Complying with the Recently Amended Section 16 Requirements

On July 30, President Bush signed into law the Sarbanes-Oxley Act of 2002. This new legislation amends Section 16 to require that corporate insiders report transactions in company stock within two business days after those transactions occur. The Act also compels the SEC to require that companies file Section 16 forms electronically, starting no later than one year after the date the law was enacted. As the recognized leader in helping companies comply with securities law, tax requirements, and accounting standards, the Business Solutions Group of E*TRADE Financial has been monitoring the progress of this legislation and is prepared to help our clients meet these new requirements.

Our market-leading Equity Edge® stock plan administration software has offered monthly Form 4 reporting and electronic EDGAR filing for more than 5 years. We are now pleased to announce an add-on to the Equity Edge Insider Reporting Module that extends these capabilities to allow the creation and filing (electronic or manual) of Form 4 on a daily basis, streamlining compliance with the Sarbanes-Oxley Act. We anticipate that the Insider Reporting Module add-on will be available by the time the new law takes effect on August 29 of this year.

Priced at $99, the Insider Reporting Module add-on is for Equity Edge version 4.1 only. The add-on will be included at no additional charge for clients purchasing our new Equity Audit product (see the article below entitled “Equity Audit Now Available” for more information about Equity Audit). To request information on how to order the Insider Reporting Module add-on, please fill out the special pre-order form on our Web site.

Additionally, the OptionsLink® Insider Partial Execution Report will be enhanced as of August 30th to provide daily reports. (This report is currently available at our online Client Service on the first day of each month, providing data for the previous month). Companies that file Forms 3, 4, and 5 on behalf of insiders can use the OptionsLink Insider Partial Execution Report to determine individual lot prices rather than weighted averages for partial executions. Coming soon, OptionsLink clients will also be able to download a daily report of all insider transactions—partial and full—for both ESPP and SOP participants.

Equity Audit Now Available!

Do lengthy period-end reconciliations consume too much of your valuable time? Does staying on top of backdated transactions create administrative headaches for your equity compensation team? The Business Solutions Group has the solution you’re looking for.

Equity Audit 4.1 is a new add-on module for Equity Edge 4.1 that allows stock plan administrators to create a snapshot of options data at a specific point in time. At any future date, administrators can automatically compare the most current data with the snapshot, allowing users to quickly and easily find options added, deleted, and modified since the snapshot was taken--including vesting modifications and cancellations due to terminations.

For more information, download the Equity Audit datasheet available at http://business.etrade.com/updates.html#ea. To request an order form, send an e-mail with the subject link “Equity Audit” to orders@etrade.com. Order today and we’ll include the Insider Reporting Module add-on (see article above) at no additional cost, when it becomes available.

OptionsLink Account Information at etrade.com

Beginning later this month, stock plan participants will be able to see the Total Value of their OptionsLink account balances from the “Accounts” tab at etrade.com. Participants with multiple accounts will see the current value for each account displayed by ticker symbol.

The Total Value displayed for an OptionsLink account is the sum total of the following:

1. The current market value of any employee stock purchase plan shares
2. The current market value of any stock option plan holdings
3. The current net value of any stock options that have vested and are currently exercisable and in the money.

Account balances include all trading activity completed as of the close of trading the previous market day. Please note that this new feature is currently available only for participants who activated their OptionsLink accounts online, or who were eligible for online activation but chose to activate with paper forms. You can find more information at the etrade.com Help Center.

Ever since we launched canada.optionslink.com earlier this year, we’ve been receiving positive feedback from Canadian stock plan participants. Now we are working to further improve the online experience for Canadian residents with OptionsLink accounts. For example, cost basis information for stock purchase plan shares is now available from the account services tab at etrade.ca, giving participants more detail about purchases and facilitating tax preparation.

To learn more about the services and support we offer stock plan participants residing in Canada, you can download a comprehensive overview document from our Web site.

Enhancements to Interactive Voice Response (IVR) System

There’s nothing more frustrating than being stuck in “voice mail jail” with automated phone systems that are inconsistent and difficult to navigate. We work hard to optimize the usability of our interactive voice response (IVR) system, and this month we’re introducing new functionality to further enhance the experience for participants who call in.

Changes include easier navigation and more intuitive menus, improved error checking (e.g., shares sold must be less than or equal to shares exercised), and faster access to a live representative. As always, participants have access to more than 140 languages via our translation service.

No matter how participants contact us—by phone, via the Internet, or by walking in to one of our E*TRADE Financial Centers or E*TRADE Financial Zones, we’re committed to giving them all of the tools and information they need to take control of their financial future.

New E*TRADE Money Market Funds

We are introducing several new money market funds managed by E*TRADE Asset Management, Inc. These new funds will replace the current money market funds available for cash balances in participants' companion E*TRADE Securities brokerage accounts. In general, the new funds have similar investment objectives to the current funds, with lower fees.

To guarantee a smooth transition, this project will be completed in three phases:

1. As of August 1, new participants activating their accounts online are no longer offered the four prior fund choices during the activation process.
2. On August 26, a letter and prospectus will be sent to customers who have cash in the funds being replaced, informing them of the change.
3. Starting October 4, all cash positions from the previous money market funds will automatically be converted to the new funds. No action is required by participants.

More information about this change will be provided in a letter to participants later this month. You can find a special preview copy of this letter on our Web site.

Updated Activation Forms Coming Soon

In September, we will update our paper account activation forms and online activation process to reflect recent changes, including:

• The name change from E*TRADE Securities, Incorporated to E*TRADE Securities LLC
• Our new money market fund choices (see the article above)

Additionally, our updated activation forms more clearly represent the relationships between participants’ OptionsLink accounts and their companion E*TRADE Securities brokerage accounts, which hold all cash and shares and can be used to conduct retail trades.

Online Employee Education About Stock Option Types

Are your employees confused about the differences between non-qualified stock options and incentive stock options? For new optionees, understanding the tax ramifications and other differences between these two types of options can be difficult.

That’s why we’ve developed a series of 90-second online multimedia seminars that explain each type of option. Starting this month, participants will be able to view these presentations at optionslink.com. (Please note that this tutorial is a broad overview and is not intended to provide specific financial or tax advice.)

File Processing Enhancements Are Here…With a New Look!

We recently introduced enhanced file processing tools on the Client Service Center, giving stock plan administrators more control over the process of dropping off and picking up data files, and improving the ability to monitor data quality. We’ve also given the Client Service Center Web site a facelift and added content to make the site easier to use. More information is available from the home tab of the Client Service Center.

Equity Edge Tip: Running WOO Reports in Equity Edge 4.x

Equity Edge 4.x WOO reports include several new input fields (Market Value, Forecast, Prior Market Value, and Prior Forecast) that facilitate FIN 44 expense calculations for non-employee options and options subject to variable plan accounting. (Because WOO reports use unamortized expense as a factor in Treasury Stock method calculations, the same input information is required as for the new Expense Allocation – Actual reports.)

• Market Value: This field defaults to the information within the Value table for the Report End Date on your Report | Run window. If there is nothing in the Value table for that date (for example, if it falls on a weekend), the user may input another value, such as that from the prior or following business day. Market Value is used to calculate Expense-to-Date and Current Expense for the report date range. For options subject to variable plan accounting, the option price is subtracted from the Market Value input to determine the expense to the end of the reporting period. For non-employee options subject to SFAS No. 123, this value is used to estimate the Black-Scholes value at the end of the period for all unvested shares.
• Prior Market Value: This field defaults to the information within the Value table for the day prior to the Begin Date on your Report | Run window (i.e., the market value in effect when you ran your WOO reports for the last report period). If there is nothing in the Value table for that date (for example, if it falls on a weekend), the user may input another value, such as that from the prior or following business day). Prior Market Value is used to calculate the Prior Expense for the report date range. For options subject to variable plan accounting, the option price is subtracted from the Prior Market Value input to determine the expense before the beginning of the reporting period (i.e., Prior Expense). For non-employee options subject to SFAS No. 123, this value is used to estimate the Black-Scholes value just prior to the beginning of the period for all shares unvested on that date.
• Forecast and Prior Forecast: The Forecast corresponds to the date range in your Report | Run window. It is used to calculate Current Expense for non-employee options subject to SFAS No. 123. The Prior Forecast corresponds to the reporting period prior to the date range in your Report | Run window, and is used to calculate Prior Expense for non-employee options subject to SFAS No. 123. If you do not have any non-employee options subject to SFAS No. 123, you can select any forecasts you wish, since they will not be used for the expense calculations.

Wanted: Equity Edge 5.0 Beta Testers!

Do you want the opportunity to be among the first to preview and experience the new 5.0 Enterprise edition of Equity Edge? Then sign up to participate in our Equity Edge beta testing program. Any Equity Edge client can apply to participate. In addition to making a real impact on the product, you also get an advance look at the new features planned for the next release.

For more information, e-mail eebeta@etrade.com.

Give Us Your Feedback on Our Products and Services

The Business Solutions Group relies on feedback from our clients to help shape our product strategy. If you have something you want to share with us—anything from an additional feature you'd like to see to a whole new product concept—we want to hear about it! You can submit your comments and requests using our online feedback form.

Make Sure You Have the Latest Product Information

The Business Solutions Group periodically issues Technical Alerts and software updates with important product information. We recommend that you review Technical Alerts as soon as you receive them and, if applicable, install any necessary updates. Recent product updates include:

• Potential Issue With Options Expiring Before All Shares Have Vested
  If you are using Equity Edge version 3.0 or later and use vesting schedules in which some shares expire before the option is fully vested (this typically occurs when the expiration date is based on vest date rather than grant date), please review this Technical Alert. If all shares in a given option grant expire on the same date, as with the majority of option grants, you are not affected by this issue.

Education and Training Calendar (August - September 2002)

Product Training Courses:

August 15: Getting Started with Equity Edge (Menlo Park, CA)
August 16: Beyond the Basics with Equity Edge (Menlo Park, CA)
September 9: Getting Started with Equity Edge (Menlo Park, CA)
September 10: Beyond the Basics with Equity Edge (Menlo Park, CA)
September 16: Getting Started with Equity Edge (Burlington, MA)
September 17: Beyond the Basics with Equity Edge (Burlington, MA)

Employee Stock Plan Administration Seminars:

September 5-6: Employee Stock Plan Administration: Level I - The Fundamentals (Menlo Park, CA)

For more information on the Business Solutions Group's education and training classes check our website at business.etrade.com.

E*TRADE, OptionsLink, and Equity Edge are registered trademarks of E*TRADE Group, Inc. or its subsidiaries. © 2002 E*TRADE Group, Inc. All rights reserved.