eTrade 2007 Annual Report Download - page 16

Risks Relating to Owning Our Stock
The interests of our largest shareholder may conflict with the interests of other shareholders
Following the issuance of the final shares due to Citadel, Citadel will own approximately 90 million shares
of our common stock, which represents approximately 18% of the outstanding shares. In addition, Citadel is our
largest creditor through its ownership of approximately $1.8 billion of our debt securities. Citadel is an
independent entity with its own investors and is entitled to act in its own economic interest with respect to its
equity and debt investments in E*TRADE. For example, following April 29, 2008, Citadel will be generally free
under the terms of the Investment Agreement to sell the equity securities it received under the Investment
Agreement and any such sales may have a depressing effect on the trading price of our common stock. In
addition, Citadel’s 12
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⁄ 2 % springing lien notes contain restrictive covenants and as a holder of in excess of a
majority of the springing lien notes, Citadel has a right to declare defaults and enforce remedies just like any
other lender for so long as Citadel retains a majority of the springing lien notes. Finally, in pursuing its economic
interests, Citadel may make decisions with respect to fundamental corporate transactions which may be different
than the decisions of shareholders who own only common shares.
We are substantially restricted by the terms of our senior notes
In June 2004, we issued an aggregate principal amount of $400 million of senior notes due June 2011. In
September and November 2005, we issued an additional aggregate principal amount of $100 million of senior
notes due June 2011, $600 million of senior notes due September 2013 and $300 million of senior notes due
December 2015. As part of the Citadel Investment in November 2007, we issued $1.8 billion of 12
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⁄ 2 %
springing lien notes. The indentures governing these notes contain various covenants and restrictions that limit
our ability and certain of our subsidiaries’ ability to, among other things:
• incur additional indebtedness;
• create liens;
• pay dividends or make other distributions;
• repurchase or redeem capital stock;
• make investments or other restricted payments;
• enter into transactions with our stockholders or affiliates;
• sell assets or shares of capital stock of our subsidiaries;
• restrict dividend or other payments to us from our subsidiaries; and
• merge, consolidate or transfer substantially all of our assets.
As a result of the covenants and restrictions contained in the indentures, we are limited in how we conduct
our business and we may be unable to raise additional debt or equity financing to compete effectively or to take
advantage of new business opportunities. The terms of any future indebtedness could include more restrictive
covenants.
We cannot assure that we will be able to remain in compliance with these covenants in the future and, if we
fail to do so, that we will be able to obtain waivers from the appropriate parties and/or amend the covenants.
The market price of our common stock may continue to be volatile
From January 1, 2005 through December 31, 2007, the price per share of our common stock ranged from a
low of $3.15 to a high of $27.76. The market price of our common stock has been, and is likely to continue to be,
highly volatile and subject to wide fluctuations. In the past, volatility in the market price of a company’s
securities has often led to securities class action litigation. Such litigation could result in substantial costs to us
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