eTrade 2009 Annual Report Download - page 18

value of the equity or convertible debt we issue would have to exceed the fair value of the debt offered in
exchange in order to provide sufficient incentive to debt holders to participate. As of December 31, 2009, we had
approximately $1.6 billion aggregate principal amount of interest-bearing debt and approximately $1.0 billion of
non-interest-bearing convertible debentures outstanding. From time to time, available trading data has indicated
that the aggregate fair value of our interest-bearing debt has been significantly less than the aggregate principal
amount of such debt. Any meaningful reduction in our leverage through debt exchange transactions for our
interest-bearing debt could result in significant dilution to holders of our common stock.
In recent periods, the global financial markets were in turmoil and the equity and credit markets experienced
extreme volatility, which caused already weak economic conditions to worsen. Continued turmoil in the global
financial markets could further restrict our access to the public equity and debt markets.
Citadel is our largest stockholder and debtholder, with approximately 9.8% of our common stock as of
December 31, 2009, or approximately 34% as converted, as of December 31, 2009. Accordingly, Citadel’s
interests may conflict with the interests of other stockholders.
Citadel is the largest holder of our common stock, and as of December 31, 2009, owned approximately
185 million shares or 9.8% (980 million shares or approximately 34%, as converted) of our common stock. In
addition, although Citadel is not required to disclose to us the amount of our outstanding debt securities it owns,
we believe it owns in the aggregate more than 80% of the non-interest-bearing convertible debentures, as
of December 31, 2009. In addition, Kenneth Griffin, President and CEO of Citadel, joined the Board of Directors
on June 8, 2009 pursuant to a director nomination right granted to Citadel in 2007.
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. As discussed below, our debt securities contain
restrictive covenants. In pursuing its economic interests, Citadel may make decisions with respect to fundamental
corporate transactions which may be different than the decisions of investors who own only common shares.
Citadel is a substantial holder of our common stock and has not entered into any contractual arrangements to
protect the interests of other stockholders.
Citadel owned approximately 9.8% of our outstanding common stock, as of December 31, 2009. Based
upon publicly available information, we believe that the common stock owned by Citadel, together with the
common stock issuable on conversion of the Debentures held by Citadel, represents approximately 34% of the
common stock on a fully diluted basis. 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. 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, 2007 through December 31, 2009, the price per share of our common stock ranged from a low
of $0.59 to a high of $26.08. 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.
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