UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934 (Amendment No. )
Filed by the Registrant x
Filed by a Party other than the
Registrant ¨
Check the appropriate
box:
x Preliminary Proxy
Statement
¨ Confidential, for Use of the
Commission Only (as permitted by Rule 14a-6(e)(2))
¨ Definitive Proxy
Statement
¨ Definitive Additional
Materials
¨ Soliciting Material Pursuant to
§240.14a-12
E*TRADE FINANCIAL
CORPORATION
(Name of Registrant as Specified In Its
Charter)
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate
box):
¨ Fee computed on table below per Exchange
Act Rules 14a-6(i)(4) and 0-11.
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(1)
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Title of each class of
securities to which
transaction applies:
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(2)
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Aggregate number of securities to
which transaction applies:
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(3)
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Per unit price or other underlying
value of transaction computed pursuant to Exchange Act Rule 0-11 (set
forth the amount on which the filing fee is calculated and state how it
was determined):
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(4)
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Proposed maximum aggregate value
of transaction:
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o
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Fee
paid previously with preliminary materials: |
¨
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Check box if any part of the fee
is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the
filing for which the offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount Previously
Paid:
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(2)
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Form, Schedule or Registration
Statement No.:
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135
East 57th Street
New
York, New York 10022
Dear
Stockholder:
Below are
details of important and timely matters that require your immediate
attention.
You are
cordially invited to attend a Special Meeting of Stockholders of E*TRADE
Financial Corporation (“E*TRADE,” “we,” “us” or the “Company”) that will be held
on [ ], 2009, at [ ] a.m., local time, at
[ ].
E*TRADE
has called this Special Meeting to ask our stockholders to vote upon a series of
proposals which will permit us to:
(1)
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complete
a debt exchange for up to approximately $1.7 billion of our outstanding
debt securities (the “Debt Exchange”) which is key to our plan to
strengthen the Company’s capital structure by increasing equity and
reducing our debt burden, and
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(2)
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engage
in additional transactions, as needed, to further strengthen the Company’s
capital structure in the future.
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We
believe that these transactions are not only in the best interest of all of our
stockholders, and but also critical to the immediate future of the
Company. The
Company has adopted and is implementing a plan to strengthen its capital
structure by raising cash equity primarily to support E*TRADE Bank and to reduce
the Company’s debt burden. We completed the first step of our plan on
June 24, 2009 when we closed a public offering of our common stock and raised
nearly $600 million. The next step is completion of the Debt Exchange
for which we need
your support.
Because
one of the proposals requires the affirmative vote of a majority of all
outstanding shares of E*TRADE common stock, we urge you to vote your shares so
that we can complete the Debt Exchange as soon as possible. If the
proposals to complete the Debt Exchange are not approved and the proposed
transactions are not completed, we may be unable to strengthen the Company’s
capital structure and could face negative regulatory consequences, such as a
public supervisory action by our primary regulator. These
consequences could have a material negative effect on our business and financial
condition and the value of our common stock.
On June
22, 2009 we commenced the Debt Exchange in which we are offering to exchange up
to approximately $1.7 billion of our outstanding debt securities for an
equivalent amount of newly-issued zero coupon convertible debentures due 2019
(the “Debentures”). The Debt Exchange will significantly reduce our
debt burden by materially reducing interest costs, lengthening the
weighted-average maturities of our indebtedness and potentially reducing our
repayment obligations to the extent that holders of the Debentures convert
rather than hold to maturity. We are seeking approval to increase the amount of
common stock authorized for issuance, a portion of which is required to complete
the Debt Exchange, and a portion of which may be used to conduct future debt
exchange transactions. The remainder may be available for
general corporate purposes. In order
to complete the Debt Exchange and future debt exchanges, stockholder approval of
the proposals described in this Proxy Statement is required. We need
your vote to approve this important measure.
Citadel
Investment Group L.L.C (“Citadel”), our largest stock and bond holder, has
agreed to tender at least $800 million, and may tender up to approximately $1.2
billion aggregate principal amount of the notes owned by it in the Debt Exchange
and to vote in favor of Proposals 1, 2 and 3 described in this proxy
statement.
At the
Special Meeting, holders of the Company’s common stock will be asked to consider
and vote on proposals to:
·
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amend
E*TRADE’s Restated Certificate of Incorporation to increase the number of
authorized shares of common stock from 1,200,000,000 to
4,000,000,000;
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approve
the issuance of Debentures in the Debt Exchange and the issuance of common
stock issuable upon conversion of the Debentures under the applicable
provisions of NASDAQ Marketplace Rule
5635;
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·
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approve
the potential issuance of common stock, or securities convertible into or
exchangeable or exercisable for common stock, in connection with future
debt exchange transactions in an amount up to 365 million shares;
and
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·
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grant
management the authority to adjourn, postpone or continue the Special
Meeting.
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OUR BOARD
HAS APPROVED THE FOREGOING PROPOSALS AND RECOMMENDS THAT OUR STOCKHOLDERS VOTE
FOR THE
PROPOSALS LISTED ABOVE.
At the
Special Meeting, holders of the Company’s common stock also will be asked to
consider and vote on a non-binding resolution concerning whether we should
retain or terminate our Stockholder Rights Plan until its scheduled expiration
on July 9, 2011. OUR BOARD MAKES NO RECOMMENDATION TO OUR
STOCKHOLDERS REGARDING THIS PROPOSAL.
Please
read the attached proxy statement carefully for information about the matters
you are being asked to consider and vote upon. Whether or not you
attend the Special Meeting in person, I urge you to promptly vote your proxy as
soon as possible via the Internet, by telephone or by mail using the enclosed
postage-paid reply envelope. If you decide to attend the Special
Meeting and vote in person, you will, of course, have that
opportunity.
Thank you
for your continued support of E*TRADE.
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Sincerely,
[signature to be inserted upon
approval]
Donald H.
Layton
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Chairman
of the Board and Chief Executive Officer
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----------------
Notice
of Special Meeting of Stockholders
to
Be Held [ ], 2009
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TO
OUR STOCKHOLDERS:
You are
cordially invited to attend a Special Meeting of Stockholders of E*TRADE
Financial Corporation (“E*TRADE,” “we,” “us” or the “Company”), which will be
held at [ ], at [ ] a.m. local time on
[ ], 2009, for the following purposes:
1.
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To
amend Article FOURTH of the Company’s Restated Certificate of
Incorporation to increase the number of authorized shares of common stock,
par value $0.01, from 1,200,000,000 to 4,000,000,000 (and,
correspondingly, increase the total number of authorized shares of capital
stock from 1,201,000,000 to
4,001,000,000);
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2.
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To
approve under the applicable provisions of NASDAQ Marketplace Rule 5635
the issuance of Class A Senior Convertible Debentures due 2019 and Class B
Senior Convertible Debentures due 2019 (and the issuance of common stock
issuable upon conversion of the Class A Senior Convertible Debentures due
2019 and Class B Senior Convertible Debentures due 2019) in connection
with the proposed debt exchange transaction described in the attached
proxy statement;
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3.
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To
approve under the applicable provisions of NASDAQ Marketplace Rule 5635
the potential issuance of common stock, or securities convertible into or
exchangeable or exercisable for common stock, in connection with future
debt exchange transactions described in the attached proxy statement in an
amount up to 365 million shares;
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4.
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To grant management the authority
to adjourn, postpone or continue the Special
Meeting.
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The
Board of Directors recommends stockholders vote FOR proposals 1, 2, 3 and 4
set forth above.
At the
Special Meeting, holders of the Company’s common stock also will be asked to
consider and vote on a non-binding resolution concerning whether we should
retain or terminate our Stockholder Rights Plan until its scheduled expiration
on July 9, 2011. Our
Board of Directors makes NO RECOMMENDATION to our stockholders regarding this
advisory resolution.
The Board
of Directors has fixed the close of business on June 26, 2009 as the record date
for determining those stockholders entitled to vote at the Special
Meeting. The stock transfer books will not be closed between the
record date and the date of the Special Meeting.
All
stockholders of record on June 26, 2009 are invited to attend the Special
Meeting. No ticket is required for admission. For security
purposes, however, to gain admission to the Special Meeting, you will be
required to present identification containing a photograph and some indication
that you are a stockholder. Packages and bags may be inspected, and
they may have to be checked at the door. In addition, other security
measures may be used for the security of those attending the Special
Meeting. Please plan accordingly.
Representation
of at least a majority of all outstanding shares of common stock entitled to
vote at the Special Meeting is required to constitute a quorum. For
that reason, it is important that your shares be represented at the Special
Meeting. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND
RETURN IT
IN THE ENCLOSED ENVELOPE. This Proxy Statement is also available on
the Company’s website at http://www.etrade.com. The
Company encourages you to vote online. Even if your shares are held
in a bank or brokerage account, you still may be eligible to vote your shares
online. Your proxy may be revoked at any time prior to the time that
the polls close and the vote is tallied.
Please
read the proxy materials carefully. Your vote is important, and
E*TRADE appreciates your cooperation in considering and acting on the matters
presented.
IMPORTANT
If you
are a stockholder, whether or not you expect to attend the Special Meeting in
person, the Company urges you to vote your proxy at your earliest convenience
via the Internet, by telephone or by mail using the enclosed postage-paid reply
envelope. This will ensure the presence of a quorum at the Special
Meeting and will save the Company the expense of additional
solicitation. Sending in your proxy will not prevent you from voting
your shares in person at the Special Meeting if you desire to do
so. Your proxy is revocable at your option in the manner described in
the Proxy Statement.
Stockholders
Should Read the Entire Proxy Statement Carefully
Prior
to Returning Their Proxy Cards
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PROXY
STATEMENT
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FOR
SPECIAL MEETING OF STOCKHOLDERS OF E*TRADE FINANCIAL CORPORATION
To
Be Held [ ], 2009
This
Proxy Statement is furnished in connection with the solicitation by the Board of
Directors of E*TRADE Financial Corporation (“E*TRADE,” “we”, “us” or the
“Company”) of proxies to be voted at a Special Meeting of Stockholders (the
“Special Meeting”), which will be held at [ ], on
[ ], 2009 at [ ] a.m. local time, or at any
adjournments or postponements thereof, for the purposes set forth in the
accompanying Notice of Special Meeting of Stockholders. This Proxy
Statement and the proxy card were first mailed to stockholders on or about
[ ], 2009. The principal executive offices of
E*TRADE are located at 135 East 57th Street, New York, New York
10022.
GENERAL
INFORMATION ABOUT VOTING
Who
may vote and how many votes do I have?
Stockholders
of record at the close of business on June 26, 2009 (the “Record Date”) may vote
at the Special Meeting. On that date there were [ ]
outstanding shares of the Company’s common stock, $0.01 par value per share (the
“Common Stock”). All
of the shares of the Company’s Common Stock held at the Record Date are entitled
to vote at the Special Meeting. Stockholders of record will have one
vote for each share they hold on the matters to be voted on.
What
am I voting on?
You are
voting on the following matters:
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To
amend Article FOURTH of the Company’s Restated Certificate of
Incorporation to increase the number of authorized shares of Common Stock,
par value $0.01, from 1,200,000,000 to 4,000,000,000 (and,
correspondingly, increase the total number of authorized shares of capital
stock from 1,201,000,000 to
4,001,000,000);
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·
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To
approve under the applicable provisions of NASDAQ Marketplace Rule 5635
the issuance of Class A Senior Convertible Debentures due 2019 (the “Class
A Debentures”) and Class B Senior Convertible Debentures due 2019 (the
“Class B Debentures”, and together with Class A Debentures, the
“Debentures”) (and the issuance of Common Stock issuable upon conversion
of the Debentures) in connection with the proposed debt exchange
transaction described in this proxy
statement;
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·
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To
approve under the applicable provisions of NASDAQ Marketplace Rule 5635
the potential issuance of Common Stock, or securities convertible into or
exchangeable or exercisable for Common Stock, in connection with future
debt exchange transactions described in the attached proxy statement in an
amount up to 365 million shares;
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Grant
of authority to management to adjourn, postpone or continue the Special
Meeting.
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You are
also being asked to cast an advisory vote on a non-binding resolution on whether
the Company should retain or terminate the Stockholder Rights Plan until its
scheduled expiration on July 9, 2011.
How
many votes are required to hold the Special Meeting and what are the voting
procedures?
Quorum
Requirement: Delaware law and the Company’s Restated
Certificate of Incorporation provide that any stockholder action at a meeting
requires that a quorum exist with respect to that action. A quorum
for the
actions to be taken at the Special Meeting will consist of a majority of all of
the Company’s outstanding shares of Common Stock that are entitled to vote at
the Special Meeting. Therefore, at the Special Meeting, the presence,
in person or by proxy, of the holders of at least
[ ] shares of Common Stock will be
required to establish a quorum. Stockholders of record who are
present at the Special Meeting in person or by proxy and who abstain are
considered stockholders who are present and entitled to vote, and will count
towards the establishment of a quorum. There is no separate quorum
requirement for the advisory vote on the Stockholder Rights
Plan. This will include brokers holding customers’ shares of record
who cause abstentions to be recorded at the Special Meeting.
Required
Votes: Each outstanding share of the Company’s Common Stock is
entitled to one vote on each proposal at the Special Meeting.
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Approval
of Proposal 1 to amend the Company’s Restated Certificate of Incorporation
requires the affirmative vote of a majority of the shares of Common Stock
entitled to vote on the matter. Accordingly, failure to vote,
broker non-votes or an abstention will have the same effect as a vote
against this proposal.
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Approval
of Proposals 2, 3 and 4 require the affirmative vote of a majority of the
shares of Common Stock present at the Special Meeting and eligible to
vote. Accordingly, failure to vote and broker non-votes will
not affect whether these proposals are approved, but an abstention will
have the same effect as a vote against the
proposals.
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The
outcome of the advisory vote on whether the Company should retain the
Stockholder Rights Plan until its scheduled expiration on July 9, 2011
will not be binding on the Board of Directors. Therefore, there
is no “required vote” on this non-binding resolution. Citadel
has advised us that it will vote the shares of Common Stock it owns
representing no more than 9.9% of the shares of Common Stock outstanding
and entitled to vote at the Special Meeting to TERMINATE the Stockholder
Rights Plan and has agreed contractually to vote the balance of the shares
of Common Stock it owns in the same proportions as the votes cast by all
other stockholders. The Board of Directors, in the exercise of its
fiduciary duties, will consider the outcome of the advisory vote in
determining whether to retain or terminate the Stockholder Rights Plan
following such vote.
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Broadridge
Financial Solutions, Inc., the Company’s independent proxy tabulator, will count
the votes and act as the inspector of election for the Special
Meeting.
How
do I vote?
You may
vote in person by attending the Special Meeting or by proxy. If you
are a stockholder of record, you may vote by proxy through the Internet, by
telephone or by mail. You may follow the instructions on the proxy
card or the instructions below for voting by one of these methods.
To vote
through the Internet, please visit the website at www.ProxyVote.com
before 11:59 p.m., New York City time on [ ],
2009. The Internet voting procedures are designed to authenticate the
stockholder’s identity and to allow stockholders to vote their shares and
confirm that their instructions have been properly recorded. If you
would like to receive future stockholder materials electronically, please enroll
after you complete your voting process on www.ProxyVote.com.
Please
help the Company save time by voting through the Internet or by
telephone. If your shares are held in “street name” by a broker or
other nominee, you will receive instructions from the holder of record that you
must follow in order to vote your shares. WHETHER YOU PLAN TO ATTEND THE
SPECIAL MEETING OR NOT, THE COMPANY ENCOURAGES YOU TO VOTE BY PROXY AS SOON AS
POSSIBLE.
What
does it mean if I receive more than one proxy card?
You may
receive more than one proxy card depending on how you hold your
shares. You will receive a proxy card for shares registered in your
name. If you hold shares through someone else, such as a bank or
broker,
you may also receive material from them asking how you want to
vote. If your shares are registered differently and are in more than
one account, you will receive more than one proxy card. The Company
encourages you to have all accounts registered in the same name and address
whenever possible.
Can
I change my vote or revoke my proxy?
You can
revoke your proxy before the time of voting at the Special Meeting in several
ways (the revocation must be received before the Special Meeting to be
counted):
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by
mailing a revised proxy dated later than the prior
proxy;
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·
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by
voting again at the Internet website;
or
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·
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by
notifying the Corporate Secretary of the Company in writing that you are
revoking your proxy. The Corporate Secretary may be reached at
the Company’s corporate offices located at 135 East 57th Street, New York,
New York 10022.
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You can
also revoke your proxy by voting in person at the Special Meeting.
What
happens if the Special Meeting is postponed or adjourned?
Your
proxy will still be effective and may be voted at the rescheduled
meeting. You will still be able to change or revoke your proxy until
it is voted.
Who
pays for the solicitation of proxies?
The
Company pays the cost of soliciting proxies. The Company retained
Morrow & Co., LLC (the “Solicitation Agent”), to assist with the
solicitation of proxies for an estimated fee of $17,500 plus reasonable
out-of-pocket expenses. The Company will reimburse brokerage firms
and other custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses for sending proxy materials to stockholders and obtaining
their votes. In addition to solicitation by mail, proxies may be
solicited personally or by telephone or electronic media by the Company’s
regular employees.
Who
do I call if I have questions?
If you
have questions regarding the Special Meeting, please contact Morrow & Co,
LLC, the Solicitation Agent for the Special Meeting. Stockholders
should call (800) 607-0088 and banks and brokerage firms should call (203)
658-9400.
Important
Notice Regarding Delivery of Stockholder Documents
Only one
copy of this proxy statement and set of accompanying materials, if applicable,
is being delivered by the Company to multiple stockholders sharing an address
until the Company receives contrary instructions from one or more of the
stockholders. The Company will deliver, promptly upon written or oral request, a
separate copy of such materials to a stockholder at a shared address to which a
single copy of such materials was delivered. A stockholder who wishes to receive
a separate copy of this proxy statement and accompanying materials now or in the
future, or stockholders sharing an address who are receiving multiple copies of
this proxy statement and accompanying materials and wish to receive a single
copy of such materials, should submit a request to Morrow & Co., LLC, 470
West Avenue, 3rd Floor,
Stamford, CT 06902 or call 800-607-0088.
OVERVIEW
Overview
The
Company has adopted and is implementing a plan to strengthen the Company’s
capital structure by raising cash equity primarily to support E*TRADE Bank and
also to reduce the Company’s debt burden. In furtherance of the plan,
the Company has called the Special Meeting to ask its stockholders to support
its plan to reduce the Company’s outstanding debt burden by (1) extending the
maturity profile of its debt, (2) reducing the amount of interest expense the
Company is required to pay in the future and (3) potentially decreasing the
principal amount of debt outstanding by permitting holders of a portion of the
Company’s existing high-yield debt securities (the “Outstanding Notes”) to
convert into common equity if they participate in the Debt Exchange (as defined
below) or other debt exchange transactions. The proposed Debt Exchange
described below and in Proposal 2 and the potential future debt exchange
transactions described in Proposal 3 are important steps in meeting the
Company’s objective of strengthening its capital structure. In order
to complete these transactions, it is necessary to increase the number of shares
of Common Stock that the Company is authorized to issue as set forth in Proposal
1. The matters to be voted on at this meeting are critical components of the
Company’s capital plan.
The
Company is a Savings and Loan Holding Company for E*TRADE Bank, its FDIC-insured
thrift subsidiary, and both the Company and E*TRADE Bank are subject to
regulation by the Office of Thrift Supervision (“OTS”) as their primary federal
banking regulator. At May 31, 2009, E*TRADE Bank’s Tier 1 capital ratio was
6.07% and E*TRADE Bank’s risk-based capital ratio was 12.75%. The OTS
has advised us, and we agree, that we need to raise additional equity capital
for E*TRADE Bank and reduce substantially the amount of the Company’s
outstanding debt in order to withstand any further deterioration in current
credit and market conditions. Pursuant to a memorandum of
understanding we have entered into with the OTS, the OTS is requiring us to
submit to the OTS and implement written plans to address these and related
matters. To address the concerns identified by us and the OTS, we
have:
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Raised nearly $600 million in
cash. On June 18, 2009, the Company sold 500 million
shares of its Common Stock in a public offering (the “Public Equity
Offering”) which closed on June 24, 2009. The net proceeds to
the Company from the sale of the shares of Common Stock in the Public
Equity Offering were $522.6 million, after deducting underwriting
discounts and commissions and estimated offering expenses. When
added to the net proceeds to date from the Company’s Equity Drawdown
Program (described below), the Company has raised net cash equity of
approximately $586 million in the second quarter of
2009.
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●
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Launched
an offer to exchange up to $1.7 billion of our debt. On
June 22, 2009, we launched the Debt Exchange, which requires approval
of Proposal 1 and Proposal 2 by our stockholders to complete. If the
conditions of the Debt Exchange are met, it will permit us to exchange up
to approximately $1.7 billion of our outstanding debt securities for an
equivalent amount of newly-issued zero coupon convertible debentures,
resulting in a significant reduction in annual debt service and
significant lengthening of the weighted-average maturities of our
debt.
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We
believe that the completion of these transactions would constitute
substantial progress in addressing the most significant concerns raised by
the OTS, although the OTS has offered us no assurance that these transactions
will be sufficient to address their concerns. The Debt Exchange is a
critical component of our plan and we need stockholder approval
to complete it. If we are unable to consummate the Debt Exchange, we will
be substantially more likely to face negative regulatory
consequences. Regulatory consequences may take the form of a public
supervisory action from the OTS. Such supervisory action could, among other
things, result in the Company and E*TRADE Bank becoming subject to significant
restrictions on their ability to develop new business, as well as restrictions
on their existing business, and they could be required to raise additional
capital and/or dispose of certain assets and liabilities within a prescribed
period of time. The terms of any public supervisory action by the OTS
could have a material negative effect on our business and financial condition
and the value of our Common Stock. We and E*TRADE Bank could also
become subject to supervisory actions by the OTS if market conditions were to
deteriorate to such an extent that the equity capital we raised in the Public
Equity
Offering
proved to be insufficient for E*TRADE Bank’s or our needs. Citadel, our
largest stock and bond holder, has agreed to tender up to approximately $1.2
billion aggregate principal of the notes owned by it in the Debt Exchange and to
vote in favor of the Proposals described in this Proxy Statement. Due to the
benefits that will result from the Debt Exchange, and the adverse consequences
the Company will face if the Debt Exchange is not completed, the Board recommends that the
stockholders vote FOR Proposal 1 and
2.
Background
Over the
past several months, our management team has been highly focused on taking
additional steps to strengthen the Company’s capital structure and enhance its
financial flexibility. The Company has considered and continues to
explore a variety of capital-raising transactions, including transactions
involving the issuance of preferred stock, common stock, rights, warrants or
other equity securities, transactions involving the sale of businesses or
assets, refinancing existing indebtedness, and transactions involving
specialized commercial arrangements. Since May 2009, E*TRADE has
entered into a series of transactions to raise cash and reduce the Company’s
debt burden. Affiliates of Citadel Investment Group LLC. (“Citadel”),
our largest stock and bond holder, have agreed to participate in these
transactions, as further described below. We refer to Citadel and its
affiliates collectively throughout this proxy statement as Citadel.
·
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On
May 8, 2009, the Company entered into a distribution agreement with J.P.
Morgan Securities Inc. (“J.P. Morgan”) pursuant to which the Company may
offer and sell up to $150,000,000 of shares of its Common Stock from time
to time (the “Equity Drawdown Program”) through J.P. Morgan as
distribution agent. During the period from May 11, 2009 through
June 2, 2009, pursuant to the Equity Drawdown Program, the Company sold
40.7 million shares of its Common Stock, resulting in gross proceeds to
the Company of approximately $65.1 million, or approximately $63.2 million
after deducting underwriting discounts and commissions and estimated
offering expenses.
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·
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On
June 15, 2009, the Company and a subsidiary entered into an Amended and
Restated Equities and Options Order Handling Agreement (the “Amended and
Restated Order Handling Agreement”) with Citadel. Subject to
certain execution quality requirements and regulatory approvals, the
Amended and Restated Order Handling Agreement requires the Company to
route 97.5% of its marketable customer orders in Regulation NMS Stocks (an
increase from 40%) until the sixth anniversary of the commencement date,
which will not be later than July 18, 2009, and 97.5% all of its customer
orders in exchange-listed options to Citadel for order handling and
execution until the third anniversary of the commencement
date. Citadel may extend the options order flow commitment
for an additional year on the third, fourth, and fifth anniversaries of
the commencement date. The Company will receive an aggregate
cash payment of $100 million within three business days of the
commencement date, of which $65 million is in full consideration for the
increase in NMS Stock flow and $35 million is in exchange for a credit of
$35 million toward future payment for options order flow, which the
Company will continue to earn on a monthly basis. Because the
Amended and Restated Order Handling Agreement is subject to approval by
the OTS, there is no assurance that the agreement will become effective on
the terms negotiated, if at all. See the Company’s Current
Report on Form 8-K filed on June 17, 2009 for further description of the
terms and conditions of the Amended and Restated Order Handling
Agreement.
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·
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On
June 18, 2009, the Company sold 500 million shares of its Common Stock the
Public Equity Offering which provided net proceeds to the Company from the
sale of the shares of Common Stock in the Public Equity Offering of $522.6
million, after deducting underwriting discounts and commissions and
estimated offering expenses. Citadel purchased approximately
90.9 million shares of the Company’s Common Stock in the Public Equity
Offering. The Company did not pay any commissions and the
underwriters did not receive any discounts on shares sold in the Public
Equity Offering to Citadel.
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·
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On
June 22, 2009, the Company commenced an offer to all holders of its 8%
Senior Notes due 2011 (the “2011 Notes”) and its 12.5% Springing Lien
Notes due 2017 (the “2017 Notes” and, together with the 2011 Notes, the
“Notes”) to
exchange (the “Debt
Exchange”) (i) any
and all outstanding 2011 Notes and (ii) up to $310 million aggregate
principal amount of 2017 Notes not held by Citadel, plus at least $600
million but not more than $1 billion of 2017 Notes to be tendered by
Citadel, in each case for an
|
|
equal
aggregate principal amount of zero-coupon convertible debentures due 2019
(the “Debentures”). Holders
tendering their Notes will receive, upon closing of the Debt Exchange,
cash in the amount of the accrued and unpaid interest on the Notes
exchanged. Holders of $[ ] million aggregate
principal amount of Notes, including Citadel, tendered such Notes in the
period ending at midnight, New York City time, on July 1, 2009 (the
“Early
Tender Period”). As
of midnight on [July 1, 2009], Citadel has tendered
$[ ] million aggregate principal amount of its 2011 Notes
and $[ ] million aggregate principal amount of its 2017
Notes in the Debt Exchange on the same terms as the other holders of the
Notes. As of June 12, 2009, there were $435.5 million aggregate
principal amount of 2011 Notes and $2,185.6 million aggregate principal
amount of 2017 Notes outstanding. The Debentures issued in the Debt
Exchange will be designated as either Class A Debentures or Class B
Debentures and will be identical except for the conversion price for each
class of Debentures. The Debt Exchange is described in greater
detail below.
|
In
addition to the transactions described above and the Debt Exchange described
below, the Company is focused on reducing its outstanding indebtedness and
interest expense and plans to offer to enter into future debt exchange
transactions with holders of its outstanding high-yield debt securities,
including Citadel, for Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock. As of March 31, 2009,
the Company had $3.2 billion face amount of high-yield debt securities
outstanding (the “Outstanding Notes”).
Your approval of Proposal 1 (increase
in authorized Common Stock) and Proposal 2 (approval of the Debt Exchange) is a
condition to the completion of the Debt Exchange. The Company
will not be able to meaningfully reduce its outstanding indebtedness and
interest expense unless, among other things, its stockholders approve these
important proposals.
Terms
and Conditions of the Debt Exchange
In the Debt Exchange, the Company has offered to exchange (i) any and all outstanding
2011 Notes and (ii) (x) up to $310 million aggregate principal
amount of 2017 Notes not held by Citadel,
plus at least $600 million but not more than $1 billion of 2017
Notes to be tendered by Citadel. The Debentures issued in the Debt
Exchange will be designated as either Class A Debentures or Class B Debentures
and will be identical except for the conversion price for each class of
Debentures. The
initial conversion price for the Class A Debentures will be $1.0340, which is equal to the public
offering price of the Common Stock in the Public Equity Offering, minus
underwriting discounts and commissions. The initial conversion
price for the Class B
Debentures will be $1.5510,
or 150% of the initial conversion price applicable to the Class A
Debentures. Holders of $[ ] million
aggregate principal amount of Notes, including Citadel, tendered such
Notes in the Early Tender Period and will receive $[ ]
million Class A Debentures
in exchange for their tendered Notes if the Company accepts such tendered
Notes, Proposals 1 and 2 are approved and the Debt Exchange is
consummated. Holders tendering their
Notes in the Debt Exchange after the Early Tender Period will be entitled to
receive Class B Debentures in exchange for their tendered
Notes. Citadel has tendered the Notes it has committed to tender in the Debt
Exchange during the Early
Tender Period and will
receive $[ ] Class A Debentures if the
Debt Exchange is consummated.
Each of the Debentures will: (i) have a
ten year maturity; (ii) not bear interest; (iii) be convertible into shares of
the Company’s Common
Stock at any time at the
election of the holder into a number of shares equal to the quotient of (x) the
principal amount of Debentures of such class to be converted and (y) the
conversion price applicable to such Debentures immediately prior to conversion;
provided that no holder may convert Debentures to the extent such conversion
would result in either (A)
such holder beneficially owning in excess of 9.9% of the Company’s outstanding
Common Stock (which limitation may be waived by such holder), or (B)
such holder owning in
excess of 24.9% of the Company’s outstanding Common Stock, under the OTS
control rules, which limitations may be amended or waived, as applicable, upon
the later of (a) one year notice to the Company and (b) receipt of any necessary
regulatory approvals; (iv) contain
customary anti-dilution provisions; and (v) will have covenants and events
of default substantially similar to those of the 2017 Notes; (vi) not be redeemable at the option
of the Company; (vii) be redeemable at the option of holders upon a “Fundamental
Change,” which is substantially similar to a “Change of Control” under the
Outstanding Notes except that a delisting (and failure to secure a listing
within a specified cure period) of the Company’s Common Stock also constitutes a
“Fundamental Change”; and (viii) are subject
to covenant defeasance (but not legal
defeasance) on terms substantially similar to those in the Outstanding Notes,
which defeasance shall not release the Company from its obligation to convert
Debentures into Common Stock.
The Company is not in default in payment
of principal or interest with respect to either the 2011 Notes or the 2017
Notes.
In
connection with the Debt Exchange, the Company [has][has not] obtained consents
representing [a majority] of the outstanding principal amount of the 2011 Notes
or 2017 Notes (both including and excluding such Notes held by Citadel) (the
“Requisite Consents”) to amend and/or waive certain provisions of the indentures
governing the Notes. We [have][have not] obtained the Requisite
Consents with respect to the 2017 Notes by the end of the Early Tender Period,
[therefore the amount of 2017 Notes tendered by Citadel that will be accepted
shall be limited as described below under “Relationship With Citadel – Exchange
Agreement.”]
The
Company will be obligated to issue an aggregate number of shares of Common Stock
issuable upon conversion of the Debentures to be issued as exchange
consideration in the Debt Exchange. Assuming the maximum amount of
Notes are tendered in the Debt Exchange and based on the amount of Notes
tendered during the Early Tender Period, the Company would be obligated to issue
up to [ ] shares upon conversion of the
Debentures at the respective initial conversion price of the Class A Debentures
and the Class B Debentures.
Completion
of the Debt Exchange is conditioned upon, among other things, receipt of
stockholder approval to increase the Company’s authorized Common Stock in
Proposal 1 of this proxy statement and stockholder approval of the issuance of
the Debentures in Proposal 2. The Debt Exchange also is subject to
required regulatory approvals, including approvals from the OTS with respect to
Citadel’s participation in the Debt Exchange, and other customary closing
conditions.
Further
details about the terms and conditions of the Debt Exchange are set forth in the
Offering Memorandum and Consent Solicitation Statement dated June 22, 2009,
which was filed with the Securities and Exchange Commission as Exhibit T3E.1 to
the Company’s Form T-3 dated June 22, 2009.
Risk
Factors - Risks Relating to Proposals 1, 2 and 3
If
Proposals 1 and 2 are not approved, the Debt Exchange transaction will not be
completed. As a result, our primary regulator would likely take
action against the Company, including a public form of supervisory action by the
OTS. Any such actions could have a material negative effect on our
business and the value of our Common Stock.
As
discussed above, our primary federal banking regulator, the OTS, has advised us,
and we agree, that we need to raise additional equity capital for E*TRADE Bank
and reduce substantially the amount of the Company’s outstanding debt and
interest expense in order
to withstand any further deterioration in current credit and market
conditions. Pursuant to a memorandum of understanding we have entered into with the OTS, the OTS is requiring us to submit
to the OTS and implement written plans to address these and related
matters.
In an
effort to address the concerns identified by us and the OTS, we have raised net
cash equity of $586 million in the second quarter of 2009 and on June 22, 2009
we launched the Debt Exchange. We believe completion of these
transactions will contribute materially to addressing the issues raised by the
OTS, although the OTS has offered no assurance that these transactions will be
sufficient to satisfy their concerns. If we are unable to
consummate the Debt Exchange, we would be substantially more likely to face
negative regulatory consequences in the form of a public supervisory action,
such as a written agreement or a cease and desist order, from the
OTS. If the OTS were to take any such supervisory action against us,
we and E*TRADE Bank could, among other things, become subject to significant
restrictions on our ability to develop any new business, as well as restrictions
on our existing business, and we could be required to raise additional capital
and/or dispose of certain assets and liabilities within a prescribed period of
time. The terms of any public supervisory action by the OTS could
have a material negative effect on our business and financial condition and the
value of our Common Stock. Furthermore, any significant
reduction
in E*TRADE Bank’s regulatory capital could result in E*TRADE Bank being less
than “well capitalized” or “adequately capitalized” under applicable capital
rules. Either condition could also lead to a public supervisory
action by the OTS. A failure of E*TRADE Bank to be “adequately
capitalized” that is not cured within time periods specified in the indentures
governing our Outstanding Notes would constitute a default under our Outstanding
Notes and likely result in the Outstanding Notes becoming immediately due and
payable at their full face value.
If we
were unable to comply with the terms of any supervisory action against us, we
and E*TRADE Bank could become subject to further regulatory actions by the OTS,
including more severe restrictions on E*TRADE Bank’s business. We and
E*TRADE Bank could also become subject to supervisory actions by the OTS if
market conditions were to deteriorate to such an extent that the equity capital
we raised in the Public Equity Offering proved to be insufficient for E*TRADE
Bank’s or our needs. In either event, in the worst case, the OTS has
the authority to place a thrift, such as E*TRADE Bank, into receivership, in
which case the Federal Deposit Insurance Corporation (the “FDIC”) would likely
be appointed receiver of the thrift and would proceed to, among other
things: (i) enter into a purchase and assumption agreement with a
third party in which that third party would purchase and assume all or some of
the thrift’s assets and deposits and liquidate the remaining assets and
liabilities; (ii) transfer all or some of the thrift’s assets and deposits to a
“bridge bank” until such time as one or more purchasers may be found for all or
some of the “bridge bank’s” assets and deposits, and liquidate the remaining
assets and liabilities; or (iii) liquidate the thrift’s assets and liabilities
and pay insured depositors the amount of their deposits up to the insured limits
and, to the extent sufficient proceeds from the liquidation are available, pay
the remaining claims of insured depositors and the claims of uninsured
depositors and other creditors.
In the
event of our bankruptcy or liquidation and E*TRADE Bank’s receivership, E*TRADE
would not be entitled to receive any cash or other property or assets from its
subsidiaries (including E*TRADE Bank and E*TRADE Securities) until those
subsidiaries pay in full their respective creditors, including customers of
those subsidiaries and, as applicable, the FDIC and the Securities Investor
Protection Corporation. At the request of the OTS, E*TRADE Securities
became a subsidiary of E*TRADE Bank on June 9, 2009. As a result,
claims of the FDIC would also have to be satisfied in full before any of E*TRADE
Securities’ assets would be available to holders of our Common
Stock. Furthermore, in the event of our bankruptcy or liquidation,
holders of Common Stock would not be entitled to receive any cash or other
property or assets until holders of our Outstanding Notes and our other
creditors have been paid in full, and as a result you would likely lose the
entire value of your investment.
The
Debt Exchange is part of our plans to satisfy the requirements by the OTS that
we increase our equity and reduce our debt, but we do not know whether it will
be fully sufficient to satisfy regulatory requirements.
By completing the Public Equity
Offering, we have improved our and E*TRADE Bank’s capital position, but we
cannot assure you that the amount of cash equity raised in the Public Equity
Offering for E*TRADE Bank, together with the Debt Exchange if consummated, will
satisfy the OTS’s requirements. The OTS is not, at this time,
confirming whether the completion of the Public Equity Offering and the Debt
Exchange would improve ours and E*TRADE Bank’s capital position and financial
condition to the extent necessary to avoid the conditions that would lead the
OTS to take public supervisory actions against us or E*TRADE
Bank. Even if we
complete the Debt Exchange, the OTS, which we believe is currently considering
public supervisory actions against us in the absence of a satisfactory increase
in capital and reduction in debt, may still take such actions at any
time. If the OTS takes any such
public supervisory actions against us and E*TRADE Bank, such as a cease
and desist order, we believe that it could lead to a loss of confidence in the
Company and E*TRADE Bank by investors and customers, as applicable, which could
have a materially adverse impact on our business and financial
condition.
Stockholders
will face significant dilution as a result of our proposed debt exchange
transactions and future equity issuances.
If
Proposals 1 and 2 are approved and the Debentures are issued, assuming the
maximum number of Notes are tendered in the Debt Exchange and based on the
amount of Notes tendered during the Early Tender Period, the Debentures will be
convertible into an aggregate of up to [ ] shares
of Common Stock
at the
respective initial conversion price of the Class A Debentures and Class B
Debentures. As a result and based on such assumptions, upon
completion of the Debt Exchange, the shares of Common Stock issuable upon
conversion of the Debentures post-transaction would represent up to
[ ]% of the Company’s outstanding Common
Stock on an as-converted basis. As a result, the Company’s existing stockholders would incur substantial dilution to their
voting interests and will own a smaller percentage of the Company’s outstanding Common
Stock. The dilutive effect of the Debt Exchange may have an
adverse impact on the market price of the Company’s Common Stock.
We
anticipate that the primary method for reducing our debt in the future will
involve debt exchanges in which we raise no cash but reduce the outstanding
principal amount, cash interest payment obligations or extend the maturity
profile of our debt. Such exchange transactions may reduce the amount
of interest we are required to pay in the future, reduce the principal amount
due at maturity or extend the maturity profile of our outstanding debt, but
would not result in our receiving cash proceeds. If we are able to
consummate these debt exchange transactions, including the Debt Exchange, we
expect that the fair market value of the equity or convertible debt we issue
would have to exceed the fair market value of the debt offered in exchange in
order to provide sufficient incentive to debtholders to
participate. Also, the Company estimates that the aggregate fair
market value of the Outstanding Notes is significantly higher than the fair
market value of the Company’s Common Stock, which was approximately
$[ ] million, based on the reported last sale price of the Common
Stock on [ ], 2009. Therefore, any meaningful
reduction in our leverage through debt exchange transactions would result in
significant dilution to holders of our Common Stock. In addition, a
reduction of the Company’s debt in sufficient size to meet its capital
objectives will require participation in these debt exchanges by our most
significant debtholders, including Citadel. Proposal 3 would permit
the Company to enter into such additional debt exchange transactions in the
future.
In the
future, we may need to raise additional funds via debt and/or equity
instruments, which may not be available on favorable terms, if at
all. If adequate funds are not available on acceptable terms, we may
be unable to fund our plans for the growth of our business. In
addition, if funds are available, the issuance of equity securities could
significantly dilute the value of our shares of our Common Stock and cause the
market price of our Common Stock to fall. If Proposal 1 is approved
by our stockholders, we will have the ability to issue a significant number of
shares of stock in future transactions without seeking further stockholder
approval. However, if such approval is not granted, then we will be
unable to complete the Debt Exchange and our ability to raise additional funds
in the future may be curtailed.
We
could as a result of the various transactions described herein, or as a result
of future transactions, experience an “ownership change” for tax purposes that
could cause us to permanently lose a significant portion of our U.S. federal and
state deferred tax assets.
The
transactions contemplated in this proxy statement could cause us to experience
an “ownership change” as defined for U.S. federal income tax
purposes. Even if these transactions do not cause us to experience an
“ownership change,” these transactions materially increase the risk that we
could experience an “ownership change” in the future. As a result, issuances or
sales of Common Stock or other securities in the future (including Common Stock
issued on conversion of the Debentures and any future debt-for-equity
exchanges), or certain other direct or indirect changes in ownership, could
result in an “ownership change” under Section 382 of the Internal Revenue Code
of 1986, as amended. In the event an “ownership change” were to occur, we could
realize a permanent loss of a significant portion of our U.S. federal and state
deferred tax assets and lose certain built-in losses that have not been
recognized for tax purposes. The amount of the permanent loss would depend on
the size of the annual limitation (which is in part a function of our market
capitalization at the time of an ownership change) and the remaining
carryforward period (U.S. federal net operating losses generally may be carried
forward for a period of 20 years). The resulting loss would have a material
adverse effect on our results of operations and financial
condition.
We have
not established a valuation allowance against our U.S. federal deferred tax
assets or against a portion of our state and local deferred tax assets as of
March 31, 2009, as we believed, based on our analysis as of that
date, that it was more likely than not that all of these assets would
be realized. Section 382 imposes restrictions on the use of a corporation’s net
operating losses, certain recognized built-in losses and other carryovers after
an “ownership change” occurs. An “ownership change” is generally a greater than
50 percentage point increase by certain “5% stockholders” during the testing
period, which is
generally
the three year-period ending on the transaction date. Upon an “ownership
change,” a corporation generally is subject to an annual limitation on its
pre-change losses and certain recognized built-in losses equal to the value of
the loss corporation immediately before the “ownership change,” multiplied by
the long-term tax-exempt rate (subject to certain adjustments). The annual
limitation is increased each year to the extent that there is an unused
limitation in a prior year. Since U.S. federal net operating losses generally
may be carried forward for up to 20 years, the annual limitation also
effectively provides a cap on the cumulative amount of pre-change losses and
certain recognized built-in losses that may be utilized. Pre-change losses and
certain recognized built-in losses in excess of the cap are effectively
lost.
The
relevant calculations under Section 382 are technical and highly complex. The
transactions contemplated in this proxy statement could cause us to experience
an “ownership change.” As of March 31, 2009, our deferred tax asset reflected on
our balance sheet was $1.1 billion. If an “ownership change” were to occur, we
believe we would permanently lose the ability to realize a substantial amount of
this asset, resulting in reduction to our total stockholders’ equity. This could
also decrease E*TRADE Bank’s regulatory capital. We do not believe, however,
that any such decrease in regulatory capital would be material because, among
other things, only a small portion of the federal deferred tax asset is
currently included in E*TRADE Bank’s regulatory capital.
Impact
of the Debt Exchange on the Company’s Capitalization
The
following table sets forth our cash and cash equivalents and our capitalization
as of March 31, 2009:
·
|
on
a pro forma basis to give effect to our entry into the Amended and
Restated Order Handling Agreement (which will become effective only upon
approval by the OTS), the receipt of net proceeds of $63.4 million from
the sale of 40,722,445 shares of our Common Stock through
June 2, 2009 pursuant to the Equity Drawdown Program, and the receipt
by us of net proceeds of $522.6 million from the sale of 500 million
shares of Common Stock in the Public Equity Offering;
and
|
·
|
on
a pro forma, as adjusted basis to give effect to the pro forma changes
described above as well as the consummation of the Debt Exchange with
approximately $[ ] million aggregate principal
amount of our 2011 Notes and $[ ] million
aggregate principal amount of our 2017 Notes tendered during the Early
Tender Period and approximately $[ ] million
aggregate principal amount of our 2011 Notes and
$[ ] million aggregate principal amount of
our 2017 Notes to be tendered after the Early Tender
Period.
|
The table
should be read in conjunction with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in our Quarterly Report on Form
10-Q for the three months ended March 31, 2009, our Current Report on Form 8-K
filed May 14, 2009, and our consolidated financial statements and the notes to
those financial statements incorporated by reference in this Proxy
Statement.
|
|
|
|
|
|
|
|
|
|
|
|
Pro
Forma As Adjusted
for
the Debt Exchange (1)(2)
|
|
|
|
(in
millions, except for share
amounts
and par value)
|
|
|
|
|
|
Cash
and equivalents
|
|
$ |
4,492 |
|
|
$ |
5,178 |
|
|
$ |
[
]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
8.0%
Senior Notes due 2011(3)
|
|
$ |
435 |
|
|
$ |
435 |
|
|
$ |
[
]
|
|
7.375%
Senior Notes due 2013
|
|
|
415 |
|
|
|
415 |
|
|
|
[
]
|
|
7.875%
Senior Notes due 2015
|
|
|
243 |
|
|
|
243 |
|
|
|
[
]
|
|
12.5%
Springing Lien Notes due 2017
|
|
|
2,057 |
|
|
|
2,057 |
|
|
|
[
]
|
|
Class
A Convertible Debentures (4)
|
|
|
− |
|
|
|
− |
|
|
|
[
]
|
|
Class
B Convertible Debentures
|
|
|
− |
|
|
|
− |
|
|
|
− |
|
Discount
and fair value adjustments
|
|
|
(397 |
) |
|
|
(397 |
) |
|
|
[
]
|
|
Total
debt
|
|
|
2,753 |
|
|
|
2,753 |
|
|
|
[
]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock; 1,000,000 shares authorized;
|
|
|
− |
|
|
|
− |
|
|
|
− |
|
Common
stock, $0.01 par value; 1,200,000,000 shares authorized; 572,051,743(5)
shares issued and outstanding actual, 1,112,774,188 shares issued and
outstanding pro forma
|
|
|
6 |
|
|
|
11 |
|
|
|
[
]
|
|
Additional
paid-in capital
|
|
|
4,085 |
|
|
|
4,665 |
|
|
|
[
]
|
|
Accumulated
deficit
|
|
|
(1,079 |
) |
|
|
(1,248 |
) |
|
|
[
]
|
|
Accumulated
other comprehensive loss
|
|
|
(554 |
) |
|
|
(554 |
) |
|
|
[
]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
2,458 |
|
|
|
2,874 |
|
|
|
[
]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capitalization
|
|
$ |
5,211 |
|
|
$ |
5,627 |
|
|
$ |
[
]
|
|
|
(1)
|
The
actual and proforma columns in this table does not give effect to the
increase in the authorized shares of our common stock set forth in
Proposal 1.
|
|
(2)
|
As
a result of the Amended and Restated Order Handling Agreement, our Capital
Markets business will no longer receive this order flow, which results in
a decrease in the level of income attributed to this business. As such, it
is likely that the goodwill and intangibles of approximately $170 million
related to our Capital Markets business will be impaired. This potential
impairment is reflected in the table on a pro forma
basis.
|
|
(3)
|
Debt
balances represent principal amount, which is exclusive of premium
(discount) and adjustments on fair value hedge
relationships.
|
|
(4)
|
This
amount is based on the aggregate principal amount of Notes tendered in the
Early Tender Period.
|
|
(5)
|
This
number is based on the total number of shares outstanding as of
[ ], 2009. The number of shares of common stock
outstanding as of [ ], 2009 is [ ],
which does not include:
|
·
|
[
] shares subject to outstanding options at a weighted average exercise
price of $[ ] per share as of [ ],
2009;
|
·
|
[
] shares underlying outstanding restricted stock units as of
[ ], 2009;
|
·
|
[
] additional shares reserved as of [ ], 2009 for future
issuance under our equity incentive plans;
and
|
·
|
on
an actual and pro forma as adjusted basis, shares of common stock issuable
upon conversion of Debentures issued upon completion of the Debt
Exchange.
|
The pro
forma and pro forma as adjusted information discussed above is illustrative only
and will change based on the actual total amount of Notes tendered in the Debt
Exchange. If less than $[ ] of our 2011
Notes, or less than $[ ] million aggregate
principal amount of our 2017 Notes are tendered for exchange after the Early
Tender Period, the Notes not tendered will continue to be outstanding after the
Debt Exchange and there will be a corresponding reduction in the amount of Class
B Debentures to be outstanding after the Debt Exchange.
Assuming
$[ ] million aggregate principal amount of
2011 Notes and $[ ] million aggregate
principal amount of 2017 Notes is tendered in this Debt Exchange, our corporate
interest expense will be reduced by approximately $[ ] million
and $[ ] million, respectively, on a quarterly basis, assuming
we do not elect to capitalize interest on the 2017 Notes. In addition, if the
above amount of 2011 Notes and
2017
Notes is exchanged, we will recognize a loss in 2009 to the extent the book
value of such Notes is less than the fair value of the Debentures issued in
exchange for such Notes. The book value of such 2011 Notes and 2017
Notes currently includes an aggregate discount of approximately
$[ ] million, which will increase the loss on exchange by
the same amount. For example, if the Debentures are determined to have a fair
value equal to their principal amount, such loss would be
$[ ] million. Since the vast majority of this
discount (approximately $[ ] million) is
attributable to the 2017 Notes, any increase or decrease in the number of 2017
Notes exchanged will have a greater impact on the amount of loss recognized than
an equivalent increase in the amount of 2011 Notes exchanged. In addition, the
fair value of the Debentures is not estimable at this time and will depend,
among other things, on the trading price of our Common Stock upon closing of the
Debt Exchange and the respective amounts of Class A Debentures and Class B
Debentures issued in exchange for the Notes, due to the different conversion
prices for each class.
Relationship
With Citadel
In
November 2007, we entered into an agreement to receive a $2.5 billion cash
infusion from Citadel. In consideration for the cash infusion,
Citadel received three primary items: substantially all of our asset-backed
securities portfolio, approximately 79.9 million shares of our Common Stock and
approximately $1.8 billion in 2017 Notes.
Citadel
is the largest holder of our Common Stock, and owns approximately 180 million
shares (approximately 16%), including shares purchased by Citadel in the Public
Equity Offering. In addition, Citadel beneficially holds
approximately 52.8% of the principal amount of the outstanding 2011 Notes and
approximately 81.2% of the principal amount of the outstanding 2017 Notes, and a
majority of each of our 7.375% Senior Notes due 2013 and 7.875% Senior Notes due
2015.
Board
of Directors
Effective
June 8, 2009, our Board of Directors expanded the number of members of the Board
from eleven to twelve, expanded the number of Class II directors from three to
four and appointed Kenneth C. Griffin, President and Chief Executive Officer of
Citadel Investment Group, L.L.C., as a director. Mr. Griffin will be a Class II
member of the Board and will stand for election by the stockholders at the next
annual meeting. Mr. Griffin was appointed pursuant to the right of
Wingate Capital Ltd., an affiliate of Citadel, under the Master Investment and
Securities Purchase Agreement dated November 29, 2007 between Wingate Capital
Ltd. and us.
Also as
of June 8, 2009, the Board appointed Mr. Griffin to serve as a member of its
Finance and Risk Oversight Committee.
The Board
approved the payment of a $25,000 cash annual retainer to Mr. Griffin under the
terms our non-employee director compensation policy as in effect from time to
time, as described in the proxy statement for our 2009 annual meeting of
stockholders.
Exchange
Agreement
Pursuant
to an Exchange Agreement dated June 17, 2009, as amended (the “Exchange
Agreement”) between E*TRADE and Citadel, under which Citadel agreed to early
tender in the Debt Exchange not less than $200 million aggregate principal
amount of its 2011 Notes and not less than $600 million, nor more than $1
billion, aggregate principal amount of its 2017 Notes for exchange in, and not
to withdraw any of these tendered Notes (except as set forth in the Exchange
Agreement) from the Debt Exchange. As of July 1, 2009, Citadel
tendered $[ ] aggregate principal amount of
its 2011 Notes and $[ ] aggregate
principal amount of its 2017 Notes. Citadel, which by itself controls
a majority of the outstanding principal amount of each of the 2011 Notes and the
2017 Notes, also provided its consent with respect to a principal amount of 2011
Notes and 2017 Notes not tendered by Citadel as necessary to ensure that
consents with respect to a majority of the aggregate principal amount of each of
the 2011 Notes and 2017 Notes were delivered by the end of the Early Tender
Period and waived any consent fee with respect to any and all such Notes, unless
the Debt Exchange is not consummated in which case
Citadel
will be entitled to the same fee as other consenting holders of the
Notes. If the Exchange Agreement is terminated by either party, we
will terminate the Debt Exchange. Additionally, pursuant to its
commitment under the Exchange Agreement, Citadel purchased $100 million of our
Common Stock in the Public Equity Offering.
Amendment
to Rights Plan and Agreement to Submit Rights Plan Proposal to
E*TRADE Stockholders
In connection with our Public Equity
Offering and the Debt Exchange, we amended the Rights Agreement, dated of July
9, 2001, as amended, between the Company and American Stock Transfer and Trust
Company (the “Stockholder Rights Plan”) to:
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exempt
Citadel from becoming an “Acquiring Person,” as defined in the Stockholder
Rights Plan, in connection with its purchase of shares in our Public
Equity Offering and its acquisition of Debentures (including the Common
Stock issuable upon conversion thereof), as well as pursuant to the
exercise of its pre-emptive rights as described
below;
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increase
Citadel’s allowance for acquiring additional shares of our Common Stock
without becoming an Acquiring Person from approximately 8.5 million shares
to 25.0 million shares (excluding shares acquired by exercise of its
preemptive rights, acquired upon conversion of the Debentures, purchased
in the Public Equity Offering and purchased during any Rights Plan Holiday
Period), effective and contingent upon the settlement of the Debt
Exchange; and
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provide
that Citadel will be exempt from becoming an Acquiring Person with respect
to any acquisitions of additional shares of our Common Stock during any
Rights Plan Holiday Period, effective and contingent upon the settlement
of this Debt Exchange.
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A “Rights Plan Holiday Period” means,
at any time in which our Stockholder Rights Plan remains in effect, the period
commencing upon our public disclosure that E*TRADE Bank has failed to satisfy
the Financial Metrics Test for any quarter and ending upon the next public
disclosure that E*TRADE Bank has once again satisfied the Financial Metrics Test
at the end of a quarter.
The “Financial Metrics Test” means, at
the balance sheet date for a fiscal quarter, that E*TRADE Bank has both (i) at
least $450 million in Excess Risk-Based Capital and (ii) a Tier 1 Capital Ratio
of at least 6.00%.
“Excess Risk-Based Capital” means that
portion of E*TRADE Bank’s total capital, as such term is defined in 12 CFR
567.5(c) (as currently or hereafter in effect), that is in excess of the amount
of total capital that would be required in order for E*TRADE Bank to have a
total risk-based capital ratio of 10.0% as calculated in accordance with 12 CFR
Part 567 (as currently or hereafter in effect).
“Tier 1 Capital Ratio” means E*TRADE
Bank’s core capital, as such term is defined in 12 CFR 567.5(a) (as currently or
hereafter in effect), divided by its adjusted total assets, as such term is
defined in 12 CFR 567.1 (as currently or hereafter in effect).
In addition, we agreed that at the
Special Meeting we would submit to our stockholders an advisory resolution
regarding whether we should retain or terminate our Stockholder Rights
Plan. We have agreed with Citadel that neither our Board of Directors
nor Citadel will take any position on whether stockholders should vote to
terminate or retain the Stockholder Rights Plan or otherwise seek to influence
the outcome of the advisory vote. Citadel has agreed that it will vote its
shares representing no more than 9.9% of our shares outstanding and entitled to
vote at the Special Meeting on this advisory resolution to terminate the
Stockholder Rights Plan, and that it will vote the balance of its shares on the
advisory resolution in the same proportions, to retain or to terminate the
Stockholder Rights Plan, as the votes cast by all other stockholders.
Following the vote, which will not be binding, our Board of Directors will
determine whether to maintain our Stockholder Rights Plan based on its
consideration of all factors deemed relevant to the exercise of its fiduciary
duties.
Under the Exchange Agreement we also
granted Citadel pre-emptive rights to allow Citadel to maintain its fully
diluted percentage ownership of our Common Stock in connection with future
issuances by us, subject to Citadel’s purchasing our
securities on the same terms and conditions as other purchasers and certain
other conditions. The pre-emptive rights will be effective upon the expiration
of the Early Tender Period, provided that Citadel has satisfied its minimum
tender commitments under the Exchange Agreement. If we fail to complete the Debt
Exchange, then Citadel’s pre-emptive
rights will terminate and be of no further force or effect.
The pre-emptive rights will not apply
to issuances of Common Stock or securities convertible into or exercisable for
shares of our Common Stock, among other things, (i) in connection with
acquisitions by us of other companies or businesses, (ii) in exchange for our
2011 Notes, 2013 Notes, 2015 Notes or 2017 Notes or (iii) pursuant to our stock
plans or otherwise in equity compensation arrangements with our directors,
officers, employees or consultants.
The pre-emptive rights will be in
effect so long as we have in effect a stockholder rights plan, provided that the
pre-emptive rights shall terminate and be of no further force or effect upon the
earliest to occur of (i) the earlier of the termination of the Exchange
Agreement or failure to consummate the Debt Exchange by October 31, 2009 or (ii)
the date after the consummation of the Debt Exchange that Citadel beneficially
owns less than 19.9% of our outstanding Common Stock on a fully diluted basis
assuming conversion of all securities beneficially owned by Citadel (whether or
not such securities are convertible or exchangeable for shares of Common Stock
at such time in accordance with their terms or
by reason of any condition precedent to such conversion or exchange not been
satisfied at such time). The pre-emptive rights will be suspended upon the
termination of our Stockholder Rights Plan, but will be automatically reinstated
if we reinstate our Stockholder Rights Plan or if we subsequently adopt a new
rights plan, “poison pill” or similar plan.
The
description of the terms of the Exchange Agreement is a summary and does not
purport to be complete, and is qualified in its entirety by reference to the
copy of the Exchange Agreement that is attached as Exhibit 10.1 to our Current
Report on Form 8-K filed with the SEC on June 17, 2009 and incorporated by
reference into this Proxy Statement.
PROPOSAL
1. INCREASE IN AUTHORIZED SHARES OF COMMON STOCK
Proposal
The Board
of Directors proposes to amend Article FOURTH of the Company’s Restated
Certificate of Incorporation to increase the number of shares of Common Stock
the Company is authorized to issue from 1,200,000,000 to 4,000,000,000, and,
correspondingly, increase the total number of authorized shares of capital stock
from 1,201,000,000 to 4,001,000,000.
Reason
for Request for Stockholder Approval
As of
[ ], 2009, there were:
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[ ]
shares of Common Stock issued and outstanding, including 40,722,445 shares
issued pursuant to the Equity Drawdown Program and
[ ]
shares of Common Stock issued pursuant to the Public Equity Offering;
and
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an
aggregate of up to [ ] shares of Common Stock
reserved for issuance under the Company’s existing equity incentive
arrangements and awards issued pursuant
thereto.
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The
Company needs to increase the number of shares of Common Stock it is authorized
to issue in order to fulfill its commitment to issue Common Stock issuable upon
conversion of the Debentures to be issued as exchange consideration in the Debt
Exchange. Assuming the maximum amount of Notes are tendered in the
Debt Exchange and based on the amount of Notes tendered during the Early Tender
Period, the Company would be obligated to issue
[ ] shares upon conversion of the
Debentures. The proposed increase in the number of authorized shares
of Common Stock is a condition to the completion of the Debt
Exchange. In addition, the additional shares of Common Stock would
facilitate our participation in the U.S. Treasury Department’s TARP Capital
Purchase Program, which would require the Company to issue warrants to acquire
Common Stock to the U.S. Treasury and would give us the flexibility to conduct
additional debt exchanges and raise capital.
Impact
on Stockholders of Approval or Disapproval of this Proposal
If this
Proposal is not approved, the Company will be unable to complete the Debt
Exchange, as it will not have sufficient authorized shares to issue the number
of shares of Common Stock issuable upon conversion of the
Debentures. If the Company is unable to complete the Debt Exchange,
the existing debt will remain in place without any extension of debt maturities
or reduction in cash interest expenses, negatively impacting the value of our
Common Stock and bringing about negative regulatory consequences as described
above under “Overview – Risk Factors- Risks Relating To Proposals 1, 2 and
3.” The Company may be unable to strengthen its capital structure to
the extent that the OTS has requested and, as a result, may face a
public supervisory action, could be required to raise additional capital and/or
dispose of certain assets and liabilities within a prescribed period of time,
and could have restrictions placed on its ability to conduct
business. In the worst case, the OTS has the authority to place a
thrift, such as E*TRADE Bank, into receivership and, as a result, you would
likely lose the entire value of your Common Stock. Due to the
benefits that will result from the Debt Exchange, and the adverse consequences
the Company will face if the Debt Exchange is not completed, the Board recommends that the
stockholders vote FOR this Proposal.
If
approved, the increase in authorized Common Stock will facilitate the Company’s
ability to complete the Debt Exchange and will enable the Company to
avail itself of any additional potential opportunities to execute on its plan to
reduce indebtedness by conducting additional debt exchanges and raise cash
proceeds, all as discussed in this proxy statement under
“Overview.” It would also give the Company the ability to issue
shares for other general corporate purposes. As a result of the Debt
Exchange, the Company’s
existing stockholders will incur substantial dilution to
their voting interests and will own a smaller percentage of the
Company’s outstanding Common
Stock. The dilutive effect of the Debt Exchange may have an
adverse impact on the market price of the Company’s Common
Stock. Additional issuances of Common Stock would further dilute the
interests of existing stockholders.
Except as described in this proxy
statement, the Company has no current plans to issue shares in an exchange,
merger, consolidation, acquisition or similar transaction. Approval
of the amendment to the Company’s Restated Certificate of Incorporation would in
certain circumstances permit such actions to be taken without the delays and
expense associated with obtaining stockholder approval at that time, except to
the extent required by applicable state law or stock exchange listing
requirements for the particular transaction. Although the
availability of additional shares of stock provides flexibility in carrying out
corporate purposes, the increase in the number of shares of authorized stock
could make it more difficult for a third party to acquire a majority of the
Company’s outstanding voting stock and could also result in the issuance of a
significant number of shares to one or more investors in transactions that may
not require stockholder approval. For more information regarding dilution to
stockholders, see “Overview – Risk Factors – Risks Relating To
Proposals 1, 2 and 3.”
Text
of the Proposed Amendment to the Restated Certificate of
Incorporation
The Board
of Directors has adopted resolutions setting forth the following proposed
amendment to the Restated Certificate of Incorporation and directing that the
proposed amendment be submitted to the holders of the Company’s Common Stock for
approval at the Special Meeting.
FOURTH. (a) The Corporation is authorized to
issue two classes of stock
to be designated, respectively, “Common
Stock” and “Preferred
Stock.” The total number of shares that the
Corporation is authorized to issue is 4,001,000,000 shares. 4,000,000,000 shares shall be Common Stock, $0.01 par value per share (the
“Common
Stock”). 1,000,000 shares shall be Preferred Stock, $0.01
par value per share, of which 1 share shall be designated Series A Preferred Stock and
500,000 shares shall be
designated Series B Preferred Stock. The Series A Preferred Stock and Series B Preferred Stock are collectively referred to as
“Preferred
Stock.”
If
adopted by the stockholders, the amendment to the Restated Certificate of
Incorporation will become effective upon filing of a certificate of amendment to
the Restated Certificate of Incorporation with the Secretary of State of
Delaware.
Vote
Required and Board of Directors’ Recommendation
Approval
of the amendment to the Restated Certificate of Incorporation requires the
affirmative vote of a majority of the shares of the Common Stock entitled to
vote on the matter. As a result, abstentions, broker non-votes or the
failure to submit a proxy or vote in person at the Special Meeting will have the
same effect as a vote against the proposal.
The
E*TRADE Board of Directors recommends that stockholders vote FOR the approval of
the amendment to Article FOURTH of the Restated Certificate of Incorporation to
increase the authorized number of shares of Common Stock from 1,200,000,000 to
4,000,000,000 shares and, correspondingly, increase the total number of
authorized shares of capital stock from 1,201,000,000 to
4,001,000,000.
PROPOSAL 2. THE
ISSUANCE OF DEBENTURES AND THE ISSUANCE OF THE COMMON STOCK UPON CONVERSION OF
THE DEBENTURES
Proposal
The
Company is seeking stockholder approval under the applicable provisions of
NASDAQ Marketplace Rule 5635 for the issuance of Common Stock issuable upon
the conversion of the Debentures to be issued as exchange consideration in the
Debt Exchange. As described above under the caption “Terms and
Conditions of the Debt Exchange,” the Company will offer to issue Debentures in
exchange for the surrender and cancellation of up to $435.5 million aggregate
principal amount of 2011 Notes and up to $1.3 billion aggregate principal amount
of 2017 Notes. The Company will be obligated to issue shares of
Common Stock upon conversion of the Debentures to be issued as exchange
consideration in the Debt Exchange. Assuming the maximum amount of
Notes are tendered in the Debt Exchange and based on the amount of Notes
tendered during the Early Tender Period, the Company would be obligated to issue
an aggregate of [ ] shares
upon conversion of the Debentures at the respective initial conversion price of
Class A Debentures and Class B Debentures.
For a
more detailed description of the Debt Exchange and the terms of the Class A
Debentures and Class B Debentures, see the section entitled “Description of the
Debt Exchange” above.
Reason
for Request for Stockholder Approval
The
Company’s Common Stock is listed on the NASDAQ Global Select Market, and the
Company is subject to the NASDAQ Marketplace Rules. The Company is
seeking approval for the issuance of Common Stock issuable upon the conversion
of the Debentures issued in the Debt Exchange under all the applicable
provisions of Marketplace Rule 5635, which applies to the issuance of securities
in certain circumstances.
NASDAQ
Marketplace Rule 5635(d) requires stockholder approval of the issuance of common
stock equal to 20% or more of the common stock outstanding before the issuance
for less than the greater of book or market value of the stock. Because the
Company’s has agreed to issue securities convertible into more than 20% of the
Company’s shares at a price that is lower than the book value of the shares, the
Company is seeking stockholder approval pursuant to Marketplace Rule
5635(d).
In
addition, under Marketplace Rule 5635(b), companies are required to obtain
stockholder approval prior to the issuance of securities when the issuance or
potential issuance would result in a “change of control” as defined by
NASDAQ. NASDAQ generally characterizes a transaction whereby an
investor or group of investors acquires, or obtains the right to acquire, 20% of
more of the voting power of an issuer on a post−transaction basis as a “change
of control” for purposes of Rule 5635(b). As of June 18, 2009 Citadel holds
approximately [17]% of the Company’s outstanding pre-transaction shares of
Common Stock. Assuming approval by the stockholders of this proposal
and Citadel’s participation in the Debt Exchange, Citadel could acquire more
than 20% of voting power of the Company’s Common Stock. Because
Citadel could potentially own in excess of 20% of the voting power of the
Company’s Common Stock following Debt Exchange, the Company is seeking
stockholder approval in order to comply with Marketplace Rule
5635(b).
Furthermore,
under Marketplace Rule 5635(c), companies are required to obtain stockholder
approval prior to issuance of common stock or securities convertible into or
exercisable for common stock to certain affiliates in a private placement at a
price less than the market value of the common stock, as such issuance is
considered a form of “equity compensation”. To the extent that the
issuance of the Debentures could be considered a form of “equity compensation”,
the Company is seeking stockholder approval pursuant to Marketplace Rule
5635(c).
Impact
on Stockholders of Approval or Disapproval of this Proposal
If this
Proposal is not approved, the Company will be unable to complete the Debt
Exchange and will be unable to retire the 2011 Notes and 2017 Notes tendered in
the Debt Exchange. As discussed in relation
to
Proposal 1 and under “Overview – Risk Factors – Risks Relating To
Proposals 1, 2 and 3,” if this Proposal is not approved, the Company will face
negative regulatory consequences which are likely to have a material adverse
effect on our business and the value of our Common Stock. For the
reasons stated previously, the
Board therefore recommends that the stockholders vote FOR this Proposal.
If this
Proposal is approved, there may be other effects on the stockholders, including
the following:
Citadel
may exercise significant influence over the Company and Citadel’s interests may
conflict with the interests of other stockholders.
Citadel
holds a majority of the outstanding notes in each series of the Company’s
high-yield debt securities. Following the Debt Exchange and Public
Equity Offering, we estimate that the Common Stock owned by Citadel, together
with the Common Stock issuable on conversion of the Debentures received by
Citadel, will represent between [ ]% and [ ]%
of the Company’s Common Stock on a fully diluted basis, depending on the total
amount of Notes tendered in the Debt Exchange. This would most likely
be sufficient to permit Citadel to elect a substantial number of directors and
control or significantly impact corporate policy. Citadel will be
unable to accomplish these matters for so long as it is subject to certain rules
of the OTS regarding rebuttal of control over thrifts and thrift holding
companies. If these rules change, or if Citadel receives a waiver or
decides to become a thrift holding company, it will be in a position to elect a
substantial number of directors and to control, or substantially impact,
corporate policy. Further, if Citadel acquires common shares
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 a premium to their face amount. In addition,
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. Any sales by Citadel of the Company’s Common Stock it
received under the Investment Agreement, in the Public Equity Offering or upon
conversion of the Debentures may have a depressing effect on the trading price
of the Company’s Common Stock. Citadel has a right to declare
defaults and enforce remedies just like any other lender for so long as Citadel
retains 25% or more of the applicable series of high-yield debt securities. 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.
The
issuance of the Debentures may have an anti-takeover effect on the
Company.
The
issuance of the Debentures could have an anti-takeover effect because such
issuance would make it more difficult for, or discourage an attempt by, a party
to obtain control of the Company by tender offer or other means. The
issuance of the Common Stock issuable upon conversion of the Debentures will
increase the number of shares entitled to vote, increase the number of votes
required to approve a change of control of the Company, and dilute the interest
of a party attempting to obtain control of the Company. The Board of
Directors does not have any current knowledge of any effort by any other third
party to accumulate the Company’s securities or obtain control of the Company by
any means.
Vote
Required and Board of Directors’ Recommendation
The
affirmative vote of the holders of a majority of the shares of Common Stock
present in person or represented by proxy and voting on the matter is necessary
under Rule 5635(e)(4) of the NASDAQ Marketplace Rules to approve the issuance of
the Common Stock issuable upon conversion of the
Debentures. Accordingly, failure to vote and broker non-votes will
not affect whether this proposal is approved, but an abstention will have the
same effect as a vote against the proposal.
The
E*TRADE Board of Directors has approved the Debt Exchange and the issuance of
the Debentures and the issuance of the Common Stock upon conversion of the
Debentures. Based on E*TRADE’s reasons for the Debt Exchange
described in this proxy statement, the Board of Directors of E*TRADE believes
that the approval of the issuance of Debentures and the issuance of Common Stock
upon conversion of the Debentures is in the best interests of E*TRADE and its
stockholders and recommends that you vote FOR approval of the
issuance of the Debentures and the issuance of
Common
Stock upon conversion of the Debentures under the applicable provisions of
NASDAQ Marketplace Rule 5635.
PROPOSAL
3. POTENTIAL ISSUANCE OF SHARES OF COMMON STOCK
Proposal
The
Company is seeking stockholder approval under the applicable provisions of
NASDAQ Marketplace Rule 5635 for the potential issuance of up to 365 million
shares of Common Stock, or securities convertible into or exchangeable or
exercisable for Common Stock, in connection with potential future exchange
transactions for its Outstanding Notes. The Company may decide to
offer to exchange Common Stock, or securities convertible into or exchangeable
or exercisable for Common Stock, for the Outstanding Notes in a registered
tender offer or from time to time in one or more privately negotiated
transactions that are exempt from registration pursuant to the Securities Act
under Section 3(a)(9) or otherwise. Although the Company expects to
offer to enter into these debt exchange transactions with the holders of its
Outstanding Notes, no such holders have made any commitments to enter into any
such transactions and there can be no assurance that the holders will agree to
any such exchanges in the future.
Reason
for Request for Stockholder Approval and Impact on Stockholders of Approval or
Disapproval of this Proposal
As
discussed in more detail under “Overview” above, the Company is seeking to
reduce its outstanding indebtedness and strengthen its capital
structure. The benefit of future exchange transactions is that they
may permit the Company to retire indebtedness without using cash. For
example, the Company issued an aggregate of [ ] shares of
Common Stock in exchange for [ ] aggregate principal amount of
Outstanding Notes during the period ended
[ ]. If the Debt Exchange is
consummated, assuming the maximum amount of Notes are tendered in the Debt
Exchange and based on the amount of Notes tendered during the Early Tender
Period, the Company would be obligated to issue an aggregate of
[ ]
shares of Common Stock upon conversion of the Debentures at the respective
initial conversion price of Class Debentures and Class B
Debentures. If the Company retires outstanding indebtedness in an
exchange transaction, it will reduce the amount of cash interest the Company is
required to pay in the future. This will permit the Company to use
its cash for other purposes, including contributing equity capital to E*TRADE
Bank.
Because
the Company’s Common Stock is listed on the NASDAQ Global Select Market, the
Company is subject to the NASDAQ Marketplace Rules. The Company is
seeking approval for the issuance of Common Stock in potential exchange
transactions under the applicable provisions of Marketplace Rule 5635, which
applies to the issuance of securities in certain circumstances.
For
example, NASDAQ Marketplace Rule 5635(d) requires a company to obtain
stockholder approval in connection with the issuance of securities in certain
circumstances, including in connection with a transaction or series of related
transactions (other than a public offering) involving the potential sale or
issuance of common stock at a price less than the greater of book or market
value of the common stock if the amount of common stock to be issued equals 20%
or more of the common stock or the voting power of the company’s shares
outstanding before giving effect to the issuance. The Company
believes that these transactions have been and will continue to be beneficial to
the Company and its stockholders such that it is seeking approval to enter into
additional transactions periodically over time that could involve the issuance
of Common Stock in excess of the 20% threshold.
In
addition, under Marketplace Rule 5635(c), companies are required to obtain
stockholder approval prior to issuance of common stock or securities convertible
into or exercisable for common stock to certain affiliates in a private
placement at a price less than the market value of the common stock, as such
issuance is considered a form of “equity compensation”. To the extent
that the issuance of the Common Stock or securities convertible into or
exercisable for Common Stock could be considered a form of “equity
compensation”, the Company is seeking stockholder approval pursuant to
Marketplace Rule 5635(c).
The potential future debt exchange
transactions contemplated by this Proposal will not result in cash proceeds to
the Company and any meaningful reduction in the Company’s indebtedness through
these transactions will result in significant dilution to stockholders. If
Citadel were to participate in these debt exchanges, Citadel’s ownership of the
Company’s Common Stock or securities convertible into Common
Stock
would increase. The Company currently has no commitment from Citadel or any
other holder of Outstanding Notes to engage in future debt exchange
transactions. Even if this Proposal 3 is approved, it is possible that the
Company may need to seek additional stockholder approvals to cover future equity
issuances to Citadel or other holders of its Outstanding Notes. For
additional information regarding the dilution to stockholders, see “Overview –
Risk Factors- Risks Relating To Proposals 1, 2 and 3.”
In the
past six months the closing price of the Company’s Common Stock has ranged from
$0.59 to $2.58. Due to the volatility of the trading price of the
Company’s Common Stock and the Outstanding Notes, the Company cannot predict the
number of shares that would be issued in these exchange transactions, the
effective purchase price it would be obligated to pay for Outstanding Notes in
these exchange transactions or the market price of its Common Stock on the dates
on which it enters into these exchange transactions. Depending on
market conditions, the Company may enter into these exchange transactions
periodically over time for as much of the principal amount of the Outstanding
Notes as possible within the limits of this approval. In addition,
the Company may use any available authorized but unissued shares to conduct
exchange transactions in circumstances where the exchange transactions do not
require stockholder approval under the NASDAQ rules. Therefore, the
Company may issue in the aggregate more than 365 million shares of Common Stock,
or securities convertible into or exchangeable or exercisable for Common Stock
in future debt exchanges.
In order
to take advantage of any opportunity that arises to exchange the Outstanding
Notes and reduce its indebtedness, the Company is asking you to approve the
issuance of shares of Common Stock for use in exchange transactions involving
Outstanding Notes, on such terms and conditions that the Board of Directors, in
its discretion, considers favorable to the Company.
Vote
Required and Board of Directors’ Recommendation
The
affirmative vote of the holders of a majority of the shares of Common Stock
present in person or represented by proxy and voting on the matter is necessary
under Rule 5635(e)(4) of the NASDAQ Marketplace Rules to approve the potential
issuance of Common Stock in debt exchange transactions under the applicable
provisions of NASDAQ Marketplace Rule 5635. Accordingly, failure to
vote and broker non-votes will not affect whether this proposal is approved, but
an abstention will have the same effect as a vote against the
proposal.
The Board of Directors recommends
that stockholders vote FOR the approval of the issuance of Common Stock, or
securities convertible into or exchangeable or exercisable for Common Stock, in
connection with in future debt exchange transactions in an amount up to
365 million shares of
Common Stock under the applicable provisions of NASDAQ Marketplace Rule
5635.
PROPOSAL
4. ADJOURNMENT, POSTPONEMENT OR CONTINUATION OF
THE SPECIAL
MEETING
Proposal
If at the
Special Meeting, the number of shares of E*TRADE’s Common Stock present or
represented and voting in favor of Proposals 1, 2 or 3 is insufficient to
approve the Proposals, E*TRADE’s management may move to adjourn, postpone or
continue the Special Meeting in order to enable its Board of Directors to
continue to solicit additional proxies in favor of Proposals 1, 2 or
3. In that event, you will be asked to vote only upon the
adjournment, postponement or continuation proposal and not on any other
Proposals.
In this
proposal, E*TRADE is asking you to authorize the holder of any proxy solicited
by its Board of Directors to vote in favor of adjourning, postponing or
continuing the Special Meeting and any later adjournments. If
E*TRADE’s stockholders approve the adjournment, postponement or continuation
proposal, E*TRADE could adjourn, postpone or continue the Special Meeting, and
any adjourned session of the Special Meeting, to use the additional time to
solicit additional proxies in favor of Proposals 1, 2 or 3, including the
solicitation of proxies from stockholders that have previously voted against the
Proposals. Among other things, approval of the adjournment,
postponement or continuation proposal could mean that, even if proxies
representing a sufficient number of votes against the other Proposals have been
received, E*TRADE could adjourn, postpone or continue the Special Meeting
without a vote on the other Proposals and seek to convince the holders of those
shares to change their votes to votes in favor of the approval of the
Proposals.
Vote
Required and Board of Directors’ Recommendation
The
adjournment, postponement or continuation proposal requires that holders of more
of E*TRADE’s shares vote in favor of the adjournment, postponement or
continuation proposal than vote against the proposal. Accordingly,
abstentions and broker non-votes will have no effect on the outcome of the
proposal. No proxy that is specifically marked AGAINST Proposals 1, 2
or 3 will be voted in favor of the adjournment, postponement or continuation
proposal, unless it is specifically marked FOR the discretionary authority to
adjourn, postpone or continue the Special Meeting to a later date.
The
E*TRADE Board of Directors recommends that stockholders vote FOR the proposal to
adjourn, postpone or continue the Special Meeting.
ADVISORY
RESOLUTION ON STOCKHOLDER RIGHTS PLAN
The Company is seeking a stockholder
vote on a non-binding resolution to retain until its scheduled expiration the
Rights Agreement, dated of July 9, 2001, as amended, between the Company and
American Stock Transfer and Trust Company, (the “Stockholder Rights Plan”),
subject to earlier termination or amendment in accordance with the Stockholder
Rights Plan.
Background
The
Stockholder Rights Plan was adopted in 2001 by the Board of
Directors. It works through the distribution to stockholders of
securities (called “rights”) that would cause substantial dilution to an
acquiror if the acquiror obtains ownership of more than 10% of the Company’s
Common Stock or engages in an unsolicited takeover attempt that would result in
greater than 10% ownership. The Board is permitted to redeem the
rights at a nominal cost to facilitate an acquisition that the Board regards as
advantageous to stockholders. The Company’s Board of Directors in the
past has permitted ownership positions in excess of the 10% threshold by
SOFTBANK America, Inc., an early investor in the Company, and Citadel (up to the
amount of its existing investment plus approximately 25 million additional
shares of Common Stock).
Companies
typically adopt stockholder rights plans to deter the accumulation of shares by
bidders to achieve a position of substantial influence, or even control, without
paying stockholders a control premium. Stockholder rights plans are
intended to give company boards of directors negotiating leverage in such
situations and to assure that all stockholders are treated equally in an
acquisition of the company.
In recent
years, rights plans have been criticized for their anti-takeover effect and for
being unfriendly to investors and on the grounds that they entrench
management. Many companies, under pressure from investors, have
terminated their rights plans. For example, according to
Shark.Repellant.net, the percentage of S&P 500 companies that had a
rights plan in effect at year-end 2008 is 21%, compared to 45% and 57% at
year-end 2005 and 2003, respectively. It is worth noting, however,
that boards of directors of companies without a stockholder rights plan in
effect, for the most part, have the ability to adopt one very rapidly and
without stockholder approval if, in the exercise of their fiduciary duties, the
directors determine that it is in the best interest of their
stockholders.
Reason
for Request for Stockholder Vote
Neither the Company’s Bylaws nor other
governing documents or applicable law require a stockholder vote to retain the
Stockholder Rights Plan. As part of the final negotiations leading to the Debt
Exchange and the Public Equity Offering, Citadel requested that the Company
either terminate the Stockholder Rights Plan or to, at a minimum, exempt Citadel
and its affiliates from being covered by the Stockholder Rights
Plan. Conversely, the Company’s Board of Directors requested that
Citadel agree to certain arrangements to freeze the amount of Citadel’s Common
Stock ownership and to provide contractually that non-Citadel directors be
permitted to represent the stockholders other than Citadel in connection with a
range of affiliate and control-related transactions. Neither party
agreed to these arrangements. Instead the Board and Citadel agreed,
as a matter of good corporate governance, to seek a non-binding advisory vote of
its stockholders to assist the Board in determining whether to retain the
Stockholder Rights Plan.
After
completion of the Public Equity Offering, Citadel owns approximately 16% of our
common shares. Following the Debt Exchange, we estimate that the
Common Stock owned by Citadel, together with the Common Stock issuable on
conversion of the securities acquired by Citadel in the Debt Exchange, ignoring
the prohibitions on conversion of these securities imposed by agreements Citadel
currently has with the OTS, will represent between [ ]% and
[ ]% of the Company’s Common Stock on a fully diluted basis,
depending on the total amount of Notes tendered in the Debt
Exchange. Citadel’s interests as a significant creditor and largest
stockholder of the Company may be different from the interests of our other
stockholders. Citadel is currently subject to certain rules of the
OTS regarding rebuttal of control over thrifts and thrift holding
companies. If these rules change, or if Citadel receives a waiver or
decides to become a thrift holding company, it will be in a position to elect a
substantial number of directors and to control, or substantially impact,
corporate policy.
Citadel has advised us that it will vote the shares of Common
Stock it owns representing no more than 9.9% of the shares of Common Stock
outstanding and entitled to vote at the Special Meeting to TERMINATE the
Stockholder Rights Plan and has agreed contractually to vote the balance of the
shares of Common Stock it owns in the same proportions as the votes cast by all
other stockholders.
The
outcome of the advisory vote on whether the Company should retain or terminate
the Stockholder Rights Plan until its scheduled expiration on July 9, 2011 will
not be binding on the Board of Directors. Therefore, there is no
“required vote” on this non-binding resolution. The Board
of Directors, in the exercise of its fiduciary duties, will consider the outcome
of the advisory vote in determining whether to retain or terminate the
Stockholder Rights Plan following such vote.
The E*TRADE Board of Directors makes
NO
RECOMMENDATION as to how stockholders should vote on the non-binding
resolution whether to retain or terminate the Stockholder Rights Plan until its
scheduled expiration on July 9, 2011.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information regarding the beneficial ownership of the
Company’s Common Stock as of March 13, 2009 by (i) each director; (ii) each
executive officer listed in the Summary Compensation Table in the Company’s
Definitive Proxy Statement on Schedule 14A for the 2009 annual meeting of
stockholders filed with the SEC on April 24, 2009; (iii) all current directors
and executive officers as a group; and (iv) each person who is known to the
Company to beneficially own more than 5% of the outstanding shares of the Common
Stock of the Company. All shares are subject to the named person’s
sole voting and investment power except where otherwise indicated.
Name
and Address of Beneficial Owner (1)
|
|
Number
of Shares
of
Common Stock
Beneficially
Owned
|
|
|
Percent
of
Common
Stock
Beneficially
Owned (2)
|
|
Directors
and Executive Officers:
|
|
|
|
|
|
|
Donald
H. Layton (3)
|
|
|
4,719,952 |
|
|
|
* |
|
Bruce
P. Nolop (4)
|
|
|
545,171 |
|
|
|
* |
|
Michael
Curcio (5)
|
|
|
1,266,578 |
|
|
|
* |
|
Greg
Framke (6)
|
|
|
1,269,224 |
|
|
|
* |
|
Nicholas
Utton (7)
|
|
|
1,119,615 |
|
|
|
* |
|
R.
Jarrett Lilien (8)
|
|
|
245,938 |
|
|
|
* |
|
Robert
J. Simmons (9)
|
|
|
574,042 |
|
|
|
* |
|
Matthew
Audette (10)
|
|
|
324,076 |
|
|
|
* |
|
Robert
A. Druskin (11)
|
|
|
205,741 |
|
|
|
* |
|
Ronald
D. Fisher (12)
|
|
|
239,856 |
|
|
|
* |
|
Kenneth
C. Griffin (13)
|
|
|
89,147,229 |
|
|
|
15.58 |
% |
George
A. Hayter (14)
|
|
|
462,514 |
|
|
|
* |
|
Frederick
W. Kanner (15)
|
|
|
105,741 |
|
|
|
* |
|
Michael
K. Parks (16)
|
|
|
119,483 |
|
|
|
* |
|
C.
Cathleen Raffaeli (17)
|
|
|
104,690 |
|
|
|
* |
|
Lewis
E. Randall (18)
|
|
|
1,526,062 |
|
|
|
* |
|
Joseph
L. Sclafani (19)
|
|
|
7,874 |
|
|
|
* |
|
Donna
L. Weaver (20)
|
|
|
161,240 |
|
|
|
* |
|
Stephen
H. Willard (21)
|
|
|
144,458 |
|
|
|
* |
|
All
directors and current executive officers as a group (15 persons)
(22)
|
|
|
11,998,199 |
|
|
|
2.10 |
% |
5%
Stockholders:
|
|
|
|
|
|
|
|
|
Citadel
Investment Group, L.L.C. (23)
131 S. Dearborn Street, 32nd
Floor
Chicago, Illinois
60603
|
|
|
89,147,229 |
|
|
|
15.58 |
% |
(1)
|
Unless
otherwise noted, all addresses are c/o E*TRADE Financial Corporation, 135
E. 57th
Street, New York, New York 10022.
|
(2)
|
Based
on 572,051,743 shares outstanding on March 13, 2009. On
June 24, 2009, the Company issued and sold 500,000,000 additional shares
of common stock. The number of shares outstanding as of
[ ]
is
[ ]. See
“Proposal 2. Increase In Authorized Shares Of Common Stock –
|
|
Reason
for Request for Stockholder Approval and Impact on Stockholders of
Approval or Disapproval of this Proposal” for a discussion of shares
issued and outstanding or reserved for issuance and commitments to issue
shares as of [ ], 2009. Shares of Common Stock
subject to options that are exercisable within 60 days of March 13,
2009 are deemed beneficially owned by the person holding such options for
the purpose of computing the percentage of ownership of such person but
are not treated as outstanding for the purpose of computing the percentage
of any other person.
|
(3)
|
Includes
675,132 shares of unvested restricted Common Stock subject to the
Company’s right of repurchase and 2,955,270 shares of Common Stock
issuable upon exercise of vested stock options exercisable within 60 days
of March 13, 2009.
|
(4)
|
Includes
545,171 shares of unvested restricted Common Stock subject to the
Company’s right of repurchase.
|
(5)
|
Includes
804,869 shares of unvested restricted Common Stock subject to the
Company’s right of repurchase and 415,542 shares of Common Stock issuable
upon the exercise of vested stock options exercisable within 60 days of
March 13, 2009.
|
(6)
|
Includes
729,247 shares of unvested restricted Common Stock subject to the
Company’s right of repurchase and 479,796 shares of Common Stock issuable
upon exercise of vested stock options exercisable within 60 days of
March 13, 2009.
|
(7)
|
Includes
582,134 shares of unvested restricted Common Stock subject to the
Company’s right of repurchase and 450,103 shares of Common Stock issuable
upon exercise of the vested stock options exercisable within 60 days of
March 13, 2009.
|
(8)
|
Based
on information most recently available to the
Company. Mr. Lilien resigned from employment with the
Company effective April 22, 2008. Includes 245,938
outstanding stock options which will expire on April 22,
2009.
|
(9)
|
Based
on the information most recently available to the
Company. Mr. Simmons resigned from employment with the
Company effective May 6, 2008. Includes 543,250
outstanding stock options which will expire on May 6,
2009.
|
(10)
|
Includes
298,571 shares of unvested restricted Common Stock subject to the
Company’s right of repurchase and 200,988 shares of Common Stock issuable
upon exercise of vested stock options exercisable within 60 days of
March 13, 2009.
|
(11)
|
Includes
5,741 shares of unvested restricted Common Stock subject to the Company’s
right of repurchase.
|
(12)
|
Includes
6,277 shares of unvested restricted Common Stock subject to the Company’s
right of repurchase and 178,592 shares of Common Stock issuable upon the
exercise of vested stock options exercisable within 60 days of
March 13, 2009.
|
(13)
|
Includes
shares beneficially owned by Citadel Investment Group, L.L.C. (“Citadel
Investment Group), which is controlled by Mr. Griffin. See
footnote 23. Mr. Griffin was appointed to the Company’s Board
of Directors effective on June 8,
2009.
|
(14)
|
Includes
7,349 shares of unvested restricted Common Stock subject to the Company’s
right of repurchase and 180,343 shares of Common Stock issuable upon the
exercise of vested stock options exercisable within 60 days of
March 13, 2009.
|
(15)
|
Includes
5,741 shares of unvested restricted Common Stock subject to the Company’s
right of repurchase.
|
(16)
|
Includes
6,277 shares of unvested restricted Common Stock subject to the Company’s
right of repurchase and 82,939 shares of Common Stock issuable upon
exercise of vested stock options exercisable within 60 days of
March 13, 2009.
|
(17)
|
Includes
6,277 shares of unvested restricted Common Stock subject to the Company’s
right of repurchase and 82,939 shares of Common Stock issuable upon
exercise of vested stock options exercisable within 60 days of
March 13, 2009.
|
(18)
|
Includes
637,100 shares held by Lewis or Martha Randall, as Trustees of the Lewis
E. and Martha E. Randall Living Trust dated August 16,
1984. Includes 220,000 shares held solely by Mr. Randall’s
wife. Mr. Randall disclaims beneficial ownership of such
shares. Also includes 6,277 shares of unvested restricted
Common Stock subject to the Company’s right of repurchase and 160,000
shares of Common Stock issuable upon exercise of vested stock options
exercisable within 60 days of March 13,
2009.
|
(19)
|
Includes
7,874 shares of unvested restricted Common Stock subject to the Company’s
right of repurchase.
|
(20)
|
Includes
6,277 shares of unvested restricted Common Stock subject to the Company’s
right of repurchase and 60,000 shares of Common Stock issuable upon
exercise of vested stock options exercisable within 60 days of
March 13, 2009.
|
(21)
|
Includes
6,277 shares of unvested restricted Common Stock subject to the Company’s
right of repurchase and 95,000 shares of Common Stock issuable upon
exercise of vested stock options exercisable within 60 days of
March 13, 2009.
|
(22)
|
Includes
the information in the notes above, as applicable. Excludes
executive officers and directors appointed after March 13, 2009, including
Karl A. Roessner, who was appointed Executive Vice President and General
Counsel on May 15, 2009 and Kenneth C. Griffin, the President and Chief
Executive Officer of Citadel Investment Group, L.L.C., who joined the
Board of Directors effective June 8,
2009.
|
(23)
|
These
securities are owned by various individual and institutional investors for
which Citadel Investment Group serves as investment adviser with power to
direct investments and/or sole power to vote the
securities. For purposes of the reporting requirements of the
Securities Exchange Act of 1934 Citadel Investment Group is deemed to be a
beneficial owner of such securities; however, Citadel expressly disclaims
that it is, in fact, the beneficial owner of such
securities. The number of shares is based upon Form 4 Statement
of Changes in Beneficial Ownership of Securities as filed by Citadel
Investment Group and its affiliated reporting persons with the Securities
and Exchange Commission on March 6, 2009. Various
affiliates of Citadel Investment Group purchased 90,909,091
additional shares of common stock on June 24, 2009 in the Public Equity
Offering described in this proxy statement, which are not reflected in the
table above.
|
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
The
Company files annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document that the Company
files at the Public Reference Room of the SEC at 100 F Street, N.E., Washington,
D.C. 20549. You may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a
website at www.sec.gov, from which interested persons can electronically access
the Company’s SEC filings.
The SEC
allows the Company to “incorporate by reference” the information the Company
files with it, which means that the Company can disclose important information
to you by referring you to those documents. The information incorporated by
reference is considered to be part of this proxy statement, and information that
the Company files later with the SEC will automatically update and supersede
previously filed information, including information contained in this document.
The Company incorporates by reference its Current Reports on Form 8-K filed with
the SEC on May 8, 2009, May 14, 2009, June 10, 2009, June 17, 2009, June 19,
2009 and June 23, 2009 and the following sections of its Annual Report on Form
10-K for the fiscal year ended December 31, 2008, filed with the SEC on
February 26, 2009 and Quarterly Report on Form 10-Q for the quarter ended
March 31, 2009, filed with the SEC on May 5, 2009, which include the information
required by Item 13(a) of Schedule 14A: “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” “Consolidated Financial
Statements,” “Notes to Consolidated Financial Statements,” “Quantitative and
Qualitative Disclosures about Market Risk” and “Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure.” Representatives of
Deloitte & Touche LLP, the Company’s principal accountants, are not expected
to be available to answer questions of stockholders.
The
Company is incorporating by reference into this document important business and
financial information that is not included in or delivered with this document.
This information is available without charge to security holders upon written or
oral request.
Any
person, including any beneficial owner, to whom this proxy statement is
delivered may request copies of reports, proxy statements or other information
concerning the Company, without charge, by written or telephonic request
directed to the Corporate Secretary at 135 East 57th Street, New York, New York
10022 or 646-521-4406. If you would like to request documents, please
do so by [ ], 2009, in order to receive them before the Special
Meeting.
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SPECIAL MEETING OR
STOCKHOLDERS TO BE HELD ON [ ], 2009.
The proxy
statement is available at http://www.investor.etrade.com.
OTHER
MATTERS
Management
does not know of any matters to be presented at this Special Meeting of
Stockholders other than those set forth herein and in the Notice accompanying
this Proxy Statement.
COMMON
STOCK
PROXY
FOR SPECIAL MEETING OF STOCKHOLDERS
[ ],
2009
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned hereby appoints Donald H. Layton, Bruce P. Nolop, and Karl A.
Roessner and each or any of them as Proxies of the undersigned, with full power
of substitution, and hereby authorizes them to represent and to vote, as
designated below, all of the shares of Common Stock of E*TRADE Financial
Corporation, held of record by the undersigned on [ ], 2009 at
the Special Meeting of Stockholders of E*TRADE Financial Corporation to be held
[ ], 2009, or at any postponement or adjournment
thereof.
1.
|
To
amend Article FOURTH of the Company’s Restated Certificate of
Incorporation to increase the number of authorized shares of common stock,
par value $0.01, from 1,200,000,000 to 4,000,000,000 (and,
correspondingly, increase the total number of authorized shares of capital
stock from 1,201,000,000 to
4,001,000,000);
|
/__/ FOR /__/ AGAINST /__/ ABSTAIN
2.
|
To
approve under the applicable provisions of NASDAQ Marketplace Rule 5635
the issuance of Class A Senior Convertible Debentures due 2019 and Class B
Senior Convertible Debentures due 2019 and the issuance of common stock
issuable upon conversion of the Class A Senior Convertible Debentures due
2019 and Class B Senior Convertible Debentures due 2019 in connection with
the proposed debt exchange transaction described in the proxy
statement;
|
/__/ FOR /__/ AGAINST /__/ ABSTAIN
3.
|
To
approve under the applicable provisions of NASDAQ Marketplace Rule 5635
the potential issuance of common stock, or securities convertible into or
exchangeable or exercisable for common stock, in connection with future
debt exchange transactions described in the proxy statement in an amount
up to 365 million shares; and
|
/__/ FOR /__/ AGAINST /__/ ABSTAIN
4.
|
To adjourn, postpone or continue
the Special Meeting.
|
/__/ FOR /__/ AGAINST /__/ ABSTAIN
5. Non-binding
resolution on whether to retain or terminate our Stockholder Rights Plan until
its scheduled expirationon July 9, 2011.
/__/ RETAIN RIGHTS
PLAN /__/ TERMINATE
RIGHTS
PLAN /__/ ABSTAIN
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF PROPOSALS 1, 2, 3 AND
4. THE BOARD OF DIRECTORS MAKES NO RECOMMENDATION WITH REGARD TO THE
ADVISORY RESOLUTION IN ITEM 5. THIS PROXY, WHEN PROPERLY EXECUTED,
WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO SUCH
DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR EACH OF THE ABOVE
PROPOSALS.
PLEASE
SIGN EXACTLY AS YOUR NAME(S) IS (ARE) SHOWN ON THE SHARE CERTIFICATE TO WHICH
THE PROXY APPLIES. WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD
SIGN. WHEN SIGNING AS AN ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE
OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
|
Dated:
_____________________, 2009
_________________________________
(Signature)
__________________________________
(Additional
signature if held jointly)
|
PLEASE
COMPLETE, SIGN AND DATE THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE.