and validly executed and delivered
by the Company or its Subsidiaries, as applicable. This Agreement is,
and upon its execution at or prior to the Initial Closing or the Final Closing,
as applicable, each Ancillary Document to which it is a party will be, a valid
and binding obligation of the Company or its Subsidiaries, as applicable,
enforceable against them in accordance with its terms.
(ii) The
execution, delivery and performance of this Agreement and the Ancillary
Documents to which the Company and/or its Subsidiaries is a party, the
consummation by the Company and its Subsidiaries of the Transactions and the
compliance by
-12-
the
Company and its Subsidiaries with any of the provisions hereof and thereof
will
not conflict with, violate or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both
would constitute a default) under, or give rise to any rights of any Person
other than the parties to this Agreement or the Ancillary Documents or give
rise
to any obligations of the Company other than under this Agreement and the
Ancillary Documents under, or result in the termination of or accelerate the
performance required by, or result in a right of termination or acceleration
under (x) any provision of the Restated Certificate of Incorporation or By-laws
of the Company or the certificate of incorporation, charter, by-laws or other
governing instrument of any Subsidiary of the Company that is or will be a
party
to any Ancillary Agreement or (y) any mortgage, note, indenture, deed of trust,
lease, loan agreement, commitment, arrangement, written or oral contract or
other agreement or instrument or any permit, concession, grant, franchise,
license, judgment, order, decree, ruling, injunction, statute, law, ordinance,
rule or regulation applicable to the Company or any of its Subsidiaries or
any
of their respective properties or assets, other than any such conflict,
violation, breach, default, rights, obligations, termination and acceleration
under clause (y) (other than with respect to the indentures governing the
Company’s outstanding senior notes) that, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect.
(d) Governmental
Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required
on
the part of the Company or any of its Subsidiaries in connection with the
execution, delivery and performance by the Company of this Agreement and the
Ancillary Documents to which it is or will be a party and the consummation
by
the Company of the Transactions other than (i) compliance with the applicable
requirements of the HSR Act, (ii) compliance with any applicable requirements
of
the Securities Act, the Exchange Act, and any other applicable foreign or state
securities or “blue sky” laws, (iii) filing of notice with the OTS pursuant to
12 CFR 563.22(c) with respect to the transfer of the ABS Assets; (iv) with
respect to the Final Closing, the acceptance by the OTS of the rebuttal of
control submission referred to in Section 4.06(a), and (v) any consent,
approval, actions or filings the absence of which would not have, or
reasonably be expected to have, a material adverse affect on the Company or
any
of its material Subsidiaries, the Transactions, or the Purchasers or any of
their respective Affiliates as a result of the Transactions.
(e) Capitalization.
(i) The
authorized capital stock of the Company consists of (i) 600,000,000 shares
of Common Stock of which, as of November 29, 2007, 423,749,462 shares
were issued and outstanding and (ii) 1,000,000 shares of preferred stock, $0.01
par value, of the Company (the “Preferred Stock”) of which, as of the
date hereof, one share is designated Series A Preferred Stock and 500,000 shares
are designated Series B Preferred Stock. As of the date hereof, no
shares of Series A Preferred Stock or Series B Preferred Stock are issued and
outstanding. All of the shares of Series B Preferred Stock are
reserved for issuance in accordance with the Rights Agreement, dated as of
July
9, 2001 between the Company and American Stock Transfer and Trust Company (the
“Rights Agreement”), pursuant to which the Company has issued rights to
purchase Series B Preferred Stock. As of the date hereof, the Company
held no shares of Common Stock in its treasury. As of the date
hereof, there were 61,188,234 shares of Common Stock reserved for issuance
in
connection with employee benefit, stock option and dividend reinvestment and
stock purchase plans. All of the issued and
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outstanding
shares of the Company’s capital stock have been duly and validly authorized and
issued and are fully paid and nonassessable, and are not subject to preemptive
rights. No bonds, debentures, notes or other indebtedness having the
right to vote on any matters on which the stockholders of the Company may vote
(“Voting Debt”) are issued and outstanding. Other than as set
forth in this Section 3.01(e)(i) or pursuant to this Agreement, (A) no equity
securities or Voting Debt of the Company are or may be required to be issued
by
reason of any options, warrants, rights to subscribe to, calls or commitments
of
any character whatsoever, (B) there are outstanding no securities or rights
convertible into or exchangeable for any equity securities or Voting Debt of
the
Company and (C) there are no contracts, commitments, understandings or
arrangements by which the Company is bound to issue additional equity securities
or Voting Debt or options, warrants or rights to purchase or acquire any
additional equity securities or Voting Debt. The consummation of the
Transactions contemplated by this Agreement will not result in the triggering
of
any anti-dilution adjustment provisions of any security of the Company
convertible into equity securities of the Company. The Springing Lien
Notes will rank pari-passu with all other senior indebtedness of the
Company. The Purchased Common Stock, collectively with the Common
Stock issued on the date hereof to Persons other than Purchaser, represents
19.99% of the Company’s issued and outstanding shares of Common Stock as of the
date of this Agreement, before giving effect to any shares of Common Stock
to be
issued under this Agreement to Purchaser or such Common Stock issued to such
other Persons.
(ii) Except
for any directors’ qualifying shares, all of the issued and outstanding shares
of capital stock or other equity ownership interests of each Subsidiary of
the
Company are owned by the Company, directly or indirectly, free and clear of
any
material liens, pledges, charges and security interests and similar
encumbrances, and all of such shares or equity ownership interests have been
duly and validly authorized and issued and are fully paid and nonassessable,
and
are not subject to preemptive rights. None of the outstanding shares
of capital stock or other securities of any Subsidiary were issued in violation
of the Securities Act or any other applicable federal state or local law, rule
or regulation. No Subsidiary of the Company has or is bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the purchase or issuance of any shares of capital
stock or any other equity security of such Subsidiary or any securities
representing the right to purchase or otherwise receive any shares of capital
stock or any other equity security of such Subsidiary.
(f) Reports;
Financial Statements; Controls.
(i) Since
January 1, 2005, the Company and each of its Subsidiaries has timely filed
all
reports, registration statements, proxy statements and other materials, together
with any amendments required to be made with respect thereto, that were required
to be filed with (i) the SEC under the Securities Act or the Exchange Act,
(ii)
the OTS, (iii) the Federal Reserve Board, (iv) the FDIC and (v) any other
federal, state or foreign Governmental Entity (all such reports and statements
are collectively referred to herein as the “Reports”), and have paid all
fees and assessments due and payable in connection therewith. As of
their respective dates, the Reports complied in all material respects with
all
of the statutes and published rules and regulations enforced or promulgated
by
the regulatory authority with which they were filed and (i) with respect to
Reports filed with the SEC, did not as of the date of filing thereof with the
SEC contain any untrue statement of a material fact or omit to state any
material fact required to
-14-
be
stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading and (ii) with respect
to all other Reports, were complete and accurate in all material respects as
of
their respective dates. There are no facts existing as of the date
hereof peculiar to the Company or any of its Subsidiaries that the Company
has
not disclosed in the Reports or to Purchaser in writing that, individually
or in
the aggregate, have had or would reasonably be expected to have a Material
Adverse Effect. No executive officer of the Company has failed in any
respect to make the certifications required of him or her under Section 302
or
906 of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002.
(ii) Each
of the consolidated balance sheets, and the related consolidated statements
of
income, changes in stockholders’ equity and cash flows, included in the Reports
filed with the SEC under the Exchange Act (A) have been prepared from, and
are
in accordance with, the books and records of the Company and its Subsidiaries,
(B) fairly present in all material respects the consolidated financial position
of the Company and its consolidated Subsidiaries as of the dates shown and
the
results of the consolidated operations, changes in stockholders’ equity and cash
flows of the Company and its consolidated Subsidiaries for the respective fiscal
periods or as of the respective dates therein set forth, subject, in the case
of
any unaudited financial statements, to normal recurring year-end audit
adjustments, (C) complied as to form, as of their respective dates of filing
with the SEC, in all material respects with applicable accounting requirements
and with the published rules and regulations of the SEC with respect thereto
and
(D) have been prepared in accordance with GAAP consistently applied during
the
periods involved, except as otherwise set forth in the notes
thereto.
(iii) The
books, records, systems, controls, data and information of the Company and
its
Subsidiaries are recorded, stored, maintained and operated under means
(including any electronic, mechanical or photographic process, whether
computerized or not) that are under the exclusive ownership and direct control
of the Company or its Subsidiaries or accountants (including all means of access
thereto and therefrom), except for any non-exclusive ownership and non-direct
control that would not reasonably be expected to have a material adverse effect
on the system of internal accounting controls described below in this Section
3.01(f)(iii). The Company (A) has implemented and maintains
disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange
Act) to ensure that material information relating to the Company, including
its
consolidated Subsidiaries, is made known to the chief executive officer and
the
chief financial officer of the Company by others within those entities, and
(B)
has disclosed, based on its most recent evaluation prior to the date hereof,
to
the Company’s outside auditors and the audit committee of the Company’s Board of
Directors (x) any significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting (as defined in Rule
13a-15(f) of the Exchange Act) that are reasonably likely to adversely affect
the Company’s ability to record, process, summarize and report financial
information and (y) any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company’s internal
controls over financial reporting. As of the date hereof, to the
knowledge of the Company, there is no reason that its outside auditors and
its
chief executive officer and chief financial officer will not be able to give
the
certifications and attestations required pursuant to the rules and regulations
adopted pursuant to Section 404 of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, without
qualification, when next due. Since January 1, 2005, (A) neither the
Company nor any of its Subsidiaries nor, to the knowledge of the Company, any
director, officer, employee, auditor, accountant or
-15-
representative
of the Company or any of its Subsidiaries has received or otherwise had or
obtained knowledge of any material complaint, allegation, assertion or claim,
whether written or oral, regarding the accounting or auditing practices,
procedures, methodologies or methods of the Company or any of its Subsidiaries
or their respective internal accounting controls, including any material
complaint, allegation, assertion or claim that the Company or any of its
Subsidiaries has engaged in questionable accounting or auditing practices,
and
(B) no attorney representing the Company or any of its Subsidiaries, whether
or
not employed by the Company or any of its Subsidiaries, has reported evidence
of
a material violation of securities laws, breach of fiduciary duty or similar
violation by the Company or any of its officers, directors, employees or agents
to the Board of Directors of the Company or any committee thereof or to any
director or officer of the Company.
(g) Absence
of Certain Changes. Since September 30, 2007 until the date
hereof, and except as publicly disclosed by the Company in the Reports filed
by
it with the SEC and publicly available prior to the date hereof,
(i)
the Company and its Subsidiaries have conducted their respective businesses
in
all material respects in the ordinary course, consistent with prior
practice,
(ii)
the Company has not made or declared any distribution in cash or in kind to
its
stockholders or issued or repurchased any shares of its capital stock or other
equity interests; and
(iii)
no event or events have occurred that, individually or in the aggregate, has
had
or would reasonably be expected to have a Material Adverse Effect.
(h) No
Undisclosed Liabilities, etc. Neither the Company nor any of its
Subsidiaries has any liabilities or obligations of any nature (absolute,
accrued, contingent or otherwise) which are not fully reflected or reserved
against in the financial statements described in Section 3.01(f), except for
liabilities that have arisen since September 30, 2007 in the ordinary and usual
course of business and consistent with past practice and that, individually
or
in the aggregate, have not had and would not reasonably be expected to have
a
Material Adverse Effect.
(i) Compliance
with Applicable Law. Each of the Company and its Subsidiaries
holds all licenses, franchises, permits and authorizations necessary for the
lawful conduct of its business under, and has complied in all material respects
and is not in default or violation in any respect of, any law, statute, order,
rule, regulation, policy or guideline of any federal, state or local
governmental authority applicable to the Company or such Subsidiary, other
than
such non-compliance, defaults or violations that, individually or in the
aggregate, have not had and would not reasonably be expected to have a Material
Adverse Effect.
(j) Legal
Proceedings. Neither the Company nor any of its
Subsidiaries is a party to any, and there are no pending, or to the knowledge
of
the Company, threatened, legal, administrative, arbitral or other proceedings,
claims, actions or governmental investigations of any nature against the Company
or any of its Subsidiaries or to which any of their assets are subject that,
(i)
individually or in the aggregate, has had or would reasonably be expected to
have
-16-
a
Material
Adverse Effect or (ii) relating to or which challenges the validity or propriety
of the Transactions. Neither the Company nor any of its Subsidiaries
is subject to any order, judgment or decree of a Governmental Entity that,
individually or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect. Except as, individually or in the
aggregate, has not had and would not reasonably be expected to have a Material
Adverse Effect, (i) there is no unresolved violation, criticism or exception
by
any Governmental Entity with respect to any Report or relating to any
examinations or inspections of the Company or any of its Subsidiaries and (ii)
since January 1, 2005, there has been no formal or informal inquiries by, or
disagreements or disputes with, any Governmental Entity with respect to the
business, operations, policies or procedures of the Company or any of its
Subsidiaries.
(k) ERISA.
(i) All
“employee benefit plans,” as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”), that are subject to
Title I of ERISA and are currently maintained or maintained since January 1,
2001, by either the Company or any companies which, with the Company, would
be
deemed to be a single employer under Section 414(b), (c), (m) or (o) of the
Code
(collectively, the “Company Group”) for the benefit of the Company Group
employees, are collectively, for purposes of this Agreement, referred to herein
as the “Company Plans.” All Company Plans that constitute
employee “pension plans” as defined in Section 3(2) of ERISA that are subject to
Title IV of ERISA are referred to herein as the “Company Pension
Plans.” Except as, individually or in the aggregate, has not had
and would not reasonably be expected to have a Material Adverse Effect, no
non-exempt “prohibited transaction” (as such term is used in Section 406 of
ERISA or Section 4975 of the Code), has heretofore occurred with respect to
any
Company Plan or any Company Pension Plan and, to the knowledge of the Company,
no such non-exempt prohibited transaction with respect to any Company Plan
or
Company Pension Plan shall occur as a result of the execution and delivery
of
this Agreement or the Ancillary Documents and the consummation of the
Transactions.
(ii) The
consummation of the transactions contemplated hereby will not result in a
material increase in the amount of, or acceleration in the timing of payment
or
vesting of, any material compensation payable or awarded by the Company or
any
of its Subsidiaries to any of its or their employees under any employment
agreements, plans or programs of the Company or any of its
Subsidiaries.
(l) Taxes. Except
as, individually or
in the aggregate, has not had and would not reasonably be expected to have
a
Material Adverse Effect:
(i) Each
of the Company and its Subsidiaries
has duly and timely filed (including all applicable extensions) all Tax Returns
required to be filed by it on or prior to the date hereof (all such returns
being accurate, true and complete in all material respects), has paid all Taxes
due (whether or not shown on any Tax Return) and has duly paid or made provision
for the payment of all Taxes that have been incurred or are due or claimed
to be
due from it by federal, state, foreign or local taxing authorities other than
Taxes that are not yet delinquent or are being contested in good faith, have
not
been finally determined and have been adequately reserved
against;
-17-
(ii) the
federal, state and local income Tax
returns of the Company and its Subsidiaries have been examined by the Internal
Revenue Service (the “IRS”)
and any applicable state and local
tax authorities for all years to and including 2003 and any liability with
respect thereto has been satisfied or any liability with respect to deficiencies
asserted as a result of such examination is covered by reserves that are
adequate under GAAP;
(iii) there
are no disputes pending, or claims
asserted, for Taxes or assessments upon the Company or any of its Subsidiaries
for which the Company does not have reserves that are adequate under
GAAP;
(iv)
each of the Company and its
Subsidiaries has withheld and paid all Taxes required to be withheld and paid
in
connection with amounts paid and owing to any employee, independent contractor,
creditor, stockholder or other third party (whether domestic or
foreign);
(v) there
are no liens for Taxes (other than
Taxes not yet due and payable) upon any assets of the Company or any of its
Subsidiaries;
(vi) neither
the Company nor any of its
Subsidiaries is (A) a party to or is bound by any Tax sharing, allocation or
indemnification agreement or arrangement (other than such an agreement or
arrangement exclusively between or among the Company and its Subsidiaries)
or
(B) has any liability for the Taxes of any Person (other than the Company or
any
of its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law);
(vii) within
the past two years, neither the
Company nor any of its Subsidiaries has been a “distributing corporation” or a
“controlled corporation” in a distribution intended to qualify under Section
355(a) of the Code;
(viii)
neither the Company nor any
of its
Subsidiaries is required to include in income any adjustment pursuant to Section
481(a) of the Code, no such adjustment has been proposed by the IRS and no
pending request for permission to change any accounting method has been
submitted by the Company or any of its Subsidiaries; and
(ix) neither
the Company nor any of its
Subsidiaries has participated in a “listed transaction” within the meaning of
Treasury Regulation Section 1.6011-4(b)(2).
(m) Intellectual
Property. Except as, individually or in the aggregate, has not
had and would not reasonably be expected to have a Material Adverse
Effect:
(i) the
Company and each of its Subsidiaries owns, or is licensed to use (in each case,
free and clear of any claims, liens or encumbrances), all Intellectual Property
used in or necessary for the conduct of its business as currently
conducted;
(ii) the
use of any Intellectual Property by the Company and its Subsidiaries does not,
to the knowledge of the Company, infringe on or otherwise violate the rights
of
any person and is in accordance with any applicable license pursuant to which
the Company or any of its Subsidiaries acquired the right to use any
Intellectual Property;
-18-
(iii) no
person is challenging, infringing on or otherwise violating any right of the
Company or any of its Subsidiaries with respect to any material Intellectual
Property owned by or licensed to the Company or its Subsidiaries;
(iv) to
the knowledge of the Company, neither the Company nor any of its Subsidiaries
has received any notice of any pending claim with respect to any Intellectual
Property used by the Company or any of its Subsidiaries; and
(v) to
the knowledge of the Company, no Intellectual Property owned or licensed by
the
Company or any of its Subsidiaries is being used or enforced in a manner that
would be expected to result in the abandonment, cancellation or unenforceability
of such Intellectual Property.
(n) Environmental
Liability. Except as, individually or in the aggregate, has not
had and would not reasonably be expected to have a Material Adverse
Effect:
(i) there
are no legal, administrative, arbitral or other proceedings, claims, actions,
causes of action or notices with respect to any environmental, health or safety
matters or any private or governmental environmental, health or safety
investigations or remediation activities of any nature seeking to impose, or
that are reasonably likely to result in, any liability or obligation of the
Company or any of its Subsidiaries arising under common law or under any local,
state or federal environmental, health or safety statute, regulation or
ordinance, including the Comprehensive Environmental Response, Compensation
and
Liability Act of 1980, as amended, pending or threatened against the Company
or
any of its Subsidiaries;
(ii) to
the knowledge of the Company, there is no reasonable basis for, or circumstances
that are reasonably likely to give rise to, any such proceeding, claim, action,
investigation or remediation by any Governmental Entity or any third party
that
would give rise to any liability or obligation on the part of the Company or
any
of its Subsidiaries; and
(iii) neither
the Company nor any of its Subsidiaries is subject to any agreement, order,
judgment, decree, letter or memorandum by or with any Governmental Entity or
third party imposing any liability or obligation with respect to any of the
foregoing.
(o) Mortgage
Banking Business. Except as, individually or in the aggregate,
has not had and would not reasonably be expected to have a Material Adverse
Effect, the Company and each of its Subsidiaries has complied with, and all
documentation in connection with the origination, processing, underwriting
and
credit approval of any real estate secured loans originated, purchased or
serviced by E*Trade Bank or any of its Subsidiaries has satisfied all applicable
federal, state and local laws, rules and regulations with respect to the
origination, insuring, purchase, sale, pooling, servicing, subservicing, or
filing of claims in connection with such loans, including all laws relating
to
real estate settlement procedures, consumer credit protection, truth in lending
laws, usury limitations, fair housing, transfers of servicing, collection
practices, equal credit opportunity and adjustable rate mortgages.
(p) Broker
– Dealer.
-19-
(i) Section
3.01(p) of the Company Disclosure Schedule sets forth a complete list of all
securities exchanges, boards of trade, clearing organizations, trade
associations and similar organizations in which the Company holds a membership
or has been granted trading privileges and which memberships or trading
privileges are material to the Company’s broker-dealer business. The
Company’s Subsidiaries, to the extent required, are members of the Securities
Investor Protection Corporation. The Company is not required to be
registered as a futures commission merchant, commodities trading adviser,
commodity pool operator or introducing broker under the Commodities Exchange
Act
or any similar state laws. The Company is not subject to registration under
the
Investment Company Act of 1940, as amended.
(ii) The
Company is duly registered, licensed or qualified as a broker-dealer in each
jurisdiction where the conduct of the Company’s business requires such
registration, licensing or qualification, and is in compliance with all laws
requiring any such registration, licensing or qualification and is not subject
to any material liability or disability by reason of the failure to be so
registered, licensed or qualified, except where such failure to register,
license or qualify or noncompliance would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(iii) Except
as disclosed on Form BD filed prior to the date of this Agreement or as would
not reasonably be expected to have a Material Adverse Effect, neither the
Company nor any of its directors, officers, employees or “associated persons”
(as defined in the Exchange Act) has been the subject of any disciplinary
proceedings or orders of any Governmental Entity arising under applicable laws
which would be required to be disclosed on Form BD. Except as set forth in
Section 3.01(p) of the Company Disclosure Schedule, no such disciplinary
proceeding or order is pending or threatened. Except as disclosed on a Form
BD
filed prior to the date of this Agreement, neither the Company nor any of its
directors, officers, employees or associated persons has been permanently
enjoined by the order of any Governmental Entity from engaging or continuing
any
conduct or practice in connection with any activity or in connection with the
purchase or sale of any security. Except as disclosed on Form BD filed prior
to
the date of this Agreement, neither the Company nor any of its directors,
officers, employees or associated persons is or has been ineligible to serve
as
a broker-dealer or an associated person of a broker-dealer under Section 15(b)
of the Exchange Act (including being subject to any “statutory disqualification”
as defined in Section 3(a)(39) of the Exchange Act).
(q) Regulatory
Actions. Except as set forth in the Company Disclosure Schedule,
since January 1, 2005 neither E*Trade Bank nor any its Subsidiaries have
received any written communication from any federal or state banking authority
(“Banking Authority”) (i) asserting that it is in material violation of
any law, (ii) threatening to revoke any of its material permits or licenses,
(iii) requiring it (x) to enter into or consent to the issuance of a cease
and
desist order, written agreement, consent decree, directive, commitment or
memorandum of understanding, or (y) to adopt any policy, procedure or resolution
of its Board of Directors or similar undertaking, that restricts the conduct
of
its business, or relates to its capital adequacy, its credit or reserve
policies, it management, or the payment of dividends or any other policy or
procedure, in either case, that would be material to the conduct of the business
or E*Trade Bank or any of its Subsidiaries or (iv) threatening or contemplating
revocation or limitation of, or which would
-20-
have
the
effect of revoking or limiting, FDIC deposit insurance, and neither
E*Trade Bank nor any of its Subsidiaries has received any written notice from
a
Banking Authority that it is considering issuing or requiring any of the
foregoing. Since January 1, 2005, each of E*Trade Bank and its
Subsidiaries has filed all reports and statements, together with any amendment
required to be made with respect thereto, that it was required to file with
any
Banking Authority, and has paid all fees and assessments due and payable in
connection with its business.
(r) Company
Information. None of the information to be contained in any
document filed with any regulatory agency in connection with the transactions
contemplated by this Agreement (the “Regulatory Filings”), in each case,
other than Purchaser Information, as to which no representation is made by
the
Company, will, at the time such filing is made, contain any untrue statement
of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
in
which they are made, not misleading.
(s) State
Takeover Laws. The Company’s Board of Directors has taken all
action necessary to render inapplicable to Purchaser the restrictions on
“business combinations” set forth in Section 203 of the DGCL and, to the
knowledge of the Company, any similar “moratorium,” “control share,” “fair
price,” “takeover” or “interested stockholder” law applicable to transactions
between Purchaser and the Company taking into account shares of Common Stock
issued contemporaneously herewith to Persons other than the
Purchaser.
(t) Rights
Agreement. The Company has taken all actions necessary to
irrevocably amend the Rights Agreement to provide that the rights thereunder
will not be triggered as a result of the Transactions or by the acquisition
of
an additional 8,474,989 shares of Common Stock of the Company after the Initial
Closing Date by the Purchaser or any of its Affiliates or Associates, in
addition to the shares of Purchased Common Stock issuable pursuant to the terms
hereof on or after the Initial Closing Date.
(u) Solvency. Immediately
after giving effect to all of the Transactions contemplated by this Agreement,
including payment of all related fees and expenses, the Company and each of
its
Subsidiaries will be Solvent. For purposes of this Section 3.01, the
term “Solvent” with respect to the Company and each of its Subsidiaries means
that, as of any date of determination, (a) the amount of the Fair Value and
Present Fair Saleable Value of the assets of the Company and each of its
Subsidiaries, exceeds as of such date, their respective Stated Liabilities
and
other Contingent Liabilities on an individual basis; (b) the Company and each
of
its Subsidiaries will not have, as of such date, an unreasonably small amount
of
capital for the operation of the business in which each of the Company and
its
Subsidiaries is engaged as a going concern following such date on an individual
basis; and (c) the Company and each of its Subsidiaries will have sufficient
assets and cash flow to pay each of their respective Stated Liabilities and
other Contingent Liabilities as they mature or otherwise become due on an
individual basis. For purposes of this Section 3.01, the term, “Fair
Value” means the amount at which the assets, in their entirety, of the Company
or any of its Subsidiaries as the case may be (on an individual basis) would
change hands between a willing buyer and a willing seller, within a commercially
reasonable period of time, each having reasonable knowledge of the relevant
facts, with neither being under any compulsion to act; the term “Present Fair
Saleable Value” means the amount that could be obtained by an independent
willing seller from an independent
-21-
willing
buyer if the assets of the Company or any of its Subsidiaries as the case may
be
(on an individual basis) are sold with reasonable promptness under normal
selling conditions in a current market, the term “Stated Liabilities” means all
known liabilities and recorded liabilities (including Contingent Liabilities
that would be recorded in accordance with GAAP consistently applied) of the
Company or any of its Subsidiaries as the case may be (on an individual basis)
and the term “Contingent Liabilities” means the maximum estimated amount of
liability reasonably likely to result from pending litigation, asserted claims
and assessments, guaranties, uninsured risks and other contingent liabilities
of
the Company or any of its Subsidiaries as the case may be (on an individual
basis).
(v) Status
of Securities. The Securities have been duly authorized by all
necessary corporate action. When issued as contemplated by this
Agreement, the Securities will be validly issued, fully paid and nonassessable,
will not subject the holders thereof to personal liability and will not be
subject to preemptive rights of any other stockholder of the
Company.
(w) Offering
of Securities. Neither the Company nor any Person acting on its
behalf has offered the Securities or any similar securities of the Company
for
sale to, solicited any offers to buy any of the Securities or any similar
securities of the Company from or otherwise approached or negotiated with
respect to any of the Securities or any similar securities of the Company with
any Person other than Purchaser. Neither the Company nor any Person
acting on its behalf has taken or will take any action (including, without
limitation, any offering of any securities of the Company under circumstances
which would require the integration of such offering with the offering of any
of
the Securities under the Securities Act and the rules and regulations of the
SEC
thereunder) which might subject the offering, issuance or sale of any of the
Securities to the registration requirements of the Securities Act.
(x) Brokers
and Finders. Neither the Company nor any of its Subsidiaries nor
any of their respective officers, directors, employees or agents has utilized
any broker, finder, placement agent or financial advisor or incurred any
liability for any fees or commissions in connection with any of the
Transactions, other than Evercore Partners and ▇▇ ▇▇▇▇▇▇, the fees and expenses
of which will be paid by the Company.
(y) Liquidity. Pro
forma for the Transactions and projected as of December 31, 2007, the Company
will have at least $125 million of cash not subject to regulatory
limitations.
(z) Capital. Pro
forma for the Transactions and
projected as of December 31, 2007, the Company’s bank capital position will
exceed by at least $200 million the regulatory capital standards to maintain
“Well Capitalized” status within the meaning of 12 U.S.C. 1831(o) (as in effect
on the date hereof) as determined by E*Trade Bank’s principal federal banking
agency or the FDIC, but in no event, less than the amount required in a capital
directive from a federal banking agency.
-22-
Section
3.02. Representations and Warranties of Purchaser. Each
Purchaser represents and warrants to, and agrees with, the Company, as of the
date hereof and as of each of the Initial Closing Date and the Final Closing
Date (or as of such specific date in the case of any representation or warranty
expressly made as of a specific date) as follows:
(a) Organization. Purchaser
is duly organized, validly existing and in good standing under the laws of
the
state or country of its jurisdiction of formation and has all requisite power
and authority to own, operate and lease its properties and to carry on its
business as it is being conducted on the date of this Agreement.
(b) Authorization;
No Conflicts.
(i) Purchaser
has full power and authority to execute and deliver this Agreement and the
Ancillary Documents to which it is or will be a party and to consummate the
Transactions. The execution, delivery and performance by Purchaser of
this Agreement and each of the Ancillary Documents to which it is or will be
a
party and the consummation of the Transactions have been duly authorized by
all
necessary action on behalf of Purchaser. No other proceedings on the
part of Purchaser are necessary to authorize the execution, delivery and
performance by Purchaser of this Agreement and each Ancillary Document and
consummation of the Transactions. This Agreement has been, and on or
prior to the Initial and Final Closing each Ancillary Document to which it
is a
party will be, duly and validly executed and delivered by
Purchaser. This Agreement is, and upon its execution at or prior to
the Initial and Final Closing each Ancillary Document to which it is or will
be
a party will be, a valid and binding obligation of Purchaser, enforceable
against it in accordance with its terms.
(ii) The
execution, delivery and performance of this Agreement and the Ancillary
Documents to which it is or will be a party, the consummation by Purchaser
of
the Transactions and the compliance by Purchaser with any of the provisions
hereof and thereof will not conflict with, violate or result in a breach of
any
provision of, or constitute a default (or an event, which, with notice or lapse
of time or both would constitute a default) under, or result in the termination
of or accelerate the performance required by, or result in a right of
termination or acceleration under, (A) any provision of the governing documents
of Purchaser or (B) any mortgage, note, indenture, deed of trust, lease, loan
agreement or other agreement or instrument of Purchaser or any permit,
concession, grant, franchise, license, judgment, order, decree, ruling,
injunction, statute, law, ordinance, rule or regulation applicable to Purchaser
or its properties or assets other than any such conflict, violation, breach,
default, termination and acceleration under clause (B) that, individually or
in
the aggregate, would not reasonably be expected to materially and adversely
affect or delay the consummation of the Transactions.
(c) Consents
and Approvals. Except for (i) filing of notice with the OTS
pursuant to 12 CFR 563.22(c) with respect to the transfer of the ABS Assets;
(ii) the applicable requirements of the HSR Act, (iii) with respect to the
Final
Closing, the acceptance by the OTS of a rebuttal of control submission referred
to in Section 4.06(a), and (iv) any consent, approval, action or filing the
absence of which would not have, or reasonably be expected to have, a material
adverse affect on Purchaser’s ability to consummate the Transactions or the
Company, no consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required on the part
of
Purchaser in connection with the execution,
-23-
delivery
and performance by Purchaser of this Agreement and the Ancillary Documents
to
which it is or will be a party and the consummation by Purchaser of the
Transactions. As of the date hereof, Purchaser has no knowledge of
any reason why, solely due to the current business operations of Purchaser
and
its Affiliates, the acceptance and approval of the rebuttal of control
submission referred to in Section 4.06(a) by the OTS should not be
obtained.
(d) Securities
Act. Purchaser is acquiring the Securities solely for the purpose
of investment and not with a view to, or for resale in connection with, any
distribution thereof in violation of the Securities Act. Purchaser
(either alone or together with its advisors) has sufficient knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of its investment in the Securities and is capable of
bearing the economic risks of such investment.
(e) Brokers
and Finders. Neither Purchaser nor any of its officers,
directors, employees or agents has utilized any broker, finder, placement agent
or financial advisor or incurred any liability for any fees or commissions
in
connection with any of the Transactions.
(f) Purchaser
Information. None of the information with respect to Purchaser
and its Affiliates or any of their respective officers and directors that is
provided to the Company by Purchaser or any of its representatives
(collectively, “Purchaser Information”) specifically for inclusion in any
of the Regulatory Filings, will, at the time such filing is made, contain any
untrue statement of a material fact or omit to state a material fact required
to
be stated therein or necessary in order to make the statements therein, in
light
of the circumstances in which they are made, not misleading.
(g) Legal
Proceedings. Purchaser is not a party to any, and there are no
pending, or to the knowledge of Purchaser, threatened, legal, administrative,
arbitral or other proceedings, claims, actions or governmental investigations
of
any nature against Purchaser or any of its Affiliates or to which any of their
assets are subject, that as of the date hereof relate to or which challenge
the
validity of the Transactions.
(h) Financing. Purchaser
has, or will have prior to the Initial Closing or Final Closing, as applicable,
sufficient cash, available lines of credit or other sources of immediately
available funds to enable it to consummate the Initial Closing or Final Closing,
as applicable.
(i) Current
Ownership. As of the date hereof and prior to giving effect to
the Transactions contemplated hereby, except as set forth on Purchaser Schedule
3.02(i), Purchaser and its Affiliates are not owners of record or the
“Beneficial Owner” (as such term is defined under Rule 13d-3 of the Exchange
Act) of any shares of Common Stock or any interest therein, including any right,
swap, derivative or other such arrangement in relation to shares of Common
Stock.
(j) No
Other Representations. Purchaser is an informed and
sophisticated purchaser, and has engaged to the extent it deemed appropriate
expert advisors experienced in the evaluation of transactions of the type
contemplated hereby. Purchaser acknowledges that it has not relied
upon any express or implied representations or warranties of any nature made
by
or on behalf of or imputed to the Company, except as expressly set forth in
this
Agreement or the
-24-
Ancillary
Documents. Without limiting the generality of the foregoing,
Purchaser acknowledges that the Company makes no representation or warranty
with
respect to (i) any projections, estimates or budgets delivered to or made
available to Purchaser of future revenues, future results of operations (or
any
component thereof), future cash flows or future financial condition (or any
component thereof) of the Company and its Subsidiaries or the future business
and operations of the Company and its Subsidiaries or (ii) any other information
or documents made available to Purchaser or its counsel, accountants or advisors
with respect to the Company or its Subsidiaries or their respective businesses
or operations, except as expressly set forth in this Agreement, the Ancillary
Documents and the schedules hereto and thereto.
ARTICLE
IV
Additional
Agreements of the Parties
Section
4.01. Taking of Necessary Action. Subject to
the terms and conditions hereof, (i) each of the parties hereto
agrees to use all reasonable best efforts promptly to take or cause to be taken
all action and promptly to do or cause to be done all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the Transactions, and (ii) each party shall execute and deliver both
before and after the Initial Closing and the Final Closing such further
certificates, agreements and other documents and take such other actions as
the
other party may reasonably request to consummate or implement the Transactions
or to evidence such events or matters.
Section
4.02. Financial Statements and Other
Reports. The Company covenants that from and after the date
hereof, to the extent it has not previously publicly filed such information
with
the SEC in an annual report on Form 10-K or periodic report on Form 10-Q, it
will deliver to Purchaser:
(a) within
40 days after the end of each quarterly period (other than the last quarterly
period) in each fiscal year, consolidated statements of income, changes in
stockholders’ equity and cash flows of the Company and its consolidated
Subsidiaries (including the Company Subsidiary) for the period from the
beginning of the then current fiscal year to the end of such quarterly period,
and a consolidated balance sheet of the Company and its consolidated
Subsidiaries (including the Company Subsidiary) as of the end of such quarterly
period; and
(b) within
75 days after the end of each fiscal year, a consolidated balance sheet of
the
Company and its consolidated Subsidiaries as of the end of such fiscal year
and
the related consolidated statements of income, changes in stockholders’ equity
and cash flows for such fiscal year, together with the audit report of Deloitte
& Touche LLP or other independent public accountants of recognized standing
selected by the Company.
The
obligations of the Company to deliver the materials described in this Section
4.02 shall continue in full force and effect until such time as Purchaser shall
no longer own shares of Common Stock representing at least five percent of
the
Common Stock then outstanding.
Section
4.03. Inspection of Property. The Company
covenants that it will permit
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representatives
of Purchaser to visit and inspect, at Purchaser’s expense, any of the properties
of the Company or its Subsidiaries to examine the corporate books and make
copies or extracts therefrom and to discuss the affairs, finances and accounts
of the Company and its Subsidiaries with the principal officers of the Company,
all upon reasonable notice and at such reasonable times and as often as
Purchaser may reasonably request. Any investigation pursuant to this
Section shall be conducted during normal business hours and in such manner
as
not to interfere unreasonably with the conduct of the business of the Company,
and nothing herein shall require the Company or any of its Subsidiaries to
disclose any information to the extent (a) that the Company reasonably believes
such information to be competitively sensitive proprietary information (except
to the extent Purchaser provides reasonable assurances that such information
shall not be shared with employees of its or its Affiliates’ competing
businesses or otherwise used by the Purchaser or its Affiliates to compete
with
the Company and its Subsidiaries), (b) prohibited by applicable law or
regulation, or (c) that such disclosure would reasonably be expected to cause
a
violation of any agreement to which the Company or any of its Subsidiaries
is a
party or would cause a risk of a loss of privilege to the Company or any of
its
Subsidiaries (provided that the Company shall use reasonable best
efforts to make appropriate substitute disclosure arrangements under
circumstances where the restrictions in this clause (c) apply). The
provisions of this Section 4.03 shall terminate and no longer be of any effect
from and after such time as Purchaser no longer beneficially owns Common Stock
representing at least five percent of the Common Stock then
outstanding.
Section
4.04. Securities Laws; Legends;
Transferability.
(a) Purchaser
acknowledges and agrees that as of the date hereof the Securities issuable
pursuant to this Agreement shall not have been or will not be registered under
the Securities Act or the securities laws of any state and that they may be
sold
or otherwise disposed of only in one or more transactions registered under
the
Securities Act and, where applicable, such laws or as to which an exemption
from
the registration requirements of the Securities Act and, where applicable,
such
laws is available. Purchaser acknowledges that, except as provided in
the Ancillary Documents, Purchaser has no right to require the Company to
register the Securities. Purchaser further acknowledges and agrees
that each certificate for the Purchased Common Stock shall bear a legend
substantially as set forth in paragraph (b) of this Section 4.04, and each
Springing Lien Note shall bear a legend substantially as set forth in the
Springing Lien Notes Indenture.
(b) Certificates
for the Purchased Common Stock shall bear legends in substantially the following
form:
The
securities represented by this Certificate have not
been
registered under the Securities Act of 1933, as amended,
and
may not be transferred, sold or otherwise disposed of
except
while such a registration is in effect under such act and
applicable
state securities laws or pursuant to an exemption
from
registration under such act or such laws.
(c) When
issued pursuant hereto, the certificates evidencing the Securities shall also
bear any legend required by any applicable state blue sky law.
-26-
(d) Any
holder of the Purchased Common Stock may request the Company to remove any
or
all of the legends described in this Section 4.04 from the certificates
evidencing such Purchased Common Stock by submitting to the Company such
certificates, together with an opinion of counsel reasonably satisfactory to
the
Company to the effect that such legend or legends are no longer required under
the Securities Act or applicable state laws, as the case may be. Any
holder of Springing Lien Notes may request the Company to remove legends on
the
Springing Lien Notes in accordance with the Springing Lien Notes
Indenture.
(e) Prior
to the date six months after the Initial Closing Date, Purchaser will not,
without the Company’s prior consent, Transfer any shares of Purchased Common
Stock, except for Permitted Transfers to Persons who agree with the Company
(other than in the case of Transfers contemplated by clause (iii) of the
definition of “Permitted Transfers”) in writing to be bound by the provisions of
this Section 4.04(e) and Section 4.04(f) to the same extent as
Purchaser. For the avoidance of doubt, the provisions of this Section
4.04(e) are waivable by the Company in its sole discretion.
(f) Notwithstanding
anything in this Agreement to the contrary and except for Transfers pursuant
to
the exercise of rights under the Registration Rights Agreement, in connection
with a Change of Control transaction or pursuant to Rule 144 under the
Securities Act, Purchaser may not Transfer in excess of five percent
(5%) of the shares of Purchased Common Stock issuable hereunder to any
Competitor in a single transaction or series of related transactions without
the
prior consent of the Company.
Section
4.05. Lost, Stolen, Destroyed or Mutilated
Securities. Upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of any certificate for any
security of the Company and, in the case of loss, theft or destruction, upon
delivery of an undertaking by the holder thereof to indemnify the Company (and,
if requested by the Company, the delivery of an indemnity bond sufficient in
the
judgment of the Company to protect the Company from any loss it may suffer
if a
certificate is replaced), or, in the case of mutilation, upon surrender and
cancellation thereof, the Company will issue a new certificate for an equivalent
number of shares or another security of like tenor, as the case may
be.
Section
4.06. Regulatory Matters.
(a) Purchaser
and the Company shall use reasonable best efforts to promptly prepare and file
all necessary documentation, to effect all applications, notices, petitions
and
filings (including, without limitation, under the HSR Act, which filing shall
be
made by Purchaser and the Company within four (4) Business Days following the
date of this Agreement), and to obtain as promptly as practicable all permits,
consents, approvals and authorizations of all third parties and Governmental
Entities, and take all other actions, which are necessary or advisable to
consummate the Transactions. Purchaser and the Company shall, within
four (4) Business Days of the date hereof, prepare and deliver to the OTS a
rebuttal of control submission in respect of the Transactions that are proposed
to be consummated at the Final Closing and seek acceptance and approval of
such
rebuttal of control submission by the OTS with respect to such Transactions
to
the effect that Purchaser will not be deemed to control the Company or any
of
its Subsidiaries for purposes of the CIBC Act or the S&LHC Act as a result
of the consummation of the Transactions and shall use reasonable best efforts
(including
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using
good
faith efforts to respond to all requests for additional information from the
OTS
as promptly as practicable following each such request) to obtain such
acceptance and approval (including, subject to Section 4.06(d), the Purchaser
entering into a rebuttal of control agreement with the OTS materially in
conformance with the form contained in 12 CFR §574.100 and (subject to Section
4.06(d)) agreeing to such other conditions as required by the OTS to obtain
such
acceptance and approval and the Company using the proceeds of the Transactions
in a manner directed by the OTS). The Company and Purchaser shall
have the right to consult the other, in each case subject to applicable laws
relating to the exchange of information, with respect to any filing made with,
or written materials submitted to, any third party or any Governmental Entity
in
connection with the Transactions. In exercising the foregoing right,
each of the parties hereto shall act reasonably and as promptly as
practicable. The parties hereto agree that they will consult with
each other with respect to the obtaining of all permits, consents, approvals
and
authorizations of all third parties and Governmental Entities necessary or
advisable to consummate the Transactions and each party will keep the other
appraised of the status of matters relating to completion of the
Transactions. Without limiting the generality of the foregoing and
subject to applicable law and except as prohibited by the OTS, each of the
Purchaser and the Company shall keep the other apprised of the status of matters
relating to completion of the Transactions, including promptly furnishing the
other with copies of notices or other written communications, and the substance
of any material oral communications, between the Purchaser and the Company,
as
the case may be, or any of their respective Subsidiaries or Affiliates, and
the
OTS with respect to the Transactions and the rebuttal of control submission
referred to in this Section 4.06(a).
(b) Purchaser
and the Company shall, upon request, furnish each other with all information
concerning themselves, their Subsidiaries, directors, officers and stockholders
and such other matters as may be reasonably necessary or advisable in connection
with any statement, filing, notice or application made by or on behalf of
Purchaser, the Company or any of their respective Subsidiaries to any
Governmental Entity in connection with the Transactions.
(c) Purchaser
and the Company shall promptly furnish the other with copies of written
communications received by them or their Subsidiaries from, or delivered by
any
of the foregoing to, any Governmental Entity in respect of the Transactions
(other than in respect of information filed or otherwise submitted
confidentially to any such Governmental Entity).
(d) Notwithstanding
anything in this Agreement, including, without limitation, the provisions of
Section 4.06(a), in no event will Purchaser or its Affiliates be obligated
to:
(i) without
limiting Purchaser’s obligation under clause (ii) below, propose or accept any
divestiture of any of Purchaser’s or any of its Affiliate’s assets, accept any
operational restriction on Purchaser’s or any of its Affiliate’s business, or
agree to take any action that limits Purchaser’s or its Affiliate’s commercial
practices in any way to obtain any consent, acceptance or approval of any
Governmental Entity to consummate the Transactions; or
(ii) propose
or agree to accept any term or condition or otherwise modify the terms of this
Agreement or the Ancillary Documents, including for the avoidance of doubt
the
terms or the amount of the Securities to be delivered by the Company under
this
Agreement, to obtain any consent, acceptance or approval of any Governmental
Entity to the
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consummation
of the Transactions if such term, condition or modification would (A) materially
adversely affect (with respect to Purchaser or its Affiliates) any term of
the
Transactions (other than a financial term), or (B) adversely affect (with
respect to Purchaser or its Affiliates) any financial term of the Transactions
contemplated hereby.
(iii) Any
of the foregoing contemplated by clauses (i) and (ii) above shall be a
“Burdensome Condition”.
(iv) With
regard to any Governmental Entity, neither the Company nor any Company
Subsidiary (or any of their respective Affiliates) shall, without Purchaser’s
prior written consent, discuss or commit to any Burdensome
Condition.
Section
4.07. Board of Directors.
(a) Effective
as of the date the Company issues (or is obligated to issue) to Purchaser the
shares of Purchased Common Stock contemplated by Section
2.01(b)(i)(A) (whether in connection with the consummation of Final
Closing or, absent the consummation of the Final Closing, in accordance with
Section 2.01(b)(iii) after satisfaction of the conditions contemplated thereby),
the Board of Directors of the Company shall appoint to the Board
one nominee of Purchaser to serve as a Class III director on the
Board until the Company’s 2009 annual meeting, provided such nominee
shall be reasonably acceptable to the nominating committee of the Company’s
Board of Directors (which approval shall not be unreasonably
withheld). Beginning with such annual meeting of the Company’s
stockholders or at any meeting of the stockholders of the Company at which
the
Class III directors of the Board of Directors of the Company are to be elected,
or whenever such members of the Board of Directors are to be elected by written
consent, the Company will include in the slate of directors recommended for
election to Class III by the Board of Directors to the stockholders of the
Company one member of the Company’s Board of Directors designated by Purchaser,
which nominee shall be reasonably acceptable to the nominating committee of
the
Company’s Board of Directors (which approval shall not be unreasonably
withheld), and will use its reasonable best efforts to take all action necessary
(including the solicitation of proxies on such person’s behalf) to ensure such
person is elected by the stockholders of the Company as a Class III director
of
the Company’s Board of Directors.
(b) In
the event of resignation, death, removal or disqualification of a director
nominated by Purchaser in accordance with Section 4.07(a) and subsequently
elected to the Company's Board of Directors, Purchaser shall promptly designate
a replacement director, which nominee shall be reasonably acceptable to the
nominating committee of the Company’s Board of Directors (which approval shall
not be unreasonably withheld), and the Company will use its reasonable best
efforts to take all action necessary (including the solicitation of proxies
on
such person’s behalf) to ensure such person is elected by the stockholders of
the Company to the Company’s Board of Directors at the next meeting of the
Company’s stockholders at which Class III directors are
elected. Any director nominated by Purchaser in accordance with
Section 4.07(a) may be removed at any time and from time to time, with or
without cause (subject to the bylaws of the Company as in effect from time
to
time and any requirements of law), in Purchaser’s sole discretion.
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(c) At
such time as Purchaser shall no longer own shares of Common Stock representing
at least five percent of the Common Stock then outstanding, this Section 4.07
shall terminate and be of no further force or effect.
Section
4.08. Confidentiality Agreement; Publicity.
(a) Effective
on the Initial Closing Date, the Purchaser and its Affiliates will be released
from their obligations under paragraph 11 of the Confidentiality Agreement
and
the Confidentiality Agreement will otherwise continue to remain in full force
and effect.
(b) Notwithstanding
anything to the contrary in the Confidentiality Agreement, Purchaser may
disclose Proprietary Information (as defined in the Confidentiality Agreement)
to prospective debt and equity financing sources for the Transactions
contemplated hereby, provided that any such disclosure shall not relieve
Purchaser of its obligations with respect to the continued confidentiality
of
such information pursuant to the Confidentiality Agreement.
Section
4.09. PORTAL and CUSIPs and DTC
Eligibility. The Company will use its reasonable best efforts to
(a) permit the Springing Lien Notes issued pursuant to this Agreement to be
designated PORTAL securities in accordance with the rules and regulations
adopted by the NASD relating to the PORTAL Market as of the Closing or as
promptly as practicable thereafter, (b) obtain all necessary Committee on
Uniform Securities Identification Procedures numbers (CUSIP numbers) for the
Springing Lien Notes issued pursuant to this Agreement required for creating
a
market in the Springing Lien Notes traded pursuant to Rule 144A under the
Securities Act or which are not “restricted securities” for purposes of Rule 144
under the Securities Act and (c) make the Securities issued and sold in
accordance with this Agreement eligible for clearance and settlement through
the
facilities of the Depository Trust Company.
Section
4.10. NASDAQ. The
Company shall use
its reasonable best efforts to obtain approval from the NASDAQ for the listing
on the NASDAQ of the Purchased Common Stock issued at the Initial Closing and
issuable after such date pursuant to the terms and conditions hereof as soon
as
practicable after the Initial Closing Date, subject to notice of issuance only
with respect to shares of Purchased Common Stock issuable after the Initial
Closing Date.
Section
4.11. Replacement of Revolving Credit
Facility. The Company shall use its commercially reasonable
efforts to obtain, and enter into customary agreements on
terms reasonably satisfactory to Purchaser in its capacity as a
holder of Springing Lien Notes with respect to, a replacement for and access
to
a secured revolving credit facility of up to $300,000,000.
Section
4.12. 10-K Filing. The Company shall,
as soon as reasonably practicable but in any event within the period prescribed
therefor under the rules and regulations of the SEC, file with the SEC its
annual report on Form 10-K (or such successor form prescribed by the SEC) for
the year ended December 31, 2007, which filing shall include, for the avoidance
of doubt, all material non-public information which the Company has provided
to
Purchaser in connection with its consideration of this Agreement and the
Transactions (to the extent it remains material non-public information at such
time).
Section
4.13. Purchaser Acquisition of Additional Common
Stock. From the Initial
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Closing
Date until the earlier of: (a) the date the condition contemplated by Section
5.03(d) has been satisfied, and (b) the date the obligation to consummate the
purchase and sale of the Springing Lien Notes at the Final Closing is terminated
in accordance with Section 6.04, Purchaser shall not and shall cause its
Affiliates not to, purchase any shares of Common Stock in addition to the shares
of Common Stock owned as of the date hereof and set forth in Purchaser Schedule
3.02(i), except for the shares of Purchased Common Stock issuable pursuant
to
this Agreement.
Section
4.14. Use of Proceeds. Upon receipt of any
proceeds from the sales of Securities contemplated by this Agreement, the
Company shall immediately contribute the amount of such cash proceeds
contemplated to be contributed by Article II to its intermediate Subsidiary
holding company that owns E*Trade Bank, and cause such intermediate Subsidiary
holding company to immediately contribute the full amount of such proceeds
to
E*Trade Bank.
Section
4.15. Investment Policy
Covenant. Notwithstanding anything herein or anywhere else
in this Agreement to the contrary, during the period beginning on the Initial
Closing Date and ending January 1, 2010 (or such earlier date as the Springing
Lien Notes are no longer outstanding), without the prior written consent of
Purchaser, the Company will not permit E*Trade Bank to, and shall cause E*Trade
Bank not to, purchase for its own account:
(a) asset-backed
securities, collateralized debt obligations, collateralized loan obligations
and
similar instruments, including any derivative products based on any of the
foregoing,
(b) preferred
securities and common stock of any Person other than (x) the common stock of
the
Company or any of its Subsidiaries otherwise permitted to be issued hereunder
or
(y) the Capital Stock of Federal Home Loan Banks,
(c) indebtedness
that is, at the time of such purchase, (x) rated lower than “A-” from S&P
and “A3” from ▇▇▇▇▇’▇ (in each case, with stable outlook) or (y) issued by
corporations incorporated in any jurisdiction other than a state of the United
States of America or the District of Columbia,
(d) (w)
any second lien mortgage loan, (x) any mortgage loan with a combined loan to
value ratio of greater than 80%, (y) any mortgage loan borrowed by a Person
with
a FICO score of less than 700 at the time of origination or (z) any mortgage
loan that is not a “full documentation loan,” or
(e) any
home equity lines of credit;
provided
that:
(1) notwithstanding
the foregoing clauses (a) through (e), (1) any purchase or agreement to purchase
entered into prior to the date hereof shall be permitted, (2) any purchase
of
securities issued by Federal National Mortgage Association or ▇▇▇▇▇▇▇ Mac shall
be permitted, and (3) none of the restrictions in the foregoing clauses (i)
through (v) shall apply during any fiscal quarter of E*Trade Bank immediately
following the quarter in which its
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regulatory
capital exceeds the amount of regulatory capital required for it to be Well
Capitalized by $500 million;
(2) “purchase
for its own account” shall mean purchases of assets subject to E*TRADE Bank’s
investment policy and included in an “investment portfolio” (as defined in FASB
115); and
(3) for
purposes of clauses (iv) and (v) above, the term “purchase for its own account”
shall mean purchases in the secondary market and shall not include purchases
of
such mortgage loans or equity lines of credit originated by any Affiliate of
the
Company.
Section
4.16. Put Rights.
(a)
If the condition set forth in Section 5.03(d) has not been satisfied prior
to
January 15, 2008, then Purchaser, upon not less than 15 nor more than 30 days’
prior written notice to the Company and the Trustee (as defined in the Springing
Lien Notes Indenture), may require the Company to redeem all, but not less
than
all, of the Proportionate Percentage as of December 1, 2009 of Springing Lien
Notes held by the Purchaser or its Affiliates on December 1, 2009 at a
redemption price in cash equal to (i) 115.00% of the principal amount of such
Springing Lien Notes plus (ii) accrued and unpaid interest thereon
through December 1, 2009. Upon consummation of such redemption, the
Company shall have no further obligation under this Agreement with respect
to
the shares of Purchased Common Stock that remain unissued as of such
date.
(b)
This section shall expire and have no further effect if at any time prior to
December 1, 2009 the condition set forth in Section 5.03(d) is satisfied and
the
Purchaser has been issued all of the Purchased Common Stock to be issued by
the
Company under this Agreement.
(c) “Proportionate
Percentage” shall mean, as of any date, the product of (i) $1,750,000,000
less the aggregate principal amount of Springing Lien Notes not held
by
Purchaser or its Affiliates, multiplied by (ii) a fraction (A) the
numerator of which is the Undelivered Common Stock as of such date and (B)
the
denominator of which is the total number of shares of Purchased Common Stock
to
be issued under this Agreement.
(d)
For the avoidance of doubt, the rights under this Section 4.16 may not be
transferred by Purchaser to any subsequent holder of the Springing Lien
Notes.
Section
4.17. Call Rights.
(a) If
the condition set forth in Section 5.03(d) has not been satisfied prior to
May
29, 2008, then at any time following such date, the Company may redeem from
Purchaser and its Affiliates all but not less than all of the Proportionate
Percentage of Springing Lien Notes held by Purchaser and its Affiliates, upon
not less than 15 nor more than 30 days’ prior written notice, at a redemption
price in cash equal to (i) 101% of the principal amount of the Springing Lien
Notes redeemed plus (ii) the Call Premium as of, and accrued
and unpaid interest if any to, the date of redemption (the “Redemption
Date”). Upon consummation of such redemption, the
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Company
shall have no further obligation under this Agreement with respect to the shares
of Purchased Common Stock that remain unissued as of such date.
(b) If
a Change of Control Agreement is entered into within 18 months of the Redemption
Date, then upon consummation of the transactions contemplated by such Change
of
Control Agreement the Company will make a further payment to Purchaser equal
to
(x) (A) the per share payment in respect of a share of Common Stock pursuant
to
such Change of Control Agreement less (B) the Redemption Date Value
multiplied by (y) the Undelivered Common Stock as of the Redemption
Date. The payment pursuant to this Section 4.16(b) shall be
disregarded if the application of the formula above would yield a negative
number.
(c) The
“Call Premium” means an amount in dollars equal to (x)the Undelivered
Common Stock as of the Redemption Date multiplied by
(y) the Redemption Date Value.
(d) The
“Redemption Date Value” means the average of closing prices of the Common
Stock on the NASDAQ over the ten trading day period ending the last day prior
to
the Redemption Date.
Section
4.18. Change of Control.
(a) If,
prior to the date that all of the shares of Purchased Common Stock issuable
to
Purchaser pursuant to this Agreement have been issued to Purchaser, a Change
of
Control occurs or the Company enters into a Change of Control Agreement, then
the Company must pay to Purchaser simultaneously with the consummation of any
such transaction that would give rise to such Change of Control an amount in
cash (a “Change of Control Payment Amount”) equal to the value that would
have been payable upon closing of such Change of Control transaction with
respect to the Undelivered Common Stock as of the date of the consummation
of
such Change of Control transaction, which Change of Control Payment Amount
is
independent of any amounts that Purchaser or its Affiliates may actually receive
as a result of such transaction in consideration of Common Stock or Springing
Lien Notes owned by Purchaser or its Affiliates as of such date. Upon
Purchaser’s receipt of such payment, the Company shall have no further
obligation under this Agreement with respect to the shares of Purchased Common
Stock that remain unissued as of such date.
(b) “Undelivered
Common Stock” means, as of any date, the number of shares of the Company’s
Common Stock equal to the difference between (i) 79,867,087 and (ii) the number
of shares of Purchased Common Stock issued as of such date.
ARTICLE
V
Conditions
Section
5.01. Conditions of Purchase at Initial
Closing. The obligations of Purchaser to complete the Initial
Closing and pay the Initial Consideration are subject to satisfaction or waiver
of each of the following conditions precedent by Purchaser:
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(a) Representations
and Warranties; Covenants.
(i) The
representations and warranties of the Company (i) contained in Section
3.01(e)(i) of this Agreement shall be true and correct in all material respects,
(ii) contained in Sections 3.01(g)(iii) and 3.01(u) shall be true and correct
in
all respects and (iii) contained in any other Section of this Agreement and
in
the Ancillary Documents shall be true and correct (disregarding all
qualifications or limitations set forth in such representations and warranties
as to “materiality,” “Material Adverse Effect” and words of similar import),
except, in the case of clause (iii), where the failure of such representations
and warranties to be so true and correct has not had and would not reasonably
be
expected to have, individually or in the aggregate, a Material Adverse Effect,
in each case on and as of the date of this Agreement or the date of such
Ancillary Documents, as the case may be, and on and as of the Initial Closing
Date with the same effect as though made on and as of such respective dates
(unless any such representation or warranty is made only as of a specific date,
in which event such representation or warranty shall be true and correct only as
of such specific date); and
(ii) the
Company shall have performed all obligations and complied with all covenants
required hereunder to be performed by it at or prior to the Initial
Closing.
(b) Material
Adverse Effect. Except as disclosed in the Company Disclosure
Schedule, there shall not have occurred, since the date hereof, any event,
circumstance, change or effect that, individually or in the aggregate, has
had
or would reasonably be expected to have a Material Adverse Effect.
(c) Company
Certificate. The Company shall have delivered to Purchaser a
certificate, dated the Initial Closing Date, signed by an executive officer
of
the Company, to the effect that the conditions set forth in Section 5.01(a)
and
Section 5.01(b) have been satisfied to the best knowledge of the officer
executing the same.
(d) No
Adverse Law, Action or Decision or Injunction. There shall not be
in effect any law, rule or regulation or any order, decree or injunction of
a
court or agency of competent jurisdiction which enjoins or prohibits
consummation of the Transactions.
(e) Regulatory
Approvals.
(i) All
material permits, consents, authorizations, orders and approvals of, and filings
and registrations required under any federal, state or foreign law, rule or
regulation for or in connection with the execution and delivery of this
Agreement and the Ancillary Documents and the consummation by the parties hereto
of the Transactions to take place on the Initial Closing Date contemplated
on
such parties’ part hereby and thereby shall have been obtained or made,
including without limitation, any required foreign competition approvals and
all
statutory waiting periods thereunder in respect thereof shall have
expired.
(ii) The
OTS shall have approved or not objected to the notice filed by the Company
pursuant to 12 CFR 563.22(c) with respect to the sale of the ABS
Assets.
(f) Closing
Deliveries. Purchaser shall have received the items to be
delivered by the Company pursuant to Section 2.01(a)(ii).
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(g) ABS
Assets. The purchase of the ABS Assets pursuant to the ABS
Purchase Agreement shall be completed immediately after the contribution
contemplated by Section 2.01(a)(ii)(D) and Section 4.14 and as part of the
Initial Closing.
(h) Regulatory
Enforcement. Except as disclosed in the Company Disclosure
Schedule, as of the date hereof, neither the OTS nor any other
Governmental Entity has (i) initiated an administrative or enforcement
investigation or proceeding, or has taken any remedial action, including the
imposition of a cease and desist order, against the Company or any of its
subsidiaries, directors, officers or employees or (ii) changed the status of
any
investigation, including without limitation the SEC informal inquiry initiated
on October 17, 2007.
(i) Legal
Opinion. The Purchaser shall have received, dated the Initial
Closing Date and addressed to the Purchaser, an opinion of ▇▇▇▇▇ ▇▇▇▇ &
▇▇▇▇▇▇▇▇, outside counsel to the Company, in the form attached hereto
as Schedule
5.01(i).
(j) Revolving
Credit Facility. The Company’s revolving credit facility shall
have been terminated effective prior to the Initial Closing.
(k) Simultaneous
Closing. Except for the purchase of the ABS Assets, all
transactions to be completed on the Initial Closing Date pursuant to Section
2.01(a) shall be completed simultaneously with the Initial Closing.
Section
5.02. Conditions of Sale at Initial
Closing. The obligation of the Company to issue and sell the
Securities and sell the ABS Assets at the Initial Closing as contemplated by
Section 2.01(a)(i) is subject to satisfaction or waiver of each of the following
conditions precedent:
(a) Representations
and Warranties; Covenants. The representations and warranties of
Purchaser contained in this Agreement shall be true and correct in all material
respects on and as of the date of this Agreement and on and as of the Initial
Closing Date with the same effect as though made on and as of such dates (unless
any such representation or warranty is made only as of a specific date, in
which
event such representation or warranty shall be true and correct in all material
respects only as of such specific date), and Purchaser shall have performed
all
obligations and complied with all covenants required hereunder to be performed
by it at or prior to the Initial Closing.
(b) Purchaser’s
Certificate. An executive officer of Purchaser shall have
delivered to the Company a certificate, dated the Initial Closing Date, to
the
effect that the condition set forth in Section 5.02(a) has been satisfied to
the
best knowledge of the officer executing the certificate.
(c) No
Adverse Action or Decision or Injunction. There shall not be in
effect any law, rule or regulation or any order, decree or injunction of a
court
or agency of competent jurisdiction which enjoins or prohibits consummation
of
the Transactions.
(d) Closing
Deliveries. The Company shall have received the items to be
delivered by Purchaser pursuant to Section 2.01(a)(ii).
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(e) Purchase
of ABS Assets. The purchase of the ABS Assets pursuant to the ABS
Purchase Agreement shall be completed immediately after the contribution
contemplated by Section 2.01(a)(ii)(D) and Section 4.14 and as part of the
Initial Closing.
Section
5.03. Conditions of Purchase at Final
Closing. The obligations of Purchaser to complete the Final
Closing and to pay the Final Cash Consideration at the Final Closing are subject
to satisfaction or waiver (to the extent permitted by applicable law) of each
of
the following conditions precedent by Purchaser:
(a) No
Adverse Law, Action or Decision or Injunction. There shall not be
in effect any law or any order, decree or injunction of a court or agency of
competent jurisdiction which enjoins or prohibits consummation of the
Transactions to be consummated at the Final Closing Date.
(b) Antitrust
Approvals. Any applicable waiting period under the HSR Act
relating to the issuance of the Purchased Common Stock issued after the Initial
Closing Date shall have expired or been terminated.
(c) Final
Closing Deliveries. Purchaser shall have received the items to be
delivered by the Company pursuant to Section 2.01(b)(ii).
(d) OTS
Approval. The OTS shall have accepted a rebuttal of control
submission for the proposed Transactions without, unless approved by Purchaser
in its sole discretion, imposition of any Burdensome
Condition.
(e) Legal
Opinion. The Purchaser shall have received, dated the Final
Closing Date and addressed to the Purchaser, an opinion of ▇▇▇▇▇ ▇▇▇▇ &
▇▇▇▇▇▇▇▇, outside counsel to the Company, in the form attached hereto
as Schedule
5.03(e).
Section
5.04. Conditions of Sale at Final
Closing. The obligation of the Company to issue the shares of
Purchased Common Stock listed in Section 2.01(b)(i) (subject to the provisions
of Section 2.01(b)(iii)), and the Springing Lien Notes to be issued at the
Final
Closing is subject to satisfaction or waiver (to the extent permitted by
applicable law) of each of the following conditions precedent:
(a)
No Adverse Action or Decision or Injunction. There shall not be
in effect any law or any order, decree or injunction of a court or agency of
competent jurisdiction which enjoins or prohibits consummation of the
Transactions to be consummated at the Final Closing.
(b) Antitrust
Approvals. Any applicable waiting period under the HSR Act
relating to the issuance of the Purchased Common Stock issued after the Initial
Closing Date shall have expired or been terminated.
(c) Closing
Deliveries. The Company shall have received the items to be
delivered by Purchaser pursuant to Section 2.01(b).
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ARTICLE
VI
Miscellaneous
Section
6.01. Survival of Representations and
Warranties. All covenants and agreements shall survive the
Initial Closing Date and the Final Closing Date until expired in accordance
with
their terms. Except for the representations and warranties
contained in (i) Section 3.01(a), Section 3.01(b), Section 3.01(c)(i), Section
3.01(e)(i), Section 3.01(v) and Section 3.01(x) and (ii) Section 3.02(a),
Section 3.02(b) and Section 3.02(e), which shall survive the Initial Closing
and
Final Closing until the latest date permitted by law, the representations and
warranties made herein or in any Ancillary Documents or in any certificates
delivered in connection with the Initial Closing or the Final Closing, as
applicable, shall survive the Final Closing for a period of two years and shall
then expire.
Section
6.02. Notices. All notices and other
communications hereunder shall be in writing and shall be deemed to have been
duly given, if delivered personally, by telecopier or sent by overnight courier
as follows:
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(a)
If to the Company, to:
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E*TRADE
Financial Corporation
▇▇▇
▇. ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇
▇. ▇▇▇▇▇▇▇, Esq.
Chief
Administrative Officer & General Counsel
Fax: (▇▇▇)
▇▇▇-▇▇▇▇
with
a copy (which shall not constitute notice) to:
▇▇▇▇▇
▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇
▇. ▇▇▇▇▇, ▇▇.
▇▇▇▇
▇. ▇▇▇▇▇▇▇
Fax: (▇▇▇)
▇▇▇-▇▇▇▇
(b)
If to Purchaser:
▇▇▇▇▇▇▇
Capital Ltd.
c/o
Citadel Limited Partnership
▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇
▇▇▇▇▇▇, Esq.
Fax: (▇▇▇)
▇▇▇-▇▇▇▇
with
a copy (which shall not constitute notice)
to:
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-▇▇-
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▇▇▇▇▇,
▇▇▇▇▇, Harris, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇
Fax:
(▇▇▇) ▇▇▇-▇▇▇▇
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or
to such
other address or addresses as shall be designated in writing. All
notices shall be effective when received.
Section
6.03. Entire Agreement; Third Party Beneficiaries;
Amendment. This Agreement, the Confidentiality Agreement and the
Ancillary Documents and the documents described herein and therein or attached
or delivered pursuant hereto or thereto set forth the entire agreement between
the parties hereto with respect to the Transactions, and, other than as set
forth in Section 4.04(d) and Section 6.09, are not intended to and shall not
confer upon any person other than the parties hereto any rights or remedies
hereunder. Any provision of this Agreement may be amended or modified
in whole or in part at any time by an agreement in writing between the parties
hereto executed in the same manner as this Agreement. No failure on
the part of any party to exercise, and no delay in exercising, any right shall
operate as a waiver thereof nor shall any single or partial exercise by any
party of any right preclude any other or future exercise thereof or the exercise
of any other right. No investigation by any Purchaser of the Company
prior to or after the date hereof shall stop or limit Purchaser from exercising
any right hereunder or be deemed to be a waiver of any such right.
Section
6.04. Termination of Final Closing
Obligation. If the purchase and sale of the Springing Lien Notes
contemplated to occur at the Final Closing shall not have occurred on or prior
to September 30, 2008, then the obligations of the parties to consummate such
purchase and sale shall automatically terminate at such date.
Section
6.05. Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be deemed to
constitute an original, but all of which together shall constitute one and
the
same documents.
Section
6.06. Governing Law. This Agreement shall be
governed by, and interpreted in accordance with, the laws of the State of New
York.
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Section
6.07. Public Announcements. Subject to each
party’s disclosure obligations imposed by law and notwithstanding any provision
to the contrary contained in the Confidentiality Agreement, each of the parties
hereto will cooperate with each other in the development and distribution of
all
news releases and other public information disclosures with respect to this
Agreement and any of the Transactions, and no party hereto will make any such
news release or public disclosure without first consulting with the other party
hereto. In conjunction with the Company’s and Purchaser’s joint
public disclosure of this Agreement and the transactions contemplated hereby
(which shall occur no later than 24 hours following the execution of this
Agreement), the Company will pre-announce fourth quarter 2007 incremental
provisions for the Company’s One-to-Four Family (1st Lien) and
Home
Equity Loan Portfolios (the “Loan Portfolio Announcement”).
Section
6.08. Expenses. Upon the occurrence of the
Initial Closing, and from time to time afterward in connection with the
Transactions contemplated hereby and as requested by the Purchaser, the Company
will reimburse the Purchaser for all reasonable, documented, out-of-pocket
expenses (including fees and expenses of legal counsel and accounting
consultants) incurred by Purchaser in connection with the transactions
contemplated by this Agreement and the Ancillary Documents (including
Purchaser’s due diligence review of the Company and the negotiation of all
definitive documentation entered into in connection with the transactions
contemplated by this Agreement) up to a maximum reimbursement of
$8,000,000. If the Initial Closing shall not occur, each party shall
bear its own costs and expenses.
Section
6.09. Indemnification.
(a) The
Company agrees to indemnify and hold harmless Purchaser, each Affiliate of
Purchaser and each officer, director, employee, partner, member, shareholder
and
agent of the Purchaser and their Affiliates in their respective capacities
as
such (the “Purchaser Indemnitees”), to the fullest extent lawful, from
and against any and all actions, suits, claims, proceedings, damages, losses,
deficiencies, liabilities, penalties, fines, interest, costs, judgments, amounts
paid in settlement (subject to the penultimate sentence of Section 6.09(g)
below) and expenses (including, without limitation, the cost and expenses of
any
litigations, actions, judgments and settlements related thereto, and the
reasonable costs and expenses of attorneys and accountants incurred in the
investigation or defense thereof or the enforcement of rights hereunder)
(collectively, “Loss”) arising out of or resulting from (i) subject to
the provisions set forth in Section 6.09(c) and Section 6.09(d), any inaccuracy
in or breach of the representations or warranties made by the Company in this
Agreement or any Ancillary Document, (ii) any breach of or failure to comply
with the covenants and agreements of the Company or any of its Subsidiaries
under this Agreement or any Ancillary Document; or (iii) any action, claim,
suit, proceeding or investigation by any Governmental Entity, stockholder of
the
Company or any other Person (other than the Company or any Purchaser Indemnitee)
against or involving a Purchaser Indemnitee relating to the execution and
delivery of this Agreement and the Ancillary Documents or the performance by
the
parties of their obligations hereunder and thereunder or the consummation of
the
Transactions contemplated hereby and thereby, except, with respect to this
clause (iii), to the extent it is determined pursuant to a final, non-appealable
order of a court with competent jurisdiction that the Purchaser Indemnitees’
liability is based on acts of the Purchaser Indemnitee constituting fraud,
gross
negligence, willful misconduct or violations of applicable law.
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(b) Purchaser
agrees to indemnify and hold harmless the Company, its Affiliates and each
of
their respective officers, directors, employees and agents in their respective
capacities as such (the “Company Indemnitees”), to the fullest extent
lawful (i) subject to the provisions set forth in Section 6.09(e), from and
against any and all Losses arising out of or resulting from any inaccuracy
in or
breach of the representations or warranties made by Purchaser in this Agreement
or any Ancillary Document, and (ii) any breach of or failure to comply with
the
covenants and agreements of Purchaser under this Agreement or any Ancillary
Document.
(c) For
purposes of the indemnity contained in Section 6.09(a)(i), the Material Adverse
Effect and other materiality (or correlative meaning) qualifications included
in
the representations and warranties contained herein shall have no effect on
any
provisions in this Section 6.09 concerning the indemnities of the Company or
Purchaser with respect to such representations and warranties, each of which
representations and warranties shall be read as though there were no Material
Adverse Effect or other materiality qualification for purposes of such
indemnities.
(d) Notwithstanding
anything to the contrary set forth in this Agreement, except in the case of
fraud, the Purchaser Indemnitees shall not make a claim against the Company
for
indemnification under Section 6.09(a)(i) (not including indemnification for
breaches of the representations and warranties made by the Company in Section
3.01)(e)) for Purchaser Losses unless and until the aggregate amount of
Purchaser Losses under Section 6.09(a)(i) (not including indemnification for
breaches of the representations and warranties made by the Company in Section
3.01(e)) exceeds $100,000,000 (the “Deductible”) and then the Purchaser
Indemnitees shall be entitled to indemnification for all Losses in excess of
the
Deductible. The aggregate amount of Purchaser Losses for which the Company
is
obligated to indemnify Purchaser in respect of claims under Section 6.09(a)(i)
shall not exceed $1,500,000,000 (the “Cap”) (it being acknowledged and
agreed that Purchaser shall be responsible for only a pro rata share of the
Deductible and shall be subject to a pro rata share of the Cap calculated based
on the aggregate amount of Springing Lien Notes issuable to Purchaser under
this
Agreement in proportion to the Springing Lien Notes issued to Persons other
than
Purchaser).
(e) Notwithstanding
anything to the contrary set forth in this Agreement, except in the case of
fraud, the Company Indemnitees shall not make a claim against Purchaser for
indemnification under Section 6.09(b)(i) for Company Losses unless and until
the
aggregate amount of Company Losses under Section 6.09(b)(i) exceeds the
Deductible and then the Company Indemnitees shall be entitled to indemnification
for all Losses in excess of the Deductible. The aggregate amount of
Company Losses for which Purchaser is obligated to indemnify the Company in
respect of claims under Section 6.09(b)(i) shall not exceed
$1,500,000,000.
(f) A
party obligated to provide indemnification under this Section 6.09 (an
“Indemnifying Party”) shall reimburse the indemnified parties of the
other party (the “Indemnified Parties”) for all reasonable out-of-pocket
expenses (including attorneys’ fees and disbursements) as they are incurred in
connection with investigating, preparing to defend or defending any such action,
suit, claim or proceeding (including any inquiry or investigation) whether
or
not an Indemnified Party is a party thereto. If an Indemnified Party
makes a claim
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under
this
Section 6.09 for payment or reimbursement of expenses, such expenses shall
be
paid or reimbursed promptly upon receipt of appropriate documentation relating
thereto even if the Indemnifying Party reserves the right to dispute whether
this Agreement requires the payment or reimbursement of such
expenses.
(g) An
Indemnified Party shall give written notice to the Indemnifying Party of any
claim with respect to which it seeks indemnification promptly after the
discovery by such party of any matters giving rise to a claim for
indemnification; provided that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of
its
obligations under this Section 6.09 unless and to the extent that the
Indemnifying Party shall have been materially prejudiced by the failure of
such
Indemnified Party to so notify such party. In case any such action,
suit, claim or proceeding is brought against an Indemnified Party, the
Indemnified Party shall be entitled to hire, at its own expense, separate
counsel and participate in the defense thereof unless there are conflicts that
make it reasonably necessary for separate counsel to represent the Indemnifying
Party and the Indemnified Party, in which case the Indemnifying Party shall
pay
such expenses; provided, however, that the Indemnifying Party
shall be entitled to assume and conduct the defense, unless the Indemnifying
Party determines otherwise and following such determination the Indemnified
Party assumes responsibility for conducting the defense (in which case the
Indemnifying Party shall be liable for any legal or other expenses reasonably
incurred by the Indemnified Party in connection with assuming and conducting
the
defense). No Indemnifying Party shall be liable for any settlement of
any action, suit, claim or proceeding effected without its written consent;
provided, however, the Indemnifying Party shall not
unreasonably withhold, delay or condition its consent. The
Indemnifying Party further agrees that it will not, without the Indemnified
Party’s prior written consent, settle or compromise any claim or consent to
entry of any judgment in respect thereof in any pending or threatened action,
suit, claim or proceeding in respect of which indemnification may be sought
hereunder (whether or not any Indemnified Party is an actual or potential party
to such action, suit, claim or proceeding) unless such settlement or compromise
includes an unconditional release of each Indemnified Party from all liability
arising out of such action, suit, claim or proceeding.
(h) The
obligations of the Indemnifying Party under this Section 6.09 shall survive
the
transfer or redemption of the Securities, the Initial Closing, the Final Closing
and termination of this Agreement, any Ancillary Document, and the
Transactions. The agreements contained in this Section 6.09 shall be
in addition to any other rights of the Indemnified Party against the
Indemnifying Party or others, at common law or otherwise. The
Indemnifying Party consents to personal jurisdiction, service and venue in
any
court in the continental United States in which any claim subject to this
Agreement is brought against any Indemnified Party.
(i) The
amount the Indemnifying Party shall pay to the Indemnified Party with respect
to
a claim made pursuant to this Section 6.09 shall be an amount equal to the
Loss
incurred by the Indemnified Party with respect to such claim, after giving
effect to any taxes payable by the Indemnified Party on receipt of any
indemnification hereunder with respect to such claim and any tax benefit
actually realizable (including deductions) by the Indemnified Party with respect
to such claim for tax purposes.
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(j) In
addition to and without limitation of any other indemnities in this Agreement,
as a protection to the Purchaser against the existence of issued shares or
other
securities of the Company not disclosed in Section 3.01(e), in the
event that, at any time after the Initial Closing, the representation and
warranty set forth in the last sentence of Section 3.01(e)(i) is
determined not to have been true as of the Initial Closing, the Company shall
issue to the Purchaser, at no cost to the Purchaser, an additional amount of
Common Stock such that, if such issuance of additional Common Stock had been
made under this Agreement, such representation and warranty would have been
true
and accurate in all respects at the Initial Closing.
(k) Notwithstanding
anything to the contrary in this Section 6.09, if and to the extent any
Ancillary Document provides for indemnification with respect to matters for
which indemnity is provided by Section 6.09(a) or Section 6.09(b) of this
Agreement, the indemnity provisions of such Ancillary Document shall govern
and
control.
Section
6.10. Successors and Assigns. Except as
otherwise expressly provided herein, the provisions hereof shall inure to the
benefit of, and be binding upon, the Company’s successors and assigns and
Purchaser’s successors and assigns, and no other person; provided,
that, subject to applicable law, Purchaser may (prior to or following the
Initial Closing or prior to the Final Closing) assign all or any portion of
its
right to be issued Securities under this Agreement to any proposed transferee
(who is not a Competitor) in a transfer in compliance with applicable law that
(a) makes substantially similar investment representations to the Company as
made by the Purchaser in Section 3.02 and acknowledgements made in Section
4.04(a)-(d), and (b) to the extent such transferee receives shares of Purchased
Common Stock, as a condition of such Transfer, shall be bound by restrictions
substantially similar to the provisions of Section 4.04(e) and Section 4.04(f)
(with the Company as a third party beneficiary of such agreement), but no such
assignment shall relieve Purchaser of its obligations hereunder;
provided, further, that the Company may not assign any of its
rights or delegate any of its duties under this Agreement without the prior
consent of Purchaser. In connection with the purchase by
any assignee of Springing Lien Notes pursuant to this Section 6.10, the Company
shall, to the extent deliverable, deliver to such assignee a certificate of
the
Chief Financial Officer of the Company, dated the date of such purchase,
certifying that such issuance does not violate the terms and conditions of
the
Company’s outstanding indebtedness.
Section
6.11. Remedies; Waiver. To the extent
permitted by law, all rights and remedies existing under this Agreement or
any
Ancillary Documents are cumulative to, and are exclusive of, any rights or
remedies otherwise available under applicable law. No failure on the
part of any party to exercise, or delay in exercising, any right hereunder
shall
be deemed a waiver thereof, nor shall any single or partial exercise preclude
any further or other exercise of such or any other right.
Section
6.12. Securities Contract; Qualified Financial
Contract. This Agreement is intended to be a “securities
contract” within the meaning of section 741 of title 11 of the United States
Code. This Agreement is intended to be a “qualified financial
contract” within the meaning of section 1821(e)(8) of title 12 of the United
States Code and the Company agrees to maintain this Agreement and the evidence
of authority in its official books and records.
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Section
6.13. Consent to Jurisdiction; WAIVER OF JURY
TRIAL. Each of the parties hereto (a) consents to submit itself
to the personal jurisdiction of any Federal or state court located in the
Borough of Manhattan in the City of New York, New York in the event any dispute
arises out of this Agreement, any of the Ancillary Documents or the
Transactions, (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court
and (c) agrees that it will not bring any action relating to this Agreement,
any
of the Ancillary Documents or the Transactions in any court other than a Federal
or state court located in the Borough of Manhattan in the City of New York,
New
York. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED
TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section
6.14. Severability. If any provision of this
Agreement is determined to be invalid, illegal, or unenforceable, the remaining
provisions of this Agreement shall remain in full force and effect; provided
that the economic and legal substance of, any of the Transactions
is not
affected in any manner materially adverse to any party. In the event
of any such determination, the parties agree to negotiate in good faith to
modify this Agreement to fulfill as closely as possible the original intent
and
purpose hereof. To the extent permitted by law, the parties hereby to
the same extent waive any provision of law that renders any provision hereof
prohibited or unenforceable in any respect.
Section
6.15. Headings. The headings of Articles and
Sections contained in this Agreement are for reference purposes only and are
not
part of this Agreement.
Section
6.16. Aggregation. For purposes of the
rights of Purchaser that are contingent on ownership of Common Stock, under
Sections 4.02, 4.03 and 4.07, Purchaser’s ownership of Common Stock then
outstanding shall be calculated in the aggregate among Purchaser and its
controlled Affiliates.
Section
6.17. Specific Performance. The parties
hereto agree that irreparable damage would occur if any provision of this
Agreement were not performed in accordance with the terms hereof and that the
parties shall be entitled to an injunction or injunctions to prevent breaches
of
this Agreement or to enforce specifically the performance of the terms and
provisions hereof in the United States District Court for the Southern District
of New York or any New York State court sitting in New York City, in addition
to
any other remedy to which they are entitled at law or in equity.
Section
6.18. Arm’s Length Transactions. This
Agreement and the Transactions contemplated hereby have been negotiated and
entered into by the parties on an arms-length basis, and the Company expressly
acknowledges and agrees that neither Purchaser nor any of its Affiliates is,
or
has acted in any capacity as, an advisor to the Company in connection with
this
Agreement or the Transactions contemplated hereby.
Section
6.19. No Presumption. If any claim is made by
a party relating to any conflict, omission or ambiguity in this Agreement or
any
Ancillary Document, no presumption or burden
-43-
of
proof
or persuasion shall be implied by virtue of the fact that this Agreement or
any
Ancillary Document was prepared by or at the request of a particular party
or
its counsel.
-44-
IN
WITNESS
WHEREOF, this Agreement has been executed by the parties hereto or by their
respective duly authorized officers, all as of the date first above
written.
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E*TRADE
FINANCIAL CORPORATION
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By:
/s/ R. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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Name:
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R. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ | ||
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Title:
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President and COO | ||
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▇▇▇▇▇▇▇
CAPITAL LTD.
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By: /s/
▇▇▇▇ ▇▇▇▇▇▇
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Name:
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▇▇▇▇ ▇▇▇▇▇▇ | ||
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Title:
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Senior Managing Director and General Counsel | ||
[Investment
Agreement Signature Page]