As filed with the Securities and Exchange Commission on June 15, 2001
Registration No. 333-57316
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2 TO FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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E*TRADE GROUP, INC.
(Exact name of registrant as specified in its charter)
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Delaware 94-2844166
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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4500 Bohannon Drive
Menlo Park, California 94025
(650) 331-6000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Christos M. Cotsakos
Chairman and Chief Executive Officer
E*TRADE Group, Inc.
4500 Bohannon Drive
Menlo Park, California 94025
(650) 331-6000
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
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Copy to:
Bruce K. Dallas, Esq.
Davis Polk & Wardwell
1600 El Camino Real
Menlo Park, CA 94025
(650) 752-2000
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Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment that specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The information contained in this preliminary prospectus is not complete and
may be changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell and it is not soliciting an offer to buy
these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JUNE 15, 2001
PROSPECTUS
2,997,951 Shares
E*TRADE GROUP, INC.
Common Stock
This prospectus relates to the offer and sale from time to time of
2,997,951 shares of our common stock held by the stockholders named in this
prospectus.
The prices at which selling stockholders may sell the shares will be
determined by the prevailing market price for the shares or in negotiated
transactions. We will not receive any of the proceeds from the sale of the
shares.
The shares offered by this prospectus were originally issued in connection
with our acquisition of LoansDirect, Inc., a California corporation.
Our common stock is listed on the New York Stock Exchange under the symbol
"ET." On June 14, 2001, the closing price for the common stock was $6.49.
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Investing in these securities involves risks. See "Risk Factors" beginning
on page 3 of this prospectus.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
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The date of this prospectus is , 2001
You should rely only on the information contained in or incorporated by
reference in this prospectus. No one has been authorized to provide you with
different information. This prospectus is not an offer of these securities in
any state where the offer is not permitted. You should not assume that the
information contained in or incorporated by reference in this prospectus or in
any prospectus supplement is accurate as of any date other than the date on the
front of the document.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Any statements in this prospectus and in our filings with the Commission
incorporated by reference in this prospectus that are not statements of
historical information are forward-looking statements made pursuant to the safe
harbor provisions of the Private Litigation Reform Act of 1995. These
forward-looking statements, as well as other oral and written forward-looking
statements made by or on behalf of us from time to time, including statements
contained in our other filings with the Commission and our reports to
shareowners, involve known and unknown risks and assumptions about our business
and other factors which may cause our actual results in future periods to
differ materially from those expressed in any forward-looking statements. Any
such statement is qualified by reference to the risks and factors discussed
under "Risk Factors" beginning on page 3 of this prospectus, as well as in any
of our subsequent filings with the Commission. These reports and filings are
available from the Commission or may be obtained upon request from us. We
caution that the risks and factors discussed in this prospectus and in these
filings are not exclusive. We have no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or risks. New information, future events or risks may cause the
forward-looking events we discuss in this prospectus and in the filings with
the Commission we incorporate by reference in this prospectus not to occur.
E*TRADE GROUP, INC.
We, through our wholly-owned subsidiaries, including E*TRADE Securities,
Inc., TIR (Holdings) Limited and E*TRADE Bank, provide online financial
services and have established a popular, branded destination Web site for
self-directed investors. We offer financial products and services in the
following three primary categories:
o Domestic retail brokerage - our domestic retail brokerage products
and services include fully-automated stock, option, fixed income and
mutual fund order processing, online investment portfolio tracking,
and access to financial market news and information. Revenues from
these products and services were 71% of our net revenues in the
fiscal year ended September 30, 2000
o Banking - through our banking operations, we provide a wide range of
FDIC-insured and other banking products and services through the
Internet, telephones and ATMs. Revenues from these products and
services were 10% of our net revenues in the fiscal year ended
September 30, 2000.
o Global and institutional brokerage - our global brokerage products
and services are similar to those of our domestic retail brokerage
operations except that they are provided to foreign investors through
our international subsidiaries. Our institutional brokerage products
and services are provided to institutional investors as opposed to
retail investors, and revenues from these products and services were
13% of our net revenues in the fiscal year ended September 30, 2000.
In addition, we provide asset gathering and other services consisting
primarily of our mutual fund operations and stock option and stock purchase
plan services provided to corporations. Revenues from these asset gathering and
other services, together with certain corporate investing activities, were 6%
of our net revenues in the fiscal year ended September 30, 2000.
We provide our services 24 hours a day, seven days a week by means of the
Internet, touch-tone telephone (including interactive voice recognition) and
direct modem access. Our proprietary transaction-enabling system includes a
wide variety of functions and services that allow customers to open and monitor
investment accounts and to place orders for equity, option, mutual fund and
fixed income transactions. The primary components of our transaction-enabling
system include a graphical user interface, the session manager, the transaction
process monitor, the data manager, and the transaction processor. As our
proprietary transaction-enabling system is designed and
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proven to be a flexible, "front-end" system, we are able to integrate it with a
wide range of computing platforms used throughout the financial services
industry in executing electronic commerce transactions. We believe that our
proprietary technology can be adapted to provide transaction-enabling services
in the financial services industry, including, but not limited to, investment
banking, insurance, and correspondent clearing operations.
Our principal executive office is located at 4500 Bohannon Drive, Menlo
Park, California 94025. Our telephone number is (650) 331-6000. The address of
our web site is www.etrade.com. The information on our web site does not form
part of this prospectus. References to E*TRADE, "we", "us" and "our" in this
prospectus refer to E*TRADE Group, Inc. and its subsidiaries unless the context
requires otherwise. References to the "Bank" in this prospectus refer to
E*TRADE Bank.
RISK FACTORS
RISKS RELATING TO THE NATURE OF THE ONLINE FINANCIAL SERVICES BUSINESS
We face competition from competitors, some of whom have significantly greater
financial, technical, marketing and other resources, which could cause us to
lower our prices or to lose a significant portion of our market share
The market for financial services over the Internet is new, rapidly
evolving and intensely competitive. We expect competition to continue and
intensify in the future. We face direct competition from financial
institutions, brokerage firms, banks, mutual fund companies, Internet portals
and other organizations, including among others:
o American Express Company
o AOL Time Warner Inc.
o Ameritrade, Inc.
o Bank of America Corporation
o Charles Schwab & Co., Inc.
o CSFBdirect (formerly DLJ direct)
o J.P. Morgan Chase & Co.
o Citigroup Inc.
o Datek Online Holdings Corporation
o Fidelity Investments
o FleetBoston Financial Corporation
o Intuit Inc.
o Merrill Lynch, Pierce, Fenner & Smith Incorporated
o Microsoft MoneyCentral
o Morgan Stanley Dean Witter & Co.
o National Discount Brokers Corporation (which is owned by Deutsche
Bank)
o NetBank, Inc.
o PaineWebber Group, Inc. (which is owned by UBS AG)
o Salomon Smith Barney, Inc. (which is owned by Citigroup)
o TD Waterhouse Group, Inc.
o Wells Fargo & Company
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o WingspanBank.com (a division of First USA Bank, N.A.)
o Yahoo! Inc.
Many of our competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do. In
addition, many of our competitors offer a wider range of investment banking,
advisory and other financial services and products than we do, and thus may be
able to respond more quickly to new or changing opportunities, technologies and
customer preferences and requirements. Many of our competitors also have
greater name recognition and larger customer bases that could be leveraged,
thereby gaining market share from us. These competitors may conduct more
extensive promotional activities and offer better terms and lower prices to
customers than we do, possibly even sparking a price war in the online
financial services industry. Moreover, some of our competitors have established
cooperative relationships among themselves or with third parties to enhance
their services and products. It is possible that new competitors or alliances
among existing competitors may significantly reduce our market share.
General financial success within the financial services industry over the
past several years has strengthened existing competitors and may continue to
attract new competitors, such as software development companies, insurance
companies and others, as such companies expand their financial product lines.
Commercial banks and other financial institutions have become more competitive
with our brokerage operations by offering their customers certain corporate and
individual financial services traditionally provided by securities firms. The
current trend toward consolidation in the commercial banking industry could
further increase competition in all aspects of our business. While we cannot
predict the type and extent of competitive services that commercial banks and
other financial institutions ultimately may offer, we may be adversely affected
by such competition. To the extent our competitors are able to attract and
retain customers, our business or ability to grow could be adversely affected.
There can be no assurance that we will be able to compete effectively with
current or future competitors or that this competition will not significantly
harm our business.
The security of our computers or confidential customer information transmitted
over public networks could be breached, which could deter customers from using
our services and significantly damage our reputation
Because we rely heavily on electronic communications and secure
transaction processing in our securities, banking and ATM businesses, we must
protect our computer systems and network from physical break-ins, security
breaches and other disruptions caused by unauthorized access. We must also
provide for the secure transmission of confidential information over public
networks. The open nature of the Internet makes protecting against these
threats more difficult. Unauthorized access to our computers could jeopardize
the security of information stored in and transmitted through our computer
systems and network, which could harm our ability to retain or attract
customers, damage our reputation and subject us to litigation and financial
losses. We have in the past, and could in the future, be subject to denial of
service, vandalism and other attacks on our systems. We rely on encryption and
authentication technology, including cryptography technology licensed from RSA
Data Security, Inc., to provide secure transmission of confidential information
over public networks. Advances in computer and decryption capabilities or other
developments could compromise the methods we use to protect customer
transaction data, which could harm our ability to retain or attract customers.
In addition, we must guard against damage by persons with authorized access to
our computer systems. The security and encryption technology and the
operational procedures we implement to prevent break-ins, damage and failures
may be unable to prevent future disruptions of our operations. Our insurance
coverage may be insufficient to cover losses that may result from these events.
As a significant portion of our revenues come from online investing services,
downturns in the securities industry have impacted and could further
significantly impact our business, including by reducing transaction volumes
and margin borrowing and increasing 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. We, like other financial services firms,
are directly affected by economic and political conditions, broad trends in
business and finance and changes in volume and price levels of securities and
futures transactions. The U.S. securities markets are characterized by
considerable fluctuation and downturns in
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these markets have harmed our operating results, including our transaction
volume and the rate of growth of new accounts, and could continue to do so in
the future. Significant downturns in the U.S. securities markets occurred in
October 1987 and October 1989, and a significant downturn has been occurring
since March 2000. Consequently, transaction volume has decreased industry-wide
including a substantial decrease in the past quarter, and many broker-dealers,
including E*TRADE Securities, have been adversely affected. The decrease in
transaction volume has been more significant with respect to our less active
customers, increasing our dependence on our more active Power E*TRADE customers
who receive more favorable pricing based on their transaction volume. When
transaction volume is low, our operating results are harmed in part because
certain of our overhead costs remain relatively fixed. We cannot assure you
that U.S. securities markets will not continue to be volatile or that prices
and transaction volumes will not continue to move downward, either of which
could harm our business going forward. Some of our competitors with more
diverse product and service offerings might withstand such a downturn in the
securities industry better than we would. See "We face competition from
competitors, some of whom have significantly greater financial, technical,
marketing and other resources, which could cause us to lower our prices or to
lose a significant portion of our market share."
Downturns in the securities markets increase the risk that parties to margin
lending transactions with us will fail to honor their commitments and that the
value of the collateral we hold in connection with those transactions will not
be adequate, increasing our risk of losses from our margin lending activities
We sometimes allow customers to purchase securities on margin, and we are
therefore subject to risks inherent in extending credit. This risk is
especially great when the market is rapidly declining and the value of the
collateral we hold could fall below the amount of a customer's indebtedness.
Under specific regulatory guidelines, any time we borrow or lend securities, we
must correspondingly disburse or receive cash deposits. If we fail to maintain
adequate cash deposit levels at all times, we run the risk of loss if there are
sharp changes in market values of many securities and parties to the borrowing
and lending transactions fail to honor their commitments. Any such losses could
harm our financial position and results of operations.
Our inability to retain and hire skilled personnel and senior management could
seriously harm our ability to maintain and grow our business
Over the past year, we hired a significant number of additional skilled
personnel, including persons with experience in the computer, brokerage and
banking industries, and persons with Series 7 or other broker-dealer licenses.
If the number of accounts and transaction volume increases significantly over
current volume, there could be a shortage of qualified and, in some cases,
licensed personnel that we may then be seeking to hire which could cause a
backlog in the handling of banking transactions or the processing of brokerage
orders that need review, and that could harm our business, financial condition
and operating results. Competition for such personnel is intense when trading
volumes are high, and there can be no assurance that we will be able to retain
or hire technical persons or licensed representatives in the future.
In addition, our future success depends to a significant degree on the
skills, experience and efforts of our Chief Executive Officer, President and
Chief Operating Officer, Chief Financial Officer, and other key management
personnel. The loss of the services of any of these individuals could
compromise our ability to effectively operate our business.
If our ability to correctly process customer transactions is slowed or
interrupted, we could be subject to customer litigation and our reputation
could be harmed
We process customer transactions mostly through the Internet, online
service providers, touch-tone telephones and our computer systems, and we
depend heavily on the integrity of the communications and computer systems
supporting these transactions, including our internal software programs and
computer systems. A degradation or interruption in the operation of these
systems could subject us to significant customer litigation and could
materially harm our reputation. Our systems or any other systems in the
transaction process could slow down significantly or fail for a variety of
reasons including:
o undetected errors in software programs or computer systems,
o our inability to effectively resolve any errors in our internal
software programs or computer systems once they are detected, or
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o heavy stress placed on systems in the transaction process during
certain peak trading times.
If our systems or any other systems in the transaction process slow down
or fail even for a short time, our customers could suffer delays in transaction
processing, which could cause substantial customer losses and may subject us to
claims for these losses or to litigation. The NASDR defines a "system failure"
as a shutdown of our mission critical systems (defined as those necessary for
the acceptance and execution of online securities orders) which causes the
customers' use of these systems to equal or exceed system capacity during
regular market hours, or a shutdown of any system application necessary for the
acceptance and execution of online securities orders for a period of 15
continuous minutes that affects 25% or more of the customers on the system from
effecting securities transactions during regular market hours. We have
experienced such systems failures and degradation in the past. System failures
and degradations could occur with respect to U.S. markets or foreign markets
where we must implement new transaction processing infrastructures. To date,
during our systems failures, we were able to take orders by telephone; however,
with respect to our brokerage transactions, only associates with securities
brokers' licenses can accept telephone orders. An adequate number of such
associates may not be available to take customer calls in the event of a future
systems failure, and we may not be able to increase our customer service
personnel and capabilities in a timely and cost-effective manner. To promote
customer satisfaction and protect our brand name, we have, on certain
occasions, compensated customers for verifiable losses from such failures.
Increases in prevailing and anticipated interest rates would reduce the value
of the Bank's fixed rate investments and may decrease the Bank's profitability
by increasing the expense of variable rate interest-bearing liabilities without
a corresponding increase in income from assets bearing a fixed rate of interest
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 (and the yield curve) could reduce
the value of the Bank's financial assets and thereby reduce net interest
income. Fixed-rate investments, mortgage-backed and related securities and
mortgage loans generally decline in value as interest rates rise. Many factors
cause changes in interest rates, including governmental monetary policies and
domestic and international economic and political conditions.
The Bank attempts to mitigate this interest rate risk 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 move
either directionally or proportionately as intended. SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, which the Company adopted on
October 1, 2000, requires that the hedge ineffectiveness, or the change 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 new reporting requirement.
If we are unsuccessful in managing the effects of changes in interest
rates, our financial condition and results of operations could suffer.
The Bank's asset diversification to include higher yielding investments which
carry a higher inherent risk of default in its portfolio may increase the risk
of charge-offs which could reduce our profitability
As the Bank diversifies its investment portfolio through purchases of new
higher yielding investment classes, we will have to manage assets that carry a
higher inherent risk of default than experienced with our existing portfolio.
Consequently, the level of charge-offs associated with these assets may be
higher than previously experienced. If expectations of future charge-offs
increase, a simultaneous increase in the amount of our loss reserves would be
required. The increased level of charge-offs recorded to meet additional
reserve requirements could harm the results of our operations if those higher
yields do not cover the charge-offs.
We rely on a number of third parties to process our transactions, and their
inability to expand their technology to meet our needs, or our inability to
expand our own technology in the event of a significant increase in demand,
could impair our ability to acquire new customers and otherwise grow our
business
We rely on a number of third parties to process our transactions,
including online and Internet service providers, back office processing
organizations, other service providers and market-makers, all of which may need
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to expand the scope of the operations they perform for us. Any backlog caused
by a third party's inability to expand sufficiently to meet our needs could
harm our business. In addition, in the past rapid growth in the use of our
services has strained our own ability to adequately expand technologically to
meet increased demand.
If we are unable to quickly introduce new products and services that satisfy
changing customer needs, we could lose customers and have difficulty attracting
new customers
Our future profitability depends significantly on our ability to develop
and enhance our services and products. There are significant challenges to such
development and enhancement, including technical risks. There can be no
assurance that we will be successful in achieving any of the following:
o effectively using new technologies,
o adapting our services and products to meet emerging industry
standards,
o developing, introducing and marketing service and product
enhancements, or
o developing, introducing and marketing new services and products to
meet customer demand.
Additionally, these new services and products, if they are developed, may
not adequately meet the requirements of the marketplace or achieve market
acceptance. If we are unable to develop and introduce enhanced or new services
and products quickly enough to respond to market or customer requirements, or
if they do not achieve market acceptance, our business could be harmed.
If our Business Solutions Group products fail or produce inaccurate results we
could be subject to litigation and our reputation may be harmed
BSG provides products and services to assist companies to work effectively
with their own professional legal, accounting and tax advisors to comply with
the laws, regulations, and rules pertaining to equity compensation. BSG
provides products and services that, by their nature, are highly technical and
intricate, and that deal with issues which could result in significant
accounting and tax reporting inaccuracies. If BSG's efforts to protect itself
from liability arising from product design limitations and/or potential human
error prove inadequate, these inaccuracies could subject BSG to customer
litigation and damage our reputation.
The size of our market and our results of operations depend heavily upon the
growing acceptance of the Internet as a commercial marketplace for financial
services
Because the electronic provision of financial services is currently the
most significant part of our business, sales of most of our services and
products will depend on consumers continuing to adopt the Internet as a method
of doing business and, in particular, as a method of obtaining financial
services. Several factors could adversely affect the acceptance and growth of
online commerce. For example, there can be no assurance that the Internet
infrastructure will continue to be able to support the demands placed on it by
growing usage. In addition, the Internet could be adversely affected by the
slow development or adoption of standards and protocols to handle increased
Internet activity or by increased governmental regulation. Moreover, critical
Internet issues including privacy, security, reliability, cost, ease of use,
accessibility and quality of service remain unresolved, which could negatively
affect the growth of Internet use or commerce on the Internet.
Even if Internet commerce grows generally, the online market for financial
services could grow more slowly or even shrink in size. Adoption of online
commerce for financial services by individuals who have relied upon traditional
delivery channels in the past will require such individuals to accept new and
different methods of conducting business Consumers who trade with traditional
brokerage firms, or even discount brokers, may be reluctant or slow to change
to obtaining brokerage services over the Internet. Also, concerns about
security and privacy on the Internet may hinder the growth of online investing
and banking, which could harm our business.
If our international efforts are not successful, our business growth will be
harmed and our resources will not have been used efficiently
One component of our strategy is a planned increase in efforts to attract
more international customers. To date, we have limited experience in providing
brokerage services internationally, and E*TRADE Financial
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Corporation, referred to in this prospectus as ETFC, has had only limited
experience providing banking services to customers outside the United States.
There can be no assurance that we and/or our international licensees will be
able to market our branded services and products successfully 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. Our
international expansion could be limited by the compliance requirements of
other regulatory jurisdictions, including the EU's Privacy Directive regulating
the use and transfer of customer data. We intend to rely primarily on local
third parties and our subsidiaries for regulatory compliance in foreign
jurisdictions.
In addition, there are certain risks inherent in doing business in
international markets, particularly in the heavily regulated brokerage and
banking industries, such as:
o unexpected changes in regulatory requirements and trade barriers,
o difficulties in staffing and managing foreign operations,
o the level of investor interest in cross-border trading,
o authentication of online customers,
o political instability,
o fluctuations in currency exchange rates,
o reduced protection for intellectual property rights in some
countries,
o seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world,
o the level of adoption of the Internet in international markets, and
o potentially adverse tax consequences.
Any of the foregoing could harm our international operations. In addition,
because some of these international markets are served through license
arrangements with others, we rely upon these third parties for a variety of
business and regulatory compliance matters. We have limited control over the
management and direction of these third parties. We run the risk that their
action or inaction could harm our operations and/or our reputation.
Additionally, certain of our international licensees have the right to grant
sublicenses. Generally, we have less control over sublicensees than we do over
licensees. As a result, the risk to our operations and goodwill is higher.
Our failure to successfully integrate the companies that we acquire into our
existing operations could harm our business.
We recently acquired ETFC, TIR (Holdings) Limited, E*TRADE Access,
Electronic Investing Corporation, PrivateAccounts Inc., renamed E*TRADE
Advisory Services, Inc. on January 2, 2001, E*TRADE Technologies, LoansDirect
and several of our international affiliates. We may also acquire other
companies or technologies in the future, and we regularly evaluate such
opportunities. Acquisitions entail numerous risks, including, but not limited
to:
o difficulties in the assimilation and integration of acquired
operations and products,
o diversion of management's attention from other business concerns,
o failure to achieve anticipated cost savings,
o amortization of acquired intangible assets, with the effect of
reducing our reported earnings, and
o potential loss of key associates of acquired companies.
No assurance can be given as to our ability to integrate successfully any
operations, technology, personnel, services or new businesses or products that
might be acquired in the future. Failure to successfully assimilate acquired
organizations could harm our business. In addition, there can be no assurance
that we will realize a positive return on any of these investments.
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Any failure to maintain our relationships with strategic partners or loss in
value of the investments we make could harm our business
We have established a number of strategic relationships with online and
Internet service providers, as well as software and information service
providers and retail companies. There can be no assurance that any such
relationships will be maintained, or that if they are maintained, they will be
successful or profitable. Additionally, we may not be able to develop new
relationships of this type in the future.
We also make investments, either directly or through affiliated private
investment funds, in equity securities of other companies without acquiring
control of those companies. There may be no public market for the securities of
the companies in which we invest, and we may not be able to sell these
securities at a profit, or at all.
If we fail to protect our intellectual property rights or face a claim of
intellectual property infringement by a third party, we could lose our
intellectual property rights, be liable for significant damages, or incur
significant costs and expenses regardless of the merits of the claims against
us
Our ability to compete effectively is dependent to a significant degree on
our brand and proprietary technology. We rely primarily on copyright, trade
secret and trademark law to protect our technology and our brand. Effective
trademark protection may not be available for our trademarks. Although we have
registered the trademark "E*TRADE" in the United States and a number of other
countries, and have other registered trademarks, there can be no assurance that
we will be able to secure significant protection for these trademarks. Our
competitors or others may adopt product or service names similar to "E*TRADE,"
thereby impeding our ability to build brand identity and possibly leading to
customer confusion. Our inability to adequately protect the name "E*TRADE"
could harm our business. Despite any precautions we take, a third party may be
able to copy or otherwise obtain and use our software or other proprietary
information without authorization or to develop similar software independently.
Policing unauthorized use of our technology is made especially difficult by the
global nature of the Internet and difficulty in controlling the ultimate
destination or security of software or other data transmitted on it. The laws
of other countries may afford us little or no effective protection for our
intellectual property. There can be no assurance that the steps we take will
prevent misappropriation of our technology or that agreements entered into for
that purpose will be enforceable. In addition, litigation may be necessary in
the future to:
o enforce our intellectual property rights,
o protect our trade secrets,
o determine the validity and scope of the proprietary rights of others,
or
o defend against claims of infringement or invalidity.
Such litigation, whether successful or unsuccessful, could result in
substantial costs and divert resources, either of which could harm our
business.
We have received in the past, and may receive in the future, notices of
claims of infringement of other parties' proprietary rights. There can be no
assurance that claims for infringement or invalidity -- or any indemnification
claims based on such claims--will not be asserted or prosecuted against us. Any
such claims, with or without merit, could be time consuming and costly to
defend or litigate, divert our attention and resources or require us to enter
into royalty or licensing agreements. There can be no assurance that such
licenses would be available on reasonable terms, if at all.
RISKS RELATING TO THE REGULATION OF OUR BUSINESS
If changes in government regulation favor our competition or restrict our
business practices, our ability to attract customers and our profitability may
suffer
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. The banking industry in the
United States is subject to extensive federal regulation. Broker-dealers are
subject to regulations covering all aspects of the securities business,
including:
o sales methods,
9
o recommendations of securities,
o trading practices among broker-dealers,
o execution of customers' orders,
o use and safekeeping of customers' funds and securities,
o capital structure,
o record keeping,
o advertising,
o conduct of directors, officers and employees, and
o supervision.
Because we are a self-clearing broker-dealer, we have to comply with many
additional laws and rules. These include rules relating to possession and
control of customer funds and securities, margin lending and execution and
settlement of transactions. Our ability to comply with these rules depends
largely on the establishment and maintenance of a qualified compliance system.
Similarly, E*TRADE Group Inc. and ETFC, as savings and loan holding
companies, and the 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
aspects of the banking business, including lending practices, safeguarding
deposits, capital structure, record keeping, and conduct and qualifications of
personnel.
Because of our international presence, we are also subject to the
regulatory controls of each specific country in which we conduct business.
Because we operate in an industry subject to extensive regulation, the
competitive landscape in our industry can change significantly as a result of
new regulation, changes in existing regulation, or changes in the
interpretation or enforcement of existing laws and rules. For example, in
November 1999, the Gramm-Leach-Bliley Act was enacted into law. This act
reduces the legal barriers between banking, securities and insurance companies,
and will make it easier for financial holding companies to compete directly
with our securities business, as well as for our competitors in the securities
business to diversify their revenues and attract additional customers through
entry into the banking and insurance businesses. The Gramm-Leach-Bliley Act may
have a material impact on the competitive landscape that we face.
There can be no assurance that federal, state or foreign agencies will not
further regulate our business. We anticipate that we may be required to comply
with record keeping, data processing and other regulatory requirements as a
result of proposed federal legislation or otherwise. We may also be subject to
additional regulation as the market for online commerce evolves. Because of the
growth in the electronic commerce market, Congress has held hearings on whether
to regulate providers of services and transactions in the electronic commerce
market. As a result, federal or state authorities could enact laws, rules or
regulations affecting our business or operations. We may also be subject to
federal, state or foreign money transmitter laws and state and foreign sales or
use tax laws. If such laws are enacted or deemed applicable to us, our business
or operations could be rendered more costly or burdensome, less efficient or
even impossible. Any of the foregoing could harm our business, financial
condition and operating results.
If we fail to comply with applicable securities and banking regulations, we
could be subject to disciplinary actions, damages, penalties or restrictions
that could significantly harm our business
The SEC, the NASDR or other self-regulatory organizations and state
securities commissions can censure, fine, issue cease-and-desist orders or
suspend or expel a broker-dealer or any of its officers or employees. The OTS
may take similar action with respect to our banking activities. Our ability to
comply with all applicable laws and rules is largely dependent on our
10
establishment and maintenance of a system to ensure such compliance, as well as
our ability to attract and retain qualified compliance personnel. Our growth
has placed considerable strain on our ability to ensure such compliance. We
could be subject to disciplinary or other actions due to claimed noncompliance
in the future, which could harm our business.
If we do not maintain the capital levels required by regulators, we may be
fined or forced out of business
The SEC, NASDR, OTS and various other regulatory agencies have stringent
rules with respect to the maintenance of specific levels of net capital by
securities broker-dealers and regulatory capital by banks. Net capital is the
net worth of a broker or dealer (assets minus liabilities), less deductions for
certain types of assets. If a securities firm fails to maintain the required
net capital it may be subject to suspension or revocation of registration by
the SEC and suspension or expulsion by the NASDR, and could ultimately lead to
the firm's liquidation. In the past, our broker-dealer subsidiaries have
depended largely on capital contributions by us in order to comply with net
capital requirements. If such net capital rules are changed or expanded, or if
there is an unusually large charge against net capital, operations that require
the intensive use of capital 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. A large operating loss
or charge against net capital could adversely affect our ability to expand or
even maintain our present levels of business, which could harm our business.
The table below summarizes the minimum net capital requirements for our
domestic broker-dealer subsidiaries as of March 31, 2001 (in thousands):
Required Net Excess
Net Capital Capital Net Capital
------------ ----------- ------------
E*TRADE Securities Incorporated.............. $ 48,123 $414,103 $ 365,980
E*TRADE Institutional Securities, Inc........ $ 250 $ 2,779 $ 2,529
E*TRADE Investor Select, Inc................. $ 5 $ 230 $ 225
Marquette Securities, Inc.................... $ 250 $ 795 $ 545
E*TRADE Capital Markets, Inc................. $ 174 $ 14,126 $ 13,952
E*TRADE Canada Securities Corporation........ $ 56 $ 192 $ 136
Similarly, banks, such as the Bank, are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could harm
a bank's operations and financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, a bank must meet
specific capital guidelines that involve quantitative measures of a bank's
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. A bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about the strength
of components of the bank's capital, risk weightings of assets and
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 1 capital to average assets. To be
categorized as well capitalized, a bank must maintain minimum total risk-based,
Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following
table.
The table below summarizes the capital adequacy requirements for the Bank
as of March 31, 2001 (dollars in thousands):
To Be Well
Capitalized Under
Prompt Corrective
Actual Action Provisions
--------------------- ---------------------
Amount Ratio Amount Ratio
------------ ------- ------------ --------
Core Capital (to adjusted tangible assets)......... $682,943 5.66% >$ 603,741 > 5.0%
Tier 1 Capital (to risk weighted assets)........... $682,943 11.57% >$ 354,124 > 6.0%
Total Capital (to risk weighted assets)............ $696,595 11.80% >$ 590,206 > 10.0%
11
Restrictions on the ability of or decreased willingness of third parties to
make payments for order flow could reduce our profitability
Order flow revenue is comprised of rebate income from various market
makers and market centers for processing transactions through them. There can
be no assurance that payments for order flow will continue to be permitted by
the SEC, the NASDR or other regulatory agencies, courts or governmental units.
In addition, the listed marketplaces other than Nasdaq moved from trading using
fractional share prices to trading using decimals in January 2001 and the
Nasdaq initiated decimalization in March 2001. With the advent of
decimalization, certain market makers have announced plans to reduce payments
for order flow, while others are taking a "wait and see" approach. As a
majority of our order flow revenues is derived from Nasdaq listed securities,
the impact of decimalization during the quarter ended March 31, 2001 has not
been significant, but the impact of decimalization on future revenues cannot be
accurately predicted at this time, and a general decrease in these revenues is
expected. Further, there can be no assurance that we will be able to continue
our present relationships and terms for payments for order flow. Loss of any or
all of these revenues could harm our business.
Regulatory review of our advertising practices could hinder our ability to
operate our business and result in fines and other penalties
We have initiated an aggressive marketing campaign designed to bring brand
name recognition to E*TRADE. All marketing activities by E*TRADE Securities are
regulated by the NASDR, and all marketing materials must be reviewed by an
E*TRADE Securities Series 24 licensed principal prior to release. The NASDR has
in the past asked us to revise certain marketing materials. We are currently
the subject of a formal NASDR investigation and an informal SEC inquiry into
our advertising practices. The NASDR can impose certain penalties for
violations of its advertising regulations, including:
o censures or fines,
o suspension of all advertising,
o the issuance of cease-and-desist orders, or
o 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.
If we were to solicit orders from our customers or make investment
recommendations, we would become subject to additional regulations that could
be burdensome and subject us to fines and other penalties
We do not currently solicit orders from our customers or make investment
recommendations. However, if we were to engage in such activities, we would
become subject to additional rules and regulations governing, among other
things, sales practices and the suitability of recommendations to customers.
Compliance with these regulations could be burdensome, and, if we fail to
comply, we could be subject to fines and other penalties. We are continuing to
development technology, through a joint venture, that may enable us to provide
financial advice for online investors in the future.
Due to the increasing popularity of the Internet, laws and regulations may be
passed dealing with issues such as user privacy, pricing, content and quality
of products and services and those regulations could adversely affect the
growth of the online financial services industry
As required by the Gramm-Leach-Bliley Act, the SEC and OTS have recently
adopted regulations on financial privacy which will take effect in July 2001
that will require E*TRADE Securities and the Bank to notify consumers about the
circumstances in which they may share consumers' personal information with
unaffiliated third parties and to give consumers the right to prohibit such
information sharing in specified circumstances. Although E*TRADE Securities and
the Bank already provide such opt-out rights in our privacy policies, the
regulations will require us to modify the text and the form of presentation of
our privacy policies and to incur additional expense to ensure ongoing
compliance with the regulations.
12
In addition, several recent reports have focused attention on the online
brokerage industry. For example, the New York Attorney General investigated the
online brokerage industry and issued a report in November 1999, citing consumer
complaints about delays and technical difficulties in companies conducting
online stock trading. SEC Commissioner Laura Unger also issued a report in
November 1999 on issues raised by online brokerage, including suitability and
marketing issues. Most recently, the United States General Accounting Office
issued a report citing a need for better investor protection information on
brokers' Web sites and, on January 25, 2001, the SEC issued a report
summarizing its findings and recommendations following an examination of
broker-dealers offering online trading.
Increased attention focused upon these issues could hurt the growth of the
online financial services industry, which could, in turn, decrease the demand
for our services or could otherwise harm our business.
Due to our acquisition of ETFC, we are subject to regulations that could
restrict our ability to take advantage of good business opportunities and that
may be burdensome to comply with
Upon the completion of our acquisition of ETFC and its subsidiary, the
Bank, on January 12, 2000, we became subject to regulation as a savings and
loan holding company. As a result, 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 power over ETFC and us, including
the ability to issue cease-and-desist orders, up to and including forcing
divestiture of the Bank, and civil money penalties, for violating the Savings
and Loan Holding Company Act. In addition, under the Graham-Leach-Bliley Act,
our activities are now restricted to activities that are financial in nature
and certain real estate-related activities. We may also make merchant banking
investments in companies whose activities are not financial in nature, if those
investments are engaged in for the purpose of appreciation and ultimate resale
of the investment, and we do not manage or operate the company. Such merchant
banking investments may be subject to maximum holding periods and special
recordkeeping 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 interpreted these
provisions. Even if all of our existing activities and investments are
permissible, under the new legislation we will be constrained in pursuing
future new activities that are not financial in nature. We are also limited in
our ability to invest in other savings and loan holding companies. These
restrictions could prevent us from pursuing certain activities and transactions
that could be beneficial to us.
In addition to regulation of us and ETFC as savings and loan holding
companies, federal savings banks such as the Bank are subject to extensive
regulation of their activities and investments, their capitalization, their
risk management policies and procedures, and their relationship with affiliated
companies. In addition, as a condition to approving our acquisition of ETFC,
the OTS imposed various notice and other requirements, primarily a requirement
that the Bank obtain prior approval from the OTS of any future material changes
to the Bank's business plan. These regulations and conditions, and our
inexperience with them, could affect our ability to realize synergies from the
acquisition, and 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.
We may incur costs to avoid investment company status and our business would
suffer significant harm if we were deemed to be an investment company
We may incur significant costs to avoid investment company status and may
suffer other adverse consequences if we are deemed to be an investment company
under the Investment Company Act of 1940, commonly referred to as the 1940 Act.
A company may be deemed to be an investment company if it owns investment
securities with a value exceeding 40% of its total assets, subject to certain
exclusions. After giving effect to the sale of 6% convertible subordinated
notes, we will have substantial short-term investments until the net proceeds
from the sale can be deployed. In addition, we and our subsidiaries have made
minority equity investments in other companies that may constitute investment
securities under the 1940 Act. In particular, many of our publicly-traded
equity investments, which are owned directly or indirectly by us or through
related venture funds, are deemed to be investment securities. Although our
investment securities currently comprise less than 40% of our total assets, the
value of these minority investments has fluctuated in the past, and substantial
appreciation in some of these investments or a
13
decline in our total assets may, from time to time, cause the value of our
investment securities to exceed 40% of our total assets. These factors may
result in us being treated as an "investment company" under the 1940 Act.
We believe we are primarily engaged in a business other than investing,
reinvesting, owning, holding, or trading securities for our account and,
therefore, are not an investment company within the meaning of the 1940 Act.
However, in the event that the 40% limit were to be exceeded (including through
fluctuations in the value of our investment securities), we may need to reduce
our investment securities as a percentage of our total assets. This reduction
can be attempted in a number of ways, including the sale of investment
securities and the acquisition of non-investment security assets, such as cash,
cash equivalents and U.S. government securities. If we sell investment
securities, we may sell them sooner than we intended. These sales may be at
depressed prices and we may never realize anticipated benefits from, or may
incur losses on, these investments. Some investments may not be sold due to
normal contractual or legal restrictions or the inability to locate a suitable
buyer. Moreover, we may incur tax liabilities if we sell these assets. We may
also be unable to purchase additional investment securities that may be
important to our operating strategy. If we decide to acquire non-investment
security assets, we may not be able to identify and acquire suitable assets,
and will likely realize a lower return on any such investments.
If we were deemed to be an investment company, we could become subject to
substantial regulation under the 1940 Act with respect to our capital
structure, management, operations, affiliate transactions and other matters. As
a consequence, we could be barred from engaging in business or issuing our
securities as we have in the past and might be subject to civil and criminal
penalties for noncompliance. In addition, some of our contracts might be
voidable, and a court-appointed receiver could take control of us and liquidate
our business in certain circumstances.
RISKS RELATING TO OWNING OUR STOCK
Our historical quarterly results have fluctuated and do not reliably indicate
future operating results
We do not believe that our historical operating results should be relied
upon as an indication of our future operating results. We expect to experience
large fluctuations in future quarterly operating results that may be caused by
many factors, including the following:
o fluctuations in the fair market value of our equity investments in
other companies, including through existing or future private
investment funds managed by us,
o fluctuations in interest rates, which will impact our investment and
loan portfolios,
o changes in trading volume in securities markets,
o the success of, or costs associated with, acquisitions, joint
ventures or other strategic relationships,
o changes in key personnel,
o seasonal trends,
o purchases and sales of securities and other assets as part of the
Bank's portfolio restructuring efforts,
o customer acquisition costs, which may be affected by competitive
conditions in the marketplace,
o the timing of introductions or enhancements to online financial
services and products by us or our competitors,
o market acceptance of online financial services and products,
o domestic and international regulation of the brokerage, banking and
Internet industries,
o accounting for derivative instruments and hedging activities,
o changes in domestic or international tax rates,
o changes in pricing policies by us or our competitors,
o fluctuation in foreign exchange rates, and
o changes in the level of operating expenses to support projected
growth.
14
We have also experienced fluctuations in the average number of customer
transactions per day. Thus, the rate of growth in customer transactions at any
given time is not necessarily indicative of future transaction activity.
We have incurred losses in the past and we cannot assure you that we will
achieve profitability
We have a long history of incurring operating losses in each fiscal year
and we may incur operating losses in the future. We incurred net losses of
$402,000 in fiscal 1998 and $56.8 million in fiscal 1999. Although we achieved
profitability in fiscal 2000 due in part to sales of investment securities, we
cannot assure you that profitability will be sustained.
The market price of our common stock may continue to be volatile which could
cause litigation against us and the inability of shareowners to resell their
shares at or above the prices at which they acquire them
Since January 1, 2000, the price per share of our common stock has ranged
from a high of $15.38 to a low of $5.32. The market price of our common stock
has been, and is likely to continue to be, highly volatile and subject to wide
fluctuations due to various factors, many of which may be beyond our control,
including:
o quarterly variations in operating results,
o volatility in the stock market,
o volatility in the general economy,
o changes in interest rates,
o announcements of acquisitions, technological innovations or new
software, services or products by us or our competitors, and
o changes in financial estimates and recommendations by securities
analysts.
In addition, there have been large fluctuations in the prices and trading
volumes of securities of many technology, Internet and financial services
companies. This volatility is often unrelated or disproportionate to the
operating performance of these companies. Broad market and industry factors may
decrease the market price of our common stock. In the past, volatility in the
market price of a company's securities has often led to securities class action
litigation. Such litigation could result in substantial costs 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 associates, our access to capital and
other aspects of our business, which also could 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 for various purposes,
including to expand our technology resources, to hire additional associates, to
make acquisitions or to increase the Bank's total assets or deposit base.
Additional financing 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 result of
our issuing securities could be to dilute the value of shares of our common
stock and cause the market price to fall.
MARKET FOR OUR COMMON EQUITY
The following table shows the high and low sale prices of our common stock
as reported by the Nasdaq National Market or the New York Stock Exchange, as
applicable (we relisted from the Nasdaq National Market to the New York Stock
Exchange in January 2001), for the periods indicated.
High Low
-------- -------
Fiscal 1999:
First Quarter.........................................$ 16.25 $ 2.50
Second Quarter........................................$ 33.22 $12.74
15
Third Quarter.........................................$ 72.25 $29.38
Fourth Quarter........................................$ 42.63 $21.31
Fiscal 2000:
First Quarter.........................................$ 30.00 $21.63
Second Quarter........................................$ 34.25 $19.19
Third Quarter.........................................$ 31.19 $13.13
Fourth Quarter........................................$ 20.19 $13.19
Quarter ended December 31, 2000.......................$ 16.50 $ 6.66
Quarter ended March 31, 2001..........................$ 15.38 $ 6.35
Quarter ended June 30, 2001 (through June 14).........$ 10.20 $ 5.32
PLAN OF DISTRIBUTION
We are registering for resale all 2,997,951 shares of common stock, par
value of $0.01 per share, on behalf of current stockholders, a list of whom is
set forth in this prospectus under "Selling Stockholders," or pledgees, donees,
transferees or other successors in interest that receive those shares as a
gift, partnership distribution or other non-sale related transfer, referred to
in this prospectus as the selling stockholders. We will receive no proceeds
from this offering. All of the shares were originally issued by us in
connection with our acquisition of all of the outstanding shares of
LoansDirect, Inc., a California corporation.
The selling stockholders may distribute shares of common stock from time
to time as follows (if at all):
o to or through underwriters, brokers or dealers;
o directly to one or more other purchasers;
o through agents on a best-efforts basis; or
o otherwise through a combination of any such methods of sale.
If a selling stockholder sells shares of common stock through
underwriters, dealers, brokers or agents, those underwriters, dealers, brokers
or agents may receive compensation in the form of discounts, concessions or
commissions from the selling stockholder and/or the purchasers of the notes or
shares of common stock.
The shares of common stock may be sold from time to time:
o in one or more transactions at a fixed price or prices, which
may be changed;
o at market prices prevailing at the time of sale;
o at prices related to such prevailing market prices;
o at varying prices determined at the time of sale; or
o at negotiated prices.
These sales may be effected in transactions:
o on any national securities exchange or quotation service on
which our common stock may be listed or quoted at the time of
sale;
o in the over-the-counter market;
16
o in block transactions in which the broker or dealer so engaged
will attempt to sell the shares of common stock as agent but may
position and resell a portion of the block as principal to
facilitate the transaction, or in crosses, in which the same
broker acts as an agent on both sides of the trade;
o in transactions otherwise than on such exchanges or services or
in the over-the-counter market;
o through the writing of options; or
o through other types of transactions.
In connection with sales of the common stock or otherwise, the selling
stockholder may enter into hedging transactions with brokers-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 stockholder 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 stockholder 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 stockholders for purposes of this
prospectus. The selling stockholder may sell short the common stock and may
deliver this prospectus in connection with such short sales and use the shares
of common stock covered by the prospectus to cover such 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.
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. There are currently no agreements,
arrangements or understandings with respect to the sale of any of the shares
offered hereby.
Selling stockholders 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 such underwriters, dealers, brokers or agents may
be deemed to be underwriting discounts and commissions under the Securities
Act.
The selling stockholders and any other person participating in a
distribution of the shares of common stock will be subject to applicable
provisions of the Exchange Act of 1934, as amended, referred to in this
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
stockholders 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 stockholders will be responsible for any fees, disbursements
and expenses of any counsel for the selling stockholders. 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 and discounts, if any, attributable to the
sales of the shares will be borne by the selling stockholders. The selling
stockholders may agree to indemnify any broker-dealer or agent that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act. We will
indemnify the selling stockholders against claims arising out of any untrue
statement of a material fact contained in
17
the registration statement of which this prospectus constitutes a part or any
omission to state therein a material fact necessary in order to make the
statement made therein not materially misleading.
We have undertaken to keep the registration statement of which this
prospectus constitutes a part effective until the earlier of the disposition of
the securities offered by this prospectus or February 1, 2002. 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.
SELLING STOCKHOLDERS
None of the selling stockholders has had a material relationship with us
within the past three years other than as a result of the ownership of the
shares or other of our securities. No selling stockholder beneficially owns 1%
or more of the outstanding shares of our common stock. The following table sets
forth the number of shares of common stock owned by the selling stockholders,
and the number of shares of common stock that will be owned assuming the sale
of all the shares offered hereby:
Number of Shares
Number of Shares Registered for Number of Shares
Name of Selling Stockholder Beneficially Owned Sale Hereby Owned After Offering
--------------------------- ------------------ ----------------- --------------------
Joseph Goebel 539,645 539,645 -
Anthony Hsieh 2,158,578 2,158,578 -
Tomo Yebisu 299,728 299,728 -
--------- --------- -------------
Total 2,997,951 2,997,951 -
========= ========= =============
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 Securities and Exchange Commission,
referred to in this prospectus as the Commission. Reports, proxy statements and
other information filed by us may be inspected and copied at the public
reference facilities maintained by the Commission 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 Commission at 1-800-SEC-0330.
The Commission maintains an Internet web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's web site is
http://www.sec.gov.
We have filed with the Commission 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
Commission. 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 Commission 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 filed with the Commission (File No. 1-11921)
pursuant to the Exchange Act are incorporated herein by reference:
18
1. Our Annual Report on Form 10-K for the year ended September 30, 2000,
filed on November 9, 2000, as amended;
2. Our Amendment No. 1 on Form 10-Q/A for the period ended June 30, 2000;
3. Our Transition Report on Form 10-QT for the period ended December 31,
2000;
4. Our Quarterly Report on Form 10-Q for the period ended March 31, 2001;
5. Our Current Report on Form 8-K, filed on January 19, 2001, as amended;
6. Our Current Report on Form 8-K, filed on January 25, 2001;
7. Our Current Report on Form 8-K, filed on May 21, 2001;
8. Our Current Report on Form 8-K, filed on May 22, 2001;
9. Our Current Report on Form 8-K, filed on June 15, 2001;
10. The description of our common stock, $0.01 par value per share, and
associated rights, contained in our registration statement on Form 8-A, filed
on July 12, 1996, as amended by Amendment No. 1 on Form 8-A12B/A filed on
February 12, 2001, including any amendment or report filed for the purpose of
updating such description; and
11. All reports and other documents filed by us pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
prospectus and prior to the termination of the offering.
Any statement contained in a document incorporated by reference in this
prospectus shall be deemed to be incorporated by reference in this prospectus
and to be part of this prospectus from the date of filing of such document. Any
statement modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this prospectus. We will provide upon
written or oral request without charge to each person to whom this prospectus
is delivered a copy of any or all of the documents which are incorporated in
this prospectus by reference (other than exhibits to those documents unless
those exhibits are specifically incorporated by reference into the documents
that this prospectus incorporates). Written requests for copies should be
directed to E*TRADE Group, Inc., Investor Relations, 4500 Bohannon Drive, Menlo
Park, California 94025. Our telephone number is (650) 331-6000.
LEGAL MATTERS
The validity of the securities offered by this prospectus will be passed
upon for us by Davis Polk & Wardwell, Menlo Park, California.
EXPERTS
The consolidated financial statements of E*TRADE Group, Inc. and its
consolidated subsidiaries (the "Company"), except for E*TRADE Financial
Corporation and subsidiaries, as of September 30, 2000 and 1999, and for each
of the three years in the period ended September 30, 2000, incorporated by
reference in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report which is incorporated herein by
reference and have been so incorporated by reference in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements of E*TRADE Financial Corporation and
its subsidiaries (consolidated with those of the Company) not presented
separately herein have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report incorporated herein by reference. Such
consolidated financial statements of the Company and its consolidated
subsidiaries are incorporated herein by reference in
19
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
20
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 in connection
with the sale of common stock being registered. All amounts are estimates
except the SEC registration fee.
SEC Registration Fee $ 5,546
Legal Fees and Expenses 45,000
Accounting Fees and Expenses 30,000
Transfer Agent Fees 5,000
Miscellaneous 5,000
-------
Total $90,546
=======
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 stockholders for monetary damages for breach of
fiduciary duty as a director.
Article 5 of the registrant's Bylaws further provides that the registrant
shall, to the maximum extent and in the manner permitted by the DGCL, 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.
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Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful on the merits or otherwise in the
defense of any such action, suit or proceeding referred to in subsections (a)
and (b) of Section 145 or in the defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith; that the
indemnification provided for by Section 145 shall not be deemed exclusive of
any other rights which the indemnified party may be entitled; that
indemnification provided by Section 145 shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of such
person's heirs, executors and administrators; and empowers the corporation to
purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liabilities
under Section 145.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of the director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction from which the director derived an improper personal benefit.
Item 16. Exhibits
5.1 Opinion of Davis Polk & Wardwell.*
23.1 Consent of Deloitte & Touche LLP, independent auditors.
23.2 Consent of Arthur Andersen LLP, independent public accountants.*
23.3 Consent of Davis Polk & Wardwell.*
24.1 Power of Attorney.*
---------
*Previously filed.
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, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act 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 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
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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 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.
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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
Pre-Effective Amendment No. 2 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Menlo
Park, State of California on June 15, 2001.
E*TRADE GROUP, INC.
By: /s/ Leonard C. Purkis
------------------------------
Leonard C. Purkis
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Pre-Effective Amendment No. 2 to the Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
* Chairman of the Board and
--------------------------------- Chief Executive Officer
Christos M. Cotsakos (Principal Executive Officer)
/s/ Leonard C. Purkis Chief Financial Officer June 15, 2001
--------------------------------- (Principal Financial and
Leonard C. Purkis Accounting Officer)
* Chairman Emeritus
---------------------------------
William A. Porter
* Director
---------------------------------
Peter Chernin
* Director
---------------------------------
Ronald D. Fisher
* Director
---------------------------------
William E. Ford
II-4
* Director
---------------------------------
David C. Hayden
* Director
---------------------------------
George Hayter
* Director
---------------------------------
Lewis E. Randall
* Director
---------------------------------
Lester C. Thurow
* hereby signs this Pre-Effective Amendment No. 2 to the Registration Statement
on Form S-3 on June 15, 2001 on behalf of each of the indicated persons for
whom he is attorney-in-fact pursuant to a power of attorney previously filed.
By: /s/ Leonard C. Purkis
-------------------------------
Name: Leonard C. Purkis
Title: Chief Financial Officer
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Index to Exhibits
Exhibit
Number Exhibit Title
------ -------------
5.1 Opinion of Davis Polk & Wardwell.*
23.1 Consent of Deloitte & Touche LLP, independent auditors.
23.2 Consent of Arthur Andersen LLP, independent public accountants.*
23.3 Consent of Davis Polk & Wardwell.*
24.1 Power of Attorney.*
---------
*Previously filed.