Item
1.01. Entry into a Material Definitive Agreement.
On
November 29, 2007, E*TRADE Financial Corporation, a Delaware corporation
(the
“Company”), entered into a Master Investment and Securities
Purchase Agreement (the “Citadel Investment Agreement”), by and
between the Company and Wingate Capital Ltd., a Cayman Islands company and
affiliate of Citadel Limited Partnership
(“Citadel”). In addition, on November 29, 2007, the
Company entered into a Securities Purchase Agreement (the “BlackRock
Purchase Agreement”) with certain affiliates of BlackRock, Inc. (the
“BlackRock Investors”). The Citadel Investment
Agreement and the BlackRock Purchase Agreement provide for, among other things,
(i) the issuance to Citadel of $1,650,000,000 in aggregate principal amount
of
12.5% Springing Lien Notes due November 30, 2017 (the “Springing Lien
Notes”), (ii) the exchange of approximately $186,000,000 of the
Company’s senior unsecured notes held by affiliates of Citadel for $186,000,000
in aggregate principal amount of Springing Lien Notes, (iii) the issuance
to the
BlackRock Investors of $100,000,000 in aggregate principal amount of Springing
Lien Notes, (iv) the issuance to Citadel or its affiliates and the BlackRock
Investors of an aggregate of 19.99 % of the Company’s outstanding common stock,
par value $0.01 per share (the “Common Stock”), measured as of
immediately prior to entry into the Citadel Investment Agreement and the
BlackRock Purchase Agreement, and (v) the sale (the “ABS Sale”)
by E*TRADE Bank and E*TRADE Global Asset Management, Inc. of their respective
asset backed securities portfolios to an affiliate of Citadel for approximately
$800,000,000, subject to certain adjustments. Aggregate proceeds to
the Company from the transactions contemplated by the Citadel Investment
Agreement, the BlackRock Purchase Agreement and the ABS Sale will be
approximately $2,550,000,000 in cash.
Pursuant
to the Citadel Investment Agreement, on November 29, 2007, the Company issued
to
Citadel $1,686,000,000 in aggregate principal amount of Springing Lien Notes
and
10,000,000 shares of Common Stock, representing approximately 2.36% of the
Company’s outstanding Common Stock prior to such issuance. Pursuant
to the BlackRock Purchase Agreement, on November 29, 2007, the Company issued
to
the BlackRock Investors $100,000,000 in aggregate principal amount of Springing
Lien Notes and 4,840,430 shares of Common Stock, representing approximately
1.14% of the Company’s outstanding Common Stock prior to such
issuance. Immediately following the closing of the issuance of the
Springing Lien Notes, the Company contributed $1,550,000,000 to the equity
of
E*TRADE Bank. The ABS Sale was consummated immediately following such
contribution. The aggregate gross proceeds to the Company of the
issuances completed on November 29 and the ABS Sale were approximately
$2,400,000,000 in cash. The Company also paid Citadel and BlackRock
an aggregate commitment fee of $50,000,000 in connection with the
transactions.
In
addition, upon the expiration or termination of the waiting period under
the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
“HSR Act”), applicable to the issuance of Common Stock pursuant
to the Citadel Investment Agreement, the Company will issue additional shares
of
Common Stock to Citadel, such that Citadel will own approximately 9.9% of
the
Company’s outstanding Common Stock. Subsequent to the expiration or
termination of the HSR Act waiting period, upon receipt of an acceptance
and
approval (“OTS Approval”) by the Office of Thrift Supervision
(“OTS”) of a rebuttal of control submission to be filed by
Citadel, and the satisfaction of certain other customary closing conditions,
the
Company will issue (the “Final Closing”) to Citadel an
aggregate principal amount of $150,000,000 of Springing Lien Notes and
additional shares of Common Stock, such that the aggregate number of shares
issued to Citadel under the Citadel Investment Agreement will be approximately
18.8% of the Company’s outstanding Common Stock measured as of immediately prior
to entry into the Citadel Investment Agreement, and the aggregate number
of
shares owned by Citadel immediately following the Final Closing will be
approximately 18.1% of the Company’s outstanding Common Stock measured as of
immediately following the Final Closing (including shares of Common Stock
beneficially owned prior to entry into the Citadel Investment
Agreement). Citadel has the right to assign to third parties all or a
portion of the Springing Lien Notes and Common Stock issuable at the Final
Closing, subject to certain conditions.
Effective
as of the Final Closing or at such time as the HSR Act waiting period has
expired or terminated and OTS Approval has been obtained, the Company’s Board of
Directors will be expanded by one member and the Board of Directors will
appoint
a nominee of Citadel as a Class III member. Citadel’s nominee must be
reasonably acceptable to the nominating and corporate governance committee
of
the Board of Directors (which will not unreasonably withhold its
consent). Citadel’s right to nominate a director to the Board of
Directors will terminate
when
Citadel no longer owns shares of Common Stock representing at least 5% of
the
Common Stock then outstanding.
The
Citadel Investment Agreement contains representations, warranties, covenants
and
indemnities by the Company and Citadel customary for a transaction of this
nature, as well as certain put and call rights relating to the Springing
Lien
Notes and certain covenants regarding post-closing conduct of the
Company.
The
Company and Citadel entered into a Registration Rights Agreement, dated as
of
November 29, 2007 (the “Registration Rights Agreement”)
containing customary terms and conditions providing for the registration
of the
Springing Lien Notes and Common Stock issued to Citadel pursuant to the Citadel
Investment Agreement.
In
addition, the Company, E*TRADE Securities LLC and Citadel Derivatives Group
LLC
(“CDG”), entered into an Equities and Options Order Handling
Agreement (the “Order Handling Agreement”) dated as of November
29, 2007 pursuant to which the Company has committed to route substantially
all
of its customer orders in exchange-listed options and 40% of its customer
orders
in Regulation NMS Securities to CDG for order handling and execution for
a term
of three years. Order execution by CDG will be subject
to execution quality standards. The agreement provides for
liquidated damages if the Company breaches its commitments to route covered
orders through CDG, and if the agreement is terminated prior
to expiration, other than by the Company due to material breach by CDG.
Either the Company or CDG may terminate the services agreement in the
event of certain changes in control of the Company or CDG.
On
November 29, 2007, in connection with entering into the Citadel Investment
Agreement, the Company and American Stock Transfer & Trust Company, as
rights agent, entered into the First Amendment to the Rights Agreement (the
“Rights Agreement Amendment”). The Rights Agreement
Amendment modifies the Company’s Rights Agreement, dated as of July 9, 2001 (the
“Rights Agreement”), to provide, among other things, that the
issuance of rights under the Rights Agreement will not be triggered as a
result
of the transactions contemplated by the Citadel Investment Agreement, including
the issuance of any shares of Common Stock to Citadel or its affiliates pursuant
to the Investment Agreement.
*
* * * *
*
The
description of the terms of the Citadel Investment Agreement, the BlackRock
Purchase Agreement, the ABS Purchase Agreement, the Registration Rights
Agreement and the Rights Agreement Amendment, contained in this Item 1.01
is a
summary and does not purport to be complete, and is qualified in its entirety
by
reference to the copies of the Citadel Investment Agreement, the BlackRock
Purchase Agreement, the ABS Purchase Agreement, the Registration Rights
Agreement and the Rights Agreement Amendment, attached hereto as Exhibits
10.1,
10.2, 10.3, 4.1 and 4.3, respectively, each of which is incorporated herein
by
reference.
Item
1.02. Termination of a Material Definitive Agreement
On
November 29, 2007, in connection with the Transactions contemplated in the
Citadel Investment Agreement and the BlackRock Purchase Agreement, the Company
terminated the Credit Agreement dated as of September 19, 2005 among the
Company, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative
Agent and Morgan Stanley Senior Funding Inc. as Syndication Agent, which
had
provided for a $250 million revolving credit facility for the
Company. Pursuant to the Citadel Investment Agreement, the Company
has undertaken to use all commercially reasonable efforts to secure a
replacement facility as promptly as practicable.
Item
2.03. Creation of a Direct Financial Obligation or an Obligation
under an Off-Balance Sheet Arrangement of a Registrant.
In
connection with the issuance of the Springing Lien Notes, the Company and
The
Bank of New York, as trustee, entered into the Springing Lien Notes Indenture
dated November 29, 2007 (the “Indenture”). Under the
Indenture, the Company may issue up to $1,936,000,000 (plus capitalized
interest, if any) aggregate principal amount of Springing Lien
Notes. A copy of the Indenture is filed herewith as Exhibit
4.2.
The
Springing Lien Notes bear interest at the rate of 12.5% per annum and will
mature on November 30, 2017. Interest on the Springing Lien Notes is
payable in cash on May 31 and November 30 of each year beginning on May
31,
2008,
provided, however, that the Company may capitalize interest payable on interest
payment dates occurring on or before May 31, 2010 under certain
circumstances.
The
Company may redeem the Springing Lien Notes beginning on November 30, 2012
for
redemption prices set forth in the Indenture. In addition, prior to
such date, the Company may redeem a portion of the outstanding principal
amount
of Springing Lien Notes using a portion of the net cash proceeds of certain
equity offerings. Upon a change of control, as defined in the
Indenture, the Company may be required to make an offer to purchase the
Springing Lien Notes at a purchase price equal to 101% of the principal amount
of the Springing Lien Notes on the date of purchase, plus accrued
interest. Furthermore, prior to the eighteen-month anniversary of the
Final Closing, the Company may redeem all (but not less than all) of the
outstanding principal amount of Springing Lien Notes, at a premium set forth
in
the Indenture, in connection with the Company entering into a definitive
agreement to consummate a change of control transaction.
The
Springing Lien Notes are general senior obligations of the Company and are
not
guaranteed by the subsidiaries through which the Company currently conducts
substantially all of its operations. The Springing Lien Notes rank
equal in right of payment with all of the Company’s existing and future
unsubordinated indebtedness, and rank senior in right of payment to all of
the
Company’s existing and future subordinated indebtedness. The
Indenture will require the Company to secure the Springing Lien Notes in
the
future, up to the maximum amount of indebtedness as would not require any
of the
Company’s existing senior notes due 2011, 2013 or 2015 becoming secured equally
and ratably with the Springing Lien Notes, on the property and assets of
the
Company and certain of its subsidiaries as set forth in the
Indenture. The Company will also be required to cause its restricted
subsidiaries to guarantee the notes on the date on which the Company is first
required to secure the Springing Lien Notes or on the date on which such
restricted subsidiaries guarantee other indebtedness of the
Company.
The
Indenture contains several restrictive covenants that are substantially similar
to those contained in the indentures governing the Company's existing senior
notes due 2011, 2013 and 2015, including, but not limited to the
following: (i) limitations on incurrence of additional indebtedness
and issuances of preferred stock, (ii) limitations on restricted payments,
(iii)
limitations on distributions from regulated subsidiaries and restricted
subsidiaries, (iv) limitations on the issuance or sale of capital stock of
regulated subsidiaries and restricted subsidiaries, (v) limitations on
transactions with affiliates, (vi) limitations on asset sales and sale-leaseback
transactions, (vii) future subsidiary guarantees and (viii) limitations on
liens, subject in each case to certain exceptions. The Indenture also
contains a covenant requiring certain bank regulated subsidiaries to be “well
capitalized” under applicable regulatory standards.
The
Indenture contains customary terms that upon certain events of default occurring
and continuing, either the trustee or the holders of not less than 25% in
aggregate principal amount of the Springing Lien Notes then outstanding may
declare the principal of the Springing Lien Notes and any accrued and unpaid
interest through the date of such declaration immediately due and
payable. In the case of certain events of bankruptcy or insolvency
relating to Company or any of its significant subsidiaries, the principal
amount
of the Springing Lien Notes together with any accrued and unpaid interest
through the occurrence of such event shall automatically become and be
immediately due and payable.
This
description of the Springing Lien Notes and the related indenture are hereby
incorporated by reference in Item 1.01. The description of the
Indenture and the Springing Lien Notes is a summary and does not purport
to be
complete, and is qualified in its entirety by reference to the copy of the
Indenture (including the form of Springing Lien Note), attached hereto as
Exhibit 4.2, which is incorporated herein by reference.
Item
3.02. Unregistered Sales of Equity Securities.
The
information set forth in Item 1.01 hereof is incorporated herein by
reference.
The
issuance and sale of the Springing Lien Notes and the Common Stock pursuant
to
the Citadel Investment Agreement and the BlackRock Investment Agreement is
exempt from registration under the Securities Act of 1933 pursuant to Section
4(2) of the Securities Act of 1933 and/or Regulation D promulgated under
the
Securities Act of 1933. Each purchaser of the Springing Lien Notes
and the Common Stock has represented to the Company that it is an “accredited
investor” as defined in Regulation D and that the Springing Lien Notes and the
Common Stock are
being
acquired for investment. The Company has not engaged in general
solicitation or advertising with regard to the issuance and sale of the
Springing Lien Notes and the Common Stock and has not offered securities
to the
public in connection with this issuance and sale.
Item
5.02. Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
On
November 29, 2007, the Company announced that Mitchell H. Caplan has stepped
down from his position as Chief Executive Officer of the Company as of November
28. At that time, the Company also announced that Mr. Caplan will
remain with the Company in an advisory capacity and will remain a member
of the
Board of Directors. The Board of Directors appointed R. Jarrett
Lilien, President of the Company, as acting Chief Executive
Officer.
In
addition, on November 28, 2007, the Board of Directors elected Donald H.
Layton
to the Board of Directors and designated Mr. Layton as Chairman of the Board
of
Directors. As Chairman, Mr. Layton will be eligible to receive an
annualized fee of $1 million, in lieu of other Board fees. In
connection with his appointment as Chairman, he received 118,934 restricted
stock awards and 321,419 stock options, which have a one-year vesting
schedule.
Item
9.01. Financial Statements and Exhibits.
(d)
Exhibits.
|
|
|
|
|
4.1
|
|
Registration
Rights Agreement, dated as of November 29, 2007, by and between
Wingate
Capital Ltd. and E*TRADE Financial Corporation.
|
| |
|
|
|
4.2
|
|
Indenture,
dated November 29, 2007 between E*TRADE Financial Corporation as
Issuer
and The Bank of New York, as Trustee (includes form of
note).
|
| |
|
|
|
4.3
|
|
First
Amendment to Rights Agreement, dated November 29, 2007, by and
between
E*TRADE Financial Corporation and American Stock Transfer & Trust
Company, as rights agent.
|
| |
|
|
|
10.1
|
|
Master
Investment and Securities Purchase Agreement, dated as of November
29,
2007, by and between E*TRADE Financial Corporation and Wingate
Capital
Ltd.
|
| |
|
|
|
10.2
|
|
Securities
Purchase Agreement, dated November 29, 2007 among E*TRADE Financial
Corporation, Investment Partners (A), LLC and the additional investors
party thereto.
|
| |
|
|
|
10.3
|
|
ABS
Purchase Agreement, dated as of November 29, 2007, by and among
E*TRADE
Financial Corporation, E*TRADE Bank, E*TRADE Global Asset Management,
Inc.
and Citadel Equity Fund Ltd.
|
| |
|
|
|
99.1
|
|
Press
Release, dated November 29,
2007
|