eTrade 2001 Annual Report Download - page 44

outcome or the amount of any potential losses.
By a Complaint dated December 28, 2001, Thomas Barry, a shareholder, filed a shareholder derivative action on his own behalf and
purportedly on behalf of E*TRADE Group, Inc. itself as a Nominal Defendant, against Christos M. Cotsakos, the Company’ s
Chairman of the Board and Chief Executive Officer, and each current member of the Company’ s Board of Directors, as individuals, in
the Superior Court of the State of California, County of San Mateo. Before defendants were obligated to answer this complaint, Mr.
Barry filed a “First Amended Shareholder Derivative Complaint” on or about February 26, 2002, for breach of fiduciary duties, waste
of corporate assets, abuse of control, and gross mismanagement for acts including, but not limited to, the Board’ s cancellation and
settlement of a $15.0 million loan to Mr. Cotsakos in exchange for his waiver of certain monetary and other rights under his
employment agreement; the Board’ s agreeing as part and parcel of the cancellation and settlement of the foregoing loan to make an
additional payment to Mr. Cotsakos of $15.2million to compensate him for tax liabilities resulting from the cancellation and settlement
of the foregoing loan; the Board’ s approval of other loans to officers and directors, including a $15.0 million loan to founder and
director William Porter; and the Company’ s alleged failure to make full and adequate disclosures about such events in the Company’ s
previous regulatory filings. Mr. Barry seeks damages allegedly sustained by the Company as a result of defendants’ alleged acts, as
well as his attorney’ s fees and costs, against all defendants except the Company. At this time, we are unable to predict the ultimate
outcome of this proceeding.
We believe the foregoing claims against the Company are without merit and intend to defend against them vigorously. An unfavorable
outcome in any matters which are not covered by insurance could have a material adverse effect on our business, financial condition
and results of operations. In addition, even if the ultimate outcomes are resolved in our favor, the defense of such litigation could entail
considerable cost and the diversion of the efforts of management, either of which could have a material adverse effect on our results of
operation.
From time to time, we and our subsidiaries have been threatened with or named as a defendant in other lawsuits, arbitrations and
claims by customers and others. In addition, our subsidiaries are regulated by the SEC, NASDR, OTS, and various state regulators and
are subject to periodic regulatory audits and examinations. Any such lawsuits, arbitrations, claims, audits, examinations, or related
actions could result in monetary losses or disciplinary actions that could have a material adverse effect on our business, financial
condition and operations.
We maintain insurance coverage in such amounts and with such coverages, deductibles and policy limits as management believes are
reasonable and prudent. The principal insurance coverage we maintain covers comprehensive general liability, commercial property
damage, hardware/software damage, directors and officers,
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certain criminal acts against the company, and errors and omissions. We believe that such insurance coverage is adequate for the
purpose of our business. Our ability to maintain this level of insurance coverage in the future, however, is subject to the availability of
affordable insurance in the market place, and world events, including the terrorists’ attacks of September 11, 2001 may impair our
ability to obtain insurance in the future.
Reference is made to the information reported in prior filings with the Securities and Exchange Commission under Item 3. Legal and
Administrative Proceedings in our Annual Report on Form 10-K, as amended, for the year ended September 30, 2000, and under Part
II, Item 1. Legal and Administrative Proceedings in our Transition Report on Form 10-QT for the quarter ended December 31, 2000,
our Report on Form 10-Q for the quarter ended March 31, 2001, our report on Form 10-Q for the quarter ended June 30, 2001, and
our Report on Form 10-Q for the quarter ended September 30, 2001.
Item 4.Submission of Matters To a Vote of Security Holders
2002. EDGAR Online, Inc.