CONFORMED COPY
Worldwide Joint Venture ("WJV")
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 WJV: DB's Global Corporates and Institutions Division as it is
currently constituted and any successor division (together,
"GCI"), on the one hand, and NDB and its controlled
Affiliates, on the other hand, will form the WJV
to provide or participate in On-Line Discount Brokerage and
On-Line Incidental Services for Retail Investors in the Rest
of World, as provided herein. The WJV may engage or
participate in such On-Line Discount Brokerage and On-Line
Incidental Services either directly or through operating
companies in various countries.
Each of NDB and GCI will offer the WJV an opportunity to
invest in any On-Line Brokerage for Equity Securities for
Retail Investors in the Rest of World that it may from time
to time create or control, subject to commitments to third
parties, overall financing needs, regulatory requirements
and other considerations, all on such terms as the WJV and
the Party concerned may mutually agree.
Definitions
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 full service
advised brokerage firms or banks offering full service
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").
Rest of World: All countries of the world other than the United
States of America, its territories and possessions and the
countries located in the Territory.
Equity Securities: Capital stock, including shares of exchange-listed,
closed end mutual funds holding capital stock,
but not including options on or warrants to purchase
equity securities or securities exchangeable for or
convertible into equity securities.
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, excluding any natural persons
who are the primary beneficiaries of services organized by
any US institution with NDB primarily for their benefit
(e.g., Netlink or a similar program).
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 WJV, the contemplated European 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 WJV 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.
Initial Business
Plan: Prior to the closing of the WJV, the Parties will adopt
an Initial Business Plan (the "Initial Business Plan")
describing the WJV's projected funding needs
and operations during an initial period to be agreed by the
Parties.
WJV Coordinating
Company: The activities of the WJV will be coordinated
by the WJV Coordinating Company, whose legal
form and place of organization will be determined by the
Parties based on tax, management and other considerations;
provided that the structure shall, to the extent
possible, permit treatment of the WJV Coordinating Company
as a partnership for U.S. tax purposes.
Powers and
Responsibilities: The WJV Coordinating Company's powers
and responsibilities will consist primarily of the
following:
(1) coordination and planning of the WJV's participation in
On-Line Discount Brokerage and On-Line Incidental Services
in the Rest of World; (2) determination of the Rest of World
countries in which the WJV will operate or participate and
those in which NDB and GCI may operate independently; (3)
joint development, and direct or indirect holding, of
intellectual property rights for the WJV; and (4) holding
equity and other investments in one or more WJV Operating
Companies (as defined below).
Ownership: Initially, each of NDB and GCI will hold 50% of the
equity in the WJV Coordinating Company.
Capital Contributions:
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
WJV, to be used as initial working capital by the WJV.
Additional Capital
Contributions: In addition, the Parties shall make additional capital and
other contributions to the WJV 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 WJV.
Except as provided in the preceding paragraph, a Party shall
not be obligated to provide additional funding to the WJV
Coordinating Company.
Neither NDB, DB, nor their respective affiliates shall have
any obligation to provide any credit or other financing to
the WJV Coordinating Company or any WJV Operating Company,
and any such extension of credit or other financing shall be
in each party's sole discretion and at arm's length.
The Parties will have preemptive rights in respect of all
issuances by the WJV Coordinating Company of stock or other
capital securities after the initial issuance, in proportion
to their then existing ownership interests.
Management: The WJV Coordinating Company shall be managed by a
board of directors (or comparable body for the legal entity
concerned) on which NDB and GCI will have equal
representation. A quorum for meetings will be a majority of
the members of the entire board (who may be present in
person or over an open phone line), and board decisions will
be by majority vote of the members participating in a
meeting (which majority must include at least one member
nominated by each of NDB and GCI).
Planning and
Right to Invest: If either NDB or GCI so requests, the WJV
Coordinating Company will consider the Rest of World
countries in which it expects to organize the provision of
On-Line Discount Brokerage. If either NDB or GCI wishes to
organize the provision of On-Line Discount Brokerage in a
particular country that is not already being served by a WJV
Operating Company, the Party concerned shall so notify the
WJV Coordinating Company indicating the country and the
proposed terms on which such On-Line Discount Brokerage
would be organized.
Affirmative
Decision: If the WJV Coordinating Company decides to organize
the provision of On-Line Discount Brokerage in a
particular country or group of countries, it shall proceed
to facilitate such organization and make such equity
investment(s), if any, in the WJV Operating Company or
Companies as its board (or equivalent body) shall determine.
Depending on tax and other considerations, NDB and GCI may
elect to make such equity investments either through the WJV
Coordinating Company or directly in the WJV Operating
Company(ies) concerned.
If any WJV Operating Company(ies) reasonably require more
capital investment than the WJV Coordinating Company (or NDB
and GCI together) are able or willing to provide on an equal
basis, NDB, GCI or their respective affiliates may
unilaterally provide such additional capital investment
outside the WJV Coordinating Company, on customary and
reasonable terms (including for the issuance of common
stock); provided that each of NDB and GCI shall always have
the right, but not the obligation, to invest equally and on
equal terms in any WJV Operating Company.
No Affirmative
Decision: If the WJV Coordinating Company is unable for
a period of two months to reach a decision on
whether to organize the provision of an On-Line Discount
Brokerage in a particular country or group of countries or
on a material aspect of such organization (whether before or
after activities regarding any such organization have
commenced), the party proposing such organization (NDB or
GCI, as the case may be) may proceed unilaterally to
organize (or to complete the organization of) the On-Line
Discount Brokerage concerned substantially on the terms
proposed to the WJV Coordinating Company, without using the
facilities or resources of the WJV, except that the On-Line
Discount Brokerage concerned will have the right to obtain a
non-exclusive, non-transferable license of WJV Intellectual
Property from the WJV Coordinating Company on arm's length
and commercially reasonable royalty and other terms.
If the WJV Coordinating Company and such On-Line Discount
Brokerage are unable to agree on arm's length and
commercially reasonable royalty and other terms for a
license of WJV Intellectual Property, such royalty and other
terms will be finally determined by "baseball arbitration"
(as described below under "Fair Value").
WJV Operating
Companies: Operations of the WJV in individual
countries or groups of countries will be conducted through
individual WJV Operating Companies in the particular
countries or groups of countries concerned. The legal form
of such WJV Operating Companies will depend on tax and other
considerations in the countries concerned.
Ownership: Depending on its needs for capital, available
resources of the WJV Coordinating Company and the Parties,
and competitive conditions in the market concerned,
ownership interests in each WJV Operating Company may be
held by the WJV Coordinating Company, the Parties or their
affiliates independently of the WJV Coordinating Company, or
third party investors.
Capital
Contributions: As needed, based on regulatory requirements
and each WJV Operating Company's business plan.
The WJV Coordinating Company will always have the right, but
not the obligation, to invest in the equity of a WJV
Operating Company, and each of NDB and GCI shall always have
the right, but not the obligation, to invest equally and on
equal terms in any WJV Operating Company.
Management: Management rights and representation on boards
of directors or equivalent bodies will be in proportion
to capital investment, except as may otherwise be
agreed between the Parties or with a third party
investor.
Affiliate
Transactions: DB and NDB may make available to the WJV such
products and services as the WJV reasonably requires
and DB and NDB are in a position to supply, all on such
terms as may be mutually agreed. The WJV 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.
DB Research: DB will enter into a non-exclusive agreement with
the WJV to provide the WJV, on terms to be determined, with
research prepared by DB for distribution to Retail Investors
in the Rest of World.
Intellectual Property:
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 WJV. With respect to any Intellectual
Property owned by a Party, such Party will enter into a
non-exclusive, non-transferable license with the WJV
Coordinating Company or its wholly-owned subsidiary to use
such Intellectual Property for the purpose of providing
On-Line Discount Brokerage or On-Line Incidental Services in
the Rest of World and with a right to sub-license such
Intellectual Property to WJV Operating Companies and to
other Affiliates of the Parties as provided above. 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 WJV to permit the WJV
to use such Intellectual Property. Each Party will make
available to the WJV a reasonable number of qualified
personnel at the expense of the WJV for a reasonable period
of time to effect the transfer of such Party's Intellectual
Property to the WJV, all on terms to be mutually agreed
between the Party concerned and the WJV.
Upon termination of the WJV, the above licenses of
Intellectual Property will automatically continue as
perpetual, non-exclusive, non-transferable licenses of the
Intellectual Property for the purpose of providing On Line
Discount Brokerage and On-Line Incidental Services in the
Rest of the World.
WJV Intellectual
Property: The WJV Coordinating Company shall be responsible for
developing new intellectual property and/or
adapting existing Intellectual Property or other
intellectual property for use in the WJV, all as provided in
the Initial Business Plan or otherwise agreed by the
Parties.
Transfer
Restrictions and
Right of First
Refusal: Until the first anniversary of the execution
of a definitive agreement relating to the WJV, no
Party will have the right to transfer any ownership
interest in the WJV Coordinating Company, 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 WJV
Coordinating Company 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.
Term and
Termination: The WJV will continue until terminated as described below.
The WJV 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 WJV; (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 WJV, 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 the Insolvency Event (as defined in the U.S.
Underwriting Agreement) of the other Party; or (v) upon the
termination of any of the European Joint Venture, the U.S.
Research Venture or the U.S. Underwriting Venture. Notice of
termination shall become effective 30 days following the
date of such notice. Any termination of the WJV pursuant to
clause (ii), (iii) or (iv) shall constitute termination "for
cause".
If the WJV is terminated, then DB will have the right to
purchase NDB's interest in the WJV Coordinating Company and
each WJV Operating Company, and NDB will have the right to
require DB to purchase NDB's interest in the WJV
Coordinating Company and each WJV Operating Company, in each
case for a purchase price equal to to the greater of (i)
NDB's proportionate share of the Fair Value of the business
of the WJV Coordinating Company and each WJV Operating
Company as a going concern and (ii) NDB's cash capital
contribution to the equity of the WJV; 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 WJV and
(2) either (a) DB terminates the WJV pursuant to clauses
(ii) or (v) above or (b) NDB terminates the WJV pursuant
clause (iii) above.
"Fair Value" means, with respect to the business of the WJV
(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 of 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.
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 WJV, 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 WJV will prepare and distribute to the Parties monthly
financial statements of the WJV.
Accounting: Separate books of account maintained at the WJV's head
office using U.S. GAAP.
Inspection of
Records: The records and reports of the WJV 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 WJV. 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
worldwide joint venture or alliance with any third party for
the provision of On-Line Discount Brokerage for Equity
Securities to Retail Investors within the Rest of World on
terms similar to those contemplated for the WJV; 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, 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 WJV, 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 WJV agreements, and (ii) the first
anniversary of the closing of the Securities Purchase
Agreement.
* * *
NATIONAL DISCOUNT BROKERS GROUP, INC. DEUTSCHE BANK AG
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇ Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and Chief Executive Officer Title: Attorney-in-Fact
