<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to ss. 240.14a-12
A.B. WATLEY GROUP INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
A.B. WATLEY GROUP INC.
NOTICE OF 2000
ANNUAL MEETING OF
STOCKHOLDERS AND
PROXY STATEMENT
TO BE HELD MARCH 14, 2000
YOUR VOTE IS IMPORTANT!
PLEASE PROMPTLY MARK, DATE, SIGN, AND RETURN YOUR PROXY
IN THE ENCLOSED ENVELOPE.
<PAGE>
A.B. WATLEY GROUP INC.
40 Wall Street
New York, New York 10005
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
February 9, 2000
The annual meeting of the stockholders of A.B. Watley Group Inc. (the
"Company") will be held on Tuesday, March 14, 2000 at the Four Seasons Hotel,
Park Avenue and Fifty Seventh Street, New York, New York 10022 at 9:00 a.m. for
the following purposes:
1. To elect the Company's Board of Directors, consisting of seven
persons;
2. To consider and vote upon approval of the 1999 Stock Option Plan;
3. To ratify the selection of Ernst & Young LLP as independent
accountants, to audit the books and accounts of the Company for the
fiscal year ending September 30, 2000; and
4. To transact such other and further business as may properly come
before the meeting.
The accompanying Proxy Statement contains further information with respect
to these matters.
The Board of Directors has fixed the close of business on January 20, 2000
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting. A list of such stockholders will be available during
regular business hours at the Company's offices, 40 Wall Street, New York, New
York 10005, for inspection by any stockholder for any purpose germane to the
meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
/S/ STEVEN MALIN
--------------------------------------
STEVEN MALIN
Chairman and Chief Executive Officer
<PAGE>
[This page intentionally left blank]
<PAGE>
A.B. WATLEY GROUP INC.
40 WALL STREET
NEW YORK, NEW YORK 10005
PROXY STATEMENT
THIS PROXY STATEMENT IS FURNISHED IN CONNECTION WITH THE SOLICITATION OF
PROXIES BY THE BOARD OF DIRECTORS OF A.B. WATLEY GROUP INC. (THE "COMPANY") FOR
USE AT THE ANNUAL MEETING OF STOCKHOLDERS OF THE COMPANY TO BE HELD AT THE TIME
AND PLACE AND FOR THE PURPOSES SET FORTH IN THE FOREGOING NOTICE OF ANNUAL
MEETING OF STOCKHOLDERS, AND AT ANY ADJOURNMENT THEREOF (THE "ANNUAL MEETING").
The address of the Company's principal executive offices is 40 Wall Street, New
York, New York 10005. This proxy statement and the form of proxy are first being
mailed to stockholders on or about February 9, 2000. A copy of the Company's
Annual Report, including financial statements for the fiscal year ended
September 30, 1999, is being mailed with this Proxy Statement.
REVOCABILITY OF PROXY AND VOTING OF PROXY
A proxy given by a stockholder may be revoked at any time before it is
exercised by giving another proxy bearing a later date, by notifying the
Secretary of the Company in writing of such revocation at any time before the
proxy is exercised, or by attending the Annual Meeting in person and casting a
ballot. Any proxy returned to the Company will be voted in accordance with the
instructions indicated thereon. If no instructions are indicated on the proxy,
the proxy will be voted for the election of the nominees for Director named
herein in Item 1, in favor of approval of the 1999 Stock Option Plan and in
favor of the ratification of the selection of Ernst & Young LLP as the Company's
accountants. The Board of Directors knows of no matters, other than as described
herein, that are to be presented at the meeting, but if matters other than those
herein mentioned properly come before the Annual Meeting, the proxy will be
voted by the named proxies in a manner that they (in their judgement) consider
to be in the best interests of the Company.
RECORD DATE AND VOTING RIGHTS
Only stockholders of record at the close of business on January 20, 2000
are entitled to vote at the Annual Meeting. On such record date the Company had
outstanding 7,932,564 shares of common stock, par value $.001 per share ("Common
Stock"). Each stockholder entitled to vote shall have one vote for each share of
Common Stock registered in such stockholder's name on the books of the Company
as of the record date. The holders of a majority of the outstanding shares of
Common Stock, present in person or by proxy, will constitute a quorum at the
Annual Meeting. Abstentions and Broker non-votes will be counted for purposes of
determining the presence or absence of a quorum. "Broker non-votes" are shares
held by brokers or nominees which are present in person or represented by proxy,
but which are not voted on a particular matter because instructions have not
been received from the beneficial owner.
The affirmative vote of a plurality of the votes cast at the Annual Meeting
is required for the election of directors and the ratification of Ernst &
Young LLP as our independent accountants; and the affirmative vote of a majority
of the votes cast at the Annual Meeting is required for the approval of the 1999
Stock Option Plan and all other matters which may come before the Annual
Meeting. For purposes of determining whether proposals have received a majority
vote, abstentions and Broker non-votes will not be included in the vote totals .
Therefore, abstentions and Broker non-votes will be counted in the determination
of a quorum and (i) will have no effect on the vote for the election of
directors or ratification of Ernst & Young LLP; and (ii) will have the effect of
a vote against approval with respect to the 1999 Stock Option Plan.
<PAGE>
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
You will elect seven directors at the Annual Meeting to serve until the
next annual meeting of stockholders or until their successors are duly elected
and qualified or until their earlier death, resignation or removal. The nominees
for election to the Board of Directors are:
YEAR FIRST
NAME AGE ELECTED
- ------------------ --- ----------
Steven Malin 42 1996
Harry Simpson 33 1996
Robert Malin 34 1996
Elizabeth Chambers 36 1999
Mark Chambre 38 1999
Michael B. Kraines 37 --
Stanley Weinstein 73 1999
Each of these nominees is presently a member of the Board of Directors
except for Michael B. Kraines. We have been informed that all of the nominees
for election to the Board are willing to serve as directors. However, if any of
the nominees is unable or unwilling to stand for election or serve if elected,
the named proxies will vote for such person or persons as the Board in its
discretion may choose to replace any such nominees. The Board has no reason to
believe that any nominees will be unable or unwilling to stand for election or
serve if elected.
The Board has no nominating committee. The nominees for directors were
selected by the entire Board of Directors. At the Annual Meeting, stockholders
may make nominations of other persons for directors.
Certain information concerning the directors who are being nominated for
election at the Annual Meeting is set forth below:
Steven Malin co-founded our firm in May 1996 and has been our Chairman of
the Board and Chief Executive Officer since inception. From August 1993 to
December 1996, Mr. Malin served as a consultant to A.B. Watley, Inc. ("Watley"),
our brokerage subsidiary. From 1987 to 1993, he was a Senior Foreign Exchange
Options Broker for Tullett and Tokyo Forex, Inc., a global inter-bank money
brokering firm with its primary offices located in London, New York, and Tokyo.
Mr. Malin attended the Fletcher School of Law and Diplomacy from 1982 to 1984.
He received a Bachelor of Arts degree from Vassar College in 1980.
Harry Simpson has been our President and Chief Operating Officer since
March 1998 and was our Executive Vice President of Online Brokerage Services
from May 1996 until March 1998. From January 1993 to September 1995, he served
as Vice President of Tullett and Tokyo Forex, Inc. and Manager of its Foreign
Exchange Options Desk in New York. From January 1988 to December 1992,
Mr. Simpson worked as a Senior Foreign Exchange Options Broker for Exco
International, Inc., an international money broker in Hong Kong and Tokyo.
Mr. Simpson received a Bachelor of Science degree in finance from Indiana
University in 1987.
Robert Malin is a co-founder of our firm. He has been associated with our
brokerage subsidiary since August 1993, initially as General Securities
Principal and director of day-to-day operations and, most recently, serving as
President. His earlier experience includes managing equity-trading, client
services and brokerage operations. Mr. Malin and Steven Malin are brothers.
Elizabeth Chambers has, since August 1998, been Vice President of Business
Design and a member of the executive committee at the Reader's Digest
Association. Ms. Chambers is also a member of the Board of Directors of the
Reader's Digest Foundation. From September 1989 to August 1998, Ms. Chambers was
with McKinsey & Company, where she was elected to partnership in June 1995.
Ms. Chambers graduated from Stanford University with degrees in political
science and economics, and holds an MBA from Harvard University.
Mark Chambre has, since June 1993, served as Senior Broker in the Yen Swaps
Division of the Tokyo Forex Co., Inc., in Tokyo, Japan. From April 1988 to May
1993, Mr. Chambre served as Manager of the Tokyo Forex Co.'s Financial Futures
Division. Mr. Chambre joined its parent company, Tullett and Tokyo, Inc., in New
York in 1983. Mr. Chambre received a Bachelor of Arts degree from Drew
University in 1982.
2
<PAGE>
Michael B. Kraines is newly nominated to our Board of Directors. Since
January 1999, he has been a director with the Financial Institutions Group of
Wasserstein Perella & Co., Inc., an international investment bank. From February
1995 to January 1999 he served as Vice President of Wasserstein Perella. In
connection with this practice, he has advised companies in banking, finance,
asset management and brokerage and mergers and acquisitions, among other things.
Mr. Kraines graduated from Cornell University with a major in Government in 1985
with distinction and Phi Beta Kappa. In 1988, he received a J.D. from Harvard
Law School, graduating cum laude and serving as Notes Editor on the Harvard
Journal on Legislation. Mr. Kraines also received an M.B.A. with a concentration
in Finance from The University of Chicago in 1992.
Stanley Weinstein has been an independent corporate financial consultant
since 1991. From 1960 to 1991 he served as a partner with Deloitte & Touche,
LLP, an international accounting firm. Mr. Weinstein served for fifteen years as
adjunct Associate Professor of Accounting at Pace University and co-authored the
widely recognized SEC Compliance--Financial Reporting and Forms handbook. He
received a bachelor of business administration degree in accounting from City
College of New York in 1949. Since May 1995, he has served as a director of York
Research Corp., a company engaged in the production and marketing of energy
related products.
We have agreed, for a period of five years from April 1999, if so requested
by the underwriter of our initial public offering, to nominate and use our best
efforts to elect a designee of the underwriter as a director of the Company or,
at the underwriter's option, as a non-voting advisor to our Board of Directors.
Our officers, directors and principal stockholders have agreed to vote their
shares of Common Stock in favor of such designee. The underwriter has not yet
exercised its right to designate a person.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
ELECTION OF THESE NOMINEES AS DIRECTORS.
SUMMARY COMPENSATION TABLE
The following table sets forth as of the year ended September 30, 1999, the
compensation paid by the Company for services rendered in all capacities to all
executive officers whose cash compensation exceeded $100,000 during such years:
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ---------------
---------------------------- AWARDS
NAME AND FISCAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS(#)
- ------------------ ------ ------- ------- ---------------
<S> <C> <C> <C> <C>
Steven Malin ...................................................... 1999 $93,075 $18,615 0
Chairman and Chief
Executive Officer
Harry Simpson ..................................................... 1999 99,736 19,947 200,000
President and Chief
Operating Officer
Leon Ferguson ..................................................... 1999 86,769 17,353 150,000
Senior Vice President
and Chief Information Officer
Brett Vernick ..................................................... 1999 90,426 18,085 0
Senior Vice President,
Management Information Services
</TABLE>
3
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning options granted to
executive officers named in the Summary Compensation Table during the fiscal
year ended September 30, 1999:
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES % OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES
NAME GRANTED (#) IN FISCAL YEAR EXERCISE PRICE ($/SH) EXPIRATION DATE
- ---- -------------------- -------------------- --------------------- ---------------
<S> <C> <C> <C> <C>
Steven Malin 0 n/a 0 n/a
Harry Simpson 200,000 18.7 7.00 4/20/2009
Leon Ferguson 150,000 14.0 7.00 4/20/2009
Brett Vernick 0 n/a 0 n/a
</TABLE>
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table contains information concerning (i) option exercises
during the fiscal year ended September 30, 1999 by executive officers named in
the Summary Compensation Table and (ii) the number and value, at September 30,
1999, of unexercised options held by executive officers named in the Summary
Compensation Table:
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED VALUE UNEXERCISED OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)
NAME ON EXERCISE (#) REALIZED ($) (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)(1)
- ---------------------- --------------- ------------ --------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Steven Malin 0 n/a 0/0 0/0
Harry Simpson 75,000 358,500 66,667/133,333 379,169/758,331
Leon Ferguson 0 n/a 0/150,000 0/853,125
Brett Vernick 0 n/a 90,000/60,000 931,875/521,250
</TABLE>
- ------------------
(1) Fair market value of underlying securities (the closing price of the
Company's Common Stock on the National Association of Securities Dealers
Quotation System) at fiscal year end (September 30, 1999) minus the exercise
price.
EMPLOYMENT AGREEMENTS
We have entered into a four-year employment agreement with Steven Malin and
three-year employment agreements with Harry Simpson, Robert Malin, Anthony G.
Huston, Eric Steinberg, Leon Ferguson, Brett Vernick and Joseph M. Ramos all of
which are automatically renewable for additional one-year terms. The employment
agreements provide for annual base compensation of $110,000, except for Messrs.
Ferguson and Vernick ($100,000) and Mr. Ramos ($150,000). Each employment
agreement provides for a bonus equal to 20% of their salaries, payable
semi-annually, based upon certain revenue levels achieved by us, as may be
approved by the Board of Directors or a committee of the Board.
Each of the employment agreements requires the officer to devote his full
time and efforts to our business and contains non-competition and non-disclosure
covenants of the officer for the term of his employment and for a period of two
years thereafter. Each employment agreement provides that we may terminate the
agreement for cause. In addition, each employment agreement provides for
termination by either party without cause upon at least 180 days written notice
prior to the end of the original term or any renewal term.
STOCK OPTION PLANS
On January 27, 1997, the Board of Directors and stockholders adopted our
1997 stock option plan and on March 16, 1998, our Board of Directors and
stockholders adopted our 1998 stock option plan. We have reserved 400,000 shares
of Common Stock for issuance upon exercise of options granted from time to time
under the 1997 stock option plan and 800,000 shares of Common Stock for issuance
upon exercise of options granted from time to time under the 1998 stock option
plan. The 1997 and 1998 stock option plans are intended to assist us in
4
<PAGE>
securing and retaining key employees, directors and consultants by allowing them
to participate in our ownership and growth through the grant of incentive and
non-qualified options.
Under each of the stock option plans we may grant incentive stock options
only to key employees and employee directors, or we may grant non-qualified
options to our employees, officers, directors and consultants. The 1997 stock
option plan is administered by a committee, appointed by our Board of Directors,
consisting of from one to three directors. The 1998 stock option plan is
administered directly by our Board of Directors.
Subject to the provisions of each of the stock option plans, either the
Board or the committee will determine who shall receive options, the number of
shares of Common Stock that may be purchased under the options, the time and the
manner of exercise of options and exercise prices. The term of options granted
under each of the stock option plans may not exceed ten years or five years for
an incentive stock option granted to an optionee owning more than 10% of our
voting stock. The exercise price for incentive stock options shall be equal to
or greater than 100% of the fair market value of the shares of the Common Stock
at the time granted; provided that incentive stock options granted to a 10%
holder of our voting stock shall be exercisable at a price equal to or greater
than 110% of the fair market value of the Common Stock on the date of the grant.
The exercise price for non-qualified options will be set by the Board or the
committee, in its discretion, but in no event shall the exercise price be less
than the fair market value of the shares of Common Stock on the date of grant.
The exercise price may be payable in cash or, with the approval of the Board or
the committee, by delivery of shares or by a combination of cash and shares.
Shares of Common Stock received upon exercise of options granted under each of
the plans will be subject to restrictions on sale or transfer.
As of February 8, 2000, we have granted options to purchase 1,616,700
shares of Common Stock under our stock options plans at an exercise price
ranging from $.02 to $19.94 per share. Of these options, options to purchase
881,500 shares have been granted to our officers and directors. Of these
options, 125,000 with an exercise price of $.02 have been exercised. All of the
options granted to such officers and directors terminate on the ten year
anniversary of their grant date.
On November 1, 1999, the Board of Directors, subject to stockholder
approval, adopted our 1999 Stock Option Plan (the "1999 Plan"). We have reserved
800,000 shares of Common Stock for issuance upon exercise of options granted
from time to time under the 1999 Plan. The 1999 Plan is intended to assist us in
securing and retaining key employees, directors and consultants by allowing them
to participate in our ownership and growth through the grant of incentive and
non-qualified options.
Under the 1999 Plan we may grant incentive stock options only to key
employees and employee directors, or we may grant non-qualified options to our
employees, officers, directors and consultants. The 1999 Plan shall be
administered directly by our Board of Directors.
Subject to the provisions of the 1999 Plan, the Board of Directors will
determine who shall receive options, the number of shares of Common Stock that
may be purchased under the options, the time and manner of exercise of options
and exercise prices. The term of options granted under the 1999 Plan may not
exceed ten years or five years for an incentive stock option granted to an
optionee owning more than 10% of our voting stock. The exercise price for
incentive stock options shall be equal to or greater than 100% of the fair
market value of the shares of the Common Stock at the time granted; provided
that incentive stock options granted to a 10% holder of our voting stock shall
be exercisable at a price equal to or greater than 110% of the fair market value
of the Common Stock on the date of the grant. The exercise price for
non-qualified options will be set by the Board, in its discretion. The exercise
price may be payable in cash or, with the approval of the Board, by delivery of
shares or by a combination of cash and shares. Shares of Common Stock received
upon exercise of options granted under the 1999 Plan will be subject to
restrictions on sale or transfer.
As of February 8, 2000 and subject to stockholder approval of the 1999 Plan
as described above, we have granted options to purchase 416,700 shares of Common
Stock under the 1999 Plan at an exercise price ranging from $9.81 to $13.00 per
share. Of these options, options to purchase 230,500 shares have been granted to
newly-hired officers. All of the options granted terminate on the ten year
anniversary of their grant date.
Through April 20, 2000, we will not grant additional options or warrants to
our existing officers, directors, employees or stockholders beneficially owning
5% or more of the outstanding voting securities or their affiliates.
5
<PAGE>
SECURITY OWNERSHIP
The following table sets forth as of January 20, 2000 certain information
with regard to ownership of the Company's Common Stock by (i) each beneficial
owner of more than 5% of the Company's Common Stock; (ii) each director and
nominee for director; (iii) each executive officer named in the "Summary
Compensation Table"; and (iv) all executive officers and directors of the
Company as a group. Unless otherwise stated, the persons named in the table have
sole voting and investment power with respect to all Common Stock shown as
beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
- ------------------------------------ ------------------ --------------------
<S> <C> <C>
Steven Malin......................................... 1,878,294 23.7%
Linda Malin.......................................... 1,000,300 12.6
Robert Malin......................................... 850,000 10.7
Anthony G. Huston.................................... 325,000 4.1
Eric Steinberg....................................... 300,000 3.8
Harry Simpson........................................ 216,667 2.7
Leon Ferguson........................................ 93,510 1.2
Brett Vernick........................................ 140,000 1.7
Mark Chambre......................................... 52,500 .7
William Brawer....................................... 0 0
Elizabeth Chambers................................... 0 0
Stanley Weinstein.................................... 0 0
Michael B. Kraines................................... 0 0
All directors and executive officers as a
group (14 persons)................................. 3,591,938 44.1%
</TABLE>
The number of shares beneficially owned by Steven, Linda and Robert Malin
include shares held in irrevocable family and charitable trusts for which they
are trustees. In addition, the number of shares held by Steven Malin includes
shares held by a family partnership for which Steven Malin is the general
partner.
The number of shares beneficially owned by Anthony Huston does not include
175,000 shares of Common Stock held by an irrevocable family trust of which
Anthony Huston is a beneficiary.
The number of shares beneficially owned by Eric Steinberg does not include
125,000 shares of Common Stock held by an irrevocable family trust of which Eric
Steinberg is a beneficiary.
The number of shares beneficially owned by Harry Simpson includes 66,667
shares of Common Stock issuable upon exercise of currently exercisable options,
but does not include 133,333 shares of Common Stock issuable upon exercise of
options which are not currently exercisable or 350,000 shares held in trusts of
which Harry Simpson is a beneficiary.
The number of shares beneficially owned by Leon Ferguson does not include
150,000 shares of Common Stock issuable upon exercise of options which are not
currently exercisable.
The number of shares beneficially owned by Brett Vernick includes 90,000
shares of Common Stock issuable upon exercise of currently exercisable options,
but does not include 60,000 shares of Common Stock issuable upon exercise of
options which are not currently exercisable.
The number of shares beneficially owned by all of our officers and
directors as a group includes 208,334 shares of Common Stock issuable upon
exercise of currently exercisable options, but does not include 411,666 shares
of Common Stock issuable upon exercise of options which are not currently
exercisable.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers, Directors and persons who own more than ten percent of a
registered class of the Company's equity securities ("Reporting Persons") to
file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
Securities and Exchange Commission (the "SEC") and the National Association of
Securities Dealers, Inc. (the
6
<PAGE>
"NASD"). These Reporting Persons are required by SEC regulation to furnish the
Company with copies of all Forms 3, 4 and 5 they file with the SEC and NASD.
Based solely on the Company's review of the copies of the forms it has received,
the Company believes that all Reporting Persons complied on a timely basis with
all filing requirements applicable to them with respect to transactions during
fiscal year 1999.
CERTAIN TRANSACTIONS
In October 1994, Steven Malin, Chairman of the Board and Chief Executive
Officer and a principal stockholder of the Company, loaned A.B. Watley, Inc.,
our wholly-owned subsidiary ("Watley"), $55,000 on an interest free basis. The
maturity date for this loan is October 31, 2000. Additionally, in April 1995,
Mr. Malin loaned Watley $125,000 at an annual interest rate of 12%. The maturity
date for this loan is April 30, 2000. Each of these loans are subordinate to the
prior payment by Watley in full of all other present and future creditors.
In October 1995, Mel Steinberg, the father of Eric Steinberg, an executive
officer and principal stockholder of the Company, loaned Watley $200,000 at an
annual interest rate of 15%. Additionally, effective October 30, 1996,
Mr. Steinberg loaned Watley $150,000 at an annual interest rate of 13%. The
maturity date for each of the loans is October 31, 2000. Each of these loans are
subordinate to the prior payment by Watley in full of all other present and
future creditors.
On September 4, 1996, we loaned $100,000 to Robert Malin, President of
Watley and a director and principal stockholder of the Company. The loan bears
interest at an annual rate of 6% and is due upon demand.
In January 1997, we acquired all of the issued and outstanding shares of
Watley which were held by Steven Malin and Robert Malin. As consideration for
the acquisition, we issued 425,000 shares of Common Stock to Robert Malin and
6,535 shares of Common Stock to Steven Malin. The aggregate value of the shares
issued by us was $80,000.
In April 1997, we completed a private placement of 1,050,000 shares of our
Common Stock for which we received net proceeds of $2,045,000. In connection
with the private placement, Jonathan Priddle, an officer of the Company,
purchased 25,000 shares at a price of $50,000 and Mark Chambre, a director of
the Company, purchased 37,500 shares at a price of $75,000. In addition,
relatives of Anthony Huston and Eric Steinberg, each an executive officer and
principal stockholder of the Company, purchased an aggregate of 62,500 shares at
an aggregate price of $125,000. All of these purchases were on the same terms
and at the same price as the purchases made by the other investors in this
private placement.
In May 1997, we sold computer hardware and related assets to Centennial
Ventures, Inc., a broker-dealer of which Linda Malin, a principal stockholder of
the Company and the sister of Steven and Robert Malin, is an executive officer.
As consideration for this sale, Centennial Ventures, Inc. delivered a promissory
note in the principal amount of $39,860.75. The note is payable on demand, bears
interest at an annual rate of 8% and is secured by all of the assets we sold to
Centennial Ventures, Inc.
In February 1998, Mel Steinberg loaned to the Company $100,000 at an
interest rate of 8%. The loan is due in February 2001. As additional
consideration for the loan, we granted Mr. Steinberg an option to purchase
14,286 shares of Common Stock for nominal consideration. Mr. Steinberg exercised
the option in April 1999. We repaid the loan, including accrued interest, from
the proceeds of our initial public offering ("IPO").
On October 2, 1998, we entered into a loan agreement with New York Small
Business Venture Fund LLC under which we borrowed $500,000 at an annual interest
rate of 12%, repayable over 35 months, with payments of interest only in the
first two years. We granted the lender a security interest in substantially all
of our assets to secure our obligations under the loan, and six persons who are
officers, directors and/or principal stockholders of the Company guaranteed our
obligations under this loan. We repaid this loan out of the proceeds of the IPO,
which discharged the liability of the guarantors. Stanley Weinstein, a director
of the Company, received a $25,000 consulting fee from us in connection with the
loan.
Effective October 2, 1998, we acquired all of the shares of capital stock
of Computer Strategies, Inc. for 38,260 shares of our Common Stock valued at
$183,648. Leon Ferguson was the founder and sole stockholder of Computer
Strategies, Inc. and became our Senior Vice President and Chief Information
Officer upon the closing of the acquisition.
7
<PAGE>
In January 1999, we completed a private placement of 221,500 shares of
Common Stock to 12 investors for which we received net proceeds of approximately
$1,050,000. In connection with this private placement:
o Anthony Huston purchased 50,000 shares at a price of $240,000;
o A trust naming Leon Ferguson and his wife as beneficiaries for which
Mr. Ferguson is sole trustee purchased 52,000 shares at a price of
$249,600; and
o Mark Chambre purchased 15,000 shares at a price of $72,000.
All of the purchasers of these shares agreed not to sell or otherwise
dispose of these shares for a period of twelve months from the date of the
Company's IPO. All of these purchases were made on the same terms and at the
same price per share as the purchases made by the other investors in this
private placement.
We believe that prior transactions with our officers, directors and
principal stockholders were on terms that were no less favorable than we could
have obtained from unaffiliated third parties. All future transactions,
including loans and advances, between us and our officers, directors and
stockholders beneficially owning 5% or more of our outstanding voting
securities, or their affiliates, will be for bona fide business purposes and on
terms not less favorable to us than we could have obtained in arm's length
transactions from unaffiliated third parties.
APPROVAL OF THE 1999 STOCK OPTION PLAN
(ITEM 2 ON PROXY CARD)
As noted above under the caption "Stock Option Plans", on November 1, 1999,
the Board of Directors adopted our 1999 Plan under which 800,000 shares of our
Common Stock have been reserved for issuance. The following description of the
1999 Plan is qualified in its entirety by reference to the text of the 1999
Plan, a copy of which is annexed to this proxy statement as Exhibit "A".
PURPOSE
The purpose of the 1999 Plan is to provide an incentive to key employees
and employee directors as well as outside directors and consultants and to offer
an additional inducement in obtaining the services of such individuals.
ADMINISTRATION OF THE 1999 PLAN
The 1999 Plan is administered by the Board of Directors. The Board is
authorized, subject to the provisions of the 1999 Plan, to determine the persons
who will receive options under the 1999 Plan, the number of shares of Common
Stock subject to each option and the terms of those options, and to interpret
the 1999 Plan and to make such rules and regulations relating to the 1999 Plan
as the Board may deem proper.
SHARES OF STOCK SUBJECT TO THE 1999 PLAN AND EXERCISE PRICE
Options granted under the 1999 Plan may be (i) Incentive Stock Options
under the provisions and subject to the limitations of Section 422 of the
Internal Revenue Code or (ii) non-qualified Stock Options. The 1999 Plan permits
the granting of an aggregate of 800,000 shares at a price equal to not less than
one hundred percent (100%) of the fair market value of the Common Stock on the
date that the option is granted if the option is an Incentive Stock Option.
Non-qualified Stock Options may be granted at such prices as are determined by
the Board of Directors. Further, no Incentive Stock Option may be granted to an
employee owning shares of Common Stock having more than 10% of the voting power
of the Company unless the option price for such employee's option is at least
110% of the fair market value of the shares of Common Stock subject to the
option at the time the option is granted and the option is not exercisable after
five years from the date of grant. No option may be granted under the 1999 Plan
after the tenth anniversary of the adoption of the 1999 Plan. Options may be
granted through October 31, 2009.
Upon the granting of any option, the optionee must enter into a written
agreement with the Company setting forth the terms upon which the option may be
exercised. Such an agreement sets forth the length of the term of the option and
the timing of its exercise as determined by the Board of Directors. In no event
shall the length of
8
<PAGE>
an option extend beyond ten years from the date of its grant. An optionee may
exercise an option by delivering payment to the Company in cash, previously
acquired shares of Common Stock or a combination thereof.
Under the 1999 Plan, if the employment of any person to whom an option has
been granted is terminated for any reason other than the death or disability of
the optionee, the optionee may exercise within ninety days of such termination
such options as the optionee could have exercised if his or her employment had
continued for such ninety day period. If the optionee dies while employed by the
Company or its subsidiaries, or during a period after termination of employment
in which the optionee could exercise an option, the optionee's beneficiary may
exercise the option within one year of the date of the optionee's death but in
no event may the option be exercised later than the date on which the option
would have expired if the optionee had lived. If the termination is by reason of
disability, the optionee may exercise the option, in whole or in part, at any
time within one year following such termination of employment, but in no event
may the option be exercised later than the date on which the option would have
expired if the optionee had not been terminated for disability.
CHANGE-IN-CONTROL AND ADJUSTMENTS IN CAPITALIZATION
The 1999 Plan provides that the Board of Directors may provide that the
vesting of options granted pursuant to the 1999 Plan to optionees who are
terminated by the Company within one (1) year of a change-in-control (as defined
in the 1999 Plan), will accelerate and such options will become exercisable. The
1999 Plan further provides that, in the event of any stock dividend, stock
split, combination of shares, merger, consolidation, reorganization, spin-off,
or recapitalization affecting the outstanding shares of the Company's Common
Stock (the "Event"), the maximum number and kind of shares that may be issued
under the 1999 Plan, the number of shares with respect to which future options
are to be granted, the number and kind of shares subject to then-outstanding
options and the price for each share subject to any then outstanding options
shall be appropriately and equitably adjusted as necessary to maintain the same
proportionate number of shares as existed immediately prior to the Event and the
same aggregate option price.
FEDERAL INCOME TAX CONSEQUENCES
With respect to the tax effects of Incentive Stock Options, the optionee
does not recognize any taxable income when the option is granted or exercised.
If no disposition of shares issued to an optionee pursuant to the exercise of an
Incentive Stock Option is made by the optionee within two years from the date of
grant or within one year after the transfer of such shares to the optionee then
(a) upon sale of such shares, any amount realized in excess of the option price
(the amount paid for the shares) will be taxed to the optionee as long-term
capital gain and any loss sustained will be a long-term capital loss and (b) no
deduction will be allowed to the Company for Federal income tax purposes. The
exercise of an Incentive Stock Option will give rise to an item of tax
preference that may result in alternative minimum tax liability for the
optionee.
If shares acquired upon the exercise of an Incentive Stock Option are
disposed of prior to the expiration of the two year and one year holding periods
described above (a "Disqualifying Disposition") generally (a) the optionee will
realize ordinary income in the year of disposition in an amount equal to the
excess (if any) of the fair market value of the shares at exercise (or, if less,
the amount realized upon the sale of such shares) over the option price thereof,
and (b) the Company will be entitled to deduct such amount, subject to
applicable withholding requirements. Any further gain realized will be taxed as
short-term or long-term capital gain and will not result in any deduction by the
Company. A Disqualifying Disposition will eliminate the item of tax preference
associated with the exercise of the Incentive Stock Option.
If an optionee is permitted to, and does, make the required payment of the
option price by delivering shares, the optionee generally will not recognize any
gain as a result of such delivery, but the amount of gain, if any, which is not
so recognized will be excluded from his basis in the new shares received.
However, the use by an optionee of shares previously acquired pursuant to the
exercise of an Incentive Stock Option to exercise an Incentive Stock Option will
be treated as a taxable disposition if the transferred shares are not held by
the optionee for the requisite holding period described above.
With respect to the tax effects of non-qualified Stock Options, a recipient
of options incurs no income tax liability as a result of having been granted
those options. The exercise by an individual of a stock option normally results
in the immediate realization of income by the individual of the difference
between the market value of the
9
<PAGE>
stock which is being purchased on the date of exercise and the price being paid
for such stock. The amount of such income also is deductible by the Company. If
the exercise price is paid in whole or in part in shares, no income, gain or
loss is recognized by the recipient on the receipt of shares equal in number to
the shares delivered in payment of the exercise price, and the fair market value
of the remainder of the shares received upon exercise of the option, determined
as of the date of exercise, less the amount of cash, if any, paid upon exercise,
is treated as compensation income received by the recipient.
Under current law an individual who sells stock which was acquired upon the
exercise of options will receive long-term capital gains or loss treatment, if
the individual has held such stock for longer than one year following the date
of such exercise, on gain or loss equal to the difference between the price for
which such stock was sold and the market value of the stock on the date of the
exercise. If the individual has held the stock for one year or less the gain or
loss will be treated as short-term capital gain or loss.
AMENDMENTS TO THE 1999 PLAN
The 1999 Plan may be terminated, suspended, or modified at any time by the
Board of Directors, but no amendment increasing the maximum number of shares of
Common Stock for which options may be granted (except to reflect a stock split,
stock dividend or other distribution), materially increasing the benefits
accruing to an optionee or changing the class of persons eligible to be
optionees shall be made without first obtaining approval by a majority of the
outstanding shares of the Company entitled to vote. No termination, suspension
or modification of the 1999 Plan shall adversely affect any right previously
acquired by the optionee or other beneficiary under the 1999 Plan without such
optionee's or beneficiary's consent.
Options granted under the 1999 Plan may not be transferred other than by
will or by the laws of descent and distribution or a qualified domestic
relations order and, during the optionee's lifetime, may be exercised only by
the optionee.
PLAN BENEFITS
The benefits or amounts that will be received by or allocated to any
participants are not now determinable, except that the following grants have
been made under the 1999 Plan:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION DOLLAR VALUE($) NUMBER OF UNITS
- --------------------------- --------------- ---------------
<S> <C> <C>
Steven Malin ......................................................... 0(1) 0
Chairman and Chief Executive Officer
Harry Simpson ........................................................ 0(1) 0
President and Chief Operating Officer
Leon Ferguson ........................................................ 0(1) 0
Senior Vice President and Chief Information Officer
Brett Vernick ........................................................ 0(1) 0
Senior Vice President, Management Information Services
Joseph M. Ramos, Jr................................................... 507,500(2) 50,000
Paul Scharfer......................................................... 450,000(3) 45,000
Peter Wigger.......................................................... 1,471,500(4) 150,000
Executive Group....................................................... 1,979,000(5) 200,000
Non-Executive Director Group.......................................... 0(1) 0
Nominees for Director................................................. 0(1) 0
Non-Executive Officer Employee Group.................................. 2,709,818(6) 256,700
Associates of Directors, Executive Group and Nominees................. 0(1) 0
</TABLE>
(Footnotes on next page)
10
<PAGE>
(Footnotes from previous page)
- ------------------
(1) No options have been granted to this individual or group to date under the
1999 Plan.
(2) Based on an exercise price of (i) $10.00 per share for 10,000 shares of
Common Stock and (ii) $10.1875 per share for 40,000 shares of Common Stock.
(3) Based on an exercise price of $10.00 per share of Common Stock.
(4) Based on an exercise price of $9.81 per share of Common Stock.
(5) Based on an exercise price of (i) $9.81 per share for 150,000 shares of
Common Stock, (ii) $10.00 per share for 10,000 shares of Common Stock and
(iii) $10.1875 per share for 40,000 shares of Common Stock.
(6) Based on an exercise price of (i) $10.00 per share for 58,500 shares of
Common Stock, (ii) $10.19 per share for 126,200 shares of Common Stock,
(iii) $10.25 per share for 11,000 shares of Common Stock, (iv) $10.44 per
share for 2,000 shares of Common Stock, (v) $10.50 per share for 6,000
shares of Common Stock, (vi) $10.75 per share for 3,000 shares of Common
Stock, (vii) $11.50 per share for 22,000 shares of Common Stock, (viii)
$12.44 per share for 12,000 shares of Common Stock and (ix) $13.00 per share
for 16,000 shares of Common Stock.
As of February 4, 2000, the fair market value of the Common Stock was
$13.25 per share.
FINANCIAL AND ACCOUNTING ASPECTS
The grants of the stock options made under the 1999 Plan will result in a
non-cash compensation charge to the Company measured by the difference between
the exercise price and the fair market value (i.e., market price) of the Common
Stock on the date of approval of the transaction (which will be the date of the
Annual Meeting of Stockholders, assuming such approval is forthcoming).
VOTE REQUIRED
The 1999 Plan requires the affirmative vote of a majority of the votes cast
at the Annual Meeting. If the 1999 Plan is not approved by stockholders, it will
not become effective.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSAL TO
APPROVE THE 1999 STOCK OPTION PLAN.
SELECTION OF AUDITORS
(ITEM 3 ON PROXY CARD)
The Board of Directors has selected Ernst & Young LLP as our auditors for
the current fiscal year, subject to ratification by the stockholders. A
representative of Ernst & Young LLP is expected to be present at the Annual
Meeting to respond to appropriate questions from stockholders and will be given
the opportunity to make a statement if he desires to do so.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSAL TO
APPROVE THE RETENTION OF ERNST & YOUNG LLP.
ADDITIONAL INFORMATION CONCERNING THE BOARD
OF DIRECTORS OF THE COMPANY
During the year ended September 30, 1999 the Board of Directors held four
meetings and acted by written consent eleven times. The Committee administering
the 1997 Plan did not meet during the year ended September 30, 1999. The Audit
Committee met one time. No director was absent from more than one meeting.
Directors receive options to purchase 1,500 shares of Common Stock of the
Company annually. Outside directors are compensated $500 for each meeting of the
Board of Directors he or she attends. Inside directors have waived their right
to be compensated for attending meetings of the Board of Directors.
11
<PAGE>
AUDIT COMMITTEE
The Audit Committee consists of Mr. Stanley Weinstein and Ms. Elizabeth
Chambers. The functions of the Audit Committee are to recommend to the Board of
Directors the selection, retention, or termination of the Company's independent
accountants; determine through consultation with management the appropriateness
of the scope of the various professional services provided by the independent
accountants, and consider the possible effect of the performance of such
services on the independence of the accountants; review the arrangements and the
proposed overall scope of the annual audit with management and the independent
accountants; discuss matters of concern to the Audit Committee with the
independent accountants and management relating to the annual financial
statements and results of the audit; obtain from management, the independent
accountants and the Chief Financial Officer their separate opinions as to the
adequacy of the Company's system of internal accounting control; review with
management and the independent accountants the recommendations made by the
accountants with respect to changes in accounting procedures and internal
accounting control; discuss with management any concerns the Audit Committee may
have with regard to the Company's business practices; hold regularly scheduled
meetings, separately and jointly, with representatives of management, the
independent accountants, and the Chief Financial Officer to make inquiries into
and discuss their activities.
STOCKHOLDER PROPOSALS
Stockholder proposals with respect to the Company's next Annual Meeting of
Stockholders must be received by the Company no later than October 11, 2000 to
be considered for inclusion in the Company's next Proxy Statement. Under the
Securities and Exchange Commission's proxy rules, proxies solicited by the Board
of Directors for the 2001 Annual Meeting may be voted at the discretion of the
persons named in such proxies (or their substitutes) with respect to any
stockholder proposal not included in the Company's proxy statement if the
Company does not receive notice of such proposal on or before December 26, 2000,
unless the 2001 Annual Meeting is not held within 30 days before or after the
anniversary date of the 2000 Annual Meeting.
ANNUAL REPORT
A copy of our Annual Report for the year ended September 30, 1999 is being
mailed to the stockholders of record along with this Proxy Statement. The Annual
Report on Form 10-KSB is not incorporated by reference in this Proxy Statement
and is not considered to be part of the proxy material.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
know of any business other than that specified above to come before the Annual
Meeting, but, if any other business does lawfully come before the Annual
Meeting, it is the intention of the persons named in the enclosed Proxy to vote
in regard thereto in accordance with their judgment.
The cost of soliciting proxies will be borne by the Company and will
consist primarily of printing, postage and handling, including the expenses of
brokerage houses, custodians, nominees, and fiduciaries in forwarding documents
to beneficial owners. Solicitation also may be made by the Company's officers,
directors, or employees, personally or by telephone without additional
remuneration therefor.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ STEVEN MALIN
--------------------------------------
STEVEN MALIN
Chairman and Chief Executive Officer
New York, New York
February 9, 2000
12
<PAGE>
EXHIBIT A
A.B. WATLEY GROUP INC.
1999 STOCK OPTION PLAN
SECTION 1. Establishment. There is hereby established the A.B. Watley
Group Inc. 1999 Stock Option Plan (the "Plan"), pursuant to which employees
(including officers, directors, consultants and other persons who perform
substantial services for or on behalf of A.B. Watley Group Inc. and/or its
subsidiaries) [the "Company"] may be granted options to purchase shares of
common stock of the Company, par value $.001 per share ("Common Stock"), and
thereby share in the future growth of the business. The subsidiaries of the
Company included in this Plan (the "Subsidiaries") shall be any subsidiary of
the Company as defined in Section 424 of the Internal Revenue Code of 1986, as
amended (the "Code").
SECTION 2. Status of Options. The options which may be granted pursuant to
this Plan will constitute either incentive stock options within the meaning of
Section 422 of the Code ("Incentive Stock Options") or options which are not
Incentive Stock Options ("Non-incentive Stock Options"). Incentive Stock Options
and Non-incentive Stock Options shall be collectively referred to herein as
"Options".
SECTION 3. Eligibility. All employees (including officers, whether or not
they are members of the Board of Directors) of the Company or any of its
Subsidiaries who are employed at the time of the adoption of this Plan or
thereafter, any directors of the Company, and any consultants and other persons
who perform substantial services for or on behalf of the Company, any of its
Subsidiaries or affiliates, or any entity in which the Company has an interest
(collectively, the "Grantees") shall be eligible to be granted Non-incentive
Stock Options under this Plan. All employees (including officers, whether or not
they are members of the Board of Directors) of the Company or any of its
Subsidiaries who are employed at the time of adoption of this Plan or thereafter
shall be eligible to be granted Incentive Stock Options under this Plan.
SECTION 4. Number of Shares Covered by Options; No Preemptive Rights. The
total number of shares which may be issued and sold pursuant to Options granted
under this Plan shall be 800,000 shares of Common Stock (or the number and kind
of shares of stock or other securities which, in accordance with Section 9 of
this Plan, shall be substituted for such shares of Common Stock or to which said
shares shall be adjusted; hereinafter, all references to shares of Common Stock
are deemed to be references to said shares or shares so adjusted.) The issuance
of shares upon exercise of an Option shall be free from any preemptive or
preferential right of subscription or purchase on the part of any stockholder.
If any outstanding Option granted under this Plan expires or is terminated, for
any reason, the shares of Common Stock subject to the unexercised portion of the
Option will again be available for Options issued under this Plan.
SECTION 5. Administration.
(a) This Plan shall be administered by the Board of Directors of the
Company (the "Board"). Subject to the express provisions of this Plan, the Board
shall have complete authority, in its discretion, to interpret this Plan, to
prescribe, amend and rescind rules and regulations relating to it, to determine
the terms and provisions of the respective option agreements (which need not be
identical), to determine the Grantees to whom, and the times and the prices at
which, Options shall be granted, the option periods, the number of shares of the
Common Stock to be subject to each Option and, as limited by Section 3 hereof,
whether each Option shall be an Incentive Stock Option or a Non-incentive Stock
Option, and to make all other determinations necessary or advisable for the
administration of the Plan. Each Option shall be clearly identified at the time
of grant as to its status. In making such determinations, the Board may take
into account the nature of the services rendered by the respective Grantees,
their present and potential contributions to the success of the Company and such
other factors as the Board, in its discretion, shall deem relevant. Nothing
contained in this Plan shall be deemed to give any Grantee any right to be
granted an Option to purchase shares of Common Stock except to the extent and
upon such terms and conditions as may be determined by the Board. The Board's
determination on all of the matters referred to in this Section 5 shall be
conclusive.
(b) The Board may at its election provide in any option agreement covering
the grant of Options under this Plan that, upon the exercise of such Options,
the Company will loan to the holder thereof such amount as
A-1
<PAGE>
shall equal the purchase price of the shares of Common Stock issuable upon such
exercise, such loan to be on terms and conditions deemed appropriate by the
Board.
(c) Notwithstanding any provision hereof to the contrary, the Board shall
have sole and exclusive authority with respect to the grant of Options to
directors.
SECTION 6. Terms of Incentive Stock Options. Each Incentive Stock Option
granted under this Plan shall be evidenced by an Incentive Stock Option
Agreement which shall be executed by the Company and by the person to whom such
Incentive Stock Option is granted, and shall be subject to the following terms
and conditions:
(a) The price at which shares of Common Stock covered by each Incentive
Stock Option may be purchased pursuant thereto shall be determined in each case
on the date of grant by the Board, but shall be an amount not less than the par
value of such shares and not less than the fair market value of such shares on
the date of grant. For purposes of this Section, the fair market value of shares
of Common Stock on any day shall be (i) in the event the Common Stock is not
publicly traded, the fair market value on such day as determined in good faith
by the Board or (ii) in the event the Common Stock is publicly traded, the last
sale price of a share of Common Stock as reported by the principal quotation
service on which the Common Stock is listed, if available, or, if last sale
prices are not reported with respect to the Common Stock, the mean of the high
bid and low asked prices of a share of Common Stock as reported by such
principal quotation service, or, if there is no such report by such quotation
service for such day, such fair market value shall be the average of (i) the
last sale price (or, if last sale prices are not reported with respect to the
Common Stock, the mean of the high bid and low asked prices) on the day next
preceding such day for which there was a report and (ii) the last sale price
(or, if last sale prices are not reported with respect to the Common Stock, the
mean of the high bid and low asked prices) on the day next succeeding such day
for which there was a report, or as otherwise determined by the Board in its
discretion pursuant to any reasonable method contemplated by Section 422 of the
Code and any regulations issued pursuant to that Section.
(b) The price of the shares to be purchased pursuant to each Incentive
Stock Option shall be paid in full in cash, or by delivery (i.e., surrender) of
shares of Common Stock of the Company then owned by the Grantee, at the time of
the exercise of the Incentive Stock Option. Shares of Common Stock so delivered
will be valued on the day of delivery for the purpose of determining the extent
to which the option price has been paid thereby, in the same manner as provided
for the purchase price of Incentive Stock Options as set forth in paragraph
(a) of this Section, or as otherwise determined by the Board, in its discretion,
pursuant to any reasonable method contemplated by Section 422 of the Code and
any regulations issued pursuant to that Section.
(c) Each Incentive Stock Option Agreement shall provide that such
Incentive Stock Option may be exercised by the Grantee, in such parts and at
such times as may be specified in such Agreement, within a period not exceeding
ten years after the date on which the Incentive Stock Option is granted
(hereinafter called the "Incentive Stock Option Period") and, in any event, only
during the continuance of the employee's employment by the Company or any of its
Subsidiaries or during the period of three months after the termination of such
employment to the extent that the right to exercise such Incentive Stock Option
had accrued at the date of such termination; provided, however, that if
Incentive Stock Options as to 100 or more shares are held by a Grantee, then
such Incentive Stock Options may not be exercised for less than 100 shares at
any one time, and if Incentive Stock Options for less than 100 shares are held
by a Grantee, then Incentive Stock Options for all such shares must be exercised
at one time; and provided, further, that if the Grantee, while still employed by
the Company or any of its Subsidiaries, shall die or become disabled (within the
meaning of Section 22(e)(3) of the Code) within the Incentive Stock Option
period, the Incentive Stock Option may be exercised, to the extent specified in
the Incentive Stock Option Agreement, and as herein provided, but only prior to
the first to occur of:
(i) the expiration of the period of one year after the date of the
Grantee's death or disability, or
(ii) the expiration of the Incentive Stock Option period, by the
person or persons entitled to do so under the Grantee's will, or,
if the Grantee shall fail to make testamentary disposition of
said Incentive Stock Option, or shall die intestate, by the
Grantee's legal representative or representatives.
A-2
<PAGE>
(d) Each Incentive Stock Option granted under this Plan shall by its terms
be non-transferable by the Grantee except by will or by the laws of descent and
distribution, and each Incentive Stock Option shall by its terms be exercisable
during the Grantee's lifetime only by him.
(e) Notwithstanding the foregoing, if an Incentive Stock Option is granted
to a person at any time when such person owns, within the meaning of
Section 424(d) of the Code, more than 10% of the total combined voting power of
all classes of stock of the employer corporation (or a parent or subsidiary of
such corporation within the meaning of Section 424 of the Code), the price at
which each share of Common Stock covered by such Incentive Stock Option may be
purchased pursuant to such Incentive Stock Option shall not be less than 110% of
the fair market value (determined as in paragraph (a) of this Section) of the
shares of Common Stock at the time the Incentive Stock Option is granted, and
such Incentive Stock Option must be exercised within a period specified in the
Incentive Stock Option Agreement which does not exceed five years after the date
on which such Incentive Stock Option is granted.
(f) The Incentive Stock Option Agreement entered into pursuant hereto may
contain such other terms, provisions and conditions not inconsistent herewith as
shall be determined by the Board including, without limitation, provisions
(i) requiring the giving of satisfactory assurances by the Grantee that the
shares are purchased for investment and not with a view to resale in connection
with a distribution of such shares, and will not be transferred in violation of
applicable securities laws, (ii) restricting the transferability of such shares
during a specified period and (iii) requiring the resale of such shares to the
Company at the option price if the employment of the employee terminates prior
to a specified time. In addition, the Board, in its discretion, may afford to
holders of Incentive Stock Options granted under this Plan the right to require
the Company to cause to be registered under the Securities Act of 1933, as
amended, for public sale by the holders thereof, shares of Common Stock subject
to such Incentive Stock Options upon such terms and subject to such conditions
as the Board may determine to be appropriate.
(g) In the discretion of the Board, a single Stock Option Agreement may
include both Incentive Stock Options and Non-incentive Stock Options, or those
options may be included in separate stock option agreements.
SECTION 7. Terms of Non-incentive Stock Options. Each Non-incentive Stock
Option granted under this Plan shall be evidenced by a Non-incentive Stock
Option Agreement which shall be executed by the Company and by the person to
whom such Non-incentive Stock Option is granted, and shall be subject to the
following terms and conditions:
(a) The price at which shares of Common Stock covered by each
Non-incentive Stock Option may be purchased pursuant thereto shall be such
amount as determined by the Board but not less than the par value of such
shares.
(b) Each Non-incentive Stock Option Agreement shall provide that such
Non-incentive Stock Option may be exercised by the Grantee, in such parts and at
such times as may be specified in such Agreement, within a period up to and
including ten years after the date on which the Non-incentive Stock Option is
granted.
(c) Each Non-incentive Stock Option granted under this Plan shall by its
terms be non-transferable by the optionee except by will or by the laws of
descent and distribution, and each Non-incentive Stock Option shall by its terms
be exercisable during the Grantee's lifetime only by him.
(d) The Non-incentive Stock Option Agreement entered into pursuant hereto
may contain such other terms, provisions and conditions not inconsistent
herewith as shall be determined by the Board, in its sole discretion, including
without limitation the terms, provisions and conditions set forth in Section
6(f) with respect to Incentive Stock Option Agreements.
SECTION 8. Limit on Option Amount.
(a) Notwithstanding any provision contained herein, the aggregate fair
market value (determined under Section 6(a) as of the time Incentive Stock
Options are granted) of the shares of Common Stock with respect to which
Incentive Stock Options are first exercisable by any employee during any
calendar year (under all stock option plans of the employee's employer
corporation and its parent and subsidiary corporation within the meaning of
Section 424 of the Code) shall not exceed $100,000. If an Incentive Stock Option
exceeds this $100,000 limitation, the portion of such Option which is
exercisable for shares of Common Stock in excess of the
A-3
<PAGE>
$100,000 limitation shall be treated as a Non-incentive Stock Option. The limit
in this paragraph shall not apply to Options which are designated as
Non-incentive Stock Options, and, except as otherwise provided herein, there
shall be no limit on the amount of such Options which may be first exercisable
in any year.
(b) Notwithstanding any provision contained herein, grants of options
under this Plan to any one optionee who is an employee of the Company shall be
limited to Options to purchase no more than 150,000 shares of Common Stock per
calendar year (subject to adjustment in the event of a stock split).
SECTION 9. Adjustment of Number of Shares.
(a) In the event that a dividend shall be declared upon the shares of
Common Stock payable in shares of Common Stock, the number of shares of Common
Stock then subject to any Option granted hereunder, and the number of shares
reserved for issuance pursuant to this Plan but not yet covered by an Option,
shall be adjusted by adding to each of such shares the number of shares which
would be distributable thereon if such share had been outstanding on the date
fixed for determining the shareholders entitled to receive such stock dividend.
In the event that the outstanding shares of Common Stock shall be changed into
or exchanged for a different number or kind of shares of stock or other
securities of the Company or of another corporation, whether through
reorganization, recapitalization, stock split-up, combination of shares, merger
or consolidation, then there shall be substituted for each share of Common Stock
subject to any such Option and for each share of Common Stock reserved for
issuance pursuant to the Plan but not yet covered by an Option, the number and
kind of shares of stock or other securities into which each outstanding share of
Common Stock shall be so changed or for which each such share shall be
exchanged; provided, however, that in the event that such change or exchange
results from a merger or consolidation, and in the judgment of the Board such
substitution cannot be effected or would be inappropriate, or if the Company
shall sell all or substantially all of its assets, the Company shall use
reasonable efforts to effect some other adjustment of each then outstanding
Option which the Board, in its sole discretion, shall deem equitable. In the
event that there shall be any change, other than as specified above in this
Section 9(a), in the number or kind of outstanding shares of Common Stock or of
any stock or other securities into which such shares of Common Stock shall have
been changed or for which they shall have been exchanged, then, if the Board
shall determine that such change equitably requires an adjustment in the number
or kind of shares theretofore reserved for issuance pursuant to the Plan but not
yet covered by an Option and of the shares then subject to an Option or Options,
such adjustment shall be made by the Board and shall be effective and binding
for all purposes of this Plan and of each stock option agreement.
Notwithstanding the foregoing, if any adjustment in the number of shares which
may be issued and sold pursuant to Options is required by the Code or
regulations issued pursuant thereto to be approved by the stockholders in order
to enable the Company to issue Incentive Stock Options pursuant to this Plan,
then no such adjustment shall be made without the approval of the stockholders.
In the case of any such substitution or adjustment as provided for in this
Section 9(a), the option price in each stock option agreement for each share
covered thereby prior to such substitution or adjustment will be the total
option price for all shares of stock or other securities which shall have been
substituted for each such share or to which such share shall have been adjusted
pursuant to this Section 9. No adjustment or substitution provided for in this
Section 9 shall require the Company, in any stock option agreement, to sell a
fractional share, and the total substitution or adjustment with respect to each
stock option agreement shall be limited accordingly. Notwithstanding the
foregoing, in the case of Incentive Stock Options, if the effect of the
adjustments or substitution is to cause the Incentive Stock Option to fail to
continue to qualify as an Incentive Stock Option or to cause a modification,
extension or renewal of such Incentive Stock Option within the meaning of
Section 424 of the Code, the Board of Directors shall use reasonable efforts to
effect such other adjustment of each then outstanding Option as the Board of
Directors, in its sole discretion, shall deem equitable.
(b) In the event that the Company shall effect a distribution, other than
a normal and customary cash dividend, upon shares of Common Stock, the Board
may, in order to prevent significant diminution in the value of Options as a
result of any such distribution, take such measures as it deems fair and
equitable, including, without limitation, the adjustment of the option price per
share for shares not issued and sold hereunder prior to the record date for said
distribution.
SECTION 10. Change-in-Control. The Board shall have the right to provide
in any Incentive Stock Option Agreement or Non-incentive Stock Option Agreement
that in the event an optionee's employment with the Company is terminated by the
Company within one (1) year of the occurrence of a Change-in-Control Event,
A-4
<PAGE>
all outstanding Options held by such optionee at the time of such termination
shall become fully vested and exercisable. In no event shall this Section 10 or
Section 9 be subject to modification after a Change-in-Control Event has
occurred.
For purposes of this Section 10, a Change-in-Control Event shall mean any
of the following events:
(a) any Person, together with its affiliates and associates (as such terms
are used in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), is or becomes the beneficial owner (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 15% or more of the then
outstanding shares of Common Stock of the Company; or
(b) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on November
1,1999, constituted the Board and any new director whose appointment or election
by the Board or nomination for election by the Company's stockholders was
approved by a vote of at least a majority of the directors then still in office
who either were directors on November 1, 1999 or whose appointment, election or
nomination for election was previously so approved; or
(c) the Company consolidates with, or merges with or into, any other
Person (other than a wholly owned subsidiary of the Company), or any other
Person consolidates with, or merges with or into, the Company, and, in
connection therewith, all or part of the outstanding shares of Common Stock
shall be changed in any way or converted into or exchanged for stock or other
securities or cash or any other property; or
(d) a transaction or series of transactions in which, directly or
indirectly, the Company shall sell or otherwise transfer (or one or more of its
subsidiaries shall sell or otherwise transfer) assets (i) aggregating more than
50% of the assets (measured by either book value or fair market value) or
(ii) generating more than 50% of the operating income or cash flow of the
Company and its subsidiaries (taken as a whole) to any other Person or group of
Persons.
Notwithstanding the foregoing, no "Change-in-Control Event" shall be deemed
to have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of the Common Stock
of the Company immediately prior to such transaction or series of transactions
own a majority of the outstanding voting shares and in substantially the same
proportion in an entity which owns all or substantially all of the assets of the
Company immediately following such transaction or series of transactions.
For purposes of this Section 10, "Person" shall have the meaning given in
Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and
14(d) thereof, except that such term shall not include (i) the Company or any of
its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act),
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company.
SECTION 11. Amendments. This Plan may be terminated or amended from time
to time by vote of the Board; provided, however, that no such termination or
amendment shall materially adversely affect or impair any then outstanding
Option without the consent of the Grantee thereof and no amendment which shall
(i) change the total number of shares which may be issued and sold pursuant to
Options granted under this Plan, or (ii) change the designation or class of
employees or other persons eligible to receive Incentive Options or
Non-incentive Options, shall be effective without the approval of the
stockholders. Notwithstanding the foregoing, the Plan may be amended by the
Board to incorporate any amendments made to the Code or regulations promulgated
thereunder which the Board deems to be necessary or desirable to preserve (i)
incentive stock option status for outstanding Incentive Stock Options and the
ability to issue Incentive Stock Options pursuant to the Plan, and (ii) the
deductibility by the Company pursuant to Section 162(m) of the Code of amounts
taxed to Plan participants as ordinary compensation income.
SECTION 12. Effective Date and Termination. The Plan shall become
effective on the date hereof, subject to adoption and approval by the
stockholders of the Company at the Annual Meeting of Stockholders to be held in
March 2000. Except to the extent necessary to govern outstanding Options, this
Plan shall terminate on, and no additional Options shall be granted after, ten
years from the date of first adoption of the Plan and approval by the
stockholders.
Dated: November 1, 1999
A-5
<PAGE>
[This page intentionally left blank]
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
A.B. WATLEY GROUP INC.
March 14, 2000
Please Detach and Mail in the Envelope Provided
- --------------------------------------------------------------------------------
A |x| Please mark your
votes as in this
example.
FOR all Nominees WITHHOLD
listed at right AUTHORITY
(except as marked to vote for
to the contrary) all Nominees
listed at right
1.Election | | | | Nominees: Steven Malin
of Harry Simpson
Directors: Robert Malin
Elizabeth Chambers
Mark Chambre
Michael B. Kraines
Stanley Weinstein
(Instruction: To withhold authority to vote for
one or more individual nominees write the nominee's
name(s) in the line provided below.)
- ----------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of the 1999 Stock Option Plan. | | | | | |
3. Ratification of the selection of | | | | | |
Ernst & Young LLP
as independent accountants.
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the meeting. This Proxy, when properly executed,
will be voted in the manner directed herein by the undersigned stockholder. If
no direction is made, the Proxy will be voted FOR the election of all Directors
and in favor of Proposals 2 and 3.
PLEASE MARK IN BLUE OR BLACK INK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
Signature Signature (if held jointly) Dated
-------------------- -------------- -----
Note: Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor,
administrator, trustee, or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person. Please note any change in your address alongside the
address as it appears in the proxy.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
A.B. WATLEY GROUP INC.
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Steven Malin and Harry Simpson, as Proxies,
or either of them each with the power to appoint a substitute, and hereby
authorizes them to represent and to vote, as designated on the reverse side, all
the shares of Common Stock held of record by the undersigned on January 20, 2000
to be voted at the Annual Meeting of Stockholders to be held on March 14, 2000
or any adjournment thereof.
(Continued and to be signed on reverse side.)
- --------------------------------------------------------------------------------
