e424b5
Filed Pursuant to Rule 424(b)(5)
File No. 333-140082
A filing fee of $39,991.25, calculated in accordance with
Rule 457(r), has been transmitted
to the Securities and Exchange Commission in connection with the
securities offered
by means of this prospectus supplement. This fee includes the
Debentures
issuable upon the exercise of the underwriters
over-allotment
option.
PROSPECTUS SUPPLEMENT
(To Prospectus Dated
January 19, 2007)
$325,000,000
1.00% Senior
Convertible Debentures due 2027
This is an offering by Covanta Holding Corporation of
$325,000,000 aggregate principal amount of its 1.00% Senior
Convertible Debentures due 2027.
The Debentures will be convertible, at your option, into cash
and shares of our common stock, initially based on a conversion
rate of 35.4610 shares per $1,000 principal amount of
Debentures (equivalent to an initial conversion price of
approximately $28.20 per share), subject to adjustment as
described in this prospectus supplement, only under the limited
circumstances described in this prospectus supplement and in any
event on or prior to 5:00 p.m., New York City time, on the
business day immediately preceding the maturity date.
Upon conversion, we will deliver cash and shares of our common
stock, if any, equal to the sum of the daily settlement amounts
(as described herein), for each day of the 20 settlement period
trading days during the applicable conversion period. See
Description of the Debentures Conversion
Procedures Settlement Upon Conversion. In the
event of certain types of fundamental changes, we will increase
the conversion rate by a number of additional shares or, in lieu
thereof, the acquiring company may elect to adjust the
conversion obligation and conversion rate so that the Debentures
are convertible into shares of the acquiring or surviving
company, in each case as described in this prospectus supplement.
The Debentures will bear interest at a rate of 1.00% per
year. Beginning with the six-month period commencing
February 1, 2012, we will also pay contingent interest
during any six-month interest period in which the trading price
of the Debentures, measured over a specified number of trading
days, is 120% or more of the principal amount of the Debentures.
Interest on the Debentures is payable on February 1 and
August 1 of each year, beginning on August 1, 2007.
The Debentures will mature on February 1, 2027.
The Debentures will be subject to special United States federal
income tax rules. For a discussion of the special United States
federal income tax rules governing contingent payment debt
instruments, see Certain United States Federal Income Tax
Considerations.
We may redeem all or a portion of the Debentures on or after
February 1, 2012, for cash at a redemption price equal to
100% of the principal amount of Debentures redeemed, plus
accrued and unpaid interest (including contingent interest, if
any).
You may require us to repurchase all or a portion of your
Debentures on February 1, 2012, February 1, 2017 and
February 1, 2022 at a cash repurchase price equal to 100%
of the principal amount of the Debentures, plus accrued and
unpaid interest (including contingent interest, if any). In
addition, you may require us to repurchase all or a portion of
your Debentures upon a fundamental change at a cash repurchase
price equal to 100% of the principal amount of the Debentures,
plus accrued and unpaid interest (including contingent interest,
if any).
The Debentures will be our senior unsecured obligations. The
Debentures will be effectively junior to all of our existing and
future secured indebtedness, including our guarantee of
indebtedness under the existing credit facilities of our
subsidiary, Covanta Energy Corporation, or, if closed, Covanta
Energy Corporations new senior secured first lien credit
facilities described in this prospectus supplement, to the
extent of the value of the assets securing such indebtedness.
The Debentures will be effectively subordinated to all existing
and future indebtedness and liabilities (including trade
payables) of our subsidiaries, including indebtedness under the
existing credit facilities or, if closed, the new senior secured
first lien credit facilities.
Concurrently with the offering of the Debentures, we are
offering, pursuant to a separate prospectus supplement,
5,320,000 shares of our common stock at $23.50 per share.
Our subsidiary, Covanta Energy Corporation, is also negotiating
the terms of new senior secured first lien credit facilities
with the intention of entering into the new credit facilities in
the amount of $1,300 million, after the closing of this
offering. The closing of this offering of the Debentures is not
conditioned on the closing of the concurrent offering of our
common stock or the closing of the new credit facilities.
Our common stock is listed on The New York Stock Exchange under
the symbol CVA. The closing sale price of our common
stock on January 25, 2007 was $23.77 per share. We do not
intend to apply for listing of the Debentures on any securities
exchange or for inclusion of the Debentures in any automated
quotation system.
Investing in the Debentures involves risks. See Risk
Factors beginning on
page S-9
of this prospectus supplement and page 3 of the
accompanying prospectus.
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Per Debenture
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Total
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Price to the public(1)
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$
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1,000
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$
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325,000,000
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Underwriting discounts and
commissions
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$
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25
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$
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8,125,000
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Proceeds to Covanta (before
expenses)
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$
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975
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$
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316,875,000
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(1)
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Plus accrued interest, if any, from
January 31, 2007.
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We have granted the underwriters an option to purchase, for a
13 day period beginning on and including the date of
original issuance of the Debentures, up to an additional
$48,750,000 aggregate principal amount of Debentures solely to
cover over-allotments, if any, on the same terms and conditions
as set forth above.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the Debentures on or about
January 31, 2007.
Joint Book-Running Managers
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Lehman
Brothers |
JPMorgan |
Merrill
Lynch & Co. |
Banc
of America Securities LLC
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January 25, 2007
TABLE OF
CONTENTS
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Prospectus Supplement
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Page
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i
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ii
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ii
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S-1
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S-4
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S-9
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S-26
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S-27
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S-28
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S-29
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S-29
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S-30
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S-32
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S-35
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S-64
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S-67
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S-74
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S-78
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Prospectus
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Page
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About This Prospectus
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1
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Where You Can Find More Information
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1
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Incorporation By Reference
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1
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Risk Factors
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3
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Forward-Looking Statements
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3
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Covanta Holding Corporation
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3
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Use of Proceeds
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4
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Description of the Securities
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4
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Selling Stockholders
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4
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Experts
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4
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Legal Matters
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5
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ABOUT
THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus
supplement, which describes the specific terms of this offering
of the Debentures and also adds to and updates information
contained in the accompanying prospectus and the documents
incorporated by reference in this prospectus supplement and the
accompanying prospectus.
The second part is the accompanying prospectus, which gives more
general information, some of which does not apply to this
offering. If the description of this offering of the Debentures
varies between this prospectus supplement and the accompanying
prospectus, you should rely only on the information contained in
or incorporated by reference in this prospectus supplement.
You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. We have not, and the underwriters have
not, authorized anyone to provide you with different
information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not,
and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not
permitted.
You should not assume that the information contained in or
incorporated by reference in this prospectus supplement or the
accompanying prospectus is accurate as of any date other than
the date on this prospectus supplement or the documents
incorporated by reference subsequent to the date of this
prospectus supplement. Our business, financial condition,
results of operations and prospects may have changed since that
date. You should read this prospectus supplement and the
accompanying prospectus, including the documents incorporated by
reference in this prospectus supplement and the accompanying
prospectus, when making your investment decision. You should
also read and consider the information in the documents we have
referred you to in the Where You Can Find More
Information section.
WHERE YOU
CAN FIND MORE INFORMATION
We are subject to the information and reporting requirements of
the Securities Exchange Act of 1934, as amended, referred to as
the Exchange Act in this prospectus supplement,
under which we file annual, quarterly and current reports, proxy
statements and other information with the Securities and
Exchange Commission, referred to as the SEC in this
prospectus supplement. You may read and copy any materials we
file with the SEC at the SECs public reference room at 100
F Street, N.E., Room 1580, Washington, DC 20549. Copies of
such material also can be obtained at the SECs website,
www.sec.gov or by mail from the SECs public
reference room, at prescribed rates. Please call the SEC at
1-800-SEC-0330
for further information on the SECs public reference room.
Our SEC filings are also available to the public on our
corporate website, www.covantaholding.com. Our common
stock is traded on The New York Stock Exchange, referred to as
the NYSE in this prospectus supplement. Materials
filed by us can be inspected at the offices of the NYSE at
20 Broad Street, New York, NY 10005.
Information on our website is not incorporated into this
prospectus supplement or other filings made by us with the SEC
and is not a part of this prospectus supplement.
INCORPORATION
BY REFERENCE
The SEC allows us to incorporate by reference the
information we file with them, which means that we can disclose
important information to you by referring you to those
documents. The information incorporated by reference is
considered to be part of this prospectus supplement, and
information that we file later with the SEC will automatically
update and supersede this information. We incorporate by
reference the documents listed below which have been filed with
the SEC:
1. Our Annual Report on
Form 10-K
for the year ended December 31, 2005, filed on
March 14, 2006;
2. Our Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2006, filed on
May 4, 2006, our Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 2006, filed on
August 3, 2006, and our Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2006, filed on
October 30, 2006;
3. Covanta Energys Annual Report on
Form 10-K/A
for the fiscal year ended December 31, 2004, filed on
April 22, 2005 (only with respect to the consolidated
financial statements of Covanta Energy and subsidiaries as of
and for each of the two years in the period ended
December 31, 2003);
4. Exhibit No. 99.2 of our Current Report on
Form 8-K
filed on April 7, 2005 (only with respect to the
consolidated financial statements of ARC Holdings (f/k/a
American Ref-Fuel Holdings Corp.) as of December 31, 2004
and 2003 and for the year ended December 31, 2004, the
period from December 12, 2003 through December 31,
2003, and the period from January 1, 2003 through
December 12, 2003 and the consolidated financial statements
of Ref-Fuel Holdings LLC as of December 31, 2004 and 2003
and for the year ended December 31, 2004, the period from
December 12, 2003 through December 31, 2003, the
period from January 1, 2003 through December 12, 2003
and the year ended December 31, 2002);
5. Exhibit No. 99.4 of our Current Report on
Form 8-K/A
filed on May 12, 2005 (only with respect to the
consolidated financial statements of ARC Holdings (f/k/a
American Ref-Fuel Holdings Corp.) as of and for the three months
ended March 31, 2005);
6. Our Current Reports on
Form 8-K
filed on February 24, 2006, March 6, 2006,
March 15, 2006 (as amended by our Current Report on
Form 8-K/A
filed on January 19, 2007), March 20, 2006,
April 3, 2006, April 7, 2006, May 31, 2006,
June 2, 2006, August 17, 2006, September 25,
2006, November 17, 2006, January 19, 2007 and
January 24, 2007; and
7. The description of our common stock on
Form 8-A/A
filed on November 17, 2006.
All documents filed by us under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934 (other than any
information furnished pursuant to Item 2.02 or
Item 7.01 of any Current Report on
Form 8-K
unless we specifically state in such Current Report that such
information is to be considered filed
ii
under the Securities Exchange Act of 1934, as amended, which we
refer to as the Exchange Act, or we incorporate it
by reference into a filing under the Securities Act of 1933, as
amended, or the Exchange Act) from the date of this prospectus
supplement until the sale of all securities registered hereunder
shall be deemed to be incorporated by reference in this
prospectus supplement. Any statement contained in this
prospectus supplement or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this prospectus
supplement to the extent that a statement contained in any
subsequently filed document which is or is deemed to be
incorporated by reference herein 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 supplement.
We will provide to each person, including any beneficial owner,
to whom a prospectus supplement is delivered, upon written or
oral request, a copy of any or all of the reports or documents
that have been incorporated by reference in this prospectus
supplement but not delivered with the prospectus supplement. You
may access a copy of any or all of these filings, free of
charge, at our web site, www.covantaholding.com, or by
writing us at the following address or telephoning us at the
number below:
Covanta
Holding Corporation
Attn: Gavin A. Bell
40 Lane Road
Fairfield, New Jersey 07004
(973) 882-7001
You may also direct your requests via
e-mail to
gbell@covantaholding.com
iii
PROSPECTUS
SUPPLEMENT SUMMARY
This summary highlights selected information contained
elsewhere or incorporated by reference in this prospectus
supplement and the accompanying prospectus. This summary does
not contain all the information that you should consider before
investing in the Debentures or the shares of our common stock
issuable upon conversion of the Debentures. You should read the
entire prospectus supplement and the accompanying prospectus
carefully, including the Risk Factors section and
our financial statements (including the notes thereto) included
or incorporated by reference in this prospectus supplement and
the accompanying prospectus before making an investment
decision. This prospectus supplement and the accompanying
prospectus contain forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially
from the results anticipated in these forward-looking statements
as a result of factors described under the Risk
Factors section and elsewhere in this prospectus
supplement.
Unless the context otherwise requires, references in this
prospectus supplement to Covanta, we,
our, us and similar terms refer to
Covanta Holding Corporation and its subsidiaries; references to
Covanta Energy refer to Covanta Energy Corporation,
a direct wholly-owned subsidiary of Covanta, and its
subsidiaries; references to ARC Holdings refer to
Covanta ARC Holdings, Inc, a direct wholly-owned subsidiary of
Covanta Energy and its subsidiaries; references to
ARC refer to Covanta ARC LLC; and references to
TransRiver refer to TransRiver Marketing Company,
L.P. ARC and TransRiver are indirect subsidiaries of ARC
Holdings.
Unless otherwise specifically indicated, all information in
this prospectus supplement assumes that the underwriters
option to purchase additional Debentures is not exercised.
Overview
We are a leading developer, owner and operator of infrastructure
for the conversion of energy-from-waste, waste disposal,
renewable energy production and independent power production in
the United States and abroad. Through our operating
subsidiaries, we own or operate 51 energy generation facilities,
41 of which are in the United States and 10 of which are located
outside of the United States. Our energy generation facilities
use a variety of fuels, including municipal solid waste, water
(hydroelectric), natural gas, coal, wood waste, landfill gas and
heavy fuel oil. We also own or operate several businesses that
are associated with our energy-from-waste business, including a
waste procurement business, two landfills and several waste
transfer stations. We also operate one water treatment facility
which is located in the United States.
The fundamental purpose of our energy-from-waste projects is to
provide waste disposal services, typically to municipal clients
who sponsor the projects. The electricity or steam generated is
generally sold to local utilities or industrial customers, and
most of the resulting revenues reduce the overall cost of waste
disposal services to the municipal clients. These projects are
capable of providing waste disposal services and generating
electricity or steam, if properly operated and maintained, for
several decades. Generally, we provide these waste disposal
services and sell the electricity or steam generated under
long-term contracts, which expire on various dates between 2008
and 2027. Many of our service contracts may be renewed for
varying periods of time, at the option of the municipal client.
We receive revenue in the form of fees pursuant to waste
disposal services contracts, and in some cases, energy purchase
agreements, at facilities we own or operate. TransRiver, one of
our subsidiaries, markets waste disposal services to third
parties predominantly to efficiently utilize that portion of the
waste disposal capacity of our energy-from-waste projects which
is not dedicated to municipal clients.
Our
Business Strategy
We believe our business offers solutions to public sector
leaders around the world in two related elements of critical
infrastructure: post-recycling waste disposal and energy
generation. We further believe the environmental benefits of
energy-from-waste, as an alternative to landfilling, are clear
and compelling: utilizing energy-from-waste reduces greenhouse
gas emissions, lowers the risk of groundwater contamination and
conserves land. At the same time, energy-from-waste generates
clean reliable energy from a renewable
S-1
fuel source, thus reducing dependence on fossil fuels. As public
planners address their needs for more environmentally sensitive
waste disposal and energy generation in the years ahead, we
believe energy-from-waste will be an increasingly attractive
alternative.
Our mission is to be the worlds leading energy-from-waste
company, with a complementary network of waste disposal and
energy generation assets. We expect to build value for our
stockholders by satisfying our clients waste disposal and
energy generation needs with safe, reliable and environmentally
superior solutions. In order to accomplish this mission, we
intend to:
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leverage our core competencies by:
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providing outstanding client service,
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utilizing an experienced management team,
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developing and utilizing world-class technologies and
operational expertise, and
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applying proven asset management and cost control;
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maximize the long-term value of our existing portfolio by:
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continuing to operate at historical production levels,
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continuing to execute effective maintenance programs,
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extending operating contracts, and
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enhancing the value of facilities we own after expiration of
existing contracts; and
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capitalize on growth opportunities by:
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expanding our existing energy-from-waste facilities in
attractive markets,
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seeking new ownership opportunities or operating contracts for
energy-from-waste and other energy generation and waste disposal
projects,
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seeking to expand our business in selected international markets
where our energy-from-waste expertise adds value and market and
regulatory conditions are favorable, and
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developing TransRiver and seeking additional opportunities in
businesses ancillary to our existing business, including
additional waste transfer, transportation, processing and
landfill businesses.
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Our principal executive offices are located at 40 Lane Road,
Fairfield, New Jersey 07004, and our telephone number is
(973) 882-9000.
Concurrent
Offering of Our Common Stock
Concurrently with this offering of the Debentures, we are
offering, pursuant to a separate prospectus supplement,
5,320,000 shares of our common stock at $23.50 per
share, plus up to an additional 798,000 shares of our
common stock if the underwriters exercise their option to
purchase additional shares from us in full. This prospectus
supplement is not an offer of shares of our common stock or a
solicitation of an offer to buy shares of our common stock. The
completion of this offering of the Debentures is not conditioned
on the completion of the offering of our common stock.
Proposed
New Credit Facilities
Concurrently with this offering of the Debentures and the
concurrent offering of our common stock, Covanta Energy is
negotiating the terms of new senior secured first lien credit
facilities in the amount of $1,300 million, which it
intends to enter into after the closing of this offering. We
refer to these proposed credit facilities as the New
Credit Facilities in this prospectus supplement. Under the
New Credit Facilities, the lenders are expected to provide
borrowings in the amount of up to $1,300 million,
consisting of a secured term loan facility in the amount of up
to $680 million that matures in 2014, a secured revolving
credit facility
S-2
in the amount of $300 million that terminates in 2013 and a
secured funded letter of credit facility in the amount of
$320 million that terminates in 2014. The New Credit
Facilities are expected to be guaranteed by us and certain
subsidiaries of Covanta Energy and secured by a first priority
lien on substantially all of the assets of Covanta Energy and
certain of its subsidiaries, subject to certain exclusions. Our
guarantee of the obligations under the New Credit Facilities
will be secured by a first priority lien on all of the capital
stock of Covanta Energy owned by us. The closing of this
offering of the Debentures is not conditioned on the closing of
the New Credit Facilities, which will occur, if at all, after
the closing of this offering of the Debentures. The closing of
the New Credit Facilities is conditioned upon our raising in
this offering of the Debentures and our concurrent offering of
our common stock a minimum amount to be agreed with the lenders,
which amount will be at least $400 million but not more
than $450 million. See Description of Proposed New
Credit Facilities.
Tender
Offers and Consent Solicitations
Concurrently with this offering of the Debentures, we have
commenced cash tender offers and related consent solicitations
to purchase any and all of the following outstanding notes
(principal amounts outstanding as of September 30, 2006):
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$195.8 million aggregate principal amount of
8.50% senior secured notes due 2010 of MSW Energy Finance
Co., Inc. and MSW Energy Holdings, LLC, referred to as
the MSW I Notes in this prospectus supplement;
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$224.1 million aggregate principal amount of
7.375% senior secured notes due 2010 of MSW Energy Finance
Co. II, Inc. and MSW Energy Holdings II, LLC, referred to
as the MSW II Notes in this prospectus
supplement; and
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$211.6 million aggregate principal amount of
6.26% senior notes due 2015 of ARC, referred to as the
ARC Notes and, collectively with the MSW I Notes and
the MSW II Notes, as the Outstanding Notes in
this prospectus supplement.
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Subsequent to September 30, 2006, we made a scheduled
principal repayment on the ARC Notes in the amount of
$19.6 million. Therefore, the principal amount of the ARC
Notes we intend to repurchase is $192.0 million.
We refer to such tender offers and related consent solicitations
as the tender offers in this prospectus supplement.
We intend to use the net proceeds from this offering, together
with the net proceeds from the concurrent offering of our common
stock, a portion of the borrowings under the New Credit
Facilities and available cash on hand, to repurchase the
Outstanding Notes pursuant to the tender offers. See Use
of Proceeds. The completion of each tender offer is
conditioned upon, among other things, the closings of this
offering of the Debentures, the concurrent offering of our
common stock and the New Credit Facilities. Nothing in this
prospectus supplement should be construed as an offer to
purchase any Outstanding Notes.
S-3
THE
OFFERING
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Issuer |
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Covanta Holding Corporation, a Delaware corporation |
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Securities Offered |
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$325.0 million aggregate principal amount of
1.00% Senior Convertible Debentures due 2027, which we
refer to as the Debentures. We have also granted the
underwriters an option to purchase, for a 13 day period
beginning on and including the date of original issuance of the
Debentures, up to an additional $48.75 million aggregate
principal amount of Debentures solely to cover over-allotments,
if any. |
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Offering Price |
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Each Debenture will be issued at a price of 100% of its
principal amount plus accrued interest, if any, from
January 31, 2007. |
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Maturity |
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February 1, 2027, unless earlier converted,
redeemed or repurchased. |
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Interest Rate |
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1.00% per year. Interest will be payable in cash on
February 1 and August 1 of each year, beginning
August 1, 2007. |
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Contingent Interest |
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Beginning with the six-month interest period commencing
February 1, 2012, we will pay contingent interest in cash
during any six-month interest period in which the trading price
of the Debentures for each of the five trading days ending on
the second trading day immediately preceding the first day of
the applicable six-month interest period equals or exceeds 120%
of the principal amount of the Debentures. |
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During any interest period when contingent interest shall be
payable, the contingent interest payable per $1,000 principal
amount of Debentures will equal 0.25% of the average trading
price of $1,000 principal amount of Debentures during the five
trading days ending on the second trading day immediately
preceding the first day of the applicable six-month interest
period. |
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Ranking |
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The Debentures will be our senior unsecured obligations and will
rank equally in right of payment with all of our future senior
unsecured indebtedness. The Debentures will not be guaranteed by
any of our subsidiaries and will be effectively subordinated to
all existing and future indebtedness and liabilities (including
trade payables) of our subsidiaries. The Debentures will be
effectively junior to our existing and future secured
indebtedness, including our guarantee of indebtedness under
Covanta Energys existing credit facilities or, if closed,
Covanta Energys New Credit Facilities, to the extent of
the value of the assets securing such indebtedness. |
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As of September 30, 2006, on a pro forma as adjusted basis,
after giving effect to the transactions described under
Capitalization, we would have had no indebtedness
outstanding other than the Debentures and our guarantee of
indebtedness under the New Credit Facilities, and our
subsidiaries would have had $3,307 million of indebtedness
and other liabilities, consisting of up to $680 million
under the first lien term loan facility of the New Credit
Facilities for which we would be a guarantor, and
$2,627 million of non-recourse project level indebtedness
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liabilities. Covanta Energy also would have had
$620 million of additional availability under the revolving
credit facility and the funded letter of credit facility of the
New Credit Facilities, of which it will have used
$321 million in the form of issued letters of credit. |
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Conversion Rights |
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You may convert your Debentures into shares of our common stock
on or prior to 5:00 p.m., New York City time on the
business day immediately preceding the maturity date only under
the following circumstances: |
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prior to February 1, 2025, on any date during
any fiscal quarter beginning after March 31, 2007 (and only
during such fiscal quarter) if the closing sale price of our
common stock was more than 130% of the then effective conversion
price for at least 20 trading days in the period of the 30
consecutive trading days ending on the last trading day of the
previous fiscal quarter;
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at any time on or after February 1, 2025;
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with respect to any Debentures called for
redemption, until 5:00 p.m., New York City time, on the
business day prior to the redemption date;
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during a specified period, if we distribute to all
or substantially all holders of our common stock, rights or
warrants entitling them to purchase, for a period of 45 calendar
days or less, shares of our common stock at a price less than
the average closing sale price for the ten trading days
preceding the declaration date for such distribution;
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during a specified period, if we distribute to all
or substantially all holders of our common stock, cash or other
assets, debt securities or rights to purchase our securities,
which distribution has a per share value exceeding 10% of the
closing sale price of our common stock on the trading day
preceding the declaration date for such distribution;
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during a specified period, if we are a party to a
consolidation, merger or sale, lease, transfer, conveyance or
other disposition of all or substantially all of our assets and
those of our subsidiaries taken as a whole that does not
constitute a fundamental change (as such term is described in
Description of the Debentures Repurchase at
the Option of the Holder Fundamental Change
Put), in each case pursuant to which our common stock
would be converted into cash, securities
and/or other
property;
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during a specified period if a fundamental change
occurs; and
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during the five consecutive business day period
following any five consecutive trading day period in which the
trading price for the Debentures for each day during such five
trading day period was less than 95% of the product of the
closing sale price of our common stock on such day multiplied by
the then effective conversion rate.
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The Debentures will be convertible based on an initial
conversion rate of 35.4610 shares of our common stock per
$1,000 principal |
S-5
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amount of Debentures (equivalent to an initial conversion price
of approximately $28.20 per share). The conversion rate,
and thus the conversion price, may be adjusted under certain
circumstances as described under Description of the
Debentures Conversion Procedures
Conversion Rate Adjustments. |
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Upon conversion, we will deliver cash and shares of our common
stock, if any, equal to the sum of the daily settlement amounts
for each day of the 20 settlement period trading days during the
applicable conversion period. See Description of the
Debentures Conversion Procedures
Settlement Upon Conversion. |
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Upon any conversion, subject to certain exceptions, you will not
receive any cash payment representing accrued and unpaid
interest (including contingent interest, if any). See
Description of the Debentures Conversion
Rights. |
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Adjustment to conversion rate upon a non-stock change of
control |
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Prior to February 1, 2012, if and only to the extent
holders elect to convert the Debentures in connection with a
transaction described under clause (1) or clause (4)
of the definition of fundamental change as described in
Description of the Debentures Repurchase
at the Option of the Holder Fundamental Change
Put pursuant to which 10% or more of the consideration for
our common stock (other than cash payments for fractional shares
and cash payments made in respect of dissenters appraisal
rights) consists of cash or securities (or other property) that
are not common equity interests traded or scheduled to be traded
immediately following such transaction on a U.S. national
securities exchange, which we refer to as a non-stock
change of control, we will increase the conversion rate by
a number of additional shares. The number of additional shares
will be determined by reference to the table in
Description of the Debentures Conversion
Procedures Adjustment to Conversion Rate Upon a
Non-Stock Change of Control, based on the effective date
and the price paid per share of our common stock in such
non-stock change of control. |
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If holders of our common stock receive only cash in the type of
transaction described above, the price paid per share will be
the cash amount paid per share. Otherwise, the price paid per
share will be the average of the closing sale prices of our
common stock on the five trading days prior to but not including
the effective date of such non-stock change of control. |
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Conversion after a public acquirer change of
control |
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In the case of a non-stock change of control constituting a
public acquirer change of control (as defined in this prospectus
supplement), the public acquirer may, in lieu of adjusting the
conversion rate as described in Description of the
Debentures Conversion Procedures
Adjustment to Conversion Rate Upon a Non-Stock Change of
Control, elect to adjust the conversion obligation and the
conversion rate such that from and after the effective date of
such public acquirer change of control, holders of |
S-6
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the Debentures will be entitled to convert their Debentures
(subject to the satisfaction of certain conditions) based on a
number of shares of public acquirer common stock by adjusting
the conversion rate in effect immediately before the public
acquirer change of control by a fraction: |
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the numerator of which will be:
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in the case of a share exchange,
consolidation, merger or binding share exchange pursuant to
which our common stock is converted into cash, securities or
other property, the average value of all cash and any other
consideration as determined by our board of directors paid or
payable per share of our common stock, or
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in the case of any other public acquirer
change of control, the average of the closing sale prices of our
common stock for the five consecutive trading days prior to but
excluding the effective date of such public acquirer change of
control, and
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the denominator of which will be the average of the
closing sale prices of the public acquirer common stock for the
five consecutive trading days commencing on the trading day next
succeeding the effective date of such public acquirer change of
control.
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Optional Redemption |
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At any time on or after February 1, 2012, we may redeem all
or a portion of the Debentures for cash at a redemption price
equal to 100% of the principal amount of the Debentures being
redeemed, plus accrued and unpaid interest (including contingent
interest, if any) to, but not including, the redemption date. |
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Optional Repurchase Right of Holders |
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You may require us to repurchase all or a portion of your
Debentures on February 1, 2012, February 1, 2017 and
February 1, 2022 for cash at a repurchase price equal to
100% of the principal amount of the Debentures being
repurchased, plus accrued and unpaid interest (including
contingent interest, if any) to, but not including, the
repurchase date. |
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Fundamental Change Repurchase Right of Holders |
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If we undergo a fundamental change (as defined in this
prospectus supplement) prior to maturity, you may require us to
repurchase for cash all or a portion of your Debentures at a
repurchase price equal to 100% of the principal amount of the
Debentures being repurchased, plus accrued and unpaid interest
(including contingent interest, if any) to, but not including,
the repurchase date. See Description of the
Debentures Repurchase at the Option of the
Holder Fundamental Change Put. |
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Events of Default |
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Except as described below under Failure to Comply with
Reporting Obligations, if an event of default with respect
to the Debentures occurs, the principal amount of the
Debentures, plus accrued and unpaid interest (including
contingent interest, if any) may be declared immediately due and
payable, subject to certain conditions set forth in the
indenture. These amounts automatically become due and payable in
the case of certain types of bankruptcy |
S-7
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or insolvency events of default involving us or certain of our
subsidiaries. |
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Failure to Comply with Reporting Obligations |
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Should we fail to comply with the reporting obligations in the
indenture or fail to comply with the requirements of
Section 314(a)(1) of the Trust Indenture Act, your remedy
for the 365 calendar days after the occurrence of such event of
default will consist exclusively of the right to receive
additional interest on the Debentures at an annual rate equal to
0.50% of the principal amount of the Debentures. See
Description of the Debentures Events of
Default; Notice and Waiver. |
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Absence of a Public Market for the Debentures |
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The Debentures will be a new issue of securities and will not be
listed on any securities exchange or automated quotation system.
We cannot assure you that any active or liquid market will
develop for the Debentures. See Underwriting. |
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NYSE Symbol for our Common Stock |
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Our common stock is listed on the NYSE under the symbol
CVA. |
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Use of Proceeds |
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We estimate that our net proceeds from this offering will be
approximately $314.9 million, after deducting the
underwriting discounts and commissions and estimated offering
expenses totaling $10.1 million ($362.4 million if the
underwriters option to purchase additional Debentures is
exercised in full). We intend to use the net proceeds of this
offering, together with the net proceeds from the concurrent
offering of our common stock, a portion of the borrowings under
the New Credit Facilities and available cash on hand to
repurchase the Outstanding Notes pursuant to the tender offers
or by redemptions, pay accrued and unpaid interest and related
premiums thereon and pay other related expenses. In the event
that Covanta Energy does not enter into the New Credit
Facilities, or such tender offers are not successfully
consummated, we intend to use the net proceeds of this offering
and the concurrent offering of our common stock for general
corporate purposes, which may include construction of new
facilities, expansions of existing facilities, or possible
permitted investments or acquisitions or, if we receive waivers
from the lenders under Covanta Energys existing credit
facilities, the repurchases of the MSW I Notes and/or
MSW II Notes. See Use of Proceeds. |
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U.S. Federal Income Tax Considerations |
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The Debentures and the common stock issuable upon conversion of
the Debentures will be subject to special and complex
United States federal income tax rules. Holders are urged
to consult their own tax advisors with respect to the federal,
state, local and foreign tax consequences of purchasing, owning
and disposing of the Debentures and our common stock issuable
upon conversion of the Debentures. See Risk
Factors Risks Relating to this Offering
You should consider the United States federal income tax
consequences of owning the Debentures and Certain
United States Federal Income Tax Considerations. |
S-8
RISK
FACTORS
You should carefully consider the following factors and other
information contained or incorporated by reference in this
prospectus supplement before deciding to invest in the
Debentures. Any of these risks could materially adversely affect
our business, financial condition, results of operations and
cash flow, which could in turn materially adversely affect the
price of the Debentures and the common stock issuable upon
conversion of the Debentures.
Risks
Relating to this Offering
Our
substantial indebtedness could adversely affect our business,
financial condition and results of operations and our ability to
meet our payment obligations under our indebtedness, including
the Debentures.
We do not currently have any indebtedness other than our
guarantee of indebtedness under Covanta Energys existing
credit facilities. As of September 30, 2006, our
subsidiaries had $3,909 million of outstanding indebtedness
and other liabilities, including $629 million under Covanta
Energys existing credit facilities and approximately
$3,280 million of the Outstanding Notes, non-recourse
project level indebtedness and other liabilities. As described
more fully under the Description of Proposed New Credit
Facilities section, Covanta Energy is currently
negotiating the terms of the New Credit Facilities with a
syndicate of lenders. If Covanta Energy is successful in
entering into the New Credit Facilities and we are successful in
consummating this offering of the Debentures and the concurrent
offering of our common stock, as described under
Capitalization, Covanta Energy would repay the
outstanding indebtedness under its existing credit facilities
and would incur up to $680 million of secured indebtedness
under the New Credit Facilities, for which we would be a
guarantor, and we would repurchase or redeem the Outstanding
Notes issued by other indirect subsidiaries. Assuming this
recapitalization occurs, we would have no indebtedness
outstanding other than the Debentures and our guarantee of
indebtedness under the New Credit Facilities, and our
subsidiaries would have approximately $3,307 million of
indebtedness, including Covanta Energys indebtedness under
the New Credit Facilities, non-recourse project level
indebtedness and other liabilities outstanding.
Whether or not Covanta Energy is successful in entering into the
New Credit Facilities, the level of our consolidated
indebtedness could have significant consequences on our future
operations, including:
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making it difficult for us to meet our payment and other
obligations under our outstanding indebtedness, including the
Debentures;
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resulting in an event of default if our subsidiaries fail to
comply with the financial and other restrictive covenants
contained in their debt agreements, which event of default could
result in all of such debt becoming immediately due and payable;
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limiting our ability to obtain additional financing to fund
working capital, capital expenditures, acquisitions and other
general corporate purposes;
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subjecting us to the risk of increased sensitivity to interest
rate increases on our indebtedness under Covantas existing
credit facilities or indebtedness under the New Credit
Facilities;
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limiting our flexibility in planning for, or reacting to, and
increasing our vulnerability to, changes in our business, the
industries in which we operate and the general economy; and
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placing us at a competitive disadvantage compared to our
competitors that have less debt or are less leveraged.
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Any of the above-listed factors could have an adverse effect on
our business, financial condition and results of operations and
our ability to meet our payment obligations under the Debentures
and our subsidiaries debt, and the price of our common
stock.
We
cannot assure you that our cash flow from operations will be
sufficient to service our indebtedness.
As a holding company, our ability to meet our obligations under
the Debentures depends on our subsidiaries ability to
generate cash and our ability to receive dividends and
distributions from our subsidiaries
S-9
in the future. This, in turn, is subject to many factors, some
of which are beyond our control, including the following:
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the continued operation and maintenance of our facilities,
consistent with historical performance levels;
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maintenance or enhancement of revenue from renewals or
replacement of existing contracts and from new contracts to
expand existing facilities or operate additional facilities;
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market conditions affecting waste disposal and energy pricing,
as well as competition from other companies for contract
renewals, expansions and additional contracts, particularly
after our existing contracts expire;
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the continued availability to Covanta Energy of the benefit of
our net operating loss carryforwards, referred to as
NOLs in this prospectus supplement, under a tax
sharing agreement; and
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general economic, financial, competitive, legislative,
regulatory and other factors.
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We cannot assure you that our business will generate cash flow
from operations, or that future borrowings will be available to
us under the New Credit Facilities or otherwise, in an amount
sufficient to enable us to meet our payment obligations under
the Debentures and to fund other liquidity needs. If our
subsidiaries are not able to generate sufficient cash flow to
service our debt obligations, we may need to refinance or
restructure our debt, including the Debentures, sell assets,
reduce or delay capital investments, or seek to raise additional
capital. If we are unable to implement one or more of these
alternatives, we may not be able to meet our payment obligations
under our outstanding indebtedness, including the Debentures.
We may
not have access to the cash flow and other assets of our
subsidiaries that may be needed to make payments on our
indebtedness, including the Debentures.
All of our business is conducted through our subsidiaries. Our
ability to make payments on the Debentures is dependent on the
earnings of, and the distribution of funds to us from, our
subsidiaries. Certain of our subsidiaries and affiliates are
currently subject to project and other financing arrangements
that restrict their ability to make dividends or distributions
to us. Covanta Energy derives its cash flow principally from its
domestic and international project operations and businesses. A
material portion of Covanta Energys domestic cash flows
are expected to be derived from projects where financial test
and other covenants contained in respective debt arrangements
must be satisfied in order for project subsidiaries to make cash
distributions to Covanta Energys intermediate subsidiaries
and, in turn, to us. We cannot assure you that our project
subsidiaries will be able to satisfy such financial tests and
covenants in the future, and that we, indirectly through Covanta
Energy, will be able to receive cash distributions from such
subsidiaries.
In addition, Covanta Energys existing credit facilities
prohibit Covanta Energy from making cash distributions or
dividends to us in respect of any of our cash payment
obligations on the Debentures. See Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations Cash Flow and
Liquidity Financing Arrangements Covanta
Energy Debt of our annual report on
Form 10-K
for the fiscal year ended December 31, 2005 for a more
complete description of the terms of Covanta Energys
existing credit facilities. If Covanta Energy is not successful
in refinancing its existing credit facilities with the New
Credit Facilities, we intend to retain sufficient cash at
Covanta to fund our cash payment obligations on the Debentures
until such time as Covanta Energy is successful in refinancing
its existing credit facilities or until it receives appropriate
consents from the lenders thereunder.
Under the proposed terms of the New Credit Facilities, Covanta
Energys ability to make cash distributions or dividends to
us in respect of our cash payment obligations on the Debentures
(other than in respect of payment of interest on the Debentures)
is limited. Therefore, even if Covanta Energy is successful in
refinancing its existing credit facilities with the New Credit
Facilities, we may not be able to receive sufficient cash
distributions or dividends from Covanta Energy to make such cash
payments on the Debentures.
S-10
The
Debentures will be effectively subordinated to any existing and
future indebtedness and other liabilities of our
subsidiaries.
Our subsidiaries are separate and distinct legal entities. Our
subsidiaries have no obligation to pay any amounts due on the
Debentures or, subject to existing or future contractual
obligations between us and our subsidiaries, to provide us with
funds for our payment obligations, whether by dividends,
distributions, loans or other payments. Our right to receive any
assets of any of our subsidiaries upon liquidation or
reorganization, and, as a result, the right of the holders of
the Debentures to participate in those assets, will be
effectively subordinated to the claims of that subsidiarys
creditors, including lenders under Covanta Energys
existing credit facilities or, if closed, the New Credit
Facilities, and lenders under the project level indebtedness.
The Debentures do not restrict the ability of our subsidiaries
to incur additional liabilities. As of September 30, 2006,
on a pro forma as adjusted basis after giving effect to the
transactions described under the Capitalization
section, our subsidiaries would have had $3,307 million of
indebtedness and other liabilities, including up to
$680 million under the term loan facility of the New Credit
Facilities for which we would be a guarantor. Covanta Energy
also would have $620 million of additional availability
under the revolving credit facility and the funded letter of
credit facility of the New Credit Facilities, of which it will
have used $321 million in the form of issued letters of
credit.
Despite
our current and anticipated indebtedness levels, we may still
incur substantially more indebtedness or take other actions
which would intensify the risks discussed above.
Despite our current and anticipated consolidated indebtedness
levels, we may be able to incur substantial additional
indebtedness in the future. We will not be restricted under the
terms of the indenture governing the Debentures from incurring
additional indebtedness. In addition, under the proposed terms
of the New Credit Facilities, upon the request of Covanta
Energy, and subject to the satisfaction of certain conditions
set forth in the New Credit Facilities, up to $400 million
in additional term loan facilities
and/or the
revolving credit facility and incremental funded letter of
credit facilities up to an aggregate of $400 million may
become available to Covanta Energy. See Description of
Proposed New Credit Facilities. Although the terms of
Covanta Energys existing credit facilities contain, and
the terms of the New Credit Facilities are expected to contain,
restrictions on the incurrence of additional indebtedness by
Covanta Energy and certain of its subsidiaries, these
restrictions are subject to a number of qualifications and
exceptions and, under certain circumstances, indebtedness
incurred in compliance with these restrictions could be
substantial. If new indebtedness is added to our current or
anticipated indebtedness levels, the substantial risks described
above would intensify. Our ability to recapitalize, incur
additional debt, secure existing or future debt, and take a
number of other actions that are not limited by the terms of the
indenture for the Debentures could have the effect of
diminishing our ability to make payments on the Debentures when
due.
The
terms of the Debentures will not contain restrictive covenants
and provide only limited protection in the event of a change of
control.
The indenture under which the Debentures will be issued will not
contain restrictive covenants that would protect you from
several kinds of transactions that may adversely affect you. In
particular, the indenture will not contain covenants that will
limit our ability to pay dividends or make distributions on or
redeem our capital stock or limit our ability to incur
additional indebtedness. Therefore, the indenture may not
protect you in the event of a highly leveraged transaction or
other similar transaction. The requirement that we offer to
repurchase the Debentures upon a change of control of Covanta is
limited to the transactions specified in the definition of a
fundamental change under Description of the
Debentures Repurchase at the Option of the
Holder Fundamental Change Put. For example,
transactions such as leveraged recapitalizations, refinancings,
restructurings or acquisitions initiated by us would not
constitute a fundamental change requiring us to repurchase the
Debentures. Similarly, the circumstances under which we are
required to increase the conversion rate upon the occurrence of
a non-stock change of control are limited to
circumstances where the Debentures are converted in connection
with such a transaction as set forth under Description of
the Debentures Conversion Procedures
Adjustment to Conversion Rate Upon a Non-Stock Change of
Control. Accordingly, subject to restrictions contained in
our other debt agreements, we could enter into certain
transactions that could increase the amounts of our indebtedness
or otherwise affect our capital
S-11
structure and the value of the Debentures and our common stock
but would not constitute a fundamental change under the
indenture governing the Debentures.
We may
not have sufficient funds necessary to settle conversion of the
Debentures or to repurchase the Debentures for cash when
required by the holders, including following a fundamental
change.
Upon conversion of the Debentures, we will be required to pay a
conversion settlement amount in cash and shares of our common
stock, if any, based upon a period of 20 settlement period
trading days. In addition, holders of the Debentures will have
the right to require us to repurchase all or a portion of their
Debentures on February 1, 2012, February 1, 2017 and
February 1, 2022 or upon the occurrence of a fundamental
change prior to maturity for cash as described under
Description of the Debentures Repurchase at
the Option of the Holder Optional Put and
Fundamental Change Put. Our ability to
satisfy our conversion obligations or to repurchase the
Debentures in cash may be limited by law or the terms of Covanta
Energys existing credit facilities until such time as
Covanta Energy is successful in refinancing its existing credit
facilities or until it receives appropriate consents from the
lenders thereunder. Under the proposed terms of the New Credit
Facilities, we may be subject to a similar restriction. In
addition, any fundamental change would constitute a default
under Covanta Energys existing credit facilities and is
expected to constitute a default under the New Credit
Facilities. Therefore, upon the occurrence of a fundamental
change, the lenders under Covanta Energys existing credit
facilities or the New Credit Facilities, as the case may be,
would have the right to accelerate their loans, and Covanta
Energy would be required to prepay all of its outstanding
obligations under its existing credit facilities or the New
Credit Facilities. We may not have sufficient funds to pay the
conversion settlement amount or the required repurchase price in
cash at such time or the ability to arrange necessary financing
on acceptable terms. If we fail to pay the conversion settlement
amount upon conversion or repurchase the Debentures in cash as
required by the indenture governing the Debentures, it would
constitute an event of default under the indenture governing the
Debentures.
The
Debentures will be effectively junior to any of our existing and
future secured indebtedness.
The Debentures will be our unsecured obligations and therefore
will be effectively junior to our existing and future secured
indebtedness, including our guarantee of indebtedness under
Covanta Energys existing credit facilities, or, if closed,
the New Credit Facilities, to the extent of the value of the
assets securing such indebtedness. Further, the Debentures do
not restrict us from incurring indebtedness, including senior
secured indebtedness in the future, nor do they limit the amount
of indebtedness we can issue that is equal in right of payment.
As a result, in the event of our bankruptcy, liquidation,
dissolution, reorganization, or similar proceeding, our assets
will be available to satisfy obligations of our secured
indebtedness before any payment may be made on the Debentures.
To the extent that such assets cannot satisfy in full our
secured indebtedness, the holders of such indebtedness would
have a claim for any shortfall that would rank equally in right
of payment with the Debentures. In such an event, we may not
have sufficient assets remaining to pay amounts on any or all of
the Debentures.
The
adjustment to the conversion rate upon the occurrence of
specified types of fundamental changes may not adequately
compensate you.
If specified types of fundamental changes occur on or prior to
the date when the Debentures may be redeemed by us, we will
increase the conversion rate by a number of additional shares of
our common stock for Debentures converted in connection with
such specified fundamental changes unless the price paid per
share of our common stock in the fundamental change is less than
$23.50 or more than $65.00 (in each case, subject to
adjustment). A description of how the increase in the conversion
rate will be determined is set forth under the Description
of the Debentures Conversion Procedures
Adjustment to Conversion Rate Upon A Non-Stock Change of
Control section. Although this increase in the conversion
rate is designed to compensate you for the lost value of your
Debentures as a result of certain types of fundamental changes,
it may not adequately compensate you for such loss. Furthermore,
our obligation to increase the conversion rate in connection
with any such specified fundamental changes could be considered
a penalty, in which case the enforceability thereof would be
subject to general principles of economic remedies.
S-12
There
is currently no public market for the Debentures, and an active
trading market may not develop for the Debentures. The failure
of a market to develop for the Debentures could adversely affect
the liquidity and value of your Debentures.
The Debentures are a new issue of securities for which there is
currently no active trading market. We do not intend to apply
for listing of the Debentures on any securities exchange or for
quotation of the Debentures on any automated dealer quotation
system. We have been advised by the underwriters that following
the completion of this offering, certain of the underwriters
intend to make a market in the Debentures. However, they are not
obligated to do so and any market-making activities with respect
to the Debentures may be discontinued by them at any time
without notice. In addition, any market-making activity will be
subject to limits imposed by law. A market may not develop for
the Debentures, and there can be no assurance as to the
liquidity of any market that may develop for the Debentures. If
an active, liquid market does not develop for the Debentures,
the market price and liquidity of the Debentures may be
adversely affected. If any of the Debentures are traded after
their initial issuance, they may trade at a discount from their
initial offering price.
The liquidity of the trading market, if any, and future trading
prices of the Debentures will depend on many factors, including,
among other things, the market price of our common stock,
prevailing interest rates, our operating results, financial
performance and prospects, the market for similar securities and
the overall securities market, and may be adversely affected by
unfavorable changes in these factors. Historically, the market
for convertible debt has been subject to disruptions that have
caused volatility in prices. It is possible that the market for
the Debentures will be subject to disruptions which may have a
negative effect on the holders of the Debentures, regardless of
our operating results, financial performance or prospects.
The
conditional conversion feature of the Debentures could result in
your receiving less than the value of our common stock into
which a Debenture would otherwise be convertible.
The Debentures are convertible only if specified conditions are
met. If these conditions are not met, you will not be able to
convert your Debentures, and you may not be able to receive the
value of our common stock into which the Debentures would
otherwise be convertible.
The
value of consideration received by holders upon conversion of
the Debentures under certain circumstances may be less than the
conversion value of the Debentures on the conversion
date.
Upon conversion, we will pay cash and deliver shares of our
common stock, if any, equal to the sum of the daily settlement
amounts for each day of the 20 settlement period trading days
during the applicable conversion period. Accordingly, upon
conversion of a Debenture, you may receive less proceeds than
you expected because the value of our common stock may decline
between the conversion date and the day the conversion
settlement amount of your Debenture is determined. In addition,
because of the 20 settlement period trading days, settlement
will generally be delayed until at least the 26th trading
day following the related conversion date. See Description
of the Debentures Conversion Procedures
Settlement Upon Conversion.
The
conversion rate of the Debentures may not be adjusted for all
dilutive events that may adversely affect the trading price of
the Debentures or our common stock issuable upon conversion of
the Debentures.
The conversion rate of the Debentures is subject to adjustment
upon specified events, including the issuance of stock dividends
on our common stock, the issuance of rights or warrants,
subdivisions, combinations, distributions of capital stock,
indebtedness or assets, cash dividends and issuer tender or
exchange offers as described under Description of the
Debentures Conversion Procedures
Conversion Rate Adjustments. The conversion rate will not
be adjusted for certain 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
Debentures or our common stock issuable upon conversion of the
Debentures.
S-13
The
trading price of the Debentures will be directly affected by the
trading price of our common stock, which is difficult to
predict.
The trading price of our common stock could be affected by
possible sales of our common stock by investors who view the
Debentures as a more attractive means of equity participation in
Covanta by hedging or arbitrage trading activity that may
develop involving our common stock. This arbitrage could, in
turn, affect the trading price of the Debentures.
If you hold the Debentures, you 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), but you will be
subject to all changes affecting our common stock. You will only
be entitled to rights on our common stock if and when we deliver
shares of our common stock to you upon conversion of your
Debentures. For example, in the event that an amendment is
proposed to our restated certificate of incorporation, as
amended, 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 your conversion of
Debentures, you will not be entitled to vote on the amendment,
although you will nevertheless be subject to any changes in the
powers, preferences, or special rights of our common stock or
other classes of capital stock.
Any
adverse rating of the Debentures may cause the trading price of
the Debentures to fall.
The Debentures have been rated B by Standard & Poors
Credit Market Services and B1 by Moodys Investor Services,
Inc. If these rating agencies do not rate us or reduce their
ratings on the Debentures in the future or indicate that they
have their ratings on the Debentures under surveillance or
review with possible negative implications, the value of the
Debentures could decline.
In addition, Covanta Energys and our current corporate
credit has been rated BB− by Standard & Poors
and our corporate credit has been rated Ba2 by Moodys. Any
decline in the ratings of our corporate credit or any
indications from the rating agencies that their ratings on our
corporate credit are under surveillance or review with possible
negative implications could adversely affect the value of the
Debentures and the trading price of our common stock. In
addition, a ratings downgrade could adversely affect our ability
to access capital. Ratings on the Debentures are not a
recommendation to buy the Debentures and such ratings may be
withdrawn or changed at any time.
You
should consider the United States federal income tax
consequences of owning the Debentures.
We and each holder agree in the indenture to treat the
Debentures as contingent payment debt instruments
subject to the contingent payment debt regulations. As a result,
you will be required to include amounts in income, as original
issue discount, in advance of cash you receive on the
Debentures, and to accrue interest on a constant yield to
maturity basis at a rate comparable to the rate at which we
would borrow in a fixed-rate, noncontingent, nonexchangeable
borrowing (which we have determined to be 7.25%, compounded
semi-annually), even though the Debentures will have a lower
yield to maturity for non-tax purposes. You will recognize
taxable income significantly in excess of cash received while
the Debentures are outstanding. In addition, you will recognize
ordinary income, if any, upon a sale, exchange or redemption of
the Debentures at a gain. You are urged to consult your own tax
advisors as to the United States federal, state, local and
foreign consequences of acquiring, owning and disposing of the
Debentures and shares of our common stock. See Certain
United States Federal Income Tax Considerations.
If we
pay a cash dividend on our common stock, you may be deemed to
have received a taxable dividend without the receipt of any
cash.
If we pay a cash dividend on our common stock, an adjustment to
the conversion rate may result, and you may be deemed to have
received a taxable dividend subject to United States federal
income tax without the receipt of any cash. If you are a
non-U.S. holder
(as defined in Certain United States Federal Income Tax
Considerations), such deemed dividend may be subject to
United States federal withholding tax at a 30% rate or such
lower rate as may be specified by an applicable treaty. See
Certain United States Federal Income Tax
Considerations.
S-14
The
market price of our common stock, and therefore of the
Debentures, may fluctuate significantly, and this may make it
difficult for you to resell the Debentures or our common stock
issuable upon conversion of the Debentures when you want or at
prices you find attractive.
The price of our common stock on the NYSE constantly changes. We
expect that the market price of our common stock will continue
to fluctuate. In addition, because the Debentures are
convertible into our common stock, volatility or depressed
prices for our common stock could have a similar effect on the
trading price of the Debentures. Consequently, there can be no
assurance as to the liquidity of an investment in our common
stock or the Debentures or as to the price you may realize upon
the sale of our common stock.
The market price of our common stock may fluctuate as a result
of a variety of factors, many of which are beyond our control.
These factors include:
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changes in the waste and energy market conditions;
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quarterly variations in our operating results;
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our operating results that vary from the expectations of
management, securities analysts and investors;
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changes in expectations as to our future financial performance;
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announcements of strategic developments, significant contracts,
acquisitions and other material events by us or our competitors;
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the operating and securities price performance of other
companies that investors believe are comparable to us;
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future sales of our equity or equity-related securities;
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changes in the economy and the financial markets;
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departures of key personnel;
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changes in governmental regulations; and
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geopolitical conditions, such as acts or threats of terrorism or
military conflicts.
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In addition, in recent years, the stock market in general has
experienced extreme price and volume fluctuations. This
volatility has had a significant effect on the market price of
securities issued by many companies for reasons often unrelated
to their operating performance. These broad market fluctuations
may adversely affect the market price of our common stock,
regardless of our operating results.
Future
issuances of our common stock, including conversion of the
Debentures, will dilute the ownership interests of stockholders
and may adversely affect the trading price of our common
stock.
Except as described under the Underwriting section,
we are not restricted from issuing additional shares of our
common stock, or securities convertible into or exchangeable for
our common stock, during the life of the Debentures and have no
obligation to consider your interests for any reason. Future
sales of substantial amounts of our common stock or
equity-related securities in the public market, or the
perception that such sales could occur, could materially and
adversely affect prevailing trading prices of our common stock
and, in turn, the trading price of the Debentures. In addition,
the conversion of some or all of the Debentures will dilute the
ownership interests of our existing stockholders. Any sales in
the public market of our common stock issuable upon such
conversion could adversely affect prevailing market prices of
our common stock. In addition, the existence of the Debentures
may encourage short selling by market participants because the
conversion of the Debentures could depress the trading price of
our common stock.
We
will have broad discretion as to the use of the proceeds of this
offering.
Subject to certain plans and limitations as described under the
Use of Proceeds section, we will have significant
flexibility in allocating the net proceeds of this offering. In
the event that we are unsuccessful in refinancing indebtedness
under Covanta Energys existing credit facilities with the
New Credit Facilities, then
S-15
we would be prohibited by the terms of such credit facilities
from repurchasing the Outstanding Notes. In that case, the net
proceeds from this offering and the concurrent offering of our
common stock, if successful, would be used for general corporate
purposes, which may include construction of new facilities,
expansions of existing facilities or possible permitted
investments or acquisitions or repurchase or redemption of any
of the MSW I Notes or MSW II Notes if we are successful in
obtaining waivers from Covanta Energys current lenders. If
we fail to spend these funds effectively, it could harm our
financial condition and result in lost business opportunities.
Provisions
of the Debentures could discourage an acquisition of Covanta by
a third party.
Certain provisions of the Debentures could make it more
difficult or more expensive for a third party to acquire us.
Upon the occurrence of certain transactions constituting a
fundamental change, the holders of the Debentures will have the
right to require us to repurchase their Debentures. We may also
be required to issue additional shares upon conversion or
provide for conversion based on the acquirers capital
stock in the event of certain fundamental changes. These
possibilities could discourage an acquisition of us.
Concentrated
stock ownership may discourage unsolicited acquisition
proposals.
As of November 22, 2006, SZ Investments, L.L.C., together
with its affiliate, EGI-Fund
(05-07)
Investors, L.L.C., referred to as
Fund 05-07
and, collectively with SZ Investments, L.L.C., referred to as
SZ Investments, Third Avenue Trust, on behalf of
Third Avenue Value Fund, referred to as Third
Avenue, and D. E. Shaw Laminar Portfolios, L.L.C.,
referred to as Laminar, separately own approximately
15.71%, 5.97% and 9.9%, respectively, or when aggregated,
approximately 31.6% of our outstanding common stock. Although
there are no agreements among SZ Investments, Third Avenue and
Laminar regarding their voting or disposition of shares of our
common stock, the level of their combined ownership of shares of
our common stock could have the effect of discouraging or
impeding an unsolicited acquisition proposal.
Further, as a result, these stockholders may continue to have
the ability to influence the election or removal of our
directors and influence the outcome of matters presented for
approval by our stockholders. Circumstances may occur in which
the interests of these stockholders could be in conflict with
the holders of the Debentures.
Anti-takeover
provisions could negatively impact our
stockholders.
Provisions of our restated certificate of incorporation, as
amended, and bylaws could make it more difficult for a third
party to acquire control of us. For example, our restated
certificate of incorporation authorizes our board of directors
to issue preferred stock without requiring any stockholder
approval, and preferred stock could be issued as a defensive
measure in response to a takeover proposal. These provisions
could make it more difficult for a third party to acquire us
even if an acquisition might be in the best interest of our
stockholders.
Specific
Risks Relating to Our Business
We
cannot be certain that our NOLs will continue to be available to
offset tax liability.
Our NOLs will expire in various amounts, if not used, between
2007 and 2023. The Internal Revenue Service, referred to in this
prospectus supplement as the IRS, has not audited
any of our tax returns for any of the years during the
carryforward period including those returns for the years in
which the losses giving rise to the NOLs were reported. We
cannot assure you that we would prevail if the IRS were to
challenge the availability of the NOLs. If the IRS were
successful in challenging our NOLs, all or some portion of the
NOLs would not be available to offset our future consolidated
taxable income, and we may not be able to satisfy our
obligations to Covanta Energy under a tax sharing agreement, or
to pay taxes that may be due from our consolidated tax group.
The loss of a significant portion of NOLs could also trigger an
event of default under Covanta Energys existing credit
facilities.
S-16
As of December 31, 2005, we estimated that we had
approximately $489 million of NOLs. In order to utilize the
NOLs, we must generate consolidated taxable income which can
offset such carryforwards. The NOLs are also utilized by income
from certain grantor trusts that were established as part of the
reorganization in 1990 of certain of our subsidiaries engaged in
the insurance business and are administered by state regulatory
agencies. As a result of uncertainty regarding the
administration of certain of these grantor trusts during June
2006, we reduced the aggregate amount of our available NOLs by
$46 million. During or at the conclusion of the
administration of these grantor trusts, taxable income could
result, which could utilize a portion of our NOLs and, in turn,
could accelerate the date on which we may be otherwise obligated
to pay incremental cash taxes.
In addition, if our existing insurance business were to require
capital infusions from us in order to meet certain regulatory
capital requirements, and we were to fail to provide such
capital, some or all of our subsidiaries comprising our
insurance business could enter insurance insolvency or
bankruptcy proceedings. In such event, such subsidiaries may no
longer be included in our consolidated tax return, and a
portion, which could constitute a significant portion, of our
remaining NOLs may no longer be available to us. In such event,
there may be a significant inclusion of taxable income in our
federal consolidated income tax return.
Covanta
Energys debt agreements contain covenant restrictions that
may limit our ability to operate our business.
Covanta Energys existing credit facilities contain,
Covanta Energys New Credit Facilities are expected to
contain, and any of our other future debt agreements may contain
covenants that impose significant operating and financial
restrictions on Covanta Energy and certain of its subsidiaries
and require Covanta Energy to meet certain financial tests.
Complying with these covenant restrictions may have a negative
impact on our business, results of operations and financial
condition by limiting our ability to engage in certain
transactions or activities, including:
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incurring additional indebtedness or issuing guarantees;
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creating liens;
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making certain investments;
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entering into transactions with our affiliates;
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selling certain assets;
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redeeming capital stock or making other restricted payments;
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declaring or paying dividends or making other distributions to
stockholders; and
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merging or consolidating with any person.
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Covanta Energys ability to comply with these covenants is
dependent on our future performance, which will be subject to
many factors, some of which are beyond our control, including
prevailing economic conditions. As a result of these covenants,
our ability to respond to changes in business and economic
conditions and to obtain additional financing, if needed, may be
significantly restricted, and we may be prevented from engaging
in transactions that might otherwise be beneficial to us. In
addition, the failure to comply with these covenants in Covanta
Energys existing credit facilities or in the New Credit
Facilities could result in a default thereunder and a default
under the Debentures. Upon the occurrence of such an event of
default, the lenders under Covanta Energys existing credit
facilities or in the New Credit Facilities could elect to
declare all amounts outstanding under such agreement, together
with accrued interest, to be immediately due and payable. If the
lenders accelerate the payment of the indebtedness under Covanta
Energys existing credit facilities or the New Credit
Facilities, we cannot assure you that the assets securing such
indebtedness would be sufficient to repay in full that
indebtedness and our other indebtedness, including the
Debentures.
S-17
Operation
of our facilities and the expansion of facilities involve
significant risks.
The operation of our waste and energy facilities and the
construction of new or expanded facilities involve many risks,
including:
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the inaccuracy of our assumptions with respect to the timing and
amount of anticipated revenues;
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supply interruptions;
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the breakdown or failure of equipment or processes;
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difficulty or inability to find suitable replacement parts for
equipment;
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the unavailability of sufficient quantities of waste;
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decreases in the fees for solid waste disposal;
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decreases in the demand or market prices for recovered ferrous
or non-ferrous metal;
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disruption in the transmission of electricity generated;
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permitting and other regulatory issues, license revocation and
changes in legal requirements;
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labor disputes and work stoppages;
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unforeseen engineering and environmental problems;
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unanticipated cost overruns;
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weather interferences, catastrophic events including fires,
explosions, earthquakes, droughts and acts of terrorism;
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the exercise of the power of eminent domain; and
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performance below expected levels of output or efficiency.
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We cannot predict the impact of these risks on our business or
operations. These risks, if they were to occur, could prevent
Covanta Energy and its subsidiaries from meeting their
obligations under their operating contracts.
A
failure to identify suitable acquisition candidates and to
complete acquisitions could have an adverse effect on our
business strategy and growth plans.
As part of our business strategy, we intend to continue to
pursue acquisitions of complementary businesses. Although we
regularly evaluate acquisition opportunities, we may not be able
successfully to identify suitable acquisition candidates; to
obtain sufficient financing on acceptable terms to fund
acquisitions; or to complete acquisitions.
The
rapid growth of our operations could strain our resources and
cause our business to suffer.
We have experienced rapid growth and intend to further grow our
business. This growth has placed, and potential future growth
will continue to place, a strain on our management systems,
infrastructure and resources. Our ability to successfully offer
services and implement our business plan in a rapidly evolving
market requires an effective planning and management process. We
expect that we will need to continue to improve our financial
and managerial controls, reporting systems and procedures. We
will also need to expand, train and manage our workforce
worldwide. Furthermore, we expect that we will be required to
manage an increasing number of relationships with various
customers and other third parties. Failure to expand in any of
the foregoing areas efficiently and effectively could interfere
with the growth of our business as a whole.
S-18
Our
efforts to grow our business will require us to incur
significant costs in business development, often over extended
periods of time, with no guarantee of success.
Our efforts to grow our waste and energy business will depend in
part on how successful we are in developing new projects and
expanding existing projects. The development period for each
project may occur over several years, during which we incur
substantial expenses relating to siting, design, permitting,
community relations, financing and professional fees associated
with all of the foregoing. Not all of our development efforts
will be successful, and we may decide to cease developing a
project for a variety of reasons. If the cessation of our
development efforts were to occur at an advanced stage of
development, we may have incurred a material amount of expenses
for which we will realize no return.
Development,
construction and operation of new projects may not commence as
scheduled, or at all.
The development and construction of new waste and energy
facilities involves many risks including siting, permitting,
financing and construction delays and expenses,
start-up
problems, the breakdown of equipment and performance below
expected levels of output and efficiency. New facilities have no
operating history and may employ recently developed technology
and equipment. Our businesses maintain insurance to protect
against risks relating to the construction of new projects;
however, such insurance may not be adequate to cover lost
revenues or increased expenses. As a result, a new facility may
be unable to fund principal and interest payments under its debt
service obligations or may operate at a loss. In certain
situations, if a facility fails to achieve commercial operation,
at certain levels or at all, termination rights in the
agreements governing the facilitys financing may be
triggered, rendering all of the facilitys debt immediately
due and payable. As a result, the facility may be rendered
insolvent and we may lose our interest in the facility.
Our
insurance and contractual protections may not always cover lost
revenues, increased expenses or liquidated damages
payments.
Although our businesses maintain insurance, obtain warranties
from vendors, require contractors to meet certain performance
levels and, in some cases, pass risks we cannot control to the
service recipient or output purchaser, the proceeds of such
insurance, warranties, performance guarantees or risk sharing
arrangements may not be adequate to cover lost revenues,
increased expenses or liquidated damages payments.
Performance
reductions could materially and adversely affect us and our
projects may operate at lower levels than
expected.
Most service agreements for our energy-from-waste facilities
provide for limitations on damages and cross-indemnities among
the parties for damages that such parties may incur in
connection with their performance under the service agreement.
In most cases, such contractual provisions excuse our businesses
from performance obligations to the extent affected by
uncontrollable circumstances and provide for service fee
adjustments if uncontrollable circumstances increase our costs.
We cannot assure you that these provisions will prevent our
businesses from incurring losses upon the occurrence of
uncontrollable circumstances or that if our businesses were to
incur such losses they would continue to be able to service
their debt.
Covanta Energy and certain of its subsidiaries have issued or
are party to performance guarantees and related contractual
obligations associated with its energy-from-waste, renewable
energy, independent power and water facilities. With respect to
its domestic businesses, Covanta Energy and certain of its
subsidiaries have issued guarantees to its municipal clients and
other parties that Covanta Energys subsidiaries will
perform in accordance with contractual terms, including, where
required, the payment of damages or other obligations. The
obligations guaranteed will depend upon the contract involved.
Many of Covanta Energys subsidiaries have contracts to
operate and maintain energy-from-waste facilities. In these
contracts, the subsidiary typically commits to operate and
maintain the facility in compliance with legal requirements; to
accept minimum amounts of solid waste; to generate a minimum
amount of electricity per ton of waste; and to pay damages to
contract counterparties under specified circumstances, including
those where the operating subsidiarys contract has been
terminated for default. Any contractual damages or other
obligations incurred by Covanta Energy and certain of its
subsidiaries could be material, and in circumstances where one
or more
S-19
subsidiarys contract has been terminated for its default,
such damages could include amounts sufficient to repay project
debt. Additionally, damages payable under such guarantees on
Covanta Energys owned energy-from-waste facilities could
expose Covanta Energy to recourse liability on project debt.
Covanta Energy and certain of its subsidiaries may not have
sufficient sources of cash to pay such damages or other
obligations. We cannot assure you that Covanta Energy and such
subsidiaries will be able to continue to avoid incurring
material payment obligations under such guarantees or that, if
Covanta Energy did incur such obligations, that Covanta Energy
would have the cash resources to pay them.
Our
businesses generate revenue primarily under long-term contracts
and must avoid defaults under those contracts in order to
service their debt and avoid material liability to contract
counterparties.
Covanta Energys subsidiaries must satisfy performance and
other obligations under contracts governing energy-from-waste
facilities. These contracts typically require Covanta
Energys subsidiaries to meet certain performance criteria
relating to amounts of waste processed, energy generation rates
per ton of waste processed, residue quantity and environmental
standards. The failure of Covanta Energys subsidiaries to
satisfy these criteria may subject them to termination of their
respective operating contracts. If such a termination were to
occur, Covanta Energys subsidiaries would lose the cash
flow related to the projects and incur material termination
damage liability, which may be guaranteed by Covanta Energy or
certain of its subsidiaries. In circumstances where the contract
of one or more subsidiaries has been terminated due to the
default of one of Covanta Energys subsidiaries they may
not have sufficient sources of cash to pay such damages. We
cannot assure you that Covanta Energys subsidiaries will
be able to continue to perform their respective obligations
under such contracts in order to avoid such contract
terminations, or damages related to any such contract
termination, or that if they could not avoid such terminations
that they would have the cash resources to pay amounts that may
then become due.
Covanta
Energy and certain of its subsidiaries have provided guarantees
and support in connection with its subsidiaries
projects.
Covanta Energy and certain of its subsidiaries are obligated to
guarantee or provide financial support for its
subsidiaries projects in one or more of the following
forms:
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support agreements in connection with service or operating
agreement-related obligations;
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direct guarantees of certain debt relating to three of its
facilities;
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contingent obligations to pay lease payment installments in
connection with three of its facilities;
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contingent credit support for damages arising from performance
failures;
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environmental indemnities; and
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contingent capital and credit support to finance costs, in most
cases in connection with a corresponding increase in service
fees, relating to uncontrollable circumstances.
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Many of these contingent obligations cannot readily be
quantified, but, if we were required to provide this support, it
may be material to our cash flow and financial condition.
Covanta
Energy may face increased risk of market influences on its
domestic revenues after its contracts expire.
Covanta Energys contracts to operate energy-from-waste
projects expire on various dates between 2008 and 2023, and our
contracts to sell energy output generally expire when the
projects operating contract expires. Expiration of these
contracts will subject Covanta Energy to greater market risk in
entering into new or replacement contracts at pricing levels
which will generate comparable or enhanced revenues. As its
operating contracts at municipally-owned projects approach
expiration, Covanta Energy will seek to enter into renewal or
replacement contracts to continue operating such projects.
However, we cannot assure you that Covanta Energy will be able
to enter into renewal or replacement contracts on terms
favorable to it, or at all. Covanta Energy will seek to bid
competitively for additional contracts to operate other
facilities as similar
S-20
contracts of other vendors expire. The expiration of existing
energy sales contracts, if not renewed, will require Covanta
Energy to sell project energy output either into the electricity
grid or pursuant to new contracts.
At some of our facilities, market conditions may allow Covanta
Energy to effect extensions of existing operating contracts
along with facility expansions. Such extensions and expansions
are currently being considered at a limited number of our
facilities in conjunction with Covanta Energys clients. If
Covanta Energy is unable to reach agreement with its municipal
clients on the terms under which they would implement such
extensions and expansions, or if the implementation of these
extensions, including renewals and replacement contracts, and
expansions are materially delayed, this may adversely affect our
cash flow and profitability. We cannot assure you that Covanta
Energy will be able to enter into such contracts or that the
terms available in the market at the time will be favorable to
it.
Our
businesses depend on performance by third parties under
contractual arrangements.
Our waste and energy businesses depend on a limited number of
third parties to, among other things, purchase the electric and
steam energy produced by our facilities, and supply and deliver
the waste and other goods and services necessary for the
operation of our energy facilities. The viability of our
facilities depends significantly upon the performance by third
parties in accordance with long-term contracts, and such
performance depends on factors which may be beyond our control.
If those third parties do not perform their obligations, or are
excused from performing their obligations because of
nonperformance by our waste and energy businesses or other
parties to the contracts, or due to force majeure events or
changes in laws or regulations, our businesses may not be able
to secure alternate arrangements on substantially the same
terms, if at all, for the services provided under the contracts.
In addition, the bankruptcy or insolvency of a participant or
third party in our facilities could result in nonpayment or
nonperformance of that partys obligations to us.
Concentration
of suppliers and customers may expose us to heightened financial
exposure.
Our waste and energy businesses often rely on single suppliers
and single customers at our facilities, exposing such facilities
to financial risks if any supplier or customer should fail to
perform its obligations. For example, our businesses often rely
on a single supplier to provide waste, fuel, water and other
services required to operate a facility and on a single customer
or a few customers to purchase all or a significant portion of a
facilitys output. In most cases, our businesses have
long-term agreements with such suppliers and customers in order
to mitigate the risk of supply interruption. The financial
performance of these facilities depends on such customers and
suppliers continuing to perform their obligations under their
long-term agreements. A facilitys financial results could
be materially and adversely affected if any one customer or
supplier fails to fulfill its contractual obligations and we are
unable to find other customers or suppliers to produce the same
level of profitability. We cannot assure you that such
performance failures by third parties will not occur, or that if
they do occur, such failures will not adversely affect the cash
flows or profitability of our businesses.
In addition, for their energy-from-waste facilities, our
subsidiaries rely on their municipal clients as a source not
only of waste for fuel but also of revenue from the fees for
disposal services our subsidiaries provide. Because contracts of
our subsidiaries with their municipal clients are generally
long-term, our subsidiaries may be adversely affected if the
credit quality of one or more of their municipal clients were to
decline materially.
Our
business is subject to pricing fluctuations caused by the waste
disposal and energy markets.
While our businesses sell the majority of their waste disposal
capacity and energy output pursuant to long-term contracts, a
material portion of this capacity and output is subject to
market price fluctuation. Consequently, our operating results
may be adversely affected by fluctuations in waste disposal and
energy prices.
S-21
Our
waste operations are concentrated in one region, and expose us
to regional economic or market declines.
The majority of our waste disposal facilities are located in the
northeastern United States, primarily along the
Washington, D.C. to Boston, Massachusetts corridor. Adverse
economic developments in this region could affect regional waste
generation rates and demand for waste disposal services provided
by us. Adverse market developments caused by additional waste
disposal capacity in this region could adversely affect waste
disposal pricing. Either of these developments could have a
material adverse effect on our revenues and cash generation.
Some
of our energy contracts involve greater risk of exposure to
performance levels which could result in materially lower
revenues.
Eight of our 31 energy-from-waste facilities receive 100% of the
energy revenues they generate. As a result, if we are unable to
operate these facilities at their historical performance levels
for any reason, our revenues from energy sales could materially
decrease.
Exposure
to international economic and political factors may materially
and adversely affect our international businesses.
Our international operations expose us to legal, tax, currency,
inflation, convertibility and repatriation risks, as well as
potential constraints on the development and operation of
potential business, any of which can limit the benefits to us of
a foreign project.
Our projected cash distributions from existing international
facilities come from facilities located in countries with
sovereign ratings below investment grade, including Bangladesh,
the Philippines and India. The financing, development and
operation of projects outside the United States can entail
significant political and financial risks, which vary by
country, including:
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changes in law or regulations;
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changes in electricity tariffs;
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changes in foreign tax laws and regulations;
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changes in United States federal, state and local laws,
including tax laws, related to foreign operations;
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compliance with United States federal, state and local foreign
corrupt practices laws;
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changes in government policies or personnel;
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changes in general economic conditions affecting each country,
including conditions in financial markets;
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changes in labor relations in operations outside the United
States;
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political, economic or military instability and civil unrest;
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expropriation and confiscation of assets and facilities; and
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credit quality of entities that purchases our power.
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The legal and financial environment in foreign countries in
which we currently own assets or projects also could make it
more difficult for us to enforce our rights under agreements
relating to such projects.
Any or all of the risks identified above with respect to our
international projects could adversely affect our revenue and
cash generation. As a result, these risks may have a material
adverse effect on our business, consolidated financial condition
and results of operations.
S-22
Exposure
to foreign currency fluctuations may affect our costs of
operations.
We participate in projects exclusively in jurisdictions where
limitations on the convertibility and expatriation of currency
have been lifted by the host country and where such local
currency is freely exchangeable on the international markets. In
most cases, components of project costs incurred or funded in
the currency of the United States are recovered with limited
exposure to currency fluctuations through negotiated contractual
adjustments to the price charged for electricity or service
provided. This contractual structure may cause the cost in local
currency to the projects power purchaser or service
recipient to rise from time to time in excess of local
inflation. As a result, there is a risk in such situations that
such power purchaser or service recipient will, at least in the
near term, be less able or willing to pay for the projects
power or service.
Exposure
to fuel supply prices may affect our costs and results of
operations for our international projects.
Changes in the market prices and availability of fuel supplies
to generate electricity may increase our cost of producing
power, which could adversely impact our energy businesses
profitability and financial performance.
The market prices and availability of fuel supplies for some of
our international facilities fluctuate. Any price increase,
delivery disruption or reduction in the availability of such
supplies could affect our ability to operate the facilities and
impair their cash flow and profitability. We may be subject to
further exposure if any of our future international operations
are concentrated in facilities using fuel types subject to
fluctuating market prices and availability. We may not be
successful in our efforts to mitigate our exposure to supply and
price swings.
Our
inability to obtain resources for operations may adversely
affect our ability to effectively compete.
Our energy-from-waste facilities depend on solid waste for fuel,
which provides a source of revenue. For most of our facilities,
the prices we charge for disposal of solid waste are fixed under
long-term contracts and the supply is guaranteed by sponsoring
municipalities. However, for some of our energy-from-waste
facilities, the availability of solid waste to us, as well as
the tipping fee that we must charge to attract solid waste to
our facilities, depends upon competition from a number of
sources such as other energy-from-waste facilities, landfills
and transfer stations competing for waste in the market area. In
addition, we may need to obtain waste on a competitive basis as
our long-term contracts expire at our owned facilities. There
has been consolidation and there may be further consolidation in
the solid waste industry which would reduce the number of solid
waste collectors or haulers that are competing for disposal
facilities or enable such collectors or haulers to use wholesale
purchasing to negotiate favorable below-market disposal rates.
The consolidation in the solid waste industry has resulted in
companies with vertically integrated collection activities and
disposal facilities. Such consolidation may result in economies
of scale for those companies as well as the use of disposal
capacity at facilities owned by such companies or by affiliated
companies. Such activities can affect both the availability of
waste to us for disposal at some of our energy-from-waste
facilities and market pricing.
Compliance
with environmental laws could adversely affect our results of
operations.
Costs of compliance with federal, state and local existing and
future environmental regulations could adversely affect our cash
flow and profitability. Our waste and energy businesses are
subject to extensive environmental regulation by federal, state
and local authorities, primarily relating to air, waste
(including residual ash from combustion) and water. We are
required to comply with numerous environmental laws and
regulations and to obtain numerous governmental permits in
operating our facilities. Our businesses may incur significant
additional costs to comply with these requirements.
Environmental regulations may also limit our ability to operate
our facilities at maximum capacity or at all. If our businesses
fail to comply with these requirements, we could be subject to
civil or criminal liability, damages and fines. Existing
environmental regulations could be revised or reinterpreted and
new laws and regulations could be adopted or become
S-23
applicable to us or our facilities, and future changes in
environmental laws and regulations could occur. This may
materially increase the amount we must invest to bring our
facilities into compliance. In addition, lawsuits or enforcement
actions by federal
and/or state
regulatory agencies may materially increase our costs. Stricter
environmental regulation of air emissions, solid waste handling
or combustion, residual ash handling and disposal, and waste
water discharge could materially affect our cash flow and
profitability. Certain environmental laws make us potentially
liable on a joint and several basis for the remediation of
contamination at or emanating from properties or facilities we
currently or formerly owned or operated or properties to which
we arranged for the disposal of hazardous substances. Such
liability is not limited to the cleanup of contamination we
actually caused. Although we seek to obtain indemnities against
liabilities relating to historical contamination at the
facilities we own or operate, we cannot provide any assurance
that we will not incur liability relating to the remediation of
contamination, including contamination we did not cause.
Our businesses may not be able to obtain or maintain, from time
to time, all required environmental regulatory approvals. If
there is a delay in obtaining any required environmental
regulatory approvals or if we fail to obtain and comply with
them, the operation of our facilities could be jeopardized or
become subject to additional costs.
Energy
regulation could adversely affect our revenues and costs of
operations.
Our waste and energy businesses are subject to extensive energy
regulations by federal, state and foreign authorities. We cannot
predict whether the federal, state or foreign governments will
modify or adopt new legislation or regulations relating to the
solid waste or energy industries. The economics, including the
costs, of operating our facilities may be adversely affected by
any changes in these regulations or in their interpretation or
implementation or any future inability to comply with existing
or future regulations or requirements.
The Federal Power Act, commonly referred to as the
FPA, regulates energy generating companies and their
subsidiaries and places constraints on the conduct of their
business. The FPA regulates wholesale sales of electricity and
the transmission of electricity in interstate commerce by public
utilities. Under the Public Utility Regulatory Policies Act of
1978, commonly referred to as PURPA, our domestic
facilities (other than our facilities with net power production
capacities in excess of 30MW) are exempt from most provisions of
the FPA and state rate regulation. Our foreign projects are also
exempt from regulation under the FPA.
The Energy Policy Act of 2005 enacted comprehensive changes to
the domestic energy industry which may affect our businesses.
The Energy Policy Act removed certain regulatory constraints
that previously limited the ability of utilities and utility
holding companies to invest in certain activities and
businesses, which may have the effect over time of increasing
competition in energy markets in which we participate. In
addition, the Energy Policy Act includes provisions that may
remove some of the benefits provided to non-utility electricity
generators, like us, after our existing energy sale contracts
expire. As a result, we may face increased competition after
such expirations occur.
If our businesses lose existing exemptions under the FPA or lose
the ability under PURPA to require utilities to purchase our
electricity, the economics and operations of our energy projects
could be adversely affected, including as a result of rate
regulation by the Federal Energy Regulatory Commission, with
respect to our output of electricity, which could result in
lower prices for sales of electricity. In addition, depending on
the terms of the projects power purchase agreement, a loss
of our exemptions could allow the power purchaser to cease
taking and paying for electricity under existing contracts. Such
results could cause the loss of some or all contract revenues or
otherwise impair the value of a project and could trigger
defaults under provisions of the applicable project contracts
and financing agreements. Defaults under such financing
agreements could render the underlying debt immediately due and
payable. Under such circumstances, we cannot assure you that
revenues received, the costs incurred, or both, in connection
with the project could be recovered through sales to other
purchasers.
S-24
Failure
to obtain regulatory approvals could adversely affect our
operations.
Our waste and energy businesses are continually in the process
of obtaining or renewing federal, state and local approvals
required to operate our facilities. While our businesses
currently have all necessary operating approvals, we may not
always be able to obtain all required regulatory approvals, and
we may not be able to obtain any necessary modifications to
existing regulatory approvals or maintain all required
regulatory approvals. If there is a delay in obtaining any
required regulatory approvals or if we fail to obtain and comply
with any required regulatory approvals, the operation of our
facilities or the sale of electricity to third parties could be
prevented, made subject to additional regulation or subject our
businesses to additional costs or a decrease in revenue.
The
energy industry is becoming increasingly competitive, and we
might not successfully respond to these changes.
We may not be able to respond in a timely or effective manner to
the changes resulting in increased competition in the energy
industry in both domestic and international markets. These
changes may include deregulation of the electric utility
industry in some markets, privatization of the electric utility
industry in other markets and increasing competition in all
markets. To the extent competitive pressures increase and the
pricing and sale of electricity assumes more characteristics of
a commodity business, the economics of our business may come
under increasing pressure.
Changes
in technology may have a material adverse effect on our
profitability.
Research and development activities are ongoing to provide
alternative and more efficient technologies to dispose of waste
or produce power. It is possible that advances in these or other
technologies will reduce the cost of waste disposal or power
production from these technologies to a level below our costs.
Furthermore, increased conservation efforts could reduce the
demand for power or reduce the value of our facilities. Any of
these changes could have a material adverse effect on our
revenues and profitability.
Our
reputation could be adversely affected if opposition to our
efforts to grow our business results in adverse publicity or our
businesses were to fail to comply with United States or foreign
laws or regulations.
With respect to our efforts to renew our contracts and grow our
waste and energy business both domestically and internationally,
we sometimes experience opposition from advocacy groups or
others intended to halt a development effort or other
opportunity we may be pursuing. Such opposition is often
intended to discourage third parties from doing business with us
and may be based on inaccurate, incomplete or inflammatory
assertions. We cannot provide any assurance that our reputation
would not be adversely affected as a result of adverse publicity
resulting from such opposition. Some of our projects and new
business may be conducted in countries where corruption has
historically penetrated the economy to a greater extent than in
the United States. It is our policy to comply, and to require
our local partners and those with whom we do business to comply,
with all applicable anti-bribery laws, such as the
U.S. Foreign Corrupt Practices Act and with applicable
local laws of the foreign countries in which we operate. We
cannot provide any assurance that our reputation would not be
adversely affected if we were reported to be associated with
corrupt practices or if we or our local partners failed to
comply with such laws.
Our
controls and procedures may not prevent or detect all errors or
acts of fraud.
Our management, including our Chief Executive Officer and Chief
Financial Officer, believes that any disclosure controls and
procedures or internal controls and procedures, no matter how
well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, they cannot
provide absolute assurance that all control issues and instances
of fraud, if any, within our companies have been prevented or
detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some
persons, by collusion of two or more
S-25
people, or by an unauthorized override of the controls. The
design of any systems of controls also is based in part upon
certain assumptions about the likelihood of future events, and
we cannot assure you that any design will succeed in achieving
its stated goals under all potential future conditions.
Accordingly, because of the inherent limitations in a cost
effective control system, misstatements due to error or fraud
may occur and may not be detected.
Failure
to maintain an effective system of internal control over
financial reporting may have an adverse effect on our stock
price.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002,
and the rules and regulations promulgated by the SEC to
implement Section 404, we are required to furnish a report
by our management to include in our annual report on
Form 10-K
regarding the effectiveness of our internal control over
financial reporting. The report includes, among other things, an
assessment of the effectiveness of our internal control over
financial reporting as of the end of our fiscal year, including
a statement as to whether or not our internal control over
financial reporting is effective. This assessment must include
disclosure of any material weaknesses in our internal control
over financial reporting identified by management.
We have in the past discovered, and may potentially in the
future discover, areas of internal control over financial
reporting which may require improvement. If we are unable to
assert that our internal control over financial reporting is
effective now or in any future period, or if our auditors are
unable to express an opinion on the effectiveness of our
internal controls, we could lose investor confidence in the
accuracy and completeness of our financial reports, which could
have an adverse effect on our stock price.
FORWARD-LOOKING
STATEMENTS
Cautionary
Note Regarding Forward-Looking Statements
This prospectus supplement and the related prospectus and
registration statement, including documents incorporated by
reference therein, contain statements that may constitute
forward-looking statements as defined in
Section 27A of the Securities Act of 1933, as amended,
Section 21E of the Exchange Act, the Private Securities
Litigation Reform Act of 1995, referred to as the
PSLRA in this prospectus supplement, or in releases
made by the SEC, all as may be amended from time to time. Such
forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the
actual results, performance or achievements of us and our
subsidiaries, or industry results, to differ materially from any
future results, performance or achievements expressed or implied
by such forward-looking statements. Statements that are not
historical facts are forward-looking statements. Forward-looking
statements can be identified by, among other things, the use of
forward-looking language, such as the words plan,
believe, expect, anticipate,
intend, estimate, project,
may, will, would,
could, should, seeks, or
scheduled to, or other similar words, or the
negative of these terms or other variations of these terms or
comparable language, or by discussion of strategy or intentions.
These cautionary statements are being made pursuant to the
Securities Act of 1933, the Exchange Act and the PSLRA with the
intention of obtaining the benefits of the safe
harbor provisions of such laws. We caution investors that
any forward-looking statements made by us are not guarantees or
indicative of future performance. Important assumptions and
other important factors that could cause actual results to
differ materially from those forward-looking statements with
respect to us include, but are not limited to, the risks and
uncertainties affecting our businesses described in the
Risk Factors section in this prospectus supplement
and in registration statements and other filings with the SEC
made by us and our subsidiaries.
Although we believe that our plans, intentions and expectations
reflected in or suggested by such forward-looking statements are
reasonable, actual results could differ materially from a
projection or assumption in any of our forward-looking
statements. Our future financial condition and results of
operations, as well as any forward-looking statements, are
subject to change and inherent risks and uncertainties. The
forward-looking statements contained in this prospectus
supplement and related prospectus and registration statement are
made only as of the date hereof and we do not have or undertake
any obligation to update or revise any forward-looking
statements whether as a result of new information, subsequent
events or otherwise, unless otherwise required by law.
S-26
RATIO OF
EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed
charges for the periods indicated. For purposes of computing the
ratio of earnings to fixed charges, earnings consist
of income (loss) before income tax expense, minority interests
and equity in net income (loss) from unconsolidated investments
plus fixed charges and fixed charges consists of
interest expense and imputed interest for operating leases.
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Pro Forma
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Nine Months Ended
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Year Ended
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Nine Months Ended
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September 30,
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December 31,
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September 30,
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Year Ended December 31,
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2006
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2005
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2006
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2005
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2004
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2003
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2002
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2001
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2.33
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(1)
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2.29
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(1)
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1.70
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1.49
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1.41
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(2
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(3
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(4)
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(1) |
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The pro forma ratio of earnings to fixed charges assumes, as of
January 1, 2005, the issuance of the Debentures, the
closing of the New Credit Facilities and the repurchase of all
of the Outstanding Notes. See Use of Proceeds for a
discussion of the status of the New Credit Facilities. |
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For the year ended December 31, 2003, earnings were
insufficient to cover fixed charges by $14.3 million. |
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For the year ended December 31, 2002, earnings were
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For the fiscal year ended December 31, 2001, there were no
fixed charges. |
S-27
USE OF
PROCEEDS
We estimate that our net proceeds from this offering will be
approximately $314.9 million, after deducting the
underwriting discounts and commissions and estimated offering
expenses totaling $10.1 million ($362.4 million if the
underwriters option to purchase additional Debentures is
exercised in full). We estimate that our net proceeds from this
offering, together with the estimated net proceeds of
$118.3 million from our concurrent offering of
5,320,000 shares of our common stock at a public offering
price of $23.50 per share ($136.1 million if the
underwriters option to purchase 798,000 additional shares
of common stock is exercised in full), will be approximately
$433.2 million ($498.5 million if the
underwriters options to purchase additional Debentures and
shares of our common stock are both exercised in full).
We expect to use the net proceeds from this offering, together
with the net proceeds from our concurrent offering of our common
stock, a portion of the borrowings under the New Credit
Facilities and available cash on hand, to repurchase, pursuant
to the tender offers or by redemptions, the Outstanding Notes
issued by our subsidiaries, pay accrued and unpaid interest and
related premiums thereon and pay related expenses thereto. The
Outstanding Notes of our subsidiaries expected to be
repurchased, with principal amounts as of September 30,
2006 reflected, consist of the following:
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$195.8 million in principal amount of 8.50% MSW I Notes;
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$224.1 million in principal amount of 7.375% MSW II
Notes; and
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$211.6 million in principal amount of 6.26% ARC Notes.
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Subsequent to September 30, 2006, we made scheduled
repayments on the ARC Notes in the amount of $19.6 million.
Therefore, the principal amount of the ARC Notes we intend to
repurchase is $192.0 million.
Although we have had significant negotiations with possible
lenders for the New Credit Facilities, Covanta Energy has not
entered into any definitive agreements as of the date hereof.
Consequently, we cannot assure you that we will be able to use
the net proceeds from this offering in the manner described
above. In the event that we are unsuccessful in refinancing
indebtedness under Covanta Energys existing credit
facilities with the New Credit Facilities, then we would be
prohibited by the terms of such credit facilities from
repurchasing or redeeming any of the Outstanding Notes. In that
case, the net proceeds from this offering and the concurrent
common stock offering, if successful, would be used for general
corporate purposes, which may include construction of new
facilities, expansions of existing facilities, possible
permitted investments or acquisitions, or, if we receive waivers
from the lenders under Covanta Energys existing credit
facilities, the repurchase or redemption of the MSW I Notes
and/or
MSW II Notes, which have higher interest rates and earlier
due dates than the ARC Notes. Although we examine various
acquisition opportunities from time to time and may submit
indications of interest, we do not have a binding agreement to
acquire another business at this time. If we obtain waivers from
the lenders under Covanta Energys existing credit
facilities, but our concurrent offering of common stock is not
consummated, we may repurchase, pursuant to a tender offer or by
redemption, the MSW I Notes. We cannot assure you that in
such situations the tender offers will be subscribed for in any
amount or that we will be successful in obtaining waivers from
the lenders under Covanta Energys existing credit
facilities.
S-28
PRICE
RANGE OF OUR COMMON STOCK
Our common stock is listed on the NYSE under the symbol
CVA. On January 18, 2007, there were approximately
1,054 holders of record of common stock. On
January 25, 2007, the closing sale price of our common
stock on the NYSE was $23.77 per share.
The following table sets forth the range of high and low
composite prices of our common stock for the periods indicated.
These prices are as reported on the American Stock Exchange
Composite Tape with respect to dates through the close of
business on October 4, 2005 and these prices are as
reported on the NYSE Composite Tape with respect to dates on and
after October 5, 2005. Effective as of the close of trading
on October 4, 2005, we voluntarily delisted our shares from
the American Stock Exchange and as of October 5, 2005, our
shares have been listed for trading on the NYSE.
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2007
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(to January 25, 2007)
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2006
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2005
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2004
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High
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Low
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High
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Low
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High
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Low
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High
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Low
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First Quarter
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$
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24.00
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$
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21.29
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$
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18.15
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$
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14.61
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$
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17.34
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$
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7.95
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$
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10.03
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$
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2.87
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Second Quarter
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18.60
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14.36
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17.70
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10.42
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10.40
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5.40
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Third Quarter
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21.84
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16.04
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13.64
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11.67
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7.15
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5.52
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Fourth Quarter
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22.84
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18.52
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15.06
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10.41
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8.60
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6.00
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The prices above reflect the impact of a rights offering
announced in December 2003 and completed on May 18, 2004, a
rights offering announced in February 2005 and completed on
June 24, 2005, and a rights offering announced in January
2006 and completed on February 24, 2006.
DIVIDEND
POLICY
We have never declared cash dividends on our common stock and
have no present intention of declaring cash dividends in the
foreseeable future. Instead, we intend to retain any earnings to
finance the growth and development of our business. Our current
financing arrangements impose, and the New Credit Facilities
that Covanta Energy expects to enter into after the consummation
of this offering will impose, restrictions on the ability of our
subsidiaries to transfer funds to us in the form of cash
dividends, loans or advances that would likely limit the future
payment of dividends on our common stock. Any of our future
financing arrangements may contain similar restrictions on the
payment of dividends. In addition, any future determination to
pay dividends would be at the discretion of our board of
directors and will be dependent upon then existing conditions,
including our financial condition, results of operations,
contractual restrictions, capital requirements, business
prospects, and other factors our board of directors deems
relevant. See Risk Factors Risks Relating to
this Offering We may not have access to the cash
flow and other assets of our subsidiaries that may be needed to
make payment on our indebtedness, including the Debentures
and Description of Proposed New Credit Facilities
for descriptions of restrictions imposed by our current
financing arrangements and expected to be imposed by the New
Credit Facilities.
S-29
CAPITALIZATION
The following table sets forth our capitalization as of
September 30, 2006:
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on an actual basis;
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on a pro forma basis, with adjustments assuming and giving
effect to:
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our issuance of $325.0 million in aggregate principal
amount of the Debentures in this offering, after deducting
underwriting discounts and commissions and estimated offering
expenses of $10.1 million;
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our concurrent issuance of 5,320,000 shares of common stock
at the public offering price of $23.50 per share offered by
us pursuant to a separate prospectus supplement, after deducting
underwriting discounts and commissions and estimated offering
expenses of $6.8 million; and
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on a pro forma as adjusted basis, with adjustments assuming and
giving effect to:
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the funding of the term loan facility of the New Credit
Facilities; and
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the use of the borrowings under the New Credit Facilities,
together with the use of estimated net proceeds from this
offering, the concurrent offering of our common stock and
available cash on hand, to repay $629 million of
outstanding indebtedness under Covanta Energys existing
credit facilities (and an additional $5.2 million in call
premiums) and to repurchase, pursuant to the tender offers or by
redemptions, the Outstanding Notes, to pay related tender
premiums thereon of approximately $32 million, and to pay
other related expenses.
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The table excludes (as of September 30, 2006)
1,029,664 shares of common stock issuable upon the exercise
of outstanding stock options.
This table should be read in conjunction with the information
set forth under the Use of Proceeds section and our
consolidated financial statements and the notes thereto
contained in the documents incorporated by reference in this
prospectus supplement.
S-30
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As of September 30,
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2006
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Actual
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Pro Forma
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Pro Forma As Adjusted
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(In thousands)
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Cash and Cash Equivalents and
Restricted Funds held in trust:
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Cash and Cash Equivalents
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$
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227,562
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|
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$
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660,706
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|
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$
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79,488
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Restricted Funds held in trust
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464,782
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464,782
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444,782
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|
|
|
|
|
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Total Cash and Cash Equivalents
and Restricted Funds held in trust
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$
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692,344
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$
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1,125,488
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$
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524,270
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Debt:
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Project debt (non-recourse)
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1,451,363
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1,451,363
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1,451,363
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Other long-term debt (non-recourse)
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|
135
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|
|
|
135
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135
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8.50% MSW I Notes due
2010(1)
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195,785
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195,785
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7.375% MSW II Notes due
2010(1)
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224,100
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224,100
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6.26% ARC Notes due
2015(1)
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211,600
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211,600
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Unamortized premium on project debt
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49,915
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49,915
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49,915
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Unamortized premium on Outstanding
Notes
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21,311
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21,311
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Covanta Energys existing
senior secured credit facilities
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First lien term loan facility
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369,312
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|
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369,312
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|
|
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Second lien term loan facility
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260,000
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|
|
|
260,000
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|
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Covanta Energys new senior
secured credit
facilities(2)
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First lien term loan facility
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680,000
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Debentures
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325,000
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325,000
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Total debt
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$
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2,783,521
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$
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3,108,521
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$
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2,506,413
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Stockholders equity:
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Preferred stock ($0.10 par
value; authorized 10,000 shares; none issued on an actual,
pro forma or pro forma as adjusted basis)
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$
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$
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$
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Common stock ($0.10 par
value; authorized 250,000 shares; issued
147,657 shares and outstanding 147,500 shares on an
actual basis; issued 152,977 shares and outstanding
152,820 shares on a pro forma and pro forma as adjusted
basis)
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14,766
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|
|
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15,298
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|
|
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15,298
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Additional paid-in capital
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615,422
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|
|
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733,159
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733,159
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Accumulated other compensation
income
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|
991
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991
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(1,131
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)
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Accumulated earnings
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88,833
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88,833
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66,542
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Treasury stock, at par
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(16
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)
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(16
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)
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(16
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)
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Total stockholders equity
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$
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719,966
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$
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838,265
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$
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813,852
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Total capitalization
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$
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3,503,517
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$
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3,946,786
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$
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3,320,265
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(1) |
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We have assumed that all of the Outstanding Notes are validly
tendered prior to the consent deadline and accepted for payment
by us in the tender offers. |
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(2) |
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The New Credit Facilities also provide $300 million of
availability under the revolving credit facility and
$320 million of availability under the funded letter of
credit facility, for aggregate additional availability of
$620 million, of which $321 million would be issued in
the form of letters of credit in connection with the
recapitalization described above upon closing of the New Credit
Facilities. |
S-31
DESCRIPTION
OF PROPOSED NEW CREDIT FACILITIES
Concurrently with this offering, Covanta Energy is negotiating
the terms of the New Credit Facilities with a syndicate of
lenders led by JPMorgan Chase Bank, N.A. and certain other
financial institutions, which is expected to be entered into
after the closing of this offering. Assuming Covanta Energy
successfully completes negotiations for the New Credit
Facilities, the proceeds of the New Credit Facilities will be
used to refinance Covanta Energys existing credit
facilities and will be available for the working capital and
general corporate needs of Covanta Energy and its subsidiaries,
including the repurchase of the Outstanding Notes of our
indirect subsidiaries. Although many of the material terms have
been negotiated with the lead arrangers, we cannot assure you
that Covanta Energy will enter into the New Credit Facilities
upon substantially the terms described below or at all. In
addition, Covanta Energys ability to enter into the New
Credit Facilities is conditioned upon our raising in this
offering and the concurrent offering of our common stock a
minimum amount to be agreed with the lenders, which amount will
be at least $400 million but no more than
$450 million. The following is a description of the general
terms of the New Credit Facilities.
Overview. Under the proposed New Credit
Facilities, the lenders will agree to provide credit extensions
in the amount of up to $1,300 million, consisting of the
following:
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a secured term loan facility in the amount of up to
$680 million that matures in 2014;
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a secured revolving credit facility in the amount of
$300 million that terminates in 2013; and
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a secured funded letter of credit facility in the amount of
$320 million that terminates in 2014.
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Upon the request of Covanta Energy, and subject to the
satisfaction of certain conditions set forth in the New Credit
Facilities, up to $400 million in additional term loan
facilities
and/or
revolving credit facility may become available to Covanta
Energy, and Covanta Energy may obtain incremental funded letter
of credit facilities in order that the aggregate amount of all
funded letter of credit facility commitments in effect at any
time is $400 million.
Term loan principal payments. The term loan
facility has a mandatory amortization, paid in quarterly
installments, equal to 1% per annum for the first 27
quarters and on the maturity date the balance thereof.
Interest. For purposes of calculating
interest, loans under the New Credit Facilities are designated,
at Covanta Energys election, as eurodollar rate loans or
base rate loans (except for certain swing line loans under the
revolving credit facility, which may only be base rate loans).
Eurodollar loans bear interest at a reserve adjusted British
Bankers Association Interest Settlement Rate, commonly referred
to as LIBOR, for deposits in dollars plus a
borrowing margin which is still under negotiation. Base rate
loans bear interest at a rate per annum equal to the greater of
the prime rate designated in the New Credit
Facilities or the federal funds rate plus 0.50%, in each case
plus a borrowing margin as described below. Unreimbursed draws
on letters of credit issued under the revolving credit facility
will accrue interest at the then-effective rates applicable to
base rate loans made under the revolving credit facility, plus
2.0%. Unreimbursed draws on letters of credit issued under the
funded letter of credit facility will accrue interest at the
then-effective rates applicable to base rate loans made under
the term loan facility.
Fees. In addition to the interest described
above, Covanta Energy expects to pay the following fees:
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a commitment fee equal to 0.50% per annum (with a possible
stepdown based on leverage to be determined), multiplied by the
average unused portion of the revolving credit facility;
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a letter of credit fee equal to the borrowing margin per annum
for revolving eurodollar loans, multiplied by the aggregate
average daily maximum amount available to be drawn under letters
of credit that have been issued under the revolving credit
facility;
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a funded letter of credit fee equal to (i) the sum of
(x) the borrowing margin per annum for funded letters of
credit plus (y) an additional per annum percentage to be
agreed of at least 0.10%, multiplied by (ii) the average daily
amount of the funded letter of credit facility;
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a fronting fee equal to 0.125% per annum, multiplied by the
aggregate average daily maximum amount available to be drawn
under letters of credit that have been issued under the
revolving credit facility;
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S-32
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a fronting fee equal to 0.125% per annum, multiplied by the
aggregate average daily maximum amount available to be drawn
under letters of credit that have been issued under the funded
letter of credit facility; and
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certain upfront fees payable to the arrangers and lenders on the
closing date of the New Credit Facilities.
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Guarantee. We and certain of Covanta
Energys domestic subsidiaries will guarantee the
obligations of Covanta Energy under the New Credit Facilities.
Our guarantee of the obligations under the New Credit Facilities
will be secured by a first priority lien on all of the capital
stock of Covanta Energy owned by us.
Security. Covanta Energys obligations
under the New Credit Facilities will be secured by a first
priority lien on substantially all of the assets of Covanta
Energy and certain of its subsidiaries, subject to certain
exclusions. Assets securing Covanta Energys obligations
include all of the capital stock of certain of our material
domestic subsidiaries, 65% of the capital stock of certain of
our foreign subsidiaries and a pledge of Covanta Energys
stock held by us.
Covenants. The New Credit Facilities contain
customary affirmative and negative covenants and financial
covenants. During the term of the New Credit Facilities, we
expect that the negative covenants will restrict the ability of
Covanta Energy and its restricted subsidiaries to take specified
actions, subject to specified exceptions. Subject to limitations
and conditions, Covanta Energy may designate certain of its
subsidiaries as unrestricted subsidiaries which shall not be
subject to such restrictions and will not be included in any
calculations for purposes of the financial covenants.
In particular, one of these covenants will restrict the ability
of Covanta Energy to declare or pay dividends to, make
distributions to, or make redemptions or repurchases from, us or
other equity holders (subject to certain exceptions including to
make regularly scheduled payments of interest on the Debentures
and other exceptions that may be utilized, subject to
satisfaction of certain conditions, to satisfy conversion
obligations in respect of, or repurchase for cash when required,
the Debentures).
These covenants also include, but are not limited to the
following, each case subject to exceptions to be set forth in
the New Credit Facilities:
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incurring additional indebtedness, including guarantees of
indebtedness;
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creating, incurring, assuming or permitting to exist liens on
property and assets;
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making loans and investments and entering into certain types of
mergers, consolidations and acquisitions;
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engaging in sales, transfers and other dispositions of their
property or assets;
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|
paying, redeeming or repurchasing debt, or amending or modifying
the terms of certain material debt or certain other agreements
(including, with respect to us, certain amendments to the terms
of the Debentures);
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changing the lines of business in which we and Covanta Energy
engage;
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repaying the MSW I Notes, MSW II Notes and ARC Notes
by a date certain;
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entering into certain affiliate transactions; and
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|
entering into agreements that would restrict the ability of
Covanta Energys subsidiaries to pay dividends and make
distributions.
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Financial covenants under the New Credit Facilities include the
following:
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|
|
|
|
maximum leverage ratio, which measures the consolidated adjusted
debt (net of certain limited restricted cash), as defined in the
New Credit Facilities, of Covanta Energy and certain of its
subsidiaries to the adjusted earnings before income, taxes,
depreciation and amortization of Covanta Energy and certain of
its subsidiaries;
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S-33
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maximum capital expenditures of Covanta Energy and its
subsidiaries; and
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minimum interest coverage ratio, which measures the adjusted
earnings before income, taxes, depreciation and amortization of
Covanta Energy and certain of its subsidiaries to their total
interest expense (including the amounts of payments by Covanta
Energy to us applied to interest payable by us under the
Debentures).
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Mandatory Prepayments. Covanta Energy will be
required to make mandatory prepayments of its obligations under
the term loan facility, in the amounts set forth in the New
Credit Facilities, in the event it receive proceeds from the
following specified sources:
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50%, 25% or 0% of excess cash flow (as defined in the New
Credit Facilities) depending on the leverage ratio level at the
end of the applicable period;
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net cash proceeds of any property or asset sale, subject to
certain exceptions and reinvestment requirements;
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net insurance and condemnation proceeds, subject to certain
exceptions and reinvestment provisions; and
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net cash proceeds of certain debt issuances, subject to certain
exceptions.
|
Events of Default. The New Credit Facilities
will contain customary events of default for a senior bank
financing, including, but not limited to, failure to make
payments when due, cross defaults to certain other debt of
Covanta Energy and its subsidiaries, and certain change of
control events, including fundamental changes under the
indenture governing the Debentures. Upon the occurrence and
during the continuance of events of default under the New Credit
Facilities, the administrative agents
and/or the
lenders under the New Credit Facilities may accelerate Covanta
Energys payment obligations thereunder and the collateral
agents may foreclose upon, and exercise other rights with
respect to, assets in which security interests have been granted.
S-34
DESCRIPTION
OF THE DEBENTURES
The Debentures will be issued under an indenture dated as of
January 18, 2007, as amended by the first supplemental
indenture to be dated as of January 31, 2007 (as so
amended, the indenture), between Covanta Holding
Corporation, as issuer and Wells Fargo Bank, National
Association, as trustee. The terms of the Debentures include
those provided in the indenture.
The following description is only a summary of the material
provisions of the Debentures and the indenture. We urge you to
read the indenture in its entirety because it, and not this
description, defines your rights as a holder of the Debentures.
You may request copies of the indenture as set forth under the
section of the accompanying prospectus entitled
Incorporation By Reference.
When we refer to Covanta, we,
our or us in this section, we refer only
to Covanta and not its subsidiaries.
Brief
Description of the Debentures
The Debentures will:
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be limited to $325.0 million aggregate principal amount
($373.75 million aggregate principal amount if the
underwriters exercise in full their option to purchase
additional Debentures);
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|
bear interest at a rate of 1.00% per year, payable
semi-annually in arrears, on February 1 and August 1 of
each year, commencing on August 1, 2007;
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|
beginning with the six-month interest period commencing
February 1, 2012, bear contingent interest in the
circumstances described under Contingent
Interest;
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|
be our general unsecured senior obligations, ranking equally in
right of payment with all of our existing and future unsecured
senior indebtedness and senior in right of payment to any
subordinated indebtedness;
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|
be convertible by you at any time on or prior to 5:00 p.m.,
New York City time, on the business day immediately preceding
the maturity date, only upon satisfaction of one of the
conditions for conversion, as described under
Conversion Rights, into cash and shares
of our common stock, if any, initially based on a conversion
rate of 35.4610 shares of our common stock per $1,000
principal amount of Debentures, which represents an initial
conversion price of approximately $28.20 per share. Upon
conversion, we will deliver cash and shares of our common stock,
if any, equal to the sum of the daily settlement amounts for
each day of the 20 settlement period trading days during the
applicable conversion period. See Conversion
Procedures Settlement Upon Conversion;
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In the event of certain types of fundamental changes, we will
increase the conversion rate by a number of additional shares
or, in lieu thereof, the public acquirer may elect to adjust the
conversion obligation and conversion rate so that the Debentures
are convertible based on the shares of the acquiring or
surviving company, in each case as described herein;
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be subject to redemption by us, at our option, at any time on or
after February 1, 2012, in whole or in part, at a
redemption price equal to 100% of the principal amount of the
Debentures being redeemed, plus accrued and unpaid interest
(including contingent interest, if any) to, but not including,
the redemption date, as set forth under
Optional Redemption;
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be subject to repurchase by us, at your option, on
February 1, 2012, February 1, 2017 and
February 1, 2022, in whole or in part, for cash at a
repurchase price equal to 100% of the principal amount of the
Debentures being repurchased, plus accrued and unpaid interest
(including contingent interest, if any) to, but not including,
the repurchase date, as set forth under
Repurchase at the Option of the
Holder Optional Put;
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|
be subject to repurchase by us, at your option, if a fundamental
change occurs, for cash at a repurchase price equal to 100% of
the principal amount of the Debentures, plus accrued and unpaid
interest
|
S-35
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(including contingent interest, if any) to, but not including,
the repurchase date, as set forth under
Repurchase at the Option of the
Holder Fundamental Change Put; and
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|
be due on February 1, 2027, unless earlier converted,
redeemed by us at our option or repurchased by us at your option.
|
Neither we nor any of our subsidiaries will be subject to any
financial covenants under the indenture. In addition, neither we
nor any of our subsidiaries will be restricted under the
indenture from paying dividends, incurring debt or issuing or
repurchasing our securities. You are not afforded protection
under the indenture in the event of a highly leveraged
transaction or a change in control of us, except to the extent
described below under Conversion Rights
and Repurchase at the Option of the
Holder Fundamental Change Put.
The Debentures will not be guaranteed by any of our subsidiaries.
No sinking fund is provided for the Debentures and the
Debentures will not be subject to defeasance.
The Debentures initially will be issued in book-entry form only
in denominations of $1,000 principal amount and whole multiples
thereof. Beneficial interests in the Debentures will be shown
on, and transfers of beneficial interests in the Debentures will
be effected only through, records maintained by The Depository
Trust Company, or DTC, or its nominee, and any such
interests may not be exchanged for certificated Debentures
except in limited circumstances. For information regarding
conversion, registration of transfer and exchange of global
Debentures held in DTC, see Form, Denomination
and Registration Global Debentures, Book-Entry
Form.
If certificated Debentures are issued, you may present them for
conversion into cash and our common stock, if any, registration
of transfer and exchange, without service charge, at our office
or agency, which will initially be the office or agency of the
trustee.
We may from time to time repurchase Debentures in open market
purchases or negotiated transactions without prior notice to
holders.
Ranking
The Debentures will be our direct and senior unsecured
obligations. The Debentures will rank equally in right of
payment with all of our existing and future senior unsecured
indebtedness, including our guarantee of indebtedness under
Covanta Energys existing credit facilities, and, if
closed, Covanta Energys New Credit Facilities, and senior
in right of payment to all of our future subordinated
indebtedness. The Debentures will be effectively subordinated to
any existing and future indebtedness and other liabilities of
our subsidiaries, including indebtedness under Covanta
Energys existing credit facilities and, if closed, Covanta
Energys New Credit Facilities.
The Debentures will be effectively junior to our existing and
future secured indebtedness, to the extent of the value of the
assets securing such indebtedness. We have guaranteed, jointly
and severally with several subsidiaries of Covanta Energy, the
existing indebtedness of our subsidiary Covanta Energy and we
expect to guarantee its obligations under the New Credit
Facilities.
As of September 30, 2006, on a pro forma as adjusted basis,
after giving effect to the transactions described under
Capitalization, we would have had no indebtedness
outstanding other than the Debentures and our guarantee of
indebtedness under the New Credit Facilities, and our
subsidiaries would have had $3,307 million of indebtedness
and other liabilities, consisting of up to $680 million
under the first lien term loan facility of the New Credit
Facilities for which we would be a guarantor and
$2,627 million of non-recourse project level indebtedness
and other liabilities. Covanta Energy also would have had
$620 million of additional availability under the revolving
credit facility and the funded letter of credit facility of the
New Credit Facilities, of which it will have used
$321 million in the form of issued letters of credit.
S-36
Payment
at Maturity
On the maturity date, each holder will be entitled to receive on
such date $1,000 in cash for each $1,000 principal amount of
Debentures, together with accrued and unpaid interest (including
contingent interest, if any) to, but not including, the maturity
date. With respect to global Debentures, principal and interest
(including contingent interest, if any) will be paid to DTC in
immediately available funds. With respect to any certificated
Debentures, principal and interest (including contingent
interest, if any) will be payable at our office or agency, which
initially will be the office or agency of the trustee.
Interest
The Debentures will bear interest at a rate of 1.00% per
year. Interest will accrue from January 31, 2007, which is
the date of issuance, or from the most recent date to which
interest has been paid or duly provided for. Beginning with the
six-month interest period commencing February 1, 2012, we
will pay contingent interest under certain circumstances as
described under Contingent Interest. We
will pay interest (including contingent interest, if any)
semi-annually, in arrears on February 1 and August 1 of
each year, commencing on August 1, 2007, to holders of
record at 5:00 p.m., New York City time, on the preceding
January 15 and July 15, respectively. However, there are
two exceptions to the preceding sentence:
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we will not pay in cash accrued interest (including contingent
interest, if any) on any Debentures when they are converted,
except as described under Conversion
Rights; and
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we will pay accrued and unpaid interest (including contingent
interest, if any) to a person other than the holder of record on
the record date on the maturity date. On such date, we will pay
accrued and unpaid interest only to the person to whom we pay
the principal amount.
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We will pay interest on:
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global Debentures to DTC in immediately available funds;
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any certificated Debentures having a principal amount of less
than $5,000,000, by check mailed to the holders of those
Debentures; provided, however, at maturity, interest will be
payable as described under Payment at
Maturity; and
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any certificated Debentures having a principal amount of
$5,000,000 or more, by wire transfer in immediately available
funds at the election of the holders of these Debentures duly
delivered to the trustee at least five business days prior to
the relevant interest payment date; provided, however, at
maturity, interest will be payable as described under
Payment at Maturity.
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Interest on the Debentures for a full interest period will be
calculated on the basis of a
360-day year
consisting of twelve
30-day
months. Interest on the Debentures for any period other than a
full interest period will be calculated on the basis of the
actual number of days elapsed during the period and a
365-day
year. If an interest payment date is not a business day, payment
will be made on the next succeeding business day, and no
additional interest will accrue thereon.
Business day means each Monday, Tuesday, Wednesday,
Thursday and Friday that is not a day on which the banking
institutions in New York City are authorized or obligated by law
or executive order to close or be closed.
To the extent lawful, payments of principal or interest
(including contingent interest, if any) on the Debentures that
are not made when due will accrue interest at the annual rate of
1% above the then applicable interest rate from the required
payment date.
All references to interest in this prospectus
supplement are deemed to include additional interest, if any,
that accrues in connection with our failure to comply with our
reporting obligations under the indenture, if applicable, as
described under Events of Default; Notice and
Waiver.
S-37
Contingent
Interest
Beginning with the six-month interest period commencing
February 1, 2012, we will pay contingent interest during
any six-month interest period to the holders of the Debentures
if the trading price of the Debentures for each of the five
trading days ending on the second trading day (as defined under
Conversion Rights) immediately preceding
the first day of the applicable six-month interest period equals
or exceeds 120% of the principal amount of the Debentures.
During any six-month period when contingent interest shall be
payable, the contingent interest payable per $1,000 principal
amount of Debentures will equal 0.25% of the average trading
price of $1,000 principal amount of Debentures during the five
trading days ending on the second trading day immediately
preceding the first day of the applicable six-month interest
period.
Trading price for purposes of determining contingent
interest shall have the meaning set forth under
Conversion Rights Conversion Upon
Satisfaction of Trading Price Condition, except that, for
purposes of determining the trading price for the contingent
interest provisions only, if the trustee cannot reasonably
obtain at least one bid for $5,000,000 principal amount of the
Debentures from a nationally recognized securities dealer, then
the trading price per $1,000 principal amount of Debentures will
be deemed to equal the product of:
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the conversion rate then in effect; and
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the average closing sale price of our common stock over the five
trading-day
period ending on such determination date.
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We will notify holders by disseminating a press release prior to
the first business day of any six-month interest period that
they will be entitled to receive contingent interest during such
six-month interest period.
Conversion
Rights
Holders may convert their Debentures on or prior to
5:00 p.m., New York City time, on the business day
immediately preceding the maturity date based on an initial
conversion rate of 35.4610 shares of our common stock per
$1,000 principal amount of Debentures (equivalent to an initial
conversion price of approximately $28.20 per share), only
if the conditions for conversion described below are satisfied.
The conversion rate will be subject to adjustment as described
below. The conversion price on any day will equal
$1,000 divided by the conversion rate in effect on that day. As
described under Conversion
Procedures Settlement Upon Conversion, upon
conversion of Debentures, we will satisfy our conversion
obligation with respect to the principal amount of the
Debentures to be converted in cash and shares of our common
stock, if any. Unless we have previously redeemed or repurchased
the Debentures, you will have the right to convert any portion
of the principal amount of any Debentures that is an integral
multiple of $1,000 on or prior to 5:00 p.m., New York City
time, on the business day immediately preceding the maturity
date only under the following circumstances:
(1) prior to February 1, 2025, on any date during any
fiscal quarter beginning after March 31, 2007 (and only
during such fiscal quarter) if the closing sale price of our
common stock was more than 130% of the then effective conversion
price for at least 20 trading days in the period of the 30
consecutive trading days ending on the last trading day of the
previous fiscal quarter;
(2) at any time on or after February 1, 2025;
(3) with respect to any Debentures called for redemption,
until 5:00 p.m., New York City time, on the business day
prior to the redemption date;
(4) during a specified period if a specified corporate
transaction occurs, as described in more detail below under
Conversion Upon Specified Corporate
Transactions;
(5) during a specified period if a fundamental change
occurs, as described in more detail below under
Conversion Upon a Fundamental
Change; or
S-38
(6) during the five consecutive
business-day
period following any five consecutive
trading-day
period in which the trading price for the Debentures for each
day during such five
trading-day
period was less than 95% of the product of the closing sale
price of our common stock on such day multiplied by the then
effective conversion rate, as described in more detail below
under Conversion Upon Satisfaction of Trading
Price Condition; we refer to this condition as the
trading price condition.
The closing sale price of any share of our common
stock on any date means:
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the closing sale price per share (or if no closing sale price is
reported, the average of the closing bid and closing ask prices
or, if more than one in either case, the average of the average
closing bid and the average closing ask prices) on such date as
reported in composite transactions for the principal
U.S. securities exchange on which our common stock is
traded; or
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if our common stock is not listed on a U.S. national or
regional securities exchange, the last quoted bid price for our
common stock on that date in the
over-the-counter
market as reported by Pink Sheets LLC or similar
organization; or
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if our common stock is not so quoted by Pink Sheets LLC or
similar organization, as determined by a nationally recognized
securities dealer retained by us for that purpose.
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The closing sale price will be determined without reference to
extended or after hours trading. If during a period applicable
for calculating the closing sale price of our common stock, an
event occurs that requires an adjustment to the conversion rate,
the closing sale price shall be calculated for such period in a
manner determined by us to appropriately reflect the impact of
such event on the price of our common stock during such period.
Trading day means a day during which trading in
securities generally occurs on the NYSE or, if our common stock
is not listed on the NYSE, on the principal other
U.S. national or regional securities exchange on which our
common stock is then listed or, if our common stock is not
listed on a U.S. national or regional securities exchange,
on the principal other market on which our common stock is then
traded.
Except as provided in the next paragraph, upon conversion, you
will not receive any separate cash payment of accrued and unpaid
interest (including contingent interest, if any) on the
Debentures. Upon conversion, accrued and unpaid interest
(including contingent interest, if any) to the conversion date
is deemed to be paid in full rather than cancelled, extinguished
or forfeited.
If you convert your Debentures after 5:00 p.m., New York
City time, on a regular record date for an interest payment but
prior to the corresponding interest payment date, you will
receive on the corresponding interest payment date the interest
(including contingent interest, if any) accrued and unpaid on
your Debentures, notwithstanding your conversion of those
Debentures prior to the interest payment date, assuming you were
the holder of record on the corresponding record date. At the
time you surrender your Debentures for conversion, you must pay
us an amount equal to the interest (including contingent
interest, if any) that has accrued and will be paid on the
Debentures being converted on the corresponding interest payment
date. The foregoing sentence shall not apply to Debentures
converted after we have given notice of a redemption of such
Debentures, as described under Optional
Redemption, if we have given notice of a fundamental
change, as described under Repurchase at the
Option of the Holder Fundamental Change Put,
or with respect to any overdue interest (including overdue
contingent interest, if any), if overdue interest (including
overdue contingent interest, if any) exists at the time of
conversion.
Except as described under Conversion
Procedures Conversion Rate Adjustments, we will
not make any payment or other adjustment for dividends on any
common stock issued upon conversion of the Debentures.
If you have submitted any or all of your Debentures for
repurchase, unless you have withdrawn such Debentures in a
timely fashion, your conversion rights on the Debentures so
subject to repurchase will expire at 5:00 p.m., New York
City time, on the business day preceding the repurchase date,
unless we default in the payment of the repurchase price. If you
have submitted any Debentures for repurchase, such Debentures
may
S-39
be converted only if you submit a withdrawal notice, and, if the
Debentures are evidenced by a global Debenture, you comply with
appropriate DTC procedures.
Conversion
Upon Specified Corporate Transactions
You will have the right to convert your Debentures if we:
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distribute to all or substantially all holders of our common
stock, rights, options or warrants (other than pursuant to a
rights plan) entitling them to purchase, for a period of 45
calendar days or less, shares of our common stock at a price
less than the average closing sale price of our common stock for
the ten consecutive trading days immediately preceding the
declaration date for such distribution; or
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distribute to all or substantially all holders of our common
stock, cash or other assets, debt securities or rights to
purchase its securities (other than pursuant to a rights plan or
a dividend or distribution on our common stock in shares of our
common stock), which distribution has a per share value, as
determined by the board of directors, exceeding 10% of the
closing sale price of our common stock on the trading day
preceding the declaration date for such distribution.
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We will notify you at least 20 calendar days prior to the
ex-dividend date for such distribution. Once we have given such
notice, you may surrender your Debentures for conversion at any
time until the earlier of 5:00 p.m., New York City time, on
the business day preceding the ex-dividend date or any
announcement by us that such distribution will not take place.
The ex-dividend date is the first date upon which a
sale of our common stock does not automatically transfer the
right to receive the relevant distribution from the seller of
our common stock to its buyer. You may not convert any of your
Debentures based on this conversion contingency if you will
otherwise participate in the distribution without conversion as
a result of holding the Debentures.
You will also have the right to convert your Debentures if we
are a party to a consolidation, merger or sale, lease, transfer,
conveyance or other disposition of all or substantially all of
our assets and those of our subsidiaries taken as a whole that
does not constitute a fundamental change, in each case pursuant
to which our common stock would be converted into cash,
securities
and/or other
property. In such event, you will have the right to convert your
Debentures at any time beginning 15 calendar days prior to the
date announced by us as the anticipated effective date of the
transaction and until and including the date which is 15
calendar days after the date that is the actual effective date
of such transaction. We will notify you at least 20 calendar
days prior to the anticipated effective date of the transaction.
If you do not convert your Debentures during this period, your
Debentures will generally become convertible based on the kind
and amount of cash, securities and other property the holders of
our common stock received in such transaction.
Conversion
Upon a Fundamental Change
If a fundamental change (as defined under
Repurchase at the Option of the
Holder Fundamental Change Put) occurs, you
will have the right to convert your Debentures at any time
beginning on the business day following the effective date of
the fundamental change until 5:00 p.m., New York City time,
on the business day immediately preceding the repurchase date
relating to such fundamental change. We will notify you of the
anticipated effective date of any fundamental change at least 20
calendar days prior to such date. If you convert your Debentures
in connection with a fundamental change, you will receive:
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cash and shares of our common stock, if any, equal to the sum of
the daily settlement amounts for each day of the 20 settlement
period trading days during the applicable conversion
period; and
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under certain circumstances, the conversion rate will be
increased by a number of additional shares of common stock,
which will be determined as set forth under
Conversion Procedures Adjustment to Conversion Rate
Upon a Non-Stock Change of Control.
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S-40
Conversion
Upon Satisfaction of Trading Price Condition
You may surrender your Debentures for conversion during the five
consecutive
business-day
period following any five consecutive
trading-day
period in which the trading price per $1,000
principal amount of Debentures, as determined following a
request by a holder of Debentures in accordance with the
procedures described below, for each day of such five
trading-day
period was less than 95% of the product of the closing sale
price of our common stock on such day multiplied by the then
effective conversion rate.
The trading price of the Debentures on any date of
determination means the average of the secondary market bid
quotations obtained by the trustee for $5,000,000 principal
amount of the Debentures at approximately 3:30 p.m., New
York City time, on such determination date from two independent
nationally recognized securities dealers we select, which may
include one or more of the underwriters; provided that if only
one such bid can reasonably be obtained by the trustee, that one
bid will be used. If the trustee cannot reasonably obtain at
least one bid for $5,000,000 principal amount of the Debentures
from an independent nationally recognized securities dealer,
then, for purposes of the trading price condition only, the
trading price of the Debentures will be deemed to be less than
95% of the product of the closing sale price of our common stock
for such day and the then effective conversion rate.
In connection with any conversion upon satisfaction of the above
trading price condition, the trustee shall have no obligation to
determine the trading price of the Debentures unless we have
requested such determination, and we shall have no obligation to
make such request unless a holder of Debentures makes a request
for a determination and provides us with reasonable evidence
that the trading price per $1,000 principal amount of Debentures
would be less than 95% of the product of the closing sale price
of our common stock and the then effective conversion rate. At
such time, we shall instruct the trustee to determine the
trading price of the Debentures beginning on the next trading
day and on each successive trading day until the trading price
per $1,000 principal amount of Debentures for any trading day is
greater than or equal to 95% of the product of the closing sale
price of our common stock and the then effective conversion rate.
Conversion
Procedures
Procedures
to be Followed by a Holder
If you hold a beneficial interest in a global Debenture, to
convert you must deliver to DTC the appropriate instruction form
for conversion pursuant to DTCs conversion program and, if
required, pay funds equal to interest (including contingent
interest, if any) 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 Debenture, to convert you must:
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complete and manually sign the conversion notice on the back of
the Debenture or a facsimile of the conversion notice;
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deliver the completed conversion notice and the Debenture to be
converted to the conversion agent;
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if required, furnish appropriate endorsements and transfer
documents;
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if required, pay funds equal to interest (including contingent
interest, if any) payable on the next interest payment date to
which you are not entitled; and
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if required, pay all transfer or similar taxes, if any.
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The conversion date will be the date on which you have satisfied
all of the foregoing requirements. The Debentures will be deemed
to have been converted immediately prior to 5:00 p.m., New
York City time, on the conversion date.
You will not be required to pay any taxes or duties relating to
the issuance or delivery of our common stock if you exercise
your conversion rights, but you will be required to pay any tax
or duty that may be payable relating to any transfer involved in
the issuance or delivery of our common stock in a name other
than
S-41
your own. Certificates representing our common stock will be
issued and delivered only after all applicable taxes and duties,
if any, payable by you have been paid in full.
Settlement
Upon Conversion
Upon conversion, we will deliver to holders in respect of each
$1,000 principal amount of Debentures being converted a
conversion settlement amount equal to the sum of the
daily settlement amounts (as defined below) for each of the 20
settlement period trading days during the applicable conversion
period.
The conversion period means the period of 20
consecutive settlement period trading days:
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if we have called the Debentures delivered for conversion for
redemption, beginning on and including the
23rd scheduled
trading day immediately preceding the redemption date;
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with respect to conversion notices received during the period
beginning 25 trading days preceding the maturity date, beginning
on and including the
23rd scheduled
trading day immediately preceding the maturity date;
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with respect to conversions in connection with a fundamental
change, beginning on and including the
23rd scheduled
trading day immediately preceding the repurchase date relating
to such fundamental change; and
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in all other cases, beginning on and including the third
settlement period trading day following our receipt of your
conversion notice.
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The daily settlement amount, for each $1,000
principal amount of Debentures, for each of the twenty
settlement period trading days during the applicable conversion
period, shall consist of:
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cash equal to the lesser of $50 and the daily conversion value;
and
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to the extent the daily conversion value exceed $50, a number of
shares of our common stock equal to (1) the difference
between the daily conversion value and $50, divided by
(2) the closing sale price of our common stock for such day.
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The daily conversion value for any settlement period
trading day equals 1/20th of the product of:
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the conversion rate in effect on that day, multiplied by
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the closing sale price of our common stock (or the consideration
into which our common stock has been converted in connection
with certain corporate transactions) on that day.
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Settlement period trading day means a day during
which:
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trading in our common stock generally occurs;
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there is no market disruption event (as defined below); and
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a closing sale price for our common stock is provided on the
NYSE or, if our common stock is not listed on the NYSE, on the
principal other U.S. national or regional securities
exchange on which our common stock is then listed or, if our
common stock is not listed on a U.S. national or regional
securities exchange, on the principal other market on which our
common stock is then traded;
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provided, however, that if our common stock is not traded on any
market, then settlement period trading day shall
mean a day that the closing sale price can be obtained.
Market disruption event means the occurrence or
existence during the one-half hour period ending on the
scheduled close of trading on any settlement period trading day
for our common stock of any material suspension or limitation
imposed on trading (by reason of movements in price exceeding
limits permitted by the NYSE or otherwise) in our common stock
or in any options, contracts or futures contracts relating to
our common stock.
S-42
Settlement in cash and shares of our common stock, if any, will
occur on the third business day immediately following the final
settlement period trading day of the applicable conversion
period.
We will not issue fractional shares of our common stock upon
conversion of the Debentures. Instead, we will pay cash in lieu
of fractional shares based on the closing sale price of our
common stock on the final settlement period trading day of the
conversion period.
We may be unable to deliver the cash amount of a conversion
settlement amount in cash upon your exercise of your conversion
right. Our ability to pay such cash amount in the future is
limited by the terms of Covanta Energys existing credit
facilities until such time as Covanta Energy is successful in
refinancing its existing credit facilities or until it receives
appropriate consents from the lenders thereunder. If we enter
into the New Credit Facilities, we may be subject to a similar
restriction. Accordingly, we cannot assure you that we would be
able to obtain the appropriate consents or have the financial
resources, or would be able to arrange financing, to deliver the
cash amount of the conversion settlement amount. If we fail to
pay the conversion settlement amount when required, we will be
in default under the indenture. See Risk
Factors Risks Relating to the Offering
We may not have sufficient funds necessary to settle conversion
of the Debentures or to repurchase the Debentures for cash when
required by the holders, including following a fundamental
change.
Exchange
in lieu of Conversion
When a holder surrenders Debentures for conversion, we may
direct the conversion agent to surrender such Debentures to a
financial institution designated by us for exchange in lieu of
conversion. In order to accept any Debentures surrendered for
conversion, the designated financial institution must agree to
deliver, in exchange for such Debentures, the consideration due
upon conversion, as determined above under
Settlement Upon Conversion. By
5:00 p.m., New York City time, on the scheduled trading day
immediately preceding the first settlement period trading day of
the applicable conversion period, we will notify the holder
surrendering Debentures for conversion that we have directed the
conversion agent to surrender such Debentures to the designated
financial institution to make an exchange in lieu of conversion.
If the designated financial institution accepts any such
Debentures, it will deliver the cash and shares of our common
stock, if any, equal to the sum of the daily settlement amounts,
to the conversion agent and the conversion agent will deliver
such cash and shares of our common stock, if any, to you. Any
Debentures exchanged by the designated financial institution
will remain outstanding. If the designated financial institution
agrees to accept any Debentures for exchange but does not timely
deliver the related consideration, or if such designated
financial institution does not accept the Debentures for
exchange, we will, as promptly as practical thereafter convert
the Debentures into the cash and shares of our common stock, if
any, equal to the sum of the daily settlement amounts. Our
designation of a financial institution to which the Debentures
may be submitted for exchange does not require the financial
institution to accept any Debentures. We will not pay any
consideration to, or otherwise enter into any agreement with,
the designated financial institution for or with respect to such
designation.
Conversion
Rate Adjustments
We will adjust the conversion rate for the following events:
(1) issuances to all or substantially all holders of our
common stock as a dividend or distribution on our common stock,
or if we effect subdivisions or combinations of our common
stock, in which event the conversion rate will be adjusted based
on the following formula:
S-43
where,
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CR0
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=
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the conversion rate in effect at
5:00 p.m., New York City time, on the record date for such
dividend or distribution or the effective date of such
subdivision or combination
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CR1
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=
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the conversion rate in effect
immediately after the record date for such dividend or
distribution or the effective date of such subdivision or
combination
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OS0
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=
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the number of shares of our common
stock outstanding at 5:00 p.m., New York City time, on the
record date for such dividend or distribution or the effective
date of such subdivision or combination
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OS1
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=
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the number of shares of our common
stock that would be outstanding immediately after, and solely as
a result of, such event;
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Any adjustment made pursuant to this clause (1) shall become
effective immediately after (x) the record date for such
dividend or distribution or (y) the effective date of such
subdivision or combination. If any dividend or distribution
described in this clause (1) is declared but not so paid or
made, the conversion rate shall be readjusted to the conversion
rate that would then be in effect if such dividend or
distribution had not been declared.
(2) issuances to all or substantially all holders of our
common stock of certain rights or warrants entitling them to
purchase, for a period of 45 calendar days or less, shares of
our common stock at a price less than the current market price
(as defined below) of our common stock, in which event the
conversion rate will be adjusted based on the following formula:
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CR1
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=
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CR0
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×
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OS0 + X
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OS0 + Y
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where,
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CR0
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=
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the conversion rate in effect at
5:00 p.m., New York City time, on the record date
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CR1
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=
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the conversion rate in effect
immediately after the record date
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OS0
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=
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the number of shares of our common
stock outstanding at 5:00 p.m., New York City time, on the
record date
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X
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=
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the total number of shares of our
common stock issuable pursuant to such rights or warrants
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Y
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=
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the number of shares of our common
stock equal to the aggregate price payable to exercise such
rights or warrants divided by the current market price
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Any adjustment made pursuant to this clause (2) shall become
effective immediately after the record date for such
distribution. In the event that such rights or warrants
described in this clause (2) are not so distributed, the
conversion rate shall be readjusted to the conversion rate that
would then be in effect if the record date for such distribution
had not occurred. To the extent that such rights or warrants are
not exercised prior to their expiration or shares of common
stock are otherwise not delivered pursuant to such rights or
warrants upon the exercise of such rights or warrants, the
conversion rate shall be readjusted to the conversion rate that
would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made on the basis of
the delivery of only the number of shares of common stock
actually delivered. In determining the aggregate price payable
for such shares of common stock, there shall be taken into
account any consideration received for such rights or warrants
and the value of such consideration if other than cash to be
determined by the board of directors.
(3) distributions to all or substantially all holders of
our common stock, shares of our capital stock (other than our
common stock), evidences of our indebtedness or assets,
including securities, but excluding:
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any dividends or distributions referred to in the
clause (1) above;
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the rights and warrants referred to in clause (2) above;
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any dividends or distributions paid referred to in
clause (4) below;
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S-44
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any dividends and distributions in connection with a
reclassification, change, consolidation, merger, sale, lease,
transfer, conveyance or other disposition resulting in a change
in the conversion consideration pursuant to the sixth succeeding
paragraph below; or
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any spin-off to which the provisions set forth below in this
clause (3) shall apply,
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in which event the conversion rate will be adjusted based on the
following formula:
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CR1
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=
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CR0
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×
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SP0
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SP0 − FMV
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where,
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CR0
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=
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the conversion rate in effect at
5:00 p.m., New York City time, on the record date
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CR1
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=
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the conversion rate in effect
immediately after the record date
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SP0
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=
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the current market price
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FMV
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=
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the fair market value (as
determined by our board of directors), on the record date, of
the shares of capital stock, evidences of indebtedness or assets
so distributed, expressed as an amount per share of our common
stock
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If the transaction that gives rise to an adjustment pursuant to
this clause (3) is, however, one pursuant to which the
payment of a dividend or other distribution on our common stock
consists of shares of capital stock of, or similar equity
interests in, a subsidiary or other business unit of ours (i.e.,
a spinoff) that are, or, when issued, will be, traded or quoted
on the NYSE or any other national or regional securities
exchange or market, then the conversion rate will instead be
adjusted based on the following formula:
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CR1
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=
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CR0
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×
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FMV0 + MP0
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MP0
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where,
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CR0
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=
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the conversion rate in effect at
5:00 p.m., New York City time, on the record date
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CR1
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=
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the conversion rate in effect
immediately after the record date
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FMV0
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=
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the average of the closing sale
prices of the capital stock or similar equity interests
distributed to holders of our common stock applicable to one
share of our common stock over the 10 consecutive trading day
period commencing on and including the effective date of the
spin off
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MP0
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=
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the average of the closing sale
prices of our common stock over the 10 consecutive trading day
period commencing on and including the effective date of the
spin-off.
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Any adjustment made pursuant to this clause (3) shall
become effective immediately after the record date for such
dividend or distribution. In the event that such dividend or
distribution described in this clause (3) is not so made,
the conversion rate shall be readjusted to be the conversion
rate which would then be in effect if such dividend or
distribution had not been declared.
(4) dividends or other distributions consisting exclusively
of cash to all or substantially all holders of our common stock
(other than dividends or distributions made in connection with
our liquidation, dissolution or
winding-up
or upon a consolidation or merger, sale, lease, transfer,
conveyance or other disposition), in which event the conversion
rate will be adjusted based on the following formula:
where,
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CR0
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=
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the conversion rate in effect at
5:00 p.m., New York City time, on the record date
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CR1
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=
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the conversion rate in effect
immediately after the record date
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SP0
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=
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the current market price
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C
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=
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the amount in cash per share we
distribute to holders of our common stock.
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S-45
Any adjustment made pursuant to this clause (4) shall
become effective immediately after the record date for such
dividend or distribution. In the event that any distribution
described in this clause (4) is not so made, the conversion
rate shall be readjusted to be the conversion rate which would
then be in effect if such dividend or distribution had not been
declared.
(5) purchases of our common stock pursuant to a tender
offer or exchange offer made by us or any of our subsidiaries to
the extent that the cash and value of any other consideration
included in the payment per share of our common stock exceeds
the closing sale price of our common stock on the trading day
preceding the last date (the expiration date) on
which tenders or exchanges may be made pursuant to such tender
or exchange offer; in which event the conversion rate will be
adjusted based on the following formula:
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CR1
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=
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CR0
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×
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FMV + (SP1 × OS1)
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OS0 × SP1
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where,
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CR0
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=
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the conversion rate in effect at
5:00 p.m., New York City time, on the expiration date
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CR1
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=
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the conversion rate in effect
immediately after the expiration date
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FMV
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=
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the fair market value (as
determined by our board of directors), on the expiration date,
of the aggregate value of all cash and any other consideration
paid or payable for shares validly tendered or exchanged and not
withdrawn as of the expiration date
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OS1
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=
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the number of shares of our common
stock outstanding immediately after the last time tenders or
exchanges may be made pursuant to such tender or exchange offer
(the expiration time)
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OS0
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=
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the number of shares of our common
stock outstanding immediately after the expiration time
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SP1
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=
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the average of the closing sale
prices of our common stock over the 10 consecutive trading day
period commencing on the trading day immediately succeeding the
expiration date.
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Any adjustment made pursuant to this clause (5) shall
become effective immediately prior to the opening of business on
the trading day immediately following the expiration date. In
the event that we are, or one of our subsidiaries is, obligated
to purchase shares of our common stock pursuant to any such
tender offer or exchange offer, but we are, or such subsidiary
is, permanently prevented by applicable law from effecting any
such purchases, or all such purchases are rescinded, then the
conversion rate shall be adjusted to be the conversion rate
which would then be in effect if such tender offer or exchange
offer had not been made. Except as set forth in the preceding
sentence, if the application of this clause (5) to any
tender offer or exchange offer would result in a decrease in the
conversion rate, no adjustment shall be made for such tender
offer or exchange offer under this clause (5).
For purposes of clause (2) and (4) above,
current market price means the average closing sale
price of our common stock for the 10 consecutive trading days
immediately preceding the record date for the distribution
requiring such computation.
To the extent that any future rights plan adopted by us is in
effect upon conversion of the Debentures, you will receive, in
addition to our common stock, the rights under the applicable
rights agreement unless the rights have separated from our
common stock at the time of conversion of the Debentures, in
which case, the conversion rate will be adjusted as if we
distributed to all or substantially all holders of our common
stock shares of our capital stock, evidences of indebtedness or
assets as described above in clause (3), subject to
readjustment in the event of the expiration, termination or
redemption of such rights.
We will not make any adjustment if holders may participate in
the transaction or in certain other cases.
In cases where the fair market value of assets, debt securities
or certain rights, warrants or options to purchase our
securities, applicable to one share of our common stock,
distributed to stockholders:
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equals or exceeds the average closing sale price of our common
stock over the ten consecutive trading day period ending on the
record date for such distribution, or
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such average closing sale price exceeds the fair market value of
such assets, debt securities or rights, warrants or options so
distributed by less than $1.00,
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S-46
rather than being entitled to an adjustment in the conversion
rate, the holder of a Debenture will be entitled to receive upon
conversion, in addition to the cash and shares of our common
stock, if any, the kind and amount of assets, debt securities or
rights, warrants or options comprising the distribution, if any,
that such holder would have received if such holder had
converted such Debentures immediately prior to the record date
for determining the stockholders entitled to receive the
distribution.
If we:
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reclassify or change our common stock (other than a change in
par value or changes resulting from a subdivision or
combination), or
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consolidate or merge with or into any person or sell, lease,
transfer, convey or otherwise dispose of all or substantially
all of our assets and those of our subsidiaries taken as a whole
to another person,
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and in either case the holders of our common stock receive
stock, other securities or other property or assets (including
cash or any combination thereof) with respect to or in exchange
for their common stock, each outstanding Debenture will, without
the consent of any holders of the Debentures, become convertible
based on the cash, securities or other property consideration
the holders of our common stock received in such
reclassification, change, consolidation, merger, sale, lease,
transfer, conveyance or other disposition (the reference
property), except in the limited case of a public acquirer
change of control where the public acquirer elects to have the
Debentures convertible based on a conversion rate of a number of
shares of public acquirer common stock as described below under
Conversion After a Public Acquirer Change of
Control. 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
Debentures will become convertible will be deemed to be the
weighted average of the kind and amount of consideration
received by the holders of our common stock that affirmatively
make such an election. In all cases, the provisions above under
Settlement Upon Conversion relating to
the satisfaction of the conversion obligation shall continue to
apply with respect to the calculation of the conversion
settlement amount. We may not become a party to any such
transaction unless its terms are consistent with the foregoing.
If a taxable distribution to holders of our common stock or
other transaction occurs that results in any adjustment of the
conversion rate (including an adjustment at our option), you
may, in certain circumstances, be deemed to have received a
distribution subject to U.S. income tax as a dividend. In
certain other circumstances, the absence of an adjustment may
result in a taxable dividend to the holders of our common stock.
See Certain United States Federal Income Tax
Considerations.
We may from time to time, to the extent permitted by law,
increase the conversion rate of the Debentures by any amount for
any period of at least 20 business days. In that case, we will
give at least 15 calendar days prior notice of such increase. We
may make such increases in the conversion rate, in addition to
those set forth above, as our board of directors deems advisable
to avoid or diminish any income tax to holders of our common
stock resulting from any dividend or distribution of stock (or
rights to acquire stock) or from any event treated as such for
income tax purposes.
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
adjustment that is less than 1% of the conversion rate, take
such carried-forward adjustments into account in any subsequent
adjustment, and make such carried forward adjustments,
regardless of whether the aggregate adjustment is less than 1%,
(a) annually on the anniversary of the original issuance date of
the Debentures and otherwise (b) (1) five business
days prior to the maturity of the Debentures (whether at stated
maturity or otherwise) or (2) prior to a redemption date or
repurchase date, unless such adjustment has already been made.
If we adjust the conversion rate pursuant to the above
provisions, we will disseminate a press release containing the
relevant information and make this information available on our
website or through another public medium as we may use at that
time.
S-47
Except as stated above, we will not adjust the conversion rate
for the issuance of our common stock or any securities
convertible into or convertible for our common stock or carrying
the right to purchase any of the foregoing.
Without limiting the foregoing, the applicable conversion rate
will not be adjusted:
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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;
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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
or employee stock purchase plan of or assumed by us or any of
our subsidiaries; and
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for a change in the par value of our common stock.
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Adjustment
to Conversion Rate Upon a Non-Stock Change of
Control
Prior to February 1, 2012, if and only to the extent you
elect to convert your Debentures in connection with a
transaction described under clause (1) or clause (4)
of the definition of a fundamental change described below under
Repurchase at the Option of the
Holder Fundamental Change Put pursuant to
which 10% or more of the consideration for our common stock
(other than cash payments for fractional shares and cash
payments made in respect of dissenters appraisal rights)
in such fundamental change transaction consists of cash or
securities (or other property) that are not shares of common
stock, depositary receipts or other certificates representing
common equity interests traded or scheduled to be traded
immediately following such transaction on a U.S. national
securities exchange, which we refer to as a non-stock
change of control, we will increase the conversion rate as
described below.
The number of additional shares by which the conversion rate is
increased (the additional shares) will be determined
by reference to the table below, based on the date on which the
non-stock change of control becomes effective (the
effective date) and the price (the stock
price) paid per share for our common stock in such
non-stock change of control. If holders of our common stock
receive only cash in such transaction, the stock price paid per
share will be the cash amount paid per share. Otherwise, the
stock price paid per share will be the average of the closing
sale prices of our common stock on the five trading days prior
to, but not including, the effective date of such non-stock
change of control. We will notify you of the anticipated
effective date of any fundamental change at least 20 calendar
days prior to such date.
A conversion of the Debentures by a holder will be deemed for
these purposes to be in connection with a non-stock
change of control if the conversion notice is received by the
conversion agent during the period from the business day
following the effective date of the non-stock change of control
to 5:00 p.m., New York City time, on the business day
immediately preceding the repurchase date relating to such
non-stock change of control (as specified in the repurchase
notice described under Repurchase at the
Option of the Holder Fundamental Change Put)
and notwithstanding the fact that a Debenture may then be
convertible because another condition to conversion has been
satisfied.
The number of additional shares will be adjusted in the same
manner as and as of any date on which the conversion rate of the
Debentures is adjusted as described above under
Conversion Rate Adjustments. The stock
prices set forth in the first row of the table below (i.e., the
column headers) will be simultaneously adjusted to equal the
stock prices immediately prior to such adjustment, multiplied by
a fraction, the numerator of which is the conversion rate
immediately prior to the adjustment and the denominator of which
is the conversion rate as so adjusted.
S-48
The following table sets forth the stock price and the number of
additional shares by which the conversion rate shall be
increased:
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Stock Price
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Effective Date
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$
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23.50
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$
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28.20
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$
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30.00
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$
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35.00
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$
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40.00
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$
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45.00
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$
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50.00
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$
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55.00
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$
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60.00
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$
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65.00
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January 31, 2007
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7.0921
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4.4158
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3.7251
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2.3830
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1.5723
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1.0611
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0.7273
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0.5030
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0.3486
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0.2403
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February 1 , 2008
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7.0921
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4.3822
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3.6468
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2.2458
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1.4273
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0.9292
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0.6152
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0.4112
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0.2752
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0.1828
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February 1 , 2009
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7.0921
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4.2062
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3.4277
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1.9881
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1.1899
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0.7308
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0.4574
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0.2893
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0.1829
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0.1140
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February 1 , 2010
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7.0921
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3.8428
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3.0190
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1.5716
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0.8416
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0.4639
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0.2620
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0.1502
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0.0858
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0.0473
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February 1 , 2011
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7.0914
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3.0982
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2.2289
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0.8745
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0.3420
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0.1388
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0.0607
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0.0287
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0.0135
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0.0048
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The exact stock price and effective date may not be set forth on
the table, in which case, if the stock price is between two
stock price amounts on the table or the effective date is
between two dates on the table, the number of additional shares
will be determined by straight-line interpolation between the
number of additional shares set forth for the higher and lower
stock price amounts and the two dates, as applicable, based on a
360-day
year. If the stock price is:
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in excess of $65.00 per share (subject to adjustment), the
conversion rate will not be increased; or
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less than $23.50 per share (subject to adjustment), the
conversion rate will not be increased.
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Notwithstanding the foregoing, in no event will the total number
of shares of our common stock issuable upon conversion exceed
42.5531 per $1,000 principal amount of Debentures, subject to
adjustments in the same manner as the conversion rate as set
forth under Conversion Rate Adjustments.
Any conversion that entitles the converting holder to an
increase in the conversion rate as described in this section
shall be settled as described under Settlement
Upon Conversion above.
Our obligation to increase the conversion rate as described
above could be considered a penalty, in which case the
enforceability thereof would be subject to general principles of
economic remedies.
An increase in the conversion rate upon a fundamental change may
be treated as a deemed distribution to holders of the
Debentures, possibly subject to U.S. federal withholding
tax. See Certain United States Federal Income Tax
Considerations.
Conversion
After a Public Acquirer Change of Control
Notwithstanding the foregoing, in the case of a non-stock change
of control constituting a public acquirer change of control (as
defined below), the public acquirer may, in lieu of increasing
the conversion rate by the number of additional shares upon
conversion as described in Adjustment to
Conversion Rate Upon a Non-Stock Change of Control above,
elect to adjust our conversion obligation and the conversion
rate such that from and after the effective date of such public
acquirer change of control, holders of the Debentures will be
entitled to convert their Debentures (subject to the
satisfaction of certain conditions) based on a number of shares
of public acquirer common stock (as defined below) by adjusting
the conversion rate in effect immediately before the public
acquirer change of control by a fraction:
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the numerator of which will be (i) in the case of a public
acquirer change of control pursuant to which our common stock is
converted solely into cash, the value of such cash paid or
payable per share of common stock or (ii) in the case of
any other public acquirer change of control, the average of the
closing sale prices of our common stock for the five consecutive
trading days prior to, but excluding, the effective date of such
public acquirer change of control; and
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the denominator of which will be the average of the closing sale
prices of the public acquirer common stock for the five
consecutive trading days commencing on the trading day next
succeeding the effective date of such public acquirer change of
control.
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A public acquirer change of control means a
non-stock change of control in which the acquirer has a class of
common stock traded on a U.S. national securities exchange
or that will be so traded or quoted when issued or converted in
connection with such non-stock change of control (the
public acquirer common
S-49
stock). If an acquirer does not itself have a class of
common stock satisfying the foregoing requirement, it will be
deemed to have public acquirer common stock if a
corporation that directly or indirectly owns at least a majority
of the acquirer has a class of common stock satisfying the
foregoing requirement; provided that such corporation fully and
unconditionally guarantees the Debentures, in which case all
references to public acquirer common stock will refer to such
class of common stock. Majority owned for these purposes means
having beneficial ownership (as defined in
Rule 13d-3
under the Exchange Act of more than 50% of the total voting
power of all shares of the respective entitys capital
stock that are entitled to vote generally in the election of
directors.
Upon a public acquirer change of control, if the public acquirer
so elects, holders may convert their Debentures (subject to the
satisfaction of the conditions to conversion described under
Conversion Procedures Procedures
to be Followed by a Holder above) for cash and public
acquirer common stock at the adjusted conversion rate described
in the second preceding paragraph but will not be entitled to
receive additional shares upon conversion as described under
Adjustment to Conversion Rate Upon a Non-Stock
Change of Control. We are required to notify holders of
the public acquirers irrevocable election in our notice to
holders of such transaction. Following any such election, the
provisions set forth herein, including those set forth under
Settlement Upon Conversion shall
continue to apply except that reference to our common stock
shall be deemed to refer to the public acquirer common stock. In
addition, upon a public acquirer change of control, in lieu of
converting the Debentures, the holder can, subject to certain
conditions, require us to repurchase all or a portion of the
Debentures owned by the holder as described below under
Repurchase at the Option of the
Holders Fundamental Change Put.
Adjustments
of Average Prices
Whenever any provision of the indenture requires us to calculate
an average of closing sale price over multiple days, we will
make appropriate adjustments 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 the average is to be calculated.
Optional
Redemption
Prior to February 1, 2012, we may not redeem the
Debentures. At any time on or after February 1, 2012, we
may redeem all or a part of the Debentures at a cash redemption
price equal to 100% of the principal amount of the Debentures
being redeemed, plus accrued and unpaid interest (including
contingent interest, if any) to, but excluding, the redemption
date. However, if the redemption date is after a record date and
on or prior to the corresponding interest payment date, the
interest (including contingent interest, if any) will be paid on
the redemption date to the holder of record on the record date.
We will give notice of redemption not less than 30 nor more than
60 calendar days prior to the redemption date to all record
holders of Debentures at their addresses set forth in the
register of the registrar. This notice will state, among other
things:
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that you have a right to convert the Debentures called for
redemption, and the conversion rate then in effect;
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the date on which your right to convert the Debentures called
for redemption will expire; and
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the date on which the conversion period will begin.
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If we do not redeem all of the Debentures, the trustee will
select the Debentures to be redeemed in principal amounts of
$1,000 or integral multiples of $1,000 by lot, pro rata to the
extent practicable, or by another method the trustee considers
fair and appropriate. If any Debentures are to be redeemed in
part only, we will issue new Debentures in principal amount
equal to the unredeemed principal portion thereof. If a portion
of your Debentures is selected for partial redemption and you
convert a portion of your Debentures, the converted portion will
be deemed to be taken from the portion selected for redemption.
S-50
Additionally, we will not be required to:
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issue, register the transfer of, or exchange any Debentures
during the period of 15 calendar days before the mailing of the
notice of redemption, or
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register the transfer of or exchange any Debentures so selected
for redemption, in whole or in part, except the unredeemed
portion of any Debentures being redeemed in part.
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We may not redeem the Debentures if we have failed to pay
interest (including contingent interest, if any) on the
Debentures and such failure to pay is continuing.
Repurchase
at the Option of the Holder
Optional
Put
On February 1, 2012, February 1, 2017 and
February 1, 2022, you will have the right to require us to
repurchase, at the repurchase price described below, all or part
of your Debentures for which you have properly delivered and not
withdrawn a written repurchase notice. The Debentures submitted
for repurchase must be $1,000 in principal amount or whole
multiples thereof.
The repurchase price will be payable in cash and will equal 100%
of the principal amount of the Debentures being repurchased,
plus accrued and unpaid interest (including contingent interest,
if any) to, but excluding, the repurchase date. The accrued and
unpaid interest (including contingent interest, if any) will be
paid on the repurchase date to the holder of record on the
record date.
We may be unable to repurchase your Debentures upon your
exercise of your repurchase right. Our ability to repurchase
Debentures in cash in the future is limited by the terms of
Covanta Energys existing credit facilities until such time
as Covanta Energy is successful in refinancing its existing
credit facilities or until it receives appropriate consents from
the lenders thereunder. If we enter into the New Credit
Facilities and we do not meet the specified leverage ratio test
under the New Credit Facilites, we may be subject to a similar
restriction under the New Credit Facilities. Accordingly, we
cannot assure you that we would be able to obtain the
appropriate consents or have the financial resources, or would
be able to arrange financing, to pay the repurchase price in
cash. If we fail to repurchase the Debentures when required, we
will be in default under the indenture. See Risk
Factors Risks Relating to this Offering
We may not have sufficient funds necessary to settle conversion
of the Debentures or to repurchase the Debentures for cash when
required by the holders, including following a fundamental
change.
We will give notice at least 20 business days prior to each
repurchase date to the trustee, the paying agent and all record
holders at their addresses shown in the register of the
registrar and to beneficial owners as required by applicable
law. This notice will state, among other things, the procedures
that you must follow to require us to repurchase your
Debentures. Simultaneously with providing such notice, we will
disseminate a press release containing the relevant information
and make this information available on our website or through
another public medium as we may use at this time.
To exercise your repurchase right, you must deliver at any time
from 9:00 a.m., New York City time, on the date that is 20
business days prior to the applicable repurchase date to
5:00 p.m., New York City time, on the business day
immediately preceding the applicable repurchase date, a written
notice to the paying agent of your exercise of your repurchase
right (together with the Debentures to be repurchased, if
certificated Debentures have been issued). The repurchase notice
must state:
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if you hold a beneficial interest in a global Debenture, your
repurchase notice must comply with appropriate DTC procedures;
if you hold certificated Debentures, the certificate numbers of
the Debentures to be delivered for repurchase;
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the portion of the principal amount of your Debentures to be
repurchased, which must be $1,000 or whole multiples
thereof; and
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that the Debentures are to be repurchased by us pursuant to the
applicable provisions of the Debentures and the indenture.
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S-51
You may withdraw your repurchase notice in whole or in part at
any time prior to 5:00 p.m., New York City time, on the
business day immediately preceding the applicable repurchase
date, by delivering a written notice of withdrawal to the paying
agent. If a repurchase notice is given and withdrawn during that
period, we will not be obligated to repurchase the Debentures
listed in the repurchase notice. The withdrawal notice must
state:
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if you hold a beneficial interest in a global Debentures, your
withdrawal notice must comply with appropriate DTC procedures;
if you hold certificated Debentures, the certificate numbers of
the withdrawn Debentures;
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the principal amount of the withdrawn Debentures; and
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the principal amount, if any, which remains subject to the
repurchase notice.
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Payment of the repurchase price for a Debenture for which a
repurchase notice has been delivered and not withdrawn is
conditioned upon book-entry transfer or delivery of the
Debentures, together with necessary endorsements, to the paying
agent, as the case may be. Payment of the repurchase price for
the Debentures will be made promptly following the later of the
repurchase date and the time of book-entry transfer or delivery
of the Debentures, as the case may be.
If the paying agent holds on the repurchase date cash sufficient
to pay the repurchase price of the Debentures that holders have
elected to require us to repurchase, then, as of the repurchase
date:
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those Debentures will cease to be outstanding and interest
(including contingent interest, if any) will cease to accrue,
whether or not book-entry transfer of the Debentures has been
made or the Debentures have been delivered to the paying agent,
as the case may be; and
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all other rights of the Debentures holders will terminate, other
than the right to receive the repurchase price and previously
accrued and unpaid interest (including contingent interest, if
any) upon delivery or transfer of the Debentures.
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In connection with any repurchase, we will, to the extent
applicable:
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comply with the provisions of
Rule 13e-4
and any other tender offer rules under the Exchange Act that may
be applicable at the time of the offer to repurchase the
Debentures;
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file a Schedule TO or any other schedule required in
connection with any offer by us to repurchase the
Debentures; and
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comply with all other federal and state securities laws in
connection with any offer by us to repurchase the Debentures.
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No Debentures may be purchased at the option of holders if there
has occurred and is continuing an event of default other than an
event of default that is cured by the payment of the repurchase
price of the Debentures.
Fundamental
Change Put
If a fundamental change (as defined below) occurs at any time
prior to the maturity of the Debentures, you will have the right
to require us to repurchase, at the repurchase price described
below, all or part of your Debentures for which you have
properly delivered and not withdrawn a written repurchase
notice. The Debentures submitted for repurchase must be $1,000
in principal amount or whole multiples thereof.
The repurchase price will be payable in cash and will equal 100%
of the principal amount of the Debentures being repurchased,
plus accrued and unpaid interest (including contingent interest,
if any) to, but excluding, the repurchase date. However, if the
repurchase date is after a record date and on or prior to the
corresponding interest payment date, the interest (including
contingent interest, if any) will be paid on the repurchase date
to the holder of record on the record date.
S-52
We may be unable to repurchase your Debentures upon your
exercise of your repurchase right upon a fundamental change. Our
ability to repurchase the Debentures in cash in the future is
limited by the terms of Covanta Energys existing credit
facilities until such time as Covanta Energy is successful in
refinancing its existing credit facilities or until it receives
appropriate consents from the lenders thereunder. If we enter
into the New Credit Facilities and we do not meet the specified
leverage ratio test under the New Credit Facilites, we may be
subject to a similar restriction under the New Credit
Facilities. In addition, the occurrence of a fundamental change
could cause an event of default under Covanta Energys
existing credit facilities and, if such facilities are
refinanced with the New Credit Facilities, the New Credit
Facilities. Therefore, upon the occurrence of a fundamental
change, the lenders under Covanta Energys existing credit
facilities or the New Credit Facilities, as the case may be,
would have the right to accelerate their loans, and Covanta
Energy would be required to prepay all of its outstanding
obligations thereunder. We cannot assure you that we would have
the financial resources, or would be able to arrange financing,
to pay the repurchase price in cash. If we fail to repurchase
the Debentures when required, we will be in default under the
indenture. See Risk Factors Risks Relating to
the Offering We may not have sufficient funds
necessary to settle conversion of the Debenture or to repurchase
the Debentures for cash when required by the holders, including
following a fundamental change.
A fundamental change will be deemed to have occurred
when any of the following has occurred:
(1) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is
that any person becomes the beneficial
owner (as these terms are defined in
Rule 13d-3
and
Rule 13d-5
under the Exchange Act), directly or indirectly, of more than
50% of our capital stock that is at the time entitled to vote by
the holder thereof in the election of our board of directors (or
comparable body);
(2) the first day on which a majority of the members of our
board of directors are not continuing directors;
(3) the adoption of a plan relating to our liquidation or
dissolution;
(4) the consolidation or merger of us with or into any
other person (as this term is used in
Section 13(d)(3) of the Exchange Act), or the sale, lease,
transfer, conveyance or other disposition, in one or a series of
related transactions, of all or substantially all of our assets
and those of our subsidiaries taken as a whole to any
person (as this term is used in
Section 13(d)(3) of the Exchange Act), other than:
(a) any transaction:
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that does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of our capital
stock; and
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pursuant to which the holders of 50% or more of the total voting
power of all shares of our capital stock entitled to vote
generally in elections of directors immediately prior to such
transaction have the right to exercise, directly or indirectly,
50% or more of the total voting power of all shares of our
capital stock entitled to vote generally in elections of
directors of the continuing or surviving person immediately
after giving effect to such transaction; or
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(b) any merger primarily for the purpose of changing our
jurisdiction of incorporation and resulting in a
reclassification, conversion or exchange of outstanding shares
of common stock solely into shares of common stock of the
surviving entity; or
(5) the termination of trading of our common stock, which
will be deemed to have occurred if our common stock or other
common stock into which the Debentures are convertible is
neither listed for trading on a U.S. national securities
exchange nor approved for quotation on any U.S. system of
automated dissemination of quotations of securities prices, and
no American Depositary Shares or similar instruments for such
common stock are so listed or approved for listing or quotation
in the United States.
S-53
However, a fundamental change will be deemed not to have
occurred if more than 90% of the consideration in the
transaction or transactions (other than cash payments for
fractional shares and cash payments made in respect of
dissenters appraisal rights) which otherwise would
constitute a fundamental change under clause (1) or
(4) above consists of shares of common stock, depositary
receipts or other certificates representing common equity
interests traded or to be traded immediately following such
transaction on a U.S. national securities exchange and, as
a result of the transaction or transactions, the Debentures
become convertible into such common stock, depositary receipts
or other certificates representing common equity interests (and
any rights attached thereto) and other applicable consideration.
Continuing directors means, as of any date of
determination, any member of our board of directors who:
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was a member of the board of directors on the date of the
indenture; or
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was nominated for election or elected to the board of directors
with the approval of a majority of the continuing directors who
were members of the board at the time of new directors
nomination or election.
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The definition of fundamental change includes a
phrase relating to the sale, lease, transfer, conveyance or
other disposition, in one or a series of related transactions,
of all or substantially all of our assets and those of our
subsidiaries taken as a whole. Although there is a developing
body of case law interpreting the phrase substantially
all, there is no precise established definition of the
phrase under applicable law. Accordingly, the ability of a
holder of Debentures to require us to repurchase the Debentures
as a result of a sale, lease, transfer, conveyance or other
disposition of less than all of its assets and those of our
subsidiaries taken as a whole to another person or group may be
uncertain.
On or before the fifth calendar day after the occurrence of a
fundamental change, we will provide to the trustee, the paying
agent, all record holders of the Debentures on the date of the
fundamental change at their addresses shown in the register of
the registrar and to beneficial owners to the extent required by
applicable law, a written notice of the occurrence of the
fundamental change and the resulting repurchase right. Such
notice shall state, among other things, the event causing the
fundamental change and the procedures you must follow to require
us to repurchase your Debentures. Simultaneously with providing
such notice, we will disseminate a press release containing the
relevant information and make this information available on our
website or through another public medium as we may use at this
time.
The repurchase date will be a date specified by us in the notice
of a fundamental change that is not less than 20 or more than 35
calendar days after the date of the notice of a fundamental
change.
To exercise your repurchase right, you must deliver at any time
prior to 5:00 p.m., New York City time, on the business day
immediately preceding the repurchase date, a written notice to
the paying agent of your exercise of your repurchase right
(together with the Debentures to be repurchased, if certificated
Debentures have been issued). The repurchase notice must state:
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if you hold a beneficial interest in a global Debenture, your
repurchase notice must comply with appropriate DTC procedures;
if you hold certificated Debentures, the certificate numbers of
the Debentures to be delivered for repurchase;
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the portion of the principal amount of the Debentures to be
repurchased, which must be $1,000 or whole multiples
thereof; and
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that the Debentures are to be repurchased by us pursuant to the
applicable provisions of the Debentures and the indenture.
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You may withdraw your repurchase notice in whole or in part at
any time prior to 5:00 p.m., New York City time, on the
business day immediately preceding the repurchase date, by
delivering a written notice of
S-54
withdrawal to the paying agent. If a repurchase notice is given
and withdrawn during that period, we will not be obligated to
repurchase the Debentures listed in the repurchase notice. The
withdrawal notice must state:
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if you hold a beneficial interest in a global Debenture, your
withdrawal notice must comply with appropriate DTC procedures;
if you hold certificated Debentures, the certificate numbers of
the withdrawn Debentures;
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the principal amount of the withdrawn Debentures; and
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the principal amount, if any, which remains subject to the
repurchase notice.
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Payment of the repurchase price for a Debenture for which a
repurchase notice has been delivered and not withdrawn is
conditioned upon book-entry transfer or delivery of the
Debentures, together with necessary endorsements, to the paying
agent, as the case may be. Payment of the repurchase price for
the Debentures will be made promptly following the later of the
repurchase date and the time of book-entry transfer or delivery
of the Debentures, as the case may be.
If the paying agent holds on the repurchase date cash sufficient
to pay the repurchase price of the Debentures that holders have
elected to require us to repurchase, then, as of the repurchase
date:
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the Debentures will cease to be outstanding and interest
(including contingent interest, if any) will cease to accrue,
whether or not book-entry transfer of the Debentures has been
made or the Debentures have been delivered to the paying agent,
as the case may be; and
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all other rights of the holders of Debentures will terminate,
other than the right to receive the repurchase price and
previously accrued and unpaid interest (including contingent
interest, if any) upon delivery or transfer of the Debentures.
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In connection with any repurchase, we will, to the extent
applicable:
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comply with the provisions of
Rule 13e-4
and any other tender offer rules under the Exchange Act that may
be applicable at the time of the offer to repurchase the
Debentures;
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file a Schedule TO or any other schedule required in
connection with any offer by us to repurchase the
Debentures; and
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comply with all other federal and state securities laws in
connection with any offer by us to repurchase the Debentures.
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No Debentures may be purchased at the option of holders if there
has occurred and is continuing an event of default other than an
event of default that is cured by the payment of the repurchase
price of the Debentures.
This fundamental change repurchase right could discourage a
potential acquirer of Covanta. However, this fundamental change
repurchase feature is not the result of managements
knowledge of any specific effort to obtain control of Covanta by
means of a merger, tender offer, solicitation or otherwise, or
part of a plan by management to adopt a series of anti-takeover
provisions.
Our obligation to repurchase the Debentures upon a fundamental
change would not necessarily afford you protection in the event
of a highly leveraged or other transaction involving us that may
adversely affect holders. We also could, in the future, enter
into certain transactions, including certain recapitalizations,
that would not constitute a fundamental change but would
increase the amount of our (or our subsidiaries)
outstanding debt. The incurrence of significant amounts of
additional debt could adversely affect our ability to service
our then existing debt, including the Debentures.
S-55
Consolidation,
Merger and Sale of Assets
The indenture will provide that we may not, in a single
transaction or a series of related transactions, consolidate
with or merge with or into any other person or sell, lease,
transfer, convey or otherwise dispose of all or substantially
all of our property and assets to another person, unless:
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either (a) we are the surviving corporation or (b) the
resulting, surviving or transferee person (if other than us) is
a corporation or limited liability company organized and
existing under the laws of the United States, any state thereof
or the District of Columbia and such person assumes, by a
supplemental indenture in a form reasonably satisfactory to the
trustee, all of our obligations under the Debentures and the
indenture;
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immediately after giving effect to such transaction, no default
or event of default has occurred and is continuing;
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if as a result of such transaction, the Debentures become
convertible into common stock or other securities issued by a
third party, such third party fully and unconditionally
guarantees all obligations of us or such successor under the
Debentures and the indenture; and
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we have delivered to the trustee certain certificates and
opinions of counsel if so requested by the trustee.
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In the event of any transaction described in and complying with
the conditions listed in the immediately preceding paragraph in
which we are not the surviving corporation, the successor person
formed or remaining shall succeed, and be substituted for, and
may exercise every right and power of, Covanta, and Covanta
shall be discharged from its obligations, under the Debentures
and the indenture.
This covenant includes a phrase relating to the sale, lease,
conveyance or other disposition of the property and assets of
Covanta substantially as an entirety. There is no
precise, established definition of the phrase
substantially as an entirety under New York law,
which governs the indenture and the Debentures, or under the
laws of Delaware, our state of incorporation. Accordingly, the
ability of a holder of the Debentures to require us to
repurchase the Debentures as a result of a sale, conveyance,
transfer or lease of less than all of our property and assets
may be uncertain.
Although these types of transactions are permitted under the
indenture, certain of the foregoing transactions could
constitute a fundamental change permitting each holder to
require us to repurchase the Debentures of such holder as
described above.
An assumption by any person of our obligations under the
Debentures and the indenture might be deemed for
U.S. federal income tax purposes to be an exchange of the
Debentures for new Debentures by the holders thereof, resulting
in recognition of gain or loss for such purposes and possibly
other adverse tax consequences to the holders. Holders should
consult their own tax advisors regarding the tax consequences of
such an assumption.
Events of
Default; Notice and Waiver
The following will be events of default under the indenture:
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we fail to pay any interest (including contingent interest, if
any) on the Debentures when due and such failure continues for a
period of 30 calendar days;
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we fail to pay principal of the Debentures when due at maturity,
upon declaration or otherwise, or we fail to pay the redemption
price or repurchase price, in respect of any Debentures when due;
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we fail to comply with our obligation to convert the Debentures
in accordance with the indenture upon exercise of a
holders conversion right and such failure continues for 5
business days following the scheduled settlement date for such
conversion;
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we fail to provide notice of the anticipated effective date or
actual effective date of a fundamental change, or notice of
specified corporate transactions as described under
Conversion Rights
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Conversion upon Specified Corporate Transactions, in each
case on a timely basis as required in the indenture and such
failure continues for 5 calendar days;
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we fail to comply with our obligations under
Consolidation, Merger and Sale of Assets;
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except as provided below with respect to our failure to comply
with our reporting obligations under the indenture, we fail to
perform or observe any other term, covenant or agreement in the
Debentures or the indenture for a period of 60 calendar days
after written notice of such failure is given to us by the
trustee or to us and the trustee by the holders of at least 25%
in aggregate principal amount of the Debentures then outstanding;
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a failure to pay when due (whether at stated maturity or
otherwise), or a default that results in the acceleration of
maturity, of any indebtedness for borrowed money of Covanta or
any of our significant subsidiaries (which term
shall have the meaning specified in
Rule 1-02(w)
of
Regulation S-X),
if the total amount of such indebtedness unpaid or accelerated
exceeds $30 million (or its foreign currency equivalent) in
the aggregate unless such indebtedness is discharged, or such
acceleration is rescinded, stayed or annulled, within a period
of 30 calendar days after written notice of such failure is
given to us by the trustee or to us and the trustee by the
holders of at least 25% in aggregate principal amount of the
Debentures then outstanding;
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a final judgment or decree for the payment of $30 million
(or its foreign currency equivalent) or more rendered against us
or any of our subsidiaries, which judgment is not discharged,
waived or stayed within 60 calendar days after (i) the date
on which the right to appeal thereof has expired if no such
appeal has commenced or (ii) the date on which all rights
to appeal have been extinguished; or
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certain events involving our bankruptcy, insolvency or
reorganization or the bankruptcy, insolvency or reorganization
of any of our significant subsidiaries (which term
shall have the meaning specified in
Rule 1-02(w)
of
Regulation S-X).
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We are required to notify the trustee promptly upon becoming
aware of the occurrence of any default under the indenture known
to us. The trustee is then required within 90 calendar days of
becoming aware of the occurrence of any default to give to the
registered holders of the Debentures notice of all uncured
defaults known to it. However, the trustee may withhold notice
to the holders of the Debentures of any default, except defaults
in payment of principal or interest (including contingent
interest, if any) on the Debentures, if the trustee, in good
faith, determines that the withholding of such notice is in the
interests of the holders. We are also required to deliver to the
trustee, on or before a date not more than 120 calendar days
after the end of each fiscal year, a written statement as to
compliance with the indenture, including whether or not any
default has occurred.
If an event of default specified in the last bullet point listed
above occurs and continues with respect to us or any of our
significant subsidiaries, the principal amount of the Debentures
and accrued and unpaid interest (including contingent interest,
if any) on the outstanding Debentures will automatically become
due and payable. If any other event of default occurs and is
continuing, the trustee or the holders of at least 25% in
aggregate principal amount of the outstanding Debentures may
declare the principal amount of the Debentures and accrued and
unpaid interest (including contingent interest, if any) on the
outstanding Debentures to be due and payable. Thereupon, the
trustee may, in its discretion, proceed to protect and enforce
the rights of the holders of the Debentures by appropriate
judicial proceedings.
Notwithstanding the foregoing, the indenture will provide that
the sole remedy for an event of default relating to the failure
to comply with the reporting obligations in the indenture, which
are described below under the caption
Reports, and for any failure to comply
with the requirements of Section 314(a)(1) of the Trust
Indenture Act, will for the 365 days after the occurrence
of such an event of default consist exclusively of the right to
receive additional interest on the Debentures at an annual rate
equal to 0.50% of the principal amount of the Debentures. This
additional interest will be payable in the same manner and on
the same dates as the stated interest payable on the Debentures.
The additional interest will accrue on all outstanding
Debentures from and including the date on which an event of
default relating to a failure to comply with the reporting
obligations in the indenture first occurs to, but not including,
the 365th day
S-57
thereafter (or such earlier date on which the event of default
relating to the reporting obligations shall have been cured or
waived). On such 365th day (or earlier, if an event of
default relating to the reporting obligations is cured or waived
prior to such 365th day), such additional interest will
cease to accrue and the Debentures will be subject to
acceleration as provided above if the event of default is
continuing. The provisions of the indenture described in this
paragraph will not affect the rights of holders of Debentures in
the event of the occurrence of any other event of default.
After a declaration of acceleration, but before a judgment or
decree for payment of the money due has been obtained by the
trustee, the holders of a majority in aggregate principal amount
of the Debentures outstanding, by written notice to us and the
trustee, may waive all defaults, rescind and annul such
declaration if:
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we have paid (or deposited with the trustee a sum sufficient to
pay) (1) all overdue interest (including contingent
interest, if any) on all Debentures; (2) the principal
amount of any Debentures that have become due otherwise than by
such declaration of acceleration; (3) to the extent that
payment of such interest is lawful, interest upon overdue
interest (including contingent interest, if any); and
(4) all sums paid or advanced by the trustee under the
indenture and the reasonable compensation, expenses,
disbursements and advances of the trustee, its agents and
counsel;
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rescission would not conflict with any judgment or decree of a
court of competent jurisdiction; and
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all events of default, other than the non-payment of the
principal amount and any accrued and unpaid interest (including
contingent interest, if any) that have become due solely by such
declaration of acceleration, have been cured or waived.
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The holders of a majority in aggregate principal amount of the
outstanding Debentures will have the right to direct the time,
method and place of any proceedings for any remedy available to
the trustee, subject to limitations specified in the indenture.
No holder of the Debentures may pursue any remedy under the
indenture, except in the case of a default in the payment of
principal or interest (including contingent interest, if any) on
the Debentures, unless:
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the holder has given the trustee written notice of an event of
default;
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the holders of at least 25% in aggregate principal amount of the
outstanding Debentures make a written request to the trustee to
pursue the remedy, and offer reasonable security or indemnity
against any costs, liability or expense of the trustee;
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the trustee fails to comply with the request within 60 calendar
days after receipt of the request and offer of
indemnity; and
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the trustee does not receive an inconsistent direction from the
holders of a majority in aggregate principal amount of the
outstanding Debentures.
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An event of default for the Debentures will not necessarily
constitute an event of default for any other series of debt
securities issued under the indenture, and an event of default
for any other series of debt securities issued under the
indenture will not necessarily constitute an event of default
for the Debentures.
Waiver
The holders of a majority in aggregate principal amount of the
Debentures outstanding may, on behalf of the holders of all the
Debentures, waive any past default or event of default under the
indenture and its consequences, except:
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our failure to pay principal of or interest (including
contingent interest, if any) on any Debentures when due;
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our failure to convert any Debentures into cash and shares of
our common stock, if any, as required by the indenture;
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our failure to pay the redemption price on the redemption date
in connection with a redemption by us or the repurchase price on
the repurchase date in connection with a holder exercising its
repurchase rights; or
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our failure to comply with any of the provisions of the
indenture that would require the consent of the holder of each
outstanding Debentures affected.
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Modification
Changes
Requiring Approval of Each Affected Holder
The indenture (including the terms and conditions of the
Debentures) may not be modified or amended without the written
consent or the affirmative vote of the holder of each Debenture
affected by such change (including, without limitation, consents
obtained in connection with a purchase of or tender offer or
exchange offer for, Debentures) to:
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extend the maturity of any Debentures;
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reduce the rate or extend the time for payment of interest
(including contingent interest, if any) on any Debentures;
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reduce the principal amount of any Debentures;
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reduce any amount payable upon redemption or repurchase of any
Debentures;
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impair the right of a holder to institute suit for payment of
any Debentures;
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change the currency in which any Debentures are payable;
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change the redemption provisions in a manner adverse to the
holders;
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change our obligation to repurchase any Debentures at the option
of the holder in a manner adverse to the holders;
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change our obligation to repurchase any Debentures upon a
fundamental change in a manner adverse to the holders;
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affect the right of a holder to convert any Debentures into cash
and shares of our common stock, if any, or reduce the conversion
rate, except as permitted pursuant to the indenture;
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change our obligation to maintain an office or agency;
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modify certain provisions of the indenture relating to
modification of the indenture or waiver under the
indenture; or
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reduce the percentage of the Debentures required for consent to
any modification of the indenture that does not require the
consent of each affected holder.
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For the avoidance of doubt, the only written consent or
affirmative vote required to approve any of the foregoing
changes is the written consent or affirmative vote of each
Debenture affected by such change; the written consent or
affirmative vote of the holders of a majority in aggregate
principal amount of the Debentures then outstanding is not
additionally required.
Changes
Requiring Majority Approval
The indenture (including the terms and conditions of the
Debentures) may be modified or amended, except as described
above, with the written consent or affirmative vote of the
holders of a majority in aggregate principal amount of the
Debentures then outstanding.
S-59
Changes
Requiring No Approval
The indenture (including the terms and conditions of the
Debentures) may be modified or amended by us and the trustee,
without the consent of the holder of any Debentures, to, among
other things:
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provide for conversion rights of holders of the Debentures and
our repurchase obligations in connection with a fundamental
change in the event of any reclassification of our common stock,
merger or consolidation, or sale, conveyance, transfer or lease
of its property and assets substantially as an entirety;
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provide for the assumption of our obligations to the holders of
the Debentures in the event of a merger or consolidation, or
sale, conveyance, transfer or lease of our property and assets
substantially as an entirety;
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surrender any right or power conferred upon us;
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add to our covenants for the benefit of the holders of the
Debentures, including adding one or more additional put rights
in favor of the holders of the Debentures;
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cure any ambiguity, omission or correct or supplement any
provisions of the indenture which may be defective or otherwise
inconsistent with any other provision of the indenture;
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make any provision with respect to matters or questions arising
under the indenture that we may deem necessary or desirable and
that shall not be inconsistent with provisions of the indenture;
provided that such change or modification does not adversely
affect the interests of the holders of the Debentures in any
material respect;
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increase the conversion rate; provided that the increase will
not adversely affect the interests of the holders of the
Debentures;
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comply with the requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust
Indenture Act;
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secure the Debentures;
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adding guarantees of obligations under the Debentures; and
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provide for a successor trustee.
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Other
The consent of the holders of Debentures is not necessary under
the indenture to approve the particular form of any proposed
modification or amendment. It is sufficient if such consent
approves the substance of the proposed modification or
amendment. After a modification or amendment under the indenture
becomes effective, we are required to mail to the holders a
notice briefly describing such modification or amendment.
However, the failure to give such notice to all the holders, or
any defect in the notice, will not impair or affect the validity
of the modification or amendment.
Debentures
Not Entitled to Consent
Any Debentures held by us or by any person directly or
indirectly controlling or controlled by or under direct or
indirect common control with us shall be disregarded (from both
the numerator and the denominator) for purposes of determining
whether the holders of the requisite aggregate principal amount
of the outstanding Debentures have consented to a modification,
amendment or waiver of the terms of the indenture.
Discharge
We may satisfy and discharge our obligations under the indenture
by delivering to the Debentures registrar for cancellation all
outstanding Debentures or by depositary with the trustee or
delivering to the holders, as applicable, after the Debentures
have become due and payable, whether at stated maturity, or any
S-60
redemption date, cash and shares of our common stock, if any,
sufficient to pay all of the outstanding Debentures and paying
all other sums payable under the indenture by us. Such discharge
is subject to the terms contained in the indenture.
Repurchase
and Cancellation
We may, to the extent permitted by law, repurchase any
Debentures in the open market or by tender offer at any price or
by private agreement. Any Debentures repurchased by us may, at
our option, be surrendered to the trustee for cancellation, but
may not be reissued or resold by us. Any Debentures surrendered
for cancellation may not be reissued or resold and will be
promptly cancelled.
Information
Concerning the Trustee and Common Stock Transfer Agent and
Registrar
We have appointed Wells Fargo Bank, National Association, the
trustee under the indenture, as paying agent, conversion agent,
Debentures registrar and custodian for the Debentures. The
trustee or its affiliates may also provide other services to us
in the ordinary course of their business. The indenture contains
certain limitations on the rights of the trustee, if it or any
of its affiliates is then our creditor, to obtain payment of
claims in certain cases or to realize on certain property
received on any claim as security or otherwise. The trustee and
its affiliates will be permitted to engage in other transactions
with us. However, if the trustee or any affiliate continues to
have any conflicting interest and a default occurs with respect
to the Debentures, the trustee must eliminate such conflict or
resign.
American Stock Transfer & Trust Company is the transfer
agent and registrar for our common stock.
No
Stockholder Rights for Holders of Debentures
Holders of Debentures, as such, will not have any rights as
stockholders of Covanta Holding Corporation (including, without
limitation, voting rights and rights to receive any dividends or
other distributions on our common stock).
Reports
We shall deliver to the trustee, within 15 days after we
would have been required to file with the SEC, copies of our
annual reports and of the information, documents and other
reports (or copies of such portions of any of the foregoing as
the Commission may by rules and regulations prescribe) which we
are required to file with the SEC pursuant to Section 13 or
15(d) of the Exchange Act. In the event we are at any time no
longer subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act, we shall continue to provide the
trustee with reports containing substantially the same
information as would have been required to be filed with the SEC
had we continued to have been subject to such reporting
requirements. In such event, such reports shall be provided at
the times we would have been required to provide reports had we
continued to have been subject to such reporting requirements.
We also shall comply with the other provisions of
Section 314(a) of the Trust Indenture Act.
No
Personal Liability of Directors, Officers, Employees and
Stockholders
No director, officer, employee, incorporator, stockholder or
partner of ours, as such, will have any liability for any of our
obligations under the Debentures, the indenture or for any claim
based on, in respect of, or by reason of, such obligations or
their creation. Each holder of Debentures by accepting a
debenture waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the
Debentures. The waiver may not be effective to waive liabilities
under the federal securities laws.
Governing
Law
The Debentures and the indenture shall be governed by, and
construed in accordance with, the laws of the State of New York.
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Calculations
in Respect of the Debentures
Except as otherwise provided herein, we will be responsible for
making all calculations called for under the Debentures. These
calculations include, but are not limited to, determinations of
the closing sale price of our common stock, the trading price of
the Debentures, accrued interest (including contingent interest,
if any), payable on the Debentures, the amount and timing of any
adjustments to the conversion rate and conversion price and the
conversion settlement amount deliverable upon conversion. We or
our agents will make all these calculations in good faith and,
absent manifest error, such calculations will be final and
binding on holders of the Debentures. We will provide a schedule
of these calculations to each of the trustee and the conversion
agent, and each of the trustee and conversion agent is entitled
to rely upon the accuracy of our calculations without
independent verification. The trustee will forward these
calculations to any holder of the Debentures upon the request of
that holder.
Form,
Denomination and Registration
The Debentures will be issued:
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in fully registered form;
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without interest coupons; and
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in denominations of $1,000 principal amount and integral
multiples of $1,000.
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Global
Debentures, Book-Entry Form
The Debentures will be evidenced by one or more global
Debentures. We will deposit the global Debentures with DTC and
register the global Debentures in the name of Cede &
Co. as DTCs nominee. Except as set forth below, a global
Debenture may be transferred, in whole or in part, only to
another nominee of DTC or to a successor of DTC or its nominee.
Beneficial interests in a global Debenture may be held through
organizations that are participants in DTC (called
participants). Transfers between participants will
be effected in the ordinary way in accordance with DTC rules and
will be settled in clearing house funds. The laws of some states
require that certain persons take physical delivery of
securities in definitive form. As a result, the ability to
transfer beneficial interests in the global Debentures to such
persons may be limited.
Beneficial interests in a global Debenture held by DTC may be
held only through participants, or certain banks, brokers,
dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a participant, either
directly or indirectly (called indirect
participants). So long as Cede & Co., as the
nominee of DTC, is the registered owner of a global Debenture,
Cede & Co. for all purposes will be considered the sole
holder of such global Debentures. Except as provided below,
owners of beneficial interests in a global Debenture will:
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not be entitled to have certificates registered in their names;
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not receive physical delivery of certificates in definitive
registered form; and
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not be considered holders of the global Debentures.
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We will pay principal of and interest (including contingent
interest, if any) on, and the redemption price and the
repurchase price of, a global Debenture to Cede & Co.,
as the registered owner of the global Debentures, by wire
transfer of immediately available funds on the maturity date,
each interest payment date or the redemption or repurchase date,
as the case may be. Neither we, the trustee nor any paying agent
will be responsible or liable:
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for any aspect of the records relating to, or payments made on
account of, beneficial ownership interests in a global
Debenture; or
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for maintaining, supervising or reviewing any records relating
to the beneficial ownership interests.
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S-62
DTC has advised us that it will take any action permitted to be
taken by a holder of the Debentures, including the presentation
of the Debentures for conversion, only at the direction of one
or more participants to whose account with DTC interests in the
global Debentures are credited, and only in respect of the
principal amount of the Debentures represented by the global
Debentures as to which the participant or participants has or
have given such direction.
DTC has advised us that it is:
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a limited purpose trust company organized under the laws of the
State of New York, and a member of the Federal Reserve System;
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a clearing corporation within the meaning of the
Uniform Commercial Code; and
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a clearing agency registered pursuant to the
provisions of Section 17A of the Exchange Act.
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DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry
changes to the accounts of its participants. Participants
include securities brokers, dealers, banks, trust companies and
clearing corporations and other organizations. Some of the
participants or their representatives, together with other
entities, own DTC. Indirect access to the DTC system is
available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
DTC has agreed to the foregoing procedures to facilitate
transfers of interests in a global Debenture among participants.
However, DTC is under no obligation to perform or continue to
perform these procedures, and may discontinue these procedures
at any time. We will issue the Debentures in definitive
certificated form if DTC notifies us that it is unwilling or
unable to continue as depositary or DTC ceases to be a clearing
agency registered under the Exchange Act, as amended and a
successor depositary is not appointed by us within 90 calendar
days. In addition, beneficial interests in a global Debenture
may be converted for definitive certificated notes upon request
by or on behalf of DTC in accordance with customary procedures
following the request of a beneficial owner seeking to enforce
its rights under such Debentures or the indenture. The indenture
permits us to determine at any time and in our sole discretion
that notes shall no longer be represented by global Debentures.
DTC has advised us that, under its current practices, it would
notify its participants of our request, but will only withdraw
beneficial interests from the global note at the request of each
DTC participant. We would issue definitive certificates in
exchange for any such beneficial interests withdrawn.
Neither we, the trustee, registrar, paying agent nor conversion
agent will have any responsibility or liability for the
performance by DTC or its participants or indirect participants
of their respective obligations under the rules and procedures
governing their operations.
S-63
DESCRIPTION
OF OUR CAPITAL STOCK
For purposes of this section entitled Description of Our
Capital Stock, the terms we, us
and Company refer only to Covanta Holding
Corporation and not its subsidiaries.
General
The following description of our capital stock is only a
summary. This description includes our common stock and our
preferred stock. For more complete information, you should refer
to our certificate of incorporation and bylaws, which are
incorporated by reference in the registration statement of which
this prospectus supplement forms a part. In addition, you should
refer to the general corporation laws of Delaware, which also
govern our structure, management and activities. See Where
You Can Find More Information.
We are authorized to issue 260,000,000 shares of capital
stock. The number of shares of common stock authorized is
250,000,000 with each share having a par value of $0.10 per
share, and the number of shares of preferred stock authorized is
10,000,000 with each share having a par value of $0.10 per
share. As of January 18, 2007, there were
147,656,721 shares of our common stock outstanding and no
shares of preferred stock outstanding. After giving effect to
our concurrent offering of our common stock, we expect to have
152,976,721 shares of our common stock outstanding and no
shares of preferred stock outstanding.
At a special meeting of the stockholders on November 16,
2006, the stockholders approved an amendment to our certificate
of incorporation to delete the provision which placed
restrictions on the acquisition and transfer of common stock by
owners of 5% or more of our outstanding common stock. Our
stockholders also approved the removal of another historical
provision in our certificate of incorporation which required
stockholders approval of the terms of any preferred stock
issued by us to affiliates and to holders of 1% or more of our
common stock.
Preferred
Stock
We are authorized to issue shares of preferred stock without
stockholders approval. Our board of directors is authorized to
establish from time to time a series of preferred stock
specifying, among other terms, the number of shares to be
included in the series and the designation, preferences,
limitations and relative rights of the shares of the series.
For any series of preferred stock that we may issue, our board
of directors will determine and the prospectus supplement to
such series will describe:
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the designation and number of shares of such series;
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the rate and time at which, and the preferences and conditions
under which, any dividends will be paid on shares of such
series, as well as whether such dividends are cumulative or
non-cumulative and participating or non-participating;
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any provisions relating to convertibility or exchangeability of
the shares of such series;
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the rights and preferences, if any, of the holders of shares of
such series;
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any provisions relating to the redemption of the shares of such
series;
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any limitations on our ability to pay dividends or make
distributions on, or acquire or redeem, other securities while
shares of such series are outstanding;
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any conditions or restrictions on our ability to issue
additional shares of such series or other securities; and
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any other relative power, preferences and participating,
optional or special rights of shares of such series, and the
qualifications, limitations or restrictions thereof.
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Common
Stock
Voting
Rights
Each holder of an outstanding share of our common stock is
entitled to cast one vote for each share registered on all
matters submitted to a vote of our stockholders. Stockholders
are not permitted to cumulate
S-64
their votes to elect our directors. Stockholders holding a
majority of the outstanding shares of each class of our stock
entitled to vote constitute a quorum at all meetings of the
stockholders.
With certain exceptions, which are described below, a majority
of the votes entitled to be cast and represented in person or by
proxy at a meeting of stockholders is required to approve any
matter on which stockholders vote.
Any consolidation or merger pursuant to which shares of our
common stock would be converted into or exchanged for any
securities or other consideration would require the affirmative
vote of holders of a majority of the outstanding shares of
common stock.
Dividends
Subject to the rights and preferences of any outstanding
preferred stock, we will award dividends on common stock from
time to time payable out of our funds legally available for the
payments of dividends, if and when our board of directors
declares them, subject to the provisions of the laws of the
State of Delaware and any contractual restrictions to which we
may be subject. However, we will not pay any dividend, set aside
payment for dividends, or distribute dividends on common stock
unless:
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we have paid or set apart all accrued and unpaid dividends for
any preferred stock and any stock ranking on its parity; and
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we have set apart sufficient funds for the payment of the
dividends for the current dividend period with respect to any
preferred stock and any stock ranking on its parity.
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Our current financing arrangements impose, and the New Credit
Facilities Covanta Energy expects to enter into after the
consummation of this offering will impose, restrictions on the
ability of our subsidiaries to transfer funds to us in the form
of cash dividends, loans or advances that would likely limit the
future payment of dividends on our common stock. See
Dividend Policy.
Rights
in Liquidation
Upon our liquidation, dissolution or winding up, all holders of
our common stock are entitled to share ratably in any assets
available for distribution to holders of our common stock, after
payment of any preferential amounts due to the holders of any
series of our preferred stock and satisfaction of prior
distribution rights of preferred stock, if any, outstanding.
Miscellaneous
Shares of our common stock do not entitle a stockholder to any
preemptive rights to purchase additional shares of our common
stock or to any conversion rights or other subscription rights,
and there are no redemption or sinking fund provisions
applicable to our common stock. All of the outstanding shares of
our common stock are fully paid and, if issued, nonassessable.
Our board of directors is authorized to issue shares of common
stock without approval of stockholders. The rights and
privileges of our common stock may be subordinate to the rights
and preferences of any of our preferred stock, if issued.
Anti-Takeover
Effects of Our Certificate of Incorporation and Bylaws
Certain provisions of our certificate of incorporation and
bylaws, which are summarized in the following paragraphs, may
have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a stockholder might
consider in its best interest.
Board
of Directors
Vacancies in a directorship may be filled only by a vote of a
majority of the remaining directors, although if a director was
removed by the stockholders, the vacancy may be filled at the
meeting at which the removal took place by the affirmative vote
of a majority of the shares entitled to vote. The number of
directors may be fixed by a resolution of the board of
directors, but must be no less than 6 nor more than 11 unless
otherwise determined by a majority vote of the board of
directors.
S-65
Supermajority
Voting
The affirmative vote of holders of at least two-thirds of the
shares entitled to vote is required to approve amendments to our
bylaws. In addition, our certificate of incorporation provides
that the provision in our certificate of incorporation relating
to the indemnification of directors and officers may only be
amended by a vote of at least 80% of the voting power of all of
the outstanding shares of our stock entitled to vote.
Advance
Notice of Stockholder Nominations
Any holder of 20% or more of our outstanding voting securities
has the right to nominate one qualified candidate for election
as a director and to be included as a nominee in our proxy
statement; provided that such holder notifies us of such nominee
within the time periods set forth in our proxy statement.
Undesignated
preferred stock
The ability to authorize undesignated preferred stock makes it
possible for our board of directors to issue preferred stock
with voting or other rights or preferences that could impede the
success of any attempt to acquire us.
S-66
CERTAIN
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income
tax consequences of the purchase, ownership, and disposition of
the Debentures, and where noted, the common stock into which the
Debentures may be converted, as of the date hereof. Except where
noted, this summary deals only with the Debentures or common
stock held as a capital asset and it does not deal with special
situations. For example, this summary does not address:
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tax consequences to holders who may be subject to special tax
treatment, such as dealers in securities or currencies, traders
in securities that elect to use the
mark-to-market
method of accounting for their securities, financial
institutions, regulated investment companies, real estate
investment trusts, tax-exempt entities or insurance companies;
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tax consequences to investors in pass-through entities;
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tax consequences to persons holding the Debentures as part of a
hedging, integrated, constructive sale or conversion transaction
or a straddle;
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tax consequences to holders of the Debentures whose
functional currency is not the U.S. dollar;
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alternative minimum tax consequences, if any; or
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any state, local or foreign tax consequences.
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The discussion below is based upon the provisions of the
Internal Revenue Code of 1986, as amended, referred to herein as
the Code, and regulations, rulings and judicial
decisions as of the date hereof. Those authorities may be
changed, perhaps retroactively, so as to result in
U.S. federal income tax consequences different from those
discussed below. This summary does not address all aspects of
U.S. federal income taxes and does not deal with all tax
consequences that may be relevant to holders in light of their
personal circumstances.
If a partnership (or other entity classified as a partnership
for U.S. federal income tax purposes) holds the Debentures,
the tax treatment of a partner will generally depend upon the
status of the partner and the activities of the partnership. If
you are a partner of a partnership holding the Debentures, you
should consult your own tax advisors.
No statutory or judicial authority directly addresses the
treatment of the Debentures or instruments similar to the
Debentures for U.S. federal income tax purposes. The IRS
has issued a revenue ruling with respect to instruments similar
to the Debentures. This ruling supports certain aspects of the
treatment described below. However, no rulings have been sought
or are expected to be sought from the IRS with respect to any of
the U.S. federal income tax consequences regarding this
particular offering. As a result, we cannot assure you that the
IRS will agree with the tax characterizations and the tax
consequences described below.
If you are considering purchasing the Debentures, you should
consult your own tax advisors concerning the U.S. federal
income tax consequences in light of your particular situation
and any consequences arising under the laws of any other taxing
jurisdiction.
U.S. Holders
The following discussion is a summary of certain
U.S. federal income tax consequences that will apply to you
if you are a U.S. holder of the Debentures.
For purposes of this discussion, a U.S. holder is a
beneficial owner of the Debentures that is:
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an individual citizen or resident of the United States;
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a corporation (or any 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, any state thereof or the
District of Columbia;
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an estate the income of which is subject to U.S. federal
income taxation regardless of its source; or
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a trust if it (1) is subject to the primary supervision of
a court within the United States and one or more
U.S. persons have the authority to control all substantial
decisions of the trust or (2) has a valid election in
effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.
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Classification
of the Debentures
Under the indenture, we and each holder of the Debentures agree,
for U.S. federal income tax purposes, to treat the
Debentures as indebtedness that is subject to the
U.S. Treasury Regulations governing contingent payment debt
instruments, referred to as the Contingent Debt
Regulations in this prospectus supplement, in the manner
described below. The remainder of this discussion assumes that
the Debentures will be so treated and does not address any
possible differing treatments of the Debentures. However, the
application of the Contingent Debt Regulations to instruments
such as the Debentures is uncertain in several respects, and no
rulings have been sought from the IRS or a court with respect to
any of the tax consequences discussed below. Accordingly, no
assurance can be given that the IRS or a court will agree with
the treatment described herein. Any differing treatment could
affect the amount, timing and character of income, gain or loss
in respect of an investment in the Debentures. In particular, a
holder might be required to accrue original issue discount at a
higher or lower rate, might not recognize income, gain or loss
upon conversion of the Debentures to common stock, and might
recognize capital gain or loss upon a taxable disposition of its
Debentures. Holders should consult their own tax advisors
concerning the tax treatment of holding the Debentures.
Accrual
of Interest
Payments on the Debentures, including payments of contingent
interest, if any, will be taken into account under the
Contingent Debt Regulations. As discussed more fully below, the
effect of these Contingent Debt Regulations will be to:
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require you, regardless of your usual method of tax accounting,
to use the accrual method with respect to the Debentures;
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require you to accrue original issue discount at the comparable
yield (as described below) which will be substantially in excess
of interest payments actually received by you; and
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generally result in ordinary rather than capital treatment of
any gain, and to some extent loss, on the sale, exchange,
repurchase or redemption of the Debentures.
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You will be required to accrue an amount of original issue
discount for U.S. federal income tax purposes, for each
accrual period prior to and including the maturity date of the
Debentures that equals:
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the product of (1) the adjusted issue price (as defined
below) of the Debentures as of the beginning of the accrual
period; and (2) the comparable yield (as defined below) of
the Debentures, adjusted for the length of the accrual period;
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divided by the number of days in the accrual period; and
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multiplied by the number of days during the accrual period that
you held the Debentures.
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The issue price of the Debentures is the first price at which a
substantial amount of the Debentures will be sold to the public,
excluding bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters, placement
agents or wholesalers. The adjusted issue price of the
Debentures is the issue price increased by any original issue
discount previously accrued (determined without regard to any
adjustments to original issue discount accruals described
below), and decreased by the amount of any noncontingent payment
and the projected amount of any contingent payments previously
made with respect to the Debentures. If you purchase the
Debentures at a price other than the adjusted issue price, see
the discussion under the caption Purchasers of the
Debentures at a Price other than the Adjusted Issue Price.
Under the Contingent Debt Regulations, you will be required to
include original issue discount in income each year, regardless
of your usual method of tax accounting, based on the comparable
yield of the Debentures. We have determined the comparable yield
of the Debentures based on the rate, as of the initial
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issue date, at which we would issue a fixed-rate, nonconvertible
debt instrument with no contingent payments but with terms and
conditions similar to the Debentures. Accordingly, we have
determined that the comparable yield is an annual rate of 7.25%
compounded semi-annually. If the comparable yield were
successfully challenged by the IRS, the redetermined yield could
be materially greater or less than the comparable yield provided
by us.
We are required to furnish to you the comparable yield and,
solely for U.S. federal income tax purposes, a projected
payment schedule that includes the actual interest payments, if
any, on the Debentures and estimates the amount and timing of
contingent interest payments and payment upon maturity on the
Debentures taking into account the fair market value of the
common stock that might be paid upon a conversion of the
Debentures. You may obtain the projected payment schedule by
submitting a written request for it to us at the address set
forth in Incorporation By Reference in the
accompanying prospectus. By purchasing the Debentures, you agree
in the indenture to be bound by our determination of the
comparable yield and projected payment schedule. For
U.S. federal income tax purposes, you must use the
comparable yield and the schedule of projected payments in
determining your original issue discount accruals, and the
adjustments thereto described below, in respect of the
Debentures.
The comparable yield and the projected payment schedule are not
provided for any purpose other than the determination of your
original issue discount and adjustments thereof in respect of
the Debentures and do not constitute a projection or
representation regarding the actual amount of the payments on
the Debentures.
Adjustments
to Interest Accruals on the Debentures
If the actual contingent payments made on the Debentures differ
from the projected contingent payments, adjustments will be made
for the difference. If, during any taxable year, you receive
actual payments with respect to the Debentures that, in the
aggregate, exceed the total amount of projected payments for the
taxable year, you will incur a net positive adjustment equal to
the amount of such excess. Such positive adjustment will be
treated as additional original issue discount in such taxable
year. For these purposes, the payments in a taxable year include
the fair market value of property received in that year. If you
receive in a taxable year actual payments with respect to the
Debentures that, in the aggregate, are less than the total
amount of projected payments for that taxable year, you will
incur a net negative adjustment equal to the amount of such
deficit. A net negative adjustment will:
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first, reduce the amount of original issue discount required to
be accrued in the current year;
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second, if the net negative adjustment exceeds the amount of
original issue discount accrued in the current year, the excess
will be treated as ordinary loss to the extent of your total
prior original issue discount inclusions with respect to the
Debentures, reduced to the extent such prior original issue
discount was offset by prior negative adjustments; and
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third, any excess will be carried forward to the succeeding
taxable year.
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Sale,
Exchange, Conversion, Repurchase or Redemption
Upon the sale, exchange, conversion, repurchase or redemption of
the Debentures, you will recognize gain or loss equal to the
difference between your amount realized and your adjusted tax
basis in the Debentures. As a holder of the Debentures, you
agree that under the Contingent Debt Regulations, we will report
the amount realized as including the fair market value of stock
that you receive on conversion of the Debentures as a contingent
payment. Such gain on the Debentures generally will be treated
as ordinary income. Loss from the disposition of the Debentures
will be treated as ordinary loss to the extent that your total
original issue discount inclusions with respect to the
Debentures exceed the total net negative adjustments previously
taken into account as ordinary losses. Any loss in excess of
that amount will be treated as capital loss, which will be
long-term if the Debentures were held for greater than one year.
The deductibility of net capital losses by individuals and
corporations is subject to limitations.
Special rules apply in determining the tax basis of the
Debentures. Your tax basis in the Debentures is generally
increased by original issue discount (before taking into account
any adjustments) you previously
S-69
accrued on the Debentures, and reduced by the projected amount
of any projected payments scheduled to be made previously on the
Debentures.
Your adjusted tax basis in the common stock received upon
conversion of the Debentures will equal the then current fair
market value of such common stock. Your holding period for
common stock received upon conversion of the Debentures will
commence on the day immediately following the date of conversion.
Given the uncertain tax treatment of instruments such as the
Debentures, you should contact your own tax advisers concerning
the tax treatment on a conversion of the Debentures.
Purchasers
of the Debentures at a Price other than the Adjusted Issue
Price
If you purchase the Debentures in the secondary market for an
amount that differs from the adjusted issue price of the
Debentures at the time of purchase, you will generally be
required to accrue interest income on the Debentures based on
the projected payment schedule determined as of the issue date
of the Debentures. However, you must reasonably allocate any
difference between the adjusted issue price and your basis to
daily portions of interest or projected payments over the
remaining term of the Debentures as described below, with the
difference treated as a positive adjustment if the purchase
price is less than the Debentures adjusted issue price or
a negative adjustment if the purchase price for the Debentures
is greater than their adjusted issue price.
To the extent that an adjustment is attributable to a change in
interest rates, it must be reasonably allocated to the daily
portions of interest over the remaining term of the Debentures.
To the extent that the difference between your purchase price
for the Debentures and the adjusted issue price of the
Debentures is attributable to a change in expectations as to the
contingent amounts potentially payable in respect of the
Debentures (and not to a change in the market interest rates),
you will be required to reasonably allocate that difference to
the contingent payments. Adjustments allocated to the contingent
payments will be taken into account when the contingent payments
are made. Any negative or positive adjustment of the kind
described above will decrease or increase, respectively, your
tax basis in the Debentures.
The rules governing the purchase of instruments such as the
Debentures at a price other than the adjusted issue price are
complex. You should consult your own tax advisors regarding the
application of these rules to your particular circumstances.
Constructive
Distributions
The conversion rate of the Debentures will be adjusted in
certain circumstances. Under Section 305(c) of the Code,
adjustments to the conversion rate (or failures to make
adjustments) that have the effect of increasing your
proportionate interest in our assets or earnings may in some
circumstances result in a deemed distribution to you.
Adjustments to the 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 the Debentures,
however, will generally not be considered to result in a deemed
distribution to you. Certain of the possible conversion rate
adjustments provided in the Debentures (including, without
limitation, adjustments in respect of taxable dividends to
holders of our common stock and as discussed in
Possible Effect of the Adjustment to
Conversion Rate Upon a Non-Stock Change of Control) will
not qualify as being pursuant to a bona fide reasonable
adjustment formula. If such adjustments are made, the
U.S. holders of the Debentures will be deemed to have
received a distribution even though they have not received any
cash or property as a result of such adjustments. Any deemed
distributions will be taxable as a dividend, return of capital,
or capital gain in accordance with the earnings and profits
rules under the Code. It is not clear whether a constructive
dividend deemed paid to non-corporate holders would be eligible
for the preferential rates of U.S. federal income tax
applicable to qualified dividends. It is also unclear whether
corporate holders would be entitled to claim the dividends
received deduction with respect to any such constructive
dividends. You should consult your own tax advisors concerning
the tax treatment of such constructive dividends received by you.
S-70
Possible
Effect of the Adjustment to Conversion Rate Upon a Non-Stock
Change of Control
In certain situations, we may be obligated to adjust the
conversion rate of the Debentures (as described above under
Description of the Debentures Conversion
Procedures Adjustment to Conversion Rate Upon a
Non-Stock Change of Control) or in lieu of such
adjustment, provide for the conversion of the Debentures into
shares of a public acquirer (as described above under
Description of the Debentures Conversion
Procedures Conversion After a Public Acquirer Change
of Control). Depending on the circumstances, such
adjustments could result in a deemed taxable exchange to a
holder and the modified Debentures could be treated as newly
issued at that time. U.S. holders should consult their own
tax advisors regarding the tax consequences of such adjustments.
Non-U.S. Holders
The following is a summary of the U.S. federal tax
consequences that will apply to you if you are a
non-U.S. holder
of the Debentures or shares of common stock received upon
conversion of the Debentures. The term
non-U.S. holder
means a beneficial owner of the Debentures or shares of common
stock received upon conversion of the Debentures (other than a
partnership or other entities classified as a partnership for
U.S. federal income tax purposes) that is not a
U.S. holder.
Special rules may apply to certain
non-U.S. holders
such as controlled foreign corporations,
passive foreign investment companies, corporations
that accumulate earnings to avoid federal income tax or, in
certain circumstances, individuals who are
U.S. expatriates. Such
non-U.S. holders
should consult their own tax advisors to determine the
U.S. federal, state, local and other tax consequences that
may be relevant to them.
Payments
with Respect to the Debentures
The 30% U.S. federal withholding tax generally will not
apply to any payment to you of principal or interest (including
amounts taken into income under the accrual rules described
above under U.S. Holders and a
payment of common stock pursuant to a conversion) on the
Debentures, provided that:
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interest paid on the Debentures is not effectively connected
with your conduct of a trade or business in the United States;
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you do not actually or constructively own 10% or more of the
total combined voting power of all classes of our stock that are
entitled to vote within the meaning of Section 871(h)(3) of
the Code;
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you are not a controlled foreign corporation that is related to
us through stock ownership;
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you are not a bank whose receipt of interest (including original
issue discount) on the Debentures is described in
Section 881(c)(3)(A) of the Code;
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our common stock continues to be actively traded within the
meaning of Section 871(h)(4)(C)(v)(I) of the Code and we
are not a U.S. real property holding
corporation; and
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the U.S. payor does not have actual knowledge or reason to
know that you are a U.S. person and (1) you provide a
valid
Form W-8BEN
(or other applicable form) upon which you certify, under
penalties of perjury, that you are not a U.S. person or
(2) you hold your Debentures through certain foreign
intermediaries and you satisfy the certification requirements of
applicable U.S. Treasury Regulations.
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Special certification rules apply to holders that are
pass-through entities.
If you cannot satisfy the requirements described above, payments
of interest (including original issue discount) will be subject
to the 30% U.S. federal withholding tax, unless you provide
us with a properly executed (1) IRS
Form W-8BEN
(or other applicable form) claiming an exemption from or
reduction in withholding under the benefit of an applicable
income tax treaty or (2) IRS
Form W-8ECI
(or other applicable form) stating that interest (including
original issue discount) paid on the Debentures is not subject
to withholding tax because it is effectively connected with your
conduct of a trade or business in the United States.
S-71
If you are engaged in a trade or business in the United States
and interest (including original issue discount) on the
Debentures is effectively connected with the conduct of that
trade or business, you will be subject to U.S. federal
income tax on that interest on a net income basis (although
exempt from the 30% withholding tax if you satisfy the
certification requirement described in the preceding paragraph)
in the same manner as if you were a U.S. person as defined
under the Code. In addition, if you are treated as a foreign
corporation for U.S. federal income tax purposes, you may
be subject to a branch profits tax equal to 30% (or
lower applicable income tax treaty rate) of your earnings and
profits for the taxable year, subject to adjustments, that are
effectively connected with your conduct of a trade or business
in the United States.
To the extent that cash and common stock received by you upon
the conversion of the Debentures is subject to
U.S. withholding tax and is not sufficient to comply with
our U.S. withholding obligations, we may recoup or set-off
against any amounts owed to you, including, but not limited to
any actual cash dividends or distributions subsequently made
with respect to such common stock, the applicable
U.S. federal withholding tax that we are required to pay on
your behalf.
Payments
on Common Stock and Constructive Dividends
Any dividends paid to you with respect to the shares of common
stock obtained upon conversion of the Debentures will be subject
to withholding tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. In the case of any
deemed dividends resulting from certain adjustments, or failure
to make adjustments, to the number of shares of common stock to
be issued upon conversion of the Debentures, see
U.S. Holders Constructive
Distributions above, it is possible that this tax would be
withheld from any amount owed to you, including, but not limited
to, interest payments, cash or shares of common stock received
upon conversion, redemption or repurchase, or any actual cash
dividends or distributions subsequently made with respect to
such common stock. However, dividends that are effectively
connected with the conduct of a trade or business within the
United States and, where a tax treaty applies, are attributable
to a U.S. permanent establishment, are not subject to the
withholding tax, but instead are subject to U.S. federal
income tax on a net income basis at applicable graduated
individual or corporate rates. Certain certification and
disclosure requirements must be complied with in order for
effectively connected income to be exempt from withholding. Any
such effectively connected dividends received by a foreign
corporation may, under certain circumstances, be subject to an
additional branch profits tax at a 30% rate or such
lower rate as may be specified by an applicable income tax
treaty.
A
non-U.S. holder
of shares of common stock obtained upon conversion of the
Debentures who wishes to claim the benefit of an applicable
treaty rate is required to satisfy applicable certification and
other requirements. If you are eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty, you
may obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund with the IRS.
Sale,
Exchange, Redemption or Other Disposition of Shares of Common
Stock
Any gain realized upon the sale, exchange, or redemption of a
share of our common stock obtained upon conversion of the
Debentures generally will not be subject to U.S. federal
income tax unless:
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that gain is effectively connected with the conduct of a trade
or business in the United States by you (and, if required by an
applicable income tax treaty, is attributable to a
U.S. permanent establishment);
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you are an individual who is present in the United States for
183 days or more in the taxable year of that disposition,
and certain other conditions are met; or
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we are or have been a U.S. real property holding
corporation for U.S. federal income tax purposes.
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A
non-U.S. holder
that is engaged in a trade or business in the United States will
generally be subject to U.S. federal income tax on gain
that is effectively connected with such trade or business (and,
if required by an applicable income tax treaty, is attributable
to a U.S. permanent establishment) under regular graduated
U.S. federal income tax rates and, in the case of a
non-U.S. holder
that is a foreign corporation, may be subject to a branch
profits tax at a 30% rate or a lower rate if so specified
by an applicable income tax treaty. An individual
non-U.S. holder
who is present in the United States for 183 days or more in
the taxable year of the
S-72
disposition will generally be subject to a flat 30%
U.S. federal income tax on the gain derived from the sale,
exchange, redemption, or other disposition of shares of our
common stock if certain other conditions are met.
We believe that we are not and do not anticipate becoming a
U.S. real property holding corporation for
U.S. federal income tax purposes. If we are or become a
United States real property holding corporation and
our common stock is and continues to be regularly traded on an
established securities market, only a
non-U.S. holder
of our common stock received upon the conversion of the
Debentures who actually or constructively holds or held (at any
time during the shorter of the five year period preceding the
date of disposition or the holders holding period) more
than 5% of our common stock will be subject to U.S. federal
income tax on the disposition of such common stock pursuant to
the rules regarding U.S. real property holding corporations.
Backup
Withholding and Information Reporting
If you are a U.S. holder of the Debentures or shares of
common stock obtained upon conversion of the Debentures,
information reporting requirements generally will apply to all
payments we make to you and to the proceeds from a sale of the
Debentures or shares of common stock received upon the
conversion of the Debentures, unless you are an exempt recipient
such as a corporation. A backup withholding tax may apply to
some or all of those payments if you fail to provide a taxpayer
identification number, or a certification of exempt status, or
if you fail to report in full interest and dividend income.
In general, if you are a
non-U.S. holder,
you will not be subject to backup withholding with respect to
payments that we make to you provided that we do not have actual
knowledge or reason to know that you are a U.S. person and
you have given us the statement described above under
Non-U.S. Holders Payments
With Respect to the Debentures. We must report annually to
the IRS and to each
non-U.S. holder
the amount of interest and dividends paid to such holder and the
tax withheld with respect to such interest and dividends,
regardless of whether withholding was required. In addition, if
you are a
non-U.S. holder,
payments of the proceeds of a sale of the Debentures or shares
of common stock obtained upon conversion of the Debentures
within the United States or conducted through certain
U.S.-related
financial intermediaries are generally subject to both backup
withholding and information reporting unless you certify under
penalties of perjury that you are a
non-U.S. holder
(and the payor does not have actual knowledge or reason to know
that you are a U.S. person) or you otherwise establish an
exemption.
Any amounts withheld under the backup withholding rules may be
allowed as a credit against your U.S. federal income tax
liability, provided the required information is furnished to the
IRS.
S-73
UNDERWRITING
Lehman Brothers Inc., J.P. Morgan Securities Inc. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated are
acting as representatives of the underwriters and as joint
book-running managers of this offering. Under the terms of an
underwriting agreement, which will be filed as an exhibit to our
current report on
Form 8-K
and incorporated by reference into this prospectus supplement
and the accompanying prospectus, each of the underwriters named
below has severally agreed to purchase from us the respective
principal amount of Debentures shown opposite its name in the
following table:
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Principal
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Amount of
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Underwriters
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Debentures
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Lehman Brothers Inc.
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$
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100,750,000
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J.P. Morgan Securities
Inc.
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84,500,000
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Merrill Lynch, Pierce,
Fenner & Smith
Incorporated
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84,500,000
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Banc of America Securities LLC
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22,750,000
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Barclays Capital Inc.
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22,750,000
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UBS Securities LLC
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9,750,000
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Total
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$
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325,000,000
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The underwriting agreement provides that the underwriters
obligation to purchase the Debentures depends on the
satisfaction of the conditions contained in the underwriting
agreement including:
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the obligation to purchase all of the Debentures offered hereby
(other than those covered by their option to purchase additional
Debentures as described below), if any of the Debentures are
purchased;
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the representations and warranties made by us to the
underwriters are true;
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there is no material adverse change in our business or in the
financial markets; and
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we deliver the customary closing documents to the underwriters.
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Commissions
and Expenses
The following table summarizes the underwriting discounts and
commissions we will pay to the underwriters. These amounts are
shown assuming both no exercise and full exercise of the
underwriters option to purchase an additional
$48.75 million aggregate principal amount of Debentures.
The underwriting discounts and commissions are the difference
between the initial price to the public and the amount the
underwriters pay to us for the Debentures.
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No
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Full
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Exercise
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Exercise
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Per Debenture
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$
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25
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$
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25
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Total
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$
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8,125,000
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$
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9,343,750
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The representatives of the underwriters have advised us that the
underwriters propose to offer the Debentures directly to the
public at the public offering price on the cover of this
prospectus supplement and to selected dealers, which may include
the underwriters, at such offering price less a selling
concession not in excess of $15.00 per Debenture.
The expenses of the offering that are payable by us are
estimated to be approximately $2.0 million (exclusive of
underwriting discounts and commissions).
Option to
Purchase Additional Debentures
We have granted the underwriters an option to purchase, for a
13 day period beginning on and including the date of
original issuance of the Debentures, from time to time, in whole
or in part, up to an aggregate of
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an additional $48.75 million aggregate principal amount of
Debentures at the public offering price less underwriting
discounts and commissions, solely to cover over-allotments, if
any. This option may be exercised if the underwriters sell more
than $325.0 million principal amount of Debentures in
connection with this offering. To the extent that this option is
exercised, each underwriter will be obligated, subject to
certain conditions, to purchase its pro rata portion of these
additional Debentures based on the underwriters percentage
underwriting commitment in the offering as indicated in the
table at the beginning of this Underwriting section.
Lock-Up
Agreements
We and all of our directors and executive officers and certain
stockholders have agreed that, subject to certain exceptions,
including the sale of up to an aggregate of 40,200 shares
of our common stock held by certain of our executive officers,
without the prior written consent of Lehman Brothers Inc., we
and they will not, directly or indirectly, (1) offer for
sale, sell, pledge, or otherwise dispose of (or enter into any
transaction or device that is designed to, or could be expected
to, result in the disposition by any person at any time in the
future of) any shares of common stock (including, without
limitation, shares of common stock that may be deemed to be
beneficially owned by us or them in accordance with the rules
and regulations of the SEC and shares of common stock that may
be issued upon exercise of any options or warrants) or
securities convertible into or exercisable or exchangeable for
common stock, other than certain pledges and transfers not
involving any sale for value where the recipient agrees to be
bound by the terms of such lock-up, (2) enter into any swap
or other derivatives transaction that transfers to another, in
whole or in part, any of the economic benefits or risks of
ownership of the common stock, whether any such transaction
described in clause (1) or (2) above is to be settled
by delivery of common stock or other securities, in cash or
otherwise, (3) make any demand for or exercise any right or
file or cause to be filed a registration statement, including
any amendments thereto, with respect to the registration of any
shares of common stock or securities convertible, exercisable or
exchangeable into common stock or any of our other securities,
or (4) publicly disclose the intention to do any of the
foregoing for a period of 60 calendar days after the date of
this prospectus supplement.
The 60-day
restricted period described in the preceding paragraph will be
extended if:
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during the last 17 calendar days of the
60-day
restricted period we issue an earnings release or material news
or a material event relating to us occurs; or
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prior to the expiration of the
60-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
60-day
period;
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in which case the restrictions described in the preceding
paragraph will continue to apply until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
announcement of the material news or material event, unless such
extension is waived in writing by the representatives.
Lehman Brothers Inc., in its sole discretion, may release the
common stock and other securities subject to the
lock-up
agreements described above in whole or in part at any time with
or without notice. When determining whether or not to release
common stock and other securities from
lock-up
agreements, Lehman Brothers Inc. will consider, among other
factors, the holders reasons for requesting the release,
the number of shares of common stock and other securities for
which the release is being requested and market conditions at
the time.
Indemnification
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of
1933, and to contribute to payments that the underwriters may be
required to make for these liabilities.
Stamp
Taxes
Purchasers of the Debentures offered by this prospectus
supplement may be required to pay stamp taxes and other charges
under the laws and practices of the country of purchase, in
addition to the offering price
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listed on the cover page of this prospectus supplement.
Accordingly, we urge you to consult a tax advisor with respect
to whether you may be required to pay taxes or charges, as well
as any other consequences that may arise under the laws of the
country of purchase.
Stabilization,
Short Positions and Penalty Bids
The representatives may engage in stabilizing transactions,
short sales and purchases to cover positions created by short
sales, and penalty bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Debentures, in accordance
with Regulation M under the Exchange Act:
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Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
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A short position involves a sale by the underwriters of shares
in excess of the number of Debentures the underwriters are
obligated to purchase in the offering, which creates the
syndicate short position. This short position may be either a
covered short position or a naked short position. In a covered
short position, the number of Debentures involved in the sales
made by the underwriters in excess of the number of Debentures
they are obligated to purchase is not greater than the number of
Debentures that they may purchase by exercising their option to
purchase additional Debentures. In a naked short position, the
number of Debentures involved is greater than the number of
Debentures in their option to purchase additional Debentures.
The underwriters may close out any short position by either
exercising their option to purchase additional Debentures
and/or
purchasing Debentures in the open market. In determining the
source of Debentures to close out the short position, the
underwriters will consider, among other things, the price of
Debentures available for purchase in the open market as compared
to the price at which they may purchase Debentures through their
option to purchase additional Debentures. A naked short position
is more likely to be created if the underwriters are concerned
that there could be downward pressure on the price of the
Debentures in the open market after pricing that could adversely
affect investors who purchase in the offering.
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Syndicate covering transactions involve purchases of the
Debentures in the open market after the distribution has been
completed in order to cover syndicate short positions.
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Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the Debentures
originally sold by the syndicate member are purchased in a
stabilizing or syndicate covering transaction to cover syndicate
short positions.
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These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our Debentures and our common stock or
preventing or retarding a decline in the market price of our
Debentures and our common stock. As a result, the price of our
Debentures and common stock may be higher than the price that
might otherwise exist in the open market. These transactions may
be effected on the NYSE and, if commenced, may be discontinued
at any time.
Neither we nor any of the underwriters make any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
our Debentures or our common stock. In addition, neither we nor
any of the underwriters make any representation that the
representatives will engage in these stabilizing transactions or
that any transaction, once commenced, will not be discontinued
without notice.
Electronic
Distribution
A prospectus in electronic format may be made available on the
Internet sites or through other online services maintained by
one or more of the underwriters
and/or
selling group members participating in this offering, or by
their affiliates. In those cases, prospective investors may view
offering terms online and, depending upon the particular
underwriter or selling group member, prospective investors may
be allowed to place orders online. The underwriters may agree
with us to allocate a specific number of Debentures for sale to
online brokerage account holders. Any such allocation for online
distributions will be made by the representatives on the same
basis as other allocations.
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Other than the prospectus in electronic format, the information
on any underwriters or selling group members website
and any information contained in any other web site maintained
by an underwriter or selling group member is not part of the
prospectus or the registration statement of which this
prospectus supplement and the accompanying prospectus forms a
part, has not been approved
and/or
endorsed by us or any underwriter or selling group member in its
capacity as underwriter or selling group member and should not
be relied upon by investors.
Other
Relationships
Certain of the underwriters and their related entities have
engaged and may engage in commercial and investment banking
transactions with us in the ordinary course of their business.
They have received customary compensation and expenses for these
commercial and investment banking transactions. In addition,
certain of the underwriters are also serving either as joint
book-running managers or co-managers in our concurrent offering
of common stock, and Lehman Brothers Inc. is acting as the
dealer manager in connection with our tender offers to
repurchase the Outstanding Notes of our subsidiaries.
Furthermore, J.P. Morgan Securities Inc. will act as a lead
arranger, a book-runner and an affiliate thereof as the
administrative agent, Lehman Brothers Inc. will act as a lead
arranger and a book-runner and an affiliate thereof as a
co-syndication agent, and Merrill Lynch, Pierce,
Fenner & Smith Incorporated will act as a lead
arranger, a book-runner and a co-syndication agent for the New
Credit Facilities.
Notice to
Prospective Investors in the European Economic Area
In relation to each member state of the European Economic Area
that has implemented the Prospectus Directive (each, a relevant
member state), with effect from and including the date on which
the Prospectus Directive is implemented in that relevant member
state (the relevant implementation date), an offer of Debentures
described in this prospectus supplement may not be made to the
public in that relevant member state prior to the publication of
a prospectus in relation to the Debentures that has been
approved by the competent authority in that relevant member
state or, where appropriate, approved in another relevant member
state and notified to the competent authority in that relevant
member state, all in accordance with the Prospectus Directive,
except that, with effect from and including the relevant
implementation date, an offer of securities may be offered to
the public in that relevant member state at any time:
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to any legal entity that is authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities or
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to any legal entity that has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts or
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in any other circumstances that do not require the publication
of a prospectus pursuant to Article 3 of the Prospectus
Directive.
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Each purchaser of Debentures described in this prospectus
supplement located within a relevant member state will be deemed
to have represented, acknowledged and agreed that it is a
qualified investor within the meaning of
Article 2(1)(e) of the Prospectus Directive.
For purposes of this provision, the expression an offer to
the public 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 securities to be
offered so as to enable an investor to decide to purchase or
subscribe the securities, as the expression may be varied in
that member state by any measure implementing the Prospectus
Directive in that member state, and the expression
Prospectus Directive means Directive 2003/71/EC and
includes any relevant implementing measure in each relevant
member state.
The sellers of the Debentures have not authorized and do not
authorize the making of any offer of Debentures through any
financial intermediary on their behalf, other than offers made
by the underwriters with a view to the final placement of the
Debentures as contemplated in this prospectus supplement.
Accordingly,
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no purchaser of the Debentures, other than the underwriters, is
authorized to make any further offer of the Debentures on behalf
of the sellers or the underwriters.
Notice to
Prospective Investors in the United Kingdom
This prospectus supplement is only being distributed to, and is
only directed at, persons in the United Kingdom that are
qualified investors within the meaning of Article 2(1)(e)
of the Prospectus Directive, referred to herein as
Qualified Investors, that are also
(i) investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005, referred to herein as the
Order, or (ii) high net worth entities, and
other persons to whom it may lawfully be communicated, falling
within Article 49(2)(a) to (d) of the Order (all such
persons together being referred to as relevant
persons). This prospectus supplement and its contents are
confidential and should not be distributed, published or
reproduced (in whole or in part) or disclosed by recipients to
any other persons in the United Kingdom. Any person in the
United Kingdom that is not a relevant persons should not act or
rely on this document or any of its contents.
Notice to
Prospective Investors in France
Neither this prospectus supplement nor any other offering
material relating to the Debentures described in this prospectus
supplement has been submitted to the clearance procedures of the
Autorité des Marchés Financiers or by the competent
authority of another member state of the European Economic Area
and notified to the Autorité des Marchés Financiers.
The Debentures have not been offered or sold and will not be
offered or sold, directly or indirectly, to the public in
France. Neither this prospectus supplement nor any other
offering material relating to the Debentures has been or will be
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released, issued, distributed or caused to be released, issued
or distributed to the public in France or
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used in connection with any offer for subscription or sale of
the Debentures to the public in France.
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Such offers, sales and distributions will be made in France only
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to qualified investors (investisseurs qualifiés)
and/or to a
restricted circle of investors (cercle restreint
dinvestisseurs), in each case investing for their own
account, all as defined in, and in accordance with,
Article L.411-2,
D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the
French Code monétaire et financier or
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to investment services providers authorized to engage in
portfolio management on behalf of third parties or
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in a transaction that, in accordance with article
L.411-2-II-1º-or-2º-or 3º of the French Code
monétaire et financier and
article 211-2
of the General Regulations (Règlement Général) of
the Autorité des Marchés Financiers, does not
constitute a public offer (appel public à
lépargne).
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The Debentures may be resold directly or indirectly, only in
compliance with
Articles L.411-1,
L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French
Code monétaire et financier.
LEGAL
MATTERS
The validity of the Debentures offered hereby will be passed
upon for us by Latham & Watkins LLP of New York, New
York and the validity of our common stock issuable upon
conversion of the Debentures will be passed upon for us by Neal,
Gerber & Eisenberg LLP of Chicago, Illinois. A partner
of Neal, Gerber & Eisenberg LLP holds 13,970 shares of
our common stock. Certain legal matters in connection with this
offering of the Debentures will be passed upon for the
underwriters by Simpson Thacher & Barlett LLP of New
York, New York.
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PROSPECTUS
COVANTA
HOLDING CORPORATION
COMMON STOCK
PREFERRED STOCK
WARRANTS
DEBT SECURITIES
Covanta Holding Corporation may offer, from time to time, common
stock, preferred stock, warrants or debt securities. In
addition, selling stockholders to be named in a prospectus
supplement may offer, from time to time, shares of our common
stock.
We will provide the specific terms of any offering and the
offered securities in supplements to this prospectus. Any
prospectus supplement may also add, update or change information
contained in this prospectus. You should read this prospectus
and the accompanying prospectus supplement carefully before you
make your investment decision.
This prospectus may not be used to consummate any sales of
securities unless accompanied by a prospectus supplement which
will describe the method and terms of the offering.
Our common stock is traded on the New York Stock Exchange under
the symbol CVA. Our principal executive offices are
located at 40 Lane Road, Fairfield, New Jersey 07004, and our
telephone number is
(973) 882-9000.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is January 19, 2007.
About
This Prospectus
Unless the context otherwise requires, references in this
prospectus to Covanta we,
our, us and similar terms refer to
Covanta Holding Corporation and its subsidiaries; references to
Covanta Energy refer to Covanta Energy Corporation,
a direct wholly-owned subsidiary of Covanta, and its
subsidiaries; references to ARC Holdings refer to
Covanta ARC Holdings, Inc., a direct wholly-owned subsidiary of
Covanta Energy, and its subsidiaries; references to
Ref-Fuel Holdings refer to Covanta Ref-Fuel Holdings
LLC; and references to NAICC refer to National
American Insurance Company of California and its
subsidiaries.
The prospectus is part of a registration statement that we filed
with the Securities and Exchange Commission, referred to in this
prospectus as the SEC, using a shelf
registration process. Under this shelf registration process,
(1) we may, from time to time, sell any combination of
common stock, preferred stock, warrants or debt securities as
described in this prospectus, in one or more offerings and
(2) selling stockholders to be named in a prospectus
supplement may, from time to time, sell common stock in one or
more offerings. This prospectus provides you with a general
description of the securities that we may offer. Each time that
securities are sold, a prospectus supplement containing specific
information about the terms of that offering will be provided.
The prospectus supplement may also add, update or change
information contained in this prospectus. You should read both
this prospectus and any prospectus supplement together with
additional information described under the section entitled
Where You Can Find More Information.
You should rely only on the information contained or
incorporated by reference in this prospectus and any prospectus
supplement. We have not authorized anyone to provide you with
different information. If anyone provides you with different or
inconsistent information, you should not rely on it. Covanta and
the selling stockholders are not making an offer to sell these
securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information in this prospectus is
accurate only as of the date of this prospectus.
Where You
Can Find More Information
We are subject to the information and reporting requirements of
the Securities Exchange Act of 1934, under which we file annual,
quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any materials we
file with the SEC at the SECs public reference room at 100
F Street, N.E., Room 1580, Washington, DC 20549. Copies of
such material also can be obtained at the SECs website,
www.sec.gov or by mail from the SECs public
reference room, at prescribed rates. Please call the SEC at
1-800-SEC-0330
for further information on the public reference room. Our SEC
filings are also available to the public on our corporate
website, www.covantaholding.com. Our common stock is
traded on the New York Stock Exchange. Material filed by us can
be inspected at the offices of the New York Stock Exchange at
20 Broad Street, New York, N.Y. 10005.
Information on our website is not incorporated into this
prospectus or other securities filings and is not a part of
these filings.
Incorporation
By Reference
The SEC allows us to incorporate by reference the
information we file with them, which means that we can disclose
important information to you by referring you to those
documents. The information incorporated by reference is
considered to be part of this prospectus, and information that
we file later with the SEC will automatically update and
supersede this information. We incorporate by reference the
documents listed below which have been filed with the SEC:
1. Our Annual Report on
Form 10-K
for the year ended December 31, 2005, filed on
March 14, 2006;
2. Our Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2006, filed on
May 4, 2006, our Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 2006, filed on
August 3,
1
2006, and our Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2006, filed on
October 30, 2006;
3. Covanta Energys Annual Report on
Form 10-K/A
for the fiscal year ended December 31, 2004, filed on
April 22, 2005 (only with respect to the consolidated
financial statements of Covanta Energy and subsidiaries for the
fiscal year ended December 31, 2003);
4. Exhibit No. 99.2 of our Current Report on
Form 8-K
filed on April 7, 2005 (only with respect to the
consolidated financial statements of ARC Holdings (f/k/a
American Ref-Fuel Holdings Corp.) as of December 31, 2004
and 2003 and for the year ended December 31, 2004, the
period from December 12, 2003 through December 31,
2003, and the period from January 1, 2003 through
December 12, 2003 and the consolidated financial statements
of Ref-Fuel Holdings LLC as of December 31, 2004 and 2003
and for the year ended December 31, 2004, the period from
December 12, 2003 through December 31, 2003, the
period from January 1, 2003 through December 12, 2003
and the year ended December 31, 2002);
5. Exhibit No. 99.4 of our Current Report on
Form 8-K/A
filed on May 12, 2005 (only with respect to the
consolidated financial statements of ARC Holdings (f/k/a
American Ref-Fuel Holdings Corp.) as of and for the three months
ended March 31, 2005);
6. Our Current Reports on
Form 8-K
filed on February 24, 2006, March 6, 2006,
March 15, 2006 (as amended by our Current Report on
Form 8-K/A
filed on January 19, 2007), March 20, 2006,
April 3, 2006, April 7, 2006, May 31, 2006,
June 2, 2006, August 17, 2006, September 25,
2006, November 17, 2006, and January 19, 2007; and
7. The description of our common stock on
Form 8-A/A
filed on November 17, 2006.
All documents filed by us under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934 (other than any
information furnished pursuant to Item 2.02 or
Item 7.01 of any Current Report on
Form 8-K
unless we specifically state in such Current Report that such
information is to be considered filed under the
Securities Exchange Act of 1934, as amended, which we refer to
as the Exchange Act, or we incorporate it by
reference into a filing under the Securities Act of 1933, as
amended, or the Exchange Act) from the date of this prospectus
until the sale of all securities registered hereunder shall be
deemed to be incorporated by reference in this prospectus. Any
statement contained in this prospectus or in a document
incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of
this prospectus to the extent that a statement contained in any
subsequently filed document which is or is deemed to be
incorporated by reference herein 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.
We will provide to each person, including any beneficial owner,
to whom a prospectus is delivered, upon written or oral request,
a copy of any or all of the reports or documents that have been
incorporated by reference in this prospectus but not delivered
with the prospectus. You may access a copy of any or all of
these filings, free of charge, at our web site,
www.covantaholding.com, or by writing us at the following
address or telephoning us at the number below:
Covanta
Holding Corporation
Attn: Gavin A. Bell
40 Lane Road
Fairfield, New Jersey 07004
(973) 882-7001
You may also direct your requests via
e-mail to
gbell@covantaholding.com
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Risk
Factors
Please carefully consider the risk factors described in our
periodic reports filed with the SEC, which are incorporated by
reference in this prospectus. Before making investment
decisions, you should carefully consider these risks as well as
other information we include or incorporate by reference in this
prospectus or include in any applicable prospectus supplement.
Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also impair our business
operations.
Forward-Looking
Statements
This prospectus, the documents incorporated by reference in this
prospectus and other written reports and oral statements made
from time to time by us may contain statements that may
constitute forward-looking statements as defined in
Section 27A of the Securities Act of 1933, as amended,
Section 21E of the Exchange Act, the Private Securities
Litigation Reform Act of 1995, referred to as the
PSLRA in this prospectus, or in releases made by the
SEC, all as may be amended from time to time. Such
forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the
actual results, performance or achievements of us and our
subsidiaries, or industry results, to differ materially from any
future results, performance or achievements expressed or implied
by such forward-looking statements. Statements that are not
historical fact are forward-looking statements. Forward-looking
statements can be identified by, among other things, the use of
forward-looking language, such as the words plan,
believe, expect, anticipate,
intend, estimate, project,
may, will, would,
could, should, seeks, or
scheduled to, or other similar words, or the
negative of these terms or other variations of these terms or
comparable language, or by discussion of strategy or intentions.
These cautionary statements are being made pursuant to the
Securities Act of 1933, as amended, the Exchange Act and the
PSLRA with the intention of obtaining the benefits of the
safe harbor provisions of such laws. We caution
investors that any forward-looking statements made by us are not
guarantees or indicative of future performance. Important
assumptions and other important factors that could cause actual
results to differ materially from those forward-looking
statements with respect to us include, but are not limited to,
the risks and uncertainties affecting our businesses described
in Item 1A Risk Factors of our Annual Report on
Form 10-K
for the year ended December 31, 2005 and in registration
statements and other securities filings by us and our
subsidiaries.
Although we believe that our plans, intentions and expectations
reflected in or suggested by such forward-looking statements are
reasonable, actual results could differ materially from a
projection or assumption in any of its forward-looking
statements. Our future financial condition and results of
operations, as well as any forward-looking statements, are
subject to change and inherent risks and uncertainties. The
forward-looking statements contained in this prospectus and
registration statement are made only as of the date hereof and
we do not have or undertake any obligation to update or revise
any forward-looking statements whether as a result of new
information, subsequent events or otherwise, unless otherwise
required by law.
Covanta
Holding Corporation
We are a holding company incorporated in Delaware on
April 16, 1992. We changed our name as of
September 20, 2005 from Danielson Holding Corporation to
Covanta Holding Corporation. We primarily operate in the waste
and energy markets through Covanta Energy. We acquired Covanta
Energy on March 10, 2004 and acquired ARC Holdings
(formerly known as American Ref-Fuel Holdings Corp.) and
subsidiaries on June 24, 2005. Substantially all of our
operations were conducted in the insurance industry prior to our
acquisition of Covanta Energy through our indirect subsidiaries,
NAICC and related entities.
We are a leading developer, owner and operator of infrastructure
for the conversion of energy-from-waste, waste disposal,
renewable energy production and independent power production in
the United States and abroad. Through our operating
subsidiaries, we own or operate 51 energy generation facilities,
41 of which are in the United States and 10 of which are
located outside of the United States. Our energy generation
facilities use a variety of fuels, including municipal solid
waste, water (hydroelectric), natural gas, coal, wood waste,
landfill gas and heavy fuel oil. We also own or operate several
businesses that are associated with our energy-from-waste
business, including a waste procurement business, two landfills
and several waste transfer stations. We also operate one water
treatment facility which is located in the United States.
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The fundamental purpose of our energy-from-waste projects is to
provide waste disposal services, typically to municipal clients
who sponsor the projects. The electricity or steam generated is
generally sold to local utilities or industrial customers, and
most of the resulting revenues reduce the overall cost of waste
disposal services to the municipal clients. These projects are
capable of providing waste disposal services and generating
electricity or steam, if properly operated and maintained, for
several decades. Generally, we provide these waste disposal
services and sell the electricity or steam generated under
long-term contracts, which expire on various dates between 2008
and 2027. Many of our service contracts may be renewed for
varying periods of time, at the option of the municipal client.
The nature of our business, the risks attendant to such business
and the trends that we face have been significantly altered by
the acquisitions of Covanta Energy and ARC Holdings.
Accordingly, our financial results prior to the acquisitions of
Covanta Energy in March 2004 and ARC Holdings in June 2005 are
not directly comparable to current and future financial results.
Our principal executive offices are located at 40 Lane Road,
Fairfield, New Jersey 07004, and our telephone number is
(973) 882-9000.
Use of
Proceeds
Unless otherwise indicated in the applicable prospectus
supplement or other offering material, we will use the net
proceeds from the sale of the securities for general corporate
purposes. We will not receive proceeds from sales of our common
stock by selling stockholders except as may otherwise be stated
in an applicable prospectus supplement.
Description
of the Securities
We may issue from time to time, in one or more offerings the
following securities:
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shares of our common stock, $0.10 par value per share;
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shares of our preferred stock, $0.10 par value per share;
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warrants exercisable for our common stock; or
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debt securities.
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We will set forth in the applicable prospectus supplement a
description of the common stock, preferred stock, warrants or
debt securities that may be offered under this prospectus. The
terms of the offering of securities, the initial offering price
and the net proceeds to us will be contained in the prospectus
supplement, and other offering material, relating to such
offering.
Selling
Stockholders
Information about selling stockholders, where applicable, will
be set forth in a prospectus supplement, in a post-effective
amendment, or in filings we make with the SEC under the Exchange
Act which are incorporated by reference.
Experts
Ernst & Young LLP, independent registered public
accounting firm, has audited our consolidated financial
statements and schedules included in our Annual Report on
Form 10-K
for the year ended December 31, 2005, and managements
assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2005 as set forth in
their reports, which are incorporated by reference in this
prospectus and elsewhere in the registration statement. Our
financial statements and schedules and managements
assessment are incorporated by reference in reliance on
Ernst & Young LLPs reports, given on their
authority as experts in accounting and auditing.
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The consolidated financial statements of Quezon Power, Inc. as
of December 31, 2005 and 2004, and for each of the years
ended December 31, 2005, 2004 and 2003, incorporated by
reference in this prospectus and registration statement have
been audited by Sycip Gorres Velayo & Co., a member
practice of Ernst & Young Global, independent
registered public accounting firm, as set forth in their report
thereon incorporated by reference in this prospectus and
registration statement and are incorporated in reliance upon
such report given on the authority of such firm as an expert in
accounting and auditing.
The audited historical financial statements as of
December 31, 2004 and 2003, for the year ended
December 31, 2004 and the period from December 12,
2003 to December 31, 2003 of ARC Holdings and Subsidiaries
included in Exhibit 99.2 of our Current Report on
Form 8-K
dated April 7, 2005 have been incorporated by reference in
this prospectus and are so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, an independent registered
public accounting firm, given on the authority of said firm as
experts in auditing and accounting.
The audited historical financial statements for the period from
January 1, 2003 to December 12, 2003 of ARC Holdings
and Subsidiaries included in Exhibit 99.2 of our Current
Report on
Form 8-K
dated April 7, 2005 have been incorporated by reference in
this prospectus and are so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, an independent registered
public accounting firm, given on the authority of said firm as
experts in auditing and accounting.
The audited historical financial statements of Ref-Fuel Holdings
LLC and subsidiaries as of December 31, 2004 and 2003, for
the year ended December 31, 2004 and the period from
December 12, 2003 to December 31, 2003, included in
Exhibit 99.2 of our Current Report on
Form 8-K
dated April 7, 2005 have been incorporated by reference in
this prospectus and have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, an independent registered
public accounting firm, given on the authority of said firm as
experts in auditing and accounting.
The audited historical financial statements of Ref-Fuel Holdings
LLC and subsidiaries for the period from January 1, 2003
through December 12, 2003 and for the year ended
December 31, 2002, included in Exhibit 99.2 of our
Current Report on
Form 8-K
dated April 7, 2005 have been incorporated by reference in
this prospectus and have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, an independent registered
public accounting firm, given on the authority of said firm as
experts in auditing and accounting.
The consolidated financial statements and the related financial
statement schedules of Covanta Energy (Debtor in Possession) and
subsidiaries as of December 31, 2003 and for each of the
two years in the period ended December 31, 2003,
incorporated into this prospectus by reference from the Annual
Report on
Form 10-K/A
of Covanta Energy for the year ended December 31, 2004,
have been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in
their report (which report expresses an unqualified opinion and
includes explanatory paragraphs relating to Covanta Energy and
various domestic subsidiaries having filed voluntary petitions
for reorganization under Chapter 11 of the Federal
Bankruptcy Code, the Bankruptcy Court having entered an order
confirming Covanta Energys plan of reorganization which
became effective after the close of business on March 10,
2004, substantial doubt about Covanta Energys ability to
continue as a going concern, Covanta Energys adoption of
Statement of Financial Accounting Standards, referred to in this
prospectus as SFAS, No. 143, Accounting
for Asset Retirement Obligations in 2003,
SFAS No. 142, Goodwill and Other Intangible
Assets, SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets in 2002, and
the restatements described in Note 35) which is
incorporated by reference herein, and have been so incorporated
in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
Legal
Matters
The validity of the securities offered hereby will be passed
upon for us by Neal, Gerber & Eisenberg LLP of Chicago,
Illinois.
5
$325,000,000
Covanta Holding
Corporation
1.00% Senior
Convertible Debentures due 2027
PROSPECTUS SUPPLEMENT
January 25, 2007
Joint Book-Running Managers
Lehman
Brothers
JPMorgan
Merrill
Lynch & Co.
Banc
of America Securities LLC
Barclays
Capital
UBS
Investment Bank