eTrade 1999 Annual Report Download - page 52

Publicly-traded Equity Securities
The Company has investments in several companies that are publicly traded. These companies include Knight/Trimark Inc.,
CriticalPath, Digital Island, Message Media, E-LOAN and Versus. During fiscal 1999, the Company sold shares of Knight/Trimark
and CriticalPath generating proceeds of $50,870,000, resulting in a pre-tax gain of $49,957,000. The Company accounts for these
investments as long-term marketable equity securities held available-for-sale under the provisions of SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. Accordingly, these investments are carried at fair value. Unrealized gains were
$282,255,000 and $20,845,000 at September 30, 1999 and 1998, respectively. There were no unrealized losses at September 30, 1999
or 1998. Certain of these investments are currently subject to sale restriction agreements.
Equity Method Investments
In June 1998, the Company entered into a joint venture agreement with SOFTBANK CORP. to form E*TRADE Japan to provide
online securities trading services to residents of Japan. As part of the transaction, the Company invested approximately $8 million in
exchange for a 42% ownership position in this joint venture. Additionally, in July 1998, the Company entered into a joint venture
agreement with Electronic Share Information Ltd. ("ESI") to form E*TRADE UK. The Company has a 42% interest in this joint
venture. ESI is a leading provider of Internet financial services in the UK.
In January 1999, the Company acquired a 25 percent voting interest in Archipelago Holdings, LLC ("Archipelago"). Archipelago
owns 100 percent of Archipelago, LLC, which operates an Electronic
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Communication Network ("ECN") for Nasdaq stocks. In connection with such investment, the Company entered into an agreement
with Archipelago, which requires the Company to provide certain operational and technical assistance to Archipelago. The agreement
provides that the Company will initially be entitled to representation on Archipelago's board of managers in proportion to its holding
of voting interests. Archipelago has since completed numerous rounds of private financing whereby the Company's ownership position
was reduced to 12 percent.
The Company has investments in four non-public, venture capital-backed electronic commerce companies, which were contributed on
October 1, 1999 to form the E*TRADE eCommerce Fund, L.P. (the "Fund"). The Fund anticipates raising additional capital from third
parties and will invest primarily in companies in the electronic commerce industry, as well as Internet infastructure companies and
other enabling technologies. The Company received a limited partnership interest in the Fund. The Company also has a limited
partnership interest in a privately-managed venture capital fund.
In February 1999, the Company acquired a 28 percent voting interest in E*OFFERING Corp. ("E*OFFERING"), a full-service,
Internet-based investment bank. E*OFFERING provides individual and institutional investors access to public offerings.
E*OFFERING leverages the Internet to help improve the process of raising capital for companies by reducing time to market and
underwriting costs traditionally associated with the registration process, while broadening capital distribution. Additionally,
E*OFFERING provides after-market support and shareholder communication services. The Company accounts for its investment in
E*OFFERING under the equity method.
KAP Group
In June 1997, the Company invested $2,000,000 in KAP Group, LLC ("KAP Group"), by means of a promissory note in the principal
amount of $1,806,000 and through the purchase of a warrant for $194,000. The note bears interest at 7% per annum which, together
with the principal amount, is due and payable in July 2002. The warrant gives the Company the right to purchase shares of KAP
Group. KAP Group has invested substantially all of its assets in two other entities, which were formed for the purpose of engaging in
electronic options trading. KAP Group investors include the Company's Chairman Emeritus of the Board of Directors and others.
Other Investments
The Company has also made investments in non-public, venture capital-backed high technology companies with which it does business
and which provide Internet-based services, as well as venture capital funds. These investments represent less than 20% of the
outstanding shares of these companies and are accounted for under the cost method. At September 30, 1999 and 1998, the Company
believes that the fair value of these investments approximates their carrying basis.
6. RELATED PARTY RECEIVABLE
During fiscal 1997, the Company made a relocation loan to Mr. Christos Cotsakos, its Chief Executive Officer and a Director, in the
2002. EDGAR Online, Inc.