<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
(Mark One)
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended December 31, 1999
OR
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 from the transition period from ________ to________
Commission file number: 0-22163
-----------------
AMERITRADE HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 47-0642657
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4211 SOUTH 102ND STREET, OMAHA, NEBRASKA
68127
(Address of principal executive offices)
(Zip Code)
(402) 331-7856
(Registrant's telephone number, including area code)
-----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past ninety days:
Yes (X) No ( )
As of February 11, 2000 there were 174,617,037 outstanding shares of the
registrant's common stock consisting of 158,244,237 outstanding shares of Class
A Common Stock and 16,372,800 outstanding shares of Class B Common Stock.
================================================================================
<PAGE> 2
AMERITRADE HOLDING CORPORATION
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits 14
(b) Reports on Form 8-K 16
Signatures 17
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. - CONSOLIDATED FINANCIAL STATEMENTS
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 24,
1999 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 187,988 $ 76,943
Cash and investments segregated in compliance with federal regulations 791,082 942,427
Receivable from brokers, dealers, and clearing organizations 58,878 89,958
Receivable from customers and correspondents - net of allowance
for doubtful accounts: December - $2,806; September - $2,916 2,290,575 1,526,801
Refundable income taxes 24,279 15,947
Furniture equipment and leasehold improvements - net of accumulated
depreciation and amortization: December - $17,667; September - $12,901 88,387 68,588
Goodwill - net of accumulated amortization 12,602 12,821
Investments 368,377 230,619
Other assets 50,513 72,979
----------- -----------
Total assets $ 3,872,681 $ 3,037,083
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to brokers, dealers and clearing organizations $ 430,802 $ 384,960
Payable to customers and correspondents 2,708,784 2,057,346
Accounts payable and accrued liabilities 82,440 73,603
Notes payable 20,000 --
Convertible subordinated notes 200,000 200,000
Deferred income taxes 148,213 100,711
----------- -----------
Total liabilities 3,590,239 2,816,620
----------- -----------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $1 par value; 3,000,000 shares authorized, none issued -- --
Common stock, $0.01 par value:
Class A - 270,000,000 shares authorized-, Dec. 31, 1999 - 158,279,478 shares
issued-, Sept. 24, 1999 - 158,103,480 shares issued 1,583 1,581
Class B - 18,000,000 shares authorized-, 16,372,800 shares issued and
outstanding 164 164
----------- -----------
Total common stock 1,747 1,745
Additional paid-in capital 25,761 24,079
Retained earnings 33,586 55,296
Treasury stock - Class A shares at cost (Dec. 31, 1999 - 37,105 shares;
Sept. 24, 1999 - 39,624 shares) (87) (93)
Accumulated other comprehensive income 221,435 139,436
----------- -----------
Total stockholders equity 282,442 220,463
----------- -----------
Total liabilities and stockholders' equity $ 3,872,681 $ 3,037,083
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Revenues:
Commissions and clearing fees $ 77,592 $ 36,713
Interest revenue 48,941 23,040
Other 4,702 2,224
--------- --------
Total revenues 131,235 61,977
Interest expense 20,386 9,860
--------- --------
Net revenues 110,849 52,117
Expenses excluding interest:
Employee compensation and benefits 33,419 12,808
Commissions and clearance 1,900 1,866
Communications 7,231 3,435
Occupancy and equipment costs 12,871 4,068
Advertising 58,662 9,643
Professional services 15,111 4,439
OnMoney development 8,731 978
Other 6,619 8,988
--------- --------
Total expenses excluding interest 144,544 46,225
--------- --------
Income (loss) before provision for income taxes (33,695) 5,892
Provision for income taxes (benefit) (11,984) 2,150
--------- --------
Net income (loss) $ (21,711) $ 3,742
========= ========
Basic earnings (loss) per share $ (0.12) $ 0.02
Diluted earnings (loss) per share $ (0.12) $ 0.02
Weighted average shares outstanding - basic 174,543 174,171
Weighted average shares outstanding - diluted 174,543 174,801
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (21,711) $ 3,742
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization 4,745 1,332
Provision for losses 89 725
Deferred income taxes (8,331) (656)
Amortization of goodwill 219 98
Changes in operating assets and liabilities:
Cash and investments segregated in compliance with federal regulations 151,344 (333,633)
Receivable from brokers, dealers and clearing organizations 31,080 291
Receivable from customers and correspondents (763,862) (114,941)
Other assets 18,813 (3,550)
Payable to brokers, dealers and clearing organizations 45,842 16,394
Payable to customers and correspondents 651,438 385,586
Accounts payable and accrued liabilities 8,858 17,234
Income taxes payable -- (398)
------------ ------------
Net cash provided by (used in) operating activities 118,524 (27,776)
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold improvements (24,565) (2,617)
Purchase of investments (3,333)
------------ ------------
Net cash used in investing activities (27,898) (2,617)
Cash flows from financing activities:
Proceeds from notes payable 20,000 33,500
Principal payments on notes payable -- (24,000)
Proceeds from exercise of stock options 374 --
Issuance of treasury stock 45 43
------------ ------------
Net cash provided by financing activities 20,419 9,543
------------ ------------
Net increase (decrease) in cash and cash equivalents 111,045 (20,850)
Cash and cash equivalents at beginning of period 76,943 24,527
------------ ------------
Cash and cash equivalents at end of period $ 187,988 $ 3,677
============ ============
Supplemental cash flow information:
Interest paid $ 16,947 $ 9,007
Income taxes paid $ -- 3,202
Noncash financing activities:
Tax benefit on exercise of stock options $ 1,271 $ --
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
AMERITRADE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Ameritrade Holding Corporation and its wholly-owned subsidiaries (collectively,
the "Company"). All significant intercompany balances and transactions have been
eliminated.
During fiscal 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. During fiscal 1999, the Company's Board of Directors declared a
two-for-one common stock split, distributed February 1999 and effected in the
form of a stock dividend and a three-for-one common stock split, distributed
July 1999 and effected in the form of a stock dividend. All share data and per
share amounts have been restated to reflect these transactions.
These financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission and, in the opinion of
management, reflect all adjustments, which are all of a normal recurring nature,
necessary to present fairly the financial position, results of operations and
cash flows for the periods presented in conformity with generally accepted
accounting principles. These financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's annual report filed on Form 10-K and amendments thereto for the fiscal
year ended September 24, 1999.
Certain items in prior years consolidated financial statements have been
reclassified to conform to the current quarter presentation.
2. NET CAPITAL
The Company's broker-dealer subsidiaries are subject to the Securities and
Exchange Commission Uniform Net Capital Rule (Rule 15c3-1 of the Securities
Exchange Act of 1934), 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
$137,563,000 and $104,050,000 as of December 31, 1999 and September 24, 1999,
respectively, which exceeded aggregate minimum net capital requirements by
$86,625,000 and $70,042,000, respectively. Subsidiary net capital in the amount
of $50,938,000 and $34,008,000 as of December 31, 1999 and September 24, 1999,
respectively, was not available for transfer to Ameritrade Holding Corporation.
3. NOTES PAYABLE
As of December 31, 1999, the Company maintained a revolving credit agreement
with a bank group that was originally entered into in January 1998. The
revolving credit agreement permitted borrowings up to $75.0 million through June
30, 2000, with permissible borrowings declining $3.125 million quarterly to
$68.760 million at maturity on December 31, 2000. The revolving credit agreement
was collateralized by the common stock of the Company's subsidiaries, as well as
all of the Company's tangible and intangible assets. Borrowings under the
revolving credit agreement bore interest at the prime rate less 0.75 percent
(7.75 percent and 7.25 percent at December 31, 1999 and September 24, 1999,
respectively). The Company also paid a maintenance fee of 0.25 percent of the
unused borrowings through the maturity date. The Company had outstanding
indebtedness under the revolving credit agreement of $20.0 million at December
31, 1999. At September 24, 1999, there was no outstanding amount under the
revolving credit agreement. The revolving credit agreement contained certain
restrictions, including restrictions on the incurrence of dividends and
additional borrowings, the maintenance of a minimum number of core accounts and
a minimum net worth and a requirement to repay all outstanding indebtedness
under the facility with the proceeds from some public offerings of common stock.
On January 25, 2000, the Company amended and restated the revolving credit
agreement. This amendment extended the term of the revolving credit agreement
until December 31, 2001, increased the Company's borrowing capacity from $75.0
million to $90.0 million (subject to reduction under certain circumstances
specified in the credit agreement), changed the interest rate determination
method to provide that the interest rate shall be determined on a monthly basis
based on the greater of (i) the prime rate minus 0.75 percent and (ii) 90-day
LIBOR plus 1.50 percent, and eliminated the requirement that the Company
repay borrowings under the agreement with the proceeds of offerings of common
stock. As part of this amendment, the Company also pledged $50.0 million of its
Knight/Trimark Group, Inc. ("Knight/Trimark") common stock (see Note 5).
<PAGE> 7
4. CONVERTIBLE SUBORDINATED NOTES
In August 1999, the Company issued $200 million of 5.75 percent convertible
subordinated notes due August 1, 2004. The notes are convertible into 6,142,740
shares of Class A common stock. The holders of the notes may convert the notes
into shares of 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
(equivalent to an approximate conversion price of $32.56 per share), subject to
adjustment in certain circumstances. Interest on the notes is payable on
February 1 and August 1 of each year, commencing on February 1, 2000. The notes
are not subject to redemption prior to August 6, 2002, and the Company may, at
its option, redeem the notes on or after such date, in whole or in part, upon
not less than 30 days nor more than 60 days prior notice to each holder.
5. INVESTMENTS
The Company's investments consist primarily of ownership of unregistered shares
representing an approximate 7.0 percent interest in Knight/Trimark, a publicly
held company that is a leading market maker in Nasdaq securities as well as
over-the-counter market in other securities. The Company derives revenues from
Knight/Trimark in exchange for routing trade orders to them for execution.
6. COMMITMENTS AND CONTINGENCIES
Legal - On September 16, 1998, a putative class action complaint was filed in
the District Court, Douglas County, Nebraska, regarding the Company's alleged
inability to handle the volume of subscribers to its Internet brokerage
services. After initial proceedings and discovery, the complaint was amended
and, on September 10, 1999, a second amended complaint was filed. The amended
complaint seeks injunctive relief enjoining alleged deceptive, fraudulent and
misleading practices, equitable relief compelling the Company to increase
capacity, and unspecified compensatory damages. The Company believes that it has
viable defenses to the allegations raised in the amended complaint and intends
to assert them vigorously. However, because this proceeding is still at a
preliminary phase and the amount of damages sought has not been quantified, the
Company is not presently able to predict the ultimate outcome of this matter.
The Company and its operating units are parties to a number of other legal
matters arising in the ordinary course of its business. In management's opinion,
the Company has adequate legal defenses respecting each of these actions and
does not believe that any such matters, either individually or in the aggregate,
will materially affect the Company's results of operations or its financial
position.
Letter of Credit - Advanced Clearing has various secured credit facilities with
financial institutions. These credit facilities are utilized in Advanced
Clearing's securities clearing operations. These facilities provide for the
issuance of letters of credit by the financial institutions on behalf of, and
cash advances to, Advanced Clearing. Advanced Clearing has pledged customer
securities as collateral for the related credit, and its obligations under these
facilities and the related collateral requirements fluctuate from time to time.
As of December 31, 1999 and September 24, 1999, the financial institutions had
issued letters of credit in the aggregate amount of $210.0 million and $100.0
million, respectively. As of December 31, 1999 and September 24, 1999, no
amounts were outstanding under the letters of credit. Advanced Clearing pays a
maintenance fee of 0.5 percent of the committed amount for the letters of
credit.
General Contingencies - In the general course of business, there are various
contingencies which are not reflected in the condensed 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).
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
<PAGE> 8
daily and, pursuant to such guidelines, requires customers to deposit additional
collateral, or to reduce positions, when necessary.
Advanced Clearing records customer transactions on a settlement date basis,
which is generally three business days after trade date. The risk of loss on
unsettled transactions is identical to that of settled transactions and relates
to customers and other counterparties ability to fulfill their contractual
obligations.
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.
7. SEGMENT INFORMATION
Commencing in the first quarter of fiscal 2000, OnMoney Financial Services
Corporation ("OnMoney"), the Company's personal financial management subsidiary,
was a reportable business segment. Financial information for the Company's
reportable segments is presented in the table below, and the totals are equal to
the Company's consolidated amounts as reported in the condensed consolidated
financial statements.
<TABLE>
<CAPTION>
Brokerage
operations On Money Total
---------- --------- ----------
<S> <C> <C> <C>
Three months ended December 31, 1999
Interest - net of interest expense $ 28,555 $ - $ 28,555
Non-interest revenue 82,294 - 82,294
---------- --------- ----------
Net revenues $ 110,849 $ - $ 110,849
========== ========= ==========
Pre-tax income (loss) $ (24,964) $ (8,731) $ (33,695)
Identifiable assets at December 31, 1999 3,871,184 1,497 3,872,681
Three Months ended December 31, 1998
Interest - net of interest expense $ 13,180 $ - $ 13,180
Non-interest revenue 38,937 - 38,937
---------- --------- ----------
Net revenues $ 52,117 $ - $ 52,117
========== ========= ==========
Pre-tax income (loss) $ 6,870 $ (978) $ 5,892
Identifiable assets at December 31, 1998 1,763,923 4,181 1,768,104
</TABLE>
OnMoney losses are comprised primarily of professional services expense,
employment expense and advertising expense. Total advertising expense for the
Company, including OnMoney, for the quarters ended December 31, 1999 and
December 31, 1998 was $61.5 million and $9.6 million, respectively.
8. COMPREHENSIVE INCOME
The Company's "other comprehensive income" is comprised of unrealized gains and
losses on equity securities classified as available for sale. "Other
comprehensive income" for the first quarter of fiscal 2000 and the first quarter
of fiscal 1999 was $81,999,000, net of tax; and $28,217,000, net of tax,
respectively. Total comprehensive income for the first quarter of fiscal 2000
was $60,288,000 as compared to a net loss of ($21,711,000). For the first
quarter of fiscal 1999 total comprehensive income was $31,959,000 as compared to
net income of $3,742,000.
9. SUBSEQUENT EVENTS
On January 25, 2000, the Company amended and restated its revolving credit
agreement (See Note 3). This amendment extended the term of the revolving credit
agreement until December 31, 2001, increased the Company's borrowing capacity
from $75.0 million to $90.0 million (subject to reduction under certain
circumstances specified in the credit agreement), changed the interest rate
determination method to provide that the interest rate shall be determined on a
monthly basis based on the greater of (i) the prime rate minus 0.75 percent and
(ii) 90-day LIBOR plus 1.50 percent, and eliminated the requirement that the
Company repay borrowings under the agreement with the proceeds of offerings of
common stock. As part of this amendment, the Company also pledged $50.0 million
of its Knight/Trimark common stock.
9
<PAGE> 9
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the Selected Financial Data and
the Consolidated Financial Statements and Notes thereto included in the
Company's annual report on Form 10-K and amendments thereto for the fiscal year
ended September 24, 1999. This discussion contains forward-looking statements
that involve risks and uncertainties that could cause actual results to differ
materially from those anticipated in such forward-looking statements. Factors
that may cause such differences include, but are not limited to: the effect of
customer trading patterns on Company revenues and earnings; computer system
failures; risks associated with the Year 2000 computer systems conversions; the
effects of competitors' pricing, product and service decisions and intensified
competition; evolving regulation and changing industry customs and practices
adversely affecting the Company; adverse results of litigation; changes in
revenues and profit margin due to cyclical securities markets and interest
rates; and a significant downturn in the securities markets over a short period
of time or a sustained decline in securities prices and trading volumes.
The terms "we" and "us" as used in this document refer to Ameritrade Holding
Corporation ("Holding") and its operating subsidiaries Ameritrade (Inc.)
("Ameritrade"), Accutrade, Inc., Advanced Clearing, Inc. ("Advanced Clearing"),
AmeriVest, Inc. and OnMoney Financial Services Corporation ("OnMoney"),
collectively.
RESULTS OF OPERATIONS
THREE MONTH PERIODS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
NET REVENUES. Commissions and clearing fees increased 114 percent to $78.5
million in the first quarter of fiscal 2000 from $36.7 million in the first
quarter of fiscal 1999. This increase was primarily attributable to an increase
in the number of securities transactions processed, as average trades per day
increased 145 percent to 81,000 in the first quarter of fiscal 2000 from 33,000
in the first quarter of fiscal 1999. The increase in transaction processing
volume was primarily a result of a significant increase in customer accounts
resulting from the substantial advertising expenditures made by us during fiscal
1998, fiscal 1999 and the first quarter of fiscal 2000. Core accounts increased
to approximately 686,000 at December 31, 1999 from approximately 354,000 at
December 31, 1998. Offsetting the growth in trades per day is the decrease in
commissions and clearing fees per trade by 14 percent to $14 in the first
quarter of fiscal 2000 from $16 in the first quarter of fiscal 1999. We expect
average commission and clearing fees per trade to continue to decrease due to
the growth in the number of lower revenue Internet equity trades. However, we
believe the rate of decline in average commission will be lower than the rate of
decline experienced over the past two years.
We have arrangements with several execution agents to receive cash payments in
exchange for routing trade orders to these firms for execution (payment for
order flow). The revenues generated by us under these arrangements totaled $9.7
million, or 9 percent of net revenues for the first quarter of fiscal 2000 and
$4.9 million, or 9 percent of net revenues for the first quarter of fiscal 1999.
Payment for order flow is a component of the commission and clearing fees
revenue line. Payment for order flow has decreased 23 percent on a per trade
basis from $2.18 in the first quarter of fiscal 1999 to $1.77 in the first
quarter of fiscal 2000. We expect payment for order flow to continue to decrease
on a per trade basis as a result of competitive forces and regulatory changes. A
portion of these revenues were received from execution agents owned by
Knight/Trimark Group, Inc. ("Knight/Trimark"), a market maker in
over-the-counter equity securities for those securities traded in the Nasdaq
stock market, the OTC Bulletin Board, and those listed on the New York and
American Stock Exchanges. As of December 31, 1999, we owned approximately 7.0
percent of the outstanding common stock of Knight/Trimark.
Net interest revenue (interest revenue less interest expense) increased 117
percent to $28.6 million in the first quarter of fiscal 2000 from $13.2 million
in the first quarter of fiscal 1999. This increase was due primarily to an
increase of 45 percent in customer and correspondent broker-dealer receivables
partially offset by a 16 percent decrease in cash and investments segregated in
compliance with federal regulations and an increase of 29 percent in amounts
payable to customers and correspondent broker-dealers in the first quarter of
fiscal 2000 from the first quarter of fiscal 1999. We generally expect net
interest revenue to grow as the account base grows.
Other revenues increased 114 percent to $4.7 million in the first quarter of
fiscal 2000 from $2.2 million in the first quarter of fiscal 1999 due primarily
to an increase in marketing and service fees paid to us by mutual funds as a
result of holding more customer mutual fund assets.
EXPENSES EXCLUDING INTEREST. Employee compensation and benefits expense
increased 161 percent to $33.4 million in the first quarter of fiscal 2000 from
$12.8 million in the first quarter of fiscal 1999, due primarily to an increase
in full-time equivalent employees. Full-time equivalent employees rose 109
percent to 2,369 at the end of December 1999 from 1,134 at the end of December
1998. The increase in employees was necessary to accommodate the growth in
trading volume following our advertising campaigns in fiscal 1998 and fiscal
1999. We expect employment expense to continue to increase in support of the
expected increase in customer accounts, customer assets and trades.
10
<PAGE> 10
Commissions and clearance costs were $1.9 million in the both the first quarter
of fiscal 2000 and the first quarter of fiscal 1999. Although we had a 145
percent increase in transaction volume, we have undertaken efforts to reduce
execution, clearance, settlement, and depository costs with outside entities and
are also realizing the economies of scale associated with these activities.
Communications expense increased 112 percent to $7.2 million in the first
quarter of fiscal 2000 from $3.4 million in the first quarter of fiscal 1999,
primarily as a result of telephone, quote and market information costs related
to the increase in transaction processing volume. Communication expenses are
expected to continue to increase at a slower rate than transactions processed,
as the low cost Internet continues to be the predominant communication channel
with our customers.
Occupancy and equipment costs increased 215 percent to $12.9 million in the
first quarter of fiscal 2000 from $4.1 million in the first quarter of fiscal
1999. This increase was due primarily to the lease of equipment and additional
office space. In fiscal 1999, we added approximately 250,000 square feet of
additional space in Omaha, Nebraska, Baltimore, Maryland, Ft. Worth, Texas, and
Kansas City, Missouri. We also have leased additional equipment over the past
fiscal year to accommodate our continued growth.
Advertising expenses for our brokerage operations increased 511 percent to $58.7
million in the first quarter of fiscal 2000 from $9.6 million in the first
quarter of fiscal 1999. The increase in advertising expenditures was principally
related to our efforts to build awareness of the Ameritrade brand and was
primarily responsible for the significant increase in the number of customer
accounts and account assets realized by us during the quarter. We plan to
continue to expand our customer base through significant advertising efforts and
have budgeted approximately $200 million for advertising in fiscal 2000.
Professional services increased to $15.1 million in the first quarter of fiscal
2000 from $4.4 million in the first quarter of fiscal 1999. This 243 percent
increase is primarily due to marketing and technology consulting services to
assist us in operational effectiveness and market research.
OnMoney development costs increased 770 percent to $8.7 million in the first
quarter of fiscal 2000 from $1.0 million in the first quarter of fiscal 1999.
During the quarter ended December 31, 1999, the OnMoney loss was comprised
primarily of professional services expense, employment expense and advertising
expense. For the quarter ended December 31, 1998, the OnMoney loss was comprised
primarily of employment expense and professional services expense. OnMoney
offers an Internet-based product that gives users the ability to access their
personal financial information at all of the disparate institutions with which
such users do business. OnMoney intends to leverage technology and the open
standards of the Internet to provide a "one-stop" supermarket for information,
education, financial planning, analysis, transactions and monitoring of a
consumer's personal finances in a secure environment that allows for personal
financial management.
Other operating expenses decreased 26 percent to $6.6 million in the first
quarter of fiscal 2000 from $9.0 million in the first quarter of fiscal 1999,
primarily as a result of increased economies of scale related to confirmation
and statement processing costs.
Income tax benefit was $12.0 million in the first quarter of fiscal 2000,
compared to a tax expense of $2.2 million in the first quarter of fiscal 1999
consistent with our pretax loss in the first quarter of fiscal 2000 and pretax
income in the first quarter of fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our growth primarily through the use of funds
generated from operations and from borrowings under our credit agreement. Our
growth during the first quarter of fiscal 2000 was financed primarily through
funds generated from operations, borrowings under our credit agreement and the
remaining proceeds from the Convertible Subordinated Notes that were issued in
August 1999 (see "Convertible Subordinated Notes"). We anticipate continued
significant capital and liquidity needs during the remainder of fiscal 2000 as a
result of our current advertising campaign and expected growth in customer
accounts resulting from this campaign. In addition, we have recently entered
into an agreement to participate as a selling group member in certain public
offerings of securities and may, from time to time, also participate as an
underwriter in connection with such offerings. We anticipate that such
participation will periodically create the need for additional capital to
satisfy the requirements of the Securities and Exchange Commission's net capital
rule (Rule 15c3-1). We plan to finance our capital and liquidity needs from our
operating cash flows, borrowings under our revolving credit facility, and other
borrowings (including the mortgaging of our Kansas City, Missouri data center).
We are also considering selling some or all of our interest in Knight/Trimark or
using this investment as collateral to support additional borrowings.
Dividends from subsidiaries are another source of liquidity. Some of our
subsidiaries are subject to requirements of the Securities and Exchange
Commission and the National Association of Securities Dealers relating to
liquidity, capital standards, and the use of customer funds and securities,
which limit funds available for the payment of dividends to Holding.
11
<PAGE> 11
CASH FLOW
Cash provided by operating activities was $118.5 million in the first quarter of
fiscal 2000, compared to cash used of $27.8 million in the first quarter of
fiscal 1999. The increase in cash during the first quarter of fiscal 2000 was
attributable to the substantial increase in customer payables and cash and
investments segregated in compliance with federal regulations at the end of the
first quarter of fiscal 2000.
Cash used in investing activities was $27.9 million in the first quarter of
fiscal 2000, compared to $2.6 million in the first quarter of fiscal 1999. Uses
of cash in both periods is primarily related to purchases of property and
equipment.
Cash provided by financing activities was $20.4 million in the first quarter of
fiscal 2000, compared to $9.5 million in the first quarter of fiscal 1999. The
cash provided by financing activities for both periods consisted of net proceeds
from our revolving credit agreement with a bank group (see "Bank Loan
Agreements").
BANK LOAN AGREEMENTS
We have a revolving credit agreement with a bank group that was originally
entered into in January 1998, and has provided for us to borrow up to $75.0
million through June 30, 2000, with permissible borrowings declining $3.125
million quarterly to $68.76 million at maturity on December 31, 2000. In
January, 2000, we amended and restated the revolving credit agreement to, among
other things, increase our borrowing capacity from $75.0 million to $90.0
million (subject to reduction under certain circumstances specified in the
amended and restated credit agreement) and extend the maturity date to December
31, 2001. The revolving credit agreement is collateralized by the common stock
of our subsidiaries, as well as all of our tangible and intangible assets. Under
the amended and restated agreement, we also have pledged $50.0 million of our
Knight/Trimark common stock. Prior to the amendment and restatement, borrowings
under the revolving credit agreement bore interest at the prime rate less 0.75
percent (7.75 percent and 7.25 percent at December 31, 1999 and September 24,
1999, respectively). As a result of the amendment and restatement, interest on
outstanding amounts under the revolving credit agreement is now determined on a
monthly basis based on the greater of (i) the prime rate minus 0.75 percent and
(ii) 90-day LIBOR plus 1.50 percent. We also pay a maintenance fee of 0.25
percent of the unused borrowing capacity through the maturity date. We had
outstanding indebtedness under the revolving credit agreement of $20.0 million
at December 31, 1999. At September 24, 1999, we had no outstanding amount under
the revolving credit agreement. The revolving credit agreement contains certain
restrictions, including restrictions on the incurrence of dividends and
additional borrowings, and requirements, including a requirement that we
maintain a minimum number of core accounts and a minimum net worth.
Advanced Clearing has various secured credit facilities with financial
institutions. These credit facilities are utilized in Advanced Clearing's
securities clearing operations. These facilities provide for the issuance of
letters of credit by the financial institutions on behalf of, and cash advances
to, Advanced Clearing. Advanced Clearing has pledged customer securities as
collateral for the related credit, and its obligations under these facilities
and the related collateral requirements fluctuate from time to time. As of
December 31, 1999 and September 24, 1999, the financial institutions had issued
letters of credit in the aggregate amount of $210.0 million and $100.0 million,
respectively. As of December 31, 1999 and September 24, 1999, no amounts were
outstanding under the letters of credit. Advanced Clearing pays a maintenance
fee of 0.5 percent of the committed amount for the letters of credit.
CONVERTIBLE SUBORDINATED NOTES
In August 1999, we issued $200 million of 5.75 percent convertible subordinated
notes due August 1, 2004. The notes are convertible into 6,142,740 shares of
Class A common stock. The holders of the notes may convert the notes into shares
of 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
(equivalent to an approximate conversion price of $32.56 per share), subject to
adjustment in certain circumstances. Interest on the notes is payable on
February 1 and August 1 of each year, commencing on February 1, 2000. The notes
are not subject to redemption prior to August 6, 2002, and we may, at our
option, redeem the notes on or after such date, in whole or in part, upon notice
to each holder not less than 30 days nor more than 60 days prior to the
redemption date.
YEAR 2000
The "Year 2000 problem" relates to the potential inability of certain computer
programs and embedded circuitry to correctly recognize dates occurring after
December 31, 1999. Since we rely heavily on computerized information technology
("IT") systems and other systems with embedded circuitry (such as telephone
equipment) for our business operations, we undertook significant effort to
ensure that our systems were "Year 2000 ready," which we define as meaning that
our internal information
12
<PAGE> 12
technology in use will continue to accurately process date/time data during the
Year 2000 and throughout the 21st century (including, but not limited to,
calculating, comparing and sequencing). Through February 11, 2000, our systems
have operated normally, and we have not experienced any systems problems as a
result of the Year 2000 problem. In addition, we believe our systems are ready
for any ongoing Year 2000 related issues, including accurately handling the leap
year in 2000, and that we will not experience any significant systems
interruptions as a result of the Year 2000 problem.
Year 2000 Preparation
As part of our Year 2000 program, we undertook a number of steps to address the
Year 2000 readiness of our systems. These included (1) preparing an inventory of
IT and non-IT systems and assessing the need for remediation of such systems,
(2) determining the status of Year 2000 remediation of third parties with which
we have material business relationships, (3) remediation of our IT and non-IT
systems, and (4) testing. In particular, our IT systems passed a series of
Securities Industry Association-sponsored industry-wide simulation tests of the
trading cycle through the millennium, the last of which occurred on January 3,
2000. These tests exercised not only our internal IT system, but also key
interfaces with third parties in the securities industry.
In addition, we planned for Year 2000 hardware and software changes as part of
our growth. We implemented a strategy to upgrade and replace our front-end
systems, and we began to purchase systems that were Year 2000 ready by design.
Furthermore, to meet our growth, we have had the opportunity to develop new
software over the past several years. Since we were aware of Year 2000 issues,
we included four digit date systems in the design of our new software. As a
result, we were not faced with the problems many corporations face because of
outdated systems and software that use two-digit date processing.
Finally, we established a Year 2000 contingency plan to prepare for and aid us
in avoiding or minimizing risks associated with Year 2000 problems that might
arise due to internal or external causes. We continue to monitor the status of
our Year 2000 readiness and are prepared to activate any contingency planning
should any issues arise.
Costs to Address Year 2000 Compliance
Costs associated with Year 2000 compliance have consisted primarily of salaries
of staff assigned to the Year 2000 working group, software used to assess our
systems, and consulting and contractor fees. Additional costs have been incurred
in connection with replacing non-IT systems as necessary, polling of third-party
readiness and testing. All remediation to our IT system was made as part of
scheduled upgrades and, therefore, has not been included in the costs of Year
2000 compliance. Costs associated with our Year 2000 program have been
approximately $5.0 million to date and are not expected to increase.
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk generally represents the risk of loss that may result from the
potential change in the value of a financial instrument as a result of
fluctuations in interest rates and market prices. We have established policies,
procedures and internal processes governing our management of market risks in
the normal course of our business operations.
As a fundamental part of our brokerage business, we hold short-term interest
earning assets, mainly funds required to be segregated in compliance with
federal regulations for customers. Such funds totaled $791,082,000 at December
31, 1999 and $942,427,000 at September 24, 1999. We invest such funds primarily
in short-term fixed-rate U.S. Treasury Bills and repurchase agreements. Our
interest earning assets are financed by short-term interest bearing liabilities
totaling $2,708,783,000 at December 31, 1999 and $2,057,346,000 at September 24,
1999 in the form of customer cash balances. We had an additional $220,000,000 of
interest bearing indebtedness outstanding at December 31, 1999, consisting of
the $200,000,000 convertible subordinated notes (see "Convertible Subordinated
Notes"), which bear interest at a fixed rate of interest of 5.75 percent, and
$20,000,000 under the revolving credit agreement, which bears interest at a
floating rate (as described under "Bank Loan Agreements"). This compared to
$200,000,000 of other interest bearing indebtedness outstanding at September 24,
1999, consisting of the convertible subordinated notes. We earn a net interest
spread on the difference between amounts earned on customer margin loans and
amounts paid on customer credit balances. Since we establish the rate paid on
customer cash balances, a substantial portion of our interest rate risk is under
our direct management. We generally move rates earned on loans in lockstep with
rates paid on credit balances to maintain a consistent net interest spread, and,
therefore, do not anticipate that changes in interest rates will have a material
effect on our earnings and cash flows.
We hold a marketable equity security at December 31, 1999, which is recorded at
fair value of $363,738,000 ($221,435,000 net of tax) and has exposure to market
price risk. The same security was recorded at fair value of $229,313,000
($139,436,000 net of tax) at September 24, 1999. This risk is estimated as the
potential loss in fair value resulting from a hypothetical 10 percent adverse
change in prices quoted by the stock exchanges and amounts to approximately $37
million at December 31, 1999. Actual results may differ.
13
<PAGE> 13
Our revenues and financial instruments are denominated in U.S. dollars, and we
generally do not invest in derivative financial instruments or derivative
commodity instruments.
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
On September 16, 1998, a putative class action complaint was filed in the
District Court, Douglas County, Nebraska, regarding the Company's alleged
inability to handle the volume of subscribers to its Internet brokerage
services. After initial proceedings and discovery, the complaint was amended
and, on September 10, 1999, a second amended complaint was filed. The amended
complaint seeks injunctive relief enjoining alleged deceptive, fraudulent and
misleading practices, equitable relief compelling the Company to increase
capacity, and unspecified compensatory damages. The Company believes that it has
viable defenses to the allegations raised in the amended complaint and intends
to assert them vigorously. However, because this proceeding is still at a
preliminary phase and the amount of damages sought has not been quantified, the
Company is not presently able to predict the ultimate outcome of this matter.
The Company and its operating units are parties to a number of other legal
matters arising in the ordinary course of its business. In management's opinion,
the Company has adequate legal defenses respecting each of these actions and
does not believe that any such matters, either individually or in the aggregate,
will materially affect the Company's results of operations or its financial
position.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
3.1 Restated Certificate of Incorporation of Ameritrade Holding
Corporation dated July 1, 1999 (incorporated by reference to
Exhibit 3.6 of the Company's quarterly report on Form 10-Q filed
on August 9, 1999)
3.2 Bylaws (incorporated by reference to Exhibit 3.2 of the Company's
Registration Statement on Form S-1 (Registration No. 333-17495)
filed on February 7, 1997)
4.1 Form of Certificate for Class A Stock (incorporated by reference
to Exhibit 4.1 of the Company's Registration Statement on Form
S-1 (Registration No. 333-17495) filed on February 7, 1997)
4.2 Form of Note for the Company's 5.75 percent Convertible
Subordinated Notes due August 1, 2004 (incorporated by reference
to the Company's annual report on Form 10-K filed on December 23,
1999)
4.3 Indenture dated August 4, 1999, between Ameritrade Holding
Corporation and The Bank of New York, as trustee (incorporated by
reference to the Company's Registration Statement on Form S-3,
File No. 333-87999, filed on September 28, 1999)
4.4 First Supplemental Indenture dated August 4, 1999, between
Ameritrade Holding Corporation and The Bank of New York, as
trustee (incorporated by reference to the Company's Registration
Statement on Form S-3, File No. 333-87999, filed on September 28,
1999)
4.5 Registration Rights Agreement dated August 4, 1999, between
Ameritrade Holding Corporation and Goldman, Sachs & Co. and
relating to the Company's 5.75 percent Convertible Subordinated
Notes due August 1, 2004 (incorporated by reference to the
Company's Registration Statement on Form S-3, File No. 333-87999,
filed on September 28, 1999)
10.1 Agreement of Limited Partnership, dated as of February 4, 1993,
of Comprehensive Software Systems, Ltd. (incorporated by
reference to Exhibit 10.1 of the Company's Registration Statement
on Form S-1 (Registration No. 333-17495) filed on February 7,
1997)
10.2 Amendment to Agreement of Limited Partnership, dated as of
September 1993, of Comprehensive Software Systems, Ltd.
(incorporated by reference to Exhibit 10.33 of the Company's
Registration Statement on Form S-1 (Registration No. 333-17495)
filed on February 7, 1997)
10.3 Second Amendment to Agreement of Limited Partnership, dated as of
December 1994, of Comprehensive Software Systems, Ltd.
(incorporated by reference to Exhibit 10.34 of the Company's
Registration Statement on Form S-1 (Registration No. 333-17495)
filed on February 7, 1997)
<PAGE> 14
10.4 Third Amendment to Agreement of Limited Partnership, dated as of
December 31, 1995, of Comprehensive Software Systems, Ltd.
(incorporated by reference to Exhibit 10.35 of the Company's
Registration Statement on Form S-1 (Registration No. 333-17495)
filed on February 7, 1997)
10.5 Sale of Minority Interest Agreement between Comprehensive
Software Systems, Ltd. and ADP Financial Information Services,
Inc., dated as of June 3, 1998 (incorporated by reference to
Exhibit 10.5 of the Company's Annual Report on Form 10-K and
amendments thereto filed on December 21, 1998)
10.6 Broker Loan Pledge and Security Agreement, dated as of October
24, 1989, made by AmeriTrade, Inc. (now known as Advanced
Clearing, Inc.) in favor of the First National Bank of Chicago
(incorporated by reference to Exhibit 10.18 of the Company's
Registration Statement on Form S-1 (Registration No. 333-17495)
filed on February 7, 1997)
10.7 Master Broker Loan Note, dated as of October 24, 1989, made by
AmeriTrade, Inc. (now known as Advanced Clearing, Inc.) in favor
of the First National Bank of Chicago (incorporated by reference
to Exhibit 10.19 of the Company's Registration Statement on Form
S-1 (Registration No. 333-17495) filed on February 7, 1997)
10.8 Lease, dated as of February 3, 1998, between Southroads Mall and
Ameritrade Holding Corporation (incorporated by reference to
Exhibit 10.24 of the Company's quarterly report on Form 10-Q
filed on May 12, 1998)
10.9 Lease, dated as of March 19, 1999, between Alliance Gateway No.
16, Ltd. and Ameritrade Holding Corporation (incorporated by
reference to Exhibit 10.9 of the Company's quarterly report on
Form 10-Q filed on August 9, 1999)
10.10 Lease, dated as of March 19, 1999, between Alliance Gateway No.
17, Ltd. and Ameritrade Holding Corporation (incorporated by
reference to Exhibit 10.10 of the Company's quarterly report on
Form 10-Q filed on August 9, 1999)
10.11 Lease, dated as of April 9, 1999, between IRET Properties and
Ameritrade Holding Corporation (incorporated by reference to
Exhibit 10.11 of the Company's quarterly report on Form 10-Q
filed on August 9, 1999)
10.12 Lease, dated as of April 22, 1999, between Heritage Commons I,
Ltd. and Ameritrade Holding Corporation (incorporated by
reference to Exhibit 10.12 of the Company's quarterly report on
Form 10-Q filed on August 9, 1999)
10.13 Agreement of Lease dated, dated July 28, 1999, between NBP 132,
LLC and Ameritrade Holding Corporation (incorporated by reference
to Exhibit 10.13 of the Company's annual report on Form 10-K
filed on December 23, 1999)
10.14 First Amendment to Lease, dated September 27, 1999 between NBP
132, LLC and Ameritrade Holding Corporation (incorporated by
reference to Exhibit 10.14 of the Company's annual report on Form
10-K filed on December 23, 1999)
10.15 Addendum to Lease, dated July 28, 1999, between NBP 132, LLC and
Ameritrade Holding Corporation (incorporated by reference to
Exhibit 10.15 of the Company's annual report on Form 10-K filed
on December 23, 1999)
10.16 Employment Contract, dated as of December 3, 1996, between J. Joe
Ricketts and AmeriTrade Holding Corporation (incorporated by
reference to Exhibit 10.26 of the Company's Registration
Statement on Form S-1 (Registration No. 333-17495) filed on
February 7, 1997)
10.17 Employment Contract, dated as of February 15, 1999, between
Thomas Lewis and Ameritrade Holding Corporation (incorporated by
reference to Exhibit 10.20 of the Company's quarterly report on
Form 10-Q filed May 10, 1999)
10.18 Employment Contract, dated as of March 24, 1999, between Jack R.
McDonnell and Ameritrade Holding Corporation (incorporated by
reference to Exhibit 10.21 of the Company's quarterly report on
Form 10-Q filed on May 10, 1999)
10.19 Consulting Agreement, dated as of November 15, 1999, between
Robert T. Slezak and Ameritrade Holding Corporation (incorporated
by reference to Exhibit 10.19 of the Company's annual report on
Form 10-K filed on December 23, 1999)
15
<PAGE> 15
10.20 Form of Executive Bonus Plan (incorporated by reference to
Exhibit 10.29 of the Company's Registration Statement on Form S-1
(Registration No. 333-17495) filed on February 7, 1997)
10.21 Amended and Restated 1996 Long-Term Incentive Plan dated October
23, 1999 (incorporated by reference to Exhibit 10.21 of the
Company's annual report on Form 10-K filed on December 23, 1999)
10.22 1996 Directors Incentive Plan, as amended February 10, 1998. This
plan supercedes plan filed February 7, 1997 (incorporated by
reference to Exhibit 10.21 of the Company's Annual Report on Form
10-K and amendments thereto filed on December 21, 1998)
10.23 Amended and Restated Revolving Credit Agreement dated as of
January 25, 2000 between Ameritrade Holding Corporation and the
banks a party thereto
10.24 Operating Agreement of Adirondack Trading Partners LLC
(incorporated by reference to Exhibit 10.25 of the Company's
Annual Report on Form 10-K and amendments thereto filed on
December 21, 1998)
27.1 Financial Data Schedule (EDGAR filing only)
(B) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the three-month period ended
December 31, 1999.
16
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 11, 2000
Ameritrade Holding Corporation
(Registrant)
by: /s/ J. Joe Ricketts
--------------------------------
J. Joe Ricketts
Director, Chairman and Co-Chief Executive Officer
(Principal Executive Officer)
by: /s/ Thomas K. Lewis
--------------------------------
Thomas K. Lewis
Co-Chief Executive Officer
(Principal Executive Officer)
by: /s/ William J. Gerber
--------------------------------
William J. Gerber
Senior Finance Manager
(Principal Financial and Accounting Officer)
17
<PAGE> 1
EXHIBIT 10.23
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
AMONG
AMERITRADE HOLDING CORPORATION,
FIRST NATIONAL BANK OF OMAHA,
HARRIS TRUST AND SAVINGS BANK,
LASALLE BANK NATIONAL ASSOCIATION, AND
MERCANTILE BANK NATIONAL ASSOCIATION
JANUARY 25, 2000
<PAGE> 2
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
This AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (the "Agreement") is
entered into as of the 25th day of January, 2000, among AMERITRADE HOLDING
CORPORATION, a Delaware corporation having its principal place of business at
4211 South 102nd Street, Omaha, Nebraska 68127 (the "Borrower"), FIRST NATIONAL
BANK OF OMAHA, a national banking association having its principal place of
business at One First National Center, Omaha, Nebraska 68102 ("Agent" or
"FNB-O"), and HARRIS TRUST AND SAVINGS BANK, an Illinois banking association
having its principal place of business at 111 W. Monroe Street, Chicago,
Illinois 60603, LASALLE BANK NATIONAL ASSOCIATION, a national banking
association located at 801 Grand Street, Suite 3150, Des Moines, Iowa 50309 and
MERCANTILE BANK NATIONAL ASSOCIATION, a national banking association having its
principal place of business at One Mercantile Center, 7th and Washington TRAM
12-3, St. Louis, Missouri 63101.
I. DEFINITIONS
For purposes of this Agreement, the following definitions shall apply:
Advance: Any advance of funds to the Borrower by the Revolving Lenders or
any of them under the revolving credit facility provided in this
Agreement.
Advanced
Clearing: Advanced Clearing, Inc., a Nebraska corporation, and wholly-owned
subsidiary of the Borrower.
Agreement: This Amended and Restated Revolving Credit Agreement dated as
of January 25, 2000, among the Borrower and the Revolving
Lenders, as amended or restated from time to time.
Annualized
Modified
Cash Flow: The (i) product of (a) 4 times (b) the sum, for the three months
preceding the date of determination of the Borrower's consolidated
net income (loss) before taxes, and plus or minus any
non-ordinary non-cash charges or credits to earnings for each
month in such quarter, plus (ii) advertising expenditures in
each month in excess of $667,000.
<PAGE> 3
Base Rate: The floating per annum interest rate published from time to time
as the "Prime Rate" (the base rate on corporate loans posted
by at least 75% of the nation's 30 largest banks) in the
Midwest Edition of the Wall Street Journal on the first
business day of the month, or if no such rate is published on
such date, on the last preceding date when such rate was
published.
Borrower: Ameritrade Holding Corporation, a Delaware corporation having its
principal place of business at 4211 South 102nd Street, Omaha,
Nebraska 68127.
Business
Day: Any day other than a Saturday, Sunday or a legal holiday on
which banks in the State of Nebraska, Illinois or Missouri are
not open for business.
Change of
Control: (a) At any time when any of the equity securities of the Borrower
shall be registered under Section 12 of the Securities Exchange
Act of 1934 as amended from time to time (the "Exchange Act"), (i)
any person, entity or "group" (within the meaning of Section
13(d)(3) of the Exchange Act) (other than any person which is a
management employee, or any such "group" which consists entirely
of management employees, of the Borrower) being or becoming the
beneficial owner, directly or indirectly, of voting stock of the
Borrower in an amount sufficient to elect a majority of the
members of the Borrower's board of directors, or (ii) a majority
of the members of the Borrower's board of directors (the "Board")
consisting of persons other than Continuing Directors (as
hereinafter defined); and (b) at any other time, the voting stock
of the Borrower being owned beneficially, directly or indirectly,
by any person, entity or group other than employees of the
Borrower or its Subsidiaries. As used herein, the term "Continuing
Director" means any member of the Board on the date of this
Agreement, and any other member of the Board who shall be
recommended or elected to succeed a Continuing Director by a
majority of Continuing Directors who are the members of the Board.
Collateral: All personal property of the Borrower described in the Security
Agreement and the Pledge Agreement, whether now owned or hereafter
acquired, including, without limitation:
(a) all of the Borrower's stock in any present or
future subsidiary, including without limitation, Advanced
Clearing, Inc., Ameritrade (Inc.), and Accutrade, Inc.;
(b) all of the Borrower's interest in NITE Stock
with a market value of Fifty Million Dollars ($50,000,000);
<PAGE> 4
(c) all of the Borrower's accounts, accounts
receivable, chattel paper, documents, instruments and other
securities, goods, inventory, equipment, furniture and
fixtures, general intangibles, contract rights, computer,
data processing, hardware and software licenses, books and
records; and
(d) all proceeds and products of the foregoing.
Commitment: As to each Revolving Lender, such Revolving Lender's pro
rata percentage or maximum dollar amount of the commitments set
forth in Section 2.1 of this Agreement.
Core Retail
Accounts: Open accounts of Ameritrade (Inc.) and Accutrade, Inc. which have
a currently valid account number, are eligible for online trading,
and are reported publically on a quarterly basis.
Default Rate: The Revolving Credit Rate as defined herein plus 3.0%.
Event of
Default: Any of the events set forth in Section 6.1 of this Agreement.
Existing
Credit
Facility: The Revolving Credit Facility dated as of January 16, 1998, as
previously amended, by and among the Borrower, FNB-O, Harris,
LaSalle and Mercantile.
FNB-O: First National Bank of Omaha, a national banking association
having its principal place of business at One First National
Center, Omaha, Nebraska 68102, and its successors and assigns.
Harris: Harris Trust and Savings Bank, an Illinois banking
association, having its principal place of business in Chicago,
Illinois.
Indebtedness: All loans and other obligations of the Borrower for borrowed
money, without duplication, (including, without limitation,
the indebtedness due to the Revolving Lenders) regardless of
the maturity thereof, but excluding capital leases incurred in
the ordinary course of business and excluding net payables to
customers and broker-dealers in the ordinary course of
business and excluding Subordinated Debt.
LaSalle: LaSalle Bank National Association, a national banking
association having its principal place of business in Chicago,
Illinois.
<PAGE> 5
LIBOR
Rate: The floating per annum interest rate published from time to
time as the "90 day LIBOR rate" in the Midwest Edition of the
Wall Street Journal on the first business day of each month,
or if no such rate is published on such date, on the last
preceding date on which such rate was published.
Mercantile: Mercantile Bank National Association, a national banking
association having its principal place of business in St. Louis,
Missouri.
Net Operating
Profit After
Taxes: For any period, the net earning (or loss) after taxes of
Borrower and its Subsidiaries on a consolidated basis for such
period taken as a single accounting period and determined in
conformity with generally accepted accounting principles;
provided that there shall be excluded (i) the income (or loss)
of any entity accrued prior to the date it becomes a
Subsidiary of Borrower or is merged into or consolidated with
Borrower and (ii) any extraordinary gains or losses for such
period determined in accordance with generally accepted
accounting principles.
Net Worth: The Borrower's consolidated net worth as determined in accordance
with generally accepted accounting principles.
NITE Stock: The common stock, or any securities exchanged for the common
stock, of Knight/Trimark Group, Inc.
Notes: (i) The revolving credit notes, substantially in the form of
Exhibit A attached to this Agreement, which notes replace the
revolving credit notes issued and outstanding under the
Existing Agreement, and such additional similar notes as may
be issued to certain additional Revolving Lenders, and all
extensions, renewals, and substitutions of or for the
foregoing.
Operative
Documents: This Agreement, the Notes, the Pledge Agreement, the Security
Agreement, the financing statements regarding the Collateral and
the documents and certificates delivered pursuant to Section 5.1.
Permitted
Investments: Any one or more of the following:
<PAGE> 6
(a) certificates of deposit fully covered by Federal
Deposit Insurance and maintained at a bank having capital
and surplus of not less than $50,000,000;
(b) short-term obligations of, or obligations
fully guaranteed by, the United States of America or any
agencies thereof;
(c) commercial paper rated at least A-1 by Standard
and Poor's Corporation or P-1 by Moody's Investors
Service, Inc.; and
(d) demand deposit accounts maintained in the
ordinary course of the Borrower's business at a bank
having capital and surplus of not less than $50,000,000
Permitted
Liens: (i) Liens existing on the date of this Agreement as shown on
Schedule A; (ii) Liens for taxes, assessments, governmental
charges or claims which are not yet delinquent or which are being
contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if a reserve or other
appropriate provision, if any, as shall be required in conformity
with GAAP shall have been made therefor; (iii) statutory Liens of
landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen or other like Liens arising in the ordinary
course of business and with respect to amounts not yet delinquent
or being contested in good faith by appropriate proceedings, and
if a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made therefor;
(iv) Liens (other than any Lien imposed by the Employee Retirement
Income Security Act of 1974, as amended) incurred or deposits made
in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social
security; (v) Liens incurred or deposits made to secure the
performance of tenders, bids, leases, statutory obligations,
surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a like nature
incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (vi) easements,
rights-of-way, restrictions, minor defects or irregularities in
title and other similar charges or encumbrances not interfering in
any material respect with the business of the Borrower or any of
its Subsidiaries incurred in the ordinary course of business;
(vii) Liens securing reimbursement obligations with respect to
documentary letters of credit which encumber documents and other
property relating to such letters of credit and the products and
proceeds thereof; (viii) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of
customs duties in connection with the importation of goods; (ix)
judgment and attachment Liens not giving rise to a Default or an
Event of Default; (x) leases or subleases granted to others not
interfering in any material
<PAGE> 7
respect with the business of the Borrower or any of its
Subsidiaries; (xi) customary Liens securing indebtedness under
interest rate protection agreements and foreign currency hedging
arrangements; (xii) Liens encumbering deposits made to secure
obligations arising from statutory, regulatory, contractual or
warranty requirements of the Borrower; (xiii) any interest or
title of a lessor in the property subject to any capital lease
obligation or operating lease entered into by the borrower in the
ordinary course of business provided that the incurrence of any
related indebtedness is permitted by this Agreement; (xiv) Liens
of banks in funds on deposit with such banks; (xv) mortgage or
deed of trust securing real estate loan for premises located in
Kansas City, Missouri, in the approximate amount of $7,500,000,
and (xvi) extensions, renewals or regranting of any Liens referred
to in clauses (i) through (xv) above.
Pledge
Agreement: The Amended and Restated Stock Pledge Agreement dated as of
the date hereof, between the Borrower and FNB-O, as agent for
the Revolving Lenders, as amended or restated from time to
time.
Pledged
NITE Stock: The NITE Stock pledged to the Revolving Lenders under the Pledge
Agreement.
Principal
Loan
Amount: The aggregate principal amount of all unpaid Advances made under
the Notes outstanding at any time.
Quarterly
Compliance
Certificate: The certificate delivered to the Revolving Lenders by the Borrower
pursuant to Section 4.1(e).
Regulatory
Net Capital The amount of net capital required for Advanced
Clearing under Section 15(c)(3) of the Securities Exchange Act
of 1934 and Regulations promulgated thereunder in effect as of
December 31, 1999.
Requisite
Revolving
Lenders Except where a higher percentage is required pursuant to the
express terms of this Agreement, including without limitation
Section 7.1, Revolving Lenders owning two-thirds (2/3) by
amount of the Principal Loan Amount outstanding or, if no
Principal Loan Amount is outstanding, Revolving Lenders
representing two-thirds (2/3) of the Commitments in effect at
such time.
<PAGE> 8
Revolving
Credit Rate: As defined in Section 2.3 hereof.
Revolving
Lenders: FNB-O, Harris, LaSalle, Mercantile, and such additional
Revolving Lenders as may be added as Revolving Lenders under
Section 2.1 hereto from time to time in accordance with this
Agreement, as such Revolving Lenders may be modified by
assignments permitted under Section 7.4 from time to time.
Security
Agreement: The Amended and Restated Security Agreement dated as of this
date between the Borrower and FNB-O as agent for the Revolving
Lenders, as amended from time to time.
Subordinated
Debt: The Convertible Subordinated Notes due August, 2004, issued in
the amount of $200,000,000 by the Borrower, which Notes are
unsecured obligations of the Borrower, subordinated in right
of payment to all existing and future senior indebtedness of
the Borrower (including without limitation the Notes).
Subsidiary: Any corporation business association, partnership, joint
venture, limited liability company or other business entity in
which the Borrower, or one or more of its Subsidiaries, or the
Borrower and one or more of its Subsidiaries has more than 50%
of the equity ownership thereof, or any other entity which,
pursuant to GAAP, would be considered a subsidiary of the
Borrower or any one or more of its Subsidiaries.
Termination
Date: December 31, 2001, or such later date as is approved in writing
by the Revolving Lenders.
All accounting terms not otherwise defined herein shall have the meaning
ordinarily applied under generally accepted accounting principles from time to
time in effect.
II. REVOLVING FACILITY
2.1 Revolving Credit. Until December 31, 2001, the Revolving
Lenders severally agree to advance funds for general corporate purposes not to
exceed the amount shown below (the "Base Revolving Credit Facility") to the
Borrower on a revolving credit basis. Such Advances shall be made on a pro rata
basis by the Revolving Lenders, based on the following maximum Advance limits
and applicable percentages for each Revolving Lender: (i) as to
<PAGE> 9
FNB-O, $26,000,000 (28.8889%); (ii) as to Harris, $20,000,000 (22.2222%); (iii)
as to Mercantile, $24,000,000 (26.6667%); (iv) as to LaSalle, $20,000,000
(22.2222%); provided, however, that each Revolving Lender's Commitment is
several and not joint or joint and several. The Base Revolving Credit Facility
shall be subject to reduction as specified in Section 4.2 below.
The Borrower shall not be entitled to any Advance hereunder if, after the
making of such Advance, the Principal Loan Amount would exceed the least of (x)
the then current Base Revolving Credit Facility, or (y) the sum of $25,000,000
plus one and one-half (1 1/2) times the Borrower's Annualized Modified Cash
Flow, or (z) the number of Core Retail Accounts times $200, determined in each
case after giving effect to the requested Advance. Nor shall the Borrower be
entitled to any further Advances hereunder after the occurrence and during the
continuation of any Event of Default or any event which with the passage of time
or the giving of notice or both would constitute an Event of Default, or if the
Borrower's representations and warranties cease to be true and correct at the
time of the requested Advance. Advances shall be made, on the terms and
conditions of this Agreement, upon the Borrower's request. Requests shall be
made by 12:00 noon Omaha time on the Business Day prior to the requested date of
the Advance. Requests shall be made by presentation to FNB-O of a drawing
certificate in the form of Exhibit B. The Borrower's obligation to make payments
of principal and interest on the foregoing revolving credit indebtedness shall
be further evidenced by the Notes.
2.2 Revolving Credit Fees.
(a) The Borrower shall pay to the Revolving Lenders a commitment fee
equal to 1/4 of 1% of the average unused facility, payable quarterly in
arrears. Such fee shall be paid to the Agent and based on the average
unused portion of the revolving credit commitment during the applicable
quarter. FNB-O shall distribute to each Revolving Lender its pro rata
share of such fees based on the maximum Advance limits set forth above.
(b) The Borrower shall also pay a closing fee of $22,500.00, which
is equal to 15 basis points (.0015) times the amount of the Base Revolving
Credit Facility, as set forth in Section 2.1 above, in excess of
$75,000,000, such closing fee to be payable at closing. FNB-O shall
distribute to each Revolving Lender its pro rata share of such fees based
on its portion of the increases in the facility from the Existing
Agreement.
2.3 Interest on Revolving Credit. Interest shall accrue on the Principal
Loan Amount outstanding from time to time at a variable rate per annum (the
"Revolving Credit Rate") equal to the greater of (a) the Base Rate minus 3/4 of
1%, or (b) the LIBOR Rate plus 1.50%. Such rate shall fluctuate monthly based on
changes in such rates on the first business day of each month. All interest
under the Notes shall accrue based on a year of 360 days, and for actual days
elapsed. Interest shall be due no later than the tenth day of each month.
Notwithstanding anything to the contrary elsewhere herein, after an Event of
Default has occurred and is continuing, interest shall
<PAGE> 10
accrue on the entire outstanding balance of principal and interest on all
indebtedness hereunder at a fluctuating rate per annum equal to the Default
Rate.
2.4 Payments. On or prior to the end of each calendar quarter the
Borrower shall repay the amount, if any, outstanding on the Notes which in the
aggregate exceeds the amount of the Base Revolving Credit Facility to be in
place on the next succeeding Business Day following such calendar quarter. The
balance of the loan on December 31, 2001, if any, shall be due on the
Termination Date. All obligations of the Borrower under the Notes and under the
other Operative Documents shall be payable in immediately available funds in
lawful money of the United States of America at the principal office of FNB-O in
Omaha, Nebraska or at such other address as may be designated by FNB-O in
writing. In the event that a payment day is not a Business Day, the payment
shall be due on the next succeeding Business Day.
2.5 Prepayments. The Borrower may at any time prepay the Principal Loan
Amount, in whole or in part, outstanding under the Notes if the Borrower has
given the Agent at least one (1) Business Day's prior written notice of its
intention to make such prepayment. Any such prepayment may be made without
penalty. All such prepayments shall be made pro rata among the Revolving Lenders
based on their respective pro rata share of the amounts outstanding on the
Notes. No such prepayment shall reduce the Base Revolving Credit Facility.
2.6 Security. All obligations of the Borrower hereunder and under the
Operative Documents, including, without limitation, the Borrower's obligations
to make payments of principal and interest on the Notes shall be secured by a
first security interest in the Collateral, as more specifically described in the
Security Agreement and the Pledge Agreement.
III. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that as of the date hereof and as of
the date of each and every request for an Advance hereunder, the following are
and shall be true and correct:
3.1 Corporate Existence. It and each of its Subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and duly qualified and in good standing in all states where it
is doing business except where the failure to be so qualified would not have a
material adverse effect on it and its Subsidiaries taken as a whole, and it has
full corporate power and authority to own and operate its properties and to
carry on its business.
3.2 Corporate Authority. It has full corporate power, authority and legal
right to execute, deliver and perform the Operative Documents to which it is a
party, and all other instruments and agreements contemplated hereby and thereby,
and to perform its obligations hereunder and thereunder; and such actions have
been duly authorized by all necessary corporate
<PAGE> 11
action, and are not in conflict with any applicable law or regulation, or any
order, judgment or decree of any court or other governmental agency or
instrumentality or its articles of incorporation or bylaws, or with any
provisions of any indenture, contract or agreement to which it or any of its
Subsidiaries is a party or by which it or any of its Subsidiaries or any of its
or their property may be bound.
3.3 Validity of Agreements. The Borrower's Operative Documents have been
duly authorized, executed and delivered and constitute its legal, valid and
binding agreements, enforceable against the Borrower in accordance with their
respective terms (except to the extent that enforcement thereof may be limited
by any applicable bankruptcy, reorganization, moratorium or similar laws now or
hereafter in effect, or by principles of equity).
3.4 Litigation. Neither the Borrower nor any Subsidiary is a party to any
pending lawsuit or proceeding before or by any court or governmental body or
agency, which, if adversely determined, is likely to have a material adverse
effect on the Borrower's ability to perform its obligations under its Operative
Documents or a Subsidiary's ability to pay dividends to the Borrower; nor is the
Borrower aware of any threatened lawsuit or proceeding, to which it or any
Subsidiary may become a party or of any investigation of any Court or
governmental body or agency into its affairs, which if instituted would have a
material adverse effect upon the Borrower's ability to perform its obligations
under its Operative Documents or a Subsidiary's ability to pay dividends to the
Borrower.
3.5 Governmental Approvals. The execution, delivery and performance by
the Borrower of the Operative Documents do not require the consent or approval
of, the giving of notice to, the registration with, or the taking of any other
action in respect of, any federal, state or other governmental authority or
agency other than as contemplated herein and therein.
3.6 Defaults Under Other Documents. Neither the Borrower nor any
Subsidiary is in default or in violation (nor has any event occurred which, with
notice or lapse of time or both, would constitute a default or violation) under
any document or any agreement or instrument to which it may be a party or under
which it or any of its properties may be bound, the result of which would have a
material adverse effect upon the Borrower's ability to perform its obligations
under its Operative Documents or a Subsidiary's ability to pay dividends to the
Borrower.
3.7 Judgments. There are no outstanding or unpaid judgments (which are
not adequately bonded) of the Borrower or any Subsidiary which would have a
material adverse effect upon the Borrower's ability to perform its obligations
under its Operative Documents or a Subsidiary's ability to pay dividends to the
Borrower.
3.8 Compliance with Laws. Neither the Borrower nor any Subsidiary is in
violation of any laws, regulations or judicial or governmental decrees in any
respect which would have any material adverse effect upon the validity or
enforceability of any of the terms of the Borrower's Operative Documents or
which would have a material adverse effect upon the Borrower's ability
<PAGE> 12
to perform its obligations under its Operative Documents or a Subsidiary's
ability to pay dividends to the Borrower.
3.9 Taxes. All tax returns of the Borrower and its Subsidiaries for
material taxes required to be filed have been filed or extensions permitted by
law have been obtained; all taxes of the Borrower and its Subsidiaries of a
material nature and which are due and payable as reflected on such returns have
been paid, other than taxes which are due but for which only a nominal late
payment penalty is payable and for which the taxing authority is not yet
entitled to enforce its remedies for payment thereof and other than taxes being
contested in good faith and with respect to which adequate reserves have been
established; and no material amounts of taxes of the Borrower and its
Subsidiaries not reflected on such returns are payable.
3.10 Collateral. The Borrower has good title to the Collateral and the
Collateral is free from all liens, encumbrances or security interests, except
for Permitted Liens and except as disclosed on Section 3.10 of Schedule A
attached hereto. The Borrower's principal place of business, chief executive
office, and the principal place where it keeps its records concerning the
Collateral is 4211 South 102nd Street, Omaha, Nebraska 68127.
3.11 Pension Benefits. Neither the Borrower nor any Subsidiary maintains a
"Plan" as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or each such entity is in compliance with the
minimum funding requirements with respect to any such "Plan" maintained by it to
the extent applicable, and it has not incurred any material liability to the
Pension Benefit Guaranty Corporation ("PBGC") or otherwise under ERISA in
connection with any such Plan.
3.12 Margin Regulations. No part of the proceeds of any Advance hereunder
shall be used for any purpose that violates, or which is inconsistent with, the
provisions of Regulation G, T, U or X of the Board of Governors of the Federal
Reserve System of the United States.
3.13 Financial Condition. The financial condition of the Borrower and its
Subsidiaries is fairly presented in the most recent financial statement which
has been provided to the Agent and such financial statement does not contain any
untrue statements of a material fact or omit to state any material fact
necessary to make the statement therein not misleading in light of the
circumstances under which it was made. No material adverse change has occurred
since the date of such financial statement.
IV. COVENANTS
The Borrower hereby covenants that:
4.1 Financial Reports.
<PAGE> 13
(a) Within thirty (30) days after the end of each month, the
Borrower, at its sole expense, shall furnish the Agent a consolidated
balance sheet, a statement of earnings of the Borrower and its
consolidated Subsidiaries, and a statement of cash flows of the Borrower
and its consolidated Subsidiaries, and such financial statements on a
consolidating basis as to the Borrower, all such financial statements to
be prepared in accordance with generally accepted accounting principles
consistently applied and certified as completed and correct, subject to
normal changes resulting from year-end audit adjustments, by the chief
financial officer of the Borrower.
(b) Within ninety (90) days after the close of the Borrower's
fiscal year, the Borrower, at its sole expense, shall furnish the Agent:
(i) a consolidated balance sheet, a statement of earnings of the Borrower
and its consolidated Subsidiaries and a statement of cash flows of the
Borrower and its consolidated Subsidiaries, certified by Deloitte & Touche
LLP, or other independent certified public accountants reasonably
acceptable to the Requisite Revolving Lenders, that such financial reports
fairly present the financial condition of the Borrower and its
consolidated Subsidiaries and have been prepared in accordance with
generally accepted accounting principles consistently applied; and (ii) a
certificate from such accountants certifying that in making the requisite
audit for certification of the Borrower's financial statements, the
auditors either (1) have obtained no knowledge, and are not otherwise
aware of, any condition or event which constitutes an Event of Default or
which with the passage of time or the giving of notice would constitute an
Event of Default under this Agreement; or (2) have discovered such
condition or event, as specifically set forth in such certificate, which
constitutes an Event of Default or which with the passage of time or the
giving of notice would constitute an Event of Default under such sections.
The auditors shall not be liable to the Revolving Lenders by reason of the
auditors' failure to obtain knowledge of such event or condition in the
ordinary course of their audit unless such failure is the result of
negligence or willful misconduct in the performance of the audit.
(c) Within thirty (30) days after submission to the Securities
and Exchange Commission, the Borrower shall provide to the Agent copies of
its Forms 10K and 10Q, as submitted to the Securities and Exchange
Commission during the term of this Agreement.
(d) Within thirty (30) days after the end of each month, the
Borrower shall provide to the Agent the FOCUS report of Advanced Clearing
for such month.
(e) Within thirty (30) days after the end of each quarter, the
Borrower, at its expense, shall furnish the Agent a certificate of the
chief financial officer of the Borrower in the form of Exhibit C, setting
forth such information (including detailed calculations) sufficient to
verify the conclusions of such officer after due inquiry and review, that:
<PAGE> 14
(i) The Borrower and each Subsidiary, either (y) is in
compliance with the requirements set forth in this Agreement or (z)
is NOT in compliance with the foregoing for reasons specifically set
forth therein; and
(ii) The chief financial officer of the Borrower has reviewed or
caused to be reviewed all of the terms of the Operative Documents of
the Borrower and that such review either (y) has NOT disclosed the
existence of any condition or event which constitutes an event of
default or any condition or event which with the passage of time or
the giving of notice would constitute an event of default under the
Operative Documents or (z) has disclosed the existence of a
condition or event which constitutes an event of default, or a
condition or event which with the passage of time or the giving of
notice would constitute an event of default, under the aforesaid
instrument or instruments and the specific condition or event is
specifically set forth.
(f) The Borrower shall provide the Agent with such other financial
reports and statements as the Revolving Lenders may reasonably request.
4.2 Corporate Structure and Assets. The Borrower shall not merge or
consolidate with any other corporation or entity without the prior written
consent of the Requisite Revolving Lenders, except as provided below. The
Borrower shall not sell any assets, other than in the ordinary course of
business, in an aggregate amount greater than one million dollars ($1,000,000),
except (a) items that are obsolete or no longer necessary for operation of the
business, and (b) the Borrower's interest in Comprehensive Software Systems,
Ltd.; and the Borrower's interest in the NITE Stock (other than the Pledged NITE
Stock). The Revolving Lenders shall be entitled to receive as a prepayment on
the Notes the proceeds of any sale of assets of the Borrower which are
prohibited by the preceding sentence. Notwithstanding the foregoing prepayment
requirements, any such prohibited sale shall remain a violation of this
Agreement. The Base Revolving Credit Facility shall be reduced by fifty percent
(50%) of the proceeds after taxes of any sale of the Borrower's interest in the
NITE Stock (other than Pledged NITE Stock); provided, however, that except as
set forth in the following sentence, the amount of all such reductions shall not
exceed in the aggregate $25,000,000. In the event that the fair market value of
the Borrower's interest in the NITE Stock (other than Pledged NITE Stock) is
less than $100,000,000 after giving effect to any sale, the Base Revolving
Credit Facility shall be reduced by fifty percent (50%) of the proceeds after
taxes of such sale of the Borrower's interest in the NITE Stock (other than
Pledged NITE Stock); provided, however, that the Base Revolving Credit Facility
shall not be reduced below $50,000,000 as a result of this Section 4.2. Any
proceeds from the sale of the Borrower's interest in the NITE Stock (other than
Pledged NITE Stock) shall be either paid to the Lenders as a prepayment on the
Notes or shall be retained by the Borrower and shall be reinvested solely in
Permitted Investments or additional investments in Advanced Clearing. At all
times during the term of this Agreement, the Borrower shall keep its NITE Stock
free from all liens, pledges and other encumbrances (other than agreements to
sell such stock and other than the security interest granted under the Pledge
<PAGE> 15
Agreement). In addition, the Borrower shall not engage in any business
materially different from that in which it is presently engaged and businesses
reasonably related thereto without the prior written consent of the Requisite
Revolving Lenders, which consent shall not be unreasonably withheld. The
foregoing restrictions on mergers and consolidations shall not apply if: (i) in
the case of a merger, the Borrower is the surviving entity and expressly
reaffirms its obligations hereunder; (ii) in the case of a consolidation, the
resulting corporation expressly assumes the obligations of the Borrower
hereunder; (iii) the surviving or resulting corporation is organized under the
laws of the United States or a jurisdiction thereof; (iv) after giving effect to
such merger or consolidation, the surviving or resulting corporation will be
engaged in substantially the same lines of business as are now engaged in by the
Borrower and its Subsidiaries and businesses reasonably related thereto; and (v)
immediately after giving effect to such merger or consolidation, no Event of
Default will exist hereunder.
4.3 Net Worth. The Borrower shall maintain a minimum Net Worth during the
term of this Agreement of at least the amounts set forth hereunder:
Period Minimum Net Worth
Prior to closing $105,000,000
On and after 12/31/00 $125,000,000
4.4 Indebtedness. The Borrower shall not have any Indebtedness other than
as incurred under this Agreement, and shall not at any time permit the sum of
its total Indebtedness to exceed the amounts shown below:
Period Maximum Indebtedness
Closing through 6/30/00 Three times the sum of (a)
$25,000,000, plus (or minus, if
negative) Annualized Modified
Cash Flow
After 6/30/00 $25,000,000, plus three times
Annualized Modified Cash Flow
, in each case as tested at the end of the immediately preceding quarter based
on the Annualized Modified Cash Flow for such quarter.
4.5 Use of Proceeds. No part of the proceeds of the Advances shall be
used for any purpose that violates, or which is inconsistent with, the
provisions of Regulation G, T, U or X of the Board of Governors of the Federal
Reserve System of the United States.
<PAGE> 16
4.6 Notice of Default. The Borrower shall give to the Agent written
notification (promptly after the Borrower becomes aware thereof) of the
existence or occurrence of:
(a) any fact or event which results, or which with notice or the passage
of time, or both, would result in an Event of Default hereunder;
(b) any proceedings instituted by or against the Borrower or any
Subsidiary in any federal, state or local court or before any governmental body
or agency, or before any arbitration board, or any such proceedings threatened
against the Borrower or any Subsidiary by any governmental agency, or any change
in law or regulation applicable to the Borrower or one or more of its
Subsidiaries, which event alone or in the aggregate is, in the Borrower's
reasonable judgment, likely to have a material adverse effect upon the
Borrower's ability to perform its obligations under its Operative Documents;
(c) any default or event of default involving the payment of money under
any agreement or instrument which is material to the Borrower or any Subsidiary
to which such entity is a party or by which it or any of its property may be
bound, and which default or event of default would have a material adverse
effect upon the Borrower's ability to perform its obligations under its
Operative Documents;
(d) the commencement of any proceeding under the Federal Bankruptcy Code
or similar law affecting creditor's rights by or against the Borrower or any
Subsidiary; and
(e) pending or threatened litigation exists against the Borrower or any
Subsidiary with a prayer for damages in excess of $500,000 or for any other
relief which, if adversely determined, is likely to have an adverse effect upon
the Borrower's ability to perform its obligations under its Operative Documents.
4.7 Distributions.
(a) The Borrower shall not declare any dividends or make any cash
distribution in respect of any shares of its capital stock or warrants of its
capital stock, without the prior written consent of the Requisite Revolving
Lenders; provided, however, that the Borrower may declare stock dividends.
(b) The Borrower shall not purchase, redeem, or otherwise retire any
shares of its capital stock or warrants of its capital stock other than open
market purchases not to exceed 2% of outstanding shares in any year to have
stock available for compensation plans; provided, however, that the amount of
such purchases is not to exceed $3 million per year.
(c) Neither the Borrower nor any Subsidiary will enter into any agreements
limiting a Subsidiary's ability to make dividends to the Borrower which are more
<PAGE> 17
restrictive than the net capital rule promulgated under Section 15(c) of
the Securities Exchange Act of 1934 in effect on October 28, 1997;
provided, however, that the granting of a security interest pursuant to a
Broker-Loan Pledge and Security Agreement in the ordinary conduct of
Advanced Clearing's business shall not in and of itself be deemed a
violation of this Subsection 4.7(c).
4.8 Compliance with Law and Regulations. The Borrower and each Subsidiary
shall comply in all material respects with all applicable federal and state laws
and regulations except when the failure to so comply would not have a material
adverse effect on the Borrower's business.
4.9 Maintenance of Property; Accounting; Corporate Form; Taxes; Insurance
(a) The Borrower and each Subsidiary shall maintain its property in
good condition in all material respects, ordinary wear and tear excepted.
(b) The Borrower and each Subsidiary shall keep true books of record
and accounts in which full and correct entries shall be made of all its
business transactions, all in accordance with generally accepted
accounting principles consistently applied.
(c) The Borrower and each Subsidiary shall do or cause to be done all
things necessary to preserve and keep in full force and effect its
corporate form of existence as is necessary for the continuation of its
business in substantially the same form, except where such failure to do
so with respect to any Subsidiary would not have a material adverse effect
on the ability of the Borrower to perform its obligations under the
Operative Documents.
(d) The Borrower and each Subsidiary shall pay all taxes, assessments
and governmental charges or levies imposed upon it or its property;
provided, however, that the Borrower or any Subsidiary shall not be
required to pay any of the foregoing taxes which are being diligently
contested in good faith by appropriate legal proceedings and with respect
to which adequate reserves have been established.
4.10 Inspection of Properties and Books. The Borrower shall recognize and
honor the right of the Revolving Lenders, upon reasonable advance notice to an
officer of the Borrower, to visit and inspect, during normal business hours, any
of the properties of, to examine the books, accounts, and other records of, and
to take extracts therefrom and to discuss the affairs, finances, loans and
accounts of, and to be advised as to the same by the officers of, the Borrower
at all such times, in such detail and through such agents and representatives as
the Revolving Lenders may reasonably desire.
4.11 Guaranties. Neither the Borrower nor any Subsidiary shall guaranty
or become responsible for the indebtedness of any other person or entity in
excess of an aggregate amount
<PAGE> 18
outstanding at any time of $1,000,000, plus employee stock loans in an aggregate
amount outstanding at any time not to exceed $5,000,000.
4.12 Collateral. The Borrower shall not incur or permit to exist any
mortgage, pledge, lien, security interest or other encumbrance on the
Collateral, other than Permitted Liens and except as otherwise permitted in the
Security Agreement or the Pledge Agreement.
4.13 Name; Location. The Borrower shall give the Agent thirty (30) days
notice prior to changing its name, identity or corporate structure, moving its
principal place of business, chief executive office or the place where it keeps
its records concerning the Collateral.
4.14 Notice of Change in Ownership or Management. During the term of this
Agreement, the Borrower shall give the Revolving Lenders notice of the
occurrence of the following described event, which notice shall be given as soon
as the Borrower obtains notice or knowledge thereof:
(a) any change, directly or indirectly, in the existing controlling
interest in the Borrower.
4.15 Subordinated Debt. After the date of this Agreement, the Borrower
shall not, and shall not permit any Subsidiary to, incur any subordinated debt
or issue any preferred stock or warrants for preferred stock except upon the
prior written consent of the Requisite Revolving Lenders. The Borrower shall not
amend its articles of incorporation or any other documents or agreements
relating to the issuance of subordinated debt, preferred stock or warrants for
preferred stock without the prior written consent of the Requisite Revolving
Lenders.
4.16 Capital Expenditures. The Borrower shall not incur in any fiscal year
capital expenditures, determined in accordance with generally accepted
accounting principles, of more than $75,000,000; provided however that any
portion of such $75,000,000 which is not expended for capital expenditures may
be rolled over and added to the capital expenditures permitted for the next
fiscal year.
4.17 Acquisitions. The Borrower shall not, and shall not permit any
Subsidiaries to, acquire any stock or any equity interest in, or warrants
therefor or securities convertible into the same, or a substantial portion of
the assets of, or debentures of, or other investments in another entity without
the prior written consent of the Requisite Revolving Lenders; provided, however,
that (i) the Borrower shall be permitted to make in any twelve-month period such
acquisitions and investments in an amount not to exceed Five Million Dollars
($5,000,000) in the aggregate without the consent of the Requisite Revolving
Lenders; and (ii) the Borrower and each Subsidiary shall be permitted to make
investments in short term marketable securities in the normal course of its cash
management activities; and (iii) Advanced Clearing shall be permitted to hold
short term equity positions in the normal course of its securities clearing
business.
<PAGE> 19
Notwithstanding the foregoing, the Borrower shall not be permitted to act as a
market maker or to conduct trading activities; and no Subsidiary shall be
permitted to conduct trading activities for its own account or to act as a
market maker.
4.18 Subsidiaries. The Borrower shall give prompt written notice to the
Revolving Lenders of the Borrower's intent to acquire, or the Borrower's
acquisition of, any Subsidiary. Prior to the creation or acquisition of such
Subsidiary, the Borrower shall cause a first security interest in the Borrower's
equity interest in such Subsidiary to be perfected in favor of FNB-O, as agent
for the Revolving Lenders.
4.19 Minimum Regulatory Net Capital. Advanced Clearing will have
Regulatory Net Capital at all times in compliance with law but in no event less
than 5% of aggregate debit items.
4.20 Minimum Core Retail Accounts. The Borrower will have at least the
number of Core Retail Accounts on the dates set forth below:
Date Minimum Core Retail Accounts
Prior to 12/31/99 400,000
12/31/99 to 12/30/00 500,000
12/31/00 600,000
& after
4.21 Taxes. The Borrower shall, and shall cause its Subsidiaries to, pay
all taxes imposed upon them before any penalties or interest accrue thereon;
provided, however, that no such taxes need be paid for so long as they are being
diligently contested in good faith by appropriate proceeding and with respect to
which adequate reserves in accordance with GAAP have been established.
4.22 ERISA. The Borrower shall not, and shall not permit any of its
Subsidiaries to:
(a) (i) engage in any transaction in connection with which the
Borrower or any Subsidiary could be subject to either a criminal or civil
penalty under section 501 or 502(i) of ERISA or a tax imposed by section
4975 of the Internal Revenue Code of 1986 as amended from time to time,
(ii) fail to make full payment when due of all amounts which would be
deductible by the Borrower or a Subsidiary and which, under the provisions
of any Plan, applicable law or applicable collective bargaining agreement,
the Borrower or any Subsidiary is required to pay as contributions
thereto, or (iii) permit to exist any accumulated funding deficiency,
whether or not waived, with respect to any Plan, if, in the case of any of
subdivision (i), (ii) or (iii) above, such penalty or tax, or the failure
to make such payment, or the existence of such deficiency, as the case may
be, could have a material adverse effect on (a) the Borrower's or its
Subsidiaries' abilities to
<PAGE> 20
conduct their business, (b) a Subsidiary's ability to pay dividends to
the Borrower, or (c) the Borrower's ability to perform its obligations
under the Operative Documents; or
(b) permit the aggregate complete or partial withdrawal liability
under Title IV of ERISA which is due and unpaid with respect to all
Multiemployer Plans incurred by the Borrower or one or more of its
Subsidiaries to exceed $500,000.
4.23 Expenses. The Borrower shall, immediately upon demand by the Agent,
reimburse the Agent for all reasonable and documented costs and expenses,
including reasonable and documented fees and expenses of counsel to the Agent,
incurred by the Agent in connection with the negotiation and documentation of
this Agreement, and in connection with the transaction contemplated by the
Operative Documents after the closing, including without limitation, any waiver,
amendment or enforcement thereof. After the occurrence of an Event of Default,
the Borrower shall, immediately upon demand, reimburse each Revolving Lender for
all reasonable and documented costs and expenses, including reasonable and
documented fees and expenses of counsel to such Revolving Lender, incurred by
such Revolving Lender in connection with enforcing such Revolving Lender's
rights under the Operative Documents.
4.24 Cumulative Pre-Tax Earnings (Losses). The Borrower shall not incur
net income prior to taxes less than (or net losses prior to taxes more than) the
amounts shown below, such income (or losses) to be calculated on a cumulative
basis during the Borrower's fiscal year as indicated:
Fiscal Year Ending Fiscal Quarter Ending Net Income (or Loss) Before Taxes
- -------------------------------------------------------------------------------
9/30/00 12/31/99 ($80,000,000)
3/31/00 ($115,000,000)
6/30/00 ($75,000,000)
9/30/00 ($60,000,000)
9/30/01 12/31/00 ($35,000,000)
3/31/01 ($20,000,000)
6/30/01 $10,000,000
9/30/01 $40,000,000
, in each case as tested at the end of each fiscal quarter.
V. CONDITIONS PRECEDENT
5.1 Closing Conditions. Any and all obligations of the Revolving Lenders
to make their initial Advances hereunder are subject to satisfaction of the
following conditions precedent:
<PAGE> 21
(a) FNB-O, as agent, shall have received an opinion of counsel to the
Borrower covering such matters as the Revolving Lenders may request
(including, without limitation, corporate existence and good standing,
corporate authority, due authorization, execution and delivery of the
Operative Documents, the legal, valid, binding and enforceable nature of
the Operative Documents, and the perfection and priority of the security
interest in the Collateral granted to the Revolving Lenders), such
opinion to be satisfactory in form and substance to counsel to FNB-O;
(b) FNB-O, as agent, shall have received such certificates and
documents as the Revolving Lenders may reasonably request from the
Borrower, including articles of incorporation and bylaws, certificates
regarding good standing, incumbency, copies of other corporate documents,
and appropriate authorizing resolutions;
(c) the Operative Documents shall have been duly authorized
and executed and shall be in full force and effect, and such UCC financing
statements shall have been executed and filed in such offices as may be
appropriate to perfect the security interest of FNB-O, as agent for the
Revolving Lenders, in the Collateral;
(d) the Borrower shall have delivered to FNB-O as agent the
certificates covered by the Pledge Agreement and the applicable stock
powers endorsed in blank, or, at the option of FNB-O, evidence of the
recording of the interest of FNB-O as agent in book entry form; and
(e) the Borrower shall have paid the reasonable and documented fees
and expenses of counsel to the Agent in connection with the preparation,
negotiation and execution of the Operative Documents. DEFAULTS AND
REMEDIES
6.1 Events of Default. Any of the following shall be deemed an event
of default under this Agreement (an "Event of Default"):
(a) Any payment of principal required by any of the Operative
Documents shall not be paid within three (3) Business Days after the date
on which such payment was invoiced or due.
(b) Any payment of interest or other fees due hereunder or under any
of the Operative Documents shall not be paid within three (3) Business
Days after the date on which such payment was invoiced or due.
(c) Any representation or warranty of the Borrower under any of the
Operative Documents, or any financial reports or statements or
certificates submitted pursuant to this Agreement, shall prove to have
been false in any material respect when made.
<PAGE> 22
(d) A failure of the Borrower or any Subsidiary to comply with
any requirement or restriction applicable to such entity and contained in
Sections 4.2, 4.3, 4.4, 4.5, 4.7, 4.11, 4.12, 4.15, 4.16, 4.17, 4.19,
4.20, 4.21, 4.22 or 4.24 of this Agreement.
(e) A failure of the Borrower or any Subsidiary to comply with any
requirement or restriction contained in any provision of the Operative
Documents not otherwise specified in this Article VI, which failure
remains unremedied for thirty (30) days following knowledge or receipt of
notice as to such failure from any source.
(f) The occurrence of a default or a breach of any of the obligations
of the Borrower or any Subsidiary (other than obligations of such
Subsidiary to the Borrower) under any note, loan agreement, preferred
stock, subordinated debt instrument or agreement (including the
Subordinated Debt), or any other agreement evidencing an obligation to
repay borrowed money when the aggregate amount of indebtedness thereby
affected (1) exceeds $500,000 or (2) if such default or breach has been
declared, such loan agreement, preferred stock, subordinated debt
instrument or agreement, exceeds $100,000.
(g) The entry of a final judgment that exceeds $500,000
against the Borrower or any Subsidiary for the payment of money, which
is not covered by insurance, and the expiration of thirty (30) days
from the date of such entry during which the judgment is not discharged
in full or stayed.
(h) The occurrence of any one or more of the following:
(1) The Borrower or any Subsidiary shall file a
voluntary petition in bankruptcy or an order for relief shall
be entered in a bankruptcy case as to such entity or shall
file any petition or answer seeking or acquiescing in any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief for itself under
any present or future federal, state or other statute, law or
regulation relating to bankruptcy, insolvency or other relief
for debtors; or shall seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator of such
entity or of all or any part of its property, or of any or all
of the royalties, revenues, rents, issues or profits thereof,
or shall make any general assignment for the benefit of
creditors, or shall admit in writing its inability to pay its
debts or shall generally not pay its debts as they become due;
or
(2) A court of competent jurisdiction shall enter an
order, judgment or decree approving a petition filed against
the Borrower or any Subsidiary seeking any reorganization,
dissolution or similar relief under any present or future
federal, state or other statute, law or regulation relating to
bankruptcy, insolvency or other relief for debtors, and such
order, judgment or decree shall remain unvacated and unstayed
for an aggregate of sixty (60) days (whether or not
<PAGE> 23
consecutive) from the first date of entry thereof; or any
trustee, receiver or liquidator of the Borrower or any
Subsidiary or of all or any part of its property, or of any or
all of the royalties, revenues, rents, issues or profits
thereof, shall be appointed without the consent or
acquiescence of such entity and such appointments shall remain
unvacated and unstayed for an aggregate of sixty (60) days
(whether or not consecutive); or
(3) A writ of execution or attachment or any similar
process shall be issued or levied against all or any part of
or interest in the Collateral, or any judgment involving
monetary damages shall be entered against the Borrower or any
Subsidiary which shall become a lien on the Collateral or any
portion thereof or interest therein and such execution,
attachment or similar process or judgment is not released,
bonded, satisfied, vacated or stayed within thirty (30) days
after its entry or levy.
(i) A Change of Control shall occur.
(j) Any adverse regulatory action has been taken against the
Borrower or one or more of its Subsidiaries which will materially
adversely affect (a) the Borrower's or its Subsidiaries' abilities to
conduct their business, (b) a Subsidiary's ability to pay dividends to
the Borrower, or (c) the Borrower's ability to perform its obligations
under this Agreement or any of the Operative Documents.
(k) Any litigation has been filed against the Borrower or one
or more of its Subsidiaries which, if determined adversely, will
materially adversely affect (a) the Borrower's or its Subsidiaries'
abilities to conduct their business, (b) a Subsidiary's ability to pay
dividends to the Borrower, or (c) the Borrower's ability to perform its
obligations under this Agreement or any of the Operative Documents.
(l) At any time after September 30, 1999, the computer systems
of the Borrower shall be unable to perform date-sensitive functions
involving dates after December 31, 1999 and such inability has a
material adverse effect on the ability of the Borrower to carry out its
business.
6.2 Remedies. If an Event of Default occurs and is continuing, upon
the election of the Revolving Lenders holding two-thirds of the then outstanding
aggregate total Indebtedness of the Borrower to the Revolving Lenders, the
entire unpaid principal amount under the Notes, together with interest accrued
thereon, shall become immediately due and payable without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived, the
Commitments of the Revolving Lenders hereunder shall terminate, and the
Revolving Lenders may exercise their rights under the other Operative Documents
or the Notes, including, without limitation, under the Security Agreement and
the Pledge Agreement. Upon the occurrence of an Event of Default described in
Section 6.1(h)(1) or (2) hereof, acceleration under this Section 6.2
<PAGE> 24
shall occur automatically without the election, declaration, notice or other act
on the part of any of the Revolving Lenders. In addition, the Revolving Lenders
shall have such other remedies as are available at law and in equity. Remedies
under this Agreement, the Operative Documents, and the Notes are cumulative. Any
waiver must be in writing by the Revolving Lenders and no waiver shall
constitute a waiver as to any other occurrence which constitutes an Event of
Default or as to any party not specifically included in such written waiver.
VII. INTER-CREDITOR AGREEMENTS
7.1 FNB-O as Servicer. FNB-O will act as sole servicer of the loans
evidenced by the Notes. For purposes of this Article VII, the term Event of
Default means any Event of Default hereunder. FNB-O will enforce, administer and
otherwise deal with the loans made by the Revolving Lenders in accordance with
safe and prudent banking standards employed by FNB-O in the case of the loan
made by FNB-O. Without limiting the generality of the foregoing, FNB-O will, on
its own behalf and on behalf of the Revolving Lenders: (i) maintain originals of
the Operative Documents (excluding the Notes); (ii) receive requests for
Advances from the Borrower, promptly transmit the same to the Revolving Lenders
and make such Advances on behalf of the Revolving Lenders (provided that FNB-O
is assured of reimbursement therefor by the other Revolving Lenders for their
pro rata shares); (iii) receive payments and prepayments from the Borrower and
apply such payments as provided in Section 7.2; (iv) receive notices from the
Borrower and send copies thereof to the Revolving Lenders if FNB-O has
reasonable cause to believe that such Revolving Lenders have not received such
notice from another source; and (v) advise the Revolving Lenders of the
occurrence of any Event of Default which FNB-O obtains actual knowledge of. The
Revolving Lenders agree not to attempt to take any action against the Borrower
under the Operative Documents or the Notes, or with respect to the indebtedness
evidenced thereby without FNB-O's consent unless holders of two-thirds of the
then outstanding aggregate total Indebtedness of the Borrower to the Revolving
Lenders (including under the Notes and any similar indebtedness) shall have
requested FNB-O to take specific action against the Borrower and FNB-O shall
have failed to do so within a reasonable period after receipt of such request.
All actions, consents, waivers and approvals by the Revolving Lenders shall be
deemed taken or given and amendments hereto deemed agreed to if the holders of
more than two-thirds of the outstanding aggregate total Indebtedness of the
Borrower to the Revolving Lenders shall have indicated their consent thereto.
Notwithstanding the foregoing, unanimous approval of the applicable Revolving
Lenders under the respective Notes shall be required for: (i) any reduction or
compromise of the principal loan amount of such Notes, the amount or rate of
interest accrued or accruing thereon or the fees due hereunder; and (ii)
extension of the date of any scheduled payment; and unanimous consent of all the
Revolving Lenders shall be required for (iii) permitting the sale of or
releasing the security interest of the Revolving Lenders in (x) any stock held
in Subsidiaries or (y) other Collateral which comprises more than ten percent
(10%) of net book value of fixed assets of the Borrower; and (iv) any amendment
of Sections 7.1 or 7.2 hereof. A Revolving Lender's commitment hereunder may not
be increased without the consent of such Revolving Lender, it being understood,
however, that increases in the total
<PAGE> 25
revolving credit facility hereunder may be made with the consent of the holders
of more than two-thirds of the outstanding aggregate total outstanding
obligation of the Borrower to the Revolving Lenders, so long as such increase
does not result in the increase of any non-consenting Revolving Lender's
commitment hereunder.
7.2 Application of Payments. Until the earlier of the occurrence of an
Event of Default, payments or prepayments made by the Borrower may be applied to
the indebtedness designated by the Borrower or otherwise applied as follows:
(a) first, to pay interest to date on the Notes and fees due to the
Revolving Lenders;
(b) second, pro rata to the Revolving Lenders, such pro rata share to
be determined as set forth below in subsection (bb) of this Section 7.2.
After the occurrence of an Event of Default, payments or prepayments on the
Notes received by FNB-O or any of the Revolving Lenders and funds realized upon
the disposition of any of the Collateral shall be applied as follows:
(aa) first, to reimburse FNB-O for any reasonable and documented
costs, expenses, and disbursements (including reasonable and documented
attorneys' fees) which may be incurred or made by FNB-O: (i) in connection
with its servicing obligations; (ii) in the process of collecting such
payments or funds; or (iii) as advances made by FNB-O to protect the
Collateral (provided, however, that FNB-O shall have no obligation to make
such protective advances); and
(bb) second, pari passu among the Revolving Lenders, based on
their respective pro rata shares of the funds to be applied. Each
Revolving Lender's pro rata share shall be equal to a fraction, (x) the
numerator of which shall be the total principal loan amount then
outstanding which is owing to each such Revolving Lender under its
Notes, and (y) the denominator of which shall be the total Principal
Loan Amount then outstanding which is owing to the Revolving Lenders
under all Notes.
Except as specifically provided in this Section 7.2, FNB-O shall have no
obligation to repay or prepay any amount due from the Borrower to any of the
other Revolving Lenders nor shall FNB-O have any obligation to purchase all or a
part of any Note hereunder or any Advance made by any Revolving Lenders, nor
shall the Revolving Lenders have any recourse whatsoever against FNB-O with
respect to any failure of the Borrower to repay the indebtedness referenced
herein.
<PAGE> 26
7.3 Liability of FNB-O. FNB-O shall not be liable to the Revolving
Lenders for any error of judgment or for any action taken or omitted to be taken
by it hereunder, except for gross negligence or willful misconduct. Without
limiting the generality of the foregoing, FNB-O, except as expressly set forth
herein, (a) may consult with legal counsel, independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (b) makes no representation or warranty with
respect to, and shall not be responsible for, the accuracy, completeness,
execution, legality, validity, legal effect or enforceability of this Revolving
Credit Agreement, the Notes, or the other Operative Documents, or the value or
sufficiency of any Collateral given by the Borrower or the priority of the
Revolving Lenders' security interest therein or the financial condition of the
Borrower; and (c) shall not be responsible for the performance or observance of
any of the terms, covenants or conditions of the Operative Documents on the part
of the Borrower and shall not have any duty to inspect the property (including,
without limitation, the books and records) of the Borrower.
7.4 Transfers. No Revolving Lender shall subdivide or transfer its
respective Notes (except to a Federal Reserve Bank) without first giving ten
(10) days prior written notice to and obtaining the prior written consent (which
consent shall not be unreasonably withheld) of FNB-O and the Borrower. No
Revolving Lender may grant a participation in any Advance hereunder without the
prior written consent of FNB-O (which consent shall not be unreasonably
withheld).
7.5 Reliance. The Revolving Lenders acknowledge that they have been
advised that none of the Notes nor any interest therein or related thereto has
been (i) registered under the Securities Act of 1933, as amended, nor (ii)
insured by the Federal Deposit Insurance Corporation. The Revolving Lenders
acknowledge that they have received from the Borrower all financial information
and other data relevant to their decision to extend credit to the Borrower and
that they have independently approved the credit quality of the Borrower.
7.6 Relationship of Lenders. The Revolving Lenders intend for the
relationships created by this Agreement to be construed as concurrent direct
loans from each Revolving Lender respectively to the Borrower. Nothing herein
shall be construed as a loan from any Revolving Lender to FNB-O or as creating a
partnership or joint venture relationship among them.
7.7 New Revolving Lenders. In the event that new Revolving Lenders are
added to this Agreement, such Revolving Lenders shall be required to agree to
the inter-creditor provisions of this Article VII.
7.8 Agenting Fee. The Borrower will pay to FNB-O an annual agenting fee
equal to $37,500, payable quarterly on or before the last day of quarter in
equal installments of $9,375.
<PAGE> 27
VIII. REIMBURSEMENTS; INDEMNIFICATION
8.1 Capital Adequacy. If, after the date hereof, the adoption or
implementation of any applicable law, rule or regulation regarding capital
adequacy (including, without limitation, any law, rule or regulation
implementing the Basle Accord), or any change therein, or any change in the
interpretation or administration thereof by any central bank or other
governmental authority charged with the interpretation or administration
thereof, or compliance by a Revolving Lender (or its parent) with any guideline,
request or directive regarding capital adequacy (whether or not having the force
of law) of any such central bank or other governmental authority (including,
without limitation, any guideline or other requirement implementing the Basle
Accord), has or would have the effect of reducing the rate of return on such
Revolving Lender's capital as a consequence of its obligations hereunder or the
transactions contemplated hereby to a level below that which such Revolving
Lender could have achieved but for such adoption, implementation, change or
compliance (taking into consideration such Revolving Lender's policies with
respect to capital adequacy) by an amount deemed by such Revolving Lender to be
material, then such Revolving Lender shall provide to the Borrower notice of
such matter, and from time to time thereafter within ten (10) Business Days
after demand by such Revolving Lender, the Borrower shall pay to such Revolving
Lender such additional amount or amounts as will compensate such Revolving
Lender for such reduction which is incurred by such Revolving Lender after the
date of such Revolving Lender's notice to the Borrower under this Section 8.1.
Notwithstanding the preceding sentence, upon Borrower's receipt of such notice
from such Revolving Lender, Borrower may provide to such Revolving Lender its
notice of prepayment in accordance with Section 2.5 hereof. A certificate of
such Revolving Lender claiming compensation under this Section and setting forth
the additional amount or amounts to be paid to it hereunder shall be conclusive,
provided that the determination thereof is made on a reasonable basis. In
determining such amount or amounts, such Revolving Lender may use any reasonable
averaging and attribution methods. Upon receipt of a notice from a Revolving
Lender under this section, the Borrower, upon ten (10) days prior written notice
to the Agent, may replace such Revolving Lender with a new Revolving Lender that
would not require a payment under this section, which replacement Revolving
Lender shall purchase the rights and assume the obligations of the replaced
Revolving Lender under this Agreement and the other Operative Documents for a
price equal to the outstanding principal and accrued but unpaid interest on the
Note issued to such replaced Revolving Lender, plus the amount of other fees
(including without limitation the commitment fee payable in accordance with
Section 2.2 (a) of this Agreement), such fees to be pro rated through the
purchase and assumption date; provided, however, that such replacement Revolving
Lender must be acceptable to the Agent.
8.2 General Indemnity. The Borrower shall indemnify each Revolving Lender
and its directors, officers, employees and agents from and against any and all
losses, claims, liabilities, damages, reasonable and documented attorneys' fees
and disbursements, and other reasonable and documented costs and expenses which
the indemnified party may at any time sustain or incur in connection with the
Borrower's use of loan proceeds; provided that the indemnified party shall not
have any right to be indemnified for its own gross negligence or willful
misconduct. All indemnities and all provisions relative to reimbursement to the
Revolving Lenders of amounts sufficient to compensate the Revolving Lenders for
changes in
<PAGE> 28
capital adequacy requirements, including, but not limited to, Section 8.1
hereof, shall survive the termination of this Agreement and the payment of the
Notes.
IX. MISCELLANEOUS
9.1 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, except
as specified by Section 7.1, may not be effectively amended, changed, modified
or altered, except in writing executed by the Borrower and the Requisite
Revolving Lenders.
9.2 Governing Law. The Operative Documents shall be governed by and
construed pursuant to the laws of the State of Nebraska.
9.3 Notices. Until changed by written notice from one party hereto to the
other, all communications under the Operative Documents shall be in writing and
shall be hand delivered or mailed by registered mail to the parties, and shall
be deemed given when mailed, as follows:
If to the Borrower:
AMERITRADE HOLDING CORPORATION
4211 South 102nd Street
Omaha, Nebraska 68127
Attention: Chief Financial Officer
If to the Agent:
FIRST NATIONAL BANK OF OMAHA
One First National Center
Omaha, Nebraska 68102
Attention: Mr. James P. Bonham
If to the Revolving Lenders, at their respective addresses herein.
9.4 Headings. The captions and headings herein are for convenience only
and in no way define or limit the scope or intent of any provisions or sections
of this Agreement.
9.5 Counterparts. This Agreement may be executed in several counterparts
and such counterparts together shall constitute one and the same instrument.
9.6 Survival; Successors and Assigns . The covenants, agreements,
representations and warranties made herein, and in the certificates delivered
pursuant hereto, shall survive the
<PAGE> 29
execution and delivery to the Revolving Lenders of this Agreement and shall
continue in full force and effect so long as any Note or any obligation to the
Revolving Lenders under any of the Operative Documents (other than contingent
obligations that, by their terms, survive the termination hereof) is outstanding
and unpaid or any Commitment remains in effect. Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party, and all covenants, promises and
agreements by or on behalf of the Borrower which are contained in this Agreement
shall bind the successors and assigns of the Borrower and shall inure to the
benefit of the successors and assigns of the Revolving Lenders.
9.7 Severability. If any provision of this Agreement shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
9.8 Assignment. The Borrower may not assign its rights or obligations
hereunder and any assignment in contravention of the terms hereof shall be void.
9.9 Consent to Form of Pledge Agreement and Security Agreement. The
parties hereto expressly approve the form of the Pledge Agreement and the
Security Agreement.
IN WITNESS WHEREOF, the Borrower and the Revolving Lenders have caused
this Revolving Credit Agreement to be executed by their duly authorized
corporate officers as of the day and year first above written.
AMERITRADE HOLDING CORPORATION
By: /s/ Thomas K. Lewis
---------------------------
Title: Co-Chief Executive Officer
FIRST NATIONAL BANK OF OMAHA
By: /s/ James Bonham
---------------------------
Title: Vice President
<PAGE> 30
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
/s/ TKL
---------
Borrower
<PAGE> 31
HARRIS TRUST AND SAVINGS BANK
By: /s/ Gary R. Shafer
--------------------------
Title: Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
/s/ TKL
---------
Borrower
<PAGE> 32
MERCANTILE BANK NATIONAL ASSOCIATION
By: /s/ Joseph L. Sooter
--------------------------
Title: Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
/s/ TKL
---------
Borrower
<PAGE> 33
LASALLE BANK NATIONAL ASSOCIATION
By: /s/ Darren Lemkau
--------------------------
Title: Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
/s/ TKL
---------
Borrower
<PAGE> 34
EXHIBIT A
TO REVOLVING CREDIT AGREEMENT
AMONG
AMERITRADE HOLDING CORPORATION,
FIRST NATIONAL BANK OF OMAHA,
HARRIS TRUST AND SAVINGS BANK,
LASALLE BANK NATIONAL ASSOCIATION, AND
MERCANTILE BANK NATIONAL ASSOCIATION
FORM OF NOTES
<PAGE> 35
) SECURED BUSINESS PROMISSORY NOTE
Omaha, Nebraska $
January ___, 2000 December 31, 2001
(Note Date) (Maturity Date)
On or before December 31, 2001, AMERITRADE HOLDING CORPORATION ("Maker")
promises to pay to the order of [REVOLVING LENDER] ("Lender") the principal sum
hereof, which shall be the lesser of ___________ Dollars, or so much thereof as
may have been advanced by Lender pursuant to the Amended and Restated Revolving
Credit Agreement dated as of January 25, 2000, as amended from time to time (the
"Agreement") among Maker, Lender, First National Bank of Omaha ("Agent"), and
the other Revolving Lenders from time to time party thereto (collectively, the
"Lenders"). All capitalized terms not defined herein shall have their respective
meanings as set forth in the Agreement.
Interest shall accrue on the principal sum hereof outstanding from time to
time at a floating per annum interest rate (the "Revolving Credit Rate") equal
to the greater of (a) the rate published from time to time as the "Prime Rate"
(the base rate on corporate loans posted by at least 75% of the nation's 30
largest banks) in the Midwest Edition of the Wall Street Journal on the first
business day of the month (or, if no such rate is published on such date, on the
last preceding date when such rate was published), minus 3/4 of 1%; or (b) the
rate published from time to time as the "90-day LIBOR rate" in the Midwest
Edition of the Wall Street Journal on the first business day of the month (or if
no such rate is published on such date, on the last preceding date when such
rate was published), plus 1.50% . Interest shall accrue from and after the date
of advance to the date of repayment and shall be calculated based on a year of
360 days, and actual days elapsed. Such rate shall fluctuate monthly based on
changes in such rates on the first business date of each month. Notwithstanding
anything to the contrary elsewhere herein, after an Event of Default has
occurred interest shall accrue on the entire outstanding balance of principal
and interest on all indebtedness hereunder at a fluctuating rate equal to the
Default Rate. Interest shall be due no later than the tenth day of each month.
On or prior to the end of each calendar quarter, Maker shall repay the
amount, if any, outstanding on the Revolving Credit Note which in the aggregate
exceeds the amount of the Base Revolving Credit Facility to be in place on the
next succeeding Business Day following such calendar quarter. The balance, if
any, shall be due on the Maturity Date stated above.
All obligations of Maker under this Note shall be payable in immediately
available funds in lawful money of the United States of America at the principal
office of Agent in Omaha, Nebraska or at such other address as may be designated
by Agent in writing. In the event that a
<PAGE> 36
payment day is not a Business Day, the payment shall be due on the next
succeeding Business Day.
Maker may at any time prepay the Principal Loan Amount outstanding under
this Note if Maker has given Agent and Lender at least one (1) Business Day's
prior written notice of its intention to make such prepayment. Any such
prepayment may be made without penalty.
All obligations of Maker hereunder shall be secured by a first security
interest in the Collateral, as more specifically described in the Security
Agreement and the Pledge Agreement.
GENERAL TERMS
Maker's liability for any amounts owed under this Note and the other
Operative Documents (the "Obligations") shall not be affected by any of the
following:
Acceptance or retention by Lender or Agent of other property or
interests as security for the Obligations, or for the liability of any
person other than a Maker with respect to the Obligations;
The release of all or any of the Collateral or other security for
any of the Obligations to any Maker;
Any release, extension, renewal, modification or compromise of any
of the Obligations or the liability of any obligor thereon; or
Failure by Lender or Agent to resort to other security or any person
liable for any of the Obligations before resorting to the Collateral.
Neither Lender nor Agent is required to take any action whatsoever in
respect of the Collateral. Impairment or destruction of the Collateral shall not
release Maker of its liability hereunder.
Upon the failure of Maker to make any payment of principal or interest
when due hereunder or the occurrence of any Event of Default, all of the
Obligations shall, at the option of Agent and without notice or demand, mature
and become immediately due and payable; and Agent shall have all rights and
remedies for default provided by the Uniform Commercial Code, any other
applicable law and/or the Operative Documents.
All costs and expenses incurred by Lender or Agent in enforcing its rights
under this Note or any mortgage, endorsement, surety agreement, guaranty
relating thereto are the obligation of Maker and are immediately due and
payable. Interest shall accrue on such costs and expenses from the date of
incurrence at the rate specified herein for delinquent Note payments. Each
<PAGE> 37
Maker, endorser, surety and guarantor hereby waives presentment, protest,
demand, notice of dishonor, and the defense of any statute of limitations.
Without affecting the liability of any Maker, endorser, surety or
guarantor, the holder or Agent may, without notice, renew or extend the time for
payment, accept partial payments, release or impair any Collateral or other
security for the payment of this Note or agree to sue any party liable on it.
Neither Lender nor Agent shall be deemed to have waived any of its rights
upon or under this Note, or under any mortgage, endorsement, surety agreement or
guaranty, unless such waivers be in writing and signed by Lender or Agent, as
the case may be. No delay or omission on the part of Lender or Agent in
exercising any right shall operate as a waiver of such right or any other right.
A waiver on any one occasion shall not be construed as a bar to or waiver of any
right on any future occasion. All rights and remedies of Lender or Agent on
liabilities or the Collateral, whether evidenced hereby or by any other
instrument or papers, shall be cumulative and may be exercised singularly or
concurrently.
Maker, if more than one, shall be jointly and severally liable hereunder
and all provisions hereof regarding the liabilities or security of Maker shall
apply to any liability or any security of any or all of them. This Note shall be
binding upon the heirs, executors, administrators, assigns or successors of
Maker; shall constitute a continuing agreement, applying to all future as well
as existing transactions, whether or not of the character contemplated at the
date of this Note, and if all transactions between Lender and Maker shall be at
any time closed, shall be equally applicable to any new transactions thereafter,
provided that Lender's interest in the Collateral shall be limited to the extent
provided in the Security Agreement and the Pledge Agreement; shall benefit
Lender, its successors and assigns; and shall so continue in force
notwithstanding any change in any partnership party hereto, whether such change
occurs through death, retirement or otherwise.
All obligations of Maker hereunder shall be payable in immediately
available funds in lawful money of the United States of America at the principal
office of the Agent.
This Note shall be construed according to the laws of the State of
Nebraska.
Unless the context otherwise requires, all terms used herein which are
defined in the Uniform Commercial Code shall have the meanings therein stated.
Any provision of this Note which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
<PAGE> 38
[This Note is given in substitution of that certain Secured Business
Promissory Note dated May 24, 1999, given by Maker to Lender, in the principal
amount of $_______________.]
Executed as of this day of , 2000.
------------ ----------------------
AMERITRADE HOLDING CORPORATION
By:
Title:
<PAGE> 39
PROMISSORY NOTE SCHEDULE
Loan Advances and Payments of Principal
AMERITRADE HOLDING CORPORATION
REVOLVING NOTE ADVANCES AND PAYMENTS:
Amount of Unpaid
Amount Principal Paid Amount of Principal Notation
Date of Advance or Prepaid Interest Paid Balance Made By
- ---- ---------- -------------- ------------- --------- --------
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE FORM 10Q AS OF DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-29-2000
<PERIOD-START> SEP-24-1999
<PERIOD-END> DEC-31-1999
<CASH> 979,070,292
<RECEIVABLES> 2,349,452,667
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 11,059,571
<INSTRUMENTS-OWNED> 0
<PP&E> 88,387,244
<TOTAL-ASSETS> 3,872,680,867
<SHORT-TERM> 0
<PAYABLES> 3,139,585,623
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 1,746,523
<OTHER-SE> 280,695,505
<TOTAL-LIABILITY-AND-EQUITY> 3,872,680,867
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 48,941,128
<COMMISSIONS> 77,591,830
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 4,701,641
<INTEREST-EXPENSE> 20,385,171
<COMPENSATION> 33,419,347
<INCOME-PRETAX> (33,694,697)
<INCOME-PRE-EXTRAORDINARY> (33,694,697)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,710,623)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
