CONFORMED COPY
European Joint Venture ("EJV")
Summary of Principal Terms
This memorandum dated as of June 15, 2000 between Deutsche Bank AG
("DB") and National Discount Brokers Group, Inc. ("NDB") (each, a "Party" and
together, the "Parties") sets forth certain terms, conditions and understandings
upon which the Parties intend to use their good faith efforts to negotiate and
enter into definitive agreements and other related documents as set forth below.
Such terms, conditions and understandings are not exhaustive and shall be
supplemented in the definitive agreements by such other terms, conditions and
understandings as are customary in joint venture and related transactions of the
type contemplated and as shall be mutually agreed by the Parties. Terms used but
not defined herein have the meanings assigned in the Stockholder Agreement
between DB and NDB, dated as of the date hereof.
Object of the EJV: Except as indicated below, the EJV will be the
exclusive vehicle whereby DB's Global Corporates and
Institutions Division as it is currently constituted
or may be expanded and any successor division
(together, "GCI"), on the one hand, and NDB and its
controlled Affiliates, on the other hand, provide
On-Line Discount Brokerage for Equity Securities to
Retail Investors within the Territory. Each Party
may, in its discretion, additionally offer for
distribution through the EJV (i) On-Line Discount
Brokerage for Other Products; and (ii) On-Line
Incidental Services, in each case which the Party
currently offers to, or may subsequently develop for,
Retail Investors within the Territory, subject to
regulatory requirements, prior commitments to third
parties and internal strategic and resource
allocation priorities, and on such terms as such
Party and the EJV may mutually agree.
NDB acknowledges that DB currently offers
and may in the future offer On-Line Discount
Brokerage for Equity Securities to Retail
Investors in the Territory, outside of GCI,
including without limitation through
Brokerage 24, DBNet 24 and DB's branches in
the Territory (collectively, the "Non-GCI
On-Line Businesses"). DB may in the future
centralize ownership of the various Non-GCI
On-Line Businesses in one or more holding
companies, but shall have no obligation to
do so. If DB creates one or more such
holding companies, it may, but shall not be
obligated to, offer the EJV the opportunity
to acquire an equity interest in one or more
of such holding companies in exchange for
the contribution of the EJV's business and
assets to such holding company. The amount
of such equity interest will be based on
relative fair market values at the time of
contribution.
On-Line Discount
Brokerage: The execution of securities trades for customers by
an entity that (i) does not employ account executives
or registered representatives who (A) are assigned
to, and responsible for maintaining relationships
with, customers for the purpose of providing advised
brokerage and trade execution services (whether
provided in person or electronically and whether
general or trade-specific) or (B) are compensated
with a portion of the commissions earned for any
trade execution services performed for such
customers, (ii) offers its customers the ability to
execute securities trades directly through
computerized on-line or other electronic or wireless
execution systems, including, without limitation, the
Internet and IVR, without the direct assistance or
recommendation of any account executive or registered
representative, and (iii) generally charges its
customers a lower cost for its services than is
customarily charged in the relevant market for
brokerage services by brokerage firms or banks
offering traditional advised brokerage taking into
account commission charges, account investment
advisory fees and such other charges and fees and
minimum balance requirements. On-Line Discount
Brokerage does not include the provision of On-Line
Incidental Services.
On-Line Incidental
Services: On-line services, other than On-Line Discount
Brokerage, including without limitation the
preparation and distribution of research or other
commentary, the provision of private banking or
commercial banking services, margin lending, custody,
investment advisory management or supervisory
services, including through financial or other models
developed internally or by third parties, and
customer message boards or discussion forums, in each
case whether with respect to Equity Securities or
Other Products.
Territory: Austria, Belgium, Denmark, Finland, France, Germany,
Greece, Iceland, Ireland, Italy, Liechtenstein,
Luxembourg, Monaco, the Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland and the United
Kingdom (the "Territory").
Equity Securities: Capital stock of European and U.S. issuers, including
shares of exchange-listed, closed end mutual funds
holding such capital stock, but not including options
on or warrants to purchase equity securities of such
issuers or securities exchangeable for or convertible
into equity securities of such issuers.
Other Products: All securities and instruments, such as
options, warrants, fixed income securities,
convertibles, foreign exchange, commodity options and
commodity futures, and other derivatives, other than
Equity Securities.
Retail Investors: Natural persons, including without
limitation any natural persons who
are the primary beneficiaries of services
organized by any institution primarily for
their benefit (e.g, NDB's Netlink program).
Initial Business Plan: Prior to the closing of the EJV, the
Parties will adopt an Initial Business Plan
(the "Initial Business Plan") describing the
EJV's projected funding needs and operations
during the period through December 31, 2004.
Legal Structure: To be determined in consultation with tax and other
counsel, but the structure shall, to the extent
possible, permit treatment of the EJV as a
partnership for U.S. tax purposes.
Ownership: The EJV will be conducted through a separate
legal entity in which voting control and
economic interests are both owned directly
or indirectly 75% by DB and 25% by NDB or a
direct or indirect wholly-owned subsidiary
of NDB.
The Parties will have preemptive rights in
respect of all issuances by the EJV of stock
or other capital securities after the
initial issuance, in proportion to their
then existing ownership interests.
Tax Matters: To be determined in consultation with tax counsel;
provided that the entity shall to the extent
possible be treated as a partnership for U.S. tax
purposes.
Global Strategic
Oversight Committee: DB and NDB will form a joint committee (the "Global
Strategic Oversight Committee") to consider and
discuss the overall strategic direction and
coordination of the EJV, the contemplated worldwide
joint venture and any other ventures that DB and NDB
might undertake from time to time. The Global
Strategic Oversight Committee will have no formal
constitution or formal authority to direct the
operations of the EJV or any other venture of the
Parties. The membership of the Global Strategic
Oversight Committee will be shared equally by
representatives of DB and NDB.
Board of Directors: The overall management and control of the EJV will be
vested in its board of directors (the "Board"). The
decisions of the Board shall be binding on the EJV.
Membership: 8 members, each member having one vote.
Appointment: DB appoints six members; NDB appoints two members.
Appointment initiated by written notice from one
Party to the other.
Removal: Each Party may remove or change its representatives
on the Board at any time and from time to time by
written notice.
Voting Requirements: Board decisions will be by majority vote of
the participating directors, except as provided
under "Veto Rights" below. The Board may also act in
writing as permitted by applicable law so
long as both parties have an opportunity to
consent.
Veto Rights: Board resolutions relating to the following will
require, in order to be adopted, the affirmative vote
of at least one representative of each Party: (i)
any amendment to the basic joint venture and other
constituent documents or the Initial Business Plan
that would adversely affect a Party's rights or
obligations (except to the extent any such amendment
is necessary to effect a capital increase as provided
under " Initial Capital Contributions" or "Additional
Capital Contributions" below); (ii) the entry into
or material amendment or termination of any
transaction with a Party or its affiliate that is not
in the ordinary course of the EJV's business, at
arm's length and on commercially reasonable terms;
(iii) the issuance of any equity securities, or of
rights to acquire equity securities, of the EJV to a
third party; (iv) a change in the tax status of the
EJV that is adverse to a Party; (v) any proposal by
the EJV to engage in any line of business other than
On-Line Discount Brokerage or On-Line Incidental
Services; and (vi) any repurchase or redemption of
any capital interest of the EJV other than on a pro
rata basis.
Quorum: Majority of members of the entire Board, who
may be present in person or over an open
phone line but including at least one
representative of each Party, except where a
Party has missed more than two consecutive
proposed meetings immediately prior thereto.
Special Meetings: Chairman or any two directors can call a special
meeting by not less than five business days' notice
delivered to all directors.
Appointment of Chairman: Chairman nominated by the EJV Board members and
selection approved by a majority of the EJV Board.
Powers and Duties
of the Chairman: The Chairman will consult regularly with the Global
Strategic Oversight Committee and monitor the
activities of the CEO to ensure the business
of the EJV is conducted in accordance with
the policies set by the Board.
Appointment and Removal
of CEO: CEO to be nominated by DB and subject to confirmation
or removal by the affirmative vote of a majority of
the Board.
Powers and Duties
of the CEO: The powers and duties of the CEO will be as
determined by the Board from time to time.
Initial Capital
Contributions: DB and NDB will commit an initial amount of cash to
be agreed between the Parties, pro rata in accordance
with their respective ownership interests in the EJV
to be used as the initial regulatory and
working capital by the EJV.
Additional Capital
Contributions: In addition, the Parties shall make additional
capital and other contributions to the EJV
in the aggregate amounts and at such stages as
provided in the Initial Business Plan and to
be made by the Parties pro rata in
accordance with their respective ownership
interests in the EJV.
Except as provided in the preceding
paragraph, a Party shall not be obligated to
provide additional funding to the EJV. If
the Board of the EJV concludes that
additional equity financing is reasonably
advisable or necessary for the EJV's growth
and operations and NDB does not wish to
contribute its pro rata share of such equity
financing, DB shall have the right, but no
obligation, to provide all (or a
disproportionate share) of such equity
financing in the form of common stock,
preferred stock and/or other securities that
provide DB with an appropriate and customary
equity return for the investment in
question, all as requested by the Board of
the EJV. If the EJV's Board concludes that
common stock would be the most appropriate
form of such additional equity financing and
NDB does not contribute its pro rata share
of such financing, additional shares of
common stock will be issued to DB and NDB's
equity interest will be diluted on the basis
of the EJV's Fair Value (as defined below)
at the time of issuance of such additional
shares. NDB's representatives on the Board
shall have no veto right regarding any
amendment of the EJV's constituent documents
needed to issue such common stock, preferred
stock and/or other securities to DB as
provided above.
Neither NDB, DB nor their respective
Affiliates shall have any obligation to
provide any credit or other financing to the
EJV, and any such extension of credit or
other financing shall be in each Party's
sole discretion and at arm's length.
Affiliate Transactions: DB and NDB may make available to the EJV such
products and services as the EJV reasonably requires
and DB and NDB are in a position to supply, all on
such terms as may be mutually agreed. The EJV will
deal with DB and NDB on an arm's-length basis. All
products and services to be supplied by either Party
will be documented through appropriate written
service or other agreements.
Services Agreement: Initially and until such date as the Board
determines, DB will provide administrative support
services (such as legal, human resources, tax,
payroll, controlling and compliance services) to the
EJV pursuant to an administrative services agreement
(the "Services Agreement"), in consideration for
which the EJV will pay to DB a service fee to be
negotiated on an arm's-length basis.
DB Research: DB will enter into a non-exclusive agreement with
the EJV to provide the EJV, on terms to be
determined, with research prepared by DB for
distribution to Retail Investors in the Territory.
Intellectual Property: Each of the Parties owns or has rights to use certain
confidential and proprietary know-how and trade
secrets, computer software, source code, designs,
algorithms, specifications, formulas, plans, models,
data, technical information, processes, practices,
systems and similar intellectual and proprietary
property (collectively, the "Intellectual Property")
that will be required or useful for the operation of
the EJV. With respect to any Intellectual Property
owned by a Party, such Party will enter into a
non-exclusive, non-transferable license with the EJV,
for so long as the EJV continues with such Party as
an equityholder, to use such Intellectual Property
for the purpose of providing On-Line Discount
Brokerage and On-Line Incidental Services in the
Territory. With respect to any Intellectual Property
licensed by a Party from third parties, such Party
will use commercially reasonable efforts to negotiate
new licenses on commercially reasonable terms at the
expense of the EJV to permit the EJV to use such
Intellectual Property. Each Party will make
available to the EJV a reasonable number of qualified
personnel at the expense of the EJV for a reasonable
period of time to effect the transfer of such Party's
Intellectual Property, all on terms to be mutually
agreed between the Party concerned and the EJV.
Upon termination of the EJV, the above
licenses of Intellectual Property will
automatically continue as perpetual, non-exclusive,
non-transferable licenses to use such Intellectual
Property for the purpose of providing On-Line
Discount Brokerage and On-Line Incidental Services
in the Territory.
Transfer Restrictions and
Right of First Refusal: Until the first anniversary of the execution of a
definitive agreement relating to the EJV, no Party
will have the right to transfer any ownership
interest in the EJV, other than to a wholly-owned
affiliate of such Party, without the prior written
approval of the other Party. Thereafter, all
proposed transfers by any Party, other than to a
wholly-owned affiliate, will be subject to a right of
first refusal on the same terms by the other Party.
Transferee's Rights and
Obligations: A third party that acquires an interest in
the EJV in a permitted transfer shall assume
the obligations and, unless otherwise agreed
by the transferee, acquire the rights of the
transferring party with respect to the
interest that it acquires.
Tag Along Rights: Upon any proposed sale by DB of any of its interest
in the EJV as to which NDB does not elect to exercise
its right of first refusal, NDB shall be entitled to
sell a pro rata share of its interest to the
purchaser on the same terms.
Term and Termination: The EJV will continue until terminated as described
below.
The EJV may be terminated, at the option of
either Party, upon written notice to the
other Party given (i) at any time after the
second anniversary of the execution of a
definitive agreement relating to the EJV;
(ii) upon a Change in Control of the other
Party; (iii) upon the material failure of
the other Party to perform or observe any
covenant or agreement relating to the EJV,
which failure is continuing for a period of
90 days after notice thereof has been given
to the defaulting Party by the terminating
Party; (iv) upon an Insolvency Event (as
defined in the U.S. Underwriting Agreement)
of the other Party; (v) upon the termination
of any of the Worldwide Joint Venture, the
U.S. Research Venture or the U.S.
Underwriting Venture, or (vi) except for a
contribution to a holding company for
Non-GCI On-Line Businesses as contemplated
under "Object of the EJV" above, any
merger, consolidation, or sale of
substantially all the assets of the EJV.
Notice of termination shall become effective
30 days following the date of such notice.
Any termination of the EJV pursuant to
clause (ii), (iii) or (iv) shall constitute
termination "for cause".
If the EJV is terminated, then DB will have
the right to purchase NDB's interest in the
EJV, and NDB will have the right to require
DB to purchase NDB's interest in the EJV, in
each case for a purchase price equal to the
greater of (i) NDB's proportionate share of
the Fair Value of the business of the EJV as
a going concern and (ii) NDB's cash capital
contribution to the equity of the EJV;
provided, however, that clause (ii) shall
apply only if (1) such termination occurs on
or prior to the second anniversary of the
execution of the definitive agreement
regarding the EJV and (2) either (a) DB
terminates the EJV pursuant to clauses (ii)
or (v) above or (b) NDB terminates the EJV
pursuant clause (iii) above.
"Fair Value" means, with respect to the
business of the EJV (i) a valuation made by
the unanimous determination of the Board; or
(ii) failing such determination of the Board
within the 30-day period following notice of
exercise of the above rights by DB or NDB,
the valuation determined by a leading
international investment bank jointly
selected by the Parties within 15 days of
the end of such 30-day period (or, failing
agreement on an investment bank, selected by
the ICC), as follows: immediately upon
designation of such investment bank, each
Party shall notify such investment bank and
each other in writing of its estimate for
Fair Value. Such investment bank shall be
instructed to select one of the two proposed
estimates of Fair Value (and no other
amount) within 30 days of appointment. "Fair
Value" shall be the estimate so selected by
such investment bank and shall be final and
binding on the Parties. The fees and
expenses of the investment bank shall be
paid by the Party whose estimate was not
selected.
Non-Competition: Except as expressly agreed by the Parties, DB agrees
that GCI will not, and NDB agrees that it and its
subsidiaries will not, offer or seek to offer any
On-Line Discount Brokerage for Equity Securities to
Retail Investors within the Territory, other than
through the EJV; provided that this restriction shall
not apply to (i) services provided in the Territory
by NDB to employees of U.S.-based companies or groups
in the context of programs for the exercise of
employee stock options or employee stock purchase
plans, (ii) 'private label' or co-branded services
provided by NDB to third parties whose principal
business is outside the Territory and whose business
in the Territory is merely incidental to their
business outside the Territory, (iii) any Non-GCI
On-Line Business, (iv) accounts opened by NDB in the
United States for US citizens or residents, (v)
accounts opened by NDB for members of the US Armed
Forces or their dependents stationed in the
Territory, pursuant to referrals by Penn Fed, or (vi)
accounts of Retail Investors located in the
Territory, that are on the books of NDB on the date
of the definitive EJV agreements,, provided that NDB
makes a reasonable effort to transfer these accounts
in clause (vi) once the EJV is operational.
Confidentiality: No persons other than the Parties and their
subsidiaries, which are agreed to by the Parties, may
have access to proprietary or confidential
information with respect to the EJV, including,
without limitation, customer data; market and
customer research; segmentation, attitude or usage
information; strategies and specific plans for
positioning, advertising, public relations,
promotions, pricing, product design, Website design
and development, including content and trading,
customer service model, training recruitment and
compensation programs.
Financial Statements: The EJV will prepare and distribute to the Parties
monthly financial statements of the EJV.
Accounting: Separate books of account maintained at the EJV's
head office using U.S. GAAP.
Inspection of Records: The records and reports of the
EJV will also be kept in the English
language and are open to inspection by a
Party or its designated representative
during business hours upon reasonable
notice, including tax returns and financial
statements.
Audit: Annual audit will be performed by a firm of
independent certified public accountants to be
appointed by the Board.
Dispute Resolution: It is the objective of the Parties to use all
reasonable efforts to resolve disputes amicably
through negotiation. This objective will not limit
any Party from seeking judicial redress as provided
below.
All disputes that are not resolved by
negotiation shall be resolved by the federal
or state courts located in the New York
metropolitan area in the state of New York,
to whose exclusive jurisdiction the Parties
will irrevocably submit.
Governing Law: To be determined with respect to the EJV. The
provisions under the heading "Exclusivity" in this
memorandum shall be governed by and construed in
accordance with the law of New York.
Exclusivity: During the period described under the heading
"Effect of Term Sheet" below, neither DB nor NDB nor
any of their respective subsidiaries, affiliates or
representatives will, directly or indirectly, (i)
solicit or encourage any inquiries, discussions or
proposals regarding, (ii) continue, propose or enter
into negotiations or discussions with respect to or
(iii) enter into any agreement or other understanding
providing for, any transaction involving a joint
venture or alliance with any third party for the
provision of On-Line Discount Brokerage for Equity
Securities to Retail Investors within the Territory;
nor shall any of such persons or entities provide any
information to any other person or entity for the
purpose of making, evaluating, or determining whether
to make or pursue, any inquiries or proposals with
respect to, any such transaction; provided that this
restriction shall not apply to the extent that a Party
is not subject to the Non-Competition clause; and
provided further that, in the case of DB, the
foregoing restrictions shall apply only to activities
conducted by GCI.
Effect of Term Sheet: The Parties agree that this memorandum does not
create binding rights or obligations, other than the
obligation of the Parties to negotiate in good faith
definitive agreements with respect to the EJV, except
that the provisions under the heading "Exclusivity"
shall be binding upon each of the Parties and their
respective Affiliates, from and including the date
hereof to but not including the earlier of (i) the
date on which the Parties execute the definitive EJV
agreements, and (ii) the first anniversary of the
closing of the Securities Purchase Agreement.
* * *
NATIONAL DISCOUNT BROKERS GROUP, INC. DEUTSCHE BANK AG
By: /s/ Arthur Kontos By: /s/ Thomas A. Curtis
----------------- --------------------
Name: Arthur Kontos Name: Thomas A. Curtis
Title: President and Title: Attorney-in-Fact
Chief Executive Officer
