<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1999
REGISTRATION NO. 333-87999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
AMENDMENT NO. 1
TO
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.)
YVONNE M. KISIEL
4211 SOUTH 102ND STREET AMERITRADE HOLDING CORPORATION
OMAHA, NEBRASKA 68127 4211 SOUTH 102ND STREET
(402) 331-7856 OMAHA, NEBRASKA 68127
(Address, including zip code, and telephone (402) 331-7856
number, including area code, of (Name, address, including zip code, and telephone
registrant's principal executive offices) number, including area code, of agent for service)
</TABLE>
Copies to:
<TABLE>
<S> <C>
CAROL S. RIVERS, ESQ.
MAYER, BROWN & PLATT
190 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
(312) 782-0600
</TABLE>
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: From
time to time 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. [X]
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>
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- -----------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNTS OFFERING AGGREGATE AMOUNT OF
TO BE PRICE PER OFFERING REGISTRATION
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED UNIT PRICE FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5.75% Convertible Subordinated Notes due August 1,
2004........................................... $200,000,000 100% $200,000,000 $55,600(1)
Class A common stock, par value $.01 per share... 6,142,740(2) (3) (3) (3)
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</TABLE>
(1) Previously paid.
(2) This number represents the number of shares of Class A common stock that are
initially issuable upon conversion of the 5.75% Convertible Subordinated
Notes due August 1, 2004 registered hereby. Pursuant to Rule 416 under the
Securities Act of 1933, as amended, the amount to be registered also
includes an indeterminate number of shares of Class A common stock issuable
as a result of stock splits, stock dividends and antidilution provisions.
(3) No additional consideration will be received for the Class A common stock
and, therefore, no registration fee is required pursuant to Rule 457(i).
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
$200,000,000
AMERITRADE HOLDING CORPORATION
AMERITRADE HOLDING CORPORATION LOGO
5.75% Convertible Subordinated Notes due August 1, 2004
6,142,740 Shares of Class A Common Stock issuable
upon conversion of the Notes
----------------------
This prospectus covers resales by selling holders of:
- our 5.75% Convertible Subordinated Notes due August, 2004; and
- our Class A common stock into which the notes are convertible.
Interest on the notes is payable on February 1 and August 1 of each year,
commencing on February 1, 2000. The notes will mature on August 1, 2004.
The notes are convertible by the holders of the notes into Class A common
stock at any time prior to the close of business on the maturity date of the
notes, unless previously redeemed or repurchased, at a conversion rate of
30.7137 shares per $1,000 principal amount of notes.
The notes may be redeemed by us after August 6, 2002 at the redemption
prices listed in this prospectus plus accrued interest to the redemption date.
In the event of a change in control described in this prospectus, each
holder of the notes may require us to repurchase its notes for cash, or, at our
option, Class A common stock, at 100% of the principal amount of such notes plus
accrued interest to the repurchase date.
The selling holders may sell the notes or the Class A common stock at any
time at market prices or at privately negotiated prices. Such sales may be made
directly to purchasers or through underwriters, broker-dealers or agents, who
may receive compensation in the form of discounts, concessions or commissions.
We will not receive any of the proceeds from the sale of the notes or shares by
the selling holders.
The Class A common stock is quoted on The Nasdaq National Market under the
symbol "AMTD". The last reported bid price of the Class A common stock on
October 20, 1999 was $16.63 per share.
The notes are currently eligible for trading on the PORTAL Market of the
Nasdaq Stock Market.
See "RISK FACTORS" beginning on page 8 to read about factors you should
consider before buying the notes or 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.
----------------------
Prospectus dated October 21, 1999.
<PAGE> 3
SUMMARY
The following summary highlights selected information from this prospectus
and the documents incorporated by reference in this prospectus. It does not
contain all of the information that is important to you. You should carefully
read this entire prospectus and the documents incorporated by reference in this
prospectus before making an investment in the 5.75% Convertible Subordinated
Notes due August 1, 2004 or the Class A common stock. Our fiscal year ends on
the last Friday of each September. Unless otherwise indicated, dollar amounts
have been rounded to the nearest one hundred thousand.
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 an aggressive
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.
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.
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<PAGE> 4
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;
- 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.
2
<PAGE> 5
SUMMARY OF THE SECURITIES
THE NOTES
Interest................................ Interest on the Notes is payable
semi-annually on February 1 and
August 1 of each year, commencing
on February 1, 2000.
Conversion.............................. The Notes are convertible at the
option of the holder into shares of
Class A common stock at a
conversion rate of 30.7137 shares
of Class A common stock per $1,000
principal amount of Notes
(equivalent to an approximate
conversion price of $32.56 per
share), subject to adjustment in
certain events.
The Notes are convertible at any
time prior to the close of business
on the maturity date, unless
previously redeemed or repurchased,
at the conversion rate set forth
above. Holders of Notes called for
redemption or repurchase will be
entitled to convert the Notes up to
and including, but not after, the
business day immediately before the
date fixed for redemption or
repurchase, as the case may be. See
"Description of Notes -- Conversion
Rights".
Subordination........................... The Notes are subordinated to
present and future Senior
Indebtedness (as defined herein) of
Holding. The Notes are also
effectively subordinated in right
of payment to all indebtedness and
other liabilities of our
subsidiaries. The Indenture (as
defined herein) does not restrict
the incurrence of Senior
Indebtedness by Holding or
indebtedness or other liabilities
by any of our subsidiaries. See
"Description of Notes --
Subordination".
Global Note; Book-Entry System.......... The Notes were issued only in fully
registered form without coupons and
in minimum denominations of $1,000.
The Notes are evidenced by a global
note in fully registered form and
without coupons, deposited with the
Trustee (as defined herein) as
custodian for the Depository Trust
Corporation ("DTC"). Beneficial
interests in the global note will
be shown on, and transfers thereof
will be effected only through,
records maintained by DTC and its
participants and indirect
participants. See
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<PAGE> 6
"Description of Notes -- Global
Note; Book-Entry System".
Optional Redemption..................... The Notes will not be subject to
redemption at the option of Holding
prior to August 6, 2002 and will be
redeemable on and after such date
at the option of Holding, in whole
or in part, upon not less than 30
nor more than 60 days notice to
each holder of Notes at the prices
set forth herein plus accrued and
unpaid interest, if any, to the
redemption date. See "Description
of Notes -- Optional Redemption".
Repurchase at Option of Holders Upon a
Change in Control....................... Upon a Change in Control, each
holder of Notes will have the
right, subject to certain
conditions and restrictions, to
require Holding to repurchase the
Notes, in whole or in part, at 100%
of the principal amount thereof,
plus accrued interest to the
repurchase date. The repurchase
price is payable in cash or, at the
option of Holding but subject to
the satisfaction of certain
conditions on the part of Holding,
in shares of Class A common stock
(valued at 95% of the average
closing bid prices of the Class A
common stock for the five trading
days immediately preceding and
including the third trading day
prior to the repurchase date). See
"Description of Notes -- Repurchase
at Option of Holders Upon a Change
in Control".
Events of Default....................... Events of default include: (1)
failure to pay principal of or
premium, if any, on any Note when
due, whether or not such payment is
prohibited by the subordination
provisions of the Notes and the
Indenture; (2) failure to pay any
interest on any Note when due,
continuing for 30 days, whether or
not such payment is prohibited by
the subordination provisions of the
Notes and the Indenture; (3)
default in Holding's obligation to
provide notice of a Change in
Control, whether or not prohibited
by the subordination provisions of
the Notes and the Indenture; (4)
failure to perform any other
covenant of Holding in the
Indenture, continuing for 60 days
after written notice as provided in
the Indenture; (5) any event of
default, as defined in any
agreement, indenture or instrument
of Holding or any significant
subsidiary evidencing indebtedness
in
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excess of $25.0 million, shall have
occurred and the indebtedness
thereunder, if not already matured
at its final maturity in accordance
with its terms, shall have been
accelerated; and (6) certain events
of bankruptcy, insolvency or
reorganization with respect to
Holding or any significant
subsidiary. See "Description of
Notes -- Events of Default".
PORTAL Trading of Notes................. The Notes are currently eligible
for trading on the Private
Offerings, Resales and Trading
through Automated Linkages
("PORTAL") System of the National
Association of Securities Dealers,
Inc. ("NASD").
Use of Proceeds......................... We will not receive any of the
proceeds from the sale of the Notes
by the selling holders. See "Use of
Proceeds".
Federal Income Tax Consequences......... The registration of the Notes and
the Class A common stock will not
result in any income, gain or loss
to the holders of the Notes or to
Holding.
THE CLASS A COMMON STOCK
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 hereby.
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. 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
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holder of the share of Class B
common stock. Each share of Class B
common stock automatically converts
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 automatically converts
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".
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.
Listing................................. The Class A common stock is quoted
on The Nasdaq National Market.
Nasdaq National Market Symbol........... AMTD
Use of Proceeds......................... We will not receive any of the
proceeds from the sale of the Class
A common stock by the selling
holders. See "Use of Proceeds".
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SUMMARY CONSOLIDATED FINANCIAL DATA
The information in the following table is based on historical financial
information contained in this prospectus and incorporated by reference herein.
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>
FISCAL YEAR ENDED
---------------------------------------------------------
SEPT. 30, SEPT. 29, SEPT. 27, SEPT. 26, SEPT. 25,
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <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
Interest revenue........................................ 9,856 16,297 22,518 36,623 66,716
Investment income and other............................. 1,119 2,608 6,391 7,107 11,834
-------- -------- -------- -------- --------
Total revenues.................................... 31,361 42,882 65,379 95,667 164,194
Interest expense........................................ 3,912 7,862 11,040 18,429 29,279
-------- -------- -------- -------- --------
Net revenues...................................... 27,449 35,020 54,339 77,238 134,915
Pre-advertising operating expense......................... 14,012 19,348 28,385 41,842 90,770
Advertising expense....................................... 5,987 4,842 7,537 13,971 43,614
-------- -------- -------- -------- --------
Total expenses excluding interest................. 19,999 24,190 35,922 55,813 134,384
Income before provision for income taxes.................. 7,450 10,830 18,417 21,425 531
Provision for income taxes................................ 2,619 3,799 7,259 7,603 321
-------- -------- -------- -------- --------
Net income........................................ $ 4,831 $ 7,031 $ 11,158 $ 13,822 $ 210
======== ======== ======== ======== ========
Basic earnings per share.................................. $ 0.03 $ 0.05 $ 0.07 $ 0.08 $ 0.00
Diluted earnings per share................................ $ 0.03 $ 0.05 $ 0.07 $ 0.08 $ 0.00
Weighted average shares outstanding -- basic.............. 154,271 153,766 153,766 165,227 174,188
Weighted average shares outstanding -- diluted............ 154,271 153,766 153,766 165,233 174,465
</TABLE>
<TABLE>
<CAPTION>
SEPT. 30, SEPT. 29, SEPT. 27, SEPT. 26, SEPT. 25,
1994 1995 1996 1997 1998
--------- --------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and segregated investments.......................... $101,352 $125,456 $191,436 $373,286 $ 527,982
Receivable from customers and correspondents, net........ 99,627 130,187 166,075 325,407 647,122
Total assets............................................. 216,991 287,105 401,679 757,357 1,290,402
Payable to customers and correspondents.................. 198,539 251,862 356,943 666,279 1,136,082
Total long-term debt..................................... -- 7,097 4,853 -- 11,000
Stockholders' equity..................................... 12,473 19,504 30,662 66,989 84,572
</TABLE>
7
<PAGE> 10
RISK FACTORS
You should carefully consider the risks described below before making an
investment in the Notes or the Class A common stock.
OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS 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 DECREASE
SUBSTANTIALLY
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 from its current
level. 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 FINANCIAL PERFORMANCE AND EXPOSE US
TO LIABILITY
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. 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> 11
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 REQUIRE US TO INCUR SIGNIFICANT
INFRASTRUCTURE COSTS AND FAILURE TO EXPAND OUR SYSTEMS COULD HAVE A MATERIAL
ADVERSE AFFECT ON 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 growth 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.
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<PAGE> 12
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 MAY EXPOSE US TO DISCIPLINARY ACTIONS AND
OTHER CLAIMS AND MAY LIMIT OUR ABILITY TO EXPAND 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 Securities and Exchange Commission
(the "SEC"), the NASD, the Board of Governors of the Federal Reserve
System, 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 and 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.
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<PAGE> 13
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 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 MAY NOT BE ABLE TO RETAIN OR REPLACE 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 OUR BUSINESS
J. Joe Ricketts, our Chairman and Co-Chief Executive Officer, his family
members and trusts held for their benefit (collectively, the "Ricketts Family")
own approximately 58.3% of the Class A common stock and all of the Class B
common stock, which constitute approximately
11
<PAGE> 14
62.2% of the common stock. As a result, the Ricketts Family has 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 MAY NOT BE ABLE 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 products and 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
FINANCIAL PERFORMANCE
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.
12
<PAGE> 15
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 PROBLEMS MAY CAUSE DISRUPTIONS IN OUR OPERATIONS AND ADVERSELY AFFECT
OUR FINANCIAL PERFORMANCE
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.
OUR NET CAPITAL LEVELS ARE STRICTLY REGULATED AND ANY FAILURE TO COMPLY WITH
APPLICABLE REGULATIONS COULD HARM OUR BUSINESS
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 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
13
<PAGE> 16
penalties imposed by applicable authorities as well as losses and liability in
related lawsuits brought by customers and others.
OUR CUSTOMERS' INABILITY TO REPAY OUR MARGIN LOANS COULD RESULT IN MATERIAL
LOSSES TO US
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.
INFRINGEMENT OF OUR INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR COMPETITIVE
POSITION
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. Any of these events could harm our
competitive position. Policing unauthorized use of our intellectual property may
be difficult because of difficulties in controlling the ultimate destination or
security of information transmitted over the Internet. In addition, the laws of
foreign countries may afford different, and possibly inadequate, protection of
our intellectual property.
WE MAY BE UNABLE TO ACQUIRE NEW BUSINESSES AND MAINTAIN EXISTING STRATEGIC
RELATIONSHIPS THAT BENEFIT OUR BUSINESS
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. In addition, we 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> 17
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 ORGANIZATIONAL 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. 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".
THE NOTES ARE SUBORDINATED TO OTHER DEBT
The Notes are unsecured and subordinated in right of payment to all of our
existing and future Senior Indebtedness. As a result, in the event of
bankruptcy, liquidation or reorganization or upon acceleration of the Notes due
to an Event of Default and in specific other events, our assets will be
available to pay obligations on the Notes only after all Senior Indebtedness has
been paid in full in cash or other payment satisfactory to the holders of Senior
Indebtedness has been made. There may not be sufficient assets remaining to pay
amounts due on any or all of the Notes then outstanding. The Notes are also
effectively subordinated to the liabilities, including trade payables, of our
subsidiaries. The Indenture does not prohibit or limit the incurrence of Senior
Indebtedness or the incurrence of other indebtedness and other liabilities by us
or our subsidiaries. The incurrence of additional indebtedness and other
liabilities by us or our subsidiaries could adversely affect our ability to pay
obligations on the Notes. As of June 25, 1999, we had approximately $58 million
of indebtedness outstanding that would have constituted Senior Indebtedness. As
of June 25, 1999, our subsidiaries had approximately $2.1 billion of
indebtedness and other liabilities. We anticipate that from time to time we will
incur additional indebtedness, including Senior Indebtedness. See "Description
of Notes -- Subordination".
WE MAY NOT BE ABLE TO REDEEM THE NOTES UPON A CHANGE IN CONTROL
Upon a Change in Control, each holder of the Notes has the right, at the
holder's option, to require us to redeem all or a portion of the holder's Notes.
If a Change in Control were to occur,
15
<PAGE> 18
we may not have sufficient funds to pay the redemption price for all Notes
tendered by holders. Our revolving credit agreement and other agreements
relating to other indebtedness, including other Senior Indebtedness, to which we
are or may become a party may contain restrictions on the payment of the
redemption price while the indebtedness is outstanding. In the event a Change in
Control occurs at a time when we are prohibited from purchasing or redeeming the
Notes, we could seek the consent of the holders of the indebtedness to purchase
or redeem the Notes or could attempt to refinance the borrowings that contain
this prohibition. If we do not obtain a consent or repay these borrowings in
full, we would remain prohibited from purchasing or redeeming the Notes. Our
failure to redeem the tendered Notes would constitute an Event of Default, which
might constitute a default under the terms of other indebtedness that we may
enter into from time to time. In these circumstances, the subordination
provisions in the Indenture would likely restrict payments to the holders of
Notes. The term "Change in Control" is limited to specified transactions and may
not include other events that might adversely affect our financial condition. In
addition, the requirement that we offer to repurchase the Notes upon a Change in
Control does not necessarily afford holders of the Notes protection in the event
of a highly leveraged transaction, reorganization, merger or similar transaction
involving us. See "Description of Notes -- Repurchase at Option of Holders Upon
a Change in Control".
OUR DEBT SERVICE OBLIGATIONS MAY ADVERSELY AFFECT OUR BUSINESS OPERATIONS
We are required to generate cash sufficient to pay all amounts due on the
Notes and to conduct our business operations. We may not be able to generate
sufficient cash flow, which would have a material adverse effect on our ability
to make payments on the Notes and on our business, financial condition and
results of operations.
THERE IS NO PUBLIC MARKET FOR THE NOTES AND THERE ARE RESTRICTIONS ON RESALE OF
THE NOTES
There is no public trading market for the Notes. Although the initial
purchaser of the Notes has advised us that it currently intends to make a market
in the Notes, it is not obligated to do so and may discontinue its market making
at any time without notice. In addition, its market making activity will be
subject to the limits imposed by the Securities Act of 1933 (the "Securities
Act") and the Securities Exchange Act of 1934 (the "Exchange Act"). Accordingly,
there can be no assurance that any market for the Notes will develop or, if one
does develop, that it will be maintained. If an active market for the Notes
fails to develop or be sustained, the trading price of the Notes could be
materially adversely affected.
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<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 and Section 21E of the Exchange Act. 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". You should be aware that these statements only reflect our
expectations. Actual events or results may differ materially 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.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
--------------------------------------------------------- -------------------
SEPT. 30, SEPT. 29, SEPT. 27, SEPT. 26, SEPT. 25, JUNE 26, JUNE 25,
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges......................... 2.78 2.33 2.60 2.10 1.02 -- 1.94
======= ======= ======= ======= ======= ======= =======
Deficiency of Earnings Available
to Cover Fixed Charges.......... -- -- -- -- -- $(8,553) --
======= ======= ======= ======= ======= ======= =======
</TABLE>
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the Notes or Class
A common stock by the selling holders.
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<PAGE> 20
SELLING HOLDERS
The Notes were originally issued by Holding and sold by Goldman, Sachs &
Co. as the initial purchaser in transactions exempt from the registration
requirements of the Securities Act to persons reasonably believed by the initial
purchaser to be qualified institutional buyers. Selling holders, including their
transferees, pledgees or donees or their successors, may from time to time offer
and sell pursuant to this prospectus any or all of the Notes and the Class A
common stock into which the Notes are convertible.
The following table sets forth information, as of October 15, 1999, with
respect to the selling holders and the principal amounts of Notes and amounts of
Class A common stock beneficially owned by each selling holder that may be
offered under this prospectus. The information is based on information provided
by or on behalf of the selling holders. The selling holders may offer all, some
or none of the Notes or Class A common stock into which the Notes are
convertible. Because the selling holders may offer all or some portion of the
Notes or the Class A common stock, no estimate can be given as to the amount of
the Notes or the Class A common stock that will be held by the selling holders
upon termination of any sales. In addition, the selling holders identified below
may have sold, transferred or otherwise disposed of all or a portion of their
Notes or Class A common stock since the date on which they provided the
information regarding their Notes or Class A common stock in transactions exempt
from the registration requirements of the Securities Act. No selling holder
named in the table below beneficially owns one percent or more of our Class A
common stock assuming conversion of a selling holder's Notes.
<TABLE>
<CAPTION>
CLASS A
PRINCIPAL AMOUNT COMMON STOCK
OF NOTES OWNED PRIOR TO CLASS A
BENEFICIALLY THE OFFERING COMMON STOCK
ACCOUNT NAME OWNED AND OFFERED (1)(2) OFFERED(2)
------------ ----------------- -------------- ------------
<S> <C> <C> <C>
Alexandra Global Investment Fund 1 Ltd. ......... $ 2,000,000 61,427 61,427
Angelo, Gordon & Co., L.P. ...................... 1,400,000 42,999 42,999
BNP Arbitrage SNC................................ 1,650,000 50,677 50,677
Calamos Market Neutral Fund -- CALAMOS Investment
Trust.......................................... 70,000 2,149 2,149
Christian Science Trustees For Gifts and
Endowments..................................... 430,000 13,206 13,206
Consulting Group Capital Markets Funds........... 100,000 3,071 3,071
Convexing Partners L.P. ......................... 250,000 7,678 7,678
Declaration of Trust for the Defined Benefit
Plans of ICI American Holdings Inc. ........... 1,175,000 36,088 36,088
Declaration of Trust for the Defined Benefit
Plans of ZENECA Holdings Inc. ................. 765,000 23,495 23,495
Deeprock & Co. .................................. 1,000,000 30,713 30,713
Deutsche Bank Securities......................... 27,545,000 846,008 846,008
Finmo AG, Zug.................................... 150,000 4,607 4,607
General Motors Employee Domestic Group Pension
Trust.......................................... 2,000,000 61,427 61,427
Goldman Sachs & Company.......................... 7,000,000 214,995 214,995
Highbridge Capital Corporation................... 3,500,000 107,497 107,497
HT Insight Funds................................. 500,000 15,356 15,356
Jackson Investment Fund Ltd. .................... 3,915,000 120,244 120,244
JMG Convertible Investments, L.P. ............... 3,000,000 92,141 92,141
Lipper Convertibles, L.P. ....................... 2,000,000 61,427 61,427
Merrill Lynch Pierce Fenner & Smith Inc. ........ 2,000,000 61,427 61,427
Michaelangelo, L.P. ............................. 2,800,000 85,998 85,998
</TABLE>
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<PAGE> 21
<TABLE>
<CAPTION>
CLASS A
PRINCIPAL AMOUNT COMMON STOCK
OF NOTES OWNED PRIOR TO CLASS A
BENEFICIALLY THE OFFERING COMMON STOCK
ACCOUNT NAME OWNED AND OFFERED (1)(2) OFFERED(2)
------------ ----------------- -------------- ------------
<S> <C> <C> <C>
Nelson Partners Ltd. ............................ $17,080,000 524,590 524,590
NMS Services Inc. ............................... 3,760,000 115,483 115,483
Olympus Securities, Ltd. ........................ 32,375,000 994,356 994,356
Oppenheimer Convertible Securities Fund.......... 4,000,000 122,854 122,854
Peoples Benefit Life Insurance Company
Teamsters...................................... 8,750,000 268,744 268,744
President and Fellows of Harvard College......... 5,000,000 153,568 153,568
Ramius, L.P. .................................... 2,800,000 85,998 85,998
Ramius Securities, LLC........................... 700,000 21,499 21,499
Raphael II LTD. ................................. 700,000 21,499 21,499
RCG Baldwin, L.P. ............................... 1,400,000 42,999 42,999
RCG Multi-Strategy Account, L.P. ................ 3,500,000 107,497 107,497
St. Albans Partners Ltd.......................... 10,000,000 307,137 307,137
SoundShore Holdings Ltd.......................... 2,000,000 61,427 61,427
SoundShore Opportunity Holding Fund Ltd.......... 750,000 23,035 23,035
State Employees' Retirement Fund of the State of
Delaware....................................... 2,030,000 62,348 62,348
Summer Hill Global Partners L.P. ................ 125,000 3,839 3,839
Triarc Companies, Inc. .......................... 700,000 21,499 21,499
Tribeca Investments, L.L.C. ..................... 10,210,000 313,586 313,586
Triton Capital Investments, Ltd. ................ 7,790,000 239,259 239,259
Any other holder of notes or future transferee
from any holder(3)(4).......................... 23,080,000 708,893 708,893
- ----------------------------------------------------------------------------------------------------
Total....................................... 200,000,000 6,142,740 6,142,740
====================================================================================================
</TABLE>
(1) Includes Class A common stock into which the notes are convertible.
(2) Assumes a conversion rate of 30.7137 shares per $1,000 principal amount of
notes and a cash payment in lieu of any fractional interest.
(3) Information concerning other selling holders of notes or future transferees
will be listed in prospectus supplements from time to time, if required.
(4) Assumes that any other holders of notes or any future transferee from any
holder does not beneficially own any Class A common stock other than Class A
common stock into which the notes are convertible.
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<PAGE> 22
DESCRIPTION OF NOTES
The Notes were issued under an Indenture, as supplemented by a supplemental
indenture, each dated as of August 4, 1999 (together, the "Indenture"), between
Holding and The Bank of New York, as Trustee (the "Trustee"). You may request a
copy of the Indenture from the Trustee at the Corporate Trust office of the
Trustee in the Borough of Manhattan. This section summarizes the provisions of
the Notes and the Indenture and the related registration rights agreement. You
should refer to these documents for more detailed information.
GENERAL
Holding issued $200,000,000 aggregate principal amount of Notes. The Notes
are unsecured subordinated obligations of Holding. The Notes mature on August 1,
2004 and will be payable at a price of 100% of the principal amount thereof. The
Notes bear interest at the rate of 5.75% per annum from August 4, 1999, payable
semiannually on February 1 and August 1 of each year, commencing on February 1,
2000. Interest payable per $1,000 principal amount of Notes for the partial
period from August 4, 1999 to February 1, 2000 will be $28.27. Interest payable
per $1,000 principal amount of Notes for subsequent periods ending on February 1
or August 1 will be $28.75.
The Notes are currently convertible into Class A common stock initially at
the conversion rate of 30.7137 shares per $1,000 principal amount of Notes,
subject to adjustment upon the occurrence of certain events described under
"-- Conversion Rights", at any time prior to the close of business on the
maturity date, unless previously redeemed or repurchased.
The Notes were offered and sold by the initial purchaser to qualified
institutional buyers as defined in Rule 144A under the Securities Act.
GLOBAL NOTE; BOOK-ENTRY SYSTEM
The Notes are evidenced by one or more global notes in definitive, fully
registered form without interest coupons, and were deposited with the Trustee as
custodian for DTC and registered in the name of Cede & Co. ("Cede"), as nominee
of DTC. Except as set forth below, record ownership of the global note may be
transferred, in whole or in part, only to another nominee of DTC or to a
successor of DTC or its nominee.
Holders who are participants in DTC may hold interests in the global note
directly through DTC or indirectly through organizations that are participants.
Holders who are not participants in DTC may beneficially own interests in the
global note held by DTC only through participants in DTC or various banks,
brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a participant. Transfers between
participants will be effected in the ordinary way in accordance with DTC's rules
and will be settled in same-day funds. The laws of some states require that
certain persons take physical delivery of securities in definitive form.
Consequently, the ability to transfer beneficial interests in the global note to
such persons may be limited.
Holding will pay interest on and principal of and the redemption or
repurchase price of the global note, as well as any payment of liquidated
damages, as described below, to Cede, the nominee for DTC, as the registered
owner of the global note, by wire transfer of immediately available funds on
each relevant payment date. Neither we nor the Trustee has any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the global note, including for any delay by
DTC or any participant or indirect participant in identifying the beneficial
ownership interests, and Holding and the Trustee may conclusively rely on, and
shall be protected in relying on, instructions from DTC as the registered holder
of the global note for all purposes.
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<PAGE> 23
DTC has informed us that its practice is to credit participants' accounts
on the payment date with payments in amounts proportionate to their respective
beneficial interests in the global note, unless DTC has reason to believe that
it will not receive payment. Only the participants are responsible for payments
to owners of beneficial interests held through them.
Redemption notices shall be sent to Cede. If less than all the Notes are
being redeemed, DTC's practice is to determine by lot the amount of the holdings
of each participant in such issue to be redeemed.
Neither DTC nor Cede will consent or vote with respect to the Notes. Under
its usual procedures, DTC mails an omnibus proxy to the issuer as soon as
possible after the record date. The omnibus proxy assigns Cede's consenting or
voting rights to those participants to whose accounts the Notes are credited on
the record date identified in a listing attached to the omnibus proxy.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants, a person or entity having a beneficial interest
in the global note may be unable to pledge its interest to persons or entities
that do not participate in the DTC book-entry system, and other actions related
to their interest may be affected, due to the lack of a physical certificate
evidencing their interest.
DTC has advised us that it will take any action permitted to be taken by a
holder of Notes only at the direction of one or more participants to whose
accounts with DTC interests in the global note are credited. DTC will only take
action in respect of the portion of the principal amount of the Notes
represented by the global note as to which the participant or participants has
or have given direction.
DTC has advised us that it is a limited purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the New York Uniform Commercial
Code, as amended, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Various participants or their representatives,
together with other entities, own DTC. Indirect access to the DTC system is
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of beneficial ownership interests in the global note among
participants, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable, but we take no
responsibility for the accuracy of this information. Neither we, the Trustee nor
any of our or their respective agents are responsible for the performance by DTC
or its participants or indirect participants of their obligations under the
rules and procedures governing their operations, including maintaining,
supervising or reviewing the records relating to, or payments made on account
of, beneficial ownership interests in the global note.
So long as DTC, or its nominee, is the registered owner of the global note,
DTC or its nominee, as the case may be, will be considered the sole legal owner
or holder of the Notes represented by the global note. Except as set forth
below, owners of beneficial interests in a global note will not be entitled to
have Notes represented by the global note registered in their names, will not
receive or be entitled to receive physical delivery of Notes in definitive form
and
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<PAGE> 24
will not be considered the legal owners or holder of the Notes under the
Indenture. Accordingly, each person owning a beneficial interest in the global
note must rely on the procedures of DTC and, if such person is not a
participant, those of the participant through which that person owns its
interests, in order to exercise any rights of a holder under the Indenture or
the holder's Note.
A global note is exchangeable for definitive Notes in registered
certificated form if:
- DTC notifies Holding that it is unwilling or unable to continue as
depositary for Holding's global note or has ceased to be a clearing agency
registered under the Exchange Act;
- Holding notifies the Trustee in writing that it elects to cause the
issuance of the Notes in certificated form; or
- there shall have occurred and be continuing a default or an event of
default with respect to the Notes.
In all cases, certificated Notes delivered in exchange for any global note
will be registered in the names, and issued in any approved denominations,
required by or on behalf of the depositary.
CONVERSION RIGHTS
You may convert any portion of the principal amount of any Note that is an
integral multiple of $1,000 into shares of Class A common stock at any time
prior to the close of business on the maturity date, unless previously redeemed
or repurchased, at a conversion rate of 30.7137 shares of Class A common stock
per $1,000 principal amount of Notes. This is equivalent to an approximate
conversion price of $32.56 per share of Class A common stock, subject to
adjustment in certain events as described below. The right to convert a Note
called for redemption or delivered for repurchase will terminate at the close of
business on the business day immediately preceding the redemption date or the
repurchase date, as the case may be.
You may convert a Note by delivering the Note at the Corporate Trust Office
of the Trustee in the Borough of Manhattan, The City of New York, accompanied by
a duly signed and completed notice of conversion. A form of such notice of
conversion can be obtained at the office of the Trustee at its Corporate Trust
Office in New York City. The conversion date will be the date on which the Note
and the duly signed and completed notice of conversion are delivered.
As promptly as practicable on or after the conversion date, Holding will
issue and deliver to the Trustee a certificate or certificates for the number of
full shares of Class A common stock issuable upon conversion, together with
payment in lieu of any fraction of a share. The shares of Class A common stock
issuable upon conversion of the Notes will be fully paid and nonassessable and
will rank equal to the other shares of Class A common stock outstanding.
If you surrender a Note for conversion on or after a record date for
interest payments, but before the next interest payment date, the Note generally
must be accompanied by payment equal to the interest payable on the next
interest payment date. In such case, you will be paid interest on the next
interest payment date notwithstanding the conversion. If you surrender a Note
for conversion on a date that is before a record date for interest payments and
on or after the prior interest payment date, you generally will not receive any
interest for the period from the prior interest payment date to the date of
conversion or for any later period. In addition, holders of Class A common stock
issued upon conversion will not be entitled to receive any dividends payable to
holders of Class A common stock as of any record time or date before the close
of business on the conversion date.
A holder delivering a Note for conversion will not be required to pay any
taxes or duties in respect of the issue or delivery of Class A common stock on
conversion. However, if the Class A common stock will be issued or delivered in
a name other than that of the holder of the Note, the holder will be required to
pay any tax or duty which may be payable in respect of the transfer.
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<PAGE> 25
Certificates representing shares of Class A common stock will not be issued or
delivered unless all taxes and duties, if any, payable by the Holder have been
paid.
The conversion rate is subject to adjustment in certain events, including:
- dividends and other distributions payable in Class A common stock on
shares of Class A common stock;
- the issuance to all holders of Class A common stock of rights, options or
warrants entitling them to subscribe for or purchase Class A common stock at
less than the then current market price;
- subdivisions, combinations and reclassifications of Class A common stock;
- distributions to all holders of Class A common stock of evidences of
indebtedness of Holding, shares of capital stock, cash or assets, including
securities, but excluding: those dividends, rights, and distributions referred
to above, dividends and distributions paid exclusively in cash and distributions
upon mergers or consolidations resulting in a reclassification, conversion,
exchange or cancellation of Class A common stock;
- distributions consisting exclusively of cash (excluding any cash portion
of distributions referred to in the bullet point immediately above, or cash
distributed upon a merger or consolidation as described in the bullet point
immediately above) to all holders of Class A common stock in an aggregate amount
that, combined together with (A) other such all-cash distributions made within
the preceding 12 months in respect of which no adjustment has been made and (B)
any cash and the fair market value of other consideration payable in respect of
any tender offer by Holding or any of its subsidiaries for Class A common stock
concluded within the preceding 12 months in respect of which no adjustment has
been made, exceeds 10% of Holding's market capitalization and
- the successful completion of a tender offer by Holding or any of its
subsidiaries for Class A common stock which involves an aggregate consideration
that, together with (A) cash and other consideration payable in a tender offer
by Holding or any of its subsidiaries for Class A common stock expiring within
the 12 months preceding the expiration of such tender offer in respect of which
no adjustment has been made and (B) the amount of any all-cash distributions
referred to in the bullet point immediately above to all holders of Class A
common stock within the 12 months preceding the expiration of that tender offer
for which no adjustment was made, exceeds 10% of Holding's market capitalization
on the expiration of the tender offer.
Holding reserves the right to make increases in the conversion rate in
addition to those required as it considers to be advisable in order that any
event treated for United States federal income tax purposes as a dividend of
stock or stock rights will not be taxable to the recipients. No adjustment of
the conversion rate will be required to be made until the cumulative adjustments
amount to 1.0% or more of the conversion rate. Holding will compute any
adjustments to the conversion rate and will give notice by mail to Holders of
the Notes of any adjustments.
If Holding is consolidated or merged with another entity that results in
the reclassification, conversion, exchange or cancellation of its Class A common
stock, or if Holding sells or transfers all or substantially all of its assets,
each Note will automatically become convertible only into the consideration
receivable upon such consolidation, merger, sale or transfer by the holders of
the Class A common stock.
If Holding makes a distribution of property to its stockholders that would
be taxable to them as a dividend for United States federal income tax purposes
and the number of shares into which Notes are convertible is increased, the
increase may be deemed for federal income tax purposes to be the payment of a
taxable dividend to holders of Notes.
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<PAGE> 26
SUBORDINATION
All payments on the Notes are subordinated to the prior payment in full of
all Senior Indebtedness of Holding. As of June 25, 1999, Holding had
approximately $58 million of outstanding Senior Indebtedness. In addition, the
Notes will be structurally subordinated to all indebtedness and other
liabilities (including trade payables and lease obligations) of Holding's
subsidiaries. As of June 25, 1999, Holding's subsidiaries had approximately $2.1
billion of liabilities and other obligations (excluding liabilities that would
not appear on a consolidating balance sheet of any such subsidiary and
intercompany liabilities).
The Indenture does not limit Holding's or its subsidiaries' ability to
incur Senior Indebtedness or any other indebtedness.
"Senior Indebtedness" is defined in the Indenture to mean: the principal of
(and premium, if any) and interest (including all interest accruing subsequent
to the commencement of any bankruptcy or similar proceeding, whether or not a
claim for post-petition interest is allowable as a claim in any such
proceeding), rent and end-of-term payments payable on, and all fees and other
amounts payable in connection with, the following, whether secured or unsecured,
absolute or contingent, due or to become due, outstanding on the date of the
Indenture or thereafter created, incurred or assumed: (1) indebtedness of
Holding evidenced by a credit or loan agreement, note, bond, debenture or other
written obligation, (2) all obligations of Holding for money borrowed, (3) all
obligations of Holding evidenced by a note or similar instrument given in
connection with the acquisition of any businesses, properties or assets of any
kind, (4) obligations of Holding (A) as lessee under leases required to be
capitalized on the balance sheet of the lessee under generally accepted
accounting principles or (B) as lessee under other leases for facilities,
capital equipment or related assets, whether or not capitalized, entered into or
leased for financing purposes, (5) all obligations of Holding under interest
rate and currency swaps, caps, floors, collars, hedge agreements, forward
contracts or similar agreements or arrangements, (6) all obligations of Holding
with respect to letters of credit, bankers' acceptances and similar facilities
(including reimbursement obligations with respect to the foregoing), (7) all
obligations of Holding issued or assumed as the deferred purchase price of
property or services (but excluding trade accounts payable and accrued
liabilities arising in the ordinary course of business), (8) all obligations of
the type referred to in clauses (1) through (7) above of another person and all
dividends of another person, the payment of which, in either case, Holding has
assumed or guaranteed, or for which Holding is responsible or liable, directly
or indirectly, jointly or severally, as obligor, guarantor or otherwise, or
which is secured by a lien on the property of Holding and (9) renewals,
extensions, modifications, replacements, restatements and refundings of, or any
indebtedness or obligation issued in exchange for, any such indebtedness or
obligation described in clauses (1) through (8) of this paragraph; provided,
however, that Senior Indebtedness shall not include the Notes or any such
indebtedness or obligation if the terms of such indebtedness or obligation (or
the terms of the instrument under which, or pursuant to which it is issued)
expressly provide that such indebtedness or obligation is not superior in right
of payment to the Notes.
In addition, the subordination provisions of the Indenture prevent Holding
from making any payments on the Notes if:
- Holding fails to pay any amounts due on any Designated Senior Debt, as
defined below, beyond the applicable grace period; or
- any other event of default occurs and is continuing under any Designated
Senior Debt that permits its holders to accelerate the maturity of that debt,
and the Trustee receives a payment blockage notice of the default from Holding,
a holder of the Designated Senior Debt or other persons permitted to give notice
under the Indenture.
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<PAGE> 27
Holding may resume making payments on the Notes once a payment default on
the Designated Senior Debt is cured or waived.
Holding may also resume making payments on the Notes following a nonpayment
default on the Designated Senior Debt on the earlier of the date on which the
default is cured or waived or 179 days after the date on which the payment
blockage notice is received. No new payment blockage period may be commenced
unless:
- 365 days have passed since the Trustee's receipt of the prior payment
blockage notice; and
- all scheduled payments of principal, premium, if any, and interest on the
Notes that have come due have been paid in full in cash.
Any nonpayment default that exists or is continuing on the date of delivery
of any payment blockage notice to the Trustee shall not be, or be made, the
basis for any subsequent payment blockage notice.
"Designated Senior Debt" means Holding's obligations in respect of (1)
Holding's revolving credit agreement or (2) any Senior Indebtedness in which the
instrument creating or evidencing the same or the assumption or guarantee
thereof (or related agreements or documents to which Holding is a party)
expressly provides that such indebtedness shall be "Designated Senior Debt" for
purposes of the Indenture (provided that such instrument, agreement or other
document may place limitations and conditions on the right of such Senior
Indebtedness to exercise the rights of Designated Senior Debt).
In addition, upon any acceleration of the principal due on the Notes as a
result of an event of default or payment or distribution of assets of Holding to
creditors upon any dissolution, winding up, liquidation or reorganization,
whether voluntary or involuntary, marshalling of assets, assignment for the
benefit of creditors, or in bankruptcy, insolvency, receivership or other
similar proceedings of Holding, all amounts due on all Senior Indebtedness must
be paid in full before the Holders of the Notes are entitled to receive any
payment. As a result, in the event of insolvency, creditors of Holding who are
holders of Senior Indebtedness may recover more, ratably, than the Holders of
the Notes, which may result in a reduction or elimination of payments to the
Holders of the Notes.
OPTIONAL REDEMPTION
Holding may not redeem the Notes prior to August 6, 2002. Holding may
redeem the Notes on and after August 6, 2002, in whole or in part, upon not less
than 30 nor more than 60 days notice to each holder, at the prices set forth
below.
The redemption price (expressed as a percentage of principal amount) is as
follows for the 12-month periods beginning on August 6 of the years indicated
below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2002........................................................ 102.30%
2003........................................................ 101.15%
</TABLE>
and thereafter is equal to 100% of the principal amount, in each case together
with accrued interest to the date of redemption.
No sinking fund is provided for the Notes.
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PAYMENT AND CONVERSION
The principal of the Notes will be payable in U.S. dollars when the Notes
are surrendered at the Corporate Trust Office of the Trustee in the Borough of
Manhattan, The City of New York. Payment will be made by check drawn on a bank
in New York City, or, if requested by holders with more than $2,000,000 of
Notes, by transfer to a dollar account maintained by the holder with a bank in
New York City. Interest payments on each Note will be made to the person in
whose name the Note is registered at the close of business on the January 15 or
the July 15 immediately preceding the relevant interest payment date. Interest
payments are payable in U.S. dollars and made by a dollar check drawn on a bank
in New York City mailed to the holder at the holder's registered address. In
addition, if requested by a holder with more than $2,000,000 of Notes, interest
payments may be made by transfer to an account maintained by the holder with a
bank in New York City. No transfer to a dollar account will be made unless the
Trustee has received written wire instructions not less than 15 days prior to
the relevant payment date.
Payments on any global note registered in the name of DTC or its nominee
will be payable by the Trustee to DTC or its nominee. Under the terms of the
Indenture, Holding and the Trustee will treat the persons in whose names the
Notes, including the global note, are registered as the owners of the Notes or
the global note, as the case may be, for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither Holding,
the Trustee nor any agent of Holding or the Trustee has or will have any
responsibility or liability for any aspect of DTC's records or any participant's
or indirect participant's records relating to or payments made on account of
beneficial ownership interests in the global note, or for maintaining,
supervising or reviewing any of DTC's records or any participant's or indirect
participant's records relating to the beneficial ownership interests in the
global note.
Any payment on the Notes due on any day which is not a business day need
not be made on such day, but may be made on the next succeeding business day.
Notes may be surrendered for conversion at the Corporate Trust Office in
the Borough of Manhattan, The City of New York. Notes surrendered for conversion
must be accompanied by appropriate notices and any payments in respect of
interest or taxes, as applicable, as described above under " -- Conversion
Rights".
Holding has initially appointed the Trustee as paying agent and conversion
agent. Holding may at any time terminate the appointment of any paying agent or
conversion agent and appoint additional or other paying agents and conversion
agents, provided that until the Notes have been delivered to the Trustee for
cancellation, or moneys sufficient to pay the principal of, premium, if any, and
interest on the Notes have been made available for payment and either paid or
returned to Holding as provided in the Indenture, it will maintain an office or
agency in the Borough of Manhattan, The City of New York for surrender of Notes
for conversion. Notice of any such termination or appointment and of any change
in the office through which any paying agent or conversion agent will act will
be given in accordance with "-- Notices" below.
All moneys deposited with the Trustee or any paying agent, or then held by
Holding, in trust for the payment of principal of, premium, if any, or interest
on any Notes which remain unclaimed at the end of two years after the payment
has become due and payable will be repaid to Holding and the holder of the Note
will then look only to Holding for payment.
REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE IN CONTROL
If a Change in Control occurs, then each holder of Notes shall have the
right to require that Holding purchase the holder's Notes, in whole or in part,
in integral multiples of $1,000, at a repurchase price in cash, in an amount
equal to 100% of the principal amount of such Notes or portion thereof, plus
accrued and unpaid interest, if any, to the date of purchase. Within 30 days
following the Change in Control, Holding will mail an offer to purchase to each
holder describing
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<PAGE> 29
the transaction or transactions that constitute the Change in Control and
offering to purchase Notes on the date specified in the offer to purchase.
Holding may, at its option, in lieu of paying the repurchase price in cash,
pay the repurchase price in Class A common stock valued at 95% of the average of
the closing bid prices of the Class A common stock for the five trading days
immediately preceding and including the third day prior to the repurchase date;
provided, that payment may not be made in Class A common stock unless Holding
satisfies certain conditions with respect to such payment prior to the
repurchase date as provided in the Indenture.
Except as otherwise provided below, a "Change in Control" means:
- the acquisition by any person (including any syndicate or group
deemed to be a "person" under Section 13(d)(3) of the Exchange Act) other
than the Ricketts Family of beneficial ownership, directly or indirectly,
through a purchase, merger or other acquisition transaction or series of
transactions, of shares of capital stock of Holding entitling such Person
to elect a majority of the board of directors of Holding, other than any
such acquisition by Holding, any subsidiary of Holding or any employee
benefit plan of Holding; or
- any consolidation or merger of Holding with or into any other
person, any merger of another person into Holding or any conveyance, sale,
transfer or lease of all or substantially all of the assets of Holding to
another person other than:
- any such transaction which does not result in any
reclassification, conversion, exchange or cancellation of outstanding
shares of capital stock of Holding and pursuant to which the holders of
the Class A common stock and Class B common stock of Holding immediately
prior to such transaction are entitled to exercise, directly or
indirectly, 50% or more of the total voting power of all shares of
capital stock entitled to vote generally in the election of directors of
the continuing or surviving corporation immediately after such
transaction and
- any merger which is effected solely to change the jurisdiction of
incorporation of Holding and results in a reclassification, conversion
or exchange of outstanding shares of Class A common stock solely into
shares of common stock.
A Change in Control will not be deemed to have occurred if:
- the closing bid price per share of the Class A common stock for any five
trading days within the period of 10 consecutive trading days ending immediately
after the later of the Change in Control or the public announcement of the
Change in Control (in the case of a Change in Control under the first bullet
point above) or the period of 10 consecutive trading days ending immediately
before the Change in Control (in the case of a Change in Control under the
second bullet point above) equals or exceeds 105% of the conversion price of the
Notes in effect on each such trading day; or
- all of the consideration (excluding cash payments for fractional shares
and cash payments made pursuant to dissenters' appraisal rights) in a merger or
consolidation constituting the Change in Control consists of shares of common
stock traded on a national securities exchange or on The Nasdaq National Market
(or will be so traded or quoted immediately following the Change in Control).
"Beneficial ownership" shall be determined in accordance with Rule 13d-3
promulgated by the Commission under the Exchange Act, as in effect on the date
of execution of the Indenture.
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to Holders of
the Notes. Holding will comply with this rule to the extent applicable at that
time.
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<PAGE> 30
Holding may, to the extent permitted by applicable law, at any time
purchase Notes in the open market or by tender at any price or by private
agreement. Any Note so purchased by Holding may, to the extent permitted by
applicable law and subject to restrictions contained in the Purchase Agreement,
be re-issued or resold or may, at Holding's option, be surrendered to the
Trustee for cancellation. Any Notes surrendered as aforesaid may not be
re-issued or resold and will be canceled promptly.
Holding will not be required to make an offer to purchase upon a Change in
Control if a third party makes the Offer to Purchase in the manner, at the times
and otherwise in compliance with the requirements set forth in the Indenture
applicable to the offer to purchase made by Holding and purchases all Notes
validly tendered and not withdrawn under such offer to purchase.
The foregoing provisions would not necessarily afford Holders of the Notes
protection in the event of highly leveraged or other transactions involving
Holding that may adversely affect Holders.
Holding's ability to repurchase Notes upon the occurrence of a Change in
Control is subject to limitations. There can be no assurance that Holding would
have the financial resources, or would be able to arrange financing, to pay the
repurchase price for all the Notes that might be delivered by Holders of Notes
seeking to exercise the repurchase right. Moreover, although under the Indenture
Holding may elect, subject to satisfaction of certain conditions, to pay the
repurchase price for the Notes using shares of Class A common stock, Holding's
ability to repurchase Notes may be limited or prohibited by the terms of
borrowing arrangements, including Holding's revolving credit agreement and other
Senior Indebtedness existing at the time of a Change in Control. Holding's
ability to repurchase Notes with cash may also be limited by the terms of its
subsidiaries' borrowing arrangements due to dividend restrictions. Any failure
by Holding to repurchase the Notes when required following a Change in Control
would result in an Event of Default under the Indenture whether or not such
repurchase is permitted by the subordination provisions of the Indenture. Any
such default may, in turn, cause a default under Senior Indebtedness of Holding.
Moreover, the occurrence of a Change in Control could result in an event of
default under the terms of Holding's revolving credit agreement or under the
terms of other Senior Indebtedness of Holding. As a result, in each case, any
repurchase of the Notes would, absent a waiver, be prohibited under the
subordination provisions of the Indenture until the Senior Indebtedness is paid
in full. In addition, Holding's repurchase of Notes as a result of the
occurrence of a Change in Control may be prohibited or limited by, or create an
event of default under, the terms of agreements related to borrowings which
Holding may enter into from time to time, including agreements relating to
Senior Indebtedness. See "-- Subordination".
MERGERS AND SALES OF ASSETS BY HOLDING
Holding may not consolidate with or merge into any other person or convey,
transfer, sell or lease its properties and assets substantially as an entirety
to any person unless:
- the person formed by such consolidation or into or with which Holding is
merged or the person to which the properties and assets of Holding are so
conveyed, transferred, sold or leased shall be a corporation, limited liability
company, partnership or trust organized and existing under the laws of the
United States, any State thereof or the District of Columbia and, if other than
Holding, shall expressly assume the payment of the principal of, premium, if
any, and interest on the Notes and the performance of the other covenants of
Holding under the Indenture and
- immediately after giving effect to that transaction, no event of default,
and no event that, after notice or lapse of time or both, would become an event
of default, shall have occurred and be continuing.
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<PAGE> 31
EVENTS OF DEFAULT
The following will be events of default under the Indenture:
- failure to pay principal of or premium, if any, on any Note when due,
whether or not such payment is prohibited by the subordination provisions of the
Notes and the Indenture;
- failure to pay any interest on any Note when due, continuing for 30 days,
whether or not such payment is prohibited by the subordination provisions of the
Notes and the Indenture;
- failure to provide an offer to purchase in the event of a Change in
Control whether or not such Offer to Purchase is prohibited by the subordination
provisions of the Notes and the Indenture;
- failure to perform any other covenant of Holding in the Indenture
continuing for 60 days after written notice as provided in the Indenture;
- any default by Holding or any significant subsidiary in the payment of
the principal, premium, if any, or interest has occurred with respect to amounts
in excess of $25 million under any agreement, indenture or instrument evidencing
indebtedness when the same shall become due and payable in full and such default
shall have continued after any applicable grace period and shall not have been
cured or waived and, if not already matured at its final maturity in accordance
with its terms, the holder of such indebtedness shall have the right to
accelerate such indebtedness;
- any event of default as defined in any agreement, indenture or instrument
of Holding or any significant subsidiary evidencing indebtedness in excess of
$25 million shall have occurred and the indebtedness thereunder, if not already
matured at its final maturity in accordance with its terms, shall have been
accelerated; and
- certain events of bankruptcy, insolvency or reorganization with respect
to Holding or any significant subsidiary.
If an event of default (other than with respect to the bankruptcy,
insolvency or reorganization of Holding) shall occur and be continuing, either
the Trustee or the Holders of at least 25% in principal amount of the
outstanding Notes may accelerate the maturity of all Notes. However, after
acceleration, but before a judgment or decree based on acceleration, the holders
of a majority in aggregate principal amount of outstanding Notes may rescind and
annul the acceleration if all events of default, other than the non-payment of
principal of the Notes which have become due solely by such declaration of
acceleration, have been cured or waived as provided in the Indenture. If an
event of default with respect to the bankruptcy, insolvency or reorganization of
Holding occurs and is continuing, then the principal of, and accrued interest
on, all the Notes shall automatically become immediately due and payable without
any declaration or other act on the part of the holders of the Notes or the
Trustee. For information as to waiver of defaults, see "-- Meetings,
Modification and Waiver".
The holders of a majority in aggregate principal amount of the outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. No holder of any Note will have any right to
institute any proceeding with respect to the Indenture or for any remedy
thereunder unless:
- the holder shall have previously given to the Trustee written notice of a
continuing event of default; and
- the holders of at least 25% in aggregate principal amount of the
outstanding Notes shall have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as trustee, and the
Trustee shall not have received from the Holders of a majority in
29
<PAGE> 32
aggregate principal amount of the outstanding Notes a direction inconsistent
with the request and shall have failed to institute the proceeding within 60
days.
However, these limitations do not apply to a suit instituted by a holder of a
Note for the enforcement of payment of the principal of, premium, if any, or
interest on such Note on or after the respective due dates expressed in such
Note or of the right to convert such Note in accordance with the Indenture.
Holding will be required to furnish to the Trustee annually a statement as
to the performance by Holding of certain of its obligations under the Indenture
and as to any default in such performance.
MEETINGS, MODIFICATION AND WAIVER
The Indenture contains provisions for convening meetings of the Holders of
Notes to consider matters affecting their interests.
Limited modifications of the Indenture may be made without the necessity of
obtaining the consent of the holders of Notes. Other modifications and
amendments of the Indenture may be made, and certain past defaults by Holding
may be waived, either:
- with the written consent of the holders of not less than a majority in
aggregate principal amount of the Notes at the time outstanding or
- by the adoption of a resolution, at a meeting of holders of the Notes at
which a quorum is present, by the holders of at least 66 2/3% in aggregate
principal amount of the Notes represented at such meeting.
However, the consent of the holder of each outstanding Note affected is
required to approve modifications or amendments of the Notes that would:
- change the stated maturity of the principal of, or any installment of
interest on, any Note,
- reduce the principal amount of, or the premium, if any, or interest on,
any Note,
- reduce the amount payable upon a redemption or mandatory repurchase,
- modify the provisions with respect to the repurchase right of the holder
in a manner adverse to the Holders,
- change the currency of payment of principal of, premium, if any, or
interest on, any Note,
- except as otherwise permitted or contemplated by provisions concerning
consolidation, merger, conveyance, transfer, sale or lease of all or
substantially all of the property and assets of Holding, adversely affect the
right of holders to convert any of the Notes or to require Holding to repurchase
any Note other than as provided in the Indenture,
- modify the subordination provisions in a manner adverse to the holders of
the Notes,
- reduce the above stated percentage of outstanding Notes necessary to
modify or amend the Indenture,
- reduce the percentage of aggregate principal amount of outstanding Notes
necessary for waiver of compliance with certain provisions of the Indenture or
for waiver of certain defaults,
- reduce the percentage in aggregate principal amount of outstanding Notes
required for the adoption of a resolution or the quorum required at any meeting
of holders of Notes at which a resolution is adopted or
- modify the obligation of Holding to deliver information required under
Rule 144A to permit resales of Notes and Class A common stock issuable upon
conversion thereof in the event
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Holding ceases to be subject to certain reporting requirements under the United
States securities laws.
The quorum at any meeting called to adopt a resolution will be persons
holding or representing a majority in aggregate principal amount of the Notes at
the time outstanding and, at any reconvened meeting adjourned for lack of a
quorum, 25% of the aggregate principal amount.
The holders of a majority in aggregate principal amount of the outstanding
Notes may waive compliance by Holding with certain restrictive provisions of the
Indenture by written consent or by the adoption of a resolution at a meeting.
The holders of a majority in aggregate principal amount of the outstanding Notes
also may waive any past default under the Indenture, except a default in the
payment of principal, premium, if any, or interest, by written consent.
REGISTRATION RIGHTS
Holding has entered into a registration rights agreement with the initial
purchaser of the Notes pursuant to which Holding has agreed to, at its expense,
for the benefit of the holders of the Notes and the shares of Class A common
stock issuable upon conversion thereof (together, the "Registrable Securities"),
(1) file with the SEC, within 90 days after the date of original issuance of the
Notes, a registration statement (the "Shelf Registration Statement") covering
resales of the Registrable Securities, (2) use all reasonable efforts to cause
the Shelf Registration Statement to be declared effective under the Securities
Act within 180 days after the date of original issuance of the Notes and (3) use
all reasonable efforts to keep effective the Shelf Registration Statement until
two years after the date it is declared effective or, if earlier, until there
are no outstanding registrable securities (the "Effectiveness Period"). The
Registration Statement of which this prospectus is a part has been filed to
satisfy these obligations and any reference to Shelf Registration Statement
shall mean such Registration Statement, as amended or supplemented. Any
reference to the prospectus that is part of the Shelf Registration Statement
shall mean this prospectus, as amended or supplemented.
Holding will be permitted to suspend the use of the prospectus which is
part of the Shelf Registration Statement in connection with sales of Registrable
Securities during certain periods of time (not to exceed an aggregate of 45 days
in any 90 day period, or an aggregate of 90 days in any 365 day period) under
certain circumstances relating to pending corporate financings, acquisitions and
other events. Holding will provide to each holder of Registrable Securities
copies of the prospectus that is a part of the Shelf Registration Statement,
notify each holder when the Shelf Registration Statement has become effective
and take certain other actions as are required to permit public resales of the
Registrable Securities.
Holding may, upon written notice to all the holders, postpone having the
Shelf Registration Statement declared effective as required by the registration
rights agreement for a reasonable period not to exceed 90 days if Holding
determines that it should disclose in the Shelf Registration Statement a
financing, acquisition or other corporate transaction and Holding determines in
good faith that such disclosure is not in the best interests of Holding and its
stockholders. Notwithstanding any such postponement, if (1) on or prior to 90
days following the date of original issuance of the Notes, a Shelf Registration
Statement has not been filed with the SEC or (2) on or prior to 180 days
following the date of original issuance of the Notes, the Shelf Registration
Statement is not declared effective (each, a "Registration Default"), additional
interest ("Liquidated Damages") will accrue on the Notes, from and including the
day following the Registration Default to but excluding the day on which the
Registration Default has been cured. Liquidated Damages will be paid
semi-annually in arrears, with the first semi-annual payment due on the first
interest payment date as applicable, following the date on which the Liquidated
Damages begin to accrue, and will accrue at a rate per annum equal to an
additional one-quarter of one percent (.25%) of the principal amount, to and
including the 90th day
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following the Registration Default and one-half of one percent (.5%) thereof
from and after the 91st day following the Registration Default. In the event
that the Shelf Registration Statement ceases to be effective (or the holders of
Registrable Securities are otherwise prevented or restricted by Holding from
effecting sales pursuant thereto) (an "Effective Failure") during the
Effectiveness Period for more than 45 days, whether or not consecutive, during
any 90 day period, or for more than 90 days, whether or not consecutive, during
any 12-month period then, in either case, the interest rate borne by the Notes
will increase by an additional one-half of one percent (.5%) per annum from the
46th day of the applicable 90 day period or the 91st day of the applicable
12-month period, as the case may be, until such time as the Effective Failure is
cured.
A holder who elects to sell any Registrable Securities pursuant to the
Shelf Registration Statement will be required to be named as a selling security
holder in the related prospectus, may be required to deliver a prospectus to
purchasers, may be subject to certain civil liability provisions under the
Securities Act in connection with such sales and will be bound by the provisions
of the registration rights agreement that are applicable to a holder making such
election, including certain indemnification provisions.
Holding has mailed a Notice and Questionnaire to the holders of Registrable
Securities. No holder of Registrable Securities shall be entitled to be named as
a selling securityholder in the Shelf Registration Statement as of the effective
date of the Shelf Registration Statement, and no holder of Registrable
Securities shall be entitled to use the prospectus forming a part thereof for
offers and resales of Registrable Securities at any time, unless such holder has
returned a completed and signed Notice and Questionnaire to Holding by the
deadline for response set forth in the notice; provided, that holders of
Registrable Securities shall have at least 28 calendar days from the date on
which the Notice and Questionnaire is first mailed to such holders to return a
completed and signed Notice and Questionnaire to Holding.
After the effective date of the Shelf Registration Statement, Holding
shall, upon the request of any holder of Registrable Securities that is not then
named in the related prospectus, as promptly as reasonably practicable, send a
Notice and Questionnaire to such holder. Holding shall not be required to take
any action to name such holder as a selling holder in the Shelf Registration
Statement until the holder has returned a completed and signed Notice and
Questionnaire to Holding. Following its receipt of a Notice and Questionnaire,
Holding will as promptly as practicable include the Registrable Securities
covered by that Notice and Questionnaire in the Shelf Registration Statement, if
not previously included.
Holding has agreed in the registration rights agreement to use all
reasonable efforts to cause the shares of Class A common stock issuable upon
conversion of the Notes to be quoted on The Nasdaq National Market upon
effectiveness of the Shelf Registration Statement.
TITLE
Holding, the Trustee, any paying agent and any conversion agent may treat
the registered owner (as reflected in the security register) of any Note as the
absolute owner of that Note for the purpose of making payment and for all other
purposes.
NOTICES
Notice to holders of the Notes will be given by mail to the addresses of
the holders as they appear in the security register. The notices will be deemed
to have been given on the date of mailing.
Notice of a redemption of Notes will be given at least once not less than
30 and not more than 60 days prior to the redemption date (which notice may be
revoked) and will specify the redemption date.
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REPLACEMENT OF NOTES
Notes that become mutilated, destroyed, stolen or lost will be replaced by
Holding at the expense of the holder upon delivery to the Trustee of the
mutilated Notes or evidence of the loss, theft or destruction thereof
satisfactory to Holding and the Trustee, in the case of a lost, stolen or
destroyed Note, indemnity satisfactory to the Trustee and Holding may be
required at the expense of the holder of the Note before a replacement Note will
be issued.
PAYMENT OF STAMP AND OTHER TAXES
Holding will pay all stamp and other duties, if any, which may be imposed
by the United States or any political subdivision thereof or taxing authority
thereof or therein with respect to the issuance of the Notes. Holding is not be
required to make any payment with respect to any other tax, assessment or
governmental charge imposed by any government or any political subdivision
thereof or taxing authority.
GOVERNING LAW
The Indenture and the Notes are governed by and to be construed in
accordance with the laws of the State of New York, United States of America.
THE TRUSTEE
In case an event of default shall occur and shall not be cured, the Trustee
will be required to use the degree of care of a prudent person in the conduct of
his own affairs in the exercise of its powers. The Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any of the holders of Notes, unless they shall have offered to the
Trustee reasonable security or indemnity satisfactory to the Trustee.
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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 291,000,000 shares of capital stock,
consisting of 270,000,000 shares of Class A common stock, $.01 par value,
18,000,000 shares of Class B common stock, $.01 par value, and 3,000,000 shares
of preferred stock, $1.00 par value. As of October 15, 1999, 158,103,480 shares
of our Class A common stock, 16,372,800 shares of our Class B common shares of
our preferred stock were issued and outstanding.
The authorized and unissued 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 Holding.
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.
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
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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 must 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 Class B common stock is convertible into one share of Class A common stock at
any time at the option of and without any cost to the holder of the share. 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, each share of
Class B common stock automatically converts 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 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 for 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 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 is required by Regulation 14A of the Exchange Act.
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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;
- - 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 of 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
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transaction involving a breach of fiduciary duty. Moreover, these provisions
probably would 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.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following describes the material United States federal income tax
consequences to a United States holder, as defined below, of the ownership and
disposition of the Notes and the Class A common stock into which the Notes may
be converted. It deals only with Notes and shares of Class A common stock that
are held as capital assets by investors who purchase the Notes in the offering
at the offering price. It does not address special classes of holders including:
- dealers in securities or currencies,
- traders in securities that elect to mark to market,
- banks,
- insurance companies,
- persons that hold Notes or the Class A common stock as a hedge, or
hedged against, currency or interest rate risks or that are part of a
straddle or conversion transaction, or
- persons whose functional currency is not the U.S. dollar.
If you purchase the Notes at a price other than the offering price,
amortizable bond premium or market discount rules may also apply. You should
consult your tax advisor regarding this possibility. This discussion is based on
the tax laws of the United States, including the Internal Revenue Code of 1986,
as amended (the "Code"), existing and proposed regulations thereunder, and
administrative and judicial interpretations thereof, as currently in effect.
These laws are subject to change, possibly on a retroactive basis.
Before purchasing these Notes, please consult your own tax advisor
concerning the consequences of owning these Notes in your particular
circumstances under the Code and the laws of any other jurisdiction.
FEDERAL INCOME TAX CONSEQUENCES OF THE REGISTRATION
The registration of the Notes and the Class A common stock will not result
in any income, gain or loss to the holders of the Notes or to Holding.
UNITED STATES HOLDER
You are a "United States holder" if you are a beneficial owner and you are:
- a citizen or resident of the United States,
- a domestic corporation,
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- an estate whose income is subject to United States federal income tax
regardless of its source, or
- a trust if a United States court can exercise primary supervision over
the trust's administration and one or more United States persons are
authorized to control all substantial decisions of the trust.
PAYMENT OF INTEREST
Interest on your Note is taxable as ordinary income that you will recognize
when you receive the interest or when the interest accrues, depending on your
method of accounting for tax purposes. We intend to take the position that the
likelihood of a repurchase upon a Change in Control, as described under
"Description of Notes -- Repurchase at Option of Holders Upon a Change in
Control", is remote under the applicable Treasury regulations, and therefore,
will not affect the yield to maturity of a Note. Accordingly, the Notes will not
have any original issue discount.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Upon the sale, exchange or redemption of a Note, you generally will
recognize capital gain or loss equal to the difference between the amount
realized (with the exception of any amount attributable to accrued but unpaid
interest that is generally treated as ordinary income) and your tax basis in the
Note. Your tax basis in your Note generally will be its cost. Your capital gain
will be long-term capital gain that is taxed at a maximum rate of 20% if you are
a non-corporate holder and have held the Note for longer than one year.
CONVERSION OF THE NOTES
You generally will not recognize any income, gain or loss upon the
conversion of a Note into a Class A common stock, except with respect to cash
received in lieu of a fractional share of Class A common stock or attributable
to accrued interest on your converted Note. Your tax basis in the Class A common
stock you receive on conversion of a Note will be the same as your basis in the
Note at the time of the conversion, reduced by any basis allocable to a
fractional share interest, and your holding period for the Class A common stock
you receive on conversion will generally include the holding period of the Note
converted, except with respect to any Class A common stock received in respect
of accrued but unpaid interest.
Cash you receive in lieu of a fractional share of Class A common stock upon
conversion generally will be treated as a payment in exchange for the fractional
share of Class A common stock. Accordingly, the receipt of cash in lieu of a
fractional share of Class A common stock will result in capital gain or loss,
measured by the difference between the cash you received for the fractional
share and your adjusted tax basis in the fractional share.
DIVIDENDS ON THE CLASS A COMMON STOCK
The amount of any distribution you receive from us in respect of Class A
common stock will be equal to the amount of cash and the fair market value, on
the date of distribution, of any property distributed. Generally, distributions
will be treated as a dividend, subject to tax as ordinary income, to the extent
of our current or accumulated earnings and profits, then as a tax-free return of
capital to the extent of your basis in the shares of Class A common stock and
thereafter as gain from the sale or exchange of the stock.
In general, if you are a corporate United States holder any dividend you
receive will qualify for the 70% dividends-received deduction if you own less
than 20% of the voting power or value of our stock, other than non-voting,
non-convertible, non-participating preferred stock. If you are a corporate
United States holder and own 20% or more of the voting power and value of our
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stock, other than non-voting, non-convertible, non-participating preferred
stock, you generally will qualify for an 80% dividends-received deduction. The
dividends-received deduction is subject, however, to certain holding period,
taxable income and other limitations. In addition, corporate holders should
consider the rules under section 1059 of the Code that may reduce their basis in
the Class A common stock.
If at any time we make a distribution of cash or property to our
stockholders or purchase Class A common stock and the distribution or purchase
would be taxable to the stockholders as a dividend for United States federal
income tax purposes, e.g. distributions of evidences of indebtedness or assets,
but generally not stock dividends or rights to subscribe for Class A common
stock, and in connection with such distribution the Conversion Rate of the Notes
is increased, the increase in the Conversion Rate of the Notes may be deemed to
be the payment of a taxable dividend to holders of the Notes, pursuant to
section 305 of the Code, to the extent of our current or accumulated earnings
and profits. Consequently, you could have taxable income as a result of an event
pursuant to which you did not receive any cash or property.
SALE OF CLASS A COMMON STOCK
Upon your sale or exchange of Class A common stock, you generally will
recognize capital gain or loss equal to the difference between the amount you
received upon the sale or exchange and your tax basis in the Class A common
stock. The capital gain or loss will be long-term if your holding period in the
Class A common stock is more than one year at the time of the sale or exchange.
Long-term capital gain of a non-corporate United States holder is generally
subject to a maximum rate of 20%.
BACKUP WITHHOLDING AND INFORMATION REPORTING
PAYMENTS OF PRINCIPAL, INTEREST AND DIVIDENDS
If you are a non-corporate United States holder, information reporting
requirements generally will apply to payments within the United States of
principal and interest on a Note or dividend payments on the Class A common
stock.
Additionally, backup withholding at a rate of 31% will apply to such
payments if you:
- fail to provide an accurate taxpayer identification number or
- are notified by the Internal Revenue Service that you have failed to
report all interest and dividends required to be shown on your federal
income tax returns.
PROCEEDS FROM THE SALE OF A NOTE OR CLASS A COMMON STOCK
Payment of the proceeds from the sale of a Note to or through the United
States office of a broker may be subject to information reporting and backup
withholding. Payment of the proceeds from the sale of a Note made to or through
a foreign office of a broker generally will not be subject to information
reporting or backup withholding. Information reporting, but not backup
withholding, may apply to such payments, however, if the broker is:
- a United States person,
- a controlled foreign corporation for United States tax purposes,
- a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified
three-year period, or
- with respect to payments made after December 31, 2000, a foreign
partnership, if at any time during its tax year
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-- one or more of its partners are United States persons, as defined in
U.S. Treasury regulations, who in the aggregate hold more than 50% of
the income or capital interest in the partnership or
-- the foreign partnership is engaged in a United States trade or
business, unless the broker has documentary evidence in its records
that the holder is a non-United States person and does not have actual
knowledge that the holder is a United States person or otherwise
establishes an exemption.
The preceding discussion of certain United States federal income and estate
tax consequences is for general information only and is not tax advice.
Accordingly, each investor should consult its own tax advisor as to particular
tax consequences to it of purchasing, holding and disposing of the Notes and the
Class A common stock, including the applicability and effect of any state, local
or foreign tax laws, and of any proposed changes in applicable laws.
PLAN OF DISTRIBUTION
The selling holders and their successors, including their transferees,
pledgees or donees or their successors, may sell the Notes and the Class A
common stock into which the Notes are convertible directly to purchasers or
through underwriters, broker-dealers or agents, who may receive compensation in
the form of discounts, concessions or commissions from the selling holders or
the purchasers. These discounts, concessions or commissions as to any particular
underwriter, broker-dealer or agent may be in excess of those customary in the
types of transactions involved.
The Notes and the Class A common stock into which the Notes are convertible
may be sold in one or more transactions at fixed prices, at prevailing market
prices at the time of sale, at prices related to the prevailing market prices,
at varying prices determined at the time of sale, or at negotiated prices. These
sales may be effected in transactions, which may involve crosses or block
transactions:
- on any national securities exchange or U.S. inter-dealer system of a
registered national securities association on which the Notes or the
Class A common stock may be listed or quoted at the time of sale;
- in the over-the-counter market;
- in transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
- through the writing of options, whether the options are listed on an
options exchange or otherwise; or
- through the settlement of short sales.
In connection with the sale of the Notes and the Class A common stock into
which the Notes are convertible or otherwise, the selling holders may enter into
hedging transactions with broker-dealers or other financial institutions, which
may in turn engage in short sales of the Notes or the Class A common stock into
which the Notes are convertible in the course of hedging the positions they
assume. The selling holders may also sell the Notes or the Class A common stock
into which the Notes are convertible short and deliver these securities to close
out their short positions, or loan or pledge the Notes or the Class A common
stock into which the Notes are convertible to broker-dealers that in turn may
sell these securities.
The aggregate proceeds to the selling holders from the sale of the Notes or
Class A common stock into which the Notes are convertible offered by them will
be the purchase price of the Notes or Class A common stock less discounts and
commissions, if any. Each of the selling holders reserves the right to accept
and, together with their agents from time to time, to reject, in
40
<PAGE> 43
whole or in part, any proposed purchase of Notes or Class A common stock to be
made directly or through agents. Holding will not receive any of the proceeds
from this offering.
The Class A common stock is listed for trading on The Nasdaq National
Market. The Notes are currently eligible for trading on the PORTAL System of the
NASD.
In order to comply with the securities laws of some states, if applicable,
the Notes and Class A common stock into which the Notes are convertible may be
sold in these jurisdictions only through registered or licensed brokers or
dealers. In addition, in some states the Notes and Class A common stock into
which the Notes are convertible may not be sold unless they have been registered
or qualified for sale or an exemption from registration or qualification
requirements is available and is complied with.
The selling holders and any underwriters, broker-dealers or agents that
participate in the sale of the Notes and Class A common stock into which the
Notes are convertible may be "underwriters" within the meaning of Section 2(11)
of the Securities Act. Any discounts, commissions, concessions or profit they
earn on any resale of the shares may be underwriting discounts and commissions
under the Securities Act. Selling holders who are "underwriters" within the
meaning of Section 2(11) of the Securities Act will be subject to the prospectus
delivery requirements of the Securities Act. The selling holders have
acknowledged that they understand their obligations to comply with the
provisions of the Exchange Act and the rules thereunder relating to stock
manipulation, particularly Regulation M.
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this prospectus. A selling holder
may not sell any Notes or Class A common stock described in this prospectus and
may transfer, devise or gift these securities by other means not described in
this prospectus.
To the extent required, the specific Notes or Class A common stock to be
sold, the names of the selling holders, the respective purchase prices and
public offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a
post-effective amendment to the registration statement of which this prospectus
is a part.
Holding entered into a registration rights agreement for the benefit of
holders of the Notes to register their Notes and Class A common stock under
applicable federal and state securities laws under specific circumstances and at
specific times. The registration rights agreement provides for
cross-indemnification of the selling holders and Holding and their respective
directors, officers and controlling persons against specific liabilities in
connection with the offer and sale of the Notes and the Class A common stock,
including liabilities under the Securities Act. Holding will pay substantially
all of the expenses incurred by the selling holders of Holding incident to the
offering and sale of the Notes and the Class A common stock. Holding estimates
that its total expenses of the offering of the Notes and the Class A common
stock will be approximately $200,000.
VALIDITY OF SECURITIES
The validity of the Notes and the Class A common stock issuable upon
conversion thereof is being passed upon for us by Mayer, Brown & Platt, Chicago,
Illinois.
41
<PAGE> 44
EXPERTS
The consolidated financial statements of Holding 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 from our Annual
Report on Form 10-K/A for the year ended September 25, 1998 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
This prospectus is part of a registration statement that we filed with the
SEC. The registration statement, including the attached exhibits, 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 file reports,
proxy statements and other information with the SEC under the Exchange Act. 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>
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 Exchange Act 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. This prospectus
incorporates by reference important business and financial information about us.
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, and later information that we file with the
SEC will automatically update and supersede all of such information.
This prospectus incorporates by reference the documents listed below that
we have previously filed or will file with the SEC:
- - 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;
42
<PAGE> 45
- - Our Quarterly Report on Form 10-Q for the quarterly period ended June 25,
1999, filed on August 9, 1999;
- - Our Current Report on Form 8-K, filed on July 29, 1999; and
- - All documents filed with the SEC by us under Sections 13(a), 13(c) 14, and
15(d) of the Exchange Act 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.
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.
43
<PAGE> 46
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
F-1
<PAGE> 47
INDEPENDENT AUDITORS' 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 (August 4, 1999 as to Note 11)
F-2
<PAGE> 48
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 -- 270,000,000 shares authorized; 157,841,076
shares issued........................................ 1,578,411 1,578,411
Class B -- 18,000,000 shares authorized; 16,372,800
shares issued and outstanding........................ 163,728 163,728
------------ --------------
Total common stock................................ 1,742,139 1,742,139
Additional paid in capital.................................. 21,700,545 21,683,870
Retained earnings........................................... 43,546,410 43,756,848
Treasury stock -- Class A shares at cost (56,652 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> 49
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..................... $ 0.07 $ 0.08 $ 0.00
Diluted earnings per share................... $ 0.07 $ 0.08 $ 0.00
Weighted average shares outstanding --
basic...................................... 153,765,876 165,226,668 174,187,962
Weighted average shares outstanding --
diluted.................................... 153,765,876 165,233,442 174,464,730
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 50
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>
COMMON STOCK ADDITIONAL
------------------------------------ PAID-IN RETAINED TREASURY
TOTAL CLASS A CLASS B TOTAL CAPITAL EARNINGS STOCK
----------- ---------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 29, 1995.... $19,503,719 $1,595,811 $ 299,376 $ 1,895,187 $ (793,519) $19,839,450 $(1,437,399)
Net Income................... 11,158,345 -- -- -- -- 11,158,345 --
Retirement of treasury
stock...................... -- (221,880) (135,648) (357,528) 193,663 (1,273,534) 1,437,399
----------- ---------- --------- ----------- ----------- ----------- -----------
Balance, September 27, 1996.... 30,662,064 1,373,931 163,728 1,537,659 (599,856) 29,724,261 --
Net Income................... 13,822,149 -- -- -- -- 13,822,149 --
Issuance of 48,000 shares
from compensation plans.... 33,750 480 -- 480 33,270 -- --
Issuance of 20,400,000 shares
from initial public
offering................... 22,471,131 204,000 -- 204,000 22,267,131 -- --
----------- ---------- --------- ----------- ----------- ----------- -----------
Balance, September 26, 1997.... 66,989,094 1,578,411 163,728 1,742,139 21,700,545 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 -- -- -- -- -- --
----------- ---------- --------- ----------- ----------- ----------- -----------
Balance, September 25, 1998.... $84,572,084 $1,578,411 $ 163,728 $ 1,742,139 $21,683,870 $43,756,848 $ (133,388)
=========== ========== ========= =========== =========== =========== ===========
<CAPTION>
NET
UNREALIZED
INVESTMENT
GAIN
-----------
<S> <C>
Balance, September 29, 1995.... $ --
Net Income................... --
Retirement of treasury
stock...................... --
-----------
Balance, September 27, 1996.... --
Net Income................... --
Issuance of 48,000 shares
from compensation plans.... --
Issuance of 20,400,000 shares
from initial public
offering................... --
-----------
Balance, September 26, 1997.... --
Net Income................... --
Purchase of treasury stock... --
Reissuance of treasury
stock...................... --
Net unrealized investment
gain....................... 17,522,615
-----------
Balance, September 25, 1998.... $17,522,615
===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 51
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> 52
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> 53
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> 54
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, 2000. The Company has not
determined the impact this statement will have on the consolidated financial
statements.
F-9
<PAGE> 55
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> 56
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> 57
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
9,600,000 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 960,000 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> 58
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... -- -- 96,000 $1.25
Granted.......................... 96,000 $1.25 1,681,200 $2.14
Exercised........................ -- -- -- --
Canceled......................... -- -- -- --
---------- ----- --------- -----
Outstanding at end of year......... 96,000 $1.25 1,777,200 $2.09
Exercisable at end of year......... -- -- 96,000 $1.25
Available for future grant at end
of year.......................... 10,464,000 8,782,800
Weighted-average fair value of
options granted during the
year............................. $1.12 $1.23
</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>
$0.83-$1.66........... 96,000 6.44 $1.25 96,000 $1.25
$1.67-$2.50........... 1,653,600 7.14 $2.13 -- --
$2.51-$3.33........... 27,600 7.81 $2.86 -- --
--------- ---- ----- ------ -----
$0.83-$3.33........... 1,777,200 7.11 $2.09 96,000 $1.25
</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> 59
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 $1.12 and $1.23, 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 $ 0.08 $ 0.00
Pro forma 0.08 (0.00)
Diluted earnings per share:.......... As reported 0.08 0.00
Pro forma 0.08 (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.... 153,765,876 165,226,668 174,187,962
Effect of dilutive securities:
Assumed exercise of stock options............. -- 6,774 276,768
Weighted average shares outstanding --
diluted....................................... 153,765,876 165,233,442 174,464,730
Earnings per share -- basic..................... $ 0.07 $ 0.08 $ 0.00
Earnings per share -- diluted................... $ 0.07 $ 0.08 $ 0.00
</TABLE>
F-14
<PAGE> 60
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> 61
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. Stockholders of record as of the close of business on June 11, 1999
received, in the form of a stock dividend, two additional shares for each share
held by them. This three-for-one split was distributed on July 2, 1999 and the
stock began trading at post-split value on July 6, 1999. On July 1, 1999, the
stockholders approved a restated certificate of incorporation increasing the
number of shares of Class A common stock to 270,000,000 and
F-16
<PAGE> 62
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
Class B common stock to 18,000,000. All share data and per share amounts have
been restated to reflect the two-for-one and three-for-one stock splits.
On August 4, 1999, the Company sold $200,000,000 principal amount of 5.75
percent Convertible Subordinated Notes due August 1, 2004 (the "Notes") to
qualified institutional investors in a private placement pursuant to Rule 144A
of the Securities Act of 1933. The Notes are convertible into a total of
6,142,740 shares of the Class A common stock of the Company at approximately
$32.56 per share. On August 4, 1999, the Company used a portion of the proceeds
of the Notes to repay all outstanding indebtedness under its revolving credit
agreement. After the sale of the Notes, the Company will not be able to make
additional borrowings under the revolving credit agreement until new
arrangements have been made with the bank group.
F-17
<PAGE> 63
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................. $ (0.06) $ (0.00) $ 0.03 $ 0.03
Diluted earnings (loss) per share............... $ (0.06) $ (0.00) $ 0.03 $ 0.03
Stock price data ($)
High.......................................... 3.25 2.59 2.74 4.47
Low........................................... 1.50 1.86 1.91 2.16
</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 $ 0.02 $ 0.03 $ 0.03
Diluted earnings (loss) per share............... $ 0.00 $ 0.02 $ 0.03 $ 0.03
Stock price data ($)
High.......................................... N/A 1.88* 1.53 2.24
Low........................................... N/A 1.35* 0.98 1.22
</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 and the three-for-one stock split
effective on July 2, 1999. The stock prices listed above do not include retail
markups, markdowns, or commissions, and may not represent actual transactions.
F-18
<PAGE> 64
- ------------------------------------------------------
- ------------------------------------------------------
No 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 securities
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....... 17
Ratio of Earnings to Fixed
Charges.......................... 17
Use of Proceeds.................... 17
Selling Holders.................... 18
Description of Notes............... 20
Description of Capital Stock....... 34
Material United States Federal
Income Tax Considerations........ 37
Plan of Distribution............... 40
Validity of Securities............. 41
Experts............................ 42
Where You Can Find More
Information...................... 42
Index to Consolidated Financial
Statements....................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$200,000,000
AMERITRADE HOLDING
CORPORATION
5.75% Convertible
Subordinated Notes due
August 1, 2004
6,142,740 Shares of
Class A Common Stock
issuable upon conversion
of the Notes
---------------------------------
Ameritrade Holding Corporation Logo
---------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 65
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 and Nasdaq
National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 55,600
Nasdaq National Market listing fee.......................... 17,500
Printing expenses........................................... 75,000
Legal fees and expenses..................................... 35,000
Accounting fees and expenses................................ 10,000
Miscellaneous............................................... 6,900
--------
Total............................................. $200,000
========
</TABLE>
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>
*4.1 Form of Stock Certificate (incorporated herein by reference
to our Registration Statement on Form S-1, File No.
333-17495)
*4.2 Form of Note for Registrant's 5.75% Convertible Subordinated
Note, due August 1, 2004 (included in Exhibit 4.4)
*4.3 Indenture, dated as of August 4, 1999, between Registrant
and the Bank of New York, as trustee
*4.4 First Supplemental Indenture, dated as of August 4, 1999,
between Registrant and the Bank of New York, as trustee
*4.5 Registration Rights Agreement, dated August 4, 1999, between
Registrant and Goldman, Sachs & Co.
*5.1 Opinion of Mayer, Brown & Platt as to validity of securities
*12.1 Computation of Ratio of Earnings to Fixed Charges
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)
*25.1 Statement of Eligibility of Trustee
</TABLE>
- ---------------
*Previously filed.
II-1
<PAGE> 66
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933; (ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement; provided, however, that (i) and
(ii) do not apply if the information required to be included in a
post-effective amendment thereby is contained in periodic reports filed
with or furnished to the Commission by the Registrant pursuant to Section
13 or Section 15(d) of the Exchange Act that are incorporated by reference
in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes, 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.
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> 67
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 amendment to
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Omaha, State of Nebraska on the 20th day of
October, 1999.
AMERITRADE HOLDING CORPORATION
By: /s/ ROBERT T. SLEZAK
----------------------------------
Robert T. Slezak
Vice President, Chief
Financial Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to registration statement has been signed by the following persons in the
capacities indicated and on the 20th day of October, 1999.
<TABLE>
<CAPTION>
SIGNATURE POSITION
--------- --------
<S> <C>
/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
/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
* /s/ ROBERT T. SLEZAK
- --------------------------------------------
Robert T. Slezak
Attorney-in-Fact
</TABLE>
II-3
<PAGE> 68
INDEX TO EXHIBITS
<TABLE>
<C> <S>
*4.1 Form of Stock Certificate (incorporated herein by reference
to our Registration Statement on Form S-1, File No.
333-17495)
*4.2 Form of Note for Registrant's 5.75% Convertible Subordinated
Note, due August 1, 2004 (included in Exhibit 4.4)
*4.3 Indenture, dated as of August 4, 1999, between Registrant
and the Bank of New York, as trustee
*4.4 First Supplemental Indenture, dated as of August 4, 1999,
between Registrant and the Bank of New York, as trustee
*4.5 Registration Rights Agreement, dated August 4, 1999, between
Registrant and Goldman, Sachs & Co.
*5.1 Opinion of Mayer, Brown & Platt as to validity of securities
*12.1 Computation of Ratio of Earnings to Fixed Charges
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)
*25.1 Statement of Eligibility of Trustee
</TABLE>
- ---------------
* Previously Filed
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-87999 of Ameritrade Holding Corporation
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 (August 4, 1999 as to Note 11) on the financial statements,
appearing in the Prospectus, which is part of such Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
October 15, 1999
