eTrade 2010 Annual Report Download - page 21

Citadel is a substantial holder of our common stock and has not entered into any contractual arrangements to
protect the interests of other shareholders.
Based upon our review of publicly available information, we believe Citadel owns approximately 9.9% of
our outstanding common stock or approximately 27% of our common stock assuming conversion of convertible
debentures held by Citadel. Under the law of Delaware, where the Company is incorporated, this would most
likely be sufficient to permit Citadel to influence or cause the election of a substantial number of directors and
significantly impact, corporate policy, including decisions to enter into mergers or other extraordinary
transactions. The Company and Citadel have not entered into a shareholders agreement or similar contract to
restrict these actions, but Citadel will be unable to accomplish these matters for so long as it is subject to certain
rules of the OTS regarding rebuttals of control over thrifts and thrift holding companies. If these rules change, or
if Citadel receives a waiver or is no longer subject to its rebuttal of control agreement with the OTS or decides to
become a thrift holding company, it will be in a position to influence or cause the election of a substantial
number of directors and to substantially impact, corporate policy. Further, if Citadel acquires securities
representing more than 50% of the total voting power, holders of our debt securities would have the right to
require the Company to repurchase all such securities for cash at 101% of their face amount.
The market price of our common stock may continue to be volatile.
From January 1, 2008 through December 31, 2010, the price per share of our common stock ranged from a
low of $5.90 to a high of $54.80. The market price of our common stock has been, and is likely to continue to be,
highly volatile and subject to wide fluctuations. In the past, volatility in the market price of a company’s
securities has often led to securities class action litigation. Such litigation could result in substantial costs to us
and divert our attention and resources, which could harm our business. As discussed in Note 22—Commitments,
Contingencies and Other Regulatory Matters of Item 8. Financial Statements and Supplementary Data, we are
currently a party to litigation related to the decline in the market price of our stock, and such litigation could
occur again in the future. Declines in the market price of our common stock or failure of the market price to
increase could also harm our ability to retain key employees, reduce our access to capital, impact our ability to
utilize deferred tax assets in the event of another ownership change and otherwise harm our business.
We have various mechanisms in place that may discourage takeover attempts.
Certain provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a third
party from acquiring control of us in a merger, acquisition or similar transaction that a shareholder may consider
favorable. Such provisions include:
• authorization for the issuance of “blank check” preferred stock;
• provision for a classified Board of Directors with staggered, three-year terms;
• the prohibition of cumulative voting in the election of directors;
• a super-majority voting requirement to effect business combinations and certain amendments to our
certificate of incorporation and bylaws;
• limits on the persons who may call special meetings of shareholders;
• the prohibition of shareholder action by written consent; and
• advance notice requirements for nominations to the Board or for proposing matters that can be acted on
by shareholders at shareholder meetings.
In addition, certain provisions of our stock incentive plans, management retention and employment
agreements (including severance payments and stock option acceleration), certain provisions of Delaware law
and the requirements under our debt securities to offer to purchase such securities at 101% of their principal
amount may also discourage, delay or prevent someone from acquiring or merging with us.
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