e424b5
Filed
Pursuant to Rule 424(b)(5)
Registration
No. 333-172558
|
|
|
|
|
|
|
|
|
|
Maximum Aggregate
|
|
|
Amount of Aggregate
|
Title of Each Class of Securities Offered
|
|
|
Offering Price
|
|
|
Registration Fee(1)
|
3.75% Convertible Senior Notes due 2018
|
|
|
$550,000,000
|
|
|
$63,855
|
|
|
|
|
|
|
|
|
|
(1) |
the filing fee of $63,855 is calculated in accordance with
Rule 457(r) of the Securities Act of 1933.
|
PROSPECTUS SUPPLEMENT
(To prospectus dated March 2, 2011)
$500,000,000
3.75% Convertible Senior
Notes due 2018
We are offering $500,000,000 principal amount of our
3.75% Convertible Senior Notes due 2018. The notes will
bear interest at a rate of 3.75% per year, payable semiannually
in arrears on March 15 and September 15 of each year, beginning
on September 15, 2011. The notes will mature on
March 15, 2018.
Holders may convert their notes at their option into shares of
our common stock at any time prior to the close of business on
the second scheduled trading day immediately preceding the
maturity date. The conversion rate will initially be
64.3407 shares of common stock per $1,000 principal amount
of notes (equivalent to an initial conversion price of
approximately $15.54 per share of common stock). The
conversion rate will be subject to adjustment in some events but
will not be adjusted for accrued interest. In addition,
following certain corporate transactions that occur prior to the
maturity date, we will increase the conversion rate for a holder
who elects to convert its notes in connection with such a
corporate transaction in certain circumstances.
We may not redeem the notes prior to the maturity date of the
notes.
If we undergo a fundamental change, holders may require us to
purchase the notes in whole or in part for cash at a price equal
to 100% of the principal amount of the notes to be purchased
plus any accrued and unpaid interest to, but excluding, the
fundamental change purchase date.
The notes will be our senior unsecured obligations and will rank
senior in right of payment to our existing and future
indebtedness that is expressly subordinated in right of payment
to the notes; equal in right of payment to our existing and
future unsecured indebtedness that is not so subordinated;
junior in right of payment to any of our secured indebtedness to
the extent of the value of the assets securing such
indebtedness; and structurally junior to all existing and future
indebtedness and liabilities incurred by our subsidiaries.
The notes will not be listed on any securities exchange. Our
common stock is listed on the New York Stock Exchange under the
symbol “ORI.” The last reported sale price of our
common stock on the New York Stock Exchange on March 2,
2011 was $11.73 per share.
Investing in the notes involves risks. See “Risk
Factors” beginning on
page S-8
of this prospectus supplement and the risk factors incorporated
by reference in this prospectus supplement and the accompanying
prospectus, including those appearing in the “Risk
Factors” section of our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
Per Note
|
|
Total
|
|
Public offering price(1)
|
|
|
100%
|
|
|
$
|
500,000,000
|
|
Underwriting discount
|
|
|
2%
|
|
|
$
|
10,000,000
|
|
Proceeds, before expenses, to us
|
|
|
98%
|
|
|
$
|
490,000,000
|
|
(1) Plus accrued interest from March 8, 2011.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus supplement or the accompanying prospectus. Any
representation to the contrary is a criminal offense.
We have granted the underwriters the right to purchase within a
30-day
period up to an additional $50,000,000 principal amount of
notes, solely to cover over-allotments.
We expect that delivery of the notes will be made to investors
in book-entry only form through The Depository
Trust Company on or about March 8, 2011.
Joint Book-Running
Managers
|
|
Morgan
Stanley |
UBS Investment Bank |
Co-Managers
Dowling and Partners Securities
LLC Keefe,
Bruyette &
Woods Macquarie
Capital
Raymond
James Wunderlich
Securities,
Inc.
The date of this prospectus supplement is March 2, 2011.
ABOUT
THIS PROSPECTUS SUPPLEMENT
This prospectus supplement and the accompanying prospectus
contain information about Old Republic International Corporation
and about the notes. They also refer to information contained in
other documents filed by us with the Securities and Exchange
Commission and incorporated into this document by reference.
References to this prospectus supplement or the prospectus also
include the information contained in such other documents. To
the extent that information appearing in a later filed document
is inconsistent with prior information, the later statement will
control. If this prospectus supplement is inconsistent with the
prospectus, you should rely on this prospectus supplement.
We have not authorized anyone to provide you with information
that is different from, or additional to, the information
provided in this prospectus supplement and the accompanying
prospectus or in any free writing prospectus filed with the
Securities and Exchange Commission. We are not making an offer
of these securities in any jurisdiction where the offer is not
permitted.
TABLE OF
CONTENTS
|
|
|
|
|
|
|
Page
|
|
Prospectus Supplement
|
|
|
|
S-ii
|
|
|
|
|
S-ii
|
|
|
|
|
S-1
|
|
|
|
|
S-8
|
|
|
|
|
S-16
|
|
|
|
|
S-16
|
|
|
|
|
S-17
|
|
|
|
|
S-18
|
|
|
|
|
S-38
|
|
|
|
|
S-45
|
|
|
|
|
S-50
|
|
Prospectus
|
|
|
|
1
|
|
|
|
|
1
|
|
|
|
|
2
|
|
|
|
|
2
|
|
|
|
|
3
|
|
|
|
|
3
|
|
|
|
|
3
|
|
|
|
|
3
|
|
|
|
|
3
|
|
|
|
|
4
|
|
|
|
|
4
|
|
|
|
|
4
|
|
S-i
INCORPORATION
BY REFERENCE
The Securities and Exchange Commission allows us to
“incorporate by reference” into this prospectus
supplement and the accompanying prospectus the information we
file with it, which means that we can disclose important
information to you by referring you to those documents. The
information incorporated by reference is considered to be part
of this prospectus, and later information that we file with the
Securities and Exchange Commission will automatically update and
supersede this information. We incorporate by reference the
documents listed below and any future filings made with the
Securities and Exchange Commission under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (other
than any portions of such filings that are furnished rather than
filed under applicable Securities and Exchange Commission rules)
until our offering is completed:
|
|
|
|
•
|
Our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010, filed on
February 28, 2011;
|
|
|
•
|
The sections of our Definitive Proxy Statement for the 2010
Annual Meeting of Shareholders filed with the SEC on
April 13, 2010 that are incorporated by reference in our
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009; and
|
|
|
•
|
The description of our common stock contained in (i) our
registration statement on
Form 8-A
filed with the Securities and Exchange Commission on
August 29, 1990, as amended on August 31, 1990, and as
further amended on September 10, 1990; and (ii) our
registration statement on
Form 8-A
filed with the Securities and Exchange Commission on
September 10, 1990, as amended on May 30, 1997, as
further amended on June 20, 2007, and as further amended on
November 19, 2007.
|
You may request a copy of these filings at no cost by writing to
or telephoning us at the following address:
Old Republic International Corporation
307 North Michigan Avenue
Chicago, Illinois 60601
Telephone:
(312) 346-8100
Attention: Corporate Secretary
FORWARD-LOOKING
STATEMENTS
This prospectus supplement and any documents incorporated by
reference contain a number of forward-looking statements which
relate to anticipated future events rather than actual present
conditions or historical events. You can identify
forward-looking statements because generally they include words
such as “may,” “will,” “could,”
“would,” “should,” “expect,”
“plan,” “anticipate,” “intend,”
“believe,” “estimate,” “predict,”
“potential” or “continue” or the negative of
those terms or other comparable terminology. Such statements are
based upon current expectations of Old Republic International
Corporation and speak only as of the date made. These statements
are subject to various risks and uncertainties and other factors
that could cause results to differ from those set forth in the
forward-looking statements. With regard to Old Republic’s
General Insurance segment, its results can be affected, in
particular, by the level of market competition, which is
typically a function of available capital and expected returns
on such capital among competitors, the levels of interest and
inflation rates, and periodic changes in claim frequency and
severity patterns caused by natural disasters, weather
conditions, accidents, illnesses, work-related injuries, and
unanticipated external events. Mortgage Guaranty and
Title Insurance results can be affected by similar factors
and by changes in national and regional housing demand and
values, the availability and cost of mortgage loans, employment
trends, and default rates on mortgage loans. Mortgage Guaranty
results, in particular, may also be affected by various
risk-sharing arrangements with business producers, as well as
the risk management and pricing policies of government sponsored
enterprises. Life and health insurance earnings can be affected
by the levels of employment and consumer spending, variations in
mortality and health trends, and changes in policy lapsation
rates. At the parent holding company level, operating earnings
or losses are generally reflective of the amount
S-ii
of debt outstanding and its cost, interest income on temporary
holdings of short-term investments, and
period-to-period
variations in the costs of administering the Company’s
widespread operations. A more detailed discussion of all the
foregoing risks appears in Part I, Item 1A —
Risk Factors, of the Company’s 2010
Form 10-K,
which is specifically incorporated herein by reference.
All forward-looking statements address matters that involve
risks and uncertainties. Accordingly, there are or will be
important factors that could cause actual results to differ
materially from those indicated in these statements. None of Old
Republic International Corporation or its subsidiaries have a
duty to update any of the forward-looking statements after the
date of this prospectus supplement to conform them to actual
results except as otherwise required by law.
S-iii
SUMMARY
The following summary may not contain all of the information
that is important to you. You should read the following summary
together with more detailed information regarding us and the
notes being sold in this offering and our financial statements
and notes thereto which are incorporated by reference in this
prospectus supplement and the accompanying prospectus. A more
detailed discussion of our business appears in the reports we
file with the SEC which are incorporated herein by reference,
including in our 2010
Form 10-K
and in our subsequently filed Quarterly Reports on
Form 10-Q.
See “Where You Can Find More Information” in the
accompanying prospectus. In this prospectus supplement, unless
stated otherwise or the context otherwise requires, the terms
“Old Republic,” “our company,” “the
Company,” “we,” “us,” and
“our” refer to Old Republic International Corporation
and its consolidated subsidiaries.
The
Company
Overview
Old Republic International Corporation is a Chicago based
holding company engaged in the single business of insurance
underwriting. It conducts its operations through a number of
regulated insurance company subsidiaries organized into three
major segments, namely, its General (property and liability
insurance), Mortgage Guaranty, and Title Insurance Groups.
The Company also operates a small life and health insurance
business. In particular, our subsidiaries provide specialty
insurance programs to the transportation, commercial
construction, forest products, energy, general manufacturing,
and housing industries.
The insurance business is distinguished from most others in that
the prices (premiums) charged for various insurance products are
set without certainty of the ultimate benefit and claim costs
that will emerge or be incurred, often many years after issuance
of a policy. Our business is a long-term undertaking which is
managed with a primary focus on the achievement of favorable
underwriting results over time. In addition to operating income
from basic underwriting and related services functions,
significant investment income is earned from investable funds
generated by those functions and from shareholders’
capital. In managing investable funds we endeavor to assure
stability of income from interest and dividends, protection of
capital, and sufficient liquidity to meet insurance underwriting
and other obligations as they become payable in the future.
Securities trading and the realization of capital gains are not
objectives. We believe our investment philosophy is best
categorized as emphasizing value, credit quality, and relatively
long-term holding periods. Our ability to hold both fixed
maturity and equity securities for long periods of time is
enabled by the scheduling of maturities in contemplation of an
appropriate matching of assets and liabilities.
Business
Segments
Our principal operations are in three business segments: General
Insurance Group, Mortgage Guaranty Group and
Title Insurance Group, with lesser operations in a
fourth — Corporate and Other Operations.
General Insurance Group ($2,074 million or 52% of our
fiscal 2010 operating revenues). Our General
Insurance Group, through its subsidiaries, assumes risks and
provides related risk management services that encompass a large
variety of property and liability insurance coverages. Our
coverage does not include a significant exposure to personal
lines of insurance, such as homeowners and private automobile
coverages, and does not insure significant amounts of commercial
buildings and related property. General Insurance is primarily
sold through our independent agency and brokerage channels
(approximately 86% of our fiscal 2010 premiums). Additionally,
approximately 14% of premiums during fiscal 2010 were sold
directly through our production facilities.
We primarily focus on liability coverage underwritten for
businesses and public entities in the following classes:
commercial automobile (trucks) full coverage protection,
workers’ compensation and general liability (including
general liability portion of commercial package policies).
Within these insurance classes we focus
S-1
on a number of industries, most prominently the transportation
(trucking and general aviation), commercial construction, forest
products and energy industries.
Our diversification has been achieved through a combination of
internal growth initiatives, establishing new subsidiaries and
through selective acquisitions. For fiscal 2010, the breakdown
of insurance premiums within the General Insurance Group was as
follows: approximately 33.1% commercial automobile direct
insurance, approximately 21.6% workers’ compensation direct
insurance, approximately 11.9% general liability insurance and
approximately 33.4% other insurance.
Among other liability coverages, we indemnify corporations’
financial exposures to directors’ and officers’
(“D&O”) liability, as well as provide errors and
omissions (“E&O”) liability insurance. For over
twenty-five years we have been a provider of aviation insurance,
including coverage for hull and liability exposures, as well as
additional areas such as airports and flight schools.
We have a property insurance business that underwrites
commercial physical damage insurance on trucking risks. A very
small portion of this business is comprised of fire and other
physical perils for commercial properties. In addition to
D&O and E&O financial indemnity coverages, we cover
fidelity, surety and credit exposures for a wide range of
business enterprises. Fidelity and surety policies are issued
through independent agents by the Old Republic Surety Company.
Surety bonds, such as those covering public officials, license
and permit authorizations and contract bonds covering both
public and private works, are typically written for exposures of
less than $500,000. Fidelity bonds are also extended to small to
medium-sized risks. Old Republic Insured Credit Services, Inc.
has underwritten loan and retail installment sales credit
indemnity insurance since 1955 through commercial banks, thrifts
and other lending institutions. This coverage provides a limited
indemnity to lenders on a variety of consumer loans and
installment sales contracts.
Extended warranty coverages for new and used automobiles, as
well as home warranty policies covering appliances and other
mechanical systems in pre-owned homes are marketed by us through
our own employees and selected independent agents. Travel
insurance is produced through independent travel agents in the
U.S. and Canada. The coverages provided under these
policies, some of which are also underwritten by one of our life
insurance subsidiaries, include trip delay and trip cancellation
protection for insureds.
Mortgage Guaranty Group ($588 million or 15% of our
fiscal 2010 operating revenues). Our Mortgage
Guaranty Group provides private mortgage insurance
(“MI”) to lenders and investors to protect against
default-related losses on residential mortgage loans made in the
U.S. to homebuyers who pay at closing from their own funds
less than 20% of the home’s purchase price. We only insure
first mortgage loans, primarily on residential properties
incorporating one to four family dwellings.
There are two principal types of MI coverage:
“primary” and “pool.” Primary mortgage
insurance provides mortgage default protection on individual
loans and covers a stated percentage of the unpaid loan amount,
delinquent interest and certain expenses associated with the
default and subsequent foreclosure. To mitigate losses we may
pay the entire claim amount, take title to the mortgaged
property and subsequently sell the property in lieu of paying
only the stated coverage percentage. Pool insurance is generally
used as a credit enhancement for secondary market mortgage
transactions. The coverage range is up to 100% of the net loss
on each individual loan included in the pool, subject to
deductible provisions, caps on individual exposures and
aggregate stop loss provisions which limit the aggregate losses
to a specified percentage of the total origination balances of
all the loans in the pool.
Traditional primary insurance is issued on an individual loan
basis to mortgage bankers, brokers, commercial banks and savings
institutions through our network of self-managed underwriting
sites located throughout the United States. Traditional primary
loans are individually reviewed (except for loans insured under
delegated approval programs) and priced according to filed
premium rates. In underwriting traditional primary business, we
generally adhere to the underwriting guidelines published by the
Federal Home Loan Mortgage Corporation (“FHLMC”) or
the Federal National Mortgage Association (“FNMA”).
FHLMC and FNMA are purchasers of many of the loans we insure.
Delegated underwriting programs allow approved lenders to commit
on behalf of Old Republic to insure loans provided the loans
adhere to predetermined
S-2
underwriting guidelines. In 2010, delegated underwriting
approvals accounted for approximately 57% of our new traditional
primary risk written.
Bulk and other insurance is issued on groups of loans to
mortgage banking customers through a centralized risk assessment
and underwriting department. These groups of loans are priced in
the aggregate, on a bid or negotiated basis. Insurance issued in
this manner can be provided through primary insurance policies
(loan level insurance) or pool insurance policies (aggregate
coverage). We consider bulk insurance to be exposed to higher
risk than those designated as other insurance.
Prior to insuring any loans we issue a master policy to each
approved customer outlining the terms and conditions under which
the coverage will be provided. Primary business is executed via
the issuance of a commitment/certificate for each loan submitted
and approved for insurance. A separate pool coverage insurance
policy is issued covering the particular loans applicable to
each transaction.
The amount of premiums charged generally depends on
loan-to-value
ratios, level of coverage, the borrower’s credit history,
type of loan instrument (fixed/floating or adjustable
rate/adjustable payment), documentation and use of property
(owner occupied/investment property). Coverage is non-cancelable
by us, with the exception of non-payment of premium or certain
master policy violations, and premiums are paid under single,
annual or monthly payment plans. The majority of our premiums
are written under monthly premium plans and typically are paid
simultaneously with the borrower’s monthly mortgage payment
and passed through to us by the servicer of the loan.
Alternatively, premiums may be paid directly by the originator
of, or investor in, the mortgage loan.
Title Insurance Group ($1,238 million or 31% of our
fiscal 2010 operating revenues). We primarily
issue title insurance to real estate purchasers and investors
based on searches of public records. The policy insures against
losses arising from defects, liens and encumbrances affecting
the insured title and not excluded or exempt from the coverage
of the policy. During fiscal 2010, approximately 36% of our
Title Insurance Group premiums were derived from direct
operations, including our branch offices.
There are two basic types of title insurance: lenders’
policies and owners’ policies. Both types of title
insurance are issued for a one-time premium. Financial
institutions secure title insurance policies to protect their
mortgagees’ interest in real property. Mortgages in the
U.S. are primarily made by mortgage bankers, savings and
commercial banks, state and federal agencies, and life insurance
companies. The policy remains in effect for the length that the
mortgagee has an interest in the property. A separate title
insurance policy may be issued to the owner of real estate. The
owners’ policy of title insurance protects interest in the
title of the property.
We charge a varying rate for title insurance policies based
generally on the amount and type of the policy issued. The
premium is collected in full when the real estate transaction is
closed and there are no recurring fees. In many instances
premiums charged on subsequent policies on the same property may
be reduced, depending on the elapsed time between issuance of
the prior policy and the nature of the transactions for which
the policies are issued. Most charges associated with title
services are in conjunction with the issuance of a policy and
not due to the possibility of risk of loss due to insured risks.
The cost of service performed by a title insurer relates, for
the most part, to the prevention of loss rather than to the
assumption of risk of loss. Claim losses that do occur result
primarily from title search and examination mistakes, fraud,
forgery, incapacity, missing heirs and escrow processing errors.
We are also a provider of escrow closing and construction
disbursement services, as well as real estate information
products and services pertaining to real estate transfers and
loan transactions.
Corporate and Other Operations ($91 million or 2% of our
fiscal 2010 operating revenues). Corporate and
other operations include the accounts of a small life and health
insurance business, as well as those of the parent holding
company and several minor corporate services that perform
investment, payroll, administrative and minor marketing services.
We had net premiums from life and health insurance of
$81 million during fiscal 2010. Our life and health
insurance product offerings are sold in the U.S. and Canada
through financial intermediaries such as
S-3
finance companies, automobile dealerships, travel agents and
marketing channels that are also utilized in some of our general
insurance operations. In 2004, we terminated and placed in run
off our term life insurance portfolio. Production of term life
insurance accounted for $17 million in net premiums earned
during fiscal 2010.
Recent
Developments
On October 1, 2010, a subsidiary of ours merged with PMA
Capital Corporation (“PMA”), an insurance holding
company with interests in the commercial property and liability
insurance field. The consideration transferred of
$247.2 million included the issuance of
17,754,047 shares of Old Republic common stock and the
replacement value of PMA stock options. As a result of the
merger, PMA and its subsidiaries became our wholly-owned
subsidiaries. We expect the addition of PMA to our insurance
group to further diversify our General Insurance business.
PMA’s insurance products include workers’ compensation
and other commercial property and casualty lines of insurance.
Fee-based services include third party administrator
(“TPA”), managing general agent and program
administrator services. The operating subsidiaries are marketed
under PMA Companies and include The PMA Insurance Group, PMA
Management Corp., PMA Management Corp. of New England, Inc., and
Midlands Management Corporation (“Midlands”).
PMA’s insurance products are marketed primarily in the
eastern part of the United States. These products are written
through The PMA Insurance Group, PMA’s property and
casualty insurance segment. The PMA Insurance Group primarily
includes the operations of PMA’s principal insurance
subsidiaries, Pennsylvania Manufacturers’ Association
Insurance Company, Manufacturers Alliance Insurance Company and
Pennsylvania Manufacturers Indemnity Company. PMA’s
Fee-based Business includes the operations of PMA Management
Corp., PMA Management Corp. of New England, Inc., and Midlands.
PMA Management Corp. is a TPA that provides various claims
administration, risk management, loss prevention and related
services, primarily to self-insured clients under fee for
service arrangements. PMA Management Corp. of New England, Inc.
is a provider of risk management and TPA services. Midlands is a
managing general agent, program administrator and provider of
TPA services. PMA also has a Corporate and Other segment, which
primarily includes corporate expenses and debt service.
It is the opinion of our management and board of directors that
the merger will enhance our growth prospects. We believe that
long-term growth can be achieved through the greater geographic
spread and industry specialization offered by PMA’s current
business model.
Issuer
Not Proceeding With Concurrent Offering
We determined not to proceed with the previously announced
offering of $250,000,000 aggregate principal amount of Senior
Notes pursuant to a separate public offering.
S-4
The
Offering
The summary below describes the principal terms of the notes.
Certain of the terms and conditions described below are subject
to important limitations and exceptions. You should read this
prospectus supplement and the accompanying prospectus before
making an investment in the notes. The “Description of
Notes” section of this prospectus supplement contains a
more detailed description of the terms and conditions of the
notes. As used in this section, “we,” “our”
and “us” refer to Old Republic International
Corporation and not to any of its consolidated subsidiaries.
|
|
|
Issuer |
|
Old Republic International Corporation, a Delaware corporation |
|
Securities |
|
$500,000,000 principal amount of 3.75% Convertible Senior
Notes due 2018 (plus up to an additional $50,000,000 principal
amount to cover overallotments if any) |
|
Maturity |
|
March 15, 2018, unless earlier repurchased or converted |
|
Issue price |
|
100% plus accrued interest, if any, from March 8, 2011. |
|
Interest |
|
3.75% per year. Interest will accrue from March 8, 2011 and
will be payable semiannually in arrears on March 15 and
September 15 of each year, beginning on September 15, 2011. |
|
Conversion Rights |
|
Holders may convert their notes at their option at any time
prior to the close of business on the second scheduled trading
day immediately preceding the maturity date in multiples of
$1,000 principal amount. |
|
|
|
The conversion rate for the notes is initially
64.3407 shares per $1,000 principal amount of notes
(equivalent to an initial conversion price of approximately
$15.54 per share of common stock), subject to adjustment as
described in this prospectus supplement. |
|
|
|
In addition, following certain corporate transactions that occur
prior to maturity, we will increase the conversion rate for a
holder who elects to convert its notes in connection with such a
corporate transaction in certain circumstances as described
under “Description of Notes — Conversion
Rights — Adjustment to Shares Delivered Upon
Conversion Upon a Make-whole Fundamental Change.” |
|
|
|
You will not receive any additional cash payment or additional
shares representing accrued and unpaid interest upon conversion
of a note, except in limited circumstances. Instead, interest
will be deemed paid by the shares of our common stock, together
with any cash payment for any fractional share, into which a
note is convertible. |
|
Fundamental Change |
|
If we undergo a “fundamental change” (as defined in
this prospectus supplement under “Description of
Notes — Fundamental Change Permits Holders to Require
Us to Purchase Notes”), subject to certain conditions, you
will have the option to require us to purchase all or any
portion of your notes for cash. The fundamental change purchase
price will be 100% of the principal amount of the notes to be
purchased, plus any accrued and unpaid interest to, but
excluding, the fundamental change purchase date. |
S-5
|
|
|
Ranking |
|
The notes will be our senior unsecured obligations and will rank: |
|
|
|
• senior in right of payment to our existing and
future indebtedness that is expressly subordinated in right of
payment to the notes;
|
|
|
|
• equal in right of payment to our existing and future
unsecured indebtedness that is not so subordinated;
|
|
|
|
• junior in right of payment to any of our secured
indebtedness to the extent of the value of the assets securing
such indebtedness; and
|
|
|
|
• structurally junior to all existing and future
indebtedness and liabilities incurred by our subsidiaries.
|
|
|
|
As of December 31, 2010, our total consolidated
indebtedness was approximately $475 million. As of
December 31, 2010, our subsidiaries had total policy
liabilities and accruals of approximately $10.2 billion to
which the notes would have ranked structurally junior, and
neither we nor our subsidiaries had any secured indebtedness
outstanding. |
|
|
|
The base indenture governing the notes, as supplemented by the
supplemental indenture to be entered into in connection with
this notes offering (which we refer to collectively as the
“indenture”), does not limit the amount of debt that
we or our subsidiaries may incur. |
|
Use of Proceeds |
|
We estimate that the proceeds from this offering will be
approximately $490 million ($539 million if the
underwriters exercise their option to purchase additional notes
in full) after deducting fees and before estimated expenses. We
intend to use approximately $107.4 million of such net
proceeds to repay certain indebtedness that we assumed in
connection with our acquisition of PMA. We intend to use the
remainder of the net proceeds for general corporate purposes,
including the making of additional capital contributions to our
insurance company subsidiaries as may be necessary. See
“Use of Proceeds.” |
|
Book-entry Form |
|
The notes will be issued in book-entry form and will be
represented by permanent global certificates deposited with, or
on behalf of, The Depository Trust Company
(“DTC”) and registered in the name of a nominee of
DTC. Beneficial interests in any of the notes will be shown on,
and transfers will be effected only through, records maintained
by DTC or its nominee and any such interest may not be exchanged
for certificated securities, except in limited circumstances. |
|
Absence of a Public Market for the Notes
|
|
The notes will be new securities and there is currently no
established market for the notes. Accordingly, we cannot assure
you as to the development or liquidity of any market for the
notes. The underwriters have advised us that they currently
intend to make a market in the notes. However, they are not
obligated to do so, and they may discontinue any market making
with respect to the notes |
S-6
|
|
|
|
|
without notice. We do not intend to apply for a listing of the
notes on any securities exchange or any automated dealer
quotation system. |
|
NYSE Trading Symbol |
|
Our common stock is listed on the New York Stock Exchange under
the symbol “ORI.” |
|
Certain U.S. Federal Income Tax Considerations
|
|
You should consult your tax advisor with respect to the U.S.
federal income tax consequences of the purchase, ownership,
disposition and conversion of the notes, and the ownership and
disposition of shares of our common stock received upon a
conversion of the notes in light of your own particular
situation and with respect to any tax consequences arising under
the laws of any state, local, foreign or other taxing
jurisdiction. See “Certain U.S. Federal Income Tax
Considerations.” |
|
Trustee, Paying Agent and Conversion Agent
|
|
Wilmington Trust Company |
|
Risk Factors |
|
See “Risk Factors” beginning on
page S-8
of this prospectus supplement and other information included or
incorporated by reference in this prospectus supplement and the
accompanying prospectus for a discussion of the factors you
should carefully consider before deciding to invest in the notes. |
S-7
RISK
FACTORS
Any investment in the notes and our common stock involves a
high degree of risk. You should carefully consider the risks
described below and all of the information contained herein or
incorporated by reference into this prospectus supplement and
the accompanying prospectus before deciding whether to purchase
the notes. In addition, you should carefully consider, among
other things, the matters discussed under “Risk
Factors” in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010, and in other
documents that we subsequently file with the Securities and
Exchange Commission, all of which are incorporated by reference
into this prospectus supplement and the accompanying prospectus.
The risks and uncertainties described in such incorporated
documents and described below are not the only risks and
uncertainties that we face. Additional risks and uncertainties
not presently known to us or that we currently deem immaterial
may also impair our business operations. If any of those risks
actually occurs, our business, financial condition and results
of operations would suffer. In that event, the trading price of
our common stock could decline, which could adversely affect
your investment in the notes. The risks discussed below also
include forward-looking statements, and our actual results may
differ substantially from those discussed in these
forward-looking statements. See “Forward-Looking
Statements.” As used in this section, “we,”
“our” and “us” refer to Old Republic
International Corporation and not to any of its consolidated
subsidiaries.
Risks
Related to the Notes and our Common Stock
The
notes are effectively subordinated to our secured debt and any
liabilities of our subsidiaries.
The notes will be our senior unsecured obligations and will rank
senior in right of payment to our existing and future
indebtedness that is expressly subordinated in right of payment
to the notes; equal in right of payment to our existing and
future indebtedness that is not so subordinated; junior in right
of payment to any of our secured indebtedness to the extent of
the value of the assets securing such indebtedness; and
structurally junior to all existing and future indebtedness and
liabilities incurred by our subsidiaries. In the event of our
bankruptcy, liquidation, reorganization or other winding up, our
assets that secure any of our secured debt will be available to
pay obligations on the notes only after the secured debt has
been repaid in full from these assets. There may not be
sufficient assets remaining to pay amounts due on any or all of
the notes then outstanding. The indenture governing the notes
does not prohibit us from incurring additional senior debt or
secured debt, nor does it prohibit any of our subsidiaries from
incurring additional liabilities.
As of December 31, 2010, our total consolidated
indebtedness was approximately $475 million. As of
December 31, 2010, our subsidiaries had total policy
liabilities and accruals of approximately $10.2 billion to
which the notes would have ranked structurally junior, and
neither we nor our subsidiaries had any secured indebtedness
outstanding.
The
notes are obligations of Old Republic International Corporation
only, and our status as a holding company with no direct
operations could adversely affect our ability to pay dividends
to our stockholders and to service our debt, including the
notes.
Old Republic International Corporation is a holding company that
transacts business through its operating subsidiaries. Our
primary assets are the capital stock of these operating
subsidiaries. Thus, our ability to pay dividends to our
stockholders and to service the indebtedness of Old Republic
International Corporation, including the notes, depends upon the
surplus and earnings of our subsidiaries and their ability to
pay dividends to the holding company. Our subsidiaries are
separate and distinct legal entities and have no obligation,
contingent or otherwise, to make payments on the notes or to
make any funds available for that purpose.
In addition, payment of dividends by our insurance subsidiaries
is restricted by state insurance laws or subject to approval of
the insurance regulatory authorities in the jurisdictions in
which they are domiciled. These authorities recognize only
statutory accounting practices for determining financial
position, results of operations and the ability of an insurer to
pay dividends to its shareholders. The specific rules governing
the payment of dividends by our insurance subsidiaries vary from
jurisdiction to jurisdiction. Our insurance subsidiaries are
domiciled in seventeen different jurisdictions. Generally, under
applicable insurance laws and
S-8
regulations, our insurance subsidiaries are prohibited from
paying dividends to the holding company in excess of either the
greater or lesser of (depending upon the state involved) 10% of
statutory surplus or a portion of statutory net income, without
the prior approval of the applicable insurance regulatory
authority. Based on financial data for the fiscal year ended
December 31, 2010, the maximum amount of dividends payable
to Old Republic International Corporation by its insurance and
non-insurance company subsidiaries during the fiscal year ended
December 31, 2011 without the prior approval of appropriate
regulatory authorities is approximately $306.5 million.
Dividends declared during the fiscal years ended
December 31, 2010, 2009 and 2008 to our company by our
subsidiaries amounted to $181.1 million,
$181.5 million and $191.2 million, respectively. For
example, as a result of the continuing deterioration of the
statutory surplus levels in our Mortgage Guaranty Group during
2010, it is unlikely that some or all of our mortgage guaranty
subsidiaries will be able to pay dividends to the holding
company in 2011 without prior regulatory approval. Of the
approximately $306.5 million in 2010 dividend capacity
referred to above, none was attributable to our mortgage
guaranty subsidiaries. There can be no assurance that our
subsidiaries will be able to continue to pay such dividends to
us in the future. If our subsidiaries are unable to pay
dividends to us in amounts necessary to satisfy our obligations,
our ability to pay dividends to our stockholders, and to service
our debt, including the notes, could be adversely affected.
We
have terminated the standby credit facility that supports our
commercial paper program and as a result will not access our
commercial paper program until we replace that credit facility,
which could adversely affect our liquidity and capital
resources.
Since September 2010, we have maintained a commercial paper
program supported by a syndicated standby credit facility
scheduled to mature in September 2011. On March 1, 2011, we
notified the agent under that credit facility of our election to
terminate the facility effective March 4, 2011. Upon
termination of that credit facility, we will no longer access
our commercial paper program until we obtain a new standby
credit facility. However, there can be no assurance that we will
be able to obtain such a credit facility, or as to the terms of
any such facility we are able to obtain, and our inability to
obtain such a credit facility could have an adverse effect on
our liquidity and capital resources.
Recent
regulatory actions may adversely affect the trading price and
liquidity of the notes.
We expect that many investors in, and potential purchasers of,
the notes will employ, or seek to employ, a convertible
arbitrage strategy with respect to the notes. Investors that
employ a convertible arbitrage strategy with respect to
convertible debt instruments typically implement that strategy
by selling short the common stock underlying the convertible
notes and dynamically adjusting their short position while they
hold the notes. Investors may also implement this strategy by
entering into swaps on the common stock in lieu of or in
addition to short selling the common stock. As a result, any
specific rules regulating equity swaps or short selling of
securities or other governmental action that interferes with the
ability of market participants to effect short sales or equity
swaps with respect to our common stock could adversely affect
the ability of investors in, or potential purchasers of, the
notes to conduct the convertible arbitrage strategy that we
believe they will employ, or seek to employ, with respect to the
notes. This could, in turn, adversely affect the trading price
and liquidity of the notes.
At an open meeting on February 24, 2010, the Securities and
Exchange Commission, or SEC adopted a new short sale price test
through an amendment to Rule 201 of Regulation SHO.
The amendments to Rule 201 became effective on May 10,
2010 and restrict short selling when the price of a
“covered security” has triggered a “circuit
breaker” by falling at least 10% in one day, at which point
short sale orders can be displayed or executed only if the order
price is above the current national best bid, subject to certain
limited exceptions. Compliance with the amendments to
Rule 201 was required by November 10, 2010. Because
our common stock is a “covered security,” the new
restrictions may interfere with the ability of investors in, and
potential purchasers of, the notes, to effect short sales in our
common stock and conduct the convertible arbitrage strategy that
we believe they will employ, or seek to employ, with respect to
the notes.
In addition, on June 10, 2010 the SEC approved a six-month
pilot, or the circuit breaker pilot, pursuant to which several
national securities exchanges and the Financial Industry
Regulatory Authority, Inc., or FINRA,
S-9
adopted rules to halt trading in securities included in the
S&P 500 Index if the price of any such security moves 10%
or more from a sale in a five-minute period. On
September 10, 2010, the SEC approved an expansion of the
circuit breaker pilot to include component securities of the
Russell 1000 Index and over 300 exchange traded funds. Our
common stock is included in the Russell 1000 Index and therefore
is subject to the circuit breaker pilot at this time. In
addition, the SEC could further expand the circuit breaker pilot
in the future or adopt other rules that limit trading in
response to market volatility. Any such additional regulatory
actions may decrease or prevent an increase in the market price
or liquidity of our common stock or interfere with the ability
of investors in, and potential purchasers of, the notes, to
effect hedging transactions in or relating to our common stock
and conduct the convertible arbitrage strategy that we believe
they will employ, or will seek to employ, with respect to the
notes.
On July 21, 2010, the United States enacted the Dodd-Frank
Wall Street Reform and Consumer Protection Act. This new
legislation may require many
over-the-counter
swaps to be centrally cleared and traded on exchanges or
comparable trading facilities. In addition, swap dealers and
major market participants may be required to comply with margin
and capital requirements as well as public reporting
requirements to provide transaction and pricing data on both
cleared and uncleared swaps. These requirements could adversely
affect the ability of investors in, or potential purchasers of,
the notes to implement a convertible arbitrage strategy with
respect to the notes (including increasing the costs incurred by
such investor in implementing such strategy). This could, in
turn, adversely affect the trading price and liquidity of the
notes. The legislation will become effective on the later of
360 days following the enactment of the legislation and
60 days after the publication of the final rule. However,
it is unclear whether the margin requirements will apply
retroactively to existing swap transactions. We cannot predict
how this legislation will be implemented by the SEC or the
magnitude of the effect that this legislation will have on the
trading price or liquidity of the notes.
Although the direction and magnitude of the effect that the
amendments to Regulation SHO, the circuit breaker pilot,
the implementation of the Dodd-Frank Wall Street Reform and
Consumer Protection Act and any additional regulations may have
on the trading price and the liquidity of the notes will depend
on a variety of factors, many of which cannot be determined at
this time, past regulatory actions have had a significant impact
on the trading prices and liquidity of convertible debt
instruments. For example, in September 2008, the SEC issued
emergency orders generally prohibiting short sales in the common
stock of a variety of financial services companies while
Congress worked to provide a comprehensive legislative plan to
stabilize the credit and capital markets. The orders made the
convertible arbitrage strategy that many convertible debt
investors employ difficult to execute and adversely affected
both the liquidity and trading price of convertible notes issued
by many of the financial services companies subject to the
prohibition. Any governmental actions that restrict the ability
of investors in, or potential purchasers of, the notes to effect
short sales in our common stock or to implement hedging
strategies, including the recently adopted amendments to
Regulation SHO or the implementation of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, could similarly
adversely affect the trading price and the liquidity of the
notes.
Regulatory
developments and recently enacted legislation could adversely
affect our business and holders of our securities.
The recently enacted Dodd-Frank Wall Street Reform and Consumer
Protection Act makes sweeping changes to the financial services
industry and its regulation. We cannot currently predict how
those changes might affect us or the holders of the notes,
especially since many of the regulations required by the
legislation have yet to be promulgated. In particular, we note
that the legislation contains an alternative resolution regime
for certain failing, systemically important financial companies,
including certain insurance holding companies and their
non-insurance company subsidiaries. Such regime, which would
only replace the normal insolvency regime for such companies and
subsidiaries if certain governmental determinations are made,
could alter the rights of securities holders of institutions
made subject to it.
S-10
The
market price of our common stock may be volatile, which could
cause the value of your investment to decline.
The market price of our common stock has experienced, and may
continue to experience, significant volatility. Between
January 1, 2010 and March 1, 2011, the trading price
of our common stock on the New York Stock Exchange has
ranged from a low of $10.02 per share to a high of $15.50 per
share. Numerous factors, including many over which we have no
control, may have a significant impact on the market price of
our common stock. These risks include those described or
referred to in this “Risk Factors” section and in the
other documents incorporated herein by reference as well as,
among other things:
|
|
|
|
•
|
our operating and financial performance and prospects;
|
|
|
•
|
our ability to repay our debt;
|
|
|
•
|
investor perceptions of us and the industry and markets in which
we operate;
|
|
|
•
|
our dividend policy;
|
|
|
•
|
future sales of equity or equity-related securities;
|
|
|
•
|
changes in earnings estimates or buy/sell recommendations by
analysts; and
|
|
|
•
|
general financial, domestic, international, economic and other
market conditions.
|
In addition, the stock market in recent years has experienced
significant price and trading volume fluctuations that often
have been unrelated or disproportionate to the operating
performance of individual companies. These broad market
fluctuations may adversely affect the price of our common stock,
regardless of our operating performance. Furthermore,
stockholders may initiate securities class action lawsuits if
the market price of our stock drops significantly, which may
cause us to incur substantial costs and could divert the time
and attention of our management. As a result of these factors,
among others, the value of your investment may decline because a
decrease in the market price of our common stock would likely
adversely impact the trading price of the notes.
We may
not have the ability to raise the funds necessary to purchase
the notes upon a fundamental change, and our future debt may
contain limitations on our ability to pay cash upon repurchase
of the notes.
Holders of the notes will have the right to require us to
repurchase the notes upon the occurrence of a fundamental change
at 100% of their principal amount plus accrued and unpaid
interest as described under “Description of
Notes — Fundamental Change Permits Holders to Require
Us to Purchase Notes.” However, we may not have enough
available cash or be able to obtain financing at the time we are
required to repurchase notes, particularly if the fundamental
change requires us to retire other indebtedness. In addition,
our ability to repurchase the notes may be limited by law, by
regulatory authority or by the agreements governing our
indebtedness that exist at the time of the repurchase. Our
failure to repurchase notes tendered for repurchase at a time
when the repurchase is required by the indenture would
constitute a default under the indenture. A default under the
indenture or the fundamental change itself could also lead to a
default under the agreements governing our other indebtedness.
If the repayment of the related indebtedness were to be
accelerated after any applicable notice or grace periods, we may
not have sufficient funds to repay the indebtedness and
repurchase the notes.
Future
sales of shares of our common stock may depress its market
price.
In the future, we may sell additional shares of our common stock
to raise capital. Sales of substantial amounts of additional
shares of common stock, including shares of common stock
underlying the notes and shares issuable upon exercise of
outstanding options as well as sales of shares that may be
issued in connection with future acquisitions or for other
purposes, including to finance our operations and business
strategy or to adjust our ratio of
debt-to-equity,
or the perception that such sales could occur, may have a
harmful effect on prevailing market prices for our common stock
and our ability to raise additional capital in
S-11
the financial markets at a time and price favorable to us. The
price of our common stock could also be affected by possible
sales of our common stock by investors who view the notes being
offered in this offering as a more attractive means of equity
participation in our company and by hedging or arbitrage trading
activity that we expect will develop involving our common stock.
Holders
of notes will not be entitled to any rights with respect to our
common stock, but will be subject to all changes made with
respect to our common stock.
Holders of notes will not be entitled to any rights with respect
to our common stock (including, without limitation, voting
rights and rights to receive any dividends or other
distributions on our common stock) prior to the conversion date
relating to such notes, but holders of notes will be subject to
all changes affecting our common stock. For example, if an
amendment is proposed to our certificate of incorporation or
by-laws requiring stockholder approval and the record date for
determining the stockholders of record entitled to vote on the
amendment occurs prior to the conversion date related to a
holder’s conversion of its notes, such holder will not be
entitled to vote on the amendment, although such holder will
nevertheless be subject to any changes affecting our common
stock.
The
notes are not protected by restrictive covenants.
The indenture does not contain any financial or operating
covenants or restrictions on the payments of dividends, the
incurrence of indebtedness or the issuance or repurchase of
securities by us or any of our subsidiaries. The indenture
contains no covenants or other provisions to afford protection
to holders of the notes in the event of a fundamental change
involving Old Republic International Corporation, except to the
extent described under “Description of Notes —
Fundamental Change Permits Holders to Require Us to Purchase
Notes,” “Description of Notes — Conversion
Rights — Adjustment to Shares Delivered Upon
Conversion Upon a Make-whole Fundamental Change” and
“Description of Notes — Consolidation, Merger and
Sale of Assets.”
The
adjustment to the conversion rate for notes converted in
connection with a make-whole fundamental change may not
adequately compensate you for any lost value of your notes as a
result of such transaction.
If a make-whole fundamental change occurs prior to maturity,
under certain circumstances, we will increase the conversion
rate by a number of additional shares of our common stock for
notes converted in connection with such make-whole fundamental
change. The increase in the conversion rate will be determined
based on the date on which the make-whole fundamental change
becomes effective and the price paid (or deemed paid) per share
of our common stock in such transaction, as described below
under “Description of Notes — Conversion
Rights — Adjustments to Shares Delivered Upon
Conversion Upon a Make-whole Fundamental Change.” The
adjustment to the conversion rate for notes converted in
connection with a make-whole fundamental change may not
adequately compensate you for any lost value of your notes as a
result of such transaction. In addition, if the price of our
common stock in the transaction is greater than $50.00 per share
or less than $11.73 per share (in each case, subject to
adjustment), no adjustment will be made to the conversion rate.
Moreover, in no event will the conversion rate as a result of
this adjustment exceed 85.2515 per $1,000 principal amount of
notes, subject to adjustments in the same manner as the
conversion rate as set forth under “Description of
Notes — Conversion Rights — Conversion Rate
Adjustments.”
Our obligation to increase the conversion rate upon the
occurrence of a make-whole fundamental change could be
considered a penalty, in which case the enforceability thereof
would be subject to general principles of reasonableness of
economic remedies.
The
conversion rate of the notes may not be adjusted for all
dilutive events.
The conversion rate of the notes is subject to adjustment for
certain events, including, but not limited to, the issuance of
stock dividends on our common stock, the issuance of certain
rights or warrants, subdivisions, combinations, distributions of
capital stock, indebtedness, or assets, cash dividends and
certain issuer tender or
S-12
exchange offers as described under “Description of
Notes — Conversion Rights — Conversion Rate
Adjustments.” However, the conversion rate will not be
adjusted for other events, such as a third-party tender or
exchange offer or an issuance of common stock for cash, that may
adversely affect the trading price of the notes or the common
stock. An event that adversely affects the value of the notes
may occur, and that event may not result in an adjustment to the
conversion rate.
Provisions
in our organizational documents, our rights agreement, certain
of our employee benefit plans and state law could delay or
prevent a change in control of our company, or cause a change in
control of our company to have adverse regulatory consequences,
any of which could adversely affect the price of our common
stock.
Our certificate of incorporation and bylaws contain provisions
that could have the effect of discouraging, delaying or making
it more difficult for someone to acquire us through a tender
offer, a proxy contest or otherwise, even though such an
acquisition might be economically beneficial to our
shareholders. These provisions include dividing our board of
directors into three classes and specifying advance notice
procedures for shareholders to nominate candidates for election
as members of our board of directors and for shareholders to
submit proposals for consideration at shareholders’
meetings. In addition, these provisions may make the removal of
management more difficult, even in cases where removal would be
favorable to the interests of our shareholders.
Each currently outstanding share of our common stock includes,
and each share of our common stock issuable upon conversion of
the notes will include, a common share purchase right. The
rights are attached to and trade with the shares of common stock
and currently are not exercisable. The rights will become
exercisable if a person or group acquires, or announces an
intention to acquire, 20% or more of our outstanding common
stock. The rights have some anti-takeover effects and generally
will cause substantial dilution to a person or group that
attempts to acquire control of us without conditioning the offer
on either redemption of the rights or amendment of the rights to
prevent this dilution, each of which requires our board’s
approval. The rights could have the effect of delaying,
deferring or preventing a change of control.
We have established various employee benefit plans as more fully
described in the Proxy Statement for our 2010 Annual Meeting,
portions of which are incorporated by reference into this
prospectus supplement. A change in control of our company would
accelerate the vesting of benefits under certain of our benefit
plans and would require the immediate payment of all deferred
balances under certain of these plans. This could have the
effect of deterring or preventing a change of control.
In addition, Section 203 of the Delaware General
Corporation Law may limit the ability of an “interested
shareholder” to engage in business combinations with us. An
interested shareholder is defined to include persons owning 15%
or more of any class of our outstanding voting stock.
We are also subject to the insurance regulations in the
jurisdictions in which our insurance subsidiaries are licensed.
Under the insurance laws of most jurisdictions, advance approval
by the state insurance department is required for any change of
control of an insurer. “Control” is presumed to exist
through the direct or indirect ownership of 10% or more of the
voting securities of a domestic insurance company or any entity
that controls a domestic insurance company. Obtaining these
approvals may result in the material delay of, or deter, any
such acquisition of our common stock.
Some
significant restructuring transactions may not constitute a
fundamental change, in which case we would not be obligated to
offer to repurchase the notes or to increase the conversion rate
of the notes.
Upon the occurrence of a fundamental change, you have the right
to require us to repurchase your notes and may have the right to
convert your notes with an increased conversion rate. However,
the definition of the term “fundamental change” is
limited to only certain transactions or events. Therefore the
fundamental change provisions will not afford protection to
holders of notes in the event of other transactions or events
that do not constitute a fundamental change but that could
nevertheless adversely affect the notes. For example,
transactions such as leveraged recapitalizations, refinancings,
restructurings, or acquisitions initiated by us may not
constitute a fundamental change requiring us to repurchase the
notes or providing you with the right to
S-13
convert your notes at an increased conversion rate. In the event
of any such transaction, the holders would not have the right to
require us to repurchase the notes or to convert the notes with
an increased conversion rate, even though each of these
transactions could increase the amount of our indebtedness, or
otherwise adversely affect our capital structure or any credit
ratings or otherwise adversely affect the value of the notes.
We
cannot assure you that an active trading market will develop for
the notes.
Prior to this offering, there has been no trading market for the
notes. We do not intend to apply for listing of the notes on any
securities exchange or to arrange for quotation on any
interdealer quotation system. We have been informed by the
underwriters that they intend to make a market in the notes
after the offering is completed. However, the underwriters have
no obligation to make a market in the notes and may cease their
market making at any time without notice. In addition, the
liquidity of the trading market in the notes, and the market
price quoted for the notes, may be adversely affected by changes
in the overall market for this type of security and by changes
in our financial performance or prospects or in the prospects
for companies in our industry generally. As a result, we cannot
assure you that an active trading market will develop for the
notes. If an active trading market does not develop or is not
maintained, the market price and liquidity of the notes may be
adversely affected. In that case you may not be able to sell
your notes at a particular time or you may not be able to sell
your notes at a favorable price.
You
may be subject to tax if we make or fail to make certain
adjustments to the conversion rate of the notes even though you
do not receive a corresponding cash distribution.
The conversion rate of the notes is subject to adjustment in
certain circumstances, including the payment of cash dividends.
If the conversion rate is adjusted as a result of a distribution
that is taxable to our common stockholders, such as a cash
dividend, you may be deemed to have received a dividend subject
to U.S. federal income tax without the receipt of any cash.
In addition, a failure to adjust (or to adjust adequately) the
conversion rate after an event that increases your proportionate
interest in us could be treated as a deemed taxable dividend to
you. If a make-whole fundamental change occurs on or prior to
the maturity date of the notes, under some circumstances, we
will increase the conversion rate for notes converted in
connection with the make-whole fundamental change. Such increase
may also be treated as a distribution subject to
U.S. federal income tax. See “Certain
U.S. Federal Income Tax Considerations.”
If you are a
non-U.S. Holder
(as defined in “Certain U.S. Federal Income Tax
Considerations”), any deemed dividend would be subject to
U.S. federal withholding tax at a 30% rate, or such lower
rate as may be specified by an applicable treaty, which may be
set-off against subsequent payments. Under the terms of the
supplemental indenture, we are not obligated to pay you any
additional amounts in respect of such withheld taxes. See
“Certain U.S. Federal Income Tax Considerations.”
A
downgrade in our ratings from A.M. Best Company,
Standard & Poor’s Corporation, Moody’s or
Fitch Ratings Service could negatively affect our
business.
Ratings are an important factor in establishing the competitive
position of insurance companies. Our insurance companies are
rated by A.M. Best, Standard & Poor’s,
Moody’s, and Fitch. These ratings reflect the rating
companies’ opinions of an insurance company’s and
insurance holding company’s financial strength, operating
performance, strategic position and ability to meet its
obligations to policyholders, and are not evaluations directed
to investors. Our ratings are subject to periodic review, and we
cannot assure the continued maintenance of our current ratings.
The principal companies in our General Insurance segment are
rated either A+ (Superior) or A (Excellent) by A.M. Best.
Republic Mortgage Insurance Company, or RMIC, our principal
mortgage insurance subsidiary, is rated BBB- by Fitch, Ba1 by
Moody’s and BBB- by Standard & Poor’s. Our
Title Insurance group is rated A or higher by each of
A.M. Best, Fitch, Moody’s and Standard &
Poor’s.
Substantially all if not all of the mortgage guaranty insurance
companies in the industry, including RMIC, have experienced
ratings downgrades as a result of the decline in the housing
market. Most recently, RMIC
S-14
was downgraded by Fitch from BBB to BBB- in December 2009, by
Standard & Poor’s from A- to BBB- in December
2009, and by Moody’s from Baa2 to Ba1 in February 2010.
There can be no assurance, particularly in the current economic
environment, that our insurance subsidiaries will be able to
maintain their current ratings. If the ratings of any of our
insurance companies are reduced from their current levels, our
business could be adversely affected.
We are
involved in litigation, the ultimate outcome of which is
difficult to predict, and which could have a material adverse
effect on our business.
Legal proceedings against us and our subsidiaries routinely
arise in the normal course of business and usually pertain to
claim matters related to insurance policies and contracts issued
by our insurance subsidiaries. Other, non-routine legal
proceedings that may prove to be material to us or one of our
subsidiaries are discussed in our Annual Report on
Form 10-K
for the year ended December 31, 2010. In addition, on
February 18, 2011, the Federal Deposit Insurance
Corporation, as receiver of Amtrust Bank, filed a suit against
Old Republic Insurance Company (“ORIC”) in the
U.S. District Court for the Northern District of Ohio
arising out of ORIC’s termination of a credit indemnity
policy issued to insure home equity loans made or held by
Amtrust. The suit alleges breach of contract and seeks a
declaratory judgment that ORIC’s attempted termination
and/or
cancellation of the policy did not terminate coverage of the
insured loans and that ORIC remains obligated to provide
coverage for such loans under the policy. The suit seeks damages
in excess of $46 million, declaratory relief, pre- and
post-judgment interest, attorneys’ fees and costs. Although
we do not believe that this action will have a material adverse
effect on our consolidated financial condition, results of
operations or cash flows, there can be no assurance in those
regards.
S-15
USE OF
PROCEEDS
We estimate that the proceeds from this offering will be
approximately $490 million ($539 million if the
underwriters exercise their option to purchase additional notes
in full), after deducting fees and before estimated expenses.
We intend to use approximately $107.4 million of the net
proceeds from this offering to repay certain indebtedness that
we assumed in connection with our acquisition of PMA.
Approximately $42.5 million of this indebtedness matures
between May 15, 2033 and September 30, 2033 and
carries interest rates ranging from LIBOR + 4.05% to LIBOR +
4.20%; approximately $54.9 million of this indebtedness
matures on June 15, 2018 and carries an interest rate of
8.5%; and approximately $10.0 million of this indebtedness
matures on November 2, 2035 and carries an interest rate of
LIBOR + 4.50%. We intend to use the remainder of the net
proceeds for general corporate purposes, including the making of
additional capital contributions to our insurance company
subsidiaries as may be necessary.
Pending application for the foregoing purposes, the net proceeds
from this offering will be invested in short-term interest
bearing instruments or other investment grade securities.
MARKET
FOR OUR COMMON STOCK AND DIVIDENDS
Our common stock is listed on the New York Stock Exchange under
the symbol “ORI”. The following table sets forth the
high and low sales prices of the common stock on the New York
Stock Exchange Composite Tape for the calendar periods
indicated, and cash dividends declared for each quarterly period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Price
|
|
Cash
|
|
|
|
|
High
|
|
Low
|
|
Dividends
|
|
1st quarter
|
|
2009
|
|
$
|
12.80
|
|
|
$
|
7.24
|
|
|
$
|
.1700
|
|
2nd quarter
|
|
2009
|
|
|
12.18
|
|
|
|
8.75
|
|
|
|
.1700
|
|
3rd quarter
|
|
2009
|
|
|
12.85
|
|
|
|
8.98
|
|
|
|
.1700
|
|
4th quarter
|
|
2009
|
|
|
12.49
|
|
|
|
10.03
|
|
|
|
.1700
|
|
1st quarter
|
|
2010
|
|
|
12.75
|
|
|
|
10.02
|
|
|
|
.1725
|
|
2nd quarter
|
|
2010
|
|
|
15.50
|
|
|
|
12.11
|
|
|
|
.1725
|
|
3rd quarter
|
|
2010
|
|
|
14.06
|
|
|
|
11.78
|
|
|
|
.1725
|
|
4th quarter
|
|
2010
|
|
|
14.18
|
|
|
|
12.42
|
|
|
|
.1725
|
|
1st quarter
|
|
2011 (through March 2, 2011)
|
|
|
13.92
|
|
|
|
11.73
|
|
|
|
.1750
|
|
As of January 31, 2011, there were 2,629 stockholders of
record. See “Risk Factors — Risks Related to the
Notes — The notes are obligations of Old Republic
International Corporation only, and our status as a holding
company with no direct operations could adversely affect our
ability pay dividends to our stockholders and to service our
debt, including the notes” and Note 3(c) of the Notes
to Consolidated Financial Statements included in our 2010
Form 10-K
for a description of certain regulatory restrictions on the
payment of dividends by Old Republic’s insurance
subsidiaries.
S-16
CAPITALIZATION
The following table sets forth our cash position and
capitalization as of December 31, 2010, on:
|
|
|
|
•
|
an actual basis; and
|
|
|
•
|
an as adjusted basis to give effect to (i) the issuance and
sale of the notes in this offering, after deducting the
underwriting discounts and commissions and before estimated
offering expenses (assuming no exercise of the
underwriters’ over-allotment option to purchase additional
notes), and (ii) the repayment of approximately
$107.4 million of indebtedness.
|
The table should be read in conjunction with the more detailed
information contained in the consolidated financial statements
and notes thereto and “Management Analysis of Financial
Position and Results of Operations” included in Old
Republic International Corporation’s annual report on
Form 10-K
for the period ended December 31, 2010 incorporated by
reference into this prospectus supplement.
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Actual
|
|
|
As Adjusted
|
|
|
|
(In millions)
|
|
|
Cash
|
|
$
|
127.3
|
|
|
$
|
509.9
|
|
Debt:
|
|
|
|
|
|
|
|
|
Convertible senior notes due 2012
|
|
|
316.2
|
|
|
|
316.2
|
|
Convertible senior notes due 2018 offered hereby
|
|
|
—
|
|
|
|
500
|
|
Debt assumed pursuant to PMA merger
|
|
|
128.9
|
|
|
|
21.5
|
|
Other
|
|
|
29.9
|
|
|
|
29.9
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
475.0
|
|
|
|
867.6
|
|
Preferred Stock:
|
|
|
|
|
|
|
|
|
Convertible preferred stock(1)
|
|
|
—
|
|
|
|
—
|
|
Common shareholders’ equity:
|
|
|
|
|
|
|
|
|
Common stock(1)
|
|
|
259.2
|
|
|
|
259.2
|
|
Additional paid-in capital
|
|
|
649.6
|
|
|
|
649.6
|
|
Retained earnings
|
|
|
2,791.4
|
|
|
|
2,791.4
|
|
Accumulated other comprehensive income (loss)
|
|
|
459.1
|
|
|
|
459.1
|
|
Unallocated ESSOP shares (at cost)
|
|
|
(38.0
|
)
|
|
|
(38.0
|
)
|
Treasury stock (at cost)(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total common shareholders’ equity
|
|
|
4,121.4
|
|
|
|
4,121.4
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
4,596.4
|
|
|
$
|
4,989.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At December 31, 2010 there were 75,000,000 shares of
$0.01 par value preferred stock authorized, of which no
shares were outstanding. As of the same date, there were
500,000,000 shares of common stock, $1.00 par value,
authorized, of which 259,222,360 were issued. At
December 31, 2010, there were 100,000,000 shares of
Class B Common Stock, $1.00 par value, authorized, of
which no shares were issued. There were no common shares
classified as treasury stock as of December 31, 2010. |
S-17
DESCRIPTION
OF NOTES
The Company will issue the notes under a base indenture dated as
of August 15, 1992, between itself and Wilmington
Trust Company, as supplemented by a supplemental indenture
with respect to the notes. In this section, we refer to the base
indenture (the “base indenture”), as supplemented by
the supplemental indenture (the “supplemental
indenture”), collectively as the “indenture.” The
terms of the notes include those expressly set forth in the
indenture and those made part of the indenture by reference to
the Trust Indenture Act of 1939, as amended (the
“Trust Indenture Act”).
You may request a copy of the indenture from us as described
under “Where You Can Find More Information” in the
accompanying prospectus.
The following description is a summary of the material
provisions of the notes and the indenture and does not purport
to be complete. This summary is subject to and is qualified by
reference to all the provisions of the notes and the indenture,
including the definitions of certain terms used in the
indenture. We urge you to read these documents because they, and
not this description, define your rights as a holder of the
notes.
For purposes of this description, references to “the
Company,” “we,” “our” and
“us” refer only to Old Republic International
Corporation and not to any of its subsidiaries.
General
The notes:
|
|
|
|
•
|
will be general unsecured, senior obligations of the Company;
|
|
|
•
|
will initially be limited to an aggregate principal amount of
$500,000,000 (or $550,000,000 if the underwriters’
overallotment option is exercised in full);
|
|
|
•
|
will bear cash interest from March 8, 2011 at an annual
rate of 3.75% payable on March 15 and September 15 of each year,
beginning on September 15, 2011;
|
|
|
•
|
will be subject to purchase by us for cash at the option of the
holders following a fundamental change (as defined below under
“— Fundamental Change Permits Holders to Require
Us to Purchase Notes”), at a price equal to 100% of the
principal amount of the notes to be purchased, plus accrued and
unpaid interest to, but excluding, the fundamental change
purchase date;
|
|
|
•
|
will mature on March 15, 2018 unless earlier converted or
repurchased;
|
|
|
•
|
will be issued in denominations of $1,000 and multiples of
$1,000; and
|
|
|
•
|
will be represented by one or more registered notes in global
form, but in certain limited circumstances may be represented by
notes in definitive form. See “— Book-entry,
Settlement and Clearance.”
|
Holders may convert their notes at their option at any time
prior to the close of business on the second scheduled trading
day immediately preceding the maturity date. The notes may be
converted into shares of our common stock initially at a
conversion rate of 64.3407 shares of common stock per
$1,000 principal amount of notes (equivalent to a conversion
price of approximately $15.54 per share of common stock). The
conversion rate is subject to adjustment if certain events occur.
You will not receive any separate cash payment for interest, if
any, accrued and unpaid to the conversion date except under the
limited circumstances described below.
The indenture does not limit the amount of debt which may be
issued by the Company or its subsidiaries under the indenture or
otherwise. The indenture does not contain any financial
covenants and does not restrict us from paying dividends or
issuing or repurchasing our other securities. Other than
restrictions described under “— Fundamental
Change Permits Holders to Require Us to Purchase Notes” and
“— Consolidation, Merger and Sale of Assets”
below and except for the provisions set forth under
“— Conversion Rights — Adjustment to
Shares Delivered Upon Conversion Upon a Make-whole
Fundamental Change” the indenture does not contain any
covenants or other provisions designed to afford holders of the
notes protection in the
S-18
event of a highly leveraged transaction involving the Company or
in the event of a decline in the credit rating of the Company as
a result of a takeover, recapitalization, highly leveraged
transaction or similar restructuring involving the Company that
could adversely affect such holders.
We may, without the consent of the holders, issue additional
notes under the indenture with the same terms and with the same
CUSIP number as the notes offered hereby in an unlimited
aggregate principal amount; provided that such additional
notes must be part of the same issue as the notes offered hereby
for U.S. federal income tax purposes. We may also from time
to time repurchase notes in open market purchases or negotiated
transactions without giving prior notice to holders.
The Company does not intend to list the notes on a national
securities exchange or interdealer quotation system.
Payments
on the Notes; Paying Agent and Registrar; Transfer and
Exchange
We will pay the principal of and interest on notes in global
form registered in the name of or held by The Depository
Trust Company (“DTC”) or its nominee in
immediately available funds to DTC or its nominee, as the case
may be, as the registered holder of such global note.
We will pay the principal of any certificated notes at the
office or agency designated by the Company for that purpose. We
have initially designated the trustee as our paying agent and
registrar and its agency in New York City, New York as a
place where notes may be presented for payment or for
registration of transfer. We may, however, change the paying
agent or registrar without prior notice to the holders of the
notes, and the Company may act as paying agent or registrar.
Interest on certificated notes will be payable (i) to
holders having an aggregate principal amount of $5,000,000 or
less, by check mailed to the holders of these notes and
(ii) to holders having an aggregate principal amount of
more than $5,000,000, either by check mailed to each holder or,
upon application by a holder to the registrar not later than the
relevant record date, by wire transfer in immediately available
funds to that holder’s account within the United States,
which application shall remain in effect until the holder
notifies, in writing, the registrar to the contrary.
A holder of certificated notes may transfer or exchange notes at
the office of the registrar in accordance with the indenture.
The registrar and the trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer
documents. No service charge will be imposed by the Company, the
trustee or the registrar for any registration of transfer or
exchange of notes, but the Company may require a holder to pay a
sum sufficient to cover any transfer tax or other similar
governmental charge required by law or permitted by the
indenture. The Company is not required to transfer or exchange
any note surrendered for conversion.
The registered holder of a note will be treated as the owner of
it for all purposes.
Interest
The notes will bear cash interest at a rate of 3.75% per year
until maturity. Interest on the notes will accrue from
March 8, 2011 or from the most recent date on which
interest has been paid or duly provided for. Interest will be
payable semiannually in arrears on March 15 and September 15 of
each year, beginning on September 15, 2011.
Interest will be paid to the person in whose name a note is
registered at the close of business on March 1 or
September 1, as the case may be, immediately preceding the
relevant interest payment date. Interest on the notes will be
computed on the basis of a
360-day year
composed of twelve
30-day
months.
If any interest payment date or the stated maturity date or any
earlier required repurchase date would fall on a day that is not
a business day, the required payment will be made on the next
succeeding business day and no interest on such payment will
accrue in respect of the delay. The term “business
day” means any day other than a Saturday, a Sunday or any
other day on which banks or trust companies in The City of New
York are authorized or required by law or executive order to be
closed.
S-19
References to interest in this prospectus supplement include
additional interest, if any, payable upon our election to pay
additional interest as the sole remedy during the first
180 days after the occurrence of an event of default
relating to the failure to comply with our reporting obligations
as described under “— Events of Default.”
Ranking
The notes will be senior unsecured obligations of the Company
that rank senior in right of payment to all existing and future
indebtedness that is expressly subordinated in right of payment
to the notes. The notes will rank equally in right of payment
with all existing and future indebtedness of the Company that is
not so subordinated. The notes will effectively rank junior to
any secured indebtedness of the Company to the extent of the
value of the assets securing such indebtedness. The notes will
be structurally junior to all existing and future indebtedness
and liabilities incurred by our subsidiaries. In the event of
bankruptcy, liquidation, reorganization or other winding up of
the Company, the assets of the Company that secure secured debt
will be available to pay obligations on the notes only after all
indebtedness under such secured debt has been repaid in full
from such assets. We advise you that there may not be sufficient
assets remaining to pay amounts due on any or all the notes then
outstanding.
As of December 31, 2010, our total consolidated
indebtedness was approximately $475 million. As of
December 31, 2010, our subsidiaries had total policy
liabilities and accruals of approximately $10.2 billion to
which the notes would have ranked structurally junior, and
neither we nor our subsidiaries had any secured indebtedness
outstanding.
The ability of our subsidiaries to pay dividends and make other
payments to us is restricted by, among other things, applicable
corporate and other laws and regulations as well as agreements
to which our subsidiaries may become a party. We may not be able
to pay the fundamental change purchase price if a holder
requires us to repurchase notes. See “Risk
Factors — Risks Related to the Notes and our Common
Stock — We may not have the ability to raise the funds
necessary to purchase the notes upon a fundamental change, and
our future debt may contain limitations on our ability to pay
cash upon repurchase of the notes.”
Conversion
Rights
General
Holders may convert their notes at their option at any time
prior to the close of business on the second scheduled trading
day immediately preceding the maturity date. The notes may be
converted into shares of our common stock initially at a
conversion rate of 64.3407 shares of common stock per
$1,000 principal amount of notes (equivalent to a conversion
price of approximately $15.54 per share of common stock). The
trustee will initially act as the conversion agent.
Upon conversion, you will not receive any separate cash payment
for accrued and unpaid interest, if any, except as described
below. We will not issue fractional shares of our common stock
upon conversion of notes. Instead, we will pay cash in lieu of
fractional shares based on the last reported sale price (as
defined below) of the common stock on the relevant conversion
date. Our delivery to you of the full number of shares of our
common stock, together with any cash payment for any fractional
share, into which a note is convertible will be deemed to
satisfy in full our obligation to pay:
|
|
|
|
•
|
the principal amount of the note; and
|
|
|
•
|
accrued and unpaid interest to, but not including, the
conversion date.
|
As a result, accrued and unpaid interest to, but not including,
the conversion date will be deemed to be paid in full rather
than cancelled, extinguished or forfeited.
Notwithstanding the preceding paragraph, if notes are converted
after 5:00 p.m., New York City time, on a regular record
date for the payment of interest, holders of such notes at
5:00 p.m., New York City time, on such record date will
receive the interest payable on such notes on the corresponding
interest payment date notwithstanding the conversion. Notes,
upon surrender for conversion during the period from
5:00 p.m.,
S-20
New York City time, on any regular record date to
9:00 a.m., New York City time, on the immediately following
interest payment date, must be accompanied by funds equal to the
amount of interest payable on the notes so converted;
provided that no such payment need be made:
|
|
|
|
•
|
for conversions following the record date immediately preceding
the maturity date;
|
|
|
•
|
if we have specified a fundamental change purchase date that is
after a record date and on or prior to the corresponding
interest payment date; or
|
|
|
•
|
to the extent of any overdue interest, if any overdue interest
exists at the time of conversion with respect to such note.
|
If a holder converts notes, we will pay any documentary, stamp
or similar issue or transfer tax due on the issue of any shares
of our common stock upon the conversion, unless the tax is due
because the holder requests any shares to be issued in a name
other than the holder’s name, in which case the holder will
pay that tax.
The “last reported sale price” of our common stock on
any date means the closing sale price per share (or if no
closing sale price is reported, the average of the bid and ask
prices or, if more than one in either case, the average of the
average bid and the average ask prices) on that date as reported
in composite transactions for the principal U.S. securities
exchange on which our common stock is traded. If our common
stock is not listed for trading on a U.S. national or
regional securities exchange on the relevant date, the
“last reported sale price” will be the last quoted bid
price for our common stock in the
over-the-counter
market on the relevant date as reported by Pink Sheets LLC or a
similar organization. If our common stock is not so quoted, the
“last reported sale price” will be the average of the
mid-point of the last bid and ask prices for our common stock on
the relevant date from each of at least three nationally
recognized independent investment banking firms selected by us
for this purpose.
“Scheduled trading day” means a day that is
scheduled to be a trading day on the principal United States
national or regional securities exchange or market on which our
common stock is listed or admitted for trading. If our common
stock is not so listed or admitted for trading, “scheduled
trading day” means a business day.
“Trading day” means a day on which
(i) trading in our common stock generally occurs on the New
York Stock Exchange or, if our common stock is not then listed
on the New York Stock Exchange, on the principal other United
States national or regional securities exchange on which our
common stock is then listed or, if our common stock is not then
listed on a United States national or regional securities
exchange, in the principal other market on which our common
stock is then traded, and (ii) a last reported sale price
for our common stock is available on such securities exchange or
market. If our common stock (or other security for which a
closing sale price must be determined) is not so listed or
traded, “trading day” means a business day.
Conversion
Procedures
If you hold a beneficial interest in a global note, to convert
you must comply with DTC’s procedures for converting a
beneficial interest in a global note and, if required, pay funds
equal to interest payable on the next interest payment date to
which you are not entitled and, if required, pay all taxes or
duties, if any.
If you hold a certificated note, to convert you must:
|
|
|
|
•
|
complete and manually sign the conversion notice on the back of
the note, or a facsimile of the conversion notice;
|
|
|
•
|
deliver the conversion notice, which is irrevocable, and the
note to the conversion agent;
|
|
|
•
|
if required, furnish appropriate endorsements and transfer
documents;
|
|
|
•
|
if required, pay all transfer or similar taxes; and
|
|
|
•
|
if required, pay funds equal to interest payable on the next
interest payment date to which you are not entitled.
|
S-21
The date you comply with the relevant procedures described above
is the conversion date under the indenture.
If a holder has already delivered a purchase notice as described
under “— Fundamental Change Permits Holders to
Require Us to Purchase Notes” with respect to a note, the
holder may not surrender that note for conversion until the
holder has withdrawn the notice in accordance with the indenture.
Settlement
Upon Conversion
Upon conversion of the notes, we will deliver to a converting
holder a number of shares equal to (i) the aggregate
principal amount of notes to be converted divided by $1,000,
multiplied by (ii) the applicable conversion rate. We will
deliver such shares of common stock on the third business day
immediately following the relevant conversion date. We will
deliver cash in lieu of any fractional share of common stock
issuable upon conversion based upon the last reported sale price
on the relevant conversion date.
Each conversion will be deemed to have been effected as to any
notes surrendered for conversion on the date the requirements
set forth in the indenture have been satisfied as to such notes;
provided, however, that a converting noteholder will
become the record holder of any shares of our common stock due
upon such conversion as of the relevant conversion date.
Conversion
Rate Adjustments
The conversion rate will be adjusted as described below, except
that we will not make any adjustments to the conversion rate if
holders of the notes participate, as a result of holding the
notes, in any such transactions under clauses (1) (but only with
respect to stock dividends or distributions), (2), (3), (4A) and
(4B) below without having to convert their notes as if they held
the full number of shares underlying their notes.
(1) If we exclusively issue shares of our common stock as a
dividend or distribution on shares of our common stock, or if we
effect a share split or share combination, the conversion rate
will be adjusted based on the following formula:
where,
|
|
|
|
|
CR0
|
|
=
|
|
the conversion rate in effect immediately prior to the open of
business on the ex-dividend date of such dividend or
distribution, or immediately prior to the open of business on
the effective date of such share split or combination, as
applicable;
|
CR1
|
|
=
|
|
the conversion rate in effect immediately after the open of
business on such ex-dividend date or effective date;
|
OS0
|
|
=
|
|
the number of shares of our common stock outstanding immediately
prior to the open of business on such ex-dividend date or
effective date; and
|
OS1
|
|
=
|
|
the number of shares of our common stock outstanding immediately
after giving effect to such dividend, distribution, share split
or share combination.
|
(2) If we issue to all or substantially all holders of our
common stock any rights or warrants entitling them for a period
of not more than 60 calendar days after the announcement date of
such issuance to subscribe for or purchase shares of our common
stock, at a price per share less than the average of the last
reported sale prices of our common stock for the 10 consecutive
trading-day
period ending on the trading day immediately preceding the date
of announcement of such issuance, the conversion rate will be
adjusted based on the following formula (provided that
the conversion rate will be readjusted to the extent that such
rights or warrants are not exercised prior to their expiration
to the conversion rate that would be in effect had the
S-22
adjustment been made on the basis of delivery of only the number
of shares of common stock actually delivered):
|
|
|
CR1 = CR0 ×
|
|
OS0 + X
OS0 + Y
|
where,
|
|
|
|
|
CR0
|
|
=
|
|
the conversion rate in effect immediately prior to the open of
business on the ex-dividend date for such issuance;
|
CR1
|
|
=
|
|
the conversion rate in effect immediately after the open of
business on such ex-dividend date;
|
OS0
|
|
=
|
|
the number of shares of our common stock outstanding immediately
prior to the open of business on such ex-dividend date;
|
X
|
|
=
|
|
the total number of shares of our common stock issuable pursuant
to such rights or warrants; and
|
Y
|
|
=
|
|
the number of shares of our common stock equal to the aggregate
price payable to exercise such rights or warrants divided by the
average of the last reported sale prices of our common stock
over the 10 consecutive trading-day period ending on the
trading day immediately preceding the date of announcement of
the issuance of such rights or warrants.
|
(3) If we distribute shares of our capital stock, evidences
of our indebtedness, other assets or property of ours or rights
or warrants to acquire our capital stock or other securities, to
all or substantially all holders of our common stock, excluding
|
|
|
|
•
|
dividends or distributions and rights or warrants as to which an
adjustment was effected pursuant to clause (1) or
(2) above;
|
|
|
•
|
dividends or distributions paid exclusively in cash; and
|
|
|
•
|
spin-offs to which the provisions set forth below in this
clause (3) shall apply;
|
then the conversion rate will be adjusted based on the following
formula:
|
|
|
CR1 = CR0
×
|
|
SP0
SP0 – FMV
|
where,
|
|
|
|
|
CR0
|
|
=
|
|
the conversion rate in effect immediately prior to the open of
business on the ex-dividend date for such distribution;
|
CR1
|
|
=
|
|
the conversion rate in effect immediately after the open of
business on such ex-dividend date;
|
SP0
|
|
=
|
|
the average of the last reported sale prices of our common stock
over the 10 consecutive trading-day period ending on the trading
day immediately preceding the ex-dividend date for such
distribution; and
|
FMV
|
|
=
|
|
the fair market value (as determined by our board of directors)
of the shares of capital stock, evidences of indebtedness,
assets, property, rights or warrants distributed with respect to
each outstanding share of our common stock on the ex-dividend
date for such distribution.
|
If the then fair market value of the portion of the shares of
capital stock, evidences of indebtedness or other assets or
property so distributed applicable to one share of common stock
is equal to or greater than the average of the last reported
sales prices of our common stock over the 10 consecutive
trading-day
period ending on the trading day immediately preceding the
ex-dividend date for such distribution, in lieu of the foregoing
adjustment, each holder of a note shall receive, at the same
time and upon the same terms as holders of our common stock, the
amount and kind of securities and assets such holder would have
received as if such holder owned a number of shares of common
stock equal to the conversion rate in effect on the record date
for the distribution of the securities or assets.
With respect to an adjustment pursuant to this clause (3)
where there has been a payment of a dividend or other
distribution on our common stock of shares of capital stock of
any class or series, or similar equity
S-23
interests, of or relating to a subsidiary or other business unit
and such shares of capital stock or similar equity interests are
listed for trading on a securities exchange, which we refer to
as a “spin-off,” the conversion rate will be increased
based on the following formula:
|
|
|
CR1 = CR0
×
|
|
FMV0 + MP0
MP0
|
where,
|
|
|
|
|
CR0
|
|
=
|
|
the conversion rate in effect immediately prior to the end of
the valuation period (as defined below);
|
CR1
|
|
=
|
|
the conversion rate in effect immediately after the end of the
valuation period;
|
FMV0
|
|
=
|
|
the average of the last reported sale prices of the capital
stock or similar equity interest distributed to holders of our
common stock applicable to one share of our common stock over
the first 10 consecutive trading-day period after, and
including, the ex-dividend date of the spin-off (the
“valuation period”); and
|
MP0
|
|
=
|
|
the average of the last reported sale prices of our common stock
over the valuation period.
|
The adjustment to the conversion rate under the preceding
paragraph will occur on the last day of the valuation period;
provided that in respect of any conversion during the
valuation period, references with respect to 10 trading days
shall be deemed replaced with such lesser number of trading days
as have elapsed between the ex-dividend date for such spin-off
and the conversion date in determining the applicable conversion
rate.
(4A) If any regular, quarterly cash dividend or distribution
made to all or substantially all holders of our common stock
during any quarterly fiscal period exceeds $0.1750 (the
“initial dividend threshold”), the conversion rate
will be adjusted based on the following formula:
where,
|
|
|
|
|
CR0
|
|
=
|
|
the conversion rate in effect immediately prior to the open of
business on the ex-dividend date for such dividend or
distribution;
|
CR1
|
|
=
|
|
the conversion rate in effect immediately after the open of
business on the ex-dividend date for such dividend or
distribution;
|
SP0
|
|
=
|
|
the last reported sale price of our common stock on the trading
day immediately preceding the ex-dividend date for such dividend
or distribution; and
|
C
|
|
=
|
|
the amount in cash per share we distribute to holders of our
common stock in excess of the initial dividend threshold.
|
The initial dividend threshold is subject to adjustment in a
manner inversely proportional to adjustments to the conversion
rate; provided that no adjustment will be made to the
initial dividend threshold for any adjustment to the conversion
rate under this clause (4A) or clause (4B).
(4B) If we pay any cash dividend or distribution that is not a
regular, quarterly cash dividend or distribution to all or
substantially all holders of our common stock, the conversion
rate will be adjusted based on the following formula:
S-24
where,
|
|
|
|
|
CR0
|
|
=
|
|
the conversion rate in effect immediately prior to the open of
business on the ex-dividend date for such dividend or
distribution;
|
CR1
|
|
=
|
|
the conversion rate in effect immediately after the open of
business on the ex-dividend date for such dividend or
distribution;
|
SP0
|
|
=
|
|
the last reported sale price of our common stock on the trading
day immediately preceding the ex-dividend date for such dividend
or distribution; and
|
C
|
|
=
|
|
the amount in cash per share we distribute to holders of our
common stock.
|
(5) If we or any of our subsidiaries make a payment in
respect of a tender offer or exchange offer for our common
stock, to the extent that the cash and value of any other
consideration included in the payment per share of common stock
exceeds the last reported sale price of our common stock on the
trading day next succeeding the last date on which tenders or
exchanges may be made pursuant to such tender or exchange offer,
the conversion rate will be increased based on the following
formula:
|
|
|
CR1 = CR0
×
|
|
AC + (SP1 x OS1)
OS0 x SP1
|
where,
|
|
|
|
|
CR0
|
|
=
|
|
the conversion rate in effect immediately prior to the close of
business on the 10th trading day immediately following, and
including, the trading day next succeeding the date such tender
or exchange offer expires;
|
CR1
|
|
=
|
|
the conversion rate in effect immediately after the close of
business on the 10th trading day immediately following, and
including, the trading day next succeeding the date such tender
or exchange offer expires;
|
AC
|
|
=
|
|
the aggregate value of all cash and any other consideration (as
determined by our board of directors) paid or payable for shares
purchased in such tender or exchange offer;
|
OS0
|
|
=
|
|
the number of shares of our common stock outstanding immediately
prior to the date such tender or exchange offer expires;
|
OS1
|
|
=
|
|
the number of shares of our common stock outstanding immediately
after the date such tender or exchange offer expires (after
giving effect to the purchase of all shares accepted for
purchase or exchange in such tender or exchange offer); and
|
SP1
|
|
=
|
|
the average of the last reported sale prices of our common stock
over the 10 consecutive trading-day period commencing on the
trading day next succeeding the date such tender or exchange
offer expires.
|
The adjustment to the conversion rate under the preceding
paragraph will occur at the close of business on the tenth
trading day immediately following, and including, the trading
day next succeeding the date such tender or exchange offer
expires; provided that in respect of any conversion
within 10 trading days immediately following, and including, the
expiration date of any tender or exchange offer, references with
respect to 10 trading days shall be deemed replaced with such
lesser number of trading days as have elapsed between the
expiration date of such tender or exchange offer and the
conversion date in determining the applicable conversion rate.
Except as stated herein, we will not adjust the conversion rate
for the issuance of shares of our common stock or any securities
convertible into or exchangeable for shares of our common stock
or the right to purchase shares of our common stock or such
convertible or exchangeable securities. If, however, the
application of the foregoing formulas would result in a decrease
in the conversion rate, no adjustment to the conversion rate
will be made (other than as a result of share combination).
As used in this section, “ex-dividend date” means the
first date on which the shares of our common stock trade on the
applicable exchange or in the applicable market, regular way,
without the right to receive the issuance or distribution in
question.
S-25
We are permitted to increase the conversion rate of the notes by
any amount for a period of at least 20 business days if our
board of directors determines that such increase would be in our
best interest. We may also (but are not required to) increase
the conversion rate to avoid or diminish income tax to holders
of our common stock or rights to purchase shares of our common
stock in connection with a dividend or distribution of shares
(or rights to acquire shares) or similar event.
A holder may, in some circumstances, including a distribution of
cash dividends to holders of our shares of common stock, be
deemed to have received a distribution subject to
U.S. federal income tax as a result of an adjustment or the
nonoccurrence of an adjustment to the conversion rate. For a
discussion of the U.S. federal income tax treatment of an
adjustment or the nonoccurrence of an adjustment to the
conversion rate, see “Certain U.S. Federal Income Tax
Considerations.”
To the extent that we have a rights plan in effect upon
conversion of the notes into common stock, you will receive, in
addition to the shares of common stock received in connection
with such conversion, the rights under the rights plan with
respect to such common stock, unless prior to any conversion,
the rights have separated from our common stock, in which case,
and only in such case, the conversion rate will be adjusted at
the time of separation as if we distributed to all holders of
our common stock, shares of our capital stock, evidences of
indebtedness, assets, property, rights or warrants as described
in clause (3) above, subject to readjustment in the event
of the expiration, termination or redemption of such rights.
Notwithstanding any of the foregoing, the applicable conversion
rate will not be adjusted:
|
|
|
|
•
|
upon the issuance of any shares of our common stock pursuant to
any present or future plan providing for the reinvestment of
dividends or interest payable on our securities and the
investment of additional optional amounts in shares of our
common stock under any plan;
|
|
|
•
|
upon the issuance of any shares of our common stock or options
or rights to purchase those shares pursuant to any present or
future employee, director or consultant benefit plan or program
of or assumed by us or any of our subsidiaries;
|
|
|
•
|
upon the issuance of any shares of our common stock pursuant to
any option, warrant, right or exercisable, exchangeable or
convertible security not described in the preceding bullet and
outstanding as of the date the notes were first issued;
|
|
|
•
|
for a change in the par value of our common stock; or
|
|
|
•
|
for accrued and unpaid interest.
|
Adjustments to the applicable conversion rate will be calculated
to the nearest 1/10,000th of a share. We will not be
required to make an adjustment in the conversion rate unless the
adjustment would require a change of at least 1% in the
conversion rate. However, we will carry forward any adjustments
that are less than 1% of the conversion rate and make such
carried forward adjustment, regardless of whether the aggregate
adjustment is less than 1%, on the conversion date for any notes.
Recapitalizations,
Reclassifications and Changes of Our Common Stock
In the case of:
|
|
|
|
•
|
any recapitalization, reclassification or change of our common
stock (other than changes resulting from a subdivision or
combination);
|
|
|
•
|
a consolidation, merger or combination involving us; or
|
|
|
•
|
a sale, lease or other transfer to a third party of the
consolidated assets of ours and our subsidiaries substantially
as an entirety, or any statutory share exchange,
|
in each case as a result of which our common stock would be
converted into, or exchanged for, stock, other securities, other
property or assets (including cash or any combination thereof),
then, at the effective time of the transaction, the right to
convert a note will be changed into a right to convert it into
the kind and amount of shares of stock, other securities or
other property or assets (including cash or any combination
thereof) that
S-26
a holder of a number of shares of common stock equal to the
conversion rate prior to such transaction would have owned or
been entitled to receive (the “reference property”)
upon such transaction. If the transaction causes our common
stock to be converted into the right to receive more than a
single type of consideration (determined based in part upon any
form of stockholder election), the reference property into which
the notes will be convertible will be deemed to be the weighted
average of the types and amounts of consideration received by
the holders of our common stock that affirmatively make such an
election. We will agree in the indenture not to become a party
to any such transaction unless its terms are consistent with the
foregoing.
In connection with any transaction described above, we will also
adjust the initial dividend threshold (as defined under
“— Conversion Rights — Conversion Rate
Adjustments” above) based on the number of shares of common
stock comprising the reference property and (if applicable) the
value of any non-stock consideration comprising the reference
property. If the reference property is comprised solely of
non-stock consideration, the initial dividend threshold will be
zero.
Certain
Other Adjustments
Whenever any provision of the indenture requires us to calculate
last reported prices over a span of multiple days, our board of
directors will make appropriate adjustments to such prices, the
conversion rate, or the amount due upon conversion to account
for any adjustment to the conversion rate that becomes
effective, or any event requiring an adjustment to the
conversion rate where the ex-dividend date of the event occurs,
at any time during the period from which such prices are to be
calculated.
Adjustment
to Shares Delivered Upon Conversion Upon a Make-whole
Fundamental Change
If a “fundamental change” (as defined below and
determined after giving effect to any exceptions or exclusions
to such definition, but without regard to the proviso in
clause (2) of the definition thereof, a “make-whole
fundamental change”) occurs and a holder elects to convert
its notes in connection with such make-whole fundamental change,
we will, under certain circumstances, increase the conversion
rate for the notes so surrendered for conversion by a number of
additional shares of common stock (the “additional
shares”), as described below. A conversion of notes will be
deemed for these purposes to be “in connection with”
such make-whole fundamental change if the notice of conversion
of the notes is received by the conversion agent from, and
including, the effective date of the make-whole fundamental
change up to, and including, the business day immediately prior
to the related fundamental change purchase date (or, in the case
of an event that would have been a fundamental change but for
the proviso in clause (2) of the definition thereof,
the 35th calendar day immediately following the effective
date of such make-whole fundamental change).
Upon surrender of notes for conversion in connection with a
make-whole fundamental change, we will deliver shares of our
common stock as described under “— Conversion
Rights — Settlement Upon Conversion,” calculated
based on the conversion rate as adjusted by the additional
shares. However, if, at the effective time of such transaction,
the reference property as described under
“— Recapitalizations, Reclassifications and
Changes of Our Common Stock” above is comprised entirely of
cash, then, for any conversion of notes following the effective
date of such make-whole fundamental change, the conversion
obligation will be calculated based solely on the “stock
price” (as defined below) for the transaction and will be
deemed to be an amount equal to the conversion rate (including
any adjustment as described in this section) multiplied by
such stock price. In such event, the conversion obligation
will be determined and paid to holders in cash on the third
business day following the conversion date. We will notify
holders of the effective date of any make-whole fundamental
change and issue a press release announcing such effective date
no later than five business days after such effective date.
The number of additional shares by which the conversion rate
will be increased will be determined by reference to the table
below, based on the date on which the make-whole fundamental
change occurs or becomes effective (the “effective
date”) and the price (the “stock price”) paid (or
deemed paid) per share of our common stock in the fundamental
change. If the holders of our common stock receive only cash in
a make-whole fundamental change described in clause (2) of
the definition of fundamental change, the stock price shall be
the cash amount paid per share. Otherwise, the stock price shall
be the average of the last
S-27
reported sale prices of our common stock over the ten
trading-day
period ending on, and including, the trading day immediately
preceding the effective date of the make-whole fundamental
change.
The stock prices set forth in the column headings of the table
below will be adjusted as of any date on which the conversion
rate of the notes is otherwise adjusted. The adjusted stock
prices will equal the stock prices applicable immediately prior
to such adjustment, multiplied by a fraction, the
numerator of which is the conversion rate immediately prior to
the adjustment giving rise to the stock price adjustment and the
denominator of which is the conversion rate as so adjusted. The
number of additional shares will be adjusted in the same manner
as the conversion rate as set forth under
“— Conversion Rate Adjustments.”
The following table sets forth the number of additional shares
to be received per $1,000 principal amount of notes for each
stock price and effective date set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Price
|
|
Effective Date
|
|
$11.73
|
|
|
$12.00
|
|
|
$13.00
|
|
|
$14.00
|
|
|
$15.00
|
|
|
$16.00
|
|
|
$17.50
|
|
|
$20.00
|
|
|
$22.50
|
|
|
$25.00
|
|
|
$30.00
|
|
|
$40.00
|
|
|
$50.00
|
|
|
March 8, 2011
|
|
|
20.9108
|
|
|
|
19.7187
|
|
|
|
15.7263
|
|
|
|
12.5740
|
|
|
|
10.0705
|
|
|
|
8.0731
|
|
|
|
5.7984
|
|
|
|
3.3308
|
|
|
|
1.8968
|
|
|
|
1.0738
|
|
|
|
0.3829
|
|
|
|
0.1803
|
|
|
|
0.1362
|
|
March 15, 2012
|
|
|
20.9108
|
|
|
|
18.9926
|
|
|
|
14.5603
|
|
|
|
11.5103
|
|
|
|
9.1072
|
|
|
|
7.2070
|
|
|
|
5.0699
|
|
|
|
2.8041
|
|
|
|
1.5347
|
|
|
|
0.8419
|
|
|
|
0.3195
|
|
|
|
0.1794
|
|
|
|
0.1359
|
|
March 15, 2013
|
|
|
20.9108
|
|
|
|
18.9926
|
|
|
|
13.6956
|
|
|
|
10.6935
|
|
|
|
8.3485
|
|
|
|
6.5126
|
|
|
|
4.4769
|
|
|
|
2.3749
|
|
|
|
1.2481
|
|
|
|
0.6705
|
|
|
|
0.2840
|
|
|
|
0.1787
|
|
|
|
0.1354
|
|
March 15, 2014
|
|
|
20.9108
|
|
|
|
18.9926
|
|
|
|
13.2082
|
|
|
|
10.1726
|
|
|
|
7.8233
|
|
|
|
6.0044
|
|
|
|
4.0204
|
|
|
|
2.0354
|
|
|
|
1.0268
|
|
|
|
0.5484
|
|
|
|
0.2657
|
|
|
|
0.1782
|
|
|
|
0.1350
|
|
March 15, 2015
|
|
|
20.9108
|
|
|
|
18.9926
|
|
|
|
12.9591
|
|
|
|
9.8085
|
|
|
|
7.3974
|
|
|
|
5.5574
|
|
|
|
3.5940
|
|
|
|
1.7132
|
|
|
|
0.8282
|
|
|
|
0.4517
|
|
|
|
0.2558
|
|
|
|
0.1779
|
|
|
|
0.1347
|
|
March 15, 2016
|
|
|
20.9108
|
|
|
|
18.9926
|
|
|
|
12.8112
|
|
|
|
9.4410
|
|
|
|
6.9034
|
|
|
|
5.0104
|
|
|
|
3.0628
|
|
|
|
1.3331
|
|
|
|
0.6235
|
|
|
|
0.3709
|
|
|
|
0.2509
|
|
|
|
0.1776
|
|
|
|
0.1345
|
|
March 15, 2012
|
|
|
20.9108
|
|
|
|
18.9926
|
|
|
|
12.5824
|
|
|
|
8.7402
|
|
|
|
5.9737
|
|
|
|
4.0113
|
|
|
|
2.1635
|
|
|
|
0.8124
|
|
|
|
0.4201
|
|
|
|
0.3168
|
|
|
|
0.2494
|
|
|
|
0.1775
|
|
|
|
0.1345
|
|
March 15, 2018
|
|
|
20.9108
|
|
|
|
18.9926
|
|
|
|
12.5824
|
|
|
|
7.0879
|
|
|
|
2.3260
|
|
|
|
0.0000
|
|
|
|
0.0000
|
|
|
|
0.0000
|
|
|
|
0.0000
|
|
|
|
0.0000
|
|
|
|
0.0000
|
|
|
|
0.0000
|
|
|
|
0.0000
|
|
The exact stock prices and effective dates may not be set forth
in the table above, in which case
|
|
|
|
•
|
If the stock price is between two stock prices in the table or
the effective date is between two effective dates in the table,
the number of additional shares will be determined by a
straight-line interpolation between the number of additional
shares set forth for the higher and lower stock prices and the
earlier and later effective dates, as applicable, based on a
365-day year.
|
|
|
•
|
If the stock price is greater than $50.00 per share (subject to
adjustment in the same manner as the stock prices set forth in
the column headings of the table above), no additional shares
will be added to the conversion rate.
|
|
|
•
|
If the stock price is less than $11.73 per share (subject to
adjustment in the same manner as the stock prices set forth in
the column headings of the table above), no additional shares
will be added to the conversion rate.
|
Notwithstanding the foregoing, in no event will the conversion
rate exceed 85.2515 per $1,000 principal amount of notes,
subject to adjustments in the same manner as the conversion rate
as set forth under “— Conversion Rate
Adjustments.”
Our obligation to satisfy the additional shares requirement
could be considered a penalty, in which case the enforceability
thereof would be subject to general principles of reasonableness
and equitable remedies.
Fundamental
Change Permits Holders to Require Us to Purchase Notes
If a “fundamental change” (as defined below in this
section) occurs at any time, you will have the right, at your
option, to require us to purchase for cash any or all of your
notes, or any portion of the principal amount thereof, that is
equal to $1,000 or a multiple of $1,000. The price we are
required to pay is equal to 100% of the principal amount of the
notes to be purchased plus accrued and unpaid interest to but
excluding the fundamental change purchase date (unless the
fundamental change purchase date is after a record date and on
or prior to the interest payment date to which such record date
relates, in which case we will instead pay the full amount of
accrued and unpaid interest to the holder of record on such
record date and the fundamental change purchase price will be
equal to 100% of the principal amount of the notes to be
purchased). The
S-28
fundamental change purchase date will be a date specified by us
that is not less than 20 or more than 35 calendar days following
the date of our fundamental change notice as described below.
Any notes purchased by us will be paid for in cash.
A “fundamental change” will be deemed to have occurred
at the time after the notes are originally issued if any of the
following occurs:
(1) a “person” or “group” within the
meaning of Section 13(d) of the Securities Exchange Act of
1934 other than us, our subsidiaries and our and their employee
benefit plans, has become the direct or indirect
“beneficial owner,” as defined in
Rule 13d-3
under the Exchange Act, of our common equity representing more
than 50% of the voting power of our common equity;
(2) consummation of (A) any recapitalization,
reclassification or change of our common stock (other than
changes resulting from a subdivision or combination) as a result
of which recapitalization, reclassification or change of our
common stock our common stock would be converted into, or
exchanged for, stock, other securities, other property or assets
or (B) (i) any share exchange, consolidation or merger of
us or any other transaction pursuant to which our common stock
will be converted into cash, securities or other property or
(ii) any sale, lease or other transfer in one transaction
or a series of transactions of all or substantially all of the
consolidated assets of us and our subsidiaries, taken as a
whole, to any person other than one of our subsidiaries;
provided, however, that a transaction where the
holders of all classes of our common equity immediately prior to
such transaction that is a share exchange, consolidation or
merger own, directly or indirectly, more than 50% of all classes
of common equity of the continuing or surviving corporation or
transferee or the parent thereof immediately after such event
shall not be a fundamental change;
(3) our stockholders approve any plan or proposal for the
liquidation or dissolution of us; or
(4) our common stock (or other common stock into which the
notes are then convertible) ceases to be listed or quoted on a
national securities exchange in the United States.
A fundamental change as a result of clause (2) above will
not be deemed to have occurred, however, if at least 90% of the
consideration received or to be received by our common
stockholders, excluding cash payments for fractional shares, in
connection with the transaction or transactions constituting the
fundamental change consists of shares of common stock traded on
the New York Stock Exchange, the NASDAQ Global Market or the
NASDAQ Global Select Market (or any of their respective
successors) or which will be so traded when issued or exchanged
in connection with a fundamental change (these securities being
referred to as “publicly traded securities”) and as a
result of this transaction or transactions the notes become
convertible into such publicly traded securities, excluding cash
payments for fractional shares.
On or before the 20th calendar day after the occurrence of
a fundamental change, we will provide to all holders of the
notes and the trustee and paying agent a notice of the
occurrence of the fundamental change and of the resulting
purchase right. Such notice shall state, among other things:
|
|
|
|
•
|
the events causing a fundamental change;
|
|
|
•
|
the date of the fundamental change;
|
|
|
•
|
the last date on which a holder may exercise the repurchase
right;
|
|
|
•
|
the fundamental change purchase price;
|
|
|
•
|
the fundamental change purchase date;
|
|
|
•
|
the name and address of the paying agent and the conversion
agent, if applicable;
|
|
|
•
|
if applicable, the applicable conversion rate and any
adjustments to the applicable conversion rate;
|
|
|
•
|
if applicable, that the notes with respect to which a
fundamental change purchase notice has been delivered by a
holder may be converted only if the holder withdraws the
fundamental change purchase notice in accordance with the terms
of the indenture; and
|
|
|
•
|
the procedures that holders must follow to require us to
purchase their notes.
|
S-29
Simultaneously with providing such notice, we will publish a
notice containing this information in a newspaper of general
circulation in The City of New York, or publish the information
on our website or through such other public medium as we may use
at that time.
To exercise the purchase right, you must deliver, on or before
the business day immediately preceding the fundamental change
purchase date, the notes to be purchased, duly endorsed for
transfer, together with a written purchase notice and the form
entitled “Form of Fundamental Change Purchase Notice”
on the reverse side of the notes duly completed, to the paying
agent if the notes are in certificated form. If the notes are
not in certificated form, you must comply with DTC’s
procedures for tendering interests in global notes. Your
purchase notice must state:
|
|
|
|
•
|
if certificated, the certificate numbers of your notes to be
delivered for purchase;
|
|
|
•
|
the portion of the principal amount of notes to be purchased,
which must be $1,000 or a multiple thereof; and
|
|
|
•
|
that the notes are to be purchased by us pursuant to the
applicable provisions of the notes and the indenture.
|
You may withdraw any purchase notice (in whole or in part) by a
written notice of withdrawal delivered to the paying agent prior
to the close of business on the business day prior to the
fundamental change purchase date. The notice of withdrawal shall
state:
|
|
|
|
•
|
the principal amount of the withdrawn notes;
|
|
|
•
|
if certificated notes have been issued, the certificate numbers
of the withdrawn notes, or if not certificated, your notice must
comply with appropriate DTC procedures; and
|
|
|
•
|
the principal amount, if any, which remains subject to the
purchase notice.
|
We will be required to purchase the notes on the fundamental
change purchase date, subject to extension to comply with
applicable law. You will receive payment of the fundamental
change purchase price on the later of the fundamental change
purchase date or the time of book-entry transfer or the delivery
of the notes. If the paying agent holds money or securities on
the fundamental change purchase date sufficient to pay the
fundamental change purchase price of notes for which the holders
have tendered and not withdrawn purchase notices, then:
|
|
|
|
•
|
such notes will cease to be outstanding and interest will cease
to accrue (whether or not book-entry transfer of the notes is
made or whether or not the notes are delivered to the paying
agent); and
|
|
|
•
|
all other rights of the holder will terminate (other than the
right to receive the fundamental change purchase price and
previously accrued and unpaid interest upon delivery or transfer
of the notes).
|
In connection with any purchase offer pursuant to a fundamental
change purchase notice, we will, if required:
|
|
|
|
•
|
comply with the provisions of the tender offer rules under the
Exchange Act that may then be applicable; and
|
|
|
•
|
file a Schedule TO or any other required schedule under the
Exchange Act.
|
No notes may be purchased at the option of holders upon a
fundamental change if there has occurred and is continuing an
event of default with respect to the notes other than an event
of default that is cured by the payment of the fundamental
change purchase price of the notes.
The purchase rights of the holders could discourage a potential
acquirer from acquiring us. The fundamental change purchase
feature, however, is not the result of management’s
knowledge of any specific effort to obtain control of us by any
means or part of a plan by management to adopt a series of
anti-takeover provisions.
S-30
The term fundamental change is limited to specified transactions
and may not include other events that might adversely affect our
financial condition. In addition, the requirement that we offer
to purchase the notes upon a fundamental change may not protect
holders in the event of a highly leveraged transaction,
reorganization, merger or similar transaction involving us.
The definition of fundamental change includes a phrase relating
to the conveyance, transfer, sale, lease or disposition of
“all or substantially all” of our consolidated assets.
There is no precise, established definition of the phrase
“substantially all” under applicable law. Accordingly,
the ability of a holder of the notes to require us to purchase
its notes as a result of the conveyance, transfer, sale, lease
or other disposition of less than all of our assets may be
uncertain.
If a fundamental change were to occur, we may not have enough
funds to pay the fundamental change purchase price. Our ability
to repurchase the notes for cash may be limited by restrictions
on our ability to obtain funds for such repurchase through
dividends from our subsidiaries, the terms of our then existing
borrowing arrangements or otherwise. See “Risk
Factors — Risks Related to the Notes and our Common
Stock — We may not have the ability to raise the
funds necessary to purchase the notes upon a fundamental change,
and our future debt may contain limitations on our ability to
pay cash upon repurchase of the notes.” If we fail to
purchase the notes when required following a fundamental change,
we will be in default under the indenture. In addition, we have,
and may in the future incur, other indebtedness with similar
change in control provisions permitting our holders to
accelerate or to require us to purchase our indebtedness upon
the occurrence of similar events or on some specific dates.
Consolidation,
Merger and Sale of Assets
The indenture provides that the Company will not consolidate
with or merge into any other corporation or convey or transfer
or lease its properties and assets substantially as an entirety
to any person unless:
(1) the corporation formed by such consolidation or into
which the Company is merged or the person which acquires by
conveyance or transfer, or which leases the properties and
assets of the Company substantially as an entirety shall be a
corporation organized and existing under the laws of the United
States of America, any state thereof or the District of
Columbia, and shall expressly assume, by a supplemental
indenture, executed and delivered to the trustee, all of the
obligations of the Company on all of the debt securities
outstanding under the base indenture;
(2) immediately after giving effect to such transaction, no
default or event of default (each as defined in the indenture)
shall have occurred and be continuing; and
(3) the Company shall have delivered to the trustee an
officers’ certificate and an opinion of counsel, each
stating that such consolidation, merger, conveyance, transfer or
lease and such supplemental indenture comply with this provision
and that all conditions precedent provided for in the indenture
relating to such transaction have been complied with.
Although these types of transactions are permitted under the
indenture, certain of the foregoing transactions could
constitute a “fundamental change” (as defined above)
permitting each holder to require us to purchase the notes of
such holder as described above.
Events of
Default
Each of the following is an event of default under the indenture:
(1) the Company defaults in the payment of interest on any
note when the same becomes due and payable and such default
continues for a period of 30 days;
(2) the Company defaults in the payment of principal of any
note when the same becomes due and payable, whether at its
stated maturity, upon acceleration, upon any required
repurchase, upon declaration or otherwise;
S-31
(3) failure by the Company to comply with its obligation to
convert the notes in accordance with the indenture upon exercise
of a holder’s conversion right;
(4) failure by the Company to give a fundamental change
notice when due;
(5) the Company defaults in the performance of or breaches
any other covenant or agreement of the Company in the indenture
with respect to the notes (other than a covenant or agreement in
respect of which non-compliance by the Company would otherwise
be an event of default) and such default or breach continues for
a period of 60 consecutive days after written notice to the
Company by the trustee or to the Company and the trustee by the
“holders” (as defined in the indenture) of 10% or more
in aggregate principal amount of the notes then outstanding;
(6) an event of default as defined in any mortgage,
indenture or instrument under which there may be issued, or by
which there may be secured or evidenced, any indebtedness of the
Company or any significant subsidiary (as defined in
Article 1,
Rule 1-02
of
Regulation S-X)
of the Company for money borrowed in excess of $50 million,
whether such indebtedness now exists or shall hereafter be
created, shall happen and shall result in such indebtedness
becoming or being declared due and payable prior to the date on
which it would otherwise become due and payable, and such
acceleration shall not be rescinded or annulled, or such
indebtedness shall not have been discharged, within a period of
10 days after there shall have been given, by registered or
certified mail, to the Company by the trustee or to the Company
and the trustee by the holders of at least 10% in principal
amount of the notes then outstanding, a written notice
specifying such event of default and requiring that such
acceleration be rescinded or annulled or such indebtedness to be
discharged;
(7) a final judgment for the payment of $50 million or
more (excluding any amounts covered by insurance) rendered
against the Company or any significant subsidiary of the
Company, which judgment is not discharged or stayed within
60 days after (i) the date on which the right to
appeal or petition for review thereof has expired if no such
appeal or review has commenced, or (ii) the date on which
all rights to appeal or petition for review have been
extinguished; or
(8) certain events of bankruptcy, insolvency,
rehabilitation or reorganization of the Company or any of our
significant subsidiaries.
If an event of default, other than as described in the next
sentence, occurs and is continuing, then, and in each and every
such case, except for any notes the principal of which shall
have already become due and payable, either the trustee or the
holders of not less than 25% in aggregate principal amount of
the notes then outstanding under the indenture, by notice in
writing to the Company (and to the trustee if given by holders),
may declare the entire principal amount of all the notes, and
the interest accrued on such notes, if any, to be due and
payable immediately, and upon any such declaration the same
shall become immediately due and payable. If an event of default
described in clause (8) occurs and is continuing with
respect to the Company, then the principal amount of all the
notes then outstanding and interest accrued on such notes, if
any, shall be and become immediately due and payable, without
any notice or other action by any holder or the trustee, to the
full extent permitted by applicable law.
The provisions described in the paragraph above, however, are
subject to the condition that if, at any time after the
principal of the notes shall have been so declared due and
payable, and before any judgment or decree for the payment of
the moneys due shall have been obtained as provided in the
indenture, the Company will pay or will deposit with the trustee
a sum sufficient to pay all matured installments of interest
upon all the notes and the principal of any and all notes which
shall have become due otherwise than by acceleration (with
interest upon such principal and, to the extent that payment of
such interest is enforceable under applicable law, on overdue
installments of interest, at the rate or rates, if any,
specified in the notes to the date of such payment or deposit)
and such amount as shall be sufficient to cover all amounts
owing to the trustee and its agents and counsel, and if any and
all events of default under the indenture, other than the
non-payment of the principal of notes which shall have become
due by acceleration, shall have been cured, waived or otherwise
remedied as provided in the indenture, then and in every such
case the holders of a majority in aggregate principal amount of
all the notes then outstanding, by written notice to the Company
and to the
S-32
trustee, may rescind and annul such declaration and its
consequences, but no such rescission and annulment will extend
to or shall affect any subsequent default or shall impair any
right consequent on such default.
Notwithstanding the foregoing, the indenture provides that, to
the extent we elect, the sole remedy for an event of default
relating to (i) our failure to file with the trustee
pursuant to Section 314(a)(1) of the Trust Indenture
Act any documents or reports that we are required to file with
the Securities and Exchange Commission pursuant to
Section 13 or 15(d) of the Exchange Act, or (ii) our
failure to comply with the substantially similar covenant
contained in the indenture, will for the first 180 days
after the occurrence of such an event of default consist
exclusively of the right to receive additional interest on the
notes equal to 0.50% per annum of the principal amount of the
notes. If we so elect, such additional interest will be payable
on all notes outstanding on or before the date on which such
event of default first occurs. On the 180th day after such
event of default (if the event of default relating to the
reporting obligations is not cured or waived prior to such
180th day), the notes will be subject to acceleration as
provided above. The provisions of the indenture described in
this paragraph will not affect the rights of holders of notes in
the event of the occurrence of any other event of default. In
the event we do not elect to pay the additional interest upon an
event of default in accordance with this paragraph, the notes
will be subject to acceleration as provided above.
In order to elect to pay additional interest as the sole remedy
during the first 180 days after the occurrence of an event
of default relating to the failure to comply with the reporting
obligations in accordance with the immediately preceding
paragraph, we must notify all holders of record of notes and the
trustee and paying agent of such election on or before the close
of business on the 5th business day after the date on which
such event of default otherwise would occur. Upon our failure to
timely give such notice or pay additional interest, the notes
will be immediately subject to acceleration as provided above.
Subject to certain restrictions, the holders of at least a
majority in aggregate principal amount of the notes outstanding
may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising
any trust or power conferred on the trustee. The indenture
provides that in the event an event of default has occurred and
is continuing, the trustee will be required in the exercise of
its powers to use the degree of care that a prudent person would
use in the conduct of its own affairs.
Subject to the provisions of the indenture relating to the
duties of the trustee, if an event of default occurs and is
continuing, the trustee will be under no obligation to exercise
any of the rights or powers under the indenture at the request
or direction of any of the holders unless such holders have
offered to the trustee indemnity or security reasonably
satisfactory to it against any loss, liability or expense.
Except to enforce the right to receive payment of principal or
interest when due, or the right to receive payment or delivery
of the consideration due upon conversion, no holder of any notes
may institute any proceeding, judicial or otherwise, with
respect to the indenture or the notes, or for the appointment of
a receiver or trustee, or for any other remedy under the
indenture, unless:
(i) such holder has previously given to the trustee written
notice of a continuing event of default with respect to the
notes;
(ii) the holders of at least 25% in aggregate principal
amount of outstanding notes shall have made written request to
the trustee to institute proceedings in respect of such event of
default in its own name as trustee under the indenture;
(iii) such holder or holders have offered to the trustee
reasonable indemnity against any costs, liabilities or expenses
(including fees and expenses of its counsel) to be incurred in
compliance with such request;
(iv) the trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute
any such proceeding; and
(v) during such
60-day
period, the holders of a majority in aggregate principal amount
of the outstanding notes have not given the trustee a direction
that is inconsistent with such written request.
The indenture provides that if a default occurs and is
continuing and is known to the trustee, the trustee must mail to
each holder notice of the default within 90 days after it
occurs. Except in the case of a default in
S-33
the payment of principal of or interest on any note or a default
in the payment or delivery of the consideration due upon
conversion, the trustee may withhold notice if and so long as a
committee of trust officers of the trustee in good faith
determines that withholding notice is in the interests of the
holders.
Modification
and Amendment; Waiver
The indenture allows the Company and the trustee, with the
consent of the holders of not less than a majority in principal
amount of the outstanding notes, to execute supplemental
indentures adding any provisions to or changing or eliminating
any of the provisions of the indenture or modifying the rights
of the holders of the notes. However, without the consent of the
holders of all the outstanding notes affected thereby, no
supplemental indenture may:
(1) change the stated maturity of the principal of, or
interest on, any note;
(2) reduce the principal amount of, or the rate of interest
on, any note;
(3) change any place of payment where, or the currency in
which, any note or any interest thereon is payable;
(4) impair the right to institute suit for the enforcement
of any payment on or after the stated maturity of the note;
(5) make any change that adversely affects the conversion
rights of any notes;
(6) reduce the fundamental change purchase price of any
note or amend or modify in any manner adverse to the holders of
notes the Company’s obligation to make such payments,
whether through an amendment or waiver of provisions in the
covenants, definitions or otherwise;
(7) reduce the percentage in principal amount of the notes,
the consent of whose holders is required for a supplemental
indenture, or the consent of whose holders is required for any
waiver of compliance with various provisions of the indenture or
various defaults thereunder and their consequences provided for
in the indenture; or
(8) modify any of the foregoing provisions described in
clause (7) above except to increase any such percentage or
to provide that other provisions of the indenture cannot be
modified or waived without the consent of the holder of each
outstanding note affected thereby.
The Company and the trustee may amend or supplement the
indenture or the notes without notice to or the consent of any
holder to, among other things:
(1) evidence the succession of another corporation to us
and the assumption of our covenants and obligations under the
notes and the indenture by this successor;
(2) add to the Company’s covenants for the benefit of
the holders of the notes or to surrender any right or power
conferred upon the Company;
(3) cure any ambiguity or make any other provisions that do
not adversely affect the interests of the holders of the notes
in any material respect;
(4) add guarantees with respect to the notes; and
(5) conform the provisions of the indenture to the
“Description of Notes” section in this prospectus
supplement.
Except for certain specified provisions, the holders of at least
a majority in principal amount of the outstanding notes may, on
behalf of the holders of all the notes, waive our compliance
with certain provisions of the indenture. The holders of a
majority in principal amount of the outstanding notes may waive
any past defaults (except with respect to nonpayment of
principal or interest, with respect to the failure to deliver
the consideration due upon conversion, or with respect to any
covenant or provision that cannot be modified or amended without
the consent of all holders).
S-34
The consent of the holders is not necessary under the indenture
to approve the particular form of any proposed amendment or
supplement, but it shall be sufficient if such consent approves
the substance of such proposed amendment or supplement. After an
amendment or supplement becomes effective, the Company shall
give to the holders affected by such amendment or supplement a
notice briefly describing such amendment or supplement. The
Company will mail supplemental indentures to holders upon
request. Any failure of the Company to mail such notice, or any
defect in such notice, shall not, however, in any way impair or
affect the validity of any such supplemental indenture.
Discharge
Article 4 of the base indenture will not apply to the
notes. Instead, we may satisfy and discharge our obligations
under the indenture by delivering to the securities registrar
for cancellation all outstanding notes or by depositing with the
trustee or delivering to the holders, as applicable, after the
notes have become due and payable, whether at stated maturity,
or any purchase date, or upon conversion or otherwise, cash and
(in the case of conversion) shares of common stock, if
applicable, sufficient to pay all of the outstanding notes and
paying all other sums payable under the indenture by us. Such
discharge is subject to terms contained in the indenture.
Certain
Provisions of the Base Indenture Inapplicable
Sections 1005 and 1006 of the base indenture, entitled
“Limitation on Liens on Stock of Principal Insurance
Subsidiaries” and “Limitations on Issue or Disposition
of Stock of Principal Insurance Subsidiaries,” will not
apply to the notes.
Calculations
in Respect of Notes
Except as otherwise provided above, we will be responsible for
making all calculations called for under the notes. These
calculations include, but are not limited to, determinations of
the last reported sale prices of our common stock, accrued
interest payable on the notes and the conversion rate of the
notes. We will make all these calculations in good faith and,
absent manifest error, our calculations will be final and
binding on holders of notes. We will provide a schedule of our
calculations to each of the trustee and the conversion agent,
and each of the trustee and conversion agent is entitled to rely
conclusively upon the accuracy of our calculations without
independent verification. The trustee will forward our
calculations to any holder of notes upon the request of that
holder.
Reports
The indenture provides that any documents or reports that we are
required to file with the Securities and Exchange Commission
pursuant to Section 13 or 15(d) of the Exchange Act must be
filed by us with the trustee within 15 days after the same
are required to be filed with the Securities and Exchange
Commission (giving effect to any grace period provided by
Rule 12b-25
under the Exchange Act).
Trustee
Wilmington Trust Company is the trustee, security
registrar, paying agent and conversion agent. Wilmington
Trust Company in each of its capacities, including without
limitation as trustee, security registrar, paying agent and
conversion agent, assumes no responsibility for the accuracy or
completeness of the information concerning us or our affiliates
or any other party contained in this document or the related
documents or for any failure by us or any other party to
disclose events that may have occurred and may affect the
significance or accuracy of such information.
We maintain banking relationships in the ordinary course of
business with the trustee and its affiliates.
S-35
Governing
Law
The indenture provides that it and the notes will be governed
by, and construed in accordance with, the laws of the State of
New York.
Book-entry,
Settlement and Clearance
The
Global Notes
The notes will be initially issued in the form of one or more
registered notes in global form, without interest coupons (the
“global notes”). Upon issuance, each of the global
notes will be deposited with the trustee as custodian for DTC
and registered in the name of Cede & Co., as nominee
of DTC.
Ownership of beneficial interests in a global note will be
limited to persons who have accounts with DTC (“DTC
participants”) or persons who hold interests through DTC
participants. We expect that under procedures established by DTC:
|
|
|
|
•
|
upon deposit of a global note with DTC’s custodian, DTC
will credit portions of the principal amount of the global note
to the accounts of the DTC participants designated by the
underwriters; and
|
|
|
•
|
ownership of beneficial interests in a global note will be shown
on, and transfer of ownership of those interests will be
effected only through, records maintained by DTC (with respect
to interests of DTC participants) and records maintained by DTC
participants (with respect to other owners of beneficial
interests in the global note).
|
Beneficial interests in global notes may not be exchanged for
notes in physical, certificated form except in the limited
circumstances described below.
Book-entry
Procedures for the Global Notes
All interests in the global notes will be subject to the
operations and procedures of DTC. We provide the following
summary of those operations and procedures solely for the
convenience of investors. The operations and procedures of DTC
are controlled by that settlement system and may be changed at
any time. Neither we nor the trustee or the underwriters are
responsible for those operations or procedures.
DTC has advised us that it is:
|
|
|
|
•
|
a limited purpose trust company organized under the laws of the
State of New York;
|
|
|
•
|
a “banking organization” within the meaning of the New
York State Banking Law;
|
|
|
•
|
a member of the Federal Reserve System;
|
|
|
•
|
a “clearing corporation” within the meaning of the
Uniform Commercial Code; and
|
|
|
•
|
a “clearing agency” registered under Section 17A
of the Exchange Act.
|
DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities
transactions between its participants through electronic
book-entry changes to the accounts of its participants.
DTC’s participants include securities brokers and dealers,
including the underwriters; banks and trust companies; clearing
corporations and other organizations. Indirect access to
DTC’s system is also available to others such as banks,
brokers, dealers and trust companies; these indirect
participants clear through or maintain a custodial relationship
with a DTC participant, either directly or indirectly. Investors
who are not DTC participants may beneficially own securities
held by or on behalf of DTC only through DTC participants or
indirect participants in DTC.
So long as DTC’s nominee is the registered owner of a
global note, that nominee will be considered the sole owner or
holder of the notes represented by that global note for all
purposes under the indenture. Except as provided below, owners
of beneficial interests in a global note:
|
|
|
|
•
|
will not be entitled to have notes represented by the global
note registered in their names;
|
S-36
|
|
|
|
•
|
will not receive or be entitled to receive physical,
certificated notes; and
|
|
|
•
|
will not be considered the owners or holders of the notes under
the indenture for any purpose, including with respect to the
giving of any direction, instruction or approval to the trustee
under the indenture.
|
As a result, each investor who owns a beneficial interest in a
global note must rely on the procedures of DTC to exercise any
rights of a holder of notes under the indenture (and, if the
investor is not a participant or an indirect participant in DTC,
on the procedures of the DTC participant through which the
investor owns its interest).
Payments of principal and interest and of amounts due upon
conversion with respect to the notes represented by a global
note will be made by the trustee to DTC’s nominee as the
registered holder of the global note. Neither we nor the trustee
will have any responsibility or liability for the payment of
amounts to owners of beneficial interests in a global note, for
any aspect of the records relating to or payments made on
account of those interests by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to those
interests.
Payments by participants and indirect participants in DTC to the
owners of beneficial interests in a global note will be governed
by standing instructions and customary industry practice and
will be the responsibility of those participants or indirect
participants and DTC.
Transfers between participants in DTC will be effected under
DTC’s procedures and will be settled in
same-day
funds.
Certificated
Notes
Notes in physical, certificated form will be issued and
delivered to each person that DTC identifies as a beneficial
owner of the related notes only if:
|
|
|
|
•
|
DTC notifies us at any time that it is unwilling or unable to
continue as depositary for the global notes and a successor
depositary is not appointed within 60 days;
|
|
|
•
|
DTC ceases to be registered as a clearing agency under the
Exchange Act and a successor depositary is not appointed within
60 days; or
|
|
|
•
|
an event of default with respect to the notes has occurred and
is continuing.
|
S-37
CERTAIN
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the U.S. federal income tax
considerations relating to the purchase, ownership and
conversion or other disposition of the notes and the ownership
and disposition of any shares of our common stock received upon
a conversion of the notes. This summary addresses only the
U.S. federal income tax considerations relevant to holders
of the notes that purchase the notes on original issuance at the
public offering price indicated on the cover of this prospectus
supplement and that hold the notes as capital assets, within the
meaning of the Internal Revenue Code of 1986, as amended (the
“Code”), and to holders that own and dispose of any
shares of our common stock received upon a conversion of the
notes.
This description does not address tax considerations applicable
to holders that may be subject to certain special
U.S. federal income tax rules, such as:
|
|
|
|
•
|
financial institutions,
|
|
|
•
|
insurance companies,
|
|
|
•
|
real estate investment trusts,
|
|
|
•
|
regulated investment companies,
|
|
|
•
|
grantor trusts,
|
|
|
•
|
entities which are classified as partnerships for
U.S. federal income tax purposes,
|
|
|
•
|
dealers or traders in securities or currencies or notional
principal contracts,
|
|
|
•
|
tax-exempt entities,
|
|
|
•
|
certain former citizens or long-term residents of the United
States,
|
|
|
•
|
persons that will hold the notes or shares of our common stock
as part of a “hedging” or “conversion”
transaction or as a position in a “straddle” or as
part of a “synthetic security” or other integrated
transaction for U.S. federal income tax purposes, or
|
|
|
•
|
U.S. Holders (as defined below) that have a
“functional currency” other than the U.S. dollar.
|
Holders of the notes who are in any of the above categories
should consult their own tax advisors regarding the
U.S. federal income tax consequences relating to the
purchase, ownership, disposition and conversion of the notes,
and the ownership and disposition of any shares of our common
stock received upon a conversion of the notes, as the
U.S. federal income tax consequences for persons in the
above categories relating to the purchase, ownership,
disposition and conversion of the notes and to the ownership and
disposition of any shares of our common stock received upon a
conversion of the notes may be significantly different from
those described below. Moreover, this summary does not address
the U.S. federal estate and gift or alternative minimum tax
consequences, or any U.S. state or local tax consequences,
of the purchase, ownership, conversion and disposition of the
notes, or of the ownership and disposition of any shares of our
common stock received upon a conversion of the notes.
This summary is not intended to constitute a complete analysis
of all U.S. federal income tax consequences relating to the
purchase, ownership, disposition and conversion of the notes and
the ownership and disposition of any shares of our common stock
received upon a conversion of the notes. Prospective purchasers
of the notes should consult their own tax advisors with respect
to the U.S. federal, state, local and foreign tax
consequences of purchasing, owning, disposing or converting of
the notes and owning and disposing of any shares of our common
stock received upon a conversion of the notes.
This summary is based upon the Code, proposed, temporary and
final Treasury Regulations promulgated under the Code, and
judicial and administrative interpretations of the Code and
Treasury Regulations, in each case as in effect and available as
of the date of this prospectus supplement. The Code, Treasury
Regulations and judicial and administrative interpretations
thereof may change at any time, and any change could be
retroactive to the date of this prospectus supplement. The Code,
Treasury Regulations and judicial and administrative
interpretations thereof are also subject to various
interpretations, and there can be no guarantee
S-38
that the Internal Revenue Service (the “IRS”) or
U.S. courts will agree with the tax consequences described
in this summary.
U.S.
Holders
For purposes of this summary, a “U.S. Holder” is
a beneficial owner of the notes (or of shares of our common
stock received upon a conversion of the notes) that, for
U.S. federal income tax purposes, is:
|
|
|
|
•
|
a citizen or individual resident of the United States,
|
|
|
•
|
a corporation, or other entity treated as a corporation for
U.S. federal income tax purposes, created or organized in
or under the laws of the United States or any state thereof
(including the District of Columbia),
|
|
|
•
|
an estate the income of which is subject to U.S. federal
income taxation regardless of its source, or
|
|
|
•
|
a trust if such trust was in existence on August 20, 1996
and validly elected to be treated as a United States person
for U.S. federal income tax purposes or if (1) a court
within the United States is able to exercise primary supervision
over its administration and (2) one or more United States
persons have the authority to control all of the substantial
decisions of such trust.
|
If a partnership (or any other entity treated as a partnership
for U.S. federal income tax purposes) holds the notes, the
tax treatment of a partner in the partnership will generally
depend on the status of the partner and the activities of the
partnership. Such a partnership and partners in such partnership
should consult their own tax advisor as to the U.S. federal
income tax consequences of acquiring, owning, converting, or
disposing of the notes and of owning or disposing of any shares
of our common stock received upon a conversion of the notes.
Interest
Income
The notes will be issued without original issue discount for
U.S. federal income tax purposes. Therefore, payments of
interest on the notes generally will be taxable to a
U.S. Holder as ordinary interest income (in accordance with
the U.S. Holder’s regular method of tax accounting) at
the time such payments are accrued or received.
We may be required to make payments of additional interest to
holders of the notes if we do not make certain filings, as
described under “Description of Notes — Events of
Default”. We believe that there is only a remote
possibility that we would be required to pay additional
interest, or that if such additional interest were required to
be paid, it would be an incidental amount, and therefore we do
not intend to treat the notes as subject to the special rules
governing contingent payment debt instruments (which, if
applicable, would affect the timing, amount and character of
income, gain or loss recognized with respect to the notes). Our
determination in this regard, while not binding on the IRS, is
binding on U.S. Holders unless they disclose their contrary
position to the IRS. If, contrary to expectations, we pay
additional interest, although it is not free from doubt, such
additional interest generally should be taxable to a
U.S. Holder as ordinary interest income (in accordance with
the U.S. Holder’s regular method of tax accounting) at
the time such payments are accrued or received. In the event we
pay additional interest on the notes, U.S. Holders should
consult their own tax advisors regarding the treatment of such
amounts.
Sale
or Other Taxable Disposition of the Notes
Upon a sale or other taxable disposition of notes, including a
purchase of notes by us at the option of holders upon a
fundamental change (collectively, a “disposition”), a
U.S. Holder generally will recognize capital gain or loss
in an amount equal to the difference between the amount realized
on the disposition, other than amounts attributable to accrued
but unpaid interest on the notes (which will be treated and
taxable as a payment of interest), and the
U.S. Holder’s tax basis in such notes. A
U.S. Holder’s tax basis in a note generally will be
equal to the cost of the note to the U.S. Holder. Any such
capital gain or loss generally will be long-term capital gain or
loss if the U.S. Holder’s holding period for the notes
is more than one year at the
S-39
time of disposition and will be short-term capital gain or loss
if the holding period is one year or less at the time of
disposition. Presently, for non-corporate U.S. Holders,
long-term capital gains generally will be subject to reduced
rates of taxation. The utilization of capital losses is subject
to certain limitations.
Conversion
of Notes into Shares of Our Common Stock
The conversion of a note into shares of our common stock should
be treated for U.S. federal income tax purposes as a
tax-free conversion into shares of our common stock. As a
result, a U.S. Holder would not recognize any income, gain
or loss upon such conversion, except with respect to any cash
received in lieu of fractional shares of our common stock and
any shares of our common stock attributable to accrued interest
(which will be treated in the manner described below). A
U.S. Holder’s tax basis in any shares of our common
stock received upon conversion generally would be equal to its
tax basis in the note converted (excluding the portion of the
tax basis that is allocable to any fractional shares but
including the fair market value of shares of our common stock
attributable to accrued interest). A U.S. Holder’s
holding period for such shares of our common stock generally
would include the period during which the U.S. Holder held
the note.
If a U.S. Holder receives cash in lieu of fractional shares
of our common stock, the U.S. Holder would be treated as if
the fractional shares had been issued and then redeemed for
cash. Accordingly, a U.S. Holder generally will recognize
capital gain or loss with respect to the receipt of cash in lieu
of fractional shares measured by the difference between the cash
received for the fractional shares and the portion of the
U.S. Holder’s tax basis in the notes that is allocated
to the fractional shares. Any such capital gain or loss
generally will be long-term capital gain or loss if the
U.S. Holder’s holding period for the notes is more
than one year at the time of conversion and will be short-term
capital gain or loss if the holding period is one year or less
at the time of conversion. Presently, for non-corporate
U.S. Holders, long-term capital gains generally will be
subject to reduced rates of taxation. The utilization of capital
losses is subject to certain limitations.
Any cash and the value of any shares of our common stock
received that is attributable to accrued interest on the
converted notes not yet included in income would be taxed as
ordinary interest income. The basis in any shares of our common
stock attributable to accrued interest would equal the fair
market value of such shares when received. The holding period
for any shares of our common stock attributable to accrued
interest would begin the day after the date of receipt.
U.S. Holders are urged to consult their tax advisors with
respect to the U.S. federal income tax consequences
resulting from the conversion of notes into shares of our common
stock.
Possible
Effect of a Consolidation or Merger
In certain situations, we may consolidate with or merge into
another entity (as described above under “Description of
Notes — Conversion Rights —
Recapitalization, Reclassifications and Changes of Our Common
Stock”). Depending on the circumstances, this could result
in a deemed exchange of your notes for the modified note,
potentially resulting in the recognition of taxable gain or loss.
Constructive
Dividends
The conversion rate of the notes will be adjusted in certain
circumstances. See “Description of Notes —
Conversion Rights — Conversion Rate Adjustments”
and “Description of Notes — Conversion
Rights — Adjustment to Shares Delivered Upon
Conversion Upon a Make-whole Fundamental Change.” Under
section 305(c) of the Code, adjustments (or the absence of
adjustments) that have the effect of increasing a holder’s
proportionate interest in our assets or earnings may in some
circumstances result in a deemed distribution. Accordingly, if
at any time we make a distribution of cash or property to our
shareholders that would be taxable to the shareholders as a
dividend for U.S. federal income tax purposes and, in
accordance with the anti-dilution provisions of the notes, the
conversion rate of the notes is increased, this increase may be
deemed to be the payment of a taxable dividend to
U.S. Holders of the notes. For example, an increase in the
conversion rate in the event of our distribution of our debt
instruments or our assets may result in deemed dividend
treatment to U.S. Holders of the notes, but an increase in
the event of stock dividends or the distribution of rights to
subscribe for shares of our common stock generally will not.
Adjustments to the
S-40
conversion rate made pursuant to a bona fide reasonable
adjustment formula that has the effect of preventing the
dilution of the interest of the holders of our stock, however,
will generally not be considered to result in a deemed
distribution. Any deemed distribution will be taxable as a
dividend, return of capital or capital gain in accordance with
the rules described in
“— U.S. Holders — Dividends on
Common Stock” below. It is unclear whether such deemed
distribution would be eligible for the reduced tax rate
presently applicable to certain dividends paid to non-corporate
holders or for the dividends-received deduction applicable to
certain dividends paid to corporate holders. U.S. Holders
are urged to consult their tax advisors concerning the tax
treatment of such constructive dividends.
If a make-whole fundamental change occurs on or prior to the
maturity date of the notes, under some circumstances, we will
increase the conversion rate for notes converted in connection
with the make-whole fundamental change. Although it is not
clear, that increase could also be treated as a distribution
subject to U.S. federal income tax. U.S. Holders are
urged to consult their tax advisors concerning the tax treatment
of changes in the conversion rate for notes converted in
connection with a make-whole fundamental change.
Dividends
on Common Stock
If we make distributions with respect to shares of our common
stock received upon conversion of a note, the distributions
generally will be treated as dividends to a U.S. Holder of
shares of our common stock to the extent of our current and
accumulated earnings and profits as determined under
U.S. federal income tax principles at the end of the tax
year in which the distribution occurs. To the extent the
distributions exceed our current and accumulated earnings and
profits, the excess will be treated first as a tax-free return
of capital to the extent of the U.S. Holder’s adjusted
tax basis in the shares of our common stock, and thereafter as
capital gain from the sale or exchange of those shares of our
common stock. Eligible taxable dividends received by a
non-corporate U.S. Holder in tax years beginning on or
before December 31, 2012 will be subject to tax at the
special reduced rate generally applicable to long-term capital
gains. A U.S. Holder generally will be eligible for this
reduced rate only if the U.S. Holder has held shares of our
common stock for more than 60 days during the
121-day
period beginning 60 days before the ex-dividend date.
Corporate U.S. Holders generally will be entitled to claim
the dividends-received deduction with respect to dividends paid
on shares of our common stock, subject to applicable
restrictions.
Sale
or Other Taxable Disposition of Common Stock
Upon the sale or other taxable disposition of shares of our
common stock received upon conversion of a note, a
U.S. Holder generally will recognize capital gain or loss
in an amount equal to the difference, if any, between
(i) the amount of cash and the fair market value of any
property received upon the sale or other disposition and
(ii) the U.S. Holder’s adjusted tax basis in such
shares of our common stock. That capital gain or loss will be
long-term if the U.S. Holder’s holding period in
respect of such shares of our common stock is more than one year
at the time of disposition. For non-corporate U.S. Holders,
long-term capital gain is generally eligible for reduced rates
of taxation. The utilization of capital losses is subject to
certain limitations.
Information
Reporting and Backup Withholding Requirements
Unless a U.S. Holder of the notes, or of shares of our
common stock received upon a conversion of the notes, is a
corporation or other exempt recipient, payments of interest or
dividends made by us on, or the proceeds from the sale or other
disposition of, the notes or shares of our common stock that are
made within the United States or through certain United
States-related financial intermediaries may be subject to
information reporting. These payments may also be subject to
U.S. federal backup withholding, currently at a rate of
twenty-eight percent (28%), if the U.S. Holder of the notes
or of the shares of our common stock fails to supply a correct
taxpayer identification number or otherwise fails to comply with
applicable U.S. information reporting or certification
requirements. Backup withholding is not an additional tax. Any
amount withheld from a payment to a U.S. Holder of the
notes or of shares of our common stock under the backup
withholding rules is allowable as a credit against such U.S.
Holder’s U.S. federal income tax and may entitle such
holder to a refund, provided that the required information is
timely furnished to the IRS.
S-41
Recently
Enacted Federal Tax Legislation
Recently enacted legislation requires certain U.S. Holders
who are individuals, estates or trusts to pay an additional 3.8%
tax on, among other things, interest on and capital gains from
the sale or other disposition of the notes, and dividends on and
capital gains from the sale or other disposition of our common
stock received upon conversion of a note, for taxable years
beginning after December 31, 2012. U.S. Holders should
consult their own tax advisors regarding the effect, if any, of
this legislation on their ownership and disposition of the notes.
Non-U.S.
Holders
A
“non-U.S. Holder”
means a beneficial owner of the notes (or of shares of our
common stock received upon a conversion of the notes) that is
neither a U.S. Holder nor a domestic partnership. Special
rules may apply to certain
non-U.S. Holders
such as “controlled foreign corporations” or
“passive foreign investment companies”. Such entities
should consult their own tax advisors to determine the
U.S. federal, state, local and other tax consequences that
may be relevant to them.
Notes
All payments of stated interest and principal on the notes made
to a
non-U.S. Holder,
including a payment in shares of our common stock pursuant to a
conversion, will be exempt from U.S. federal income and
withholding tax, provided that: (i) the
non-U.S. Holder
does not own, actually or constructively, 10% or more of the
total combined voting power of all classes of our stock entitled
to vote, (ii) the
non-U.S. Holder
is not a controlled foreign corporation related, directly or
indirectly, to us through stock ownership, (iii) the
non-U.S. Holder
is not a bank receiving certain types of interest, (iv) the
beneficial owner of the notes certifies, under penalties of
perjury, to us or our paying agent on IRS
Form W-8BEN
(or appropriate substitute form) that it is not a United States
person and provides its name, address and certain other required
information or certain other certification requirements are
satisfied, and (v) such payments and gain are not
effectively connected with such
non-U.S. Holder’s
conduct of a trade or business in the United States.
If a
non-U.S. Holder
cannot satisfy the requirements described above, payments of
interest (including amounts received upon conversion that are
treated as interest) will be subject to the 30%
U.S. federal withholding tax, unless such
non-U.S. Holder
provides us with a properly executed (i) IRS
Form W-8BEN
(or appropriate substitute form) claiming an exemption from or
reduction in withholding under an applicable income tax treaty
or (ii) IRS
Form W-8ECI
(or appropriate substitute form) stating that interest paid or
accrued on the notes is not subject to withholding tax because
it is effectively connected with the conduct of a trade or
business in the United States.
If a
non-U.S. Holder
of a note were deemed to have received a constructive dividend
(see “U.S. Holders — Constructive
Dividends” above), the
non-U.S. Holder
generally would be subject to U.S. federal withholding tax
at a 30% rate on the amount of such dividend, subject to
reduction (i) by an applicable treaty if the
non-U.S. Holder
provides an IRS
Form W-8BEN
(or appropriate substitute form) certifying that it is entitled
to such treaty benefits or (ii) upon the receipt by us or
our paying agent of an IRS
Form W-8ECI
(or appropriate substitute form) from a
non-U.S. Holder
claiming that the constructive dividend on the notes is
effectively connected with the conduct of a U.S. trade or
business. In the case of any constructive dividend, it is
possible that U.S. federal withholding tax attributable to
the constructive dividend would be withheld from interest,
shares of our common stock or sales proceeds subsequently paid
or credited to the
non-U.S. Holder.
Common
Stock
Dividends paid to a
non-U.S. Holder
of shares of our common stock generally will be subject to
withholding tax at a 30% rate, subject to reduction (i) by
an applicable treaty if the
non-U.S. Holder
provides an IRS
Form W-8BEN
(or appropriate substitute form) certifying that it is entitled
to such treaty benefits or (ii) upon the receipt by us or
our paying agent of an IRS
Form W-8ECI
(or appropriate substitute form) from a
non-U.S. Holder
claiming that the payments are effectively connected with the
conduct of a U.S. trade or business.
S-42
Sale,
Exchange, Redemption, Conversion or Other Disposition of Notes
or Common Stock
A
non-U.S. Holder
generally will not be subject to U.S. federal income tax on
gain realized on the sale, exchange, redemption, conversion or
other disposition of notes or of shares of our common stock
received upon a conversion of notes unless (i) the gain is
effectively connected with the conduct of a U.S. trade or
business of the
non-U.S. Holder,
(ii) in the case of a
non-U.S. Holder
who is a nonresident alien individual, the individual is present
in the United States for 183 or more days in the taxable year of
the disposition and certain other conditions are met, or
(iii) we have been a United States real property holding
corporation at any time within the shorter of the five-year
period preceding such sale, exchange, redemption, conversion or
other disposition and the
non-U.S. Holder’s
holding period in the common stock or notes. We believe that we
are not, and do not anticipate becoming, a United States real
property holding corporation.
Income
or Gains Effectively Connected with a U.S. Trade or
Business
If a
non-U.S. Holder
of notes or shares of our common stock is engaged in a trade or
business in the U.S., and if interest on the notes, deemed
distributions on the notes or shares of our common stock,
dividends on our common stock, gain realized on the sale,
exchange, conversion, or other disposition of the notes or gain
realized on the sale or exchange of shares of our common stock
is effectively connected with the conduct of such trade or
business, the
non-U.S. Holder,
although exempt from the withholding tax in the manner discussed
in the preceding paragraphs, generally will be required to file
a U.S. federal income tax return and will be subject to
regular U.S. federal income tax on such income or gain in
the same manner as if it were a U.S. Holder. In addition,
if such a
non-U.S. Holder
is a foreign corporation, such
non-U.S. Holder
may be subject to a branch profits tax equal to 30% (or such
lower rate provided by an applicable treaty) of its effectively
connected earnings and profits for the taxable year, subject to
certain adjustments.
Information
Reporting and Backup Withholding
We must report annually to the IRS and to each
non-U.S. Holder
the amount of interest and dividends paid to such
non-U.S. Holder
and the tax withheld with respect to such interest and
dividends, regardless of whether withholding was required.
Copies of the information returns reporting such interest and
dividends and withholding may also be made available to the tax
authorities in the country in which the
non-U.S. Holder
resides under the provisions of an applicable income tax treaty.
A
non-U.S. Holder
will be subject to backup withholding for interest and dividends
paid to such holder unless such holder certifies under penalties
of perjury that it is a
non-U.S. Holder
(and the payor does not have actual knowledge or reason to know
that such holder is a United States person as defined in the
Code), or such holder otherwise establishes an exemption from
backup withholding.
Information reporting and, depending on the circumstances,
backup withholding will apply to the proceeds of a sale of the
notes or shares of our common stock within the United States or
conducted through certain United States-related financial
intermediaries, unless the beneficial owner certifies under
penalties of perjury that it is a
non-U.S. Holder
(and the payor does not have actual knowledge or reason to know
that the beneficial owner is a United States person as defined
under the Code), or such owner otherwise establishes an
exemption from such requirements.
Any amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against a
non-U.S. Holder’s
U.S. federal income tax liability provided the required
information is timely furnished o the IRS.
Recently
Enacted Legislation
Recently enacted legislation will impose a 30% U.S. federal
withholding tax with respect to payments of dividends with
respect to shares of our common stock and the gross proceeds
from a disposition of shares of our common stock that are made
after December 31, 2012, to (i) foreign financial
institutions (as defined in Section 1471(d)(4) of the Code)
unless they agree to collect and disclose to the IRS information
regarding their direct and indirect United States account
holders and meet certain other specified requirements and
S-43
(ii) certain other foreign entities unless they certify
certain information regarding their direct and indirect United
States owners and meet certain other specified requirements. If
payment of this U.S. federal withholding tax is made,
non-U.S. Holders
that are otherwise eligible for an exemption from, or reduction
of, U.S. federal withholding taxes with respect to such
dividends or gross proceeds will be required to seek a credit or
refund from the IRS to obtain the benefit of such exemption or
reduction.
Non-U.S. Holders
are encouraged to consult with their own tax advisors regarding
the possible implications of this legislation on their
investment in the notes and shares of our common stock received
upon a conversion of the notes.
S-44
UNDERWRITING
We intend to offer the notes through the underwriters. Morgan
Stanley & Co. Incorporated and UBS Securities LLC are
acting as representatives of the underwriters named below.
Subject to the terms and conditions contained in an underwriting
agreement among us and the underwriters, we have agreed to sell
to the underwriters, and the underwriters severally have agreed
to purchase from us, the principal amount of the notes listed
opposite their names below.
|
|
|
|
|
|
|
Principal
|
|
Underwriter
|
|
Amount of Notes
|
|
|
Morgan Stanley & Co. Incorporated
|
|
$
|
300,000,000
|
|
UBS Securities LLC
|
|
|
150,000,000
|
|
Dowling and Partners Securities LLC
|
|
|
10,000,000
|
|
Keefe, Bruyette & Woods, Inc.
|
|
|
10,000,000
|
|
Macquarie Capital (USA) Inc.
|
|
|
10,000,000
|
|
Raymond James & Associates, Inc.
|
|
|
10,000,000
|
|
Wunderlich Securities, Inc.
|
|
|
10,000,000
|
|
|
|
|
|
|
Total
|
|
$
|
500,000,000
|
|
|
|
|
|
|
The underwriters have agreed to purchase all of the notes sold
pursuant to the underwriting agreement if any of these notes are
purchased. If an underwriter defaults, the underwriting
agreement provides that the purchase commitments of the
non-defaulting underwriters may be increased or the underwriting
agreement may be terminated.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to
make in respect of those liabilities.
The underwriters are offering the notes, subject to prior sale,
when, as and if issued to and accepted by them, subject to
approval of legal matters by their counsel, including the
validity of the notes, and other conditions contained in the
underwriting agreement, such as the receipt by the underwriters
of officer’s certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify
offers to the public and to reject orders in whole or in part.
We expect to deliver the notes against payment for the notes on
or about the date specified in the last paragraph of the cover
page of this prospectus supplement, which will be the fourth
business day following the date of pricing of the notes.
Commissions
and Discounts
The underwriters have advised us that they propose to initially
offer the notes at a price of 100% of the principal amount of
the notes, plus accrued interest from the original issue date of
the notes, if any, and to dealers at that price less a
concession not in excess of 1.20% of the principal amount of the
notes, plus accrued interest from the original issue date of the
notes, if any. After the initial public offering, the public
offering price, concession and discount may be changed.
The following table shows the public offering price,
underwriting discount and proceeds before expenses to us. The
information assumes either no exercise or full exercise by the
underwriters of their overallotment option.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Note
|
|
Without Option
|
|
With Option
|
|
Public offering price
|
|
|
100
|
%
|
|
$
|
500,000,000
|
|
|
$
|
550,000,000
|
|
Underwriting discount
|
|
|
2
|
%
|
|
$
|
10,000,000
|
|
|
$
|
11,000,000
|
|
Proceeds, before expenses, to us
|
|
|
98
|
%
|
|
$
|
490,000,000
|
|
|
$
|
539,000,000
|
|
S-45
The expenses of this offering, not including the underwriting
discounts, are estimated to be $600,000 and are payable by us.
Overallotment
Option
W e have granted an option to the underwriters to purchase up to
an additional $50,000,000 principal amount of the notes at the
public offering price less the underwriting discount. The
underwriters may exercise this option within 30 days from
the date of this prospectus supplement solely to cover any
overallotments. If the underwriters exercise this option, each
will be obligated, subject to conditions contained in the
underwriting agreement, to purchase a number of additional notes
proportionate to that underwriter’s initial amount
reflected in the above table.
New Issue
of Notes
The notes are a new issue of securities with no established
trading market. We do not intend to apply for listing of the
notes on any national securities exchange or for inclusion of
the notes on any automated dealer quotation system. We have been
advised by the underwriters that they presently intend to make a
market in the notes after completion of the offering. However,
they are under no obligation to do so and may discontinue any
market-making activities at any time without any notice. We
cannot assure the liquidity of the trading market for the notes
or that an active public market for the notes will develop. If
an active public trading market for the notes does not develop,
the market price and liquidity of the notes may be adversely
affected. If the notes are traded, they may trade at a discount
from their initial public offering price, depending on
prevailing interest rates, the market for similar securities,
our operating performance and financial condition, general
economic conditions and other factors.
No Sales
of Similar Securities
We and our executive officers and directors have agreed with
limited exceptions that we and they will not, for a period of
90 days from the date of this prospectus supplement,
without the prior written consent of the representatives,
directly or indirectly:
|
|
|
|
•
|
offer, pledge or announce the intention to sell any common stock
or sell or contract to sell any common stock;
|
|
|
•
|
sell any option or contract to purchase or purchase any option
or contract to sell any common stock;
|
|
|
•
|
grant any option, right or warrant to purchase any common stock;
|
|
|
•
|
otherwise transfer or dispose of any common stock; or
|
|
|
•
|
enter into any swap or other agreement that transfers, in whole
or in part, any of the economic consequences of ownership of our
common stock.
|
In addition to shares of our common stock, this
lock-up
provision applies to any securities convertible into or
exercisable or exchangeable for our common stock.
The 90-day
restriction period is subject to extension if (i) the
company issues an earnings release or material news, or a
material event relating to the company occurs, during the last
17 days of the
90-day
restriction period, or (ii) prior to the expiration of the
90-day
restriction period, the company announces that it will release
earnings results during the
16-day
period beginning on the last day of the
90-day
restriction period. In either case, the restrictions described
above shall continue to apply until the expiration of the
18-day
period beginning on the date of the issuance of the earnings
release or the occurrence of the material news or material
event, unless the representatives waive that extension.
S-46
Price
Stabilization, Short Positions
In connection with the offering, the underwriters are permitted
to engage in transactions that stabilize the market price of the
notes. Such transactions consist of bids or purchases to peg,
fix or maintain the price of the notes.
If the underwriters create a short position in the notes in
connection with the offering, i.e., if they sell more notes than
are on the cover page of this prospectus supplement, the
underwriters may reduce that short position by purchasing notes
in the open market. The underwriters may also elect to reduce
any short position by exercising all or part of the
over-allotment option described above. Purchases of the notes to
stabilize the price or to reduce a short position could cause
the price of the notes to be higher than it might be in the
absence of such purchases.
Neither we nor any of the underwriters makes any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
the notes or the shares of common stock. In addition, neither we
nor any of the underwriters makes any representation that the
underwriters will engage in these transactions or that these
transactions, once commenced, will not be discontinued without
notice.
Electronic
offer, sale and distribution of securities
In connection with the offering, the underwriters or securities
dealers may distribute this prospectus supplement and the
accompanying prospectus by electronic means, such as
e-mail. In
addition, the underwriters will be facilitating Internet
distribution for this offering to certain of their Internet
subscription customers. The underwriters intend to allocate a
limited number of notes for sale to their online brokerage
customers. An electronic prospectus supplement and accompanying
prospectus is available on the Internet web sites maintained by
the underwriters. Other than the prospectus supplement and
accompanying prospectus in electronic format, the information on
the underwriters’ web sites is not part of this prospectus
supplement or the accompanying prospectus.
Other
Relationships
Some of the underwriters and their affiliates have engaged in,
and may in the future engage in, investment banking and other
commercial dealings in the ordinary course of business with us.
They have received customary fees and commissions for these
transactions.
Selling
Restrictions
United
Kingdom
Any invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the Financial Services
and Markets Act 2000 (the “FSMA”)), in connection with
the issue or sale of the notes, has only been, and will only be,
communicated or caused to be communicated in circumstances in
which Section 21(1) of the FSMA does not apply to Old
Republic International Corporation.
Anything done in relation to the notes in, from or otherwise
involving the United Kingdom, has been, and may only be done, in
compliance with all applicable provisions of the FSMA.
This prospectus supplement is being distributed only to, and is
directed only at persons who are “qualified investors”
(as defined in the Prospectus Directive) and (i) investment
professionals falling within Article 19(5) of the Financial
Services and Markets Act 2000 (Financial Promotion) Order 2005
(as amended) (the “Order”), or (ii) high net
worth bodies corporate, unincorporated associations and
partnerships and trustees of high value trusts as described in
Article 49(2)(a) to (d) of the Order or
(iii) other persons to whom it may be lawfully communicated
in accordance with the Order (all such persons together being
referred to as “relevant persons”). This prospectus
supplement must not be acted on or relied on in the United
Kingdom by persons who are not relevant persons. In the United
Kingdom, any investment activity to which this prospectus
supplement relates is only available to, and will be engaged in
only with, relevant persons.
S-47
European
Economic Area
This prospectus supplement has been prepared on the basis that
all offers of the notes in any Member State of the European
Economic Area which has implemented the Prospectus Directive
(each, a “Relevant Member State”) will be made
pursuant to an exemption under the Prospectus Directive, as
implemented in that Relevant Member State, from the requirement
to publish a prospectus for offers of the notes. Neither we nor
the underwriters have authorized, nor do we or they authorize,
the making of any offer of the notes in circumstances in which
an obligation arises for us or any underwriter to publish a
prospectus pursuant to the Prospectus Directive for such offer.
Accordingly, with effect from and including the date on which
the Prospectus Directive is implemented in each Relevant Member
State (the “Relevant Implementation Date”) no offer
has been made or will be made to the public in that Relevant
Member State of any of the notes other than:
(a) to any legal entity which is a qualified investor as
defined in the Prospectus Directive;
(b) to fewer than 100 or, if the Relevant Member State has
implemented the relevant provisions of the 2010 PD Amending
Directive, 150 natural or legal persons (other than
“qualified investors,” as defined in the Prospectus
Directive), as permitted under the Prospectus Directive subject
to obtaining the prior consent of the underwriters for any such
offer; or
(c) in any other circumstances falling within
Article 3(2) of the Prospectus Directive,
provided that no such offer of the notes shall result in a
requirement for us or any underwriter to publish a prospectus
pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an
“offer of securities to the public” in relation to the
notes in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the notes to be offered so as to enable an
investor to decide to purchase the notes, as the same may be
varied in that Relevant Member State by any measure implementing
the Prospectus Directive in that Relevant Member State. The
expression “Prospectus Directive” means Directive
2003/71/EC (and amendments thereto, including the 2010 PD
Amending Directive to the extent implemented in the Relevant
Member State) and includes any relevant implementing measure in
each Relevant Member State and the expression “2010 PD
Amending Directive” means Directive 2010/73/EU.
Australia
This offering memorandum is not a formal disclosure document and
has not been, nor will be, lodged with the Australian Securities
and Investments Commission. It does not purport to contain all
information that an investor or their professional advisers
would expect to find in a prospectus or other disclosure
document (as defined in the Corporations Act 2001 (Australia))
for the purposes of Part 6D.2 of the Corporations Act 2001
(Australia) or in a product disclosure statement for the
purposes of Part 7.9 of the Corporations Act 2001
(Australia), in either case, in relation to the securities.
The securities are not being offered in Australia to
“retail clients” as defined in sections 761G and
761GA of the Corporations Act 2001 (Australia). This offering is
being made in Australia solely to “wholesale clients”
for the purposes of section 761G of the Corporations Act
2001 (Australia) and, as such, no prospectus, product disclosure
statement or other disclosure document in relation to the
securities has been, or will be, prepared.
This offering memorandum does not constitute an offer in
Australia other than to wholesale clients. By submitting an
application for our securities, you represent and warrant to us
that you are a wholesale client for the purposes of
section 761G of the Corporations Act 2001 (Australia). If
any recipient of this offering memorandum is not a wholesale
client, no offer of, or invitation to apply for, our securities
shall be deemed to be made to such recipient and no applications
for our securities will be accepted from such recipient. Any
offer to a recipient in Australia, and any agreement arising
from acceptance of such offer, is personal and may only be
accepted by the recipient. In addition, by applying for our
securities you undertake to us that, for a
S-48
period of 12 months from the date of issue of the
securities, you will not transfer any interest in the securities
to any person in Australia other than to a wholesale client.
Hong
Kong
Our securities may not be offered or sold in Hong Kong, by means
of this prospectus or any document other than (i) to
“professional investors” within the meaning of the
Securities and Futures Ordinance (Cap.571, Laws of Hong Kong)
and any rules made thereunder, or (ii) in circumstances
which do not constitute an offer to the public within the
meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong),
or (iii) in other circumstances which do not result in the
document being a “prospectus” within the meaning of
the Companies Ordinance (Cap.32, Laws of Hong Kong). No
advertisement, invitation or document relating to our securities
may be issued or may be in the possession of any person for the
purpose of issue (in each case whether in Hong Kong or
elsewhere) which is directed at, or the contents of which are
likely to be accessed or read by, the public in Hong Kong
(except if permitted to do so under the securities laws of Hong
Kong) other than with respect to the securities which are or are
intended to be disposed of only to persons outside Hong Kong or
only to “professional investors” within the meaning of
the Securities and Futures Ordinance (Cap. 571, Laws of Hong
Kong) and any rules made thereunder.
Japan
Our securities have not been and will not be registered under
the Financial Instruments and Exchange Law of Japan (the
Financial Instruments and Exchange Law) and our securities will
not be offered or sold, directly or indirectly, in Japan, or to,
or for the benefit of, any resident of Japan (which term as used
herein means any person resident in Japan, including any
corporation or other entity organized under the laws of Japan),
or to others for re-offering or resale, directly or indirectly,
in Japan, or to a resident of Japan, except pursuant to an
exemption from the registration requirements of, and otherwise
in compliance with, the Financial Instruments and Exchange Law
and any other applicable laws, regulations and ministerial
guidelines of Japan.
Singapore
This document has not been registered as a prospectus with the
Monetary Authority of Singapore and in Singapore, the offer and
sale of our securities is made pursuant to exemptions provided
in sections 274 and 275 of the Securities and Futures Act,
Chapter 289 of Singapore (“SFA”). Accordingly,
this prospectus and any other document or material in connection
with the offer or sale, or invitation for subscription or
purchase, of our securities may not be circulated or
distributed, nor may our securities be offered or sold, or be
made the subject of an invitation for subscription or purchase,
whether directly or indirectly, to persons in Singapore other
than (i) to an institutional investor as defined in
Section 4A of the SFA pursuant to Section 274 of the
SFA, (ii) to a relevant person as defined in
section 275(2) of the SFA pursuant to Section 275(1)
of the SFA, or any person pursuant to Section 275(1A) of
the SFA, and in accordance with the conditions specified in
Section 275 of the SFA or (iii) otherwise pursuant to,
and in accordance with the conditions of, any other applicable
provision of the SFA, in each case subject to compliance with
the conditions (if any) set forth in the SFA. Moreover, this
document is not a prospectus as defined in the SFA. Accordingly,
statutory liability under the SFA in relation to the content of
prospectuses would not apply. Prospective investors in Singapore
should consider carefully whether an investment in our
securities is suitable for them.
Where our securities are subscribed or purchased under
Section 275 of the SFA by a relevant person which is:
(a) by a corporation (which is not an accredited investor
as defined in Section 4A of the SFA) the sole business of
which is to hold investments and the entire share capital of
which is owned by one or more individuals, each of whom is an
accredited investor; or
(b) for a trust (where the trustee is not an accredited
investor) whose sole purpose is to hold investments and each
beneficiary of the trust is an individual who is an accredited
investor,
S-49
shares of that corporation or the beneficiaries’ rights and
interest (howsoever described) in that trust shall not be
transferable for six months after that corporation or that trust
has acquired the shares under Section 275 of the SFA,
except:
(1) to an institutional investor (for corporations under
Section 274 of the SFA) or to a relevant person defined in
Section 275(2) of the SFA, or any person pursuant to an
offer that is made on terms that such shares of that corporation
or such rights and interest in that trust are acquired at a
consideration of not less than S$200,000 (or its equivalent in a
foreign currency) for each transaction, whether such amount is
to be paid for in cash or by exchange of securities or other
assets, and further for corporations, in accordance with the
conditions, specified in Section 275 of the SFA;
(2) where no consideration is given for the
transfer; or
(3) where the transfer is by operation of law.
In addition, investors in Singapore should note that the
securities acquired by them are subject to resale and transfer
restrictions specified under Section 276 of the SFA, and
they, therefore, should seek their own legal advice before
effecting any resale or transfer of their securities.
Switzerland
The Prospectus does not constitute an issue prospectus pursuant
to Article 652a or Article 1156 of the Swiss Code of
Obligations (“CO”) and the shares will not be listed
on the SIX Swiss Exchange. Therefore, the Prospectus may not
comply with the disclosure standards of the CO
and/or the
listing rules (including any prospectus schemes) of the SIX
Swiss Exchange. Accordingly, the shares may not be offered to
the public in or from Switzerland, but only to a selected and
limited circle of investors, which do not subscribe to the
shares with a view to distribution.
New York
Stock Exchange listing
Our shares of common stock are listed on the New York Stock
Exchange under the trading symbol “ORI.”
Transfer
agent
The transfer agent and registrar for our common stock is Wells
Fargo Bank, N.A.
LEGAL
MATTERS
The validity of the notes offered hereby and certain other legal
matters will be passed upon for us by Locke Lord
Bissell & Liddell LLP, Chicago, Illinois. Certain
legal matters will be passed upon for the underwriters by Sidley
Austin llp, New
York, New York.
S-50
PROSPECTUS
Debt
Securities
Each time we offer debt securities using this prospectus, we
will provide specific terms of the debt securities, including
the offering price and any conversion features, in supplements
to this prospectus. The prospectus supplements may also add to,
update or change the information in this prospectus and will
also describe the specific manner in which we will offer the
debt securities. You should read the prospectus supplement and
this prospectus, along with the documents incorporated by
reference, prior to investing in our debt securities.
We may offer and sell the debt securities to or through
underwriters, dealers and agents, or directly to purchasers. The
names and compensation of any underwriters, dealers or agents
involved in the sale of debt securities will be described in a
prospectus supplement.
Our common stock is traded on the New York Stock Exchange under
the symbol “ORI.”
Investing in these debt
securities involves risks. You should carefully consider the
information under “Risk Factors” on page 2 of
this prospectus as well as the risk factors contained in other
documents incorporated by reference into this
prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is March 2, 2011.
ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement on
Form S-3
that we have filed with the Securities and Exchange Commission,
or the SEC, using a “shelf” registration for
continuous offering process. Under the shelf process, from time
to time, we may, but are not required to, sell the debt
securities offered in supplements to this prospectus in one or
more offerings.
This prospectus provides you with a general description of our
Company. Whenever we decide to offer the debt securities noted
on the cover page of this prospectus, we will provide you with a
prospectus supplement containing specific information about the
terms of the offering and the means of distribution. A
prospectus supplement may include other special considerations
applicable to that specific offering. A prospectus supplement
may also add, update or change information in this prospectus.
If there is any inconsistency between the information in this
prospectus and any prospectus supplement, you should rely on the
information in the prospectus supplement. You should read
carefully this prospectus and any prospectus supplement together
with the additional information described under the heading
“Where You Can Find More Information.”
In this prospectus and any prospectus supplement, unless
otherwise indicated, the terms “Old Republic,”
“Company,” “registrant,” “we,”
“us” and “our” refer to Old Republic
International Corporation and its consolidated subsidiaries.
OLD
REPUBLIC INTERNATIONAL CORPORATION
We are a Chicago based holding company engaged in the single
business of insurance underwriting. We conduct our operations
through a number of regulated insurance company subsidiaries
organized into three major segments, namely, our General
(property and liability insurance), Mortgage Guaranty, and
Title Insurance Groups. References herein to such groups
apply to our subsidiaries engaged in these respective segments
of business.
The insurance business is distinguished from most others in that
the prices (premiums) charged for various insurance products are
set without certainty of the ultimate benefit and claim costs
that will emerge or be incurred, often many years after issuance
and expiration of a policy. This basic fact casts us as a
risk-taking enterprise managed for the long run. We therefore
conduct our business with a primary focus on achieving favorable
underwriting results over cycles, and the maintenance of
financial soundness in support of our subsidiaries’
long-term obligations to insurance beneficiaries. To achieve
these objectives, adherence to certain basic insurance risk
management principles is stressed, and asset diversification and
quality are emphasized. The underwriting principles encompass:
|
|
|
|
•
|
Disciplined risk selection, evaluation, and pricing to reduce
uncertainty and adverse selection;
|
|
|
•
|
Augmenting the predictability of expected outcomes through
insurance of the largest number of homogeneous risks as to each
type of coverage;
|
|
|
•
|
Reducing the insurance portfolio risk profile through:
|
|
|
|
|
•
|
diversification and spread of insured risks; and
|
|
|
•
|
assimilation of uncorrelated asset and liability exposures
across economic sectors that tend to offset or counterbalance
one another; and
|
|
|
|
|
•
|
Effectively managing gross and net limits of liability through
appropriate use of reinsurance.
|
In addition to income arising from our basic underwriting and
related services functions, we earn significant investment
income from invested funds generated by those functions and from
shareholders’ capital. Our investment strategy aims for
stability of income from interest and dividends, protection of
capital, and sufficient liquidity to meet insurance underwriting
and other obligations as they become payable in the future.
Securities trading and the realization of capital gains are not
objectives. Our investment philosophy is therefore best
characterized as emphasizing value, credit quality, and
relatively long-term holding periods. Our ability to
1
hold both fixed maturity and equity securities for long periods
of time is in turn enabled by the scheduling of maturities in
contemplation of an appropriate matching of assets and
liabilities.
In light of the above factors, our affairs are managed without
regard to the arbitrary strictures of quarterly or even annual
reporting periods that American industry must observe. In our
view, such short reporting time frames do not comport well with
the long-term nature of much of our business. We believe that
our operating results and financial condition can best be
evaluated by observing underwriting and overall operating
performance trends over succeeding five to ten year intervals.
Such extended periods can encompass one or two economic
and/or
underwriting cycles, and thereby provide appropriate time frames
for such cycles to run their course and for reserved claim costs
to be quantified with greater finality and effect.
We are a corporation organized under the laws of Delaware. Our
principal executive offices are located at 307 North Michigan
Avenue, Chicago, Illinois. Information concerning us is
available on our website at oldrepublic.com. Information
contained on our website is not and should not be considered a
part of this prospectus unless specifically incorporated by
reference.
RISK
FACTORS
Investing in our debt securities involves risks. Potential
investors are urged to read and consider the risk factors
relating to an investment in our Company described in our most
recent Annual Report on
Form 10-K
incorporated by reference in this prospectus, as the same may be
updated from time to time by our future filings with the SEC.
Before making an investment decision, you should carefully
consider those risks as well as other information we incorporate
by reference in this prospectus. The risks and uncertainties we
have described are not the only ones facing our Company.
Additional risks and uncertainties not presently known to us or
that we currently consider immaterial may also adversely affect
our business operations. To the extent a particular offering
implicates additional risks, we will include a discussion of
those risks in the applicable prospectus supplement.
FORWARD-LOOKING
STATEMENTS
Historical data pertaining to the operating results, liquidity,
and other performance indicators applicable to an insurance
enterprise such as ours are not necessarily indicative of
results to be achieved in succeeding years. In addition to the
factors cited below, the long term nature of the insurance
business, seasonal and annual patterns in premium production and
incidence of claims, changes in yields obtained on invested
assets, changes in government policies and free markets
affecting inflation rates and general economic conditions, and
changes in legal precedents or the application of law affecting
the settlement of disputed and other claims can have a bearing
on period-to-period comparisons and future operating results.
Some of the statements made in our reports that we file with the
SEC and which are incorporated by reference in this prospectus
or that may be made in any applicable prospectus supplement can
constitute “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995.
Of necessity, any such forward-looking statements involve
assumptions, uncertainties, and risks that may affect our future
performance. With regard to our General Insurance segment, its
results can be affected, in particular, by the level of market
competition, which is typically a function of available capital
and expected returns on such capital among competitors, the
levels of interest and inflation rates, and periodic changes in
claim frequency and severity patterns caused by natural
disasters, weather conditions, accidents, illnesses,
work-related injuries, and unanticipated external events.
Mortgage Guaranty and Title Insurance results can be
affected by similar factors and by changes in national and
regional housing demand and values, the availability and cost of
mortgage loans, employment trends, and default rates on mortgage
loans. Mortgage Guaranty results, in particular, may also be
affected by various risk-sharing arrangements with business
producers as well as the risk management and pricing policies of
government sponsored enterprises. Life and health insurance
earnings can be affected by the levels of employment and
consumer spending, variations in mortality and health trends,
and changes in policy lapsation rates. At our parent holding
company level, operating earnings or losses are generally
reflective of the amount of debt outstanding and its cost,
interest income on
2
temporary holdings of short-term investments, and
period-to-period variations in the costs of administering our
widespread operations.
A more detailed listing and discussion of the risks and other
factors which affect our risk-taking insurance business are
included in Part I, Item 1A — Risk Factors,
of our 2010 Annual Report to the SEC, which Item is specifically
incorporated herein by reference.
Any forward-looking statements or commentaries speak only as of
their dates. We undertake no obligation to publicly update or
revise any and all such comments, whether as a result of new
information, future events or otherwise, and accordingly they
may not be unduly relied upon.
You should consider these risks and those set forth in, or
incorporated into, the “Risk Factors” section of this
prospectus prior to investing in our debt securities.
USE OF
PROCEEDS
Unless otherwise indicated in a prospectus supplement, the net
proceeds from the sale of debt securities offered by this
prospectus will be used for general corporate purposes,
including, without limitation, the repayment or the refinancing
of indebtedness, repurchases of our outstanding securities,
capital expenditures, future acquisitions and working capital.
If net proceeds from a specific offering will be used to repay
indebtedness, the applicable prospectus supplement will describe
the relevant terms of the debt to be repaid.
RATIO OF
EARNINGS TO FIXED CHARGES
The following table shows our historical ratio of earnings to
fixed charges for each of the five most recent fiscal years
ended December 31, 2010.
Our ratios of earnings to fixed charges for the periods
indicated are as follows :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
Ratio of earnings to fixed charges
|
|
|
1.92
|
|
|
|
NM(1
|
)
|
|
|
NM(1
|
)
|
|
|
56.10
|
|
|
|
71.26
|
|
|
|
|
(1) |
|
Not meaningful. For the years ended December 31, 2008 and
2009, earnings were insufficient to cover fixed charges by
$794.8 million and $270.7 million, respectively. Such
shortfalls were due primarily to the weakness in the
Company’s mortgage guaranty and consumer credit indemnity
lines. 2008 was further negatively impacted by other than
temporary impairments of invested assets. |
For purposes of computing these ratios, earnings consist of the
sum of pretax income (loss) before adjustment for income or loss
from equity investees, distributed income of equity investees
and fixed charges. Fixed charges consist of interest expense and
amortization of capitalized debt expenses.
DESCRIPTION
OF DEBT SECURITIES
We will describe the terms of the offered debt securities from
time to time in any prospectus supplement for such offer.
PLAN OF
DISTRIBUTION
The plan of distribution for each offering of debt securities
pursuant to this prospectus will be described in detail in a
prospectus supplement describing each particular offering.
LEGAL
MATTERS
Unless otherwise indicated in the applicable prospectus
supplement, the validity of the offered debt securities of Old
Republic International Corporation will be passed on for us by
Spencer LeRoy, III, Senior
3
Vice President, General Counsel, and Secretary of the
corporation. Mr. LeRoy holds stock and options to purchase
stock granted under our employee stock plans, which in the
aggregate represent less than 1% of our outstanding common stock.
EXPERTS
The consolidated financial statements and financial statement
schedules of Old Republic International Corporation as of and
for the year ended December 31, 2010, and management’s
assessment of the effectiveness of internal control over
financial reporting as of December 31, 2010 have been
incorporated by reference herein and in the registration
statement in reliance upon the reports of KPMG LLP, independent
registered public accounting firm, incorporated by reference
herein, and upon the authority of said firm as experts in
accounting and auditing.
The financial statements and financial statement schedules as of
and for each of the two years in the period ended
December 31, 2009 incorporated in this prospectus by
reference to the Annual Report on
Form 10-K
for the year ended December 31, 2010 have been so
incorporated in reliance on the reports of
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, given on the authority of said firm as experts
in auditing and accounting.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any
reports, statements, or other information that we file at the
SEC’s Public Reference Room at 100 F Street,
N.E., Room 1580, Washington, DC 20549. Please call the SEC
at 1 800-SEC-0330 for further information on the Public
Reference Room in Washington, DC and in other locations. Our SEC
filings are also available to the public from commercial
document retrieval services and at the Internet Website
maintained by the SEC at
http://www.sec.gov.
Copies of documents we have filed with the SEC are also
available at the offices of the New York Stock Exchange, 200
Broad Street, New York, NY 10005.
INCORPORATION
BY REFERENCE
The rules of the SEC allow us to incorporate by reference
information into this prospectus. The information incorporated
by reference is considered to be a part of this prospectus, and
information that we file later with the SEC will automatically
update and supersede this information.
The following documents filed with the SEC are incorporated by
reference in this prospectus:
|
|
|
|
•
|
Our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010, filed on
February 28, 2011;
|
|
|
•
|
The sections of our Definitive Proxy Statement for the 2010
Annual Meeting of Shareholders filed with the SEC on
April 13, 2010 that are incorporated by reference in our
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009; and
|
|
|
•
|
The description of our common stock contained in (i) our
registration statement on
Form 8-A
filed with the Securities and Exchange Commission on
August 29, 1990, as amended on August 31, 1990, and as
further amended on September 10, 1990; and (ii) our
registration statement on
Form 8-A
filed with the Securities and Exchange Commission on
September 10, 1990, as amended on May 30, 1997, as
further amended on June 20, 2007, and as further amended on
November 19, 2007.
|
All reports and other documents filed by us pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, subsequent to the date hereof
and prior to the completion of the offering of all securities
covered by the respective prospectus supplement, shall be deemed
to be incorporated by reference in this prospectus and to be
part of this prospectus from the date of filing of such reports
and documents.
4
Any statement contained in a document incorporated or deemed to
be incorporated by reference shall be deemed to be modified or
superseded for purposes of this prospectus to the extent that a
statement in this prospectus or in any other subsequently filed
document which is incorporated or deemed to be incorporated by
reference modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this
prospectus.
In reviewing any agreements incorporated by reference, please
remember they are included to provide you with information
regarding the terms of such agreement and are not intended to
provide any other factual or disclosure information about our
Company. The agreements may contain representations and
warranties by us, which should not in all instances be treated
as categorical statements of fact, but rather as a way of
allocating the risk to one of the parties if those statements
prove to be inaccurate. The representations and warranties were
made only as of the date of the relevant agreement or such other
date or dates as may be specified in such agreement and are
subject to more recent developments. Accordingly, these
representations and warranties alone may not describe the actual
state of affairs as of the date they were made or at any other
time.
You may obtain any of the documents incorporated by reference by
contacting us or the SEC or through the SEC’s Internet
Website, as described above. Documents incorporated by reference
are available from us without charge, excluding all exhibits
unless specifically incorporated by reference as an exhibit to
this prospectus or a prospectus supplement. You may obtain
documents incorporated by reference into this prospectus by
requesting them in writing or by telephone from us at the
following address: Old Republic International Corporation, 307
North Michigan Avenue, Chicago, Illinois 60601, Attention:
Corporate Secretary, telephone
(312) 346-8100.
We have not authorized anyone to give any information or make
any representation about the offering or us that is different
from, or in addition to, that contained in this prospectus or in
any of the materials that have been incorporated in this
prospectus or which may be contained in a prospectus supplement
or in any free writing prospectus prepared by us or on our
behalf. Therefore, if anyone does give you information of this
sort, you should not rely on it. If you are in a jurisdiction
where offers to exchange or sell, or solicitation of offers to
exchange or purchase, the securities offered by this prospectus
are unlawful, or if you are a person to whom is it unlawful to
direct these types of activities, then the offer presented in
this prospectus does not extend to you. Information contained in
this prospectus speaks only as of the date of this prospectus
unless otherwise specifically indicated.
5
$500,000,000
3.75% Convertible Senior
Notes due 2018
PROSPECTUS SUPPLEMENT
Morgan Stanley
UBS Investment Bank
Dowling and Partners Securities
LLC
Keefe, Bruyette &
Woods
Macquarie Capital
Raymond James
Wunderlich Securities,
Inc.
March 2, 2011