<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------------
AMERITRADE HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 47-0642657
(State of incorporation) (I.R.S. Employer Identification No.)
ROBERT T. SLEZAK
AMERITRADE HOLDING CORPORATION
4211 SOUTH 102ND STREET
4211 SOUTH 102ND STREET OMAHA, NEBRASKA 68127
OMAHA, NEBRASKA 68127 (402) 331-7856
(402) 331-7856 (Name, address, including zip code, and
(Address, including zip code, and telephone telephone
number, including area code, of number, including area code, of agent for
registrant's principal executive offices) service)
</TABLE>
Copies to:
<TABLE>
<S> <C>
CAROL S. RIVERS, ESQ. JOHN EVANGELAKOS, ESQ.
MAYER, BROWN & PLATT SULLIVAN & CROMWELL
190 SOUTH LASALLE STREET 125 BROAD STREET
CHICAGO, ILLINOIS 60603 NEW YORK, NEW YORK 10004
(312) 701-7215 (212) 558-4000
</TABLE>
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF SHARES TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A common stock, par value $.01 per share....... $250,000,000 $69,500
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) A portion of the shares to be registered represents shares that are to be
offered outside of the United States but that may be resold from time to
time in the United States. Such shares are not being registered for the
purposes of sales outside the United States. Includes up to shares
subject to the Underwriters' over-allotment options.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
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- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement relates to an offering of up to shares
of Class A common stock (or shares if the underwriters' over-allotment
options are exercised in full) for sale directly to the public, of which
shares will be offered by us and will be offered by the selling
stockholders identified in this prospectus, and up to shares of Class A
common stock (or shares if the underwriters' over-allotment option is
exercised in full) that may be delivered by the Ameritrade Automatic Common
Exchange Security Trust, a non-diversified closed-end management investment
company, to holders of its Automatic Common Exchange Securities upon exchange of
those securities. The Automatic Common Exchange Securities are being offered
pursuant to a separate prospectus of the Ameritrade Automatic Common Exchange
Security Trust included in a registration statement on Form N-2 (Registration
Nos. 333-77547 and 811-9319).
This Registration Statement contains two forms of prospectus: one to be
used in connection with the offerings by us and the selling stockholders of
Class A common stock and one to be attached to the Ameritrade Automatic Common
Exchange Security Trust prospectus (such latter prospectus, the "Trust
Prospectus"). The prospectus to be attached to the Trust Prospectus will be
identical to the one used for the offerings of Class A common stock, except for
the front and back cover pages and except that the prospectus to be attached to
the Trust Prospectus contains additional sections entitled "Plan of
Distribution" and "Trust Prospectus" and does not contain a section entitled
"Underwriting".
<PAGE> 3
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
Subject to Completion. Dated June 25, 1999.
SHARES
AMERITRADE HOLDING CORPORATION
CLASS A COMMON STOCK
----------------------
This is an offering of shares of Class A common stock of Ameritrade Holding
Corporation. This prospectus relates to an offering of shares in the
United States. In addition, shares are being offered outside the
United States in an international offering.
Holding is offering of the shares to be sold in the offerings.
The selling stockholders identified in this prospectus are offering an
additional shares. Holding will not receive any of the proceeds from
the sale of the shares by the selling stockholders.
In addition to the offerings described in this prospectus, the Ameritrade
Automatic Common Exchange Security Trust (the "TRACES Trust") stockholders named
in this prospectus are offering up to shares of Class A common
stock (or up to shares if the underwriters' over-allotment option
is exercised in full) that may be delivered by the TRACES Trust to holders of
Automatic Common Exchange Securities of the TRACES Trust upon exchange of such
securities on the Exchange Date as defined in the TRACES Trust prospectus (the
"Trust Prospectus"). The Automatic Common Exchange Securities are being sold by
the TRACES Trust in an offering described in the Trust Prospectus. The
respective closings of the offerings of the Class A common stock and the
Automatic Common Exchange Securities are not dependent upon one another.
The Class A common stock is quoted on The Nasdaq National Market under the
symbol "AMTD". The last reported sale price of the Class A common stock on
, 1999 was $ per share.
The Class B common stock, which is not being offered, is entitled to elect
a majority of Holding's board of directors. The Class A common stock is entitled
to elect the remaining directors. See "Description of Capital Stock".
SEE "RISK FACTORS" BEGINNING ON PAGE 8 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF THE CLASS A COMMON STOCK.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Initial price to public..................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Holding....................... $ $
Proceeds, before expenses, to the selling stockholders...... $ $
</TABLE>
To the extent the underwriters sell more than shares of the Class
A common stock, the underwriters have the option to purchase up to an additional
shares from Holding and the selling stockholders at the initial price
to public less the underwriting discount.
----------------------
The underwriters expect to deliver the shares against payment in New York,
New York, on , 1999.
GOLDMAN, SACHS & CO.
----------------------
Prospectus dated , 1999.
<PAGE> 4
SUMMARY
The following summary highlights selected information from this prospectus.
It does not contain all of the information that is important to you. You should
carefully read this entire prospectus before making an investment in the Class A
common stock. The terms "we" and "us" as used in this prospectus refer to
Ameritrade Holding Corporation ("Holding") and its operating subsidiaries
Ameritrade (Inc.) ("Ameritrade"), Accutrade, Inc. ("Accutrade"), Advanced
Clearing, Inc. ("Advanced Clearing"), AmeriVest, Inc. ("AmeriVest") and OnMoney
Financial Services Corporation ("OnMoney"), collectively. Our fiscal year ends
on the last Friday of each September. Unless otherwise indicated, (1) dollar
amounts have been rounded to the nearest one hundred thousand and (2) the
information presented herein assumes no exercise by the underwriters of their
over-allotment options.
OUR COMPANY
We are a leading provider of online discount brokerage services. We provide
technology-based brokerage services to retail investors through a variety of
mediums, primarily through the Internet. Our services appeal to a broad market
of self-directed retail investors who are value conscious. We use our low-cost
platform to offer brokerage services to investors at prices that are
significantly lower than prices offered by our major competitors. Our goal is to
provide the best execution using the best information at the best value.
We are an innovator in electronic brokerage services. We were the first
brokerage firm to offer touch-tone trading in 1988 and the first to offer
trading over the Internet in 1994. In 1997, we embarked upon a groundbreaking
marketing campaign to build awareness of the Ameritrade brand and to attract
investors to online trading. At the same time, we introduced our "8 bucks a
trade" program and set a price standard among major online discount brokerage
firms that remains in place today.
We believe that we have the lowest operating cost per transaction of any
online discount brokerage firm. We have built and continue to invest in a
proprietary trade processing platform that is both cost efficient and highly
scalable. We also have made significant strategic investments in building the
Ameritrade brand. As a result, our acquisition cost per new account is among the
lowest of our competitors.
We believe that our history of innovation, cost control and brand building
has enabled us to capitalize on the dramatic growth in online investing.
- Core discount brokerage accounts increased to approximately 428,000 at
March 26, 1999 from approximately 306,000 at September 25, 1998 and
approximately 98,000 at September 26, 1997.
- Average daily trading volume during the quarter ended March 26, 1999
increased to approximately 52,000 executed transactions from
approximately 24,000 during the quarter ended September 25, 1998 and
approximately 8,500 during the quarter ended September 26, 1997.
- Total assets in customer accounts increased to approximately $19.5
billion at March 26, 1999 from approximately $11.4 billion at September
25, 1998 and approximately $7.3 billion at September 26, 1997.
- Pre-advertising operating expenses per trade decreased to $12.51 for the
quarter ended March 26, 1999 from $17.37 for the quarter ended September
25, 1998 and $23.24 for the quarter ended September 26, 1997.
We expect online brokerage activity to continue to expand, creating
opportunities for further growth. According to International Data Corporation
("IDC"), the total number of online
1
<PAGE> 5
customer accounts in the United States has grown from approximately 1.5 million
at the end of 1996 to approximately 6.4 million at the end of 1998. IDC also
estimates that our market share of online customer accounts was approximately 6%
at March 26, 1999. Based on reports of industry analysts, we believe that our
market share of average daily trades executed online was over 8% for the quarter
ended March 26, 1999, marking our eighth consecutive quarter of average daily
online trade volume market share gains, a record unmatched by any other firm in
the online brokerage industry. We believe that our significant and growing
market share, low customer acquisition costs and low pre-advertising operating
expenses per trade give us a competitive advantage in the online discount
brokerage industry.
We have experienced significant growth since we began offering discount
brokerage services in 1975. Our net revenues have grown at a compound average
annual rate of 45% over the past five fiscal years. Our pre-advertising net
income before taxes has grown at a compound average annual rate of 34% during
the same period. From fiscal 1993 to fiscal 1997, our net income grew at a
compound average annual rate of 35%. In early fiscal 1998, we significantly
increased advertising and infrastructure expenditures to aggressively expand our
customer base. As a result, our net income in fiscal 1998 decreased to $0.2
million, although our pre-advertising operating margin in fiscal 1998 remained
strong at 33%. Our average annual return on equity since 1975 has been 38%.
BUSINESS OPERATIONS
Following is a summary of our operating subsidiaries:
- AMERITRADE, our principal operating subsidiary, provides retail brokerage
services targeted at value conscious investors who trade primarily
through the Internet. Ameritrade offers a full range of trading services
and focuses on providing a compelling price point and value to retail
customers. In addition to the Internet, Ameritrade provides access to its
services through automated touch-tone telephone systems, personal digital
assistants and registered representatives. Ameritrade customers can
invest in common and preferred stocks, mutual funds, options, corporate
and municipal bonds, treasury obligations and other securities.
Ameritrade also offers a wide range of informational services and
educational tools to its customers.
- ACCUTRADE also offers retail brokerage services, targeting investors who
desire a higher degree of personalized customer service.
- ADVANCED CLEARING provides clearing and execution services to Ameritrade
and Accutrade, as well as to independent broker-dealers and other
correspondents.
- AMERIVEST provides wholesale discount brokerage services to depository
institutions, including banks, savings and loans and credit unions.
In addition, we are developing an Internet-based personal financial
management system for individual investors through our OnMoney subsidiary.
BUSINESS STRATEGY
Our business strategy is to capitalize on the growth of the online
brokerage industry. The key elements of our business strategy are as follows:
- Establish Ameritrade as the dominant brand in online trading;
- Focus on online discount brokerage services;
- Expand our capacity and infrastructure to meet expected increases in
trading volume;
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<PAGE> 6
- Continue to offer innovative technologies and service enhancements to our
customers;
- Be the lowest cost provider of quality brokerage services; and
- Expand our access to international customers.
Our principal executive offices are located at 4211 South 102nd Street,
Omaha, Nebraska 68127, and our telephone number is (402) 331-7856.
3
<PAGE> 7
THE OFFERINGS
Class A common stock:
Offered by Holding.................... shares
Offered by the selling stockholders... shares
Total......................... shares
U.S. offering......................... shares
International offering................ shares
Total......................... shares
Common stock to be outstanding after the
offerings:
Class A common stock.................. shares
Class B common stock.................. 16,372,800 shares
Total......................... shares
In addition to the offerings described in this prospectus, the TRACES Trust
stockholders named in this prospectus are offering up to shares of
Class A common stock (or up to shares if the underwriters'
over-allotment option is exercised in full) that may in certain circumstances be
delivered by the TRACES Trust to holders of its Automatic Common Exchange
Securities upon exchange of those securities on the Exchange Date.
Voting Rights........................... Except as otherwise required by law
and with respect to the election of
directors, the holders of Class A
common stock and the holders of
Class B common stock have one vote
per share and vote as a single
class with respect to all matters
submitted to a vote of the holders
of common stock. The Class B common
stock is not being offered in the
offerings. The Class B common stock
is entitled to elect a majority of
our directors. The Class A common
stock is entitled to elect the
remainder of our directors. We
currently have nine directors.
Except with respect to the ability
to elect directors and the
conversion rights discussed below,
the Class A common stock and the
Class B common stock are identical
in all respects. If all shares of
Class B common stock are converted
into Class A common stock or if no
shares of Class B common stock are
otherwise outstanding, the holders
of Class A common stock will be
entitled to elect all of our
directors, subject to any rights of
the holders of preferred stock. See
"Description of Capital
Stock -- Common Stock -- Voting
Rights".
Conversion of Class B Common Stock...... Each share of Class B common stock
is convertible into one share of
Class A common stock at any time at
the election of the holder of the
share of Class B common stock. Each
share of Class B common
4
<PAGE> 8
stock shall automatically convert
into one share of Class A common
stock in the event of a transfer of
the share of Class B common stock
to any person other than J. Joe
Ricketts, Marlene M. Ricketts, the
lineal descendants of J. Joe
Ricketts and Marlene M. Ricketts
and their spouses or any trust or
other person or entity that holds
common stock for the benefit of any
of those members of the Ricketts
family (the "Control Group"). In
addition, each share of Class B
common stock shall automatically
convert on a share-for-share basis
into one share of Class A common
stock if the number of shares of
outstanding common stock held by
the Control Group falls below 20%
of the number of shares of
outstanding common stock. See
"Description of Capital
Stock -- Conversion Rights".
Use of Proceeds......................... We will use the proceeds from the
offerings for general corporate
purposes, including promoting the
Ameritrade brand name through
advertising, building
infrastructure, developing and
acquiring new forms of technology,
retiring existing indebtedness and
potentially acquiring businesses or
assets. See "Use of Proceeds".
Dividends............................... We have never declared or paid any
cash dividends on our capital stock
and do not anticipate paying any
cash dividends to our stockholders
in the foreseeable future. See
"Dividend Policy".
Listing................................. The Class A common stock is quoted
on The Nasdaq National Market.
Nasdaq National Market Symbol........... AMTD
5
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The information in the following table is based on historical financial
information contained in our prior filings with the Securities and Exchange
Commission ("SEC"), including our annual report on Form 10-K for the fiscal year
ended September 25, 1998 and our report on Form 10-Q for the period ended March
26, 1999. This historical financial information is also included elsewhere in
this prospectus for your convenience. The following summary financial
information should be read in conjunction with this historical financial
information, including the notes that accompany such financial information. Per
share amounts have been adjusted to reflect a three-for-one stock split
effective on July 2, 1999.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED ENDED
---------------------------------------------------------- -----------------------
SEPT. 30, SEPT. 29, SEPT. 27, SEPT. 26, SEPT. 25, MAR. 27, MAR. 26,
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
INCOME DATA:
Revenues:
Commissions and clearing
fees....................... $ 20,386 $ 23,977 $ 36,470 $ 51,937 $ 85,644 $ 35,209 $ 83,566
Interest revenue............. 9,856 16,297 22,518 36,623 66,716 27,909 47,715
Investment income and other.. 1,119 2,608 6,391 7,107 11,834 5,008 4,615
-------- -------- -------- -------- ---------- ---------- ----------
Total revenues......... 31,361 42,882 65,379 95,667 164,194 68,126 135,896
Interest expense............. 3,912 7,862 11,040 18,429 29,279 12,373 20,117
-------- -------- -------- -------- ---------- ---------- ----------
Net revenues........... 27,449 35,020 54,339 77,238 134,915 55,753 115,779
Pre-advertising operating
expense...................... 14,012 19,348 28,385 41,842 90,770 39,052 74,461
Advertising expense............ 5,987 4,842 7,537 13,971 43,614 34,513 22,797
-------- -------- -------- -------- ---------- ---------- ----------
Total expenses
excluding interest... 19,999 24,190 35,922 55,813 134,384 73,565 97,258
Income (loss) before provision
for income taxes............. 7,450 10,830 18,417 21,425 531 (17,812) 18,521
Provision (benefit) for income
taxes........................ 2,619 3,799 7,259 7,603 321 (6,292) 6,701
-------- -------- -------- -------- ---------- ---------- ----------
Net income (loss)...... $ 4,831 $ 7,031 11,158 13,822 $ 210 $ (11,520) $ 11,820
======== ======== ======== ======== ========== ========== ==========
Basic earnings (loss) per
share........................ $ 0.03 $ 0.05 $ 0.07 $ 0.08 $ 0.00 $ (0.07) $ 0.07
Diluted earnings (loss) per
share........................ $ 0.03 $ 0.05 $ 0.07 $ 0.08 $ 0.00 $ (0.07) $ 0.07
Weighted average shares
outstanding -- Basic......... 154,271 153,766 153,766 165,227 174,188 174,210 174,247
Weighted average shares
outstanding -- Diluted....... 154,271 153,766 153,766 165,233 174,465 174,320 175,528
OPERATING DATA:
Average customer trades per
day.......................... 1,519 2,055 3,670 6,571 18,407 13,909 42,179
Total assets in customer
accounts (in billions)....... $ 1.7 $ 2.4 $ 4.0 $ 7.3 $ 11.4 $ 10.1 $ 19.5
Number of core accounts(1)..... 18,000 38,000 52,000 98,000 306,000 217,000 428,000
Net revenue per trade.......... $ 70.31 $ 67.09 $ 58.76 $ 46.65 $ 29.20 $ 32.07 $ 21.96
Pre-advertising operating
expense per trade............ $ 35.89 $ 37.07 $ 30.69 $ 25.27 $ 19.65 $ 22.46 $ 14.12
Operating margin(2)............ 27% 31% 34% 28% 0% (32)% 16%
Pre-advertising operating
margin(3).................... 49% 45% 48% 46% 33% 30% 36%
Return on average equity(4).... 49% 47% 44% 28% 0% (21)% 7%
</TABLE>
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<TABLE>
<CAPTION>
SEPT. 30, SEPT. 29, SEPT. 27, SEPT. 26, SEPT. 25, MAR. 27, MAR. 26,
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash and segregated
investments.................. $101,352 $125,456 $191,436 $373,286 $ 527,982 $ 543,236 $ 606,286
Receivable from customers and
correspondents, net.......... 99,627 130,187 166,075 325,407 647,122 532,812 1,220,291
Total assets................... 216,991 287,105 401,679 757,357 1,290,402 1,125,729 2,104,989
Payable to customers and
correspondents............... 198,539 251,862 356,943 666,279 1,136,082 1,038,698 1,686,378
Total long-term debt........... -- 7,097 4,853 -- 11,000 10,000 38,000
Stockholders' equity........... 12,473 19,504 30,662 66,989 84,572 55,447 204,305
</TABLE>
- ---------------
(1) Core accounts consist of open accounts in our discount brokerage
subsidiaries.
(2) Operating margin is computed by dividing income before provision for income
taxes by net revenues.
(3) Pre-advertising operating margin is computed by dividing income before
provision for income taxes plus advertising expenses by net revenues.
(4) Return on average equity is computed by dividing net income by average
stockholders' equity on a quarterly basis. Six month results are not
annualized.
7
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RISK FACTORS
You should carefully consider the risks described below before making an
investment in the Class A common stock.
OUR BUSINESS COULD BE HARMED BY MARKET FLUCTUATIONS AND OTHER SECURITIES
INDUSTRY RISKS
Substantially all of our revenues are derived from discount securities
brokerage and clearing and execution services. Like other brokerage businesses,
we are directly affected by economic and political conditions, broad trends in
business and finance and changes in volume and price levels of securities
transactions. We are particularly affected by volatility in technology and
Internet-related stocks because a significant portion of our customers invest in
these types of stocks. In recent months, the U.S. securities markets have
fluctuated considerably. Severe market fluctuations in the future could have a
material adverse effect on our business, financial condition and operating
results. Reduced trading volumes and prices have historically resulted in
reduced transaction revenues. In addition, when trading volume is low, our
profitability may be adversely affected because our overhead is substantially
fixed.
THE MARKET PRICE OF THE CLASS A COMMON STOCK WILL FLUCTUATE AND COULD FLUCTUATE
SIGNIFICANTLY
The Class A common stock has experienced significant price fluctuations in
recent months. The stock market in general also has experienced substantial
price and volume fluctuations. The market prices of securities of
Internet-related companies, in particular, have been especially volatile. The
price of the Class A common stock could decrease substantially following the
offerings. In addition, because the market price of our Class A common stock
tends to fluctuate significantly, we may become the object of securities class
action litigation. Securities class action litigation may result in substantial
costs and a diversion of management's attention and resources.
SYSTEMS FAILURES AND DELAYS COULD HARM OUR BUSINESS
We receive and process trade orders through a variety of electronic
mediums, including the Internet, personal digital assistants and automated
touch-tone telephone systems. These methods of trading are heavily dependent on
the integrity of the electronic systems supporting them. Our systems and
operations are vulnerable to damage or interruption from human error, natural
disasters, power loss, computer viruses, intentional acts of vandalism and
similar events. Extraordinary trading volumes could cause our computer systems
to operate at an unacceptably low speed or even fail. We have experienced
periods of extremely high trading volume that has caused individual system
components or processes to fail, resulting in the temporary unavailability of
our Web site for online trading and delays in our telephone systems. On some
other occasions, high trading volume has caused significant delays in executing
trading orders, resulting in some customers' orders being executed at prices
they did not anticipate. In September 1998, we became subject to a putative
class action lawsuit resulting from systems failures and delays. See
"Business -- Legal Proceedings." In addition, from time to time, we reimburse
our customers for losses incurred in connection with systems failures and
delays. During the quarter ended December 31, 1998, we paid $3.1 million to
customers for execution price adjustments as a result of systems failures and
delays. Systems failures and delays may occur again in the future and could
cause:
- unanticipated disruptions in service;
- slower response times;
- decreased customer service and customer satisfaction; and
- harm to our reputation;
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<PAGE> 12
which could result in:
- loss of customers;
- increased operating expenses;
- financial losses;
- additional litigation or other customer claims; and
- regulatory sanctions.
CAPACITY CONSTRAINTS OF OUR SYSTEMS COULD HARM OUR BUSINESS
As our business grows, we will need to expand and upgrade our transaction
processing systems, network infrastructure and other aspects of our technology.
Many of our systems are designed to accommodate additional growth without
redesign or replacement; however, we will need to make significant investments
in additional hardware and software to accommodate growth. We may not be able to
project accurately the rate or timing of growth in our business, or the cost to
expand and upgrade our systems and infrastructure to accommodate any increases
in a timely manner. Failure to make necessary expansions and upgrades to our
systems and infrastructure could lead to failures and delays, which could have a
material adverse effect on our business, financial condition and results of
operations.
SUBSTANTIAL COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL
PERFORMANCE
The market for discount brokerage services, particularly electronic
brokerage services, is new, rapidly evolving and competitive. We expect the
competitive environment to continue in the future. We may not be able to compete
effectively with current or future competitors, which could have a material
adverse effect on our business, financial condition and results of operations.
We face direct competition from numerous discount brokerage firms, many of which
provide online services. We also encounter competition from the broker-dealer
affiliates of established full-commission brokerage firms as well as from
financial institutions, mutual fund sponsors and other organizations, some of
which provide or have announced that they intend to provide online discount
brokerage services. Some of our competitors have greater financial, technical,
marketing and other resources than we do. Some of our competitors offer a wider
range of services and financial products than we do and have greater name
recognition and a more extensive customer base than we do. We believe that the
general financial success of companies within the online securities industry
will continue to attract new competitors to the industry, such as banks,
software development companies, insurance companies, providers of online
financial information and others. These companies may provide a more
comprehensive suite of services than we do. In addition, our clearing operations
compete with numerous firms that provide clearing and execution services to the
securities industry.
WE MAY BE UNABLE TO MANAGE OUR RAPID GROWTH EFFECTIVELY
We have rapidly and significantly expanded our operations and anticipate
that continued expansion will be required to realize our growth strategy. Our
rapid growth has placed significant demands on our management and other
resources and these demands are likely to continue. If we are unable to
effectively manage our future growth, we may not be able to achieve the rate of
growth that we have experienced in the past. To manage our future growth, we
will need to attract, hire and retain highly skilled and motivated officers and
employees. In particular, we currently need to hire a significant number of
technical personnel and customer service representatives. Most of our
competitors face similar staffing shortages, which makes the competition for
qualified employees particularly intense. We also will need to improve existing
systems and/or implement new systems for operational and financial management
and training, integrating and managing our growing employee base.
9
<PAGE> 13
OUR FUTURE OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY
We may experience significant variation in our future quarterly results of
operations. These fluctuations may result from:
- the timing and size of advertising campaigns;
- introductions of or enhancements to online investing services by us or
our competitors;
- changes in trading volume in securities markets;
- changes in pricing policies by us or our competitors;
- disruptions or problems in our services to customers;
- changes in our business strategy;
- changes in the level of operating expenses needed to support projected
growth;
- actions taken by us that negatively affect short-term results but may
benefit long-term results; and
- general economic conditions.
Due to these factors, quarterly revenues and operating results are difficult to
forecast. We believe that period-to-period comparisons of our operating results
will not necessarily be meaningful, and you should not rely on them as an
indication of our future performance. In addition, our future quarterly
operating results may not consistently meet the expectations of securities
analysts or investors, which could have a material adverse effect on the market
price of the Class A common stock.
REGULATORY AND LEGAL UNCERTAINTIES COULD HARM OUR BUSINESS
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. Broker-dealers are subject to
regulations covering all aspects of the securities business. Our operations and
profitability may be directly affected by:
- additional legislation,
- changes in rules promulgated by the SEC, the National Association of
Securities Dealers, Inc. ("NASD"), the Board of Governors of the Federal
Reserve System (the "Federal Reserve"), the various stock exchanges and
other self-regulatory organizations, or
- changes in the interpretation or enforcement of existing laws and rules.
The SEC, the NASD or other self-regulatory organizations and state
securities commissions can censure, fine, issue cease-and-desist orders to,
suspend or expel a broker-dealer or any of its officers or employees. Our
ability to comply with applicable laws and rules is largely dependent on our
internal system to ensure compliance, as well as our ability to attract and
retain qualified compliance personnel. We could be subject to disciplinary or
other actions in the future due to claimed noncompliance, which could have a
material adverse effect on our business, financial condition and results of
operations.
Recently, various regulatory and enforcement agencies have been reviewing
systems capacity, customer access, best execution practices, other service
issues and advertising claims as they relate to the discount and online
brokerage industry. These reviews could result in enforcement actions or new
regulations, either of which could have a material adverse effect on our
business, financial condition and results of operations.
Securities industry regulators are currently reviewing the extent to which
clearing firms, such as Advanced Clearing, will be held accountable for the
improper activities of introducing brokers
10
<PAGE> 14
for which they provide clearing services. Our procedures may not be sufficient
to protect us from liability for the acts of introducing brokers under current
or future laws and regulations.
In addition, we use the Internet as a major distribution channel to provide
services to our customers. Due to the increasing popularity of the Internet, it
is possible that new laws and regulations may be adopted dealing with issues
such as user privacy and the pricing, content and quality of products and
services. These laws and regulations might increase our cost of using, or limit
our ability to use, the Internet as a distribution channel. As a result, the
adoption of these laws and regulations could have a material adverse effect on
our business, financial condition and results of operations.
We intend to expand our business in U.S. securities to other countries. We
will need to comply with the relevant regulations of each country in which we
conduct business. Our international expansion may be limited by the compliance
requirements of these jurisdictions.
THE SUCCESS OF OUR BUSINESS WILL DEPEND ON CONTINUED GROWTH OF INTERNET COMMERCE
The market for online discount brokerage services is at an early stage of
development and is rapidly evolving. Consequently, demand and market acceptance
for recently introduced services and products are subject to a high level of
uncertainty. A significant portion of our growth is related to acceptance of the
Internet as a method of commerce. The failure of commerce on the Internet to
grow at projected rates could have a material adverse effect on our business,
financial condition and results of operations.
THE SUCCESS OF OUR BUSINESS WILL DEPEND ON CONTINUED DEVELOPMENT AND MAINTENANCE
OF THE INTERNET INFRASTRUCTURE
The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and amount of traffic. Our success
will depend upon the development and maintenance of the Internet's
infrastructure to cope with this increased traffic. The failure to develop and
maintain the Internet's infrastructure could have a material adverse effect on
our business, financial condition and results of operations. The Internet has
experienced a variety of outages and other delays as a result of damage to
portions of its infrastructure and could face similar outages and delays in the
future. Outages and delays are likely to affect the level of Internet usage and
the processing of transactions on our Web site. In addition, the Internet could
lose its viability due to delays in the development or adoption of new standards
to handle increased levels of activity.
WE ARE HIGHLY DEPENDENT ON OUR KEY PERSONNEL
We are highly dependent on a small number of key executive officers. We
have entered into employment agreements with our key executive officers but do
not maintain "key person" life insurance policies on any of our officers. Our
success has been, and will be, dependent to a large degree on our ability to
retain the services of our existing key executive officers and to attract and
retain additional qualified personnel in the future. Competition for these
personnel is intense. The loss of the services of any of our key executive
officers or the inability to identify, hire and retain other highly qualified
technical and managerial personnel in the future could have a material adverse
effect on our business, financial condition and results of operations.
THE RICKETTS FAMILY CONTROLS ALL FUNDAMENTAL MATTERS AFFECTING US
Following the offerings, J. Joe Ricketts, our Chairman and Co-Chief
Executive Officer, his family members and trusts held for their benefit
(collectively, the "Ricketts Family") will own approximately % of the Class A
common stock and all of the Class B common stock, which will
11
<PAGE> 15
constitute approximately % of the common stock. As a result, the Ricketts
Family will retain the ability to control all fundamental matters affecting us,
including:
- the election of the majority of our directors;
- the sale of substantially all of our assets;
- the merger of Holding with another entity;
- an amendment to our certificate of incorporation;
- the future issuance of common stock or other securities; and
- the declaration of any dividend payable on the common stock.
In addition, the Ricketts Family could convert a portion of its Class B common
stock into Class A common stock and subsequently dispose of such shares, thereby
substantially reducing its economic interest in Holding while retaining the
ability to elect the majority of our directors.
WE WILL NEED TO INTRODUCE NEW PRODUCTS AND SERVICES TO REMAIN COMPETITIVE
Our future success depends in part on our ability to develop and enhance
our products and services. There are significant technical and financial risks
in the development of new or enhanced products and services, including the risk
that we will be unable to:
- effectively use new technologies;
- adapt our services to emerging industry standards; or
- develop, introduce and market new or enhanced products and services.
If we are unable to develop and introduce enhanced or new products and services
quickly enough to respond to market or customer requirements, or if our products
and services fail to achieve market acceptance, our business, financial
condition and results of operations could be materially adversely affected.
WE MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL AND OTHER CHANGES
The markets in which we compete are characterized by rapidly changing
technology, evolving industry standards, frequent new product and service
announcements, introductions and enhancements and changing consumer demands. We
may not be able to keep up with these rapid changes. In addition, the widespread
adoption of new Internet, networking or telecommunications technologies or other
technological changes could require us to incur substantial expenditures to
modify or adapt our services or infrastructure.
CHANGES IN PAYMENTS FOR ROUTING OUR CUSTOMERS' ORDERS COULD ADVERSELY AFFECT OUR
BUSINESS
We have arrangements with several execution agents to receive cash payments
in exchange for routing trade orders to these firms for execution. We expect
these payments to continue to decrease on a per trade basis, which could have a
material adverse effect on our business, financial condition and results of
operations. Receiving payments for routing customers' orders may not continue to
be permitted by the SEC, the NASD or other governmental and regulatory agencies
and courts. Furthermore, competition between execution agents and the
implementation by the SEC of order handling rules in January 1997 has made it
less profitable for execution agents to offer order flow payments to
broker-dealers. Payments made to us by execution agents for routing trade orders
were $9.1 million in fiscal 1997 and $10.9 million in fiscal 1998, and were $4.5
million for the six months ended March 27, 1998 and $10.3 million for the six
months ended March 26, 1999. Per trade payments decreased to $2.35 in fiscal
1998 from $5.51
12
<PAGE> 16
in fiscal 1997, and decreased to $1.96 for the six months ended March 26, 1999
from $2.60 for the six months ended March 27, 1998.
OUR NETWORKS MAY BE VULNERABLE TO SECURITY RISKS
The secure transmission of confidential information over public networks is
a critical element of our operations. We have not in the past experienced
network security problems. However, our networks may be vulnerable to
unauthorized access, computer viruses and other security problems. Persons who
circumvent security measures could wrongfully use our confidential information
or our customers' confidential information or cause interruptions or
malfunctions in our operations. We may be required to expend significant
additional resources to protect against the threat of security breaches or to
alleviate problems caused by any breaches. We may not be able to implement
security measures that will protect against all security risks.
YEAR 2000 RISKS MAY HARM OUR BUSINESS
Many computer systems were not designed to handle dates beyond the year
1999. These systems, if not modified or replaced, could fail or create erroneous
results by or at the Year 2000. We have implemented a plan to address Year 2000
problems with our own systems. However, if we are unable to make our systems
Year 2000 compliant on a timely basis or if the costs associated with addressing
Year 2000 issues are greater than planned, our business, financial condition and
results of operations could be materially adversely affected. In addition, our
operations rely heavily on the integrity of computer systems of third parties,
such as broker-dealers, clearinghouses, stock exchanges and online and Internet
service providers. A systems failure affecting any of these parties due to Year
2000 issues would interfere with the trading process and, as a result, could
have a material adverse effect on our business, financial condition and results
of operations. For a description of our Year 2000 program, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000".
WE MUST COMPLY WITH NET CAPITAL REQUIREMENTS
The SEC, the NASD and various other regulatory agencies have stringent
rules with respect to the maintenance of specific levels of net capital by
securities broker-dealers. Net capital is an SEC-defined measure of a
broker-dealer's readily available liquid assets, reduced by its total
liabilities other than approved subordinated debt. All of our broker-dealer
subsidiaries are required to comply with the net capital requirements. If we
fail to maintain the required net capital, the SEC could suspend or revoke our
registration, or the NASD could expel us from membership, which could ultimately
lead to our liquidation. If the net capital rules are changed or expanded, or if
there is an unusually large charge against net capital, operations that require
the intensive use of capital would be limited. A large operating loss or charge
against net capital could adversely affect our ability to expand or even
maintain our present levels of business, which could have a material adverse
effect on our business, financial condition and results of operations.
OUR CLEARING OPERATIONS EXPOSE US TO LIABILITY FOR ERRORS IN CLEARING FUNCTIONS
Advanced Clearing provides clearing and execution services to each of our
discount brokerage businesses, as well as to independent broker-dealers,
depository institutions, registered investment advisors and financial planners.
Clearing services include the confirmation, receipt, settlement and delivery
functions involved in securities transactions. As a clearing broker, Advanced
Clearing also assumes direct responsibility for the possession and control of
customer securities and other assets and the clearance of customer securities
transactions. Self-clearing securities firms are subject to substantially more
regulatory control and examination than brokers that rely on others to perform
those functions, such as many of our competitors. Errors in
13
<PAGE> 17
performing clearing functions, including clerical and other errors related to
the handling of funds and securities held by us on behalf of customers and
introducing brokers, could lead to civil penalties imposed by applicable
authorities as well as losses and liability in related lawsuits brought by
customers and others.
WE ARE EXPOSED TO CREDIT RISK
We make margin loans to customers collateralized by customer securities and
periodically borrow securities to cover trades. By permitting customers to
purchase securities on margin, we are subject to risks inherent in extending
credit, especially during periods of rapidly declining markets in which the
value of the collateral held by us could fall below the amount of a customer's
indebtedness. The inability of customers to repay their margin loans could
result in material losses to us. A significant portion of our net revenues is
derived from interest on margin loans. To the extent that these margin loans
exceed customer cash balances maintained with us, we generally must obtain
financing from third parties. We may not be able to obtain such financing on
favorable terms or in sufficient amounts.
WE MUST PROTECT OUR INTELLECTUAL PROPERTY
Our success and ability to compete are dependent to a significant degree on
fully protecting our intellectual property, which includes our proprietary
technology, trade identity and customer base. We rely on all modes of
intellectual property protection to protect our intellectual property, including
copyright, trade secret, trademark, domain name, patent and contract law.
Notwithstanding the precautions taken by us to protect our intellectual
property, it is possible that third parties may misappropriate, obtain, copy or
use without authorization, or otherwise infringe upon, our intellectual
property. It is also possible that third parties may independently develop
intellectual property similar to ours. Policing unauthorized use of our
intellectual property may be difficult because of difficulties in controlling
the ultimate destination or security of information or computer software
transmitted over the Internet. In addition, the laws of foreign countries may
afford different, and possibly inadequate, protection of our intellectual
property.
ACQUISITIONS AND STRATEGIC RELATIONSHIPS INVOLVE CERTAIN RISKS
We intend to pursue strategic acquisitions of businesses and technologies.
Acquisitions may entail numerous risks, including:
- difficulties in assessing values for acquired businesses and
technologies;
- difficulties in the assimilation of acquired operations and products;
- diversion of management's attention from other business concerns;
- assumption of unknown material liabilities of acquired companies;
- amortization of acquired intangible assets, which could reduce future
reported earnings; and
- potential loss of customers or key employees of acquired companies.
We may not be able to integrate successfully any operations, personnel, services
or products that we acquire in the future. We also have established a number of
strategic relationships with online service providers and information service
providers. These relationships and others we may enter into in the future are
and will be important to our business and growth prospects. We may not be able
to maintain these relationships or develop new strategic alliances.
14
<PAGE> 18
WE MAY NOT SUCCEED IN INTERNATIONAL MARKETS
We have limited experience in providing brokerage services internationally.
We may not succeed in marketing our services in international markets. In
addition, there are risks inherent in doing business in some international
markets that may include:
- less developed technological infrastructures;
- lower customer acceptance of, or access to, electronic channels;
- regulatory requirements, tariffs and other trade barriers;
- reduced protection for intellectual property rights;
- difficulties in staffing and managing foreign operations;
- less developed automation in exchanges, depositories and clearing
systems;
- fluctuations in currency exchange rates; and
- potentially adverse tax consequences.
Any of the factors described above could have a material adverse effect on our
future international operations.
CERTAIN PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD MAKE A
TAKEOVER MORE DIFFICULT
Our certificate of incorporation, bylaws and Delaware corporate law contain
provisions that might make it more difficult for someone to acquire control of
us in a transaction not approved by our board of directors. These provisions
could also discourage proxy contests and make it more difficult for you and
other stockholders to elect directors other than the candidates nominated by our
board of directors and other stockholders. The existence of these provisions
could adversely affect the market price of the Class A common stock. In
addition, these provisions could have the effect of depriving stockholders of an
opportunity to sell their shares at a premium over prevailing market prices. For
a description of these provisions, see "Description of Capital Stock".
FUTURE SALES OF SHARES OF COMMON STOCK COULD ADVERSELY AFFECT THE MARKET PRICE
OF THE CLASS A COMMON STOCK
Sales of substantial amounts of common stock in the public market following
the offerings, or the perception that such sales could occur, could adversely
affect the market price of the Class A common stock and may make it more
difficult for us or for our stockholders to sell our equity securities in the
future at a time and at a price that we or they deem appropriate. Following the
offerings, there will be approximately shares of our common stock
outstanding. The shares of Class A common stock sold in the offerings
and additional shares of common stock generally will be freely
transferable without restriction or further registration under the Securities
Act of 1933. Approximately shares of common stock will be "restricted
securities" as defined in Rule 144 under the Securities Act and may not be
resold in the absence of registration under the Securities Act or an exemption
from registration. All of these restricted securities currently can be resold in
the market without registration, subject in some cases to volume limitations,
manner of sale and other requirements of Rule 144.
15
<PAGE> 19
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the information incorporated by reference in it include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend
that the forward-looking statements be covered by the safe harbor provisions for
forward-looking statements in these sections. In some cases, you can identify
these statements by our use of forward-looking words such as "may," "will,"
"should," "anticipate," "estimate," "expect," "plan," "believe," "predict,"
"potential" or "intend." All statements regarding our dividend policy, expected
financial condition and results of operations, expectations relating to Year
2000 issues, business strategy, forecasted demographic and economic trends
relating to our industry, plans for OnMoney, advertising and marketing plans and
anticipated expenses, planned investments in technology infrastructure and other
anticipated capital expenditures, expansion into international markets, hiring
plans and similar matters are forward-looking statements. You should be aware
that these statements and any other forward-looking statements in this
prospectus or incorporated herein by reference only reflect our expectations.
Actual events or results may differ substantially from our expectations.
Important factors that could cause our actual results to be materially different
from our expectations include those discussed in this prospectus under the
caption "Risk Factors." We undertake no obligation to update or revise publicly
any forward-looking statements, whether as a result of new information, future
events or otherwise.
USE OF PROCEEDS
We estimate that the net proceeds from the sale by us of shares of
Class A common stock will be approximately $ . We will use these
proceeds for general corporate purposes, including to promote the Ameritrade
brand name through advertising, building infrastructure, developing and
acquiring new forms of technology, retiring existing indebtedness and
potentially acquiring businesses or assets. We will not receive any of the
proceeds from the sale of shares by the selling stockholders. Our revolving
credit facility requires us to repay all outstanding indebtedness under the
facility with the proceeds from some public offerings of common stock. For a
description of our revolving credit facility, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Bank Loan Agreements".
DIVIDEND POLICY
We have not declared or paid cash dividends on any of our common stock. We
currently intend to retain all of our earnings, if any, for use in our business
and do not anticipate paying any cash dividends in the foreseeable future. Our
revolving credit agreement prohibits the payment of cash dividends. The payment
of any future dividends will be at the discretion of our board of directors in
accordance with the provisions of the revolving credit agreement and will depend
upon a number of factors, including future results of operations, financial
condition, capital requirements, general business conditions and other factors
that our board of directors may deem relevant.
16
<PAGE> 20
MARKET PRICE OF CLASS A COMMON STOCK
We completed the initial public offering of our Class A common stock on
March 7, 1997, at a price per share of $1.25. Since March 4, 1997, our Class A
common stock has been quoted on The Nasdaq National Market under the symbol
"AMTD". The following table shows for the periods indicated the high and low
sales prices per share of our Class A common stock as reported by The Nasdaq
National Market. These prices reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions. These prices reflect the two-for-one stock splits effective August
18, 1998 and February 22, 1999 and the three-for-one stock split effective on
July 2, 1999.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1997
Second Quarter (beginning March 4, 1997).................... $ 1.88 $1.35
Third Quarter............................................... $ 1.53 $0.98
Fourth Quarter.............................................. $ 2.24 $1.22
FISCAL 1998
First Quarter............................................... $ 3.25 $1.50
Second Quarter.............................................. $ 2.59 $1.86
Third Quarter............................................... $ 2.74 $1.91
Fourth Quarter.............................................. $ 4.47 $2.16
FISCAL 1999
First Quarter............................................... $ 6.50 $1.88
Second Quarter.............................................. $22.50 $5.00
Third Quarter (through , 1999)
</TABLE>
On , 1999, the last reported sale price of our Class A common stock
on The Nasdaq National Market was $ per share and there were
holders of record.
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<PAGE> 21
CAPITALIZATION
The following table sets forth, as of March 26, 1999, (i) our actual
capitalization and (ii) our capitalization as adjusted to give effect to the
offerings and the three-for-one stock split effective on July 2, 1999. You
should read this table in conjunction with our historical financial information,
including the notes that accompany such financial information.
<TABLE>
<CAPTION>
MARCH 26, 1999
--------------------------
ACTUAL AS ADJUSTED
------------ -----------
<S> <C> <C>
Total long-term debt........................................ $ 38,000,000
Stockholders' equity:
Preferred stock, $1 par value; authorized 3,000,000
shares, none issued.................................... --
Class A common stock, $.01 par value, 60,000,000 shares
authorized, 52,701,160 shares issued and outstanding at
March 26, 1999; 270,000,000 shares authorized,
158,103,480 shares issued and outstanding, as
adjusted............................................... 527,012
Class B common stock, convertible, $.01 par value,
6,000,000 shares authorized, 5,457,600 issued and
outstanding at March 26, 1999; 18,000,000 shares
authorized, 16,372,800 shares issued and outstanding,
as adjusted............................................ 54,576
Additional paid-in capital................................ 25,228,316
Retained earnings......................................... 55,576,576
Treasury stock (13,400 shares at March 26, 1999; 40,200
shares, as adjusted)................................... (94,144)
Accumulated other comprehensive income.................... 123,012,199
------------ --------
Total stockholders' equity........................ 204,304,535
------------ --------
Total capitalization............................ $242,304,535
============ ========
</TABLE>
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<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected financial data as of and for the fiscal year periods presented
below are derived from our consolidated financial statements, which have been
audited and reported upon by our independent auditors. The data presented for
the six month periods ended March 27, 1998 and March 26, 1999 are derived from
our unaudited financial statements and include, in the opinion of management,
all adjustments (consisting only of normal recurring accruals) necessary to
present fairly the data for such periods. The results for the six month period
ended March 26, 1999 are not necessarily indicative of the results to be
expected for the full fiscal year. The selected financial data presented below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical financial
information, including the notes that accompany such financial information,
included elsewhere in this prospectus and incorporated herein by reference. Per
share amounts have been adjusted to reflect a three-for-one stock split
effective on July 2, 1999.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
--------------------------------------------------------- -------------------
SEPT. 30, SEPT. 29, SEPT. 27, SEPT. 26, SEPT. 25, MAR. 27, MAR. 26,
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues:
Commissions and clearing fees............. $ 20,386 $ 23,977 $ 36,470 $ 51,937 $ 85,644 $ 35,209 $ 83,566
Interest revenue.......................... 9,856 16,297 22,518 36,623 66,716 27,909 47,715
Investment income and other............... 1,119 2,608 6,391 7,107 11,834 5,008 4,615
-------- -------- -------- -------- -------- -------- --------
Total revenues...................... 31,361 42,882 65,379 95,667 164,194 68,126 135,896
Interest expense.......................... 3,912 7,862 11,040 18,429 29,279 12,373 20,117
-------- -------- -------- -------- -------- -------- --------
Net revenues........................ 27,449 35,020 54,339 77,238 134,915 55,753 115,779
Pre-advertising operating expense.......... 14,012 19,348 28,385 41,842 90,770 39,052 74,461
Advertising expense........................ 5,987 4,842 7,537 13,971 43,614 34,513 22,797
-------- -------- -------- -------- -------- -------- --------
Total expenses excluding interest... 19,999 24,190 35,922 55,813 134,384 73,565 97,258
Income (loss) before provision for income
taxes..................................... 7,450 10,830 18,417 21,425 531 (17,812) 18,521
Provision (benefit) for income taxes....... 2,619 3,799 7,259 7,603 321 (6,292) 6,701
-------- -------- -------- -------- -------- -------- --------
Net income (loss)................... $ 4,831 $ 7,031 $ 11,158 $ 13,822 $ 210 $(11,520) $ 11,820
======== ======== ======== ======== ======== ======== ========
Basic earnings (loss) per share............ $ 0.03 $ 0.05 $ 0.07 $ 0.08 $ 0.00 $ (0.07) $ 0.07
Diluted earnings (loss) per share.......... $ 0.03 $ 0.05 $ 0.07 $ 0.08 $ 0.00 $ (0.07) $ 0.07
Weighted average shares outstanding --
Basic..................................... 154,271 153,766 153,766 165,227 174,188 174,210 174,247
Weighted average shares outstanding --
Diluted................................... 154,271 153,766 153,766 165,233 174,465 174,320 175,528
OPERATING DATA:
Average customer trades per day............ 1,519 2,055 3,670 6,571 18,407 13,909 42,179
Total assets in customer accounts (in
billions)................................. $ 1.7 $ 2.4 $ 4.0 $ 7.3 $ 11.4 $ 10.1 $ 19.5
Number of core accounts(1)................. 18,000 38,000 52,000 98,000 306,000 217,000 428,000
Net revenue per trade...................... $ 70.31 $ 67.09 $ 58.76 $ 46.65 $ 29.20 $ 32.07 $ 21.96
Pre-advertising operating expense per
trade..................................... $ 35.89 $ 37.07 $ 30.69 $ 25.27 $ 19.65 $ 22.46 $ 14.12
Operating margin(2)........................ 27% 31% 34% 28% 0% (32)% 16%
Pre-advertising operating margin(3)........ 49% 45% 48% 46% 33% 30% 36%
Return on average equity(4)................ 49% 47% 44% 28% 0% (21)% 7%
</TABLE>
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<PAGE> 23
<TABLE>
<CAPTION>
SEPT. 30, SEPT. 29, SEPT. 27, SEPT. 26, SEPT. 25, MAR. 27, MAR. 26,
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and segregated investments....... $101,352 $125,456 $191,436 $373,286 $ 527,982 $ 543,236 $ 606,286
Receivable from customers and
correspondents, net.................. 99,627 130,187 166,075 325,407 647,122 532,812 1,220,291
Total assets.......................... 216,991 287,105 401,679 757,357 1,290,402 1,125,729 2,104,989
Payable to customers and
correspondents....................... 198,539 251,862 356,943 666,279 1,136,082 1,038,698 1,686,378
Total long-term debt.................. -- 7,097 4,853 -- 11,000 10,000 38,000
Stockholders' equity.................. 12,473 19,504 30,662 66,989 84,572 55,447 204,305
</TABLE>
- ---------------
(1) Core accounts consist of open accounts in our discount brokerage
subsidiaries.
(2) Operating margin is computed by dividing income before provision for income
taxes by net revenues.
(3) Pre-advertising operating margin is computed by dividing income before
provision for income taxes plus advertising expenses by net revenues.
(4) Return on average equity is computed by dividing net income by average
stockholders' equity on a quarterly basis. Six month returns are not
annualized.
20
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
We provide discount securities brokerage and clearing execution services to
our customers. Our principal operating subsidiaries consist of our discount
brokerage operating units, Ameritrade and Accutrade, and our wholly owned
securities clearing firm, Advanced Clearing. During fiscal 1998, almost all of
our net revenues were derived from our retail discount brokerage activities and
clearing and execution services. In addition, we provide wholesale discount
brokerage services to depository institutions through our subsidiary AmeriVest
and are developing an Internet-based financial management system through our
subsidiary OnMoney.
Our primary focus is serving retail customers by providing services at
prices that are significantly less than our competitors. Retail brokerage
customers are able to trade securities through a variety of mediums, including
the Internet. We provide our customers with investment news and information as
well as educational services. We also provide clearing and execution services
for both our own brokerage operations as well as for unaffiliated
broker-dealers.
Our largest sources of revenues are commissions earned from our discount
brokerage activities and associated brokerage commissions, securities
transaction clearing fees and payment for order flow. Our other principal source
of revenue is net interest revenue. Net interest revenue is the difference
between interest revenues and interest expenses. Interest revenues are generated
by charges to customers on margin balances maintained in brokerage accounts and
the investment of cash from operations and cash segregated in compliance with
federal regulations in short-term marketable securities. Interest expense
consists of amounts paid or payable to customers based on credit balances
maintained in brokerage accounts, as well as costs related to notes payable,
letters of credit and lines of credit with financial institutions. Until the end
of fiscal 1998, we also recorded equity income from investments, which primarily
consisted of our share of income from our partnership interests in Roundtable
Partners L.L.C. ("Roundtable," the predecessor to Knight/Trimark Group, Inc.
("Knight/Trimark")) and Consolidated Software Systems, Inc. ("CSS").
Our largest operating expense generally is employee compensation and
benefits. Employee compensation and benefits expense includes salaries, bonuses,
group insurance, contributions to benefit programs, recruitment and other
related employee costs. Commissions and clearance costs include fees paid to
stock and option exchanges for trade executions, as well as settlement and
depository costs associated with our securities clearing activities.
Communications expense includes telephone, postage, news and quote costs.
Occupancy and equipment costs include depreciation charges for fixed assets, the
costs of leasing and maintaining our office spaces and the lease expenses on
computer equipment and other fixed assets. Advertising costs are expensed as
incurred and include production and placement of advertisements on various
mediums, including online, television, print and direct mail. Advertising
expenses may increase significantly when we decide to pursue a new account
acquisition campaign or increase advertising intensity. Other operating expenses
include professional service fees, provision for losses, customer execution
price adjustments, amortization of goodwill, travel expenses and other
miscellaneous expenses. In addition, our costs related to the processing of
customer confirmations, statements and other communications are included in this
category.
We believe that the discount brokerage market is currently impacted by four
significant trends that may affect our financial condition and results of
operations. First, commissions charged to customers of discount brokerage
services have steadily decreased over the past several years but have stabilized
over the past year. Although decreased commissions per trade have had a negative
effect on our commission and clearing fee revenue per trade, our experience to
date indicates that decreased commissions per trade result in increased account
activity and
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<PAGE> 25
increased commission and clearing fees revenue in the aggregate. Second,
technology has increased in importance as delivery channels such as the Internet
have become more prevalent. During the quarter ended March 26, 1999, 84% of our
trades were placed through electronic mediums, with 78% of those trades being
placed over the Internet, compared to 73% and 60%, respectively, for the quarter
ending March 27, 1998. We believe that the increased use of electronic mediums
will continue to decrease operating expenses per trade. Third, the effects of
price competition and required investment in technology have resulted in some
consolidation in the market. Finally, the intense advertising and promotional
efforts by us and our major competitors are making it increasingly difficult for
new entrants to make a competitive impact without substantial financial
resources to invest in building a brand.
Our fiscal year ends on the last Friday in each September. References to
fiscal year in this prospectus or in the information incorporated by reference
in it are to the approximate twelve-month period ended on any such Friday. For
example, "fiscal 1998" refers to the fiscal year ended September 25, 1998.
RESULTS OF OPERATIONS
The following tables set forth the amounts per trade and the percentage of
net revenues represented by certain items included in our consolidated
statements of income for the periods indicated:
<TABLE>
<CAPTION>
AMOUNTS PER TRADE
---------------------------------------------------------------------
FISCAL YEAR ENDED SIX MONTHS ENDED
--------------------------------------------- ---------------------
SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 25, MARCH 27, MARCH 26,
1996 1997 1998 1998 1999
------------- ------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions and clearing
fees...................... $39.44 $31.37 $18.54 $ 20.25 $15.85
Interest revenue............. 24.35 22.12 14.44 16.05 9.05
Equity income from
investments............... 3.63 2.08 1.10 1.45 --
Gain from sale of
investment................ -- -- 0.17 -- --
Other........................ 3.28 2.21 1.29 1.43 0.88
------ ------ ------ ------- ------
Total revenues....... $70.70 $57.78 $35.54 $ 39.18 $25.78
Interest expense............. 11.94 11.13 6.34 7.12 3.82
------ ------ ------ ------- ------
Net revenues......... $58.76 $46.65 $29.20 $ 32.06 $21.96
Expenses excluding interest:
Employee compensation and
benefits.................. $15.19 $11.65 $ 7.81 $ 8.45 $ 5.38
Commissions and clearance.... 2.74 2.01 1.25 1.31 0.76
Communications............... 3.99 3.40 2.80 3.71 1.51
Occupancy and equipment
costs..................... 3.12 3.28 2.30 2.42 1.66
Advertising.................. 8.15 8.44 9.44 19.85 4.32
Other........................ 5.65 4.93 5.49 6.57 4.81
------ ------ ------ ------- ------
Total expenses
excluding
interest........... $38.84 $33.71 $29.09 $ 42.31 $18.44
------ ------ ------ ------- ------
Income (loss) before provision
for income taxes............. $19.92 $12.94 $ 0.11 $(10.25) $ 3.52
Provision (benefit) for income
taxes........................ 7.85 4.59 0.07 (3.62) 1.27
------ ------ ------ ------- ------
Net income (loss).............. $12.07 $ 8.35 $ 0.04 $ (6.63) $ 2.25
====== ====== ====== ======= ======
</TABLE>
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<PAGE> 26
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUES
---------------------------------------------------------------------
FISCAL YEAR ENDED SIX MONTHS ENDED
--------------------------------------------- ---------------------
SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 25, MARCH 27, MARCH 26,
1996 1997 1998 1998 1999
------------- ------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions and clearing
fees.................... 67.1% 67.2% 63.5% 63.2% 72.2%
Interest revenue........... 41.4 47.4 49.5 50.1 41.2
Equity income from
investments............. 6.2 4.5 3.8 4.5 0.0
Gain from sale of
investment.............. 0.0 0.0 0.6 0.0 0.0
Other...................... 5.6 4.8 4.3 4.4 4.0
----- ----- ----- ----- -----
Total revenues..... 120.3% 123.9% 121.7% 122.2% 117.4%
Interest expense........... 20.3 23.9 21.7 22.2 17.4
----- ----- ----- ----- -----
Net revenues....... 100.0% 100.0% 100.0% 100.0% 100.0%
Expenses excluding interest:
Employee compensation and
benefits................ 25.9% 25.0% 26.7% 26.4% 24.5%
Commissions and clearance.. 4.7 4.3 4.3 4.1 3.5
Communications............. 6.8 7.3 9.6 11.6 6.9
Occupancy and equipment
costs................... 5.3 7.0 7.9 7.6 7.5
Advertising................ 13.9 18.1 32.3 61.9 19.7
Other...................... 9.7 10.6 18.8 20.5 21.9
----- ----- ----- ----- -----
Total expenses
excluding
interest......... 66.3% 72.3% 99.6% (32.1)% 84.0%
----- ----- ----- ----- -----
Income (loss) before
provision for income
taxes...................... 33.7% 27.7% 0.4% (32.1)% 16.0%
Provision (benefit) for
income taxes............... 13.4 9.8 0.2 (11.3) 5.8
----- ----- ----- ----- -----
Net income
(loss)........... 20.3% 17.9% 0.2% (20.8)% 10.2%
===== ===== ===== ===== =====
</TABLE>
SIX MONTH PERIODS ENDED MARCH 26, 1999 AND MARCH 27, 1998
NET REVENUES. Commissions and clearing fees increased 138% 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% 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 us during fiscal
1998 and during the first half of fiscal 1999. Core accounts increased to
approximately 428,000 at March 26, 1999 from approximately 306,000 at September
25, 1998. Offsetting the growth in trades per day was a decrease in commissions
and clearing fees per trade of 20% to $16 in the first six months of fiscal 1999
from $20 in the first six months of fiscal 1998. We expect our average
commission and clearing fees per trade to continue to decrease due to the
greater anticipated number of lower revenue Internet equity trades. However, we
believe that the rate of decline in average commission will be lower than the
rate of decline experienced over the past two years.
23
<PAGE> 27
We have arrangements with several execution agents to receive cash payments
in exchange for routing trade orders to these firms for execution. Revenues
generated by us under these arrangements totaled $10.3 million, or 9% of net
revenues for the first half of fiscal 1999, and $4.5 million, or 8% of net
revenue 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. As of March 26,
1999, we owned approximately 7.1% of the outstanding common stock of
Knight/Trimark. We expect payments for order flow to continue to decrease on a
per trade basis as a result of competition and regulatory changes.
Net interest revenue increased 78% 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% in cash and investments
segregated in compliance with federal regulations, an increase of 83% in
customer and correspondent broker-dealer receivables partially offset by an
increase of 57% 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. We generally expect net interest revenue to grow as our
account base grows.
We 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 our ownership in
Roundtable, which was reorganized into Knight/Trimark in July 1998. We no longer
recognize equity income from this investment.
Other revenues increased 84% 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 us by mutual
funds as a result of holding more customer mutual funds assets.
EXPENSES EXCLUDING INTEREST. Employee compensation and benefits expense
increased 93% 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% 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 our
advertising campaign in fiscal 1998 and the first half of fiscal 1999. We expect
employment expenses to continue to increase in support of the expected increase
in customer accounts, assets and trades.
Commissions and clearance costs increased 74% 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% increase in transaction volume. This increase was offset
by efforts that we have 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% 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 predominant
communication channel with our customers.
Occupancy and equipment costs increased 107% to $8.7 million in the first
six months of fiscal 1999 from $4.2 million in the first six months of fiscal
1998. This 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 our continued
growth.
24
<PAGE> 28
Advertising expenses decreased 34% to $22.8 million in the first half of
fiscal 1999 from $34.5 million in the first half of fiscal 1998 as we directed
more resources to capital investments. We plan to continue to expand our
customer base through advertising efforts.
Other operating expenses increased 123% to $25.4 million in the first half
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, we 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 our pretax income. The effective tax rate
in the first six months of fiscal 1999 was 36% and benefited from our
participation in an economic development tax incentive program offered by the
State of Nebraska. We expect to continue to benefit from the State of Nebraska
tax incentive program during the remainder of fiscal 1999.
FISCAL YEARS ENDED SEPTEMBER 25, 1998, SEPTEMBER 26, 1997 AND SEPTEMBER 27,
1996
NET REVENUES. For the years ended September 25, 1998, September 26, 1997
and September 27, 1996, 63%, 67% and 67%, respectively, of our net revenues were
derived from commissions and clearing fees. Commissions and clearing fees
totaled $85.6 million in fiscal 1998, compared to $51.9 million in fiscal 1997
and $36.5 million in fiscal 1996. This represents a 135% increase between fiscal
1996 and fiscal 1998. The increase was primarily attributable to an increase in
the number of transactions processed as average trades per day increased over
400% between fiscal 1996 and fiscal 1998 in line with the growth in our customer
base. Core accounts increased to approximately 306,000 at September 25, 1998
from approximately 98,000 at September 26, 1997 and approximately 52,000 at
September 27, 1996. Offsetting the growth in trades per day was a decrease in
commissions and clearing fees per trade of 53% between fiscal 1996 and fiscal
1998 from an average of $39 per trade to an average of $19 per trade in 1998.
We have arrangements with several execution agents to receive cash payments
in exchange for routing trade orders to these firms for execution. The revenues
generated by us under these arrangements totaled $10.9 million, or 8% of net
revenues for the fiscal year ended September 25, 1998; $9.1 million, or 12% of
net revenues for the fiscal year ended September 26, 1997; and $8.1 million, or
15% of net revenues for the fiscal year ended September 27, 1996. 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.
Net interest revenue increased to $37.4 million in fiscal 1998 from $18.2
million in fiscal 1997 and from $11.5 million in fiscal 1996. This increase was
due primarily to an increase of 187% in cash and investments segregated in
compliance with federal regulations, an increase of 271% in customer and
correspondent broker-dealer receivables partially offset by an increase of 221%
in amounts payable to customers and correspondent broker-dealers in fiscal 1998
over fiscal 1996.
Equity income from investments increased from $3.4 million in fiscal 1996
and fiscal 1997 to $5.1 million in fiscal 1998 primarily due to the greater
income generated by Roundtable. In July 1998, Roundtable was reorganized into
Knight/Trimark and conducted a public stock offering. We sold a portion of our
interest in CSS during fiscal 1998. We own less than 10% of the voting equity of
both Roundtable and CSS. As a result of these transactions, we began accounting
for our investment in Knight/Trimark as a marketable equity security held
available-for-sale and for our investment in CSS on the cost method rather than
the equity method. We no longer have any investments accounted for under the
equity method and, accordingly, no equity income from investments is currently
anticipated for periods after fiscal 1998.
25
<PAGE> 29
Other revenues increased to $6.0 million in fiscal 1998 from $3.7 million
in fiscal 1997 and $3.0 million in fiscal 1996. The increase was due primarily
to an increase in marketing fees and service fees paid to us by mutual funds as
a result of holding more customer mutual fund assets.
EXPENSES EXCLUDING INTEREST. Employee compensation and benefits expense
increased to $36.1 million in fiscal 1998 from $19.3 million in fiscal 1997 and
$14.0 million in fiscal 1996, due primarily to an increase in full-time
equivalent employees. As of September 25, 1998, we employed 985 full-time
equivalent employees compared to 412 on September 26, 1997 and 334 on September
27, 1996. The increase in employees was necessary to accommodate the dramatic
growth in trading volume following our advertising campaign in early fiscal
1998.
Commissions and clearance costs increased to $5.8 million in fiscal 1998
from $3.3 million in fiscal 1997 and $2.5 million in fiscal 1996. The 132%
increase between fiscal 1996 and fiscal 1998 was due primarily to the 400%
increase in transaction processing volume over the same period, offset by
efforts that we have undertaken to reduce execution, clearance, settlement and
depository costs with outside entities and the economies of scale associated
with these activities.
Communications expense was $12.9 million in fiscal 1998, compared to $5.6
million in fiscal 1997 and $3.7 million in fiscal 1996. The 251% increase
between fiscal 1996 and fiscal 1998 was primarily a result of the 400% increase
in transaction processing volume between fiscal 1996 and fiscal 1998.
Occupancy and equipment expense was $10.6 million in fiscal 1998, $5.4
million in fiscal 1997 and $2.9 million in fiscal 1996. This increase was due
primarily to the lease of equipment and additional office space. In fiscal 1998,
we added 132,000 square feet of additional space; in fiscal 1997, we added
approximately 50,000 square feet of additional space.
Advertising expenses constituted an increasing portion of our operating
costs, increasing from $7.5 million (14% of net revenues) in fiscal 1996, to
$14.0 million (18% of net revenues) in fiscal 1997 to $43.6 million (32% of net
revenues) in fiscal 1998. The increase in advertising expenses in fiscal 1998
was principally related to our efforts to build brand awareness for our
Ameritrade brand and was primarily responsible for the significant increase in
the number of customer accounts and account assets realized by us during fiscal
1998. Our acquisition cost per new account decreased to $194 in fiscal 1998,
from $269 in fiscal 1997 and $502 in fiscal 1996.
Other expenses increased to $25.4 million in fiscal 1998 from $8.2 million
in fiscal 1997 and $5.2 million in fiscal 1996. The increase was primarily a
result of increased confirmation and statement processing costs associated with
the increase in transaction processing volume and increased consulting services
to assist us in operational effectiveness and market research. To a lesser
extent, increases in trade errors related to the growth in transactions
processed and to customer execution price adjustments largely caused by system
outages, particularly in the fourth quarter of fiscal 1998, and increases in the
provision for losses related to market volatility experienced in the fourth
quarter of fiscal 1998 also contributed to the growth in other expenses.
Income tax expense was $0.3 million in fiscal 1998, $7.6 million in fiscal
1997 and $7.3 million in fiscal 1996. The effective tax rate dropped from 39% in
fiscal 1996 to 35% in fiscal 1997 as a result of our participation in an
economic development tax incentive program offered by the State of Nebraska. The
effective rate increased to 60% in fiscal 1998 due to the impact of
non-deductible goodwill on a relatively small base of pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our growth primarily through the use of funds
generated from operations. We plan to finance our capital and liquidity needs
during fiscal 1999 from our operating cash flows, borrowings under our $75.0
million revolving credit facility and a portion of the proceeds from the
offerings.
26
<PAGE> 30
OPERATING 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 1999. Cash used in operating
activities was $35.9 million in fiscal 1998, compared to cash generated from
operations of $23.8 million in fiscal 1997 and $20.9 million in fiscal 1996. The
increase in cash used during fiscal 1998 was attributable to the substantial
increase in advertising expenditures during the fiscal year.
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. Use of cash in both periods was related to
purchases of property and equipment. However, those amounts were offset in
fiscal 1998 by the proceeds from cash distributions received from our investment
in Knight/Trimark and the sale of an investment. Cash used in investing
activities was $4.0 million in fiscal 1998, compared to $3.7 million in fiscal
1997 and $4.7 million in fiscal 1996. Use of cash in fiscal 1998 and fiscal 1997
was primarily related to purchases of property and equipment, offset by cash
distributions received from Knight/Trimark and CSS. Use of cash in fiscal 1996
related primarily to purchases of property and equipment and additional
investments in Knight/Trimark and CSS, offset by cash distributions received
from Knight/ Trimark.
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 in both periods consisted
of net proceeds from our revolving credit agreement. Cash provided by financing
activities was $10.8 million in fiscal 1998, compared to $17.6 million in fiscal
1997 and to cash used in financing activities of $2.2 million in fiscal 1996.
The cash provided by financing activities in fiscal 1998 consisted of proceeds
from our revolving credit agreement, offset by payments on the principal of the
revolving credit loan. The increase in fiscal 1997 over fiscal 1996 was
attributable to the net proceeds of $22.5 million from the initial public
offering in March 1997, offset by principal payments on notes payable.
BANK LOAN AGREEMENTS. We entered into a revolving credit agreement with a
bank group on January 16, 1998, as amended on May 24, 1999. The revolving credit
agreement permits borrowings up to $75.0 million through June 30, 2000, with
permissible borrowings declining $3.125 million quarterly to $68.75 million at
maturity on December 31, 2000. The revolving credit agreement is collateralized
by the common stock of our subsidiaries, as well as all of our tangible and
intangible assets. Borrowings under the revolving credit agreement bear interest
at the prime rate less 0.75 percent (7.00% and 7.75% at March 26, 1999 and
September 25, 1998, respectively). We pay a maintenance fee of 0.25% of the
unused borrowings through the maturity date. We 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 advertising expenses. The
revolving credit agreement contains certain restrictions, including restrictions
on the payment of cash dividends and additional borrowings, the maintenance of a
minimum number of core accounts and a minimum net worth and a requirement to
repay all outstanding indebtedness under the facility with the proceeds from
some public offerings of common stock.
Advanced Clearing has various secured credit facilities with financial
institutions. These credit facilities are utilized in Advanced Clearing's
securities clearing operations. These facilities provide for the issuance of
letters of credit by the financial institutions on behalf of, and cash advances
to, Advanced Clearing. Advanced Clearing has pledged customer securities as
collateral for the related credit, and its obligations under these facilities
and the related collateral requirements fluctuate from time to time. As of March
26, 1999, the financial institutions had issued letters of credit in the
aggregate amount of $81.0 million and had made cash advances to Advanced
27
<PAGE> 31
Clearing in the aggregate amount of $45.0 million. Advanced Clearing pays a
maintenance fee of 0.5% of the committed amount for the letters of credit, and
the cash advances bear interest at rates tied to the prevailing broker call
rate, which rates ranged from 5.5% to 6.75% as of March 26, 1999.
CAPITAL EXPENDITURES. We expect to spend between $25.0 million and $35.0
million during fiscal 1999 on hardware and software upgrades to our computer
systems to meet anticipated increases in trading volumes. In addition, we
anticipate 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 $50.0 million through fiscal 2018. In addition, we plan to spend
approximately $10.0 million on continuing research and development activities
during fiscal 1999. We have entered into a two-year agreement with America
Online, Inc. ("AOL") that will feature Ameritrade as one of four brokerages on
AOL's Personal Finance Channel. The agreement calls for us to pay AOL $12.5
million annually over a two-year term and expires in September 2000. In May
1999, we also entered into an agreement with Yahoo!, Inc. ("Yahoo") that will
feature Ameritrade as one of four brokerages on Yahoo's finance Web page. The
agreement calls for us to pay Yahoo $8.3 million through its expiration in
December 1999.
YEAR 2000
We rely heavily on computerized information technology ("IT") systems for
our business operations. In particular, securities trading information moves to
and from our IT system to those operated by stock exchanges, broker-dealers,
clearinghouses and other trading partners on a real-time basis with little human
intervention. Our 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, we have
business relationships with a variety of third parties whose ability to
interface with our IT systems or otherwise perform their obligations to us
depends on these 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. We have adopted a
plan to handle this "Year 2000 problem" with respect to our IT, non-IT systems
and third party business relationships.
STATE OF READINESS. We have hired a Year 2000 Project Manager who has
assembled a working group that is responsible for our Year 2000 remediation
effort. In general, this effort consists of (1) preparing an inventory of IT and
non-IT systems and assessing the need for remediation of such systems, (2)
determining the status of Year 2000 remediation of third parties with which we
have material business relationships, (3) remediation of our IT and non-IT
systems and (4) testing. We also have engaged the services of an independent
outside consultant group to gauge the status of the Year 2000 project and two
additional consultants to provide contract support for this effort. We have
completed the inventory and assessment phase of our Year 2000 program. We have
been in the process of a planned upgrade of many components of our IT system and
as this process is completed, our IT systems are expected to become Year 2000
compliant. We expect the IT systems upgrade and remediation to be completed by
July 31, 1999. We have reviewed our non-IT systems, such as telephone systems,
which have been identified as necessary to our ability to conduct the operation
of our business activities. All non-IT systems have been modified or replaced to
be Year 2000 compliant.
We plan to conduct testing of IT and non-IT systems as remediation work is
completed. In particular, the IT systems passed a series of Securities Industry
Association-sponsored industry-wide simulation tests of the trading cycle
through the millennium. These tests exercised not only our internal IT system,
but also key interfaces with third parties in the securities industry.
28
<PAGE> 32
Notwithstanding our 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 our IT systems and non-IT systems that will need to be resolved.
We have no control over the remediation efforts of third parties with which
we have 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 us. Accordingly, we have undertaken the process of
contacting each material third party. Such parties include, but are not limited
to, various brokers-dealers, clearinghouses, stock exchanges and online and
Internet services providers. We continue to receive documentation from our third
party vendors and partners declaring that their ability to perform their
obligations to us is not expected to be materially adversely affected by the
Year 2000 problem. We will conduct in-house testing of third party systems where
applicable. We will continue to request 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 primarily of salaries of the Year 2000 Project Manager and
other staff assigned to the Year 2000 working group, software used to assess our
systems, and consulting and 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 our IT system was made as part of
scheduled upgrades and, therefore, has not been included in the costs of Year
2000 compliance. Costs associated with our Year 2000 program have been
approximately $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, we do not
believe that there will be any protracted systemic failures of the IT or non-IT
systems utilized by us in connection with the operation of our business. We
believe 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 us to lose accounts. We cannot estimate the magnitude of
any such loss of revenue at this time, but it could be material.
CONTINGENCY PLANS. We have 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 back-up market sources in order to execute securities trades.
Other principal components of our 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. We expect
to make refinements to our contingency plans as additional information regarding
Year 2000 strategies become 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 us will prevent us from incurring service
interruptions and other negative consequences in the event of Year 2000 problems
either with our own IT and non-IT systems or with those of third parties having
material business relationships with us. See "Risk Factors -- Year 2000 risks
may harm our business".
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BUSINESS
OVERVIEW
We are a leading provider of online discount brokerage services. We provide
technology-based brokerage services to retail investors through a variety of
mediums, primarily through the Internet. Our services appeal to a broad market
of self-directed retail investors who are value conscious. We use our low-cost
platform to offer brokerage services to investors at prices that are
significantly lower than prices offered by our major competitors. Our goal is to
provide the best execution using the best information at the best value.
We were one of the earliest participants in the growing online brokerage
industry, pioneering online trading with the first Internet trade in 1994. Since
initiating online trading, we have dramatically increased our number of core
discount brokerage accounts, average daily trading volume and total assets in
customer accounts, while significantly lowering our pre-advertising operating
costs per trade. IDC estimates that our market share of online customer accounts
was approximately 6% at March 26, 1999. Based on reports of industry analysts,
we believe that our market share of average daily trades executed online was
over 8% for the quarter ended March 26, 1999, marking our eighth consecutive
quarter of average daily online trade volume market share gains, a record
unmatched by any other firm in the online brokerage industry. We expect online
brokerage activity to continue to expand, creating opportunities for us to
leverage our market position and cost structure for further growth and
profitability.
We operate through four subsidiaries, including Ameritrade, Accutrade,
Advanced Clearing and AmeriVest. We serve most of our retail discount brokerage
customers through Ameritrade. In 1997, we began to emphasize our Ameritrade
brand and focus on positioning ourselves as a major player in the low commission
segment of online brokerage. We serve customers who desire a higher degree of
personalized service through Accutrade. Ameritrade and Accutrade enable us to
target and service retail customers differentiated primarily by price
sensitivity and level of personalized service sought. Advanced Clearing provides
clearing services to Ameritrade and Accutrade, as well as to independent
broker-dealers and other correspondents. AmeriVest provides wholesale discount
brokerage services to depository institutions. Additionally, we are developing
an Internet-based personal financial management system through our OnMoney
subsidiary.
BUSINESS STRATEGY
Our business strategy is to capitalize on the growth of the online
brokerage industry. The key elements of our business strategy are as follows:
- ESTABLISH AMERITRADE AS THE DOMINANT BRAND IN ONLINE TRADING. We intend
to establish Ameritrade as the dominant global brand in the online
discount brokerage market. We plan to achieve this goal by providing a
compelling value proposition in order to attract and retain online
discount brokerage customers as well as through aggressive promotion of
the Ameritrade brand name. Since October 1997, we have spent over $66.4
million in advertising and plan to substantially increase the amount we
spend on advertising in the future. We also plan to pursue opportunities
to strengthen our brand positioning and increase our customer base
through strategic acquisitions.
- FOCUS ON ONLINE DISCOUNT BROKERAGE SERVICES. We plan to maintain our
focus on attracting self-directed investors to our online discount
brokerage services. Approximately 95% of our net revenues are derived
from our retail discount brokerage service. We believe that this focus
promotes efficiencies and capitalizes on projected growth in the
industry. IDC reports that the number of online brokerage accounts at the
end of 1998 was approximately 6.4 million with the number projected to
reach approximately 25 million by the end of 2002.
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- EXPAND OUR CAPACITY AND INFRASTRUCTURE TO MEET EXPECTED INCREASES IN
TRADING VOLUME. We continually enhance our systems to provide timely and
reliable service to our customers. We plan to make substantial
investments in technology and infrastructure over the next 18 months to
meet expected increases in trading volume. We also are expanding our
management team, adding support personnel and opening additional customer
service and technology centers to support our growth.
- CONTINUE TO OFFER INNOVATIVE TECHNOLOGIES AND SERVICE ENHANCEMENTS TO OUR
CUSTOMERS. We seek to provide our customers with the most advanced
technology and service available. During fiscal 1998, we released
"Darwin(TM) : Survival of the Fittest" ("Darwin"), the first interactive
CD-ROM-based options trading simulator. We recently reached an agreement
with MicroStrategy Incorporated to develop a comprehensive suite of
financial service offerings, including personalized investor information
available by cellular telephone, pager or e-mail. In addition, we intend
to further develop our data gathering and tracking system to enable us to
determine the needs of our various customer segments and tailor our
services to their individual needs.
- BE THE LOWEST COST PROVIDER OF QUALITY SERVICES. As the volume of online
trading further expands and our online trading volume increases, we
intend to continue to lower our operating costs per trade by creating
economies of scale, using proprietary systems and automation and locating
our operations in low-cost geographical areas. Over the last six
quarters, we have reduced our pre-advertising operating expenses per
trade by over 46% to $12.51 during the quarter ended March 26, 1999.
- EXPAND OUR ACCESS TO INTERNATIONAL CUSTOMERS. We plan to increase our
customer base and build brand awareness by selectively forming strategic
alliances with international financial services leaders. We recently
formed alliances with Deutsche Bank in Germany and Cortal, a subsidiary
of Banque Paribas, in France, which will provide their substantial
customer bases the ability to trade on the United States markets through
Ameritrade. In addition, we have recently signed non-disclosure
agreements with well-established large financial institutions in Europe
and Japan to explore the possibility of extending the Ameritrade brand
name and operations to those markets.
ONLINE DISCOUNT BROKERAGE INDUSTRY OVERVIEW
The online discount brokerage industry in which we compete has grown
rapidly in the past few years. A number of factors have contributed to this
growth, including:
- the enduring strength and recent growth of the United States equity
markets, with equity market capitalization in the United States doubling
in the past five years to over $15 trillion;
- increased accessibility to and affordability of brokerage services made
possible by rapid advances in communications and processing technology
and by increased competition among brokerage companies;
- increased consumer acceptance of and confidence in the Internet as a
reliable, secure and cost-effective medium for financial transactions;
- the availability of financial information online, including research,
real-time quotes, charts, news and company information;
- the appeal of online trading to investors based on lower prices, greater
range of investment alternatives and greater control over investment
decisions; and
- growth in financial assets held by individual investors.
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Internet penetration continues to rapidly increase. IDC estimates that
there were 62.8 million Internet users in the United States at the end of 1998,
growing from 38.9 million at the end of 1997. The Internet enables investors to
identify, analyze and transact investments at far lower costs than previously
possible.
These factors have contributed to the tremendous growth of online brokers.
IDC estimates that online brokerage average daily trading volume more than
tripled during the two year period of 1997 and 1998 to more than 300,000 trades
per day. Over that same time period, the number of online brokerage accounts
grew from approximately 1.5 million to approximately 6.4 million. Overall, IDC
predicts exceptionally strong growth in all key industry metrics for the
foreseeable future.
International markets also present significant opportunities for online
brokers. While Web usage in Europe trails United States rates, IDC predicts that
Web penetration will grow faster in Europe and Asia in the next several years
than in the United States. Correspondingly, Internet commerce in Europe and Asia
is expected to substantially increase over the next several years.
AMERITRADE
Ameritrade is a leading full-service provider of low-cost, high-value
online discount brokerage services to the rapidly expanding population of
self-directed investors in the United States and abroad. Ameritrade was formed
in 1997 through the consolidation of the accounts of Ceres Securities, Inc., K.
Aufhauser & Co. and the eBroker division of All American Brokers, Inc. In
October 1997, we launched a major advertising campaign to introduce our
revolutionary "8 bucks a trade" campaign and began emphasizing our Ameritrade
brand as the major player in the low commission segment of online brokerage. The
campaign succeeded in building brand awareness, helping us to open 225,000 new
accounts and add a net $4.1 billion to assets in customer accounts during fiscal
1998. Since the campaign's introduction, the number of trades per day has grown
at a 312% compound annual growth rate. We intend to continue an advertising and
marketing program in the future to establish Ameritrade as the dominant brand in
online trading.
OUR PRODUCTS AND SERVICES
Ameritrade is focused on being the best provider of online discount
brokerage services. Our goal is to "bring Wall Street to Main Street". The
products and services we offer reflect this goal. Our products include:
- - COMMON AND PREFERRED STOCK. Customers can purchase common and preferred stocks
and American depository receipts traded on any United States exchange or
quotation system. Fees for equity trades begin at $8.00 per trade regardless
of the number of shares bought or sold. Additional value-added services such
as limit-orders are offered at higher rates.
- - MUTUAL FUNDS. Customers can compare and select from a portfolio of over 7,800
mutual funds from over 400 fund families. Customers can also easily exchange
funds within the same family. Fees for mutual fund trades begin at $18.00 per
trade.
- - OPTION TRADES. We offer a full range of option trades, including spreads,
straddles and buy/writes. To help navigate the complex landscape of option
trading, we provide the proprietary educational tool, Darwin, which is
designed to help our customers become comfortable with the options market.
Fees for option trades begin at $29.00 per trade.
- - TREASURY, CORPORATE AND MUNICIPAL BONDS. We offer our customers access to the
secondary bond market via our skilled telephone brokers. Bond trades begin at
$40.00 per trade.
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Our services accessible through our Web site, and other mediums, include:
- - a broad range of third party research reports and investment news tailored to
meet customer's specifications provided by CBS MarketWatch, Morningstar, The
Motley Fool and Zacks Investment Research, among others;
- - real-time stock quotes;
- - trade entry screens on our Web site that allow our customers to select the
level of complexity that they desire in placing their trade orders.
Additionally, online help wizards guide investors through the process of
executing limit orders for both equities and options;
- - convenient access for our customers via strategically placed links at leading
Web portals such as America Online and Yahoo!;
- - educational programs to assist our customers such as Darwin and Stockpile.
Darwin is an options trading simulator that includes a comprehensive option
tutorial designed to allow investors to learn basic and advanced option
trading strategies, to trade fictional equities and options, to formulate
investment strategies, to track performance and to compete against other
players. Stockpile is a tutorial that instructs the customer how to invest
online. Stockpile is intended to raise the level of comfort and sophistication
of our customers prior to their first online trade; and
- - an expanding base of customer service representatives, trained to answer
questions knowledgeably and courteously.
In addition, we recently entered into a two-year alliance with
MicroStrategy Incorporated, which will allow subscribing customers to receive
highly personalized news and market-related data via cellular telephone, pager
and e-mail.
We intend to continue to expand our products and services to meet customer
demand and to provide the best value in the industry.
OUR CUSTOMERS
Our customers primarily are self-directed investors, many of whom use the
Internet to manage their personal finances. Customer accounts include cash
accounts, margin accounts and retirement accounts and may be opened with a
minimum $2,000 investment. Our customers range in experience from first-time
traders to sophisticated investors. Our initial customer base was comprised of
individuals who tended to be experienced, active investors seeking more control
over their portfolios while reducing their transaction costs. Our continual
technology infrastructure enhancements and broadening brokerage product and
service offerings have proven to be attractive to this growing base of Internet
investors. Since we introduced our $8 commission price point and our extensive
branding campaign, we also have attracted many new customers who initially are
less experienced but who are interested in becoming market participants and who
are attracted to our low commissions and our easy access to the market. In
addition, a substantial number of our customers have migrated from full-service
brokers. As Internet penetration rates continue to climb and self-directed
investment proliferates, we expect to attract significantly more of these
customers.
OUR DISTRIBUTION METHODS
We provide our customers with an array of mediums with which to access our
products and services.
- - INTERNET. Customers are attracted to the ease, convenience and value of stock
trading via the Internet. For the quarter ended March 26, 1999, 78% of our
customer transactions were
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executed through the Internet, located at www.ameritrade.com. Commissions on
Internet equity market orders are $8 per transaction.
- - TOUCH-TONE TELEPHONE. Users may transact their trades through an automated,
toll-free touch-tone telephone system. Many customers rely on this medium for
trading while away from their computers. Commissions on touch-tone equity
market orders are $12 per transaction.
- - REGISTERED REPRESENTATIVES. Customers may gain assistance and make trades
through registered representatives at a toll-free telephone number.
Commissions on broker-assisted equity market orders are $18 per transaction.
There is a $5 additional fee for executed limit orders through all channels.
ACCUTRADE
Accutrade provides value-added discount brokerage services to investors who
desire a higher degree of personalized customer service. Accutrade permits
customers to access its services through the Internet, automated touch-tone
telephone and facsimile, and through registered representatives. Accutrade
customers can trade in common and preferred stocks, mutual funds, options,
corporate and municipal bonds, treasury obligations, foreign securities and
certificates of deposit. Accutrade also offers a wide range of third-party
research services to assist its customers in meeting their investment
objectives. Accutrade pioneered trading by touch-tone telephone in 1988.
Accutrade introduced a software package known as Accutrade for Windows in
March 1996 to provide investors with an online investing system and the ability
to manage their financial assets. Customers using Accutrade for Windows may
place orders for stocks, mutual funds, options and corporate bonds. Customers
also can review their balances, positions, transaction history, order status and
obtain quotes. One of the advanced features of Accutrade for Windows is the
ability to make program investments. This feature permits customers to create
conditions under which orders will be placed and then to have their personal
computer monitor the market to automatically place the order. Customers can also
design baskets of stocks to track and trade. In October 1997, Accutrade for
Windows was named a finalist by PC Computing magazine in its annual Most
Valuable Product competition.
In addition to its trading department, which is staffed by registered
representatives, Accutrade provides personalized customer service for both
technical and brokerage needs. Customer service representatives respond to
inquiries about the services offered by Accutrade, including securities
transactions and other account activity. We believe that our customer service
representatives provide superior service and assist in maintaining long-term
customer relationships.
Accutrade charges a commission of $29.95 for equity orders of up to 1,000
shares placed over the Internet and requires a minimum of $5,000 to open an
account.
ADVANCED CLEARING
We provide clearing and execution services to correspondents, including our
discount brokerage businesses and independent broker-dealers, depository
institutions, registered investment advisors and financial planners, through our
subsidiary, Advanced Clearing. Clearing services include the confirmation,
receipt, settlement, delivery and record-keeping functions involved in the
processing of securities transactions. The clearing function involves a sharing
of responsibilities between the clearing broker and the introducing broker.
Advanced Clearing's correspondents, as introducing brokers, are responsible for
all customer contact, including opening customer accounts, responding to
customer inquiries and placing customer orders with
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the clearing broker. As a clearing broker, Advanced Clearing provides the
following back office functions:
- - maintaining customer accounts;
- - extending credit in a margin account to the customer;
- - settling security transactions with clearing houses such as the Depository
Trust Company and the National Securities Clearing Corporation;
- - settling commissions and clearing fees;
- - preparing customer trade confirmations and statements;
- - performing designated cashiering functions, including the delivery and receipt
of funds and securities to or from the customer;
- - possession, control and safeguarding funds and securities in customer
accounts;
- - transmitting tax accounting information to the customer and to the applicable
tax authorities; and
- - forwarding prospectuses, proxies and other shareholder information to
customers.
We make loans to customers collateralized by customer securities. Margin
lending by us is subject to the margin rules of the Federal Reserve, NASD margin
requirements and our internal policies, which are more stringent than the
Federal Reserve and NASD requirements. By permitting customers to purchase on
margin, we take the risk of a market decline that could reduce the value of the
collateral held by us to below the customers' indebtedness before the collateral
can be sold. Under applicable securities laws and regulations, in the event of a
decline in the market value of the securities in a margin account, we are
obligated to require the customer to deposit additional securities or cash in
the account so that at all times the customer's equity in the account is at
least 25 percent of the value of the securities in the account. Our current
internal requirement, however, is that the customer's equity not fall below 30
percent of the value of the securities in the account. If it does, the customer
will be required to increase the account's equity to 35 percent of the value of
the securities in the account. These requirements can be, and often are, raised
as we deem necessary for certain accounts, groups of accounts, securities, or
groups of securities.
AMERIVEST
AmeriVest is a wholesale provider of discount brokerage services to
depository institutions, including banks, savings and loans and credit unions.
AmeriVest provides these institutions a means of providing online discount
brokerage services to their retail customers without the need for the
institutions themselves to register as broker-dealers to provide these services.
ONMONEY
OnMoney is developing an Internet-based financial management system for
individual investors. OnMoney will provide its customers with a consolidated
financial statement showing all of their accounts with various financial
institutions, including banks, securities brokers, mutual funds, insurance and
mortgage brokers. OnMoney customers also will receive free information,
including news, market research and stock quotes. OnMoney expects to offer its
services to the public in the fall of 1999.
ADVERTISING AND MARKETING ALLIANCES
We intend to increase our market share through an extensive advertising
program primarily consisting of online advertising, television, print, direct
mail and our own Web sites. In October
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1997, we launched a national marketing campaign to promote the Ameritrade brand
name and our new $8 price point. Since that date, we have invested over $66.4
million in advertising programs designed to bring greater brand recognition to
our services. During this period, our core discount brokerage accounts have
increased over 330% from approximately 98,000 accounts at September 26, 1997 to
approximately 428,000 accounts at March 26, 1999. As a result of this success,
we intend to significantly increase our investment in advertising over the next
several quarters. From time to time, we may choose to increase our advertising
to target specific groups of investors or to decrease advertising in response to
market conditions.
Our marketing program focuses on advertising our online discount brokerage
services as a less expensive and more efficient way of executing transactions,
building awareness of our brand and selling the full range of our services. Our
target market includes individual investors who want to manage some or all of
their funds directly in a cost-effective manner. We believe that this represents
a very broad and growing segment of the U.S. population.
Online advertising is conducted through many Web sites, including our
relationships with America Online, as well as popular Web sites such as Yahoo!.
Our two-year contract with AOL makes us one of only four online brokerage firms
with exclusive access to AOL's customer base. Similarly, we are one of the four
online brokerage firms featured on Yahoo!'s finance Web page. We advertise
regularly on CNBC and other major television networks. We also place print
advertisements in a broad range of business publications, including The Wall
Street Journal, Barron's and Investor's Business Daily, and use direct mail
advertising.
To monitor the success of our various marketing efforts, we have installed
a sophisticated data gathering and tracking system. This system allows us to
determine the type of advertising that best appeals to our target market so that
we can invest future dollars in these programs and obtain a greater yield from
our marketing dollars. Additionally, through the use of our database tools, we
are working to more efficiently determine the needs of our various customer
segments and tailor our services to their individual needs. We intend to utilize
this system to strengthen and deepen the relationships with our customers and
support marketing campaigns to attract new customers.
At our Web sites, prospective customers are able to obtain detailed
information on our services, use an interactive demonstration system, request
additional information and obtain an account application online. We may
capitalize on the traffic to our Web sites by selling advertising to third
parties who are interested in targeting our broad customer base.
We pursue public relations opportunities to build brand awareness. This
campaign includes appearances by our executives on CNN, CNBC and various
television networks, in addition to profiles in Business Week, The Wall Street
Journal, and Kiplinger's. We also participate on a regular basis at industry
conferences and events.
All of our communications with the public are regulated by the NASD.
TECHNOLOGY AND INFORMATION SYSTEMS
Technology is at the core of our business and is critical to our goal of
providing the best execution at the best value to our customers. Online trading
requires reliable, scalable systems that can handle complex financial
transactions for our customers with speed and accuracy. We maintain
sophisticated and proprietary technology that automates traditionally
labor-intensive securities transactions. Our ability to effectively leverage and
adopt new technology to improve our services is a key component to our success.
We combine our sophisticated systems with premier technology personnel. In
March 1999, we hired key executives with extensive technology backgrounds to
strengthen our technology capabilities. Our internal staff of programmers,
developers and operators provide critical support to our technology platform. In
addition, our quality control analysts, Web site developers,
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technical writers and design specialists help ensure that our systems are easy
to use, dependable and reflect the most current enhancements and features. We
currently employ approximately 150 employees in our technology department and
expect to double our technology staff over the next year. We supplement our
internal staff with consultants and contract programmers to strengthen our
capabilities in specialized technology disciplines.
We continue to make significant investments in technology and information
systems. Since, March, 1999 we have spent over $20 million to increase capacity
and improve reliability. In that time, we have more than doubled our daily trade
and Web capacity and increased our back office systems capacity by 70%. By
October of this year, we intend to increase our system-wide capacity by an
additional 300-400% to accommodate growth in our business. We also are upgrading
our systems and adding personnel to ensure the highest level of reliability for
our customers. Later this year, we will begin operating a second data center
that will be a complete duplicate of our primary data center. We will be able to
run our business from this second site, should our primary site fail, without
any service interruptions. To provide for system continuity during potential
power outages, we also have equipped our computer facilities with
uninterruptible power supply units, as well as back-up generators.
In general, technology impacts our business on three levels:
- - front-end applications are focused on customer contact with us and ability to
place trades through our system;
- - middleware technology handles the routing and processing of customer orders;
and
- - back office systems facilitate our interaction with third parties such as
clearinghouses, stock exchanges, execution agents and quote providers.
FRONT-END APPLICATIONS
Each customer interacts with our technology through various delivery
channels, with the primary channel being the Internet. We are currently
improving the speed and capacity of our Web site to ensure reliability as we
continue to grow. We believe that the Internet component of our technology and
information system has been a key contributor to our growth to date, and will
remain an important aspect of our growth in the future.
We recognize that privacy in transmitting confidential information over
public networks such as the Internet is critical to our operations. To this end,
we have invested in both proprietary and industry standard security measures to
protect the integrity of our customers' personal information and account data.
Customers are assigned unique account numbers and personal identification
numbers that must be used each time they log on to our system. We use encryption
technology to provide the security and authentication necessary to ensure the
confidential exchange of information between our customers and our system.
MIDDLEWARE
Our middleware is the technology that transfers and processes information
between the customer and the trading system. The middleware unifies the
front-end applications and multiple interfaces, supports different computer
languages, hardware platforms and protocols, and establishes the interface
between our back office system and the customers who execute transactions. We
are investing extensively in the development of our middleware to increase the
speed and reliability with which we can communicate with our customers. We have
successfully implemented Tuxedo, which is a high-end middleware package. Tuxedo,
coupled with our proprietary trading applications, allows us to handle hundreds
of thousands of transactions and execute them quickly and accurately.
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BACK OFFICE SYSTEM
Our back office systems include customer service work stations, order entry
systems, transaction summaries, data feeds for compliance and risk management,
execution reports, margin calculations, reconciliation of accounts and trade
confirmations. Our back office systems also contain our customer profile data
base functions and provide other support to Advanced Clearing. Our back office
system currently runs in a batch environment. We are exploring converting our
back office systems to a real-time environment.
CUSTOMER SERVICE
We strive to optimize the level of customer service provided to our clients
by:
- - expanding our use of technology to provide automated responses to the most
typical inquiries generated in the course of customers' securities trading and
related activities,
- - ensuring prompt response to customer service calls through adequate staffing
with properly trained and motivated personnel in our customer service
departments, and
- - tailoring customer service to the particular expectations of the clients of
each of our brokerage businesses.
ACCESS TO CUSTOMER SERVICE
We provide customer service support through a variety of access points,
including Web sites, e-mail, electronic bulletin boards and customer service
representatives.
- - Web sites. Web sites provide basic information on how to use our services. We
are in the process of redesigning our Web site to make it even more
user-friendly.
- - E-mail. Customers are encouraged to use e-mail for matters that are not time
sensitive. Our operating standards require a response within 24 hours of
receipt of the e-mail for such matters; however, we strive to respond within
60 minutes of the original message.
- - Electronic bulletin boards. We maintain electronic bulletin boards where
existing and prospective customers can ask questions and exchange information
about our services.
- - Customer service representatives. For customers who choose to call or whose
inquiries necessitate calling one of our customer service representatives, we
provide a toll-free number that connects to advanced call handling systems.
These systems provide automated answering, directing of calls to the proper
department, information about current wait times and the capability to exit
the voice queue to leave a voice message for later response or to transfer to
an automated system. Our systems also will allow linkage between caller
identification and the customer database to give the customer service
representative immediate access to the customer's account data at the time the
call is received. We are currently implementing technology that will increase
call handling efficiency and enhance the customers' experience when calling
for service, particularly during periods of heavy market activity.
SERVICE AND TRAINING STANDARDS
Many of our customers' inquiries require handling by customer service
representatives. We provide our customers access to customer service
representatives via toll-free numbers 24 hours per day during the business week.
We strive to provide the best customer service in the industry as measured by
(1) speed of response time on telephone calls, (2) turnaround time on resolving
customer inquiries and (3) customer satisfaction with the account relationship.
We develop hiring plans that reflect growth projections to ensure that adequate
personnel are hired and trained in advance of customer needs. As of May 31,
1999, we employed over 750 full-time equivalent employees assigned to handle
customer service calls in our discount brokerage
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businesses. We also are building a customer service operations center in Fort
Worth, Texas, to supplement our experienced customer service staff in Omaha,
Nebraska.
Customer service representatives receive training in brokerage operations,
our policies and procedures and basic telephone and clerical skills to ensure
quality and accuracy. Each new representative is monitored closely by a lead
representative, who is supervised by experienced operations managers. All
telephone calls are recorded for purposes of training and supervision and to
assist in the resolution of customer disputes. Hours of service vary by
operating unit, with all businesses offering availability at least one hour
before and after market hours.
We monitor the speed of answering telephone calls from our customers. We
also seek to monitor the level of overall customer satisfaction through use of
customer response cards sent with trade confirmations and through periodic
surveys. Written comments, e-mails and electronic postings by customers are
regularly reviewed by our senior officers. It is our policy to respond to all
customer questions, comments or complaints, regardless of the manner received.
INTERNATIONAL EXPANSION
We are exploring opportunities to expand our market share and brand
awareness abroad through various arrangements, including joint ventures with
local financial service providers and other strategic alliances. We currently
have alliances with Deutsche Bank in Germany and Cortal, a subsidiary of Banque
Paribas, in France. These alliances will provide their substantial customer
bases the ability to trade on the United States markets through Ameritrade.
Trades are settled in United States dollars. We are compensated through fee
arrangements with both partners based on trades made by their customers. We also
plan to offer our customers the ability to trade on the European markets through
our partners' systems. We intend to evaluate additional opportunities in Europe,
Japan and other Pacific Rim countries, either directly or through joint
ventures, to offer brokerage services to local customers. We have recently
signed non-disclosure agreements with well-established large financial
institutions in Europe and Japan to explore the possibility of extending the
Ameritrade brand name and operations to those markets.
COMPETITION
We believe that the principal determinants of success in the discount
brokerage market are brand recognition, size of customer base, technology
infrastructure and access to financial and managerial resources. We also believe
that the principal factors considered by customers in choosing a discount broker
are price, customer service, quality of trade execution, delivery platform
capabilities, convenience and ease of use, breadth of services and innovation.
Based on our experience, focus group research and the success we have enjoyed to
date, we believe that we presently compete successfully in each of these
categories.
The market for discount brokerage services, particularly electronic
brokerage services, is new, rapidly evolving and intensely competitive. We have
seen a dramatic increase in competition during 1998 and 1999 and expect this
competitive environment to continue in the future. We encounter direct
competition from numerous other discount brokerage firms, many of which provide
online brokerage services. These competitors include such discount brokerage
firms as Charles Schwab & Co., Inc., Fidelity Brokerage Services, Inc., TD
Waterhouse Securities, Inc., E*TRADE Securities, Inc., DLJdirect, a division of
Donaldson, Lufkin & Jenrette, Inc., Discover Brokerage Direct, Inc., an
affiliate of Morgan Stanley Dean Witter & Co., and Datek Online Brokerage
Services Corp. We also encounter competition from established full-commission
brokerage firms as well as financial institutions, mutual fund sponsors and
other organizations, some of which provide or have announced that they intend to
provide online brokerage services. For example, Merrill Lynch & Co. recently
announced that it intends to offer online brokerage services beginning in
December 1999.
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<PAGE> 43
INVESTMENTS
Our investments consist primarily of our ownership of unregistered shares
representing an approximately 7.1% interest in Knight/Trimark, a publicly held
company that is a leading market maker in Nasdaq securities as well as the
over-the-counter market in other securities. Knight/ Trimark is the successor
company to Roundtable, in which we had a minority interest. Knight/ Trimark
became a public company in 1998 and trades on The Nasdaq National Market under
the symbol "NITE." J. Joe Ricketts, our Chairman and Co-Chief Executive Officer,
and Gene L. Finn, one of our directors, are on the board of directors of
Knight/Trimark. We derive significant revenues from Knight/Trimark in exchange
for routing trade orders to them for execution. See "Risk Factors -- Changes in
payments for routing our customers' orders could adversely affect our business".
We also have investments in CSS, a software development firm for the
brokerage industry, and Adirondack Trading Partners, L.L.C., a development-stage
company formed to trade listed equity and index options.
REGULATION
The securities industry is subject to extensive regulation under federal
and state law as well as under the rules and regulations of self-regulatory
organizations such as the NASD and national stock exchanges. In general,
broker-dealers are required to register with the SEC and to be members of the
NASD. As such, we are subject to the requirements of the Securities Exchange Act
of 1934 and the rules promulgated thereunder relating to broker-dealers and to
the Rules of Fair Practice of the NASD. Such regulations establish, among other
things, minimum net capital requirements for us and our operating subsidiaries.
We are also subject to regulation under various state laws in all 50 states and
the District of Columbia, including registration requirements.
In its capacity as a securities clearing firm, Advanced Clearing is a
member of the National Securities Clearing Corporation, the Depository Trust
Company and The Options Clearing Corporation, each of which is registered as a
clearing agency with the SEC. As a member of these clearing agencies, Advanced
Clearing is required to comply with the rules of such clearing agencies,
including rules relating to possession and control of customer funds and
securities, margin lending and execution and settlement of transactions.
Margin lending activities are subject to limitations imposed by the Federal
Reserve and the NASD. In general, these regulations provide that in the event of
a decline in the value of securities collateralizing a margin account, we are
required to obtain additional collateral from the borrower. See "-- Advanced
Clearing".
INTELLECTUAL PROPERTY RIGHTS
Our success and ability to compete are dependent to a significant degree on
our intellectual property, which includes our proprietary technology, trade
identity and customer base. We rely on all modes of intellectual property
protection to protect our intellectual property, including copyright, trade
secret, trademark, domain name, and patent and contract law. We have several
registered and unregistered tradenames, various registered and unregistered
copyrights, domain name registrations, a filed patent application, and licenses
and other technology agreements with third parties. The source and object code
for our proprietary software is protected under all applicable modes of
intellectual property protection. In addition, it is our policy to enter into
confidentiality, intellectual property ownership and/or noncompetition
agreements with our associates, independent contractors and business partners,
and to generally control access to and distribution of our intellectual
property.
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<PAGE> 44
EMPLOYEES
As of May 31, 1999, we employed approximately 1,600 full-time equivalent
employees, of which approximately 350 were registered representatives. The
number of employees has grown from the 412 full-time equivalent employees as of
the end of fiscal 1997 in response to the growth in the number of accounts and
transaction volume we have experienced. None of our employees are covered under
a collective bargaining agreement. We believe that our relations with our
employees are good.
Our employment assessment process is a critical factor in identifying
candidates whose abilities and potential create the opportunity to be a
successful associate with us. The assessment process includes an in-person
interview, a work-related behavioral trait profile, a cognitive reasoning
assessment test and a data entry "keyboarding" or computer skills test when
appropriate. We believe based on our experience to date that our employment
assessment process has a positive impact on our success.
PROPERTIES
Our headquarters are located in Omaha, Nebraska, and occupy approximately
74,000 square feet of leased space. The existing lease expires in April 2019.
During the third quarter of fiscal 1998, we began to lease an additional
facility in Bellevue, Nebraska, with approximately 132,000 square feet. This
facility is used as an operations center for Ameritrade. The Bellevue lease
expires in January 2008. We also lease four other locations in Omaha totaling
over 50,000 square feet. The leases on these properties expire from November
2001 through July 2006. In addition, we have leased space in White Plains, New
York, and New York City totaling approximately 25,000 square feet. The leases on
these properties expire from November 1999 through August 2001. We recently
began leasing space in Ft. Worth, Texas for a second operations center for
Ameritrade. We currently lease over 65,000 square feet and will soon occupy
additional space, bringing the total Ft. Worth square footage to over 185,000.
The leases in Ft. Worth expire between March 2000 and December 2014. We also
have recently subleased 8,000 square feet of office space in Baltimore, Maryland
to be used as a technology development center. The Baltimore facility lease
expires on December 31, 1999.
LEGAL PROCEEDINGS
On September 16, 1998, a putative class action complaint was filed in the
District Court, Douglas County, Nebraska, regarding our alleged inability to
handle the volume of subscribers to our Internet brokerage services. The
complaint seeks injunctive relief enjoining alleged deceptive, fraudulent and
misleading practices, equitable relief compelling us to increase capacity, and
unspecified compensatory damages. We believe that we have viable defenses to the
allegations raised in the complaint and intend to assert them vigorously.
However, because this proceeding is at a preliminary phase and the amount of
damages sought has not been quantified, we cannot predict the ultimate outcome
of this matter or its effect on our business.
On October 13, 1997, Advanced Clearing received from the Director of
Arbitration of the NASD an arbitration claim filed by Slavic Investment
Corporation , a former correspondent broker, and Slavic Mutual Funds Management
Corporation, a related company, regarding breach of contract. The damages sought
include approximately $9.3 million in compensatory damages, and five times that
amount in punitive damages. We have completed a portion of the arbitration
hearings with additional hearings scheduled for this fall. We believe that this
litigation is frivolous and that we have viable defenses to the issues raised in
the arbitration, and we intend to assert them vigorously. However, if the
damages sought are ultimately assessed against us, it could have a material
adverse effect on our business, financial condition and results of operations.
We also are parties to a number of other legal matters arising in the
ordinary course of our business. In our opinion, we have adequate legal defenses
to each of these actions and do not believe that any such matters, either
individually or in the aggregate, will materially affect our business, financial
condition or results of operations.
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<PAGE> 45
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
AGE POSITION
--- --------
<S> <C> <C>
J. Joe Ricketts................... 57 Chairman, Co-Chief Executive Officer and Director
Thomas K. Lewis, Jr. ............. 46 Co-Chief Executive Officer
Robert T. Slezak.................. 41 Vice President, Chief Financial Officer, Treasurer and
Director
Jack R. McDonnell................. 45 Chief Executive Officer of Ameritrade
Kurt D. Halvorson................. 36 President of Advanced Clearing
J. Peter Ricketts................. 34 President of Accutrade, Secretary of Holding
James M. Ditmore.................. 38 Chief Information Officer
David D. Jones.................... 37 Vice President, Human Resources
Michael J. Anderson............... 42 President of Ameritrade
Susan M. Hohman................... 56 Vice President, Infrastructure and Facilities
Joseph A. Konen................... 51 Chief Executive Officer, OnMoney and Director
Gene L. Finn...................... 66 Director
David W. Garrison................. 43 Director
Thomas Y. Hartley................. 65 Director
Charles L. Marinaccio............. 65 Director
Mark L. Mitchell.................. 38 Director
John W. Ward...................... 56 Director
</TABLE>
J. JOE RICKETTS, has served as a director and as Chairman and Chief
Executive Officer of Holding since 1981. He has served as Co-Chief Executive
Officer of Holding since February 1999. In 1975, Mr. Ricketts became associated
with Holding and served as a director, officer and stockholder. By 1981, Mr.
Ricketts acquired majority control of Holding. Prior to 1975, Mr. Ricketts was a
registered representative with a national brokerage firm, an investment advisor
with Ricketts & Co. and a branch manager with The Dun & Bradstreet Corporation,
a financial information firm. Mr. Ricketts is a director of Knight/Trimark, CSS
Management, Inc. and Net.B@nk, Inc. Mr. Ricketts served as a member of the
District Committee for District 4 of the NASD from 1996 to 1999. Mr. Ricketts is
a member of the Board of Trustees for Father Flanagan's Boys' Homes (Boys Town)
and serves on the Board of Directors of Creighton University. Mr. Ricketts
received his B.A. in economics from Creighton University.
THOMAS K. LEWIS, JR., has served as Co-Chief Executive Officer of Holding
since February 1999. From May 1998 to October 1998, Mr. Lewis served as
President of TenFold Insurance Group, a systems integration and consulting
division of TenFold Corporation, where he was responsible for all business
operations, including marketing, sales, consulting, applications development,
business development and administration. From November 1993 to May 1998, Mr.
Lewis served as Chief Information Officer of USF&G, Inc., an insurance company.
From 1989 to 1993, Mr. Lewis was a co-founder of Seer Technologies, Inc., a
global technology consulting practice, and managed the company's rapid expansion
in Europe, the Middle East and Africa. From 1987 to 1989, he served as Senior
Vice President, Strategic Information Systems for American Express Corporation,
a financial service provider, and, from 1984 to 1987, spearheaded an effort to
rebuild all of the securities trading and settlement systems while serving as
Vice President, Systems Development and Support for Credit Suisse First Boston,
an investment banking firm. From 1982 to 1984, Mr. Lewis was head of technology
for the Executive Office of the President of the United States, and was
recognized with the highest award given for such service, The Distinguished
Service Award of the Office of Administration. Mr. Lewis is a
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<PAGE> 46
technology advisor for the National Federation of the Blind. He has a B.S. in
business administration and a M.S. in computer science from the University of
New Haven in Connecticut.
ROBERT T. SLEZAK, has served as Vice President, Chief Financial Office and
Treasurer of Holding since January 1989 and has served as a director since
October 1996. Mr. Slezak joined Holding in March 1987 and served as Operations
Manager at Advanced Clearing until January 1989. Prior to that time, Mr. Slezak
was a Senior Financial Analyst for Peter Kiewit Sons, Inc., an international
construction and mining company, from August 1985 to March 1987. From January
1980 to August 1985, Mr. Slezak was on the audit staff of Deloitte & Touche LLP,
an accounting firm. Mr. Slezak served as a member of the District Committee for
District 4 of the NASD from 1990 to 1992 and as a member of its Nominating
Committee from 1993 to 1994. Mr. Slezak serves on the Dean's Advisory Council
for the Creighton University College of Business Administration. Mr. Slezak is a
Certified Public Accountant. He holds a B.S. in business from the University of
Nebraska at Omaha and an M.B.A. from Creighton University.
JACK R. MCDONNELL, has served as Chief Executive Officer of Ameritrade
since March 1999. From March 1995 to December 1998, he served in a variety of
positions with First Data Corporation, the largest credit card processing
company in the United States. Most recently, he was Managing Director of Client
Development, Card Services Group, where he was responsible for all domestic
bankcard and private label client relationships. From 1989 to 1995, Mr.
McDonnell served as Executive Vice President and Chief Operating Officer of
FirsTier Financial, Inc. of Omaha, a regional banking firm. Mr. McDonnell
currently serves as chairman of Children's Memorial Hospital and is a member of
the board and past chairman of the Junior Achievement of the Midlands. Mr.
McDonnell is a Certified Public Accountant and has a B.A. in accounting from St.
Ambrose University.
KURT D. HALVORSON, has served as President of Advanced Clearing since April
1997. Mr. Halvorson served as Vice President and General Manager of Advanced
Clearing from April 1996 to March 1997. Mr. Halvorson served as Vice President
and Controller of Advanced Clearing from October 1992 to March 1996 and as
Controller of Advanced Clearing from September 1987 to October 1992. Mr.
Halvorson was on the audit staff of Deloitte & Touche LLP, an accounting firm,
from 1984 to September 1987. Mr. Halvorson is a Certified Public Accountant. Mr.
Halvorson received a B.S. in business from the University of Nebraska.
J. PETER RICKETTS, has served as Secretary of Holding since November 1996
and as President/General Manager of Accutrade since October 1997. From August
1996 to October 1997, Mr. Ricketts served as Director of Corporate Development
of Holding. From April 1995 to August 1996, Mr. Ricketts served as Project
Director for Accutrade. From January 1994 to March 1995, Mr. Ricketts served in
various management capacities, including as President, of Ameritrade. Mr.
Ricketts was a customer service representative for Accutrade from December 1993
to May 1994. Mr. Ricketts worked as Manager, Business Development, for Woodward
Clyde Consultants, an environmental consulting firm, from October 1992 to
September 1993. Mr. Ricketts served as Account Representative for Union Pacific
Railroad from July 1991 to September 1992. Mr. Ricketts holds a B.A. in biology
and an M.B.A. from the University of Chicago. J. Peter Ricketts is the son of J.
Joe Ricketts.
JAMES M. DITMORE, has served as Chief Information Officer for Holding since
March 1999. From December 1998 to March 1999, Mr. Ditmore served as Vice
President of Systems Development for Bell Atlantic Corporation, a regional Bell
operating company, where he was in charge of wholesale systems. From May 1998 to
December 1998, he served as Chief Technology Officer of TenFold Insurance
Systems Group, a systems integration and consulting division of TenFold
Corporation. From August 1995 to May 1998, Mr. Ditmore served as Vice President
of Enterprise Technology and Architecture for USF&G, Inc., an insurance company.
From August 1991 to August 1995, he served as Director of Enterprise
Architecture and Development Services
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<PAGE> 47
for MCI Worldcom, Inc. Mr. Ditmore has a B.S. in math and science from the
College of William & Mary.
DAVID D. JONES, has served as Vice President of Human Resources of Holding
since September 1998. Prior to joining Holding, Mr. Jones was the Executive
Director of Human Resources for the University of Nebraska Medical Center from
September 1994 to August 1998. From 1992 to 1994, he served as Vice President of
Human Development at the Beaver Valley Medical Center in Beaver, Pennsylvania.
From 1986 to 1992, Mr. Jones served as Vice President of Human Resources at West
Virginia University United Hospital Center. Mr. Jones was also an Adjunct
Faculty at Fairmont State College in Fairmont, West Virginia where he taught
Personnel and Human Resources Management. Mr. Jones received his B.A. in
psychology and M.A. in industrial and labor relations from West Virginia
University. He is certified as a Senior Professional in Human Resources (SPHR)
and as a Consultant in Managing Organizational Change.
MICHAEL J. ANDERSON, has served as President of Ameritrade since October
1997. From May 1996 to October 1997, Mr. Anderson was the President of
Accutrade. Mr. Anderson served as General Manager of Accutrade from August 1994
to May 1996 and served as Director of Marketing and Sales of Advanced Clearing
from October 1992 until August 1994. Mr. Anderson was an account executive for
Vital Learning Corporation, a training industry firm, from January 1990 to
October 1992. Mr. Anderson is President of the National Discount Brokerage
Association and is currently a trustee for the Security Industry Association's
Security Industry Institute. Mr. Anderson also has served as the Vice President
of Marketing with Sales and Marketing Executives of the Midlands. In addition,
he served as President of the Omaha chapter of the American Society of Training
and Development. Mr. Anderson received a B.S. in marketing from Iowa State
University.
SUSAN M. HOHMAN, was appointed Vice President, Infrastructure and
Facilities of Holding effective September 1998. Mrs. Hohman served as Vice
President, Human Resources, of Holding from August 1986 to 1998. Mrs. Hohman was
a member of the Human Resources Committee of the Securities Industry Association
in 1993. Mrs. Hohman received a B.S. in management from Bellevue University.
JOSEPH A. KONEN, has served as Chief Executive Officer of OnMoney since
November 1998 and has served as a director of Holding since October 1996. Mr.
Konen served as President and Chief Operating Officer of Holding from October
1994 to November 1998. From October 1992 to April 1995, Mr. Konen served as
President, and from February 1992 to October 1992, as Operations Manager, of
Advanced Clearing. Mr. Konen was a principal in Joseph A. Konen & Associates, a
management consulting firm, from June 1990 to February 1992. Mr. Konen was
President and Chief Executive Officer of Vital Learning Corporation, a training
industry firm, from January 1989 to June 1990 and was President and Chief
Executive Officer of its parent, Vital Resources, Inc., from October 1987 to
June 1990. Mr. Konen was a member of the Clearing Firms Committee of the
Securities Industry Association from 1995 to 1996 and was a member of its
Membership Committee from 1993 to 1994. Mr. Konen holds a B.A. in economics and
an M.B.A. in finance from Indiana University.
GENE L. FINN, has served as a director of Holding since December 1996. Mr.
Finn was Vice President and Chief Economist of the NASD from 1983 to 1995. Mr.
Finn was Chief Economist and Senior Adviser for the SEC from 1969 to 1982. In
such capacities, Mr. Finn provided policy advice on stock market and investment
company regulation and oversight. Mr. Finn is a director of Knight/Trimark. Mr.
Finn holds a Ph.D. in economics from the University of Wisconsin.
DAVID W. GARRISON, has served as a director of Ameritrade since December
1997. Mr. Garrison has also served on the Board of Directors of Traveling
Software, Inc., a software provider, since May 1996. Mr. Garrison served as
Chief Executive Officer, President and Chairman of the Board of Directors of
NETCOM On-Line Communications Services, Inc., an
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<PAGE> 48
Internet service provider, from 1995 to 1998. Prior to joining NETCOM, Mr.
Garrison served as President of SkyTel, a division of Mobil Telecommunications,
Inc., from 1990 to 1994.
THOMAS Y. HARTLEY, has served as a director of Holding since December 1996.
Mr. Hartley has been President and Chief Operating Officer of Colbert Golf
Design and Development since 1991. From 1988 to 1991, Mr. Hartley was President
and Chief Operating Officer of Jim Colbert Golf Inc. Mr. Hartley was a partner
in Deloitte & Touche LLP, an accounting firm, from 1973 to 1988, and served in
other positions with Deloitte & Touche from 1959 to 1973. Mr. Hartley was an
officer in the United States Air Force from 1955 to 1961. Mr. Hartley is a
director of Southwest Gas Corporation and Sierra Health Services. Mr. Hartley
served as Chairman of the University of Nevada at Las Vegas Foundation from 1994
to 1996. Mr. Hartley is a Certified Public Accountant. Mr. Hartley has a B.S. in
commerce from Ohio University and earned certification in the Advanced
Management Program at Harvard University.
CHARLES L. MARINACCIO, has served as a director of Holding since January
1997. Mr. Marinaccio has served on the Board of Directors for the Securities
Investor Protection Corporation since 1995. From 1985 through 1994, he was a
partner with the law firm of Kelley, Drye & Warren. He served as Commissioner of
the SEC from 1984 to 1985. Mr. Marinaccio was General Counsel to the U.S. Senate
Committee on Banking, Housing and Urban Affairs from 1975 to 1984, and
previously served as an adviser and senior attorney with the regulatory and
legal divisions of the Federal Reserve. He holds a J.D. from the George
Washington University and received his B.A. from the University of Connecticut.
MARK L. MITCHELL, has served as a director of Holding since December 1996
and served as a member of Holding's Board of Advisors in 1993. Mr. Mitchell has
been an Associate Professor of Business Administration at Harvard University
since July 1999. Mr. Mitchell was an Associate Professor of Finance at the
University of Chicago from 1994 to 1999 and was an Assistant Professor of
Finance from 1990 to 1993. Mr. Mitchell was a Senior Financial Economist for the
SEC from 1987 to 1990. Mr. Mitchell was a member of the Economic Advisory Board
of the NASD from 1995 to 1998. Mr. Mitchell received his Ph.D. in applied
economics from Clemson University.
JOHN W. WARD, has served as a director of Holding since January 1997. Mr.
Ward has been an independent consultant since 1991 and Chairman of Transition
International, Inc., management consultants in financial services and
international corporate strategy, since its formation in 1994. Mr. Ward was
Chief Executive Officer of Midland Montagu US Group, New York, a British bank,
from 1987 to 1990. Mr. Ward was a Managing Director, President and Chairman of
the International Banking Group of Merrill Lynch & Co. Incorporated, an
investment banking firm, from 1981 to 1987. Prior to that time, he was a Vice
President of the Merchant Banking Group of Citibank, N.A., a national banking
firm. Mr. Ward holds a master's degree in chemistry from Oxford University and a
business degree from the Manchester Business School in the United Kingdom.
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<PAGE> 49
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of the close of business on June 1,
1999, the beneficial ownership of our common stock as adjusted for a
three-for-one stock split effective on July 2, 1999 by:
- - each director, each co-chief executive officer and each of the other four
highest compensated executive officers of our company for our fiscal year
ended September 25, 1998;
- - each person believed by us to beneficially own more than 5% of our common
stock;
- - all of our current executive officers and directors as a group; and
- - each selling stockholder.
Under the Securities Exchange Act of 1934, a person will be deemed to be a
"beneficial owner" of shares of our Class A common stock if he or she has or
shares the power to vote or direct the voting of such shares or the power to
dispose or direct the disposition of such shares. Unless otherwise indicated in
the footnotes to the table, each of the stockholders listed has sole voting and
dispositive power with respect to the shares of our Class A common stock shown
as beneficially owned.
<TABLE>
<CAPTION>
PRIOR TO THE OFFERINGS
----------------------------------- AFTER THE OFFERINGS
NUMBER OF ----------------------
NUMBER OF PERCENT OF SHARES NUMBER OF PERCENT OF
NAME SHARES(1) SHARES OFFERED SHARES SHARES
- ---- ---------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
J. Joe Ricketts(2), Director,
Chairman and Co-Chief Executive
Officer.......................... 79,341,099 45.5%
Thomas K. Lewis, Jr.(3), Co-Chief
Executive Officer................ 0 0
Robert T. Slezak(4), Director, Vice
President, Chief Financial
Officer and Treasurer............ 579,732 *
Peter D. Horst(5), Vice President,
Marketing........................ 11,550 *
Joseph A. Konen(6), Chief Executive
Officer, OnMoney Financial
Services Corporation............. 95,343 *
Kurt D. Halvorson(7), President,
Advanced Clearing................ 265,632 *
Gene L. Finn, Director............. 33,600 *
David W. Garrison(8), Director..... 19,278 *
Thomas Y. Hartley, Director........ 0 0
Charles L. Marinaccio(9),
Director......................... 39,204 *
Mark L. Mitchell(9), Director...... 104,244 *
John W. Ward(10), Director......... 31,692 *
All Directors and Executive
Officers as a group (18 in
group)........................... 89,862,264 51.5%
OTHER STOCKHOLDERS
Marlene M. Ricketts(11)............ 74,417,688 42.7%
Ricketts Grandchildren Trust(12)... 19,008,000 10.9%
</TABLE>
- ---------------
* Less than 1 percent of the issued and outstanding shares.
(1) Amounts of shares of common stock beneficially owned assumes that all of
the Class B common stock has been converted into Class A common stock.
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<PAGE> 50
(2) Shares of Class A common stock beneficially owned by Mr. Ricketts consist
of 65,899,224 shares held jointly with Marlene M. Ricketts, his spouse,
332,352 shares held in the J. Ricketts IRA, 4,626,033 shares in Mr.
Ricketts' 401(k) account, and 296,802 shares issuable upon the exercise of
options exercisable within 60 days from June 1, 1999. Shares of Class B
common stock beneficially owned by Mr. Ricketts consist of 8,186,688 shares
owned by the J. Joe Ricketts 1996 Dynasty Trust. Mr. Ricketts' address is
c/o Ameritrade Holding Corporation, 4211 South 102nd Street, Omaha,
Nebraska 68127.
(3) Mr. Lewis began his employment with Holding in February 1999. Mr. Lewis has
options to purchase 173,400 shares of Class A common stock exercisable over
a three year period.
(4) Consists of 54,660 shares of Class A common stock held by Robert T. Slezak
and Jane G. Slezak, as trustees of the Robert T. Slezak and Jane G. Slezak
Revocable Trust and 525,072 shares of Class A common stock in Mr. Slezak's
401(k) account.
(5) Consists of 6,000 shares of Class A common stock held jointly with Deborah
R. Horst, his spouse, and 5,550 shares of Class A common stock in Mr.
Horst's 401(k) account. Mr. Horst terminated his employment with Holding in
June 1999.
(6) Represents shares of Class A common stock in Mr. Konen's 401(k) account.
(7) Consists of 9,600 shares of Class A common stock held jointly with Melinda
K. Halvorson, his spouse, and 256,032 shares of Class A common stock in Mr.
Halvorson's 401(k) account.
(8) Includes 6,402 shares of Class A common stock issuable upon the exercise of
options exercisable within 60 days from June 1, 1999.
(9) For each of Mr. Marinaccio and Mr. Mitchell, includes 33,600 shares of
Class A common stock issuable upon the exercise of options exercisable
within 60 days from June 1, 1999.
(10) Includes 14,400 shares of Class A common stock issuable upon the exercise
of options exercisable within 60 days from June 1, 1999.
(11) Shares of Class A common stock beneficially owned by Mrs. Ricketts consist
of 65,899,224 shares held jointly with J. Joe Ricketts, her spouse, and
332,352 shares held in the M. Ricketts IRA. Shares of Class B common stock
beneficially owned by Mrs. Ricketts consist of 8,186,112 shares owned by
the Marlene M. Ricketts 1994 Dynasty Trust. Mrs. Ricketts' address is c/o
Ameritrade Holding Corporation, 4211 South 102nd Street, Omaha, Nebraska
68127.
(12) The trustee of the Joe and Marlene Ricketts Grandchildren's Trust is First
National Bank of Omaha, First National Center, 16th and Dodge Streets,
Omaha, Nebraska 68102.
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<PAGE> 51
TRACES STOCKHOLDERS
Pursuant to forward purchase contracts between the TRACES Trust and the
stockholders listed below (the "TRACES Stockholders"), a specified number of
shares of Class A common stock may be required to be delivered to the TRACES
Trust by the TRACES Stockholders upon the exchange of Automatic Common Exchange
Securities. The following table sets forth certain information for the TRACES
Stockholders with respect to:
- the TRACES Stockholders' beneficial ownership of common stock after the
offerings and the percentage of common stock represented thereby;
- the maximum number of shares of Class A common stock owned by the TRACES
Stockholders that may be delivered to the TRACES Trust pursuant to the
purchase contracts; and
- the TRACES Stockholders' beneficial ownership of common stock after
delivery of the maximum number of shares of Class A common stock
deliverable to the TRACES Trust and the percentage of common stock
represented thereby.
The TRACES Stockholders' beneficial ownership of common stock will not
change as a result of the offering of the Automatic Common Exchange Securities
unless, until and to the extent that the TRACES Stockholders deliver shares of
Class A common stock to the TRACES Trust pursuant to the purchase contracts.
<TABLE>
<CAPTION>
AFTER DELIVERY OF
MAXIMUM NUMBER MAXIMUM NUMBER
OF SHARES OF SHARES
DELIVERABLE TO DELIVERABLE TO
AFTER THE OFFERINGS TRACES TRUST(1) TRACES TRUST
----------------------- ----------------------- -----------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
TRACES STOCKHOLDERS SHARES SHARES SHARES SHARES
------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
J. Joe Ricketts.......
Marlene M. Ricketts...
</TABLE>
- ---------------
(1) The TRACES Stockholders may be required to deliver an additional
shares of Class A common stock if the underwriters' over-allotment option is
exercised in respect of the Automatic Common Exchange Securities. Pursuant
to the purchase contracts, the shares deliverable thereunder will be
delivered to the TRACES Trust on the Exchange Date under the purchase
contracts. The Exchange Date will occur no earlier than , 2002.
Under the purchase contracts, the shares of Class A common stock owned by
the TRACES Stockholders are not mandatorily deliverable to the TRACES Trust.
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<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
The following summary description of our capital stock is based on the
provisions of our certificate of incorporation and bylaws and the applicable
provisions of the Delaware General Corporation Law. For information on how to
obtain copies of our certificate of incorporation and bylaws, see "Where You Can
Find More Information."
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
We currently have authority to issue 69,000,000 shares of capital stock,
consisting of 60,000,000 shares of Class A common stock, $.01 par value,
6,000,000 shares of Class B common stock, $.01 par value, and 3,000,000 shares
of preferred stock, $1.00 par value. As of June 1, 1999, 52,687,880 shares of
our Class A common stock, 5,457,600 shares of our Class B common stock and no
shares of our preferred stock were issued and outstanding.
At our special meeting of stockholders on July 1, 1999, our stockholders
approved a restated certificate of incorporation that increased the number of
shares of Class A common stock that we are authorized to issue to 270,000,000
and increased the number of shares of Class B common stock that we are
authorized to issue to 18,000,000. In addition, our board of directors has
authorized a three-for-one stock split with respect to both the Class A common
stock and the Class B common stock effective on July 2, 1999 to holders of
record on June 11, 1999.
After the offerings and as adjusted for the stock split, there will be
shares of Class A common stock outstanding, shares of Class B common
stock outstanding and no shares of preferred stock outstanding. The additional
shares of common stock and preferred stock may be utilized for a variety of
corporate purposes, including future public offerings and corporate
acquisitions, and could be utilized, under certain circumstances, to delay,
prevent or make more difficult a takeover or change in control of our company.
The rights of the holders of our Class A common stock and our Class B
common stock discussed below are subject to such rights as our board of
directors may from time to time confer on holders of our preferred stock that
may be issued in the future. Such rights may adversely affect the rights of
holders of our Class A common stock or our Class B common stock, or both.
COMMON STOCK
VOTING RIGHTS. Except for the election of directors and as otherwise
required by the law, the holders of our Class A common stock and our Class B
common stock have one vote per share and vote as a single class on any matter
submitted to a stockholder vote. Under the Delaware General Corporation Law, the
holders of Class A common stock must vote separately as a class to approve any
proposal to amend the certificate of incorporation to change the rights,
preferences and limitations of Class A common stock. Our board of directors
determines by resolution the number of directors we will have but, in any case,
by our bylaws, we may not have less than three. We currently have nine
directors.
The holders of our Class B common stock are entitled to elect a majority
(five) of our board of directors. The holders of Class A common stock are
entitled to elect the remaining (four) directors. Only the holders of the class
of common stock that have elected a director or that have filled the vacancy of
a director previously may remove or fill the vacancy of that director. If all of
the shares of Class B common stock are converted into Class A common stock or
are no longer outstanding, the holders of Class A common stock will be entitled
to elect all of the directors, subject to any rights of the holders of preferred
stock. The shares of Class A common stock and Class B common stock do not have
cumulative voting rights.
49
<PAGE> 53
In general, the holders of our Class B common stock will be able to defeat
any attempt to acquire control of us even if more than a majority of the holders
of the outstanding shares of common stock favor a change of control. This could
preclude holders of shares of our common stock from receiving any premium above
market price for their shares that may be offered in an attempt to acquire
control of us. By their ability to control the board of directors, the holders
of our Class B common stock also will generally have the power to prevent
certain fundamental corporate changes, like a sale of substantially all of our
assets, a merger of our company or an amendment to our certificate of
incorporation.
DIVIDEND RIGHTS. Dividends may be paid on our Class A common stock and our
Class B common stock when and as declared by our board of directors. Any
dividend declared and payable in cash, capital stock (other than our Class A
common stock or our Class B common stock) or other property must be paid equally
on a share for share basis on Class A common stock and Class B common stock.
Dividends and distributions payable in shares of Class A common stock may be
paid only on shares of Class A common stock, and dividends and distributions
payable in shares of Class B common stock may be paid only on shares of Class B
common stock. If a dividend or distribution payable in Class A common stock is
made on Class A common stock, the same dividend or distribution in Class B
common stock has to be made on Class B common stock. Similarly, if a dividend or
distribution payable in Class B common stock is made on Class B common stock,
the same dividend or distribution in Class A common stock has to be made on
Class A common stock.
LIQUIDATION RIGHTS. If there is a liquidation, distribution or winding up
of Holding, the holders of our Class A common stock and the holders of our Class
B common stock will be entitled to participate equally on a share for share
basis in all distributions to the holders of common stock.
CONVERSION RIGHTS. Our Class A common stock is not convertible. Each share
of our Class B common stock is convertible into one share of our Class A common
stock at any time at the option of and without any cost to the holder of the
shares. Each share of Class B common stock automatically converts into one share
of Class A common stock if that share of Class B common stock is sold or
transferred to any person other than a member of the Control Group. In addition,
Class B common stock automatically converts on a share for share basis into
Class A common stock if the number of shares of outstanding common stock held by
the Control Group falls below 20 percent of the total number of shares of
outstanding common stock.
PREEMPTIVE RIGHTS. Neither the holders of Class A common stock nor the
holders of Class B common stock have preemptive rights to purchase shares of
Class A or Class B common stock or shares of stock of any other class that we
may issue.
PREFERRED STOCK
Our board of directors are authorized to issue, by resolution and without
any action by stockholders, up to 3,000,000 shares of our preferred stock and
may establish the designations, dividend rights, dividend rate, conversion
rights, voting rights, terms of redemption, liquidation preference, sinking fund
terms and all other preferences and rights of any series of preferred stock,
including rights that could adversely affect the voting power of the holders of
Class A common stock. We have no present intention to issue any shares of
preferred stock.
DIRECTOR NOMINATIONS AND STOCKHOLDER PROPOSALS.
Our bylaws establish procedures for the nomination of candidates for
election as directors and stockholder proposals. In order to nominate directors
or bring other business before an annual meeting of stockholders, a stockholder
must give notice to the secretary not less than 120 days and not more than 150
days prior to the date of our proxy statement on the preceding year's annual
meeting. To make nominations or bring other business before a special meeting of
stockholders, a stockholder must give notice to the secretary not less than 60
days and not more
50
<PAGE> 54
than 90 days prior to the date of the special meeting. Only the chief executive
officer, the president, the majority of the board of directors or the holders of
not less than 25% of our outstanding voting stock may call a special meeting of
the stockholders. A stockholder may nominate a person to be a director only if
that stockholder would be entitled to vote for that person in the election for
that director. Also, the stockholder's notice for nominating a director must
provide all information relating to the person being nominated that required by
Regulation 14A of the Securities Exchange Act of 1934.
CERTAIN STATUTORY PROVISIONS.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, this statute prohibits a publicly held Delaware
corporation like us from engaging in a business combination with an interested
stockholder for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless
- - prior to that date, the corporation's board of directors approved either the
business combination or the transaction that resulted in the stockholder
becoming an interested stockholder,
- - upon consummation of the transaction that resulted in such person becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding, for purposes of determining the number of shares
outstanding, shares owned by directors who are also officers and by certain
employee stock plans, or
- - on or after the date the stockholder became an interested stockholder, the
business combination is approved by the corporation's board of directors and
authorized by the affirmative vote, and not by written consent, of at least
two-thirds of the outstanding voting stock of the corporation excluding the
stock owned by the interested stockholder.
A "business combination" includes a merger or consolidation, asset sale or
other transaction resulting, directly or indirectly, in a financial benefit to
the interested stockholder. An "interested stockholder" is a person, other than
the corporation and any direct or indirect majority owned subsidiary of the
corporation, who (1) is the owner of 15% or more of the corporation's
outstanding voting stock or (2) is an affiliate or associate of the corporation
and was the owner of 15% or more of the corporation's outstanding voting stock
at any time within the three-year period immediately prior to the date on which
it is sought to be determined whether a person is an interested stockholder,
including the affiliates or associates of that person.
Section 203 expressly exempts from the requirements described above any
business combination by a corporation with an interested stockholder who became
an interested stockholder at a time when the section did not apply to the
corporation.
LIMITATION OF LIABILITY AND INDEMNIFICATION
LIMITATIONS OF DIRECTOR LIABILITY. Section 102(b)(7) of the Delaware
General Corporation Law authorizes corporations to limit or eliminate the
personal liability of directors to corporations and their stockholders for
monetary damages for breach of directors' fiduciary duty of care. Our
certificate of incorporation limits the liability of our directors to us or our
stockholders to the full extent permitted by the law. Specifically, our
directors are not personally liable for monetary damages to us or our
stockholders for breach of the director's fiduciary duty as a director, except
for liability for:
- - any breach of the director's duty of loyalty to us or our stockholders;
- - acts or omissions not in good faith or that involve intentional misconduct or
a knowing violation of law;
51
<PAGE> 55
- - unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the Delaware General Corporation Law; and
- - any transaction from which the director derived an improper personal benefit.
These provisions in our certificate incorporation do not eliminate a
director's duty of care and do not affect the availability of equitable remedies
such as an action to enjoin or rescind a transaction involving a breach of
fiduciary duty. Moreover, these provisions would probably not bar claims against
a director for violation of the federal securities laws.
INDEMNIFICATION. Our bylaws require us to indemnify our directors and
officers to the maximum extent permitted by law against any expense, liability
or loss to which they may become subject, or which they may incur as a result of
being or having been a director or officer of our company. In addition, we must
advance or reimburse directors and officers for expenses incurred by them
relating to indemnifiable claims. We also maintain directors' and officers'
liability insurance, which covers liabilities under the federal securities laws.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our Class A common stock is The Bank
of New York.
VALIDITY OF CLASS A COMMON STOCK
The validity of the Class A common stock offered by us and the selling
stockholders is being passed upon for us by Mayer, Brown & Platt, Chicago,
Illinois, and for the underwriters by Sullivan & Cromwell, New York, New York.
EXPERTS
The consolidated financial statements as of September 25, 1998 and
September 26, 1997 and for each of the years in the three year period ended
September 25, 1998, included in this prospectus and the related financial
statement schedule incorporated by reference in this prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are included and incorporated by reference herein, and have been
so included and incorporated in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement of which this
prospectus forms a part. The registration statement, including the attached
exhibits and schedules, contain additional relevant information about us and our
Class A common stock. The rules and regulations of the SEC allow us to omit some
of the information included in the registration statement from this prospectus.
In addition, we have filed reports, proxy statements and other information with
the SEC under the Securities Exchange Act of 1934. You may read and copy any of
this information at the following locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
52
<PAGE> 56
You may obtain information on the operation of the SEC's Public Reference
Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet Web site that contains reports, proxy
statements and other information regarding issuers, like us, that file
electronically with the SEC. The address of that site is http://www.sec.gov. The
SEC file number for our documents filed under the Securities Exchange Act of
1934 is 0-22163.
The SEC allows us to "incorporate by reference" information into this
prospectus. This means we can disclose important information to you by referring
you to another document filed separately with the SEC. The information
incorporated by reference is considered to be a part of this prospectus, except
for any such information that is superseded by information included directly in
this document.
This prospectus incorporates by reference the documents listed below that
we have previously filed or will file with the SEC. They contain important
information about us and our financial condition.
- - Our Annual Report on Form 10-K for our fiscal year ended September 25, 1998,
filed on December 21, 1998, as amended by Form 10-K/A filed on January 20,
1999 (except for Item 8, "Financial Statements and Supplementary Data," which
has been updated and included elsewhere in this prospectus);
- - Our Quarterly Report on Form 10-Q for the quarterly period ended December 31,
1998, filed on February 12, 1999;
- - Our Quarterly Report on Form 10-Q for the quarterly period ended March 26,
1999, filed on May 10, 1999; and
- - All documents filed with the SEC by us under Sections 13(a), 13(c) 14, and
15(d) of the Securities Exchange Act of 1934 after the date of this prospectus
and before the offering is terminated, are considered to be part of this
prospectus, effective as of the date these documents are filed.
In the event of conflicting information in these documents, the information
in the latest filed document should be considered correct.
You can obtain any of the documents listed above from the SEC, through the
SEC's Web site at the address described above, or directly from us, by
requesting them in writing or by telephone at the following address:
Ameritrade Holding Corporation
4211 South 102nd St.
Omaha, Nebraska 68127
Attn: J. Peter Ricketts, Secretary
(402) 331-7856
We will provide a copy of any of these documents without charge, excluding
any exhibits unless the exhibit is specifically listed as an exhibit to the
registration statement of which this prospectus is a part. If you request any
documents from us, we will mail them to you by first class mail, or another
equally prompt means, within two business days after we receive your request.
53
<PAGE> 57
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Financial Statements:
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Income......................... F-4
Consolidated Statements of Stockholders' Equity........... F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
Unaudited Financial Statements:
Consolidated Balance Sheets............................... F-18
Consolidated Statements of Operations..................... F-19
Consolidated Statements of Cash Flows..................... F-20
Statements of Consolidated Comprehensive Income........... F-21
Notes to Consolidated Financial Statements................ F-22
</TABLE>
F-1
<PAGE> 58
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Ameritrade Holding Corporation and Subsidiaries
Omaha, Nebraska
We have audited the accompanying consolidated balance sheets of Ameritrade
Holding Corporation and its subsidiaries (collectively, the "Company") as of
September 25, 1998 and September 26, 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended September 25, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Ameritrade Holding Corporation
and its subsidiaries as of September 25, 1998 and September 26, 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended September 25, 1998, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Omaha, Nebraska
October 27, 1998 (June 21, 1999 as to Note 11)
F-2
<PAGE> 59
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 26, 1997 AND SEPTEMBER 25, 1998
ASSETS
<TABLE>
<CAPTION>
1997 1998
------------ --------------
<S> <C> <C>
Cash and cash equivalents................................... $ 53,522,447 $ 24,526,935
Cash and investments segregated in compliance with federal
regulations............................................... 319,763,921 503,455,354
Receivable from brokers, dealers, and clearing
organizations............................................. 17,823,640 25,732,164
Receivable from customers and correspondents -- net of
allowance for doubtful accounts: 1997 -- $249,949; 1998 --
$1,039,788................................................ 325,407,147 647,121,854
Furniture, equipment and leasehold improvements -- net of
accumulated depreciation and amortization: 1997 --
$3,732,790; 1998 -- $6,728,212............................ 8,709,923 26,116,333
Goodwill -- net of accumulated amortization................. 6,346,763 5,983,761
Investments................................................. 12,597,972 30,760,729
Deferred income taxes....................................... 39,314 --
Other assets................................................ 13,145,616 26,704,546
------------ --------------
Total assets...................................... $757,356,743 $1,290,401,676
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to brokers, dealers and clearing organizations.... $ 1,404,999 $ 11,765,785
Payable to customers and correspondents................... 666,279,440 1,136,082,337
Accounts payable and accrued liabilities.................. 19,252,931 30,716,987
Notes payable............................................. -- 11,000,000
Income taxes payable...................................... 3,430,279 1,331,170
Deferred income taxes..................................... -- 14,933,313
------------ --------------
Total liabilities................................. 690,367,649 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; 52,613,692
shares issued........................................ 526,136 526,136
Class B -- 6,000,000 shares authorized; 5,457,600
shares issued and outstanding........................ 54,576 54,576
------------ --------------
Total common stock................................ 580,712 580,712
Additional paid in capital.................................. 22,861,972 22,845,297
Retained earnings........................................... 43,546,410 43,756,848
Treasury stock -- Class A shares at cost (18,884 shares at
September 25, 1998)....................................... -- (133,388)
Net unrealized investment gain.............................. -- 17,522,615
------------ --------------
Total stockholders' equity........................ 66,989,094 84,572,084
------------ --------------
Total liabilities and stockholders' equity........ $757,356,743 $1,290,401,676
============ ==============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 60
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 26, 1997 AND SEPTEMBER 25,
1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Commissions and clearing fees.............. $ 36,469,561 $ 51,936,902 $ 85,644,433
Interest revenue........................... 22,517,655 36,622,800 66,716,234
Equity income from investments............. 3,358,871 3,443,807 5,083,172
Gain from sale of investment............... -- -- 794,634
Other...................................... 3,032,443 3,663,685 5,955,534
------------ ------------ ------------
Total revenues..................... 65,378,530 95,667,194 164,194,007
Interest expense........................... 11,039,777 18,428,854 29,278,536
------------ ------------ ------------
Net revenues....................... 54,338,753 77,238,340 134,915,471
Expenses excluding interest:
Employee compensation and benefits......... 14,049,642 19,290,808 36,082,707
Commissions and clearance.................. 2,530,642 3,320,262 5,762,336
Communications............................. 3,685,535 5,623,468 12,926,154
Occupancy and equipment costs.............. 2,889,654 5,422,839 10,621,551
Advertising................................ 7,537,265 13,970,834 43,613,779
Other...................................... 5,228,422 8,185,016 25,377,918
------------ ------------ ------------
Total expenses excluding
interest......................... 35,921,160 55,813,227 134,384,445
------------ ------------ ------------
Income before provision for income taxes..... 18,417,593 21,425,113 531,026
Provision for income taxes................... 7,259,248 7,602,964 320,588
------------ ------------ ------------
Net income................................... $ 11,158,345 $ 13,822,149 $ 210,438
============ ============ ============
Basic earnings per share..................... $ 0.22 $ 0.25 $ 0.00
Diluted earnings per share................... $ 0.22 $ 0.25 $ 0.00
Weighted average shares outstanding --
basic...................................... 51,255,292 55,075,556 58,062,654
Weighted average shares outstanding --
diluted.................................... 51,255,292 55,077,814 58,154,910
Pro forma stock split -- basic earnings per
share...................................... $ 0.07 $ 0.08 $ 0.00
Pro forma stock split -- diluted earnings per
share...................................... $ 0.07 $ 0.08 $ 0.00
Pro forma stock split -- weighted average
shares outstanding -- basic................ 153,765,876 165,226,668 174,187,962
Pro forma stock split -- weighted average
shares outstanding -- diluted.............. 153,765,876 165,233,442 174,464,730
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 61
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 26, 1997 AND SEPTEMBER 25,
1998
<TABLE>
<CAPTION>
NET
COMMON STOCK ADDITIONAL UNREALIZED
------------------------------- PAID-IN RETAINED TREASURY INVESTMENT
TOTAL CLASS A CLASS B TOTAL CAPITAL EARNINGS STOCK GAIN
----------- -------- -------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 29,
1995.................... $19,503,719 $531,936 $ 99,792 $ 631,728 $ 469,940 $19,839,450 $(1,437,399) $ --
Net Income.............. 11,158,345 -- -- -- -- 11,158,345 -- --
Retirement of treasury
stock................. -- (73,960) (45,216) (119,176) (44,689) (1,273,534) 1,437,399 --
----------- -------- -------- --------- ----------- ----------- ----------- -----------
Balance, September 27,
1996.................... 30,662,064 457,976 54,576 512,552 425,251 29,724,261 -- --
Net Income.............. 13,822,149 -- -- -- -- 13,822,149 -- --
Issuance of 16,000
shares from
compensation plans.... 33,750 160 -- 160 33,590 -- -- --
Issuance of 6,800,000
shares from initial
public offering....... 22,471,131 68,000 -- 68,000 22,403,131 -- -- --
----------- -------- -------- --------- ----------- ----------- ----------- -----------
Balance, September 26,
1997.................... 66,989,094 526,136 54,576 580,712 22,861,972 43,546,410 -- --
Net Income.............. 210,438 -- -- -- -- 210,438 -- --
Purchase of treasury
stock................. (286,375) -- -- -- -- -- (286,375) --
Reissuance of treasury
stock................. 136,312 -- -- -- (16,675) -- 152,987 --
Net unrealized
investment gain....... 17,522,615 -- -- -- -- -- -- 17,522,615
----------- -------- -------- --------- ----------- ----------- ----------- -----------
Balance, September 25,
1998.................... $84,572,084 $526,136 $ 54,576 $ 580,712 $22,845,297 $43,756,848 $ (133,388) $17,522,615
=========== ======== ======== ========= =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 62
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 26, 1997 AND SEPTEMBER 25,
1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 11,158,345 $ 13,822,149 $ 210,438
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization........................... 1,048,692 1,693,487 2,999,017
Provision for losses.................................... 148,014 59,000 815,000
Deferred income taxes................................... (358,139) 405,064 3,769,643
Equity income from investments.......................... (3,358,871) (3,443,807) (5,083,172)
Gain from sale of investment............................ -- -- (794,634)
Amortization of goodwill................................ 363,002 363,002 363,002
Changes in operating assets and liabilities:
Cash and investments segregated in compliance with
Federal regulations................................. (51,977,699) (144,095,424) (183,691,433)
Receivable from brokers, dealers and clearing
organizations....................................... (5,080,870) (2,726,778) (7,908,524)
Receivable from customers and correspondents.......... (36,035,750) (159,391,092) (322,529,707)
Other assets.......................................... (658,027) (7,132,072) (13,558,930)
Payable to brokers, dealers and clearing
organizations....................................... (1,664,200) 211,520 10,360,786
Payable to customers and correspondents............... 105,080,587 309,336,470 469,802,897
Accounts payable and accrued liabilities.............. 1,999,534 12,031,923 11,464,056
Income taxes payable.................................. 244,342 2,623,568 (2,099,109)
------------ ------------- -------------
Net cash provided by (used in) operating
activities....................................... 20,908,960 23,757,010 (35,880,670)
------------ ------------- -------------
Cash flows from investing activities:
Acquisition of subsidiary............................... (188,953) -- --
Purchase of furniture, equipment and leasehold
improvements.......................................... (1,104,124) (6,657,232) (20,405,427)
Purchase of investments................................. (6,272,361) (659,613) (1,652,740)
Distributions received from investments................. 2,902,005 3,663,231 12,264,993
Proceeds from sale of investments....................... -- -- 5,828,395
------------ ------------- -------------
Net cash used in investing activities............... (4,663,433) (3,653,614) (3,964,779)
------------ ------------- -------------
Cash flows from financing activities:
Issuance of Class A common stock........................ -- 33,750 --
Proceeds from initial public offering, net of offering
costs................................................. -- 22,471,131 --
Proceeds from notes payable............................. -- -- 22,500,000
Principal payments on notes payable..................... (2,244,000) (4,853,000) (11,500,000)
Purchase of treasury stock.............................. -- -- (286,375)
Reissuance of treasury stock............................ -- -- 136,312
------------ ------------- -------------
Net cash provided by (used in) financing
activities....................................... (2,244,000) 17,651,881 10,849,937
------------ ------------- -------------
Net increase (decrease) in cash and cash equivalents...... 14,001,527 37,755,277 (28,995,512)
Cash and cash equivalents at beginning of year............ 1,765,643 15,767,170 53,522,447
------------ ------------- -------------
Cash and cash equivalents at end of year.................. $ 15,767,170 $ 53,522,447 $ 24,526,935
============ ============= =============
Supplemental cash flow information:
Interest paid........................................... $ 11,025,779 $ 17,623,539 $ 28,258,819
Income taxes paid (refunds received).................... $ 7,342,359 $ 4,525,078 $ (1,418,800)
Supplemental investing activities:
Unrealized investment gain net of deferred taxes of
$11,202,984........................................... $ -- $ -- $ 17,522,615
Noncash financing activities:
Retirement of treasury stock............................ $ 1,437,399 $ -- $ --
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 63
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 26, 1997
AND SEPTEMBER 25, 1998
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- The 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, Inc., 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.
On September 27, 1996, the Company's Board of Directors approved a
resolution to reincorporate in the State of Delaware and change its name from
TransTerra Co. to Ameritrade Holding Corporation. The reincorporation was
accomplished by exchanging each share of Class A and Class B common stock of
TransTerra Co. for thirty shares of Class A and Class B common stock of the
Company. On January 23, 1997, the Company effected an eight-for-five stock split
in the form of a stock dividend. During 1998, the Company's Board of Directors
declared a two-for-one common stock split, distributed August 1998, and effected
in the form of a stock dividend. All share data and per share amounts have been
restated to reflect these exchanges.
The Company reports on a fifty-two/fifty-three week year. The fiscal years
ended 1998, 1997, and 1996 were each fifty-two week years.
Nature of Operations -- The Company provides discount securities brokerage
services through its Ameritrade (Inc.), Accutrade, Aufhauser, and AmeriVest
subsidiaries. The Company also provides trading execution and clearing services
for its own broker-dealer operations and for unaffiliated broker-dealers through
Advanced Clearing. OnMoney is a development-stage entity involved in on-line
financial services. The Company's broker-dealer subsidiaries are subject to
regulation by the Securities and Exchange Commission, the National Association
of Securities Dealers, and the Chicago Stock Exchange, Inc.
Capital Stock -- The authorized capital stock of the Company consists of
Class A common stock, Class B common stock and preferred stock. Each share of
Class A and Class B common stock is entitled to one vote on all matters, except
that the Class B common stock is entitled to elect a majority of the directors
of the Company and the Class A common stock is entitled to elect the remainder
of the directors. Each class of common stock is equally entitled to dividends
if, as and when declared by the Board of Directors. Shares of Class A common
stock are not convertible, while each share of Class B common stock is
convertible into one share of Class A common stock at the option of the Class B
holder or upon the occurrence of certain events. Class A and Class B common
stock have equal participation rights in the event of a liquidation of the
Company.
Voting, dividend, conversion and liquidation rights of the preferred stock
would be established by the Board of Directors upon issuance of such preferred
stock.
Use of Estimates -- The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
F-7
<PAGE> 64
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 26, 1997
AND SEPTEMBER 25, 1998
Securities Transactions -- Securities transactions are recorded on a
settlement date basis with such transactions generally settling three business
days after trade date. Revenues and expenses related to securities transactions,
including revenues from execution agents, are also recorded on settlement date,
which is not materially different than trade date.
Depreciation and Amortization -- Depreciation is provided on a
straight-line basis using estimated useful service lives of three to seven
years. Leasehold improvements are amortized over the lesser of the economic
useful life of the improvement or the term of the lease.
Goodwill is amortized on a straight-line basis generally over a twenty year
period. Accumulated amortization at September 25, 1998 and September 26, 1997
was $1,243,026 and $880,024, respectively. The Company reviews its intangible
assets for impairment at least annually or whenever events or change in
circumstances indicate that the carrying amount of such asset may not be
recoverable.
Income Taxes -- The Company files a consolidated income tax return with its
subsidiaries on a calendar year basis. Deferred income taxes are provided for
temporary differences between financial statement and taxable income. The
principal temporary differences arise from depreciation, bad debts, prepaid
expenses, and certain accrued liabilities. Deferred tax liabilities and assets
are determined based on the differences between the financial statement carrying
amounts and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse.
Cash and Cash Equivalents -- The Company considers temporary, highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Segregated Cash and Investments -- Cash and investments consisting
primarily of U.S. Treasury Bills and repurchase agreements at Advanced Clearing
of $503,455,354 and $319,763,921 as of September 25, 1998 and September 26,
1997, respectively, have been segregated in a special reserve bank account for
the benefit of customers under Rule 15c3-3 of the Securities and Exchange
Commission.
Estimated Fair Value of Financial Instruments -- The Company considers the
amounts presented for financial instruments on the consolidated balance sheets
to be reasonable estimates of fair value. The estimated fair value amounts have
been determined by the Company using available market information and
appropriate valuation methodologies.
Investments -- The Company's investments in companies and partnerships are
accounted for under the equity method when the Company has the ability to
exercise significant influence over the investee's operating and financial
policies. The cost method is used for investments that do not meet equity method
requirements. The Company's investments in marketable equity securities are
carried at fair market value and designated as available for sale. Unrealized
gains and losses, net of deferred income taxes, are reflected as a separate
component of stockholders' equity. Realized gains and losses are determined on
the specific identification method and reflected in operations.
Advertising -- The Company generally expenses advertising costs as they are
incurred.
Earnings Per Share -- The Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share ("SFAS 128")
and accordingly, restated all prior period earnings per share ("EPS") to conform
with SFAS 128. This statement requires dual presentation of basic and diluted
earnings per share on the face of the Statement
F-8
<PAGE> 65
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 26, 1997
AND SEPTEMBER 25, 1998
of Income. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of all classes
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or securities converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity. The
adoption of SFAS 128 did not have a material effect on previously reported EPS.
Stock Based Compensation -- As permitted by SFAS No. 123, Accounting for
Stock Based Compensation, the Company accounts for its stock-based compensation
on the intrinsic-value method in accordance with Accounting Principles Board
("APB") Opinion No. 25.
Reclassifications -- Certain items in prior years' consolidated financial
statements have been reclassified to conform to the current year presentation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
SFAS No. 130 -- In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS No. 130"). This statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of financial statements. This statement is effective for fiscal years beginning
after December 15, 1997. Companies are also required to report comparative
totals for comprehensive income in interim reports. The Company will report
comprehensive income commencing in fiscal 1999.
SFAS No. 131 -- In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131, Disclosures About Segments of an Enterprise and
Related Information ("SFAS No. 131"). This statement requires disclosures for
each segment that are similar to those required under current standards with the
addition of quarterly disclosure requirements and more specific and detailed
geographic disclosures especially by countries as opposed to broad geographic
regions. The provisions of SFAS No. 131 are effective for fiscal years beginning
after December 15, 1997. This statement will have no impact on the Company as
the Company currently does not have reportable operating segments.
SFAS No. 133 -- In June 1998, the FASB issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivatives and Similar Financial
Instruments and for Hedging Activities. This statement revises the accounting
for the recognition and measurement of derivatives and hedging transactions and
is effective for fiscal years beginning after June 15, 1999. The Company has not
determined the impact this statement will have on the consolidated financial
statements.
F-9
<PAGE> 66
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 26, 1997
AND SEPTEMBER 25, 1998
2. RECEIVABLE FROM AND PAYABLE TO BROKERS, DEALERS AND CLEARING ORGANIZATIONS
Amounts receivable from and payable to brokers, dealers and clearing
organizations are comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 26, SEPTEMBER 25,
1997 1998
------------- -------------
<S> <C> <C>
Receivable:
Securities borrowed............................. $15,072,400 $21,638,669
Securities failed to deliver.................... 2,751,240 4,069,740
Clearing organizations.......................... -- 23,755
----------- -----------
Total........................................ $17,823,640 $25,732,164
=========== ===========
Payable:
Securities loaned............................... $ -- $ 5,519,000
Securities failed to receive.................... 1,005,984 2,227,342
Clearing organizations.......................... 399,015 4,019,443
----------- -----------
Total........................................ $ 1,404,999 $11,765,785
=========== ===========
</TABLE>
3. INVESTMENTS
Knight/Trimark Group, Inc. -- Prior to July 8, 1998, the Company owned a
9.2 percent interest in Roundtable Partners L.L.C. ("Roundtable"), a company
formed to hold equity interests in securities trading and market making
companies. The Company had accounted for its investment in Roundtable under the
equity method since its inception. On July 8, 1998, Roundtable was reorganized
into a corporation known as Knight/Trimark Group, Inc. ("Knight/ Trimark")
coincident with an initial public offering of Knight/Trimark common stock. As a
result of this reorganization, all of the Company's ownership interest in
Roundtable was converted to common stock of Knight/Trimark, which represents 7.7
percent of the issued and outstanding shares of common stock of Knight/Trimark.
As of September 25, 1998, the Company also received a cash distribution of
$7,817,329 in connection with the reorganization. The cash distribution was a
return of capital, therefore there was no gain or loss associated with the
distribution. As a result of the reorganization of Knight/Trimark and subsequent
initial public offering in 1998, the Company accounts for its investment in
Knight/Trimark as a marketable equity security held available-for-sale. The
Company's investment in Knight/Trimark is subject to a 180-day sale restriction
agreement from the initial public offering date with the underwriters of the
initial public offering and potential registration costs. 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. The Company executes a portion of its securities
transactions through subsidiaries of Knight/Trimark. Revenues related to such
transactions totaled $9,435,696, $6,843,502, and $7,758,836 in 1998, 1997, and
1996, respectively. These amounts are included in Commissions and Clearing Fees.
Comprehensive Software Systems, Ltd.("CSS") -- As of September 25, 1998,
the Company owned 7.2 percent of CSS, a partnership formed for the purpose of
developing software for securities broker-dealers, banks and other financial
institutions. On June 3, 1998, the Company earned $794,634 on the sale of a
portion of its limited partnership interest in CSS. As a result of this
transaction, the Company's ownership interest in CSS decreased from 14.3 percent
to 7.2 percent. Accordingly, the Company began accounting for its investment in
CSS under the
F-10
<PAGE> 67
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 26, 1997
AND SEPTEMBER 25, 1998
cost method as of that date, and will, therefore, no longer recognize income or
loss based on the operations of CSS.
Adirondack Trading Partners, L.L.C. ("Adirondack") -- As of September 25,
1998, the Company owned a minority interest in Adirondack, a development-stage
company formed to trade listed equity and index options. The Company accounts
for its ownership in Adirondack under the cost method.
Telescan, Inc. ("Telescan") -- As of September 26, 1997, the Company owned
769,794 shares of common stock of Telescan, a publicly traded software/online
services company. During fiscal 1998, in a series of transactions, the Company
sold its interest in Telescan.
4. 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
million through June 30, 1999, with permissible borrowings decreasing $2.5
million quarterly to $35 million maturity at December 31, 2000. The revolving
credit agreement is collateralized by the common stock of the Company's
subsidiaries, as well as all assets of the Company. Borrowings under the
revolving credit agreement bear interest at prime rate less 0.75 percent (7.75
percent at September 25, 1998). The Company had outstanding indebtedness under
the revolving credit agreement of $11 million at September 25, 1998. The Company
pays a maintenance fee of 0.25 percent per annum of the unused credit available
under the revolving credit agreement. The revolving credit agreement contains
certain restrictions, including restrictions on the payment of cash dividends
and additional borrowings.
5. INCOME TAXES
Provision for income tax is comprised of the following for fiscal years
ended:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Current expense (benefit):
Federal............................................ $7,132,387 $7,150,775 $(3,051,000)
State.............................................. 485,000 47,125 (398,055)
---------- ---------- -----------
7,617,387 7,197,900 (3,449,055)
Deferred expense (benefit):
Federal............................................ (306,777) 344,066 3,383,013
State.............................................. (51,362) 60,998 386,630
---------- ---------- -----------
(358,139) 405,064 3,769,643
---------- ---------- -----------
Provision for income taxes........................... $7,259,248 $7,602,964 $ 320,588
========== ========== ===========
</TABLE>
F-11
<PAGE> 68
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 26, 1997
AND SEPTEMBER 25, 1998
A reconciliation of the federal statutory tax rate to the effective tax
rate applicable to income before provision for income taxes follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate...................................... 35.00% 35.00% 35.00%
State taxes, net of federal tax effect...................... 4.29 3.57 2.78
Amortization of goodwill.................................... 0.75 0.59 23.93
State credits............................................... (2.87) (3.72) 0.00
Other....................................................... 2.24 0.05 (1.34)
----- ----- -----
Effective tax rate.......................................... 39.41% 35.49% 60.37%
===== ===== =====
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Unrealized investment gain.................................. $ -- $(11,202,984)
Depreciation and amortization, net.......................... (181,323) (575,425)
Prepaid expenses............................................ (1,107,460) (4,279,343)
----------- ------------
(1,288,783) (16,057,752)
Accrued liabilities......................................... 1,328,097 1,124,439
----------- ------------
Net deferred tax assets (liabilities)....................... $ 39,314 $(14,933,313)
=========== ============
</TABLE>
6. NET CAPITAL
The Company's subsidiaries are subject to the Securities and Exchange
Commission Uniform Net Capital Rule (SEC rule 15c3-1), which requires the
maintenance of minimum net capital, as defined. 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 $40,062,733 and $26,121,959 as of September 25, 1998 and September 26, 1997,
respectively, which exceeded aggregate minimum net capital requirements by
$25,247,775 and $18,058,972, respectively. Subsidiary net capital in the amount
of $14,814,958 and $8,062,987 as of September 25, 1998 and September 26, 1997,
respectively, is not available for transfer to the Company due to net capital
regulations.
7. STOCK OPTION AND INCENTIVE PLANS
The Company has two stock option plans, the Ameritrade Holding Corporation
Long-Term Incentive Plan (the "Long-Term Incentive Plan") and the Ameritrade
Holding Corporation Directors Incentive Plan (the "Directors Plan"), both
initiated in fiscal 1997.
The Long-Term Incentive Plan authorizes the award of options to purchase
Class A Common Stock, Class A Common Stock appreciation rights, shares of Class
A Common Stock and performance units. The Long-Term Incentive Plan reserves
3,200,000 shares of the Company's Class A Common Stock for issuance to eligible
employees. The Directors Plan authorizes the award of options to purchase Class
A Common Stock. The Directors Plan reserves 320,000 shares of the Company's
Class A Common Stock for issuance to non-employee directors. Options are
generally granted at not less than the fair market value at grant date, vest
over a one to three year period, and expire ten years after the grant date.
F-12
<PAGE> 69
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 26, 1997
AND SEPTEMBER 25, 1998
A summary of the status of the Company's outstanding stock options as of
September 26, 1997 and September 25, 1998 is presented below:
<TABLE>
<CAPTION>
1997 1998
----------------------------- -----------------------------
NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
OF OPTIONS EXERCISE PRICE OF OPTIONS EXERCISE PRICE
---------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.... -- -- 32,000 $3.75
Granted........................... 32,000 $3.75 560,400 $6.42
Exercised......................... -- -- -- --
Canceled.......................... -- -- -- --
--------- ----- --------- -----
Outstanding at end of year.......... 32,000 $3.75 592,400 $6.28
Exercisable at end of year.......... -- -- 32,000 $3.75
Available for future grant at end of
year.............................. 3,488,000 2,927,600
Weighted-average fair value of
options granted during the year... $3.37 $3.69
</TABLE>
The following table summarizes information about the stock options
outstanding at September 25, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ -----------------------------
WEIGHTED-AVERAGE
REMAINING
NUMBER CONTRACTUAL WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES OF OPTIONS LIFE(IN YEARS) EXERCISE PRICE OF OPTIONS EXERCISE PRICE
- ------------------------ ---------- ---------------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
$2.50-$ 5.00.......... 32,000 6.44 $3.75 32,000 $3.75
$5.01-$ 7.50.......... 551,200 7.14 $6.39 -- --
$7.51-$10.00.......... 9,200 7.81 $8.57 -- --
------- ---- ----- ------ -----
$2.50-$10.00.......... 592,400 7.11 $6.28 32,000 $3.75
</TABLE>
There are no Stock Appreciation Rights or performance units outstanding as
of September 25, 1998.
As discussed in Note 1, the Company has elected to follow APB 25 and
related Interpretations in accounting for stock-based awards to employees. Under
APB 25, the Company generally recognizes no compensation expense with respect to
such awards.
Pro forma information regarding the net income and earnings per share is
required by SFAS 123. This information is required as if the Company had
accounted for its stock-based awards to employees under the fair value method.
The fair value of options was estimated at the date of the grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for fiscal 1998 and 1997, respectively: risk-free interest rate of
5.95 percent and 6.37 percent; dividend yield of zero for both years; expected
volatility of 49.8 percent for both years; and an expected option life of eight
years for both years. The weighted average fair value
F-13
<PAGE> 70
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 26, 1997
AND SEPTEMBER 25, 1998
of options granted in fiscal 1997 and 1998 was $3.37 and $3.69, respectively.
Pro forma net income and earnings per share are as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C> <C>
Net Income:.......................... As reported $13,822,149 $ 210,438
Pro forma 13,787,640 (301,983)
Basic earnings per share:............ As reported $ 0.25 $ 0.00
Pro forma 0.25 (0.00)
Diluted earnings per share:.......... As reported 0.25 0.00
Pro forma 0.25 (0.00)
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The Company has a profit-sharing plan under which the annual contribution
is determined at the discretion of the Board of Directors. Profit sharing
expense was $779,657, $595,222 and $388,800 for the fiscal years ended 1998,
1997 and 1996, respectively.
The Company has a 401(k) plan covering all eligible employees. The plan
provides for matching contributions at the discretion of the Board of Directors.
Contribution expense under this plan was $-0-, $-0- and $9,093 for the fiscal
years ended 1998, 1997 and 1996, respectively.
The Company has an executive bonus plan that was designed to allow
designated executive participants the opportunity to earn bonus awards with
current and deferred components. The value of each component is based on the
annual increase (if any) in the book value per share of the common stock.
Executive bonus plan expense was $960,000, $2,170,000 and $1,710,000 for the
fiscal years ended 1998, 1997 and 1996, respectively.
9. EARNINGS PER SHARE
Reconciliation between the weighted average shares outstanding used in the
basic and diluted earnings per share ("EPS") computation is presented below.
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net Income......................................... $11,158,345 $13,822,149 $ 210,438
----------- ----------- -----------
Weighted average shares outstanding -- basic....... 51,255,292 55,075,556 58,062,654
Effect of dilutive securities:
Assumed exercise of stock options................ -- 2,258 92,256
Weighted average shares outstanding -- diluted..... 51,255,292 55,077,814 58,154,910
Earnings per share -- basic........................ $ 0.22 $ 0.25 $ 0.00
Earnings per share -- diluted...................... $ 0.22 $ 0.25 $ 0.00
</TABLE>
F-14
<PAGE> 71
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 26, 1997
AND SEPTEMBER 25, 1998
10. COMMITMENTS AND CONTINGENCIES
Lease Commitments -- The Company and its subsidiaries have various
non-cancelable operating leases on facilities and certain computer and office
equipment requiring annual payments as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING AMOUNT
- ------------------ ------
<S> <C>
1999........................................................ $ 6,970,754
2000........................................................ 6,028,228
2001........................................................ 3,075,012
2002........................................................ 1,776,036
2003........................................................ 1,790,677
Thereafter (to December 31, 2017)........................... 20,904,751
-----------
Total....................................................... $40,545,458
===========
</TABLE>
The Company and certain of its subsidiaries lease one of their office
facilities from the Chief Executive Officer of the Company. The lease expires on
December 31, 2017, and provides for annual rentals of $1,288,000. Additionally,
the Company and its subsidiaries lease certain computer equipment, office
equipment, and office facilities under various operating leases. Rental expense
was $6,225,232, $3,155,550 and $1,581,171 for fiscal years ended 1998, 1997 and
1996, respectively.
Advertising Commitment -- The Company has 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.
Letter of Credit -- A letter of credit in the amount of $44 million as of
September 25, 1998, 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. As of September 25, 1998 and
September 26, 1997, no amounts were outstanding under the credit facility. In
addition, the same financial institution may make loans to Advanced Clearing if
requested under a 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.
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.
F-15
<PAGE> 72
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 26, 1997
AND SEPTEMBER 25, 1998
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.
General Contingencies -- In the general course of business, there are
various contingencies which are not reflected in the consolidated financial
statements. These include Advanced Clearing's customer activities involving the
execution, settlement and financing of various customer securities transactions.
These activities may expose the Company to off-balance-sheet credit risk in the
event the customers are unable to fulfill their contracted obligations.
Advanced Clearing's customer securities activities are transacted on either
a cash or margin basis. In margin transactions, Advanced Clearing extends credit
to the customer, subject to various regulatory and internal margin requirements,
collateralized by cash and securities in the customer's account. In connection
with these activities, Advanced Clearing executes and clears customer
transactions involving the sale of securities not yet purchased (short sales),
substantially all of which are transacted on a margin basis subject to
individual exchange regulations. Such transactions may expose the Company to
off-balance-sheet risk in the event margin requirements are not sufficient to
fully cover losses which customers may incur. In the event the customer fails to
satisfy its obligations, Advanced Clearing may be required to purchase or sell
financial instruments at prevailing market prices in order to fulfill the
customer's obligations.
Advanced Clearing seeks to control the risks associated with its customer
activities by requiring customers to maintain margin collateral in compliance
with various regulatory and internal guidelines. Advanced Clearing monitors
required margin levels daily and, pursuant to such guidelines, requires
customers to deposit additional collateral, or to reduce positions, when
necessary.
Advanced Clearing borrows securities both to cover short sales and to
complete customer transactions in the event that a customer fails to deliver
securities by the required date. Such borrowings are collateralized by
depositing cash or pledging securities with lending institutions and are "marked
to market" on a daily basis. Failure to maintain levels of cash deposits or
pledged securities at all times at least equal to the value of the related
securities can subject Advanced Clearing to risk of loss. Advanced Clearing
seeks to control the risk of loss by monitoring the market value of securities
pledged and requiring adjustments of collateral levels where necessary.
NOTE 11 -- SUBSEQUENT EVENTS
Subsequent to September 25, 1998, the Company announced a two-for-one and a
three-for-one stock split. Stockholders of record as of the close of business on
February 5, 1999 received, in the form of a stock dividend, one additional share
for each share held by them. This two-for-one split was distributed on or about
February 22, 1999 and the stock began trading at post-split value on February
23, 1999. All share data and per share amounts have been restated to reflect the
two-for-one stock split. Stockholders of record as of the close of business on
June 11, 1999 will receive, in the form of a stock dividend, two additional
shares for each share held by them. This three-for-one split will be distributed
on or about July 2, 1999 and the stock will begin trading at post-split value on
or about July 6, 1999. The three-for-one stock split is contingent
F-16
<PAGE> 73
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 26, 1997
AND SEPTEMBER 25, 1998
upon shareholder approval of a restated certificate of incorporation increasing
the number of shares of Class A common stock to 270,000,000 and Class B common
stock to 18,000,000. Pro forma earnings per share information has been provided
on the consolidated statement of income as if the three-for-one stock split had
been in effect for all periods presented.
QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND STOCK PRICE DATA)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED SEPTEMBER 25, 1998
---------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues....................................... $ 31,365 $ 36,762 $ 47,926 $ 48,141
Interest expense............................... 5,689 6,684 8,320 8,586
-------- -------- -------- --------
Net revenues......................... 25,676 30,078 39,606 39,555
Total expenses excluding interest.............. 43,171 30,394 30,346 30,473
-------- -------- -------- --------
Income (loss) before provision for income
taxes........................................ (17,495) (316) 9,260 9,082
Net income (loss).............................. $(11,249) $ (271) $ 5,940 $ 5,790
-------- -------- -------- --------
Basic earnings (loss) per share................ $ (0.19) $ (0.01) $ 0.10 $ 0.10
Diluted earnings (loss) per share.............. $ (0.19) $ (0.01) $ 0.10 $ 0.10
Stock price data ($)
High......................................... 9.44 7.52 8.19 11.44
Low.......................................... 5.41 5.69 6.17 6.75
</TABLE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED SEPTEMBER 26, 1997
---------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues.......................................... $ 19,042 $ 22,641 $ 24,904 $ 29,080
Interest expense.................................. 3,690 4,197 4,959 5,583
-------- -------- -------- --------
Net revenues............................ 15,352 18,444 19,945 23,497
Total expenses excluding interest................. 15,416 13,036 12,805 14,556
-------- -------- -------- --------
Income (loss) before provision for income taxes... (64) 5,408 7,140 8,941
Net income (loss)................................. $ (75) $ 3,469 $ 4,587 $ 5,841
-------- -------- -------- --------
Basic earnings (loss) per share................... $ 0.00 $ 0.07 $ 0.08 $ 0.10
Diluted earnings (loss) per share................. $ 0.00 $ 0.07 $ 0.08 $ 0.10
Stock price data ($)
High............................................ N/A 5.32* 4.44 6.58
Low............................................. N/A 4.19* 3.03 3.77
</TABLE>
- ---------------
* Commencing March 4, 1997
All information is adjusted for the two-for-one stock splits effective on
August 18, 1998 and February 22, 1999. The stock prices listed above do not
include retail markups, markdowns, or commissions, and may not represent actual
transactions.
F-17
<PAGE> 74
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 25, 1998 AND MARCH 26, 1999
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 25, MARCH 26,
1998 1999
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents.................................. $ 24,526,935 $ 4,474,679
Cash and investments segregated in compliance with federal
regulations.............................................. 503,455,354 601,811,083
Receivable from brokers, dealers, and clearing
organizations............................................ 25,732,164 34,152,264
Receivable from customers and correspondents -- net of
allowance for doubtful accounts: September -- $1,039,788;
March -- $2,615,349...................................... 647,121,854 1,186,138,384
Furniture, equipment and leasehold improvements -- net of
accumulated depreciation and amortization: September --
$6,728,212; March -- $9,480,716.......................... 26,116,333 33,418,857
Goodwill -- net of accumulated amortization................ 5,983,761 5,802,259
Investments................................................ 30,760,729 203,694,473
Other assets............................................... 26,704,546 35,496,623
-------------- --------------
Total assets..................................... $1,290,401,676 $2,104,988,622
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to brokers, dealers and clearing organizations... $ 11,765,785 $ 64,070,484
Payable to customers and correspondents.................. 1,136,082,337 1,622,307,296
Accounts payable and accrued liabilities................. 30,716,987 47,775,036
Short-term borrowings.................................... -- 45,000,000
Notes payable............................................ 11,000,000 38,000,000
Income taxes payable..................................... 1,331,170 850,213
Deferred income taxes.................................... 14,933,313 82,681,058
-------------- --------------
Total liabilities................................ 1,205,829,592 1,900,684,087
-------------- --------------
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........................ 526,136 527,012
Class B -- 6,000,000 shares authorized: 5,457,600
shares issued and outstanding....................... 54,576 54,576
-------------- --------------
Total common stock............................... 580,712 581,588
Additional paid-in capital................................. 22,845,297 25,228,316
Retained earnings.......................................... 43,756,848 55,576,576
Treasury stock -- Class A shares at cost (13,400 shares at
March 26, 1999; 18,884 shares at September 25, 1998)..... (133,388) (94,144)
Accumulated other comprehensive income..................... 17,522,615 123,012,199
-------------- --------------
Total stockholders' equity....................... 84,572,084 204,304,535
-------------- --------------
Total liabilities and stockholders' equity....... $1,290,401,676 $2,104,988,622
============== ==============
</TABLE>
See notes to unaudited consolidated financial statements.
F-18
<PAGE> 75
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIODS ENDED MARCH 27, 1998 AND MARCH 26, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED
-------------------------------
MARCH 27, 1998 MARCH 26, 1999
-------------- --------------
<S> <C> <C>
Revenues:
Commissions and clearing fees............................. $ 35,209,381 $ 83,566,382
Interest revenue.......................................... 27,908,539 47,715,180
Equity income from investments............................ 2,527,693 --
Other..................................................... 2,480,749 4,614,844
------------ ------------
Total revenues.................................... 68,126,362 135,896,406
Interest expense.......................................... 12,373,053 20,117,417
------------ ------------
Net revenues...................................... 55,753,309 115,778,989
Expenses excluding interest:
Employee compensation and benefits........................ 14,691,907 28,364,340
Commissions and clearance................................. 2,272,429 4,032,907
Communications............................................ 6,456,836 7,971,435
Occupancy and equipment costs............................. 4,213,046 8,736,185
Advertising............................................... 34,513,770 22,797,109
Other..................................................... 11,417,773 25,355,684
------------ ------------
Total expenses excluding interest................. 73,565,761 97,257,660
Income (loss) before provision for income taxes... (17,812,452) 18,521,329
Provision for income taxes........................ (6,292,236) 6,701,601
------------ ------------
Net income (loss)........................................... $(11,520,216) $ 11,819,728
============ ============
Basic earnings (loss) per share............................. $ (0.20) $ 0.20
Diluted earnings (loss) per share........................... (0.20) 0.20
Weighted average shares outstanding -- basic................ 58,069,915 58,082,441
Weighted average shares outstanding -- diluted.............. 58,106,758 58,509,462
Pro forma stock split -- basic earnings (loss) per share.... $ (0.07) $ 0.07
Pro forma stock split -- diluted earnings (loss) per
share..................................................... (0.07) 0.07
Pro forma stock split -- weighted average shares
outstanding -- basic...................................... 174,209,745 174,247,323
Pro forma stock split -- weighted average shares
outstanding -- diluted.................................... 174,320,274 175,528,386
</TABLE>
See notes to unaudited consolidated financial statements.
F-19
<PAGE> 76
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED MARCH 27, 1998 AND MARCH 26, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED
-------------------------------
MARCH 27, 1998 MARCH 26, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ (11,520,216) $ 11,819,728
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization........................ 1,068,800 2,752,504
Provision for losses................................. 88,000 1,695,000
Deferred income taxes................................ 785,355 303,585
Equity 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............................. (189,881,751) (98,355,729)
Brokerage receivables.............................. (189,669,131) (549,131,630)
Income taxes receivable............................ (1,494,676) --
Other assets....................................... (5,420,726) (8,792,077)
Brokerage payables................................. 371,013,841 538,529,658
Accounts payable and accrued liabilities........... 1,584,506 17,058,049
Short-term borrowings.............................. -- 45,000,000
Income taxes payable............................... (3,430,279) 1,383,912
------------- -------------
Net cash used in operating activities........... (29,222,468) (37,555,498)
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold
improvements......................................... (5,658,428) (10,055,028)
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........... (688,563) (10,055,028)
Cash flows from financing activities:
Proceeds from notes payable............................. 10,000,000 60,000,000
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...................... 123,481 51,061
------------- -------------
Net cash provided by financing activities....... 9,978,481 27,558,270
------------- -------------
Net decrease in cash and cash equivalents....... (19,932,550) (20,052,256)
Cash and cash equivalents at beginning of period.......... 53,522,447 24,526,935
------------- -------------
Cash and cash equivalents at end of period................ $ 33,589,897 $ 4,474,679
============= =============
Supplemental cash flow information:
Interest paid........................................... $ 11,747,864 $ 19,468,778
Income taxes paid (refunds received).................... $ (2,224,720) $ 5,010,874
</TABLE>
See notes to unaudited consolidated financial statements.
F-20
<PAGE> 77
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
FOR THE SIX MONTH PERIODS ENDED MARCH 27, 1998 AND MARCH 26, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED
----------------------------
MARCH 27, MARCH 26,
1998 1999
------------ ------------
<S> <C> <C>
Net income (loss)........................................... $(11,520,216) $ 11,819,728
Other comprehensive income
Net unrealized holding gains on investment securities
available-for-sale arising during the period........... -- 172,933,744
Adjustment for deferred income taxes...................... -- (67,444,160)
------------ ------------
Total other comprehensive income, net of tax................ -- 105,489,584
------------ ------------
Comprehensive income (loss)................................. $(11,520,216) $117,309,312
============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
F-21
<PAGE> 78
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIODS ENDED MARCH 27, 1998 AND MARCH 26, 1999
(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
F-22
<PAGE> 79
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE SIX MONTH PERIODS ENDED MARCH 27, 1998 AND MARCH 26, 1999
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 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.
6. SUBSEQUENT EVENT
The Company announced a three-for-one stock split on June 2, 1999.
Stockholders of record as of the close of business on June 11, 1999 will
receive, in the form of a stock dividend, two additional shares for each share
held by them. This three-for-one split will be distributed on or about July 2,
1999 and the stock will begin trading at post-split value on or about July 6,
1999. The three-for-one stock split is contingent upon shareholder approval of a
restated certificate of incorporation increasing the number of shares of class A
common stock to 270,000,000 and class B common stock to 18,000,000. Pro forma
earnings per share information has been provided as if the stock split had been
in effect for all periods presented.
F-23
<PAGE> 80
UNDERWRITING
Holding, the selling stockholders and the underwriters for the U.S.
offering (the "U.S. Underwriters") named below have entered into an underwriting
agreement with respect to the shares being offered in the United States. Subject
to certain conditions, each U.S. Underwriter has severally agreed to purchase
the number of shares indicated in the following table. Goldman, Sachs & Co. and
are the representatives of the U.S. Underwriters.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Goldman, Sachs & Co. .......................................
--------
Total.............................................
========
</TABLE>
If the U.S. Underwriters sell more shares than the total number set forth
in the table above, the U.S. Underwriters have an option to buy up to an
additional shares from Holding and the selling stockholders to cover such
sales. They may exercise that option for 30 days. If any shares are purchased
pursuant to this option, the U.S. Underwriters will severally purchase shares in
approximately the same proportion as set forth in the table above.
The following tables show the per share and total underwriting discounts
and commissions to be paid to the U.S. Underwriters by Holding and the selling
stockholders. Such amounts are shown assuming both no exercise and full exercise
of the U.S. Underwriters' option to purchase additional shares.
PAID BY HOLDING
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share......................................... $ $
Total............................................. $ $
</TABLE>
PAID BY THE SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share......................................... $ $
Total............................................. $ $
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial price to public. Any such securities
dealers may resell any shares purchased from the Underwriters to certain other
brokers or dealers at a discount of up to $ per share from the initial price
to public. If all the shares are not sold at the initial price to public, the
representatives may change the offering price and the other selling terms.
Holding and the selling stockholders have entered into an underwriting
agreement with the underwriters of the international offering (the
"International Underwriters") for the sale of shares outside of the
United States. The terms and conditions of both offerings are the
U-1
<PAGE> 81
same and the sale of shares in both offerings are conditioned on each other.
Goldman Sachs International and are representatives of the
International Underwriters. Holding and the selling stockholders have granted
the International Underwriters a similar option to purchase up to an aggregate
of additional shares.
The Underwriters for both of the offerings have entered into an agreement
in which they agree to restrictions on where and to whom they and any dealer
purchasing from them may offer shares as a part of the distribution of the
shares. The Underwriters also have agreed that they may sell shares among each
of the underwriting groups.
Holding and the selling stockholders have agreed with the Underwriters not
to dispose of or hedge any of the Class A common stock or securities convertible
into or exchangeable for shares of Class A common stock during the period from
the date of this prospectus continuing through the date 90 days after the date
of this prospectus, except with the prior written consent of the
representatives. This agreement does not apply to any existing employee benefit
plans. See "Risk Factors -- Future sales of shares of common stock could
adversely affect the market price of the Class A common stock".
In connection with the offerings, the Underwriters may purchase and sell
shares of the Class A common stock in the open market. These transactions may
include short sales, stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the Underwriters of a
greater number of shares than they are required to purchase in the offerings.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the Class A
common stock while the offerings are in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the Class A common stock. As a result, the price of
the Class A common stock may be higher than the price that otherwise might exist
in the open market. If these activities are commenced, they may be discontinued
by the Underwriters at any time. These transactions may be effected on The
Nasdaq National Market, in the over-the-counter market or otherwise.
Holding's securities clearing firm, Advanced Clearing, is a member of the
NASD, a wholly-owned subsidiary of Holding and a member of the selling group for
the U.S. offering. The U.S. offering, therefore, is being conducted in
accordance with the applicable provisions of Rule 2720 of the Conduct Rules of
the NASD.
Holding estimates that the total expenses of the offerings (excluding
underwriting discounts and commissions) will be approximately $ .
Holding and the selling stockholders have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
This prospectus may be used by the Underwriters and other dealers in
connection with offers and sales of the shares, including sales of shares
initially sold by the Underwriters in the offering being made outside of the
United States, to persons located in the United States.
U-2
<PAGE> 82
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.............................. 1
Risk Factors......................... 8
Cautionary Note Regarding Forward-
Looking Statements................. 16
Use of Proceeds...................... 16
Dividend Policy...................... 16
Market Price of Class A Common
Stock.............................. 17
Capitalization....................... 18
Selected Consolidated Financial and
Operating Data..................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 21
Business............................. 30
Management........................... 42
Principal and Selling Stockholders... 46
TRACES Stockholders.................. 48
Description of Capital Stock......... 49
Validity of Class A Common Stock..... 52
Experts.............................. 52
Where You Can Find More Information.. 52
Index to Consolidated Financial
Information........................ F-1
Underwriting......................... U-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
SHARES
AMERITRADE HOLDING
CORPORATION
CLASS A COMMON STOCK
----------------------
[LOGO]
----------------------
GOLDMAN, SACHS & CO.
Representatives of the Underwriters
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 83
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
[ALTERNATE PAGE FOR PROSPECTUS ATTACHED TO TRUST PROSPECTUS]
SUBJECT TO COMPLETION. DATED JUNE 25, 1999.
SHARES
AMERITRADE HOLDING CORPORATION
CLASS A COMMON STOCK
----------------------
This prospectus relates to up to shares of Class A common stock (or
up to shares if the underwriters' over-allotment option is exercised in
full) beneficially owned by the Ameritrade Automatic Common Exchange Security
Trust (the "TRACES Trust") stockholders named in this prospectus that may be
delivered by the TRACES Trust to holders of Automatic Common Exchange Securities
of the TRACES Trust upon exchange of such securities on the Exchange Date as
defined in the prospectus of the TRACES Trust (the "Trust Prospectus") to which
this prospectus is attached. The Automatic Common Exchange Securities are being
sold by the TRACES Trust in an offering described in the Trust Prospectus. See
"Trust Prospectus".
In addition, Ameritrade Holding Corporation and several of its stockholders
are offering for sale up to an aggregate shares of Class A common stock
(or up to shares if the underwriters' over-allotment options are
exercised in full) directly to the public pursuant to a separate prospectus. Of
the shares being offered in those offerings, shares are being
offered by Holding and shares are being offered by the selling
stockholders. The respective closings of the offerings of the Automatic Common
Exchange Securities and the shares of Class A common stock are not dependent
upon one another.
Holding will not receive any proceeds from the sale of the Automatic Common
Exchange Securities by the TRACES Trust or the sale of the Class A common stock
by the selling stockholders.
The Class A common stock is quoted on The Nasdaq National Market under the
symbol "AMTD". The last reported sale price of the Class A common stock on
, 1999 was $ per share.
The Class B common stock, which is not being offered, is entitled to elect
a majority of Holding's board of directors. The Class A common stock is entitled
to elect the remaining directors. See "Description of Capital Stock".
SEE "RISK FACTORS" BEGINNING ON PAGE 8 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER IN CONNECTION WITH AN INVESTMENT IN THE CLASS A COMMON STOCK.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
GOLDMAN, SACHS & CO.
----------------------
Prospectus dated , 1999.
<PAGE> 84
[ALTERNATE PAGE FOR PROSPECTUS ATTACHED TO TRUST PROSPECTUS]
PLAN OF DISTRIBUTION
The Automatic Common Exchange Securities will be distributed as described
in the Trust Prospectus under the caption "Underwriting". Some of the
underwriters and their affiliates have provided, are currently providing, and
expect to provide in the future, commercial and investment banking services to
us for which they have received and will receive fees and commissions.
TRUST PROSPECTUS
The Automatic Common Exchange Securities are being offered pursuant to the
Trust Prospectus. This prospectus relates only to the shares of Class A common
stock that may be delivered upon exchange of the Automatic Common Exchange
Securities. We take no responsibility for any information included in or omitted
from the Trust Prospectus. The Trust Prospectus does not constitute a part of
this prospectus nor is it incorporated by reference herein.
<PAGE> 85
[ALTERNATE PAGE FOR PROSPECTUS ATTACHED TO TRUST PROSPECTUS]
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..............................
Risk Factors.........................
Cautionary Note Regarding Forward-
Looking Statements.................
Use of Proceeds......................
Dividend Policy......................
Market Price of Class A Common
Stock..............................
Capitalization.......................
Selected Consolidated Financial and
Operating Data.....................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations......................
Business.............................
Management...........................
Principal and Selling Stockholders...
TRACES Stockholders..................
Description of Capital Stock.........
Validity of Class A Common Stock.....
Experts..............................
Where You Can Find More Information..
Plan of Distribution.................
Trust Prospectus.....................
Index to Consolidated Financial
Information........................
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
SHARES
AMERITRADE HOLDING
CORPORATION
CLASS A COMMON STOCK
----------------------
[LOGO]
----------------------
GOLDMAN, SACHS & CO.
Representatives of the Underwriters
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 86
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of the expenses payable by us in connection
with the issuance and distribution of the securities being registered hereby.
All amounts shown are estimates, except the SEC registration fee, the NASD
filing fee and The Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 69,500
--------
NASD filing fee............................................. 25,500
--------
Nasdaq National Market listing fee.......................... *
Printing and engraving...................................... 250,000
Legal fees and expenses..................................... 150,000
Accounting fees and expenses................................ 75,000
Blue sky fees and expenses.................................. 10,000
Miscellaneous............................................... *
--------
Total............................................. $ *
========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to the provisions of the Delaware General Corporation Law, we have
adopted provisions in our certificate of incorporation and bylaws, which (1)
require us to indemnify our directors and officers to the fullest extent
permitted by law and (2) eliminate the personal liability of our directors to us
and our stockholders for monetary damages for breach of their duty of due care,
except (a) for any breach of the duty of loyalty; (b) for acts or omissions not
in good faith or which involve intentional misconduct or knowing violations of
law; (c) for liability under Section 174 of the Delaware General Corporation Law
(relating to certain unlawful dividends, stock repurchases or stock
redemptions); or (d) for any transaction from which the director derived any
improper personal benefit.
We also maintain insurance on our directors and officers, which covers
liabilities under the federal securities laws.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
The following documents are filed with this registration statement.
<TABLE>
<CAPTION>
EXHIBIT
-------
<C> <S>
1.1 Form of Underwriting Agreements
3.1 Form of Restated Certificate of Incorporation
4.1 Form of Stock Certificate (incorporated herein by reference
to our Registration Statement on Form S-1, File No.
333-17495)
*5.1 Opinion of Mayer, Brown & Platt as to validity of common
stock
23.1 Consent of Deloitte & Touche LLP
*23.2 Consent of Mayer, Brown & Platt (included in Exhibit 5.1)
24.1 Powers of Attorney (included on the signature page)
</TABLE>
- ---------------
* To be filed by amendment.
II-1
<PAGE> 87
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof; and
(2) That, (a) for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective; and (b) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE> 88
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha, State of Nebraska on the 23rd day of June,
1999.
AMERITRADE HOLDING CORPORATION
By: /s/ J. JOE RICKETTS
----------------------------------
J. Joe Ricketts
Co-Chief Executive Officer
POWERS OF ATTORNEY
Each person whose signature appears below constitutes and appoints J. Joe
Ricketts and Robert T. Slezak, or either of them, such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on the 23rd day of June, 1999.
<TABLE>
<CAPTION>
SIGNATURE POSITION
--------- --------
<C> <S>
/s/ J. JOE RICKETTS Director, Chairman and Co-Chief Executive
- -------------------------------------------- Officer (Principal Executive Officer)
J. Joe Ricketts
/s/ THOMAS K. LEWIS, JR. Co-Chief Executive Officer (Principal
- -------------------------------------------- Executive Officer)
Thomas K. Lewis, Jr.
/s/ ROBERT T. SLEZAK Director, Vice President, Chief Financial
- -------------------------------------------- Officer and Treasurer (Principal Financial
Robert T. Slezak and Accounting Officer)
/s/ JOSEPH A. KONEN Director
- --------------------------------------------
Joseph A. Konen
/s/ GENE L. FINN Director
- --------------------------------------------
Gene L. Finn
</TABLE>
II-3
<PAGE> 89
<TABLE>
<CAPTION>
SIGNATURE POSITION
--------- --------
<C> <S>
/s/ DAVID W. GARRISON Director
- --------------------------------------------
David W. Garrison
/s/ THOMAS Y. HARTLEY Director
- --------------------------------------------
Thomas Y. Hartley
/s/ CHARLES L. MARINACCIO Director
- --------------------------------------------
Charles L. Marinaccio
/s/ MARK L. MITCHELL Director
- --------------------------------------------
Mark L. Mitchell
/s/ JOHN W. WARD Director
- --------------------------------------------
John W. Ward
</TABLE>
II-4
<PAGE> 90
INDEX TO EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreements
3.1 Form of Restated Certificate of Incorporation
4.1 Form of Stock Certificate (incorporated by reference to our
Registration Statement on Form S-1, File No. 333-17495)
*5.1 Opinion of Mayer, Brown & Platt as to validity of common
stock
23.1 Consent of Deloitte & Touche LLP
*23.2 Consent of Mayer, Brown & Platt (included in Exhibit 5.1)
24.1 Powers of Attorney (included on the signature page)
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
AMERITRADE HOLDING CORPORATION
CLASS A COMMON STOCK
(PAR VALUE $ .01 PER SHARE)
--------------------
UNDERWRITING AGREEMENT
(U.S. VERSION)
-------------------
July __, 1999
Goldman, Sachs & Co.,
[NAME(S) OF CO-REPRESENTATIVE(S),]
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Ameritrade Holding Corporation, a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of [-] shares and, at the election of the Underwriters, up to [-] additional
shares of Class A Common Stock (par value $.01 per share) ("Stock") of the
Company, and the stockholders of the Company named in Schedule II hereto (the
"Selling Stockholders") propose, subject to the terms and conditions stated
herein, to sell to the Underwriters an aggregate of [-] shares and, at the
election of the Underwriters, up to [-] additional shares of Stock. The
aggregate of [-] shares to be sold by the Company and the Selling Stockholders
is herein called the "Firm Shares" and the aggregate of [-] additional shares to
be sold by the Company and the Selling Stockholders is herein called the
"Optional Shares". The Firm Shares and the Optional Shares that the Underwriters
elect to purchase pursuant to Section 2 hereof are herein collectively called
the "Shares".
It is understood and agreed to by all parties that the Company and the
Selling Stockholders are concurrently entering into an agreement (the
"International Underwriting Agreement") providing for the sale by the Company
and the Selling Stockholders of up to a total of [-] shares of Stock (the
"International Shares"), including the overallotment option thereunder, through
arrangements with certain underwriters outside the United States (the
"International Underwriters"), for whom Goldman Sachs International and [-] are
acting as lead managers.
<PAGE> 2
Anything herein or therein to the contrary notwithstanding, the respective
closings under this Agreement and the International Underwriting Agreement are
hereby expressly made conditional on one another. The Underwriters hereunder and
the International Underwriters are simultaneously entering into an Agreement
between U.S. and International Underwriting Syndicates (the "Agreement between
Syndicates") which provides, among other things, for the transfer of shares of
Stock between the two syndicates. Two forms of prospectus are to be used in
connection with the offering and sale of shares of Stock contemplated by the
foregoing, one relating to the Shares hereunder and the other relating to the
International Shares. The latter form of prospectus will be identical to the
former except for certain substitute pages. Except as used in Sections 2, 3, 4,
9 and 11 herein, and except as the context may otherwise require, references
hereinafter to the Shares shall include all the shares of Stock which may be
sold pursuant to either this Agreement or the International Underwriting
Agreement, and references herein to any prospectus whether in preliminary or
final form, and whether as amended or supplemented, shall include both the U.S.
and the international versions thereof.
1. (a) The Company hereby represents and warrants to, and agrees
with, each of the Underwriters that:
(i) A registration statement on Form S-3 (File No. 333-*) (the
"Initial Registration Statement") in respect of the Shares has been
filed with the Securities and Exchange Commission (the "Commission");
the Initial Registration Statement and any post-effective amendment
thereto, each in the form heretofore delivered to you, and, excluding
exhibits thereto but including all documents incorporated by reference
in the prospectus contained therein, to you for each of the other
Underwriters, have been declared effective by the Commission in such
form; other than a registration statement, if any, increasing the size
of the offering (a "Rule 462(b) Registration Statement"), filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended
(the "Act"), which became effective upon filing, no other document with
respect to the Initial Registration Statement or document incorporated
by reference therein has heretofore been filed with the Commission; and
no stop order suspending the effectiveness of the Initial Registration
Statement, any post-effective amendment thereto or the Rule 462(b)
Registration Statement, if any, has been issued and no proceeding for
that purpose has been initiated or threatened by the Commission (any
preliminary prospectus included in the Initial Registration Statement
or filed with the Commission pursuant to Rule 424(a) of the rules and
regulations of the Commission under the Act is hereinafter called a
"Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including
all exhibits thereto and including (i) the information contained in the
form of final prospectus filed with the Commission pursuant to Rule
424(b) under the Act in accordance with Section 5(a) hereof and deemed
by virtue of Rule 430A under the Act to be part of the Initial
Registration Statement at the time it was declared effective and (ii)
the documents incorporated by reference in the prospectus contained in
the Initial Registration Statement at the time such part of the Initial
Registration Statement became effective, each as amended at the
-2-
<PAGE> 3
time such part of the Initial Registration Statement became effective
or such part of the Rule 462(b) Registration Statement, if any, became
or hereafter becomes effective, are hereinafter collectively called the
"Registration Statement"; such final prospectus, in the form first
filed pursuant to Rule 424(b) under the Act, is hereinafter called the
"Prospectus"); and any reference herein to any Preliminary Prospectus
or the Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under
the Act, as of the date of such Preliminary Prospectus or Prospectus,
as the case may be; any reference to any amendment or supplement to any
Preliminary Prospectus or the Prospectus shall also be deemed to refer
to the international version thereof and include any documents filed
after the date of such Preliminary Prospectus or Prospectus, as the
case may be, under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and incorporated by reference in such Preliminary
Prospectus or Prospectus, as the case may be; and any reference to any
amendment to the Registration Statement shall be deemed to refer to and
include any annual report of the Company filed pursuant to Section
13(a) or 15(d) of the Exchange Act after the effective date of the
Initial Registration Statement that is incorporated by reference in the
Registration Statement;
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations
of the Commission thereunder, and did not contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein or
by a Selling Stockholder expressly for use in the preparation of the
answers therein to Item 7 of Form S-3;
(iii) The documents incorporated by reference in the Prospectus,
when they became effective or were filed with the Commission, as the
case may be, conformed in all material respects to the requirements of
the Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder, and none of such documents
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and any further documents so filed
and incorporated by reference in the Prospectus or any further
amendment or supplement thereto, when such documents become effective
or are filed with the Commission, as the case may be, will conform in
all material respects to the requirements of the Act or the Exchange
Act, as applicable, and the rules and regulations of the Commission
thereunder and will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however,
-3-
<PAGE> 4
that this representation and warranty shall not apply to any statements
or omissions made in reliance upon and in conformity with information
furnished in writing to the Company by an Underwriter through Goldman,
Sachs & Co. expressly for use therein;
(iv) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus will conform, in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date
as to the Registration Statement and any amendment thereto and as of
the applicable filing date as to the Prospectus and any amendment or
supplement thereto, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter
through Goldman, Sachs & Co. expressly for use therein or by a Selling
Stockholder expressly for use in the preparation of the answers therein
to Item 7 of Form S-3;
(v) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any material
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and, since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the
capital stock (other than pursuant to any employee incentive or benefit
plan in existence of the date of this Agreement) or long-term debt of
the Company or any of its subsidiaries or any material adverse change,
or any development involving a prospective material adverse change, in
or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus;
(vi) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them, in each case free and clear of
all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries;
-4-
<PAGE> 5
(vii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, or is subject to no
material liability or disability by reason of the failure to be so
qualified in any such jurisdiction, and no proceeding of which the
Company has knowledge has been instituted in any such jurisdiction,
revoking, limiting or curtailing or seeking to revoke, limit or curtail
such power and authority or qualification;
(viii) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, with power and authority
(corporate and other) to own its properties and conduct its business as
described in the Prospectus, and has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction; all
of the issued and outstanding capital stock of each subsidiary of the
Company has been duly authorized and validly issued and is fully paid
and nonassessable; and the Company owns directly or indirectly 100% of
the issued and outstanding capital stock of each subsidiary free from
liens, encumbrances, equities or claims;
(ix) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares to be sold by the Selling Stockholders
hereunder and under the International Underwriting Agreement) have been
duly and validly authorized and issued, and are fully paid and
non-assessable and conform to the description of the Company's capital
stock contained in the Prospectus; and the stockholders of the Company
have no preemptive rights with respect to the Stock;
(x) The Shares to be issued and sold by the Company to the
Underwriters hereunder and under the International Underwriting
Agreement have been duly and validly authorized and, when issued and
delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and non-assessable and will conform to
the description of the Stock contained in the Prospectus;
(xi) The issue and sale of the Shares to be sold by the Company
hereunder and under the International Underwriting Agreement and the
compliance by the Company with all of the provisions of this Agreement
and the International Underwriting Agreement and the consummation of
the transactions herein and therein contemplated will not conflict with
or result in a breach or violation of any of the terms or provisions
of, or constitute a
-5-
<PAGE> 6
default under, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such action
result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or governmental
agency or body is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this
Agreement and the International Underwriting Agreement, except the
registration under the Act of the Shares and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state or foreign securities or Blue Sky laws in connection with
the purchase and distribution of the Shares by the Underwriters and the
International Underwriters;
(xii) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or other
constituent or governing document or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement
lease or other agreement or instrument to which it is a party or by
which it or any of its properties may be bound;
(xiii) No consent, approval, authorization, or order of, or filing
with, any governmental agency or body or any court is required as of
the Time of Delivery (as defined in Section 4 hereof) for the
consummation of the transactions contemplated by this Agreement and the
International Underwriting Agreement in connection with the issuance
and sale of the Shares by the Company, except such as have been
obtained and made under the Act and under applicable state or foreign
securities or Blue Sky laws;
(xiv) The financial statements included in each Registration
Statement and the Prospectus present fairly in all material respects
the financial position of the Company and its consolidated subsidiaries
as of the dates shown and their results of operations and cash flows
for the periods shown, and such financial statements have been prepared
in conformity with the generally accepted accounting principles in the
United States applied on a consistent basis; and the schedules (if any)
included in the Registration Statement present fairly in all material
respects the information required to be stated therein; the financial
information set forth in the Prospectus under "Summary Consolidated
Financial and Operating Data" and "Selected Consolidated Financial and
Operating Data" presents fairly in all material respects, on the basis
stated in the Registration Statement and the Prospectus, the
information set forth therein.
-6-
<PAGE> 7
(xv) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock and under the caption "Underwriting",
insofar as they purport to describe the provisions of the laws and
documents referred to therein, are accurate, complete and fair;
(xvi) The statements set forth in the international version of the
Prospectus under the caption "Certain United States Tax Consequences to
Non-U.S. Holders", insofar as such statements purport to summarize
certain United States federal income and estate tax consequences of the
ownership and dispensation of the Stock by certain non-U.S. holders (as
such term is defined in such Prospectus) of the Shares, provide a fair
summary of such consequences under current law;
(xvii) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would individually
or in the aggregate have a material adverse effect on the current or
future consolidated financial position, stockholders' equity or results
of operations of the Company and its subsidiaries; and, to the best of
the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(xviii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or any
Underwriter for a brokerage commission, finder's fee or other like
payment;
(xix) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require
the Company to file a registration statement under the Act with respect
to any securities of the Company owned or to be owned by such person or
to require the Company to include such securities in the securities
registered pursuant to a Registration Statement or in any securities
being registered pursuant to any other registration statement filed by
the Company under the Act;
(xx) The Shares have been accepted for quotation on the National
Association of Securities Dealers Automated Quotations National Market
System ("NASDAQ") under the symbol "AMTD";
(xxi) The Company is not and, after giving effect to the offering
and sale of the Shares, will not be an "investment company", as such
term is defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");
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<PAGE> 8
(xxii) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Section 517.075, Florida Statutes;
(xxiii) Deloitte & Touche LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(xxiv) The Company has reviewed its operations and that of its
subsidiaries and any third parties with which the Company or any of its
subsidiaries has a material relationship to evaluate the extent to
which the business or operations of the Company or any of its
subsidiaries will be affected by the Year 2000 Problem. As a result of
such review, the Company has no reason to believe, and does not
believe, that the Year 2000 Problem will have a material adverse effect
on the general affairs, management, the current or future consolidated
financial position, business prospects, stockholders' equity or results
of operations of the Company and its subsidiaries or result in any
material loss or interference with the Company's business or
operations. The "Year 2000 Problem" as used herein means any
significant risk that computer hardware or software used in the
receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of
mechanical or electrical systems of any kind will not, in the case of
dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring
prior to January 1, 2000;
(xxv) Except as disclosed in the Prospectus, the Company and its
subsidiaries own or possess or are licensed to use the patents, patent
licenses, trademarks, trade names, service marks, service names,
copyrights and other intellectual property rights (collectively, the
"Intellectual Property") necessary to carry on their business as
presently conducted and as proposed to be conducted, without any
conflict with or infringement of the rights of others except for any
such conflicts or infringements that, individually or in the aggregate,
do not or would not reasonably be expected to have a material adverse
effect on the general affairs, management, the current or future
consolidated financial position, business prospects, stockholders'
equity or results of operations of the Company and its subsidiaries; to
the best knowledge of the Company, none of the technology employed by
the Company or its subsidiaries has been obtained or is being used by
the Company or its subsidiaries in violation of any contractual or
fiduciary obligation binding on the Company, its subsidiaries or any of
their respective directors, employees or consultants or otherwise in
violation of the rights of any person except for any such violations
that, individually or in the aggregate, do not or would not reasonably
be expected to have a material adverse effect on the general affairs,
management, the current or future consolidated financial position,
business prospects, stockholders' equity or results of operations of
the Company and its subsidiaries; except as disclosed in the
Prospectus, neither the Company nor any of its subsidiaries has
received any notice of
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<PAGE> 9
infringement or violation of or conflict with (and knows of no such
infringement or conflict with) asserted rights of others with respect
to any Intellectual Property or any trade secrets, proprietary
information, inventions, know-how, processes and procedures owned, used
by or licensed to the Company or any such subsidiary which,
individually or in the aggregate, if the subject of any unfavorable
decision, ruling or finding, would reasonably be expected to have a
material adverse effect on the general affairs, management, the current
or future consolidated financial position, business prospects,
stockholders' equity or results of operations of the Company and its
subsidiaries;
(xxvi) Except as disclosed in the Prospectus, neither the Company
nor any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any
court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or
restoration of the environment or human exposure to hazardous or toxic
substances (collectively, "environmental laws"), owns or operates any
real property contaminated with any substance that is subject to any
environmental laws, is liable for any off-site disposal or
contamination pursuant to any environmental laws, or is subject to any
claim relating to any environmental laws, which violation,
contamination, liability or claim would individually or in the
aggregate have a material adverse effect on the condition (financial or
other), business or results of operations of the Company and its
subsidiaries taken as a whole; and the Company is not aware of any
pending investigation which might lead to such a claim;
(xxvii) The Company has not taken and will not take, directly or
indirectly, any action designed to or which has constituted or which
might reasonably be expected to cause or result, under the Exchange Act
or otherwise, in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares;
(xxviii) The Company and each of its subsidiaries maintains
reasonably adequate insurance;
(xxix) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
related to or entitling any person to purchase or otherwise to acquire
any shares of the capital stock of, or other ownership interest in, the
Company or any subsidiary thereof except as otherwise disclosed in the
Prospectus;
(xxx) Except as disclosed in the Prospectus, there are no
business relationships or related party transactions required to be
disclosed therein by Item 404 of the Regulation S-K of the Commission;
and
(xxxi) The Company has filed all necessary federal and state
income and franchise tax returns and has paid all taxes shown as due
thereon, and there is no tax
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<PAGE> 10
deficiency that has been, or to the knowledge of the Company might be,
asserted against the Company or any of its properties or assets that
would or could be expected to have a material adverse effect on the
general affairs, management, the current or future consolidated
financial position, business prospects, stockholders' equity or results
of operations of the Company or its subsidiaries or result in any
material loss or interference with the Company's business or
operations, other than any such taxes as are being contested in good
faith and properly reserved for in accordance with generally accepted
accounting principles.
(b) Each of the Selling Stockholders severally represents and warrants
to, and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders necessary
for the execution and delivery by such Selling Stockholder of this
Agreement, the International Underwriting Agreement and, if applicable,
the Custody Agreement and the Power of Attorney hereinafter referred
to, and for the sale and delivery of the Shares to be sold by such
Selling Stockholder hereunder and under the International Underwriting
Agreement, have been obtained; and such Selling Stockholder has full
right, power and authority to enter into this Agreement, the
International Underwriting Agreement and, if applicable, the Custody
Agreement and the Power of Attorney, and to sell, assign, transfer and
deliver the Shares to be sold by such Selling Stockholder hereunder and
under the International Underwriting Agreement;
(ii) No consent, approval, authorization, or order of, or filing
with, any governmental agency or body or any court is required for the
consummation by such Selling Stockholder of the transactions
contemplated by this Agreement, the International Underwriting
Agreement and, if applicable, the Custody Agreement and the Power of
Attorney in connection with the sale of Shares by such Selling
Stockholder, except such as have been obtained and made under the Act
and such as may be required under state securities laws;
(iii) The sale of the Shares to be sold by such Selling
Stockholder hereunder and under the International Underwriting
Agreement and the compliance by such Selling Stockholder with all of
the provisions of this Agreement, the International Underwriting
Agreement and, if applicable, the Custody Agreement and the Power of
Attorney and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation
of any of the terms or provisions of, or constitute a default under,
any statute, indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder is bound, or to which any of
the property or assets of such Selling Stockholder is subject, nor will
such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws or other constituent or
governing document of such Selling Stockholder if such Selling
Stockholder is a corporation or a limited liability
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<PAGE> 11
company, the Partnership Agreement of such Selling Stockholder if such
Selling Stockholder is a partnership or any statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over such Selling Stockholder or the property of such
Selling Stockholder;
(iv) Such Selling Stockholder has, and immediately prior to each
Time of Delivery (as defined in Section 4 hereof) such Selling
Stockholder will have, good and valid title to the Shares to be sold by
such Selling Stockholder hereunder and under the International
Underwriting Agreement, free and clear of all liens, encumbrances,
equities or claims; and assuming that (i) each Underwriter has made
payment for such Shares purchased by it pursuant to this Agreement,
(ii) the Depository Trust Company ("DTC") is a "securities
intermediary" as defined in Section 8-102(a)(14) of the Uniform
Commercial Code as adopted in the State of New York (the "Uniform
Commercial Code"), (iii) DTC has credited such Shares purchased by each
Underwriter to a "securities account" as defined in Section 8-501(a) of
the Uniform Commercial Code maintained by DTC in the name of such
Underwriter, (iv) no Underwriter has any "notice of an adverse claim"
as defined in Sections 8-102(a)(1) (with respect to the definition of
"adverse claim") and 8-105 of the Uniform Commercial Code with respect
to the Shares credited to the securities account maintained in its name
by DTC and (v) no rule adopted by DTC is inconsistent with the sections
of the Uniform Commercial Code referred to herein, each Underwriter has
acquired a "securities entitlement" as defined in Section 8-102(a)(17)
of the Uniform Commercial Code in the Shares credited to the securities
account maintained in its name by DTC and an action based on an adverse
claim to such securities entitlement may not be asserted against such
Underwriter;
(v) During the period beginning from the date hereof and
continuing to and including the date [90] days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose
of, except as provided hereunder or under the International
Underwriting Agreement, any securities of the Company that are
substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially similar
securities (other than pursuant to employee stock option plans existing
on, or upon the conversion or exchange of convertible or exchangeable
securities outstanding as of, the date of this Agreement), without your
prior written consent;
(vi) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares;
(vii) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto are made in reliance upon and in
conformity with written information furnished to
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<PAGE> 12
the Company by such Selling Stockholder expressly for use therein, such
Preliminary Prospectus and the Registration Statement did, and the
Prospectus and any further amendments or supplements to the
Registration Statement and the Prospectus, when they become effective
or are filed with the Commission, as the case may be, will conform in
all material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder and will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading;
(viii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or
at the First Time of Delivery (as hereinafter defined) a properly
completed and executed United States Treasury Department Form W-9 (or
other applicable form or statement specified by Treasury Department
regulations in lieu thereof);
(ix) With respect to each Selling Stockholder that has executed
and delivered a Custody Agreement and a Power of Attorney, certificates
in negotiable form representing all of the Shares to be sold by such
Selling Stockholder hereunder and under the International Underwriting
Agreement have been placed in custody under a Custody Agreement, in the
form heretofore furnished to you (the "Custody Agreement"), duly
executed and delivered by such Selling Stockholder to [-], as custodian
(the "Custodian"), and such Selling Stockholder has duly executed and
delivered a Power of Attorney, in the form heretofore furnished to you
(the "Power of Attorney"), appointing the persons indicated in Schedule
II hereto, and each of them, as such Selling Stockholder's
attorneys-in-fact (the "Attorneys-in-Fact") with authority to execute
and deliver this Agreement and the International Underwriting Agreement
on behalf of such Selling Stockholder, to determine the purchase price
to be paid by the Underwriters and the International Underwriters to
the Selling Stockholders as provided in Section 2 hereof, to authorize
the delivery of the Shares to be sold by such Selling Stockholder
hereunder and otherwise to act on behalf of such Selling Stockholder in
connection with the transactions contemplated by this Agreement, the
International Underwriting Agreement and the Custody Agreement; and
(x) With respect to each Selling Stockholder that has executed
and delivered a Custody Agreement and a Power of Attorney, the Shares
represented by the certificates held in custody for such Selling
Stockholder under the Custody Agreement are subject to the interests of
the Underwriters hereunder and the International Underwriters under the
International Underwriting Agreement; the arrangements made by such
Selling Stockholder for such custody, and the appointment by such
Selling Stockholder of the Attorneys-in-Fact by the Power of Attorney,
are to that extent irrevocable; the obligations of the Selling
Stockholders hereunder shall not be terminated by operation of law,
whether by the death or incapacity of any individual Selling
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<PAGE> 13
Stockholder or, in the case of an estate or trust, by the death or
incapacity of any executor or trustee or the termination of such estate
or trust, or in the case of a partnership or corporation, by the
dissolution of such partnership or corporation, or by the occurrence of
any other event; if any individual Selling Stockholder or any such
executor or trustee should die or become incapacitated, or if any such
estate or trust should be terminated, or if any such partnership or
corporation should be dissolved, or if any other such event should
occur, before the delivery of the Shares hereunder, certificates
representing the Shares shall be delivered by or on behalf of the
Selling Stockholders in accordance with the terms and conditions of
this Agreement, of the International Underwriting Agreement and of the
Custody Agreements; and actions taken by the Attorneys-in-Fact pursuant
to the Powers of Attorney shall be as valid as if such death,
incapacity, termination, dissolution or other event had not occurred,
regardless of whether or not the Custodian, the Attorneys-in-Fact, or
any of them, shall have received notice of such death, incapacity,
termination, dissolution or other event.
2. (a) Subject to the terms and conditions herein set forth, the
Company and each of the Selling Stockholders agree, severally and not jointly,
to sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company and each of the Selling
Stockholders, at a purchase price per share of $[-], the number of Firm Shares
(to be adjusted by you so as to eliminate fractional shares) determined by
multiplying the aggregate number of Firm Shares to be sold by the Company and
each of the Selling Stockholders as set forth opposite their respective names in
Schedule II hereto by a fraction, the numerator of which is the aggregate number
of Firm Shares to be purchased by such Underwriter as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the aggregate number of Firm Shares to be purchased by all of the Underwriters
from the Company and all of the Selling Stockholders hereunder and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company and each of the Selling
Stockholders agree, severally and not jointly to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company and each of the Selling Stockholders, at the purchase
price per share set forth in clause (a) of this Section 2, that portion of the
number of Optional Shares as to which such election shall have been exercised
(to be adjusted by you so as to eliminate fractional shares) determined by
multiplying such number of Optional Shares by a fraction the numerator of which
is the maximum number of Optional Shares which such Underwriter is entitled to
purchase as set forth opposite the name of such Underwriter in Schedule I hereto
and the denominator of which is the maximum number of Optional Shares that all
of the Underwriters are entitled to purchase hereunder.
The Company and the Selling Stockholders, as and to the extent
indicated in Schedule II hereto, hereby grant, severally and not jointly, to the
Underwriters the right to purchase at their election up to [-] Optional Shares,
at the purchase price per share set forth in the paragraph above, for the sole
purpose of covering sales of shares in excess of the number of Firm Shares. Any
such election to purchase Optional Shares shall be made in proportion to the
maximum
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<PAGE> 14
number of Optional Shares to be sold by the Company and each Selling Stockholder
as set forth in Schedule II hereto. Any such election to purchase Optional
Shares may be exercised only by written notice from you to the Company and the
Attorneys-in-Fact, given within a period of 30 calendar days after the date of
this Agreement and setting forth the aggregate number of Optional Shares to be
purchased and the date on which such Optional Shares are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4 hereof) or, unless you and the Company and the
Attorneys-in-Fact otherwise agree in writing, earlier than two or later than ten
business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares,
the several Underwriters propose to offer the Firm Shares for sale upon the
terms and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company and the Selling Stockholders shall be delivered by or on
behalf of the Company and the Selling Stockholders to Goldman, Sachs & Co.,
through the facilities of DTC, for the account of such Underwriter, against
payment by or on behalf of such Underwriter of the purchase price therefor by
wire transfer of Federal (same-day) funds to the account specified by the
Company and each of the Selling Stockholders, as their interests may appear, to
Goldman, Sachs & Co. at least forty-eight hours in advance. The Company will
cause the certificates representing the Shares to be made available for checking
and packaging at least twenty-four hours prior to the Time of Delivery (as
defined below) with respect thereto at the office of DTC or its designated
custodian (the "Designated Office"). The time and date of such delivery and
payment shall be, with respect to the Firm Shares, 9:30 a.m., New York City
time, on July ___, 1999 or such other time and date as Goldman, Sachs & Co., the
Company and the [SELLING STOCKHOLDERS] [CUSTODIAN] may agree upon in writing,
and, with respect to the Optional Shares, 9:30 a.m., New York City time, on the
date specified by Goldman, Sachs & Co. in the written notice given by Goldman,
Sachs & Co. of the Underwriters' election to purchase such Optional Shares, or
such other time and date as Goldman, Sachs & Co., the Company and the Selling
Stockholders may agree upon in writing. Such time and date for delivery of the
Firm Shares is herein called the "First Time of Delivery", such time and date
for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross-receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(l) hereof, will be delivered at the offices
of Mayer, Brown & Platt, 190 South LaSalle Street, Chicago, Illinois 60603 (the
"Closing Location"), and the Shares will be delivered at the Designated Office,
all at each Time of Delivery. A meeting will be held at the Closing Location on
the New York Business
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<PAGE> 15
Day next preceding each Time of Delivery, at which meeting the final drafts of
the documents to be delivered pursuant to the preceding sentence will be
available for review by the parties hereto. For the purposes of this Section 4,
"New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York are
generally authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to
file the United States version of such Prospectus pursuant to Rule
424(b) under the Act not later than the Commission's close of business
on the second business day following the execution and delivery of this
Agreement, or, if applicable, such earlier time as may be required by
Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus prior to the
last Time of Delivery which shall be disapproved by you promptly after
reasonable notice thereof; to advise you, promptly after it receives
notice thereof, of the time when any amendment to the Registration
Statement has been filed or becomes effective or any supplement to the
Prospectus or any amended Prospectus has been filed and to furnish you
copies thereof; to file promptly all reports and any definitive proxy
or information statements required to be filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of the Prospectus and for so long
as the delivery of a prospectus is required in connection with the
offering or sale of the Shares; to advise you, promptly after it
receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction,
of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus or suspending any such
qualification, promptly to use its best efforts to obtain the
withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under
the securities laws of such jurisdictions as you may request and to
comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary
to complete the distribution of the Shares, provided that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time
to time, to furnish the Underwriters with copies of the Prospectus in
New York City in such quantities as you
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<PAGE> 16
may reasonably request, and, if the delivery of a prospectus is
required at any time prior to the expiration of nine months after the
time of issue of the Prospectus in connection with the offering or sale
of the Shares and if at such time any events shall have occurred as a
result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such
Prospectus is delivered, not misleading, or, if for any other reason it
shall be necessary during such period to amend or supplement the
Prospectus or to file under the Exchange Act any document incorporated
by reference in the Prospectus in order to comply with the Act or the
Exchange Act, to notify you and upon your request to file such document
and to prepare and furnish without charge to each Underwriter and to
any dealer in securities as many copies as you may from time to time
reasonably request of an amended Prospectus or a supplement to the
Prospectus which will correct such statement or omission or effect such
compliance, and in case any Underwriter is required to deliver a
prospectus in connection with sales of any of the Shares at any time
nine months or more after the time of issue of the Prospectus, upon
your request but at the expense of such Underwriter, to prepare and
deliver to such Underwriter as many copies as you may request of an
amended or supplemented Prospectus complying with Section 10(a)(3) of
the Act;
(d) To make generally available to its securityholders as soon
as practicable, but in any event not later than eighteen months after
the effective date of the Registration Statement (as defined in Rule
158(c) under the Act), an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a)
of the Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and
continuing to and including the date [90 DAYS] after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose
of, except as provided hereunder and under the International
Underwriting Agreement, any securities of the Company that are
substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially similar
securities (other than pursuant to employee stock option plans existing
on, or upon the conversion or exchange of convertible or exchangeable
securities outstanding as of, the date of this Agreement), without your
prior written consent;
(f) To furnish to its stockholders as soon as practicable after
the end of each fiscal year an annual report (including a balance sheet
and statements of income, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries certified by independent
public accountants) and, as soon as practicable after the end of each
of the first three quarters of each fiscal year (beginning with the
fiscal quarter ending after the effective date of the Registration
Statement), to make available to its
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<PAGE> 17
stockholders consolidated summary financial information of the Company
and its subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of
the Registration Statement, to furnish to you copies of all reports or
other communications (financial or other) furnished to stockholders,
and to deliver to you (i) as soon as they are available, copies of any
reports and financial statements furnished to or filed with the
Commission or any national securities exchange on which any class of
securities of the Company is listed; and (ii) such additional
information concerning the business and financial condition of the
Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of
the Company and its subsidiaries are consolidated in reports furnished
to its stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement and the International Underwriting
Agreement in the manner specified in the Prospectus under the caption
"Use of Proceeds";
(i) To obtain and deliver to the Underwriters executed copies
of lock-up agreements from each of the stockholders of the Company set
forth in Annex I hereto in form and substance satisfactory to you; and
(j) If the Company elects to rely upon Rule 462(b), the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on
the date of this Agreement, and the Company shall at the time of filing
either pay to the Commission the filing fee for the Rule 462(b)
Registration Statement or give irrevocable instructions for the payment
of such fee pursuant to Rule 111(b) under the Act.
6. The Company and each of the Selling Stockholders, jointly and
severally, covenant and agree with one another and with the several Underwriters
that (a) the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the International Underwriting
Agreement, the Agreement between Syndicates, the Selling Agreements, the Blue
Sky Memorandum, closing documents (including any compilations thereof) and any
other documents in connection with the offering, purchase, sale and delivery of
the Shares; (iii) all expenses in connection with the qualification of the
Shares for offering and sale under state securities laws as provided in Section
5(b) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in
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<PAGE> 18
connection with the Blue Sky surveys; (iv) all fees and expenses in connection
with having the Shares accepted for quotation on NASDAQ; (v) the filing fees
incident to, and the fees and disbursements of counsel for the Underwriters in
connection with, securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the sale of the Shares; (vi) the cost
of preparing stock certificates; (vii) the cost and charges of any transfer
agent or registrar; (viii) any fees and expenses of counsel for the Selling
Stockholders, the fees and expenses of the Attorneys-in-Fact and the Custodian
and all expenses and taxes incident to the sale and delivery of the Shares to be
sold by the Selling Stockholders to the Underwriters hereunder; and (ix) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section 6;
and (b) each Selling Stockholder will pay or cause to be paid, all costs and
expenses incurred by such Selling Stockholder incident to the performance of
such Selling Stockholder's obligations hereunder which are not otherwise
specifically provided for in this Section, including (i) any fees and expenses
of any counsel for such Selling Stockholder in addition to the counsel referred
to in clause (a)(viii), and (ii) all expenses and taxes incident to the sale and
delivery of the Shares to be sold by such Selling Stockholder to the
Underwriters hereunder. In connection with clause (b) (ii) of the preceding
sentence, Goldman, Sachs & Co. agrees to pay New York State stock transfer tax,
and the Selling Stockholder agrees to reimburse Goldman, Sachs & Co. for
associated carrying costs if such tax payment is not rebated on the day of
payment and for any portion of such tax payment not rebated. It is understood,
however, that the Company shall bear, and the Selling Stockholders shall not be
required to pay or to reimburse the Company for, the cost of any other matters
not directly relating to the sale and purchase of the Shares pursuant to this
Agreement, and that except as provided in this Section, and Sections 8 and 11
hereof, the Underwriters will pay all of their own costs and expenses, including
the fees of their counsel, stock transfer taxes on resale of any of the Shares
by them, and any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to
be delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and of the Selling Stockholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed all of its and their obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The United States version of the Prospectus shall have been
filed with the Commission pursuant to Rule 424(b) within the applicable
time period prescribed for such filing by the rules and regulations
under the Act and in accordance with Section 5(a) hereof; if the
Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M.,
Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all requests
for additional
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information on the part of the Commission shall have been complied with
to your reasonable satisfaction;
(b) Sullivan & Cromwell, counsel for the Underwriters, shall
have furnished to you such written opinion or opinions, dated such Time
of Delivery, with respect to the Shares, the Registration Statement,
the Prospectus and such other related matters as you may reasonably
request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon
such matters;
(c) Mayer, Brown & Platt, counsel for the Company, shall have
furnished to you their written opinion, dated such Time of Delivery, in
form and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with power and authority (corporate and other)
to own its properties and conduct its business as described in the
Prospectus;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company (including the Shares being delivered at such
Time of Delivery) have been duly and validly authorized and issued
and are fully paid and non-assessable; and the Shares conform to
the description of the Stock contained in the Prospectus, and the
certificates for the Shares comply with the requirements of the
Delaware General Corporation Law;
(iii) The Shares to be delivered by the Company and the
Selling Stockholders and all outstanding shares of the capital
stock of the Company have been duly authorized, validly issued and,
with respect only to the Shares to be issued and sold by the
Company assuming receipt of the agreed upon consideration therefor,
are fully paid and nonassessable; and the stockholders of the
Company have no statutory or to such counsel's knowledge after due
inquiry, other preemptive rights with respect to the Stock;
(iv) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability
by reason of failure to be so qualified in any such jurisdiction
(such counsel being entitled to rely in respect of the opinion in
this clause upon opinions of local counsel and in respect of
matters of fact upon certificates of officers of the Company,
provided that such counsel shall state that they believe that both
you and they are justified in relying upon such opinions and
certificates);
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<PAGE> 20
(v) Each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation; and
all of the issued shares of capital stock of each such subsidiary
have been duly and validly authorized and issued, are fully paid
and non-assessable, and, except as disclosed in the Registration
Statement, the Company owns directly or indirectly 100% of the
outstanding capital stock of each subsidiary, free and clear of all
liens, encumbrances, equities or claims (such counsel being
entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect of matters of fact upon
certificates of officers of the Company or its subsidiaries,
provided that such counsel shall state that they believe that both
you and they are justified in relying upon such opinions and
certificates);
(vi) To the best of such counsel's knowledge and other
than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or
any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on
the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and
its subsidiaries; and, to the best of such counsel's knowledge, no
such proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(vii) This Agreement and the International Underwriting
Agreement have been duly authorized, executed and delivered by the
Company;
(viii) The issue and sale of the Shares being delivered at
such Time of Delivery to be sold by the Company and the compliance
by the Company with all of the provisions of this Agreement and the
International Underwriting Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with
or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of
the Company or any of its subsidiaries is subject, nor will such
action result in any violation of the provisions of the Certificate
of Incorporation or By-laws of the Company or any statute or any
order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company or
any of its subsidiaries or any of their properties;
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<PAGE> 21
(ix) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of
the Shares or the consummation by the Company of the transactions
contemplated by this Agreement and the International Underwriting
Agreement, except the registration under the Act of the Shares, and
such consents, approvals, authorizations, registrations or
qualifications as may be required under state or foreign securities
or Blue Sky laws in connection with the purchase and distribution
of the Shares by the Underwriters and the International
Underwriters;
(x) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in
default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which it is a party or by which it or
any of its properties may be bound;
(xi) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the capital stock of the
Company therein described and under the caption "Underwriting",
insofar as they purport to describe the provisions of the laws and
documents referred to therein, are accurate, complete and fair; and
the statements set forth in the international version of the
Prospectus under the caption "Certain United States Tax
Consequences to non-U.S. Holders", in so far as such statements
purport to summarize certain United States federal income and
estate tax consequences of the ownership and dispensation of the
Stock by such non-U.S. Holders (as such term is defined in the such
Prospectus) of the Shares, provide a fair summary of such
consequences under current law.
(xii) The Company is not an "investment company", as such
term is defined in the Investment Company Act;
(xiii) The documents incorporated by reference in the
Prospectus or any further amendment or supplement thereto made by
the Company prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to which
such counsel need express no opinion), when they became effective
or were filed with the Commission, as the case may be, complied as
to form in all material respects with the requirements of the Act
or the Exchange Act, as applicable, and the rules and regulations
of the Commission thereunder; and they have no reason to believe
that any of such documents, when such documents became effective or
were so filed, as the case may be, contained, in the case of a
registration statement which became effective under the Act, an
untrue statement of a material fact or omitted to state a material
fact required to
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<PAGE> 22
be stated therein or necessary to make the statements therein not
misleading, or, in the case of other documents which were filed
under the Exchange Act with the Commission, an untrue statement
of a material fact or omitted to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made when such documents were
so filed, not misleading; and
(xiv) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company
prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such
counsel need express no opinion) comply as to form in all
material respects with the requirements of the Act and the rules
and regulations thereunder; although they do not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the
Prospectus, except for those referred to in the opinion in
subsection (xii) of this Section 7(c), they have no reason to
believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company
prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such
counsel need express no opinion) contained an untrue statement of
a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading or that, as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading or that, as of such Time of Delivery, either
the Registration Statement or the Prospectus or any further
amendment or supplement thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no
opinion) contains an untrue statement of a material fact or omits
to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading; and they do not know of any amendment to
the Registration Statement required to be filed or of any
contracts or other documents of a character required to be filed
as an exhibit to the Registration Statement or required to be
incorporated by reference into the Prospectus or required to be
described in the Registration Statement or the Prospectus which
are not filed or incorporated by reference or described as
required.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than as to the laws of State of
New York, the General Corporation Law of the State of Delaware and the Federal
laws of the United States;
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<PAGE> 23
(d) The respective counsel for each of the Selling Stockholders, as
indicated in Schedule II hereto, each shall have furnished to you their written
opinion with respect to each of the Selling Stockholders for whom they are
acting as counsel, dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) A Power of Attorney and a Custody Agreement have been duly
executed and delivered by such Selling Stockholder (to the extent such
Selling Stockholder has executed and delivered a Power of Attorney and
a Custody Agreement) and constitute valid and binding agreements of
such Selling Stockholder in accordance with their terms;
(ii) This Agreement and the International Underwriting Agreement
have been duly executed and delivered by or on behalf of such Selling
Stockholder; and the sale of the Shares to be sold by such Selling
Stockholder hereunder and thereunder and the compliance by such Selling
Stockholder with all of the provisions of this Agreement and the
International Underwriting Agreement and, if applicable, the Power of
Attorney and the Custody Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any terms or provisions of, or
constitute a default under, any statute, indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument known to such
counsel to which such Selling Stockholder is a party or by which such
Selling Stockholder is bound, or to which any of the property or assets
of such Selling Stockholder is subject, nor will such action result in
any violation of the provisions of the Certificate of Incorporation or
By-laws or other constituent or governing document of such Selling
Stockholder if such Selling Stockholder is a corporation or a limited
liability company, the Partnership Agreement of such Selling
Stockholder if such Selling Stockholder is a partnership or any order,
rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over such Selling Stockholder or the
property of such Selling Stockholder;
(iii) No consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation of the
transactions contemplated by this Agreement and the International
Underwriting Agreement in connection with the Shares to be sold by such
Selling Stockholder hereunder or thereunder, except such as may be
required under state or foreign securities or Blue Sky laws in
connection with the purchase and distribution of such Shares by the
Underwriters or the International Underwriters; and
(iv) Assuming that (i) each Underwriter has made payment for such
Shares purchased by it pursuant to this Agreement, (ii) DTC is a
"securities intermediary" as defined in Section 8-102(a)(14) of the
Uniform Commercial Code, (iii) DTC has credited such Shares purchased
by each Underwriter to a "securities account" as defined in Section
8-501(a) of the Uniform Commercial Code maintained by DTC in the name
of such Underwriter, (iv) no Underwriter has any "notice of an adverse
claim" as defined in Sections 8-102(a)(1) (with respect to the
definition of "adverse claim") and 8-105 of the
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<PAGE> 24
Uniform Commercial Code with respect to the Shares credited to the
securities account maintained in its name by DTC and (v) no rule
adopted by DTC is inconsistent with the sections of the Uniform
Commercial Code referred to herein, each Underwriter has acquired a
"securities entitlement" as defined in Section 8-102(a)(17) of the
Uniform Commercial Code in the Shares credited to the securities
account maintained in its name by DTC and an action based on an adverse
claim to such securities entitlement may not be asserted against such
Underwriter.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction outside the United States and in
rendering the opinion in subparagraph (iv) such counsel may rely upon a
certificate of such Selling Stockholder in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on the Shares sold by
such Selling Stockholder, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such certificate;
(e) On the date of the Prospectus at a time prior to the execution
of this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed subsequent to
the date of this Agreement and also at each Time of Delivery, Deloitte & Touche
LLP shall have furnished to you a letter or letters, dated the respective dates
of delivery thereof, in form and substance satisfactory to you to the effect set
forth in Annex II hereto (the executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex II(a) hereto and a draft of the
form of letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex II(b) hereto);
(f)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus, and
(ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock (other than
pursuant to any employee benefit or incentive plan in existence on the date of
this Agreement) or increase in the long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a prospective change,
in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(g) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities or preferred stock
by any "nationally recognized
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<PAGE> 25
statistical rating organization", as that term is defined by the Commission for
purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall
have publicly announced that it has under surveillance or review, with possible
negative implications, its rating of any of the Company's debt securities or
preferred stock;
(h) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on NASDAQ; (ii) a suspension or
material limitation in trading in the Company's securities on NASDAQ; (iii) a
general moratorium on commercial banking activities declared by either Federal
or New York State authorities; or (iv) the outbreak or escalation of hostilities
involving the United States or the declaration by the United States of a
national emergency or war, if the effect of any such event specified in this
clause (iv) in the judgment of the Representatives makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares
being delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(i) The Shares to be sold by the Company and the Selling Stockholders
at such Time of Delivery shall have been duly accepted for quotation on NASDAQ;
(j) The Company has obtained and delivered to the Underwriters executed
copies of lock-up agreements from each of the stockholders of the Company set
forth in Annex I hereto in form and substance satisfactory to you;
(k) The Company shall have complied with the provisions of Section 5(c)
hereof with respect to the furnishing of prospectuses on the New York Business
Day next succeeding the date of this Agreement; and
(l) The Company and the Selling Stockholders shall have furnished or
caused to be furnished to you at such Time of Delivery certificates of officers
of the Company and of the Selling Stockholders, respectively, satisfactory to
you as to the accuracy of the representations and warranties of the Company and
the Selling Stockholders, respectively, herein at and as of such Time of
Delivery, as to the performance by the Company and the Selling Stockholders of
all of their respective obligations hereunder to be performed at or prior to
such Time of Delivery, and as to such other matters as you may reasonably
request, and the Company shall have furnished or caused to be furnished
certificates as to the matters set forth in subsections (a) and (e) of this
Section, and as to such other matters as you may reasonably request.
8. (a) The Company and each of the Selling Stockholders, jointly and
severally, will indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment
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<PAGE> 26
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that the Company and the
Selling Stockholders shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Goldman, Sachs &
Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company and
each Selling Stockholder against any losses, claims, damages or liabilities to
which the Company or such Selling Stockholder may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs & Co.
expressly for use therein; and will reimburse the Company and each Selling
Stockholder for any legal or other expenses reasonably incurred by the Company
or such Selling Stockholder in connection with investigating or defending any
such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying party
under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (which shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified
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<PAGE> 27
party, in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of any indemnified
party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Stockholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Shares purchased
under this Agreement (before deducting expenses) received by the Company and the
Selling Stockholders bear to the total underwriting discounts and commissions
received by the Underwriters with respect to the Shares purchased under this
Agreement, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholders on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, each of the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this subsection (d)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
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<PAGE> 28
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company and the Selling Stockholders under
this Section 8 shall be in addition to any liability which the Company and the
respective Selling Stockholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company (including any person
who, with his or her consent, is named in the Registration Statement as about to
become a director of the Company) and to each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company and the Selling Stockholders shall be entitled to
a further period of thirty-six hours within which to procure another party or
other parties satisfactory to you to purchase such Shares on such terms. In the
event that, within the respective prescribed periods, you notify the Company and
the Selling Stockholders that you have so arranged for the purchase of such
Shares, or the Company and the Selling Stockholders notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Stockholders shall have the right to postpone such Time of Delivery for a period
of not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders
-28-
<PAGE> 29
as provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
of the Shares to be purchased at such Time of Delivery, then the Company and the
Selling Stockholders shall have the right to require each non-defaulting
Underwriter to purchase the number of Shares which such Underwriter agreed to
purchase hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such arrangements have not
been made; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of Delivery
or if the Company and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Company and the Selling Stockholders to sell
the Optional Shares) shall thereupon terminate, without liability on the part of
any non-defaulting Underwriter or the Company or the Selling Stockholders,
except for the expenses to be borne by the Company and the Selling Stockholders
and the Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any of the Selling Stockholders, or any officer
or director or controlling person of the Company, or any controlling person of
any Selling Stockholder, and shall survive delivery of and payment for the
Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Company and the Selling Stockholders as provided herein, the Company and each of
the Selling Stockholders pro rata (based on the number of Shares to be sold by
the Company and such Selling Stockholder hereunder), will reimburse the
Underwriters through you for all out-of-pocket expenses approved in writing by
you, including fees and disbursements of counsel, reasonably incurred by the
Underwriters in making preparations for the purchase, sale and delivery of the
Shares not so delivered, but the Company and the Selling Stockholders shall
-29-
<PAGE> 30
then be under no further liability to any Underwriter in respect of the Shares
not so delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration
Department; if to any Selling Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Stockholder at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Secretary; provided,
however, that any notice to an Underwriter pursuant to Section 8(c) hereof shall
be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire or telex
constituting such Questionnaire, which address will be supplied to the Company
or the Selling Stockholders by you upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and the Selling Stockholders and, to
the extent provided in Sections 8 and 10 hereof, the officers and directors of
the Company and each person who controls the Company, any Selling Stockholder or
any Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
-30-
<PAGE> 31
If the foregoing is in accordance with your understanding, please sign
and return to us ten counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement among each of the Underwriters, the Company
and each of the Selling Stockholders. It is understood that your acceptance of
this letter on behalf of each of the Underwriters is pursuant to the authority
set forth in a form of Agreement among Underwriters (U.S. Version), the form of
which shall be submitted to the Company and the Selling Stockholders for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
-31-
<PAGE> 32
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder represents by so doing that he has been duly appointed
as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-Fact to take
such action.
Very truly yours,
AMERITRADE HOLDING CORPORATION
By: ..................................
Name:
Title:
[NAMES OF SELLING STOCKHOLDERS]
By: ..................................
Name:
Title:
As Attorney-in-Fact acting on behalf of
each of the Selling Stockholders
indicated within Schedule II to this
Agreement.
Accepted as of the date hereof:
GOLDMAN, SACHS & CO.
[NAME(S) OF CO-REPRESENTATIVE(S)]
.....................................
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
-32-
<PAGE> 33
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co...............................
[NAMES OF OTHER UNDERWRITERS].....................
----------- ------------
Total...........................
=========== ============
</TABLE>
I-1
<PAGE> 34
SCHEDULE II
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Total Number of Sold if
Firm Shares Maximum Option
to be Sold Exercised
--------------- ------------------
<S> <C> <C>
The Selling Stockholder(s):
[NAME OF SELLING STOCKHOLDER](a).........
[NAME OF SELLING STOCKHOLDER](b).........
[NAME OF SELLING STOCKHOLDER](c).........
[NAME OF SELLING STOCKHOLDER](d).........
[NAME OF SELLING STOCKHOLDER](e).........
----------- ------------
Total...........................
=========== ============
</TABLE>
(a) This Selling Stockholder is represented by [COUNSEL] and has
appointed [NAMES OF ATTORNEYS-IN-FACT], and each of them, as the
Attorneys-in-Fact for such Selling Stockholder.
(b) This Selling Stockholder is represented by [COUNSEL] and has
appointed [NAMES OF ATTORNEYS-IN-FACT], and each of them, as the
Attorneys-in-Fact for such Selling Stockholder.
(c) This Selling Stockholder is represented by [COUNSEL] and has
appointed [NAMES OF ATTORNEYS-IN-FACT], and each of them, as the
Attorneys-in-Fact for such Selling Stockholder.
(d) This Selling Stockholder is represented by [COUNSEL] and has
appointed [NAMES OF ATTORNEYS-IN-FACT], and each of them, as the
Attorneys-in-Fact for such Selling Stockholder.
(e) This Selling Stockholder is represented by [COUNSEL] and has
appointed [NAMES OF ATTORNEYS-IN-FACT], and each of them, as the
Attorneys-in-Fact for such Selling Stockholder.
II-1
<PAGE> 35
ANNEX I
[LIST OF STOCKHOLDERS OTHER THAN SELLING STOCKHOLDERS SUBJECT TO LOCK-UP]
A-I-1
<PAGE> 36
ANNEX II
[EXECUTED ACCOUNTANTS' COMFORT LETTER, DATED THE DATE HEREOF, AND FORM OF
BRING-DOWN COMFORT LETTER.]
A-II-1
<PAGE> 37
AMERITRADE HOLDING CORPORATION
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
UNDERWRITING AGREEMENT
(INTERNATIONAL VERSION)
July __, 1999
Goldman Sachs International,
[NAME(S) OF OTHER CO-LEAD MANAGERS OR
MANAGING UNDERWRITERS,]
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman Sachs International,
Peterborough Court, 133 Fleet Street,
London EC4A 2BB, England.
Ladies and Gentlemen:
Ameritrade Holding Corporation, a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of [-] shares and, at the election of the Underwriters, up to [-] additional
shares of Class A Common Stock (par value $.01 per share) ("Stock") of the
Company, and the stockholders of the Company named in Schedule II hereto (the
"Selling Stockholders") propose, subject to the terms and conditions stated
herein, to sell to the Underwriters an aggregate of [-] shares and, at the
election of the Underwriters, up to [-] additional shares of Stock. The
aggregate of [-] shares to be sold by the Company and the Selling Stockholders
is herein called "Firm Shares" and the aggregate of [-] additional shares to be
sold by the Company and the Selling Stockholders is herein called the "Optional
Shares". The Firm Shares and the Optional Shares which the Underwriters elect to
purchase pursuant to Section 2 hereof are herein collectively called, the
"Shares".
It is understood and agreed to by all parties that the Company and the
Selling Stockholders are concurrently entering into an agreement, a copy of
which is attached hereto (the "U.S. Underwriting Agreement"), providing for the
sale by the Company and the Selling Stockholders of up to a total of [-] shares
of Stock (the "U.S. Shares"), including the overallotment option thereunder,
through arrangements with certain underwriters in the United States (the "U.S.
Underwriters"), for whom Goldman, Sachs & Co. and [-] are acting as
representatives. Anything herein or therein to the contrary notwithstanding, the
respective closings under this Agreement and the U.S. Underwriting Agreement are
hereby
<PAGE> 38
expressly made conditional on one another. The Underwriters hereunder and the
U.S. Underwriters are simultaneously entering into an Agreement between U.S. and
International Underwriting Syndicates (the "Agreement between Syndicates") which
provides, among other things, for the transfer of shares of Stock between the
two syndicates and for consultation by the Lead Managers hereunder with Goldman,
Sachs & Co. prior to exercising the rights of the Underwriters under Section 7
hereof. Two forms of prospectus are to be used in connection with the offering
and sale of shares of Stock contemplated by the foregoing, one relating to the
Shares hereunder and the other relating to the U.S. Shares. The latter form of
prospectus will be identical to the former except for certain substitute pages
as included in the registration statement and amendments thereto as mentioned
below. Except as used in Sections 2, 3, 4, 9 and 11 herein, and except as
context may otherwise require, references hereinafter to the Shares shall
include all of the shares of Stock which may be sold pursuant to either this
Agreement or the U.S. Underwriting Agreement, and references herein to any
prospectus whether in preliminary or final form, and whether as amended or
supplemented, shall include both the U.S. and the international versions
thereof.
In addition, this Agreement incorporates by reference certain
provisions from the U.S. Underwriting Agreement (including the related
definitions of terms, which are also used elsewhere herein) and, for purposes of
applying the same, references (whether in these precise words or their
equivalent) in the incorporated provisions to the "Underwriters" shall be to the
Underwriters hereunder, to the "Shares" shall be to the Shares hereunder as just
defined, to "this Agreement" (meaning therein the U.S. Underwriting Agreement)
shall be to this Agreement (except where this Agreement is already referred to
or as the context may otherwise require) and to the representatives of the
Underwriters or to Goldman, Sachs & Co. shall be to the addressees of this
Agreement and to Goldman Sachs International ("GSI"), and, in general, all such
provisions and defined terms shall be applied mutatis mutandis as if the
incorporated provisions were set forth in full herein having regard to their
context in this Agreement as opposed to the U.S. Underwriting Agreement.
1. The Company and each of the several Selling Stockholders hereby make
to the Underwriters the same respective representations, warranties and
agreements as are set forth in Section 1 of the U.S. Underwriting Agreement,
which Section is incorporated herein by this reference.
2. (a) Subject to the terms and conditions herein set forth, the
Company and each of the Selling Stockholders agree, severally and not jointly,
to sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company and each of the Selling
Stockholders, at a purchase price per share of $[-], the number of Firm Shares
(to be adjusted by you so as to eliminate fractional shares) determined by
multiplying the aggregate number of Firm Shares to be sold by the Company and
each of the Selling Stockholders as set forth opposite their respective names in
Schedule II hereto by a fraction, the numerator of which is the aggregate number
of Firm Shares to be purchased by such Underwriter as set forth opposite the
name of
-2-
<PAGE> 39
such Underwriter in Schedule I hereto and the denominator of which is the
aggregate number of Firm Shares to be purchased by all the Underwriters from the
Company and all the Selling Stockholders hereunder and (b) in the event and to
the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company and each of the Selling
Stockholders agree, severally and not jointly, to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company and each of the Selling Stockholders, at the purchase
price per share set forth in clause (a) of this Section 2, that portion of the
number of Optional Shares as to which such election shall have been exercised
(to be adjusted by you so as to eliminate fractional shares) determined by
multiplying such number of Optional Shares by a fraction the numerator of which
is the maximum number of Optional Shares which such Underwriter is entitled to
purchase as set forth opposite the name of such Underwriter in Schedule I hereto
and the denominator of which is the maximum number of Optional Shares that all
of the Underwriters are entitled to purchase hereunder.
The Company and the Selling Stockholders, as and to the extent
indicated in Schedule II hereto, hereby grant, severally and not jointly, to the
Underwriters the right to purchase at their election up to [-] Optional Shares,
at the purchase price per share set forth in the paragraph above, for the sole
purpose of covering sales of shares in excess of the number of Firm Shares. Any
such election to purchase Optional Shares shall be made in proportion to the
maximum number of Optional Shares to be sold by the Company and each Selling
Stockholder as set forth in Schedule II hereto. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company
and the Attorneys-in-Fact, given within a period of 30 calendar days after the
date of this Agreement and setting forth the aggregate number of Optional Shares
to be purchased and the date on which such Optional Shares are to be delivered,
as determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4 hereof) or, unless you and the Company and the
Attorneys-in-Fact otherwise agree in writing, earlier than two or later than ten
business days after the date of such notice.
3. Upon the authorization by GSI of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus and in the forms of Agreement among
Underwriters (International Version) and Selling Agreements, which have been
previously submitted to the Company by you. Each Underwriter hereby makes to and
with the Company and the Selling Stockholders the representations and agreements
of such Underwriter as a member of the selling group contained in Sections 3(d)
and 3(e) of the form of Selling Agreements.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company and the Selling Stockholders shall be delivered by or on
behalf of the Company and the Selling Stockholders to Goldman, Sachs & Co.,
through the facilities of The Depository Trust Company ("DTC"), for the account
of such Underwriter, against payment by or on behalf of such Underwriter of the
purchase price therefor by wire transfer of Federal (same-day)
-3-
<PAGE> 40
funds to the account specified by the Company and each of the Selling
Stockholders, as their interests may appear, to Goldman, Sachs & Co. at least
forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m., New York City time, on July __, 1999 or such
other time and date as Goldman, Sachs & Co., the Company and the [SELLING
STOCKHOLDERS][CUSTODIAN] may agree upon in writing, and, with respect to the
Optional Shares, 9:30 a.m., New York time, on the date specified by Goldman,
Sachs & Co. in the written notice given by Goldman, Sachs & Co. of the
Underwriters' election to purchase such Optional Shares, or such other time and
date as Goldman, Sachs & Co., the Company and the Selling Stockholders may agree
upon in writing. Such time and date for delivery of the Firm Shares is herein
called the "First Time of Delivery", such time and date for delivery of the Firm
Optional Shares, if not the First Time of Delivery, is herein called the "Second
Time of Delivery", and each such time and date for delivery is herein called a
"Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or
on behalf of the parties hereto pursuant to Section 7 of the U.S. Underwriting
Agreement, including the cross-receipt for the Shares and any additional
documents requested by the Underwriters pursuant to Section 7(l) of the U.S.
Underwriting Agreement, will be delivered at the offices of Mayer, Brown &
Platt, 190 South LaSalle Street, Chicago, Illinois 60603 (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
each Time of Delivery. A meeting will be held at the Closing Location, on the
New York Business Day next preceding each Time of Delivery, at which meeting the
final drafts of the documents to be delivered pursuant to the preceding sentence
will be available for review by the parties hereto. For the purposes of this
Section 4, "New York Business Day" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in New York
are generally authorized or obligated by law or executive order to close.
5. The Company hereby makes with the Underwriters the same agreements
as are set forth in Section 5 of the U.S. Underwriting Agreement, which Section
is incorporated herein by this reference.
6. The Company, each of the Selling Stockholders, and the Underwriters
hereby agree with respect to certain expenses on the same terms as are set forth
in Section 6 of the U.S. Underwriting Agreement, which Section is incorporated
herein by this reference.
7. Subject to the provisions of the Agreement between Syndicates, the
obligations of the Underwriters hereunder shall be subject, in their discretion,
at each Time of Delivery, to the condition that all representations and
warranties and other statements of the Company, and the Selling Stockholders
herein are, at and as of such Time of Delivery, true and correct, the condition
that the Company and the Selling Stockholders shall have performed all of their
respective obligations hereunder theretofore to be performed, and
-4-
<PAGE> 41
additional conditions identical to those set forth in Section 7 of the U.S.
Underwriting Agreement, which Section is incorporated herein by this reference.
8. (a) The Company and each of the Selling Stockholders, jointly and
severally, will indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that the
Company and the Selling Stockholders shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through GSI expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
and each Selling Stockholder against any losses, claims, damages or liabilities
to which the Company or such Selling Stockholder may become subject, under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through GSI expressly for use
therein; and will reimburse the Company and each Selling Stockholder for any
legal or other expenses reasonably incurred by the Company or such Selling
Stockholder in connection with investigating or defending any such action or
claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may
-5-
<PAGE> 42
have to any indemnified party otherwise than under such subsection. In case any
such action shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party (who shall
not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Stockholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Shares purchased
under this Agreement (before deducting expenses) received by the Company and the
Selling Stockholders bear to the total underwriting discounts and commissions
received by the Underwriters with respect to the Shares purchased under this
Agreement, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission
-6-
<PAGE> 43
to state a material fact relates to information supplied by the Company or the
Selling Stockholders on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company, each of the Selling
Stockholders and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this subsection (d) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this subsection (d),
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company and the Selling Stockholders
under this Section 8 shall be in addition to any liability which the Company and
the respective Selling Stockholders may otherwise have and shall extend, upon
the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company (including any
person who, with his or her consent, is named in the Registration Statement as
about to become a director of the Company) and to each person, if any, who
controls the Company or any Selling Stockholder within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company and the Selling Stockholders shall be entitled to
a further period of thirty-six hours within which to procure another party or
other parties satisfactory to you to purchase such Shares on such terms. In the
event that, within the respective prescribed periods, you notify the Company and
the Selling Stockholders that you have so arranged for the purchase of such
Shares, or the Company and the Selling Stockholders notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Stockholders shall have the right to postpone such Time of Delivery for a period
of not more than seven days, in order
-7-
<PAGE> 44
to effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees to file promptly any amendments to the Registration Statement or
the Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of all the Shares to be purchased at such Time of Delivery,
then the Company and the Selling Stockholders shall have the right to require
each non-defaulting Underwriter to purchase the number of shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all the Shares to be purchased at such Time of Delivery, or
if the Company and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Company and the Selling Stockholders to sell
the Optional Shares shall thereupon terminate, without liability on the part of
any non-defaulting Underwriter or the Company or the Selling Stockholders,
except for the expenses to be borne by the Company and the Selling Stockholders
and the Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company or any of the Selling Stockholders, or any officer
or director or controlling person of the Company or any controlling person of
any Selling Stockholders, and shall survive delivery of and payment for the
Shares.
-8-
<PAGE> 45
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Section 6 and Section 8
hereof; but, if for any other reason, any Shares are not delivered by or on
behalf of the Company and the Selling Stockholders as provided herein, the
Company and each of the Selling Stockholders pro rata (based on the number of
Shares to be sold by the Company and such Selling Stockholder hereunder) will
reimburse the Underwriters through GSI for all out-of-pocket expenses approved
in writing by GSI, including fees and disbursements of counsel, reasonably
incurred by the Underwriters in making preparations for the purchase, sale and
delivery of the Shares not so delivered, but the Company and the Selling
Stockholders shall then be under no further liability to any Underwriter in
respect of the Shares not so delivered except as provided in Sections 6 and 8
hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by GSI on behalf of you as the representatives of the
Underwriters; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to the Underwriters in care of GSI, Peterborough Court,
133 Fleet Street, London EC4A 2BB, England, Attention: Equity Capital Markets,
Telex No. 94012165, facsimile transmission No. (071) 774-1550; if to any Selling
Stockholder shall be delivered or sent by mail, telex or facsimile transmission
to counsel for such Selling Stockholder at its address set forth in Schedule II
hereto; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary; provided, however, that any notice
to an Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company or the Selling
Stockholders by GSI upon request. Any such statements, requests, notices or
agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and the Selling Stockholders and, to
the extent provided in Sections 8 and 10 hereof, the officers and directors of
the Company and each person who controls the Company, any Selling Stockholder or
any Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement.
-9-
<PAGE> 46
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us one for the Company and one for each of the Lead Managers or
Lead Managing Underwriters plus one for each counsel and the Custodian, if any,
counterparts hereof, and upon the acceptance hereof by you, on behalf of each of
the Underwriters, this letter and such acceptance hereof shall constitute a
binding agreement among each of the Underwriters, the Company and each of the
Selling Stockholders. It is understood that your acceptance of this letter on
behalf of each of the Underwriters is pursuant to the authority set forth in a
form of Agreement among Underwriters (International Version), the form of which
shall be furnished to the Company and the Selling Stockholders for examination
upon request, but without warranty on your part as to the authority of the
signers thereof.
-10-
<PAGE> 47
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder represents by so doing that he has been duly appointed
as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-Fact to take
such action.
Very truly yours,
AMERITRADE HOLDING CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
[NAMES OF SELLING STOCKHOLDERS]
By:
-------------------------------------
Name:
Title:
As Attorney-in-Fact acting on behalf of
each of the Selling Stockholders named
in Schedule II to this Agreement.
Accepted as of the date hereof:
GOLDMAN SACHS INTERNATIONAL
[NAMES OF OTHER CO-LEAD MANAGERS
OR MANAGING UNDERWRITERS]
- -------------------------------------
Goldman Sachs International
On behalf of each of the Underwriters
-11-
<PAGE> 48
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF
OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- --------------
<S> <C> <C>
Goldman Sachs International..................................
[NAME(S) OF CO-LEAD MANAGERS]................................
[Names of other Managers]....................................
-------------- --------------
Total......................................
-------------- --------------
</TABLE>
I-1
<PAGE> 49
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF SOLD IF
FIRM SHARES MAXIMUM OPTION
TO BE SOLD EXERCISED
--------------- -----------------
<S> <C> <C>
The Selling Stockholders:
[Name of Selling Stockholder](a)..................
[Name of Selling Stockholder](b)..................
[Name of Selling Stockholder](c)..................
[Name of Selling Stockholder](d)..................
[Name of Selling Stockholder](e)..................
-------------- --------------
Total....................................
-------------- --------------
</TABLE>
(a) This Selling Stockholder is represented by [Name and Address of
Counsel] and has appointed [Names of Attorneys-in-Fact], and each of them, as
the Attorneys-in-Fact for such Selling Stockholder.
(b) This Selling Stockholder is represented by [Name and Address of
Counsel] and has appointed [Names of Attorneys-in-Fact], and each of them, as
the Attorneys-in-Fact for such Selling Stockholder.
(c) This Selling Stockholder is represented by [Name and Address of
Counsel] and has appointed [Names of Attorneys-in-Fact], and each of them, as
the Attorneys-in-Fact for such Selling Stockholder.
(d) This Selling Stockholder is represented by [Name and Address of
Counsel] and has appointed [Names of Attorneys-in-Fact], and each of them, as
the Attorneys-in-Fact for such Selling Stockholder.
(e) This Selling Stockholder is represented by [Name and Address of
Counsel] and has appointed [Names of Attorneys-in-Fact], and each of them, as
the Attorneys-in-Fact for such Selling Stockholder.
II-1
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
AMERITRADE HOLDING CORPORATION
FIRST: The name of the corporation is Ameritrade Holding Corporation (the
"Corporation").
SECOND: The registered office of the Corporation in the State of Delaware
is located at 1209 Orange Street in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "Act").
FOURTH: The total number of shares of capital stock which the Corporation
has authority to issue is 291,000,000 shares, consisting of:
(1) 3,000,000 shares of Preferred Stock, par value $1.00 per share
(the "Preferred Stock");
(2) 270,000,000 shares of Class A Common Stock, par value $.01 per
share (the "Class A Stock"); and
(3) 18,000,000 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, 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.
<PAGE> 2
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 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 on 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
holder or holders of record 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.
<PAGE> 3
(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.
FIFTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Act or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of Section 279 of Title 8 of the Act, order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
SIXTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Act for payment of unlawful
dividends or unlawful stock repurchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit.
SEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend or
repeal the Bylaws of the Corporation.
EIGHTH: The Corporation reserves the right to amend, alter, change, add to
or repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by statute, and all rights herein conferred
are granted subject to this reservation.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Ameritrade Holding Corporation on Form S-3 of our report dated October 27, 1998
on the financial statement schedule, included in the Annual Report on Form
10-K/A of Ameritrade Holding Corporation for the year ended September 25, 1998,
and to the use of our report dated October 27, 1998 (June 21, 1999 as to Note
11), appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
June 21, 1999
