-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kas9yeRztqgUS+ogXhBog8uevwhcTGfxfUcHr7QBJg+rXH2f7uwFeAYSoYeZYZyq B+Wvwdk93Flc8YvHBBHVMQ== 0000898430-02-001741.txt : 20020502 0000898430-02-001741.hdr.sgml : 20020501 ACCESSION NUMBER: 0000898430-02-001741 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20020502 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GAP INC CENTRAL INDEX KEY: 0000039911 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FAMILY CLOTHING STORES [5651] IRS NUMBER: 941697231 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-87442 FILM NUMBER: 02631848 BUSINESS ADDRESS: STREET 1: ONE HARRISON CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 4159524400 MAIL ADDRESS: STREET 1: ONE HARRISON STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94105 FORMER COMPANY: FORMER CONFORMED NAME: GAP STORES INC DATE OF NAME CHANGE: 19850617 S-3 1 ds3.txt FORM S-3 As filed with the Securities and Exchange Commission on May 2, 2002 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 ------------- Form S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------- The Gap, Inc. (Exact Name of Registrant as Specified in Its Charter) ------------- Delaware 5651 94-1697231 (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification Number)
Two Folsom Street, San Francisco, California 94105, (650) 952-4400 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) ------------- Lauri Shanahan, Esq. Senior Vice President and General Counsel The Gap, Inc. Two Folsom Street, San Francisco, California 94105, (650) 952-4400 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) ------------- COPY TO: Peter Lillevand, Esq. Orrick, Herrington & Sutcliffe LLP Old Federal Reserve Bank Building 400 Sansome Street, San Francisco, California 94111, (415) 392-1122 ------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement. 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 in connection with dividend or reinvestment plans, please 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, 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(d) 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 ================================================================================
Proposed Proposed Amount Maximum Maximum Amount of Title of Each Class of Securities to be Offering Price Aggregate Registration to be Registered Registered Per Note Offering Price(1) Fee(2) - --------------------------------------------------------------------------------------------------------- 5.75% Senior Convertible Notes due 2009..... $1,380,000,000 100% $1,380,000,000 $126,960 - --------------------------------------------------------------------------------------------------------- Common Stock, par value $0.05 per share..... 85,607,940(3) (4) (4) (4) - ---------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- (1)Estimated solely for the purposes of calculating the registration fee in accordance with Rule 457 under the Securities Act of 1933. (2)The registration fee for the securities offered hereby has been calculated at the statutory rate of 0.000092 of the proposed maximum aggregate offering price. (3)The number of shares of common stock registered hereunder is based upon the number of shares that are issuable upon conversion of the notes at the conversion price of $16.12 per share. Pursuant to Rule 416 under the Securities Act, the number of shares of common stock registered hereby shall include an indeterminate number of shares of common stock that may be issued in connection with a stock split, stock dividend, recapitalization or similar event. (4)No additional consideration will be received in connection with the exercise of the conversion privilege. Pursuant to Rule 457(i), there is no additional filing fee with respect to the shares of common stock issuable on conversion of the notes. ------------- 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 this 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. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject To Completion, Dated May 2, 2002 PROSPECTUS $1,380,000,000 [LOGO] Gap Inc. 5.75% Senior Convertible Notes due 2009 and 85,607,940 Shares of Common Stock Issuable upon Conversion of the Notes ------------- This prospectus relates to the offer and sale from time to time by the selling security holders named herein, including their respective transferors, donees, pledgees or successors, of up to $1,380,000,000 principal amount of our 5.75% Senior Convertible Notes due 2009 and the shares of our common stock issuable upon conversion of the notes. The prices at which the selling security holders may sell the notes and the shares will be determined by prevailing market prices or through privately-negotiated transactions. We will not receive any proceeds from the sale of any of the notes or the shares. We have agreed to bear the expenses of registering the notes and shares covered by this prospectus under federal and state securities laws. The notes and shares are being registered to permit the selling security holders to sell the notes and the shares from time to time in the public market. The selling security holders may sell the notes and shares through ordinary brokerage transactions or through any other means described in the section titled "Plan of Distribution." We do not know when or in what amount the selling security holders may offer notes and shares for sale. The selling security holders may sell any, all or none of the notes and shares offered by this prospectus. Interest on the notes is payable on March 15 and September 15 of each year, beginning on September 15, 2002. The notes will mature on March 15, 2009. We may redeem some or all of the notes at any time after March 20, 2005. The redemption prices are described under the caption "Description of Notes--Optional Redemption." The notes are convertible by holders into shares of our common stock at a conversion price of $16.12 per share (subject to adjustment in certain events) at any time, unless we previously have redeemed or repurchased the notes or unless the notes previously have matured. Our common stock is listed on the New York Stock Exchange under the symbol "GPS." The last reported price of our common stock on May 1, 2002 was $14.40 per share. The notes are unsecured obligations and rank equally with all of our other unsecured senior indebtedness. Under certain circumstances, holders of the notes have the right to require us to repurchase the notes at a price equal to 100% of the principal amount, plus accrued interest and liquidated damages, if any. ------------- Investing in the notes involves risks. See "Risk Factors" beginning on page 5. Neither the Securities and Exchange Commission, any state securities commission nor any other U.S. regulatory authority, has approved or disapproved the securities nor have any of the foregoing authorities passed upon or endorsed the merits of this offering or the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. ------------- The date of this prospectus is , 2002 You should rely only on the information contained in this prospectus or incorporated by reference in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus. ------------- TABLE OF CONTENTS
Page ---- Forward-Looking Statements............................. ii Additional Information................................. ii Prospectus Summary..................................... 1 Risk Factors........................................... 5 Use of Proceeds........................................ 9 Ratio of Earnings to Fixed Charges..................... 9 Common Stock and Dividend Data......................... 10 Description of Notes................................... 11 Description of Common Stock............................ 27 Certain United States Federal Income Tax Considerations 30 Selling Security Holders............................... 36 Plan of Distribution................................... 43 Validity of the Securities............................. 45 Experts................................................ 45
------------- i FORWARD-LOOKING STATEMENTS This prospectus and the information incorporated herein by reference contain certain forward-looking statements which reflect our current view with respect to future events and financial performance. Whenever used, the words "expect," "plan," "anticipate," "believe," "may" and similar expressions identify forward-looking statements. Any such forward-looking statements are subject to risks and uncertainties and our future results of operations could differ materially from historical results or current expectations. Some of these risks are discussed below under the caption "Risk Factors" and in Item 1 of our Annual Report on Form 10-K, which is incorporated herein by reference, and include, without limitation, ongoing competitive pressures in the apparel industry, risks associated with challenging domestic and international retail environments, changes in the level of consumer spending or preferences in apparel, trade restrictions and political or financial instability in countries where our goods are manufactured and/or other factors that may be described herein or in our filings with the Securities and Exchange Commission (the "SEC"). Future economic and industry trends that could potentially impact revenue and profitability are difficult to predict. We assume no obligation to publicly update or revise our forward- looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. ADDITIONAL INFORMATION We file annual, quarterly and special reports, proxy statements, and other information with the SEC. You may read and copy any document we file at the SEC's public reference room in Washington, D.C. 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 http://www.sec.gov. Reports, proxy material and other information about us can also be inspected at the offices of the New York and Pacific Stock Exchanges. The SEC allows us to "incorporate by reference" the information that we file with them, which means that we can disclose important information to you by referring 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 Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") until this offering is completed: (a)Our Annual Report on Form 10-K for the fiscal year ended February 2, 2002; (b)Our Current Reports on Form 8-K filed February 27, 2002, February 28, 2002, March 7, 2002, March 11, 2002 and March 22, 2002; and (c)The description of our common stock contained in our Registration Statement on Form 8-B filed under the Exchange Act. You may request a copy of these filings, at no cost, by writing or telephoning us at the following address: The Gap, Inc. Two Folsom Street San Francisco, CA 94105 Attention: Investor Relations Telephone: 1-800-GAP-NEWS. ii PROSPECTUS SUMMARY All references to "Gap," "we," "us," or "our" in this prospectus mean The Gap, Inc. and its subsidiaries. The following summary contains basic information about this offering. It likely does not contain all of the information that is important to you. You should read the entire prospectus and the documents to which we have referred you before making an investment decision. Our Company We are a global specialty retailer operating stores selling casual apparel, personal care and other accessories for men, women and children under the Gap, Banana Republic and Old Navy brands. We operate stores in the United States, Canada, the United Kingdom, France, Germany and Japan. We design virtually all of our products, which in turn are manufactured by independent sources, and sell them under our brands in the following store formats: Gap. Founded in 1969, Gap stores offer extensive selections of classically-styled, high quality, casual apparel at moderate price points. Products range from wardrobe basics, such as denim, khakis and T-shirts, to fashion apparel, accessories and personal care products for men and women aged teen through adult. We entered the children's apparel market with the introduction of GapKids in 1986 and babyGap in 1989. These stores offer casual basics, outerwear, shoes and other accessories in the tradition of Gap style and quality for children aged newborn through teen. We launched GapBody in 1998 offering men's and women's underwear, sleepwear and personal care products. As of March 2, 2002, we operated 2,926 Gap brand store concepts at 1,851 locations in the United States, Canada, the United Kingdom, France, Germany, and Japan. Store concepts are any Gap Adult, GapKids, babyGap or GapBody that meets a certain square footage threshold even when residing within a single physical location. Banana Republic. Acquired in 1983 with two stores, Banana Republic now offers sophisticated, fashionable collections of dress-casual and tailored clothing and accessories for men and women at higher price points than Gap. Banana Republic products range from clothing, including intimate apparel, to personal care products and home products. As of March 2, 2002, we operated 442 Banana Republic stores in the United States and Canada. Old Navy. We launched Old Navy in 1994 to address the market for value-priced family apparel. Old Navy offers broad selections of apparel, shoes and accessories for adults, children and infants as well as other items, including personal care products, in an innovative, exciting shopping environment. As of March 2, 2002, we operated 808 Old Navy stores in the United States and Canada. As of March 2, 2002, we operated a total of 4,176 store concepts at 3,101 locations. For more information on the number of store concepts by brand and country, see Part II, Item 7 of our Annual Report on Form 10-K, which is incorporated herein by reference. We established Gap Online, a web-based store located at www.gap.com, in 1997. GapKids and babyGap web-based stores, located at www.gapkids.com and www.babygap.com, were established in 1998. Products comparable to those carried in Gap, GapKids and babyGap stores can be purchased on-line. In addition, a line of maternity apparel is available at Gap Online. Banana Republic introduced a catalog format in 1998 and Banana Republic Online, a web-based store located at www.bananarepublic.com, in 1999. Both of the new Banana Republic formats offer clothing and accessories comparable to those carried in the store collections. In 1999, we established Old Navy Online, a promotional website located at www.oldnavy.com, and began operating Old Navy Online as a web-based store in 2000. Our online and catalog businesses are offered as an extension of our store experience and are intended to strengthen our relationship with our customers. Our executive offices are located at Two Folsom Street, San Francisco, California 94105, and our telephone number is (650) 952-4400. 1 Recent Developments On April 11, 2002, we reported sales of $1.21 billion for the five-week period ended April 6, 2002, compared with sales of $1.24 billion for the same period ended April 7, 2001, which represents a 2% decrease. Our comparable store sales for March 2002 were down 12%, compared to an 8% decrease in March 2001. On March 7, 2002, we reported sales of $720 million for the four-week period ended March 2, 2002, compared with sales of $784 million for the same period ended March 3, 2001, which represents an 8% decrease. Our comparable store sales for February 2002 were down 17%, compared to a 11% decrease in February 2001. 2 The Offering Issuer...................... The Gap, Inc., a Delaware corporation. Securities Covered by this Prospectus................ $1,380,000,000 aggregate principal amount of 5.75% Senior Convertible Notes due 2009 and the shares of common stock issuable upon conversion of such notes. Maturity.................... March 15, 2009, unless earlier redeemed, repurchased or converted. Interest Payment Dates...... March 15 and September 15 of each year, commencing on September 15, 2002. Conversion Rights........... The notes are convertible, unless previously redeemed or repurchased, at the option of the holder at any time prior to maturity, into shares of our common stock at a conversion price of $16.12 per share, subject to adjustment in certain events. See "Description of Notes--Conversion." The right to convert notes that have been called for redemption terminates at the close of business on the trading day immediately preceding the date of redemption. Redemption at the Option of Gap....................... On or after March 20, 2005, at any time or from time to time, the notes may be redeemed at our option, in whole or in part, on not less than 20 nor more than 60 days' prior written notice to the holders by first class mail, in cash at the redemption prices set forth herein, plus accrued and unpaid interest and liquidated damages, if any, to the date of redemption. See "Description of Notes--Optional Redemption." Mandatory Redemption........ None. Repurchase at the Option of Holders................... Upon a designated event (a change of control or a termination of trading (each as defined herein)), holders of the notes have the right, subject to certain restrictions and conditions, to require us to purchase all or any part of their notes at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest and liquidated damages, if any, to the date of the purchase. See "Description of Notes--Repurchase at Option of Holders Upon a Designated Event" and "Risk Factors--We may be unable to repay or repurchase the notes." Ranking..................... The notes are senior unsecured obligations of ours and rank equally with all of our existing and future senior unsecured indebtedness. However, the notes are effectively subordinated to all existing and future obligations of our subsidiaries, and to our new 2-year secured credit facility. As of February 2, 2002, the indebtedness and other liabilities of our subsidiaries that would effectively have been senior to the notes were approximately $266 million. 3 Events of Default........... The following are events of default under the indenture for the notes: . we fail to pay principal or premium, if any, on any note when due; . we fail to pay interest or liquidated damages, if any, on any note when due and that default continues for 30 days; . we fail to comply with or observe any other covenant or warranty in the indenture or in the notes and that failure continues for 60 days after written notice as provided in the indenture; . we fail to pay any designated event payment when due; . we fail to provide timely notice of a designated event; . we or any of our material subsidiaries fail to pay when due, either at its maturity or upon acceleration thereof, any indebtedness for money borrowed equal to $35 million or more and such failure is not cured, or the acceleration is not rescinded or annulled, within 30 days after written notice as provided in the indenture; . we or any of our material subsidiaries fail to pay final, non-appealable judgments of U.S. federal or state courts aggregating in excess of $50 million or more within 60 days after their entry; or . events of bankruptcy, insolvency or reorganization. See "Description of Notes--Events of Default and Remedies." Use of Proceeds............. We will not receive any of the proceeds of sales of any of the securities covered by this prospectus by the selling security holders. Trading..................... The notes are eligible for trading on The Portal/SM Market of the National Association of Securities Dealers, Inc. The common stock is quoted on the New York Stock Exchange and on the Pacific Exchange under the symbol "GPS." / 4 RISK FACTORS You should carefully consider the risks described below before buying notes or common stock. If any of the following risks actually occurs, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of the notes and our common stock could decline, and you could lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this prospectus. Risk Factors Relating To Our Business We must successfully gauge fashion trends and rapidly changing consumer preferences to succeed. Our success is largely dependent upon our ability to gauge the fashion tastes of our customers and to provide merchandise that satisfies customer demand in a timely manner. The global specialty retail business fluctuates according to changes in consumer preferences dictated in part by fashion and season. To the extent we misjudge the market for our merchandise, our sales will be adversely affected and the markdowns required to move the resulting excess inventory will adversely affect our operating results. A disproportionate part of our product offerings may have been too fashion-forward for our broad and diverse customer base. While we believe our current strategies and initiatives appropriately address these issues, continued merchandise misjudgments could have a material adverse effect on our image with our customers and on our operating results. Our ability to anticipate and effectively respond to changing fashion trends depends in part on our ability to attract and retain key personnel in our design, merchandising and marketing staff. Competition for these personnel is intense, and we cannot be sure that we will be able to attract and retain a sufficient number of qualified personnel in future periods. Fluctuations in the global specialty retail business especially affect the inventory owned by apparel retailers, since merchandise usually must be ordered well in advance of the season and frequently before fashion trends are evidenced by customer purchases. In addition, the cyclical nature of the global specialty retail business requires us to carry a significant amount of inventory, especially prior to peak selling seasons when we build up our inventory levels. We must enter into contracts for the purchase and manufacture of apparel well in advance of the applicable selling season. As a result, we are vulnerable to demand and pricing shifts and to suboptimal selection and timing of merchandise purchases. In the recent past, we did not predict our customers' preferences and acceptance levels of our fashion items with the same accuracy we had previously experienced. In addition, lead times for many of our purchases are long, which may make it more difficult for us to respond rapidly to new or changing fashion trends or consumer acceptance for our products. Our business is highly competitive and depends on consumer spending patterns. The global specialty retail industry is highly competitive. We compete with national and local department stores, specialty and discount store chains, independent retail stores and internet businesses that market similar lines of merchandise. We face a variety of competitive challenges including: . anticipating and quickly responding to changing consumer demands; . maintaining favorable brand recognition and effectively marketing our products to consumers in several diverse market segments; . developing innovative, high-quality products in sizes, colors and styles that appeal to consumers of varying age groups and tastes; 5 . competitively pricing our products and achieving customer perception of value; and . providing strong and effective marketing support. We have lost market share to some of our competitors in the recent past and if we do not strengthen our competitive position, we may not recover that share and could also lose additional market share in the future. Our business is sensitive to a number of factors that influence the levels of consumer spending, including economic conditions, such as the current recessionary environment, the levels of disposable consumer income, consumer debt, interest rates and consumer confidence. The recent and current recessionary environment has had a negative impact on our sales and has contributed to a significantly higher level of promotional sales activities, which have adversely affected our profitability. Further declines in consumer spending on apparel and accessories could have an adverse effect on our operating results. We experience fluctuations in our comparable store sales and margins. Our continued success depends, in part, upon our ability to improve sales and margins at our stores. Our comparable store sales have fluctuated significantly in the past on an annual, quarterly and monthly basis, and we expect that they will continue to fluctuate in the future. Over the past two years, our comparable store sales have decreased each quarter, ranging from decreases of 2% in each of the first two quarters of fiscal 2000 to 17% and 16% in the final two quarters of fiscal 2001. A variety of factors affect comparable store sales, including, fashion trends, competition, current economic conditions, the timing of release of new merchandise and promotional events, changes in our merchandise mix, the success of marketing programs and weather conditions. These factors may cause our comparable store sales results to differ materially from prior periods and from expectations. The declines we have experienced in comparable store sales have significantly contributed to a decline in our margins, which have decreased from 42% in fiscal 1999 to 37% in fiscal 2000 to 30% in fiscal 2001 (including a margin of 25% in the fourth quarter). Any failure to meet the expectations of investors, security analysts or credit rating agencies in one or more future periods could reduce the market price of our common stock and of the notes and cause our credit ratings to decline. Our ability to improve our comparable store sales results and margins depends in large part on improving our forecasting of demand and fashion trends, selecting effective marketing techniques, providing an appropriate mix of merchandise for our broad and diverse customer base and using more effective pricing strategies. Recent changes in our credit ratings may have a negative impact on our financing costs and structure in future periods. On January 14, 2002, Moody's Investors Service reduced our long-term senior unsecured corporate credit ratings from Baa2 to Baa3. On February 14, 2002, Moody's reduced our long and short-term senior unsecured corporate credit ratings from Baa3 to Ba2 and from Prime-3 to Not Prime, respectively, with a negative outlook on our long-term ratings, and Standard & Poor's Rating Service reduced our long and short-term corporate credit ratings from BBB+ to BB+ and from A-2 to B, respectively, with a stable outlook on our long-term ratings. On February 27, 2002, Moody's reduced our long-term senior unsecured corporate credit ratings from Ba2 to Ba3 and stated that its outlook on our long-term ratings was stable. As a result of the recent downgrades in our long-term credit ratings, the interest rates payable by us on $700 million aggregate principal amount of our outstanding notes will increase. Any further downgrades of our long-term credit ratings by these rating agencies would result in further increases in the interest rates payable by us on $700 million of our outstanding notes. As a result of the downgrades in our short-term credit ratings, we no longer have meaningful access to the commercial paper market. In addition, we expect both the recent, and any future, lowering of the ratings on our debt to result in reduced access to the capital markets and higher interest costs on future financings. 6 Risk Factors Relating To The Notes We increased our leverage as a result of the sale of the notes. In connection with the sale of the notes, we incurred $1.38 billion of indebtedness. As a result of this indebtedness, our principal and interest payment obligations have increased. The degree to which we are leveraged could adversely affect our ability to obtain financing for working capital, acquisitions or other purposes and could make us more vulnerable to industry downturns and competitive pressures. Our ability to meet our debt service obligations will be dependent upon our future performance, which will be subject to the financial, business and other factors affecting our operations, many of which are beyond our control. The notes rank below our secured debt and the liabilities of our subsidiaries. The notes are unsecured and subordinated in right of payment to our 2-year secured $1.4 billion credit facility (which facility may be subject to an increase) and future secured indebtedness. In the event of bankruptcy, liquidation or reorganization or upon acceleration of the notes due to an event of default under the indenture and in certain other events, our assets will be available to pay obligations on the notes only after all secured indebtedness, including the secured credit facility, has been paid. As a result, there may not be sufficient assets remaining to pay amounts due on any or all of the outstanding notes. Our right to receive assets of any subsidiaries upon their liquidation or reorganization, and the rights of the holders of the notes to share in those assets, would be subject to the satisfaction of claims of the subsidiaries' creditors, including the obligations of our subsidiaries pursuant to guarantees issued in respect of indebtedness outstanding under our secured credit facility. Consequently, the notes are effectively subordinated to all liabilities, including trade payables, of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish. The notes are our obligations exclusively. The indenture for the notes does not limit our ability to incur indebtedness, or our ability or that of any of our presently existing or future subsidiaries, to incur other indebtedness and other liabilities. As of February 2, 2002, the indebtedness and other liabilities of our subsidiaries (excluding intercompany liabilities and obligations of a type not required to be reflected on the balance sheet of such subsidiary in accordance with GAAP) that would effectively have been senior to the notes were approximately $266 million. We and our subsidiaries may incur additional indebtedness, including senior unsecured debt, which could adversely affect our ability to satisfy our obligations under the notes. We may be unable to repay or repurchase the notes. At maturity, the entire outstanding principal amount of the notes will become due and payable by us. In addition, if a "designated event," as defined in the indenture, occurs, each holder of the notes may require that we repurchase all or a portion of that holder's notes. We cannot assure you that we will have sufficient funds or will be able to arrange for additional financing to pay the principal amount or repurchase price due. In that case, our failure to repay the notes at maturity or to repurchase any tendered notes would constitute an event of default under the indenture. Any such default, in turn, may cause a default under the terms of our other debt. As a result, holders of the notes would rank equal in right of payment with holders of our other senior unsecured debt. You may find it difficult to resell your notes. Since their issuance, there has not been a significant market for the notes. Although the initial purchasers advised us at the time we issued the notes that they intended to make a market in the notes, they are not obligated to do so and may discontinue their market-making activities at any time without notice. Consequently, we cannot ensure that any market for the notes will develop, or if one does develop, that it will be maintained. If an active market for the notes fails to develop or be sustained, the trading price of the notes could be materially and adversely affected. We do not intend to apply for listing of the notes on any securities exchange or any automated quotation system. 7 We expect that the trading value of the notes will be significantly affected by the price of our common stock. The market price of the notes is expected to be significantly affected by the market price of our common stock. This may result in greater volatility in the trading value of the notes than would be expected for nonconvertible debt securities we issue. Changes in our credit rating or the credit markets could adversely affect the price of the notes. The selling price for the notes will be based on a number of factors, including: . our rating with major credit rating agencies; . the prevailing interest rates being paid by other companies similar to us; and . the overall condition of the financial markets. The condition of the credit markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future. Fluctuations in these factors could have an adverse effect on the price of the notes. In addition, credit rating agencies continually revise their ratings for the companies that they follow, including us. The credit rating agencies also evaluate the specialty retail or apparel industries as a whole and may change their credit rating for us based on their overall view of our industry. We cannot be sure that credit rating agencies will maintain their ratings on the notes. A negative change in our rating could have an adverse effect on the price of the notes. 8 USE OF PROCEEDS We will not receive any of the proceeds of sales of any of the securities covered by this prospectus by the selling security holders. RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth our ratio of earnings to fixed charges for the periods indicated:
Fiscal Year Ended ----------------------------------------------------------- January 31, January 30, January 29, February 3, February 2, 1998 1999 2000 2001 2002 ----------- ----------- ----------- ----------- ----------- 4.01 4.79 5.32 3.67 1.39
For purposes of computing the ratios of earnings to fixed charges, earnings consist of income before taxes plus fixed charges (less capitalized interest), and fixed charges consist of interest expense, capitalized interest and the portion of rental expense under operating leases representative of an interest factor. 9 COMMON STOCK AND DIVIDEND DATA Our common stock is listed on the New York Stock Exchange under the symbol GPS. The following table sets forth, for the periods indicated, the highest and lowest sale prices for our common stock, as reported on the New York Stock Exchange.
High Low ------ ------ Fiscal 2000 First Quarter....................... $53.75 $35.00 Second Quarter...................... 39.81 28.00 Third Quarter....................... 38.00 18.50 Fourth Quarter...................... 34.00 21.50 Fiscal 2001 First Quarter....................... 31.73 22.02 Second Quarter...................... 34.98 25.38 Third Quarter....................... 28.40 11.12 Fourth Quarter...................... 17.00 11.69 Fiscal 2002 First Quarter (through May 1, 2002). 15.90 11.85
As of , 2002, there were approximately holders of record of our common stock. On May 1, 2002, the last reported sale price of our common stock on the New York Stock Exchange was $14.40. We paid a regular quarterly cash dividend of $0.0222 per share of common stock for each quarter of fiscal years 2000 and 2001. Our credit facility currently prevents us from increasing the amount of our quarterly cash dividend to more than $0.0222 per share of common stock. 10 DESCRIPTION OF NOTES The notes were issued under an indenture dated as of March 5, 2002, between us and The Bank of New York, as trustee. A copy of the indenture and the registration agreement is available upon request to us at the address indicated under "Additional Information." The following is a summary of certain provisions of the indenture and the registration agreement and does not purport to be complete. Reference should be made to all provisions of the indenture and the registration agreement, including the definitions of certain terms contained therein. As used in this section, the terms "we," "us" and "our" refer to The Gap, Inc., but not any of our subsidiaries, unless the context requires otherwise. General The notes are senior unsecured obligations of ours and mature on March 15, 2009. The notes rank equally with all of our existing and future senior unsecured indebtedness. The notes were issued in denominations of $1,000 and integral multiples of $1,000 in fully registered form. The notes are exchangeable and transfers of the notes will be registrable without charge, but we may require payment of a sum sufficient to cover any tax or other governmental charge in connection with such exchanges or transfers. The notes accrue interest at a rate of 5.75% per annum from March 5, 2002, or from the most recent interest payment date to which interest has been paid or duly provided for, and accrued and unpaid interest and liquidated damages, if any, is payable semi-annually in arrears on March 15 and September 15 of each year, beginning September 15, 2002. Interest is paid to the person in whose name a note is registered at the close of business on the March 1 or September 1 (which we refer to as the "record dates") immediately preceding the relevant interest payment date. However, in the case of a note or portion of a note called for redemption on a redemption date, or repurchased in connection with a designated event (as defined below) on a repurchase date, during the period from the applicable record date to (but excluding) the next succeeding interest payment date, accrued interest will be payable (unless such note or portion is converted) to the holder of the note or portion of a note redeemed or repurchased. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. If we do not comply with certain deadlines set forth in the registration agreement with respect to the registration of the notes or the common stock issuable upon their conversion for resale pursuant to this prospectus, holders of the notes and/or the common stock issued upon their conversion will be entitled to liquidated damages as described under "--Registration Rights" below. Principal of, premium, if any, interest and liquidated damages, if any, on the notes will be payable at the office or agency maintained for such purpose or, at our option, payment of interest may be made by check mailed to the holders of the notes at their respective addresses set forth in the register of holders of notes. Until otherwise designated by us, the office or agency maintained for such purpose will be the principal corporate trust office of the trustee. If any interest payment date, maturity date, redemption date or repurchase date falls on a day that is not a business day, the required payment of principal, premium, if any, and interest and liquidated damages, if any, will be made on the next succeeding business day as if made on the date that the payment was due and no interest will accrue on that payment for the period from and after the interest payment date, maturity date, redemption date or repurchase date, as the case may be, to the date of payment on the next succeeding business day. The term "business day" means, with respect to any note, any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or required by law, regulation or executive order to close. The notes are eligible for trading in the Portal Market. 11 Conversion The holders of notes are entitled at any time on or before the close of business on the last trading day prior to the maturity date, subject to prior redemption or repurchase, to convert any notes or portions thereof (in denominations of $1,000 or multiples of $1,000) into our common stock, at the conversion price of $16.12 per share of common stock, subject to adjustment as described below. Except as described below, no adjustment will be made on conversion of any notes for interest or liquidated damages, if any, accrued on such notes or for dividends on any common stock issued. If notes not called for redemption are converted after a record date for the payment of interest and prior to the next succeeding interest payment date, such notes must be accompanied by funds equal to the interest and liquidated damages, if any, payable on such succeeding interest payment date on the principal amount so converted. We are not required to issue fractional shares of common stock upon conversion of notes and, in lieu of such fractional shares, we will pay a cash adjustment based upon the market price of the common stock on the last trading day prior to the date of conversion. In the case of notes called for redemption, conversion rights will expire at the close of business on the trading day preceding the date fixed for redemption, unless we default in the payment of the redemption price, in which case the conversion right will terminate at the close of business on the date such default is cured. In the event any holder exercises its right to require us to repurchase notes upon a designated event, such holder's conversion right will terminate on the close of business on the designated event offer termination date (as defined in the indenture), unless we default on the payment due upon repurchase or the holder elects to withdraw the submission of election to repurchase. See "--Repurchase at Option of Holders Upon a Designated Event." The right of conversion attaching to any note may be exercised by the holder by delivering the note at the specified office of a conversion agent, accompanied by a duly signed and completed notice of conversion, together with any funds that may be required. Such notice of conversion can be obtained from the trustee. Beneficial owners of interests in a global note may exercise their right of conversion by delivering to the Depository Trust Company (which we refer to as "DTC") the appropriate instruction form for conversion pursuant to DTC's conversion program. The conversion date will be the date on which the note, the duly signed and completed notice of conversion, and any funds that may be required as described above shall have been so delivered. A holder delivering a note for conversion will not be required to pay any taxes or duties payable in respect of the issue or delivery of common stock on conversion, but will be required to pay any tax or duty which may be payable in respect of any transfer involved in the issue or delivery of the common stock in a name other than the holder of the note. Certificates representing shares of common stock will not be issued or delivered unless all taxes and duties, if any, payable by the holder have been paid. The conversion price is subject to adjustment (under formulae set forth in the indenture) in certain events, including: (i) the issuance of common stock as a dividend or distribution on common stock; (ii) certain subdivisions and combinations of the common stock; (iii) the issuance to all holders of common stock of certain rights or warrants to purchase common stock at a price per share less than the current market price (as defined in the indenture); (iv) the dividend or other distribution to all holders of common stock of shares of our capital stock (other than common stock) or evidences of our indebtedness or assets (including securities, but excluding those rights, warrants, dividends and distributions referred to above or paid exclusively in cash); 12 (v) dividends or other distributions consisting exclusively of cash (excluding any cash portion of distributions referred to in clause (iv)) to all holders of common stock to the extent such distributions, combined together with: . all such all-cash distributions made within the preceding 12 months in respect of which no adjustment has been made, plus . any cash and the fair market value of other consideration payable in respect of any tender offers by us or any of our subsidiaries for common stock concluded within the preceding 12 months in respect of which no adjustment has been made, exceeds 15% of our market capitalization (being the product of the then current market price of the common stock times the number of shares of common stock then outstanding) on the record date for such distribution; and (vi) the purchase of common stock pursuant to a tender offer, other than the purchase of notes as part of a Designated Event, made by us or any of our subsidiaries to the extent that the aggregate consideration, together with . any cash and the fair market value of any other consideration payable in any other tender offer expiring within 12 months preceding such tender offer in respect of which no adjustment has been made, plus . the aggregate amount of any such all-cash distributions referred to in clause (v) above to all holders of common stock within the 12 months preceding the expiration of such tender offer in respect of which no adjustments have been made, exceeds 15% of our market capitalization on the expiration of such tender offer. We may, instead of making any required adjustment in the conversion price under clause (iv), (v) or (vi), make proper provision so that each holder of notes who converts a note shall be entitled to receive upon conversion, in addition to shares of common stock, the amount and kind of distributions that the holder would have been entitled to receive if the holder had converted the note immediately prior to the date fixed for determining the shareholders entitled to receive the distribution and, in the case of clauses (v) and (vi), interest accrued as a consequence of the investment of the cash amount that the holder would have been so entitled to receive in U.S. Government obligations with a maturity of not more than three months. In the case of . any reclassification or change of our common stock, or . a consolidation, merger, share exchange or combination involving us or a sale, conveyance or other disposition to another corporation of our property and assets as an entirety or substantially as an entirety, in each case as a result of which holders of our common stock will be entitled to receive stock, other securities, other property or assets (including cash) with respect to or in exchange for our common stock, the holders of the notes then outstanding will be entitled thereafter to convert such notes into the kind and amount of shares of stock, other securities, other property or assets, which they would have owned or been entitled to receive upon such reclassification, change, consolidation, merger, share exchange, combination, sale, conveyance or other disposition had such notes been converted into common stock immediately prior to such reclassification, change, consolidation, merger, share exchange, combination, sale, conveyance or other disposition (assuming, in a case in which our shareholders may exercise rights of election, that a holder of notes would not have exercised any rights of election as to the stock, other securities, other property or assets receivable in connection therewith and would have received per share the kind and amount received per share by a plurality of non-electing shares). Certain of the foregoing events may also constitute or result in a designated event requiring us to offer to repurchase the notes. See "--Repurchase at Option of Holders Upon a Designated Event." 13 Certain adjustments to, or failures to adjust, the conversion price of the notes may cause holders of notes or common stock to be treated for federal income tax purposes as having received a distribution taxable under federal income tax laws. See "Certain United States Federal Income Tax Considerations." We may, at our option, make such reductions in the conversion price as our board of directors deems advisable to avoid or diminish any potential income tax liability to the holders of our common stock which may result from the absence of such adjustments. In addition, we may from time to time (to the extent permitted by law) reduce the conversion price of the notes by any amount for any period of at least 20 days, in which case we shall give at least 15 days' notice of such decrease, if our board of directors has made a determination that such decrease would be in our interests, which determination shall be conclusive. No adjustment in the conversion price will be required unless such adjustment would require a change of at least 1% of the conversion price then in effect; provided that any adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment. Except as stated above, the conversion price will not be adjusted for the issuance of common stock or any securities convertible into or exchangeable for common stock or carrying the right to purchase any of the foregoing. Ranking The notes are our senior unsecured obligations and rank equally with all of our existing and future senior unsecured indebtedness. However, the notes are effectively subordinated to all existing and future obligations (including obligations to trade creditors) of our subsidiaries, and to our 2-year secured credit facility. As of February 2, 2002, the indebtedness and other liabilities of our subsidiaries (excluding intercompany liabilities and obligations of a type not required to be reflected on the balance sheet of such subsidiary in accordance with GAAP) that would effectively have been senior to the notes were approximately $266 million. The indenture will not limit the amount of additional indebtedness that we can create, incur, assume or guarantee, nor will the indenture limit the amount of indebtedness and other liabilities that any subsidiary can create, incur, assume or guarantee. Optional Redemption On or after March 20, 2005, the notes may be redeemed, at our option, in whole or from time to time in part, on not less than 20 nor more than 60 days' prior written notice to the holders by first class mail, at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the 12-month period beginning March 15 of each year indicated (March 20 with respect to 2005), plus accrued and unpaid interest and liquidated damages, if any, to the date fixed for redemption:
Year Redemption Price ---- ---------------- 2005 102.46% 2006 101.64% 2007 100.82%
and 100% on or after March 15, 2008. Selection and Notice If less than all the notes are to be redeemed at any time, selection of notes for redemption will be made by the trustee in compliance with the requirements of the principal national securities exchange, if any, on which the notes are listed or, if the notes are not so listed, on a pro rata basis, by lot or by any other method that the trustee considers fair and appropriate. The trustee may select for redemption a portion of the principal of any note that 14 has a denomination larger than $1,000. Notes and portions thereof will be redeemed in the amount of $1,000 or integral multiples of $1,000. The trustee will make the selection from notes outstanding and not previously called for redemption; provided that if a portion of a holder's notes are selected for partial redemption and such holder converts a portion of such notes, such converted portion will be deemed to be taken from the portion selected for redemption. Provisions of the indenture that apply to notes called for redemption also apply to portions of the notes called for redemption. If any note is to be redeemed in part, the notice of redemption will state the portion of the principal amount to be redeemed. In the event of any redemption in part, we will not be required to . issue or register the transfer or exchange of any note during a period of 15 days before any selection of such notes for redemption, or . register the transfer or exchange of any note so selected for redemption, in whole or in part, except the unredeemed portion of any note being redeemed in part, in which case we will execute and the trustee will authenticate and deliver to the holder a new note equal in principal amount to the unredeemed portion of the note surrendered. On and after the redemption date, unless we default in the payment of the redemption price, interest and liquidated damages, if any, will cease to accrue on the principal amount of the notes or portions of notes called for redemption and for which funds have been set apart for payment. In the case of notes or portions of notes redeemed on a redemption date which is also a regularly scheduled interest payment date, the interest payment due on such date will be paid to the person in whose name the note is registered at the close of business on the relevant record date. The notes are not entitled to any sinking fund. Repurchase at Option of Holders Upon a Designated Event Upon the occurrence of a designated event, each holder of notes has the right to require us to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of such holder's notes pursuant to the offer described below (which we refer to as the "designated event offer") at an offer price in cash equal to 100% of their aggregate principal amount, plus accrued and unpaid interest and liquidated damages, if any, on such notes to the date of purchase (which we refer to as the "designated event payment"). Within 30 days following any designated event, we will mail a notice to each holder describing the transactions that constitute the designated event and offering to repurchase notes pursuant to the procedures required by the indenture and described in such notice. We must also deliver a copy of this notice to the trustee. To exercise the purchase right, a holder of the notes must deliver, on or before the 30th day after the date of our notice, an irrevocable written notice to the trustee of the holder's exercise of its repurchase right, together with the notes with respect to which such right is being exercised. We will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations to the extent such laws and regulations are applicable in connection with the repurchase of the notes as a result of a designated event. Rule 13e-4 under the Exchange Act requires, among other things, the dissemination of certain information to security holders in the event of an issuer tender offer and may apply in the event that the repurchase option becomes available to holders of the notes. We will comply with this rule to the extent applicable at that time. On the date specified for termination of the designated event offer, we will, to the extent lawful, . accept for payment all notes or portions thereof properly tendered pursuant to the designated event offer, 15 . deposit with the paying agent an amount equal to the designated event payment in respect of all notes or portions thereof so tendered, and . deliver or cause to be delivered to the trustee the notes so accepted together with an officers' certificate stating the aggregate principal amount of notes or portions thereof being purchased by us. On the date specified for payment of the designated event payment (which we refer to as the "designated event payment date"), the paying agent will promptly mail to each holder of notes so accepted the designated event payment for such notes, and the trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new note equal in principal amount to any unpurchased portion of the notes surrendered, if any; provided that each such new note will be in a principal amount of $1,000 or an integral multiple thereof. The foregoing provisions would not necessarily afford holders of the notes protection in the event of highly leveraged or other transactions involving us that may adversely affect such holders. The right to require us to repurchase notes as a result of a designated event could have the effect of delaying, deferring or preventing a change of control or other attempts to acquire control of us unless arrangements have been made to enable us to repurchase all the notes at the designated event payment date. Consequently, this right may render more difficult or discourage a merger, consolidation or tender offer (even if such transaction is supported by our board of directors or is favorable to the shareholders), the assumption of control by a holder of a large block of our shares and the removal of incumbent management. Except as described above with respect to a designated event, the indenture does not contain provisions that permit the holders of the notes to require us to repurchase or redeem the notes in the event of a takeover, recapitalization or similar restructuring. Subject to the limitation on mergers and consolidations described below, we, our management or our subsidiaries could in the future enter into certain transactions, including refinancings, certain recapitalizations, acquisitions, the sale of all or substantially all of our assets, liquidation or similar transactions, that would not constitute a designated event under the indenture, but that would increase the amount of our indebtedness outstanding at such time or substantially reduce or eliminate our assets. A "designated event" will be deemed to have occurred upon a change of control or a termination of trading. A "change of control" will be deemed to have occurred when: . any "person" (as defined in Section 13(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of shares representing more than 50% of the combined voting power of our then outstanding voting stock; provided, however, that a "change of control" shall not be deemed to occur solely as the result of the acquisition by Donald G. Fisher, Doris F. Fisher, John J. Fisher, William Fisher or Robert R. Fisher (collectively, the "Fishers") and the Permitted Designees of shares representing in the aggregate more than 50% but less than 75% of the combined voting power of our then outstanding voting stock; "Permitted Designees" means (i) a spouse or a lineal descendent by blood or adoption of any of the Fishers; (ii) trusts solely for the benefit of any of the Fishers, one or more charitable foundations, institutions or entities or any of the individuals referred to in clause (i); (iii) in the event of the death of a Fisher, his or her estate, heirs, executor, administrator, committee or other personal representative; or (iv) any person so long as any of the Fishers or any of the individuals referred to in clause (i) are the sole beneficial owners of more than 50% of the voting power of all classes of the voting stock of such person and constitute a majority of the board of directors of such person, in the case of a corporation, or of the individuals exercising similar functions, in the case of an entity other than a corporation; or . we consolidate with or merge into any other corporation, any other corporation merges into us, or we effect a share exchange or we convey, sell, transfer or lease all or substantially all of our assets (other 16 than to one or more of our wholly-owned subsidiaries), and, in the case of any such consolidation, merger or share exchange transaction, our outstanding common stock is reclassified into or exchanged for any other property or security, unless our shareholders immediately before such transaction own, directly or indirectly immediately following such transaction, at least a majority of the combined voting power of the then outstanding voting stock of the corporation resulting from such transaction in substantially the same respective proportions as their ownership of our voting stock immediately before such transaction, or unless such transaction is effected solely to change our jurisdiction of incorporation and results in a reclassification, conversion or exchange of outstanding shares of our common stock solely into shares of common stock; or . we, or we and our subsidiaries taken as a whole, sell, assign, convey, transfer or lease all or substantially all of our assets, or our assets and those of our subsidiaries taken as a whole, as applicable (other than to one or more of our wholly-owned subsidiaries); or . any time our continuing directors do not constitute a majority of our board of directors (or, if applicable, a successor corporation to us). However, a change of control under the first two bullet points above will not be deemed to have occurred if: . the daily market price per share of common stock for any five trading days within the period of 10 consecutive trading days ending immediately after the later of the change of control or the public announcement of the change of control (in the case of a change of control under the second bullet above) shall equal or exceed 105% of the conversion price of the notes in effect on the date of the change of control or the public announcement of change of control, as applicable; or . at least 90% of the consideration (excluding cash payments for fractional shares) in the transaction or transactions constituting the change of control consists of shares of common stock that are, or upon issuance will be, traded on the New York Stock Exchange or the American Stock Exchange or quoted on the Nasdaq National Market System and into which the notes may converted. The definition of change of control includes a phrase relating to the sale, assignment, lease, transfer or conveyance of "all or substantially all" of our assets or our assets and those of our subsidiaries taken as a whole. Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of notes to require us to repurchase such notes as a result of a sale, assignment, lease, transfer or conveyance of less than all of our assets and/or those of our subsidiaries to another person or group may be uncertain. "Continuing directors" means, as of any date of determination, any member of our board of directors who (i) was a member of our board of directors on the date of the indenture or (ii) was nominated for election or elected to our board of directors with the approval of a majority of the continuing directors who were members of our board of directors at the time of such nomination or election. A "termination of trading" will be deemed to have occurred if our common stock (or other common stock into which the notes are then convertible) is neither listed for trading on the New York Stock Exchange or the American Stock Exchange nor approved for trading on the Nasdaq National Market. The terms of our existing or future indebtedness may prohibit us from purchasing any notes or may provide that a designated event, as well as certain other change of control events related to us, constitutes an event of default. In addition, such indebtedness may contain similar change in control provisions permitting such holders to accelerate or to require us to purchase such indebtedness upon the occurrence of similar events or on some specific dates. If a designated event occurs at a time when we are prohibited or prevented from purchasing notes, we could repay all such indebtedness that restricts such purchase of notes, seek the consent of our then-existing lenders to the purchase of notes or could attempt to refinance the borrowings that contain such prohibition. If we do not obtain such a consent or repay such borrowings, we would remain prohibited from purchasing any notes. 17 In such case, our failure to purchase tendered notes would constitute an event of default under the indenture, which may, in turn, constitute a further default under the terms of other indebtedness that we have entered into or may enter into from time to time. Regardless of the terms of our then-existing indebtedness, on the occurrence of a designated event, we may not have enough funds to make the designated event payment. See "Risk Factors--We may be unable to repay or repurchase the notes." Merger and Consolidation The indenture provides that we may not, in a single transaction or a series of related transactions, consolidate or merge with or into, or effect a share exchange with (whether or not we are the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our properties or assets in one or more related transactions to another corporation, person or entity as an entirety or substantially as an entirety unless: . either (i) we are the continuing corporation or (ii) any successor or purchaser is a corporation, partnership or trust organized under the laws of the United States, any State thereof or the District of Columbia and the successor or purchaser expressly assumes our obligations on the notes under a supplemental indenture in a form reasonably satisfactory to the trustee; . in all cases, immediately after giving effect to the transaction, no default or event of default, and no event that, after notice or lapse of time or both, would become an event of default, will have occurred and be continuing; and . if a supplemental indenture is to be executed in connection with such consolidation, merger, transfer or lease, we have delivered to the trustee an officers' certificate and an opinion of counsel stating compliance with these provisions. For purposes of the foregoing, the transfer (by lease, assignment, sale, conveyance or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more of our subsidiaries, the capital stock of which constitutes all or substantially all of our properties and assets, will be deemed to be the transfer of all or substantially all of our properties and assets. Upon any such consolidation, merger, share exchange, sale, assignment, conveyance, lease, transfer or other disposition in accordance with the foregoing, the successor person formed by such consolidation or share exchange or into which we are merged or to which such sale, assignment, conveyance, lease, transfer or other disposition is made will succeed to, and be substituted for, and may exercise our right and power, under the indenture with the same effect as if such successor had been named as us in the indenture, and thereafter (except in the case of a sale, assignment, transfer, lease, conveyance or other disposition) the predecessor corporation will be relieved of all further obligations and covenants under the indenture and the notes. Registration Rights Pursuant to a registration agreement, we have agreed for the benefit of the holders of the notes and common stock issued upon conversion thereof that we will use our reasonable best efforts to keep the shelf registration statement continuously effective under the Securities Act until the earliest of (i) the second anniversary of the closing date or, if later, the second anniversary of the last date on which any notes are issued upon exercise of the initial purchasers' option; (ii) the date on which the notes or the common stock issuable upon their conversion may be sold by non-affiliates of us pursuant to paragraph (k) of Rule 144 (or any successor provision) promulgated by the SEC under the Securities Act; (iii) the date as of which all the notes or the common stock issuable upon their conversion have been transferred pursuant to Rule 144 under the Securities Act (or any similar provision then in force); and (iv) the date as of which all the notes or the common stock issuable upon their conversion have been sold pursuant to the shelf registration statement. 18 A holder of notes or our common stock issuable upon conversion of such notes that sells such securities pursuant to this prospectus will be: . required to be named as a selling security holder in this prospectus and to deliver this prospectus to purchasers; . subject to certain of the civil liability provisions under the Securities Act in connection with such sales; and . bound by the provisions of the registration agreement that are applicable to such holder (including certain indemnification and contribution rights or obligations). We may suspend the use of this prospectus for a period not to exceed either 30 days in any three-month period or two periods of 60 days in the aggregate during any twelve-month period (both of which we refer to as a "suspension period") under certain circumstances relating to pending corporate developments, public filings with the SEC and similar events. We also agreed to pay liquidated damages to holders of the notes and shares of common stock issued upon conversion of the notes if this prospectus is unavailable for a period exceeding 90 days in the aggregate in any twelve-month period. You should refer to the registration agreement for a description of these liquidated damages. Events of Default and Remedies An event of default is defined in the indenture as being: (i) default in payment of the principal of, or premium, if any, on, the notes; (ii) default for 30 days in payment of any installment of interest on or liquidated damages with respect to the notes; (iii) failure to comply or observe in any material respect with any other covenants or agreement in respect of the notes contained in the indenture or the notes for 60 days after written notice to us by the trustee or to us and the trustee by holders of at least 25% in aggregate principal amount of the notes then outstanding; (iv) default in the payment of the designated event payment in respect of the notes on the date for such payment; (v) failure to provide timely notice of a designated event; (vi) default under any credit agreement, mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by us or any of our material subsidiaries (or the payment of which is guaranteed by us or any of our material subsidiaries), which default . is caused by a failure to pay when due any principal of or interest on such indebtedness within the grace period provided for in such indebtedness, which failure continues beyond any applicable grace period, or . results in the acceleration of such indebtedness prior to its express maturity, without such acceleration being rescinded or annulled, and, in each case, the principal amount of such indebtedness, together with the principal amount of any other such indebtedness under which there is a payment default or the maturity of which has been so accelerated, aggregates to $35,000,000 or more and such payment default is not cured or such acceleration is not annulled within 30 days after written notice to us by the trustee or to us and the trustee by holders of at least 25% in aggregate principal amount of the notes then outstanding; 19 (vii) failure by us or any of our material subsidiaries to pay final, non-appealable judgments of U.S. federal or state courts (other than any judgment as to which a reputable insurance company has accepted full liability) aggregating in excess of $50,000,000, which judgments are not stayed, bonded or discharged within 60 days after their entry; or (viii) certain events involving our or any of our material subsidiaries' bankruptcy, insolvency or reorganization. If an event of default (other than an event of default specified in clause (viii) above with respect to us) occurs and is continuing, then and in every such case the trustee, by written notice to us, or the holders of not less than 25% in aggregate principal amount of the notes then outstanding, by written notice to us and the trustee, may declare the unpaid principal of, premium, if any, and accrued and unpaid interest and liquidated damages, if any, on all the notes then outstanding to be due and payable. Upon such declaration, such principal amount, premium, if any, and accrued and unpaid interest and liquidated damages, if any, will become immediately due and payable, notwithstanding anything contained in the indenture or the notes to the contrary. If any event of default specified in clause (viii) above occurs with respect to us, all unpaid principal of, and premium, if any, and accrued and unpaid interest and liquidated damages, if any, on the notes then outstanding will automatically become due and payable without any declaration or other act on the part of the trustee or any holder of notes. Holders of the notes may not enforce the indenture or the notes except as provided in the indenture. Subject to the provisions of the indenture relating to the duties of the trustee, the trustee is under no obligation to exercise any of its rights or powers under the indenture at the request, order or direction of any of the holders, unless such holders have offered to the trustee a security or an indemnity satisfactory to it against any cost, expense or liability. Subject to all provisions of the indenture and applicable law, the holders of a majority in aggregate principal amount of the notes then outstanding 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. If a default or event of default occurs and is continuing and is known to the trustee, the indenture requires the trustee to mail a notice of default or event of default to each holder within 90 days of the occurrence of such default or event of default. However, the trustee may withhold from the holders notice of any continuing default or event of default (except a default or event of default in the payment of principal of, premium, if any, interest or liquidated damages, if any, on the notes) if it determines in good faith that withholding notice is in their interest. The holders of a majority in aggregate principal amount of the notes then outstanding by notice to the trustee may rescind any acceleration of the notes and its consequences if all existing events of default (other than the nonpayment of principal of, premium, if any, interest and liquidated damages, if any, on the notes that has become due solely by virtue of such acceleration) have been cured or waived and if the rescission would not conflict with any judgment or decree of any court of competent jurisdiction. No such rescission will affect any subsequent default or event of default or impair any right consequent thereto. A holder of notes may pursue any remedy under the indenture only if: . the holder gives the trustee written notice of a continuing event of default on the notes; . the holder of at least 25% in principal amount of the notes then outstanding makes a written request to the trustee to pursue the remedy; . the holder offers to the trustee indemnity reasonably satisfactory to the trustee; . the trustee fails to act for a period of 60 days after the receipt of notice and offer of indemnity; and . during that 60-day period, the holders of a majority in principal amount of the notes then outstanding do not give the trustee a direction inconsistent with the request. This provision, does not, however, affect the right of a holder of notes to sue for enforcement of the payment of the principal of, premium, if any, or interest or liquidated damages, if any, on the holder's note on or after the respective due dates expressed in its note or the holder's right to convert its note in accordance with the indenture. 20 The holders of a majority in aggregate principal amount of the notes then outstanding may, on behalf of the holders of all the notes, waive any past default or event of default under the indenture and its consequences, except default in the payment of principal of, premium, if any, or interest or liquidated damages, if any, on the notes (other than the nonpayment of principal of, premium, if any, interest and liquidated damages, if any, on the notes that has become due solely by virtue of an acceleration that has been duly rescinded as provided above) or in respect of a covenant or provision of the indenture that cannot be modified or amended without the consent of all holders of notes then outstanding. We are required to deliver to the trustee annually a statement regarding compliance with the indenture and we are required, upon becoming aware of any default or event of default, to deliver to the trustee a statement specifying such default or event of default. Book-Entry; Delivery and Form; Global Note Notes were originally sold in the United States in reliance on Rule 144A or in offshore transactions in reliance on Regulation S and were originally represented by a permanent global note in definitive, fully-registered form without interest coupons. The global note was deposited with the trustee as custodian for DTC and registered in the name of a nominee of DTC in New York, New York for the accounts of participants in DTC. The notes sold under this prospectus will be represented by a new unrestricted global note. Investors who are qualified institutional buyers and who purchase notes in reliance on Rule 144A under the Securities Act may hold their interests in the global note directly through DTC if they are DTC participants, or indirectly through organizations that are DTC participants. Investors who purchase notes in offshore transactions in reliance on Regulation S under the Securities Act may hold their interests in the global note directly through Euroclear Bank S.A./ N.V., as operator of the Euroclear System ("Euroclear") and Clearstream Banking, societe anonyme ("Clearstream"), if they are participants in such systems, or indirectly through organizations that are participants in such systems. Euroclear and Clearstream will hold interests in the global note on behalf of their participants through their respective depositaries, which in turn will hold such interests in the global note in the depositaries' names on the books of DTC. Except in the limited circumstances described below, holders of notes represented by interests in the global note will not be entitled to receive notes in definitive form. DTC has advised us as follows: DTC is a limited purpose trust company organized under the laws of the State of New York Uniform Commercial Code and a "clearing corporation" within the meaning of the New York 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 of institutions that have accounts with DTC (which we refer to as "participants") and to facilitate the clearance and settlement of securities transactions among its participants in such securities through electronic book-entry changes in accounts of the participants, thereby eliminating the need for physical movement of securities certificates. DTC's participants include securities brokers and dealers (which may include the initial purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to DTC's book-entry system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, whether directly or indirectly. Upon the issuance of the global note, DTC will credit, on its book-entry registration and transfer system, the respective principal amount of the individual beneficial interests represented by the global note to the accounts of participants. The accounts to be credited shall be designated by the initial purchasers of such beneficial interests. Ownership of beneficial interests in the global note will be limited to participants or persons that may hold interests through participants. Ownership of beneficial interests in the global note will be shown on, and the 21 transfer of those ownership interests will be effected only through, records maintained by DTC (with respect to participants' interests) and such participants (with respect to the owners of beneficial interests in the global note other than participants). So long as DTC or its nominee is the registered holder and owner of the global note, DTC or such nominee, as the case may be, will be considered the sole legal owner of the notes represented by the global note for all purposes under the indenture and the notes. Except as set forth below, owners of beneficial interests in the global note will not be entitled to receive notes in definitive form and will not be considered to be the owners or holders of any notes under the global note. We understand that under existing industry practice, in the event an owner of a beneficial interest in the global note desires to take any actions that DTC, as the holder of the global note, is entitled to take, DTC would authorize the participants to take such action, and that participants would authorize beneficial owners owning through such participants to take such action or would otherwise act upon the instructions of beneficial owners owning through them. No beneficial owner of an interest in the global note will be able to transfer the interest except in accordance with DTC's applicable procedures, in addition to those provided for under the indenture and, if applicable, those of Euroclear and Clearstream. Payments of the principal of, premium, if any, and interest and liquidated damages, if any, on the notes represented by the global note registered in the name of and held by DTC or its nominee will be made to DTC or its nominee, as the case may be, as the registered owner and holder of the global note. We expect that DTC or its nominee, upon receipt of any payment of principal, premium, if any, or interest or liquidated damages, if any, in respect of the global note, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the global note as shown on the records of DTC or its nominee. We also expect that payments by participants to owners of beneficial interests in the global note held through such participants will be governed by standing instructions and customary practices as is now the case with securities held for accounts of customers registered in the names of nominees for such customers. Such payments, however, will be the responsibility of such participants and indirect participants, and neither we, the trustee nor any paying agent will 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 note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between DTC and its participants or the relationship between such participants and the owners of beneficial interests in the global note. Unless and until it is exchanged in whole or in part for notes in definitive form, the global note may not be transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC. Transfers between participants in DTC will be effected in the ordinary way in accordance with DTC rules and will be settled in same-day funds. Transfers between participants in Euroclear and Clearstream will be effected in the ordinary way in accordance with their respective rules and operating procedures. Cross-market transfers between DTC, on the one hand, and directly or indirectly through Euroclear or Clearstream participants, on the other, will be effected in DTC in accordance with DTC rules on behalf of Euroclear or Clearstream, as the case may be, by its respective depositary; however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparty in such system in accordance with its rules and procedures and within its established deadlines (Brussels time). Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the global note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the depositaries for Euroclear or Clearstream. 22 Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in the global note from a DTC participant will be credited during the securities settlement processing day (which must be a business day for Euroclear or Clearstream, as the case may be) immediately following the DTC settlement date, and such credit of any transactions interests in the global note settled during such processing day will be reported to the relevant Euroclear or Clearstream participant on such day. Cash received in Euroclear or Clearstream as a result of sales of interests in the global note by or through a Euroclear or Clearstream participant to a DTC participant will be received with value on the DTC settlement date, but will be available in the relevant Euroclear or Clearstream cash account only as of the business day following settlement in DTC. We expect that DTC will take any action permitted to be taken by a holder of notes (including the presentation of notes for exchange as described below) only at the direction of one or more participants to whose account the DTC interests in the global note is credited and only in respect of such portion of the aggregate principal amount of the notes as to which such participant or participants has or have given such direction. However, if there is an event of default under the notes, DTC will exchange the global note for notes in definitive form, which it will distribute to its participants. These notes in definitive form will be subject to certain restrictions on registration of transfers described under "Notice to Investors," and will bear the legend set forth thereunder. Although we expect that DTC, Euroclear and Clearstream will agree to the foregoing procedures in order to facilitate transfers of interests in the global note among participants of DTC, Euroclear, and Clearstream, DTC, Euroclear and Clearstream are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither we nor the trustee will have any responsibility for the performance by DTC, Euroclear or Clearstream or their participants or indirect participants of their respective obligations under the rules and procedures governing their operations. If DTC is at any time unwilling to continue as a depositary for the global note and a successor depositary is not appointed by us within 90 days, we will issue notes in fully registered, definitive form in exchange for the global note. Such notes in definitive form will be subject to certain restrictions on registration of transfers as described on any legend set forth thereunder. Amendment, Supplement and Waiver Except as provided in the two succeeding paragraphs, the indenture or the notes may be amended or supplemented with the consent of the holders of at least a majority in principal amount of the notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for notes), and any existing default or compliance with any provision of the indenture or the notes may be waived with the consent of the holders of a majority in principal amount of the notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for notes). Without the consent of each holder affected, an amendment or waiver may not (with respect to any notes held by a non-consenting holder): . reduce the principal amount of notes whose holders must consent to an amendment, supplement or waiver; . reduce the principal of, or premium on, or change the fixed maturity of any note or, other than as set forth in the paragraph below, alter the provisions with respect to the redemption or repurchase of the notes; . reduce the rate of or change the time for payment of interest, including defaulted interest and liquidated damages, if any, on any notes; 23 . waive a default or event of default in the payment of principal of, or premium, if any, interest or liquidated damages, if any, on the notes (except a rescission of acceleration of the notes by the holders of at least a majority in aggregate principal amount of the notes then outstanding and a waiver of the payment default that resulted from such acceleration); . make any note payable in money other than that stated in the indenture and the notes; . make any change in the provisions of the indenture relating to waivers of past defaults or the rights of holders of notes to receive payments of principal of, premium, if any, interest or liquidated damages, if any, on the notes; . waive a redemption or designated event payment with respect to any note; . increase the conversion price or, except as permitted by the indenture, modify the provisions of the indenture relating to conversion of the notes in a manner adverse to the holders; or . make any change to the abilities of holders of notes to enforce their rights under the indenture or the foregoing provisions or this provision. Notwithstanding the foregoing, without the consent of any holder of notes, we and the trustee may amend or supplement the indenture or the notes to . cure any ambiguity, defect or inconsistency or make any other changes in the provisions of the indenture which we and the trustee may deem necessary or desirable, provided such amendment does not materially and adversely affect the notes; . provide for uncertificated notes in addition to or in place of certificated notes; . provide for the assumption of our obligations to holders of notes in the circumstances required under the indenture as described under "--Merger and Consolidation"; . provide for conversion rights of holders of notes in certain events such as our consolidation or merger or the sale of all or substantially all of our assets; . reduce the conversion price; . evidence and provide for the acceptance of the appointment under the indenture of a successor trustee; . make any change that would provide any additional rights or benefits to the holders of notes or that does not adversely affect the legal rights under the indenture of any such holder; . comply with requirements of the SEC in order to effect or maintain the qualification of the indenture under the Trust Indenture Act of 1939; or . to modify the restrictions on, and procedures for, resale and other transfers of shares pursuant to law, regulation or practice relating to the resale or transfer of restricted securities generally. Satisfaction and Discharge We may discharge our obligations under the indenture while notes remain outstanding if . all outstanding notes will become due and payable at their scheduled maturity within one year, or . all outstanding notes are scheduled for redemption within one year and, in either case, we have . deposited with the trustee an amount sufficient to pay and discharge all outstanding notes on the date of their scheduled maturity or the scheduled date of redemption, and . paid all other sums then payable by us under the indenture. 24 Governing Law The indenture provides that the notes will be governed by, and construed in accordance with, the laws of the State of New York. Form, Exchange, Registration and Transfer We issued the notes in registered form, without interest coupons. We will not charge a service fee for any registration of transfer or exchange of the notes. We may, however, require the payment of any tax or other governmental charge payable for that registration. The notes are exchangeable for other notes, for the same total principal amount and for the same terms but in different authorized denominations, in accordance with the indenture. Holders may present notes for registration of transfer at the office of the security registrar or any transfer agent we designate. The security registrar or transfer agent will effect the transfer or exchange when it is satisfied with the documents of title and identity of the person making the request. We have appointed the trustee as security registrar for the notes. We may at any time rescind that designation or approve a change in the location through which any such security registrar acts. We are required to maintain an office or agency for transfer and exchanges in each place of payment. We may at any time designate additional registrars for the notes. The registered holder of a note will be treated as the owner of it for all purposes. Reports Whether or not required by the rules and regulations of the SEC, so long as any notes are outstanding, we will file with the SEC and furnish to the trustee all quarterly and annual financial information (without exhibits) required to be contained in a filing on Forms 10-Q and 10-K and, with respect to the annual consolidated financial statements only, a report thereon by our independent auditors. The Trustee The Bank of New York is the trustee, security registrar, paying agent and conversion agent. The indenture provides that, except during the continuance of an event of default, the trustee will perform only such duties as are specifically set forth in the indenture. In case an event of default shall occur (and shall not be cured) and holders of the notes have notified the trustee, the trustee will be required to exercise its powers with the degree of care and skill of a prudent person in the conduct of such person's own affairs. Subject to such provisions, the trustee is under no obligation to exercise any of its rights or powers under the indenture at the request of any of the holders of notes, unless they shall have offered to the trustee security and indemnity satisfactory to it. The indenture contains certain limitations on the rights of the trustee, should it become our creditor, to obtain payment of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. The trustee will be permitted to engage in other transactions, provided, however, that if it acquires any conflicting interest, it must eliminate such conflict or resign. The Bank of New York is currently serving as the trustee under other indentures governing our debt issuances. The Bank of New York has in the past engaged, and may in the future engage, in commercial banking transactions with us. Pursuant to the Trust Indenture Act of 1939, upon the occurrence of a default with respect to the notes, The Bank of New York may be deemed to have a conflicting interest by virtue of its lending and other business relationships with us. In that event, The Bank of New York would be required to resign as trustee or eliminate the conflicting interest. 25 No Recourse Against Others None of our directors, officers, employees, shareholders or affiliates, as such, shall have any liability or any obligations under the notes or the indenture or for any claim based on, in respect of or by reason of such obligations or the creation of such obligations. Each holder by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for the notes. 26 DESCRIPTION OF COMMON STOCK As of March 15, 2002, our authorized capital stock consisted of 2,300,000,000 shares of common stock, $0.05 par value, of which 866,759,250 shares were issued and outstanding, 60,000,000 shares of Class B common stock, $0.05 par value, of which no shares were issued and outstanding, and 30,000,000 shares of preferred stock, $0.05 par value, of which no shares were issued and outstanding. The following description of our common stock is subject to and qualified in its entirety by our certificate of incorporation and bylaws and by the provisions of applicable Delaware law. Common Stock Voting, Dividend and Other Rights Holders of common stock are entitled to one vote per share with respect to each matter submitted to a vote of our stockholders, including the election of directors, subject to voting rights that may be established for shares of preferred stock. In comparison, holders of any outstanding shares of Class B stock are entitled to six votes per share. Shares of common stock generally vote together with any outstanding shares of Class B stock as a single class. However, approval by the majority of outstanding shares of common stock and Class B stock, each voting separately as a class, is required to effect any amendments to our certificate of incorporation or to effect any additional issuances of Class B stock after its initial issuance. Furthermore, in the election of directors, holders of common stock, voting separately as a class, are entitled to elect 25 percent of our directors, while the remaining 75 percent of our directors are elected by holders of common stock and Class B stock voting together as a class. Holders of common stock do not have the right to cumulate votes in the election of directors and have no preemptive or subscription rights. Shares of common stock are neither redeemable nor convertible, and there are no sinking fund provisions relating to these shares. Subject to the prior rights of any outstanding shares of preferred stock, holders of common stock are entitled to receive such dividends as may be lawfully declared from time to time by our board of directors, provided that if any cash dividend is paid on the common stock, a cash dividend will also be paid on any outstanding Class B stock in an amount equal to 90% of the amount of the common stock dividend. Subject to any rights of holders of any outstanding preferred stock, all holders of common stock and Class B stock, regardless of class, are entitled to share equally on a share-for-share basis in any assets available for distribution to stockholders on liquidation, dissolution or winding up of the Company. The outstanding shares of common stock are, and any shares of common stock to be issued upon conversion of the notes will be, fully paid and nonassessable. Additional shares of common stock may be issued, as authorized by our board of directors from time to time, without stockholder approval (except any stockholder approval required by the New York Stock Exchange or the Pacific Exchange). Anti-Takeover Effects of our Certificate and Delaware Law Some provisions of Delaware law and our certificate of incorporation could make the acquisition of control of us by means of a tender offer, open market purchases, proxy fight or otherwise more difficult. Business Combinations with Interested Stockholders Our certificate of incorporation provides that business combinations with interested stockholders will require the supermajority vote of two-thirds of the voting power of all classes of our voting stock, voting together as a single class, to approve such transaction. When voting with respect to approving such business combinations, each share of Class B stock is entitled to only two votes per share. 27 An "interested stockholder" is defined in our certificate of incorporation as a person (other than our subsidiaries) who or which: . is the beneficial owner of more than five percent of the voting power of (a) all outstanding shares of common stock, (b) all outstanding shares of Class B stock, or (c) all outstanding shares with voting rights; . is our affiliate and at any time within the two-year period before the date in question owned or was the beneficial owner of more than five percent of the voting power of (a) all outstanding shares of common stock, (b) all outstanding shares of Class B stock, or (c) all outstanding shares with voting rights; or . is an assignee of or has otherwise succeeded to (by means other than through a public offering), any shares of our stock with voting rights which were owned by an interested stockholder at any time in the preceding two years. A "business combination" is defined in our certificate of incorporation to mean: . a merger or consolidation of us or any of our subsidiaries with an interested stockholder; . a merger or consolidation of us or any of our subsidiaries with another corporation which, after such merger or consolidation, would be an affiliate of an interested stockholder; . a sale, lease, exchange, mortgage, pledge, transfer or other disposition of our property or the property of any of our subsidiaries representing five percent or more of our overall book value to an interested stockholder or an affiliate thereof, or the issuance or transfer by us to an interested stockholder or an affiliate thereof of our securities, or the securities of any of our subsidiaries, in exchange for cash, securities or other property having such fair market value; or . any recapitalization or reclassification of our securities, or any merger or consolidation, that has the effect of increasing the voting power of an interested stockholder. A business combination will not need to receive the supermajority vote outlined above if it meets one of the following tests: . the business combination is approved by a majority of the members of the board of directors who are not affiliated with the interested stockholder and who were board members prior to the interested stockholder becoming an interested stockholder or who were recommended by a majority of such board members; or . the consideration to be paid by the interested stockholder in the business combination meets various tests designed to ensure that the form and amount of consideration to be paid by the interested stockholder is fair to the other stockholders. The business combination provisions outlined above may have the effect of discouraging anyone from attempting to acquire control of us and thereby of deterring open market purchases of our common stock. Effects of Disproportionate Voting Rights As noted earlier, our certificate of incorporation provides for disproportionate voting rights between our common stock and any outstanding Class B stock. These disproportionate voting rights may make us a less attractive target for a takeover than we otherwise might be, or render more difficult or discourage a merger proposal, a tender offer or a proxy contest, even if these actions were favored by our stockholders other than the holders of any outstanding Class B stock. Accordingly, such disproportionate voting rights may deprive holders of our common stock of an opportunity to sell their shares at a premium over prevailing market prices, since takeover bids frequently involve purchases of stock directly from stockholders at a premium price. 28 Section 203 of the Delaware General Corporation Law Section 203 of the General Corporation Law of the State of Delaware applies to us. Under certain circumstances, Section 203 would limit the ability of an interested stockholder to effect various business combinations with us for a three-year period following the time that such stockholder became an interested stockholder. An "interested stockholder" includes any holder of 15% or more of the outstanding voting stock. An interested stockholder may engage in a business combination transaction with us within the three-year period only if: . our board of directors approved the transaction before the stockholder became an interested stockholder or approved the transaction in which the stockholder became an interested stockholder; . upon consummation of the transaction in which the stockholder became an interested stockholder, the interested stockholder owns at least 85% of our voting stock (excluding shares owned by officers, directors or certain employee stock purchase plans); or . our board of directors and the holders of shares entitled to cast two-thirds of the votes entitled to be cast by all of the outstanding voting shares held by all disinterested stockholders approve the transaction. Limitations on Directors' Liability Our certificate of incorporation eliminates the personal liability of a director to us and our stockholders for certain breaches of his or her fiduciary duty as a director to the fullest extent permitted under the General Corporation Law of the State of Delaware. This provision offers persons who serve on our board of directors protection against awards of monetary damages resulting from certain breaches of their fiduciary duty, including grossly negligent business decisions made in connection with takeover proposals for us, and limits our ability or the ability of one of our stockholders to prosecute an action against a director for a breach of fiduciary duty. Indemnification of Officers and Directors Our bylaws provide that we will indemnify any of our officers or directors to the fullest extent permitted by the General Corporation Law of the State of Delaware against all expenses, liability and loss incurred in connection with any action, suit or proceeding in which any such person may be involved by reason of the fact that he or she is or was our director or officer. In addition, the board of directors, in its discretion, may indemnify any other person, other than a director or officer, by reason of the fact that such person is or was our employee or agent. We carry insurance policies in standard form indemnifying our directors and officers against liabilities arising from certain acts performed by them in their capacities as our directors and officers. These policies also indemnify us for any sums we may be required or permitted to pay by law to our directors and officers as indemnification for expenses they may have incurred. Transfer Agent and Registrar Wells Fargo Bank Minnesota, NA, Shareowner Services is the transfer agent and registrar of our common stock. Exchange Listings Our common stock is listed on the New York Stock Exchange and the Pacific Exchange under the symbol "GPS." 29 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following is a summary of certain United States federal income tax considerations relating to the purchase, ownership and disposition of the notes and the common stock into which the notes may be converted, but does not propose to be a complete analysis of all the potential tax considerations relating thereto. This summary is based on laws, regulations, rulings and decisions now in effect, all of which are subject to change (possibly with retroactive effect). This summary deals only with beneficial owners that will beneficially own notes and common stock as "capital assets" (within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code")) and 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, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, partnerships or other pass-through entities, U.S. expatriates, persons subject to the alternative minimum tax, persons that will hold notes or common stock as a "hedge," "straddle," "conversion transaction," "synthetic security" or other integrated transaction for United States federal income tax purposes, persons whose functional currency is not the U.S. dollar, or persons deemed to sell notes or common stock under the constructive sale provisions of the Code. Gap has not sought any ruling from the Internal Revenue Service (the "IRS") or an opinion of counsel with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions. In addition, the IRS is not precluded from successfully adopting a contrary position. This summary does not consider the effect of any applicable foreign, state, local or other tax laws. INVESTORS CONSIDERING THE PURCHASE OF NOTES OR STOCK SHOULD 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. For purposes of this discussion, "U.S. Holder" means a beneficial owner of notes or common stock that is a citizen or resident of the United States, a partnership, corporation or other entity created or organized in the United States or any State thereof (including the District of Columbia), an estate the income of which is subject to United States federal income tax regardless of its source, or a trust if (i) 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 or (ii) the trust has a valid election in effect under applicable United States Treasury regulations to be treated as a U.S. Holder. The term "non-U.S. Holder" refers to any beneficial owner of notes or common stock that is not a U.S. Holder. Adjustment to Conversion Price The conversion price of the notes is subject to adjustment in certain circumstances. See "Description of Notes--Conversion." Under Section 305(c) the Code and the applicable Treasury regulations, adjustments that have the effect of increasing or decreasing the proportionate interest of holders of the notes in assets or earnings of Gap may in some circumstances give rise to deemed distributions to holders of notes or common stock. Similarly, a failure to adjust the conversion price of the notes to reflect a stock dividend or other event increasing or decreasing the proportionate interest of shareholders of outstanding common stock can in some circumstances give rise to deemed distributions to holders of notes or common stock. In such a case, holders may recognize income as a result of an event pursuant to which they receive no cash or property that could be used to pay the related income tax. Adjustments to the conversion price, however, made pursuant to a bona fide, reasonable adjustment formula which has the effect of preventing the dilution of the interest of the holders of such securities, generally will not be considered to result in a deemed distribution. Holders of the notes or common stock are advised to consult with their tax advisors with respect to the potential tax consequences of such constructive distributions. 30 Under certain circumstances, Gap may, instead of making adjustments in the conversion price of the notes, make provision such that holders of notes will participate in distributions with respect to the common stock upon a later conversion of the notes. See "Description of the Notes--Conversion." It is likely that such provision will be taxable to the holders of notes at the time of the distribution to the holders of the common stock, though there is a possibility that it will instead be taxable at the time of the conversion of the notes. Holders of notes are advised to consult with their tax advisors with respect to the potential tax consequences of such events. Taxation of U.S. Holders Interest Interest on the notes generally will be taxable to a U.S. Holder as ordinary interest income at the time it accrues or is received, in accordance with the U.S. Holder's usual method of accounting for U.S. federal income tax purposes. A registration default will cause additional amounts to accrue on the notes in the nature of interest in the manner described under "Description of Notes--Registration Rights." Gap believes, and the remainder of this discussion assumes, that the likelihood that such additional amounts become due on the notes, as of the date the notes are issued, is remote and does not intend to treat the possibility of payment of such additional amounts as affecting the timing or amount of interest on the notes. Gap's determination that there is a remote likelihood of paying additional amounts on the notes is binding on each U.S Holder unless the holder explicitly discloses that its determination is different from Gap's determination. Gap's determination is not, however, binding on the IRS. Accordingly, it is possible that the IRS may take a different position which if sustained could affect the timing or amount of the U.S. Holder's income with respect to the notes. In addition, in the event that we are required to pay such additional amounts on the notes, a U.S. Holder would be required to recognize additional interest income on the notes and may be required to include interest on the notes in income as it accrues regardless of the U.S. Holder's usual method of accounting for U.S. federal income tax purposes. Market Discount and Premium A U.S. Holder may be considered to have acquired a note with market discount or bond premium, as the case may be, if the note is purchased at a price lower or higher, respectively, than the note's stated principal amount. Under the market discount rules, a U.S. Holder is required to treat any principal payment on, or any gain on the sale, exchange, retirement or other disposition of, a note as ordinary income to the extent of any accrued market discount which has not previously been included in income, and if the U.S. Holder did not make the election described below, may be required to defer, until the maturity of the note or its earlier disposition in a taxable transaction, the deduction of all or a portion of the interest expense on any indebtedness incurred or continued to purchase or carry such note. Alternatively, a U.S. Holder may elect to include market discount in income currently over the life of the note. If a U.S. Holder makes this election, it will apply to all debt instruments with market discount that a U.S. Holder acquires on or after the first day of the first taxable year to which this election applies. A U.S. Holder may not revoke this election without the consent of the Internal Revenue Service. Under the bond premium rules, a U.S. Holder of a note acquired with bond premium may be able to elect to offset a portion of the bond premium against the interest income from the note. If a U.S. Holder makes an election to treat bond premium as such, it will apply to all debt instruments, other than debt instruments the interest on which is excludible from gross income, that are held at the beginning of the first taxable year to which the election applies or that a U.S. Holder thereafter acquires, and may not be revoked without the consent of the Internal Revenue Service. U.S. Holders of notes acquired with market discount or bond premium are advised to consult their tax advisors as to the income tax consequences of the acquisition, ownership and disposition of such notes. Conversion of Notes A U.S. 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. A U.S. Holder's tax 31 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 holding period for the common stock received on conversion will generally include the holding period of the note converted. Special federal income tax rules for the treatment of the conversion of a note into common stock may apply if a U.S. Holder converts after a record date for the payment of interest but prior to the next succeeding interest payment date. Cash received in lieu of a fractional share of common stock upon conversion generally will be treated as a payment in exchange for a 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 U.S. Holder's adjusted tax basis in the fractional share). Dividends Dividends paid on the common stock generally will be includable in the income of a U.S. Holder as ordinary income to the extent of Gap's current or accumulated earnings and profits, with any excess treated first as a tax-free return of capital, to the extent of the U.S. Holder's basis in the common stock, and thereafter as capital gain. Subject to applicable limitations, dividends paid to U.S. Holders that are corporations may qualify for the dividends-received deduction. As described under "Description of Notes--Registration Rights," liquidated damages may be due to holders of common stock who received such common stock in a conversion of the notes. Although the treatment of such liquidated damages under current law is unclear, Gap intends to take the position that the payment of such liquidated damages would be treated as a dividend for U.S. federal income tax purposes and taxable to holders as described in the preceding paragraph. It is possible, however, that the IRS could assert that the receipt of such liquidated damages should be taxed as ordinary income without regard to our current and accumulated earnings and profits. Sale, Exchange or Redemption of Notes Upon the sale, exchange or redemption of a note, a U.S. Holder generally will recognize capital gain (except to the extent of any accrued market discount not previously included in income) or loss equal to the difference between (i) 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 not previously included in income, which is taxable as ordinary income) and (ii) such holder's adjusted tax basis in the note. A U.S. Holder's adjusted tax basis in a note generally will equal the cost of the note to such holder increased by any market discount previously included in income by such holder with respect to the note or decreased by any bond premium applied to reduce interest on the note, as the case may be. Such capital gain or loss will be long-term capital gain or loss if the U.S. Holder's holding period in the note is more than one year at the time of sale, exchange or redemption. Sale of Common Stock Upon the sale or exchange of common stock, a U.S. Holder generally will recognize capital gain or loss equal to the difference between (i) the amount of cash and the fair market value of any property received upon the sale or exchange and (ii) such holder's adjusted tax basis in the common stock. Such capital gain or loss will be long-term capital gain or loss if the U.S. Holder's holding period in the common stock is more than one year at the time of the sale or exchange. 32 Backup Withholding and Information Reporting In general, certain noncorporate U.S. Holders will be subject to information reporting requirements on 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 common stock. In addition, backup withholding tax may apply to such payments if the U.S. Holder fails to supply to the payor its correct taxpayer identification number, the IRS notifies the payor that the U.S. Holder has failed to report properly payments of interest and dividends, or under certain circumstances, the U.S. Holder fails to certify, under penalty of perjury, that it has both furnished a correct taxpayer identification number and not been notified by the IRS that it is subject to backup withholding for failure to report interest and dividend payments. Backup withholding will not apply with respect to payments made to certain exempt recipients, such as corporations. Any amounts withheld under the backup withholding rules from a payment to a U.S. Holder will be allowed as a credit against such holder's United States federal income tax and may entitle the U.S. Holder to a refund, provided that the required information is furnished to the IRS. Taxation of Non-U.S. Holders Interest Pursuant to the "portfolio interest" exception, payments of interest by Gap or any paying agent to a non-U.S. Holder of a note generally will not be subject to United States federal withholding tax provided that (i) such holder does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of Gap entitled to vote, (ii) such holder is not for United States federal income tax purposes a controlled foreign corporation related, directly or indirectly, to Gap through stock ownership, and (iii) such holder certifies, under penalty of perjury, that it is non-U.S. Holder (on IRS Form W-8BEN or a substantially similar form) or, if such holder holds the note through certain foreign intermediaries or certain foreign partnerships, certain certification requirements are satisfied. A non-U.S. Holder who does not meet the "portfolio interest" exception will be subject to withholding on payments of interest at a 30% rate, subject to reduction for non-U.S. Holders eligible for the benefits of certain income tax treaties with the United States. Conversion of Notes A non-U.S. Holder of a note generally will not be subject to United States federal income tax on conversion of the note into common stock. Any gain recognized as a result of the receipt of cash in lieu of a fractional share of common stock generally will be treated as a sale of the fractional share. See "Disposition of Notes or Common Stock" below. Non-U.S. Holders should consult their own tax advisors regarding the tax consequences of converting notes into common stock. Dividends Dividends paid with respect to common stock by Gap to non-U.S Holders generally will be subject to a 30% United States federal withholding tax, subject to reduction for non-U.S. Holders eligible for the benefits of certain income tax treaties with the United States. Disposition of Notes or Common Stock A non-U.S. Holder generally will not be subject to United States federal income tax on any gain or income realized upon the sale, exchange, redemption or other disposition of a note or common stock if (i) such gain or income is not effectively connected with a trade or business in the United States of the non-U.S. Holder, (ii) in the case of a non-U.S. Holder who is an individual, such non-U.S. Holder is not present in the United States for 183 days or more in the taxable year of such sale, exchange, redemption or other disposition, and (iii) Gap is not and has not been a "U.S. real property holding corporation" ("USRPHC") for federal income tax purposes. 33 Gap believes that it is not and will not become a USRPHC; however, no assurance can be given in this regard. In general, if Gap is determined to be a USRPHC then non-U.S. Holders may be subject to United States income tax on the sale, exchange, redemption or other disposition of a note (possibly on the conversion of a note into common stock) or the common stock, and, possibly, to withholding up to a rate of 10% on any such disposition. However, a non-U.S. Holder will not be subject to these special rules even if Gap is determined to be a USRPHC provided that such non-U.S. Holder did not at any time during the five years ending on the date of sale or disposition actually or constructively own more than 5% of the common stock of Gap (including any common stock that may be received in exchange for a note) or more than 5% of the notes. United States Business A non-U.S. Holder engaged in a trade or business in the United States whose income from a note or common stock (including gain from the sale, exchange, redemption or other disposition thereof) is effectively connected with the conduct of such trade or business and, if required by a tax treaty, is attributable to a permanent establishment maintained in the United States by the non-U.S. Holder, although exempt from the withholding tax described above (if the appropriate certification has been provided), will generally be subject to United States federal income tax on such income in the same manner as if it were a U.S. Holder. In addition, if such a holder is a foreign corporation, it may be subject to a branch profits tax equal to 30% (or lower treaty rate, if applicable) of its effectively connected earnings and profits for the taxable year, subject to adjustments. Estate Tax Notes held by an individual who is a non-U.S. Holder at the time of death generally will not be subject to United States federal estate tax upon such holder's death if such holder does not own, actually or constructively, 10% or more of the total combined voting power of all classes of stock of Gap entitled to vote and if, at the time of such holder's death, payments with respect to the notes would not have been effectively connected with a United States trade or business of such holder. Common stock held by an individual who is a non-U.S. Holder at the time of death generally will be subject to United States federal estate tax upon such holder's death, subject to reduction of such estate tax if such holder is eligible for the benefits of an estate tax treaty with the United States. Recently enacted United States federal legislation provides for reductions in the United States federal estate tax through 2009 and the elimination of the tax entirely in 2010. Under this legislation, the estate tax would be fully reinstated, as in effect prior to the reductions, in 2011. Backup Withholding and Information Reporting Backup withholding and information reporting generally will not apply to payments of principal, premium, if any, and interest made to a non-U.S. Holder by Gap on a note, or distributions made on the common stock to a non-U.S. Holder, with respect to which the holder has provided the required certification under penalties of perjury of its non-U.S. Holder status or has otherwise established an exemption. However, payments of interest on the notes, and distributions made on the common stock, are required to be reported on IRS Form 1042-S even if the payments are not otherwise subject to information reporting. Payments on the sale, exchange or other disposition of a note or common stock by a non-U.S. Holder effected outside the United States to or through a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, if such broker is a United States person, a controlled foreign corporation for United States tax purposes, a foreign person 50% or more of whose gross income is derived from its conduct of a United States trade or business for a specified three-year period, a foreign partnership engaged in a United States trade or business or in which United States persons hold more than 50% of the income or capital interests, or certain United States branches of foreign banks or insurance companies, information reporting generally will be required unless the beneficial owner has provided certain required information or documentation to the broker to establish its non-United States status or otherwise establishes an exemption. Payments to or through the United States office of a broker generally will be subject to backup 34 withholding and information reporting unless the holder certifies under penalties of perjury to its non-U.S. Holder status or otherwise establishes an exemption. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. 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 IRS. The U.S. Treasury Department has recently issued final Treasury regulations which revise various procedural matters relating to withholding taxes. Non-U.S. Holders should consult their tax advisors regarding the application of United States federal income tax laws, including information reporting and backup withholding, to their particular situations. 35 SELLING SECURITY HOLDERS The notes were originally issued by us and sold by the initial purchasers in transactions exempt from the registration requirements of the Securities Act pursuant to Rule 144A under the Securities Act or in offshore transactions under Regulation S under the Securities Act. The selling security holders may from time to time offer and sell pursuant to this prospectus any or all of the notes listed below and the shares of common stock issued upon conversion of such notes. When we refer to the "selling security holders" in this prospectus, we mean those persons listed in the table below, as well as the pledgees, donees, assignees, transferees, successors and others who later hold any of the selling security holders' interests. The table below sets forth the name of each selling security holder, the principal amount at maturity of notes that each selling security holder may offer pursuant to this prospectus and the number of shares of common stock into which such notes are convertible. Unless set forth below, to our knowledge, none of the selling security holders has, or within the past three years has had, any material relationship with us or any of our predecessors or affiliates or beneficially owns in excess of 1% of the outstanding common stock. The principal amounts of the notes provided in the table below is based on information provided to us by each of the selling security holders and the percentages are based on $1,380,000,000 principal amount at maturity of notes outstanding. Since the date on which each selling security holder provided this information, each selling security holder identified below may have sold, transferred or otherwise disposed of all or a portion of its notes in a transaction exempt from the registration requirements of the Securities Act. Information concerning the selling security holders may change from time to time and any changed information will be set forth in supplements to this prospectus to the extent required. In addition, the conversion ratio, and therefore the number of shares of our common stock issuable upon conversion of the notes, is subject to adjustment. Accordingly, the number of shares of common stock issuable upon conversion of the notes may increase or decrease. The selling security holders may from time to time offer and sell any or all of the securities under this prospectus. Because the selling security holders are not obligated to sell the notes or the shares of common stock issuable upon conversion of the notes, we cannot estimate the amount of the notes or how many shares of common stock that the selling security holders will hold upon consummation of any such sales.
Aggregate principal Number of shares amount at maturity of common stock of notes that may Percentage that may be sold Percentage of shares be sold by this of notes by this of common stock Name prospectus outstanding prospectus(1) outstanding(2) ---- ------------------- ----------- ---------------- -------------------- 1976 Distribution Trust FBO A.R. Lauder/ Zinterhofer........................... 9,000 * 558 * 1976 Distribution Trust FBO Jane A. Lauder................................ 17,000 * 1,055 * 2000 Revocable Trust FBO A.R. Lauder/ Zinterhofer........................... 8,000 * 496 * Advent Convertible Master Cayman L.P.... 8,908,000 * 552,605 * AIG/National Union Fire Insurance....... 600,000 * 37,221 * Allentown City Firefighters Pension Plan 29,000 * 1,799 * Allentown City Officers & Employees Pension Fund.......................... 10,000 * 620 * Allentown City Police Pension Plan...... 55,000 * 3,412 * Alpha US Sub Fund 4, LLC................ 1,125,000 * 69,789 * American Motorist Insurance Company..... 666,000 * 41,315 * Arapahoe County Colorado................ 65,000 * 4,032 *
36
Aggregate principal Number of shares amount at maturity of common stock of notes that may Percentage that may be sold Percentage of shares be sold by this of notes by this of common stock Name prospectus outstanding prospectus(1) outstanding(2) ---- ------------------- ----------- ---------------- -------------------- Arkansas PERS........................... 725,000 * 44,975 * Arkansas Teachers Retirement System..... 3,096,000 * 192,060 * Associated Electric & Gas Insurance Services Limited...................... 1,500,000 * 93,052 * Aventis Pension Master Trust............ 150,000 * 9,305 * Baptist Health of South Florida......... 506,000 * 31,390 * Bay County PERS......................... 90,000 * 5,583 * Bear, Stearns & Co. Inc................. 6,000,000 * 372,208 * Black Diamond Capital I, Ltd............ 486,000 * 30,149 * Black Diamond Convertible Offshore, LDC. 2,260,000 * 140,199 * Black Diamond Offshore Ltd.............. 1,729,000 * 107,258 * Boilermaker--Blacksmith Pension Trust... 800,000 * 49,628 * Boilermakers Blacksmith Pension Trust... 925,000 * 57,382 * British Virgin Islands Social Security Board................................. 92,000 * 5,707 * CALAMOS(R) Convertible Fund-- CALAMOS(R) Investment Trust........... 5,500,000 * 341,191 * CALAMOS(R) Convertible Portfolio-- CALAMOS(R) Advisors Trust............. 140,000 * 8,685 * CALAMOS(R) Market Neutral Fund-- CALAMOS(R) Investment Trust........... 12,000,000 * 744,417 * Canyon Capital Arbitrage Master Fund, Ltd................................... 11,250,000 * 697,891 * Canyon MAC 18 Ltd. (RMF)................ 2,625,000 * 162,841 * Canyon Value Realization Fund (Cayman), Ltd................................... 15,375,000 1.11% 953,784 * Canyon Value Realization Fund, L.P...... 8,250,000 * 511,787 * CFFX, LLC............................... 6,000,000 * 372,208 * Cheyne Capital Management Limited....... 9,000,000 * 558,313 * City of Albany Pension Plan............. 70,000 * 4,342 * City of Knoxville Pension System........ 200,000 * 12,407 * City of New Orleans..................... 266,000 * 16,501 * City University of New York............. 159,000 * 9,864 * Clarica Life Insurance Co.--U.S......... 200,000 * 12,407 * Cobra Fund U.S.A., L.P.................. 250,000 * 15,509 * Cobra Master Fund, Ltd.................. 1,500,000 * 93,052 * Consulting Group Capital Markets Funds.. 500,000 * 31,017 * Context Convertible Arbitrage Fund, LP.. 600,000 * 37,221 * Continental Casualty Company............ 8,000,000 * 496,278 * Convertible Securities Fund............. 80,000 * 4,963 * Delaware PERS........................... 1,020,000 * 63,275 * Delta Airlines Master Trust............. 1,300,000 * 80,645 * Delta Pilots Disability and Survivorship Trust................................. 270,000 * 16,749 * Dorinco Reinsurance Company............. 450,000 * 27,916 * Double Black Diamond Offshore LDC....... 10,094,000 * 626,179 * Drury University........................ 20,000 * 1,241 * Duke Endowment.......................... 185,000 * 11,476 *
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Aggregate principal Number of shares amount at maturity of common stock of notes that may Percentage that may be sold Percentage of shares be sold by this of notes by this of common stock Name prospectus outstanding prospectus(1) outstanding(2) ---- ------------------- ----------- ---------------- -------------------- Durango Investments.......................... 3,000,000 * 186,104 * Engineers Joint Pension Fund................. 360,000 * 22,333 * F.R. Conv. Sev. Fn........................... 110,000 * 6,824 * Fidelity Advisor Series I: Fidelity Advisor Dividend Growth Fund....................... 3,483,000 * 216,067 *(a) Fidelity Advisor Series I: Fidelity Advisor Equity Value Fund.......................... 83,000 * 5,149 * Fidelity Advisor Series I: Fidelity Advisor Growth Opportunities Fund.................. 5,070,000 * 314,516 * Fidelity Charles Street Trust: Fidelity Asset Manager Fund............................... 12,819,000 * 795,223 *(b) Fidelity Charles Street Trust: Fidelity Asset Manager Growth: Growth..................... 6,280,000 * 389,578 *(c) Fidelity Charles Street Trust: Fidelity Asset Manager: Income............................ 401,000 * 24,876 *(d) Fidelity Commonwealth Trust: Fidelity Mid-Cap Stock Fund......................... 3,700,000 * 229,529 * Fidelity Devonshire Trust: Fidelity Equity- Income Fund................................ 14,430,000 1.05% 895,161 *(e) Fidelity Financial Trust: Fidelity Equity- Income II Fund............................. 34,480,000 2.50% 2,138,958 * Fidelity Financial Trust: Fidelity Convertible Securities Fund................ 12,740,000 * 790,323 * Fidelity Management Trust Company on behalf of accounts managed by it........... 2,230,000 * 138,337 *(f) Fidelity Puritan Trust: Fidelity Puritan Fund....................................... 8,380,000 * 519,851 *(g) Fidelity Securities Fund: Fidelity Dividend Growth Fund................................ 29,000,000 2.10% 1,799,007 *(h) Global Bermuda Limited Partnership........... 5,000,000 * 310,174 * Goldman Sachs and Company.................... 9,970,000 * 618,486 * Grace Brothers Ltd........................... 500,000 * 31,017 * Grace Brothers Management LLC................ 4,500,000 * 279,156 * Grace Brothers, Ltd.......................... 1,000,000 * 62,035 * Grady Hospital Foundation.................... 140,000 * 8,685 * Greek Catholic Union of the USA.............. 30,000 * 1,861 * H.K. Porter Company, Inc..................... 20,000 * 1,241 * HBK Master Fund L.P.......................... 29,000,000 2.10% 1,799,007 *(i) HFR Convertible Arbitrage Account............ 524,000 * 32,506 * HFR TQA Master Trust......................... 600,000 * 37,221 * Highbridge International L LLC............... 39,000,000 2.83% 2,419,355 * ICI American Holdings Trust.................. 370,000 * 22,953 * Independence Blue Cross...................... 431,000 * 26,737 * Innovest Finanzdienstleistungs AG............ 325,000 * 20,161 * JMG Convertible Investments, LP.............. 27,000,000 1.96% 1,674,938 * JMG Triton Offshore Fund, Ltd................ 11,500,000 * 713,400 * KBC Financial Products (Cayman Islands) Limited.................................... 15,000,000 1.09% 930,521 *
38
Aggregate principal Number of shares amount at maturity of common stock of notes that may Percentage that may be sold Percentage of shares be sold by this of notes by this of common stock Name prospectus outstanding prospectus(1) outstanding(2) ---- ------------------- ----------- ---------------- -------------------- KBC Financial Products USA Inc....... 1,900,000 * 117,866 * KD Convertible Arbitrage Fund L.P.... 2,950,000 * 183,002 * Kettering Medical Center Funded Depreciation Account............... 45,000 * 2,792 * Knoxville Utilities Board Retirement System............................. 115,000 * 7,134 * Lakeshore International LTD.......... 20,000,000 1.45% 1,240,695 * LDG Limited.......................... 1,400,000 * 86,849 * Louisiana CCRF....................... 125,000 * 7,754 * Louisiana Workers' Compensation Corporation........................ 200,000 * 12,407 * Lyxor................................ 705,000 * 43,734 * Macomb County Employees' Retirement System.................. 200,000 * 12,407 * Merced Partners Limited Partnership.. 5,000,000 * 310,174 * Merril Lynch Insurance Group......... 345,000 * 21,402 * Minnesota Power and Light............ 303,000 * 18,797 * Motion Pictures Industry............. 490,000 * 30,397 * Municipal Employees.................. 240,000 * 14,888 * Nations Convertible Securities Fund.. 5,920,000 * 367,246 * New Orleans Firefighters Pension/ Relief Fund........................ 144,000 * 8,933 * Nicholas Applegate Convertible Fund.. 1,441,000 * 89,392 * Nicholas Applegate Global Holdings LP................................. 10,000 * 620 * Nomura Securities International, Inc. 5,000,000 * 310,174 *(j) Occidental Petroleum Corporation..... 271,000 * 16,811 * Ohio Bureau of Workers Compensation....................... 185,000 * 11,476 * Ondeo Nalco.......................... 110,000 * 6,824 * Physicians Life...................... 164,000 * 10,174 * Policeman and Firemen Retirement System of the City of Detroit...... 658,000 * 40,819 * Port Authority of Allegheny County Retirement and Disability Allow and Plan for the Employees Represented by Local 85 of the Amalgamated Transit Union...................... 420,000 * 26,055 * Pro-mutual........................... 789,000 * 48,945 * Prudential Insurance Company of America............................ 85,000 * 5,273 * R2 Investments, LDC.................. 16,800,000 1.22% 1,042,184 * Robertson Stephens................... 10,000,000 * 620,347 * San Diego City Retirement............ 976,000 * 60,546 * San Diego County Convertible......... 1,477,000 * 91,625 * SCI Endowment Care Common Trust Fund--First Union.................. 30,000 * 1,861 *
39
Aggregate principal Number of shares amount at maturity of common stock of notes that may Percentage that may be sold Percentage of shares be sold by this of notes by this of common stock Name prospectus outstanding prospectus(1) outstanding(2) ---- ------------------- ----------- ---------------- -------------------- SCI Endowment Care Common Trust Fund--National Fiduciary Services.. 95,000 * 5,893 * SCI Endowment Care Common Trust Fund--Suntrust..................... 40,000 * 2,481 * Screen Actors Guild Pension Convertible........................ 450,000 * 27,916 * SG Cowen Securities Corp............. 8,000,000 * 496,278 * Shell Pension Trust.................. 420,000 * 26,055 * Siemens/Convertibles Global-Markets.. 1,000,000 * 62,035 * Southdown Pension Plan............... 85,000 * 5,273 * Southern Farm Bureau Life Insurance.. 430,000 * 26,675 * SPT.................................. 975,000 * 60,484 * Starvest Combined Portfolio.......... 575,000 * 35,670 * State of Oregon/Equity............... 3,275,000 * 203,164 * Sunrise Partners LLC................. 3,000,000 * 186,104 * Syngenta AG.......................... 175,000 * 10,856 * Tamarack International Ltd........... 5,000,000 * 310,174 * Tempo Master Fund L.P................ 5,500,000 * 341,191 * The Class I C Company................ 2,625,000 * 162,841 * The Dow Chemical Company Employees' Retirement Plan......... 1,600,000 * 99,256 * The Fondren Foundation............... 50,000 * 3,102 * The Grable Foundation................ 125,000 * 7,754 * TQA Master Fund, Ltd................. 11,800,000 * 732,010 * TQA Master Plus Fund, Ltd............ 7,300,000 * 452,854 * Travelers: Travelers Equity Income... 600,000 * 37,221 * Tribeca Investments, L.L.C........... 40,000,000 2.90% 2,481,390 * Trustmark Insurance Company.......... 363,000 * 22,519 * UFJ Investments Asia Limited......... 7,000,000 * 434,243 * Union Carbide Retirement Account..... 815,000 * 50,558 * United Food and Commercial Workers Local 1262 and Employers Pension Fund............................... 370,000 * 22,953 * Variable Insurance Products Fund II: Asset Manager Portfolio............ 6,974,000 * 432,630 *(k) Variable Insurance Products Fund II: Asset Manager: Growth Portfolio.... 1,420,000 * 88,089 * Variable Insurance Products Fund III: Growth Opportunities Portfolio..... 530,000 * 32,878 * Variable Insurance Products Fund: Equity-Income Portfolio............ 6,890,000 * 427,419 *(l) Variable Insurance Products Fund: Value Portfolio.................... 9,000 * 558 * Vopak USA Inc, Retirement Plan (f.k.a. Van Waters & Rogers, Inc. Retirement Plan)................... 190,000 * 11,787 * Wake Forest University............... 610,000 * 37,841 * Wake Forest University Convertible Arbitrage.......................... 105,000 * 6,514 *
40
Aggregate principal Number of shares amount at maturity of common stock of notes that may Percentage that may be sold Percentage of shares be sold by this of notes by this of common stock Name prospectus outstanding prospectus(1) outstanding(2) ---- ------------------- ----------- ---------------- -------------------- White River Securities LLC........... 6,000,000 * 372,208 * Worldwide Transactions Limited....... 431,000 * 26,737 * Writers Guild-Industry Health Fund... 265,000 * 16,439 * Wyoming State Treasurer.............. 870,000 * 53,970 * Zeneca Holdings Trust................ 250,000 * 15,509 * Zurich Institutional Benchmarks Master Fund Ltd.................... 2,000,000 * 124,069 * All other holders of notes or future transferees, pledgees, donees, assignees or successors of any such holders(3)(4)...................... $ 766,659,000 55.56% 47,559,491 5.20% -------------- ------ ---------- ---- Total................................ $1,380,000,000 100.00% 85,607,940(5) 8.99%(6) ============== ====== ========== ====
- -------- * Less than one percent. (1) Assumes conversion of all of the holder's notes at a conversion rate of $16.12 per share of common stock at maturity of the notes. This conversion rate is subject to adjustment, however, as described under "Description of Notes--Conversion." (2) Calculated based on Rule 13d-3(d)(1)(i) of the Exchange Act, using 866,759,250 shares of common stock outstanding as of March 15, 2002. In calculating this amount for each holder, we treated as outstanding the number of shares of common stock issuable upon conversion of all that holder's notes, but we did not assume conversion of any other holder's notes. (3) Information about other selling shareholders will be set forth in prospectus supplements, if required. (4) Assumes that any other holders of the notes or any future pledgees, donees, assignees, transferees or successors of or from such other holders of the notes do not beneficially own any shares of common stock other than the common stock issuable upon conversion of the notes at the initial conversion rate described in footnote 1 above. (5) Represents the number of shares of common stock into which $1,380,000,000 of notes would be convertible at the initial conversion rate described in footnote 1 above. (6) Represents the amount which the selling security holders may sell under this prospectus divided by the sum of 866,759,250 shares of common stock outstanding as of March 15, 2002 and the number of shares of common stock into which $1,380,000,000 of notes would be convertible at the initial conversion rate described in footnote 1 above. (a) Includes 190,575 shares of our common stock beneficially owned by such selling security holder in addition to the shares of common stock that it will own upon conversion of the notes. (b) Includes 332,700 shares of our common stock beneficially owned by such selling security holder in addition to the shares of common stock that it will own upon conversion of the notes. (c) Includes 167,300 shares of our common stock beneficially owned by such selling security holder in addition to the shares of common stock that it will own upon conversion of the notes. (d) Includes 10,500 shares of our common stock beneficially owned by such selling security holder in addition to the shares of common stock that it will own upon conversion of the notes. (e) Includes 4,808,100 shares of our common stock beneficially owned by such selling security holder in addition to the shares of common stock that it will own upon conversion of the notes. (f) Includes 1,998,141 shares of our common stock beneficially owned by such selling security holder in addition to the shares of common stock that it will own upon conversion of the notes. 41 (g) Includes 2,766,400 shares of our common stock beneficially owned by such selling security holder in addition to the shares of common stock that it will own upon conversion of the notes. (h) Includes 1,110,637 shares of our common stock beneficially owned by such selling security holder in addition to the shares of common stock that it will own upon conversion of the notes. (i) Includes 16,400 shares of our common stock beneficially owned by such selling security holder in addition to the shares of common stock that it will own upon conversion of the notes. (j) Includes 507,507 shares of our common stock beneficially owned by such selling security holder in addition to the shares of common stock that it will own upon conversion of the notes. (k) Includes 130,000 shares of our common stock beneficially owned by such selling security holder in addition to the shares of common stock that it will own upon conversion of the notes. (l) Includes 2,300,300 shares of our common stock beneficially owned by such selling security holder in addition to the shares of common stock that it will own upon conversion of the notes. 42 PLAN OF DISTRIBUTION The selling security holders will be offering and selling all of the securities offered and sold under this prospectus. We will not receive any of the proceeds from the offering of the notes or the shares of common stock by the selling security holders. In connection with the initial offering of the notes, we entered into a registration agreement dated March 5, 2002 with the initial purchasers of the notes. Securities may only be offered or sold under this prospectus pursuant to the terms of the registration agreement. However, selling security holders may resell all or a portion of the securities in open market transactions in reliance upon Rule 144 or Rule 144A under the Securities Act, provided they meet the criteria and conform to the requirements of one of these rules. We are registering the notes and shares of common stock covered by this prospectus to permit holders to conduct public secondary trading of these securities 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 covered by this prospectus. The selling security holders may sell all or a portion of the notes and shares of common stock beneficially owned by them and offered hereby from time to time: . directly; or . through underwriters, broker-dealers or agents, who may receive compensation in the form of discounts, commissions or concessions from the selling security holders and/or from the purchasers of the notes and shares of common stock for whom they may act as agent. The notes and the shares of common stock may be sold from time to time in one or more transactions at: . fixed prices, which may be changed; . prevailing market prices at the time of sale; . varying prices determined at the time of sale; or . negotiated prices. These prices will be determined by the holders of the securities or by agreement between these holders and underwriters or dealers who may receive fees or commissions in connection with the sale. The aggregate proceeds to the selling security holders from the sale of the notes or shares of common stock offered by them hereby will be the purchase price of the notes or shares of common stock less discounts and commissions, if any. The sales described in the preceding paragraph may be effected in 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, including the New York Stock Exchange in the case of the shares of common stock; . 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. These transactions may include block transactions or crosses. Crosses are transactions in which the same broker acts as an agent on both sides of the trade. In connection with sales of the notes and shares of common stock or otherwise, the selling security holders may enter into hedging transactions with broker-dealers. These broker-dealers may in turn engage in short sales of the notes and shares of common stock, short and deliver notes and shares of common stock to close out such 43 short positions, or loan or pledge notes and shares of common stock to broker-dealers that may in turn sell such securities. The selling security holders may pledge or grant a security interest in some or all of the notes and shares of common stock that it owns and, if it defaults in the performance of its secured obligations, the pledgees or secured parties may offer and sell the notes and shares of common stock from time to time pursuant to this prospectus. The selling security holders may also transfer and donate notes and shares of common stock in other circumstances, in which case the transferees, donees, pledgees or other successors in interest will be selling security holders for the purposes of this prospectus. To our knowledge, there are currently no plans, arrangements or understandings between any selling security holders and any underwriter, broker-dealer or agent regarding the sale of the notes and the shares of common stock by the selling security holders. Selling security holders may not sell any, or may not sell all, of the notes and the shares of common stock offered by them pursuant to this prospectus. In addition, we cannot assure you that a selling security holder will not transfer, devise or gift the notes and the shares of common stock by means other than those described in this prospectus. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under Rule 144 or Rule 144A rather than pursuant to this prospectus. The notes were issued and sold in March 2002 in transactions exempt from the registration requirements of the Securities Act pursuant to Rule 144A under the Securities Act or in offshore transactions pursuant to Regulation S under the Securities Act. Pursuant to the registration agreement, we have agreed to indemnify the initial purchasers, each selling security holder and certain underwriters, and each selling security holder has agreed to indemnify us, the initial purchasers, certain underwriters and the other selling security holders, against specified liabilities arising under the Securities Act. The selling security holders and any other person participating in such distribution will be subject to the Exchange Act. The Exchange Act rules include, without limitation, Regulation M, which may limit the timing of purchases and sales of any of the notes and the underlying shares of common stock by the selling security holders and any such other person. In addition, Regulation M of the Exchange Act may restrict the ability of any person engaged in the distribution of the notes and the underlying shares of common stock to engage in market-making activities with respect to the particular notes and the underlying shares of common stock being distributed for a period of up to five business days prior to the commencement of distribution. This may affect the marketability of the notes and the underlying shares of common stock and the ability of any person or entity to engage in market-making activities with respect to the notes and the underlying shares of common stock. 44 VALIDITY OF THE SECURITIES The validity of the notes and of the shares of common stock issuable upon the conversion thereof offered hereby and certain other legal matters will be passed upon for us by Orrick, Herrington & Sutcliffe LLP, San Francisco, California. EXPERTS Our consolidated financial statements as of February 2, 2002 and February 3, 2001 and for each of the three fiscal years in the period ended February 2, 2002, incorporated in this prospectus by reference from our Annual Report on Form 10-K for the fiscal year ended February 2, 2002 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, 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. 45 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, to be paid in connection with the offerings described in this registration statement, all of which will be paid by the registrant. All amounts are estimates except the registration fee. SEC registration fee........ $ 126,960 Accounting fees and expenses $ 70,000 Legal fees and expenses..... $ 416,000 Printing fees............... $ 40,000 Rating Agencies fees........ $ 613,500 Miscellaneous............... $ 120,000 ---------- Total....................... $1,386,460
Item 15. Indemnification of Officers and Directors. The Certificate of Incorporation of the Company, as permitted in Section 102 of the General Corporation Law of the State of Delaware (the "GCL"), eliminates the personal liability of a director to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability for (i) any breach of the director's duty of loyalty to the Company or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) paying a dividend or approving a stock repurchase in violation of Delaware law, or (iv) any transactions from which the director derived any improper personal benefit. Under the Bylaws of the Company, each director and officer of the Company is entitled to indemnification, as a matter of contractual right, to the fullest extent permitted by the GCL as the same exists or may hereafter be amended, against all expenses, liability and loss incurred in connection with any action, suit or proceeding in which he or she may be involved by reason of the fact that he or she is or was a director or officer of the Company. Section 145 of the GCL empowers a corporation to indemnify any director or officer, or former director or officer against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or proceeding (other than a derivative action) by reason of the fact that he or she is or was a director or officer or is or was serving at the request of the corporation as an agent of another entity, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action, had no reasonable cause to believe his or her conduct was unlawful. In regard to a derivative action, indemnification may not be made in respect of any matter as to which an officer or director is adjudged to be liable unless the Delaware Court of Chancery, or the court in which such action was brought, shall determine such person is fairly and reasonably entitled to indemnity. The Company carries insurance policies in standard form indemnifying its directors and officers against liabilities arising from certain acts performed by them in their respective capacities as such. The policies also provide for reimbursement of the Company for any sums it may be required or permitted to pay pursuant to applicable law to its directors and officers by way of indemnification against liabilities incurred by them in their capacities as such. II-1 Item 16. Exhibits.
Exhibit No. Description - ----------- ----------- 4.1 Indenture, dated as of March 5, 2002, between The Gap, Inc. and The Bank of New York, as Trustee 4.2 Registration Agreement, dated as of March 5, 2002, between The Gap, Inc. and Banc of America Securities LLC, et al. 4.3 Form of Notes (included in Exhibit 4.1) 5.1 Opinion of Orrick, Herrington & Sutcliffe LLP 12.1 Computation of Ratio of Earnings to Fixed Charges 23.1 Consent of Orrick, Herrington & Sutcliffe LLP (included in Exhibit 5.1) 23.2 Consent of Deloitte & Touche LLP, Independent Certified Public Accountants 24.1 Power of Attorney 25.1 Statement of Eligibility of Trustee on Form T-1
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 of 1933; (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 a 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 the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, 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. (4) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the 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. II-2 (5) The undersigned registrants hereby undertake to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or give, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. (6) Insofar as indemnification for liabilities arising under the Securities Act of 1933 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 Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, 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 against the Registrant 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 Act and will be governed by the final adjudication of such issue. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Francisco, State of California, on May 2, 2002. THE GAP, INC. /s/ MILLARD S. DREXLER By: _______________________________ Name: Millard S. Drexler Title: Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated below. Signature Title Date --------- ----- ---- /s/ MILLARD S. DREXLER Chief Executive Officer and May 2, 2002 ----------------------- Director (Principal Executive Millard S. Drexler Officer) /s/ HEIDI KUNZ Executive Vice President and Chief May 2, 2002 ----------------------- Financial Officer (Principal Heidi Kunz Financial and Accounting Officer) * Chairman and Director May 2, 2002 ----------------------- Donald G. Fisher * Director May 2, 2002 ----------------------- Adrian D. P. Bellamy * Director May 2, 2002 ----------------------- Doris F. Fisher * Director May 2, 2002 ----------------------- Robert J. Fisher * Director May 2, 2002 ----------------------- Glenda A. Hatchett ----------------------- Director Steven P. Jobs /s/ JOHN M. LILLIE Director May 2, 2002 ----------------------- John M. Lillie II-4 Signature Title Date --------- ----- ---- * Director May 2, 2002 -------------------- Arun Sarin * Director May 2, 2002 -------------------- Charles R. Schwab * Director May 2, 2002 -------------------- Mayo A. Shattuck III The undersigned, by signing his name hereto, does hereby sign this report on behalf of each of the above-indicated directors of the registrant pursuant to powers of attorney executed by such directors. *By: /s/ JOHN M. LILLIE ------------------- John M. Lillie Attorney-in-fact II-5 EXHIBIT INDEX
Exhibit No. Description - ------- ----------- 4.1 Indenture, dated as of March 5, 2002, between The Gap, Inc. and The Bank of New York, as Trustee 4.2 Registration Agreement, dated as of March 5, 2002, between The Gap, Inc. and Banc of America Securities LLC, et al. 4.3 Form of Notes (included in Exhibit 4.1) 5.1 Opinion of Orrick, Herrington & Sutcliffe LLP 12.1 Computation of Ratio of Earnings to Fixed Charges 23.1 Consent of Orrick, Herrington & Sutcliffe LLP (included in Exhibit 5.1) 23.2 Consent of Deloitte & Touche LLP, Independent Certified Public Accountants 24.1 Power of Attorney 25.1 Statement of Eligibility of Trustee on Form T-1
EX-4.1 3 dex41.txt INDENTURE, DATED MARCH 5, 2002 Exhibit 4.1 THE GAP, INC. and THE BANK OF NEW YORK as Trustee $1,200,000,000 5.75% Senior Convertible Notes due 2009/*/ INDENTURE Dated as of March 5, 2002 __________________________ /*/ Plus an option to purchase up to $180,000,000 aggregate principal amount of 5.75% Senior Convertible Notes due 2009. TABLE OF CONTENTS
Page ---- ARTICLE 1 DEFINITIONS SECTION 1.01 Definitions. .................................................................... 1 SECTION 1.02 Other Definitions. .............................................................. 7 SECTION 1.03 Incorporation by Reference of Trust Indenture Act. .............................. 8 SECTION 1.04 Rules of Construction. .......................................................... 8 ARTICLE 2 THE SENIOR CONVERTIBLE NOTES SECTION 2.01 Form and Dating. ................................................................ 9 SECTION 2.02 Execution and Authentication. ................................................... 10 SECTION 2.03 Registrar, Paying Agent and Conversion Agent. ................................... 11 SECTION 2.04 Paying Agent To Hold Money in Trust. ............................................ 11 SECTION 2.05 Holder Lists. ................................................................... 11 SECTION 2.06 Transfer and Exchange. .......................................................... 12 SECTION 2.07 Replacement Senior Convertible Notes. ........................................... 14 SECTION 2.08 Outstanding Senior Convertible Notes. ........................................... 14 SECTION 2.09 When Treasury Senior Convertible Notes Disregarded. ............................. 15 SECTION 2.10 Temporary Senior Convertible Notes. ............................................. 15 SECTION 2.11 Cancellation. ................................................................... 16 SECTION 2.12 Defaulted Interest. ............................................................. 16 SECTION 2.13 CUSIP Number. ................................................................... 16 SECTION 2.14 Regulation S. ................................................................... 17 ARTICLE 3 REDEMPTION SECTION 3.01 Optional Redemption. ............................................................ 17 SECTION 3.02 Notices to Trustee. ............................................................. 17 SECTION 3.03 Selection of Senior Convertible Notes To Be Redeemed. ........................... 17 SECTION 3.04 Notice of Redemption. ........................................................... 18 SECTION 3.05 Effect of Notice of Redemption. ................................................. 19 SECTION 3.06 Deposit of Redemption Price. .................................................... 19 SECTION 3.07 Senior Convertible Notes Redeemed in Part. ...................................... 20 SECTION 3.08 Conversion Arrangement on Call for Redemption. .................................. 20
-i- ARTICLE 4 COVENANTS SECTION 4.01 Payment of Senior Convertible Notes. ........................ 21 SECTION 4.02 Commission Reports. ......................................... 21 SECTION 4.03 Compliance Certificate. ..................................... 21 SECTION 4.04 Maintenance of Office or Agency. ............................ 22 SECTION 4.05 Continued Existence. ........................................ 22 SECTION 4.06 Repurchase Upon Designated Event. ........................... 22 SECTION 4.07 Appointments to Fill Vacancies in Trustee's Office. ......... 25 SECTION 4.08 Stay, Extension and Usury Laws. ............................. 25 SECTION 4.09 Taxes. ...................................................... 25 SECTION 4.10 Investment Company Act. ..................................... 26 ARTICLE 5 SUCCESSORS SECTION 5.01 When the Company May Merge, Etc. ............................ 26 SECTION 5.02 Successor Corporation Substituted. .......................... 27 SECTION 5.03 Purchase Option on Change of Control. ....................... 27 ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01 Events of Default. .......................................... 27 SECTION 6.02 Acceleration. ............................................... 29 SECTION 6.03 Other Remedies. ............................................. 30 SECTION 6.04 Waiver of Past Defaults. .................................... 30 SECTION 6.05 Control by Majority. ........................................ 30 SECTION 6.06 Limitation on Suits. ........................................ 31 SECTION 6.07 Rights of Holders To Receive Payment. ....................... 31 SECTION 6.08 Collection Suit by Trustee. ................................. 31 SECTION 6.09 Trustee May File Proofs of Claim. ........................... 32 SECTION 6.10 Priorities. ................................................. 32 SECTION 6.11 Undertaking for Costs. ...................................... 32 ARTICLE 7 THE TRUSTEE SECTION 7.01 Duties of the Trustee. ...................................... 33 SECTION 7.02 Rights of the Trustee. ...................................... 34
-ii- SECTION 7.03 Individual Rights of the Trustee. .............................. 35 SECTION 7.04 Trustee's Disclaimer. .......................................... 36 SECTION 7.05 Notice of Defaults. ............................................ 36 SECTION 7.06 Reports by the Trustee to Holders. ............................. 36 SECTION 7.07 Compensation and Indemnity. .................................... 36 SECTION 7.08 Replacement of the Trustee. .................................... 37 SECTION 7.09 Successor Trustee by Merger, etc. .............................. 38 SECTION 7.10 Eligibility, Disqualification. ................................. 39 SECTION 7.11 Preferential Collection of Claims Against Company. ............. 39 ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE SECTION 8.01 Discharge of Indenture. ........................................ 39 SECTION 8.02 Deposited Monies to be Held in Trust by Trustee. ............... 40 SECTION 8.03 Paying Agent to Repay Monies Held. ............................. 40 SECTION 8.04 Return of Unclaimed Monies. .................................... 40 SECTION 8.05 Reinstatement. ................................................. 40 ARTICLE 9 AMENDMENTS SECTION 9.01 Without the Consent of Holders. ................................ 41 SECTION 9.02 With the Consent of Holders. ................................... 42 SECTION 9.03 Compliance with the Trust Indenture Act. ....................... 43 SECTION 9.04 Revocation and Effect of Consents. ............................. 43 SECTION 9.05 Notation on or Exchange of Senior Convertible Notes. ........... 44 SECTION 9.06 Trustee Protected. ............................................. 44 ARTICLE 10 GENERAL PROVISIONS SECTION 10.01 Trust Indenture Act Controls. ................................. 44 SECTION 10.02 Notices. ...................................................... 44 SECTION 10.03 Communication by Holders With Other Holders. .................. 45 SECTION 10.04 Certificate and Opinion as to Conditions Precedent. ........... 45 SECTION 10.05 Statements Required in Certificate or Opinion. ................ 45 SECTION 10.06 Rules by Trustee and Agents. .................................. 46 SECTION 10.07 Legal Holidays. ............................................... 46 SECTION 10.08 No Recourse Against Others. ................................... 47 SECTION 10.09 Counterparts. ................................................. 47
-iii- SECTION 10.10 Other Provisions. ............................................. 47 SECTION 10.11 Governing Law. ................................................ 47 SECTION 10.12 No Adverse Interpretation of Other Agreements. ................ 48 SECTION 10.13 Successors. ................................................... 48 SECTION 10.14 Severability. ................................................. 48 SECTION 10.15 Table of Contents, Headings, etc. ............................. 48 ARTICLE 11 CONVERSION OF SENIOR CONVERTIBLE NOTES SECTION 11.01 Right to Convert. ............................................. 48 SECTION 11.02 Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends. ..................... 49 SECTION 11.03 Cash Payments in Lieu of Fractional Shares. ................... 50 SECTION 11.04 Conversion Price. ............................................. 51 SECTION 11.05 Adjustment of Conversion Price. ............................... 51 SECTION 11.06 Effect of Reclassification, Consolidation, Merger or Sale. .... 59 SECTION 11.07 Taxes on Shares Issued. ....................................... 60 SECTION 11.08 Reservation of Shares; Shares to Be Fully Paid; Listing of Common Stock. ............................................................... 61 SECTION 11.09 Responsibility of Trustee. .................................... 61 SECTION 11.10 Notice to Holders Prior to Certain Actions. ................... 62 SECTION 11.11 Restriction on Common Stock Issuable Upon Conversion. ......... 63
-iv- CROSS-REFERENCE TABLE* Trust Indenture Indenture Act Section Section - ----------- ------- 310(a)(1) .............................................. 7.10 (a)(2) .............................................. 7.10, 10.10 (a)(3) .............................................. n/a (a)(4) .............................................. n/a (a)(5) .............................................. n/a (b) ................................................. 7.08, 7.10, 10.02 (c) n/a 311(a) ................................................. 7.11 (b) ................................................. 7.11 (c) ................................................. n/a 312(a). ................................................ 2.05 (b) ................................................. 10.03 (c) ................................................. 10.03 313(a). ................................................ 7.06 (b)(1) .............................................. n/a (b)(2) .............................................. 7.06 (c) ................................................. 7.06, 10.02 (d) 7.06 314(a). ................................................ 4.02, 10.02 (b) ................................................. n/a (c)(1) .............................................. 10.04 (c)(2) .............................................. 10.04 (c)(3) .............................................. n/a (d) ................................................. n/a (e) ................................................. 10.05 (f) ................................................. n/a 315(a). ................................................ 7.01(b) (b) ................................................. 7.05, 10.02 (c) ................................................. 7.01(a) (d) ................................................. 7.01(c) (e) ................................................. 6.11 316(a)(last sentence) .................................. 2.09 (a)(1)(A) ........................................... 6.05 -v- (a)(1)(B) ................................................. 6.04 (a)(2) .................................................... n/a (b) ....................................................... 6.07 (c) ....................................................... 9.04 317(a)(1) .................................................... 6.08 (a)(2) .................................................... 6.09 (b) ....................................................... 2.04 318(a). ...................................................... 10.01 (b) ....................................................... n/a (c) ....................................................... 10.01 _________________ "n/a" means not applicable. *This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. -vi- THIS INDENTURE, dated as of March 5, 2002, is between The Gap, Inc., a Delaware corporation (the "Company"), and The Bank of New York, a New York banking corporation (the "Trustee"). The Company has duly authorized the creation of its 5.75% Senior Convertible Notes due 2009 (the "Senior Convertible Notes"), and to provide therefor the Company and the Trustee have duly authorized the execution and delivery of this Indenture. Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the holders from time to time of the Senior Convertible Notes: ARTICLE 1 DEFINITIONS SECTION 1.01 Definitions. ------------ "Affiliate" means, when used with reference to any person, any other person directly or indirectly controlling, controlled by, or under direct or indirect common control of, the referent 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 management or policies of the referent person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise. The terms "controlling" and "controlled" have meanings correlative of the foregoing. "Agent" means any Registrar, Paying Agent, Conversion Agent or co-registrar. "Agent Member" means any member of, or participant in, the Depositary. "Applicable Procedures" means, with respect to any transfer or transaction involving a Global Security or beneficial interest therein, the rules and procedures of the Depositary for such Global Security to the extent applicable to such transaction and as in effect from time to time. "Board of Directors" means the Board of Directors of the Company or any authorized committee of the Board of Directors. "Capital Stock" of any person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such person, but excluding any debt securities convertible into such equity. "Change of Control" means the occurrence of one or more of the following events: (a) any "person" (as such term is used in Section 13(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of shares representing more than 50% of the combined voting power of the then outstanding Voting Stock of the Company; provided, however, that a "Change of Control" shall not be deemed to occur solely as the result of the acquisition by Donald G. Fisher, Doris F. Fisher, John J. Fisher, William Fisher or Robert R. Fisher (collectively, the "Fishers") and the Permitted Designees of shares representing in the aggregate more than 50% but less than 75% of the combined voting power of the then outstanding Voting Stock of the Company; (b) the Company consolidates with or merges into any other corporation, any other corporation merges into the Company, or the -1- Company effects a share exchange or the Company conveys, sells, transfers or leases all or substantially all of its assets (other than to one or more of its wholly-owned subsidiaries), and, in the case of any such consolidation, merger or share exchange transaction, the outstanding Common Stock of the Company is reclassified into or exchanged for any other property or securities, unless the shareholders of the Company immediately before such transaction own, directly or indirectly immediately following such transaction, at least a majority of the combined voting power of the then outstanding Voting Stock of the corporation resulting from such transaction in substantially the same proportion as their ownership of the Voting Stock of the Company immediately before such transaction, or unless such transaction is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock; (c) the Company or the Company and its subsidiaries, taken as a whole, sells, assigns, conveys, transfers or leases all or substantially all assets of the Company or of the Company and its subsidiaries, taken as a whole, as applicable (other than to one or more wholly-owned subsidiaries of the Company); or (d) any time the 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 of Control under (a) and (b) above shall not be deemed to have occurred if either (y) the Daily Market Price per share of Common Stock for any five trading days within the period of 10 consecutive trading days ending immediately after the later of the Change of Control or the public announcement of the Change of Control (in the case of a Change of Control under clause (b) above) shall equal or exceed 105% of the Conversion Price in effect on the date of such Change of Control or the public announcement of such Change of Control, as applicable or (z) at least 90% of the consideration (excluding cash payments for fractional shares) in the transaction or transactions constituting the Change of Control consists of shares of common stock that are, or upon issuance will be, traded on the New York Stock Exchange or the American Stock Exchange or quoted on the Nasdaq National Market and, as a result of the transaction, the Senior Convertible Notes become convertible solely into such common stock. "Commission" means the Securities and Exchange Commission. "Common Stock" means 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 11.06, however, shares issuable on conversion of Senior Convertible 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 all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. -2- "Company" means the party named as such above until a successor replaces it in accordance with Article 5 and thereafter means the successor. References to the Company shall not include any Subsidiary. A "consolidated subsidiary" of any person means a subsidiary which for financial reporting purposes is or, in accordance with GAAP, should be, accounted for by such person as a consolidated subsidiary. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors who (i) was a member of such Board of Directors on the date of this Indenture or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election. "Conversion Price" means the initial conversion price specified in the form of Senior Convertible Note in Paragraph 15 of such form, as adjusted in accordance with the provisions of Article 11. "Corporate Trust Office" means the corporate trust office of the Trustee at which at any particular time the trust created by this Indenture shall principally be administered; as of the date hereof, the Corporate Trust Office is located at 101 Barclay Street, 21W, Attn: Corporate Trust Department, New York, New York 10286. "Daily Market Price" means the price of a share of Common Stock on the relevant date, determined on the basis of the last reported sale price regular way of the Common Stock on the New York Stock Exchange, or if the Common Stock is not then listed on the New York Stock Exchange, as reported on the principal national securities exchange or quotation system upon which the Common Stock is listed or quoted, as applicable. "Default" means any event that is, or after notice or passage of time, or both, would be, an Event of Default. "Depositary" means, with respect to any Global Securities, a clearing agency that is registered as such under the Exchange Act and is designated by the Company to act as Depositary for such Global Securities (or any successor securities clearing agency so registered), which shall initially be DTC. "Designated Event" means the occurrence of a Change of Control or a Termination of Trading. "DTC" means The Depository Trust Company, a New York corporation. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. -3- "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect from time to time. "Global Security" means a Senior Convertible Note that is registered in the Register. "Global Securities Legend" means the legend labeled as such and that is set forth in Exhibit A hereto. "Indebtedness" means, with respect to any person, all obligations, whether or not contingent, of such person (i) (a) for borrowed money (including, but not limited to, any indebtedness secured by a security interest, mortgage or other lien on the assets of the Company that is (1) given to secure all or part of the purchase price of property subject thereto, whether given to the vendor of such property or to another, or (2) existing on property at the time of acquisition thereof), (b) evidenced by a note, debenture, bond or other written instrument, (c) under a lease required to be capitalized on the balance sheet of the lessee under GAAP or under any lease or related document (including a purchase agreement) that provides that the Company is contractually obligated to purchase or cause a third party to purchase and thereby guarantee a minimum residual value of the lease property to the lessor and the obligations of the Company under such lease or related document to purchase or to cause a third party to purchase such leased property, (d) in respect of letters of credit, bank guarantees or bankers' acceptances (including reimbursement obligations with respect to any of the foregoing), (e) with respect to Indebtedness secured by a mortgage, pledge, lien, encumbrance, charge or adverse claim affecting title or resulting in an encumbrance to which the property or assets of such person are subject, whether or not the obligation secured thereby shall have been assumed by or shall otherwise be such person's legal liability, (f) in respect of the balance of deferred and unpaid purchase price of any property or assets, (g) under interest rate or currency swap agreements, cap, floor and collar agreements, spot and forward contracts and similar agreements and arrangements; (ii) with respect to any obligation of others of the type described in the preceding clause (i) or under clause (iii) below assumed by or guaranteed in any manner by such person through an agreement to purchase (including, without limitation, "take or pay" and similar arrangements), contingent or otherwise (and the obligations of such person under any such assumptions, guarantees or other such arrangements); and (iii) any and all deferrals, renewals, extensions, refinancings and refundings of, or amendments, modifications or supplements to, any of the foregoing. "Indenture" means this Indenture as amended or supplemented from time to time. "Initial Purchasers" means the persons listed on Schedule I of the Purchase Agreement. "Interest Payment Date" means March 15 and September 15 of each year. -4- "Issue Date" means the date on which Senior Convertible Notes are first issued and authenticated under this Indenture. "Liquidated Damages" has the meaning specified in paragraph 16 of the form of Senior Convertible Note which is attached as Exhibit A hereto. "Material Subsidiary" means any subsidiary of the Company which at the date of determination is a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the Securities Act and the Exchange Act. "Maturity Date" means March 15, 2009. "Offering Memorandum" means the final offering memorandum dated February 28, 2002, relating to the Senior Convertible Notes, including all amendments thereto. "Officer" means the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer, the Chief Accounting Officer, any Executive Vice President, Senior Vice President or Vice President (whether or not designated by a number or numbers or word or words before or after the title "Vice President"), the Treasurer, the Secretary and any Assistant Treasurer or any Assistant Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers, one of whom is the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer or the Treasurer of the Company. "Opinion of Counsel" means a written opinion from legal counsel who may be an employee of or counsel to the Company or the Trustee except to the extent otherwise indicated in this Indenture. "Permitted Designees" means (i) a spouse or lineal descendent by blood or adoption of any of the Fishers; (ii) trusts solely for the benefit of any of the Fishers, one or more charitable foundations, institutions or entities or any of the individuals referred to in clause (i); (iii) in the event of the death of a Fisher, his or her estate, heirs, executor, administrator, committee or other personal representative; or (iv) any Person so long as any of the Fishers or any of the individuals referred to in clause (i) are the sole beneficial owners of more than 50% of the Voting Stock of such Person and constitute a majority of the board of directors of such Person, in the case of a corporation, or of the individuals exercising similar functions, in the case of an entity other than a corporation. A "person" means any individual, corporation, partnership, joint venture, trust, estate, unincorporated organization, limited liability company or government or any agency or political subdivision thereof. "Purchase Agreement" means the Purchase Agreement related to the Senior Convertible Notes, dated February 27, 2002, between the Company and Banc of America Securities LLC, J.P. Morgan Securities Inc. and Salomon Smith Barney Inc. -5- "Redemption date" when used with respect to any of the Senior Convertible Notes to be redeemed, means the date fixed by the Company for such redemption pursuant to Article 3 of this Indenture and the Senior Convertible Notes. "Redemption price" when used with respect to any of the Senior Convertible Notes to be redeemed, means the price fixed for such redemption pursuant to Article 3 of this Indenture and the Senior Convertible Notes. "Registration Agreement" means the Registration Agreement relating to the Senior Convertible Notes and the Common Stock issuable upon conversion of such Senior Convertible Notes, dated March 5, 2002, between the Company and the Initial Purchasers, as such agreement may be amended, modified or supplemented from time to time. "Regular Record Date" means the March 1 or September 1 immediately preceding each Interest Payment Date. "Restricted Common Stock Legend" means the legend labeled as such and that is set forth in Exhibit B hereto. "Restricted Securities Legend" means the legend labeled as such and that is set forth in Exhibit A hereto. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Senior Convertible Notes" means the 5.75% Senior Convertible Notes due 2009 issued, authenticated and delivered under this Indenture. "Shelf Registration Statement" shall have the meaning set forth in the Registration Agreement. A "subsidiary" means, with respect to any person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such person or one or more of the other subsidiaries of that person (or a combination thereof) and (ii) any partnership (a) the sole general partner or managing general partner of which is such person or a subsidiary of such person or (b) the only general partners of which are such person or of one or more subsidiaries of such person (or any combination thereof). "Termination of Trading" will be deemed to have occurred if the Common Stock (or other common stock into which the Senior Convertible Notes are then convertible) is neither listed for trading on the New York Stock Exchange or the American Stock Exchange nor approved for trading on the Nasdaq National Market. -6- "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa- 77bbbb) as in effect on the date of execution of this Indenture, except as provided in Sections 9.03 and 11.06. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor. "Trust Officer" means, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such Person's knowledge of and familiarity with the particular subject and having direct responsibility for the administration of this Indenture. "U.S. Government Obligations" means direct obligation of the United States of America for the payment of which the full faith and credit of the United States of America is pledged. In order to have money available on a payment date to pay principal or interest on the Senior Convertible Notes, the U.S. Government Obligations shall be payable as to principal or interest on or before such payment date in such amounts as will provide the necessary money. U.S. Government Obligations shall not be callable at the issuer's option. "Voting Stock" of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. SECTION 1.02 Other Definitions. ----------------- Defined in Section ------- "Bankruptcy Law" ........................................ 6.01 "business day" .......................................... 10.07 "Current Market Price" .................................. 11.05 "closing price" ......................................... 11.05 "Conversion Agent" ...................................... 2.03 "Custodian" ............................................. 6.01 "Designated Event Date" ................................. 4.06 "Designated Event Offer" ................................ 4.06 "Designated Event Offer Termination Date" ............... 4.06 "Designated Event Payment" .............................. 4.06 "Designated Event Payment Date" ......................... 4.06 "Designated Event Purchase Notice" ...................... 4.06 "Event of Default" ...................................... 6.01 "Expiration Time" ....................................... 11.05 -7- "fair market value" .................................................... 11.05 "Legal Holiday" ........................................................ 10.07 "non-electing share" ................................................... 11.06 "Paying Agent" ......................................................... 2.03 "Purchased Shares" ..................................................... 11.05 "Record Date" .......................................................... 11.05 "Register" ............................................................. 2.03 "Registrar" ............................................................ 2.03 "Securities" ........................................................... 11.05 "trading day" .......................................................... 11.05 "Trigger Event" ........................................................ 11.05 SECTION 1.03 Incorporation by Reference of Trust Indenture Act. ------------------------------------------------- Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the Commission; "indenture securities" means the Senior Convertible Notes; "indenture security holder" means a holder of a Senior Convertible Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Senior Convertible Notes means the Company or any other obligor on the Senior Convertible Notes. All other terms in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule under the TIA have the meanings so assigned to them. SECTION 1.04 Rules of Construction. --------------------- Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; -8- (4) words in the singular include the plural, and in the plural include the singular; and (5) the male, female and neuter genders include one another. ARTICLE 2 THE SENIOR CONVERTIBLE NOTES SECTION 2.01 Form. ---- (a) GLOBAL SECURITIES. The Senior Convertible Notes are being offered and sold by the Company pursuant to the Purchase Agreement: The Senior Convertible Notes are being offered and sold (i) in reliance on Regulation S under the Securities Act ("Regulation S") or (ii) to "qualified institutional buyers" as defined in Rule 144A ("QIBs") in reliance on Rule 144A under the Securities Act ("Rule 144A"), each as provided in the Purchase Agreement, and shall be issued in the form of one or more permanent global securities in definitive, fully registered form without interest coupons with the Global Securities Legend and Restricted Securities Legend set forth in Exhibit A hereto (each, a "Global Security"). Any Global Security shall be deposited on behalf of the purchasers of the Senior Convertible Notes represented thereby with the Trustee, as custodian for the Depositary, and registered in the name of the Depositary or a nominee of the Depositary for the accounts of participants in the Depositary (and, in the case of Senior Convertible Notes held in accordance with Regulation S, registered with the Depositary for the accounts of designated agents holding on behalf of the Euroclear System ("Euroclear") or Clearstream Banking, societe anonyme ("Clearstream")), duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of a Global Security may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee as hereinafter provided. (b) BOOK-ENTRY PROVISIONS. This Section 2.01(b) shall apply only to a Global Security deposited with or on behalf of the Depositary. The Company shall execute and the Trustee shall, in accordance with this Section 2.01(b) and the written order of the Company, authenticate and deliver initially one or more Global Securities that (i) shall be registered in the name of Cede & Co. or other nominee of such Depositary and (ii) shall be delivered by the Trustee to such Depositary or pursuant to such Depositary's instructions or held by the Trustee as custodian for the Depositary pursuant to a FAST Balance Certificate Agreement between the Depositary and the Trustee. Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary or by the Trustee as the custodian of the Depositary or under such Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any -9- agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of such Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Security. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "Management Regulations and Instructions to Participants" of Clearstream shall be applicable to interests in any Global Securities that are held by participants through Euroclear or Clearstream. The Trustee shall have no obligation to notify holders of any such procedures or to monitor or enforce compliance with the same. (c) DEFINITIVE SECURITIES. Except as provided in Section 2.10, owners of beneficial interests in Global Securities will not be entitled to receive physical delivery of certificated Senior Convertible Notes in definitive form. If applicable, certificated Senior Convertible Notes in definitive form will bear the Restricted Securities Legend set forth on Exhibit A unless removed in accordance with Section 2.06(b). SECTION 2.02 Execution and Authentication. ---------------------------- One Officer shall sign the Senior Convertible Notes for the Company by manual or facsimile signature. If an Officer whose signature is on a Senior Convertible Note no longer holds that office at the time the Senior Convertible Note is authenticated, the Senior Convertible Note shall nevertheless be valid. A Senior Convertible Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Senior Convertible Note has been authenticated under this Indenture. Upon a written order of the Company signed by an Officer of the Company, the Trustee shall authenticate Senior Convertible Notes for original issue up to an aggregate principal amount of $1,200,000,000 (plus up to $180,000,000 aggregate principal amount of Senior Convertible Notes that may be sold by the Company pursuant to the option granted pursuant to the Purchase Agreement) to the Initial Purchasers. The aggregate principal amount of Senior Convertible Notes outstanding at any time may not exceed that amount except as provided in Section 2.07. The Senior Convertible Notes shall be issuable only in registered form without coupons and only in denominations of $1,000 or any integral multiple thereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Senior Convertible Notes. An authenticating agent may authenticate Senior Convertible Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same right as an Agent to deal with the Company or an Affiliate of the Company. -10- SECTION 2.03 Registrar, Paying Agent and Conversion Agent. -------------------------------------------- The Company shall maintain or cause to be maintained in such locations as it shall determine, which may be the Corporate Trust Office, an office or agency: (i) where securities may be presented for registration of transfer or for exchange ("Registrar"); (ii) where Senior Convertible Notes may be presented for payment ("Paying Agent"); (iii) an office or agency where Senior Convertible Notes may be presented for conversion (the "Conversion Agent"); and (iv) where notices and demands to or upon the Company in respect of Senior Convertible Notes and this Indenture may be served by the holders of the Senior Convertible Notes. The Registrar shall keep a Register ("Register") of the Senior Convertible Notes and of their transfer and exchange. The Company may appoint one or more co-registrars, one or more additional paying agents and one or more additional conversion agents. The term "Registrar" includes any additional registrar, the term "Paying Agent" includes any additional paying agent and the term "Conversion Agent" includes any additional Conversion Agent. The Company may change any Paying Agent, Registrar, Conversion Agent or co-registrar without prior notice. The Company shall notify the Trustee of the name and address of any Agent not a party to this Indenture and shall enter into an appropriate agency agreement with any Registrar, Paying Agent, Conversion Agent or co-registrar not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company or any of its subsidiaries may act as Paying Agent, Registrar, Conversion Agent or co-registrar, except that for purposes of Articles 3 and 8 and Section 4.06, neither the Company nor any of its subsidiaries shall act as Paying Agent. If the Company fails to appoint or maintain another entity as Registrar, or Paying Agent or Conversion Agent, the Trustee shall act as such, and the Trustee shall initially act as such. SECTION 2.04 Paying Agent To Hold Money in Trust. ----------------------------------- The Company shall require each Paying Agent (other than the Trustee, who hereby so agrees), to agree in writing that the Paying Agent will hold in trust for the benefit of holders of the Senior Convertible Notes or the Trustee all money held by the Paying Agent for the payment of principal, premium, if any, or interest (including Liquidated Damages) on the Senior Convertible Notes, and will notify the Trustee of any default by the Company in respect of making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a subsidiary of the Company) shall have no further liability for the money. If the Company or a subsidiary of the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the holders of the Senior Convertible Notes all money held by it as Paying Agent. SECTION 2.05 Holder Lists. ------------ The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of holders of Senior Convertible Notes and shall otherwise comply with TIA ss. 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven business days before each Interest Payment Date, and as the -11- Trustee may request in writing within fifteen (15) 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 and as of such date as the Trustee may reasonably require of the names and addresses of holders of Senior Convertible Notes. SECTION 2.06 Transfer and Exchange. --------------------- When Senior Convertible Notes are presented to the Registrar or a co-registrar with a request to register a transfer or to exchange them for an equal principal amount of Senior Convertible Notes for other denominations, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met. To permit registrations of transfers and exchanges, the Company shall issue and the Trustee shall authenticate Senior Convertible Notes at the Registrar's request, bearing registration numbers not contemporaneously outstanding. No service charge shall be made to a holder for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Company and the Registrar may require payment of a sum sufficient to cover any transfer tax or other governmental charge payable upon exchanges pursuant to Sections 2.10, 3.07, 9.05 or 11.02. The Company or the Registrar shall not be required (i) to issue, register the transfer of or exchange Senior Convertible Notes during a period beginning at the opening of business fifteen (15) days before the day of any selection of Senior Convertible Notes for redemption under Section 3.03 and ending at the close of business on the day of selection, (ii) to register the transfer or exchange of any Senior Convertible Note so selected for redemption in whole or in part, except the unredeemed portion of any Senior Convertible Note being redeemed in part or (iii) to register the transfer of any Senior Convertible Notes surrendered for repurchase pursuant to Section 4.06. All Senior Convertible Notes issued upon any transfer or exchange of Senior Convertible 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 Senior Convertible Notes surrendered upon such registration of transfer or exchange. (a) Notwithstanding any provision to the contrary herein, so long as a Global Security remains outstanding and is held by or on behalf of the Depositary, transfers of a Global Security, in whole or in part, or of any beneficial interest therein, shall only be made in accordance with Sections 2.01(b) and 2.10; provided, however, that beneficial interests in a Global Security may be transferred to persons who take delivery thereof in the form of a beneficial interest in the Global Security in accordance with the transfer restrictions set forth under the heading "Notice to Investors" in the Offering Memorandum and, if applicable, in the Restricted Securities Legend. Except for transfers or exchanges made in accordance with Section 2.10, transfers of a Global Security shall be limited to transfers of such Global Security in whole, but not in part, to nominees of the Depositary or to a successor of the Depositary or such successor's nominee. -12- In the event that a Global Security is exchanged for certificated Senior Convertible Notes in definitive form pursuant to Section 2.10(b) prior to the effectiveness of a Shelf Registration Statement with respect to such Senior Convertible Notes, such exchange may occur, and such Senior Convertible Notes may be further exchanged or transferred, only upon receipt by the Registrar of (1) such Global Security or such Senior Convertible Notes in definitive form, duly endorsed as provided herein, as applicable, (2) instructions from the holder directing the Trustee to authenticate and deliver one or more Senior Convertible Notes in definitive form of the same aggregate principal amount as the Global Security or the Senior Convertible Notes in definitive form (or portion thereof), as applicable, to be transferred, such instructions to contain the name or names of the designated transferee or transferees, the authorized denomination or denominations of the Senior Convertible Notes in definitive form to be so issued and appropriate delivery instructions, and (3) such certifications or other information and, in the case of transfers pursuant to Rule 144 under the Securities Act, legal opinions 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 (including the certification requirements intended to ensure that such transfers comply with Rule 144A or Regulation S under the Securities Act, as the case may be), and upon compliance with such other procedures as may from time to time be adopted by the Company and the Registrar. (b) Except in connection with a Shelf Registration Statement contemplated by and in accordance with the terms of the Registration Agreement, if Senior Convertible Notes are issued upon the registration of transfer, exchange or replacement of Senior Convertible Notes bearing a Restricted Securities Legend, or if a request is made to remove such a Restrictive Securities Legend on Senior Convertible Notes, the Senior Convertible Notes so issued shall bear the Restricted Securities Legend, or a Restricted Securities Legend shall not be removed, as the case may be, unless there is delivered to the Company such satisfactory evidence, which, in the case of a transfer made pursuant to Rule 144 under the Securities Act, may include an opinion of counsel given in accordance with the laws in the State of New York, as may be reasonably required by the Company, that neither the legend nor the restrictions on transfer set forth therein are required to ensure that transfers thereof comply with the provisions of Rule 144A, Rule 144 or Regulation S under the Securities Act or that such Senior Convertible Notes are not "restricted" within the meaning of Rule 144 under the Securities Act. Upon provision to the Company of such satisfactory evidence, the Trustee, at the written direction of the Company, shall authenticate and deliver Senior Convertible Notes that do not bear the legend. The Company shall not otherwise be entitled to require the delivery of a legal opinion in connection with any transfer or exchange of Securities. (c) Neither the Trustee nor any Agent shall have any responsibility for any actions taken or not taken by the Depositary. (d) 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 Senior Convertible Notes (including any transfers between or among the Depositary's participants or beneficial owners of interests in any Global Security) other than to require delivery of such certificates and other documentation as is -13- (d) 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 2.07 Replacement Senior Convertible Notes. ------------------------------------ If the holder of a Senior Convertible Note claims that its Senior Convertible Note has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Senior Convertible Note if the Trustee's and the Company's requirements are met. If required by the Trustee or the Company as a condition of receiving a replacement Senior Convertible Note, the holder of a Senior Convertible Note must provide a certificate of loss and an indemnity and/or an indemnity bond sufficient, in the judgment of both the Company and the Trustee, to fully protect the Company, the Trustee, any Agent and any authenticating agent from any loss, liability, cost or expense which any of them may suffer or incur if the Senior Convertible Note is replaced. The Company and the Trustee may charge the relevant holder for their expenses in replacing any Senior Convertible Note. The Trustee or any authenticating agent may authenticate any such substituted Senior Convertible Note, and deliver the same upon the receipt of such security or indemnity as the Trustee and the Company may require. Upon the issuance of any substituted Senior Convertible Note, the Company and the Trustee 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 Senior Convertible Note which has matured or is about to mature, or has been called for redemption pursuant to Article 3, submitted for repurchase pursuant to Section 4.06 or is about to be converted into Common Stock pursuant to Article 11, shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Senior Convertible 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 Senior Convertible 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 the paying agent or conversion agent such security or indemnity as may be required by the Company or the Trustee 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 Senior Convertible Note and of the ownership thereof. Every replacement Senior Convertible Note is an additional obligation of the Company and shall be entitled to all the benefits provided under this Indenture equally and proportionately with all other Senior Convertible Notes duly issued, authenticated and delivered hereunder. SECTION 2.08 Outstanding Senior Convertible Notes. ------------------------------------ The Senior Convertible Notes outstanding at any time are all the Senior Convertible Notes properly authenticated by the Trustee except for those canceled by the Trustee, those delivered to it for cancellation, and those described in this Section as not outstanding. -14- If a Senior Convertible Note is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Senior Convertible Note is held by a bona fide purchaser. If Senior Convertible Notes are considered paid under Section 4.01 or converted under Article 11, they cease to be outstanding, and interest (and Liquidated Damages, if any) on them ceases to accrue. Subject to Section 2.09 hereof, a Senior Convertible Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Senior Convertible Note. SECTION 2.09 When Treasury Senior Convertible Notes Disregarded. -------------------------------------------------- In determining whether the holders of the required principal amount of Senior Convertible Notes have concurred in any direction, waiver or consent, Senior Convertible Notes owned by the Company or an Affiliate of the Company shall be considered as though they are not outstanding except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Senior Convertible Notes which a Trust Officer of the Trustee actually knows are so owned shall be so disregarded. SECTION 2.10 Temporary Senior Convertible Notes. ---------------------------------- (a) Until definitive Senior Convertible Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Senior Convertible Notes. Temporary Senior Convertible Notes shall be substantially in the form of definitive Senior Convertible Notes but may have variations that the Company considers appropriate for temporary Senior Convertible Notes and shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Senior Convertible Notes in exchange for temporary Senior Convertible Notes. (b) A Global Security deposited with the Depositary or with the Trustee as custodian for the Depositary pursuant to Section 2.01 shall be transferred to the beneficial owners thereof in the form of certificated Senior Convertible Notes in definitive form only if such transfer complies with Section 2.06 and (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security or if at any time such Depositary ceases to be a "clearing agency" registered under the Exchange Act and a successor Depositary is not appointed by the Company within 90 days of such notice, or (ii) an Event of Default has occurred and is continuing. (c) Any Global Security or interest thereon that is transferable to the beneficial owners thereof in the form of certificated Senior Convertible Notes in definitive form shall, if held by the Depository, be surrendered by the Depositary to the Trustee, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Security, an equal aggregate principal amount of Senior Convertible Notes of authorized -15- denominations in the form of certificated Senior Convertible Notes in definitive form. Any portion of a Global Security transferred pursuant to this Section shall be executed, authenticated and delivered only in denominations of $1,000 and any integral multiple thereof and registered in such names as the Depositary shall direct. Any Senior Convertible Notes in the form of certificated Senior Convertible Notes in definitive form delivered in exchange for an interest in the Global Security shall, except as otherwise provided by Section 2.06(b), bear the Restricted Securities Legend set forth in Exhibit A hereto. (d) Prior to any transfer pursuant to Section 2.10(b), the registered holder of a Global Security may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a holder is entitled to take under this Indenture or the Senior Convertible Notes. SECTION 2.11 Cancellation. ------------ The Company at any time may deliver Senior Convertible Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Senior Convertible Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else may cancel Senior Convertible Notes surrendered for registration of transfer, exchange, payment, replacement, conversion, redemption, repurchase or cancellation. Upon written instructions of the Company, the Trustee shall dispose of canceled Senior Convertible Notes in accordance with its procedures for the disposition of canceled securities in effect as of the date of such disposition and, after such disposition, shall deliver a certificate of disposition to the Company. The Company may not issue new Senior Convertible Notes to replace Senior Convertible Notes that it has paid, redeemed or repurchased or that have been delivered to the Trustee for cancellation or that any holder has (i) converted pursuant to Article 11 hereof, (ii) submitted for redemption pursuant to Article 3 hereof or (iii) submitted for repurchase pursuant to Section 4.06 hereof (unless revoked). SECTION 2.12 Defaulted Interest. ------------------ If the Company fails to make a payment of interest on the Senior Convertible Notes, it shall pay such defaulted interest plus, to the extent lawful, any interest payable on the defaulted interest. It may pay such defaulted interest, plus any such interest payable on it, to the persons who are holders of Senior Convertible Notes on a subsequent special record date. The Company shall fix any such record date and payment date. At least 15 days before any such record date, the Company shall mail to holders of the Senior Convertible Notes a notice that states the record date, payment date and amount of such interest to be paid. SECTION 2.13 CUSIP Number. ------------ The Company in issuing the Senior Convertible Notes may use a "CUSIP" number, and if so, such CUSIP number shall be included in notices of redemption, repurchase or exchange as a convenience to holders of Senior Convertible Notes; provided, however, that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number -16- printed in the notice or on the Senior Convertible Notes and that reliance may be placed only on the other identification numbers printed on the Senior Convertible Notes. The Company will promptly notify the Trustee of any change in the CUSIP number. SECTION 2.14 Regulation S. ------------ The Company agrees that it will refuse to register any transfer of Senior Convertible Notes or any shares of Common Stock issued upon conversion of Senior Convertible Notes that is not made in accordance with the provisions of Regulation S under the Securities Act, pursuant to a registration statement which has been declared effective under the Securities Act or pursuant to an available exemption from the registration requirements of the Securities Act; provided that the provisions of this paragraph shall not be applicable to any Senior Convertible Notes which do not bear a Restricted Securities Legend or to any shares of Common Stock evidenced by certificates which do not bear a Restricted Common Stock Legend. ARTICLE 3 REDEMPTION SECTION 3.01 Optional Redemption. -------------------- The Company may redeem all or any portion of the Senior Convertible Notes upon the terms and at the redemption prices set forth in each of the Senior Convertible Notes. Any redemption shall be made pursuant to Paragraph 5 of the Senior Convertible Notes and this Article 3. SECTION 3.02 Notices to Trustee. ------------------ If the Company elects to redeem Senior Convertible Notes pursuant to the optional redemption provisions of paragraph 5 of the Senior Convertible Notes, it shall furnish to the Trustee, at least 30 (35 if less than all of the then outstanding Senior Convertible Notes are to be redeemed or if the Company requests the Trustee to give notice of redemption pursuant to Section 3.04) days but not more than 60 days before a redemption date (unless a shorter period shall be satisfactory to the Trustee), an Officers' Certificate setting forth (i) the Section of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Senior Convertible Notes (if less than all) to be redeemed, (iv) the redemption price and (v) the CUSIP number of the Senior Convertible Notes being redeemed. SECTION 3.03 Selection of Senior Convertible Notes To Be Redeemed. ---------------------------------------------------- If less than all the Senior Convertible Notes are to be redeemed, the Trustee shall select the Senior Convertible Notes to be redeemed by a method that complies with the requirements of the principal national securities exchange, if any, on which the Senior Convertible Notes are listed or quoted or, if the Senior Convertible Notes are not so listed, on a pro rata basis, by lot or by any other method that the Trustee considers fair and appropriate. The Trustee shall make the selection not more than 60 days and not less than 30 days before the redemption date from -17- Senior Convertible Notes outstanding and not previously called for redemption. The Trustee may select for redemption a portion of the principal of any Senior Convertible Notes that has a denomination larger than $1,000. Senior Convertible Notes and portions thereof will be redeemed in the amount of $1,000 or integral multiples of $1,000. Provisions of this Indenture that apply to Senior Convertible Notes called for redemption also apply to portions of Senior Convertible Notes called for redemption. The Trustee shall notify the Company promptly of the Senior Convertible Notes or portions of Senior Convertible Notes to be called for redemption. If any Senior Convertible Note selected for partial redemption is converted in part after such selection, the converted portion of such Senior Convertible Note shall be deemed (so far as may be) to be the portion to be selected for redemption. The Senior Convertible Notes (or portion thereof) so selected shall be deemed duly selected for redemption for all purposes hereof, notwithstanding that any such Senior Convertible Note is converted in whole or in part before the mailing of the notice of redemption. Upon any redemption of less than all the Senior Convertible Notes, the Company and the Trustee may treat as outstanding any Senior Convertible Notes surrendered for conversion during the period of 15 days preceding the mailing of a notice of redemption and need not treat as outstanding any Senior Convertible Note authenticated and delivered during such period in exchange for the unconverted portion of any Senior Convertible Note converted in part during such period. SECTION 3.04 Notice of Redemption. -------------------- At least 20 days but not more than 60 days before a redemption date, the Company shall mail by first class mail a notice of redemption to each holder whose Senior Convertible Notes are to be redeemed, at such holder's registered address. The notice shall identify the Senior Convertible Notes to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) if any Senior Convertible Note is being redeemed in part, the portion of the principal amount of such Senior Convertible Note to be redeemed and that, after the redemption date, upon surrender of such Senior Convertible Note, a new Senior Convertible Note or Senior Convertible Notes in principal amount equal to the unredeemed portion will be issued in the name of the holder thereof; (4) that Senior Convertible Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (5) that interest and Liquidated Damages, if applicable, on Senior Convertible Notes called for redemption and for which funds have been set apart for payment, ceases to accrue on and after the redemption date (unless the Company defaults in the payment of the redemption -18- price or the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture); (6) the paragraph of the Senior Convertible Notes pursuant to which the Senior Convertible Notes called for redemption are being redeemed; (7) the aggregate principal amount of Senior Convertible Notes (if less than all) that are being redeemed; (8) the CUSIP number of the Senior Convertible Notes (provided that the disclaimer permitted by Section 2.13 may be made); (9) the name and address of the Paying Agent; (10) that Senior Convertible Notes called for redemption may be converted at any time prior to the close of business on the last trading day immediately preceding the redemption date and if not converted prior to the close of business on such date, the right of conversion will be lost; and (11) that in the case of Senior Convertible Notes or portions thereof called for redemption on a date that is also an Interest Payment Date, the interest payment and Liquidated Damages, if any, due on such date shall be paid to the person in whose name the Senior Convertible Note is registered at the close of business on the relevant Regular Record Date. The notice if mailed in the manner herein provided shall be conclusively presumed to have been 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 Senior Convertible Note designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any Senior Convertible Note. At the Company's written request delivered at least 15 days prior to the date on which such notice is to be given (unless a shorter period shall be acceptable to the Trustee), the Trustee shall give notice of redemption in the Company's name and at the Company's expense. SECTION 3.05 Effect of Notice of Redemption. ------------------------------ Once notice of redemption is mailed, Senior Convertible Notes called for redemption become due and payable on the redemption date at the redemption price set forth in the Senior Convertible Note. SECTION 3.06 Deposit of Redemption Price. --------------------------- On or before the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money in immediately available funds sufficient to pay the redemption price of and accrued interest (including Liquidated Damages) on all Senior Convertible Notes to be -19- redeemed on that date. The Trustee or the Paying Agent shall return to the Company any money not required for that purpose. On and after the redemption date, unless the Company shall default in the payment of the redemption price, interest and Liquidated Damages, if applicable, will cease to accrue on the principal amount of the Senior Convertible Notes or portions thereof called for redemption and for which funds have been set apart for payment, and such Senior Convertible Notes, or portions thereof, shall cease after the close of business on the business day immediately preceding the Redemption date to be convertible into Common Stock and, except as provided in this Section 3.06 and Section 8.4, to be entitled to any benefit or security under this Indenture, and the holders thereof shall have no right in respect of such Senior Convertible Notes, or portions thereof, except the right to receive the Redemption price thereof and unpaid interest and Liquidated Damages, if any, to (but excluding) the Redemption date. In the case of Senior Convertible Notes or portions thereof redeemed on a Redemption date which is also an Interest Payment Date, the interest payment and Liquidated Damages, if any, due on such date shall be paid to the person in whose name the Senior Convertible Note is registered at the close of business on the relevant Regular Record Date. SECTION 3.07 Senior Convertible Notes Redeemed in Part. ------------------------------------------- Upon surrender of a Senior Convertible Note that is redeemed in part only, the Company shall issue and the Trustee shall authenticate and deliver to the holder of a Senior Convertible Note a new Senior Convertible Note equal in principal amount to the unredeemed portion of the Senior Convertible Note surrendered, at the expense of the Company, except as specified in Section 2.06. SECTION 3.08 Conversion Arrangement on Call for Redemption. ----------------------------------------------- In connection with any redemption of Senior Convertible Notes, the Company may arrange for the purchase and conversion of any Senior Convertible Notes by an arrangement with one or more investment bankers or other purchasers to purchase such Senior Convertible Notes by paying to the Trustee in trust for the holders, on or before the date fixed for redemption, an amount not less than the applicable redemption price, together with interest and Liquidated Damages, if any, accrued to the date fixed for redemption, of such Senior Convertible Notes. Notwithstanding anything to the contrary contained in this Article 3, the obligation of the Company to pay the redemption price of such Senior Convertible Notes, together with interest and Liquidated Damages, if any, accrued to the date fixed for redemption, shall be deemed to be satisfied and discharged to the extent such amount is so paid by the purchasers. If such an agreement is entered into, a copy of which will be filed with the Trustee prior to the date fixed for redemption, any Senior Convertible 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 11) 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 Senior Convertible Notes shall be deemed to have been extended through such time), subject to -20- 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 Senior Convertible Notes. Without the Trustee's prior written consent, no arrangement between the Company and such purchasers for the purchase and conversion of any Senior Convertible 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 defend 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 Senior Convertible Notes between the Company and such purchasers to which the Trustee has not consented in writing, including the costs and expenses incurred by the Trustee in the defense of any claim or liability arising out of or in connection with the exercise or performance of any of its powers, duties, responsibilities or obligations under this Indenture. ARTICLE 4 COVENANTS SECTION 4.01 Payment of Senior Convertible Notes. ----------------------------------- The Company shall pay the principal of (including any premium) and interest (including Liquidated Damages) on the Senior Convertible Notes on the dates and in the manner provided in the Senior Convertible Notes. Principal, premium, interest, liquidated damages, the redemption price and the Designated Event Payment shall be considered paid on the date due if the Trustee or Paying Agent (other than the Company or a subsidiary of the Company) holds as of 10:00 a.m., New York City time, on that date immediately available funds designated for and sufficient to pay all principal, (including any premium) interest (including Liquidated Damages), the redemption price or the Designated Event Payment then due. To the extent lawful, the Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on (i) overdue principal (including any premium), at the rate borne by Senior Convertible Notes, compounded semiannually; and (ii) overdue installments of interest and liquidated damages, if any, (without regard to any applicable grace period) at the same rate, compounded semiannually. SECTION 4.02 Commission Reports. ------------------ The Company shall comply with Section 314(a) of the TIA. SECTION 4.03 Compliance Certificate. ---------------------- The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company, an Officers' Certificate stating that a review of the activities of the Company and its subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has fully -21- performed its obligations under this Indenture and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge, the Company is not in default in the performance or observance of any of the terms and conditions hereof (or, if any Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge) and, that to the best of his or her knowledge, no event has occurred and remains in existence by reason of which payments on account of the principal (including any premium) of or interest (including Liquidated Damages) on the Senior Convertible Notes are prohibited. The Company shall, so long as any of the Senior Convertible Notes are outstanding, deliver to the Trustee, forthwith upon becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. SECTION 4.04 Maintenance of Office or Agency. ------------------------------- The Company shall maintain or cause to be maintained the office or agency required under Section 2.03. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency not maintained 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, presentations, surrenders, notices and demands with respect to the Senior Convertible Notes may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Senior Convertible Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designation. SECTION 4.05 Continued Existence. ------------------- Subject to Article 5, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence. SECTION 4.06 Repurchase Upon Designated Event. -------------------------------- Following a Designated Event (the date of each such occurrence being the "Designated Event Date"), the Company shall notify the holders of Senior Convertible Notes in writing of such occurrence and shall make an offer (the "Designated Event Offer") to repurchase all Senior Convertible Notes then outstanding at a repurchase price in cash (the "Designated Event Payment") equal to 100% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to, but excluding, the Designated Event Payment Date (as defined below). Notice of a Designated Event shall be mailed by or at the direction of the Company to the holders of Senior Convertible Notes as shown on the Register of such holders maintained by the Registrar not more than 30 days after the applicable Designated Event Date at the addresses as -22- shown on the Register of holders maintained by the Registrar, with a copy to the Trustee and the Paying Agent. The Designated Event Offer shall remain open until a specified date (the "Designated Event Offer Termination Date") which is at least 30 business days from the date such notice is mailed. During the period specified in such notice, holders of Senior Convertible Notes may elect to tender their Senior Convertible Notes in whole or in part in integral multiples of $1,000 in exchange for cash. Payment shall be made by the Company in respect of Senior Convertible Notes properly tendered pursuant to this Section on a specified business day (the "Designated Event Payment Date") which shall be no earlier than five business days after the applicable Designated Event Offer Termination Date and no later than 70 days after the applicable Designated Event Date. The notice, which shall govern the terms of the Designated Event Offer, shall include a form of written notice of repurchase substantially in the form attached in Exhibit A hereto (the "Designated Event Purchase Notice") to be completed by the holder and shall include such disclosures as are required by law and shall state: (a) that a Designated Event Offer is being made pursuant to this Section 4.06 and that all Senior Convertible Notes will be accepted for payment; (b) the event, transaction or transactions that constitute the Designated Event; (c) the Designated Event Payment for each Senior Convertible Note, the Designated Event Offer Termination Date and the Designated Event Payment Date; (d) that any Senior Convertible Note not accepted for payment will continue to accrue interest and Liquidated Damages, if applicable, in accordance with the terms thereof; (e) that, unless the Company defaults on making the Designated Event Payment, any Senior Convertible Note accepted for payment pursuant to the Designated Event Offer shall cease to accrue interest and Liquidated Damages, if applicable, on the Designated Event Payment Date and no further interest or Liquidated Damages shall accrue on or after such date; (f) that holders electing to have Senior Convertible Notes repurchased pursuant to a Designated Event Offer will be required to surrender their Senior Convertible Notes to the Paying Agent at the address specified in the notice prior to 5:00 p.m., New York City time, on the Designated Event Offer Termination Date and must complete any form letter of transmittal proposed by the Company and acceptable to the Trustee and the Paying Agent; (g) that holders of Senior Convertible Notes will be entitled to withdraw their election if the Paying Agent receives, not later than 5:00 p.m., New York City time, on the Designated Event Offer Termination Date, a facsimile transmission or letter setting forth the name of the holder, the principal amount of Senior Convertible Notes the holder delivered for purchase, the Senior Convertible Note certificate number (if any) and a statement that such holder is withdrawing his election to have such Senior Convertible Notes purchased; -23- (h) that holders whose Senior Convertible Notes are repurchased only in part will be issued Senior Convertible Notes equal in principal amount to the unpurchased portion of the Senior Convertible Notes surrendered; (i) the instructions that holders must follow in order to tender their Senior Convertible Notes; and (j) that in the case of a Designated Event Payment Date that is also an interest payment date, the interest payment and Liquidated Damages, if any, due on such date shall be paid to the person in whose name the Senior Convertible Note is registered at the close of business on the relevant Designated Event Offer Termination Date. A holder of Senior Convertible Notes may exercise its rights specified in this Section 4.06 upon delivery of an irrevocable Designated Event Purchase Notice to the Trustee with a copy to the Paying Agent at any time on or prior to the 30th day after the date the Company delivers its written Designated Event notice. The delivery of such Security to the Trustee and the Paying Agent with the Designated Event Purchase Notice (together with all necessary endorsements) at the office of the Trustee and the Paying Agent shall be a condition to the receipt by the holder of the Designated Event Payment therefore; provided, however, that such Designated Event Payment shall be so paid pursuant to this Section 4.06 only if the Security so delivered to the Trustee and the Paying Agent shall conform in all respects to the description thereof set forth in the related Designated Event notice. On the Designated Event Offer Termination Date, the Company shall (i) accept for payment all Senior Convertible Notes or portions thereof properly tendered pursuant to the Designated Event Offer, (ii) deposit with the Paying Agent money sufficient to pay the Designated Event Payment with respect to all Senior Convertible Notes or portions thereof so tendered and accepted and (iii) deliver or cause to be delivered to the Trustee for cancellation the Senior Convertible Notes so accepted together with an Officers' Certificate setting forth the aggregate principal amount of Senior Convertible Notes or portions thereof tendered to and accepted for payment by the Company. On the Designated Event Payment Date, the Paying Agent shall mail or deliver the Designated Event Payment to the holders of Senior Convertible Notes so accepted and the Trustee shall promptly authenticate and mail or cause to be transferred by book entry to such holders a new Senior Convertible Note equal in principal amount to any unpurchased portion of the Senior Convertible Note surrendered, if any; provided that such new Convertible Subordinate Notes will be in a principal amount of $1,000 or an integral multiple thereof. Any Senior Convertible Notes not so accepted shall be promptly mailed or delivered by the Company to the holder thereof. In the case of any reclassification, change, consolidation, merger, share exchange, combination or sale or conveyance to which Section 11.06 applies in which the Common Stock of the Company is changed or exchanged as a result into the right to receive stock, securities or other property or assets (including cash) which includes shares of common stock of the Company -24- or another person that are, or upon issuance will be, traded on a United States national securities exchange or approved for trading on an established automated over-the-counter trading market in the United States and such shares constitute at the time such change or exchange becomes effective in excess of 50% of the aggregate fair market value of such stock, securities other property and assets (including cash) (as determined by the Company, which determination shall be conclusive and binding), then the person formed by such consolidation or resulting from such merger or share exchange or which acquires such assets, as the case may be, shall execute and deliver to the Trustee a supplemental indenture (which shall comply with the TIA as in force at the date of execution of such supplemental indenture) modifying the provisions of this Indenture relating to the right of holders of Senior Convertible Notes to cause the Company to repurchase Senior Convertible Notes following a Designated Event, including the applicable provisions of this Section 4.06 and the definitions of Designated Event, Change of Control and Termination of Trading, as appropriate, as determined in good faith by the Company (which determination shall be conclusive and binding), to make such provision apply to such common stock and the issuer thereof if different from the Company and Common Stock of the Company (in lieu of the Company and the Common Stock of the Company). The Designated Event Offer shall be made by the Company in compliance with all applicable provisions of the Exchange Act, and all applicable tender offer rules promulgated thereunder, to the extent such laws and regulations are then applicable and shall include all instructions and materials that the Company shall reasonably deem necessary to enable such holders of Senior Convertible Notes to tender their Senior Convertible Notes. SECTION 4.07 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 7.08, a Trustee, so that there shall at all times be a Trustee hereunder. SECTION 4.08 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 wherever enacted, now or at any time hereafter enforced, that may affect the Company's obligation to pay the Senior Convertible Notes; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law insofar as such law applies to the Senior Convertible Notes, and covenants that it shall 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 4.09 Taxes. ----- The Company shall, and shall cause each of its subsidiaries to, pay prior to delinquency all taxes, assessments and government levies; provided, however, that the Company shall not be -25- required to pay or cause to be paid any such tax, assessment or levy (A) if the failure to do so will not, in the aggregate, have a material adverse impact on the Company and its subsidiaries taken as a whole, or (B) if the amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 4.10 Investment Company Act. ---------------------- As long as any Senior Convertible Notes are outstanding, the Company will conduct its business and operations so as not to become an "investment company" within the meaning of the Investment Company Act of 1940, as amended (the "Investment Company Act"), and will take all steps required in order for it to continue not to be an "investment company" and not to be required to be registered under the Investment Company Act, including, if necessary, redeployment of the assets of the Company. ARTICLE 5 SUCCESSORS SECTION 5.01 When the Company May Merge, Etc. ------------------------------- The Company may not, in a single transaction or series of related transactions, consolidate or merge with or into or effect a share exchange with (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets to, any person as an entirety or substantially as an entirety unless: (a) either (i) the Company shall be the continuing corporation or (ii) the person formed by or surviving any such consolidation or share exchange or into which the Company is merged (if other than the Company) or the person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company as an entirety or substantially (1) shall be a corporation, partnership or trust organized under the laws of the United States or any State thereof or the District of Columbia and (2) shall expressly assume, by supplemental indenture in form reasonably satisfactory to the Trustee, executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest and Liquidated Damages, if any, on all of the Senior Convertible Notes and the performance of every covenant of the Senior Convertible Notes and this Indenture and the Registration Agreement on the part of the Company to be performed or observed, including, without limitation, modifications to rights of holders to cause the repurchase of Senior Convertible Notes upon a Designated Event in -26- accordance with the penultimate paragraph of Section 4.06 and conversion rights in accordance with Section 11.06 to the extent required by such Sections; (b) in all cases, immediately after giving effect to such transaction no Default and no Event of Default and no event that, after notice or lapse of time or both, would become an Event of Default shall have occurred and be continuing; and (c) if a supplemental indenture is to be executed in connection with such consolidation, merger, transfer or lease or other disposition, the Company or such person shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, share exchange, sale, assignment, conveyance, transfer or lease or other disposition complies with this provision of this Indenture and that all conditions precedent in this Indenture relating to such transaction have been satisfied. For purposes of this Section 5.01, the transfer (by lease, assignment, sale, conveyance or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more subsidiaries of the Company, the capital stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. SECTION 5.02 Successor Corporation Substituted. --------------------------------- Upon any such consolidation, merger, share exchange, sale, assignment, conveyance, lease, transfer or other disposition in accordance with Section 5.01, the successor person formed by such consolidation, or share exchange or into which the Company is merged or to which such sale, assignment, conveyance, lease, transfer or other disposition is made will succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor had been named as the Company therein, and thereafter (except in the case of a sale, assignment, transfer, lease, conveyance or other disposition) the predecessor corporation will be relieved of all further obligations and covenants under this Indenture and the Senior Convertible Notes. SECTION 5.03 Purchase Option on Change of Control. ------------------------------------ This Article 5 does not affect the obligations of the Company (including without limitation any successor to the Company) under Section 4.06. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01 Events of Default. ----------------- An "Event of Default" with respect to any Senior Convertible Notes occurs if: -27- (a) the Company defaults in the payment of principal of, or premium, if any, on the Senior Convertible Notes when due at maturity, upon repurchase, upon acceleration or otherwise, including, without limitation, failure of the Company to make any optional redemption payment when required pursuant to Article 3; or (b) the Company defaults in the payment of any installment of interest or Liquidated Damages on the Senior Convertible Notes when due (including any interest or Liquidated Damages payable in connection with a repurchase pursuant to Section 4.06 or in connection with any optional redemption payment pursuant to Article 3) and continuance of such default for 30 days or more; or (c) the Company fails to comply or observe in any material respect (other than a default set forth in clauses (a) and (b) above and clauses (d) and (e) below) any other covenant or agreement of the Company in respect of the Senior Convertible Notes set forth in this Indenture or the Senior Convertible Notes, and fails to remedy such default or breach within a period of 60 days after the receipt of written notice to the Company from the Trustee or to the Company and the Trustee from the holders of at least 25% in aggregate principal amount of the then outstanding Senior Convertible Notes; or (d) the Company defaults in the payment of the Designated Event Payment in respect of the Senior Convertible Notes on the date therefor; or (e) the Company fails to provide timely notice of any Designated Event in accordance with Section 4.06; or (f) a default under any credit agreement, mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any Material Subsidiary of the Company (or the payment of which is guaranteed by the Company or any of its Material Subsidiaries), whether such Indebtedness or guarantee exists on the date of this Indenture or is created thereafter, which default (i) is caused by a failure to pay when due any principal of or interest on such Indebtedness within the grace period provided for in such Indebtedness (which failure continues beyond any applicable grace period) (a "Payment Default") or (ii) results in the acceleration of such Indebtedness prior to its express maturity (without such acceleration being rescinded or annulled) and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness under which there is a Payment Default or the maturity of which has been so accelerated, aggregates to $35,000,000 or more and such Payment Default is not cured or such acceleration is not annulled within 30 days after receipt of written notice to the Company from the Trustee or to the Company and the Trustee from holders of at least 25% in aggregate principal amount of the then outstanding Senior Convertible Notes; or (g) a final, non-appealable judgment or final, non-appealable judgments (other than any judgment as to which a reputable insurance company has accepted full liability) for the payment of money are entered by a United States federal or state court or courts against the Company or any Material Subsidiaries of the Company and remain unstayed, unbonded or -28- undischarged for a period of 60 days, provided that the aggregate amount of all such judgments exceeds $50,000,000; or (h) the Company or any Material Subsidiary, pursuant to or within the meaning of any Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a Custodian (as defined below) of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors; (v) makes the admission in writing that it generally is unable to pay its debts as the same become due; or (i) a court of competent jurisdiction enters a judgment, order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any Material Subsidiary in an involuntary case, (ii) appoints a Custodian of the Company or any Material Subsidiary, and the order or decree remains unstayed and in effect for 90 days. (iii) orders the liquidation of the Company or any Material Subsidiary, and the order or decree remains unstayed and in effect for 90 days. The term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. SECTION 6.02 Acceleration. ------------ If an Event of Default (other than an Event of Default with respect to the Company specified in clauses (h) and (i) of Section 6.01) occurs and is continuing, then and in every such case the Trustee, by written notice to the Company, or the holders of at least 25% in aggregate principal amount of the then outstanding Senior Convertible Notes, by written notice to the Company and the Trustee, may declare the unpaid principal of, premium, if any, and accrued and unpaid interest and Liquidated Damages, if any, on all the Senior Convertible Notes to be due and payable. Upon such declaration such principal amount, premium, if any, and accrued and unpaid interest and Liquidated Damages, if any, shall become immediately due and payable, notwithstanding anything contained in this Indenture or the Senior Convertible Notes to the contrary. If any Event of Default with respect to the Company specified in clauses (h) or (i) of -29- Section 6.01 occurs, all unpaid principal of and premium, if any, and accrued and unpaid interest and Liquidated Damages, if any, on the Senior Convertible Notes then outstanding shall become automatically due and payable, without any declaration or other act on the part of the Trustee or any holder of Senior Convertible Notes. The holders of a majority in aggregate principal amount of the then outstanding Senior Convertible Notes by written notice to the Trustee may rescind an acceleration of the Senior Convertible Notes and its consequences if all existing Events of Default (other than nonpayment of principal of or premium, if any, and interest and Liquidated Damages, if any, on the Senior Convertible Notes which has become due solely by virtue of such acceleration) have been cured or waived and if the rescission would not conflict with any judgment or decree of any court of competent jurisdiction. No such rescission shall affect any subsequent Default or Event of Default or impair any right consequent thereto. SECTION 6.03 Other Remedies. -------------- If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, premium, if any, or interest or Liquidated Damages, if applicable, on the Senior Convertible Notes or to enforce the performance of any provision of the Senior Convertible Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Senior Convertible Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any holder of a Senior Convertible Note in exercising any right or remedy occurring upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 6.04 Waiver of Past Defaults. ----------------------- The holders of a majority in aggregate principal amount of the Senior Convertible Notes then outstanding may, on behalf of the holders of all the Senior Convertible Notes, waive an existing Default or Event of Default and its consequences, except a Default or Event of Default in the payment of the principal of, premium, if any, or interest or Liquidated Damages, if applicable, on the Senior Convertible Notes (other than the non-payment of principal of and premium, if any, and interest and Liquidated Damages, if any, on the Senior Convertible Notes which has become due solely by virtue of an acceleration which has been duly rescinded as provided above), or in respect of a covenant or provision of this Indenture which cannot be modified or amended without the consent of all holders of Senior Convertible Notes. When a Default or Event of Default is waived, it is cured and stops continuing. No waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. SECTION 6.05 Control by Majority. ------------------- The holders of a majority in aggregate principal amount of the then outstanding Senior Convertible 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 it. However, the -30- Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other holders of Senior Convertible Notes or that may involve the Trustee in personal liability; provided that the Trustee shall have no duty or obligation (subject to Section 7.01) to ascertain whether or not such actions of forebearances are unduly prejudicial to such holders; provided, further, that the Trustee may take any other action the Trustee deems proper that is not inconsistent with such directions. SECTION 6.06 Limitation on Suits. ------------------- A holder of a Senior Convertible Note may not pursue any remedy with respect to this Indenture or the Senior Convertible Notes unless: (1) the holder gives to the Trustee notice of a continuing Event of Default; (2) the holders of at least 25% in principal amount of the then outstanding Senior Convertible Notes make a request to the Trustee to pursue the remedy; (3) such holder or holders offer and, if requested, provide to the Trustee indemnity reasonably satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not act on the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (5) during such 60-day period the holders of a majority in principal amount of the then outstanding Senior Convertible Notes do not give the Trustee a direction inconsistent with the request. A holder of a Senior Convertible Note may not use this Indenture to prejudice the rights of another holder or to obtain a preference or priority over another holder. SECTION 6.07 Rights of Holders To Receive Payment. ------------------------------------- Notwithstanding any other provision of this Indenture, the right of any holder of a Senior Convertible Note to receive payment of principal, premium, if any, and interest and Liquidated Damages, if any, on the Senior Convertible Note, on or after the respective due dates expressed in the Senior Convertible Note, or to bring suit for the enforcement of any such payment on or after such respective dates, or to bring suit for the enforcement of the right to convert the Senior Convertible Note shall not be impaired or affected without the consent of the holder of a Senior Convertible Note. SECTION 6.08 Collection Suit by Trustee. -------------------------- If an Event of Default specified in Section 6.01(a), (b) or (d) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal, premium, if any, and interest and Liquidated Damages, if any, remaining unpaid on the Senior Convertible Notes and interest on overdue -31- principal, premium, if any, and interest and Liquidated Damages, if any, and such further amount as shall be sufficient to cover the costs and, to the extent lawful, expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09 Trustee May File Proofs of Claim. -------------------------------- The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the holders of Senior Convertible Notes allowed in any judicial proceedings relative to the Company, its creditors or its property. Nothing contained herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any holder of a Senior Convertible Note any plan of reorganization, arrangement, adjustment or composition affecting the Senior Convertible Notes or the rights of any holder thereof, or to authorize the Trustee to vote in respect of the claim of any holder in any such proceeding. SECTION 6.10 Priorities. ---------- If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 7.07, including payment of all compensation, expenses and liabilities incurred, and all advances made, by the Trustee, and the costs and expenses of collection; Second: to holders of Senior Convertible Notes for amounts due and unpaid on the Senior Convertible Notes for principal, premium, if any, and interest and Liquidated Damages, if any, ratably, without preference or priority of any kind, according to the amounts due and payable on the Senior Convertible Notes for principal, premium, if any, and interest and Liquidated Damages, if any, respectively; and Third: to the Company. Except as otherwise provided in Section 2.12, the Trustee may fix a record date and payment date for any payment to holders of Senior Convertible Notes. SECTION 6.11 Undertaking for Costs. --------------------- 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 a Trustee, a court in its discretion may require the filing by any party litigant in the suit, other than the Trustee, of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply -32- to a suit by the Trustee, a suit by a holder pursuant to Section 6.07 or a suit by holders of more than 10% in principal amount of the then outstanding Senior Convertible Notes. ARTICLE 7 THE TRUSTEE The Trustee hereby accepts the trust imposed upon it by this Indenture and covenants and agrees to perform the same, as herein expressed. Whether or not herein expressly so 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 Article 7. SECTION 7.01 Duties of the Trustee. --------------------- (a) If an Event of Default known to a Trust Officer of the Trustee has occurred and is continuing, 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 his or her own affairs. (b) Except during the continuance of an Event of Default known to the Trustee: (1) The duties of the Trustee shall be determined solely by the express provisions of this Indenture, and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any statements, certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the form required by this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section; (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. -33- (d) Whether or not therein expressly so provided, every provision of this Indenture that is in any way related to the Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any financial liability in the performance of any of its duties or the exercise of any of its rights and powers hereunder, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk of liability is not reasonably assured to it. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 7.02 Rights of the Trustee. --------------------- (a) The Trustee may conclusively rely on and shall be protected in acting or refraining from acting upon any resolution, Officers' Certificate, or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, security or other document believed in good faith by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter contained therein. (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 is herein specifically prescribed). In addition, before the Trustee acts or refrains from acting, it may require an Officers' Certificate, an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its attorneys and agents and other persons not regularly in its employ and shall not be responsible for the misconduct or negligence of any attorney or agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith without negligence or willful misconduct which it believes to be authorized or within its discretion, rights or powers. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by Officers of the Company. (f) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. -34- (g) 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 discretion of any of the holders of Senior Convertible Notes pursuant to the provisions of this Indenture, unless such holders have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred therein or thereby. (h) 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, consent, order, security or other document unless requested in writing to do so by the holders of not less than a majority in aggregate principal amount of the Senior Convertible Notes then outstanding, provided that if the Trustee determines in its discretion to make any such investigation, then it shall be entitled, upon reasonable prior notice and during normal business hours, to examine the books and records and the premises of the Company, personally or by agent or attorney, and 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 reimbursed by the Company upon demand. (i) The permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as a duty, and the Trustee shall not be answerable for other than its negligence or willful misconduct. (j) The Trustee shall not be responsible for the computation of any adjustment to the Conversion Price or for any determination as to whether an adjustment is required and shall not be deemed to have knowledge of any adjustment unless and until it shall have received the notice from the Company contemplated by Section 11.05(j). (k) 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 each agent, custodian and other Person employed to act hereunder. (l) The Trustee may request that the Company deliver an Officers' Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers' Certificate may be signed by any person authorized to sign an Officers' Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded. SECTION 7.03 Individual Rights of the Trustee. --------------------------------- Subject to Sections 7.10 and 7.11, the Trustee in its individual or any other capacity may become the owner or pledgee of Senior Convertible Notes with the same rights it would have if it were not the Trustee and may otherwise deal with the Company or an Affiliate of the Company and receive, collect, hold and retain collections from the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. -35- SECTION 7.04 Trustee's Disclaimer. --------------------- The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Senior Convertible Notes. It shall not be accountable for the Company's use of the proceeds from the Senior Convertible Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture. It shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Senior Convertible Notes or any other document in connection with the sale of the Senior Convertible Notes or pursuant to this Indenture other than its certificate of authentication. SECTION 7.05 Notice of Defaults. ------------------- If a Default or Event of Default occurs and is continuing and if it is known to a Trust Officer of the Trustee, the Trustee shall mail to each holder of a Senior Convertible Note a notice of the Default or Event of Default within 90 days after it occurs. A Default or an Event of Default shall not be considered known to a Trust Officer of the Trustee unless it is a Default or Event of Default in the payment of principal, premium, if any, or interest and Liquidated Damages, if any, when due under Section 6.01(a), (b) or (e) or a Trust Officer of the Trustee shall have received notice thereof, in accordance with this Indenture, from the Company or from the holders of a majority in principal amount of the outstanding Senior Convertible Notes. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest or Liquidated Damages, if any, on any Senior Convertible Note, the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interest of the holders of the Senior Convertible Notes. SECTION 7.06 Reports by the Trustee to Holders. ---------------------------------- Within 60 days after the reporting date stated in Section 10.10, the Trustee shall mail to holders of Senior Convertible Notes a brief report dated as of such reporting date that complies with TIA (S) 313(a) (but if no event described in TIA (S) 313(a) has occurred within twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA (S) 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA (S) 313(c). A copy of each report at the time of its mailing to holders of Senior Convertible Notes shall be filed, at the expense of the Company, by the Trustee with the Commission and each stock exchange or securities market, if any, on which the Senior Convertible Notes are listed or quoted. The Company shall timely notify the Trustee when the Senior Convertible Notes are listed or quoted on any stock exchange or securities market. SECTION 7.07 Compensation and Indemnity. --------------------------- The Company shall pay to the Trustee from time to time, and the Trustee shall be entitled to such compensation for its acceptance of this Indenture and its services hereunder as the Company and the Trustee shall from time to time agree in writing. The Trustee's compensation -36- shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by or on behalf of it in addition to the compensation for its services. Such expenses may include the reasonable compensation, disbursements and expenses of the Trustee's agents, counsel and other persons not regularly in its employ. The Company shall indemnify the Trustee against, and defend and hold the Trustee harmless from, any loss, liability or expense incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture and the trusts hereunder, including the costs and expenses of defending itself against or investigating any claim of liability in the premises, except as set forth in the next paragraph. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim with counsel designated by the Company, who may be outside counsel to the Company but shall in all events be reasonably satisfactory to the Trustee, and the Trustee shall cooperate in the defense. In addition, the Trustee may retain one separate counsel and, if deemed advisable by such counsel, local counsel, and the Company shall pay the reasonable fees and expenses of such separate counsel and local counsel. The indemnification herein extends to any settlement, provided that the Company will not be liable for any settlement made without its consent, provided, further, that such consent will not be unreasonably withheld. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through its own negligence or willful misconduct. The Trustee shall have a lien prior to the Senior Convertible Notes on all money or property held or collected by the Trustee to secure the Company's payment obligations in this Section 7.07, except that held in trust to pay principal, premium, if any, and interest and Liquidated Damages, if any, on Senior Convertible Notes. Such liens and the Company's obligations under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(h) or (i) occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.08 Replacement of the Trustee. --------------------------- A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08. The Trustee may resign at any time and be discharged from the trust hereby created by so notifying the Company. The holders of a majority in principal amount of the then outstanding Senior Convertible Notes may remove the Trustee by so notifying the Trustee and the Company in writing and may appoint a successor Trustee. The Company may remove the Trustee if: -37- (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (3) a Custodian or public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the holders of a majority in principal amount of the then outstanding Senior Convertible Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, at the Company's expense, the Company or the holders of at least 10% in principal amount of the then outstanding Senior Convertible Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee after written request by any holder of a Senior Convertible Note who has been a holder for at least six months fails to comply with Section 7.10, such holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to holders of Senior Convertible Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided that all sums owing to the retiring Trustee hereunder have been paid and subject to the lien provided for in Section 7.07. Notwithstanding the replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee with respect to expenses and liabilities incurred by it prior to such replacement. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in the preceding paragraph. SECTION 7.09 Successor Trustee by Merger, etc. --------------------------------- If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business (including the trust created by this Indenture) to, another corporation or national banking association, the resulting, surviving or transferee corporation or -38- national banking association without any further act shall be the successor Trustee with the same effect as if the successor Trustee had been named as the Trustee herein. SECTION 7.10 Eligibility, Disqualification. ----------------------------- This Indenture shall always have a Trustee who satisfies the requirements of TIA ss. 310(a)(1). The Trustee shall always have a combined capital and surplus as stated in Section 10.10. The Trustee is subject to TIA ss. 310(b) regarding the disqualification of a trustee upon acquiring a conflicting interest. SECTION 7.11 Preferential Collection of Claims Against Company. -------------------------------------------------- The Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship set forth in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated therein. ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE SECTION 8.01 Discharge of Indenture. ----------------------- When (a) the Company delivers to the Trustee for cancellation all Senior Convertible Notes theretofore authenticated (other than any other Senior Convertible Notes which have been destroyed, lost or stolen and in lieu of or in substitution for which other Senior Convertible Notes have been authenticated and delivered) and not theretofore canceled, or (b) all the Senior Convertible Notes not theretofore canceled or delivered to the Trustee for cancellation have become due and payable, or are by their terms will 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 deposits with the Trustee, in trust, amounts sufficient to pay at maturity or upon redemption of all of the Senior Convertible Notes (other than any Senior Convertible Notes which have been mutilated, destroyed, lost or stolen and in lieu of or in substitution for which other Senior Convertible Notes have been authenticated and delivered) not theretofore canceled or delivered to the Trustee for cancellation, including principal and premium, if any, and interest and Liquidated Damages, if any, 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 also pays, or causes 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) rights of registration of transfer, substitution, replacement and exchange and conversion of Senior Convertible Notes, (ii) rights hereunder of holders of Senior Convertible Notes to receive payments of principal of and premium, if any, and interest, and Liquidated Damages, if any, on, the Senior Convertible Notes, (iii) the obligations under Sections 2.03 and 8.05 hereof and (iv) the rights, obligations and immunities of the Trustee hereunder), and the Trustee, on written demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel as required by Section 10.04 and at the Company's cost and expense, shall execute proper instruments acknowledging -39- satisfaction of and discharging this Indenture; the Company, however, hereby agrees 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 Senior Convertible Notes. SECTION 8.02 Deposited Monies to be Held in Trust by Trustee. ------------------------------------------------ Subject to Section 8.04, all monies deposited with the Trustee pursuant to Section 8.01 shall be held in trust and applied by it to the payment either directly or through the Paying Agent, to the holders of the particular Senior Convertible 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 premium, if any, and interest, and Liquidated Damages, if any, premium, if any. SECTION 8.03 Paying Agent to Repay Monies Held. ---------------------------------- Upon the satisfaction and discharge of this Indenture, all monies then held by any Paying Agent (other than the Trustee and not pursuant to Section 8.01) shall, upon the Company's demand, 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 8.04 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 interest (including Liquidated Damages) on Senior Convertible Notes and not applied but remaining unclaimed by the holders thereof for two years after the date upon which the principal of, premium, if any, or interest (including Liquidated Damages) on such Senior Convertible Notes, as the case may be, have become due and payable, shall be repaid to the Company by the Trustee on written demand; provided, however, that the Company, or the Trustee at the written request and expense of the Company, shall have first caused notice of such payment to the Company to be mailed to each holder of a Senior Convertible Note entitled thereto no less than 30 days prior to such payment and all liability of the Trustee shall thereupon cease with respect to such monies; and the holder of any of the Senior Convertible 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 8.05 Reinstatement. -------------- If the Trustee or the Paying Agent is unable to apply any money in accordance with Section 8.02 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Senior Convertible Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.01 until such time as the Trustee or the Paying Agent is permitted to apply all such money in accordance with Section 8.02; provided, however, -40- that if the Company makes any payment of interest (including Liquidated Damages) on or principal of any Senior Convertible Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the holders thereof to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENTS SECTION 9.01 Without the Consent of Holders. ------------------------------- The Company and the Trustee may amend this Indenture or the Senior Convertible Notes without notice to or the consent of any holder of a Senior Convertible Note for the purposes of: (a) curing any ambiguity or correcting or supplementing any defective or inconsistent provision contained in this Indenture or making any other changes in the provisions of this Indenture which the Company and the Trustee may deem necessary or desirable provided such amendment does not materially and adversely affect the legal rights under the Indenture of the holders of Senior Convertible Notes. (b) providing for uncertificated Senior Convertible Notes in addition to or in place of certificated Senior Convertible Notes; (c) evidencing the succession of another person to the Company and providing for the assumption by such successor of the covenants and obligations of the Company hereunder and in the Senior Convertible Notes as permitted by Section 5.01; (d) providing for conversion rights of holders of Senior Convertible Notes in the event of consolidation, merger, share exchange or sale of all or substantially all of the assets of the Company as required to comply with Sections 5.01 and/or 11.06; (e) reducing the Conversion Price; (f) evidence and provide for the acceptance of appointment under this Indenture of a successor Trustee; (g) making any changes that would provide the holders of the Senior Convertible Notes with any additional rights or benefits or that does not adversely affect the legal rights under this Indenture of any such holder; (h) complying with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the TIA; or (i) modify the restrictions on, and procedures for, resale and other transfers of Common Stock pursuant to law, regulation or practice relating to the resale or transfer of restricted securities generally. -41- SECTION 9.02 With the Consent of Holders. ---------------------------- Subject to Section 6.07, the Company and the Trustee may amend this Indenture or the Senior Convertible Notes with the written consent of the holders of at least a majority in principal amount of the then outstanding Senior Convertible Notes (including consents obtained in connection with a tender offer or exchange offer for Senior Convertible Notes). Subject to Sections 6.04 and 6.07, the holders of a majority in principal amount of the Senior Convertible Notes then outstanding may also waive compliance in a particular instance by the Company with any provision of this Indenture or the Senior Convertible Notes. However, without the consent of each holder of a Senior Convertible Note affected, an amendment or waiver under this Section may not (with respect to any Senior Convertible Notes held by a non-consenting holder): (a) reduce the principal amount of Senior Convertible Notes whose holders must consent to an amendment, supplement or waiver; (b) reduce the principal of, or premium on, or change the fixed maturity of any Senior Convertible Note or, except as permitted pursuant to Section 9.01(a), (d), (g) or (h), alter the redemption or repurchase provisions with respect thereto; (c) reduce the rate of, or change the time for payment of, interest, including defaulted interest, or Liquidated Damages on any Senior Convertible Note; (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest or Liquidated Damages on the Senior Convertible Notes (except a rescission of acceleration of the Senior Convertible Notes by the holders of at least a majority in aggregate principal amount of the Senior Convertible Notes then outstanding and a waiver of the payment default that resulted from such acceleration); (e) make the principal of, or premium, if any, or interest or Liquidated Damages on, any Senior Convertible Note payable in money other than as provided for herein and in the Senior Convertible Notes; (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of holders of Senior Convertible Notes to receive payments of principal of, premium, if any, or interest or Liquidated Damages on the Senior Convertible Notes; (g) waive a redemption payment or a Designated Event Payment with respect to any Senior Convertible Notes; (h) increase the Conversion Price or, except as permitted herein (including Section 9.01(a)), modify the provisions contained herein relating to conversion of the Senior Convertible Notes in a manner adverse to the holders thereof; or -42- (i) make any change to the abilities of holders of Senior Convertible Notes to enforce their rights hereunder or the provisions of clauses (a) through (i) of this Section 9.02. To secure a consent of the holders of Senior Convertible Notes under this Section, it shall not be necessary for such holders to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment or waiver under this Section becomes effective, the Company shall mail to holders of Senior Convertible Notes a notice briefly describing the amendment or waiver. SECTION 9.03 Compliance with the Trust Indenture Act. ---------------------------------------- Every amendment to this Indenture or the Senior Convertible Notes shall be set forth in a supplemental indenture that complies with the TIA as then in effect. SECTION 9.04 Revocation and Effect of Consents. ---------------------------------- Until an amendment or waiver becomes effective, a consent to it by a holder of a Senior Convertible Note is a continuing consent by the holder and every subsequent holder of a Senior Convertible Note or portion of a Senior Convertible Note that evidences the same debt as the consenting holder's Senior Convertible Note, even if notation of the consent is not made on any Senior Convertible Note. However, any such holder or subsequent holder may revoke the consent as to his or her Senior Convertible Note or portion of a Senior Convertible Note if the Trustee receives the notice of revocation before the date on which the Trustee receives an Officers' Certificate certifying that the holders of the requisite principal amount of Senior Convertible Notes have consented to the amendment or waiver. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the holders of Senior Convertible Notes entitled to consent to any amendment or waiver. If a record date is fixed, then notwithstanding the provisions of the immediately preceding paragraph, those persons who were holders of Senior Convertible Notes at such record date (or their duly designated proxies), and only those persons, shall be entitled to consent to such amendment or waiver or to revoke any consent previously given, whether or not such persons continue to be holders after such record date. No consent shall be valid or effective for more than 90 days after such record date unless consents from holders of the principal amount of Senior Convertible Notes required hereunder for such amendment or waiver to be effective shall have also been given and not revoked within such 90-day period. After an amendment or waiver becomes effective it shall bind every holder of a Senior Convertible Note, unless it is of the type described in clauses (a) - - (i) of Section 9.02. In such case, the amendment or waiver shall bind each holder of a Senior Convertible Note who has consented to it and every subsequent holder of a Senior Convertible Note or portion of a Senior Convertible Note that evidences the same debt as the consenting holder's Senior Convertible Note. -43- SECTION 9.05 Notation on or Exchange of Senior Convertible Notes. ---------------------------------------------------- Senior Convertible Notes authenticated and delivered after the execution of any supplemental indenture pursuant to this Article 9 may, and shall if required by the Trustee, bear a notation in the form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Senior Convertible Notes so modified as to conform, in the opinion of the Company and the Trustee, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for outstanding Senior Convertible Notes without charge to the holders of the Senior Convertible Notes, except as specified in Section 2.06. SECTION 9.06 Trustee Protected. ------------------ The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article 9 if such amendment or supplemental indenture does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If such amendment or supplemental indenture does adversely affect the rights, duties, liabilities or immunities of the Trustee, the Trustee may, but need not, sign it. In signing such amendment or supplemental indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel as conclusive evidence that such amendment or supplemental indenture is authorized or permitted by this Indenture, that it is not inconsistent herewith, and that it will be valid and binding upon the Company in accordance with its terms. ARTICLE 10 GENERAL PROVISIONS SECTION 10.01 Trust Indenture Act Controls. ----------------------------- If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA ss. 318(c), such duties imposed by such section of the TIA shall control. If any provision of this Indenture expressly modifies or excludes any provision of the TIA that may be so modified or excluded, the Indenture provision so modifying or excluding such provision of the TIA shall be deemed to apply. SECTION 10.02 Notices. -------- Any notice or communication by the Company or the Trustee to the other is duly given if in writing and delivered in person or mailed by first-class mail, with postage prepaid (registered or certified, return receipt requested), or sent by facsimile or overnight air couriers guaranteeing next day delivery, to the other's address as stated in Section 10.10. The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to holders of Senior Convertible Notes) shall be deemed to have been duly given at the time delivered by hand, if personally -44- delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when transmission is confirmed, if transmitted by facsimile; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Notwithstanding the foregoing, all notices to the Trustee shall be effective only upon receipt by a Trust Officer. Any notice or communication to a holder of a Senior Convertible Note shall be mailed by first-class mail, with postage prepaid, to his or her address shown on the Register kept by the Registrar. Failure to mail a notice or communication to a holder or any defect in it shall not affect its sufficiency with respect to other holders. If a notice or communication to a holder of a Senior Convertible Note is sent in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company sends a notice or communication to holders of Senior Convertible Notes, it shall send a copy to the Trustee and each Agent at the same time. All notices or communications shall be in writing. SECTION 10.03 Communication by Holders With Other Holders. -------------------------------------------- Holders may communicate pursuant to TIA (S) 312(b) with other holders with respect to their rights under this Indenture or the Senior Convertible Notes. The Company, the Trustee, the Registrar and the paying agent shall have the protection of TIA (S) 312(c). SECTION 10.04 Certificate and Opinion as to Conditions Precedent. --------------------------------------------------- Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 10.05) stating that, in the opinion of such person, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 10.05) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been complied with. SECTION 10.05 Statements Required in Certificate or Opinion. ---------------------------------------------- Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA (S) 314(a)(4)) shall include: -45- (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 statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he or she has made such examination or investigation as is necessary to enable him or her 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. Any Officers' Certificate may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, unless such Officer knows that the opinion with respect to the matters upon which his or her certificate may be based as aforesaid is erroneous. Any Opinion of Counsel may be based, insofar as it relates to factual matters, upon certificates, statements or opinions of, or representations by an officer or officers of the Company, or other persons or firms deemed appropriate by such counsel, unless such counsel knows that the certificates, statements or opinions or representations with respect to the matters upon which his or her opinion may be based as aforesaid are erroneous. Any Officers' Certificate, statement or Opinion of Counsel may be based, insofar as it relates to accounting matters, upon a certificate or opinion of or representation by an accountant (who may be an employee of the Company), or firm of accountants, unless such Officer or counsel, as the case may be, knows that the certificate or opinion or representation with respect to the accounting matters upon which his or her certificate, statement or opinion may be based as aforesaid is erroneous. SECTION 10.06 Rules by Trustee and Agents. ---------------------------- The Trustee may make reasonable rules for action by, or a meeting of, holders of Senior Convertible Notes. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 10.07 Legal Holidays. --------------- A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or required by law, regulation or executive order to close, and a "business day" is any day that is not a Legal Holiday. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If any date specified in this Indenture, including, without limitation, a redemption date under Paragraph 5 of Senior Convertible Notes, is a Legal Holiday, then such date shall be the next succeeding business day. -46- SECTION 10.08 No Recourse Against Others. --------------------------- No director, officer, employee, stockholder or Affiliate, as such, of the Company from time to time shall have any liability for any obligations of the Company under the Senior Convertible Notes or this Indenture or for any claim based on, in respect of, or by reason of such obligations or their creation. Each holder by accepting a Senior Convertible Note waives and releases all such liability. This waiver and release are part of the consideration for the Senior Convertible Notes. Each of such directors, officers, employees, shareholders and Affiliates is a third party beneficiary of this Section 10.08. SECTION 10.09 Counterparts. ------------- This Indenture may be executed in any number of counterparts and by the parties hereto in separate counterparts, 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 agreement. SECTION 10.10 Other Provisions. ----------------- The Company initially appoints the Trustee as Paying Agent, Registrar, Conversion Agent and authenticating agent. The reporting date for Section 7.06 is May 15 of each year. The first reporting date is the May 15 following the issuance of Senior Convertible Notes hereunder. The Trustee shall always have, or shall be a subsidiary of a bank or bank holding company which has, a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Company's address is: The Gap, Inc., Two Folsom Street, San Francisco, California 94105, Attention: Chief Financial Officer, Facsimile: (650) 874-7809. The Trustee's address is: The Bank of New York, 101 Barclay Street, 21W, Attention: Corporate Trust Administration, New York, New York 10286, Facsimile: (212) 896-7298. SECTION 10.11 Governing Law. -------------- The laws of the State of New York shall govern this Indenture and the Senior Convertible Notes. -47- SECTION 10.12 No Adverse Interpretation of Other Agreements. ---------------------------------------------- This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a subsidiary. Any such other indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 10.13 Successors. ----------- All agreements of the Company in this Indenture and the Senior Convertible Notes shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 10.14 Severability. ------------- In case any provision in this Indenture or in the Senior Convertible Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 10.15 Table of Contents, Headings, etc. --------------------------------- The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of 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. ARTICLE 11 CONVERSION OF SENIOR CONVERTIBLE NOTES SECTION 11.01 Right to Convert. ----------------- Subject to and upon compliance with the provisions of this Indenture, each holder of Senior Convertible Notes shall have the right, at his or her option, at any time on or before the close of business on the last trading day prior to the Maturity Date (except that, (a) with respect to any Senior Convertible Note or portion thereof which is called for redemption prior to such date, such right shall terminate, except as provided in the penultimate paragraph of Section 11.02, before the close of business on the last trading day preceding the date fixed for redemption (unless the Company defaults in payment of the redemption price in which case the conversion right will terminate at the close of business on the date such default is cured) and (b) with respect to any Senior Convertible Note or portion thereof subject to a duly completed election for repurchase, such right shall terminate on or before the close of business on the Designated Event Offer Termination Date (unless the Company defaults in the payment due upon repurchase or such holder elects to withdraw the submission of such election to repurchase in accordance with Section 4.06)) to convert the principal amount of any Senior Convertible Note held by such holder, 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 Senior Convertible Note or portion thereof to be converted by the Conversion Price in effect at such -48- time, by surrender of the Senior Convertible Note so to be converted in whole or in part in the manner provided in Section 11.02. A holder of Senior Convertible Notes is not entitled to any rights of a holder of Common Stock until such holder of Senior Convertible Notes has converted his or her Senior Convertible Notes to Common Stock, and only to the extent such Senior Convertible Notes are deemed to have been converted to Common Stock under this Article 11. SECTION 11.02 Exercise of Conversion Privilege; Issuance of Common Stock on ------------------------------------------------------------- Conversion; No Adjustment for Interest or Dividends. - ---------------------------------------------------- To exercise, in whole or in part, the conversion privilege with respect to any Senior Convertible Note, the holder of such Senior Convertible Note shall surrender such Senior Convertible Note, duly endorsed, at an office or agency maintained by the Company pursuant to Section 4.04, accompanied by the funds, if any, required by the last paragraph of this Section 11.02, and shall give written notice of conversion in the form provided on the Senior Convertible Notes (or such other notice which is acceptable to the Company) to the office or agency that the holder of Senior Convertible Notes elects to convert such Senior Convertible Note or such portion thereof specified in said notice. Such notice shall also state the name or names (with address or addresses) in which the certificate or certificates for shares of Common Stock which are issuable on such conversion shall be issued, and shall be accompanied by transfer taxes, if required pursuant to Section 11.07. Each such Senior Convertible Note surrendered for conversion shall, unless the shares issuable on conversion are to be issued in the same name as the registration of such Senior Convertible Note, be duly endorsed by, or be accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder of Senior Convertible Notes or his or her duly authorized attorney. The holder of such Senior Convertible Notes will not be required to pay any tax or duty which may be payable in respect of the issue or delivery of Common Stock on conversion, but will be required to pay any tax or duty which may be payable in respect of any transfer involved in the issue or delivery of Common Stock in a name other than the same name as the registration of such Senior Convertible Note. As promptly as practicable after satisfaction of the requirements for conversion set forth above, 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 4.04, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such Senior Convertible Note or portion thereof in accordance with the provisions of this Article 11 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 11.03 (which payment, if any, shall be paid no later than five business days after satisfaction of the requirements for conversion set forth above). Certificates representing shares of Common Stock will not be issued or delivered unless all taxes and duties, if any, payable by the holder have been paid. In case any Senior Convertible Note of a denomination of an integral multiple greater than $1,000 is surrendered for partial conversion, and subject to Section 2.02, the Company shall execute, and the Trustee shall authenticate and deliver to the holder of the Senior Convertible Note so surrendered, without charge to him or her, a new Senior Convertible Note or Senior Convertible Notes in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Senior Convertible Note. -49- Each conversion shall be deemed to have been effected as to any such Senior Convertible Note (or portion thereof) on the date on which the requirements set forth above in this Section 11.02 have been satisfied as to such Senior Convertible Note (or portion thereof), and the person in whose name any certificate or certificates for shares of Common Stock are 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 Company's stock transfer books are closed shall result in the person in whose name the certificates are to be issued becoming 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 Senior Convertible Note is surrendered. Any Senior Convertible Note or portion thereof surrendered for conversion during the period from the close of business on the Regular Record Date for any interest payment through the close of business on the last trading day immediately preceding such Interest Payment Date shall (unless such Senior Convertible Note or portion thereof being converted has been called for redemption pursuant to a notice of redemption mailed by the Company to the holders in accordance with the provisions of Section 3.04) be accompanied by payment, in funds acceptable to the Company, of an amount equal to the interest and Liquidated Damages, if any, otherwise payable on such Interest Payment Date on the principal amount being converted; provided however, that no such payment need be made if there exists at the time of conversion a default in the payment of interest or Liquidated Damages, if applicable, on the Senior Convertible Notes. An amount equal to such payment shall be paid by the Company on such Interest Payment Date to the holder of such Senior Convertible Note at the close of business on the Regular Record Date; provided, however, that if the Company defaults in the payment of interest or Liquidated Damages, if applicable, on such Interest Payment Date, such amount shall be paid to the person who made such required payment. Except as provided above in this Section 11.02, no adjustment shall be made for interest and Liquidated Damages, if any, accrued on any Senior Convertible Note converted or for dividends on any shares issued upon the conversion of such Senior Convertible Note as provided in this Article 11. SECTION 11.03 Cash Payments in Lieu of Fractional Shares. ------------------------------------------- No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of Senior Convertible Notes. If more than one Senior Convertible Note shall be surrendered for conversion at one time by the same holder, the number of full shares which shall be issuable upon conversion shall be computed on the basis of the aggregate principal amount of the Senior Convertible 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 Senior Convertible Note or Senior Convertible Notes, the Company shall make an adjustment therefor in cash based upon the Current Market Price (as defined in Section 11.05(g)) of the Common Stock on the last trading day prior to the date of conversion. -50- SECTION 11.04 Conversion Price. ----------------- The conversion price shall be as specified in the form of Senior Convertible Note attached as Exhibit A hereto, subject to adjustment as provided in this Article 11. SECTION 11.05 Adjustment of Conversion Price. ------------------------------- The Conversion Price shall be adjusted from time to time by the Company as follows: (a) If 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 shareholders 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 11.05(g)) 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 business on the day following the Record Date. If any dividend or distribution of the type described in this Section 11.05(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) If 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, if the 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. (c) If the Company shall issue rights or warrants to all holders of its outstanding shares of Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price (as defined in Section 11.05(g)) on the Record Date fixed for the determination of shareholders 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 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 -51- for determination of shareholders 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 be 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. If 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 shareholders 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, with the value of such consideration, if other than cash, to be determined by the Board of Directors. (d) If 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 11.05(a) applies) or evidences of its indebtedness, cash or other assets (including securities, but excluding (i) any rights or warrants of a type referred to in Section 11.05(c) and (ii) dividends and distributions paid exclusively in cash) (the foregoing hereinafter in this Section 11.05(d) called 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 11.05(g)) with respect to such distribution by a fraction of which the numerator shall be the Current Market Price (determined as provided in Section 11.05(g)) on such date less the 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) 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 holder of Senior Convertible Notes shall have the right to receive upon conversion of a Senior Convertible Note (or any portion thereof) the amount of Securities such holder would have received had such holder converted such Senior Convertible Note (or portion thereof) immediately prior to such Record Date. If 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 11.05(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 used in computing the Current Market Price pursuant to Section 11.05(g) to the extent possible. -52- Notwithstanding any other provision of this Section 11.05(d) to the contrary, rights, warrants, evidences of indebtedness, other securities, cash or other assets (including, without limitation, any rights distributed pursuant to any shareholder rights plan) shall be deemed not to have been distributed for purposes of this Section 11.05(d) if the Company makes proper provision so that each holder of Senior Convertible Notes who converts a Senior Convertible Note (or any portion thereof) after the date fixed for determination of shareholders entitled to receive such distribution shall be entitled to receive upon such conversion, in addition to the shares of Common Stock issuable upon such conversion, the amount and kind of such distributions that such holder would have been entitled to receive if such holder had, immediately prior to such determination date, converted such Senior Convertible Note into Common Stock. 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 11.05(d) (and no adjustment to the Conversion Price under this Section 11.05(d) shall be required) until the occurrence of the earliest Trigger Event, whereupon such rights and warrants shall be deemed to have been distributed and an appropriate adjustment to the Conversion Price under this Section 11.05(d) shall be made. If any such rights or warrants, including any such existing rights or warrants distributed prior to the date of this Indenture, are subject to subsequent events, upon the occurrence of each of which such rights or warrants shall become exercisable to purchase different securities, evidences of indebtedness or other assets, then the occurrence of each such event shall be deemed to be such date of issuance and record date with respect to new rights or warrants (and a termination or expiration of the existing rights or warrants 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 with respect thereto, that was counted for purposes of calculating a distribution amount for which an adjustment to the Conversion Price under this Section 11.05 was made, (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 or holders 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 which shall have expired or been terminated without exercise by any holders thereof, the Conversion Price shall be readjusted as if such rights and warrants had not been issued. For purposes of this Section 11.05(d) and Sections 11.05(a) and (c), any dividend or distribution to which this Section 11.05(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 11.05(c) applies (or both), shall be deemed instead to be (1) a dividend or distribution of -53- 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 11.05(c) applies (and any Conversion Price reduction required by this Section 11.05(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 11.05(a) and (c) with respect to such dividend or distribution shall then be made, except that (A) the Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of shareholders entitled to receive such dividend or other distribution", "Record Date fixed for such determination" and "Record Date" within the meaning of Section 11.05(a) and as "the date fixed for the determination of shareholders entitled to receive such rights or warrants", "the Record Date fixed for the determination of the shareholders entitled to receive such rights or warrants" and "such Record Date" within the meaning of Section 11.05(c) 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 11.05(a)). (e) If the Company shall, by dividend or otherwise, distribute cash to all holders of its Common Stock (excluding any cash that is distributed as part of a distribution referred to in Section 11.05(d)) in an aggregate amount that, combined together with (1) the aggregate amount of any other such all-cash distributions to all holders of its Common Stock within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this Section 11.05(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 resolution of the Board of Directors) 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 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to Section 11.05(f) has been made, exceeds 15% of the product of the Current Market Price (determined as provided in Section 11.05(g)) 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 15% 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 Record Date; provided, however, that if 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 holder of Senior Convertible Notes shall have the right to receive upon conversion of a Senior Convertible Note (or any portion thereof) the amount of cash such holder would have received had such holder converted such Senior Convertible Note (or portion thereof) immediately prior to such Record Date. If 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 -54- 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 11.05(m) 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 11.05(e). (f) If a tender offer (other than the purchase of Senior Convertible Notes as part of a Designated Event) made by the Company or any of its subsidiaries for all or any portion of the Common Stock expires and such tender offer (as amended upon the expiration thereof) requires the payment to shareholders (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 resolution of the Board of Directors) 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 resolution of the Board of Directors), 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 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this Section 11.05(f) has been made and (2) the aggregate amount of any such all-cash distributions to all holders of the Common Stock within 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to Section 11.05(e) has been made, exceeds 15% of the product of the Current Market Price (determined as provided in Section 11.05(g)) 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 Purchased 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 shareholders 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. If 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 11.05(f) to any -55- tender offer would result in an increase in the Conversion Price, no adjustment shall be made for such tender offer under this Section 11.05(f). (g) For purposes of this Section 11.05, the following terms shall have the meaning indicated: (1) "closing price" with respect to any securities on any day means the closing price on such day or, if no such sale takes place on such day, the average of the reported high and low prices on such day, 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 securities 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 average of the high and low 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 resolution of the Board of Directors. (2) "Current Market Price" means the average of the daily closing prices per share of Common Stock for the 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 Sections 11.05(a), (b), (c), (d), (e) or (f) occurs during such 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 11.05(a), (b), (c), (d), (e) or (f) 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 Sections 11.05(d) or (f), whose determination shall be conclusive and described in a resolution of the Board of Directors) 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 Section 11.05(f), the Current Market Price 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, -56- 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 11.05(a), (b), (c), (d), (e) or (f) 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 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 11.05, such adjustments shall be made to the Current Market Price as may be necessary or appropriate to effectuate the intent of this Section 11.05 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 shareholders 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 securities exchange, a day on which the New York Stock Exchange or another national securities 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. (h) The Company may make such reductions in the Conversion Price, in addition to those required by Sections 11.05(a), (b), (c), (d), (e) and (f), 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. -57- The Company from time to time may, to the extent permitted by law, reduce the Conversion Price by any amount for any period of at least 20 days, if the Board of Directors has made a determination that such reduction would be in the Company's best interests, which determination shall be conclusive and described in a resolution of the Board of Directors. The reduction in Conversion Price shall be irrevocable during this period. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to the holders of Senior Convertible Notes at his or her last address appearing on the Register of holders maintained for that purpose a notice of the reduction at least 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. (i) 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 11.05(i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article 12 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. (j) 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 each holder of Senior Convertible Notes at his or her last address appearing on the Register of holders maintained for that purpose within 20 days of the effective date of such adjustment. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. (k) In any case in which this Section 11.05 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 issuing to the holder of any Senior Convertible 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. (l) For purposes of this Section 11.05, 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 shall not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. -58- (m) In lieu of making any adjustment to the Conversion Price pursuant to Sections 11.05(e) and 11.05(f), the Company may elect to reserve an amount of cash for distribution to the holders of Senior Convertible Notes upon the conversion of the Senior Convertible Notes so that any such holder converting Senior Convertible 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 Senior Convertible Notes into Common Stock, together with any interest accrued with respect to such amount, in accordance with this Section 11.05(m). 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 that the holders of Senior Convertible Notes would have received if such holders had, immediately prior to the Record Date for such distribution, converted all of the Senior Convertible Notes into Common Stock. Any such funds so deposited by the Company with the Trustee shall be invested by the Trustee at the written direction of the Company in U.S. Government Obligations with a maturity not more than three (3) months from the date of issuance. Upon conversion of Senior Convertible Notes by a holder thereof, such holder shall 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 Senior Convertible 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 11.05(m), the Company shall give or shall cause to be given notice to all holders of Senior Convertible Notes of such election, which notice shall state the amount of cash per $1,000 principal amount of Senior Convertible Notes such holders shall be entitled to receive (excluding interest) upon conversion of the Senior Convertible Notes as a consequence of the Company having made such election. SECTION 11.06 Effect of Reclassification, Consolidation, Merger or Sale. --------------------------------------------------------- If any of the following events occur: (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, share exchange 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 or other disposition of the properties and assets of the Company as an entirety 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 TIA as in force at the date of execution of such supplemental indenture if such supplemental indenture is then required to so comply) providing that the Senior Convertible Notes shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such -59- reclassification, change, consolidation, merger, share exchange, combination, sale, conveyance or other disposition by a holder of a number of shares of Common Stock issuable upon conversion of the Senior Convertible Notes (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available to convert all such Senior Convertible Notes) immediately prior to such reclassification, change, consolidation, merger, share exchange, combination, sale, conveyance or other disposition assuming such holder of Common Stock did not exercise his or her rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such reclassification, change, consolidation, merger, share exchange, sale, conveyance or other disposition (provided that, if the kind or amount of securities, cash or other property receivable upon such reclassification, change, consolidation, merger, share exchange, sale, conveyance or other disposition is not the same for each share of Common Stock in respect of which such rights of election have not been exercised ("non-electing share"), then, for the purposes of this Section 11.06, the kind and amount of securities, cash or other property receivable upon such reclassification, change, consolidation, merger, share exchange, sale, conveyance or other disposition 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 11. If, in the case of any such reclassification, change, consolidation, merger, share exchange, combination, sale, conveyance or other disposition, the stock or other securities and assets receivable thereupon by a holder of shares of Common Stock includes 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, share exchange, combination, sale, conveyance or other disposition, 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 Senior Convertible Notes as the Board of Directors shall reasonably consider necessary by reason of the foregoing. The Company shall cause notice of the execution of such supplemental indenture to be mailed to each holder of Senior Convertible Notes at his or her address appearing on the Register of holders for that purpose within 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 11.06 shall similarly apply to successive reclassifications, changes, consolidations, mergers, share exchanges, combinations, sales, conveyances and other dispositions. If this Section 11.06 applies to any event or occurrence, Section 11.05 shall not apply. SECTION 11.07 Taxes on Shares Issued. ---------------------- The issue of stock certificates on conversions of Senior Convertible Notes shall be made without charge to the converting holder 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 -60- Senior Convertible 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 11.08 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 Senior Convertible Notes from time to time as such Senior Convertible Notes are presented for conversion. 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 Senior Convertible Notes, the Company shall 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 Senior Convertible Notes will be duly authorized and validly issued and 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 as long as the Common Stock is listed on the New York Stock Exchange and the Pacific Stock Exchange, or its successor, the Company shall cause all Common Stock issuable upon conversion of the Senior Convertible Notes to be eligible for such listings in accordance with, and at the times required under, the requirements of such markets, and if at any time the Common Stock becomes listed on any other national securities exchange, or quoted on the Nasdaq National Market System or any other automated quotation system, the Company shall cause all Common Stock issuable upon conversion of the Senior Convertible Notes to be so listed or quoted and kept so listed or quoted. SECTION 11.09 Responsibility of Trustee. ------------------------- The Trustee shall not at any time be under any duty or responsibility to any holders of Senior Convertible 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 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 Senior Convertible Note; and the Trustee makes no representations with respect thereto. Subject to the provisions of Section 7.01, the Trustee shall not 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 Senior -61- Convertible Note for the purpose of conversion or to comply with any of the duties, responsibilities or covenants of the Company contained in this Article 11. Without limiting the generality of the foregoing, the Trustee shall not have any responsibility to determine the correctness of any provisions contained in any supplemental indenture entered into pursuant to Section 11.06 relating either to the kind or amount of shares of stock or securities or property (including cash) receivable by holders of Senior Convertible Notes upon the conversion of their Senior Convertible Notes after any event referred to in such Section 11.06 or to any adjustment to be made with respect thereto, but, subject to the provisions of Section 7.01, may accept as conclusive evidence of the correctness of any such provisions, and shall fully be protected in relying upon, the Officers' Certificate and Opinion of Counsel (which the Company shall be obligated to file with the Trustee prior to the execution of any such supplemental indenture) with respect thereto. SECTION 11.10 Notice to Holders Prior to Certain Actions. -------------------------------------------- If (a) the Company declares a dividend (or any other distribution) on its Common Stock (other than in cash out of retained earnings or other than a dividend that results in an adjustment in the Conversion Price pursuant to Section 11.05 as to which the Company has made an election in accordance with Section 11.05(m)); or (b) the Company authorizes the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any share of any class of Common Stock or any other rights or warrants (other than rights or warrants referred to in the second paragraph of Section 11.05(d)); or (c) there is any reclassification of the Common Stock (other than a subdivision or combination of 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, merger or share exchange 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 or other disposition of all or substantially all of the assets of the Company; or (d) there is any voluntary or involuntary dissolution, liquidation or winding-up of the Company; then the Company shall cause to be filed with the Trustee and to be mailed to each holder of Senior Convertible Notes at his or her address appearing on the Register maintained for that purpose as promptly as possible but in any event at least 15 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 or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, share exchange, 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 -62- other property deliverable upon such reclassification, consolidation, merger, share exchange, 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, share exchange, sale, transfer, dissolution, liquidation or winding-up. SECTION 11.11 Restriction on Common Stock Issuable Upon Conversion. ------------------------------------------------------ (a) Shares of Common Stock to be issued upon conversion of Senior Convertible Notes prior to the effectiveness of a Shelf Registration Statement shall be physically delivered in certificated form to the holders converting such Securities, and the certificate representing such shares of Common Stock shall bear the Restricted Common Stock Legend unless removed in accordance with Section 11.11(c). (b) If (i) shares of Common Stock to be issued upon conversion of a Senior Convertible Note prior to the effectiveness of a Shelf Registration Statement are to be registered in a name other than that of the holder of such Senior Convertible Note or (ii) shares of Common Stock represented by a certificate bearing the Restricted Common Stock Legend are transferred subsequently by such holder, then, unless the Shelf Registration Statement has become effective and such shares are being transferred pursuant to the Shelf Registration Statement, the holder must deliver to the transfer agent for the Common Stock a certificate in substantially the form of Exhibit C as to compliance with the restrictions on transfer applicable to such shares of Common Stock, and neither the transfer agent nor the registrar for the Common Stock shall be required to register any transfer of such Common Stock not so accompanied by a properly completed certificate. (c) Except in connection with a Shelf Registration Statement, if certificates representing shares of Common Stock are issued upon the registration of transfer, exchange or replacement of any other certificate representing shares of Common Stock bearing the Restricted Common Stock Legend, or if a request is made to remove such Restricted Common Stock Legend from certificates representing shares of Common Stock, the certificates so issued shall bear the Restricted Common Stock Legend, or the Restricted Common Stock Legend shall not be removed, as the case may be, unless there is delivered to the Company such satisfactory evidence, which, in the case of a transfer made pursuant to Rule 144 under the Securities Act, may include an opinion of counsel as may be reasonably required by the Company, that neither the legend nor the restrictions on transfer set forth therein are required to ensure that transfers thereof comply with the provisions of Rule 144A, Rule 144 or Regulation S under the Securities Act or that such shares of Common Stock are securities that are not "restricted" within the meaning of Rule 144 under the Securities Act. Upon provision to the Company of such reasonably satisfactory evidence, the Company shall cause the transfer agent for the Common Stock to countersign and deliver certificates representing shares of Common Stock that do not bear the legend. -63- IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed, all as of the date first above written, signifying their agreements contained in this Indenture. THE GAP, INC. By: /s/ Sabrina Simmons -------------------- Name: Sabrina Simmons Title: Vice President and Treasurer THE BANK OF NEW YORK, not in its individual capacity but solely as Trustee By: /s/ Michael Pitfick --------------------- Name: Michael Pitfick Title: Assistant Vice President -64- EXHIBIT A (Face of Security) [Global Securities Legend] [The following legend shall appear on the face of each Global Security: THIS SENIOR CONVERTIBLE NOTE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A NOMINEE OF THE DEPOSITARY, WHICH MAY BE TREATED BY THE COMPANY, THE TRUSTEE AND ANY AGENT THEREOF AS OWNER AND HOLDER OF THIS SENIOR CONVERTIBLE NOTE FOR ALL PURPOSES.] [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 DEPOSITARY 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 THE AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OR 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. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR REGISTERED SENIOR CONVERTIBLE NOTES IN DEFINITIVE REGISTERED FORM IN THE LIMITED CIRCUMSTANCES REFERRED TO IN THE INDENTURE, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE 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 NOMINEE.] [Restricted Securities Legend] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE OFFERED, RESOLD, PLEDGED A-1 OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF THE ISSUANCE HEREOF (OR ANY PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER THAT WAS AN "AFFILIATE" (WITHIN THE MEANING OF RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (3) IN AN OFFSHORE TRANSACTION (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND OTHER JURISDICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER OR (2) NOT A U.S. PERSON AND IS OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (k)(2) OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT. IN ANY CASE THE HOLDER HEREOF WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING TRANSACTION WITH REGARD TO THIS SECURITY OR ANY COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY EXCEPT AS PERMITTED BY THE SECURITIES ACT. A-2 No. $ __________ CUSIP 364760 AH 1 THE GAP, INC. 5.75% SENIOR CONVERTIBLE NOTE DUE 2009 promises to pay to CEDE & CO. or registered assigns, the principal sum of _______________ Dollars on March 15, 2009 Interest Payment Dates: March 15 and September 15, commencing September 15, 2002 Regular Record Dates: March 1 and September 1 THE GAP, INC. By ________________________ Title: Certificate of Authentication This is one of the Senior Convertible Notes described in the within- mentioned Indenture. THE BANK OF NEW YORK, as Trustee By ________________________ Authorized Signatory Dated: _______________ A-3 (Back of Security) THE GAP, INC. 5.75% SENIOR CONVERTIBLE NOTES DUE 2009 1. INTEREST. The Gap, Inc., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Senior Convertible Note at the rate per annum shown above. The Company will pay interest semi-annually in arrears on March 15 and September 15 of each year, beginning September 15, 2002. Interest on the Senior Convertible Notes will accrue from the most recent Interest Payment Date to which interest has been paid or, if no interest has been paid, from March 5, 2002. Interest (including any Liquidated Damages) will be computed on the basis of a 360-day year composed of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest (and Liquidated Damages, if any) on the Senior Convertible Notes (except defaulted interest) to the person in whose name each Senior Convertible Note is registered at the close of business on the March 1 or September 1 immediately preceding the relevant Interest Payment Date (other than with respect to a Senior Convertible Note or portion thereof called for redemption on a redemption date, or repurchased in connection with a Designated Event on a repurchase date, during the period from the close of business on a Regular Record Date to (but excluding) the next succeeding Interest Payment Date, in which case accrued interest (and Liquidated Damages, if any) shall be payable (unless such Senior Convertible Note or portion thereof is converted) to the holder of the Senior Convertible Note or portion thereof redeemed or repurchased in accordance with the applicable redemption or repurchase provisions of the Indenture). The holder must surrender Senior Convertible Notes to a Paying Agent to collect principal payments. The Company will pay the principal of, premium, if any, and interest (including Liquidated Damages, if any) on the Senior Convertible Notes at the office or agency of the Company maintained for such purpose, in money of the United States that at the time of payment is legal tender for payment of public and private debts. Until otherwise designated by the Company, the Company's office or agency maintained for such purpose will be the principal Corporate Trust Office of the Trustee. However, the Company may pay principal, premium, if any, and interest (including Liquidated Damages, if any) by check payable in such money, and may mail such check to the holders of the Senior Convertible Notes at their respective addresses as set forth in the Register. 3. PAYING AGENT AND REGISTRAR. The Bank of New York (together with any successor Trustee under the Indenture referred to below, the "Trustee"), will act as Paying Agent and Registrar. The Company may change the Paying Agent, Registrar or co-registrar without prior notice. Subject to certain limitations in the Indenture, the Company or any of its subsidiaries may act in any such capacity. 4. INDENTURE. The Company issued the Senior Convertible Notes under an Indenture dated as of March 5, 2002 (the "Indenture") between the Company and the Trustee. The terms of the Senior Convertible Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (SS).(SS).77aaa-77bbbb) (the "TIA") as in effect on the date of the Indenture. The Senior Convertible Notes are subject to, and A-4 qualified by, all such terms, certain of which are summarized hereon, and holders are referred to the Indenture and the TIA for a statement of such terms. The Senior Convertible Notes are senior unsecured obligations of the Company limited to (except as otherwise provided in the Indenture) up to $1,200,000,000 in aggregate principal amount, unless an election has been made as set forth in Article 2 of the Indenture to increase such aggregate principal amount to an amount not to exceed $1,380,000,000. Capitalized terms not defined herein have the same meaning as is given to them in the Indenture. 5. OPTIONAL REDEMPTION. On or after March 20, 2005, the Company shall have the option to redeem the Senior Convertible Notes, in whole or from time to time in part, at the following redemption prices (expressed as percentages of principal amount), if redeemed during the twelve month period beginning March 15 of each year indicated (March 20, 2005, in the case of the first such year) plus accrued and unpaid interest (and Liquidated Damages, if any) to, but excluding, the date fixed for redemption: Redemption Year Price ---- ----- 2005 .................. 102.46% 2006 .................. 101.64% 2007 .................. 100.82% 2008 .................. 100.00% Notice of redemption will be mailed by first class mail at least 20 days but not more than 60 days before the date fixed for redemption to each holder of Senior Convertible Notes to be redeemed at his or her registered address. Senior Convertible Notes in denominations larger than $1,000 may be redeemed in part but only in integral multiples of $1,000. If less than all the Senior Convertible Notes are to be redeemed, the Trustee shall select the Senior Convertible Notes to be redeemed by a method that complies with the requirements of the principal national securities exchange, if any, on which the Senior Convertible Notes are listed or quoted, or, if the Senior Convertible Notes are not so listed, on a pro rata basis, by lot or by any other method that the Trustee considers fair and appropriate. On and after the redemption date, interest (and Liquidated Damages, if any) will cease to accrue on Senior Convertible Notes or portions thereof called for redemption (unless the Company defaults in the payment of the redemption price). If this Senior Convertible Note is redeemed on a date which is also an Interest Payment Date, the interest payment (and Liquidated Damages, if any) due on such date will be paid to the person in whose name this Senior Convertible Note is registered at the close of business on the Regular Record Date. 6. DESIGNATED EVENT. Upon the occurrence of a Designated Event, the Company shall make a Designated Event Offer to repurchase all outstanding Senior Convertible Notes at a price equal to 100% of the aggregate principal amount of the Senior Convertible Notes, plus accrued and unpaid interest (and Liquidated Damages, if any) to, but excluding, the date of repurchase, such offer to be made as provided in the Indenture. To accept the Designated Event Offer, the holder hereof must comply with the terms thereof, including surrendering this Senior Convertible A-5 Note, with the "Designated Event Purchase Notice" portion thereof completed, to the Company, a depositary, if appointed by the Company, or a Paying Agent, at the address specified in the notice of the Designated Event Offer mailed to holders as provided in the Indenture, prior to termination of the Designated Event Offer. 7. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Convertible Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Senior Convertible Notes may be registered and Senior Convertible Notes may be exchanged as provided in the Indenture. As a condition of transfer, the Registrar and the Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents, and the Company and the Registrar may require a holder to pay any taxes and fees permitted by the Indenture. The Company or the Registrar need not exchange or register the transfer of any Senior Convertible Note or portion of a Senior Convertible Note selected for redemption. Also, the Company or the Registrar need not exchange or register the transfer of any Senior Convertible Note for a period of 15 days before a selection of Senior Convertible Notes to be redeemed. 8. PERSONS DEEMED OWNERS. The registered holder of a Senior Convertible Note will be treated as its owner for all purposes. 9. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture or the Senior Convertible Notes may be amended or supplemented with the consent of the holders of at least a majority in principal amount of the then outstanding Senior Convertible Notes, and any existing default (except a default in the payout of principal of, premium, if any, interest and liquidated damages, if any, (other than a default in the payout of principal of, premium, if any, interest and liquidated damages, if any, that has become due solely by virtue of an acceleration that has not been duly rescinded)) may be waived with the consent of the holders of a majority in principal amount of the then outstanding Senior Convertible Notes. Without the consent of any holder, the Indenture or the Senior Convertible Notes will be amended to: (a) cure any ambiguity or correct or supplement any defective or inconsistent provision contained in the Indenture, or make any other changes in the provisions of the Indenture which the Company and the Trustee may deem necessary or desirable provided such amendment does not materially and adversely affect the legal rights under the Indenture of the holders of Senior Convertible Notes; (b) provide for uncertificated Senior Convertible Notes in addition to or in place of certificated Senior Convertible Notes; (c) evidence the succession of another person to the Company and providing for the assumption by such successor of the covenants and obligations of the Company under the Indenture and in the Senior Convertible Notes as permitted by Section 5.01 of the Indenture; (d) provide for conversion rights of holders of Senior Convertible Notes in the event of consolidation, merger, share exchange or sale of all or substantially all of the assets of the Company as required to comply with Sections 5.01 and/or 11.06 of the Indenture; (e) reduce the Conversion Price; (f) evidence and provide for the acceptance of the appointment under the Indenture of a successor Trustee; (g) make any change that would provide any additional rights or benefits to the holders of Senior Convertible Notes or that does not adversely affect the legal rights under the Indenture of any such holder; (h) comply A-6 with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the TIA; or (i) modify the restrictions on, and procedures for, resale and other transfers of shares pursuant to law, regulation or practice relating to the resale or transfer of restricted securities generally. Without the consent of each holder affected, an amendment or waiver may not (with respect to any Senior Convertible Notes held by a non-consenting holder): (a) reduce the principal amount of Senior Convertible Notes whose holders must consent to an amendment, supplement or waiver; (b) reduce the principal of, or premium on, or change the fixed maturity of any Senior Convertible Note or, except as permitted pursuant to clause (a), (d), (g) or (h) of the immediately preceding paragraph, alter the provisions with respect to the redemption or repurchase of the Senior Convertible Notes; (c) reduce the rate of or change the time for payment of interest, including defaulted interest, or Liquidated Damages on any Senior Convertible Notes; (d) waive a Default or Event of Default in the payment of principal of, or premium, if any, or interest or Liquidated Damages on the Senior Convertible Notes (except a rescission of acceleration of the Senior Convertible Notes by the holders of at least a majority in aggregate principal amount of the Senior Convertible Notes and a waiver of the payment default that resulted from such acceleration); (e) make the principal of, or premium, if any, or interest or Liquidated Damages on, any Senior Convertible Note payable in money other than as provided for in the Indenture and in the Senior Convertible Notes; (f) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of holders of Senior Convertible Notes to receive payments of principal of, premium, if any, or interest or Liquidated Damages on the Senior Convertible Notes; (g) waive a redemption payment or a Designated Event Payment with respect to any Senior Convertible Note; (h) increase the Conversion Price or, except as permitted by the Indenture (including Section 9.01(a)), modify the provisions of the Indenture relating to conversion of the Senior Convertible Notes in a manner adverse to the holders thereof or (i) make any change to the ability of holder of Senior Convertible Notes to enforce their rights under the Indenture or the provisions of clauses (a) through (i) of Section 9.02 of the Indenture. 10. DEFAULTS AND REMEDIES. An Event of Default is: (a) default in payment of the principal of, or premium, if any, on the Senior Convertible Notes when due at maturity, upon repurchase, upon acceleration or otherwise; including, without limitation, failure of the Company to make any optional redemption payment; (b) default for 30 days or more in payment of any installment of interest or Liquidated Damages on the Senior Convertible Notes when due (including any interest or Liquidated Damages payable in connection with a repurchase pursuant to Section 4.06 of the Indenture or in connection with any optional redemption payment); (c) failure by the Company to comply or to observe in any material respect any other covenants or agreements of the Company in respect of the Senior Convertible Notes set forth in the Indenture or the Senior Convertible Notes for 60 days or more after notice as set forth in the Indenture; (d) default in the payment of the Designated Event Payment in respect of the Senior Convertible Notes on the date therefor; (e) failure to provide timely notice of a Designated Event; (f) default under any credit agreement, mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Material Subsidiaries (or the payment of which is guaranteed by the Company or any of its Material Subsidiaries), whether such Indebtedness or guarantee exists on A-7 the date of the Indenture or is created thereafter, which default (i) is caused by a failure to pay when due any principal of or interest on such Indebtedness within the grace period provided for in such Indebtedness (which failure continues beyond any applicable grace period) (a "Payment Default") or (ii) results in the acceleration of such Indebtedness prior to its express maturity (without such acceleration being rescinded or annulled) and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness under which there is a Payment Default or the maturity of which has been so accelerated, aggregates to $35,000,000 or more and such Payment Default is not cured or such acceleration is not annulled within 30 days after written notice to the Company from the Trustee or to the Company and the Trustee from the holders of at least 25% in aggregate principal amount of the Senior Convertible Notes then outstanding; or (g) failure by the Company or any Material Subsidiary of the Company to pay final, non-appealable judgments of a United States federal or state court or courts (other than any judgment as to which a reputable insurance company has accepted full liability) aggregating in excess of $50,000,000, which judgments are not stayed, bonded or discharged within 60 days after their entry; or (h) certain events involving bankruptcy, insolvency or reorganization of the Company or any Material Subsidiary. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the then outstanding Senior Convertible Notes may declare the unpaid principal of, premium, if any, and accrued and unpaid interest and Liquidated Damages, if any, on all Senior Convertible Notes then outstanding to be due and payable immediately, except that in the case of an Event of Default arising from certain events of bankruptcy, insolvency, or reorganization with respect to the Company or any of its Material Subsidiaries, all outstanding Senior Convertible Notes become due and payable without further action or notice. Holders of Senior Convertible Notes may not enforce the Indenture or the Senior Convertible Notes except as provided in the Indenture. The Trustee may require an indemnity satisfactory to it before it enforces the Indenture or the Senior Convertible Notes. Subject to certain limitations, holders of a majority in principal amount of the then outstanding Senior Convertible Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from holders notice of any continuing default (except a default in payment of principal, premium, if any, or interest or Liquidated Damages, if applicable) if it determines that withholding notice is in their interests. The Company must furnish annual compliance certificates to the Trustee. 11. TRUSTEE DEALINGS WITH THE COMPANY. Subject to Section 7.10 of the Indenture, the Trustee or any of its Affiliates, in their individual or any other capacities, may make or continue loans to or guaranteed by, accept deposits from and perform services for the Company or its Affiliates and may otherwise deal with the Company or its Affiliates as if it were not Trustee. 12. NO RECOURSE AGAINST OTHERS. No director, officer, employee, stockholder or Affiliate, as such, of the Company shall have any liability for any obligations of the Company under the Senior Convertible Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each holder by accepting a Senior Convertible Note waives and releases all such liability. The waiver and release are part of the consideration for the Senior Convertible Notes. A-8 13. AUTHENTICATION. This Senior Convertible Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 14. ABBREVIATIONS. Customary abbreviations may be used in the name of a holder or an assignee, such as: TEN CO = tenants in common, TEN ENT = tenants by the entireties, JT TEN = joint tenants with right of survivorship and not as tenants in common, CUST = Custodian and U/G/M/A = Uniform Gifts to Minors Act. 15. CONVERSION. Subject to and upon compliance with the provisions of the Indenture, the registered holder of this Senior Convertible Note has the right at any time on or before the close of business on the last trading day prior to the Maturity Date (or in case this Senior Convertible Note or any portion hereof is (a) called for redemption prior to such date, before the close of business on the last trading day preceding the date fixed for redemption (unless the Company defaults in payment of the redemption price in which case the conversion right will terminate at the close of business on the date such default is cured) or (b) subject to a duly completed election for repurchase, on or before the close of business on the Designated Event Offer Termination Date (unless the Company defaults in payment due upon repurchase or such holder elects to withdraw the submission of such election to repurchase ) to convert the principal amount hereof, 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 of the Company ("Common Stock") obtained by dividing the principal amount of the Senior Convertible Note or portion thereof to be converted by the conversion price of $16.12 per share, as adjusted from time to time as provided in the Indenture (the "Conversion Price"), upon surrender of this Senior Convertible Note to the Company at the office or agency maintained for such purpose (and at such other offices or agencies designated for such purpose by the Company), accompanied by written notice of conversion duly executed (and if the shares of Common Stock to be issued on conversion are to be issued in any name other than that of the registered holder of this Senior Convertible Note, by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder or its duly authorized attorney) and, in case such surrender shall be made during the period from the close of business on the Regular Record Date immediately preceding any Interest Payment Date through the close of business on the last trading day immediately preceding such Interest Payment Date (unless this Senior Convertible Note or the portion thereof being converted has been called for redemption on a date in such period), also accompanied by payment, in funds acceptable to the Company, of an amount equal to the interest and Liquidated Damages, if any, otherwise payable on such Interest Payment Date on the principal amount of the Senior Convertible Note then being converted. Subject to the aforesaid requirement for a payment in the event of conversion after the close of business on a Regular Record Date immediately preceding an Interest Payment Date, no adjustment shall be made on conversion for interest or Liquidated Damages accrued hereon or for dividends on Common Stock delivered on conversion. The right to convert this Senior Convertible Note is subject to the provisions of the Indenture relating to conversion rights in the case of certain consolidations, mergers, share exchanges or sales or transfers of substantially all the Company's assets. The Company shall not issue fractional shares or scrips representing fractions of shares of Common Stock upon any such conversion, but shall make an adjustment therefor in cash based A-9 upon the Current Market Price of the Common Stock on the last trading day prior to the date of conversion. 16. REGISTRATION AGREEMENT. The holder of this Senior Convertible Note is entitled to the benefits of a Registration Agreement, dated March 5, 2002, between the Company and the Initial Purchasers (the "Registration Agreement"). Pursuant to the Registration Agreement the Company has agreed for the benefit of the holders of the Senior Convertible Notes and the Common Stock issued and issuable upon conversion of the Senior Convertible Notes, that (i) it will, at its cost, within 90 days after the Issue Date, file a shelf registration statement (the "Shelf Registration Statement") with the Securities and Exchange Commission (the "Commission") with respect to resales of the Senior Convertible Notes and the Common Stock issuable upon conversion thereof, (ii) the Company will use its reasonable best efforts to cause such Shelf Registration Statement to be declared effective by the Commission under the Securities Act within 180 days after the Issue Date and (iii) the Company will use its reasonable best efforts to keep such Shelf Registration Statement continuously effective under the Securities Act until the earliest of (a) the second anniversary of the Issue Date or, if later, the second anniversary of the last date on which any Senior Convertible Notes are issued upon exercise of the Initial Purchasers' option, (b) the date on which all of the Senior Convertible Notes and the Common Stock issued or issuable upon conversion thereof may be sold to persons who are not "affiliates" (as defined in Rule 144) of the Company pursuant to paragraph (k) of Rule 144 (or any successor provision) promulgated by the Commission under the Securities Act, (c) the date as of which the Senior Convertible Notes and the Common Stock issued or issuable upon conversion thereof have been transferred pursuant to Rule 144 under the Securities Act (or any similar provision then in force) or (d) the date as of which all the Senior Convertible Notes and the Common Stock issued or issuable upon conversion thereof have been sold pursuant to the Shelf Registration Statement (as defined in the Registration Agreement). Not less than 30 calendar days prior to the date on which the Company intends in good faith to have the Shelf Registration Statement declared effective, the Company shall mail the Notice and Questionnaire (as defined in the Registration Agreement) to the holders of Transfer Restricted Securities (as defined in the Registration Agreement). If the Shelf Registration Statement (i) is not filed with the Commission on or prior to 90 days, or has not been declared effective by the Commission within 180 days, after the Issue Date or (ii) is filed and declared effective but shall thereafter cease to be effective (without being succeeded immediately by a replacement shelf registration statement filed and declared effective) or cease to be usable (including, without limitation, as a result of a Suspension Period as defined below) for the offer and sale of Transfer Restricted Securities (as defined in the Registration Agreement) for a period of time (including any Suspension Period) which shall exceed 90 days in the aggregate in any 12-month period during the period beginning on the Issue Date and ending on the second anniversary of the Issue Date or, if later, the second anniversary of the last date on which any Senior Convertible Notes are issued upon exercise of the Initial Purchasers' option (each such event referred to in clauses (i) and (ii) being referred to herein as a "Registration Default"), the Company will pay liquidated damages ("Liquidated Damages") to each holder of Transfer Restricted Securities which has complied with its obligations under the Registration Agreement. The amount of Liquidated Damages payable during any period in which a Registration Default A-10 shall have occurred and be continuing is that amount which is equal to one-quarter of one percent (25 basis points) per annum per $1,000 principal amount of Securities and $2.50 per annum per 62.035 shares of Common Stock (subject to adjustment from time to time in the event of a stock split, stock recombination, stock dividend and the like) constituting Transfer Restricted Securities for the first 90 days during which a Registration Default has occurred and is continuing and one-half of one percent (50 basis points) per annum per $1,000 principal amount of Securities and $5.00 per annum per 62.035 shares of Common Stock (subject to adjustment as set forth above) constituting Transfer Restricted Securities for any additional days during which such Registration Default has occurred and is continuing. The Company will pay all accrued Liquidated Damages on each Damages Payment Date (as defined in the Registration Agreement), and Liquidated Damages will be calculated on the basis of a 360-day year consisting of twelve 30-day months. Following the cure of a Registration Default, Liquidated Damages will cease to accrue with respect to such Registration Default. Immediately upon the occurrence or the termination of a Registration Default, the Company shall give the Trustee written notice of such commencement or termination, of the obligation to pay Liquidated Damages with regard to the Senior Convertible Notes and the amount thereof and of the event giving rise to such commencement or termination (such notice to be contained in an Officers' Certificate (as such term is defined in the Indenture)), and prior to receipt of such Officers' Certificate the Trustee shall be entitled to assume that no such commencement or termination has occurred, as the case may be. Pursuant to the Registration Agreement, the Company may suspend the use of the prospectus which is a part of the Shelf Registration Statement for a period not to exceed either 30 days in any three-month period or 90 days in the aggregate during any twelve-month period under certain circumstances (each, a "Suspension Period"); provided that the existence of a Suspension Period will not prevent the occurrence of a Registration Default or otherwise limit the obligation of the Company to pay Liquidated Damages. The above description of certain provisions of the Registration Agreement is qualified by reference to, and is subject in its entirety to, the more complete description thereof contained in the Registration Agreement. The Company will furnish to any holder upon written request and without charge a copy of the Indenture and the Registration Agreement. Requests may be made to: The Gap, Inc., Two Folsom Street, San Francisco, California 94105, Attention: Chief Financial Officer. 17. SINKING FUND. The Senior Convertible Notes do not have the benefit of any sinking fund obligations. A-11 FORM OF CONVERSION NOTICE To: THE GAP, INC. The undersigned beneficial owner of the Senior Convertible Note hereby irrevocably exercises the option to convert this Senior Convertible Note, or portion hereof (which is $1,000 or an integral multiple thereof) below designated, into shares of Common Stock of The Gap, Inc. in accordance with the terms of the Indenture referred to in this Senior Convertible Note, and directs that the shares issuable and deliverable upon the conversion, together with any check in payment for fractional shares and Senior Convertible Notes representing any unconverted principal amount hereof, be issued and delivered to the beneficial owner hereof unless a different name has been indicated below. If shares or any portion of this Senior Convertible 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 by the undersigned on account of interest, Liquidated Damages and taxes accompanies this Senior Convertible Note. Dated: ______________________________________________________ Fill in for registration of shares if to be delivered, ______________________________________________________ and Senior Convertible Notes if to be issued, other than to and in the name of the beneficial owner ______________________________________________________ (Please Print): Signature(s) __________________________________________ Principal amount to be converted (if less than all): (Name) $___,000 ___________________________________________ (Street Address) _______________________________________________________ Social Security or other Taxpayer Identification Number ___________________________________________ (City, State and Zip Code)
Signature Guarantee:* _____________________________ * Signatures must be guaranteed by an eligible Guarantor Institution (banks, brokers, dealers, 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 are to be issued, or Senior Convertible Notes are to be delivered, other than to and in the name of the registered holder(s). A-12 ASSIGNMENT FORM To assign this Senior Convertible Note, fill in the form below: (I) or (we) assign and transfer this Senior Convertible Note to ________________________________________________________________________________ (Insert assignee's social security or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ____________________________________ as agent to transfer this Senior Convertible Note on the books of the Company. The agent may substitute another to act for him. Your Signature: _____________________________________________ (Sign exactly as your name appears on the other side of this Senior Convertible Note) Date: ________________________________ Medallion Signature Guarantee: ______________________________ [FOR INCLUSION ONLY IF THIS SENIOR CONVERTIBLE NOTE BEARS A RESTRICTED SECURITIES LEGEND] In connection with any transfer of any of the Senior Convertible Notes evidenced by this certificate which are "restricted securities" (as defined in Rule 144 (or any successor thereto) under the Securities Act), the undersigned confirms that such Senior Convertible Notes are being transferred: CHECK ONE BOX BELOW (1) [_] to the Company; or (2) [_] pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or (3) [_] pursuant to and in compliance with Regulation S under the Securities Act of 1933; or (4) [_] pursuant to an exemption from registration under the Securities Act of 1933 provided by Rule 144 thereunder. A-13 Unless one of the boxes is checked, the Registrar will refuse to register any of the Senior Convertible Notes evidenced by this certificate in the name of any person other than the registered holder thereof; provided, however, that if box (3) or (4) is checked, the Trustee may require, prior to registering any such transfer of the Senior Convertible Notes, such certifications and other information, and if box (4) is checked such legal opinions, as the Company has reasonably requested in writing, by delivery to the Trustee of a standing letter of instruction, 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 of 1933; provided that this paragraph shall not be applicable to any Senior Convertible Notes which are not "restricted securities" (as defined in Rule 144 (or any successor thereto) under the Securities Act). Your Signature: ____________________________________________ (Sign exactly as your name appears on the other side of this Senior Convertible Note) Date: _____________ Medallion Signature Guarantee: ________________________________________________ A-14 DESIGNATED EVENT PURCHASE NOTICE If you wish to have this Senior Convertible Note repurchased by the Company pursuant to Section 4.06 of the Indenture, check the Box: [_] If you wish to have a portion of this Senior Convertible Note purchased by the Company pursuant to Section 4.06 of the Indenture, state the amount (in multiples of $1,000): $_____. Date: _____________ Your Signature: ___________________________________________ (Sign exactly as your name appears on the other side of this Senior Convertible Note) Medallion Signature Guarantee: ________________________________________________ A-15 EXHIBIT B FORM OF RESTRICTED COMMON STOCK LEGEND "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF THE ISSUANCE HEREOF (OR ANY PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER THAT WAS AN "AFFILIATE" (WITHIN THE MEANING OF RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (3) IN AN OFFSHORE TRANSACTION (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND OTHER JURISDICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER OR (2) NOT A U.S. PERSON AND IS OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (k)(2) OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT. IN ANY CASE THE HOLDER HEREOF WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING TRANSACTION WITH REGARD TO THIS SECURITY EXCEPT AS PERMITTED BY THE SECURITIES ACT." A-16 EXHIBIT C FORM OF TRANSFER CERTIFICATE FOR TRANSFER OF RESTRICTED COMMON STOCK (Transfers pursuant to Section 11.11(b) of the Indenture) [NAME AND ADDRESS OF COMMON STOCK TRANSFER AGENT] Re: The Gap, Inc. 5.75% Senior Convertible Notes due 2009 (the "Senior Convertible Notes") Reference is hereby made to the Indenture dated as of March 5, 2002 (the "Indenture") between The Gap, Inc. and The Bank of New York, as Trustee. Capitalized terms used but not defined herein shall have the meanings given them in the Indenture. This letter relates to _________ shares of Common Stock [represented by the accompanying certificate(s) that were] [to be] issued upon conversion of Senior Convertible Notes and which are held in the name of [name of transferor] (the "Transferor") to effect the transfer of such Common Stock. In connection with the transfer of such shares of Common Stock, the undersigned confirms that such shares of Common Stock are being transferred: CHECK ONE BOX BELOW (1) [_] to the Company; or (2) [_] pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or (3) [_] pursuant to and in compliance with Regulation S under the Securities Act of 1933; or (4) [_] pursuant to an exemption from registration under the Securities Act of 1933 provided by Rule 144 thereunder. A-17 Unless one of the boxes is checked, the transfer agent will refuse to register any of the Common Stock [evidenced by this certificate] [to be issued to] in the name of any person other than the registered holder thereof; provided, however, that if box (3) or (4) is checked, the transfer agent may require, prior to registering any such transfer of the Common Stock such certifications and other information, and if box (4) is checked such legal opinions, as the Company has reasonably requested in writing, by delivery to the transfer agent of a standing letter of instruction, 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 of 1933. [Name of Transferor], By: ___________________________ Name: _________________________ Title: ________________________ Dated: A-18 EX-4.2 4 dex42.txt REGISTRATION AGREEMENT, DATED MARCH 5, 2002 Exhibit 4.2 The Gap, Inc. $1,200,000,000/1/ 5.75% Senior Convertible Notes due 2009 REGISTRATION AGREEMENT New York, New York March 5, 2002 Banc of America Securities LLC J.P. Morgan Securities Inc. Salomon Smith Barney Inc. As Representatives of the Initial Purchasers Named in Schedule I to the Purchase Agreement (as defined below) c/o Salomon Smith Barney Inc. 388 Greenwich Street New York, New York 10013 Ladies and Gentlemen: The Gap, Inc., a Delaware corporation (the "Company"), proposes to issue ------- and sell (such issuance and sale, the "Initial Placement") to the several ----------------- parties named in Schedule I to the Purchase Agreement (the "Initial Purchasers") ------------------ for whom you (the "Representatives") are acting as representatives, upon the --------------- terms set forth in a purchase agreement, dated February 27, 2002 (the "Purchase -------- Agreement"), $1,200,000,000 aggregate principal amount (plus an option to - --------- purchase up to an additional $180,000,000 aggregate principal amount) of its 5.75% Senior Convertible Notes due 2009 (the "Securities"). The Securities will ---------- be convertible into shares of Common Stock (as defined herein), at the conversion price set forth in the Offering Memorandum (as defined herein), as the same may be adjusted from time to time pursuant to the Indenture (as defined herein). As an inducement to you to enter into the Purchase Agreement and in satisfaction of a condition to your obligations thereunder, the Company agrees with you, (i) for your benefit and (ii) for the benefit of the holders from time to time of the Securities and the Common Stock issuable upon conversion of the Securities, as follows: 1. Definitions. Capitalized terms used herein without definition ----------- shall have the respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following capitalized terms shall have the following meanings: "Act" means the Securities Act of 1933, as amended, and the rules and --- regulations of the SEC promulgated thereunder. "Affiliate" of any specified person means 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" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as used with respect to ______________________ /1/ Plus up to $180,000,000 additional principal amount of such notes subject to an option. any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such person whether through the ownership of voting securities or by agreement or otherwise. "Broker-Dealer" means any broker or dealer registered as such under the ------------- Exchange Act. "Business Day" has the meaning set forth in the Indenture. ------------ "Closing Date" means March 5, 2002. ------------ "Common Stock" means the common stock, par value $0.05 per share, of ------------ the Company, as it exists on the date of this Agreement and any other shares of capital stock or other securities of the Company into which such Common Stock may be reclassified or changed, together with any and all other securities which may from time to time be issuable upon conversion of Securities. "Damages Payment Date" means, with respect to the Securities or the -------------------- Common Stock issuable upon conversion thereof, as applicable, each Interest Payment Date; and in the event that any Security, or portion thereof, is called for redemption or surrendered for purchase by the Company pursuant to a Designated Event Offer (as defined in the Indenture) and not withdrawn, the relevant redemption date or Designated Event Payment Date (as defined in the Indenture), as the case may be, shall also be a Damages Payment Date with respect to such Security, or portion thereof, unless the Indenture provides that accrued and unpaid interest on the Security (or portion thereof) to be redeemed or repurchased, as the case may be, is to be paid to the person who was the Record Holder thereof on a record date prior to such redemption date or Designated Event Payment Date, as the case may be, in which case the relevant Damages Payment Date shall be the date on which interest is payable to such Record Holder. "Default Rate" means the rate of interest payable with respect to ------------ overdue amounts on the Securities pursuant to Section 4.01 of the Indenture. "DTC" has the meaning set forth in the Indenture. --- "Exchange Act" means the Securities Exchange Act of 1934, as amended, ------------ and the rules and regulations of the SEC promulgated thereunder. "Final Maturity Date" means March 15, 2009. ------------------- "Holder" means a person who is a holder or beneficial owner (including ------ the Initial Purchasers) of any Securities or shares of Common Stock issued upon conversion of Securities; provided that, unless otherwise expressly stated -------- herein, only registered holders of Securities or Common Stock issued on conversion thereof shall be counted for purposes of calculating any proportion of holders entitled to take any action or give notice pursuant to this Agreement. "Indenture" means the Indenture relating to the Securities, dated as of --------- March 5, 2002, between the Company and The Bank of New York, as trustee, as the same may be amended from time to time in accordance with the terms thereof. 2 "Initial Placement" has the meaning set forth in the preamble hereto. ----------------- "Initial Purchasers" has the meaning set forth in the preamble hereto. ------------------ "Interest Payment Date" shall mean March 15 and September 15. --------------------- "Liquidated Damages" has the meaning set forth in Section 2(e) hereof. ------------------ "Losses" has the meaning set forth in Section 5(d) hereof. ------ "Majority Holders" means the Holders of a majority of the then ---------------- outstanding aggregate principal amount of Securities registered under a Shelf Registration Statement; provided that Holders of Common Stock issued upon -------- conversion of Securities shall be deemed to be Holders of the aggregate principal amount of Securities from which such Common Stock was converted; and provided, further, that Securities or Common Stock which have been sold or - -------- ------- otherwise transferred pursuant to the Shelf Registration Statement shall not be included in the calculation of Majority Holders. "Majority Underwriting Holders" means, with respect to any Underwritten ----------------------------- Offering, the Holders of a majority of the then outstanding aggregate principal amount of Securities registered under any Shelf Registration Statement whose Securities are or are to be included in such Underwritten Offering; provided -------- that Holders of Common Stock issued upon conversion of Securities shall be deemed to be Holders of the aggregate principal amount of Securities from which such Common Stock was converted and provided, further, that Securities or Common -------- ------- Stock which have been sold or otherwise transferred pursuant to the Shelf Registration Statement shall not be included in the calculation of Majority Underwriting Holders. "Managing Underwriters" means the Underwriter or Underwriters that --------------------- shall administer an Underwritten Offering. "NASD" has the meaning set forth in Section 3(i) hereof. ---- "NASD Rules" means the rules and regulation promulgated by the NASD. ---------- "Notice and Questionnaire" means a Selling Securityholder Notice and ------------------------ Questionnaire substantially in the form of Exhibit A hereto. "Notice Holder" shall mean on any date, any Holder of Transfer ------------- Restricted Securities that has delivered a completed and signed Notice and Questionnaire to the Company on or prior to such date. "Offering Memorandum" means the Final Memorandum as defined in the ------------------- Purchase Agreement. "Person" has the meaning set forth in the Indenture. ------ "Prospectus" means the prospectus included in any Shelf Registration ---------- Statement (including, without limitation, a prospectus that discloses information previously omitted from a 3 prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Securities or Common Stock issuable upon conversion thereof covered by such Shelf Registration Statement, and all amendments and supplements to such prospectus, including all documents incorporated or deemed to be incorporated by reference in such prospectus. "Purchase Agreement" has the meaning set forth in the preamble hereto. ------------------ "Record Holder" means (i) with respect to any Damages Payment Date ------------- which occurs on an Interest Payment Date, each person who is registered on the books of the registrar as the holder of Securities at the close of business on the record date with respect to such Interest Payment Date and (ii) with respect to any Damages Payment Date relating to the Common Stock issued upon conversion thereof, each person who is a holder of record of such Common Stock fifteen days prior to the Damages Payment Date. "Registration Default" has the meaning set forth in Section 2(e) -------------------- hereof. "Representatives" has the meaning set forth in the preamble hereto. --------------- "Rule 144" means Rule 144 (or any successor provision) under the Act. -------- "SEC" means the Securities and Exchange Commission. --- "Securities" has the meaning set forth in the preamble hereto. ---------- "Shelf Registration" means a registration effected pursuant to Section ------------------ 2 hereof. "Shelf Registration Period" has the meaning set forth in Section 2(c) ------------------------- hereof. "Shelf Registration Statement" means a "shelf" registration statement ---------------------------- of the Company filed pursuant to the provisions of Section 2 hereof which covers some or all of the Securities and the Common Stock issuable upon conversion thereof, as applicable, on Form S-3 or on another appropriate form for an offering to be made on a delayed or continuous basis pursuant to Rule 415 under the Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all documents incorporated or deemed to be incorporated by reference therein. "Suspension Period" has the meaning set forth in Section 2(d) hereof. ----------------- "Transfer Restricted Securities" means each Security and each share of ------------------------------ Common Stock issuable or issued upon conversion thereof until the date on which such Security or share of Common Stock, as the case may be, (i) has been transferred pursuant to the Shelf Registration Statement or another registration statement covering such Security or share of Common Stock which has been filed with the SEC pursuant to the Act, in either case after such registration statement has become effective and while such registration statement is effective under the Act, (ii) has been transferred pursuant to Rule 144 under the Act (or any similar provision then in 4 force) or (iii) may be sold or transferred pursuant to Rule 144(k) under the Act (or any successor provision then in force). "Trustee" means the trustee with respect to the Securities under the ------- Indenture. "Underwriter" means any underwriter of the Securities or Common Stock ----------- issuable upon conversion thereof in connection with an offering thereof under a Shelf Registration Statement. "Underwritten Offering" means an offering in which the Securities or --------------------- Common Stock issued upon conversion thereof are sold to an Underwriter or with the assistance of an Underwriter for reoffering to the public. All references in this Agreement to financial statements and schedules and other information which is "contained", "included", or "stated" in the Shelf Registration Statement, any preliminary Prospectus or Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is incorporated or deemed to be incorporated by reference in such Shelf Registration Statement, preliminary Prospectus or Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Shelf Registration Statement, any preliminary Prospectus or Prospectus shall be deemed to mean and include any document filed with the SEC under the Exchange Act, after the date of such Shelf Registration Statement, preliminary Prospectus or Prospectus, as the case may be, which is incorporated or deemed to be incorporated by reference therein. 2. Shelf Registration Statement. ---------------------------- (a) The Company shall prepare and file with the SEC within 90 days following the Closing Date a Shelf Registration Statement with respect to resales of the Transfer Restricted Securities by the Holders from time to time in accordance with the methods of distribution elected by such Holders and set forth in such Shelf Registration Statement and thereafter shall use its reasonable best efforts to cause such Shelf Registration Statement to be declared effective under the Act within 180 days after the Closing Date; provided that if any Securities are issued upon exercise of the option granted - -------- to the Initial Purchasers in the Purchase Agreement and the date on which such Securities are issued occurs after the Closing Date, the Company will take such steps, prior to the effective date of the Shelf Registration Statement, to ensure that such Securities and Common Stock issuable upon conversion thereof are included in the Shelf Registration Statement on the same terms as the Securities issued on the Closing Date. The Company shall supplement or amend the Shelf Registration Statement if required by the rules, regulations or instructions applicable to the registration form used by the Company for the Shelf Registration Statement, or by the Act, the Exchange Act or the SEC. (b) Not less than 30 calendar days prior to the date on which the Company intends in good faith to have the Shelf Registration Statement declared effective, the Company shall mail the Notice and Questionnaire to the Holders of Transfer Restricted Securities. The Company shall take action to name each Holder that is a Notice Holder as of the date that is 20 calendar days prior to the effectiveness of the Shelf Registration Statement so that such Holder is named as a selling securityholder in the Shelf Registration Statement at the time of its 5 effectiveness and is permitted to deliver the Prospectus forming a part thereof as of such time to purchasers of such Holder's Transfer Restricted Securities in accordance with applicable law. The Company shall be under no obligation to name any Holder that is not a Notice Holder as a selling security holder in the Shelf Registration Statement. (2) After the Shelf Registration Statement has become effective, the Company shall, upon the request of any Holder of Transfer Restricted Securities, promptly send a Notice and Questionnaire to such Holder. From and after the date on which the Shelf Registration Statement has become effective, the Company shall (i) as promptly as is practicable after the date a completed and signed Notice and Questionnaire is delivered to the Company, and in any event within 10 Business Days after such date, prepare and file with the SEC (x) a supplement to the Prospectus or, if required by applicable law, a post-effective amendment to the Shelf Registration Statement and (y) any other document required by applicable law, so that the Holder delivering such Notice and Questionnaire is named as a selling securityholder in the Shelf Registration Statement and is permitted to deliver the Prospectus to purchasers of such Holder's Transfer Restricted Securities in accordance with applicable law, and (ii) 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 become effective under the Act as promptly as is practicable; provided, however, that -------- ------- if a Notice and Questionnaire is delivered to the Company during a Suspension Period, the Company shall not be obligated to take the actions set forth in clauses (i) and (ii) until the termination of such Suspension Period. (c) The Company shall use its reasonable best efforts to keep the Shelf Registration Statement continuously effective under the Act in order to permit the Prospectus forming a part thereof to be usable, subject to Section 2(d), by all Notice Holders until the earliest of (i) the second anniversary of the Closing Date or, if later, the second anniversary of the last date on which any Securities are issued upon exercise of the Initial Purchasers' option, (ii) the date on which all the Securities and Common Stock issued or issuable upon conversion thereof may be sold by non-affiliates ("affiliates" for such purpose having the meaning set forth in Rule 144) of the Company pursuant to paragraph (k) of Rule 144 (or any successor provision) promulgated by the SEC under the Act, (iii) the date as of which all the Securities and Common Stock issued or issuable upon conversion thereof have been transferred pursuant to Rule 144 under the Securities Act (or any similar provision then in force) and (iv) such date as of which all the Securities and the Common Stock issued or issuable upon conversion thereof have been sold pursuant to the Shelf Registration Statement (in any such case, such period being called the "Shelf Registration Period"). ------------------------- The Company will, (x) subject to Section 2(d), prepare and file with the SEC such amendments and post-effective amendments to the Shelf Registration Statement as may be necessary to keep the Shelf Registration Statement continuously effective for the Shelf Registration Period, (y) subject to Section 2(d), cause the related Prospectus to be supplemented by any required supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Act and (z) comply in all material respects with the provisions of the Act with respect to the disposition of all securities covered by the Shelf Registration Statement during the Shelf Registration Period in accordance with the intended methods of disposition by the sellers thereof set forth in such Shelf Registration Statement as so amended or such Prospectus as so supplemented. 6 (d) The Company may suspend the use of the Prospectus for a period not to exceed either 30 days in any three-month period or two periods of 60 days in the aggregate during any 12-month period (the "Suspension Period") for valid ----------------- business reasons, to be determined by the Company in its sole reasonable judgment (not including avoidance of the Company's obligations hereunder), including, without limitation, the acquisition or divestiture of assets, public filings with the SEC, pending corporate developments and similar events; provided that the Company promptly thereafter complies with the requirements of Section 3(j) hereof, if applicable; provided, further, that the existence of a Suspension Period will not prevent the occurrence of a Registration Default or otherwise limit the obligation of the Company to pay Liquidated Damages. (e) If (i) the Shelf Registration Statement is not filed with the SEC on or prior to 90 days after the Closing Date, (ii) the Shelf Registration Statement has not been declared effective by the SEC within 180 days after the Closing Date, or (iii) the Shelf Registration Statement is filed and declared effective but shall thereafter cease to be effective (without being succeeded immediately by a replacement shelf registration statement filed and declared effective) or usable (including as a result of a Suspension Period) for the offer and sale of Transfer Restricted Securities for a period of time (including any Suspension Period) which shall exceed 90 days in the aggregate in any 12-month period during the period beginning on the Closing Date and ending on the second anniversary of the Closing Date or, if later, the second anniversary of the last date on which any Securities are issued upon exercise of the Initial Purchasers' option (each such event referred to in clauses (i) through (iii), a "Registration Default"), the Company will pay liquidated damages ("Liquidated -------------------- ---------- Damages") to each Holder of Transfer Restricted Securities who has complied with - ------- such Holder's obligations under this Agreement. The amount of Liquidated Damages payable during any period in which a Registration Default has occurred and is continuing is the amount which is equal to one-quarter of one percent (25 basis points) per annum per $1,000 principal amount of Securities and $2.50 per annum per 62.035 shares of Common Stock (subject to adjustment in the event of a stock split, stock recombination, stock dividend and the like) constituting Transfer Restricted Securities for the first 90 days during which a Registration Default has occurred and is continuing and one-half of one percent (50 basis points) per annum per $1,000 principal amount of Securities and $5.00 per annum per 62.035 shares of Common Stock (subject to adjustment as set forth above) constituting Transfer Restricted Securities for any additional days during which a Registration Default has occurred and is continuing (in each case subject to further adjustment from time to time in the event of a stock split, stock recombination, stock dividend and the like), it being understood that all calculations pursuant to this and the preceding sentence shall be carried out to five decimals. Following the cure of all Registration Defaults, Liquidated Damages will cease to accrue with respect to such Registration Default. All accrued Liquidated Damages shall be paid by the Company on each Damages Payment Date and Liquidated Damages will be calculated on the basis of a 360-day year consisting of twelve 30-day months. The parties hereto agree that the Liquidated Damages provided for in this Section 2(e) constitute a reasonable estimate of the damages that may be incurred by Holders by reason of a Registration Default. (f) All of the Company's obligations (including, without limitation, the obligation to pay Liquidated Damages) set forth in the preceding paragraph which are outstanding or exist with respect to any Transfer Restricted Security at the time such security 7 ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such security shall have been satisfied in full. (g) Immediately upon the occurrence or the termination of a Registration Default, the Company shall give the transfer and paying agent for the Common Stock, in the case of notice with respect to Common Stock issued or issuable upon conversion thereof, notice of such commencement or termination, of the obligation to pay Liquidated Damages with regard to the Common Stock and the amount thereof and of the event giving rise to such commencement or termination (such notice to be contained in an Officers' Certificate (as such term is defined in the Indenture)), and prior to receipt of such Officers' Certificate the transfer and paying agent shall be entitled to assume that no such commencement or termination has occurred, as the case may be. 3. Registration Procedures. In connection with any Shelf Registration ----------------------- Statement, the following provisions shall apply: (a) The Company shall (i) furnish to the Representatives, prior to the filing thereof with the SEC, a copy of any Shelf Registration Statement, and each amendment thereof, and a copy of any Prospectus, and each amendment or supplement thereto (excluding amendments caused by the filing of a report under the Exchange Act), and shall reflect in each such document, when so filed with the SEC, such comments as the Representatives may promptly propose, except to the extent the Company reasonably determines it to be inadvisable or inappropriate to reflect such comments therein, and (ii) include information regarding the Notice Holders and the methods of distribution they have elected for their Transfer Restricted Securities provided to the Company in Notice and Questionnaires as necessary to permit such distribution by the methods specified therein. (b) Subject to Section 2(d), the Company shall ensure that (i) any Shelf Registration Statement and any amendment thereto and any Prospectus forming a part thereof and any amendment or supplement thereto comply in all material respects with the Act and the rules and regulations thereunder, (ii) any Shelf Registration Statement and any amendment thereto does not, when it becomes effective, 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 not misleading and (iii) any Prospectus forming a part of any Shelf Registration Statement, and any amendment or supplement to such Prospectus, does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided that the Company makes no representation with respect to information with respect to any Underwriter or any Holder required to be included in any Shelf Registration Statement or Prospectus pursuant to the Act or the rules and regulations thereunder and which information is included therein in reliance upon and in conformity with information furnished to the Company in writing by such Underwriter or Holder. (c) The Company, as promptly as reasonably practicable, shall advise the Representatives and each Notice Holder and, if requested by you or any such Holder, confirm such advice in writing: 8 (i) when a Shelf Registration Statement and any amendment thereto has been filed with the SEC and when the Shelf Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the SEC following effectiveness of the Shelf Registration Statement for amendments or supplements to the Shelf Registration Statement or the Prospectus or for additional information (other than any such request relating to a review of the Company's Exchange Act filings); (iii) of the determination by the Company that a post-effective amendment to the Shelf Registration Statement would be appropriate; (iv) of the commencement or termination of (but not the nature of or details concerning) any Suspension Period; (v) of the issuance by the SEC of any stop order suspending the effectiveness of the Shelf Registration Statement or the initiation or threat of any proceedings for that purpose; (vi) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Transfer Restricted Securities included in any Shelf Registration Statement for sale in any jurisdiction or the initiation or threat of any proceeding for such purpose; (vii) of the happening of (but not the nature of or details concerning) any event that requires the making of any changes in the Shelf Registration Statement or the Prospectus so that, as of such date, the statements therein are not misleading and the Shelf Registration Statement or the Prospectus, as the case may be, does not include 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 the case of the Prospectus, in light of the circumstances under which they were made) not misleading; and (viii) of the Company's suspension of the use of the Prospectus as a result of any of the events or circumstances described in paragraphs (ii) through (vii) above, and of the termination of any such suspension. (d) The Company shall use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of any Shelf Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Transfer Restricted Securities for offer or sale in any jurisdiction at the earliest possible time. (e) The Company shall promptly furnish to each Notice Holder, without charge, at least one copy of any Shelf Registration Statement and any post-effective amendment thereto, including all exhibits (including those incorporated by reference), financial statements and schedules. (f) The Company shall, during the Shelf Registration Period, promptly deliver to each Initial Purchaser, each Notice Holder and any sales or placement agent or underwriters 9 acting on their behalf, without charge, as many copies of the Prospectus (including each preliminary Prospectus) included in any Shelf Registration Statement (excluding documents incorporated by reference), and any amendment or supplement thereto, as such person may reasonably request; and, except as provided in Sections 2(d) and 3(s) hereof, the Company consents to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto. (g) Prior to any offering of Transfer Restricted Securities pursuant to any Shelf Registration Statement, the Company shall register or qualify or cooperate with the Notice Holders 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 such Notice Holders reasonably request and shall maintain such qualification in effect so long as required and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Transfer Restricted Securities covered by such Shelf Registration Statement; provided, however, that the Company will not be required to (A) -------- ------- qualify generally to do business as a foreign corporation or as a dealer in securities in any jurisdiction where it is not then so qualified or to (B) take any action which would subject it to service of process or taxation in any such jurisdiction where it is not then so subject. (h) The Company shall cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities sold pursuant to any Shelf Registration Statement free of any restrictive legends and in such denominations permitted by the Indenture and registered in such names as Holders may request at least two Business Days prior to settlement of sales of Transfer Restricted Securities pursuant to such Shelf Registration Statement. (i) Subject to the exceptions contained in (A) and (B) of Section 3(g) hereof, the Company shall use its reasonable best efforts to cause the Transfer Restricted Securities covered by the applicable Shelf Registration Statement to be registered with or approved by such other federal, state and local governmental agencies or authorities, and self-regulatory organizations in the United States as may be necessary to enable the Holders to consummate the disposition of such Transfer Restricted Securities as contemplated by the Shelf Registration Statement; without limitation to the foregoing, the Company shall provide all such information as may be required by the National Association of Securities Dealers, Inc. (the "NASD") in connection with the offering under the ---- Shelf Registration Statement of the Transfer Restricted Securities (including, without limitation, such as may be required by NASD Rule 2710 or 2720), and shall cooperate with each Holder in connection with any filings required to be made with the NASD by such Holder in that regard. (j) Upon the occurrence of any event described in Section 3(c)(vii) hereof, the Company shall promptly prepare and file with the SEC a post-effective amendment to any Shelf Registration Statement or an amendment or supplement to the related Prospectus or any document incorporated therein by reference or file a document which is incorporated or deemed to be incorporated by reference in such Shelf Registration Statement or Prospectus, as the case may be, so that, as thereafter delivered to purchasers of the Transfer Restricted Securities 10 included therein, the Shelf Registration Statement and the Prospectus, in each case as then amended or supplemented, will not include an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein (in the case of the Prospectus in light of the circumstances under which they were made) not misleading and, in the case of a post-effective amendment, use its reasonable best efforts to cause it to become effective as promptly as practicable; provided that the Company's obligations under this paragraph (j) shall be suspended if the Company has suspended the use of the Prospectus in accordance with Section 2(d) hereof and given notice of such suspension to Notice Holders, it being understood that the Company's obligations under this Section 3(j) shall be automatically reinstated at the end of such Suspension Period. (k) The Company shall use its reasonable best efforts to provide, on or prior to the first Business Day following the effective date of any Shelf Registration Statement hereunder (i) a CUSIP number for the Transfer Restricted Securities registered under such Shelf Registration Statement and (ii) global certificates for such Transfer Restricted Securities to the Trustee, in a form eligible for deposit with DTC. (l) The Company shall use its best efforts to comply with all applicable rules and regulations of the SEC and shall make generally available to its security holders as soon as practicable but in any event not later than 50 days after the end of a 12-month period (or 105 days, if such period is a fiscal year) after (i) the effective date of the applicable Shelf Registration Statement, (ii) the effective date of each post-effective amendment to any Shelf Registration Statement, and (iii) the date of each filing by the Company with the SEC of an Annual Report on Form 10-K that is incorporated by reference or deemed to be incorporated by reference in the Shelf Registration Statement, an earnings statement satisfying the provisions of Section 11(a) of the Act and Rule 158 promulgated by the SEC thereunder. (m) The Company shall use its reasonable best efforts to cause the Indenture to be qualified under the TIA (as defined in the Indenture) in a timely manner. (n) The Company shall cause all Common Stock issued or issuable upon conversion of the Securities to be listed on each securities exchange or quotation system on which the Common Stock is then listed no later than the date the applicable Shelf Registration Statement is declared effective and, in connection therewith, to make such filings as may be required under the Exchange Act and to have such filings declared effective as and when required thereunder. (o) The Company may require each Holder of Transfer Restricted Securities to be sold pursuant to any Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of such Transfer Restricted Securities sought by the Notice and Questionnaire and such additional information as may, from time to time, be required by the Act and the rules and regulations promulgated thereunder, and the obligations of the Company to any Holder hereunder shall be expressly conditioned on the compliance of such Holder with such request. (p) The Company shall, if reasonably requested, use its reasonable best efforts to promptly incorporate in a Prospectus supplement or post-effective amendment to a Shelf 11 Registration Statement (i) such information as the Majority Holders provide or, if Transfer Restricted Securities are being sold in an Underwritten Offering, as the Managing Underwriters or the Majority Underwriting Holders reasonably agree should be included therein and provide to the Company in writing for inclusion in the Shelf Registration Statement or Prospectus, and (ii) such information as a Holder may provide from time to time to the Company in writing for inclusion in a Prospectus or any Shelf Registration Statement concerning such Holder and the distribution of such Holder's Transfer Restricted Securities and, in either case, shall make all required filings of such Prospectus supplement or post-effective amendment promptly after being notified in writing of the matters to be incorporated in such Prospectus supplement or post-effective amendment, provided that the Company shall not be required to take any action under this Section 3(p) that is not, in the reasonable opinion of counsel for the Company, in compliance with applicable law. (q) The Company shall enter into such customary agreements (including underwriting agreements) and take all other appropriate actions as may be requested in order to expedite or facilitate the registration or the disposition of the Transfer Restricted Securities, and in connection therewith, if an underwriting agreement is entered into, cause the same to contain indemnification and contribution provisions and procedures no less favorable than those set forth in Section 5 (except that the Company's indemnification and contribution obligations in any such underwriting agreement shall in addition to the Prospectus also apply to any preliminary Prospectus authorized by the Company to be used in connection with resale of Securities or Common Stock issued or issuable upon the conversion thereof). The plan of distribution in the Shelf Registration Statement and the Prospectus included therein shall permit resales of Transfer Restricted Securities to be made by selling securityholder through underwriters, brokers and dealers, and shall also include such other information as the Representatives may reasonably request. (r) The Company shall if reasonably requested in writing by the Majority Holders, the Majority Underwriting Holders or the Managing Underwriter(s): (i) make reasonably available for inspection during normal business hours by any Underwriter participating in any disposition pursuant to such Shelf Registration Statement, and any attorney, accountant or other agent retained by any such Underwriter, all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries as is customary for due diligence examinations in connection with public offerings; (ii) cause the Company's officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by any such Underwriter, attorney, accountant or agent in connection with any such Shelf Registration Statement as is customary for similar due diligence examinations; provided, however, that any information -------- ------- that is designated in writing by the Company, in good faith, as confidential at the time of delivery of such information shall be kept confidential by the Holders or any such Underwriter, attorney, accountant or agent, unless disclosure thereof is made in connection with a court, administrative or regulatory proceeding or required by law, or such information has become available to the public generally through the Company or through a third party without an accompanying obligation of confidentiality; 12 (iii) deliver a letter, addressed to the selling Holders and the Underwriters, if any, in which the Company shall make such representations and warranties in form, substance and scope as are customarily made by issuers to Underwriters; (iv) 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 Majority Holders or, in the case of an Underwritten Offering, the Majority Underwriting Holders and the Managing Underwriters, if any) addressed to each selling Holder and the Underwriters, if any, covering such matters as are customarily covered in opinions requested in public offerings; (v) obtain "cold comfort" letters and updates thereof from the current and former 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 are, or are required to be, included in the Shelf Registration Statement), addressed to each selling Holder (provided such Holder furnishes the accountants, prior to the date such "cold comfort" letter is required to be delivered, with such representations as the accountants customarily require in similar situations) and the Underwriters, if any, in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with primary underwritten offerings; and (vi) deliver such documents and certificates as may be reasonably requested by the Majority Holders or, in the case of an Underwritten Offering, the Majority Underwriting Holders, and the Managing Underwriters, if any, including those to evidence compliance with Section 3(j) and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The foregoing actions set forth in clauses (iii), (iv), (v) and (vi) of this Section 3(r) shall be performed at (A) the effectiveness of such Shelf Registration Statement and each post-effective amendment thereto and (B) each closing under any underwriting or similar agreement as and to the extent required thereunder. (s) Each Notice Holder agrees that, upon receipt of notice of the happening of an event described in Sections 3(c)(ii) through and including 3(c)(vii), each Holder shall forthwith discontinue (and shall cause its agents and representatives to discontinue) disposition of Transfer Restricted Securities and will not resume disposition of Transfer Restricted Securities until such Holder has received copies of an amended or supplemented Prospectus contemplated by Section 3(j) hereof, or until such Holder is advised in writing by the Company that the use of the Prospectus may be resumed or that the relevant Suspension Period has been terminated, as the case may be, provided that, the foregoing shall not prevent the sale, transfer or other disposition of Transfer Restricted Securities by a Notice Holder in a transaction which is exempt from, or not subject to, the registration requirements of the Act, so long as such Notice Holder does not and is not required to deliver the applicable Prospectus or Shelf Registration Statement in connection with such sale, transfer or other disposition, as the case may be; and provided, 13 further, that the provisions of this Section 3(s) shall not prevent the occurrence of a Registration Default or otherwise limit the obligation of the Company to pay Liquidated Damages. (t) The Company shall in connection with an Underwritten Offering use its reasonable best efforts (i) if the Securities have been rated prior to the initial sale of such Securities, to confirm that such ratings will apply to the Securities covered by the Shelf Registration Statement; or (ii) if the Securities were not previously rated, to cause the Securities covered by the Shelf Registration Statement to be rated with at least one nationally recognized statistical rating agency, if so requested by the Majority Holders or by any Managing Underwriters. (u) In the event that any Broker-Dealer shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the NASD Rules) thereof, whether as a Holder of such Transfer Restricted Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company shall assist such Broker-Dealer in complying with the NASD Rules, including, without limitation, by: (i) if the NASD Rules shall so require, engaging a "qualified independent underwriter" (as defined in the NASD Rules) to participate in the preparation of the Shelf Registration Statement, to exercise usual standards of due diligence with respect thereto and, if any portion of the offering contemplated by the Shelf Registration Statement is an Underwritten Offering or is made through a placement or sales agent, to recommend the price of such Transfer Restricted Securities; (ii) indemnifying any such qualified independent underwriter to the extent of the indemnification of Underwriters provided in Section 5 hereof; and (iii) providing such information to such Broker-Dealer as may be required in order for such Broker-Dealer to comply with the requirements of the NASD Rules. (iv) Anything herein to the contrary notwithstanding, the Company will not be required to pay the costs and expenses of, or to participate in the marketing or "road show" presentations of, more than one Underwritten Offering initiated at the request of the Holders of Securities or shares of Common Stock issued or issuable upon conversion thereof, or to effect more than one Underwritten Offering at the request of such Holders. For purposes of this Agreement, the "Minimum Amount" means 50% of the aggregate -------------- principal amount of Securities originally issued under the Indenture; provided that, for purposes of computing the Minimum Amount, Holders of Common Stock issued upon conversion of Securities shall be deemed to be holders of the aggregate principal amount of Securities which were converted into those shares of Common Stock. Only Holders of Securities or shares of Common Stock issued or issuable upon conversion thereof which are Transfer Restricted Securities shall be entitled to include such Securities or shares of Common Stock in an Underwritten Offering and only Transfer Restricted Securities shall be included in the computation of the Minimum Amount. The Underwritten Offering initiated by Holders as aforesaid shall include both 14 Securities and Common Stock if so requested by the Holders. Upon receipt by the Company, from Holders of at least the Minimum Amount of Securities and/or Common Stock issued or issuable upon conversion thereof, of a request for an Underwritten Offering, the Company will, within 10 days thereafter, mail notice to all Holders of Securities and shares of Common Stock issued upon conversion thereof stating that: (i) the Company has received a request from the Holders of the requisite amount of Securities and/or Common Stock issued or issuable on conversion thereof to effect an Underwritten Offering on behalf of such Holders; (ii) under the terms of this Agreement, all Holders of Securities and shares of Common Stock issued or issuable upon conversion thereof which are Transfer Restricted Securities may include their Securities and shares of Common Stock in such Underwritten Offering, subject to the terms and conditions set forth in this Agreement and subject to the right of the Managing Underwriters to reduce, in light of market conditions and other similar factors, the aggregate principal amount of Securities and number of shares of Common Stock included in such Underwritten Offering; (iii) all Holders electing to include Securities or shares of Common Stock in such Underwritten Offering must notify the Company in writing of such election (the "Election"), and -------- setting forth an address and facsimile number to which such written elections may be sent and the deadline (which shall be 12:00 midnight on the 10th calendar day after such notice is mailed to Holders or, if not a Business Day, the next succeeding Business Day (the "Deadline")) by which -------- such elections must be received by the Company; and (iv) setting forth such other instructions as shall be necessary to enable Holders to include their Securities and shares of Common Stock in such Underwritten Offering. No Holder shall be entitled to participate in an Underwritten Offering unless such Holder notifies the Company of such Election by the Deadline. Notwithstanding anything to the contrary contained herein, if the Managing Underwriters for an Underwritten Offering to be effected pursuant to this Section 3(u)(iv) advise the Holders of the Securities and shares of the Common Stock to be included in such Underwritten Offering that, because of aggregate principal amount of Securities and/or number of shares of Common Stock that such Holders have requested be included in the Underwritten Offering, the success of the offering would likely be materially adversely affected by the inclusion of all of the Securities and shares of Common Stock requested to be included, then the principal amount of Securities and the number of shares of Common Stock to be offered for the accounts of Holders shall be reduced pro rata, according to the aggregate principal amount of Securities and number of shares of Common Stock, respectively, requested for inclusion by each such Holder, to the extent necessary to reduce the size of the offering to the size recommended by the Managing Underwriter. Notwithstanding anything to the contrary contained herein, neither the Company nor any Person, other than a Holder of Securities or shares of Common Stock issued or issuable upon conversion thereof and only with respect to its Transfer Restricted Securities, shall be entitled to include any securities in the Underwritten Offering. 4. Registration Expenses. The Company shall bear all expenses --------------------- incurred in connection with the performance of its obligations under Sections 2 and 3 hereof and shall reimburse the Holders for the reasonable fees and disbursements of one firm or counsel designated by the Majority Holders to act as counsel for the Holders in connection therewith. Notwithstanding the provisions of this Section 4, each Holder shall bear the expense of any broker's commission, agency fee, Underwriter's discount or commission, or fees and 15 disbursements of any counsel retained by such Holder in addition to the counsel designated by the Majority Holders. 5. Indemnification and Contribution. -------------------------------- (a) The Company agrees to indemnify and hold harmless each Holder of Transfer Restricted Securities covered by any Shelf Registration Statement (including each of the Initial Purchasers), the directors, officers, employees and agents of each such Holder and each person who controls any such Holder within the meaning of either the Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Shelf Registration Statement as originally filed or in any amendment thereof, or in any Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein in the light of the circumstances under which they were made, not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company -------- ------- will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon (A) any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any such Holder or any Initial Purchaser specifically for inclusion therein, (B) use of a Shelf Registration Statement or the related Prospectus during a period when use of such Prospectus has been suspended pursuant to Section 2(d) or Section 3(s) hereof; provided, further, in each -------- ------- case, that Holders received prior notice of such suspension, or (C) if the Holder fails to deliver a Prospectus, as then amended or supplemented, provided that the Company shall have delivered to such Holder such Prospectus, as then amended or supplemented. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Holder of Transfer Restricted Securities covered by a Shelf Registration Statement (including the Initial Purchasers) severally and not jointly agrees to indemnify and hold harmless (i) the Company, (ii) each of its directors, (iii) each of its officers and (iv) each person who controls the Company within the meaning of either the Act or the Exchange Act to the same extent as the foregoing indemnity from the Company to each such Holder, but only with reference to written information relating to such Holder furnished to the Company by or on behalf of such Holder specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement shall be in addition to any liability which any such Holder may otherwise have. (c) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party will not relieve it from liability under paragraph (a) or (b) above unless and 16 to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses. The indemnifying party shall be entitled to appoint counsel of the indemnifying party's choice at the indemnifying party's expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be reasonably -------- ------- satisfactory to the indemnified party. Notwithstanding the indemnifying party's election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest; (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party and that representation of the indemnified party by counsel chosen by the indemnifying party would be inappropriate due to actual or potential differing interests among the parties represented by such counsel; (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action; or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. Neither an indemnifying party nor an indemnified party will, without the prior written consent of the other parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not such other parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of such other parties from all liability arising out of such claim, action, suit or proceeding. An indemnifying party shall not be liable for any losses, claims, damages or liabilities by reason of any settlement of any action or proceeding effected without such indemnifying party's prior written consent, which consent will not be unreasonably withheld. (d) In the event that the indemnity provided in paragraph (a) or (b) of this Section 5 is unavailable to or insufficient to hold harmless an indemnified party for any reason, then each applicable indemnifying party shall have an obligation to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "Losses"), as incurred, to ------ which such indemnified party may be subject in such proportion as is appropriate to reflect the relative benefits received by such indemnifying party, on the one hand, and such indemnified party, on the other hand, from the Initial Placement and any sales of Transfer Restricted Securities under the Shelf Registration Statement; provided, however, that in no case shall the Initial Purchasers be responsible, in the aggregate, for any amount in excess of the purchase discount or commission applicable to the Securities, as set forth in the Purchase Agreement. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the indemnifying party and the indemnified party shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of such indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the statements or omissions 17 which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Company shall be deemed to be equal to the total net proceeds from the Initial Placement (before deducting expenses). Benefits received by the Initial Purchasers shall be deemed to be equal to the total purchase discounts and commissions received in connection with the Initial Placement, and benefits received by any other Holders shall be deemed to be equal to the value of receiving Transfer Restricted Securities registered under the Act. Benefits received by any Underwriter shall be deemed to be equal to the total underwriting discounts and commissions, as set forth on the cover page of the Prospectus forming a part of the Shelf Registration Statement which resulted in such Losses. Relative fault shall be determined by reference to whether any untrue statement or omission or alleged untrue statement or omission relates to information provided by the indemnifying party, on the one hand, or by the indemnified party, on the other hand, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this Section 5(d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 5, each person who controls a Holder within the meaning of either the Act or the Exchange Act and each director, officer, employee and agent of such Holder shall have the same rights to contribution as such Holder, and each person who controls the Company within the meaning of either the Act or the Exchange Act, each officer of the Company who signed the Shelf Registration Statement and each director of the Company shall have the same rights to contribution as the Company, and each person who controls an Underwriter within the meaning of either the Act or the Exchange Act and each officer and director of each Underwriter shall have the same rights to contribution as such Underwriter, subject in each case to the applicable terms and conditions of this paragraph (d). (e) The provisions of this Section 5 will remain in full force and effect, regardless of any investigation made by or on behalf of any Holder, any Underwriter or the Company or any of the officers, directors or controlling persons referred to in Section 5 hereof, and will survive the sale by a Holder of Transfer Restricted Securities covered by a Shelf Registration Statement. 6. Miscellaneous. ------------- (a) No Inconsistent Agreements. The Company has not, as of the date -------------------------- hereof, entered into nor shall it, on or after the date hereof, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders herein or otherwise conflicts with the provisions hereof. (b) Amendments and Waivers. The provisions of this Agreement, ---------------------- including the provisions of this sentence, may not be amended, qualified, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of the Majority Holders; provided that with respect to any matter that -------- directly or indirectly affects the rights of the Initial Purchasers hereunder, the Company shall obtain the written consent of each of the Initial Purchasers against which such 18 amendment, qualification, supplement, waiver or consent is to be effective. Notwithstanding the foregoing (except the foregoing proviso), a waiver or consent to departure 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 a Shelf Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by the Majority Holders, determined on the basis of the Transfer Restricted Securities being sold rather than registered under such Shelf Registration Statement. (c) Notices. All notices and other communications provided for or ------- permitted hereunder shall be made in writing by hand-delivery, first-class mail, telecopier, or air courier guaranteeing overnight delivery: (1) if to the Representatives, initially at its address set forth in the Purchase Agreement; (2) if to any other Holder, at the most current address of such Holder maintained by the Registrar under the Indenture or the registrar of the Common Stock (provided that while the Securities or the Common Stock are in book-entry form, notice to the Trustee shall serve as notice to the Holders), or, in the case of the Notice Holder, the address set forth in its Notice and Questionnaire; and (3) if to the Company, initially at its address set forth in the Purchase Agreement. All such notices and communications shall be deemed to have been duly given when received, if delivered by hand or air courier, and when sent, if sent by first-class mail or telecopier. The Initial Purchasers or the Company by notice to the other may designate additional or different addresses for subsequent notices or communications. (d) Successors and Assigns. This Agreement shall inure to the benefit ---------------------- of and be binding upon the successors and assigns of each of the parties, including, without the need for an express assignment or any consent by the Company thereto, subsequent Holders. The Company hereby agrees to extend the benefits of this Agreement to any Holder and Underwriter and any such Holder and Underwriter may specifically enforce the provisions of this Agreement as if an original party hereto. In the event that any other person shall succeed to the Company under the Indenture, then such successor shall enter into an agreement, in form and substance reasonably satisfactory to the Representatives, whereby such successor shall assume all of the Company's obligations under this Agreement. (e) Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the parties hereto in separate counterparts, 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 agreement. (f) Headings. The headings in this Agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. 19 (g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ------------- IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE. (h) Severability. In the event that any one of more of the provisions ------------ contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected thereby, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law. (i) Securities Held by the Company, etc. Whenever the consent or ----------------------------------- approval of Holders of a specified percentage of principal amount of Securities or the Common Stock issuable upon conversion thereof is required hereunder, Securities or the Common Stock issued upon conversion thereof held by the Company or its Affiliates (other than subsequent Holders of Securities or the Common Stock issued upon conversion thereof if such subsequent Holders are deemed to be Affiliates solely by reason of their holdings of such Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (j) Termination. This Agreement and the obligations of the parties ----------- hereunder shall terminate upon the end of the Shelf Registration Period, except for any liabilities or obligations under Section 2(e), 4 or 5 to the extent arising prior to the end of the Shelf Registration Period. 20 Please confirm that the foregoing correctly sets forth the agreement between the Company and you. Very truly yours, THE GAP, INC. By /s/ Sabrina Simmons ------------------------------------ Name: Sabrina Simmons Title: Vice President and Treasurer The foregoing Agreement is hereby confirmed and accepted as of the date first above written. BANC OF AMERICA SECURITIES LLC J.P. MORGAN SECURITIES INC. SALOMON SMITH BARNEY INC. By: SALOMON SMITH BARNEY INC. By /s/ H. A. Bouch ------------------------------------ Name: H. A. Bouch Title: M.D. For itself and the other Initial Purchasers named in Schedule I to the Purchase Agreement. 21 EXHIBIT A Form of Selling Securityholder Notice and Questionnaire The undersigned beneficial holder (the "Selling Securityholder") of 5.75% Senior Convertible Notes due 2009 (the "Notes") of The Gap, Inc. (the "Company") or shares of Company common stock issuable upon conversion of the Notes (together with the Notes, the "Transfer Restricted Securities") of the Company understands that the Company has filed or intends to file with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (the "Shelf Registration Statement") for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"), of the Transfer Restricted Securities in accordance with the terms of the Registration Agreement (the "Registration Agreement") dated as of March 5, 2002, between the Company and the Initial Purchasers named therein. The Registration Agreement is available from the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meaning ascribed thereto in the Registration Agreement. In order to sell or otherwise dispose of any Transfer Restricted Securities pursuant to the Shelf Registration Statement, a beneficial owner of Transfer Restricted Securities generally will be required to be named as a selling securityholder in the related prospectus, deliver a prospectus to purchasers of Transfer Restricted Securities and be bound by those provisions of the Registration Agreement applicable to such beneficial owner (including certain indemnification provisions as described below). Beneficial owners are encouraged to complete and deliver this Notice and Questionnaire prior to the effectiveness of the Shelf Registration Statement so that such beneficial owners may be named as selling securityholders in the related prospectus at the time of effectiveness. Certain legal consequences arise from being named as selling securityholders in the Shelf Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Transfer Restricted Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement and the related prospectus. Notice The undersigned beneficial owner (the "Selling Securityholder") of Transfer Restricted Securities hereby gives notice to the Company of its intention to sell or otherwise dispose of Transfer Restricted Securities beneficially owned by it and listed below in Item 3 (unless otherwise specified under Item 3) pursuant to the Shelf Registration Statement. The undersigned, by signing and returning this Notice and Questionnaire, understands that it will be bound by the terms and conditions of this Notice and Questionnaire and the Registration Agreement. A-1 The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate and complete: Questionnaire 1. (a) Full legal name of Selling Securityholder: ____________________________________________________________ (b) Full legal name of registered holder (if not the same as (a) above) through which Transfer Restricted Securities listed in (3) below are held (if the Transfer Restricted Securities are held through a broker-dealer or other third party and, as a result, you do not know the legal name of the registered holder, please complete item (l)(c) below): ____________________________________________________________ (c) Full legal name of broker-dealer or other third party through which Transfer Restricted Securities listed in Item (3) below are held: ____________________________________________________________ (d) Full Legal Name of DTC Participant (if applicable and if not the same as (b) or (c) above) through which Transfer Restricted Securities listed in (3) below are held: ____________________________________________________________ 2. Address for Notices to Selling Securityholder: ___________________________________________________________________ ___________________________________________________________________ Telephone: ________________________________________________________ Fax: ______________________________________________________________ Contact Person: ___________________________________________________ A-2 3. Beneficial Ownership of Transfer Restricted Securities: (a) Type and principal amount (or number of shares) of Transfer Restricted Securities beneficially owned: ____________________________________________________________ ____________________________________________________________ (b) CUSIP No(s). of such Transfer Restricted Securities beneficially owned: ____________________________________________________________ ____________________________________________________________ Unless otherwise indicated in the space provided below, all Notes and all shares of common stock listed in response to Item (3)(a) above, and all shares of common stock issuable upon conversion of the Notes listed in response to Item (3)(a) above, will be included in the Shelf Registration Statement. If the undersigned does not wish all such Notes or shares of common stock to be so included, please indicate below the principal amount or the number of shares to be included: ____________________________________________________________ ____________________________________________________________ 4. Beneficial ownership of other securities of the Company owned by the Selling Securityholder: Except as set forth below in this Item (4), the undersigned is not the beneficial or registered owner of any securities of the Company other than the Transfer Restricted Securities listed above in Item (3). (a) Type and Amount of other securities of the Company beneficially owned by the Selling Securityholder: ____________________________________________________________ ____________________________________________________________ (b) CUSIP No(s). of such other securities of the company beneficially owned: ____________________________________________________________ ____________________________________________________________ A-3 5. Relationship with the Company: Except as set forth below, neither the undersigned nor any of its affiliates, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years. State any exceptions here: _______________________________________________________________________ _______________________________________________________________________ 6. Plan of Distribution: Except as set forth below, the undersigned (including donees or pledgees) intends to distribute the Transfer Restricted Securities listed above in Item (3) pursuant to the Shelf Registration Statement only as follows (if at all): Such Transfer Restricted Securities may be sold from time to time directly by the undersigned or alternatively through underwriters or broker-dealers or agents. If the Transfer Restricted Securities are sold through underwriters or broker-dealers, the Selling Securityholder will be responsible for underwriting discounts or commissions or agent's commissions. Such Transfer Restricted Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve block transactions) (i) on any national securities exchange or quotation service on which the Transfer Restricted Securities may be listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or services or in the over-the-counter market, or (iv) through the writing of options. In connection with sales of the Transfer Restricted Securities or otherwise, the undersigned may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Transfer Restricted Securities, short and deliver Transfer Restricted Securities to close out such short positions, or loan or pledge Transfer Restricted Securities to broker-dealers that in turn may sell such securities. The Selling Securityholder may pledge or grant a security interest in some or all of the Transfer Restricted Securities owned by it and, if it defaults in the performance of its secured obligations, the pledgees or secured parties may offer and sell the Transfer Restricted Securities from time to time pursuant to the Prospectus. The Selling Securityholder also may transfer and donate shares in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling securityholder for purposes of the Prospectus. A-4 State any exceptions here: __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ Note: The Company's obligation to cooperate in an underwritten offering of the Transfer Restricted Securities is limited under Section 3(u)(iv) of the Registration Agreement. The undersigned acknowledges that it understands its obligation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and the rules thereunder relating to stock manipulation, particularly Regulation M thereunder (or any successor rules or regulations) and the provisions of the Securities Act relating to prospectus delivery, in connection with any offering of Transfer Restricted Securities pursuant to the Shelf Registration Statement. The undersigned agrees that neither it nor any person acting on its behalf will engage in any transaction in violation of such provisions. The Selling Securityholder hereby acknowledges its obligations under the Registration Agreement to indemnify and hold harmless certain persons set forth therein. Pursuant to the Registration Agreement, the Company has agreed under certain circumstances indemnify the Selling Securityholders against certain liabilities. In accordance with the undersigned's obligation under the Registration Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Shelf Registration Statement remains effective. All notices hereunder and pursuant to the Registration Agreement shall be made in writing at the address set forth below. By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to items (1) through (6) above and the inclusion of such information in the Shelf Registration Statement and the related prospectus. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Shelf Registration Statement and the related prospectus. A-5 IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent. Beneficial Owner By:_____________________________________ Name: Title: Dated: PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE TO THE COMPANY: The Gap, Inc. Two Folsom Street San Francisco, CA 94105 Facsimile: (415) 427-6982 Attention: Thomas J. Lima with a copy to: Orrick, Herrington & Sutcliffe LLP Old Federal Reserve Bank Building 400 Sansome Street San Francisco, CA 94111 Facsimile: (415) 773-4283 Attention: Peter Lillevand A-6 EX-5.1 5 dex51.txt OPINION OF ORRICK HERRINGTON & SUTCLIFFE LLP EXHIBIT 5.1 May 2, 2002 The Gap, Inc. Two Folsom Street San Francisco, CA 94105 Re: The Gap, Inc. Registration Statement on Form S-3 Ladies and Gentlemen: At your request, we have examined the Registration Statement on Form S-3 (the "Registration Statement"), in the form to be filed by The Gap, Inc. (the "Company") with the Securities and Exchange Commission (the "SEC") in connection with the registration under the Securities Act of 1933, as amended (the "Act"), of $1,380,000,000 aggregate principal amount of 5.75% Senior Convertible Notes due 2009 (the "Notes"). The Notes were issued under an Indenture (the "Indenture"), dated as of March 5, 2002, between the Company and The Bank of New York, as Trustee (the "Trustee"), which has been incorporated by reference as an exhibit to the Registration Statement. We have examined instruments, documents and records which we deemed relevant and necessary for the basis of our opinion hereinafter expressed. In such examination, we have assumed the following: (a) the authenticity of original documents and the genuineness of all signatures; (b) the conformity to the originals of all documents submitted to us as copies; and (c) the truth, accuracy, and completeness of the information, representations and warranties contained in the records, documents, instruments and certificates we have reviewed. Based on such examination, we are of the opinion that: 1. When issued and sold as described in the Registration Statement, the Notes will constitute legal, valid and binding obligations of the Company, entitled to the benefits of the Indenture. 2. The Company's common stock, when issued upon conversion of the Notes in accordance with the terms of the Indenture, will be validly issued, fully paid and non-assessable. Our opinion that any document is legal, valid and binding is qualified as to: (a) limitations imposed by bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium or other laws relating to or affecting the rights of creditors generally; and The Gap, Inc. Page Two (b) general principles of equity, including without limitation concepts of materiality, reasonableness, good faith and fair dealing, and the possible unavailability of specific performance or injunctive relief, regardless of whether such enforceability is considered in a proceeding in equity or at law. We hereby consent to the filing of this opinion as an exhibit to the above-referenced Registration Statement and to the use of our name wherever it appears in the Registration Statement and in any amendment or supplement thereto. In giving such consent, we do not believe that we are "experts" within the meaning of such term as used in the Act or the rules and regulations of the SEC issued thereunder with respect to any part of the Registration Statement, including this opinion as an exhibit or otherwise. Very truly yours, /s/ ORRICK, HERRINGTON & SUTCLIFFE LLP ORRICK, HERRINGTON & SUTCLIFFE LLP EX-12.1 6 dex121.txt COMPUTATION OF RATIO OF EARNINGS Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges
(dollars in thousands) --------------------------------------------------------- ------------ Jan. 31, 1998 Jan. 30, 1999 Jan. 29, 2000 Feb. 3, 2001 Feb. 2, 2002 --------------------------------------------------------- ------------ Earnings Before Income Taxes $ 854,242 $ 1,319,262 $ 1,784,949 $ 1,381,885 $ 241,641 Add: Interest Expense 17,779 46,145 44,966 74,891 109,190 Interest on rental expense 250,025 288,143 337,471 387,627 422,583 --------------------------------------------------------- ------------ Earnings $ 1,122,046 $ 1,653,550 $ 2,167,386 $ 1,844,403 $ 773,414 ========================================================= ============ Interest Expense $ 17,779 $ 46,145 $ 44,966 $ 74,891 $ 109,190 Capitalized Interest 12,186 10,982 24,900 40,574 24,538 Interest on rental expense 250,025 288,143 337,471 387,627 422,583 --------------------------------------------------------- ------------ Fixed Charges $ 279,990 $ 345,270 $ 407,337 $ 503,092 $ 556,311 ========================================================= ============ Ratio of Earnings to Fixed Charges 4.01 4.79 5.32 3.67 1.39
EX-23.2 7 dex232.txt CONSENT OF DELOITTE & TOUCHE LLP Exhibit 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of The Gap, Inc. on Form S-3 of our report dated March 12, 2002, appearing in and incorporated by reference in the Annual Report on Form 10-K of The Gap, Inc. for the year ended February 2, 2002, and to the reference to us under the heading "Experts" in the Prospectus, which is part of such Registration Statement. /s/ Deloitte & Touche LLP San Francisco, California April 30, 2002 EX-24.1 8 dex241.txt POWER OF ATTORNEY Exhibit 24.1 POWER OF ATTORNEY THE GAP, INC. REGISTRATION STATEMENT Each of the undersigned directors of The Gap, Inc. does hereby appoint Millard S. Drexler, Anne B. Gust and John M. Lillie, and each of them with power to act alone, as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Registration Statement on Form S-3 for The Gap, Inc. and any and all amendments thereto (including post-effective amendments) filed under the Securities Act of 1933, as amended, or otherwise, and to file the same, together with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto such attorney-in-fact full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises hereof, as fully to all intents and purposes as he or she might do or could do in person, hereby ratifying and confirming all that said attorney-in-fact or his or her substitution may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned director has signed his or her name hereto as of this 2nd day of May, 2002. /S/ ADRIAN D.P. BELLAMY ------------------------- Adrian D.P. Bellamy /S/ MILLARD S. DREXLER ------------------------- Millard S. Drexler /S/ DONALD G. FISHER ------------------------- Donald G. Fisher /S/ DORIS F. FISHER ------------------------- Doris F. Fisher /S/ ROBERT J. FISHER ------------------------- Robert J. Fisher /S/ GLENDA A. HATCHETT ------------------------- Glenda A. Hatchett ------------------------- Steven P. Jobs /S/ JOHN M. LILLIE ------------------------- John M. Lillie /S/ ARUN SARIN ------------------------- Arun Sarin /S/ CHARLES R. SCHWAB ------------------------- Charles R. Schwab /S/ MAYO A. SHATTUCK III ------------------------- Mayo A. Shattuck III EX-25.1 9 dex251.txt STATEMENT OF ELIGIBILITY OF TRUSTEE Exhibit 25.1 = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = 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) 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) --------------------------- The Gap, Inc. (Exact name of obligor as specified in its charter) Delaware 94-1697231 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Two Folsom Street San Francisco, California 94105 (Address of principal executive offices) (Zip code) --------------------------- 5.75% Senior Convertible Notes due 2009 (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 2 Rector Street, New York, N.Y. of 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 26th day of April, 2002. THE BANK OF NEW YORK By:/S/ MARY LAGUMINA ------------------------------- Name: MARY LAGUMINA Title: VICE PRESIDENT EXHIBIT 7 - -------------------------------------------------------------------------------- Consolidated Report of Condition of THE BANK OF NEW YORK of One Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business December 31, 2001, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts ASSETS In Thousands Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin ............................................$3,163,218 Interest-bearing balances ......................................................................5,923,554 Securities: Held-to-maturity securities ....................................................................1,210,537 Available-for-sale securities ..................................................................9,596,941 Federal funds sold and Securities purchased under agreements to resell ...........................................................................4,723,579 Loans and lease financing receivables: Loans and leases held for sale .................................................................1,104,560 Loans and leases, net of unearned income ..............36,204,516 LESS: Allowance for loan and lease losses ..........608,227 Loans and leases, net of unearned income and allowance ........................................................................35,596,289 Trading Assets ....................................................................................8,039,857 Premises and fixed assets (including capitalized leases) ..........................................................................................836,786 Other real estate owned ...............................................................................1,292 Investments in unconsolidated subsidiaries and associated companies .............................................................................207,616 Customers' liability to this bank on acceptances outstanding ......................................................................................292,295 Intangible assets Goodwill .......................................................................................1,579,965 Other intangible assets ...........................................................................18,971 Other assets ......................................................................................5,723,285 ==========
Total assets ....................................................................................$78,018,745 =========== LIABILITIES Deposits: In domestic offices ..........................................................................$28,786,182 Noninterest-bearing .................12,264,352 Interest-bearing ....................16,521,830 In foreign offices, Edge and Agreement subsidiaries, and IBFs ......................................................................27,024,257 Noninterest-bearing ....................407,933 Interest-bearing ....................26,616,325 Federal funds purchased and securities sold under agreements to repurchase .......................................................................1,872,762 Trading liabilities ...............................................................................2,181,529 Other borrowed money: (includes mortgage indebtedness and obligations under capitalized leases) ......................................................................1,692,630 Bank's liability on acceptances executed and outstanding ......................................................................................336,900 Subordinated notes and debentures .................................................................1,940,000 Other liabilities .................................................................................7,217,748 ----------- Total liabilities ...............................................................................$71,052,008 =========== EQUITY CAPITAL Common stock ......................................................................................1,135,284 Surplus ...........................................................................................1,050,729 Retained earnings .................................................................................4,266,676 Accumulated other comprehensive income ...............................................................13,733 Other equity capital components ...........................................................................0 ----------- Total equity capital ..............................................................................6,466,422 ----------- Total liabilities and equity capital ............................................................$78,015,745 ===========
I, Thomas J. Mastro, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Thomas J. Mastro, Senior Vice President and Comptroller We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. Thomas A. Renyi Gerald L. Hassell Directors Alan R. Griffith -----END PRIVACY-ENHANCED MESSAGE-----