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Introduction
The stockholders are being requested to consider and approve an amendment
and restatement of the Company’s 1996 Directors Incentive Plan, as previously
amended and restated, to increase the maximum aggregate number of shares
of the Common Stock reserved for issuance under the Plan from 960,000 to
1,460,000.
The purposes of the Directors Plan are to attract and retain as non-employee
Directors persons whose abilities, experience and judgment can contribute
to the continued progress of the Company and its subsidiaries and to facilitate
the Directors' ability to acquire a proprietary interest in the Company.
As of September 27, 2002, there were 139,455 shares available for future
grants under the Directors Plan. The Board of Directors has proposed the
amendments to the Directors Plan to ensure that a sufficient number of shares
are available for future grants and awards under the Directors Plan.
At September 27, 2002, the closing sale price per share of Common Stock
was $3.90.
The material features of the Directors Plan are outlined below. This summary
of the Directors Plan is qualified in its entirety by reference to the Directors
Plan, a copy of which is attached as Appendix B.
Plan Provisions
The Directors Plan is administered by the Compensation Committee.
Under the Directors Plan, non-employee Directors are granted various
equity awards and may make elections with respect to the payment
of their retainers and fees. Specifically, the Directors Plan provides
that, upon a non-employee Director’s election to the Board
for his first term, the Director will receive (a) a stock option
to purchase such number of shares of the Company’s Common
Stock as determined by the Chairman of the Board and approved by
the Board and (b) an award of restricted stock, the fair market
value of which is equal to approximately $20,000 or such other
amount determined by the Board from time to time. Non-employee
Directors may also be awarded stock options other than upon their
initial election to the Board as determined from time to time by
the Board. Awards made pursuant to the Directors Plan will generally
vest in substantially equal annual installments over a period of
three years, beginning with the first anniversary of the grant
date. Options granted under the Directors Plan are nonqualified
stock options, which are not intended to be "incentive stock options"
as that term is described in Section 422(b) of the Code. The exercise
price of options granted under the Directors Plan may not be less
than the fair market value of a share of the Company’s Common
Stock on the date of the grant of the option. The expiration date
with respect to an award under the Directors Plan is the earlier
of the ten-year anniversary of the date on which the award is granted
or the one-year anniversary of the date on which the non-employee
Director's service as a director of the Company terminates for
cause. Options are not exercisable after the expiration date. Restricted
stock that is not vested on the expiration date is forfeited.
Pursuant to the Directors Plan, non-employee Directors may elect
whether to receive their retainers and other fees in cash or in
shares of Common Stock and may elect to defer receipt of all or
a portion of the retainer, meeting and Committee fees otherwise
payable to the non-employee Director, including those amounts that
would otherwise be payable to the non-employee Director in the
form of Common Stock. Amounts deferred pursuant to a non-employee
Director’s election are credited to a bookkeeping account,
which consists of a "Cash Subaccount" reflecting amounts that would
otherwise have been payable to the non-employee Director in cash
and a "Stock Subaccount" reflecting amounts that would otherwise
have been payable to the non-employee Director in Common Stock.
As of the first day of each fiscal quarter, the Cash Subaccount
is adjusted to reflect contributions and distributions during the
preceding fiscal quarter and is credited with interest computed
at the prime rate as reported by the Wall Street Journal for that
date (or, if that day is not a business day, the next preceding
business day). The Stock Subaccount is credited with "stock units"
as of each day that a deferred amount would otherwise have been
payable to the non-employee Director in Common Stock, is charged
with stock units as of each day on which amounts are distributed
from the Stock Subaccount and is credited with stock units as of
each record date to reflect dividends paid on the Common Stock.
For purposes of the adjustments to the Stock Subaccount, one stock
unit corresponds to one share of the Common Stock.
Deferred amounts are payable to non-employee Directors as of a
distribution date elected by the non-employee Director at the time
of the deferral. If no distribution date is specified, payments
begin as of the first business day of January of the year following
the date on which the non-employee Director ceases to be a Director
of the Company for any reason. Distributions of deferred amounts
can be made in ten annual installments commencing on the distribution
date elected. A non-employee Director may also elect to have payments
in a lump sum or in any number of annual payments not exceeding
ten. If a non-employee Director dies prior to the full payment
of his deferral account, the balance will be paid in a lump sum
to a beneficiary designated by the non-employee Director. The Compensation
Committee may also distribute the full balance of a non-employee
Director’s deferral account in a lump sum at any time.
Federal Income Tax
Consequences
The following summary generally describes the federal income tax consequences
to participants and the Company of options granted under the Directors Plan
and is based on current laws and regulations. The summary is general in
nature and is not intended to cover all tax consequences that could apply
to a particular participant or the Company.
No federal taxable income is recognized by a Directors Plan participant
upon the grant of a nonqualified stock option. A holder of a nonqualified
option will, however, recognize ordinary income in the year in
which the option is exercised in the amount by which the fair market
value of the purchased shares on the date of exercise exceeds the
option exercise price. Additionally, any appreciation in the value
of the purchased shares after the date of exercise will be taxed
as capital gains when such stock is ultimately sold. The Company
is generally entitled to a deduction at the time such option is
exercised equal in amount to the ordinary income recognized by
the participant.
If the option exercise price under any nonqualified stock option is paid
for by surrendering shares of Common Stock previously acquired, then the
participant will recognize ordinary income on the exercise as described
above (any shares acquired under the option in excess of the number of shares
surrendered being treated as having been acquired without consideration),
but will not recognize any taxable gain or loss on the difference between
the participant’s basis in the surrendered shares and their current fair
market value. For federal income tax purposes, newly acquired shares equal
to the number of shares surrendered will have the same basis and holding
period as the surrendered shares. Any additional newly acquired shares will
have a basis equal to their fair market value at exercise and their holding
period will begin at the date of exercise as described above.
Interest of
Certain Persons in Matters to be Acted Upon
Each of the non-employee Directors of the Company has a direct interest
in the approval of the Directors Plan, which will make additional shares
of Common Stock available to non-employee Directors.
Plan Benefits
The following table sets forth grants of options and stock awards made under
the Directors Plan during the fiscal year ended September 27, 2002.
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| HISTORICAL PLAN
BENEFITS |
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| Name and Position |
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Dollar Value
($)(1) |
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Number of
Shares Awarded and Underlying Options Granted (#) |
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| All current executive officers, as
a group |
|
- |
|
- |
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| All current directors who are not
executive officers, as a Group |
|
$163,200 |
|
156,000 |
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| All employees who are not current
executive officers, as a Group |
|
- |
|
- |
____________
| (1) |
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Based on the market price of $3.90 per share,
which was the closing price per share of the Company's Common Stock
on the Nasdaq National Market on the last day of fiscal 2002, less
the exercise price payable for such shares, if any. |
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The Directors Plan was registered under the 1933 Act on Form S-8. Immediately
following the Annual Meeting, the Company intends to amend the registration
statement to include the additional shares issuable under the Directors
Plan.
Information Regarding
Plans And Other Arrangements Not Subject To Security Holder Action
The following table summarizes, as of September 27, 2002, information about
compensation plans under which equity securities of the Company are authorized
for issuance:
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| Plan Category |
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Number of securities
to be issued upon exercise of outstanding options, warrants and rights
(a) |
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Weighted-average
exercise price of outstanding options, warrants and rights
(b) |
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Number of securities
remaining available for future issuance under equity compensation
plans (excluding securities reflected in column (a))
(c) |
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| Equity compensation plans approved
by security holders |
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30,466,438 |
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$5.22 |
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40,493,215 |
(1) |
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| Individual equity compensation arrangements
(aggregated) |
|
1,005,794 |
|
$4.51 |
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N/A |
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| Total |
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31,472,232 |
|
$5.20 |
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40,493,215 |
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__________
| (1) |
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The Long-Term Incentive Plan and
the Directors Plan authorize the issuance of shares
of Common Stock as well as options. As of September
27, 2002, there were, in the aggregate, 11,256,804
shares remaining available for issuance pursuant
to the Long-Term Incentive Plan and the Directors
Plan. |
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The table above includes the following options assumed in connection with
the Company’s merger with Datek in fiscal 2002:
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| Plan
Category |
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Number
of securities to be issued upon exercise of outstanding
options, warrants and rights
(a) |
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Weighted-average
exercise price of outstanding options, warrants
and rights
(b) |
|
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| Equity compensation
plans approved by security holders |
|
22,001,346 |
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$3.99 |
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| Individual equity compensation
arrangements (aggregated) |
|
1,005.794 |
|
$4.51 |
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| Total |
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23,007,140 |
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$4.01 |
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The Company does not have any equity compensation plans that were not previously
approved by stockholders. At September 27, 2002, the Company had in place
individual compensation arrangements assumed in the Datek merger that were
not approved by Datek’s stockholders as follows:
- Moishe Zelcer, a former employee of Datek, has an option to purchase
532,542 shares of Company Common Stock under a stock option agreement
dated December 30, 1999. This option is fully vested and exercisable
at an exercise price of $4.51 per share. This option expires on December
29, 2009.
- Stern Investment Management LLC, a New Jersey limited liability company
leasing premises to Datek, has an option to purchase 355,028 shares
of Company Common Stock under a non-qualified stock option agreement
dated April 25, 2000. This option is fully vested and exercisable at
an exercise price of $4.51 per share. This option expires on April 24,
2010.
- TMP Worldwide Executive Search, a Delaware company that has provided
executive search services to Datek, has an option to purchase 118,224
shares of Company Common Stock under a nonqualified stock option agreement
dated April 17, 2000. This option is fully vested and exercisable at
an exercise price of $4.51 per share. This option expires on April 17,
2010.
Board Recommendation
and Required Vote
Approval of the amendment to the Directors Plan requires the affirmative
vote of the holders of a majority of the total shares of Common Stock present
in person or represented by proxy at the Annual Meeting and entitled to
vote thereat, provided that a quorum is present. Abstentions will have the
same effect as a vote against approval. Broker non-votes will not be considered
shares entitled to vote with respect to approval of the amendment and will
not be counted as votes for or against approval. Proxies submitted pursuant
to this solicitation will be voted for the approval of the Directors Plan
amendment unless otherwise specified.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL
OF THE AMERITRADE HOLDING CORPORATION 1996 DIRECTORS INCENTIVE PLAN, AS
AMENDED AND RESTATED. |
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