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Table of Contents

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2006. EDGAR Online, Inc.

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Table of Contents Â© 2006. EDGAR Online, Inc.

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...FISCAL YEAR ENDED DECEMBER 31, 2005. or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . Commission file number 1-11921 E*TRADE Financial Corporation (Exact name of registrant as specified in its charter) Delaware (State...

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... billion (based upon the closing price for shares of the registrant's common stock as reported by the New York Stock Exchange on that date.) Shares of common stock held by each officer, director and holder of 5% or more of the outstanding common stock have been excluded in that such persons may be...

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... of Contents E*TRADE FINANCIAL CORPORATION FORM 10-K ANNUAL REPORT For the Year ended December31, 2005 PART I Item1. Item1A. Item 1B. Item 2. Item 3. Item 4. PART II Item 5. Item 6. Item 7. Business Overview Products and Services Competition Acquisitions and Dispositions International Operations...

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... Accounting Policies Note 2-Business Combinations Note 3-Discontinued Operations Note 4-Facility Restructuring and Other Exit Activities Note 5-Brokerage Receivables, Net and Brokerage Payables Note 6-Available-for-Sale Mortgage-Backed and Investment Securities Note 7-Loans, Net Note 8-Asset...

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... 14-Deposits Note 15-Securities Sold Under Agreements to Repurchase and Other Borrowings by Bank Subsidiary Note 16-Corporate Debt Note 17-Accounts Payable, Accrued and Other Liabilities Note 18-Income Taxes Note 19-Shareholders' Equity Note 20-Income Per Share Note 21-Employee Share-Based Payments...

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...and credit products. In addition, we provide corporate clients with employee stock plan administration and options management tools. These corporate client accounts provide us with an opportunity to reach our clients' employees and offer them our retail products and services. Institutional customers...

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..., often trading principal positions in these securities. Our institutional segment also includes our balance sheet management functions. Balance sheet management functions include the optimization of our balance sheet through a focus on asset allocation and managing interest rate risk, credit risk...

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... borrowing costs. Customers can use E*TRADE Complete in conjunction with our retail products described below. Retail investing and trading products and services include: â€¢ automated order placement and execution of market and limit equity, futures, options, exchange-traded funds and bond orders...

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... individual retirement accounts; and â€¢educational services through the Internet, phone or in person. In addition to the investing and trading products and services, we offer cash management and lending products and services which include: â€¢ interest-earning checking, money market and savings...

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...estate; â€¢ credit card including the E*TRADE Mileage Maximizer and other consumer loans; â€¢online access to all deposit account balances and transactions; â€¢Quick Transfer, our self-directed fund transfers; and â€¢online bill payment services. Retail customers are offered cash management and...

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... with trade execution services, including direct access to international exchanges. Our web-based platform offers real-time, online access to statements and electronic settlement capabilities. In addition to activities with external customers, the institutional segment includes the management of...

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... in 2005 as banks seek to grow their deposit base by offering appealing rates to attract customers to their businesses. â€¢ For lending products, we compete with traditional banking institutions as well as consumer finance companies and other non-bank lenders. Loan pricing and credit standards...

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... offer services in international markets directly through its website at http://www.etrade.com as well as through additional branded retail brokerage websites in Canada, Denmark, France, Germany, Hong Kong, Iceland, Sweden and the United Kingdom. We also have minority equity investments in companies...

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..., safeguarding deposits, capital structure, transactions with affiliates and conduct and qualifications of personnel. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form8-K, and amendments to those reports, available free of charge at our website as...

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... to earnings. Downturns or disruptions in the securities markets could reduce trade volumes and margin borrowing and increase our dependence on our more active customers who receive lower pricing Online investing services to the retail customer, including trading and margin lending, account for...

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... or stock loan transactions We permit customers to purchase securities on margin. A downturn in securities markets may impact the value of collateral held in connection with margin loans and may reduce its value below the amount borrowed, potentially creating collections issues with our margin loans...

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... employee stock options would be available for exercise and sale by the employees of these companies. Reduced spreads in securities pricing, levels of trading activity and trading through market makers and/or specialists could harm our specialist and market maker business Computer-generated buy/sell...

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... of recommendations to customers. As part of our institutional business we provide clients access to certain third-party research tools and other services in exchange for commissions earned. Currently, these activities are allowed by various regulatory bodies. However, changes to the regulations...

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... investing activities, marketing and the financing of customer account balances. Also, our ability to withdraw capital from brokerage subsidiaries could be restricted, which in turn could limit our ability to repay debt and redeem or purchase shares of our outstanding stock. Similarly, the Bank...

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... public companies to expense employee stock options and other share-based payments at their fair value when issued. Although we are not currently required to record any compensation expense in connection with stock option grants to employees that have an exercise price at or above fair market value...

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... or transfer substantially all of our assets. As a result of the covenants and restrictions contained in the indentures, we are limited in how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business...

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... adequate funds are not available on acceptable terms, we may be unable to fund our plans for the growth of our business. In addition, if funds are available, the issuance of equity securities could dilute the value of our shares of our common stock and cause the market price of our common stock to...

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... Company that do not offer an adequate price to all shareholders or are otherwise not in the best interests of the Company and our shareholders. In addition, certain provisions of our stock incentive plans, management retention and employment agreements (including severance payments and stock option...

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.... On April8, 2004, MarketXT filed a complaint in the United States District Court for the Southern District of New York against the Company, certain of its officers and directors and other third parties, including Softbank Finance Corporation and Softbank Corporation, alleging that the defendants...

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..., participated in a stock lending fraud and violated federal and state securities laws among other allegations. The Company sought, among other things, compensatory damages for all expenses and losses that it had incurred to date. On December5, 2005, the Company entered into an agreement with Nomura...

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.... MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Price Range of Common Stock The following table shows the high and low sale prices of our common stock as reported by the NYSE for the periods indicated: High Low 2005: First Quarter...

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... The December 2004 Plan is open-ended and provides the flexibility to buy back common stock, retire debt or a combination of both. We may conduct these repurchases on the open market, in private transactions or a combination of both. In 2005, we purchased 1.6million shares at an average price of $12...

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... shares at an average price of $12.84 per share. There are no amounts available under this plan for additional repurchases as of December31, 2005. Sale of Unregistered Shares In January 2005, we issued 135,256 shares of common stock in connection with our acquisition of Howard Capital Management...

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..., except per share and per trade amounts) Year Ended December31, Variance 2005 2004 2003 2002 2001 2005vs.2004 Results of Operations: (1) Total net revenues Facility restructuring and other exit activities (5) Gain (loss) on sale and impairment of investments Income (loss) from continuing...

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18 Â© 2006. EDGAR Online, Inc.

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.... Year Ended December31, Variance 2005 2004 2003 2002 2001 2005vs.2004 Key Measures: Operating margin Daily Average Revenue Trades Average commission per trade $ Bank net interest spread (basis points) Average margin balances $ Average interest-earning $ banking assets Total employees...

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... institutional business. As we are able to manage our balance sheet on an enterprise-wide basis, we become less dependent on our customer's trading activity, which is dependent on levels of market activity, and are better able to generate recurring income. Thus, while commissions are still reported...

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â€¢interest rates and the shape of the interest rate yield curve; and â€¢the performance of the equity and capital markets. 20 Â© 2006. EDGAR Online, Inc.

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..., Variance 2005 2004 2003 2005vs.2004 Customer Activity Metrics Retail client assets (in billions) Daily average revenue trades Average commission per trade (1) Customer cash and deposits (in billions) Products per customer (2) Company Financial Metrics Operating margin (3) $ 178...

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... of accounting change by our total net revenues. â€¢ Customer Activity Metrics â€¢ Retail client assets are the market value of all client assets housed by us. Retail client assets include security holdings, cash (including money market funds), vested unexercised options and deposits. The level of...

Page 37
...financing to acquire Harris direct , we issued $450 million in fixed-rate senior notes. BrownCo We completed our acquisition of JP Morgan Invest, LLC, more commonly known as BrownCo, on November30, 2005. BrownCo, an online discount brokerage company, had approximately 186,000 customers who conducted...

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Dispositions Consistent with our strategy to continually evaluate our businesses and maintain a focus on providing services consistent with our strategy, we made the decision to sell or exit several product lines. In 2005, we sold 22 Â© 2006. EDGAR Online, Inc.

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.... E*TRADE Complete tools currently include the Cash Optimizer, the Intelligent Investing Optimizer and the Intelligent Lending Optimizer. Customers can quickly transfer funds to modify deposit balances to determine the optimal distribution of cash between accounts based on their personal preferences...

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..., including margin loan activities, and stock plan administration products and services for the retail customer. For our institutional segment, the realignment integrated the management and operations of balance sheet management, market-making and global execution and settlement services businesses...

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... that the use of cash to reduce outstanding common stock was likely to create long-term value for our shareholders. Summary Financial Results (dollars in millions, except per share amounts) As of or For the Year Ended December31, 2005 2004 2003 Variance 2005vs.2004 Total net revenues Net income...

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..., net to total loans, net remained relatively flat at 0.18% at December31, 2005 versus 0.17% at December31, 2004. We expect this ratio to increase over time as new loans season. â€¢ Customer cash and deposits, which include deposits, free credits held and money market balances held in outside funds...

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...Interest-earning assets include cash and equivalents, cash and investments segregated, brokerage receivables, trading and investment securities, loans receivable, net, loans held-for-sale, net and Federal Home Loan Bank ("FHLB") stock. Loans receivable, net were $19.4 billion at December31, 2005 and...

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... earned primarily through lending, which includes margin, real estate and consumer loans, and by holding low cost deposits. YearEndedDecember31, Variance 2005 2004 2003 2005vs.2004 Revenues: Commissions Principal transactions Gain on sales of loans and securities, net Service charges and fees...

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... its customer base and local market practices, and as a result, a change in the executed trades between these businesses impacts average commission per trade. Each business also has different trade types (e.g. equities, options, fixed income and mutual funds) that can have different commission rates...

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... only trades but the full relationship with the customer, especially customers who deposit cash with us. Our average customer purchases at least 2 products or services from our suite of retail products. So while retail commissions increased 3% during 2005, total revenue increased 15%. Institutional...

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... ) % Total gain on sales of loans and securities, net $ 98,858 $ 140,718 $ 247,654 $ (41,860 ) * Percentage not meaningful (1) Consumer loans originated by our retail segment and sold to our institutional segment were sold at an arm's length transfer price. The gains (losses) associated...

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... certain criteria for balance and/or activity levels. Service charges and fees represent account service fees, advisory fees, servicing fee income and other customer service fees. Advisory fees increased by $5.2 million in 2005 compared to 2004 resulting from our acquisitions of investment advisory...

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...interest earned on interest-earning assets (primarily loans receivable and mortgage-backed and related available-for-sale securities), margin loans, stock borrow balances, cash required to be segregated under regulatory guidelines and fees on customer assets invested in money market accounts, net of...

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Provision for loan losses increased $15.9 million to $54.0 million in 2005 from 2004. The increase in the provision for loan losses is primarily related to growth in the residential mortgage loan portfolio. In addition, 30 Â© 2006. EDGAR Online, Inc.

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Table of Contents higher consumer loan related losses resulted from higher losses on RV and higher credit card bankruptcy activity as a significant number of customers filed for personal bankruptcy before the enactment of the new bankruptcy laws in October 2005. We expect provision on our consumer ...

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... to 2004 as a result of adopting the new accounting standard requiring the fair value of share-based compensation to be included in compensation expense. See Note 21 to the Consolidated Financial Statements for more information. â€¢ Advertising and marketing costs increased by $43.8 million due to...

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...thousands): Year Ended December31, Variance 2005 vs. 2004 2005 2004 2003 $ Amount % Other income: Corporate interest income Corporate interest expense Gain on sale and impairment of investments Loss on early extinguishment of debt Equity in income of investments and venture funds Total other...

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...2005 resulting from the sale of the Consumer Finance origination business of $6.4 million offset by a $2.4 million loss related to the institutional proprietary trading unit. Loss from discontinued operations, net decreased by $11.3 million in 2005 compared to 2004, due to 32 Â© 2006. EDGAR Online...

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... was primarily due to a decrease in the number of accounts that were charged account service fees as customers either met the specified balance and/or activity level, closed their accounts or had their account value taken to $0 as a result of the account service fee. 33 Â© 2006. EDGAR Online, Inc.

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... earned on interest-earning banking assets (primarily loans receivable and mortgage-backed and related available-for-sale securities), margin loans, stock borrow balances, cash required to be segregated under regulatory guidelines and fees on customer assets invested in money market accounts, net...

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... for key metrics): Year Ended December31, Variance 2005 vs. 2004 2005 2004 2003 $Amount % Retail segment income: Commissions Gain on sales of loans and securities, net Service charges and fees Other revenues Net interest income Net segment revenues Total segment expenses Total retail segment...

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35 Â© 2006. EDGAR Online, Inc.

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Table of Contents extent, commissions, offset by declines in gain on sales of loans and securities, net and service charges and fees. Retail net interest income in 2004 increased $188.3 million, or 141%. This increase was driven by increases in average margin balances up 68% to $2.0 billion from ...

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36 Â© 2006. EDGAR Online, Inc.

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... Balance Sheets (dollars in thousands): December31, 2005 2004 Variance 2005vs.2004 Assets: Cash and equivalents Brokerage receivables, net Trading securities Available-for-sale mortgage-backed and investment securities Loans receivable, net Loans held-for-sale, net Other assets Total assets...

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... Average Rates Paid Time Deposit Maturities Time Deposits in Excess of $100,000 Return of Equity and Assets Short-Term Borrowings 54 55 58 59 56 57 57 42 42 42 43 40 41 44 107 107 54 60 * Note that these disclosures are at the Bank Holding Company level and do not include brokerage and corporate...

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... our mortgage and HELOC portfolios will increase in the next year as we focus on these product lines; enhance our credit risk profile and focus on cross sell opportunities. We anticipate that RV and marine loan balances will decline over time due to the sale of the Consumer Finance Corporation and...

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... for loan losses during the past five years (dollars in thousands): Year Ended December31, 2005 2004 2003 2002 2001 Allowance for loan losses-beginning of year Loan charge-offs: Real estate HELOC, second mortgage and other RV Marine Automobile Credit card Other Total loan charge-offs Loan...

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... for loan losses Allowance for loan losses-end of year (1) - 54,016 $ 63,286 0.26 % $ 1,547 38,121 47,681 0.30 % $ 2,748 38,523 37,847 0.41 % $ 14,428 14,664 27,666 0.28 % $ 4,699 7,476 19,874 0.07 % Net charge-offs to average loans receivable, net outstanding (1) Acquisition of credit card...

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... by lower net charge-offs on automobile loans of $5.8 million. Higher credit card charge-offs are the result of increased bankruptcy filings as customers declared bankruptcy ahead of the new bankruptcy laws in October 2005. We do not anticipate that the 2005 level of credit card charge-offs will...

Page 67
... loans will change due to portfolio growth, portfolio seasoning and resolution through collections, sales or charge-offs. The performance of any loan can be affected by external factors, such as economic conditions, or factors particular to a borrower. During 2005, our nonperforming assets, net...

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... the life of the loan, the level of the allowance to nonperforming assets may decrease. Real estate loan charge-offs to average outstanding loans were 0.03% compared to 0.34% for non-real estate loan charge-offs. Real estate loans to total loans receivable, net are 79% for 2005 compared to 64% for...

Page 69
... impacted in 2006 if long-term interest rates continue to rise. Net unrealized gains and losses in available-for-sale securities are included in shareholders' equity as accumulated other comprehensive income or loss, net of tax. Deposits Deposits as of December31, 2005 and 2004 are summarized as...

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... total liabilities at December31, 2004. Deposits increased $3.6 billion to $15.9 billion at December31, 2005, driven by a $1.6 billion increase in the SDA, a $1.3 billion increase in money market and savings accounts and a $0.6 billion increase in certificates of deposit. 43 Â© 2006. EDGAR Online...

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... average deposit and rates paid for the three years ending (dollars in thousands): Year Ended December31, 2005 Average Balance for the Year Sweep deposit $ account Money market and savings accounts Certificates of deposit Brokered certificates of deposit Checking accounts Total average deposits...

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...primary wholesale funding sources of the Bank. During 2005, the Bank used these wholesale sources along with deposit growth to fund the increase in loans receivable. Other borrowings by Bank subsidiary represented 10% of total liabilities at December31, 2005 and 6% of total liabilities at December31...

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... markets activity of the Company and a high level summary of our sources and uses of cash and equivalents at the parent company level during the year is discussed below. Changes in Cash and Equivalents In 2005, cash and equivalents at E*TRADE Financial Corporation, on a standalone holding company...

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..., and the Company to sell, at a purchase price of $25.00 in cash, a variable number of shares of the Company's common stock. The stock conversion ratio varies depending on the average closing price of our common stock over a 20-day trading period ending on the third trading day immediately preceding...

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... securities owned by Converging Arrows is available as a source of liquidity for the parent company. Converging Arrows is not restricted in its dealings with the parent company and may transfer funds to the parent company without regulatory approval. In addition to the investment company, brokerage...

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...>8.0 %>$ >4.0 %>$ >4.0 %>$ 1,383,472 830,083 1,274,574 > > > 10.0 % 6.0 % 5.0 % The Bank is also required by OTS regulations to maintain tangible capital of at least 1.50% of tangible assets. The Bank satisfied this requirement at both December31, 2005 and 2004. 46 Â© 2006. EDGAR Online, Inc.

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... liquidity and cash flow in future periods (in thousands): Due in 2006 Security commitments to: Purchase securities Sell securities Loan commitments to: Originate loans Purchase loans Sell mortgages Equity funding commitments Certificates of deposit (3)(4) (5) (5) (2) (1) Thereafter Total 2007...

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... deposit, money market, passbook savings accounts or SDA, as there are no maturities and/or scheduled contractual payments (4) Includes annual interest based on the contractual features of each transaction, using market rates at December31, 2005. Interest rates are assumed to remain at current...

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... of Contents RISK MANAGEMENT As a financial services company, we are exposed to risks in every component of our business. Transactions including the opening of an account, processing of a trade, acceptance of a deposit, hiring a new employee and acquiring a company, all involve a certain amount of...

Page 80
... options and vendor performance. To ensure the financial soundness of providers, we conducted financial reviews of our large providers. In addition, onsite operational audits are conducted annually for significant providers. Fraud losses result from unauthorized use of customer and corporate funds...

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... corporate, government and municipal bonds), mortgage-backed securities, asset-backed securities and marketable equity securities as either available-for-sale or trading. We have not classified any investments as held-to-maturity. The classification of an investment determines its accounting...

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... The Bank's principal assets are residential mortgages and mortgage-backed securities, which typically pay a fixed interest rate over an extended period of time. However, the principal sources of funds for the Bank are customer deposits and other short-term borrowings with interest rates that...

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...change. Estimates of Effective Tax Rates, Deferred Taxes and Valuation Allowances Description In preparing our consolidated financial statements, we calculate our income tax expense based on the tax laws in the various jurisdictions where we conduct business. This requires us to estimate our current...

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...or a change in the remaining life may need to be recognized. Valuation and Expensing of Share-Based Payments Description We value and expense employee share-based payments, which is primarily stock options, in accordance with SFAS No.123(R.) We value each granted option using an option pricing model...

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... Mortgage-backed and related available-for-sale securities Available-for-sale investment securities Trading securities Other Total interest-earning banking assets (2) Non-interest-earning banking assets Total banking assets Interest-bearing banking liabilities: Retail deposits Brokered certificates...

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... Rate Total Interest-earning banking assets: Loans, net Mortgage-backed and related available-for-sale securities Available-for-sale investment securities Trading securities Other Total interest-earning banking assets (1) Interest-bearing banking liabilities: Retail deposits Brokered certificates...

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... loans on the secondary market using our correspondent network. Pools of loans are collections of similar loans packaged together and purchased/sold together as a group. The following table shows the number of pools and the associated number of loans that we purchased: Year Ended December31, 2005...

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56 Â© 2006. EDGAR Online, Inc.

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... fixed and adjustable interest rate loans at December31, 2005 (in thousands): Interest Rate Type Total Fixed Adjustable Real estate loans: One- to four-family HELOC, second mortgage and other Total real estate loans Consumer and other loans: RV Marine Automobile Credit card $ 2,566,570 1,625...

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...accordance with SFAS No.115, Accounting for Certain Investments in Debt and Equity Securities : trading, available-for-sale or held-to-maturity. None of our mortgage-backed securities or other investments was classified as held-to-maturity during 2005, 2004 and 2003. 57 Â© 2006. EDGAR Online, Inc.

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... Home Loan Mortgage Corporation ("Freddie Mac") participation certificates, guaranteed by Freddie Mac; and â€¢securities issued by other non-agency organizations. We buy and hold mortgage-backed trading securities principally for the purpose of selling them in the near term. These securities...

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...Mortgage-backed securities $ Investment securities: Asset-backed securities FHLB stock Municipal bonds Corporate bonds Other debt securities Publicly traded equity securities Total investment securities Total available-for-sale $ securities...,170 9,649,559 $ $ $ $ 58 Â© 2006. EDGAR Online, Inc.

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... mortgage obligations and other Total mortgage-backed securities Investment securities: Asset-backed securities Municipal bonds Corporate debt Other debt securities Publicly traded equity securities (2) Total investment securities Trading securities Total available-for-sale and trading securities...

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...FHLB stock and various home mortgages and other assets-principally securities that are obligations of, or guaranteed by, the United States government-provided we meet certain creditworthiness standards. At December31, 2005, our outstanding advances from the FHLB totaled $3.9billion at interest rates...

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...special direct investment and treasury, tax and loan borrowing programs. We use the proceeds from these transactions to meet our cash flow or asset/liability matching needs. The following table sets forth information regarding the weighted-average interest rates and the highest and average month-end...

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... types. Brokerage payables, agreements to repurchase securities and money market accounts re-price as interest rates change. Certificates of deposit re-price over time depending on maturities. FHLB advances and long term notes generally have fixed rates. Derivative Financial Instruments We use...

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61 Â© 2006. EDGAR Online, Inc.

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...production activity risks have declined. However, holding mortgage assets on the balance sheet involves similar risks. We are exposed to changing interest rates between the commitment and funding dates. The most significant mortgage loan risk is prepayment risk. The cost to originate a mortgage loan...

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change. There were $0.1 billion at December31, 2005 and $0.2 billion at December31, 2004 in mortgage loan commitments awaiting funding. At December31, 2005 and 2004, IRLC were valued at $1.6 million and $1.5 million, respectively. 62 Â© 2006. EDGAR Online, Inc.

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...we currently hold publicly traded equity securities, in which we had unrealized gains of $94.7 million as of December31, 2005. As each security's market price fluctuates, we are exposed to risk of a loss with respect to these unrealized gains. Our investments in Softbank Investment Corporation ("SBI...

Page 101
...discount brokerage business of J.P. Morgan Invest, LLC ("BrownCo"), which was acquired on November30, 2005. These entities represented 13% of total assets at December31, 2005 and 3% of revenues for year ended December31, 2005. E*TRADE Financial Corporation's Independent Registered Public Accounting...

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on our assessment of the E*TRADE Financial Corporation's internal control over financial reporting. The report of Deloitte& Touche LLP appears on the next page. 64 Â© 2006. EDGAR Online, Inc.

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.... We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December31, 2005 of the Company and our report dated March 1, 2006 expressed an unqualified opinion on those...

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... with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December31, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring...

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... CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) December31, 2005 ASSETS Cash and equivalents Cash and investments required to be segregated under Federal or other regulations Brokerage receivables, net Trading securities Available-for-sale mortgage...

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Total liabilities and shareholders' equity $ 44,567,686 $ 31,032,583 See accompanying notes to consolidated financial statements 67 Â© 2006. EDGAR Online, Inc.

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... of Contents E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) YearEnded December31, 2005 Revenues: Commissions Principal transactions Gain on sales of loans and securities, net Service charges and fees Other revenues Interest...

Page 108
...net of tax: Gain (loss) from discontinued operations, net Gain on disposal of discontinued operations, net Net income (loss) from discontinued operations Cumulative effect of accounting change, net of tax Net income Basic income per share... financial statements 68 Â© 2006. EDGAR Online, Inc.

Page 109
... E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Year Ended December31, 2005 2004 2003 Net income Other comprehensive income (loss): Available-for-sale securities: Unrealized gains, net Less impact of realized gains (transferred out...

Page 110
... Net income Other comprehensive loss Exercise of stock options and purchase plans, including tax benefit Employee stock purchase plan Adjustment related to change in original option grants Repurchases of common stock Cancellation of restricted stock Issuance of restricted stock Shares issued upon...

Page 111
... Equity Loss Shares Amount Shares Amount Balance, December31, 2004 Net income Cumulative effect of accounting change Other comprehensive loss Issuance of common stock on exercise of forward contract Exercise of stock options and purchase plans, including tax benefit Employee stock purchase plan...

Page 112
... of assets Gain on sale of Consumer Finance Corporation Minority interest and equity in income of subsidiaries and investments Unrealized loss on venture funds Noncash restructuring costs and other exit activities Stock-based compensation Deferred income taxes Other Net effect of changes in assets...

Page 113
..., net Cash flow from derivative hedging assets, net Proceeds from sales of discontinued businesses Other (79,014 ) - (2,218,932 ) (34,696 ) 56,902 19,376 (108,887 ) 5,957 (19,025 ) (33,354 ) 106,868 1,613 (60,121 ) 3,846 (3,466 ) (59,607 ) - (1,908 ) Net cash used in investing activities...

Page 114
... year CASH AND EQUIVALENTS, End of year SUPPLEMENTAL DISCLOSURES: Cash paid for interest Cash paid for income taxes Non-cash investing and financing activities: Transfers from loans to other real estate owned and repossessed assets Reclassification of loans held-for-sale to loans held-for-investment...

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... consumer under the brand "E*TRADE FINANCIAL." The Company offers investing, trading, cash management and lending products and services to its retail and institutional customers. Basis of Presentation - The consolidated financial statements include the accounts of the Company and its majority-owned...

Page 116
... Brokerage payables to customers and non-customers represent credit balances in customer accounts arising from deposits of funds and sales of securities, also referred to as free credit balances, and other funds pending completion of securities transactions. The Company pays interest on certain free...

Page 117
... assets sold and the net cash proceeds received. These gains or losses are recorded in gain on sales of loans and securities, net. Fair value is determined based on quoted market prices, if available. Generally, quoted market prices are not available for beneficial interests; therefore, the Company...

Page 118
...all loan types. Management believes this level is representative of probable losses inherent in the loan portfolio at the balance sheet date. Loan losses are charged and recoveries are credited to the allowance for loan losses. Loans Held-for-Sale, net -Loans held-for-sale, net consists of mortgages...

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... as borrowings in the consolidated balance sheets. Mandatory Convertible Debt -The Company accounts for its mandatory convertible debt by allocating the proceeds using the relative fair value of the stock purchase contracts and the debt securities on the date of issuance. The issue costs are...

Page 120
... Share-Based Payment , using the modified prospective application method to account for its share-based compensation plans. Upon adoption, the Company began expensing options as compensation and benefits with a one-time pre-tax credit of $2.8 million in cumulative effect of accounting change related...

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... per share amounts): Year Ended December31, 2005 2004 2003 Net income, as reported Add back: Stock-based employee compensation expense, net of tax included in reported net income, net of tax Deduct: Total stock-based employee compensation expense determined under fair value-based method for...

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80 Â© 2006. EDGAR Online, Inc.

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... Company will purchase securities for its balance sheet with the intention of resale to transact the customer's buy or sell order. Gain on Sales of Loans and Securities, net -Gain on sales of originated loans are recognized at the date of settlement and are based on the difference between the cash...

Page 124
...service fees. Account maintenance fees are charged to the customer either quarterly or annually and accrued as earned. Other Revenues -Other revenues consists of stock plan administration services, payments for order flow from third party market makers and foreign exchange margin revenue. Stock plan...

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... this statement. The Company will adopt SFAS No.154, as applicable, beginning in 2006. SOP No.03-3-Accounting for Certain Loans or Debt Securities Acquired in a Transfer In December2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued SOP...

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... 22 years on an accelerated basis. Harris direct On October6, 2005, the Company completed its acquisition of Harris direct LLC ("Harris direct "), a U.S.-based online discount brokerage business with approximately 425,000 customer accounts, from BMO Financial Group for an aggregate purchase price of...

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84 Â© 2006. EDGAR Online, Inc.

Page 128
...statements of income for all periods presented. The following table summarizes the results of discontinued operations for the origination business (in thousands): Year ended December31, 2005 2004 2003 Net revenues Income (loss) from discontinued operations before income taxes Income tax expense...

Page 129
... results of discontinued operations for the proprietary and agency trading businesses (in thousands): Year ended December31, 2005 2004 2003 Net revenues Loss from discontinued operations before income taxes Income tax benefit Net loss from discontinued operations $ $ 21,408 (11,103 ) (3,784...

Page 130
Year Ended December31, 2005 2004 2003 Exit of Consumer Finance Corporation-servicing business Israel exit activities 2003 Restructuring Plan 2001 Restructuring Plan Other exit activities Total restructuring and other exit activities $ (35,496 ) - 2,002 1,096 2,381 (30,017 ) $ - 14,500 1,857 (...

Page 131
... with 43 E*TRADE Zones located in Target stores. These unprofitable product lines consisted of our Stock Basket product offered to customers and our online advisory service, eAdvisor, a joint initiative with Enlight Holdings, LLC. The Company terminated its revenue sharing agreements associated with...

Page 132
...Restructuring Plan reserve is presented below (in thousands): Facility Consolidation Asset Write-Off Other Total Total 2001 facility restructuring and other nonrecurring charges recorded in 2001 Activity through December31, 2003: Adjustments and additional charges Cash payments Non-cash charges...

Page 133
... 2005 activity on original 2001 restructuring reserve: Adjustments and additional charges recorded in 2005 Cash payments Restructuring liabilities at December31, 2005 $ 10,240 543 (3,328 ) 7,455 $ 660 (220 ) (440 ) - $ 166 773 (147 ) 792 $ 11,066 1,096 (3,915 ) 8,247 88 Â© 2006. EDGAR Online...

Page 134
... proprietary money market funds and the outsourcing of certain brokerage activities. These costs primarily relate to customer notification, reimbursement of losses taken on sale of securities and severance. Other exit charges in 2003 were primarily related to the gain on sale of the Company's German...

Page 135
... from customers and non-customers are brokerage receivables whereby credit is extended to customers to finance their purchases of securities by borrowing against securities they currently own (also known as margin balances). At December31, 2005, the fair value of securities that the Company received...

Page 136
... Total mortgage-backed securities Investment securities: Debt securities: Asset-backed securities Municipal bonds Corporate bonds Other debt securities Total debt securities Publicly traded equity securities Retained interests from securitizations Total investment securities Total available-for-sale...

Page 137
Total debt securities Publicly traded equity securities Retained interests from securitizations Total investment securities Total available-for-sale securities $ 3,093,981 295,593 23,870 3,413,444 12,618,315 $ 23,053 81,304 - 104,357 109,917 $ (23,997 ) (2,055 ) - (26,052 ) (184,...

Page 138
... to hold these securities until the market value recovers or the securities mature. Asset-backed securities, corporate bonds and other debt securities are evaluated by reviewing the credit worthiness of the lender and based on market conditions. As of December31, 2005, unrealized losses on mortgage...

Page 139
beneficial interests in securitized receivables held by a subsidiary, ETCF Asset Funding Corporation. 91 Â© 2006. EDGAR Online, Inc.

Page 140
..., 2005 2004 2003 Mortgage-backed securities: Realized gains Realized losses Impairment charges Net realized gains (losses) on mortgage-backed securities included in gain on sales of loans and securities, net Other investments: Realized gains Realized losses Impairment charges Net realized gains...

Page 141
... realized gains from the sales of trading securities of $108.8 million, $101.3 million and $81.3 million, respectively. In addition, the Company had unrealized trading asset appreciation of $0.6 million, $2.5 million and $4.8 million in 2005, 2004 and 2003, respectively. 92 Â© 2006. EDGAR Online...

Page 142
...Total Loans December 31, 2005: Real estate loans: One-to four-family HELOC, second mortgage and other Total real estate loans Consumer and other loans: RV Marine Automobile Credit card Other Total consumer and other loans Total loans Unamortized premiums, net Allowance for loan losses... Online, Inc.

Page 143
Total loans, net $ 11,505,755 $ 279,280 $ 11,785,035 In addition to these loans, net, the Company had commitments to originate, buy and sell loans at December31, 2005 (see Note 24.) Approximately 32% and 45% of the Company's real estate loans were concentrated in California at December31, 2005...

Page 144
... The Company may sell loans that it originally purchased from others. A summary of these activities is presented below (in thousands): Year Ended December31, 2005 2004 2003 Loans sold: Originated Purchased Total loans sold Gain on sales of loans: Originated Purchased Total gain on sale of loans...

Page 145
...real estate loans outstanding which increased by $8.1 billion during 2005. The remaining increase in the allowance was due to slightly higher expected losses on RV and credit card loans offset by lower automobile loan related losses. The $8.6 million increase in net charge-offs in 2005 was primarily...

Page 146
...result of increased bankruptcy filings as customers declared bankruptcy ahead of the new bankruptcy laws in October 2005. We do not anticipate that the 2005 level of credit card charge-offs will continue. The increase in net charge-offs was also due to growth in loans receivable and specific events...

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Â© 2006. EDGAR Online, Inc.

Page 148
... rate and prepayment risk. The investment in the preference shares is classified as a trading security in the Company's investment portfolio. Therefore, changes in the market value of these securities are recorded in gain on sales of loans and securities, net in the consolidated statements of...

Page 149
... 20% adverse change Actual credit losses to date For the year ended December31, 2005 (2) Actual interest payments received $ $ $ $ (195 ) $ (195 ) $ 13,056 - $ $ (43 ) $ (86 ) $ - 1,080 $ $ (22 ) $ (44 ) $ - 642 $ $ (17 ) (33 ) - - (1) Based on calculated discounted expected future cash flows...

Page 150
...for its services, it receives a management fee from the trustee based on the quarterly amount of assets managed (as defined.) During 2005, the Company earned $4.2 million of management fees under the CDOs. At December31, 2005, the Company managed both its on-balance sheet asset-backed securities and...

Page 151
..., 2005, the Company exercised its option to redeem at par the collateral associated with 1999-1 and receive cash for its residual interest. Payment of the residual interest was received in January 2006. (2) Based on calculated discounted expected future cash flows, premised on weighted-average...

Page 152
... sale of the Consumer Finance business in October 2005. The origination and servicing of RV and marine loans were provided by this business. The most important assumptions used in determining the estimated fair value are anticipated loan prepayments and discount rates. The Company uses market-based...

Page 153
Discount rate - 8% 99 Â© 2006. EDGAR Online, Inc.

Page 154
... and $41.8 million for 2003. Completed projects are carried at cost and are amortized on a straight-line basis over their estimated useful lives, generally four years. Amortization expense for the capitalized amounts was $31.5 million for 2005, $33.7 million for 2004 and $29.3 million for 2003. Also...

Page 155
Retail Institutional Total Balance at December31, 2004 Additions from 2005 acquisitions Write-offs related to discontinued operations Balance at December31, 2005 $ 153,720 $ 1,611,507 (3,379 ) 1,761,848 $ 241,323 $ 1,421 (1,136 ) 241,608 $ 395,043 1,612,928 (4,515 ) 2,003,456 $ 100 Â© 2006...

Page 156
... for 2005, $19.4 million for 2004 and $24.8 million for 2003. NOTE 12-ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES The Company enters into derivative transactions to protect against the risk of market price or interest rate movements on the value of Â© 2006. EDGAR Online...

Page 157
... by SFAS No.133. Fair Value Hedges Overview of Fair Value Hedges The Company uses a combination of interest rate swaps and purchased options on forward-starting swaps, caps and floors to offset its exposure to changes in value of certain fixed rate assets and liabilities. In calculating the...

Page 158
... Fair Value of Derivatives Weighted-Average Asset Liability Net Pay Rate Receive Rate Strike Rate Remaining Life(Years) December31, 2005 : Pay-fixed interest rate swaps: Mortgage-backed securities $ Investment securities Receive-fixed interest rate swaps: Brokered certificates of deposit...

Page 159
... rate options were used to hedge mortgage-backed securities. (2) Interest rate swap agreement on the Company's $400.0 million senior notes was terminated during 2005. (3) Swaptions are options to enter swaps starting on a given day. De-designated Fair Value Hedges During 2005 and 2004, certain...

Page 160
...the related interest on the fundings or investment securities affect earnings. During the upcoming twelve months, the Company expects to include a pre-tax amount of approximately $2.4million of net unrealized gains that are currently reflected in AOCI in interest expense as a yield adjustment in the...

Page 161
... 11.16 2,775,000 94,340 - 94,340 N/A N/A 4.43 % 6.13 Total cash flow hedges $ 5,470,000 $ 94,340 $ (40,082 ) $ 54,258 4.84 % 2.25 % 4.43 % 8.45 (1) Caps are used to hedge repurchase agreements and FHLB advances. Floors are used to hedge HELOCs. 103 Â© 2006. EDGAR Online, Inc.

Page 162
... includedin interest expense and interest income (in thousands): Year Ended December31, 2005 2004 2003 Impact on AOCI (net of taxes): Beginning balance $ Gains (losses) on cash flow hedges related to derivatives, net Reclassifications into earnings, net Ending balance Derivatives terminated...

Page 163
... consolidated statements of income. The following table summarizes the income (expense) recognized by the Company as fair value and cash flow hedge ineffectiveness (in thousands): Year Ended December31, 2005 2004 2003 Fair value hedges Cash flow hedges Total fair value adjustments of financial...

Page 164
... interest rate risk. The Company manages this risk by selling mortgages or mortgage-backed securities on a forward basis referred to as forward sale agreements. Changes in the fair value of these derivatives are included as gain on sales of loans and securities, net in the consolidated statements of...

Page 165
... the following (in thousands): December31, 2005 2004 Third party loan servicing receivable Other investments Unamortized debt issue costs Prepaids Deferred compensation plan Servicing rights Securities sold, collateral not delivered Deferred tax assets Other Total other assets $ 79,264 65,189 36...

Page 166
... of deposit Brokered certificates of deposit Checking accounts 3.94 % 3.86 % 0.71 % 3.40 % 2.51 % 0.66 % 2,703,605 484,612 390,665 2,069,674 294,587 430,341 17.0 3.0 2.4 16.8 2.4 3.5 Total deposits 2.00 % 1.27 %$ 15,948,015 $ 12,302,974 100.0 % 100.0 % 106 Â© 2006. EDGAR Online, Inc...

Page 167
...,103 (129 ) $ 15,948,015 $ 12,302,974 At December31, 2005, scheduled maturities of certificates of deposit and brokered certificates of deposit were as follows (in thousands): < 1 Year 1-2 Years 2-3 Years 3-4Years 4-5Years > 5 Years Total Less than 4.00% $ 1,510,063 $ 167,249 $ 89,571...

Page 168
... is summarized as follows (in thousands): Year Ended December31, 2005 2004 2003 Sweep deposit account Money market and savings accounts Certificates of deposit Brokered certificates of deposit Checking accounts Total interest expense $ 36,147 89,073 88,733 15,679 2,679 232,311 $ 13,226...

Page 169
... that transfers brokerage customer balances. The Bank holds these funds as customer deposits in Federal Deposit Insurance Corporation ("FDIC")-insured Negotiable Order of Withdrawal ("NOW") and money market deposit accounts. NOTE 15-SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWINGS...

Page 170
from the sale of issuances to purchase Floating Rate Junior Subordinated Debentures issued by ETBH, guarantees the trust obligations and contributes proceeds from the sale of its subordinated debentures to the Bank in the form of a capital contribution. 108 Â© 2006. EDGAR Online, Inc.

Page 171
... Bank's special direct investment and treasury, tax and loan programs. The Company pledged $0.5 billion of securities and RV loans to secure these borrowings. Below is additional information regarding borrowings (in thousands): December31, 2005 2004 Weighted-average balance during the year...

Page 172
December31, 2005 2004 Senior notes: 8.00% Notes, due 2011 7 3 / 8 % Notes, due 2013 7 7 / 8 % Notes, due 2015 Total senior notes Mandatory convertible notes 6 1 / 8 %, due 2018 Convertible subordinated notes 6.00%, due 2007 Total corporate debt $ 504,407 597,540 300,000 1,401,947 435,589 185,165...

Page 173
... to purchase, and the Company to sell, at a purchase price of $25.00 in cash, a variable number of shares of the Company's common stock. The stock conversion ratio varies depending on the average closing price of the Company's common stock over a 20-day trading period ending on the third trading day...

Page 174
...facility funds currently bear commitment fees of 0.25%per annum payable quarterly in arrears. At December31, 2005, no amounts were outstanding under this credit facility. Issuance costs of $2.2 million are included in other assets and are being amortized over the term of the facility. Corporate Debt...

Page 175
... with banks totaling $825 million to meet corporate liquidity needs and finance margin lending. There was none outstanding under these lines at December31, 2005 and 2004. The Company also has multiple term loans from financial institutions. These loans are collateralized by equipment. Borrowings...

Page 176
Total income before income taxes and discontinued operations $ 676,126 $ 564,487 $ 307,061 112 Â© 2006. EDGAR Online, Inc.

Page 177
...allowances Net unrealized gain on equity investments and Bank assets held-for-sale Net operating loss carry-forwards Deferred compensation Capitalized technology development Tax credits Restructuring reserve and related write-downs Other Total deferred tax assets Deferred tax liabilities: Internally...

Page 178
..., principally sustained profitability, that led management to conclude that it is now more likely than not that realization of its net operating losses and other tax attributes will be recognized. â€¢ At December31, 2005, the Company had gross state net operating loss carry-forwards of $171 million...

Page 179
... of $7 million related to foreign tax credits when the corresponding deferred tax asset was written off upon the conversion of all outstanding Exchangeable Shares to the Company's common stock. The elimination of the valuation allowance did not impact income tax expense. â€¢ The majority of the...

Page 180
... 2005 tax rate was principally due to the one-time tax benefits recorded in 2004 related to (i)the IRS tax settlement and (ii)the excess tax basis upon the sale of partnership interests, offset somewhat by our declining state tax rate and overall foreign tax rate differential. In 2004, the Company...

Page 181
... Notes In November 2005, the Company issued 18.0million Units that are convertible into up to 25.0million shares of common stock, on or before the Purchase Date. The conversion ratio depends on the market price of our common stock 20 trading days prior to conversion. Units are generally convertible...

Page 182
... subordinated notes, net of tax Net income, as adjusted Denominator: Basic weighted-average shares outstanding Effect of dilutive securities: Weighted-average options and restricted stock issued to employees Weighted-average warrants and contingent shares outstanding Shares issuable for assumed...

Page 183
Excluded from the calculations of diluted income (loss) per share are 7.8million and 45.4million shares of common stock for 2005 and 2003, respectively, issuable under convertible subordinated notes as the effect of applying the treasury stock method on an if-converted basis would be anti-dilutive. ...

Page 184
... traded options on the Company's stock. The expected term represents the period of time that options granted are expected to be outstanding. The expected term is estimated using employees' actual historical behavior and projected future behavior based on expected exercise patterns. The risk-free...

Page 185
Expected volatility Expected term (years) Risk-free interest rate Dividend yield 34 % 4.9 4% - 55 % 4.3 3% - 66 % 3.3 3% - 117 Â© 2006. EDGAR Online, Inc.

Page 186
... In addition, the Company recorded a pre-tax credit of $2.8 million in cumulative effect of accounting change as a result of adopting SFAS No.123(R) in 2005. The Company issues restricted stock awards to its officers and senior executives. These awards are issued at the fair market value on the date...

Page 187
... the plan change, the shareholders of the Company had approved the 2002 Purchase Plan, and reserved 5,000,000 shares of common stock for sale to employees at a price no less than 85% of the lower of the fair market value of the common stock at the beginning of the one-year offering period or the end...

Page 188
...2005 RequiredNet Capital Net Capital ExcessNet Capital E*TRADE Clearing LLC (1) BrownCo LLC (1) E*TRADE Securities LLC (1) E*TRADE Capital Markets, LLC Harris direct LLC (2) E*TRADE Global Asset Management, Inc. (2) E*TRADE Capital Markets-Execution Services, LLC (2) E*TRADE Professional Trading...

Page 189
... assets. The Bank satisfied this requirement at both December31, 2005 and 2004. The Bank is subject to certain restrictions on the amount of dividends it may declare without prior regulatory approval. At December31, 2005, the Bank has approximately $192.5 million of capital available for dividend...

Page 190
... following the sale. The parties have been unable to resolve these disputes and have asserted claims against each other. On April8, 2004, MarketXT filed a complaint in the United States District Court for the Southern District of New York against the Company, certain 121 Â© 2006. EDGAR Online, Inc...

Page 191
... in preventing plaintiffs from obtaining certain contingent payments and claiming damages of $1.5 billion. On April9, 2004, the Company filed a complaint in the United States District Court for the Southern District of New York against certain directors and officers of MarketXT seeking declaratory...

Page 192
... business, the Bank makes various commitments to extend credit and incur contingent liabilities that are not reflected in the consolidated balance sheets. The Bank had the following mortgage loan commitments (in thousands): December31, 2005 Fixed Rate VariableRate Total Purchase loans Originate...

Page 193
123 Â© 2006. EDGAR Online, Inc.

Page 194
...; and â€¢stock plan administration products and services activity Institutional includes: â€¢ balance sheet management, including generation of institutional net interest spread, gain on sales of loans and securities, net and management income; â€¢market-making; and Â© 2006. EDGAR Online, Inc.

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â€¢global execution and settlement services 124 Â© 2006. EDGAR Online, Inc.

Page 196
...): Year Ended December31, 2005 Retail Institutional Eliminations (1) Total Revenues: Commissions Principal transactions Gain on sales of loans and securities, net Service charges and fees Other revenues Interest income Interest expense Net interest income Provision for loan losses Net...

Page 197
... Contents Year Ended December31, 2004 Retail Institutional Eliminations (1) Total Revenues: Commissions Principal transactions Gain on sales of loans and securities, net Service charges and fees Other revenues Interest income Interest expense Net interest income Provision for loan losses Net...

Page 198
... Contents Year Ended December31, 2003 Retail Institutional Eliminations (1) Total Revenues: Commissions Principal transactions Gain on sales of loans and securities, net Service charges and fees Other revenues Interest income Interest expense Net interest income Provision for loan losses Net...

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Â© 2006. EDGAR Online, Inc.

Page 200
... Available-for-sale investment securities including mortgage-backed, trading securities and other investments -Fair value is estimated by using quoted market prices for most securities. For illiquid securities, market prices are estimated by obtaining market price quotes on similar liquid securities...

Page 201
...2005 December31, 2004 Carrying Value Fair Value Carrying Value Fair Value Assets: Loans receivable, net and loans held-for-sale, net Liabilities: Deposits Securities sold under agreements to repurchase Other borrowings by Bank...,611 1,745,850 428,452 - 189,794 128 Â© 2006. EDGAR Online, Inc.

Page 202
..., money market, passbook savings and checking accounts, fair value is estimated to be carrying value. For fixed maturity certificates of deposit, fair value is estimated by discounting future cash flows at the currently offered rates for deposits of similar remaining maturities. â€¢ Securities sold...

Page 203
... FINANCIAL INFORMATION (PARENT COMPANY ONLY) The following presents the Parent's condensed balance sheets, statements of income and cash flows: BALANCE SHEETS (in thousands) December31, 2005 2004 ASSETS Cash and equivalents Property and equipment, net Investment securities Investment in Bank...

Page 204
... exit activities Intercompany allocations and charges Other Total expenses excluding interest Income (loss) before other loss, income taxes and cumulative effect of accounting change Other loss: Corporate interest income Corporate interest expense Gain on sale and impairment of investments Loss on...

Page 205
Â© 2006. EDGAR Online, Inc.

Page 206
... in net income of investments Depreciation and amortization Stock-based compensation expense Gain on investments and impairment charges Unrealized loss on venture fund Non cash restructuring costs and other exit activities Cumulative effect of accounting change Other Other changes, net: Other assets...

Page 207
132 Â© 2006. EDGAR Online, Inc.

Page 208
..., the Company signed an agreement to sell its professional agency business, E*TRADE Professional Trading, LLC for approximately $5.0 million. This business includes a broker-dealer registered with the SEC and a member of the NASD who currently executes and clears its customer security transactions...

Page 209
..., processed, summarized and reported within the necessary time periods. (Our Chief Executive Officer and Chief Financial Officer have evaluated the changes to the Company's internal control over b financial reporting that occurred during our fiscal year ended December31, 2005, as required by...

Page 210
... J.P. Morgan Invest Inc. (Incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K filed on October 3, 2005.) 2.5 First Amendment to Purchase and Sale Agreement, dated October 6, 2005, by and among Harris Financial Corp, Harris direct LLC and E*TRADE Financial Corporation...

Page 211
... Financial Corporation and the Bank of New York, as Trustee (Incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed on November 15, 2005.) 4.22 Registration Rights Agreement dated November 10, 2005, between E*TRADE Financial Corporation and J.P. Morgan Securities...

Page 212
... and Morgan Stanley & Co. International Limited dated November 16, 2005 (Incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed on November 18, 2005.) 4.27 Confirmation of Forward Stock Sale Transaction between E*TRADE Financial Corporation and JPMorgan Chase Bank...

Page 213
... 5, 1998 issued by E*TRADE Financial Corporation to SOFTBANK CORP. (Incorporated by reference to Exhibit 10.2 of the Company's Form 8-K filed on June 12, 1998.) 10.26 Stock Purchase Agreement dated June 5, 1998 by and between E*TRADE Financial Corporation and SOFTBANK Holdings, Inc. (Incorporated...

Page 214
... Form of Note Secured by Stock Pledge Agreement by and between the Company and Jerry Gramaglia dated December 20, 2000 (Incorporated by reference to Exhibit 10.2 of the Company's Form 10-Q filed February 14, 2001.) 10.45 Form of Note, Loan Agreement and Unit Pledge Agreement dated November 20, 2000...

Page 215
...'s Current Report on Form 8-K filed on May 31, 2005.) 10.69 Credit Agreement dated September 19, 2005 between the Company and JP Morgan Chase Bank, N.A. as Administrative Agent (incorporated by reference as exhibit 10.01 in 10-Q filed November 1, 2005.) *12.1 Statement of Earnings to Fixed Charges...

Page 216
... duly authorized. Dated: March 1, 2006 E*TRADE F INANCIAL C ORPORATION By: /s/M ITCHELL H. C APLAN Mitchell H. Caplan Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant...

Page 217
141 Â© 2006. EDGAR Online, Inc.

Page 218
Exhibit 4.9 E*TRADE FINANCIAL CORPORATION and The Bank of New York, as Purchase Contract Agent, and The Bank of New York, as Collateral Agent, Custodial Agent and Securities Intermediary PURCHASE CONTRACT AND PLEDGE AGREEMENT Dated as of November22, 2005 Â© 2006. EDGAR Online, Inc.

Page 219
... Governing Law Legal Holidays Counterparts Inspection of Agreement Appointment of Financial Institution as Agent for the Company No Waiver ARTICLE 2 CERTIFICATE FORMS Forms of Certificates Generally Form of Purchase Contract Agent's Certificate of Authentication ARTICLE 3 THE UNITS Amount; Form...

Page 220
... 3.15 Section 3.16 Section 3.17 Definitive Certificates. Mutilated, Destroyed, Lost and Stolen Certificates Persons Deemed Owners Cancellation Creation of Treasury Units by Substitution of Treasury Securities Recreation of Corporate Units Transfer of Collateral Upon Occurrence of Termination Event...

Page 221
... Purchase of Shares of Common Stock Cash Settlement; Remarketing; Payment of Purchase Price Issuance of Shares of Common Stock Adjustment of each Fixed Settlement Rate Notice of Adjustments and Certain Other Events Termination Event; Notice. Early Settlement No Fractional Shares Charges and Taxes...

Page 222
....13 Section7.14 Money Held in Custody Compensation and Reimbursement. Corporate Purchase Contract Agent Required;...Business Preservation of Information; Communications to Holders No Obligations of Purchase Contract Agent Tax Compliance 5 8 5 9 5 9 5 9 6 1 6 1 6 1 6 2 6 2 ii Â© 2006. EDGAR Online...

Page 223
..., Convey, Transfer or Lease Property except under Certain Conditions Rights and Duties of Successor Corporation Officers' Certificate and Opinion of Counsel Given to Purchase Contract Agent ARTICLE 10 COVENANTS Performance under Purchase Contracts Maintenance of Office or Agency Company To Reserve...

Page 224
Section12.09 Section12.10 Section12.11 Section12.12 Tax Allocations No Other Agreements Powers Coupled with an Interest Waiver of Lien; Waiver of Set-off 6 9 6 9 6 9 6 9 iii Â© 2006. EDGAR Online, Inc.

Page 225
... - Form of Corporate Units Certificate Form of Treasury Units Certificate Instruction to Purchase Contract Agent From Holder to Create Treasury Units or Corporate Units Notice from Purchase Contract Agent to Holders Upon Termination Event Notice to Settle by Separate Cash Reserved Instruction from...

Page 226
iv Â© 2006. EDGAR Online, Inc.

Page 227
... Agent to Securities Intermediary (Recreation of Corporate Units) - Notice of Cash Settlement from Collateral Agent to Purchase Contract Agent - Instruction to Custodial Agent Regarding Remarketing - Instruction to Custodial Agent Regarding Withdrawal from Remarketing v Â© 2006. EDGAR Online, Inc...

Page 228
... AND PLEDGE AGREEMENT, dated as of November22, 2005, among E*TRADE Financial Corporation, a Delaware corporation (the " Company "), The Bank of New York, a New York banking corporation, acting as purchase contract agent for, and as attorney-in-fact of, the Holders from time to time of the Units (in...

Page 229
... of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. " Agreement " means this instrument as originally executed or as it may from time to time be...

Page 230
... Units Certificate, as the case may be. " Closing Price " has the meaning set forth in Section5.01(a). " Code " means the Internal Revenue Code of 1986, as amended. " Collateral " means the collective reference to: (i) the Collateral Account and all investment property and other financial assets...

Page 231
... " means the securities account of The Bank of New York, as Collateral Agent, maintained on the books of the Securities Intermediary and designated "The Bank of New York, as Collateral Agent of E*TRADE Financial Corporation, as pledgee of The Bank of New York, as the Purchase Contract Agent on...

Page 232
... Units specified on such certificate. " Coupon Rate " has the meaning set forth in the Supplemental Indenture. " Current Market Price " means, in respect of a share of Common Stock on any date of determination, the average of the daily Closing Prices for the 20 consecutive Trading Days ending...

Page 233
..., costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Company or the Collateral Agent or the Securities Intermediary that are required to be paid by the Holder pursuant to the terms of any of the foregoing agreements). 6 Â© 2006. EDGAR Online...

Page 234
... Company's Chief Executive Officer, its President or one of its Vice Presidents, and (ii)either the Company's Corporate Secretary or one of its Assistant Corporate Secretaries or its Treasurer or one of its Assistant Treasurers, and delivered to the Purchase Contract Agent. Any Officers' Certificate...

Page 235
... money market funds (including, but not limited to, money market funds managed by the Collateral Agent or an affiliate of the Collateral Agent) registered under the Investment Company Act of 1940, as amended, rated in the highest applicable rating category by S&P or Moody's. " Person " means a legal...

Page 236
... the Company to sell, and the Holder of such Unit to purchase, shares of Common Stock and on the terms and subject to the conditions set forth in Article 5 hereof. " Purchase Contract Agent " means the Person named as the "Purchase Contract Agent" in the first paragraph of this Agreement until...

Page 237
...Remarketing Agreement. " Responsible Officer " means, when used with respect to the Purchase Contract Agent, any officer of the Purchase Contract Agent within the Corporate Trust Division-Corporate Finance Unit (or any successor unit, department or division of the Purchase Contract Agent) located at...

Page 238
..., or approving as properly filed a petition seeking reorganization of the Company under the Bankruptcy Code or any other similar applicable Federal or state law and if such judgment, decree or order shall have been entered more than 60 days prior to the Purchase Contract Settlement Date, such...

Page 239
... Bank of New York pursuant to the TRADES Regulations. " TRADES Regulations " means the regulations of the United States Department of the Treasury, published at 31 C.F.R. Part 357, as amended from time to time. Unless otherwise defined herein, all terms defined in the TRADES Regulations are used...

Page 240
... Code as in effect in the State of New York from time to time. " Unit " means a Corporate Unit or a Treasury Unit, as the case may be. " Units Prospectus " means the registration statement, as amended, filed with the Securities and Exchange Commission (File No.333-129077) and the prospectus...

Page 241
... an officer or officers of the Company unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests...

Page 242
... The Purchase Contract Agent shall send to the Indenture Trustee at the following address a copy of any notices in the form of Exhibits C, D, E, G, I or K it sends or receives: The Bank of New York 101 Barclay Street, 8W New York, NY 10286 Attention: Corporate Trust Division - Corporate Finance Unit...

Page 243
...York state court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Holders from time to time of the Units...

Page 244
...of this Agreement shall be available at all reasonable times during normal business hours at the Corporate Trust Office for inspection by any Holder or Beneficial Owner. Section1.15 Appointment of Financial Institution as Agent for the Company . The Company may appoint a financial institution (which...

Page 245
...in clause (i)of the definition of such term) to secure the obligation of the Holder under each Purchase Contract to purchase shares of Common Stock. To effect such Pledge and grant such security interest, the Purchase Contract Agent on behalf of the Holders of Corporate Units has, on the date hereof...

Page 246
... securities exchange on which the Corporate Units or Treasury Units, as the case may be, are listed, or as may, consistently herewith, be determined by the officers of the Company executing such Certificates, as evidenced by their execution of the Certificates. If temporary Certificates are issued...

Page 247
...The Security Registrar shall record separately the registration and transfer of the Certificates evidencing Corporate Units and Treasury Units. Upon surrender for registration of transfer of any Certificate at the Corporate Trust Office, the Company shall execute and deliver to the Purchase Contract...

Page 248
... will make book-entry transfers among Depositary Participants. Transfers of securities evidenced by Global Certificates shall be made through the facilities of the Depositary, and any cancellation of, or increase or decrease in the number of, such securities (including the creation of Treasury Units...

Page 249
..., execute on behalf of the Holder, and deliver in exchange therefor, a new Certificate, evidencing the same number of Corporate Units or Treasury Units, as the case may be, and bearing a Certificate number not contemporaneously outstanding. If there shall be delivered to the Company and the Purchase...

Page 250
...any new Certificate under this Section, the Company and the Purchase Contract Agent may require the payment by the Holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other fees and expenses (including, without limitation, the fees...

Page 251
... of the Corporate Units, and subject to the conditions set forth in this Agreement, a Holder of Corporate Units may, at any time from and after the date of this Agreement and prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Purchase Contract Settlement...

Page 252
... the conditions set forth in this Agreement, a Holder of Corporate Units may, at any time from and after the date of this Agreement and prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Purchase Contract Settlement Date, substitute Treasury Securities for...

Page 253
... In the event a Holder making a Collateral Substitution pursuant to this Section3.13 fails to effect a book-entry transfer of the Corporate Units or fails to deliver Corporate Units Certificates to the Purchase Contract Agent after depositing Treasury Securities with the Securities Intermediary, any...

Page 254
... Treasury Units; (ii) Transfer the Treasury Securities to the Holder; and (iii) deliver Corporate Units in book-entry form or, if applicable, authenticate, execute on behalf of such Holder and deliver Corporate Units in the form of a Corporate Units Certificate executed by the Company in accordance...

Page 255
... Purchase Contract Agent shall within fifteen days after the occurrence of such Termination Event commence an action or proceeding in the court having jurisdiction of the Company's case under the Bankruptcy Code seeking an order requiring the Collateral Agent to effectuate the release and transfer...

Page 256
... at its address as it appears in the Security Register. (d) Upon book-entry transfer of the Corporate Units or the Treasury Units or delivery of a Corporate Units Certificate or Treasury Units Certificate to the Purchase Contract Agent with such transfer instructions, the Purchase Contract Agent...

Page 257
... of such term), as the case may be, which is paid on any Payment Date shall, subject to receipt thereof by the Purchase Contract Agent from the Company or from the Collateral Agent as provided in Section4.01(a) above, be paid to the Person in whose name the Corporate Units Certificate (or one...

Page 258
... be credited to the Collateral Account, to be invested in Permitted Investments until the Purchase Contract Settlement Date, and transferred to the Company on the Purchase Contract Settlement Date as provided in Section5.02 hereof. Any balance remaining in the Collateral Account shall be released...

Page 259
... terms and to direct the Indenture Trustee to remit the Redemption Price to the Securities Intermediary for credit to the Collateral Account, on or prior to 12:30 p.m., New York City time, on such Special Event Redemption Date, by federal funds check or wire transfer of immediately available funds...

Page 260
... of Common Stock . (a)Each Purchase Contract shall obligate the Holder of the related Unit to purchase, and the Company to sell, on the Purchase Contract Settlement Date at a price equal to the Stated Amount (the " Purchase Price "), a number of newly issued shares of 33 Â© 2006. EDGAR Online, Inc...

Page 261
...if the Common Stock is not so listed on a United States national or regional securities exchange, the closing sale price (or, if no closing sale price is reported, the reported last sale price) per share as reported by The Nasdaq National Market; or (iv) if the Common Stock is not so reported by the...

Page 262
... national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Stock. (b) Each Holder of a Corporate Unit or a Treasury Unit, by its acceptance of such Unit: (i) irrevocably authorizes the Purchase Contract Agent to enter...

Page 263
... Account prior to 5:00 p.m. (New York City time) on the sixth Business Day immediately preceding the Purchase Contract Settlement Date, in lawful money of the United States by certified or cashiers check or wire transfer in immediately available funds payable to or upon the order of the Securities...

Page 264
... type of Permitted Investments in which any such Cash shall be invested; provided , however , that if the Company fails to deliver such written instructions by 10:30 a.m. (New York City time) on the day such Cash is received by the Collateral Agent or to be reinvested by the Securities Intermediary...

Page 265
... Remarketing Agreement to sell such Subordinated Notes. The Purchase Contract Agent, based on the notices specified pursuant to Section5.02(a)(iv), shall notify the Remarketing Agent, promptly after 5:00 p.m. (New York City time) on the sixth Business Day immediately preceding the Purchase Contract...

Page 266
... Account prior to 5:00 p.m. (New York City time) on the second Business Day immediately preceding the Purchase Contract Settlement Date in lawful money of the United States by certified or cashiers check or wire transfer in immediately available funds payable to or upon the order of the Securities...

Page 267
...to make available copies of such prospectus. (viii) The Company shall issue a press release and cause a notice of any Failed Final Remarketing to be published on its website (with a copy of such notice to be provided to the Purchase Contract Agent) before 9:00 a.m. New York City time on the Business...

Page 268
... Rate to become effective immediately at the opening of business on the Business Day following the date fixed for such determination. For the purposes of this paragraph (i), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company...

Page 269
...close of business on the date of such announcement plus the number of shares of Common Stock that the aggregate offering price of the total number of shares of Common Stock so offered for subscription or purchase in the manner described in this Section5.04(a)(ii) would purchase at the Current Market...

Page 270
... other national or regional exchange or market on which such securities are then listed or quoted (the " Ex-Dividend Date ") plus (B)the average Closing Prices of the securities distributed in respect of each share of Common Stock for the ten (10)consecutive Trading Days commencing on and including...

Page 271
..."outstanding at the close of business on the date fixed for such determination" within the meaning of Section5.04(a)(i). (v) In case the Company shall make any dividend or distribution consisting exclusively of cash to all holders of outstanding shares of Common Stock 44 Â© 2006. EDGAR Online, Inc...

Page 272
... the Company, as the case may be, purchased in such tender or exchange offer (the " Purchased Shares ") and (2)the product of the number of shares of Common Stock outstanding, less any Purchased Shares, and the Closing Price of the Common Stock on the Trading Day next succeeding the Expiration Time...

Page 273
...to the opening of business on the Business Day following the Expiration Time. If the Company is obligated to purchase shares pursuant to any such tender or exchange offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded...

Page 274
... in which the Company is the continuing corporation and in which the shares of Common Stock outstanding immediately prior to the merger or consolidation are not exchanged for cash, securities or other property of the Company or another corporation); (B) any sale, transfer, lease or conveyance...

Page 275
...04(b)(ii), the term "Applicable Market Value" shall be deemed to refer to the "Applicable Market Value" of the Exchange Property, and such value shall be determined (A)with respect to any publicly traded securities that compose all or part of the Exchange Property, based on the Closing Price of such...

Page 276
... shall deliver, no later than 5:00 p.m. (New York City time) on the third Business Day immediately preceding the Cash Merger Early Settlement Date, such Certificate to the Purchase Contract Agent at the Corporate Trust Office duly endorsed for transfer to the Company or in blank with the form of...

Page 277
... Treasury Units, in each case with a Value equal to the product of (x)the Stated Amount and (y)the number of Purchase Contracts as to which such Holder has elected to effect Cash Merger Early Settlement, and shall instruct the Securities Intermediary to Transfer all such Pledged Applicable Ownership...

Page 278
... the time be issued or delivered with respect to any Purchase Contract; and the Purchase Contract Agent makes no representation with respect thereto. The Purchase Contract Agent shall not be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock pursuant...

Page 279
... order to exercise the right to effect Early Settlement with respect to any Purchase Contracts, the Holder of the Certificate evidencing Units (in the case of Certificates in definitive certificated form) shall deliver, at any time prior to 5:00 p.m. (New York City time) on the seventh Business Day...

Page 280
... Units, Pledged Treasury Securities, in each case with a Value equal to the product of (x)the Stated Amount times (y)the number of Purchase Contracts as to which such Holder has elected to effect Early Settlement, and shall instruct the Securities Intermediary to Transfer all such Pledged Applicable...

Page 281
... to time with sufficient funds to permit the Purchase Contract Agent to make all cash payments required by this Section5.08 in a timely manner. Section5.09 Charges and Taxes . The Company will pay all stock transfer and similar taxes attributable to the initial issuance and delivery of the shares of...

Page 282
... of the right to purchase shares of Common Stock under the Purchase Contracts constituting part of any Unit held by such Holder. Section6.06 Waiver of Stay or Extension Laws . The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead...

Page 283
... to the Units, conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Purchase Contract Agent and conforming to the requirements of this Agreement or the Remarketing Agreement, as applicable, but in...

Page 284
... it hereunder in good faith and in reliance thereon; (e) the Purchase Contract Agent shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note...

Page 285
...such a default is received by a Responsible Offer at the Corporate Trust Office of the Purchase Contract Agent, and such notice references the Units or this Agreement; (j) the Purchase Contract Agent may request that the Company deliver an Officers' Certificate setting forth the names of individuals...

Page 286
... to exercise corporate trust powers, having (or being a member of a bank holding company having) a combined capital and surplus of at least $50,000,000, subject to supervision or examination by Federal or State authority and having a corporate trust office in the Borough of Manhattan, New York City...

Page 287
..., at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Purchase Contract Agent. (c) The Purchase Contract Agent may be removed at any time by Act of the Holders of a majority in number of the Outstanding Units delivered to the Purchase Contract Agent...

Page 288
... and executed such Units. Section7.12 Preservation of Information; Communications to Holders . (a)The Purchase Contract Agent shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders received by the Purchase Contract Agent in its capacity as Security...

Page 289
... Units or (ii)the issuance, delivery, holding, transfer, redemption or exercise of rights under the Units. Such compliance shall include, without limitation, the preparation and timely filing of required returns and the timely payment of all amounts required to be withheld to the appropriate taxing...

Page 290
... of the Outstanding Units voting together as one class, including without limitation the consent of the Holders obtained in connection with a tender or an exchange offer, by Act of said Holders delivered to the Company, the Purchase Contract Agent, the Company, the Collateral Agent, the Securities...

Page 291
... opinion of the Purchase Contract Agent and the Company, to any such supplemental agreement may be prepared and executed by the Company and authenticated, executed on behalf of the Holders and delivered by the Purchase Contract Agent in exchange for outstanding Certificates. ARTICLE 9 CONSOLIDATION...

Page 292
... of the Certificates evidencing Units issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Purchase Contract Agent; and, upon the order of such successor instead of the Company, and subject to all the terms, conditions and limitations in this Agreement...

Page 293
... York, New York for such purposes. The Company will give prompt written notice to the Purchase Contract Agent of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates as the place of payment for the Units the Corporate...

Page 294
... Units constitutes assets of the Plan or (ii)the purchase or holding of the Corporate Units by such purchaser or transferee will not constitute a non-exempt prohibited transaction under Section406 of ERISA or Section4975 of the Code or similar violation under any applicable laws. Section10.07 Tax...

Page 295
... Deposit of Subordinated Notes . (a)Prior to or concurrently with the execution and delivery of this Agreement, the Purchase Contract Agent, on behalf of the initial Holders of the Corporate Units, shall Transfer to the Securities Intermediary, for credit to the Collateral Account, the Applicable...

Page 296
... for notices under this Agreement. Section12.09 Tax Allocations . The Purchase Contract Agent shall report all items of income, gain, expense and loss recognized in the Collateral Account, to the extent such reporting is required by law, to the Internal Revenue Service authorities in the manner...

Page 297
... in the Treasury Portfolio in one or more public or private sales. (b) Without limiting any rights or powers otherwise granted by this Agreement to the Collateral Agent, in the event the Collateral Agent is unable to make payments to the Company on account of Proceeds of (i)the Subordinated Notes...

Page 298
... to create or allow to subsist any mortgage, charge, lien, pledge or any other security interest whatsoever over the Collateral or any part of it other than pursuant to this Agreement; and (b) neither the Purchase Contract Agent nor such Holders will sell or otherwise dispose (or attempt to dispose...

Page 299
...Agent or the Securities Intermediary be liable for any amount in excess of the Value of the Collateral. Section15.02 Instructions of the Company . The Company shall have the right, by one or more written instruments executed and delivered to the Collateral Agent, to direct the time, method and place...

Page 300
... Collateral Agent, the Custodial Agent or the Securities Intermediary 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, entitlement order, approval or other paper or document...

Page 301
... the Securities Intermediary and their affiliates may (without having to account therefor to the Company) accept deposits from, lend money to, make their investments in and generally engage in any kind of banking, trust or other business with the Purchase Contract Agent, any other Person interested...

Page 302
...or any other Person with respect to any funds or property deposited hereunder has been asserted in writing, then at its sole option, each of the Collateral Agent, the Custodial Agent and the Securities Intermediary shall be entitled, after prompt notice to the Company and the Purchase Contract Agent...

Page 303
.... The Collateral Agent, the Custodial Agent and the Securities Intermediary shall each be a bank or a national banking association which has an office (or an agency office) in New York City with a combined capital and surplus of at least $50,000,000. Upon the acceptance of any appointment...

Page 304
... Units and (ii)the enforcement of this Section15.14; (c) all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Agreement or any other document referred to herein and all costs, expenses, taxes, assessments...

Page 305
... of: (a) any lack of validity or enforceability of any provision of the Purchase Contracts or the Units or any other agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or any other term of, or any increase in the amount of, all or any of the...

Page 306
... caused this Agreement to be duly executed as of the day and year first above written. E*TRADE FINANCIAL CORPORATION THE BANK OF NEW YORK, as Purchase Contract Agent and as attorney-in-fact of the Holders from time to time of the Units By: Name: Title: Address for Notices: The Bank of New York 101...

Page 307
... UNIT CERTIFICATE) [For inclusion in Global Certificates only - THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE PURCHASE CONTRACT AND PLEDGE AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF CEDE& CO., AS NOMINEE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK...

Page 308
... for such Payment Date. Each Purchase Contract evidenced hereby obligates the Holder of this Corporate Units Certificate to purchase, and the Company to sell, on the Purchase Contract Settlement Date, at a Purchase Price equal to the Stated Amount, a number of newly issued shares of Common Stock of...

Page 309
...the certificate of authentication hereon has been executed by the Purchase Contract Agent by manual signature, this Corporate Units Certificate shall not be entitled to any benefit under the Purchase Contract and Pledge Agreement or be valid or obligatory for any purpose. A-3 Â© 2006. EDGAR Online...

Page 310
...: Dated: CERTIFICATE OF AUTHENTICATION OF PURCHASE CONTRACT AGENT This is one of the Corporate Units Certificates referred to in the within mentioned Purchase Contract and Pledge Agreement. THE BANK OF NEW YORK, as Purchase Contract Agent By: Name: Title: Dated: A-4 Â© 2006. EDGAR Online, Inc...

Page 311
...the Holder of the related Corporate Units to purchase at the Purchase Price, and the Company to sell, a number of newly issued shares of Common Stock equal to the Minimum Settlement Rate (in the case of an Early Settlement) or applicable Settlement Rate (in the case of a Cash Merger Early Settlement...

Page 312
... shall deposit the funds in the Collateral Account in exchange for such Subordinated Notes. Thereafter, the Collateral Agent shall cause the Securities Intermediary to apply an amount equal to the aggregate Redemption Amount of such funds to purchase, on behalf of the Holders of Corporate Units, the...

Page 313
...thereof. The transfer of any Corporate Units Certificate will be registered and Corporate Units Certificates may be exchanged as provided in the Purchase Contract and Pledge Agreement. A Holder who elects to substitute a Treasury Security for the Subordinated Note underlying the Applicable Ownership...

Page 314
... to receive a number of shares of Common Stock on account of each Purchase Contract forming part of a Corporate Unit as to which Cash Merger Early Settlement is effected equal to the applicable Settlement Rate. Upon registration of transfer of this Corporate Units Certificate, the transferee shall...

Page 315
... to the contrary, and neither the Company, the Purchase Contract Agent nor any such agent shall be affected by notice to the contrary. A copy of the Purchase Contract and Pledge Agreement is available for inspection at the offices of the Purchase Contract Agent. A-9 Â© 2006. EDGAR Online, Inc.

Page 316
... Print or Type Name and Address Including Postal Zip Code of Assignee) the within Corporate Units Certificates and all rights thereunder, hereby irrevocably constituting and appointing attorney , to transfer said Corporate Units Certificates on the books of E*TRADE Financial Corporation, with full...

Page 317
... such Person's name and address and (ii)provide a guarantee of your signature: Name Address Social Security or other Taxpayer Identification Number, if any Signature Signature Guarantee: REGISTERED HOLDER Please print name and address of Register Holder: Name Address A-11 Â© 2006. EDGAR Online...

Page 318
... for shares of Common Stock deliverable upon settlement on or after the Purchase Contract Settlement Date of the Purchase Contracts underlying the number of Corporate Units evidenced by this Corporate Units Certificate be registered in the name of, and delivered, together with a check in payment for...

Page 319
... Holder directs that a certificate for shares of Common Stock or other securities deliverable upon such [Early Settlement] [Cash Merger Early Settlement] be registered in the name of, and delivered, together with a check in payment for any fractional share and any Corporate Units Certificate...

Page 320
... to which [Early Settlement] [Cash Merger Early Settlement] of the related Purchase Contracts is being elected: If shares of Common Stock or Corporate Units Certificates are to be registered in the name of and delivered to, and Subordinated Notes underlying Pledged Applicable Ownership Interests in...

Page 321
Transfer Instructions for Subordinated Notes underlying Pledged Applicable Ownership Interests in Subordinated Notes or the Applicable Ownership Interests in the Treasury Portfolio, as the case may be, transferable upon [Early Settlement] [Cash Merger Early Settlement]: A-15 Â© 2006. EDGAR Online,...

Page 322
... the Global Certificate Amount of decrease in number of Corporate Units evidenced by the Global Certificate Number of Corporate Units evidenced by this Global Certificate following such decrease or increase Signature of authorized signatory of Purchase Contract Agent A-16 Â© 2006. EDGAR Online...

Page 323
... TREASURY UNIT CERTIFICATE) [For inclusion in Global Certificate only - THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE PURCHASE CONTRACT AND PLEDGE AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF CEDE& CO., AS NOMINEE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK...

Page 324
... obligates the Holder of this Treasury Units Certificate to purchase, and the Company to sell, on the Purchase Contract Settlement Date, at a Purchase Price equal to the Stated Amount, a number of newly issued shares of Common Stock of the Company, equal to the Settlement Rate, unless prior to or on...

Page 325
IN WITNESS WHEREOF, the Company and the Holder specified above have caused this instrument to be duly executed. E*TRADE FINANCIAL CORPORATION By: Name: Title: HOLDER SPECIFIED ABOVE (as to obligations of such Holder under the Purchase Contracts) By: THE BANK OF NEW YORK, not individually but solely...

Page 326
... Holder of this Treasury Units Certificate to purchase, and the Company to sell, on the Purchase Contract Settlement Date at a price equal to the Stated Amount, a number of newly issued shares of Common Stock equal to the Settlement Rate, unless an Early Settlement, a Cash Merger Early Settlement or...

Page 327
... to receive a number of shares of Common Stock on account of each Purchase Contract forming part of a Treasury Unit as to which Cash Merger Early Settlement is effected equal to the applicable Settlement Rate. Upon registration of transfer of this Treasury Units Certificate, the transferee shall...

Page 328
...a holder of shares of Common Stock. Prior to due presentment of this Certificate for registration of transfer, the Company, the Purchase Contract Agent and its Affiliates and any agent of the Company or the Purchase Contract Agent may treat the Person in whose name this Treasury Units Certificate is...

Page 329
... Print or Type Name and Address Including Postal Zip Code of Assignee) the within Treasury Units Certificates and all rights thereunder, hereby irrevocably constituting and appointing attorney, to transfer said Treasury Units Certificates on the books of E*TRADE Financial Corporation, with full...

Page 330
... for shares of Common Stock deliverable upon settlement on or after the Purchase Contract Settlement Date of the Purchase Contracts underlying the number of Treasury Units evidenced by this Treasury Units Certificate be registered in the name of, and delivered, together with a check in payment for...

Page 331
... Holder directs that a certificate for shares of Common Stock or other securities deliverable upon such [Early Settlement] [Cash Merger Early Settlement] be registered in the name of, and delivered, together with a check in payment for any fractional share and any Treasury Units Certificate...

Page 332
Transfer Instructions for Pledged Treasury Securities transferable upon [Early Settlement] [Cash Merger Early Settlement]: B-10 Â© 2006. EDGAR Online, Inc.

Page 333
...by the Global Certificate Amount of decrease in number of Treasury Units evidenced by the Global Certificate Number of Treasury Units evidenced by this Global Certificate following such decrease or increase Signature of authorized signatory of Purchase Contract Agent B-11 Â© 2006. EDGAR Online...

Page 334
..., terms defined in the Agreement are used herein as defined therein), between the Company and The Bank of New York, as Collateral Agent, as Custodial Agent, as Securities Intermediary, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units and Treasury Units from time...

Page 335
... and Pledge Agreement are used herein as defined therein), between the Company and The Bank of New York, as Collateral Agent, as Custodial Agent, as Securities Intermediary, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units and Treasury Units from time to time. We...

Page 336
... Date (in lawful money of the United States by certified or cashiers' check or wire transfer, in immediately available funds payable to or upon the order of the Securities Intermediary), $ as the Purchase Price for the shares of Common Stock issuable to such Holder by the Company with respect to...

Page 337
EXHIBIT F RESERVED F-1 Â© 2006. EDGAR Online, Inc.

Page 338
..., 2005 (the " Agreement "), among the Company and The Bank of New York, as Collateral Agent, as Custodial Agent, as Securities Intermediary, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units and Treasury Units from time to time. Capitalized terms used herein...

Page 339
... respect thereto for the [Subordinated Notes underlying Pledged Applicable Ownership Interests in Subordinated Notes] [Pledged Applicable Ownership Interests in the Treasury Portfolio]: Name: Address Social Security or other Taxpayer Identification Number, if any G-2 Â© 2006. EDGAR Online, Inc.

Page 340
..., 2005 (the " Agreement "), between the Company and The Bank of New York, as Collateral Agent, as Custodial Agent, as Securities Intermediary, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units and Treasury Units from time to time. Capitalized terms used herein...

Page 341
H-1 Â© 2006. EDGAR Online, Inc.

Page 342
..., 2005 (the " Agreement "), between the Company and The Bank of New York, as Collateral Agent, as Custodial Agent, as Securities Intermediary, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units and Treasury Units from time to time. Capitalized terms used herein...

Page 343
... electing to substitute [Subordinated Notes] [Applicable Ownership Interests in the Treasury Portfolio] or security entitlements with respect thereto for Pledged Treasury Securities: Name Address Social Security or other Taxpayer Identification Number, if any I-2 Â© 2006. EDGAR Online, Inc.

Page 344
..., 2005 (the " Agreement "), among the Company and The Bank of New York, as Collateral Agent, as Custodial Agent, as Securities Intermediary, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units and Treasury Units from time to time. Capitalized terms used herein...

Page 345
... Company and The Bank of New York, as Collateral Agent, as Custodial Agent, as Securities Intermediary, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units and Treasury Units from time to time. Unless otherwise defined herein, terms defined in the Agreement are used...

Page 346
... Agreement, dated as of November22, 2005 (the " Agreement "), between the Company and The Bank of New York, as Collateral Agent, as Custodial Agent, as Securities Intermediary, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units and Treasury Units from time to time...

Page 347
... Number, if any A. PAYMENT INSTRUCTIONS Proceeds of a Successful Remarketing should be paid by check in the name of the person(s) set forth below and mailed to the address set forth below. Name(s) (Please Print) Address (Please Print) (Zip Code) (Tax Identification or Social Security Number...

Page 348
(Tax Identification or Social Security Number) In the event of a Failed Final Remarketing, Subordinated Notes which are in book-entry form should be credited to the account at The Depository Trust Company set forth below. DTC Account Number NameofAccountParty: L-3 Â© 2006. EDGAR Online, Inc.

Page 349
... as of November22, 2005 (the " Agreement "), among the Company and you, as Collateral Agent, Custodial Agent and Securities Intermediary, and The Bank of New York, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units and Treasury Units from time to time, that the...

Page 350
E*TRADE Financial Corporation as Issuer AND The Bank of New York, as Trustee Subordinated Indenture Dated as of November22, 2005 Â© 2006. EDGAR Online, Inc.

Page 351
... of Securities Execution of Securities Certificate of Authentication Denomination and Date of Securities; Payments of Interest Registration, Transfer and Exchange Mutilated, Defaced, Destroyed, Lost and Stolen Securities Cancellation of Securities; Disposition Thereof Temporary Securities ARTICLE...

Page 352
... or Application of Proceeds Thereof Trustee and Agents May Hold Securities or Coupons; Collections, etc Moneys Held by Trustee Compensation and Indemnification of Trustee and Its Prior Claim Right of Trustee to Rely on Officer's Certificate, etc [T HIS S ECTION I NTENTIONALLY L EFT B LANK ] Persons...

Page 353
... Certain Conditions Successor Corporation Substituted Opinion of Counsel Delivered to Trustee ARTICLE 10 S ATISFACTION AND D ISCHARGE OF I NDENTURE ; U NCLAIMED M ONEYS Satisfaction and Discharge of Indenture Application by Trustee of Funds Deposited for Payment of Securities Repayment of Moneys...

Page 354
... Issuer, Trustee and Holders of Securities and Coupons Officer's Certificates and Opinions of Counsel; Statements to Be Contained Therein Payments Due on Saturdays, Sundays and Holidays Conflict of Any Provision of Indenture with Trust Indenture Act of 1939 New York Law to Govern Counterparts Effect...

Page 355
... as of November22, 2005 between E*TRADE Financial Corporation, a Delaware corporation (the " Issuer "), and The Bank of New York, a New York banking corporation, as trustee (the " Trustee "), WITNESSETH: WHEREAS, the Issuer has duly authorized the issue from time to time of its unsecured debentures...

Page 356
...is not a day on which banking institutions are authorized or required by law or regulation to close. " Commission " means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or if at any time after the execution and delivery of...

Page 357
..." as used with respect to the Securities of any such series shall mean the Depositary with respect to the Registered Global Securities of that series. " Dollar " means the coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private...

Page 358
..." means a currency issued by the government of a country other than the United States (or any currency unit comprised of any such currencies). " Holder, " " Holder of Securities, " " Securityholder " or other similar terms mean (a)in the case of any Registered Security, the Person in whose name such...

Page 359
....01. " Payment Blockage Notice ") has the meaning specified in Section5.01. " Periodic Offering " means an offering of Securities of a series from time to time, the specific terms of which Securities, including, without limitation, the rate or rates of interest, if any, thereon, the stated maturity...

Page 360
...performing 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 his knowledge of and familiarity with the particular subject. " Security " or " Securities " has the meaning stated in the...

Page 361
... Article 6, shall also include any successor trustee. " Trustee " shall also mean or include each Person who is then a trustee hereunder and if at any time there is more than one such Person, " Trustee " as used with respect to the Securities of any series shall mean the trustee with respect to the...

Page 362
... (and, to the extent established pursuant to rather than set forth in a Board Resolution, in an Officer's Certificate detailing such establishment) or established in one or more indentures supplemental hereto, prior to the initial issuance of Securities of any series, 8 Â© 2006. EDGAR Online, Inc.

Page 363
...pursuant to any mandatory redemption, sinking fund or analogous provisions or at the option of a Holder thereof and the price or prices at which and the period or periods within which and any terms and conditions upon which Securities of the series shall be redeemed, purchased or repaid, in whole or...

Page 364
... definitive form (whether upon original issue or upon exchange of a temporary Security of such series) only upon receipt of certain certificates or other documents or satisfaction of other conditions, the form and terms of such certificates, documents or conditions; 10 Â© 2006. EDGAR Online, Inc.

Page 365
...pursuant to the Board Resolution or Officer's Certificate referred to above or as set forth in any such indenture supplemental hereto. All Securities of any one series need not be issued at the same time and may be issued from time to time, consistent with the terms of this Indenture, if so provided...

Page 366
...time to time by an Issuer Order, (iii)the maturity date or dates, original issue date or dates, interest rate or rates and any other terms of Securities... offering that is not underwritten, certain terms of the Securities have been established pursuant to a Board Resolution, an Officer's Certificate ...

Page 367
...with the offer and sale of the Securities and Coupons, if any. In rendering such opinions, such counsel may qualify any opinions as to enforceability by stating that such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium and other similar laws affecting...

Page 368
... its designation and at all times while it serves as Depositary, be a clearing agency registered under the Securities Exchange Act of 1934 and any other applicable statute or regulation. Section2.05 . Execution of Securities. The Securities and, if applicable, each Coupon appertaining thereto shall...

Page 369
... defaulted interest shall be paid to the Persons in whose names Outstanding Registered Securities for such series are registered at the close of business on a subsequent record date (which shall be not less than five Business Days prior to the date of payment of such defaulted interest) established...

Page 370
... reasonable times such register or registers shall be open for inspection by the Trustee. Upon due presentation for registration of transfer of any Registered Security of any series at any such office or agency to be maintained for the purpose as provided in Section3.02, the Issuer shall execute and...

Page 371
... Trustee duly executed by the Holder or his attorney duly authorized in writing. The Issuer may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any exchange or registration of transfer of Securities. No service charge shall be...

Page 372
... Security in exchange in whole or in part for Securities of the same series in definitive registered form on such terms as are acceptable to the Issuer and such Depositary. Thereupon, the Issuer shall execute, and the Trustee shall authenticate and deliver, without service charge, (a) to the Person...

Page 373
... may execute, and upon the written request of any officer of the Issuer, the Trustee shall authenticate and deliver a new Security of the same series, maturity date, interest rate and original issue date, bearing a number or other distinguishing symbol not contemporaneously outstanding, in exchange...

Page 374
... agent. Upon the issuance of any substitute Security or Coupon, the Issuer 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 (including the fees and expenses of the Trustee or its agent) connected...

Page 375
... Unregistered Security to be delivered to a depositary or agency located outside the United States and the procedures pursuant to which definitive or global Unregistered Securities of such series would be issued in exchange for such temporary global Unregistered Security). 21 Â© 2006. EDGAR Online...

Page 376
...the option of the Issuer, may be paid by wire transfer or by mailing checks for such interest payable to or upon the written order of such Holders at their last addresses as they appear on the registry books of the Issuer. Section3.02 . Offices for Payments, etc. So long as any Registered Securities...

Page 377
... maintained by the Issuer outside the United States for payment on such Unregistered Securities is illegal or effectively precluded by exchange controls or other similar restrictions. The Issuer will maintain in the Borough of Manhattan, The City of New York, an office or agency where notices and...

Page 378
... the Trustee, subject to the provisions of this Section, (a) that it will hold all sums received by it as such agent for the payment of the principal of or interest on the Securities of such series (whether such sums have been paid to it by the Issuer or by any other obligor on the...

Page 379
....05 . Written Statement to Trustee. The Issuer will furnish to the Trustee on or before March31 in each year (beginning with March31, 2006), a brief certificate (which need not comply with Section11.05) from the principal executive, financial or accounting officer of the Issuer stating that in the...

Page 380
...indenture, if any, under which such series of Securities is issued: (a) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Issuer in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or...

Page 381
... Yield to Maturity (in the case of Original Issue Discount Securities) specified in the Securities of such series (or at the respective rates of interest or Yields to Maturity of all the Securities, as the case may be) to the date of such payment or deposit) and such amount as shall be sufficient to...

Page 382
... of interest at the same rate as the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) specified in the Securities of such series); and in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including...

Page 383
...be pending proceedings relative to the Issuer or any other obligor upon the Securities under Title 11 of the United States Code or any other applicable Federal or state bankruptcy, insolvency or other similar law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator...

Page 384
... the payment, or issuing Securities of such series in reduced principal amounts in exchange for the presented Securities of like series if only partially paid, or upon surrender thereof if fully paid: FIRST: To the payment of costs and expenses applicable to such series in respect of which moneys...

Page 385
... upon the overdue installments of interest at the same rate as the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) specified in such Securities, such payments to be made ratably to the Persons entitled thereto, without discrimination or preference; THIRD: In...

Page 386
... may require against the costs, expenses and liabilities to be incurred therein or thereby and the Trustee for 60 days after its receipt of such notice, request and offer of indemnity shall have failed to institute any such action or proceeding and no direction inconsistent with such written request...

Page 387
...voting as a single class) at the time Outstanding shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee with respect to the Securities of such series by this Indenture...

Page 388
...systems through which beneficial interests in such Unregistered Securities are owned if such Unregistered Securities are held only in global form or by publication at least once in an Authorized Newspaper in the Borough of Manhattan, The City of New York, and at least once in an Authorized Newspaper...

Page 389
....01, 10% in aggregate principal amount of all Securities then Outstanding, or to any suit instituted by any Securityholder for the enforcement of the payment of the principal of or interest on any Security on or after the due date expressed in such Security or any date fixed for redemption. ARTICLE...

Page 390
... shall be protected in acting or refraining from acting upon any resolution, Officer's Certificate or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, note, coupon, security or other paper or document believed by it to be genuine and to...

Page 391
... than a majority in aggregate principal amount of the Securities of all series affected then Outstanding; provided that, if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of...

Page 392
... to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this Indenture or the trusts hereunder and its duties hereunder, including the costs and expenses of defending...

Page 393
..., State or District of Columbia authority. Such corporation shall have a place of business in the Borough of Manhattan, The City of New York if there be such a corporation in such location willing to act upon reasonable and customary terms and conditions. If such corporation publishes reports of...

Page 394
..., or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; then, in any such case, the Issuer may remove the Trustee with respect to the applicable series of Securities and appoint a successor...

Page 395
... or of the successor trustee, upon payment of its charges then unpaid, the trustee ceasing to act shall, subject to Section10.04, pay over to the successor trustee all moneys at the time held by it hereunder and shall execute and deliver an instrument transferring to such successor trustee all such...

Page 396
...systems through which beneficial interests in such Unregistered Securities are owned if such Unregistered Securities are held only in global form or by publication at least once in an Authorized Newspaper in the Borough of Manhattan, The City of New York, and at least once in an Authorized Newspaper...

Page 397
... a Certificate of Authentication executed on behalf of the Trustee by such Authenticating Agent. Such Authenticating Agent shall at all times be a corporation organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate...

Page 398
... shall state that on the date thereof a Security of such series bearing a specified identifying number was deposited with or exhibited to such trust company, bank, banker or recognized securities dealer by the Person named in such certificate. Any such certificate may 44 Â© 2006. EDGAR Online, Inc...

Page 399
...unless at the time of any determination of such holding (i)another certificate bearing a later date issued in respect of the same Securities shall be produced, or (ii)the Security of such series specified in such certificate shall be produced by some other Person, or (iii)the Security of such series...

Page 400
...by or for the account of any of the above-described Persons; and, subject to Sections 6.01 and 6.02, the Trustee shall be entitled to accept such Officer's Certificate as conclusive evidence of the facts therein set forth and of the fact that all Securities not listed therein are Outstanding for the...

Page 401
...one or more of the following purposes: (a) to convey, transfer, assign, mortgage or pledge to the Trustee as security for the Securities of one or more series any property or assets; (b) to evidence the succession of another corporation to the Issuer, or successive successions, and the assumption by...

Page 402
... maturity of any Security, (ii)reduce the principal amount thereof, (iii)reduce the rate or extend the time of payment of interest thereon, (iv)reduce any amount payable on redemption thereof, (v)make the principal thereof (including any amount in respect of original issue discount), or interest...

Page 403
... in global form or by publication at least once in an Authorized Newspaper in the Borough of Manhattan, The City of New York, and at least once in an Authorized Newspaper in London, and (ii)if any Registered Securities of a series affected are then Outstanding, by mailing 49 Â© 2006. EDGAR Online...

Page 404
... and 6.02, shall receive an Officer's Certificate and an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant to this Article 8 complies with the applicable provisions of this Indenture. Section8.05 . Notation on Securities in Respect of Supplemental Indentures...

Page 405
... all the assets of the Issuer (if other than the Issuer) shall be a corporation organized under the laws of the United States of America or any State thereof or the District of Columbia and shall expressly assume the due and punctual payment of the principal of and interest on all the Securities and...

Page 406
... of Securities the payments on which may only be made in Dollars, direct obligations of the United States of America, backed by its full faith and credit (" U.S. Government Obligations "), maturing as to principal and interest at such times and in such amounts as will insure the availability of cash...

Page 407
... accompanied by an Officer's Certificate and an Opinion of Counsel and at the cost and expense of the Issuer, shall execute proper instruments acknowledging such satisfaction of and discharging this Indenture as to such series; provided that the rights of Holders of the Securities and Coupons to...

Page 408
... the Issuer from making payments of the principal of or interest on the Securities of such series and Coupons appertaining thereto on the date of such deposit or at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be...

Page 409
...such covenant defeasance means that, with respect to the Outstanding Securities of any Series, the Issuer may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in such Section, whether directly or indirectly by reason of any reference elsewhere...

Page 410
... or at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (vii) The Issuer shall have delivered to the Trustee an Officer's Certificate and Opinion of Counsel...

Page 411
... Indenture. Section10.02 . Application by Trustee of Funds Deposited for Payment of Securities. Subject to Section10.04, all moneys deposited with the Trustee (or other trustee) pursuant to Section10.01 shall be held in trust and applied by it to the payment, either directly or through any paying...

Page 412
...agent, before being required to make any such repayment with respect to moneys deposited with it for any payment (a)in respect of Registered Securities of any series, shall at the expense of the Issuer, mail by first-class mail to Holders of such Securities at their addresses as they shall appear on...

Page 413
...by being deposited postage prepaid, first-class mail (except as otherwise specifically provided herein) addressed (until another address of the Trustee is filed by the Trustee with the Issuer) to The Bank of New York, 101 Barclay Street, Floor 8W, New York, New York 10286, Attention: Corporate Trust...

Page 414
... as to whether or not, in the opinion of such person, such condition or covenant has been complied with. Any certificate, statement or opinion of an officer of the Issuer may be based, insofar as it relates to legal matters, upon a certificate or opinion of or representations by counsel, unless such...

Page 415
... matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate or opinion of any independent firm of public accountants filed with and directed to the Trustee shall...

Page 416
.... For purposes of the foregoing, " New York Banking Day " means any day except a Saturday, Sunday or a legal holiday in The City of New York or a day on which banking institutions in The City of New York are authorized or required by law or executive order to close. 62 Â© 2006. EDGAR Online, Inc.

Page 417
... by the Issuer, the Trustee shall make such information available to the Issuer for such purpose). Notice of redemption to all other Holders of Unregistered Securities shall be published in an Authorized Newspaper in the Borough of Manhattan, The City of New York and in an Authorized Newspaper in...

Page 418
...or at least 10 days prior to the first day of any applicable Redemption Notice Period an Officer's Certificate stating the aggregate principal amount of Securities to be redeemed. In case of a redemption at the election of the Issuer prior to the expiration of any restriction on such redemption, the...

Page 419
...each of them harmless. Upon presentation of any Security redeemed in part only, the Issuer shall execute and the Trustee shall authenticate and deliver to or on the order of the Holder thereof, at the expense of the Issuer, a new Security or Securities of such series, of authorized denominations, in...

Page 420
... Officer's Certificate (which need not contain the statements required by Section11.05) (a)specifying the portion of the mandatory sinking fund payment to be satisfied by payment of cash and the portion to be satisfied by credit of Securities of such series and the basis for such credit, (b)stating...

Page 421
... for such series due on the next succeeding sinking fund payment date shall be paid entirely in cash without the option to deliver or credit Securities of such series in respect thereof and (ii)that the Issuer will make no optional sinking fund payment with respect to such series as provided in this...

Page 422
...series shall be added to the next cash sinking fund payment for such series and, together with such payment, shall be applied in accordance with the provisions of this Section. Any and all sinking fund moneys held on the stated maturity date of the Securities of any particular series (or earlier, if...

Page 423
...distribution of assets of, the Issuer of any kind or character, whether in cash, property or securities, to which the Holders of any of the Securities or Coupons or the Trustee would be entitled except for the provisions of this Article shall be paid or delivered by the Person making such payment or...

Page 424
...at any time after the 91st day following the date of deposit of cash or, in the case of Securities payable only in Dollars, U.S. Government Obligations pursuant to Section10.01(b) or 10.01(c) (provided all other conditions set out in such Section shall have been satisfied) the funds so deposited and...

Page 425
...respect of cash, property or securities of the Issuer received upon the exercise of any such remedy. Upon payment or distribution of assets of the...certificate of the trustee in bankruptcy, receiver, assignee for the benefit of creditors, liquidating trustee or agent or other Person making any payment...

Page 426
...Senior Indebtedness; provided that if at least three Business Days prior to the date upon which by the terms hereof any such moneys may become payable for any purpose (including, without limitation, the payment of the principal or interest on any Security or interest on any Coupon) the Trustee shall...

Page 427
... Issuer if it acts as its own paying agent. Section13.11 . Trustee; Compensation Not Prejudiced. Nothing in this Article shall apply to claims of, or payments to, the Trustee pursuant to Section6.06. 73 Â© 2006. EDGAR...

Page 428
... Financial Officer THE BANK OF NEW YORK, Trustee By: /s/ Stacey B. Poindexter Name: Stacey B. Poindexter Title: Assistant Vice President Exhibit 4.13 E*TRADE FINANCIAL CORPORATION and THE BANK OF NEW YORK, as Trustee SUPPLEMENTAL INDENTURE NO. 1 Dated as of November22, 2005 Â© 2006. EDGAR Online...

Page 429
... "), dated as of November22, 2005, is between E*TRADE FINANCIAL CORPORATION, a Delaware corporation (the " Company "), and THE BANK OF NEW YORK, a New York banking corporation, as Trustee (the " Trustee "). RECITALS WHEREAS, the Company has concurrently herewith executed and delivered to the Trustee...

Page 430
...Notes, the Company must either (a)account for the Purchase Contracts as derivatives under SFAS 133 (or otherwise mark-to-market or measure the fair value of all or any portion of the Purchase Contracts with changes appearing in the Company's income statement) or (b)account for the Units using the if...

Page 431
... Account " has the meaning set forth in the Purchase Contract and Pledge Agreement. " Collateral Agent " has the meaning set forth in the Purchase Contract and Pledge Agreement. " Collateral Substitution " has the meaning set forth in the Purchase Contract and Pledge Agreement. " Corporate Unit...

Page 432
...and Pledge Agreement, dated as of November22, 2005, among the Company, The Bank of New York, as Purchase Contract Agent, and attorney-in-fact for Holders of the Purchase Contract, and The Bank of New York, as Collateral Agent, Custodial Agent and Securities Intermediary, as amended from time to time...

Page 433
...of November22, 2005, among the Company, Morgan Stanley& Co. Incorporated, as Remarketing Agent and The Bank of New York, as Purchase Contract Agent, as amended from time to time. " Remarketing Date " has the meaning set forth in the Purchase Contract and Pledge Agreement. " Remarketing Fee " has the...

Page 434
...the Company for money borrowed (including any indebtedness secured by a mortgage, conditional sales contract or other lien which is given the vender or another party to secure all or part of the purchase price of the property subject to the lien, or which lien is existing on the property at the time...

Page 435
... Notes on such date. " Treasury Portfolio Purchase Price " means the lowest aggregate ask-side price quoted by a primary U.S. government securities dealer to the Quotation Agent between 9:00 a.m. and 11:00 a.m., New York City time, on the third Business Day immediately preceding the Special Event...

Page 436
... New York, which shall initially be the corporate trust office of the Trustee; provided, however , that payment of interest may be made at the option of the Company by check mailed to the holder at such address as shall appear in the Security register or by wire transfer to an account appropriately...

Page 437
... November18 of each year (each, a " Quarterly Interest Payment Date "), commencing February18, 2006, to the Person in whose name the relevant Subordinated Notes are registered at the close of business on the Record Date for such Interest Payment Date. (ii) After the Purchase Contract Settlement Date...

Page 438
... term of the Subordinated Notes). (c) Restricted Payments Limitations. While a Deferral Period is in effect, the Company may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any shares of the Company's capital stock...

Page 439
... purchase of, or payment of cash in lieu of, fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the securities being converted or exchanged; and (iv) any declaration of a dividend in connection with any rights plan...

Page 440
... in Corporate Units, which amount shall be applied by the Collateral Agent in accordance with the terms of the Purchase Contract and Pledge Agreement, and (b)to the holders of the Separate Subordinated Notes, in the case of Separate Subordinated Notes. Section3.02 Optional Redemption . The Company...

Page 441
...Notes being redeemed. The Company will also give the Depositary irrevocable instructions and authority to pay the Redemption Price in immediately available funds to the holders of beneficial interests in the Global Subordinated Notes. If any Redemption Date is not a Business Day, then the Redemption...

Page 442
... by such supplemental indenture at the time outstanding, the Company and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental thereto or to the Base Indenture for the purpose of adding any provisions to or changing in any manner or eliminating any...

Page 443
... herein contained are made by the Company and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture No.1. Section7.03 New York Law To Govern . THIS SUPPLEMENTAL...

Page 444
... respect to each Remarketing. Pursuant to Section5.02 of the Purchase Contract and Pledge Agreement, promptly after 11:00 a.m., New York City time, on the Business Day immediately preceding the Initial Remarketing Date, the Custodial Agent, based on the notices and deliveries received by it prior to...

Page 445
... Remarketing Price based on the Reset Rate and (iv)the purchaser or purchasers deliver the purchase price therefor to the Remarketing Agent as and when required. (d) Neither the Trustee, the Company nor the Remarketing Agent shall be obligated in any case to provide funds to make payment upon tender...

Page 446
... or prior to 5:00 p.m., New York City time, on the Business Day prior to the Purchase Contract Settlement Date, deliver to the Collateral Agent $25 in cash per Purchase Contract, in each case pursuant to the Purchase Contract Agreement. Holders that satisfy conditions (1)and (2)above shall be deemed...

Page 447
... Subsidiary of the Company having an outstanding principal amount of $20 million or more in the aggregate for all such issues of all such persons, (i)an event of default that has caused the holder thereof to declare such indebtedness to be due and payable prior to its stated maturity and such...

Page 448
... event is with respect to the same issue of Senior Indebtedness) may be, or be made, the basis for a subsequent Payment Blockage Notice. ARTICLE XI TAX TREATMENT Section11.01 Tax Treatment . The Company agrees, and by acceptance of a Corporate Unit or a Separate Subordinated Note, each holder will...

Page 449
... the day and year first written above. E*TRADE FINANCIAL CORPORATION By: /s/ Robert J. Simmons Name: Robert J. Simmons Title: Chief Financial Officer THE BANK OF NEW YORK, as Trustee By: /s/ Stacey B. Poindexter Name: Stacey B. Poindexter Title: Assistant Vice President Â© 2006. EDGAR Online, Inc...

Page 450
... IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (" DTC "), TO THE ISSUER 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...

Page 451
... be the corporate trust office of the Trustee, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided , however , that payment of interest may be made at the option of the Company by check mailed to...

Page 452
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: November22, 2005 E*TRADE FINANCIAL CORPORATION Name: Name: Robert J. Simmons Title: Chief Financial Officer Â© 2006. EDGAR Online, Inc.

Page 453
TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Subordinated Notes referred to in the within mentioned Indenture. Dated: November22, 2005 THE BANK OF NEW YORK, as Trustee By: Authorized Signatory Â© 2006. EDGAR Online, Inc.

Page 454
... issue of securities of the Company (herein called the " Subordinated Notes "), issued and to be issued in one or more series under an Indenture (the " Base Indenture "), dated as of November22, 2005, between the Company and The Bank of New York, as Trustee (herein called the " Trustee ", which term...

Page 455
... identical terms and provisions, at the office or agency of the Company maintained for such purpose in the Borough of Manhattan, The City of New York. No service charge shall be made for any registration of transfer or exchange of the Subordinated Notes, but the Company may require payment from...

Page 456
...of such Corporate Unit for U.S. federal income tax purposes and (2)not to treat the Subordinated Notes as contingent payment debt instruments for U.S. federal income tax purposes. THIS SUBORDINATED NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT...

Page 457
ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Subordinated Note to Insert assignee's social security or tax identification number Insert address and zip code of assignee) and irrevocably appoints agent to transfer this Subordinated Note on the books of the Company. The...

Page 458
... institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent... to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. By: Name: Title: as Trustee By: Name Title:...

Page 459
... this Subordinated Note following such decrease (or increase) Signatureof authorizedsignatory of Trustee Exhibit 4.15 E*TRADE Financial Corporation as Issuer And The Bank of New York as Trustee Indenture Dated as of November22, 2005 7 7 / 8 % Senior Notes Due 2015 Â© 2006. EDGAR Online, Inc.

Page 460
... Optional Redemption Redemption with Proceeds of Public Equity Offering Method and Effect of Redemption ARTICLE IV C OVENANTS Payment of Notes Maintenance of Office or Agency Limitation on Indebtedness and Issuances of Preferred Stock Limitation on Restricted Payments Limitation on Dividend and...

Page 461
....10. Section7.11. Limitation on Sale-leaseback Transactions Limitation on Asset Sales Repurchase of Notes Upon a Change of Control Limitation on Lines of Business Effectiveness of Covenants SEC Reports and Reports to Holders Payments of Taxes and Other Claims Compliance Certificates Waiver of Stay...

Page 462
...etc., on Certain Terms Releases Following Certain Events ARTICLE XI M ISCELLANEOUS Trust Indenture Act of 1939 Noteholder Communications; Noteholder Actions Notices Certificate and Opinion as to Conditions Precedent Statements Required in Certificate or Opinion Payment Date Other Than a Business Day...

Page 463
EXHIBITS EXHIBITA EXHIBITB EXHIBIT C Form of Note Form of Supplemental Indenture DTC Legend iv Â© 2006. EDGAR Online, Inc.

Page 464
INDENTURE, dated as of November22, 2005, between E*TRADE Financial Corporation, a Delaware corporation, as the Company and The Bank of New York, a New York banking corporation, as Trustee. RECITALS The Company has duly authorized the execution and delivery of the Indenture to provide for the ...

Page 465
...or loss) of any Person that is not a Restricted Subsidiary or Regulated Subsidiary, except that the Company's equity in the net income of any such Person for such period (to the extent not otherwise excluded pursuant to clauses (2)through (6)below) will be included up to the aggregate amount of cash...

Page 466
... any gains or losses (on an after-tax basis) attributable to Asset Sales or Regulated Sales; (6) solely for purposes of calculating the amount of Restricted Payments that may be made pursuant to clause (c)of Section4.04, any amount paid or accrued as dividends on Preferred Stock of the Company owned...

Page 467
...Investment Securities, inventory, receivables and other current assets; (b) sales, transfers or other dispositions of assets constituting a Permitted Investment or Restricted Payment permitted to be made under Section4.04; (c) sales, transfers or other dispositions of assets with a fair market value...

Page 468
... of which is to issue trust preferred or similar securities where the proceeds of the sale of such securities are invested in such Bank Regulated Subsidiary and where such proceeds would be treated as Tier I capital were such Bank Regulated Subsidiary a bank holding company regulated by the Board...

Page 469
" Business Day " means any day except a Saturday, Sunday or other day on which commercial banks in New York City or in the city where the Corporate Trust Office of the Trustee is located are authorized by law to close. " Capital Stock " means, with respect to any Person, any and all shares, ...

Page 470
... Coverage Ratio " means, with respect to any Person, the ratio of Consolidated EBITDA of such Person during the most recent four full fiscal quarters (the "Four Quarter Period"), for which financial statements are available, ending on or prior to the date of the transaction giving rise to the need...

Page 471
...), occurred on the first day of the Four Quarter Period; and (2) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries or Regulated Subsidiaries...

Page 472
... of the sale of such securities are invested in a Regulated Subsidiary. " Consolidated Net Worth " means, at any date of determination, stockholders' equity as set forth on the most recently available quarterly or annual consolidated balance sheet of the Company and its Restricted Subsidiaries and...

Page 473
...Standards Board Statement of Financial Accounting Standards No.52). " Corporate Trust Office " means the office of the Trustee at which the corporate trust business of the Trustee is principally administered, which at the date of the Indenture is located at 101 Barclay Street, Floor 8W, New York, NY...

Page 474
... Trust Company, a New York corporation, and its successors. " DTC Legend " means the legend set forth in Exhibit C. " Event of Default " has the meaning assigned to such term in Section6.01. " Exchange Act " means the Securities Exchange Act of 1934, as amended. " fair market value " means the price...

Page 475
to keep-well, to purchase assets, goods, securities or services (unless such purchase arrangements are on arm's-length terms and are entered into in the ordinary course of business), to take-or-pay, or to maintain financial statement conditions or otherwise) or (2)entered into for purposes of ...

Page 476
... arising from products and services offered by Bank Regulated Subsidiaries or Broker Dealer Regulated Subsidiaries in the ordinary course including, but not limited to, deposits, CDs, prepaid forward contracts, swaps, exchangeable debt securities, foreign currency purchases or sales and letters of...

Page 477
...one time outstanding of $5 million; (g) advances from the Federal Home Loan Bank, Federal Reserve Bank (or similar institution), repurchase and reverse repurchase agreements relating to Investment Securities, medium term notes, treasury tax and loan balances, special direct investment balances, bank...

Page 478
... of purchase price or similar obligations, or Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Restricted Subsidiaries pursuant to such agreements, in any case Incurred in connection with the disposition of any business, assets...

Page 479
... business) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, bonds, notes, debentures or other similar instruments issued by, such Person...

Page 480
... to cash or cash equivalents, net of (1) brokerage commissions and other fees and expenses (including attorney's fees, accountants' fees, underwriters', placement agents' and other investment bankers' fees, commissions and consultant fees) related to such Asset Sale or Regulated Sale; (2) provisions...

Page 481
... received when converted to cash or cash equivalents, net of attorney's fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees incurred in connection with such issuance or sale and net of taxes paid or payable as a result...

Page 482
... an Offer to Purchase. " Officer" means the chairman of the Board of Directors, the president or chief executive officer, any vice president, the chief financial officer, the treasurer or any assistant treasurer, or the secretary or any assistant secretary, of the Company. 19 Â© 2006. EDGAR Online...

Page 483
... into or transfer or convey all or substantially all its assets to, the Company or a Restricted Subsidiary or Regulated Subsidiary; provided that such person's primary business is a Related Business on the date of such Investment; (2) Temporary Cash Investments and Investment Securities; (3) payroll...

Page 484
... Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section4.11. "Permitted Liens" means: (1) Liens for taxes, assessments, governmental charges or claims that are being contested in good faith by appropriate legal...

Page 485
... in interest rates, currencies or the price of commodities or securities; (16) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business in...

Page 486
...long as the rating of the Notes relating to the Change of Control as noted by the Rating Agency is under publicly announced consideration for downgrade by the applicable Rating Agency. " Register " has the meaning assigned to such term in Section2.09. " Registrar " means a Person engaged to maintain...

Page 487
... Holding Company Act, as amended, or Section10 of the Home Owners' Loan Act, as amended, broker-dealer services, insurance, investment advisory services, specialist and other market making activities, trust services, underwriting and the creation of and offers and sales of interests in mutual funds...

Page 488
...a " Loan " as used in the Master Securities Loan Agreement published from time to time by the Bond Market Association. " Subsidiary " means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the voting power of the outstanding Voting Stock is...

Page 489
...; (2) demand deposits, time deposit accounts, bankers acceptances, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or...

Page 490
(6) any mutual fund that has at least 95% of its assets continuously invested in investments of the types described in clauses (1)through (5)above. " Trade Payables " means, with respect to any Person, any accounts payable or any other indebtedness or monetary obligation to trade creditors created, ...

Page 491
... Officers' Certificate certifying that such designation complied with the foregoing provisions. " U.S. Government Obligations " means securities that are (1)direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (2)obligations of a Person...

Page 492
"obligor" on the indenture securities means the Company or any other obligor on the Notes. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by a rule of the Commission and not otherwise defined herein have the meanings ...

Page 493
...Trustee of an Officers' Certificate specifying (1) the amount of Notes to be authenticated and the date on which the Notes are to be authenticated, (2) whether the Notes are to be issued as one or more Global Notes or Certificated Notes, and (3) other information the Company may determine to include...

Page 494
any default by the Company in making any such payment. If the Company or any Subsidiary acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee ...

Page 495
... for transfer, exchange, payment or cancellation and dispose of them in accordance with its normal procedures or the written instructions of the Company. The Company may not issue new Notes to replace Notes it has paid in full or delivered to the Trustee for cancellation. 32 Â© 2006. EDGAR Online...

Page 496
Section2.08. CUSIP and CINS Numbers . The Company in issuing the Notes may use "CUSIP" and "CINS" numbers, and the Trustee will use CUSIP numbers or CINS numbers in notices of redemption or exchange or in Offers to Purchase as a convenience to Holders, the notice to state that no representation is ...

Page 497
... affected by notice to the contrary. From time to time the Company will execute and the Trustee will authenticate additional Notes as necessary in order to permit the registration of a transfer or exchange in accordance with this Section2.09. No service charge will be imposed in connection with any...

Page 498
... transfer and exchange restrictions, if any, and other procedures applicable to beneficial interests in such other Global Note for as long as it remains such an interest. (2) Global Note to Certificated Note . If a beneficial interest in a Global Note is transferred or exchanged for a Certificated...

Page 499
... with Proceeds of Public Equity Offering . At any time and from time to time prior to December1, 2008, the Company may redeem Notes with the Net Cash Proceeds received by the Company from one or more sales of its Capital Stock (other than Disqualified Stock) at a redemption price equal to 107...

Page 500
... name and at the expense of the Company, to Holders whose Notes are to be redeemed at least 10 days but not more than 90 days before the redemption date, except where DTC requires a longer period. (b) The notice of redemption will identify the Notes (including the CUSIP numbers) to be redeemed and...

Page 501
... of New York, for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby initially designates the Corporate Trust Office of the Trustee as such office of...

Page 502
... subordinated in right of payment to the Notes, in the case of the Company, or the Note Guarantee, in the case of a Subsidiary Guarantor; (3) Indebtedness issued in exchange for, or the net proceeds of which are used to refinance or refund, then outstanding Indebtedness (other than Indebtedness...

Page 503
... to be refinanced or refunded; (4) Indebtedness of the Company, to the extent the net proceeds thereof are promptly (A)used to purchase Notes, 2013 Notes or 2011 Notes tendered in an Offer to Purchase made as a result of a Change in Control or (B)deposited to defease the Notes, 2013 Notes or 2011...

Page 504
... shares of such Capital Stock, (x)pro rata dividends or distributions on Common Stock of Restricted Subsidiaries or Regulated Subsidiaries held by minority stockholders, (y)dividends or distributions on non-voting Preferred Stock the proceeds from the sale of which were invested in the business...

Page 505
... purchase, call for redemption or redeem, retire or otherwise acquire for value any shares of Capital Stock of (A)the Company or any Subsidiary Guarantor (including options, warrants or other rights to acquire such shares of Capital Stock) held by any Person (other than the Company, any Restricted...

Page 506
...in any Person resulting from payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary or Regulated Subsidiary or from the Net Cash Proceeds from the sale of any such Investment (except, in...

Page 507
..., a Restricted Subsidiary or a Regulated Subsidiary (or options, warrants or other rights to acquire such Capital Stock) or a dividend on such Capital Stock in exchange for, or out of the proceeds of a capital contribution or a substantially concurrent offering of, shares of Capital Stock (other...

Page 508
... such Capital Stock represents all or a portion of the exercise price thereof; (8) the repurchase, redemption or other acquisition of the Company's Capital Stock (or options, warrants or other rights to acquire such Capital Stock) from Persons who are, or were formerly, employees of the Company and...

Page 509
...; or (4) transfer any of its property or assets to the Company or any other Restricted Subsidiary or Regulated Subsidiary. The foregoing provisions shall not restrict any encumbrances or restrictions: (1) existing on the Closing Date in any Credit Facility, the Indentures or any other agreements in...

Page 510
... that is a lease, license, conveyance or contract or similar property or asset; (B) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company, any Restricted Subsidiary or any Regulated Subsidiary not otherwise...

Page 511
... directly or indirectly, to issue or sell, any shares of Capital Stock of a Restricted Subsidiary or Regulated Subsidiary (including options, warrants or other rights to purchase shares of such Capital Stock) except: (1) (i)with respect to the capital stock of a Restricted Subsidiary, to the Company...

Page 512
... not permit any Restricted Subsidiary or Regulated Subsidiary to, directly or indirectly, enter into, renew or extend any transaction (including, without limitation, the purchase, sale, lease or exchange of property or assets, or the rendering of any service) with any Affiliate of the Company or any...

Page 513
... employee of the Company, a Restricted Subsidiary or a Regulated Subsidiary by a Regulated Subsidiary in the ordinary course of business in accordance with Sections 7 and 13(k) of the Exchange Act; (8) deposit, checking, banking and brokerage products and services typically offered to our customers...

Page 514
... any Lien on any of its assets or properties of any character, or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without making effective provision for all of the Notes and all other amounts due under the Indenture to be directly secured equally and ratably with (or, if...

Page 515
... at any one time outstanding and that are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business); or (9) Permitted Liens. Section4.10. Limitation on Sale-leaseback Transactions . The Company will not...

Page 516
... of Net Cash Proceeds received by the Company or any of its Restricted Subsidiaries or Regulated Subsidiaries from Asset Sales and Regulated Sales after the Closing Date) from one or more Asset Sales or Regulated Sales in any period of 12 consecutive months exceed 10% of Consolidated Net Worth...

Page 517
...not theretofore subject to an Offer to Purchase pursuant to this Section4.11 totals at least $50 million, the Company must commence, not later than the fifteenth Business Day of such month, and consummate an Offer to Purchase from the Holders (and if required by the terms of any Indebtedness that is...

Page 518
... the Company's credit rating is subsequently downgraded from Investment Grade Status. Section4.15. SEC Reports and Reports to Holders . The Company will deliver to the Trustee within 30 days after the filing of the same with the Securities and Exchange Commission, copies of the quarterly and annual...

Page 519
... Trustee, within 90 days after the end of each fiscal year, beginning with the fiscal year in which this Indenture was executed, a certificate signed by the Company's independent certified public accountants stating (i)that their audit examination has included a review of the terms of this Indenture...

Page 520
... such compliance would be contrary to the recommendations of the American Institute of Certified Public Accountants so long as the Company delivers to the Trustee within 90 days after the end of such fiscal year an Officer's Certificate stating that such compliance would be so contrary and any facts...

Page 521
... limitations. Section5.02. Successor Substituted. Upon any consolidation or merger, or any sale, conveyance, transfer, lease or other disposition of all or substantially all of the property and assets of the Company in accordance with Section5.01 of this Indenture, the successor Person formed...

Page 522
...in the performance or breach of the provisions of the Indenture applicable to mergers, consolidations and transfers of all or substantially all of the assets of the Company or the failure by the Company to make or consummate an Offer to Purchase in accordance with Section4.11 or Section4.12; (d) the...

Page 523
... (j)shall not have occurred until (x)45 days from the time that such Bank Regulated Subsidiary has notice or is deemed to have notice of such failure unless a capital restoration plan has been filed the with OTS within that time (y)the expiration of a 90-day period commencing on the earlier the date...

Page 524
... reinstate within 10 days) or shall revoke such Broker Dealer Regulated Subsidiary's status as a member organization thereof; (n) the occurrence of any event of acceleration in a subordination agreement, as defined in Appendix D to Rule 15c3-l of the Exchange Act, to which the Company or any Broker...

Page 525
... of at least 25% in aggregate principal amount of outstanding Notes make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer the Trustee indemnity satisfactory to the Trustee against any costs, liability or expense; (4) the Trustee does not comply with the request...

Page 526
... to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts...

Page 527
...file an undertaking to pay the costs of the suit, and the court may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit having due regard to the merits and good... or to the Holders may be exercised from time to time, and as often as may be...

Page 528
... may conclusively rely, and will be protected in acting or refraining from acting, upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to...

Page 529
... be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable security or indemnity satisfactory to it against the costs, expenses and liabilities that might...

Page 530
... in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand; and (b) " self-liquidating paper " means any draft, bill of exchange, acceptance or...

Page 531
..., including the reasonable compensation and expenses of the Trustee's agents and counsel. (b) The Company will indemnify the Trustee for, and hold it harmless against, any and all loss, liability, damage, claim or expense, including taxes (other than taxes based upon, measured by or determined...

Page 532
...the Indenture. Section7.10. Eligibility. The Indenture must always have a Trustee that satisfies the requirements of TIA Section310(a) and has a combined capital and surplus of at least $25,000,000 as set forth in its most recent published annual report of condition. 69 Â© 2006. EDGAR Online, Inc.

Page 533
..., lost or stolen Notes that have been replaced, Notes that are paid pursuant to Section4.01 and Notes for whose payment money or securities have theretofore been deposited in trust and thereafter repaid to the Company pursuant to Section8.05) have been delivered to the Trustee for cancellation...

Page 534
... that Holders will not recognize income, gain or loss for federal income tax purposes as a result of the defeasance and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, 71 Â© 2006. EDGAR Online, Inc.

Page 535
... Investment Company Act of 1940 and, after the passage of 123 days following the deposit, the trust fund will not be subject to the effect of Section547 of the United States Bankruptcy Code or Section15 of the New York Debtor and Creditor Law. (4) The Company has delivered to the Trustee an Officers...

Page 536
... will pay to the Company upon request any money held for payment with respect to the Notes that remains unclaimed for two years, provided that before making such payment the Trustee may at the expense of the Company publish once in a newspaper of general circulation in New York City, or send to...

Page 537
... (3) to comply with any requirements of the Commission in connection with the qualification of the Indenture under the TIA; (4) to evidence and provide for the acceptance of an appointment hereunder by a successor Trustee; (5) make any change that, in the good faith opinion of the Board of Directors...

Page 538
(3) change the optional redemption dates or optional redemption prices of the Notes from that stated under the caption "Optional Redemption," (4) change the place or currency of payment of principal of, or premium, if any, or interest on, any Note, (5) impair the right to institute suit for the ...

Page 539
... to annotate or exchange Notes in this fashion. Section9.04. Trustee's Rights and Obligations. The Trustee is entitled to receive, and will be fully protected in conclusively relying upon, an Officer's Certificate and an Opinion of Counsel stating that the execution of any amendment, supplement...

Page 540
... any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed...

Page 541
... to Section4.07, the Company shall cause such Subsidiaries to execute supplemental indentures to this Indenture and Guarantees in accordance with Section4.07 and this Article 10, to the extent applicable. Section10.04. Guarantors May Consolidate, etc., on Certain Terms . No Subsidiary Guarantor may...

Page 542
... Agreement; provided that, in the case of (i)above, the Net Cash Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of this Indenture, including without limitation Section4.11. Upon delivery by the Company to the Trustee of an Officers' Certificate...

Page 543
... of TIA Sections 312(a) and 312(b). Neither the Company nor the Trustee will be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the TIA. (b) (1)Any request, demand, authorization, direction, notice, consent to amendment, supplement or...

Page 544
... case the notice or communication should be addressed as follows: if to the Company: E*TRADE Financial Corporation 135 East 57th Street New York, New York 10022 if to the Trustee: The Bank of New York 101 Barclay Street, Floor 8W New York, New York 10286 Attn: Corporate Trust Administration Fax: 212...

Page 545
... of each such person, such condition or covenant has been complied with, provided that an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials with respect to matters of fact. Section11.06. Payment Date Other Than a Business Day. If any payment with respect to...

Page 546
...and in no way modify or restrict any of the terms and provisions of the Indenture. Section11.13. No Liability of Directors, Officers, Employees, Incorporators, Members and Stockholders. No director, officer, employee, incorporator, member or stockholder of the Company or any Subsidiary Guarantor, as...

Page 547
... first written above. E*TRADE FINANCIAL CORPORATION as Issuer By: /s/ Robert J. Simmons Name: Robert J. Simmons Title: Chief Financial Officer THE BANK OF NEW YORK as Trustee By: /s/ Stacey B. Poindexter Name: Stacey B. Poindexter Title: Assistant Vice President 84 Â© 2006. EDGAR Online, Inc.

Page 548
... 8 % Senior Note Due 2015 CUSIP No. 269246 AP9 $300,000,000 E*TRADE Financial Corporation, a Delaware corporation (the "Company", which term includes any successor under the Indenture hereinafter referred to), for value received, promises to pay to CEDE& Co., or its registered assigns, the principal...

Page 549
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers. Date: E*TRADE FINANCIAL CORPORATION By: Name: Title: A-2 Â© 2006. EDGAR Online, Inc.

Page 550
(Form of Trustee's Certificate of Authentication) This is one of the 7 7 / 8 % Senior Notes Due 2015 described in the Indenture referred to in this Note. THE BANK OF NEW YORK, as Trustee By: Authorized Signatory A-3 Â© 2006. EDGAR Online, Inc.

Page 551
...the payment date and the amount of interest to be paid. 2. Indentures . This is one of the Notes issued under an Indenture dated as of November22, 2005 (as amended from time to time, the "Indenture"), between the Company and The Bank of New York, as Trustee. Capitalized terms used herein are used as...

Page 552
... . This Note is subject to optional redemption, and may be the subject of an Offer to Purchase, as further described in the Indenture. There is no sinking fund or mandatory redemption applicable to this Note. If the Company deposits with the Trustee money or U.S. Government Obligations sufficient to...

Page 553
... (or Authenticating Agent) signs the certificate of authentication on the other side of this Note. 8. Governing Law . This Note shall be governed by, and construed in accordance with, the laws of the State of New York. 9. Abbreviations . Customary abbreviations may be used in the name of a Holder...

Page 554
... sell(s), assign(s) and transfer(s) unto Insert Taxpayer Identification No Please print or typewrite name and address including zip code of assignee the within Note and all rights thereunder, hereby irrevocably constituting and appointing attorney to transfer said Note on the books of the Company...

Page 555
OPTION OF HOLDER TO ELECT PURCHASE If you wish to have all of this Note purchased by the Company pursuant to Section4.11 or Section4.12 of the Indenture, check the box: If you wish to have a portion of this Note purchased by the Company pursuant to Section4.11 or Section4.12 of the Indenture, state ...

Page 556
...Global Note have been made: Date of Exchange Amountofdecrease inprincipalamount of this Global Note Amountofincrease inprincipalamount of this Global Note Principalamountof thisGlobalNote followingsuch decrease(or increase) Signatureof authorizedsignatory of Trustee A-9 Â© 2006. EDGAR Online...

Page 557
EXHIBIT B SUPPLEMENTAL INDENTURE dated as of , among E*TRADE Financial Corporation, [the Subsidiary Guarantor] and [Any existing Subsidiary Guarantors] And The Bank of New York, as Trustee 7 7 / 8 % Senior Notes due 2015 Â© 2006. EDGAR Online, Inc.

Page 558
... entered into as of , , among E*TRADE Financial Corporation, a Delaware corporation (the " Company "), (the " Subsidiary Guarantor "), any existing Subsidiary Guarantors and The Bank of New York, as trustee (the " Trustee "). RECITALS WHEREAS, the Company, and the Trustee entered into the Indenture...

Page 559
... WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written. E*TRADE FINANCIAL CORPORATION, as Issuer By: Name: Title: THE BANK OF NEW YORK, as Trustee By: Name: Title: [Subsidiary Guarantor], as Subsidiary Guarantor By: Name...

Page 560
..., 2005 (the "Agreement" ) by and among E*TRADE Financial Corporation, a Delaware corporation (the "Company" ), Morgan Stanley& Co. Incorporated, as the remarketing agent (the "Remarketing Agent" ), and The Bank of New York, a New York banking corporation, not individually but solely as Purchase...

Page 561
... Interests in Notes of the Holders of Corporate Units who have not notified the Purchase Contract Agent prior to 5:00 p.m., New York City time, on the seventh Business Day immediately preceding the Purchase Contract Settlement Date of their intention to effect a 2 Â© 2006. EDGAR Online, Inc.

Page 562
... related Purchase Contracts pursuant to the terms of the Purchase Contract and Pledge Agreement or who have so notified the Purchase Contract Agent but failed to make the required cash payment prior to 5:00 pm, New York City time, on the sixth Business Day immediately preceding the Purchase Contract...

Page 563
...maximum interest rate permitted by applicable law. (e) If, by 4:00 p.m., New York City time, on the applicable Remarketing Date, (1)the Remarketing Agent is unable to remarket all of the Remarketed Notes, other than to the Company, at the Remarketing Price pursuant to the terms and conditions hereof...

Page 564
... in Notes that are components of the Corporate Units, shall be paid to the Collateral Agent in accordance with Section5.02 of the Purchase Contract and Pledge Agreement and (ii)with respect to the Separate Notes, shall be paid to the Custodial Agent for payment to the holders of such Separate Notes...

Page 565
... to purchase any Remarketed Notes, whether in the Remarketing or otherwise, and shall in no way be obligated to provide funds to make payment upon... Agreement dated as of November16, 2005 (the " Underwriting Agreement ") among the Company and Morgan Stanley& Co. Incorporated and J.P. Morgan Securities...

Page 566
...to 0.25% of the principal amount of the Remarketed Notes (the "Remarketing Fee"). Such Remarketing Fee shall be paid by the Company on the Remarketing Settlement Date in cash by wire transfer of immediately available funds to an account designated by the Remarketing Agent. Section5. Covenants of the...

Page 567
... order to comply with the Securities Act or the Exchange Act, to notify the Remarketing Agent and, upon its request, to file such document and to prepare and furnish without charge to the Remarketing Agent and to any dealer in securities as many copies as the Remarketing Agent may from time to time...

Page 568
... the option of the Company, Rule 158). The terms "generally available to its security holders" and "earnings statement" shall have the meanings set forth in Rule 158; and (to take such action as the Remarketing Agent may reasonably request in order to qualify the Remarketed Notes for offer and sale...

Page 569
... complied with. (b) (1)Trading in securities generally on the New York Stock Exchange shall not have been suspended or materially limited, (2)a general moratorium on commercial banking activities in the State of New York or the United States shall not have been declared by New York State or Federal...

Page 570
... or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded the Company or any of the Company's securities or in the rating outlook for the Company by any "nationally recognized statistical rating organization," as such term is defined...

Page 571
... officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either Section15 of the Securities Act or Section20 of the Exchange Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal...

Page 572
... the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Remarketing Agent and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 13 Â© 2006. EDGAR Online, Inc.

Page 573
... and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. (c) The indemnity and contribution provisions contained in Section7 and Section8 and the representations, warranties and other statements of the Company contained in this...

Page 574
... or any other capacity, may, to the extent permitted by law, buy, sell, hold and deal in any of the Remarketed Notes, Corporate Units, Treasury Units or any of the securities of the Company (collectively, the "Securities"). The Remarketing Agent may exercise any vote or join in any action which any...

Page 575
... to The Bank of New York, 101 c Barclay Street, Floor 8W, New York, NY 10286, Attention: Corporate Trust Division-Corporate Finance Unit (Fax: 212-815-5707). ) Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. 16 Â© 2006. EDGAR Online, Inc.

Page 576
... and officers who sign the Registration Statement, if any, and any person controlling the Company within the meaning of Section15 of the Securities Act. Nothing contained in this Agreement is intended or shall be construed to give any person, other than the persons referred to herein, any legal or...

Page 577
...appeal, and may be enforced in the courts of the United States of America or the State of New York (or any other court the jurisdiction to which the Company is or may be subject) by a suit upon such judgment. Section18. Counterparts. This Agreement may be executed in one or more counterparts and, if...

Page 578
... and Assigns. Except in the case of a succession pursuant to the terms of the Purchase Contract and Pledge Agreement, the rights and obligations of the Company hereunder may not be assigned or delegated to any other Person without the prior written consent of the Remarketing Agent. The rights and...

Page 579
...) For the Year Ended December 31, 2005 2004 2003 2002 2001 Fixed charges: Interest expense Amortization of debt issue expense Estimated interest portion within rental expense Preference securities dividend requirements of consol. subs Total fixed charges Earnings: Income (loss) before income taxes...

Page 580
...E*TRADE Asset Management, Inc. E*TRADE Australia Limited (Affiliate Company) E*TRADE Bank E*TRADE Bank A/S E*TRADE BBH, Inc. E*TRADE Benelux SA E*TRADE Brokerage Holdings, Inc. E*TRADE Brokerage Services, Inc. E*TRADE Canada Securities Corporation E*TRADE Capital Markets, LLC E*TRADE Capital Markets...

Page 581
... Corporation Capital Trust IX E*TRADE Financial Corporation Capital Trust X E*TRADE Futures LLC E*TRADE Global Asset Management, Inc. E*TRADE Global Services Limited E*TRADE Iceland HF E*TRADE Insurance Services, Inc. E*TRADE International Equipment Management Corporation ETB Holdings, Inc. Capital...

Page 582
... financial statements and financial statement schedule of E*TRADE Financial Corporation and management's report on the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of E*TRADE Financial Corporation for the year ended December31, 2005. Filed...

Page 583
... and procedures, as of the end of the period covered by this report based on such evaluation; and d disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the )registrant's most recent fiscal quarter that has materially affected, or...

Page 584
...Caplan Chief Executive Officer Exhibit 31.2 CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Robert J. Simmons, certify that: 1. I have reviewed this annual report on Form 10-K of E*TRADE Financial Corporation; 2. Based on...

Page 585
...E*TRADE Financial Corporation (the "Annual Report") for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Section 1350 of Chapter 63 of Title 18 of the United States Code. Mitchell H. Caplan, the Chief Executive Officer and...

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