NASDAQ OMX Group (NDAQ)

Acquisition

As previously discussed, on April 22, 2005 (See “Business Developments and Combinations-Acquisition of Instinet Group,” of Note 3, “Significant and Related Party Transactions”), Nasdaq announced that it entered into a definitive agreement with Instinet to acquire Instinet and that Nasdaq concurrently entered into a definitive agreement to sell Instinet’s Institutional Broker division to an affiliate of SLP. As a result of these transactions, Nasdaq will ultimately own INET.

Instinet stockholders will receive approximately $1.878 billion in cash, comprised of approximately $934.5 million from Nasdaq, approximately $207.5 million from SLP and the balance from Instinet’s available cash, including approximately $174.0 million received by Instinet for the sale of its LJR subsidiary to Bank of New York. The $1.878 billion is inclusive of any dividends already declared by Instinet to its stockholders in August 2005 as a result of the sale of LJR to Bank of New York.

Completion of the Acquisition is subject to customary closing conditions, including regulatory approvals, including approval of the SEC and approval under the Hart-Scott Rodino Antitrust Improvements Act of 1976. The proposed sale of Instinet’s Institutional Broker division to an affiliate of SLP is subject to terms and conditions including, among other things, the closing of the Acquisition, and closing conditions and regulatory approvals that are similar to the closing conditions contained in the Agreement discussed above.

Nasdaq expects the Acquisition to be dilutive to Nasdaq’s stockholders for up to 12 months and anticipates this transaction will be accretive to stockholders thereafter. If the Acquisition is consummated, Nasdaq expects to realize significant cost savings in the long term primarily by migrating to the INET trading platform as a single technology platform. Currently Nasdaq operates the historical Nasdaq platform as well as Brut technology platform. As such, the most significant contributors to the dilutive effect of the Acquisition in the twelve month period following consummation of the Acquisition are changes in the useful life of certain historical Nasdaq technology assets, severance associated with headcount reductions, elimination or termination of certain leases and hardware maintenance contracts and duplicate office facilities and data centers. Nasdaq expects that in the period beginning 12 months following consummation of the Acquisition, the Acquisition will be accretive to stockholders, primarily as a result of technology cost savings and other synergies including significant cost savings in clearing and settlement expenses, occupancy and compensation and benefit costs. Nasdaq also expects to gain additional market data revenues by migrating INET trade reporting activity to Nasdaq.

12

Table of Contents

The Nasdaq Stock Market, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

To finance the transaction, Nasdaq has:

In order to facilitate the transaction, H&F also restructured the terms of Nasdaq’s original convertible subordinated notes, extending the maturity date to October 2012, lowering the interest coupon rate to 3.75% from 4.0% and lowering the conversion price to $14.50 from $20.00 or 16,551,724 shares subject to adjustment, in general, for any stock split, dividend, combination, recapitalization or similar event (the “$240 million Convertible Notes”). H&F also received an additional 2.75 million warrants to purchase Nasdaq common stock at a price of $14.50 per share. These warrants also cannot be exercised on or before April 22, 2006 and expire on the third anniversary of the Acquisition closing date. In accordance with EITF Issue No. 96-19, “Debtor’s Accounting for a Modification or Exchange of Debt Instruments” (“EITF 96-19”), a substantial modification of terms should be accounted for and reported in the same manner as an extinguishment of debt. Nasdaq considered the modification of the terms of Nasdaq’s original convertible subordinated notes to be substantial and therefore recorded a pre-tax charge of $7.4 million related to the restructuring of the $240 million Convertible Notes, which is included in general and administrative expense in the Condensed Consolidated Statements of Income for the nine months ended September 30, 2005.

Upon consummation of the Acquisition, and in conjunction with the issuance of the $750 million Senior Term Debt, Nasdaq is obligated to repay in full the $25.0 million outstanding senior notes due May 2012 (“$25 million Senior Notes”). Nasdaq expects to record a loss on the early extinguishment of the $25 million Senior Notes of approximately $1.5 million and expects to use the proceeds from the issuance of the $750 million Senior Term Debt to finance the redemption.

On April 22, 2005, Nasdaq entered into an Indenture (the “Indenture”) with Law Debenture Trust Company of New York, as trustee, governing the terms of the $205 million and $240 million Convertible Notes. Both the $205 million and $240 million Convertible Notes are senior unsecured obligations of Nasdaq and rank pari passu in right of payment with all existing and any future senior unsecured indebtedness of Nasdaq, are senior in right of payment to any future subordinated indebtedness of Nasdaq and are junior in right of payment to any senior secured indebtedness. Under the Indenture, Nasdaq’s ability to incur senior secured indebtedness is limited to the $750 million Senior Term Debt and $50.0 million five-year revolving line of credit to be used to finance the Acquisition, the $25 million Senior Notes and any future senior secured indebtedness provided that at the time of incurrence, Nasdaq maintains a ratio of aggregate senior secured indebtedness to EBITDA (as defined in the Indenture) for the most recent four consecutive quarters of not greater than 4.0 to 1.0.

13

Table of Contents

The Nasdaq Stock Market, Inc.

Notes to Condensed Consolidated Financial Statements—(Continued)

Also on April 22, 2005, Nasdaq entered into a Guarantee Agreement to which Nasdaq guaranteed the $205.0 million aggregate principal amount borrowed by SLP and H&F entities (the “Loan Agreement”) to purchase the $205 million Convertible Notes. In the event that on the closing date of the Acquisition the Loan Agreement has not been paid in full in cash, Nasdaq will cause the issuance and sale in public or private placement, cash-pay, pay-in-kind, discount or other debt securities that will provide gross proceeds in an aggregate amount not to exceed the aggregate principal amount of the Loan Agreement that has not been repaid in cash (the “Securities Demand”). Nasdaq has obtained in a Securities Commitment Letter dated April 22, 2005 issued by JPMorgan Securities, Inc. (“JPMorgan Securities”) and Merrill Lynch Capital Corporation and Merrill Lynch, Pierce, Fenner and Smith Incorporated, collectively referred as “Merrill Lynch”, which includes a commitment to purchase two-thirds of the securities specified in such Securities Demand from JPMorgan Securities and a commitment to purchase one-third of the securities specified in such Securities Demand from Merrill Lynch.

In addition, Nasdaq agreed to convene a special stockholders meeting to approve, among other matters, the potential issuance of the shares of common stock underlying approximately $7.8 million of the $205 million Convertible Notes (the “Subject Shares”). The special meeting of the stockholders occurred on September 14, 2005 and all matters presented to stockholders were approved. See Part II—Other Information, Item 4. “Submission of Matters to a Vote of Security Holders,” for further discussion.

In the event the Acquisition does not occur, the $205 million Convertible Notes issued on April 22, 2005 will be redeemed at par. In addition, the terms of the $240 million Convertible Notes will revert back to the original terms, with limited exceptions. All of the warrants issued are rescindable if the Acquisition is not consummated and are currently recorded as mezzanine equity in the Condensed Consolidated Balance Sheets. Upon completion of the Acquisition, the warrants will be classified as stockholders’ equity.

A further discussion of these transactions is contained in Nasdaq’s Current Report on Form 8-K, dated April 28, 2005.

Acquisition

As previously discussed, on April 22, 2005 (See “Business Developments and Combinations-Acquisition of Instinet Group,” of Note 3, “Significant Transactions”), Nasdaq announced that it entered into a definitive agreement with Instinet to acquire Instinet and that Nasdaq concurrently entered into a definitive agreement to sell Instinet’s Institutional Broker division to an affiliate of SLP As a result of these transactions, Nasdaq will ultimately own INET.

Instinet stockholders will receive approximately $1.878 billion in cash, comprised of approximately $934.5 million from Nasdaq, approximately $207.5 million from SLP and the balance from Instinet’s available cash, including approximately $174.0 million received by Instinet for the sale of its LJR subsidiary to Bank of New York. The $1.878 billion is inclusive of any dividends already declared by Instinet to its stockholders in August 2005 as a result of the sale of LJR to Bank of New York.

Completion of the Acquisition is subject to customary closing conditions, including the approval of the Acquisition by Instinet’s shareholders, as well as regulatory approvals, including approval of the SEC and approval under the Hart-Scott Rodino Antitrust Improvements Act of 1976. The proposed sale of Instinet’s Institutional brokerage business to an affiliate of SLP is subject to terms and conditions including, among other things, the closing of the Acquisition, and closing conditions and regulatory approvals that are similar to the closing conditions contained in the Agreement discussed above.

Nasdaq expects the Acquisition to be dilutive to Nasdaq’s stockholders for up to 12 months and anticipates this transaction will be accretive to stockholders thereafter.

To finance the transaction, Nasdaq has:

8

Table of Contents

similar event. SLP and H&F also received 1.56 and 0.65 million warrants, respectively, to purchase Nasdaq common stock at a price of $14.50. The warrants cannot be exercised on or before April 22, 2006 and expire on the third anniversary of the Acquisition closing date. The cash received from the issuance of the $205 million Convertible Notes is held in a restricted cash account.

In order to facilitate the transaction, H&F also restructured the terms of Nasdaq’s original convertible subordinated notes, extending the maturity date to October 2012, lowering the interest coupon rate to 3.75% from 4.0% and lowering the conversion price to $14.50 from $20.00 or 16,551,724 shares subject to adjustment, in general, for any stock split, dividend, combination, recapitalization or similar event (the “$240 million Convertible Notes”). H&F also received an additional 2.75 million warrants to purchase Nasdaq common stock at a price of $14.50 per share. These warrants also cannot be exercised on or before April 22, 2006 and expire on the third anniversary of the Acquisition closing date. In accordance with EITF Issue No. 96-19, “Debtor’s Accounting for a Modification or Exchange of Debt Instruments” (“EITF 96-19”), a substantial modification of terms should be accounted for and reported in the same manner as an extinguishment of debt. Nasdaq considered the modification of the terms of Nasdaq’s original convertible subordinated notes to be substantial and therefore recorded a pre-tax charge of $7.4 million related to the restructuring of the $240 million Convertible Notes, which is included in general and administrative expense in the Condensed Consolidated Statements of Income.

On April 22, 2005, Nasdaq entered into an Indenture (the “Indenture”) with Law Debenture Trust Company of New York, as trustee, governing the terms of the $205 million and $240 million Convertible Notes. Both the $205 million and $240 million Convertible Notes are senior unsecured obligations of Nasdaq and rank pari passu in right of payment with all existing and any future senior unsecured indebtedness of Nasdaq, are senior in right of payment to any future subordinated indebtedness of Nasdaq and are junior in right of payment to any senior secured indebtedness. Under the Indenture, Nasdaq’s ability to incur senior secured indebtedness is limited to the $750.0 million 6-year senior term debt and $50.0 million 5-year revolving line of credit to be used to finance the Acquisition, the $25.0 million outstanding Senior Notes and any future senior secured indebtedness provided that at the time of incurrence, Nasdaq maintains a ratio of aggregate senior secured indebtedness to EBITDA (as defined in the Indenture) for the most recent four consecutive quarters of not greater than 4.0 to 1.0.

Also on April 22, 2005, Nasdaq entered into a Guarantee Agreement to which Nasdaq guaranteed the $205.0 million aggregate principal amount borrowed by SLP and H&F entities (the “Loan Agreement”) to purchase the $205 million Convertible Notes. In the event that on the closing date of the Acquisition the Loan Agreement has not been paid in full in cash, Nasdaq will cause the issuance and sale in public or private placement, cash-pay, pay-in-kind, discount or other debt securities that will provide gross proceeds in an aggregate amount not to exceed the aggregate principal amount of the Loan Agreement that has not been repaid in cash (the “Securities Demand”). Nasdaq has obtained in a Securities Commitment Letter dated April 22, 2005 issued by JPMorgan Securities, Inc. (“JPMorgan Securities”) and Merrill Lynch Capital Corporation and Merrill Lynch, Pierce, Fenner and Smith Incorporated, collectively referred as “Merrill Lynch”, which includes a commitment to purchase two-thirds of the securities specified in such Securities Demand from JPMorgan Securities and a commitment to purchase one-third of the securities specified in such Securities Demand from Merrill Lynch.

In addition, Nasdaq agreed to convene a special stockholders meeting to approve, among other matters, the potential issuance of the shares of common stock underlying approximately $7.8 million of the $205 million Convertible Notes (the “Subject Shares”). If the stockholders do not approve of the potential issuance of the Subject Shares, Nasdaq will be required to redeem approximately $4.0 million aggregate principal amount of the $205 million Convertible Notes from SLP for a repurchase price equal to 105.0% of such aggregate principal amount plus any accrued and unpaid interest, but not including the repurchase date. In addition, on or prior to October 24, 2005 or, if later, five business days after the stockholders’ meeting, Nasdaq has the option to repurchase approximately $3.8 million aggregate principal amount of the $205 million Convertible Notes from H&F for a repurchase price in cash equal to 105.0% of such aggregate principal amount plus any accrued and unpaid interest, but not including the repurchase date. If Nasdaq’s stockholders do not approve the issuance of the Subject Shares, Nasdaq intends to exercise such option.

In the event the Acquisition does not occur, the $205 million Convertible Notes issued on April 22, 2005 will be redeemed at par. In addition, the terms of the $240 million Convertible Notes will revert back to the original terms, with limited exceptions. All of the warrants issued are rescindable if the Acquisition is not consummated and are currently recorded as mezzanine equity in the Condensed Consolidated Balance Sheets. Upon completion of the Acquisition, the warrants will be classified as stockholders’ equity.

A further discussion of these transactions is contained in Nasdaq’s Current Report on Form 8-K, dated April 28, 2005.

9

Table of Contents