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SCHEDULE 14A INFORMATION
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:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
E*TRADE GROUP, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) 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) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] 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.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
[LOGO OF E*TRADE]
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held February 19, 1997
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To our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of
E*TRADE Group, Inc. (the "Company") which will be held at Quadrus Conference
Center located at 2400 Sand Hill Road, Menlo Park, California 94025, on
February 19, 1997 for the following purposes:
1. To elect to the Board two directors;
2. To consider and vote upon a proposal to ratify the selection of Deloitte
& Touche LLP as independent public accountants for the Company for the
fiscal year ending September 30, 1997; and
3. To act upon such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on January 15, 1997
as the record date for determining those shareholders who will be entitled to
vote at the meeting. The stock transfer books will not be closed between the
record date and the date of the meeting.
Representation of at least a majority of all outstanding shares of Common
Stock of E*TRADE Group, Inc. is required to constitute a quorum. Accordingly,
it is important that your shares be represented at the meeting. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED
PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. Your proxy may be revoked
at any time prior to the time it is voted.
Please read the proxy material carefully. Your vote is important and the
Company appreciates your cooperation in considering and acting on the matters
presented.
Very truly yours,
Christos M. Cotsakos
President and Chief Executive
Officer
Palo Alto, California
January 24, 1997
Shareholders Should Read the Entire Proxy Statement
Carefully Prior to Returning Their Proxies
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PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS OF
E*TRADE GROUP, INC.
----------------
To Be Held February 19, 1997
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of E*TRADE Group, Inc. ("E*TRADE" or the "Company") of
proxies to be voted at the Annual Meeting of Shareholders which will be held
at 10 a.m. on February 19, 1997 at Quadrus Conference Center located at 2400
Sand Hill Road, Menlo Park, California 94025 or at any adjournments or
postponements thereof, for the purposes set forth in the accompanying Notice
of Annual Meeting of Shareholders. This Proxy Statement and the proxy card
were first mailed to shareholders on or about January 27, 1997. The principal
executive offices of E*TRADE are located at 2400 Geng Road, Palo Alto,
California 94303.
VOTING RIGHTS AND SOLICITATION
The close of business on January 15, 1997 was the record date for
shareholders entitled to notice of and to vote at the Annual Meeting. As of
that date, E*TRADE had 29,605,147 shares of common stock, $.01 par value per
share (the "Common Stock"), issued and outstanding. All of the shares of the
Company's Common Stock outstanding on the record date are entitled to vote at
the Annual Meeting, and shareholders of record entitled to vote at the meeting
will have one (1) vote for each share so held on the matters to be voted upon.
Shares of the Company's Common Stock represented by proxies in the
accompanying form which are properly executed and returned to E*TRADE will be
voted at the Annual Meeting of Shareholders in accordance with the
shareholders' instructions contained therein. In the absence of contrary
instructions, shares represented by such proxies will be voted FOR the
election of the director as described herein under "Proposal 1--Election of
Directors" and FOR ratification of the selection of accountants as described
herein under "Proposal 2--Ratification of Selection of Independent Public
Accountants." Management does not know of any matters to be presented at this
Annual Meeting other than those set forth in this Proxy Statement and in the
Notice accompanying this Proxy Statement. If other matters should properly
come before the meeting, the proxy holders will vote on such matters in
accordance with their best judgment. Any shareholder has the right to revoke
his or her proxy at any time before it is voted. Election of directors by
shareholders shall be determined by a plurality of the votes cast by the
shareholders entitled to vote at the election present in person or represented
by proxy. Abstentions and broker non-votes are each included in the
determination of the number of shares present for quorum purposes. Abstentions
are counted in tabulations of the votes cast on proposals presented to
shareholders, whereas broker non-votes are not counted for purposes of
determining whether a proposal has been approved. The approval of the proposal
to ratify the selection of accountants requires a majority of the votes cast
to be affirmative.
The entire cost of soliciting proxies will be borne by E*TRADE. Proxies will
be solicited principally through the use of the mails, but, if deemed
desirable, may be solicited personally or by telephone, telegraph or special
letter by officers and regular E*TRADE employees for no additional
compensation. Arrangements may be made with brokerage houses and other
custodians, nominees and fiduciaries to send proxies and proxy material to the
beneficial owners of the Company's Common Stock, and such persons may be
reimbursed for their expenses.
1
PROPOSAL 1
ELECTION OF DIRECTORS
The members of the Board of Directors of E*TRADE are classified into three
classes, one of which is elected at each Annual Meeting of Shareholders to
hold office for a three-year term and until successors of such class have been
elected and qualified. The nominees for the Board of Directors are set forth
below. The proxy holders intend to vote all proxies received by them in the
accompanying form for the nominees for director listed below. In the event
that either nominee is unable or declines to serve as a director at the time
of the Annual Meeting, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors to fill the vacancy. In the event
that additional persons are nominated for election as directors, the proxy
holders intend to vote all proxies received by them for the nominees listed
below. As of the date of this Proxy Statement, the Board of Directors is not
aware that either nominee is unable or will decline to serve as a director.
Nominees to Board of Directors
Class and
Year
Director in Which Term
Name Principal Occupation Since Will Expire Age
---- -------------------- -------- ------------- ---
Lewis E. Randall........ President 1983 Class III 54
Lone Tree, Inc. 2000
Lester C. Thurow........ Professor of Economics 1996 Class III 58
Massachusetts Institute of Technology 2000
Lewis E. Randall has been a director of the Company since 1983. Mr. Randall
served both Apple Computer and Intel during their formative years, largely in
the capacity of software and hardware engineering management. Mr. Randall has
served as the owner and president of Lone Tree, Inc. a privately held loan
factor, since August 1994, and served as its Vice President of Finance and co-
owner from September 1989 to August 1994.
Lester C. Thurow has been a director of the Company since April 1996. Mr.
Thurow has been a Professor of Economics at Massachusetts Institute of
Technology ("MIT") since 1968. From 1987 to 1993, he served as Dean of MIT's
Sloan School of Management. Mr. Thurow has served as a director of Analog
Devices, Inc., a publicly traded semiconductor and software company, since
1991, and as a director of Grupo Casa Autry, a publicly traded wholesale
distributor of pharmaceuticals since 1993. Mr. Thurow received a BA in
economics from Williams College, an MA from Oxford and a Ph.D. from Harvard
University.
Directors Not Standing for Election
The members of the Board of Directors who are not standing for election at
this year's Annual Meeting are set forth below.
Class and
Year
Director in Which Term
Name Principal Occupation Since Will Expire Age
---- -------------------- -------- ------------- ---
William A. Porter....... Chairman of the Board of E*TRADE Group, Inc. 1982 Class I 68
1999
Christos M. Cotsakos.... President and Chief Executive Officer of 1996 Class I 48
E*TRADE Group, Inc. 1999
Richard S. Braddock..... Private Investor 1996 Class I 55
1999
William E. Ford......... Managing Member, General Atlantic Partners, LLC 1995 Class II 35
1998
George Hayter........... Partner, George Hayter Associates 1995 Class II 58
1998
Keith Petty............. Business and Legal Consultant 1982 Class II 76
1998
2
William A. Porter is the Chairman and Founder of E*TRADE Group, Inc. He
founded the Company in 1982 and served as President until October 1993 and
Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary,
until April 1996. He founded E*TRADE Securities, Inc. in 1992. Mr. Porter
received a BA in Mathematics from Adams State College, an MA in Physics from
Kansas State College, and an MBA in Management from the Massachusetts
Institute of Technology. In May 1996, Mr. Porter was named Silicon Valley's
Emerging Company Entrepreneur of the Year by the San Jose Business Journal.
Christos M. Cotsakos joined E*TRADE Group, Inc. in March 1996 as President,
Chief Executive Officer and a director. Prior to joining E*TRADE, he served as
President, Co-Chief Executive Officer, Chief Operating Officer and a director
of A.C. Nielsen, Inc. from March 1995 to January 1996, as President and Chief
Executive Officer of Nielsen International from September 1993 to March 1995,
and as President and Chief Operating Officer of Nielsen Europe, Middle East
and Africa from March 1992 to September 1993. Mr. Cotsakos joined Nielsen
after 19 years with the Federal Express Corporation from 1973 to 1992, where
he held a number of senior executive positions both in the United States and
Europe, including vice president and general manager for Europe, Africa and
the Near East from 1988 to March 1992. Mr. Cotsakos serves as a director of
National Processing, Inc., a provider of transaction processing services and
customized processing software, and Forte Software, Inc., a publicly traded
company that designs, develops, markets, and supports Forte, an advanced
application environment that simplifies the complexities of high-end
distributed applications. A decorated Vietnam Veteran, he received a BA, cum
laude, from William Paterson College, an MBA, summa cum laude, from Pepperdine
University and is currently pursuing a PhD in the field of corporate
governance at the Management School, University of London.
Richard S. Braddock has been a director of the Company since April 1996.
From June 1994 to September 1995, he served as a partner in Clayton, Dubilier
& Rice, a leveraged buy-out firm. From January 1993 to July 1993, he served as
Chief Executive Officer of Medco Containment, a mail-order pharmaceutical
company. From 1974 to October 1992, Mr. Braddock served in various capacities
with Citibank, including as President and Chief Operating Officer from 1990 to
October 1992 and as a director from 1985. Mr. Braddock serves on the board of
directors of Eastman Kodak Company, True North Communications, an advertising
company, ION Laser Technology, the Lincoln Center for the Performing Arts, and
IBN Limited. He received a BA in History from Dartmouth and an MBA from
Harvard University.
William E. Ford has been a director of the Company since September 1995. Mr.
Ford is a managing member of General Atlantic Partners, LLC ("GAP LLC") and
has been with GAP LLC since July 1991. From August 1987 to July 1991, Mr. Ford
was an associate with Morgan Stanley & Co., Incorporated. Mr. Ford is also a
director of Envoy Corporation, a publicly traded health insurance claims
processing company, GT Interactive Software, a publicly traded software
company, Marcam Corporation, a publicly traded software company, SS&C
Technologies, Inc., a publicly traded software company, and several private
software companies in which GAP LLC or one of its affiliates is an investor.
Mr. Ford received a BA in Economics from Amherst College and an MBA from the
Stanford Graduate School of Business.
George Hayter has been a director of the Company since December 1995 and
currently provides consulting services to the Company. Mr. Hayter has served
as a partner of George Hayter Associates, a consulting firm, from 1990 to the
present. From 1976 to December 1990, he served with the London Stock Exchange,
serving in his final position as the Managing Director of Trading Markets
Division. Mr. Hayter serves on the boards of directors of Critchley Group PLC,
an electrical accessories company listed on the London Stock Exchange, Linea
Directa Aseguradora SA, a car insurance company in Spain, Pegasus Group PLC,
an accounting software company listed on the London Stock Exchange, and Active
Imaging PLC, a digital image processing manufacturer traded on the London AIM
Market. He received an MA in Natural Sciences from Queens' College, Cambridge,
England.
Keith Petty has been a director of the Company since 1982. Mr. Petty was a
founding partner of the law firm of Jackson Tufts Cole & Black, LLP (formerly
Petty, Andrews, Tufts & Jackson) and retired from that firm in 1986. He
received a BS in Business (major in accounting) from the University of Idaho
and a JD from
3
Stanford Law School, is a certified public accountant and has been admitted to
the bar in California and Idaho. Mr. Petty currently provides business and
legal consulting to start-up companies and serves as a Director for four other
privately held for-profit companies and two nonprofit companies.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of five meetings during
fiscal 1996. Each director attended at least 75% of the aggregate of (i) the
total number of meetings of the Board and (ii) the total number of meetings
held by all committees of the Board on which he served.
The Board of Directors has created an Audit Committee, a Compensation
Committee and a Nominating Committee of the Board. The Audit Committee is
composed of William E. Ford (Chair), Lester C. Thurow and George Hayter and is
charged with reviewing the Company's annual audit and meeting with the
Company's independent accountants to review the Company's internal controls
and financial management practices. The Audit Committee held one meeting
during fiscal 1996. The Compensation Committee, which is composed of Richard
S. Braddock (Chair), William E. Ford and Keith Petty, recommends to the Board
of Directors compensation for the Company's key associates and administers the
1996 Stock Incentive Plan, the 1993 Stock Option Plan, the 1983 Employee
Incentive Stock Option Plan and the 1996 Stock Purchase Plan. The Compensation
Committee held one meeting during fiscal 1996. The Nominating Committee, which
is comprised of Christos M. Cotsakos (Chair), William A. Porter and Lewis E.
Randall, nominates for shareholder approval persons to membership on the Board
of Directors. The Nominating Committee did not meet during fiscal 1996. The
Nominating Committee will consider nominees recommended by shareholders. For
the Annual Meeting of Shareholders in 1998, recommendations must be received
by E*TRADE no later than September 26, 1997. Recommendations must be mailed to
the Company's principal executive offices, 2400 Geng Road, Palo Alto,
California 94303, Attention: Stephen C. Richards.
DIRECTOR REMUNERATION
Non-employee directors receive $5,000 per year, in addition to $800 for each
meeting of the Board attended (and $400 for committee meetings attended). In
addition, each non-employee director receives stock options pursuant to the
automatic option grant provisions of the Company's 1996 Stock Incentive Plan.
All directors receive reimbursement of reasonable out-of-pocket expenses
incurred in connection with meetings of the Board. No director who is an
employee of the Company will receive compensation for services rendered as a
director.
In January 1996, Mr. Hayter was granted an option to purchase 60,000 shares
of Common Stock at an exercise price of $2.05 per share. In March 1996,
Messrs. Braddock, Ford, Petty, Randall and Thurow were each granted options to
purchase 60,000 shares of Common Stock at an exercise price of $2.33 per
share. The options become exercisable 20% after each year of service from the
date of grant. In March 1996, Mr. Cotsakos received an option to purchase
600,000 shares of Common Stock at $2.33 per share and in May 1996, he received
an additional option to purchase 480,000 shares at $7.00 per share. The
options vested for 20% of the shares on September 1, 1996 and vest for 80% of
the shares in equal monthly installments over a period of four years of
employment. All options to directors were granted at the fair market value per
share of Common Stock on the grant date.
4
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1996 by (i) each
person who is known to the Company to own beneficially more than 5% of the
outstanding shares of the Common Stock of the Company, (ii) each director,
(iii) each officer listed in the Summary Compensation Table and (iv) all
directors and executive officers as a group. All shares are subject to the
named person's sole voting and investment power except where otherwise
indicated.
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK(1)
------------------- ------------------ ---------------
William A. Porter (2)(3)................. 3,276,951 11.1%
Christos M. Cotsakos (4)................. 1,443,000 4.8
Richard S. Braddock...................... 428,581 1.5
William E. Ford (5)...................... 1 *
George Hayter (6)........................ 19,518 *
Keith Petty (7).......................... 364,621 1.2
Lewis E. Randall (8)..................... 495,001 1.7
Lester C. Thurow......................... 20,001 *
Bernard A. Newcomb (2)................... 2,420,821 8.2
General Atlantic Partners LLC (9)........ 6,872,580 23.3
Kathy Levinson (10)...................... 418,921 1.4
Stephen C. Richards...................... 1 *
David R. Ewing (11)...................... 96,001 *
Wayne H. Heldt (12)...................... 700,021 2.3
All directors and executive officers as a
group
(13 persons) (13)........................ 6,602,619 21.5
- --------
*Less than 1%.
(1) Based on 29,545,147 shares outstanding on December 31, 1996. Shares of
Common Stock subject to options that are exercisable within 60 days of
December 31, 1996 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.
(2) The address of Mr. Porter and Mr. Newcomb is c/o E*TRADE Group, Inc.,
Four Embarcadero Place, 2400 Geng Road, Palo Alto, California 94303.
(3) Includes 200,460 shares of Common Stock held by Mr. Porter's wife. Mr.
Porter disclaims beneficial ownership of such shares.
(4) Includes 198,000 shares held by the Cotsakos Revocable Trust under
Agreement dated September 3, 1987, 105,000 shares held in an IRA account
and 60,000 shares held as a custodian for his daughter. Mr. Cotsakos
disclaims beneficial ownership of shares held as a custodian and one-half
the shares held by the Cotsakos Revocable Trust. Also includes 1,080,000
shares of Common Stock which Mr. Cotsakos has the option to purchase, of
which, options to purchase 324,000 shares are exercisable within 60 days
of December 31, 1996.
(5) Excludes 6,030,120 shares held by General Atlantic Partners II, L.P. and
842,460 shares held by GAP Coinvestment Partners, L.P. See footnote 9
below.
(6) Includes 12,000 shares of Common Stock which Mr. Hayter has the option to
purchase within 60 days of December 31, 1996.
(7) Includes 364,620 shares held by Keith and Gail Wells Petty, as Trustees
of the Keith and Gail Wells Petty Trust.
(8) Includes 294,000 shares held by Lewis or Martha Randall, as Trustees of
the Lewis E. and Martha E. Randall Living Trust dated 8/16/84. Includes
96,000 shares held solely by Mr. Randall's wife. Mr. Randall disclaims
beneficial ownership of such shares held by his wife.
5
(9) Includes 6,030,120 shares held by General Atlantic Partners II, L.P.
("GAP II") and 842,460 shares held by GAP Coinvestment Partners, L.P.
("GAP Coinvestment"). The general partner of GAP II is General Atlantic
Partners, LLC ("GAP LLC"), a Delaware limited liability company. Mr. Ford,
a director of the Company, is one of the managing members of GAP LLC. The
same managing members of GAP LLC are the general partners of GAP
Coinvestment. Mr. Ford disclaims beneficial ownership of shares owned by
GAP II and GAP Coinvestment except to the extent of his pecuniary interest
therein. The address for GAP II, GAP Coinvestment, GAP LLC and Mr. Ford
is: c/o General Atlantic Service Corporation, Three Pickwick Plaza,
Greenwich, CT 06830.
(10) Includes 148,800 shares of Common Stock issuable upon exercise of stock
options that are exercisable within 60 days of December 31, 1996.
(11) Includes 96,000 shares of Common Stock issuable upon exercise of stock
options that are exercisable within 60 days of December 31, 1996.
(12) Includes 420,000 shares of Common Stock issuable upon exercise of stock
options that are exercisable within 60 days of December 31, 1996.
(13) Includes the information in the notes above, as applicable. With respect
to shares held by Mr. Cotsakos, includes only those shares which are
beneficially owned and those shares subject to options which are
exercisable within 60 days of December 31, 1996. In addition, includes an
additional 96,000 shares of Common Stock issuable upon exercise of stock
options that are exercisable within 60 days of December 31, 1996, which
options are held by executive officers of the Company who are not
identified in the above table. Excludes shares held by Mr. Newcomb who is
a director emeritus, but not currently an executive officer of the
Company.
6
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth the compensation earned by the Company's
current and former Chief Executive Officers and the Company's four other
highest-paid executive officers ("Named Executive Officers") for services
rendered in all capacities to the Company and its subsidiaries for the fiscal
years ended September 30, 1996 and 1995, respectively.
Summary Compensation Table(1)
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------------- ------------
Securities
Name and Principal Salary Other Annual Underlying All Other
Position Year ($) Bonus ($) Compensation ($) Options/SARs Compensation ($)
- ------------------ ---- ------ --------- ---------------- ------------ ----------------
Christos M. Cotsakos 1996 126,134(2) 437 53,804(3) 1,080,000 --
President and Chief 1995 -- -- -- -- --
Executive Officer
William A. Porter (4) 1996 206,667(5) 21,982 -- -- 2,013(6)
Chairman of the Board 1995 140,713(5) 22,395 -- -- 1,315(6)
Kathy Levinson 1996 163,309(7) 546 -- 144,000 --
Executive Vice 1995 113,941(7) -- -- 600,000(8) --
President of
Operations
Stephen C. Richards 1996 59,187 102,659(9) 69,000(10) 240,000 --
Senior Vice President 1995 -- -- -- -- --
of Finance and
Administration, Chief
Financial Officer and
Treasurer
David R. Ewing 1996 135,292 10,949 -- -- --
Senior Vice President 1995 10,417 -- -- 240,000 --
of E*TRADE
Technologies and Chief
Information Officer
Wayne H. Heldt 1996 146,333(11) 19,252 -- -- 2,483(6)
Vice President and 1995 127,500(11) 21,664 -- -- 629(6)
Managing Director of
International Affairs
- --------
(1) In accordance with the rules of the SEC, the compensation described in
this table does not include medical, group life insurance or other
benefits received by the Named Executive Officers that are available
generally to all salaried employees of the Company, and certain
perquisites and other personal benefits received by the Named Executive
Officers that do not exceed the lesser of $50,000 or 10% of any such
officer's salary and bonus disclosed in this table.
(2) Includes $2,000 paid to Mr. Cotsakos in his capacity as a director.
(3) Includes $50,000 as reimbursement of relocation and moving expenses.
(4) Mr. Porter served as Chief Executive Officer until April 1996.
(5) Includes $4,000 and $5,000 paid to Mr. Porter in his capacity as a
director in fiscal 1996 and 1995, respectively.
(6) Represents employer contributions to the Company's 401(k) Plan.
7
(7) Includes $52,059 in fiscal 1996 and $113,941 in fiscal 1995 paid to Ms.
Levinson in her capacity as a consultant from January 1995 to December
1995.
(8) Includes 300,000 shares of Common Stock pursuant to a warrant issued to
Ms. Levinson in her capacity as a consultant, which warrant was fully
exercised by January 1996.
(9) Includes a one-time signing bonus of $102,441.
(10) Represents reimbursement of relocation and moving expenses.
(11) Includes $3,000 and $5,000 paid to Mr. Heldt in his capacity as a
director in fiscal 1996 and 1995, respectively.
Stock Options
The following table contains information concerning the grant of stock
options under the Company's 1993 Stock Option Plan for the 1996 fiscal year to
the Named Executive Officers. The table also lists potential realizable values
of such options on the basis of assumed annual compounded stock appreciation
rates of 5% and 10% over the life of the options which are set at a maximum of
10 years.
Option/SAR Grants in Last Fiscal Year
Potential
Individual Grants Realizable Value at
---------------------------------------------- Assumed Annual
Number of Rates of Stock
Securities % of Total Price Appreciation
Underlying Options/SARs Exercise for Option Term
Options/SARs Granted to or Base -------------------
Granted Employees in Price Expiration 5% 10%
Name (#)(1) Fiscal Year ($/Sh)(2) Date ($)(3) ($)(3)
---- ------------ ------------ --------- ---------- --------- ---------
Christos M. Cotsakos.... 600,000 14.8% $2.33 3/28/06 880,500 2,231,200
480,000 11.9% $7.00 5/14/06 2,113,100 5,355,000
William A. Porter....... 0 0 0 0 0 0
Kathy Levinson.......... 144,000 3.6% $2.05 1/1/06 185,600 470,500
Stephen C. Richards..... 210,000 5.2% $2.33 3/28/06 308,200 780,900
30,000 0.7% $7.00 5/14/06 132,100 334,700
David R. Ewing.......... 0 0 0 0 0 0
Wayne H. Heldt.......... 0 0 0 0 0 0
- --------
(1) Each option, with the exception of options granted to Christos M.
Cotsakos, will become exercisable for 20% of the option shares after 12
months of continued service from the date of grant. The balance of the
option shares will become exercisable in a series of 4 successive equal
annual installments upon the optionee's completion of each additional year
of service measured from the first anniversary of the date of grant. The
options for Mr. Cotsakos became exercisable for 20% of the shares on
September 1, 1996 and will become exercisable for 80% of the shares in a
series of 48 equal monthly installments upon the completion of each
additional month of service thereafter.
Upon a merger or consolidation in which the Company is not the surviving
corporation, options issued under the Company's 1993 Stock Option Plan will
terminate unless assumed by the acquiring entity. Pursuant to his
employment agreement, options held by Mr. Cotsakos become immediately
exercisable upon a change in control.
(2) The exercise price of each option may be paid in cash, in shares of Common
Stock valued at fair market value on the exercise date or through a
cashless exercise procedure involving a same-day sale of the purchased
shares. The Company may also finance the option exercise by loaning the
optionee sufficient funds to pay the exercise price for the purchased
shares and the federal and state tax liability incurred in connection with
such exercise. The Compensation Committee has the authority to reprice
outstanding options through the cancellation of those options and the
grant of replacement options with an exercise price equal to the lower
fair market value of the option shares on the regrant date.
8
(3) The potential realizable value is reported net of the option price, but
before income taxes associated with exercise. These amounts represent
assumed annual compounded rates of appreciation at 5% and 10% only from
the date of grant to the expiration date of the option. There is no
assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the 10-
year option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock does in fact
appreciate over the option term, no value will be realized from the option
grants made to the executive officers.
Option Exercises and Holdings
The following table provides information with respect to the Named Executive
Officers concerning the exercise of options during the last fiscal year and
unexercised options held as of the end of the last fiscal year.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
Value of Unexercised in-
the-Money Options/SARs at
Number of Securities FY-End ($) (Market price
Shares Underlying Unexercised of shares at FY-End
Acquired Value Realized ($) Options/SARs ($13.1875) less exercise
on (Market price at at FY-End (#) price)
Exercise exercise, less ------------------------- -------------------------
Name (#) exercise price) Exercisable Unexercisable Exercisable Unexercisable
---- -------- ------------------ ----------- ------------- ----------- -------------
Christos M. Cotsakos.... 0 0 216,000 864,000 $1,896,500 $7,586,000
William A. Porter....... 0 0 0 0 0 0
Kathy Levinson.......... 0 0 60,000 384,000 $ 766,300 $4,668,800
Stephen C. Richards..... 0 0 0 240,000 0 $2,465,000
David R. Ewing.......... 0 0 96,000 144,000 $1,218,000 $1,827,000
Wayne H. Heldt.......... 316,020 $1,464,000 420,000 216,000 $5,419,800 $2,787,300
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
In March 1996, prior to the Company's initial public offering, Christos M.
Cotsakos entered into an employment agreement with the Company. The agreement
provides for annual base salary compensation of $250,000. Mr. Cotsakos' base
salary is subject to adjustment as follows: if, at the end of any fiscal
quarter during the term of the agreement, the Company's annualized revenues
equal or exceed $75 million and there is a positive net income at the end of
such quarter, the base salary shall be increased to an annualized basis of
$320,000; and if, at the end of any fiscal quarter during the term of the
agreement, the Company's annualized revenues equal or exceed $100 million and
there is a positive net income at the end of such quarter, the base salary
shall be increased to an annualized basis of $390,000. Mr. Cotsakos is also
eligible to participate in the Company's bonus plan and other benefit plans.
The employment agreement terminates on December 31, 2001, but is renewable
for successive one-year periods, unless either party gives 180 days' notice.
Upon termination of Mr. Cotsakos' employment, he is entitled to severance
payments as follows: (i) payment equal to five full years of current total
annual compensation if termination within three years after a change in
control of the Company (as defined) or if he elects to terminate his
employment for good reason (as defined) within three years after any change in
control, and (ii) payment equal to four full years of (A) current total annual
compensation if he is terminated by the Company other than for cause (as
defined) and such termination is not described in (i) above and (B) he elects
to terminate his employment for good reason and such termination is not
described in (i) above. In addition, Mr. Cotsakos' options become immediately
exercisable upon a change in control or upon the termination of Mr. Cotsakos
other than for cause or at his election for good reason.
From January 1995 to December 1995, Kathy Levinson, the Executive Vice
President of Operations of E*TRADE Group and the President and Chief Operating
Officer of E*TRADE Securities was self-employed as a
9
consultant. During this period, Ms. Levinson, worked under contract with the
Company, pursuant to which she provided consulting services to assist with
E*TRADE's transition to self-clearing operations. During the term of this
agreement, Ms. Levinson was paid $166,000 by the Company, and received a
warrant to purchase 300,000 shares of Common Stock, which warrant was fully
exercised by January 1996, and options to purchase 300,000 shares of Common
Stock which vest at a rate of 20% per year over a period of five years and
will terminate on January 2, 2005.
In connection with an acquisition of the Company by merger or asset sale,
any outstanding option held by the Named Executive Officers under the
Company's 1996 Stock Incentive Plan will automatically accelerate in full and
all unvested shares of Common Stock held by such individuals subject to direct
issuances made under such plans will immediately vest in full, except to the
extent such options are to be assumed by, and the Company's repurchase rights
with respect to these shares are to be assigned to, the successor corporation.
In addition, the Compensation Committee as Plan Administrator of the 1996 Plan
will have the authority to provide for the accelerated vesting of the shares
of Common Stock subject to outstanding options held by the Named Executive
Officers or the shares of Common Stock subject to direct issuances held by
such individuals, in connection with the termination of the officer's
employment following: (i) a merger or asset sale in which these options are
assumed or are assigned or (ii) the Company's repurchase rights with respect
to unvested shares or (iii) certain hostile changes in control of the Company.
Compensation Committee Report on Executive Compensation
The Compensation Committee (the "Committee") of the Board of Directors sets
the base salary of the Company's executive officers and approves individual
bonus programs for executive officers. Option grants to executive officers are
made by the Committee, and the Committee has complete discretion in
establishing the terms of each such grant. The following is a summary of
policies of the Committee that affect the compensation paid to executive
officers, as reflected in the tables and text set forth elsewhere in this
Proxy Statement.
Compensation Philosophy
The Committee applies a consistent philosophy to compensation for all
employees, including executive officers. This philosophy is based on the
premise that the achievements of the Company result from the coordinated
efforts of all individuals working toward common objectives. The Company
strives to achieve those objectives through teamwork that is focused on
meeting the expectations of customers and stockholders.
. The Company pays for relative sustained performance. Executive officers
are rewarded based upon corporate performance and individual performance.
Corporate performance is evaluated by reviewing the extent to which
strategic and business plan goals are met, including such factors as
operating profit and performance relative to competitors. Individual
performance is evaluated by reviewing development progress against set
objectives and the degree to which Company values are fostered.
. The Company strives for fairness in the administration of pay. The
Company strives to balance the compensation paid to a particular
individual and the compensation paid to other persons both inside the
Company and at comparable companies.
General Compensation Policy
The Committee's overall policy is to offer the Company's executive officers
competitive cash- and equity-based compensation opportunities based upon their
personal performance, the financial performance of the Company and their
contribution to that performance. One of the Committee's primary objectives is
to have a substantial portion of each officer's compensation contingent upon
the Company's performance as well as upon his or her own level of performance.
The principal factors taken into account in establishing each executive
officer's compensation package are summarized below. Additional factors may be
taken into account to a lesser degree, and the relative weight given
10
to each factor varies with each individual in the sole discretion of the
Committee. The Committee may in its discretion apply entirely different
factors, such as different measures of financial performance, for future
fiscal years.
Cash-Based Compensation. The Committee sets base salary for executive
officers on the basis of personal performance, the salary levels in effect for
comparable positions with other companies in the industry and internal
comparability considerations. This comparison group differs from the one
included in the peer group index in the performance graph as the Company is
required to take into account the cost of living and competition for personnel
in its geographic location. Effective October 1, 1994, the Company adopted a
bonus plan (the "Bonus Plan") to allow all eligible associates to share a
portion of the Company's profits. Thirty days after the end of each fiscal
quarter, the Company will pay 20% of any operating profit that is in excess of
10% of gross revenue into the Bonus Plan. Each eligible associate will be
allocated a percent of the total Bonus Plan pool based on the Company's total
salary base, that associate's gross earnings for the quarter and designation
by group. Bonus payments are distributed over time to associates, who receive
50% of the bonus payment at the end of the month following the end of the
quarter, and the remaining 50% over the succeeding three-year time period in
increments of one-sixth. If an associate leaves the Company for any reason
other than disability, death or retirement, that associate's accumulation of
earnings in the bonus pool remains in the pool as additional earnings for the
remaining eligible associates. The Chairman of the Board received a bonus and
the Chief Executive Officer did not receive a bonus for fiscal 1996.
Effective January 1, 1995, the Company adopted a 401(k) (the "401(k) Plan")
that covers all eligible associates of the Company. An associate is eligible
to participate in the plan upon hire, and may elect to defer, in the form of
contributions to the 401(k) Plan, up to the $9,500 limitation imposed by
Internal Revenue Code Section 402(g). Associates' contributions are invested
in specific assets, specific funds or other investments permitted under the
401(k) Plan according to the directions of each individual associate and the
directed investment procedure. The contributions are fully vested and
nonforfeitable at all times. Upon completion of one year of service, the
401(k) Plan provides for employer contributions to the 401(k) Plan of an
amount equal to 25% of the amount contributed by all eligible associates, up
to 2% for individual associates total compensation. The Company has made
contributions of $52,000 for the year ended September 30, 1996.
Long-Term Equity-Based Compensation. The Committee intends to make stock
option grants on a periodic basis. Each grant is designed to align the
interests of the executive officers with those of the stockholders and provide
each individual with a significant incentive to manage the Company from the
perspective of an owner with an equity stake in the business. Each grant
generally allows the officer to acquire shares of the Company's Common Stock
at a fixed price per share (the market price on the grant date) over a
specified period of time (up to 10 years), thus providing a return to the
officer only if he or she remains in the employ of the Company and the market
price of the shares appreciates over the option term. The size of the option
grant to each executive officer generally is set at a level that is intended
to create a meaningful opportunity for stock ownership based upon the
individual's current position with the Company, but there is also taken into
account the size of comparable awards made to individuals in similar positions
in the industry as reflected in external surveys, the individual's potential
for future responsibility and promotion over the option term, the individual's
personal performance in recent periods and the number of options held by the
individual at the time of grant. Generally, as an officer's level of
responsibility increases, a greater portion of his or her total compensation
will be dependent upon Company performance and stock price appreciation rather
than base salary. The relative weight given to these factors varies with each
individual in the sole discretion of the Committee.
Deduction Limit for Executive Compensation
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly-held companies for compensation paid to
certain executive officers, to the extent that compensation exceeds $1 million
per officer in any year. The compensation paid to the Company's executive
officers for the 1996 fiscal year did not exceed the $1 million limit per
officer, and it is not expected that the compensation to be paid to the
Company's executive officers for the 1997 fiscal year will exceed that limit.
In addition, the Company's 1996 Stock Incentive Plan is structured so that any
compensation deemed paid to an executive officer
11
in connection with the exercise of his or her outstanding options under the
1996 Plan will qualify as performance-based compensation which will not be
subject to the $1 million limitation. Because it is very unlikely that the
cash compensation payable to any of the Company's executive officers in the
foreseeable future will approach $1 million limit, the Committee has decided
at this time not to take any other action to limit or restructure the elements
of cash compensation payable to the Company's executive officers. The
Committee will reconsider this decision should the individual compensation of
any executive officer ever approach the $1 million level.
Submitted by the Compensation Committee of the Company's Board of Directors:
Richard S. Braddock
William E. Ford
Keith Petty
12
Performance Graph
The following performance graph shows the percentage change in cumulative
total return to a holder of the Company's Common Stock, assuming dividend
reinvestment, compared with the cumulative total return, assuming dividend
reinvestment, of the NASDAQ Stock Market--U.S. Index and the peer group
indicated below, during the period from August 15, 1996 (the date prior to the
Company's initial public offering) through September 30, 1996.
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG E*TRADE GROUP, INC., PEER GROUP AND NASDAQ STOCK MARKET-U.S. INDEX
AUGUST 15, 1996 TO SEPTEMBER 30, 1996
PERFORMANCE GRAPH APPEARS HERE
Measurement Period E*TRADE NASDAQ
(Fiscal Year Covered) GROUP, INC. PEER GROUP STOCK MARKET
- --------------------- ----------- ---------- ------------
Measurement Pt- 8/15/96 $100 $100 $100
FYE 9/30/96 $126 $104 $108
*$100 invested on 8/15/96 in stock, group or index.
The Company included the following companies in its Peer Group, which
companies are in the information technology services industry and/or are used
by analysts, E*TRADE believes, as a basis for comparison to the Company:
Affiliated Computer Services Inc., American Business Information Inc., America
Online Inc., Barra Inc., Checkfree Corp., Compuserve Corporation Delaware,
Cybercash, Inc., Desktop Data Inc., Envoy Corp., Harbinger Corp., Individual
Inc., Intuit Inc., M A I D Plc, Netscape Communications Corp., Premiere
Technologies Inc., Paychex Inc., Quickresponse Services Inc., Charles Schwab,
Sterling Communications Inc., and Transaction Network Services Inc.
13
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consisted of Richard S. Braddock, William E. Ford
and Keith Petty at the end of the fiscal year ended September 30, 1996. During
fiscal 1996, William A. Porter and Lewis E. Randall served on the Compensation
Committee from October 1, 1995 to May 31, 1996. Mr. Porter was an executive
officer of the Company during the fiscal year ended September 30, 1996.
On September 28, 1995, the Company sold 100,000 shares of Series A Preferred
Stock for $123 per share. On April 10, 1996, the Company sold 20,336 shares of
Series B Preferred Stock for $140 per share. All Preferred Stock was sold in
private financings, pursuant to preferred stock purchase agreements and
investors' rights agreements. The terms of those agreements (with the
exception of amount and price) are substantially similar for the Series A and
Series B, under which the Company made the standard representations,
warranties and covenants, and which provided the purchasers thereunder with
rights of first offer, tag-along rights, preemptive rights, and demand and
piggyback registration rights. All of the material terms of the Series A and
Series B agreements, with the exception of the registration rights, terminated
upon the effective date of the Company's Registration Statement in connection
with its initial public offering. All shares of Preferred Stock converted into
Common Stock on a 60-for-1 basis automatically upon the completion of the
Company's initial public offering. The purchasers of the Preferred Stock
included, among other things, the following directors, entities associated
with directors, and holders of 5% or more of the Company's Common Stock:
SHARES OF
PREFERRED
STOCK
PURCHASED
-------------
SERIES SERIES
INVESTOR A B
-------- ------ ------
General Atlantic Partners II, L.P. (1)...................... 87,742 6,267
GAP Coinvestment Partners, L.P. (1)......................... 12,258 876
Christos M. Cotsakos(2)..................................... -- 6,050
Richard S. Braddock......................................... -- 7,143
- --------
(1) The general partner of General Atlantic Partners II, L.P. ("GAP II") is
General Atlantic Partners, LLC ("GAP LLC"), a Delaware limited liability
company. William E. Ford, a director of the Company, is one of the
managing members of GAP LLC. The same managing members of GAP LLC are the
general partners of GAP Coinvestment Partners, L.P. ("GAP Coinvestors").
Mr. Ford disclaims beneficial ownership of shares owned by GAP II and GAP
Coinvestment except to the extent of his pecuniary interest.
(2) Includes shares held by the Cotsakos Revocable Trust under Agreement dated
September 3, 1987, shares held in an IRA account and shares held as a
custodian for his daughter. Mr. Cotsakos disclaims beneficial ownership of
shares held as a custodian and one-half of the shares held by the Cotsakos
Revocable Trust.
During the fourth calendar quarter of 1996, the Company made a relocation
loan to Mr. Cotsakos, its Chief Executive Officer and a Director, in the
aggregate principal amount of $3,150,000. The proceeds of this loan were used
to fund the purchase by Mr. Cotsakos of a personal residence in the Silicon
Valley area. In providing this relocation loan, the Compensation Committee of
the Board of Directors considered, among the other things, the rapid
escalation of residential housing costs in the Silicon Valley area as well as
the costs incurred by Mr. Cotsakos in relocating from Brussels, Belgium to
California. The relocation loan accrues interest at the rate of 7% per annum
which, together with the principal amount, is due and payable in November
1999. The loan is secured by a combination of assets, including the residence
purchased, having a fair market value of at least 140% of the amounts
outstanding. The due date of the relocation loan is subject to acceleration
upon the occurrence of certain events including the voluntary cessation of
employment with the Company by Mr. Cotsakos.
In December 1995, the Company entered into a consulting arrangement with Mr.
Hayter, a director of the Company, to provide international business
consulting at a base rate of $1,500 for each day of consulting plus expenses,
with the exception of attendance at Board meetings. Mr. Hayter's fees were
payable in the form of
14
$750 in cash and $750 in Common Stock (issued at fair market value on the
dates of services rendered). During the six months ended March 31, 1996, Mr.
Hayter was paid $23,520 and accrued 6,096 shares of Common Stock pursuant to
this arrangement. He also accrued 1,421 shares of Common Stock pursuant to
this arrangement from April 1, 1996 through June 6, 1996. The Company and Mr.
Hayter restated the consulting arrangement on June 7, 1996, at which time the
Common Stock component of the arrangement terminated.
In March 1996, Christos M. Cotsakos entered into an employment agreement
with the Company. See "Employment Contracts, Termination of Employment and
Change-in-Control Arrangements."
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership
and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater-than-ten-percent
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) reports they file.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that, except as set forth below, there was compliance for the
fiscal year ended September 30, 1996 with all Section 16(a) filing
requirements applicable to the Company's officers, directors and greater-than-
ten-percent beneficial owners.
The Initial Statement of Beneficial Ownership of Securities on Form 3 was
filed late for Lester C. Thurow.
15
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Deloitte & Touche LLP served as independent public accountants
for the Company for the fiscal year ended September 30, 1996. The Board of
Directors desires the firm to continue in this capacity for the current fiscal
year. Accordingly, a resolution will be presented to the meeting to ratify the
selection of Deloitte & Touche LLP by the Board of Directors as independent
public accountants to audit the accounts and records of the Company for the
fiscal year ending September 30, 1997, and to perform other appropriate
services. In the event that shareholders fail to ratify the selection of
Deloitte & Touche LLP, the Board of Directors would reconsider such selection.
A representative of Deloitte & Touche LLP is expected to attend the Annual
Meeting and is not expected to make a statement, but will be available to
respond to appropriate questions and may make a statement if such
representative desires to do so.
STOCKHOLDER PROPOSALS
Shareholder proposals intended to be considered at the 1998 Annual Meeting
of Stockholders must be received by E*TRADE no later than September 26, 1997.
The proposal must be mailed to the Company's principal executive offices, 2400
Geng Road, Palo Alto, California 94303, Attention: Stephen C. Richards. Such
proposals may be included in next year's proxy statement if they comply with
certain rules and regulations promulgated by the Securities and Exchange
Commission.
OTHER MATTERS
Management does not know of any matters to be presented at this Annual
Meeting other than those set forth herein and in the Notice accompanying this
Proxy Statement.
It is important that your shares be represented at the meeting, regardless
of the number of shares which you hold. YOU ARE, THEREFORE, URGED TO EXECUTE
PROMPTLY AND RETURN THE ACCOMPANYING PROXY IN THE ENVELOPE WHICH HAS BEEN
ENCLOSED FOR YOUR CONVENIENCE. Shareholders who are present at the meeting may
revoke their proxies and vote in person or, if they prefer, may abstain from
voting in person and allow their proxies to be voted.
By Order of the Board of Directors,
Christos M. Cotsakos
President and Chief Executive
Officer
January 24, 1997
Palo Alto, California
16
E*TRADE GROUP, INC.
PROXY FOR
ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 19, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William A. Porter, Christos M. Cotsakos and
Stephen C. Richards, and each or either 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 Group,
Inc., held of record by the undersigned on January 15, 1997 at the Annual
Meeting of Shareholders of E*TRADE Group, Inc. to be held February 19, 1997, or
at any adjournment thereof.
1. ELECTION OF DIRECTORS
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY
(Except as marked to the to vote for all
contrary below) nominees listed below
INSTRUCTION: To withhold authority to vote for any individual nominee strike a
line through the nominee's name in the list below.
Lewis E. Randall, Lester C. Thurow
- --------------------------------------------------------------------------------
2. To ratify the selection of Deloitte & Touche LLP as independent auditors of
the Company.
[_] FOR [_] AGAINST [_] ABSTAIN
3. In their discretion the Proxies are authorized to vote upon such other
matters as may properly come before the meeting.
The Board of Directors recommends a vote FOR Proposal Nos. 1 and 2. This
Proxy, when properly executed, will be voted as specified above. This Proxy will
be voted FOR Proposal Nos. 1 and 2 if no specification is made.
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:_________________________________, 1997
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
(Additional signature if held jointly)
PLEASE COMPLETE, SIGN AND DATE THIS PROXY AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.