<PAGE>
As filed with the Securities and Exchange Commission on April 27, 2000
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
Form S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
________________
E*TRADE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2844166
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4500 Bohannon Drive
Menlo Park, California 94025
(650) 331-6600
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Christos M. Cotsakos
Chairman of the Board and Chief Executive Officer
E*TRADE Group, Inc.
4500 Bohannon Drive
Menlo Park, California 94025
(650) 331-6000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Curtis L. Mo
Richard C. Leska
Joseph K. Wyatt
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94025
Telephone: (650) 424-0160
Facsimile: (650) 496-2885
Approximate date of commencement of the proposed sale to the public: From time
to time after this registration statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================
Amount Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Securities to Be Aggregate Price Aggregate Registration
to Be Registered Registered Per Unit Offering Price Fee
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6% Convertible Subordinated Notes due
February 1, 2007............................... $650,000,000 100% (1)(2) $650,000,000 (1) $171,600
Common Stock, par value $0.01 per share......... 27,542,373 (3) -- (4) -- (4) -- (4)
- ------------------------------------------------------------------------------------------------------------------------
Total.................................................................................................. $171,600
========================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(i).
(2) Exclusive of accrued interest and distributions, if any.
(3) Represents the number of shares of common stock initially issuable upon
conversion of the notes registered hereby. This registration statement also
shall cover any additional shares of common stock that become issuable by reason
of any stock dividend, stock split, recapitalization or other similar
transaction effected without the receipt of consideration which results in an
increase in the number of the outstanding shares of common stock, as well as any
additional shares of common stock that become issuable as a result of
antidilution provisions.
(4) No additional consideration will be received for the common stock, and
therefore no registration fee is required pursuant to Rule 457(i).
________________
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The information in this prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. The prospectus is not an offer
to sell these securities, and is not soliciting an offer to buy these
securities, in any state where the offer or sale is not permitted.
<PAGE>
The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. The prospectus is not an offer
to sell these securities, and is not soliciting an offer to buy these
securities, in any state where the offer or sale is not permitted.
Subject to completion, dated April 27, 2000
Preliminary Prospectus
E*TRADE Group, Inc.
$650,000,000 6% Convertible Subordinated Notes due February 1, 2007
and
27,542,373 Shares of Common Stock Issuable Upon Conversion of the Notes
On February 1, 2000, E*TRADE Group, Inc. issued and sold $500,000,000
aggregate principal amount of 6% Convertible Subordinated Notes due February 1,
2007 in a private offering. On March 17, 2000, the initial purchasers purchased
an additional aggregate principal amount of $150,000,000 in notes pursuant to
the option granted by the Company. The initial purchasers of the notes
subsequently transferred their notes to various other holders in transactions
exempt from registration under the Securities Act of 1933. In connection with
our private offering, we agreed to register the notes and the shares of common
stock into which the notes are convertible to facilitate secondary trading by
these holders, to whom we refer as selling securityholders. This prospectus is
part of a registration statement that fulfills this obligation. All securities
offered by this prospectus are offered by selling securityholders.
The notes are convertible by holders into shares of our common stock at a
rate of 42.3729 shares per each $1,000 principal amount of notes, subject to
adjustment as described in this prospectus. In addition, at certain times and
under certain circumstances, we may redeem the notes at our election or at the
election of the holders of the notes. You can find a more extensive description
of the notes beginning on page 22.
The notes are not secured and are subordinated to all of our present and
future senior indebtedness.
The notes are eligible for trading on the Private Offerings, Resales and
Trading through Automated Linkages, or PORTAL, Market.
Our common stock is quoted on the Nasdaq National Market under the symbol
"EGRP." On April 26, 2000, the closing sale price for our common stock was
$20.00.
Investing in our notes and common stock involves risks. See Risk Factors
beginning on page 4 to read about certain factors you should consider before
buying notes and shares of common stock being offered by this prospectus.
______________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
______________
The date of this prospectus is April 27, 2000.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
E*TRADE Group, Inc....................................................................................... 3
Risk Factors............................................................................................. 4
Information Regarding Forward-Looking Statements......................................................... 21
Use of Proceeds.......................................................................................... 22
Ratio of Earnings to Fixed Charges....................................................................... 22
Description of the Notes................................................................................. 22
Material United States Federal Income Tax Considerations................................................. 36
Selling Securityholders.................................................................................. 43
Plan of Distribution..................................................................................... 45
Incorporation by Reference............................................................................... 46
Where You Can Find More Information...................................................................... 47
Legal Matters............................................................................................ 47
Experts.................................................................................................. 47
</TABLE>
__________________________
E*TRADE GROUP, INC.
E*TRADE, through our wholly owned subsidiaries, E*TRADE Securities, Inc.,
TIR (Holdings) Limited ("TIR") and Telebanc Financial Corporation ("Telebanc"),
is a leading provider of online brokerage and banking services and has
established a popular, branded destination Web site for self-directed investors.
We offer automated order placement and execution, along with a suite of products
and services that can be personalized, including portfolio tracking, Java-based
charting and quote applications, real-time market commentary and analysis, news,
professional research reports, financial online community and other information
services. Our products have grown to include IPO shares, mutual funds, bond
trading, tax advice and banking. We provide our services 24 hours a day, seven
days a week by means of the Internet, touch-tone telephone (including
interactive voice recognition), and direct modem access. Our proprietary
transaction-enabling technology supports highly automated, easy-to-use and cost-
effective services that empower our customers to take greater control of their
investment decisions and financial transactions. Further, we believe that our
technology can be adapted to provide transaction-enabling services related to
other aspects of electronic commerce.
3
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision in our company. The risks and uncertainties described
below are not the only ones facing our company and there may be additional
risks that we do not presently know of or that we currently deem immaterial.
All of these risks may impair our business operations. This document also
contains forward-looking statements that involve risks and uncertainties and
actual results may differ materially as a result of certain factors, including
those set forth below and elsewhere in this filing. If any of the following
risks actually occur, our business, financial condition or results of
operations could be materially adversely affected. In such case, the trading
price of our common stock could decline, and you may lose all or part of your
investment.
In accordance with "plain English" guidelines provided by the Securities
and Exchange Commission, the risk factors have been written in the first
person.
RISK PARTICULAR TO E*TRADE GROUP, INC.
We could suffer substantial losses and be subject to customer litigation if
our systems fail or our transaction processing is slow
We receive and process transactions mostly through the Internet, online
service providers and touch-tone telephone. Thus, we depend heavily on the
integrity of the electronic systems supporting these types of transactions,
including our internal software programs and computer systems. Our systems or
any other systems in the transaction process could slow down significantly or
fail for a variety of reasons including:
. undetected errors in our internal software programs or computer systems;
. our inability to effectively resolve any errors in our internal software
programs or computer systems once they are detected; or
. heavy stress placed on our system during certain peak trading times.
If our systems or any other systems in the transaction process slow down
significantly or fail even for a short time, our customers could suffer delays
in transaction processing, which could cause substantial losses and possibly
subject us to claims for such losses or to litigation claiming fraud or
negligence. We have experienced such systems failures and degradation in the
past, including certain days in February 1999. We could experience future
system failures and degradations, especially in foreign markets where we must
implement new transaction processing infrastructures. To promote customer
satisfaction and protect our brand name, we have, on certain occasions,
compensated customers for verifiable losses from such failures. To date,
during our systems failures, we were able to take orders by telephone,
however, with respect to our brokerage transactions, only associates with
securities brokers' licenses can accept telephone orders. An adequate number
of such associates may not be available to take customer calls in the event of
a future systems failure. We may not be able to increase our customer service
personnel and capabilities in a timely and cost-effective manner. We could
experience a number of adverse consequences as a result of these systems
failures including the loss of existing customers and the inability to attract
or retain new customers. There can be no assurance that our network structure
will operate appropriately in any of the following events:
. subsystem, component or software failure;
. a power or telecommunications failure;
. human error;
. an earthquake, fire or other natural disaster; or
. an act of God or war.
There can be no assurance that, in any such event, we will be able to
prevent an extended systems failure. Any such systems failure that interrupts
our operations could have a material adverse effect on our business,
4
<PAGE>
financial condition and operating results. We have received in the past,
including as a result of our systems failures in February 1999, adverse
publicity in the financial press and in online discussion forums primarily
relating to systems failures.
Our security could be breached, which could damage our reputation and deter
customers from using our services
We must protect our computer systems and network from physical break-ins,
security breaches and other disruptive problems caused by the Internet or
other users. Computer break-ins could jeopardize the security of information
stored in and transmitted through our computer systems and network, which
could adversely affect our ability to retain or attract customers, damage our
reputation and subject us to litigation. We have in the past, and could in the
future, be subject to denial of service, vandalism and other attacks on our
systems by Internet hackers. Although we intend to continue to implement
security technology and establish operational procedures to prevent break-ins,
damage and failures, these security measures may fail. Our insurance coverage
in certain circumstances may be insufficient to cover issues that may result
from such events.
Our business could suffer if we cannot protect the confidentiality of customer
information transmitted over public networks
A significant barrier to online commerce is the secure transmission of
confidential information over public networks. We rely on encryption and
authentication technology, including cryptography technology licensed from RSA
Data Security, Inc., to provide secure transmission of confidential
information. There can be no assurance that advances in computer and
cryptography capabilities or other developments will not result in a
compromise of the RSA or other algorithms we use to protect customer
transaction data. If any such compromise of our security were to occur, it
could have a material adverse effect on our business, financial condition and
operating results.
Our quarterly results fluctuate and do not reliably indicate future operating
results
We do not believe that our historical operating results should be relied
upon as an indication of our future operating results. We expect to experience
large fluctuations in future quarterly operating results that may be caused by
many factors, including the following:
. fluctuations in the fair market value of our equity investments in other
companies, including through existing or future private investment funds
managed by us;
. fluctuations in interest rates, which will impact our investment and loan
portfolios;
. increased levels of advertising, sales and marketing expenditures for
customer acquisition, which may be affected by competitive conditions in
the marketplace;
. the timing of introductions or enhancements to online investing services
and products by us or our competitors;
. market acceptance of online financial services and products;
. the pace of development of the market for online commerce;
. changes in trading volume in securities markets;
. trends in securities and banking markets;
. domestic and international regulation of the brokerage, banking and
internet industries;
. implementation of new accounting pronouncements, such as Statement of
Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities;
. changes in domestic or international tax rates;
5
<PAGE>
. changes in pricing policies by us or our competitors;
. changes in strategy;
. the success of, or costs associated with, acquisitions, joint ventures or
other strategic relationships;
. changes in key personnel;
. seasonal trends;
. the extent of international expansion;
. the mix of international and domestic revenues;
. fluctuation in foreign exchange rates;
. changes in the level of operating expenses to support projected growth;
and
. general economic conditions.
We have also experienced fluctuations in the average number of customer
transactions per day. Thus, the rate of growth in customer transactions at any
given time is not necessarily indicative of future transaction activity.
Our business will suffer if we cannot effectively compete
The market for financial services over the Internet is new, rapidly
evolving and intensely competitive. We expect competition to continue and
intensify in the future. We face direct competition from financial
institutions, brokerage firms, banks, mutual fund companies, Internet portals
and other organizations. These competitors include, among others:
. America Online, Inc.;
. Ameritrade, Inc.;
. Bank of America;
. Charles Schwab & Co., Inc.;
. Citigroup, Inc.;
. CyBerCorp.com;
. Datek Online Holdings Corporation;
. DLJdirect;
. Fidelity Brokerage Services, Inc.;
. Intuit Inc.;
. Merrill Lynch, Pierce, Fenner & Smith Incorporated;
. Microsoft Money;
. National Discount Brokers;
. Net.B@nk, Inc.;
. PaineWebber Incorporated;
. Quick & Reilly, Inc.;
. Salomon Smith Barney, Inc.;
. SURETRADE, Inc.;
6
<PAGE>
. TD Waterhouse Securities, Inc.;
. Wells Fargo & Company;
. WingspanBank.com; and
. Yahoo! Inc.
Many of our competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do. In
addition, many of our competitors offer a wider range of services and
financial products than we do, and thus may be able to respond more quickly to
new or changing opportunities, technologies and customer requirements. Many of
our competitors also have greater name recognition and larger customer bases
that could be leveraged, thereby gaining market share from us. Such
competitors may conduct more extensive promotional activities and offer better
terms and lower prices to customers than we do, possibly even sparking a price
war in the online financial services industry. Moreover, certain competitors
have established cooperative relationships among themselves or with third
parties to enhance their services and products. For example, Charles Schwab's
One-Source mutual fund service and similar services may discourage potential
customers from using our brokerage services. Accordingly, it is possible that
new competitors or alliances among existing competitors may significantly
reduce our market share.
General financial success within the financial services industry over the
past several years has strengthened existing competitors. We believe that such
success will continue to attract new competitors, such as software development
companies, insurance companies and others, as such companies expand their
product lines. Commercial banks and other financial institutions have become
more competitive with our brokerage operations by offering their customers
certain corporate and individual financial services traditionally provided by
securities firms. The current trend toward consolidation in the commercial
banking industry could further increase competition in all aspects of our
business. Commercial banks generally are expanding their securities and
financial services activities. While we cannot predict the type and extent of
competitive services that commercial banks and other financial institutions
ultimately may offer, we may be adversely affected by such competition. To the
extent our competitors are able to attract and retain customers, our business
or ability to grow could be adversely affected. In many instances, we are
competing with such organizations for the same customers. In addition,
competition among financial services firms exists for experienced technical
and other personnel.
There can be no assurance that we will be able to compete effectively with
current or future competitors or that such competition will not have a
material adverse effect on our business, financial condition and operating
results.
Our success depends on our ability to effectively adapt to changing business
conditions
We have grown rapidly and our business and operations have changed
substantially since we began offering electronic investing services in 1992,
and Internet investing services in February 1996, and we expect this trend to
continue. Such rapid change and expansion places significant demands on our
administrative, operational, financial, and technical management and other
resources.
We expect operating expenses and staffing levels to increase substantially
in the future. In particular, we have hired and intend to hire a significant
number of additional skilled personnel, including persons with experience in
the computer, brokerage and banking industries, and, specifically, persons
with Series 7 or other broker-dealer licenses. Competition for such personnel
is intense, and there can be no assurance that we will be able to find or keep
additional suitable senior managers or technical persons or licensed
representatives in the future. In particular, we depend heavily on our chief
executive officer, president and chief operating officer and other members of
senior management, the loss of any of whom could seriously harm our business.
We also expect to expend resources for future expansion of our accounting and
internal information management systems and for a number of other new systems
and procedures. In addition, we expect that future expansion will continue to
challenge our ability to successfully hire and retain associates. If our
revenues do not keep up with operating
7
<PAGE>
expenses, our information management systems do not expand to meet increasing
demands, we fail to attract, assimilate and retain qualified personnel, or we
fail to manage our expansion effectively, there could be a material adverse
effect on our business, financial condition and operating results.
The rapid growth in the use of our services has strained our ability to
adequately expand technologically. As we acquire new equipment and
applications quickly, we have less time to test and validate hardware and
software, which could lead to performance problems. We also rely on a number
of third parties to process our transactions, including online and Internet
service providers, back office processing organizations, service providers and
market-makers, all of which will need to expand the scope of the operations
they perform for us. Any backlog caused by a third party's inability to expand
sufficiently to meet our needs could have a material adverse effect on our
business, financial condition and operating results. As transaction volume
increases, we may have difficulty hiring and training qualified personnel at
the necessary pace, and the shortage of licensed personnel could cause a
backlog in the processing of brokerage orders that need review, which could
lead to not only unsatisfied customers, but also to liability for brokerage
orders that were not executed on a timely basis.
Through our Digital Financial Media initiative, we plan to deliver
interactive multimedia content and commerce through a variety of broadband
communications channels and electronic platforms. We believe that achieving
success in this strategy is essential to our ability to compete in the rapidly
evolving electronic marketplaces in which we operate. We have limited
experience in these media and our failure to execute this strategy
successfully may limit our future growth.
Our ability to attract customers and our profitability may suffer if changes
in government regulation favor our competition or restrict our business
practices
The securities and banking industries in the United States are each subject
to extensive regulation under both federal and state laws. Broker-dealers are
subject to regulations covering all aspects of the securities business,
including:
. sales methods;
. trade practices among broker-dealers;
. use and safekeeping of customers' funds and securities;
. capital structure;
. record keeping;
. advertising;
. conduct of directors, officers and employees; and
. supervision.
Because we are a self-clearing broker-dealer, we have to comply with many
complex laws and rules. These include rules relating to possession and control
of customer funds and securities, margin lending and execution and settlement
of transactions. Our ability to so comply depends largely on the establishment
and maintenance of a qualified compliance system.
Similarly, E*TRADE and Telebanc, as savings and loan holding companies, and
Telebank, as a federally chartered savings bank and subsidiary of Telebanc,
are subject to extensive regulation, supervision and examination by the Office
of Thrift Supervision ("OTS") and, in the case of Telebank, the Federal
Deposit Insurance Corporation. Such regulation covers all aspects of the
banking business, including lending practices, safeguarding deposits, capital
structure, record keeping, and conduct and qualifications of personnel.
In November 1999, the Gramm-Leach-Bliley Act was enacted into law. This act,
which reduces the legal barriers between banking, securities and insurance
companies, will make it easier for bank holding companies to compete directly
8
<PAGE>
with our securities business, as well as for our competitors in the securities
business to diversify their revenues and attract additional customers through
entry into the banking and insurance businesses. The Gramm-Leach-Bliley Act may
have a material impact on the competitive landscape that we face.
Additionally our mode of operation and profitability may be directly
affected by:
. additional legislation;
. changes in rules promulgated by the SEC, the National Association of
Securities Dealers, Inc., ("NASD"), the Board of Governors of the Federal
Reserve System, the OTS, the various stock exchanges and other self-
regulatory organizations; or
. changes in the interpretation or enforcement of existing laws and rules.
The SEC, the NASD or other self-regulatory organizations and state
securities commissions can censure, fine, issue cease-and-desist orders or
suspend or expel a broker-dealer or any of its officers or employees. The OTS
may take similar action with respect to our banking activities. Our ability to
comply with all applicable laws and rules is largely dependent on our
establishment and maintenance of a system to ensure such compliance, as well
as our ability to attract and retain qualified compliance personnel. Our
growth has placed considerable strain on our ability to ensure such
compliance. We could be subject to disciplinary or other actions due to
claimed noncompliance in the future, which could have a material adverse
effect on our business, financial condition and operating results.
We have initiated an aggressive marketing campaign designed to bring brand
name recognition to E*TRADE. All marketing activities by E*TRADE Securities
are regulated by the NASD, and all marketing materials must be reviewed by an
E*TRADE Securities Series 24 licensed principal prior to release. The NASD has
in the past asked us to revise certain marketing materials. The NASD can
impose certain penalties for violations of its advertising regulations,
including:
. censures or fines;
. suspension of all advertising;
. the issuance of cease-and-desist orders; or
. the suspension or expulsion of a broker-dealer or any of its officers or
employees.
We do not currently solicit orders from our customers or make investment
recommendations. However, if we were to engage in such activities, we would
become subject to additional rules and regulations governing, among other
things, sales practices and the suitability of recommendations to customers.
We intend to continue expanding our business to other countries and to
broaden our customers' abilities to trade securities of non-U.S. companies and
execute other transactions through the Internet and other gateways. In order
to expand our services globally, we must comply with the regulatory controls
of each specific country in which we conduct business. Our international
expansion could be limited by the compliance requirements of other national
regulatory jurisdictions. We intend to rely primarily on local third parties
and our subsidiaries for regulatory compliance in international jurisdictions.
See "Risk Factors--We face numerous risks associated with doing business in
international markets."
There can be no assurance that other federal, state or foreign agencies
will not attempt to regulate our online and other activities. We anticipate
that we may be required to comply with record keeping, data processing and
other regulatory requirements as a result of proposed federal legislation or
otherwise. We may also be subject to additional regulation as the market for
online commerce evolves. Because of the growth in the electronic commerce
market, Congress has held hearings on whether to regulate providers of
services and transactions in the electronic commerce market. As a result,
federal or state authorities could enact laws, rules or regulations affecting
our business or operations. We may also be subject to federal, state or
foreign money transmitter laws
9
<PAGE>
and state and foreign sales or use tax laws. If such laws are enacted or deemed
applicable to us, our business or operations would be rendered more costly or
burdensome, less efficient or even impossible. Any of the foregoing could have a
material adverse effect on our business, financial condition and operating
results.
Due to the increasing popularity of the Internet, laws and regulations may
be passed dealing with issues such as user privacy, pricing, content and
quality of products and services.
As required by the Gramm-Leach-Bliley Act, the SEC and OTS have recently
proposed regulations on financial privacy, to take effect in November 2000,
that will require E*TRADE Securities and Telebank to notify consumers about
the circumstances in which they may share consumers' personal information with
unaffiliated third parties and to give consumers the right to opt out of such
information sharing. Although E*TRADE Securities and Telebank already provide
such opt-out rights in our privacy policies, the regulations could require us
to modify the text and the form of presentation of our privacy policies and to
incur additional expense to ensure ongoing compliance with the regulations.
In addition, the New York Attorney General carried out an investigation of
the online brokerage industry and issued a report, citing consumer complaints
about delays and technical difficulties conducting online stock trading. SEC
Commissioner Laura Unger also issued a report on issues raised by online
brokerage, including suitability and marketing issues. Increased attention
focused upon these issues could adversely affect the growth of the online
financial services industry, which could, in turn, decrease the demand for our
services or could otherwise have a material adverse effect on our business,
financial condition and operating results.
We may be fined or forced out of business if we do not maintain the net
capital levels required by regulators
The SEC, NASD, OTS and various other regulatory agencies have stringent
rules with respect to the maintenance of specific levels of net capital by
securities broker-dealers and regulatory capital by banks. Net capital is the
net worth of a broker or dealer (assets minus liabilities), less deductions
for certain types of assets. If a firm fails to maintain the required net
capital it may be subject to suspension or revocation of registration by the
SEC and suspension or expulsion by the NASD, and could ultimately lead to the
firm's liquidation. In the past, our broker-dealer subsidiaries have depended
largely on capital contributions by us in order to comply with net capital
requirements. If such net capital rules are changed or expanded, or if there
is an unusually large charge against net capital, operations that require the
intensive use of capital would be limited. Such operations may include trading
activities and the financing of customer account balances. Also, our ability
to withdraw capital from brokerage subsidiaries could be restricted, which in
turn could limit our ability to pay dividends, repay debt and redeem or
purchase shares of our outstanding stock. A large operating loss or charge
against net capital could adversely affect our ability to expand or even
maintain our present levels of business, which could have a material adverse
effect on our business, financial condition and operating results.
The table below summarizes the minimum net capital requirements for our
domestic broker-dealer and bank subsidiaries as of March 31, 2000 (in
thousands):
<TABLE>
<CAPTION>
Required Excess
net Net net
capital capital capital
-------- -------- --------
<S> <C> <C> <C>
E*TRADE Securities, Inc.......................... $128,404 $479,326 $350,922
TIR Securities, Inc.............................. 250 2,522 2,272
TIR Investor Select, Inc......................... 5 367 362
Marquette Securities, Inc........................ 250 475 225
Telebanc Capital Markets, Inc.................... 213 18,710 18,497
</TABLE>
Similarly, banks, such as Telebank, are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could
have a direct material effect on a bank's operations and financial statements.
Under capital adequacy guidelines and the regulatory framework
10
<PAGE>
for prompt corrective action, a bank must meet specific capital guidelines
that involve quantitative measures of a bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. A bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require a bank to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets and of Tier 1 capital to average assets. To be
categorized as well capitalized a bank must maintain minimum total risk-based,
Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following
table.
The table below summarizes the capital adequacy requirements for Telebank
as of March 31, 2000 (dollars in thousands):
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
Prompt Corrective
Actual Action Provisions
-------------- --------------------
Amount Ratio Amount Ratio
-------- ----- ----------- --------
<S> <C> <C> <C> <C>
Core Capital (to adjusted tangible
assets).............................. $471,179 7.33% > $322,202 > 5%
Tier 1 Capital (to risk weighted
assets).............................. $471,179 17.71% > $153,825 > 6%
Total Capital (to risk weighted
assets).............................. $460,565 16.95% > $256,376 > 10%
</TABLE>
As a significant portion of our revenues come from online investing services,
any downturn in the securities industry could significantly harm our business
A significant portion of our revenues in recent years has been from online
investing services, and we expect this business to continue to account for a
significant portion of our revenues in the foreseeable future. We, like other
financial services firms, are directly affected by economic and political
conditions, broad trends in business and finance and changes in volume and
price levels of securities and futures transactions. The U.S. securities
markets are characterized by considerable fluctuation and a downturn in these
markets could adversely affect our operating results. In October 1987 and
October 1989, the stock market suffered major declines, as a result of which
many firms in the industry suffered financial losses, and the level of
individual investor trading activity decreased after these events. Reduced
trading volume and prices have historically resulted in reduced transaction
revenues. When trading volume is low, our operating results may be adversely
affected because overhead remains relatively fixed. Severe market fluctuations
in the future could have a material adverse effect on our business, financial
condition and operating results. Some of our competitors with more diverse
product and service offerings might withstand such a downturn in the
securities industry better than we would. See "Risk Factors--Our business will
suffer if we cannot effectively compete."
Our brokerage business, by its nature, is subject to various other risks,
including customer default and employee misconduct and errors. We sometimes
allow customers to purchase securities on margin, therefore we are affected
because we are subject to risks inherent in extending credit. This risk is
especially great when the market is rapidly declining and the value of the
collateral we hold could fall below the amount of a customer's indebtedness.
Under specific regulatory guidelines, any time we borrow or lend securities,
we must correspondingly disburse or receive cash deposits. If we fail to
maintain adequate cash deposit levels at all times, we run the risk of loss if
there are sharp changes in market values of many securities and parties to the
borrowing and lending transactions fail to honor their commitments. Any such
losses could have a material adverse effect on our business, financial
condition and operating results.
Changes in interest rates may reduce Telebanc's profitability
The results of operations for Telebanc depend in large part upon the level
of its net interest income, that is, the difference between interest income
from interest-earning assets, such as loans and mortgage-backed securities,
and interest expense on interest-bearing liabilities, such as deposits and
borrowings. Many factors
11
<PAGE>
cause changes in interest rates, including governmental monetary policies and
domestic and international economic and political conditions. If Telebanc is
unsuccessful in managing the effects of changes in interest rates, its
financial condition and results of operations could suffer.
Changes in market interest rates could reduce the value of Telebanc's
financial assets. Fixed-rate investments, mortgage-backed and related
securities and mortgage loans generally decline in value as interest rates
rise.
We could lose customers and have difficulty attracting new customers if we are
unable to quickly introduce new products and services that satisfy changing
customer needs
Our future success depends, in part, on our ability to develop and enhance
our services and products. There are significant technical risks in the
development of new services and products or enhanced versions of existing
services and products. There can be no assurance that we will be successful in
achieving any of the following:
. effectively using new technologies;
. adapting our services and products to emerging industry standards;
. developing, introducing and marketing service and product enhancements;
or
. developing, introducing and marketing new services and products.
We may also experience difficulties that could delay or prevent the
development, introduction or marketing of these services and products. Our
status as a regulated savings and loan holding company resulting from the
acquisition of Telebanc could also lead to delays in or prevent the
development, introduction and marketing of new services and products.
Additionally, these new services and products may not adequately meet the
requirements of the marketplace or achieve market acceptance. If we are unable
to develop and introduce enhanced or new services and products quickly enough
to respond to market or customer requirements, or if they do not achieve
market acceptance, our business, financial condition and operating results
will be materially adversely affected.
Our success depends upon the growth of the Internet as a commercial
marketplace
The market for financial services, particularly over the Internet, is
rapidly evolving. Consequently, demand and market acceptance for recently
introduced services and products are subject to a high level of uncertainty.
For us, this uncertainty is compounded by the risks that consumers will not
continue to adopt online commerce and that commerce on the Internet will not
adequately develop or flourish to permit us to continue to grow.
Sales of many of our services and products will depend on consumers
continuing to adopt the Internet as a method of doing business. There can be
no assurance that the Internet infrastructure will continue to be able to
support the demands placed on it by this continued growth. In addition, the
Internet could be adversely affected by slow development or adoption of
standards and protocols to handle increased Internet activity, or due to
increased governmental regulation. Moreover, critical issues including
security, reliability, cost, ease of use, accessibility and quality of service
remain unresolved and may negatively affect the growth of Internet use or
commerce on the Internet.
Adoption of online commerce by individuals who have relied upon traditional
means of commerce in the past will require such individuals to accept new and
very different methods of conducting business. Moreover, our brokerage and
banking services over the Internet involve a new approach to securities
trading and banking which require extensive marketing and sales efforts to
educate prospective customers regarding their uses and benefits. For example,
consumers who trade with traditional brokerage firms, or even discount
brokers, may be reluctant or slow to change to obtaining brokerage services
over the Internet. Also, concerns about security and privacy on the Internet
may hinder the growth of online investing and banking, which could have a
material adverse effect on our business, financial condition and operating
results.
12
<PAGE>
The market price of our common stock, like other technology stocks, may be
highly volatile and any significant decrease in our stock price may make it
difficult for our shareowners to sell their stock
The market price of our common stock has been, and is likely to continue to
be, highly volatile and subject to wide fluctuations due to various factors,
many of which may be beyond our control, including:
. quarterly variations in operating results;
. volatility in the stock market;
. volatility in the general economy;
. changes in interest rates;
. announcements of acquisitions, technological innovations or new software,
services or products by us or our competitors; and
. changes in financial estimates and recommendations by securities
analysts.
In addition, there have been large price and volume fluctuations in the
stock market which have affected the market prices of securities of many
technology, Internet and financial services companies, often unrelated to the
operating performance of such companies. These broad market fluctuations may
adversely affect the market price of our common stock. In the past, volatility
in the market price of a company's securities has often led to securities
class action litigation. Such litigation could result in substantial costs and
a diversion of our attention and resources, which could have a material
adverse effect on our business, financial condition and operating results.
Our success depends on our ability to protect our intellectual property and
any failure to do so could substantially harm our business
Our success and ability to compete are dependent to a significant degree on
our proprietary technology. We rely primarily on copyright, trade secret and
trademark law to protect our technology and our brand. Effective trademark
protection may not be available for our trademarks. Although we have
registered the trademark "E*TRADE" in the United States and certain other
countries, and have certain other registered trademarks, there can be no
assurance that we will be able to secure significant protection for these
trademarks. Our competitors or others may adopt product or service names
similar to "E*TRADE," thereby impeding our ability to build brand identity and
possibly leading to customer confusion. Our inability to adequately protect
the name "E*TRADE" could have a material adverse effect on our business,
financial condition and operating results. Despite any precautions we take, a
third party may be able to copy or otherwise obtain and use our software or
other proprietary information without authorization or to develop similar
software independently. Policing unauthorized use of our technology is made
especially difficult by the global nature of the Internet and difficulty in
controlling the ultimate destination or security of software or other data
transmitted on it. The laws of other countries may afford us little or no
effective protection for our intellectual property. There can be no assurance
that the steps we take will prevent misappropriation of our technology or that
agreements entered into for that purpose will be enforceable. In addition,
litigation may be necessary in the future to:
. enforce our intellectual property rights;
. protect our trade secrets;
. determine the validity and scope of the proprietary rights of others; or
. defend against claims of infringement or invalidity.
Such litigation, whether successful or unsuccessful, could result in
substantial costs and diversion of resources, either of which could have a
material adverse effect on our business, financial condition and operating
results.
13
<PAGE>
We may face claims for infringement of third parties' proprietary rights and
it could be costly and time-consuming to defend against such claims, even
those without merit
We have received in the past, and may receive in the future, notices of
claims of infringement of other parties' proprietary rights. There can be no
assurance that claims for infringement or invalidity--or any indemnification
claims based on such claims--will not be asserted or prosecuted against us.
Any such claims, with or without merit, could be time consuming and costly to
defend or litigate, divert our attention and resources or require us to enter
into royalty or licensing agreements. There can be no assurance that such
licenses would be available on reasonable terms, if at all, and the assertion
or prosecution of any such claims could have a material adverse effect on our
business, financial condition and operating results.
Our attempts to enter new markets may be unsuccessful, which could decrease
our earnings and consequently decrease the market value of our common stock
One element of our strategy is to leverage the E*TRADE brand and technology
to enter new markets. No assurance can be given that we will be able to
successfully adapt our proprietary processing technology for use in other
markets. Even if we do adapt our technology, no assurance can be given that we
will be able to compete successfully in any such new markets. There can be no
assurance that our pursuit of any of these opportunities will be successful.
If these efforts are not successful, we could realize less than expected
earnings, which in turn could result in a decrease in the market value of our
common stock. Furthermore, such efforts may divert management attention or
inefficiently utilize our resources.
As a result of our recent merger with Telebanc, we face numerous new risks,
including possible failure to successfully integrate and assimilate Telebanc's
operations with our own
On January 12, 2000, we acquired Telebanc. Telebanc is an online provider
of Internet banking services. This represents a new line of business for us.
No assurance can be given that we will be successful in this market. We may
experience difficulty in assimilating Telebanc's products and services with
our own and we may not be able to integrate successfully the employees of
Telebanc into our organization. These difficulties may be exacerbated by the
geographical distance between our various locations and Telebanc's Virginia
location. If we fail to successfully integrate Telebanc's operations with our
own, our operating results and business could be adversely affected.
Telebank holds a loan portfolio consisting primarily of one- to four-family
residential loans. A critical component of the banking industry is the ability
to accurately assess credit risk and establish corresponding loan loss
reserves. Our status as a regulated savings and loan holding company resulting
from the acquisition of Telebanc could also lead to delays or prevent the
development, introduction and marketing of new services and products. This is
a new industry for E*TRADE and accordingly, we are dependent upon Telebanc
management and employees to advise us in this area.
Due to our recent merger with Telebanc, we may be restricted in expanding our
activities, and our inexperience with being regulated as a savings and loan
holding company could negatively affect both E*TRADE and Telebanc
Upon the completion of our acquisition of Telebanc and its subsidiary,
Telebank, on January 12, 2000, we became subject to regulation as a savings
and loan holding company. As a result, we are required to register with the
OTS and file periodic reports, and are subject to examination by the OTS.
Under financial modernization legislation recently enacted into law, our
activities are restricted to activities that are financial in nature and
certain real estate-related activities. We may also make merchant banking
investments in companies whose activities are not financial in nature, if
those investments are engaged in for the purpose of appreciation and ultimate
resale of the investment, and we do not manage or operate the company. Such
merchant banking investments may be subject to maximum holding periods and
special capital requirements.
14
<PAGE>
We believe that all of our existing activities and investments are
permissible under the new legislation, but the OTS has not yet issued
regulations or otherwise interpreted the new statute. Even if all of our
existing activities and investments are permissible, under the new legislation
we will be constrained in pursuing future new activities that are not
financial in nature. We are also limited in its ability to invest in other
savings and loan holding companies, and all transactions between E*TRADE and
Telebank must be conducted on an arms' length basis.
In addition to regulation of E*TRADE and Telebanc as savings and loan
holding companies, federal savings banks such as Telebank are subject to
extensive regulation of their activities and investments, their
capitalization, their risk management policies and procedures, and their
relationship with affiliated companies. In addition, as a condition to
approving our acquisition of Telebanc, the OTS imposed various notice and
other requirements, primarily a requirement that Telebank obtain prior
approval from the OTS of any future material changes to Telebanc's business
plan. These regulations and conditions, and our inexperience with them, could
affect our ability to realize synergies from the merger, and could negatively
affect both E*TRADE and Telebank following the merger.
We face numerous risks associated with doing business in international markets
One component of our strategy is a planned increase in efforts to attract
more international customers. To date, we have limited experience in providing
brokerage services internationally, and Telebanc has had only limited
experience providing banking services to customers outside the United States.
There can be no assurance that our international licensees or subsidiaries
will be able to market our branded services and products successfully in
international markets. In addition, there are certain risks inherent in doing
business in international markets, particularly in the heavily regulated
brokerage and banking industries, such as:
. unexpected changes in regulatory requirements, tariffs and other trade
barriers;
. difficulties in staffing and managing foreign operations;
. the level of investor interest in cross-border trading;
. authentication of on-line customers;
. political instability;
. fluctuations in currency exchange rates;
. reduced protection for intellectual property rights in some countries;
. seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world;
. the level of adoption of the Internet in international markets; and
. potentially adverse tax consequences.
Any of the foregoing could adversely impact the success of our
international operations. In addition, because some of these international
markets are served through license arrangements with others, we rely upon
these third parties for a variety of business and regulatory compliance
matters. We have limited control over the management and direction of these
third parties. We run the risk that their action or inaction could harm our
operations and/or the goodwill associated with our brand name. Additionally,
certain of our international licensees have the right to sell sub-licenses.
Generally, we have less control over sub-licensees than we do over licensees.
As a result, the risk to our operations and goodwill is higher. There can be
no assurance that one or more of the factors described above will not have a
material adverse effect on our future international operations, if any, and,
consequently, on our business, financial condition and operating results.
15
<PAGE>
Any failure to successfully integrate the companies that we acquire into our
existing operations or failure to maintain our relationships with strategic
partners could harm our business
We recently acquired Telebanc, TIR and some of our European licensees. We
may also acquire other companies or technologies in the future, and we
regularly evaluate such opportunities. Acquisitions and mergers entail
numerous risks, including:
. difficulties in the assimilation of acquired operations and products;
. diversion of management's attention from other business concerns;
. amortization of acquired intangible assets; and
. potential loss of key employees of acquired companies.
We have limited experience in assimilating acquired organizations into our
operations. No assurance can be given as to our ability to integrate
successfully any operations, technology, personnel, services or new businesses
or products that might be acquired in the future. Failure to successfully
assimilate acquired organizations could have a material adverse effect on our
business, financial condition and operating results.
We have established a number of strategic relationships with online and
Internet service providers, as well as software and information service
providers. There can be no assurance that any such relationships will be
maintained, or that if they are maintained, they will be successful or
profitable. Additionally, we may not be able to develop any new relationships
of this type in the future. We also make investments, either directly or
through affiliated private investment funds, in equity securities of other
companies without acquiring control of those companies. There may be no public
market for the securities of the companies we invest in. In order for us to
realize a return on our investment, such companies must be sold or
successfully complete a public offering of their securities. There can be no
assurance that such companies will be acquired or complete a public offering
or that such an acquisition or public offering will allow us to sell our
securities at a profit, or at all.
Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast. We believe that period-to-period comparisons of our
operating results will not necessarily be meaningful and you should not rely
on them as any indication of future performance. Our future quarterly
operating results may not consistently meet the expectations of securities
analysts or investors, which in turn may have an adverse effect on the market
price of our common stock.
We have substantially increased our indebtedness, which may make it more
difficult to make payments on our debts or to obtain financing
As a result of our sale of our 6% convertible subordinated notes, we incurred
$650 million of additional indebtedness, increasing our ratio of debt to equity
(expressed as a percentage) to approximately 38% as of March 31, 2000, on a pro
forma basis giving effect to the sales of the notes and the application of
proceeds therefrom. We may incur substantial additional indebtedness in the
future. The level of our indebtedness, among other things, could
. make it difficult for us to make payments on our debt;
. make it difficult for us to obtain any necessary financing in the future
for working capital, capital expenditures, debt service requirements or
other purposes;
. limit our flexibility in planning for, or reacting to, changes in our
business; and
. make us more vulnerable in the event of a downturn in our business.
There can be no assurance that we will be able to meet our debt service
obligations, including obligations under the notes.
16
<PAGE>
Loss or reductions in revenue from order flow rebates could harm our business
Order flow revenue as a percentage of revenue has decreased over the past
three years. There can be no assurance that payments for order flow will
continue to be permitted by the SEC, the NASD or other regulatory agencies,
courts or governmental units. Loss of any or all of these revenues could have
a material adverse effect on our business, financial condition and operating
results.
We may incur costs to avoid investment company status and may suffer adverse
consequences if we are deemed to be an investment company
We may incur significant costs to avoid investment company status and may
suffer other adverse consequences if we are deemed to be an investment company
under the Investment Company Act of 1940, which is commonly referred to as the
"1940 Act".
A company may be deemed to be an investment company if it owns investment
securities with a value exceeding 40% of its total assets, subject to certain
exclusions. After giving effect to the offering, we will have substantial
short-term investments until the net proceeds from the offering can be
deployed. In addition, we and our subsidiaries have made minority equity
investments in other companies that may constitute investment securities under
the 1940 Act. In particular, many of our publicly traded equity investments,
which are owned directly by us or through related venture funds, are deemed to
be investment securities. Although our investment securities currently
comprise less than 40% of our total assets, the value of these minority
investments has fluctuated in the past, and substantial appreciation in some
of these investments may, from time to time, cause the value of our investment
securities to exceed 40% of our total assets. These factors may result in us
being treated as an "investment company" under the 1940 Act.
We believe we are primarily engaged in a business other than investing,
reinvesting, owning, holding, or trading securities for our account and,
therefore, are not an investment company within the meaning of the 1940 Act.
However, in the event that such exemption is not available and the 40% limit
were to be exceeded (including through fluctuations in the value of our
investment securities), we may need to reduce our investment securities as a
percentage of our total assets. This reduction can be attempted in a number of
ways, including the sale of investment securities and the acquisition of non-
investment security assets, such as cash, cash equivalents and government
securities. If we sell investment securities, we may sell them sooner than we
intended. These sales may be at depressed prices and we may never realize
anticipated benefits from, or may incur losses on, these investments. Some
investments may not be sold due to normal contractual or legal restrictions or
the inability to locate a suitable buyer. Moreover, we may incur tax
liabilities if we sell these assets. We may also be unable to purchase
additional investment securities that may be important to our operating
strategy. If we decide to acquire non-investment security assets, we may not
be able to identify and acquire suitable assets, and will likely realize a
lower return on any such investments.
If we were deemed to be an investment company, we could become subject to
substantial regulation under the 1940 Act with respect to our capital
structure, management, operations, affiliate transactions and other matters.
As a consequence, we could be barred from engaging in business or issuing our
securities as we have in the past and might be subject to civil and criminal
penalties for noncompliance. In addition, some of our contracts might be
voidable, and a court-appointed receiver could take control of us and
liquidate our business in certain circumstances.
Our business will suffer if our systems do not accurately process date
information relating to dates after January 1, 2000
Because many computer systems were not designed to handle dates beyond the
year 1999, computer hardware and software may need to be modified in order for
it to remain functional. This may affect us in numerous ways:
. We have assessed the impact of year 2000 issues, including other date-
related anomalies, on our products, services and internal information
systems. We do not expect our financial results to be materially affected
17
<PAGE>
by the need to address year 2000 issues, but if the costs associated with
addressing these issues are greater than planned, our earnings and results
of operations could be affected. Furthermore, if corrective actions are
not adequate to avoid year 2000 problems, the impact of year 2000
processing failures on the Company's business, financial position, results
of operations or cash flows could be material;
. We must rely on outside vendors to address year 2000 issues for their
hardware and software. If these vendors fail to adequately address year
2000 issues for the products and services they provide to the Company,
this could have a material adverse impact on the Company's operations and
financial results. We have developed contingency plans in the event that
we, or our key vendors, are not year 2000 capable, but the failure of
such contingency plans may have a negative effect on our financial
results; and
. The method of transaction processing we employ depends heavily on the
integrity of electronic systems outside of our control, such as online
and Internet service providers, and third-party software such as Internet
browsers. A failure of any of these systems due to year 2000 issues could
interfere with the trading process and, in turn, may have a material
adverse effect on our business, financial condition and operating
results.
Due to our dependence on computer technology to conduct our business, the
nature and impact of year 2000 processing failures on our business, financial
condition and operating results could be material.
18
<PAGE>
RISKS RELATING TO THE NOTES
The notes are unsecured and, in the event of our insolvency, liquidation or
similar event, we must pay in full all of our senior indebtedness before we can
make any payments on the notes
The notes are unsecured and subordinated to our existing and future
indebtedness. As a result, we will not be able to make payments on the notes
until we have paid in full all of our senior indebtedness in the event of our
insolvency, liquidation, reorganization or payment default on senior
indebtedness. We may, therefore, not have sufficient assets to pay the amounts
due on the notes. Neither we nor our subsidiaries are prohibited from incurring
indebtedness under the notes indenture. As of March 31, 2000, we had
approximately $928 million of senior indebtedness (excluding liabilities that
would not appear on our consolidated balance sheet) outstanding. Of this
amount, approximately $860 million is indebtedness of our subsidiaries which we
have guaranteed, approximately $789 million of which relates to securities
lending arrangements in the ordinary course of our brokerage business.
The notes are obligations exclusively of E*TRADE Group, Inc. A substantial
portion of our operations are conducted through our subsidiaries. Accordingly,
our cash flow and our ability to service our indebtedness, including the notes,
is largely dependent upon the earnings of our subsidiaries. In addition, we are
largely dependent on the distribution of earnings, loans or other payments by
our subsidiaries to us. Our subsidiaries are separate and distinct legal
entities. Our subsidiaries have no obligation to pay any amounts due on the
notes or to provide us with funds for our payment obligations, whether by
dividends, distributions, loans or other payments. In addition, any payment of
dividends, distributions, loans or advances by our subsidiaries to us could be
subject to statutory or contractual restrictions. In particular, our largest
subsidiaries -- E*TRADE Securities and Telebank -- and other broker-dealer and
bank subsidiaries are subject to regulatory restrictions on dividends and
distributions, as well as minimum capital requirements which have historically
required us to make significant capital contributions. Payments to us by our
subsidiaries will also be contingent upon our subsidiaries' earnings and
business considerations.
Our right to receive any assets of any subsidiary upon its liquidation or
reorganization, and, therefore, right to participate in those assets, will be
effectively subordinated to the claims of that subsidiary's creditors,
including trade creditors. In addition, even if we were a creditor of any of
our subsidiaries, our rights as a creditor would be subordinate to any
security interest in the assets of our subsidiaries and any indebtedness of
our subsidiaries senior to that held by us. As of March 31, 2000, our
subsidiaries had outstanding liabilities of approximately $13.8 billion
(excluding liabilities that would not appear on a consolidated balance sheet
of any such subsidiary and intercompany liabilities). Of this amount,
approximately $12.6 billion are securities related borrowings, deposits and
bank-related borrowings by our broker-dealer and bank subsidiaries in the
ordinary course of business. The remaining balance of $1.2 billion consists of
loans and other liabilities, including trade payables.
We may be required to repurchase the notes upon a repurchase event; however, we
may not have sufficient funds to do so
You may require us to repurchase all or any portion of your notes upon a
repurchase event. We may not have sufficient cash funds to repurchase the notes
upon a repurchase event. We may elect, subject to certain conditions, to pay
the repurchase price in common stock. Although there are currently no
restrictions on our ability to pay the repurchase price, future debt agreements
may prohibit us from repaying the repurchase price in either cash or common
stock. If we are prohibited from repurchasing the notes, we could seek consent
from our lenders to repurchase the notes. If we are unable to obtain their
consent, we could attempt to refinance the Notes. If we were unable to obtain
19
<PAGE>
a consent or refinance, we would be prohibited from repurchasing the notes. It
we were unable to repurchase the notes upon a repurchase event, it would result
in an event of default under our indenture. An event of default under the
indenture could result in a further event of default under our other then-
existing debt. In addition, the occurrence of the repurchase event may be an
event of default under our other debt. As a result, we would be prohibited from
paying amounts due on the notes under the subordination provisions of the
indenture.
We will be substantially increasing our indebtedness which may make it more
difficult to make payments on the notes or to obtain financing in the future
As a result of the sale of the notes, E*TRADE has incurred $650 million
of additional indebtedness, increasing our ratio of debt to equity (expressed
as a percentage) to approximately 38% as of March 31, 2000 on a pro forma
basis giving effect to the sale of the notes and the application of proceeds
therefrom. We may incur substantial additional indebtedness in the future. The
level of our indebtedness, among other things, could
. make it difficult for us to make payments on our debt;
. make it difficult for us to obtain any necessary financing in the
future for working capital, capital expenditures, debt service
requirements or other purposes;
. limit our flexibility in planning for, or reacting to changes in, our
business; and
. make us more vulnerable in the event of a downturn in our business.
There can be no assurance that we will be able to meet our debt service
obligations, including our obligations under the notes.
The liquidity of our notes is uncertain since they have not been publicly traded
and there may be a limited market for our notes
There has been no trading market for the notes prior to this offering. We
cannot predict the extent to which investor interest in our company will lead to
the development of an active, liquid trading market for the notes. In this
offering, the selling securityholders may decide to sell the notes to a limited
number of institutional investors, which could limit the development of an
active trading market. A limited trading market may result in greater price
volatility and less efficient execution of buy and sell orders for investors.
Any rating of the notes may cause their trading price to fall
We believe that one or more rating agencies may rate the notes. If the
rating agencies rate the notes, they may assign a lower rating than expected by
investors. Rating agencies may also lower ratings on the notes in the future.
If the rating agencies assign a lower than expected rating or reduce their
ratings in the future, the trading price of the notes could decline.
20
<PAGE>
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains and incorporates by reference forward-looking
statements. In some cases, you can identify forward-looking statements by terms
such as "may," "will," "should," "could," "would," "expects," "plans,"
"anticipates," "believes," "estimates," "projects," "predicts," "potential" or
"continue" or other terms of or the negative of those forms or other comparable
terms. Our forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performances
or achievements expressed or implied by the forward-looking statements. These
factors are discussed in more detail elsewhere in this prospectus, including
under the caption "Risk Factors." Because of these uncertainties, you should
not place undue reliance on our forward-looking statements.
21
<PAGE>
USE OF PROCEEDS
All of the notes and the shares of common stock issuable upon conversion of
the notes are being sold by the selling securityholders or by their pledgees,
donees, transferees or other successors in interest. We will not receive any
proceeds from the sale of the notes or the shares of our common stock issuable
upon conversion of the notes.
RATIO OF EARNINGS TO FIXED CHARGES
Earnings to cover fixed charges and distributions on preferred stock
dividends presented below should be read together with the financial
statements and the notes accompanying them and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" found in our Annual
Report on Form 10-K/A for the year ended September 30, 1999 incorporated into
this prospectus by reference.
Our ratio of earnings to fixed charges for each of the periods indicated is as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended September 30,
March 31, ----------------------------------------------------------
2000 1999 1998 1997 1996 1995
--------------- ---------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges 0.87 0.68 0.99 1.51 1.19 1.42
============== ========== ======== ======= ======== ========
Pro forma ratio of earnings
to fixed charges 0.81 0.57 -- -- -- --
============== ========== ========= ======= ======= ========
Excess (deficiency) of earnings
to fixed charges $ (34,569) $ (75,992) $ (834) $34,526 $ 7,210 $13,698
============== ========== ======== ======= ======== ========
Pro forma excess (deficiency)
of earnings to fixed charges $ (49,365) $(117,721) $ -- $ -- $ -- $ --
============== ========== ======== ======= ======== ========
</TABLE>
The ratio of earnings to fixed charges is computed by divided fixed charges into
earnings (loss) before income taxes, minority interest, extraordinary items and
the cumulative effect of accounting change less equity in the income (loss) of
investments plus fixed charges less the preference securities dividend
requirement of consolidated subsidiaries. Fixed charges include, as applicable,
interest expense, amortization of debt issuance costs, the estimated interest
component of rent expense, and the preference securities dividend requirement
of consolidated subsidiaries.
The proforma ratio gives effect to the issuance of the 6% Convertible
Subordinated Notes as of the beginning of the periods presented and the
repayment of bank borrowings with the proceeds from the offering during the
period ended March 31, 2000.
Pro Forma Effect of Issuing the Notes
As a result of issuing the 6% Convertible Subordinated Notes, we incurred
$650 million of additional indebtedness and used $150 million of the net
proceeds to refinance outstanding senior secured indebtedness. Had these notes
been issued at the beginning of fiscal 1999, for the six month period ended
March 31, 2000 and the year ended September 30, 1999, interest expense would
have increased by $18.4 million and $39 million, amortization of debt issuance
costs would have increased by $1.4 million and $2.7 million, net loss would have
increased by $19.8 million and $41.7 million, and loss per share would have
increased to $0.18 and $0.35, respectively.
DESCRIPTION OF THE NOTES
We issued the notes under an indenture dated as of February 1, 2000,
between us and The Bank of New York, as trustee. The following summarizes some,
but not all, of the provisions of the notes, the indenture and the registration
rights agreement. You should refer to the actual terms of the notes, the
indenture and the registration rights agreement for the definitive terms and
conditions. We will provide to you, upon request copies of the proposed forms
of the notes, indenture and registration rights agreement. As used in this
description, the words "we," "us" or "our" do not include any current or future
subsidiary of E*TRADE.
General
The notes are our unsecured general obligations that are subordinate in
right of payment as described under "Subordination." The notes are convertible
into common stock as described under "Conversion." The aggregate principal
amount of the notes is $650,000,000. The notes were issued in fully registered
form and denominated in integral multiples of $1,000. The notes will mature on
February 1, 2007 unless earlier converted, redeemed or repurchased.
22
<PAGE>
The notes bear interest at the annual rate of six percent (6%). Interest
will be paid on each February 1 and August 1 of each year, beginning August 1,
2000, subject to limited exceptions if the notes are converted, redeemed or
repurchased prior to the interest payment date. The record dates for payment of
interest will be January 15 and July 15. Interest will be computed on the basis
of a 360-day year consisting of twelve 30-day months.
We maintain an office in the Borough of Manhattan in New York, New York
where the notes may be presented for registration, transfer, exchange or
conversion. This is the office or agency of the trustee. We may, at our
option, pay interest on the notes by check mailed to the registered holders of
notes. However, holders of more than $2,000,000 in principal amount of notes
may elect in writing to be paid by wire transfer; provided that any payment to
The Depository Trust Company, or DTC, or its nominee will be made by wire
transfer of immediately available funds to the account of DTC or its nominee.
We are not restricted from paying dividends or repurchasing securities or
incurring indebtedness under the indenture. The indenture has no financial
covenants. You are not protected in the event of a highly leveraged transaction
or a change in control of E*TRADE except as described under "Repurchase at
Option of Holders Upon a Repurchase Event" below.
Holders are not required to pay a service charge for registration or
transfer of their notes. We may, however, require holders to pay any tax or
other governmental charge in connection with the transfer. We are not required
to exchange or register the transfer of:
. any note for a period of 15 days before the mailing of the notice of
redemption;
. any note or portion selected for redemption;
. any note or portion surrendered for conversion; or
. any note or portion surrendered for repurchase but not withdrawn in
connection with a repurchase event.
Form, Denomination and Registration
Global Security; Book-Entry Form
The notes are evidenced by a global security deposited with DTC, and
registered in the name of Cede & Co. as DTC's nominee. Except as set forth
below, the global security may be transferred only to another nominee of DTC or
to a successor of DTC or its nominee.
Qualified institutional buyers, as defined in Rule 144A under the
Securities Act, may hold their interests in the global security directly through
DTC or indirectly through organizations which are participants in DTC
("participants"). Transfers between participants are effected in the ordinary
way in accordance with DTC rules and will be settled in clearinghouse funds.
The laws of some states require that some persons take physical delivery of
securities in definitive form. As a result, holders may be unable to transfer
beneficial interests in the global security to those persons.
Qualified institutional buyers that are not participants may beneficially
own interests in the global security by DTC only through participants or banks,
brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants"). So long as Cede, as the nominee of DTC,
is the registered owner of the global security, Cede will be considered the sole
holder of the global security for all purposes. Except as provided below,
owners of beneficial interests in the global security will not:
. be entitled to have certificates registered in their names;
. be entitled to receive physical delivery of certificates in
definitive form; or
23
<PAGE>
. be considered the registered holders thereof.
We will make cash payments of interest on and principal of and the
redemption or repurchase price of the global security to Cede, the nominee for
DTC as the registered holder of the global security. We will make these
payments by wire transfer of immediately available funds. Neither we, the
trustee nor any paying agent have any responsibility or liability for:
. any aspect of the records relating to, or payments made on account of,
beneficial ownership interests in the global security; or
. maintaining, supervising or reviewing any records relating to those
beneficial ownership interests.
We have been informed that DTC's practice is to credit participants'
accounts on the payment date with payments in amounts proportionate to their
respective beneficial interests in the notes represented by the global security
as shown on DTC's records, unless DTC has reason to believe that it will not
receive payment on the payment date. Payments by participants to owners of
beneficial interests in notes represented by the global security held through
participants are the responsibility of those participants, as is now the case
with securities held for the accounts of customers registered in "street name."
We will send any redemption notices to Cede. We understand that if less
than all of the notes are being redeemed, DTC's practice is to determine by lot
the amount of the holdings of each participant to be redeemed.
We also understand that neither DTC nor Cede may consent or vote with
respect to the notes. We have been advised that under its usual procedures, DTC
will mail an "omnibus proxy" to us as soon as possible after the record date.
The omnibus proxy assigns Cede's consenting or voting rights to those
participants to whose accounts the notes are credited on the record date
identified in a listing attached to the omnibus proxy.
A person having a beneficial interest in notes represented by the global
security may be unable to pledge an interest to persons or entities that do not
participate in the DTC system, or to take other actions in respect that
interest, because that beneficial interest is not represented by a physical
certificate.
We and the trustee have no responsibility for the performance by DTC, its
participants and its indirect participants of their respective obligations under
the rules and procedures governing their operations. DTC has advised us that it
will take any action permitted to be taken by a holder of notes, including the
presentation of notes for conversion as described below, only at the direction
of one or more participants whose DTC accounts are credited with interests in
the global security and only in respect of the principal amount of the notes
represented by the global security as to which those participants have given
such a direction.
DTC has advised us as follows:
. DTC is a limited purpose trust company organized under the laws of the
State of New York;
. a member of the Federal Reserve System;
. a "clearing corporation" within the meaning of the Uniform Commercial
Code; and
. a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act.
DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between participants
through electronic book-entry changes to accounts of its participants.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and may include other types of organizations. Some of the
participants, 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
24
<PAGE>
DTC is under no obligation to perform or continue to perform the above
procedures, and these procedures may be discontinued at any time. If DTC is at
any time unwilling or unable to continue as depositary and a successor
depositary is not appointed by us within 90 days, we will cause notes to be
issued in definitive form in exchange for the global security.
Certificated Notes
Qualified institutional buyers may request that certificated notes be
issued in exchange for notes represented by the global security. In addition,
certificated notes may be issued in exchange for notes represented by the global
security if no successor depositary is appointed by us as set forth in the
preceding paragraph.
Restrictions on Transfer; Legends
The notes bear a restrictive legend upon issuance as described below under
"Transfer Restrictions."
Conversion by Holders
You may, at your option, convert your notes, in whole or in part, at any
time prior to maturity into our common stock at an initial conversion price of
$23.60 per share. You may convert notes in denominations of $1,000 and
multiples of $1,000. The conversion price is subject to adjustment as described
below. If the notes are called for redemption, your conversion rights on the
notes called for redemption will expire at the close of business of the last
business day before the redemption date, unless we default in payment of the
redemption price. If you have submitted your note for repurchase after a
repurchase event, you may only convert your note if you deliver a withdrawal
notice before the close of business on the last business day before the
repurchase date.
Except as described below, we will not make any adjustment for accrued
interest or dividends on common stock upon conversion of the notes. If you
convert your notes after a record date and prior to the next interest payment,
you will have to pay us interest, unless the notes have been called for
redemption under the indenture. We will pay a cash adjustment for any
fractional shares based on the market price of our common stock on the last
business day before the conversion date.
You can convert your notes by delivering the notes to an office or agency
of the trustee in the Borough of Manhattan, The City of New York, along with a
duly signed and completed notice of conversion, a form of which may be obtained
from the trustee. In the case of a global security, DTC will effect the
conversion upon notice from the holder of a beneficial interest in the global
security in accordance with DTC's rules and procedures. The conversion date
will be the date on which the note and the duly signed and completed notice of
conversion are delivered. As promptly as practicable on or after the conversion
date, but no later than three business days after the conversion date, we will
issue and deliver to the conversion agent certificates for the number of full
shares of common stock issuable upon conversion, together with any cash payment
for fractional shares. If you have previously elected to have us repurchase
your notes, you will have to withdraw such election prior to conversion.
If you deliver a note for conversion, you will not be required to pay any
taxes or duties for the issue or delivery of common stock on conversion.
However, we will not pay any transfer tax or duty payable as a result of the
issuance or delivery of the common Stock in a name other than that of the holder
of the note. We will not issue or deliver common stock certificates unless we
have been paid the amount of any transfer tax or duty or we been provided
satisfactory evidence that the transfer tax or duty has been paid.
The conversion price of $23.60 per share will be adjusted if:
1. we make a dividend or distribution of our common stock on our common
stock;
2. we subdivide or combine our common stock;
3. we issue rights or warrants to all holders of our common stock to
purchase common stock at less than the current market price;
25
<PAGE>
4. we make a dividend or distribution to all holders of our common
stock of capital stock or evidences of indebtedness or assets, but
excluding:
. dividends, distributions and rights or warrants referred to in
(1) and (3) above, or
. dividends and distributions paid exclusively in cash;
5. we make a dividend or distribution consisting exclusively of cash
to all holders of common stock if the aggregate amount of these
distributions combined together with (A) all other all-cash
distributions made within the preceding 12 months in respect of which
we made no adjustment plus (B) any cash and the fair market value of
other consideration payable in any tender offers by E *TRADE or any of
our subsidiaries for common stock concluded within the preceding 12
months in respect for which we made no adjustment, exceeds 10% of
E*TRADE's market capitalization, being the product of the then current
market price of the common stock multiplied by the number of shares of
our common stock then outstanding;
6. the purchase of common stock pursuant to a tender offer made by
E*TRADE or any of our subsidiaries involves an aggregate consideration
that, together with (A) any cash and the fair market value of any
other consideration payable in any other tender offer by E*TRADE or
any of our subsidiaries for common stock expiring within the 12 months
preceding such tender offer plus (B) the aggregate amount of any such
all-cash distributions referred to in (5) above to all holders of
Common Stock within the 12 months preceding the expiration of the
tender offer for which we have made no adjustment, exceeds 10% of
E*TRADE's market capitalization on the expiration of such tender
offer; or
7. payment on tender offers or exchange offers by a third party other
than E*TRADE or our subsidiaries if, as of the closing date of the
offer, our board of directors does not recommend rejection of the
offer. We will only make this adjustment if a tender offer increases
the person's ownership to more than 25% of our outstanding common
stock and the payment per share is greater than the current market
price of the common stock. We will not make this adjustment if the
tender offer is a merger or transaction described below under
"Consolidation, Merger or Assumption."
If we implement a stockholders' rights plan, we will be required under the
indenture to provide that the holders of notes will receive the rights upon
conversion of the notes, whether or not these rights were separated from the
common stock prior to conversion.
If we reclassify our common stock, consolidate, merge or combine with
another person or sell or convey our property and assets as an entirety or
substantially as an entirety, each note then outstanding will, without the
consent of the holder of any note, become convertible only into the kind and
amount of securities, cash and other property receivable upon such
reclassification, consolidation, merger, combination, sale or conveyance by a
holder of the number of shares of common stock into which the note was
convertible immediately prior to the reclassification, consolidation, merger,
combination, sale or conveyance. This calculation will be made based on the
assumption that the holder of common stock failed to exercise any rights of
election that the holder may have to select a particular type of consideration.
The adjustment will not be made for a consolidation, merger or combination that
does not result in any reclassification, conversion, exchange or cancellation of
our common stock.
You may, in some circumstances, be deemed to have received a distribution
or dividend subject to United States federal income tax as a result of an
adjustment (or the nonoccurrence of an adjustment) to the conversion price. See
"Material United States Federal Income Tax Consequences."
We are permitted to reduce the conversion price of the notes for limited
periods of time, if our board of directors deems it advisable. Any such
reduction shall be effective for not less than 20 days. We are required to give
at least 15 days prior notice of any such reduction. We may also reduce the
conversion price to avoid or diminish income tax to holders of our common stock
in connection with a dividend or distribution of stock or similar event.
26
<PAGE>
No adjustment in the conversion price will be required unless it would
result in a change in the conversion price of at least one percent. Any
adjustment not made will be taken into account in subsequent adjustments.
Optional Redemption
At any time on or after February 4, 2003, we may redeem the notes, in whole
or in part, at our option, at the redemption prices specified below. The
redemption price, expressed as a percentage of the principal amount, is as
follows for the 12-month periods beginning on February 1 of the year indicated
(February 4, 2003 through January 31, 2004, in the case of the first such
period):
Redemption
Year Price
---- -----
2003..................................................... 103.43%
2004..................................................... 102.57%
2005..................................................... 101.71%
2006..................................................... 100.86%
and 100% of the principal amount on February 1, 2007. In each case we will also
pay accrued and unpaid interest to, but excluding, the redemption date. If the
redemption date is an interest payment date, we will pay interest to the record
holders as of the relevant record date. We are required to give notice of
redemption not more than 60 and not less than 20 days before the redemption date
under the indenture.
No "sinking fund" is provided for the notes, which means that the indenture
does not require us to redeem or retire the notes periodically. We may not
redeem the notes if there is a default under the indenture.
Repurchase at Option of Holders upon a Repurchase Event
If a repurchase event occurs, you will have the right, at your option, to
require us to repurchase all or any portion of your notes 40 days after we mail
holders and the trustee a notice of repurchase event. The repurchase price we
are required to pay will be 105% of the principal amount of the notes submitted
for repurchase, plus accrued and unpaid interest to, but excluding, the
repurchase date. If a repurchase date is an interest payment date, we will pay
to the record holder on the record date.
At our option, instead of paying the repurchase price in cash, we may pay
the repurchase price in common stock, valued at 95% of the average of the
closing prices for the five trading days immediately before and including the
third trading day preceding the repurchase date. We may only pay the repurchase
price in common stock if we satisfy conditions provided in the indenture.
We will be required to mail you a notice within 10 days after the
occurrence of a repurchase event. The notice must describe the repurchase
event, your right to elect repurchase of the notes and the repurchase date. We
must deliver a copy of the notice to the trustee and cause a copy, or a summary
of the notice, to be published in a newspaper of general circulation in New
York, New York. You may exercise you repurchase rights by delivering written
notice to us and the trustee. The notice must be accompanied by the notes duly
endorsed for transfer to us. You must deliver the exercise notice on or before
the close of business on the thirty-fifth calendar day after the mailing date of
the repurchase notice.
A repurchase event will be considered to have occurred if:
1. our common stock or other common stock into which the notes are
convertible is neither listed for trading on an United States national
securities exchange nor approved for trading on the Nasdaq National
Market or another established automated over-the-counter trading
market in the United States, or
2. one of the following "change in control" events occurs:
27
<PAGE>
. any person or group is a beneficial owner of more than 50% of the
voting power of our outstanding securities entitled to generally
vote for directors;
. our stockholders approve any plan or proposal for our
liquidation, dissolution or winding up;
. we consolidate with or merge into any other corporation or any
other corporation merges into us and, as a result, our
outstanding common stock is changed or exchanged for other assets
or securities unless our stockholders immediately before the
transaction own, directly or indirectly, immediately following
the transaction at least 5.1% of the combined voting power of the
corporation resulting from the transaction in substantially the
same proportion as their ownership of our voting stock
immediately before the transaction;
. we convey, transfer or lease all or substantially all of our
assets to any person; or
. the continuing directors do not constitute a majority of our
board of directors at any time.
However, a change in control will not be deemed to have occurred if:
. the last sale price of our common stock for any 5 trading days
during the 10 trading days immediately before the change in
control is equal to at least 105% of the conversion price, or
. all of the consideration, excluding cash payments for fractional
shares in the transaction constituting the change in control
consists of common stock traded on a United States national
securities exchange or quoted on the Nasdaq National Market, and
as a result of the transaction the notes become convertible
solely into that common stock.
The term "continuing director" means at any date a member of our board of
directors:
. who was a member of our board of directors on December 31, 1999;
or
. who was nominated or elected by at least a majority of the
directors who were continuing directors at the time of the
nomination or election or whose election to our board of
directors was recommended by at least a majority of the directors
who were continuing directors at the time of the nomination or
election or by the nominating committee comprised of our
independent directors.
Under the above definition of continuing directors, if the current board of
directors approve a new director or directors and then resigned, no change in
control would occur, even though the current director would then cease to be a
director. The interpretation of the phrase "all or substantially all" used in
the definition of change in control would likely depend on the facts and
circumstances existing at such time. As a result, there may be uncertainty as
to whether or not a sale or transfer of "all or substantially all" of our assets
has occurred.
You may require us to repurchase all or any portion of your notes upon a
repurchase event. We may not have sufficient cash funds to repurchase the notes
upon a repurchase event. We may elect, subject to certain conditions, to pay
the repurchase price in common stock. Although there are currently no
restrictions on our ability to pay the purchase price, future debt agreements
may prohibit us from repaying the repurchase price in either cash or common
stock. If we are prohibited from repurchasing the notes, we could seek consent
from our lenders to repurchase the notes. If we are unable to obtain their
consent, we could attempt to refinance the notes, If we were unable to obtain a
consent or refinance, we would be prohibited from repurchasing the notes. If we
were unable to repurchase the notes upon a repurchase event, it would result in
an event of default under our indenture. An event of default under the
indenture could result in a further event of default under our other then-
existing debt. In addition, the occurrence of the repurchase event may be an
event of default under our other debt. As a result, we would be prohibited from
paying amounts due on the notes under the subordination provisions of the
indenture.
28
<PAGE>
The change in control feature may not necessarily afford you protection in
the event of a highly leveraged transaction, a change in control of us or
similar transactions involving us. We could, in the future, enter into
transactions, including recapitalizations, that would not constitute a change in
control but that would increase the amount of our senior indebtedness or other
debt. We are not prohibited from incurring senior indebtedness or debt under
the indenture. If we incur significant amounts of additional debt, this could
have an adverse effect on our ability to make payments on the notes.
In addition, our management could undertake leveraged transactions that
could constitute a change in control. The Board of Directors does not have the
right under the indenture to limit or waive the repurchase right in the event of
these types of leveraged transaction. Our requirement to repurchase notes upon
a repurchase event could delay, defer or prevent a change of control. As a
result, the repurchase right discourage:
. a merger, consolidation or tender offer;
. the assumption of control by a holder of a large block of our shares;
and
. the removal of incumbent management.
The repurchase feature was a result of negotiations between us and the
initial purchasers in the initial private placement. The repurchase feature is
not the result of any specific effort to accumulate shares of common stock or to
obtain control of us by means of a merger, tender offer or solicitation, or part
of a plan by us to adopt a series of anti-takeover provisions. We have no
present intention to engage in a transaction involving a change of control,
although it is possible that we would decide to do so in the future.
The Exchange Act and SEC rules thereunder require the distribution of
specified types of information to security holders in the event of issuer tender
offers and may apply in the event of a repurchase. We will comply with this
rule to the extent applicable.
Subordination
The notes are subordinated to the prior payment in full of all existing and
future senior indebtedness as provided in the indenture. Upon any distribution
of our assets upon our dissolution, winding up, liquidation or reorganization,
payments on the notes will be subordinated to the prior payment in full of all
senior indebtedness. If the notes are accelerated following in event of default
under the indenture, the holders of any senior indebtedness will be entitled to
payment in full before the holders of the notes are entitled to receive any
payment on the notes.
We may not make any payments on the notes if:
. we default in the payment on senior indebtedness beyond any grace
period, or
. any other default occurs and is continuing under any designated senior
indebtedness that permits holders of the designated senior
indebtedness to accelerate its maturity, and we and the trustee
receive a written notice known as a payment blockage notice from a
persons permitted to give this notice under the indenture.
We may resume making payments on the notes:
. in the case of a payment default, when the default is cured or waived
or ceases to exist; and
. in the case of a nonpayment default, the earlier of when the default
is cured or waived or ceases to exist or 179 days after receipt of the
payment blockage notice.
No new period of payment blockage for a nonpayment default may be commenced
unless:
. 365 days have elapsed since our receipt of the prior payment blockage
notice; and
29
<PAGE>
. all scheduled payments on the notes have been paid in full, and the
trustee or the holders of notes shall not have begun proceedings to
enforce the right of the holders to receive payments.
No default that existed on any senior indebtedness on the date of delivery
of any payment blockage notice may be the basis for a subsequent payment
blockage notice.
The term "senior indebtedness" means the principal, premium, if any, and
interest on, including bankruptcy interest, and any other payment on the
following:
. our indebtedness for money borrowed or evidenced by notes, debentures,
bonds or other securities;
. our reimbursement obligations under letters of credit, bank guarantees
or bankers' acceptances;
. our indebtedness under interest rate and currency swap agreements,
cap, floor and collar agreements, currency spot and forward contracts
and other similar agreements and arrangements;
. our indebtedness consisting of commitment or standby fees under our
credit facilities or letters of credit;
. our obligations under leases required or permitted to be capitalized
under generally accepted accounting principles;
. our obligations of the type listed above that has been assumed or
guaranteed by us or in effect guaranteed, directly or indirectly, by
us through an agreement to purchase; and
. any amendment, modification, renewal, extension or refunding of any
indebtedness or obligation of type listed in the bullet points above.
Senior indebtedness will not include:
. any indebtedness or amendment or modification that expressly provides
that it is subordinate to or is not senior to or is on the same basis
as the notes;
. any indebtedness to any subsidiary;
. indebtedness for trade payables or the deferred purchase price of
assets or services incurred in the ordinary course of business; or
. the notes.
If the trustee or any holder of notes receives any payment or distribution
of our assets of any kind on the notes in contravention of any of the terms of
the indenture, then such payment or distribution will be held by the recipient
in trust for the benefit of the holders of senior indebtedness, and will be
immediately paid or delivered to the holders of senior indebtedness or their
representative or representatives.
The notes are unsecured and subordinated to our existing and future senior
indebtedness. As a result, we will not be able to make payments on the notes
until we have paid in full all of our senior indebtedness in the event of our
insolvency, liquidation, reorganization or payment default on senior
indebtedness. We may therefore not have sufficient assets to pay the amounts
due on the notes. Neither we nor our subsidiaries are prohibited from incurring
indebtedness under the notes indenture. If we incur additional indebtedness,
our ability to pay amounts due on the notes could be adversely affected. As of
March 31, 2000, we had approximately $928 million of senior indebtedness
(excluding liabilities that would not appear on our consolidated balance sheet).
Of this amount, approximately $860 million is indebtedness of our subsidiaries
which we have guaranteed, approximately $789 million of which relate to
securities lending arrangements in the ordinary course of our brokerage
business. The
30
<PAGE>
subordination provisions will not prevent the occurrence of any default or event
of default or limit the rights of any holder of notes to pursue any other rights
or remedies with respect to the notes.
The notes are obligations exclusively of E*TRADE Group, Inc. As a result,
our cash flow and our ability to service our indebtedness, including the notes,
is partially dependent upon the earnings of our subsidiaries. In addition, we
are partially dependent on the distribution of earnings, loans or other payments
by our subsidiaries to us.
Our subsidiaries are separate and distinct legal entities. Our
subsidiaries have no obligation to pay any amounts due on the notes or to
provide us with funds for our payment obligations, whether by dividends,
distributions, loans or other payments. In addition, any payment of dividends,
distributions, loans or advances by our subsidiaries to us could be subject to
statutory or contractual restrictions. Payments to us by our subsidiaries will
also be contingent upon our subsidiaries' earnings and business considerations.
Our right to receive any assets of any subsidiary upon its liquidation or
reorganization, and, therefore, right to participate in those assets, will be
effectively subordinated to the claims of that subsidiary's creditors, including
trade creditors. In addition, even if we were a creditor of any of our
subsidiaries, our right as a creditor would be subordinate to any security
interest in the assets of our subsidiaries and any indebtedness of our
subsidiaries senior to that held by us. As of March 31, 2000, our subsidiaries
had outstanding liabilities of approximately $13.8 billion (excluding
liabilities that would not appear on a consolidated balance sheet of any such
subsidiary and intercompany liabilities). Of this amount, approximately $12.6
billion are securities related borrowings, deposits and bank-related borrowings
by our broker-dealer and bank subsidiaries in the ordinary course of business.
The remaining balance of $1.2 billion consists of loans and other liabilities,
including trade payables.
As a result of the subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceedings, holders of the notes may receive less than other creditors on a
ratable basis.
Events of Default and Remedies
The following events constitute "events of default" under the indenture:
. we fail to pay the principal or premium, if any, on any of the notes
when due, whether or not prohibited by the subordination provisions of
the indenture;
. we fail to pay interest or liquidated damages on the notes when due if
such failure continues for 30 days, whether or not prohibited by the
subordination provisions of the indenture;
. we fail to deliver shares of our common stock 5 business days after
conversion of a note;
. we fail to perform any covenant in the indenture if such failure
continues for 60 days after notice is given in accordance with the
indenture;
. we fail to repurchase any notes after a repurchase event;
. we fail to provide timely notice of a repurchase event;
. we fail or any of our significant subsidiaries fail to make any
payment at maturity on any indebtedness, including any applicable
grace periods, in an amount in excess of $20,000,000, and such amount
has not been paid or discharged within 30 days after notice is given
in accordance with the indenture;
31
<PAGE>
. a default by us or any significant subsidiary on any indebtedness that
results in the acceleration of indebtedness in an amount in excess of
$20,000,000, without this indebtedness being discharged or the
acceleration being rescinded or annulled for 30 days after notice is
given in accordance with the indenture; or
. certain events involving bankruptcy, insolvency or reorganization of
us or any significant subsidiary.
The trustee is generally required under the indenture, within 90 days after
its becoming aware of a default, to provide holders written notice of all
incurred defaults. However, the trustee may, except in the case of a payment
default on the notes, withhold this notice of default if it determines that
withholding the notice is in the best interest of the holders.
If an event of default has occurred and is continuing, the trustee or the
holders of not less than 25% in principal amount of outstanding notes, may
declare the principal and premium on the notes to be immediately due and
payable. After acceleration, but before a judgment or decree based on
acceleration, the holders of a majority in aggregate principal amount of
outstanding notes may, under circumstances set forth in the indenture, rescind
the acceleration of all events of default, other than the payment of principal
of the notes that have become due solely because of the acceleration, have been
cured or waived as provided in the indenture. If an event of default arising
from events of bankruptcy, insolvency or reorganization occurs and is continuing
with respect to us, all unpaid principal of and accrued interest on the
outstanding notes would become due and payable immediately without any
declaration or other act on the part of the trustee or holders of notes.
Holders of a majority in principal amount of outstanding notes may direct
the time, method and place of conducting any proceeding for any remedy available
to the trustee or exercising any trust or power conferred on the trustee,
subject to specified limitations. Before exercising any right or power under
the indenture at the direction of the holders, the trustee will be entitled to
receive from such holders reasonable security or indemnity against any costs,
expenses and liabilities that it might incur as a result.
Before you may take any action to institute any proceeding relating to the
indenture, or to appoint a receiver or a trustee, or for any other remedy, each
of the following must occur:
. you must have given the trustee written notice of a continuing event
of default;
. the holders of at least 25% of the aggregate principal amount of all
outstanding notes must make a written request of the trustee to lake
action because of the default;
. holders must have offered indemnification reasonably satisfactory to
the trustee against the cost, expenses and liabilities of taking
action; and
. the trustee must not have taken action for 60 days after receipt of
such notice and offer of indemnification.
These limitations do not apply to a suit for the enforcement of payment of
the principal of or any premium or interest on a note or the right to convert
the note in accordance with the indenture.
Generally, the holders of not less than a majority of the aggregate
principal amount of outstanding notes may waive any default or event of default,
except if:
. we fail to pay principal, premium or interest on any note when due;
. we fail to convert any note into common stock; or
. we fail to comply with any of the provisions of the indenture that
would require the consent of the holder of each outstanding note
affected.
32
<PAGE>
We will send the trustee annually a statement as to whether we are in
default and the nature of any default under the indenture.
Consolidation, Merger or Assumption
We may not consolidate or merge into another person or sell, lease, convey
or transfer all or substantially all of our assets to another person, whether in
a single or series of related transactions, unless:
. either (A) we are the surviving entity, or (B) the resulting
corporation is a U.S. corporation and expressly assumes in writing all
of our obligations under the notes and the indenture;
. no default or event of default exists or would occur; and
. other specified conditions are satisfied.
Modifications of the Indenture
The consent of the holders of a majority in principal amount of the
outstanding notes affected is required to make a modification or amendment to
the indenture. However, a modification or amendment requires the consent of the
holder of each outstanding note affected if it would:
. reduce the interest rate or change the time of payment of interest on
any note;
. reduce the principal amount or any premium of any note;
. reduce any amount payable upon redemption or repurchase of any note;
. adversely change our obligation to repurchase any note upon a
repurchase event;
. adversely change the holder's right to institute suit for the payment
of any
note;
. change the currency in which any note is payable;
. adversely modify the right to convert the notes;
. adversely modify the subordination provisions of the notes; or
. reduce the percentage required to consent to modifications and
amendments.
Satisfaction and Discharge
We may discharge our obligations under the indenture while notes remain
outstanding if:
. all notes will become due in one year or are scheduled for redemption
in one year; and
. we deposit sufficient funds to pay all outstanding notes on their
scheduled maturity or redemption date.
Registration Rights of Holders of the Notes
We and the initial purchasers entered into the registration rights
agreement at the closing for this offering.
Under the registration rights agreement, we are generally required to:
. file, within 90 days after the closing date of the original issuance,
a shelf registration statement covering the notes and the common stock
issuable upon conversion of the notes;
33
<PAGE>
. use our reasonable efforts to cause the shelf registration to become
effective as promptly as practicable, and
. use our reasonable efforts to keep the shelf registration statement
effective until the earlier of the sale of all the transfer restricted
securities or two years after the latest date of original issuance.
When we use the term "transfer restricted securities" in this section, we
mean the notes or common stock issued upon conversion of the notes until the
earlier of the following events:
. the date the note or common stock issued upon conversion has been
effectively registered under the Securities Act of 1933 and sold or
transferred pursuant to the shelf registration statement; or
. the date on which the note or common stock issued upon conversion is
distributed to the public pursuant to Rule 144 under the Securities
Act of 1933 or is sellable pursuant to Rule 144(k) under the
Securities Act of 1933; or
. the date the note or common stock issued upon conversion ceases to be
outstanding.
We are required to pay predetermined liquidated damages if one of the
following "registration defaults" occurs:
. we do not file the shelf registration statement within 90 days after
the closing date of the original issuance;
. the SEC does not declare the shelf registration statement effective
within 150 days after the closing date of the original issuance; or
. after it has been declared effective, the shelf registration statement
ceases to be effective or available for more than 90 days in any
period of 365 consecutive days.
If a registration default occurs, liquidated damages initially will accrue
(a) for the notes that are transfer restricted securities, at the rate of $.05
per week per $ 1,000 principal amount of the notes and (b) for any common stock
issued on conversion of the notes that are transfer restricted securities, at an
equivalent rate based on the conversion price. If the registration default has
not been cured within 90 days, the liquidated damages rate will increase by $.05
per week per $1,000 principal amount of the notes that are transfer restricted
securities (and an equivalent amount for any common stock issued upon conversion
that are transfer restricted securities) for each subsequent 90-day non-
compliance period, up to a maximum rate of $.25 per week per $1,000 principal
amount of the notes that are transfer restricted securities. Liquidated damages
generally will be payable at the same time as interest payments on the notes.
We may suspend the use of the shelf registration statement in certain
circumstances described in the registration rights agreement upon notice to the
holders of the transfer restricted securities, subject to the rights of the
holders of transfer restricted securities to receive liquidated damages in
accordance with the registration rights agreement. We will provide copies of
the prospectus and notify holders of notes and common stock upon conversion when
the shelf registration statement is filed and when it becomes effective.
We will give notice to all holders of the filing and effectiveness of the
shelf registration statement. You will need to complete the notice and
questionnaire prior to any intended distribution of your transfer restricted
securities pursuant to the shelf registration statement. We refer to his form
of notice and questionnaire as the "questionnaire." You are required to complete
and deliver the questionnaire prior to the effectiveness of the shelf
registration statement so that you can be named as selling stockholders in the
prospectus. Upon receipt of your completed questionnaire after the
effectiveness of the shelf registration statement, we will, as promptly as
practicable but in any event within five business days of receipt, file
amendments or supplements to the shelf registration statement so that you may
use the prospectus, subject to our right to suspend as set forth above. We will
pay liquidated damages to you if we fail to make this filing in the required
time. If this filing requires a post-effective amendment to the shelf
registration statement, we will pay liquidated damages if this amendment is not
34
<PAGE>
declared effective within 45 business days of the filing of the post-effective
amendment. Under the registration rights agreement, you will be required to
deliver a prospectus to purchasers and will be bound by the provisions of the
agreement.
Governing Law
The notes, the indenture and the registration rights agreement will be
governed by the laws of the State of New York, without regard to conflicts of
laws principles.
Concerning the Trustee
We have appointed the trustee as the initial paying agent, conversion
agent, registrar and custodian for the notes. We may maintain deposit accounts
and conduct other banking transactions with the trustee or its affiliates in the
ordinary course of business. In addition, the trustee and its affiliates may in
the future provide banking and other services to us in the ordinary course of
their business.
If the trustee becomes one of our creditors, the indenture and the Trust
Indenture Act of 1939 may limit the right of the trustee to obtain payment on or
realize on security for its claims. If the trustee develops any conflicting
interest with the holders of notes or us, it must eliminate the conflict or
resign.
35
<PAGE>
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material United States federal income
and, in the case of holders of the notes or the common stock who are not U.S.
persons, as that term is defined in the Internal Revenue Code of 1986, as
amended, the estate tax considerations, relating to the purchase, ownership and
disposition of the notes and of the common stock into which notes may be
converted. This discussion is not a complete analysis of all other potential tax
considerations relating to such considerations.
This discussion is based on the provisions of the Internal Revenue Code,
the applicable Treasury regulations promulgated or proposed thereunder, judicial
authority and current administrative rulings and practice. All of these sources
of authority are subject to change, possibly on a retroactive basis.
This discussion deals only with holders that will hold notes and common
stock into which notes may be converted as capital assets as defined in the
Internal Revenue Code. It does not address tax considerations applicable to
investors that may be subject to special tax rules, such as banks, tax-exempt
organizations, insurance companies, dealers in securities or currencies or
persons that will hold notes as a position in a hedging transaction, straddle or
conversion transaction for tax purposes. We have not sought any ruling from the
Internal Revenue Service with respect to the statements made and the conclusions
reached in the following discussion, and there can be no assurance that the
Internal Revenue Service will agree with such statements and conclusions.
We urge investors considering the purchase of notes to consult their own
tax advisors with respect to the application of the United States federal income
and estate tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction or under any applicable tax treaty.
United States Holders
Following is a discussion of the material United States federal income tax
considerations applicable to beneficial owners of the notes or the common stock,
into which the notes may be converted who are U.S. persons, as defined in the
Internal Revenue Code. A U.S. person is:
. a citizen or resident of the United States,
. a corporation, partnership or other entity created or organized in
or under the laws of the United States or any political subdivision
thereof,
. an estate the income of which is subject to United States federal
income taxation regardless of its source, or
. a trust, if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or
more United States persons have the authority to control all
substantial decisions of the trust.
Payment of Interest. Interest on a note generally will be includable in the
income of a holder as ordinary income at the time such interest is received or
accrued, in accordance with such holder's method of accounting for United States
federal income tax purposes.
Amortizable Bond Premium. If a holder of a note acquires the note at a
cost, excluding for this purpose that portion of the purchase price equal to the
value of the conversion option, that is in excess of the amount payable at
maturity, the holder may elect to amortize the excess cost on a constant
interest rate basis over the term of such note. The amortized premium may be
used to offset interest income. However, because the notes may be redeemed at
our option at a price in excess of their principal amount, a holder may be
required to amortize any bond premium based on the earlier call date and the
call price payable at that time. If the holder makes an election to amortize
bond premium, the tax basis with respect to the notes will be reduced by the
allowable bond premium amortization. The amortization election would apply to
all debt instruments held or subsequently acquired by the electing holder
36
<PAGE>
and cannot be revoked without permission from the Internal Revenue Service. On
conversion of a note into shares of common stock, no additional amortization of
any bond premium will be allowed, and any remaining premium will be added to the
holder's basis in the common stock received.
Market Discount. Except as described below, gain recognized on the
disposition of a note that has accrued market discount will be treated as
ordinary income, and not capital gain, to the extent of the accrued market
discount. Market discount is defined generally as the excess, if any, of the
principal amount of the note over the tax basis of the note in the hands of the
holder immediately after its acquisition.
Under a de minimis exception, there is no market discount if the excess of
the principal amount of the obligation over the holder's tax basis in the
obligation is less than 0.25% of the principal amount multiplied by the number
of complete years after the acquisition date to the obligation's date of
maturity. Unless the holder elects to accrue market discount on a constant yield
basis, the accrued market discount generally would be the amount calculated by
multiplying the market discount by a fraction, the numerator of which is the
number of days the obligation has been held by the holder and the denominator of
which is the number of days after the holder's acquisition of the obligation up
to and including its maturity date.
If a holder of a note acquired with market discount disposes of such note
in any transaction other than a sale, exchange or involuntary conversion, such
holder will be deemed to have realized an amount equal to the fair market value
of the note and will be required to recognize as ordinary income any accrued
market discount. See the discussion below under "-- Sale, Exchange or Redemption
of the Notes" for the tax consequences of a sale or exchange. A partial
principal payment, if any, on a note will be includable as ordinary income upon
receipt to the extent of any accrued market discount thereon. Although it is not
free from doubt, any accrued market discount not previously taken into income
prior to a conversion of a note into shares of common stock should carry over to
the common stock received on conversion and be treated as ordinary income upon a
subsequent disposition of such common stock, to the extent of any gain
recognized on such disposition. Unless the election described below is in
effect, a holder of a note acquired at a market discount also may be required to
defer the deduction of all or a portion of the interest on any indebtedness
incurred or maintained to purchase or carry the note until the maturity of the
note or the earlier disposition of the note in a taxable transaction.
A holder of a note acquired at a market discount may elect to include the
market discount in income as it accrues on either a straight-line basis or a
constant yield basis. This election would apply to all market discount
obligations acquired by the electing holder on or after the first day of the
first year to which the election applies. The election may be revoked only with
the consent of the Internal Revenue Service. If a holder of a note elects to
include market discount in income currently, the rules discussed above regarding
ordinary income recognition resulting from a sale and certain other disposition
transactions and those regarding the deferral of interest deductions would not
apply.
Sale, Exchange or Redemption of the Notes. Upon the sale, exchange or
redemption of a note, a holder generally will recognize capital gain or loss,
except to the extent the market discount rules discussed above otherwise
provide, equal to the difference between:
. the amount of cash proceeds and the fair market value of any property
received on the sale, exchange or redemption, except to the extent
such amount is attributable to accrued interest income, which is
taxable as ordinary income, and
. such holder's adjusted tax basis in the note.
A holder's adjusted tax basis in a note generally will equal the cost of
the note to such holder, increased by any market discount, as discussed above,
previously included in income by the holder and decreased by any principal
payments received by such holder and bond premium amortized by the holder with
respect to the notes. Any capital gain or loss will be long-term if the holder's
holding period is more than 12 months and will be short-term if the holding
period is equal to or less than 12 months. In the case of individual holders,
long-term capital gains are taxed at a maximum rate of 20%, and short-term
capital gains are taxed at a maximum rate of 39.6%. In
37
<PAGE>
taxable years beginning after December 31, 2000, the rate of tax applicable to
long-term capital gains in certain circumstances may be reduced below 20% for
property held for more than five years. Constructive Dividends on Notes. If at
any time:
. We make a distribution of cash or property to our stockholders or
purchase common stock and such distribution or purchase would be
taxable to such stockholders as a dividend for United States federal
income tax purposes (e.g., distributions of evidences of our
indebtedness or assets, but generally not stock dividends or rights to
subscribe for common stock) and, pursuant to the anti-dilution
provisions of the indenture, the conversion rate of the notes is
increased, or
. the conversion rate of the notes is increased at our discretion,
. such increase in the conversion rate may be deemed to be a
distribution to holders of notes treated as a taxable dividend to the
extent of our current and accumulated earnings and profits, then as a
tax-free return of capital to the extent of the holder's adjusted
basis in the notes and thereafter as capital gain from the sale or
exchange of such notes. Holders of notes could therefore have taxable
income as a result of an event pursuant to which they received no cash
or property.
Conversion of the Notes. A holder generally will not recognize any income,
gain or loss upon conversion of a note into common stock, except with respect to
cash received in lieu of a fractional share of common stock. Such holder's tax
basis in the common stock received on conversion of a note will be the same as
such holder's adjusted tax basis in the note at the time of conversion, reduced
by any basis allocable to a fractional share interest, and the holder's holding
period for the common stock received on conversion will generally include the
holding period of the note converted.
Cash received in lieu of a fractional share of common stock upon conversion
will be treated as a payment in exchange for the fractional share of common
stock. Accordingly, the receipt of cash in lieu of a fractional share of common
stock generally will result in capital gain or loss, measured by the difference
between the cash received for the fractional share and the holder's adjusted tax
basis in the fractional share.
Dividends on Common Stock. The amount of any distribution by us in respect
of the common stock will be equal to the amount of cash and the fair market
value, on the date of distribution, of any property distributed. Generally,
distributions will be treated as a dividend, subject to tax as ordinary income,
to the extent of our current and accumulated earnings and profits, then as a
tax-free return of capital to the extent of the holder's tax basis in the common
stock and thereafter as gain from the sale of exchange of such stock.
In general, a dividend distribution to a corporate holder will qualify for
the 70% dividends received deduction if the holder owns less than 20% of the
voting power and value of our stock, other than any non-voting, non-convertible,
non-participating preferred stock. A corporate holder that owns 20% or more of
the voting power and value of our stock, other than any non-voting, non-
convertible, non-participating preferred stock, generally will qualify for an
80% dividends received deduction. The dividends received deduction is subject,
however, to certain holding period, taxable income and other limitations.
Sale of Common Stock. Upon the sale or exchange of our common stock, a
holder generally will recognize capital gain or loss (except to the extent the
market discount rules discussed above otherwise provide) equal to the difference
between:
. the amount of cash and the fair market value of any property received
upon the sale or exchange, and
. such holder's adjusted tax basis in the common stock.
38
<PAGE>
Such capital gain or loss will be long-term if the holder's holding period is
more than 12 months and will be short-term if the holding period is equal to or
less than 12 months. In the case of individual holders, long-term capital gains
are taxed at a maximum rate of 20% and short-term capital gains are taxed at a
maximum rate of 39.6%. In taxable years beginning after December 31, 2000, the
rate of tax applicable to long-term capital gains in certain circumstances may
be reduced below 20% for property held for more than five years. A holder's
basis and holding period in the common stock received upon conversion of a note
are determined as discussed above under "Conversion of the Notes."
Information Reporting and Backup Withholding Tax. In general, information
reporting requirements will apply to payments of principal, premium, if any, and
interest on a note, payments of dividends on common stock, payments of the
proceeds of the sale of a note and payments of the proceeds of the sale of our
common stock to certain noncorporate United States Holders. The payor will be
required to withhold backup withholding tax at the rate of 31% if:
. the payee fails to furnish a taxpayer identification number to the
payor or establish an exemption from backup withholding,
. the Internal Revenue Service notifies the payor that the taxpayer
identification number furnished by the payee is incorrect,
. there has been a notified payee underreporting with respect to
interest, dividends or original issue discount described in Section
3406(c) of the Internal Revenue Code, or
. there has been a failure of the payee to certify under the penalty of
perjury that the payee is not subject to backup withholding under the
Internal Revenue Code.
Any amounts withheld under the backup withholding rules from a payment to a
United States Holder will be allowed as a credit against such holder's United
States federal income tax and may entitle the holder to a refund, provided that
the required information is furnished to the Internal Revenue Service.
Non-United States Holders
Following is a discussion of the material United States federal income and
estate tax consequences applicable to the beneficial owners of notes or the
common stock into which the notes may be converted who are not U.S. persons, as
defined in the Internal Revenue Code.
Payment of Interest. Generally, interest income of a non-U.S. holder that
is not effectively connected with a United States trade or business will be
subject to a withholding tax at a 30% rate, or, if applicable, a lower treaty
rate. However, interest paid on a note by us or any paying agent to a non-U.S.
holder will qualify for an exemption provided under the Internal Revenue Code
for certain portfolio interest income and therefore will not be subject to
United States federal income tax or withholding tax, provided that such interest
income is not effectively connected with a United States trade or business of
the non-U.S. holder and provided that the non-U.S. holder:
. does not actually or constructively own, pursuant to the conversion
feature of the notes or otherwise, 10% or more of the combined voting
power of all classes of our stock entitled to vote,
. is not a controlled foreign corporation as defined in the Internal
Revenue Code related to us actually or constructively through stock
ownership,
. is not a bank which acquired the notes in consideration for an
extension of credit made pursuant to a loan agreement entered into in
the ordinary
39
<PAGE>
course of business, and
either:
. provides a Form W-8BEN, or a suitable substitute form, signed under
penalties of perjury that includes its name and address and certifies
as to its non-United States status, or
. is a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of
its trade or business and provides a statement to us or our agent
under penalties of perjury in which it certifies that Form W-8, or a
suitable substitute form, has been received by it from the non-U.S.
holder or qualifying intermediary and furnishes us or our agent with a
copy thereof.
Except to the extent that an applicable treaty otherwise provides, a non-
U.S. holder generally will be taxed in the same manner as a holder who is a U.S.
person with respect to interest if the interest income is effectively connected
with a United States trade or business of the non-U.S. holder. Effectively
connected interest received by a corporate non-U.S. holder may also, under
certain circumstances, be subject to an additional "branch profits tax" at a 30%
rate, or, if applicable, a lower treaty rate. Even though such effectively
connected interest is subject to income tax, and may be subject to the branch
profits tax, it is not subject to withholding tax if the holder delivers a
properly executed Internal Revenue Service Form W-8ECI, or successor form, to
the payor.
Amended Treasury Regulations, which are generally effective for payments
made after December 31, 2000, provide alternative methods for satisfying the
certification requirements described immediately above.
Sales, Exchange or Redemption of the Notes. A non-U.S. holder of a note
will generally not be subject to United States federal income tax or withholding
tax on any gain realized on the sale, exchange or redemption of a note,
including the receipt of cash in lieu of fractional shares upon conversion of a
note into common stock, unless:
. the gain is effectively connected with a United States trade or
business of the non-U.S. holder,
. in the case of a non-U.S. holder who is an individual, such holder is
present in the United States for a period or periods aggregating 183
days or more during the taxable year of the disposition and certain
other conditions are met, or
. the holder is subject to tax pursuant to the provisions of the
Internal Revenue Code applicable to certain United States expatriates.
Conversion of the Notes. In general, no United States federal income tax or
withholding tax will be imposed upon the conversion of a note into common stock
by a non-U.S. holder except with respect to the receipt of cash in lieu of
fractional shares by non-U.S. holders upon conversion of a note where any of the
conditions described above under "Non-United States Holders -- Sale, Exchange or
Redemption of the Notes" is satisfied.
Sale or Exchange of Common Stock. A non-U.S. holder generally will not be
subject to United States federal income tax or withholding tax on the sale or
exchange of common stock unless any of the conditions described above under
"Non-United States Holder -- Sale, Exchange or Redemption of the Notes" is
satisfied.
Dividends. Distributions by us with respect to the common stock that are
treated as dividends paid, or deemed paid, as described above under "United
States Holders - Constructive Dividends on Notes," to a non-U.S. holder,
excluding dividends that are effectively connected with the conduct of a trade
or business in the United States by such holder and are taxable as described
below, will be subject to United States federal withholding tax at
40
<PAGE>
a 30% rate, or lower rate provided under any applicable income tax treaty.
Except to the extent that an applicable tax treaty otherwise provides, a non-
U.S. holder generally will be taxed in the same manner as a holder that is a
U.S. person on dividends paid, or deemed paid, that are effectively connected
with the conduct of a trade or business in the United States by the non-U.S.
holder. If such non-U.S. holder is a foreign corporation, it may also be subject
to a United States branch profits tax on such effectively connected income at a
30% rate or such lower rate as may be specified by an applicable income tax
treaty. Even though such effectively connected dividends are subject to income
tax, and may be subject to the branch profits tax, they will not be subject to
U.S. withholding tax if the holder delivers Internal Revenue Service Form W-
8ECI, or successor form, to the payor.
Amended Treasury Regulations, which are generally effective for payments
made after December 31, 2000, provide alternative methods for satisfying the
certification requirements described immediately above.
Death of a Non-United States Holder. A note held by an individual who is
not a citizen or resident of the United States at the time of death will not be
included in the decedent's gross estate for United States estate tax purposes,
provided that such holder or beneficial owner did not at the time of death
actually or constructively own 10% or more of the combined voting power of all
classes of our stock entitled to vote, and provided that, at the time of death,
payments with respect to such note would not have been effectively connected
with the conduct by such non-U.S. holder of a trade or business within the
United States.
Common stock actually or beneficially held by an individual who is not a
U.S. person at the time of his or her death, or previously transferred by the
non-U.S. person subject to certain retained rights or powers, will be subject to
United States federal estate tax unless otherwise provided by an applicable
estate tax treaty.
Information Reporting and Backup Withholding Tax. United States information
reporting requirements and backup withholding tax will not apply to payments on
a note to a non-U.S. holder if the statement described in "Non-United States
Holders -- Payment of Interest" is duly provided by such holder, provided that
the payor does not have actual knowledge that the holder is a U.S. person.
Information reporting requirements and backup withholding tax generally
will not apply to any payment of the proceeds of the sale of a note, or any
payment of the proceeds of the sale of common stock effected outside the United
States by a foreign office of a broker. However, if the broker:
. is a United States person,
. is a foreign person that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United
States, or
. is a controlled foreign corporation for United States federal income
tax purposes,
payment of the proceeds of any such sale effected outside the United States by a
foreign office of such broker will not be subject to backup withholding tax, but
will be subject to information reporting requirements unless such broker has
documentary evidence in its records that the beneficial owner is a non-U.S.
holder and certain other conditions are met, or the beneficial owner otherwise
establishes an exemption. Payment of the proceeds of any such sale to or through
the United States office of a broker is subject to information reporting and
backup withholding requirements, unless the beneficial owner of the note
provides the statement described in "Non-United States Holders -- Payment of
Interest" or otherwise establishes an exemption. Under Treasury regulations,
dividend payments will be subject to information reporting and backup
withholding unless applicable certification requirements are satisfied.
United States Real Property Holding Corporations. The discussion of the
United States taxation of non-U.S. holders of notes and common stock assumes
that we are at no time a United States real property holding corporation within
the meaning of the Internal Revenue Code. Under present law, we would not be a
United States
41
<PAGE>
real property holding corporation so long as the fair market value of our United
States real property interests is less than 50% of the sum of the fair market
value of our United States real property interests, our interests in real
property located outside the United States, and our other assets which are used
or held or used in a trade or business. We believe that we are not a United
States real property holding corporation and do not expect to become such a
corporation.
If we become a United States real property holding corporation, gain
recognized by non-U.S. holders on a disposition of notes or common stock would
be subject to United States federal income tax in certain circumstances.
The preceding discussion of material United States federal income tax
considerations is for general information only and is not tax advice.
Accordingly, each prospective holder should consult its own tax adviser as to
particular tax consequences to it of purchasing, holding and disposing of the
notes and the common stock, including the applicability and effect of any state,
local or foreign tax laws, and of any proposed changes in applicable laws.
42
<PAGE>
SELLING SECURITYHOLDERS
The $500,000,000 in notes were originally purchased from us on February 1,
2000. On March 17, 2000, the initial purchasers purchased an additional
aggregate principal amount of $150,000,000 in notes pursuant to the option
granted by the Company. The initial purchasers of the notes have advised us that
the notes were resold in transactions exempt from the registration requirements
of the Securities Act to qualified institutional buyers (within the meaning of
Rule 144A under the Securities Act of 1933). These subsequent purchasers, or
their transferees, pledgees, donees or successors, may from time to time offer
and sell any or all of the notes and/or shares of common stock issuable upon
conversion of the notes pursuant to this prospectus.
The selling securityholders listed below provided us the information
contained in the following table with respect to themselves and the respective
principal amount of notes and common stock beneficially owned by them and which
may be sold by each of them under this prospectus. We have not independently
verified this information.
The selling securityholders may choose to sell notes and/or shares of
common stock issuable upon conversion of the notes from time to time. See "Plan
of Distribution."
The following table sets forth as of April 26, 2000:
. the name of each selling securityholder who has provided us with
notice pursuant to the Registration Rights Agreement of their
intent to sell or otherwise dispose of notes and/or shares of
common stock issuable upon conversion of the notes pursuant to
the registration statement,
. the principal amount of notes and the number of shares of common
stock issuable upon conversion of the notes which they may sell
from time to time pursuant to the registration statement, and
. the percentage of outstanding notes and common stock beneficially
owned by the selling securityholder as of April 26, 2000.
<TABLE>
<CAPTION>
Shares of
Principal Amount Percentage of Common Stock
of Notes that May Notes that May Be
Name of Selling Securityholder(1) Be Sold Outstanding Sold(2)
- -------------------------------------------- ------------------- -------------- --------------
<S> <C> <C> <C>
Alexandra Global Investment Fund 1, Ltd. $ 1,000,000 * 42,373
Amoco Corporation Master Trust 1,452,000 * 61,525
Argent Classic Convertible Arbitrage Fund L.P. 2,000,000 * 84,746
Argent Classic Convertible Arbitrage Fund (Bermuda) L.P. 10,000,000 1.5% 423,729
Argent Convertible Aribitrage Fund Ltd. 5,500,000 * 233,051
BBT Fund, L.P. 7,500,000 1.2% 317,797
BNP Arbitrage SNC 11,750,000 1.8% 497,881
California Public Employees Retirement System 6,000,000 * 254,237
Canyon View Realization (Cayman) Ltd. 12,662,000 1.9% 536,525
Cede & Co. 25,000,000 3.8% 1,059,322
Chrysler Corporation Master Retirement Trust 2,200,000 * 93,220
Clinton Riverside Convertible Portfolio Limited 2,500,000 * 105,932
Convexity Partners LP 250,000 * 10,593
Deephaven Domestic Convertible Trading Ltd. 6,000,000 * 254,237
Delphi Financial Group, Inc. 1,313,000 * 55,636
Delta Air Lines Master Trust 1,055,000 * 44,703
Fidelity Financial Trust: Fidelity Convertible Securities Fund 3,800,000 * 161,017
Greyhound Lines 50,000 * 2,119
Hotel Union & Hotel Industry of Hawaii 649,000 * 27,500
ITG Inc. 178,000 * 7,542
Jeffries & Co., Inc. 17,000 * 720
JMG Capital Partners, LP 10,000,000 1.5% 423,729
JMG Triton Offshore Fund, Ltd. 20,600,000 3.2% 872,881
JP Morgan Securities Inc. 2,750,000 * 116,525
LDG Limited 250,000 * 10,593
LibertyView Funds L.P. 1,000,000 * 42,373
Lyxor Master Fund 4,400,000 * 186,441
McMahan Securities Co., L.P. 2,000,000 * 84,746
Minnesota Bakers Union Pension Fund 82,000 * 3,475
Motion Picture Industry Health Plan - Retiree
Member Fund 160,000 * 6,780
OCM Convertible Trust 915,000 * 38,771
OZ Master Fund, Ltd. 7,000,000 1.1% 296,610
Partner Reinsurance Company Ltd. 555,000 * 23,517
</TABLE>
43
<PAGE>
<TABLE>
<S> <C> <C> <C>
PGEP IV, LLC 181,000 * 7,669
Quattro Fund Ltd. 1,500,000 * 63,559
R2 Investments, LDC. 35,350,000 5.4% 1,497,881
Sage Capital 2,500,000 * 105,932
State Employees' Retirement Fund of the State of
Delaware 1,415,000 * 59,958
State of Connecticut Combined Investment Funds 2,620,000 * 111,017
Salomon Brothers Asset Management Inc. 2,500,000 * 105,932
Sylvan IMA Ltd. 1,000,000 * 42,373
T. Rowe Price Dividend Growth Fund, Inc. 2,200,000 * 93,220
T. Rowe Price Growth & Income Fund, Inc. 18,500,000 2.8% 783,898
T. Rowe Price Growth Stock Fund, Inc. 14,000,000 2.2% 593,220
The Class IC Company 1,500,000 * 63,559
The Estate of James Campbell 890,000 * 37,712
TQA Master Fund 2,900,000 * 122,881
TQA Master Fund Plus 1,750,000 * 74,153
Tracor Inc. Employees Retirement Plan 265,000 * 11,229
Tribeca Investments LLC 22,500,000 3.5% 953,390
UBS AG London Branch 10,500,000 1.6% 444,915
Value Realization Fund, LP 10,425,000 1.6% 441,737
Value Realization Fund B, LP 600,000 * 25,424
Vanguard Convertible Securities Fund, Inc. 2,505,000 * 106,144
Viacom Pension Plan Master Trust 106,000 * 4,492
Warburg Dillon Read LLC 9,000,000 1.4% 381,356
Zurich HFR 50,000 * 2,119
Other holders of notes or future transferees of
such holders(3) 354,655,000 54.6% 14,836,079
------------------- -------------- --------------
TOTAL $ 650,000,000 100% 27,542,373
------------------- -------------- --------------
</TABLE>
_______________
* less than one percent
(1) Each of the named securityholders beneficially owns less than one
percent of our outstanding common stock. Other holders of notes
collectively beneficially own 5.1% of our outstanding common stock. No
holder may offer notes or shares of common stock pursuant to this
prospectus until such holder is named as a selling securityholder.
Information about other selling securityholders will be set forth in
prospectus supplements, if required.
(2) Assumes full conversion of the notes held by such holder at the rate
of 42.3729 shares per each $1,000 in principal amount of the notes.
(3) Information about other selling securityholders will be set forth in
prospectus supplements, if required.
No selling securityholder nor any of its affiliates has held any position
or office with, has been employed by or otherwise has had any material
relationship with us or our affiliates, during the three years prior to the date
of this prospectus.
A selling securityholder may offer all or some portion of the notes and
shares of our common stock issuable upon conversion of the notes. Accordingly,
no estimate can be given as to the amount or percentage of notes or common stock
that will be held by the selling securityholders upon termination of sales
pursuant to this prospectus. In addition, the selling securityholders identified
in the table above may have sold, transferred or disposed of all or a portion of
their notes since the date on which they provided the information regarding
their holdings in transactions exempt from the registration requirements of the
Securities Act. Information concerning the selling securityholders may change
from time to time and any such changed information will be set forth in
supplements or amendments to this prospectus if and when necessary.
44
<PAGE>
PLAN OF DISTRIBUTION
We are registering the notes and the shares of common stock issuable upon
conversion of the notes to permit public secondary trading of such securities by
the holders from time to time after the date of this prospectus. We have agreed,
among other things, to bear all expenses (other than underwriting discounts and
selling commissions) in connection with the registration and sale of the notes
and the shares of common stock issuable upon conversion of the notes covered by
this prospectus.
We will not receive any of the proceeds from the offering of the notes or
the shares of common stock issuable upon conversion of the notes by the selling
securityholders. The notes and shares of common stock issuable upon conversion
of the notes may be sold from time to time:
. directly by any selling securityholder to one or more purchasers;
. to or through underwriters, brokers or dealers;
. through agents on a best-efforts basis or otherwise; or
. through a combination of such methods of sale.
If notes or shares of common stock issuable upon conversion of the notes
are sold through underwriters, brokers or dealers, the selling securityholder
will be responsible for underwriting discounts or commissions or agents'
commissions.
The notes or shares of common stock issuable upon conversion of the notes
may be sold:
. in one or more transactions at a fixed price or prices, which may
be changed;
. at prevailing market prices at the time of sale or at prices
related to such prevailing prices;
. at varying prices determined at the time of sale; or
. at negotiated prices.
Such sales may be effected in transactions (which may involve crosses or
block transactions):
. on any national securities exchange or quotation service on which
the notes or shares of common stock may be listed or quoted at
the time of sale;
. in the over-the-counter market;
. in transactions otherwise than on such exchanges or services or
in the over-the-counter market; or
. through the writing of options.
In connection with sales of the notes or shares of common stock issuable
upon conversion of the notes or otherwise, any selling securityholder may:
. enter into hedging transactions with brokers, dealers or others,
which may in turn engage in short sales of the notes or shares of
common stock issuable upon conversion of the notes in the course
of hedging the positions they assume;
. sell short and deliver notes or shares of common stock issuable
upon conversion of the notes to close out such short positions;
or
. loan or pledge notes or shares of common stock issuable upon
conversion of the notes to brokers, dealers or others that in
turn may sell such securities.
45
<PAGE>
A selling securityholder may pledge or grant a security interest in some or
all of the notes or shares of common stock issuable upon conversion of the notes
owned by it, and if it defaults in the performance of its secured obligations,
the pledgees or secured parties may offer and sell the notes or shares of common
stock issuable upon conversion of the notes from time to time pursuant to this
prospectus. The selling securityholders may also transfer and donate shares in
other circumstances in which case the transferees, donees, pledgees or other
successors in interest will be the selling securityholders for purposes of this
prospectus.
The selling securityholders may sell short common stock and may deliver
this prospectus in connection with such short sales and use the shares covered
by this prospectus to cover such short sales.
The outstanding common stock is publicly traded on the Nasdaq National
Market. The initial purchasers of the notes have advised us that certain for the
initial purchasers are making and currently intend to continue making a market
in the notes; however, they are not obligated to do so and any such market-
making may be discontinued at any time without notice, in the sole discretion of
the initial purchasers. We do not intend to apply for listing of the notes on
the Nasdaq National Market or any securities exchange. Accordingly, we cannot
assure that any trading market will develop for the notes or have any liquidity.
The selling securityholders and any brokers, dealers, agents or
underwriters that participate with the selling securityholders in the
distribution of the notes or the shares of common stock issuable upon conversion
of the notes may be deemed to be "underwriters" within the meaning of the
Securities Act, in which event any commissions received by such brokers,
dealers, agents or underwriters and any profits realized by the selling
securityholders on the resales of the notes or the shares may be deemed to be
underwriting commissions or discounts under the Securities Act.
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144, Rule 144A or any other available exemption from
registration under the Securities Act may be sold under Rule 144, Rule 144A or
such other available exemption rather than pursuant to this prospectus. There is
no assurance that any selling securityholder will sell any or all of the notes
or shares of common stock issuable upon conversion of the notes described
herein, and any selling securityholder may transfer, devise or gift such
securities by other means not described herein.
We agreed to indemnify and hold the initial purchasers of the notes
harmless against certain liabilities under the Securities Act. The Registration
Rights Agreement provides for us and the selling securityholders to indemnify
each other against certain liabilities arising under the Securities Act.
We agreed pursuant to the Registration Rights Agreement to use our best
efforts to cause the registration statement to which this prospectus relates to
become effective and to keep the registration statement effective during the
periods described in "Description of the Notes--Registration Rights."
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to that information. The information incorporated by reference is
considered to be part of this prospectus, and later information filed with the
SEC will update and supersede this information. We incorporate by reference the
documents listed below and any future filings made with the SEC under Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until this
offering is completed.
. Our annual report on Form 10-K for the year ended September 30,
1999 (as amended by Form 10-K/A filed April 17, 2000);
. Our quarterly report on Form 10-Q for the quarter ended
December 31, 1999 (as amended by Form 10-Q/A filed on April 17,
2000);
. Our current report on Form 8-K filed on January 27, 2000;
. Our current report on Form 8-K filed April 17, 2000; and
46
<PAGE>
. The description of our common stock contained in our registration
statement on Form 8-A (File No. 001-11921), as filed with the SEC
on July 12, 1996.
Any statement contained in the 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 herein or in any applicable prospectus supplement or any other
subsequently filed document which also 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.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, or SEC. You may read
and copy any document we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800
- -SEC-0330 for further information on the public reference rooms. Our SEC filings
are also available to the public at the SEC's Web site at www.sec.gov. The
information on our Web site does not constitute a part of this prospectus.
You may obtain a copy of these filings, at no cost, by writing or
telephoning us at the following address. In addition, we will provide without
charge to each person, including any beneficial owner, to whom a copy of this
prospectus has been delivered, upon the written or oral request of any such
person, a copy of any or all of the documents incorporated by reference in this
prospectus, other than exhibits and schedules thereto, unless such exhibits or
schedules are specifically incorporated by reference into the information that
this prospectus incorporates. Written or oral requests for copies of these
documents should be directed to:
Investor Relations
4500 Bohannon Drive
Menlo Park, CA 94025
Telephone: (650) 331-6000
You should rely only on the information provided in this document or
incorporated in this document by reference. We have not authorized anyone to
provide you with different information. You should not assume that the
information in this document, including any information incorporated herein by
reference, is accurate as of any date other than that on the front of the
document.
LEGAL MATTERS
The validity of the securities offered by this prospectus will be passed
upon for us by Brobeck, Phleger & Harrison LLP, Palo Alto, California. Certain
attorneys of Brobeck, Phleger & Harrison LLP own in the aggregate approximately
8,007 shares of our common stock.
EXPERTS
The annual consolidated financial statements of E*TRADE Group, Inc. and its
subsidiaries, incorporated in this Prospectus by reference from E*TRADE Group,
Inc.'s Annual Report on Form 10K/A for the year ended September 30, 1999, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report (which report expresses an unqualified opinion and includes an
explanatory paragraph referring to the acquisition of Telebanc which was
accounted for as a pooling of interests), which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm, given upon their authority as experts in accounting and auditing.
The financial statements and schedules incorporated by reference in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
Reference is made to said report, which includes an explanatory paragraph
with respect to the change in accounting principles as promulgated by SOP 98-5
as discussed in Note 2 to the consolidated financial statements incorporated by
reference in the registration statement.
47
<PAGE>
We have not authorized any person to make a statement that differs from what is
in this prospectus. If any person does make a statement that differs from what
is in this prospectus, you should not rely on it. This prospectus is not an
offer to sell, nor is it seeking an offer to buy, these securities in any state
in which the offer or sale is not permitted. The information in this prospectus
is complete and accurate as of its date, but the information may change after
that date.
E*TRADE GROUP, INC.
$650,000,000
6% Convertible Subordinated Notes due 2007
and
27,542,373 Shares of Common Stock
_____________
PROSPECTUS
_____________
April 27, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of common stock being registered. All amounts are estimates except
the SEC registration fee.
<TABLE>
<S> <C>
SEC registration fee......................... $ 171,600
Legal fees and expenses...................... 15,000*
Accounting fees and expenses................. 5,000*
Printing fees................................ 5,000*
Miscellaneous................................ 20,000*
-------------
Total................................. $ 216,600*
=============
* Estimated
</TABLE>
Item 15. Indemnification of Directors and Officers
Subsection (a) of Section 145 of the Delaware General Corporation Law (the
"DGCL") empowers a corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect to any claim issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful on the merits or otherwise in the
defense of any such action, suit or proceeding referred to in subsections (a)
and (b) of Section 145 or in the defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith; that the indemnification
provided for by Section 145 shall not be deemed exclusive of any other rights
which the indemnified party may be entitled; that indemnification provided by
Section 145 shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of such person's heirs, executors and
administrators; and empowers the corporation to purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages
II-1
<PAGE>
for breach of fiduciary duty as a director, provided that such provision shall
not eliminate or limit the liability of the director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction from which the director derived an improper personal benefit.
Article Eleventh of the registrant's Charter provides that, to the fullest
extent permitted by the DGCL as the same exists or as it may hereafter be
amended, no director of the registrant shall be personally liable to the
registrant or its stockholders for monetary damages for breach of fiduciary duty
as a director.
Article 10 of the registrant's Certificate of Incorporation, as amended,
provides that, to the fullest extent permitted by the DGCL, as the same exists
or as it may hereafter be amended, no director of the registrant shall be
personally liable to the registrant or its stockholders for monetary damages for
breach of fiduciary duty as a director.
Article 5 of the registrant's Bylaws further provides that the registrant
shall, to the maximum extent and in the manner permitted by the DGCL, indemnify
each of its directors and officers against expenses (including attorneys' fees),
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with any proceeding, arising by reason of the fact that such
person is or was an agent of the registrant.
The registrant has entered into indemnification agreements with each of its
directors and executive officers.
The registrant maintains officers' and directors' liability insurance.
Item 16. Exhibits
No. Description
---- -----------
*2.1 Reorganization Agreement, dated May 31, 1999, by and among E*TRADE
Group, Inc. and Telebanc Financial Corporation.
*3.1 Restated Certificate of Incorporation, (incorporated by reference
to Exhibit 3.3 of the registrant's Registration Statement Form
S-1, Registration Statement No. 333-05525).
*3.2 Restated Bylaws of the registrant (incorporated by reference to
Exhibit 3.4 of the Registration Statement on Form S-1,
Registration Statement No. 333-05525).
*4.1 Specimen certificate representing shares of Common Stock
(incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-1, Registration Statement No. 333-05525).
4.2 Indenture, dated as of February 1, 2000, between the registrant
and The Bank of New York, as trustee, including the form of note
set forth in Section 2.2 thereof.
4.3 Registration Rights Agreement, dated as of February 1, 2000,
between the registrant and Fleet Boston Robertson Stephens Inc.,
Hambrecht & Quist LLC and Goldman, Sachs & Co.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
12.1 Statement re: Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Deloitte & Touche LLP, independent auditors.
23.2 Consent of Arthur Andersen LLP, independent public accountants.
23.3 Consent of Brobeck, Phleger & Harrison LLP (included in the
opinion filed as Exhibit 5.1 hereto).
II-2
<PAGE>
24.1 Power of Attorney (included on page II-5 of this registration
statement).
25.1 Statement of Eligibility of the Trustee on Form T-1.
*Incorporated by Reference
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement, or the most recent post-
effective amendment thereof, which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424 (b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act, and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act, that is
incorporated by reference in this registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and therefore is unenforceable.
In the event that a claim for indemnification against such liabilities, other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Menlo Park, State of California, on this 27th day of
April, 2000.
E*GROUP, Inc.
By: /s/ Christos M. Cotsakos
------------------------------------
Christos M. Cotsakos
Chairman and Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Theodore J. Theophilos, Brigitte
VanBaelen and Leonard C. Purkis, and each of them, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and to file same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and any of them, or their
or his substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Christos M. Cotsakos Chairman of the Board and Chief April 27, 2000
- -------------------------------
Christos M. Cotsakos Executive Officer (Principal
executive officer)
/s/ Leonard C. Purkis Chief Financial Officer (Principal April 27, 2000
- ------------------------------- financial and accounting officer)
Leonard C. Purkis
/s/ William A. Porter Chairman Emeritus and Director April 27, 2000
- -------------------------------
William A. Porter
/s/ William E. Ford Director April 27, 2000
- -------------------------------
William E. Ford
/s/ Richard S. Braddock Director April 27,2000
- -------------------------------
Richard S. Braddock
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Lewis E. Randall Director April 27, 2000
- ---------------------------------
Lewis E. Randall
/s/ Masayoshi Son Director April 27, 2000
- ---------------------------------
Masayoshi Son
/s/ Lester C. Thurow Director April 27, 2000
- ---------------------------------
Lester C. Thurow
/s/ George Hayter Director April 27, 2000
- ---------------------------------
George Hayter
/s/ Peter Chernin Director April 27, 2000
- ---------------------------------
Peter Chernin
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
No. Description
-- -----------
<C> <S>
*2.1 Reorganization Agreement, dated May 31, 1999, by and
among E*TRADE Group, Inc. and Telebanc Financial
Corporation.
*3.1 Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.3 of the registrant's
Registration Statement on Form S-1, Registration
Statement No. 333-05525).
*3.2 Restated Bylaws of the registrant (incorporated by
reference to Exhibit 3.4 of the registrant's
Registration Statement on Form S-1, Registration
Statement No. 333-05525).
*4.1 Specimen certificate representing shares of Common Stock
(incorporated by reference to Exhibit 4.1 to the
registrant's Registration Statement on Form S-1,
Registration Statement No. 333-05525).
4.2 Indenture, dated as of February 1, 2000, between the
registrant and The Bank of New York, as trustee,
including the form of note set forth in Section 2.2
thereof.
4.3 Registration Rights Agreement, dated as of February 1,
2000, between the registrant and FleetBoston Robertson
Stephens Inc., Hambrecht & Quist LLP and Goldman, Sachs
& Co.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
12.1 Statement re: Computation of Ratio of Earnings to Fixed
Charges.
23.1 Consent of Deloitte & Touche LLP, independent auditors.
23.2 Consent of Arthur Andersen LLP, independent public
accountants.
23.3 Consent of Brobeck, Phleger & Harrison LLP (included in
the opinion filed as Exhibit 5.1 hereto).
24.1 Power of Attorney (included on page II-5 of this
registration statement).
25.1 Statement of Eligibility of the Trustee on Form T-1.
</TABLE>
* Incorporated by reference.
<PAGE>
EXHIBIT 4.2
================================================================================
E*TRADE Group, Inc., Issuer
The Bank of New York,
as Trustee
INDENTURE
Dated as of February 1, 2000
6% Convertible Subordinated Notes due 2007
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - DEFINITIONS............................................................................................... 1
Section 1.1 - Definitions.................................................................................... 1
ARTICLE II - ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES........................................ 7
Section 2.1 - Designation, Amount and Issue of Notes......................................................... 7
Section 2.2 - Form of Notes.................................................................................. 8
Section 2.3 - Date and Denomination of Notes; Payments of Interest........................................... 8
Section 2.4 - Execution of Notes............................................................................ 10
Section 2.5 - Exchange and Registration of Transfer of Notes; Restrictions on Transfer; Depositary.......... 10
Section 2.6 - Mutilated, Destroyed, Lost or Stolen Notes.................................................... 19
Section 2.7 - Temporary Notes............................................................................... 20
Section 2.8 - Cancellation of Notes Paid, Etc............................................................... 20
ARTICLE III - REDEMPTION OF NOTES.................................................................................... 21
Section 3.1 - Redemption Prices............................................................................. 21
Section 3.2 - Notice of Redemption; Selection of Notes...................................................... 21
Section 3.3 - Payment of Notes Called for Redemption........................................................ 22
Section 3.4 - Conversion Arrangement on Call for Redemption................................................. 23
ARTICLE IV - SUBORDINATION OF NOTES.................................................................................. 24
Section 4.1 - Agreement of Subordination.................................................................... 24
Section 4.2 - Payments to Noteholders....................................................................... 24
Section 4.3 - Bankruptcy and Dissolution, Etc............................................................... 25
Section 4.4 - Subrogation of Notes.......................................................................... 27
Section 4.5 - Authorization by Noteholders.................................................................. 28
Section 4.6 - Notice to Trustee............................................................................. 28
Section 4.7 - Trustee's Relation to Senior Indebtedness..................................................... 29
Section 4.8 - No Impairment of Subordination................................................................ 29
Section 4.9 - Certain Conversions Deemed Payment............................................................ 30
Section 4.10 - Article Applicable to Paying Agents.......................................................... 30
ARTICLE V - PARTICULAR COVENANTS OF THE COMPANY...................................................................... 30
Section 5.1 - Payment of Principal, Premium and Interest.................................................... 30
Section 5.2 - Maintenance of Office or Agency............................................................... 31
Section 5.3 - Appointments to Fill Vacancies in Trustee's Office............................................ 31
Section 5.4 - Provisions as to Paying Agent................................................................. 31
Section 5.5 - Existence..................................................................................... 32
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Section 5.6 - Rule 144A Information Requirement............................................................. 32
Section 5.7 - Stay, Extension and Usury Laws................................................................ 33
Section 5.8 - Compliance Certificate........................................................................ 33
Section 5.9 - Further Instruments and Acts.................................................................. 33
ARTICLE VI - NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE........................................... 33
Section 6.1 - Noteholders' Lists............................................................................ 33
Section 6.2 - Preservation and Disclosure of Lists.......................................................... 34
Section 6.3 - Reports by Trustee............................................................................ 34
Section 6.4 - Reports by Company............................................................................ 34
ARTICLE VII - DEFAULTS AND REMEDIES.................................................................................. 35
Section 7.1 - Events of Default............................................................................. 35
Section 7.2 - Payments of Notes on Default; Suit Therefor................................................... 38
Section 7.3 - Application of Monies Collected by Trustee.................................................... 39
Section 7.4 - Proceedings by Noteholder..................................................................... 40
Section 7.5 - Proceedings by Trustee........................................................................ 41
Section 7.6 - Remedies Cumulative and Continuing............................................................ 41
Section 7.7 - Direction of Proceedings and Waiver of Defaults by Majority of Noteholders.................... 41
Section 7.8 - Notice of Defaults............................................................................ 42
Section 7.9 - Undertaking to Pay Costs...................................................................... 42
Section 7.10 - Delay or Omission Not Waiver................................................................. 42
ARTICLE VIII - CONCERNING THE TRUSTEE................................................................................ 42
Section 8.1 - Duties and Responsibilities of Trustee........................................................ 42
Section 8.2 - Reliance on Documents, Opinions, Etc.......................................................... 44
Section 8.3 - No Responsibility for Recitals, Etc........................................................... 45
Section 8.4 - Trustee, Paying Agents, Conversion Agents or Registrar May Own Notes.......................... 45
Section 8.5 - Monies to Be Held in Trust.................................................................... 45
Section 8.6 - Compensation and Expenses of Trustee.......................................................... 46
Section 8.7 - Officers' Certificate as Evidence............................................................. 46
Section 8.8 - Conflicting Interests of Trustee.............................................................. 46
Section 8.9 - Eligibility of Trustee........................................................................ 47
Section 8.10 - Resignation or Removal of Trustee............................................................ 47
Section 8.11 - Acceptance by Successor Trustee.............................................................. 48
Section 8.12 - Succession by Merger, Etc.................................................................... 49
Section 8.13 - Limitation on Rights of Trustee as Creditor.................................................. 49
ARTICLE IX - CONCERNING THE NOTEHOLDERS.............................................................................. 49
Section 9.1 - Action by Noteholders......................................................................... 49
Section 9.2 - Proof of Execution by Noteholders............................................................. 50
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
Section 9.3 - Who Are Deemed Absolute Owners................................................................ 50
Section 9.4 - Company - Owned Notes Disregarded............................................................. 50
Section 9.5 - Revocation of Consents; Future Holders Bound.................................................. 51
ARTICLE X - NOTEHOLDERS' MEETINGS.................................................................................... 51
Section 10.1 - Purpose of Meetings.......................................................................... 51
Section 10.2 - Call of Meetings by Trustee.................................................................. 51
Section 10.3 - Call of Meetings by Company or Noteholders................................................... 52
Section 10.4 - Qualifications for Voting.................................................................... 52
Section 10.5 - Regulations.................................................................................. 52
Section 10.6 - Voting....................................................................................... 53
Section 10.7 - No Delay of Rights by Meeting................................................................ 53
ARTICLE XI - SUPPLEMENTAL INDENTURES................................................................................. 53
Section 11.1 - Supplemental Indentures Without Consent of Noteholders....................................... 53
Section 11.2 - Supplemental Indentures With Consent of Noteholders.......................................... 55
Section 11.3 - Effect of Supplemental Indentures............................................................ 55
Section 11.4 - Notation on Notes............................................................................ 56
Section 11.5 - Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee..................... 56
ARTICLE XII - CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE...................................................... 56
Section 12.1 - Company May Consolidate, Etc................................................................. 56
Section 12.2 - Successor Corporation to Be Substituted...................................................... 57
Section 12.3 - Opinion of Counsel to Be Given Trustee....................................................... 57
ARTICLE XIII - SATISFACTION AND DISCHARGE OF INDENTURE............................................................... 58
Section 13.1 - Discharge of Indenture....................................................................... 58
Section 13.2 - Deposited Monies to Be Held in Trust by Trustee.............................................. 58
Section 13.3 - Paying Agent to Repay Monies Held............................................................ 58
Section 13.4 - Return of Unclaimed Monies................................................................... 58
Section 13.5 - Reinstatement................................................................................ 59
ARTICLE XIV - IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS........................................ 59
Section 14.1 - Indenture and Notes Solely Corporate Obligations............................................. 59
ARTICLE XV - CONVERSION OF NOTES..................................................................................... 59
Section 15.1 - Right to Convert............................................................................. 59
Section 15.2 - Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No
Adjustment for Interest or Dividends..................................................... 60
Section 15.3 - Cash Payments in Lieu of Fractional Shares................................................... 62
Section 15.4 - Conversion Price............................................................................. 62
Section 15.5 - Adjustment of Conversion Price............................................................... 62
Section 15.6 - Effect of Reclassification, Consolidation, Merger or Sale.................................... 72
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
Section 15.7 - Taxes on Shares Issued....................................................................... 73
Section 15.8 - Reservation of Shares; Shares to Be Fully Paid; Listing of Common Stock...................... 73
Section 15.9 - Responsibility of Trustee.................................................................... 74
Section 15.10 - Notice to Holders Prior to Certain Actions.................................................. 74
ARTICLE XVI - REPURCHASE UPON A REPURCHASE EVENT..................................................................... 75
Section 16.1 - Repurchase Right............................................................................. 75
Section 16.2 - Notices; Method of Exercising Repurchase Right, Etc.......................................... 76
Section 16.3 - Conditions to the Company's Election to Pay the Repurchase Price in Common Stock............. 78
Section 16.4 - Certain Definitions.......................................................................... 79
ARTICLE XVII - MISCELLANEOUS PROVISIONS.............................................................................. 81
Section 17.1 - Provisions Binding on Company's Successors................................................... 81
Section 17.2 - Official Acts by Successor Corporation....................................................... 81
Section 17.3 - Addresses for Notices, Etc................................................................... 81
Section 17.4 - Governing Law................................................................................ 81
Section 17.5 - Evidence of Compliance with Conditions Precedent; Certificates to Trustee.................... 81
Section 17.6 - Legal Holidays............................................................................... 82
Section 17.7 - No Security Interest Created................................................................. 82
Section 17.8 - Trust Indenture Act.......................................................................... 82
Section 17.9 - Benefits of Indenture........................................................................ 82
Section 17.10 - Table of Contents, Headings, Etc............................................................ 82
Section 17.11 - Authenticating Agent........................................................................ 83
Section 17.12 - Execution in Counterparts................................................................... 83
</TABLE>
-iv-
<PAGE>
INDENTURE dated as of February 1, 2000 between E*TRADE Group, Inc., a
Delaware corporation (hereinafter sometimes called the "Company", as more fully
set forth in Section 1.1), and The Bank of New York, a New York banking
corporation, as trustee (hereinafter sometimes called the "Trustee", as more
fully set forth in Section 1.1).
W I T N E S S E T H:
WHEREAS, for its lawful corporate purposes, the Company has duly authorized
the issue of its 6% Convertible Subordinated Notes due 2007 (hereinafter
sometimes called the "Notes"), in an aggregate principal amount not to exceed
$500,000,000 ($650,000,000 if the option granted to the Initial Purchasers (as
defined) is exercised in full) and to provide the terms and conditions upon
which the Notes are to be authenticated, issued and delivered, the Company has
duly authorized the execution and delivery of this Indenture; and
WHEREAS, the Notes, the certificate of authentication to be borne by the
Notes, a form of assignment, a form of option to elect repayment upon a
Repurchase Event, and a form of conversion notice and transfer to be borne by
the Notes are to be substantially in the forms hereinafter provided for; and
WHEREAS, all acts and things necessary to make the Notes, when executed by
the Company and authenticated and delivered by the Trustee or a duly authorized
authenticating agent, as in this Indenture provided, the valid, binding and
legal obligations of the Company, and to constitute these presents a valid
agreement according to its terms, have been done and performed, and the
execution of this Indenture and the issue hereunder of the Notes have in all
respects been duly authorized.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the Notes are,
and are to be, authenticated, issued and delivered, and in consideration of the
premises and of the purchase and acceptance of the Notes by the holders thereof,
the Company covenants and agrees with the Trustee for the equal and
proportionate benefit of the respective holders from time to time of the Notes
(except as otherwise provided below), as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. The terms defined in this Section 1.1 (except
-----------
as herein otherwise expressly provided or unless the context otherwise requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section 1.1. All other
terms used in this Indenture, which are defined in the Trust Indenture Act or
which are by reference therein defined in the Securities Act (except as herein
otherwise expressly provided or
<PAGE>
unless the context otherwise requires) shall have the meanings assigned to such
terms in said Trust Indenture Act and in said Securities Act as in force at the
date of the execution of this Indenture. The words "herein," "hereof,"
"hereunder," and words of similar import refer to this Indenture as a whole and
not to any particular Article, Section or other Subdivision. The terms defined
in this Article include the plural as well as the singular.
Affiliate: The term "Affiliate" of any specified person shall mean any
---------
other person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified person. For the purposes of this
definition, "control," when used with respect to any specified person means the
power to direct or cause the direction of the management and policies of such
person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
Board of Directors: The term "Board of Directors" shall mean the Board of
------------------
Directors of the Company or a committee of such Board duly authorized to act for
it hereunder.
Board Resolution: The term "Board Resolution" means a copy of a resolution
----------------
certified by the Secretary or an Assistant Secretary of the Company to have been
duly adopted by the Board of Directors, or duly authorized committee thereof (to
the extent permitted by applicable law), and to be in full force and effect on
the date of such certification, and delivered to the Trustee.
Business Day: The term "Business Day" means each Monday, Tuesday,
------------
Wednesday, Thursday and Friday which is not a day on which the banking
institutions in The City of New York or the city in which the Corporate Trust
Office is located are authorized or obligated by law or executive order to close
or be closed.
Change in Control: The term "Change in Control" shall have the meaning
-----------------
specified in Section 16.4.
close of business: The term "close of business" means 5 p.m. (New York
-----------------
City time).
Commission: The term "Commission" shall mean the Securities and Exchange
----------
Commission.
Common Stock: The term "Common Stock" shall mean any stock of any class of
------------
the Company which has no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company and which is not subject to redemption by the Company.
Subject to the provisions of Section 15.6, however, shares issuable on
conversion of Notes shall include only shares of the class designated as common
stock of the Company at the date of this Indenture or shares of any class or
classes resulting from any reclassification or reclassifications thereof and
which have no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company and which are not subject to redemption by the Company; provided
--------
that if at any time there shall be more than one such resulting class, the
shares of each such class then so issuable shall be substantially in the
proportion which the total number of shares of such class resulting from
-2-
<PAGE>
all such reclassifications bears to the total number of shares of all such
classes resulting from all such reclassifications.
Company: The term "Company" shall mean E*TRADE Group, Inc., a Delaware
-------
corporation, and subject to the provisions of Article XII, shall include its
successors and assigns.
Conversion Price: The term "Conversion Price" shall have the meaning
----------------
specified in Section 15.4.
Corporate Trust Office: The term "Corporate Trust Office," or other
----------------------
similar term, shall mean the office of the Trustee at which at any particular
time its corporate trust business shall be principally administered, which
office is, at the date as of which this Indenture is dated, located at 101
Barclay Street, 21W, New York, New York 10286, Attention: Corporate Trust:
Trustee Administration.
Custodian: The term "Custodian" means The Bank of New York, with respect
---------
to the Notes in global form, or any successor entity thereto.
default: The term "default" shall mean any event that is, or after notice
-------
or passage of time, or both, would be, an Event of Default.
Depositary: The term "Depositary" means, with respect to the Notes
----------
issuable or issued in whole or in part in global form, the person specified in
Section 2.5(d) as the Depositary with respect to such Notes, until a successor
shall have been appointed and become such pursuant to the applicable provisions
of this Indenture, and thereafter, "Depositary" shall mean or include such
successor.
Designated Senior Indebtedness: The term "Designated Senior Indebtedness"
------------------------------
means the Company's obligations under any particular Senior Indebtedness in
which the instrument creating or evidencing the same or the assumption or
guarantee thereof (or related agreements or documents to which the Company is a
party) expressly provides that such Senior Indebtedness shall be "Designated
Senior Indebtedness" for purposes of this Indenture (provided that such
instrument, agreement or other document may place limitations and conditions on
the right of such Senior Indebtedness to exercise the rights of Designated
Senior Indebtedness).
Event of Default: The term "Event of Default" shall mean any event
----------------
specified in Section 7.1, continued for the period of time, if any, and after
the giving of notice, if any, therein designated.
Exchange Act: The term "Exchange Act" means the Securities Exchange Act of
------------
1934, as amended, and the rules and regulations promulgated thereunder.
Expiration Time: The term "Expiration Time" shall have the meaning
---------------
specified in Section 15.5(f).
Global Note: The term "Global Note" shall have the meaning specified in
-----------
Section 2.5(b).
-3-
<PAGE>
Indebtedness: The term "Indebtedness" shall mean any obligations of, or
------------
guaranteed or assumed by, the Company or any Significant Subsidiary for borrowed
money.
Indenture: The term "Indenture" shall mean this instrument as originally
---------
executed or, if amended or supplemented as herein provided, as so amended or
supplemented.
Initial Purchasers: The term "Initial Purchasers" means FleetBoston
------------------
Robertson Stephens, Inc., Hambrecht & Quist LLC and Goldman, Sachs & Co.
Liquidated Damages: The term "Liquidated Damages" means all liquidated
------------------
damages then owing pursuant to Section 3 of the Registration Rights Agreement.
Note or Notes: The terms "Note" or "Notes" shall mean any Note or Notes,
-------------
as the case may be, authenticated and delivered under this Indenture.
Noteholder or holder: The terms "Noteholder" or "holder" as applied to any
--------------------
Note, or other similar terms (but excluding the term "beneficial holder"), shall
mean any person in whose name at the time a particular Note is registered on the
Note register.
Note register: The term "Note register" shall have the meaning specified
-------------
in Section 2.5.
Officers' Certificate: The term "Officers' Certificate", when used with
---------------------
respect to the Company, shall mean a certificate signed by one of the President,
the Chief Executive Officer, Executive or Senior Vice President or any Vice
President (whether or not designated by a number or numbers or word added before
or after the title "Vice President"), which is delivered to the Trustee. Each
such certificate shall include the statements provided for in Section 17.5 if
and to the extent required by the provisions of such Section.
Opinion of Counsel: The term "Opinion of Counsel" shall mean an opinion in
------------------
writing signed by legal counsel, who may be an employee of or counsel to the
Company, or other counsel acceptable to the Trustee, which is delivered to the
Trustee. Each such opinion shall include the statements provided for in Section
17.5 if and to the extent required by the provisions of such Section.
outstanding: The term "outstanding," when used with reference to Notes,
-----------
shall, subject to the provisions of Section 9.4, mean, as of any particular
time, all Notes authenticated and delivered by the Trustee under this Indenture,
except
(a) Notes theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(b) Notes, or portions thereof, for the payment, or redemption of
which monies in the necessary amount shall have been deposited in trust
with the Trustee or with any paying agent (other than the Company) or shall
have been set aside and segregated in trust by the Company (if the Company
shall act as its own paying agent); provided that if such Notes are
--------
-4-
<PAGE>
to be redeemed, as the case may be, prior to the maturity thereof, notice
of such redemption shall have been given as provided in Section 3.2, or
provision satisfactory to the Trustee shall have been made for giving such
notice;
(c) Notes paid pursuant to Section 2.6 and Notes in lieu of which, or
in substitution for which, other Notes shall have been authenticated and
delivered pursuant to the terms of Section 2.6 unless proof satisfactory to
the Trustee is presented that any such Notes are held by bona fide holders
in due course; and
(d) Notes converted into Common Stock pursuant to Article XV and
Notes deemed not outstanding pursuant to Section 3.2.
person: The term "person" shall mean an individual, a corporation, a
------
limited liability company, an association, a partnership, an individual, a joint
venture, a joint stock company, a trust, an unincorporated organization or a
government or an agency or a political subdivision thereof.
Portal Market: The term "Portal Market" shall mean The Portal Market
-------------
operated by the National Association of Securities Dealers, Inc. or any
successor thereto.
Predecessor Note: The term "Predecessor Note" of any particular Note shall
----------------
mean every previous Note evidencing all or a portion of the same debt as that
evidenced by such particular Note; and, for the purposes of this definition, any
Note authenticated and delivered under Section 2.6 in lieu of a lost, destroyed
or stolen Note shall be deemed to evidence the same debt as the lost, destroyed
or stolen Note that it replaces.
QIB: The term "QIB" shall mean a "qualified institutional buyer" as
---
defined in Rule 144A.
Registration Rights Agreement: The term "Registration Rights Agreement"
-----------------------------
means that certain Registration Rights Agreement, dated as of February 1, 2000,
between the Company and the Initial Purchasers.
Repurchase Event: The term "Repurchase Event" shall have the meaning
----------------
specified in Section 16.4.
Repurchase Price: The term "Repurchase Price" has the meaning specified in
----------------
Section 16.1.
Responsible Officer: The term "Responsible Officer", when used with
-------------------
respect to the Trustee, shall mean an officer of the Trustee in the Corporate
Trust Office assigned and duly authorized by the Trustee to administer its
obligations under this Indenture.
Restricted Securities: The term "Restricted Securities" has the meaning
---------------------
specified in Section 2.5(d).
Rule 144A: The term "Rule 144A" shall mean Rule 144A as promulgated under
---------
the Securities Act.
-5-
<PAGE>
Securities Act: The term "Securities Act" means the Securities Act of
--------------
1933, as amended, and the rules and regulations promulgated thereunder.
Senior Indebtedness: The term "Senior Indebtedness" means the principal
-------------------
of, premium, if any, interest on (including any interest accruing after the
filing of a petition by or against the Company under any bankruptcy law, whether
or not allowed as a claim after such filing in any proceeding under such
bankruptcy law) and any other payment due pursuant to, any of the following,
whether outstanding on the date of this Indenture or thereafter incurred or
created:
(a) All indebtedness of the Company for money borrowed that is
evidenced by notes, debentures, bonds or other securities (including, but
not limited to, those which are convertible or exchangeable for securities
of the Company);
(b) All indebtedness of the Company due and owing with respect to
letters of credit (including, but not limited to, reimbursement obligations
with respect thereto);
(c) All indebtedness or other obligations of the Company due and
owing with respect to interest rate and currency swap agreements, cap,
floor and collar agreements, currency spot and forward contracts and other
similar agreements and arrangements;
(d) All indebtedness consisting of commitment or standby fees due and
payable to lending institutions with respect to credit facilities or
letters of credit available to the Company;
(e) All obligations of the Company under leases required or permitted
to be capitalized under generally accepted accounting principles;
(f) All indebtedness or obligations of others of the kinds described
in any of the preceding clauses (a), (b), (c), (d) or (e) assumed by or
guaranteed in any manner by the Company or in effect guaranteed (directly
or indirectly) by the Company through an agreement to purchase, contingent
or otherwise, and all obligations of the Company under any such guarantee
or other arrangements; and
(g) All renewals, extensions, refundings, deferrals, amendments or
modifications of indebtedness or obligations of the kinds described in any
of the preceding clauses (a), (b), (c), (d), (e) or (f);
unless in the case of any particular indebtedness, obligation, renewal,
extension, refunding, amendment, modification or supplement, the instrument or
other document creating or evidencing the same or the assumption or guarantee of
the same expressly provides that such indebtedness, obligation, renewal,
extension, refunding, amendment, modification or supplement is subordinate to,
or is not superior to, or is pari passu with, the Notes; provided that Senior
---- ----- --------
Indebtedness shall not include (i) any indebtedness of any kind of the Company
to any subsidiary of the Company, a majority of the voting stock of which is
owned, directly or indirectly, by the Company, (ii) indebtedness for trade
-6-
<PAGE>
payables or constituting the deferred purchase price of assets or services
incurred in the ordinary course of business, or (iii) the Notes.
Significant Subsidiary: The term "Significant Subsidiary" means, with
----------------------
respect to any person, a Subsidiary of such person that would constitute a
"significant subsidiary" as such term is defined under Rule 1-02 of Regulation
S-X of the Securities and Exchange Commission.
Subsidiary: The term "Subsidiary" means a corporation more than 50% of the
----------
outstanding voting stock of which is owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries. For the purposes of this definition, "voting stock" means
stock which ordinarily has voting power for the election of directors, whether
at all times or only so long as no senior class of stock has such voting power
by reason of any contingency.
Trading Day: The term "Trading Day" has the meaning specified in Section
-----------
15.5(h)(5).
Trust Indenture Act: The term "Trust Indenture Act" shall mean the Trust
-------------------
Indenture Act of 1939, as amended, as it was in force at the date of execution
of this Indenture, except as provided in Sections 11.3 and 15.6; provided,
--------
however, that in the event the Trust Indenture Act of 1939 is amended after the
- -------
date hereof, the term "Trust Indenture Act" shall mean, to the extent required
by such amendment, the Trust Indenture Act of 1939 as so amended.
Trustee: The term "Trustee" shall mean The Bank of New York and its
-------
successors and any corporation resulting from or surviving any consolidation or
merger to which it or its successors may be a party and any successor trustee at
the time serving as successor trustee hereunder.
The definitions of certain other terms are as specified in Article XV and
Article XVI.
ARTICLE II
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES
Section 2.1 Designation, Amount and Issue of Notes. The Notes shall be
--------------------------------------
designated as "6% Convertible Subordinated Notes due 2007." Notes not to exceed
the aggregate principal amount of $500,000,000 (or $650,000,000 if the option
granted to the Initial Purchasers pursuant to Section 2(b) of the Purchase
Agreement dated February 1, 2000 (as amended from time to time by the parties
thereto) by and between the Company and the Initial Purchasers is exercised in
full) upon the execution of this Indenture, or (except pursuant to Sections 2.5,
2.6, 3.3, 15.2 and 16.2) from time to time thereafter, may be executed by the
Company and delivered to the Trustee for authentication, and the Trustee shall
thereupon authenticate and deliver said Notes upon the written order of the
Company, signed by the Company's (a) President, Executive or Senior Vice
President or any Vice President (whether or not designated by a number or
numbers or word or words added before or after the title "Vice President") and
(b) Treasurer or Assistant Treasurer or its Secretary or any Assistant
Secretary, without any further action by the Company hereunder.
-7-
<PAGE>
Section 2.2 Form of Notes. The Notes and the Trustee's certificate of
-------------
authentication to be borne by such Notes shall be substantially in the form set
forth in Exhibit A, which is incorporated in and made a part of this Indenture.
---------
Any of the Notes may have such letters, numbers or other marks of
identification and such notations, legends and endorsements as the officers
executing the same may approve (execution thereof to be conclusive evidence of
such approval) and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
securities exchange or automated quotation system on which the Notes may be
listed or designated for issuance, or to conform to usage.
The Global Note shall represent such of the outstanding Notes as shall be
specified therein and shall provide that it shall represent the aggregate amount
of outstanding Notes from time to time endorsed thereon and that the aggregate
amount of outstanding Notes represented thereby may from time to time be
increased or reduced to reflect transfers or exchanges permitted hereby. Any
endorsement of the Global Note to reflect the amount of any increase or decrease
in the amount of outstanding Notes represented thereby shall be made by the
Trustee or the Custodian, at the direction of the Trustee, in such manner and
upon instructions given by the holder of such Notes in accordance with this
Indenture. Payment of principal of and interest and premium, if any (including
any redemption price), on the Global Note shall be made to the holder of such
Note.
The terms and provisions contained in the form of Note attached as Exhibit
A hereto shall constitute, and is hereby expressly made, a part of this
Indenture and to the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Section 2.3 Date and Denomination of Notes; Payments of Interest. The
----------------------------------------------------
Notes shall be issuable in registered form without coupons in denominations of
$1,000 principal amount and integral multiples thereof. Every Note shall be
dated the date of its authentication, and shall bear interest from the
applicable date and accrued interest shall be payable February 1 and August 1,
commencing August 1, 2000, as specified on the face of the form of Note attached
as Exhibit A hereto.
---------
The person in whose name any Note (or its Predecessor Note) is registered
at the close of business on any record date with respect to any interest payment
date (including any Note that is converted after the record date and on or
before the interest payment date) shall be entitled to receive the interest
payable on such interest payment date notwithstanding the cancellation of such
Note upon any transfer, exchange or conversion subsequent to the record date and
on or prior to such interest payment date; provided that, in the case of any
--------
Note, or portion thereof, called for redemption pursuant to Article III on a
redemption date, or repurchased by the Company pursuant to Article XVI on a
repurchase date, during the period from the close of business on the record date
to the close of business on the Business Day next preceding the following
interest payment date, interest shall not be paid to the person in whose name
the Note, or portion thereof, is registered on the close of business on such
record date, and the Company shall have no obligation to pay interest
-8-
<PAGE>
on such Note or portion thereof except to the extent required to be paid upon
such redemption or repurchase in accordance with Article III or Article XVI.
Interest may, at the option of the Company, be paid by check mailed to the
address of such person on the Note registry; provided that, with respect to any
--------
holder of Notes with an aggregate principal amount equal to or in excess of
$2,000,000, at the request of such holder in writing to the Company, interest on
such holder's Notes shall be paid by wire transfer in immediately available
funds to any bank located in the United States in accordance with the wire
transfer instruction supplied by such holder from time to time to the Trustee
and paying agent (if different from Trustee) at least two days prior to the
applicable record date; provided that any payment to the Depositary or its
--------
nominee shall be paid by wire transfer in immediately available funds in
accordance with the wire transfer instruction supplied by the Depositary or its
nominee from time to time to the Trustee and paying agent (if different from
Trustee) at least two days prior to the applicable record date. The term "record
date" with respect to any interest payment date shall mean the January 15 or
July 15 preceding said February 1 or August 1, respectively.
Interest on the Notes shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Any interest on any Note which is payable, but is not punctually paid or
duly provided for, on any said February 1 or August 1 (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Noteholder on the relevant
record date by virtue of his having been such Noteholder; and such Defaulted
Interest shall be paid by the Company, at its election in each case, as provided
in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the persons in whose names the Notes (or their respective Predecessor
Notes) are registered at the close of business on a special record date for
the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest to be paid on each Note and the date of the
payment (which shall be not less than twenty-five (25) days after the
receipt by the Trustee of such notice, unless the Trustee shall consent to
an earlier date), and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory
to the Trustee for such deposit prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the
persons entitled to such Defaulted Interest as in this clause provided.
Thereupon the Trustee shall fix a special record date for the payment of
such Defaulted Interest which shall be not more than fifteen (15) days and
not less than ten (10) days prior to the date of the proposed payment and
not less than ten (10) days after the receipt by the Trustee of the notice
of the proposed payment. The Trustee shall promptly notify the Company of
such special record date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted
Interest and the special record date therefor to be mailed, first-class
postage prepaid, to each Noteholder as of such special record date at his
address as it appears in the Note register, not less than ten (10) days
prior to such special record date. Notice of the proposed payment of such
Defaulted Interest and the
-9-
<PAGE>
special record date therefor having been so mailed, such Defaulted Interest
shall be paid to the persons in whose names the Notes (or their respective
Predecessor Notes) were registered at the close of business on such special
record date and shall no longer be payable pursuant to the following clause
(2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange or automated quotation system on which the Notes may be
listed or designated for issuance, and upon such notice as may be required
by such exchange or automated quotation system, if, after notice given by
the Company to the Trustee of the proposed payment pursuant to this clause,
such manner of payment shall be deemed practicable by the Trustee.
Section 2.4 Execution of Notes. The Notes shall be signed in the name
------------------
and on behalf of the Company by the facsimile signature of its President, its
Chief Executive Officer, any of its Executive or Senior Vice Presidents, or any
of its Vice Presidents (whether or not designated by a number or numbers or word
or words added before or after the title "Vice President") and attested by the
facsimile signature of its Secretary or any of its Assistant Secretaries (which
may be printed, engraved or otherwise reproduced thereon, by facsimile or
otherwise). Only such Notes as shall bear thereon a certificate of
authentication substantially in the form set forth on the form of Note attached
as Exhibit A hereto, manually executed by the Trustee (or an authenticating
agent appointed by the Trustee as provided by Section 17.11), shall be entitled
to the benefits of this Indenture or be valid or obligatory for any purpose.
Such certificate by the Trustee (or such an authenticating agent) upon any Note
executed by the Company shall be conclusive evidence that the Note so
authenticated has been duly authenticated and delivered hereunder and that the
holder is entitled to the benefits of this Indenture.
In case any officer of the Company who shall have signed any of the Notes
shall cease to be such officer before the Notes so signed shall have been
authenticated and delivered by the Trustee, or disposed of by the Company, such
Notes nevertheless may be authenticated and delivered or disposed of as though
the person who signed such Notes had not ceased to be such officer of the
Company; and any Note may be signed on behalf of the Company by such persons as,
at the actual date of the execution of such Note, shall be the proper officers
of the Company, although at the date of the execution of this Indenture any such
person was not such an officer.
Section 2.5 Exchange and Registration of Transfer of Notes; Restrictions
------------------------------------------------------------
on Transfer; Depositary.
- -----------------------
(a) The Company shall cause to be kept at the Corporate Trust Office
a register (the register maintained in such office and in any other office
or agency of the Company designated pursuant to Section 5.2 being herein
sometimes collectively referred to as the "Note register") in which,
subject to such reasonable regulations as it may prescribe, the Company
shall provide for the registration of Notes and of transfers of Notes. Such
register shall be in written form or in any form capable of being converted
into written form within a reasonable period of time. The Trustee is hereby
appointed "Note registrar" for the purpose
-10-
<PAGE>
of registering Notes and transfers of Notes as herein provided. The Company
may appoint one or more co-registrars in accordance with Section 5.2.
Upon surrender for registration of transfer of any Note to the Note
registrar or any co-registrar, and satisfaction of the requirements for
such transfer set forth in this Section 2.5, the Company shall execute, and
the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Notes of any authorized
denominations and of a like aggregate principal amount and bearing such
restrictive legends as may be required by this Indenture.
Notes may be exchanged for other Notes of any authorized denominations
and of a like aggregate principal amount, upon surrender of the Notes to be
exchanged at any such office or agency. Whenever any Notes are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Notes which the Noteholder making the
exchange is entitled to receive, bearing registration numbers not
contemporaneously outstanding.
All Notes presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company, the Trustee, the Note
registrar or any co-registrar) be duly endorsed, or be accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Company and duly executed, by the Noteholder thereof or his attorney-in-
fact duly authorized in writing.
No service charge shall be charged to the Noteholder for any exchange
or registration of transfer of Notes, but the Company may require payment
of a sum sufficient to cover any tax, assessments or other governmental
charges that may be imposed in connection therewith.
None of the Company, the Trustee, the Note registrar or any co-
registrar shall be required to exchange or register a transfer of (a) any
Notes for a period of fifteen (15) days next preceding the mailing of the
notice of redemption or (b) any Notes called for redemption or, if a
portion of any Note is selected or called for redemption, such portion
thereof selected or called for redemption or (c) any Notes surrendered for
conversion or, if a portion of any Note is surrendered for conversion, such
portion thereof surrendered for conversion or (d) any Notes, or a portion
of any Note, surrendered for repurchase (and not withdrawn) in connection
with a Repurchase Event.
All Notes issued upon any transfer or exchange of Notes in accordance
with this Indenture shall be the valid obligations of the Company,
evidencing the same debt, and entitled to the same benefits under this
Indenture as the Notes surrendered upon such registration of transfer or
exchange.
(b) So long as the Notes are eligible for book-entry settlement with
the Depositary, unless otherwise required by law, all Notes issued to QIBs
pursuant to Rule 144A of the Securities Act to be traded on The Portal
Market shall be represented by a Note in global form (the "Global Note")
registered in the name of the Depositary or the nominee of the
-11-
<PAGE>
Depositary. The transfer and exchange of beneficial interests in the Global
Note, which does not involve the issuance of a definitive Note, shall be
effected through the Depositary (but not the Trustee or the Custodian) in
accordance with this Indenture (including the restrictions on transfer set
forth herein) and the procedures of the Depositary therefor.
Notes resold to persons who are not QIBs will be issued in definitive
registered form and may not be represented by the Global Note. In addition,
at any time at the request of a QIB that is a beneficial holder of an
interest in the Global Note, such beneficial holder shall be entitled to
obtain a definitive Note upon written request to the Trustee and the
Custodian in accordance with the standing instructions and procedures
existing between the Depositary and the Custodian for the issuance thereof.
Upon receipt of any such request, the Trustee or the Custodian, at the
direction of the Trustee, will cause, in accordance with the standing
instructions and procedures existing between the Depositary and the
Custodian, the aggregate principal amount of the Global Note to be reduced
by the principal amount of the definitive Note issued upon such request to
such beneficial holder and, following such reduction, the Company will
execute and the Trustee will authenticate and deliver to such beneficial
holder (or its nominee) a definitive Note or Notes in the appropriate
aggregate principal amount in the name of such beneficial holder (or its
nominee) and bearing such restrictive legends as may be required by this
Indenture.
Any transfer of a beneficial interest in the Global Note which cannot
be effected through book-entry settlement must be effected by the delivery
to the transferee (or its nominee) of a definitive Note or Notes registered
in the name of the transferee (or its nominee) on the books maintained by
the Trustee in accordance with the transfer restrictions set forth herein.
With respect to any such transfer, the Trustee or the Custodian, at the
direction of the Trustee, will cause, in accordance with the standing
instructions and procedures existing between the Depositary and the
Custodian, the aggregate principal amount of the Global Note to be reduced
by the principal amount of the beneficial interest in the Global Note being
transferred and, following such reduction, the Company will execute and the
Trustee will authenticate and deliver to the transferee (or such
transferee's nominee, as the case may be), a Note or Notes in the
appropriate aggregate principal amount in the name of such transferee (or
its nominee) and bearing such restrictive legends as may be required by
this Indenture.
(c) So long as the Notes are eligible for book-entry settlement,
unless otherwise required by law, upon any transfer of a definitive Note to
a QIB in accordance with Rule 144A, unless otherwise requested by the
transferor, and upon receipt of the definitive Note or Notes being so
transferred, together with a certification from the transferor that the
transferee is a QIB (or other evidence satisfactory to the Trustee), the
Trustee shall make or direct the Custodian to make, an endorsement on the
Global Note to reflect an increase in the aggregate principal amount of the
Notes represented by the Global Note by the principal amount of the Note
being transferred to the QIB, the Trustee shall cancel such definitive Note
or Notes and cause, or direct the Custodian to cause, in accordance with
the standing instructions and procedures existing between the Depositary
and the Custodian, the aggregate principal
-12-
<PAGE>
amount of Notes represented by the Global Note to be increased accordingly;
provided that no definitive Note, or portion thereof, in respect of which
--------
the Company or an Affiliate of the Company held any beneficial interest
shall be included in the Global Note until such definitive Note is freely
tradable in accordance with Rule 144(k); provided further that the Trustee
-------- -------
shall authenticate and deliver Notes in definitive form upon any transfer
of a beneficial interest in the Global Note to the Company or any Affiliate
of the Company.
Upon any subsequent sale or transfer of a Note or the Common Stock
issued upon conversion thereof that bears the restrictive legend set forth
in Section 2.5(d) or Section 2.5(e), respectively, to an Institutional
Accredited Investor (other than pursuant to a registration statement that
has been declared effective under the Securities Act), such Institutional
Accredited Investor shall, prior to such sale or transfer, furnish to the
Company and/or the Trustee a signed letter containing representations and
agreements relating to restrictions on transfer substantially in the form
set forth in Exhibit B to this Indenture.
---------
Any Global Note may be endorsed with or have incorporated in the text
thereof such legends or recitals or changes not inconsistent with the
provisions of this Indenture as may be required by the Custodian, the
Depositary or by the National Association of Securities Dealers, Inc. in
order for the Notes to be tradeable on The Portal Market or as may be
required for the Notes to be tradeable on any other market developed for
trading of securities pursuant to Rule 144A or required to comply with any
applicable law or any regulation thereunder or with the rules and
regulations of any securities exchange or automated quotation system upon
which the Notes may be listed or traded or designated for issuance or to
conform with any usage with respect thereto, or to indicate any special
limitations or restrictions to which any particular Notes are subject.
(d) Every Note that bears or is required under this Section 2.5(d) to
bear either of the legends set forth in this Section 2.5(d) (together with
any Common Stock issued upon conversion of the Notes and required to bear
either of the legends set forth in Section 2.5(e), collectively, the
"Restricted Securities") shall be subject to the restrictions on transfer
set forth in this Section 2.5(d) (including one of the legends set forth
below), unless such restrictions on transfer shall be waived by written
consent of the Company, and the holder of each such Restricted Security, by
such holder's acceptance thereof, agrees to be bound by all such
restrictions on transfer. As used in Sections 2.5(d) and 2.5(e), the term
"transfer" encompasses any sale, pledge, transfer or other disposition
whatsoever of any Restricted Security.
Until two (2) years after the original issuance date of any Note, any
certificate evidencing such Note (and all securities issued in exchange
therefor or substitution thereof, other than Common Stock, if any, issued
upon conversion thereof which shall bear the legend set forth in Section
2.5(e), if applicable) shall bear a legend in substantially the following
form (unless such Notes have been transferred pursuant to a registration
statement that has been declared effective under the Securities Act (and
which continues to be effective at the time of such transfer), pursuant to
the exemption from registration provided by Rule 144
-13-
<PAGE>
under the Securities Act, or unless otherwise agreed by the Company in
writing, with notice thereof to the Trustee):
THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED
OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY
ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A)
IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL
ACCREDITED INVESTOR"); (2) AGREES THAT IT WILL NOT WITHIN
TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED
HEREBY RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED
HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH
NOTE EXCEPT (A) TO E*TRADE GROUP, INC. OR ANY SUBSIDIARY
THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO
AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH
TRANSFER, FURNISHES TO THE BANK OF NEW YORK, AS TRUSTEE, A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE
NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE), (D) OUTSIDE THE UNITED STATES IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE
144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT
TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO
BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); AND (3) AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE
EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER
PURSUANT TO CLAUSE 2(F) ABOVE) A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF
THE NOTE EVIDENCED HEREBY WITHIN TWO YEARS AFTER THE
ORIGINAL ISSUANCE OF SUCH NOTE (OTHER THAN A
-14-
<PAGE>
TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE), THE HOLDER MUST
CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF
RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS
CERTIFICATE TO THE BANK OF NEW YORK, AS TRUSTEE. IF THE
PROPOSED TRANSFER IS PURSUANT TO CLAUSE 2(E) OR 2(F) ABOVE,
THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE BANK
OF NEW YORK, AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL OPINIONS
OR OTHER INFORMATION AS E*TRADE GROUP, INC. MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT
TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS
LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF
THIS NOTE EVIDENCED HEREBY PURSUANT TO CLAUSE 2(E) OR 2(F)
ABOVE OR THE EXPIRATION OF TWO YEARS FROM THE ORIGINAL
ISSUANCE OF THE NOTE EVIDENCED HEREBY.
Any Note (or security issued in exchange or substitution therefor) as
to which such restrictions on transfer shall have expired in accordance
with their terms may, upon surrender of such Note for exchange to the Note
registrar in accordance with the provisions of this Section 2.5, be
exchanged for a new Note or Notes, of like tenor and aggregate principal
amount, which shall not bear the restrictive legend required by this
Section 2.5(d).
Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in this Section 2.5(d)), the Global Note may not be
transferred as a whole or in part except by the Depositary to a nominee of
the Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or any such nominee
to a successor Depositary or a nominee of such successor Depositary.
The Depositary shall be a clearing agency registered under the
Exchange Act. The Company initially appoints The Depository Trust Company
to act as Depositary with respect to the Global Note. Initially, the
Global Note shall be issued to the Depositary, registered in the name of
Cede & Co., as the nominee of the Depositary, and deposited with the
Trustee as custodian for Cede & Co.
If at any time the Depositary for the Global Note notifies the Company
that it is unwilling or unable to continue as Depositary for such Note, the
Company may appoint a successor Depositary with respect to such Note. If a
successor Depositary for the Global Note is not appointed by the Company
within ninety (90) days after the Company receives such notice, the Company
will execute, and the Trustee, upon receipt of an Officers' Certificate for
the authentication and delivery of Notes, will authenticate and deliver,
Notes
-15-
<PAGE>
in definitive form, in an aggregate principal amount equal to the principal
amount of the Global Note, in exchange for the Global Note, and upon
delivery of the Global Note to the Trustee the Global Note shall be
canceled.
If a Note in certificated form is issued in exchange for any portion
of a Global Note after the close of business on any record date at the
office or agency where such exchange occurs and before the opening of
business at such office or agency on the next succeeding interest payment
date, interest will not be payable on such interest payment date in respect
of such certificated Note, but will be payable on such interest payment
date only with respect to the exchanged portion of the Global Note in
accordance with the provisions of this Indenture.
Definitive Notes issued in exchange for all or a part of the Global
Note pursuant to this Section 2.5(d) shall be registered in such names and
in such authorized denominations as the Depositary, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. Upon execution and authentication, the Trustee shall
deliver such definitive Notes to the persons in whose names such definitive
Notes are so registered.
At such time as all interests in the Global Note have been redeemed,
converted, canceled, repurchased or transferred, the Global Note shall be,
upon receipt thereof, canceled by the Trustee in accordance with standing
procedures and instructions existing between the Depositary and the
Custodian. At any time prior to such cancellation, if any interest in the
Global Note is exchanged for definitive Notes, redeemed, converted,
canceled, repurchased or transferred to a transferee who receives
definitive Notes therefor or any definitive Note is exchanged or
transferred for part of the Global Note, the principal amount of the Global
Note shall, in accordance with the standing procedures and instructions
existing between the Depositary and the Custodian, be appropriately reduced
or increased, as the case may be, and an endorsement shall be made on the
Global Note, by the Trustee or the Custodian, at the direction of the
Trustee, to reflect such reduction or increase.
(e) Until two (2) years after the original issuance date of any Note,
any stock certificate representing Common Stock issued upon conversion of
such Note shall bear a legend in substantially the following form (unless
such Common Stock has been sold pursuant to the exemption from registration
provided by Rule 144 under the Securities Act or pursuant to a registration
statement that has been declared effective under the Securities Act, and
which continues to be effective at the time of such transfer, or such
Common Stock has been issued upon conversion of Notes that have been
transferred pursuant to a registration statement that has been declared
effective under the Securities Act, or unless otherwise agreed by the
Company with written notice thereof to the Trustee and any transfer agent
for the Common Stock):
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT
BE OFFERED OR SOLD
-16-
<PAGE>
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER
HEREOF AGREES THAT UNTIL THE EXPIRATION OF TWO YEARS AFTER
THE ORIGINAL ISSUANCE OF THE NOTE UPON THE CONVERSION OF
WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED, (1) IT
WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON STOCK
EVIDENCED HEREBY EXCEPT (A) TO E*TRADE GROUP, INC. OR ANY
SUBSIDIARY THEREOF, (B) TO A "QUALIFIED INSTITUTIONAL BUYER"
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN
COMPLIANCE WITH RULE 144A, (C) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT) THAT PRIOR TO SUCH
TRANSFER, FURNISHES TO AMERICAN STOCK TRANSFER AND TRUST
COMPANY, AS TRANSFER AGENT, A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THE COMMON STOCK EVIDENCED
HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH
TRANSFER AGENT), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE
WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE
EFFECTIVE AT THE TIME OF SUCH TRANSFER); (2) PRIOR TO ANY
SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(f)
ABOVE), IT WILL FURNISH TO AMERICAN STOCK TRANSFER AND TRUST
COMPANY, AS TRANSFER AGENT, SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT
TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND (3)
IT WILL DELIVER TO EACH PERSON TO WHOM THE COMMON STOCK
EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER
PURSUANT TO CLAUSE 1(f) ABOVE) A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE
EARLIER OF THE TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY
PURSUANT TO CLAUSE 1(E) OR 1(F) ABOVE OR THE EXPIRATION OF
-17-
<PAGE>
TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE NOTE UPON THE
CONVERSION OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS
ISSUED.
Any such Common Stock as to which such restrictions on transfer shall
have expired in accordance with their terms may, upon surrender of the
certificates representing such shares of Common Stock for exchange in
accordance with the procedures of the transfer agent for the Common Stock,
be exchanged for a new certificate or certificates for a like aggregate
number of shares of Common Stock, which shall not bear the restrictive
legend required by this Section 2.5(e).
(f) Any Note or Common Stock issued upon the conversion or exchange
of a Note that, prior to the expiration of the holding period applicable to
sales thereof under Rule 144(k) under the Securities Act (or any successor
provision), is purchased or owned by the Company or any Affiliate thereof
may not be resold by the Company or such Affiliate unless registered under
the Securities Act or resold pursuant to an exemption from the registration
requirements of the Securities Act in a transaction that results in such
Notes or Common Stock, as the case may be, no longer being "restricted
securities" (as defined under Rule 144).
(g) Notwithstanding any provision of Section 2.5 to the contrary, in
the event Rule 144(k) as promulgated under the Securities Act (or any
successor rule) is amended to change the two-year period under Rule 144(k)
(or the corresponding period under any successor rule), from and after
receipt by the Trustee of the Officers' Certificate and Opinion of Counsel
provided for in this Section 2.5(g), (i) each reference in Section 2.5(d)
to "two (2) years" and in the restrictive legend set forth in such
paragraph to "TWO YEARS" shall be deemed for all purposes hereof to be
references to such changed period, (ii) each reference in Section 2.5(e) to
"two (2) years" and in the restrictive legend set forth in such paragraph
to "TWO YEARS" shall be deemed for all purposes hereof to be references to
such changed period and (iii) all corresponding references in the Notes and
the restrictive legends thereon shall be deemed for all purposes hereof to
be references to such changed period, provided that such changes shall not
become effective if they are otherwise prohibited by, or would otherwise
cause a violation of, the then-applicable federal securities laws. As soon
as practicable after the Company has knowledge of the effectiveness of any
such amendment to change the two-year period under Rule 144(k) (or the
corresponding period under any successor rule), unless such changes would
otherwise be prohibited by, or would otherwise cause a violation of, the
then-applicable securities law, the Company shall provide to the Trustee an
Officers' Certificate and Opinion of Counsel informing the Trustee of the
effectiveness of such amendment and the effectiveness of the foregoing
changes to Sections 2.5(d) and 2.5(e) and the Notes. The provisions of this
Section 2.5(g) will not be effective until such time as the Opinion of
Counsel and Officers' Certificate have been received by the Trustee
hereunder. This Section 2.5(g) shall apply to successive amendments to Rule
144(k) (or any successor rule) changing the holding period thereunder.
-18-
<PAGE>
(h) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Note (including any transfers between or
among depositary participants or beneficial owners of interests in any
Global Note) other than to require delivery of such certificates and other
documentation or evidence as are expressly required by, and to do so if and
when expressly required by the terms of, this Indenture, and to examine the
same to determine substantial compliance as to form with the express
requirements hereof.
Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes. In case any
------------------------------------------
Note shall become mutilated or be destroyed, lost or stolen, the Company in its
discretion may execute, and upon its request the Trustee or an authenticating
agent appointed by the Trustee shall authenticate and deliver, a new Note,
bearing a number not contemporaneously outstanding, in exchange and substitution
for the mutilated Note, or in lieu of and in substitution for the Note so
destroyed, lost or stolen. In every case the applicant for a substituted Note
shall furnish to the Company, to the Trustee and, if applicable, to such
authenticating agent such security or indemnity as required by them to save each
of them harmless for any loss, liability, cost or expense caused by or connected
with such substitution, and, in every case of destruction, loss or theft, the
applicant shall also furnish to the Company, to the Trustee and, if applicable,
to such authenticating agent evidence to their satisfaction of the destruction,
loss or theft of such Note and of the ownership thereof.
The Trustee or such authenticating agent may authenticate any such
substituted Note and deliver the same upon the receipt of such security or
indemnity as the Trustee, the Company and, if applicable, such authenticating
agent may require. Upon the issuance of any substituted Note, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses connected
therewith. In case any Note which has matured or is about to mature or has been
called for redemption or is about to be converted into Common Stock shall become
mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a
substitute Note, pay or authorize the payment of or convert or authorize the
conversion of the same (without surrender thereof except in the case of a
mutilated Note), as the case may be, if the applicant for such payment or
conversion shall furnish to the Company, to the Trustee and, if applicable, to
such authenticating agent such security or indemnity will be required by them to
save each of them harmless for any loss, liability, cost or expense caused by or
connected with such substitution, and, in case of destruction, loss or theft,
evidence satisfactory to the Company, the Trustee and, if applicable, any paying
agent or conversion agent of the destruction, loss or theft of such Note and of
the ownership thereof.
Every substitute Note issued pursuant to the provisions of this Section 2.6
by virtue of the fact that any Note is destroyed, lost or stolen shall
constitute an additional contractual obligation of the Company, whether or not
the destroyed, lost or stolen Note shall be found at any time, and shall be
entitled to all the benefits of (but shall be subject to all the limitations set
forth in) this Indenture equally and proportionately with any and all other
Notes duly issued hereunder. To the extent permitted by law, all Notes shall be
held and owned upon the express condition that the foregoing provisions are
exclusive with respect to the replacement or payment or conversion of mutilated,
-19-
<PAGE>
destroyed, lost or stolen Notes and shall preclude any and all other rights or
remedies notwithstanding any law or statute existing or hereafter enacted to the
contrary with respect to the replacement or payment or conversion of negotiable
instruments or other securities without their surrender.
Section 2.7 Temporary Notes. Pending the preparation of definitive
---------------
Notes, the Company may execute and the Trustee or an authenticating agent
appointed by the Trustee shall, upon written request of the Company,
authenticate and deliver temporary Notes (printed or lithographed). Temporary
Notes shall be issuable in any authorized denomination, and substantially in the
form of the definitive Notes but with such omissions, insertions and variations
as may be appropriate for temporary Notes, all as may be determined by the
Company. Every such temporary Note shall be executed by the Company and
authenticated by the Trustee or such authenticating agent upon the same
conditions and in substantially the same manner, and with the same effect, as
the definitive Notes. Without unreasonable delay the Company will execute and
deliver to the Trustee or such authenticating agent definitive Notes (other than
in the case of Notes in global form) and thereupon any or all temporary Notes
(other than any the Global Note) may be surrendered in exchange therefor, at
each office or agency maintained by the Company pursuant to Section 5.2 and the
Trustee or such authenticating agent shall authenticate and deliver in exchange
for such temporary Notes an equal aggregate principal amount of definitive
Notes. Such exchange shall be made by the Company at its own expense and without
any charge therefor. Until so exchanged, the temporary Notes shall in all
respects be entitled to the same benefits and subject to the same limitations
under this Indenture as definitive Notes authenticated and delivered hereunder.
Section 2.8 Cancellation of Notes Paid, Etc. All Notes surrendered for
-------------------------------
the purpose of payment, redemption, repurchase, conversion, exchange or
registration of transfer, shall, if surrendered to the Company or any paying
agent or any Note registrar or any conversion agent, be surrendered to the
Trustee and promptly canceled by it, or, if surrendered to the Trustee, shall be
promptly canceled by it, and no Notes shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Indenture. Upon written
instructions of the Company, the Trustee shall dispose of canceled Notes in
accordance with its customary procedures. If the Company shall acquire any of
the Notes, such acquisition shall not operate as a redemption or satisfaction of
the indebtedness represented by such Notes unless and until the same are
delivered to the Trustee for cancellation.
Section 2.9 CUSIP Numbers. The Company in issuing the Securities may
-------------
use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided that any such notice may state that no representation is made as to the
- --------
correctness of such numbers either as printed on the Notes or as contained in
any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Notes, and any such redemption shall not
be affected by any defect in or omission of such numbers. The Company will
promptly notify the Trustee of any change in the "CUSIP" numbers.
-20-
<PAGE>
ARTICLE III
REDEMPTION OF NOTES
Section 3.1 Redemption Prices. The Company may, at its option, redeem
all or from time to time any part of the Notes on any date prior to maturity,
upon notice as set forth in Section 3.2, and at the optional redemption prices
set forth in the form of Note attached as Exhibit A hereto, together with
accrued interest, if any, to, but excluding, the date fixed for redemption,
provided, however, that no such redemption shall be effected before February 4,
- -------- -------
2003.
Section 3.2 Notice of Redemption; Selection of Notes. In case the
----------------------------------------
Company shall desire to exercise the right to redeem all or, as the case may be,
any part of the Notes pursuant to Section 3.1, it shall fix a date for
redemption, and it, or at its request (which must be received by the Trustee at
least ten (10) Business Days prior to the date the Trustee is requested to give
notice as described below unless a shorter period is agreed to by the Trustee),
the Trustee in the name of and at the expense of the Company, shall mail or
cause to be mailed a notice of such redemption at least twenty (20) and not more
than sixty (60) days prior to the date fixed for redemption to the holders of
Notes so to be redeemed as a whole or in part at their last addresses as the
same appear on the Note register (provided that if the Company shall give such
--------
notice, it shall also give such notice, and notice of the Notes to be redeemed,
to the Trustee). Such mailing shall be by first class mail. The notice if mailed
in the manner herein provided shall be conclusively presumed to have been duly
given, whether or not the holder receives such notice. In any case, failure to
give such notice by mail or any defect in the notice to the holder of any Note
designated for redemption as a whole or in part shall not affect the validity of
the proceedings for the redemption of any other Note.
Each such notice of redemption shall specify the aggregate principal amount
of Notes to be redeemed, the CUSIP number or numbers of such Notes, the date
fixed for redemption, the redemption price at which Notes are to be redeemed,
the place or places of payment, that payment will be made upon presentation and
surrender of such Notes, that interest accrued to, but excluding, the date fixed
for redemption will be paid as specified in said notice, and that on and after
said date interest thereon or on the portion thereof to be redeemed will cease
to accrue. Such notice shall also state the current Conversion Price and the
date on which the right to convert such Notes or portions thereof into Common
Stock will expire. If fewer than all the Notes are to be redeemed, the notice
of redemption shall identify the Notes to be redeemed. In case any Note is to
be redeemed in part only, the notice of redemption shall state the portion of
the principal amount thereof to be redeemed and shall state that on and after
the date fixed for redemption, upon surrender of such Note, a new Note or Notes
in principal amount equal to the unredeemed portion thereof will be issued.
On or prior to the redemption date specified in the notice of redemption
given as provided in this Section, the Company will deposit with the Trustee or
with one or more paying agents (or, if the Company is acting as its own paying
agent, set aside, segregate and hold in trust as provided in Section 5.4) an
amount of money sufficient to redeem on the redemption date all the Notes (or
portions thereof) so called for redemption (other than those theretofore
surrendered for conversion into Common Stock) at the appropriate redemption
price, together with accrued interest to, but
-21-
<PAGE>
excluding, the date fixed for redemption; provided that if such payment is made
--------
on the redemption date it must be received by the Trustee or paying agent, as
the case may be, by 10:00 a.m. New York City time, on such date. If any Note
called for redemption is converted pursuant hereto, any money deposited with the
Trustee or any paying agent or so segregated and held in trust for the
redemption of such Note shall be paid to the Company upon its request, or, if
then held by the Company shall be discharged from such trust.
If fewer than all the Notes are to be redeemed, the Company will give the
Trustee written notice in the form of an Officers' Certificate not fewer than
thirty-five (35) days (or such shorter period of time as may be acceptable to
the Trustee) prior to the redemption date as to the aggregate principal amount
of Notes to be redeemed. If fewer than all the Notes are to be redeemed, the
Trustee shall select the Notes or portions thereof to be redeemed (in principal
amounts of $1,000 or integral multiples thereof), on a pro rata basis, or by a
method the Trustee considers fair and appropriate (as long as such method is not
prohibited by the rules of any United States national securities exchange or of
an established automated over-the-counter trading market in the United States on
which the Notes are then listed). If any Note selected for partial redemption
is converted in part after such selection, the converted portion of such Note
shall be deemed (so far as is possible) to be the portion to be selected for
redemption. The Notes (or portions thereof) so selected shall be deemed duly
selected for redemption for all purposes hereof, notwithstanding that any such
Note is converted as a whole or in part before the mailing of the notice of
redemption.
Upon any redemption of less than all Notes, the Company and the Trustee may
(but need not) treat as outstanding any Notes surrendered for conversion during
the period of fifteen (15) days next preceding the mailing of a notice of
redemption and may (but need not) treat as not outstanding any Note
authenticated and delivered during such period in exchange for the unconverted
portion of any Note converted in part during such period.
Section 3.3 Payment of Notes Called for Redemption. If notice of
--------------------------------------
redemption has been given as above provided, the Notes or portion of Notes with
respect to which such notice has been given shall, unless converted into Common
Stock pursuant to the terms hereof, become due and payable on the date and at
the place or places stated in such notice at the applicable redemption price,
together with interest accrued to, but excluding, the date fixed for redemption,
and on and after said date (unless the Company shall default in the payment of
such Notes at the redemption price, together with interest accrued to, but
excluding, said date) interest on the Notes or portion of Notes so called for
redemption shall cease to accrue and such Notes shall cease after the close of
business on the Business Day next preceding the date fixed for redemption to be
convertible into Common Stock and, except as provided in Sections 8.5 and 13.4,
to be entitled to any benefit or security under this Indenture, and the holders
thereof shall have no right in respect of such Notes except the right to receive
the redemption price thereof and unpaid interest to, but excluding, the date
fixed for redemption. On presentation and surrender of such Notes at a place of
payment in said notice specified, the said Notes or the specified portions
thereof to be redeemed shall be paid and redeemed by the Company at the
applicable redemption price, together with interest accrued thereon to, but
excluding, the date fixed for redemption; provided that, if the applicable
--------
redemption date is an interest payment date, the semi-annual payment of interest
becoming due on such date shall be
-22-
<PAGE>
payable to the holders of such Notes registered as such on the relevant record
date subject to the terms and provisions of Section 2.3 hereof.
Upon presentation of any Note redeemed in part only, the Company shall
execute and the Trustee shall authenticate and deliver to the holder thereof, at
the expense of the Company, a new Note or Notes, of authorized denominations, in
principal amount equal to the unredeemed portion of the Notes so presented.
Notwithstanding the foregoing, the Trustee shall not redeem any Notes or
mail any notice of optional redemption during the continuance of a default in
payment of interest or premium on the Notes or of any Event of Default of which,
in the case of any Event of Default other than under Section 7.1(a), (b) or (e),
a Responsible Officer of the Trustee has actual knowledge. If any Note called
for redemption shall not be so paid upon surrender thereof for redemption, the
principal and premium, if any, shall, until paid or duly provided for, bear
interest from the date fixed for redemption at the rate borne by the Note and
such Note shall remain convertible into Common Stock until the principal and
premium, if any, shall have been paid or duly provided for.
Section 3.4 Conversion Arrangement on Call for Redemption. In
---------------------------------------------
connection with any redemption of Notes, the Company may arrange for the
purchase and conversion of any Notes not converted prior to the expiration of
such conversion right by an agreement with one or more investment bankers or
other purchasers to purchase such Notes by paying to the Trustee in trust for
the Noteholders, on or before the date fixed for redemption, an amount not less
than the applicable redemption price, together with interest accrued to the date
fixed for redemption, of such Notes. Notwithstanding anything to the contrary
contained in this Article III, the obligation of the Company to pay the
redemption price of such Notes, together with interest accrued to, but
excluding, the date fixed for redemption, shall be deemed to be satisfied and
discharged to the extent such amount is so paid by such purchasers. If such an
agreement is entered into, a copy of which, certified as true and correct by the
Secretary or Assistant Secretary of the Company will be filed with the Trustee
prior to the date fixed for redemption, any Notes not duly surrendered for
conversion by the holders thereof may, at the option of the Company, be deemed,
to the fullest extent permitted by law, acquired by such purchasers from such
holders and (notwithstanding anything to the contrary contained in Article XV)
surrendered by such purchasers for conversion, all as of immediately prior to
the close of business on the date fixed for redemption (and the right to convert
any such Notes shall be deemed to have been extended through such time), subject
to payment of the above amount as aforesaid. At the direction of the Company,
the Trustee shall hold and dispose of any such amount paid to it in the same
manner as it would monies deposited with it by the Company for the redemption of
Notes. Without the Trustee's prior written consent, no arrangement between the
Company and such purchasers for the purchase and conversion of any Notes shall
increase or otherwise affect any of the powers, duties, responsibilities or
obligations of the Trustee as set forth in this Indenture, and the Company
agrees to indemnify the Trustee from, and hold it harmless against, any loss,
liability or expense arising out of or in connection with any such arrangement
for the purchase and conversion of any Notes between the Company and such
purchasers, including the costs and expenses incurred by the Trustee in the
defense of any claim or liability arising out of or in
-23-
<PAGE>
connection with the exercise or performance of any of its powers, duties,
responsibilities or obligations under this Indenture.
ARTICLE IV
SUBORDINATION OF NOTES
Section 4.1 Agreement of Subordination. The Company covenants and
--------------------------
agrees, and each holder of Notes issued hereunder by his acceptance thereof
likewise covenants and agrees, that all Notes shall be issued subject to the
provisions of this Article IV; and each person holding any Note, whether upon
original issue or upon transfer, assignment or exchange thereof, accepts and
agrees to be bound by such provisions.
The payment of the principal of, premium, if any, and interest on all Notes
(including, but not limited to, the redemption price or repurchase price with
respect to the Notes to be redeemed or repurchased, as provided in this
Indenture) issued hereunder shall, to the extent and in the manner hereinafter
set forth, be subordinated to the prior payment in full, in cash or in such
other form of payment as may be acceptable to the holders of Senior
Indebtedness, of all Senior Indebtedness, whether outstanding at the date of
this Indenture or thereafter incurred or created.
No provision of this Article IV shall prevent the occurrence of any default
or Event of Default hereunder.
Section 4.2 Payments to Noteholders. No payment (including pursuant to
-----------------------
any redemption or repurchase of Notes) shall be made with respect to the
principal of, or premium, if any, or interest (including Liquidated Damages, if
any) on the Notes, except payments and distributions made by the Trustee as
permitted by Section 4.6, if:
(1) a default in the payment of principal, premium, if any, or
interest or other payment due on Designated Senior Indebtedness occurs and
is continuing beyond any applicable period of grace; or
(2) any other default occurs and is continuing with respect to
Designated Senior Indebtedness that then permits holders of the Designated
Senior Indebtedness as to which such default related to accelerate its
maturity and the Trustee and the Company receive a written notice of such
default (a "Payment Blockage Notice") from a representative of Designated
Senior Indebtedness or a holder of Designated Senior Indebtedness or the
Company.
The Company may and shall resume payments on the Notes (1) in the case of a
payment default, on the date upon which such default is cured or waived or
ceases to exist, and (2) in the case of a nonpayment default with respect to
Designated Senior Indebtedness, on the earlier of the date on which the
nonpayment default is cured or waived or ceases to exist or 179 days have passed
after the date on which the applicable Payment Blockage Notice is received.
-24-
<PAGE>
No new period of payment blockage may be commenced pursuant to a Payment
Blockage Notice unless (A) at least 365 days shall have elapsed since the
Company's receipt of the immediately prior Payment Blockage Notice and (B) all
scheduled payments of principal, premium, if any, and interest on the Notes that
have come due have been paid in full in cash, or in such other form of payment
as may be acceptable to the holders of the Notes, and the Trustee or the
requisite holders of Notes shall not have begun proceedings to enforce the right
of the holders to receive payments. No default (whether or not such event of
default is on the same issue of Designated Senior Indebtedness) that existed or
was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice.
In addition, in the event of any acceleration of the Notes because of an
Event of Default, no payment or distribution (including with respect to any
redemption or repurchase of the Notes) shall be made to the Trustee or any
holder of Notes with respect to the principal of, premium, if any, or interest
(including Liquidated Damages, if any) on the Notes, except payments and
distributions made by the Trustee as permitted by Section 4.6, until all Senior
Indebtedness has been paid in full in cash or other payment satisfactory to the
holders of Senior Indebtedness or such acceleration is rescinded in accordance
with the terms of this Indenture. If payment of the Notes is accelerated
because of an Event of Default, the Company shall promptly notify holders of
Senior Indebtedness of the acceleration.
Notwithstanding the foregoing, in the event that the Trustee or any holder
of Notes receives any payment or distribution of assets of the Company of any
kind in contravention of any term of this Indenture, whether in cash, property
or securities, including, without limitation, by way of setoff or otherwise,
before all Senior Indebtedness is paid in full, in cash or such other form of
payment as may be acceptable to the holders of Senior Indebtedness, then such
payment or distribution shall be held by the recipient or recipients in trust
for the benefit of, and shall immediately be paid over or delivered to, the
holders of Senior Indebtedness or their respective representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any Senior Indebtedness may have been issued,
as their respective interests may appear, as calculated by the Company, for
application to the payment of all Senior Indebtedness remaining unpaid to the
extent necessary to make payment in full, in cash or such other form of payment
as may be acceptable to the holders of Senior Indebtedness, of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution, or provision therefor, to or for the holders of such Senior
Indebtedness.
Nothing in this Section 4.2 shall apply to claims of, or payments to, the
Trustee pursuant to Section 8.6. This Section 4.2 shall be subject to the
further provisions of Section 4.6.
Section 4.3 Bankruptcy and Dissolution, Etc. Upon any payment by the
-------------------------------
Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to creditors upon any dissolution,
winding-up, liquidation or reorganization of the Company, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings, all
amounts due or to become due upon all Senior Indebtedness shall first be paid in
full, in cash or in such other form of payment as may be acceptable to the
holders of Senior
-25-
<PAGE>
Indebtedness, before any payment is made on account of the principal or premium,
if any, and interest on the Notes (except payments made pursuant to Article XIII
from monies deposited with the Trustee pursuant thereto prior to the happening
of such dissolution, winding-up, liquidation or reorganization or bankruptcy,
insolvency, receivership or other such proceedings); and upon any such
dissolution, winding-up, liquidation or reorganization or bankruptcy,
insolvency, receivership or other such proceedings, any payment by the Company,
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, to which the holders of the Notes or the Trustee
under this Indenture would be entitled, except for the provision of this Article
IV, shall (except as aforesaid) be paid by the Company or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, or by the holders of the Notes or by the Trustee under
this Indenture if received by them or it, directly to the holders of Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts of
Senior Indebtedness held by such holders, or as otherwise required by law or a
court order) or their respective representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, to the extent necessary to pay all Senior Indebtedness in
full in cash or in such other form of payment as may be acceptable to the
holders of Senior Indebtedness after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness, before any payment or
distribution is made to the holders of the Notes or to the Trustee under this
Indenture.
Notwithstanding the foregoing, in the event that the Trustee or any holder
of Notes receives any payment or distribution of assets of the Company of any
kind in contravention of any term of this Indenture, whether in cash, property
or securities, including, without limitation, by way of setoff or otherwise,
before all Senior Indebtedness is paid in full, in cash or such other form of
payment as may be acceptable to the holders of Senior Indebtedness, then such
payment or distribution shall be held by the recipient or recipients in trust
for the benefit of, and shall immediately be paid over or delivered to, the
holders of Senior Indebtedness or their respective representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any Senior Indebtedness may have been issued,
as their respective interests may appear, as calculated by the Company, for
application to the payment of all Senior Indebtedness remaining unpaid to the
extent necessary to make payment in full, in cash or such other form of payment
as may be acceptable to the holders of Senior Indebtedness, of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution, or provision therefor, to or for the holders of such Senior
Indebtedness.
For purposes of Section 4.2 hereof and this Section 4.3, the words "cash,
property or securities" shall not be deemed to include shares of stock of the
Company as reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated (at least to the extent provided in this
Article IV with respect to the Notes) to the payment of all Senior Indebtedness
which may at the time be outstanding; provided that (i) the Senior Indebtedness
--------
is assumed by the new corporation, if any, resulting from such reorganization or
adjustment, and (ii) the rights of the holders of Senior Indebtedness (other
than leases which are not assumed by the Company or by the new corporation, as
the case may be) are not, without the consent of such holders, altered by such
-26-
<PAGE>
reorganization or readjustment. The consolidation of the Company with, or the
merger of the Company into, another corporation or the liquidation or
dissolution of the Company following the conveyance or transfer of its property
as an entirety, or substantially as an entirety, to another corporation upon the
terms and conditions provided for in Article XII shall not be deemed a
dissolution, winding-up, liquidation or reorganization for the purposes of this
Section 4.3 if such other corporation shall, as a part of such consolidation,
merger, conveyance or transfer, comply with the conditions stated in Article
XII.
Nothing in this Section 4.3 shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 8.6. This Section 4.3 shall be subject to
the further provisions of Section 4.6.
Section 4.4 Subrogation of Notes. Subject to the payment in full in
--------------------
cash or in such other form of payment as may be acceptable to the holders of
Senior Indebtedness of all Senior Indebtedness, the rights of the holders of the
Notes shall be subrogated to the extent of the payments or distributions made to
the holders of such Senior Indebtedness pursuant to the provisions of this
Article IV (equally and ratably with the holders of all indebtedness of the
Company which by its express terms is subordinated to other indebtedness of the
Company to substantially the same extent as the Notes are subordinated and is
entitled to like rights of subrogation) to the rights of the holders of Senior
Indebtedness to receive payments or distributions of cash, property or
securities of the Company applicable to the Senior Indebtedness until the
principal of, and premium, if any, and interest on the Notes shall be paid in
full; and, for the purposes of such subrogation, no payments or distributions to
the holders of the Senior Indebtedness of any cash, property or securities to
which the holders of the Notes or the Trustee would be entitled except for the
provisions of this Article IV, and no payment over pursuant to the provisions of
this Article IV, to or for the benefit of the holders of Senior Indebtedness by
holders of the Notes or the Trustee, shall, as between the Company, its
creditors other than holders of Senior Indebtedness, and the holders of the
Notes, be deemed to be a payment by the Company to or on account of the Senior
Indebtedness; and no payments or distributions of cash, property or securities
to or for the benefit of the holders of the Notes pursuant to the subrogation
provisions of this Article IV, which would otherwise have been paid to the
holders of Senior Indebtedness shall be deemed to be a payment by the Company to
or for the account of the Notes. It is understood that the provisions of this
Article IV are and are intended solely for the purposes of defining the relative
rights of the holders of the Notes, on the one hand, and the holders of the
Senior Indebtedness, on the other hand.
Nothing contained in this Article IV or elsewhere in this Indenture or in
the Notes is intended to or shall impair, as among the Company, its creditors
other than the holders of Senior Indebtedness, and the holders of the Notes, the
obligation of the Company, which is absolute and unconditional, to pay to the
holders of the Notes the principal of, and premium, if any, and interest on the
Notes as and when the same shall become due and payable in accordance with their
terms, or is intended to or shall affect the relative rights of the holders of
the Notes and creditors of the Company other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent the Trustee or the
holder of any Note from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article IV of
-27-
<PAGE>
the holders of Senior Indebtedness in respect of cash, property or securities of
the Company received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to in
this Article IV, the Trustee, subject to the provisions of Section 8.1, and the
holders of the Notes shall be entitled to rely upon any order or decree made by
any court of competent jurisdiction in which such bankruptcy, dissolution,
winding-up, liquidation or reorganization proceedings are pending, or a
certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent
or other person making such payment or distribution, delivered to the Trustee or
to the holders of the Notes, for the purpose of ascertaining the persons
entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article IV.
Section 4.5 Authorization by Noteholders. Each holder of a Note by his
----------------------------
acceptance thereof authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination
provided in this Article IV and appoints the Trustee his attorney-in-fact for
any and all such purposes.
Section 4.6 Notice to Trustee. The Company shall give written notice to
-----------------
the Trustee of the issuance of any Designated Senior Indebtedness. In addition,
the Company shall give prompt written notice in the form of an Officers'
Certificate to a Responsible Officer of the Trustee and to any paying agent of
any fact known to the Company which would prohibit the making of any payment of
monies to or by the Trustee or any paying agent in respect of the Notes pursuant
to the provisions of this Article IV. Notwithstanding the provisions of this
Article IV or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any Senior Indebtedness or of any
default or event of default with respect to any Senior Indebtedness or of any
other facts which would prohibit the making of any payment of monies to or by
the Trustee in respect of the Notes pursuant to the provisions of this Article
IV, unless and until a Responsible Officer of the Trustee shall have received
written notice thereof at the Corporate Trust Office from the Company (in the
form of an Officers' Certificate) or a holder or holders of Senior Indebtedness
or from any trustee thereof who shall have been certified by the Company or
otherwise established to the reasonable satisfaction of the Trustee to be such
holder or trustee; and before the receipt of any such written notice, the
Trustee, subject to the provisions of Section 8.1, shall be entitled in all
respects to assume that no such facts exist; provided that if on a date at least
--------
two (2) Business Days prior to the date upon which by the terms hereof any such
monies may become payable for any purpose (including, without limitation, the
payment of the principal of, or premium, if any, or interest on any Note), the
Trustee shall not have received with respect to such monies the notice provided
for in this Section 4.6, then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive such
monies and to apply the same to the purpose for which they were received, and
shall not be affected by any notice to the contrary which may be received by it
on or after such prior date.
Notwithstanding anything to the contrary hereinbefore set forth, nothing
shall prevent (a) any payment by the Company or the Trustee to the Noteholders
of amounts in connection with a
-28-
<PAGE>
redemption of Notes if (i) notice of such redemption has been given to the
Noteholders pursuant to Article III prior to the receipt by the Trustee of
written notice as aforesaid, and (ii) such notice of redemption is given not
earlier than sixty (60) days before the redemption date, (b) any payment by the
Company or the Trustee to the Noteholders of amounts in connection with a
repurchase of Notes if (i) notice of such repurchase has been given pursuant to
Article XVI prior to the receipt by the Trustee of written notice as aforesaid,
and (ii) such notice of repurchase is given not earlier than forty (40) days
before the repurchase date, or (c) any payment by the Trustee to the Noteholders
of monies deposited with it pursuant to Section 13.1.
The Trustee, subject to the provisions of Section 8.1, shall be entitled to
rely on the delivery to it of a written notice by a person representing himself
to be a holder of Senior Indebtedness (or a trustee on behalf of such holder) to
establish that such notice has been given by a holder of Senior Indebtedness or
a trustee on behalf of any such holder or holders. In the event that the
Trustee determines in good faith that further evidence is required with respect
to the right of any person as a holder of Senior Indebtedness to participate in
any payment or distribution pursuant to this Article IV, the Trustee may request
such person to furnish evidence to the reasonable satisfaction of the Trustee as
to the amount of Senior Indebtedness held by such person, the extent to which
such person is entitled to participate in such payment or distribution and any
other facts pertinent to the rights of such person under this Article IV, and if
such evidence is not furnished the Trustee may defer any payment to such person
pending judicial determination as to the right of such person to receive such
payment.
Section 4.7 Trustee's Relation to Senior Indebtedness. The Trustee and
-----------------------------------------
any agent of the Company or the Trustee in its individual capacity shall be
entitled to all the rights set forth in this Article IV in respect of any Senior
Indebtedness at any time held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in Section 8.13 or elsewhere in this Indenture
shall deprive the Trustee or any such agent of any of its rights as such holder.
Nothing in this Article IV shall apply to claims of, or payments to, the Trustee
under or pursuant to Section 8.6.
With respect to the holders of Senior Indebtedness, the Trustee undertakes
to perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article IV, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and, subject to the
provisions of Section 4.2 and Section 8.1, the Trustee shall not be liable to
any holder of Senior Indebtedness if it shall pay over or deliver to holders of
Notes, the Company or any other person money or assets to which any holder of
Senior Indebtedness shall be entitled by virtue of this Article IV or otherwise.
Section 4.8 No Impairment of Subordination. No right of any present or
------------------------------
future holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company with the
terms, provisions and covenants of this Indenture, regardless of any knowledge
thereof which any such holder may have or otherwise be charged with.
-29-
<PAGE>
Section 4.9 Certain Conversions Deemed Payment. For the purposes of
----------------------------------
this Article IV only, (1) the issuance and delivery of junior securities upon
conversion of Notes in accordance with Article XV or upon repurchase of the
Notes by the Company in the event of a Repurchase Event in accordance with
Article XVI shall not be deemed to constitute a payment or distribution on
account of the principal of (or premium, if any) or interest on Notes or on
account of the purchase or other acquisition of Notes, and (2) the payment,
issuance or delivery of cash (including cash paid for fractional shares upon
conversion of a Note or upon repurchase of a Note upon a Repurchase Event),
property or securities (other than junior securities) upon conversion of a Note
or upon repurchase of a Note on a Repurchase Event shall be deemed to constitute
payment on account of the principal of such Note. For the purposes of this
Section, the term "junior securities" means (a) shares of any stock of any class
of the Company and (b) securities of the Company which are subordinated in right
of payment to all Senior Indebtedness which may be outstanding at the time of
issuance or delivery of such securities to substantially the same extent as, or
to a greater extent than, the Notes are so subordinated as provided in this
Article. Nothing contained in this Article or elsewhere in this Indenture or in
the Notes is intended to or shall impair, as among the Company, its creditors
other than holders of Senior Indebtedness and the holders of the Notes, the
right, which is absolute and unconditional, of the holder of any Note to convert
such Note in accordance with Article XV.
Section 4.10 Article Applicable to Paying Agents. If at any time any
-----------------------------------
paying agent other than the Trustee shall have been appointed by the Company and
be then acting hereunder, the term Trustee as used in this Article IV shall
(unless the context shall otherwise require) be construed as extending to and
including such paying agent within its meaning as fully for all intents and
purposes as if such paying agent were named in this Article in addition to or in
place of the Trustee; provided, however, that the first sentence of Section 4.5
shall not apply to the Company or any Affiliate of the Company if it or such
Affiliate acts as paying agent.
ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY
Section 5.1 Payment of Principal, Premium and Interest. The Company
------------------------------------------
covenants and agrees that it will duly and punctually pay or cause to be paid
the principal of and premium, if any, and interest on each of the Notes at the
places, at the respective times and in the manner provided herein and in the
Notes. Each installment of interest on the Notes due on any semi-annual interest
payment date may be paid by mailing checks for the interest payable to or upon
the written order of the holders of Notes entitled thereto as they shall appear
on the registry books of the Company, provided that, with respect to any holder
of Notes with an aggregate principal amount equal to or in excess of $2,000,000,
at the request of such holder in writing to the Company, interest on such
holder's Notes shall be paid by wire transfer in immediately available funds in
accordance with the wire transfer instructions supplied by such holder from time
to time to the Trustee and paying agent (if different from Trustee) at least two
days prior to the applicable record date; provided that any payment to the
--------
Depositary or its nominee shall be paid by wire transfer in immediately
available funds in accordance with the wire transfer instruction supplied by the
Depositary or its nominee from
-30-
<PAGE>
time to time to the Trustee and paying agent (if different from Trustee) at
least two days prior to the applicable record date.
Section 5.2 Maintenance of Office or Agency. The Company will maintain
-------------------------------
in the Borough of Manhattan, The City of New York, an office or agency where the
Notes may be presented for registration of transfer or exchange or for
presentation for payment or for conversion, redemption or repurchase and where
notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency not designated or appointed by the Trustee. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office or the
office or agency of the Trustee in the Borough of Manhattan, The City of New
York.
The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided that no
--------
such designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the Borough of Manhattan, The City
of New York, for such purposes. The Company will give prompt written notice to
the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.
The Company hereby initially designates the Trustee as paying agent, Note
registrar, Custodian and conversion agent and the Corporate Trust Office and the
office or agency of the Trustee in the Borough of Manhattan, The City of New
York (which initially shall be The Bank of New York, located at 101 Barclay
Street, Floor 21 West, New York, New York 10286, Attention: Corporate Trust
Trustee Administration, as one such office or agency of the Company for each of
the aforesaid purposes.
So long as the Trustee is the Note registrar, the Trustee agrees to mail,
or cause to be mailed, the notices set forth in Section 8.10(a) and the third
paragraph of Section 8.11.
Section 5.3 Appointments to Fill Vacancies in Trustee's Office. The
--------------------------------------------------
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 8.10, a Trustee, so that there
shall at all times be a Trustee hereunder.
Section 5.4 Provisions as to Paying Agent.
-----------------------------
(a) If the Company shall appoint a paying agent other than the
Trustee or if the Trustee shall appoint such a paying agent, it will cause
such paying agent to execute and deliver to the Trustee an instrument in
which such agent shall agree with the Trustee, subject to the provisions of
this Section 5.4:
(1) that it will hold all sums held by it as such agent for
the payment of the principal of and premium, if any, or interest on
the Notes (whether such sums have
-31-
<PAGE>
been paid to it by the Company or by any other obligor on the Notes)
in trust for the benefit of the holders of the Notes;
(2) that it will give the Trustee notice of any failure by the
Company (or by any other obligor on the Notes) to make any payment of
the principal of and premium, if any, or interest on the Notes when
the same shall be due and payable; and
(3) that at any time during the continuance of an Event of
Default, upon request of the Trustee, it will forthwith pay to the
Trustee all sums so held in trust.
The Company shall, on or before each due date of the principal of,
premium, if any, or interest on the Notes, deposit with the paying agent a
sum sufficient to pay such principal, premium, if any, or interest, and
(unless such paying agent is the Trustee) the Company will promptly notify
the Trustee of any failure to take such action, provided that if such
deposit is made on the due date, such deposit must be received by the
paying agent by 10:00 a.m., New York City time, on such date.
(b) If the Company shall act as its own paying agent, it will, on or
before each due date of the principal of, premium, if any, or interest on
the Notes, set aside, segregate and hold in trust for the benefit of the
holders of the Notes a sum sufficient to pay such principal, premium, if
any, or interest so becoming due and will notify the Trustee of any failure
to take such action and of any failure by the Company (or any other obligor
under the Notes) to make any payment of the principal of, premium, if any,
or interest on the Notes when the same shall become due and payable.
(c) Anything in this Section 5.4 to the contrary notwithstanding, the
Company may, at any time, for the purpose of obtaining a satisfaction and
discharge of this Indenture, or for any other reason, pay or cause to be
paid to the Trustee all sums held in trust by the Company or any paying
agent hereunder as required by this Section 5.4, such sums to be held by
the Trustee upon the trusts herein contained and upon such payment by the
Company or any paying agent to the Trustee, the Company or such paying
agent shall be released from all further liability with respect to such
sums.
(d) Anything in this Section 5.4 to the contrary notwithstanding, the
agreement to hold sums in trust as provided in this Section 5.4 is subject
to Sections 13.3 and 13.4.
Section 5.5 Existence. Subject to Article XII, the Company will do or
---------
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence.
Section 5.6 Rule 144A Information Requirement. Within the period prior
---------------------------------
to the expiration of the holding period applicable to sales thereof under Rule
144(k) under the Securities Act (or any successor provision), the Company
covenants and agrees that it shall, during any period in which it is not subject
to Section 13 or 15(d) under the Exchange Act, make available to any holder or
beneficial holder of Notes or any Common Stock issued upon conversion thereof,
in each case which continue to be Restricted Securities, in connection with any
sale thereof and any prospective
-32-
<PAGE>
purchaser of Notes or such Common Stock from such holder or beneficial holder,
the information required pursuant to Rule 144A(d)(4) under the Securities Act
upon the request of any holder or beneficial holder of the Notes or such Common
Stock and it will take such further action as any holder or beneficial holder of
such Notes or such Common Stock may reasonably request, all to the extent
required from time to time to enable such holder or beneficial holder to sell
its Notes or Common Stock without registration under the Securities Act within
the limitation of the exemption provided by Rule 144A, as such rule may be
amended from time to time. Upon the request of any holder or any beneficial
holder of the Notes or such Common Stock, the Company will deliver to such
holder a written statement as to whether it has complied with such requirements.
Section 5.7 Stay, Extension and Usury Laws. The Company covenants (to
------------------------------
the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would prohibit or
forgive the Company from paying all or any portion of the principal of or
interest on the Notes as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the performance of
this Indenture; and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law has been enacted.
Section 5.8 Compliance Certificate. The Company shall deliver to the
----------------------
Trustee within 120 days after the end of each fiscal year of the Company
(beginning with the fiscal year ending on September 30, 2000) an Officers'
Certificate stating whether or not to the best of their knowledge the signers
know of any default or Event of Default that occurred during such period. If
they do, such Officers' Certificate shall describe the default or Event of
Default and its status.
The Company shall deliver to the Trustee, as soon as possible and in any
event within five days after the Company becomes aware of the occurrence of any
Event of Default or an event which, with notice or the lapse of time or both,
would constitute an Event of Default, an Officers' Certificate setting forth the
details of such Event of Default or default and the action which the Company
proposes to take with respect thereto.
Section 5.9 Further Instruments and Acts. Upon request of the Trustee,
----------------------------
the Company will execute and deliver such further instruments and do such
further acts as may be reasonably necessary or proper to carry out more
effectively the purposes of this Indenture.
ARTICLE VI
NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE
Section 6.1 Noteholders' Lists. The Company covenants and agrees that
------------------
it will furnish or cause to be furnished to the Trustee, semi-annually, not more
than fifteen (15) days after each January 15 and July 15 in each year beginning
with July 15, 2000 and at such other times as the
-33-
<PAGE>
Trustee may request in writing, within thirty (30) days after receipt by the
Company of any such request (or such lesser time as the Trustee may reasonably
request in order to enable it to timely provide any notice to be provided by it
hereunder), a list in such form as the Trustee may reasonably require of the
names and addresses of the holders of Notes as of a date not more than fifteen
(15) days (or such other date as the Trustee may reasonably request in order to
so provide any such notices) prior to the time such information is furnished,
except that no such list need be furnished so long as the Trustee is acting as
Note registrar.
Section 6.2 Preservation and Disclosure of Lists.
------------------------------------
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of the holders of
Notes contained in the most recent list furnished to it as provided in Section
6.1 or maintained by the Trustee in its capacity as Note registrar, if so
acting. The Trustee may destroy any list furnished to it as provided in Section
6.1 upon receipt of a new list so furnished.
(b) The rights of Noteholders to communicate with other holders of
Notes with respect to their rights under this Indenture or under the Notes and
the corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Noteholder, by receiving and holding the same, agrees with
the Company and the Trustee that neither the Company nor the Trustee nor any
agent of either of them shall be held accountable by reason of any disclosure of
information as to names and addresses of holders of Notes made pursuant to the
Trust Indenture Act.
Section 6.3 Reports by Trustee.
------------------
(a) After this Indenture has been qualified under the Trust Indenture
Act, the Trustee shall transmit to holders of Notes such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant thereto. If
required by Section 313 (a) of the Trust Indenture Act, the Trustee shall,
within sixty days after each January 15 following the date of this Indenture
deliver to holders a brief report, dated as of such January 15 which complies
with the provisions of such Section 313(a).
(b) A copy of such report shall, at the time of such transmission to
holders of Notes, be filed by the Trustee with each stock exchange and automated
quotation system upon which the Notes are listed and with the Company. The
Company will promptly notify the Trustee when the Notes are listed on any stock
exchange or automated quotation system and when any such listing is
discontinued.
Section 6.4 Reports by Company
------------------
(a) After this Indenture has been qualified under the Trust Indenture
Act, the Company shall file with the Trustee and the Commission, and transmit to
holders of Notes, such information, documents and other reports and such
summaries thereof, as may be required pursuant
-34-
<PAGE>
to the Trust Indenture Act at the times and in the manner provided pursuant to
such Act; provided that any such information, documents or reports required to
be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
shall be filed with the Trustee within 15 days after the same is so required to
be filed with the Commission.
(b) The Company will deliver to the Trustee (a) as soon as available
and in any event within ninety (90) days after the end of each fiscal year of
the Company (i) a consolidated balance sheet of the Company and its subsidiaries
as of the end of such fiscal year and the related consolidated statements of
operations, stockholders' equity and cash flows for such fiscal year, all
reported on by an independent public accountant of nationally recognized
standing and (ii) a report containing a management's discussion and analysis of
the financial condition and results of operations and a description of the
business and properties of the Company and (b) as soon as available and in any
event within forty-five (45) days after the end of each of the first three
quarters of each fiscal year of the Company (i) an unaudited consolidated
management's discussion and analysis of the financial condition and results of
operations of the Company for such quarter; provided that the foregoing
statements and reports shall not be required for any fiscal year or quarter, as
the case may be, with respect to which the Company files or expects to file with
the Trustee an annual report or quarterly report, as the case may be, pursuant
to the preceding paragraph of this Section 6.4. Delivery of such reports,
information and documents to the Trustee is for informational purposes only and
the Trustee's receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Company's compliance with any of its covenants hereunder
(as to which the Trustee is entitled to rely exclusively on Officers'
Certificates).
ARTICLE VII
DEFAULTS AND REMEDIES
Section 7.1 Events of Default. In case one or more of the following
-----------------
Events of Default (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body) shall have occurred and be
continuing:
(a) default in the payment of the principal of and premium, if any,
on any of the Notes as and when the same shall become due and payable
either at maturity or in connection with any redemption, by declaration or
otherwise, whether or not such payment is prohibited by the provisions of
Article IV; or
(b) default for thirty (30) days in the payment of any installment of
interest or Liquidated Damages, if any, upon any of the Notes as and when
the same shall become due and payable, whether or not such payment is
prohibited by the provisions of Article IV; or
-35-
<PAGE>
(c) failure by the Company to deliver shares of Common Stock required
to be delivered upon conversion of a Note in accordance with Article XV of
this Indenture and continuance of such default for five (5) Business Days;
or
(d) failure on the part of the Company duly to observe or perform any
other of the covenants on the part of the Company in the Notes or in this
Indenture (other than a covenant a default in whose performance or whose
breach is elsewhere in this Section specifically dealt with) and the
continuance of such failure for a period of sixty (60) days after the date
on which written notice of such failure, requiring the Company to remedy
the same, shall have been given to the Company by the Trustee, or to the
Company and a Responsible Officer of the Trustee by the holders of at least
25% in aggregate principal amount of the outstanding Notes at the time
outstanding determined in accordance with Section 9.4; or
(e) a default in the payment of the Repurchase Price in respect of
any Note on the repurchase date therefor in accordance with the provisions
of Article XVI, whether or not such payment in cash of the Repurchase Price
is prohibited by the provisions of Article IV; or
(f) failure on the part of the Company to provide a written notice of
a Repurchase Event in accordance with Section 16.2; or
(g) failure on the part of the Company or any Significant Subsidiary
to make any payment at maturity, including any applicable grace period, in
respect of Indebtedness of, or guaranteed or assumed by, the Company or any
Significant Subsidiary, in a principal amount then outstanding in excess of
U.S. $20,000,000, and the continuance of such failure for a period of
thirty (30) days after there shall have been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the
Trustee by the holders of not less than 25% in aggregate principal amount
of the Notes then outstanding, a written notice specifying such default and
requiring the Company to cause such default to be cured or waived and
stating that such notice is a "Notice of Default" hereunder; or
(h) default on the part of the Company or any Significant Subsidiary
with respect to any Indebtedness of, or guaranteed or assumed by, the
Company or any Significant Subsidiary, which default results in the
acceleration of Indebtedness in a principal amount then outstanding in
excess of U.S. $20,000,000, and such Indebtedness shall not have been
discharged or such acceleration shall not have been rescinded or annulled
for a period of thirty (30) days after there shall have been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the holders of not less than 25% in aggregate
principal amount of the Notes then outstanding, a written notice specifying
such default and requiring the Company to cause such Indebtedness to be
discharged or cause such default to be cured or waived or such acceleration
to be rescinded or annulled and stating that such notice is a "Notice of
Default" hereunder; or
(i) the Company or any Significant Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or
-36-
<PAGE>
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they become due; or
(j) an involuntary case or other proceeding shall be commenced
against the Company or any Significant Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of ninety (90) consecutive days;
then, and in each and every such case (other than an Event of Default specified
in Section 7.1(i) or (j) with respect to the Company), unless the principal of
all of the Notes shall have already become due and payable, either the Trustee
or the holders of not less than 25% in aggregate principal amount of the Notes
then outstanding hereunder determined in accordance with Section 9.4, by notice
in writing to the Company (and to the Trustee if given by Noteholders), may
declare the principal of and premium, if any, on all the Notes and the interest
accrued thereon to be due and payable immediately, and upon any such declaration
the same shall become and shall be immediately due and payable, anything in this
Indenture or in the Notes contained to the contrary notwithstanding. If an
Event of Default specified in Section 7.1(i) or (j) occurs and is continuing
with respect to the Company, the principal of all the Notes and the interest
accrued thereon shall be immediately due and payable. This provision, however,
is subject to the conditions that if, at any time after the principal of the
Notes shall have been so declared due and payable, and before any judgment or
decree for the payment of the monies due shall have been obtained or entered as
hereinafter provided, the Company shall pay or shall deposit with the Trustee a
sum sufficient to pay all matured installments of interest upon all Notes and
the principal of and premium, if any, on any and all Notes which shall have
become due otherwise than by acceleration (with interest on overdue installments
of interest (to the extent that payment of such interest is enforceable under
applicable law) and on such principal and premium, if any, at the rate borne by
the Notes, to the date of such payment or deposit) and amounts due to the
Trustee pursuant to Section 8.6, and if any and all defaults under this
Indenture, other than the nonpayment of principal of and premium, if any, and
accrued interest on Notes which shall have become due by acceleration, shall
have been cured or waived pursuant to Section 7.7, then and in every such case
the holders of a majority in aggregate principal amount of the Notes then
outstanding, by written notice to the Company and to the Trustee, may waive all
defaults or Events of Default and rescind and annul such declaration and its
consequences; but no such waiver or rescission and annulment shall extend to or
shall affect any subsequent default or Event of Default, or shall impair any
right consequent thereon. The Company shall notify the Responsible Officer of
the Trustee, promptly upon becoming aware thereof, of any default or Event of
Default and shall deliver to the Trustee a statement specifying such default or
Event of Default and the action the Company has taken, is taking or proposes to
take with respect thereto.
-37-
<PAGE>
In case the Trustee shall have proceeded to enforce any right under this
Indenture and such proceedings shall have been discontinued or abandoned because
of such waiver or rescission and annulment or for any other reason or shall have
been determined adversely to the Trustee, then and in every such case the
Company, the holders of Notes, and the Trustee shall be restored respectively to
their several positions and rights hereunder, and all rights, remedies and
powers of the Company, the holders of Notes, and the Trustee shall continue as
though no such proceeding had been instituted.
Section 7.2 Payments of Notes on Default; Suit Therefor. The Company
-------------------------------------------
covenants that (a) in case default shall be made in the payment by the Company
of any installment of interest upon any of the Notes as and when the same shall
become due and payable, and such default shall have continued for a period of
thirty (30) days, or (b) in case default shall be made in the payment of the
principal of or premium, if any, on any of the Notes as and when the same shall
have become due and payable, whether at maturity of the Notes or in connection
with any redemption or repurchase, by declaration under this Indenture or
otherwise, then, upon demand of the Trustee, the Company will pay to the
Trustee, for the benefit of the holders of the Notes, the whole amount that then
shall have become due and payable on all such Notes for principal and premium,
if any, or interest, or both, as the case may be, with interest upon the overdue
principal and premium, if any, and (to the extent that payment of such interest
is enforceable under applicable law) upon the overdue installments of interest
at the rate borne by the Notes; and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including
reasonable compensation to the Trustee, its agents, attorneys and counsel, and
any expenses or liabilities incurred by the Trustee hereunder other than through
its negligence or bad faith. Until such demand by the Trustee, the Company may
pay the principal of and premium, if any, and interest on the Notes to the
registered holders, whether or not the Notes are overdue.
In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any actions or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or any other obligor on the Notes
and collect in the manner provided by law out of the property of the Company or
any other obligor on the Notes wherever situated the monies adjudged or decreed
to be payable.
In the case there shall be pending proceedings for the bankruptcy or for
the reorganization of the Company or any other obligor on the Notes under Title
11 of the United States Code, or any other applicable law, or in case a
receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
sequestrator or similar official shall have been appointed for or taken
possession of the Company or such other obligor, the property of the Company or
such other obligor, or in the case of any other judicial proceedings relative to
the Company or such other obligor upon the Notes, or to the creditors or
property of the Company or such other obligor, the Trustee, irrespective of
whether the principal of the Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand pursuant to the provisions of this Section 7.2, shall
be entitled and empowered, by intervention in such proceedings
-38-
<PAGE>
or otherwise, to file and prove a claim or claims for the whole amount of
principal, premium, if any, and interest owing and unpaid in respect of the
Notes, and, in case of any judicial proceedings, to file such proofs of claim
and other papers or documents and to take such other actions as it may deem
necessary or advisable in order to have the claims of the Trustee and of the
Noteholders allowed in such judicial proceedings relative to the Company or any
other obligor on the Notes, its or their creditors, or its or their property,
and to collect and receive any monies or other property payable or deliverable
on any such claims, and to distribute the same after the deduction of any
amounts due the Trustee under Section 8.6; and any receiver, assignee or trustee
in bankruptcy or reorganization, liquidator, custodian or similar official is
hereby authorized by each of the Noteholders to make such payments to the
Trustee, and, in the event that the Trustee shall consent to the making of such
payments directly to the Noteholders, to pay to the Trustee any amount due it
for reasonable compensation, expenses, advances and disbursements, including
agents and counsel fees incurred by it up to the date of such distribution. To
the extent that such payment of reasonable compensation, expenses, advances and
disbursements out of the estate in any such proceedings shall be denied for any
reason, payment of the same shall be secured by a lien on, and shall be paid out
of, any and all distributions, dividends, monies, securities and other property
which the holders of the Notes may be entitled to receive in such proceedings,
whether in liquidation or under any plan of reorganization or arrangement or
otherwise.
All rights of action and of asserting claims under this Indenture, or under
any of the Notes, may be enforced by the Trustee without the possession of any
of the Notes, or the production thereof on any trial or other proceeding
relative thereto, and any such suit or proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the holders of the Notes.
In any proceedings brought by the Trustee (and in any proceedings involving
the interpretation of any provision of this Indenture to which the Trustee shall
be a party) the Trustee shall be held to represent all the holders of the Notes,
and it shall not be necessary to make any holders of the Notes parties to any
such proceedings.
Section 7.3 Application of Monies Collected by Trustee. Any monies
------------------------------------------
collected by the Trustee pursuant to this Article VII shall be applied in the
order following, at the date or dates fixed by the Trustee for the distribution
of such monies, upon presentation of the several Notes, and stamping thereon the
payment, if only partially paid, and upon surrender thereof, if fully paid:
First: To the payment of all amounts due the Trustee under Section
8.6;
Second: Subject to the provisions of Article IV, in case the
principal of the outstanding Notes shall not have become due and be unpaid,
to the payment of interest on the Notes in default in the order of the
maturity of the installments of such interest, with interest (to the extent
that such interest has been collected by the Trustee) upon the overdue
installments of interest at the rate borne by the Notes, such payments to
be made ratably to the persons entitled thereto;
-39-
<PAGE>
Third: Subject to the provisions of Article IV, in case the principal
of the outstanding Notes shall have become due, by declaration or
otherwise, and be unpaid, to the payment of the whole amount then owing and
unpaid upon the Notes for principal and premium, if any, and interest, with
interest on the overdue principal and premium, if any, and (to the extent
that such interest has been collected by the Trustee) upon overdue
installments of interest at the rate borne by the Notes; and in case such
monies shall be insufficient to pay in full the whole amounts so due and
unpaid upon the Notes, then to the payment of such principal and premium,
if any, and interest without preference or priority of principal and
premium, if any, over interest, or of interest over principal and premium,
if any, or of any installment of interest over any other installment of
interest, or of any Note over any other Note, ratably to the aggregate of
such principal and premium, if any, and accrued and unpaid interest; and
Fourth: Subject to the provisions of Article IV, to the payment of
the remainder, if any, to the Company or any other person lawfully entitled
thereto.
Section 7.4 Proceedings by Noteholder. No holder of any Note shall
-------------------------
have any right by virtue of or by availing of any provision of this Indenture to
institute any suit, action or proceeding in equity or at law upon or under or
with respect to this Indenture, or for the appointment of a receiver, trustee,
liquidator, custodian or other similar official, or for any other remedy
hereunder, unless such holder previously shall have given to the Trustee written
notice of an Event of Default and of the continuance thereof, as hereinbefore
provided, and unless also the holders of not less than 25% in aggregate
principal amount of the Notes then outstanding shall have made written request
upon the Trustee to institute such action, suit or proceeding in its own name as
Trustee hereunder and shall have offered to the Trustee such indemnity as may be
reasonably satisfactory to the Trustee against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee for sixty (60)
days after its receipt of such notice, request and offer of indemnity, shall
have neglected or refused to institute any such action, suit or proceeding and
no direction inconsistent with such written request shall have been given to the
Trustee pursuant to Section 7.7; it being understood and intended, and being
expressly covenanted by the taker and holder of every Note with every other
taker and holder and the Trustee, that no one or more holders of Notes shall
have any right in any manner whatever by virtue of or by availing of any
provision of this Indenture to affect, disturb or prejudice the rights of any
other holder of Notes, or to obtain or seek to obtain priority over or
preference to any other such holder, or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all holders of Notes (except as otherwise provided herein).
For the protection and enforcement of this Section 7.4, each and every
Noteholder and the Trustee shall be entitled to such relief as can be given
either at law or in equity.
Notwithstanding any other provision of this Indenture and any provision of
any Note, the right of any holder of any Note to receive payment of the
principal of and premium, if any, and interest on such Note, on or after the
respective due dates expressed in such Note, or to institute suit for the
enforcement of any such payment on or after such respective dates against the
Company shall not be impaired or affected without the consent of such holder.
-40-
<PAGE>
Anything in this Indenture or the Notes to the contrary notwithstanding,
the holder of any Note, without the consent of either the Trustee or the holder
of any other Note, in his own behalf and for his own benefit, may enforce, and
may institute and maintain any proceeding suitable to enforce, his rights of
conversion as provided herein.
Section 7.5 Proceedings by Trustee. In case of an Event of Default the
----------------------
Trustee may in its discretion proceed to protect and enforce the rights vested
in it by this Indenture by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any of such rights, either by
suit in equity or by action at law or by proceeding in bankruptcy or otherwise,
whether for the specific enforcement of any covenant or agreement contained in
this Indenture or in aid of the exercise of any power granted in this Indenture,
or to enforce any other legal or equitable right vested in the Trustee by this
Indenture or by law.
Section 7.6 Remedies Cumulative and Continuing. Except as provided in the
----------------------------------
last paragraph of Section 2.6, all powers and remedies given by this Article VII
to the Trustee or to the Noteholders shall, to the extent permitted by law, be
deemed cumulative and not exclusive of any thereof or of any other powers and
remedies available to the Trustee or the holders of the Notes, by judicial
proceedings or otherwise, to enforce the performance or observance of the
covenants and agreements contained in this Indenture, and no delay or omission
of the Trustee or of any holder of any of the Notes to exercise any right or
power accruing upon any default or Event of Default occurring and continuing as
aforesaid shall impair any such right or power, or shall be construed to be a
waiver of any such default or any acquiescence therein; and, subject to the
provisions of Section 7.4, every power and remedy given by this Article VII or
by law to the Trustee or to the Noteholders may be exercised from time to time,
and as often as shall be deemed expedient, by the Trustee or by the Noteholders.
Section 7.7 Direction of Proceedings and Waiver of Defaults by Majority of
--------------------------------------------------------------
Noteholders. The holders of a majority in aggregate principal amount of the
- -----------
Notes at the time outstanding determined in accordance with Section 9.4 shall
have the right to direct the time, method, and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee; provided, however, that (a) such direction shall
-------- -------
not be in conflict with any rule of law or with this Indenture, and (b) the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction. The holders of not less than a majority in
aggregate principal amount of the Notes at the time outstanding determined in
accordance with Section 9.4 may on behalf of the holders of all of the Notes
waive any past default or Event of Default hereunder and its consequences except
(i) a default in the payment of interest or premium, if any, on, or the
principal of, the Notes when due, (ii) a failure by the Company to convert any
Notes into Common Stock or (iii) a default in respect of a covenant or
provisions hereof which under Article XI cannot be modified or amended without
the consent of the holders of all Notes then outstanding. Upon any such waiver
the Company, the Trustee and the holders of the Notes shall be restored to their
former positions and rights hereunder; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon. Whenever any default or Event of Default hereunder shall have been
waived as permitted by this Section 7.7, said default or Event of Default shall
for all purposes of the Notes and this Indenture be deemed to
-41-
<PAGE>
have been cured and to be not continuing; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
Section 7.8 Notice of Defaults. The Trustee shall, within ninety (90) days
------------------
after the occurrence of a default, mail to all Noteholders, as the names and
addresses of such holders appear upon the Note register, notice of all defaults
actually known to a Responsible Officer, unless such defaults shall have been
cured or waived before the giving of such notice; and provided that, except in
the case of default in the payment of the principal of, or premium, if any, or
interest on any of the Notes, including without limiting the generality of the
foregoing any default in the payment of any Repurchase Price or in the payment
of any amount due in connection with any redemption of Notes, then in any such
event the Trustee shall be protected in withholding such notice if and so long
as a trust committee of directors and/or Responsible Officers of the Trustee in
good faith determine that the withholding of such notice is in the interests of
the Noteholders.
Section 7.9 Undertaking to Pay Costs. All parties to this Indenture agree,
------------------------
and each holder of any Note by his acceptance thereof shall be deemed to have
agreed, that any court may, in its discretion, require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken or omitted by it as Trustee, the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees and expenses, against any party litigant in such
suit, having due regard to the merits and good faith of the claims or defenses
made by such party litigant; provided that the provisions of this Section 7.9
--------
shall not apply to any suit instituted by the Trustee, to any suit instituted by
any Noteholder, or group of Noteholders, holding in the aggregate more than 10%
in principal amount of the Notes at the time outstanding determined in
accordance with Section 9.4, or to any suit instituted by any Noteholder for the
enforcement of the payment of the principal of or premium, if any, or interest
on any Note (including, but not limited to, the redemption price or repurchase
price with respect to the Notes being redeemed or repurchased as provided in
this Indenture) on or after the due date expressed in such Note or to any suit
for the enforcement of the right to convert any Note in accordance with the
provisions of Article XV.
Section 7.10 Delay or Omission Not Waiver. No delay or omission of the
----------------------------
Trustee or of any holder of any Note to exercise any right or remedy accruing
upon any Event of Default shall impair any such right or remedy or constitute a
waiver of any such Event of Default or any acquiescence therein. Every right and
remedy given by this Article or by law to the Trustee or to the holders of Notes
may be exercised from time to time, and as often as may be deemed expedient, by
the Trustee or by the holders of Notes, as the case may be.
ARTICLE VIII
CONCERNING THE TRUSTEE
Section 8.1 Duties and Responsibilities of Trustee. The Trustee, prior to
--------------------------------------
the occurrence of an Event of Default and after the curing or waiver of all
Events of Default which may have occurred,
-42-
<PAGE>
undertakes to perform such duties and only such duties as are specifically set
forth in this Indenture. In case an Event of Default has occurred (which has not
been cured or waived) the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and skill in
their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
No provision of this Indenture shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own willful misconduct, except that
(a) prior to the occurrence of an Event of Default and after the
curing or waiving of all Events of Default which may have occurred:
(1) the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Indenture and, after it
has been qualified thereunder, the Trust Indenture Act, and the Trustee
shall not be liable except for the performance of such duties and
obligations as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture and the Trust
Indenture Act against the Trustee; and
(2) in the absence of bad faith and willful misconduct on the
part of the Trustee, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but, in the case of any such certificates
or opinions which by any provisions hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine the
same to determine whether or not they conform to the requirements of this
Indenture;
(b) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer or Officers of the Trustee, unless it
shall be provided that the Trustee was negligent in ascertaining the
pertinent facts;
(c) the Trustee shall not be liable to any Noteholder with respect to
any action taken or omitted to be taken by it in good faith in accordance
with the direction of the holders of not less than a majority in principal
amount of the Notes at the time outstanding determined as provided in
Section 9.4 relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred upon the Trustee, under this Indenture; and
(d) whether or not therein provided, every provision of this
Indenture relating to the conduct or affecting the liability of, or
affording protection to, the Trustee shall be subject to the provisions of
this Section.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its
-43-
<PAGE>
duties or in the exercise of any of its rights or powers, if there is reasonable
ground for believing that the repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it.
Section 8.2 Reliance on Documents, Opinions, Etc. Except as otherwise
------------------------------------
provided in Section 8.1:
(a) the Trustee may conclusively rely and shall be protected in
acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, bond, note, coupon or other paper
or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by an Officers' Certificate (unless
other evidence in respect thereof be herein specifically prescribed); and
any resolution of the Board of Directors may be evidenced to the Trustee by
a copy thereof certified by the Secretary or an Assistant Secretary of the
Company;
(c) the Trustee may consult with counsel of its selection and any
advice of such counsel or Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or omitted by
it hereunder in good faith and in accordance with such advice or Opinion of
Counsel;
(d) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Noteholders pursuant to the provisions of this
Indenture, unless such Noteholders shall have offered to the Trustee
reasonable security or indemnity reasonably satisfactory to it against the
costs, expenses and liabilities which may be incurred therein or thereby;
(e) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney; provided, however, that if the payment within a reasonable time
-------- -------
to the Trustee of the costs, expenses or liabilities likely to be incurred
by it in the making of such investigation is, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security afforded to
it by the terms of this Indenture, the Trustee may require indemnity
reasonably satisfactory to the Trustee from the Noteholders against such
expenses or liability as a condition to so proceeding; the reasonable
expenses of every such examination shall be paid by the Company or, if paid
by the Trustee or any predecessor Trustee, shall be repaid by the Company
upon demand;
-44-
<PAGE>
(f) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed by it with due
care hereunder;
(g) the Trustee shall not be liable for any action taken, suffered,
or omitted to be taken by it in good faith and reasonably believed by it to
be authorized or within the discretion or rights or powers conferred upon
it by this Indenture;
(h) the Trustee shall not be deemed to have notice of any default or
Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact
such a default is received by the Trustee at the Corporate Trust Office of
the Trustee, and such notice references the Notes and this Indenture; and
(i) the rights, privileges, protections, immunities and benefits
given to the Trustee, including, without limitation, its right to be
indemnified, are extended to, and shall be enforceable by, the Trustee in
each of its capacities hereunder, and to each agent, custodian and other
Person employed to act hereunder.
In no event shall the Trustee be liable for any consequential loss or damage of
any kind whatsoever (including but not limited to lost profits), even if the
Trustee has been advised of the likelihood of such loss or damage and regardless
of the form of action other than through the Trustee's willful misconduct or
gross negligence.
Section 8.3 No Responsibility for Recitals, Etc. The recitals contained
-----------------------------------
herein and in the Notes (except in the Trustee's certificate of authentication)
shall be taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Notes. The Trustee shall not be accountable for the use or application by the
Company of any Notes or the proceeds of any Notes authenticated and delivered by
the Trustee in conformity with the provisions of this Indenture.
Section 8.4 Trustee, Paying Agents, Conversion Agents or Registrar May Own
--------------------------------------------------------------
Notes. The Trustee, any paying agent, any conversion agent or Note registrar,
- -----
in its individual or any other capacity, may become the owner or pledgee of
Notes with the same rights it would have if it were not Trustee, paying agent,
conversion agent or Note registrar.
Section 8.5 Monies to Be Held in Trust. Subject to the provisions of
--------------------------
Section 13.4, all monies received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received.
Money held by the Trustee in trust hereunder need not be segregated from other
funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as may be
agreed in writing from time to time by the Company and the Trustee.
-45-
<PAGE>
Section 8.6 Compensation and Expenses of Trustee. The Company covenants
------------------------------------
and agrees to pay to the Trustee from time to time, and the Trustee shall be
entitled to, such compensation as the Company and the Trustee shall from time to
time agree in writing for all services rendered by it hereunder in any capacity
(which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust), and the Company will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances reasonably incurred or made by the Trustee in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its agents and
counsel and of all persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence, willful misconduct or
bad faith. The Company also covenants to indemnify the Trustee or any
predecessor Trustee in any capacity under this Indenture and its agents and any
authenticating agent for, and to hold them harmless against, any and all loss,
damages, claims, liability or expense incurred without negligence, willful
misconduct or bad faith on the part of the Trustee or such agent or
authenticating agent, as the case may be, and arising out of or in connection
with the acceptance or administration of this trust or in any other capacity
hereunder, including the costs and expenses of defending themselves against any
claim (whether asserted by the Company, a Holder or any other Person) of
liability in the premises. The obligations of the Company under this Section 8.6
to compensate or indemnify the Trustee and to pay or reimburse the Trustee for
expenses, disbursements and advances shall be secured by a lien prior to that of
the Notes upon all property and funds held or collected by the Trustee as such,
except, subject to the effect of Sections 4.3 and 7.6, funds held in trust
herewith for the benefit of the holders of particular Notes prior to the date of
the accrual of such unpaid compensation or indemnifiable claim. The obligation
of the Company under this Section shall survive the satisfaction and discharge
of this Indenture. The indemnification provided in this Section 8.6 shall extend
to the officers, directors, agents and employees of the Trustee.
When the Trustee and its agents and any authenticating agent incur expenses
or render services after an Event of Default specified in Section 7.1(i) or (j)
occurs, the expenses and the compensation for the services are intended to
constitute expenses of administration under any bankruptcy, insolvency or
similar laws.
Section 8.7 Officers' Certificate as Evidence. Except as otherwise
---------------------------------
provided in Section 8.1, whenever in the administration of the provisions of
this Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or omitting any action hereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of negligence, willful misconduct, recklessness
and bad faith on the part of the Trustee, be deemed to be conclusively proved
and established by an Officers' Certificate delivered to the Trustee, and such
Officers' Certificate, in the absence of negligence, willful misconduct,
recklessness and bad faith on the part of the Trustee, shall be full warrant to
the Trustee for any action taken or omitted by it under the provisions of this
Indenture upon the faith thereof.
Section 8.8 Conflicting Interests of Trustee. After qualification under
--------------------------------
the Trust Indenture Act, if the Trustee has or shall acquire a conflicting
interest within the meaning of the Trust
-46-
<PAGE>
Indenture Act, the Trustee shall either eliminate such interest or resign, to
the extent and in the manner provided by, and subject to the provisions of, the
Trust Indenture Act and this Indenture.
Section 8.9 Eligibility of Trustee. There shall at all times be a Trustee
----------------------
hereunder which shall be a person that is eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and surplus (together
with its corporate parent) of at least $50,000,000. If such person publishes
reports of condition at least annually, pursuant to law or to the requirements
of any supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such person shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
Section 8.10 Resignation or Removal of Trustee.
---------------------------------
(a) The Trustee may at any time resign by giving written notice of
such resignation to the Company and by mailing notice thereof to the
holders of Notes at their addresses as they shall appear on the Note
register. Upon receiving such notice of resignation, the Company shall
promptly appoint a successor trustee by written instrument, in duplicate,
executed by order of the Board of Directors, one copy of which instrument
shall be delivered to the resigning Trustee and one copy to the successor
trustee. If no successor trustee shall have been so appointed and have
accepted appointment sixty (60) days after the mailing of such notice of
resignation to the Noteholders, the resigning Trustee may, at the expense
of the Company, petition any court of competent jurisdiction for the
appointment of a successor trustee, or any Noteholder who has been a bona
fide holder of a Note or Notes for at least six months may, subject to the
provisions of Section 7.9, on behalf of himself and all others similarly
situated, petition any such court for the appointment of a successor
trustee. Such court may thereupon, after such notice, if any, as it may
deem proper and prescribe, appoint a successor trustee.
(b) In case at any time any of the following shall occur:
(1) the Trustee shall fail to comply with Section 8.8 within a
reasonable time after written request therefor by the Company or by
any Noteholder who has been a bona fide holder of a Note or Notes for
at least six months, or
(2) the Trustee shall cease to be eligible in accordance with
the provisions of Section 8.9 and shall fail to resign after written
request therefor by the Company or by any such Noteholder, or
(3) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of
its property shall be appointed, or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
-47-
<PAGE>
then, in any such case, the Company may by a Board resolution remove the
Trustee and appoint a successor trustee by written instrument, in
duplicate, executed by order of the Board of Directors, one copy of which
instrument shall be delivered to the Trustee so removed and one copy to the
successor trustee, or, subject to the provisions of Section 7.9, any
Noteholder who has been a bona fide holder of a Note or Notes for at least
six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor trustee. Such court may thereupon, after
such notice, if any, as it may deem proper and prescribe, remove the
Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Notes at the time outstanding may at any time remove the Trustee and
nominate a successor trustee which shall be deemed appointed as successor
trustee unless within ten (10) days after notice to the Company of such
nomination the Company objects thereto, in which case the Trustee so
removed or any Noteholder, upon the terms and conditions and otherwise as
in Section 8.10(a) provided, may, at the expense of the Company, petition
any court of competent jurisdiction for an appointment of a successor
trustee.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 8.10
shall become effective upon acceptance of appointment by the successor
trustee as provided in Section 8.11.
Section 8.11 Acceptance by Successor Trustee. Any successor trustee
-------------------------------
appointed as provided in Section 8.10 shall execute, acknowledge and deliver to
the Company and to its predecessor trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein; but, nevertheless, on the written request
of the Company or of the successor trustee, the trustee ceasing to act shall,
upon payment of any amounts then due it pursuant to the provisions of Section
8.6, execute and deliver an instrument transferring to such successor trustee
all the rights and powers of the trustee so ceasing to act. Upon request of any
such successor trustee, the Company shall execute any and all instruments in
writing for more fully and certainly vesting in and confirming to such successor
trustee all such rights and powers. Any trustee ceasing to act shall,
nevertheless, retain a lien upon all property and funds held or collected by
such trustee as such, except for funds held in trust for the benefit of holders
of particular Notes, to secure any amounts then due it pursuant to the
provisions of Section 8.6.
No successor trustee shall accept appointment as provided in this Section
8.11 unless at the time of such acceptance such successor trustee shall be
qualified under the provisions of Section 8.8 and be eligible under the
provisions of Section 8.9.
Upon acceptance of appointment by a successor trustee as provided in this
Section 8.11, each of the Company and the former trustee shall mail or cause to
be mailed notice of the succession of
-48-
<PAGE>
such trustee hereunder to the holders of Notes at their addresses as they shall
appear on the Note register. If the Company fails to mail such notice within ten
(10) days after acceptance of appointment by the successor trustee, the
successor trustee shall cause such notice to be mailed at the expense of the
Company.
Section 8.12 Succession by Merger, Etc. Any corporation or other entity
-------------------------
into which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation or other
entity succeeding to all or substantially all of the corporate trust business of
the Trustee (including the trust created by this Indenture), shall be the
successor to the Trustee hereunder without the execution or filing of any paper
or any further act on the part of any of the parties hereto, provided that in
the case of any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee such corporation shall be qualified
under the provisions of Section 8.8 and eligible under the provisions of Section
8.9.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture, any of the Notes shall have been authenticated
but not delivered, any such successor to the Trustee may adopt the certificate
of authentication of any predecessor trustee or authenticating agent appointed
by such predecessor trustee, and deliver such Notes so authenticated; and in
case at that time any of the Notes shall not have been authenticated, any
successor to the Trustee or an authenticating agent appointed by such successor
trustee may authenticate such Notes either in the name of any predecessor
trustee hereunder or in the name of the successor trustee; and in all such cases
such certificates shall have the full force which it is anywhere in the Notes or
in this Indenture provided that the certificate of the Trustee shall have;
provided, however, that the right to adopt the certificate of authentication of
- -------- -------
any predecessor Trustee or to authenticate Notes in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion or
consolidation.
Section 8.13 Limitation on Rights of Trustee as Creditor. If and when the
-------------------------------------------
Trustee shall be or become a creditor of the Company (or any other obligor upon
the Notes), after qualification under the Trust Indenture Act, the Trustee shall
be subject to the provisions of the Trust Indenture Act regarding the collection
of the claims against the Company (or any such other obligor).
ARTICLE IX
CONCERNING THE NOTEHOLDERS
Section 9.1 Action by Noteholders. Whenever in this Indenture it is
---------------------
provided that the holders of a specified percentage in aggregate principal
amount of the Notes may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the taking of any other
action), the fact that at the time of taking any such action, the holders of
such specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by Noteholders
in person or by agent or proxy appointed in writing, or (b) by the record of the
holders of Notes voting in favor thereof at any meeting of
-49-
<PAGE>
Noteholders duly called and held in accordance with the provisions of Article X,
or (c) by a combination of such instrument or instruments and any such record of
such a meeting of Noteholders. Whenever the Company or the Trustee solicits the
taking of any action by the holders of the Notes, the Company or the Trustee may
fix in advance of such solicitation, a date as the record date for determining
holders entitled to take such action. The record date shall be not more than
fifteen (15) days prior to the date of commencement of solicitation of such
action.
Section 9.2 Proof of Execution by Noteholders. Subject to the provisions
---------------------------------
of Sections 8.1, 8.2 and 10.5, proof of the execution of any instrument by a
Noteholder or his agent or proxy shall be sufficient if made in accordance with
such reasonable rules and regulations as may be prescribed by the Trustee or in
such manner as shall be satisfactory to the Trustee. The holding of Notes shall
be proved by the Note register or by a certificate of the Note registrar. The
record of any Noteholders' meeting shall be proved in the manner provided in
Section 10.6.
Section 9.3 Who Are Deemed Absolute Owners. The Company, the Trustee, any
------------------------------
authenticating agent, any paying agent, any conversion agent and any Note
registrar may deem the person in whose name such Note shall be registered upon
the Note register to be, and may treat him as, the absolute owner of such Note
(whether or not such Note shall be overdue and notwithstanding any notation of
ownership or other writing thereon) for the purpose of receiving payment of or
on account of the principal of, premium, if any, and interest on such Note, for
conversion of such Note and for all other purposes; and neither the Company nor
the Trustee nor any paying agent nor any conversion agent nor any Note registrar
shall be affected by any notice to the contrary. All such payments so made to
any holder for the time being, or upon his order, shall be valid, and, to the
extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for monies payable upon any such Note.
Section 9.4 Company-Owned Notes Disregarded. In determining whether the
-------------------------------
holders of the requisite aggregate principal amount of Notes have concurred in
any direction, consent, waiver or other action under this Indenture, Notes which
are owned by the Company or any other obligor on the Notes or by any person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company or any other obligor on the Notes shall be
disregarded and deemed not to be outstanding for the purpose of any such
determination; provided that for the purposes of determining whether the Trustee
--------
shall be protected in relying on any such direction, consent, waiver or other
action only Notes which a Responsible Officer actually knows are so owned shall
be so disregarded. Notes so owned which have been pledged in good faith may be
regarded as outstanding for the purposes of this Section 9.4 if the pledgee
shall establish to the satisfaction of the Trustee the pledgee's right to vote
such Notes and that the pledgee is not the Company, any other obligor on the
Notes or a person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company or any such other obligor. In
the case of a dispute as to such right, any decision by the Trustee taken upon
the advice of counsel shall be full protection to the Trustee. Upon request of
the Trustee, the Company shall furnish to the Trustee promptly an Officers'
Certificate listing and identifying all Notes, if any, known by the Company to
be owned or held by or for the account of any of the above described persons;
and, subject to Section 8.1, the Trustee shall be entitled to accept such
Officers' Certificate as conclusive evidence of the facts
-50-
<PAGE>
therein set forth and of the fact that all Notes not listed therein are
outstanding for the purpose of any such determination.
Section 9.5 Revocation of Consents; Future Holders Bound. At any time
--------------------------------------------
prior to (but not after) the evidencing to the Trustee, as provided in Section
9.1, of the taking of any action by the holders of the percentage in aggregate
principal amount of the Notes specified in this Indenture in connection with
such action, any holder of a Note which is shown by the evidence to be included
in the Notes the holders of which have consented to such action may, by filing
written notice with the Trustee at its Corporate Trust Office and upon proof of
holding as provided in Section 9.2, revoke such action so far as concerns such
Note. Except as aforesaid, any such action taken by the holder of any Note shall
be conclusive and binding upon such holder and upon all future holders and
owners of such Note and of any Notes issued in exchange or substitution
therefor, irrespective of whether any notation in regard thereto is made upon
such Note or any Note issued in exchange or substitution therefor.
ARTICLE X
NOTEHOLDERS' MEETINGS
Section 10.1 Purpose of Meetings. A meeting of Noteholders may be called at
-------------------
any time and from time to time pursuant to the provisions of this Article X for
any of the following purposes:
(1) to give any notice to the Company or to the Trustee or to give
any directions to the Trustee permitted under this Indenture, or to consent
to the waiving of any default or Event of Default hereunder and its
consequences, or to take any other action authorized to be taken by
Noteholders pursuant to any of the provisions of Article VII;
(2) to remove the Trustee and nominate a successor trustee pursuant
to the provisions of Article VIII;
(3) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 11.2;
(4) to take any other action authorized to be taken by or on behalf
of the holders of any specified aggregate principal amount of the Notes
under any other provision of this Indenture or under applicable law; or
(5) to take any other action authorized by this Indenture or under
applicable law.
Section 10.2 Call of Meetings by Trustee. The Trustee may at any time call
---------------------------
a meeting of Noteholders to take any action specified in Section 10.1, to be
held at such time and at such place in the Borough of Manhattan, The City of New
York, as the Trustee shall determine. Notice of every meeting of the
Noteholders, setting forth the time and the place of such meeting and in general
terms the action proposed to be taken at such meeting and the establishment of
any record date pursuant to
-51-
<PAGE>
Section 9.1, shall be mailed to holders of Notes at their addresses as they
shall appear on the Note register. Such notice shall also be mailed to the
Company. Such notices shall be mailed not less than twenty (20) nor more than
ninety (90) days prior to the date fixed for the meeting.
Any meeting of Noteholders shall be valid without notice if the holders of
all Notes then outstanding are present in person or by proxy or if notice is
waived before or after the meeting by the holders of all Notes outstanding, and
if the Company and the Trustee are either present by duly authorized
representatives or have, before or after the meeting, waived notice.
Section 10.3 Call of Meetings by Company or Noteholders. In case at any
------------------------------------------
time the Company, pursuant to a resolution of its Board of Directors, or the
holders of at least 10% in aggregate principal amount of the Notes then
outstanding, shall have requested the Trustee to call a meeting of Noteholders,
by written request setting forth in reasonable detail the action proposed to be
taken at the meeting, and the Trustee shall not have mailed the notice of such
meeting within twenty (20) days after receipt of such request, then the Company
or such Noteholders may determine the time and the place for such meeting and
may call such meeting to take any action authorized in Section 10.1, by mailing
notice thereof as provided in Section 10.2.
Section 10.4 Qualifications for Voting. To be entitled to vote at any
-------------------------
meeting of Noteholders a person shall (a) be a holder of one or more Notes on
the record date pertaining to such meeting or (b) be a person appointed by an
instrument in writing as proxy by a holder of one or more Notes. The only
persons who shall be entitled to be present or to speak at any meeting of
Noteholders shall be the persons entitled to vote at such meeting and their
counsel and any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.
Section 10.5 Regulations. Notwithstanding any other provisions of this
-----------
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Noteholders, in regard to proof of the holding of
Notes and of the appointment of proxies, and in regard to the appointment and
duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Noteholders as provided in Section 10.3, in which case the Company
or the Noteholders calling the meeting, as the case may be, shall in like manner
appoint a temporary chairman. A permanent chairman and a permanent secretary of
the meeting shall be elected by vote of the holders of a majority in principal
amount of the Notes represented at the meeting and entitled to vote at the
meeting.
Subject to the provisions of Section 9.4, at any meeting each Noteholder or
proxyholder shall be entitled to one vote for each $1,000 principal amount of
Notes held or represented by him; provided, however, that no vote shall be cast
-------- -------
or counted at any meeting in respect of any Note challenged as not outstanding
and ruled by the chairman of the meeting to be not outstanding. The chairman of
the meeting shall have no right to vote other than by virtue of Notes held by
him or instruments in writing as aforesaid duly designating him as the proxy to
vote on behalf of other
-52-
<PAGE>
Noteholders. Any meeting of Noteholders duly called pursuant to the provisions
of Section 10.2 or 10.3 may be adjourned from time to time by the holders of a
majority of the aggregate principal amount of Notes represented at the meeting,
whether or not constituting a quorum, and the meeting may be held as so
adjourned without further notice.
Section 10.6 Voting. The vote upon any resolution submitted to any meeting
------
of Noteholders shall be by written ballot on which shall be subscribed the
signatures of the holders of Notes or of their representatives by proxy and the
principal amount of the Notes held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports in
duplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of Noteholders shall be prepared by the secretary of
the meeting and there shall be attached to said record the original reports of
the inspectors of votes on any vote by ballot taken thereat and affidavits by
one or more persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that said notice was mailed as provided in
Section 10.2. The record shall show the principal amount of the Notes voting in
favor of or against any resolution. The record shall be signed and verified by
the affidavits of the permanent chairman and secretary of the meeting and one of
the duplicates shall be delivered to the Company and the other to the Trustee to
be preserved by the Trustee, the latter to have attached thereto the ballots
voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
Section 10.7 No Delay of Rights by Meeting. Nothing in this Article X
-----------------------------
contained shall be deemed or construed to authorize or permit, by reason of any
call of a meeting of Noteholders or any rights expressly or impliedly conferred
hereunder to make such call, any hindrance or delay in the exercise of any right
or rights conferred upon or reserved to the Trustee or to the Noteholders under
any of the provisions of this Indenture or of the Notes.
ARTICLE XI
SUPPLEMENTAL INDENTURES
Section 11.1 Supplemental Indentures Without Consent of Noteholders. The
------------------------------------------------------
Company, when authorized by the resolutions of the Board of Directors, and the
Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto for one or more of the following purposes:
(a) to make provision with respect to the conversion rights of the
holders of Notes pursuant to the requirements of Section 15.6;
(b) subject to Article IV, to convey, transfer, assign, mortgage or
pledge to the Trustee as security for the Notes, any property or assets;
-53-
<PAGE>
(c) to evidence the succession of another corporation to the Company,
or successive successions, and the assumption by the successor corporation
of the covenants, agreements and obligations of the Company pursuant to
Article XII ;
(d) to add to the covenants of the Company such further covenants,
restrictions or conditions for the benefit of the holders of Notes, and to
make the occurrence, or the occurrence and continuance, of a default in any
such additional covenants, restrictions or conditions a default or an Event
of Default permitting the enforcement of all or any of the several remedies
provided in this Indenture as herein set forth; provided, however, that in
-------- -------
respect of any such additional covenant, restriction or condition such
supplemental indenture may provide for a particular period of grace after
default (which period may be shorter or longer than that allowed in the
case of other defaults) or may provide for an immediate enforcement upon
such default or may limit the remedies available to the Trustee upon such
default;
(e) to provide for the issuance under this Indenture of Notes in
coupon form (including Notes registrable as to principal only) and to
provide for exchangeability of such Notes with the Notes issued hereunder
in fully registered form and to make all appropriate changes for such
purpose;
(f) to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture which may be defective or
inconsistent with any other provision contained herein or in any
supplemental indenture, or to make such other provisions in regard to
matters or questions arising under this Indenture which shall not
materially adversely affect the interests of the holders of the Notes;
(g) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Notes; or
(h) to modify, eliminate or add to the provisions of this Indenture
to such extent as shall be necessary to effect the qualifications of this
Indenture under the Trust Indenture Act, or under any similar federal
statute hereafter enacted.
The Trustee is hereby authorized to join with the Company in the execution
of any such supplemental indenture, to make any further appropriate agreements
and stipulations which may be therein contained and to accept the conveyance,
transfer and assignment of any property thereunder, but the Trustee shall not be
obligated to, but may in its discretion, enter into any supplemental indenture
which affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this Section
11.1 may be executed by the Company and the Trustee without the consent of the
holders of any of the Notes at the time outstanding, notwithstanding any of the
provisions of Section 11.2.
-54-
<PAGE>
Section 11.2 Supplemental Indentures With Consent of Noteholders. With the
---------------------------------------------------
consent (evidenced as provided in Article IX) of the holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding
(determined in accordance with Section 9.4), the Company, when authorized by the
resolutions of the Board of Directors, and the Trustee may from time to time and
at any time enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or any supplemental indenture or of
modifying in any manner the rights of the holders of the Notes; provided,
--------
however, that no such supplemental indenture shall (i) extend the fixed maturity
- -------
of any Note, or reduce the rate or extend the time of payment of interest
thereon, or reduce the principal amount thereof or premium, if any, thereon, or
reduce any amount payable on redemption or repurchase thereof, impair, or change
in any respect adverse to the holder of Notes, the obligation of the Company to
repurchase any Note at the option of the holder upon the happening of a
Repurchase Event, or impair or adversely affect the right of any Noteholder to
institute suit for the payment thereof, or change the currency in which the
Notes are payable, or impair or change in any respect adverse to the Noteholders
the right to convert the Notes into Common Stock subject to the terms set forth
herein, including Section 15.6, or modify the provisions of this Indenture with
respect to the subordination of the Notes in a manner adverse to the
Noteholders, without the consent of the holder of each Note so affected, or (ii)
reduce the aforesaid percentage of Notes, the holders of which are required to
consent to any such supplemental indenture, without the consent of the holders
of all Notes then outstanding.
Upon the request of the Company, accompanied by a copy of the resolutions
of the Board of Directors certified by its Secretary or Assistant Secretary
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of Noteholders as aforesaid,
the Trustee shall join with the Company in the execution of such supplemental
indenture unless such supplemental indenture affects the Trustee's own rights,
duties or immunities under this Indenture or otherwise, in which case the
Trustee may in is discretion, but shall not be obligated to, enter into such
supplemental indenture.
It shall not be necessary for the consent of the Noteholders under this
Section 11.2 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.
Section 11.3 Effect of Supplemental Indentures. Any supplemental indenture
---------------------------------
executed pursuant to the provisions of this Article XI shall comply with the
Trust Indenture Act, as then in effect. Upon the execution of any supplemental
indenture pursuant to the provisions of this Article XI, this Indenture shall be
and be deemed to be modified and amended in accordance therewith and the
respective rights, limitation of rights, obligations, duties and immunities
under this Indenture of the Trustee, the Company and the holders of Notes shall
thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
-55-
<PAGE>
Section 11.4 Notation on Notes. Notes authenticated and delivered after
-----------------
the execution of any supplemental indenture pursuant to the provisions of this
Article XI may bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company or the Trustee shall
so determine, new Notes so modified as to conform, in the opinion of the Trustee
and the Board of Directors, to any modification of this Indenture contained in
any such supplemental indenture may, at the Company's expense, be prepared and
executed by the Company, authenticated by the Trustee (or an authenticating
agent duly appointed by the Trustee pursuant to Section 17.11) and delivered in
exchange for the Notes then outstanding, upon surrender of such Notes then
outstanding.
Section 11.5 Evidence of Compliance of Supplemental Indenture to Be
------------------------------------------------------
Furnished Trustee. The Trustee, subject to the provisions of Sections 8.1 and
- -----------------
8.2, shall receive an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant hereto
complies with the requirements of this Article XI.
ARTICLE XII
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
Section 12.1 Company May Consolidate, Etc. on Certain Terms. The Company
----------------------------------------------
shall not, directly or indirectly, consolidate with or merge with or into any
other Person or sell, lease, convey or transfer all its properties and assets
substantially as an entirety, whether in a single transaction or a series of
related transactions, to any Person or group of affiliated Persons unless:
(a) either (i) in the case of a merger or consolidation that does not
involve a transfer of all or substantially all of the Company's properties and
assets, the Company is the surviving entity or (ii) in case the Company shall
consolidate with or merge into another Person or sell, lease, convey or transfer
all its properties and assets substantially as an entirety, whether in a single
transaction or a series of related transactions, to any Person, the Person
formed by such consolidation or into which the Company is merged, or the Person
which acquires by sale, conveyance or transfer, or which leases the properties
and assets of the Company substantially as an entirety, shall be a corporation,
limited liability company, partnership or trust, shall be organized and validly
existing under the laws of the United States of America, any state thereof or
the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form satisfactory
to the Trustee, the due and punctual payment of the principal of, premium, if
any, and interest (including Liquidated Damages, if any) on all of the Notes as
applicable, and the performance or observance of every covenant of this
Indenture on the part of the Company to be performed or observed and shall have
provided for the applicable conversion rights set forth in Section 15.6 and the
repurchase rights set forth in Article XVI;
(b) immediately after giving effect to such transaction, no Event of
Default, and no event that after notice or lapse of time or both, would become
an Event of Default, shall have happened and be continuing; and
-56-
<PAGE>
(c) the Company has delivered to the Trustee an Officers* Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with this
Article and that all conditions precedent herein provided for relating to such
transaction have been complied with, together with any documents required under
Article IX.
Section 12.2 Successor Corporation to Be Substituted. In case of any such
---------------------------------------
consolidation, merger, sale, conveyance or lease in accordance with Section
12.1, and, where required in accordance with Section 12.1(a) upon the assumption
by the successor corporation, by supplemental indenture, executed and delivered
to the Trustee and satisfactory in form to the Trustee, of the due and punctual
payment of the principal of and premium, if any, and interest on all of the
Notes and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Company, such successor
corporation shall succeed to and be substituted for the Company, with the same
effect as if it had been named herein as the party of the first part. Such
successor corporation thereupon may cause to be signed, and may issue either in
its own name or in the name of E*TRADE Group, Inc. any or all of the Notes
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee; and, upon the order of such successor corporation
instead of the Company and subject to all the terms, conditions and limitations
in this Indenture prescribed, the Trustee shall authenticate and shall deliver,
or cause to be authenticated and delivered, any Notes which previously shall
have been signed and delivered by the officers of the Company to the Trustee for
authentication, and any Notes which such successor corporation thereafter shall
cause to be signed and delivered to the Trustee for that purpose. All the Notes
so issued shall in all respects have the same legal rank and benefit under this
Indenture as the Notes theretofore or thereafter issued in accordance with the
terms of this Indenture as though all of such Notes had been issued at the date
of the execution hereof. In the event of any such consolidation, merger, sale,
conveyance or lease, the person named as the "Company" in the first paragraph of
this Indenture or any successor which shall thereafter have become such in the
manner prescribed in this Article XII may be dissolved, wound up and liquidated
at any time thereafter and such person shall be released from its liabilities as
obligor and maker of the Notes and from its obligations under this Indenture.
In case of any such consolidation, merger, sale, conveyance or lease, such
changes in phraseology and form (but not in substance) may be made in the Notes
thereafter to be issued as may be appropriate.
Section 12.3 Opinion of Counsel to Be Given Trustee. The Trustee,
--------------------------------------
subject to Sections 8.1 and 8.2, shall receive an Officers' Certificate and an
Opinion of Counsel as conclusive evidence that any such consolidation, merger,
sale, conveyance or lease and any such assumption complies with the provisions
of this Article XII.
-57-
<PAGE>
ARTICLE XIII
SATISFACTION AND DISCHARGE OF INDENTURE
Section 13.1 Discharge of Indenture. When (a) the Company shall
----------------------
deliver to the Trustee for cancellation all Notes theretofore authenticated
(other than any Notes which have been destroyed, lost or stolen and in lieu of
or in substitution for which other Notes shall have been authenticated and
delivered) and not theretofore canceled, or (b) all the Notes not theretofore
canceled or delivered to the Trustee for cancellation shall have become due and
payable, or are by their terms to become due and payable within one year or are
to be called for redemption within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption, and the Company shall
deposit with the Trustee, in trust, funds sufficient to pay at maturity or upon
redemption of all of the Notes (other than any Notes which shall have been
mutilated, destroyed, lost or stolen and in lieu of or in substitution for which
other Notes shall have been authenticated and delivered) not theretofore
canceled or delivered to the Trustee for cancellation, including principal and
premium, if any, and interest due or to become due to such date of maturity or
redemption date, as the case may be, and if in either case the Company shall
also pay or cause to be paid all other sums payable hereunder by the Company,
then this Indenture shall cease to be of further effect (except as to (i)
remaining rights of registration of transfer, substitution and exchange and
conversion of Notes, (ii) rights hereunder of Noteholders to receive payments of
principal of and premium, if any, and interest on, the Notes and the other
rights, duties and obligations of Noteholders, as beneficiaries hereof with
respect to the amounts, if any, so deposited with the Trustee and (iii) the
rights, obligations and immunities of the Trustee hereunder), and the Trustee,
on demand of the Company accompanied by an Officers' Certificate and an Opinion
of Counsel as required by Section 17.5 and at the cost and expense of the
Company, shall execute proper instruments acknowledging satisfaction of and
discharging this Indenture; the Company, however, hereby agreeing to reimburse
the Trustee for any costs or expenses thereafter reasonably and properly
incurred by the Trustee and to compensate the Trustee for any services
thereafter reasonably and properly rendered by the Trustee in connection with
this Indenture or the Notes.
Section 13.2 Deposited Monies to Be Held in Trust by Trustee. Subject
-----------------------------------------------
to Section 13.4, all monies deposited with the Trustee pursuant to Section 13.1
shall be held in trust and applied by it to the payment, notwithstanding the
provisions of Article IV, either directly or through any paying agent (including
the Company if acting as its own paying agent), to the holders of the particular
Notes for the payment or redemption of which such monies have been deposited
with the Trustee, of all sums due and to become due thereon for principal and
interest and premium, if any.
Section 13.3 Paying Agent to Repay Monies Held. Upon the satisfaction
---------------------------------
and discharge of this Indenture, all monies then held by any paying agent of the
Notes (other than the Trustee) shall, upon demand of the Company, be repaid to
it or paid to the Trustee, and thereupon such paying agent shall be released
from all further liability with respect to such monies.
Section 13.4 Return of Unclaimed Monies. Subject to the requirements of
--------------------------
applicable law, any monies deposited with or paid to the Trustee for payment of
the principal of, premium, if any, or
-58-
<PAGE>
interest on Notes and not applied but remaining unclaimed by the holders of
Notes for two years after the date upon which the principal of, premium, if any,
or interest on such Notes, as the case may be, shall have become due and
payable, shall be repaid to the Company by the Trustee on written demand and all
liability of the Trustee shall thereupon cease with respect to such monies; and
the holder of any of the Notes shall thereafter look only to the Company for any
payment which such holder may be entitled to collect unless an applicable
abandoned property law designates another person.
Section 13.5 Reinstatement. If (i) the Trustee or the paying agent is
-------------
unable to apply any money in accordance with Section 13.2 by reason of any order
or judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application and (ii) the holders of at least a
majority in principal amount of the then outstanding Notes so request by written
notice to the Trustee, the Company's obligations under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred pursuant
to Section 13.1 until such time as the Trustee or the paying agent is permitted
to apply all such money in accordance with Section 13.2; provided, however, that
-------- -------
if the Company makes any payment of interest on or principal of any Note
following the reinstatement of its obligations, the Company shall be subrogated
to the rights of the holders of such Notes to receive such payment from the
money held by the Trustee or paying agent.
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
Section 14.1 Indenture and Notes Solely Corporate Obligations. No
------------------------------------------------
recourse for the payment of the principal of or premium, if any, or interest on
any Note, or for any claim based thereon or otherwise in respect thereof, and no
recourse under or upon any obligation, covenant or agreement of the Company in
this Indenture or in any supplemental indenture or in any Note, or because of
the creation of any indebtedness represented thereby, shall be had against any
incorporator, stockholder, employee, agent, officer or director or subsidiary,
as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issue of the Notes.
ARTICLE XV
CONVERSION OF NOTES
Section 15.1 Right to Convert. Subject to and upon compliance with the
----------------
provisions of this Indenture, the holder of any Note shall have the right, at
his option, at any time following the date of original issuance of the Notes and
prior to the close of business on February 1, 2007 (except that, with respect to
any Note or portion of a Note which shall be called for redemption, such right
shall
-59-
<PAGE>
terminate, except as provided in the fifth paragraph of Section 15.2 and Section
3.4, at the close of business on the Business Day next preceding the date fixed
for redemption of such Note or portion of a Note unless the Company shall
default in payment due upon redemption thereof) to convert the principal amount
of any such Note, or any portion of such principal amount which is $1,000 or an
integral multiple thereof, into that number of fully paid and non-assessable
shares of Common Stock (as such shares shall then be constituted) obtained by
dividing the principal amount of the Note or portion thereof surrendered for
conversion by the Conversion Price in effect at such time, by surrender of the
Note so to be converted in whole or in part in the manner provided in Section
15.2; provided, however, that in the event, at any time a Note is surrendered
-------- -------
for conversion in whole or in part pursuant to this Section 15.1, the Company
does not have available for issuance upon such conversion as authorized and
unissued shares or in its treasury at least the number of shares of Common Stock
required to be issued pursuant thereto, then such Note (or portion thereof as to
which conversion has been requested), to the extent that sufficient shares of
Common Stock are not then available for issuance upon conversion, shall be
converted into the right to receive from the Company, in lieu of the shares of
Common Stock into which the Note would otherwise be converted and which the
Company is unable to issue, a payment equal to the number of shares of Common
Stock which the Company is unable to issue multiplied by the average of the
Closing Price (as defined in Section 15.5(h)(1)) for the Company's Common Stock
during the five (5) Trading Days (as defined in Section 15.5(h)(5)) immediately
prior to the date on which such Note (or specified portion thereof) is deemed to
have been converted pursuant to this Article, such calculations to be made by
the Company. Any such payment shall, for all purposes of this Indenture and the
Note, be deemed to be a payment of principal plus a premium equal to the total
amount payable less the principal portion of any such Note surrendered for
conversion as to which such payment is required to be made because shares of
Common Stock are not then available for issuance upon such conversion. For
purposes of Sections 15.5 and 15.6, whenever a provision references the shares
of Common Stock into which a Note (or a portion thereof) is convertible or the
shares of Common Stock issuable upon conversion of a Note (or a portion thereof)
or words of similar import, any determination required by such provision shall
be made as if a sufficient number of shares of Common Stock were then available
for issuance upon conversion of all outstanding Notes. A holder of Notes is not
entitled to any rights of a holder of Common Stock until such holder has
converted his Notes to Common Stock, and only to the extent such Notes are
deemed to have been converted to Common Stock under this Article XV. A Note with
respect to which a holder has delivered a notice in accordance with Section 16.2
regarding such holder's election to require the Company to repurchase such
holder's Notes following the occurrence of a Repurchase Event may be converted
in accordance with this Article XV only if such holder withdraws such notice by
delivering a written notice of withdrawal to the Company prior to the close of
business on last Business Day prior to the day fixed for repurchase.
Section 15.2 Exercise of Conversion Privilege; Issuance of Common Stock
----------------------------------------------------------
on Conversion; No Adjustment for Interest or Dividends. In order to exercise the
- ------------------------------------------------------
conversion privilege with respect to any Note in definitive form, the holder of
any such Note to be converted in whole or in part shall surrender such Note,
duly endorsed, at an office or agency maintained by the Company pursuant to
Section 5.2, accompanied by the funds, if any, required by the penultimate
paragraph of this Section 15.2, and shall give written notice of conversion in
the form provided on the Notes (or such
-60-
<PAGE>
other notice which is acceptable to the Company) to the office or agency that
the holder elects to convert such Note or such portion thereof specified in said
notice. Such notice shall also state the name or names (with address) in which
the certificate or certificates for shares of Common Stock which shall be
issuable on such conversion shall be issued, and shall be accompanied by
transfer taxes, if required pursuant to Section 15.7. Each such Note surrendered
for conversion shall, unless the shares issuable on conversion are to be issued
in the same name as the registration of such Note, be duly endorsed by, or be
accompanied by instruments of transfer in form satisfactory to the Company duly
executed by, the holder or his duly authorized attorney.
In order to exercise the conversion privilege with respect to any interest
in the Global Note, the beneficial holder must complete the appropriate
instruction form for conversion pursuant to the Depositary's book-entry
conversion program, deliver by book-entry delivery an interest in the Global
Note, furnish appropriate endorsements and transfer documents if required by the
Company or the Trustee or conversion agent, and pay the funds, if any, required
by the penultimate paragraph of this Section 15.2 and any transfer taxes, if
required pursuant to Section 15.7.
As promptly as practicable after satisfaction of the requirements for
conversion set forth above (but in no event later than three (3) Business Days
after satisfaction of such requirements for conversion), subject to compliance
with any restrictions on transfer if shares issuable on conversion are to be
issued in a name other than that of the Noteholder (as if such transfer were a
transfer of the Note or Notes (or portion thereof) so converted), the Company
shall issue and shall deliver to such holder at the office or agency maintained
by the Company for such purpose pursuant to Section 5.2, a certificate or
certificates for the number of full shares of Common Stock issuable upon the
conversion of such Note or portion thereof in accordance with the provisions of
this Article and a check or cash in respect of any fractional interest in
respect of a share of Common Stock arising upon such conversion, as provided in
Section 15.3 (which payment, if any, shall be paid no later than five Business
Days after satisfaction of the requirements for conversion set forth above). In
case any Note of a denomination greater than $1,000 shall be surrendered for
partial conversion, and subject to Section 2.3, the Company shall execute and
the Trustee shall authenticate and deliver to the holder of the Note so
surrendered, without charge to him, a new Note or Notes in authorized
denominations in an aggregate principal amount equal to the unconverted portion
of the surrendered Note.
Each conversion shall be deemed to have been effected as to any such Note
(or portion thereof) on the date on which the requirements set forth above in
this Section 15.2 have been satisfied as to such Note (or portion thereof), and
the person in whose name any certificate or certificates for shares of Common
Stock shall be issuable upon such conversion shall be deemed to have become on
said date the holder of record of the shares represented thereby; provided,
--------
however, that any such surrender on any date when the stock transfer books of
- -------
the Company shall be closed shall constitute the person in whose name the
certificates are to be issued as the record holder thereof for all purposes on
the next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date upon which
such Note shall be surrendered.
-61-
<PAGE>
Any Note or portion thereof surrendered for conversion during the period
from the close of business on the record date for any interest payment date
through the close of business on the Business Day next preceding such interest
payment date shall (unless such Note or portion thereof being converted shall
have been called for redemption pursuant to a redemption notice mailed to the
Noteholders in accordance with Section 3.2) be accompanied by payment, in New
York Clearing House funds or other funds acceptable to the Company, of an amount
equal to the interest otherwise payable on such interest payment date on the
principal amount being converted; provided, however, that no such payment need
-------- -------
be made if there shall exist at the time of conversion a default in the payment
of interest on the Notes. Except as provided above in this Section 15.2, no
adjustment shall be made for interest accrued on any Note converted or for
dividends on any shares issued upon the conversion of such Note as provided in
this Article.
Upon the conversion of an interest in the Global Note, the Trustee, or the
Custodian at the direction of the Trustee, shall make a notation on the Global
Note as to the reduction in the principal amount represented thereby.
Section 15.3 Cash Payments in Lieu of Fractional Shares. No fractional
------------------------------------------
shares of Common Stock or scrip representing fractional shares shall be issued
upon conversion of Notes. If more than one Note shall be surrendered for
conversion at one time by the same holder, the number of full shares which shall
be issuable upon conversion thereof shall be computed on the basis of the
aggregate principal amount of the Notes (or specified portions thereof to the
extent permitted hereby) so surrendered for conversion. If any fractional share
of stock otherwise would be issuable upon the conversion of any Note or Notes,
the Company shall calculate and pay a cash adjustment in lieu of such fractional
share at the current market value thereof to the holder of Notes. The current
market value of a share of Common Stock shall be the Closing Price on the first
Trading Day immediately preceding the day on which the Notes (or specified
portions thereof) are deemed to have been converted and such Closing Price shall
be determined as provided in Section 15.5(h).
Section 15.4 Conversion Price. The conversion price shall be as specified
----------------
in the form of Note (herein called the "Conversion Price") attached as Exhibit A
---------
hereto, subject to adjustment as provided in this Article XV.
Section 15.5 Adjustment of Conversion Price. The Conversion Price shall
------------------------------
be adjusted from time to time by the Company as follows:
(a) In case the Company shall hereafter pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of
Common Stock, the Conversion Price in effect at the opening of business on
the date following the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution shall be reduced by
multiplying such Conversion Price by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close of
business on the Record Date (as defined in Section 15.5(h)) fixed for such
determination and the denominator shall be the sum of such number of shares
and the total number of shares constituting such dividend or other
distribution, such reduction to become effective immediately after the
opening of
-62-
<PAGE>
business on the day following the Record Date. If any dividend or
distribution of the type described in this Section 15.5(a) is declared but
not so paid or made, the Conversion Price shall again be adjusted to the
Conversion Price which would then be in effect if such dividend or
distribution had not been declared.
(b) In case the Company shall issue rights or warrants to all holders
of its outstanding shares of Common Stock entitling them (for a period
expiring within forty-five (45) days after the date fixed for the
determination of stockholders entitled to receive such rights or warrants)
to subscribe for or purchase shares of Common Stock at a price per share
less than the Current Market Price (as defined in Section 15.5(h)) on the
Record Date fixed for the determination of stockholders entitled to receive
such rights or warrants, the Conversion Price shall be adjusted so that the
same shall equal the price determined by multiplying the Conversion Price
in effect at the opening of business on the date after such Record Date by
a fraction of which the numerator shall be the number of shares of Common
Stock outstanding at the close of business on the Record Date plus the
number of shares which the aggregate offering price of the total number of
shares so offered for subscription or purchase would purchase at such
Current Market Price, and of which the denominator shall be the number of
shares of Common Stock outstanding on the close of business on the Record
Date plus the total number of additional shares of Common Stock so offered
for subscription or purchase. Such adjustment shall become effective
immediately after the opening of business on the day following the Record
Date fixed for determination of stockholders entitled to receive such
rights or warrants. To the extent that shares of Common Stock are not
delivered pursuant to such rights or warrants, upon the expiration or
termination of such rights or warrants the Conversion Price shall be
readjusted to the Conversion Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made on
the basis of delivery of only the number of shares of Common Stock actually
delivered. In the event that such rights or warrants are not so issued, the
Conversion Price shall again be adjusted to be the Conversion Price which
would then be in effect if such date fixed for the determination of
stockholders entitled to receive such rights or warrants had not been
fixed. In determining whether any rights or warrants entitle the holders to
subscribe for or purchase shares of Common Stock at less than such Current
Market Price, and in determining the aggregate offering price of such
shares of Common Stock, there shall be taken into account any consideration
received for such rights or warrants, the value of such consideration, if
other than cash, to be determined by the Board of Directors.
(c) In case the outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the Conversion
Price in effect at the opening of business on the day following the day
upon which such subdivision becomes effective shall be proportionately
reduced, and conversely, in case outstanding shares of Common Stock shall
be combined into a smaller number of shares of Common Stock, the Conversion
Price in effect at the opening of business on the day following the day
upon which such combination becomes effective shall be proportionately
increased, such reduction or increase, as the case may be, to become
effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.
-63-
<PAGE>
(d) In case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock shares of any class of capital stock of
the Company (other than any dividends or distributions to which Section
15.5(a) applies) or evidences of its indebtedness or other assets
(including securities, but excluding (1) any rights or warrants referred to
in Section 15.5(b) and, (2) dividends and distributions (A) in connection
with the liquidation, dissolution or winding up of the Company or paid (B)
exclusively in cash and (3) any capital stock, evidences of indebtedness,
cash or assets distributed upon a merger or consolidation to which Section
15.6 applies) (the foregoing hereinafter in this Section 15.5(d) called the
"Securities")), unless the Company elects to reserve such Securities for
distribution to the Noteholders upon conversion of the Notes so that any
such holder converting Notes will receive upon such conversion, in addition
to the shares of Common Stock to which such holder is entitled, the amount
and kind of such Securities which such holder would have received if such
holder had converted its Notes into Common Stock immediately prior to the
Record Date (as defined in Section 15.5(h) for such distribution of the
Securities) then, in each such case, the Conversion Price shall be reduced
so that the same shall be equal to the price determined by multiplying the
Conversion Price in effect immediately prior to the close of business on
the Record Date (as defined in Section 15.5(h)) with respect to such
distribution by a fraction of which the numerator shall be the Current
Market Price (determined as provided in Section 15.5(h)) on such date less
the fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution) on
such date of the portion of the Securities so distributed applicable to one
share of Common Stock and the denominator shall be such Current Market
Price, such reduction to become effective immediately prior to the opening
of business on the day following the Record Date; provided, however, that
-------- -------
in the event the then fair market value (as so determined) of the portion
of the Securities so distributed applicable to one share of Common Stock is
equal to or greater than the Current Market Price on the Record Date, in
lieu of the foregoing adjustment, adequate provision shall be made so that
each Noteholder shall have the right to receive upon conversion of a Note
(or any portion thereof) the amount of Securities such holder would have
received had such holder converted such Note (or portion thereof)
immediately prior to such Record Date. In the event that such dividend or
distribution is not so paid or made, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if such
dividend or distribution had not been declared. If the Board of Directors
determines the fair market value of any distribution for purposes of this
Section 15.5(d) by reference to the actual or when issued trading market
for any securities comprising all or part of such distribution, it must in
doing so consider the prices in such market over the same period (the
"Reference Period") used in computing the Current Market Price pursuant to
Section 15.5(h) to the extent possible, unless the Board of Directors in a
board resolution determines in good faith that determining the fair market
value during the Reference Period would not be in the best interest of the
Noteholder.
In the event that the Company implements a stockholder rights plan,
such rights plan shall provide that upon conversion of the Notes the
holders will receive, in addition to the Common Stock issuable upon such
conversion, the rights issued under such rights plan (notwithstanding the
occurrence of an event causing such rights to separate from the
-64-
<PAGE>
Common Stock at or prior to the time of conversion). Any distribution of
rights or warrants pursuant to a stockholder rights plan complying with the
requirements set forth in the immediately preceding sentence of this
paragraph shall not constitute a distribution of rights or warrants for the
purposes of this Section 15.5(d).
Rights or warrants distributed by the Company to all holders of Common
Stock entitling the holders thereof to subscribe for or purchase shares of
the Company's capital stock (either initially or under certain
circumstances), which rights or warrants, until the occurrence of a
specified event or events ("Trigger Event"): (i) are deemed to be
transferred with such shares of Common Stock; (ii) are not exercisable; and
(iii) are also issued in respect of future issuances of Common Stock, shall
be deemed not to have been distributed for purposes of this Section 15.5(d)
(and no adjustment to the Conversion Price under this Section 15.5(d) will
be required) until the occurrence of the earliest Trigger Event. If such
right or warrant is subject to subsequent events, upon the occurrence of
which such right or warrant shall become exercisable to purchase different
securities, evidences of indebtedness or other assets or entitle the holder
to purchase a different number or amount of the foregoing or to purchase
any of the foregoing at a different purchase price, then the occurrence of
each such event shall be deemed to be the date of issuance and record date
with respect to a new right or warrant (and a termination or expiration of
the existing right or warrant without exercise by the holder thereof). In
addition, in the event of any distribution (or deemed distribution) of
rights or warrants, or any Trigger Event or other event (of the type
described in the preceding sentence) with respect thereto, that resulted in
an adjustment to the Conversion Price under this Section 15.5(d), (1) in
the case of any such rights or warrants which shall all have been redeemed
or repurchased without exercise by any holders thereof, the Conversion
Price shall be readjusted upon such final redemption or repurchase to give
effect to such distribution or Trigger Event, as the case may be, as though
it were a cash distribution, equal to the per share redemption or
repurchase price received by a holder of Common Stock with respect to such
rights or warrants (assuming such holder had retained such rights or
warrants), made to all holders of Common Stock as of the date of such
redemption or repurchase, and (2) in the case of such rights or warrants
all of which shall have expired or been terminated without exercise, the
Conversion Price shall be readjusted as if such rights and warrants had
never been issued.
For purposes of this Section 15.5(d) and Sections 15.5(a) and (b), any
dividend or distribution to which this Section 15.5(d) is applicable that
also includes shares of Common Stock, or rights or warrants to subscribe
for or purchase shares of Common Stock to which Section 15.5(b) applies (or
both), shall be deemed instead to be (1) a dividend or distribution of the
evidences of indebtedness, assets, shares of capital stock, rights or
warrants other than such shares of Common Stock or rights or warrants to
which Section 15.5(b) applies (and any Conversion Price reduction required
by this Section 15.5(d) with respect to such dividend or distribution shall
then be made) immediately followed by (2) a dividend or distribution of
such shares of Common Stock or such rights or warrants (and any further
Conversion Price reduction required by Sections 15.5(a) and (b) with
respect to such dividend or distribution shall then be made, except (A) the
Record Date of such dividend or distribution shall be
-65-
<PAGE>
substituted as "the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution", "Record Date
fixed for such determination" and "Record Date" within the meaning of
Section 15.5(a) and as "the date fixed for the determination of
stockholders entitled to receive such rights or warrants", "the Record Date
fixed for the determination of the stockholders entitled to receive such
rights or warrants" and "such Record Date" within the meaning of Section
15.5(b) and (B) any shares of Common Stock included in such dividend or
distribution shall not be deemed "outstanding at the close of business on
the date fixed for such determination" within the meaning of Section
15.5(a).
(e) In case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock cash (excluding any cash that is
distributed upon a merger or consolidation to which Section 15.6 applies or
as part of a distribution referred to in Section 15.5(d)), in an aggregate
amount that, combined together with (1) the aggregate amount of any other
such distributions to all holders of its Common Stock made exclusively in
cash within the twelve (12) months preceding the date of payment of such
distribution, and in respect of which no adjustment pursuant to this
Section 15.5(e) has been made, and (2) the aggregate of any cash plus the
fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution) of
consideration payable in respect of any tender offer by the Company or any
of its subsidiaries for all or any portion of the Common Stock concluded
within the twelve (12) months preceding the date of payment of such
distribution, and in respect of which no adjustment pursuant to Section
15.5(f) has been made, exceeds 10% of the product of the Current Market
Price (determined as provided in Section 15.5(h)) on the Record Date with
respect to such distribution times the number of shares of Common Stock
outstanding on such date, then, and in each such case, immediately after
the close of business on such date, the Conversion Price shall be reduced
so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the close of business on
such Record Date by a fraction (i) the numerator of which shall be equal to
the Current Market Price on the Record Date less an amount equal to the
quotient of (x) the excess of such combined amount over such 10% and (y)
the number of shares of Common Stock outstanding on the Record Date and
(ii) the denominator of which shall be equal to the Current Market Price on
such date; provided, however, that in the event the portion of the cash so
-------- -------
distributed applicable to one share of Common Stock is equal to or greater
than the Current Market Price of the Common Stock on the Record Date, in
lieu of the foregoing adjustment, adequate provision shall be made so that
each Noteholder shall have the right to receive upon conversion of a Note
(or any portion thereof) the amount of cash such holder would have received
had such holder converted such Note (or portion thereof) immediately prior
to such Record Date. In the event that such dividend or distribution is not
so paid or made, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such dividend or
distribution had not been declared. Any cash distribution to all holders
of Common Stock as to which the Company makes the election permitted by
Section 15.5(n) and as to which the Company has complied with the
requirements of such Section shall be treated as not having been made for
all purposes of this Section 15.5(e)).
-66-
<PAGE>
(f) In case a tender offer made by the Company or any Subsidiary for
all or any portion of the Common Stock shall expire and such tender offer
(as amended upon the expiration thereof) shall require the payment to
stockholders (based on the acceptance (up to any maximum specified in the
terms of the tender offer) of Purchased Shares (as defined below)) of an
aggregate consideration having a fair market value (as determined by the
Board of Directors, whose determination shall be conclusive and described
in a Board Resolution) that combined together with (1) the aggregate of the
cash plus the fair market value (as determined by the Board of Directors,
whose determination shall be conclusive and described in a Board
Resolution), as of the expiration of such tender offer, of consideration
payable in respect of any other tender offers, by the Company or any of its
subsidiaries for all or any portion of the Common Stock expiring within the
twelve (12) months preceding the expiration of such tender offer and in
respect of which no adjustment pursuant to this Section 15.5(f) has been
made and (2) the aggregate amount of any distributions to all holders of
the Company's Common Stock made exclusively in cash within twelve (12)
months preceding the expiration of such tender offer and in respect of
which no adjustment pursuant to Section 15.5(e) has been made, exceeds 10%
of the product of the Current Market Price (determined as provided in
Section 15.5(h)) as of the last time (the "Expiration Time") tenders could
have been made pursuant to such tender offer (as it may be amended) times
the number of shares of Common Stock outstanding (including any tendered
shares) on the Expiration Time, then, and in each such case, immediately
prior to the opening of business on the day after the date of the
Expiration Time, the Conversion Price shall be adjusted so that the same
shall equal the price determined by multiplying the Conversion Price in
effect immediately prior to close of business on the date of the Expiration
Time by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding (including any tendered shares) on the Expiration
Time multiplied by the Current Market Price of the Common Stock on the
Trading Day next succeeding the Expiration Time and the denominator shall
be the sum of (x) the fair market value (determined as aforesaid) of the
aggregate consideration payable to stockholders based on the acceptance (up
to any maximum specified in the terms of the tender offer) of all shares
validly tendered and not withdrawn as of the Expiration Time (the shares
deemed so accepted, up to any such maximum, being referred to as the
"Purchased Shares") and (y) the product of the number of shares of Common
Stock outstanding (less any Purchased Shares) on the Expiration Time and
the Current Market Price of the Common Stock on the Trading Day next
succeeding the Expiration Time, such reduction (if any) to become effective
immediately prior to the opening of business on the day following the
Expiration Time. In the event that the Company is obligated to purchase
shares pursuant to any such tender offer, but the Company is permanently
prevented by applicable law from effecting any such purchases or all such
purchases are rescinded, the Conversion Price shall again be adjusted to be
the Conversion Price which would then be in effect if such tender offer had
not been made. If the application of this Section 15.5(f) to any tender
offer would result in an increase in the Conversion Price, no adjustment
shall be made for such tender offer under this Section 15.5(f). Any cash
distribution to all holders of Common Stock as to which the Company has
made the election permitted by Section 15.5(n) and as to which the Company
has complied with the requirements of such Section shall be treated as not
having been made for all purposes of this Section 15.5(f).
-67-
<PAGE>
(g) In case of a tender or exchange offer made by a person other than
the Company or any Subsidiary for an amount which increases the offeror's
ownership of Common Stock to more than 25% of the Common Stock outstanding
and shall involve the payment by such person of consideration per share of
Common Stock having a fair market value (as determined by the Board of
Directors), whose determination shall be conclusive, and described in a
resolution of the Board of Directors at the last time (the "Expiration
Time") tenders or exchanges may be made pursuant to such tender or exchange
offer (as it shall have been amended) that exceeds the Current Market Price
of the Common Stock on the Trading Day next succeeding the Expiration Time,
and in which, as of the Expiration Time the Board of Directors is not
recommending rejection of the offer, the Conversion Price shall be reduced
so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the Expiration Time by a
fraction of which the numerator shall be the number of shares of Common
Stock outstanding (including any tendered or exchanged shares) on the
Expiration Time multiplied by the current Market Price of the Common Stock
on the Trading Day next succeeding the Expiration Time and the denominator
shall be the sum of (x) the fair market value (determined as aforesaid) of
the aggregate consideration payable to stockholders based on the acceptance
(up to any maximum specified in the terms of the tender or exchange offer)
of all shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such maximum,
being referred to as the "Purchased Shares") and (y) the product of the
number of shares of Common Stock outstanding (less any Purchased Shares) on
the Expiration Time and the Current Market Price of the Common Stock on the
Trading Day next succeeding the Expiration Time, such reduction to become
effective immediately prior to the opening of business on the day following
the Expiration Time. In the event that such person is obligated to purchase
shares pursuant to any such tender or exchange offer, but such person is
permanently prevented by applicable law from effecting any such purchases
or all such purchases are rescinded, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if such
tender or exchange offer had not been made. Notwithstanding the foregoing,
the adjustment described in this Section 15.5(g) shall not be made if, as
of the Expiration Time, the offering documents with respect to such offer
disclose a plan or intention to cause the Company to engage in any
transaction described in Article XII.
(h) For purposes of this Section 15.5, the following terms shall have
the meaning indicated:
(1) "Closing Price" with respect to any securities on any
day shall mean the closing sale price regular way on such day or, in
case no such sale takes place on such day, the average of the reported
closing bid and asked prices, regular way, in each case on the Nasdaq
National Market or New York Stock Exchange, as applicable, or, if such
security is not listed or admitted to trading on such National Market
or Exchange, on the principal national security exchange or quotation
system on which such security is quoted or listed or admitted to
trading, or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, the
-68-
<PAGE>
average of the closing bid and asked prices of such security on the over-
the-counter market on the day in question as reported by the National
Quotation Bureau Incorporated, or a similar generally accepted reporting
service, or if not so available, in such manner as furnished by any New
York Stock Exchange member firm selected from time to time by the Board of
Directors for that purpose, or a price determined in good faith by the
Board of Directors, whose determination shall be conclusive and described
in a Board Resolution.
(2) "Current Market Price" shall mean the average of the daily
Closing Prices per share of Common Stock for the ten (10) consecutive
Trading Days immediately prior to the date in question; provided, however,
-------- -------
that (1) if the "ex" date (as hereinafter defined) for any event (other
than the issuance or distribution requiring such computation) that requires
an adjustment to the Conversion Price pursuant to Section 15.5(a), (b),
(c), (d), (e), (f) or (g) occurs during such ten (10) consecutive Trading
Days, the Closing Price for each Trading Day prior to the "ex" date for
such other event shall be adjusted by multiplying such Closing Price by the
same fraction by which the Conversion Price is so required to be adjusted
as a result of such other event, (2) if the "ex" date for any event (other
than the issuance or distribution requiring such computation) that requires
an adjustment to the Conversion Price pursuant to Section 15.5(a), (b),
(c), (d), (e), (f) or (g) occurs on or after the "ex" date for the issuance
or distribution requiring such computation and prior to the day in
question, the Closing Price for each Trading Day on and after the "ex" date
for such other event shall be adjusted by multiplying such Closing Price by
the reciprocal of the fraction by which the Conversion Price is so required
to be adjusted as a result of such other event, and (3) if the "ex" date
for the issuance or distribution requiring such computation is prior to the
day in question, after taking into account any adjustment required pursuant
to clause (1) or (2) of this proviso, the Closing Price for each Trading
Day on or after such "ex" date shall be adjusted by adding thereto the
amount of any cash and the fair market value (as determined by the Board of
Directors in a manner consistent with any determination of such value for
purposes of Section 15.5(d), (f) or (g), whose determination shall be
conclusive and described in a Board Resolution) of the evidences of
indebtedness, shares of capital stock or assets being distributed
applicable to one share of Common Stock as of the close of business on the
day before such "ex" date. For purposes of any computation under Sections
15.5(f) or (g), the Current Market Price of the Common Stock on any date
shall be deemed to be the average of the daily Closing Prices per share of
Common Stock for such day and the next two succeeding Trading Days;
provided, however, that if the "ex" date for any event (other than the
-------- -------
tender offer requiring such computation) that requires an adjustment to the
Conversion Price pursuant to Section 15.5(a), (b), (c), (d), (e), (f) and
(g) occurs on or after the Expiration Time for the tender or exchange offer
requiring such computation and prior to the day in question, the Closing
Price for each Trading Day on and after the "ex" date for such other event
shall be adjusted by multiplying such Closing Price by the reciprocal of
the fraction by which the Conversion Price is so required to be adjusted as
a result of such other event. For
-69-
<PAGE>
purposes of this paragraph, the term "ex" date, (1) when used with respect
to any issuance or distribution, means the first date on which the Common
Stock trades regular way on the relevant exchange or in the relevant market
from which the Closing Price was obtained without the right to receive such
issuance or distribution, (2) when used with respect to any subdivision or
combination of shares of Common Stock, means the first date on which the
Common Stock trades regular way on such exchange or in such market after
the time at which such subdivision or combination becomes effective, and
(3) when used with respect to any tender or exchange offer means the first
date on which the Common Stock trades regular way on such exchange or in
such market after the Expiration Time of such offer. Notwithstanding the
foregoing, whenever successive adjustments to the Conversion Price are
called for pursuant to this Section 15.5, such adjustments shall be made to
the Current Market Price as may be necessary or appropriate to effectuate
the intent of this Section 15.5 and to avoid unjust or inequitable results
as determined in good faith by the Board of Directors.
(3) "fair market value" shall mean the amount which a willing buyer
would pay a willing seller in an arm's length transaction.
(4) "Record Date" shall mean, with respect to any dividend,
distribution or other transaction or event in which the holders of Common
Stock have the right to receive any cash, securities or other property or
in which the Common Stock (or other applicable security) is exchanged for
or converted into any combination of cash, securities or other property,
the date fixed for determination of stockholders entitled to receive such
cash, securities or other property (whether such date is fixed by the Board
of Directors or by statute, contract or otherwise).
(5) "Trading Day" shall mean (x) if the applicable security is listed
or admitted for trading on the New York Stock Exchange or another national
security exchange, a day on which the New York Stock Exchange or another
national security exchange is open for business or (y) if the applicable
security is quoted on the Nasdaq National Market, a day on which trades may
be made thereon or (z) if the applicable security is not so listed,
admitted for trading or quoted, any day other than a Saturday or Sunday or
a day on which banking institutions in the State of New York are authorized
or obligated by law or executive order to close.
(i) The Company may make such reductions in the Conversion Price, in
addition to those required by Sections 15.5(a), (b), (c), (d), (e), (f) and (g),
as the Board of Directors considers to be advisable to avoid or diminish any
income tax to holders of Common Stock or rights to purchase 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.
To the extent permitted by applicable law, the Company from time to time
may reduce the Conversion Price by any amount for any period of time if the
period is at least
-70-
<PAGE>
twenty (20) days, the reduction is irrevocable during the period and the Board
of Directors shall have made a determination that such reduction would be in the
best interests of the Company, which determination shall be conclusive and
described in a Board Resolution. Whenever the Conversion Price is reduced
pursuant to the preceding sentence, the Company shall mail to the holder of each
Note at his last address appearing on the Note register provided for in Section
2.5 a notice of the reduction at least fifteen (15) days prior to the date the
reduced Conversion Price takes effect, and such notice shall state the reduced
Conversion Price and the period during which it will be in effect.
(j) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price;
provided, however, that any adjustments which by reason of this Section 15.5(j)
- -------- -------
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Article XV shall be made
by the Company and shall be made to the nearest cent or to the nearest one
hundredth of a share, as the case may be. No adjustment need be made for a
change in the par value or no par value of the Common Stock.
(k) Whenever the Conversion Price is adjusted as herein provided, the
Company shall promptly file with the Trustee and any conversion agent other than
the Trustee an Officers' Certificate setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment. Promptly after delivery of such certificate, the Company shall
prepare a notice of such adjustment of the Conversion Price setting forth the
adjusted Conversion Price and the date on which each adjustment becomes
effective and shall mail such notice of such adjustment of the Conversion Price
to the holder of each Note at his last address appearing on the Note register
provided for in Section 2.5, within twenty (20) days of the effective date of
such adjustment. Failure to deliver such notice shall not effect the legality or
validity of any such adjustment.
(l) In any case in which this Section 15.5 provides that an adjustment
shall become effective immediately after a Record Date for an event, the Company
may defer until the occurrence of such event (i) issuing to the holder of any
Note converted after such Record Date and before the occurrence of such event
the additional shares of Common Stock issuable upon such conversion by reason of
the adjustment required by such event over and above the Common Stock issuable
upon such conversion before giving effect to such adjustment and (ii) paying to
such holder any amount in cash in lieu of any fraction pursuant to Section 15.3.
(m) For purposes of this Section 15.5, the number of shares of Common
Stock at any time outstanding shall not include shares held in the treasury of
the Company but shall include shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common Stock. The Company will not pay
any dividend or make any distribution on shares of Common Stock held in the
treasury of the Company.
-71-
<PAGE>
(n) In lieu of making any adjustment to the Conversion Price pursuant
to Section 15.5(e), the Company may elect to reserve an amount of cash for
distribution to the holders of the Notes upon the conversion of the Notes
so that any such holder converting Notes will receive upon such conversion,
in addition to the shares of Common Stock and other items to which such
holder is entitled, the full amount of cash which such holder would have
received if such holder had, immediately prior to the Record Date for such
distribution of cash, converted its Notes into Common Stock, together with
any interest accrued with respect to such amount, in accordance with this
Section 15.5(n). The Company may make such election by providing an
Officers' Certificate to the Trustee to such effect on or prior to the
payment date for any such distribution and depositing with the Trustee on
or prior to such date an amount of cash equal to the aggregate amount the
holders of the Notes would have received if such holders had, immediately
prior to the Record Date for such distribution, converted all of the Notes
into Common Stock. Any such funds so deposited by the Company with the
Trustee shall be invested by the Trustee in marketable obligations issued
or fully guaranteed by the United States government with a maturity not
more than three (3) months from the date of issuance. Upon conversion of
Notes by a holder, the holder will be entitled to receive, in addition to
the Common Stock issuable upon conversion, an amount of cash equal to the
amount such holder would have received if such holder had, immediately
prior to the Record Date for such distribution, converted its Note into
Common Stock, along with such holder's pro rata share of any accrued
interest earned as a consequence of the investment of such funds. Promptly
after making an election pursuant to this Section 15.5(n), the Company
shall give or shall cause to be given notice to all Noteholders of such
election, which notice shall state the amount of cash per $1,000 principal
amount of Notes such holders shall be entitled to receive (excluding
interest) upon conversion of the Notes as a consequence of the Company
having made such election.
Section 15.6 Effect of Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------
If any of the following events occur, namely (i) any reclassification or change
of the outstanding shares of Common Stock (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any consolidation, merger or
combination of the Company with another corporation as a result of which holders
of Common Stock shall be entitled to receive stock, securities or other property
or assets (including cash) with respect to or in exchange for such Common Stock,
or (iii) any sale or conveyance of the properties and assets of the Company as,
or substantially as, an entirety to any other corporation as a result of which
holders of Common Stock shall be entitled to receive stock, securities or other
property or assets (including cash) with respect to or in exchange for such
Common Stock, then the Company or the successor or purchasing corporation, as
the case may be, shall execute with the Trustee a supplemental indenture (which
shall comply with the Trust Indenture Act as in force at the date of execution
of such supplemental indenture if such supplemental indenture is then required
to so comply) providing that such Note shall be convertible into the kind and
amount of shares of stock and other securities or property or assets (including
cash) receivable upon such reclassification, change, consolidation, merger,
combination, sale or conveyance by a holder of a number of shares of Common
Stock issuable upon conversion of such Notes (assuming, for such purposes, a
sufficient number of authorized shares of Common Stock available to convert all
such Notes) immediately
-72-
<PAGE>
prior to such reclassification, change, consolidation, merger, combination, sale
or conveyance assuming such holder of Common Stock did not exercise his rights
of election, if any, as to the kind or amount of securities, cash or other
property receivable upon such consolidation, merger, statutory exchange, sale or
conveyance (provided that, if the kind or amount of securities, cash or other
property receivable upon such consolidation, merger, statutory exchange, sale or
conveyance is not the same for each share of Common Stock in respect of which
such rights of election shall not have been exercised ("non-electing share"),
then for the purposes of this Section 15.6 the kind and amount of securities,
cash or other property receivable upon such consolidation, merger, statutory
exchange, sale or conveyance for each non-electing share shall be deemed to be
the kind and amount so receivable per share by a plurality of the non-electing
shares). Such supplemental indenture shall provide for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments provided for in
this Article. If, in the case of any such reclassification, change,
consolidation, merger, combination, sale or conveyance, the stock or other
securities and assets receivable thereupon by a holder of shares of Common Stock
include shares of stock or other securities and assets of a corporation other
than the successor or purchasing corporation, as the case may be, in such
reclassification, change, consolidation, merger, combination, sale or
conveyance, then such supplemental indenture shall also be executed by such
other corporation and shall contain such additional provisions to protect the
interests of the holders of the Notes as the Board of Directors shall reasonably
consider necessary by reason of the foregoing, including to the extent
practicable the provisions providing for the repurchase rights set forth in
Article XVI herein.
The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each holder of Notes, at his address appearing on the
Note register provided for in Section 2.5 of this Indenture, within twenty (20)
days after execution thereof. Failure to deliver such notice shall not affect
the legality or validity of such supplemental indenture.
The above provisions of this Section shall similarly apply to successive
reclassifications, changes, consolidations, mergers, combinations, sales and
conveyances.
If this Section 15.6 applies to any event or occurrence, Section 15.5 shall
not apply.
Section 15.7 Taxes on Shares Issued. The issue of stock certificates on
----------------------
conversions of Notes shall be made without charge to the converting Noteholder
for any tax in respect of the issue thereof. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of stock in any name other than that of the holder of
any Note converted, and the Company shall not be required to issue or deliver
any such stock certificate unless and until the person or persons requesting the
issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
Section 15.8 Reservation of Shares; Shares to Be Fully Paid; Listing of
----------------------------------------------------------
Common Stock. The Company shall provide, free from preemptive rights, out of
- ------------
its authorized but unissued shares or shares held in treasury, sufficient shares
to provide for the conversion of the Notes from time to time as such Notes are
presented for conversion.
-73-
<PAGE>
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common Stock
issuable upon conversion of the Notes, the Company will take all corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue shares of such Common Stock at such
adjusted Conversion Price.
The Company covenants that all shares of Common Stock issued upon
conversion of Notes will be fully paid and non-assessable by the Company and
free from all taxes, liens and charges with respect to the issue thereof.
The Company further covenants that if at any time the Common Stock shall be
listed on the American Stock Exchange or any other national securities exchange
or automated quotation system the Company will, if permitted by the rules of
such exchange or automated quotation system, list and keep listed, so long as
the Common Stock shall be so listed on such exchange or automated quotation
system, all Common Stock issuable upon conversion of the Notes.
Section 15.9 Responsibility of Trustee. The Trustee and any other
-------------------------
conversion agent shall not at any time be under any duty or responsibility to
any holder of Notes to determine whether any facts exist which may require any
adjustment of the Conversion Price, or with respect to the nature or extent or
calculation of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture provided to be employed, in
making the same. The Trustee and any other conversion agent shall not be
accountable with respect to the validity or value (or the kind or amount) of any
shares of Common Stock, or of any securities or property, which may at any time
be issued or delivered upon the conversion of any Note; and the Trustee and any
other conversion agent make no representations with respect thereto. Subject to
the provisions of Section 8.1, neither the Trustee nor any conversion agent
shall be responsible for any failure of the Company to issue, transfer or
deliver any shares of Common Stock or stock certificates or other securities or
property or cash upon the surrender of any note for the purpose of conversion or
to comply with any of the duties, responsibilities or covenants of the Company
contained in this Article. Without limiting the generality of the foregoing,
neither the Trustee nor any conversion agent shall be under any responsibility
to determine whether a supplemental indenture need be entered into under Section
15.6 or the correctness of any provisions contained in any supplemental
indenture entered into pursuant to such section relating either to the kind or
amount of shares of stock or securities or property (including cash) receivable
by Noteholders upon the conversion of their Notes after any event referred to in
such Section 15.6 or to any adjustment to be made with respect thereto, but,
subject to the provisions of Section 8.1, may accept as conclusive evidence of
the correctness of any such provisions, and shall be protected in relying upon,
the Officers' Certificate (which the Company shall be obligated to file with the
Trustee prior to the execution of any such supplemental indenture) with respect
thereto.
Section 15.10 Notice to Holders Prior to Certain Actions. In case:
------------------------------------------
(a) Common Stock (that would require an adjustment in the Conversion
Price pursuant to Section 15.5); or
-74-
<PAGE>
(b) the Company shall authorize the granting to the holders of its
Common Stock of rights or warrants to subscribe for or purchase any share
of any class or any other rights or warrants; or
(c) of any reclassification of the Common Stock of the Company (other
than a subdivision or combination of its outstanding Common Stock, or a
change in par value, or from par value to no par value, or from no par
value to par value), or of any consolidation or merger to which the Company
is a party and for which approval of any shareholders of the Company is
required, or of the sale or transfer of all or substantially all of the
assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
the Company shall cause to be filed with the Trustee and to be mailed to each
holder of Notes at his address appearing on the Note register, provided for in
Section 2.5 of this Indenture, as promptly as possible but in any event at least
fifteen days prior to the applicable date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights are to be determined, or (y) the date
on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective or occur,
and the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of such
dividend, distribution, reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up.
ARTICLE XVI
REPURCHASE UPON A REPURCHASE EVENT
Section 16.1 Repurchase Right.
----------------
(a) If, at any time prior to February 1, 2007 there shall occur a
Repurchase Event, then each Noteholder shall have the right, at such
holder's option, to require the Company to repurchase all of such holder's
Notes, or any portion thereof (in principal amounts of $1,000 or integral
multiples thereof), on the date (the "repurchase date") that is forty (40)
calendar days after the date of the Company Notice (as defined in Section
16.2 below) of such Repurchase Event (or, if such 40th day is not a
Business Day, the next succeeding Business Day). Such repurchase shall be
made in cash at a price equal to 105% of the principal amount of Notes such
holder elects to require the Company to repurchase, together with accrued
interest, if any, to the repurchase date (the "Repurchase Price") (or, at
the option of the Company, by delivery of Common Stock in accordance with
the provisions of
-75-
<PAGE>
Section 16.3); provided, however, that if such repurchase date is February
-------- -------
1 or August 1 then the interest payable on such date shall be paid to the
holder of record of the Note on the next preceding January 15 or July 15,
respectively. No Notes may be redeemed at the option of holders upon a
Repurchase Event if there has occurred and is continuing an Event of
Default, other than a default in the payment of the Repurchase Price with
respect to such Notes on the repurchase date.
Section 16.2 Notices; Method of Exercising Repurchase Right, Etc.
---------------------------------------------------
(a) Unless the Company shall have theretofore called for redemption
all of the outstanding Notes, on or before the fifteenth (15th) calendar
day after the occurrence of a Repurchase Event, the Company or, at the
written request of the Company, the Trustee, shall mail to all holders of
record of the Notes a notice (the "Company Notice") in the form as prepared
by the Company of the occurrence of the Repurchase Event and of the
repurchase right set forth herein arising as a result thereof. The Company
shall also deliver a copy of such notice of a repurchase right to the
Trustee and cause a copy of such notice of a repurchase right, or a summary
of the information contained therein, to be published once in a newspaper
of general circulation in The City of New York. The Company Notice shall
contain the following information:
(1) the repurchase date,
(2) the date by which the repurchase right must be exercised,
(3) the last date by which the election to require repurchase,
if submitted, must be revoked;
(4) the Repurchase Price and whether the Repurchase Price shall
be payable in cash or Common Stock and, if payable in Common Stock,
the method of calculating the amount of the Common Stock to be
delivered upon the repurchase as provided in Section 16.3(a);
(5) a description of the procedure which a holder must follow to
exercise a repurchase right, and
(6) the Conversion Price then in effect, the date on which the
right to convert the principal amount of the Notes to be repurchased
will terminate and the place or places where Notes may be surrendered
for conversion.
No failure of the Company to give the foregoing notices or defect
therein shall limit any holder's right to exercise a repurchase right or
affect the validity of the proceedings for the repurchase of Notes.
If any of the foregoing provisions are inconsistent with applicable
law, such law shall govern.
-76-
<PAGE>
(b) To exercise a repurchase right, a holder shall deliver to
the Trustee on or before the thirty-fifth (35th) day after the Company
Notice was delivered (i) written notice to the Company (or agent
designated by the Company for such purpose) of the holder's exercise
of such right, which notice shall set forth the name of the holder,
the principal amount of the Notes to be repurchased, a statement that
an election to exercise the repurchase right is being made thereby,
and, in the event that the Repurchase Price shall be paid in shares of
Common Stock, the name or names (with addresses) in which the
certificate or certificates for shares of Common Stock shall be
issued, and (ii) the Notes with respect to which the repurchase right
is being exercised, duly endorsed for transfer to the Company.
Election of repurchase by a holder shall be revocable at any time
prior to, but excluding, the repurchase date, by delivering written
notice to that effect to the Trustee prior to the close of business on
the Business Day prior to the repurchase date.
(c) If the Company fails to repurchase on the repurchase date
any Notes (or portions thereof) as to which the repurchase right has
been properly exercised, then the principal of such Notes shall, until
paid, bear interest to the extent permitted by applicable law from the
repurchase date at the rate borne by the Note and each such Note shall
be convertible into Common Stock in accordance with this Indenture
(without giving effect to Section 16.2(b)) until the principal of such
Note shall have been paid or duly provided for.
(d) Any Note which is to be repurchased only in part shall be
surrendered to the Trustee duly endorsed for transfer to the Company
and accompanied by appropriate evidence of genuineness and authority
satisfactory to the Company and the Trustee duly executed by, the
holder thereof (or his attorney duly authorized in writing), and the
Company shall execute, and the Trustee shall authenticate and deliver
to the holder of such Note without service charge, a new Note or
Notes, containing identical terms and conditions, of any authorized
denomination as requested by such holder in aggregate principal amount
equal to and in exchange for the unrepurchased portion of the
principal of the Note so surrendered.
(e) On or prior to the repurchase date, the Company shall
deposit with the Trustee or with a paying agent (or, if the Company is
acting as its own paying agent, segregate and hold in trust as
provided in Section 5.4) the Repurchase Price in cash for payment to
the holder on the repurchase date; provided that if payment is to be
--------
made in cash, such cash payment is made on the repurchase date it must
be received by the Trustee or paying agent, as the case may be, by
10:00 a.m., New York City time, on such date; provided further that if
-------- -------
the Repurchase Price is to be paid in shares of Common Stock, such
shares of Common Stock are to be paid as promptly after the repurchase
date as practicable.
(f) Any issuance of shares of Common Stock in respect of the
Repurchase Price shall be deemed to have been effected immediately
prior to the close of business on the repurchase date and the person
or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such repurchase shall be
deemed to have become on the repurchase date the holder or holders of
record of the shares represented thereby; provided, however, that any
surrender for repurchase on a date when the stock
-77-
<PAGE>
transfer books of the Company shall be closed shall constitute the person
or persons in whose name or names the certificate or certificates for such
shares are to be issued as the record holder or holders thereof for all
purposes at the opening of business on the next succeeding day on which
such stock transfer books are open. No payment or adjustment shall be made
for dividends or distributions on any Common Stock issued upon repurchase
of any Security declared prior to the repurchase date.
(g) No fractions of shares shall be issued upon repurchase of Notes.
If more than one Note shall be repurchased from the same holder and the
Repurchase Price shall be payable in shares of Common Stock, the number of
full shares which shall be issuable upon such repurchase shall be computed
on the basis of the aggregate principal amount of the Notes so repurchased.
Instead of any fractional share of Common Stock which would otherwise be
issuable on the repurchase of any Note or Notes, the Company will deliver
to the applicable holder its check for the current market value of such
fractional share. The current market value of a fraction of a share is
determined by multiplying the current market price of a full share by the
fraction, and rounding the result to the nearest cent. For purposes of this
Section, the current market price of a share of Common Stock is the Closing
Price of the Common Stock on the Trading Day immediately preceding the
repurchase date.
(h) Any issuance and delivery of certificates for shares of Common
Stock on repurchase of Notes shall be made without charge to the holder of
Notes being repurchased for such certificates or for any tax or duty in
respect of the issuance or delivery of such certificates or the securities
represented thereby; provided, however, that the Company shall not be
required to pay any tax or duty which may be payable in respect of (i)
income of the holder or (ii) any transfer involved in the issuance or
delivery of certificates for shares of Common Stock in a name other than
that of the holder of the Notes being repurchased, and no such issuance or
delivery shall be made unless and until the person requesting such issuance
or delivery has paid to the Company the amount of any such tax or duty or
has established, to the satisfaction of the Company, that such tax or duty
has been paid.
(i) All Notes delivered for repurchase shall be delivered to the
Trustee to be canceled in accordance with the provisions of Section 2.8.
Section 16.3 Conditions to the Company's Election to Pay the Repurchase
----------------------------------------------------------
Price in Common Stock.
- ---------------------
The Company may elect to pay the Repurchase Price by delivery of shares of
Common Stock pursuant to Section 16.1 if and only if the following conditions
shall have been satisfied:
(a) The shares of Common Stock deliverable in payment of the
Repurchase Price shall have a fair market value as of the repurchase date
of not less than the Repurchase Price. For purposes of Section 16.1 and
this Section 16.3, the fair market value of shares of Common Stock shall be
determined by the Company and shall be equal to 95% of the average of the
Closing Prices of the Common Stock for the five consecutive Trading Days
immediately preceding and including the third Trading Day prior to the
repurchase date;
-78-
<PAGE>
(b) The Repurchase Price shall be paid only in cash in the event any
shares of Common Stock to be issued upon repurchase of Notes hereunder (i)
require registration under any federal securities law before such shares
may be freely transferable without being subject to any transfer
restrictions under the Securities Act upon repurchase and if such
registration is not completed or does not become effective prior to the
repurchase date, and/or (ii) require registration with or approval of any
governmental authority under any state law or any other federal law before
such shares may be validly issued or delivered upon repurchase and if such
registration is not completed or does not become effective or such approval
is not obtained prior to the repurchase date;
(c) Payment of the Repurchase Price may not be made in Common Stock
unless such stock is, or shall have been, or approved for quotation on the
Nasdaq National Market or listed on a national securities exchange, in
either case, prior to the repurchase date; and
(d) All shares of Common Stock which may be issued upon repurchase of
the Notes will be issued out of the Company's authorized but unissued
Common Stock and, will upon issue, be duly and validly issued and fully
paid and non-assessable and free of any preemptive rights.
If all of the conditions set forth in this Section 16.3 are not satisfied
in accordance with the terms thereof, the Repurchase Price shall be paid by the
Company only in cash.
Section 16.4 Certain Definitions. For purposes of this Article XVI:
-------------------
(a) the term "beneficial owner" shall be determined in accordance
with Rule 13d-3 and 13d-5, as in effect on the date of the original
execution of this Indenture, promulgated by the Securities and Exchange
Commission pursuant to the Exchange Act;
(b) the term "person" or "group" shall include any syndicate or group
which would be deemed to be a "person" under Section 13(d) and 14(d) of the
Exchange Act as in effect on the date of the original execution of this
Indenture; and
(c) the term "Continuing Director" means at any date a member of the
Company's Board of Directors (i) who was a member of such board on December
31, 1999 or (ii) who was nominated or elected by at least a majority of the
directors who were Continuing Directors at the time of such nomination or
election or whose election to the Company's Board of Directors was
recommended or endorsed by at least a majority of the directors who were
Continuing Directors at the time of such nomination or election or such
lesser number comprising a majority of a nominating committee if authority
for such nominations or elections has been delegated to a nominating
committee whose authority and composition have been approved by at least a
majority of the directors who were continuing directors at the time such
committee was formed. (Under this definition, if the Board of Directors of
the Company as of the date of this Indenture were to approve a new director
or directors and then resign, no Change in Control would occur even though
the current Board of Directors would thereafter cease to be in office).
-79-
<PAGE>
(d) the term "Repurchase Event" means a Change in Control or a
Termination of Trading.
(e) a "Change in Control" shall be deemed to have occurred when (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in
Rules 13-d3 and 13-d5 under the Exchange Act) of shares representing more
than 50% of the combined voting power of the then outstanding securities
entitled to vote generally in elections of directors of the Company (the
"Voting Stock"); (ii) approval by stockholders of the Company of any plan
or proposal for the liquidation, dissolution or winding up of the Company;
(iii) the Company (A) consolidates with or merges into any other
corporation or any other corporation merges into the Company, and in the
case of any such transaction, the outstanding Common Stock of the Company
is changed or exchanged into other assets or securities as a result, unless
the stockholders of the Company immediately before such transaction own,
directly or indirectly immediately following such transaction, at least 51%
of the combined voting power of the outstanding voting securities of the
corporation resulting from such transaction in substantially the same
proportion as their ownership of the Voting Stock immediately before such
transaction, or (B) conveys, transfers or leases all or substantially all
of its assets to any person; or (iv) any time Continuing Directors do not
constitute a majority of the Board of Directors of the Company (or, if
applicable, a successor corporation to the Company); provided that a Change
--------
in Control shall not be deemed to have occurred if either (x) the Closing
Price (as defined in Section 15.5(h)(1) hereof) of the Common Stock for any
five (5) Trading Days during the ten (10) Trading Days immediately
preceding the Change in Control is at least equal to 105% of the Conversion
Price in effect on the date on which the Change in Control occurs or (y) in
the case of a merger or consolidation otherwise constituting a Change in
Control, all of the consideration (excluding cash payments for fractional
shares) in such merger or consolidation constituting the Change in Control
consists of common stock traded on a United States national securities
exchange or quoted on the Nasdaq National Market (or which will be so
traded or quoted when issued or exchanged in connection with such Change in
Control) and as a result of such transaction or transactions such Notes
become convertible solely into such common stock.
(f) a "Termination of Trading" shall have occurred if the Common Stock
(or other common stock into which the Notes are then convertible) is
neither listed for trading on a United States national securities exchange
nor approved for trading on the Nasdaq Stock Market or another established
automated over-the-counter trading market in the United States.
-80-
<PAGE>
ARTICLE XVII
MISCELLANEOUS PROVISIONS
Section 17.1 Provisions Binding on Company's Successors. All the
------------------------------------------
covenants, stipulations, promises and agreements of the Company in this
Indenture contained shall bind its successors and assigns whether so expressed
or not.
Section 17.2 Official Acts by Successor Corporation. Any act or
--------------------------------------
proceeding by any provision of this Indenture authorized or required to be done
or performed by any board, committee or officer of the Company shall and may be
done and performed with like force and effect by the like board, committee or
officer of any corporation that shall at the time be the lawful sole successor
of the Company.
Section 17.3 Addresses for Notices, Etc. Any notice or demand which by
--------------------------
any provision of this Indenture is required or permitted to be given or served
by the Trustee or by the holders of Notes on the Company shall be deemed to have
been sufficiently given or made, for all purposes if given or served by being
deposited postage prepaid by registered or certified mail in a post office
letter box addressed (until another address is filed by the Company with the
Trustee) to E*TRADE Group, Inc., 4500 Bohannon Drive, Menlo Park, CA 94025,
Attention: Chief Financial Officer. Any notice, direction, request or demand
hereunder to or upon the Trustee shall be deemed to have been sufficiently given
or made, for all purposes, if given or served by being deposited postage prepaid
by registered or certified mail in a post office letter box addressed to the
Corporate Trust Office.
The Trustee, by notice to the Company, may designate additional or
different addresses for subsequent notices or communications.
Any notice or communication mailed to a Noteholder shall be mailed to him
by first class mail, postage prepaid, at his address as it appears on the Note
register and shall be sufficiently given to him if so mailed within the time
prescribed.
Failure to mail a notice or communication to a Noteholder or any defect in
it shall not affect its sufficiency with respect to other Noteholders. If a
notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
Section 17.4 Governing Law. This Indenture and each Note shall be deemed
-------------
to be a contract made under the laws of New York, and for all purposes shall be
construed in accordance with the laws of New York (without regard to the
conflict of laws provisions thereof).
Section 17.5 Evidence of Compliance with Conditions Precedent;
-------------------------------------------------
Certificates to Trustee. Upon any application or demand by the Company to the
- -----------------------
Trustee to take any action under any of the provisions of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and an Opinion of Counsel stating that,
in the opinion of such counsel, all such conditions precedent have been complied
with.
-81-
<PAGE>
Each certificate or opinion provided for by or on behalf of the Company in
this Indenture and delivered to the Trustee with respect to compliance with a
condition or covenant provided for in this Indenture shall include (1) a
statement that the person making such certificate or opinion has read such
covenant or condition; (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statement or opinion contained in
such certificate or opinion is based; (3) a statement that, in the opinion of
such person, he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such covenant or
condition has been complied with; and (4) a statement as to whether or not, in
the opinion of such person, such condition or covenant has been complied with.
Section 17.6 Legal Holidays. In any case where the date of maturity of
--------------
interest on or principal of the Notes or the date fixed for redemption of any
Note will not be a Business Day, then payment of such interest on or principal
of the Notes need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the date of
maturity or the date fixed for redemption, and no interest shall accrue for the
period from and after such date.
Section 17.7 No Security Interest Created. Nothing in this Indenture or
----------------------------
in the Notes, expressed or implied, shall be construed to constitute a security
interest under the Uniform Commercial Code or similar legislation, as now or
hereafter enacted and in effect, in any jurisdiction.
Section 17.8 Trust Indenture Act. This Indenture is hereby made subject
-------------------
to, and shall be governed by, the provisions of the Trust Indenture Act required
to be part of and to govern indentures qualified under the Trust Indenture Act;
provided, however, that, unless otherwise required by law, notwithstanding the
- -------- -------
foregoing, this Indenture and the Notes issued hereunder shall not be subject to
the provisions of subsections (a)(1), (a)(2), and (a)(3) of Section 314 of the
Trust Indenture Act as now in effect as hereafter amended or modified; provided
--------
further that this Section 17.8 shall not require that this Indenture or the
- -------
Trustee be qualified under the Trust Indenture Act prior to the time such
qualification is in fact required under the terms of the Trust Indenture Act,
nor shall it constitute any admission or acknowledgment by any party hereto that
any such qualification is required prior to the time such qualification is in
fact required under the terms of the Trust Indenture Act. If any provision
hereof limits, qualifies or conflicts with another provision hereof which is
required to be included in an indenture qualified under the Trust Indenture Act,
such required provision shall control.
Section 17.9 Benefits of Indenture. Nothing in this Indenture or in the
---------------------
Notes, expressed or implied, shall give to any person, other than the parties
hereto, any paying agent, any authenticating agent, any Note registrar and their
successors hereunder, the holders of Notes and the holders of Senior
Indebtedness, any benefit or any legal or equitable right, remedy or claim under
this Indenture.
Section 17.10 Table of Contents, Headings, Etc. The table of contents
--------------------------------
and the titles and headings of the articles and sections of this Indenture have
been inserted for convenience of
-82-
<PAGE>
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
Section 17.11 Authenticating Agent. The Trustee may appoint an
--------------------
authenticating agent which shall be authorized to act on its behalf and subject
to its direction in the authentication and delivery of Notes in connection with
the original issuance thereof and transfers and exchanges of Notes hereunder,
including under Sections 2.4, 2.5, 2.6, 2.7 and 3.3, as fully to all intents and
purposes as though the authenticating agent had been expressly authorized by
this Indenture and those Sections to authenticate and deliver Notes. For all
purposes of this Indenture, the authentication and delivery of Notes by the
authenticating agent shall be deemed to be authentication and delivery of such
Notes "by the Trustee" and a certificate of authentication executed on behalf of
the Trustee by an authenticating agent shall be deemed to satisfy any
requirement hereunder or in the Notes for the Trustee's certificate of
authentication. Such authenticating agent shall at all times be a person
eligible to serve as trustee hereunder pursuant to Section 8.9.
Any corporation into which any authenticating agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any authenticating agent
shall be a party, or any corporation succeeding to all or substantially all of
the corporate trust business of any authenticating agent, shall be the successor
of the authenticating agent hereunder, if such successor corporation is
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the parties hereto or the authenticating
agent or such successor corporation.
Any authenticating agent may at any time resign by giving written notice of
resignation to the Trustee and to the Company. The Trustee may at any time
terminate the agency of any authenticating agent by giving written notice of
termination to such authenticating agent and to the Company. Upon receiving such
a notice of resignation or upon such a termination, or in case at any time any
authenticating agent shall cease to be eligible under this Section, the Trustee
shall promptly appoint a successor authenticating agent (which may be the
Trustee), shall give written notice of such appointment to the Company and shall
mail notice of such appointment to all holders of Notes as the names and
addresses of such holders appear on the Note register.
The Company agrees to pay to the authenticating agent from time to time
reasonable compensation for its services.
The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section 17.11 shall
be applicable to any authenticating agent.
Section 17.12 Execution in Counterparts. This Indenture may be executed in
-------------------------
any number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.
The Bank of New York, hereby accepts the trusts in this Indenture declared
and provided, upon the terms and conditions hereinabove set forth.
-83-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly signed all as of the date first written above.
E*TRADE GROUP, INC.
By:_____________________________
Name:
Title:
Attest:
______________________________
Name:
Title:
[seal]
THE BANK OF NEW YORK
as Trustee
By:_____________________________
Name:
Title:
-84-
<PAGE>
EXHIBIT A
---------
[FORM OF FACE OF NOTE]
[THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH GLOBAL SECURITY FOR WHICH
THE DEPOSITORY TRUST COMPANY IS TO BE THE DEPOSITARY.]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
[THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH RESTRICTED NOTE.]
THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND MAY
NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B)
IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR"); (2)
AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE NOTE
EVIDENCED HEREBY RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE
COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO E*TRADE GROUP,
INC. OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE BANK OF NEW
YORK, AS TRUSTEE, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY
(THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (D) OUTSIDE THE
UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
A-1
<PAGE>
UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH
CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); AND (3) AGREES THAT IT
WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED
(OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE) A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED
HEREBY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF SUCH NOTE (OTHER THAN A
TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE), THE HOLDER MUST CHECK THE APPROPRIATE
BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO THE BANK OF NEW YORK, AS TRUSTEE. IF THE PROPOSED
TRANSFER IS PURSUANT TO CLAUSE 2(E) OR 2(E) ABOVE, THE HOLDER MUST, PRIOR TO
SUCH TRANSFER, FURNISH TO THE BANK OF NEW YORK, AS TRUSTEE, SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS E*TRADE GROUP, INC. MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF
THE NOTE EVIDENCED HEREBY PURSUANT TO CLAUSE 2(E) OR 2(F) ABOVE OR THE
EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY.
A-2
<PAGE>
E*TRADE GROUP, INC.
6% Convertible Subordinated Notes due 2007
No. ___ $_____________
CUSIP No._____________
E*TRADE Group, Inc., a corporation duly organized and validly existing
under the laws of the State of Delaware (herein called the "Company", which term
includes any successor corporation under the Indenture referred to on the
reverse hereof), for value received hereby promises to pay to _________________,
or registered assigns, the principal sum of ___________ Dollars [(which amount
may from time to time be increased or decreased to such other principal amounts
(which, taken together with the principal amounts of all other outstanding
Notes, shall not exceed $500,000,000 in aggregate at any time (or $650,000,000
if the option set forth in Section 2(b) of the Purchase Agreement is exercised
in full by the Initial Purchasers)) by adjustments made on the records of the
Trustee, as Custodian of the Depositary, in accordance with the rules and
procedures of the Depositary)]/1/ on February 1, 2007 and to pay interest on
said principal sum semi-annually on February 1 and August 1 of each year,
commencing August 1, 2000 at the rate per annum specified in the title of this
Note, accrued from the February 1 or August 1, as the case may be, next
preceding the date of this Note to which interest has been paid or duly provided
for, unless the date of this Note is a date to which interest has been paid or
duly provided for, in which case interest shall accrue from the date of this
Note, or unless no interest has been paid or duly provided for on this Note, in
which case interest shall accrue from February 7, 2000 until payment of said
principal sum has been made or duly provided for. Notwithstanding the foregoing,
if the date hereof is after any January 15 or July 15 as the case may be, and
before the following February 1 or August 1, this Note shall bear interest from
such February 1 or August 1, respectively; provided, however, that if the
-------- -------
Company shall default in the payment of interest due on such February 1 or
August 1, then this Note shall bear interest from the next preceding February 1
or August 1 to which interest has been paid or duly provided for or, if no
interest has been paid or duly provided for on this Note, from February 7, 2000.
The interest so payable on any February 1 or August 1 will be paid to the person
in whose name this Note (or one or more Predecessor Notes) is registered at the
close of business on the record date, which shall be the January 15 or July 15
(whether or not a Business Day) next preceding such February 1 or August 1,
respectively; provided that any such interest not punctually paid or duly
-------- ----
provided for shall be payable as provided in the Indenture. Payment of the
principal of and interest accrued on this Note shall be made at the office or
agency of the Company maintained for that purpose in the Borough of Manhattan,
The City of New York, or, at the option of the holder of this Note, at the
Corporate Trust Office, in such lawful money of the United States of America as
at the time of payment shall be legal tender for the payment of public and
private debts; provided further, however, that, with respect to any holder of
-------- ------- -------
Notes with an aggregate principal amount equal to or in excess of $2,000,000, at
the request of such holder in writing to the Company, interest on such holder's
Notes shall be paid by wire transfer in immediately available funds in
accordance with
_____________________
/1/ This language shall appear on each Global Note.
A-3
<PAGE>
the written wire transfer instruction supplied by such holder from time to time
to the Trustee and paying agent (if different from the Trustee) at least two
days prior to the applicable record date; provided that any payment to the
--------
Depositary or its nominee shall be paid by wire transfer in immediately
available funds in accordance with the wire transfer instruction supplied by the
Depositary or its nominee from time to time to the Trustee and paying agent (if
different from Trustee) at least two days prior to the applicable record date.
Reference is made to the further provisions of this Note set forth on the
reverse hereof, including, without limitation, provisions subordinating the
payment of principal of and premium, if any, and interest on this Note to the
prior payment in full of all Senior Indebtedness as defined in the Indenture and
provisions giving the holder of this Note the right to convert this Note into
Common Stock of the Company on the terms and subject to the limitations referred
to on the reverse hereof and as more fully specified in the Indenture. Such
further provisions shall for all purposes have the same effect as though fully
set forth at this place.
This Note shall be deemed to be a contract made under the laws of the State
of New York, and for all purposes shall be construed in accordance with and
governed by the laws of said State (without regard to the conflicts of laws
provisions thereof).
This Note shall not be valid or become obligatory for any purpose until the
certificate of authentication hereon shall have been manually signed by the
Trustee or a duly authorized authenticating agent under the Indenture.
A-4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed.
E*TRADE GROUP, INC.
By: __________________________
Name:
Title:
Attest:
By:___________________________
Name:
Title:
[FORM OF CERTIFICATE OF AUTHENTICATION]
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
THE BANK OF NEW YORK,
as Trustee, certifies that this is one of the Notes described
in the within-named Indenture.
Dated:
By:_______________________________
Authorized Signatory
A-5
<PAGE>
[FORM OF REVERSE OF NOTE]
E*TRADE GROUP, INC.
6% Convertible Subordinated Note Due 2007
This Note is one of a duly authorized issue of Notes of the Company,
designated as its _% Convertible Subordinated Notes due 2007 (herein called the
"Notes"), limited to the aggregate principal amount of $500,000,000 (or
$650,000,000 if the option set forth in Section 2(b) of the Purchase Agreement
is exercised in full by the Initial Purchasers) all issued or to be issued under
and pursuant to an Indenture dated as of February 1, 2000 (herein called the
"Indenture"), between the Company and The Bank of New York, (herein called the
"Trustee"), to which Indenture and all indentures supplemental thereto reference
is hereby made for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the holders of the Notes.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of, premium, if any, and accrued
interest (including Liquidated Damages, if any) on all Notes may be declared,
and upon said declaration shall become, due and payable, in the manner, with the
effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the Trustee in
certain limited circumstances, without the consent of the holders of the Notes,
and in other circumstances, with the consent of the holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding,
evidenced as in the Indenture provided, to execute supplemental indentures
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Indenture or of any supplemental indenture or modifying in any
manner the rights of the holders of the Notes; provided, however, that no such
-------- -------
supplemental indenture shall (i) extend the fixed maturity of any Note, or
reduce the rate or extend the time of payment of interest thereon, or reduce the
principal amount thereof or premium, if any, thereon, or reduce any amount
payable on redemption or repurchase thereof, impair, or change in any respect
adverse to the holder of Notes, the obligation of the Company to repurchase any
Note at the option of the holder upon the happening of a Repurchase Event, or
impair or adversely affect the right of any Noteholder to institute suit for the
payment thereof, or change the currency in which the Notes are payable, or
impair or change in any respect adverse to the Noteholders the right to convert
the Notes into Common Stock subject to the terms set forth herein, including
Section 15.6, or modify the provisions of this Indenture with respect to the
subordination of the Notes in a manner adverse to the Noteholders, without the
consent of the holder of each Note so affected, or (ii) reduce the aforesaid
percentage of Notes, the holders of which are required to consent to any such
supplemental indenture, without the consent of the holders of all Notes then
outstanding. It is also provided in the Indenture that, prior to any
declaration accelerating the maturity of the Notes, the holders of a majority in
aggregate principal amount of the Notes at the time outstanding may on behalf of
the holders of all of the Notes waive any past default or Event of Default under
the Indenture and its consequences except (i) a default in the payment of
interest or premium, if any, on, or the principal of, the Notes when due, (ii) a
failure by the Company to convert
A-6
<PAGE>
any Notes into Common Stock or (iii) a default in respect of a covenant or
provisions of the Indenture which under Article XI cannot be modified or amended
without the consent of the holders of all Notes then outstanding. Any such
consent or waiver by the holder of this Note (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such holder and upon all future
holders and owners of this Note and any Notes which may be issued in exchange or
substitution hereof, irrespective of whether or not any notation thereof is made
upon this Note or such other Notes.
The indebtedness evidenced by the Notes is, to the extent and in the manner
provided in the Indenture, expressly subordinate and subject in right of payment
to the prior payment in full in cash or other payment satisfactory to the
holders of Senior Indebtedness of all Senior Indebtedness of the Company, as
defined in the Indenture, whether outstanding at the date of the Indenture or
thereafter incurred, and this Note is issued subject to the provisions of the
Indenture with respect to such subordination. Each holder of this Note, by
accepting the same, agrees to and shall be bound by such provisions and
authorizes the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination so provided and appoints the Trustee
his attorney in fact for such purpose.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest on this Note at the place, at the respective times, at the rate and in
the lawful money herein prescribed.
Interest on the Notes shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
The Notes are issuable in registered form without coupons in denominations
of $1,000 principal amount and integral multiples thereof. At the office or
agency of the Company referred to on the face hereof, and in the manner and
subject to the limitations provided in the Indenture, without payment of any
service charge but with payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration or
exchange of Notes, Notes may be exchanged for a like aggregate principal amount
of Notes of other authorized denominations.
The Notes will not be redeemable at the option of the Company prior to
February 4, 2003. On or after such date and prior to maturity the Notes may be
redeemed at the option of the Company as a whole, or from time to time in part,
upon mailing a notice of such redemption not less than 20 nor more than 60 days
before the date fixed for redemption to the holders of Notes at their last
registered addresses, all as provided in the Indenture, at the following
redemption prices (expressed as percentages of the principal amount), together
in each case with accrued interest, if any, to, but excluding, the date fixed
for redemption.
If redeemed during the 12-month period beginning February 1 (February 4,
2003 through January 31, 2003 in the case of the first such period):
A-7
<PAGE>
<TABLE>
<CAPTION>
Redemption
Year Price
------- ------------
<S> <C>
2003................................ 103.43%
2004................................ 102.57%
2005................................ 101.71%
2006................................ 100.86%
</TABLE>
and 100% at February 1, 2007; provided that if the date fixed for redemption is
-------- ----
a February 1 or August 1, then the interest payable on such date shall be paid
to the holder of record on the next preceding January 15 or July 15,
respectively.
The Notes are not subject to redemption through the operation of any
sinking fund.
Upon the occurrence of a "Repurchase Event," the Noteholder has the right,
at such holder's option, to require the Company to repurchase all or any portion
of such holder's Notes on the 40th calendar day (or, if such 40th day is not a
Business Day, the next succeeding Business Day) after notice of such Repurchase
Event at a price equal to 105% of the principal amount of the Notes such holder
elects to require the Company to repurchase, together in each case with accrued
interest to the date fixed for repurchase; provided that if such repurchase date
--------
is February 1 or August 1, then the interest payable on such date shall be paid
to the holder of record of the Note on the next preceding January 15 or July 15,
respectively. The Company or, at the written request of the Company, the
Trustee shall mail to all holders of record of the Notes a notice of the
occurrence of a Repurchase Event and of the repurchase right arising as a result
thereof on or before the fifteenth (15th) calendar day after the occurrence of
such Repurchase Event. Payment of the repurchase price may be made in shares of
the Company's Common Stock under certain circumstances as provided in Section
16.3 of the Indenture.
Subject to the provisions of the Indenture, the holder hereof has the
right, at its option, at any time following the date of original issuance of the
Notes and prior to the close of business on February 1, 2007, (except that with
respect to any Note or portion of a Note which shall be called for redemption,
prior to the close of business on the Business Day next preceding the date fixed
for redemption) (unless the Company shall default in payment due upon
redemption), to convert the principal hereof or any portion of such principal
which is $1,000 or an integral multiple thereof, into that number of fully paid
and non-assessable shares of Company's Common Stock, as said shares shall be
constituted at the date of conversion, obtained by dividing the principal amount
of this Note or portion thereof to be converted by the conversion price of
$23.60 or such conversion price as adjusted from time to time as provided in the
Indenture, upon surrender of this Note, together with a conversion notice as
provided in the Indenture and this Note, to the Company at the office or agency
of the Company maintained for that purpose in the Borough of Manhattan, The City
of New York, or at the option of such holder, the Corporate Trust Office, and,
unless the shares issuable on conversion are to be issued in the same name as
this Note, duly endorsed by, or accompanied by instruments of transfer in form
satisfactory to the Company duly executed by, the holder or by his duly
authorized attorney; provided, however, that in the event, at any time this Note
-------- -------
is surrendered for conversion in whole or in part, the Company does not have
available for issuance upon such
A-8
<PAGE>
conversion at least the number of shares of authorized Common Stock required to
be issued pursuant hereto, then this Note (or portion thereof as to which
conversion has been requested), to the extent and only to the extent sufficient
shares of authorized Common Stock are not available, shall be converted into the
right to receive a payment from the Company in lieu of the shares of Common
Stock into which this Note would otherwise be converted and which the Company is
unable to issue, equal to the number of shares of Common Stock which the Company
is unable to issue multiplied by the average of the Closing Price (as defined in
the Indenture) for the Company's Common Stock (determined as set forth in the
Indenture) during the five Trading Days immediately prior to the date on which
the holder of such Note (or specified portion thereof) is deemed to have been
converted pursuant to the Indenture. No adjustment in respect of interest or
dividends will be made upon any conversion; provided, however, that if this Note
-------- -------
shall be surrendered for conversion during the period from the close of business
on any record date for the payment of interest through the close of business on
the Business Day next preceding the following interest payment date, this Note
(unless the Note or the portion thereof being converted shall have been called
for redemption pursuant to a redemption notice mailed to the Noteholders in
accordance with Section 3.2 of the Indenture) must be accompanied by an amount,
in funds acceptable to the Company, equal to the interest otherwise payable on
such interest payment date on the principal amount being converted. No
fractional shares of Common Stock will be issued upon any conversion, but an
adjustment in cash will be paid to the holder, as provided in the Indenture, in
respect of any fraction of a share which would otherwise be issuable upon the
surrender of any Note or Notes for conversion.
Any Notes called for redemption, unless surrendered for conversion on or
before the close of business on the date fixed for redemption, may be deemed to
be purchased from the holder of such Notes at an amount equal to the applicable
redemption price, together with accrued interest to the date fixed for
redemption, by one or more investment bankers or other purchasers who may agree
with the Company to purchase such Notes from the holders thereof and convert
them into Common Stock of the Company and to make payment for such Notes as
aforesaid to the Trustee in trust for such holders.
Upon due presentment for registration of transfer of this Note at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, or at the option of the holder of this Note, at the Corporate Trust
Office, a new Note or Notes of authorized denominations for an equal aggregate
principal amount will be issued to the transferee in exchange thereof, subject
to the limitations provided in the Indenture, without charge except for any tax
or other governmental charge imposed in connection therewith.
The Company, the Trustee, any authenticating agent, any paying agent, any
conversion agent and any Note registrar may deem and treat the registered holder
hereof as the absolute owner of this Note (whether or not this Note shall be
overdue and notwithstanding any notation of ownership or other writing hereon
made by anyone other than the Company or any Note registrar), for the purpose of
receiving payment hereof, or on account hereof, for the conversion hereof and
for all other purposes, and neither the Company nor the Trustee nor any other
authenticating agent nor any paying agent nor any other conversion agent nor any
Note registrar shall be affected by any notice to
A-9
<PAGE>
the contrary. All payments made to or upon the order of such registered holder
shall, to the extent of the sum or sums paid, satisfy and discharge liability
for monies payable on this Note.
No recourse for the payment of the principal of or any premium or interest
on this Note, or for any claim based hereon or otherwise in respect hereof, and
no recourse under or upon any obligation, covenant or agreement of the Company
in the Indenture or any indenture supplemental thereto or in any Note, or
because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, stockholder, employee, agent, officer, director or
subsidiary, as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law or by
the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
Terms used in this Note and defined in the Indenture are used herein as
therein defined.
A-10
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face of
this Note, shall be construed as though they were written out in full according
to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
-------------------------Custodian
(Cust)
TEN ENT - as tenants by the entireties -------------------------
(Minor)
JT TEN - as joint tenants with right of Uniform Gifts to Minors Act _________
survivorship and not as tenants in (State)
common
Additional abbreviations may also be used
though not in the above list.
A-11
<PAGE>
[FORM OF CONVERSION NOTICE]
To:E*TRADE Group, Inc.
The undersigned registered owner of this Note hereby irrevocably exercises
the option to convert this Note, or the portion hereof (which is $1,000
principal amount or an integral multiple thereof) below designated, into shares
of Common Stock in accordance with the terms of the Indenture referred to in
this Note, and directs that the shares issuable and deliverable upon such
conversion, together with any check in payment for fractional shares and any
Notes representing any unconverted principal amount hereof, be issued and
delivered to the registered holder hereof unless a different name has been
indicated below. If shares or any portion of this Note not converted are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto. Any amount required to be
paid to the undersigned on account of interest accompanies this Note.
Dated: ________________________
________________________________
________________________________
Signature(s)
_______________________________
Signature Guarantee
Signature(s) must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved signature guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or
Notes to be delivered, other than to and in the name of the registered holder.
A-12
<PAGE>
Fill in for registration of shares if to be issued, and Notes if to be
delivered, other than to and in the name of the registered holder:
________________________________
(Name)
________________________________
(Street Address)
________________________________
(City, State and Zip Code)
Please print name and address
Principal amount to be converted (if less
than all): $______,000
____________________________________
Social Security or Other Taxpayer
Identification Number
A-13
<PAGE>
[FORM OF OPTION TO ELECT REPAYMENT
UPON A REPURCHASE EVENT]
To:E*TRADE Group, Inc.
The undersigned registered owner of this Note hereby acknowledges receipt
of a notice from E*TRADE Group, Inc. (the "Company") as to the occurrence of a
Repurchase Event with respect to the Company and requests and instructs the
Company to repay the entire principal amount of this Note, or the portion
thereof (which is $1,000 principal amount or an integral multiple thereof) below
designated, in accordance with the terms of the Indenture referred to in this
Note, together with accrued interest to, but excluding, such date, to the
registered holder hereof.
Dated: ________________________
_________________________________
_________________________________
Signature(s)
_________________________________
Social Security or Other Taxpayer
Identification Number
Principal amount to be repaid (if
less than all): $______,000
NOTICE: The above signatures of the
holder(s) hereof must correspond
with the name as written upon the
face of the Note in every
particular without alteration or
enlargement or any change whatever.
A-14
<PAGE>
[FORM OF ASSIGNMENT AND TRANSFER]
For value received ____________________________ hereby sell(s), assign(s)
and transfer(s) unto _________________ (Please insert social security or
Taxpayer Identification Number of assignee) the within Note, and hereby
irrevocably constitutes and appoints ________ _____________ attorney to transfer
the said Note on the books of the Company, with full power of substitution in
the premises.
In connection with any transfer of the within Note occurring within two
years (or such shorter holding period required under Rule 144(k) of the
Securities Act) of the original issuance of such Note (unless such Note is being
transferred pursuant to a registration statement that has been declared
effective under the Securities Act), the undersigned confirms that such Note is
being transferred:
. *To E*TRADE, Group, Inc. or a subsidiary thereof; or
. *Pursuant to and in compliance with Rule 144A under the
Securities Act of 1933, as amended; or
. *To an Institutional Accredited Investor pursuant to and in
compliance with the Securities Act of 1933, as amended; or
. *Pursuant to and in compliance with Rule 144 under the Securities
Act of 1933, as amended;
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
. *The transferee is an Affiliate of the Company.
A-15
<PAGE>
Dated: ________________________
_______________________________
_______________________________
Signature(s)
_______________________________
Signature Guarantee
Signature(s) must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved signature guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or
Notes to be delivered, other than to and in the name of the registered holder.
NOTICE: The signature on the conversion notice, the option to elect
repurchase upon a Repurchase Event or the assignment must correspond with the
name as written upon the face of the Note in every particular without alteration
or enlargement or any change whatever.
A-16
<PAGE>
EXHIBIT B
Ladies and Gentlemen:
We are delivering this letter in connection with the resale or transfer of
_% Convertible Subordinated Notes due 2007 (the "Notes") which are convertible
into shares of Common Stock, $0.01 par value (the "Common Stock"), of (the
"Company").
We hereby confirm that:
1. we are an "accredited investor" within the meaning of Rule
501(a)(1), (2) or (3) under the Securities Act of 1933 (the "Securities
Act") or an entity in which all of the equity owners are accredited
investors within the meaning of Rule 501(a)(1), (2) or (3) under the
Securities Act;
2. (A) any purchase of Notes by us will be for our own account or
for the account of one or more other Institutional Accredited Investors
(defined below) or as fiduciary for the account of one or more trusts, each
of which is an "accredited investor" within the meaning of Rule 501(a)(7)
under the Securities Act (such trusts, together with accredited investors
within the meaning of Rule 501(a)(1), (2) or (3) under the Securities Act,
an "Institutional Accredited Investor") and for each of which we exercise
sole investment discretion or (B) we are a "bank," within the meaning of
Section 3(a)(2) of the Securities Act, or a "savings and loan association"
or other institution described in Section 3(l)(5)(a) of the Securities Act
that is acquiring Notes as fiduciary for the account of one or more
institutions for which we exercise sole investment discretion;
3. in the event that we purchase any Notes, we will acquire Notes
having a minimum principal amount of not less than $100,000 for our own
account or for any separate account for which we are acting;
4. we have such knowledge and experience in financial and business
matters that we are capable of evaluating the merits and risks of
purchasing the Notes; and
5. we are not acquiring Notes with a view to distribution thereof or
with any present intention of offering or selling Notes or the Common Stock
issuable upon conversion thereof, except as permitted below; provided that
the disposition of our property and property of any accounts for which we
are acting as fiduciary shall remain at all times within our control.
We understand that the Notes are being offered in a transaction not
involving any public offering within the United States within the meaning of the
Securities Act and that the Notes and the shares of Common Stock issuable upon
conversion thereof (the "Securities") have not been registered under the
Securities Act, and we agree, on our own behalf and on behalf of each account
B-1
<PAGE>
for which we acquire any Securities, that if in the future we decide to resell
or otherwise transfer such Securities, such Securities may be resold or
otherwise transferred only (i) to the Company or any subsidiary thereof, or (ii)
to a person who is a "qualified institutional buyer" (as defined in Rule 144A
under the Securities Act) in a transaction meeting the requirements of Rule
144A, or (iii) to an Institutional Accredited Investor that, prior to such
transfer, furnishes to the Trustee or transfer agent for such Securities a
signed letter containing certain representations and agreements relating to the
restrictions on transfer of such Securities (the form of which letter can be
obtained from such Trustee or transfer agent), or (iv) pursuant to the exemption
from registration provided by Rule 144 under the Securities Art (if applicable),
or (v) pursuant to a registration statement which has been declared effective
under the Securities Act, and in each case, in accordance with any applicable
securities laws of any State of the United States or any other applicable
jurisdiction and in accordance with the legends set forth on the Securities. We
further agree to provide any person purchasing any of the Securities other than
pursuant to clause (v) above from us a notice advising such purchaser that
resales of such securities are restricted as stated herein. We understand that
the Trustee for the Notes and/or the transfer agent for the Common Stock will
not be required to accept for registration of transfer any Notes or any shares
of Common Stock issued upon conversion of the Notes except upon presentation of
evidence satisfactory to the Company that the foregoing restrictions on transfer
have been complied with. We further understand that any Notes and any
certificates representing Common Stock will be in the form of definitive
physical certificates and that such certificates will bear a legend reflecting
the substance of this paragraph other than certificates representing Common
Stock transferred pursuant to clause (v) above.
We acknowledge that the Company, others and you will rely upon our
confirmations, acknowledgments and agreements set forth herein, and we agree to
notify you promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAWS
AND PRINCIPLES THEREOF.
_________________________________________
(Name of Purchaser)
By:______________________________________
Name:
Title:
Address:
B-2
<PAGE>
EXHIBIT 4.3
6% CONVERTIBLE SUBORDINATED NOTES DUE 2007
REGISTRATION RIGHTS AGREEMENT
Dated as of February 1, 2000
between
E*TRADE GROUP, INC.
as the Company,
and
FLEETBOSTON ROBERTSON STEPHENS INC.
HAMBRECHT & QUIST LLC
GOLDMAN, SACHS & CO.
as Purchasers
<PAGE>
This Registration Rights Agreement is made and entered into as of February
1, 2000, between E*TRADE Group, Inc., a Delaware corporation (the "Company"),
and FleetBoston Robertson Stephens Inc., Hambrecht & Quist LLC and Goldman,
Sachs & Co. (the "Purchasers") who have purchased or have the right to purchase
up to $500,000,000 in aggregate principal amount of 6% Convertible Subordinated
Notes due 2007 (or up to $650,000,000 if the option set forth in Section 2(b) of
the Purchase Agreement (as defined) is exercised in full by the Initial
Purchasers) of the Company pursuant to the Purchase Agreement (as such term is
defined in Section 1 hereof).
This Agreement is made pursuant to the Purchase Agreement, dated February
1, 2000, among the Company and the Purchasers (the "Purchase Agreement"). In
order to induce the Purchasers to enter into the Purchase Agreement, the Company
has agreed to provide the registration rights provided for in this Agreement to
the Purchasers and their respective direct and indirect transferees (i) for the
benefit of the Purchasers, (ii) for the benefit of the holders from time to time
of the Notes (as such term is defined in Section 1 hereof) (including the
Purchasers) and the holders from time to time of the Common Stock issuable or
issued upon conversion of the Notes and (iii) for the benefit of the securities
constituting the Transfer Restricted Securities (as such term is defined in
Section 1 hereof). The execution of this Agreement is a condition to the closing
of the transactions contemplated by the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
-----------
have the following meanings:
Act: As defined in the final paragraph of this Section 1.
---
Advice: As defined in the last paragraph of Section 2(d) hereof.
------
Affiliate: An affiliate of any specified person shall mean any other
---------
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person. For the purposes of this
definition, "control," when used with respect to any person, means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise and
the terms "affiliated," "controlling" and "controlled" have meanings correlative
to the foregoing.
Agreement: This Registration Rights Agreement, as the same may be
---------
amended, supplemented or modified from time to time in accordance with the terms
hereof.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday
------------
that is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
Closing Date: February 7, 2000
------------
-1-
<PAGE>
Common Stock: Common Stock, $0.01 par value per share, of the Company
------------
and any other shares of common stock as may constitute "Common Stock" for
purposes of the Indenture, in each case, as issuable or issued upon conversion
of the Notes.
Company: E*TRADE Group, Inc., a Delaware corporation, and any
-------
successor corporation thereto.
controlling person: As defined in Section 6(a) hereof.
------------------
Damages Payment Date: Each of the semi-annual interest payment dates
--------------------
provided in the Indenture.
Effectiveness Period: As defined in Section 2(a) hereof.
--------------------
Effectiveness Target Date: The 150th day following the Closing Date.
-------------------------
Exchange Act: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations promulgated by the SEC thereunder.
Filing Date: The 90th day after the Closing Date.
-----------
Holder: Each owner of any Transfer Restricted Securities.
------
Indemnified Person: As defined in Section 6(a) hereof.
------------------
Indenture: The Indenture, dated as of the date hereof, between the
---------
Company and the Trustee, pursuant to which the Notes are being issued, as the
same may be amended, modified or supplemented from time to time in accordance
with the terms thereof.
Liquidated Damages: As defined in Section 3(a) hereof.
------------------
Notes: The $500,000,000 aggregate principal amount of 6% Convertible
-----
Subordinated Notes due 2007 of the Company being issued pursuant to the
Indenture (or $650,000,000 if the option set forth in Section 2(b) of the
Purchase Agreement is exercised in full by the Initial Purchasers).
Notice and Questionnaire: A written notice delivered to the Company
------------------------
containing substantially the information called for by the Selling
Securityholder Notice and Questionnaire attached as Annex A to the Offering
-------
Circular of the Company dated February 1, 2000 relating to the Notes.
Proceeding: An action, claim, suit or proceeding (including, without
----------
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
Prospectus: The prospectus included in any Registration Statement, as
----------
amended or supplemented by any prospectus supplement, with respect to the resale
of any of the Transfer
-2-
<PAGE>
Restricted Securities covered by such Registration Statement, and all other
amendments and supplements to any such prospectus, including post-effective
amendments, and all materials incorporated by reference or deemed to be
incorporated by reference, if any, in such prospectus.
Purchase Agreement: As defined in the second paragraph hereof.
------------------
Purchasers: As defined in the first paragraph hereof.
----------
Record Holder: (i) with respect to any Damages Payment Date relating
-------------
to any Note as to which any such Liquidated Damages have accrued, the registered
Holder of such Note on the record date with respect to the interest payment date
under the Indenture on which such Damages Payment Date shall occur and (ii) with
respect to any Damages Payment Date relating to any shares of Common Stock as to
which any such Liquidated Damages have accrued, the registered Holder of such
shares 15 days prior to the next succeeding Damages Payment Date.
Registration Default: As defined in Section 3(a) hereof.
--------------------
Registration Statement: Any registration statement of the Company
----------------------
filed with the SEC pursuant to the Securities Act that covers the resale of any
of the Transfer Restricted Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference, if any, in such registration statement.
Requisite Information: As defined in Section 2(c) hereof.
---------------------
Restricted Notes: Notes required pursuant to the Indenture to bear
----------------
the legend set forth in Section 2.5(d) of the Indenture.
Rule 144: Rule 144 promulgated by the SEC pursuant to the Securities
--------
Act, as such Rule may be amended from time to time, or any successor rule or
regulation.
Rule 144A: Rule 144A promulgated by the SEC pursuant to the
---------
Securities Act, as such Rule may be amended from time to time, or any successor
rule or regulation.
Rule 415: Rule 415 promulgated by the SEC pursuant to the Securities
--------
Act, as such Rule may be amended from time to time, or any successor rule or
regulation.
Rule 424: Rule 424 promulgated by the SEC pursuant to the Securities
--------
Act, as such Rule may be amended from time to time, or any successor rule or
regulation.
SEC: The Securities and Exchange Commission.
---
Securities Act: The Securities Act of 1933, as amended, and the rules
--------------
and regulations promulgated by the SEC thereunder.
-3-
<PAGE>
Shelf Registration Statement: As defined in Section 2(a) hereof.
----------------------------
Special Counsel: The special counsel to the Holders.
---------------
TIA: The Trust Indenture Act of 1939, as amended, and the rules and
---
regulations promulgated by the SEC thereunder.
Transfer Restricted Securities: The Restricted Notes and the shares
------------------------------
of Common Stock into which such Restricted Notes are converted or convertible
(including any shares of Common Stock issued or issuable thereon upon any stock
split, stock combination, stock dividend or the like) upon original issuance
thereof, and at all times subsequent thereto, and associated related rights, if
any, until, in the case of any such Restricted Note or shares of Common Stock
(and associated rights) (i) the date on which the resale thereof has been
effectively registered under the Securities Act and disposed of in accordance
with the Registration Statement relating thereto, (ii) the date on which such
security has been distributed to the public pursuant to Rule 144 or is saleable
pursuant to paragraph (k) of Rule 144 or (iii) the date on which such security
ceases to be outstanding, whichever date is earliest.
Trustee: The trustee under the Indenture.
-------
underwritten registration or underwritten offering: A registration in
--------------------------------------------------
connection with which securities of the Company are sold to one or more
underwriters for reoffering to the public pursuant to an effective Registration
Statement.
References herein to the term "Holders of a majority in aggregate
principal amount of Transfer Restricted Securities" or words to a similar effect
shall mean, with respect to any request, notice, demand, objection or other
action by the Holders hereunder or pursuant hereto (each, an "Act"), registered
Holders of a number of shares of then-outstanding Common Stock constituting
Transfer Restricted Securities and an aggregate principal amount of then
outstanding Notes constituting Transfer Restricted Securities, such that the sum
of such shares of Common Stock and the shares of Common Stock issuable upon
conversion of such Notes constitutes in excess of 50% of the sum of all of the
then-outstanding shares of Common Stock constituting Transfer Restricted
Securities and the number of shares of Common Stock issuable upon conversion of
then-outstanding Notes constituting Transfer Restricted Securities. For purposes
of the preceding sentence, Transfer Restricted Securities owned, directly or
indirectly, by the Company or its Affiliates shall be deemed not to be
outstanding.
2. Shelf Registration Statement
----------------------------
(a) The Company agrees to file with the SEC on or prior to the Filing
Date a Registration Statement for an offering to be made on a continuous basis
pursuant to Rule 415 covering all of the Transfer Restricted Securities or
separate Registration Statements for an offering to be made on a continuous
basis pursuant to Rule 415 covering all of the Notes constituting Transfer
Restricted Securities and all of the Common Stock constituting Transfer
Restricted Securities, respectively (such Registration Statement or Statements,
collectively, the "Shelf
-4-
<PAGE>
Registration Statement"). Each Shelf Registration Statement shall be on Form S-3
under the Securities Act or another appropriate form selected by the Company
permitting registration of such Transfer Restricted Securities for resale by the
Holders in the manner or manners reasonably designated by Holders of a majority
in aggregate principal amount of Transfer Restricted Securities being sold
(including, without limitation, up to three underwritten offerings). The Company
shall not permit any securities other than the Transfer Restricted Securities to
be included in any Shelf Registration Statement. The Company shall use its
reasonable efforts to cause each Shelf Registration Statement to be declared
effective pursuant to the Securities Act as promptly as is practicable following
the filing thereof and to keep each Shelf Registration Statement continuously
effective under the Securities Act for two years after the latest date of
original issuance of any of the Notes (subject to extension pursuant to Sections
2(d) hereof) (the "Effectiveness Period"), or such shorter period ending when
there cease to be any Transfer Restricted Securities outstanding.
(b) Supplements and Amendments. The Company shall use its reasonable
--------------------------
efforts to keep each Shelf Registration Statement continuously effective by
supplementing and amending the Shelf Registration Statement if required by the
rules, regulations or instructions applicable to the registration form used for
such Shelf Registration Statement, if required by the Securities Act or if
reasonably requested by the Holders of a majority in aggregate principal amount
of the Transfer Restricted Securities or by any underwriter of such Transfer
Restricted Securities; provided, however, that the Effectiveness Period shall be
extended to the extent provided in Section 2(d) hereof.
(c) Selling Securityholder Information. Each Holder of Transfer
----------------------------------
Restricted Securities agrees that if such Holder wishes to sell Transfer
Restricted Securities pursuant to a Shelf Registration Statement and the related
Prospectus, it will do so only in accordance with this Section 2. Each Holder of
Transfer Restricted Securities wishing to sell Transfer Restricted Securities
pursuant to a Shelf Registration Statement and the related Prospectus agrees to
deliver a Notice and Questionnaire that includes such information regarding the
distribution of its Transfer Restricted Securities as is required by law to be
disclosed by the Holder in the applicable Registration Statement (the "Requisite
Information") to the Company prior to any intended distribution of Transfer
Restricted Securities under the Shelf Registration Statement. From and after the
date the Shelf Registration Statement becomes effective, the Company shall, as
promptly as is practicable after the date a Notice and Questionnaire is
delivered, and in any event within five (5) Business Days after such date, (i)
if required by applicable law, file with the SEC a post-effective amendment to
the Shelf Registration Statement or prepare and, if required by applicable law,
file a supplement to the related Prospectus or a supplement or amendment to any
document incorporated therein by reference or file any other required document
so that the Holder delivering such Notice and Questionnaire is named as a
selling securityholder in the Shelf Registration Statement and the related
Prospectus in such a manner as to permit such Holder to deliver such Prospectus
to purchasers of the Transfer Restricted Securities in accordance with
applicable law and, if the Company shall file a post-effective amendment to the
Shelf Registration Statement, use its reasonable best efforts to cause such
post-effective amendment to be declared effective under the Securities Act as
promptly as is practicable, but in any event by the date that is forty-five (45)
days after the date such post-effective amendment is required by this clause to
be filed; (ii) provide such Holder copies of any documents
-5-
<PAGE>
filed pursuant to Section 2(c)(i); and (iii) notify such Holder as promptly as
practicable after the effectiveness under the Securities Act of any post-
effective amendment filed pursuant to Section 2(c)(i); provided, that if such
Notice and Questionnaire is delivered during the time a Holder receives a notice
from the Company pursuant to Section 2(d) that the use of the Prospectus shall
be discontinued, the Company shall so inform the Holder delivering such Notice
and Questionnaire and shall take the actions set forth in clauses (i), (ii) and
(iii) above upon such time the use of the Prospectus may be resumed, provided,
further, that if under applicable law the Company has more than one option as to
the type or manner of making any such filing, it will make the required filing
or filings in the manner or of a type reasonably expected to result in the
earliest availability of the Prospectus for effecting resales of Transfer
Restricted Securities.
If any such Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require, in the event that such reference to such Holder by
name or otherwise is not required by the Securities Act or any similar Federal
statute then in force, the deletion of the reference to such Holder in such
Registration Statement at any time subsequent to the time that such reference
ceases to be required.
(d) Certain Notices; Suspension of Sales. Each Holder agrees by
------------------------------------
acquisition of such Transfer Restricted Securities that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 4(c)(ii), 4(c)(iii), 4(c)(v) or 4(c)(vi) hereof, such Holder will
forthwith discontinue disposition of such Transfer Restricted Securities covered
by such Registration Statement and Prospectus (other than in transactions exempt
from the registration requirements under the Securities Act) until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Sections 4(c)(i) and 4(k) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus. If the Company shall give any such notice, the
Effectiveness Period shall be extended by the number of days during such period
from and including the date of the giving of such notice to and including the
date when each Holder shall have received (x) the copies of the supplemented or
amended Prospectus contemplated by Sections 4(c)(i) and 4(k) hereof or (y) the
Advice, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus.
3. Liquidated Damages
------------------
(a) The Company and the Purchasers agree that the Holders will suffer
damages if the Company fails to fulfill its obligations pursuant to Section 2
hereof and that it would not be possible to ascertain the extent of such
damages. Accordingly, the Company hereby agrees to pay liquidated damages
("Liquidated Damages") under the circumstances and to the extent set forth
below:
(i) to each Holder if the Shelf Registration Statement has not
been filed with the SEC on or prior to the Filing Date; or
-6-
<PAGE>
(ii) to each Holder if each Shelf Registration Statement is not
declared effective by the SEC on or prior to the applicable
Effectiveness Target Date;
(iii) to each Holder if any Shelf Registration Statement ceases
to be effective or usable at any time during the Effectiveness Period
(without being succeeded on the same day immediately by a post-
effective amendment or supplement to such Registration Statement that
cures such failure and that is itself, in the case of post-effective
amendment, immediately declared effective) for a period of time which
shall exceed 90 days in the aggregate in any period of 365 consecutive
days; or
(iv) to the particular Holder affected by the Company's failure
to perform its obligations set forth in Section 2(c) within the time
period required therein;
(any of the foregoing, a "Registration Default"); provided that the fact that a
Shelf Registration Statement is not usable by a particular Holder at any given
time solely as a result of the failure of such Holder to provide Requisite
Information with respect to it shall not be relevant for purposes of clause
(iii) above unless such Holder shall have provided such information to the
Company and the Company shall have failed to file an appropriate Prospectus
supplement or post-effective amendment to the Registration Statement. In the
event of any such Registration Default, the Company shall accrue Liquidated
Damages to each applicable Holder during the first 90-day period immediately in
an amount equal to $.05 per week per $1,000 principal amount of Notes held by
such Holder and, if applicable, on an equivalent basis per share (subject to
adjustment in the event of any stock split, stock combination, stock dividends
and the like) of Common Stock constituting Transfer Restricted Securities held
by such Holder for each week or portion thereof that the Registration Default
continues. The weekly rate at which such Liquidated Damages accrue shall
increase by an additional $.05 per $1,000 principal amount of Notes and, if
applicable, an equivalent amount per week per share (subject to adjustment as
set forth above) of Common Stock constituting Transfer Restricted Securities for
each subsequent continuing 90-day period following the occurrence of such
Registration Default until all Registration Defaults have been cured; provided,
--------
however, that Liquidated Damages shall not at any time exceed $.25 per week per
- -------
$1,000 principal amount of Notes or, as applicable, an equivalent amount per
week per share (subject to adjustment as set forth above) of Common Stock
constituting Transfer Restricted Securities. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages shall cease (without in
any way limiting the effect of any subsequent Registration Default). A
Registration Default under clause (i) above shall be cured on the date that the
applicable Shelf Registration Statement is filed with the SEC; a Registration
Default under clause (ii) above shall be cured on the date that the applicable
Shelf Registration Statement is declared effective by the SEC; a Registration
Default under clause (iii) above shall be cured on the date the applicable Shelf
Registration Statement is declared effective or otherwise usable; and a
Registration Default under clause (iv) above shall be cured on the date the
applicable prospectus supplement to the Shelf Registration Statement is filed or
the post-effective amendment with respect to such Shelf Registration Statement
is declared effective.
-7-
<PAGE>
(b) The Company shall notify the Trustee within one Business Day
after each and every date on which a Registration Default occurs. Liquidated
Damages shall be paid by the Company to the Record Holders on each Damages
Payment Date in the same manner as interest is paid under the Indenture, in the
case of the Notes, and by mailing checks to their registered addresses in the
register of the Company for the Common Stock, in the case of shares of Common
Stock; provided, however, that any Liquidated Damages accrued with respect to
-------- -------
any Note or portion thereof called for redemption on a redemption date,
repurchased in connection with a Repurchase Event (as defined in the Indenture)
on a repurchase date, or converted into shares of Common Stock on a conversion
date prior to the Damages Payment Date, shall, in any such event, be paid
instead to the Holder who submitted such Note or portion thereof for redemption,
repurchase or conversion on the applicable redemption date, repurchase date or
conversion date, as the case may be, on such date (promptly following the
conversion date, in the case of conversion of a Note). In no event shall the
Company be required to pay Liquidated Damages in excess of the applicable
maximum weekly amount set forth above, regardless of whether one or multiple
Registration Defaults shall exist.
(c) All of the Company's obligations set forth in this Section 3
which are unsatisfied to any extent with respect to any Transfer Restricted
Securities at the time such security ceases to be a Transfer Restricted Security
shall survive until such time as all such obligations with respect to such
security have been satisfied in full (notwithstanding the earlier termination of
this Agreement).
(d) Any payments due and payable pursuant to this Section 3 with
respect to any Notes shall be subject to the provisions of Article IV of the
Indenture as if such payments were additional interest on the Notes.
(e) The parties hereto agree that the Liquidated Damages provided for
in this Section 3 constitute a reasonable estimate of the damages that may be
incurred by holders of record of Transfer Restricted Securities by reason of the
failure of the Shelf Registration Statement to be filed or declared effective or
unavailable (absolutely or as a practical matter) for effecting resales of
Transfer Restricted Securities in accordance with the provisions hereof.
Notwithstanding the foregoing, the parties agree that the sole contractual
damages payable for a violation of the terms of this Agreement with respect to
which Liquidated Damages are expressly provided shall be such Liquidated
Damages. Nothing in this Section 3(e), however, shall preclude a holder of
Transfer Restricted Securities from pursuing or obtaining specific performance
or other equitable relief with respect to the Company's failure to pay
Liquidated Damages pursuant to this Agreement.
4. Registration Procedures. In connection with the Company's
-----------------------
registration obligations hereunder, the Company shall effect such registrations
on the appropriate form selected by the Company to permit the resale of Transfer
Restricted Securities in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company shall as expeditiously as
reasonably possible:
(a) No fewer than five Business Days prior to the initial filing of a
Registration Statement or Prospectus and no fewer than two Business Days prior
to the filing of any amendment
-8-
<PAGE>
or supplement thereto (excluding, unless requested, any document that would be
incorporated or deemed to be incorporated therein by reference), furnish to the
registered (as of the most recent reasonably practicable date which shall not be
more than two Business Days prior to the date such document is personally
delivered, delivered to a next-day courier, deposited in the mail or telecopied,
as the case may be) Holders, Special Counsel and the managing underwriters, if
any, copies of all such documents proposed to be filed (excluding, unless
requested, those incorporated or deemed to be incorporated by reference) and
cause the officers and directors of the Company, counsel to the Company and
independent certified public accountants to the Company to respond to such
inquiries as shall be necessary in connection with such Registration Statement,
in the opinion of Special Counsel and counsel to such underwriters, to conduct a
reasonable investigation within the meaning of the Securities Act. The Company
shall not file any such Registration Statement or related Prospectus or any
amendments or supplements thereto to which the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities, Special
Counsel, or the managing underwriters, if any, shall reasonably object on a
timely basis;
(b) Prepare and file with the SEC such amendments, including post-
effective amendments, to each Registration Statement as may be necessary to keep
such Registration Statement continuously effective for the applicable time
period set forth in Section 2(a) hereof; cause the related Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 under the Securities Act and the Exchange Act with
respect to the disposition of all securities covered by such Registration
Statement during such period in accordance with the intended method or methods
of disposition by the Holder set forth in such Registration Statement as so
amended or in such Prospectus as so supplemented (including, without limitation,
the filing of any Prospectus supplement pursuant to Rule 424 in order to add or
change any selling security holder information (including any such supplements
or amendments pursuant to Section 2(c) hereof, provided such Holder to which
--------
such change applies complies with the Requisite Information requirements of
Section 2(c) hereof));
(c) Notify the registered (as of the most recent reasonably
practicable date which shall not be more than two Business Days prior to the
date such notice is personally delivered, delivered to a next-day courier,
deposited in the mail or telecopied, as the case may be) Holders, Special
Counsel and the managing underwriters, if any, promptly (and in the case of an
event specified by clause (i)(A) of this paragraph in no event fewer than two
Business Days prior to such filing), and (if requested by any such person),
confirm such notice in writing, (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment is proposed to be filed, and, (B) with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of any request of the SEC or any other Federal
or state governmental authority for amendments or supplements to such
Registration Statement or related Prospectus or for additional information
related thereto, (iii) of the issuance by the SEC, any state securities
commission, any other governmental agency or any court of any stop order, order
or injunction suspending or enjoining the use or the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose,
(iv) if at any time any of the representations and warranties of the Company
contained in any agreement (including any underwriting agreement) contemplated
by Section 4(m) hereof are not true and correct in all material respects, (v) of
the receipt by the
-9-
<PAGE>
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Transfer Restricted Securities for
sale in any jurisdiction, or the initiation or threatening of any proceeding for
such purpose, and (vi) of the existence of any fact and the happening of any
event that makes any statement made in such Registration Statement or related
Prospectus untrue in any material respect, or that requires the making of any
changes in such Registration Statement or Prospectus so that in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and that, in the case of
the Prospectus, such Prospectus will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of any stop order or order enjoining or suspending the use
or effectiveness of a Registration Statement or the lifting of any suspension of
the qualification (or exemption from qualification) of any of the Transfer
Restricted Securities for sale in any jurisdiction, at the earliest practicable
moment;
(e) If requested by the Special Counsel, the managing underwriters,
if any, or the Holders of a majority in aggregate principal amount of the
Transfer Restricted Securities being sold in connection with such offering, (i)
promptly include in a Prospectus supplement or post-effective amendment such
information as the Special Counsel, the managing underwriters, if any, and such
Holders agree should be included therein, and (ii) make all required filings of
such Prospectus supplement or such post-effective amendment as soon as
reasonably practicable after the Company has received notification of the
matters to be included in such Prospectus supplement or post-effective
amendment; provided, however, that the Company shall not be required to take any
-------- -------
action pursuant to this Section 4(e) that would, in the opinion of counsel for
the Company, violate applicable law or which is not reasonably required to
comply with applicable securities laws;
(f) Furnish to each Holder who so requests, Special Counsel and each
managing underwriter, if any, without charge, at least one conformed copy of
each Registration Statement and each amendment thereto, including financial
statements (but excluding schedules, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits, unless requested in writing
by such Holder, Special Counsel or managing underwriter);
(g) Deliver to each Holder, the Special Counsel, and the
underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses (including each form of Prospectus) and each amendment or
supplement thereto to as such persons may reasonably request; and, unless the
Company shall have given notice to such Holder pursuant to Section 4(c)(vi), the
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders of Transfer Restricted
Securities and the underwriters, if any, in connection with the offering and
sale of the Transfer Restricted Securities covered by such Prospectus and any
amendment or supplement thereto, provided, however, that no Holder shall be
-------- -------
-10-
<PAGE>
entitled to use the Prospectus unless and until such Holder shall have furnished
to the Company any and all Requisite Information pursuant to Section 2(c)
hereof;
(h) Use its best efforts to register or qualify, or cooperate
with the Holders of Transfer Restricted Securities to be sold or tendered for,
the underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of, such Transfer Restricted Securities for offer and sale under
the securities or Blue Sky laws of such jurisdictions within the United States
as any Holder or underwriter reasonably requests in writing, keep each such
registration or qualification (or exemption therefrom) effective during the
period such Registration Statement is required to be kept effective and do any
and all other acts or things necessary legally to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the applicable
Registration Statement; provided, however, that the Company shall not be
-------- -------
required to qualify generally to do business in any jurisdiction where it is not
then so qualified, take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject or subject the
Company to any tax in any such jurisdiction where it is not then so subject;
(i) In connection with any sale or transfer of Transfer
Restricted Securities that will result in such securities no longer being
Transfer Restricted Securities, cooperate with the Holders and the managing
underwriters, if any, to (A) facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Securities to be sold, which
certificates shall not bear any restrictive legends, shall bear a CUSIP number
different from the CUSIP number for the Transfer Restricted Securities and shall
be in a form eligible for deposit with The Depository Trust Company and (B)
enable such Transfer Restricted Securities to be in such denominations and
registered in such names as the managing underwriters, if any, or Holders may
reasonably request at least two Business Days prior to any sale of Transfer
Restricted Securities;
(j) Use its best efforts to cause the offering of the Transfer
Restricted Securities covered by the Registration Statement to be registered
with or approved by such other governmental agencies or authorities within the
United States, except as may be reasonably required as a consequence of the
nature of a Holder's business, in which case the Company will cooperate in all
reasonable respects with the filing of such Registration Statement and the
granting of such approvals as may be reasonably necessary to enable the seller
or sellers thereof or the underwriters, if any, to consummate the disposition of
such Transfer Restricted Securities; provided, however, that the Company shall
-------- -------
not be required to register the Transfer Restricted Securities in any
jurisdiction that would require the Company to qualify to do business in any
jurisdiction where it is not then so qualified, subject it to general service of
process in any such jurisdiction where it is not then so subject or subject the
Company to any tax in any such jurisdiction where it is not then so subject or
to;
(k) Upon the occurrence of any event contemplated by Section
4(c)(vi) hereof, as promptly as reasonably practicable, prepare a supplement or
amendment, including, if appropriate, a post-effective amendment, to each
Registration Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, and file any
other
-11-
<PAGE>
required document so that, as thereafter delivered, such Prospectus will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(l) Prior to the effective date of the first Registration Statement
relating to the Transfer Restricted Securities, to provide a CUSIP number for
the Transfer Restricted Securities to be sold pursuant to the Registration
Statement;
(m) Enter into such agreements (including an underwriting agreements
in form, scope and substance as are customary in underwritten offerings)
reasonably satisfactory to the Company and take all such other reasonable
actions in connection therewith (including those reasonably requested by the
managing underwriters, if any, or the Holders of a majority in aggregate
principal amount of the Transfer Restricted Securities being sold) in order to
expedite or facilitate the sale of such Transfer Restricted Securities;
provided, however, that the Company is required to facilitate no more than two
- -------- -------
underwritten offerings. In such connection, regardless of whether an
underwriting agreement is entered into and regardless of whether the
registration is an underwritten registration, (i) make such representations and
warranties to the Holders of such Transfer Restricted Securities and the
underwriters, if any, with respect to the business of the Company and its
subsidiaries (including with respect to businesses or assets acquired or to be
acquired by any of them), and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, in form, substance and scope as are customarily made by
issuers to underwriters in underwritten offerings and reasonably acceptable to
the Company, and confirm the same if and when requested; (ii) seek to obtain
opinions of counsel to the Company and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory to the
managing underwriters, if any, and Special Counsel to the Holders of the
Transfer Restricted Securities being sold), addressed to each selling Holder of
Transfer Restricted Securities and each of the underwriters, if any, covering
the matters customarily covered in opinions requested in underwritten offerings
(including any such matters as may be reasonably requested by such Special
Counsel and underwriters); (iii) use all reasonable efforts to obtain customary
"cold comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any business acquired
by the Company for which financial statements and financial data is, or is
required to be, included in the Registration Statement), addressed (where
reasonably possible) to each selling Holder of Transfer Restricted Securities
and each of the underwriters, if any, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings; (iv) if an underwriting agreement is
entered into, the same shall contain indemnification provisions and procedures
no less favorable to the selling Holders of Transfer Restricted Securities and
the underwriters, if any, than those set forth in Section 6 hereof (or such
other provisions and procedures acceptable to Holders of a majority in aggregate
principal amount of the Transfer Restricted Securities covered by such
Registration Statement and the managing underwriters); and (v) deliver such
documents and certificates as may be reasonably requested by the Holders of
majority in aggregate principal amount of the Transfer Restricted Securities
being sold, their Special Counsel or
-12-
<PAGE>
the managing underwriters, if any, to evidence the continued validity of the
representations and warranties made pursuant to clause (i) of this Section 4(m)
and to evidence compliance with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company;
(n) Make available for inspection by a representative of the Holders
of Transfer Restricted Securities being sold, any underwriter participating in
any such disposition of Transfer Restricted Securities, if any, and any
attorney, consultant or accountant retained by such selling Holders or
underwriter, at the offices where normally kept, during reasonable business
hours, all financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries as they may reasonably request,
and cause the officers, directors, agents and employees of the Company and its
subsidiaries to supply all information in each case reasonably requested by any
such representative, underwriter, attorney, consultant or accountant in
connection with such Registration Statement, provided, however, that such
-------- -------
persons shall first agree in writing with the Company that any information that
reasonably and in good faith designated by the Company in writing as
confidential at the time of delivery or inspection (as the case may be) of such
information shall be kept confidential by such persons, unless (i) disclosure of
such information is required by court or administrative order or is necessary to
respond to inquiries of regulatory authorities, (ii) disclosure of such
information is required by law (including any disclosure requirements pursuant
to Federal securities laws in connection with the filing of any Registration
Statement or the use of any Prospectus), (iii) such information becomes
generally available to the public other than as a result of a disclosure or
failure to safeguard by any such person or (iv) such information becomes
available to any such person from a source other than the Company and such
source is not bound by a confidentiality agreement.
(o) Cause the Indenture to be qualified under the TIA not later than
the effective date of the first Registration Statement relating to the Transfer
Restricted Securities; and in connection therewith, cooperate with the Trustee
and the Holders of Notes constituting Transfer Restricted Securities to effect
such changes to the Indenture, if any, as may be required for such Indenture to
be so qualified in accordance with the terms of the TIA; and execute, and use
its best efforts to cause the Trustee to execute, all customary documents as may
be required to effect such changes, and all other forms and documents (including
Form T-1) required to be filed with the SEC to enable the Indenture to be so
qualified under the TIA in a timely manner.
(p) Comply with applicable rules and regulations of the SEC and make
generally available to its security holders earning statements satisfying the
provisions of Section 11(a) of the Securities Act or Rule 158 of the Securities
Act (or any similar rule promulgated under the Securities Act), no later than 45
days after the end of any 12-month period (or 90 days after the end of any 12-
month period if such period is a fiscal year) (i) commencing at the end of any
fiscal quarter in which Transfer Restricted Securities are sold to underwriters
in a firm commitment or best efforts underwritten offering and (ii) if not sold
to underwriters in such an offering, commencing on the first day of the first
fiscal quarter after the effective date of a Registration Statement, which
statement shall cover said period, consistent with the requirements of Rule 158
of the Securities Act; and
-13-
<PAGE>
(q) (i) list all shares of Common Stock covered by such Registration
Statement on any securities exchange on which the Common Stock is then listed or
(ii) authorize for quotation on the National Association of Securities Dealers
Automated Quotation System ("Nasdaq") or the National Market of Nasdaq all
Common Stock covered by such Registration Statement if the Common Stock is then
so authorized for quotation.
5. Registration Expenses
---------------------
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by it whether or
not any Registration Statement is filed or becomes effective and regardless of
whether any securities are offered or sold pursuant to any Registration
Statement. The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filings fees (including,
without limitation, fees and expenses (A) with respect to filings required to be
made with the National Association of Securities Dealers, Inc. and (B) in
compliance with securities or Blue Sky laws (including, without limitation and
in addition to that provided for in (b) below, reasonable fees and disbursements
of counsel for the underwriters or Special Counsel in connection with Blue Sky
qualifications of the Transfer Restricted Securities and determination of the
eligibility of the Transfer Restricted Securities for investment under the laws
of such jurisdictions as the managing underwriters, if any, or Holders of a
majority in aggregate principal amount of Transfer Restricted Securities, may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Transfer Restricted Securities in a form eligible for
deposit with The Depository Trust Company and of printing Prospectuses if the
printing of Prospectuses is required by the managing underwriters, if any, or by
the Holders of a majority in aggregate principal amount of the Transfer
Restricted Securities included), (iii) messenger, telephone and delivery
expenses, (iv) fees and disbursements of counsel for the Company and the Special
Counsel (plus any local counsel deemed appropriate by the Holders of a majority
in aggregate principal amount of the Transfer Restricted Securities) in
accordance with the provisions of Section 5(b) hereof, (v) fees and
disbursements of all independent certified public accountants referred to in
Section 4(m)(iii) (including, without limitation, the expenses of any special
audit and "comfort" letters required by or incident to such performance), (vi)
Securities Act liability insurance, if the Company desires such insurance, and
(vii) fees and expenses of all other persons retained by the Company. In
addition, the Company shall pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of an annual audit and the fees and
expenses incurred in connection with the listing of the securities to be
registered on any securities exchange or the Nasdaq National Market.
Notwithstanding anything in this Agreement to the contrary, each Holder shall
pay all underwriting discounts and brokerage commissions with respect to any
Transfer Restricted Securities sold by it.
(b) In connection with any registration hereunder, the Company shall
reimburse the Holders of the Transfer Restricted Securities being registered or
tendered for in such registration for the reasonable fees and disbursements of
not more than one firm of attorneys representing the selling Holders, which firm
shall initially be Wilson Sonsini Goodrich & Rosati, Professional Corporation,
but that may, with the written consent of the Initial Purchasers (which shall
not be
-14-
<PAGE>
unreasonably withheld), be another nationally recognized law firm experienced in
securities law matters designated by the Company unless and until another
Special Counsel shall have been selected by a majority in aggregate principal
amount of the Transfer Restricted Securities and notice hereof shall have been
given to the Company.
6. Indemnification
---------------
(a) The Company agrees to indemnify and hold harmless (i) the
Purchasers, (ii) each Holder, (iii) each person, if any, who controls (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) any of the foregoing (any of the persons referred to in this clause (iii)
being hereinafter referred to as a "controlling person"), and (iv) the
respective officers, directors, partners, employees, representatives and agents
of the Purchasers, the Holders (including predecessor Holders), or any
controlling person (any person referred to in clause (i), (ii), (iii) or (iv)
may hereinafter be referred to as an "Indemnified Person"), from and against any
and all losses, claims, damages, liabilities, expenses and judgments caused by
any untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement or Prospectus or in any amendment or supplement
thereto or in any preliminary Prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except insofar as such losses, claims, damages, liabilities,
expenses or judgments are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Indemnified Person furnished to the Company by or on behalf of such Indemnified
Person expressly for use therein; provided, however, that the foregoing
-------- -------
indemnity with respect to any preliminary Prospectus shall not inure to the
benefit of any Indemnified Person from whom the person asserting such losses,
claims, damages, liabilities, expenses and judgments purchased securities if
such untrue statement or omission or alleged untrue statement or omission made
in such preliminary Prospectus is eliminated or remedied in the Prospectus and a
copy of the Prospectus shall not have been furnished to such person in a timely
manner due to the wrongful action or wrongful inaction of such Indemnified
Person, whether as a result of negligence or otherwise.
(b) In case any action shall be brought against any Indemnified
Person, based upon any Registration Statement or any such Prospectus or any
amendment or supplement thereto and with respect to which indemnity may be
sought against the Company, such Indemnified Person shall promptly notify the
Company in writing and the Company shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified Person and
payment of all fees and expenses. Any Indemnified Person shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person, unless (i) the employment of such counsel shall have
been specifically authorized in writing by the Company, (ii) the Company shall
have failed to assume the defense and employ counsel or (iii) such Indemnified
Person or Persons shall have been advised by counsel that there may be a
conflict between the positions of the indemnifying party or parties and of the
indemnified party or parties in conducting the defense of such action or
proceeding or that there may be legal defenses available to such Indemnified
Person
-15-
<PAGE>
or Persons different from or in addition to those available to the indemnifying
party or parties (in which case the Company shall not have the right to assume
the defense of such action on behalf of such Indemnified Person, it being
understood, however, that the Company shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all such Indemnified Persons, which firm
shall be designated in writing by such Indemnified Persons, and that all such
fees and expenses shall be reimbursed as they are incurred). The Company shall
not be liable for any settlement of any such action effected without its written
consent but if settled with the written consent of the Company, the Company
agrees to indemnify and hold harmless any Indemnified Person from and against
any loss or liability by reason of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(c) In connection with any Registration Statement pursuant to which
any Holder (or predecessor Holder) sold or offered for resale Transfer
Restricted Securities, such Holder (or predecessor Holder) agrees, severally and
not jointly, to indemnify and hold harmless the Company, its directors, its
officers and any person controlling the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, to the same extent as
the foregoing indemnity from the Company to each Indemnified Person but only
with reference to information relating to such Indemnified Person furnished by
or on behalf of such Indemnified Person expressly for use in such Registration
Statement. In case any action shall be brought against the Company, any of its
directors, any such officer or any person controlling the Company based on such
Registration Statement and in respect of which indemnity may be sought against
any Indemnified Person, the Indemnified Person shall have the rights and duties
given to the Company (except that if the Company shall have assumed the defense
thereof, such Indemnified Person shall not be required to do so, but may employ
separate counsel therein and participate in defense thereof but the fees and
expenses of such counsel shall be at the expense of such Indemnified Person),
and the Company, its directors, any such officers and any person controlling the
Company shall have the rights and duties given to the Indemnified Person by
Section 6(b) hereof.
(d) If the indemnification provided for in this Section 6 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities, expenses or judgments referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities, expenses and judgments (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and each Indemnified Person on the other hand pursuant to the Purchase
Agreement or from the offering for resale of the Transfer Restricted Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company and each such Indemnified Person in
-16-
<PAGE>
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities, expenses or judgments, as well as any other
relevant equitable considerations. The relative fault of the Company and each
such Indemnified Person shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the Company
or such Indemnified Person and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company, the Holders and the Purchasers agree that it would not be
just and equitable if contribution pursuant to this Section 6(d) were determined
by pro rata allocation (even if the Indemnified Person were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities, expenses or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 6, no Indemnified Person shall be required to contribute any amount in
excess of the amount by which the total net profit received by it in connection
with the sale of the Transfer Restricted Securities pursuant to this Agreement
exceeds the amount of any damages which such Indemnified Person has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Indemnified Persons' obligations to contribute pursuant
to this Section 6(d) are several in proportion to the respective amount of
Transfer Restricted Securities included in and sold pursuant to any such
Registration Statement by each Indemnified Person and not joint.
7. Rules 144 and 144A
------------------
The Company shall to file the reports required to be filed by it under
the Securities Act and the Exchange Act in a timely manner and, if at any time
it is not required to file such reports but in the past had been required to or
did file such reports, it will, upon the request of any Holder, make available
other information as required by, and so long as necessary to permit sales of,
its Transfer Restricted Securities pursuant to Rule 144 and Rule 144A.
Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to
require the Company to register any of its securities pursuant to the Exchange
Act.
8. Underwritten Registrations
--------------------------
If any of the Transfer Restricted Securities covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be investment bankers of recognized national
standing selected by the Holders of a majority in aggregate principal amount of
such
-17-
<PAGE>
Transfer Restricted Securities included in such offering, subject to the consent
of the Company (which will not be unreasonably withheld or delayed).
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted
Securities on the basis reasonably provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities
underwriting agreements, lock-up agreements and other documents reasonably
required under the terms of such underwriting arrangements.
9. Miscellaneous
-------------
(a) Remedies. In the event of a breach by the Company or by a Holder
--------
of any of their respective obligations under this Agreement, each Holder or the
Company, in addition to being entitled to exercise all rights granted by law,
including, without limitation, recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company and each Holder
agree that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of any of the provisions of this Agreement
and hereby further agree that, in the event of any action for specific
performance in respect of such breach, they shall waive the defense that a
remedy at law would be adequate. This Section 9(a) shall not apply to Section 3.
(b) No Inconsistent Agreements. The Company shall not enter into any
--------------------------
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. The Company is not currently a party to any agreement
granting any registration rights with respect to any of its securities to any
person that conflicts with the Company's obligations hereunder or gives any
other party the right to include any securities in any Registration Statement
filed pursuant hereto, except for such rights and conflicts as have been
irrevocably waived. Without limiting the generality of the foregoing, without
the written consent of the Holders of a majority in aggregate principal amount
of the Transfer Restricted Securities, the Company shall not grant to any person
the right to request it to register any of its securities under the Securities
Act unless the rights so granted are subject in all respect to the prior rights
of the Holders set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement.
(c) No Adverse Action Affecting the Transfer Restricted Securities.
--------------------------------------------------------------
The Company will not take any action with respect to the Transfer Restricted
Securities that would adversely affect the ability of any of the Holders to
include such Transfer Restricted Securities in a registration undertaken
pursuant to this Agreement.
(d) No Piggyback on Registrations. After the date hereof, the Company
-----------------------------
shall not grant to any of its security holders (other than the Holders in such
capacity) the right to include any of its securities in any Shelf Registration
Statement.
(e) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents
-18-
<PAGE>
to departures from the provisions hereof, may not be given, without the written
consent of the Holders of a majority in aggregate principal amount of the
Transfer Restricted Securities; provided, however, that, for the purposes of
-------- -------
this Agreement, Transfer Restricted Securities that are owned, directly or
indirectly, by either the Company or an Affiliate of the Company are not deemed
outstanding. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders whose Transfer Restricted Securities are being sold pursuant
to an underwritten offering and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of a majority in aggregate
principal amount of the Transfer Restricted Securities being sold by such
Holders pursuant to such an underwritten offering; provided, however, that the
provisions of this sentence may not be amended, modified or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(f) Notices. All notices and other communications provided for herein
-------
shall be made in writing by hand-delivery, next day air courier, certified
first-class mail, return receipt requested or telecopy:
(i) if to a Holder, to the address of such Holder as it
appears in the Note or Common Stock register of the Company, as applicable;
(ii) if to the Company, to:
E*TRADE Group, Inc.
4500 Bohannon Drive
Menlo Park, California 94025
Attn: Chief Financial Officer
Telecopy No.: (650) 842-2552
with a copy to:
Brobeck Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
Attn: Curtis L. Mo, Esq.
Telecopy No.: (650) 496-2885
(iii) if to the Special Counsel, to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: John A. Fore, Esq.
Telecopy No.: (650) 493-6811
-19-
<PAGE>
or such other Special Counsel at such other address and telecopy number as a
majority in aggregate principal amount of the Transfer Restricted Securities
shall have given notice to the Company as contemplated by Section 5(b) hereof.
Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given, when delivered by hand,
if personally delivered; one Business Day after being timely delivered to a
next-day air courier, five Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is acknowledged by the recipient's
telecopier machine, if telecopied.
(g) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each existing and future Holder. The
Company may not assign its rights or obligations hereunder without the prior
written consent of the Holders of a majority in aggregate principal amount of
the Transfer Restricted Securities, other than by operation of law pursuant to a
merger or consolidation to which the Company is a party. In the event the Notes
constituting Transfer Restricted Securities become convertible into common stock
of another person pursuant to Section 15.6 of the Indenture, the Company shall
cause such person to assume the Company's obligations hereunder.
(h) Counterparts. This Agreement may be executed in any number of
------------
counterparts by the parties hereto, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same instrument.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
-------------
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
(j) Severability. The remedies provided herein are cumulative and not
------------
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(k) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof. All
references made in this Agreement to "Section" and "paragraph" refer to such
Section or paragraph of this Agreement, unless expressly stated otherwise.
-20-
<PAGE>
(l) Attorneys' Fees. In any action or proceeding brought to enforce
---------------
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the prevailing party, as determined by the court, shall
be entitled to recover its reasonable attorneys' fees in addition to any other
available remedy.
-21-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first written above.
E*TRADE GROUP, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
The foregoing Registration Rights
Agreement is hereby confirmed and
agreed to as of the date first
written above:
FLEETBOSTON ROBERTSON STEPHENS INC.
HAMBRECHT & QUIST LLC
GOLDMAN, SACHS & CO.
By: FLEETBOSTON ROBERTSON STEPHENS INC.
By:_________________________
Authorized Signatory
<PAGE>
EXHIBIT 5.1
OPINION OF Brobeck, Phleger & Harrison LLP
[Brobeck, Phleger & Harrison LLP Letterhead]
April 27, 2000
E*TRADE Group, Inc.
4500 Bohannon Drive
Menlo Park, California 94025
(650) 331-6000
Re: E*TRADE Group, Inc. Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to E*TRADE Group, Inc., a Delaware corporation
(the "Company"), in connection with the Company's Registration Statement on Form
S-3 (the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), relating to
the registration of the resale of (i) $650,000,000 aggregate principal amount of
6% Convertible Subordinated Notes (the "Notes") issued by the Company and (ii)
27,542,373 shares of the Company's common stock, par value $0.01 per share (the
"Common Stock"), issuable upon conversion of the Notes, plus such indeterminate
number of shares of Common Stock as may become issuable by means of an
adjustment to the conversion price of the Notes (the "Conversion Shares").
This opinion is being furnished in accordance with the requirements of Item
16 of Form S-3 and Item 601(b)(5)(i) of Regulation S-K.
In rendering our opinion, we have reviewed such documents as we deemed
necessary. We have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified, facsimile or
photostatic copies, the authenticity of the originals of such latter documents
and the legal competence of all signatories to such documents.
We assume that the appropriate action will be taken, prior to the offer and
sale of the Notes and the Conversion Shares under the Registration Statement, to
register and qualify the Notes and the Conversion Shares for sale under all
applicable state securities or "blue sky" laws. We express no opinion herein as
to the laws of any state or jurisdiction other than the General Corporation Law
of the State of Delaware, the laws of the State of New York and the United
States federal securities laws.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Notes have been duly and validly authorized and issued by the
Company and constitute the legally valid and binding obligation of the Company;
and
2. The Conversion Shares have been duly and validly authorized by the
Company and, when issued upon conversion of the Notes in accordance with the
terms of such Notes, will be validly issued, fully paid and non-assessable.
It is understood that this opinion is to be used only in connection with
the offer and sale of the Notes or the Conversion Shares while the Registration
Statement is in effect.
<PAGE>
We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder or
Item 509 of Regulation S-K.
This opinion letter is rendered as of the date first written above and we
disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or the
Shares.
Very truly yours,
/s/ BROBECK, PHLEGER & HARRISON LLP
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
Statement of Earnings to Fixed Charges EXHIBIT 12.1
<TABLE>
<CAPTION>
Six Months
Ended
March 31, Year Ended September 30,
----------- --------------------------------------------------------
2000 1999 1998 1997 1996 1995
----------- --------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expense $248,419 $215,452 $120,334 $ 61,189 $37,266 $31,994
Amortization of debt issuance costs 367 230 281 204 127 127
Estimated interest within rental expense 6,655 12,213 7,281 4,152 1,181 409
Preference securities dividend requirement
of consolidated subsidiaries 2,497 6,083 6,840 2,203 208 128
-------- -------- -------- -------- ------- -------
Total fixed charges $257,938 $233,978 $134,736 $ 67,748 $38,782 $32,658
======== ======== ======== ======== ======= =======
Earnings:
Income (loss) before income taxes,
minority interest, extraordinary item
and cumulative effect of accounting
change less equity in income (loss)
of investments $(32,072) $(69,909) $ 6,006 $ 36,729 $ 7,418 $13,826
Fixed charges 257,938 233,978 134,736 67,748 38,782 32,658
Less:
Preference securities dividend requirement
of consolidated subsidiaries (2,497) (6,083) (6,840) (2,203) (208) (128)
-------- -------- -------- -------- ------- -------
Earnings $223,369 $157,986 $133,902 $102,274 $45,992 $46,356
======== ======== ======== ======== ======= =======
Ratio of earnings to fixed charges 0.87 0.68 0.99 1.51 1.19 1.42
======== ======== ======== ======== ======= =======
Pro forma ratio of earnings to fixed
charges 0.81 0.57 - - - -
======== ======== ======== ======== ======= =======
Excess (deficiency) of earnings to fixed
charges $(34,569) $(75,992) $ (834) $ 34,526 $ 7,210 $13,698
======== ======== ======== ======== ======= =======
Pro forma excess (deficiency) of earnings
to fixed charges $(49,365) $(117,721) $ - $ - $ - $ -
======== ======== ======== ======== ======= =======
</TABLE>
The ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings (loss) before income taxes, minority interest, extraordinary items
and the cumulative effect of accounting change less equity in the income (loss)
of investments plus fixed charges less the preference securities dividend
requirement of consolidated subsidiaries. Fixed charges include, as applicable,
interest expense, amortization of debt issuance costs, the estimated interest
component of rent expense, and the preference securities dividend requirement of
consolidated subsidiaries.
The pro forma ratio gives effect to the issuance of the 6% Convertible
Subordinated Notes as of the beginning of the periods presented and the
repayment of bank borrowings with the proceeds from the offering during the
period ended March 31, 2000.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in this Registration Statement
on Form S-3 of our report (which expresses an unqualified opinion and includes
an explanatory paragraph referring to the acquisition of Telebanc which was
accounted for as a pooling of interests) dated October 13, 1999 (March 15, 2000
as to the second paragraph of Note 1) appearing in the Annual Report on Form 10-
K/A of E*TRADE Group, Inc. for the year ended September 30, 1999, and to the
reference to us under the heading "Experts" in the Prospectus which is part of
this Registration Statement.
DELOITTE & TOUCHE LLP
San Jose, California
April 27, 2000
<PAGE>
EXHIBIT 23.2
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report
included in this registration statement and to the incorporation by reference in
this registration statement of our report dated March 15, 2000 included in
E*TRADE Group, Inc.'s Form 10-K/A for the year ended September 30, 1999 and to
all references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
Vienna, Virginia
April 27, 2000
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [_]
___________________________
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
</TABLE>
___________________________
E*TRADE GROUP, INC.
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
Delaware 94-2844166
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
4500 Bohannon Drive
Menlo Park, California 94025
(Address of principal executive offices) (Zip code)
</TABLE>
___________________________
6% Convertible Subordinated Notes Due February 1, 2007
(Title of the indenture securities)
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
- -------------------------------------------------------------------------------
Name Address
- -------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York, N.Y.
New York 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y
10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-
29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-
44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 24th day of April, 2000.
THE BANK OF NEW YORK
By: /s/ MICHAEL CULHANE
---------------------------------------------
Name: MICHAEL CULHANE
Title: VICE PRESIDENT
