<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
(Mark One)
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended March 26, 1999
OR
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 from the transition period from ________ to ________
Commission file number: 0-22163
------------------
AMERITRADE HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 47-0642657
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4211 SOUTH 102ND STREET, OMAHA, NEBRASKA
68127
(Address of principal executive offices)
(Zip Code)
(402) 331-7856
(Registrant's telephone number, including area code)
-------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past ninety days:
Yes (X) No ( )
As of May 1, 1999 there were 58,145,480 outstanding shares of the registrant's
common stock consisting of 52,687,880 outstanding shares of Class A Common Stock
and 5,457,600 outstanding shares of Class B Common Stock.
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AMERITRADE HOLDING CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Comprehensive Income 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits 16
(b) Reports on Form 8-K 18
Signatures 19
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. - CONSOLIDATED FINANCIAL STATEMENTS
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 26, SEPTEMBER 25,
1999 1998
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,474,679 $ 24,526,935
Cash and investments segregated in compliance with federal regulations 601,811,083 503,455,354
Receivable from brokers, dealers, and clearing organizations 34,152,264 25,732,164
Receivable from customers and correspondents - net of allowance
for doubtful accounts: March - $2,615,349; September - $1,039,788 1,186,138,384 647,121,854
Furniture, equipment and leasehold improvements - net of accumulated
depreciation and amortization: March - $9,480,716; September - $6,728,212 33,418,857 26,116,333
Goodwill - net of accumulated amortization 5,802,259 5,983,761
Investments 203,694,473 30,760,729
Other assets 35,496,623 26,704,546
--------------- ---------------
Total assets $ 2,104,988,622 $ 1,290,401,676
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to brokers, dealers and clearing organizations $ 64,070,484 $ 11,765,785
Payable to customers and correspondents 1,622,307,296 1,136,082,337
Accounts payable and accrued liabilities 47,775,036 30,716,987
Short-term borrowings 45,000,000 --
Notes payable 38,000,000 11,000,000
Income taxes payable 850,213 1,331,170
Deferred income taxes 82,681,058 14,933,313
--------------- ---------------
Total liabilities 1,900,684,087 1,205,829,592
--------------- ---------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $1 par value; authorized 3,000,000 shares, none issued -- --
Common stock, $0.01 par value:
Class A - 60,000,000 shares authorized; 52,701,160 shares issued at March
26, 1999; 52,613,692 shares issued at September 25, 1998 527,012 526,136
Class B - 6,000,000 shares authorized; 5,457,600 shares issued and
outstanding 54,576 54,576
--------------- ---------------
Total common stock 581,588 580,712
Additional paid-in capital 25,228,316 22,845,297
Retained earnings 55,576,576 43,756,848
Treasury stock - Class A shares at cost (13,400 shares at March 26, 1999; 18,884
shares at Sept. 25, 1998) (94,144) (133,388)
Accumulated other comprehensive income 123,012,199 17,522,615
--------------- ---------------
Total stockholders' equity 204,304,535 84,572,084
--------------- ---------------
Total liabilities and stockholders' equity $ 2,104,988,622 $ 1,290,401,676
=============== ===============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED SIX MONTH PERIOD ENDED
------------------------------- -------------------------------
MARCH 26, 1999 MARCH 27, 1998 MARCH 26, 1999 MARCH 27, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES
Commissions and Clearing Fees $ 46,853,025 $ 19,434,307 $ 83,566,382 $ 35,209,381
Interest Revenue 24,675,250 14,798,690 47,715,180 27,908,539
Equity Income from Investments -- 1,204,639 -- 2,527,693
Other 2,391,457 1,324,060 4,614,844 2,480,749
------------ ------------ ------------ ------------
Total Revenues 73,919,732 36,761,696 135,896,406 68,126,362
Interest Expense 10,257,651 6,684,080 20,117,417 12,373,053
------------ ------------ ------------ ------------
Net Revenues 63,662,081 30,077,616 115,778,989 55,753,309
EXPENSES EXCLUDING INTEREST
Employee Compensation and Benefits 14,932,223 7,927,199 28,364,340 14,691,907
Commissions and Clearance 2,166,869 1,296,841 4,032,907 2,272,429
Communications 4,518,520 3,332,028 7,971,435 6,456,836
Occupancy and Equipment Costs 4,613,797 2,269,363 8,736,185 4,213,046
Advertising 13,154,599 9,572,470 22,797,109 34,513,770
Other 11,646,463 5,996,445 25,355,684 11,417,773
------------ ------------ ------------ ------------
Total Expenses Excluding Interest 51,032,471 30,394,346 97,257,660 73,565,761
Income (Loss) Before Provision for Income Taxes 12,629,610 (316,730) 18,521,329 (17,812,452)
Provision for Income Taxes 4,551,389 (45,856) 6,701,601 (6,292,236)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 8,078,221 $ (270,874) $ 11,819,728 $(11,520,216)
============ ============ ============ ============
Basic earnings per share 0.14 (0.00) 0.20 (0.20)
Diluted earnings per share 0.14 (0.00) 0.20 (0.20)
Weighted average shares outstanding - basic 58,111,569 58,070,419 58,082,441 58,069,915
Weighted average shares outstanding - diluted 58,575,690 58,105,164 58,509,462 58,106,758
</TABLE>
See notes to consolidated financial statements.
4
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AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED
---------------------------------
MARCH 26, 1999 MARCH 27, 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 11,819,728 $ (11,520,216)
Adjustments to Reconcile Net Income (Loss) to Net Cash from
Operating Activities:
Depreciation and Amortization 2,752,504 1,068,800
Provision for Losses 1,695,000 88,000
Deferred Income Taxes 303,585 785,355
Equity Income (Loss) from Investments -- (2,527,693)
Amortization of Goodwill 181,502 181,502
Changes in Operating Assets and Liabilities:
Cash and Investments Segregated in Compliance with Federal Regulations (98,355,729) (189,881,751)
Brokerage Receivables (549,131,630) (189,669,131)
Income Taxes Receivable -- (1,494,676)
Other Assets (8,792,077) (5,420,726)
Brokerage Payables 538,529,658 371,013,841
Accounts Payable and Accrued Liabilities 17,058,049 1,584,506
Short-term Borrowings 45,000,000 --
Income Taxes Payable 1,383,912 (3,430,279)
------------- -------------
Net Cash Used In Operating Activities (37,555,498) (29,222,468)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Furniture, Equipment and Leasehold Improvements (10,055,028) (5,658,428)
Purchase of Equity Investments -- (435,581)
Distributions Received from Equity Investments -- 1,498,836
Proceeds from Sale of Investment -- 3,906,610
------------- -------------
Net Cash Used In Investing Activities (10,055,028) (688,563)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Notes Payable 60,000,000 10,000,000
Principal Payments on Notes Payable (33,000,000) --
Proceeds from Exercise of Stock Options 507,209
Purchase of Class A Treasury Stock -- (145,000)
Issuance of Class A Treasury Stock 51,061 123,481
------------- -------------
Net Cash Provided By Financing Activities 27,558,270 9,978,481
------------- -------------
Net Decrease In Cash And Cash Equivalents (20,052,256) (19,932,550)
Cash and Cash Equivalents at Beginning of Period 24,526,935 53,522,447
------------- -------------
Cash and Cash Equivalents at End of Period $ 4,474,679 $ 33,589,897
============= =============
Supplemental Cash Flow Information:
Interest Paid $ 19,468,778 $ 11,747,864
Income Taxes Paid (Received) $ 5,010,874 $ (2,224,720)
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTH PERIOD ENDED
-------------------------------- --------------------------------
MARCH 26, 1999 MARCH 27, 1998 MARCH 26, 1999 MARCH 27, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Income (Loss) $ 8,078,221 $ (270,874) $ 11,819,728 $ (11,520,216)
Other Comprehensive Income
Net unrealized holding gains on investment securities
available-for-sale arising during the period 126,675,747 -- 172,933,744 --
Adjustment for deferred income taxes (49,403,541) -- (67,444,160) --
------------- ------------- ------------- -------------
Total Other Comprehensive Income, net of tax 77,272,206 -- 105,489,584 --
------------- ------------- ------------- -------------
Comprehensive Income (Loss) $ 85,350,427 $ (270,874) $ 117,309,312 $ (11,520,216)
============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Ameritrade Holding Corporation and its wholly-owned subsidiaries
(collectively, the "Company"): Advanced Clearing, Inc. ("Advanced Clearing"),
formerly known as AmeriTrade Clearing, Inc.; Accutrade, Inc. ("Accutrade");
Ameritrade (Inc.), formerly known as Ceres Securities; AmeriVest, Inc.
("AmeriVest"), formerly known as All American Brokers, Inc.; K. Aufhauser &
Company ("Aufhauser"); and OnMoney Financial Services Corporation ("OnMoney").
All significant intercompany balances and transactions have been eliminated. The
Company is a provider of discount securities brokerage and related financial
services, including clearing and execution services.
All share data and per share amounts have been restated to reflect the
two-for-one common stock splits effective August 1998 and February 1999.
These financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) and, in the opinion
of management, reflect all adjustments, which are all of a normal recurring
nature, necessary to present fairly the financial position, results of
operations and cash flows for the periods presented in conformity with generally
accepted accounting principles. These financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's annual report filed on Form 10-K and amendments
thereto for the fiscal year ended September 25, 1998.
2. NET CAPITAL
The Company's broker-dealer subsidiaries are subject to the Net Capital Rule
under the Securities Exchange Act of 1934 and are required to maintain a minimum
net capital reserve. Net capital and the related net capital requirement may
fluctuate on a daily basis.
The Company's broker-dealer subsidiaries had net capital, in the aggregate, of
$69,580,988 and $40,062,733 as of March 26, 1999 and September 25, 1998,
respectively, which exceeded aggregate minimum net capital requirements by
$43,644,516 and $25,247,775, respectively. Subsidiary net capital in the amount
of $25,936,472 and $14,814,958 as of March 26, 1999 and September 25, 1998,
respectively, is not available for transfer to the Company due to net capital
regulations.
3. NOTES PAYABLE
The Company entered into a revolving credit agreement with a bank group on
January 16, 1998. The revolving credit agreement permits borrowings up to $50.0
million through June 30, 1999 with permissible borrowings declining $2.5 million
quarterly to $35.0 million at maturity on December 31, 2000. The common stock of
the Company's subsidiaries, as well as all assets of the Company, collateralize
the revolving credit agreement. Borrowings under the revolving credit agreement
bear interest at prime rate less 0.75 percent (7.00 percent and 7.75 percent
borrowing rate at March 26, 1999 and September 25, 1998, respectively). The
Company pays a maintenance fee of 0.25 percent of the unused borrowings through
the maturity date. The Company had outstanding indebtedness under the revolving
credit agreement of $38.0 million and $11.0 million at March 26, 1999 and
September 25, 1998, respectively. The revolving credit agreement contains
certain restrictions, including restrictions on the payment of cash dividends
and additional borrowings.
A letter of credit in the amount of $81 million as of March 26, 1999 has been
issued by a financial institution on behalf of Advanced Clearing, a wholly-owned
subsidiary of the Company, which acts as a securities clearing firm. The letter
of credit has been issued to support margin requirements. Advanced Clearing pays
a maintenance fee of 0.5 percent of the committed amount for the letter of
credit. In addition, the same financial institution may make loans to Advanced
Clearing if requested
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<PAGE> 8
under a note. As of March 26, 1999, $45 million was outstanding under the note.
Advanced Clearing has pledged customer securities, the amount of which
fluctuates from time to time, to secure its obligations under the letter of
credit and the note.
4. INVESTMENTS
The Company owns unregistered shares of common stock of Knight/Trimark Group,
Inc. ("Knight/Trimark"), a company formed to hold equity interests in securities
trading and market making companies. The Company's holdings represent 7.1
percent of the issued and outstanding shares of common stock of Knight/Trimark
as of March 26, 1999. The Company accounts for its investment in Knight/Trimark
as a marketable equity security available for sale. On March 26, 1999 the
Company valued its investment in Knight/Trimark at $202,388,623. The Company's
cost basis on March 26, 1999 was $729,280, therefore the gross unrealized gain
is $201,659,343. On September 25, 1998 the Company valued its investment in
Knight/Trimark at $29,454,879. The Company's cost basis on September 25, 1998
was $729,280, therefore the gross unrealized gain is $28,725,599.
5. LEGAL
On September 16, 1998, a putative class action complaint was filed in the
District Court, Douglas County, Nebraska, seeking injunctive and equitable
relief due to the Company's alleged breach of contract, violation of the
Consumer Protection Act, fraudulent inducement, negligent misrepresentation,
negligence, and unjust enrichment regarding the Company's alleged inability to
handle the volume of subscribers to its Internet brokerage services. The
complaint seeks injunctive relief enjoining alleged deceptive, fraudulent, and
misleading practices and unspecified compensatory damages. The Company believes
that it has viable defenses to the allegations raised in the complaint. However,
because this proceeding is at a preliminary phase and the amount of damages
sought has not been quantified, the Company is not presently able to predict the
ultimate outcome of this matter.
The Company and its subsidiaries are parties to a number of other legal matters
arising in the ordinary course of business. In management's opinion, the Company
has adequate legal defenses respecting each of these actions and does not
believe that they will materially affect the Company's results of operations or
its financial position.
8
<PAGE> 9
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's annual report on Form
10-K and amendments thereto for the fiscal year ended September 25, 1998. The
results of operations for the three and six months ended March 26, 1999 are not
necessarily indicative of the results for the entire fiscal year ending
September 24, 1999. This discussion contains forward-looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from those anticipated in such forward looking statements. Factors
that may cause such differences include, but are not limited to: the effect of
customer trading patterns on Company revenues and earnings; computer system
failures; risks associated with the Year 2000 computer systems conversions; the
effects of competitors' pricing, product and service decisions and intensified
competition; evolving regulation and changing industry customs and practices
adversely affecting the Company; the ability of the Company to obtain financing;
adverse results of litigation; changes in revenues and profit margin due to
changes in the securities markets and interest rates; and a significant downturn
in the securities markets over a short period of time or a sustained decline in
securities prices and trading volumes.
RESULTS OF OPERATIONS
THREE MONTH PERIODS ENDED MARCH 26, 1999 AND MARCH 27, 1998
NET REVENUES. Commissions and clearing fees increased 142 percent to $46.9
million in the second quarter of fiscal 1999 from $19.4 million in the second
quarter of fiscal 1998. This increase was primarily attributable to an increase
in the number of securities transactions processed, as average trades per day
increased 197 percent to 52,218 in the second quarter of fiscal 1999 from 17,589
in the second quarter of fiscal 1998. The increase in transaction processing
volume was primarily a result of a significant increase in customer accounts
resulting from the substantial advertising expenditures made by the Company
during fiscal 1998 and during the first half of fiscal 1999. Offsetting the
growth in trades per day is the decrease in commissions and clearing fees per
trade by 21 percent to $15 in the second quarter of fiscal 1999 from $19 in the
second quarter of fiscal 1998. The Company expects average commission and
clearing fees per trade to continue to decrease due to competitive pressures and
the greater anticipated number of lower revenue Internet equity trades. However,
the Company believes the rate of decline in average commission will be lower
than the rate of decline experienced over the past two years.
The Company has arrangements with several execution agents to receive cash
payments in exchange for routing trade orders to these firms for execution
(payment for order flow). The revenues generated by the Company under these
arrangements totaled $5.4 million, or 8 percent of net revenues for the second
quarter of fiscal 1999 and $2.5 million, or 8 percent of net revenues for the
second quarter of fiscal 1998. Payment for order flow is a component of the
commission and clearing fees revenue line. The majority of these revenues were
received from execution agents owned by Knight/Trimark, a market maker in
over-the-counter equity securities for those securities traded in the Nasdaq
stock market, the OTC Bulletin Board, and those listed on the New York and
American Stock Exchanges. As of March 26, 1999, the Company owned approximately
7.1 percent of the common stock of Knight/Trimark.
Net interest revenue (interest revenue less interest expense) increased 78
percent to $14.4 million in the second quarter of fiscal 1999 from $8.1 million
in the second quarter of fiscal 1998. This increase was due primarily to an
increase of 18 percent in cash and investments segregated in compliance with
federal regulations, an increase of 83 percent in customer and correspondent
broker-dealer receivables partially offset by an increase of 57 percent in
amounts payable to customers and correspondent broker-dealers in the second
quarter of fiscal 1999 from the second quarter of fiscal 1998. The Company
generally expects net interest revenue to grow as the account base grows.
The Company had no equity income from investments in the second quarter of
fiscal 1999, compared to $1.2 million in the second quarter of fiscal 1998. The
equity income in fiscal 1998 was primarily generated by the Company's ownership
in Roundtable Partners, LLC, which was reorganized into Knight/Trimark Group,
Inc. in July 1998. The Company no longer recognizes equity income from this
investment.
Other revenues increased 85 percent to $2.4 million in the second quarter of
fiscal 1999 from $1.3 million in the second quarter of fiscal 1998 due primarily
to an increase in marketing and service fees paid to the Company by mutual funds
as the Company holds more customer mutual fund assets.
EXPENSES EXCLUDING INTEREST. Employee compensation and benefits expense
increased 89 percent to $14.9 million in the second quarter of fiscal 1999 from
$7.9 million in the second quarter of fiscal 1998, due primarily to an increase
in full-time employees. Full-time equivalent employees rose 67 percent from 811
at the end of March 1998 to 1,353 at the end of March 1999. The increase in
employees was necessary to accommodate the dramatic growth in trading volume
following the
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<PAGE> 10
Company's advertising campaign in fiscal 1998 and the first half of fiscal 1999.
The Company expects employment expenses to continue to increase consistent with
the expected increase in customer accounts, assets and trades.
Commissions and clearance costs increased 69 percent to $2.2 million in the
second quarter of fiscal 1999 from $1.3 million in the second quarter of fiscal
1998, due primarily to the 197 percent increase in transaction volume, offset by
efforts that the Company has undertaken to reduce execution, clearance,
settlement, and depository costs with outside entities and the economies of
scale associated with these activities.
Communications expense increased 36 percent to $4.5 million in the second
quarter of fiscal 1999 from $3.3 million in the second quarter of fiscal 1998,
primarily as a result of telephone, quote and market information costs related
to the increase in transaction processing volume. Communication expenses are
expected to continue to increase at a slower rate than transactions processed,
as the low cost of Internet transactions continues to be the Company's
predominant communication channel with its customers.
Occupancy and equipment costs increased 100 percent to $4.6 million in the
second quarter of fiscal 1999 from $2.3 million in the second quarter of fiscal
1998. The increase was due primarily to the lease of a 132,000 square foot
operations center in Bellevue, Nebraska, which started during the third quarter
of fiscal 1998, as well as the lease of equipment to accommodate the Company's
continued growth.
Advertising expenses increased 38 percent to $13.2 million in the second quarter
of fiscal 1999 from $9.6 million in the second quarter of fiscal 1998. The
Company plans to continue to expand its customer base via advertising efforts.
Other operating expenses increased 93 percent to $11.6 million in the second
quarter of fiscal 1999 from $6.0 million in the second quarter of fiscal 1998,
primarily as a result of increased confirmation and statement processing costs
associated with the increase in transaction processing volume and increased
consulting fees related to technology development.
Income tax expense was $4.6 million in the second quarter of fiscal 1999,
compared with a tax benefit of $46,000 in the second quarter of fiscal 1998
consistent with the increase in the Company's pretax income.
SIX MONTH PERIODS ENDED MARCH 26, 1999 AND MARCH 27, 1998
NET REVENUES. Commissions and clearing fees increased 138 percent to $83.6
million in the first six months of fiscal 1999 from $35.2 million in the first
six months of fiscal 1998. This increase was primarily attributable to an
increase in the number of securities transactions processed, as average trades
per day increased 203 percent to 42,179 in the first six months of fiscal 1999
from 13,909 in the first six months of fiscal 1998. The increase in transaction
processing volume was primarily a result of a significant increase in customer
accounts resulting from the substantial advertising expenditures made by the
Company during fiscal 1998 and during the first half of fiscal 1999. Offsetting
the growth in trades per day is the decrease in commissions and clearing fees
per trade by 20 percent to $16 in the first six months of fiscal 1999 from $20
in the first six months of fiscal 1998. The Company expects average commission
and clearing fees per trade to continue to decrease due to competitive pressures
and the greater anticipated number of lower revenue Internet equity trades.
However, the Company believes the rate of decline in average commission will be
lower than the rate of decline experienced over the past two years.
The Company has arrangements with several execution agents to receive cash
payments in exchange for routing trade orders to these firms for execution
(payment for order flow). The revenues generated by the Company under these
arrangements totaled $10.3 million, or 9 percent of net revenues for the first
half of fiscal 1999 and $4.5 million, or 8 percent of net revenues for the first
half of fiscal 1998. Payment for order flow is a component of the commission and
clearing fees revenue line. The majority of these revenues were received from
execution agents owned by Knight/Trimark, a market maker in over-the-counter
equity securities for those securities traded in the Nasdaq stock market, the
OTC Bulletin Board, and those listed on the New York and American Stock
Exchanges. As of March 26, 1999, the Company owned approximately 7.1 percent of
the outstanding common stock of Knight/Trimark.
Net interest revenue (interest revenue less interest expense) increased 78
percent to $27.6 million in the first six months of fiscal 1999 from $15.5
million in the first six months of fiscal 1998. This increase was due primarily
to an increase of 18 percent in cash and investments segregated in compliance
with federal regulations, an increase of 83 percent in customer and
correspondent broker-dealer receivables partially offset by an increase of 57
percent in amounts payable to customers and correspondent broker-dealers at the
end of the first six months of fiscal 1999 from the end of the first six months
of fiscal 1998. The Company generally expects net interest revenue to grow as
the account base grows.
The Company had no equity income from investments in the first six months of
fiscal 1999, compared to $2.5 million in the first six months of fiscal 1998.
The equity income in fiscal 1998 was primarily generated by the Company's
ownership in
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Roundtable Partners, LLC, which was reorganized into Knight/Trimark Group, Inc.
in July 1998. The Company no longer recognizes equity income from this
investment.
Other revenues increased 84 percent to $4.6 million in the first six months of
fiscal 1999 from $2.5 million in the first six months of fiscal 1998 due
primarily to an increase in marketing and service fees paid to the Company by
mutual funds as the Company holds more customer mutual fund assets.
EXPENSES EXCLUDING INTEREST. Employee compensation and benefits expense
increased 93 percent to $28.4 million in the first half of fiscal 1999 from
$14.7 million in the first six months of fiscal 1998, due primarily to an
increase in full-time employees. Full-time equivalent employees rose 67 percent
from 811 at the end of March 1998 to 1,353 at the end of March 1999. The
increase in employees was necessary to accommodate the dramatic growth in
trading volume following the Company's advertising campaign in fiscal 1998 and
the first half of fiscal 1999. The Company expects employment expenses to
continue to increase consistent with the expected increase in customer accounts,
assets and trades.
Commissions and clearance costs increased 74 percent to $4.0 million in the
first half of fiscal 1999 from $2.3 million in the first half of fiscal 1998,
due primarily to the 203 percent increase in transaction volume, offset by
efforts that the Company has undertaken to reduce execution, clearance,
settlement, and depository costs with outside entities and the economies of
scale associated with these activities.
Communications expense increased 23 percent to $8.0 million in the first six
months of fiscal 1999 from $6.5 million in the first six months of fiscal 1998,
primarily as a result of telephone, quote and market information costs related
to the increase in transaction processing volume. Communication expenses are
expected to continue to increase at a slower rate than transactions processed,
as the low cost of Internet transactions continues to be the Company's
predominant communication channel with its customers.
Occupancy and equipment costs increased 107 percent to $8.7 million in the first
six months of fiscal 1999 from $4.2 million in the first six months of fiscal
1998. The increase was due primarily to the lease of a 132,000 square foot
operations center in Bellevue, Nebraska, which started during the third quarter
of fiscal 1998, as well as the lease of equipment to accommodate the Company's
continued growth.
Advertising expenses decreased 34 percent to $22.8 million in the first half of
fiscal 1999 from $34.5 million in the first half of fiscal 1998. The Company
plans to continue to expand its customer base via advertising efforts.
Other operating expenses increased 123 percent to $25.4 million in the first six
months of fiscal 1999 from $11.4 million in the first six months of fiscal 1998,
primarily as a result of increased confirmation and statement processing costs
associated with the increase in transaction processing volume and increased
consulting fees related to technology development. In addition, the Company
incurred $3.1 million in customer execution price adjustments largely caused by
system delays and outages in the first quarter of fiscal 1999.
Income tax expense was $6.7 million in the first six months of fiscal 1999,
compared with a tax benefit of $6.3 million in the first six months of fiscal
1998 consistent with the increase in the Company's pretax income.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects to spend between $25.0 million and $35.0 million during
fiscal 1999 on hardware and software upgrades to its computer systems to meet
anticipated increases in trading volumes. In addition, the Company anticipates
expenditures between $10.0 million and $15.0 million during fiscal 1999
primarily for the purchase of office, computer and operating equipment. Lease
commitments for operating equipment and facilities during fiscal 1999 are
expected to equal approximately $9.0 million with an aggregate commitment of
approximately $50 million through fiscal 2018. In addition, the Company plans to
spend approximately $10.0 million on continuing research and development
activities during fiscal 1999. The Company has also entered into a two-year
agreement with America Online, Inc ("AOL") that will feature Ameritrade (Inc.)
as one of four brokerages on AOL's Personal Finance Channel. The pact calls for
the Company to pay AOL $12.5 million annually over a two-year term and expires
in September 2000. The Company has also entered into agreements with Yahoo!,
Inc. ("Yahoo") that will feature Ameritrade (Inc.) as one of four brokerages on
Yahoo's Finance Channel and with banner and sponsorships within the Finance
area. The agreement calls for the Company to pay Yahoo $8.3 million between May
and December 1999.
The Company expects to finance its capital and liquidity needs during fiscal
1999 from its operating cash flow and borrowings under a $50.0 million revolving
credit facility with a bank group (see "Bank Loan Agreements"). The Company is
also currently exploring other long-term financing sources. Dividends from
subsidiaries are subject to the requirements of the Securities Exchange
Commission and the National Association of Securities Dealers relating to
liquidity, capital standards, and
11
<PAGE> 12
the use of customer funds and securities, as well as credit agreement
provisions, which limit funds available for the payment of dividends to the
parent company.
CASH FLOW
Cash used in operating activities was $37.6 million in the first six months of
fiscal 1999, compared to $29.2 million in the first six months of fiscal 1998.
The increased use of cash during the first six months of fiscal 1999 was
attributable to the substantial increase in customer receivables at the end of
the first six months of fiscal year 1999.
Cash used in investing activities was $10.1 million in the first six months of
fiscal 1999, compared to cash used in investing activities of $0.7 million in
the first six months of fiscal 1998. Uses of cash in both periods is related to
purchases of property and equipment. However, those amounts were offset in
fiscal 1998 by the proceeds from cash distributions received from the Company's
investment in Knight/Trimark and the sale of an investment
Cash provided by financing activities was $27.6 million in the first six months
of fiscal 1999, compared to $10.0 million in the first six months of fiscal
1998. The cash provided by financing activities both periods consisted of net
proceeds from the Company's revolving credit agreement with a bank (see "Bank
Loan Agreements").
BANK LOAN AGREEMENTS
The Company entered into a revolving credit agreement with a bank group on
January 16, 1998. The revolving credit agreement permits borrowings up to $50.0
million through June 30, 1999 with permissible borrowings declining $2.5 million
quarterly to $35.0 million at maturity on December 31, 2000. The common stock of
the Company's subsidiaries, as well as all assets of the Company collateralize
the revolving credit agreement. Borrowings under the revolving credit agreement
bear interest at prime rate less 0.75 percent (7.00 percent and 7.75 percent
borrowing rate at March 26, 1999 and September 25, 1998, respectively). The
Company pays a maintenance fee of 0.25 percent of the unused borrowings through
the maturity date. The Company had outstanding indebtedness under the revolving
credit agreement of $38.0 million and $11.0 million at March 26, 1999 and
September 25, 1998, respectively. The increase in indebtedness during the first
six months of fiscal 1999 was due to additional net capital requirements,
purchases of property and equipment, and marketing expenses. The revolving
credit agreement contains certain restrictions, including restrictions on the
payment of cash dividends and additional borrowings.
A letter of credit in the amount of $81.0 million as of March 26, 1999 has been
issued by a financial institution on behalf of Advanced Clearing, a wholly-owned
subsidiary of the Company which acts as a securities clearing firm. The letter
of credit has been issued to support margin requirements. Advanced Clearing pays
a maintenance fee of 0.5 percent of the committed amount for the letter of
credit. In addition, the same financial institution may make loans to Advanced
Clearing if requested under a note. As of March 26, 1999, $45.0 million was
outstanding under the note. Advanced Clearing has pledged customer securities,
the amount of which fluctuates from time to time, to secure its obligations
under the letter of credit and the note.
YEAR 2000
The Company relies heavily on computerized information technology systems ("IT")
for its business operations. In particular, securities trading information moves
to and from the Company's IT system to those operated by stock exchanges,
broker-dealers, clearinghouses and other trading partners on a real-time basis
with little human intervention. The Company's business operations are also
dependent on a variety of non-IT systems that contain embedded circuitry such as
telephone equipment, security and alarm systems, copiers, fax machines, mail
room equipment, heating and air conditioning systems and other infrastructure
systems. In addition, the Company has business relationships with a variety of
third parties whose ability to interface with the Company's IT systems or
otherwise perform their obligations to the Company depends on such systems and
equipment. Some or all of these systems and equipment may be affected by the
so-called "Year 2000 problem" which is the potential inability of certain
computer programs and embedded circuitry to correctly recognize dates occurring
after December 31, 1999. The Company has adopted a plan to deal with this "Year
2000 problem" with respect to its IT, non-IT systems and third party business
relationships.
State of Readiness
The Company has hired a Year 2000 Project Manager who has assembled a working
group that is responsible for the Company's Year 2000 remediation effort. In
general, this effort consists of (i) preparing an inventory of IT and non-IT
systems and assessing the need for remediation of such systems, (ii) determining
the status of Year 2000 remediation of third parties with which the Company has
material business relationships, (iii) remediation of the Company's IT and
non-IT systems
12
<PAGE> 13
and (iv) testing. The Company engaged the services of an independent outside
consultant group to gauge the status of the Year 2000 project. The Company
developed/released a comprehensive request for proposal seeking contract support
to complete the project on the scheduled timeline. Two outside companies were
awarded contracts to support this effort. The Company has completed
approximately 80 percent of the inventory and assessment phase of its Year 2000
program. The Company has been in the process of a planned upgrade of many
components of its IT system and as this process is completed, the Company's IT
systems are expected to become Year 2000 compliant. The Company expects this to
occur by June 30, 1999. The Company has reviewed its non-IT systems, such as
telephone systems, which have been identified as necessary to the Company's
ability to conduct the operation of its business activities. All non-IT systems
except for the Company's security system have been modified or replaced to be
Year 2000 compliant. The Company expects to have its security system replaced by
the end of May 1999.
The Company plans to conduct testing of IT and non-IT systems as remediation
work is completed. In particular, the IT systems successfully participated in a
series of Securities Industry Association-sponsored industry-wide tests of the
trading cycle through the millennium. These tests exercised not only the
Company's internal IT systems, but also key interfaces with third parties in the
securities industry. Notwithstanding the Company's efforts to anticipate and
remediate Year 2000 problems, there can be no assurance that the inventory and
assessment will discover all potential Year 2000 problems or that testing will
reveal unanticipated material problems with the Company's IT systems and non-IT
systems that will need to be resolved.
The Company has no control over the remediation efforts of third parties with
which it has material business relationships and the failure of certain of these
third parties to successfully remediate their Year 2000 issues could have a
material adverse effect on the Company. Accordingly, the Company has undertaken
the process of contacting each material third party. Such parties include, but
are not limited to, various brokers-dealers, Internet partners, and market
makers. The Company continues to receive documentation from its third party
vendors and partners declaring that their ability to perform their obligations
to the Company are not expected to be materially adversely affected by the Year
2000 problem. The Company continues to conduct in-house testing of third party
systems where applicable. The Company continues to pursue updated information
from these material third parties in order to access their Year 2000 readiness.
Costs to Address Year 2000 Compliance
Costs associated with Year 2000 compliance consist of salaries of the Year 2000
Project Manager and other staff assigned to the Year 2000 working group,
software used to assess the Company's systems, and consulting/contractor fees.
Additional costs were incurred in connection with replacing non-IT systems as
necessary, polling of third-party readiness and testing. All remediation to the
Company's IT system were made as part of scheduled upgrades and, therefore, have
not been included in the costs of Year 2000 compliance. Costs associated with
the Company's Year 2000 program have been less than $1.0 million to date and are
expected to range between $2.0 million and $3.0 million by the end of the
project.
Year 2000 Risks
Based on currently available information, the Company does not believe that
there will be any protracted systemic failures of the IT or non-IT systems
utilized by it in connection with the operation of its business. The Company
believes that the most reasonably likely worst-case scenario will be that there
will be a temporary interruption or reduction in trading volume capability due
to a combination of interface breakdowns, utilities disruptions or
communications degradations. If such an interruption or reduction occurs, it
will result in a loss of revenues and, depending on the extent of such
disruption, may cause the Company to lose accounts. The Company cannot estimate
the magnitude of any such loss of revenue at this time, but it could be
material.
Contingency Plans
The Company has compiled a series of contingency plans with respect to Year 2000
issues as part of an overall business continuity/disaster recovery initiative.
In general, these plans provide for the use of manual processes and multiple
market sources in order to execute securities trades. Other principal components
of the Company's contingency plan include the use of multiple transmission
channels with several long distance telephone vendors and on-site diesel
generators if telephone service or electricity is interrupted. The Company
expects to make refinements to its contingency plans as additional information
regarding Year 2000 strategies becomes available and as a result of the
industry-wide simulation testing described above. There can be no assurance,
however, that any contingency plan utilized by the Company will prevent the
Company from incurring service interruptions and other negative consequences in
the event of Year 2000 problems either with its own IT and non-IT systems or
with those of third parties having material business relationships with the
Company.
All forecasts, estimates or other statements in this report relating to the Year
2000 readiness of the Company are based on information and assumptions about
future events. Such "forward-looking statements" are subject to various known
and unknown risks and uncertainties that may cause actual events to differ from
such statements. Important factors upon which the
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<PAGE> 14
Company's Year 2000 forward-looking statements are based include, but are not
limited to, (a) the belief of the Company that the upgraded software used in IT
systems is already able to correctly read and interpret dates after December 31,
1999 and will require little or no remediation; (b) the ability to identify,
repair or replace mission critical non-IT equipment in a timely manner, (c)
third parties' remediation of their internal systems to be Year 2000 ready and
their willingness to test their systems interfaces with those of the Company,
(d) no third party system failures causing material disruption of
telecommunications, data transmission, payment networks, government services,
utilities or other infrastructure, (e) no unexpected failures by third parties
with which the Company has a material business relationship and (f) no material
undiscovered flaws in the Company's Year 2000 inventory and assessment process.
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk generally represents the risk of loss that may result from the
potential change in the value of a financial instrument as a result of
fluctuations in interest rates and market prices. The Company has established
policies, procedures and internal processes governing its management of market
risks in the normal course of its business operations.
As a fundamental part of its brokerage business, the Company holds short-term
interest earning assets, mainly funds required to be segregated in compliance
with federal regulations for customers totaling $601,811,083 at March 26, 1999.
The Company invests such funds primarily in short-term fixed-rate U.S. Treasury
Bills and repurchase agreements. The Company's interest earning assets are
financed by short-term interest bearing liabilities totaling $1,622,307,296 at
March 26, 1999 in the form of customer cash balances. Additionally, at March 26,
1999, the Company had $38,000,000 outstanding in notes payable under a floating
interest rate arrangement and $45,000,000 outstanding under a short-term note.
The Company earns a net interest spread on the difference between amounts earned
on customer margin loans and amounts paid on customer credit balances. Since the
Company establishes the rate paid on customer cash balances, a substantial
portion of its interest rate risk is under the direct management of the Company.
The Company generally moves rates earned on loans in lockstep with rates paid on
credit balances to maintain a consistent net interest spread, and, therefore,
does not anticipate that changes in interest rates will have a material effect
on the Company's earnings and cash flows.
The Company holds a marketable equity security at March 26, 1999, which is
recorded at fair value of $202,388,623 ($123,012,199 net of tax) and has
exposure to market price risk. This risk is estimated as the potential loss in
fair value resulting from a hypothetical 10 percent adverse change in prices
quoted by the stock exchanges and amounts to approximately $20,000,000. Actual
results may differ.
The Company's revenues and financial instruments are denominated in U.S. dollars
and the Company does not invest in or intend to invest in derivative financial
instruments or derivative commodity instruments.
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<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
Item 3 of Part I of the Company's Form 10-K and amendments thereto filed for the
fiscal year ended September 25, 1998 details the Company's current legal
proceedings. No material changes have occurred since September 25, 1998.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on February 17, 1999 for the
purposes of electing its board of directors, ratifying the appointment of its
auditors and amending its certificate of incorporation to modify the definition
of "Control Group." The Board of Directors consists of a total of nine persons,
four of which are to be elected by the holders of the Company's Class A Common
Stock and five of which are elected by the holders of the Company's Class B
Common Stock. The nine persons were nominated by the Board of Directors to serve
as directors for terms of one year. The following sets forth the results of the
election of directors:
DIRECTORS ELECTED BY THE HOLDERS OF THE CLASS A COMMON STOCK
<TABLE>
<CAPTION>
NAME OF NOMINEE FOR WITHHELD
- --------------------- -------------------- ---------------
<S> <C> <C> <C> <C>
David W. Garrison 25,484,623 96.90% 42,644 0.16%
Thomas Y. Hartley 25,482,924 96.89% 44,343 0.17%
Charles L. Marinaccio 25,483,584 96.90% 43,683 0.17%
Mark L. Mitchell 25,484,166 96.90% 43,101 0.16%
</TABLE>
DIRECTORS ELECTED BY THE HOLDERS OF THE CLASS B COMMON STOCK
<TABLE>
<CAPTION>
NAME OF NOMINEE FOR WITHHELD
- --------------------- -------------------- ---------------
<S> <C> <C> <C> <C>
J. Joe Ricketts 2,728,800 100% 0 0%
Joseph A. Konen 2,728,800 100% 0 0%
Robert T. Slezak 2,728,800 100% 0 0%
John W. Ward 2,728,800 100% 0 0%
Gene L. Finn 2,728,800 100% 0 0%
</TABLE>
No proxies were solicited from the holders of the Class B Common Stock since
such shares are not publicly traded. There was no solicitation in opposition to
the nominees proposed to be elected by the holders of the Class A Common Stock
in the Proxy Statement.
The ratification of the appointment of Deloitte & Touche LLP as independent
auditors for the Company for the fiscal year ending September 24, 1999 was
approved by the Stockholders with 25,508,579 votes FOR (approximately 88%),
12,480 votes AGAINST, and 12,208 votes ABSTAINED OR BROKER NON-VOTE.
The Board of Directors of the Company had proposed an amendment of the Company's
Certificate of Incorporation under which the definition of "Control Group" in
Article FOURTH would be amended to include any trust or other person or entity
that holds either Class A Stock or Class B Stock (or both) for any of J. Joe
Ricketts, Marlene M. Ricketts and the lineal descendants of J. Joe Ricketts and
Marlene M. Ricketts and their spouses. Pursuant to Delaware law, the amendment
was passed by the affirmative vote of the holders of a majority of the issued
and outstanding shares of each of the Class A Common Stock and the Class B
Common Stock entitled to vote. No proxies were solicited from the holders of the
Class B Common Stock since such shares are not publicly traded. The following
sets forth the results of the vote on the amendment to the Certificate of
Incorporation:
15
<PAGE> 16
<TABLE>
<CAPTION>
HOLDERS OF CLASS A COMMON STOCK HOLDERS OF CLASS B COMMON STOCK TOTAL
- ---------------------------------- --------------------------------- --------------------
<S> <C> <C> <C> <C>
20,341,286 votes FOR 77.34% 2,728,800 votes FOR 100% 23,070,086 votes FOR
804,075 votes AGAINST 3.06% 0 votes AGAINST 0% 804,075 votes AGAINST
52,177 votes ABSTAINED 0.20% 0 votes ABSTAINED 0% 52,177 votes ABSTAINED
</TABLE>
The Company's two-for-one common stock split, which was effective after the
Annual Meeting of Shareholders, is not reflected in the results shown above.
Further information regarding these matters is contained in the Company's Proxy
Statement dated January 7, 1999.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
3.1 Certificate of Incorporation (incorporated by reference to
Exhibit 3.1 of the Company's Registration Statement on Form
S-1 (Registration No. 333-17495) filed on February 7, 1997)
3.2 Bylaws (incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement on Form S-1 (Registration No.
333-17495) filed on February 7, 1997)
3.3 Certificate of Amendment of Certificate of Incorporation of
Ameritrade Holding Corporation dated February 10, 1998
(incorporated by reference to Exhibit 3.3 of the Company's
quarterly report on Form 10-Q filed on May 12, 1998)
3.4 Certificate of Correction of Certificate of Amendment of
Certificate of Incorporation of Ameritrade Holding Corporation
dated December 11, 1998 (incorporated by reference to Exhibit
3.4 of the Company's Annual Report on Form 10-K and amendments
thereto filed on December 21, 1998)
3.5 Certificate of Amendment of Certificate of Incorporation of
Ameritrade Holding Corporation dated February 17, 1999
4.1 Form of Certificate for Class A Stock (incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-1 (Registration No. 333-17495) filed on
February 7, 1997)
10.1 Agreement of Limited Partnership, dated as of February 4,
1993, of Comprehensive Software Systems, Ltd. (incorporated by
reference to Exhibit 10.1 of the Company's Registration
Statement on Form S-1 (Registration No. 333-17495) filed on
February 7, 1997)
10.2 Amendment to Agreement of Limited Partnership, dated as of
September 1993, of Comprehensive Software Systems, Ltd.
(incorporated by reference to Exhibit 10.33 of the Company's
Registration Statement on Form S-1 (Registration No.
333-17495) filed on February 7, 1997)
10.3 Second Amendment to Agreement of Limited Partnership, dated as
of December 1994, of Comprehensive Software Systems, Ltd.
(incorporated by reference to Exhibit 10.34 of the Company's
Registration Statement on Form S-1 (Registration No.
333-17495) filed on February 7, 1997)
10.4 Third Amendment to Agreement of Limited Partnership, dated as
of December 31, 1995, of Comprehensive Software Systems, Ltd.
(incorporated by reference to Exhibit 10.35 of the Company's
Registration Statement on Form S-1 (Registration No.
333-17495) filed on February 7, 1997)
10.5 Sale of Minority Interest Agreement between Comprehensive
Software Systems, Ltd. and ADP Financial Information Services,
Inc., dated as of June 3, 1998 (incorporated by reference to
Exhibit 10.5 of the Company's Annual Report on Form 10-K and
amendments thereto filed on December 21, 1998)
10.6 Broker Loan Pledge and Security Agreement, dated as of October
24, 1989, made by AmeriTrade, Inc. (now known as Advanced
Clearing, Inc.) in favor of the First National Bank of Chicago
(incorporated by reference to Exhibit 10.18 of the Company's
Registration Statement on Form S-1 (Registration No.
333-17495) filed on February 7, 1997)
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<PAGE> 17
10.7 Master Broker Loan Note, dated as of October 24, 1989, made by
AmeriTrade, Inc. (now known as Advanced Clearing, Inc.) in
favor of the First National Bank of Chicago (incorporated by
reference to Exhibit 10.19 of the Company's Registration
Statement on Form S-1 (Registration No. 333-17495) filed on
February 7, 1997)
10.8 Lease, dated as of July 14, 1993, between John Joe and Marlene
M. Ricketts and TransTerra Co. (now known as Ameritrade
Holding Corporation) (incorporated by reference to Exhibit
10.20 of the Company's Registration Statement on Form S-1
(Registration No. 333-17495) filed on February 7, 1997)
10.9 Amendment to Lease, dated as of September 27, 1996, between
John Joe and Marlene M. Ricketts and TransTerra Co. (now known
as Ameritrade Holding Corporation) (incorporated by reference
to Exhibit 10.21 of the Company's Registration Statement on
Form S-1 (Registration No. 333-17495) filed on February 7,
1997)
10.10 Lease, dated as of October 5, 1995, between A.C. Nielsen
Company and TransTerra Co. (now known as Ameritrade Holding
Corporation) (incorporated by reference to Exhibit 10.22 of
the Company's Registration Statement on Form S-1 (Registration
No. 333-17495) filed on February 7, 1997)
10.11 First Amendment to Lease, dated as of August 23, 1996, between
A.C. Nielsen Company and TransTerra Co. (now known as
Ameritrade Holding Corporation) (incorporated by reference to
Exhibit 10.23 of the Company's Registration Statement on Form
S-1 (Registration No. 333-17495) filed on February 7, 1997)
10.12 Second Amendment to Lease, dated as of October 5, 1997,
between A.C. Nielsen Company and AmeriTrade Holding
Corporation (incorporated by reference to Exhibit 10.12 of the
Company's annual report on Form 10-K filed on December 23,
1997)
10.13 Third Amendment to Lease, dated as of October 5, 1997, between
A.C. Nielsen Company and Ameritrade Holding Corporation
(incorporated by reference to Exhibit 10.13 of the Company's
quarterly report on Form 10-Q filed on February 12, 1999)
10.14 Lease, dated as of March 10, 1996, between New York Executive
Office Network and K. Aufhauser & Company, Inc. (incorporated
by reference to Exhibit 10.24 of the Company's Registration
Statement on Form S-1 (Registration No. 333-17495) filed on
February 7, 1997)
10.15 Lease, dated as of June 20, 1996, between Christ Community
Church and TransTerra Co. (now known as Ameritrade Holding
Corporation) (incorporated by reference to Exhibit 10.25 of
the Company's Registration Statement on Form S-1 (Registration
No. 333-17495) filed on February 7, 1997)
10.16 Lease, dated as of February 3, 1998, between Southroads Mall
and Ameritrade Holding Corporation (incorporated by reference
to Exhibit 10.24 of the Company's quarterly report on Form
10-Q filed on May 12, 1998)
10.17 Employment Contract, dated as of December 3, 1996, between J.
Joe Ricketts and AmeriTrade Holding Corporation (incorporated
by reference to Exhibit 10.26 of the Company's Registration
Statement on Form S-1 (Registration No. 333-17495) filed on
February 7, 1997)
10.18 Employment Contract, dated as of December 3, 1996, between
Joseph A. Konen and AmeriTrade Holding Corporation
(incorporated by reference to Exhibit 10.27 of the Company's
Registration Statement on Form S-1 (Registration No.
333-17495) filed on February 7, 1997)
10.19 Employment Contract, dated as of December 3, 1996, between
Robert T. Slezak and AmeriTrade Holding Corporation
(incorporated by reference to Exhibit 10.28 of the Company's
Registration Statement on Form S-1 (Registration No.
333-17495) filed on February 7, 1997)
10.20 Employment Contract, dated as of February 15, 1999, between
Thomas Lewis and Ameritrade Holding Corporation
10.21 Employment Contract, dated as of March 24, 1999, between Jack
R. McDonnell and Ameritrade Holding Corporation
10.22 Form of Executive Bonus Plan (incorporated by reference to
Exhibit 10.29 of the Company's Registration Statement on Form
S-1 (Registration No. 333-17495) filed on February 7, 1997)
10.23 1996 Long-Term Incentive Plan (incorporated by reference to
Exhibit 10.30 of the Company's Registration Statement on Form
S-1 (Registration No. 333-17495) filed on February 7, 1997)
17
<PAGE> 18
10.24 Amendment to 1996 Long-Term Incentive Plan dated November 11,
1997 (incorporated by reference to Exhibit 10.20 of the
Company's Annual Report on Form 10-K and amendments thereto
filed on December 21, 1998)
10.25 1996 Directors Incentive Plan, as amended February 10, 1998.
This plan supercedes plan filed February 7, 1997 (incorporated
by reference to Exhibit 10.21 of the Company's Annual Report
on Form 10-K and amendments thereto filed on December 21,
1998)
10.26 Loan Agreement, dated as of January 16, 1998, made by
Ameritrade Holding Corporation in favor of a bank group
(incorporated by reference to Exhibit 10.22 of the Company's
quarterly report on Form 10-Q filed on February 13, 1998)
10.27 Operating Agreement of Adirondack Trading Partners LLC
(incorporated by reference to Exhibit 10.25 of the Company's
Annual Report on Form 10-K and amendments thereto filed on
December 21, 1998)
27.1 Financial Data Schedule (EDGAR filing only)
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the three-month period ended
March 26, 1999.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 7, 1999
Ameritrade Holding Corporation
(Registrant)
by: /s/ J. Joe Ricketts
-------------------
J. Joe Ricketts
Director, Chairman and
Co-Chief Executive Officer
(Principal Executive Officer)
by: /s/ Robert T. Slezak
--------------------
Robert T. Slezak
Director, Chief Financial Officer,
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
19
<PAGE> 1
EXHIBIT 3.5
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AMERITRADE HOLDING CORPORATION
The undersigned, Ameritrade Holding Corporation (the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify:
I.
That it is advisable and in the best interests of the Corporation that
Article Fourth of the Certificate of Incorporation be amended; and that the
Directors of the Corporation have duly adopted and presented to the shareholders
entitled to vote thereon the following resolution setting forth a proposed
amendment to the Certificate of Incorporation of such corporation:
RESOLVED, that it is advisable and hereby proposed that
Article Fourth of the Certificate of Incorporation of Ameritrade
Holding Corporation be revoked and the following be and it hereby is
adopted in substitution thereof
FOURTH: The total number of shares of capital stock which the
Corporation has authority to issue is 69,000,000 shares, consisting of:
(1) 3,000,000 shares of Preferred Stock, par value $1.00 per
share (the "Preferred Stock");
(2) 60,000,000 shares of Class A Common Stock, par value $.01
per share (the "Class A Stock"); and
(3) 6,000,000 shares of Class B Common Stock, par value $.01
per share (the "Class B Stock").
The Class A Stock and the Class B Stock are hereafter
collectively referred to as the "Common Stock."
A. PREFERRED STOCK
Authority is hereby expressly granted to the Board of
Directors to authorize the issuance of one or more series of Preferred
Stock and with respect to each such series to fix by resolution or
resolutions providing for the issuance of such series the voting
powers, full or limited, if any, of the shares of such series and the
designations,
<PAGE> 2
preferences and relative, participating, optional or other special
rights and the qualifications, limitations or restrictions thereof.
B. COMMON STOCK.
Except as otherwise provided in this Section B or as otherwise
required by applicable law, all shares of Class A Stock and Class B
Stock shall be identical in all respects and shall entitle the holders
thereof to the same rights and privileges, subject to the same
qualifications, limitations and restrictions.
1. VOTING RIGHTS.
(a) GENERAL. Except as otherwise provided in this
Section B or as otherwise required by applicable law, the
holders of Class A Stock and the holders of Class B Stock
shall vote as a single class and shall be entitled to one vote
per share on all matters to be voted on by the stockholders of
the Corporation.
(b) ELECTION OF DIRECTORS. The number of directors shall
be determined in the manner provided in the Bylaws of the
Corporation. The Class B Stock shall be entitled to elect a
majority of the directors and the Class A Stock shall be
entitled to elect the remaining directors.
(c) REMOVAL. Only the holders of Class A Stock shall be
entitled to vote on the removal, with or without cause, of any
director elected by the holders of Class A Stock. Only the
holders of Class B Stock shall be entitled to vote on the
removal, with or without cause, of any director elected by the
holders of Class B Stock.
(d) VACANCIES. Any vacancy in the office of a director
created by the death, resignation or removal of a director
elected by the holders of Class A Stock shall, be filled only
by a vote of the holders of Class A Stock. Any vacancy in the
office of a director created by the death, resignation or
removal of a director elected by the holders of Class B Stock
shall be filled only by a vote of the holders of Class B
Stock. Notwithstanding anything in this Section (d) to the
contrary, any vacancy in the office of a director may be
filled by the vote of the majority of the directors (or
director) elected by the same class of stock that elected the
director whose death, resignation or removal created the
vacancy, or in the event that there are no such directors, by
the vote of the majority of the other directors or by the sole
remaining director, regardless, in each instance, of any
quorum requirements set forth in the Bylaws of the
Corporation. Any director elected by the stockholders or by
some or all of the directors to fill a vacancy shall serve
until the next annual meeting of stockholders and until his or
her successor has been elected and has qualified. Any vacancy
in the office of a director created by the increase in the
number of directors may be filled by election at the next
annual or special meeting of stockholders in accordance with
Section 1(b) or by
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the vote of all the directors prior to such annual or special
meeting of stockholders, in which case the directors shall
designate which class of stock shall be deemed to have elected
the director filling such vacancy.
(e) ONE CLASS OUTSTANDING. Notwithstanding anything in
this Section 1 to the contrary, the holders of Class A Stock
shall be entitled to elect all of the directors and shall have
exclusive voting power on all matters at any time when no
Class B Stock is issued and outstanding, and the holders of
Class B Stock shall be entitled to elect all of the directors
and shall have exclusive voting power on all matters at any
time when no Class A Stock is issued and outstanding, subject
in each case to the provisions of any Preferred Stock.
2. DIVIDENDS. As and when dividends are declared or paid on
the Common Stock, whether in cash, property or securities of the
Corporation, the holders of Class A Stock and the holders of Class B
Stock shall be entitled to participate in such dividends ratably on a
per share basis; provided that if dividends are declared that are
payable in shares of Class A Stock or Class B Stock, dividends shall be
declared that are payable at the same rate an both classes of stock and
any dividends payable in shares of Class A Stock shall be payable to
holders of that class of stock and any dividends payable in shares of
Class B Stock shall be payable to holders of that class of stock.
3. CONVERSION.
(a) CONVERSION OF CLASS A STOCK. The Class A Stock is
not convertible.
(b) CONVERSION OF CLASS B STOCK.
(i) Each share of Class B Stock may be
converted into one share of Class A Stock at any time at
the option of and without cost to the holder thereof,
Any such conversion may be effected by any holder of
Class B Stock surrendering such holder's certificate or
certificates representing the Class B Stock to be
converted, duly endorsed, at the principal office of the
Corporation or any transfer agent for the Class B Stock
during normal business hours, together with a written
notice to the Corporation at such office that such
holder elects to convert all or a specified number of
shares of Class B Stock and stating the name or names in
which such holder desires the certificate or
certificates representing such Class A Stock to be
issued Promptly thereafter, the Corporation shall issue
and deliver to such holder, or such holder's nominee or
nominees, a certificate or certificates representing the
number of shares of Class A Stock to which such holder
shall be entitled. Such conversion shall be deemed to
have been made at the close of business on the date of
such surrender and receipt of such notice and the person
or persons entitled to receive the Class A Stock
issuable upon such conversion shall be treated for all
purposes as the
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record holder or holders of such Class A Stock as of the
close of business on that date.
(ii) Each share of Class B Stock shall
automatically convert into one share of Class A Stock if
the number of issued and outstanding shares of Common
Stock held by the Control Group is less than twenty
percent (20%) of the aggregate number of issued and
outstanding shares of Common Stock.
(iii) Each share of Class B Stock shall
automatically convert into one share of Class A Stock in
the event such share is sold or transferred to any
person other than to a member of the Control Group. If
any share of Class B Stock is sold or transferred to a
member of the Control Group who subsequently ceases to
be a member of the Control Group, each such share shall
automatically convert into one share of Class A Stock.
(iv) For purposes of this Section 3, "Control
Group" shall mean J. Joe Ricketts, Marlene M. Ricketts,
the lineal descendants of J. Joe Ricketts and Marlene M.
Ricketts and their spouses, and any trust or other
person or entity that holds Common Stock for the benefit
for any of the foregoing.
4. LIQUIDATION. Subject to the provisions of any Preferred
Stock, the holders of Class A Stock and the holders of Class B Stock
shall be entitled to participate ratably on a per share basis in all
distributions to the holders of Common Stock in any liquidation,
dissolution or winding up of the Corporation.
5. SUBDIVISION, RECLASSIFICATION AND COMBINATION. The
Corporation shall not subdivide, reclassify or combine any class of
Common Stock without at the same time making a proportionate
subdivision, reclassification or combination of each other class of
Common Stock.
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II.
That said amendment was duly adopted by the majority of the
shareholders of each class of shares of the Corporation entitled to vote thereon
in accordance with the applicable provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned, Chairman and Chief Executive
Officer and Secretary of Ameritrade Holding Corporation, hereby further certify
that the facts hereinabove stated are true and that the execution hereof is
their voluntary act and deed and the voluntary act and deed of said Corporation,
under penalties of perjury.
DATED this 17th day of February, 1999.
AMERITRADE HOLDING CORPORATION
By /s/ J. JOE RICKETTS
------------------------------------
J. Joe Ricketts Chairman and Chief
Executive Officer
Attest:
By /s/ J. PETER RICKETTS
---------------------------------
J. Peter Ricketts, Secretary
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EXHIBIT 10.20
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of February 15,1999 (the
Effective Date"), by and between Thomas Lewis (the "Executive") and Ameritrade
Corporation (the "Company");
WITNESSETH THAT:
WHEREAS, the parties desire to enter into this Agreement pertaining to
the employment of the Executive by the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below, it is hereby covenanted and agreed by the Executive and the
Company as follows:
1. Performance of Services. The Executive's employment with the Company
shall be subject to the following:
(a) Subject to the terms of this Agreement, the Company hereby agrees to
employ the Executive as its Co-Chief Executive Officer ("Co-CEO")
during the first twelve months of the Agreement Term (as defined
below), after which the Executive shall be employed as its Chief
Executive Officer ("CEO") and the Executive hereby agrees to remain in
the employ of the Company during the Agreement Term.
(b) During the Agreement Term, while the Executive is employed by the
Company, the Executive shall devote his full time, energies and talents
to serving as its Co-CEO or CEO, as the case may be.
(c) The Executive agrees that he shall perform his duties faithfully and
efficiently subject to the directors of J. Joe Ricketts, Co-CEO and
Chairman of the Board of Directors of the Company (the "Board") during
the first twelve months of the Agreement term, after which the
Executive shall perform his duties faithfully and efficiently subject
to the directions of J. Joe Ricketts, the Chairman of the Board, or the
successor to J. Joe Ricketts as Chairman of the Board. The Executive's
duties may include providing services for both the Company and the
Subsidiaries (as defined below), as determined by the Board; provided,
that the Executive shall not, without his consent, be assigned tasks
<PAGE> 2
that would be inconsistent with those of Co-CEO or CEO, as the case may
be. The Executive shall have such authority, power, responsibilities
and duties as are inherent in his positions (and the undertakings
applicable to his positions) and necessary to carry out his
responsibilities and the duties required of him hereunder.
(d) Notwithstanding the foregoing provisions of this paragraph 1, during
the Agreement Term, the Executive may devote reasonable time to
activities other than, those required under this Agreement, including
the supervision of his personal investments, and activities involving
professional, charitable, community, educational, religious and similar
types of organizations, speaking engagements, membership on the boards
of directors of other organizations, and similar types of activities,
to the extent that such other activities do not, in the judgement of
the Board, inhibit or prohibit the performance of the Executive's
duties under this Agreement, or conflict in any material way with the
business of the Company or any Subsidiary; provided, however, that the
Executive shall not serve on the board of any business, or hold any
other position with any business, without the consent of the Board.
(e) Subject to the terms of this Agreement, the Executive shall not be
required to perform services under this Agreement during any period
that he is Disabled. The Executive shall be considered Disabled during
any period in which be has a physical or mental disability which
renders him incapable, after reasonable accommodation, of performing
his duties under this Agreement. In the event of a dispute as to
whether the Executive is Disabled, the Company may refer the same to a
licensed practicing physician of the Company's choice, and the
Executive agrees to submit to such tests and examinations as such
physician shall deem appropriate. During the period in which the
Executive is Disabled, the Company may appoint a temporary replacement
to assume the Executive's responsibilities.
(f) The "Agreement Term" shall be the period beginning on the Effective
Date and ending on the fifth anniversary of the Effective Date. If a
Change in Control occurs during the Agreement Term less than two years
before the date on which the Agreement Term would otherwise end, the
Term shall automatically be extended to the two-year anniversary of the
Change in Control date.
(g) For purposes of this Agreement, the term "Subsidiary" shall mean any
corporation, partnership, joint venture or other entity during any
period in which at least a fifty percent interest in such entity is
owned, directly or indirectly, by the Company (or a successor to the
Company).
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2. Compensation. Subject to the terms of this Agreement, during the
Agreement Term, while the Executive is employed by the Company, the Company
shall compensate him for his services as follows:
(a) The Executive shall receive, for each 12-consecutive month period
beginning on the Effective Date and each anniversary thereof, in
substantially equal monthly or more frequent installments, an annual
base salary of not less than, $346,500 (the "Salary"). The Executive's
Salary rate shall be reviewed by the Compensation Committee of the
Board (the "Committee"), while the Executive is employed by the
Company, to determine whether an increase in the amount of Salary is
appropriate. In no event shall the Salary of the Executive be reduced
to an amount that is less than, the amount specified in this paragraph
(a), or to an amount that is less than, the amount that he was
previously receiving, except to the extent that reductions of the same
percentage are being made at the same time to the salaries of all other
Company officers in the corporate office at or above the vice-president
level, and such Salary shall be restored to its prior level when, and
to the same extent, as the restoration that applies to the other
officers.
(b) The Executive shall be entitled to incentive compensation in the form
of an annual cash bonus of up to 60% (but not less than 30% for the
first two years of this Agreement) of his Salary, as provided for in
paragraph 2(a), as in effect as of the first day of the Performance
Period (as defined below), as it is adjusted from time to time. Subject
to the immediately preceding sentence, the amount of such bonus, if
any, shall be determined by the Committee taking into consideration
whether the Executive has met the performance targets that have been
set by the Committee for such year, the relative contribution by the
Executive to the business of the Company, general economic conditions,
and such other factors as the Committee deems relevant. For purposes of
this paragraph, the term Performance Period shall mean the period of
time established by the Committee, which is used for the calculation of
annual bonuses paid to other senior executives of the Company and
which has historically been the fiscal year of the Company.
(c) The Executive shall be granted stock options, under the terms and in
accordance with the Company's 1996 Long Term Incentive Plan (the
"Incentive Plan"), at the same time as grants are made to other senior
executives of the Company, with each such bi-annual grant, having a
present value (determined using the Black-Scholes methodology, but
excluding any deferred vesting or other contingencies) of not less than
$480,000 based on target payout (or $960,000 based on maximum payout)
determined as of the date of grant. The
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initial grant, to be made during October of 1999 (the "Initial grant"),
shall be for a two year period with the next anticipated grant being
made in the fall of 2001. The value used to determine the number of
shares to be covered by the option grant shall be adjusted due to
changes in the Executive's Salary, as in effect on the grant date, in a
manner consistent with the methodology used by the Company's
compensation consultants when making such adjustments for other senior
executives of the Company. All shares issuable upon the exercise of
options awarded to the Executive hereunder shall be duly registered
under the Securities Act of 1933 and all other applicable federal and
state laws and listed on the national securities exchange on which the
Company's shares are otherwise listed.
(d) One-Time Payments. To compensate the Executive for forgoing alternative
business opportunities, the Company shall provide to the Executive, as
soon as practicable after the Effective Date, the following one-time
payments:
(i) The Executive shall receive a one time bonus payment of
$25,000.00.
(ii) The Executive shall receive a non-qualified stock option award
(the "Option") to purchase 57,800 shares of Company stock
pursuant to the terms and conditions of the Incentive Plan.
The per share price of the option shall be the fair market
value of a share of the Company's common stock on the date of
such award. This Option shall be immediately vested and shall
become exercisable with respect to 1/5 of the shares of stock
awarded on the first anniversary of the grant date and with
respect to an additional 1/5 on each subsequent anniversary
date until such time as this Option is fully exercisable. The
option shall be exercisable for a period as determined under
the terms of the Incentive Plan, but in no event shall the
options granted under this paragraph be exercisable after the
tenth anniversary of the date of grant. By acceptance of the
Option agreement, the Executive hereby represents, warrants
and confirms that he has been fully informed as to the
business, affairs and financial condition of the Company and
that all information requested by him in respect thereof has
been furnished and any questions he may have had have been
answered, and that no representation has been made to him as
to the value for the Options or the prospects are highly
speculative and may ultimately prove to have little or no
value.
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(e) The Executive shall be entitled to participate in all employee pension
and welfare benefit plans and programs made available to the Company's
senior level executives or to its employees generally, as such plans or
programs may be in effect from time to time, including, without
limitation, pension, profit sharing, savings and other retirement plans
or programs, medical, dental hospitalization, short-term and long-term
disability and life insurance plans, supplemental life insurance,
accidental death and dismemberment protection, travel accident
insurance, and any other pension or retirement plans or programs and
any other employee welfare benefit plans or programs that may be
sponsored by the Company from time to time, including any plans that
supplement the above-listed types of plan or programs, whether funded
or unfunded. The Company, however, shall not be required to provide a
benefit under this paragraph (e) if such benefit would duplicate (or
otherwise be of the same type as) a benefit specifically required to be
provided under another provision of this Agreement. The Executive shall
complete all forms and physical examinations, and otherwise take all
other similar actions to secure coverage and benefits described in this
paragraph 2, to the extent determined to be necessary or appropriate by
the Company.
(f) The Executive shall be provided by the Company a monthly automobile
allowance of $800, and is authorized to incur reasonable expenses for
entertainment, traveling, meals, lodging and similar items in
promoting the Company's business. The Company will reimburse the
Executive for all reasonable expenses so incurred in accordance with
the normal practices of the Company.
(g) The Company shall maintain directors and officers liability insurance
in commercially reasonable amounts (as reasonably determined by the
Board), and the Executive shall be covered under such insurance to the
same extent as other senior management employees of the Company. The
Executive shall be eligible for indemnification by the Company under
the Company by-laws as currently in effect. The Company agrees that it
shall not take action that would impair the Executive's rights to
indemnification under the Company by-laws, as currently in effect.
(h) The Company shall pay for the Executive's transition expenses relating
to moving, temporary housing, and traveling between locations as set
forth in Exhibit A to this Agreement. In the event that any of the
benefits relating to temporary housing or travel, as provided for in
this subparagraph (h), are determined to be properly included in the
taxable income of the Executive, the
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<PAGE> 6
Company shall pay to the Executive a one time payment in an amount
equal to the additional income taxes so incurred by the Executive due
to such inclusion.
(i) The Company shall provide for reasonable spousal travel expenses for
any Company related out of town events, and will provide for up to four
personal visits during the period the Executive is provided temporary
housing in Omaha, Nebraska, as provided in Exhibit A of this Agreement
(to the Omaha, Nebraska location).
(j) The Executive shall be entitled to paid vacations in accordance with
the applicable policy of the Company as in effect from time to time,
subject to a minimum of 4 weeks per annum.
(k) The Company shall provide the Executive an annual allowance of $8,000
to provide for the purchase by the Executive of additional insurance
coverages in excess of that which is provided by the Company in
paragraph (e), above. Such payment shall be made as soon as practicable
after the commencement of employment and subsequently on each
anniversary of the Effective Date.
3. Termination. The Executive's employment with the Company during the
Agreement Term may be terminated by the Company or the Executive without any
breach of this Agreement only under the circumstances described in paragraphs
3(a) through 3(g):
(a) Death. The Executive's employment hereunder will terminate upon his
death.
(b) Permanent Disability. The Company may terminate the Executive's
employment during any Period in which he is Permanently Disabled. The
Executive shall be considered "Permanently Disabled" during any period
in which he is Disabled; provided, however, that the Executive shall
not be considered to be "Permanently Disabled" until, for a period of
180 consecutive days, the Executive, as a result of a physical or
mental disability, is incapable, after reasonable accommodation, of
performing his duties under this Agreement on a permanent, full-time
basis, and is eligible for income replacement benefits under the
Company's long-term disability plan during such period of disability.
In the event of a dispute as to whether the Executive is Permanently
Disabled, the Company may refer the same to a mutually acceptable
licensed practicing physician, and the Executive agrees to submit to
such tests and as such physician shall deem appropriate.
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(c) Cause. The Company may terminate the Executive's employment hereunder
at any time for Cause. For purposes of this Agreement, the term "Cause"
shall mean:
(i) the willful and continued failure by the Executive to
substantially perform his duties with the Company (other than
any such failure resulting from the Executive's being
Disabled), within a reasonable period of time after a written
demand for substantial performance is delivered to the
Executive by the Board, which demand specifically identifies
the manner in which the Board believes that the Executive has
not substantially performed his duties;
(ii) the willful engaging by, the Executive in, conduct which is
demonstrably and materially injurious to the Company,
monetarily or otherwise; or
(iii) the engaging by the Executive in egregious misconduct
involving serious moral turpitude to the extent that, in the
reasonable judgment of the Company's Board, the Executive's
credibility and reputation no longer conform to the standard
of the Company's executives.
For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be deemed "willful" unless done, or omitted to
be done, by the Executive not in good faith and without reasonable
belief that the Executive's action or omission was in the best interest
of the Company.
(d) Constructive Discharge. If the Executive (i) provides written notice to
the Company of the occurrence of Good Reason (as defined below) within
a reasonable time after the Executive has knowledge of the
circumstances constituting Good Reason, which notice shall specifically
identifies the circumstances which the Executive believes constitute
Good Reason; (ii) the Company fails to notify the Executive of the
Company's intended method of correction within a reasonable period of
time after the Company receives the notice, or the Company fails to
correct the circumstances within a reasonable time after such notice
(except that no such opportunity to correct shall be applicable if the
circumstances constituting Good Reason are those described in paragraph
(C) below, relating to relocation); and (iii) the Executive resigns
within a reasonable time after receiving the Company's response, if
such notice does not indicate an intention to correct such
circumstances; or within a reasonable time after the Company fails to
correct such circumstances, then the Executive shall be considered to
have been subject to a Constructive Discharge
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by the Company. For purposes of this Agreement, "Good Reason" shall
mean, without the Executive's express written consent (and except in
consequence of a prior termination of the Executive's employment), the
occurrence of any of the following circumstances:
(A) The assignment to the Executive of any duties inconsistent
with the Executive's position and status as Co-CEO or CEO, as
the case may be, of the Company.
(B) A reduction by the Company in the Executive's Salary, to an
amount that is less than required under paragraph 2(a).
(C) The relocation of the Executive's base office to an office
that is more than 50 highway miles of the Executive's base
office on the Effective Date, (other than the relocation from
Maryland to Omaha, Nebraska,) or a requirement that the
Executive engage in travel that is materially greater than is
reasonably required by the Company's business.
(D) The failure of the Company, without the Executive's consent,
to pay to the Executive any portion of the Executive's current
compensation, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred
compensation program of the Company, within ten (10) business
days of the date such compensation is due.
(E) The failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this
Agreement.
(F) Any purported termination of the Executive's employment which
is not effected pursuant to a Notice of Termination satisfying
the requirements of paragraph (h) below (and, if applicable,
the requirements of paragraph (b) above), and for purposes of
this Agreement, no such purported termination shall be
effective.
(G) The failure of the Company to name the Executive as CEO of the
Company as of the first anniversary of the Effective Date.
(H) The failure of the Executive to receive the Initial Option
Grant as described in paragraph 2(c) of this Agreement, the
failure of such grant to provide that they will vest ratably
over the three year period following the grant, will become
exercisable ratably over such three
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year period and, once vested, will have an Expiration Date (as
defined in the Incentive Plan) not earlier than the latest
permissible Expiration Date set forth in Sections 10(a)
through 10(e)(as applicable) of the Incentive Plan, or the
failure of such grant to be approved in advance by the Board
of Directors or a committee thereof, so as to be exempt from
Section 16(b) of the Securities Act of 1934.
(I) Any material breach of this Agreement by the Company not
described in paragraphs (A) through (H) next above.
The Executive's right to terminate his employment pursuant to this
paragraph (d) shall not be affected by his incapacity due to the
Executive's Disability. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any
circumstance constituting Good Reason hereunder.
(e) Termination by Executive. The Executive may terminate his employment
hereunder at any time for any reason by giving the Company prior
written Notice of Termination (as defined in paragraph 3(h)), which
Notice of Termination shall be effective not less than 30 days after it
is given to the Company, provided that nothing in this Agreement shall
require the Executive to specify a reason for any such termination.
However, to the extent that the specified in paragraph 3(d) are
required, the procedures of this paragraph 3(e) may not be used in lieu
of the procedures required under paragraph 3(d).
(f) Non-Renewal of Agreement. Except as otherwise agreed to in writing by
the parties, this Agreement shall not apply to employment after the end
of the Agreement Term, however, non-renewal of this Agreement will not
otherwise limit or interfere with the benefits which the Executive has
accrued under any welfare, pension or other plan as of the end of the
Agreement Term.
(g) Termination by Company. The Company may terminate the Executive's
employment hereunder at any time for any reason, by giving, the
Executive prior written Notice of Termination, which Notice of
Termination shall be effective immediately, or such later time as is
specified in such notice. The Company shall not be required to specify
a reason for the termination under paragraph 3(g), provided that
termination of the Executive's employment by the Company shall be
deemed to have occurred under this paragraph 3(g) only if it is not for
reason described in paragraph 3(b), 3(c), 3(d), 3(e) or 3(f).
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Notwithstanding the foregoing provisions of this paragraph (g), if the
Executive's employment is terminated by the Company in accordance with
this paragraph (g), and within a reasonable time period thereafter, it
is determined by the Board that circumstances existed which would have
constituted a basis for termination of the Executive's employment for
Cause in accordance with paragraph 3(c)(disregarding circumstances
which could have been remedied if notice had been given in accordance
with paragraph 3(c)(i)), the Executive's employment will be deemed to
have been terminated for Cause in accordance with paragraph 3(c).
(h) Notice of Termination. Any termination of the Executive's employment by
the Company or the Executive (other than a termination pursuant to
paragraph 3(a) or paragraph 3(f)) must be communicated by a written
Notice of Termination to the other party hereto. For purposes of this
Agreement a "Notice of Termination" means a dated notice which
indicates the Date of Termination (not earlier than the date on which
the notice is provided), and which indicates the specific termination
provision in this Agreement relied on and which sets forth in
reasonable detail the facts and circumstances if any, claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
(i) Date of Termination. "Date of Termination" means the last day the
Executive is employed by the Company, provided that the Executive's
employment is terminated in accordance with the foregoing provisions of
this paragraph 3.
(j) Effect of Termination. If, on the Date of Termination, the Executive is
a member of Board of Directors of the Company or any of the
Subsidiaries, or holds any other position with the Company and the
Subsidiaries (other than the position described in paragraph 1(a)), the
Executive shall resign from all such positions as of the Date of
Termination.
4. Rights and Payments Upon Termination or Change in Control. The
Executive's right to payment and benefits under this Agreement for periods after
his Date of Termination shall be determined in accordance with the following
provisions of this paragraph 4:
(a) If the Executive's Date of Termination occurs during the Agreement Term
for any reason, the Company shall pay to the Executive:
(i) The Executive's Salary for the period ending on the Date of
Termination.
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(ii) Payment for unused vacation days, as determined in Company
policy as in effect from time to time.
(iii) If the Date of Termination occurs after the end of a
performance period and prior to the payment of the performance
bonus (as described in paragraph 2(b)) for the period, the
Executive shall be paid such bonus amount at the regularly
scheduled time.
(iv) Any other payments or benefits to be provided to the Executive
by the Company pursuant to any employee benefit plans or
arrangements adopted by the Company, to the extent such
amounts are due from the Company.
Except as may otherwise be expressly provided to the contrary in this
Agreement, noting in this Agreement shall be construed as requiring the
Executive to be treated as employed by the Company for purposes of any
employee benefit plan or arrangement following the date of the
Executive's Date of Termination.
(b) If the Executive's Date of Termination occurs during the Agreement Term
under circumstances described in paragraph 3(a) (relating to the
Executive's death), paragraph 3(b) (relating to the Executive's being
Disabled, paragraph 3(c) (relating to the Executive's termination for
Cause), paragraph 3(e) (relating to, the Executive's resignation),
then, except as otherwise expressly provided in this Agreement or
otherwise agreed in writing between the Executive and the Company, the
Company shall have no obligation to make payments under the Agreement
for periods after the Executive's Date of Termination. If the
Executive's employment with the Company terminates after the end of the
Agreement Term, the Company shall have no obligation to make payments
for periods after the Executive's Date of Termination.
(c) If the Executive's Date of Termination occurs during the Agreement Term
under circumstances described in paragraph 3(d) (relating to
Constructive Discharge) or paragraph 3(g) (relating to termination by
the Company without Cause), then, in addition to the amounts payable in
accordance with paragraph 4(a):
(i) If the termination of employment occurs prior to a Change in
Control (as defined below) the Executive shall receive from
the Company for the period continuing through the later of (A)
the end of the Agreement Term, but not beyond the third
anniversary of the Date of
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Termination or, (B) the first anniversary of the Date of
Termination, the Salary amount described in paragraph 2(a), as
in effect on his Date of Termination, in monthly or more
frequent installments as is required under the paragraph, and
the bonus amount described in paragraph 2(b). The
determination of the bonus payable for the performance period
in which the Date of Termination occurs shall be based on
actual performance for the entire Period. The bonus payable
for any performance period thereafter shall be at the same
rate as the rate determined in accordance with the preceding
sentence; provided, however, that the bonus for the
performance period that includes the one-year anniversary of
the Date of Termination shall be subject to a pro-rata
reduction to reflect the portion of the performance period
following such anniversary. Payment, under this paragraph (i),
of any bonus described in paragraph 2(b) shall be made at the
regularly scheduled time for payment of such amounts to active
employees. The Company's obligation to make payments under
this paragraph (i) shall cease with respect to periods after
the earlier to occur of the date of the Executive's death, or
a date, if any, of the breach by the Executive of the
provisions of paragraph 7 or paragraph 8. The stock options
provided for under paragraph 2(d)(ii) of this Agreement shall
become fully exercisable as of the Date of Termination (under
this paragraph) and shall remain exercisable for the period as
determined under the terms and conditions of the Incentive
Plan.
(ii ) If the Date of Termination of employment occurs within 2 years
after a Change in Control the Executive shall receive from the
Company; (A) for the period continuing through the third
anniversary of the Date of Termination, the Salary amount
described in paragraph 2(a), as in effect on his Date of
Termination, in monthly or more frequent installments as is
required under the paragraph, and the bonus amount described
in paragraph 2(b), and (B) a lump sum payment equal to the
value of the estimated stock option grants which would have
been granted at target payout levels, in the ordinary course
of business, during such three year period following
termination. The determination of the bonus payable for the
performance period in which the Date of Termination occurs
shall be based on actual performance for the entire period.
The bonus payable for any performance period thereafter shall
be at the same rate as the rate determined in accordance with
the preceding sentence; provided, however, that the bonus for
the performance period that includes the
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<PAGE> 13
three-year anniversary of the Date of Termination shall be
subject to a pro-rata reduction to reflect the portion of the
performance period following such anniversary. Payment under
this paragraph (ii) of any bonus described in paragraph 2(b)
shall be made at the regularly scheduled time for payment of
such amounts to active employees. The Company's obligation to
make payments under this paragraph (ii) shall cease with
respect to periods after the earlier to occur of the date of
the Executive's death, or a date, if any, of the breach by the
Executive of the provisions of paragraph 7 or paragraph 8. The
present value of the anticipated stock option grants in (B)
above shall be determined using the Black-Scholes methodology,
but excluding the any deferred vesting or other contingencies,
as of the date the options would have been granted in the
ordinary course of business. As of the Date of Termination
(under this paragraph), all outstanding stock options then
held by the Executive which are not yet exercisable shall
become fully exercisable and shall remain exercisable for the
period as determined under the terms and conditions of the
Incentive Plan.
(iii) For purposes of this Agreement, a Change in Control will be
deemed to have occurred on the first day on which J. Joe
Ricketts, together with the members of his immediate family
(as defined below), and trusts, partnerships, or limited
liability companies established and maintained to primarily
benefit J. Joe Ricketts and/or his immediate family have not
appointed more than 50% of the then members of the Board, and
do not directly or indirectly have the power to appoint more
than 50% of the members of the Board. For purposes of the
preceding sentence, the term immediate family of J. Joe
Ricketts shall mean his spouse, parents, children,
stepchildren, adoptive relationships, sisters, brothers and
grandchildren or any trust, partnership or limited liability
company of which such persons control a majority of the voting
rights.
(iv) For such period of the time that the Executive or any of his
dependents is eligible for and elects COBRA continuation
coverage (as described in section 4980B of the Internal
Revenue Code of 1986, as amended (the "Code")) under any
Company group health plan, the Company shall pay 100% of the
premiums necessary to maintain such COBRA continuation
coverage. The Company's obligation to make payments under this
paragraph (iv) shall cease with respect to periods after the
earlier to occur of the date of the
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<PAGE> 14
Executive's death, or a date, if any, of the breach by the
Executive of the provisions of paragraph 7 or paragraph 8.
(d) Except as may be otherwise specifically provided in an amendment of
this paragraph (d) adopted in accordance with paragraph 12, the
Employee's rights under this paragraph 4 shall be in lieu of any
benefits that may be otherwise payable to or on behalf of the Executive
pursuant to the terms of any severance pay arrangement of the Company
or any Subsidiary or any other, similar arrangement of the Company or
any Subsidiary providing benefits upon involuntary termination of
employment.
(e) If the Executive's Date of Termination occurs after the end of the
Agreement Term under circumstances described in paragraph 3(f)
(relating to the termination of employment after the end of the
Agreement Term) then, except as otherwise expressly provided in this
Agreement, or otherwise agreed in writing between the Executive and the
Company, the Company shall have no obligation to make payments under
the Agreement for periods after the Executive's Date of Termination.
However, to the extent that the Executive has been granted any stock
options which are not fully vested on the Date of Termination, under
this subparagraph (e), then such options shall become fully vested and
fully exercisable on such date and shall remain exercisable for the
period as provided under the terms and conditions of the plan from
which such options were granted.
5. Duties on Termination. Subject to the terms and conditions of this
Agreement, during the period beginning on the date of delivery of a Notice of
Termination, and ending on the Date of Termination, the Executive shall continue
to, perform his duties as set forth in this Agreement, and shall also perform
such services for the Company as are necessary and appropriate for a smooth
transition to the Executive's successor, if any. Notwithstanding the foregoing
provisions of this paragraph 5, the Company may suspend the Executive from
performing his duties this Agreement following the delivery of a Notice of
Termination providing for the Executive's resignation, or delivery by the
Company of a Notice of Termination providing for the Executive's termination of
employment for any reason; provided, however, that during the period of
suspension (which shall end on the Date of Termination), the Executive shall
continue to be treated as employed by the Company for other purposes, and his
rights to compensation or benefits shall not be reduced by reason of the
suspension.
6. Mitigation and Set-Off. The Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment
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<PAGE> 15
or otherwise. The Company shall not be entitled to set off against the amounts
payable to the Executive under this Agreement any amounts owed to the Company
by the Executive, any amounts earned by the Executive in other employment after
termination of his employment with the Company, or any amounts which might have
been earned by the Executive in other employment had he sought such other
employment.
7. Noncompetition. While he is employed by the Company, and for a
period of 18 months after termination of the Executive's employment with the
Company for any reason:
(a) The Executive shall not, without the express written consent of the
Chairman of the Board of the Company, be employed by, serve as a
consultant to, or otherwise assist or directly or indirectly provide
services to a Competitor (defined below) if: (i) the services that the
Executive is to provide to the Competitor are the same as, or
substantially similar to, any of the services that the Executive
provided to the Company or the Subsidiaries, and such services are to
be provided with respect to any location in which the Company or a
Subsidiary had material operations during the 12-month period prior to
the Date of Termination, or with respect to any location in which the
Company or a Subsidiary had devoted material resources to establishing
operations during the 12-month period prior to the Date of Termination;
or (ii) the trade secrets, confidential information, or proprietary
information (including, without limitation, confidential or proprietary
methods) of the Company and the Subsidiaries to which the Executive had
access could reasonably be expected to benefit the Competitor if the
Competitor were to obtain access to such secrets or information. For
purposes of this paragraph(a), services provided by others shall be
deemed to have been provided by the Executive if the Executive had
material supervisory responsibilities with respect to the provision of
such services.
(b) The Executive shall not, without the express written consent of the
Chairman of the Board of the Company, solicit or attempt to solicit any
party who is then or, during the 12-month period prior to such
solicitation or attempt by the Executive was (or was solicited to
become), a customer or supplier of the Company, provided that the
restriction in this paragraph (c) shall not apply to any activity on
behalf of a business that is not a Competitor.
(c) The Executive shall not, without the express written consent of the
Chairman of the Board of the Company, solicit, entice, persuade or
induce any individual who is employed by the Company or its
Subsidiaries (or was so employed
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<PAGE> 16
within 90 days prior to the Executive's action) to terminate or refrain
from renewing or extending such employment or to become employed by or
enter into contractual relations with any other individual or entity
other than the Company or its subsidiaries, and the Executive shall not
approach any such employee for any such purpose or authorize or
knowingly cooperate with the taking of any such actions by any other
individual or entity.
(d) The Executive shall not, without the express written consent of the
Chairman of the Board of the Company, directly or indirectly own an
equity interest in any Competitor (other than ownership of 1% or less
of the outstanding stock of any corporation listed on the New York
Stock Exchange or the American Stock Exchange or included in the NASDAQ
System).
The term "Competitor" means any enterprise (including a person, firm or
business, whether or not incorporated) during any period in which it is
materially competitive in any way with any business in which the Company or any
of the Subsidiaries was engaged during the 12-month period prior to the
Executive's termination of employment. Nothing in this paragraph 7 or paragraph
8 shall be construed as limiting Executive's duty of loyalty to the Company, or
any other duty he may have to the Company, while he is employed by the Company.
Nothing in paragraphs 7, 8 or 9 shall be construed to adversely affect the
rights that the Company possess in the absence of the provisions of such
paragraphs.
8. Confidential Information. The Executive agrees that, during the
Agreement Term and for a period of 18 months after termination of the
Executive's employment the Company for any reason:
(a) Except as may be required by the lawful order of a court or agency of
competent jurisdiction, except as necessary to carry out his duties to
the Company and its Subsidiaries, or except to the extent that the
Executive has express authorization from the Company, the Executive
agrees to keep secret and confidential indefinitely, all Confidential
Information, and not to disclose the same, either directly or
indirectly, to any other person, firm, or business entity, or to use it
in any way.
(b) To the extent that any court or agency seeks to have the Executive
disclose Confidential Information, he shall promptly inform the
Company, and he shall take such reasonable steps to prevent disclosure
of Confidential Information until the Company has been informed of such
requested disclosure and the Company has an opportunity to respond to
such court or agency. To the extent that the Executive obtains
information on behalf of the Company or any of the
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<PAGE> 17
Subsidiaries that may be subject to attorney-client privilege as to
the Company's attorneys, the Executive shall take reasonable steps to
maintain the confidentiality of such information and to preserve such
privilege.
(c) Nothing in the foregoing provisions of this paragraph 8 shall be
construed so as to prevent the Executive from using, in connection with
his employment for himself or an employer other than the Company or any
of the Subsidiaries, knowledge which was acquired by him during the
course of his employment with the Company and the Subsidiaries, and
which is generally known to persons of his experience in other
companies in the same industry.
(d) For purposes of this Agreement, the term "Confidential Information"
shall include all non-public information (including, without
limitation, information regarding litigation and pending litigation)
concerning the Company and the Subsidiaries which was acquired by or
disclosed to the Executive during the course of his employment with the
Company, or during the course of his consultation, with the Company
following his Date of Termination (regardless of whether consultation
is pursuant to paragraph 11). For purposes of this Agreement, the term,
"Confidential Information" shall also include all non-public
information concerning any other company that was shared with the
Company or a Subsidiary subject to an agreement to maintain the
confidentiality of such information.
(e) This paragraph 8 shall not be construed to unreasonably restrict the
Executive's ability to disclose confidential information in an
arbitration proceeding or a court proceeding in connection with the
assertion of, or defense against any claim of breach of this Agreement
in accordance with paragraph 10. If there is a dispute between the
Company and the Executive as to whether information may be disclosed in
accordance with this paragraph (e), the matter shall be submitted to
the arbitrators or the court (whichever is applicable) for decision.
9. Assistance with Claims. The Executive agrees that, for the period
beginning on the Effective Date, and continuing for a reasonable period after
the Executive's Date of Termination, the Executive will provide reasonable
assistance to the Company and the Subsidiaries in defense of any claims that may
be made against the Company and the Subsidiaries, and will provide reasonable
assistance to the Company the Subsidiaries in the prosecution of any claims that
may be made by the Company and the Subsidiaries in the prosecution of any claims
that may be made by the Company or the Subsidiaries, to the extent that such
claims may relate to services performed by the Executive for the Company and the
Subsidiaries. The Executive agrees to promptly inform the Company if he becomes
aware of any lawsuits involving such claims that may be filed against the
Company or any Subsidiary. The
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<PAGE> 18
Company agrees to reimburse the Executive for all of the Executive's reasonable
out-of-pocket expenses associated with such assistance, including travel
expenses. For periods after the Executive's employment with the Company
terminates, the Company agrees to provide reasonable compensation to the
Executive for such assistance. The Executive also agrees to promptly inform the
Company if he is asked to assist in any investigation of the Company or the
Subsidiaries (or their actions) that may relate to services performed by the
Executive for the Company or the Subsidiaries, regardless of whether a lawsuit
has then been filed against the Company or the Subsidiaries with respect to such
investigation. For any required assistance under this paragraph, the Company
shall take into consideration the Executive's then current employment situation
and all other relevant personal factors as presented by the Executive in order
to determine what is reasonable in the given circumstances.
10. Equitable Remedies. The Executive acknowledges that the Company
would be irreparably injured by a violation of paragraph 7 or 8, and he agrees
that the Company, in addition to any other remedies available to it for such
breach or threatened breach, shall be entitled to a preliminary injunction,
temporary remaining order, or other equivalent relief, restraining the Executive
from any actual or threatened breach of either paragraph 7 or paragraph 8. If a
bond is required to be posted in order for the Company to secure an injunction
or other equitable remedy, the parties agree that said bond need not be more
than a nominal sum.
11. Nonalienation. The interests of the Executive under this Agreement
are not subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the
Executive or the Executive's beneficiary.
12. Amendment. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing without the consent of any other person. So
long as the Executive lives, no person, other than the parties hereto, shall
have any rights under or interest in this Agreement or the subject matter
hereof.
13. Applicable Law. The provisions of this Agreement shall be construed
in accordance with the laws of the State of Nebraska, without regard to the
conflict of provisions of any state. All disputes shall be arbitrated or
litigated (whichever is applicable) in Omaha, Nebraska.
14. Severability. The invalidity or unenforceability of any provision
of this will not affect the validity or enforceability of any other provision of
this Agreement, and this Agreement will be construed as if such invalid or
unenforceable
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<PAGE> 19
provision were omitted (but only to the extent that such provision appropriately
reformed or modified).
15. Waiver of Breach. No waiver by any party hereto of a breach of any
provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party of any similar or dissimilar provisions and conditions at the same or any
prior or subsequent time. The failure of any party hereto to take any action by
reason of such breach will not deprive such party of the right to take action at
any time while such breach continues.
16. Successors. This Agreement shall be binding upon, and inure to the
benefit of, the Company and its successors and assigns and upon any person
acquiring, whether by merger, consolidation, purchase of assets or otherwise,
all or substantially all of the Company's assets and business, and the successor
shall be substituted for the Company under this Agreement.
17. Notices. Notices and all other communications provided for in this
Agreement shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid, or sent
by facsimile or prepaid overnight courier to the parties at the addresses set
forth below (or such other addresses as shall be specified by the parties by
like notice). Such notices, demands, and other communication shall be deemed
given:
(a) in the case of delivery by overnight service with guaranteed next day
delivery, the next day or the day designated for delivery;
(b) in the case of certified or registered U.S. mail, five days after
deposit in the U.S. mail; or
(c) in the case of facsimile, the date upon which the transmitting party
received confirmation of receipt by facsimile, telephone or otherwise;
provided, however, that in no event shall any such communications be deemed to
be given later than the date they are actually received. Communications that are
to be delivered by the U.S. mail or by overnight service are to be delivered to
the addresses set forth below:
to the Company
Ameritrade Holding Corporation
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<PAGE> 20
4211 S. 102nd Street
Omaha, NE 68127
or to the Executive:
Thomas Lewis
P.O. Box 32
Clarksville, Maryland 21029
All notices to the Company shall be directed to the attention of J. Joe
Ricketts, of the Company, with a copy to the Secretary of the Company. Each
party, by written notice furnished to the other party, may modify the applicable
delivery address, except notice of change of address shall be effective only
upon receipt.
18. Arbitration of All Disputes. Any controversy or claim arising out
of or relating to this Agreement (or the breach thereof) shall be settled by
final, binding and non-appealable arbitration in Omaha, Nebraska by three
arbitrators. Except as expressly provided in this Paragraph 18, the arbitration
shall be conducted in accordance with the rules of the American Arbitration
Association (the "Association") then in effect. One of the arbitrators shall be
appointed by the Company, one shall be appointed by the Executive, and the third
shall be appointed by the first two arbitrators. If the first two arbitrators
cannot agree on the third arbitrator 30 days of the appointment of the second
arbitrator, then the third arbitrator shall be appointed by the Association.
This paragraph 18 shall not be construed to limit the Company's right to obtain
relief under Paragraph 10 with respect to any matter or controversy subject to
paragraph 10, and, pending a final determination by the arbitrator with respect
to any such matter or controversy, the Company shall be entitled to obtain any
such relief by direct application to a court of law, without being required to
first arbitrate such matter or controversy. Any and all proceedings, hearings,
findings or any other record of a dispute under this paragraph 18 shall be
private and shall be held in the strictest confidence of all parties so
involved, including not limited to the parties to this Agreement and any
appointed arbitrators.
19. Survival of Agreement. Except as otherwise expressly provided in
this Agreement, the rights and obligations of the parties to this Agreement
shall survive termination of the Executive's employment with the Company.
20. Entire Agreement. Except as otherwise noted herein or in any
separation agreement subsequently entered into by the Executive and the Company,
this Agreement, including any Exhibit(s) attached hereto, constitutes the entire
agreement between the parties concerning the subject matter hereof and
supersedes all prior and
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<PAGE> 21
contemporaneous agreements, if any, between, the parties relating to the subject
matter hereof.
21. Prior Agreements. The Executive represents that, he has not
signed, and is not currently subject to, any written agreement or policy that
restricts his ability to be employed by the Company, to compete with a former
employer, or to use information, and that his employment by the Company will not
violate the terms of any policy of any prior employer of the Executive regarding
competition or confidentiality.
IN WITNESS THEREOF, the Executive has hereunto set his hand, and the
Company has caused these presents to be executed in its name and on its behalf,
and its corporate seal to be hereunto affixed, all as of the day and year first
above written.
/s/ THOMAS LEWIS
-------------------------------------------
Thomas Lewis
Ameritrade Holding Corporation
By /s/ JOHN JOE RICKETTS
-------------------------------------------
Its Chairman & CEO
-------------------------------------------
ATTEST:
- ----------------------------
(Seal)
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EXHIBIT A
TRANSITION RELATED EXPENSES
A-1. PURPOSE. This Exhibit A is attached to and forms a part of the
employment agreement (the "Agreement"), dated February 15, 1999, between Thomas
Lewis (the "Executive") and Ameritrade Holding Corporation (the "Company").
The purpose of this Exhibit A is to set forth the terms of the transition
related expenses that the Company will either pay directly or reimburse the
Executive for as described in paragraph 2(i) of the Agreement.
A-2. COVERED EXPENSES.
(a) Relocation Expenses.
(i) All associated reasonable selling expenses, such as real
estate commission, legal fees, transfer and title costs and
other such costs customarily covered by the Company.
(ii) All associated reasonable packing, storage and moving
expenses, related insurance coverage and other such costs
customarily covered by the Company.
(iii) All associated reasonable purchasing expenses, such as real
estate commission, legal fees, transfer and title costs,
initial utility hook up fees and other such costs
customarily covered by the Company.
(b) Temporary Housing for a period of less than 12 months.
(i) Housing in the Omaha metropolitan area consisting of not
less than a furnished two bedroom apartment with an
attached garage.
(ii) All associated rent, utilities, dinner meals and weekly
housekeeping and laundry service.
(c) Travel Costs. For as long as the Executive is residing in the above
temporary residence, and the Executive continues to work partially in the
Baltimore, MD area, the Company will provide for travel related expenses
incurred traveling between business locations.
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EXHIBIT 10.21
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of March 24, 1999, (the "Effective
Date"), by and between Jack R. McDonnell (the "Executive"), Ameritrade Holding
Corporation (the "Company"), and Ameritrade, Inc. ("Ameritrade");
WITNESSETH THAT:
WHEREAS, the parties desire to enter into this Agreement pertaining to the
employment of the Executive by the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below, it is hereby covenanted and agreed by the Executive, the Company
and Ameritrade as follows:
1. Performance of Services. The Executive's employment with the Company
shall be subject to the following;
(a) Subject to the terms of this Agreement, the Company hereby agrees to employ
the Executive during the Agreement Term (as defined below), and the
Executive hereby agrees to remain in the employ of the Company
during the Agreement Term.
(b) During the Agreement Term, while the Executive is employed by the Company,
the Executive shall devote his full time, energies and talents to serving
as the Chief Executive Officer of Ameritrade (the "CEO").
(C) The Executive agrees that he shall perform his duties faithfully and
efficiently subject to the direction on of J. Joe Ricketts, Chairman of the
Board of Directors of the Company, or his successor (the "Chairman"). The
Executive's duties may include providing services for Ameritrade, the
Company and their affiliates, as determined by the Chairman. The Executive
shall have such authority, power, responsibilities and the duties as are
inherent in his positions (and the Undertakings applicable to his
positions) and necessary to carry out his responsibilities and the duties
required of him hereunder.
<PAGE> 2
(d) Notwithstanding the foregoing provisions of this paragraph 1, during the
Agreement Term, the Executive may devote reasonable time to activities
other than those required under this Agreement, including the supervision
of his personal investments, and activities involving professional,
charitable, community, educational, religious and similar types of
organizations, speaking engagements, membership on the boards of directors
of other organizations, and similar types of activities, to the extent that
such other activities do not, in the judgment of the Chairman, inhibit or
prohibit the performance of the Executive's duties under this Agreement, or
conflict in any material way with the business of the Company or its
affiliates; provided, however, that the Executive shall not serve on the
board of any business, or hold any other position with any business,
without the consent of the Chairman.
(e) Subject to the terms of this Agreement, the Executive shall not be required
to perform services under this Agreement during any period that he is
Disabled. The Executive shall be considered Disabled during any period in
which he has a physical or mental disability which renders him incapable,
after reasonable accommodation, of performing his duties under this
Agreement. In the event of a dispute as to whether the Executive is
Disabled, the Company may refer the same to a licensed practicing physician
of the Company's choice, and the Executive agrees to submit to such tests
and examinations as such physician shall deem appropriate. During the
period in which the Executive is Disabled, the Company may appoint a
temporary replacement to assume the Executive's responsibilities.
(f) The "Agreement Term" shall be the period beginning on the Effective Date
and ending on the fifth anniversary of the Effective Date.
2, Compensation. Subject to the terms of this Agreement, during the
Agreement Term, while the Executive is employed by the Company, the Company
shall compensate him for his services as follows:
(a) The Executive shall receive, for each 12-consecutive month period beginning
on the Effective Date and each anniversary thereof, in substantially equal
monthly or more frequent an annual base salary of not less than $300,000
(the "Salary"). The Executive's Salary rate shall be reviewed by the
Chairman, while the Executive is employed by the Company, to determine
whether an increase in the amount of Salary is appropriate.
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<PAGE> 3
(b) The Executive shall be entitled to incentive compensation in the form of an
annual cash bonus of up to 55% (but not less than 25% for the first two
years of this Agreement) of his Salary, as provided for in paragraph 2(a),
as in effect as of the first day of the Performance Period (as defined
below), as it is adjusted from time to time. Subject to the immediately
preceding sentence, the amount of such bonus, if any, shall be determined
by the Chairman taking into consideration whether the Executive has met the
performance targets that have been set by the Chairman for such year, the
relative contribution by the Executive to the business of the Company,
general economic conditions, and such other factors as the Chairman deems
relevant. For purposes of this paragraph, the term Performance Period shall
mean the period of time established by the Chairman, which is used for the
calculation of annual bonuses paid to other senior executives of the
Company and which has historically been the fiscal year of the Company.
(c) The Chairman shall recommend to the Compensation Committee of the Board of
Directors of the Company (the "Committee") that the Executive be granted
stock options, under the terms and in accordance with the Company's 1996
Long Term Incentive Plan (the "Incentive Plan"), at the same time as grants
are made to other senior executives of the Company, with each such
bi-annual grant, having a present value (determined using the "Growth
Model" methodology utilized by the Company's compensation consultant as of
the Effective Date) of not less than $420,000 based on target payout (or
$840,000 based on maximum payout) determined as of the date of grant. The
initial grant, to be made during October of 1999 (the "Initial grant"),
shall be for a two year period with the next anticipated grant being made
in the fall of 2001. The value used to determine the number of shares to be
covered by the option grant shall be adjusted due to changes in the
Executive's Salary, as in effect on the grant date, in a manner consistent
with the methodology used by the Company's compensation consultants when
making such adjustments for other senior executives of the Company.
(d) One-Time Payments. To compensate the Executive for forgoing alternative
business opportunities, the Chairman shall recommend to the Committee that
the Executive receive, as soon as practicable after the Effective Date, a
non-qualified stock option award (the "Option") to purchase 45,400 shares
of Company stock pursuant to the terms and conditions of the Incentive
Plan. The per share price of the option shall be the fair market value of a
share of the Company's common stock on the date of such award. This Option
shall become exercisable with respect to 1/3 of the shares of stock awarded
on the first anniversary of the grant date and with respect to an
additional 1/3 on each subsequent anniversary date
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<PAGE> 4
until such time as this Option is fully exercisable. The option shall be
exercisable for a period as determined under the terms of the Incentive
Plan, but in no event shall the options granted under this paragraph be
exercisable after the tenth anniversary of the date of grant.
(e) The Executive shall be entitled to participate in all employee pension and
welfare benefit plans and programs made available to the Company's senior
level executives or to its employees generally, as such plans or programs
may be in effect from time to time, including, without limitation, pension,
profit sharing, savings and other retirement plans or programs, medical,
dental, hospitalization, short-term and long-term disability and life
insurance plans, supplemental life insurance, accidental death and
dismemberment protection, travel accident insurance, and any other pension
or retirement plans or programs and any other employee welfare benefit
plans or programs that may be sponsored by the Company from time to time,
including any plans that supplement the above-listed types of plans or
programs, whether funded or unfunded. The Company, however, shall not be
required to provide a benefit under this paragraph (e) if such benefit
would duplicate (or otherwise be of the same type as) a benefit
specifically required to be provided under another provision of this
Agreement. The Executive shall complete all forms and physical
examinations, and otherwise take all other similar actions to secure
coverage and benefits described in this paragraph 2, to the extent
determined to be necessary or appropriate by the Company.
(f) The Company shall maintain directors and officers liability insurance in
commercially reasonable amounts (as reasonably determined by the Board),
and the Executive shall be covered under such insurance to the same extent
as other senior management employees of the Company. The Executive shall be
eligible for indemnification by the Company under the Company by-laws as
currently in effect. The Company agrees that it shall not take any action
that would impair the Executive's rights to indemnification under the
Company by-laws, as currently in effect.
(g) The Executive shall be entitled to paid vacations in accordance with the
applicable policy of the Company as in effect from time to time, subject to
a minimum of 3 weeks per annum.
3. Termination. The Executive's employment with the Company during the
Agreement Term may be terminated by the Company or the Executive without any
breach
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of this Agreement only under the circumstances described in paragraphs 3(a)
through 3(g);
(a) Death. The Executive's employment hereunder will terminate upon his
death.
(b) Permanent Disability. The Company may terminate the Executive's
employment during any period in which he is Permanently Disabled. The
Executive shall be considered "Permanently Disabled" during any period
in which he is Disabled; provided, however, that the Executive shall
not be considered to be "Permanently Disabled" until, for a period of
180 consecutive days, the Executive, as a result of a physical or
mental disability, is incapable, after reasonable accommodation, of
performing his duties under this Agreement on a permanent, full-time
basis, and is eligible for income replacement benefits under the
Company's long-term disability plan during such period of disability,
In the event of a dispute as to whether the Executive is Permanently
Disabled, the Company may refer the same to a mutually acceptable
licensed practicing physician, and the Executive agrees to submit to
such tests and examination as such physician shall deem appropriate.
(c) Cause. The Company may terminate the Executive's employment hereunder
at any time for Cause. For purposes of this Agreement, the term
"Cause" shall mean:
(i) the willful and continued failure by the Executive to
substantially perform his duties with the Company (other than any
such failure resulting from the Executive's being Disabled),
within a reasonable period of time after a written demand for
substantial performance is delivered to the Executive by the
Chairman, which demand specifically identifies the manner in
which the Chairman believes that the Executive has not
substantially performed his duties;
(ii) the willful engaging by the Executive in conduct which is
demonstrably and materially injurious to the Company, monetarily
or otherwise; or
(iii)the engaging by the Executive in egregious misconduct involving
serious moral turpitude to the extent that, in the reasonable
judgment of the Chairman, the Executive's credibility and
reputation no longer conform to the standard of the Company's
executives.
For purposes of this Agreement, no act, or failure to act, on the Executive's
part shall be deemed "willful" unless done, or omitted to be done, by the
Executive not
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<PAGE> 6
in good faith and without reasonable belief that the Executive's action or
omission was in the best interest of the Company.
(d) Constructive Discharge. If the Executive (i) provides written notice
to the Company of the occurrence of Good Reason (as defined below)
within a reasonable time after the Executive has knowledge of the
circumstances constituting Good Reason, which notice shall
specifically identifies the circumstances which the Executive believes
constitute Good Reason; (ii) the Company fails to notify the Executive
of the Company's intended method of correction within a reasonable
period of time after the Company receives the notice, or the Company
fails to correct the circumstances within a reasonable time after such
notice (except that no such opportunity to correct shall be applicable
if the circumstances constituting Good Reason are those described in
paragraph (C) below, relating to relocation); and (iii) the Executive
resigns within a reasonable time after receiving the Company's
response, if such notice does not indicate an intention to correct
such circumstances, or within a reasonable time after the Company
fails to correct such circumstances, then the Executive shall be
considered to have been subject to a Constructive Discharge by the
Company. For purposes of this Agreement, "Good Reason" shall mean,
without the Executive's express written consent (and except in
consequence of a prior termination of the Executive's employment), the
occurrence of any of the following circumstances;
(i) The assignment to the Executive of any duties inconsistent with
the Executive's position and status as CEO of Ameritrade, or a
diminution of the Executive's duties, authorities or
responsibilities with respect to Ameritrade, without the
written consent of the Executive.
(ii) A reduction by the Company in-the Executive's Salary to an
amount that is less than required under paragraph 2(a).
(iii) The relocation of the Executive's base office to an office that
is more than 50 highway miles of the Executive's base office on
the Effective Date, or a requirement that the Executive engage
in travel that is materially greater than is reasonably
required by the Ameritrade business.
The Executive's right to terminate his employment pursuant to this paragraph (d)
shall not be affected by his incapacity due to the Executive's Disability. The
Executive's
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<PAGE> 7
continued employment shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting Good Reason hereunder.
(e) Termination By Executive. The Executive may terminate his employment
hereunder at any time for any reason by giving the Company prior written
Notice of Termination (as defined in paragraph 3(g)), which Notice of
Termination shall be effective not less than 30 days after it is given to
the Company, provided that nothing in this Agreement shall require the
Executive to specify a reason for any such termination.
However to the extent that the procedures specified in paragraph 3(d) are
required, the procedures of this paragraph 3(e) may not be used in lieu of
the procedures under paragraph 3(d).
(f) Non-Renewal of Agreement. Except as otherwise agreed to in writing by the
parties, this Agreement shall not apply to employment after the end of the
Agreement Term, however, non-renewal of this Agreement will not otherwise
limit or interfere with the benefits which the Executive has accrued under
any welfare, pension or other plan as of the end of the Agreement Term.
(g) Termination by the Company. The Company may terminate the Executive's
employment hereunder at any time for any reason, by giving the Executive
prior written Notice of Termination, which Notice of Termination shall be
effective immediately, or such later time as is specified in such notice.
The Company shall not be required to specify a reason for the termination
under this paragraph 3(g), provided that termination of the Executive's
employment by the Company shall be deemed to have occurred under this
paragraph 3(g) only if it is not for reasons described in paragraph 3(b),
3(c), 3(d), 3(e) or 3(f). Notwithstanding the foregoing, provisions of this
paragraph (g), if the Executive's employment is terminated by the Company
in accordance with this paragraph (g), and within a reasonable time period
thereafter, it is determined by the Board that circumstances existed which
would have constituted a basis for termination of the Executive's
employment for Cause in accordance with paragraph 3(c) (disregarding
circumstances which could have been remedied if notice had been given in
accordance with paragraph 3(c)(i)), the Executive's employment will be
deemed to have been terminated for Cause in accordance with paragraph 3(c).
(h) Notice of Termination. Any termination of the Executive's employment by the
Company or the Executive (other than a termination pursuant to paragraph
3(a) or
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<PAGE> 8
paragraph 3(f)) must be communicated by a written Notice of Termination, to
the other party hereto. For purposes of this Agreement, a "Notice of
Termination" means a dated notice which indicates the Date of Termination
(not earlier than 30 days after the date on which the notice is provided,
except in the case of a termination pursuant to paragraph 3(a), 3(c) or
3(f)), and which indicates the specific termination provision in this
Agreement relied on and which sets forth in reasonable detail the facts and
circumstances, if any, claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
Notwithstanding the immediately preceding paragraph, in the event that the
Company is required to provide notice of termination not less than 30 days
prior to its effective date, the Company may, in its sole discretion,
choose to have the notice effective immediately upon delivery to the
Executive, provided the Company shall be obligated to provide the Executive
with the compensation and benefits to which he is entitled to as an
employee for such 30 day period.
(i) Date of Termination. "Date of Termination" means the last day the Executive
is employed by the Company, provided that the Executive's employment is
terminated in accordance with the foregoing provisions of this paragraph 3.
4. Rights and Payments Upon Termination or Change in Control. The
Executive's right to payment and benefits under this Agreement for periods after
his Date of Termination shall be determined in accordance with the following
provisions of this paragraph 4:
(a) If the Executive's Date of Termination occurs during the Agreement Term for
any reason, the Company shall pay to the Executive:
(i) The Executive's Salary for the period ending on the Date of
Termination.
(ii) Payment for unused vacation days, as determined in accordance with
Company policy as in effect from time to time.
(iii) If the Date of Termination occurs after the end of a performance
period and prior to the payment of the performance bonus (as
described in paragraph 2(b)) for the period, the Executive shall be
paid such bonus amount at the regularly scheduled time.
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<PAGE> 9
(iv) Any other payments or benefits to be provided to the Executive by the
Company pursuant to any employee benefit plans or arrangements adopted
by the Company, to the extent such amounts are due from the Company.
Except as may otherwise be expressly provided to the contrary in this
Agreement, nothing in this Agreement shall be construed as requiring the
Executive to be treated as employed by the Company for purposes of any
employee benefit plan or arrangement following the date of the Executive's
Date of Termination.
(b) If the Executive's Date of Termination occurs during the Agreement Term
under circumstances described in paragraph 3(a) (relating to the
Executive's death), paragraph 3(b) (relating to the Executive's being
Disabled), paragraph 3(c) relating to the Executive's termination for
Cause), paragraph 3(e) (relating to the Executive's resignation), then,
except as otherwise expressly provided in this Agreement or otherwise
agreed in writing between the Executive and the Company, the Company shall
have no obligation to make payments under the Agreement for periods after
the Executive's Date of Termination. If the Executives employment with the
Company terminates after the end of the Agreement Term, the Company shall
have no obligation to make payments for periods after the Executive's Date
of Termination.
(c) If the Executive's Date of Termination occurs during the Agreement Term
under circumstances described in paragraph 3(d) (relating to Constructive
Discharge) or 3(g) (relating to termination by the Company without Cause),
then, in addition to the amounts payable in accordance with paragraph 4(a):
(i) If the termination of employment occurs prior to a Change in Control
(as defined below) the Executive shall receive from the Company for
the period continuing through the first anniversary of the Date of
Termination, the Salary amount described in paragraph 2(a), as in
effect on his Date of Termination, in monthly or more frequent
installments as is
required under that paragraph, and the bonus amount described in
paragraph 2(b). The determination of the bonus payable for the
performance period in which the Date of Termination occurs shall be
based on actual performance for the entire period. The bonus payable
for any performance period thereafter shall be at the same rate as the
rate determined in accordance with the preceding sentence; provided,
however, that the bonus for the performance period that includes the
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<PAGE> 10
one-year anniversary of the Date of Termination shall be subject to a
pro-rata reduction to reflect the portion of the performance period
following such anniversary. Payment, under this paragraph (i), of any bonus
described in paragraph 2(b) shall be made at the regularly scheduled time
for payment of such amounts to active employees. The Company's obligation
to make payments under this paragraph (i) shall cease with respect to
periods after the earlier to occur of the date of the Executive's death, or
a date, if any, of the breach by the Executive of the provisions of
paragraph 7 or paragraph 8. As of the Date of Termination (under this
paragraph), all outstanding stock options then held by the Executive which
are not yet exercisable shall become fully exercisable and shall remain
exercisable for the period as determined under the terms and conditions of
the Incentive Plan.
(ii) If the Date of Termination of employment occurs within 2 years after a
Change in Control the Executive shall receive from the Company, for the
period continuing through the first anniversary of the Date of Termination,
the Salary amount described in paragraph 2(a), as in effect on his Date of
Termination, in monthly or more frequent installments as is required under
that paragraph, and the bonus amount described in paragraph 2(b). The
determination of the bonus payable for the performance period in which the
Date of Termination occurs shall be based on actual performance for the
entire period. The bonus payable for any performance period thereafter
shall be at the same rate as the rate determined in accordance with the
preceding sentence; provided, however, that the bonus for the performance
period that includes the one-year anniversary of the Date of Termination
shall be subject to a pro-rata reduction to reflect the portion of the
performance period following such anniversary. Payment under this paragraph
(ii) of any bonus described in paragraph 2(b) shall be made at the
regularly scheduled time for payment of such amounts to active employees.
The Company's obligation to make payments under this paragraph (ii) shall
cease with respect to periods after the earlier to occur of the date of the
Executive's death, or a date, if any, of the breach by the Executive of
the provisions of paragraph 7 or paragraph 8. As of the Date of Termination
(under this paragraph), all outstanding stock options then held by the
Executive which are not yet exercisable shall
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<PAGE> 11
become fully exercisable and shall remain exercisable for the period
as determined under the terms and conditions of the Incentive Plan.
(iii)For purposes of this Agreement, a Change in Control will be deemed to
have occurred on the first day on which J. Joe Ricketts, together with
the members of his immediate family (as defined below), and trusts,
partnerships, or limited liability companies established and
maintained to primarily benefit J. Joe Ricketts and/or his immediate
family have not appointed more than 50% of the then members of the
Board, and do not directly or indirectly have the power to appoint
more than 50% of the members of the Board. For purposes of the
preceding sentence, the term immediate family of J. Joe Ricketts shall
mean his spouse, parents, children, stepchildren, adoptive
relationships, sisters, brothers and grandchildren or any trust,
partnership or limited liability company of which such persons control
a majority of the voting rights.
(iv) For such period of that time that the Executive or any of his
dependents is eligible for and elects COBRA continuation coverage (as
described in section 4980B of the Internal Revenue Code of 1986, as
amended (the "Code")) under any Company group health plan, the Company
shall pay 100% of the premiums necessary to maintain such COBRA
continuation coverage. The Company's obligation to make payments under
this paragraph (iv) shall cease with respect to periods after the
earlier to occur of the date of the Executive's death, or a date, if
any, of the breach by the Executive of the provisions of paragraph 7
or paragraph 8.
(d) Except as may be otherwise specifically provided in an amendment of this
paragraph (d) adopted in accordance with paragraph 12, the Employee's
rights under this paragraph 4 shall be in lieu of any benefits that may be
otherwise payable to or on behalf of the Executive pursuant to the terms of
any severance pay arrangement of the Company or its affiliates or any
other, similar arrangement of the Company or its affiliates providing
benefits upon involuntary termination of employment.
(e) If the Executive's Date of Termination occurs after the end of the
Agreement Term under circumstances described in paragraph 3(f) (relating to
the termination of employment after the end of the Agreement Term) then,
except as otherwise expressly provided in this Agreement, or otherwise
agreed in writing between the
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<PAGE> 12
Executive and the Company, the Company shall have no obligation to
make payments under the Agreement for periods after the Executive's
Date of Termination.
5. Duties on Termination. Subject to the terms and conditions of this
Agreement, during the period beginning on the date of delivery of a Notice of
Termination, and ending on the Date of Termination, the Executive shall continue
to perform his duties as set forth in this Agreement, and shall also perform
such services for the Company as are necessary and appropriate for a smooth
transition to the Executive's successor, if any. Notwithstanding the foregoing
provisions of this paragraph 5, the Company may suspend the Executive from
performing his duties under this Agreement following the delivery of a Notice of
Termination providing for the Executive's resignation, or delivery by the
Company of a Notice of Termination providing for the Executive's termination of
employment for any reason; provided, however, that during the period of
suspension (which shall end on the Date of Termination), the Executive shall
continue to be treated as employed by the Company for other purposes, and his
rights to compensation or benefits shall not be reduced by reason of the
suspension.
6. Mitigation and Set-Off. The Executive shall not be required to mitigate
the amount of any payment provided for in this Agreement by seeking other
employment or otherwise. The Company shall not be entitled to set off against
the amounts payable to the Executive under this Agreement any amounts owed to
the Company by the Executive, any amounts earned by the Executive in other
employment after termination of his employment with the Company, or any amounts
which might have been earned by the Executive in other employment had he sought
such other employment.
7. Non-competition. While he is employed by the Company, and for a period
of 24 months after termination of the Executive's employment with the Company
for any reason:
(a) The Executive shall not, without the express written consent of the
Chairman, be employed by, serve as a consultant to, or otherwise assist or
directly or indirectly provide services to a Competitor (defined below) if:
(i) the services that the Executive is to provide to the Competitor are the
same as, or substantially similar to, any of the services that the
Executive provided to the Company or its affiliates and such services are
to be provided with respect to any location in which the Company or its
affiliates had material operations during the 12-month period prior to the
Date of Termination, or with respect to any location in which the Company
or its affiliates had devoted material resources to establishing operations
during the
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12-month period prior to the Date of Termination; or (ii) the trade
secrets, confidential information, or proprietary information (including,
without limitation, confidential or proprietary methods) of the Company
and its affiliates to which the Executive had access could reasonably be
expected to benefit the Competitor if the Competitor were to obtain access
to such secrets or information. For purposes of this paragraph (a),
services provided by others shall be deemed to have been provided by
the Executive if the Executive had material supervisory responsibilities
with respect to the provision of such services.
(b) The Executive shall not, without the express written consent of the
Chairman, solicit or attempt to solicit any party who is then or, during
the 12-month period prior to such solicitation or attempt by the Executive
was (or was solicited to become), a customer or supplier of the Company,
provided that the restriction in this paragraph (b) shall not apply to any
activity on behalf of a business that is not a Competitor.
(c) The Executive shall not, without the express written consent of the
Chairman, solicit, entice, persuade or induce any individual who is
employed by the Company or its affiliates (or was so employed within 90
days prior to the Executive's action) to terminate or refrain from
renewing or extending such employment or to become employed by or enter
into contractual relations with any other individual or entity other than
the Company or its affiliates, and the Executive shall not approach any
such employee for any such purpose or authorize or knowingly cooperate with
the taking of any such actions by any other individual or entity.
(d) The Executive shall not, without the express written consent of the
Chairman, directly or indirectly own an equity interest in any Competitor
(other than ownership of 1% or less of the outstanding stock of any
corporation listed on the New York Stock Exchange or the American Stock
Exchange or included in the NASDAQ System).
The term "Competitor" means any enterprise (including a person, firm or
business, whether or not incorporated) during any period in which it is
materially competitive in any way with any business in which the Company, or any
of its affiliates, was engaged during the 12-month period prior to the
Executive's termination of employment. Nothing in this paragraph 7 or paragraph
8 shall be construed as limiting the Executive's duty of loyalty to the Company,
or any other duty he may otherwise have to the Company, while he is employed by
the Company. Nothing in paragraphs 7, 8 or 9 shall be construed to adversely
affect the rights that the Company would possess in the absence of the
provisions of such paragraphs.
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8. Confidential Information. The Executive agrees that:
(a) Except as may be required by the lawful order of a court or agency of
competent jurisdiction, except as necessary to carry out his duties to the
Company and its affiliates, or except to the extent that the Executive has
express authorization from the Company, the Executive agrees to keep secret
and confidential indefinitely, all Confidential Information, and not to
disclose the same, either directly or indirectly, to any other person, firm
or business entity, or to use it in any way.
(b) To the extent that any court or agency seeks to have the Executive disclose
Confidential Information, he shall promptly inform the Company, and he
shall take such reasonable steps to prevent disclosure of Confidential
Information until the Company has been informed of such requested
disclosure, and the Company has an opportunity to respond to such court or
agency. To the extent that the Executive obtains information on behalf of
the Company or any of its affiliates that may be subject to attorney-client
privilege as to the Company's attorneys, the Executive shall take
reasonable steps to maintain the confidentiality of such information and to
preserve such privilege.
(c) Nothing in the foregoing provisions of this paragraph 8 shall be construed
so as to prevent the Executive from using, in connection with his
employment for himself or an employer other than the Company or its
affiliates, knowledge which was acquired by him during the course of his
employment with the Company and its affiliates, and which is generally
known to persons of his experience in other companies in the same industry.
(d) For purposes of this Agreement, the term "Confidential Information" shall
include all non-public information (including, without limitation,
information regarding litigation and pending litigation) concerning the
Company and its affiliates which was acquired by or disclosed to the
Executive during the course of his employment with the Company, or during
the course of his consultation with the Company following his Date of
Termination (regardless of whether consultation is pursuant to paragraph
11). For purposes of this Agreement, the term "Confidential Information"
shall also include all non-public information concerning any other company
that was shared with the Company or its affiliates subject to an agreement
to maintain the confidentiality of such information.
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(e) This paragraph 8 shall not be construed to unreasonably restrict the
Executive's ability to disclose confidential information in an arbitration
proceeding or a court proceeding in connection with the assertion of, or
defense against any claim of breach of this Agreement in accordance with
paragraph 10. If there is a dispute between the Company and the Executive
as to whether information may be disclosed in accordance with this
paragraph (e), the matter shall be submitted to arbitrators or the court
(whichever is applicable) for decision.
9. Assistance with Claims. The Executive agrees that, for the period
beginning on the Effective Date, and continuing for a reasonable period after
the Executive's Date of Termination, the Executive will provide reasonable
assistance to the Company and its affiliates in defense of any claims that may
be made against the Company and its affiliates, and will provide reasonable
assistance to the Company and its affiliates in the prosecution of any claims
that may be made by the Company or its affiliates, to the extent that such
claims may relate to services performed by the Executive for the Company and its
affiliates. The Executive agrees to promptly inform the Company if he becomes
aware of any lawsuits involving such claims that may be filed against the
Company or its affiliates. The Company agrees to reimburse the Executive for all
of the Executive's reasonable out-of-pocket expenses associated with such
assistance, including travel expenses. For periods after the Executive's
employment with the Company terminates, the Company agrees to provide reasonable
compensation to the Executive for such assistance. The Executive also agrees to
promptly inform the Company if he is asked to assist in any investigation of the
Company or its affiliates (or their actions) that may relate to services
performed by the Executive for the Company or its affiliates, regardless of
whether a lawsuit has then been filed against the Company or its affiliates with
respect to such investigation. For any required assistance under this paragraph,
the Company shall take into consideration the Executive's then current
employment situation and all other relevant personal factors as presented by the
Executive in order to determine what is reasonable in the given circumstances.
10. Equitable Remedies. The Executive acknowledges that the Company would
be irreparably injured by a violation of paragraph 7 or 8, and he agrees that
the Company, in addition to any other remedies available to it for such breach
or threatened breach, shall be entitled to a preliminary injunction, temporary
restraining order, or other equivalent relief, restraining the Executive from
any actual or threatened breach of either paragraph 7 or paragraph 8. If a bond
is required to be posted in order for the Company to secure an injunction or
other equitable remedy, the parties agree that said bond need not be more than a
nominal sum.
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11. Nonalienation. The interests of the Executive under this Agreement are
not subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the
Executive or the Executive's beneficiary.
12. AMENDMENT. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing without the consent of any other person. So
long as the Executive lives, no person, other than the parties hereto, shall
have any rights under or interest in this Agreement or the subject hereof.
13. Applicable Law. The provisions of this Agreement shall be construed in
accordance with the laws of the State of Nebraska, without regard to the
conflict of law provisions of any state. All disputes shall be arbitrated or
litigated (whichever is applicable) in Omaha, Nebraska.
14. Severability. The invalidity or unenforceability of any provision of
this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, and this Agreement will be construed as if such
invalid or unenforceable provision were omitted (but only to the extent that
such provision cannot be appropriately reformed.
15. Waiver of Breach. No waiver by any party hereto of a breach of any
provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party of any similar or dissimilar provisions and conditions at the same or any
prior or subsequent time. The failure of any party hereto to take any action by
reason of such breach will not deprive such party of the right to take action at
any time while such breach continues.
16. Successors. This Agreement shall be binding upon, and inure to the
benefit of the Company and its successors and assigns and upon any person
acquiring, whether by merger, consolidation, purchase of assets or otherwise,
all or substantially all of the Company's assets and business, and the successor
shall be substituted for the Company under this Agreement.
17. Notices. Notices and all other communications provided for in this
Agreement shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid, or sent
by facsimile or prepaid overnight courier to the parties at the addresses set
forth below (or such other addresses as
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shall be specified by the parties by like notice). Such notices, demands,
claims and other communications shall be deemed given:
(a) in the case of delivery by overnight service with guaranteed next day
delivery, the next day or the day designated for delivery;
(b) in the case of certified or registered U.S. mail, five days after deposit
in the U.S. mail or
(c) in the case of facsimile, the date upon which the transmitting party
received confirmation of receipt by facsimile, telephone or otherwise;
provided, however, that in no event shall any such communications be deemed to
be given later than the date they are actually received. Communications that are
to be delivered by the U.S. mail or by overnight service are to be delivered to
the addresses set forth below:
to the Company
Ameritrade Holding Corporation
4211 S. 102nd Street
Omaha, NE 68127
or to the Executive:
Jack R. McDonnell
[ADDRESS TO BE PROVIDED]
All notices to the Company shall be directed to the attention of J. Joe
Ricketts, of the Company, with a copy to the Secretary of the Company. Each
party, by written notice furnished to the other party, may modify the applicable
delivery address, except that notice of change of address shall be effective
only upon receipt.
18. Arbitration of All Disputes. Any controversy or claim arising out of or
relating to this Agreement (or the breach thereof) shall be settled by final,
binding and non-appealable arbitration in Omaha, Nebraska by three arbitrators.
Except as otherwise expressly provided in this paragraph 18, the arbitration
shall be conducted in accordance with the rules of the American Arbitration
Association (the "Association") then in effect.
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One of the arbitrators shall be appointed by the Company, out shall be appointed
by the Executive, and the third shall be appointed by the first two arbitrators.
If the first two arbitrators cannot agree on the third arbitrator within 30 days
of the appointment of the second arbitrator, then the third arbitrator shall be
appointed by the Association. This paragraph 18 shall not be construed to limit
the Company's right to obtain relief under paragraph 10 with respect to any
matter or controversy subject to paragraph 10, and, pending a final
determination by the arbitrator with respect to any such matter or controversy,
the Company shall be entitled to obtain any such relief by direct application to
a court of law, without being required to first arbitrate such matter or
controversy. Any and all proceedings, hearings, findings or any other record of
a dispute under this paragraph 18 shall be private and shall be held in the
strictest confidence of all parties so involved, including but not limited to
the parties to this Agreement and any appointed arbitrators.
19. Survival of Agreement. Except as otherwise expressly provided in this
Agreement, the rights and obligations of the parties to this Agreement shall
survive the termination of the Executive's employment with the Company.
20. Entire Agreement. Except as otherwise noted herein or in any separation
agreement subsequently entered into by the Executive and the Company, this
Agreement, including any Exhibit(s) attached hereto, constitutes the entire
agreement between the parties concerning the subject matter hereof and
supersedes all prior and contemporaneous agreements, if any, between the parties
relating to the subject matter hereof.
21. Prior Agreements. The Executive represents that, he has not signed, and
is not currently subject to, any written agreement or policy that restricts his
ability to be employed by the Company, to compete with a former employer, or to
use information, and that his employment by the Company will not violate the
terms of any policy of any prior employer of the Executive regarding competition
or confidentiality.
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IN WITNESS THEREOF, the Executive has hereunto set his hand, and the
Company has cause these presents to be executed in its name and on its behalf,
and its corporate seal to be hereunto affixed, all as of the day and year first
above written.
/s/ JACK R. MCDONNELL
- ----------------------------
Jack R. McDonnell
Ameritrade Holding Corporation
By /s/ JOHN JOE RICKETTS
---------------------------------
Its Chairman & CEO
---------------------------------
Ameritrade, Inc.
By /s/ JOHN JOE RICKETTS
---------------------------------
Its CEO
---------------------------------
ATTEST:
- -------------------
(Seal)
19
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE FORM 10Q AS OF MARCH 26, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
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