<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1999
REGISTRATION NO. 333-74549
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
DONALDSON, LUFKIN & JENRETTE, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 13-1898818
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
----------------
</TABLE>
277 PARK AVENUE
NEW YORK, NEW YORK 10172
(212) 892-3000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------
MICHAEL A. BOYD
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
DONALDSON, LUFKIN & JENRETTE, INC.
277 PARK AVENUE
NEW YORK, NEW YORK 10172
(212) 892-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
COPIES TO:
<TABLE>
<S> <C>
JEFFREY SMALL MATTHEW J. MALLOW
RICHARD D. TRUESDELL, JR. ALAN G. STRAUS
DAVIS POLK & WARDWELL SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
450 LEXINGTON AVENUE 919 THIRD AVENUE
NEW YORK, NEW YORK 10017 NEW YORK, NY 10022-3897
(212) 450-4000 (212) 735-3000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ----------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ----------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ----------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
----------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE(1) PRICE(1) FEE(2)
- ---------------------------------------------------------- -------------- -------------------- --------------- ---------------
<S> <C> <C> <C> <C>
DLJdirect common stock, par value $0.10 per share......... 17,250,000 $ 15.00 $258,750,000 $ 71,932.50
- ---------------------------------------------------------- ---------- ------- ------------ -----------
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(a).
(2) $38,364 has been previously paid and $33,568.50 is being paid in
connection with this filing.
THE REGISTRANT AMENDS THIS REGISTRATION STATEMENT ON THE DATE OR DATES
NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT FILES A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT WILL
BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933
OR UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING UNDER SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
SUBJECT TO COMPLETION -- MAY 6, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROSPECTUS
, 1999
[GRAPHIC OMITTED]
DLJDIRECT COMMON STOCK
DONALDSON, LUFKIN & JENRETTE, INC.
15,000,000 SHARES
- -------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE, INC.:
- - We are an integrated investment and merchant bank.
- - Donaldson, Lufkin & Jenrette, Inc.
277 Park Avenue
New York, New York 10172
(212) 892-3000
PROPOSED SYMBOL & MARKET:
- - DIR/NYSE
THE OFFERING:
- - Donaldson, Lufkin & Jenrette, Inc. is offering 15,000,000 shares of its
DLJdirect common stock. We intend these shares to reflect the performance
of DLJdirect, our online discount brokerage and related investment
services business.
- - The underwriters have an option to purchase an additional 2,250,000 shares
from Donaldson, Lufkin & Jenrette, Inc.
- - This is our initial public offering of DLJdirect common stock, and no public
market currently exists for these shares. We anticipate that the initial
public offering price will be between $13.00 and $15.00 per share.
- - Up to 1,200,000 of the shares are being reserved for sale to current
employees at the public offering price less the underwriting fees, or
$ per share.
- - Shares of DLJdirect common stock will have no voting rights, except in
certain limited circumstances.
- - Closing: , 1999.
--------------------------------------------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- -----------
<S> <C> <C>
Public offering price: $ $
Underwriting fees:
Proceeds to Donaldson, Lufkin & Jenrette, Inc.:
---------------------------------------------------------------------
</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 11.
- -------------------------------------------------------------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS DETERMINED WHETHER THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. NOR HAVE THEY MADE, NOR WILL THEY MAKE, ANY
DETERMINATION AS TO WHETHER ANYONE SHOULD BUY THESE SECURITIES. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE DLJDIRECT INC.
BT ALEX- BROWN
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
<PAGE>
ACCESS
DLJdirect [GRAPHIC PICTURES]
THROUGH
MULTIPLE
PLATFORMS
<PAGE>
5X FASTER THAN OTHER MAJOR INTERNET BROKERS*
[GRAPHIC PICTURE]
FEATURES INCLUDE
FASTER ACCESS TO TRADING, PORTFOLIOS,
AND ALL INVESTMENT SERVICES
STREAMING REAL-TIME QUOTES
CUSTOMIZABLE TOOLBAR FOR FASTER ACCESS TO
FREQUENTLY USED FEATURES
S&P DATA AND CHARTS DISPLAYED WITH
PERSONAL HOLDINGS AND PORTFOLIOS
ENHANCED USER-FRIENDLY TICKER WITH
IMPROVED NEWS FEATURES
CUSTOMIZABLE PRICE AND NEWS ALERTS! SM
* Based on a study conducted from November 17, 1998 through December 4, 1998
by Corporate Insight, Inc., an independent market research firm.
** Certain restrictions apply.
<PAGE>
EASY ORDER ENTRY FORM
[GRAPHIC PICTURE]
STOCKSCAN(TM) AND FUNDSCAN(TM)
[GRAPHIC PICTURE]
DLJ RESEARCH*
[GRAPHIC PICTURE]
STANDARD & POOR'S AND ZACKS REPORTS
[GRAPHIC PICTURE]
* Available only to accounts with a balance of $100,000 or more.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary ..................... 4
Risk Factors ........................... 11
Special Note Regarding
Forward-Looking Statements .......... 21
Where You Can Find More
Information ......................... 22
Use of Proceeds ........................ 23
Dividend Policy ........................ 23
Capitalization ......................... 24
Selected Combined Financial
Information of DLJdirect ............ 26
Management's Discussion and Analysis
of Financial Condition and Results of
Operations of DLJdirect ............. 28
Business of DLJdirect .................. 38
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Management of DLJdirect ................ 55
Certain Relationships .................. 65
Description of Capital Stock ........... 68
Certain Cash Management and
Allocation Policies ................. 87
Material U.S. Federal Tax
Considerations ...................... 90
Underwriting ........................... 93
Legal Matters .......................... 96
Experts ................................ 96
Illustration of Certain Terms .......... I-1
Index to Combined Financial
Statements .......................... F-1
</TABLE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission. You should read this prospectus together
with the additional information described under the heading "Where You Can Find
More Information".
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights key aspects of the offering of DLJdirect common
stock. This summary is not a substitute for the more detailed information
contained in the rest of this prospectus. For a more comprehensive description
of the offering of DLJdirect common stock, you should read the entire
prospectus.
DONALDSON, LUFKIN & JENRETTE, INC. AND DLJDIRECT
DONALDSON, LUFKIN & JENRETTE, INC.
We are a leading integrated investment and merchant bank that serves
institutional, corporate, governmental and individual clients both domestically
and internationally. Our business includes securities underwriting, sales and
trading, merchant banking, financial advisory services, investment research,
traditional and online brokerage services and asset management. We have
historically operated in three principal segments in the financial services
industry: the Banking Group, the Capital Markets Group and the Financial
Services Group. The Banking Group is a major participant in the raising of
capital and the providing of financial advice to companies throughout the U.S.
and Europe, Asia and Latin America. The Capital Markets Group consists of the
Equities Division, which provides domestic and foreign institutional clients
with global research, trading and sales services in U.S. listed and
over-the-counter equities, and foreign equities trading, and the Fixed Income
Division, which provides institutional clients with research trading and sales
services for a broad range of fixed-income products, and distributes
fixed-income securities in connection with underwritten offerings. The
Financial Services Group provides a broad array of services to individual
investors and the financial intermediaries that represent them.
From a financial reporting standpoint, we have separated our online
discount brokerage and related investment services business -- which we call
DLJdirect -- from the rest of our businesses -- which we call DLJ. We intend
our DLJdirect common stock to track the performance of DLJdirect, and we intend
our DLJ common stock to track the performance of DLJ. We are offering you
shares of DLJdirect common stock, but we are not offering you any shares of DLJ
common stock.
DLJ includes:
o All Donaldson, Lufkin & Jenrette, Inc. businesses other than those
businesses that are included in DLJdirect.
o A retained interest in DLJdirect which is currently 100%. This retained
interest will decline to reflect the initial issuance of DLJdirect common
stock as well as any future issuances.
Our principal executive offices are located at 277 Park Avenue, New York,
NY 10172. Our telephone number is (212) 892-3000.
DLJDIRECT -- WWW.DLJDIRECT.COM
DLJdirect is a leading provider of online discount brokerage and related
investment services, offering customers automated securities order placement
and information and research capabilities through the Internet and online
service providers. DLJdirect's broad range of investment services is targeted
at self-directed, sophisticated online investors, who on average have higher
account balances than other online investors.
DLJdirect was one of the pioneers of online investing. In its 10-year
history, DLJdirect has frequently been recognized as a high-quality provider of
online brokerage services. Recent industry awards include the following:
o Barron's 1999 Annual Survey of Online Brokers -- DLJdirect was rated
the number one online broker, based on criteria including trade
execution, reliability and range of services
4
<PAGE>
o Gomez Advisors, Inc. -- DLJdirect was rated the number one overall
Internet broker for five of the last seven quarters, including the most
recent quarter
o TheStreet.com -- DLJdirect was selected the number one online broker
for reliability and ease of use in TheStreet.com's November 1998 reader
survey
DLJdirect's investment services and products include:
o online order entry for stocks, options, mutual funds and U.S. Treasury
securities
o access to selected DLJ-managed initial public offerings and other
equity offerings
o company and industry research from DLJ and independent research
organizations
o DLJdirect MarketSpeed (Trade Mark) , its proprietary software with
enhanced graphics and greater ease of use permitting DLJdirect's
customers to access DLJdirect's online services an average of five times
faster than other major Internet brokers
o stock and mutual fund evaluation tools, including its proprietary
StockScan (Trade Mark) for screening over 9,500 public companies and its
proprietary FundScan (Trade Mark) for analyzing over 7,000 mutual funds
DLJdirect has experienced rapid growth in recent years:
o revenues increased 75.4% from $67.2 million in 1997 to $117.9 million
in 1998 and were $47.2 million during the first quarter of 1999
o the average number of trades executed each day increased 86.9% from
6,100 in 1997 to 11,400 in 1998 and was 20,200 during the first quarter
of 1999
o customer assets increased 93.5% from $4.6 billion at December 31, 1997
to $8.9 billion at December 31, 1998 and were $11.2 billion at March 31,
1999
The key elements of DLJdirect's strategy are as follows:
o increase penetration of DLJdirect's targeted customer base
o build and enhance the DLJdirect brand
o maintain leading technology
o continue to broaden product offerings
o expand role as an Internet-based distributor of underwritten
securities
o expand globally
As used in this prospectus, the term "DLJdirect" does not represent a
separately incorporated entity but rather means those businesses, assets and
liabilities intended to represent Donaldson, Lufkin & Jenrette, Inc.'s online
discount brokerage and related investment services business.
5
<PAGE>
DLJDIRECT COMMON STOCK
<TABLE>
<S> <C>
Basic investment characteristics: DLJdirect common stock is what is sometimes referred to as
"tracking stock". Tracking stock is a type of common stock
that is intended to reflect or "track" the performance of a
particular business. In this case, DLJdirect common stock is
intended to track the performance of DLJdirect.
From a financial reporting standpoint, we have separated our
online discount brokerage and related services business,
DLJdirect, from Donaldson, Lufkin & Jenrette, Inc., which
includes the rest of our businesses, and we have allocated all
of our consolidated assets, liabilities, revenue, expenses and
cash flow between DLJdirect and DLJ.
Although we intend DLJdirect common stock to reflect the
performance of DLJdirect, holders of DLJdirect common
stock will be common stockholders of Donaldson, Lufkin &
Jenrette, Inc. For this reason, holders of DLJdirect common
stock will be subject to all of the risks associated with an
investment in Donaldson, Lufkin & Jenrette, Inc. and all of
its businesses, assets and liabilities.
Voting rights: Shares of DLJdirect common stock will have no voting rights
except in certain limited circumstances.
Dividends: We do not expect to pay any dividends on DLJdirect common
stock for the foreseeable future.
Your rights if we sell 80% or more of We must choose one of the following three alternatives:
the assets of DLJdirect: o pay a dividend to holders of DLJdirect common stock in
an amount equal to a proportionate interest in the net
proceeds of the disposition,
o redeem from holders of DLJdirect common stock, for an
amount equal to a proportionate interest in the net
proceeds of the disposition, outstanding shares of
DLJdirect common stock or
o issue DLJ common stock (or, if we create additional series
of common stock in the future designed to track any of
our other businesses, shares of any such series) in
exchange for outstanding DLJdirect common stock at a
10% premium to the value of the DLJdirect common stock
being exchanged.
We will not be required to do any of the above, if:
o the sale is in connection with the liquidation of
Donaldson, Lufkin & Jenrette, Inc.
o the sale is to an affiliate
o the sale is in exchange for equity securities of an entity
primarily engaged in a similar or complementary business
o DLJdirect common stock is the only outstanding series of
common stock at the time of the sale or
o no shares of DLJdirect common stock are outstanding at
the time of the sale.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
At any time within one year after completing a special
dividend or partial redemption referred to above, we will
have the right to issue DLJ common stock in exchange for
the remaining outstanding DLJdirect common stock at a 10%
premium to the value of the DLJdirect common stock being
exchanged. Under existing federal law, any such exchange
would not be a taxable event for holders of DLJdirect
common stock.
To determine the exchange rate that will result in an
exchange at a 10% premium to the value of the DLJdirect
common stock being exchanged, we will value DLJ common
stock and DLJdirect common stock based on their average
market values over a specified 20-trading-day period before
the exchange.
Your premium if we exchange shares of We will have the right to issue DLJ common stock in
DLJdirect common stock for shares of exchange for outstanding DLJdirect common stock at a
DLJ common stock: premium at any time. The premium will be 25% for
exchanges occurring in the 90 days after issuance and will
decline ratably each quarter thereafter over a period of 3
years to 15%. However, the premium will be 10% if as a
result of the enactment of legislative changes or
administrative proposals or changes, we or our stockholders
will, based on the legal opinion of our tax counsel, more
likely than not be subject to tax upon issuance of the
DLJdirect common stock or DLJ common stock or such
stock will not be treated as stock of Donaldson, Lufkin &
Jenrette, Inc.
Our right to exchange shares of We will have the right, at any time, to exchange stock of a
DLJdirect common stock for shares of subsidiary of Donaldson, Lufkin & Jenrette, Inc. for
common stock of a subsidiary: DLJdirect common stock if all of the assets and liabilities of
DLJdirect are transferred to that subsidiary.
Your share upon a liquidation of Upon liquidation of Donaldson, Lufkin & Jenrette, Inc.,
Donaldson, Lufkin & Jenrette, Inc.: holders of DLJ common stock and DLJdirect common stock
will be entitled to receive the net assets of Donaldson, Lufkin
& Jenrette, Inc., if any, remaining for distribution to
stockholders after payment or provision for all liabilities of
Donaldson, Lufkin & Jenrette, Inc. and payment of the
liquidation preference payable to any holders of preferred
stock. Amounts due upon liquidation in respect of shares of
DLJ common stock and shares of DLJdirect common stock
will be distributed pro rata in accordance with the average
market value of DLJ common stock and the average market
value of DLJdirect common stock over a 20-trading-day
period prior to the liquidation.
</TABLE>
7
<PAGE>
THE OFFERING
DLJdirect common stock
offered .................... 15,000,000 shares
Shares of DLJdirect common
stock effectively owned by
DLJ through its retained
interest after this
offering ................... 85,000,000 shares
Use of proceeds............. The net proceeds from this offering are
estimated to be approximately $193.5 million. We
will allocate to DLJdirect the net proceeds from
10,000,000 of the shares offered hereby and to
DLJ the net proceeds from 5,000,000 of the shares
offered hereby. DLJdirect will use the net
proceeds to repay a note issued to an affiliate
prior to the offering and to support its
advertising budget of approximately $65 million
for 1999. DLJdirect has not allocated the balance
of the proceeds for any specific purpose. Such
funds may be used to support DLJdirect's domestic
and international expansion, to permit additional
advertising in future periods and for other
general corporate purposes.
Proposed New York Stock
Exchange symbol............ DIR
Except as otherwise indicated, the information in this prospectus assumes
that the DLJdirect common stock being offered will be sold at $14.00 per share,
which is the mid-point of the range set forth on the cover page of the
prospectus, and that the underwriters' option to purchase additional shares of
DLJdirect common stock is not exercised. The net proceeds from any exercise of
the underwriters' option will be allocated two-thirds to DLJdirect and
one-third to DLJ.
The shares of DLJdirect common stock outstanding exclude 10,000,000 shares
of DLJdirect common stock that have been reserved for issuance under
DLJdirect's stock option plan. See "Management of DLJdirect -- DLJdirect 1999
Incentive Compensation Plan".
8
<PAGE>
SUMMARY COMBINED FINANCIAL INFORMATION OF DLJDIRECT
The following summary combined financial information should be read in
conjunction with DLJdirect's combined financial statements and the notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations of DLJdirect" contained elsewhere in this prospectus. The
summary combined statements of operations data for the years ended December 31,
1996, 1997 and 1998 are derived from DLJdirect's audited combined financial
statements which are included elsewhere in this prospectus. The summary
combined statements of operations data for the three months ended March 31,
1998 and 1999 and the combined statements of financial condition data as of
March 31, 1999 are derived from DLJdirect's unaudited combined financial
statements which are also included elsewhere in this prospectus. The unaudited
summary combined financial information reflects all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results of the interim periods. The
operating results for the three months ended March 31, 1998 and 1999 are not
necessarily indicative of the results to be expected for any other interim
period or any other future fiscal year. The summary combined statements of
operations data for the years ended December 31, 1994 and 1995 are derived from
the unaudited combined financial statements of DLJdirect which are not included
in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Commissions ......................... $ 28,491 $ 40,358 $ 54,166 $ 50,948 $ 78,717 $ 16,130 $ 32,054
Fees ................................ 3,797 5,067 6,426 12,109 25,484 5,140 9,596
Interest ............................ 1,858 1,846 2,569 4,160 13,723 2,787 5,552
-------- -------- -------- -------- --------- -------- ---------
Total revenues .................... 34,146 47,271 63,161 67,217 117,924 24,057 47,202
-------- -------- -------- -------- --------- -------- ---------
Costs and expenses:
Compensation and benefits ........... 5,422 7,362 11,202 17,174 28,260 5,759 10,683
Brokerage, clearing, exchange
and other fees .................... 9,567 11,709 15,422 20,909 28,423 6,071 8,854
Advertising ......................... 1,971 4,183 9,093 13,137 25,146 9,010 6,101
Occupancy and equipment ............. 1,175 1,437 1,923 3,352 5,045 1,081 1,503
Communications ...................... 791 1,025 1,468 2,844 5,564 1,189 2,705
Technology costs .................... 4,400 5,431 5,205 5,082 4,084 1,103 1,280
Other operating expenses ............ 3,164 4,507 5,567 10,844 18,934 3,660 4,815
-------- -------- -------- -------- --------- -------- ---------
Total costs and expenses .......... 26,490 35,654 49,880 73,342 115,456 27,873 35,941
-------- -------- -------- -------- --------- -------- ---------
Income (loss) before income tax
provision (benefit) ................. 7,656 11,617 13,281 (6,125) 2,468 (3,816) 11,261
Income tax provision (benefit) ....... 3,128 4,746 5,425 (2,502) 1,008 (1,559) 4,088
-------- -------- -------- -------- --------- -------- ---------
Net income (loss) .................... $ 4,528 $ 6,871 $ 7,856 $ (3,623) $ 1,460 $ (2,257) $ 7,173
======== ======== ======== ======== ========= ======== =========
Pro forma earnings per share of
DLJdirect common stock (1):
Basic and diluted ................... $ 0.01 $ 0.07
========= =========
Pro forma weighted average
shares of DLJdirect common
stock outstanding (1):
Basic and diluted ................... 100,000 100,000
========= =========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
---------------------------
ACTUAL AS ADJUSTED (2)
(IN THOUSANDS)
<S> <C> <C>
STATEMENTS OF FINANCIAL CONDITION DATA:
Cash and cash equivalents ............. $47,825 $146,715
Total assets .......................... 52,429 151,319
Long-term liabilities ................. -- --
Total equity .......................... 30,097 128,987
</TABLE>
<TABLE>
<CAPTION>
AS OF OR FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1994 1995 1996 1997 1998
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Total trades ....................... 475,000 660,000 929,000 1,535,000 2,875,000
Average trades per day ............. 1,900 2,600 3,700 6,100 11,400
Total customer assets .............. $1,300,000 $1,900,000 $2,500,000 $4,600,000 $8,900,000
Total accounts ..................... 153,000 207,000 280,000 390,000 529,000
Total active accounts (3) .......... N/A N/A 113,000 144,000 210,000
Total employees .................... 95 139 174 283 374
Total technology employees ......... 12 14 34 82 119
<CAPTION>
AS OF OR FOR THE
THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1999
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OTHER DATA:
Total trades ....................... 580,000 1,230,000
Average trades per day ............. 9,500 20,200
Total customer assets .............. $5,900,000 $11,200,000
Total accounts ..................... 428,000 590,000
Total active accounts (3) .......... 161,000 243,000
Total employees .................... 287 466
Total technology employees ......... 86 128
</TABLE>
- ----------
(1) Share amounts include shares effectively owned by DLJ through its
retained interest in DLJdirect. Pro forma basic and diluted earnings per
common share amounts have been calculated by dividing net income
applicable to common shares by the pro forma weighted average common
shares outstanding.
(2) As adjusted amounts give effect to (a) the allocated net proceeds of
10,000,000 shares of DLJdirect common stock at an assumed initial public
offering price of $14.00 per share, the midpoint of the range set forth
on the cover page of this prospectus, and the use of the net proceeds
from the offering (after deducting estimated underwriting discounts and
commissions and offering expenses payable by us) and (b) the repayment of
a note to an affiliate prior to the completion of the offering which will
be repaid with a portion of the proceeds from the offering. The note
issued to an affiliate will be in an amount equal to the total equity of
DLJdirect Holdings Inc. at March 31, 1999, which was $30.1 million, plus
the accumulated retained earnings of DLJdirect Holdings Inc. from April
1, 1999 until the end of the month preceding the offering.
(3) Active accounts consist of those accounts at the end of the related
period with at least one trade in the last twelve months or with a
balance at period end.
10
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones facing
DLJdirect. Additional risks not presently known to DLJdirect or that it
currently deems immaterial may also impair its business operations. DLJdirect's
business, financial condition or results of operations could be materially
adversely affected by any of these risks. The trading price of DLJdirect common
stock could decline due to any of these risks, and you may lose all or part of
your investment.
RISKS RELATING TO OWNERSHIP OF DLJDIRECT COMMON STOCK
HOLDERS OF DLJDIRECT COMMON STOCK WILL BE COMMON STOCKHOLDERS OF DONALDSON,
LUFKIN & JENRETTE, INC.
We cannot assure you that the market value of DLJdirect common stock will
reflect the performance of DLJdirect as we intend. Holders of DLJdirect common
stock will continue to be common stockholders of Donaldson, Lufkin & Jenrette,
Inc. and, as such, will be subject to all risks of an investment in Donaldson,
Lufkin & Jenrette, Inc. and all of our businesses, assets and liabilities.
HOLDERS OF DLJDIRECT COMMON STOCK WILL NOT HAVE ANY CLAIMS ON THE ASSETS OF
DLJDIRECT
Even though from a financial reporting standpoint we have allocated our
consolidated assets, liabilities, revenue, expenses and cash flow between
DLJdirect and DLJ, that allocation will not change the legal title to any
assets or responsibility for any liabilities and will not affect the rights of
any of our creditors. Further, in any liquidation, holders of DLJdirect common
stock will receive a share of the net assets of Donaldson, Lufkin & Jenrette,
Inc. based on the relative trading prices of DLJdirect common stock and DLJ
common stock rather than on any assessment of the actual value of DLJdirect or
DLJ.
HOLDERS OF DLJDIRECT COMMON STOCK WILL HAVE NO VOTING RIGHTS
Holders of DLJdirect common stock will have no voting rights, unless a
separate class vote is required by the Delaware general corporation law.
THE BOARD OF DIRECTORS MAY MAKE DECISIONS THAT FAVOR DLJ AT THE EXPENSE OF
DLJDIRECT
Due to the extensive relationships between DLJ and DLJdirect, there will
be inherent conflicts of interest. The board of directors of Donaldson, Lufkin
& Jenrette, Inc., in its sole discretion, will make operational and financial
decisions and implement policies that may affect the businesses of DLJ and
DLJdirect differently, potentially favoring one business at the expense of the
other. Examples include:
o future allocations of assets, liabilities, revenues, expenses, cash
flow and the tax consequences of operations,
o the allocation of business opportunities, resources and personnel,
o the manner of accounting for a transfer of funds between DLJ and
DLJdirect as either a revolving credit advance, a long-term loan or a
return of capital,
o the allocation of funds for capital expenditures,
o the allocation of proceeds from the issuance of DLJdirect common stock
and the costs of repurchases of DLJdirect common stock either to DLJ in
respect of its retained interest in DLJdirect or to the equity of
DLJdirect,
o the allocation of issuances of debt or preferred stock of Donaldson,
Lufkin & Jenrette, Inc. between DLJ and DLJdirect,
o decisions as to how to allocate consideration received from a merger
involving Donaldson, Lufkin & Jenrette, Inc. between holders of DLJ
common stock and DLJdirect common stock,
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o decisions as to whether and when to exchange one series of common stock
for the other series of common stock,
o decisions regarding the sale of assets of either DLJ or DLJdirect, and
o other transactions between DLJ and DLJdirect.
The discretion of the board of directors of Donaldson, Lufkin & Jenrette,
Inc. in these areas makes an investment in DLJdirect common stock riskier than
an investment in ordinary common stock. All of the directors own
disproportionate interests, in both percentage and value terms, of DLJ common
stock as compared to DLJdirect common stock. This disparity in ownership
interests may create or appear to create potential conflicts of interest when
these directors are faced with decisions that could have different implications
for the different series. See "Certain Cash Management and Allocation
Policies".
PRINCIPLES OF DELAWARE LAW MAY PROTECT DECISIONS OF THE BOARD OF DIRECTORS OF
DONALDSON, LUFKIN & JENRETTE, INC. THAT FAVOR HOLDERS OF DLJ COMMON STOCK AT
THE EXPENSE OF HOLDERS OF DLJDIRECT COMMON STOCK
You may not be able to challenge decisions that have an adverse effect
upon holders of DLJdirect common stock if the board of directors of Donaldson,
Lufkin & Jenrette, Inc. is disinterested and informed with respect to these
decisions and acts in good faith, and in the belief that it is acting in the
best interests of Donaldson, Lufkin & Jenrette, Inc.'s stockholders. Delaware
law provides that a board of directors owes an equal duty to all stockholders
regardless of class or series and does not have separate or additional duties
to either group of stockholders, subject to applicable provisions set forth in
a company's charter. We are not aware of any legislative or judicial precedent
involving the fiduciary duties of directors of a Delaware corporation with two
classes of common stock with separate rights related to specified operations of
the corporation.
WE MAY DISPOSE OF ASSETS OF EITHER DLJDIRECT OR DLJ WITHOUT YOUR APPROVAL AND
YOU MAY RECEIVE LESS VALUE FOR YOUR SHARES THAN THE MARKET VALUE OF YOUR SHARES
We can sell any amount of assets of DLJdirect without stockholder
approval, because Delaware law requires stockholder approval only for a sale,
lease or exchange of "all or substantially all" of the assets of the entire
company. There is no clear meaning of "all or substantially all" under Delaware
law.
Although we are required to:
o pay a dividend on DLJdirect common stock,
o redeem shares of DLJdirect common stock or
o exchange all outstanding shares of DLJdirect common stock for DLJ
common stock
in connection with certain sales of DLJdirect's assets, the value received by a
holder of DLJdirect common stock may be less than the market value of such
shares prior to the asset sale. In addition, the board of directors of
Donaldson, Lufkin & Jenrette, Inc. will decide, in its sole discretion, how to
proceed and is not required to select the option that would result in the
highest value to holders of DLJdirect common stock.
THE MARKET PRICE OF DLJDIRECT COMMON STOCK WILL FLUCTUATE AND COULD FLUCTUATE
SIGNIFICANTLY
The stock market has experienced extreme price and volume fluctuations.
The market prices of securities of Internet-related companies, in particular,
have been especially volatile. In the past, companies that have experienced
volatility have sometimes been the object of securities class action
litigation. Securities class action litigation may result in substantial costs
and a diversion of management's attention and resources.
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WE MAY ISSUE DLJ COMMON STOCK IN EXCHANGE FOR DLJDIRECT COMMON STOCK WHEN
DLJDIRECT COMMON STOCK IS UNDERVALUED OR DLJ COMMON STOCK IS OVERVALUED
We will have the right to exchange your shares of DLJdirect common stock
for shares of DLJ common stock at a premium at any time. Because certain
exchanges would be at a premium, and since we could determine to effect an
exchange at a time when either or both of DLJ common stock and DLJdirect common
stock may be considered to be overvalued or undervalued, any such exchange may
be disadvantageous to holders of DLJdirect common stock. In addition, any such
exchange would preclude holders of DLJdirect common stock from retaining their
investment in a security that is intended to reflect separately the performance
of DLJdirect.
A RECENT CLINTON ADMINISTRATION TAX PROPOSAL COULD RESULT IN THE EXCHANGE OF
DLJDIRECT COMMON STOCK FOR DLJ COMMON STOCK AT A REDUCED PREMIUM
We may issue DLJ common stock in exchange for DLJdirect common stock at a
premium of 10% if, as a result of the enactment of legislative changes or
administrative proposals or changes, we or our stockholders will, more likely
than not, be subject to tax upon issuance of the DLJ common stock or DLJdirect
common stock or such stock will not be treated as stock of Donaldson, Lufkin &
Jenrette, Inc. A recent proposal by the Clinton Administration would impose a
corporate level tax on the issuance of stock similar to the DLJdirect common
stock. As proposed by the Clinton Administration, this provision would be
effective upon the date of its enactment by Congress. If this proposal is
enacted, therefore, we could be subject to tax on an issuance of DLJdirect
common stock after the date of enactment. We cannot predict whether the
proposal will be enacted by Congress and, if enacted, whether it will be in the
form proposed by the Clinton Administration. We expect the offering to be
consummated prior to the effective date of the proposed legislation. It is
possible, however, that further issuances of the DLJdirect common stock would
be affected by the enactment of these proposals. See "Description of Capital
Stock -- Optional Exchange of DLJ Common Stock for DLJdirect Common Stock".
THE VALUE OF DLJDIRECT COMMON STOCK MAY DECLINE IF MORE DLJDIRECT COMMON
STOCK IS ISSUED
Our certificate of incorporation allows the board of directors of
Donaldson, Lufkin & Jenrette, Inc., in its sole discretion, to issue authorized
but unissued shares of DLJdirect common stock. This could dilute the value of
shares of DLJdirect common stock.
RISKS RELATING TO THE BUSINESS OF DLJDIRECT
SYSTEM LIMITATIONS AND FAILURES COULD HARM DLJDIRECT'S BUSINESS
If DLJdirect's systems cannot be expanded to cope with increased demand or
fail to perform, it could experience:
o unanticipated disruptions in service;
o slower response times;
o decreased customer service and customer satisfaction;
o delays in the introduction of new products and services;
which could result in
o financial losses;
o litigation or other customer claims; and
o regulatory sanctions.
DLJdirect uses internally developed systems to operate its business,
including transaction processing systems, which can accomodate increased
capacity. However, if DLJdirect's customer base increases substantially,
DLJdirect will need to expand significantly and upgrade its technology,
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transaction processing systems and network infrastructure. DLJdirect does not
know whether it will be able to project accurately the rate or timing or cost
of any increases, or expand and upgrade its systems and infrastructure to
accommodate any increases in a timely manner.
DLJdirect's ability to facilitate transactions successfully and provide
high-quality customer service also depends on the efficient and uninterrupted
operation of its computer and communications hardware systems. We have
experienced systems failures in the past and we could experience future systems
failures. Examples of significant systems failures include:
o On April 21, 1998, a high volume of customer activity overloaded
DLJdirect's computer. As a result, customers logging into their accounts
between 9:30 a.m. and 10:00 a.m. were unable to access the system or
experienced significant lag times in doing so. This increased the number
of customers who tried to place orders by telephone, causing such
customers to experience significant wait times or failures to connect.
The problem was resolved by 10:30 a.m. The problem occurred again but to
a lesser extent on April 22, 23, and 27, 1998. Additional computer
resources have been applied to solve the capacity problem.
o On February 1, 1999, a systems update caused the misconfiguration of a
security firewall, making DLJdirect's system inaccessible for customers
attempting to access DLJdirect's service using DLJdirect's Internet site
and Windows-based software from 7:30 a.m. to 11:00 a.m. DLJdirect
customers using AOL, Prodigy, and DLJdirect's telephone system were not
affected by this system failure. However, customers placing orders using
telephone lines experienced significant waiting times during the period
of system failure. The cause of this problem was addressed and has not
subsequently recurred.
o The output from an affiliate's computer system upon which DLJdirect
relies was not available at the usual time on the morning of April 13,
1999. This systems failure affected approximately 35% of customer orders
entered during the period after the close of business on April 12, 1999
until the following morning. Certain orders were trapped in a queue and
could not be released for execution until after 10:00 a.m. In addition,
customers could not place trades through DLJdirect's PC system until
10:00 a.m., which led to long waiting periods for telephone service.
DLJdirect believes the circumstances which caused this situation have
been appropriately remedied.
DLJdirect's systems and operations also are vulnerable to damage or
interruption from human error, natural disasters, power loss, sabotage,
computer viruses, intentional acts of vandalism and similar events. While
DLJdirect currently maintains multiple computer facilities to provide limited
service during system disruptions, it does not have facilities in place which
will fully maintain service during a system disruption. Any system failure that
causes an interruption in service or decreases the responsiveness of
DLJdirect's service could impair its reputation, damage its brand name and harm
its revenues. DLJdirect also relies on a number of third parties for systems
support. Any interruption in these third-party services or a deterioration in
the performance of these services could also be disruptive to its business.
DLJDIRECT MAY BE UNABLE TO MANAGE ITS RAPID GROWTH EFFECTIVELY
DLJdirect has rapidly and significantly expanded its operations and
anticipates that further similar expansion will be required to realize its
growth strategy. Its rapid growth has placed significant demands on its
management and other resources and is likely to continue. To manage its future
growth, DLJdirect will need to attract, hire and retain highly skilled and
motivated officers and employees and improve existing systems and/or implement
new systems for: (1) transaction processing; (2) operational and financial
management; and (3) training, integrating and managing its growing employee
base. There can be no assurance that DLJdirect will be able to achieve the rate
of growth that it has experienced in the past.
AGREEMENTS BETWEEN DLJDIRECT AND DLJ ARE NOT THE RESULT OF THIRD-PARTY
NEGOTIATIONS
DLJdirect has entered into a number of important intercompany arrangements
with DLJ entities. None of these arrangements were the result of third-party
negotiations. No assurances can be given therefore that DLJdirect could not
enter into similar arrangements with a third-party on more favorable terms.
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DLJDIRECT FACES POTENTIAL CONFLICTS OF INTEREST WITH DLJ
Due to the extensive relationships between DLJ and DLJdirect, there will
be inherent conflicts of interest. The board of directors of Donaldson, Lufkin
& Jenrette, Inc., in its sole discretion, will make operational and financial
decisions and implement policies that affect the businesses of both DLJ and
DLJdirect. In some cases, these decisions may favor DLJ to the detriment of
DLJdirect. The board of directors of Donaldson, Lufkin & Jenrette, Inc. is
primarily composed of directors and/or executive officers of DLJ and its
affiliates and does not include any members of the management of DLJdirect.
Direct competition between DLJ and DLJdirect may increase
DLJ and DLJdirect are both engaged in brokerage and related investment
service businesses. DLJ is not restricted from competing with DLJdirect and
there can be no assurance that DLJ will not expand its operations to compete
with DLJdirect. If the markets for their services continue to converge,
opportunities for direct competition between DLJ and DLJdirect will increase
and may include the following:
o DLJ offering online trading to its existing brokerage customers or
launching its own group dedicated to online brokerage;
o DLJdirect competing with DLJ for underwriting business; and
o DLJdirect offering private placements or investment advice to its
customers in competition with financial products and services offered by
DLJ.
Strategic decisions may benefit DLJ at the expense of DLJdirect
Donaldson, Lufkin & Jenrette, Inc. currently intends to pursue its online
brokerage business through DLJdirect. However, the board of directors of
Donaldson, Lufkin & Jenrette, Inc., in its sole discretion, may in the future
decide to pursue business opportunities or operational strategies, even in the
online brokerage area, through DLJ instead of DLJdirect. As DLJdirect expands
internationally, conflicts may arise in selecting new target international
markets and in selecting joint venture partners, if any.
In addition to conflicts posed by international expansion, DLJdirect may
desire to pursue other strategic initiatives that present conflicts between DLJ
and DLJdirect. These initiatives could include:
o alliances by DLJdirect with competitors of DLJ to participate as an
Internet-based distributor or an underwriter in non-DLJ managed
offerings;
o DLJ selling its research products to competitors of DLJdirect; and
o DLJ including other Internet-based distributors in its offerings.
In addition to research products and access to DLJ-managed offerings, DLJdirect
intends to expand the range of DLJ products and services available to its
clients as part of its ongoing business strategy. As competition in the
financial services industry increases and DLJdirect's business continues to
grow, issues relating to the pricing and the level of availability for such
products and services may result in conflicts of interest.
DLJ may restrict DLJdirect's pursuit of initiatives that may adversely
affect the reported results of DLJ in the near future
The consolidated financial results of Donaldson, Lufkin & Jenrette, Inc.
will reflect DLJdirect's financial results. Accordingly, strategic decisions by
DLJdirect that adversely affect DLJdirect's financial results in the near
future will also adversely affect DLJ's financial results in the near future.
As a result, DLJ may restrict DLJdirect's ability to pursue initiatives that
may adversely affect the financial results of DLJ in the near future. Such
initiatives may include:
o significant increases in marketing expenditures or technological
investments;
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o changes to DLJdirect's pricing structure; and
o significant international expansion.
Determing the appropriate fees for trade clearing and execution services
provided by DLJ creates potential conflicts
Pursuant to an agreement between DLJ and DLJdirect, DLJ's Pershing
Division acts as clearing agent for DLJdirect. A clearing agent ordinarily
provides facilities for the execution of customer orders, the settlement of
customer trades and other operational functions incidental to providing custody
for customers' securities and cash balances. Brokerage, clearing and exchange
fees paid to Pershing represented approximately 24.1% of DLJdirect's total
revenues in 1998 and 18.8% of DLJdirect's total revenues in the first quarter
of 1999. In addition, DLJdirect receives payments from Pershing for order flow
and for interest earned on account balances. Under a recent amendment to the
agreement, the amounts to be paid by DLJdirect to Pershing will include the
license fee for the use of the trademarks that are licensed to DLJdirect in the
United States and certain other jurisdictions. The agreement which governs
these fees and payments provides for good faith renegotiation of pricing terms
as a result of changes in market conditions. Conflicts may arise regarding
decisions for appropriate levels of future fees and payments.
DLJDIRECT DEPENDS ON PERSHING FOR TRADE CLEARANCE AND TRADE EXECUTION
DLJdirect is dependent upon Pershing for trade clearance and trade
execution. DLJdirect has entered into a 10-year agreement with DLJ pursuant to
which Pershing acts as DLJdirect's exclusive clearing agent in the United
States. DLJdirect's communications and information systems are coordinated with
the clearing information systems of Pershing. Additionally, Pershing furnishes
DLJdirect with information necessary to run DLJdirect's business, including
transaction summaries, data for compliance and risk management, trade execution
reports, and trade confirmations. Accordingly, an interruption or the cessation
of service by Pershing as a result of systems limitations or failures could
have a material adverse effect on DLJdirect's business, financial condition and
operating results.
DLJDIRECT'S BUSINESS COULD BE HARMED BY MARKET FLUCTUATIONS AND OTHER
SECURITIES INDUSTRY RISKS
DLJdirect's revenues in recent years have been principally from its
electronic brokerage services. Like other brokerage services, DLJdirect is
directly affected by economic and political conditions, broad trends in
business and finance and changes in volume and price levels of securities and
futures transactions. It is also particularly affected by volatility in
technology and Internet-related stocks because a significant portion of its
customers invest in these types of stocks. In recent months, the U.S.
securities markets have fluctuated considerably and a downturn in these markets
could adversely affect DLJdirect's operating results. Reduced trading volume
and prices have historically resulted in reduced transaction revenues. When
trading volume is low, DLJdirect's profitability may be adversely affected
because its overhead is substantially fixed. Severe market fluctuations in the
future could have a material adverse effect on its business, financial
condition and operating results.
DLJdirect's brokerage business, by its nature, is subject to various other
risks, including customer default and employee misconduct and errors. DLJdirect
allows customers who are credit-approved to place trades valued at up to
$15,000 without first depositing any money or collateral into their accounts.
These customers with existing balances are also allowed to place orders to
purchase or sell securities for up to five times the value of equity in their
accounts. In all instances, however, customers are required to pay for
purchases or provide cash or acceptable securities as collateral for margin
transactions. In addition, in permitting customers to purchase securities in
either cash or margin accounts, DLJdirect takes the risk of a market decline
that could reduce the value of the collateral to below the customers'
indebtedness before the collateral can be sold. Although DLJdirect has thus far
experienced only modest losses and believes that it has established adequate
credit assessment procedures, it could lose sizable sums if customers default
on their obligations.
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DLJDIRECT MAY NOT SUCCEED IN EXECUTING ITS INTERNATIONAL STRATEGY
To date, DLJdirect has no experience in providing brokerage services
internationally. There can be no assurance that DLJdirect will be able to
succeed in marketing its branded services and products in international
markets. In addition, there are risks inherent in doing business in
international markets, particularly in the heavily regulated brokerage
industry, such as:
o lack of experience with online trading,
o unexpected changes in regulatory requirements, tariffs and other trade
barriers, and
o difficulties in staffing, including reliance on newly hired local
personnel, and managing foreign operations.
DLJdirect intends to enter several key international markets during the
next few years. As a result of the factors listed above, it expects to lose
money in its international operations for several years. If there are
unfavorable economic conditions in the international markets in which DLJdirect
does business, the losses could be greater and last longer.
REGULATORY AND LEGAL UNCERTAINTIES COULD HARM DLJDIRECT'S BUSINESS
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. Broker-dealers are subject to
regulations covering all aspects of the securities business. DLJdirect's mode
of operation and profitability may be directly affected by:
o additional legislation,
o changes in rules promulgated by the SEC, the NASD, the Board of
Governors of the Federal Reserve System, the various stock exchanges
and other self-regulatory organizations, or
o changes in the interpretation or enforcement of existing laws and
rules.
The SEC, the NASD or other self-regulatory organizations and state
securities commissions can censure, fine, issue cease-and-desist orders,
suspend or expel a broker-dealer or any of its officers or employees.
DLJdirect's ability to comply with all applicable laws and rules is largely
dependent on its internal system to ensure compliance, as well as its ability
to attract and retain qualified compliance personnel. DLJdirect could be
subject to disciplinary or other actions in the future due to claimed
noncompliance, which could have a material adverse effect on its business,
financial condition and operating results.
DLJdirect intends to expand its business in U.S. securities to other
countries. DLJdirect will need to comply with the regulatory controls of each
specific country in which it conducts business. Its international expansion may
be limited by the compliance requirements of other national regulatory
jurisdictions.
In addition, due to the increasing popularity of the Internet, laws and
regulations may be passed dealing with issues such as user privacy and the
pricing, content and quality of products and services. Increased attention to
these issues could adversely affect the growth of the Internet, which could in
turn decrease the demand for DLJdirect's services or could otherwise have a
material adverse effect on its business, financial condition and operating
results.
A CHANGE IN PAYMENTS FOR ROUTING ITS CUSTOMERS' ORDERS COULD ADVERSELY AFFECT
DLJDIRECT
DLJdirect has arrangements with Pershing to receive cash payments in
exchange for routing trade orders to Pershing for execution. There can be no
assurance that payments for routing customers' orders will continue to be
permitted by the SEC, the NASD or other regulatory agencies, courts or
governmental units or by state securities regulators. Payments made to
DLJdirect by Pershing for routing trade orders were $5.5 million and $8.9
million in 1997 and 1998, respectively, and $2.0 million and $3.2 million for
the first quarter of 1998 and 1999, respectively. While payments for routing
these orders increased 56.0% from the first quarter of 1998 to the same quarter
in 1999, the associated
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trades increased 118.3%. As a result of the implementation by the SEC of order
handling rules in January 1997, buyers and sellers are able to express their
desire to purchase or sell shares in smaller dollar increments. This change
reduced the opportunity to profit for firms which deal in securities and has
had the effect of reducing the amount Pershing is able to pay DLJdirect for
routing these orders. Loss of these revenues could have a material adverse
effect on DLJdirect's business and operating results. Moreover, DLJdirect may
be required to make payments to third parties in order to have orders executed.
DLJDIRECT'S BUSINESS IS IN AN EARLY STAGE OF MARKET DEVELOPMENT; THE SUCCESS
OF DLJDIRECT'S BUSINESS WILL DEPEND ON CONTINUED GROWTH OF INTERNET COMMERCE
The market for electronic brokerage services, particularly over the
Internet, is at an early stage of development and is rapidly evolving.
Consequently, demand and market acceptance for recently introduced services and
products are subject to a high level of uncertainty. For DLJdirect, this
uncertainty is compounded by the risks that consumers will not adopt online
commerce and that commerce on the Internet will not adequately develop to
permit it to succeed.
The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and amount of traffic. DLJdirect's
success will depend upon the development and maintenance of the Internet's
infrastructure to cope with this increased traffic. This will require a
reliable network backbone with the necessary speed, data capacity and security,
and the timely development of complementary products, such as high-speed
modems, for providing reliable Internet access and services.
The Internet has experienced a variety of outages and other delays as a
result of damage to portions of its infrastructure and could face similar
outages and delays in the future. Outages and delays are likely to affect the
level of Internet usage and the processing of transactions on DLJdirect's Web
site. In addition, the Internet could lose its viability due to delays in the
development or adoption of new standards to handle increased levels of activity
or due to increased government regulation. The adoption of new standards or
government regulation may require DLJdirect to incur substantial compliance
costs.
FLUCTUATIONS IN DLJDIRECT'S QUARTERLY OPERATING RESULTS MAY IMPACT ITS STOCK
PRICE
DLJdirect has historically experienced significant variation in its
quarterly and annual results of operations and expects that future results of
operations will also vary significantly. These fluctuations may result from:
o timing of major advertising campaigns;
o the timing of introductions of or enhancements to online investing
services and products by DLJdirect or its competitors;
o changes in trading volume in securities markets;
o changes in pricing policies by DLJdirect or its competitors;
o changes in strategy;
o changes in the level of operating expenses to support projected
growth; and
o general economic conditions.
Due to these factors, quarterly revenues and operating results are
difficult to forecast. DLJdirect believes that period-to-period comparisons of
its operating results will not necessarily be meaningful, and you should not
rely on them as any indication of future performance. DLJdirect's future
quarterly operating results may not consistently meet the expectations of
securities analysts or investors, which in turn may have an adverse effect on
the market price of the DLJdirect common stock.
SUBSTANTIAL COMPETITION COULD REDUCE DLJDIRECT'S MARKET SHARE AND HARM ITS
FINANCIAL PERFORMANCE
The market for electronic brokerage services over the Internet is new,
rapidly evolving and intensely competitive. DLJdirect expects competition to
continue and intensify in the future. DLJdirect
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faces direct competition from discount brokerage firms providing either
touch-tone telephone or online investing services, or both. DLJdirect also
encounters competition from the broker-dealer affiliates of established full
commission brokerage firms. In addition, it competes with financial
institutions, mutual fund sponsors and other organizations, some of which
provide electronic brokerage services.
Some of DLJdirect's competitors have longer operating histories and
significantly greater financial, technical, marketing and other resources than
DLJdirect. In addition, some of its competitors offer a wider range of services
and financial products than it does, and therefore may be able to respond more
quickly to new or changing opportunities, technologies and customer
requirements. Some current and potential competitors also have greater name
recognition and larger customer bases that could be cultivated, thereby gaining
market share from DLJdirect. These competitors may conduct more extensive
promotional activities and offer better terms and lower prices to customers
than DLJdirect. Moreover, some competitors have established cooperative
relationships among themselves or with third parties to enhance their services
and products and to lower costs. Accordingly, it is possible that new
competitors or alliances among existing competitors may emerge and
significantly reduce DLJdirect's market share.
DLJdirect believes the general financial success of companies within the
online securities industry over the past several years will continue to attract
new competitors to the industry, such as banks, software development companies,
insurance companies, providers of online financial and information services and
others, as these companies expand their product lines. The current trend toward
consolidation in the commercial banking industry could further increase
competition in all aspects of DLJdirect's business. To the extent DLJdirect's
competitors are able to attract and retain customers based on the convenience
of one-stop shopping, its business or ability to grow could be adversely
affected.
DLJDIRECT WILL NEED TO INTRODUCE NEW SERVICES AND PRODUCTS TO REMAIN
COMPETITIVE
DLJdirect's future success depends in part on its ability to develop and
enhance its services and products. If DLJdirect is unable to develop and
introduce enhanced or new services and products quickly enough to respond to
market or customer requirements, or if DLJdirect's services and products do not
achieve market acceptance, DLJdirect's business, financial condition and
operating results will be materially adversely affected.
DLJDIRECT'S NETWORKS MAY BE VULNERABLE TO SECURITY RISKS
DLJdirect has not in the past experienced network security problems.
However, DLJdirect's networks may be vulnerable to unauthorized access,
computer viruses and other security problems. Persons who circumvent security
measures could wrongfully use information of DLJdirect or cause interruptions
or malfunctions in DLJdirect's operations. DLJdirect may be required to expend
significant resources to protect against the threat of security breaches or to
alleviate problems caused by any breaches. Although DLJdirect intends to
continue to implement industry-standard security measures, these measures may
be inadequate.
YEAR 2000 RISKS MAY HARM DLJDIRECT'S BUSINESS
Because many computer systems were not designed to handle dates beyond the
year 1999, computer hardware and software may need to be modified prior to the
Year 2000 in order to remain functional thereafter. This may affect DLJdirect
in numerous ways:
o If the costs associated with addressing Year 2000 issues are greater
than planned, DLJdirect's earnings and results of operations could be
affected.
o DLJdirect's method of trading depends heavily on the integrity of
electronic systems outside of its control, like online and Internet
service providers, and third-party software such as Internet browsers. A
failure of any of these systems due to Year 2000 issues would interfere
with the trading process and, in turn, may have a material adverse effect
on DLJdirect's business, financial condition and operating results.
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DLJDIRECT DEPENDS ON KEY PERSONNEL
DLJdirect's success has been, and will be, dependent to a large degree on
its ability to retain the services of its existing executive officers and to
attract and retain qualified additional senior and middle managers and key
personnel in the future. It does not have "key person" life insurance policies
on any of its officers or employees. Competition for these personnel is
intense. The loss of the services of any of the key personnel or the inability
to identify, hire, train and retain other highly qualified technical and
managerial personnel, including qualified investor service representatives, in
the future could have a material adverse effect on DLJdirect's business,
financial condition and operating results.
DLJDIRECT MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL AND OTHER
CHANGES
The markets in which DLJdirect competes are characterized by rapidly
changing technology, evolving industry standards, frequent new service and
product announcements, introductions and enhancements and changing consumer
demands. DLJdirect may not be able to keep up with these rapid changes. In
addition, these market characteristics are heightened by the emerging nature of
the Internet and the apparent need for companies from many industries to offer
Internet-based products and services. In addition, the widespread adoption of
new Internet, networking or telecommunications technologies or other
technological changes could require DLJdirect to incur substantial expenditures
to modify or adapt its services or infrastructure.
DLJDIRECT MUST COMPLY WITH NET CAPITAL REQUIREMENTS
The SEC, the NASD and various other regulatory agencies have stringent
rules with respect to the maintenance of specific levels of net capital by
securities broker-dealers. Net capital is an SEC-defined measure of a
broker-dealer's readily available liquid assets, reduced by its total
liabilities other than approved subordinated debt. If a firm fails to maintain
the required net capital, the SEC could suspend or revoke its registration, or
the NASD could expel it from membership, which could ultimately lead to the
firm's liquidation. If the net capital rules are changed or expanded, or if
there is an unusually large charge against net capital, operations that require
the intensive use of capital would be limited. A large operating loss or charge
against net capital could adversely affect a firm's ability to expand or even
maintain its present levels of business, which could have a material adverse
effect on its business, financial condition and operating results.
DLJDIRECT MUST PROTECT ITS INTELLECTUAL PROPERTY RIGHTS
DLJdirect's success and ability to compete are dependent to a significant
degree on its proprietary technology. DLJdirect relies primarily on copyright
and trade secret law to protect its technology and trademark law to protect its
marks. Effective trademark protection may not be available for its trademarks.
DLJdirect does not own but licenses certain material marks from DLJ Long Term
Investment Corporation, an affiliate of Donaldson, Lufkin & Jenrette, Inc.,
which has obtained or is seeking to obtain registration protection for those
marks in the United States. In addition, it is in the process of registering
the DLJdirect mark in 35 countries worldwide. The inability of DLJ Long Term
Investment Corporation to protect DLJdirect's name adequately would have a
material adverse effect on DLJdirect's business, financial condition and
operating results.
20
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the information incorporated by reference includes
forward-looking statements. Some of the forward-looking statements can be
identified by the use of forward-looking words such as "believes," "expects,"
"may," "will," "should," "seeks," "approximately," "intends," "plans,"
"estimates," or "anticipates" or the negative of those words or other
comparable terminology. Forward-looking statements involve risks and
uncertainties. A number of important factors could cause actual results to
differ materially from those in the forward-looking statements. These factors
include systems failures, technological changes, volatility of securities
markets, government regulations, and economic conditions and competition in the
geographic and the business areas in which we conduct our operations. For a
discussion of factors that could cause actual results to differ, please see the
discussion under "Risk Factors" contained in this prospectus and in other
information contained in our publicly available SEC filings and press releases.
21
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements, and other information with the SEC.
Such reports, proxy statements, and other information concerning Donaldson,
Lufkin & Jenrette, Inc. can be read and copied at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the Public Reference Room. The SEC
maintains an Internet site at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the SEC, including Donaldson, Lufkin & Jenrette, Inc. The
common stock of Donaldson, Lufkin & Jenrette, Inc. is listed on the New York
Stock Exchange. Reports and other information concerning Donaldson, Lufkin &
Jenrette, Inc. can also be inspected at the office of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
This prospectus is part of a registration statement filed with the SEC by
us. The full registration statement can be obtained from the SEC as indicated
above, or from us.
The SEC allows us to "incorporate by reference" the information we file
with the SEC. This permits us to disclose important information to you by
referring to these filed documents. Any information referred to in this way is
considered part of this prospectus, and any information filed with the SEC by
us after the date of this prospectus will automatically be deemed to update and
supersede this information. We incorporate by reference the following documents
that have been filed with the SEC:
o Annual Report on Form 10-K for the year ended December 31, 1998 and all
amendments thereto;
o Report on Form 8-K filed on April 22, 1999.
We also incorporate by reference any future filings made with the SEC
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until we
file a post-effective amendment which indicates the termination of the offering
of the securities made by this prospectus.
We will provide without charge upon written or oral request, a copy of any
or all of the documents that are incorporated by reference into this
prospectus, other than exhibits which are specifically incorporated by
reference into such documents. Requests should be directed to Donaldson, Lufkin
& Jenrette, Inc., 277 Park Avenue, New York, New York 10172, Attention:
Corporate Secretary (Telephone: (212) 892-3000).
We intend to provide you with annual reports containing financial
statements relating to DLJdirect audited by our independent public accountants
and quarterly reports relating to DLJdirect for the first three fiscal quarters
of each fiscal year containing unaudited interim financial information, in each
case, accompanied by a discussion of such financial information and, in the
case of the annual report, including a summary of DLJdirect's business.
22
<PAGE>
USE OF PROCEEDS
We estimate that, after deducting estimated expenses and underwriting
discounts and commissions, we will receive net proceeds from the sale of the
DLJdirect common stock in this offering of approximately $193.5 million
(approximately $222.9 million if the underwriters exercise their over-allotment
option to purchase additional shares of DLJdirect common stock in full), at an
assumed initial public offering price of $14.00 per share, the midpoint of the
range set forth on the cover page of this prospectus. We will allocate the net
proceeds from 10,000,000 of the shares to DLJdirect, as if this were a primary
offering of common stock, and we will allocate the net proceeds from 5,000,000
of the shares to DLJ, as if this were a secondary offering of common stock of a
subsidiary owned by a parent. The net proceeds from any exercise of the
underwriters' over-allotment option will be allocated in the same proportions
(two-thirds to DLJdirect and one-third to DLJ). DLJdirect plans to use the
proceeds to repay a note issued to an affiliate prior to the offering and to
support its advertising budget of approximately $65 million for 1999. DLJdirect
has not allocated the balance of the proceeds for any specific purpose. Such
funds may be used to support DLJdirect's domestic and international expansion,
to permit additional advertising in future periods and for other general
corporate purposes. The note issued to an affiliate will be in an amount equal
to the total equity of DLJdirect Holdings Inc. at March 31, 1999, which was
$30.1 million, plus the accumulated retained earnings of DLJdirect Holdings
Inc. from April 1, 1999 until the end of the month preceding the offering. The
note will bear interest at a rate of approximately 5.50% per annum and will be
payable on demand.
DIVIDEND POLICY
We do not expect to pay any dividends for the foreseeable future on
DLJdirect common stock. We will, however, otherwise be permitted to pay
dividends on:
o DLJ common stock out of the assets of Donaldson, Lufkin & Jenrette,
Inc. legally available for the payment of dividends under Delaware law,
but the total amounts paid as dividends on DLJ common stock cannot in
general exceed the amount that would be legally available for the payment
of dividends under Delaware law if DLJ was a single, separate Delaware
corporation -- what we call the "available dividend amount" for DLJ, and
o DLJdirect common stock, out of the assets of Donaldson, Lufkin &
Jenrette, Inc. legally available for the payment of dividends under
Delaware law (and transfer corresponding amounts to DLJ in respect of its
retained interest in DLJdirect), but the total of the amounts paid as
dividends on DLJdirect common stock and the corresponding amounts
transferred to DLJ in respect of its retained interest in DLJdirect
cannot in general exceed the amount that would be legally available for
the payment of dividends under Delaware law if DLJdirect was a single,
separate Delaware corporation -- what we call the "available dividend
amount" for DLJdirect.
For more information on the "available dividend amount" for DLJ and
DLJdirect, see "Description of Capital Stock -- Dividends". We expect that
determinations to pay dividends on DLJdirect would be based primarily upon the
financial condition, results of operations, regulatory and business capital
requirements, any restrictions contained in financing or other agreements
binding upon us and other factors that the board of directors deems relevant.
23
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and total
capitalization of Donaldson, Lufkin & Jenrette, Inc. at March 31, 1999 and as
adjusted to reflect (1) the sale by Donaldson, Lufkin & Jenrette, Inc. of
15,000,000 shares of DLJdirect common stock pursuant to this offering, (2) the
re-classification of the existing common stock of Donaldson, Lufkin & Jenrette,
Inc. into DLJ common stock and (3) repayment of a note issued to an affiliate
prior to the consummation of this offering. The note issued to an affiliate
will be in an amount equal to the total equity of DLJdirect Holdings Inc. at
March 31, 1999, which was $30.1 million, plus the accumulated retained earnings
of DLJdirect Holdings Inc. from April 1, 1999 until the end of the month
preceding the offering. This table should be read in conjunction with the
combined financial statements and notes thereto appearing elsewhere in this
prospectus.
DONALDSON, LUFKIN & JENRETTE, INC.
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Commercial paper and short-term borrowings ......................... $ 349,844 $ 349,844
========== ==========
Long-term borrowings:
Senior notes, 6%-6.875% due various dates through 2008 ............ $2,039,324 $2,039,324
Medium-term notes, 5.402%-6.90% due various dates through 2016..... 1,161,403 1,161,403
Senior secured floating rate notes due 2005 ....................... 450,000 450,000
Global floating rate notes due 2002 ............................... 348,469 348,469
Subordinated exchange notes, 9.58% due 2003 ....................... 225,000 225,000
Other borrowings .................................................. 20,469 20,469
---------- ----------
Total long-term borrowings (1) .................................... 4,244,665 4,244,665
---------- ----------
DLJ-obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely debentures of DLJ ................. 200,000 200,000
---------- ----------
Stockholders' equity:
Preferred stock, 50,000,000 shares authorized:
Series A preferred stock, at $50.00 per share liquidation
preference (4,000,000 shares issued and outstanding) ........... 200,000 200,000
Series B preferred stock, at $50.00 per share liquidation
preference (3,500,000 shares issued and outstanding) ........... 175,000 175,000
DLJ common stock, $0.10 par value per share, 300,000,000 shares
authorized (124,510,367 shares issued and outstanding) .......... 12,448 12,448
DLJdirect common stock, $0.10 par value per share (as adjusted
15,000,000 shares issued and outstanding, and 85,000,000 notional
shares in respect of DLJ's retained interest)(2) ................ -- 1,500
Restricted stock units of DLJ common stock, 10,358,294 units
authorized (1,101,166 units issued and outstanding) ............. 11,277 11,277
Paid-in capital ................................................... 902,238 1,094,218
Retained earnings ................................................. 1,766,287 1,766,287
Accumulated other comprehensive income ............................ 1,871 1,871
Employee deferred compensation stock trust ........................ 13,591 13,591
Common stock issued to employee deferred compensation trust ....... (13,591) (13,591)
---------- ----------
Total stockholders' equity ...................................... $3,069,121 $3,262,601
========== ==========
Total capitalization ........................................... $7,513,786 $7,707,266
========== ==========
</TABLE>
- ----------
(1) Long-term borrowings include current maturities of long-term borrowings.
(2) The number of shares of DLJdirect common stock outstanding excludes
10,000,000 shares of DLJdirect common stock that have been reserved for
issuance under DLJdirect's stock option plan. At or prior to the
offering, it is anticipated that DLJ will grant options to purchase
approximately 6,500,000 to 7,000,000 shares of DLJdirect common stock.
See "Management -- DLJdirect 1999 Incentive Compensation Plan".
24
<PAGE>
DLJDIRECT
The following table sets forth the total capitalization of DLJdirect at
March 31, 1999 and as adjusted to give effect to (1) the allocated net proceeds
of 10,000,000 shares of DLJdirect common stock and the use of proceeds
therefrom and (2) repayment of a note issued to an affiliate prior to the
completion of this offering in an amount equal to the total equity of DLJdirect
Holdings Inc. at March 31, 1999, which was $30.1 million, plus the accumulated
retained earnings of DLJdirect Holdings Inc. from April 1, 1999 until the end
of the month preceding the offering.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Long-term debt .................. $ -- $ --
Equity:
Capital contributions ......... 26,002 128,987
Retained earnings ............. 4,095 --
------- --------
Total equity .................. 30,097 128,987
------- --------
Total capitalization ......... $30,097 $128,987
======= ========
</TABLE>
25
<PAGE>
SELECTED COMBINED FINANCIAL INFORMATION OF DLJDIRECT
The following selected combined financial information is qualified by
reference to, and should be read in conjunction with DLJdirect's combined
financial statements and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of DLJdirect"
contained elsewhere in this prospectus. The selected combined statements of
operations data for the years ended December 31, 1996, 1997 and 1998 and the
combined statements of financial condition data as of December 31, 1997 and
1998 are derived from DLJdirect's audited combined financial statements which
are included elsewhere in this prospectus. The selected combined statements of
operations data for the three months ended March 31, 1998 and 1999 and the
combined statements of financial condition data as of March 31, 1999 are
derived from DLJdirect's unaudited combined financial statements which are also
included elsewhere in this prospectus. The unaudited three-month selected
combined financial information reflects all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results of the interim periods. The
operating results for the three months ended March 31, 1998 and 1999 are not
necessarily indicative of the results to be expected for any other interim
period or any other future fiscal year. The selected combined statements of
operations data for the years ended December 31, 1994 and 1995 are derived from
the unaudited combined financial statements of DLJdirect which are not included
in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Commissions ......................... $ 28,491 $ 40,358 $ 54,166 $ 50,948 $ 78,717 $ 16,130 $ 32,054
Fees ................................ 3,797 5,067 6,426 12,109 25,484 5,140 9,596
Interest ............................ 1,858 1,846 2,569 4,160 13,723 2,787 5,552
-------- -------- -------- -------- --------- -------- ---------
Total revenues .................... 34,146 47,271 63,161 67,217 117,924 24,057 47,202
-------- -------- -------- -------- --------- -------- ---------
Costs and expenses:
Compensation and benefits ........... 5,422 7,362 11,202 17,174 28,260 5,759 10,683
Brokerage, clearing, exchange
and other fees .................... 9,567 11,709 15,422 20,909 28,423 6,071 8,854
Advertising ......................... 1,971 4,183 9,093 13,137 25,146 9,010 6,101
Occupancy and equipment ............. 1,175 1,437 1,923 3,352 5,045 1,081 1,503
Communications ...................... 791 1,025 1,468 2,844 5,564 1,189 2,705
Technology costs .................... 4,400 5,431 5,205 5,082 4,084 1,103 1,280
Other operating expenses ............ 3,164 4,507 5,567 10,844 18,934 3,660 4,815
-------- -------- -------- -------- --------- -------- ---------
Total costs and expenses .......... 26,490 35,654 49,880 73,342 115,456 27,873 35,941
-------- -------- -------- -------- --------- -------- ---------
Income (loss) before income tax
provision (benefit) ................. 7,656 11,617 13,281 (6,125) 2,468 (3,816) 11,261
Income tax provision (benefit) ....... 3,128 4,746 5,425 (2,502) 1,008 (1,559) 4,088
-------- -------- -------- -------- --------- -------- ---------
Net income (loss) .................... $ 4,528 $ 6,871 $ 7,856 $ (3,623) $ 1,460 $ (2,257) $ 7,173
======== ======== ======== ======== ========= ======== =========
Pro forma earnings per share of
DLJdirect common stock (1):
Basic and diluted ................... $ 0.01 $ 0.07
========= =========
Pro forma weighted average
shares of DLJdirect common
stock outstanding (1):
Basic and diluted ................... 100,000 100,000
========= =========
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------- MARCH 31,
1997 1998 1999
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENTS OF FINANCIAL CONDITION DATA:
Cash and cash equivalents ............. $ 8,881 $26,654 $47,825
Total assets .......................... 11,871 29,751 52,429
Long-term liabilities ................. -- -- --
Total equity .......................... 5,964 21,924 30,097
</TABLE>
<TABLE>
<CAPTION>
AS OF OR FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1994 1995 1996 1997 1998
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Total trades ....................... 475,000 660,000 929,000 1,535,000 2,875,000
Average trades per day ............. 1,900 2,600 3,700 6,100 11,400
Total customer assets .............. $1,300,000 $1,900,000 $2,500,000 $4,600,000 $8,900,000
Total accounts ..................... 153,000 207,000 280,000 390,000 529,000
Total active accounts (2) .......... N/A N/A 113,000 144,000 210,000
Total employees .................... 95 139 174 283 374
Total technology employees ......... 12 14 34 82 119
<CAPTION>
AS OF OR FOR
THE THREE
MONTHS ENDED
MARCH 31,
----------------------------
1998 1999
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OTHER DATA:
Total trades ....................... 580,000 1,230,000
Average trades per day ............. 9,500 20,200
Total customer assets .............. $5,900,000 $11,200,000
Total accounts ..................... 428,000 590,000
Total active accounts (2) .......... 161,000 243,000
Total employees .................... 287 466
Total technology employees ......... 86 128
</TABLE>
- ----------
(1) Share amounts include shares effectively owned by DLJ through its
retained interest in DLJdirect. Pro forma basic and diluted earnings per
common share amounts have been calculated by dividing net income
applicable to common shares by the pro forma weighted average common
shares outstanding.
(2) Active accounts consist of those accounts at the end of the related
period with at least one trade in the last twelve months or with a
balance at period end.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF DLJDIRECT
The following discussion of the financial condition and results of
operations of DLJdirect should be read in conjunction with the combined
financial statements and notes thereto included elsewhere in this prospectus.
This discussion contains forward-looking statements that involve risks and
uncertainties. DLJdirect's actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including, but not limited to, those set forth under "Risk Factors" and
elsewhere in this prospectus.
OVERVIEW
The online discount brokerage industry is experiencing substantial
competition from established financial services firms as well as new entrants
who are trying to establish their presence in the market quickly. As a result
of intense competitive pressures, the industry has experienced a significant
increase in brand development costs, a lowering of commission pricing and an
increase in content development costs. DLJdirect expects to spend significant
amounts in the future to develop much greater brand recognition within its
targeted market, to stay competitively priced and to develop new
state-of-the-art products and services. In particular, DLJdirect expects to
spend approximately $65 million on advertising in 1999. As a result, DLJdirect
believes that its advertising fees as a percentage of revenues will increase
significantly in 1999, and accordingly, that its financial results in the near
future will be adversely affected. It is expected that advertising costs will
increase during each remaining quarter of 1999, with the largest increases
expected to occur in the second half of the year. While the longer-term goal of
advertising will be to increase brand awareness and revenues, it is likely that
advertising costs as a percentage of revenues will increase throughout 1999.
The largest portion of DLJdirect's revenues consist of brokerage
commissions for acting as agent in securities transactions, including Nasdaq
and exchange-listed equities, options and mutual fund transactions. In June
1997, in order to increase significantly its customer base as well as overall
account activity, DLJdirect made a strategic decision to lower its base
commission for equity trades from $39.95 to $20.00 per trade. As a result,
commission revenues fell slightly in 1997 compared to 1996, but the average
number of trades per day increased 64.9% from 3,700 in 1996 to 6,100 in 1997.
In 1998 compared to 1997, commission revenues increased 54.6% to $78.7 million
and the average number of trades per day increased 86.9% to 11,400. DLJdirect
regularly reviews its commission rates as part of its ongoing strategy to
maintain its competitive position. DLJdirect believes that the recent increase
in trading activity is also due to the extensive growth in Internet commerce,
DLJdirect's advertising initiatives and increased activity in the securities
markets.
DLJdirect also earns fee income, which increased from $6.4 million in 1996
to $25.5 million in 1998. Fee income includes technology fees, order flow fees
and money market fund distribution fees, all of which are earned from
affiliates. Although the technology group at DLJdirect primarily serves the
growing needs of DLJdirect's business, DLJdirect also offers technology
products and services to third parties through DLJ as a means of reducing
internal development costs. Revenues from technology development are derived
from sales of Internet-based technology applications primarily to DLJ.
DLJdirect also earns fees for order flow through arrangements with Pershing to
receive cash payments in exchange for routing all of its orders to Pershing for
execution. Order flow payments on a per trade basis have declined in recent
periods due to regulatory changes imposing new order handling rules and there
can be no assurance that order flow revenues will continue. See "Risk Factors
- -- A change in payments for routing its customers' orders could adversely
affect DLJdirect".
DLJdirect also earns interest income, which increased from $2.6 million in
1996 to $13.7 million in 1998. Interest income consists of interest on margin
debt, free credit and short sale balances and earnings on its own cash
balances. DLJdirect participates in the interest spread on its customers' debit
and credit balances through its clearing agreement with Pershing. DLJdirect's
interest revenues increased significantly in 1998 due to significant growth in
client assets as well as more favorable interest sharing arrangements with
Pershing.
28
<PAGE>
Prior to 1999, DLJdirect received a nominal fee for the distribution of
IPO products, but it now receives customary selling concessions. As a result,
DLJdirect expects revenues associated with its distribution activities to
increase significantly in the remainder of 1999.
Brokerage, clearing, exchange and other fees represented 24.1% of
DLJdirect's total revenue in 1998. Clearing costs per trade were reduced under
the terms of an amendment to the clearing agreement between DLJdirect and DLJ
effective January 1, 1999. The amended agreement provides for volume discounts
and sliding scale payments taking into account the size of DLJdirect's business
and the level of services provided by Pershing. In particular, the per trade
clearing fee declines by 5.0% for clearing volumes in excess of 4,000,000
trades per year and by an additional 5.0% for clearing volumes in excess of
6,000,000 trades per year. The amended agreement also provides that such costs
will include an amount that represents payment to DLJ Long Term Investment
Corporation for the use of certain trademarks in the United States and certain
other jurisdictions. Brokerage, clearing, exchange and other fees as a
percentage of revenues declined significantly for the three months ended March
31, 1999, principally as a result of the amendment to the clearing agreement.
As a result of the revised clearing agreement as well as expected increases in
trading activity, DLJdirect expects that clearing costs will continue to
decline as a percentage of revenue in 1999.
Technology costs consist primarily of network access fees paid to online
service providers and fees related to systems maintenance and support. Although
the expenses included under "technology costs" are decreasing, the technology
services originally included in this expense category are increasingly provided
internally rather than by third-party service providers. Technology costs do
not include compensation of employees related to technology development. The
number of technology employees increased from 34 at December 31, 1996 to 119 at
December 31, 1998.
Other operating expenses include amounts allocated to DLJdirect by DLJ for
public relations, telecommunications, tax, internal audit, insurance, employee
benefits, human resources, legal, compliance, credit, general administrative,
accounting, treasury, library and record management, facilities, security and
custodial services. DLJ allocates these expenses using a proportional cost
methodology based on the relative number of employees and square foot usage of
DLJdirect or on actual costs incurred. Management believes that the amounts
allocated to DLJdirect are reasonable.
In January 1999, DLJdirect began operations in a 24,000 square foot
investor services facility in Charlotte, North Carolina. In April 1999,
DLJdirect entered into a lease for approximately 100,000 square feet in Jersey
City, New Jersey. DLJdirect intends to move its current Jersey City, New Jersey
headquarters to that space in the beginning of the third quarter of 1999 upon
the scheduled completion of renovation. As a result, DLJdirect expects to incur
an annual increase in occupancy costs of over $3.0 million, a portion of which
will be realized in 1999. The two moves are designed to accommodate a portion
of planned increases in business activity. In this connection, DLJdirect is in
the process of developing plans to acquire additional space to increase its
call center capacity significantly by the end of 1999. In addition, DLJdirect
is currently implementing fully redundant technology centers in order to
increase both system reliability and capacity. The centers are expected to be
operational in the third quarter of 1999. As a result, DLJdirect expects to
incur an additional annual increase in equipment costs of approximately $8.0
million, a portion of which also will be realized in 1999.
29
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenues
represented by certain items on DLJdirect's combined statement of operations
for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions ........................... 85.7% 75.8% 66.8% 67.0% 67.9%
Fees .................................. 10.2 18.0 21.6 21.4 20.3
Interest .............................. 4.1 6.2 11.6 11.6 11.8
----- ----- ----- ----- -----
Total revenues ....................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Costs and expenses:
Compensation and benefits ............. 17.8 25.6 24.0 23.9 22.6
Brokerage, clearing, exchange and
other fees ........................... 24.5 31.1 24.1 25.2 18.8
Advertising ........................... 14.4 19.5 21.3 37.5 12.9
Occupancy and equipment ............... 3.0 5.0 4.3 4.5 3.2
Communications ........................ 2.3 4.2 4.7 4.9 5.7
Technology costs ...................... 8.2 7.6 3.4 4.6 2.7
Other operating expenses .............. 8.8 16.1 16.1 15.3 10.2
----- ----- ----- ----- -----
Total costs and expenses ............. 79.0 109.1 97.9 115.9 76.1
----- ----- ----- ----- -----
Income (loss) before income tax
provision (benefit) ................... 21.0 ( 9.1) 2.1 (15.9) 23.9
Income tax provision (benefit) ......... 8.6 ( 3.7) 0.9 ( 6.5) 8.7
----- ----- ----- ----- -----
Net income (loss) ...................... 12.4% ( 5.4)% 1.2% ( 9.4)% 15.2%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31,
1998
DLJdirect experienced strong operating results for the three months ended
March 31, 1999 compared to the three months ended March 31, 1998, reflecting
primarily an increase in active accounts of 50.9% and customer trading volume
of 112.6%. Total revenues increased $23.1 million or 95.9% to $47.2 million for
the three months ended March 31, 1999 from $24.1 million for the three months
ended March 31, 1998. Net income increased $9.5 million to $7.2 million from a
net loss of $2.3 million, primarily resulting from strong revenue growth and
modest expense growth.
Commissions increased $16.0 million or 99.4% to $32.1 million. Commissions
represented 67.9% of total revenues for the three months ended March 31, 1999
and 67.0% of total revenues for the three months ended March 31, 1998. The
increase in commissions was due primarily to significant increases in customer
trading volume. Average trades per day increased 112.6% from 9,500 for the
three months ended March 31, 1998 to 20,200 for the three months ended March
31, 1999.
Fees increased $4.5 million or 88.2% to $9.6 million. Fees represented
20.3% of total revenues for the three months ended March 31, 1999 and 21.4% of
total revenues for the three months ended March 31, 1998. Payments for routing
orders increased $1.2 million or 60.0% to $3.2 million. The increase in
payments for routing orders was due primarily to significant increases in
customer trading volume, offset in part by a decline in the amount of revenue
per trade that DLJdirect receives for routing orders. Fees for technology
development increased $1.7 million or 68.0% to $4.2 million primarily due to
increased demand for Internet-based technology applications. Revenue from money
market fund distribution fees increased $511,000 or 86.8% to $1.1 million. This
growth was due to an increase in customer money market fund balances of $395.0
million or 83.8% to $866.2 million. The remaining fees for the three months
ended March 31, 1999 include payments in connection with public offerings,
subscription fees and account-related fees.
Interest increased $2.8 million or 100.0% to $5.6 million. Interest
represented 11.8% of total revenues for the three months ended March 31, 1999
and 11.6% of total revenues for the three months
30
<PAGE>
ended March 31, 1998. The increase was due primarily to more favorable interest
sharing arrangements with Pershing and to increases in margin debits, free
credits and short sale balances. Margin debits increased $306.3 million or
85.0% to $666.8 million. Free credits increased $226.0 million or 91.5% to
$473.1 million and short sale balances increased $11.4 million or 39.3% to
$39.7 million.
Compensation and benefits increased $4.9 million or 84.5% to $10.7
million. The increase in compensation and benefits was due primarily to growth
in the number of employees from 287 to 466. These additional employees were
added in DLJdirect's investor services area to accommodate increased customer
activity, as well as in DLJdirect's technology group to develop new products
including MarketSpeed (Trade Mark) .
Brokerage, clearing, exchange and other fees increased $2.8 million or
45.9% to $8.9 million. The increase in brokerage, clearing, exchange and other
fees was primarily due to significant increases in customer trading volume,
offset in part by lower clearing fees per trade resulting from reduced clearing
rates.
Advertising decreased $2.9 million or 32.2% to $6.1 million. The decrease
in advertising was due primarily to unusually large advertising expenditures
for the three months ended March 31, 1998. However, DLJdirect expects
advertising to increase sinificantly in the latter half of 1999. See
"--Overview".
Occupancy and equipment costs increased $422,000 or 39.1% to $1.5 million.
Occupancy and equipment expense includes rent and operating expenses for
facilities, expenditures for repairs and maintenance, and the expense for
furniture, fixtures, leasehold improvements as well as business and computer
equipment. The increase in occupancy cost was due to the opening of the
Charlotte, North Carolina investor services facility. The increase in equipment
costs was due primarily to additional investment in technology systems
infrastructure and equipment expenditures for the increased staff.
Communications costs increased $1.5 million or 125.0% to $2.7 million.
Communications expense includes quotation expenses, expenses related to
customer toll-free phone calls and Internet connections. Quotation expenses and
expenses related to customer toll-free phone calls both increased due to the
increased volume of transactions.
Technology costs increased $177,000 or 15.8% to $1.3 million. Technology
costs are comprised primarily of network access fees paid to online service
providers and fees related to systems infrastructure. Network access fees paid
to online service providers were reduced by $529,000 or 90.6% to $55,000 during
the three months ended March 31, 1999 due to renegotiated rates and due to
their partial reclassification to advertising expenses resulting from the
modified structure of an agreement. Fees related to systems maintenance and
support grew $706,000 or 142.9% to $1.2 million during the three months ended
March 31, 1999 due to increased business activity and initial support in the
United Kingdom.
Other operating expenses increased $1.1 million or 29.7% to $4.8 million.
Operating expenses are comprised of professional fees, printing and stationery,
economic and investment research, allocated corporate overhead and
miscellaneous expenses. For the three months ended March 31, 1998, other
operating expenses also included license fees of $927,000 paid to DLJ Long Term
Investment Corporation for licensing trademarks and similar intellectual
property. Commencing January 1, 1999, the license fees are included in
brokerage, clearing, exchange and other fees because such license fees are
included in amounts paid by DLJdirect to Pershing under its clearing agreement.
Professional fees primarily include payments made to technology and marketing
consultants, and for legal services. Professional fees increased $1.2 million
or 171.4% to $1.9 million primarily due to the development of advertising
strategies and the start-up operations in the UK and Japan. Miscellaneous
expenses increased $795,000 or 131.4% to $1.4 million. Miscellaneous expenses
consisted primarily of accruals for bad debt expense, employee registration
fees and expenses for new account credit checks.
Income before income tax provision increased $15.1 million from a loss of
$3.8 million for the three months ended March 31, 1998 to income of $11.3
million for the three months ended March 31,
31
<PAGE>
1999. The provision (benefit) for income taxes for the three months ended March
31, 1998 and for the three months ended March 31, 1999 was $(1.6) million,
representing a 40.9% effective tax rate, and $4.1 million, representing a 36.3%
effective tax rate, respectively.
As a result of the foregoing factors, net income increased to $7.2 million
for the three months ended March 31, 1999 from a net loss of $2.3 million for
the three months ended March 31, 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
DLJdirect experienced strong operating results in 1998 compared to 1997,
reflecting primarily an increase in active accounts of 45.8%. For 1998, total
revenues of $117.9 increased $50.7 million or 75.4%. Net income of $1.5 million
increased $5.1 million from a net loss of $3.6 million, primarily resulting
from strong revenue growth.
Commissions increased $27.8 million or 54.6% to $78.7 million. Commissions
represented 66.8% of total revenues in 1998 and 75.8% of total revenues in
1997. The increase in commissions was due primarily to significant increases in
customer trading volume attributable in part to a full year of activity at the
reduced $20 commission rate. Average trades per day increased 86.9% from 6,100
in 1997 to 11,400 in 1998.
Fees increased $13.4 million or 110.7% to $25.5 million. Fees represented
21.6% of total revenues in 1998 and 18.0% of total revenues in 1997. Payments
for order flow increased $3.4 million or 61.8% to $8.9 million. The increase in
payments for order flow was due primarily to significant increases in customer
trading volume. Increases in payments for order flow were offset in part by a
decline in the amount of revenue per trade that DLJdirect receives for order
flow. Fees for technology development increased $8.6 million or 179.2% to $13.4
million. The increase in fees for technology development reflects 1998 being
the first full year that such fees were collected. Revenue from money market
fund distribution fees increased $1.6 million or 100.0% to $3.2 million. This
growth was due to an increase in customer money market fund balances of $345.8
million or 84.7% to $754.3 million.
Interest increased $9.6 million or 234.1% to $13.7 million. Interest
represented 11.6% of total revenues in 1998 and 6.2% of total revenues in 1997.
The increase was due primarily to more favorable interest sharing arrangements
with Pershing and to increases in margin debits, free credits and short sale
balances. Margin debits increased $143.1 million or 43.8% to $469.8 million.
Free credits increased $201.5 million or 103.2% to $396.8 million and short
sale balances increased $19.4 million or 107.2% to $37.5 million.
Compensation and benefits increased $11.1 million or 64.5% to $28.3
million. The increase in compensation and benefits was due primarily to growth
in the number of employees from 283 to 374. These additional employees were
added in DLJdirect's investor services area to accommodate increased customer
activity, as well as in DLJdirect's technology group to develop new products
such as MarketSpeed (Trade Mark) .
Brokerage, clearing, exchange and other fees increased $7.5 million or
35.9% to $28.4 million. The increase in brokerage, clearing, exchange and other
fees was primarily due to significant increases in customer trading volume,
offset in part by lower clearing fees per trade resulting from reduced clearing
rates.
Advertising increased $12.0 million or 91.6% to $25.1 million. The
increase in advertising was due to increased expenditures on advertising
placement and creative development. DLJdirect increased its advertising
expenditures to continue developing the DLJdirect brand name, which was
launched in September 1997, and to continue acquiring new accounts. Advertising
expenditures were targeted at investors through a broad range of media
including television, radio, and print as well as significant online service
providers and popular Web sites such as America Online, the Microsoft Network
and Yahoo!.
Occupancy and equipment costs increased $1.7 million or 51.5% to $5.0
million. Occupancy and equipment expense includes rent and operating expenses
for facilities, expenditures for repairs and
32
<PAGE>
maintenance, and the expense for furniture, fixtures, leasehold improvements as
well as business and computer equipment. The increase in equipment costs was
due primarily to additional investment in technology systems infrastructure and
equipment expenditures for the increased staff.
Communications costs increased $2.7 million or 93.1% to $5.6 million.
Communications expense includes quotation expenses, expenses related to
customer toll-free phone calls and Internet connections. Quotation expenses and
expenses related to customer toll-free phone calls both increased due to the
volume of transactions.
Technology costs decreased $1.0 million or 19.6% to $4.1 million.
Technology costs are comprised primarily of network access fees paid to online
service providers and fees related to systems infrastructure. Network access
fees paid to online service providers were reduced by $2.2 million or 59.5% to
$1.5 million in 1998 due to renegotiated rates and due to their partial
reclassification to advertising expenses resulting from the modified structure
of an agreement. Fees related to systems maintenance and support grew $1.3
million or 100.0% to $2.6 million in 1998 due to increased system capacity.
Other operating expenses increased $8.1 million or 75.0% to $18.9 million
and are comprised primarily of a license fee, professional fees, printing and
stationery, economic and investment research, allocated corporate overhead, and
miscellaneous expenses. The license fee expense increased $4.0 million or
333.3% to $5.2 million. The license fee is paid to DLJ Long Term Investment
Corporation for licensing trademarks and similar intellectual property. License
fee payments were initiated in September 1997. Commencing January 1, 1999,
amounts paid by DLJdirect to Pershing include the license fee for the use of
certain of DLJ Long Term Investment Corporation's trademarks that are licensed
to DLJdirect in the United States and in certain other jurisdictions.
Professional fees primarily include payments made to technology and
marketing consultants, and employee recruiting expenses. Professional fees
increased $883,000 or 25.8% to $4.3 million due to increased advertising and
headcount. Printing and stationery decreased $158,000 or 7.7% to $1.9 million.
In 1997 printing and stationery expenses were increased in conjunction with the
renaming of the service from PC Financial Network to DLJdirect, which
necessitated the redesign and reprinting of all marketing materials and
customer correspondence stock. Economic and investment research increased $1.0
million or 333.3% to $1.3 million reflecting the fact that DLJdirect first
began paying for this research in the fourth quarter of 1997. Allocated
corporate overhead increased $841,000 or 45.2% to $2.7 million due primarily to
expenses related to the increased headcount. Miscellaneous expenses increased
$1.4 million or 70.0% to $3.4 million. Miscellaneous expenses consisted
primarily of accruals for bad debt expense, employee registration fees and
expenses for new account credit checks.
Income before income tax provision increased $8.6 million from a loss of
$6.1 million in 1997 to income of $2.5 million in 1998. The provision (benefit)
for income taxes for 1997 and 1998 was $(2.5) million and $1.0 million,
respectively, which represented a 40.9% effective tax rate for each period.
As a result of the foregoing factors, net income increased to $1.5 million
in 1998 from a net loss of $3.6 million in 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Total revenues increased $4.1 million or 6.5% to $67.2 million, reflecting
primarily an increase in active accounts of 27.4%. Total revenues increased
primarily as a result of fees and net interest income, partially offset by
decreases in commissions due to a change in DLJdirect's base commission rate.
Commissions decreased $3.3 million or 6.1% to $50.9 million. In June 1997,
DLJdirect lowered its base commission for equity trades from $39.95 to $20.00.
Although this significantly lowered the average commission charged to
customers, the increased new account generation and increased trading volume
brought commission revenues back to 1996 levels by fourth quarter 1997.
Fees increased $5.7 million or 89.1% to $12.1 million. Payments for order
flow increased $124,000 or 2.3% to $5.5 million. Although trading volume
increased significantly during 1997 from 929,000
33
<PAGE>
trades in 1996 to 1,535,000 in 1997, the order flow payment on a per trade
basis decreased due to regulatory changes imposing new order handling rules.
Revenue from money market fund distribution fees increased $609,000 or 61.5% to
$1.6 million. This increase was due to an increase in customer money market
fund balances from $115.5 million or 39.4% to $408.5 million. Fees for
technology development, collected for the first time in mid-1997, generated
$4.8 million during the year.
Interest increased $1.6 million or 61.5% to $4.2 million. The increase was
due primarily to more favorable interest sharing arrangements with Pershing and
to increases in margin debits, free credits and short sale balances. Margin
debits increased $187.0 million or 133.9% to $326.7 million, free credits
increased $64.8 million or 49.7% to $195.3 million and short sale balances
increased $2.2 million or 13.8% to $18.1 million.
Compensation and benefits increased $6.0 million or 53.6% to $17.2
million. The increase in compensation and benefits was due primarily to growth
in the number of employees from 174 to 283, a 62.6% increase.
Brokerage, clearing, exchange and other fees increased $5.5 million or
35.7% to $20.9 million. The increase in brokerage, clearing, exchange and other
fees was primarily due to significant increases in customer trading volume. On
a per trade basis, however, brokerage, clearing, exchange and other fees
decreased due to a reduction in the fee for clearing trades.
Advertising increased $4.0 million or 44.0% to $13.1 million. The increase
in advertising was due to increased expenditures on advertising placement and
creative development. DLJdirect spent $6.8 million in the fourth quarter of
1997 to launch the new brand name, "DLJdirect," and new products and services
including its redesigned Web site and access to DLJ Research and DLJ-managed
IPOs.
Occupancy and equipment increased $1.4 million or 70.0% to $3.4 million.
The increase in occupancy and equipment was due primarily to additional
equipment expenditures for increased staff from 174 to 283, a 62.6% increase.
Communications increased $1.3 million or 86.7% to $2.8 million. Quotation
expenses and expenses related to customer toll-free phone calls both increased
due to the growth of the business.
Technology costs decreased $123,000 or 2.5% to $5.1 million. Network
access fees paid to online service providers were $3.7 million in 1997 compared
to $4.4 million in 1996. Fees related to systems maintenance and support grew
to $1.4 million in 1997 from $800,000 in 1996 due to increased system capacity.
Other operating expenses increased $5.2 million or 92.9% to $10.8 million
and represented 16.1% of total revenues in 1997 and 8.8% of total revenues in
1996. The license fee expense, first paid in September 1997, was $1.2 million.
Professional fees increased $1.8 million or 112.5% to $3.4 million due to
increased expenditures for outside consultants and marketing services. Printing
and stationery increased $1.5 million or 250.0% to $2.1 million. In 1997
printing and stationery expenses were increased in conjunction with the
renaming of the service from PC Financial Network to DLJdirect which
necessitated the redesign and reprinting of all marketing materials and
customer correspondence stock. Economic and investment research expenses, first
incurred in the fourth quarter of 1997, were $307,000. Allocated corporate
overhead increased $730,000 or 62.4% to $1.9 million due primarily to expenses
related to the increased headcount. Miscellaneous expenses decreased $254,000
or 11.3% to $2.0 million.
Income before income tax provision decreased $19.4 million from $13.3
million in 1996 to a loss of $6.1 million in 1997. The (benefit) provision for
income taxes for 1996 and 1997 was $5.4 and $(2.5) million, respectively. This
represented a 40.9% effective tax rate for each period.
As a result of the foregoing factors, net income decreased to a net loss
of $3.6 million in 1997 from income of $7.9 million in 1996.
34
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of liquidity for DLJdirect's operations have been
paid-in capital, leases of fixed assets through an affiliate and revenues from
operations. Capital contributions amounted to $10.5 million in 1997, $14.5
million in 1998 and $1.0 million for the three months ended March 31, 1999. The
value of equipment acquired through leases of fixed assets through an affiliate
totaled $5.3 million in 1997, $5.0 million in 1998 and $1.6 million for the
three months ended March 31, 1999. These fixed assets were comprised primarily
of computers and related systems, furniture and leasehold improvements.
DLJdirect generally leases its fixed assets and therefore does not incur
significant capital expenditures.
Although DLJdirect maintains substantial money market accounts and bank
accounts consistent with regulatory requirements, DLJdirect continues to be
substantially dependent on DLJ for almost all of its daily financial,
administrative and operational services and related support functions including
cash management, the receipt of payments from third parties and the
distribution of payments to third parties. In this connection, inter-company
receivables/payables are settled periodically through cash transfers to and
from DLJdirect's accounts. However, after the issuance of the DLJdirect common
stock, cash transfers from DLJ to DLJdirect will be revolving credit advances
unless the board of directors decides, in its sole discretion, to account for
such transfers as long-term loans or capital contributions. Donaldson, Lufkin &
Jenrette, Inc. is not obligated to advance any amounts to DLJdirect. See
"Certain Cash Management and Allocation Policies".
Applicable law and regulations require minimum levels of capital to be
maintained by DLJdirect Inc., the broker-dealer subsidiary of DLJdirect
Holdings Inc. Consequently, the cash balances of DLJdirect Inc. may not be
available as a source of liquidity to support other aspects of the business of
DLJdirect. The SEC's Net Capital Rules are the primary regulatory restrictions.
DLJdirect continually reviews the capital in its broker-dealer subsidiary to
ensure that it meets these regulatory requirements and can appropriately
support the anticipated capital needs of the business. DLJdirect's right to
participate in the assets of any subsidiary is also subject to prior claims of
the subsidiary's customers and other creditors.
Cash provided by (used in) operating activities totaled $(600,000) and
$2.0 million in 1997 and 1998, respectively. The increase from 1997 to 1998 was
primarily due to an increase in transaction volume related to growth in the
discount brokerage operations. In 1997, receivables from brokers, dealers and
others increased $1.9 million. This increase in assets was offset by increases
in operating liabilities including payables to parent/affiliates, net of $2.0
million and accounts payable and accrued expenses of $2.6 million. In 1998,
there were increased assets including receivables from brokers, dealers and
others of $1.2 million. These increases were offset by an increase in payables
to parent/affiliates, net of $2.2 million. Cash provided by operating
activities totalled $20.2 million for the three months ended March 31, 1999.
In 1997 and 1998, net cash provided by financing activities totaled $9.6
million and $14.5 million, respectively. In 1997 and 1998, respectively, $10.5
million and $14.5 million was provided by capital contributions from DLJ. In
1997, DLJdirect paid $900,000 to DLJ for the return of equity. For the three
months ended March 31, 1999 net cash provided by financing activities totalled
$1.0 million.
DLJdirect believes that the net proceeds from this offering (after paying
the note to an affiliate), together with its current cash, cash equivalents and
cash generated from operations will be sufficient to meet its anticipated cash
needs for working capital and capital expenditures through at least the end of
2000.
YEAR 2000
DLJdirect has been actively engaged in addressing Year 2000 issues. Such
issues relate to potential problems resulting from non-Year 2000 compliant
systems processing transactions using two-digit date fields rather than four
digit date fields for the year of a transaction. If these systems are not
identified and reconfigured, Year 2000 transactions would be processed as year
"00," which could lead to processing inaccuracies and potential inoperability
and could have a material adverse effect on DLJdirect's business.
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<PAGE>
DLJdirect has undertaken a Year 2000 Project to identify and modify or
replace any non-Year 2000-compliant systems. The Year 2000 Project is focused
on both information technology and non-information technology systems. A
written Year 2000 Plan has been developed and DLJdirect believes it is taking
all steps necessary to achieve Year 2000 compliance.
DLJdirect has retained the services of three independent consulting firms
having considerable expertise in advising corporations on and remediating Year
2000 issues. The consultants were hired to address issues involving both
information and non-information technology systems.
The current state of DLJdirect's Year 2000 Project is as follows:
In the case of information technology, DLJdirect's internal computer codes
have been identified, assessed and remediated. The converted codes have been
running successfully in the current systems environment. The codes are further
tested monthly to insure continuing Year 2000 compliance; this testing will be
maintained until a date after December 31, 1999. An independent consultant, PKS
Systems Integration LLC, was contracted by DLJ's Pershing Division to perform
further application code assessment and code conversion. PKS reviewed all code
and produced analysis reports for DLJdirect to review. DLJdirect then approved
the code for conversion, and DLJdirect and PKS converted the code which is
being used in production as described above.
DLJdirect defines "significant third parties" as those parties that, if
lost or degraded by Year 2000-related failure, would cause an immediate
stoppage or significant impairment to business areas of DLJdirect. DLJdirect
has identified all significant third parties, such as vendors, online partners
and facility operators, and has formally communicated with significant third
parties asking them to report their state of readiness for Year 2000 use. All
significant third parties have responded, and approximately 56% of the
significant third parties claim their products and/or services are currently
Year 2000 compliant. DLJdirect believes that the remaining 44% of significant
third parties will be Year 2000 compliant by August 31, 1999. DLJdirect intends
to have in place a Year 2000 compliant back-up provider for products or
services it deems still in question. All significant third parties have
provided assurances that they are taking necessary steps to be Year 2000
compliant. Pershing has informed DLJdirect that it is taking steps to be Year
2000 compliant by August 31, 1999.
DLJdirect reviews all significant third party responses and technical data
about their Year 2000 efforts published on their Web sites to determine its
comfort with such parties progress in addressing their Year 2000 issues.
DLJdirect also participates whenever possible in point-to-point tests (i.e.
tests in which data is sent from DLJdirect to the third party and/or is sent
from the third party to DLJdirect) to ensure the compatibility of significant
third party systems with those of DLJdirect. DLJdirect is evaluating the
possibility of obtaining alternate vendors for back-up service in cases where
point-to-point testing is unavailable or produces unacceptable results.
DLJdirect has in general not sought representations or warranties from
third parties about their products or services' abilities to handle the Year
2000 issue without error. It has sought direct statements about a product's or
service's readiness and has accepted in-progress status reports. Some third
parties have stated, with conditions, that their services and/or products are
Year 2000 compliant. DLJdirect believes that these statements are likely to be
actionable if a failure of the product or service occurs within the limits of
the conditions stated. However, DLJdirect's main focus has been on
participating in testing programs, including testing with significant third
parties, as a means to addressing Year 2000 issues. DLJdirect's conclusion,
based upon its review of significant third party response to date, is that
DLJdirect must continue to test significant third-party products and services
up to and beyond December 31, 1999 and alternate services and products
available, if necessary.
In the case of non-information technology systems, analysis and testing by
Carlson Design/Construct Corp. has started but has not yet been completed; the
tests will be followed by the remediation, replacement, or back-up of all
non-information technology systems in order to render DLJdirect's
non-information technology systems Year 2000 compliant. Electronic Data
Services was hired to perform non-compute assessment, inventory, and
certification of DLJdirect's non-information technology systems.
36
<PAGE>
DLJdirect has initiated and is actively involved in various types of
testing, including the Securities Industry Association's industry-wide beta
testing and vendor-supplied business applications and equipment testing. For
each of the tests in which it has participated, DLJdirect has achieved
successful results. Throughout 1999, internal and external systems will
continue to be tested to ensure that all remediated systems remain compliant.
To date, DLJdirect has spent less than $1 million on the Year 2000-related
remediation of its sytems.
The Year 2000 issue includes many risks including the possibility that
DLJdirect's computer and non-information technology systems will fail.
DLJdirect cannot ensure that the schedule for compliance outlined above will be
met or that the systems of other companies on which DLJdirect depends will be
converted in a timely manner. Due to this uncertainty, DLJdirect is unable to
determine whether the Year 2000 will have a material impact on DLJdirect's
business, results of operations or financial condition.
DLJdirect's reasonable worst case Year 2000 scenario would involve the
loss of most of DLJdirect's significant critical functions, their back-ups and
alternate service and product choices coupled with loss of access to most
physical locations. This scenario would include, but not be limited to,
substantial loss of utilities in all three of DLJdirect's physical facilities,
its clearing services, the exchanges and Depository Trust Company, and the
failure of most of DLJdirect's telephone, data, and Internet connections.
DLJdirect, however, continues to regard this scenario as being highly unlikely.
DLJdirect is requiring key employees to be on site before, during and after
December 31, 1999. DLJdirect has a written contingency plan that addresses a
significant portion of the above referenced scenario.
PricewaterhouseCoopers was retained as an independent consultant to update
DLJdirect's Year 2000 Contingency plan. DLJdirect is taking steps to implement
PricewaterhouseCoopers' recommendations by December 31, 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DLJdirect's primary financial instruments are cash and cash equivalents.
This includes cash in banks and highly rated, liquid money market investments.
DLJdirect believes that such instruments are not subject to material potential
near-term losses in future earnings from reasonably possible near-term changes
in market rates or prices.
RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", which
requires all derivatives to be recognized in the statement of financial
condition at fair value. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999 and should be applied prospectively. The adoption of the
statement is not expected to have a material adverse effect on DLJdirect's
combined financial statements.
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BUSINESS OF DLJDIRECT
OVERVIEW
DLJdirect is a leading provider of online discount brokerage and related
investment services, offering customers automated securities order placement
and information and research capabilities through the Internet and online
service providers. DLJdirect's broad range of investment services is targeted
at self-directed, sophisticated online investors, who on average have higher
account balances than other online investors.
DLJdirect was one of the pioneers of online investing. DLJdirect started
in the online brokerage business in September 1988 under the name PC Financial
Network. In September 1997, PC Financial Network changed its name to DLJdirect
and relaunched its Internet site as DLJdirect
(www. DLJdirect.com). In its 10-year history, DLJdirect has frequently been
recognized as a high-quality provider of online brokerage services. Recent
industry awards include the following:
o Barron's 1999 Annual Survey of Online Brokers -- DLJdirect is rated the
number one online broker, based on criteria including trade execution,
reliability and range of services
o Gomez Advisors, Inc. -- DLJdirect was rated the number one overall
Internet broker for five of the last seven quarters, including the most
recent quarter
o TheStreet.com -- DLJdirect was selected the number one online broker
for reliability and ease of use in TheStreet.com's November 1998 reader
survey
DLJdirect's investment services and products include:
o online order entry for stocks, options, mutual funds and U.S. Treasury
securities
o access to selected DLJ-managed initial public offerings and other
public equity offerings
o company and industry research from DLJ
o DLJdirect MarketSpeed (Trade Mark) , its proprietary software with
enhanced graphics and greater ease of use permitting DLJdirect's
customers to access DLJdirect's online services an average of five times
faster than other major Internet brokers
o stock and mutual fund evaluation tools, including its proprietary
StockScan (Trade Mark) for screening over 9,500 public companies and its
proprietary FundScan (Trade Mark) for analyzing over 7,000 mutual funds
o research and analysis from independent research organizations,
including Standard & Poor's, Zacks Investment Research Incorporated and
Thomson Investors Network
o daily market commentary from TheStreet.com and Briefing.com
DLJdirect has experienced rapid growth in recent years:
o revenues increased 75.4% from $67.2 million in 1997 to $117.9 million
in 1998 and were $47.2 million during the first quarter of 1999
o the average number of trades executed each day increased 86.9% from
6,100 in 1997 to 11,400 in 1998 and was 20,200 during the first quarter
of 1999
o customer assets increased 93.5% from $4.6 billion in 1997 to $8.9
billion in 1998 and were $11.2 billion at March 31, 1999
The key elements of DLJdirect's strategy are as follows:
INCREASE PENETRATION OF DLJDIRECT'S TARGETED CUSTOMER BASE -- DLJdirect
focuses on self-directed, sophisticated online investors, who on average
maintain higher account balances than other online investors. DLJdirect
believes it can continue to attract targeted customers by:
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o building on the reputation of DLJ as a leading Wall Street firm,
o providing a wider range of DLJ financial products and services and
o maintaining high-quality investor service.
BUILD AND ENHANCE DLJDIRECT BRAND -- DLJdirect intends to increase the
awareness of the DLJdirect brand. As part of this strategy, DLJdirect plans
to increase significantly the amount it spends on marketing, from $25
million in 1998 to $65 million in 1999.
MAINTAIN LEADING TECHNOLOGY -- DLJdirect intends to upgrade its technology
continually to increase capacity, provide greater functionality and ease of
use and offer additional services.
CONTINUE TO BROADEN PRODUCT OFFERINGS -- While DLJdirect's primary products
and services will continue to be equity securities and mutual funds,
DLJdirect intends to broaden its offerings continually with additional
products and services offered by DLJ and its affiliated companies,
including AXA S.A., The Equitable Companies Incorporated, Alliance Capital
Management, L.P., DLJ Asset Management Group and The Sprout Group, as well
as unaffiliated financial services providers. DLJdirect also intends to
expand its relationships with online service and content providers to offer
additional products, including insurance, credit and mortgage products.
EXPAND ROLE AS AN INTERNET-BASED DISTRIBUTOR OF UNDERWRITTEN SECURITIES --
DLJdirect intends to increase its access to public offerings and use its
distribution capability by becoming an underwriter and manager of
securities offerings, including offerings that may not include DLJ.
EXPAND GLOBALLY -- DLJdirect intends to enter international markets
selectively, either directly or through alliances or joint ventures with
local partners. DLJdirect entered into a 10-year joint venture agreement
with Sumitomo Bank, the second largest bank in Japan, and expects to
commence operations in the UK during the second quarter of 1999.
DLJdirect's focus will be on large developed markets that permit it to
continue to capitalize on its relationship with DLJ, AXA and Equitable.
As used in this prospectus, the term "DLJdirect" does not represent a
separately incorporated entity but rather means those businesses, assets and
liabilities intended to represent Donaldson, Lufkin & Jenrette, Inc.'s online
discount brokerage and related investment services businesses.
INDUSTRY OVERVIEW
According to International Data Corporation, the total number of online
brokerage accounts has grown from a small number at the end of 1994 to 1.6
million at the end of 1996 and 3.7 million at the end of 1997. International
Data Corporation estimates that there were more than 6.4 million online
accounts at the end of 1998, representing $324.0 billion in assets and over
300,000 trades per day.
DLJdirect believes that the online brokerage industry is experiencing
rapid growth largely as a result of:
o the growing consumer acceptance of the Internet as a convenient, secure
and reliable method of conducting retail financial transactions;
o an increasing desire on the part of investors to take greater personal
control of their financial future;
o the lowering of commission prices for online brokerage transactions;
o an increasing amount of high-quality investment research and
information available on the Internet to assist investors in making their
trading decisions;
o the extensive media attention focused on the online brokerage
industry;
o increasing interest by retail investors in purchasing individual
stocks; and
o a favorable investing environment.
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SERVICES AND PRODUCTS
DLJdirect's existing services and product offerings are described below:
Stock, Options, Mutual Fund and Fixed Income Trading
Customers can directly place orders to buy and sell Nasdaq and
exchange-listed securities, as well as equity and index options, mutual funds
and fixed income securities, through DLJdirect's automated order processing
system. System intelligence automatically checks the parameters of an order,
together with the customer's available cash balance and positions held, prior
to executing an order. All transaction and portfolio records are updated to
reflect trading activity. Buy and sell orders placed when the markets are
closed are automatically submitted prior to the next day's market opening.
To date, DLJdirect has the only online account application submission and
approval process in the industry. After an online credit check, credit-approved
customers may buy securities of up to $15,000 in value without first depositing
any money into their accounts. In all instances, however, customers are
required to pay for purchases or post margin as required by Regulation T and
the rules of the NYSE.
Orders to trade Nasdaq and exchange-listed securities constituted 89.1% of
DLJdirect's total customer orders in 1998 and 91.5% of DLJdirect's total
customer orders in the first quarter of 1999. DLJdirect supports a range of
order types, including market orders, limit orders (good-till-canceled or day),
stop orders and short sales. Customers placing orders can use DLJdirect's
equity research tool, StockScan (Trade Mark) , to search, screen and profile
over 9,500 stocks from approximately 100 different industries online. Customers
can customize screening criteria and identify investment opportunities.
DLJdirect also offers an investment tool which suggests an asset allocation
between different types of equity and fixed income investments based on the
customer's investment objectives, risk tolerance, investment time-frame, and
income requirements.
Customer orders to buy and sell options constituted 9.5% of DLJdirect's
total customer orders in 1998 and 7.3% of DLJdirect's total customer orders in
the first quarter of 1999. DLJdirect typically does not offer option trading
involving the writing of uncovered puts or calls or the establishment of option
spreads or straddles to the majority of its customer base. DLJdirect does
maintain a few accounts that have been approved for this type of trading after
taking into consideration the high equity level within the accounts as well as
the customers' trading experience and investment objectives.
Customer orders to buy and sell mutual funds comprised 1.3% of DLJdirect's
total customer orders in 1998 and 1.2% of DLJdirect's total customer orders in
the first quarter of 1999. Customers can use DLJdirect's mutual fund research
tool, FundScan (Trade Mark) , to search, screen and profile over 7,000 mutual
funds, over 850 of which are available without transaction fees. As with
StockScan (Trade Mark) , customers can customize screening criteria and
identify investment opportunities.
DLJdirect offers its customers the opportunity to buy and sell fixed
income investment products including government, municipal and corporate bonds,
commercial paper, unit investment trusts, certificates of deposit and
collateralized mortgage obligations. Some bond trades may be placed directly
via computer, but other fixed income transactions may only be effected by
speaking with an investor service representative. Fixed income transactions
currently comprise less than 1% of all of DLJdirect's trade executions.
Market Data and Financial Information
During trading hours, DLJdirect continuously receives a direct feed of
detailed quote data, market information and news. Customers can create
personalized lists of stocks, options and mutual funds for quick access to
current pricing information. DLJdirect provides its customers free real-time
quotes, including stocks, options, major market indices, most active issues,
and largest gainers and losers for the major exchanges. DLJdirect also offers
customers subscription access to real-time streaming quotes which allow them to
monitor stock prices as they fluctuate -- without having to
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reenter a stock symbol or refresh the screen. Customers can also stay informed
at a glance using their own personal scrolling stock ticker. In addition,
customers can monitor stocks they own and stocks in their model portfolios as
well as display news headlines from a variety of sources. Customers are alerted
when there is current news on an identified stock or when a stock has reached a
pre-selected price threshold. Through its alliances, DLJdirect also provides
immediate access to breaking news, charts, market commentary and analysis and
company financial information. DLJdirect's Web site provides links to other
business and financial Web sites, including access to SEC filings of public
companies.
DLJ provides DLJdirect with online access to select DLJ research products
for distribution to all accounts for a 60-day trial period and thereafter to
customers who qualify by maintaining at least $100,000 in aggregate assets in
their DLJdirect accounts. Under the terms of its agreement with DLJdirect, DLJ
has agreed not to provide its research to any other online brokerage firm for a
period of three years. DLJ provides company and industry reports, economic,
global and market-related research as well as DLJ's select list of recommended
securities. See "Certain Relationships".
Portfolio Tracking and Records Management
Customers have online access to a listing of all their portfolio assets
held in their DLJdirect accounts. Customers using MarketSpeed (Trade Mark) may
receive a real-time listing of all their portfolio assets, including current
price and current market value. Detailed account balance and transaction
information includes cash and money fund balances, buying power, net market
value, dividends received, interest earned, deposits and withdrawals. Customers
can also create "model" portfolios to include most financial instruments a
customer is interested in tracking. These model portfolios can include stocks,
options, and most mutual funds. Customers also receive quarterly account and
annual tax statements and active customers receive monthly account statements
summarizing account activity, including asset valuation, transaction history,
interest income and distribution summary. DLJdirect's "Select Client Group"
customers (customers who meet minimum balance criteria) receive enhanced
statements including realized and unrealized gains on their investments.
DLJdirect's systems support the Open Financial Exchange (OFX) standard so that
customers may download their online account information into personal financial
software programs such as Intuit's Quicken 98 and 99, Microsoft's MSN
MoneyCentral Investor Portfolio, and Microsoft's Money 99.
Participation in Public Offerings
Customers maintaining accounts with aggregate assets of at least $100,000
have been eligible to gain access to IPOs managed by Donaldson, Lufkin &
Jenrette Securities Corporation since June 1997. Through April 20, 1999,
DLJdirect has participated in 38 DLJ-managed IPOs and two DLJ-managed
additional equity offerings. Prior to 1999, DLJdirect received a nominal fee
for distribution of IPO products but is now compensated as a regular member of
the selling group. DLJdirect intends to increase its staff and enhance its
capabilities in this area in response to increasing demand from retail
customers and from companies seeking electronic distribution of shares in their
own initial public offering.
DLJdirect is also looking to participate in selling groups for offerings
that may not be managed by DLJ. In addition, in April 1999, DLJdirect obtained
the necessary regulatory approvals to act as an underwriter of securities
offerings. DLJdirect may also consider in the future acting as an underwriter
for a broader array of securities offerings, including secondary equity
offerings, preferred stock offerings, and investment grade and high yield bond
offerings. DLJdirect intends to rely in part upon DLJ investment banking
professionals to perform services in connection with DLJdirect acting as a lead
manager in offerings. DLJdirect believes that relying upon DLJ as opposed to
hiring and developing a complete investment banking group internally will
minimize costs, unless and until underwriting volumes justify development of
complete internal capacity. See "Certain Relationships".
Cash Management Services
DLJdirect offers several cash management options. Customers may
participate in an asset management account, AssetMasterSM, combining their
brokerage account with free check writing and
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access to a Gold MasterCard debit card. DLJdirect also provides free check
writing drawn against money market funds, cash or margin balances. Funds in the
AssetMasterSM and brokerage checking accounts can be invested in one of 11
money market funds managed by Alliance Capital Management, L.P. Customers may
also earn interest on uninvested funds by investing in a money market fund or
participating in a credit interest program.
Mortgage Center
DLJdirect provides access to mortgage services for its customers through
an agreement with E-LOAN, Inc., an online mortgage broker. Users can take
advantage of efficient, easy-to-use tools to search for mortgage loan rates,
obtain customized quotes, compare loans and apply for a mortgage online. The
service operates through hyperlinks to the E-LOAN Web site.
Access and Delivery of Services
DLJdirect's services are widely accessible through multiple channels.
Personal Computer. Customers using personal computers can access DLJdirect
services and products through the Internet, online service providers, such as
America Online and Prodigy, or DLJdirect's proprietary Windows-based investing
software, DLJdirect MarketSpeed (Trade Mark) . The DLJdirect Web site combines
easy-to-use graphics with the trading capabilities, investing tools and
resources that sophisticated investors demand.
DLJdirect created its proprietary Windows-based investing software,
DLJdirect MarketSpeed (Trade Mark) , in order to enhance its customers'
experience with its Internet-based service. The software caches formatted data,
thus eliminating the need for constant Web page reloads, making DLJdirect
MarketSpeed (Trade Mark) an average of five times faster than other major Web
brokerage sites, according to Corporate Insight, Inc., an independent online
market research firm. Designed to be user-friendly, the software may be used
with real-time streaming quotes and market data by customers who qualify for
them by filling out an online application and agreeing to pay the exchange fees
for these quotes. The product enables DLJdirect's customers to use a variety of
customizable features and tools with better graphics and greater ease of use.
Touch-tone Telephone. TradeTalkSM, DLJdirect's touch-tone trading service,
provides customers with a convenient way to access quotes, place orders and
access portfolio information over toll-free lines from any touch-tone
telephone, 24 hours a day, 7 days a week.
Investor Services Telephone. DLJdirect's trading and investor service
centers may also be accessed 24 hours a day, 7 days a week, via a toll-free
telephone line staffed by licensed investor services representatives who will
take orders for securities transactions, and provide securities quotes, account
and portfolio information, customer service and technical support.
All orders placed via computer or interactive voice response are
automatically passed through system intelligence. This intelligence screens the
parameters of the order to ensure that DLJdirect can accept the order and route
it to the appropriate exchange or third party market maker.
TECHNOLOGY
DLJdirect maintains proprietary technology that automates traditionally
labor-intensive transactions. Because it was custom-tailored for electronic
marketplace use, the DLJdirect system provides customers with efficient service
and has the added advantage of being scalable and adaptable as usage increases
and service offerings are expanded.
DLJdirect also designs systems and software on a fee basis for DLJ and its
affiliates and, through them, for their customers. In addition, DLJdirect has
designed and developed Web sites for a number of leading financial
institutions. The technology group had 128 associates at March 31, 1999 who are
experienced in building easy-to-use, high performance, scalable systems and
have skills in a number of systems and programming technologies, including IBM
mainframe, Unix, Oracle, NT, C++, Java, and HTML. DLJdirect believes that there
is significant potential to exploit the technology developed by this group
commercially both through product sales and advisory services.
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DLJdirect has built proprietary financial services engines that can
interface with many technologies within a variety of delivery platforms such as
AOL, Prodigy, PDAs (personal digital assistants, or palm top devices), screen
phones, and touch-tone telephones. DLJdirect has also used these engines to
provide services and build products for DLJ, AXA and Equitable and other
financial institutions such as registered investment advisors and full-service
brokers. The infrastructure and the software components to support DLJdirect
have been applied in other contexts to minimize the technological costs to
DLJdirect.
The DLJdirect System
The primary components of DLJdirect include presentation layers,
middleware, application servers, system monitors, a compliance rules engine and
a customer server workstation.
Presentation Layer. The presentation layer provides DLJdirect with the
ability to offer its services on many platforms without the need to modify the
rest of its applications for each platform. Products using the presentation
layer include its Web site, DLJdirect MarketSpeed (Trade Mark) , FundScan
(Trade Mark) , StockScan (Trade Mark) and TradeTalkSM.
Middleware. DLJdirect's middleware connects all of the different
components of the environment and establishes language among the different
components. DLJdirect's proprietary technology allows these components to
function in different languages, hardware platforms and protocols. By load
balancing among different instances of the same component providing a specific
service, DLJdirect's middleware allows more reliability and makes the systems
environment more scalable. This technology also makes it easier for DLJdirect
to add capacity and maintain servers.
Application Servers. These servers provide DLJdirect's various services
and are optimized for each specific service. They can be configured in the same
machine, across multiple machines, or machines in multiple locations.
System Monitor. The system monitor is an expert system that monitors all
the different components every few minutes to make sure all are working
correctly. If it finds a problem, it can alert the appropriate DLJdirect
personnel and can, if possible, take actions to rectify the problem
automatically.
Compliance Rules Engine. The rules engine makes it possible to route
orders to the exchanges and market makers, and to approve accounts online
automatically without manual intervention.
Investor Service Workstation. The investor service workstation platform
provides the ability to process exceptions and answer e-mail effectively and
provides integrated access to information about customers and market data.
DLJdirect is making significant investments in systems technology and has
established technology centers in Jersey City, New Jersey, and, through its
relationship with an affiliate, in Florham Park, New Jersey. DLJdirect also
maintains three investor service centers in Jersey City and Parsippany, New
Jersey, and Charlotte, North Carolina. These facilities support systems,
network services, trading, investor services and backup capabilities between
the multiple locations. DLJdirect is currently implementing fully redundant
technology centers which are expected to be operational in the third quarter of
1999. To provide for system continuity during potential outages, DLJdirect also
has equipped its computer facilities with uninterruptible power supply units,
as well as back-up generators.
A significant risk to online commerce and communication is the insecure
transmission of confidential information over public networks. DLJdirect relies
on encryption and authentication technology, including public key cryptography
technology licensed from RSA Data Security and Netscape Communications
Corporation, to provide the security and authentication necessary to effect
secure transmission of confidential information. Features ranging from
firewalls to routers and servers are used in many layers to prevent
unauthorized access. See "Risk Factors -- DLJdirect's networks may be
vulnerable to security risks".
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MARKETING
DLJdirect's marketing strategy is based on an integrated marketing model
which employs a mix of communications media. The goals of DLJdirect's marketing
programs are to increase its brand name recognition, attract new customers,
increase the retention and value of existing customers, and activate currently
inactive accounts. In particular, its brand strategy strives to communicate a
consistent message to consumers through multiple marketing venues. DLJdirect
pursues its marketing goals through advertising, marketing on its own and other
Web sites, direct one-on-one marketing, public relations, and co-marketing
programs.
DLJdirect targets its services at the self-directed, sophisticated
investor who currently has an account with a full-service broker. The DLJdirect
target investor generally has online access either at home or at the workplace
and tends to track portfolio performances online. DLJdirect believes that its
targeted investors value the types of services and benefits that DLJdirect has
to offer, such as access to DLJ research reports and DLJ-managed public
offerings.
Advertising
DLJdirect's advertising focuses on building awareness of the DLJdirect
brand, products and services and positions DLJdirect as a better way of
executing securities transactions, accessing financial and market data, and
managing portfolios for the individual investor. Print advertisements are
placed in a broad range of business, technology and financial publications,
including Barron's, Forbes, Forbes ASAP, Investor's Business Daily, Money,
Smart Money, The Wall Street Journal and Fortune. DLJdirect also advertises
regularly on national cable and television networks such as CNBC, CNN Headline
News, CNNfn and on national radio networks including National Public Radio.
DLJdirect also advertises online on the America Online service and on sites
such as MSN.com, CBS.MarketWatch.com and TheStreet.com. Through the DLJdirect
Web site, prospective customers can get detailed information on DLJdirect's
services, use an interactive demonstration system, request additional
information and complete an account application online.
STRATEGIC RELATIONSHIPS
DLJdirect pursues strategic relationships to increase its access to online
consumers, build brand name recognition and expand the products and services
DLJdirect can provide to its online investors.
CORE BUSINESS EXPANSION
DLJdirect has secured or is actively pursuing alliances with (1) Internet
access and service providers, (2) Internet content providers, (3) providers of
online banking services, and (4) electronic commerce companies. These alliances
are intended to increase DLJdirect's core customer base, transaction volume and
operational efficiency and to enhance further its brand name recognition. While
a majority of DLJdirect's customers access its services directly through the
Internet, direct modem access or touch-tone telephone, many use online service
providers, such as America Online and Prodigy. Strategic relationships with
service providers allow DLJdirect to access a greater number of potential
customers and allow the online service providers to offer their subscribers a
broader range of service options. DLJdirect's partnerships with leading content
providers fulfill customers' information needs and help drive transaction
volume.
NEW ACCOUNT DEVELOPMENT AND DISTRIBUTION
DLJdirect has developed alliances with key online services and popular Web
sites to increase account development and expand distribution. These include
proprietary online services, Internet service providers, search engines and
financial content providers. They attract significant numbers of users, and
DLJdirect's relationships provide access to expanded market opportunities. Set
forth below are descriptions of several of DLJdirect's key alliances:
America Online. In 1995, DLJdirect entered into a business relationship
with America Online ("AOL"), a provider of Internet access and content that
allows access to DLJdirect's Web site from
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the AOL Personal Finance channel. DLJdirect is one of four exclusive brokerage
sponsors of that channel and the only online brokerage firm to build a
customized platform within AOL's proprietary Remote Managed Gateway technology.
The agreement with AOL provides for extensive marketing and promotional
programs across AOL properties.
Prodigy. DLJdirect has had a business relationship with Prodigy
Communications, Inc., a provider of Internet access and content, since 1988.
Currently, DLJdirect maintains a presence on the Prodigy Classic service,
acting as an information and transaction provider. DLJdirect advertises on
Prodigy Internet, including a position on its home page, to market its
financial services to Prodigy's approximately 500,000 users. DLJdirect's
Prodigy Classic service will terminate in the third quarter of 1999 and
DLJdirect intends to encourage customers to adopt other means of access.
MSN.com. DLJdirect has developed a number of key relationships with
Microsoft Corporation that are designed to promote DLJdirect's online investing
services on the Microsoft Network. In January 1999, DLJdirect entered into a
one-year advertising agreement, pursuant to which MSN.com provides for
advertising of DLJdirect's brokerage services on the MSN Web site and for a
direct link to DLJdirect's Web site. DLJdirect is one of three exclusive broker
participants in the "MSN Broker Package."
TheStreet.com. In 1997, DLJdirect entered into an agreement with
TheStreet.com, an Internet site which provides financial news and commentary.
Pursuant to the agreement, DLJdirect displays TheStreet.com's market report
titles on its Internet sites, AOL site, and MarketSpeed (Trade Mark) software,
through which DLJdirect users can link directly to The Street.com's Web site
containing the full text of market reports. In return, TheStreet.com offers
DLJdirect's account holders discounted subscriptions for its Internet services.
MarketWatch.com. DLJdirect has entered into an agreement with
MarketWatch.com, Inc., a leading Web-based provider of real-time business news,
financial programming and financial analysis tools. The agreement provides for
a direct link to DLJdirect's Web site from MarketWatch.com, Inc. and
advertising on both MarketWatch.com, Inc. and the CBS television network.
CONTENT
Content such as news, quotes, charts and fundamental data helps provide
investors with the information necessary to make investment decisions.
DLJdirect believes that these information services fulfill customers'
information needs, facilitate new ideas and increase transaction volume.
Bridge Information Systems America. Bridge Information Systems America,
Inc. (formerly Telesphere Corporation) provides DLJdirect with delayed and
real-time quotes on U.S. securities.
Business Wire. Business Wire provides DLJdirect with company press
releases for use on its Web site.
Charter Media/Briefing.Com. Charter Media/Briefing.Com provides DLJdirect
with daily financial data, reports, and services which support its online
market commentary and stock analysis areas.
ILX Systems. Through one of its affiliates, DLJdirect has a relationship
with ILX Systems, Inc. to provide real-time quotes on U. S. securities.
Iverson Financial Systems. Iverson Financial Systems Inc. provides
DLJdirect with securities data that support its online historical indices and
historical charts areas.
Lipper. Lipper Inc. provides DLJdirect with quarterly and monthly mutual
fund data.
PR Newswire. PR Newswire Association, Inc. provides DLJdirect with company
press releases for use on its Web site.
Reuters NewMedia. DLJdirect has an agreement with Reuters NewMedia, Inc.
to provide Reuters news on DLJdirect's Web site.
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Standard & Poor's. Standard & Poor's provides DLJdirect with securities
data and reports.
Thomson Investors Network. Thomson Investors Network provides DLJdirect
with securities data regarding insider/institutional holdings and insider
trading along with financial commentary and analysis.
Zacks Investment Research. Zacks Investment Research Incorporated provides
DLJdirect with securities research data.
INTERNATIONAL
DLJdirect intends to enter international markets selectively, either
directly or through alliances or joint ventures with local partners.
DLJdirect's focus will be on large developed markets that permit it to
capitalize on its relationship with DLJ and AXA.
DLJdirect Japan. In March 1999, DLJdirect entered into a 10-year joint
venture agreement with Sumitomo Bank, the second largest bank in Japan.
Pursuant to the agreement, a Japanese corporation ("DLJdirect SFG Securities
Inc.") was formed, and it commenced operations as of April 1, 1999. DLJdirect
has a 50% interest in the joint venture and in DLJdirect Japan.
Through DLJdirect Japan, DLJdirect intends to offer online discount
brokerage, including securities trading, investment trusts and money market
funds to Japanese investors. DLJdirect Japan is initially expected to provide
investors with the ability to invest in Japanese securities. However, over the
longer term DLJdirect expects to offer Japanese investors access to U.S.
securities, including investment products offered by DLJ and its affiliates.
DLJdirect Japan initially will be capitalized with an aggregate of
approximately -3 billion (estimated to be $25 million at March 12, 1999) from
the member companies.
DLJdirect UK. DLJdirect expects that its online UK discount brokerage
service ("DLJdirect UK") will begin operations in the second quarter of 1999.
DLJdirect UK has contracted with an affiliate, Pershing Securities Limited, for
execution and clearing services. DLJdirect UK intends initially to provide
investors with the ability to invest in UK equities. Additional UK financial
products are expected to be added later. Over the longer term, DLJdirect UK
intends to offer UK investors access to U.S. and continental European
securities as well, including investment products offered by DLJ and its
affiliates.
Other. Outside of the UK and Japan, DLJdirect is exploring alliance and
joint venture opportunities in a number of key international markets, including
Australia, Belgium, Canada, France, Germany, Hong Kong, Israel, Italy, Korea,
South Africa and Taiwan.
SERVICES TO INVESTMENT ADVISORS
DLJdirect believes that a market for its services exists among registered
investment advisors who seek online access to the securities markets in order
to execute transactions for client accounts. DLJdirect intends to explore this
business opportunity in the future by either
o building the capacity itself;
o purchasing it from an affiliate of DLJ; or
o purchasing it from a third party.
The registered investment advisor services business is extremely competitive
and there can be no assurance that entry by DLJdirect, if undertaken at all,
will be successful.
CUSTOMER SERVICE
DLJdirect believes that providing excellent service to its customers is
crucial to its success. DLJdirect believes that it has achieved an excellent
record of effective investor service. DLJdirect's investor service team helps
investors access its service online, handles product and service inquiries, and
deals with all brokerage and technical questions. Investor service
representatives assist investors
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in placing trades both online and by telephone. At any time of the day or
night, investors may access their accounts and make investment decisions even
when they are away from their PCs.
DLJdirect is highly dependent on Internet-based technologies and services,
and DLJdirect has from time to time experienced significant interruptions in
these technologies and services which have adversely affected overall investor
service. The extremely high trading volumes of 1998 and to date in 1999
continue to challenge DLJdirect's investor service capacity. DLJdirect has on
occasion fallen short of its target response time for investor service calls
and e-mails, especially during peak trading hours. See "Risk Factors -- System
limitations and failures could harm DLJdirect's business".
Telephone and E-mail Support and Technology
Telephone support is available 24 hours a day, 7 days a week, and
currently there are no additional fees charged to investors for this service.
DLJdirect maintains toll-free 800 numbers, and callers may request to speak
with investor service representatives on either a trading team or an investor
service team, or choose to use DLJdirect's proprietary interactive voice
response system, TradeTalkSM. DLJdirect's trained investor service
representatives are based in three state-of-the art investor service centers in
Jersey City and Parsippany, New Jersey, and Charlotte, North Carolina. The
geographic distribution of the investor service centers helps to minimize the
risk that telecommunications or other technology failures, or weather-related
or other natural or man-made disasters will interfere with the investor's rapid
access to an investor service representative. At April 1, 1999, 288
representatives made up DLJdirect's investor service team, and DLJdirect plans
to expand this number to 800 by the end of 1999.
The telephone systems in all three investor service centers are
state-of-the-art and designed along "open architecture" lines that permit
continual upgrades of both hardware and software with a minimum of disruption
and expense. New releases of both programs and equipment are integrated into
the investor service line only after adequate testing and training to insure
continuity of operations. DLJdirect's TradeTalkSM currently handles
approximately 50% of incoming calls and thus greatly reduces the volume of
calls which must be handled by representatives. This in turn reduces wait times
during high volume trading hours and helps to reduce overall investor service
costs. Investors can get their account balances, check on order status, get
delayed securities quotes, and place trades through this automated system.
Among the advanced features of DLJdirect's Automated Call Distribution
system is skill-based routing, which allows investors to follow telephone
prompts which then route their calls to the investor service team which
specializes in the appropriate area. The quality of service is thus improved,
as the investor is more likely to receive help from a representative who has
the particular expertise required to handle each individual call. The ACD
system also automatically produces routing and management reports that aid
supervisors in optimizing the efficiency of their manpower allocations.
Electronic mail is the other principal method of providing investor
support. All investor service representatives are trained to respond to
investor requests using both pre-composed and original e-mails. Further,
DLJdirect has installed an enhanced state-of-the-art automated e-mail response
system, to be fully operational by May 1999, which will save on personnel costs
and improve response times. The enhanced system will respond to many types of
customer investor e-mails with a high degree of accuracy and appropriateness.
As an important safeguard, all e-mail responses, whether generated by the
automated system or an investor service representative, will be reviewed by an
investor service manager, as is done under DLJdirect's current, non-automated
e-mail protocols. By the end of 1999, DLJdirect expects that the enhanced
automated system will respond to all e-mails routed through it promptly but in
any event within 12 hours, and that a significant percentage of all customer
e-mails will be handled entirely by the automated system.
Personnel and Training
DLJdirect believes that a key component of an efficient and motivated
investor service team is its training. It is committed to providing the best
available training to its investor service representatives in an ongoing
program that focuses on career development and therefore aids in the retention
of skilled and motivated personnel.
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New investor service employees take a 3-month initial course that trains
them in DLJdirect's products, services, and policies. All investor service
representatives are required to be appropriately licensed or to enter
DLJdirect-sponsored training to receive that license. Both the team members and
their supervisors receive continuing training to enable them to become
qualified in specialized areas, such as Select Client Services, Customer
Retention and IRA accounts. In 1998, DLJdirect implemented a mandatory training
program for all investor service representatives, under which DLJdirect staff
must attend a minimum of 20 hours of DLJdirect-sponsored training programs per
year in customer service, securities, and technology subjects.
Investor service managers silently monitor investor service calls and
remotely monitor investor service e-mails as a means of improving training and
customer satisfaction. All investor service representatives undergo both
monthly and annual performance reviews which gauge their knowledge of
DLJdirect's products and services, their level of teamwork, their work ethic
and personal objectives, and above all their ability to deliver customer
satisfaction. DLJdirect pays performance-based bonuses that reflect training
evaluations and performance reviews.
DLJdirect has experienced periods of staffing shortages in various areas
within its investor service team, along with substandard performance on the
part of individual investor service representatives. Given the current
extremely high levels of competition to hire competent personnel within the
U.S. brokerage, online, and financial services industry sectors, absent a
strong and sustained effort on DLJdirect's part to identify, hire, train, and
retain the best available people for its investor service operations, there
exists substantial risk to DLJdirect's ability to maintain and increase its
overall business. See "Risk Factors -- DLJdirect depends on key personnel".
OPERATIONS
Clearing
DLJdirect is an introducing broker-dealer, clearing through the Pershing
Division of DLJ on a fully disclosed basis. Pershing and its affiliates provide
execution and clearance services for equities, options, corporate bonds,
municipal bonds, treasury bonds, government agency bonds, precious metals,
mortgage backed bonds, mutual funds and unit investment trusts. In addition,
Pershing provides certain record keeping and operational services, including
custody of securities and cash balances settlement of securities transactions
and custody of securities and cash balances. Pershing receives and delivers
cash and securities for accounts and records such receipts and deliveries
according to information provided by DLJdirect. Pershing holds in custody
securities and cash received for accounts, collects and disburses dividends and
interest, and processes reorganization and voting instructions with respect to
securities held in custody. Pershing is responsible for the custody of the
funds and securities only after Pershing obtains physical possession or control
thereof. Pershing also prepares and transmits to customers confirmations of
trades and periodic account statements summarizing transactions processed for
accounts.
The services provided by Pershing are governed by a clearing agreement
dated as of September 24, 1997, as amended. DLJdirect has general
responsibility for servicing and supervising securities accounts through its
own personnel in accordance with its own policies and applicable laws and
regulations. DLJdirect is also responsible for approving the opening of
customer accounts and obtaining necessary account documentation. DLJdirect is
in general responsible for the ongoing relationship that it has with customers.
The clearing agreement also provides for the payment of a license fee. The
trademark license fee included in the clearing fee does not include the use of
certain trademarks in certain foreign jurisdictions, the use of which will be
negotiated on a case by case basis. See "-- Certain Relationships -- Other
Transactions with DLJ".
Margin Lending
At the request of DLJdirect, Pershing makes loans to customers
collateralized by customer securities. Pershing extends credit for the margin
accounts of DLJdirect, and notifies DLJdirect of
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initial and maintenance margin calls. If DLJdirect opens a margin account for a
customer, Pershing will loan money for the purpose of purchasing or holding
securities subject to the terms of Pershing's Margin Agreement and Pershing's
margin policies and applicable margin regulations. DLJdirect is responsible for
obtaining the initial margin as required by Regulation T. Thereafter, Pershing
will calculate the amount of maintenance margin required. Pershing advises the
customer of those requirements, usually through DLJdirect, and calculates the
interest charged on the debit balance, if any. Pershing charges customer
accounts the margin interest and repays DLJdirect a portion of the interest
collected. DLJdirect receives from Pershing a portion of the financial benefits
arising from free credit balances in customer accounts.
In permitting customers to purchase securities on margin, DLJdirect takes
the risk of a market decline that could reduce the value of the collateral held
to below the customers' indebtedness before the collateral can be sold, which
could result in losses to DLJdirect. In the event of a decline in the market
value of the securities in a margin account, the customer is required to
deposit additional securities or cash in the account so that at all times the
customer's equity in the account is at least 25% of the value of the securities
in the account. DLJdirect may impose initial and maintenance margin
requirements for specific securities.
SECURITIES LENDING AND BORROWING
In connection with the margin and short account activities of customers of
DLJdirect, Pershing borrows securities both to cover short sales and to
complete customer transactions in the event a customer fails to deliver
securities by the required settlement date. Pershing collateralizes these
borrowings by depositing cash or securities with the lender and receives a
rebate calculated to yield a negotiated rate of return. When lending
securities, Pershing receives cash or securities and generally pays a rebate to
the other party in the transaction at a rate calculated to yield a negotiated
return. Securities lending and borrowing transactions are executed pursuant to
written agreements with counterparties that require that the securities
borrowed be "marked-to-market" on a daily basis and that excess collateral be
refunded or that additional collateral be furnished in the event of changes in
the market value of the securities. The securities usually are
"marked-to-market" on a daily basis through the facilities of the various
national clearing organizations. Pershing pays DLJdirect a portion of the
rebate interest or fees earned in these activities relating to customers of
DLJdirect.
RELATIONSHIP WITH DLJ
DLJdirect will be operated as a separate company from DLJ. However, as a
result of DLJdirect's extensive business relationships with DLJ, conflicts of
interest are likely to develop between DLJdirect and DLJ or its affiliates.
Although DLJdirect has its own management team, the senior officers of
DLJdirect ultimately report to the management of DLJ. In addition, the board of
directors of Donaldson, Lufkin & Jenrette, Inc. will in general make
operational and financial decisions and implement policies that affect the
business of both DLJ and DLJdirect. In some cases these decisions may favor DLJ
to the detriment of DLJdirect. The board of directors of Donaldson, Lufkin &
Jenrette, Inc. is primarily composed of directors and/or executive officers of
DLJ and its affiliates and does not include any members of the management of
DLJdirect.
The board of directors of DLJ has adopted certain cash management and
allocations policies with respect to intercompany transfers and other
allocations between DLJ and DLJdirect. DLJdirect will in general remit its cash
receipts to DLJ, and DLJ will in general fund DLJdirect's cash disbursements on
a daily basis. See "Certain Cash Management and Allocation Policies".
Prior to the consummation of this offering, DLJ intends to reconstitute
the board of directors of DLJdirect Holdings Inc. ("Holdings"), the corporate
entity that currently owns a substantial majority of the assets of DLJdirect.
Shortly after the consummation of the offering, DLJ intends to add two outside
directors to the board of directors of DLJdirect Holdings Inc. DLJ's current
intent is to submit all significant transactions, including significant
"intercompany" transactions between DLJ and DLJdirect, for approval by the
board of directors of Holdings. The decisions of the board of both DLJ
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and Holdings would be subject to the board of directors general fiduciary duty.
However, there can be no assurance that transactions between DLJdirect and DLJ
could not be effected on more favorable terms with unaffiliated, third parties.
COMPETITION
The market for online investing services, particularly over the Internet,
is new, rapidly evolving and intensely competitive, and DLJdirect expects
competition to continue to intensify in the future. DLJdirect encounters direct
competition from discount brokerage firms providing either touch-tone telephone
or online investing services, or both. These competitors include Ameritrade,
Inc.; Charles Schwab & Co., Inc.; Datek Online; Discover Brokerage Direct,
Inc.; E*TRADE Securities, Inc.; Fidelity Brokerage Services, Inc.; Quick &
Reilly, Inc.; and Waterhouse Securities, Inc. It also encounters competition
from established full-commission brokerage firms, such as Merrill Lynch,
Pierce, Fenner & Smith Incorporated and PaineWebber Incorporated, among others.
In addition, DLJdirect competes with financial institutions, mutual fund
sponsors and other organizations, some of which provide online investing
services.
DLJdirect believes that the principal competitive factors affecting the
market for its transaction-enabling services are service, quality, cost,
execution, delivery platform capabilities, ease of use, graphical user
interface look and feel, depth and breadth of services and content, financial
strength and innovation. Based on research conducted with both customer and
non-customer focus groups and the level of activity DLJdirect continues to
experience, DLJdirect believes that it presently competes favorably with
respect to each of these factors.
Some of DLJdirect's competitors have significantly greater financial,
technical, marketing and other resources than DLJdirect thereby gaining market
share to DLJdirect's detriment. Some current and potential competitors also
have greater name recognition and more extensive customer bases. Additionally,
it is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share.
The general financial success of companies within the online securities
industry over the past several years has strengthened existing competitors.
Management believes that this success will continue to attract new competitors
to the online securities industry such as banks, software development
companies, insurance companies, providers of online financial and information
services and others, as such companies expand their product lines. The current
trend toward consolidation in the commercial banking industry could further
increase competition in all aspects of DLJdirect's business. While it is not
possible to predict the type and extent of competitive services that commercial
banks and other financial institutions ultimately may offer or whether
administrative or legislative barriers will be repealed or modified, firms such
as DLJdirect may be adversely affected by competition or legislation. In
addition, competition among financial services firms exists for experienced
technical and other personnel.
There can be no assurance that DLJdirect will be able to compete
effectively with current or future competitors or that the competitive
pressures faced by it will not have a material adverse effect on its business,
financial condition and operating results. See "Risk Factors -- Substantial
competition could reduce DLJdirect's market share and harm its financial
performance".
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
DLJdirect holds significant value in its proprietary products and services
and its right to use certain marks. DLJdirect's proprietary products and
services and the marks it has contracted to use include: DLJdirect (Trade
Mark) , FundCenter (Registered Trademark) , FundScan (Trade Mark) , MarketSpeed
(Trade Mark) , StockScan (Trade Mark) , TradeTalkSM, TradeUpSM, and
www.DLJdirect.com (Trade Mark) .
DLJdirect's success and ability to compete are dependent to a significant
degree on its proprietary technology. DLJdirect relies primarily on copyright,
trade secret and trademark law to protect its technology. Effective trademark
protection may not be available for its trademarks. DLJdirect does
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not own but licenses certain material marks from DLJ Long Term Investment
Corporation which has obtained, or is seeking to obtain, registration
protection for those marks in the United States. In addition, DLJ Long Term
Investment Corporation is in the process of registering the DLJdirect mark in
35 countries worldwide. Its inability to protect DLJdirect's name adequately
would have a material adverse effect on DLJdirect's business, financial
condition and operating results. See "Risk Factors -- DLJdirect must protect
its intellectual property rights".
DLJdirect's proprietary software is protected both as a trade secret and
as a copyrighted work. DLJdirect's policy is to enter into confidentiality and
assignment agreements with its associates, consultants and vendors and
generally to control access to, and distribution of, its software,
documentation and other proprietary information. Notwithstanding the
precautions taken by DLJdirect it may be possible for a third party to copy or
otherwise obtain and use its software or other proprietary information without
authorization or to develop similar software independently. The laws of other
countries may afford DLJdirect little or no effective protection of its
intellectual property. The inability of DLJdirect to protect its intellectual
property rights could have a material adverse effect on its business, financial
condition and operating results.
DLJdirect may in the future receive notices of claims of infringement of
other parties' proprietary rights. Any claims, with or without merit, could be
time-consuming to defend, result in costly litigation, divert management's
attention and resources or require DLJdirect to enter into additional royalty
or licensing agreements. There can be no assurance that other licenses would be
available on reasonable terms, if at all, and the assertion or prosecution of
any claims could have a material adverse effect on DLJdirect's business,
financial condition and operating results.
GOVERNMENT REGULATION; NET CAPITAL REQUIREMENTS
Securities Industry
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. The SEC is the federal agency
responsible for the administration of the federal securities laws. DLJdirect
Inc. is registered as a broker-dealer with the SEC. Much of the regulation of
broker-dealers has been delegated to self-regulatory organizations ("SROs"),
principally the NASD, which has been designated by the SEC as DLJdirect Inc.'s
primary SRO. These self-regulatory organizations adopt rules, subject to
approval by the SEC, that govern the industry and conduct periodic examinations
of DLJdirect's operations. Securities firms are also subject to regulation by
state securities administrators in those states in which they conduct business.
DLJdirect Inc. is registered as a broker-dealer in all 50 states, and the
District of Columbia.
Broker-dealers are subject to regulations covering all aspects of the
securities business, including sales methods, trade practices among
broker-dealers, use and safekeeping of customers' funds and securities, capital
structure, record keeping and the conduct of directors, officers and employees.
DLJdirect is required, directly or indirectly, to comply with many complex laws
and rules, including rules relating to possession and control of customer funds
and securities, margin lending and execution and settlement of transactions.
Additional legislation, changes in rules promulgated by the SEC, the NASD, the
Board of Governors of the Federal Reserve System, the various stock exchanges,
and other self-regulatory organizations, or change in the interpretation or
enforcement of existing laws and rules, may directly affect the mode of
operation and profitability of broker-dealers. The SEC, the NASD or other
self-regulatory organizations and state securities commissions may conduct
administrative proceedings, which can result in censure, fine, the issuance of
cease-and-desist orders or the suspension or expulsion of a broker-dealer or
any of its officers or employees. DLJdirect's ability to comply with all
applicable laws and rules is dependent in large part upon the maintenance of a
compliance system reasonably designed to ensure compliance. The principal
purpose of regulation and discipline of broker-dealers is the protection of
customers and the securities markets, rather than protection of creditors and
shareholders of broker-dealers. In addition, because the use of the Internet to
provide online investing services is relatively new, regulatory standards are
evolving. As a result, DLJdirect may, in the future, become subject to
additional regulation in the United States and in international jurisdictions.
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DLJdirect and DLJ are members of Securities Investor Protection
Corporation ("SIPC"), which provides, in the event of the liquidation of a
member, protection for customers' assets held by the member of up to $500,000
for each customer account, subject to a limitation of $100,000 for claims for
cash balances. In addition, Pershing has purchased and provides to customers of
DLJdirect unlimited excess SIPC coverage for securities only so that the entire
value of securities in each customer account is protected. This excess SIPC
insurance is provided by Asset Guaranty Insurance Company of New York, New
York.
DLJdirect has initiated an aggressive marketing campaign designed to bring
brand name recognition to DLJdirect. Its marketing activities are principally
subject to regulation by the NASD. DLJdirect does not currently solicit orders
from its customers or make investment recommendations, although it does make
available DLJ and other third-party research and information services. However,
if it were to engage in these activities, it would become subject to additional
rules and regulations governing, among other things, the suitability of
recommendations to customers and sales practices. Further, the NASD or state
securities authorities may seek to expand the situations in which suitability
requirements are applicable to electronic brokers, even in the absence of any
recommendations.
It is DLJdirect's intent to expand its business in United States
securities to other countries through the Internet and other gateways. In order
to expand its services globally, it must comply with the regulatory controls of
each specific country in which it conducts business. The varying compliance
requirements of other national regulatory jurisdictions may impose a limit to
its rate of international expansion.
Net Capital Requirements
As a registered broker-dealer and member of the NASD, DLJdirect Inc. is
subject to the SEC's Net Capital Rule. The Net Capital Rule, which specifies
minimum net capital requirements for registered broker-dealers, is designed to
measure the general financial integrity and liquidity of a broker-dealer and
requires that at least a minimum part of its assets be kept in relatively
liquid form.
DLJdirect has elected to compute net capital under the alternative method
of calculation permitted by the Net Capital Rule. Under the alternative method,
DLJdirect is required to maintain minimum net capital, as defined in the Net
Capital Rule, equal to the greater of $250,000 or 2% of the amount of its
"aggregate debit items" computed in accordance with the Formula for
Determination of Reserve Requirements for Brokers and Dealers. Failure to
maintain the required net capital may subject a firm to suspension or
revocation of registration by the SEC and suspension or expulsion by the NASD
and other regulatory bodies and ultimately could require a firm's liquidation.
The Net Capital Rule prohibits payments of dividends, redemption of stock, the
prepayment of subordinated indebtedness, and the making of any unsecured
advance or loan to a shareholder, employee of affiliate, if aggregate debit
items rise beyond 5% of net capital. The Net Capital Rule also provides that
the SEC may restrict, for up to 20 business days, any withdrawal of equity
capital, or unsecured loans or advances to shareholders, employees or
affiliates ("capital withdrawal") if such capital withdrawal, together with all
other net capital withdrawals during a 30-day period, exceeds 30% of excess net
capital and the SEC concludes that the capital withdrawal may be detrimental to
the financial integrity of the broker-dealer.
Net capital is essentially defined as net worth (assets minus
liabilities), plus qualifying subordinated borrowings and certain discretionary
liabilities, less certain mandatory deductions that result from excluding
assets that are not readily convertible into cash and from valuing
conservatively certain other assets. Among these deductions are adjustments
(called "haircuts") which reflect the possibility of a decline in the market
value of an asset prior to its disposition.
A change in the Net Capital Rule, the imposition of new rules or any
unusually large charge against net capital could limit those operations of
DLJdirect that require the intensive use of capital, and could restrict its
ability to withdraw capital from its brokerage subsidiaries, which could limit
its ability to pay dividends, repay debt and redeem or purchase shares of its
outstanding stock.
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As of March 31, 1999, DLJdirect was required to maintain minimum net
capital of $250,000 and had total net capital of approximately $26.6 million.
Electronic Commerce
DLJdirect anticipates that it may be subject to additional record keeping,
data processing and other regulatory requirements as a result of proposed
federal legislation or otherwise, and it may be subject to additional
regulation as the market for online commerce evolves. Because of the growth in
the electronic commerce market, Congress has held hearings on whether to
regulate providers of services and transactions in the electronic commerce
market, and federal or state authorities could enact laws, rules or regulations
affecting DLJdirect's business or operations. DLJdirect also may be subject to
federal, state and foreign money transmitter laws and state, local and foreign
income, sales or other taxes. If enacted or deemed applicable to DLJdirect,
such laws, rules or regulations could be imposed on its activities or its
business.
Due to the increasing popularity of the Internet, it is possible that laws
and regulations may be enacted with respect to the Internet, covering issues
such as user privacy and the pricing, content and quality of products and
services. The Telecommunications Act of 1996, which was enacted in January
1996, prohibits the transmission over the Internet of certain types of
information and content. Although several of these prohibitions have been held
unconstitutional, the increased attention focused upon these liability issues
as a result of the Telecommunications Act could adversely affect the growth of
Internet and private network use.
EMPLOYEES
At March 31, 1999, DLJdirect had 466 employees. DLJdirect's success has
been, and will continue to be, dependent to a large degree on its ability to
retain the services of its existing executive officers and to attract and
retain qualified additional senior and middle managers and key personnel in the
future. There can be no assurance that DLJdirect will be able to attract,
assimilate or retain qualified technical and managerial personnel in the
future, and the failure of it to do so would have a material adverse effect on
its business, financial condition and operating results. None of its employees
is subject to collective bargaining agreements or is represented by a union.
DLJdirect considers its relations with its employees to be good.
PROPERTIES
DLJdirect currently occupies space in three sites: corporate offices and
an investor service call center in Jersey City, New Jersey and investor service
call centers in Parsippany, New Jersey and in Charlotte, North Carolina. The
sites comprise approximately 82,000 square feet, in the aggregate. Each site is
leased by an affiliate and provided to DLJdirect pursuant to an intercompany
agreement. The underlying leases expire beginning in 2002. DLJdirect entered
into a lease in April 1999 for approximately 100,000 square feet in Jersey
City, New Jersey. DLJdirect intends to move its current Jersey City, New Jersey
operations to that space in the beginning of the third quarter of 1999 upon its
scheduled completion. This will increase overall capacity by more than 70%.
DLJdirect is also in the process of developing plans to acquire additional
space to increase its call center capacity significantly by the end of 1999.
LEGAL AND ADMINISTRATIVE PROCEEDINGS
DLJdirect is not currently a party to any litigation that it believes
could have a material adverse effect on its business, financial condition or
operating results. However, from time to time DLJdirect has been threatened
with, or named as a defendant in, lawsuits. Compliance and trading problems
that are reported to the NASD or the SEC by dissatisfied customers are
investigated by the NASD or the SEC, and, if pursued, may rise to the level of
disciplinary action. One or more lawsuits, claims or disciplinary actions
decided adversely to DLJdirect could have a material adverse effect on its
business, financial condition and results of operations. DLJdirect is also
subject to periodic regulatory audits and inspections.
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Along with several other online brokers, DLJdirect received a letter from
the State of New York Office of the Attorney General dated February 2, 1999,
requesting that DLJdirect provide certain documents and make DLJdirect
employees available to discuss complaints regarding online brokerage services.
No complaint specific to DLJdirect was identified. DLJdirect responded to this
request in February 1999. On March 29, 1999, a further request for information
was received by each of the online brokers, including DLJdirect. Subsequently,
a meeting was held with representatives from the Office of the Attorney General
at which time it was agreed that each online broker would identify and produce
the requested documents that were readily available. DLJdirect expects to
respond to the modified request in the normal course of business.
The SEC's Office of Compliance Investigations and Examinations (OCIE)
conducts routine investigations of registered broker-dealers. DLJdirect has
received correspondence from OCIE requesting that DLJdirect make available
certain documents and materials relating to the business of DLJdirect,
including DLJdirect's execution policies and practices regarding the handling
of customer orders. DLJdirect produced the requested documents in the normal
course of business. DLJdirect believes that this informational request was
conducted on an industry-wide basis.
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MANAGEMENT OF DLJDIRECT
The following table sets forth information regarding the senior officers
of DLJdirect.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
K. Blake Darcy .................. 42 Chief Executive Officer
Glenn H. Tongue ................. 40 President
Suresh Kumar .................... 41 Chief Information Officer
Craig S. Sim .................... 56 Director of Investment Banking
Rosemary T. McFadden ............ 50 Director of Global Business Development
Denise Benou Stires ............. 36 Director of Marketing
Ramaswamy Nagappan .............. 37 Director of Application Development
Nicholas J. Tortorella .......... 47 Director of Human Resources and Administration
Michael J. Hogan ................ 48 General Counsel
Anthony P. Festa ................ 50 Director of Compliance and Operations
Timothy J. Foley ................ 29 Director of Product Development
Barry B. Mione .................. 34 Director of Investor Services
Kenneth J. Olshansky ............ 57 Director of Finance and Strategic Projects
Robert D. Flowers, Jr. .......... 54 Director of Select Client Relations
Linda Finnerty .................. 52 Director of Public Relations
</TABLE>
K. Blake Darcy. K. Blake Darcy has been the Chief Executive Officer of
DLJdirect since its founding in 1988. In 1997, under Mr. Darcy's direction,
DLJdirect created a separate technology group at DLJdirect that develops online
solutions for financial organizations. Mr. Darcy was with DLJ from 1984 to
1988, where he formed a new business unit at DLJ's Pershing Division designed
to provide turn-key discount brokerage services to banks and insurance
companies and served as Vice President, Marketing Manager of Direct Brokerage
Services. Mr. Darcy began his career in the financial services industry as a
retail broker with Lehman Brothers in 1982. Mr. Darcy graduated with honors
from Hamilton College, where he earned a B.A. in Government.
Glenn H. Tongue. Glenn H. Tongue has served as President of DLJdirect
since April 1999. Prior to this appointment, he was a Managing Director in the
Investment Banking Group at DLJ where he has worked since 1989. At DLJ, his
duties included oversight of the investment banking activities on behalf of
DLJdirect. Mr. Tongue holds a B.S.E. in Electrical Engineering and Computer
Science from Princeton University as well as an M.B.A. from The Wharton School.
Suresh Kumar. Suresh Kumar has served as Chief Information Officer of
DLJdirect since 1989. He is responsible for product development, program
management, quality assurance, production support and infrastructure. From 1986
to 1988, he worked as a programmer in DLJ's Pershing Division. Prior to joining
DLJ, Mr. Kumar was a consultant with Bakst International and Cap Gemini
America. Mr. Kumar earned a B.S. in Technology from the Indian Institute of
Technology at Madras, an M.B.A. from the Indian Institute of Management at
Ahmedabad and a Masters in Computer Science from the New York Institute of
Technology. Mr. Kumar is a member of the Securities Industry Association.
Craig S. Sim. Craig S. Sim has served as a Director of Investment Banking
since February 1999. He has served as a Managing Director in the Investment
Banking Group at DLJ since 1986. From 1994 to 1998, Mr. Sim served as Chairman
of the International Banking Group of DLJ, which supervises and coordinates
investment banking in emerging markets of South America, Asia, and Eastern
Europe. From 1986 to 1994 Mr. Sim was head of the Capital Markets Services
Group. Mr. Sim joined DLJ in 1975 as Senior Vice President and syndicate
manager. Since then, Mr. Sim has served as a member of the Operating Committee
of the Banking Group and the DLJ Strategic Committee. He has served on the New
York District Executive Board, the Government Relations Committee of the
Securities Industry Association (SIA) and the SIA NAFTA committee. He received
a B.A. from Gettysburg College, Gettysburg, PA.
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Rosemary T. McFadden. Rosemary T. McFadden has served as Director of
Global Business Development for DLJdirect since joining DLJdirect in January
1999. From 1997 to 1999, Ms. McFadden was Senior Vice President and Associate
General Counsel of the Pershing Division of DLJ, where she was responsible for
overseeing the organization and structure of several international initiatives,
as well as co-directing Pershing's strategic planning committee for conversion
of the Euro. From 1993 to 1997, Ms. McFadden served as a Senior Manager in the
International Practice Group at Price Waterhouse, L.L.P., where she worked on a
range of projects related to the development of capital markets in Russia, the
Ukraine, the Republic of Moldova and Asia. From 1989 to 1993, Ms. McFadden
acted in an of counsel capacity to the firm Schuman, Hanlon & Doherty,
specializing in international corporate law. From 1984 to 1989, Ms. McFadden
served as President and Chief Operating Officer of the New York Mercantile
Exchange. Ms. McFadden was awarded an honorary Ph.D. from St. Elizabeth
College. She holds a B.A. and M.B.A. degree from Rutgers University and a J.D.
degree from Seton Hall University Law School.
Denise Benou Stires. Denise Benou Stires has served as Director of
Marketing for DLJdirect since joining it in September 1997. During her tenure
as Director of Marketing, DLJdirect's marketing campaign was awarded the "1997
Best Multimedia Campaign" by the Financial Communications Society. Prior to
joining DLJdirect, Ms. Stires was Vice President of Marketing at Swatch USA
from 1995 to 1996. Ms. Stires held management and supervisory positions at
Mars, Incorporated from 1988 to 1995, including Marketing Director of Pet Care,
Effem Foods, Canada and Worldwide Sponsorship Manager, Mars, Incorporated. She
serves on the Board of Trustees of the Kent Place School in Summit, New Jersey.
Ms. Stires holds an M.B.A. from the Yale School of Management and a B.A. in
Political Science and International Relations from Wellesley College, where she
received departmental honors and was a Wellesley Scholar.
Ramaswamy Nagappan. Ramaswamy Nagappan has been with DLJdirect since March
1997 as Director of Application Development, and he is responsible for managing
application development efforts. From 1988 to 1997, Mr. Nagappan worked at DLJ
as a programmer in the Pershing Division. Prior to joining DLJ, Mr. Nagappan
was a consultant with Pershing, Guardian Life Insurance, Bakst International,
and Data Software Research Corp. During his career at Pershing and DLJdirect,
Mr. Nagappan has developed and implemented mainframe, UNIX, and Windows systems
for a wide range of brokerage applications. Mr. Nagappan earned his Bachelor of
Engineering Degree in Electronics and Communication from Anna University,
Madras (India) in 1983. In 1984, he also received a Diploma in Business and
Computer Management from Indian Institute of Computer Management. Mr. Nagappan
has served as a member of the FIX protocol committee and the Cincinnati Stock
Exchange's technical committee. He is a member of the Institute of Electrical
and Electronics Engineers.
Nicholas J. Tortorella. Nicholas J. Tortorella has served as Director of
Human Resources and Administration for DLJdirect since joining DLJdirect in
April 1995. Mr. Tortorella served as Director of Staffing and Compensation for
the Pershing division of DLJ from 1989 to April 1995. From 1985 to 1989, he
served in various human resources management positions at Merrill Lynch. From
1977 to 1984, he served as a Roman Catholic priest for the Roman Catholic
Diocese of Rockville Centre. He has served on the Boards of Trustees of Christ
Hospital in Jersey City, New Jersey, Saint Anthony High School in Jersey City,
New Jersey, Goodwill Industries of Hudson County and United Way of Hudson
County. Mr. Tortorella received a B.A. from St. John's University, New York and
an M.Div. from Immaculate Conception Seminary in New York.
Michael J. Hogan. Michael J. Hogan has served as General Counsel of
DLJdirect since April 1999. He is responsible for oversight of DLJdirect's
legal department. From 1970 to 1999, he worked at Lehman Brothers Inc., most
recently as Senior Deputy General Counsel and Managing Director when he managed
the firm's legal, compliance and internal audit services on a global basis.
From 1977 to 1981, he served as Counsel and Director of Compliance at the
Coffee, Sugar and Cocoa Exchange in New York. Mr. Hogan holds Bar Admissions in
New York, Georgia, Missouri and the District of Columbia. Mr. Hogan received
his J.D. from Emory University Law School and his B.A. from Washington
University, St. Louis, Missouri.
56
<PAGE>
Anthony P. Festa. Anthony P. Festa has been Director of Compliance and
Operations for DLJdirect since November 1993. From 1978 to 1993, Mr. Festa held
various management positions at Shearson Lehman Brothers and its predecessors,
including Vice President, Compliance. Prior to that, Mr. Festa was Senior
Examiner in the New York office of the Chicago Board Options Exchange. Mr.
Festa began his securities industry career at E.F. Hutton in 1970. Mr. Festa is
a graduate of Central Connecticut State University with a degree in History and
currently serves as an adjunct professor at the New York Institute of Finance.
Timothy J. Foley. Timothy J. Foley has served as Director of Product
Development for DLJdirect since September 1998. From June 1997 to August 1998,
he served as Manager of Finance. In the summer of 1995, Mr. Foley interned for
DLJ in the Investment Banking Group before entering the Sloan School of
Management at Massachusetts Institute of Technology, from which he received his
M.B.A degree. Mr. Foley worked at DLJdirect prior to his DLJ internship in 1995
as an Assistant Vice President and from 1992 to 1994 as an Associate in Product
Development. Mr. Foley earned his B.S.E. degree in Mechanical and Aerospace
Engineering from Princeton University.
Barry B. Mione. Barry B. Mione has been Director of Investor Services
since August 1997. Since December 1989, Mr. Mione has held numerous management
positions at DLJdirect and the Pershing Division of DLJ, including Investor
Services Manager of Pershing's Direct Brokerage Services, and Branch Manager of
DLJdirect's Parsippany office. Mr. Mione currently oversees the Investor
Services Representatives in DLJdirect's three investor service centers. In
January 1998, Mr. Mione was responsible for launching DLJdirect's Select Client
Services. He serves on the Chicago Board of Options Exchange Discount Advisory
Committee and Pershing's Best Execution Steering Committee. He received a B.A.
from the State University of New York at Stony Brook in 1986.
Kenneth J. Olshansky. Kenneth J. Olshansky joined DLJdirect as Director of
Finance and Strategic Projects in September 1998. From 1991 to 1997, Mr.
Olshansky worked for The Commonwealth of Massachusetts, serving as Deputy
Treasurer of Debt Management from 1993 to 1997. From 1980 to 1991, Mr.
Olshansky was Executive Vice President and General Counsel of CFC Associates,
Inc., a municipal leasing and finance company, and from 1968 to 1980, he was
associated with the Boston, Massachusetts law firm of Csaplar & Bok, where he
was a Partner. He holds a B.S. and an M.S. in Electrical Engineering and
Science from Massachusetts Institute of Technology, where he received a Sloan
Fellowship and was elected to the Tau Beta Pi, Eta Kappa Nu, and Sigma Xi
Academic Honorary Societies. Mr. Olshansky also received a LL.B., cum laude
from Harvard Law School.
Robert D. Flowers, Jr. Robert D. Flowers, Jr. has served as Director of
Select Client Relations of DLJdirect since April 1999. He is responsible for
overseeing DLJdirect's Select Client Group, serving customers who maintain
account balances of $1,000,000 and higher. From August 1994 to July 1997, Mr.
Flowers was at Bank of America where he served as President and Chief Executive
Officer of BA Investment Services, Inc. and as Director of the Retail
Investment Products Division. He was a senior officer in the retail brokerage
unit of Bank One from 1992 to 1994 and First Union from 1984 to 1992. Mr.
Flowers holds a B.A. from Walsh University and is a member of the Securities
Industry Association. He is based in the DLJdirect Charlotte office.
Linda Finnerty. Linda Finnerty has served as Director of Public Relations
of DLJdirect since April 1999. She is responsible for directing DLJdirect's
press releases. From 1998 to 1999, she served as Vice President and Director of
Corporate Communications at Delaware Investments, based in Philadelphia, where
she oversaw all internal and external communications. From 1989 to 1997, she
worked at Alliance Capital, most recently as Vice President and Director of
Corporate Communications. Ms. Finnerty holds a B.S. from Fordham University and
a graduate diploma in communications from Hofstra University. She is a member
of the Public Relations Society of New York, National Investor Relations
Institute and the Financial Communications Society.
BOARD OF DIRECTORS OF DLJDIRECT
DLJdirect Holdings Inc. is the corporate entity that owns, directly or
indirectly, a substantial majority of the businesses, assets and liabilities of
DLJdirect. Prior to the consummation of this
57
<PAGE>
offering, DLJ intends to reconstitute the board of directors of DLJdirect
Holdings Inc. to include representatives of both DLJ and DLJdirect. Shortly
after the consummation of the offering, DLJ plans to add two independent
directors to the board of directors of DLJdirect Holdings Inc. DLJ's current
intent is to submit all significant transactions, including significant
"intercompany" transactions between DLJ and DLJdirect, for approval by the
board of directors of DLJdirect Holdings Inc. The following table sets forth
the proposed board members of DLJdirect Holdings Inc. upon the consummation of
the offering:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Richard S. Pechter ............ 54 Chairman of the Board
K. Blake Darcy ................ 42 Director
Glenn H. Tongue ............... 40 Director
Suresh Kumar .................. 41 Director
Gates H. Hawn ................. 50 Director
Richard F. Brueckner .......... 49 Director
</TABLE>
Richard S. Pechter. Richard S. Pechter has served as Chairman of the board
of directors of DLJdirect since April 1999. Mr. Pechter has served as a
director of DLJ since 1979, as Managing Director of Donaldson, Lufkin &
Jenrette Securities Corporation since 1981 and as Chairman of DLJ's Financial
Services Group since 1987. From 1979 to 1984, Mr. Pechter served as Chief
Executive Officer of Pershing, and from 1975 to 1979 he served as Executive
Vice President and Chief Administrative Officer of DLJ. He served as Chief
Financial Officer of DLJ from 1973 to 1975 and as Vice President and Treasurer
of DLJ from 1971 to 1973, after joining DLJ in 1969 as a research analyst. Mr.
Pechter has served as President of the Investment Association of New York, as a
director of the National Securities Clearing Corporation, the Depository Trust
Company and Interstate/Johnson Lane, as Vice Chairman of the Securities
Industry Association, and as a Trustee of the Securities Industry Association's
Securities Industry Institute. He is the Tony Award-winning producer of the
Broadway musical "Titanic". Mr. Pechter graduated from Yale University and
holds an M.B.A. from the Harvard Business School, where he was a Baker Scholar.
Gates H. Hawn. Gates H. Hawn has been a director of DLJdirect since April
1999. He has been Chief Operating Officer and a Managing Director of Pershing
since 1983. He joined DLJ in 1981 as a Senior Vice President. From 1970 to
1981, Mr. Hawn was with the Bankers Trust Company. Mr. Hawn currently serves as
a director of the Farmers Museum, the Clark Foundation and the Philharmonic
Orchestra of New Jersey and as Hudson County Chairman of New Jersey Blood
Services. He has served as an Exchange Official of the American Stock Exchange,
Chairman of the New York District of the Securities Industry Association,
President of the Investment Association of New York, President of the Bond Club
of New York and Chairman of the National Securities Clearing Corporation. He
has also served as a director of the Chicago Stock Exchange, the NASDAQ Stock
Market, the Glimmerglass Opera and Deerfield Academy. Mr. Hawn is a graduate of
Williams College.
Richard F. Brueckner. Richard F. Brueckner has served as a director of
DLJdirect since its inception. He has served as a Managing Director of DLJ's
Financial Services Group and Pershing since 1984. He previously served as
Treasurer of DLJ from 1979 to 1981, Chief Financial Officer of Pershing from
1980 to 1981 and has held a variety of senior management positions in
operations and marketing at Pershing. He serves as a Trustee of Frontier Trust
Company in Fargo, North Dakota and is Chairman and CEO of the Securities
Industry Foundation for Economic Education. Mr. Brueckner has served as a
director of the National Association of Securities Dealers, Inc. and its
regulatory subsidiary and was Chairman of the National Adjudicatory Council and
the Technology Advisory Committee. Mr. Brueckner has also served as Chairman of
the Securities Industry Association's Clearing Firms Committee, the Membership
Committee and the New York District for the Securities Industry Association and
as Chairman of the NASD's New York District Committee. Mr. Brueckner received
his B.A. from Muhlenberg College.
58
<PAGE>
DLJDIRECT 1999 INCENTIVE COMPENSATION PLAN
The board of directors of Donaldson, Lufkin & Jenrette, Inc. has adopted
the DLJdirect 1999 Incentive Compensation Plan on March 16, 1999 and the plan
will be voted on by stockholders on May 25, 1999. The board of directors of
Donaldson, Lufkin & Jenrette, Inc. believes that attracting and retaining key
employees and service providers is essential to DLJdirect's continued growth
and success. In addition, the board of directors of Donaldson, Lufkin &
Jenrette, Inc. believes that the long term success of DLJdirect is enhanced by
a competitive and comprehensive compensation program, which may include
tailored types of incentives designed to motivate and reward such persons for
outstanding service, including awards that link compensation to applicable
measures of DLJdirect's performance and the creation of shareholder value. Such
awards will enable DLJdirect to attract and retain key employees and service
providers and enable such persons to acquire and/or increase their proprietary
interest in DLJdirect and thereby align their interests with the interests of
DLJdirect's shareholders. In addition, the board of directors of Donaldson,
Lufkin & Jenrette, Inc. has concluded that its Compensation and Management
Committee should be given as much flexibility as possible to provide for annual
and long term incentive awards contingent on performance.
The following is a brief description of the material features of the
Compensation Plan. Such description is qualified in its entirety by reference
to the full text of the Compensation Plan, which has been filed as an exhibit
to the registration statement of which this prospectus is a part.
Types of Awards. The terms of the Compensation Plan provide for grants of
stock options, stock appreciation rights, restricted stock, restricted stock
units, other stock-related awards, and annual incentive or performance awards
that may be settled in cash, stock, or other property (collectively referred to
as "Awards").
Shares Subject to the Compensation Plan; Annual Per-Person
Limitations. Under the Compensation Plan, the total number of shares of
DLJdirect common stock reserved and available for delivery to participants in
connection with Awards is (i) 10,000,000, plus (ii) 7.5% of the number of
shares of DLJdirect common stock issued or delivered during the term of the
Compensation Plan (excluding any issuance or delivery in connection with
Awards, or any other compensation or benefit plan of DLJdirect, or in
connection with this offering); provided, however, that the total number of
shares of DLJdirect common stock with respect to which incentive stock options
may be granted shall not exceed 10,000,000. Shares of DLJdirect common stock
subject to an Award that is canceled, expired, forfeited, settled in cash, or
otherwise terminated without a delivery of shares to the participant, including
DLJdirect common stock withheld or surrendered in payment of any exercise or
purchase price of an Award or taxes relating to an Award, will again be
available for Awards under the Compensation Plan. Any shares of DLJdirect
common stock delivered under the Compensation Plan may consist of authorized
and unissued shares or treasury shares.
In addition, the Compensation Plan imposes individual limitations on the
amount of certain Awards. Under these limitations, during any fiscal year the
number of options, stock appreciation rights, shares of restricted stock,
restricted stock units, shares of DLJdirect common stock issued as a bonus or
in lieu of other obligations, and other stock-based Awards granted to any one
participant shall not exceed 2,000,000 shares for each type of such Award,
subject to adjustment in certain circumstances. The maximum cash amount that
may be earned as a final annual incentive award or other annual cash Award in
respect of any fiscal year by any one participant is $5 million.
The Compensation Committee is authorized to adjust the number and kind of
shares subject to the aggregate share limitations and annual limitations under
the Compensation Plan and subject to outstanding Awards (including adjustments
to exercise prices and number of shares of options and other affected terms of
Awards) in the event that a dividend or other distribution (whether in cash,
shares, or other property), recapitalization, forward or reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other similar corporate transaction or event affects the
DLJdirect common stock so that an adjustment is appropriate. The Compensation
Committee is also authorized to adjust performance conditions and other terms
of Awards in response to these kinds of events or in response to changes in
applicable laws, regulations, or accounting principles.
59
<PAGE>
Eligibility. Executive officers and other officers and employees of
Donaldson, Lufkin & Jenrette, Inc. or DLJdirect, as well as other persons who
provide services to Donaldson, Lufkin & Jenrette, Inc. or DLJdirect, including
directors of Donaldson, Lufkin & Jenrette, Inc. and DLJdirect Holdings Inc.
shall be eligible to be granted Awards under the Compensation Plan. It is
estimated that approximately 530 persons are eligible to receive Awards and it
is anticipated that most, if not all, employees of DLJdirect will be granted
Awards under the Compensation Plan.
Administration. The Compensation Plan will be administered by the
Compensation Committee except to the extent the board of directors of
Donaldson, Lufkin & Jenrette, Inc. elects to administer the Compensation Plan.
Subject to the terms and conditions of the Compensation Plan, the board of
directors of Donaldson, Lufkin & Jenrette, Inc. or the Compensation Committee
is authorized to interpret the Compensation Plan, construe terms, adopt rules
and regulations, prescribe forms, make all determinations under the
Compensation Plan and, subject to such terms and conditions as they may
establish, delegate authority to officers and managers of DLJ. The Compensation
Plan provides that Compensation Committee members are not personally liable,
and are fully indemnified for all actions taken or made in good faith under the
Compensation Plan.
Stock Options and Stock Appreciation Rights. The Compensation Committee is
authorized to grant stock options, including both incentive stock options that
can result in potentially favorable tax treatment to the participant and
non-qualified stock options (i.e, options not qualifying as incentive stock
options) and stock appreciation rights entitling the participant to receive the
excess of the fair market value of a share of DLJdirect common stock on the
date of exercise over the grant price of the stock appreciation right. The
exercise price per share subject to an option and the grant price of a stock
appreciation right is determined by the Compensation Committee, but must not be
less than the fair market value of a share of DLJdirect common stock on the
date of grant (except to the extent of in-the-money awards or cash obligations
surrendered by the participant at the time of grant). All other terms regarding
each option or stock appreciation right are fixed by the Compensation
Committee, except that no option or stock appreciation right may have a term
exceeding ten years. Options may be exercised by payment of the exercise price
in cash, DLJdirect common stock, outstanding Awards, or other property as
determined by the Compensation Committee.
Restricted Stock and Restricted Stock Units. The Compensation Committee is
authorized to grant restricted stock and restricted stock units. Restricted
stock is a grant of DLJdirect common stock which may not be sold or disposed
of, and which may be forfeited in the event of certain terminations of
employment and/or failure to satisfy stated performance requirements. A
participant granted restricted stock generally has all of the rights of a
shareholder of DLJdirect, including voting and dividend rights. An Award of
restricted stock units confers upon a participant the right to receive shares
at the end of a specified deferral period, subject to possible forfeiture of
the Award in the event of certain terminations of employment and/or failure to
satisfy stated performance requirements. Prior to settlement, an Award of
restricted stock units carries no dividend or other ownership rights, except
for dividend equivalents, if granted.
Dividend Equivalents. The Compensation Committee is authorized to grant
dividend equivalents conferring on participants the right to receive cash,
shares, other Awards, or other property equal in value to dividends paid on a
specific number of shares or other periodic payments. Dividend equivalents may
be granted on a free-standing basis or in connection with another Award.
Bonus Stock and Awards in Lieu of Cash Obligations. The Compensation
Committee is authorized to grant shares as a bonus free of restrictions, or to
grant shares or other Awards in lieu of obligations to pay cash under other
plans or compensatory arrangements.
Other Stock-Based Awards. The Compensation Plan authorizes the
Compensation Committee, subject to limitations under applicable law, to grant
Awards that are denominated or payable in shares. The Compensation Committee
determines the terms and conditions of such Awards, including consideration to
be paid to exercise Awards in the nature of purchase rights, the period during
which Awards will be outstanding, and forfeiture conditions and restrictions on
Awards.
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<PAGE>
Performance and Annual Incentive Awards. A participant's right to exercise
or receive a grant or settlement of an Award may be subject to performance
conditions as specified by the Compensation Committee. In addition, the
Compensation Plan authorizes specific annual incentive awards, which represent
a conditional right to receive cash, shares or other Awards upon achievement of
preestablished performance goals during a specified one-year period.
The performance goals to be achieved as a condition of payment or
settlement of a performance award or annual incentive award will consist of (a)
one or more business criteria and (b) a targeted level or levels of performance
with respect to each such business criteria. In the case of performance awards
or annual incentive awards intended to meet the requirements of Internal
Revenue Code Section 162(m), if applicable, the business criteria used must be
one of those specified in the Compensation Plan, although for other
participants the Compensation Committee may specify any other criteria. The
business criteria specified in the Compensation Plan are: (1) earnings per
share; (2) revenues; increase in revenues; the excess of all or a portion of
revenues over operating expenses (excluding expenses determined by the
Compensation Committee at the time performance goals are established); (3) cash
flow; (4) cash flow return on investment; (5) return on net assets, return on
assets, return on investment, return on capital, return on equity; (6)
management value added; (7) operating margin; (8) net income; pretax earnings;
pretax earnings before interest, depreciation, amortization and/or incentive
compensation; pretax operating earnings; operating earnings (with or without
investment gains or losses); (9) total shareholder return; (10) reduction in
costs; (11) increase in the fair market value of the DLJdirect common stock;
and (12) any of the above goals as compared to the performance of a published
or special index deemed applicable by the Compensation Committee including, but
not limited to, the Standard & Poor's 500 Stock Index or a group of comparable
companies.
Subject to the requirements of the Compensation Plan, the Compensation
Committee will determine other performance award and annual incentive award
terms, including the required levels of performance with respect to the
business criteria, the corresponding amounts payable upon achievement of such
levels of performance, termination and forfeiture provisions, and the form of
settlement.
Other Terms of Awards. Awards may be settled in the form of cash,
DLJdirect common stock, other Awards, or other property, in the discretion of
the Compensation Committee. The Compensation Committee may require or permit
participants to defer the settlement of all or part of an Award. The
Compensation Committee is authorized to place cash, shares, or other property
in trusts or make other arrangements to provide for payment of obligations
under the Compensation Plan. The Compensation Committee may condition any
payment relating to an Award on the withholding of taxes. Awards granted under
the Compensation Plan generally may not be pledged or otherwise encumbered and
are not transferable except by will or by the laws of descent and distribution
although the Compensation Committee has authority to permit Awards to be
transferred in limited circumstances.
Awards under the Compensation Plan are generally granted without a
requirement that the participant pay consideration in the form of cash or
property for the grant (as distinguished from the exercise), except to the
extent required by law. The Compensation Committee may, however, grant Awards
in exchange for other Awards under the Compensation Plan or other awards
granted by Donaldson, Lufkin & Jenrette, Inc., and may grant Awards in addition
to and in tandem with such other Awards, awards, or rights as well.
Loan Provisions. With the Compensation Committee's consent, and subject to
applicable law, Donaldson, Lufkin & Jenrette, Inc. may make, guarantee or
arrange for a loan to a participant with respect to the exercise of any option,
purchase of shares or other payment in connection with any Award, including the
payment by a participant of any or all federal, state or local income or other
taxes due in connection with any Award.
Amendment and Termination of the Compensation Plan. The board of directors
of Donaldson, Lufkin & Jenrette, Inc. may amend or discontinue the Compensation
Plan or the Compensation
61
<PAGE>
Committee's authority to grant Awards without further shareholder approval,
except for amendments required to be approved by stockholders by applicable law
or any stock exchange or automated quotation system on which the shares are
then listed or quoted. Shareholder approval will not be deemed to be required
under laws or regulations, such as those relating to incentive stock options,
that condition favorable treatment of participants on such approval, although
the board of directors of Donaldson, Lufkin & Jenrette, Inc. may, in its
discretion, seek shareholder approval in any circumstance in which it deems
such approval advisable. Thus, shareholder approval will not necessarily be
required for amendments that might increase the cost of the Compensation Plan
or broaden eligibility. Unless earlier terminated by the board of directors of
Donaldson, Lufkin & Jenrette, Inc., the Compensation Plan will terminate at
such time as no shares remain available for issuance under the Compensation
Plan and Donaldson, Lufkin & Jenrette, Inc. or DLJdirect has no further rights
or obligations with respect to outstanding Awards under the Compensation Plan.
Initial Awards. At or prior to the offering, it is anticipated that the
Compensation Committee will make grants of options to purchase approximately
6,500,000 to 7,000,000 shares of DLJdirect common stock to the executive
officers, certain directors and other eligible persons under the Compensation
Plan. It is expected that such options will have an exercise price equal to the
initial public offering price of the DLJdirect common stock. It is also
expected that these options will generally become exercisable in four equal
installments based on continued service with Donaldson, Lufkin & Jenrette, Inc.
or DLJdirect during the four-year period following the grant date.
Federal Income Tax Implications of the Compensation Plan. The following is
a brief description of the federal income tax consequences generally arising
with respect to Awards under the Compensation Plan.
The grant of an option or stock appreciation right will create no tax
consequences for the participant or Donaldson, Lufkin & Jenrette, Inc. or
DLJdirect. A participant will not recognize taxable income upon exercising an
incentive stock option (except that the alternative minimum tax may apply).
Upon exercising an option other than an incentive stock option, the participant
must generally recognize ordinary income equal to the difference between the
exercise price and fair market value of the freely transferable and
nonforfeitable shares acquired on the date of exercise. Upon exercising a stock
appreciation right, the participant must generally recognize ordinary income
equal to the cash or the fair market value of the freely transferable and
nonforfeitable shares received.
Upon a disposition of shares acquired upon exercise of an incentive stock
option before the end of the applicable incentive stock options holding
periods, the participant must generally recognize ordinary income equal to the
lesser of (i) the fair market value of the shares at the date of exercise of
the incentive stock options minus the exercise price, or (ii) the amount
realized upon the disposition of the incentive stock options shares minus the
exercise price. Otherwise, a participant's disposition of shares acquired upon
the exercise of an option (including an incentive stock option for which the
incentive stock options holding periods are met) or stock appreciation right
generally will result in short-term or long-term capital gain or loss measured
by the difference between the sale price and the participant's tax basis in
such shares (the tax basis generally being the exercise price plus any amount
previously recognized as ordinary income in connection with the exercise of the
option or stock appreciation right).
DLJdirect generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with an
option or stock appreciation right. Pursuant to the Tax Sharing Agreement, the
tax benefit may be paid to DLJ if the stock associated with such deduction is
attributed to DLJ. DLJ may also, pursuant to the Tax Sharing Agreement, be
required to pay DLJdirect for tax benefits arising out of the issuance of
DLJdirect common stock to a DLJ employee in connection with an option or stock
appreciation right. DLJdirect generally is not entitled to a tax deduction
relating to amounts that represent a capital gain to a participant.
Accordingly, if the participant holds the shares of an incentive stock option
grant for the required holding period, DLJdirect will not receive any tax
deduction for that grant.
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<PAGE>
With respect to Awards granted under the Compensation Plan that result in
the payment or issuance of cash or shares or other property that is either not
restricted as to transferability or not subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the cash or the fair market value of shares or other property received. Thus,
deferral of the time of payment or issuance will generally result in the
deferral of the time the participant will be liable for income taxes with
respect to such payment or issuance. DLJdirect generally will be entitled to a
deduction in an amount equal to the ordinary income recognized by the
participant. Pursuant to the Tax Sharing Agreement, the tax benefit may be paid
to DLJ if the stock associated with such deduction is attributed to DLJ. DLJ
may also, pursuant to the Tax Sharing Agreement, be required to pay DLJdirect
for tax benefits arising out of the issuance of DLJdirect common stock to a DLJ
employee in connection with an option or stock appreciation right.
With respect to Awards involving the issuance of shares or other property
that is restricted as to transferability and subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the fair market value of the shares or other property received at the first
time the shares or other property becomes transferable or is not subject to a
substantial risk of forfeiture, whichever occurs earlier. A participant may
elect to be taxed at the time of receipt of shares or other property rather
than upon lapse of restrictions on transferability or substantial risk of
forfeiture, but if the participant subsequently forfeits such shares or
property, the participant would not be entitled to any tax deduction, including
as a capital loss, for the value of the shares or property on which he
previously paid tax. The participant must file such election with the Internal
Revenue Service within 30 days of the receipt of the shares or other property.
DLJdirect generally will be entitled to a deduction in an amount equal to the
ordinary income recognized by the participant. Pursuant to the Tax Sharing
Agreement, the tax benefit may be paid to DLJ if the stock associated with such
deduction is attributed to DLJ. DLJ may also, pursuant to the Tax Sharing
Agreement, be required to pay DLJdirect for tax benefits arising out of the
issuance of DLJdirect common stock to a DLJ employee in connection with an
option or stock appreciation right.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to DLJdirect's Chief
Executive Officer and each of DLJdirect's four other most highly compensated
officers based on 1998 salary and annual bonuses (collectively, the "Named
Officers") who were serving as officers at the end of the fiscal year ended
December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------- ----------------------------------------
RESTRICTED LTIP ALL OTHER
SALARY BONUS STOCK AWARDS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(1) (#)(2) ($)(3) (4)
<S> <C> <C> <C> <C> <C> <C>
K. Blake Darcy .......................... 1998 $150,000 $1,350,000 -- $130,341 $5,910
Chief Executive Officer
Suresh Kumar ............................ 1998 125,000 750,000 -- -- --
Chief Information Officer
Ramaswamy Nagappan ...................... 1998 125,000 300,000 -- -- --
Director of Applications Development
Denise Benou Stires ..................... 1998 125,000 250,000 -- -- --
Director of Marketing
Nicholas J. Tortorella .................. 1998 110,000 160,000 -- -- --
Director of Human Resources
and Administration
</TABLE>
- ----------
(1) Includes amounts contributed by each of the Named Officers under various
deferred compensation plans maintained by Donaldson, Lufkin & Jenrette,
Inc.
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(2) In exchange for surrendering amounts accrued under certain multi-year
compensation arrangements maintained by Donaldson, Lufkin & Jenrette,
Inc, Mr. Darcy received restricted stock units under Donaldson, Lufkin &
Jenrette, Inc.'s 1995 Restricted Stock Unit Plan at the time of
Donaldson, Lufkin & Jenrette, Inc.'s initial public offering in October
1995. Each restricted stock unit represents the right to receive a share
of common stock, subject to certain conditions described below. Units
awarded under the 1995 Restricted Stock Unit Plan fall into two
categories. "Base Units" and "Premium Units." Base Units vested 50% in
February 1997 and February 1998. Premium Units vest in three equal
installments in each of February 1998, February 1999 and February 2000.
No dividends or dividend equivalents are paid on the restricted stock
units. As of December 31, 1998, the last day of trading during the fiscal
year ended December 31, 1998, the aggregate value of the unvested
restricted stock units, based on the average of the high and low prices
of Common Stock as reported on the New York Stock Exchange on such date
of $41.3125 was $58,829, for Mr. Darcy (based on 1,424 RSUs). None of the
other officers is a holder of RSUs.
(3) The amount shown reflects amounts earned under Donaldson, Lufkin &
Jenrette, Inc.'s 1994-1996 Long Term Incentive Plan.
(4) The amount shown reflects distributions in 1998 in respect of units
awarded in prior years under a plan which allocated to the participants a
portion of the profits realized by Donaldson, Lufkin & Jenrette, Inc on
certain investments.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR (1998) AND FYE OPTION/SAR
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
SHARES UNDERLYING UNEXERCISED MONEY OPTIONS AT FYE
ACQUIRED ON VALUE REALIZED OPTIONS AT FYE (#) ($)(1)
NAME EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C>
K. Blake Darcy ................. -- -- 38,258/35,000 $891,186/604,687
Suresh Kumar ................... -- -- 1,250/3,750 $ 9,141/27,422
Ramaswamy Nagappan ............. -- -- -- --
Denise Benou Stires ............ -- -- -- --
Nicholas J. Tortorella ......... -- -- -- --
</TABLE>
- ----------
(1) All of the options shown above are options on DLJ common stock. No
options on DLJdirect common stock were granted during 1998. DLJ expects
to grant options to purchase approximately 6,500,000 to 7,000,000 shares
of DLJdirect common stock at or prior to the offering. An "in-the-money
option" is an option for which the market price of the underlying common
stock at year-end 1998 exceeds the exercise price of the option. The
value of unexercised, in-the-money options shown above is based upon the
difference between the exercise price of all options and $41.3125, the
average of the high and low prices of the DLJ common stock as reported on
the New York Stock Exchange on December 31, 1998, the last day of trading
during the fiscal year ended December 31, 1998. The actual amount, if
any, realized upon exercise of stock options will depend upon the market
price of DLJ common stock relative to the exercise price per share of the
stock option at the time the stock option is exercised. There is no
assurance that the values of unexercised in-the-money stock options
reflected in this table will be realized.
COMPENSATION AND MANAGEMENT COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Donaldson, Lufkin & Jenrette, Inc. Compensation and
Management Committee during the fiscal year ended December 31, 1998 was an
officer or employee of DLJ or DLJdirect.
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CERTAIN RELATIONSHIPS
DLJdirect, DLJ and their respective affiliates engage in a variety of
transactions in the ordinary course of their respective businesses. As a
general rule, DLJdirect has not retained an independent third party to evaluate
transactions with DLJ and there has been no independent committee of the board
of directors to evaluate these transactions. Notwithstanding this fact,
DLJdirect believes that the terms and conditions of these transactions,
including the fees or other amounts paid by DLJdirect in connection with these
transactions, were established through negotiations which adequately took into
account (1) the terms and conditions of transactions of the same or a similar
nature entered into by DLJdirect with unaffiliated third parties, (2) the terms
and conditions of transactions of the same or a similar nature entered into by
DLJ with unaffiliated third parties, and/or (3) the terms and conditions of
market transactions of the same or a similar nature entered into by
unaffiliated third parties. Notwithstanding the foregoing, there can be no
assurance that DLJdirect could not have obtained more favorable terms from an
unaffiliated third party. See "Risk Factors -- DLJdirect faces potential
conflicts of interest with DLJ".
CLEARING AND LICENSE ARRANGEMENTS
Pursuant to an agreement dated September 24, 1997, as amended on March 11,
1999, between the Pershing Division of DLJ and DLJdirect, Pershing acts as the
clearing agent for DLJdirect and in such capacity performs traditional
operational functions, including execution and clearance of trades and holding
customer funds and securities. Pershing carries the cash and margin accounts of
DLJdirect customers and clears transactions on a fully disclosed basis for such
accounts. Without the prior written approval of Pershing, DLJdirect may not
enter into similar services contracts with any other clearing agency. Pershing
deducts the fees for its clearing services from the commissions, mark-ups and
other charges DLJdirect establishes for each transaction. The clearance fees,
order flow payments, interest sharing and charges for other services provided
for in the agreement were negotiated between DLJdirect and Pershing with
reference to those for comparable arrangements available in the securities
industry generally. These fees include volume discounts and sliding scale
payments taking into account the size of DLJdirect's business and the levels of
services provided by Pershing. In particular, the per trade clearing fee
declines by 5.0% for clearing volumes in excess of 4,000,000 trades per year
and by an additional 5.0% for clearing volumes in excess of 6,000,000 trades
per year. The agreement also provides for good faith renegotiation of any
provision upon the request of either party. If the parties are unable to agree
upon negotiation, the parties will be subject to the final decision of the
operating committee of the board of directors. The amounts paid to DLJ by
DLJdirect pursuant to this agreement were $15.4 million, $20.9 million, and
$28.4 million in 1996, 1997 and 1998, respectively, and $8.9 million in the
first quarter of 1999. The agreement expires on March 10, 2009. Under the
agreement, as amended, the amounts to be paid by DLJdirect to Pershing will
include the license fee for the use of certain trademarks that are licensed to
DLJdirect in the United States and certain other jurisdictions.
In March 1999, DLJdirect entered into an exclusive license agreement with
DLJ Long Term Investment Corporation. Under this agreement, DLJ Long Term
Investment Corporation has licensed certain trademarks, services marks, trade
names and other proprietary rights to various words, slogans, symbols and logos
to DLJdirect for use in its provision of financial services and sale or other
distribution of related financial goods. The nature and quality of all
financial goods and services offered by DLJdirect under the licensed marks are
subject to the control of DLJ Long Term Investment Corporation, and the use of
the marks must be consistent with specific guidelines. Fees payable under the
current license agreement for the use of the marks in the United States and
certain other jurisdictions are to be paid in accordance with the terms of the
clearing agreement with Pershing. The license fee included in the clearing fee
does not include the use of the marks in certain other foreign jurisdictions,
the use of which will be negotiated on a case by case basis. The agreement
expires on March 10, 2009. The agreement is terminable by DLJ Long Term
Investment Corporation for certain events, including, among other things, a
default by DLJdirect, the bankruptcy of DLJdirect or the sale or dissolution of
DLJdirect.
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TAX SHARING AGREEMENTS
DLJdirect is, and after the offerings will continue to be, included in the
same consolidated tax group as DLJ for Federal income tax purposes until such
time as it ceases to be eligible for inclusion in this consolidated tax group.
In connection with the offering, DLJ and DLJdirect has entered into a tax
sharing agreement, effective as of January 1, 1999 and applicable to any
Federal, foreign, state, local and other taxes. Pursuant to the provisions of
such agreement, DLJdirect and DLJ will generally make payments between them
such that, with respect to any period in which DLJdirect is a member of the
same consolidated tax group as DLJ for Federal income tax purposes, the amount
of Federal income taxes to be paid by DLJdirect will be determined, with
certain exceptions, as though DLJdirect were to file for such period and all
prior periods separate Federal income tax returns (generally including any
amounts determined to be due as a result of a redetermination of the Federal
income tax liability of the DLJ consolidated group arising from an audit or
otherwise) as the common parent of an affiliated group of corporations filing a
consolidated return rather than a consolidated subsidiary of DLJ. DLJ and
DLJdirect have each agreed to remit interest to the other on any payments that
are not timely made. DLJdirect is also entitled to receive payments from DLJ in
respect of utilization of its tax assets, if any. The amount of any such
payment will generally be determined by the actual tax benefit received by the
DLJ consolidated group. Conversely, if inclusion of DLJdirect in the
consolidated group should increase the tax of other members, DLJdirect will
reimburse DLJ for such cost. Any tax benefit related to (1) the exercise of
options in DLJ common stock, or DLJdirect common stock that is attributed to
DLJ pursuant to the board of directors' cash management policy, (2) the vesting
of restricted DLJ common stock, or restricted DLJdirect common stock that is
attributed to DLJ pursuant to the board of directors' cash management policy,
(3) satisfaction of stock appreciation rights that result in a charge to DLJ's
earnings, or (4) other compensation funded by DLJ will be allocated to DLJ. If
DLJdirect common stock vests in or, pursuant to the exercise of an option, is
issued to an employee of DLJ, its subsidiaries or affiliates exclusive of
DLJdirect, and is attributed to DLJdirect pursuant to the board of directors'
cash management policy, or if a compensation deduction results from any other
DLJdirect stock-based compensation plan that is related to an employee of DLJ,
its subsidiaries or affiliates exclusive of DLJdirect, and is attributed to
DLJdirect pursuant to the cash management policy, the resulting tax benefit
will be allocated to DLJdirect.
While DLJdirect remains part of the same consolidated group as DLJ,
Donaldson, Lufkin & Jenrette, Inc. will continue to have all the rights of a
common parent of a consolidated group, will be the sole and exclusive agent for
DLJdirect in any and all matters related to the Federal income tax liability of
DLJdirect, and will be responsible for the preparation and filing of
consolidated Federal income tax returns. In addition, each member of a
consolidated group for Federal income tax purposes is jointly and severally
liable for the Federal income tax liability of each other member of its
consolidated group. Accordingly, under the tax sharing agreement, DLJ has
agreed to indemnify DLJdirect against such liabilities to the extent that they
relate to the Federal income tax liability of the DLJ consolidated group for
periods that DLJdirect is included in the same consolidated group as DLJ,
except to the extent attributable to DLJdirect.
OTHER TRANSACTIONS WITH DLJ
DLJ provides services to DLJdirect pursuant to an Intercompany Services
Agreement amended as of February 23, 1999. The agreement covers public
relations, telecommunications, tax, internal audit, insurance, employee
benefits, human resources, legal, compliance, credit, general administrative,
accounting, treasury, library and record management services, facilities,
security and custodial services. These services may be provided by an employee
of DLJ or any of its affiliates or by any third party chosen at the sole
discretion of DLJ and the costs of these services and space are allocated to
DLJdirect. The agreement may be terminated upon a change in control or upon
90-day notice by either party. Amounts paid by DLJdirect under this agreement
were $1.2 million, $1.9 million, and $2.7 million, in 1996, 1997 and 1998,
respectively, and $588,000 in the first quarter of 1999.
DLJdirect provides technology services to DLJ in exchange for fee
payments. Fees related to these services were $4.8 million and $12.8 million in
1997 and 1998, respectively, and $4.2 million in
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the first quarter of 1999. DLJdirect and DLJ intend to memorialize this
arrangement in an agreement effective May 3, 1999. Pursuant to a Services
Agreement dated August 1, 1997 between a subsidiary of DLJdirect Holdings Inc.
and an affiliate of Equitable, the subsidiary provides services to Equitable in
return for monthly fees. These services include development services such as
technological solutions to enhance account security, maintenance services
(including hotline support, scheduled maintenance and informal training) and
hosting services such as the interconnection, monitoring and provision of
servers to support Equitable's Internet applications. Fees paid by Equitable
amounted to $600,000 in 1998 and $100,000 in the first quarter of 1999.
DLJ provides DLJdirect with online access to select DLJ research products
pursuant to a three- year agreement effective as of April 28, 1999. The
research includes, among other things, product marketing notes, DLJ buylines,
various "facts and focus" segments, weekly reports by portfolio managers and
company/industry reports. Under the terms of the agreement, DLJdirect can
provide those customers having more than $100,000 in total assets in DLJdirect
accounts and authorized non-trial customers with access to this research. DLJ
has agreed for a period of three years not to make this research or similar
research available to any other online brokerage firm. DLJdirect agrees to pay
DLJ fees, which decrease incrementally based on the number of qualified
customers. Amounts paid under a similar prior agreement were $307,000 in 1997,
$1.4 million in 1998, and $400,000 in the first quarter of 1999.
DLJdirect has agreed to compensate DLJ for providing to DLJdirect
allocations in offerings in which DLJ serves as lead manager or co-manager and
in which DLJdirect participates as an underwriter or a member of a selling
group. The amount of such compensation is equal to 10% of the selling
concessions received by DLJdirect.
DLJdirect distributes certain Alliance Capital Management, L.P. sponsored
funds and cash management products and receives marketing and distribution
fees. Amounts paid by Alliance to DLJdirect in connection with these
distribution services during 1996, 1997 and 1998 totaled $1.0 million, $1.6
million and $3.0 million, respectively, and $1.1 million in the first quarter
of 1999.
DLJdirect currently occupies office facilities owned by a joint venture in
which Equitable participates. Amounts paid under this agreement in 1997 and
1998 were $239,000 and $410,000, respectively, and $102,000 in the first
quarter of 1999. Donaldson Leasing Corp. provides off balance sheet financing
for a substantial portion of fixed assets used by DLJdirect pursuant to a
five-year Master Lease Agreement dated September 3, 1996. Amounts paid under
this agreement were $632,000, $1.1 million, and $2.5 million, in 1996, 1997,
and 1998, respectively, and $703,000 in the first quarter of 1999. A small
percentage of the equipment used by DLJdirect is leased by an affiliate from a
third-party leasing company and provided to DLJdirect under an intercompany
services agreement. DLJdirect leases 100% of its fixed assets located in North
Carolina pursuant to a lease with a third-party leasing company guaranteed by
Donaldson, Lufkin & Jenrette, Inc.
Certain directors, officers and employees of DLJdirect, DLJ, Equitable,
AXA and their subsidiaries maintain margin accounts with DLJdirect Inc. Margin
account transactions for such directors, officers and employees are conducted
by DLJdirect Inc. in the ordinary course of business and are substantially on
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with unaffiliated persons and do not
involve more than the normal risk of collectibility or present other
unfavorable features.
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DESCRIPTION OF CAPITAL STOCK
The following description is not complete and should be read with our
amended and restated certificate of incorporation, which we have filed as an
exhibit to the registration statement of which this prospectus is a part.
This description refers in many places to "DLJ's retained interest in
DLJdirect." This represents the ownership of DLJ in that portion of DLJdirect
that is not represented by DLJdirect common stock. The size of this retained
interest relative to the interest represented by DLJdirect common stock may
change in the future if actions are taken, such as
o issuances of additional shares of DLJdirect common stock,
o repurchases of DLJdirect common stock, or
o transfers of cash or other property between DLJ and DLJdirect,
that change either the total amount of the assets of DLJdirect or the number of
shares of DLJdirect common stock that is outstanding. These actions, and the
effect that they would have on holders of DLJdirect common stock are described
further in this section. See Annex 1, "Illustration of Certain Terms", for
further discussion of certain terms defined in this section.
PROPOSED AMENDMENT TO OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
Our current certificate of incorporation authorizes us to issue
300,000,000 shares of common stock, par value $0.10 per share, and 50,000,000
shares of preferred stock, par value $0.01 per share. Only the preferred stock
is currently issuable in series by the board of directors. As of March 1, 1999,
we had 124,320,184 shares of common stock and 7,500,000 shares of preferred
stock issued and outstanding.
Before the offering, we will file an amendment to our amended and restated
certificate of incorporation which will
o authorize the board of directors of Donaldson, Lufkin & Jenrette, Inc.
to issue a total of 1.5 billion shares of common stock in multiple
series, including DLJ common stock and DLJdirect common stock. The board
of directors of Donaldson, Lufkin & Jenrette, Inc. will be authorized to
issue 500,000,000 shares of DLJ common stock and 500,000,000 shares of
DLJdirect common stock and
o re-classify each outstanding share of common stock into a share of DLJ
common stock.
We intend DLJdirect common stock to reflect the performance of the online
discount brokerage and related investment services businesses of DLJdirect,
including certain activities currently conducted by DLJdirect Holdings Inc. and
one or more affiliates of Donaldson, Lufkin & Jenrette, Inc.
We intend DLJ common stock to reflect the performance of the rest of the
businesses conducted by DLJ and its affiliates, including DLJ's retained
interest in DLJdirect.
We will allocate all of Donaldson, Lufkin & Jenrette, Inc.'s consolidated
assets, liabilities, revenue, expenses and cash flow between DLJ and DLJdirect.
We may decide to authorize the issuance of shares of additional series of
common stock other than DLJ common stock or DLJdirect common stock in which
case we shall designate the assets and liabilities of DLJ to which such series
of common stock relates and such assets and liabilities shall be an additional
"Group" for the purposes of our restated charter.
Before the offering, the board of directors of Donaldson, Lufkin &
Jenrette, Inc. will designate the initial number of shares of DLJdirect common
stock that may be issued for the account of DLJ in respect of its retained
interest in DLJdirect. See "-- DLJ's Retained Interest in DLJdirect or Any
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Group" and our restated charter for additional information about DLJ's retained
interest in DLJdirect (or in any other Group) and the initial number of shares
of DLJdirect common stock that may be issued for the account of DLJ in respect
of its retained interest in DLJdirect (or in any other Group).
The board of directors of Donaldson, Lufkin & Jenrette, Inc. will have the
authority in its sole discretion to issue authorized but unissued shares of
common stock from time to time for any proper corporate purpose. The board of
directors of Donaldson, Lufkin & Jenrette, Inc. will have the authority to do
so without stockholders approval, except as may be provided by Delaware law or
the rules and regulations of any securities exchange on which any series of
outstanding common stock may then be listed.
DIVIDENDS
The board of directors of Donaldson, Lufkin & Jenrette, Inc. will retain
the discretion whether or not to pay dividends on DLJdirect common stock or any
series of common stock. We do not expect to change our current dividend policy
for our outstanding common stock (which will become DLJ common stock). We do
not expect to pay dividends on DLJdirect common stock in the future; however,
o we will be permitted to pay dividends on any series of common stock out
of the lesser of the assets of Donaldson, Lufkin & Jenrette, Inc. legally
available for the payment of dividends under Delaware law and the
Available Dividend Amount (as defined herein) for the Group to which such
series of common stock relates.
The amount legally available for the payment of dividends on common stock
of a corporation under Delaware law is generally limited to:
o the total assets of the corporation less its total liabilities less
o the aggregate par value of the issued shares of its common and
preferred stock, plus any amounts which the board of directors of
Donaldson, Lufkin & Jenrette, Inc. has designated as capital in respect
of such shares.
However, if that amount is not greater than zero, the corporation may also
pay dividends out of the net profits for the corporation for the fiscal year in
which the dividend is declared and/or the preceding fiscal year. As mentioned
above, these restrictions will form the basis for calculating the Available
Dividend Amounts for DLJ and DLJdirect. Thus, net losses of either Group, and
any dividends and distributions on, or repurchases of, either series of common
stock, may reduce the assets legally available for dividends on both series of
common stock. These restrictions will also form the basis for calculating the
aggregate amount of dividends that Donaldson, Lufkin & Jenrette, Inc. as a
whole can pay on its common stock, regardless of series. Thus, for example, net
losses of the DLJ Group, and any dividends and distributions on, or repurchases
of, DLJ common stock, will reduce the assets legally available for dividends on
the DLJdirect common stock.
Subject to the foregoing limitations, applicable regulatory requirements
and to any other limitations set forth in any future series of preferred stock
or in any agreements binding on Donaldson, Lufkin & Jenrette, Inc. from time to
time, we have the right to pay dividends on all, any or no series of common
stock in equal or unequal amounts, regardless of the relative amounts of the
Available Dividend Amounts, the amount of dividends previously declared on
either series, the respective voting or liquidation rights of each series or
any other factor.
At the time of any dividend on the outstanding shares of DLJdirect common
stock or any other series of common stock, including any dividend resulting
from a disposition of All or Substantially All of the Assets (as defined
herein) of the Group to which such series of common stock relates but excluding
any dividend payable in shares of such series of common stock, we will credit
to DLJ, and charge against such Group, a corresponding amount in respect of
DLJ's retained interest in such Group. Specifically, the corresponding amount
will equal (1) the aggregate amount of such dividend times (2) the Retained
Interest Amount (as defined herein) in respect of such Group.
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The board of directors of Donaldson, Lufkin & Jenrette, Inc. may declare
and pay dividends or distributions of shares of common stock (or securities
convertible into or exchangeable or exercisable for shares of common stock) if
such dividends or distributions of shares
o of any series of common stock (or securities convertible into or
exchangeable or exercisable for shares of common stock) are on shares of
the same series of common stock, or
o are of a series of common stock other than DLJ common stock (or
securities convertible into or exchangeable or exercisable for shares of
a series of common stock other than DLJ common stock) on shares of DLJ
common stock and the sum of the shares of the series of common stock to
be issued and the shares of the series of common stock issuable upon
conversion, exchange or exercise of any outstanding convertible
securities attributable to the DLJ Group is less than or equal to the
Number of Shares Issuable with Respect to DLJ's Retained Interest in such
Group.
MANDATORY DIVIDEND, REDEMPTION OR EXCHANGE ON DISPOSITION OF ALL OR
SUBSTANTIALLY ALL OF THE ASSETS OF A GROUP
In general, if we sell 80% or more of the assets of DLJdirect, we must
either:
o pay a dividend to holders of DLJdirect common stock equal to a
proportionate interest in the net proceeds of the sale,
o redeem outstanding shares of DLJdirect common stock in an amount equal
to a proportionate interest in the net proceeds of the sale, or
o issue DLJ common stock in exchange for outstanding DLJdirect common
stock at a 10% premium to the DLJdirect common stock.
This provision is described in greater detail below.
If we dispose of All or Substantially All of the Assets of a Group
(including the DLJdirect Group) to one or more persons or entities, in one
transaction or a series of related transactions, and the Disposition is not an
Exempt Disposition as defined below, we would be required, by the 85th Trading
Day after the consummation of such Disposition, to either:
o declare and pay a dividend to holders of the series of common stock
that relates to the Group that consummated such Disposition in cash,
securities (other than common stock of Donaldson, Lufkin & Jenrette,
Inc.) or other property, or a combination thereof, in an aggregate amount
having a Fair Value (determined as of the Disposition Date) equal to the
product of the Outstanding Interest Fraction in such Group (determined as
of the record date for such dividend) and the Fair Value (determined as
of the Disposition Date) of the Net Proceeds of such Disposition,
o redeem from holders of the series of common stock that relates to the
Group that consummated such Disposition, in exchange for cash, securities
(other than common stock of Donaldson, Lufkin & Jenrette, Inc.) or other
property, or a combination thereof, in an amount equal to the product of
the Outstanding Interest Fraction with respect to such Group (determined
as of the redemption date) and the Fair Value (determined as of the
Disposition Date) of the Net Proceeds of such Disposition, all of the
outstanding shares of such series of common stock (unless such
Disposition involves substantially all (but not all) of the assets
attributed to such Group, in which case, a number of shares of such
series of common stock having an aggregate average Market Value, during
the 20 consecutive Trading Day period beginning on the 16th Trading Day
immediately following the Disposition Date, equal to such amount) or
o issue shares of a series of common stock that does not relate to the
Group that consummated such Disposition in exchange for each outstanding
share of the series of common stock that relates to the Group that
consummated such Disposition at a 10% premium, based on the
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average Market Value of the relevant series of common stock as compared
to the average Market Value of the other series of common stock during
the 20 consecutive Trading Day period beginning on the 16th Trading Day
immediately following the Disposition Date.
In connection with any special dividend on, or redemption of, common stock
as described above, we will credit to DLJ, and charge against the applicable
Group, a corresponding amount in respect of DLJ's retained interest in such
Group. Specifically, the corresponding amount will equal
o the aggregate Fair Value of such dividend or redemption times
o the Retained Interest Amount in respect of such Group.
In addition, in connection with any redemption of common stock as
described above, we will decrease the Number of Shares Issuable with Respect to
DLJ's Retained Interest in such Group by the same proportion as the
proportionate decrease in outstanding shares of such Group caused by such
redemption.
At any time within one year after completing any dividend or partial
redemption of the sort referred to above, we will have the right to issue
shares of a series of common stock that does not relate to the Group in
question in exchange for each remaining outstanding share of the series of
common stock that relates to that Group at a 10% premium. The exchange ratio
will be calculated based on the average Market Value of the relevant series of
common stock as compared to the average Market Value of the other series of
common stock during the 20 consecutive Trading Day period ending on the 5th
Trading Day immediately preceding the date on which Donaldson, Lufkin &
Jenrette, Inc. mails the notice of exchange to holders of the relevant series.
In determining whether to effect any such exchange following such a dividend or
partial redemption, we would, in addition to other matters, consider:
o whether the remaining assets of such Group continue to constitute a
viable business,
o the number of shares of such common stock remaining issued and
outstanding,
o the per share market price of such common stock, and
o the ongoing cost of continuing to have a separate series of such common
stock outstanding.
OPTIONAL EXCHANGE OF DLJ COMMON STOCK FOR DLJDIRECT COMMON STOCK
We will have the right at any time to declare that each outstanding share
of DLJdirect common stock shall be exchanged, as of the applicable exchange
date, for a number of fully paid and nonassessable shares of DLJ common stock
at a premium. The premium will initially be 25%, for exchanges occurring in the
first 90 days after issuance, and will decline thereafter over a period of 3
years to 15%, as determined by the applicable exchange date.
Notwithstanding the preceding paragraph, upon the occurrence of a Tax
Event (as defined below), we will have the right to issue shares of DLJ common
stock in exchange for outstanding shares of DLJdirect common stock at a premium
of 10%.
The exchange ratio that will result in the specified premium will be
calculated based on the average Market Value of DLJ common stock as compared to
the average Market Value of DLJdirect common stock during the 20 consecutive
Trading Day period ending on, and including, the 5th Trading Day immediately
preceding the date on which we mail the notice of exchange to holders of the
outstanding shares being exchanged.
OPTIONAL EXCHANGE FOR STOCK OF A SUBSIDIARY
In general, we can exchange stock of one of our subsidiaries for DLJdirect
common stock if all the assets and liabilities of DLJdirect are transferred to
that subsidiary. This provision is described in greater detail below.
At any time at which all of the assets and liabilities of a Group, and no
other assets or liabilities of Donaldson, Lufkin & Jenrette, Inc. or any
subsidiary thereof, are held directly or indirectly by one
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or more wholly owned subsidiaries of Donaldson, Lufkin & Jenrette, Inc., we
may, provided that there are funds of Donaldson, Lufkin & Jenrette, Inc.
legally available, declare that all of the outstanding shares of the common
stock relating to such Group shall be exchanged, as of the applicable exchange
date, for the number of fully paid and nonassessable shares of common stock of
such Group Subsidiaries equal to the product of the Outstanding Interest
Fraction with respect to such Group (determined as of the applicable exchange
date) and the number of shares of common stock of each such Group Subsidiary as
will be outstanding immediately following such exchange. Such shares of common
stock of such Group Subsidiaries may be delivered by the delivery of shares of
one or more of such Group Subsidiaries that own directly or indirectly all of
the other shares that are deliverable as described in the preceding sentence.
If the series of common stock being exchanged is DLJ common stock and the
Number of Shares Issuable with Respect to DLJ's Retained Interest in any Group
other than DLJ on the exchange date is greater than zero, we will also issue a
number of shares of the series of common stock that relates to such Group on
the exchange date equal to the then current Number of Shares Issuable with
Respect to DLJ's Retained Interest in such Group and deliver those shares to
the holders of DLJ common stock or to one of the DLJ Group Subsidiaries, at our
option.
GENERAL DIVIDEND, EXCHANGE AND REDEMPTION PROVISIONS
If we complete a Disposition of All or Substantially All of the Assets of
a Group, other than an Exempt Disposition, we would be required, not later than
the 10th Trading Day after the applicable Disposition Date, to issue a press
release specifying:
o the Net Proceeds of such Disposition,
o the number of shares of the series of common stock related to such
Group then outstanding,
o the number of shares of such series of common stock issuable upon
conversion, exchange or exercise of any convertible or exchangeable
securities, options or warrants and the conversion, exchange or
exercise prices thereof, and
o if the Group is not DLJ, the Number of Shares Issuable with Respect to
DLJ's Retained Interest in such Group.
Not more than 40 Trading Days after such consummation, we would be required to
announce by press release which of the actions specified in the first paragraph
under "-- Mandatory Dividend, Redemption or Exchange" we have determined to
take. After making that announcement, the determination would become
irrevocable. In addition, we would be required, not more than 40 Trading Days
after such consummation and not less than 10 Trading Days before the applicable
payment date, redemption date or exchange date, to send a notice by first-class
mail, postage prepaid, to holders of the relevant series of common stock at
their addresses as they appear on our transfer books.
o If we determine to pay a special dividend, we would be required to
specify in the notice
____ (1) the record date for such dividend,
____ (2) the payment date of such dividend (which cannot be more than 85
Trading Days after such Disposition Date),
____ (3) the Net Proceeds of such Disposition, and
____ (4) the aggregate amount and type of property to be paid in such
dividend (and the approximate per share amount thereof).
o If we determine to undertake a redemption, we would be required to
specify in the notice
____ (1) the date of redemption (which cannot be more than 85 Trading Days
after such Disposition Date),
____ (2) the Net Proceeds of such Disposition,
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____ (3) the type of property to be paid as a redemption price and the
approximate per share amount thereof,
____ (4) if less than all shares of the relevant series of common stock are
to be redeemed, the number of shares to be redeemed, and
____ (5) the place or places where certificates for shares of such series of
common stock, properly endorsed or assigned for transfer (unless we
waive such requirement), should be surrendered in return for delivery
of the cash, securities or other property to be paid by Donaldson,
Lufkin & Jenrette, Inc. in such redemption.
o If we determine to undertake an exchange, we would be required to
specify in the notice
____ (1) the date of exchange (which cannot be more than 85 Trading Days
after such Disposition Date),
____ (2) the number of shares of the other series of common stock to be
issued in exchange for each outstanding share of such series of
common stock, and
____ (3) the place or places where certificates for shares of such series of
common stock, properly endorsed or assigned for transfer, unless we
waive such requirement, should be surrendered in return for delivery
of the other series of common stock to be issued by Donaldson, Lufkin
& Jenrette, Inc. in such exchange.
If we determine to complete any exchange described under "-- Optional
Exchange of DLJ Common Stock for DLJdirect Common Stock" or "Optional Exchange
for Stock of a Subsidiary", we must, between 10 and 30 Trading Days before the
exchange date, send a notice by first-class mail, postage prepaid, to holders
of the relevant series of common stock at their addresses as they appear on our
transfer books, specifying (1) the exchange date and the other terms of the
exchange and (2) the place or places where certificates for shares of such
series of common stock, properly endorsed or assigned for transfer, unless we
waive such requirement, should be surrendered for delivery of the stock to be
issued or delivered by Donaldson, Lufkin & Jenrette, Inc. in such exchange.
Neither the failure to mail any required notice to any particular holder
nor any defect therein would affect the sufficiency thereof with respect to any
other holder or the validity of any dividend, redemption or exchange.
If we are redeeming less than all of the outstanding shares of a series of
common stock as described above, we would redeem such shares pro rata or by lot
or by such other method as the board of directors determines to be equitable.
No holder of shares of a series of common stock being exchanged or
redeemed will be entitled to receive any cash, securities or other property to
be distributed in such exchange or redemption until such holder surrenders
certificates for such shares, properly endorsed or assigned for transfer, at
such place as we specify, unless we waive such requirement. As soon as
practicable after our receipt of certificates for such shares, we would deliver
to the person for whose account such shares were so surrendered, or to the
nominee or nominees of such person, the cash, securities or other property to
which such person is entitled, together with any fractional payment referred to
below, in each case without interest. If less than all of the shares of common
stock represented by any one certificate were to be exchanged or redeemed, we
would also issue and deliver a new certificate for the shares of such common
stock not exchanged or redeemed.
We would not be required to issue or deliver fractional shares of any
capital stock or any other fractional securities to any holder of common stock
upon any exchange, redemption, dividend or other distribution described above.
If more than one share of common stock were held at the same time by the same
holder, we may aggregate the number of shares of any capital stock that would
be issuable or any other securities that would be distributable to such holder
upon any such exchange, redemption, dividend or other distribution. If there
are fractional shares of any capital stock or any
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other fractional securities remaining to be issued or distributed to any
holder, we would, if such fractional shares or securities were not issued or
distributed to such holder, pay cash in respect of such fractional shares or
securities in an amount equal to the Fair Value thereof, without interest.
From and after the date set for any exchange or redemption, all rights of
a holder of shares of common stock that were exchanged or redeemed would cease
except for the right, upon surrender of the certificates representing such
shares, to receive the cash, securities or other property for which such shares
were exchanged or redeemed, together with any fractional payment as provided
above, in each case without interest and, if such holder was a holder of record
as of the close of business on the record date for a dividend not yet paid, the
right to receive such dividend. A holder of shares of common stock being
exchanged would not be entitled to receive any dividend or other distribution
with respect to shares of the other series of common stock until after the
shares being exchanged are surrendered as contemplated above. Upon such
surrender, we would pay to the holder the amount of any dividends or other
distributions, without interest, which theretofore became payable with respect
to a record date occurring after the exchange, but which were not paid by
reason of the foregoing, with respect to the number of whole shares of the
other series of common stock represented by the certificate or certificates
issued upon such surrender. From and after the date set for any exchange, we
would, however, be entitled to treat the certificates for shares of common
stock being exchanged that were not yet surrendered for exchange as evidencing
the ownership of the number of whole shares of the other series of common stock
for which the shares of such common stock should have been exchanged,
notwithstanding the failure to surrender such certificates.
We would pay any and all documentary, stamp or similar issue or transfer
taxes that might be payable in respect of the issue or delivery of any shares
of capital stock and/or other securities on any exchange or redemption
described herein. We would not, however, be required to pay any tax that might
be payable in respect of any transfer involved in the issue or delivery of any
shares of capital stock and/or other securities in a name other than that in
which the shares so exchanged or redeemed were registered, and no such issue or
delivery will be made unless and until the person requesting such issue pays to
Donaldson, Lufkin & Jenrette, Inc. the amount of any such tax or establishes to
our satisfaction that such tax has been paid.
We may, subject to applicable law, establish such other rules,
requirements and procedures to facilitate any dividend, redemption or exchange
contemplated as described above as the board of directors may determine to be
appropriate under the circumstances.
VOTING RIGHTS
Holders of DLJdirect common stock will not be entitled to vote, unless a
separate class vote is required by applicable law. Holders of DLJ common stock
will vote on all matters as to which common stockholders generally are entitled
to vote. On all such matters for which no separate vote is required, each
outstanding share of DLJ common stock entitles the holder to one vote.
The Delaware general corporation law requires a separate vote of holders
of shares of common stock of any series on any amendment to the certificate of
incorporation if the amendment would alter or change the powers, preferences or
special rights of the shares of such series so as to affect them adversely but
would not so affect the entire class.
LIQUIDATION
In general, upon a liquidation of our company, holders of DLJ common stock
and DLJdirect common stock will receive any net assets remaining after the
payment of our liabilities and of the liquidation preference on any preferred
stock, on a pro rata basis in accordance with the average market value of DLJ
common stock and the average market value of DLJdirect common stock over a
20-trading-day period prior to the liquidation. This provision is described in
greater detail below.
The holders of each series of common stock, including DLJdirect common
stock, will be entitled, upon voluntary or involuntary liquidation, dissolution
or winding-up of Donaldson, Lufkin & Jenrette,
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Inc., to receive their proportionate interest in the net assets of Donaldson,
Lufkin & Jenrette, Inc., if any, remaining for distribution to stockholders
after payment of or provision for all liabilities, including contingent
liabilities, of Donaldson, Lufkin & Jenrette, Inc. and payment of the
liquidation preference payable to any holders of our preferred stock, if any
such stock is outstanding. Each share of each series of common stock will be
entitled to a share of net liquidation proceeds in proportion to the respective
liquidation units per share of such class. Each share of DLJ common stock shall
have one liquidation unit and each share of each other series of common stock
shall have a number of liquidation units (including a fraction of one
liquidation unit) equal to the quotient of the average Market Value of one
share of such series of common stock during the 20 consecutive Trading Day
period ending on, and including, the 5th Trading Day before the date of the
first public announcement of (1) a voluntary liquidation, dissolution or
winding-up by Donaldson, Lufkin & Jenrette, Inc. or (2) the institution of any
proceeding for the involuntary liquidation, dissolution or winding-up of
Donaldson, Lufkin & Jenrette, Inc. divided by the average Market Value of one
share of DLJ common stock during such 20 Trading Day period.
The liquidation formula is intended to provide liquidation rights for each
series of common stock proportionate to the respective Market Values at the
time of any liquidation.
Neither the merger nor consolidation of Donaldson, Lufkin & Jenrette, Inc.
with any other entity, nor a sale, transfer or lease of all or any part of the
assets of Donaldson, Lufkin & Jenrette, Inc., would alone be deemed a
liquidation, dissolution or winding-up for these purposes.
DLJ'S RETAINED INTEREST IN DLJDIRECT OR ANY GROUP
In this document, the proportional interest in DLJdirect or any other
Group (other than DLJ) intended to be represented at any time by the
outstanding shares of the series of common stock that relates to such Group, is
represented by the "Outstanding Interest Fraction" and the remaining
proportional interest in such Group intended to be represented at any time by
DLJ's retained interest in such Group, is represented by the "Retained Interest
Fraction".
At any time, the Outstanding Interest Fraction equals the number of shares
of the series of common stock that relates to such Group outstanding divided by
the sum of number of shares of such series of common stock outstanding and the
Number of Shares Issuable with Respect to DLJ's Retained Interest in such
Group. The Outstanding Interest Fraction in any Group can also be expressed as
follows:
Number of Shares of such Series of common stock
Outstanding
------------------------------------------
Number of Shares of such Series of common stock
Outstanding + Number of Shares Issuable with Respect to
DLJ's Retained Interest in such Group
The Retained Interest Fraction in respect of any Group equals the Number
of Shares Issuable with Respect to DLJ's Retained Interest in such Group
divided by the sum of the Number of Shares Issuable with Respect to DLJ's
Retained Interest in such Group and the number of shares of such series of
common stock outstanding. The Retained Interest Fraction in respect of any
Group can also be expressed as follows:
Number of Shares Issuable with Respect to DLJ's Retained
Interest in such Group
------------------------------------------
Number of Shares Issuable with Respect to DLJ's Retained
Interest in such Group + Number of Shares of
such Series of common stock Outstanding
ATTRIBUTION OF ISSUANCES OF COMMON STOCK
Whenever we decide to issue shares of any series of common stock other
than DLJ common stock, we would determine, in our sole discretion, whether to
attribute that issuance, and the proceeds thereof:
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o to DLJ in respect of its retained interest in the Group to which such
series of common stock relates, in a manner analogous to a secondary
offering of common stock of a subsidiary owned by a corporate parent,
or
o to such Group, in a manner analogous to a primary offering of common
stock.
If we issue any shares of any series of common stock other than DLJ common
stock and attribute that issuance, and the proceeds thereof, to DLJ in respect
of its retained interest in the Group to which such series of common stock
relates,
o the Number of Shares Issuable with Respect to DLJ's Retained Interest
in respect of such Group would be reduced by the number of shares so
issued,
o the number of outstanding shares of such series of common stock would
be increased by the same amount,
o the Retained Interest Fraction in respect of such Group would be
reduced, and
o the Outstanding Interest Fraction in respect of such Group would be
correspondingly increased.
If we instead attribute that issuance (and the proceeds thereof) to such Group,
the Number of Shares Issuable with Respect to DLJ's Retained Interest in such
Group would remain unchanged, the number of outstanding shares of such series
of common stock would be increased by the number of shares so issued, the
Retained Interest Fraction in respect of such Group would be reduced and the
Outstanding Interest Fraction in respect of such Group would be correspondingly
increased.
ISSUANCES OF COMMON STOCK AS DISTRIBUTIONS ON DLJ COMMON STOCK
We reserve the right to issue shares of any series of common stock other
than DLJ common stock as a distribution on DLJ common stock, although we do not
currently intend to do so. If we did so, we would attribute that distribution
to DLJ in respect of its retained interest in the Group to which such series of
common stock relates. As a result,
o the Number of Shares Issuable with Respect to DLJ's Retained Interest
in such Group would be reduced by the number of shares so distributed,
o the number of outstanding shares of such series of common stock would
be increased by the same amount,
o the Retained Interest Fraction in such Group would be reduced, and
o the Outstanding Interest Fraction in such Group would be
correspondingly increased.
If instead we issued shares of such series of common stock as a distribution on
such series of common stock, we would attribute that distribution to such
Group, in which case we would proportionately increase the Number of Shares
Issuable with Respect to DLJ's Retained Interest in such Group. As a result,
o the Number of Shares Issuable with Respect to DLJ's Retained Interest
in such Group would be increased by the same percentage as the number
of outstanding shares of such series of common stock is increased, and
o the Retained Interest Fraction in respect of such Group and the
Outstanding Interest Fraction in respect of such Group would remain
unchanged.
DIVIDENDS ON COMMON STOCK
At the time of any dividend on the outstanding shares of any series of
common stock other than DLJ common stock, including any dividend required as a
result of a Disposition of All or Substantially All of the Assets of the Group
to which such series of common stock relates, but excluding any dividend
payable in shares of such series of common stock, we will credit to DLJ, and
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charge against such Group, a corresponding amount in respect of DLJ's retained
interest in such Group. Specifically, the corresponding amount will equal the
aggregate amount of such dividend times the Retained Interest Amount in respect
of such Group.
REPURCHASES OF COMMON STOCK
If we decide to repurchase shares of any series of common stock other than
DLJ common stock, we would determine, in our sole discretion, whether to
attribute that repurchase and the cost thereof to DLJ, in a manner analogous to
a purchase of common stock of a subsidiary by a corporate parent, or to the
Group to which such series of common stock relates, in a manner analogous to an
issuer repurchase. If we repurchase shares of such series of common stock and
attribute that repurchase and the cost thereof to DLJ,
o the Number of Shares Issuable with Respect to DLJ's Retained Interest
in respect of such Group would be increased by the number of shares so
purchased,
o the number of outstanding shares of such series common stock would be
decreased by the same amount,
o the Retained Interest Fraction in respect of such Group would be
increased, and
o the Outstanding Interest Fraction in respect of such Group would be
correspondingly decreased.
If we instead attribute that repurchase and the cost thereof to the Group to
which such series of common stock relates,
o the Number of Shares Issuable with Respect to DLJ's Retained Interest
in such Group would remain unchanged,
o the number of outstanding shares of such series common stock would be
decreased by the number of shares so repurchased,
o the Retained Interest Fraction in respect of such Group would be
increased, and
o the Outstanding Interest Fraction in respect of such Group would be
correspondingly reduced.
TRANSFERS OF CASH OR OTHER PROPERTY BETWEEN DLJ AND ANY OTHER GROUP
We may, in our sole discretion, determine to transfer cash or other
property of any Group to DLJ in return for a decrease in DLJ's retained
interest in such Group, in a manner analogous to a return of capital, or to
transfer cash or other property of DLJ to such Group in return for an increase
in DLJ's retained interest in such Group, in a manner analogous to a capital
contribution. If we determine to transfer cash or other property of any Group
to DLJ in return for a decrease in DLJ's retained interest in such Group,
o the Number of Shares Issuable with Respect to DLJ's Retained Interest
in such Group would be decreased by an amount equal to the Fair Value
of such cash or other property divided by the Market Value of a share
of the series of common stock relating to such Group on the day of
transfer,
o the number of outstanding shares of such series common stock would
remain unchanged,
o the Retained Interest Fraction in respect of such Group would be
reduced, and
o the Outstanding Interest Fraction in respect of such Group would be
correspondingly increased.
If we instead determine to transfer cash or other property of DLJ to any other
Group in return for an increase in DLJ's retained interest in such Group,
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o the Number of Shares Issuable with Respect to DLJ's Retained Interest
in such Group would be increased by an amount equal to the Fair Value
of such cash or other property divided by the Market Value of a share
of the series of common stock relating to such Group on the day of
transfer,
o the number of outstanding shares of such series of common stock would
remain unchanged,
o the Retained Interest Fraction in respect of such Group would be
increased, and
o the Outstanding Interest Fraction in respect of such Group would be
correspondingly decreased.
We may not attribute issuances of any series of common stock to DLJ,
transfer cash or other property of any Group to DLJ in return for a decrease in
its retained interest in such Group or take any other action to the extent that
doing so would cause the Number of Shares Issuable with Respect to DLJ's
Retained Interest in such Group to decrease below zero.
For illustrations showing how to calculate the Retained Interest Fraction,
the Outstanding Interest Fraction and the Number of Shares Issuable with
Respect to DLJ's Retained Interest in DLJdirect after giving effect to certain
hypothetical dividends, issuances, repurchases and transfers, see "Illustration
of Certain Terms".
DEFINITIONS
The following terms used in this prospectus have the meanings specified in
our restated charter and are set forth below:
"All or Substantially All of the Assets" of a Group means, with respect to
any Disposition, a portion of such assets that represents at least 80% of the
Fair Value (determined as of the Disposition Date) of the assets of such Group.
The "Available Dividend Amount" for DLJ at any time is the amount that
would then be legally available for the payment of dividends on DLJ's common
stock under Delaware law if
o DLJ and each other Group were each a single, separate Delaware
corporation,
o DLJ had outstanding (1) a number of shares of common stock, par value
$0.10 per share, equal to the number of shares of DLJ common stock that
are then outstanding and (2) a number of shares of preferred stock, par
value $0.01 per share, equal to the number of shares of preferred stock
of Donaldson, Lufkin & Jenrette, Inc. that have been attributed to DLJ
that are then outstanding,
o the assumptions about each other Group set forth in the following
definition were true, and
o DLJ owned a number of shares of each series of common stock (other than
DLJ common stock) equal to the Number of Shares Issuable with Respect
to DLJ's Retained Interest in each Group to which each such series of
common stock relates.
The "Available Dividend Amount" for any Group that is not DLJ (including
DLJdirect) at any time is the amount that would then be legally available for
the payment of dividends on the series of common stock relating to such Group
under Delaware law if such other Group were a single, separate Delaware
corporation having outstanding:
o a number of shares of common stock, par value $0.10 per share, equal to
the number of shares of the series of common stock relating to such
Group that are then outstanding plus the Number of Shares Issuable with
Respect to DLJ's Retained Interest in such Group and
o a number of shares of preferred stock, par value $0.01 per share, equal
to the number of shares of preferred stock of Donaldson, Lufkin &
Jenrette, Inc. that have been attributed to such Group, if any, that
are then outstanding.
The "Code" means the Internal Revenue Code of 1986, as amended.
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A "Disposition" means the disposition of All or Substantially All of the
Assets of a Group (including the DLJdirect Group) to one or more persons or
entities, in one transaction or a series of related transactions.
The "Disposition Date" is the date of the consummation of a Disposition.
The "Dividends Received Percentage" refers to the percentage of the
dividends received deduction (currently 70%) as specified in Section 243(a)(1)
of the Code or any successor provision.
"DLJ" or "DLJ Group" means:
o all of the businesses, assets and liabilities of Donaldson, Lufkin &
Jenrette, Inc. and its subsidiaries other than the businesses, assets
and liabilities that are part of any Group other than DLJ,
o the rights and obligations of DLJ under any inter-Group debt deemed to
be owed to or by DLJ, as such rights and obligations are defined in
accordance with policies established from time to time by the board of
directors of Donaldson, Lufkin & Jenrette, Inc., and
o a proportionate interest in any Group other than DLJ, after giving
effect to any options, preferred stock, other securities or debt issued
or incurred by Donaldson, Lufkin & Jenrette, Inc. and attributed to any
Group other than DLJ, equal to the Retained Interest Fraction in
respect of such Group; provided that:
o Donaldson, Lufkin & Jenrette, Inc. may re-allocate assets from one
Group to another Group in return for other assets or services rendered
by that other Group in the ordinary course of business or in accordance
with policies established by the board of directors of Donaldson,
Lufkin & Jenrette, Inc. from time to time and
o if Donaldson, Lufkin & Jenrette, Inc. transfers cash, other assets or
securities to holders of shares of a series of common stock other than
DLJ common stock as a dividend or other distribution on shares of such
series of common stock, other than a dividend or distribution payable
in shares of such series of common stock, or as payment in a redemption
of shares of such series of common stock effected as a result of a
Disposition relating to the Group to which such series of common stock
relates, then the board of directors of Donaldson, Lufkin & Jenrette,
Inc. shall re-allocate from such Group to DLJ cash or other assets
having a Fair Value equal to the aggregate Fair Value (in each case,
determined as of the record date for such dividend or distribution or
as of the date of such redemption) of the cash, other assets or
securities so transferred times the Retained Interest Amount in respect
of such Group (determined as of the record date for such dividend or
distribution, or as of the date of such redemption).
"DLJdirect" or "DLJdirect Group" means:
o all of the businesses, assets and liabilities of DLJdirect Holdings
Inc. and its subsidiaries,
o the business, assets and liabilities of DLJdirect's online United
Kingdom discount brokerage service,
o any assets or liabilities acquired or incurred by DLJdirect Holdings
Inc. or any of its subsidiaries after the filing of our restated
charter, in the ordinary course of business,
o any businesses, assets or liabilities acquired or incurred by
Donaldson, Lufkin & Jenrette, Inc. or any of its subsidiaries after the
filing of our restated charter that the board of directors of
Donaldson, Lufkin & Jenrette, Inc. has specifically allocated to
DLJdirect or that Donaldson, Lufkin & Jenrette, Inc. otherwise
allocates to DLJdirect in accordance with policies established from
time to time by the board of directors of Donaldson, Lufkin & Jenrette,
Inc., and
o the rights and obligations of DLJdirect under any inter-Group debt
deemed to be owed to or by DLJdirect, as such rights and obligations
are defined in accordance with policies established from time to time
by the board of directors of Donaldson, Lufkin & Jenrette, Inc.;
provided that:
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o Donaldson, Lufkin & Jenrette, Inc. may re-allocate assets from one
Group to the other Group in return for other assets or services
rendered by that other Group in the ordinary course of business or in
accordance with policies established by the board of directors of
Donaldson, Lufkin & Jenrette, Inc. from time to time and
o if Donaldson, Lufkin & Jenrette, Inc. transfers cash, other assets or
securities to holders of shares of DLJdirect common stock as a dividend
or other distribution on shares of DLJdirect common stock, other than a
dividend or distribution payable in shares of DLJdirect common stock,
or as payment in a redemption of shares of DLJdirect common stock
effected as a result of a DLJdirect Disposition, then the board of
directors of Donaldson, Lufkin & Jenrette, Inc. shall re-allocate from
DLJdirect to DLJ cash or other assets having a Fair Value equal to the
aggregate Fair Value (in each case, determined as of the record date
for such dividend or distribution or as of the date of such redemption)
of the cash, other assets or securities so transferred times the
Retained Interest Amount in respect of DLJdirect (determined as of the
record date for such dividend or distribution, or as of the date of
such redemption).
"Exempt Disposition" means any of the following:
o a Disposition in connection with the liquidation, dissolution or
winding-up of Donaldson, Lufkin & Jenrette, Inc. and the distribution
of assets to stockholders,
o a Disposition to any person or entity controlled by Donaldson, Lufkin &
Jenrette, Inc., as determined by the board of directors of Donaldson,
Lufkin & Jenrette, Inc. in its sole discretion,
o a Disposition by any Group for which Donaldson, Lufkin & Jenrette, Inc.
receives consideration primarily consisting of equity securities,
including, without limitation:
o capital stock of any kind,
o interests in a general or limited partnership,
o interests in a limited liability company or
o debt securities convertible into or exchangeable for any of the above,
or options or warrants to acquire any of the above,
in each case without regard to the voting power or other management
governance rights associated therewith, of an entity which is primarily
engaged or proposes to engage primarily in one or more businesses similar
or complementary to businesses conducted by such Group prior to the
Disposition, as determined by the board of directors of Donaldson, Lufkin &
Jenrette, Inc. in its sole discretion,
o a dividend out of any Group's assets that is paid to holders of shares
of the series of common stock relating to such Group, and a transfer of
a corresponding amount to DLJ in respect of its retained interest in
such Group,
o a dividend out of DLJ's assets to holders of DLJ common stock and
o a Disposition by any Group other than DLJ or DLJdirect that is
designated to be an "Exempt Disposition" by the board of directors of
Donaldson, Lufkin & Jenrette, Inc. in the resolution or resolutions
authorizing the issuance of the shares of the series of common stock
that relates to such Group,
o any other Disposition, if
o at the time of the Disposition there are no shares of any series of
common stock outstanding other than the series of common stock relating
to the Group that consummated such Disposition,
o at the time of the Disposition there are no shares of the series of
common stock relating to the Group that consummated such Disposition
outstanding or
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o before the 30th Trading Day following the Disposition we have mailed
a notice stating that we are exercising our right to exchange all of
the outstanding shares of DLJdirect common stock for newly issued
shares of DLJ common stock as contemplated under "-- Optional Exchange
of DLJ Common Stock for DLJdirect Common Stock" below.
"Fair Value" means:
o in the case of cash, the amount thereof,
o in the case of capital stock that has been Publicly Traded for a period of
at least 15 months, the Market Value thereof and
o in the case of other assets or securities, the fair market value thereof
as the board of directors of Donaldson, Lufkin & Jenrette, Inc. shall
determine in good faith.
(Any good faith determination by the board of directors of Donaldson, Lufkin &
Jenrette, Inc. of Fair Value shall be conclusive and binding on all
stockholders.)
"Group Subsidiaries" means one or more wholly owned subsidiaries of
Donaldson, Lufkin & Jenrette, Inc.
"Market Capitalization" of a series of common stock on any date means the
Market Value of a share of such series on such date times the number of shares
of such series outstanding on such date. Shares issuable with respect to DLJ's
retained interest in a Group other than DLJ are not considered to be
outstanding unless and until they are in fact issued to third parties.
"Market Value" of a share of any class or series of capital stock on any
Trading Day generally means the average of the high and low reported sale
prices of a share of such class or series on such Trading Day, subject to
certain exceptions described in our restated charter.
The "Net Proceeds" of a Disposition of any assets of a Group means the
positive amount, if any, remaining from the gross proceeds of such Disposition
after any payment of, or reasonable provision for:
o any taxes payable by Donaldson, Lufkin & Jenrette, Inc. or any subsidiary
or affiliate thereof in respect of such Disposition, or which would have
been payable but for the utilization of tax benefits attributable to the
Group not the subject of the Disposition,
o any taxes payable by Donaldson, Lufkin & Jenrette, Inc. or any subsidiary
or affiliate thereof in respect of any resulting dividend or redemption,
o any transaction costs, including, without limitation, any legal,
investment banking and accounting fees and expenses and
o any liabilities, contingent or otherwise, of, attributed to or related to,
such Group, including, without limitation, any liabilities for deferred
taxes, any indemnity or guarantee obligations which are outstanding or
incurred in connection with the Disposition or otherwise, any liabilities
for future purchase price adjustments and any obligations with respect to
outstanding securities, other than common stock, attributed to such Group,
as determined in good faith by the board of directors of Donaldson, Lufkin
& Jenrette, Inc.
"Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect" refers to the initial number of shares of DLJdirect common stock
that may be issued for the account of DLJ in respect of its retained interest
in DLJdirect.
An "Offer" occurs when the holders of the shares of Preferred Stock are
entitled to vote upon or consent to a merger or consolidation of Donaldson,
Lufkin & Jenrette, Inc. and when Donaldson, Lufkin & Jenrette, Inc. offers to
purchase all of the outstanding shares of a series of Preferred Stock.
"Outstanding Interest Fraction" means (i) with respect to DLJ, at any time
of determination, 1 and (ii) with respect to any other Group, at any time of
determination, a fraction the numerator of which shall be the number of shares
of the series of common stock applicable to such Group
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outstanding on such date and the denominator of which shall be the sum of the
number of shares of the series of common stock applicable to such Group
outstanding on such date and the Number of Shares Issuable with Respect to
DLJ's Retained Interest in such Group.
"Publicly Traded" with respect to any security means:
o registered under Section 12 of the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") or any successor provision of law, and
o listed for trading on the NYSE, or any other national securities exchange
registered under Section 7 of the Exchange Act, or any successor provision
of law, or
o listed on the Nasdaq National Market, or any successor market system.
The "restated charter" refers to our amended and restated certificate of
incorporation together with the proposed amendment.
"Retained Interest Amount" means (i) with respect to DLJ, at any time of
determination, 1 and (ii) with respect to any other Group, at any time of
determination, a fraction the numerator of which shall be the Number of Shares
Issuable with Respect to DLJ's Retained Interest in such Group and the
denominator of which shall be the number of shares of the series of common
stock relating to such Group outstanding on such date.
"Retained Interest Fraction" means (i) with respect to DLJ, at any time of
determination, 1 and (ii) with respect to any other Group, at any time of
determination, a fraction the numerator of which shall be the Number of Shares
Issuable with Respect to DLJ's Retained Interest in such Group and the
denominator of which shall be the sum of the number of shares of the series of
common stock relating to such Group outstanding on such date and the Number of
Shares Issuable with Respect to DLJ's Retained Interest in such Group.
"Tax Event" means the receipt by Donaldson, Lufkin & Jenrette, Inc. of an
opinion of tax counsel experienced in such matters, who shall not be an officer
or employee of Donaldson, Lufkin & Jenrette, Inc. or any of its affiliates, to
the effect that, as a result of any amendment to, or change in, the laws (or
any regulations thereunder) of the United States or any political subdivision
or taxing authority thereof or therein (including any proposed change in such
regulations announced by an administrative agency), or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, it is more likely than not
that for United States federal income tax purposes (1) Donaldson, Lufkin &
Jenrette, Inc., its subsidiaries or affiliates, or any of its successors or its
stockholders is or, at any time in the future, will be subject to tax upon the
issuance of shares of either DLJ common stock or DLJdirect common stock or (2)
either DLJ common stock or DLJdirect common stock is not or, at any time in the
future, will not be treated solely as stock of Donaldson, Lufkin & Jenrette,
Inc. For purposes of rendering such opinion, tax counsel shall assume that any
administrative proposals will be adopted as proposed. However, in the event a
change in law is proposed, tax counsel shall render an opinion only in the
event of enactment.
"Trading Day" means each weekday on which the relevant security or, if
there are two relevant securities, each relevant security, is traded on the
principal national securities exchange on which it is listed or admitted to
trading or on the Nasdaq National Market or, if such security is not listed or
admitted to trading on a national securities exchange or quoted on the Nasdaq
National Market, traded in the principal over-the-counter market in which it
trades.
EFFECTIVENESS OF CERTAIN TERMS
The terms described under "-- Dividends", "-- Mandatory Dividend,
Redemption or Exchange on Disposition of All or Substantially All of the Assets
of a Group", "-- Optional Exchange of DLJ Common Stock for DLJdirect Common
Stock", "-- Optional Exchange for Stock of a Subsidiary" and "-- Liquidation"
above apply only when there are shares of multiple series of common stock
outstanding.
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DETERMINATIONS BY THE BOARD
The restated charter will provide that, subject to applicable law, any
determinations made by the board of directors of Donaldson, Lufkin & Jenrette,
Inc. in good faith under the charter or in any certificate of designation filed
pursuant thereto would be final and binding on all stockholders of Donaldson,
Lufkin & Jenrette, Inc.
PREEMPTIVE RIGHTS
Holders of DLJ common stock and DLJdirect common stock will not have any
preemptive rights to subscribe for any additional shares of capital stock or
securities that we may issue in the future.
CERTAIN OTHER PROVISIONS OF THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION AND BY-LAWS
PREFERRED STOCK
The restated charter, like our current charter, provides that the board of
directors of Donaldson, Lufkin & Jenrette, Inc. may issue shares of preferred
stock in one or more series from time to time. The board of directors of
Donaldson, Lufkin & Jenrette, Inc. has the authority to fix by resolution or
resolutions the designations and the powers, preferences and rights, and the
qualifications, limitations and restrictions thereof, of the shares of each
series of preferred stock, including without limitation, the following:
o the distinctive serial designation of such series which shall distinguish
it from other series,
o the number of shares included in such series,
o the dividend rate, or method of determining such rate, payable to holders
of the shares of such series,
o any condition upon which such dividends shall be paid and the date or
dates upon which such dividends shall be payable,
o whether dividends on the shares of such series shall be cumulative and, in
the case of shares of any series having cumulative dividend rights, the
date or dates or method of determining the date or dates from which
dividends on the shares of such series shall be cumulative,
o the amount or amounts which shall be payable out of the assets of
Donaldson, Lufkin & Jenrette, Inc. to holders of the shares of such series
upon voluntary or involuntary liquidation, dissolution or winding-up
Donaldson, Lufkin & Jenrette, Inc. and the relative rights of priority, if
any, of payment of the shares of such series,
o the price or prices at which, the period or periods within which and the
terms and conditions upon which the shares of such series may be redeemed,
in whole or in part, at the option of Donaldson, Lufkin & Jenrette, Inc.
or at the option of the holder or holders thereof or upon the happening of
a specified event or events,
o the obligation, if any, of Donaldson, Lufkin & Jenrette, Inc. to purchase
or redeem shares of such series pursuant to a sinking fund or otherwise
and the price or prices at which, the period or periods within which and
the terms and conditions upon which the shares of such series shall be
redeemed or purchased, in whole or in part, pursuant to such obligation,
o whether or not the shares of such series shall be convertible or
exchangeable, at any time or times at the option of the holder or holders
thereof or at the option of Donaldson, Lufkin & Jenrette, Inc. or upon the
happening of a specified event or events, into shares of any other class
or classes or any other series of the same or any other class or classes
of stock of Donaldson, Lufkin & Jenrette, Inc. and the price or prices or
rate or rates of exchange or conversion and any adjustments applicable
thereto and
o whether or not holders of the shares of such series shall have voting
rights, in addition to the voting rights provided by law, and if so the
terms of such voting rights.
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SERIES A AND SERIES B FIXED ADJUSTABLE RATE PREFERRED STOCK
General. The Series A Preferred Stock is a single series consisting of
4,000,000 shares with a liquidation preference of $50 per share. The Series B
Preferred Stock is a single series consisting of 3,500,000 shares with a
liquidation preference of $50 per share. The holders of the Preferred Stock
have no preemptive rights. The Preferred Stock is not convertible into shares
of either series of common stock of Donaldson, Lufkin & Jenrette, Inc. and is
fully paid and nonassessable.
The Series A Preferred Stock ranks on a parity with the Series B Preferred
Stock and prior to both series of the common stock of Donaldson, Lufkin &
Jenrette, Inc. as to the payment of dividends and distribution of assets upon
dissolution, liquidation or winding up of Donaldson, Lufkin & Jenrette, Inc.
Dividends. Dividends on the Series A Preferred Stock are payable quarterly
at the annual rate of 5.94% or $2.97 per share through November 30, 2001. After
November 30, 2001, dividends on the Series A Preferred Stock are payable at the
Applicable Rate from time to time in effect. The Applicable Rate per annum for
each dividend period beginning November 30, 2001 will generally be equal to
0.50% plus the highest of the Treasury Bill Rate, the Ten Year Constant
Maturity Rate and the Thirty Year Constant Maturity Rate (each as defined by
the terms of the Series A Preferred Stock). The Applicable Rate per annum for
each dividend period beginning November 30, 2001, will not be less than 6.44%
nor greater than 12.44% (without taking into account any adjustments as
described below under "Changes in the Dividends Received Percentage").
Dividends on the Series B Preferred Stock are payable quarterly at the
annual rate of 5.30% of $2.65 per share through January 15, 2003. After January
15, 2003, dividends on the Series B Preferred Stock are payable at the
Applicable Rate from time to time in effect. The Applicable Rate per annum for
each dividend period beginning January 15, 2003 will generally be equal to
0.40% plus the highest of the Treasury Bill Rate, the Ten Year Constant
Maturity Rate and the Thirty Year Constant Maturity Rate (each as defined by
the terms of the Series B Preferred Stock). The Applicable Rate per annum for
each dividend period beginning January 15, 2003, will not be less than 5.70%
nor greater than 11.30% (without taking into account any adjustments as
described below under "Changes in the Dividends Received Percentage").
Dividends on the Preferred Stock are cumulative and rights accrue to the
holders of the Preferred Stock if Donaldson, Lufkin & Jenrette, Inc. fails to
declare one or more dividends on such series of Preferred Stock in any amount,
whether or not the earnings or financial condition of Donaldson, Lufkin &
Jenrette, Inc. are sufficient to pay such dividends in whole or in part.
Changes in the Dividend Received Percentage. If one or more amendments to
the Code are enacted which reduce the percentage of the dividends received
deduction (currently 70%) as specified in Section 243(a)(1) of the Code or any
successor provision (the "Dividends Received Percentage"), the amount of each
dividend on each share of the Series A Preferred Stock for dividend payments
made on or after the date of enactment of such change will generally be
adjusted upward pursuant to a specified formula set forth in the terms of the
Series A Preferred Stock.
In addition, if the Dividends Received Percentage is reduced to 50% or
less, Donaldson, Lufkin & Jenrette, Inc. may at its option, redeem the Series A
Preferred Stock as a whole but not in part as described below. See "--
Redemption".
If, prior to July 9, 1999, one or more amendments to the Code are enacted
which reduce the Dividends Received Percentage, the amount of each dividend on
each share of the Series B Preferred Stock for dividend payments made on or
after the date of enactment of such change will generally be adjusted upward
pursuant to a specified formula set forth in the terms of the Series B
Preferred Stock, provided, however, that if the Dividends Received Percentage
shall be less than 50%, then the Dividend Received Percentage shall be deemed
to equal 50%.
Voting Rights. The holders of the Preferred Stock are not entitled to
vote, except as set forth below or as expressly required by applicable law.
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If the equivalent of six quarterly dividends payable on the Preferred
Stock or any other class or series of preferred stock are in default, the
number of directors of Donaldson, Lufkin & Jenrette, Inc. will be increased by
two, and the holders of the Preferred Stock, voting as a single class with the
holders of shares of any other class of Donaldson, Lufkin & Jenrette, Inc.'s
preferred stock ranking on a parity with the Preferred Stock upon which like
voting rights have been conferred and are exercisable, will be entitled to
elect such two directors to fill such newly-created directorships.
In addition, the affirmative vote or consent of the holders of at least
662/3% of the outstanding shares of the applicable series of Preferred Stock
will be required for any amendment of the certificate of incorporation of
Donaldson, Lufkin & Jenrette, Inc. which will adversely affect the powers,
preferences, privileges or rights of such series of Preferred Stock. The
affirmative vote or consent of the holders of at least 662/3% of the
outstanding shares of the Preferred Stock and any other series of Donaldson,
Lufkin & Jenrette, Inc.'s preferred stock ranking on a parity with the
Preferred Stock, voting as a single class without regard to series, will be
required to issue, authorize or increase the authorized amount of, or issue or
authorize any obligation or security convertible into or evidencing a right to
purchase, any additional class or series of stock ranking prior to the
Preferred Stock, or to reclassify any authorized stock of Donaldson, Lufkin &
Jenrette, Inc. into such prior shares, but such vote will not be required for
Donaldson, Lufkin & Jenrette, Inc. to take any such actions with respect to any
stock ranking on a parity with or junior to the Preferred Stock.
Redemption. Prior to November 30, 2001, the Series A Preferred Stock is
not redeemable, except under certain limited circumstances as described below.
On or after such date, each share of Series A Preferred Stock will be
redeemable, in whole or in part, at the option of Donaldson, Lufkin & Jenrette,
Inc., at $50 per share, plus accrued and unpaid dividends. However, if the
Dividends Received Percentage is equal to or less than 50% and, as a result,
the amount of dividends on the Series A Preferred Stock will be or is adjusted
as described above under "Changes in the Dividends Received Percentage,"
Donaldson, Lufkin & Jenrette, Inc., at its option, may redeem all, but not less
than all, of the outstanding shares of the Series A Preferred Stock at a
redemption price specified by the terms of the Series A Preferred Stock.
Prior to January 15, 2003, the Series B Preferred Stock is not redeemable.
On or after such date, each share of Series B Preferred Stock will be
redeemable, in whole or in part, at the option of Donaldson, Lufkin & Jenrette,
Inc., at $50 per share, plus accrued and unpaid dividends.
In addition, if the holders of the shares of Preferred Stock are entitled
to vote upon or consent to a merger or consolidation of Donaldson, Lufkin &
Jenrette, Inc., and if Donaldson, Lufkin & Jenrette, Inc. offers to purchase
all of the outstanding shares of a series of Preferred Stock then each holder
of such series of Preferred Stock who does not sell their shares of Preferred
Stock pursuant to the Offer shall be deemed irrevocably to have voted or
consented all shares of Preferred Stock owned by such holder in favor of the
merger or consolidation of Donaldson, Lufkin & Jenrette, Inc. without any
further action by the holder. The Offer shall be at a price of $50 per share,
together with accrued and unpaid dividends, if any, to the date fixed for
redemption.
CERTAIN PROVISIONS OF DELAWARE LAW
Donaldson, Lufkin & Jenrette, Inc. is subject to the business combination
provisions of Section 203 of the Delaware general corporation law. In general,
such provisions prohibit a publicly-held Delaware corporation from engaging in
various business combination transactions with any interested stockholder for a
period of three years after the date of the transaction in which the person
became an interested stockholder unless:
o the business combination transaction, or the transaction in which the
interested stockholder became an interested stockholder, is approved by
the board of directors prior to the time the interested stockholder
obtained such status,
o upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by
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o persons who are directors and also officers and
o employee stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer or
o on or subsequent to such date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 662/3% of the outstanding
voting stock which is not owned by the interested stockholder.
A "business combination" is defined to include mergers, asset sales and
other transactions resulting in financial benefit to a stockholder. In general,
an "interested stockholder" is a person who, together with affiliates and
associates, owns (or, within three years, did own) 15% or more of a
corporation's voting stock. The statute could prohibit or delay mergers or
other takeover or change in control attempts with respect to Donaldson, Lufkin
& Jenrette, Inc. and, accordingly, may discourage attempts to acquire
Donaldson, Lufkin & Jenrette, Inc.
STOCK TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York is the registrar and transfer
agent for DLJ common stock and DLJdirect common stock.
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CERTAIN CASH MANAGEMENT AND ALLOCATION POLICIES
From a financial reporting standpoint, Donaldson, Lufkin & Jenrette, Inc.
has allocated all of its consolidated assets, liabilities, revenue, expenses
and cash flow between DLJ and DLJdirect. The financial statements of DLJdirect
reflect the application of certain cash management and allocation policies
adopted by the board of directors. These policies are summarized below. In this
description, each of DLJ and DLJdirect is sometimes called a "Group". If we
decide to authorize the issuance of shares of additional series of common stock
other than DLJ common stock or DLJdirect common stock, we will designate the
assets and liabilities of DLJ to which such series of common stock relates and
such assets and liabilities will be an additional "group" for the purpose of
the policies summarized below.
The board of directors of Donaldson, Lufkin & Jenrette, Inc. may, in its
sole discretion, modify, rescind or add to any of these policies, although it
has no present intention to do so. The decision of the board of directors of
Donaldson, Lufkin & Jenrette, Inc. to modify, rescind or add to any of these
policies would, however, be subject to the general fiduciary duties of the
board of directors of Donaldson, Lufkin & Jenrette, Inc. The board of directors
of Donaldson, Lufkin & Jenrette, Inc. intends to delegate its authority with
regard to these policies to its operating committee, all of whom are senior
officers of DLJ.
Even though Donaldson, Lufkin & Jenrette, Inc. has allocated all of its
consolidated assets, liabilities, revenue, expenses and cash flow between DLJ
and DLJdirect, holders of DLJdirect common stock will continue to be common
stockholders of Donaldson, Lufkin & Jenrette, Inc. and, as such, will be
subject to all risks associated with an investment in Donaldson, Lufkin &
Jenrette, Inc. and all of its businesses, assets and liabilities. See "Risk
Factors -- Risks relating to ownership of DLJdirect common stock -- Holders of
DLJdirect common stock will be common stockholders of Donaldson, Lufkin &
Jenrette, Inc.".
TREASURY ACTIVITIES
Donaldson, Lufkin & Jenrette, Inc. manages most treasury activities on a
centralized, consolidated basis. These activities include the investment of
surplus cash, the issuance, repayment and repurchase of short-term and
long-term debt, and the issuance and repurchase of common stock and preferred
stock. Each Group generally remits its cash receipts, other than receipts of
foreign operations or operations that are not wholly-owned, to Donaldson,
Lufkin & Jenrette, Inc., and Donaldson, Lufkin & Jenrette, Inc. generally funds
each Group's cash disbursements, other than disbursements of foreign operations
or operations that are not wholly-owned, on a daily basis. In certain instances
Donaldson, Lufkin & Jenrette, Inc. funds cash disbursements for Donaldson,
Lufkin & Jenrette, Inc. entities including DLJdirect.
In the combined financial statements of DLJdirect included in this
prospectus:
o all external debt and equity transactions, and the proceeds thereof, were
attributed to DLJ,
o whenever DLJdirect held cash, substantially all of that cash was invested
in money market funds managed by an affiliate,
o whenever DLJdirect had a cash need, that cash need was funded by
Donaldson, Lufkin & Jenrette, Inc. and accounted for as a capital
contribution, i.e., as an increase of DLJdirect's division equity and
DLJ's Retained Interest in DLJdirect and
o all expenses of DLJdirect were paid by DLJ and reimbursed by DLJdirect.
No interest expense has been reflected in the combined financial statements of
DLJdirect for cash transfers from Donaldson, Lufkin & Jenrette, Inc. or any of
its affiliates and no interest income from DLJdirect has been reflected in the
financial statements of Donaldson, Lufkin & Jenrette, Inc. for any period prior
to the date on which DLJdirect common stock is issued. Interest income earned
on DLJdirect's money market funds is included in DLJdirect's financial
statements.
After the date on which DLJdirect common stock is first issued:
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(1) Donaldson, Lufkin & Jenrette, Inc. will attribute each future incurrence or
issuance of external debt or preferred stock and the proceeds thereof to DLJ,
unless the board of directors of Donaldson, Lufkin & Jenrette, Inc. determines
otherwise. The board of directors of Donaldson, Lufkin & Jenrette, Inc. may,
but is not required to, attribute an incurrence or issuance of debt or
preferred stock, and the proceeds thereof, to DLJdirect to the extent that
Donaldson, Lufkin & Jenrette, Inc. incurs or issues the debt or preferred stock
for the benefit of DLJdirect.
(2) Donaldson, Lufkin & Jenrette, Inc. will attribute each future issuance of
DLJ common stock, and the proceeds thereof, to DLJ. Donaldson, Lufkin &
Jenrette, Inc. may attribute any future issuance of DLJdirect common stock and
the proceeds thereof
o to DLJ in respect of its retained interest in DLJdirect, in a manner
analogous to a secondary offering of common stock of a subsidiary
owned by a corporate parent or
o to DLJdirect, in a manner analogous to a primary offering of common
stock.
Dividends on and repurchases of DLJ common stock will be charged against DLJ,
and dividends on and repurchases of DLJdirect common stock will be charged
against DLJdirect. In addition, at the time of any dividend on DLJdirect common
stock, Donaldson, Lufkin & Jenrette, Inc. will credit to DLJ, and charge
against DLJdirect, a corresponding amount in respect of DLJ's retained interest
in DLJdirect. See "-- Description of Capital Stock -- DLJ's Retained Interest
in DLJdirect or Any Group".
(3) DLJdirect will continue to invest its excess cash. DLJ intends to fund
DLJdirect's liquidity needs in the ordinary course of business. However,
significant expenditures will be funded on a case by case basis as determined
by the board of directors of Donaldson, Lufkin & Jenrette, Inc. The board of
directors of Donaldson, Lufkin & Jenrette, Inc. will determine, in its sole
discretion, whether to provide any particular funds to either DLJ or DLJdirect
and will not be obligated to do so.
(4) Donaldson, Lufkin & Jenrette, Inc. will account for all cash transfers from
one Group to or for the account of the other Group, other than transfers in
return for assets or services rendered or transfers in respect of DLJ's
retained interest that correspond to dividends paid on DLJdirect common stock,
as inter-Group revolving credit advances unless:
o the board of directors of Donaldson, Lufkin & Jenrette, Inc.
determines that a given transfer or type of transfer should be
accounted for as a long-term loan,
o the board of directors of Donaldson, Lufkin & Jenrette, Inc.
determines that a given transfer or type of transfer should be
accounted for as a capital contribution increasing DLJ's retained
interest in DLJdirect or
o the board of directors of Donaldson, Lufkin & Jenrette, Inc.
determines that a given transfer or type of transfer should be
accounted for as a return of capital reducing DLJ's retained interest
in DLJdirect.
There are no specific criteria to determine when Donaldson, Lufkin & Jenrette,
Inc. will account for a cash transfer as a long-term loan, a capital
contribution or a return of capital rather than an inter-Group revolving credit
advance. The board of directors of Donaldson, Lufkin & Jenrette, Inc. would
make such a determination in the exercise of its business judgment at the time
of such transfer, or the first of such type of transfer, based upon all
relevant circumstances. Factors the board of directors of Donaldson, Lufkin &
Jenrette, Inc. would consider include:
o the current and projected capital structure of each Group,
o the relative levels of internally generated funds of each Group,
o the financing needs and objectives of the recipient Group,
o the investment objectives of the transferring Group,
o the availability, cost and time associated with alternative financing
sources and
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o prevailing interest rates and general economic conditions.
(5) Any cash transfer accounted for as an inter-Group revolving credit advance
will bear interest at the rate at which the board of directors of Donaldson,
Lufkin & Jenrette, Inc., in its sole discretion, determines Donaldson, Lufkin &
Jenrette, Inc. could borrow such funds on a revolving credit basis. Any cash
transfer accounted for as a long-term loan will have interest rate,
amortization, maturity, redemption and other terms that generally reflect the
then prevailing terms on which the board of directors of Donaldson, Lufkin &
Jenrette, Inc., in its sole discretion, determines Donaldson, Lufkin &
Jenrette, Inc. could borrow such funds.
(6) Any cash transfer from DLJ to DLJdirect or for DLJdirect's account
accounted for as a capital contribution will correspondingly increase
DLJdirect's shareholders' equity and DLJ's retained interest in DLJdirect. As a
result, the number of shares of DLJdirect common stock that Donaldson, Lufkin &
Jenrette, Inc. may issue for the account of DLJ in respect of its retained
interest (which we call the "Number of Shares Issuable with Respect to DLJ's
Retained Interest in DLJdirect") will increase by the amount of such capital
contribution divided by the Market Value of DLJdirect common stock on the date
of transfer.
This increase in the Number of Shares Issuable with Respect to DLJ's
Retained Interest in DLJdirect may also be expressed as follows:
Amount of Capital Contribution to DLJdirect
-------------------------------------
Market Value of one share of DLJdirect
common stock on the Date of Transfer
(7) Any cash transfer from DLJdirect to DLJ, or DLJ's account, accounted for as
a return of capital will correspondingly reduce DLJdirect's division equity and
DLJ's retained interest in DLJdirect. As a result, the Number of Shares
Issuable with Respect to DLJ's Retained Interest in DLJdirect will decrease by
the amount of such return of capital divided by the Market Value of DLJdirect
common stock on the date of transfer.
This decrease in the Number of Shares Issuable with Respect to DLJ's
Retained Interest in DLJdirect may also be expressed as follows:
Amount of Return of Capital to DLJdirect
-----------------------------------
Market Value of one share of DLJdirect
common stock on the Date of Transfer
CLEARING AND LICENSING FEES
Pursuant to an agreement dated September 24, 1997, as amended on March 11,
1999, between the Pershing Division of DLJ and DLJdirect, Pershing acts as the
clearing agent for DLJdirect. For a description of the transaction execution
and clearance arrangements, see "Certain Relationships".
TAXES
DLJdirect is, and after the offerings will continue to be, included in the
same consolidated tax group as DLJ for Federal income tax purposes until such
time as it ceases to be eligible for inclusion in the same consolidated tax
group as DLJ. For a description of the tax sharing arrangements between DLJ and
DLJdirect, see "Certain Relationships".
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES
DLJ provides services to DLJdirect pursuant to an Intercompany Services
Agreement dated February 23, 1999. For a description of the Intercompany
Services Agreement, see "Certain Relationships".
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MATERIAL U.S. FEDERAL TAX CONSIDERATIONS
The following discussion is a summary of the material United States
federal income tax consequences of the ownership of DLJdirect common stock. The
discussion is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations and published positions of the Internal Revenue
Service (the "IRS"), both of which are subject to change. In particular
Congress could enact legislation affecting the treatment of stock with
characteristics similar to the DLJdirect common stock, or the Treasury
Department could issue regulations that change current law. Any future
legislation or regulations could apply retroactively to the offering of
DLJdirect common stock.
This discussion addresses only those of you who will hold your DLJdirect
common stock as a capital asset. This discussion does not discuss all aspects
of United States federal income taxation that may be relevant to you in light
of your particular circumstances. This discussion does not apply to you if you
are a tax-exempt organization, S corporation or other pass-through entity,
mutual fund, small business investment company, regulated investment company,
insurance company or other financial institution, broker-dealer or are
otherwise subject to special treatment under the federal income tax laws. YOU
SHOULD CONSULT YOUR TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE FEDERAL
INCOME TAX LAWS, AS WELL AS TO THE APPLICABILITY AND EFFECT OF ANY STATE,
LOCAL, OR FOREIGN TAX LAWS TO WHICH YOU MAY BE SUBJECT.
In the opinion of Davis Polk & Wardwell, our counsel, for federal income
tax purposes, DLJdirect common stock will be considered our common stock.
Accordingly, for federal income tax purposes, we believe that neither you nor
we will recognize any income, gain or loss as a result of the issuance of
DLJdirect common stock.
No ruling has been sought from the Internal Revenue Service. The Internal
Revenue Service has announced that it will not issue advance rulings on the
classification of an instrument whose dividend rights are determined by
reference to the earnings of a segregated portion of the issuing corporation's
assets, including assets held by a subsidiary. Davis Polk & Wardwell's opinion
is not binding on the Internal Revenue Service. In addition, there are no court
decisions or other authorities bearing directly on the classification of
instruments with characteristics similar to those of DLJdirect common stock. It
is possible, therefore, that the Internal Revenue Service could assert that the
issuance of the DLJdirect common stock could result in taxation to us. Davis
Polk & Wardwell, however, is of the opinion that the Internal Revenue Service
would not prevail in such an assertion.
A recent proposal by the Clinton Administration would impose a corporate
level tax on the issuance of stock similar to the DLJdirect common stock. As
proposed by the Clinton Administration, this provision would be effective upon
the date of its enactment by Congress. We expect the offering to be consummated
prior to the effective date of the proposed legislation, so that the issuance
of DLJdirect common stock in the offering would not be subject to the proposal.
If this proposal is enacted, however, it is possible that we could be subject
to tax on an issuance of DLJdirect common stock after the date of enactment. We
cannot predict whether the proposal will be enacted by Congress and, if
enacted, whether it will be in the form proposed by the Clinton Administration.
We may issue DLJ common stock in exchange for DLJdirect common stock at a
premium of 10% if, based on the legal opinion of our tax counsel, it is more
likely than not as a result of the enactment of legislative changes or
administrative proposals or changes that we or our stockholders will be subject
to tax upon issuance of the DLJ common stock, or DLJdirect common stock or such
stock will not be treated as stock of Donaldson, Lufkin & Jenrette, Inc. Such
an exchange should qualify as a tax-free recapitalization such that no gain or
loss is required to be recognized by us or by holders of the stock to be
exchanged.
Backup Withholding. Certain non-corporate holders of DLJdirect common
stock could be subject to backup withholding at a rate of 31% on the payment of
dividends on or proceeds from the sale of such stock. Backup withholding will
apply only if the stockholder (1) fails to furnish its taxpayer identification
number ("TIN"), which, for an individual would be his or her social security
number, (2) furnishes an incorrect TIN, (3) is notified by the IRS that it has
failed to properly report payments of interest or dividends or (4) under
certain circumstances, fails to certify under penalties of
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perjury that it has furnished a correct TIN and has not been notified by the
IRS that it is subject to backup withholding for failure to report payments of
interest or dividends. Stockholders should consult their tax advisors regarding
their qualification for exemption from backup withholding and the procedures
for obtaining such an exemption if applicable. The amount of any backup
withholding from a payment to a holder of DLJdirect common stock will be
allowed as a credit against such stockholder's federal income tax liability and
may entitle such holder to a refund, provided that the required information is
furnished to the IRS.
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-U.S. INVESTORS
The following is a summary of material United States federal tax
consequences to non-U.S. investors of owning DLJdirect Common Stock. In this
summary, "non-U.S. investor" means a person or entity other than (1) a citizen
or resident of the United States; (2) a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
state; (3) an estate, the income of which is subject to United States federal
income taxation regardless of its source; or (4) a trust, the administration of
which is subject to the primary supervision of a United States court and the
control of all of the substantial decisions of which is within the authority of
one or more United States persons.
This summary does not address all of the federal tax considerations that
may be relevant to a non-U.S. investor in light of its particular circumstances
or to non-U.S. investors that may be subject to special treatment under federal
tax laws. Also, this summary does not discuss any aspects of state, local or
foreign taxation. This summary is based on current provisions of the Internal
Revenue Code, Treasury regulations, judicial opinions, published positions of
the IRS and other applicable authorities. These authorities are all subject to
change, possibly with retroactive effect. Each prospective non-U.S. investor
should consult its tax advisor with respect to the tax consequences of
investing in the DLJdirect stock.
Dividends. Dividends paid to a non-U.S. investor generally will be subject
to withholding of federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. However, if the dividend is
effectively connected with the conduct of a trade or business of the non-U.S.
investor within the United States, the dividend will instead be taxed at
ordinary federal income tax rates on a net income basis. Further, if the
non-U.S. investor is a corporation, this effectively connected dividend income
may also be subject to an additional branch profits tax.
Sale or Other Disposition of DLJdirect common stock. A non-U.S. investor
generally will not be subject to federal income tax on any gain recognized on
the sale or other disposition of DLJdirect common stock, except in the
following circumstances: (1) the gain will be subject to federal income tax if
it is effectively connected with a trade or business of the non-U.S. investor
within the United States; (2) the gain will be subject to federal income tax if
the non-U.S. investor is an individual who holds the DLJdirect common stock as
a capital asset, is present in the United States for 183 or more days in the
taxable year of the sale or other disposition, and either the individual has a
"tax home" in the United States for federal income tax purposes or the gain is
attributable to an office or other fixed place of business maintained by the
individual in the United States; (3) the gain may be subject to federal income
tax pursuant to federal income tax laws applicable to certain expatriates; or
(4) the gain may be subject to federal income tax if Donaldson, Lufkin &
Jenrette, Inc. is or has been during certain periods a "United States real
property holding corporation." Donaldson, Lufkin & Jenrette, Inc. believes that
it will not constitute a United States real property holding corporation
immediately after the offering and does not expect to become a United States
real property holding corporation; however, no assurance can be given in this
regard.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Dividends. United States backup withholding tax generally will not apply
to dividends paid to a non-U.S. investor at an address outside the United
States. Donaldson, Lufkin & Jenrette, Inc. must report annually to the IRS and
to each non-U.S. investor the amount of dividends paid to such
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investor and the amount, if any, of tax withheld with respect to such
dividends. This information may also be made available to the tax authorities
in the non-U.S. investor's country of residence.
Sale Through a U.S. Office of a Broker. Upon the sale or other disposition
of DLJdirect common stock by a non-U.S. investor to or through a United States
office of a broker, the broker must backup withhold at a rate of 31% and report
the sale to the IRS, unless the investor certifies its foreign status under
penalties of perjury or otherwise establishes an exemption from backup
withholding.
Sale Through a Foreign Office of a Broker. Upon the sale or other
disposition of DLJdirect common stock by a non-U.S. investor to or through a
foreign office of a United States broker or a foreign broker with certain types
of relationships with the United States, the broker is not required to backup
withhold. However, the broker must report the sale or other disposition to the
IRS unless the broker has documentary evidence in its files that the seller is
a non-U.S. investor and certain other conditions are met, or the holder
otherwise establishes an exemption.
Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules are generally allowable as a refund or credit against
the non-U.S. investor's federal income tax liability, if any, provided that the
required information is furnished to the IRS in a timely manner.
Final United States Treasury regulations, effective for payments made
after December 31, 1999, may affect the procedures to be followed by a non-U.S.
investor in establishing such investor's foreign status for purposes of the
withholding, backup withholding and information reporting rules described in
the preceding paragraphs. Prospective non-U.S. investors should consult their
tax advisors concerning such regulations.
Federal Estate Taxes. DLJdirect common stock owned or treated as owned by
an individual who is not a citizen or a "resident," which is specially defined
for federal estate tax purposes, of the United States at the time of death,
will be included in such individual's gross estate for federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
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UNDERWRITING
Subject to the terms and conditions contained in an underwriting
agreement, dated , 1999, the underwriters named below, who are
represented by Donaldson, Lufkin & Jenrette Securities Corporation, DLJdirect
Inc., BT Alex. Brown Incorporated, Goldman, Sachs & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and Salomon
Smith Barney Inc. have severally agreed to purchase from Donaldson, Lufkin &
Jenrette, Inc. the respective number of shares of DLJdirect common stock set
forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS: SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation .........
DLJdirect Inc. ..............................................
BT Alex. Brown Incorporated .................................
Goldman, Sachs & Co. ........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ....................................
Morgan Stanley & Co. Incorporated ...........................
Salomon Smith Barney Inc. ...................................
Total ...................................................... 15,000,000
==========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of DLJdirect common
stock offered in this prospectus are subject to approval by their counsel of
certain legal matters and to certain other conditions. The underwriters are
obligated to purchase and accept delivery of all the shares of DLJdirect common
stock offered in this prospectus (other than those shares covered by the
over-allotment option described below) if any are purchased.
The underwriters initially propose to offer the shares of DLJdirect common
stock in part directly to the public at the initial public offering price set
forth on the cover page of this prospectus and in part to certain dealers,
including the underwriters, at that price less a concession not in excess of
$ per share. The underwriters may allow, and the dealers may re-allow, to
certain other dealers a concession not in excess of $ per share. After the
initial offering of the DLJdirect common stock, the public offering price and
other selling terms may be changed by the representatives of the underwriters
at any time without notice. The underwriters do not intend to confirm sales to
any accounts over which they exercise discretionary authority.
Donaldson, Lufkin & Jenrette, Inc. has granted to the underwriters an
option, exercisable within 30 days after the date of this prospectus, to
purchase, from time to time, in whole or in part, up to an aggregate of
additional shares of DLJdirect common stock at the initial public offering
price less underwriting discounts and commissions. The underwriters may
exercise this option solely to cover over-allotments, if any, made in
connection with the offering. To the extent that the underwriters exercise this
option, each underwriter will become obligated, subject to certain conditions,
to purchase its pro rata portion of the additional shares based on the
underwriter's percentage underwriting commitment as indicated in the preceding
table.
Donaldson, Lufkin & Jenrette, Inc. has agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the underwriters may be
required to make.
Each of Donaldson, Lufkin & Jenrette, Inc., its executive officers,
directors, stockholders and option holders have agreed, subject to certain
exceptions, not to:
o offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of DLJdirect common stock or any
securities convertible into or exercisable or exchangeable for DLJdirect
common stock or
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o enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any
DLJdirect common stock for a period of 180 days after the date of this
prospectus without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation.
However, Donaldson, Lufkin & Jenrette, Inc. may:
o grant stock options or stock awards under Donaldson, Lufkin & Jenrette,
Inc.'s existing benefit or compensation plans, including the DLJdirect
1999 Incentive Compensation Plan,
o issue shares of DLJdirect common stock upon the exercise of options,
warrants or rights or the conversion of currently outstanding securities,
and
o issue, offer and sell shares of DLJdirect common stock or securities
convertible, exercisable or exchangeable in transactions not involving a
public offering, as long as each recipient of the securities agrees in
writing to be bound by the restrictions in this paragraph.
In addition, during this period, Donaldson, Lufkin & Jenrette, Inc. has
also agreed not to file any registration statement with respect to, and each of
its executive officers, directors and certain stockholders of Donaldson, Lufkin
& Jenrette, Inc. has agreed not to make any demand for, or exercise any right
with respect to, the registration of any shares of DLJdirect common stock or
any securities convertible into or exercisable or exchangeable for DLJdirect
common stock without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation.
Prior to the offering, there has been no established trading market for
DLJdirect common stock. The initial public offering price of the shares of
DLJdirect common stock offered in this prospectus has been determined by
negotiation among Donaldson, Lufkin & Jenrette, Inc. and the representatives of
the underwriters. The factors considered in determining the initial public
offering price included the history of and the prospects for the industry in
which DLJdirect competes, the past and present operations of DLJdirect, the
historical results of operations of DLJdirect, the prospects for future
earnings of DLJdirect, the recent market prices of securities of generally
comparable companies and the general condition of the securities markets at the
time of the offering.
Application has been made to list the DLJdirect common stock on the NYSE
under the symbol "DIR", subject to official notice of issuance. In order to
meet the requirements for listing the DLJdirect common stock on the NYSE, the
underwriters have undertaken to sell lots of 100 or more shares to a minimum of
2,000 beneficial owners.
Other than in the United States, no action has been taken by Donaldson,
Lufkin & Jenrette, Inc. or the underwriters that would permit a public offering
of the shares of DLJdirect common stock offered in this prospectus in any
jurisdiction where action for that purpose is required. The shares of DLJdirect
common stock offered in this prospectus may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any shares of DLJdirect
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of the jurisdiction. Persons with this prospectus should inform
themselves about and observe any restrictions relating to the offering and the
distribution of this prospectus. This prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any shares of DLJdirect common
stock offered in this prospectus in any jurisdiction in which an offer or a
solicitation of this kind is unlawful.
In connection with the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
DLJdirect common stock. Specifically, the underwriters may overallot, which
would involve syndicate sales in excess of the offering size, creating a
syndicate short position. The underwriters may bid for and stabilize the price
of the DLJdirect common stock. In addition, the underwriting syndicate may
reclaim selling concessions from syndicate members and selected dealers if they
repurchase previously distributed DLJdirect common stock in syndicate covering
transactions, in stabilizing transactions or otherwise. These activities may
stabilize or maintain the market price of the DLJdirect common stock above
independent market levels. The underwriters are not required to engage in these
activities, and may end any of these activities at any time.
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The underwriters have reserved for sale approximately 1,500,000 shares of
DLJdirect common stock for directors, current and former employees, and certain
customers of DLJ and directors and employees of Equitable who have an interest
in purchasing shares of DLJdirect common stock in the offering. The
underwriters have advised DLJ that the price per share for the shares reserved
for sale to its current employees will be the initial public offering price
less underwriting discounts and commissions, or $ per share and the
price per share for the shares reserved for sale to its directors, former
employees and certain customers will be the initial public offering price. The
underwriters have advised Equitable that the price per share for shares
reserved for sale to its directors and employees will be the initial public
offering price. The number of shares available for sale to the general public
in the offering will be reduced to the extent persons purchase reserved shares.
Any reserved shares not purchased will be offered by the underwriters and
former employees of DLJ and DLJdirect and directors and employees of Equitable
who purchase any of the shares offered in the offering will be prohibited from
selling, pledging, assigning, hypothecating or transferring their shares for a
period of five months following the effective date of the offering.
Donaldson, Lufkin & Jenrette Securities Corporation and DLJdirect Inc. are
affiliates of Donaldson, Lufkin & Jenrette, Inc. Donaldson, Lufkin & Jenrette
Securities Corporation and DLJdirect Inc. have committed to purchase from
Donaldson, Lufkin & Jenrette, Inc. % of the shares of DLJdirect common stock
being underwritten by the underwriters in the offering on the same basis as the
other underwriters. Although the amount of proceeds derived from the offering
by Donaldson, Lufkin & Jenrette, Inc. will not be affected by Donaldson, Lufkin
& Jenrette Securities Corporation's and DLJdirect Inc.'s participation as
underwriters, to the extent that part or all of the shares of DLJdirect common
stock underwritten by Donaldson, Lufkin & Jenrette Securities Corporation and
DLJdirect Inc. are not resold, Donaldson, Lufkin & Jenrette, Inc.'s and
DLJdirect's, as applicable, consolidated equity will be reduced. Until resold,
any unsold shares will be eliminated in consolidation as if they were not
outstanding for purposes of any future computations of earnings per common
share and book value per common share. Donaldson, Lufkin & Jenrette Securities
Corporation and DLJdirect Inc. intend to resell any shares which they are
unable to resell in the offering at prevailing market prices.
The offering is being conducted in accordance with Rule 2720 of the
Conduct of Rules of the NASD, which provides that, among other things, when an
NASD member participates in the underwriting of its parent's equity securities,
the initial public offering price can be no higher than that recommended by a
"qualified independent underwriter" meeting certain standards. In accordance
with this requirement, Goldman, Sachs & Co. has served in this role and has
recommended a price in compliance with the requirements of Rule 2720. In
connection with the offering, Goldman, Sachs & Co. in its role as qualified
independent underwriter has performed due diligence investigations and reviewed
and participated in the preparation of this prospectus and the registration
statement of which this prospectus forms a part. In addition, the underwriters
may not confirm sales to any discretionary account without the prior specific
written approval of the customer.
NYSE Rule 312(g) prohibits a member corporation, after the distribution of
securities of its parent to the public, from effecting any transaction, except
on an unsolicited basis, for the account of any customer in, or making any
recommendation with respect to the purchase or sale of, any of these
securities. Thus, following the offering, DLJdirect Inc. and Donaldson, Lufkin
& Jenrette, Inc.'s other subsidiaries will not be permitted to make a market in
or to make recommendations regarding the purchase or sale of the DLJdirect
common stock.
The current by-laws of the NASD prohibit employees of DLJdirect Inc. and
Donaldson, Lufkin & Jenrette, Inc., their spouses and, under certain
circumstances, other members of their immediate families who purchase any of
the shares in the offering from selling, pledging, assigning, hypothecating or
transferring their shares for a period of five months following the effective
date of the offering.
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LEGAL MATTERS
The validity of the issuance of the shares of DLJdirect common stock
offered hereby will be passed upon for Donaldson, Lufkin & Jenrette, Inc. by
Davis Polk & Wardwell, New York, New York. Skadden, Arps, Slate, Meagher & Flom
LLP, New York, New York will serve as legal counsel for the underwriters.
EXPERTS
We incorporate by reference into this prospectus and our registration
statement our consolidated financial statements of Donaldson, Lufkin &
Jenrette, Inc. as of December 31, 1998 and 1997 and for each of the years in
the three-year period ended December 31, 1998, and we include in this
prospectus and our registration statement the combined financial statements of
DLJdirect as of December 31, 1997 and 1998 and for each of the years in the
three-year period ended December 31, 1998. We have relied on the reports of
KPMG LLP, independent certified public accountants, incorporated by reference
and included in this prospectus and our registration statement, and upon their
authority as experts in accounting and auditing.
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ILLUSTRATION OF CERTAIN TERMS
The following illustrations show how to calculate the Retained Interest
Percentage, the Outstanding Interest Percentage and the Number of Shares
Issuable with Respect to DLJ's Retained Interest in DLJdirect after giving
effect to certain hypothetical dividends, issuances, repurchases and transfers,
in each case based on the assumptions set forth herein. In these illustrations,
the Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect is initially assumed to be 100. Unless otherwise specified, each
illustration below should be read independently as if none of the other
transactions referred to below had occurred. Actual calculations may be
slightly different due to rounding.
At any given time, the percentage interest in DLJdirect intended to be
represented by the outstanding shares of DLJdirect common stock -- which we
call the Outstanding Interest Percentage -- is represented by the Outstanding
Interest Fraction, calculated as follows:
Outstanding Shares of DLJdirect common stock
------------------------------------------------------
Outstanding Shares of DLJdirect common stock + Number of Shares
Issuable with Respect to DLJ's Retained Interest in DLJdirect
and the remaining percentage interest in DLJdirect intended to be represented
by DLJ's retained interest in DLJdirect -- which we call the Retained Interest
Percentage -- is represented by the Retained Interest Fraction calculated as
follows:
Number of Shares Issuable with Respect to DLJ's Retained
Interest in DLJdirect
------------------------------------------------------
Outstanding Shares of DLJdirect common stock + Number of Shares
Issuable with Respect to DLJ's Retained Interest in DLJdirect
The sum of the Outstanding Interest Percentage and the Retained Interest
Percentage would always equal 100%. In our example, before the first issuance
the Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect is equal to 100, the Retained Interest Percentage is 100% and the
Outstanding Interest Percentage is 0%.
THE OFFERING
The following illustration reflects an assumed issuance by Donaldson,
Lufkin & Jenrette, Inc. of 15 shares of DLJdirect common stock in the offering.
OFFERING FOR ACCOUNT OF DLJDIRECT
Assume the issuance is attributed to DLJdirect as an increase in its
equity, with the net proceeds credited solely to DLJdirect.
<TABLE>
<S> <C>
Shares previously issued and outstanding ................. 0
Newly issued shares for account of DLJdirect ............. 15
--
Total issued and outstanding after the offering ......... 15
==
</TABLE>
o The Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect (100) would remain unchanged.
I-1
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o As a result, the issued and outstanding shares (15) would represent an
Outstanding Interest Percentage of approximately 13%, calculated as
follows:
15
------
15 + 100
The Retained Interest Percentage would accordingly be about 87%.
o In this case, in the event of any dividend or other distribution paid on
the outstanding shares of DLJdirect common stock (other than a dividend
or other distribution payable in shares of DLJdirect common stock), DLJ
would be credited, and DLJdirect would be charged, with an amount equal
to 667% (representing the ratio of the Number of Shares Issuable with
Respect to DLJ's Retained Interest in DLJdirect (100) to the total number
of shares of DLJdirect common stock issued and outstanding following the
offering (15)) of the aggregate amount of such dividend or distribution.
ADDITIONAL OFFERINGS OF DLJDIRECT COMMON STOCK
The following illustrations reflect an assumed issuance of an additional
15 shares of DLJdirect common stock after the assumed initial issuance of 15
shares attributed to DLJdirect as an increase in its equity.
ADDITIONAL OFFERING FOR ACCOUNT OF DLJ
Assume the issuance is attributed to DLJ in respect of its retained
interest, with the net proceeds credited solely to DLJ.
<TABLE>
<S> <C>
Shares previously issued and outstanding ........................ 15
Newly issued shares for account of DLJ .......................... 15
--
Total issued and outstanding after additional offering ......... 30
==
</TABLE>
o The Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect would decrease by the number of shares of DLJdirect Common
Stock issued for the account of DLJ.
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect prior to the additional offering ......................... 100
Newly issued shares for account of DLJ ............................... 15
---
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect after the additional offering ........................... 85
===
</TABLE>
o As a result, the total issued and outstanding shares (30) would in the
aggregate represent an Outstanding Interest Percentage of approximately
26%, calculated as follows:
30
------
30 + 85
The Retained Interest Percentage would accordingly be reduced to
approximately 74%.
o In this case, in the event of any dividend or other distribution paid on
DLJdirect common stock (other than a dividend or other distribution
payable in shares of DLJdirect common stock), DLJ would be credited, and
DLJdirect would be charged, with an amount equal to 283% (representing
the ratio of the Number of Shares Issuable with Respect to DLJ's Retained
Interest in DLJdirect (85) to the total number of shares of DLJdirect
common stock issued and outstanding following the additional offering
(30)) of the aggregate amount of such dividend or distribution.
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ADDITIONAL OFFERING FOR ACCOUNT OF DLJDIRECT
Assume the issuance is attributed to DLJdirect as an increase in its
equity, with the net proceeds credited solely to DLJdirect.
<TABLE>
<S> <C>
Shares previously issued and outstanding ............................ 15
Newly issued shares for account of DLJdirect ........................ 15
--
Total issued and outstanding after the additional offering ......... 30
==
</TABLE>
o The Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect (100) would remain unchanged.
o As a result, the total issued and outstanding shares (30) would in the
aggregate represent an Outstanding Interest Percentage of approximately
23%, calculated as follows:
30
------
30 + 100
The Retained Interest Percentage would accordingly be reduced to
approximately 77%.
o In this case, in the event of any dividend or other distribution paid on
DLJdirect common stock (other than a dividend or the distribution payable
in shares of DLJdirect common stock), DLJ would be credited, and
DLJdirect would be charged, with an amount equal to approximately 333%
(representing the ratio of the Number of Shares Issuable with Respect to
DLJ's Retained Interest in DLJdirect (100) to the total number of shares
of DLJdirect common stock issued and outstanding following the additional
offering (30)) of the aggregate amount of such dividend or distribution.
OFFERINGS OF CONVERTIBLE SECURITIES
If Donaldson, Lufkin & Jenrette, Inc. were to issue any securities
convertible into or exercisable for shares of DLJdirect common stock, the
Outstanding Interest Fraction and the Retained Interest Fraction would be
unchanged at the time of such issuance. If any shares of DLJdirect common stock
were issued upon conversion or exercise of such securities, however, then the
Outstanding Interest Fraction and the Retained Interest Fraction would be
affected as shown above under "Additional Offering for Account of DLJ", if such
securities were attributed to DLJ, or under "Additional Offering for Account of
DLJdirect", if such securities were attributed to DLJdirect.
REPURCHASES OF DLJDIRECT COMMON STOCK
The following illustrations reflect an assumed repurchase by Donaldson,
Lufkin & Jenrette, Inc. of 5 shares of DLJdirect common stock after the assumed
initial issuance of 15 shares of DLJdirect common stock attributed to DLJdirect
as an increase in its equity.
REPURCHASE FOR THE ACCOUNT OF DLJ
Assume the repurchase is attributed to DLJ as an increase in its retained
interest in DLJdirect, with the cost charged solely against DLJ.
<TABLE>
<CAPTION>
<S> <C>
Shares previously issued and outstanding ............... 15
Shares repurchased for account of DLJ .................. 5
--
Total issued and outstanding after repurchase ......... 10
==
</TABLE>
o The Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect would be increased by the number of any shares of DLJdirect
common stock repurchased for the account of DLJ.
I-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect prior to repurchase ...................................... 100
Number of shares repurchased for the account of DLJ .................. 5
---
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect after repurchase ........................................ 105
===
</TABLE>
o As a result, the total issued and outstanding shares (10) would in the
aggregate represent an Outstanding Interest Percentage of approximately
9%, calculated as follows:
10
------
10 + 105
The Retained Interest Percentage would accordingly be increased to
approximately 91%.
REPURCHASE FOR ACCOUNT OF DLJDIRECT WITHOUT PARTICIPATION BY DLJ
Assume the repurchase is attributed to DLJdirect, with the cost being
charged solely against DLJdirect. Further assume that the board of directors
does not determine to transfer assets from DLJdirect to DLJ to hold constant
the Outstanding Interest Fraction and Retained Interest Fraction.
<TABLE>
<CAPTION>
<S> <C>
Shares previously issued and outstanding ............... 15
Shares repurchased for account of DLJdirect ............ 5
--
Total issued and outstanding after repurchase ......... 10
==
</TABLE>
o The Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect (100) would remain unchanged.
o As a result, the total issued and outstanding shares (10) would in the
aggregate represent an Outstanding Interest Percentage of approximately
9%, calculated as follows:
10
------
10 + 100
The Retained Interest Percentage would accordingly be increased to
approximately 91%.
REPURCHASE FOR ACCOUNT OF DLJDIRECT WITH PARTICIPATION BY DLJ
Assume the repurchase is attributed to DLJdirect, with the cost being
charged solely against DLJdirect. Further assume that the repurchase is made in
connection with a tender offer for 5, or 33%, of the then outstanding shares at
a price of $20 per share, and that the board of directors determines to
transfer cash or other assets from DLJdirect to DLJ to hold constant the
Outstanding Interest Fraction and Retained Interest Fraction.
<TABLE>
<S> <C>
Shares previously issued and outstanding ............... 15
Shares repurchased for account of DLJdirect ............ 5
--
Total issued and outstanding after repurchase ......... 10
==
</TABLE>
o In order to hold constant the Outstanding Interest Fraction and Retained
Interest Fraction, the board of directors determines that the Market
Value of a share of DLJdirect common stock in this context is $20 and
transfer from DLJdirect to DLJ an amount of cash or other assets equal to
about 667% (representing the ratio of the Number of Shares Issuable with
Respect to DLJ's Retained Interest in DLJdirect (100) to the total number
of shares of DLJdirect common stock issued and outstanding (15), in each
case immediately prior to the repurchase) of the aggregate amount of the
cash paid in the tender offer to holders of outstanding shares of
DLJdirect common stock ($100), for a total of $667.
I-4
<PAGE>
o In that case, the Number of Shares Issuable with Respect to DLJ's
Retained Interest in DLJdirect (100) would be decreased to reflect the
amount of cash so transferred ($667) divided by the Market Value per
share of DLJdirect common stock ($20).
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect prior to transfer .............................................. 100
Adjustment in respect of DLJ's retained interest to reflect transfer to DLJ
of funds theretofore allocated to DLJdirect .............................. 33
---
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect after transfer ............................................... 67
===
</TABLE>
o As a result, the total issued and outstanding shares (10) would in the
aggregate continue to represent an Outstanding Interest Percentage of
13%, calculated as follows:
10
------
10 + 67
The Retained Interest Percentage would accordingly continue to remain
87%.
o Assuming that the board of directors transferred only half of the $667
amount, or $333.50, from DLJdirect to DLJ, the Number of Shares Issuable
with Respect to DLJ's Retained Interest in DLJdirect (100) would decrease
by the amount of cash so transferred ($333.50) divided by the Market
Value per share of DLJdirect common stock ($20).
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect prior to transfer ............................................. 100
Adjustment in respect of DLJ's retained interest to reflect transfer to DLJ
of cash theretofore allocated to DLJdirect .............................. 17
---
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect after transfer ............................................... 83
===
</TABLE>
o In that case, as a result, the total issued and the outstanding shares
(10) would in the aggregate represent an Outstanding Interest Percentage
of about 11%, calculated as follows:
10
------
10 + 83
The Retained Interest Percentage would accordingly be increased to
approximately 89%.
DLJDIRECT COMMON STOCK DIVIDENDS
The following illustrations reflect assumed dividends of DLJdirect common
stock on outstanding shares of DLJ common stock and outstanding shares of
DLJdirect common stock, respectively, after the assumed initial issuance of 15
shares of DLJdirect common stock attributed to DLJdirect as an increase in its
equity.
DLJDIRECT COMMON STOCK DIVIDEND ON DLJ COMMON STOCK
Assume 1,000 shares of DLJ common stock are outstanding and Donaldson,
Lufkin & Jenrette, Inc. declares a dividend of 1/20 of a share of DLJdirect
common stock on each outstanding share of DLJ common stock.
<TABLE>
<CAPTION>
<S> <C>
Shares previously issued and outstanding .............. 15
Newly issued shares for account of DLJ ................ 50
--
Total issued and outstanding after dividend ......... 65
==
</TABLE>
I-5
<PAGE>
o Any dividend of shares of DLJdirect common stock to the holders of shares
of DLJ common stock would be treated as a reduction in the Number of
Shares Issuable with Respect to DLJ's Retained Interest in DLJdirect.
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect prior to dividend ........................................ 100
Number of shares distributed on outstanding shares of DLJ common stock
for account of DLJ ................................................. 50
---
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect after dividend .......................................... 50
===
</TABLE>
o As a result, the total issued and outstanding shares (65) would in the
aggregate represent an Outstanding Interest Percentage of 57%, calculated
as follows:
65
------
65 + 50
The Retained Interest Percentage would accordingly be reduced to 43%.
Note, however, that after the dividend, the holders of DLJ common stock
would also hold 50 shares of DLJdirect common stock, which would be
intended to represent a 50% interest in the value attributable to
DLJdirect.
DLJDIRECT COMMON STOCK DIVIDEND ON DLJDIRECT COMMON STOCK
Assume Donaldson, Lufkin & Jenrette, Inc. declares a dividend of 1/5 of a
share of DLJdirect common stock on each outstanding share of DLJdirect common
stock.
<TABLE>
<CAPTION>
<S> <C>
Shares previously issued and outstanding .............. 15
Newly issued shares for account of DLJdirect .......... 3
--
Total issued and outstanding after dividend ......... 18
==
</TABLE>
o The Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect would reflect the stock dividend payable in shares of DLJdirect
common stock to holders of shares of DLJdirect common stock. That is, the
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect would be increased by a number equal to 667% (representing the
ratio of the Number of Shares Issuable with Respect to DLJ's Retained
Interest in DLJdirect (100) to the number of shares of DLJdirect common
stock issued and outstanding (15), in each case immediately prior to such
dividend) of the aggregate number of shares issued in connection with
such dividend (3), or 20.
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect prior to dividend ............................................ 100
Adjustment in respect of DLJ's retained interest to reflect shares
distributed on outstanding shares of DLJdirect common stock ............ 20
---
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect after dividend .............................................. 120
===
</TABLE>
o As a result, the total issued and outstanding shares (18) would in the
aggregate represent an Outstanding Interest Percentage of approximately
13%, calculated as follows:
18
------
18 + 120
The Retained Interest Percentage would accordingly remain 87%.
I-6
<PAGE>
CAPITAL TRANSFERS OF CASH OR OTHER ASSETS BETWEEN DLJ AND DLJDIRECT
CAPITAL CONTRIBUTION OF CASH OR OTHER ASSETS FROM DLJ TO DLJDIRECT
The following illustration reflects the assumed contribution by DLJ to
DLJdirect, after the assumed initial issuance of 15 shares of DLJdirect common
stock attributed to DLJdirect as an increase in its equity, of $40 of assets
allocated to DLJ at a time when the Market Value of the DLJdirect common stock
is $20 per share.
<TABLE>
<CAPTION>
<S> <C>
Shares previously issued and outstanding .................. 15
Newly issued shares ....................................... 0
--
Total issued and outstanding after contribution ......... 15
==
</TABLE>
o The Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect would increase to reflect the contribution to DLJdirect of
assets theretofore allocated by DLJ by a number equal to the value of the
assets contributed ($40) divided by the Market Value of DLJdirect common
stock at that time ($20), or 2 shares.
<TABLE>
<CAPTION>
<S> <C>
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect prior to contribution ....................................... 100
Increase to reflect contribution to DLJdirect of assets allocated to DLJ 2
---
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect after contribution ......................................... 102
===
</TABLE>
o As a result, the total issued and outstanding shares (15) would in the
aggregate represent an Outstanding Interest Percentage of approximately
13%, calculated as follows:
15
------
15 + 102
The Retained Interest Percentage would accordingly increase to slightly
more than 87%.
RETURN OF CAPITAL TRANSFER OF CASH OR OTHER ASSETS FROM DLJDIRECT TO DLJ
The following illustration reflects the assumed transfer by DLJdirect to
DLJ, after the assumed initial issuance of 15 shares of DLJdirect common stock
attributed to DLJdirect as an increase in its equity, of $40 of assets
allocated to DLJdirect on a date on which the Market Value of DLJdirect common
stock is $20 per share.
<TABLE>
<CAPTION>
<S> <C>
Shares previously issued and outstanding .................. 15
Newly issued shares ....................................... 0
--
Total issued and outstanding after contribution ......... 15
==
</TABLE>
o The Number of Shares Issuable with Respect to DLJ's Retained Interest
in DLJdirect would decrease to reflect the transfer to DLJ of assets
theretofore allocated to DLJdirect by a number equal to the value of the
assets transferred ($40) divided by the Market Value of DLJdirect common
stock at that time ($20), or 2 shares.
<TABLE>
<CAPTION>
<S> <C>
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect prior to contribution .................................... 100
Decrease to reflect transfer to DLJ of assets allocated to DLJdirect . 2
---
Number of Shares Issuable with Respect to DLJ's Retained Interest in
DLJdirect after contribution ...................................... 98
===
</TABLE>
I-7
<PAGE>
o As a result, the total issued and outstanding shares (15) would in the
aggregate represent an Outstanding Interest Percentage of approximately
13%, calculated as follows:
15
------
15 + 98
The Retained Interest Percentage would accordingly decrease to slightly
less than 87%.
I-8
<PAGE>
DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report ......................... F-2
Combined Financial Statements:
Combined Statements of Financial Condition .......... F-3
Combined Statements of Operations ................... F-4
Combined Statements of Changes in Equity ............ F-5
Combined Statements of Cash Flows ................... F-6
Notes to Combined Financial Statements .............. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Donaldson, Lufkin & Jenrette, Inc.
We have audited the accompanying combined statements of financial
condition of DLJdirect (a combination of certain assets and liabilities of
Donaldson, Lufkin & Jenrette, Inc., as described in note 1) as of December 31,
1997 and 1998, and the related combined statements of operations, changes in
equity, and cash flows for each of the years in the three-year period ended
December 31, 1998. These combined financial statements are the responsibility
of Donaldson, Lufkin & Jenrette, Inc.'s management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes, examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
We have audited the consolidated financial statements of Donaldson, Lufkin
& Jenrette, Inc. and subsidiaries as of December 31, 1997 and 1998, and for
each of the years in the three-year period ended December 31, 1998 and have
issued our report dated February 2, 1999, except as to footnote 19 which is as
of March 17, 1999. The combined financial statements of DLJdirect should be
read in conjunction with the consolidated financial statements of Donaldson,
Lufkin & Jenrette, Inc. and subsidiaries.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the financial position of DLJdirect
as of December 31, 1997 and 1998, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
March 16, 1999
except as to footnote 10, which is as of March 17, 1999
F-2
<PAGE>
DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)
COMBINED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------ MARCH 31,
1997 1998 1999
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ..................................... $ 8,881 $ 26,654 $47,825
Deposit with affiliated clearing broker ....................... 250 250 250
Receivables from brokers, dealers and others, net ............. 725 1,887 2,733
Office facilities, at cost (net of accumulated depreciation and
amortization of $260, $284 and $281, respectively) ........... 1,808 278 281
Other assets .................................................. 207 682 1,340
-------- -------- -------
Total assets ............................................... $ 11,871 $ 29,751 $52,429
======== ======== =======
LIABILITIES AND EQUITY
Liabilities:
Payables to parent and affiliates, net ....................... $ 3,266 $ 5,211 $17,950
Accounts payable and accrued expenses ........................ 2,641 2,616 4,382
-------- -------- -------
Total liabilities .......................................... 5,907 7,827 22,332
-------- -------- -------
Commitments and contingencies ................................. -- -- --
Equity:
Capital contributions ........................................ 10,502 25,002 26,002
Retained earnings (deficit) .................................. (4,538) (3,078) 4,095
-------- -------- -------
Total equity ............................................... 5,964 21,924 30,097
-------- -------- -------
Total liabilities and equity ............................... $ 11,871 $ 29,751 $52,429
======== ======== =======
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE>
DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions ................................ $ 54,166 $ 50,948 $ 78,717 $ 16,130 $ 32,054
Fees ....................................... 6,426 12,109 25,484 5,140 9,596
Interest ................................... 2,569 4,160 13,723 2,787 5,552
-------- -------- -------- -------- --------
Total revenues ........................... 63,161 67,217 117,924 24,057 47,202
-------- -------- -------- -------- --------
Costs and expenses:
Compensation and benefits .................. 11,202 17,174 28,260 5,759 10,683
Brokerage, clearing, exchange and other fees 15,422 20,909 28,423 6,071 8,854
Advertising ................................ 9,093 13,137 25,146 9,010 6,101
Occupancy and equipment .................... 1,923 3,352 5,045 1,081 1,503
Communications ............................. 1,468 2,844 5,564 1,189 2,705
Technology costs ........................... 5,205 5,082 4,084 1,103 1,280
Other operating expenses ................... 5,567 10,844 18,934 3,660 4,815
-------- -------- -------- -------- --------
Total costs and expenses ................. 49,880 73,342 115,456 27,873 35,941
-------- -------- -------- -------- --------
Income (loss) before income tax provision
(benefit) .................................. 13,281 (6,125) 2,468 (3,816) 11,261
Income tax provision (benefit) .............. 5,425 (2,502) 1,008 (1,559) 4,088
-------- -------- -------- -------- --------
Net income (loss) ........................ $ 7,856 $ (3,623) $ 1,460 $ (2,257) $ 7,173
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)
COMBINED STATEMENTS OF CHANGES IN EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
----------------------------------------------------------------------
CAPITAL RETAINED
DIVISIONAL EQUITY CONTRIBUTIONS EARNINGS (DEFICIT) TOTAL EQUITY
<S> <C> <C> <C> <C>
Balances at December 31, 1995 .................. $ -- $ -- $ -- $ --
Divisional net income .......................... 7,856 -- -- 7,856
Return of divisional equity to DLJ ............. (7,856) -- -- (7,856)
-------- ------- -------- --------
Balances at December 31, 1996 .................. -- -- -- --
Divisional net income from January 1, 1997
to May 31, 1997 ............................... 915 -- -- 915
Net (loss) from June 1, 1997 to December 31,
1997 .......................................... -- -- (4,538) (4,538)
Capital contributions from DLJ ................. -- 10,502 -- 10,502
Return of divisional equity to DLJ ............. (915) -- -- (915)
-------- ------- -------- --------
Balances at December 31, 1997 .................. -- 10,502 (4,538) 5,964
Net income ..................................... -- -- 1,460 1,460
Capital contributions from DLJ ................. -- 14,500 -- 14,500
-------- ------- -------- --------
Balances at December 31, 1998 .................. -- 25,002 (3,078) 21,924
Net income ..................................... -- -- 7,173 7,173
Capital contribution from DLJ .................. -- 1,000 -- 1,000
-------- ------- -------- --------
Balances at March 31, 1999 (unaudited) ......... $ -- $26,002 $ 4,095 $ 30,097
======== ======= ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------- ---------------------------
1996 1997 1998 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................... $ 7,856 $ (3,623) $ 1,460 $ (2,257) $ 7,173
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization ....................... 949 652 299 86 (3)
Deferred taxes ...................................... (344) 160 (275) (170) (6)
(Increase) decrease in operating assets:
Deposit with affiliated clearing broker ........... -- (250) -- -- --
Receivables from brokers, dealers and
other, net ....................................... 283 (1,923) (1,162) (917) (846)
Other assets ...................................... -- (207) (475) (175) (658)
Increase (decrease) in operating liabilities:
Payables to parent and affiliates, net ............ 357 1,951 2,220 6,858 12,745
Accounts payable and accrued expenses ............. -- 2,641 (25) 2,850 1,766
-------- -------- -------- -------- -------
Net cash provided by (used in) operating
activities .......................................... 9,101 (599) 2,042 6,275 20,171
-------- -------- -------- -------- -------
Cash flows from investing activities:
Purchase of office facilities ....................... (1,245) (107) -- -- --
Net proceeds from sale of office facilities ......... -- -- 1,231 1,231 --
-------- -------- -------- -------- -------
Net cash provided by (used in) investing
activities .......................................... (1,245) (107) 1,231 1,231 --
-------- -------- -------- -------- -------
Cash flows from financing activities:
Net proceeds from capital contributions from
DLJ ............................................... -- 10,502 14,500 5,000 1,000
Payments to DLJ ..................................... (7,856) (915) -- -- --
-------- -------- -------- -------- -------
Net cash provided by (used in) financing
activities .......................................... (7,856) 9,587 14,500 5,000 1,000
-------- -------- -------- -------- -------
Increase in cash and cash equivalents ................ -- 8,881 17,773 12,506 21,171
Cash and cash equivalents at beginning of
period .............................................. -- -- 8,881 8,881 26,654
-------- -------- -------- -------- -------
Cash and cash equivalents at end of period ........... $ -- $ 8,881 $ 26,654 $ 21,387 $47,825
======== ======== ======== ======== =======
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE>
DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On March 16, 1999, the Board of Directors of Donaldson, Lufkin & Jenrette,
Inc. ("DLJ Inc.") authorized, subject to shareholder approval, the issuance of
a new series of stock, DLJdirect Common Stock.
The DLJdirect Common Stock is intended to reflect the separate performance
of the existing online discount brokerage services of DLJ Inc. DLJdirect would
initially consist principally of the assets, liabilities, revenues and expenses
of DLJ Inc.'s ultimate 100% equity interest in DLJdirect Holdings Inc.
(subsequent to June 1, 1997) and DLJ Inc.'s online discount brokerage division
(prior to June 2, 1997). DLJdirect would also include such other related assets
and liabilities of DLJ Inc. as the Board of Directors of DLJ Inc. may deem
appropriate in the future. It is currently the intention of DLJ Inc. that any
businesses, assets and liabilities related to its online discount brokerage and
related investment service businesses will be attributed to DLJdirect. However,
the Board of Directors of DLJ Inc., in its sole discretion, may in the future
decide to pursue business opportunities or operational strategies, even in the
online brokerage area, through other affiliates of DLJ Inc. instead of
DLJdirect.
Even though DLJ Inc. has allocated certain assets, liabilities, revenues,
expenses and cash flows to DLJdirect, that allocation will not change the legal
title to any assets or responsibility for any liabilities and will not affect
the rights of creditors. Holders of DLJdirect Common Stock will be common
stockholders of DLJ Inc. and will be subject to all the risks associated with
an investment in DLJ Inc. and all of its businesses, assets and liabilities.
Material financial events which may occur at DLJ Inc. may affect DLJdirect's
results of operations or financial position. Accordingly, financial information
for DLJdirect should be read in conjunction with financial information of DLJ
Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
To prepare financial statements in conformity with generally accepted
accounting principles ("GAAP"), management must estimate certain amounts that
affect the reported assets and liabilities, disclosure of contingent assets and
liabilities, and reported revenues and expenses. Actual results could differ
from those estimates.
Substantially all of DLJdirect's financial assets and liabilities are
carried at market or fair value or are carried at amounts which approximate
fair value because of their short-term nature. Fair value is estimated at a
specific point in time, based on relevant market information.
Cash equivalents include all demand deposits held in banks and certain
highly liquid investments with maturities of 90 days or less, other than those
held for sale in the ordinary course of business.
Commissions revenue and brokerage, clearing, exchange and other fees are
reported on a trade date basis.
Office facilities are carried at cost and are depreciated on a
straight-line basis over the estimated useful life of the related assets,
ranging from three to eight years. Leasehold improvements are amortized over
the lesser of the useful life of the improvement or the term of the lease.
Advertising costs are expensed as incurred.
DLJ Inc. allocates certain general administrative and facilities expenses
to DLJdirect using a proportional cost methodology based on the relative number
of employees and square foot usage of DLJdirect or on actual costs incurred.
Effective January 1, 1997, DLJdirect is included in the consolidated
Federal income tax returns of DLJ Inc. In addition, for the period prior to its
incorporation, the division was included in the
F-7
<PAGE>
DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
consolidated Federal income tax returns of DLJ Inc. Prior to 1997, DLJ Inc. and
its subsidiaries were included in the consolidated Federal income tax return of
The Equitable Companies Incorporated. Related current and deferred tax assets
or liabilities are included in payables to parent and affiliates, net in the
combined statements of financial condition. Deferred tax expenses and benefits
are recognized in the combined statements of operations for the changes in
deferred tax liabilities and assets.
Pursuant to SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information", DLJdirect operates in one reportable segment as a
provider of online discount brokerage services. DLJdirect's involvement in
foreign operations is not significant.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires
that certain costs related to the development or purchase of internal-use
software be capitalized and amortized over the estimated useful life of the
software. The SOP also requires that costs related to the preliminary project
stage and the post-implementation/operations stage of an internal-use computer
software development project be expensed as incurred. The adoption of this SOP
did not have a material impact on DLJdirect's combined financial position or
results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes accounting and reporting standards for derivative instruments and
hedging activities and is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. DLJdirect does not expect the adoption of SFAS
133 to have a material impact on its combined financial statements.
3. DLJDIRECT COMMON STOCK (UNAUDITED)
The majority stockholder of DLJ Inc. has agreed to approve, by written
consent, the authorization of the issuance of a new series of common stock, to
be designated as DLJdirect Common Stock ("DLJdirect Common Stock"). Before the
DLJdirect Common Stock is first issued, DLJ Inc.'s existing common stock will
be reclassified as DLJ Common Stock ("DLJ Common Stock"), and that stock will
be intended to reflect the performance of DLJ Inc.'s other businesses and a
"Retained Interest" in DLJdirect. DLJ Inc. currently plans to offer to the
public, for cash, shares of DLJdirect Common Stock intended to represent a
portion of the equity value attributed to DLJdirect.
In connection with the offering of DLJdirect Common Stock, DLJdirect
Holdings Inc. intends to pay as a dividend immediately prior to the offering a
note to Donaldson, Lufkin & Jenrette Securities Corporation in an aggregate
amount equal to the total equity of DLJdirect Holdings Inc. at December 31,
1998 plus the accumulated retained earnings of DLJdirect Holdings Inc. from
January 1, 1999 until the end of the month preceding the offering.
4. RELATED PARTY TRANSACTIONS
DLJdirect transacts business with a group of companies affiliated through
common majority ownership with DLJ Inc., and has various transactions and
relationships with members of the group. Due to these relationships, it is
possible that the terms of these transactions are not the same as those that
would result from transactions among unrelated parties.
Pursuant to a clearing agreement between DLJdirect and an affiliate of DLJ
Inc. all securities transactions of DLJdirect are cleared on a fully disclosed
basis through an affiliate of DLJ Inc. In connection with such transactions,
DLJdirect had $250,000 on deposit with DLJ Inc. at December 31, 1997 and 1998.
F-8
<PAGE>
DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
An affiliate of DLJ Inc. also charged DLJdirect $15.4 million, $20.9
million and $28.4 million for transaction, execution and clearance services
which amount is included in brokerage, clearing, exchange and other fees in the
accompanying combined statements of operations for the years ended December 31,
1996, 1997 and 1998, respectively. DLJ Inc. pays DLJdirect a percentage of the
interest earned on DLJdirect's customers' balances. For the years ended
December 31, 1996, 1997 and 1998, respectively, DLJdirect received $2.6
million, $3.8 million and $12.6 million from an affiliate of DLJ Inc. which is
included in interest revenues in the accompanying combined statements of
operations. In addition, for the years ended December 31, 1996, 1997 and 1998,
DLJdirect received $5.4 million, $5.5 million and $8.9 million, respectively,
from an affiliate of DLJ Inc. for order flow, which amount is included in fees
in the accompanying combined statements of operations. DLJdirect received $4.8
million and $13.4 million in fees for technology development from DLJ Inc.
affiliates for the years ending December 31, 1997 and 1998, respectively.
In 1997 DLJdirect entered into a three-year License Agreement with an
affiliate. Under this agreement, the affiliate has licensed certain trademarks,
services marks, trade names and other proprietary rights to various words,
slogans, symbols and logos to DLJdirect for use in its provision of financial
services and sale or other distribution of related financial goods. For the
years ended December 31, 1997 and 1998, other operating expenses included $1.2
million and $5.2 million, respectively, for this agreement. Pursuant to a new
License Agreement executed in March 1999 and an amended clearing agreement
executed in March 1999, the amounts paid by DLJdirect under the clearing
agreement include payments in respect of the license fee for the use of DLJ
Inc.'s trademarks. Such trademarks are licensed to DLJdirect for use in the
United States and certain other jurisdictions under the License Agreement, and
as a result the licensor will receive payment of that fee from the clearing
provider. If such agreements were entered into in prior years under these
conditions, management believes that there would have been no material effect
upon the total costs and expenses of DLJdirect.
Employees of DLJdirect participate in DLJ Inc.'s defined contribution
employee benefit plans. Certain key employees of DLJdirect participate in stock
options, long-term incentive compensation and restricted stock unit employee
benefit plans and various deferred compensation arrangements, as well as other
non-qualified plans which are funded by insurance contracts. Expenses
associated with these compensation arrangements are reflected in DLJdirect's
combined statements of operations.
DLJ Inc. accounts for stock-based compensation related to stock options in
accordance with APB Opinion No. 25 "Accounting for Stock Issued to Employees",
and accordingly, does not recognize any compensation cost associated with such
plans. The pro forma effect on DLJdirect's combined statements of operations,
as determined in accordance with SFAS No. 123 "Accounting for Stock Based
Compensation", is not material.
5. NET CAPITAL
DLJdirect Holdings Inc.'s principal subsidiary, DLJdirect Inc., is a
registered broker-dealer and a member of the National Association of Securities
Dealers Inc. ("NASD") and, accordingly is subject to the minimum net capital
requirements of the Securities and Exchange Commission and the NASD. As such,
it is subject to the NASD's net capital rule which conforms to the Uniform Net
Capital Rule pursuant to rule 15c3-1 of the Securities Exchange Act of 1934.
Under the alternative method permitted by this rule, the required net capital,
as defined, shall not be less than two percent of aggregate debit balances, as
defined, or $250,000, whichever is greater. At December 31, 1998, DLJdirect
Inc.'s net capital of $16.6 million was in excess of the minimum requirement by
$16.4 million.
6. INCOME TAXES
DLJdirect is part of a group that files consolidated Federal income tax
returns. DLJdirect settles all taxes, current and deferred, on a current basis
with DLJ Inc. under a tax sharing arrangement.
F-9
<PAGE>
DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
Taxes are provided as if DLJdirect filed a separate return. Income tax
provision (benefit) included in the combined statements of operations is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
--------- ------------ ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Current:
U.S. Federal ................................ $4,497 $ (2,088) $1,022
State and local ............................. 1,272 (574) 261
------- -------- ------
Total current ................................ 5,769 (2,662) 1,283
------- -------- ------
Deferred:
U.S. Federal ................................ (267) 137 (236)
State and local ............................. (77) 23 (39)
------- -------- ------
Total deferred ............................... (344) 160 (275)
------- -------- ------
Total income tax provision (benefit) ......... $5,425 $ (2,502) $1,008
======= ======== ======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1996 1997 1998
----------------------------- ----------------------------- ----------------------------
PERCENT OF PERCENT OF PERCENT OF
PRETAX PRETAX PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
---------------- ------------ ---------------- ------------ ---------------- -----------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax
provision (benefit) ......... $4,648 35.0% $ (2,144) 35.0% $ 864 35.0%
State and local taxes, net of
related Federal income tax
benefit ..................... 777 5.9 (358) 5.9 144 5.9
------ ---- -------- ---- ------ ----
Income tax provision
(benefit) ................... $5,425 40.9% $ (2,502) 40.9% $1,008 40.9%
====== ==== ======== ==== ====== ====
</TABLE>
Deferred tax assets and deferred tax liabilities are generated by the
following temporary differences settled with DLJ Inc.:
<TABLE>
<CAPTION>
AS OF DECEMBER
31,
----------------
1997 1998
------ -------
(IN THOUSANDS)
<S> <C> <C>
Net deferred tax assets:
Deferred compensation and other ......... $504 $779
==== ====
</TABLE>
Management has determined that taxable income carryback years and
anticipated future taxable income are sufficient to offset the tax benefit of
deductible temporary differences. As a result, at year-end 1997 and 1998,
valuation allowances have not been recorded against the net deferred tax
assets. Although realization is not assured, management believes it is more
likely than not that all of the net deferred tax assets will be realized.
However, if estimates of future taxable income during the carryforward period
are reduced, the amount of the net deferred tax assets considered realizable
could also be reduced.
F-10
<PAGE>
DLJDIRECT
(A COMBINATION OF CERTAIN ASSETS AND LIABILITIES AS DESCRIBED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
7. LEASE COMMITMENTS
DLJdirect primarily obtains its office space and equipment under
cancelable and non-cancelable operating lease agreements through an affiliate.
Such operating leases expire on various dates through 2009. Rent expense for
the years ended December 31, 1996, 1997 and 1998 amounted to $0.5 million, $1.7
million and $3.0 million, respectively, and is included in occupancy and
equipment in the accompanying combined statements of operations.
At December 31, 1998, non-cancelable operating leases in excess of one
year, excluding escalation and renewal options, had the following minimum lease
commitments:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1999 .............. $ 3,540
2000 .............. 3,091
2001 .............. 2,778
2002 .............. 1,684
2003 .............. 574
2004-2009 ......... 290
-------
Total ............ $11,957
=======
</TABLE>
8. CONCENTRATIONS OF CREDIT RISK
In the normal course of business, DLJdirect executes securities
transactions on behalf of customers through its affiliated clearing broker. In
connection with these activities, a customer's unsettled trades may expose
DLJdirect to off-balance-sheet credit risk in the event the customer is unable
to fulfill its contractual obligations. DLJdirect seeks to control the risk
associated with its customer activities by making credit inquiries when
establishing customer relationships and by monitoring customer trading
activity.
Credit risk is the amount of accounting loss DLJdirect would incur if a
customer failed to perform its obligations under contractual terms.
Substantially all of the clearing and depository operations for DLJdirect are
performed by its affiliated clearing broker pursuant to a clearance agreement.
The affiliated clearing broker reviews as considered necessary, the
creditworthiness of the customers with which DLJdirect conducts business.
DLJdirect's exposure to credit risk associated with the nonperformance by
customers in fulfilling their contractual obligations pursuant to securities
transactions can be directly affected by volatile securities markets, credit
markets and regulatory changes.
9. SUBSEQUENT EVENTS (UNAUDITED)
In March 1999, DLJdirect entered into a joint venture agreement with a
Japanese bank. DLJdirect has a 50% interest in this joint venture which amount
is included in other assets in the accompanying combined statements of
financial condition.
On April 1, 1999, DLJdirect entered into a 10-year lease agreement with an
annual commitment of approximately $3.0 million.
10. SUBSEQUENT EVENT -- FILING OF REGISTRATION STATEMENT
On March 17, 1999 DLJ Inc. filed a registration statement with the
Securities and Exchange Commission relating to a proposed initial public
offering of a new class of common stock that will track the performance of
DLJdirect, its online brokerage business.
F-11
<PAGE>
[GRAPHIC OF DLJ DIRECT]
MARKETSPEED
5X FASTER THAN OTHER MAJOR INTERNET BROKERS*
*Based on a study conducted from November 17, 1998 through December 4, 1998 by
Corporate Insight, Inc., an independent online market research firm.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[GRAPHIC OF DLJ DIRECT]
DLJDIRECT COMMON STOCK
DONALDSON, LUFKIN & JENRETTE, INC.
15,000,000 SHARES
-------------------------
P R O S P E C T U S
-------------------------
DONALDSON, LUFKIN & JENRETTE
DLJDIRECT INC.
BT ALEX- BROWN
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representation as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor
any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of DLJdirect
have not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
-------------
<S> <C>
Registration fee ............................ $ 38,364
NASD filing fee ............................. 10,000
New York Stock Exchange listing fee ......... 84,300
Transfer agent's fees ....................... 2,500
Printing and engraving expenses ............. 400,000
Legal fees and expenses ..................... 1,000,000
Accounting fees and expenses ................ 800,000
Blue Sky fees and expenses .................. 5,000
Miscellaneous ............................... 4,836
----------
Total ...................................... $2,345,000
==========
</TABLE>
Each of the amounts set forth above, other than the Registration fee and
the NASD filing fee, is an estimate.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which enables a corporation in its original certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty, except
(i) for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to Section
174 of the DGCL (providing for liability of directors for the unlawful payment
of dividends or unlawful stock purchases or redemptions) or (iv) for any
transaction from which a director derived an improper personal benefit.
Section 145 of the DGCL empowers Donaldson, Lufkin & Jenrette, Inc. to
indemnify, subject to the standards set forth therein, any person in connection
with any action, suit or proceeding brought or threatened by reason of the fact
that the person was a director, officer, employee or agent of such company, or
is or was serving as such with respect to another entity at the request of such
company. The DGCL also provides that Donaldson, Lufkin & Jenrette, Inc. may
purchase insurance on behalf of any such director, officer, employee or agent.
Donaldson, Lufkin & Jenrette, Inc.'s Certificate of Incorporation provides
in effect for the indemnification by Donaldson, Lufkin & Jenrette, Inc. of each
director and officer of Donaldson, Lufkin & Jenrette, Inc. to the fullest
extent permitted by applicable law.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
<S> <C>
1* Form of Underwriting Agreement
3.1 Form of Amended and Restated Certificate of Incorporation, to be filed with the
Delaware Secretary of State prior to the completion of this offering
3.2** By-Laws of Registrant (Incorporated by reference to the corresponding exhibit to
the Registrant's Registration Statement on Form S-1, Registration No. 33-96276)
4.1* Form of DLJdirect Common Stock Certificate
5.1* Opinion of Davis Polk & Wardwell
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
8.1* Tax opinion of Davis Polk & Wardwell
10.1 DLJdirect 1999 Incentive Compensation Plan
23.1 Consent of KPMG LLP
23.2 Consent of KPMG LLP
23.3* Consent of Davis Polk & Wardwell (included in Exhibit 5.1)
24.1** Power of Attorney (included on signature page)
</TABLE>
------------
* To be filed by Amendment.
** Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned hereby undertakes:
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Donaldson,
Lufkin & Jenrette, Inc. certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly
caused this amendment to the registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York, New
York, on the 6th day of May, 1999.
DONALDSON, LUFKIN & JENRETTE, INC.
By: /s/ Joe. L. Roby
------------------------------------
Joe L. Roby
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------- ------------------------------------ ------------
<S> <C> <C>
* President, Chief Executive Officer May 6, 1999
- --------------------------- and Director
Joe L. Roby
* Chairman of the Board and May 6, 1999
- --------------------------- Director
John S. Chalsty
* Executive Vice President, Chief May 6, 1999
- --------------------------- Financial Officer and Director
Anthony F. Daddino
Director
- ---------------------------
David DeLucia
* Managing Director and Director May 6, 1999
- ---------------------------
Hamilton E. James
* Managing Director and Director May 6, 1999
- ---------------------------
Richard S. Pechter
Director
- ---------------------------
Stuart M. Robbins
* Senior Vice President and Chief May 6, 1999
- --------------------------- Accounting Officer
Michael M. Bendik
Director
- ---------------------------
Henri de Castries
* Director May 6, 1999
- ---------------------------
Denis Duverne
Director
- ---------------------------
Jane Mack Gould
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------- ---------- ------------
<S> <C> <C>
* Director May 6, 1999
- ---------------------------
Louis Harris
Director
- ---------------------------
Michael Hegarty
Director
- ---------------------------
Henri G. Hottinguer
* Director May 6, 1999
- ---------------------------
W. Edwin Jarmain
* Director May 6, 1999
- ---------------------------
Francis Jungers
* Director May 6, 1999
- ---------------------------
Edward D. Miller
* Director May 6, 1999
- ---------------------------
W. J. Sanders III
Director
- ---------------------------
Stanley B. Tulin
* Director May 6, 1999
- ---------------------------
John C. West
</TABLE>
* By: /s/ Marjorie S. White
----------------------
Name: Marjorie S. White
Title: Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ----------- ----------------------------------------------------------------------- --------------
<S> <C> <C>
1* Form of Underwriting Agreement
3.1 Form of Amended and Restated Certificate of Incorporation, to be filed
with the Delaware Secretary of State prior to the completion of this
offering
3.2** By-Laws of Registrant (Incorporated by reference to the corresponding
exhibit to the Registrant's Registration Statement on Form S-1,
Registration No. 33-96276)
4.1* Form of DLJdirect Common Stock Certificate
5.1* Opinion of Davis Polk & Wardwell
8.1* Tax opinion of Davis Polk & Wardwell
10.1 DLJdirect 1999 Incentive Compensation Plan
23.1 Consent of KPMG LLP
23.2 Consent of KPMG LLP
23.3* Consent of Davis Polk & Wardwell (included in Exhibit 5.1)
24.1** Power of Attorney (included on signature page)
</TABLE>
- ----------
* To be filed by Amendment.
** Previously filed.
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
DONALDSON, LUFKIN & JENRETTE, INC.
Donaldson, Lufkin & Jenrette, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Donaldson, Lufkin & Jenrette, Inc. The
date of filing its original Certificate of Incorporation with the Secretary of
State was October 20, 1959.
2. This Amended and Restated Certificate of Incorporation has been duly
adopted and proposed to the stockholders of the Corporation by the Board of
Directors of the Corporation, and has been approved and adopted by the
stockholders of the Corporation, in accordance with Sections 242 and 245 of the
General Corporation Law of the State of Delaware.
3. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Amended and Restated Certificate of Incorporation
restates and integrates and further amends the provisions of the Certificate of
Incorporation of the Corporation.
4. The text of the Certificate of Incorporation is hereby restated and
further amended to read in its entirety as hereinafter set forth:
FIRST: The name of the Corporation is DONALDSON, LUFKIN & JENRETTE, INC.
SECOND: The principal office of the Corporation in the State of Delaware
is located at No. 100 West Tenth Street, in the City of Wilmington, County of
New Castle. The name and address of the Corporation's resident agent is The
Corporation Trust Company, No. 100 West Tenth Street, Wilmington, Delaware.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may now or hereafter be organized under the
General Corporation Law of the State of Delaware.
FOURTH:
Section A. Provisions Relating to Common Stock
1. Issuance of Common Stock in Series: Designation; Re-Classification.
Subject to the provisions of Section B of this Article FOURTH and provisions of
law, the Corporation shall have the authority to issue shares of Common Stock in
multiple series. The total number of shares of Common Stock which the
Corporation shall have the authority to issue shall initially be 1,500 million.
One series of Common Stock shall be designated as Donaldson, Lufkin & Jenrette,
Inc -DLJ. Common Stock par value $0.10 per share ("DLJ Common Stock"). The
second series of Common Stock shall be designated as Donaldson, Lufkin&
Jenrette, Inc.-DLJdirect Common Stock par value $0.10 per share ("DLJdirect
Common Stock"). When the filing of this Amendment to the amended and restated
certificate of incorporation becomes effective, each share of Common Stock
outstanding immediately prior thereto shall thereupon automatically be
re-classified as one share of DLJ Common Stock (and outstanding certificates
that had theretofore represented shares of Common Stock shall thereupon
represent an equivalent number of shares of DLJ Common Stock despite the absence
of any indication thereon to that effect).
The total number of shares of DLJ Common Stock which the Corporation shall
have the authority to issue shall initially be 500 million, and the total
number of shares of DLJdirect Common Stock which the Corporation shall have the
authority to issue shall initially be 500 million. The number of authorized
shares of any class or series of Common Stock of the Corporation may be
increased or decreased (but not below the number of shares then outstanding) by
the affirmative vote of the holders of a majority of the voting power of the
stock of the Corporation entitled to vote generally in the election of
directors. The Board of Directors shall have the authority to designate, prior
to the time of the first issuance of the DLJdirect Common Stock, the number
which, immediately prior to such first issuance, will constitute the Number of
Shares Issuable with Respect to DLJ's Retained Interest in DLJdirect and any
other terms
<PAGE>
which are consistent with applicable law and the provisions of this Article
Fourth. The voting powers, preferences and relative, participating, optional or
other special rights of the DLJ Common Stock and DLJdirect Common Stock, and
the qualifications and restrictions thereon, shall be as set forth in this
Section A.
The Board of Directors (or such committee of the Board of Directors as the
Board of Directors shall empower) is hereby empowered to authorize by
resolution or resolutions from time to time the issuance of one or more
additional series of Common Stock and to fix the designations, powers,
preferences and relative, participating, optional or other rights, if any, and
the qualifications, limitations or restrictions thereof, if any, with respect
to each series of Common Stock and the number of shares constituting each such
series, and to increase or decrease the number of shares of any such series to
the extent permitted by the General Corporation Law of the State of Delaware,
as amended from time to time.
2. Dividends. Subject to any preferences and relative, participating,
optional or other special rights of any outstanding class or series of
preferred stock of the Corporation and any qualifications or restrictions on
any class of Common Stock created thereby, dividends may be declared and paid
upon any series of Common Stock, upon the terms with respect to each such
series, and subject to the limitations provided for below in this Section
(A)(2), as the Board of Directors may determine.
(a) Dividends on any series of Common Stock may be declared and paid only
out of the lesser of (i) the funds of the Corporation legally available
therefor and (ii) the Available Dividend Amount for the Group to which such
series of Common Stock relates.
(b) Discrimination in Dividends Between Series of Common Stock. The Board
of Directors, subject to the provisions of Section (A)(2)(a), may at any time
declare and pay dividends exclusively on a single series of Common Stock, or on
one or more series of Common Stock, in equal or unequal amounts,
notwithstanding the relative amounts of the Available Dividend Amount with
respect to any Group, the amount of dividends previously declared on any
series, the respective voting or liquidation rights of any series or any other
factor.
(c) Share Distributions. Except as permitted by Section (A)(3), the Board
of Directors may declare and pay dividends or distributions of shares of any
series of Common Stock (or securities convertible into or exchangeable or
exercisable for shares of any series of Common Stock) on shares of a series of
Common Stock or on shares of a class or series of preferred stock of the
Corporation only as follows:
(i) dividends or distributions of shares of a series of Common Stock
(or securities convertible into or exchangeable or exercisable for shares
of a series of Common Stock) on shares of the same series of Common Stock
or on shares of preferred stock attributed to the same Group to which such
series of Common Stock relates; and
(ii) dividends or distributions of shares of a series of Common Stock
other than DLJ Common Stock (or securities convertible into or
exchangeable or exercisable for shares of a series of Common Stock other
than DLJ Common Stock) on shares of DLJ Common Stock or on shares of
preferred stock attributed to DLJ, but only if the sum of (1) the number
of shares of the series of Common Stock to be so issued (or the number of
such shares which would be issuable upon conversion, exchange or exercise
of any securities to be so issued) and (2) the number of shares of such
series of Common Stock which are issuable upon conversion, exchange or
exercise of any securities then outstanding that are attributed to DLJ is
less than or equal to the Number of Shares Issuable with Respect to DLJ's
Retained Interest in such Group.
For purposes of this Section (A)(2)(c), any outstanding securities that
are convertible into or exchangeable or exercisable for any other securities
which are themselves convertible into or exchangeable or exercisable for any
series of Common Stock (or other securities that are so convertible,
exchangeable or exercisable) shall be deemed to have been converted, exchanged
or exercised in full for such securities.
3. Mandatory Dividend, Redemption or Exchange on Disposition of All or
Substantially All of the Assets of a Group; Exchange of DLJ Common Stock for
DLJdirect Common Stock at the Option of the Corporation; Exchange
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of a Series of Common Stock for Stock of a Subsidiary at the Option of the
Corporation. (a)(i) In the event of a Disposition (other than an Exempt
Disposition), the Corporation shall, on or prior to the 85th Trading Day after
the Disposition Date, provided that the funds of the Corporation are legally
available therefor, either:
(x) declare and pay a dividend to holders of the series of Common
Stock that relates to the Group that consummated such Disposition (in
cash, securities (other than Common Stock) or other property, or a
combination thereof), subject to the limitations on dividends set forth
under Section (A)(2) of this Article FOURTH, in an aggregate amount having
a Fair Value (determined as of the Disposition Date) equal to the product
of the Outstanding Interest Fraction with respect to such Group
(determined as of the record date for such dividend) and the Fair Value
(determined as of the Disposition Date) of the Net Proceeds of such
Disposition;
(y) redeem from holders of the series of Common Stock that relates to
the Group that consummated such Disposition, in exchange for cash,
securities (other than Common Stock) or other property (or a combination
thereof) in an amount equal to the product of the Outstanding Interest
Fraction with respect to such Group (determined as of the redemption date)
and the Fair Value (determined as of the Disposition Date) of the Net
Proceeds of such Disposition, all of the outstanding shares of such series
of Common Stock (unless such Disposition involves substantially all (but
not all) of the assets attributed to such Group, in which case, a number
of shares of such series of Common Stock (rounded, if necessary, to the
nearest whole number) having an aggregate average Market Value, during the
20 consecutive Trading Day period beginning on (and including) the 16th
Trading Day immediately following the Disposition Date, equal to such
amount); or
(z) issue, in exchange for each outstanding share of the series of
Common Stock that relates to the Group that consummated such Disposition,
a number of shares of a series of Common Stock that does not relate to
that Group (calculated to the nearest five decimal places) having an
aggregate value equal to 110% of the value of a share of the series of
Common Stock that relates to that Group (where in each case value is based
on the average Market Value of a share of the relevant series of Common
Stock during the 20 consecutive Trading Day period beginning on (and
including) the 16th Trading Day immediately following the Disposition
Date).
(ii) At any time within one year after completing any dividend or partial
redemption pursuant to (x) or (y) of the preceding sentence, the Corporation
may issue, in exchange for each remaining outstanding share of the series of
Common Stock that relates to the Group that consummated the applicable
Disposition, a number of shares of a series of Common Stock that does not
relate to that Group (calculated to the nearest five decimal places) having an
aggregate value equal to 110% of the value of a share of the series of Common
Stock that relates to that Group (where in each case value is based on the
average Market Value of a share of the relevant series of Common Stock during
the 20 consecutive Trading Day period ending on (and including) the 5th Trading
Day immediately preceding the date on which the Corporation mails the notice of
exchange to holders of the relevant series).
(iii) For purposes of this Section (A)(3), if a Group consummates a
Disposition in a series of related transactions, such Disposition shall not be
deemed to have been completed until consummation of the last of such
transactions.
(b) Optional Exchange of DLJ Common Stock for DLJdirect Common Stock. The
Board of Directors may, at any time, declare that each outstanding share of
DLJdirect Common Stock shall be exchanged, as of the exchange date described
below, for a number of fully paid and nonassessable shares of DLJ Common Stock
having an aggregate value (calculated to the nearest five decimal places) equal
to the percentage of the aggregate value of an outstanding share of DLJdirect
Common Stock (the "Applicable Percentage") specified for the applicable date of
exchange below (where in each case value is based on the average Market Value
of a share of DLJ Common Stock compared to the average Market Value of
DLJdirect Common Stock during the 20 consecutive Trading Day period ending on
(and including) the 5th Trading Day immediately preceding the date on which the
Corporation mails the notice of exchange to holders of the DLJdirect Common
Stock).
THE APPLICABLE PERCENTAGE
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IF THE EXCHANGE DATE FALLS DURING THE PERCENTAGE SPECIFIED FOR SUCH
PERIOD INDICATED BELOW PERIOD
---------------------- ------
First Quarter................................... 125%
Second Quarter.................................. 124.166667%
Third Quarter................................... 123.333333%
Fourth Quarter.................................. 122.5%
Fifth Quarter................................... 121.666667%
Sixth Quarter................................... 120.833333%
Seventh Quarter................................. 120%
Eighth Quarter.................................. 119.166667%
Ninth Quarter................................... 118.333333%
Tenth Quarter................................... 117.5%
Eleventh Quarter................................ 116.666667%
Twelfth Quarter................................. 115.833333%
After Twelfth Quarter........................... 115%
For purposes of the foregoing chart, (x) the first "Quarter" is the period
from and including the date of first issuance of shares of DLJdirect Common
Stock to but excluding the third month anniversary of such date (provided that,
if the date of first issuance of shares of DLJdirect Common Stock is the 29th,
30th or 31st day of any month, the first "Quarter" will be the period from and
including such date of first issuance to but excluding the third month
anniversary of the first day of the month immediately following the month in
which such date of first issuance falls) and (y) each subsequent "Quarter" is
the period from and including the day after the end of the prior Quarter to but
excluding the third month anniversary of such day.
However, if a Tax Event has occurred, the Applicable Percentage shall
equal 110% irrespective of whether the exchange occurs within three years. "Tax
Event" means the receipt by the Corporation of an opinion of tax counsel
experienced in such matters, who shall not be an officer or employee of the
Corporation or any of its affiliates, to the effect that, as a result of any
amendment to, or change in, the laws (or any regulations thereunder) of the
United States or any political subdivision or taxing authority thereof or
therein (including any announced proposed change by an administrative agency in
such regulations), or as a result or any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, it is more likely than not that for United States federal
income tax purposes (1) the Corporation, its subsidiaries or affiliates, or any
of its successors or its stockholders is or, at any time in the future, will be
subject to tax upon the issuance of shares of either DLJ Common Stock or
DLJdirect Common Stock or (2) either DLJ Common Stock or DLJdirect Common Stock
is not or, at any time in the future, will not be treated solely as stock of
the Corporation. For purposes of rendering such opinion, tax counsel shall
assume that any administrative proposals will be adopted as proposed. However,
in the event a change in law is proposed, tax counsel shall render an opinion
only in the event of enactment.
(c) Optional Exchange for Stock of a Subsidiary. (i) At any time at which
all of the assets and liabilities of a Group (and no other assets or
liabilities of the Corporation or any subsidiary thereof) are held directly or
indirectly by one or more wholly-owned subsidiaries of the Corporation (the
"Group Subsidiaries"), the Board of Directors may, provided that there are
funds of the Corporation legally available therefor, declare that all of the
outstanding shares of the series of Common Stock relating to such Group shall
be exchanged, as of the exchange date described below, for the number of fully
paid and nonassessable shares of common stock of each of such Group
Subsidiaries as is equal to the product of the Outstanding Interest Fraction
with respect to such Group (determined as of the exchange date) and the number
of shares of common stock of each such Group Subsidiary as will be outstanding
immediately following such exchange. Such shares of common stock of such Group
Subsidiaries may be delivered directly or indirectly through the delivery of
shares of one or more of such Group Subsidiaries that own directly or
indirectly all of the other shares that are deliverable pursuant to the
preceding sentence.
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(ii) If the series of Common Stock being exchanged pursuant to Section
(A)(3)(c)(i) above is DLJ Common Stock and the Number of Shares Issuable with
Respect to DLJ's Retained Interest in any Group on the exchange date is greater
than zero, the Corporation shall also issue a number of shares of each series
of Common Stock that relates to each such Group on the exchange date equal to
the then current Number of Shares Issuable with Respect to DLJ's Retained
Interest in each such Group and deliver those shares to the holders of DLJ
Common Stock or to one of the Group Subsidiaries, at the option of the
Corporation.
(d) General Dividend, Exchange and Redemption Provisions. (i) If the
Corporation completes a Disposition (other than an Exempt Disposition), the
Corporation shall, not later than the tenth Trading Day after the applicable
Disposition Date, issue a press release specifying (w) the Net Proceeds of such
Disposition, (x) the number of shares of the series of Common Stock related to
such Group then outstanding, (y) the number of shares of such series of Common
Stock issuable upon conversion, exchange or exercise of any convertible or
exchangeable securities, options or warrants and the range of conversion,
exchange or exercise prices thereof and (z) if the Group is not DLJ, the Number
of Shares Issuable with Respect to DLJ's Retained Interest in such Group. The
Corporation shall, not more than 40 Trading Days after such consummation,
announce by press release which of the actions specified in Section
(A)(3)(a)(i) of this Article FOURTH it has determined to take, and upon making
that announcement, that determination will be irrevocable. In addition, the
Corporation shall, not more than 40 Trading Days after such consummation and
not less than 10 Trading Days before the applicable payment date, redemption
date or exchange date, send a notice by first-class mail, postage prepaid, to
holders of the relevant series of Common Stock at their addresses as they
appear on the transfer books of the Corporation, specifying:
(A) if the Corporation has determined to pay a special dividend, (1)
the record date for such dividend, (2) the payment date of such dividend
(which cannot be more than 85 Trading Days after such Disposition Date),
(3) the Net Proceeds of such Disposition and (4) the type of property to
be paid in such dividend and the approximate per share amount thereof;
(B) if the Corporation has determined to undertake a redemption, (1)
the date of redemption (which cannot be more than 85 Trading Days after
such Disposition Date), (2) the Net Proceeds of such Disposition, (3) the
type of property to be paid as a redemption price and the approximate per
share amount thereof, (4) if less than all shares of the relevant series
of Common Stock are to be redeemed, the approximate number of shares to be
redeemed and (5) the place or places where certificates for shares of such
series of Common Stock, properly endorsed or assigned for transfer (unless
the Corporation waives such requirement), should be surrendered in return
for delivery of the cash, securities or other property to be paid by the
Corporation in such redemption; and
(C) if the Corporation has determined to undertake an exchange, (1)
the date of exchange (which cannot be more than 85 Trading Days after such
Disposition Date), (2) the number of shares of the other series of Common
Stock to be issued in exchange for each outstanding share of such series
of Common Stock and (3) the place or places where certificates for shares
of such series of Common Stock, properly endorsed or assigned for transfer
(unless the Corporation waives such requirement), should be surrendered in
return for delivery of the other series of Common Stock to be issued by
the Corporation in such exchange.
(ii) If the Corporation has determined to complete any exchange described
in Section (A)(3)(b) or (c) of this Article FOURTH, the Corporation shall, not
less than 10 Trading Days and not more than 30 Trading Days before the exchange
date, send a notice by first-class mail, postage prepaid, to holders of the
relevant series of Common Stock at their addresses as they appear on the
transfer books of the Corporation, specifying (x) the exchange date and the
other terms of the exchange and (y) the place or places where certificates for
shares of such series of Common Stock, properly endorsed or assigned for
transfer (unless the Corporation waives such requirement), should be
surrendered for delivery of the stock to be issued or delivered by the
Corporation in such exchange.
(iii) Neither the failure to mail any notice required by this Section 3(d)
to any particular holder nor any defect therein would affect the sufficiency
thereof with respect to any other holder or the validity of any dividend,
redemption or exchange contemplated hereby.
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(iv) If the Corporation is redeeming less than all of the outstanding
shares of a series of Common Stock pursuant to Section (A)(3)(a)(i) of this
Article FOURTH, the Corporation shall redeem such shares pro rata or by lot or
by such other method as the Board of Directors determines to be equitable.
(v) No holder of shares of a series of Common Stock being exchanged or
redeemed shall be entitled to receive any cash, securities or other property to
be distributed in such exchange or redemption until such holder surrenders
certificates for such shares, properly endorsed or assigned for transfer, at
such place as the Corporation shall specify (unless the Corporation waives such
requirement). As soon as practicable after the Corporation's receipt of
certificates for such shares, the Corporation shall deliver to the person for
whose account such shares were so surrendered, or to the nominee or nominees of
such person, the cash, securities or other property to which such person shall
be entitled, together with any fractional payment referred to below, in each
case without interest. If less than all of the shares of Common Stock
represented by any one certificate is exchanged or redeemed, the Corporation
shall also issue and deliver a new certificate for the shares of such Common
Stock not exchanged or redeemed.
(vi) The Corporation shall not be required to issue or deliver fractional
shares of any capital stock or any other fractional securities to any holder of
Common Stock upon any exchange, redemption, dividend or other distribution
described above. If more than one share of Common Stock shall be held at the
same time by the same holder, the Corporation may aggregate the number of
shares of any capital stock that would be issuable or any other securities that
would be distributable to such holder upon any such exchange, redemption,
dividend or other distribution. If there are fractional shares of any capital
stock or any other fractional securities remaining to be issued or distributed
to any holder, the Corporation shall, if such fractional shares or securities
are not issued or distributed to such holder, pay cash in respect of such
fractional shares or securities in an amount equal to the Fair Value thereof
(without interest).
(vii) From and after the date set for any exchange or redemption
contemplated by this Section (A)(3), all rights of a holder of shares of Common
Stock being exchanged or redeemed shall cease except for the right, upon
surrender of the certificates theretofore representing such shares, to receive
the cash, securities or other property for which such shares were exchanged or
redeemed, together with any fractional payment as provided above, in each case
without interest (and, if such holder was a holder of record as of the close of
business on the record date for a dividend not yet paid, the right to receive
such dividend). A holder of shares of Common Stock being exchanged shall not be
entitled to receive any dividend or other distribution with respect to shares
of the other series of Common Stock until after certificates theretofore
representing the shares being exchanged are surrendered as contemplated above.
Upon such surrender, the Corporation shall pay to the holder the amount of
any dividends or other distributions (without interest) which theretofore
became payable with respect to a record date occurring after the exchange, but
which were not paid by reason of the foregoing, with respect to the number of
whole shares of the other series of Common Stock represented by the certificate
or certificates issued upon such surrender. From and after the date set for any
exchange, the Corporation shall, however, be entitled to treat the certificates
for shares of a series of Common Stock being exchanged that were not yet
surrendered for exchange as evidencing the ownership of the number of whole
shares of the other series of Common Stock for which the shares of such Common
Stock should have been exchanged, notwithstanding the failure to surrender such
certificates.
(viii) The Corporation shall pay any and all documentary, stamp or similar
issue or transfer taxes that might be payable in respect of the issue or
delivery of any shares of capital stock and/or other securities on any exchange
or redemption contemplated by this Section (A)(3); provided, however, that the
Corporation shall not be required to pay any tax that might be payable in
respect of any transfer involved in the issue or delivery of any shares of
capital stock and/or other securities in a name other than that in which the
shares so exchanged or redeemed were registered, and no such issue or delivery
will be made unless and until the person requesting such issue pays to the
Corporation the amount of any such tax, or establishes to the satisfaction of
the Corporation that such tax has been paid.
(ix) The Corporation may, subject to applicable law, establish such other
rules, requirements and procedures to facilitate any dividend, redemption or
exchange contemplated by this Section (A)(3) as the Board of Directors may
determine to be appropriate under the circumstances.
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4. Voting Rights. At every meeting of stockholders, the holders of DLJ
Common Stock will vote on all matters as to which common stockholders generally
are entitled to vote. Holders of DLJdirect Common Stock will not be entitled to
vote, unless a separate class vote is required by applicable law. On all such
matters for which no separate vote is required, each outstanding share of DLJ
Common Stock entitles the holder to one vote.
5. Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, holders of each
series of Common Stock shall be entitled to receive their proportionate
interests in the net assets of the Corporation, if any, remaining for
distribution to stockholders, after payment of or provision for all
liabilities, including contingent liabilities of the Corporation and payment of
the liquidation preference payable to any holders of the Corporation's
Preferred Stock, if any such stock is outstanding. Each share of each series of
Common Stock will be entitled to a share of net liquidation proceeds in
proportion to the respective liquidation units per share of such class. Each
share of DLJ Common Stock shall have one liquidation unit and each share of
each other series of Common Stock shall have a number of liquidation units
(including a fraction of one liquidation unit) equal to the quotient (rounded
to the nearest five decimal places) of the average Market Value of one share of
such series of Common Stock during the 20 consecutive Trading Day period ending
on, and including, the 5th Trading Day before the date of the first public
announcement of (1) a voluntary liquidation, dissolution or winding-up of the
Corporation or (2) the institution of any proceeding for the involuntary
liquidation, dissolution or winding-up of the Corporation divided by the
average Market Value of one share of DLJ Common Stock during such 20 Trading
Day period. Neither the merger nor consolidation of the Corporation with any
other entity, nor a sale, transfer or lease of all or any part of the assets of
the Corporation, would, alone, be deemed a liquidation, dissolution or
winding-up for purposes of this Section (A)(5).
6. Adjustments to Number of Shares Issuable with Respect to DLJ's Retained
Interest in Any Group. The Number of Shares Issuable with Respect to DLJ's
Retained Interest in any Group, as in effect from time to time, shall,
automatically without action by the Board of Directors or any other person, be:
(a) adjusted in proportion to any changes in the number of
outstanding shares of the series of Common Stock related to such Group
caused by subdivisions (by stock split reclassification or otherwise) or
combinations (by reverse stock split, reclassification or otherwise) of
shares of such series of Common Stock or by dividends or other
distributions of shares of such series of Common Stock on shares of such
series of Common Stock (and, in each such case, rounded, if necessary, to
the nearest whole number);
(b) decreased by (i) if the Corporation issues any shares of the
series of Common Stock related to such Group and the Board of Directors
attributes that issuance (and the proceeds thereof) to DLJ, the number of
shares of such series of Common Stock so issued, and (ii) if the Board of
Directors re-allocates to DLJ any cash or other assets theretofore
allocated to such Group in connection with a redemption of shares of the
series of Common Stock that relates to such Group (as required pursuant to
clause (ii) of the proviso to the definition of DLJ below) or in return
for a decrease in the Number of Shares Issuable with Respect to DLJ's
Retained Interest in such Group, the number (rounded, if necessary, to the
nearest whole number) equal to (x) the aggregate Fair Value of such cash
or other assets divided by (y) the Market Value of one share of the series
of Common Stock that relates to such Group, in each case, as of the date
of such re-allocation; and
(c) increased by (i) if the Corporation repurchases any shares of the
series of Common Stock related to such Group and the Board of Directors
attributes that repurchase (and the consideration therefor) to DLJ, the
number of shares of such series of Common Stock so repurchased and (ii) if
the Board of Directors re-allocates to such Group any cash or other assets
theretofore allocated to DLJ in return for an increase in the Number of
Shares Issuable with Respect to DLJ's Retained Interest in such Group the
number (rounded, if necessary, to the nearest whole number) equal to (x)
the Fair Value of such cash or other assets divided by (y) the Market
Value of one share of the series of Common Stock that relates to such
Group, in each case, as of the date of such re-allocation.
Neither the Corporation nor the Board of Directors shall take any action
that would, as a result of any of the foregoing adjustments, reduce the Number
of Shares Issuable with Respect to DLJ's Retained Interest in any Group to
below zero. Subject to the preceding sentence, the Board of Directors may
attribute the issuance of any shares of any series of Common Stock (and the
proceeds therefrom) or the repurchase of any series of Common Stock (and the
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consideration therefor) to DLJ or to the Group to which such series of Common
Stock relates, as the Board of Directors determines in its sole discretion;
provided, however, that the Board of Directors must attribute to DLJ the
issuance of any shares of any series of Common Stock that are issued (1) as a
dividend or other distribution on, or as consideration for the repurchase of,
shares of DLJ Common Stock or (2) as consideration to acquire any assets or
satisfy any liabilities attributed to DLJ.
7. Additional Definitions . As used in this Article FOURTH, the following
terms shall have the following meanings (with terms defined in singular having
comparable meaning when used in the plural and vice versa), unless the context
otherwise requires:
"ALL OR SUBSTANTIALLY ALL OF THE ASSETS" of any Group means, with respect
to any Disposition, a portion of such assets that represents at least 80% of
the Fair Value (determined as of the Disposition Date) of the assets of such
Group.
"AVAILABLE DIVIDEND AMOUNT" for DLJ, on any day on which dividends are
paid on shares of DLJ Common Stock, is the amount that would, immediately prior
to the payment of such dividends, be legally available for the payment of
dividends on shares of DLJ's Common Stock under Delaware law if (a) DLJ and
each other Group were each a single, separate Delaware corporation, (b) DLJ had
outstanding (i) a number of shares of common stock, par value $0.10 per share,
equal to the number of shares of DLJ Common Stock that are then outstanding and
(ii) a number of shares of preferred stock, par value $0.01 per share, equal to
the number of shares of Preferred Stock that have been attributed to DLJ and
are then outstanding, (c) the assumptions about each Group that is not DLJ set
forth in the next sentence were true and (d) DLJ owned a number of shares of
each series of Common Stock (other than DLJ Common Stock) equal to the Number
of Shares Issuable with Respect to DLJ's Retained Interest in each Group to
which each such series of Common Stock relates.
"AVAILABLE DIVIDEND AMOUNT" for any Group other than DLJ, on any day on
which dividends are paid on shares of the series of Common Stock relating to
such Group, is the amount that would, immediately prior to the payment of such
dividends, be legally available for the payment of dividends on shares of such
series of Common Stock under Delaware law if such Group were a single, separate
Delaware corporation having outstanding (a) a number of shares of common stock,
par value $0.10 per share, equal to the number of shares of such series of
Common Stock that are then outstanding plus the Number of Shares Issuable with
Respect to DLJ's Retained Interest in such Group and (b) a number of shares of
preferred stock, par value $0.01 per share, equal to the number of shares of
Preferred Stock that have been attributed to such Group and are then
outstanding.
"DISPOSITION" means a sale, transfer, assignment or other disposition
(whether by merger, consolidation, sale or otherwise) of All or Substantially
All of the Assets of a Group to one or more persons or entities, in one
transaction or a series of related transactions.
"DISPOSITION DATE" means, with respect to any Disposition, the date of
consummation of such Disposition.
"DLJ" means (a) all of the businesses, assets and liabilities of the
Corporation and its subsidiaries, other than the businesses, assets and
liabilities that are part of any Group other than DLJ, (b) the rights and
obligations of DLJ under any inter-Group debt deemed to be owed to or by DLJ
(as such rights and obligations are defined in accordance with policies
established from time to time by the Board of Directors) and (c) a
proportionate interest in any Group other than DLJ (after giving effect to any
options, Preferred Stock, other securities or debt issued or incurred by the
Corporation and attributed to any Group other than DLJ) equal to the Retained
Interest Fraction; provided, however, that: (i) the Corporation may re-allocate
assets from one Group to another Group in return for other assets or services
rendered by that other Group in the ordinary course of business or in
accordance with policies established by the Board of Directors from time to
time, and (ii) if the Corporation transfers cash, other assets or securities to
holders of shares of a series of Common Stock other than DLJ Common Stock as a
dividend or other distribution on shares of such series of Common Stock (other
than a dividend or distribution payable in shares of such series of Common
Stock), or as payment in a redemption required by Section (A)(3)(a) of this
Article FOURTH, then the Board of Directors shall re-allocate from such Group
to DLJ cash or other assets having a Fair Value equal to the aggregate Fair
Value of the cash, other assets or securities so transferred times the Retained
Interest Amount with respect to such Group as of the record date for such
dividend or distribution, or on the date of such redemption, as the case may
be.
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"DLJDIRECT" means (a) all of the businesses, assets and liabilities of
DLJdirect Holdings, Inc. and its subsidiaries, (b) the assets and liabilities
of DLJdirect's online United Kingdom discount brokerage service, (c) any assets
or liabilities acquired or incurred by DLJdirect Holdings, Inc. or any of its
subsidiaries after the Effective Date in the ordinary course of business and
attributable to DLJdirect, (d) any businesses, assets or liabilities acquired
or incurred by the Corporation or any of its subsidiaries after the Effective
Date that the Board of Directors has specifically allocated to DLJdirect or
that the Corporation otherwise allocates to DLJdirect in accordance with
policies established from time to time by the Board of Directors and (e) the
rights and obligations of DLJdirect under any inter-Group debt deemed to be
owed to or by DLJdirect (as such rights and obligations are defined in
accordance with policies established from time to time by the Board of
Directors); provided, however, that: (i) the Corporation may re-allocate assets
from one Group to the other Group in return for other assets or services
rendered by that other Group in the ordinary course of business or in
accordance with policies established by the Board of Directors from time to
time, and (ii) if the Corporation transfers cash, other assets or securities to
holders of shares of DLJdirect Common Stock as a dividend or other distribution
on shares of DLJdirect Common Stock (other than a dividend or distribution
payable in shares of DLJdirect Common Stock), or as payment in a redemption
required by Section (A)(3)(a) of this Article FOURTH, then the Board of
Directors shall re-allocate from DLJdirect to DLJ cash or other assets having a
Fair Value equal to the aggregate Fair Value of the cash, other assets or
securities so transferred times the Retained Interest Amount with respect to
such Group as of the record date for such dividend or distribution, or on the
date of such redemption, as the case may be.
"EFFECTIVE DATE" means the date on which this Amended and Restated
Certificate of Incorporation becomes effective under Delaware law.
"EXEMPT DISPOSITION" means any of the following:
(a) a Disposition in connection with the liquidation, dissolution or
winding-up of the Corporation and the distribution of assets to
stockholders,
(b) a Disposition to any person or entity controlled by the
Corporation (as determined by the Board of Directors in its sole
discretion),
(c) a Disposition by any Group for which the Corporation receives
consideration primarily consisting of equity securities (including,
without limitation, capital stock of any kind, interests in a general or
limited partnership, interests in a limited liability company or debt
securities convertible into or exchangeable for, or options or warrants to
acquire, any of the foregoing, in each case without regard to the voting
power or other management or governance rights associated therewith) of an
entity which is primarily engaged or proposes to engage primarily in one
or more businesses similar or complementary to businesses conducted by
such Group prior to the Disposition, as determined by the Board of
Directors in its sole discretion,
(d) a dividend, out of any Group's assets, to holders of the related
series of Common Stock (and a re-allocation of a corresponding amount of
such Group's assets to DLJ as required pursuant to clause (ii) of the
proviso to the definition of DLJ above),
(e) a dividend, out of DLJ's assets, to holders of DLJ Common Stock,
(f) a Disposition by any Group other than DLJ or DLJdirect that is
designated to be an "Exempt Disposition" by the Board of Directors in the
resolution or resolutions authorizing the issuance of the shares of the
series of common stock that relates to such Group, and
(g) any other Disposition, if (i) at the time of the Disposition
there are no shares of any series of Common Stock outstanding other than
the series of Common Stock relating to the Group that consummated such
Disposition, (ii) at the time of the Disposition there are no shares of
the series of Common Stock relating to the Group that consummated such
Disposition outstanding or (iii) before the 30th Trading Day following the
Disposition the Corporation has mailed a notice stating that it is
exercising its right to exchange all of the
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outstanding shares of the series of Common Stock relating to the
Group that consummated such Disposition for newly issued shares of DLJ
Common Stock as contemplated under Section 3(b) of this Article FOURTH.
"FAIR VALUE" means (a) in the case of cash, the amount thereof, (b) in the
case of capital stock that has been Publicly Traded for a period of at least 15
months, the Market Value thereof and (c) in the case of other assets or
securities, the fair market value thereof as the Board of Directors shall
determine in good faith (which determination shall be conclusive and binding on
all stockholders).
"GROUP" initially means DLJ or DLJdirect; provided that if the Board of
Directors authorizes the issuance of shares of a series of Common Stock other
than DLJ Common Stock or DLJdirect Common Stock, the Board of Directors shall
designate the assets and liabilities of DLJ to which such series of Common
Stock relates, which assets and liabilities shall be an additional "Group" for
all purposes of this Article Fourth.
"MARKET CAPITALIZATION" of any series of Common Stock on any date means
the Market Value of a share of such series on such date times the number of
shares of such series outstanding on such date. Shares issuable with respect to
DLJ's retained interest in any Group shall not be considered outstanding unless
and until they are in fact issued to third parties.
"MARKET VALUE" of a share of any class or series of capital stock on any
Trading Day means the average of the high and low reported sales prices of such
class or series on such Trading Day or, in case no such reported sale takes
place on such Trading Day, the average of the reported closing bid and asked
prices regular way of a share of such class or series on such Trading Day, in
either case as reported on the New York Stock Exchange ("NYSE") Composite Tape
or, if the shares of such class or series are not listed or admitted to trading
on the NYSE on such Trading Day, on the principal national securities exchange
on which the shares of such class or series are listed or admitted to trading
or, if not listed or admitted to trading on any national securities exchange on
such Trading Day, on The Nasdaq National Market System of the Nasdaq Stock
Market ("Nasdaq NMS") or, if the shares of such class or series are not listed
or admitted to trading on any national securities exchange or quoted on the
Nasdaq NMS on such Trading Day, the average of the closing bid and asked prices
of a share of such class or series in the over-the-counter market on such
Trading Day as furnished by any NYSE member firm selected from time to time by
the Corporation or, if such closing bid and asked prices are not made available
by any such NYSE member firm on such Trading Day, the fair market value of a
share of such class or series as the Board of Directors shall determine in good
faith (which determination shall be conclusive and binding on all
stockholders); provided, that, for purposes of determining the average Market
Value of a share of any class or series of capital stock for any period, (a)
the "Market Value" of a share of any class or series of capital stock on any
day prior to any "ex-dividend" date or any similar date occurring during such
period for any dividend or distribution (other than any dividend or
distribution contemplated by clause (b)(ii) of this sentence) paid or to be
paid with respect to such capital stock shall be reduced by the Fair Value of
the per share amount of such dividend or distribution and (b) the "Market
Value" of a share of any class or series of capital stock on any day prior to
(i) the effective date of any subdivision (by stock split or otherwise) or
combination (by reverse stock split or otherwise) of outstanding shares of such
class or series of capital stock occurring during such period or (ii) any
"ex-dividend" date or any similar date occurring during such period for any
dividend or distribution with respect to such capital stock to be made in
shares of such class or series of capital stock shall be appropriately
adjusted, as determined by the Board of Directors, to reflect such subdivision,
combination, dividend or distribution; and provided further, if (a) the
Corporation repurchases outstanding shares of any series Common Stock other
than DLJ Common Stock and the Board of Directors attributes that repurchase
(and the consideration therefor) to the Group to which such series of Common
Stock relates and (b) the Board of Directors determines to re-allocate to DLJ
cash or other assets theretofore allocated to the Group to which such series of
Common Stock relates in order to avoid a change in the Retained Interest
Fraction, the "Market Value" of a share any series Common Stock other than DLJ
Common Stock used to compute the corresponding reduction in the Number of
Shares Issuable with Respect to DLJ's Retained Interest in
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the Group to which such series of Common Stock relates will equal the Fair
Value of the consideration paid per share of Common Stock so repurchased; and
provided further, if the Corporation redeems a portion of the outstanding
shares of any of series of Common Stock other than DLJ Common Stock (and the
Board of Directors re-allocates to DLJ cash or other assets theretofore
allocated to the Group to which such series of Common Stock relates in the
manner required by clause (ii) of the proviso to the definition of DLJ above),
the "Market Value" of a share of such series of Common Stock used to compute
the corresponding reduction in the Number of Shares Issuable with Respect to
DLJ's Retained Interest in the Group to which such series of Common Stock
relates will equal the Fair Value of the consideration paid per share of such
series of Common Stock so redeemed.
"NET PROCEEDS" of a Disposition of any of the assets of a Group means the
positive amount, if any, remaining from the gross proceeds of such Disposition
after any payment of, or reasonable provision (as determined in good faith by
the Board of Directors, which determination will be conclusive and binding on
all stockholders) for, (a) any taxes payable by the Corporation or any
subsidiary or affiliate thereof in respect of such Disposition or which would
have been payable but for the utilization of tax benefits attributable to the
Group not the subject of the Disposition, (b) any taxes payable by the
Corporation in respect of any resulting dividend or redemption, (c) any
transaction costs, including, without limitation, any legal, investment banking
and accounting fees and expenses and (d) any liabilities (contingent or
otherwise) of, attributed to or related to, such Group, including, without
limitation, any liabilities for deferred taxes or any indemnity or guarantee
obligations which are outstanding or incurred in connection with the
Disposition or otherwise, any liabilities for future purchase price adjustments
and any obligations with respect to outstanding securities (other than Common
Stock) attributed to such Group as determined in good faith by the Board of
Directors.
"NUMBER OF SHARES ISSUABLE WITH RESPECT TO DLJ'S RETAINED INTEREST" means,
with respect to any Group, initially the number the Board of Directors
designates prior to the time the Corporation first issues shares of the series
of Common Stock applicable to such Group as the number of shares of such series
of Common Stock that could be issued by the Corporation for the account of DLJ
in respect of its retained interest in such Group, as authorized by Section
(A)(1); provided, however, that such number as in effect from time to time
shall automatically be adjusted as required by Section 6 of this Article IV(A).
"OUTSTANDING INTEREST FRACTION" means (i) with respect to DLJ, at any time
of determination, 1 and (ii) with respect to any other Group, at any time of
determination, a fraction the numerator of which shall be the number of shares
of the series of Common Stock applicable to such Group outstanding on such date
and the denominator of which shall be the sum of the number of shares of the
series of Common Stock applicable to such Group outstanding on such date and
the Number of Shares Issuable with Respect to DLJ's Retained Interest in such
Group.
"PUBLICLY TRADED" with respect to any security means (a) registered under
Section 12 of the Securities Exchange Act of 1934, as amended (or any successor
provision of law), and (b) listed for trading on the NYSE (or any other
national securities exchange registered under Section 7 of the Securities
Exchange Act of 1934, as amended (or any successor provision of law)) or listed
on the Nasdaq NMS (or any successor market system).
"RETAINED INTEREST AMOUNT" means (i) with respect to DLJ, at any time of
determination, 1 and (ii) with respect to any other Group, at any time of
determination, a fraction the numerator of which shall be the Number of Shares
Issuable with Respect to DLJ's Retained Interest in such Group and the
denominator of which shall be the number of shares of the series of common
stock relating to such Group outstanding on such date.
"RETAINED INTEREST FRACTION" means (i) with respect to DLJ, at any time of
determination, 1 and (ii) with respect to any Group that is not DLJ, at any
time of determination, a fraction the numerator of which shall be the Number of
Shares Issuable with Respect to DLJ's Retained Interest in such Group and the
denominator of which shall be the sum of the number of shares of the series of
common stock applicable to such Group outstanding on such date and the Number
of Shares Issuable with Respect to DLJ's Retained Interest in such Group.
"TRADING DAY" means each weekday on which the relevant security (or, if
there are two relevant securities, each relevant security) is traded on the
principal national securities exchange on which it is listed or admitted to
trading or on the Nasdaq NMS or, if such security is not listed or admitted to
trading on a national securities exchange or quoted on the Nasdaq NMS, traded
in the principal over-the-counter market in which it trades.
8. Effectiveness of Sections (A)(2), (A)(3), (A)(5), (A)(6) and (A)(7) of
This Article FOURTH. The terms of Sections (A)(2), (A)(3), (A)(5), (A)(6) and
(A)(7) of this Article FOURTH shall apply only when there are shares of
multiple series of Common Stock outstanding.
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Section B. Provisions Relating to Preferred Stock
The Board of Directors (or such committee of the Board of Directors as the
Board of Directors shall empower) is hereby empowered to authorize by
resolution or resolutions from time to time the issuance of one or more classes
or series of Preferred Stock and to fix the designations, powers, preferences
and relative, participating, optional or other rights, if any, and the
qualifications, limitations or restrictions thereof, if any, with respect to
each such class or series of Preferred Stock and the number of shares
constituting each such class or series, and to increase or decrease the number
of shares of any such class or series to the extent permitted by the General
Corporation Law of the State of Delaware, as amended from time to time.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatever.
SEVENTH: The following additional provisions are inserted for the
management of the business and for the conduct of the affairs of the
Corporation, and for the creation, definition, limitation and regulation of the
powers of the Corporation, the directors and the stockholders:
1. Election of directors need not be by ballot. The Board of Directors
shall have the power to make, alter, amend and repeal the By-laws of the
Corporation.
2. Any director may be removed at any time, with or without cause, upon
the affirmative vote of the holder of a majority of the stock of the
Corporation at that time having voting power for the election of directors.
3. In the event that any contract or other transaction to which this
Corporation is a party would be affected by the fact that any directors or
officers of this Corporation are directors, officers, creditors, stockholders,
partners, or otherwise interested in any other party to such contract, or are
parties to or are otherwise interested in such contract or other transaction,
then, in any such event, such contract or other transaction shall not be
affected by such fact if such contract or other transaction shall be approved
or ratified by the affirmative vote of directors who are not so interested
constituting a majority of a quorum of directors present at a meeting of the
Board of Directors. In the absence of actual fraud, no director or officer
shall be liable to account to the Corporation for any profit realized by him
from or through any such contract or other transaction of the types described
above in this paragraph ratified or approved as aforesaid, by reason of his
interest in any such contract or other transaction.
Directors interested in any such contract or other transaction of the
types described in the foregoing paragraph may be counted when present at
meetings of the Board of Directors for the purpose of determining the existence
of a quorum to consider and vote on any such contract or other transaction.
Any contract or other transaction that shall be approved or ratified by
the vote of the holders of a majority of the stock of the Corporation at the
time having voting powers for the election of directors present, in person or
by proxy, at any annual or special meeting of stockholders (provided that a
lawful quorum of such stockholders be there present in person or by proxy)
shall, except as otherwise provided by law, be as valid and as binding upon the
Corporation and upon all its stockholders as though it had been approved or
ratified by every stockholder of the Corporation.
4. The Board of Directors may, by resolution or resolutions, passed by a
majority of the whole board, designate one or more committees, each committee
to consist of two or more of the directors of the Corporation, which to the
extent provided in said resolution or resolutions or in the By-Laws of the
Corporation, shall have and may exercise the powers of the Board of Directors
in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may
be stated in the By-Laws of the Corporation or as may be determined from time
to time by resolution adopted by the Board of Directors.
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5. The Board of Directors shall also have power to authorize and cause to
be executed and delivered mortgages and instruments of pledge, and any other
instruments creating liens, on the real and personal property of the
Corporation; to fix the times for the declaration and payment of dividends; to
set apart out of any of the funds of the Corporation available for dividends a
reserve or reserves for any proper purpose and to abolish any such reserve; and
to make and determine the use and disposition of any surplus (whether capital,
earned or other surplus) or net profits over and above the capital of the
Corporation, and in its discretion, the Board of Directors may use and apply
any such surplus or net profits in purchasing or acquiring shares of its own
stock to such extent and in such manner and upon such terms as the Board of
Directors shall deem expedient. The shares of such stock so purchased or
acquired may be resold, except as otherwise provided by law.
6. The business of the Corporation shall be managed by the Board of
Directors, except as otherwise provided by the General Corporation Law of the
State of Delaware or herein. The Board of Directors, in addition to the powers
and authority expressly conferred upon it herein, by law, by the By-Laws and
otherwise, is hereby empowered to exercise all such powers as may be exercised
by the Corporation; subject, nevertheless, to the provisions of the laws of the
State of Delaware, of this Certificate of Incorporation, and of any amendments
thereto, and to the By-Laws.
7. A director, or a member of any committee designated by the Board of
Directors pursuant to authority hereinbefore conferred, shall, in the
performance of his duties, be fully protected in relying in good faith upon the
books of account or reports made to the Corporation, its stockholders, its
Board of Directors or any such committee, by any of its officials, or by an
independent certified public accountant, or by an appraiser selected with
reasonable care by the Board of Directors or by any such committee, or in
relying in good faith upon other records of the Corporation. Without prejudice
to the generality of the foregoing, a director shall be fully protected in
relying in good faith upon the books of account of the Corporation or
statements prepared by any of its officials as to the value and amount of the
assets, liabilities and/or net profits of the Corporation, or any other facts
pertinent to the existence and amount of surplus or other funds from which
dividends might properly be declared and paid.
8. Whenever under the provisions of the laws of the State of Delaware or
this Certificate of Incorporation the vote of the holders of Common Stock at a
meeting thereof is required or permitted to be taken for or in connection with
any corporate action, the meeting and vote of such holders may be dispensed
with and such actions may be effectively and validly taken on the written
consent of the holders of not less than a majority of the shares of Common
Stock then outstanding, provided that in no case shall such written consent be
by the holders of Common Stock having less than the minimum percentage of the
total vote required by statute for the proposed corporate action, and provided,
further, that prompt notice shall be given to all stockholders of the taking of
corporate action without a meeting and by less than unanimous written consent.
EIGHTH: (a) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgement in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in
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connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of his duty to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsection (a) or (b), or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under subsection (a) or (b) (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in subsections (a) and (b). Such determination shall be
made (1) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding as authorized by the Board of Directors in
the specific case upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
Corporation as authorized in this section.
(f) The indemnification provided by this section shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
(g) The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this section.
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IN WITNESS WHEREOF, said Donaldson, Lufkin & Jenrette, Inc. has caused
this certificate to be signed by Joe L. Roby, its President and Chief Executive
Officer, and attested by Marjorie White, its Secretary, this 22nd day of April,
1998.
DONALDSON, LUFKIN & JENRETTE, INC.
By:
--------------------------------------
President and Chief Executive Officer
ATTEST:
By:
------------------------------------
Secretary
15
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DLJDIRECT
- -------------------------------------------------------------------------------
1999 INCENTIVE COMPENSATION PLAN
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1
<PAGE>
DLJDIRECT
- -------------------------------------------------------------------------------
1999 INCENTIVE COMPENSATION PLAN
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
1. Purposes ..................................................... 4
2. Definitions .................................................. 4
3. Administration ............................................... 6
(a) Authority of the Committee ............................... 6
(b) Manner of Exercise of Committee Authority ................ 6
(c) Limitation of Liability .................................. 7
4. Shares Subject to Plan ....................................... 7
(a) Overall Number of Shares Available for Delivery .......... 7
(b) Application of Limitation to Grants of Awards ............ 7
(c) Availability of Shares Not Delivered under Awards ........ 7
5. Eligibility; Per-Person Award Limitations .................... 7
6. Specific Terms of Awards ..................................... 8
(a) General .................................................. 8
(b) Options .................................................. 8
(c) Share Appreciation Rights ................................ 8
(d) Restricted Shares ........................................ 9
(e) RSUs ..................................................... 10
(f) Bonus Shares and Awards in Lieu of Obligations ........... 10
(g) Dividend Equivalents ..................................... 10
(h) Annual Incentive and Performance Awards. ................. 10
(i) Other Share-Based Awards ................................. 11
7. Certain Provisions Applicable to Awards ...................... 11
(a) Stand-Alone, Additional, Tandem, and Substitute Awards ... 11
(b) Term of Awards ........................................... 11
(c) Form and Timing of Payment under Awards; Deferrals ....... 11
(d) Exemptions from Section 16(b) Liability .................. 12
(e) Loan Provisions .......................................... 12
</TABLE>
2
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DLJDIRECT
- -------------------------------------------------------------------------------
1999 INCENTIVE COMPENSATION PLAN
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
8. Performance and Annual Incentive Awards ...................... 12
(a) Performance Conditions ................................... 12
(b) Performance Awards Granted to Designated Covered
Employees ............................................. 12
(c) Annual Incentive Awards Granted to Designated Covered
Employees ............................................. 14
(d) Written Determinations ................................... 15
(e) Status of Section 8(b) and Section 8(c) Awards under
Code Section 162(m) ................................... 15
9. General Provisions ........................................... 15
(a) Compliance with Legal and Other Requirements ............. 15
(b) Limits on Transferability; Beneficiaries ................. 15
(c) Adjustments .............................................. 16
(d) Taxes .................................................... 16
(e) Changes to the Plan and Awards ........................... 17
(f) Limitation on Rights Conferred under Plan ................ 17
(g) Unfunded Status of Awards; Creation of Trusts ............ 17
(h) Nonexclusivity of the Plan ............................... 18
(i) Payments in the Event of Forfeitures; Fractional Shares .. 18
(j) Governing Law ............................................ 18
(k) Awards to Participants Outside the United States ......... 18
(l) Plan Effective Date and Shareholder Approval ............. 18
</TABLE>
3
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DLJDIRECT
1999 INCENTIVE COMPENSATION PLAN
1. PURPOSES. The purposes of the DLJdirect 1999 Incentive Compensation
Plan (the "Plan") are to provide incentives to executive officers and other
selected key employees and service providers of Donaldson, Lufkin & Jenrette,
Inc. and its Affiliates to contribute to the growth and profitability of the
Company, to encourage such persons to remain in the employ or service of the
Company, and to endeavor to qualify the compensation paid under the Plan for
tax deductibility under Section 162(m) of the Code to the extent deemed
appropriate by the Compensation and Management Committee of the Company's Board
of Directors. Adoption of the Plan and the grant of Awards in accordance with
the terms of the Plan has been determined by the Board to be in the best
interest of the Company and its shareholders.
2. DEFINITIONS. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof:
(a) "Affiliate" means (i) any entity that, directly or indirectly, is
controlled by the Company and (ii) any entity in which the Company has a
significant equity interest, in either case as determined by the Committee.
(b) "Annual Incentive Award" means an Award granted to a Participant
which is conditioned upon satisfaction, during a period not in excess of
one year, of performance criteria established by the Committee.
(c) "Award" means any Option, SAR (including Limited SAR), Restricted
Share, RSU, Share granted as a bonus or in lieu of another award, Dividend
Equivalent, Other Share-Based Award, Performance Award or Annual Incentive
Award, together with any other right or interest granted to a Participant
under the Plan.
(d) "Beneficiary" means the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death. If, upon a
Participant's death, there is no designated Beneficiary or surviving
designated Beneficiary, then the term Beneficiary means the Participant's
estate.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, including regulations thereunder and successor provisions and
regulations thereto.
(g) "Committee" means the Compensation and Management Committee of the
Board.
(h) "Company" means Donaldson, Lufkin & Jenrette, Inc. together with any
successor thereto.
(i) "Covered Employee" means an Eligible Employee who is a Covered
Employee as specified in Section 8(e) of the Plan.
(j) "Dividend Equivalent" means a right, granted to a Participant under
Section 6(g), to receive cash, Shares, or other Awards equal in value to
dividends paid with respect to a specified number of Shares, or other
periodic payments.
4
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(k) "Effective Date" means March 16, 1999.
(l) "Eligible Employee" means each Executive Officer or director of the
Company, other officers, employees or directors of the Company or any of
its Affiliates, and other persons who provide services to the Company or
any of its Affiliates. An employee on leave of absence may be considered as
still in the employ of the Company or an Affiliate for purposes of
eligibility for participation in the Plan. In addition, a person who has
been offered employment by the Company or any of its Affiliates or agreed
to become a director of the Company or any of its Affiliates is eligible to
be granted an Award under the Plan; provided, however, that such Award
shall be canceled if such person fails to commence such employment or
service as a director, and no payment of value may be made in connection
with such Award until such person has commenced such employment or service.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, including rules thereunder and successor provisions and
rules thereto.
(n) "Executive Officer" means an executive officer of the Company as
defined under the Exchange Act.
(o) "Fair Market Value" means the fair market value of the Shares, Awards
or other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee,
the Fair Market Value of Shares shall be equal to the closing price per
share reported on a consolidated basis on the principal stock exchange upon
which the Shares are traded on the date on which the value is to be
determined (or the last immediately preceding date on which the Shares were
traded).
(p) "Incentive Stock Option" or "ISO" means any Option intended to be and
designated as an incentive stock option within the meaning of Code Section
422 or any successor provision thereto.
(q) "Option" means a right, granted to a Participant under Section 6(b)
hereof, to purchase Shares or other Awards at a specified price during
specified time periods.
(r) "Other Share-Based Awards" means Awards granted to a Participant
under Section 6(i) hereof.
(s) "Participant" means a person who has been granted an Award under the
Plan which remains outstanding, including a person who is no longer an
Eligible Employee.
(t) "Performance Award" means an Award granted to a Participant which is
conditioned upon satisfaction, during a period in excess of one year but in
no event more than ten years, of performance criteria established by the
Committee.
(u) "Qualified Member" means a member of the Committee who is a "non
employee director" within the meaning of Rule 16b-3 and an "outside
director" within the meaning of Code Section 162(m).
(v) "Restricted Shares" means Shares granted to a Participant under
Section 6(d) hereof that are subject to certain restrictions and to a risk
of forfeiture.
(w) "Restricted Share Units" or "RSUs" means a right, granted to a
Participant under Section 6(e) hereof, to receive Shares, cash or a
combination thereof at the end of a specified deferral period.
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(x) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(y) "Shares" means the Company's DLJdirect Common Stock, par value $0.10
per share, and such other securities as may be substituted (or
resubstituted) for Shares pursuant to Section 9(c) hereof.
(z) "Share Appreciation Rights" or "SAR" means a right granted to a
Participant under Section 6(c) hereof.
3. ADMINISTRATION.
(a) Authority of the Committee. The Plan shall be administered by the
Committee except to the extent the Board elects to administer the Plan, in
which case references herein to the "Committee" shall be deemed to include
references to the "Board". The Committee is authorized, subject to the
provisions of the Plan, in its discretion, from time to time to select Eligible
Employees and Participants; to grant Awards under the Plan; to establish,
modify, or rescind such rules and regulations as it deems necessary for the
proper administration of the Plan; and to make determinations and
interpretations and to take such steps in connection with the Plan or the
Awards granted thereunder as it deems necessary and advisable. All such actions
by the Committee under the Plan or with respect to the Awards granted
thereunder shall be final and binding on all persons. No member of the
Committee shall be liable for any action taken, or determination made, in good
faith.
(b) Manner of Exercise of Committee Authority. At any time that a member
of the Committee is not a Qualified Member, any action of the Committee
relating to an Award granted or to be granted to a Participant who is then
subject to Section 16 of the Exchange Act in respect of the Company, or
relating to an Award intended by the Committee to qualify as "performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder, may be taken either (i) by a subcommittee, designated by the
Committee, composed solely of two or more Qualified Members, or (ii) by the
Committee but with each such member who is not a Qualified Member abstaining or
recusing himself or herself from such action; provided, however, that, upon
such abstention or recusal, the Committee remains composed solely of two or
more Qualified Members. Such action, authorized by such a subcommittee or by
the Committee upon the abstention or recusal of such non-Qualified Member(s),
shall be the action of the Committee for purposes of the Plan. Any action of
the Committee shall be final, conclusive and binding on all persons, including
the Company, its Affiliates, Participants, Beneficiaries, transferees under
Section 9(b) hereof or other persons claiming rights from or through a
Participant, and stockholders. The express grant of any specific power to the
Committee, and the taking of any action by the Committee, shall not be
construed as limiting any power or authority of the Committee. The Committee
may delegate to officers or managers of the Company or any Affiliate, or
committees thereof, the authority, subject to such terms as the Committee shall
determine, to perform such functions, including administrative functions, as
the Committee may determine, to the extent that such delegation will not result
in the loss of an exemption under Rule 16b-3 for Awards granted to Participants
subject to Section 16 of the Exchange Act in respect of the Company and will
not cause Awards intended to qualify as "performance-based compensation" under
Code Section 162(m) to fail to so qualify. The Committee may appoint agents to
assist it in administering the Plan.
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(c) Limitation of Liability. The Committee and each member thereof shall
be entitled to, in good faith, rely or act upon any report or other information
furnished to him or her by any executive officer, other officer or employee of
the Company or an Affiliate, the Company's independent auditors, consultants or
any other agents assisting in the administration of the Plan. Members of the
Committee and any officer or employee of the Company or an Affiliate acting at
the direction or on behalf of the Committee shall not be personally liable for
any action or determination taken or made in good faith with respect to the
Plan, and shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action or determination.
4. SHARES SUBJECT TO PLAN.
(a) Overall Number of Shares Available for Delivery. Subject to adjustment
as provided in Section 9(c) hereof, the total number of Shares reserved and
available for delivery in connection with Awards under the Plan shall be (i)
10,000,000, plus (ii) 7.5% of the number of Shares issued or delivered during
the term of the Plan (excluding any issuance or delivery in connection with
Awards, or any other compensation or benefit plan of the Company, or in
connection with the initial public offering of Shares); provided, however, that
the total number of Shares with respect to which ISOs may be granted shall not
exceed 10,000,000. Any Shares delivered under the Plan shall consist of
authorized and unissued shares or treasury shares.
(b) Application of Limitation to Grants of Awards. No Award may be granted
if the number of Shares to be delivered in connection with such Award or, in
the case of an Award relating to Shares but settleable only in cash (such as
cash-only SARs), the number of shares to which such Award relates, exceeds the
number of Shares remaining available under the Plan minus the number of Shares
issuable in settlement of or relating to then-outstanding Awards. The Committee
may adopt reasonable counting procedures to ensure appropriate counting, avoid
double counting (as, for example, in the case of tandem or substitute awards)
and make adjustments if the number of Shares actually delivered differs from
the number of shares previously counted in connection with an Award.
(c) Availability of Shares Not Delivered under Awards. Shares subject to
an Award under the Plan that is canceled, expired, forfeited, settled in cash
or otherwise terminated without a delivery of Shares to the Participant,
including (i) the number of Shares withheld in payment of any exercise or
purchase price of an Award or taxes relating to Awards, and (ii) the number of
Shares surrendered in payment of any exercise or purchase price of an Award or
taxes relating to any Award, will again be available for Awards under the Plan.
5. ELIGIBILITY; PER-PERSON AWARD LIMITATIONS. Awards may be granted under
the Plan only to Eligible Employees. In each fiscal year during any part of
which the Plan is in effect, an Eligible Employee may not be granted Awards
relating to more than 2,000,000 Shares, subject to adjustment as provided in
Section 9(c), under each of Sections 6(b), 6(c), 6(d), 6(e), 6(f), 6(g), 6(h),
and 6(i). For purposes of applying the foregoing limitation to Sections 6(b)
and 6(c), any Option or SAR that is canceled shall be treated as remaining
outstanding, and any amendment to an Option or SAR that reduces the exercise or
grant price (other than customary anti-dilution adjustments) shall be treated
as the cancellation of the original Option or SAR and the issuance of a new
Option or SAR. In addition, the maximum cash Award that may be earned under the
Plan pursuant to Section 6(h) in respect of any fiscal year shall be
$5,000,000, determined on an annualized basis in the case of a Performance
Award.
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6. SPECIFIC TERMS OF AWARDS.
(a) General. Awards may be granted on the terms and conditions set forth
in this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Section 9(e)),
such additional terms and conditions, not inconsistent with the provisions of
the Plan, as the Committee shall determine, including terms requiring
forfeiture of Awards in the event of termination of employment by the
Participant and terms permitting a Participant to make elections relating to
his or her Award. The Committee shall retain full power and discretion to
accelerate, waive or modify, at any time, any term or condition of an Award
that is not mandatory under the Plan. Except in cases in which the Committee is
authorized to require other forms of consideration under the Plan, or to the
extent other forms of consideration must by paid to satisfy the requirements of
applicable state law, no consideration other than services may be required for
the grant (but not the exercise) of any Award.
(b) Options. The Committee is authorized to grant Options to Participants
on the following terms and conditions:
(i) Exercise Price. The exercise price per share of Shares purchasable
under an Option shall be determined by the Committee, provided that such
exercise price shall be not less than the Fair Market Value of Shares on
the date of grant of such Option except as provided under Section 7(a)
hereof.
(ii) Time and Method of Exercise. The Committee shall determine the time
or times at which or the circumstances under which an Option may be
exercised in whole or in part (including based on achievement of
performance goals and/or future service requirements), the methods by which
such exercise price may be paid or deemed to be paid, the form of such
payment, including, without limitation, cash, Shares, other Awards, or
other property (including notes or other contractual obligations of
Participants to make payment on a deferred basis), and the methods by or
forms in which Shares will be delivered or deemed to be delivered to
Participants.
(iii) ISOs. The terms of any ISO granted under the Plan shall comply in
all respects with the provisions of Code Section 422. Anything in the Plan
to the contrary notwithstanding, no term of the Plan relating to ISOs
(including any SAR in tandem therewith) shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify either the Plan or any ISO under Code
Section 422, unless the Participant has first requested the change that
will result in such disqualification.
(c) Share Appreciation Rights. The Committee is authorized to grant SARs
to Participants on the following terms and conditions:
(i) Right to Payment. A SAR shall confer on the Participant to whom it is
granted a right to receive, upon exercise thereof, the excess of (A) the
Fair Market Value of one Share on the date of exercise over (B) the grant
price of the SAR as determined by the Committee, provided that such grant
price shall not be less than the Fair Market Value of a Share on the date
of grant of such SAR except as provided under Section 7(a) hereof.
(ii) Other Terms. The Committee shall determine at the date of grant or
thereafter, the time or times at which and the circumstances under which a
SAR may be exercised in whole or in part
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(including based on achievement of performance goals and/or future service
requirements), the method of exercise, method of settlement, form of
consideration payable in settlement, method by or forms in which Shares
will be delivered or deemed to be delivered to Participants, whether or not
a SAR shall be in tandem or in combination with any other Award, and any
other terms and conditions of any SAR. Limited SARs that may only be
exercised in connection with a Change in Control or other event as
specified by the Committee may be granted on such terms, not inconsistent
with this Section 6(c), as the Committee may determine. SARs and Limited
SARs may be either freestanding or in tandem with other Awards.
(d) Restricted Shares. The Committee is authorized to grant Restricted
Shares to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Shares shall be subject to such
restrictions on transferability, risk of forfeiture and other restrictions,
if any, as the Committee may impose, which restrictions may lapse
separately or in combination at such times, under such circumstances
(including based on achievement of performance goals and/or future service
requirements), in such installments or otherwise, as the Committee may
determine at the date of grant or thereafter. Except to the extent
restricted under the terms of the Plan and any Award agreement relating to
the Restricted Shares, a Participant granted Restricted Shares shall have
all of the rights of a shareholder, including the right to vote the
Restricted Shares and the right to receive dividends thereon (subject to
any mandatory reinvestment or other requirement imposed by the Committee).
During the restricted period applicable to the Restricted Shares, subject
to Section 9(b) below, the Restricted Shares may not be sold, transferred,
pledged, hypothecated, margined or otherwise encumbered by the Participant.
(ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment during the applicable restriction period,
Restricted Shares that are at that time subject to restrictions shall be
forfeited and reacquired by the issuing company; provided that the
Committee may provide, by rule or regulation or in any Award agreement, or
may determine in any individual case, that restrictions or forfeiture
conditions relating to the Restricted Shares shall be waived in whole or in
part in the event of terminations resulting from specified causes, and the
Committee may in other cases waive in whole or in part the forfeiture of
the Restricted Shares.
(iii) Certificates for Shares. Restricted Shares granted under the Plan
may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Shares are registered in the name of
the Participant, the Committee may require that such certificates bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Shares, that the issuing company retain
physical possession of the certificates, and that the Participant deliver a
stock power to the issuing company, endorsed in blank, relating to the
Restricted Shares.
(iv) Dividends and Splits. As a condition to the grant of an Award of
Restricted Shares, the Committee may require that any cash dividends paid
on Restricted Shares be automatically reinvested in additional shares of
Restricted Shares or applied to the purchase of additional Awards under the
Plan. Unless otherwise determined by the Committee, Shares distributed in
connection with a stock split or stock dividend, and other property
distributed as a dividend shall be subject to restrictions and a risk of
forfeiture to the same extent as the Restricted Shares with respect to
which such Shares or other property have been distributed.
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(e) RSUs. The Committee is authorized to grant RSUs to Participants, which
are rights to receive Shares, cash, or a combination thereof at the end of a
specified deferral period, subject to the following terms and conditions:
(i) Award and Restrictions. Satisfaction of an Award of RSUs shall occur
upon expiration of the deferral period specified for such RSUs by the
Committee (or, if permitted by the Committee, as elected by the
Participant). In addition, RSUs shall be subject to such restrictions
(which may include a risk of forfeiture) as the Committee may impose, if
any, which restrictions may lapse at the expiration of the deferral period
or at earlier specified times (including based on achievement of
performance goals and/or future service requirements), separately or in
combination, in installments or otherwise, as the Committee may determine.
RSUs may be satisfied by delivery of Shares, cash equal to the Fair Market
Value of the specified number of Shares covered by the RSUs, or a
combination thereof, as determined by the Committee at the date of grant or
thereafter.
(ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment during the applicable deferral period or portion
thereof to which forfeiture conditions apply (as provided in the Award
agreement evidencing the RSUs), all RSUs that are at that time subject to
deferral (other than a deferral at the election of the Participant) shall
be forfeited; provided that the Committee may provide, by rule or
regulation or in any Award agreement, or may determine in any individual
case, that restrictions or forfeiture conditions relating to RSUs shall be
waived in whole or in part in the event of terminations resulting from
specified causes, and the Committee may in other cases waive in whole or in
part the forfeiture of RSUs.
(iii) Dividend Equivalents. Unless otherwise determined by the Committee
at the date of grant, Dividend Equivalents on the specified number of
Shares covered by an Award of RSUs shall be either (A) paid with respect to
such RSUs at the dividend payment date in cash or unrestricted Shares
having a Fair Market Value equal to the amount of such dividends, or (B)
deferred with respect to such RSUs and the amount or value thereof
automatically deemed reinvested in additional RSUs, other Awards or other
investment vehicles, as the Committee shall determine or permit the
Participant to elect.
(f) Bonus Shares and Awards in Lieu of Obligations. The Committee is
authorized to grant Shares as a bonus, or to grant Shares or other Awards in
lieu of obligations to pay cash or deliver other property under the Plan or
under other plans or compensatory arrangements. Shares or Awards granted
hereunder shall be subject to such other terms as shall be determined by the
Committee.
(g) Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to a Participant, entitling the Participant to receive cash,
Shares, or other Awards equal in value to dividends paid with respect to a
specified number of Shares, or other periodic payments. Dividend Equivalents
may be awarded on a free-standing basis or in connection with another Award.
The Committee may provide that Dividend Equivalents shall be paid or
distributed when accrued or shall be deemed to have been reinvested in
additional Shares, Awards, or other investment vehicles, and subject to such
restrictions on transferability and risks of forfeiture, as the Committee may
specify.
(h) Annual Incentive and Performance Awards. The Committee is authorized
to make Annual Incentive Awards and Performance Awards payable in cash, Shares,
or other Awards, on terms and conditions established by the Committee, subject
to Section 8 in the event of Annual Incentive Awards or Performance Awards
intended to qualify as "performance-based compensation" for purposes of Code
Section 162(m).
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(i) Other Share-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Shares, as deemed by the Committee to
be consistent with the purposes of the Plan, including, without limitation,
convertible or exchangeable debt securities, other rights convertible or
exchangeable into Shares, purchase rights for Shares, Awards with value and
payment contingent upon performance of the Company or any other factors
designated by the Committee, and Awards valued by reference to the book value
of Shares or the value of securities of or the performance of specified
Affiliates. The Committee shall determine the terms and conditions of such
Awards. Shares delivered pursuant to an Award in the nature of a purchase right
granted under this Section 6(i) shall be purchased for such consideration, paid
for at such times, by such methods, and in such forms, including, without
limitation, cash, Shares, other Awards, or other property, as the Committee
shall determine. Cash awards, as an element of or supplement to any other Award
under the Plan, may also be granted pursuant to this Section 6(i).
7. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with, or in substitution or exchange for, any
other Award or any award granted under another plan of the Company, any
subsidiary, or any business entity to be acquired by the Company or any
subsidiary, or any other right of a Participant to receive payment from the
Company or any subsidiary. Such additional, tandem, and substitute or exchange
Awards may be granted at any time. If an Award is granted in substitution or
exchange for another Award or award, the Committee shall require the surrender
of such other Award or award in consideration for the grant of the new Award.
In addition, Awards may be granted in lieu of cash compensation, including in
lieu of cash amounts payable under other plans of the Company or any
subsidiary, in which the value of Shares subject to the Award is equivalent in
value to the cash compensation (for example, RSUs or Restricted Shares), or in
which the exercise price, grant price or purchase price of the Award in the
nature of a right that may be exercised is equal to the Fair Market Value of
the underlying Shares minus the value of the cash compensation surrendered (for
example, Options granted with an exercise price "discounted" by the amount of
the cash compensation surrendered).
(b) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee; provided that in no event shall the term of any
Option or SAR exceed a period of ten years (or such shorter term as may be
required in respect of an ISO under Code Section 422).
(c) Form and Timing of Payment under Awards; Deferrals. Subject to the
terms of the Plan and any applicable Award agreement, payments to be made by
the Company or any subsidiary upon the exercise of an Option or other Award or
settlement of an Award may be made in such forms as the Committee shall
determine, including, without limitation, cash, Shares, or other Awards, and
may be made in a single payment or transfer, in installments, or on a deferred
basis. The settlement of any Award may be accelerated, and cash paid in lieu of
Shares in connection with such settlement, in the discretion of the Committee
or upon the occurrence of one or more specified events. Installment or deferred
payments may be required by the Committee to the extent necessary to qualify
payments for deductibility under Code Section 162(m), or permitted at the
election of the Participant on terms and conditions established by the
Committee. Payments may include, without limitation, provisions for the payment
or
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crediting of reasonable interest on installment or deferred payments or the
grant or crediting of Dividend Equivalents or other amounts in respect of
installment or deferred payments denominated in Shares. Any payments
mandatorily deferred by the Committee to qualify such payments for
deductibility under Code Section 162(m) shall include a reasonable rate of
interest.
(d) Exemptions from Section 16(b) Liability. It is the intent of the
Company and its subsidiaries that the grant of any Awards to or other
transaction by a Participant who is subject to Section 16 of the Exchange Act
shall be exempt under Rule 16b-3 (except for transactions acknowledged in
writing to be non-exempt by such Participant). Accordingly, if any provision of
this Plan or any Award agreement does not comply with the requirements of Rule
16b-3 as then applicable to any such transaction, such provision shall be
construed or deemed amended to the extent necessary to conform to the
applicable requirements of Rule 16b-3 so that such Participant shall avoid
liability under Section 16(b).
(e) Loan Provisions. With the consent of the Committee, and subject at all
times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company and/or any subsidiary, the Company and/or any
subsidiary may make, guarantee or arrange for a loan or loans to a Participant
with respect to the exercise of any Option, purchase of Shares or other payment
in connection with any Award, including the payment by a Participant of any or
all federal, state or local income or other taxes due in connection with any
Award. Subject to such limitations, the Committee shall have full authority to
decide whether to make a loan or loans hereunder and to determine the amount,
terms and provisions of any such loan or loans, including the interest rate to
be charged in respect of any such loan or loans, the terms on which the loan is
to be repaid and conditions, if any, under which the loan or loans may be
forgiven.
8. PERFORMANCE AND ANNUAL INCENTIVE AWARDS.
(a) Performance Conditions. The right of a Participant to exercise or
receive a grant or settlement of any Award, and the timing thereof, may be
subject to such performance conditions as may be specified by the Committee.
The Committee may use such business criteria and other measures of performance
as it may deem appropriate in establishing any performance conditions, and may
exercise its discretion to reduce or increase the amounts payable under any
Award subject to performance conditions; provided, however, that all
Performance Awards and Annual Incentive Awards shall comply with the
requirements of Sections 8(b) and 8(c) hereof unless the Committee specifically
determines at the time of grant that such Award is not intended to qualify as
"performance-based compensation" under Code Section 162(m).
(b) Performance Awards Granted to Designated Covered Employees. Unless the
Committee determines that a Performance Award is not intended to qualify as
"performance-based compensation" for purposes of Code Section 162(m), the
grant, exercise and/or settlement of such Performance Award shall be contingent
upon achievement of pre-established performance goals and other terms set forth
in this Section 8(b).
(i) Performance Goals Generally. The performance goals for such
Performance Awards shall consist of one or more business criteria and a
targeted level or levels of performance with respect to each of such
criteria, as specified by the Committee consistent with this Section 8(b).
Performance goals shall be objective and shall otherwise meet the
requirements of Code Section 162(m) and regulations thereunder (including
Regulation 1.162-27 and successor regulations thereto), including the
requirement that the level or levels of performance targeted by the
Committee result in the
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achievement of performance goals being "substantially uncertain." The
Committee may determine that such Performance Awards shall be granted,
exercised and/or settled upon achievement of any one performance goal or
that two or more of the performance goals must be achieved as a condition
to grant, exercise and/or settlement of such Performance Awards.
Performance goals may differ for Performance Awards granted to any one
Participant or to different Participants.
(ii) Business Criteria. One or more of the following business criteria
for the Company, on a consolidated basis, and/or for specified subsidiaries
or business units of the Company or any of its Affiliates (except with
respect to the total shareholder return and earnings per share criteria),
shall be used by the Committee in establishing performance goals for such
Performance Awards: (1) earnings per share; (2) revenues; increase in
revenues; the excess of all or a portion of revenues over operating
expenses (excluding expenses determined by the Committee at the time
performance goals are established); (3) cash flow; (4) cash flow return on
investment; (5) return on net assets, return on assets, return on
investment, return on capital, return on equity; (6) management value
added; (7) operating margin; (8) net income; pretax earnings; pretax
earnings before interest, depreciation, amortization and/or incentive
compensation; pretax operating earnings; operating earnings (with or
without investment gains or losses); (9) total shareholder return; (10)
reduction in costs; (11) increase in the Fair Market Value of the Shares;
and (12) any of the above goals as compared to the performance of a
published or special index deemed applicable by the Committee including,
but not limited to, the Standard & Poor's 500 Stock Index or a group of
comparator companies. One or more of the foregoing business criteria shall
also be exclusively used in establishing performance goals for Annual
Incentive Awards granted to a Covered Employee under Section 8(c) hereof.
(iii) Performance Period; Timing for Establishing Performance
Goals. Achievement of performance goals in respect of such Performance
Awards shall be measured over a performance period of up to ten years, as
specified by the Committee Performance goals shall be established not later
than 90 days after the beginning of any performance period applicable to
such Performance Awards, or at such other date as may be required or
permitted for "performance-based compensation" under Code Section 162(m).
(iv) Performance Award Pool. The Committee may establish a Performance
Award pool, which shall be an unfunded pool, for purposes of measuring
performance of the Company, any subsidiary and/or any business unit of the
Company and/or any of its subsidiaries in connection with Performance
Awards. The amount of such Performance Award pool shall be based upon the
achievement of a performance goal or goals based on one or more of the
business criteria set forth in Section 8(b)(ii) hereof during the given
performance period, as specified by the Committee in accordance with
Section 8(b)(iii) hereof. The Committee may specify the amount of the
Performance Award pool as a percentage of any of such business criteria, a
percentage thereof in excess of a threshold amount, or as another amount
which need not bear a strictly mathematical relationship to such business
criteria, provided that the amount of the Performance Award pool can be
determined by an independent third party in possession of all the relevant
facts.
(v) Settlement of Performance Awards; Other Terms. Settlement of such
Performance Awards shall be in cash, Shares or other Awards, in the
discretion of the Committee. The Committee may, in its discretion, reduce
the amount of a settlement otherwise to be made in connection with such
Performance Awards, but may not exercise discretion to increase any such
amount payable to a
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Covered Employee in respect of a Performance Award subject to this Section
8(b). The Committee shall specify the circumstances in which such
Performance Awards shall be paid or forfeited in the event of termination
of employment by the Participant prior to the end of a performance period
or settlement of Performance Awards.
(c) Annual Incentive Awards Granted to Designated Covered
Employees. Unless the Committee determines that an Annual Incentive Award is
not intended to qualify as "performance-based compensation" for purposes of
Code Section 162(m), the grant, exercise and/or settlement of such Annual
Incentive Award shall be contingent upon achievement of pre-established
performance goals and other terms set forth in this Section 8(c).
(i) Annual Incentive Award Pool. The Committee may establish an Annual
Incentive Award pool, which shall be an unfunded pool, for purposes of
measuring performance of the Company, any subsidiary and/or any business
unit of the Company and/or any of its subsidiaries in connection with
Annual Incentive Awards. The amount of such Annual Incentive Award pool
shall be based upon the achievement of a performance goal or goals based on
one or more of the business criteria set forth in Section 8(b)(ii) hereof
during the given performance period, as specified by the Committee in
accordance with Section 8(b)(iii) hereof. The Committee may specify the
amount of the Annual Incentive Award pool as a percentage of any of such
business criteria a percentage thereof in excess of a threshold amount, or
as another amount which need not bear a strictly mathematical relationship
to such business criteria, provided that the amount of the Annual Incentive
Award pool can be determined by an independent third party in possession of
all the relevant facts.
(ii) Potential Annual Incentive Awards. Not later than the end of the
90th day of each fiscal year, or at such other date as may be required or
permitted in the case of Awards intended to be "performance-based
compensation" under Code Section 162(m), the Committee shall determine the
Eligible Employees who will potentially receive Annual Incentive Awards,
and the amounts potentially payable thereunder, for that fiscal year,
either out of an Annual Incentive Award pool established by such date under
Section 8(c)(i) hereof or as individual Annual Incentive Awards. In the
case of individual Annual Incentive Awards intended to qualify under Code
Section 162(m), the amount potentially payable shall be based upon the
achievement of a performance goal or goals based on one or more of the
business criteria set forth in Section 8(b)(ii) hereof in the given
performance year, as specified by the Committee; in other cases, such
amount shall be based on such criteria as shall be established by the
Committee.
(iii) Payout of Annual Incentive Awards. After the end of each fiscal
year, the Committee shall determine the amount, if any, of (A) the Annual
Incentive Award pool, and the maximum amount of potential Annual Incentive
Award payable to each Participant in the Annual Incentive Award pool, or
(B) the amount of potential Annual Incentive Award otherwise payable to
each Participant. The Committee may, in its discretion, determine that the
amount payable to any Participant as a final Annual Incentive Award shall
be increased or reduced from the amount of his or her potential Annual
Incentive Award, including a determination to make no final Award
whatsoever, but may not exercise discretion to increase any such amount in
the case of an Annual Incentive Award intended to qualify under Code
Section 162(m). The Committee shall specify the circumstances in which an
Annual Incentive Award shall be paid or forfeited in the event of
termination of employment by the Participant prior to the end of a fiscal
year or settlement of such Annual Incentive Award. Settlement of Annual
Incentive Awards shall be in cash, Shares or other Awards, in the
discretion of the Committee.
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(d) Written Determinations. All determinations by the Committee as to the
establishment of performance goals, the amount of any Performance Award pool or
potential individual Performance Awards and as to the achievement of
performance goals relating to Performance Awards under Section 8(b), and the
amount of any Annual Incentive Award pool or potential individual Annual
Incentive Awards and the amount of final Annual Incentive Awards under Section
8(c), shall be made in writing in the case of any Award intended to qualify
under Code Section 162(m). No Performance Award or Annual Incentive Award
intended to qualify under Code Section 162(m) shall be paid until the Committee
has certified in writing that the applicable performance goals have been
achieved. The Committee may not delegate any responsibility relating to such
Performance Awards or Annual Incentive Awards.
(e) Status of Section 8(b) and Section 8(c) Awards under Code Section
162(m). It is the intent of the Company and its subsidiaries that Performance
Awards and Annual Incentive Awards under Sections 8(b) and 8(c) hereof granted
to persons who are likely to be Covered Employees within the meaning of Code
Section 162(m) and regulations thereunder (including Regulation 1.162-27 and
successor regulations thereto) shall, if so designated by the Committee,
constitute "performance-based compensation" within the meaning of Code Section
162(m) and regulations thereunder. Accordingly, the terms of Sections 8(b),
(c), (d) and (e), including the definitions of Covered Employee and other terms
used therein, shall be interpreted in a manner consistent with Code Section
162(m) and regulations thereunder. The foregoing notwithstanding, because the
Committee cannot determine with certainty whether a given Participant will be a
Covered Employee with respect to a fiscal year that has not yet been completed,
the term Covered Employee as used herein shall mean any Eligible Employee who
receives a Performance Award or an Annual Incentive Award unless the Committee
determines, at the time of grant, that such Award is not intended to qualify as
"performance-based compensation" for purposes of Code Section 162(m). If any
provision of the Plan as in effect on the date of adoption or any agreements
relating to Performance Awards or Annual Incentive Awards that are designated
as intended to comply with Code Section 162(m) does not comply or is
inconsistent with the requirements of Code Section 162(m) or regulations
thereunder, such provision shall be construed or deemed amended to the extent
necessary to conform to such requirements.
9. GENERAL PROVISIONS.
(a) Compliance with Legal and Other Requirements. The Company may, to the
extent deemed necessary or advisable by the Committee, postpone the issuance or
delivery of Shares or payment of other benefits under any Award until
completion of such registration or qualification of such Shares or other
required action under any federal or state law, rule or regulation, listing or
other required action with respect to any stock exchange or automated quotation
system upon which the Shares or other securities of the Company are listed or
quoted, or compliance with any other obligation of the Company, as the
Committee may consider appropriate, and may require any Participant to make
such representations, furnish such information and comply with or be subject to
such other conditions as it may consider appropriate in connection with the
issuance or delivery of Shares or payment of other benefits in compliance with
applicable laws, rules, and regulations, listing requirements, or other
obligations.
(b) Limits on Transferability; Beneficiaries. No Award or other right or
interest of a Participant under the Plan shall be pledged, hypothecated or
otherwise encumbered or subject to any lien, obligation or liability of such
Participant to any party (other than the Company or a subsidiary), or assigned
or transferred by such Participant otherwise than by will or the laws of
descent and distribution or to a
15
<PAGE>
Beneficiary upon the death of a Participant, and such Awards or rights that may
be exercisable shall be exercised during the lifetime of the Participant only
by the Participant or his or her guardian or legal representative, except that
Awards and other rights (other than ISOs and SARs in tandem therewith) may be
transferred to one or more transferees during the lifetime of the Participant,
and may be exercised by such transferees in accordance with the terms of such
Award, but only if and to the extent such transfers are permitted by the
Committee pursuant to the express terms of an Award agreement (subject to any
terms and conditions which the Committee may impose thereon). A Beneficiary,
transferee, or other person claiming any rights under the Plan from or through
any Participant shall be subject to all terms and conditions of the Plan and
any Award agreement applicable to such Participant, except as otherwise
determined by the Committee, and to any additional terms and conditions deemed
necessary or appropriate by the Committee.
(c) Adjustments. In the event that any dividend or other distribution
(whether in the form of cash, Shares, or other property), recapitalization,
forward or reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase, share exchange, liquidation, dissolution or other
similar corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust any
or all of (i) the number and kind of Shares which may be delivered in
connection with Awards granted thereafter, (ii) the number and kind of Shares
by which annual per-person Award limitations are measured under Section 5
hereof, (iii) the number and kind of Shares subject to or deliverable in
respect of outstanding Awards and (iv) the exercise price, grant price or
purchase price relating to any Award and/or make provision for payment of cash
or other property in respect of any outstanding Award. In addition, the
Committee is authorized to make adjustments in the terms and conditions of, and
the criteria included in, Awards (including Performance Awards and performance
goals, and Annual Incentive Awards and any Annual Incentive Award pool or
performance goals relating thereto) in recognition of unusual or nonrecurring
events (including, without limitation, events described in the preceding
sentence, as well as acquisitions and dispositions of businesses and assets)
affecting the Company, any subsidiary or any business unit, or the financial
statements of the Company or any subsidiary or business unit, or in response to
changes in applicable laws, regulations, accounting principles, tax rates and
regulations or business conditions or in view of the Committee's assessment of
the business strategy of the Company, any subsidiary or business unit thereof,
performance of comparable organizations, economic and business conditions,
personal performance of a Participant, and any other circumstances deemed
relevant; provided that no such adjustment shall be authorized or made if and
to the extent that such authority or the making of such adjustment would cause
Options, SARs, Performance Awards granted under Section 8(b) hereof or Annual
Incentive Awards granted under Section 8(c) hereof to Participants designated
by the Committee as Covered Employees and intended to qualify as
"performance-based compensation" under Code Section 162(m) and regulations
thereunder to otherwise fail to qualify as "performance-based compensation"
under Code Section 162(m) and regulations thereunder.
(d) Taxes. The Company and/or any subsidiary is authorized to withhold
from any Award granted, any payment relating to an Award under the Plan,
including from a distribution of Shares, or any payroll or other payment to a
Participant, amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company and/or any
subsidiary and Participants to satisfy obligations for
16
<PAGE>
the payment of withholding taxes and other tax obligations relating to any
Award. This authority shall include authority to withhold or receive Shares or
other property and to make cash payments in respect thereof in satisfaction of
a Participant's tax obligations, either on a mandatory or elective basis in the
discretion of the Committee.
(e) Changes to the Plan and Awards. The Board may amend, alter, suspend,
discontinue or terminate the Plan or the Committee's authority to grant Awards
under the Plan without the consent of stockholders or Participants, except that
any amendment or alteration to the Plan shall be subject to the approval of the
Company's stockholders not later than the annual meeting next following such
Board action if such stockholder approval is required by any federal or state
law or regulation or the rules of any stock exchange or automated quotation
system on which the Shares may then be listed or quoted, and the Board may
otherwise, in its discretion, determine to submit other such changes to the
Plan to stockholders for approval; provided that, without the consent of an
affected Participant, no such Board action may materially and adversely affect
the rights of such Participant under any previously granted and outstanding
Award. The Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue or terminate any Award theretofore granted and any Award
agreement relating thereto, except as otherwise provided in the Plan; provided
that, without the consent of an affected Participant, no such Committee action
may materially and adversely affect the rights of such Participant under such
Award. Notwithstanding anything in the Plan to the contrary, if any right under
this Plan would cause a transaction to be ineligible for pooling of interest
accounting that would, but for the right hereunder, be eligible for such
accounting treatment, the Committee may modify or adjust the right so that
pooling of interest accounting shall be available, including the substitution
of Shares having a Fair Market Value equal to the cash otherwise payable
hereunder for the right which caused the transaction to be ineligible for
pooling of interest accounting.
(f) Limitation on Rights Conferred under Plan. Neither the Plan nor any
action taken hereunder shall be construed as (i) giving any Eligible Employee
or Participant the right to continue as an Eligible Employee or Participant or
in the employ or service of the Company or a subsidiary, (ii) interfering in
any way with the right of the Company or a subsidiary to terminate any Eligible
Employee's or Participant's employment or service at any time, (iii) giving an
Eligible Employee or Participant any claim to be granted any Award under the
Plan or to be treated uniformly with other Participants and employees, or (iv)
conferring on a Participant any of the rights of a shareholder of the Company
unless and until the Participant is duly issued or transferred Shares in
accordance with the terms of an Award.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant or obligation to deliver
Shares pursuant to an Award, nothing contained in the Plan or any Award shall
give any such Participant any rights that are greater than those of a general
creditor of the Company; provided that the Committee may authorize the creation
of trusts and deposit therein cash, Shares, other Awards or other property, or
make other arrangements to meet the Company's obligations under the Plan. Such
trusts or other arrangements shall be consistent with the "unfunded" status of
the Plan unless the Committee otherwise determines with the consent of each
affected Participant. The trustee of such trusts may be authorized to dispose
of trust assets and reinvest the proceeds in alternative investments, subject
to such terms and conditions as the Committee may specify and in accordance
with applicable law.
17
<PAGE>
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the shareholders of the Company for approval shall
be construed as creating any limitations on the power of the Board or a
committee thereof to adopt such other incentive arrangements as it may deem
desirable including incentive arrangements and awards which do not qualify
under Code Section 162(m).
(i) Payments in the Event of Forfeitures; Fractional Shares. Unless
otherwise determined by the Committee, in the event of a forfeiture of an Award
with respect to which a Participant paid cash or other consideration, the
Participant shall be repaid the amount of such cash or other consideration. No
fractional Shares shall be issued or delivered pursuant to the Plan or any
Award. The Committee shall determine whether cash, other Awards or other
property shall be issued or paid in lieu of such fractional shares or whether
such fractional shares or any rights thereto shall be forfeited or otherwise
eliminated.
(j) Governing Law. The validity, construction and effect of the Plan, any
rules and regulations under the Plan, and any Award agreement shall be
determined in accordance with the New York Business Corporation Law, without
giving effect to principles of conflicts of laws, and applicable federal law.
(k) Awards to Participants Outside the United States. The Committee may
modify the terms of any Award under the Plan made to or held by a Participant
who is then resident or primarily employed outside of the United States in any
manner deemed by the Committee to be necessary or appropriate in order that
such Award shall conform to laws, regulations, and customs of the country in
which the Participant is then resident or primarily employed, or so that the
value and other benefits of the Award to the Participant, as affected by
foreign tax laws and other restrictions applicable as a result of such an Award
to a Participant who is resident of or primarily employed in the United States.
An Award may be modified under this Section 9(k) in a manner that is consistent
with the express terms of the Plan, so long as such modifications will not
contravene any applicable law or regulation or result in actual liability under
Section 16(b) for the Participant whose Award is modified.
(l) Plan Effective Date and Stockholder Approval. The Plan has been
adopted by the Board, effective March 16, 1999, subject to approval by the
stockholders of the Company.
18
<PAGE>
STOCKHOLDER'S PROXY SOLICITED BY THE BOARD OF DIRECTORS OF
P
DONALDSON, LUFKIN & JENRETTE, INC.
R
To: Donaldson, Lufkin & Jenrette, Inc.
O
I appoint Marjorie S. White and Michael A. Boyd, individually and
Y together, as my proxies, with power of substitution, to vote all of my
DONALDSON, LUFKIN & JENRETTE, INC. common stock at the Special X
Meeting of Stockholders of DONALDSON, LUFKIN & JENRETTE, INC. to be held
at the Company's offices, 8th Floor, 277 Park Avenue, New York, New York
10172, on Tuesday, May 25, 1999, at 10:00 a.m., New York City time, and
at any adjournment or postponement of the meeting.
MY PROXIES WILL VOTE THE SHARES REPRESENTED BY THIS PROXY AS DIRECTED ON
THE OTHER SIDE OF THIS CARD, BUT IN THE ABSENCE OF ANY INSTRUCTIONS FROM
ME, MY PROXIES WILL VOTE "FOR" THE APPROVAL OF THE DLJDIRECT 1999
INCENTIVE COMPENSATIVE PLAN. MY PROXIES MAY VOTE ACCORDING TO THEIR
DISCRETION ON ANY OTHER MATTER WHICH MAY PROPERLY COME BEFORE THE
MEETING. I MAY REVOKE THIS PROXY PRIOR TO ITS EXERCISE.
PLEASE SIGN AND DATE THE OTHER SIDE OF THIS CARD.
(Please fill in the appropriate box on the other side.)
<PAGE>
|
|
| 4 6 3 8
|___
[X] PLEASE MARK YOUR
CHOICES LIKE THIS IN
BLUE OR BLACK INK.
ITEM 1. APPROVAL OF DLJDIRECT 1999 FOR AGAINST ABSTAIN
INCENTIVE COMPENSATION PLAN [ ] [ ] [ ]
Note: Please sign exactly as
name(s) appear(s) above. If
acting as an executor,
administrator, trustee, guardian,
etc., you should so indicate in
signing. If the stockholder is a
corporation, please sign the full
corporate name, by a duly
authorized officer. If shares are
held jointly, each stockholder
named should sign. Date and
promptly return this card in the
envelope provided.
----------------------------------
SIGNATURE(S) DATE
----------------------------------
SIGNATURE(S) DATE
<PAGE>
401 (K) RETIREMENT SAVINGS PLAN DIRECTION SOLICITED BY THE
BOARD OF DIRECTORS OF
P DONALDSON, LUFKIN & JENRETTE, INC.
R
To: Fidelity Management Trust Company, Trustee
O
I direct Fidelity Management Trust Company, Trustee under the 401 (k)
Y Retirement Savings Plan for Employees of Donaldson Lufkin and Jenrette,
Inc., to vote in person or by proxy all of the shares of X
DONALDSON, LUFKIN & JENRETTE, INC. common stock allocated to the account
of the undersigned under such Plan at the Special Meeting of
Stockholders of DONALDSON, LUFKIN & JENRETTE, INC. to be held at the
Company's offices, 8th Floor, 277 Park Avenue, New York, New York 10172,
on Tuesday, May 25 1999, at 10:00 a.m., New York City time, and at any
adjournment or postponement of the meeting.
THE SHARES REPRESENTED BY THIS DIRECTION WILL BE VOTED AS DIRECTED ON
THE OTHER SIDE OF THIS CARD, BUT IN THE ABSENCE OF ANY INSTRUCTIONS FROM
ME, WILL BE VOTED "FOR" THE APPROVAL OF THE DLJDIRECT 1999 INCENTIVE
COMPENSATION PLAN. THE TRUSTEE MAY VOTE ACCORDING TO ITS DISCRETION ON
ANY OTHER MATTER WHICH MAY PROPERLY COME BEFORE THE MEETING.
PLEASE SIGN AND DATE THE OTHER SIDE OF THIS CARD.
(Please fill in the appropriate box on the other side.)
<PAGE>
|
|
|
| 4 6 4 8
|____
[X] PLEASE MARK YOUR
CHOICES LIKE THIS IN
BLUE OR BLACK INK.
ITEM 1. APPROVAL OF DLJDIRECT 1999 FOR AGAINST ABSTAIN
INCENTIVE COMPENSATION PLAN [ ] [ ] [ ]
Note: Please sign exactly as
name(s) appear(s) above.
--------------------------------
SIGNATURE(S) DATE
--------------------------------
SIGNATURE(S) DATE
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Donaldson, Lufkin & Jenrette, Inc.:
We consent to the use of our report on DLJdirect included herein and to the
reference to our firm under the heading "Experts" in the registration
statement.
/s/ KPMG LLP
New York, New York
May 5, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Donaldson, Lufkin & Jenrette, Inc.:
We consent to incorporation by reference in amendment No. 2 to the registration
statement on Form S-3 dated May 6, 1999 of our report dated February 2, 1999,
except as to footnote 19 which is as of March 17, 1999, which is included in
the December 31, 1998 annual report on Form 10-K dated March 30, 1999 of
Donaldson, Lufkin & Jenrette, Inc., and to the reference to our firm under the
heading "Experts" in the registration statement.
/s/ KPMG LLP
New York, New York
May 5, 1999
