Our
Domestic Retail Brokerage business is primarily comprised of the activities
of E*TRADE Securities, LLC, which we refer to as “E*TRADE Securities”, a SEC
registered broker-dealer, its securities clearing firm, E*TRADE Clearing LLC,
which we refer to as “E*TRADE Clearing,” a member of the New York Stock Exchange
(NYSE), Dempsey & Company, LLC, which we refer to as “Dempsey,” a specialist
and market-making firm and E*TRADE Professional Trading, LLC, which we refer
to as “E*TRADE Professional Trading,” a direct access brokerage firm for active
online traders. E*TRADE completed its acquisitions of Dempsey and E*TRADE
Professional Trading in fiscal 2001 and fiscal 2002, respectively. We offer
retail banking products and services through E*TRADE Bank, which we refer
to as the “Bank”, which is the nation’s eighth largest Office of Thrift Supervision
(OTS) regulated financial institution based on total assets as of December
31, 2002. Our branchless structure permits us to serve customers nationwide.
The Bank has three primary subsidiaries, E*TRADE Access,
3
Inc., which we refer
to as “E*TRADE Access”, which operates an independent network of ATMs in the
United States and Canada, E*TRADE Mortgage Corporation, which we refer to
as “E*TRADE Mortgage”, a direct to consumer mortgage loan originator and Ganis
Credit Corporation, which we refer to as “Ganis”, a consumer recreational
vehicle, marine and other consumer loan originator. E*TRADE Financial Corporation,
which we refer to as “ETFC”, is a provider of financial services and the holding
company of the Bank. E*TRADE Re, LLC is a provider of reinsurance and financial
services and the holding company of ETFC and E*TRADE Global Asset Management,
Inc. is a registered broker-dealer and investment advisor that manages asset
portfolios for us and the Bank. Our Global and Institutional business segment
is comprised principally of international subsidiaries which offer online
retail brokerage services to foreign investors and financial services to institutional
investors.
We
make our annual reports on Form 10-K, quarterly reports on Form 10-Q
and current reports on Form 8-K, as well as any amendments to the forgoing,
available free of charge at our website as soon as reasonably practicable
after they have been filed with the SEC. For a detailed description of our
business you should read these reports and the other filings we make with
the SEC which are incorporated by reference in this prospectus.
E*TRADE’s
corporate offices are located at 4500 Bohannan Drive, Menlo Park, California
94025. We also maintain significant corporate and operational offices in Arlington,
Virginia and New York City, New York and major administrative facilities near
Sacramento, California and Atlanta, Georgia.
Finally we maintain significant operational facilities in Orange County, California
and Chicago, Illinois. E*TRADE was incorporated in California in 1982 and
reincorporated in Delaware in July 1996. We have approximately 3,500 employees.
Our website address is http://www.etrade.com.
The information on our website is not part of this prospectus.
4
RISK
FACTORS
RISKS RELATING
TO THE NATURE OF THE FINANCIAL SERVICES BUSINESS
Many of our competitors have
greater financial, technical, marketing and other resources
We
face direct competition from retail and institutional brokerage firms, banks,
thrifts and other savings and lending institutions, mortgage companies, specialists,
market makers, insurance companies, electronic communication networks, or
ECNs, mutual fund companies, credit card companies, ATM providers, Internet
portals, providers of equity compensation and other corporate-focused financial
products, financial advisors, financial media providers and other financial
products and services organizations.
Many
of our competitors have longer operating histories and greater resources than
we do and offer a wider range of financial products and services. Many also
have greater name recognition, greater market acceptance, and larger customer
bases. These competitors may conduct extensive promotional activities and
offer better terms and lower prices to customers than we do. Moreover, some
of our competitors have established relationships among themselves or with
third parties to enhance their products and services. This means that our
competitors may be able to respond more quickly to new or changing opportunities
and demands and withstand market downturns better than we, and gain market
share. It is also possible that new competitors, alliances or industry consolidation
among existing or future competitors may significantly reduce our market share
or our ability to compete effectively.
Downturns or disruptions in
the securities markets could reduce transaction volumes and margin borrowing
and increase our dependence on our more active customers who receive lower
prices
A
significant portion of our revenues in recent years has been from online investing
services, and although we continue to diversify our revenue sources, we expect
this business to continue to account for a significant portion of our revenues
in the foreseeable future. Like other financial services firms, we are directly
affected by national and global economic and political conditions, broad trends
in business and finance, disruptions to the securities markets and changes
in volume and price levels of securities and futures transactions.
A
significant downturn in the U.S.
securities markets has been occurring since March 2000, resulting in industry-wide
declines in transaction volume. The decrease in transaction volume has been
more significant for us with respect to our less active customers, increasing
our dependence on our more active Power E*TRADE and E*TRADE Professional Trading
customers who receive more favorable pricing based on their transaction volume.
Decreases in volumes, as well as securities prices, are also typically associated
with a decrease in margin borrowing. Because we generate revenue from interest
charged on margin borrowing, such decreases result in a reduction of revenue
to E*TRADE Clearing. When transaction volume is low, our operating results
are harmed in part because some of our overhead costs remain relatively fixed.
Downturns in the securities
markets increase the credit risk associated with margin lending or stock loan
transactions
We
permit customers to purchase securities on margin. When the market declines
rapidly, there is an increased risk that the value of the collateral we hold
in connection with these transactions could fall below the amount of a customer’s
indebtedness. Similarly, as part of our broker-dealer operations, we frequently
enter into arrangements with other broker-dealers for the lending of various
securities. Under regulatory guidelines, when we borrow or lend securities,
we must generally simultaneously disburse or receive cash deposits. We may
risk losses if there are sharp changes in market values of many securities
and the counter-parties to the borrowing and lending transactions fail to
honor their commitments. The recent downturn in public equity markets has
led to a greater risk that parties to stock lending transactions may fail
to meet their commitments.
We may be unsuccessful in managing
the effects of changes in interest rates and the interest-bearing assets in
our portfolio
The
results of operations for the Bank depend in large part upon the level of
its net interest income, that is, the difference between interest income from
interest-earning assets (such as loans and mortgage-backed securities) and
interest expense on interest-bearing liabilities (such as deposits and borrowings).
Changes in market interest rates
5
and the yield curve could reduce the value
of the Bank’s financial assets and reduce net interest income. Many factors
affect interest rates, including governmental monetary policies and domestic
and international economic and political conditions.
The
Bank is exposed to interest rate risk in various ways, including the following:
| |
• |
|
As
interest rates have declined, we have experienced increased demand for
and revenues from mortgage loans. If interest rates increase, we would
expect a potentially significant decline in our mortgage business. |
| |
| |
• |
|
As
part of its diversified portfolio of interest-bearing assets, the Bank
holds a portfolio of corporate bonds. With the recent economic downturn,
there is an increased risk that some of these corporate bonds may become
impaired before reaching maturity, or that they may not realize their
full principal value upon maturity, which could cause the Bank’s portfolio
to suffer impairment charges as losses are realized. |
The
Bank attempts to mitigate interest rate risk in part by using derivative contracts
that are designed to offset, in whole or in part, the variability in value
or cash flow of various assets or liabilities caused by changes in interest
rates. There can be no assurances that these derivative contracts will offer
the intended protection against interest rate risk. Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities, which we adopted on October 1, 2000, requires that
the hedge ineffectiveness, or the difference between the changes in value
of the hedged item versus the change in value of the hedging instruments,
be recognized in earnings as of the reporting date. Our financial results
may prove to be more volatile due to this reporting requirement.
The Bank’s diversification
of its asset portfolio to include riskier, higher-yielding investments may
increase the level of charge-offs
As
the Bank diversifies its asset portfolio through purchases and originations
of higher-yielding asset classes, such as automobile, marine and recreational
vehicle loans and retained interests in asset securitizations, we will have
to manage assets that carry a higher risk of default than our existing portfolio.
Consequently, the level of charge-offs associated with these assets may be
higher than previously experienced. In addition, if the overall economy continues
to weaken, we could experience higher levels of charge-offs. If expectations
of future charge-offs increase, a corresponding increase in the amount of
our loan loss allowance would be required. The increased level of provision
for loan losses recorded to meet additional loan loss allowance requirements
could adversely impact our financial results if those higher yields do not
cover the provision for loan losses.
Risks associated with
trading transactions at our specialist/market maker could result in trading
losses
A
majority of our specialist and market-making revenues at Dempsey are derived
from trading by Dempsey as a principal. Dempsey may incur trading losses relating
to the purchase, sale or short sale of securities for its own account as well
as trading losses in its specialist stocks and market maker stocks. From time
to time, Dempsey may have large position concentrations in securities of a
single issuer or issuers engaged in a specific industry. In general, because
Dempsey’s inventory of securities is marked to market on a daily basis, any
downward price movement in those securities will result in a reduction of
revenues and operating profits. Dempsey also operates a proprietary trading
desk separately from its specialist and market maker operations, which may
also incur trading losses.
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
The
listed marketplaces have moved from trading using fractional share prices
to trading using decimals. As a result, spreads that specialists and market
makers receive in trading equity securities have declined and may continue
to decline, which could harm revenues generated by Dempsey. Also, the advent
of decimalization led to a decline in order flow revenue received by us from
market makers and marketplaces. Similarly, a reduction in the volume and/or
volatility of trading activity could also reduce spreads that specialists
and market makers receive, also adversely affecting revenues generated by
Dempsey.
Alternative
trading systems that have developed over the past few years could also reduce
the levels of trading of exchange-listed securities through specialists and
the levels of over-the-counter trading through market makers. In
6
addition,
ECNs have emerged as an alternative forum to which broker-dealers and institutional
investors can direct their limit orders. This allows broker-dealers and institutional
investors to avoid directing their trades through market makers. As a result,
Dempsey may experience a reduction in its flow of limit orders.
If we do not
successfully manage consolidation opportunities, we could be at a competitive
disadvantage
There
has been significant consolidation in the online financial services industry
over the last several years, and the consolidation is likely to continue in
the future. Should we fail to take advantage of viable consolidation opportunities
or if we overextend our efforts by acquiring businesses that we are unable
to integrate or properly manage, we could be placed at a competitive disadvantage.
Acquisitions entail numerous risks including retaining or hiring skilled personnel,
integrating acquired operations, products and personnel and the diversion
of management attention from other business concerns. In addition, there can
be no assurance that we will realize a positive return on any of these investments
or that future acquisitions will not be dilutive to earnings.
We must be able to
quickly introduce new products and services in order to attract new customers
and remain competitive
Our
future profitability depends significantly on our ability to develop, maintain
and enhance our products, services and technology. There are significant challenges
to such development, maintenance and enhancement, including:
| |
• |
effectively
using new technologies; |
| |
• |
effectively
ensuring that the technologies we utilize are, and remain, stable and
secure; |
| |
• |
adapting
our products and services to meet emerging industry standards; and |
| |
• |
developing,
introducing and marketing new products and services to meet and create
customer demand. |
We rely heavily on
technology to deliver products and services
Disruptions
to or instability of our technology, including an actual or perceived breach
of the security of our technology, could harm our business and our reputation.
Our international
efforts subject us to additional risks and regulation, which could impair
our business growth
One
component of our strategy is an increased effort to build our international
business. To date, we have limited experience in providing retail brokerage
and banking services internationally. There can be no assurance that our branded
products and services will be successful in international markets.
In
order to expand our services globally, we must comply with the regulatory
controls of each specific country in which we conduct business. We intend
to rely primarily on our joint venture partners and/or licensees and our subsidiaries
for regulatory compliance in foreign jurisdictions. We have limited control
over the management and direction of these venture partners and/or licensees,
and their action or inaction, including their failure to follow proper practices
with respect to regulatory compliance and/or corporate governance, could harm
our operations and/or our reputation.
In
addition, there are certain risks inherent in doing business in international
markets, particularly in the heavily regulated brokerage and banking industries,
such as:
| |
• |
unexpected
changes in regulatory requirements and trade barriers; |
| |
• |
difficulties
in staffing and managing foreign operations; |
| |
• |
the
level of investor interest in cross-border trading; |
| |
• |
authentication
of online customers; |
| |
• |
fluctuations
in currency exchange rates; |
| |
• |
reduced
protection for intellectual property rights in some countries; |
7
| |
• |
seasonal
reductions in business activity during the summer months in Europe and
certain other parts of the world; |
| |
• |
the
level of acceptance and adoption of the Internet in international markets;
and |
| |
• |
potentially
adverse tax consequences. |
RISKS RELATING
TO THE REGULATION OF OUR BUSINESS
We are subject to
extensive government regulation, including banking and securities rules and
regulations, which could restrict our business practices
The
securities and banking industries are subject to extensive regulation. All
of our broker-dealer subsidiaries have to comply with many laws and rules,
including rules relating to possession and control of customer funds and securities,
margin lending and execution and settlement of transactions. We are also subject
to additional laws and rules as a result of our specialist and market maker
operations in Dempsey. In addition, if we were deemed to solicit orders from
our customers or make investment recommendations, we would become subject
to additional rules and regulations governing, among other things, sales practices
and the suitability of recommendations to customers.
Similarly,
E*TRADE Group, E*TRADE Re, LLC and ETFC, as savings and loan holding companies,
and E*TRADE Bank, as a federally chartered savings bank and subsidiary of
ETFC, are subject to extensive regulation, supervision and examination by
the OTS, and, in the case of the Bank, the FDIC. Such regulation covers all
banking business, including lending practices, safeguarding deposits, capital
structure, record keeping, transactions with affiliates and conduct and qualifications
of personnel. In addition, we are also subject to the regulatory controls
of each specific country in which we conduct business.
Similarly,
Federal, state and local governments may pass legislation affecting the privacy
of financial information that could constrain our ability to communicate,
or otherwise conduct business with existing or potential customers.
If we fail to comply
with applicable securities, banking and insurance regulations, we could be
subject to disciplinary actions, damages, penalties or restrictions that could
significantly harm our business
The
SEC, NYSE, CFTC and the NASD or other self-regulatory organizations and state
securities commissions can, among other things, censure, fine, issue cease-and-desist
orders or suspend or expel a broker-dealer or any of its officers or employees.
The OTS may take similar action with respect to our banking activities. Similarly,
the attorneys general of each of the states could bring legal action on behalf
of the citizens of the various states to ensure compliance with local laws.
Our ability to comply with all applicable laws and rules is largely dependent
on our establishment, maintenance and enforcement of an effective compliance
system. Our failure to establish and enforce proper compliance procedures,
even if unintentional, could subject us to significant losses or disciplinary
or other actions.
If we do not
maintain the capital levels required by regulators, we may be fined or even
forced out of business
The
SEC, NYSE, NASD, CFTC, OTS and various other regulatory agencies have stringent
rules with respect to the maintenance of specific levels of net capital by
securities broker-dealers and regulatory capital by banks. Net capital is
the net worth of a broker or dealer (assets minus liabilities), less deductions
for certain types of assets. Failure to maintain the required net capital
could result in suspension or revocation of registration by the SEC and suspension
or expulsion by the NYSE and/or NASD, and could ultimately lead to the firm’s
liquidation. In the past, our broker-dealer subsidiaries have depended largely
on capital contributions by us in order to comply with net capital requirements.
If such net capital rules are changed or expanded, or if there is an unusually
large charge against net capital, operations that require an intensive use
of capital could be limited. Such operations may include 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 pay dividends, repay debt and redeem or
purchase shares of our outstanding stock. See the notes to our consolidated
financial statements included in our most recent annual report on Form 10-K
or quarterly report on 10-Q, and any amendments to the foregoing, which are
incorporated by reference in this prospectus, for the minimum net capital
requirements for our domestic broker-dealer subsidiaries for the most recently
completed reporting period.
8
Similarly,
the Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary, actions
by regulators that, if undertaken, could harm a bank’s operations and financial
statements. A bank must meet specific capital guidelines that involve quantitative
measures of a bank’s assets, liabilities and certain off-balance-sheet items
as calculated under regulatory accounting practices. A bank’s capital amounts
and classification are also subject to qualitative judgments by the regulators
about the strength of components of the bank’s capital, risk weightings of
assets, off-balance-sheet transactions and other factors.
Quantitative
measures established by regulation to ensure capital adequacy require a bank
to maintain minimum amounts and ratios of Total and Tier 1 Capital to risk-weighted
assets and of Tier I Capital to adjusted total assets. To satisfy the capital
requirements for a well capitalized financial institution, a bank must maintain
minimum Total and Tier 1 Capital to risk-weighted assets and Tier I Capital
to adjusted total assets ratios. See the notes to our consolidated financial
statements included in our most recent annual report on Form 10-K or quarterly
report on Form 10-Q, and any amendments to the foregoing, which are incorporated
by reference in this prospectus, for the Bank’s required and actual capital
amounts and ratios for the most recently completed reporting period.
Regulatory review
of our advertising practices could hinder our ability to operate our business
and result in fines and other penalties
All
marketing activities by our broker-dealer subsidiaries that are regulated
by the NASD, are required to have all marketing materials reviewed by a Series
24 licensed principal prior to release. The NASD has in the past asked us
to revise certain marketing materials. In June 2001, we settled a formal NASD
investigation into our advertising practices and were fined by the NASD in
connection with three advertisements that were placed in 1999. The NASD can
impose certain penalties for violations of its advertising regulations, including:
| |
• |
suspension
of all advertising; |
| |
• |
the
issuance of cease-and-desist orders; or |
| |
• |
the
suspension or expulsion of a broker-dealer or any of its officers or
employees. |
In
addition, the federal banking agencies impose restrictions on bank advertising
of non-deposit investment products to minimize the likelihood of customer
confusion.
As a savings
and loan holding company, we are subject to regulations that could restrict
our ability to take advantage of certain business opportunities
We,
as well as the Bank, are required to file periodic reports with the OTS, and
are subject to examination by the OTS. The OTS also has certain types of enforcement
powers over ETFC and us, including the ability to issue cease-and-desist orders,
force divestiture of the Bank and impose civil money penalties for violations
of federal banking laws and regulations or for unsafe or unsound banking practices.
In addition, under the Gramm-Leach-Bliley Act, our activities are now restricted
to those that are financial in nature and certain real estate-related activities.
We may make merchant banking investments in companies whose activities are
not financial in nature if those investments are made for the purpose of appreciation
and ultimate resale of the investment and we do not manage or operate the
company. Such merchant banking investments may be subject to maximum holding
periods and special record keeping and risk management requirements.
We
believe that all of our existing activities and investments are permissible
under the new legislation, but the OTS has not yet interpreted these provisions.
Even if our existing activities and investments are permissible, we will be
unable to pursue future activities that are not financial in nature. We are
also limited in our ability to invest in other savings and loan holding companies.
In
addition to regulation as a savings and loan holding company, the Bank is
subject to extensive regulation of its activities and investments, capitalization,
risk management policies and procedures and relationship with affiliated companies.
In addition, as a condition to approving our acquisition of ETFC, the OTS
imposed various notice and other requirements, primarily a requirement that
the Bank obtain prior approval from the OTS of any
9
future material changes
to the Bank’s business plan. Acquisitions of and mergers with other financial
institutions, purchases of deposits and loan portfolios, the establishment
of new Bank subsidiaries and the commencement of new activities by Bank subsidiaries
require the prior approval of the OTS. These regulations and conditions could
place us at a competitive disadvantage in an environment in which consolidation
within the financial services industry is prevalent. Also, these regulations
and conditions could affect our ability to realize synergies from future acquisitions,
could negatively affect both us and the Bank following the acquisition and
could also delay or prevent the development, introduction and marketing of
new products and services.
RISKS RELATING
TO OWNING OUR STOCK
We have incurred losses in the past and we cannot assure you that we will
be profitable
We
have incurred operating losses in prior periods and we may do so in the future.
We reported net losses of $186.4 million in fiscal 2002, which includes a
cumulative effect of accounting change of $293.7 million, net losses of $241.5
million in fiscal 2001, which includes pre-tax facility restructuring and
other exit charges of $202.8 million and net income of $19.2 million in fiscal
2000. Although we achieved profitability in fiscal 2000 due in part to sales
of investment securities, we cannot assure you that profitability will be
achieved in future periods.
Our ratio of debt
to equity may make it more difficult to make payments on our debts or to obtain
financing
At
December 31, 2002, we had an outstanding balance of $695.3 million in convertible
subordinated notes. Combined with the share buyback program through December
2002, and the cumulative effect of accounting change recorded in fiscal 2002,
our ratio of debt (our convertible debt, capital lease obligations and term
loans) to equity (expressed as a percentage) was 46.9% as of December 31,
2002. We may incur additional indebtedness in the future. The level of our
indebtedness, among other things, could:
| |
• |
make
it more difficult to make payments on our debt; |
| |
• |
make
it more difficult or costly for us to obtain any necessary financing
in the future for working capital, capital expenditures, debt service
requirements or other purposes; |
| |
• |
limit
our flexibility in planning for or reacting to changes in our business;
and |
| |
• |
make
us more vulnerable in the event of a downturn in our business. |
The market price of
our common stock may continue to be volatile
From
January 1, 2001 through December 31, 2002, the price per share of our common
stock has ranged from a high of $15.38 to a low of $2.81. The market price
of our common stock has been, and is likely to continue to be, highly volatile
and subject to wide fluctuations. In the past, volatility in the market price
of a company’s securities has often led to securities class action litigation.
Such litigation could result in substantial costs to us and divert our attention
and resources, which could harm our business. Declines in the market price
of our common stock or failure of the market price to increase could also
harm our ability to retain key employees, reduce our access to capital and
otherwise harm our business.
We may need additional
funds in the future which may not be available and which may result in dilution
of the value of our common stock
In
the future, we may need to raise additional funds, which may not be available
on favorable terms, if at all. If adequate funds are not available on acceptable
terms, we may be unable to fund our business growth plans. In addition, if
funds are available, the issuance of securities could dilute the value of
shares of our common stock and cause the market price to fall.
We have various mechanisms
in place that may discourage takeover attempts
Certain
provisions of our certificate of incorporation and bylaws may discourage,
delay or prevent a third party from acquiring control of us in a merger, acquisition
or similar transaction that a shareholder may consider favorable. Such provisions
include:
| |
• |
authorization
for the issuance of “blank check” preferred stock; |
10
| |
• |
provision
for a classified Board of Directors with staggered, three-year terms;
|
| |
• |
the
prohibition of cumulative voting in the election of directors; |
| |
• |
a
super-majority voting requirement to effect business combinations or
certain amendments to our certificate of incorporation and bylaws; |
| |
• |
limits
on the persons who may call special meetings of shareholders; |
| |
• |
the
prohibition of shareholder action by written consent; and |
| |
• |
advance
notice requirements for nominations to the Board of Directors or for
proposing matters that can be acted on by shareholders at shareholder
meetings. |
Attempts
to acquire control of E*TRADE may also be delayed or prevented by our shareholder
rights plan, which is designed to enhance the ability of our Board of Directors
to protect shareholders against unsolicited attempts to acquire control of
E*TRADE 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 acceleration),
and Delaware law may also discourage, delay or prevent someone from acquiring
or merging with us.
11
MARKET
FOR OUR COMMON EQUITY
From
the date of our initial public offering through January 2001, our common stock
was listed on the Nasdaq National Market. In February 2001, we listed our
shares on the NYSE. The following table shows the high and low sale prices
of our common stock as reported by the Nasdaq or the NYSE, as applicable for
the periods indicated:
| |
|
High
|
|
Low
|
| Fiscal
2003: |
|
|
|
|
|
|
| First
Quarter (through April 30, 2003) |
|
$ |
5.58 |
|
$ |
3.65 |
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Fiscal
2002: |
|
|
|
|
|
|
| First
Quarter |
|
$ |
12.64 |
|
$ |
7.61 |
| Second
Quarter |
|
$ |
9.54 |
|
$ |
4.60 |
| Third
Quarter |
|
$ |
5.47 |
|
$ |
2.81 |
| Fourth
Quarter |
|
$ |
5.98 |
|
$ |
3.61 |
| |
|
|
|
|
|
|
| Fiscal
2001: |
|
|
|
|
|
|
| First
Quarter |
|
$ |
15.38 |
|
$ |
6.35 |
| Second
Quarter |
|
$ |
10.20 |
|
$ |
5.32 |
| Third
Quarter |
|
$ |
6.82 |
|
$ |
4.07 |
| Fourth
Quarter |
|
$ |
11.10 |
|
$ |
5.59 |
The
closing sale price of our common stock as reported on the NYSE on April 30,
2003 was $5.50 per share. As of March 20, 2003, there were 2,591 holders of
record of our common stock.
DIVIDENDS
We
have never declared or paid cash dividends on our capital stock. We currently
intend to retain all of our earnings, if any, for use in the business and
do not anticipate paying any cash dividends in the foreseeable future. The
payment of any future dividends will be at the discretion of the our Board
of Directors and will depend upon a number of factors, including future earnings,
the success of our business activities, regulatory capital requirements, our
general financial condition and future prospects, general business conditions
and such other factors as the Board of Directors may deem relevant.
12
PLAN
OF DISTRIBUTION
We
are registering for resale all 1,288,784 shares of our common stock, par value
of $0.01 per share, on behalf of Tilden S. Engelman, Dale A. Schreiber, James
E. Carney and Jerald G. Kallas, or pledgees, donees, transferees or other
successors in interest that receive the shares as a gift, partnership distribution
or other non-sale related transfer from the foregoing; such transferees together
with the foregoing named individuals are referred to herein as the selling
shareholders. We will receive no proceeds from this offering. All of the
shares were originally issued by us in connection with our acquisition of
Engelman Securities, Inc.
The
selling shareholders may sell shares of common stock from time to time as
follows (if at all):
In
connection with sales of common stock or otherwise, the selling shareholders
may enter into hedging transactions with broker-dealers or others, who may
in turn engage in short sales of the common stock in the course of hedging
the positions they assume. The selling shareholders may pledge or grant a
security interest in some or all of the common stock and, if it defaults in
the performance of its secured obligations, the pledgees or secured parties
may offer and sell the common stock from time to time pursuant to this prospectus.
The selling
13
shareholders also may transfer and donate shares of common stock
in other circumstances in which case the transferees, donees, pledgees or
other successors in interest will be the selling shareholders for purposes
of this prospectus. The selling shareholders may sell short the common stock
and may deliver this prospectus in connection with short sales and use the
shares of common stock covered by the prospectus to cover these short sales.
In addition, any shares of common stock covered by this prospectus that qualify
for sale pursuant to Rule 144 or any other available exemption from registration
under the Securities Act may be sold under Rule 144 or another available exemption.
The
selling shareholders agreed that if at any time before December 17, 2007,
any selling shareholder or shareholders propose to sell or otherwise transfer
an aggregate of 25,000 or more of the shares of common stock in any 30 day
period, such selling shareholder or shareholders must first provide us with
an opportunity to purchase some or all of these shares at the proposed price,
or if no price has been negotiated, at the market price, provided that such
selling shareholder or shareholders may only sell for cash consideration.
In addition, the selling shareholders have agreed that if any selling shareholder
or shareholders propose during this five year period to sell or otherwise
transfer to any person in a privately negotiated transaction either an aggregate
of 250,000 or more of the shares of common stock, or in one or a related series
of transactions in any 90 day period an aggregate of 250,000 or more of the
shares of common stock, the sale or other transfer will be subject to our
prior written approval.
The
selling shareholders have agreed that, subject to certain exceptions described
below, without our prior written consent, during the period prior to December
31, 2003, they will not, directly or indirectly, issue, sell, offer or agree
to sell, grant any option for the sale of, pledge, make any short sale or
maintain any short position, establish or maintain a “put equivalent position”
(within the meaning of Rule 16a-1(h) under the Exchange Act of 1934), enter
into any swap, derivative transaction or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of the shares of common stock (whether any such transaction is to be settled
by delivery of shares of common stock, other securities, cash or other consideration),
or otherwise dispose of, any shares of common stock (or any securities convertible
into, exercisable for or exchangeable for shares of common stock) or interest
therein of us or of any of our subsidiaries. The foregoing restrictions have
lapsed with respect to 386,635 of the shares offered by this prospectus, and
will lapse as to an additional 386,635 of the shares offered by this prospectus
on the date the registration statement of which this prospectus forms a part
is declared effective. Subject to certain exceptions described below, the
resale restrictions will lapse with respect to the final 515,514 shares offered
by this prospectus on December 31, 2003.
Each
of the selling shareholders has also agreed to abide by our internal written
trading policies as if such selling shareholder was specifically named in
such policies and without regard to whether such selling shareholder is an
employee or another class of person named in such policies until December
17, 2004, and thereafter while that selling shareholder remains an employee
or another class of person named in such policies. Each selling shareholder
has agreed that any sales of the shares of common stock shall be conducted
through us or through one of our registered broker-dealer affiliates, provided
the costs and terms of conducting the sales are the same as offered to other
institutional investors for similar transactions and are competitive with
those offered by agency broker-dealers unaffiliated with any selling shareholder,
or through a broker-dealer approved by us.
At
the time a particular offering of shares of common stock is made, a prospectus
supplement, if required, will be distributed which will set forth the aggregate
amount of shares of common stock being offered and the terms of the offering,
including the name or names of any underwriters, dealers, brokers or agents,
if any, and any discounts, commissions or concessions allowed or reallowed
to be paid to brokers or dealers. To our knowledge, except as disclosed
in this prospectus there are currently no other agreements, arrangements or
understandings with respect to the sale of any of the shares offered hereby.
The
selling shareholders and any underwriters, dealers, brokers or agents who
participate in the distribution of the shares of common stock may be deemed
to be “underwriters” within the meaning of the Securities Act and any profits
on the sale of the shares of common stock by them and any discounts commissions
or concessions received by any underwriters, dealers, brokers or agents may
be deemed to be underwriting discounts and commissions under the Securities
Act.
In
the event of any offering of the securities offered hereby, underwriting discounts
and commissions received by any NASD member or independent broker-dealer on
securities sold in any distribution will not exceed 8% of the offering proceeds.
The
selling shareholders and any other person participating in a distribution
of the shares of common stock will be subject to applicable provisions of
the Securities Exchange Act of 1934, as amended, referred to in this
14
prospectus
as the Exchange Act, and the rules and regulations under the Exchange Act,
including, without limitation, Regulation M which may limit the timing of
purchases and sales of shares of common stock by the selling shareholders
and any other person participating in the distribution. Furthermore, Regulation
M under the Exchange Act may restrict the ability of any person engaged in
a distribution of the shares of common stock to engage in market-making activities
with respect to the shares of common stock being distributed for a period
of up to five business days prior to the commencement of the distribution.
All of the foregoing may affect the marketability of the shares of common
stock and the ability of any person or entity to engage in market-making activities
with respect to the shares of common stock.
The
selling shareholders will be responsible for any fees and expenses of any
counsel or other advisor for the selling shareholders. All other expenses
incurred in connection with the registration of the shares, including printer’s
and accounting fees and the fees, disbursements and expenses of our counsel
will be borne by us. Commissions, brokerage fees and discounts, if any, attributable
to the sales of the shares of common stock will be borne by the selling shareholders.
The selling shareholders may agree to indemnify any broker-dealer or agent
that participates in transactions involving sales of the shares of common
stock against certain liabilities, including liabilities arising under the
Securities Act. We and the selling shareholders will be indemnified by the
other against certain liabilities under the Securities Act.
Because
we are an affiliate of E*TRADE Securities, sales of the shares of common stock
under the registration statement of which this prospectus forms a part may
be subject to the applicable provisions of Rule 2720 of the National Association
of Securities Dealers Rules of Conduct. Because a bona fide independent market
exists for the shares of common stock, no “qualified independent underwriter”
is required or will be appointed as a result of our affiliation with E*TRADE
Securities.
We
have undertaken to keep the registration statement of which this prospectus
constitutes a part effective until the earlier of (1) two years after the
date this registration statement is declared effective by the SEC, and (2)
the date when all shares of common stock offered by this prospectus have been
disposed of. After this period, if we choose not to maintain the effectiveness
of the registration statement of which this prospectus constitutes a part,
the securities offered hereby may not be sold, pledged, transferred or assigned,
except in a transaction which is exempt under the provisions of the Securities
Act.
15
SELLING
SHAREHOLDERS
We
are registering the sale of the shares of common stock offered hereby on behalf
of the selling shareholders. The following table sets forth the number and
percentage of our shares of common stock owned by the selling shareholders,
and the number and percentage of our shares of common stock that will be owned
assuming the sale of all the shares offered hereby:
| Name
of Selling Shareholder |
|
Number
of Shares of Common Stock Beneficially Owned |
|
Percentage
of Common Stock Beneficially Owned(1) |
|
Number
of Shares of Common Stock Beneficially Owned After Offering(2) |
|
Percentage
of Common Stock Beneficially Owned
After Offering(2) |
| Tilden
S. Engelman |
|
322,196 |
|
-- |
|
-- |
|
-- |
| Dale
A. Schreiber |
|
322,196 |
|
-- |
|
-- |
|
-- |
| James
E. Carney |
|
322,196 |
|
-- |
|
-- |
|
-- |
| Jerald
G. Kallas |
|
322,196 |
|
-- |
|
-- |
|
-- |
| Other
holders or future transferees, pledgees, donees or successors of any
holders (3) |
|
--
|
|
--
|
|
--
|
|
--
|
|
Total |
|
1,288,784 |
|
-- |
|
-- |
|
-- |
(1)
The selling shareholders as a group beneficially own less than 1% of our outstanding common stock.
(2)
Assumes the sale of all the shares offered hereby.
(3)
Information about other selling shareholders will be set
forth in prospectus supplements, if required. Assumes that any other holders
of the shares, or any future transferees, pledgees, donees or successors of
or from any such other holders of shares, do not beneficially own any common
stock other than the shares.
We
prepared this table based on the information supplied to us by the selling
shareholders named in the table and we have not sought to verify this information.
The selling shareholders listed in the above table may have sold or transferred,
in transactions exempt from the registration requirements of the Securities
Act, some or all of their shares of common stock since the date on which the
information in the above table is presented. Information about the selling
shareholders may change over time. Any changed information will be set forth
in supplements or amendments to this prospectus if and when necessary.
16
AVAILABLE
INFORMATION
We
are subject to the informational requirements of the Exchange Act, and in
accordance with the Exchange Act file reports, proxy statements, information
statements and other information with the SEC. Reports, proxy statements and
other information filed by us may be inspected and copied at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, and you may obtain information about the operation of these public
reference facilities by calling the SEC at 1-800-SEC-0330. The SEC maintains
an Internet web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with
the SEC. The address of the SEC’s web site is http://www.sec.gov.
We
have filed with the SEC a registration statement on Form S-3 under the Securities
Act with respect to the shares of common stock offered by this prospectus,
referred to in this prospectus, together with all amendments and exhibits
thereto, as the Registration Statement. This prospectus does not contain all
of the information set forth in the registration statement, certain parts
of which are omitted in accordance with the rules and regulations of the SEC.
For further information regarding us and the shares of common stock offered
by this prospectus, reference is hereby made to the registration statement
and to the exhibits and schedules filed with the registration statement. The
Registration Statement, including the exhibits and schedules filed with the
Registration Statement, may be inspected at the public reference facilities
maintained by the SEC at Room 450, Fifth Street, N.W., Washington,
D.C. 20549 and copies of all or any part may be obtained from that office
upon payment of the prescribed fees.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The
following documents we have filed with the SEC (File No. 1-11921) pursuant
to the Exchange Act are incorporated herein by reference:
PART
II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item
14. Other Expenses of Issuance and Distribution
The
following table sets forth the costs and expenses, other than underwriting
discounts and commissions, payable by E*TRADE Group, Inc. in connection with
the sale of common stock being registered. All amounts are estimates except
the SEC registration fee and NASD filing fee.
| SEC
Registration Fee |
$ |
521.31 |
| NASD
Filing Fee |
$ |
1,144.39 |
| Legal
Fees and Expenses* |
$ |
10,500.00 |
| Accounting
Fees and Expenses |
$ |
15,000.00 |
| Miscellaneous
|
$ |
5,000.00 |
| |
|
| Total |
$ |
32,165.70 |
*
Only represents fees to be paid by the registrant, selling shareholders will
pay their own legal fees.
Item
15. Indemnification of Directors and Officers
Article
Tenth of the registrant’s Certificate of Incorporation, as amended, provides
that, to the fullest extent permitted by the Delaware General Corporation
Law (the “DGCL”), as the same exists or as it may hereafter be amended, as
described below, no director of the registrant shall be personally liable
to the registrant or its shareholders for monetary damages for breach of fiduciary
duty as a director.
Article
5 of the registrant’s Bylaws further provides that the registrant shall, to
the maximum extent and in the manner permitted by the DGCL, as described below,
indemnify each of its directors and officers against expenses (including attorneys’
fees), judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with any proceeding, arising by reason of the fact
that such person is or was an agent of the registrant.
In
addition, the registrant has entered into indemnification agreements with
each of its directors and executive officers, and maintains officers’ and
directors’ liability insurance.
Subsection
(a) of Section 145 of the DGCL empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys’
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection
(b) of Section 145 of the DGCL empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by right of the corporation to procure
a judgment in its favor by reason of the fact that such person acted in any
of the capacities set forth above, against expenses (including attorneys’
fees) actually and reasonably incurred by him in connection with the defense
or settlement of such action or suit if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect to any
claim issue or matter as to which such person shall have been adjudged to
be liable to the corporation unless and only to the extent that the Court
of Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
II-1
Section
145 of the DGCL further provides that to the extent a director or officer
of a corporation has been successful on the merits or otherwise in the defense
of any such action, suit or proceeding referred to in subsections (a) and
(b) of Section 145 or in the defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys’ fees) actually
and reasonably incurred by him in connection therewith; that the indemnification
provided for by Section 145 shall not be deemed exclusive of any other rights
which the indemnified party may be entitled; that indemnification provided
by Section 145 shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of such person’s heirs, executors
and administrators; and empowers the corporation to purchase and maintain
insurance on behalf of a director or officer of the corporation against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liabilities under Section 145.
Section
102(b)(7) of the DGCL provides that a certificate of incorporation may contain
a provision eliminating or limiting the personal liability of a director to
the corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of the director (i) for any breach of the director’s duty of
loyalty to the corporation or its shareholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL or (iv) for any transaction from
which the director derived an improper personal benefit.
Item
16. Exhibits
| 5.1 |
|
Opinion of Davis
Polk & Wardwell.* |
| 23.1 |
|
Consent of Deloitte
& Touche LLP, independent auditors.* |
| 23.2 |
|
Consent of Davis
Polk & Wardwell (included with Exhibit 5.1). |
| 24.1 |
|
Power of Attorney
(included on the signature pages hereof). |
_________
* Filed herewith.
Item
17. Undertakings
The
undersigned Registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to include
any material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such information
in the Registration Statement;
(2)
That, for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide offering
thereof; and
(3)
To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
The
undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant’s
annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act
of 1934 that is incorporated by reference in the Registration Statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a
II-2
director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Menlo Park, State of California on May 1, 2003.
| |
E*TRADE GROUP, INC.
By: /s/ Leonard
C. Purkis
Name: Leonard C. Purkis
Title: Chief Financial Officer
|
POWER
OF ATTORNEY
The
undersigned officers and directors of E*TRADE Group, Inc., a Delaware corporation,
do hereby constitute and appoint Russell S. Elmer and Leonard C. Purkis, and
each one of them, the lawful attorneys-in-fact and agents with full power
and authority to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or any one of them, determine
may be necessary or advisable or required to enable said corporation to comply
with the Securities Act of 1933, as amended, and any rules or regulations
or requirements of the Securities and Exchange Commission in connection with
this Registration Statement. Without limiting the generality of the foregoing
power and authority, the powers granted include the power and authority to
sign the names of the undersigned officers and directors in the capacities
indicated below to this Registration Statement, to any and all amendments,
both pre-effective and post-effective, and supplements to this Registration
Statement, and to any and all instruments or documents filed as part of or
in conjunction with this Registration Statement or amendments or supplements
thereof, and each of the undersigned hereby ratifies and confirms all that
said attorneys and agents, or any one of them, shall do or cause to be done
by virtue hereof. This Power of Attorney may be signed in several counterparts.
IN
WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney
as of the date indicated.
Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration
Statement has been signed below by the following persons in the capacities
and on the dates indicated.
| Signature |
Title |
Date |
|
|
|
|
/s/
Mitchell H. Caplan
|
|
|
| Mitchell
H. Caplan |
President
and Chief Executive Officer
(Principal Executive Officer) |
May
1, 2003 |
| |
/s/
Leonard C. Purkis
|
|
|
| Leonard
C. Purkis |
Chief
Financial Officer
(Principal Financial and Accounting Officer) |
May
1, 2003 |
| |
/s/
William A. Porter
|
|
|
| William
A. Porter |
Chairman
Emeritus |
May
1, 2003 |
II-4
| |
|
|
|
|
|
| Peter
Chernin |
Director |
|
| |
|
|
|
|
|
| Vaughn
A. Clarke |
Director |
|
| |
|
|
/s/
Ronald D. Fisher
|
|
|
|
Ronald D. Fisher |
Director |
May
1, 2003 |
| |
|
|
/s/
William E. Ford
|
|
|
|
William E. Ford |
Director |
May
1, 2003 |
| |
|
|
/s/
George Hayter
|
|
|
|
George Hayter |
Non-executive
Chairman of the Board |
May
1, 2003 |
| |
|
|
|
|
|
| Michael
K. Parks |
Director |
|
| |
|
|
|
|
|
| C.
Cathleen Raffaeli |
Director |
|
| |
|
|
/s/
Lewis E. Randall
|
|
|
| Lewis
E. Randall |
Director |
May
1, 2003 |
| |
|
|
/s/
Lester C. Thurow
|
|
|
| Lester
C. Thurow |
Director |
May
1, 2003 |
| |
|
|
|
|
|
| Donna
L. Weaver |
Director |
|
| |
|
|
